Dr. Yergin guzzles the kool-aid.

I have frequently been critical of Dr. Daniel Yergin. For someone who has his background and influence in the oil and gas industry, he seems not to understand the business. In the past he has denied the peak oil theory and made unsubstantiated claims that we would be flooded with an additional 16 million barrels of oil per day. 

In this Foreign Policy article and in today's Wall Street Journal,  Yergin steps into it again. Instead of getting on board and pulling some weight, he raises the issues of climate change, industry regulation, alternatives and a number of lesser irrelevant issues. Clearly Yergin has drank the kool-aid, however its the grape flavor, of which the energy has no need or interest in. 

And maybe that's the point. Instead of contributing to the conversation about energy, he lays the groundwork for another book that will sell his vision of regulation, alternatives and climate change. Who knows maybe he'll start selling the hope and change mantra as well. 

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McKinsey Interaction Costs Part I

McKinsey are re-publishing two very pertinent documents "A Revolution in Interaction" which I'll cover in this post, and "The Next Revolution in Interactions" which I will cover in my next post. I highly recommend downloading and reading both documents from here and here. I also reviewed "The Next Revolution in Interactions" back in December 2005 on this blog.

As I recall 1997, the boom in technology related companies had begun. Pets.com and other ridiculous businesses were popping up with multi-billion dollar valuations. It seemed as if the collective intelligence of the markets had taken a vacation. McKinsey on the other hand were publishing "A Revolution in Interaction" that even today, provides a solid road map for any firm. 

Much of People, Ideas & Objects research has been around the work of Professor Richard N. Langlois' work at the University of Connecticut. His research, which has earned him the Schumpeter Prize, is on Transaction Cost Economics (TCE). As the 1997 McKinsey article says;

The structure of firms and industries at any given time is designed to minimize the total costs of transformation and interaction.

Using the Joint Operating Committee (JOC) as the key organizational construct of the oil and gas industry would not be possible without the analysis of TCE and today's Information Technologies. The Draft Specification has incorporated these elements and applied these principles to the energy industry. 

So what are Transaction costs or as McKinsey calls them, Interaction costs. And why is that important to oil and gas.

If interaction costs were negligible, an organization could in theory be atomized into a collection of individuals, geographically dispersed but connected by a communications network. In reality, however, substantial interaction costs and the human aspects of effective interaction limit the range of realistic configurations.

With the developments in Information Technology the oil and gas industry has the opportunity to reduce their transaction costs towards the negligible level. The basis of the industry is partnerships, as represented by the Joint Operating Committee. The interactions and transactions between the partnerships can be supported and facilitated in the manner described in the Draft Specification. McKinsey notes;

If providers anticipated this, wouldn't they communicate and develop and distribute products in a very different manner? What if their costs of interacting with customers [partners] also declined? Many of these circumstances may soon come to pass. When they do, falling interaction costs will trigger dramatic changes in the relationship between companies and their customers [partners]. 

Based on my experience and understanding in the energy industry. I can see how the Draft Specification could provide substantial value to the energy industry. Both from an innovation point of view, and, to define and support the movement towards the science and engineering based strategy. Critical to the success of this strategy will be the administrative cost reductions and efficiency brought about by the People, Ideas & Objects Community of Independent Service Providers (CIPS). McKinsey suggested back in 1997 the U.S. would benefit from interaction cost analysis.

For the US economy, the increase in interactive capability could translate into productivity gains worth a third of GDP.

In addition to TCE being applied to the energy industry. The knowledge that Adam Smith's concepts of division of labor and specialization provide the majority of value accretion in an economy. For the energy industry to increase its productivity will require new and more effective means of organizing itself. 

The types of trade-off described above are not made explicitly and transparently. Rather, they have become hardwired with time into the assumptions made in designing organizations and setting strategies - assumptions about customer behavior, distribution economics, manufacturing scale, in-sourcing versus outsourcing, and a range of other variables. In each case, relative interaction cost is a key component of the assumption. This variable is about to undergo radical change. We believe that the interactive capacity of modern economies will at least double, and could increase as much as five-fold, over the next five to ten years.

Clearly these concepts strike at the heart of the strategy of the oil and gas producer. I see producers quickly adopting new strategies based on these concepts. People, Ideas & Objects believes the energy producer is best focused on it's land lease & facilities, and the internal capabilities associated with engineering and earth sciences. With this light weight and nimble structure, small teams of people are able to form, explore, develop and sell for hundreds of millions and even billions of dollars in as little as five years. Only to turn around and do it again and again. These types of producers have no need for the systems and procedures, staff or compliance requirements of the industry in decades prior. These administrative and compliance requirements provide no value to the producer, and are impediments to speed and innovativeness. Using the People, Ideas & Objects application with the CIPS adds these necessary requirements on an as needed basis.

The impact of the new economics on forms of organization will be equally profound. Organizations will adopt a variety of structures that would not have been possible to manage when interaction costs were significant. Our research shows that half or more of a company's spending on labor may be devoted to basic interaction activities, many of them internal to the organization. As the costs of search, coordination, and monitoring fall, we can expect a radical shift in the way corporations are organized. The flatter organizations of the 1990s, for example, are an early reflection of the growing ability to manage distant front-line activity through interaction technologies.

Finally in McKinsey's closing paragraph we see what possibilities await the innovative oil and gas producer.

As in all major economic shifts, the successful innovators will be those that develop the best understanding of the underlying change and act upon it. Success in the next five to ten years will require a deep understanding of the power of interactive capacity in both your own industry and the economy at large.

Recall this was written in 1997. Has the industry made these changes? To a certain extent the new producers that are being developed by teams are showing the way. And these will be the producers that would benefit from the use of the People, Ideas & Objects and the Community of Independent Service Providers that support the innovative oil and gas producer. Please, join us here.

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An interesting view on oil and gas.

The Times Online have raised some interesting points as to the state of the oil & gas industry. In an article entitled "Timid oil giants hand back their cash". They suggest the majors as represented by BP and Shell, but also Exxon, Chevron, Total and Conoco Phillips are failing. Having the inability to maintain their production and reserves in the face of record capital expenditures. The lack of growth leaves the stocks as stagnant dividend and share buy back opportunities as investments. The article notes one unidentified comment as;

The scale of the payouts led one analyst to accuse energy bosses of a “complete failure of ambition”.

I can't agree more. Another interesting point of view is raised. One that shows the difficulty of the business from a political point of view. In the recent Iraqi lease sales the majority of the leases were left with no bidders. The only winning bids were by Chinese firms and BP. The rest of the producers felt that the terms were too steep for the majors to make any money. This is a continuation of what has been happening for many years. 

The national oil companies, backed by governments with the goal of grabbing as much of a dwindling resource as they can, are ratcheting up the pressure. In many cases they are willing to pay far more than publicly quoted rivals that have to explain the merits of such deals to their investors. Paul Wheeler, an oil banker at Jefferies Broadview, said: “National oil companies and the oil giants have the same objective, which is to secure new reserves, but they labour under very different conditions.”

This article also documents the major producing firms decline in known reserves from 85% in the 1970's to today's 15%. This decline in reserves has been despite the phenomenal increase in technical capabilities.

For investors such as pension funds, the only reason to hold the shares is the generous dividend payments. Without the dividend they are an unappealing proposition: low-growth companies that have no control over the price of their only product.

Ouch that hurts. I have held similar criticisms on this blog. Why would someone buy an oil and gas producer if the stock is only going to follow the commodity price. Why risk the investment on the management of the company, and just buy the commodity on an exchange?

I have considered the difficulty that a producer has in shutting in marginal production. The mechanism to shut-in production lies with the participating producers of the Joint Operating Committee (JOC). In most JOC instances the producers meet for too infrequently to make these decisions in a timely fashion. And this is one of the many reasons that the industry has to begin using the JOC as the key organizational construct of the industry. The operational decision making authority and framework resides with the JOC on a global basis. The conflict resides with the operators internal policies that employ compromise strategies and ignore the best interests of each individual property. I have included within the Draft Specification ways and means for the producers and JOC's to operate in a fashion that is consistent with the unique strategy and operational focus of each property.

There's a much larger opportunity that is being missed in this article. Since the 1970's the industry has had substantial declines in the sphere of influence of its business. We have also seen the decline of communism and the upswing in what we used to call the developing world. We seem to be globalized to a large extent, globalized except for the mindset of the management of the producers discussed in this article. 

The revenue model of this software development project considers this new reality. Both the producers and the energy producing provinces, states and nations have an interest in ensuring their investments are appropriately managed. With producers and nations financially supporting this community in an arms length, open and transparent manner. Please join us in building the systems the world needs to provide for a strong oil and gas industry.

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MIT Video - Energy Secretary Steven Chu

I have expressed my disappointment about MIT's focus on energy in this blog before. Accusing MIT of having the right goals and objectives, but taking too many wild bunny trails down the path of alternative energy. When MIT suggests our energy issues requires an equivalent effort as to what was required to win WWII. That objective resonates with me, we have much work to do. Alternatives have proven more costly, more destructive of the landscape and of limited scale to replace the heavy lifting of the oil and gas industry.  

This MIT video of the U.S. Energy Secretary Steven Chu shows the destructive ways of the U.S. towards the oil and gas industry. A Nobel Prize winner, Chu is an academic. He has the budget and power to have a dramatic effect on the energy landscape and has indeed drank the alternatives kool-aid. Thankfully Chu is having difficulty getting many of his initiatives funded. 

This video is disconcerting as the "leadership" of Secretary Chu is heralded by MIT president Susan Hockfield. What appears to me as a rambling and incoherent discussion of his life and work, which was rewarded with the Nobel Prize. I don't see anything of value to be gained by reviewing this video. But there is much to learn of how off-base the current U.S. administration has become on the energy topic. As I have said before it is not a coincidence that the U.S. is the largest consumer of oil & gas and the largest economy. If we take an excursion down the alternative energy bunny trails I hope MIT and Secretary Chu understand that the great power the U.S. is, and will be, put in serious jeopardy. 

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McKinsey conversation with John Chambers

McKinsey have posted a conversation with one of our favorite technology presenters, Cisco Chairman and CEO John Chambers. I have highlighted his talks three times before. (Here, here and particularly here, where he coins the phrase "Content will find you".) I find his presentation skills to be second only to Steve Jobs and is unquestionably the best presenter of business related technology today.

In the first video segment Chambers talks about how he is unleashing the most aggressive set of initiatives he has launched as CEO of the firm. Counting the number of initiatives he launched in the previous 4 recessions at one or two. Chambers states "we're gong to be the most aggressive we've ever been in our history." And is launching 30 initiatives in this downturn. His experience shows that recessions last longer and are deeper then most people expect. Nonetheless he believes his biggest mistakes are as a result of not moving quick enough. 

Chambers warns that moving too quickly is a danger if you don't have the structure and discipline necessary to deal with the speed and change. As we recall the dot com meltdown was particularly difficult for companies in technology. Cisco was one of three companies with market capitalization well within the $400 billion mark. (GE and Microsoft were the other two.) The initiatives he undertook in that recession enabled the new structure and discipline to form, and with today's new collaborative technologies he feels he has the speed and capacity to take on those thirty new initiatives. 

Cisco is just one company. The need or demand for the changes Chambers implemented may have been presented to Cisco in the dot com meltdown. Today I believe the oil and gas industry has similar calls and demands for the entire industry to take action. Yet to date the oil and gas producers have collectively done nothing to change the underlying approach to the business. Do we believe that doing more is the answer to our energy problems? Last years performance should have provided the evidence that more is no longer adequate. Spending record levels of capital, to drop production by 5 - 6% is not positive for the managements. Did they consider doing nothing as an alternative? That may have been the wiser choice. 

Back to the video, Chambers documents how his use of technology has affected the way that he does his job. Blogging, and particularly video blogging is the major form of communication he uses for all of the 56,000+ Cisco employees. The new collaborative technologies are a key enabling technology for Chambers to get his ideas out. But there's more. I have written about Cisco's Telepresence on this blog before. Chambers says Cisco's internal use of Telepresence has cut its annual travel costs from $750 million to $350 million. 

In the third, fourth and fifth installments of this video presentation. It seems as though Chambers has bought into the kool-aid that Silicon Valley has been brewing. It may seem that way to a lot of listeners but I think it is very important to note that his experience with the dot com meltdown was personal and extensive. The use of alternative business models and organizations augmented with the current collaborative technologies are what are providing Cisco with the ability to innovate and move at speed. So much of a firms future competitiveness is capabilities based. The oil and gas industry has a capacity that is below what the market demand for energy is. Oil and gas companies have no plan and no idea what to do. I think it is imperative that people listen to the experiences of Cisco in making their organization perform at these levels. If after thinking about it you still believe it is Silicon Valley kool-aid induced thinking, then I would advise you to consider who Cisco's top competitors are, and what they think of the Cisco juggernaut. (Nortel Networks is selling off major parts while in bankruptcy. And Alcatel / Lucent lost €5.2 billion in 2008.)

Key to capabilities based competition is the enhanced role that leadership takes in the revised business model, organizational structure and technology. Clearly the leadership at Cisco, as represented in its CEO and Chairman have the means to prosper in this new environment. He makes it clear that collaboration requires much more from its leaders. Chambers states the following.

The classic question is, "Well if I'm going to lead, I've got to have people reporting to me, and I've got to control budget" and the answer is 'No', and "No".         

Budgetary power and authority are out. Command and control are the impediments. Clearly he expects the efforts and actions of his firm today will show in the performance criteria in three to five years time. And expects that the earnings and performance of Cisco are baked in the cake as a result of the actions the firm took three to five years ago. We must step off this earnings and performance focused cannibalization of our companies. As Chambers says "you've already won or already lost". 

Lastly, Chambers refocuses on the customer. Selling a vision and communicating it through the multiple channels of Telepresence, Web 2.0 and collaborative tools. This is what I have chosen to do with People, Ideas & Objects. Some may think that is hypocritical of me to suggest the customer is of importance. I have gone to great lengths to criticize the current oil and gas companies. And that is because I do not consider these current oil and gas companies as our customers. It is the Users of the People, Ideas & Objects application that are the customer for this software development project. Our Users in turn have the oil and gas producer as their customer. Please join us here.

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Fate is in our own hands.

That is the conclusion from the National Journal. They conducted a poll of American attitudes towards the future state of the economy. As the Wall Street Journal states;

Seven in ten Americans say that “when the U.S. economy recovers, the way the economy looks and works will be very different from what it was before the recession,” according to a new poll. Baby-boomers, in particular, see it that way, pollster Ed Reilly said.

We also need to understand the budget and control of the oil and gas industry is in the hands of the bureaucracy. The bureaucracy has effectively removed me from pursuing this software development project in an effective way. I have had no support for these ideas over the past six years. Working from outside the industry, while the bureaucracy lined their pockets, I have been able to complete this work and began the process of making the changes in "the way the economy looks and works" for the energy industry.

It is critical to remember the bureaucracy will not give up there control of the industry without a fight. At times I find it frustrating that I wrote the Preliminary Research Report in May 2004. over five years ago and they have denied me at every inch. Those that participate in this development need to know that their identity will not be visible to the public. Based on the past behavior it is reasonable to assume that the bureaucracy will treat any and all participants in the same manner that they have for the past six years. The Wall Street Journal notes;

The poll also found significant skepticism towards government and business, a reflection, perhaps, of the anti-establishment attitude spurred by the recession and financial crisis.

and 

The pollsters asked Americans what they think is the best way to increase their own opportunity — their efforts, the government’s efforts, or companies’ efforts. Some 40% said their own efforts were the most important.

and

The poll, the second in a series, found American see “More promise. But also more peril,” Ron Brownstein, political director of Atlantic Media, a sponsor of the poll said. “Americans believe they are living in an economy of greater volatility that generally offers them more opportunity — but also leaves them exposed to greater risk, with few dependable allies from government or business to help them cope with it. On a turbulent sea, many Americans see themselves swimming alone.”

Fate is in our own hands. The opportunity is substantial. The risks to everyone are serious. Pleases join us here.

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The past quarter's performance.

The conflicting information and contradictions present in the energy business show how difficult the industry has become. Prices have at least halved since last year, record levels of capital expenditures in 2008 have produced substantial 5 - 6% declines in production. Inventories are bursting with oil and many Super Tanker are idled with full loads of product. Yet here in Calgary we are met with significant shortages of gas. Companies such as Chevron have ceased to drill for any Natural Gas on the entire North American continent. With this technical, political and recessionary environment; is it any surprise that earnings have been challenged? Or that production and reserves continue to decline? What's a producer to do, they can't perform in the short or long term. I would ask if the past organizational methods, the bureaucracy, are appropriate for the current and future needs of the industry? 

The Times Online have prepared a summary of the most recent quarterly performance of oil and gas firms. Stating that lay-offs of 5,000 to 10,000 people will be cut in each of the International Oil Companies (IOC). Discussion in the article turns to how the industry may solve these problems. 

Anthony Lobo, head of oil and gas at KPMG, said that in the short term small mergers of, say, £20 billion, and joint ventures with national oil companies (NOCs) are more likely than huge mergers. “The deals of £40 billion or more seen in the last decade are unlikely to happen because one international oil company [IOC] buying another arguably compounds the problem,” he said.

Joint Ventures which are managed through the Joint Operating Committee and are the global and natural means of conducting oil and gas operations. The problem we face today is the development of Information Technology has focused on the technical capabilities and not on the business of the oil and gas business. The JOC is the legal, financial, communication, cultural and operational decision making framework of the global oil and gas industry. Using these "Joint Ventures" provides the industry with the ability to hit the ground running and deal with the unique attributes of the specific JOCs they are members of. Applying the JOC's unique strategic, financial and technical resources too the National Oil Companies reserves.

The difficulty is we have to develop the systems and organizations to define and support this natural and global manner of business operations. That is what we are attempting to do here at People, Ideas & Objects. Importantly, the author of the article takes the Joint Venture concept further.

“The magic formula is the combination of cash and reserves. The IOCs have cash and access to debt but the NOCs hold the keys to many of the reserves. As NOCs are not up for sale, we are likely to see international oil companies proposing joint ventures.”

This is because the “easy” oil — on land and in politically friendly regions — is drying up. NOCs own 80% of the world’s reserves, leaving the industry to fight over a shrinking number of fields in hard-to-reach places. Manouchehr Takin of the Centre for Global Energy Studies said: “The IOCs need the NOCs a lot more than the NOCs need them.”

I have established the revenue model for People, Ideas & Objects to consider this potential reality. Noting the two sources of revenue of this software development project are the oil and gas producer who needs to organize their approach to exploration and production. Secondly I have noted that the governments that are in producing regions. Have a vested interest in ensuring this software development project represents their compliance and governance frameworks. To ensure the management of the property in their country, state or province are consistent with their regulations and requirements. The financial resources necessary to develop the software for each of these unique jurisdictions, must be sourced from the individual governments themselves. There are three reasons this must be done.

1. The financial resources needed to address the unique characteristics of Joint Ventures operating in a certain jurisdiction. These compliance and governance demands may total $40 to $100 million in software development costs per region. For the software developer to raise this type of money from anyone other then the governments themselves is impossible. As evidenced by the lack of any current applications in the market space. Who would benefit from a return on these types of investments?
2. Secondly the producers are not motivated to fund these developments. It is not in their best interests to spend substantial financial resources on developing systems for government compliance in each region they operate. In the past the question of which producers should develop these systems is answered with the response that "all of them need to." So each producer firm should pay $40 - 100 million in software development costs in order to be in compliance with each jurisdiction that they operate in. Here I begin to define the surreal nature of the expectations of the oil and gas software developer.
   
3. Governments need the energy industry to be an active member of their economy. All members of that community. The article incorrectly suggests that the IOC's should be the ones that propose Joint Ventures with the NOC's. From my point of view, why would a jurisdiction like the North Sea, Texas, Saudi Arabia or Alberta limit the number of producers that are capable of operating in their jurisdiction. Limiting operations to only those producers that can develop an ERP system with the scope to manage their jurisdiction. The entrepreneurial and dynamic focus of the producers will provide the longer term value of the natural resources of the NOC's. Bringing all producers into their environment requires the ability to operate in their country. Whether that is an IOC or a geologist with an interesting idea. This type of environment can be facilitated by funding People, Ideas & Object's software development to provide this capability to operate in their country. Opening their economy to all capable producers will ensure that their resources are developed in a competitive and open business environment. 

It's important to stress that People, Ideas & Objects are an open source strategy of development. The code that makes up the system will be available to those interested parties to ensure they are operating in compliance to the guidelines and regulations of the country where the JOC resides. Access to the software code provides a transparency to both producers and governments that their operations are calculated correctly in the software they use.

If we take the scenario that is the software developers competitive business model that exists today. The various software developers are required to undertake these large investments on behalf of their producer clients. Investments in software that do not provide a competitive advantage, but clearly offer a reason for the producer not to use the software. The surreal nature of oil and gas ERP software development business is being addressed in People, Ideas & Objects business and revenue models.  Please join us here. 

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As the Sun sets...

We bid adieu to Sun Microsystems and recognize the Draft Specification is now one year of age.  I can say with out much reservation that it has, and will be, the most difficult thing that I have done in my life. Taking better then a year to write and the result of seven years of university and thirty years of experience in oil and gas, at 50 you know there is not that much gas left in the tank. My father always said that your 40's are the time in which you can do anything. Your are mentally, physically, spiritually and intellectually at your life's peak, and I feel that is the case with me. After a little more then a year since publication, this past year has been more about recovery and recharge then anything else.

I look back on the 17 years in which I started working to develop oil and gas systems; with amazement that I was able to get the job done. For much of that time I was driven to do something that I did not know specifically what it was. Searching and hunting for something to satisfy an unknown. When I originally saw what it was that I could do, it was May 1992. In a flash the idea came to me and I was driven to make it real. 

For many of those days it seemed to me like I was locked in a darken room where I needed to find the exit. Being constantly reminded of the obstacles, dangers and pressures which frustrated the journey. I needed to find the way for those that would follow. Rising above the day to day grind never made any sense. The counter intuitive and seemingly destructive decisions to pursue this project alienated and confused most. But I always knew whatever the result I was reaching for, I could achieve that vision of so many years before. 

Today I look back on these times as the best part of my life. The struggle is the prize and this journey has produced a new "way" for the oil and gas industry. I am pleased with the results of this effort and will continue to make the project real. Writing here about the compelling reasons why the industry should adopt the Draft Specification. Recruiting the people needed to take it to the next level. And joining those people who will solve the problems we face in meeting the demands for energy. 

For people who have similar feelings and opportunities. Those with the desire to do something that they know is above and beyond them. Preparation is the difference between success and failure. It is academic whether you will do it or not. You really have no choice. I think preparation needs two very important ingredients. A Master's level education will help in defining and building the many contradiction and conflicts that arise. Secondly a physical depth brought about by high levels of competition in sports. Your system will be taxed and the stress will kill you. I've suffered 4 bouts of Pneumonia in the past 6 years and I know that if I was not as fit as I once was when I went into this process, let's just say the stress is super human. But more importantly the physical competition shows you that there is nothing but your mind that limits your potential. 

I am honored to lead this project. I am rested and fully recovered and look forward to the next 17 years. When we look at what has been done and compare it to what needs to be done, little has been achieved. I am reminded of Ray Kurzweil's Law of Accelerating Returns about how things get done. Very slowly at first, and then they pick up their own momentum. According to Google, 861 people have looked at the Draft Specification. When we think that People, Ideas & Objects is about obscure oil and gas ERP systems, I think this number shows these ideas have a community of like minded people. Please join us here. 

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99.9986% uptime.

Yesterday I lost the final two hours of work on a post I was writing. Frustrating yes, but that is the first "loss" of work in 2 full years. I'm talking about the use of Google Apps for our domain (www.people-ideas-objects.com). I was writing when suddenly my browser failed and I had to restart it. And as a result, when I logged back in the file did not reflect the last two hours of work. It was the same as I had left it the day before. For whatever reason during that two hours the browser would register my edits, but not write them to the file on Google's servers. Either one of these two technologies, the browser or Google Docs failed for that period of time. 

I am also partially at fault for not doing a hard save on the file during that two hour period. I rely almost exclusively on Google Docs picking up all of my saves and have become overly reliant on these automatic saves. 

Now Google Docs is just one product of the suite of applications that are available. These other applications are used extensively and maybe should be factored in when I determine Google's up-time percentage. Then there is that price. At $50.00 per user per year, this is the deal of the century.

I also have to mention the costs and risks of maintaining our own environment. I don't think in the past two years we would have had the same up-time. Probably not even close. And that doesn't factor in any of the heavy costs of servers, bandwidth and applications. Therefore mark me down as a very satisfied Google Apps user. 

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China's energy consumption

Rebecca Wilder has one of the most interesting blogs on the Internet. Her passion for economics, writing and prolific chart production provide unique insight and perspectives on the economy. She recently published this graph that I think identifies one of the most difficult issues we will face in the next few years.

The problem of course is the future demand for energy. China's consumption is already amongst the highest in the world. This is evidence demand will continue on a rather aggressive trajectory for the next few decades.

The energy industry is ill prepared to meet this challenge. That is what this software development project is about. Preparing, by first organizing, the producers to address this challenge. Organizing around the Joint Operating Committee, the legal, financial, cultural, communicative, and operational decision making framework of the global oil and gas industry. Building the software to define, align and support the People, Ideas & Objects of an innovative energy industry.  

If we leave the problem in the hands of the bureaucracy we will continue to fail. Please join us here. 

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Google O/S and NeatX

This announcement almost went under the radar. Sometimes the complexity of the technologies make it difficult to see the whole picture. Information about Google's recently announced Operating System (Google Chrome) received significant attention, not so for Neatx. Which is interesting because the two applications combine to introduce a new product architecture. I'll leave it to the MSM to provide the information on the O/S. Neatx is the real jewel in this new product / architectural offering. To me this product offering shows Google is serious about both the consumer and enterprise marketplace in terms of offerings.

We need to go back to the last two Google related posts I've written about. Google Wave is a revolutionary communication related product. The second technology I recently wrote about was Google Chrome (The Browser), their open source browser. Recall I thought that the technology would enable the user to have a constant browser experience available from any public or private terminal. 

In a networked world the users needs are unquantifiable. They can and will include every possible permutation and combination. The other known attribute of the users demands is that the volume of data and information will continue to grow exponentially. Having this environment available all the time and anywhere becomes a challenge for the technology. As I wrote about in the Google Chrome (Browser) post; the constant, consistent web browser interface, complete with all the users unique and authenticated access available by simply logging into the users account through a Google Chrome browser. 

This feature may not seem to be a strong feature to the average web consumer. However, in my opinion, from an enterprise point of view it is a necessity. The problem with this implementation is that it is relegated to the browser. If Cloud Computing does take off it will need a more robust operating environment in which to ensure its users and companies are able to rely upon. That is where Google Chrome the O/S and Google Neatx come in to play. 

Neatx is an open source product that Google has in development and will be offering. Based on the "old" X Windows architectural model of computing, Neatx leverages Google Chrome the O/S in ways noted in my Google Chrome (Browser) post. The difference is the level of security and control, unlimited application access, file systems, any and all compiler access, and the single sign on environment available anywhere on any machine. In other words the entire network capability, unlimited and unconstrained by any hardware, software or network related issue. The fact that Google is calling both the browser and the O/S "Chrome" is probably indicative of the disappearance of the "Browser" metaphor. And, this environment becoming systemic or embedded within the O/S with the classic Google / Apple ease of use. 

People, Ideas & Objects is founded on a Technical Vision that includes four cornerstone technologies. I see these technologies Java, Asynchronous Process Management, Wireless and IPv6 changing the technical landscape in the next few years. The scenario I see developing for Users of People, Ideas & Objects. (And yes this imputes that Google Chrome (the O/S) and Neatx will be added to the Draft Specification.) Is a User has at their disposal all manner of computing resources necessary to complete their work supporting the innovative oil and gas producer. Users making their clients the most profitable in terms of their commercial operations. 

Logging into their systems the User will have at their disposal the complete People, Ideas & Objects applications. Applications that they have influenced in terms of what they need and want from an ERP system. In addition, the software development capability that is a core competitive advantage of People, Ideas & Objects offerings. A software development capability where the applications will evolve based on User input. 

Once the user is logged in, they will be able to see their session presented just as it was when they last logged out. No matter what machine they have logged in from. From there they may be logged into a variety of network resources that provide the full scope of functionality needed to do their job. If they need a monthly report they like to run for their clients they can run it from any machine they may be on. The fact that it takes 15 hours of processing time is irrelevant to the Netbook they are using. Access to People, Ideas & Objects provides the processing power that will complete the 15 hour job in the next 15 seconds, and the User can continue to provide their producer client with the innovative and valuable report that they developed. This architecture is designed to provide a better understanding of the opportunities and issues the producers have at each Joint Operating Committee. 

Physical location will become irrelevant in this virtual environment. And due to the Asynchronous Process Management that is a cornerstone of the Technical Vision, time will be of less significance then it is today. Gone will be the pressures of deadlines and 9 to 5. In its place will be an active and innovative member of the Joint Operating Committee providing the commercial transaction processing, analysis and evaluation of the issues of that JOC. An individual who is trained in their craft of Geology, Engineering, Accounting or Administration and is proactive and innovative. 

In this scenario People, Ideas & Objects becomes more then just an application. And more the cornerstone of a loose grouping of modules that create the Users commercial environment. A commercial environment that provides the User with access to the People they need to do their job. An environment in which they apply their skills and earn their income. 

Please join us here in making this vision real. 

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"Industry in a box."

It's 1992 all over again. I find myself in the position where I have a good handle on the needs and understanding of the energy industry. And I stumble into the previously unfavorable position where Oracle Corp is making statements and announcing product architectures that resonate with me. And that is the bad part. Not that Oracle technology is not the best, it is, and I find they are sailing closest to the wind in terms of the market offerings and future architectures. 

The problem for me is that Oracle and I have had business dealings before. In early 1997 Oracle executed a coup against its global Independent Service Providers that was of questionable strategic and tactical value. It is doubtful in my mind that Oracle has changed its way's. With their pending acquisition of Sun Microsystems they seem to be an imposing figure on our horizon. We need to decide how to capture the best value for our clients, the oil and gas producers.

The comment "Industry in a Box" is attributed to Larry Ellison who is the founder, Chairman and majority owner of Oracle. The comment was made in a Forbes article "Questioning Oracle's Cloud" where it is asked if Oracle's commitment to cloud computing is consistent with its current application offerings. 

Irrespective of Oracle's application offerings, People, Ideas & Objects Draft Specification details the needs of an innovative oil and gas producer. None of the current Oracle application offerings are needed to augment the software development capability that People, Ideas & Objects offers the oil and gas producer. Leading one to realize that Oracle is as much of a direct competitor as it is a technology provider. I think it was this same conflict that lead Oracle to make the decision to become an application provider at the expense of its Independent Software Vendors in 1997. 

The point of the article is Ellison's comment. It accurately captures the value proposition that People, Ideas & Objects offers the oil and gas producer. A value proposition based on the understanding that the innovative producer will have it's asset base, geological and engineering capabilities as its primary competitive advantage. Owning and operating computer hardware and software that provides the back office functions does not provide any competitive value. 

Go through an energy companies career listings and see the detailed description of an IT job they are looking to fill. Painful. The "Industry in a box" for oil and gas is consistent with the competitive advantages and value proposition noted here. A centralized, secure, virtual capability providing the producer with the most profitable means of oil and gas operations. Please join us here.

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McKinsey, Bryan and Rumelt Part lll

This is the third and final installment of the McKinsey Quarterlies podcasts from Lowell Bryan and Richard Rumelt. I have taken the two previous podcasts and applied them to the work that is being done in People, Ideas & Objects. In Part l the authors noted the current tendency to think that clear sailing is the normal or optimal operating environment. As they were able to clearly communicate, clear sailing avoids the risks and dangers that need to be addressed in the economy. In Part ll they relate to the "markets" magic healing powers that preclude anyone or company from taking any action or responsibility. Noting the tendency for people to suggest that the bigger problems are not their responsibility, and the market will take care of it.

Part lll takes the conversation to the operating strategies that people can use to optimize their future. Change is happening at a remarkable rate. Much of the change is being forced upon us as a result of the failures brought on by too much clear sailing. Information Technology plays a big part of how I see we rebuild our economy.

It is also interesting to note the level of discussion that is taking place regarding the role of government in the economy. Some interesting points of view are here, here and here. I would also turn your attention to Professor Carlota Perez' earlier work this decade. She was instrumental in predicting the scope and scale of our economic collapse. And how this period of economic renewal is a constant in our economy for over the past 300 years. One of her very pertinent points was the role of government would need to be "redefined" in an innovative and creative manner. 

I have thought about her point of a new role for government for the past number of years. Particularly from the point of view of this software development project. Software defines and supports the organization. We currently see social networks coming into play with the power of connecting like minded people. Software defines and supports not just organizations, but society as well. Just as roads, bridges, communications and infrastructure fall in the jurisdiction of the government. Software as infrastructure provides value to all that live within the society by reducing the shared costs of living in that society, and enabling access for personal and commercial purposes. I think governments need to realize this enhanced role in the new economy.

With that preamble in mind I turn to the document at hand. Bryan and Rumelt note;

If we look ahead a bit, you can see the health care system we have, if we extend it to a larger group of the population, or everybody lets say, its going to bankrupt us, so something is going to give. The strategist is someone who has an idea about what is going to give or about reshaping it. That's how your going to create value. 

This project is about a strategy of how to rebuild the oil and gas industry. An industry which is beginning to show the failures of clear sailing. The current motivation and ability to approach the new science and engineering basis of the innovative oil and gas producer is in question. I am not predicting the future, only suggesting that research shows the Joint Operating Committee provides the appropriate posture for an innovative organization. We must move to the JOC as our opportunity for the future. 

The future lies in the collective hands of the user group that defines, uses and controls this software development. User driven software development is the only method that can assure what the authors say should be the proper posture.

How to prepare to be resilient and flexible no matter how this environment turns out. 

and

Fortune favors the prepared mind.

Soon the economy will force the hands of the people who are now working in the oil and gas industry. People, Ideas & Objects will be here for those people who know the bureaucracies days are over. It doesn't require a lot of vision to see the bureaucracy can't and won't make the transition to the future.

You have to find a wave of change that you can exploit and ride it with skill. Its not about having lockstep plans, its about figuring out which forces we can harness or ride to our benefit. 

Please join us here.

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McKinsey Bryan and Rumelt Part ll

In the second audio installment of this series. Bryan and Rumelt discuss the U.S. government's approach to the economic crisis. Their discussion provides a sound basis of looking at the situation we are in, and provides an understanding of the problems and solutions. The final three paragraph of this discussion captures the issue better then I have seen anywhere else.

Milton Friedman, when he studied the Great Depression, had a very interesting take. Everyone thinks of Milton Friedman as this big free-markets guy. But his explanation of the Great Depression was that the Federal Reserve didn’t do its job.

And his explanation of why the Federal Reserve didn’t do its job is interesting. What he says is, the New York banks used to self-regulate themselves when there were credit crunches and runs on the banks. They would get together, and they would more or less agree, “Here are the rules. Here’s how we’re going to handle this crisis.” He said once the Federal Reserve came into being, they stopped doing that. They sort of expected that the Federal Reserve would do it.

And so the institutions and the habits, the whole structure of that self-regulation went into disrepair. Then when the crisis hit in 1929, 1930, that institutional framework didn’t exist, and then the Federal Reserve sat on its hands. And I think something like that is also a way of looking at what’s happened recently. Wall Street could have self-regulated, but it chose not to. And Washington chose not to. And so no sober adult was in charge of these things.

Coming at this problem at a slightly different angle, so much is expected of the "market" to solve these bigger problems. When regulators think that it is their role to avoid the problems. It eliminates the need for the companies to involve themselves of the larger issues. Ask an oil and gas company today what responsibility they have in meeting the market demands for energy? Or, should they allow the service industry to deal with the complete cut-off of funds and force them to cannibalize their operations again? The answer you'll get back is that these are not my problems, the market will figure it out. And as a result we go through another period where we will have to rebuild the service industries to meet the needs of the producers. 

In the Resource Marketplace, and Research & Capabilities Modules of the Draft Specification. I attempt to resolve this situation. By providing the producers, represented in the JOC, with a window on the service industries. Giving the producers a means in which to have the innovations and developments of the earth science and engineering disciplines be extended through to the service industries. Extending the producers organization in a manner that could eliminate the feast or famine cycle they induce in the service industry. Just because the producer receives 100% of the proceeds from oil and gas sales. Does not entitle them to expect the service industry will source all of their capital and ideas from elsewhere. They form too critical a part of the industry to hold them ransom each time their is problem at the producer level. 

In a recent article in the Financial Post that reflects the final resolution of ignoring the larger issues. Henry Sykes, President of MGM Energy Corp in Calgary talking about the delays in the Mackenzie Valley Pipeline says;

"This is an embarrassment to the country -- this project, the regulatory system … and yet nothing is happening," Mr. Sykes said in an interview."While I remain optimistic that there will eventually be a pipeline, I have given up predicting timing. Between the regulatory process and the fiscal negotiations, I think this has taken far too long.

If you agree the industry needs to begin to deal with these types of issues. That there are larger unaddressed issues to be resolved, please join us here.

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McKinsey: Bryan and Rumelt, Part l

It is astonishing to me the pace and depth of research and articles that McKinsey are producing in this current economic crisis. And in suggesting that the scope is limited to the current crisis would be short selling the leadership that McKinsey have provided since at least 2005. I began writing this blog at the end of that year and have published 54 other McKinsey article reviews since. All of these being of the highest quality of input that I have been able to find.  

UCLA Professor Lowell Bryan and McKinsey Director Richard Rumelt talk about the strategies needed to address these financial difficulties. And in the introduction it is noted as to how we found ourselves in this financial crisis. 

Factors that lead executives to take huge unsecured risks. Including the separation of risk and rewards and too much managing by the numbers. 

Definitely on topic, and when an article starts off with the comment;

Dramatic failure of management and governance. 

I'm sold. The commentators introduce a metaphor for what they see today by drawing on experiences in the development and operation of the Hindenburg. One of the authors had the opportunity to discuss with an individual who rode across the Atlantic on the Hindenburg. Noting the individual marvelled at the smooth nature of the ride. Which of course it did until it crashed. The point being that the viewing of irrelevant statistics, such as the Hindenburg's smooth ride, miss the level and type of risks of that mode of transportation being inherently dangerous. Management at the manufacturer of the Hindenburg noted that the crash would be someone else's problem. 

In oil and gas I have written about the disjointed nature of the industry in this blog. Running the Pig series which highlights 4 local producers who have declining reserves and production, yet at the height of their folly they had assigned themselves $3.6 billion "in the money" stock options. 

Yet there is a larger issue at play in the industry, and this article is directly on point when it mentions the Hindenburg's management suggesting the crash was someone else's problem. Oil and gas production in the world is not growing. We've known that since 2005, and may indeed be in the early years of an advanced decline. Energy is the oxygen used to power our economies, without it we are all dead. Yet my daily interaction with oil and gas managers reflects that this is not deemed as their fault. That is someone else's problem. 

Asking difficult question like "what are we doing" vs reflecting on irrelevant results are some of the points made in the McKinsey article. They also point out the disconnect between management and ownership and reference Adam Smith's agency theory. These points are exactly why I believe the two sources of revenues for this software development project are the oil and gas investors themselves and the governments that have royalties as part of their income. 

The last point I want to make in this first edition of the McKinsey article is around the 8:10 point in the audio. A comment is made that people don't know where they are going

... and they haven't got a business model and strategy for where they are going, they have a strategy and business model for smooth sailing. 

I believe the future successful producer will have to move from the banking mentality of predictable returns to an innovative stance based on the underlying science and engineering of the industry. My research shows that using the Joint Operating Committee provides the appropriate stance for the innovation and science to iterate within the commercial environment of an oil and gas producer. These are some of the attributes that are captured in the Draft Specification. 

Finally, the 1700's in England saw 6 million people living in poverty and sickness. In 1850 England had 24 million people living in prosperity. This contrast is the effect that the industrial revolution had on the quality of life. Recall that Professor Ludwig von Mises says the industrial revolution was the solution to the problems of society. I think it is reasonable to assume that today's problems, and particularly the problems that McKinsey notes in this article, will be the problems that are solved through the Information Technology revolution. Please join us here. 

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Hagel & Brown, Shift Index.

Tonight I am in possession of an interesting paper that I'll evaluate in a future post. I felt it best that I point out this new paper so that others could get an early view of it as well. John Seely Brown and John Hagel are two authors that I covered in the Preliminary Research Report. There work is in the area of Web Services and its impact on business. 

The topic of the paper is the development of an index called the "Shift Index". I'll leave you with a quotation from Professor Scott Page who wrote the Forward.  

The Shift Index can be thought of as a new economy analog of the Composite Index of Leading Indicators, an old economy index that considers hours worked, unemployment applications, orders for capital goods, new building permits and the like. The Composite Index has its place, but its indicators don’t respond until months if not years into a shift. Walk through an innovation sequence: Bandwidth increases creating space for new social media. Entrepreneurs formulate ideas. Venture capitalists finance projects. Proposals prove viable. Finally, mezzanine funding spurs a ramp up in employment. Only then, in this last stage, does the Composite Index identify the shift. Using the Composite Index to track shifts is like driving a car by staring into the rear-view mirror. In contrast, the Shift Index lets us look out the front windshield. 

As important as the index may prove for strategic applications, it may have more impact in how it changes our conception of the economy. Interpreted through the lens of neoclassical economics, the Shift Index captures shifts in fundamentals, particularly on the cost side where technological changes allow firms to do more with less. But, the Shift Index, by name alone, calls into question the neoclassical mindset that focuses on re-equilibration.

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Jeroen van der Veer

We stand at the early dawn of a new energy future.

Comments such as this coming from the retiring CEO of Royal Dutch Shell are welcome and refreshing news to this community. We have a job to do and as van der Veer mentions a difficult one. Approaching these types of problems based on the way we do business today is going to leave us disappointed. Energy is reputed to be the second most complex industry to the space industry. As we increase the level of complexity and risk it is reasonable to assume the organizational methods should change. Particularly when we have Information Technologies as advanced and as mature as they are today. 

Indeed, fossil fuels, coal, oil and natural gas, will continue to provide more than half the world’s energy in 2050. 

This fact alone will require a tremendous volume of capital to discover, develop and produce these oil and gas resources. I don't think capital of this magnitude can be sourced from the traditional capital or debt markets. The resources necessary to fuel the industry will have to come from the prices these resources command in the marketplace. Price will therefore be the mechanism for rewarding innovative oil and gas producers.

Therefore we are challenged in transforming the oil and gas infrastructure and operations to a new competitive footing. One in which innovation is the key method of developing value. From the bureaucracies that have served us well in the past century, I can not foresee this challenge being met. I would argue that today's prices are reflecting that we are falling behind as a result of the organizational performance of the bureaucracy.

To help make this transition, interested people are invited to join this community. People who are working within the industry that know there is a better way in which to do their jobs. Taking the Draft Specification and adding to it the detail that is necessary for the global oil and gas industry to operate on the People, Ideas & Objects system. The community that forms here will be the beginnings of how the software gets built. And more importantly the Community of Independent Service Providers will provide the innovative oil and gas producer with the most profitable means to manage their operations.

Nonetheless, whatever the reality of our industry will look like. More energy will be needed to fuel the future. Energy is critical to our economic survival. And van der Veer reflects on the challenge ahead.

A growing population and higher standards of living for billions of people in the developing world will mean that we need all available sources of energy to keep the world’s economies humming. So, while the world races to build up alternative fuels, it must also find new sources of fossil fuels, including unconventional ones, such as oil sands.

Please join us here.

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May you live in interesting times.

Based on those charts of the Council of Foreign Relations the economy is in very bad shape, but if the economy can't source its energy needs, it will be far worse. A key aspect of this project has always included a strong element of industry renewal. The bureaucracy expired in its effectiveness and was the basis of my research into alternative organizational methods. In May 2004 I wrote the Preliminary Research Report which suggested the bureaucracy be replaced with the industry standard Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. 

We see a number of producers cutting back on their production, particularly a number of North American gas producers. Cutting back on production is a serious action that I have not seen before in my lifetime, but a welcome development. Pricing of energy has become a critical part of a producers tactical approach to the business. As the referenced article suggests, the oversupply of natural gas is leading to a collapse of natural gas pricing. Having a system such as People, Ideas & Objects considers this scenario in the Draft Specification. 

Reducing production is an operational decision that has to meet the majority voting requirements of the Joint Operating Committee. What I have suggested is that there be a predetermined point where prices would invoke a percentage decline in production. This being done in an automated fashion based on the Technical Vision of this software development project. A reduction in production that is pre-approved by the JOC to ensure that the costs do not exceed the revenues of the property. A strategy that optimizes the reserves of the property for maximum return over the life of the field. Yes, game theory being incorporated in these decisions. 

  

Today we also have the alternative sources of energy that were to have replaced "dirty" oil and gas, fading into their appropriate and irrelevant posture. Time is of the essence and we have little slack time in which to deal with the decline in reserves, production and development of our long term sources of oil and gas. Action is necessary or we jeopardize our quality of life by leaving it in the hands of these bureaucracies. Please join us here. 

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Council on Foreign Relations on the e...

The Council on Foreign Relations publishes a Quarterly update on the Economy. Their June 5, 2009 update is entitled "The Recession in Historical Context." If anyone was thinking our economic situation was just another recession, they should read this report. It consists of nine pages and 22 graphs comparing the average post-WWII recession, the average pre-WWII recession, the Great Depression and the current economic climate. These variables are framed by the 4 preceding years before the recessions, and continue through for the 4 years after the recessions started. Data includes the mean and the out lying range of values and is consistent throughout the graphs, rich in information and quite frightening. Have a look.

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Vicente Fox on leadership.

Former Mexican President Vicente Fox was in Calgary to make a speech about the demands of the energy industry. In the process of identifying the issue, he make the perfect recommendation for the formation of this community. 

Former Mexican president Vicente Fox called for an energy "super-body" that goes beyond politics, ideologies and business interests to help create a unified global approach to the industry.

This can't involve just one person. It has to be a broad and diverse group of people that are able to take the necessary actions and make the necessary decisions. A community of people who are concerned about the future of our global economy. An economy that is dependent on a stable and secure supply of energy. Fox notes;

"(There are) too many interests, too many diverse positions, too many sources of information, What I would love to see is a leader . . . somebody should bring in some order into the conducting of the issue of energy in the future," he said in an interview before his speech. "I don't see that happening in energy."

According to Fox, assembling the talent of leaders, researchers, think-tanks and universities would help create a common purpose: "Getting energy to its optimum in the future so that energy fuels economies of the world, and so that economies of the world, being successful, fuel jobs and fuel opportunities for people."

Please join us here.

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Interesting comments on Open Source

Open source software development provides solutions to the majority of the issues the business brings. Open source is the method of software development for People, Ideas & Objects. The value is attained through different groups seeing advantages from different perspectives. From a developer point of view, I found this series of quotes from a developer on the Google Chromium blog. 

With the release of Mac Chrome to the dev-channel, I wanted to talk about open source and expectations. What was the point of releasing at this stage, you might ask? It's clearly not finished. Clearly. It's missing a large number of features, some half implemented, others not at all. Why even bother? Doesn't it just make us look bad? 

Open source projects aren't simply about a runnable binary, they're about the community of users, testers, and developers who devote their time and skills to working on a product they believe in. They go hand in hand: there's no binary without the community and there's no community without the binary. At some point in the life-cycle of a project, you have to stop thinking solely about your small band of developers and start growing the larger supporting community that will become your users, testers, localizers, documentation writers, and possibly even new coders.

In "The Cathedral and the Bazaar", Eric Raymond writes:

"When you start community-building, what you need to be able to present is a plausible promise. Your program doesn't have to work particularly well. It can be crude, buggy, incomplete, and poorly documented. What it must not fail to do is (a) run, and (b) convince potential co-developers that it can be evolved into something really neat in the foreseeable future."

Eric Raymond is also the originator of the saying "given enough eyeballs, all bugs are shallow". Writing software doesn't start off with the perfect piece of code. It develops over time and iterates through many people reviewing, contributing, testing and correcting throughout the lifetime of the code. Everyone can contribute changes, individuals who have changes test their code to make sure it doesn't "break the build" and then submits the change file to a committer to review it and commit it to the code that makes up the application. These iterations continue on through various phases of the development. The phases include alpha, beta and everything in between. I raise these points now as these quotes from the Google developer accurately reflect the development perspective. 

We're not done yet, nor is it ready for the average user. It is, however, ready for those who want to live on the bleeding edge and help lend their talents towards completing it.

Another pillar of open source, along with releasing early, is releasing often. To that end, the dev channel will automatically receive weekly updates as development continues. You will be able to see the product improving from week to week and help immediately identify when things break. Getting feedback on new features as soon as they are completed helps the developers know if they hit the mark and helps close the feedback loop with the community. The community benefits by being more involved and connected and promoting further transparency in the development process. This wouldn't be possible if we only teased users with releases at widely-spaced intervals when most decisions had been set in stone (end-users who want that can use the beta or release channels).

Please join us here.

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A Roubini warning.

Click on the title of this entry to be taken to the Bloomberg "Editor's Pick" video page for a recent video of Nouriel Roubini. Bloomberg has changed their links in which to launch the default video player on your machine. I therefore don't know if the above link will work, if not please try to source the video from this web page. Additional information has been provided from this Wall Street Journal article picked up on Project Syndicate.

Professor Roubini has become famous over the past two years for correctly calling our current economic difficulties. His concern for the over-leverage of the shadow banking system pin points the root of the current difficulties. His remedies have to some extent been adopted globally and have caused the system to appear to recover. It is clear today that the perception that this nasty recession is over and the good times are just around the next corner. 

I have to agree with Professor Roubini that the complacency about our economy is dangerous. None of the remedies being prescribed in this Bloomberg video are in place today. None of the problems that lead to these difficulties have been solved. Roubini chases the issue back to the demise of Long Term Capital Management in the 1990's. This alone shows the extent of our problems. Too much money chasing too few opportunities are causing the bubbles and busts. So much of the world has been focused on housing, the most ineffective investment spending known to man-kind. As a result of this the complacency which Roubini speaks of, we have removed these difficult topics off the agenda. Leading us to fall into the same pit we appear to have just climbed out of.

The problem for us is that there are none of the tools that we used to get out of the pit the first time. We see the effectiveness of those tools in last weeks speech by Treasury Secretary Timothy Geithner; being laughed at when he says to the Chinese their foreign currency holdings are "very safe". The credibility of the U.S. as a reserve currency is in jeopardy and the Obama Nation has no understanding of the issue, its scope or what integrity means. As I write this I am learning that the Supreme Court has refused to hear the case of the bondholders in the Chrysler bankruptcy. I'd be interested in seeing how this plays out in the market tomorrow.  

I have reviewed the works of Professor Carlota Perez on this blog before. Selecting the Perez label from this blog will aggregate the 26 posts where I apply her long term economic research to this software development project. She predicted the demise of the old economy based on her research. Stating that the long term cycle was a constant in the world economy. Where the old ceases to provide the necessary value attribution and therefore systemically fails, to be replaced by the new based on newer technologies.  

People ask me why am I so pessimistic. And I have to answer that I am overly optimistic. The bureaucracy that runs our industries is incapable and unable to provide value for society. Today there is not much disagreement. If we take the point of view that the bureaucracy may be the main form of organization in 25 years, people definitely agree with me that it's days are numbered. So how do we make the change from the bureaucracy to the Joint Operating Committee, augmented with today's information technologies? The short answer is we can't.

We see the calling for radical change as a result of the bankruptcy of the auto industry and banks already fading from the urgent crisis driven thinking of just a few months ago. Organizations are about as static of a body as one could imagine. Without the crisis situation lasting the entire time to make the transition, no change management program will work. 

Unless Schumpeter's concept of Creative Destruction is allowed to eliminate the old from the marketplace, and the new is built up brick by brick and stick by stick, no wholesale organizational change can occur. The need for the people to make the decisions that GM, Chrysler, and the Banks are finished, and they don't appear to be able to make these tough decisions. The competitive marketplace remains depressed while the new fills the void. And for oil and gas that new is People, Ideas & Objects. 

Back to the issue of my optimism. It comes about as a result of the new organizations effectiveness. Firms born of the new organizational structures will provide real value to society. The current bureaucracies have been destroying value for over ten years, in my opinion. New organizations will provide a new and prosperous economy and quality of life for everyone. If only we could get rid of these dinosaur organizations.

For those that may want to dive deeper into the research I have conducted on this point. The Preliminary Research Report introduced the Cognitive and Motivational Paradox', and the Duality of Technologies. These define the theories that change is constrained by forces that are hard to resist. On one hand the Motivational Paradox precludes the adequate resources are committed to the change when production from the current system is necessary. The Cognitive Paradox involves the way people see new situations. Placing a filter of the old ways over what is new.

In order to eliminate these paradoxes from this software development project. We need to walk a fine line. Ensuring that there is a break between the old and the new in order to maintain the appropriate focus on the tasks at hand. 

Not to go into too much detail but one of the key tools for eliminating the paradox is the vision of the system as detailed in the Draft Specification. The natural form of organization in the oil and gas industry is the JOC. In the past people had to interpret the transaction from the JOC to the bureaucracy and systems they operated within. With People, Ideas & Object the system interprets the business in the way that people understand the business, through the Joint Operating Committee. Therefore what the user will be able to do with People, Ideas & Objects is think more naturally then they do in their day to day activities today. 

The use of the economic changes and the move to a more natural way of working within the oil and gas industry are the two ways that I have chosen to fight these two well understood paradox'. Please, join us here.

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