Innovation of innovation.

An interesting paper has been jointly published by MIT and The Wall Street Journal. Entitled "The New, Faster Face of Innovation." Written by MIT Professor's Erik Brynjolfsson and Micheal Schrage.

What we have learned is innovation and science are iteratively advanced. As innovations are developed, they have an impact on the underlying sciences, which enable further innovations. It is difficult if not impossible to make any reasonable comparisons between "most industries" and the oil and gas industry. Few share the high levels of pure science and almost pure capital orientation. The prospective prototypical producer needs to be built specifically to enable innovation, and the Joint Operating Committee is the ideal organizational structure to enable the innovative producer.

There exists bureaucracies that are the legacy of the 20th century. These bureaucracies are ill suited to meet the needs of the changing environment brought about by innovation. In addition to these organizations are the systems that support and identify that bureaucracy. And as I stated in the Preliminary Research Report, "SAP is the bureaucracy". We have also learned that if we want to change any organization, we need to address the software that the organization uses. To achieve the innovation we need in oil and gas requires the People, Ideas & Objects application modules to be built.

Much, if not all of the Draft Specification is based on the research that was conducted from 2003 to 2008. It's about innovation and how that can be enabled in the oil and gas industry.  Development of the ideas from this point forward has to involve the users. As the producers iterate on the innovations and science. The need for the organization and systems will have to change with them. Users are the front lines of these changes and will implement them through the purpose built systems and software development capability of People, Ideas & Objects.

But the essential point remains: Technology is transforming innovation at its core, allowing companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago.

Setting the tone of this document as a technological focused article, this first quotation also reflects the generic nature of "most" businesses. Oil and gas is unique due to the orientation towards science and capital. These two attributes conspire to make the business a long term strategy fight as opposed to one that can benefit from such tactical iterations. Irrespective of the tone of this article, the next quotation is valid and should be considered as a necessity of the innovative oil and gas producer.

Companies will also be willing to try new things, because the price of failure is so much lower. That will bring big changes for corporate culture—making it easier to challenge accepted wisdom, for instance, and forcing managers to give more employees a say in the innovation process.

It may seem to many that the Draft Specification introduces to much change into the oil and gas producer. However, I would suggest that in the very near future many of the changes in the People, Ideas & Objects application modules will seem tame in comparison. What users should take from this is that the changes are not being made for the purpose of change itself or for technological reasons. Research in to the cognitive and motivational paradoxes as identified by Professor Wanda Orlikowski reflects the need for the scope of these changes in the organizations.

Already, this powerful new capability is changing the way some of the biggest companies in the world do business, inspiring new strategies and revolutionizing the research-and-development process.

and

Increasingly, the more innovative companies—the Googles and Harrah’s of tomorrow—will shift away from traditional research-and-development methods. Five years ago, for instance, a leadership team might have reviewed two or three “big” innovation proposals from consulting gurus; executive teams today might compare the outcomes of 50 or 60 real-world experiments to decide which ones to act upon.

Are we right? Basing the research done in the past six years in academic thinking is necessary to ensure we remain on track. One of the most valuable resources has been McKinsey Consulting. The number one consulting firm in the world have published volumes of pertinent research in these areas, and I have reviewed their material in 60 different posts on this blog. This is the process that I will continue to work on, and as the following quotation reflects, will become the means in which the total industry develops.

Even if a test doesn’t produce a workable idea, there’s usually something important to be gleaned from it. “Genius is born from a thousand failures,” says Greg Linden, an entrepreneur who has been an innovator at both Amazon.com Inc. and Microsoft Corp. “In each failed test, you learn something that helps you find something that will work. Constant, continuous, ubiquitous experimentation is the most important thing.”

Learning from failures is a difficult lesson for those concerned. But the risks and rewards are higher, particularly with today's oil and gas prices. Please join me here.

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Stormy Clouds

I'm finding there is a surprising level of resistance to the concept of cloud computing, and I can clearly see the point of view of the pessimists. Firstly People, Ideas & Objects are proponents and active users of Cloud computing and expect to host the application modules on centralized servers. The resistance to the idea seems to be focused around the fact that the status-quo hierarchy. Who's decline is the defining purpose around People, Ideas & Objects. Doesn't want to have control, as represented by the computing of the firm to fall outside of their jurisdiction. When it comes to politics the status-quo is always mindful of its turf.

First the prototypical producer in the People, Ideas & Objects vision of the future has a revised competitive strategy. Which depends on the effective capability to exploit the lease and fixed assets the producer firm owns. The capability being an innovative and science oriented competitive strategy based on the earth sciences and engineering skills of their community or domain. Many an oil and gas firm has been launched from the CEO's kitchen table. What is different in this future vision is the CEO is the firm. Where ever and when ever he or she is working is where the firm exists. Incurring rent expense for the entire firm seems disproportionately excessive to me. Does a Doctor ensure that he has enough office space to visit each one of his patients, or just the patients that he needs to see that day. Mandatory attendance in the office by your manager will cease to exist in the People, Ideas & Objects applications when the management (noun) realizes the need to take attendance is no longer required.

If we go back to the Technical Vision of this project we see some of the assumptions that are the basis of this project. Its the Joint Operating Committee that is the entity that needs the processing. Which company will conduct the processing of the transactions for the joint account? As the Partnership Accounting Module notes, the costs are incurred by the partners on behalf of the JOC. And the vision sees each and every producer is contemplated to have provided some consideration, land, finance, ideas or capabilities in terms of meeting their legal commitment to the property. For innovation to take hold, the strategy of the JOC needs to be in the forefront of the management (verb) of the property. A compromised global corporate strategy of the operator is inadequate to meet the needs of each and every producers JOC.

Other assumptions include the asynchronous processing of transactions. These transactions will be generated throughout the area of which the operation resides. Whether that is the field, or anywhere in the world. People will not be going to the downtown office to make a business phone call or account for a transaction. The oil and gas business will take place everywhere and anywhere, as it always has, the centralization of staff in offices downtown is the situation that is changing.

Where does the server go in these otherwise empty buildings? Is it reasonable to expect to staff and house a number of servers in one location for the firm? Even if these resources are only required for 10% of the time? Remember we are focusing on the producers key competitive advantage of earth sciences, engineering capabilities, lease and asset holdings.

When Duvernay (a start-up that sold to Shell for $5.9 billion) and BlackPearl (a start-up sold to Shell for $2.4 billion) were sold. Was Shell anxious to take on Duvernay or BlackPearl's server and IT talent? Was that what was being sold? Of course not. Shell would have been interested in the Data, and in the People, Ideas & Objects application the data belongs to the producers based on their interest in the joint account. But to suggest the IT and accounting systems infrastructure contributed anything toward the $5.9 or $2.4 billion is foolish.

If anyone thinks Cloud Computing is a fad should try one of the services and think of it from a different point of view. It used to be that you could tell the importance of an individual by their title and the number of people they had reporting to them. This is last century thinking. Constraining ourselves with the burden of a hierarchy is an exercise in getting to the nut house quicker then any other route. What I think people should be thinking is how many hours of standard hour computing did I accomplish today. If I can access 250, or 1,000 hours of standard processing 365 days of a year. Is that not more a reflection of your value to society?

Where does one put (1,000 / 24) 42 computers to achieve that 1,000 hours per day? In there basement? Is it being suggested that an individual, who is conducting 1,000 hours processing per day, is less valuable then an individual who drives downtown to sit in front of one computer each day? During the course of a month accessing those 42 machines may need to balloon to several hundred or thousands for a matter of 15 minutes. Or, contract to 5 machines for the period of a week. If information is an advantage, should you wait for that one computer in front of the employee to do one thousand serial hours of processing?

Client server as a computing architecture is dead, long live client server. The technical vision that is the basis of this project notes the demise of the client server architecture. The four combined technologies of the technical vision enable a different architecture. One where sensors and processing is distributed throughout the field operation, phones, etc., etc. Is this processing and sensors only permitted to be calculated on a computer certified to be owned by one producer or the other? If so then building dedicated networks of devices is going to be a real growth industry.

Information Technology has matured, that is a given. It is however necessary to have a handful of staff that are specialized in the various sub-disciplines that make up the Information Technology domain. Continuing to employ them in a static environment where their skills are only needed 10% of the time, and the rest of the time is consumed in meetings and paper work to show their real value to the business. If this is the vision of how to earn the billion dollar buyouts like Duvernay and BlackPearl, I wish you luck. In the mean time, if you think that Cloud Computing does provide value, and makes sense, then please join me here.

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Revisiting Professor Carlota Perez

I've had the fortune to once again stumble upon the document that introduced me to Professor Carlota Perez work. Strategy + Business published "The Thought Leader Interview" back in November 2005. This article sticks in my mind constantly. Her analysis and conclusions resonated with me then and have only become more valid as a result of the credit crisis. I have to say she was able to clearly identify the risks to our economy, and accurately lay out the implications that we were to face.

Early on in the interview Perez is able to effectively communicate her long wave economic theories in a short and precise manner. The far reaching consequences of the transition from one era to the next, in which she calls for the Information and Communication Technologies to drive the growth of our economy.

S+B: On the airplane here, I read two articles about the future. One predicted economic clear sailing and the other foresaw crisis and collapse.

Perez: They’re probably both right. We may well have a jolt or two in the near future, and then a great boom probably lies ahead. But the Nasdaq collapse of 2000 was not big enough to force the changes necessary to get there.

S+B: For people who lost their retirement savings, that’s a difficult statement to hear.

Perez:
I couldn’t agree more, but that’s the price we’ve historically paid for our ability to reach great booms. The collapse has to be disastrous enough to make it clear to everyone that the time when the stock market drives the growth of the economy is finished. Finance capital has done its job; it’s brought forth the resources to pave the way for the next wave of technology. Along the way, it’s created an environment in which companies like Microsoft, Intel, and Google could emerge and flourish. Now we need to spread out the new paradigm of our era through all the economies of the world, just as in the past.

The comment that she made about the "collapse has to be disastrous enough to make it clear to everyone" leaves the reader with the need to determine if the credit crisis was it. I don't think so, governments have propped the economy up with over $12 trillion in stimulus. As a result many on Wall Street, and particularly the bankers, have assumed its 2007 all over again. I see substantial change in the consumer and small business areas. Where cash is king and they are planning on rough seas for many years to come. Governments and big business seem to think that moral hazard is the new era on which to base their economic future. This folly will soon reveal its true value.

It's been four years since Perez was interviewed. It is also the amount of time that I have spent researching and communicating the vision of using the Joint Operating Committee in the oil and gas industry. Four years of rather obscure and difficult work that in most economic environments would not see the light of day. Perez' analysis was able to provide me with the confidence that these events would happen and therefore the need for the change to the JOC would materialize. As a result I believe that with the Preliminary Research Report and over 300 papers I have reviewed through this blog. The oil and gas industry can benefit from well over five years of difficult research and development of a vision that is technically and economically sound. Or as Perez states, a new common sense.

S+B: And organizations are different as well?

Perez:
Yes, each surge brings with it a new organizational paradigm, new best practices, a new “common sense.” No one today would propose a centralized, rigid, top-down organizational structure, where you cannot communicate across functions except through your bosses, but that was precisely what Alfred Sloan set up at General Motors, to great advantage at his time. With today’s communications and flexible technologies, agile creative networks make more sense and lead to much more productivity.

One of the key attributes of any change is going to involve the movement of financial resources. There is a large community of potential users that will be involved in building the People, Ideas & Objects application modules. And there is going to be a very large Community of Independent Service Providers (CISP) that earn their living from either People, Ideas & Objects application or in their own service based offering to the oil and gas producer. People, Ideas & Objects will use the Intellectual Property developed through this blog and represented in the Draft Specification to secure the finacial resources from the oil and gas producers. These funds will then be distributed to both the User and the CISP communities. Perez notes the need for these "business innovations" in her 2005 interview.

Fourth, there need to be innumerable investments and business innovations to complete the fabric of the new economy. Here’s one small example: Millions of self-employed entrepreneurs work from home with uneven sources of income. Where are the financial instruments to smooth out their money flow so they can work and live without anxiety? For them, that innovation could be the equivalent to installment credit in the 1950s, which made possible the consumer base needed for mass production.

Lastly, we need to act.

S+B: Then why not simply wait for it to emerge?

Perez:
Because left to itself, it might not happen. Historical regularities are not a blueprint; they only indicate likelihood. We are at the crossroads right now. It is our responsibility to make sure that the enormous growth potential of the next golden age will not be lost.

Please join us here. And for more information on the soaring reputation and work of Professor Perez and her ideas, here are two resources that provide good summaries. (Reason Magazine and Business Week.)

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More comments on Google Wave

I have a real passion for Information Technology. Applying IT to my understanding of the business of the oil and gas industry is more fun then work. The recent maturation in the Information Technologies bring together an opportunity to increase productivity and make life more interesting. One of the technologies that I saw over the summer had me thinking that when we incorporate the framework in the People, Ideas & Objects applications, we could make a big difference. That technology is Google Wave which I report about here and to a lesser extent here.

I also think Google Wave is one of the frameworks that will be a game changer. A game changer that is being overlooked as to its importance and impact, particularly from what I would call the classic ERP vendor. If we look at the People, Ideas & Objects technical vision we see the elimination of client server computing. Asynchronous Process Management and IPv6 are two of the four cornerstones of the technical vision. These intimate the power, particularly in oil and gas, in which these technologies can be deployed. Add to this the User focus of this project and the potential environment for innovation, to me, is intoxicating.

Today I ran into this blog post that sees this same opportunity. As I indicated in my previous post, pooling the resources of the producers to the various Joint Operating Committee's (JOC) is done through the Military Command & Control Metaphor which is an underlying theme throughout the Draft Specification. The blog posts author Jason Kolb notes;

Take CRM and ERP systems for example.  Instead of customers emailing you about a sale and then sending purchase orders, it will be part of the "sale wave".  The entire sale, from start to finish, will be encapsulated in a single wave, bringing individuals in and out of the conversation as need.  The ERP and CRM platforms themselves will be participants in this conversation, recognizing the purchase order, executing the work-flow, processing the order, making the order details available to manufacturing or delivery in a sub-wave, and then making the receipt available to the customer and the sales team.  Your CRM Whether you approve the purchase order from your desktop, your phone, or a point of sale device, makes no difference--they can all be directly addressed and participate in the conversation natively.

The conversation that is mapped by the Google Wave product, embedded in the People, Ideas & Objects application modules will document transactions. Recall transactions are key to modules like the Accounting Voucher. As not only the definition of the boundary between market and firm. But most importantly, is that designing transactions is the higher value added work that is done in the oil and gas industry. It is how the work gets done and these Wave conversations will be inherent in the Accounting Voucher as part of these transactions. The thing I see that makes this technology important to me is; the natural means of documenting and processing User designed transactions. Please join me here.

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Critical Issues and Grand Challenges,...

Addressing the critical issue of the oil and gas producers performance is one of today's grand challenges. Prices of the commodities is a guessing game from one quarter to the next, however we know two things. The global demand is clearly accelerating through the Brazil, Russia, India and China (BRIC) countries. And the global supply has remained constant at around 86 million barrels per day since 2005. We also know the amount of earth science and engineering effort per barrel of oil is climbing and will continue to do so throughout the rest of time we use the commodities as energy. The retirement of the industry brain trust and other issues seem to conspire to make it even more difficult.

Hydraulically fracturing shale shows much promise for highly prolific wells with aerial extents as broad as the Appalachians. Crushing that much rock will take some effort. The remaining political, financial and technical risks are growing larger each day. How will the industry find the volumes of more people and ideas necessary to profitably serve the future demand.

This MIT video entitled Critical Issues and Grand Challenges shows the path we are on here at People, Ideas & Objects is the right one. The first two presenters on this video provide information and insight that only seasoned CEO's can provide. The first is John Reed, the former CEO of Citibank to discuss the September 2008 banking crisis. There is no doubt in his mind that the "banking industry needs to be completely rebuilt and reconfigured." Suggesting that "without the government interventions, the banking industry was bankrupt." Here he talks about the scope of the challenge as being global and one that needs new and effective regulations that do not stifle innovation and progress.

Reed talks about the "Too Big to Fail" issue that is pre-eminent in regulators minds. That systemic risks have to be identified and removed before they cause the system to break down as it did in 2008. He feels that in the 1980's there was a change towards satisfying shareholders almost exclusively. And at the same time the compensation of management was permitted to expand as long as the shareholders were being satisfied.

The securitization of assets became the key marketing tool of the major banks. Here Banks were able to, as Reed points out, interactively determine what was necessary to have a rating agency provide the AAA rating for the securitized assets. Which over time made the ratings process less and less objective.

Reed's conclusion is as follows:

The industry must be rethought and rebuilt. A systems view which includes behavioral considerations is essential.

In viewing this presentation it becomes clear that the ways and means of international banking systems had become skewed towards those on the inside. This caused the damage to the economy and is unacceptable that it continue in the manner that it had.

I believe the oil and gas industry has changed materially in the last decade. Moving from the easy energy era to today's technically difficult market. I also believe this is a transition that has been ignored by management. Most of the companies that were present in the easy era have been able to realize substantial market value gains. By trading on the higher prices for the commodities, the management are well taken care of with the higher cash flows from these price fluctuations, not the value the managements have provided.

Second to discuss their industry is Denise Cortese, the CEO of the Mayo Clinic. In the U.S. he notes, people believe the health care system is broken. And he argues the vision for Health care is missing. Asking the audience to develop the vision Cortese asks "who would want to spend tomorrow at the worlds best hospital". Of course no one wants to be in a hospital. Cortese then asks why is the solution to health care, a Hospital? And commenting that nothing can be done on a large scale, like reforming health care, without a vision.

Particularly pertinent is he states "you don't self organize without a vision". Citing the example of WWII Cortese suggests that without General Eisenhower's vision, the troops sent in on D-Day would have been unable to self organize. When the 101st Airborne division was dropped nowhere close to their drop zone, they were still able to self organize and move, although chaotically, toward fulfilling that vision.

Its at this point of the video's remaining hour and five minutes that provides no new value and I recommend skipping the rest. To me the important aspect of this video is the need for these industries to be remade. Just as Professor Carlota Perez suggested as early as 2005, industries will need to make necessary changes to the organization to accommodate the impact of Information and Communications Technologies. Both Reed and Cortese suggested how the motivation in these industries is distorted, leading to their difficulties.

The vision that the Draft Specification provides is the road map for people to follow. Chaos is mentioned many times in the video, and I think it reflects clearly that these changes are not as smooth as one would assume could be. Thankfully we are not in the health care business where people could get hurt, or the financial business with the collateral damage we've experienced in the last year. We are talking about oil and gas ERP systems and I am not aware of anyone being hurt by that. Please join me here.

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Oh those Russians.

We see in this Reuters article that Russia wants western based producers to develop their offshore energy resources. I think this shows that the demand for the type of skills that the Duverney's and BlackPearl's, the prototypical producer, is high amongst National Oil Companies (NOC's). 

I think this is indicative of the difficulties of finding and producing oil and gas. The demands of energy, in the non-easy era, are particularly hard from the engineering and earth science perspective. I think the International Oil Companies (IOC's) have learned that they can rely on the skills of the prototypical start-up to build their reserves. NOC's can take a lesson from Russia who appear to be actively searching for the skills to develop their reserves. And were only to happy to seize assets from Shell and BP a few short years ago. 

Adding political risk to technical, financial and all the other risks these teams face. Is just another day at the office. 

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The Prototypical Producer

"Build it like your going to operate it forever."

That is the expectation of the CEO of BlackPearl Resources Ltd. John Festival, who sold BlackRock Ventures Inc to Shell Canada in 2006 for $2.6 billion. As I mentioned in a recent post companies are being formed with the intent to sell them within a five to ten year window. These people are able to put together a firm and sell it for substantial gains.

Nonetheless the expectation is to "build it like your going to operate it forever". The oil and gas assets of the producer are the value that is being built. Why would anyone approach the building of those assets with anything but the long term perspective. The dichotomy is that you are building the company for a quick sale. A team can put together a valuable producer in a short 5 to 10 year period that can then be sold for multiples of the cost to build the firms.

I see in the BlackRock team the prototypical 21st Century oil and gas producer. The ability to find and develop the resources, build the assets and then sell them to start all over again. It is happening consistently on this grand of scale, it is also happening on a smaller scale where less "proven" teams are building their capabilities up with each successive start up and subsequent sale.

It is these teams that I have in mind as being the ideal candidates for both the People, Ideas & Objects Draft Specification and the associated Community of Independent Service Providers (CISP). My logic is as follows; why does a firm that is focused on developing a firm's assets, based on a team of capable leaders need to burden themselves with the overhead associated with systems, procedures or even the staff to manage the day to day. What if they could access the systems and people necessary to manage their assets development? What if they were to find their most profitable operations were best managed by the CISP and People, Ideas & Objects application modules.

From an outsourcing point of view people will have preconceived ideas of what works and what doesn't. To think of this as just outsourcing limits the opportunity for the producer and the industry as a whole. Adam Smith proved that the division of labor and specialization were the keys to organizational efficiency. Since these concepts were proven they have been the driving force behind all economic growth. Greater specialization and division of labor are what organizations have been able to do to improve their performance since the late 1700's. The Draft Specification considers this as a critical aspect of the systems means of providing the producer with increased speed, innovation and performance.

One of the key aspects of the Accounting Voucher Module is to provide the means to design transactions. A transaction for the purpose of this example is the drilling of a well. The work that will be undertaken by whom and when is defined in the Accounting Voucher as the value adding process. This process is not too much different today as it will be in the future. However, the number of people that would be involved in that transaction may total one thousand people when we consider the producers CEO all the partners staff and on up to the invoice clerk at the water hauling firm. Clearly the division of labor has already been used to good effect.

Now to enhance the capabilities of the producer and particularly the industry, will require a greater division of labor. Lets assume that this transaction in the future may involve triple the numbers of people to successfully complete the transaction. Already the Joint Operating Committee employs only a handful of these people. How many will need to be directly employed by the JOC in this future scenario? Will it be more or less? I think it will require sizable more individuals reporting directly to the Joint Operating Committee.

Many more individuals spending substantially less time then they do today, over a shorter period of time. How will this be handled by the JOC? The ability of having this larger number of people spending less time on a transaction will be one of the direct results and benefits of the Information & Communication Technologies. The ICT can handle this type of activity, and what I am suggesting here is that irrespective of the size of the producer, only the key team of CEO, COO and CFO would need to be in the office at all times. The thousands of people available when and where they are required, managed by the People, Ideas & Objects application modules and the Community of Independent Service Providers.

In this future scenario BlackPearl Resources needs to coordinate and manage the efforts of thousands of individuals who have a significant influence on their success or failure. Some of the key attributes of this is that the "transaction" must be flexible enough to have the influence of the decision makers involved intimately with the aspects of the transactions that they can influence the success of the transactions outcome. For the industry to increase the overall productivity of the people imputes the speed of these transactions will turn over much quicker. If the performance criteria is to drill X wells today, then tomorrow may require X³ wells drilled. Or it may be stated better by saying the engineering, geological and overall work required for each barrel of oil triples.

This is the only method I can see of how the fixed number of people working in the industry can become three times as productive. The market for energy is rewarding these firms with the pricing of the commodity which values all aspects of the producers operation. China, India and the rest of the world is joining the "Western World" and the demand for energy will only increase.

They key to the worlds energy demands being satisfied lies with these teams of people, as represented here by BlackPearl. The ability to do what they do is an intangible that lies in the minds of oilmen. This talent is very rare and very difficult. I don't think that without the motivation of the potential of a billion dollar payday, these teams would form. Which brings me to the point that I mentioned here a few weeks ago. Clearly International Oil Companies are buying most of these producers. National Oil Companies are yet to realize their value in developing their countries resources. What if Pemex were to use these teams to help maintain their production volumes? As I mentioned in that post the idea that these producers are closed behind some communist or dictatorial mindset has receded over the past few decades. The only thing that needs to be done is the IOC's, NOC's and teams fund the development of this software to make this real. And as a key component of the Community of Independent Service Providers, all you need to do is join me here.

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A call to action.

John Hagel and John Seely Brown are two authors who's work I reviewed in the Preliminary Research Report. They have consistently shown the direction that business should be moving towards. Their message has been somewhat controversial due to the focus on technologies impact. With the luxury of time we can see they are in tune with the needs of business and have added value to those that listen.

Finding those that will listen may be the difficult part. I see their message being broadcast over the heads of management to the people who are in the know, that things are not working quite right anymore. In a blog post, John Hagel has itemized a call to action for those people to deal with the situation they are in. I think they are on message and add some value to those that will listen.

It's important to remember that this situation is unique in terms of it's point in history. We have reviewed Professor Carlota Perez work that says the economy today is the result of a long term trend that has shown a consistency in each of the five previous events over the past 300 years. The old is being replaced by the new. The new is being facilitated by the Information and Communication Technologies (ICT) which enable new ways of organizing.

Professor Perez has documented the changes that have happened in the prior 300 years. In addition to the industrial revolution we saw affordable and abundant steel impacting the strength and capacity of ships. How the canal system in Europe provided an increase in trade. All disrupting technologies that brought prosperity to the world.

This blog post of Hagel & Brown intimates the future is ready, waiting and looking for the people who are needed to take it too the next level. I recommend you review this post closely, and if your involved in the oil and gas industry, please join us here.

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Changes in Information Technology.

Around this time of year I like to review the state of the Information Technology marketplace from the perspective of the technologies we will be using. First off has to be the Java environment. Although I don't know how the Oracle acquisition will affect Java, we can assume the following. Oracle's purchase of Java makes their technologies stronger, much stronger. I would think this may help in resolving one of the bigger technological issues that exists today. That is the relational vs object relational design theories. Many assume that object relational is the way to go, yet, continue to run into the same problems. It will need the resources of Oracle and Java to resolve this problem and come up with a more complete solution. It is in my opinion the only technological issue that we face in People, Ideas & Objects.

The second assumption we can make about Oracle's acquisition of Java is the technically superior capabilities. I found that Sun was excellent in coming up with the big idea and could out think any firm in making the best technologies. However, I often wondered if these people ever took out the garbage. At times it seemed people were working on the big problems and no one was minding the store. I say Oracle's technological capabilities are superior from a commercial point of view. Oracle sells good products that are state of the art. A difference I see that is fundamentally different then Sun's.

Java as a technology has leaped onto center stage in the marketplace in the last couple of years. With no real competition from any other development technology Java dominates. From Google's almost exclusive use to each and every open source project, Java is technically capable and scalable. The Java Run-time Environment is robust when we include the many frameworks and the human resources that support them. Powerfully exploiting the re-use of Java code. Standing on the shoulders of giants never meant so much as it does when it comes to Java.

Lets not forget the underlying model of deployment of Java is to run it everywhere. And here it has done a good job from its early days. Now with the development of "Cloud" computing this deployment model fits with the users needs. Irrespective of how you access Java, it works extremely well. The Cloud as a platform is also receiving attention these days. For good reason. It works, but most importantly it works to release the users from the chains of the "office" environment and permits them to do their job as required, where ever and when ever. 

We are witnessing, I think, the maturation of the underlying technologies. The infrastructure is in place and less time and effort will be spent in these areas. Its time for developers such as those involved in People, Ideas & Objects to start putting these frameworks together and applying the unique and innovative attributes of these technologies in a package for users to do their jobs. What could have been done with 100 developers five years ago can be done with far less. Productivity is soaring at the infrastructure level and this is percolating upwards towards the end users. I have a tendency to agree with many that Information Technologies will be a source of innovation and value generation until well into the 2020's. Most of what we have been doing in IT in the past 40 - 50 years is building the infrastructure. The Information and Communication Technology revolution begins here and now.

For the oil and gas industry this is the time to consider these technologies as the point in which  their competitive advantage, innovative footing and exploitation of these resources should be a key focus of the producers. That is what People, Ideas & Objects is working to provide the global oil andg as producer. By facilitating the oil and gas user with the development technologies and resources to enable them to do their jobs. In turn the People, Ideas & Objects user community will provide the oil and gas producer with the most profitable means of oil and gas operations. With innovative modules like the Petroleum Lease Marketplace, Accounting Voucher and Partnership Accounting. Three of the eleven modules of the Draft Specification.

Of the many people that I follow and write about on this blog. Ray Kurzweil is one of the more interesting and he provides an interesting perspective on the changes that these Information & Communication Technologies provide. His key point is that people think in linear terms when seeing the future. Using the pace of change from their past experiences to extrapolate the impact these ICT will have on their future. Proving that the future is always exponential in terms of its impact is the point that he gets across. Here is Kurzweil's TED conference video.

Technorati Tags: People's User Software Energy Development

The situation today.

I've come across a number of interesting comments and arguments that are reflective of today's economic situation. The overall level of optimism is impressive, and with these comments and arguments, one would find the appropriate posture to succeed in these changing times.

This first article is from the Endless Innovation blog and the blog entry is entitled "Darwin's Finches and Corporate Innovation". Apparently there was a drought on the Galapagos islands that caused 6 out of 7 Finches to parish. What was obvious was the size of the surviving Finches beaks after the drought were different from those of the Finches before the drought.

Endless Innovation goes on to note;

In the same way, the benefits of having the right innovation processes in place are often masked during good times. "Firms with both new and old technologies remain solidly profitable, happily hopping along... But when hard times hit, innovators survive. Most importantly, they flourish when the business cycle swings up again... But like Darwin's finches, the survivors are not just those who have more technology investments, but those who get the dimensions right." At the end of the day, downturns are not only good for innovation, they are necessary.  

The author reflecting on the fitness of the firm to weather the storm and survive. This thinking is also evident in McKinsey's February 2009 document entitled "The Crisis: Mobilizing Boards for Change". Although it speaks to the efforts that should be undertaken by boards, I think it is good advice for everyone. Starting off with the following questions ;

As companies grapple with uncertainty of a magnitude that few have experienced before, their boards should begin by questioning fundamental strategic assumptions: Is our view of the market realistic? Does our financing strategy take into account the new conditions? Should we reset the incentive scheme or abandon any approach based on share prices? Can we exploit the current glut of talent? How can we take advantage of the pain our competitors are experiencing?

Certainly times have become difficult in the oil and gas industry. By developing the People, Ideas & Objects application modules, producers would have the capacity to scale back production and even shut down the well or facility. What we have seen is the North American natural gas producer continue to produce as the prices decline to levels that can't support the costs of production. Why? And then, why did Chevron cease all natural gas drilling on the continent? Why didn't they cut production? Stopping the development of a companies reserves hurts the long term prospects, health and value of the firm. Selling current production at fire sale prices only further erodes the value of those reserves and shortens the firms reserve life index.

I think that oil and gas companies indulge in this type of suicidal behavior because its the only thing they can do. To shut-in or scale back production requires the Joint Operating Committee to make the majority decision based on a vote by the firms represented. A company like Chevron may have interests in thousands of fields. To think about the internal logistics of these decisions would scare even the most ambitious. However, if the People, Ideas & Objects Draft Specification was built. Producers would easily engage their partners within the Joint Operating Committee to make these types of decisions. And as I have said before, the system would provide the ability for producers to pre-determine the prices at which they would reduce production volumes. The alternative is the producer just continues to produce their reserves. An option that is proven to erode the natural gas marketplace.

One thing about this recession is the duration of not knowing. Not knowing which direction to turn. It is however times like these when most of the change comes into play. Like the Finches, natural selection allowed the species to survive, change will be the factor or ingredient that brings about the new. Just as this video shows the effects of these changes, we will look back on this time and see the importance of being fit and change oriented.



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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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