Nobel to Oliver Williamson

The Nobel Prize was awarded to Elinor Ostrom and Oliver Williamson this morning. I can't think of anything that puts the People, Ideas & Objects community inline with the current thinking of the economic community. I am elated. I am not aware of the work of Elinor Ostrom and I will look into her work to see if it applies as directly as Professor Williamson's does. I have two blog posts on Oliver Williamson's work and the one paper I reviewed "Introduction to Transaction Cost Economics" which provided strong grounding for the Draft Specification. I also have 7 other papers of his sitting in the hopper waiting to be reviewed. I'll certainly bump these up in terms of priority as to when I will approach them.

Noteworthy among today's accolades are the following.

From CATO

Both Ostrom’s work on governance institutions and common-pool resources and Williamson’s work on governance institutions and the transactional boundary of the firm contribute meaningfully to our understanding of how individuals coordinate their plans and actions in decentralized, complex systems.

From The Wall Street Journal

“According to Williamson’s theory, large private corporations exist primarily because they are efficient. They are established because they make owners, workers, suppliers, and customers better off than they would be under alternative institutional arrangements. When corporations fail to deliver efficiency gains, their existence will be called in question,” according to information on the research released by the Royal Swedish Academy of Sciences. “Large corporations may of course abuse their power. They may for instance participate in undesirable political lobbying and exhibit anti-competitive behavior. However, according to Williamson’s analysis, it is advisable to regulate such behavior directly rather than through policies that limit the size of corporations.”

and

Ostrom’s work also has something to say about regulation: “The main lesson is that common property is often managed on the basis of rules and procedures that have evolved over long periods of time. As a result they are more adequate and subtle than outsiders — both politicians and social scientists — have tended to realize. Beyond showing that self-governance can be feasible and successful, Ostrom also elucidates the key features of successful governance. One instance is that active participation of users in creating and enforcing rules appears to be essential. Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. Likewise, monitoring and enforcement work better when conducted by insiders than by outsiders. These principles are in stark contrast to the common view that monitoring and sanctioning are the responsibility of the state and should be conducted by public employees.”

From the Calgary Herald

"Since we have found that bureaucrats sometimes do not have the correct information while citizens and users of resources do, we hope it helps encourage a sense of capacity and power," the professor told a news conference via telephone.

and this quote that takes People, Ideas & Objects to the mainstream and away from the "fringe".

"Over the last three decades, these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention," it said in a statement.

and

"Are there relationships between the Fed and the banking sector, on which it has such a significant influence, that haven't been thought through as fully as they might in organizational terms?" he asked.

Much of their theories were used to prove the Joint Operating Committee is the key organizational construct of the innovative oil and gas producer. Specifically noting that the natural "boundary of firm and market" is best represented in the JOC being the market. I'm dissapointed that I was only able to review one of Williamson's papers. My favorie quote from his paper is as follows.

Ronald Coase's 1937 paper on "The Nature of the Firm"expressly confronted an embarrassing lapse: whereas the distributing of activity between firm and market had been taken as given by economists, the boundary of the firm should be derived from the application of economic reasoning to the make-or-buy decision. pp. 15 - 16

Please join me here in this worthwhile, and now "mainstream" project.

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James Hamilton on Exxon Production

I have highlighted the work of University of San Diego Professor James Hamilton on this blog before. He writes this weekend on the changing face of the oil and gas industry. Focusing on the difficulties Exxon has experienced this past decade in moving their daily production volumes higher. Exxon has stated on two occasions, 2001 and 2006 they will increase production 3% each year. Only to experience an overall small decline.

This is in many ways last weeks news and something that was known by most "in the know" in the industry as early as the mid 1990's. With the commodity pricing being so bullish in the past decade, it is reasonable to assume that all was done by all the producers to bring on as much production as was possible. Nonetheless the overall deliverability of the global industry has been somewhat stable at around 85 million barrels per day.

What I find interesting in Professor Hamilton's article, is the range of Exxon's risk profile. Spending $4 billion for a 25% interest in Ghana's offshore Jubilee oil field.

...it still seems to signal a change in philosophy for a company that has historically been extremely careful with its investments in order to maintain its position as a very low-cost producer.

It is suggested in the article that Exxon needs a price greater then $100.00 per barrel of oil in order to provide a return for that investment. I would suggest that the ways and means of managing this investment in Ghana is not any different then what a groups of start up producers would face in a low risk onshore play in North America. The Joint Operating Committee is the systemically global method of managing oil and gas assets.

Exxon did not spend $4 billion to have the "operator" take operational control of the property. They will influence what they want to see in the property and participate effectively through the Joint Operating Committee. A form of organization that SAP is not even aware it exists! The members of the JOC are able to pursue their own independent strategies as to what they want and need from the property. The conflict and contradictions only arise when Exxon Mobil should attempt to apply a global corporate compromised strategy. These corporate compromises are unable to extract the value that properties like the Jubilee oil field provides. Each JOC needs to be managed in the best interests of the property. A critical change to the way things need to be done in oil and gas today.

Corporate strategies can be developed on what is done with the value of the proceeds from the Jubilee field, and that is where the large International Oil Companies (IOC's) and the start up producer may differ. I recall my many days when I was auditing Imperial Oil the Canadian arm of Exxon. I was reviewing the firms gas royalty operations on behalf of my client the Alberta Government. This was between the years 1988 to 1994 and I accumulated the knowledge of how the firm was designed.

It was brilliant and awe inspiring. The times were different then today, the commodity prices and oversupply of the market were the two overriding concerns. Looking at how the firm extracted value from each property, granted under a standard corporate strategy, and used their "might" to make the operation the most impressive accumulation of assets that I had ever, and still had the opportunity to see.

What I am suggesting is that today Imperial would need to be run in a different manner. A manner where each property is designed to maximize the return and minimize the risk of each individual property. You can not do that with the bureaucracies that are in play, and the software they use, such as SAP. 

Whether a producer is a local startup or ExxonMobil I don't think makes a difference. The innovative oil and gas producer, the National Oil Company (NOC), or IOC will need to make these changes to this fundamentally different oil and gas marketplace. The world is in a deep recession, except for oil and gas. The pricing has never been better and the upside more dramatic to those producers that can innovatively use their earth science and engineering capabilities against their asset bases. With demand for energy from China and India, the future of the industry looks to be the best it ever has. I would challenge the thinking that SAP, conceived in the 1970's, and bureaucracies, conceived of in GM by Alfred Sloan in the very earliest part of the 20th Century, is the solution to the industries needs today.

As I am one to suggest, you should never expect a mouse to run like a horse, do not expect a bureaucracy and SAP to meet the challenges of this industry on a go forward basis. Please join me here.

Technorati Tags: People's Hamilton Strategy Management Innovation

Pushing the Envelope

A lot of change is considered in the Draft Specification. Much of it difficult to assume is correct. What has been researched, and is represented in this blogs 700,000+ words, hangs together in its entirety. In other words it works on paper.

It can be frightening to view the Draft Specification and its impact in oil and gas. I know that people are ready and willing to change. The demand for change being driven by the difficulties in the economy. The escalating oil and gas prices and the financial crisis provides the realization that the old ways need to be looked at. People are looking at this point in time; from the point of view that the old ways are not providing the value we need.

How the future unfolds will not be by happen stance, in my opinion. In other industries some products are assembled in many different countries. They have components and parts that contact dozens of different countries. Organization is more by design then by chance. If, as I believe is happening, the large bureaucracies are unable to continue building value, their difficulties and decline will soon become obvious. That being so, what replaces the ways and means of the oil and gas industry from an organizational point of view.

The point I'm trying to make is that the ways and means of the oil and gas industry will not happen on their own. We need to take what proven ideas we have and start building them to ensure the transition from the old ways, the bureaucracies, is not interrupted to the new, the Draft Specification.

Looking at this problem another way, Exxon Mobil employs hundreds of thousands of people around the world. What do these people do, where do they do it and how do they do their jobs? In many ways we have lost the ability to know what our organizations do. And, if they are failing what does that mean. Can the world afford a decline in energy output? Or do we have an obligation to do something to ensure that there is a transition.

If the bureaucracies have taken the division of labor and specialization to the point where Exxon Mobil employs hundreds of thousands. What will the future need in terms of the division of labor of future organizations. To grow 90 million barrels of oil per day requires innovative, faster organizations. We think we know we can't get their with our current organizations, but we can certainly go backwards into what I will leave to your own imaginations. The choices we make today are therefore critical in making our future.

How this is done is through the people that are a critical part of this industry. Their ideas to make it better and the objects that make up the People, Ideas & Objects software. Please join me here.

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Where do shareholders fit

Yesterday I made the comment that venture capital and industrial capital would not play a role in the future of the oil and gas industry. It is difficult to see how they could begin standing from where they have fallen today, but I need to address another assumption in the Draft Specification.

Where does the money come from that will be used to start the developments within the teams. The teams are the CEO, CFO and COO who are primarily responsible for the discovery and production of the 90 million barrels per day we need by 2030. The shareholders are also critical members of the team as represented by the CFO and through the Board of Directors.

The systemic problems in the financial markets have been with the intermediaries. The banks, brokers, funds and the like. I believe the separation of management and ownership was a good idea, poorly implemented. Interventions by the owners of the businesses have fallen on deaf ears and the implementation of stronger rules like Sarbane's Oxeley have only further entrenched the management.

Direct ownership and representation in the producers is made possible and more effective by, dare I say, Information Technology. This would be a material change in the ways and means in which the oil and gas industry is funded. I agree, the commodity prices are reallocating the financial resources to support innovation and reward sound management. The need for constant infusions of capital will not be as necessary.

Secondly, and here is the point that makes the shareholders involvement possible, if these same shareholders were involved in funding People, Ideas & Objects software development. they would be involved in both the definition and support of the organization. The type of organization that is reflected in this blog.

Recall that Adam Smith developed the concepts of Division of Labor and Specialization. These  have proven that economic growth is a result of reorganization. In the next five to ten years we will face a decline or retirement in the knowledge base of the industry. The volume of work in each barrel of oil will continue to increase as well, particularly from an earth science and engineering point of view. How can this come about if we don't have these changes in the ways and means of the industry?

In this post I have attempted to separate the financial resources between equity and debt. To better understand the role of debt, please review the Financial Marketplace Module.  There is a constant theme throughout these blog posts of the past few weeks. That constant is the need for people to take action. We are challenged by these issues and opportunities, please join me here.

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We need to organize

Yesterday we noted the comments of Mohammed Al-Qahtani of Saudi Aramco. Ninety million barrels of oil are needed to be discovered and brought on to production by 2030. I don't know if he has calculated what that would cost, lets assume its a big number. That's only 21 years, not a lot of time.

Does anyone believe we should leave this task to the current bureaucracies to figure out? How about we leave this ominous task to the likes of SAP to define and support those bureaucracies? It doesn't make much sense does it.

Another assumptions inherent in the Draft Specification is the role that finance capital takes in achieving these 90 million barrels. The short answer of course is absolutely nothing. With the current financial crisis pretty much on full boil it is difficult to see how they could fund the capital requirements for such a Herculean task. Going back to Professor Carlota Perez we find that financial capital is of limited value in the future. Its role was completed in financing the groundwork for the next great surge. The building of the Information and Communication Technologies was the job they were to have done and that is what they completed. As we can see, no one needs their services anymore.

Commodity prices will provide the reward to those producers that are successful. What better motivation is there for the teams, unconstrained cash flow. Failure will also be distributed fairly and equitably. No more need to have the ear of the biggest venture capitalist to endow you with success by granting you an equity influx. Those days are over and the earth science and engineering capabilities are the competitive advantages in the industry, and the determinants of success.

In the world where we are tasked with achieving a 90 million barrel per day increase in production. I can't think of a more exciting place to be then at People, Ideas & Objects. We have a job to do, and its a big one. In terms of the scope of the opportunity, I think that Duvernay's and BlackPearl's left a lot on the table. Please join me here.

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Collaboration is a necessity.

The Oil and Gas Journal have a comment from Mohammed Al-Qahtani, Executive Director, Petroleum Engineering and Development, of Saudi Aramco. He stated simply,

Recovering the world’s remaining oil resources will require a collaborative effort of national oil companies, international oil companies, and service companies.

This quote resonates with a number of assumptions that went into the Draft Specification. How the service industry and the producer companies are able to work closely in this most difficult of tasks. The Resource Marketplace Module is the collaborative medium in which the resource industry is able to market their offerings and contract with the producers that need them. Having an electronic marketplace that enables these connections, and facilitates the contracting is a necessity in my opinion.

The Research & Capabilities Module also provides the producer with a window on the work being done in the service industry. As I mention in that module, the producer receives 100% of the revenues from the sale of oil and gas. These financial resources need to be allocated to the service industry to conduct the research the producers will need in the long run. Funding these activities directly are what will be necessary for the producer and service providers to achieve what Mohammed Al-Qahtani also says in the article.

In addition, he noted that the world would need an additional 90 million b/d to offset declines in existing oil fields to reach a 125 million b/d level by 2030. Current world production is about 80 million b/d.

Finding 90 million b/d will be tough without the ability to collaborate in this manner. Another assumption that I have mentioned before is that the National Oil Companies will become active partners in making these plans real. Their nations reserves could best be developed in collaboration with producers from other nations. Much as Saudi Arabia has always done.

These assumption need to be incorporated in the systems that producers will use from now to 2030 and later. Systems built with the full involvement of its users. Please join me here.

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Framework Alignment

One of the attributes of an SAP system is the ability to maintain the corporate entities compliance and governance. When a firm needs reporting to the SEC or the various tax authorities, SAP provides a solid foundation or framework for that requirement.

In oil and gas the Joint Operating Committee is the legal, financial, cultural, communication and operational decision making framework. It is the business of the business of the oil and gas industry and SAP knows nothing of its existence.

What People, Ideas & Objects is developing is a replacement for the SAP ERP system. One that is purpose built and designed by its users for the oil and gas producer. A system that aligns the compliance and governance frameworks with the five frameworks of the Joint Operating Committee. An alignment that eliminates the conflict between operational authority and accountability. An alignment that identifies and supports the key attributes of an innovative oil and gas producer.

In my opinion SAP provides the compliance and governance that is necessary for the public oil and gas producer. But these are not the drivers of the business. The Compliance & Governance Module of the People, Ideas & Objects Draft Specification provide the same compliance and governance that SAP provides, however, with several differences. Instead of being the driving reason of the administration of the firm, the compliance and governance are processes that fall out of the actions and processes conducted within the Joint Operating Committee.

One of the major issues that is presented by using the Draft Specification is the governance model. With the Joint Operating Committee taking a larger and more prominent roll in the day to day management of the asset. Influence and contributions come from many different corporate entities. What is needed is a governance method that can appropriately manage the asset and meet the compliance and governance needs of the producers who make up the JOC. These are the reasons that the Draft Specification has developed and introduced the Military Command & Control Metaphor governance model.

Although moving to identifying and supporting the JOC brings issues like the compliance and governance model into question. Methods to overcome these issues are sound and are enabled for one reason, in my opinion. And that is the natural way that the JOC operates within the industry. The Draft Specification is simply aligning itself with not only the five frameworks of the JOC, but the natural way in which the industry operates. This is also the reason why SAP fails in oil and gas, please join me here in building this worthwhile system.

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Industry Management of Intellectual P...

I want to stress or highlight a key point of the Draft Specifications assumption about the producers competitive advantage. The physical assets, reserves, leases and the capabilities in exploiting those assets are the sustainable competitive advantage that producers are interested in. A producer organization focused on building value, using the Joint Operating Committee (JOC) as the key organizational construct, can employ the right strategy for that JOC. There is no need to have a corporate strategic compromise now practiced in most firms. The strategies of the various producers within the JOC do not have to be, and probably never will be the same. Many producers have different asset mixes, costs and dynamics within each JOC. They are each free to pursue their strategy without creating conflict within the JOC.

In addition the energy producers need not own can not own the intellectual property of how the industry conducts its operations. The service industry is best able to work with the producers to innovate and develop the tools and methods necessary to optimize the discovery and production of oil and gas. Does it provide Duverney or BlackPearl with any value to have developed and patented the most innovative drill bits? Of course not, if they had developed their own drill bits they would probably be in bankruptcy instead of sold for many billions of dollars.

Is the CFO of a producer firm going to come up with the next great innovation in drilling technology. How about the CEO, will he finally prove his theory about the physics of oil and gas accumulation? No. If they were they're not doing their jobs. And as Duverney and BlackPearl have shown. Their job is in applying their understanding of the science to the assets they own, and building their production and reserves.

Who is going to "break their pick" on the next drilling technology. Who is going to discover the next organizational structure that supports the innovative producer. These innovations can only be discovered and built based on the scale that has the entire energy industry benefiting from them. To have them within one producer does not provide the motivation for the individuals to break their pick doing so. This is why the Draft Specification has developed the Research & Capabilities Module and the Knowledge & Learning Modules.

I see Canadian producers involving themselves in the business of their suppliers and service operations. When Encana purchases its own rigs when there is a rig shortage, that only stops anyone taking the risk of building new rigs. The message is the oil and gas company will involve itself in direct management when the service industry is unable to provide the needed services. This too is a direct symptom of the attitude that the Intellectual Property of the oil and gas industry is not developed or owned by any group or individual. This is the wrong type of thinking and it needs to stop. Please join me here.

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MGI on Global Financial Markets

The McKinsey Global Institute is the research and development arm of McKinsey Consulting. (Registration Required) They have published "Global Capital Markets: Entering a New Era".

MGI’s mission is to help leaders in the commercial, public, and social sectors develop a deeper understanding of the evolution of the global economy and to provide a fact base that contributes to decision making on critical management and policy issues.

To suggest that I am overwhelmed by the scope of the economic problems that we face. Is something that I would never have believed possible. I'll leave it to those that want to review the paper to do so, however, it is stark. My "job" here at People, Ideas & Objects is to make the ideas compelling for like minded individuals to organize and act. I call on the shareholders of the existing oil and gas firms to build the software discussed in this blog. To act in financing the building of the application modules in the Draft Specification. As Paul Romer recently said in terms of his Charter Cities initiative, "All that holds us back is a failure of imagination."

After 12 months of the global credit crisis, it is easy to see the difficulties that continue in the marketplace. In reviewing this MGI document it is clear that serious problems remain. My own opinions are not of importance, but it really seems that we have been using debt to fuel the western lifestyle for the past 20 years. To find the value that should have been generated during this past 20 years, is a lonely and difficult task. I see the bureaucracy as being the main culprit here. Accusing the bureaucracy is somewhat self serving for me to say, but I don't see any value being generated through this archaic form or organization. Continuing on in the fashion that we are, shows me that we will be challenged in keeping the global economy moving forward. 

I leave you with a few select and sobering quotes.

Going forward, our research suggests that global capital markets are entering a new era in which the forces fueling growth have changed. For the past 30 years, most of the overall increase in financial depth—the ratio of assets to GDP—was driven by the rapid growth of equities and private debt in mature markets. Looking ahead, these asset classes in mature markets are likely to grow more slowly, more in line with GDP, while government debt will rise sharply. An increasing share of global asset growth will occur in emerging markets, where GDP is rising faster and all asset classes have abundant room to expand.

Given the decline in asset values and growth in debt, we see that leverage in the global economy has increased during the financial crisis rather than declined. This is true for many households, governments, banks, and some segments of the corporate sector. In aggregate, the global debt-to-equity ratio nearly doubled, jumping from 124 percent in 2007 to 244 percent by the end of 2008. This raises the vulnerability of the global economy to further shocks. It also indicates that the long process of deleveraging in the private sector has at best only just begun, and in the public sector has yet to begin.

One of the most striking consequences of the financial crisis was a steep drop-off in cross-border capital flows, which include foreign direct investment (FDI), purchases and sales of foreign equities and debt securities, and cross-border lending and deposits. These capital flows fell 82 percent in 2008, to just $1.9 trillion from $10.5 trillion in 2007 (Exhibit 7). Relative to GDP, the 2008 level of cross-border capital flows was the lowest since 1991. This created turmoil in the global banking system, causing severe liquidity crises and hurting borrowers dependent on foreign loans. It is unclear at this writing how quickly these flows will recover.

Although the crisis started in the United States, it followed multi-year borrowing expansions in many other countries as well. Total global borrowing—comprising all loans, forms of credit, and debt securities—rose by 70 percent from 2000 through 2008, to $131 trillion. Not only has the recent credit market turmoil nearly stopped this growth, but it has set the stage for a long process of debt reduction going forward.

Many parts of the economy will need to be rebuilt. Oil and gas is rebuilding around the Joint Operating Committee and the vision of the Draft Specification. Please join me here.

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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.

Technorati Tags: People's Energy Collaboration Community Development Market

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.

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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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