Our Revenue Model - Defined

I am pleased to have defined the Revenue Model for People, Ideas & Objects. I have aggregated the material in one knol located here. We now have the justification for producers to support these developments. Definition of the Revenue Model initiates Phase Two of this projects development, the Preliminary Specification. Readers can aggregate all of the posts for Phase Two here.

Producers are encouraged to contact me here in order to begin their participation in these communities.

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Oracle vs. Google

Oracle has taken steps to litigate Google’s use of Java on the Android operating system; claiming Google’s use of Java requires payment for the technology. Oracle’s lawsuit seeks to establish that Google’s use violates its patent and copyright. One thing that can be stated about Oracle’s acquisition of Sun Microsystems, is that the adults are now running the show.

Working with Sun Microsystems was frustrating on many different levels. One of the frustrations is there never seemed to be any follow through from the business point of view. They may have built the most advanced technologies, but left the major issues of the business and marketing to chance. Letting the altruistic “community” or “open source” world develop the business.

This statement may appear in contrast to the dedication and commitment of People, Ideas & Objects to its communities. To that I would make the following points. When it comes to open systems, “free” does not mean for nothing. Free or open source systems leave the overall leadership or guidance of the product in the hands of the community. That the community is free to discover the correct direction for the product. People, Ideas & Objects has put the product direction in the hands of the user, producer and Community of Independent Service Providers. The business of how our communities will survive in the long term follows a similar strategy to what Oracle is employing.

In Sun’s “altruistic” management of their communities they left the business aspects of their technologies to find their own way. The community needs to be supported financially. Without the financial resources, there is no sustainable viable long-term community that will survive. Leaving the communities financial resources to the whims of whether Google would pay or not is foolhardy. Now that Oracle is monetizing these Intellectual Property assets, the Java community will prosper.

With that stated, it is important to note that People, Ideas & Objects have budgeted for all of Oracle licenses, including Java. These are being paid on behalf of our users, producers and Community of Independent Service Providers. At no time will users or producers be expected to pay Oracle directly, or be subject to any Oracle litigation with respect to their use of the underlying Java or Oracle technologies used in People, Ideas & Objects software applications.

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Getting it Right

The Draft Specification provides a clear vision of how the innovative oil and gas producer would be supported by Information Technology systems. By building IT systems that use the industry standard Joint Operating Committee, innovation is facilitated and enabled. The Draft Specification is however, only the beginning and is by no means the final say. It is the beginning of a process that will discover the right solution with the input of users, producers, the Community of Independent Service Providers and others. Only then can we begin to develop the “right” systems for the industry.

Getting it right will be the difficult part of developing these systems. Community based developments are the only possible way of discovering what is “right”. Producers need to realize these are critical and necessary elements of their future systems success. To assume a vision, or technology driven solution from another vendor would require the same user-driven process. Unlike other ERP vendors, we are not selling a solution to users, we are building the user the “right” tools they need to efficiently do their jobs.

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McKinsey Ten Technology Trends Part I

McKinsey are once again focusing on the impact that technology will have on organizations. This new article entitled “Clouds, Big Data and Smart Assets: Ten Tech-Enabled Business Trends to Watch” and sub-titled “Advancing technologies and their swift adoption are upending traditional business models. Senior executives need to think strategically about how to prepare their organizations for the challenging new environment.” For the past while I have been closing these blog posts with the comment that management are conflicted and will not make the necessary changes to financially support these developments. Here McKinsey is putting the decision to move to adopt these technologies at the foot of senior executives.

As the worlds premier consulting firm, McKinsey have added substantially to the discussion of applying technology to organizational change.

The ways information technologies are deployed are changing too, as new developments such as virtualization and cloud computing reallocate technology costs and usage patterns while creating new ways for individuals to consume goods and services and for entrepreneurs and enterprises to dream up viable business models.

Again, prospective users of People, Ideas & Objects, and members of the Community of Independent Service Providers will be at the forefront of these major trends.

For senior executives, therefore, merely understanding the ten trends outlined here isn’t enough. They also need to think strategically about how to adapt management and organizational structures to meet these new demands.

1. Distributed co-creation moves into the mainstream.

Recall that we are working to detail “Phase Two” of this project. The purpose of Phase Two is to develop the Preliminary Specification which is proposed to generate a system design consisting of 100 man-years of effort. These developments will be generated from one thousand or more contributors and the entire prospective user community reviewing and influencing the output. A design such as the Preliminary Specification, which of course has not been done before, has also never been possible before.

In the past few years, the ability to organize communities of Web participants to develop, market, and support products and services has moved from the margins of business practice to the mainstream.

Producers need to be a part of this process. Determining the geographical, functional and process scope of the application are part of the Preliminary Specifications deliverable. Ensuring that the specification addresses the producers needs is the responsibility of each producer.

The time for producers to begin their involvement in these communities and developments is now. With the Revenue Model providing significant financial incentives for early participation and the ability to influence the output of these developing communities, delays in a producers participation could be costly.

2. Making the network the organization. 

Using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer is only possible as a result of the advanced networks and Information Technologies. Networks enable and facilitate the interactions between JOC partners and service providers.

We believe that the more porous, networked organizations of the future will need to organize work around critical tasks rather than molding it to constraints imposed by corporate structures.

Management orthodoxies still prevent most companies from leveraging talent beyond full-time employees who are tied to existing organizational structures. But adhering to these orthodoxies limits a company’s ability to tackle increasingly complex challenges. 

As the research that has been conducted here at People, Ideas & Objects shows, the use of the Joint Operating Committee provides a solution to many of the key issues that the industry faces.

3. Collaboration at scale.

To suggest that the oil and gas industry is already engaged in a high level of collaboration would be an understatement. The Joint Operating Committee by its definition is a collaboration. These interactions have been conducted throughout the industry for many years. What is needed is for the Information Technology systems the industry uses to capture these collaborations and embed them within the ERP systems used in the industry. That is what People, Ideas & Objects is working to provide. By adopting the advanced IT infrastructure and enabling the collaborations to be handled through the technology, the industry will be able to scale their activity and innovations to the level necessary to meet the market demands for energy.

Despite such successes, many companies err in the belief that technology by itself will foster increased collaboration. For technology to be effective, organizations first need a better understanding of how knowledge work actually takes place. A good starting point is to map the informal pathways through which information travels, how employees interact, and where wasteful bottlenecks lie.

A process that is part of the work being proposed to be completed in the Preliminary Specification. Recall as well, that tacit knowledge, the understanding of how things get done, can not be captured. It exists only in the minds of the users, Community of Independent Service Providers and employees of the firms involved in oil and gas. What we can do is design and build the tools that enable the people in the industry to use their tacit knowledge.

4. The growing “Internet of Things”.    

McKinsey highlighted their concept of the Internet of Things a few months ago. These concepts were covered in a blog post that ties McKinsey concept to the People, Ideas & Objects Technical Vision.

5. Experimentation and big data.

Experimentation is the way in which innovation in oil and gas will expand the sciences. One of the keys to exploiting the experimentation and “big data” in the industry is the Joint Operating Committees operational decision making framework. When we align these organizational decision making processes to the systems used by the innovative firms, then we will be able to use these new and valuable tools.

Using experimentation and big data as essential components of management decision making requires new capabilities, as well as organizational and cultural change. Most companies are far from accessing all the available data. Some haven’t even mastered the technologies needed to capture and analyze the valuable information they can access.

We will address the remaining McKinsey technology trends in a future blog post. McKinsey close their paper with the following comment.

The pace of technology and business change will only accelerate, and the impact of the trends above will broaden and deepen. For some organizations, they will unlock significant competitive advantages; for others, dealing with the disruption they bring will be a major challenge. Our broad message is that organizations should incorporate an understanding of the trends into their strategic thinking to help identify new market opportunities, invent new ways of doing business, and compete with an ever-growing number of innovative rivals.

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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The Budget for Phase Two

Here we step into the truly surreal world of People, Ideas & Objects budgetary needs. The objective of Phase Two is to complete the Preliminary Specification. A task that has been defined as 100 man years of effort. A task that when complete would be a significant step forward for the innovative oil and gas producers. Costing this part of the development is relatively easy. We pay standard rates for contributions of $125.00 U.S. per hour. Therefore 100 man years at 1,760 hours per year totals $22 million. I could identify many other costs involved in supporting these developments, however.

Our revenue model sets an annual rental fee for each calendar year. That fee was set at $1.00 per barrel of oil equivalent for the 2010 year. Penalties are due and payable effective March 31 on any outstanding fee for that year. As of today’s date, each and every producer will be assessed the 300% penalty on their 2010 rental fees. These fees and penalties are to be paid in full by all producers irrespective of when they may join the developments. No participation or use of the software is permitted by any producer until all outstanding fees and penalties, back to January 1, 2010, are paid in full. The incentives are to participate early, and there are no financial benefits in waiting for other producers to pay disproportionately the fees and costs of these developments. Early participation is rewarded with a reduction of 75% of the total potential fees, (penalty avoidance) and greater participation in the definition of the software. (Or the ability to map the software to deal with the producers organization.)

To set a dollar amount to complete the Preliminary Specification is beyond what can be reasonably budgeted or defined. We are therefore proceeding with Phase Two on the basis that as producers join, and pay their required fees and penalties, we will proceed with the further development of the project. A pay as you go basis as producers join the development. The nature of the Preliminary Specification facilitates this stop-and-go type of development.

It is also time to set the fees for 2011. As in 2010, 2011 fees are set at $1.00 per barrel of oil equivalent. This fact alone shows the value proposition of this project. That although the costs of development are high, the costs to an individual producer are not only reasonable, they are a mere shadow of the traditional ERP software costs.

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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S + B's Big Oil's Big Shift

We have today a remarkable article from Booz & Co’s “Strategy + Business” (S + B). Prospective users of People, Ideas & Objects software applications and members of the Community of Independent Service Providers need to see that the work that they can do at People, Ideas & Object is topical, and hence valuable. This S + B article entitled “Big Oil’s Big Shift” provides an understanding of some of the issues in oil and gas. Many of the points in the article are specifically addressed in the Draft Specification. Although S + B considers the majority of these issues arise as a result of the BP Gulf of Mexico spill, to many, these issues were evident irrespective of the spill.

The targeted market for the People, Ideas & Objects software applications is the entire oil and gas industry. This definition includes start up oil and gas companies, independents, International Oil Companies (IOC’s) and National Oil Companies (NOC’s). All of these firms use the Joint Operating Committee (JOC) systemically throughout their organizations.

Risk has always been inherent in the extraordinarily complex projects that extract oil from the ground or sea. During the past few years, industry trends have added to this risk. The most accessible and productive oil fields, including those in the Middle East and Russia, are now owned and operated solely by national oil companies (NOCs). Leading international oil companies (IOCs) such as BP, ExxonMobil, and Shell — also known as the oil majors — therefore find their access to “easy” reserves rapidly shrinking.

For the reasons noted in the above quotation, People, Ideas & Objects believes the four classes of producers will partner to approach the remaining technically difficult and demanding reserves. Therefore it is imperative that these JOC’s and partnerships are able to deal with any combination of producer classes, in as many geographical areas as necessary. Access to an ERP system that can identify and support these different producers business operations is therefore a necessity.

Supporting the interactions between producers within a JOC is only the beginning. The ability to work closely with the service industries is also a necessity. The Draft Specifications Resource Marketplace module provides the ability for the producers represented in the JOC to deal more closely with service providers in the service industries, communities and contractors. The Draft Specification also provides a new governance model to facilitate these interactions through the Military Command & Control Metaphor. S + B states:

But the oil majors will have to manage their contractors differently, working more closely in teams with business partners that earn their trust over a long period of time, and in some cases taking stakes in third-party providers to better control their performance. This partnership model must be built on interdependence and mutual respect — a significant change from long- standing practices in some parts of the sector. The oil majors will also need to revise their operating models, sorting out a different mix of activities to outsource, and bringing some of the most critical oversight functions back in-house — so they can address quality issues and place employees on the front line to better oversee the growing situational risk in oil drilling.

To make this possible requires management to fall on their sword. As I have noted in each of this blogs recent closings, management are conflicted, and the executives at the producer firms need to make the decisions to financially support these developments.

Perhaps the biggest uncertainty in this new and challenging business environment is the ability of the major oil companies to change as conditions shift measurably. Most large oil companies — including both international oil majors and state-owned NOCs — have rigid management cultures and adversarial, penny- pinching relationships with suppliers and partners. Historically, they have tended to focus on short-term cost cutting without sufficient consideration for collaborative operations that could benefit themselves and their partners.

Lastly, S + B notes that the time for these changes to become effective is now. Prospective users and members of the Community of Independent Service Providers will be the ones at the forefront of these changes.

Many people in the oil industry have foreseen these types of changes, but they haven’t been forced to act. Now they will be. Those who figure out how to move beyond their past practices, troubled contractor relationships, and rigid management structures will lead the next generation in the oil sector — on land, in shallow waters, and in deep and remote locations. The time for these changes could come surprisingly soon. 

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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Our Revenue Model Part VII

People, Ideas & Objects focus is on its users and the business issues that they face. We are not providing “new” technology for technologies sake. With respect to our revenue model, technology has a substantial impact on our product delivery.

Past systems development and integration projects have led to time and monetary black holes. Users have frequently had to adapt to poor or technology focused perspectives of their jobs. These are the issues that users face in the marketplace today.

A key area of People, Ideas & Objects competitive offering is that our software development capabilities are based on the “Agile” development principles. In addition to being user focused, these capabilities provide iterative developments that are substantially more productive then past methodologies. More productive due to the focus on working with the user to solve their systems development needs. Getting the users needs satisfied, not chasing blind bunny trails.

Agile developments affect our revenue model by budgeting for the current years activities. Although our total costs remain high, taken from an annual perspective helps to break down the ominous nature of these developments. A release early and release often schedule also benefits the entire community, leading to further focused iterative developments in the short term. I anticipate the only time users will be working without the assistance of developers is in the development of the Preliminary Specification. While the Preliminary Specification is being developed, our development team will be forming, installing the infrastructure and working with Oracle to become familiar with their Fusion Middleware product offerings. Then the two communities will begin to use and develop the systems based on users priorities.

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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Our Revenue Model Part VI

Throughout the past few months (here, here and here) we have talked about the risks of becoming blind sleep-walking agents of whomever will feed us. An issue when we are discussing systems development. People, Ideas & Objects Revenue Model shows these risks are real and require a new approach to funding these software developments. It serves no ones interests, People, Ideas & Objects, the Community of Independent Service Providers, Users or Producers to proceed without dealing with this issue. It is best to identify these conflicts and compromising situations now, while the influences are manageable.

Producers are expected to fund the software developments on the basis of their production profile. Rental fees are assessed on all producers starting January 2010. This eliminates the possibility that some producers will pay disproportionate shares of the development costs. All producers will be required to have their rental fees, and penalties, paid in full from January 2010 to the current year in order to access the applications. These methods and penalties eliminate all incentive to delay and avoid financial participation by producer firms.

Financial participation is how the communities are supported and hence able to avoid the trap of becoming blind sleep-walking agents of whoever feeds them. People, Ideas & Objects are user focused developments. The choices that a software development project can prioritize are many. Users are one, technical efficiency another and there are many other possibilities. For users to support the producers focus on its competitive advantages of their asset base, oil and gas leases and earth science and engineering capabilities. Users need to have the software tools and means of production, (the financial resources to build those tools) within their control.

This discussion does not preclude the producers participation in these communities. Producers, on the contrary, are critical elements of the user community. These developments will need their full participation and contribution. What is necessary to proceed is the appropriate “political environment” in which users are able to define, build and use the software tools they need to do their jobs.

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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A Quick Break

A quick break from documenting our revenue model to highlight a blog post from our favorite researcher. Professor Richard Langlois’ work has provided a solid foundation for the Draft Specification. In a recent blog post Professor Langlois posted an interesting commentary about the discussion that “might have” taken place at GM in the 1920’s. It’s an entertaining read and is probably based wholly of the facts of the case.

The point of the argument is the change that needs to take place at GM. The “owner” of GM is faced with a new management theory about the role of management in controlling the ways and means of the corporation. “Sloan” who might be Alfred P. Sloan, the CEO of GM during the time that management theory was developed and applied, is interviewed by the owner about these new theories.

We are having this same argument today. Management has ceased to be capable of building value within our organizations. Just as the “owner” of GM had to cede to management, management needs to cede to the market definition. People, Ideas & Objects Draft Specification is the means for management in oil and gas to cede to the marketplace. Professor Langlois’ article is located here.

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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Our Revenue Model Part V

Another element of our Revenue Model is the means in which People, Ideas & Objects is capitalized. Traditionally software developers are stand-alone organizations with their own banking, regulatory and venture capital influences. People, Ideas & Objects is taking a project management perspective in providing this software solution to the marketplace. The differences in our capital structure are significant, with our Revenue Model being a critical element in defining and supporting these differences.

The fact of the matter is, by having user based developments defined and supported by various communities. To then have various venture capitalists, or other groups involved in a traditional capital structure, influence whether or not the software was built to specification is too large of a compromise to be viable. Therefore People, Ideas & Objects is funded by its Revenue Model and focused on its users.

To be clear the scope of People, Ideas & Objects is beyond what venture capital groups would be willing to fund. That is to say if the producers are unwilling to invest in this software development, based on the value proposition put forward, no venture capital groups would touch this type of venture. Amortizing the costs of this development over the production profile of the industry is our value proposition. Complicating our capital structure only complicates and compromises the deliver-ability of the software.

To suggest that People, Ideas & Objects can be structured without the traditional involvement of investment capital might be naive for me to consider. However I do know, that it would be naive to suggest that the systems as described in the Draft Specification could be built with the influences of a traditional capital structure. Therefore, it is with that in mind, and to ensure that the Preliminary Specification captures the full scope of the technical and geographical concerns of each subscribing producer. That producers would be wise to support these developments to ensure their concerns remain the appropriate priority of this software development.

One area where our capital structure is not a concern is in the hosting of the application on the cloud computing infrastructure. I have addressed these needs by separating these business concerns from the software development activities. As I have documented in our Hardware Policies & Procedures, the hardware infrastructure is directly managed by the producers themselves. The purpose in structuring the hardware in this fashion is to eliminate the producers regulatory concerns in running their ERP systems, and to ensure that all parties have a vested interest in the infrastructure. In the process of meeting those concerns the business of the firm that hosts the application will have its own capital structure that will not in any way affect or influence the software developments or communities of People, Ideas & Objects.

Society is put in peril when world oil production declines. There is evidence that the world's oil production has declined. Therefore the world needs to have the energy industry expand its production. To do so requires that we reorganize to enhance the division of labor and specialization within the industry. As economic development has proven, reorganization would achieve far greater oil and gas production. Management of the industry is conflicted in expanding the output of the industry. The less they do, the higher the oil and gas prices and the better they appear to perform. This managerial conflict must be addressed and the performance of the industry unleashed. To do so requires the current management of the industry to fund People, Ideas & Objects and build the systems as defined in the Draft Specification. Please join me here.

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