Professor Giovanni Dosi, Part V

Today’s post leads ultimately to the difficulty for the producer in defining where the boundary of the firm and markets begin and end. Much research has been conducted in this area, and the Draft Specification draws a definitive line between the firm and the marketplace. There the marketplace is represented in the Joint Operating Committee. The primary reason for this definition of the boundary of the firm and marketplace is the proprietary earth science and engineering capability and information that the producer firm holds.

The question therefore becomes how is this proprietary information and capability deployed on an as needed basis. Professor Dosi notes that although the free movement of information has occurred in industries for many years, yet has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from one company to another is not as easy, and may indeed be not worthwhile doing. Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.” Therefore why not focus on the need to increase the companies own unique and specific competitive sources and directions.

This also imputes that the free flow of information between producers through collaborations in the Joint Operating Committee would increase the knowledge, yet not expose anyone of the specific organizations to any specific losses of key knowledge, proprietary information or capability.

Information’s shelf life expires faster each day. Knowledge and information need to be employed and deployed where and when they are required. This research’s collaborative method of employing the intellectual property might facilitate a greater value, to the participating producer, and would provide the groundwork for future innovations and expansion of the underlying engineering and earth sciences. And although no specific proof of this can be sourced at this time, today’s hierarchical organizational structure is the impediment to the speed of innovation developments, its adoption and application, and it is asserted through this Preliminary Research report that this is tacitly understood.

Professor Dosi (1988) cites the dichotomy of Adam Smith in that organizations are comprised of those that “system learning effects on economic efficiency by way of the division of labor,” and “the degrading brutality which repetitive and mindless tasks could imply for some groups of workers”. These support the “how to do things” (the JOC) and “how to improve them” (the producer firm).

This dichotomy reflects the challenge of improving the processes and products through trial and error, with heavy emphasis on the error. The ability to accurately predict the success or failure of a new idea contains inherent high risks and hence high rewards. This is one of the constraining factors in implementing innovative thinking, in that no one wants to be proven wrong. Whereas, even if the idea fails the ability to test the theory, the failure may ultimately lead to and may be the key to discovery. Professor Dosi states;

Organizational routines and higher level procedures to alter them in response to environmental changes and / or to failures in performance embody a continuous tension between efforts to improve the capabilities of doing existing things, monitor existing contracts, allocate given resources, on the one hand, and the development of capabilities for doing new things or old things in new ways. This tension is complicated by the intrinsically uncertain nature of innovative activities, notwithstanding their increasing institutionalization within business firms. p. 1133

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part IV

In yesterday’s post we noted that the comparison of revenue per employee over multiple periods would impute a trajectory of the firm or Joint Operating Committee’s innovativeness. Recall Professor Dosi notes that innovation is developed through the interactions between the “capabilities and stimuli” and “broader causes external to the individual industries such as the state of science”. In today’s post we take the concept of this trajectory, define it, and apply it to oil and gas.

The definition of a technological trajectory is the activity of technological process along the economic and technological trade offs defined by a paradigm. Dosi (1988) states “Trade-offs being defined as the compromise, and the technical capabilities that define horsepower, gross takeoff weight, cruise speed, wing load and cruise range in civilian and military aircraft.” People, Ideas & Objects assumes the technical trade-off in oil and gas is accurately reflected in the commodity pricing. Higher commodity prices finance enhanced innovation.

These trade-offs facilitate the ability for industries to innovate on the changing technical and scientific paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs the change and is usually abundant and available at low costs. For innovation to occur in oil and gas, People, Ideas & Objects would assert that the ability to seek and find knowledge, and to collaborate are two “commodities” that are abundant today. With their inherent low direct costs, knowledge and collaboration are the triggers for a number of technical paradigms which will provide companies with fundamental innovations.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part III

In our previous post we introduced revenue per employee as a factor of determining the innovativeness of a producer firm or Joint Operating Committee. Asking if the calculation would provide a reasonable comparison of the innovativeness that exists. However, would this calculation reflect the quality of assets, the size of the firm or its actual innovativeness? That is the question that is being answered in this post.

Clearly the revenue per employee would reflect many factors other then the innovativeness of the firm or JOC. However, would the comparison of revenue per employee over multiple periods be a determining factor of innovativess? I think it would. That the increase / decrease in the factor would be as a result of an increase or decrease in price and volume, with the volume being particularly affected by the changes and innovations that occurred over the period in the firm or JOC.

Much analysis has been undertaken to determine the actual outputs from innovation and compare those to the input costs and attempt, as one does in today’s technology environment, to determine a return on investment on technology, innovation and research and development.

Professor Dosi reviews a number of studies that focus on quantifying the output part of the equation. These are comprehensive in the number, heterogeneous in the conclusions, yet, Dosi feels he has been able to find a number of threads that determine which factors or characteristics are influential and of crucial importance in the economics of technological change.

Professor Dosi states “In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Solutions to technological problems involve the use of information derived from experience and formal knowledge. It is the specific and un-codified capabilities, or “tacit-ness” as Professor Dosi describes “on the part of the inventors who discover the creative solution.”

It is therefore asked specifically, how can the knowledge, information and capability of oil and gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of new problems and creation of their solutions? Clearly some companies are more effective at this process then others, but this research in oil and gas asks, is there a means for an organization to provide a quantum increase in its ability to innovate that leads to higher trajectories of performance based on production revenue per employee?

If the knowledge of the underlying oil and gas sciences increases in its understanding, what organization structure can best facilitate innovation? Would “any” organizational structure have a requirement to parallel the changes and developments in the sciences? How are the scientific problems, the refinement of models, the discovery and success of innovative thinking communicated throughout a bureaucracy? Self-organizing teams, as represented by the JOC, provide the most effective and efficient means of organizational structure.

It is this enhanced innovativeness that using the JOC as the key organizational construct provides. Matching the faster pace of change in the underlying sciences and mapping the necessary changes within the organization will be a means of increased performance within the producer / JOC. Providing the foundation for the producer to build their competitive advantages and scientific and engineering capabilities.

In addition to providing a strong competitive advantage to the producer firms, use of People, Ideas & Objects software applications would also provide the most profitable means of oil and gas operations. Recall this is the competitive advantage of this software development project and the Community of Independent Service Providers. We provide this second value added process to the innovative producer by ensuring that the most effective division of labor and specialization, defined and supported by the software, are used in the day to day operations of the oil and gas producer.

Therefore when we consider the calculation of revenue per employee, we see these two forces in play. The first being the producer / JOC moving with the changes in their earth science and engineering capabilities. And secondly, with the most profitable means of oil and gas operations based on using the People, Ideas & Objects software applications enhanced division of labor and specialization, and our Community of Independent Service Providers.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part II

In this the second part of our review of the Preliminary Research reports summary of innovation. We note Professor Dosi’s key factors of innovation, and its application to oil and gas. One of the breakthroughs that was determined in the Preliminary Research report was the use of revenue per employee as a means of determining what the producer firm and / or Joint Operating Committee could use as a determination of its level of innovativeness.

In determining the key factors of innovation Professor Dosi notes:

The search, development and adoption of new processes and products in market economies are the outcome of the interaction between:

• Capabilities and stimuli generated with each firm and within the industry of which they complete.

and

• Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.

Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.)

Based on the capabilities and stimuli of innovation present in the oil and gas sector, particularly the microeconomic effect of the commodity prices, it is reasonable to conclude that oil and gas would be an area where significant innovation can and needs to occur. The primary reasons for the future enhanced innovation is due to the following analysis of the industry.

The capacity to enhance reserves is significantly more challenging than as little as five years ago. Exploitation is generally expected to continue, however, an enhanced role for various degrees and types of exploration is expected to commence. The energy frontier brings many new risks and complexity in the area of technical, political and the environment. These account for much of the changes in stimuli and capability that Professor Dosi states is required to facilitate further innovation.

Secondly, microeconomic trends associated with changes in the relative prices of outputs. Oil and gas prices are beginning to reflect the scarcity, importance and value of the commodities to society.

To attain concurrence on these factors of innovation would be easy. What is needed in oil and gas is a measure of innovativeness that could be applied to the oil and gas producer or to a specific JOC. As was mentioned in the opening paragraph of this post, the Preliminary Research determined that an appropriate measure of innovativeness is the revenue per employee of a producer firm or JOC. Differences in performance are imputed to be the overall net result of the investments, both organizational and science based capabilities, and innovativeness of the firms. To make an effective change in the revenue per employee requires a substantial effort to increase the output of the firm or JOC. We will contiue to use and elaborate on this factor throughout our remaining review.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Professor Giovanni Dosi, Part I

We now begin a review of Professor Giovanni Dosi’s 1988 paper “Source, Procedures, and Microeconomic Effects of Innovation.” This was the key paper that was reviewed in the Preliminary Research report. As a result of the publication of this paper, Professor Dosi has gone on to become one of the premier authorities on business innovation.

Professor Dosi’s article discusses the role of innovation in the market economy and assumes companies in a free market are willing to invest in science and technologies to advance the competitive nature of their product offering or internal processes. The key aspects of Professor Dosi’s theories that make them directly applicable to oil and gas are the innovation theories application to earth science and engineering disciplines. These disciplines are key to the capability and success of oil and gas firms search, and production of, hydrocarbons. The investment in science and technologies is with the implicit expectation of a return on these investments, but also, to provide the firm with additional structural competitive advantages by moving their products costs and / or capabilities beyond that of the competition. Professor Dosi note:

Thus, I shall discuss the sources of innovation opportunities, the role of markets in allocating resources to the exploration of these opportunities and in determining the rates and directions of technological advances, the characteristics of the processes of innovative search, and the nature of the incentives driving private agents to commit themselves to innovation.

We have asserted in People, Ideas & Objects that higher commodity prices are a re-allocation of the financial resources towards the innovative producer. This is reflective of the changes from the easy energy era, to one that will be dominated by the earth science and engineering capabilities of the innovative producer. What is necessary is for producers to build People, Ideas & Objects Draft Specification which will enable them to align their resources towards innovation. That alignment being the movement of the compliance and governance frameworks of the hierarchy to the legal, financial, operational decision making, cultural and communication framework of the Joint Operating Committee (JOC).

One of the difficulties in reviewing this paper is the comprehensive nature of its content. I recall how difficult it was to review during the Preliminary Research report, and it appears to have only maintained its degree of difficulty. The content of the paper is accurately reflected in this following quotation.

The discussion will aim to identify (a) the main characteristics of the innovative process, (b) the factors that are conducive to or hinder the development of new processes of production and new products, and (c) the processes that determine the selection of particular innovations and their effects on industrial structures. 

Recall two of our four research questions are to determine if the processes of innovation are able to be reduced to a quantifiable and replicable process, and, does the JOC facilitate the means to innovate. It would appear to me that the selection of this paper to review these research questions. Was the reason we are / were able to answer these difficult questions. Professor Dosi notes:

There are two major sets of issues here: first, the characterization, in general, of the innovative process, and, second, the interpretation of the factors that account for observed differences in the modes of innovative search and in the rates of innovation between different sectors and firms and over time. 

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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What is Structuration?

The Preliminary Research Report reviewed a variety of papers that fall under the topic of Structuration. What is this and why is it important to People, Ideas & Objects and the innovative oil and gas producer. Here are excerpts from the review and how they affect this project.

Professor Anthony Giddens initially published “The Constitution of Society: Outline of the Theory of Structure”, Berkeley, University of California Press and his theory is well articulated through the following excerpt from “Using the Structurational Model of Technology to Analyze an ERP Implementation” by Olga Volkoff, of the Richard Ivey School of Business.

From the perspective of structuration theory, adaptation is the joint effect of the actions of individuals and the institutional structures within which those actions take place. Structures such as business strategies, organizational culture, reward and control systems, patterns of communication, and professional norms both enable and constrain the daily activities of people, but do not wholly determine them. At the same time, while individuals can choose to act in ways that will either reinforce or alter those structures, their choices are not independent of the structures within which they take action. This “duality of structure” - the recursive (re)production of institutional structures through the ongoing daily social practices of individuals - allows change to emerge in ways that are not wholly predictable. 

I think within this quotation we see the reasoning why the oil and gas producers have such difficulty in meeting the demands of innovation. The Joint Operating Committee holds the “actions of individuals, and the institutional structures” that are not recognized by the ERP systems that are available in the marketplace. Therefore you have two disparate organizations, the JOC and the bureaucracy, operating in two different structures, creating conflict and contradicting one another.

Giddens’ theory of structuration is further define by Professor Wanda Orlikowski’s 1992 comments: “the duality of structure refers to the structure of social systems: human actions create a social systems institutional properties and these properties then serve to shape future human actions.” The notion of structuration has three aspects.

• It refers to a social process that involves the reciprocal interaction of humans with the structural features of an organization. 
• Human actions are enabled and constrained by structures, yet these same structures are the result of previous actions.
• Structural properties mediate human action and, at the same time, are reaffirmed through human use. In other words, institutional properties are both the medium and the outcome of interaction.

The Preliminary Research report looked at structuration from the perspective of how the current oil and gas organizational structure is defined through the social, legal and environmental influences that provide that structure, and of how the organization in turn provides structure to the social and human elements. People, Ideas & Objects are focused on building ERP systems that identify and support these organizations.

The JOC has explicit legal, ownership, financial and procedural authority and control of the field operations as the standard of operations and conduct in oil and gas, on an international basis. Financial investment in an oil and gas property qualifies for participation on the committee where the operational control is agreed to and implemented. This research asserted that this operational control has significant implications on the internal operations of the participating organization. The facility design, capital budget, legal agreements and the decision making processes are constrained, Giddens’ theory would suggest, by a variety of forms and structures that comprise the basis of operations for the entire industry.

As Thomas Davenport noted in his paper “The Strategy and Structure of Firms in the Attention Economy” 2002,

Strategy and structure are mental constructs, important not in themselves, but for their impact on the people in the organization. Strategy and structure are also the vehicles for focusing attention. 

Clearly stating that by moving the compliance and governance frameworks of the bureaucracy to be in alignment with the legal, financial, operational decision making, cultural and communication frameworks of the JOC. This realignment will eliminate the conflict and contradictions that occur between the two organizational constructs. This realignment will also increase the attention and focus of the individuals involved within the producer firm and the JOC, and by moving compliance to be in alignment with the operational decision making authority, accountability is enhanced. Lastly, as we will document as this review progresses, innovation is enabled.

Another key component of Giddens theory is that there is an inherent risk of failure if the progress of one element is out of step with the other two. Society, organizations and people need to move in lock step to avoid failure. This has been explicitly interpreted for the purpose of this research that the progress of society and people is either inhibited or facilitated through the actions that form the organizations. Currently individuals and society are dictating larger volumes of energy be sourced and provided by the market. If the bureaucracies that exist today, are unable to meet these demands then we will most certainly see failure.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Oracle - Adopting a Successful IT Strategy

A quick break from our review of the Preliminary Research Report, the Draft Specification and subsequent research to pick up an interesting point of view on technology. Oracle Vice-President and Fellow Frank Buytendijk talks about the application of technology to the organization.

In my own professional development, I’ve gone full circle. Twenty years ago, I started out being an MIS developer, but in the last number of years I have spent a lot of time on the soft side, looking into subjects such as impact of behaviors, values and culture. 

I have come to the conclusion that in order to successfully adopt such a strategy paradigm, you need to have a solid enterprise architecture. So I have gone from IT to business and back to IT. In the end that is only logical. Since the dawn of mankind, the key to progress has been in technology. A spear is technology, and it changed the way we hunted, the types of animals we could hunt, and the productivity of our hunting. We need to adapt to technology instead of the other way around in order to be successful. When the circular saw was invented, it became better to bring the wood to the saw instead of the other way around.

An interesting development in the thinking involved in ERP systems. One that I think summarizes the position of People, Ideas & Objects in building the Preliminary Specification. Taking the advanced Information Technologies and applying them in new ways to the Joint Operating Committee.

The moment we think technology should adapt to the organization, things start to go wrong. We will try to apply the circular saw to the wood. Unhandy, not to mention dangerous. Translated to modern IT, it leads to costly, inflexible solutions that don’t do what you want — and we’ve all seen our share of those.

Basically, we have forgotten that the way organizations look today is based on the constraints of yesterday. They are as technology-dependent as we’d like to prevent today. The moment we apply modern IT and adapt it to the organization, we are doing two things wrong. We are not improving the organization, and we are using unfit technology (the old technology had a much better fit).

Essentially stating that new technology needs to address new organizational constructs. So when People, Ideas & Objects use Cloud Computing to solve the networked effect of participants in the Joint Operating Committee, we are applying new technology to new organizations. Or when we use Oracle’s new Fusion Applications, which will be announced later this month, to identify and support the Joint Operating Committee, we are applying new technology to new organizations. We have chosen to let IT take a leading role in supporting the successful and innovative oil and gas producer.

The role of IT in your strategy is a choice. If you choose IT to have a leading role, you should let yourself be led by IT.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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McKinsey, When Failure is not an Option

McKinsey Consulting are publishing a three part series on what they describe as the Joint Venture (JV). Entitled “When Failure is not an Option: Making Joint Ventures work for capital projects.” The article notes the role of JV’s in oil and gas and other industries, JV’s are of course one in the same as the Joint Operating Committee (JOC), the key organizational construct of People, Ideas & Objects Draft Specification.

This paper provides further support for the development of the Preliminary Specification and the research that has been conducted by People, Ideas & Objects. It is satisfying that the worlds number one consulting firm are publishing these types of articles. Prospective users and  members of the Community of Independent Service Providers need to see this type of support to ensure their efforts are put towards providing success for the innovative oil and gas producer.

Joint Operating Committees are initiated for a variety of reasons, to reduce capital risk, to include other producers throughout the aerial extent of the property, or to include needed resources and capabilities. Industry has established a culture around using the Joint Operating Committee that is reflected in many of the processes that are used. This culture has developed as a result of the Joint Ventures that are systemic throughout the industry. Whether it’s through agreement, the Operating or Accounting Procedure, partnerships are what the Joint Operating Committee was designed to reflect. McKinsey states;

Historically, project developers have relied on the operating versus non-operating partner construct. However, companies are also increasingly leveraging JV constructs as a way to bring broader expertise into the project, build local talent and industries and retain sovereign ownership. In the oil and gas industry for example, a major project is likely to include a “supermajor” international oil company (for whom this project is part of a very large portfolio), an independent (who may be betting the company on this project), a passive investor (with a purely financial focus), and a national oil company (owned by the government where the project takes place). 

The Draft Specification has specific attributes that resonate with this perspective. First there is the enhanced participation enabled by the Partnership Accounting module. This module deals with the various ways in which partners may contribute to the Joint Operating Committee. Noting in the quotations example the passive investor, national oil company and international oil company each have differing costs and contributions. Permitting each of the firms to contribute fully, in their own unique way, to the successful development of the project. Secondly, the participants that are noted in the McKinsey quote, independents, start ups, international and national oil companies, are the targeted market for the People, Ideas & Objects software applications. Having each of the partners within a JOC with the same software development capability is a necessity, and the key deliverable of People, Ideas & Objects.

Noting the need for change, McKinsey details what is required for these organizations to deal with the enhanced participation enabled by the Partnership Accounting and other modules of the Draft Specification.

On top of the massive scale and obvious technical complexity, these new, multi-operator constructs

• increasingly embody multi-cultural perspectives (both corporate and sovereign),
• frequently represent divergent strategic priorities for the individual owners,
• generally struggle with the governance and performance management challenges associated with any multi-parent structure and
• often lack a single point of accountability for key decisions.

Addressing each of these points has been the topic of discussion in our Review. Having differing types of participants and cultural influences within the Joint Operating Committee is becoming commonplace. We had determined that each participant could pursue their own unique strategy within the property. We developed the Military Command & Control Metaphor to deal with the governance and performance management challenges. And lastly addressed the accountability for the decisions that are made within the JOC and the producer firm. Most importantly, the Draft and Preliminary Specifications are developed to address and resolve these very issues.

Next, consider that the “new generation” of project JV has multiple layers, as both the owners and contractor teams rely on individual partnerships to deliver the project. As this phenomenon evolves, it should be no surprise that we see an explosion of risk and management complexity, given the sheer number of stakeholders involved and the more sophisticated tools and processes needed to deal with project intricacies.

In the Resource Marketplace module of the Draft Specification we have included the service industry as critical elements of the success of the innovative producer. McKinsey are right to suggest the level of risk and complexity will increase further as a result of having the need to develop the support industries. Innovation at the producer level needs the service industries to be intimately involved in developing the products and services the producer demands.

Studies show that about 50 percent of all JVs do not succeed. Moreover, studies of large capital projects indicate that cost overruns from 50 to over 100 percent are common. So, when we consider this double-barreled risk of often-unsuccessful JVs managing often- unsuccessful mega-projects, we recognize that the difficulty project JVs have in aligning and operating effectively is a major reason why large capital projects often fail. Given the strategic importance these projects represent to participating partners, it is clear that JV organizations must be effective if a project is to meet expectations for predictability and performance.

There we have it, the world’s number one consulting firm clearly stating that joint ventures fail due to the difficulty in aligning and operating effectively. People, Ideas & Objects, its prospective users, the Community of Independent Service Providers through the Draft Specification are moving the compliance and governance frameworks of the hierarchy into alignment with the cultural, legal, financial, operational decision making and communication frameworks of the Joint Operating Committee. Laying the groundwork for the producers involved in the JOC to be successful. McKinsey quote a Harvard Business Review article that reflects these elements are necessary at the commencement of the JOC.

In their seminal article in the Harvard Business Review, Banford, Ernst and Fubini suggest four areas on which to concentrate the early planning and launch of any JV:

1. Strategic alignment. This ensures that each partner’s disparate goals, priorities and business models are recognized and reconciled.
2. A “loose-tight” governance model. This ensures that each partner’s needs for accountability and control are met, while at the same time, the project’s need for independence and authority is also respected.
3. The economic interdependencies between the project JV and each partner. They will impact the extent and means by which human, technical, and other resources are invested in the project.
4. Building the project organization. The parent organization should contribute their best people to the considerable challenges a major project presents, overcoming the frequent perception that such assignments are not always the best path to promotion.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

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Eliminating the Conflict

In the Preliminary Research Report, in addition to the advantages of using the Joint Operating Committee (JOC) we listed the disadvantages of the conflict between the JOC and the traditional hierarchy. What becomes clear in listing these disadvantages, is the overriding focus on compliance and governance by the hierarchy. Tax, SEC and Royalty requirements at times appear as the sole focus of the organizations. The operations within the JOC are a distant second in terms of dealing with the business of the producer.

I am speaking of course from the business perspective dictated by the use of the ERP system of the producer, not the technical perspective of the earth science and engineering production operation. The separation between the administration and the earth science and engineering focus within the producer is something that is being eliminated in the Draft Specification. Lets call this well known phenomenon of “no one reading from the same page”.

Oil and gas operations are unique based on their geographic and geological makeup. Applying blanket corporate strategies to these operations was possible in the easy energy era. In today’s marketplace the need to have unique operational strategies for each oil and gas property is a necessity and is accommodated in the Draft Specification. What is not needed is the conflict and confusion within the producer that is as a result of no one reading from the same page.

One of the breakthroughs from the research People, Ideas & Objects has conducted is that the differing operational strategies that are employed by each of the producers in a JOC are possible and appropriate. Each producer has a unique make up of assets and strategies and those can be enabled through the use of People, Ideas & Objects Draft Specification. Without the systems needed to support these differing strategies, the confusion and conflict will only grow, potentially in exponential ways.

The conflict between the separation of the compliance and governance of the hierarchy and the five frameworks of the JOC are reflected in each of the following points.

Introduces political and bureaucratic conflict.

This is the first and most damaging aspect of no one reading from the same page. When strategy, operations and administration are all moving in different directions within the organization, conflict is the result. The solution in the Draft Specification is provided by moving the compliance and governance from the hierarchy and aligning them with the legal, financial, operational decision making, cultural and communication frameworks of the JOC.

Compromises and muddles internal decisions.

What may be ideal strategy to optimize the property may be unknown to many of the decision makers within the producer firm. The operational decision making resides with the JOC. The decisions made by these organizations are not communicated effectively through the producer firm. Time necessary to make decisions and the bureaucracy have the effect of slowing the capacity of the producer.

Lacks the direct support from the hierarchy.

When no one is reading from the same page, it seems that the administration is moving in different directions from the technical groups. For cost reasons, having everyone reading from the same page isn’t a luxury but a necessity.

Successes and / or failures are not identified, shared or learned explicitly by any of the participating organizations. Knowledge is held tacitly, limited amounts of knowledge is codified or make explicit.

As decisions and strategies are confused, the ability to learn from the decisions is lost. Innovation is an iterative process based on the success and failure and the history of the property. In a science and applied engineering business that requires more scientific effort for each barrel of oil produced, the decision history and understanding of the underlying knowledge of the property become necessities.

Eliminates initiative and innovation. No tolerance for risk taking or experimentation that is required for innovation.

Building on the previous point regarding success or failures, when no one is held accountable for the decisions that were made, initiative and innovation fall to the sidelines.

No regulatory or internal financial reporting requirements.

The standard reporting of an interest in a JOC is fairly standard. People, Ideas & Objects have published a Technical Vision of how Information Technology will change in the near future. This Technical Vision foresees a substantial increase in the volume of data that is available to a producer. With the Performance & Evaluation and Analytics & Statistics modules, the producer can expand their use of this data in innovative ways.

The hierarchically based organization is an impediment to future progress.

This has been discussed by many. Although People, Ideas & Objects subscribe to this thinking, we are offering a viable solution by recognizing the Joint Operating Committee and developing an alternative governance structure in the Military Command & Control Metaphor in the Draft Specification.

Capacity to replace reserves has become logistically, operationally and organizationally constrained.

The long term perspective of a producer firm is reflected in their reserves. To expand their reserves a producer has a scientific capability, that in addition to their reserves, are its critical competitive advantages. These capabilities are the differences between success and failure.

Capacity to meet the market demand is diminishing.

The overall effect of these points is that the ability of the industry to expand its productive capability has stalled. As the world has more people entering the middle class, the lack of market supplies of energy will bring significant societal issues to all concerned.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Technorati Tags: People's Review Accountability Development Failure Innovation Organization

Military Command & Control Metaphor - Innovative?

Last week in research question # 1 we asked if the hierarchy’s value had expired. Suggesting that elimination of the hierarchy would require an alternative governance framework to replace the tried and true hierarchy. Recall that the alternative framework we developed in the Draft Specification is what we call the Military Command & Control Metaphor (MCCM). It might seem a contradiction to suggest that the military chain of command enables innovation at the producer level. The military is known for its strict adherence to command and control, how is this going to assist the innovative producer? And isn’t the use of the MCCM going to cause the Joint Operating Committee to be less responsive as a result?

First is the fact that the strict level of adherence is a reflection of the command and control that is implemented. We are attempting to impose an organizational structure on to the various members of the producer firms that have been seconded to the specific Joint Operating Committee. These resources are being sourced from a multitude of organizations, they also continue to have responsibilities to the individual producer that they represent. Therefore imposing this structure allows them to interact, respecting the equivalent military chain of command used, in a manner that is expected of them in both the JOC and at the producer firm that employs them.

Second is the innovative footing that we are striving to provide to both the producer and the JOC. This innovative footing seems counter to the military command and control expectations. Victor Davis Hanson is a well known military historian. In this video at around the 33:00 minute mark, he makes the interesting comment noted just below the video.

I still can’t believe as a military historian that we came up with the idea that a flying fortress was going to go over daylight at about 200 miles an hour and supposedly at 30,000 feet knock out the strategic capability of Germany. And depend on a few 50 calibre machine guns to save this lumbering plane that had as few as nine crew members and they were going to be fighting against the finest fighter pilots in the world in ME-109’s and they think they can pull it off when the British had tried it and had already assumed that it was impossible. And we did that of course and we lost 25,000 Americans, six times more then in the Iraq war, on that flawed concept. But that's the nature of war, live and learn. And out of that we learned what. You could stack formations to increase fire power. You could create drop tanks and have Thunderbolts and Mustangs escort them. You could use radio signals, you could use chafe. And by that trial and error counter response, response, counter response by 1945 the B-17’s were taking a lethal toll on German society and industry. And that is what usually happens in war.

And at 1:01 minutes, based on his experiences Professor Hanson states;

There is more free speech in the military then there is in a university campus.

In this example I see two characteristics at play. The first is the ability of the higher command to maintain the focus on a difficult and costly job for the long term. Secondly, the ability to innovate in the use of the resources to achieve the long term goal, success in its mission. Compare this, or any other military operation, against the capabilities of the hierarchy and I think we can see the use of the Military Command & Control Metaphor will enhance the JOC’s and producers that use, prospectively, People, Ideas & Objects software applications.

For the industry to successfully provide for the consumers energy demands, it’s necessary to build the systems that identify and support the Joint Operating Committee. Building the Preliminary Specification is the focus of People, Ideas & Objects. Producers are encouraged to contact me in order to support our Revenue Model and begin their participation in these communities. Those individuals that are interested in joining People, Ideas & Objects can join me here and begin building the software necessary for the successful and innovative oil and gas industry.

Technorati Tags: People's Military-Command Review Change Governance Innovation