The Preliminary Specification Part CCLX (K&L Part XXXIII)

A recent McKinsey Newsletter begins with “In a world of unprecedented volatility, the unprepared will be sorely tested.” Lets hope that no oil and gas firms are caught unprepared without an innovative oil and gas ERP system like People, Ideas & Objects. As we enter the era of insatiable demand for energy. With fixed earth science and engineering resources, reorganization is the only manner in which we can approach the situation at hand. “Unprecedented volatility” will provide remarkable opportunities for those that are users of the People, Ideas & Objects Preliminary Specification. I believe it will be necessary to not only own the oil and gas asset but to also have access to the software that makes the oil and gas asset profitable. Such are the times that we find ourselves in.

In his paper “Innovation Process and Industrial Districts” Professor Richard Langlois discusses Industrial Districts (ID’s). Which are small geographically located groups of vendors that work together to produce products and services. They are for all intents and purposes the same as what we have been describing as the service industry or marketplace that a Joint Operating Committee would access during an operation in the field.

As we have shown, much of the attractiveness of compact, highly-localized areas of production results from their ability to reduce search costs, but this is accompanied by the risk that the knowledge available in any given district may be substandard. But new information and communications technology (ICT), may make it possible for firms to draw more cheaply and effectively on diverse sources of knowledge and therefore to increase their access to innovative ideas (as well as their ability to market their own innovations if they wish) (Langlois, 2003; Christensen, 2006). This may not undermine all aspects of the operations of IDs because differentiation and specialization retain their importance, and proximity is useful in just-in-time and other lean ways of organizing production. For innovation, however, an ability to tap wider sources of knowledge quickly and cheaply can reasonably be expected to allow firms all along supply chains to consult more broadly than in the past. Improvements in ICT and new search techniques, many of them associated in one way or another with the Internet, not only increase access to knowledge but may force innovation on firms that in the past could shelter in IDs. Because their customers can be better informed, firms in IDs need to keep up to date in order to maintain competitiveness. p. 20

In the previous quote the customer is the Joint Operating Committee. The expectation through the Research & Capabilities and Knowledge & Learning modules is that the marketplace or ID’s will be state of the art in terms of their capabilities. That may not be the case, and most probably will not be the case. There are a lot of international firms that operate within the service industry. And these form the foundations of what these ID’s are. But in most cases they are local and to assume that they are able to organize themselves in a manner that will optimize the Joint Operating Committees needs is incorrect.

Here again, I think the problem is one of conceptual imprecision. It is perfectly common, and often unobjectionable, to contrast a market and an organization, that is, to contrast the institution called a market and the institution called an organization (such as, notably, a firm). But the opposite of “organization” in the abstract sense is not “market” but disorganization. More helpfully, the opposite of conscious organization is unplanned or spontaneous coordination. In this sense the market-organization spectrum (and similar spectra one could imagine) are arguably orthogonal to the planned-spontaneous spectrum. One could well wonder, as I have (Langlois 1995), whether large organizations do not in fact grow far more as the unplanned consequence of many individual decisions than as the result of the conscious planning of any individual or small group of individuals. And it is certainly the case that, as Alfred Marshall understood, both firms and markets “are structures for promoting the growth of knowledge, and both require conscious organization” (Loasby 1990, p. 120).

Expecting the service industry to provide the Joint Operating Committee with “conscious organization” of disparate firms and organizations is wrong. The Knowledge & Learning “Planning & Deployment Interface” use of the Military Command & Control, AFE, and Job Order systems provides the means in which to put some organization within the ID. And in turn provides the Joint Operating Committee with...

Charles Sabel and his collaborators have begun looking into the nature of the relationships that characterize the New Economy (Gilson, Sabel and Scott 2008; Jennejohn 2007; Sabel and Zeitlin 2004). And what they find is not common ownership or hierarchy but rather a “form of contracting [that] supports iterative collaboration between firms by interweaving explicit and implicit terms that respond to the uncertainty inherent in the innovation process” (Gilson, Sabel and Scott 2008, p. 3). The New Economy may be highly organized. But it is fundamentally contractual, in a way that large Chandlerian multi-unit enterprises are not. These latter, properly understood, are indeed fading away in a world of extensive, capable, diversified markets.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCLIX (K&L Part XXXII)

We turn now to the topic of innovation with Professor Richard Langlois paper “Innovation Process and Industrial Districts”. There are two primary processes of innovation within the Preliminary Specification. One is within the Research & Capabilities module and the other is here in the Knowledge & Learning module. Each of these processes work in different ways to capture innovation in a manner that is effective and efficient for both the producer firms and the Joint Operating Committee.

Innovation is based on the generation, diffusion, and use of new knowledge. p. 1

In the Research & Capabilities module innovation is developed through the research and application of earth science and engineering to the assets of the firm. These innovations are then developed fully to ensure that they are proven capabilities in which the firm can deploy. Then they are listed in the “Dynamic Capabilities Interface” in which they are deployed to the pertinent Joint Operating Committees of the firm to use. This process is to ensure that none of the testing of the innovation is repeated in each of the Joint Operating Committees, only proven and fully tested capabilities are included in the interface.

While it is possible to conceive of a firm that is so hermetic in its use of knowledge that all stages of innovation, including the combination of old and new knowledge, rely exclusively on internal sources, in practice most innovations involving products or processes of even modest complexity entail combining knowledge that derives, directly or indirectly, from several sources. Knowledge generation, therefore, must be accompanied by effective mechanisms for knowledge diffusion and for "indigenizing" knowledge originally developed in other contexts and for other purposes so that it meets a new need. p. 1

The second major process of innovation is contained within the Knowledge & Learning module of the Preliminary Specification. It is a hands on, ad-hoc type of innovation that is as a result of the new knowledge that is expected in the marketplace. Even with the tight operational control that we have established in the Knowledge & Learning module. It is possible to have high levels of innovation occur. With a strong command and control environment the ability to get an operational command decision to implement some new tool, or procedure is easily attainable. It’s not like someone has to wander around looking for someone who might have authority. With the Military Command & Control Metaphor and the Job Order System it will be obvious who has the appropriate authority and responsibility in terms of making the decision to implement a new innovation.

Once these new innovations have been implemented in the Knowledge & Learning module it is important to be able to assess their impact on the operation. Updates to the “Lessons Learned” interface will be necessary, and it should also be necessary that the firm whose capability it was that was used for the operation is informed of the updated innovation so that they may update the information for their capability in their “Dynamic Capability Interface”.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CCLVIII (K&L Part XXXI)

We now want to take a quick look at a paper from Professor Richard Langlois entitled “Chandler in a Larger Frame: Markets, Transaction Costs, and Organization Form in History.” In particular we want to focus on the topic of tacit knowledge and how that is handled in the Knowledge & Learning module of the Preliminary Specification. Recall that tacit knowledge can not be captured in the “Dynamic Capabilities Interface”. Only explicit knowledge can be captured there. The fact that you can only capture “text book” knowledge is a limitation that all systems must deal with.

The knowledge that is captured in the “Dynamic Capabilities Interface” is very rich and includes the information necessary to undertake the operation from the point of view of all of the people that will be involved. Included in that information is the roles and responsibilities of the individuals who will undertake the command and control of the operation. They are the ones with the tacit knowledge of the operation.

Much knowledge - including, importantly, much knowledge about production - is tacit and can be acquired only through a time-consuming process of learning by doing. Moreover, knowledge about production is often essentially distributed knowledge: that is to say, knowledge that is only mobilized in the context of carrying out a multi-person productive task, that is not possessed by any single agent, and that normally requires some sort of qualitative coordination - for example, through direction and command - for its efficient use. p. 359 

This direction, or command and control, is exercised through the Military Command & Control Metaphor (MCCM), the AFE associated with the operation and the Job Order System of People, Ideas & Objects Preliminary Specification. Having these three tools available allows the tacit knowledge to be deployed in a highly controlled environment. The MCCM enables the multi-person tacit knowledge to be mobilized and coordinated efficiently. The AFE allows control over the budget of the program. And the Job Order System enables execution of the individual orders and commands. The “Dynamic Capability Interface” provides the resource for all the people to determine their role and responsibility, and ensure that everyone is on the same page in terms of the objectives and deliverables of the operation.

In a world of tacit and distributed knowledge - that is, of differential capabilities - having the same blueprints as one competitors is unlikely to translate into having the same costs of production. Generally, in such a world, firms will not confront the same production costs for the same type of productive activity. Moreover, the costs that can make transacting difficult, and may lead to internalization, can go beyond those that arise in the course of safeguarding against opportunism or damping moral hazard through monitoring or incentive contracts. In such a world, economic activity may be afflicted with "dynamic transaction costs," the costs that arise in real time in the process of acquiring and coordinating productive knowledge. Members of one firm may quite literally not understand what another firm wants from them (for example, in supplier contracts) or is offering them (for example, in license contracts). In this setting, the costs of making contacts with potential partners, of educating potential licensees and franchisees, of teaching suppliers what it is one needs from them, and the like become very real factors determining where the boundaries between firms will emerge. pp. 359 - 360 

We should remember that the participants in any operation will be derived from a variety of organizations. They will be as a result of a pooling of the partnership represented by the Joint Operating Committee. And the representative members of the field service industry who are providing services to the operation. All of these people have the tacit knowledge that is necessary for the operation to be completed. It needs to be coordinated and directed in order for it to be made effective. It is with these four tools the “Dynamic Capabilities Interface”, the Military Command & Control Metaphor, the AFE and the Job Order System that tight operational control of any oil and gas operation will be available to the Joint Operating Committee.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCLVII (K&L Part XXX)

It would appear that we have fallen a bit off track of the Knowledge & Learning module of the Preliminary Specification. However it is at the Joint Operating Committee that the bureaucracy have very little in which to do. Therefore it seems opportune to discuss the fact that the bureaucracy needs to fade from the scene in order for the operational work to be done. Today’s post carries on with the theme of kicking the bureaucracy and highlights how they have failed in the past. This brings up a brief review over the next few days of Professor Alfred D. Chandler’s work through the writings of Professor Richard Langlois.

It is at the Joint Operating Committee that all of the action within the industry is conducted. That is to say that most of the field operations are commanded and controlled as proposed through the Knowledge & Learning module of the Preliminary Specification. Therefore it will naturally be where everyone will be trying to stick their fingers into to be part of the action. You can be certain that the bureaucracy will be there asserting that they need to have such and such report by midnight. Let's be mindful of their ways and means and ensure that doesn’t happen.

One group that People, Ideas & Objects have attempted to appeal to is the investors of the oil and gas industry. As Professor Chandler notes in his work, capital started everything. Chandler's review of corporate history shows the role of the merchants. Investing their capital and skills, merchants were the ones that started the ball rolling. I see no reason why we can’t turn to the investor and C class management of the oil and gas industry and expect that they be the ones that lead in this next phase of the industry.

After all it is the investors who are the ones that have the most to lose. Management have no stake in the firm. If a crisis were to strike a firm, the management would resume elsewhere. It is the investor and debt holders who will shoulder the costs. Management currently hold the reigns, and are mindful that their options may lay elsewhere. Ownership, in the same fashion as the merchants needs to start over. Starting over begins with supporting People, Ideas & Objects and the Preliminary Specification.

The possibility of a management failure is not new, it has happened before. Professor Chandler noted that management have failed before. During the great depression, a time when government had to increase its involvement in the economy. Management may not see the more global picture, and therefore, may fail again. During this great recession we see that many things have changed. The oil and gas industry has certainly changed. Information Technology is also having an effect. The time to act is now as there is much work in which we need to do.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CCLVI (K&L Part XXIX)

We are continuing with our review of Professor Langlois paper “Institutions, Inertia and Changing Industrial Leadership”. As we move to identify and support the Joint Operating Committee in the manner that is described in the Knowledge & Learning module of the Preliminary Specification. Change from the status quo bureaucracies is seen as difficult and troublesome. How that transition occurs is through two possible alternatives. One the existing producers can atrophy and die a slow and painful death. Or alternatively, the decision can be made to build the Preliminary Specification and move to the Joint Operating Committee as the innovative construct of the oil and gas industry. If only it was that easy. The decision to make the change is the appropriate choice to make however there are other considerations that need to be made.

One of those considerations is the inertia that exists within the current institutions. Many of the producers have been developed through an era of low energy prices where the survival skills were needed. Innovation was not something that was rewarded and as such did not exist. Now that we are within reach of the era of insatiable energy demand, the need for innovation is the key and that must become the culture of the firm. Therefore in the Knowledge & Learning and other modules of the Preliminary Specification, whether it is by atrophy or by decision, the development of the culture and the Preliminary Specification will always be an “outside” of the mainstream kind of development.

Overall, then, inertia exerts two principal influences on the ability of firms to cope with innovation. Inertia is often a product of successful adaptation to earlier innovation, as a firm develops ways of operating that appear to be so well suited to its internal and external environment that it sees no reason to change. In many instances, this adaptation may prove so effective that the firm can retain a total cost advantage for a prolonged period despite using an outdated technology because it can still capitalize on its master of compatible support and ancillary operations, while firms adopting a new, and technically more efficient technology, are still wrestling with the expensive process of acquiring the endogenous and exogenous institutional backup necessary to gain full value from the innovation (Hannan and Freeman, 1989). p. 7

There is no doubt that we will have difficulties in developing and implementing the technologies involved in the Preliminary Specification. And there will be times when the costs seem to outweigh the benefits. However, in the long run is there a choice other than to pursue these changes? And this fact needs to form the commitment that people have to make to ensure the necessary changes take place. There will always be those that resist the changes, and there is little that can be done about that. What is needed is for those that can make the change to follow through. There is also room for those who have not chosen to fully commit to the project and will keep their firm back from the edge. That room is provided through the ability to second staff to the People, Ideas & Objects project during its development. This providing a bridge between the old and new for both the people and the firms, and has the added benefit that it shores up the resource needs of the development team.

Another aspect of capabilities that has recently received a great deal of attention is organizational culture. In practice, not all organizations may be equally able to cope with change, as existing patterns of behavior involving both executives and subordinates may be resistant to change. Organizations develop collective habits or ways of thinking that can be altered only gradually. To the extent that a given culture is either flexible or consistent with a proposed change in product or process technology, the transition to the new regime will be relatively easy. If, however, the culture is incompatible with the needs posed by the change and is inflexible, the viability of the change will be threatened (Robertson, 1990; Langlois 1991; Camerer and Vepsalainen, 1988). p. 9

After all we are not talking about minor changes to the floor plan for accounting. We are exercising wholesale changes to the oil and gas industry by adopting the Preliminary Specification, and fully utilizing the Joint Operating Committee. Change that is as significant as that which is represented by the change in energy prices and the global demand structure we face. This will not be done successfully in a fashion that smooths over the rough edges.

Teece... fails to note that the inflexibility, or inertia, induced by routines and the capabilities that they generate can raise to prohibitive levels the cost of adopting a new technology or entering new fields. Such inertia can develop to the extent that existing rules are both hard to discard and inconsistent with types of change that might otherwise be profitable. p. 10

Creative destruction has such a profound ring to it. It's times like these that we see the scope of change and the need for change clashing with the desire for change. Some might look back and say that the North American gas business refused to change, and as a result change was forced upon it. Who knows.

Whereas major competence enhancing innovations may, in time, be assimilated, the creation of entirely new organizations may be needed to deal with innovations that undermine the capabilities or competencies of existing firms. p. 11

It is as I have suggested that People, Ideas & Objects will be there one way or the other.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCLV (K&L Part XXVIII)

It is through the Preliminary Specification that we are able to see that the development and use of the Joint Operating Committee is an important innovation for the oil and gas industry. By moving to the use of the systems defined in the Preliminary Specification producers, Joint Operating Committees, service industry participants, people and society will all benefit. That from many different perspectives, and in many aspects the changes that arise are a result of what can only be described as a significant innovation. It also has an equal and opposite effect in terms of the response from the established management. They don’t want wholesale change of this scale. Change that will have the effect of reducing the demand for their skills.

They, the management, have effectively managed the natural gas business in North America. The Deer in the headlights response to the natural gas prices shows that the level of “inertia” in the oil and gas industry is strong. It is to muddle along. Take what is given and survive for another day. Is this the appropriate footing for the innovative oil and gas producer in the era of insatiable energy demand? Quotes for today’s post are from Professor Richard Langlois paper “Institutions, Inertia and Changing Industrial Leadership”.

Here we concentrate on explaining the part played by inertia in causing economic displacement. We argue that inertia is often a rational response for firms or governments even after an important innovation becomes available, and that changes in economic leadership, whether on the level of the firm or the nation, may be inevitable when there is significant innovation. p. 4

Its not that the decline in natural gas prices were something that shocked the marketplace. Everyone knew that overproduction was occurring. And its not that the methods that People, Ideas & Objects Preliminary Specification implements are that innovative to stop overproduction. Its just that the way that the business is run needs to change, the inertia has to be overridden with the methods and means that are detailed here in the Knowledge & Learning and other modules.

There is a range of explanations of inertia. One set is the "real" or, in the narrow sense, "economic" explanations that look to abstract variables like demand levels, factor endowments, and relative prices to justify the failure of some organizations to change. A second reason for inertia is simple incompetence, when managers are either too stupid or too idle to adopt desirable new methods. p. 4

We’ve seen the devastation that low natural gas prices have brought to the shareholders in the industry. What’s the plan for the future? Will it all be ok tomorrow? Or should we begin to rebuild the business from the basis of the Preliminary Specification. A basis that deals with the issues that are prevalent in the oil and gas business. One that provides an innovative footing for the future when demand outstrips supply. And then we will be better able to deal with the issues and opportunities of that day.

Here, we concentrate on the influence of institutional variables on inertia. Institutions may either retard or encourage innovation. If the institutional structure is unsuited to a new technology and inert, change will be difficult to implement. When existing institutions are flexible or well adapted to the requirements of an innovation, however, change will be accomplished relatively easily. p. 5

Now is the time to retire the bureaucracies to their permanent Florida vacation. They have forcefully resisted People, Ideas & Objects at every opportunity. I don’t see any opportunity for cooperation, nor do I see any need for their cooperation. This can be done by the people who make the industry work. The entrepreneurs, the movers and shakers and the people who know there has to be a better way. The alternative is as Professor Langlois states a slow and painful atrophy.

And institutional change, we argue, can often take place through the more or less slow dying out of obsolete institutions in a population and their replacement by better-adapted institutions - rather than by the conscious adaptation of existing institutions in the face of change. p. 6

The choice therefore is simple. Either way People, Ideas & Objects will be providing the future oil and gas industry with systems based on the Joint Operating Committee. It’s up to those in the industry today to decide if they want to atrophy and die, or make the change.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCLIV (K&L Part XXVII)

We continue our discussion on the forces of change in the Knowledge & Learning module. Today we pick up the discussion around the topics of inertia and equilibrium and how they are managed in the Preliminary Specification. To achieve higher levels of economic performance we know that it requires a reorganization of the resources of both the service and oil & gas industries. We have been discussing these changes for the past number of weeks. Our problem comes about as a result of the fact that our society is very advanced and the ability to increase our performance needs to have the necessary software in place first. Without the software no change will take place, and the management of the oil and gas industry are aware of this and are using it to assure that their current positions are never challenged. This has made for a particularly difficult situation for the industry to advance.

Should there be the changes that are suggested in the Preliminary Specification? Should we continue with the SAP perception of what an oil and gas producer is? What is the vision of the oil and gas producer in the era of insatiable energy demand? These are questions best left for others to answer, all I can do is continue to offer the solutions based on the Joint Operating Committee. I would suggest that today’s topics of inertia and equilibrium can best be described in the industry as stagnant and disjointed. But then I am biased. The quotations for today are from Professor Richard Langlois paper “Institutions, Inertia and Changing Industrial Leadership”.

Several features of punctuated equilibrium stand out. Firstly, it is a lengthy process. Even the revolutionary or transitionary phase, in which two or more alternatives vie for success, may be prolonged for decades, or eons in the case of speciation. Secondly, the process, like Schumpeter's: creative destruction," is one of replacement. When there is punctuated equilibrium, the extinction of a species or discrediting of a scientific theory are not enough; there must be a new species available to take over the territory or a new theory to account for the phenomena that the old theory was once thought to explain. Thirdly, each period of punctuated change requires a behavioral shift to ensure alignment between the requirements of the new order and the actions of its agents. This shift might be accomplished internally, if the old agents adapt their behavior to meet the new conditions, or externally if they are supplanted by a new group of agents. Finally, inertia plays a central role in punctuated equilibrium by ensuring that change proceeds by fits and starts rather than smoothly and evenly. pp. 2 - 3

The Preliminary Specification provides for the second item in this quote of “there must be a new species available to take over the territory or a new theory to account”. And it also provides a vision for the third item in the Langlois’ quote of “a behavioral shift to ensure alignment between the requirements of the new order and the actions of its agents.” As we noted yesterday in how the accountants would be motivated to form new and innovative service offerings to their producer clients. So we are well on our way to making the transition to the environment that is described in the Preliminary Specification, despite the actions of management.

I am also operating from two fundamental assumptions that lead me to come to the conclusion that these changes will take. That the stuffing of another ream of paper in the printer is how the system is fed in the oil and gas industry today. That is, the ERP systems that operate today are woefully inadequate for the needs in the era of insatiable energy demand in which we are about to find ourselves in. And that high levels of cognitive dissonance occurs when people read the Preliminary Specification. That is to say it resonates with their understanding of what an oil and gas system should be, and they desire it.

Inertia is the focus of this paper. As is explained in more detail below, inertia has two major functions in the cycle of punctuated equilibrium. Inertia result from, and in a sense embodies, the best feature of the stable phase of the cycle because it is based on the learning process in which producers determine which procedures are most efficient and effective. Once people are satisfied that the know how to do things well, they have very little incentive to look for or adopt new methods. In the words of Tushman and Romanelli (1985, pp. 197, 205), "those same social and structural factors which are associated with effective performance are also the foundations of organizational inertia..., success sows the seeds of extraordinary resistance to fundamental change." Inertia also provides the tension, however, that leads to the (relatively) short, sharp shock of the revolutionary period (Gould, 1983, p. 153) because the pressure required to displace a successful but inert system is considerable and takes time to accumulate. When there is little inertia, change can be assimilated in a gradual and orderly fashion, but an entrenched system may need to be vigorously displaced. p. 3

I know that management need to be vigorously displaced, however the inertia to change will be strong to replace the stagnant and inert systems that so poorly serve the needs of the people, producers, Joint Operating Committees, service industry participants and society in general.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification. 

The Preliminary Specification Part CCLIII (K&L Part XXVI)

We’ve been discussing the expansion of the service industries markets and how the specialization and division of labor are to be employed to expand economic output. The role that the Joint Operating Committee will have in coordinating the operations in the field and how the People, Ideas & Objects Knowledge & Learning module of the Preliminary Specification needs to identify and support these markets and changes. Today we want to discuss how these changes will come about and the probable speed at which they will occur, given if everything these markets need in terms of market supporting institutions were available. Our quotes for today’s post come from Professor Richard Langlois paper “Institutions, Inertia and Changing Industrial Leadership.”

I want to take as an example the accounting service providers that were discussed in the past week. These I think would be fairly representative of the firms that make up the service industry marketplace and therefore would make a good example for the purposes here today. In the two examples that I noted I was slightly condescending and comical toward the accountants in my comments. A little levity is always healthy and everyone likes to poke fun at the accountants. Since accountants make up fully half of the marketplace for users of ERP systems this would seem counter to what is productive in terms of developing People, Ideas & Objects market. There will be those that find the comments offensive and off putting. However there will also be those, and these are the people that I will be most interested in, that find the opportunities that are being discussed. Of spinning off the accounting function from the producer firm to a stand alone service provider as a once in a lifetime business opportunity.

Ruttan Hayami (1984) have proposed a theory of institutional change that is relevant to my story of organizational and institutional change. As they see it, changes in relative scarcities, typically driven by changes in technology, create a demand for institutional change by dangling new sources of economic rent before the eyes of potential institutional innovators. Whether change occurs will depend on whether those in a position to generate it - or to block it - can be suitably persuaded. Since persuasion typically involves the direct or indirect sharing of the available rents, the probability of change increases as the rents increase. And the more an institutional or organization system becomes misaligned with economic realities, the more the rents of realignment increase. pp. 36 - 37

It is the profit motivated accountants that see the opportunity to make a substantial change for their clients and their own personal situation. One that is more enduring and profitable. That is the motivation for the change that will make the transition in the marketplace for the accountants. And it will be the similar changes that are made in the field service offerings. They will see alternative ways of organizing their firms, or have new firms start up, and provide for a further specialization of their skills, experience and knowledge.

Thus the vanishing hand is driven not just by changes in coordination technology but also by changes in the extent of markets - by increasing population and income, but also by the globalization of markets. Reductions of political barriers to trade around the world are having an effect analogous to the reduction of technological barriers to trade in the America of the nineteenth century (Findlay and O'Rourke 2002). Is this a revolution or the continuation of a long - standing trend? Again, the answer depends on one's perspective. My argument is that, just as the American "globalization" after the Civil War was revolutionary in its systemic reorganization of production toward standardization and volume, the new era is revolutionary in its systemic de-verticalization in response both to changes in coordination technology and to plain-old increases in the extent of markets. pp. 52 - 53

As we have discussed the need for these markets to grow and to change must have a dedicated software development team available to support the growth and change. The Joint Operating Committee, the producer firm and the service industry marketplace all need to have People, Ideas & Objects available to change the software to meet these growing and changing needs. Without the ability to have the technology changed will leave the situation in a stagnant and unchanging environment. Despite the demands for change nothing will happen without the software being changed first.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CCLII (K&L Part XXV)

We seem to be bouncing around a bit in terms of our topics here. The order in which I have organized Professor Langlois papers seemed to make sense in terms of topical discussion when I initially set up the order. However, it also seems that we are moving back and forth a bit here in the Knowledge & Learning module of the Preliminary Specification. No big deal, it all seems to work one way or another. Today we want to discuss specialization and the division of labor with respect to the Joint Operating Committee and what we can expect to occur in the future as a result of the demands for more energy. Quotations will be from Professor Richard Langlois’ paper “The Vanishing Hand: The Changing Dynamics of Industrial Capitalism”.

It will be through the “Dynamic Capabilities Interface” that the specialization and division of labor is most apparent. The volume of vendors and suppliers that will be used to conduct an operation will be higher then it is currently. Through the further specialization of tasks in the field, the capabilities interface will need to capture the explicit knowledge of those that are in the field. This specialization and division of labor is necessary in order for there to be an expansion in economic output.

The basic argument - the vanishing hand hypothesis - is as follows. Driven by increases in population and income and by the reduction of technological and legal barriers to trade, the Smithian process of the division of labor always tends to lead to finer specialization of function and increased coordination through markets, much as Allyn Young (1928) claimed long ago. But the components of that process - technology, organization, and institutions - change at different rates. p. 3

I would suggest the extent of the possible changes in the current market is constrained by the use of the current ERP technologies. Having SAP or other ERP systems that do not focus on capabilities or specialization is the issue. When we look at modules like the Resource Marketplace module of the Preliminary Specification and see the “Gap Filing Interface” and note that its sole purpose is to expand the division of labor and specialization in the Resource Marketplace. These are what are needed to lift these constraints from the marketplace and enable these interactions to develop.

But with further growth in the extent of the market and the evolution of institutions to support exchange, the central management of vertically integrated production stages is increasingly succumbing to the forces of specialization. Rather it is an argument that, in a population sense, large vertically integrated firms are becoming less significant and are joining a richer mix of organizational forms. pp. 3 - 4

We have with the Preliminary Specification the coordination of the operation in the Knowledge & Learning module by the Joint Operating Committee. We also have the full extent and encouragement of the market in the Resource Marketplace module. It is not by accident that these two modules are working together to provide both rich markets and strong operational control for the Joint Operating Committee.

Industrial structure, then, is really about two interrelated but conceptually distinct systems: the technology of production and the organizational structure that directs production. Industrial structure is an evolutionary design problem. It was one of the founding insights of transaction-cost economics that the technological system does not fully determine the organizational system (Williamson 1975). Organization's - governance structure - bring with them their own costs, which need to be taken into account. But technology clearly affects organization. Like a biological organism, an organization confronts an environment that is changing, variable and uncertain. Also like biological organisms, business organizations differ in the mechanisms they use to process information and to deal with variation and uncertainty. Nonetheless, as James Thompson (1967, p. 20) argued, all organizations respond to a changing environment by seeking to "buffer environmental influences by surrounding their technical cores with input and output components." pp. 6 - 7

Or as we like to say, SAP is the bureaucracy. To enable the market, specialization, the division of labor and the coordination of operations requires that the technology and the organization be in place. We can all agree that the Joint Operating Committee is the organizational construct. It is the legal, financial, operational decision making, cultural, communication, innovation and strategic framework of the innovative producer. And after part 252 of the Preliminary Specification, we should begin to agree that this is the technology that is necessary to put these necessary ingredients together.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.

The Preliminary Specification Part CCLI (K&L Part XXIV)

In today’s post we want to talk about some of the learning elements of the Knowledge & Learning module of the Preliminary Specification. Having tight operational control during operations leads to a situation where the chance for learning may seem limited. However, the very temporary nature of the operation should lead to the dynamics of the marketplace providing for further learning opportunities. Quotations are from Professor Richard Langlois’ paper “Transaction Cost Economics in Real Time”.

A market form of organization is capable of learning and creating new capabilities, often in a self reinforcing and synergistic way. Marshall describes just such a system when he talks about the benefits of localized industry. (Marshall, 2961, IV .x.3, p. 271) p. 120

In many ways the characteristics of a learning environment are different from that of an environment designed for operational control. Professor Langlois talks about getting everyone on the same wavelength as one of the objectives of operational coordination. And we have done that by unifying everyone around the capabilities in the “Dynamic Capabilities Interface”. This by its nature is counter to the needs of a learning organization.

In this sense, the ability of a large organization to coordinate the implementation of an innovation, which is clearly an advantage in some situations, may be a disadvantage in other ways. Coordination means getting everyone on the same wavelength. But the variation that drives an evolutionary learning system depends on people being on different wavelengths - it depends, in effect, on out-breeding. This is something much more difficult to achieve in a large organization than in a disintegrated system. Indeed, as Cohen and Levinthal (1990a, p. 132) point out, an organization experiencing rapid change ought in effect to emulate a market in its ability to expose to the environment a broad range of knowledge gathering 'receptors'. p. 120

So how is it that these two opposing and contradictory objectives are paired together in one module. There are phases of when the team is being put together, understanding what the operation is and learning the capabilities that are going to be deployed. Bringing in the latest field operations staff and equipment to the job. These are the times in which learning is occurring throughout the group. Then the operational control phase begins in which nothing but the execution of the plan is the concern of the group. The learning is over for the period in which this is happening. There is however, a point at the end of the execution in which the group should input the lessons that they learned into the “Lessons Learned Interface”.

How would learning proceed in a system of decentralized capabilities? As I have already suggested, progress would take place autonomously within the decentralized stages. There would be no need for integration unless a systemic innovation offering superior performance arrives on the scene. Indeed, as we have seen, fixed task boundaries and standardized connections between stages might make innovation difficult with the existing structure, requiring a kind of creative destruction. (Schumpeter, 1950). p. 121

The “Lessons Learned Interface” is presented to the people who are representatives of the participant producer firms in the Joint Operating Committee. Results are also presented in the Compliance & Governance and Research & Capabilities modules of the producer firms for all of the Joint Operating Committees they participate in. There they can update the specific capabilities in the “Dynamic Capabilities Interface” and members of the governance team can see if there are any systemic errors being made throughout the organization.

Although they are at opposite ends of the innovation scale. Operational control and learning within one module make sense when the feedback from those operations is critical to future operations. Learning is a part of innovation and it must update the capabilities of the firm and Joint Operating Committees in order to build value for the long term.

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.

Please note what Google+ provides us is the opportunity to prove that People, Ideas & Objects are committed to developing this community. That this is user developed software, not change that is driven from the top down. Join me on the People, Ideas & Objects Google+ Circle (private circle, accessible by members only) and begin building the community for the development of the Preliminary Specification.