Final - Preliminary Specification - RM

Introduction

A marketplace to support contracting from A to Z. To deal effectively with the Resource Marketplace the producer will need tools to effectively engage with the suppliers for the resources they need. The Resource Marketplace Module provides a window on the “Resource Marketplace” for Joint Operating Committees (JOC) and producers. Anything of value that is contracted between “actors” in the oil and gas, service, software and user community generated businesses will be found, contracted, managed and developed through this module. It's simply a virtual representation of the marketplace. Therefore the negotiation, determination of available resources, determination of transaction costs, contract execution and effective software tools to monitor and verify compliance to the contract are all part of the Resource Marketplace module and its interfaces to other modules of the Preliminary Specification.

Similar interfaces will be provided to the service industries. After all transactions have two parties, the efficiencies of the producers would inherently include the efficiencies to the service provider. If we have an accounting system, then certainly offering these services to the suppliers would only make sense. It is not just producers in the Resource Marketplace. Key to the efficiencies in the Resource Marketplace are the mitigation of transaction cost friction. Friction on both sides of the transaction, because transaction costs in the Resource Marketplace are costs that will ultimately be borne by the producer.

Contained within the marketplace will be all of the producers and suppliers who will be able to define, create and conduct business in this virtual marketplace. The scope and size of the Resource Marketplace should accommodate the needs of Exxon Mobil and their $250 billion annual operating costs down to the single entrepreneur starting out in the business. To preclude any group, profession, organization, or person from the Resource Marketplace would limit the value available to the industry.

Also, to call this just a Human Resource Marketplace would be incorrect because it would limit the participants in the market. Whatever service, product or solution is provided to the energy industry, from either individuals, those employed by producers or JOC’s, or companies providing services to the producers. This should include Schlumberger and anyone directly or indirectly employed in the energy industry.

Defining the Term "Designing Transactions"

I want to discuss what I mean when I say that users of the People, Ideas & Objects Preliminary Specification will “design transactions” in the Resource Marketplace and Accounting Voucher modules. Transaction Cost Economics is an important element of how the energy industry can control its costs and designing transactions is a key to those savings and efficiencies. Also I want to highlight the role of the user as an active agent in making things “happen” in the Resource Marketplace.

As with any marketplace the focus has to be on the user. The user in this case could be representing either a producer, or a service industry provider. A user is someone with access to the People, Ideas & Objects module who would be optimizing the “tasks” and “actors” involved in transactions, and will be able to turn the producers needs into a demand for services in the Resource Marketplace Module.

There are two changes that might make things different in the future as a result of organizing on the basis of using the Joint Operating Committee as the key organizational construct of the innovative producer. One is that designing transactions will become a skill that is going to be used substantially more. And two, the division of labor is going to expand, meaning that the job which may have had a few contractors to complete today, may now have an order of magnitude more in terms of numbers of contractors tomorrow. Consider the following.

When people buy a major item in their lives like a house or a car. They itemize the details of what is, and what is not included in the price. Who is to provide what and the terms and conditions of when the items will be completed. This is what is meant by designing transactions. Its more or less what Lawyers do for a living, or that is to say, it is an important aspect of their work in any commercial sale agreement. This type of work is where the costs and efficiencies of the organization can become onerous or very easy. If a firm has “engineered” their transaction costs down to a fine point then they are able to manage their costs efficiently. This will be the case for an oil and gas producer. Transaction costs include the costs of installation, finance, testing, the specifications, types of materials to be used and the engineering consultants, etc. In oil and gas it is easy to see how these costs, even for a small job could become problematic.

As the producer focuses on their land & asset base and earth science and engineering capabilities. Product and service providers will be focusing on their key competitive advantages. Letting some of the work that they may have done in the past to specialists at different companies. This will increase the number of vendors that a producer will use to do normal operations in the field. This specialization and enhanced division of labor will provide greater efficiencies and cost control for the producer firm through more competitive and innovative solutions. It will also increase the throughput of transactions that a producer will have to deal with and put more emphasis on the designing of transactions.

On the other end of this process is the product or service provider who is able to contract for what the producer needs. They too have interfaces to the Resource Marketplace module that are similar to the producers. These users that may have anticipated what the markets demand is going to be, and are the first to configure an innovative solution and are able to market their product or service effectively in the Resource Marketplace Module. These elements of the competitive market changes are reflective of the producers needs as determined in the Resource Marketplace, and its use of transaction cost economics (TCE). This process involving an iterative loop of constant improvement of the transactions and processes in the energy industry.

Lastly when these resources are discovered by the JOC or producer, the contract negotiation between the two parties can begin to take place. The first step in contracting will be the determination of exactly what the transaction should look like as determined by the Accounting Voucher. This would then lead to the specific negotiations, automation of the creation of the contract, and assignment of the Resources to the contract. From there this software should enable high levels of automation in order to relieve the user from work that is better suited to computers, and focus on the optimization and efficiency of the transaction.

How the Market Must Develop

In many ways the Resource Marketplace module of the Preliminary Specification is the crossroads of many of the other People, Ideas & Objects application modules major processes. It is where the Accounting Vouchers design of transactions will ultimately be exercised. And where the Research & Capabilities overall process of capabilities development will be realized. Maybe most importantly it is a marketplace module where people will be able to buy and sell their ideas for products and services of what the innovative oil and gas producers need. If the Research & Capabilities module is a long term process of maintaining and increasing the earth science and engineering capabilities of the firm and Joint Operating Committees (JOC). Then the Resource Marketplace module is the day-to-day module of implementing the policies from that long term process.

We also see in the Resource Marketplace module some of the efficiencies of using the JOC as the key organizational construct of the innovative producer. And that is an important differentiation of the Resource Marketplace module in comparison to the Accounting Voucher and the Research & Capabilities modules. It is a Joint Operating Committee (primarily) facing module. Therefore it is representative of the many participants of the JOC and therefore will have the influence (industry standardization) of many producers Accounting Voucher needs and Research & Capabilities developments. Optimizing transactions between contracting parties will provide enhanced performance to the overall industry. These changes will not lead to small increments in overall performance, but I believe based on my research into Professor's Langlois and Baldwins theories, will have exponential performance improvements.

Another key point is the tearing down of the basis of Intellectual Property (IP). An industry such as oil and gas which is based on its earth science and engineering needs. After all it is a business based on science. If we are to expand the capabilities in the science and innovation in the industry. We are going to need to solve many very difficult problems. And as we progress the volume of ideas needed will be an order of magnitude of what is required today. These problems can’t be solved in an environment where there is no upside for the individuals to solve them. Addressing the motivation to solve these problems and enabling the people to earn the rights to the Intellectual Property within the People, Ideas & Objects application modules is the first step in making the necessary industry wide changes. This therefore turning the oil and gas industry into a far more dynamic business.

I want to quote some work of Professor Giovanni Dosi’s. Specifically his 1993 article “Hierarchies, Markets & Power” which is a must read for those that want to dive deeper into these subjects. He states a simplistic model of organization will include the following, and I have annotated the area where these are addressed in the modular specification;

The distribution of formal authority. [The military command and control metaphor.]
The distribution of actual power in the above distribution [The people]
The incentive structure. [Innovation, intellectual property, and capabilities.]
The structure of informational flows. [Security & Access Control Module]
The distribution of knowledge and competence. [The people] p. 10
History, so to speak, solidifies into structures which constrain future developments. p 12

The purpose in developing this “Marketplace” is to ensure the future of the industry structure remains flexible and amenable to the changes in the sciences and innovation. But also to attain and maintain the highest performance . And in this next quotation Professor Dosi notes how this will come to be.

Clearly, it is the domain of Schumpeter’s creative destruction’, and of Moore’s (1978) analysis of the social bases of obedience and revolt, to name but two famous examples, and it applies also to the dynamics of economic organizations and institutions at large. p. 13

I’m a big fan of that concept of revolt. What I hope to have been able to put across in the discussion of the Resource Marketplace is the bigger question of how capabilities are generated from markets. Information plays a big role in this and the generation of ideas makes those markets dynamic. Lastly we must rely on the market forces of creative destruction to ensure that today’s bureaucracy loses its hold on the reigns of power (somebody has got to lose), and that we are prepared to have our solution ready.

As we noted, the big problems in oil and gas were not going to be solved until the incentive structures were aligned towards those that solved the problems. Today, in the service sector, the oil and gas industry exploits the lack of identifiable Intellectual Property (IP) by more or less ignoring it and passing it around to other firms in the service sector and its competitors. This lack of respect to those that developed the ideas has brought about a situation where the service providers have ceased to innovate or sponsor any new start-up firms as competition. The producers are the ones that are losing as they are unable to have their needs met by a diminishing capacity in terms of the service industry.

The situation has become so dire as there is little to no research being done and no start-up opportunities in the oil and gas service sector. The exact reverse of what you would think would be needed at a time like this. The oil and gas producers are reputed to be so difficult to work for that securing staff makes it all but impossible to start a firm, and even if you could start a firm, the producers would only look down their nose at you and scoff. Such is life in the rarefied air.

Nonetheless, what's in it for the producers to accept that the IP should pass from their hands to those that will take the time, energy, financial and intellectual risk to solve the producers problems? If we go back to one of the base assumptions that the People, Ideas & Objects software is operating under. We find that the competitive advantages of the producer firm are its physical assets and land base, and its earth science and engineering capabilities. Where in this competitive advantage does any product or service of the oil and gas service industry provide any value to the producer?

The means to acquire, explore, exploit and produce oil and gas reserves are how the producer makes money. That should be pretty obvious, but on the basis of how producers currently manage IP in the industry, they seem to think that drill bits and drill rigs are their future competitive advantages. What the producer needs is the most advanced and dynamic service industry marketplace that is innovative and productive and fiercely competitive in order for it to achieve its optimal productive output. What the producers should ask themselves is what have they got themselves now?

A cultural change of this scope will be difficult to implement. Add this cultural change to the numerous other cultural changes that parallel this scope in the People, Ideas & Objects application modules and you have an idea of the difficulty that lies ahead. These are the difficulties for the management of the producer firms themselves. They are the ones that have to change. And I can’t see that happening. It's a matter for Schumpeter’s creative destruction to sweep out the old and bring in the new. The new being of course the eleven module Preliminary Specification that deals with IP in the manner that will allow for the difficult problems to be solved.

It All Starts With Actionable Information

Our main objective in the People, Ideas & Objects software application modules is to identify and support the innovative oil and gas producer. It is within the Resource Marketplace module that I continually run into the conflict that is currently in the marketplace between the producers and the service industry. This conflict is the issue that the Resource Marketplace module must therefore seek to resolve by first opening up and developing the actionable information that is available within the marketplace.

This actionable information can be captured in an interface that is similar to any contact database. The actionable data can be plans and aspirations of the service industry provider in the short to midterm. For example, if they were a small drilling rig company looking to acquire a new rig they could post within the actionable information area of the database, that they were actively looking for producers within a certain geographical region to contract for drilling in the third quarter of next year. Producers seeing this could then see this opportunity and evaluate it on the basis of further discussions with the vendor. The drilling rig company, having contracts in hand from the producers would then be able to secure the financing and purchase the rig they have specified.

Actionable information can also be from the producer who might be approaching the start-up of a large project and will be looking to staff up to meet the demands. Or a producer may be wanting to develop in a new remote area and needs to have more infrastructure in place. Expressing a need is the first part of having the solution provided. As simple as it may sound this is the beginning of the process of innovation. Professor Giovanni Dosi notes.

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.

Centralizing this information within one location will help to provide the users of it with its ease of use. Lets face it, this information is available on the web in some form if you dig through each company's web site and impute what they mean from their plans. By stating clearly what their actionable plans are within a central database will make it easier for the users to access. The innovation comes about when the plans are not set and the ideas and opportunities are able to flow. Secondly People, Ideas & Objects can throw some processing power at this information and give the user some tools in terms of analyzing this information. Using the Google Appliance to aid in search. Analytical tools to analyze the data.

I want to make clear that this actionable information interface will be different from the interface that is in the Petroleum Lease Marketplace module. Recall there is an interface that takes the capital expenditures of the firms for the next few years, primarily from the AFE and reserves reports, scrubs any proprietary information from it, aggregates all of the producers data and publishes it based on general geographical region. This provides the marketplace with a general understanding of the size of the marketplace in the next few years. And is different from the detailed and producer / vendor specific information that is contained within the actionable information interface. Also recall that this interface is the critical part of the process that begins here and continues through the Research & Capabilities and Knowledge & Learning modules.

A couple of quick points to note. The first item to note is that the Resource Marketplace module is both a producer and Joint Operating Committee facing module. That is to say it will be used in the producer organization for human resources, payroll and for securing the resources that the producer needs. And will be used by the JOC for the field products and services that are needed there. It may be obvious to some that this is the case however, I am stating this for the purposes of clarity.

The other item pertains to the all of the modules in the Preliminary Specification and that is by right clicking the mouse will bring up a contextual menu of options that the user can select an appropriate action from the People, Ideas & Objects software application. Whether this is a Work-Order, a Purchase-Order, AFE, or any of the other documents that are managed in the system. This will be available to the user through this facility.

We have discussed the posting of actionable information in the “actionable information interface” of the Resource Marketplace module. A place where service industry providers and producers were able to post actionable information in a centralized, searchable and analyzable database. Most importantly we noted that this was an important starting point of the process of innovation. It is an underlying assumption of People, Ideas & Objects that high commodity prices are financing enhanced innovation at the producer level. Therefore the need to stimulate innovation between the producers and the service industry starts with this actionable information.

In addition to the funds necessary to finance innovation there are what Professor Giovanni Dosi calls “technical trade-offs.” 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.

Professor Dosi states “In very general terms, technological innovation involves or are 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.”

This is the point that I wanted to make in this follow on discussion to the “actionable information interface.” Where will the innovative solutions come from? Who will solve the problems? It will come down to the person who first sees the problem. And that person may be situated anywhere within the industry. He may be the vice-president of production at mega production company. Or he might be like Steve Jobs who starts out in his parents garage. The point is for the industry to be all inclusive and to have the problems being identified by those who can see them and resolve them with their innovative solutions. I wonder what reading the actionable information interface of 200 producers would provide in terms of seeing what and where the problems were?

Collaboration and Knowledge With the Service Industry

Within the Resource Marketplace module we have detailed what we have called the Actionable Information Interface. This being a central location for producers and vendors to post actionable information about their firm for others to respond to. In terms of the other interfaces that have been detailed in the Preliminary Specification so far, how does this interface fit in, and what role does it fill in terms of the other activities that are taking place in other modules? This discussion hopefully will clarify some of the different perspectives on the data and information that passes through, and is generated in the Resource Marketplace module.

The next interface that would follow the Actionable Information Interface would probably be the blog posts which is part of the Research & Capabilities module. Recall that these blog posts are authored by the people in the Resource Marketplace who are developing new and innovative products that they are working on. The act of publishing these ideas on this site provides the author with the opportunity to earn the copyright and other Intellectual Property rights. I see these ideas being a development of the actionable information contained in the Resource Marketplace module. The ideas being a codification of the market demand for new and innovative products.

The Accounting Voucher module has the interface for designing transactions. The ability to design the transaction to achieve the greatest organizational efficiencies for both the Joint Operating Committee and the vendor will provide significant value add for those in the oil and gas industry. Determining which vendor conducts which operations, when, where and how and then having the system automate as much of the process after the design is completed.

Lastly there is the interface for the processing of payments. This processing is part of the Accounting Voucher module and as we can see with all of the interfaces, all have a strong interaction with the Resource Marketplace module. What we need to capture in the Resource Marketplace module is the data and information that allows these other modules to operate. That is a critical function of the Resource Marketplace module.

Our discussion documented the different interfaces that related to and would source their data from the Resource Marketplace module of the Preliminary Specification. Now we want to discuss how that data is input and maintained, and most importantly who is responsible for that data.

The data in question is the plain generic contact data that is used in business every day. There are other attributes such as the information needed for processing of payments into the vendor's bank account. The majority of this data can be sourced from the suppliers web site, except it won’t be sourced by anyone. That is to say the supplier will maintain their own records in the Resource Marketplace module of People, Ideas & Objects software application.

Since we are a “cloud” based offering we have centralized the processing for the producer clients of People, Ideas & Objects in one location. The need for each producer firm to have detailed records of each vendor that they have worked with will be unnecessary as each supplier will maintain their own record within the Resource Marketplace module. This will save immeasurable amounts of time and errors made in inaccurate records and in duplicating the same information from producer to producer. Each supplier is motivated to ensure their data is correct. If a supplier makes a change of address, then they’ll know the best time in which to make the change to their Resource Marketplace records.

What will need to be done is for the People, Ideas & Objects user community to identify and document the various data elements that are needed in this Resource Marketplace “Supplier Interface.” This will need to include the data and information needs of the interfaces that were documented recently. Which will also include the ability to quantify and qualify the role the supplier and the producer can play when designing transactions.

Recall that the supplier will have many of the same accounting and processing needs as the producer. The objective of People, Ideas & Objects is to ensure that the producer attains the most profitable means of oil and gas operations. That involves the service industry, and therefore we need to have the ability to provide some of the same services to the service provider in terms of processing and accounting as the producer. This processing for the service provider will ultimately lead to lower the costs for the producers.

In our discussion regarding the Resource Marketplace module of the Preliminary Specification I want to talk about the interface that the suppliers will use to get their message across to the producers. Many of the vendors will have web sites in which they maintain a host of information regarding their products and services, however, these are mostly static and provide little opportunity for the supplier and the producer to interact. The alternative that provides for that interaction is contained in the Resource Marketplace module and for purposes of identification we will call this the “Supplier Collaboration Interface.”

In our review of Professor Giovanni Dosi paper “The Sources, Procedures and Microeconomic Effects of Innovation” we learned that technical 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 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.

I want to be clear that I see this interface as being completely different from any of the others that have been listed here before. The one that may seem to be the most similar would be the blog in the Research & Capabilities module where people are authoring “new” ideas and technologies on a stand alone basis. That blog is not done on a collaborative basis but is based on the research efforts of a few individuals or groups. What is being proposed in the “Supplier Collaboration Interface” is a collaborative interface that will invite the entire producer community to participate with the specific vendor to discuss that vendors products and services. These discussions will build on the whole community's involvement and define the vendors offerings in a collaborative manner.

The wiki style of this interface will cut down markedly on the volumes of email that are generated between vendors and producers. Much of this email being of the same context. Finding the knowledge that is needed is the key to resolving the problem, and if the producer knows that a centralized wiki format exists in the People, Ideas & Objects Resource Marketplace module that will be their first choice to turn to. It will pay the supplier to invest their time and energy in maintaining the collaborations with the producers in this Supplier Collaboration Interface style wiki, as that will be the first line of customer service. Complaints as well as accolades will show up and be evident to those that visit the site and therefore the response to those comments will be of concern to all of the producers.

I want to continue on with our discussion of the Supplier Collaboration Interface and focus on the collaborative manner in which producers and participants in the Joint Operating Committees will engage with the suppliers and the importance of the interface in the innovative oil and gas industry. This process is complex and I hope that I’ll describe it well enough that it reflects how critical this interface is.

Oil and gas is a business that is based on the earth science and engineering disciplines. Everything in the field is derivative of these facts. Innovation is based on the understanding of the sciences and in turn will lead to further advances in the sciences. As the industry becomes more innovative the need to be mindful of these facts becomes more common in the approach that is taken. The understanding that is required to undertake the most basic of operations requires significant educational and work experience to do it safely and correctly.

The innovative changes in the industry are mapped through the People, Ideas & Objects software application modules in the following manner. People with the ideas for new products and services write about them and earn the rights to them by publishing them in an industry wide blog in the Research & Capabilities module. And as “knowledge beget capabilities, and capabilities beget action” producers develop their capabilities around their land and asset base. Capturing these capabilities within the “Dynamic Capabilities Interface” of the Research & Capabilities module. This then is organized based on geological zone and the Joint Operating Committee which has certain producing geological zones, has access to its producers capabilities from their Knowledge & Learning modules, for those zones. The JOC is then able to learn from the producers what has and hasn’t worked through the proceeding process and are able to apply the process successfully and document it in the lessons learned section of the Knowledge & Learning module.

This process has been documented in the Preliminary Specification in the modules to date. The issue that we are concerned about is with the last sentence. The part where it says “able to apply the process successfully” will undoubtedly require the interactions with the supplier. 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.” Working within the science and innovative products and services of the oil and gas industry as they develop demands this interaction. The interactions between you and the supplier are important but just as importantly are the interactions that all the producers have had with the supplier. To have these interactions reviewable makes it substantially less risky for the producer and provides a forum where he / she can have their concerns aired.

Why are we developing the Supplier Collaborative Interface? I think that most people understand that doing the same thing over and over is easy. Making the organization alter its routine is difficult and when the change is introduced is when the trouble begins. If we could just leave things the same then we would be better able to produce the oil and gas that we need. Unfortunately those days are gone and the routine in oil and gas is anything but. Professor Dosi notes the following point about this difficult situation.

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

Tension and the uncertain nature of innovative activities says it well. The ability for the producer to mitigate these through the Supplier Collaborative Interface is the reason for this critical interface of the Resource Marketplace module.

Staying with the Supplier Collaborative Interface of the Resource Marketplace module, however relating what is said here to the full scope of the Preliminary Specification. I again want to discuss the reasoning why People, Ideas & Objects is so involved in the operational areas of the oil and gas business. This is an ERP system designed to handle the business aspects of the oil and gas concern. However as we see we can’t separate the business from the science, and when we do we lose our innovative capabilities and innovation becomes just a bad science experiment.

Let's be clear, uncertainty resides in both the scientific and business realms. I am not of the opinion that the two can be separated, as is done in other systems such as SAP. This is maybe why the industry has been poorly served, in my opinion, by the business systems that operate today. They don’t recognize the innovative and science basis of the oil and gas business. By separating them SAP takes away the dynamic that is needed to ensure that the science remains grounded in the business of oil and gas.

Using the Supplier Collaborative Interface will enable the Joint Operating Committee to maintain a focus on the scientific and business uncertainties of the innovations they are implementing. In many cases the people within the JOC will be implementing the technology or innovation for the first time. The supplier and vendor may be still troubleshooting aspects of the technology. The need to be able to collaborate at a high level during this process will be essential through this period of both business and technical risk and uncertainty. Professor Giovanni Dosi notes;

However, even in the case of “normal” technical search (as opposed to the “extraordinary” exploration associated with the quest for new paradigms) strong uncertainty is present. Even when the fundamental knowledge base and the expected directions of advance are fairly well known, it is still often the case that one must first engage in exploratory research, development, and design before knowing what the outcome will be (what the properties of a new chemical compound will be, what an effective design will look like, etc.) and what some manageable results will cost, or, indeed, whether very useful results will emerge. p. 1135

So with respect to all of the interfaces that are in the Research & Capabilities, Knowledge & Learning and Resource Marketplace modules regarding the development of new technologies and capabilities. The actual implementation of the technologies from a business and technical point of view is done predominantly by the JOC in the field at the time it is first used. Having this Supplier Collaborative Interface available to deal with the risks and uncertainty in an innovative JOC is a must have requirement for an ERP systems provider to include in their systems.

I suggest that, in general, innovative search is characterized by strong uncertainty. This applies, in primis to those phases of technical change that could be called pre-paradigmatic: During these highly exploratory periods one faces a double uncertainty regarding both the practical outcomes of the innovative search and also the scientific and technological principles and the problem-solving procedures on which technological advances could be based. When a technological paradigm is established, it brings with it a reduction of uncertainty, in the sense that it focuses the directions of search and forms the grounds for formatting technological and market expectations more surely. (In this respect, technological trajectories are not only the ex post description of the patterns of technical change, but also, as mentioned, the basis of heuristics asking “where do we go from here?”) p. 1134

Separation of the business from the science and the operations was maybe something that could happen in the past. Today and in the future, with the high costs of innovation, the ability to troubleshoot the innovation from a science and business perspective seem to be more of the same thing. I certainly can’t foresee how we can continue to parse the two perspectives from the operation and send the respective “departments” their section of the operation. There has to be a better way and that begins with the Supplier Collaborative Interface. Where the users within the JOC are able to deal with the risks and uncertainties at the time they can be resolved, both from a business and science perspective.

It is in the Resource Marketplace, Research & Capabilities and Knowledge & Learning modules of the Preliminary Specification that we have mapped complex innovation processes of the innovative oil and gas producer. These processes reflect the dynamic nature of both the producer and the service industry during this highly complex era of oil and gas exploration and development. In our discussion of the "Supplier Collaborative Interface," the interactions that will need to occur to complete the last parts of the innovative processes. But there is more for the Supplier Collaborative Interface as it works with the other interfaces in these other modules that have been mentioned.

We will be continuing on with our look at technological paradigms and the effect they have on scientific and innovative trajectories in oil and gas. When discussing these points on innovation, it is important to remember that the sciences, the trajectories they are on, and the opportunities they generate for a producer, are accelerating and will continue to do so. Recall too that the low costs of knowledge and collaboration were the trajectories that are being exploited in the Supplier Collaborative Interface. Professor Giovanni Dosi points out two critical points.

First, new technological paradigms have continuously brought forward new opportunities for product development and productivity increases. p. 1138

Secondly “A rather uniform, characteristic of the observed technological trajectories is their wide scope for mechanization, specialization and division of labor within and among plants and industries.” p. 1138

It is the second point that I want to deal with. The discussion of the Supplier Collaborative Interface about new innovative products and services is inevitably going to lead to “gaps” in products and services that need to be filled. Recall in our research of Professor Richard Langlois that the process of expanding the division of labor and further specialization is through “gap filling.” That when someone sees that a gap is needed to be filled, and is subsequently filled, that is how the division of labor is expanded. So these discussions in the Supplier Collaborative Interface are going to identify the needs to fill a significant number of “gaps” within the Resource Marketplace.

We had discussed this point directly in the Research & Capabilities module. However, I think that the more natural area for these “gaps interface” is in the Resource Marketplace modules Supplier Collaborative Interface. The actual location is one of the points that need to be determined by the user community once the full review of the Preliminary Specification is undertaken by them.

Management of these innovation processes is the role that People, Ideas & Objects Preliminary Specification is undertaking within the producer and Joint Operating Committee. Without the software to define and support these processes the ability for the producer to attain these capabilities is suspect. What the innovative oil and gas producer requires in the 21 century is a software development capability as proposed by People, Ideas & Objects in order to obtain the organizational efficiencies that are of the scope and scale as defined here in the Preliminary Specification. Leaving your innovative strategies to chance have not worked. Innovation is too dependent on multiple organizations working together. These spontaneous collaborations have also not occurred. What we have learned in the Preliminary Research Report is that the processes of innovation can be defined and deliberate. And just as Apple consistently shows the world how to do it, doesn't mean that everyone can.

It's one thing to have the process properly managed by the software. It's another to have the capabilities maintained in-house. And its another to have the innovations developed and applied. Just because the ingredients are there doesn't mean that the producer will be innovative. I can assure you however, based on the research that has been conducted here at People, Ideas & Objects, there will not be any real innovations developed without the processes properly managed by the software first and foremost.

I want to discuss the results that producers and suppliers will obtain from the collaborations that they undertake in the Supplier Collaborative Interface of the Resource Marketplace module of the Preliminary Specification. If we assume that the industry participates at the level that has been imputed in the Preliminary Specification to date. That is to say that there would be a vigorous and unconstrained debate of the issues and opportunities that the producers were experiencing with the service industries products and services. And those discussions were available for the entire industry to review. Would there not be a large leakage of proprietary information from those discussion from one producer to the next? And would this fear of a leakage reduce the participation to something far less than the unconstrained debate that is assumed in the Preliminary Specification?

These are good questions and appropriate concerns. However, just as people who read People, Ideas & Objects Preliminary Specification find different things then other people who read it. It very much depends on the individual's experience in oil and gas, career choice and educational level. This same situation applies to organizations. The capabilities of the producer will dictate what is gleaned from the discussion. Advanced innovative producers will be able to determine the most from the conversation whereas other laggard producers may not fully comprehend the meaning of certain nuances. It will depend very much on the capabilities of the producers and the suppliers that are holding the conversations.

Professor Dosi (1988) notes a study conducted by Richard Levin et al 1984, in which they studied “the varying empirical significance of appropriability devices of (a) patents, (b) secrecy, (c) lead times, (d) costs and time required for duplication, (e) learning curve effects, (f) superior sales and service efforts.” Professor Dosi (1988) observed, “that lead times and learning curves are relatively more effective ways of protecting process innovations, and patents a more effective way to protect product innovations.” Dosi concludes. “Finally, there appears to be quite significant inter-industrial variance in the importance of the various ways of protecting innovations and in the overall degrees of appropriability.” (p. 1139)

It's important to note that there are different objectives being pursued by the producers and suppliers in terms of their innovation strategies. Oil and gas producers are focused on process innovations, industry suppliers on product innovations. Recognizing this division of labor is how the Preliminary Specifications Research & Capabilities, Knowledge & Learning and Resource Marketplace modules processes provide and facilitate greater interaction between producers and suppliers. Each group is concerned with securing their innovative capabilities without creating any conflict with the other. (The producer looking to lead times, learning curves while suppliers using patents to protect their innovations and capabilities.) The fact that these are published in the Supplier Collaborative Interface across the industry brings depth to the discussion but only to the extent that the producers capabilities are able to assimilate the information. In a period of rapidly expanding trajectories, where the shelf life of information is limited, it is appropriate that People, Ideas & Objects Preliminary Specification has enabled the producer to focus their competitive advantages on their earth sciences and engineering capabilities, its land and asset base. The supplier having secured their competitive advantages through the Intellectual Property laws available to them.

Moving to the Decentralized Production Model, as a Capability

In Chapter 4 “The Rise of the Corporation” of Professor Richard Langlois book “The Dynamics of Industrial Capitalism.” In this chapter he suggests that organizations developed “buffers” in order to mitigate the variances in markets. These buffers would include inventories and in oil and gas that would include commercial storage. These “buffers” help to offset the difficulties in the business and make the potential variances dissipate in terms of their magnitude and frequency. Langlois however, notes that buffers come with the cost of a lack of operational flexibility, and as it turns out a whole lot more. Commercial storage of natural gas is at record levels in North America and gas prices reduced to $2.15 / mmbtu at one point. A price that would make most of the gas productions costs exceed the price received.

Professor Langlois states that there are two business models that we can chose from. The “high throughput production” model or the “decentralized production model.” Currently the industry is operating under the “high throughput production” model and through the choice of developing and using the People, Ideas & Objects software we can transform the industry to the “decentralized production model.” This will be a theme that will be discussed throughout the Preliminary Specification. Here is how the two models operate.

In a world of decentralized production, most costs are variable costs; so, when variations or interruptions in product flow interfere with output, costs decline more or less in line with revenues. But when high-throughput production is accomplished by means of high-fixed-cost machinery and organization, variations and interruptions leave significant overheads uncovered. p. 58

When difficult times arise, such as we are experiencing in the natural gas business today, the reaction is to cut back on capital expenditures. This is a blunt and ineffective tool to deal with the problem of overproduction and the real culprit, record storage. What has to happen is the marginal production has to be removed from the market until such time as the price realized covers its costs and a reasonable profit is earned. The decentralized production model will allow the producers to throttle back the production volumes and correspondingly cut back on production and overhead costs, until such time as the prices recover to cover the marginal cost of the production and an element of profit. Otherwise we are going to see these violent over reactions in the prices of the commodities.

To achieve this removal of the marginal production the producers are going to need the restructuring around the “decentralized production model.” This will require the development of software to define and support these attributes in the organization first and foremost. You can’t restructure a fundamental change of this scope in the industry without first making the software that defines and supports that change. That is what we are doing here in People, Ideas & Objects.

The operational decision making framework of the industry is held with the Joint Operating Committee. Within the Petroleum Lease Marketplace module we will have the “Marginal Production Threshold Interface” where the partnership can agree to the volumetric decrease, or shutting in of production based on the point when the marginal costs exceed the revenues from production. If there is a commensurate drop in the costs and overhead of the shut-in marginal production, then the producer will not lose or gain any financial benefit from the drop in production. They will save those reserves for a time when they will be produced profitably. If the industry begins to drop their marginal production in this manner then the declines in prices will be limited on the downside and the record volumes in storage will be yesterday's news.

Within the Resource Marketplace module we will begin to discuss the necessary changes to the makeup of the service industry and resource marketplace. The division of labor and how the services are provided to the producers will need to be changed if in one month there may be no production at certain facilities. Otherwise the industry will have to make due with $2.15 gas.

We want to carry on with the discussion of how the industry would transition to a “decentralized production model” from its current “high throughput production” model through the Resource Marketplace module of the Preliminary Specification. We will be using the example of the Production Accountant and the changes that would need to be made in order to make the transition from one model to the other. Using the type of analysis that will be needed to be made during the development of the People, Ideas & Objects software. And is one of the reasons for the high costs of this software development.

The Production Accountant will be primarily working with the Material Balance Report and associated reports contained within the Accounting Voucher module. Recall that the Material Balance Report is a Joint Operating Committee report that is prepared on behalf of all the participants in the various JOC’s that are captured in the report. That would denote that the Production Accountant would also work for the JOC. It is therefore asked why would they work for a specific producer? Since the Material Balance Report seeks to balance a facility or area that the JOC has their facility or interest in, then the Production Accountant can bill their services to the JOC. Taking this to the next logical step why doesn’t the Production Accountant work on all of the facilities in the region for all of the JOC’s? That way there would be an efficiency and understanding of the overall region in terms of what is happening. The Production Accountant could be responsible for handling the Material Balance Report and associated reports for the entire region. Then if the region were to grow into a large gas facility, then the Production Accountants could organize themselves into a service provider that could service their clients on the basis of a renewed specialization and division of labor. This process would also provide the producers with the desired transition to the “decentralized production model” in that no production accounting service fees would be incurred if no production came from the facility that month.

The method to analyse and organize the transition to the Production Accountant as a service provider is based on the following.

...objects that are transacted must be standardized and counted to the mutual satisfaction of the parties involved. Also in a transaction, there must be valuation on both sides and a backward, compensatory transfer - consideration paid by the buyer to the seller. Each of these activities - standardizing, counting, valuing, compensating - adds a new set of task and transfers to the overall task and transfer network. Thus it is costly to convert even the simplest transfer into a transaction.

Although as we mentioned at the beginning, and noted in the quotation, this analysis is costly, however because it is being done once on behalf of the subscribing producers to People, Ideas & Objects. And assuming that we gain significant volumes of subscribing producers, the costs to each producer of this analysis is immaterial.

By standardizing, counting, valuing and compensating the tasks and transfers of the Production Accounting role and embedding the results within the Resource Marketplace and Accounting Voucher modules of the Preliminary Specification we can provide the value to the Joint Operating Committees in this fashion. If you believe that producers should have their own army of Production Accountants then we probably disagree on how the job should be done. It is in the Petroleum Lease Marketplace module that the selection of either the partnerships agreed to production allocation, or how do you say “factual” basis of production allocation should be made. We understand that there are these two methodologies. Usually the smaller plants follow the chemical facts. The larger plants usually follow the agreements. People, Ideas & Objects Preliminary Specification Accounting Voucher modules Material Balance Report can report in either fashion. Leaving the job of the Production Accountant to be politically inert as to how to allocate the production.

In discussing the role of the Production Accountant and the scope of the changes that are contemplated as a result of the Preliminary Specification. I am reminded of the George Bernard Shaw quotation.

The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore, all progress depends on the unreasonable man.

We continue to discuss the revised division of labor and specialization that would be done through the Resource Marketplace module of the Preliminary Specification. Moving the Production Accounting role to the Joint Operating Committee, having a service provider focus on a specific geographical region to report on for all the producers represented there, and reorganizing the work to increase the throughput of the accounting function should be the objective of the analysis and process management of the Resource Marketplace module. This analysis will also depend heavily on the “Transaction Design Interface” of the Accounting Voucher module.

First of all what are we trying to do here. The idea that I have in mind is that which is referred to as an “Encapsulated Network.” Within this network which might represent a large gas plant that aggregates gas from thousands of wells from many miles and from many different producers with many different kinds of gas. Will be one Production Accounting service provider residing in the region providing services to all of the producers and gas plant and gathering system owners. They will be the ones who will be preparing the Material Balance Reports for all of the Joint Operating Committees in the Accounting Voucher of the People, Ideas & Objects system. Each molecule of gas, as it moves through the system of production on to its sale contract will be reported through the various Material Balance Reports and the associated other production related reports. And as it incurs a point where it can be, standardized, counted, valued, compensated in terms of a production accounting transfer, then the system will account for that transfer on behalf of the Production Accounting service provider. At the end of the month the billing of the systems Production Accounting will total up the various transfers for the Encapsulated Network and bill the individual Joint Operating Committees for their share of the Production Accounting costs for the month. Professor Langlois notes two important things with respect to these Encapsulated Network and transactions.

Encapsulated Network in a larger system of production is to facilitate complex transfers without making all of them transactions. p 28

and

The most significant fact about this system, is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on... Frederick Hayek (1945)

Now that each process within the Production Accounting role has been defined in terms of its revenue generating capabilities then the service provider can organize the service on the basis of where and how they earn the most profits. Either by providing those services at the lowest costs or by providing those services which are the most technically difficult will bring the highest profits. The point being that the service provider is free to reorganize the service in any way that they can in order to provide a better service at lower cost. That imputes a greater division of labor and further specialization. A process that they will become more expert in as time passes and as such will be the source of their future profitability.

The Role of Software Development, as a Capability

We now turn to the capabilities view of the Preliminary Specification. Capabilities are such a critical part of innovation and we have the Research & Capabilities module that focuses on the firms capabilities. But what are they and where do they reside? We have shown how the Preliminary Specification would provide the capability to suspend production in the “Marginal Production Threshold Interface,” until the marginal costs of production are realized by the commodity price. By using the “decentralized production model,” the production and overhead costs, like the costs of Production Accountants, would not be incurred without any monthly production. Maintaining the firm's profitability and saving the reserves for a time when prices are more favorable.

We have listed the capabilities of the firm in the Research & Capabilities module and they are accessed through the Knowledge & Learning module by the various Joint Operating Committees. We have used the football analogy to describe how they are formulated and deployed through a variety of interfaces but we have not discussed in any detail what the content of the pages of the “Dynamic Capabilities Interface” are. Lets first of all be clear, it is the Joint Operating Committees that employ the engineers and geologists from their various firms that are running the show and that is why the modules are configured that way. The information that is contained within the “Dynamic Capabilities Interface” is for them to project manage the service industry members in the Resource Marketplace module.

Let's take a brief walk down the differences between what exists today and what needs to change in the People, Ideas & Objects Preliminary Specification. One area of Professor Richard Langlois’ research is in what is called Transaction Cost Economics (TCE). The market model requires that “transactions” occur between separate economic units. These transactions create “friction” in terms of the resources necessary to process the transaction itself. Therefore in the past, to avoid the costly friction of transaction costs, firms hired people as employees to conduct a variety of tasks and only told them what was required in exchange for a paycheck. This mitigated the cost of paying someone $5.00 to type a letter each time you needed that task completed etc. Langlois et al states that with the automation of transactions through the current Information Technologies, transaction costs, paying the individual $5.00 to type the letter, can be reduced to an immaterial level. This is happening at a time when coincidentally the scope of operations of the hierarchy have spanned to an impossible level. The hierarchy must now make a choice, either fully integrate and take control of all of the means of production, or decentralize and let the market provide for the means of production. The Preliminary Specification assumes the latter and the Resource Marketplace module will provide the capabilities for the producer firm and Joint Operating Committee to achieve those capabilities from the market. From Professor Langlois’ Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.

However, a new approach to economic organization, here called "the capabilities approach," that places production centre stage in the explanation of economic organization, is now emerging. We discuss the sources of this approach and its relation to the mainstream economics of organization. pp. 1

and

One of our important goals here is to bring the capabilities view more centrally in the ken of economics. We offer it not as a finely honed theory but as a developing area of research whose potential remains relatively untapped. Moreover, we present the capabilities view not as an alternative to the transaction-cost approach but as complementary area of research pp. 7.

We have captured some of the elements in the already mentioned interfaces of the modules of the Preliminary Specification. Additional interfaces would include the “Transaction Design Interface” of the Accounting Voucher module. And in the Resource Marketplace module we have discussed the three interfaces; the “Actionable Information Interface,” “Supplier Collaborative Interface” and the “Gap Filing Interface.” Each of these would be used in some fashion in discussion of moving to a “decentralized production model.” There are however, many more elements of this research that we will discover and develop as we continue.

It was during the Preliminary Research Report that I coined the phrase that “SAP is the bureaucracy.” Nothing turns your organization into cement like a good old fashioned SAP install. What the innovative oil and gas producer needs is an organization that will remain open and flexible to innovation, and a software development capability like that proposed here by People, Ideas & Objects. As we continue our review of capabilities, this discussion will focus on the need to have the organizational flexibility in terms of a capability to accommodate the innovations within the oil and gas producer and Joint Operating Committee organizations. A capability, much like the capability to shut in production until prices recover, brought to the producer through the Resource Marketplace module of the Preliminary Specification.

Having the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer is the first point in this exercise. Having the legal, financial, operational decision making, cultural, communication, innovation, and strategic frameworks aligned with the compliance and governance frameworks is necessary. To have the Preliminary Specification built as software with a fully supportive user community, and Community of Independent Service Providers will ensure that the innovative producers needs for change are not left unmet. To have all of this available without a dedicated long term software development capability to accommodate the needed changes in the organizational structures of the innovative oil and gas producers would be wasteful in my opinion. And these software development capabilities are indeed necessary according to Professor Richard Langlois’ research in capabilities.

The legacy of this "path-dependent” history, we will argue, has been a tendency (albeit an imperfect tendency) to respect an implicit dichotomy between the production aspects and the exchange aspects of the firm or, to put it another way, between production costs and transaction costs. p. 5

In the Preliminary Research Report we noted Dr. Wanda Orlikowski's Model of Structuration, which is based on Dr. Anthony Giddens Theory of Structuration, and by extension software defines the organizational construct. Therefore, within Orlikowski’s Model of Structuration, I have asserted the existing software applications define, support and constrain the organization. Professor Langlois has prepared similar findings in his research with the following point.

Seldom if ever have economists of organization considered that knowledge may be imperfect in the realm of production, and that institutional forms may play the role not (only) of constraining unproductive rent seeking behavior but (also) of creating the possibilities for productive rent-seeking behavior in the first place. To put it another way, economists have neglected the benefit side of alternative organizational structures; for reason of history and technique, they have allocated most of their resources to the cost side. p. 6

If we want an innovative oil and gas industry then the first thing we should do is ensure that we have the capability to maintain the organizational flexibility. The flexibility necessary to ensure that we do not constrain ourselves unnecessarily, and define and support the behavior that we desire. This is the role of software in the 21st century. People, Ideas & Objects are bringing this capability to the oil and gas industry, and its time for the industry to act.

Coordination of Markets

One of the areas of research of Professor Richard Langlois is the boundary of firms and markets. The Preliminary Specification relies on the Resource Marketplace module to provide the capabilities to the producer and Joint Operating Committee from the greater marketplace as represented by the oil and gas service industry. How this boundary is formed, and its definition, is important in determining the economic organization of the oil and gas industry.

[I]t seems to me that we cannot hope to construct an adequate theory of industrial organization and in particular to answer our question about the division of labour between firm and market, unless the elements of organization, knowledge, experience and skills are brought back to the foreground of our vision (Richardson 1972, p. 888).

We have briefly discussed the determining role that transaction costs have in how a firm operates. If transaction costs are high, then the firm will seek to mitigate the transactions by hiring employees to conduct the tasks and reduce the number of transactions to a few paychecks. If transaction costs are low, as we are now seeing with the aid of Information Technology, the ability to source the work from the market, from the lowest cost producer is the ideal choice. Professor Langlois notes.

Production costs determine technical (substitution) choices, but transaction costs determine which stages of the productive process are assigned to the institution of the price system and which to the institution of the firm. The kinds of costs are logically distinct; they are orthogonal to one another. As a result, issues of economic organization - such as the boundaries of the firm - cannot turn on considerations of production costs. Present-day theory has not only bought into this view but has arguably reinforced the separation. p. 10

In a nutshell, the boundaries of the firm can not be defined by production costs. The methods the industry will use to organize its production is through the ability of transaction costs to determine the origin of the production cost from either the market or the firm. With the makeup of the oil and gas industry. Conducting detailed, logistically complex, field operations in remote geographical regions. To conduct these operations internally has never been a choice, so for the Preliminary Specification to choose the boundary of the firm and market in this manner is not contrary to the culture of the industry. What we are attempting to do is to apply Professor Langlois’ theories to the culture of the oil and gas industry and determine the appropriate way forward. I think however, that the conceptual model of transaction cost economics considers that there will be “thicker” markets and a greater volume of transactions contemplated between the producer firms and Joint Operating Committees, and the marketplace. Thicker markets then what is represented in the current industry configuration. The Preliminary Specifications Resource Marketplace module considers these “thicker” markets would develop as a result of the changes in producers actions from using People, Ideas & Objects software.

Theoretically sound, but... That brings up the question of how are the capabilities that are needed to undertake the significant and complex work coordinated?

As we will argue in more detail below, there are in fact two principal theoretical avenues closed off by a conception of organization as the solution to a problem of incentive alignment. And both have to do with the question of production knowledge. One is the possibility that knowledge about how to produce is imperfect - or, as we would prefer to say, dispersed, bounded, sticky and idiosyncratic. The second is the possibility that knowledge about how to link together one person's (or organization's) productive knowledge with that of another is also imperfect. The first possibility leads us to the issue of capabilities or competencies; the second leads to the issue of qualitative coordination. p. 11

and

A close reading of this passage suggests that Coase's explanation for the emergence of the firm is ultimately a coordination one: the firm is an institution that lowers the costs of qualitative coordination in a world of uncertainty. p. 11

If we consider the Research & Capabilities and Knowledge & Learning modules “Dynamic Capabilities Interface” as the starting document of how the firm is capable of achieving a task. The actual implementation is in either the Research & Capabilities or Knowledge & Learning modules “Planning & Deployment Interface” which brings in the capabilities from the “Dynamic Capabilities Interface,” the Military Command & Control Metaphor for the resources seconded to the project, and what is not clear in the either of those modules, yet, the resources from the Resource Marketplace module that will be the elements that complete the work in the field. It is in the “Planning & Deployment Interface” that Coase’s qualitative coordination concern is resolved by the people directly employed by the producer firm or Joint Operating Committee.

The competitive advantages of the innovative oil and gas producer. Are their land and asset base, and their earth science and engineering capabilities. What the Resource Marketplace module of the Preliminary Specification provides is the means for the producer and Joint Operating Committees to coordinate those capabilities from the marketplace. We will introduce the interface within the Resource Marketplace module that will assist in making the supplier a key contributor to the firms or JOC’s capabilities.

At this point we have the suppliers and vendors maintaining the key contact information for their firms in the “Vendor / Supplier Contact Database.” This is done to increase the accuracy of the information and reduce the time required for each of the producers to maintain the vendor contact data necessary. What will be required is for the producer to select the vendor as being a supplier that the firm will use; either as a producer, or in one of its Joint Operating Committees. This tagging will be determined through a process that the People, Ideas & Objects user community will determine. Upon selection in the “Vendor / Supplier Contact Database” it will bring in a variety of other vendor supplied data that will assist the user in the “Planning & Deployment Interface” of the Research & Capabilities or Knowledge & Learning module. Data such as their key field staff, members of their operational staff and their roles that can be assigned within the Military Command & Control Metaphor etc. This will also provide access to their calendars and other information if the resources were selected in the “Planning & Deployment Interface.”

What this denotes, and so much of the Preliminary Specification requires, is that the People, Ideas & Objects system is not a stand alone software application for one firm. It is a holistic industry-wide solution that spans the oil and gas industry and the service industries that support it. In order to achieve this type of integration requires the level of cooperation that is reflected in the People, Ideas & Objects user community and Revenue Model.

The question also becomes how does the energy industry acquire its capabilities? For some time it has employed a hybrid market / integrated firm strategy, that has left it openly critical of its suppliers and vendors. Clearly its not working. Professor Langlois notes.

The organizational question is whether new capabilities are best acquired through the market, through internal learning, or through some hybrid organizational form. And the answer will depend on (A) the already existing structure of capabilities and (B) the nature of the economic change involved. p. 21

The consequences of economic change are clear, as to where they will fall I guess is at question.

If a profit opportunity requires a configuration of capabilities different from what already exists in the economy, the Schumpeterian process of creative destruction may be set in motion. p. 21

It is stated clearly in the Revenue Model of People, Ideas & Objects that our core competitive advantage is that we provide the innovative oil and gas producer with the most profitable means of oil and gas production. So it would seem that Schumpeter is right!

To suggest that the Preliminary Specifications interfaces and the methods of innovation that are used in the Preliminary Specifications Resource Marketplace, Research & Capabilities and Knowledge & Learning modules will operate in an environment that is similar to what the oil and gas industry operates in today misses the point of how the industry will have to reorganize itself to undertake the workloads of the future. It will be under an advanced division of labor and specialization that more work will be able to be done with the same resources. This applies most specifically to the earth science and engineering resources of the industry, however, it also applies to all areas of the oil and gas and service industries. How the task is completed today may be fundamentally different from how the task is completed in the near future. That is almost a given.

To coordinate this group of disparate individuals and organizations falls to the Joint Operating Committees. A reliance on the market is the only conceptual model that can be contemplated for the future innovative oil and gas industry. To approach this task without the software identifying and supporting the innovative processes will most certainly lead to failure. Professor Richard Langlois in his paper Capabilities and Governance noted the following two points.

Either way it boils down to the same common-sense recognition, namely that individuals - and organizations - are necessarily limited in what they know how to do well. Indeed, the main interest of capabilities view is to understand what is distinctive about firms as unitary, historical organizations of co-operating individuals. p. 17

and

In a world of tacit and distributed knowledge - that is, of differential capabilities - having the same blueprints [or software] as one's 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. p. 18

The costs of coordination, and how that coordination is done are about to change. It will be those producers that participate in the People, Ideas & Objects user communities that will gain the greatest advantages. They will have their unique needs met, and will be able to reorganize themselves to accommodate the software, and optimize their role in coordinating their capabilities. In a working paper entitled “Organizing the Electronic Century” Professor Langlois states.


Moreover, by taking advantage of a range of capabilities far wider than the boundaries of what even the largest firm can encompass, a network of specialist suppliers and competitors is better able to exploit the value of a complex and potentially modular product architecture.

Change Management

Among the many areas of research of Professor Richard Langlois is modularity. Modularity builds on the boundaries between the firm and markets and is the reason that the Preliminary Specification has eleven modules. The primary advantage gained by using modularity is the ability to manage change. By isolating the impact of the change to one module, the impact of the changes are therefore manageable.

Modularity is a very general set of principles for managing complexity. By breaking up a complex system into discrete pieces - which can then communicate with one another only through standardized interfaces within a standardized architecture - one can eliminate what would otherwise be an unmanageable spaghetti tangle of systemic interconnections. p. 1

People, Ideas & Objects impact is beyond just the software that is proposed to be developed. Organizations such as the producer firm, the Joint Operating Committee and the service industries participants are all impacted as a result of the modules in the Preliminary Specification.

What is new is the application of the idea of modularity not only to technological design but also to organizational design. Sanchez and Mahoney (1996) go so far as to assert that modularity in the design of products leads to - or at least ought to lead to modularity in the design of the organizations that produce such products. p. 1

and

Why are some (modular) social units governed by the architecture of the organization and some governed by the larger architecture of the market? p. 2

It is in the Revenue Model that People, Ideas & Objects assert that these software developments are not just for the oil and gas producers. They are for individuals, society, and the service industry as well. To focus only on the producers misses some of the “who” we are developing these systems for.

The set of design rules that guide social interaction are what we can generally call social institutions (Langlois 1986). These rules determine (among other things) the extent to which, and the way in which a society is a modular system. The desirability of modular design is a theme with a long history in the theory of social institutions. Adam Smith long ago proposed a decentralization scheme based on what he called "the obvious and simple system of natural liberty," by which he meant a system of private property regulated by common law and subject to minimal central administrative intervention. On the economic level, this approach would lead, he believed, to economic growth spurred by innovation, learning, and an ever increasing division of labor. pp. 14 - 15

and

if we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place," he wrote, "it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its order. We must solve it by some form of decentralization" (Hayek 1945, p. 524). p. 15

When a user is working in the Resource Marketplace module. Whether they are in an oil and gas producer, a Joint Operating Committee or a supplier / vendor. The scope of what they are dealing with are limited to the Resource Marketplace. Modularity provides interfaces to the other modules when necessary, however, dealing with just the data, processing and functionality of the Resource Marketplace enables the module to deal with many of the problems within that marketplace. The key variable that it is able to deal with is change.

Under some circumstances, the benefits of modularization may not be worth the cost. For example, a system whose environment never changes may not have to worry much about modularization. p. 8

and

In a world of change, modularity is generally worth the costs. The real issue is normally not whether to be modular but how to be modular. p. 11

These software development issues and opportunities fall within the scope of a producers General & Administrative costs. They are not core to their competitive advantages of their land and asset base, or earth science and engineering capabilities. Yet they are critical to provide the producer with what People, Ideas & Objects asserts in our Revenue Model as our core competitive advantage, as the most profitable means of oil and gas production. It is the business of the oil and gas business that needs to be focused on in order to move forward and provide for tomorrow's earnings. Muddling through this time may not work.

In terms of content, or point of discussion, we are bouncing around a bit. Our overall topic is capabilities, and we are moving from our discussion of modularity to the topic of dynamic transaction costs. There is a point to all of this bouncing around and we’ll get to it. Dynamic Transaction Costs are somewhat of a unique area of research for Professor Richard Langlois. That is to say I think he is the leading researcher on the topic. It is a topic that affects us significantly as we operate in an environment where change is the one constant that we can rely on. Langlois’ definition of Dynamic Transaction Costs from “Transaction Cost Economics In Real Time” is as follows.

Over time, capabilities change as firms and markets learn, which implies a kind of information or knowledge cost - the cost of transferring the firm's capabilities to the market or vice-verse. These "dynamic" governance costs are the costs of persuading, negotiating and coordinating with, and teaching others. They arise in the face of change, notably technological and organizational innovation. In effect, they are the costs of not having the capabilities you need when you need them. p. 99

Clearly the oil and gas industry will have significant Dynamic Transaction Costs without People, Ideas & Objects Preliminary Specification. That is to say that they will not have the capabilities they need when they need them if they continue to use SAP in the structured hierarchy. Nonetheless, even with the use of People, Ideas & Objects there would be Dynamic Transaction Costs incurred as a result of the movement to full reliance on the market for its resources. Recall we are looking for “thicker” markets to develop as the Joint Operating Committees look to the market for all of its Resource Marketplace. Let's recall what capabilities are with a quote from Langlois’ paper, and the phrase from Harvard Professor Carliss Baldwin of “Knowledge begets capabilities, and capabilities beget action.”

Although one can find versions of the idea in Smith, Marshall, and elsewhere, the modern discussion of the capabilities of organization probably begins with Edith Penrose (1959), who suggested viewing the firm as a 'pool of resources'. Among the writers who have used and developed this idea are G.B. Richardson (1972), Richard Nelson and Sidney Winter (1982), and David Teece (1980, 1982). To all these authors, the firm is a pool not of tangible but of intangible resources. Capabilities, in the end, are a matter of knowledge. Because of the nature of specialization and the limits to cognition, organizations as well as individuals are limited in what they know how to do effectively. Put the other way, organizations possess a pool of more-or-less embodied 'how to' knowledge useful for particular classes of activities. pp. 105 - 106.

We have noted that when a supplier / vendor was selected within the “Planning & Deployment Interface” of either the Research & Capabilities or Knowledge & Learning module. Then the associated key and operational staff c/w their positions in the Military Command & Control Metaphor would be populated into the interface from the Vendor / Supplier Contact Database. With this information that we have learned about Dynamic Transaction Costs. We could also populate the “Planning & Deployment Interface” with the capabilities information from the supplier / vendor when it is selected. This information would also become available when it was required from the Vendor / Supplier Contact Database and be maintained by the vendor, as all the information in that database is.

"In a metaphoric sense, at least, the capabilities or the organization are more than the sum (whatever that means) of the 'skill' of the firm's physical capital, there is also the matter of organization. How the firm is organized - how the routines of the humans and machines are linked together - is also part of a firm's capabilities. Indeed, 'skills, organization, and technology are intimately intertwined in a functioning routine, and it is difficult to say exactly where one aspect ends and another begins' (Nelson and Winter, 1982, p. 104)." p. 106

There will be a significant amount of information that is made available to the users of the “Planning & Deployment Interface.” Certainly the information to determine what is required to mitigate the Dynamic Transaction Costs, define any deficiencies and to map out a successful project. We’ll be discussing more on this topic in the days to come.

We continue on our discussion of capabilities in the Resource Marketplace module of the Preliminary Specification. We want to look at the situation from the point of view of the supplier / vendor in terms of how they are providing capabilities to the Joint Operating Committee that employs them. We discussed how much of the data regarding their service operation is populated into the Joint Operating Committees “Planning & Deployment Interface.”

From the supplier / vendor’s point of view being part of the detailed planning of the program will not be anything to new. What we are seeking to achieve is for the oil and gas producers as represented in the Joint Operating Committees having a greater reliance on “thicker” markets in the service industry. A greater dependence on an innovative and competitive service industry marketplace is a necessary building block as a base for the innovative oil and gas industry. This is reflected in the People, Ideas & Objects Preliminary Specifications “Ideas Marketplace Blog,” and the decentralized manner in which the industry operates. Some may suggest the industry operates in that fashion, I have argued here that we are far from that conceptual model. That is evidenced by level of conflict between the producers and suppliers and the lack of competition in the supplier marketplace. I see the producer firms as the primary reason for this situation. They have consistently obstructed the service industry market from operating effectively at critical times. This is reflected in purchasing equipment for their own purpose, like drilling rigs, not working with anything but proven technology, not sponsoring any research, not working with anyone other than of size, not respecting others Intellectual Property, etc.

It is important to recall that the user of the “Planning & Deployment Interface” will be using the tool to map out a path to success from their internal capabilities and those that are acquired through the supplier we are discussing here, and any other suppliers they may have selected. For the supplier to overstate their capabilities for marketing or other purposes would be a tactical mistake that could cost their company dearly. Furthermore, if they represent that they have x resources available, and find at the time of the project, that they need to make changes or are short of the specific resources they committed, they will find the same types of problems with the next job they are selected for. Recall there is the open collaborations that are in the “Supplier Collaborative Interface” for the Joint Operating Committee to air their concerns. Therefore, as will be the case in an innovative oil and gas industry, the service industry provider will need advanced Project Management tools to enable them to manage their resources in the Resource Marketplace module of the Preliminary Specification.

But often - and especially when innovation is involved - the links among firms are of a more complex sort, involving everything from informal swaps of information (von Hippel, 1989) to joint ventures and other formal collaborative arrangements (Mowery, 1989). All firms must rely on the capabilities owned by others, especially to the extent those capabilities are dissimilar to those the firm possesses. p. 108

In an innovative oil and gas industry with the demands on the service industry being as substantial as they are. And with the amount of work that is bid and committed to, the contingencies the supplier / vendor are subject too are as variable and costly to the service provider. A means to mitigate those costs, or alternatively to pass those costs on to the Joint Operating Committee if they are being incurred should be something that the supplier / vendor should be aware of. These cost controls will be part of the “Supplier / Vendor Project Management Interface” of the Resource Marketplace module. The producers may have other choices in terms of suppliers to turn to if these supplier / vendor Dynamic Transaction Costs are deemed to be too high. I don’t foresee many supplier / vendors continuing to lose money on contracts that also have the potential to ruin their reputations. The ability for suppliers to recover their Dynamic Transaction Costs will be a cost of doing business for the producers in the innovative oil and gas business. Just as the Joint Operating Committee will be able to rely on their suppliers capabilities to map out their path to success in the “Planning & Deployment Interface.”

Listed as a project on Professor Richard Langlois website is “The Vanishing Hand” which he describes in his paper “The Vanishing Hand: the Changing Dynamics of Industrial Capitalism” as.

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

Suggesting that we are moving towards a market based form of industrial capitalism. One that leaves behind the “visible hand” of the hierarchy and its management. We noted that there were interfaces for the service industry to the Resource Marketplace module of the Preliminary Specification. Specifically a project management interface that enabled the provider to determine and pass their Dynamic Transaction Costs on to the Joint Operating Committee. It is necessary that the producers provide the service providers with access to the software in this fashion, and to offset these costs to enable the markets to expand.

As in Chandler, secular changes in relative prices attendant on "globalization" (driven by technology or politics) affect economic organization not only directly but also, and perhaps more importantly, indirectly through changes in technology. Production costs matter as much as transaction costs (Langlois and Foss 1999) Moreover, the kind of transaction costs that matter in history are often not those of the Williamson kind but those I have labeled dynamic transaction costs (Langlois 1992b). Costs of coordinating through markets may be high simply because existing markets - or more correctly, existing market-supporting institutions - are inadequate to the needs of new technology and of new profit opportunities. But when markets are given time and a larger extent, they tend to "catch up," and it starts to pay to delegate more and more activities rather than to direct them administratively within a corporate structure. p. 5

The oil and gas industry has to consider itself a market-supporting institution to the service industry. These service providers are not primary industries, they are dependent on their revenues from the oil and gas producers. It would serve the oil and gas industry well to remember that they are dependent on the service industry. There has been so much talk about how greedy and lazy the service industry is from the producers themselves that I can’t imagine how more toxic it could get. The attitudes and actions of an innovative and successful oil and gas producer are so far removed from this behavior, we have far to travel.

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

I want to stay in the domain of the supplier / vendor and discuss how their greater participation and role in the Joint Operating Committees capabilities, increases the profitability of the oil and gas producers. How this organizational conceptual model will not only aid the producers but also the suppliers / vendors in the innovative oil and gas industry. From Professor Ronald Coase in the “Nature of the Firm” 1937

Adam Smith explained that the productivity of the economic system depends on specialization (he says the division of labor), but specialization is only possible if there is exchange-and the lower the costs of exchange (transaction costs if you will), the more specialization there will be and the greater the productivity of the system. p. 73

The competitive advantages of the oil and gas producers are their land and asset base, and their earth science and engineering capabilities. To a large extent everything else is secondary to the firm in terms of maintaining a competitive position within the industry. What is not core to their competitive advantage can be obtained through contract from the marketplace on the basis of the “decentralized production model.” Leaving the “high throughput production” model that is currently being used behind. From Professor Coase.

This is what I said in a lecture published in Lives of the Laureates (Coase, 1995 p. 245): The costs of coordination within a firm and the level of transaction costs that it faces are affected by its ability to purchase inputs from other firms, and their ability to supply these inputs depends in part on their costs of coordination and the level of transaction costs that they face which are similarly affected by what these are in still other firms. What we are dealing with is a complex interrelated structure." Add to this the influence of the laws, of the social system, and of the culture, as well as the effects of technological changes such as the digital revolution with its dramatic fall in information costs (a major component of transaction costs), and you have a complicated set of interrelationships the nature of which will take much dedicated work over a long period to discover. But when this is done, all of economics will have become what we now call "the new institutional economics. p. 73

If the oil and gas producer is to attain a higher output of oil and gas it will require them to focus on their part of the process in a more specialized manner. And that would apply to the overall industry as much as to any individual producer. Leaving the work that they may be involved in today to the marketplace to provide. This might have the prototypical producer firm configured with the officers, engineers, geologists, geophysicists and a handful of lawyers for contracts and land deals. Everyone else provided through a service contract in the Resource Marketplace module. This producer firm will manage their interests in a variety of Joint Operating Committees and participate in the development of their properties. Each JOC having acquired capabilities from the supplier / vendors in the Resource Marketplace.

It is this reliance on the Resource Marketplace module at both the producer level and the Joint Operating Committee that I am emphasizing in this discussion. Specialization at all levels of the industry will enable the oil and gas and service industries to produce more oil and gas with the same resource base. This is the benefit of the division of labor. We however, first need to implement a new organizational model that incorporates all the elements of the industry. And that includes the service providers in the field and in the head offices of the producers. Without that we are only solving part of the problem. The point of this exercise is that with the increased output of oil and gas, and the more efficient production of that oil and gas as a result of the market configuration noted above. The oil and gas producer will be more profitable as a result of the software that identifies and supports this decentralized production model.

Market Supporting Institutions

However it is clear they will need comprehensive systems from People, Ideas & Objects to achieve the objectives that we have set out for the innovative producer. These will require the support necessary to ensure that the supplier / vendor gains as much from the systems as the producers. These are the types of market supporting institutions that need to be developed in order for the innovative oil and gas industry to move forward. The Community of Independent Service Providers were built off of concepts that were developed by Professor Richard Langlois which he called Industrial Districts, and another of our top researchers, Professor Carlota Perez’ concept of Small Knowledge Intensive Enterprises. We will be discussing these concepts further in the Resource Marketplace module. I will introduce the concept as they describe them. From Professor Langlois’ paper “Innovation Process and Industrial Districts.”

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

When it comes to field operations, you have to recall that the vendors / suppliers have been the focus of the cost overruns. This has been as a result, according to the producers, to their greed and laziness. What that does in the marketplace is exactly the opposite of what is optimal in terms of a highly efficient field operations marketplace. But then I probably don’t have to explain that to the majority of the producers these days. Professor Langlois notes that we need to strive to achieve what he calls embeddedness in an Industrial District, supported by the People, Ideas & Objects Community of Independent Service Providers.

When accompanied by close social relationships, tight geographical proximity may affect innovation in ways that are less common in more highly dispersed environments. For example, an awareness of common problems can encourage several firms, or their suppliers and customers, to seek solutions, leading to multiple results that can be tested competitively in the market. These outcomes can then be relatively easily diffused among firms in the Industrial Districts (ID) because of embeddedness in a common environment. The obverse of this commonality of inspiration and ease of transmission of knowledge, however, may be an inordinately inward focus that results in an ignorance of or disdain for innovation processes in other regions or in industries not represented in the ID. Furthermore, there may be a relationship between the degree of embeddedness in the industrial district and innovation. It has been suggested that innovation increases as embeddedness increase up to a point, and that beyond that point further embeddedness results in reduced innovation performance at the firm level (Uzzi, 1997; Boschma, 2005). Thus, depending on circumstances, participation in an industrial district can either encourage or impeded innovation. pp. 1- 2

We have been discussing Industrial Districts as an ideal way to configure the Resource Marketplace of the suppliers and vendors. An innovative oil and gas industry has to depend on an innovative and high performing service industry. And that can only happen with the deliberate and careful building of the necessary industry supporting infrastructure from the oil and gas producers. So much of the toxic environment that exists today between the two industries is as a result of the oil and gas producers blaming the cost overruns on the vendors in the field operations. This environment is fully 180 degrees from where the oil and gas producer needs to have these relationships, and it is the responsibility of the producer to get the relationships back in line. It will be through the development of the Resource Marketplace module in the Preliminary Specification that the service industry will be able to see the legitimacy of the producers intent to build the industry supporting infrastructure necessary for innovation to develop.

As much as we have discussed the role that Adam Smith’s theories of specialization and division of labor will have at the producer level, they will have similar impact in the field. To help these companies to better understand these principles would be the Community of Independent Service Providers who could consult to these firms and help them develop their organizations. From Professor Richard Langlois’ paper “Innovation Process and Industrial Districts.”

Because of their structure, industrial districts offer important benefits in innovation processes. For one thing, the high levels of differentiation and specialization allow firms, in the Smithian fashion, to focus on aspects of the supply chain in which they are especially competent. p. 5

To me its intuitive what Professor Langlois is talking about. In a hostile working environment its work to rule. No one volunteers anything, and everyone just does their job so they don’t get fired. The fact that the well didn’t find any commercial gas isn’t anyone's specific problem. On the other hand, when everyone is pulling together as a team...

Strong ties (Granovetter, 1973) among workers, including managers, can increase the amount of information available to firms and the readiness of people to share what they know when relationships gain a dimension of friendship to counterbalance the competitiveness among firms. p. 5

Thankfully the community spirit in the field remains. The accusations by the producers that the service industries cost overruns are a result of their greed and laziness has only divided the field from the head office people in an us vs. them type of scenario. The finger pointing by the producers has been the extent of the impact on the fields community, with no long term serious consequences.

When embeddedness is strong, the creation of communities of practice (Wenger, 1998; Brown and Duguid, 2000) generates competences that, although possessed by individuals, are collective in that they are based on a set of practices that is common to all members of a community. These competences (both tacit and codified) can transcend firm boundaries and become characteristics of an entire industrial district. As Marshall (1975, 197) wrote of nineteenth century Britain, “To use a mode of speaking which workmen themselves use, the skill required for their work ‘is in the air, and children breathe it as they grow up.’” p. 6

To clarify, it will be the producer who will need to rectify this situation. They will need to build the industry supporting institutions that will enable the types of environments that will foster the needed innovation and competition in the service industry. What an innovative oil and gas industry must have is a highly innovative and competitive service industry. This begins with the interfaces and systems that we are describing here in the Resource Marketplace of the Preliminary Specification.

Relationships within industrial districts therefore lead to diffusion but also to the creation of new knowledge through shared preoccupations. Because many people or firms can work on a problem simultaneously, a number of different solutions may be found (Bellandi, 2003b). The results is a larger and stronger "gene pool" within the sector (Loasby, 1990, 117), with the further advantage that solutions that are originally regarded as competing may turn out to be complementary and well-suited to different niches within the district.  p. 7

I want to revisit the “Gap Filling Interface” of the Resource Marketplace and add some of the elements of our recent discussion of the service industry. It would be fair to state that the service, and the oil and gas industries have remained somewhat static in their makeup of how they are organized. Specialization and the division of labor seem to have stopped around the last SAP integration.

Management of the oil and gas bureaucracies have reigned over the service sector with the grace of a Roman Emperor. Putting thumbs up or down on an innovation on the basis that they have immediate need for it or not, and expecting solutions to spontaneously exist when problems do arise. This entire process of development has devolved to the point where little is being done and ranks on par with the oil and gas companies suggesting to the service industry to "let them eat cake." No money is provided to research new products, only tried and tested products and services are accepted, and only “large” firms are used. And producers actually complain about cost overruns.

As Harvey Leibenstein long ago pointed out, economic growth is always a process of “gap-filling,” that is, of supplying the missing links in the evolving chain of complementary inputs to production. Especially in a developed and well functioning economy, one with what I like to call market-supporting institutions (Langlois 2003), such gap-filling can often proceed in important part through the “spontaneous” action of more-or-less anonymous markets. p. 6

In the Resource Marketplace module of the Preliminary Specification we have developed the “Gap Filing Interface.” A collaborative tool that users can input where they see a gap that needs filling within their firm, their Joint Operating Committee, a service provider or anywhere within the oil and gas and service industries. It is the expression of a well articulated need. Providers can then review the interface to determine if there is a service or product demanded that is similar to theirs that they can configure and provide to the firm, Joint Operating Committee or service provider. The problem that we have today is that the problem may be in Shanghai and the solution to it is sitting in Midland, Texas. With such large distances between problems and solutions we need to ensure that we have the means to focus the expression of the need in an appropriate forum where the problem and solution can find each other. That is the “Gap Filling Interface.”

The situation is similar when we look at it from the other perspective. Those that may have developed a solution to a gap that want to market it to the broader market can post it to the “Gap Filling Interface” for those to see. Again with the problems and their solutions being separated by geography it is necessary to build a specific forum to capture the attention of people for this purpose.

Ideally, with the oil and gas producers providing the kinds of industry supporting institutions that we have been discussing. The service industry will have developed thick markets where the ability, and capability, to fill these “gaps” both in the service sector and the producer firms themselves will be immediate. That is to say, should be the objective in terms of the capabilities we should expect from the markets that we are seeking to develop.

The underlying assumption, normally unspoken, is that relevant background institutions — things like respect for private property, contract law, courts — are all in place. Whatever transaction costs then arise are thus the result of properties inherent in “the market” itself, not of inadequacies in background institutions. There is generally a tacit factual or historical assumption as well: that the relevant markets exist thickly or would come into existence instantaneously if called upon. p. 3

An Industry in Transition

One of the conclusions in the Preliminary Research Report was that the oil and gas industry was transitioning from a “banking” mentality of earning guaranteed returns on investments, one that was based on the cheap energy era where financial survival was the key to success. To a scientifically based industry where innovating on the earth science and engineering disciplines would become the determining factors in a producer's survival and success. Today those two cultures are clashing as the relics of the cheap energy era attempt to restructure to compete in the scientific frontier. Adding to this transition is the bureaucracies last ditch attempt to assert its purpose in life. Is it any wonder that a producer finds any oil and gas?

We have been discussing the capabilities of the producer, the Joint Operating Committee and the service industry and how the Resource Marketplace module of the Preliminary Specification works to coordinate these. We have put the responsibility for the service industries market supporting institutions squarely on the producers. The reasons for that are for the obvious ones in that they are the primary benefactors, and they are the primary industry that collects the revenues that ultimately will be used to support the service industry. It is therefore necessary that the oil and gas producers use this money to encourage this market to grow and develop as thick and as responsive as possible. The oil and gas producers are the ones who will benefit from the innovative and competitive service industry. What is known about the future of the oil and gas producer is there are high levels of uncertainty. Developing thick markets in the service industry will mitigate some of this uncertainty. From Professor Richard Langlois paper “Economic Institutions and the Boundaries of the Firm: The Case of Business Groups.”

The second hypothesis, which has resonances at least as far back as Gerschenkron’s famous “backwardness” thesis (Gerschenkron 1962), is that the way an economy responds to the problems of coordinating economic development depends not only on its own institutions and capabilities but also on institutions and capabilities elsewhere. It depends not only on an economy’s own history but on the history of other economies as well. The force of this observation is that an economy at the frontier of economic development (however we care to define that) is likely to respond to the coordination problem differently than an economy lagging behind that frontier. Specifically, an economy at the frontier is arguably more likely to rely on decentralized modes of coordination. This is so because uncertainty is greater at the frontier — uncertainty about technology, organizational form, market direction. p. 18

And what we need are people thinking their way through the uncertainty. I have been a strong critic of the “best practices” phenomenon that has developed over the past few years. Copying others “best practices” reminds me of this quote from Professor Langlois paper.

Indeed, traditional command-style economies, such as that of the former USSR, appear to be able only to mimic those tasks that market economies have performed before; they are unable to set up and execute original tasks. The [Soviet] system has been particularly effective when the central priorities involve catching up, for then the problems of knowing what to do, when and how to do it, and whether it was properly done, are solved by reference to a working model, by exploiting what Gerschenkron . . . called the “advantage of backwardness.” (Ericson, 1991, p. 21).

Best practices reflect the staleness of the methods of the bureaucracy. If not for the increase in commodity prices over the past few years, you wonder what they would have relied upon for earnings.

One area that we have not discussed in terms of capabilities in the Resource Marketplace module of the Preliminary Specification. Is where the authority and responsibility for any field operations falls as a result of the revised boundaries of the firm and market. If we have dynamic markets providing innovative products and services to the producers and Joint Operating Committees how does this affect the authority and responsibilities that are established in the business today.

The clearest example to provide direction to this issue is the BP Gulf of Mexico well blowout. The findings established that BP was 100% responsible for the cause of the well blowout, and that clearly is the way that the business is run. The earth science and engineering resources are within the producer firms, and Joint Operating Committees, to design and engineer the operations to meet the safe and profitable operations of the oil and gas facilities. Without an appropriate engineering design there is little that a vendor can do in the field with a program that is destined to fail. With the changes being made in the Preliminary Specification, where reliance on an innovative Resource Marketplace for the service industry products and services, nothing will change in terms of this responsibility. The engineering staff at the oil and gas producer or Joint Operating Committee will have more choice in terms of products and services in terms of what they can do in the field. A second point on this discussion, is also the changes within the producer firm in terms of the reduction in the bureaucracy. From Professor Richard Langlois book “The Dynamics of Industrial Capitalism.”

History is never kind to historicists, of course; and the facts of the last quarter century have made life uncomfortable for those who would project the Schumpeter-Chandler model into the present. It has become exceedingly clear that the late twentieth (and now early twenty-first) centuries are witnessing a revolution at least as important as, but quite different from, the one Berle and Means decried and Schumpeter and Chandler extolled. Strikingly, the animating principle of this new revolution is precisely an unmaking of the corporate revolution. Rather than seeing the continued dominance of multi-unit firms in which managerial control spans a large number of vertical stages, we are seeing a dramatic increase in vertical specialization — a thoroughgoing “de-verticalization” that is affecting traditional industries as much as the high-tech firms of the late twentieth century. In this respect, the visible hand, understood as managerial coordination of multiple stages of production within a corporate framework, is fading into a ghostly translucence. p. 7

Management having less influence in the day to day of an oil and gas producer does not affect the authority or responsibility either. The engineers are qualified and regulated in terms of their qualifications and certifications. If they are signing their programs then they have their career on the line which to me is worth substantially more than the controls a manager may have established.

In highly developed economies, moreover, a wide variety of capabilities is already available for purchase on ordinary markets, in the form of either contract inputs or finished products. When markets are thick and market-supporting institutions plentiful, even systemic change may proceed in large measure through market coordination. At the same time, it may also come to pass that the existing network of capabilities that must be creatively destroyed (at least in part) by entrepreneurial change is not in the hands of decentralized input suppliers but is in fact concentrated in existing large firms. p. 14

Substantial change, creative destruction and innovation throughout the service and oil and gas industries. That is what is required to resolve the problems of the day. It's important to remember that doing so is as Professor Langlois states “Economic growth is about the evolution of a complex structure (Langlois 2001).” p. 6

The Marketplace Interface

We take a step back for a moment to pick up a point or two in the Resource Marketplace module. It has to do with the “Marketplace Interface” within that module. The point is to highlight the fact that within the Resource, Petroleum Lease and Financial Marketplace modules there is only one “Marketplace Interface.” That is to say that while in the virtual world you would be able to engage with companies for Resource, Petroleum Lease and Financial Marketplace purposes. There would be no reason to have three separate environments. (Please review the information contained in the Financial and Petroleum Lease Marketplace under “Marketplace Interface” for further information.)

By way of a scenario, you hear from a partner that a vendor is conducting a presentation of a new technology in the “Marketplace Interface.” You log in to see what the technology looks like and find their presentation overwhelmed with interest. Nonetheless you are able to view and hear everything clearly and see the value of the technology. While there you run into a number of partners that are interested in testing the technology at one of their facilities that you also have an interest in. They present you with an AFE for the costs associated with running the tool and ask that you approve it as quick as you can.

You have a minor interest in the property and the partners are at the threshold of having the 75% approval necessary to proceed with the project without your approval. Nonetheless you would like to be a constructive contributor to the project and are proceeding with the expectation that you will gain approval. The costs associated with the work over are small, yet the downtime affects the production and revenue projections. Those are the bigger issues, as reliability and predictability have been an issue at this property. Something that this tool is designed to mitigate.

Funds are sourced from the firms Research & Development area as the firm feels the tool will show some promise in other properties. The AFE’s are signed and you are seconded to the Joint Operating Committee to work as an engineer on this project. What is not realized through this scenario is that you completed all of this work through the “Marketplace Interface” through your iPad during breakfast at home. The ERP system was able to establish the AFE through the partners, the communications internally to approve the AFE, source the budget, assign the roles and responsibilities to the project and to participate in the vendors presentation were all done at the breakfast table. In this scenario the paper work was almost faster than the ideas!

(Please review the video below)

People, Ideas & Objects and Oracle Corporation

We now turn to our review of Oracle products through the Resource Marketplace module of the Preliminary Specification. I thought we would review some of the highlights of the Resource Marketplace as it stands so far. The Resource Marketplace module being the first of three marketplace modules incorporates the “Marketplace Interface” that is a key component of how people interact and collaborate within the People, Ideas & Objects applications. We didn’t discuss at any length the “Marketplace Interface” in the Resource Marketplace module. I think however that it is well understood how the interactions would come about in the Resource Marketplace module. There are the Petroleum Lease and Financial Marketplace modules that document the “Marketplace Interface” extensively and you should review those points if you need to source further information on the topic.

The first interface that was introduced was the “Actionable Information Interface.” We spoke briefly about this a few days ago in the Security & Access Control module with respect to reviewing the Oracle product Oracle Internet Directory. The “Actionable Information Interface” captures the ideas that are generated from the oil & gas and service industries participants in their most basic form. That is to say that “as a firm” they are looking in the next few months to expand, acquire, participate etc in expanding, investing, increasing their capabilities in a certain area... From there this information is searchable from the rest of the industry representatives and are able to determine what they might be able to provide or participate with a firm in a similar situation. With the distance between firms problems and the solutions to those problems being so much harder to find, having this type of information is the very beginning of innovation. It will be the first who sees the problem, whether that is as of a direct request in the “Actionable Information Interface” or as a result of reviewing over 200 individual entries.

The “Supplier Collaborative Interface” enables the producer and supplier to work through the product and service nuances they are having with a supplier in an open forum. Providing the industry a source of learning. Instead of the supplier having to deal with each producer as an individual case through email, they have a public database of information of how their technology is implemented and used within the field. These databases / wikis are able to provide the customers with valuable information about the product before, during and after the sale. It is incumbent on the supplier that they maintain and participate actively in the databases to ensure that the messages are clear and the communication to the customer is being heard. Alternatively producers have a means of ensuring that marketing claims are valid and the service and support are as advertised.

We also started the discussion of making the necessary changes from the “High Throughput Production” model to the “Decentralized Production” model. It is particularly important to the Resource Marketplace module as that is where the suppliers and vendors are located. By adopting the “Decentralized Production” model the production and overhead costs are matched to the production and revenues. Without any production, production and overhead costs are reduced to zero in the Decentralized Production model. These overhead costs include the accounting, production administration and exploration administration costs to name just a few. What this enables us to do is to exploit the full value of the division of labor and specialization. That is by spinning out of the producer firm the production accounting, production administrator and other roles to service providers. These non-core services can be effectively done by entrepreneurial firms organized more efficiently to provide the industry with better service.

Consistent with the need to increase the division of labor and specialization we have developed within the Resource Marketplace module the “Gap Filling Interface.” As we have learned the division of labor is expanded by a process of “gap” filling. Therefore having an interface where producers and service industry representative can both identify and resolve each other's “gaps” then the beginnings of the division of labor is identified.

It was during the Preliminary Research Report that I coined the phrase that “SAP is the bureaucracy.” Nothing turns your organization into cement like a good old fashioned SAP install. What the innovative oil and gas producer needs is an organization that will remain open and flexible to innovation, and that demands a software development capability like that proposed here by People, Ideas & Objects. If we want an innovative oil and gas industry then the first thing we should do is ensure that we have the capability to maintain that organizational flexibility. The flexibility necessary to ensure that we do not constrain ourselves unnecessarily, and define and support the behavior that we desire. This is the role of software in the 21st century.

What we expect to gain from the review of the Oracle products in the Resource Marketplace module and the rest of the Preliminary Specification is simple. To put some substance to the Preliminary Specification from the point of view of the generic ERP systems requirements. Using the Oracle Database, Oracle Fusion Middleware and Oracle Fusion Applications will provide a strong foundation for the innovative oil and gas industry.

Looking at the Oracle Fusion Applications from the perspective of the Resource Marketplace module it is easy to see where we can start. In the Preliminary Specification so far we have not discussed what is traditionally been called the Human Resource or Human Capital area of the firms needs. This of course would fall under the Resource Marketplace module as these people are part of the Resource Marketplace. Oracle has a number of products that fall under this category in their Oracle Fusion Applications and we will discuss them here. I noticed this quotation that shows we are consistent with Oracle’s approach to the marketplace in terms of how their Oracle Fusion Applications are to be used.

Oracle Fusion Human Capital Management is part of Oracle Fusion Applications, which are completely open, standards-based enterprise applications that can be easily integrated into a service oriented architecture. Designed as a complete suite of modular applications, Oracle Fusion Applications help you improve performance, lower IT costs, and get better results. Whether you choose one module, a product family, or the entire suite, Oracle enables you to gain the benefits of Oracle Fusion Applications at a pace that matches your business needs.  

I read this as consistent with our intent to use Oracle Fusion Applications in the following manner. That they are open to customization through the Oracle Fusion Middleware layer. They are standards based and can be used as a service oriented architecture which is another term for “cloud” computing. Lastly we are an Oracle customer that “fills the gap” between the oil and gas industry and the technologies that Oracle provides.

The first document that I want to look at is a brochure that was published by Oracle entitled “Oracle Fusion Human Capital Management: The New Standard for Human Capital Management.” Within it Oracle lists the fifteen applications that fall under the Human Capital Management Suite.

The first and summarizing paragraph of the brochure shows that we are in the same ball park and playing the same sport as Oracle with respect to the Military Command & Control Metaphor (MCCM). Although our concept has been developed further to include multiple organizations in the Joint Operating Committee and the service industry, they have developed the concept within the standalone organization to a significant level.

Oracle Fusion Human Capital Management (HCM) is a revolutionary step in human resources. The core design principle of Oracle Fusion HCM empowers every role in the organization, connecting all segments of a global workforce. It allows organizations to inform, engage, and collaborate with their workforce in ways never before possible. Organizations will benefit from the ability to personalize the application at organizational, business unit, management, and individual levels. These capabilities are fully configurable; are supported out of the box; and ensure data consistency, security, and compliance globally

Reading their documentation I see this emphasis on role throughout, which is a necessary part of the MCCM, and being a critical part of their application suites. Having that functionality already there will be a strong first step in making the MCCM real.

One area that we had not touched on yet was payroll, after all everyone likes to get paid. And of course the Oracle HCM Suite provides for these services. What will need to be done is to ensure that the earth science and engineering, as well as any other human resources that are being charged to the joint account, are able to be charged and recovered through the payroll system. I would think that this is something that Oracle would have thought would be basic functionality however I have not stumbled upon it yet. Recall that it is necessary, as a part of a producer's value proposition, that they seek revenues from oil and gas sales, and, from the secondment of their technical resources to the Joint Operating Committees, research and industry at large. The demands for earth scientists and engineers being so great, the costs to develop a team will be too onerous without the ability to generate revenues from them. Therefore a payroll or Partnership Accounting module facing system that bills these resources to the joint account and elsewhere at various rates will be necessary for the innovative oil and gas producer.

I’m intrigued by a grouping of modules within the Oracle Human Capital Management Suite (Oracle HCM Suite) that are somewhat new and provide the innovative oil and gas user with some unique value. Oracle calls this group of modules Oracle Fusion Talent Management which includes the following modules from the Oracle HCM Suite. Compensation Management, Incentive Compensation, Performance Management, Goal Management, Workforce Directory Management, Network at Work and Talent Review. I think that it is worthwhile to place the entire Oracle HCM Suite within the Preliminary Specification. That way producers, Joint Operating Committees and service industry participants will be able to use the modules that they find meets their needs in the most appropriate manner. Recall that People, Ideas & Objects will be providing the software in a “cloud computing” environment which is consistent with the architecture that Oracle has developed their Fusion Applications under.

The purpose in having a Talent Management grouping of applications should be obvious. In oil and gas we have a particular issue with the earth science and engineering resources that are the critical resource of the industry. The expected retirements over the next 20 years, the ability to train new recruits within that time, the increasing requirement of geology and engineering in each barrel of oil, and the expected demand for energy all make these people part of the key competitive advantages of an innovative oil and gas producer. Having software that focused on developing and maintaining these resources would be of great assistance, so lets have a quick look at what Oracle has prepared in terms of Oracle Fusion Talent Management.

First of all it is an assumption that the majority of these resources will be directly employed by the producers themselves. They will be seconded to the individual Joint Operating Committees by the producers that employ them, much as they do today. The employment contract will in all likelihood be comprehensive and include incentive and bonus compensation based on performance. With that said Oracle has three specific compensation related modules in their Talent Management group, Compensation Management, Incentive Compensation and Performance Management. These applications allow the producer to look at the compensation from the global and strategic perspective and from the competitive landscape. Particularly within the geographic region in which they are competing. In areas such as Performance Management the employee has tools in which to guide them through what is expected of them to keep them on course and attaining their goals.

Speaking of goals there is Oracle Goal Management for the producer to establish goals for the organization and individuals within that organization. In a top down manner the goals of the organization can be pushed down to the individual units and groups, and finally to the individuals to achieve within the appropriate time frame. There is also a capability in which employees are able to document their career development.

Oracle Network at Work is a tool that establishes a social network within the confines of the organization. I would think this might be of value if we had it for the entire oil & gas and service industries. Then the whole industry could collaborate and share the information they would share within a social network. The feature that this would have is that it would be dedicated to oil and gas as opposed to facebook which is unfocused.

How about a software tool to evaluate and prepare for the employee review process. In addition this is in a collaborative environment so that the input of the people who are responsible for the individuals performance have input into that process. The Oracle Fusion Talent Review does this and helps you develop the right talent for the right jobs.

The Oracle Fusion Workforce Directory Management provides a graphical representation of the organization chart. This is something that we need for the Military Command & Control Metaphor. The need to extend this beyond the individual organization to include members of the Joint Operating Committees participating producers and service industry representatives would be necessary. The tool provides basic information, including the role the individual holds, their supervisor etc. Exactly what we need in order to begin to impose a chain of command within the temporary organization that is established for operational excellence in the Joint Operating Committee.

Oracle has published a paper entitled “HR in the Cloud: Bringing Clarity to SaaS Myths and Manifestos” that I want to review. It deals with the issues around hosting the Oracle Human Capital Management Suite of applications in a “cloud computing” environment. Since all of Oracle applications are deployable to the cloud, and People, Ideas & Objects will be hosting the Preliminary Specification in that environment, review of this paper will bring some insight into the needs of our software. It's important to note that Oracle is the world's second largest SaaS (Software as a Service) provider, with 5.5 million users worldwide.

It is proposed in the Hardware Policies & Procedures for People Ideas & Objects that the application derived from the Preliminary Specification will be run on a “Private Cloud.” The ownership and management of this organization is subject to the industries input for the purposes of their compliance to SEC and other regulations. Having the application served as a SaaS, as single-tenant, and on a Private Cloud denotes most of the architecture that the application will have to consider.

In a survey Oracle identified that the two most common business processes run on private clouds are Financial / Accounting @ 20%, and Human Resources / Benefits @ 19%. I think the Financial / Accounting category was largely underreported in the survey as there was also Home Grown Applications @ 16%, Inventory / Shipping @ 10%, and Procurement / Purchasing @ 11%. All three of these are probably or traditionally accounting related applications. Making for a total of 76% of the total of all cloud based applications. Clearly the cloud is being used for the purposes that People, Ideas & Objects is planning to use them for.

It is too early to evaluate the proposed People, Ideas & Objects solution on the basis of Total Cost of Ownership from the perspective of a producer. There are not enough facts available to make any decisions or valuable information that would hold up under scrutiny. The oil and gas producer is in a capital intensive business where the costs of ERP systems are not material to the bottom line of the enterprise. The value proposition that is offered in our Revenue Model provides for a radical cost savings of the software costs to the producer firm. The real value is the software identifies and supports an innovative and dynamic producer that is able to compete in the 21st century.

We have looked at the Oracle identity management and security offerings and included them within the Security & Access Control module of the Preliminary Specification. From a SaaS perspective these tools also provide further value in that privacy laws in the EU and other areas outside of the U.S. are covered by Oracle’s database, identity management and security solutions.

We continue with our discussion of the Oracle paper “HR in the Cloud: Bringing Clarity to SaaS Myths and Manifestos.” Needless to say they’re large technical issues and there will be those that won’t be satisfied with the solutions no matter what the outcome of the Preliminary Specification. It is important to note that many of these features are available only as a result of providing People, Ideas & Objects as a “single-tenant” solution. This is the superior methodology and is the manner in which we are able to provide much of the customization of the Oracle technologies.

Integration of software is where many of the problems show up. We need to maintain a focus on the user to ensure that we are meeting their needs. And to continue to develop the Community of Independent Service Providers that are there to service and support the People, Ideas & Objects software for the producers. Oracle suggests that developing on open standards like Java and Oracle Fusion Middleware allows for further upgrade of the technology even if there are customizations. This little bit of magic will be discussed further as we proceed through the Preliminary Specification. It is however as a result of everything that is contained within the Oracle Fusion Applications are derived from the Oracle Fusion Middleware layer.

Customizations of applications are a fact of life. Not everyone can fit within the standard configuration of what an application should be. The reliance on users helps to keep the focus of where the needs are, and customizations through a dedicated software development capability like that proposed by People, Ideas & Objects are necessary. In addition each producer is unique. The need to have each producer run their own version of the Oracle stack of technologies and the People, Ideas & Objects software in their own virtualized instance on the cloud computer is necessary. This is what is called “single-tenant.” Then each producer is running their own version of the software and their domain is somewhat under their control.

Through the use of Oracle Fusion Middleware these customizations, if done appropriately, will survive the upgrade process. Therefore the ability to have the regular software upgrades of the underlying Oracle technologies will not disrupt the People, Ideas & Objects modules or customizations. Speaking of upgrades the need to manage the upgrade process for cloud computing applications takes on a new priority. Making sure that the appropriate change management procedures and policies are in place, the appropriate testing, that training of the user base and a host of other related issues need to be considered before the technologies are upgraded. It will be easier to upgrade the technologies once, however it must be done with much forethought and consideration of the producers and users needs and understanding of the use of the application modules.

When it comes to performance and reliability the cloud computing architecture is a simple matter of applying the proven rules of specialization and the division of labor. It is far more efficient and effective to have the technologies for hundreds of producers handled by the specialized skills of Database Administrators, Network Specialists and the like then having each of those producers provide support for their technical architecture with one general support person.

One of the key outputs of the Preliminary Specification is the initial geographical scope of the People, Ideas & Objects application modules. This will involve which jurisdictions it will calculate royalties for, which jurisdictions it will meet for securities purposes, and what currencies it will recognize etc. In essence determining the minimum level of functionality to meet the users requirements in the first commercial iteration of the application. Oracle Fusion Applications are global in their scope. Providing the producer with a strong base of functionality in which to determine what is the initial scope of the Preliminary Specification.

Within the Resource Marketplace module of the Preliminary Specification there is a need to provide the service industry participants with software solutions that interact with the producers and Joint Operating Committees. In the area of Human Capital Management, a part of the Resource Marketplace module which the Military Command & Control Metaphor will fall under. Where members of the service industry firms participate in field operations conducted by the Joint Operating Committees. They need to have the ability to participate and fall-in within the chain of command that is established within the temporary organization that is established for the operation being conducted. Therefore the need to access some of the modules of the Oracle Fusion HCM Suite, as well as others, will be part of the Preliminary Specifications offering as well.

And there will be other aspects of the service industry representatives business that will need to be included in the Preliminary Specification. Looking at Oracle’s Fusion Financials and Oracle Accounting Hub there are services that are provided for just this purpose. Recall that we have some unique aspects of the Resource Marketplace module that involve the service industry. And one of those is the ability to design transactions. Therefore the need to have these software services operational in the cloud and accessible by the service industry representatives is critical.

It is not to suggest that we are providing the full accounting services that we are providing to the producer firm and Joint Operating Committees. We are not that familiar with the service industry to provide that level of service. However, Oracle Fusion Accounting Hub provides the means in which they can interface their accounting systems with the People, Ideas & Objects systems. That way they can utilize the services we provide and fully integrate their systems to service and support the innovative oil and gas producer and Joint Operating Committee in its needs.

Modules of the Oracle Fusion Financials include General Ledger, Accounts Payable, Accounts Receivable, Payments & Collections, Cash & Expense Management and Asset Management. These are your generic financial applications and will of course be included in the Preliminary Specification. Where they reside within the specification is not material to the discussion as they will be separate modules much like the eleven modules in the Preliminary Specification. By using modular theory we gain the full use of these Oracle Fusion applications without the complexity of integrating them within any specific module itself.

The days in which we could generate excitement over charts of accounts and journal entries is probably behind us. The ability to deal with the unique needs of the Preliminary Specification is something that I am confident that Oracle Fusion Financials can handle. Based on the Oracle Database, which is by far the leading technical database and market leader. And the result of what Oracle claim to have now invested in Fusion technologies since 2005 of over $20 billion. And based on Java, the leading programming language, and as of this date no other major ERP vendors system is based upon. In terms of technological architecture this will provide a foundation for the innovative oil and gas producer through the next several generations or iterations of the inevitable IT churn.

The user base for People, Ideas & Objects needs to be as broad as is possible. What is clear in this discussion is the role that the service industry providers have in making this application so much more valuable through their interaction. So whether it is a producer, service industry representative or participant in a Joint Operating Committee, a geologist, engineer or accountant, everyone and everybody needs to be included in making the People, Ideas & Objects Preliminary Specification theirs.

One module that the oil and gas producer and the Joint Operating Committee won’t have much use for is the Oracle Fusion Customer Relationship Management Suite or CRM. That doesn’t mean that we won’t host the applications as the benefits of doing so would be the better service the service industry could provide the producers and JOC’s by having access to those application modules. Customers are a bit of a foreign concept in oil and gas, not so in the service industry, and the ability to have access to the Oracle Fusion Customer Relationship Management Suite would provide real value for both the service and the oil and gas industry.

Included in the suite are the following modules. Customer Master, Sales, Marketing, Incentive Compensation, Mobile & Outlook Integration and Territory and Quota Management. These applications help to manage the customer, that being the oil and gas producer and Joint Operating Committee, with their needs for the service industries products and services. Applications such as Oracle Fusion Product Catalog allow service industry marketing personnel to start the process of selling and promoting their products on the web. From there they are able to capture the sales leads and track down sales calls to make the sale with the information that is captured by their team within the Oracle Fusion CRM Suite.

Providing these products in the Preliminary Specification is a must have and therefore I have included them in the Resource Marketplace module. The service industry needs are a critical component of the success of the innovative oil and gas producers. Although we are not as confident in terms of understanding their business. And their businesses are far more diverse in terms of the industry definitions that define them. We need to provide the best software services that we can to the services industry. This if from a reasonableness and competitiveness point of view, but also to mitigate the conflict that has arisen between the producers and service industry representative in terms of costs and performance.

Customer Relationship Management applications have become one of the killer apps of the last decade in terms of their impact on business. Bringing a level of intelligence to the marketing of products and services to the firms that are able to exploit the technologies.

In all of the modules of the Preliminary Specification we have defined high levels of collaboration. Whether it is here in the Resource Marketplace modules Actionable Information Interface,
Supplier Collaborative Interface or the Gap Filing Interface. Collaboration within the producer, Joint Operating Committee, oil and gas industry and service industry is robust. Now some of those collaborations, like those in the Supplier Collaborative Interface are for public consumption. And others are for a limited viewing audience. How can users be assured that their collaborations are held in the confidence they are intended to be? And what form will these collaborations take, and what systems are used in order to conduct these interactions? These are all valid questions that will be answered by this discussion.

Today’s collaborations take on much more than just textual interactions. There is video, chat, social media and images. Within the Preliminary Specification I would like to see the ability to capture a video meeting of the Joint Operating Committee and record the participants and their votes for further reference. This way members could be situated where ever they may be at the time of the meeting and still participate through their computer or an iPad. Being presented with a menu of items in which the voting on different decisions that are being made. Their votes being logged and the outcome of the votes setting in motion the activity that was decided upon.

Oracle through their Fusion Applications provides these level of collaborative services as part of the ERP software offerings. It will not be necessary for the members of the Joint Operating Committee to go outside of the People, Ideas & Objects application modules to gain this level of collaboration. It will be available as a result of the application itself. The following quotations come from a white paper entitled “Oracle Fusion Application Overview”

Web 2.0 Collaboration: Today’s workforce relies on online collaboration to get their work done. Whether they use chat, discussion forums or web conferencing to communicate and come to decisions, Web 2.0 collaboration technologies have previously been disconnected from enterprise applications. Integrating Web 2.0 Collaboration directly within the application has several benefits:
• Productivity: Instead of searching for the relevant employee in a separate online directory, initiating a session through a separate Web 2.0 application, a Web 2.0-aware enterprise application can provide a direct link to the other participants in the decision, and single-click access to online communications with them.
• Context: A Web 2.0-aware application can integrate the business context with the discussion, and capture the decision details for future reference.
• Security: The channels that the application offers directly are sanctioned and secure, in contrast to the third-party programs that employees commonly use for non-professional communications.

It is within this area of collaborations that innovations will begin. In our review of Professor Giovanni Dosi we learned that technical trajectories were influenced by commodities that were abundant and affordable. It is People, Ideas & Objects assertion that the two commodities that affect the technical trajectories in oil and gas are knowledge and collaborations. Having an ERP system that provides this level of collaboration will enhance the innovativeness of the oil and gas producer. And let's not forget the ultimate collaborative interface, our “Marketplace Interface”.

In previous passes through the Preliminary Specification we have discussed the Purchase Order system that is part of the various modules. In the Resource Marketplace module, access to the service industry is one of the key attributes of the module and therefore the Purchase Order system will be an inherent part of that module. Thankfully Oracle have a suite of modules called Procurement in the Oracle Fusion Applications. Within that suite includes the following modules Purchasing, Self-Service Procurement, Sourcing, Procurement Contracts, Supplier Portal and Spend & Performance Analysis. All of these modules within the Procurement suite will be adopted within the Preliminary Specification as they bring substantial value to the innovative oil and gas producer.

There is also a suite of Supply Chain Management modules that I have not placed within the Preliminary Specification. Oil and gas doesn’t need supply chain management tools it needs good old fashioned purchasing tools. Supply chain tools are for retail stores like WalMart and manufacturers like Ford, not oil and gas operations like upstream innovative oil and gas producers. There may be some demand for supply chain tools if the producers of the oil sands plants decide to join the People, Ideas & Objects Preliminary Specification, and there is no reason that they couldn’t. They would however need to indicate so before the scope of the Preliminary Specification was set, so that it included heavy oil operations.

There will be a variety of People, Ideas & Objects modules that access Oracle Fusion Application Procurement modules during their operation. Within the Preliminary Specification we have employed modularity theory in both the technology and the organizational design. From a technological point of view modularity provides us with the ability to access the services of a module without having to delve too deeply into the code of the module we want to access. In a paper entitled “Oracle Fusion Applications: The New Standard for Business” Oracle describes the benefits of modularity in the following fashion.

The maximum benefits of SOA can only be gained by placing services at the heart of an application that takes a modular approach to module and process design. That way, processes can be reconfigured to meet the evolving requirements of the business at a detailed level. Any extensions can be developed as additional services, without touching the source code of the core application.

So when the Resource Marketplace module wants the “Marketplace Interface” to generate a Purchase Order with a new supplier then the service is populated within the interface from the Purchasing module in the Oracle Fusion Application Procurement Suite. These are some of the benefits that we gain from modularity in terms of the technologies. What the primary benefit of modularity is in organizations is the further division of labor and specialization.

Purchasing activities may be limited to those producers that are undertaking large and complex projects. However, I think that any and all producers can benefit from having these services available to them. Even though a project may not be big in terms of some of the other projects that are undertaken in the industry, they are material to the producer firm or Joint Operating Committee conducting them. And as such would benefit by having a Purchase Order system and related facilities provided to help manage the contract, transaction and relationship with the service industry provider.

Conclusion

Is is the use of the Joint Operating Committee and the “Marketplace Interface” by the Resource Marketplace that provides the value to the innovative oil and gas producer. Enabling the service industry to grow thick markets for their products and services. Producers have a role in defining and supporting a dynamic, competitive and healthy service industry. However, before that happens, the need for the software that is defined here in the Resource Marketplace has to be built for the producer, the Joint Operating Committee and the service sector.

Final - Preliminary Specification - S&AC

I am pleased to begin the posting of the final module specifications of the Preliminary Specification. These will be posted here in the following days and at the end I will reveal the location of the wiki in which they are accessible from. Today's post is the Security & Access Control module. It is one of the smaller modules at 5,570 words, with some of the other modules being over 25,000 words. I will also at this point cease to post every day and will only be posting on every business day. Thank you.

Introduction

The Security & Access Control module is the place where dreams can be shattered or visions soar to fulfill the possibilities. It was suggested in the Draft Specification that the Security & Access Control module be one of the first modules to be developed. That would still be my recommendation.

What we have with using the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer. Is the interactions of many producers and suppliers who are involved in the day to day commercial and strategic concerns of that JOC. What we need to concern ourselves within the Security & Access Control module is that the right people have the right access to the right information with the right authority at the right time and at the right place.

Throughout the Preliminary Specification we discuss one of the premier issues of the oil and gas industry. That being the demand for earth science and engineering effort is increasing with each barrel produced. This is best represented in the steep escalation of the costs involved in the exploration and production of oil and gas. At the same time the critical earth science and engineering resources are somewhat fixed and are difficult to expand in the short to medium term. Add to that, an anticipated retirement of this brain trust in the next twenty years, and the problem becomes of critical concern.

There are few short term solutions to the short fall in geologists and engineers over the next twenty years. It takes the better part of that time to train them to operate in the industry. What we do know are several “things” that are being applied in the People, Ideas & Objects Preliminary Specification. Key to a number of concepts application are what we call the Military Command & Control Metaphor. Which is a method developed in the Security & Access Control module of imposing command and control over any and all Joint Operating Committees, working groups, producer firms or organizations the producer may need to add structure to. The concepts are the further specialization and division of labor, and a reduction in the redundant building of capabilities within each oil and gas producer, or as we describe it, a pooling of resources in the Joint Operating Committee.

The first concept of specialization and division of labor is well known as a principle of economics that brings about greater amounts of economic productivity from the same volume of resources. Given that the volume of earth science and engineering resources are known for the foreseeable future, specialization and the division of labor will provide us with a tangible means in which to deal with the productivity of the oil and gas industry. In today’s marketplace to approach a heightened level of specialization and division of labor without the use of software to define and support it would be downright foolish.

The pooling concept is the solution to the current desire that each producer firm acquires the earth science and engineering capabilities necessary to deal with all the needs of their “operated” properties. This creates unneeded “just-in-time” capabilities for the scarce scientific resources. When each producer within the industry pursues this same strategy substantial redundancies are built into the industries capabilities. Redundancies that are left unused and unusable. What is proposed through the People, Ideas & Objects software application modules is that the producers operational strategy avoids the “operator” concept and begins pooling the technical resources through the partnership represented in the Joint Operating Committee. That way the redundancies that would have been present in the industry can be made available to the producers and used by the producers through an advanced specialization and division of labor.

What these concepts require therefore is what the Security & Access Control module is designed to provide. The system must provide access to the right person at the right time and the right place with the right authority to the right information. With the Military Command & Control Metaphor there will also be a manner in which the technical, and all the resources, that have been pooled from the producers, interact with an appropriate governance and chain of command.

Two Types of Data

When we talk about the various people within the producer firms affiliated with a Joint Operating Committee. And the number of Joint Operating Committees that a firm may have an interest in. And the number of people a firm may have employed. Access control becomes challenging. It becomes a challenge when you consider that your people certainly should have the access that you require, but the level of trust that you may have with respect to the other partner organizations is probably not as strong. This is how People, Ideas & Objects deal with the access and trust issue in the Security & Access Control module.

When we concern ourselves with the data and information of the firm, and the information that is cleared from the various Joint Operating Committees that the oil and gas producer has an interest in. We can all agree that this information is proprietary and is subject to the internal policies of each producer firm. (Information such as reserves data, accounting information, internal reports and correspondence, strategy documents.) What we are also concerned about is the information and data that is held in the Accounting Voucher module and the associated data that is common to the joint account. (well licenses, agreements, production data, capital and operating costs, revenue and royalties.)

Closer analysis of these two types of data and information that are held within the firm and the Joint Operating Committee fall within the proprietary and partnership domains. In Canada at least, most of the data and information in a Joint Operating Committee can be freely obtained through various regulatory agencies. Nonetheless, the majority of the data is shared through the partnership, vendors, contract purchasers and a variety of other groups who have an interest in the data and information. Not so for the producer firms data. Most of the information is kept close at hand and is only reported through filtered reserve report summaries and annual reports. Therefore keeping a handle on proprietary data, while operating the Joint Operating Committee as the key organizational construct of the innovative oil and gas producer, as proposed in People, Ideas & Objects, does not present any data leakage.

Access control can therefore be limited by precluding any company personnel from viewing any other companies files. While in People, Ideas & Objects access control is limited to the Joint Operating Committees of the firm and the firms files only. To extend this further we would have access control limited to the appropriate roles within the firm, then it is a matter for the user community to define a standard set of generic roles in which access is required to certain data types. This would also apply to the types of operations that can be handled by that role, for example, read, insert, update, delete. These generic roles could then be assigned to each individual within the organization based on their needs. Assigning multiple roles for more complex access. Access to your proprietary data would be for your company’s personnel eye’s only.

More on the MCCM

People, Ideas & Objects development of the Military Command & Control Metaphor (MCCM) of the Security & Access Control module is not without some historical context. Before the hierarchy, which I perceive as somewhat of a commercial development of the 20th century, there was only the military structure in terms of large organizations. The main difference between the two is rather subtle but significant. The military structure is much broader and flatter then the hierarchy. That is one of the ideals that we are seeking, but the more important feature is the ability for the chain of command to span multiple internal and external organizational structures.

If we analyze the U.S. Military we find a number of interesting attributes of using the military chain of command that will provide value in the use of People, Ideas & Objects software applications. First is the title and assignment of an individual in the military.  For example, “Sgt. Richard Knuth, Company A, Brigade Special Troops Battalion, 3rd Heavy Brigade Combat Team, 3rd Infantry Division.” A similar title and assignment for the people within a Joint Operating Committee would help to clarify the role and responsibilities, authority and capabilities the individual would have within the JOC. For example this individual might have the following “Richard Knuth, Chief Engineer, Field Straddle, Elmworth. Irrespective of which firm this individual is from each of the participants, and the People, Ideas & Objects system, would recognize that the authority of a Chief Engineer was the same throughout the industry and that the designation of Chief Engineer entitled the individual to authorize the appropriate actions.

Now this is not fundamentally different from how the industry operates today. What is different is the ability to operate in a fashion where the interactions between the producers in the JOC are done as if they were all employed by the JOC. Where multiple producer firms are contributing many full time staff to the JOC. This interaction between producers through the JOC can only be replicated if there is a recognizable chain of command between the firms that make up the JOC. In addition to the recognizable chain of command each organization must have additional governance concerns handled, and compliance plays a big part in this as well. (We will talk more about these in the Compliance & Governance module.) That although it would be an easy thing to implement from a people point of view, the actual implementation of pooling the staff from multiple organizations becomes complex when we consider all of the implications. However, with the Information Technologies that exist today, and the issues of the shortages of earth science and engineering talent we have few choices but to pursue this pooling concept.

The nature of the people that will be working through the chain of command that is layered over the Joint Operating Committee will include all of the disciplines that are involved in the oil and gas industry. The contributions of staff, financial and technical resources will include everyone that is employed by the industry today. I can foresee many of the office buildings being refurbished to accommodate the staff of a single JOC. There the staff from the different producers would be seconded to work for the JOC, working at a single JOC not at any particular producer firm.

In previously discussing the Military Command & Control Metaphor (MCCM). I noted this inter and intra organizational use of the MCCM was similar to that used by NATO. That armies of the various countries could work together and recognize personnel from each other's armies and immediately recognize and use the same chain of command. Unfortunately then came Libya and the failure of NATO may be well at hand. And the unfortunate parallel may be seen as a striking example as why the MCCM might not work in People, Ideas & Objects. I think otherwise as the Joint Operating Committee is the financial framework of the industry. This means that all of the members of a JOC are equally driven by their financial interests. And that financial interest drives consensus. Therefore, the analogy to Libya would be inappropriate as their objective is not financially driven and the NATO members can not form a consensus on what the objective is. The point in using the NATO example was to show the ability to recognize the chain of command spanning multiple organizations. Not to submit that countries driven by politically different philosophies could agree militarily.


Access, Roles and Responsibilities

This topic discusses the manner in which authorizations, roles and responsibilities are handled in the Security & Access Control module of the Preliminary Specification. We should also discuss, the topic of delegating the authority and responsibility during absences, which is something that can come up at any time.

As background we should recall that each individual would have different access levels and authorizations in terms of access to the People, Ideas & Objects systems. Assuming different roles and responsibilities would impose different access levels to data, information, processes and functionality. On top of that, the Security & Access Control module is the key module for imposing the Military Command & Control Metaphor throughout the People, Ideas & Objects application modules. This structure, particularly in a Joint Operating Committee, would work to weave the multiple producer firms under one chain of command. It also provides an interface to ensure the coverage of all the processes were “manned” to ensure compliance, governance and overall completeness of the process.

Throughout the Preliminary Specification there is the perception of a heightened role for technology in terms of enabling the authorization to conduct operations within the system. That is to say the ability to do things and get things done is through the collaborations with partners and to authorize actions through participation in the processes managed by the systems. This participation dictates that the designation of the roles in the Security & Access Control module “means” more than just data access; it also imputes authority and responsibility to undertake actions on behalf of Joint Operating Committees and / or producer firms.

It would also be necessary to be able to assign this authority within the Security & Access Control module during any absence. If someone with authority and responsibility were to be away for whatever reason, they should be able to assign their authority to another person to fill that role while they are away. This will ensure that the process isn’t held up during their absence. Delegations of authority have been used for years in larger firms and with a system that imposes the authorizations and responsibilities on specific roles, the ability to temporarily move them down, across or up the chain of command is a necessity to keep the organization functioning.

Lastly we should talk about the interface that helps to identify the missing elements of a process. It would simply show the command structure of the people who are assigned to a Joint Operating Committee or to a process and their related role, authorizations and responsibilities. If someone was to be away then it would show who was taking over their role. It would also help to identify how you could impose the chain of command to fill the void of any vacancies. This would be particularly important if the role or process was needed to be documented for compliance purposes.

People, Ideas & Objects and Oracle Corporation

Starting with the Security & Access Control module we find that Oracle Corporation have a comprehensive suite of applications that provide for the security and access control that we are looking for. Falling under the Oracle Identity Management brand name. These products include tools for Access Management, Identity Administration, Directory Services and Governance. These product classifications come in a variety of different products and are configured in some specialty industry and management suites.

Two areas that are going to be challenging are going to be the Military Command & Control Metaphor (MCCM) and the inter-relatedness of the Joint Operating Committee and service industry representatives. Early on in the specification we noted a number of research areas that were needed to be conducted. These are two areas that will take some research dollars to resolve. To have the MCCM recognize members of different organizations will not be the challenge. To engage them and have them interact in the manner that we expect them to when we expect them to, will.

Oracle Identity Management resides within the Oracle Fusion Middleware product layer. As we indicated earlier in the Preliminary Specification this is Oracle’s Java Enterprise Server. Therefore these applications are open to be tailored to the user’s needs. So when we do sit down with Oracle and define the Security & Access Control module based on the user needs. These needs can be accommodated by the technologies that we have selected.

And it is through the efforts of the user community that we will resolve these issues. It is also one of the reasons that the budgets of People, Ideas & Objects software developments are where they are. We will have challenges to resolve in delivering these innovative systems to the industry. I would also remind producers that our value proposition sees the one time costs of these developments amortized over our subscribing base of producers. Yet each one of those producers receives the full scope of that development effort in terms of the software application.

We now look into the Oracle product classification of Access Management. Included in the Access Management classification are the following products; Oracle Access Manager, Oracle Adaptive Access Manager, Oracle Entitlements Server, Oracle Identity Federation and Oracle Enterprise Single Sign-On Suite. Each of these products will be included in the Preliminary Specification as they have components that are required for the day to day use by the users, producers and Joint Operating Committees.

One area that I was surprised to learn that Oracle had been working on was in the area of working with partners, vendors and suppliers. Within the Oracle Access Manager it is noted that they are able to provide... “Building federated user communities that span company boundaries.” These are the beginning of both the pooling and Military Command & Control Metaphor (MCCM) that are critical to resolving so many of the issues that the oil and gas industry faces.

On the heels of Oracle Access Manager is their Adaptive Access Manager which takes the concept of intra partner interactions further with “Oracle Adaptive Access Manager makes exposing sensitive data, transactions and business processes to consumers, remote employees or partners via your intranet and extranet safer.” This is the nature of business in the future. Working with your partners, as is done in the Joint Operating Committee, is an effective means of reducing costs and increasing innovation in any industry. It’s only reasonable that the technologies are beginning to emulate these needs. In addition Oracle Adaptive Access Manager takes the level of security and authentication to a higher level. As a result, our demands regarding the pooling concept and the MCCM, I feel, will be less of a technical risk for the People, Ideas & Objects Preliminary Specification and subsequent developments.

The next application is the Oracle Entitlement Server which provides a dynamic access control element to the applications that use the server. Instead of hard wiring access control privileges into each application and user, you can dynamically generate them using the Oracle Entitlement Server. “The solution can manage complex entitlement policies with a standalone server or with a distributed approach that embeds information at the application level.” So when it needs to be determined if user X has access to Joint Operating Committee Y, a decision from the entitlement server, based on criteria within the application, can be made. If this information changes then the user would be denied access. This provides greater security based on policies and reduces the amount of detailed specific software development that is difficult, time consuming, and costly to maintain.

Federated Identities are also a major part of how the pooling concept and MCCM are implemented in the Preliminary Specification. Oracle Identity Federation provides high levels (attribute federation) to the applications that use it. We have specified in many of the modules, such as the Resource Marketplace module, the use of Federated Identities. Situations like where the contact and other information is maintained by the vendor. That information is comprehensive in nature and includes key organizational contacts, calendars and scheduling information. Working with the partners in the Joint Operating Committee and the representatives of the service industry in this way will effectively mitigate many of the technical software development issues we have.

One area that we will continue to face challenges however is in the Work Order. The ability to dynamically put together a working group to study some earth science or engineering research subject is critical to the innovative oil and gas producer. These are ad-hoc and made with partners that you may have no history with. Federated Identities will provide you with some of the information you need to form the partnership and grant application access, however, there is still the pooling of and sourcing of costs, and budgets which is the bureaucratic nightmare that mitigates and destroys the motivation for these working groups to form. We need to make sure these roadblocks do not get in the way. We have proposed to overcome these issues by developing an intuitive interface for the users forming the working group.

The last thing we want our users to be involved in is some form of mindless security access maze. Oracle Enterprise Single Sign-On Suite Plus promises to keep this from happening. Logging onto and off of systems as the user proceeds through the various modules and components of the applications is a must have. This product also promises the ability to provide this level of service on a remote basis. Which is much needed.

Oracle Identity Manager which will be used as the base product for role and identity management will also be the base of the Military Command & Control Metaphor for the People, Ideas & Objects Preliminary Specification. It is part of the Oracle Fusion Middleware product offering and as such is part of their Java Enterprise Server. Therefore we are able to build off the functionality that exists and enhance it with the user community's needs. Building off of the functionality will be somewhat limited as many of the concepts that are inherent in the MCCM are already captured in the Oracle Identity Manager.

Oracle Identity Manager is a highly flexible and scalable enterprise identity administration system that provides operational and business efficiency by providing centralized administration & complete automation of identity and user provisioning events across enterprise as well as extranet applications. It manages the entire identity and role lifecycle to meet changing business and regulatory requirements and provides essential reporting and compliance functionalities. By applying the business rules, roles, and audit policies, it ensures consistent enforcement of identity based controls and reduces ongoing operational and compliance costs

Oracle Internet Directory and Oracle Virtual Directory product offerings are up next. A little off topic but Oracle Internet Directory is a relational database derived directory server. That Oracle is providing the marketplace a directory server based on relational database technology speaks to the power of their relational database. They claim they have the performance for two billion users. I see advantages of using this product over their traditional directory server and have therefore selected it for the Preliminary Specification. It will provide us with some flexibility when we ask some of the comprehensive and demanding questions of the technologies.

Oracle Internet Directory could be deployed as an industry wide, and by that I mean oil and gas and service industry wide directory server. There it can integrate with the information that is held in other Oracle products, such as Oracle Identity Manager which would be deployed at the producer firm, Joint Operating Committee and service industry representative level. I think we could provide large volumes of information consisting of everything that exists in the industry. The producers, service industry, Joint Operating Committees, the people who work within the industry, etc. Because this is a database we have some interesting opportunities here.

And Oracle Virtual Directory may be the beginning of optimizing the relational database opportunities. So what we will have is a global database of names within the Oracle Internet Directory and these will relate to the information contained with Oracle Identity Manager and other applications. What Oracle Virtual Directory will provide us with is a seamless way in which to browse, and for applications to see, these datastores as one.

Within the Preliminary Specification we want to access the contact information of the people or firm that provide services or products to the producers or Joint Operating Committees. As we indicated we want the individuals and service industry providers to maintain their own contact and basic data. These will be maintained in the Oracle Internet Directory for each and every producer or Joint Operating Committee to access the most recent and up to date information. This will save an immense amount of time on behalf of the producers and Joint Operating Committees, as well as the individuals and service industry providers. When looking for someone the search capabilities will be significant as we have added the “Vendor / Supplier Contact Database” and the “Actionable Information Interface” to this base data in the Resource Marketplace module.

Now we want to look into Oracle Identity Analytics as part of the Security & Access Control module of the Preliminary Specification. The primary purpose of this application is to provide governance over the access privileges granted to the users of the People, Ideas & Objects application modules. Many of the functions and processes that are provided in Oracle Identity Analytics are either necessary or of significant value that it has been included in the Preliminary Specification.

The first area is the “why and how” of the users access. Providing documentation of what information was accessed by what users and if any of the access violates any of the established policies. Ensuring that data access by users is compliant with the corporate and application policies, that users are not unnecessarily being abused by overtly secure systems and overall good corporate governance is achieved. All of the data that is collected during data access, that is the “why and how” of the users access. Is compiled in a “Data Warehouse” for further analytical analysis and querying. This will help to show trends and usage patterns that will form new policies and procedures and security provisions.

Another useful function within the Oracle Identity Analytics application is the Segregation of Duties feature. In many areas of a corporation, certain process functions must be undertaken by specific individuals and in some cases different individuals. This feature provides for that assurance. It is also Sarbanes-Oxley compliant. This is important when the Joint Operating Committee is small, as we mentioned the other day. And we have to assign many roles to a few individuals. This application will ensure that the processes provide the appropriate governance is maintained by segregating the roles that need to be kept apart for compliance purposes.

There is a comprehensive and customizable dashboard interface for the users of the Oracle Identity Analytics software to analyze the data and particularly the data warehouse. Filled with reports and data that an effective user can use to determine where and how the People, Ideas & Object producer client might be susceptible to access control violations.

The last feature that I want to highlight is what Oracle calls their Role Lifecycle Management. This provides the Oracle Identity Analytics user with the ability to do “what if” analysis in terms of the implications to identities and roles within the People, Ideas & Objects application. It also contains a role change approval process, role versioning and a role rollback feature. These will be needed in determining and maintaining the Military Command & Control Metaphor.

We now step down from the Oracle Fusion Middleware layer to the actual Oracle Database for some of the security features that we seek. The first product in this stack is Oracle Advanced Security. It provides the authentication, and encryption of both the database and the network activity. It is possible, and I highly recommend that all the data and information that is used in the People, Ideas & Objects application modules be encrypted in the database and on the network. This increases the load on the systems and will require additional effort in terms of key management, however, I think the nature of the data and information and the manner in which the applications are provided, a “cloud based” solution, this level of security is necessary.

Oracle Audit Vault is another product that I recommend for the Preliminary Specification. It provides a central location and management of the audit information for compliance purposes. Giving our users the ability to manage the data, information, privacy policies and security. Oracle Audit Vault is also Sarbanes Oxley compliant.

This next Oracle product is a definite addition to the Preliminary Specification. Oracle Label Security will work in many different ways within the modules however here is how I see just two examples. What the application does is designate certain individuals with higher level security clearances. It also designates certain data fields with certain levels of security clearances. Those with high enough security clearances and appropriate authorizations are then able to read these database fields. Within the People, Ideas & Objects application we want to make sure that the reserves, accounting information and strategy discussions of each producer firm remain confidential to a select group of individuals within that firm. With Oracle Label Security that is possible. We also want to ensure that the appropriate people within the chain of command in the Military Command & Control Metaphor have access to the appropriate materials to make the appropriate decisions. This will allow those individuals to have access to these materials without making it available to everyone in the chain of command.

Although not that pertinent to the users of the People, Ideas & Objects applications we have also included Oracle Configuration Management, Oracle Database Firewall and Oracle Database Vault as part of the Preliminary Specification. These will help to keep the applications and the Oracle Database running as they should. Oracle Configuration Management will determine if there is a change in the configuration, either a patch, or if something has gone wrong it will correct itself back to the specified configuration. Ensuring that what is promised to the users of People, Ideas & Objects is what is provided. Oracle Database Firewall ensures no SQL statements that are inconsistent with the users or applications are passed through to the database. And Oracle Database Vault provides the ability to have only certain IP addresses or users to run certain SQL commands and to lock databases from having any operations being conducted on them.

Backing up your data and information are two of Oracle’s strengths. They provide excellent tools for this in Oracle Secure Backup. With the database being encrypted it is interesting that the backup is of the encrypted database. What we will need to do in the Preliminary Specification is to determine in great detail what precisely will be the backup strategy that will be used for the People, Ideas & Objects application.

Lastly there is Oracle Total Recall. A product that helps in accessing historical data. Oracle Fusion Applications provides some interesting solutions with respect to how they handle legacy applications and we will get into those as we proceed through the Preliminary Specification.

Conclusion

It is important to remember here in the Security & Access Control module of the Preliminary Specification. That the role and identity based Military Command & Control Metaphor (MCCM) as has been conceived here has not been implemented, developed or conceived of anywhere else before. We are taking the concept and technology of role and identity based management to the next level with the MCCM.

Why are we bothering with the MCCM and the pooling of the resources in the Joint Operating Committee anyways? The issue that we are resolving is the finite number of earth science and engineering resources that are available to the industry. With the anticipated retirement levels in the next 20 years. With the time requirements to bring on new levels of resources. And most importantly with the demands for more energy, and the demands for more earth science and engineering in each barrel of oil equivalent produced. We face a long term shortage of these critical resources. The need to organize the industry, to exploit specialization and division of labor are necessary to expand the output from the same number of resources. That begins with the Joint Operating Committee. And that imputes that we have contributions of earth scientists and engineers from multiple producers working together to meet the objectives of the Joint Operating Committee. Therefore we need a means in which they can organize themselves and that is the Military Command & Control Metaphor.

How the MCCM will be implemented will be determined by the user community. However, I can speculate that the Joint Operating Committee will have standard roles and identities that are used throughout the industry. This standardization will probably be necessary for the purposes of making the technology work. The need to have the various areas “covered off” in terms of compliance and other requirements will require a standard template be used by everyone. Then everyone will know that that position is responsible for that role and responsibility. When Joint Operating Committees are small and have only a few people assigned, then multiple roles can be assigned to one individual.

With the natural division in the types of information that are held within a producer and Joint Operating Committee. Producers will know that the Preliminary Specification will be able to deliver the right information to the right people at the right time. That leakage of their proprietary information can be mitigated by isolating the companies data, due to its unique nature and Oracle Label Securities ability to restrict access to database fields.

Oracle’s products provide a strong layer of mission critical capabilities in the Security & Access Control module. Although this comes with additional costs, I am certain that no one will argue with the quality and secure knowledge that these products bring.

The Preliminary Specification Part CCCXXX (General Part VI)

Although Oracle lists two other modules in their Oracle Fusion Applications, Governance, Risk & Compliance Suite I am unable to find any information on either of these modules. The two are Issue & Risk Manager, and Financial Compliance, the latter being of most interest. As soon as I am able to find any information about these products I will add them to the Compliance & Governance module of the Preliminary Specification. Other then that we have come to the end of the road in terms of the fifth or Oracle pass through the Preliminary Specification. This is also the end of the original content section of the Preliminary Specification as there are no plans for a sixth pass. Instead I will begin a review and edit of the content that we have so far, and attempt to summarize the content of each module. This will help in clarifying the message and getting it out to a larger audience.

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 is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects.  

The Preliminary Specification Part CCCXXIX (C&G Part XXVII)

Today we take a look at Oracle Fusion Applications, Governance, Risk & Compliance Suite, Access Controls Governor module. This will be an important element of the Compliance & Governance module in the Preliminary Specification as segregation of duties (SOD) has taken on an heightened importance in the firm. Whether that is as a result of the regulation or from the need for better governance, SOD offers many advantages to the innovative oil and gas producer. Having multiple people involved in the process from beginning to end ensures that no one individual can manipulate resources of the firm for their own benefit. Oracle’s Access Controls Governor module provides this functionality in the following manner.

Oracle notes the following is also part of the Access Controls Governor modules functionality.

Global regulations are driving organizations to improve the transparency and accountability of financial data, processes, and transactions. Controlling, tracking, and reporting on user activity within the application environment are critical components of compliance.

So apparently big brother needs to be watching. And as good as your internal controls may be, there will always be ways in which the system might be “hacked” in ways that were unknown before. Thankfully Oracle’s Access Controls Governor module is automated and implements the policies based on management's understanding. There is also a library of controls that can be implemented that was developed by Oracle in collaboration with leading audit and consulting firms. As with the libraries that were mentioned yesterday, People, Ideas & Objects will maintain a library of these policies for the innovative oil and gas producer. And the system is not just reporting on violations, it is actively stopping and enforcing SOD when they occur based on those policies. And they can be somewhat dynamic and proactive in their enforcement, stating that no user can be involved in more than two steps of a five step process, and disallowing the user to sign on to another process at the time of assignment.

When preparing policies for implementation the Oracle Access Controls Governor provides a tool for simulating the new policies. Using the historical record of user access as the base of information it can run the new policy against that data to determine what the outcome of that new policy will be. Would there be any new violations, and / or false positives etc. Then they can tune the policy based on the feedback that they get from the tool to ensure that it is catching only the desired situations. Saving costly resources in the future.

From a People, Ideas & Objects perspective the Oracle “Governance” applications that we have discussed yesterday and today help to bring 21st Century internal controls to the Preliminary Specification. When we think of the manner in which the industry will operate with large portions of the existing producers overhead being provided by service providers. And those service providers accessing their work through the People, Ideas & Objects Preliminary Specification. Extension of these internal controls to those individuals will be needed as well. The producer will need to know that these controls are effective in their firm, their Joint Operating Committees and the service providers they hire to maintain their firm.

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 is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects.

The Preliminary Specification Part CCCXXVIII (C&G Part XXVI)

Continuing on with our look at the Oracle Fusion Applications, Governance Risk & Compliance Suite of modules. Today we will be discussing the Performance Operational Control tools that consist of Transaction Controls Governor, Configuration Controls Governor and Preventive Controls Governor. As we indicated yesterday, these have all been adopted into the Compliance & Governance module of the Preliminary Specification and provide the innovative oil and gas producer with internal controls and governance over a variety of processes. They offer the detailed governance, in an automated fashion, necessary for the insatiable energy era.

The Transaction Controls Governor is an application that is designed to continuously monitor key transactions. It also provides monitoring of data and application modifications. In terms of reviewing transactions, much of the application is programmable and can be set to look for certain criteria. This is done through an interface that is intuitive and easy to set up a control that will monitor all transactions for certain behavior. Oracle also provides a library of internal controls that can be deployed if the producer finds them of value. People, Ideas & Objects, working on behalf of our subscribing producers, should also provide a library of these controls that are specific to the innovative oil and gas producer. These controls output can then be directed to the appropriate individual within the firm to have them dealt with.

Oracle’s Configuration Controls Governor is an Oracle Fusion Application that provides Sarbane’s Oxley compliance to the producer for IT infrastructure configuration changes. When there is a change to your IT environment, the who, what, where and when of the change is sent to the appropriate people within your organization. There they can review the changes to ensure that they were carried out in compliance with the companies policies. The Configuration Control Governor also provides the ability to establish tolerances on fields. So if a user entered a number that exceeded the value of the fields tolerance, the transaction would be rejected.

During our discussion of the Compliance & Governance module we discussed the need for more internal controls. And these transaction and configuration controls will bring an element of the internal controls under appropriate governance. That these are automated helps to provide a strong understanding of the appropriateness of the global transaction base the producer firm has based their financial reports upon. However, they are not the whole picture when it comes to internal controls. And that is where the Oracle Preventive Controls Governor comes into play. Using configurable workflows, Oracle Preventive Controls Governor enables the user to design  and implement appropriate internal controls for their firm. This tool provides both contextual and intrinsic policy applications to business processes.

Tomorrow we will discuss the Oracle Access & Segregation of Duties Controls application.

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 is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects. 

The Preliminary Specification Part CCCXXVII (C&G Part XXV)

Where to begin, lets start off with a high level summary of the Oracle Governance, Risk & Compliance Management Suite of modules. There are three groupings in which the modules are organized, they are Risk & Financial Governance, Performance & Financial Controls and Access & Segregation of Duties Controls. Within these three groups you will find the modules that Oracle has developed in the Oracle Fusion Applications, Oracle Governance, Risk & Compliance Management Suite. Today we will be discussing the Risk & Financial Governance module with the Performance & Financial Controls being discussed tomorrow and Access & Segregation the next day. Needless to say these modules have all been adopted within the Compliance & Governance module of the Preliminary Specification.

To the larger issue of compliance and governance and how a firm gets a firm handle on the growing demand for more regulation. Oracle and People, Ideas & Objects have similar ideas as to how to keep ahead in this difficult area. Oracle asks the following.

No one expects that this is the end of new industry and legislative requirements, so business executives continue to struggle with questions such as: How can we stay on top of regulatory demands while controlling costs? Can we better manage risk to prevent business and compliance failures? How do we achieve better performance while ensuring accountability and integrity?

And it is through automation, Information Technologies and the use of standardization and the division of labor that the innovative oil and gas producer can achieve these objectives of getting ahead of the regulations. As we have proposed in the Preliminary Specification, the producer that participates in the user community has the opportunity to shape the software that they will use. People, Ideas & Objects is user defined software based on the Joint Operating Committee. Giving the producer the ability to remake their organization into an innovative, profitable and performance oriented oil and gas producer.

In terms of Oracle’s Risk & Financial Governance module producers will be able to increase the efficiency of compliance processes, improve the reliability of the financial reporting and anticipate and respond to risk. We discussed the element of risk in the Financial Marketplace module and the assessment of all of the investments based on their anticipated returns. Each of the potential investments have to be “risked” in order to bring the return on to comparable terms that considers the risk. It is here that the the two modules, the Oracle Risk & Financial Governance, and the Financial Marketplace modules will have some cross over. It is also at this point that our two firms have similar attitudes, again, with respect to how the producer attains value. Oracle states.

KPMG's Assurance & Advisory Service Center understood early that value and risk go hand in hand and that performance and risk management should converge to create, enhance and protect stakeholder value. In May 2007, the Institute of Management Accounting further characterized Enterprise Risk Management as aligning strategy, processes, technology, and knowledge with the purpose of evaluating and managing the uncertainties the enterprise faces as it creates value. It considers ERM to be a truly holistic, integrated, forward-looking, and process oriented approach to managing all key business risks and opportunities—not just financial ones—with the intent of maximizing stakeholder value as a whole.  

This will be a key insight that the user community will be able to build off of the People, Ideas & Objects Financial Marketplace and Oracle’s Risk & Financial Governance modules.

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 is intended to outline our general product direction. It is intended for information purposes only, and may not be incorporated into any contract. It is not a commitment to deliver any material, code, or functionality, and should not be relied upon in making purchasing decisions. The development, release, and timing of any features or functionality described for People, Ideas & Objects products remains at the sole discretion of People, Ideas & Objects.