Governance Over the Service Industry
Its best to take a step back and discuss why we are implementing this process in the Preliminary Specification. Simply we have two choices for providing the producer firm with the products and services of the service industry. We can let the market provide for all of the products and services, or we can have the producers conduct all of the work from manufacturing drill bits to producing the oil. We currently have a situation where the producers are dissatisfied with the service industry and are micromanaging that industry through control of the market. When producers are not satisfied with the size of the drilling rig fleet, they, the producers will commission more rigs. Sending the wrong messages to the service industry entrepreneurs. Producers have to work with the service industry, not against them, and certainly they should not accuse them of being greedy and lazy. When you take away the incentives to build a drilling rig, don’t accuse them of being greedy or lazy.
It is here within this “capabilities” process that the firms governance must enforce the boundaries of the firm. The division between the market and the firm, and where that division lay’s, has to be enforced within this process. Simply the producer firm is only concerned with their asset base and their earth science and engineering capabilities. Everything else must be provided by the marketplace. The producer however has a role in providing a vision and leadership to the marketplace and seeding that market with funding. In a paper written by Professors Richard Langlois and Nicholas J. Foss entitled “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.” they note.
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 economic change the producer is facing is the commodity prices are rewarding the innovative producer. To focus on purchasing more drilling rigs is not where a producer can generate value. The governance of the producer must maintain the focus on where the producer can generate the greatest value, on finding and developing oil and gas reserves, otherwise...
If by contrast, the old configuration of capabilities lies within large vertically integrated organizations, creative destruction may well take the form of markets superseding firms. History offers many examples of both. p. 21
I am going to suggest that reliance on the Work Order and Military Command & Control Metaphor of the Preliminary Specification be the means of how the producer maintain focus and governance on this process. Distraction away from the objective of the producer firm is a very real possibility in dealing with the noise of the marketplace. The Work Order will ensure that no work is done on unauthorized projects and that a chain of command is implemented in the administration of each project. This will help to ensure that each project is ultimately focused on providing the producer with earning greater returns on oil and gas reserves discovery, enhancement and production.
This discussion may seem like a fundamental contradiction as to what the producers involvement is in the service industry. I am critical of the way that the producers have involved themselves in the business of the service industry. The producers dissatisfaction with the costs, products and services provided to them by the service industry is as a result of the high levels of involvement of the producers in the service industries business. Micro-managing and cost control, as well as direct ownership of things like drilling rigs are counter to the producers interests. At the same time there needs to be stronger representation made by the producers in focusing and leading the service industry marketplace. This leadership is lacking and is sorely missed. My argument is that we need to remove the direct manipulation of the service industry marketplace by the producers and replace it with a more constructive leadership role so that the service industry marketplace can better respond to the needs of the innovative and profitable oil and gas producer.
The Preliminary Specification provides the oil and gas producer with the most profitable means of oil and gas operations. People, Ideas & Objects Revenue Model specifies the means in which investors can participate in these user defined software developments. Users are welcome to join me here. Together we can begin to meet the future demands for energy.