Performance Evaluation and Analytics & Statistics modules have similar interfaces. The Performance Evaluation module is focused on the Joint Operating Committee and the Analytics & Statistics module is focused on the producer firm. Essentially these are user-based tools that enable analytical and statistical calculations run against the data and information contained within the People, Ideas & Objects ERP systems and other unstructured data. Providing users with the ability to analyze data in novel and innovative ways in seeking value for their firm or Joint Operating Committee.
The types of data and information prepared and presented in these modules depend on individual users. They will be unique based on their needs and interests, their scope of authority and the type of work they do. When it comes to who will bring up the next breakthrough innovation we should expect it from anywhere. Part of the innovation process is the discovery of the problem and we all see the situation from different perspectives. The point of view and innovation of each will therefore be highly dependent on the viewpoints of different groups. Someone working in the trenches may find innovations that affect their work materially, which may not interest others and vice-versa. This process of discovery should be assisted by the types of tools that include the Performance Evaluation and Analytics & Statistics modules. Professor Giovanni Dosi notes in “Sources, Procedures, and Microeconomic Effects of Innovation.”
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. p. 1121.
Irrespective of the source of the innovation the fact that it materially affects someone's work should indicate that it should be followed through. These opportunities are challenging to discover and we need to be able to evaluate them and assess them based on their impact and ability to build value. What sometimes appears to be a sound idea can also become an area where the firm could be exposed to unnecessary risk or loss. Historical data is necessary. However, in the 21st century it is also necessary to have advanced analytical tools available to analyze that data.
In the Preliminary Research Report, People Ideas & Objects identified two critical developments. The first is that innovation can be reduced to a quantifiable and replicable process. Analytical tools are part of that process. And two, the Joint Operating Committee is the key Organizational Construct of an innovative oil & gas industry. Therefore having analytical tools in the Joint Operating Committee and producer firms is critical.
This discussion deals with people's motivations to use the Analytics & Statistics and Performance Evaluation modules of the People, Ideas & Objects applications. It's one thing to have statistical analysis tools available for those who want to use them. It's another thing to have these tools being used by people who are actively looking for the next measure of performance or metric. This will reflect on how their performance can be improved. This latter use is the reason for these tools to be in the fourteen module Preliminary Specification.
We pick up on our discussion of the McKinsey article “The 21st Century Organization.” We now discuss the fourth element of that paper, “Measuring Performance.”
The final set of ideas rounding out this new organizational model involves relinquishing some level of supervisory control and letting people direct themselves, guided by performance metrics, protocols, standards, values, and consequence management systems.
And as noted in "The 21st Century Organization” people are not measured and told explicitly what to do in their jobs. There is too much activity taking place for someone to give task lists to mindless automatons. What a responsible and productive person needs to do in this world of massive information and activity is focus on what is essential. To deal with the critical value-generating areas of their jobs that can add, and avoid destroying, value. That is where the Analytics & Statistics and Performance Evaluation modules of the Preliminary Specification come into play. Providing the user with the ability to focus on building value for their clients and employers, the oil & gas producers.
Whether they are earth scientists or engineers, business professionals or in any field that the oil & gas industry employs, access to the data and information through these modules will be critical to building value. Using the “dashboard” metaphor where algorithms monitor various processes. The user would run statistical and analytical programs that look at data in novel and innovative ways. It could be conceivable that some people may dedicate large percentages of their day to day thinking of creative ways to analyze data and information available to them.
I have seen this happen many times in oil & gas. Situations where the divestiture of assets is done without the full understanding of how the asset fits into the overall makeup of the organization. These types of situations happen when the “cash” mindset takes over all rational thought and the highest resale price wins over every other consideration. This is the danger of analytical tools. As we move into a period of sharper and more accurate tools, that danger becomes more prevalent.
There’s math, and then there’s strategy. The situation we observe is when an oil & gas firm runs into problems financially or operationally and rationalizes their asset base. They think they need to raise money by selling some assets. So they naturally think they’ll sell some of their “midstream” assets. A gas plant, gathering facility, and processing facility that earns only a fee. These assets, when looked at from a financial performance point of view, are nowhere near the right street where the ballpark is on. Therefore they get sold for the highest replacement cost and the seller believes they made a good deal. The fact is that most small producers may have provided their C3+ products directly to gas plant operators for fire sale prices. This is because they otherwise have no capacity to deal with them. Gas plant operators being the only ones in the area with processing facilities negotiated a favorable bargain. They acquired the majority of the natural gas liquids in the area for royalty costs. Now that the plant is sold, those products are lost and production is transferred to the newly acquired plant owners. Materially and negatively changing the properties' performance.
The majority of oil & gas producers I have seen and studied take a while to fully understand what is happening. What seems to be a jumble of activity for no apparent reason can, upon further study, become a symphony of brilliance. This was assembled over decades by someone with such profound vision that it is truly breathtaking. Selling a gas plant out of the middle of this shows that the seller doesn’t see the vision. And none of their assets will perform in a satisfactory manner. Having tools like the Analytics & Statistics and Performance Evaluation modules in the hands of people who may not fully appreciate the vision of how the firm is built could have detrimental effects on the overall health of the firm.
We found this quotation from Professor Richard Langlois in his working paper "The Austrian Theory of the Firm: Retrospect and Prospect."
The question then becomes: why are capabilities sometimes organized within firms, sometimes decentralized in markets, and sometimes coordinated by a myriad contractual and ownership arrangements like joint ventures, franchisees, and networks? Explicitly echoing Hayek, Jensen and Meckling (1992, p.251) who point out that economic organization must solve two different kinds of problems: "the rights assignment problem (determining who should exercise a decision right) and the control or agency problem (how to ensure that self-interested decision agents exercise their rights in a way that contributes to the organizational objective)." There are basically two ways to ensure such a "collocation" of knowledge and decision making: "One is by moving the knowledge to those with the decision rights; the other is by moving the decision rights to those with the knowledge." (Jensen and Meckling 1992 p. 253). pp. 8 - 9.
In People, Ideas & Objects we have moved knowledge to those with decision rights, which reside with the Joint Operating Committee. And rather than contradict ourselves, we find clarification of this issue in the following fact. Decision rights are the authority of the Joint Operating Committee to make operational decisions. Each individual producer holds strategic decision rights regarding ownership and divestiture regarding their working interest shares. Therefore there is no risk that the property will be “harmed” in any material way by making a strategic decision of that type in the Performance Evaluation module. It is beyond the Joint Operating Committee's authority. It is reasonable to assume that the authority of decisions made through the Performance Evaluation module will be limited to one producer's operational concerns. This will be mitigated in the short term. That is to say any negative decision would be reversed as soon as it is realized.
I think that it would be worthwhile to have a strategy review “attached” to each decision based on the Analytics & Statistics and Performance Evaluations. To counter the quantitative elements of the modules, the decision analysis is qualitative. If this qualitative analysis could be embedded into these modules for documentation, it would add value.
When it comes to what we are currently given to work with in terms of ERP systems, they can leave much to be desired. If only we could have “this, that and the other thing,” our lives would be so much easier. It would appear, however, that the inertia necessary to overcome "this" requires saintly fortitude and political skills. So we continue in what can only be described as someone's bureaucratic vision. People, Ideas & Objects seeks to resolve some of the issues users face in confronting "this, that and the other thing” in systems by basing our development on our user communities' vision and participation. Inherent in that offering is that People, Ideas & Objects are not conflicted by the traditional constraints of software code and customers. That is to say we only earn our fees based on software code changes. We are therefore agents of change, not seeking to obstruct change.
The point is that our user community can enhance the system. People, Ideas & Objects are motivated by business reasons to do so. That’s how we earn our revenue. We believe software should be constantly improved, driven by users' imaginations and requirements.
When the time comes for a user to think that if they had “this, that and the other thing," they will have a means to effect that change and have it fulfilled through our user community and their access to our software developers. But this isn’t about that change process specifically. It's about a stop-gap measure they may want to implement in the short term. This is while they wait for our user community to implement their idea.
For that stop gap measure we turn to the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification. These modules will be able, since they have access to the data, to prepare ad-hoc reports that the user can develop for themselves. Granted most of these user developed reports won’t be ready for prime time, however for the purposes of the user they can fit the need in the short term.
The user generated reporting tool will be part of both the Performance Evaluation and Analytics & Statistics modules. And provide users with a sophisticated graphical user interface to manipulate data and develop queries. We’ve all seen these tools before and I’m not suggesting anything original here. What I think is different however is access to information. First, the volumes of data will be increased and secondly the Security & Access Control module will provide access to that data and information based on users' privileges.
Turning again to Professor Giovanni Dosi in “Sources, Procedures and Microeconomic Effects of Innovation” for the determination of the three key factors of innovation. He notes that they are the result of:
Search, development and adoption of new processes and products in market economies and are the outcomes of the interaction between:
Capabilities and stimuli generated with each firm and within the industry of which they compete.
Broader causes external to the individual industries, such as the state of science in different branches, the facilities for the communication of knowledge, the supply of technical capabilities, skills, engineers etc.
Additional issues include the conditions controlling occupational and geographical mobility and or consumer promptness / resistance to change, market conditions, financial facilities and capabilities and the criteria used to allocate funds. Microeconomic trends in the effects on changes in relative prices of inputs and outputs, including public policy. (regulation, tax codes, patent and trademark laws and public procurement.) p. 1121.
While in the Performance Evaluation and Analytics & Statistics modules the user would search for information or insight into the data. This is the beginning of the innovation process. The tools provided in these modules would be part of the capabilities necessary for innovation to be developed within an innovative oil & gas producer. Professor Dosi's three key factors clearly show this. With growth expected to continue. These tools provide a rich resource for developing an innovative perspective on data.
Recently, we've heard about an emerging field of data that is growing in importance. Unstructured data. Data that isn't managed by a database and has no implied meaning to its structure. The marketplace modules of the Preliminary Specification, the Resource, Petroleum Lease and Financial Marketplace modules and to a lesser extent the Research & Capabilities module all have “marketplaces” within them. These marketplaces would have substantial unstructured data that would be of use to potential users of the Performance Evaluation and Analytics & Statistics modules. Organization and access to this information on an industry-wide scale is one objective of these modules.
Taking a step further, these two modules should not be constrained to producers' internal systems. They should be able to access other sources of data and information, structured and unstructured. This is so that the user can use all three of Professor Dosi’s key factors of innovation to develop original and innovative ideas. It might be worthwhile to have a “Help” section within the People, Ideas & Objects modules. A section that includes Professors Giovanni Dosi's and Richard N. Langlois' innovation research. People would have a quick reference to items like the three key factors. This is so that they could use them in their day-to-day tasks to develop a more innovative mindset.
For example, Professor Giovanni Dosi states
“In very general terms, technological innovation involves or is the solution to problems.” Dosi goes on to further define this as “In other words, an innovative solution to a certain problem involves “discovery” (of the problem) and “creation” since no general algorithm can be derived from the information about the problems. Certainly the “solution” of technological problems involve the use of information derived from experience and formal knowledge (e.g., from the natural sciences); however, it also involves specific and uncodified capabilities, or "tacit-ness” on the part of the inventors. pp. 1125 - 1126.
It is therefore asked specifically, how can the knowledge, information and capability of oil & gas firms solve the technical and scientific problems of the future? How can a firm more effectively employ its capability to solve problems and facilitate the discovery of existing problems and creation of their solutions? These are the questions that the Preliminary Specification is determined to answer. From the perspective of the Performance Evaluation and Analytics & Statistics modules I think we can provide the user with a variety of tools that help them drill down into the data and ask questions that haven’t been asked. People, Ideas & Objects is an ERP system. However, as we have seen with the modules in the Preliminary Specification there is a lot of data and information generated through collaborations and item documentation. It won’t be just accountants that will want to use these two modules, but anyone employed by a producer firm or Joint Operating Committee.
Here is a quick summary of some of the functionality and process management the Performance Evaluation and Analytics & Statistics modules provide users.
Ability to rise above transactional work managed by other modules. We are moving from recording transactions to designing transactions in many modules. Leaving the recording of transactions to computers and the analysis to the users of these modules.
Use of the “R” statistical language and Apache Spark as embedded programs within both modules.
Configured user tools that enable the user to demo, or build small applications that fit small niche needs. If these needs grew to where more people wanted similar programs for a producers other Joint Operating Committees, they could be used as a prototype for the People, Ideas & Objects developers to build.
Querying and determining where the performance and direction of producer firms or Joint Operating Committees' value is. Allowing people to focus on value generation and avoid value destruction.
While working in isolation we can achieve a lot of what we set out to do. When we collaborate with others, the possibilities grow exponentially. Reviewing a mountain of data seems fun. For a few people that might ring true. However, for most people the possibility of finding joy in the task is limited. As a team however, the task becomes something of an adventure with the findings being multiples of what one individual might discover. Collaborative capability needs to be part of the Performance Evaluation and Analytics & Statistics modules.
Professor Giovanni Dosi noted that a technological trajectory is the activity of technological processes along the economic and technological trade-offs defined by a paradigm. Dosi (1988) states “Trade-offs being defined as the compromise, and the technical capabilities that define horsepower, gross takeoff weight, cruise speed, wing load and cruise range in civilian and military aircraft.” People, Ideas & Objects assumes the technical trade-off in oil & gas is accurately reflected in commodity pricing. Higher commodity prices will allow more innovation to be funded.
Trade-offs facilitate industries' innovation based on changing scientific and technical paradigms. Crucial to the facilitation of these trade-offs is a fundamental component that spurs change and is usually abundant and available at low costs. For innovation to occur in oil & gas, People, Ideas & Objects asserts 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 that will provide companies with fundamental innovations.
Collaborating and sharing knowledge in the Performance Evaluation and Analytics & Statistics modules, and the other modules of the Preliminary Specification, will fuel innovation. Whether that collaboration is within a producer firm, a Joint Operating Committee or a working group recently established through a Work Order. Access to these two modules should enable participants to evaluate the data with the toolset provided.
These two modules will be more useful if they are made collaborative. Not the obscure applications favored by the data obsessed. Remember Professor Dosi says that “In very general terms, technological innovation involves or is the solution to problems.” Discovery of those problems can be collaboratively done here in the Performance Evaluation and Analytics & Statistics modules.
What we do know is that “things” happen fast. Except in organizations. Providing people with the appropriate knowledge and information to act in a fast-changing environment is difficult. Some of the difficulty in getting the knowledge and information to the right people is ensuring the integrity of the information is not breached by those not part of the organization. And we are not recommending an open information policy. The Security & Access Control module imposes high levels of integrity on all communications, data storage and information. Collaboration between firms and transparency are areas where some perceived leakage of proprietary information may occur. It is here in these collaborative communications that I ask if information loss threatens innovative oil & gas producers' competitive advantages. Those being their land & asset base, or earth science & engineering capabilities. No they don't. Collaborations enhance firms' and Joint Operating Committee innovation and capabilities.
The question therefore becomes how is this proprietary information and capability deployed on an as-needed basis? Professor Giovanni Dosi notes that although the free movement of information has occurred in industries for many years, it has never been easily transferable to other companies within those industries. The ability to replicate a competitive advantage from one company to another is not as easy, and may not be worthwhile doing. Dosi (1988) goes one step further and states, “even with technology license agreements, they do not stand as an all or nothing substitute for in-house search.” A firm needs to develop “substantial in-house capacity in order to recognize, evaluate, negotiate and finally adapt the technology potentially available from others.” Therefore why not focus on the need to increase the company's unique and specific competitive sources and directions?
Collaborations in the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification will provide increased value in getting original, innovative ideas and information to the appropriate people. This is in the right place and at the right time. These are the attributes the firm should pursue rather than worry about losing proprietary data or information. We note that innovation involves discovering problems. It also includes changes which Professor Dosi notes in the following.
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.
It would therefore seem prudent for an innovative producer to enable collaborations in all modules of the Preliminary Specification. This is a key to their innovation strategy. Focus on dealing with the change in routines as a result of the discovery of problems and solutions. These are the areas where the innovative oil & gas producer will need to deal with the outcomes of innovation, and the overall capability to continue to innovate.
How the innovative producer attains a higher innovation factor is through a constant search for petroleum reserves, increased production, lower costs and more effective management of their oil & gas assets. This search will begin with a query in either the Performance Evaluation module for the Joint Operating Committee or the Analytics & Statistics module for the producer firm itself. Having access to the data and information of the respective domain provides the user with the ability to formulate queries on the basis of different scenarios, what if’s, and other mathematical calculations.
If we refer back to earlier parts of this module we find that performance is a key motivating principle behind the use of the module. People use these modules to find the next value increment. To determine where that value is located, it is necessary to use these specialized tools to identify it. Recall that these are subject to the Security & Access Control module, therefore the data and information they can access will be limited to the domain of the users' authority, i.e. only the Joint Operating Committees they’re assigned to. And the application modules will be collaborative, allowing interaction with others.
Running a query is a fairly basic operation that produces static output. The result just sits in the spreadsheet for the user to act upon. Within the Performance Evaluation and Analytics & Statistics modules we can invoke messaging services which include the following processes: person to person, person to process, process to person and process to process, on any of the system processes. Therefore if a process is running, and at any time that process obtains criteria for which it is necessary to know, the system will send out a message. Or if the same process was completed, it would invoke another process to initiate another action. It would also have the option of texting the system to invoke a number of different scenarios. Messaging processes bring the power of the ERP system into play from the point of view of using these calculations to act. People, Ideas & Objects have many tools in this area. Through Java, Oracle Autonomous Database, Oracle Fusion Applications and Functional Programming this area will be a rich environment for users to benefit from.
Professor Giovanni Dosi (1988) states that profit-motivated agents must involve both.
“the perception of some sort of opportunity and an effective set of incentives.” (p. 1135) Professor Dosi introduces the theory of Schmookler (1966) and asks “are the observed inter-sectoral differences in innovative investment the outcome of different incentive structures, different opportunities or both”? (p. 1135) Schmookler believed in differing degrees of economic activity derived from the same innovative inputs. p. 1135.
Performance Evaluation and Analytics & Statistics provide incentives and opportunities to innovate.
As part of a competitive strategy, we focus on the key competitive advantages of the producer firm and Joint Operating Committee. These are their land & asset base, and earth science & engineering capabilities. These are the things that differentiate them from other producers and how they produce value for their shareholders. Everything else is secondary. We have adopted what Professor Richard Langlois calls the “capabilities approach” in his paper “Capabilities and Governance: the Rebirth of Production in the Theory of Economic Organization.”
When users are in the Performance Evaluation and Analytics & Statistics modules they will be able to look at an additional type of cost that we have recorded in the accounts of the firm and Joint Operating Committee. That is the costs associated with “Dynamic Transaction Costs” which are the unique costs incurred during times of change. Professor Richard Langlois described these costs in his article “Transaction Cost Economics in Real Time.”
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-versa. 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.
The types of these costs will vary and are not necessarily the same in all instances. Breaking these down into their types may be overkill from an accounting perspective. Instead, putting them into an account called “Dynamic Transaction Costs” might be a better option. And we have mentioned that in other modules of the Preliminary Specification. However, having the ability to further analyze these costs when the time comes, from the Performance Evaluation and Analytics & Statistics modules could lead to further insight and learning into organizational changes that might, or should, be occurring.
Indeed, in cases in which systemic coordination is not the issue, the market may turn out to be the superior institution of coordination. In general, the capabilities view of the firm suggests that we look at firm and market as alternative and sometimes overlapping institutions of learning. p. 99.
And
Economic progress, then, is for Marshall a matter of improvements in knowledge and organization as much as a matter of scale economies in the neoclassical sense. We can see this clearly in his 'law of increasing return,' which is distinctly not a law of increasing returns to scale: 'An increase of labor and capital leads generally to improved organization, which increases the efficiency of the work of labor and capital' (Marshall, 1961, IV. xiii,2 p. 318) pp. 101 - 102.
And maybe we need a page or screen in each of these two modules dedicated to breaking down these costs. Then a producer or Joint Operating Committee will have some point of reference to determine the state of change. This will enable them to determine its impact in terms of costs, and types of costs, on the organization. How the transition in the firm's or Joint Operating Committee's capabilities is managed.
F.A. Hayek (1945, p. 523) once wrote that 'economic problems arise always and only in consequence of change.' My argument is the flip-side: as change diminishes, economic problems recede. Specifically, as learning takes place within a stable environment, transaction costs diminish. As Carl Dahlman (1979) points out, all transaction costs are at base information costs. And, with time and learning, contracting parties gain information about one another's behavior. More importantly, the transacting parties will with time develop or hit upon institutional arrangements that mitigate the sources of transaction costs. p. 104.
Work in the 21st century will continue to be different. People's tools will also need to be different. The Performance Evaluation and Analytics & Statistics modules are the beginning of these 21st century tools for people's work. We often discuss automation, specialization and the division of labor in the Preliminary Specification. There is also specialization and division of labor between what people and computers do and that is reflected here in these two modules. Computers handle storage and processing. People will be responsible for thinking, ideas, decisions, creating, collaborating, innovation and many other things. Much of this information will be generated based on facts determined through the Performance Evaluation and Analytics & Statistics modules of the Preliminary Specification.