Resource Marketplace



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, service provider, 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 and Joint Operating Committees 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 and Joint Operating Committees 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, Joint Operating Committees 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 Exxonmobil 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 either a producer, a service industry representative or service 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 or Joint Operating Committees 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 or Joint Operating Committee. 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 ability to design 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. 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 interfaces in 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 and implementation 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 and profitable 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 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 Knowledge & Learning 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 cannot 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 reins 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 control 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 rigs are their future competitive advantages. What the producer needs is the most advanced and dynamic service industry marketplace that is innovative, productive, profitable 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 bureaucracy 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. Or a time to revolt. 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 and profitable 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. The conflict being the high cost of field operations and ownership of Intellectual Property. 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 that 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. The Actionable Information Interface would be potential new business. Also recall that this interface is the critical part of the process that begins here in the Resource Marketplace module 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 will be 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, service industry firms, service providers 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 or Joint Operating Committee. 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. Now on to the next interface.

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 and Joint Operating Committees. 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 the Supplier Collaborative 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 and Joint Operating Committees.

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 capabilities 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 capabilities 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 or Joint Operating Committee 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 than 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

Within the Resource Marketplace, and all of the modules of the Preliminary Specification we adopt the decentralized production model. The oil and gas industry is currently operating under the high throughput production model. The two models are best described In Chapter 4 “The Rise of the Corporation” of Professor Richard Langlois book “The Dynamics of Industrial Capitalism” and is as follows.

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

By adopting the decentralized production model within the Preliminary Specification the innovative and profitable oil and gas producer gains a flexibility in their operations and a capability to deal with issues such as low natural gas prices. This is provided by turning the oil and gas producers fixed administrative, accounting and overhead costs into the variable administrative, accounting and overhead costs of the Joint Operating Committee. 

Within the Resource Marketplace there are service providers who are focused on providing services to the Joint Operating Committees in the industry. These service providers are comprised of the former employees of the oil and gas producers who were employed in the accounting, administrative and overhead areas of the firm. They have been reorganized across the industry so that they can focus on the process and apply their skills to their industry wide client base. With this reconfiguration they are able to use specialization and the division of labor to enhance their service offerings to their clients. 

The innovative and profitable oil and gas producer is reduced to the c class executives, the earth science and engineering resources, some support and legal staff. The remainder of the needs of the producer are made up by the service providers who number in the hundreds and are very specialized in the processes that they handle and the skills that they provide. 

The Petroleum Lease Marketplace module has an interface called the Marginal Production Threshold Interface that enables the Joint Operating Committee to determine when and if to shut-in production due to the marginal costs not being covered by the revenues. When the costs are not being covered and the property is shut-in the advantages of the decentralized production model is made available. 

The example of how the decentralized production model provides the innovative and profitable oil and gas producer with the flexibility in their operations would be as follows. The production, revenue and royalty accountants would have been removed from the various producers and reorganized into the service providers that specialize on specific processes of those tasks. To cover off the variety of skills and tasks just within the domain of production, revenue and royalty accounting would include potentially dozens of service providers. Each one providing specialized or geographical location based services to those Joint Operating Committees that used them. 

In the case of production accounting there may be a service provider who specializes on the basis of one geographical region located in a remote area. Their offices located in that remote area which provides them a hands on type of production accounting service to the various Joint Operating Committees and producers in the area. The revenue accountants may have specialized further on the basis of the products that are produced. Each one taking the unique requirements for propane, butane etc. And finally several service providers would have been formed to establish services for the various processes involved in calculating royalties for the various jurisdictions that oil and gas is produced. 

Each of these service providers would have developed their services with People, Ideas & Objects software developers. When activities occur in their network, such as production, then efforts are undertaken to complete the tasks within the various processes. These tasks trigger the billings for production, revenue and royalty accounting services to the Joint Operating Committee. When, as we noted earlier, the marginal threshold has been crossed and the property would be losing money on production, and the decision to shut-in the property was made. Then the charges for production, revenue and royalty accounting services for the months that no production occurred would not be generated and no billings would be sent to the various Joint Operating Committees. 

This situation would be the same for all administrative, accounting and overhead charges. The use of production, revenue and royalty accounting charges are the easiest to show the direct relation to production. Using the Preliminary Specification the producer firm would have all operating and overhead charges cease during times of shut-in production, and only the costs of capital would be uncovered. The costs of capital may include associated overhead costs such as the costs to process the lease rental payment. 

Therefore during times of shut-in production the financial performance of the property is that it is not losing any money and it is not earning any money. Contrast this to today’s high throughput model that has production at a financial loss. With the decentralized production model the reserves are saved for a time when the prices may rise and provide for a profit. And those reserves will have a lower overall capital cost as a result of not having to carry the additional losses that would have been incurred in the high throughput production model. And lastly by removing production from the marketplace the producer reduces the downside in terms of low natural gas prices and maintains a healthy market for natural gas. 

With the prolific nature of shale gas reserves the risk of overproduction is great. Without a new business model in which to produce those reserves, the oil and gas producers will be destined to lose money on all of the shale gas reserves. Not a productive way in which to approach the business. The Preliminary Specifications use of the decentralized production model gives the producer the means in which to produce all of their natural gas reserves profitably and maintain the kind of operational flexibility necessary in today’s marketplace. 

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 these capabilities 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. This capability resides in the ability of the People, Ideas & Objects software to coordinate these actions. 

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 project and that is why these 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.

But first 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, the costs of paying the individual $5.00 to type the letter, can be reduced to an immaterial level. This discussion is particularly pertinent to the changes being made to the producer organizations administrative, accounting and overhead resources being reorganized into service providers. This is also 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 Filling 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 met. 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 states that 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. 

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 and service providers. 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.

There is also the impact of the changes that we are making within the producer firms. The reduction of the footprint of the producer to the c class executives, the earth science and engineering resources, some support and legal resources. With the remainder of the administrative, accounting and overhead resources being reorganized into industry wide service providers. These service providers will be conducting their billings on the basis of task networks where the transaction costs will be negligible.

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 either of those modules, yet, is 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 operations. 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, service industries and service providers. 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 one of the reasons 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, the service industries participants and the service providers 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 providing the oil and gas producer with the most profitable means of oil and gas operations. 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.

Dynamic Transaction Costs

Our overall topic is capabilities, and we are moving from our discussion of modularity to the topic of dynamic transaction costs. 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 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 too 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 will operate under the Preliminary Specification. 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 the 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.

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 for 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. In the Preliminary Specification this will 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 with a service provider 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 specialization and 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 industry and 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

It is clear the oil and gas industry 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 comprehensive systems 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 the suppliers / vendors 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 Filling 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 producer 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. 

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 that 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 are 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

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 the oil and gas producer with the most profitable means of oil and gas operations. 

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 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 Filling 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 high levels 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

The Resource Marketplace module, in combination with the Research & Capabilities and Knowledge & Learning modules is how the innovative and profitable oil and gas producer and Joint Operating Committee acquire their capabilities. The Resource Marketplace establishes thick markets for products and services from the service industries and service providers that are focused on the producer and Joint Operating Committees needs. Enabling the kind of operational control and flexibility that is necessary for the 21st century.

And it is here in the Resource Marketplace module that the capabilities to establish profitable operations is acquired. Through use of the decentralized production model the producer is able to remove their marginal production from the marketplace and save those reserves for a time when they will return a profit. When producers are able to remove their production from the marketplace without financial penalty then the downside risk in natural gas prices is mitigated. It is here in the Resource Marketplace module that the solution to profitable production of the shale gas reserves, or any gas reserves, is attained. 

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