People, Ideas & Objects - Business Model

This is in draft and subject to change. (My writing of this particular topic is a lot like making sausage.)

I find this paragraph of Professor Carlota Perez' stunningly appropriate for the work that we are doing in this project.

These changed conditions for the deployment period, (today's economy) will also modify the direction of innovation. Once the paradigm is established and the styles of life and main business models are more or less known, the core industries begin to make the transition from “supply push” innovation, of the sort that needs to create new markets by educating consumers and producers to a completely new way of functioning, to more of a “demand pull” model, where attention moves towards trying to fulfill consumer and producer’s needs by completing the new life and production styles with interlinking innovations or improving the ease of use of the existing products through complementary services and so on.

RESPECIALISATION AND THE DEPLOYMENT OF THE ICT PARADIGM
An essay on the present challenges of globalization
Carlota Perez, Cambridge and Sussex universities, U.K.

The business model for the People, Ideas & Objects application is fundamentally different from other ERP vendors. Theirs is a business model that sells the software to the client organization for them to run and use. This leaves a licensing requirement for the oil and gas company that can reach in the $1 - $20 million in software licenses per year. Analysis of this business model finds the producer costs associated with these prices leaves many software companies with exceptional value accretion. It also provides the software vendor with a lock-in to the existing code base. The code and customers as a result of this model do not provide for an ability to change. Any change contemplated by the software vendor requires that the production systems at client installations to be revised and updated. The cost of these activities is usually at the expense of the software vendor. The costs to upgrade the software in the client installation also impedes change and innovation as the cost to upgrade training and licenses can raise the costs to the oil and gas companies, and in addition cause further disruption in the business.

The business model for People, Ideas & Objects applications and modules charges the costs of software development over the entire industry once. The model also assumes that there will be a high level of critical adjustments made on an ongoing and annual basis. This software development should be considered as a software development capability that is charged on a costs plus basis, based on the demands of the producers. The levy to the producer organization is based on the Barrel of Oil Equivalent per day per year. If this assessment was $10 per boe a producer with 700,000 boe / day would then pay $7 million per year for the software's use. Providing substantial savings and better software quality to all of the industry concerned.

Additional costs will be associated with the "Community of Independent Service Providers" that are involved in the design and development of the software. These people provide the direction and focus of the software's developments and are compensated for this work through People, Ideas & Objects. They also have a critical role in the software quality by providing the additional services of system integration, training, help desk, hardware and monthly maintenance to their producer clients. The Community of Independent Service Providers will also provides the accounting, administration and management to the producers themselves. It is a policy that each Service Provider is eligible for only 110 days billing to People, Ideas & Objects. This is with the expressed expectation that they augment their revenues by providing approximately 110 days services to their producer clients. Therefore bridging the clearly identified needs of the producer with the software development team.

In a blog entry I noted three items that were causing our software development budget to increase substantially. They are;

• Paying the Community of Independent Service Providers. (Substantially more hours will be billed by the Community of Independent Service Providers then the developers.)
  
• Undertaking a global scope. (Scope is to be defined in the Preliminary Specification.)
  
• Employing a 36 hour work day. (The global sourcing of developers provides faster, more intense development.)
  

These costs (being actual costs plus) (totaling possibly greater then $1 billion U.S.) are not as onerous as they would be under past software development methodologies. And in turn define our business model's value proposition.

I am critical of the software development methods used in the past. The SAP and Oracle model have proven successful for their companies, but recall they are applications from prior technology era's. And no one would suggest that the model of "build it and they will come" is relevant today. The two major constraints of an innovative software developer are the code of the application, and the customers that use it. Users that are looking at new and innovative ways of deploying either SAP or Oracle are met with a bureaucratic process that makes changing organizations a much easier task. Upgrading the software comes with high costs and many promises that do little but entrench the vendor further in your organization.

If SAP and Oracle were to spend the required budget to build this People, Ideas & Objects type of application, the producers would end up paying for this code several times over. There has to be a better way.

Why doesn't the oil and gas industry as a whole pay for the ERP system code just once. Why not share the costs of development over the entire industry on the basis of costs plus a percentage for the developer. A developer on this basis would only interest themselves in what makes the software better. And that is the ability to interpret the users demands and build the software they want. If the user wants to scrap a module and replace it with two new ones, based on this proposed business model, People, Ideas & Objects would be most pleased with that. Creating an environment where change is the constant.

This is how I have proposed the People, Ideas & Objects application from the very beginning. An industry wide software development capability, designed and defined by its users, supported by distributing the costs of development across the global producer population. Has their been a software developer that has used this model today? I think Google does it this way and therefore this comparison imputes the development will never stop. The innovative process is iterative and it never stops, we therefore need a software development that mirrors the organizations.

It is my opinion that using the Joint Operating Committee in the manner that is defined in the Draft Specification provides us with the competitive advantages that are needed to build this software development capability. This IP based competitive advantage is necessary to ensure that a series of competitive look-a-likes to this development don't dilute the focus to get this right. We as an industry have one opportunity to achieve the objective of being the most profitable way in which to produce oil and gas.

The oil and gas companies current management have made it clear that they will not sponsor any software development capability that would actively compete with their bureaucratic and monopolistic ways. Their world is too comfortable to work too hard or do anything constructive. Therefore our revenue for the development costs are derived from two different sources.

• The disgruntled oil and gas investor. One who has been ignored by the management and abused by the markets assessment of the management. This development sees the investor or oil and gas property holder as the participant or individual who represents their interests at the Joint Operating Committee. This participation is virtualized in the People, Ideas & Objects application modules.
  
• Governments who have a stake in having their royalty and compliance frameworks adopted by the industry. These frameworks costs are a large percentage of our development costs. Management of the industry have paid little or no attention to being in full compliance with the regulations and as such the implementations are very poor. Leaving poor insight and transparency for the government to understand the industry needs. This has led to the royalty revisions in Alberta that have the management concerned with their royalty costs. Governments are also the net benefactors of having industries operating in a sound economic environment. The difference between this economic downturn and the previous (1929 - 1941) is that the Information Technologies are a defining and enabling technology. Without advanced systems, we are quickly relegated to barbarism due to the only alternative, that being manual systems. 

• Establish an innovative footing for the oil and gas producer.
• Eliminate the constraints of code and customers.
• A "software development capability" based competitive advantage.
• User driven and focused developments.
• Determining, interpreting and implementing User needs.
• Charge the oil and gas industry on a software development cost-plus basis.
• Preliminary development revenues generated through the oil and gas investor and governments.
  
• Focus the industries actions through management of Intellectual Property(IP). Ensure that the focus of this development is not diluted by many look a like software development projects. Using the IP to provide that focus.
  

Please join me here.