Architecture control; who takes the value of the innovation?

By Vidar Hepsø

In my previous blog I discussed the importance of capability platforms and presented some of the discussion that we have had with the Professors John Henderson and Venkat Venkatraman  at Boston University.   The capability stack model  that I presented was  a layered representation of a complex system, that decouple the complexity of the system by introducing distinct layered activities connected by standard interfaces. In this blog I present how an architecture control perspective allows us to capture the value of an innovation.

The stack model perspective that was presented in my previous blog imposes an ordering or hierarchy, assuming that capabilities at lower level are required to execute capabilities at a higher level. This means that we can use the layers further down to open or close the layers further up. A layer uses defined interfaces that limit the impact of change. As long as the information representing the change can be exchanged across a layer via the standard interface, the innovation within one layer can be decoupled from innovation any other layer. As with any general notion of modularity, this decoupling allows for independent actions and thereby reduces the complexity of coordinating interactions across a system. In this way a stack model reflects the characteristic of ecologies wherein one part of the ecosystem can change without affecting all parts of the system.

A basic feature in Venkatraman’s perspective on stacks is that in each layer it should be possible to see a market. This input can be used to analyze market dynamics and the nature of competition, for example whether we are enabled or threatened by emerging products or services in the industry. The model can also be used to investigate the competitive implications of innovation. Finally, the stack model forces you to look at hierarchical dependencies. This is interesting from a business strategy point of view, because if you control a lower level in the stack you can influence all the levels above.  If you want to know more about this I would recommend that you watch Venkatranman’s video presentation  from last year’s IO-conference in Trondheim.

An important part of platform design is what decision rights or key influence points a company needs over the architecture in order to capture value. To what extent and how will we influence the platform through design moves (e.g. define and make interfaces available) or contract moves (e.g. acquisition and/or joint industry projects)?  For different parts of such a stack, different control strategies can be applied, for example whether the company work with selected partners only or are open to the market. An architecture control strategy influences both the technical platform design and an approach to the market (procurement strategy).  In my OCEAN-example in my previous blog it is very clear who benefits financially and has architectural control. Schlumberger opens up the API’s, they facilitate the development of the OCEAN-ecosystem. Still they also control which apps that can be sold in their OCEAN store. They have certain intellectual property rights in the apps that are sold in their store. In addition they receive revenue for each app sold. Schlumberger has architectural control of the ecosystem they have built around OCEAN and has also built a unique capability to increase their understanding of the market. This gives them a unique position to approach the emerging analytics layer in the oil and gas business. Schlumberger has decision rights that allow them as owners of the PETREL/OCEAN- platform to access or reconfigure standards and/or core capabilities. They also have access to the value generated by the others in the ecosystem.

Professor Henderson tells us that architectural control is how we think about control in an organization that is flexible and tries to leverage network effects. Architecture control can therefore be defined as the pattern of decision rights (and key influence points) that enables the firm to capture value.  For any important platform in a networked environment Henderson argues we must face two crucial questions:

1.            Who has influence (over the platform architecture / in the business network)?

2.            Who keeps the value (money) from using the platform?

This is the key issue of architecture control; the potential capacity to enable or constrain the design of one or more system components without necessarily exercising design rights over these components directly.

We see that architectural control can be exercised in various ways, for example through hardware platform, infrastructure, software, methods and work processes, IPR, dominating market position, new business models, branding and corporate social responsibility.  OCEAN is a mix of all these and is therefore pretty successful. 

It is important to ensure that the architectural control points of any strategic capability or platform are recognized and kept within the enterprise to be able to take the necessary design and contract moves.  This will make us harvest the value of the platform. Schlumberger is a large vendor company that has shown a new way to make money here. How do we approach this as oil and gas companies?

A Veteran’s Tips to Become an Ideal Employee

By Hongbo Zhou

Recently, I was fortunate to be given an opportunity to visit Statoil’s Beijing office and had a chat with Statoil local new hires. During the stay we were candidly exchanging thoughts about what other qualities an employee should occupy to make oneself an ideal employee, besides standard qualities such as high technical skills, honest, diligence, and optimism. As a veteran in E&P oil business for more than 25 years, I decided to offer some of my ninety-nine-cents tips to these new hires. And the followings are excerpts from the conversations:

Tip #1: Be nice to everyone. This came from my thesis advisor when I was joining the Ph.D program.  In his welcome email, he offered a few advices on students’ life and study at school. One of them that have stood out to me is that: One should always respect everyone because someone sitting next to you could become your boss in the future.

Tip #2: Don’t argue against your boss when the decision has been made. Some domain experts tend to believe they are smarter than their boss.  This may be true but it is not necessarily a polite assumption. While you are allowed to lobbying your boss, it is certainly not a wise move to challenge your boss when the decision has already been made for the following reasons.  First, you may be not the only team member and the boss may base his decision on other members.  It is almost impossible for us to outsmart everyone in the team.  Therefore, no matter how reluctant one is, a smart employee needs to accept the decisions that have been finalized and devote his effort to get the job done. Second, your boss could not afford to reverse his decision every time he gets an opposite opinion even if yours may turn out to make more sense later. The logic is quite simple: if he changes it this time, who will believe him the next time? Therefore, a typical manager should still manage to move forward even if he may get one foot stuck in the hole of the grave. When the worst case scenario actually happens, mocking one’s boss with an expression such as “I told you so” afterwards will not be constructive and helpful. Remember it is also an employee’s responsibility to pull him out from the hole. The ideal action may be to calm down and figure out a way to guide it back to the right track. No matter what, everybody is on the same boat: either sink to the bottom or jump to another boat before it goes down. Of course, it is perfectly legal for an employee to question his boss’s IQ if his boss keeps falling into the holes.

Tip #3: Don’t fall into the trap that your boss welcomes your criticized opinions publicly. Although democracy is a universal standard, don’t be naïve to believe democracy in a company. Whose managers are chosen by a vote from the employees? In the 1950’s after China declared independence, the Chinese government was eager to build a country that ideally should be governed by the people and serve the people. Therefore, the government launched the so-called “Hundred flowers blossom Campaign” to encourage people to propose ideas, monitor and criticize the government. The campaign did not seem to be bad at the beginning, but it gradually went out of control. Eventually, many people were put into prisons due to their open and harsh criticisms of the government. Learn from the history and others so one does not make the same mistakes.

Tip #4: Judge yourself fairly. Some people tend to overestimate themselves. Ever watch the TV Show ‘American Idols’? Some candidates felt they had the talents of singing, but in TV viewers’ eyes these singers could not hit their pitches correctly. One thing people keep forgetting is that we are not judged by ourselves but judged by others who are around us. On the other hands, do not underestimate your worth either because every employee’s job is important, no matter how big or small a job or position may be.

Tip #5: Be realistic, not arrogant.  I remember one day a friend told me a story: there were two colleagues and one happened to believe that he performed better than the other. He was given the option to either allow both of them to have their salaries promoted to $100k or he can get $80k and the other $70k. He decides to take the $80k because he would rather to distinguish himself from the other. This is, in my opinion, an arrogant move.  A person should take the chances for an opportunity to compete against another. Although a person should not allow competition to get into one’s head, a competition may also result in motivating one another.

Tip #6: Knowledge is power. No matter how successful one’s previous career was, such as a graduate from the top universities or a well-recognized domain expert, it should have been awarded by one’s financial benefits and technical position when he agrees to join the company. After that, everyone stands at the same line and it’s time to prove that one deserves the values that a company has invested on him.  This may require the employee to continue to sharpen his skills and may take one’s lifetime to learn and absorb new things and prove the values.

Tip #7: Be brave and innovative.  In scientific world, people get so used to take everything for granted and would be reluctant to question the existing theory, especially the classic theory, even when the theory doesn’t seem to work for a long time. This is certainly not a good attitude for scientific research. Historically, if Albert Einstein were not challenging Newton’s theory of gravitation with his theory of relativity, there would have been no GPS (Global Positioning System) and the ships wouldn’t be able to navigate the way we are doing today. Be brave and innovative and maybe you can change the world. For a case study of innovation in geophysics, see my other blog:

What’s the problem with the theory of classic waveform inversion?

Am I the ideal employee? Honestly, far from it. But remember the famous sayings from the priests: don’t do as I do, do as I say. Now you know what I mean: this is for you, my dear friends!

Less is more?

By Sonja Chirico Indrebø

Being Chief Information Officer (CIO) for Statoil, I often ask myself if what we do in IT helps simplify the work life for our employees or am I just adding to the complexity?  When looking for solutions; are we able to think simple enough? 

As engineers, we sometimes seem to make even simple things more complex.  Anyone heard about “less is more”?  Representing IT in this energy company, I often see the tendency to over-engineer solutions.  Our users might actually end up using only 20% of the functionality introduced.  What does that tell us? I guess the developer/IT provider will generally think that it’s because the user has not understood all the wonders the solution can provide, and hence misses out on a lot of opportunities. 

However, if we turn this around and the user is right, what if the 20% used is good enough? Could we have made the IT solutions 80% less complex, and easier to maintain and integrate?

What will it take to go for “less is more”?  Instead of simplifying, could we rather increase the complexity in the solutions so that user friendliness increases? This could potentially remove the need for user interventions. We are all I guess inspired by the Apple story and here there is no need to emphasize the drive for simplicity.  No buttons, no visual engineering gadgets, just start to use.  It’s incredible to think that this huge company only has 14 products – ONLY 14 products!!  Who has better shown simplicity and own product cannibalism than Apple?  But for the internal engineers in Apple I’m sure it has been really complicated to make the result as simple as it is.

How can we as innovators focus on reducing complexity and enable “good-enough” approaches, without becoming driven by the “nice to have” because the technology is so cool J

Even this article should be less, not more. Let IT show itself as an enabler for value creation in the business also in the next generation.

The more you know, the less you know

By Magnus Tvedt

One of your university friends is having a garden party.  Knowing your host’s chemical engineering background, you read up on ants to equip yourself and have some leverage in the forthcoming trade-off.  For an enthusiastic expert, news from other sciences is fuel to the fire. You hope to glean some equally interesting information from your party host.

Having tried small talk, you mention your newfound acquaintance with ant colonies. Your story captures her attention. The conversation evolves from hotdogs and bbq chicken to the exchange of scientific facts.  Your intriguing story of the ants results in a few points of advice on how reservoir chemistry works.

Say you want to build a business case on gas injection, a relevant challenge for deep water reservoirs. You can never know enough, but you have to make sure you know enough to make a good decision.

You pop the topic into different discussions, fishing for ideas. Someone mentions that producing oil is like emptying a balloon by popping a hole in it. As long as there is pressure in the balloon (or the reservoir), the oil will flow out of the hole.

Injecting gas will keep the pressure in the reservoir (or balloon), and more oil will flow out. You assume that the gas pushes the oil out as a piston would push the oil in a cylinder. Based on this, you see a production potential that can be to your benefit.

You scramble your posse; together you know that at least two wells have to be drilled. One to inject gas, and one to produce oil. You want to know more, you are on to something.

Reading technical papers lets you know what others have experienced. And by approaching a few of the authors, you learn the major challenges gas injection can face:

• Corrosion in the well you are injecting the gas in
• Plugging the production well when the gas comes out of the reservoir
• Specialists (who write papers) will rather give you the latest details than the whole picture

You decide to bring these aspects into your business case. But at what level of detail do you approach this? You draw up a hypothesis for yourself, as your new knowledge base:

• The injection gas has to be of a nature so that it does not react with the steel in the injection well
• The injection well has to be drilled so that  there is pressure communication between the injection and production well
• The production well must have opportunity to inject chemicals  to avoid plugging the well
• The production well needs a trajectory located where most oil will be produced

But as you consider which gas to inject, you get some hints that the gas might not just displace the oil as a piston, like you assumed in the beginning. There are some chemical effects going on in the reservoir.

Back in the garden party, this is what you bring up, after performing on your understanding of ant comradeship. Your university friend helps you put H’s and C’s together to hydrocarbons.

Returning to your drawing board with a fully charged brain and bbq sauce stains on your shirt, you add the following issues to your plan:

• Picture leftovers sticking to your dinner plate. Similarly, between the reservoir rock and the oil there are tensions.
• Now picture soap dissolving those leftovers on your plate. Similarly, your injection gas can affect this tension in a positive way, you will produce more oil.
• As it requires persuasion to get help with dirty dishes, you need smooth talking skills to bring the experts in conversation. Make sure to bring some new knowledge to the table.

So far, you have entered several fields of oilfield engineering. Each of these topics are deep enough to keep you busy for a career or two. And you haven’t even started looking at the platform that will pump the gas down in the injection well and separate the gas from the oil you produce. Or even further, how are you going to find a source of the gas, transport it to your platform in the middle of nowhere, and make sure it is available 24/7?

The question comes down to how much you do need to know to make a good decision.

This is a rather typical example from the upstream oil industry. It is complex, it is full of specialists, and you will never know it all.

Let’s wrap up what we started. If you want to continue building your business case, here is what you can do:

• If you are an oil company, you want to make sure you have experts on all engineering aspects.
• If you are a small business looking for a good business case, start over with a simpler case.
• If you are a scientist, you probably think all the above is interesting, forget about the business case and keep reading papers.

Links:

• Tending a sick comrade has benefits for ants
• Piston displacement
• Source for small talk
• Technical papers

The price on carbon should increase

By Per Ivar Karstad

Carbon capture and storage (CCS) faces two major challenges: it is expensive and the price on carbon is too low.

There are probably abundant sources of fossil fuels around the globe, such as coal, unconventional oil and gas hydrates. Catching and storing carbon dioxide from natural gas, industrial gases, flue gas or air will become a necessity to avoid severe climate changes if these energy sources are utilized by society to fuel economic growth [1].

Carbon capture and storage (CCS) faces to major challenges, it is too expensive and the cost of emitting carbon is to low globally. The price on carbon should increase to a level where CCS becomes a commercial opportunity. In parallel, governments should support development of new facilities to generate learning and improvements which will bring both cost and energy consumption down. Combined, such measures may generate a basis for sustainable fossil fuel production and consumption.

Improvements in capital requirement and energy can be achieved through an improved process design, more efficient chemicals or an entirely new capture concept. Learning effects and economies of scale are of major importance for development of new technological innovations through improvements by R&D, experimentation, and implementation in the production process. Experience indicates that technology learning rates between 5 % and 35 % can be achieved based experience in the energy industry.^[2]

CCS has the potential to remove thousands of billion tons of carbon dioxide worldwide by the end of the century at a relatively low cost. A global CO2 cost of  $100/ton are probably sufficient to realize this reduction if the cost applies to all emissions and the paid CO2 cost or tax is reinvested in clean energy production. CCS may be an important technology for the world to allow for the continued use of fossil fuels without large impacts on climate.

Our energy future can be created but will require visions to guide our path to the future. I believe CCS will play an important role in the future energy system, to allow for continued use of fossil fuels without severe negative environmental impact.

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[1] Jaccard, 2005, Sustainable Fossil Fuels, Cambridge

[2] Stern, 2007, The economics of climate change, Cambridge

Innovation as a source of growth

By Inger Lise Aarrestad Rettedal

Apple and Google are ranked as some of the world’s most innovative companies. Apple simply revolutionised the market for cellular phones with their touch screen technology and iPhone. Now, the reason behind Apples success story is not necessarily the innovative products in itself, but the creativity and innovative process leading up to them. So how can a company create a culture for innovation as a source of growth?

The information flow is intensifying; the competition is hardening and the time from introducing a new idea until it gets copied has shortened. This places greater demands on those who want to differentiate, create and keep a competitive advantage. Focus on cost savings and bottom line is not enough to utilise a company’s true potential. Managers and board of directors need perspectives beyond this to be able to identify growth potential.

According to recent years annual innovation surveys amongst some of the executives in the worlds largest companies in over 58 countries by Boston Consulting Group and BusinessWeek, innovation is amongst top three of strategic priorities. Most people probably associate the term innovation with a new technological development. But innovation is so much more (ref. Schumpeter, 1983). Yes, it can be the development of new products and services, but it is also about new combinations of raw materials, new marketing approaches, new ways of working and processes. Not least it can be about new business models, changing the market situation and value creation as in Blue Ocean Strategy. In short – putting known things together in new ways.

In brand theory companies have these strategies for growth; (1) geographic expansion, (2) mergers and acquisitions, (3) brand alliances, (4) brand extensions, (5) developing new brands and (6) increase the use of an existing brand. The question arises; are these traditional growth strategies enough to keep ahead and secure growth? Can innovation outcompete the other growth theories?

I did an analysis of this a couple of years ago. Taking elements of control, investment level, speed and the duration of competitive advantage into consideration, innovation far exceeds as a growth strategy. And utilising several growth strategies simultaneously or subsequently will create synergy effect.

Innovation should not and does not come merely from an R&D department. Innovation potential exists in all of us, so the challenge we face as leaders is to support employees’ imagination and innovation capabilities. In Google employees can employ up to 20% of work time to develop their own projects and ideas. The company 3M has its own development program whose goal is to achieve 5-8% annual growth based on innovations developed in-house. Employees are also able to use 15% of their work time to explore ideas outside of their ordinary work responsibilities. Virgin calls for innovation in their own company by setting aside 3% of revenues each year for developing new service innovations.

Companies with consistently strong changeability and open-minded culture will have a higher possibility to achieve true innovative processes. Companies with a high tendency to innovate will also develop and introduce more innovative products and services than other companies.

Now, these types of innovation has basis in ideas developed in the actual company’s referred to. It is now a trend among major international companies to look for the power of innovation outside their own companies, through various forms of open innovation. Proctor&Gamble and IBM are examples of companies that tell openly about areas where they want innovative solutions, as do we in Statoil. The reason for this open innovation movement is probably due to technology and how it has changed the way we now communicate. Internet and interactive technology has created a lot more active consumers and players. What some describe as unnecessary restrictions is replaced with sharing of information, inspiration, ideas and knowledge. This is being done in a wide range of branches – in areas such as design, distribution, marketing models, business models, licensing, sales, research and development. It’s really pure logical; in a world with over 7 billion people – and where only 18000 of them work in your company – it goes without saying that a large proportion of the total human brain power is not on your payroll. Therefore – go and get ideas from the outside! This form of collaboration with the outside will bring new energy to the inside.

If a company solely focuses on creating value in the same manner as their competitors they will probably be equally fit; but to perform better, the company must create value in areas where others do not, nor have even considered. It is said that no companies can build a lasting competitive advantage. Innovation types have in common that they are of temporary art. This means that when the innovation is introduced or implemented, then innovation should again be the next step – because it is not solely the result of innovation that add up the growth, it is the continuous innovation that creates lasting competitive advantage. I would argue that by mastering the strategy of temporary competitive advantage by changing the market and constantly bring forth innovation; you will create a lasting competitive advantage. The key is to continuously create new advantages and not wait for peers to neutralise them before launching the next initiative. Such constant innovations provide lasting energy.

D’Aveni wrote that in a highly competitive market is not enough to adapt to reality. Companies that do well in any given market must have a different approach by actively breaking down the other’s advantages to adapt reality to them. Hence, he builds on the words by George Bernard Shaw: “The reasonable man adapts himself to the world: the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.”

Innovation as a source of growth makes the company less predictable for others; it creates competitive advantages and brings forth new solutions and new ideas that will benefit both the company and the world.

References:

• Aaker, D. A. and Joachimstahler, E. (2000), ”Brand Leadership”, New York: The Free Press
• Aarrestad I.L. and Hem L. (2008), ”Growth strategies for a brand – a comparison”, Magma, ‘Siviløkonomenes Tidsskrift for økonomi og ledelse, årgang 11’. No. 2 and 3/2008 (Norwegian only)
• Barwise, P. and Robertson, T. (1992), ”Brand portfolios”, European Management Journal, Volume 10, No 3, September 1992
• D’Aveni, R.A. (1995), ”Coping with hypercompetition: Utilizing the new 7S’s framework”, Academy of Management Executive, Volume 9, Issue 3, August 95
• Schumpeter, J.A. (1983), ”The theory of Economic Development: An Inquiry Into Profits, Capital, Credit, Interest, and the Business Cycle”, Transaction Publishers, London
• Thompke, S. And Nimgade, A. (1998), ”Case: Innovation at 3M Corporation (A)”, Harvard Business School Publishing, 9-699-012, Rev. October 13, 1998.

The role of capability platforms in enabling Innovation

By Vidar Hepsø

The role of capability platforms in enabling Innovation  

I have over the last 4-5 years had the privilege, with several of my colleagues, to discuss capability platform development and innovation with the professors John Henderson and Venkat Venkatraman at Boston University.  A capability platform perspective helps us to understand some important features associated with innovation.

A capability platform approach seeks to deal with the inherent complexity of the information systems and diverse practices in the oil and gas business. It simplifies this complexity by introducing distinct layered activities connected by standard interfaces.

In my previous blog I argued that we in the Integrated Environmental Monitoring project want to develop a platform which gives us basic monitoring capabilities plus the flexibility for multiple parties to provide additional functionality and innovations. 

Traditionally the value of software and hardware was closely linked to the initial functionality these systems could provide. A systems specification was written and the system should be able to perform according to the specification. The problem is of course that if you specify all in advance and stick to the specification much of the lessons learnt during the development phase will be lost unless you find measures to incorporate novelty in your approach. These days we increasingly want “off-the-shelf” core software/hardware functionality plus the ability to innovate and develop solutions on top of a platform.

This means two things, reusable functionality that allows us to achieve a productivity gain in subsequent innovations or applications, and an easy interface/mechanism that enables ecosystem actors to independently develop and offer distinctive functional services. The potential of platforms development has been here for some years but have become more apparent with the growth of the Google Android and Apple platforms.

A platform approach is typically enabled by opening application programming interfaces (APIs) to facilitate an environment for low-risk experimentation and makes it possible to develop applications on top of existing infrastructure. In oil and gas something similar is happening when Schlumberger opens up PETREL through developing the OCEAN environment  and sells reservoir engineering apps through their Ocean App Store.  In the recent conference Energy World  IT in oil and gas  in Stavanger in March 2012 there were several  companies, i.e. Myrrcon that showed how they could use the emerging Windows Azure platform for similar developments.  All these trends are increasingly linked to cloud computing in one way or another. Still, cloud computing will not be the topic today.

 A platform designed for flexibility can create options value. Options value here means that when the capability is a proven part of the product it can create unforeseen positive consequences or ‘network effects’ in a larger ecosystem. These ‘network effects’ were never seen or intended in the first place. When being open for flexible use by multiple parties a platform can be architected and used for innovation since it provides options that go beyond the original scope of the basic platform functionality. Schlumberger gives PETREL away free-of-charge to their key university partners to increase their market penetration in the ecosystem of future reservoir and production engineers. They do not open the API’s of PETREL because of benevolence. They do it because they have a large market share in the subsurface software domain. OCEAN gives them a unique possibility to increase the number of PETREL users. At the same time Schlumberger can analyze how new usage of PETREL actually emerges based upon the OCEAN app’s that university students and SME’s develop. To be able to commercialize their App’s the students and the SME’s must go through the Schlumberger App store. Schlumberger develops an understanding of emerging PETREL usage and where the market is moving. At the same time Schlumberger build a unique understanding of potential takeover candidates that can be bought to provide new PETREL functionality. Remember that since the API’ s are open these App’s could probably be implemented in PETREL rather straightforward with only the fraction of the internal Schlumberger development costs. It is about sharing risks and costs with the ecosystem.

We all see this happening now in our business, but what does it mean for us that are interested in innovation? As an industry matures to support emerging needs a capability stack approach can be used to detect changes in the market, or even to influence the market to move in certain directions. The core of Henderson and Venktatraman’s  thinking is the industry stack with a number of layers. Such an industry stack could typically be oil and gas specific, like the production and reservoir management software OCEAN example just presented, or consumer electronics just to mention some examples of such an industry stack,  see Figure below.

Professor Henderson argues that each layer in such a stack can represent a whole set of competing products and services, typically with emerging high cohesion within the layer and low coupling (fewer contact points) between the layers . 

An intelligent infrastructure enables increased automatic monitoring due to sensing capabilities, like condition monitoring of production facilities, down-hole sensing in wells and permanent ocean bottom seismic for geophysical reservoir monitoring. In today’s oil and gas fields, this is an emerging infrastructure layer that enables a higher degree of instrumentation, automation and sensing. A safe and reliable data communications and infrastructure must exist if sensor data is to be collected automatically from reservoir and topside facilities and used in the assets production processes. Movement of data from one locale to another must be enabled. This brings forth the need for an information and collaboration layer. A knowledge sharing and analytics layer enables real-time processing and analysis that is increasingly required for effective operations of an instrumented field. Knowledge sharing and analytics ranges from right-time updates of geo- and reservoir models, integrated production and process optimization tools, tools for well planning and drilling optimization, and condition-based maintenance applications. The business operations layer addresses the development and execution of work processes and decision support to enable the realization of performance.  Social networks are how we use the sum of knowledge in our colleagues  and our collaborating partners to create business outcomes. They can be part of the business operations, but we know that new ideas and innovations often happen when people meet in not predetermined patterns.

Enough for now. In the next blog I will address some additional implications of  a platforms approach to innovation, more specific the issue of architectural control.

“Cannibalise your darlings” – with management innovation

By Kim Helleseth

If we don’t outperform ourselves, somebody else surely will.

Drawing upon Sigrun’s entry “kill your darlings” and Karl Johnny’s “Learnings from the Kodak story” I derive that once our current darlings, -be that new ideas, mature technologies or even management principles, starts inhibit our ability to change we’ll soon be lagging behind. I argue that in order to foster the much needed radical innovation we need to reinvent management.

A central dilemma for every organisation facing change is whether to exploit current business and capabilities or explore new solutions. How to find the balance between incremental change, improvement and materialisation of current abilities and the need for renewal and radical change? This is called by some by “The Innovators Dilemma”(1)(2). The Kodak story is clearly such a case where this balance was not found. As they were too much caught up in today’s products and business, they didn’t have the openness to see the significance in the new digital opportunity. They did not cannibalise their own products so finally someone else did.

Research points out that conventional organisations are most likely not able to exploit and explore at the same time. However researchers have found examples of what they call “ambidextrous organisations”, i.e. organisations mastering both exploitation and exploration (3). They key element found was that these organisation have split their organisations between the two parts. And that means not only in terms of two different departments or business areas. However the key difference was the way the organisations were managed, how their management principles sought to maximise output of their resources. And this is why I started by saying we need to cannibalise our darlings by doing management innovation. To be the future winner we need reinvent the management principles in use for leading such innovative entities.

Many of today’s corner-stone management principles like divisionalised organisation structure (by GM), capital-budgeting (initiated with ROI calculations by DuPont), etc. were ground breaking innovation of how to lead, control and manage resources (time, capital and people). At their time of conception they gave tremendous competitive advantages but under which premises were they founded? The management principles central of most corporations today were invented during the first half of the 1900’s. They have of course evolved since then but in its very basic function they have not changed very much since then.

Consider the business environment under which they were invented. It was relatively stable and foreseeable, slower changing and a lot less complex than today. Our reality today is profoundly different, we have complex markets with fast pacing changes, unpredictable macroeconomic outlook, technologies that adopt and melt across different industries on a large scale. Now ask yourself; are the most valued output of our organisations the same today as they were during the 1950-60’s? I would say it’s not. The key output from most organisations during that period was efficiency, obedience and hard effort. Or in other words the exploitation part of the business. The creative explorational tasks were reserved to the limited management groups, and this was possible in the slower and less complex business environment.

While virtues like hard effort and efficiency still are prerequisites for any well working organisation today, they are certainly no longer enough. You cannot keep winning on efficiency in the long run anymore, the key factor for growth is change, and that require fresh, out of the box thinking. This is the very essence of why we need to reinvent management; how could one expect the output of innovation and creativity from a management system basically designed to foster obedience and efficiency?

You can read more about management innovation in the excellent book “The Future of Management”(4), or the journal article “The Why, What and How of Management Innovation”(5), both by Gary Hamel.

1. Christensen, C. (1997) The Innovator’s Dilemma. Harvard Business School Press, Cambridge, MA.
2. Christensen, C. and Raynor, M. (2003) The Innovator’s Solution: Creating and Sustaining Successful Growth. Harvard Business School Press, Cambridge, MA.
3. Tushman, M. and O’Reilly, C.A. (1996) Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change. California Management Review, 38, pp. 8–30.
4. Hamel G, (2007) The Future of Management, Harvard Business School Press, Cambridge, MA.
5. Hamel, G. (2006) The Why, What and How of Management Innovation. Harvard Business Review, 84, 72–84.

Innovation through Collaboration in Calgary

By Jan Richard Sagli

The Oil Sands Leadership Initiative (OSLI) can make it easier to reach our ambitious goals on reducing environmental impact, as well as on increasing production and total recovery. OSLI helps us innovate through collaboration and open innovation.

OSLI is a collaborative network of companies operating in the Canadian oil sands that was established to accelerate the pace of improving

• Environmental sustainability
• Social well-being
• Economic viability

in Canada’s oil sands. Each OSLI company develops its assets individually, but works collaboratively to achieve significant improvements in the key performance areas.

To formalize this approach, in April 2010 ConocoPhillips Canada, Nexen Inc., Statoil Canada, Suncor Energy Inc. and Total E&P Canada Ltd. signed the OSLI Charter, agreeing to work collaboratively on non-competitive issues, and share research and best practices. Shell Canada joined in 2011.

The initiative is founded on a common understanding among OSLI members of the need to work together to meet the challenges of responsible development. Therefore, the companies entered into OSLI to foster effective collaboration, and do this by

• Sharing best practices
• Cooperating in the assessment, development and implementation
  of new technologies and practices
• Leveraging resources for optimum benefit
• Working effectively with regional stakeholders

Oil sands represent a long-term investment for Statoil. In 2007, we acquired 100% of the shares in North American Oil Sands Corporation (NAOSC) and operatorship of the Kai Kos Dehseh leases. We currently own interests in oil sands’ leases located in the Athabasca region of Alberta and have started producing oil at our Leismer facility. Along with this production, our main oil sands goal is to develop new technology which can bring costs down and reduce environmental impacts.

For OSLI, collaboration is about inclusiveness, with OSLI and non-OSLI oil sands companies, and with research institutes and universities throughout the world, seeking solutions. OSLI is using a number of different approaches to encourage out-of-the-box thinking, and access new and innovative ideas from diverse companies and individuals throughout the world. Government of Alberta observers from the ministries of Energy, Environment, and Sustainable Resource Development, as well as Alberta Innovates Technology Futures, and Alberta Innovates Energy and Environment Solutions, participate in regular working group meetings and, in some cases, are actively involved in fieldwork.

Staff from the OSLI companies work together in teams or subgroups on a wide range of issues critical to the oil sands industry, and have developed in excess of 50 individual projects with budgets ranging from tens of thousands of dollars (scoping) to several millions of dollars (field test or plant design).

OSLI undertakes both development and implementation projects. The companies determine the development projects in which they will be involved. Implementation projects are better defined and require significant funding. As a voluntary organization, all OSLI companies have the option to determine if they will participate in an implementation project as well as the type and level of that participation. If interested, non-OSLI companies may also participate in implementation projects. OSLI has four working groups focused on key areas:

• Sustainable Communities
• Water Management
• Technology Breakthrough
• Land Stewardship

Figure 1: Illustrations from LEAP (Landscape Ecological Assessment and Planning tool) which helps the OSLI companies in improving reclamation planning in the region.

The nature of such a collaboration arena is that it takes time to build trust and get to a point where the different companies feel that it is worth contributing to the potluck by bringing experiences and new ideas to the table. However, when this trust has been obtained, the rewards for each company are huge, since it is possible to leverage on experiences from the all the others. In a technology maturation process, utilising this fully makes it possible to accelerate the technology development process by acknowledging technology readiness levels and qualification performed with other operators as if it has been done in-house. Thus, the time it takes to develop technology can be reduced, costs can be saved and the toolbox that is available for operations and new projects can be more comprehensive. This in turn makes it easier to reach our ambitious goals on reducing environmental impact, as well as on increasing production and total recovery.

The experience from this work recently gave motivation to a new and larger organization with 12 members where the OSLI companies are included called Canada’s Oil Sands Innovation Alliance (COSIA) www.cosia.ca.   COSIA will foucs on the environmental performance and build upon OSLI projects as well as projects from other collaboration arenas.

What’s the problem with the theory of classic waveform inversion?

By Hongbo Zhou

People are scared to question the existing classic theory. But if it hasn’t worked well for a long time, do you think that we should have a second thought about the theory, even it is classical?

CT technology is known to be widely available and effective for diagnostic imaging of human bodies. Unfortunately, such technique can not been directly utilized to delineate the subsurface structures of the earth because of the scale differences. This requires seismic imaging.

Seismic imaging has been applied routinely in exploration geophysics to infer the subsurface structures from the seismic reflection data recorded on the surface. It typically consists of two categories: seismic migration and velocity analysis. Seismic migration is a technique that back-propagate the recorded data on the surface to the interior of the earth to reconstruct the subsurface structures. This requires simulation of the wave propagations that are governed by wave equations and it depends on velocity information that has to be obtained by velocity analysis. And if we have already known the velocity information, there is no need for seismic migration. This is the classical chicken-and-eggs problem. Fortunately, this paradox in seismic imaging can be resolved by an iterative process by first applying seismic migration with an initial velocity, which will result in an errorneous structures; and then these wrongly positioned reflectors will be utilized to update the velocity information with velocity analysis; and etc. These iterative processes will eventually help us build up the subsurface reflectors.

Migration and velocity analysis are usually applied separately. Waveform inversion intends to integrate both migration and velocity analysis in a unifying platform. It was first developed around the mid 80′s by Professor Albert Tarantola and his supporters. This is described mathematically as a nonlinear optimization problem with constraints of PDEs (Partial Differential Equations). It is generally solved with adjoint state technique that was established in control theory. Its principle is very simple. Firstly, we assume an initial velocity and a seismic wave equation. Secondly, we simulate the wave propagations in the earth to obtain a synthetic data. Because of the inaccurate initial velocity, obviously, the SUBTRACTION of the generated data from the observed real data recorded on the surface will not be zero. Finally, the differences (SUBTRACTION) of these two data will be fed back into an inversion engine to update the velocity. The mathematical theory is beautiful and seems very solid. However, this classic waveform inversion just fails at real data application. Almost 30 years have passed since Tarantola’s pioneering work, numerous researchers, including mathematicians and geophysicists, have followed Tarantola’s footprints to try to apply the technique to real data. Unfortunately, none of them work successfully. What’s wrong with it?

Just recently, people begin to realize that the problem is the assumption of the wave equation. Waves propagating in the interior of the earth should satisfy some kinds of wave equations. But there exist many wave equations. Which one is the right one? The quick answer is the one that best describes the observed data. But the truth is that it may never exist. Hence the simulated synthetic data will not be accurate and the SUBTRACTION of it with the observed data will certainly be infeasible. Now the question becomes whether there is any solution? The answer is certainly but it is out of the scope of this blog.

What lessons do we learn from this story?

People are scared to question the existing classic theory. But if it hasn’t worked well for a long time, do you think that we should have a second thought about the theory, even it is classical?