INNOVATION As a Source of Competitive Advantage in Construction

INNOVATION As a Source of Competitive Advantage in Construction
Middle East Technical University – Civil Engineering Department CE 726 Strategic Management of Construction Companies INNOVATION As a Source of Competitive Advantage in Construction Özge Bican Murat Ayhan Sertaç Arslan METU 26/12/2013

OUTLINE What is Innovation? The Meaning of Innovation
METU What is Innovation? The Meaning of Innovation Framework For Analysıng Innovatıon In Constructıon Types of Innovations Why Innovation is Needed? Developing the Innovation Process: Innovation Models & The 4 Dimensions Prior to Innovation Design Drivers of Innovation Obstacles to Innovation Case Studies from the Literature Example Cases of Innovation in Construction: A Process, A Management & A Product Innovation

WHAT IS INNOVATION? METU The word innovation originally comes from Latin word 'innovare' that means "to make something new". a process of creating a new product or service, new technologic process, new organization, or enhancement of existing product or service, existing technologic process and existing organization. 3

WHAT IS INNOVATION? METU ‘A technological product innovation is the implementation/ commercialisation of a product with improved performance characteristics such as to deliver objectively new or improved services to the customer. A technological process innovation is the implementation/ adoptation of new or significantly improved production or delivery methods. It may involve changes in equipment, human resources, working methods or a combination of these.’ OECD, 1997 4

Construction Industry
WHAT IS INNOVATION? Construction Industry METU ‘Application of technology that is new to an organization and that significantly improves the design and construction of a living space by decreasing installed cost, increasing installed performance, and/or improving the business process.’ (Toole, 1998) A new idea that is implemented in a construction project with the intention of deriving additional benefits although there might have been associated risks and uncertainties. 5

THE MEANING OF INNOVATION
METU Terms like innovation, improvement, invention, and creativity are often used interchangeably. 6

THE MEANING OF INNOVATION Innovation - Improvement
METU An ’improvement’ that only meets the market standard. Introducing an improvement that does not significantly differentiate the company from its competitors and also can be easily copied. An ’innovation’ is about creating that breakaway differentiation; it’s about creating superior economic returns. 7

THE MEANING OF INNOVATION Innovation - Invention
METU An ’invention’ is an idea, a sketch or model for a new or improved device, product, process or system. It has not yet entered to economic system, and most inventions never do so. An ’innovation’ is accomplished only with the first commercial transaction involving the new product, process, system or device. It is part of the economic system. 8

THE MEANING OF INNOVATION Innovation - Creativity
METU Creativity represents an opportunity to create new appearance, content or process by combining existing inputs or factors of production. Inventiveness is a process of creating something new, which assigns a contribution to the level of overall mankind knowledge. Innovation is linked to the definitive marketing of the new product, service or technologic process, which is a result of the inventiveness. 9

FRAMEWORK FOR ANALYSING INNOVATION IN CONSTRUCTION
METU Hansen & Birkinshaw (2007) 10

TYPES OF INNOVATIONS Innovation refer to Radical Incremental
METU Innovation refer to Radical Incremental production service process management changes to 11

TYPES OF INNOVATIONS Exploits existing technology
METU Exploits existing technology Explores new technology Low uncertainty High uncertainty Focuses on cost or feature improvements of existing processes, products or services Focuses on products, processes or services with unprecented performance features Improves competitiveness within current markets or industries Creates dramatic change that transforms existing markets or industries, or creates new one 12

TYPES OF INNOVATIONS METU innovations in production – development or enhancement of a specific product innovations in services – offering new or enhancing of existing services innovations in process – finding of new ways of organizing and combining inputs in the process of production of specific products or services innovations in management – creating new ways of organizing business resources. 13

TYPES OF INNOVATIONS According to Drucker (1993),
METU According to Drucker (1993), Incremental Innovation – Doing more of the same things you have been doing with somewhat better results; Additive Innovation – More fully exploiting already existing resources, such as product lines extensions, and can achieve good results. Complementary Innovation – Offers something new and changes the structure of the business; Breakthrough Innovation (Radical Innovation) – Changes the fundamentals of the business, creating a new industry and new avenues for extensive wealth creation. 14

WHY INNOVATION IS NEEDED?
METU This century has been full of innovation. New technologies, new products, new services, whole new industries have emerged. Lots of companies have made new investments. WHY 15

WHY INNOVATION IS NEEDED?
METU Improving quality Creation of new markets Extension of the product range Reducing labour costs Improving production processes Reducing materials Reducing environmental damage Replacement of products/services Reducing energy consumption Conformance to regulations For competition 16

WHY INNOVATION IS NEEDED? Competition
METU ‘For firms, the way to achieve competitive advantage is to create a competitive strategy that is consistent with trends in the firm’s industry and appropriate to the firm’s resources and capabilities which can be achieved through innovation.’ Porter, 2006 17

METU Firms innovate to defend their existing competitive position as well as to seek new competitive advantages. A firm may take a reactive approach and innovate to avoid losing market share from the innovative competitors. It may take a proactive approach to gain a strategic market position relative to its competitors. 18

METU The list of innovation with whom an organization can gain competitive advantage on the market; Operational innovation Organizational innovation Supply-side innovation Core-competence innovation Sell – side innovation Product and service innovation 19

DEVELOPING THE INNOVATION PROCESS
METU Successful innovation is mainly dependent to a company’s ability to find solutions to: technical changes economic changes social changes by designing and establishing efficient innovation processes in time How do processes for innovation should be designed so that their results create competitive advantages?

DEVELOPING THE INNOVATION PROCESS (2)
METU Simple Model of Firm-Level Innovation (Seaden et al., 2003) Focuses on: Business Environment Determines the need for innovation (Process Birth) Business Strategies Block or unblock innovation processes

METU Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001) A successful innovative company should assess its complete structure by considering its special attributes Similar to SWOT Analysis Benefits: Company identifies weak/strong points within company’s innovation activities and processes Reduce the effects of weak points Improve effects of strong points

METU Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001) For this analysis, a company should answer the following questions: Which innovations does the market require? Is it possible to introduce them with the services and technologies at one’s disposal and with the present structures of the company? (characteristics of the sector and market) Which actors have to be taken so that the innovations will be successful on the market? (company strategies)

METU Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001) For this analysis a company should answer the following questions: Are the norms and values respected within the company suitable for introducing the desired innovations? (company culture) Which tasks have to be fulfilled in order to introduce the innovations? How do these tasks have to be divided and coordinated within the company? (organizational structure)

METU Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001)

METU There are four dimensions to be considered prior to design of innovation: Company-Related Dimension - Open to innovation - Ready to take risks - Willing to co-operate and communicate - Ready to give its staff freedom to innovate - Possessment of necessary organizational culture - Compatibility with the aims and strategies of the company

METU There are four dimensions to be considered prior to design of innovation: Object-Related Dimension - Service/Process/Product Innovation - Small Improvement/Radical Change Phase-Related Dimension - Stimulation of Idea - Generation of Idea - Assessment of Idea - Realization of Idea

METU There are four dimensions to be considered prior to design of innovation: Person-Related Dimension - The ability of staff - Willingness of staff to innovate - Willingness of staff to co-operate and communicate

DRIVERS OF INNOVATION Asad et al. (2005) Clients
METU Asad et al. (2005) Clients - by applying pressure on the supply chain partners with the aim of improving the overall performance - by helping the supply chain partners to develop strategies to overcome any challenges - by demanding high standard works - by identifying specific novel requirements for a project Procurement Method (Ex: Design-Build Contracts) Attitudes and Processes

DRIVERS OF INNOVATION (2)
METU Manley (2006) Clients (due to competitive nature of construction industry) - Highest rate of investment in R&D - Highest rate of adoption of advanced practices and technologies - Best return on innovation - Changing needs Crises (require effective reactive innovation) Manley and McFallan (2006) Business Strategies Business Conditions

METU Tatum (1989) Organization Structure - Innovative firms used small organizations with limited hierarchical levels - Small teams of engineers, technicians, designers to develop products - Types of organization structures that facilitate innovation (Little, 1985): (1) task teams or small groups focused on new product development (2) venture teams or small groups focused on new product dev. (3) isolated development groups focused on one subject (4) new venture division or business start-ups as development groups that are physically separated from the parent company

METU Tatum (1989) Organizational Environment - Elements of organizations that support innovations (Little, 1985): (1) policies and objectives for innovation (2) interpersonal skills that support integration (3) longer term perspective & willingness to wait for major returns (4) ability to provide appropriate environment for innovators (5) high levels of communication and coordination - Successful innovative organizations should: (1) expect failure in large portion of new product initiatives (2) separate the organization into subgroups for intensive focus (3) encourage internal competition (4) support communication and cooperation Role of Key Individuals

OBSTACLES TO INNOVATION
METU Competitive nature of construction industry based on cost & duration Limited resources due to limited cost & duration Not enough time before starting a project to review and assess innovative ideas and alternatives Innovations require multi-disciplinary approach

OBSTACLES TO INNOVATION (2)
METU Technical innovations vs. project based-industry & uniqueness Lack of technical capability Lack of innovative organizational culture Top management’s & organization’s approach to innovation process

CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATION
METU Client: Highway Agency Joint Venture: AmeyMouchel Project: Improvement of a road section (open to users) Driving Force of Innovation: Client Client developed a new procurement method Get the best value through partnering Early contractor involvement Openness Collaboration Particular Conditions to facilitate innovations

METU Factors considered during development of innovation process: Innovation management improved by decreased bureaucracy Current best practices are considered by a team involving client, supply chain partners, independent experts, dedicated facilitators, and documentation team Establishment of innovation culture by encouraging employees to express their ideas and opinions Communication enhancements Transparent decision-making process

METU Designed Innovative Process

METU Examples of Innovative Ideas Established Using the Process IDEA Quick Win Y/N Business Case Y/N Alignment with Client Aims Area of Operations Improved Overall Benefits Informed Travelers Safer Roads Reliable Journeys Quality Env. Health and Safety CAT 1 Marker Flags Y N + Faster rectification of defects Major Incident Text Messaging Faster deployment of resources and reduced incident times Communications Vehicle Reduced Incident Times Cathodic Protection Reduced costs and disruption Emergency spill kits Faster deployment, reduced impact, reduced incident times Folding Road Closure Sign Reduction in disruption and more satisfied road users

METU Outcomes of the Case: The role of client and procurement method is significant in promoting innovation Contractor-Client cooperation promotes innovative thinking Reduced bureaucracy, feedback to idea originators about the progress, identifications of the responsibles who can take the process further, and rewarding the idea originators Better quality, health & safety, and environmental outcomes

CASE STUDY 2: UNDERSTANDING THE FACTORS THAT MAKE FIRMS TO INNOVATE
METU Study: Survey Respondents: 335 Australian road industry companies Ranking the innovativeness levels of companies: 46 advanced technologies and practices considered as innovative actions

METU Business Strategies: 18 strategies that high innovation adaptors use

METU Outcomes of the Case: High innovation adopters prefer youthful staff instead of older staff that might not be as creative and flexible as young staff. High innovation adopters give importance to introducing new technologies to processes. It shows that high innovation adopters give importance to research and development. Enhancing the organization’s technical capabilities as such capabilities comprise the technologies and technical skills that empower the firm to adapt quickly to opportunities.

CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION
METU Study: Interview Respondents: 12 completed projects (range: $13000-$112 million) Projects: Non-residential buildings Energy Cost Savings in 5-Star Office Building Clever Planks at Sports Stadium Port of Brisbane Motorway Alliance Fire Engineering at National Gallery of Victoria Fiber-Reinforced Polymer Bridge Deck Ground Penetrating Radar and Defective Bridge Beams Managing Storm Water with Storage Gutters and Infiltration Saving On-Site Remediation Costs Post-Tensioned Steel Trusses for Long Span Roofs Twin-Coil Air Conditioning at the Art Gallery of South Australia Better Project Outcomes with Relationship Management and 3D CAD Using Recycled Tyres to Construct an Access Road over Saturated Terrain

METU Innovation Definitions Drivers of Innovation on Projects

METU Identified Obstacles to Innovation Main Obstacle Encountered during Innovation on Projects

METU Outcomes of the Case: Main innovation driver: Client Crises can be used as facilitator to innovation processes Majority of the obstacles encountered during innovation: non-technical aspects Non-technical aspects can be removed by appropriate training of managers and employees in non-technical areas

EXAMPLE CASES OF INNOVATION IN CONSTRUCTION
METU Case # 1: A Process Innovation Example Case # 2: A Management Innovation Example Case # 3: A Product Innovation Example For each case, with; reasons behind the need for such an innovation, its concept and proposed improvements, benefits and/or drawbacks of the innovation.

Case # 1: A Construction Process Innovation
METU 2D Design + Gantt-Charts & Critical Path Method (CPM) A New Project Implementation Process + Time = Modeling Design (Schedule) 3D 4D

Case # 1: Why 4D (Modeling) Planning ?
METU It is known that; Effective planning is one of the most important aspects of a construction project and influences the success of a project. (Chevallier & Russel, 1998) However, The outputs of traditional planning techniques are very difficult to communicate and validate as the complexity of the projects increase. (Marasin et al., 2007) Yet, 4D planning provides a new opportunity for the presentation of construction scheduling, which could advance the principles of planning, past the Gannt chart… (Richmoller et al., 2001)

Case # 1: How is 4D-Modeling practised?
METU Traditional 2D-CAD 3D Parametric Modeling Objects are formed using simple lines and curves Colored layers for different sets of elements Objects have semantics i.e., each object inherits its unique properties (dimension, location, material properties) Much better visualization

Case # 1: How is 4D-Modeling practised?
METU On top of 3D-Modeling, Schedules are embedded: Using software packages like:

Case # 1: Benefits of 4D-Modeling
METU ► Earlier and more accurate visualization of a design

METU ► Visual aids for site logistics planning Stock locations Concrete pump boom operations Tower & mobile crane positions Scaffoldings

METU ► Awareness of clashes and collaboration between disciplines while preparing the schedule (through 3D visualization) ► Improved quality of the design ► Reduced uncertainties during construction ► Earlier & quicker decision making All leading to Cost & Time savings.. Architectural MEP Structural

Case # 1: Drawbacks of 4D-Modeling
METU In contrast to Automative and Aerospace Industries, there still is a resistance in Construction Industry towards 4D-Modeling. Some of the reasons for such a resistance may be listed as follows: Lack of skilled employees on necessary softwares, Investment cost (software & hardware), Fragmented industry (no strong drivers), Lack of clients’ demand, Technical challenges (interoperability issues), Insufficiency of time available before tenders, Resistance to change.

Case # 1: A Remark In 90’s the AEC Industry resisted also to…
METU In 90’s the AEC Industry resisted also to… …leave light tables & blueprints and adopt 2D CAD.

Case # 2: A Construction Management Innovation
METU Traditional Project Delivery Methods Design-Bid-Build (DBB) or Design-Build (DB) A new Project Delivery Method Construction Manager at Risk Major difference from DB or DBB: Constructor signs both preconstruction and construction contracts.

Case # 2: Why 2 Contracts? METU Constructor is involved in the Project at early design phase. Preconstruction Contract is coordinated with Designer’s Contract to maintain a high degree collaboration between CMR and Designer (also improves constructability) BECAUSE The owner and CMR will negotiate on a GMP Granted Maximum Price (GMP) : Established during design process when the CMR can minimize the contingency for scope creep (generally when % of design is completed) Provides risk allocation for the owner

Case # 2: Advantages of CM@R
METU Improved quality of work Due to constructor’s input in the design through constructability reviews & design validation Due to owner’s control over the design Accelerated Schedule Contractor doesn’t have to wait for the whole design to be completed Completed Design Packages Separate Bid Packages Earlier cost certainty than DBB Cost control with Granted Maximum Price (GMP) Biddability for subcontractors (detailed design documents) Even suncontractors may participate in the design phase Lead to

Case # 2: Disadvantages of CM@R
METU Difficulty in reconciling different agendas of and Designer during design stages Because: CMR acts cost-focused, while Designer conforms to codes, laws, regulations and technical issues. Owner needs to administer 2 contracts as opposed to DB

Case # 3: A Construction Product Innovation
METU Road Repairs ASPHALT CONCRETE Till 1980’s, concrete was not a suitable product to use for road repairs in U.S.A In 1986, a 10-cm concrete overlay was first applied to 11 kms of U.S Highway 71 in Iowa WHY & HOW ?

Case # 3: Aspahlt Repairs vs Concrete Repairs
METU For Road Repairs; In comparison with Asphalt Overlays Traditional Concrete has 2 main disadvantages: Higher initial construction cost The need for a lengthy cure time of 5-14 days road closure causes inconvenience to the public (asphalt needs 6-12 hours) However; Concrete has More load capacity Lower life-cycle cost

Case # 3: Trigger for an Innovation..
METU During 1980s in Iowa All interstate, primary and municipal road networks were completed Concrete Paving Contractors experienced a serious market reduction So they began to feel an urgent need to develop something new TO SURVIVE

Case # 3: Trigger for an Innovation..
METU In October 1985, an informal group of 30 people including Concrete paving contractors, Cement producers, Admixture suppliers, Equipment manufacturers, Managers and engineers of Iowa Dept. of Transportation (DOT) set the goal of developing concrete pavement that can be built Fast, With unequalled quality, Without causing significant traffic interruption.

Case # 3: Innovation of Fast-Track Concrete
METU During 8 months Several meetings had been held, A series of experiments had been done for the right mix design, A couple of trial projects had been done. And eventually FAST-TRACK CONCRETE was developed and officially used on a running highway’s repair by July,1986. Traffic was allowed onto the road in only 24-hours.

Case # 3: Innovation of Fast-Track Concrete
METU Actually the concept Fast-Track Concrete was not new to U.S Construction Industry. A similar – but too expensive to be applied to road paving – product had been used for small batches before. However this time; Little additional cost was achieved, Fast-setting of concrete with internal chemical reactions was first accomplished!

Case # 3: Outcomes of the Case
METU Contributions of Fast-Track Concrete Innovation: (C.H. Nam & C.B. Tatum, 1992) Many projects involving fast-track concrete paving followed in U.S, Concrete Paving Contractors could have survived against Asphalt, Cement producers were forced to improve quality of type-III cement, Some university researchers began to investigate the mix design, The FHWA started investigating the min early concrete str. for traffic.

Case # 3: Drivers of Fast-Track Concrete Innovation
METU This case provides an example of innovation that occured; in response to market demands [shrinkage], as well as to competition with asphalt [another] technology. (C.H. Nam & C.B.Tatum, 1992) However, The contractor became an innovator with his product-oriented strategy while others focused mainly on cost cutting. Authors also point out to highly cooperative government-industry environment in Iowa, and Iowa DoT’s effective implementation of long-term procurement policies.

METU THANK YOU!

INNOVATION As a Source of Competitive Advantage in Construction

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INNOVATION As a Source of Competitive Advantage in Construction

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