INNOVATION As a Source of Competitive Advantage in Construction Özge Bican Murat Ayhan

1. 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

2. OUTLINE • What is Innovation? • TheMeaning of Innovation • Framework ForAnalysıngInnovatıonInConstructıon • Types of Innovations • WhyInnovation is Needed? • DevelopingtheInnovationProcess:InnovationModels & The 4 DimensionsPriortoInnovation Design • Drivers of Innovation • ObstaclestoInnovation • Case StudiesfromtheLiterature • ExampleCases of Innovation in Construction: A Process, A Management & A Product Innovation METU

3. The word innovation originally comes from Latin word 'innovare' that means "to make something new". WHAT IS INNOVATION? • a process of creating a newproductor service, newtechnologicprocess, neworganization, orenhancement of existingproductor service, existingtechnologicprocessandexistingorganization. METU

4. ‘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 WHAT IS INNOVATION? METU

5. ‘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. WHAT IS INNOVATION? Construction Industry METU

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

7. An ’improvement’thatonlymeetsthe market standard. Introducing an improvementthatdoesnot significantly differentiate thecompanyfrom its competitorsandalso can be easilycopied. An ’innovation’is about creating that breakaway differentiation; it’s about creating superior economic returns. THE MEANING OF INNOVATION Innovation - Improvement METU

8. 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. THE MEANING OF INNOVATION Innovation - Invention METU

9. 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. THE MEANING OF INNOVATION Innovation - Creativity METU

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

11. Innovation refer to Radical Incremental TYPES OF INNOVATIONS • production • service • process • management changesto METU

12. TYPES OF INNOVATIONS METU

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

14. 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 asproduct 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 ofthe business, creating a new industry and new avenues for extensive wealth creation. TYPES OF INNOVATIONS METU

15. 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 WHY INNOVATION IS NEEDED? METU

16. 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 WHY INNOVATION IS NEEDED? METU

17. ‘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.’ WHY INNOVATION IS NEEDED?Competition Porter, 2006 METU

18. 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. WHY INNOVATION IS NEEDED?Competition METU

19. 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 Product and service innovation WHY INNOVATION IS NEEDED?Competition METU

20. DEVELOPING THE INNOVATION PROCESS • 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 processesin time How do processes for innovation should be designed so that their results create competitive advantages? METU

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

22. DEVELOPING THE INNOVATION PROCESS (3) • 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

23. DEVELOPING THE INNOVATION PROCESS (4) • 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

24. DEVELOPING THE INNOVATION PROCESS (5) • 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

25. DEVELOPING THE INNOVATION PROCESS (6) • Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001) METU

26. DEVELOPING THE INNOVATION PROCESS (7) • 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

27. DEVELOPING THE INNOVATION PROCESS (8) • 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

28. DEVELOPING THE INNOVATION PROCESS (9) • 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 METU

29. DRIVERS OF INNOVATION Asadet 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-BuildContracts) • Attitudes and Processes METU

30. DRIVERS OF INNOVATION (2) 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

31. DRIVERS OF INNOVATION (3) Tatum (1989) • Organization Structure - Innovative firms used small organizations with limitedhierarchical levels - Small teams of engineers, technicians, designers to developproducts - 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

32. DRIVERS OF INNOVATION (4) 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 METU

33. OBSTACLES TO INNOVATION • 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 METU

34. OBSTACLES TO INNOVATION (2) • 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 METU

35. CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATION • 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

36. CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATION • 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

37. CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATION Designed Innovative Process METU

38. CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATION Examples of Innovative Ideas Established Using the Process METU

39. CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATION • 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 METU

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

41. CASE STUDY 2: UNDERSTANDING THE FACTORS THAT MAKE FIRMS TO INNOVATE • Business Strategies: 18 strategies that high innovationadaptors use METU

42. CASE STUDY 2: UNDERSTANDING THE FACTORS THAT MAKE FIRMS TO INNOVATE • 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. METU

43. CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION • Study: Interview • Respondents: 12 completedprojects (range: $13000-$112 million) • Projects: Non-residentialbuildings • 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

44. CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION • Innovation Definitions • Drivers of Innovation on Projects METU

45. CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION • Identified Obstacles to Innovation • Main Obstacle Encountered during Innovation on Projects METU

46. CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION • 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 METU

47. EXAMPLE CASES OF INNOVATION IN CONSTRUCTION • 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. METU

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

49. Case # 1: Why 4D (Modeling) Planning ? • 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) METU

50. Case # 1: How is 4D-Modeling practised? 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 METU