SPECIAL TOPICS IN STRATEGIC MANAGEMENT OF CONSTRUCTION COMPANIES

Matineh EybpooshGülşah Fidan

OutlineWhat is/not Innovation?Advantages of InnovationTypes of InnovationModals of InnovationSuccess of Innovation ProcessComponents of Innovation ModelMeasuring Innovation

What is Innovation?The mostly emphasized aspects of innovation

within the literature are “new”, and “changes”, “opportunities”, “creative ideas”, “adoption of organization”, and “value creation”

A process of turning opportunities into new ideas (Drucker, 1993, Tidd et al., 1997), adoption of these ideas within the organizations ( Zeltman et

al. 1973, Damanpour, 19991) and successful applications of the resulting novelties (Pries and

Janzsen 1995) such that they provide value to the organization.

What is not Innovation? Innovation vs. Invention: Invention is a detailed design or model of a process or

product that can be distinguished as noval compared to existing ones. Innovation is the actual use of a nontrivial change and improvement in a process, product or system that is novel to the institution developing the change.

Invention is the conversion of cash into ideas. Innovation is the conversion of ideas into cash.

For invention to become an innovation, the organization needs to be introduced to the invention and invention should add value to the organization in some way.

Innovation(Commercializ

ed)

Invention(Not

commercialized)

What is not Innovation?Innovation(R&D&C) vs. R&D:

Innovation can be described as the result of some amount of time and effort into researching (R) an idea, plus some larger amount of time and effort into developing (D) this idea, plus some very large amount of time and effort into commercializing (C) this idea into a market place with customers .

Advantages of InnovationInnovation is closely linked with

competitivenessInnovation has deep impact on both

“Differentiation” or “Cost Leadership”The uniqueness of the products/services

increases the level of “satisfaction of the client”

Innovation in value chain may result in “time and cost savings”

Innovation Characteristics Strategic Advantages

Novelty Offering something no one has done before

Complexity Keeping entry barriers high

RobustnessImproving the basic model by extending its life and reducing overall cost

Radical Nature Carrying competitiveness into a new dimension

Continuous Incremental Innovation

Continuous improvement inperformance

Advantages of Innovation

However, the effect of innovation on competitiveness is dependent on the “nature of the market” and “client characteristics”

Tidd et al. (1997)

Reasons of Low Innovation in Construction Industry

CRC,Construction Innovation Survey Report,2005

Importance of Innovation in Construction Industry

Innovation should be better understood in construction industry because:

Construction plays an important role in the national economy

Due to the great size of workload, competition is high

Industry is directly related with human health and environmental safety

Types of Innovation according to Its Process - Extend of InnovationInnovation can take many forms regarding to its

process:

Evolutionary-Revolutionary

Incremental-Radical-Modular-Architectural

EvolutionaryIncremental

Modular

RevolutionaryRadical

Architectural

Extend of InnovationIncremental: Improve the existing functional

capabilities of a technology by means of a small scale improvements in the technology’s value adding attributes such as performance-safety- quality- cost

Radical: Introduce new concepts that depart significantly from past practices and help to create products or processes based on different sets of engineering or scientific principles, such as; opening to entirely new market

Modular: Incremental innovation that leads to creation of a new but not radically different system

Architectural: Introduce the notion of change in the way in which the components of a product or system are linked together

Extend of Innovation

Most commo

n

Least commo

n

Types of innovation according to its contentThere are different classification for types of innovation

within literature:

Technical-Non technical

Product- Process-Market- Organization-Resource

TechnicalProductProcess

Resource

Non Technical MarketOrganization

Types of InnovationProduct Innovation: Introduction of change in

end product/service or their quality

Process Innovation: Introduction of change in products/services delivery methods

Market Innovation: Opening of a new market

Resource Innovation: Change in sources of raw material supply

Organizational Innovation: Change in characteristics of organization structure

Type of Innovation

CRC,Construction Innovation Survey Report,2005

Panelized system usage (flat panels are manufactured in factory and erected on site)

Buildings erected by usage of panelized system will have better heat and voice isolation compared to ones constructed by traditional system

Types of Innovation in Turkish Construction IndustryMarket Innovation:

Most common type of innovation in Turkish construction industry

Creating new International Markets and most of the times being the first entrants (e.g. Libya, Russia, Turkmenistan, etc.)

Unrelated Diversification (e.g. Cleaning mine fields in Afghanistan)

Backward Integration (e.g. Creating sub-markets such as pre-fabrication and construction material products)

Process Innovation: Change in conventional methods due to problems faced at

site (e.g. New methods for road asphalting in high temperature difference between day and night)

Types of Innovation in Turkish Construction IndustryOrganizational Innovation:

Restructuring processes in the company organization as a requirement for ISO standards

Re-identification of company mission (e.g. Becoming administrative investor instead of being a general contractor)

Product Innovation:

Most rare in Turkish construction industry due to low R&D activities

Producing alternative products (e.g. New concrete type by using a special admixtures, or new formwork systems)

Models of InnovationFirst generation: “Black Box Model” The innovation itself is

not important and the only thing that count are input and output (e.g. Money invested in R&D and patents)

Second generation: “Technology Push and need pull” it is developed after the recognition of the importance of the market place and demands of potential consumers of technology.

Third generation: “Coupling and integrated models” innovation process as a complex net of communication paths linking the firm to the broader scientific and technological community and market .

Forth generation: “networking and national systems of innovation” firms that do not have large resources to develop innovation in house can benefit from establishing relationship with a network of other firms

Fifth generation: “evolutionary models” innovation are seen as equivalent to mutation by considering the Population Perspective, Interactions, and External Environment.

Sixth generation: “innovative milieux (environment)” states that innovation stems from a creative combination of generic know-how and specific competencies.

Milieux Innovation ModelMilieux innovation model’s components:

Innovative FirmsInter-firm and inter-organizational interactions

Private or public institutions support

Specific cultureDynamic collective learning process

Even if all these mentioned components exist in a productive system, there is no guarantee that each innovation attempt will be successfully commercialized.

Success of Innovation Proccess Fundemantal components of innovation success

Technical Resources

Organizational Capabilities

Good communication environment

Strong customer orientation

Good technical supportDynamic, open

minded, supportive management

Flexible structureRisk taking ability Strategic Integration

Modeling Innovation Management in Construction

Innovation in construction industry should not be studied like any other sector due to distinct characteristics:Project-Based NatureVariaty of ProductsSensitivity of Value Chain to Environmental ConditionsRelationships Among Project StakeholdersDifferent Organizational Context of Innovation

Tailor-made models are required for modeling Innovation Management Process in Construction Industry

Business Strategies

Human ResourcesTechnologyMarketingKnowledgeInnovation

Business Environment

Change DriversSources of Ideas

ObstaclesInternational Competition

CRC Construction Innovation

InnovationTechnologicalOrganizational

CRC,Construction Innovation Survey Report,2005

Dikmen et al. 2003

Innovation Strategy

The Organizatio

n

Drivers/Barriers

Company Target

1.Role of Drivers/BarriersDrivers/barriers affect the innovation process

The driver/barrier component is represented by a resistance in the model

When environmental factors acts as barrier the length of the resistance increases which makes innovation more difficult to be generated

The existence of a driver decreases the length of resistance or even diminishes it

Drivers/Barriers of Innovation in Construction Industry

Factors hinder-support innovation which are independent from other components

Country level Political, Economical, Social conditions

Industry level Uniquness of construction projects (there is no or very little need

and incentive for construction companies to innovate) Low profit margins, high fragmentation, low entry barriers,

intense rivalry (companies prefer low-risk survival strategies rather than high-risk innovative strategies)

Immobility, durability, high cost, complexity and great social responsibility of construction products and their deep impacts on quality of life (project parties hesitate to try new products/processes)

Weak patent possibilities and low profit margins which limits R&D activities

Uncertainty in market conditions

Drivers/Barriers of Innovation in Construction Industry

Bossink, 2004

Drivers/Barriers of Innovation in Turkish Construction Industry

Due to results of a survey related to Turkish construction industry, most important

barriers/drivers are as follow:Country based

Political Conditions

Economical Conditions

Legal Conditions

Cultural Conditions

Industry Based

Image of construction industry

Current rules and regulations

Price based competition

Variation in work load

Project based nature

Significance of consumer

Investment in R&D

2.Role of OrganizationInnovation capability of the company is determined by:StructureLeadershipCultureKey IndividualsTeamworkInformation & CommunicationEmpowermentOrganizational Learning Costumer Orientation

The strength and effectiveness of these components determine the weight of the circular in the model which determine the ease of dealing with barriers

and benefiting from drivers (Support/Hinder innovation)

Role of Organization in Turkish Construction Industry

Organizational Properties

Client Orientation

Company Culture

Teamwork

Organizational Learning

Key Individuals

Information and Communication

3.Role of Innovation StrategyStrategies are used to achieve objectives of the

company by increasing innovation capabilities

The Innovation strategy determines;

The reasons of innovation of the company (Why?)

Tactics and strategies used to innovate (How?)

Sources that the innovation is originated (From Where?)

Reasons of Innovation in Construction Companies

CIOB, Innovation in Construction: Ideas are the currency of the future Survey 2007

Strategies for InnovationStrategies used by companies are directly related to innovative capacity of organizations

Improving Human Resource ManagementImproving Knowledge ManagementMore Detailed Environmental ScanningMore Investment in R&DDevelop Stronger Relations with Customers and

SuppliersMore BrainstormingImprove BenchmarkingConsulting with Academicians or Research

Institutes

Origins of Innovation in Industry

CIOB, Innovation in Construction: Ideas are the currency of the future Survey 2007

Origins of Innovation in Company

Top Management

Construction Site

Technical Departments

R&D Departments

Project Team

4. Role of Company TargetCompany Target designates major reasons

that derive the organizations to innovate

Innovations provide competitive advantages only if they fit to the pre-set objectives

For Turkish construction industry’s most important targets are:

Improvement of product/service qualityEntrance/creation of new markets Maximization of customer satisfactionLong-term profitability maximization

Measuring InnovationInnovation is a complicated phenomena having

Inputs and Outputs as well as Impacts on several performance indicators at firm and national level

Innovation measurement focuses on Products and related Production Systems that is based on;

Measuring Inputs to innovationMeasuring intermediate Outputs Measuring Impacts on several aspects of performance

Inputs

No. of ideas or concepts No. of people activily devoted to innovationSources of informationCapitalNetworksR&D spendingNo. of R&D projects

Contextual (institutional parameters)

Organizational factorsCountry factorsIndustry factors

Implementation

Tools, techniques, strategies

Outputs

No. of new products introduced/commercialized/ exportedNo. of new processes/services introducedIntellectual property

Impacts

Revenue growth due to new products or servicesShort and long term profitabilityIncrease in organizational effectivenessIncrease in technical capabilityImprovement of service/ product quality/processImprovement of organizational structureImprovement of human resourcesMarket penetration and growthBetter company imageInnovation collaborationsImprovement of client satisfaction

Metrics for Measuremen

t of Innovation

at Firm Level

Ozorhan et al. (2009)

ConclusionConsidering the definition of Innovation, the main

components and outcomes of innovation are adding value to the organization and providing competitive advantage

Mentioned Innovation Management Model shows that innovation strategies are main triggering factors for an organization to reach its targets in the presence of environmental barriers/drivers through using its core organizational competencies

As environmental barriers are out of the control of the company, the company should improve its core capabilities for successful innovations

Some Related References for Innovation: Marasin, R., Dean, J. and Dawood, N. (2007) “APPLICATION OF VISUALISATION TOOLS INPROJECT MANAGEMENT IN CONSTRUCTION INDUSTRY: INNOVATION AND CHALLENGES” Computing in Civil Engineering, 12(261): 91-102. Bossink, B.A.G. (2004) “Managing Drivers of Innovation in Construction Networks” JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT, 130(3): 337–345. Manley, K., McFallan, S. and Kajewski, S. (2009) “Relationship between Construction Firm Strategies and Innovation Outcomes” JOURNAL OF CONSTRUCTION ENGINEERING AND MANAGEMENT, 135(8): 764–771. Manley, K. (2005) “BRITE Innovation Survey” Icon.Net Pty Ltd. Dikmen, I., Birgonul, M.T. and Artuk, U. S., (2005), “Integrated framework to investigate value innovations”, ASCE Journal of Management in Engineering, 21(2005): 81-90. Dikmen, I., Birgonul M. T. and Artuk U. S., (2003), “Innovation in construction: Evidence from Turkey”, Proceedings of the Joint Int. Symposium of CIB Working Commissions W55,W65 and W107, 2(2003): 396-407.

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