Innovation - Literature review Example

?Literature Review on Innovation Innovation had long been recognized as an important driver of firm profitability and performance, and as a vital source of competitive advantage in any industry. The ability of a business to arrive at creative and insightful designs and methods by which it may meet consumer demands and expectations has always been an attribute that culls consumer loyalty to its products and services. The same is true with the construction industry, where different construction firms are held to public scrutiny by such standards as cost, speed and quality of project execution, but also increasingly by its track record for safety and environment sustainability, its consistency with contemporary concepts of fair and ethical leadership, and the aesthetics and beauty of its design and craftsmanship. In comparative studies among various commercial undertakings, the construction industry noticeably lags behind in terms of innovation, research and development. Industry participants cite the overriding emphasis on cost minimization in an era of constantly rising materials prices, skilled manpower costs, and administrative expenses. Recent institutional initiatives have been taken to promote innovation in construction, such as the formation of integrated teams and innovative leadership, the most efficient use of information transfer and knowledge management, radical breakthroughs in materials research and construction methods and techniques, and the education of the public to develop a culture more receptive to innovation. The enhancement of an innovative culture in construction requires a broad-based and concerted collaboration among industry firms, associations, regulatory agencies, and other entities in the value chain. Key words: construction, innovation, branded innovation, agile innovation, transformational leadership, information and communication technology, integrated teams Introduction The concept of innovation is often associated with the manufacturing, technology, and retail industries because of the necessity of keeping up with the tastes and preferences of a fickle consumer market. Construction is seldom associate with such dynamic changes, however, because the considerable investment and long-term duration of its products are seen to be better served by strict compliance with building codes, safety standards, and conventional practices to allow much leeway for experimentation and creative revision (Patterson, 2011, p. 18). Innovation in the construction business is a relatively novel concept that has developed in the recent few decades, the scope and scale of which still remains largely undefined as may be observed from the academic studies which have dealt on it. The following survey of related literature will seek to shed light on the generally accepted meaning of innovation in construction, the new paradigms and models emerging from a rethinking of this concept, and the importance of innovation to the construction business. Innovation: definition and effects According to Lundvall (1992, p. 8) innovation is described as potentially new processes, products or strategies that “result in radical breaks with the past, making a substantial part of accumulated knowledge obsolete.” It has also been defined as consisting of “the generation of a new idea and its implementation into a new product, process, or service, leading to the dynamic growth of the national economy and the increase of employment, as well as to a creation of pure profit for the innovative business enterprise” (Urabe, Child & Kagono, 1988, p. 3) The classic view espoused by Milton Friedman places priority on the profits realized by a business. In return for financial gains, business contributes much to the improvement of society. According to Ahlstrom (2010), the reverse is actually true – the principal goal of business is the development of innovative goods and services, which in turn generate economic growth and employment. Innovation thus improves peoples’ lives on many fronts. The benefits that may be derived from innovation gain greater significance when the innovative effort is undertaken by small and medium scale enterprises in industries that manufacture durable and consumer goods. SMEs more effectively spread the wealth among a greater number of people than large corporations. Terziovski (2010) observed that SMEs parallel large corporations with respect to the manner formal structure and innovation strategy drive their performances; however, their use of innovation culture is less structured and therefore less efficiently employed. The study therefore foresees that with the increasing efficiency that SMEs may learn to make use of innovation culture and strategy, performance of small and medium scale manufacturing enterprises would tend to improve significantly in their performance vis-a-vis large corporations (Terziovski, 2010, p.892). Strategies supporting systematic innovation There are certain practices that tend to enhance innovation as a strategic tool. De Falco (2011) places emphasis on the need of adopting a documentation system to record, track and trace information pertaining to systematic innovation process. Such a process is more than mere records keeping; it comprises a strategic key factor in the firm’s operations, and provides an organized account of the phases of the innovation process as it impacts on human resources, construction, infrastructure, equipment and financial requirements, thus linking supply chain management, customer relationship management, knowledge management, and the other vital interlocking systems in the firm (p.150). Innovation is at the core of most firms’ strategies, their “DNA” (Aaker, 2007, p. 8). A culture of innovation inevitably leads to the firm’s growth and profitability – product innovation leads to an increase in revenues, while process innovation improves production efficiency that lowers costs and boosts profit margins. Because of its strategic importance, firms should “brand” its innovations, for three reasons. First, branded innovations differentiate the company from its competitors, and make its innovation-driven products more attractive to an increasing discriminating market. Second, branding creates a new subcategory to the firms’ products and can thus more effectively manage the public’s perceptions relating to this subcategory. Third, a well-managed brand attached to an innovation creates a public perception of the firm itself as a pioneer in innovativeness; this earns the company respect, infuses energy into it, and paves the way for greater credibility for its new product offerings (Aaker, 2007, p. 9). Knowledge as driver for innovation It has been observed that innovation is the product of insight and inspiration, backed by a pool of knowledge. It is therefore reasonable to assume that where the agents of innovation are afforded access to many sources of ideas and information, the odds that companies increase their innovation success rate is significantly increased. Leiponen and Helfat (2010) explored the relationship between innovation objectives and the breadth of sources from which knowledge is drawn. Proceeding to empirical confirmation of this causal link, the study found that “broader horizons with respect to innovation objectives and knowledge sources are associated with successful innovation” (Leiponen & Helfat, 2010, p.224). In further inquiries on the links between knowledge sourcing and innovation, Wilson and Doz (2011) devised a model called agile innovation, which is specifically addressed to the global operations of a business. The difference between this and the traditional approach to innovation is that while innovation traditionally was grounded in “bricks-and-mortar” sites, agile innovation distinguishes those aspects of innovation that require a permanent presence in a particular location, and the organization’s ability to source knowledge and information from a distant location with minimal cost. Its novel contribution is its realization that not all knowledge that is the basis of innovation should be accessed in situ, and that it is much more cost efficient to adopt a system where knowledge in an available location is defined, accessed, absorbed and integrated. Model for agile innovation (Wilson and Doz, 2011, p. 10) Companies may not undertake innovation effectively if it is unable to access the various types of knowledge. Wilson and Doz (2011, p. 9) identifies and describes three types of knowledge in terms of distance and increasing immersion. Explicit knowledge is knowledge codified, definable, and transferred through commonly shared processes and languages. Embedded knowledge is context related, observable, loosely definable, and may be gleaned only by viewing the information from another’s perspective. Existential knowledge is dependent upon context, exists in norms and behaviours, systemic, and requires experience and immersion in order to be learned. The manner in which these types of knowledge are sourced is shown in the foregoing figures, with a different type of knowledge acquisition for each type of knowledge (Wilson & Doz, 2011, pp.9-10). The flexibility introduced by agile innovation enables the company to match the knowledge gathering model with the type of knowledge being gathered. The advantage of agile innovation is that the cacophony of information originating from the sites of operations worldwide is identified, accessed and absorbed in an organized and systematic manner, making innovation faster, more accurate, and more responsive to changes in the marketing, production, and distribution environment. The new environmental context of construction has grown to be so complex and expansive that for it to function efficiently requires the timely provision of complete and accurate information to support knowledge for innovation. Information and Communication Technology (ICT) has proven a vital resource to meet the increase in volume and diversity of people who interact in construction sites, as well as new materials and methods that pose special challenges to project managers. Construction firms have resorted to increased dependence on ICT through such technologies mobile computing (Rebolj, Magdic & Cus-Babic, 2002), mobile communication, global satellite positioning systems, geographic information systems radio frequency identification systems (RFID Centre, 2005; Wing, 2006), four dimensional computer aided design (4D-CAD) and graphics, virtual reality, augmented reality, and many others (Flanagan, et al., 2000; Wang et al., 2007; Jang and Skibniewski, 2007, as cited in Ozumba & Shakantu (2008). Each of these have particular use in innovative techniques, devices and systems all related to communication and information processing in the course of construction project management. Transformational leadership in support of innovation Among the most important factors that are thought to affect innovation is the presence, strength, and style of leadership that is practiced in the organization. The study by Gumusluoglu and Ilsev (2009) sought to establish the effect of transformational leadership on organizational innovation. Organizational innovation was taken to mean the tendency of an organization to successfully create innovative goods and services and in converting these new or improved products in the market. The model arrived at by the study showed a significant positive effect of transformational relationship to organizational innovation; it also accounted for the effects of internal and external supports for innovation that tend to modify, either enhance or diminish, the effectiveness of transformational leadership on organizational innovation, although the degree to which these effects are evident is different for firms in developing economies as it is for firms in developed economies. It was also observed that the modifying effect of external supports for innovation was significant, but that of internal supports for innovation was insignificant (Gumusluoglu & Ilsev, 2009, p.264). Source: Gumusluoglu and Ilsev, 2009, p.266 The influence of leadership on innovation was likewise investigated by Friedrich, Mumford, Vessey, Beeler and Eubanks (2010). An empirical study was conducted that related the influences of different types of leadership interventions with the type of innovation objective. If a specific type of innovation is desired by the organization, it must match the leaders’ skills and knowledge most appropriate to the innovation type. A mismatch between the type of leader and the type of innovation tends to create inefficiencies in the realization of the innovation objective (Friedrich, et al., 2010, p.22). Innovation in Construction From a historical perspective, innovation in construction has been evident since the middle ages, but not as prevalent because of the conservative tendencies of the industry to prioritize cost effectiveness and avoid risks. Sturges, Egbu and Bates (1999) have observed, however, that the start of the 20th century saw the advent of skyscrapers (largely a response to the escalation of property values), which was possible due to innovations in materials most especially structural steel. Bridge-building technology also took important strides, such as large suspension bridges and the cable stay bridge made possible by steels. Other important developments are the fastener technology used in construction that speed up construction by reducing the number of operations and operatives needed; novel piling and foundation systems; and new composite materials for fast erection of industrial buildings (Sturges, et al., 1999, p. 4). In the construction industry, the initiative to undertake innovation usually comes in the form of a problem, or the need to accommodate customers’ particular needs and requests. Each construction project is unique because each is located at a different site and usually for another owner (Manseau and Seaden, 2001). Undertaking innovation, however, involves several wide-reaching factors that encompass: cultural factors (i.e. open-mindedness to changes, risks, and flexibility in viewing traditional or dogmatic teachings); human factors (i.e. availability of individuals with strengths and weaknesses in different related disciplines); and management factors (i.e., leadership styles that encourage innovation while keeping the requisite level of control in project implementation). The position of innovation in construction There are numerous studies examining the design and implementation of innovation in the construction industry (Bessant, 2006, p.180). In characterizing innovation in the construction sector, it was observed that the response of the sector to innovation initiatives is one that is reactive rather than proactive (Harty, 2008, p.1030). An example of this reactive position is provided by Gann (2000) who illustrated the point with a trend in construction prevalent at the turn of the 19th-20th centuries. During that time, electrical power was introduced and replaced steam and water power in factories. This had led to major innovations in the manner buildings were constructed (p. 51). This reactive positioning may be one of the reasons that the construction industry’s gap in research and development, in comparison with other industries (Pellicer, Yepes & Rojas, 2010, p.103). This study determined that numerous factors affect innovation in construction firms. These factors include demand for new types of infrastructures, market globalization, the pressure to compete, environmental and occupational safety and security standards as well as government regulations to which compliance is mandatory, the influence of the various stakeholders (i.e., employees, suppliers, shareholders, creditors, and the wider public including consultancy firms, business and building associations and governments), the accessibility of communications and the quality of suppliers of goods and services. The interplay of these factors is vital to the success of innovation processes, and successful innovation in turn enhances the competitiveness of the construction firm in the marketplace, as well as the quality of life of the people who live and work in their structures (Pellicer, et al., 2008, p.111). The social context of construction innovation Probably more than other industries, the construction industry is intimately connected with the lives and lifestyle of the society in which it functions, since it defines the physical space where much of human activities are situated. It is therefore proper that one useful mode by which to view innovation in construction is from the perspective of construction firms’ social and organizational contexts (Harrisson & Laberge, 2002, p.503). These contexts of construction work are complex and may be characterized by a project based approach, inter-organizational collaborations, and the allocation of power among collaborating firms (Harty, 2005, p.512). Another perspective from which innovation in construction may be viewed is from a sociology of technology approach. Such an approach views innovation through the “multiplicity of negotiations and alignments” within which the innovative transformations take place (Hardy, 2005, p. 512). A practical illustration of this may be the earlier conversion to electrical power which revolutionized building design and construction. Innovation in construction is thus greatly influenced not only by the changes in practices, processes and systems that prevail in the industry, but by the more potent transformation of technologies (Hardy, 2005). Innovation as strategy in construction firms Other than viewing innovation in construction in its sociological context, it is likewise a matter of interest to examine innovation as a strategic tool within the construction firm. Aside from the broader altruistic objective of innovation in construction, there is likewise the tendency for innovation in creating a competitive advantage for generating a higher level of profitability. A model for strategic decision making was developed by Seaden, Guolla, Doutriaux & Nash (2003) relating business environment variables (i.e. rapid technological change, competitive threats, consumer/competitor predictability, number of suppliers, and material obsolescence) and business strategy variables (i.e. human resources, marketing, and technology), to the resultant variables (i.e. competitive advantage and profitability), through innovative practices in business and technology. The model is depicted in the diagram following. Conceptual model for analysis of innovation in construction (Seaden, Guolla, Doutriaux & Nash, 2003, p.605) Empirical studies performed validate the above model, particularly the link between particular business environment and business strategy variable on the one hand, with innovative practices on the other hand. The connection between innovative practices and business outcomes are less certain, however, and may be addressed by future researches for corroboration. The direct links between practices and outcomes is defined to some extent by new approaches in information and construction technologies that shape business practices and augment competitive advantages (Seaden, et al., 2003, p. 603). It is not sufficient that competitive advantages are created from innovations introduced in construction firms for these firms to experience improved profitability. It is equally important that these competitive advantages that are derived from innovation be tailored to the particular needs of the firm. The reason for this is financial; innovation is a cost intensive undertaking requiring a substantial investment that in the end may not even be viable. The risk attached to research and development is that oftentimes, ground-breaking innovations explore previously untested processes or product attributes, thus the chances of market acceptance might not generate sufficient sales to cover the cost and ensure a satisfactory return on investment. Lim, Schultmann & Ofori (2010) explored the strategies by which competitive advantage through innovation may be efficiently undertaken. Comparing among industries, the study found that the peculiar characteristics of the construction industry make innovation an inefficient competitive instrument from which to derive direct profits. Compared to manufacturing industry, the considerable investment and difficulty of making revisions and modifications in construction projects are significantly higher for construction. Changes made to manufacturing operation may be done interim so that subsequent output is to standard, and require less in terms of rework. Rework can be substantial, though, for construction projects. The fact that innovation may not directly result to profits for the firm does not mean that it should not be undertaken. Construction firms may still explore competitive advantages by targeting innovations which customers express willingness to pay for (Lim, et al., 2010, p. 568). It is also ideal for construction firms to engage in practices and activities that would tend to reduce costs; this latter form of innovation may create immediate advantages to the project’s bottom line. By aiming to lower construction costs and shorten completion times, the firm may eventually develop a sustainable production method and a brand following based on a reputation for quality. The study eventually arrived at the following model to show the competitive impact of innovation on construction firms. Competitive impacts of innovation on construction enterprises. (Source: Lim, Schultmann & Ofori, 2010, p. 577) Innovation in organizational dynamics So far two types of innovation with application in the construction industry have been identified – that of quality innovation which introduces new attributes to the final outcome, and that of process innovation with the aim of improving cost efficiency and reduce time to completion. A third type of innovation was discussed by Dulaimi, Ling & Bajracharya (2003) which focuses on organizational and inter-organizational interaction in construction firms. The study’s findings identified four factors that must be present in the intra- and inter-organizational structure amongst construction firms in order for innovation to succeed. These are (1) the exertion of serious effort to carry the innovation through, (2) the identification of high expected goals, (3) the attainment of favourable interim results, and (4) a high degree of commitment to see the innovation development to its eventual conclusion. The study found that there must be a range of incentives the firm must design into the innovation system in order to induce and support the parties involved, and that all upstream and downstream parties must be sufficiently motivated to collaborate together. These findings are consistent with those arrived at by Lim, Ofori & Park (2006) which examined the relationship among contractors, suppliers, government and support institutions relating to innovation, and those by Bosch-Sijtsema and Postma (2009) which examined the collaborative efforts and governance mechanisms of construction firms in cooperative innovation projects. Areas and Examples of Construction Innovation Innovative ventures may be encountered in different areas of the industry, not merely the technical aspects of building and construction. A few of the construction innovations have been mentioned earlier in this chapter under innovation in construction. Other aspects where innovations have been undertaken have to do with the business and development industry, sustainable build assets, delivery and management of built assets, and other programs. This is the classification adopted by the CRC Construction Innovation database, depicted below: Source: Cooperative Research Centre (CRC) for Construction Innovation Among the innovations mentioned in the CRC publications (2011) are the following: Under business and industry development – Use of government construction contracts in support of training Formulation of multi-outcome construction policies Social policy inclusion proposals Safety leadership development Occupational health and safety Under construction sustainable built assets – Sustainable subdivisions – ventilation data analysis High quality indoor environments for sustainable office buildings Estimation of indoor air quality using integrated 3D CAD building models Life prediction of infrastructure Regulatory requirements on subdivisions for increasing passive cooling Under delivery and management of built assets – Capital works procurement and the selection of a building procurement method Re-Lifing buildings: design and construction solutions for existing buildings Procurement selection and uncertainty avoidance with public sector clients Model-based estimation for concrete buildings Offsite manufacture, its barriers and opportunities Under the extension programs - National guidelines for digital modelling Interoperable standards development Safety effectiveness indicators project workbook Development of lead indicators in safety culture research – construction industry safety performance Building information modelling (BIM) as collaboration platform in the design industry Another set of examples of innovation in construction are those which had an impact on the supply chain supporting construction operations. Some innovations mentioned in the Egan Report of 1998, as described in Pryke (2009, p. 213) are the following: Acquisition of new suppliers through value based sourcing Organisation and management of the supply chain to maximise innovation, learning and efficiency Supplier development and measurement of suppliers’ performance Managing workload to match capacity and to incentivise suppliers to improve performance, and Capturing suppliers’ innovations in components and systems. The foregoing are but a narrow cross-section of the more recent innovation efforts in the building and construction industry. The full scope of innovation efforts is too broad to discuss in this literature review; however, this brief enumeration is sufficient to illustrate the various aspects of construction that are currently undergoing innovative directions, such that the industry itself may be expected to exhibit significant improvement in the coming years. Following is a more thorough discussion focusing on one particular innovation in construction which the UK BERR has undertaken to promote in the industry. The Use of Integrated Teams Another innovation in construction is the systematic use of integrated teams. The Department for Business Enterprise and Regulatory Reform (BERR) in the UK released a report on 2008 focusing on the introduction of innovative concepts in construction services. In the course of its assessment of the industry and its change agenda with the Strategic Forum for Construction, they have arrived at several recommendations. Foremost is the forging of integrated teams. An integrated team has been defined as one which “…includes the client and those involved in the delivery process who are pivotal in providing solutions that will meet the clients’ requirements. Thus those involved in asset development, designing, manufacturing, assembling and constructing, proving, operating and maintaining, will have the opportunity to add maximum value by being integrated around common objectives, processes, culture/values, and reward and risk.” (BERR, 2008, p. 10). It is proven that working and collaborating across the industry in an integrated manner is capable of harnessing the collective benefit of the participants integrated supply chains, and is effective in delivering evident and substantial benefits to all parties concerned. According to the BERR report (2008, pp.10-11), integration drives innovation through: (1) Involving all key players early on in the project, to ensure optimum solutions are targeted for specific issues; second tier contractors provide vital inputs for integration and therefore must be integrated into the project from the start; (2) Deciding on solutions on the grounds of the project’s whole life value, and not on the basis of lowest cost; (3) Deployment of common processes such as common ICT, which provides project wide information that is accessible through a commonly available portal for all participants; (4) Performance assessment and measurement; (5) Establishing fair commercial procedures that are founded on trust, such as collaborative agreements, use of project insurance, denouncement of the use of unfair contracts, etc; and (6) Forging of long term relationships that enable knowledge to be shared and transferred through several projects. Conclusion “Working on the boundaries between disciplines can inspire the kind of creative thinking that leads to innovation” (ENR, 2003a). This astute observation would lead one to conclude that construction should therefore be one of the most innovative businesses because of the many different disciplines that come together in the design and implementation of building and infrastructure projects. On the contrary, however, industry leaders have lamented the stagnation of innovation in construction because of the paradoxes posed by realities. Construction teams base all design and execution decisions on a single criterion – cost minimization – to the exclusion of all else. The result is that creativity is stifled because of the attendant risk associated with the new and untested. In the course of this literature review, it became evident that cost should only be one consideration that affects innovation. Innovative efforts may in fact tend to lower costs, as new processes, materials, and designs may prove to be more efficient and sustainable, reducing maintenance outlays in the long run. Innovation that support quality improvement may likewise create competitive advantages for the construction firm, and with proper branding and systematic organizational handling, a reputation for innovation may attract the higher end market and generate higher revenues and more profitable margins. Innovation may efficiently be carried out by organized handling of tangible resources and wise management of intangibles such as knowledge sourcing and information dissemination. There have been new conceptual models such as agile innovation and the Seaden and the Lim models presented here, all of which offer new perspectives on construction innovation. 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