RT243 – Enhancing Innovation in the Construction Industry

Implementation Session

The Panel

• Paul Chinowsky – University of Colorado• Howard Irwin – AMEC• John Strickland – CH2M-Hill• Mauricio Rodriguez – Smithsonian Institution

Agenda

Introduction to innovationImportance of innovation

Paul

Status of innovation in EPC today Howard

Insights from economics JohnMaturity model Interactive questions

Mauricio

How you can get thereHow you can help

Paul

Q&A Panel

Innovation – Why?

• Advantage: Admired ~ Innovative

• Adaptability: Shape Your Future, Rapid Change

• Add Value: Strategic, Process

• Attracting Personnel: Get ahead of the cycle

Questions

• Are you ready to change your way of looking at the industry and at your organization?

• Does your organization have what it takes to adapt and ride the wave? – Processes– Culture– Leadership– Resources

Innovation – An Industry Perspective

Presented by: Howard IrwinAMEC

How We Studied Innovation

• Looked both within and outside of the EPC industry

• Extensive literature review– Articles, books, web sources– Reviewed parallel study

• Interviews

• Surveys

EPC Industry Perception: Key Findings

• How innovative is the EPC Industry?– 74% say Neutral to Highly Non-Innovative

• Satisfaction with innovation within the company?– 55% Neutral to Highly Dissatisfied

• Where does innovation most easily occur?– 71% Individual Projects

• Where is innovation most needed?– 85% Department or Organization-wide practices

How the EPC Industry makes Decisions related to Innovation

• 59% feel comfortable proposing innovations• 45% of leaders articulate an innovation vision• 40% funded from corporate or customer

budgets• 29% of organizations have a methodical or

quantitative process

What if innovation became a priority?

Differentiating Innovative EPC Firms

• Innovative firms had statistically significant differences in– Repeatable processes– Culture– Risk perspective– Staffing and resources

• Example survey question– “My firm has personnel explicitly tasked with

promoting and facilitating innovation within the firm.”– Innovative firm = 3.1 versus non-innovative firm = 2.3

(p=0.006)

Perceived Barriers to Innovation

• Schedules and budgets are too tight to take a chance on something new

• Lack of resources including staff time

• Lack of a firm strategy for innovation

• Owners do not recognize the value

Provocative Questions

• How many EPC firms made Fortune’s top 20 most admired and innovative list in 2008?

• Is our industry today like the American Ship Building industry?

• Will CII firms still be industry leaders in 2033?• What competitors are sneaking up on you?

Innovation Economics

Presented by: John StricklandCH2M HILL Construction Program Manager

Innovation Economics

• Current Situation– Innovation occurs most easily at the project level, but

is most needed at the corporate level– Innovations are funded at the project level – Difficult to spread risk beyond

project and firm– Mechanisms to spread

learning are limited

Insights From Economic Modeling: PM’s View

• Innovations with positive expected values may be rejected if:– The worst case, although unlikely, is catastrophic – The innovation requires learning and multiple iterations– The project bears all of the risk and cost, but others stand

to capture the gains• Which mouse puts the bell on the cat?

• Current structure of the “game” doesn’t support innovation very well

Economic Models of Risk Behavior

SINGLE PROJECT : RISK BASED APPROACH

MULTIPLE PROJECTS: EXPECTED VALUE APPROACH

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The Effect of “Single Event” Approach

• Illustrating a key factor – Imagine an expert golfer with a 6-foot putt– Golfer knows he will make the putt 6 times out

of 10– Offer the following deal

• Make the putt: win $1 million • Miss the putt: lose $500,000

• And this is money he doesn’t have – Any takers?

Changing the Game to Promote Innovation

• Suppose any of the following:– Five golfers get together and spread

the risk – Golfer gets five tries – Golfer gets to practice– Golfer gets to see somebody try same

putt– Golfer has a deep-pocket sponsor

Risk Management as a Source of Profit

The casino approach• Start with slightly

favorable odds• Spread risk over many

“projects” • Encourage lots of small

bets• Avoid accepting “break

the house” risks • Avoid being the

individual gambler

Isolation Within Supply Chain

• Many organizations within supply chain, each trying to maximize the profit within their “box”

• Limited vision of entire chain • Contracts inhibit

“big picture” thinking

• “It’s not my problem”

may be the biggest

problem.

Economist’s View of Enhancing Innovation

• Shift from “single event” thinking– Indemnify project managers by creating a “syndicate”

• Company wide• Industry wide

– Experiment and learn frequently – increase the “cycles of learning” and share effectively

– Create alliances focused on delivering value to end customer

• Create a Model for Assessing Innovation

The Innovation Maturity ModelPresented by: Mauricio RodriguezSmithsonian Institution

Maturity Model

• Overview of the Model

•Evaluates an organization’s innovation maturity

•Based on user responses to 60 questions

•Outlines key aspects of innovation

•Helps assess strengths and weaknesses

• Scoring Process

•Similar to PDRI

Innovation Maturity Model

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Leadership

Resources

Processes

Culture

Risk Perspective

Collaboration

Customer Focus

Learning

1 = Initial (ad hoc)2 = Repeatable Process3 = Defined4 = Managed5 = Organized

Maturity Model Score Your Company

• Where do you think your company is today?

Maturity Model Questions - Sample

Maturity Model Analysis

Maturity Model Recommendations

• Where would you like your company to be?

Maturity Model Recommendations - Sample

Are You Ready to Use an Innovation?

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1. Push green arrow button to wake up the clicker if asleep

2. Push the number corresponding to your answer

3. Push the green arrow button to send your answer

Sample Question for CULTURE

• Employees at all levels are encouraged to challenge current processes in order to continuously improve them.

• 1 = strongly disagree• 2 = slightly disagree• 3 = I am neutral• 4 = slightly agree• 5 = strongly agree

Sample Question for RESOURCES

• Funding for innovation is available from corporate sources, not just project budgets.

• 1 = strongly disagree• 2 = slightly disagree• 3 = I am neutral• 4 = slightly agree• 5 = strongly agree

Sample Question for RISK TAKING

• Risk-taking is recognized as a necessary part of encouraging and implementing new ideas.

• 1 = strongly disagree• 2 = slightly disagree• 3 = I am neutral• 4 = slightly agree• 5 = strongly agree

Sample Question for COLLABORATION

• Our organization actively integrates supply chain partners to enhance long term performance.

• 1 = strongly disagree• 2 = slightly disagree• 3 = I am neutral• 4 = slightly agree• 5 = strongly agree

How to Get on the Road to Maturity in Innovation

Understand where you are today

Define where you want to be: Determine your short and long term goals

Develop a plan, structure, and process

Measure regularly where you are in your maturity and against your plan

We Need Your Help

• Phase 2 – Pilot Studies– Objectives: Improve your organization’s innovation

capabilities and improve CII research model– Benefits: Evaluation and roadmap– Time-frame: 6 months– Commitments needed: Desire and Participants

• Contacts:– Paul Chinowsky (paul.chinowsky@colorado.edu)– Mike Toole (mike.toole@bucknell.edu)

Summary and Q&A

Thank you for coming to our session!

• Please leave the Clicker where you are sitting

• Please leave your business card if you – Would like to have us email you the maturity model

tool– Might be willing to participate in Phase 2