A Proposal for Developing an Innovation Strategy within a Construction Company

Introduction

Technological innovation, particularly in the use of ICT (Information and Communication Technologies), is essential for any organization seeking to maintain its competitiveness in the global markets, but it is not just enough for an organization to declare its interest in innovation in its mission statement. The top management must have a clear understanding of where and how innovation is occurring within the organization and the business impacts of innovation, as well as the factors enabling and/ or constraining innovation. Without this understanding, an organization faces the possibility of not directing their resources to areas that could potentially yield the greatest long term value.

XYZ is a construction company in the UK. It is a subsidiary company of a key player in the UK’s construction industry with overseas operations in North America and Asia. The group is a publicly traded company which serves the international markets for buildings, complex structures, and rail, road, and utility systems. Company XYZ’s business focus is predominantly highway maintenance, general construction, street lighting, and rail maintenance.

XYZ generates revenue through contracts in geographically dispersed offices. The contracts are supported by central office functions executed from the company’s headquarters in the South of England. In the current era, it is generally accepted that it is profitable for construction companies to make substantial investments in long-term relationships with repeat clientele, and the study company is no exception. Continuous improvement and innovation is one of the ways through which XYZ has strived to reassure its customers that it offers the best value in service delivery amidst a growing pool of highly qualified competitors. XYZ has a dedicated staff within a Business Improvement Team charged with promoting innovation largely through the identification of emerging technologies that have potential applications within XYZ’s business operations.

There are a number of ‘innovative’ initiatives within XYZ ranging from the suggestion scheme to developing an idea management system. There are also a significant number of technological projects that explore the potential of using GPS (Global Positioning Systems) and various mobile technologies. GPS has been used for several years as the as the primary sensor in construction vehicle and equipment. Within XYZ, this technology has been successfully incorporated into the auditing of the maintenance activities such as gulley cleansing and salting. The supervisors are able to track the movement of the crew in real-time. Further work in this initiative is piloting the manipulation of such information using hand-held devices thus enabling the crew to record their activities on site. The company has also embraced ERP (Enterprise Resource Planning: a business management system that integrates all facets of the business). Other initiatives have taken the form of process improvement and change management. These have been very successfully in breaking down barriers to team working especially during the mobilization of new contracts. At the operational level, contract representatives convene monthly to define the best practice for routine business processes.

There are some problems with this approach. Firstly, innovation is largely viewed as ad hoc, linear activities that lead to a new product. Innovation should be about both business methods improvement and growth: there should be a blueprint showing how all actions build the existing business or contribute to future survival of the organization. Secondly, at the operational level within the contracts, business improvement has been traditionally pursued parallel to innovation, while in the central office, innovation presented as a subset of business improvement within the central office in the organization structure. This structure highly restricts the commercial value of innovation. Innovation cannot be constrained to activities pursued to improve the business. In fact, the converse makes better business logic: business improvement should lead to innovation. Thirdly, innovation is viewed by many people within XYZ as the responsibility of a few skilled individuals. Innovation should be part of the role of everyone within the company, and the skilled individuals should be focus on managing the implementation process. Finally, and perhaps most importantly, the existing organizational culture restricts risk-taking behavior. The adopted approach to innovation has shifted the focus from learning to the delivery of new products. Consequently, projects that fail to deliver the expected outcome reduce the employees’ willingness to engage in subsequent innovation initiatives.

Innovation should be primarily pursued as a platform on which the organization learns business skills that will ensure its future survival. The main thesis in this paper is that the commercial value of innovation depends mainly on its associated business framework, and without an effective business framework that supports organizational learning, innovation will continue to have diminished commercial value. The paper draws from a ‘failed’ digital pen pilot.

Methodology

Two main methods of inquiry underpinned the 12-month study presented in this paper. These were: participatory Action Research and Experiential Learning. There is a plethora of definitions for Action Research such as one provided by McKernan (1988), McCutcheon and Jung (1990), McTaggart (1996), and Argyris and Schon (1996). For the purposes of this paper, Herr and Anderson’s (2005) definition of Action Research as ‘an inquiry that is done by or with insiders to an organization or community but never to or them…oriented to some action or cycle of actions that organizational or community members have taken, are taking, or wish to address in a particularly problematic situation’ was adopted.

There were three main reasons behind the use of Action Research. Firstly, during the study, the researcher was an ‘insider’ working for XYZ with good exposure to the problematic situations that the company wished to address. Secondly, XYZ has been using short term contracts to generate revenue. These are supported by central office functions that primarily focus on the long-term prosperity of the company: the study company presented a context with conflicting values. Such conflicts have been identified by Herr and Anderson (2005) as being ideal for Action Research.

Finally, there was a need to adopt a method of inquiry that would gain easy acceptance by the study company so the results would not be scoffed at as being too academically oriented. Literature review confirmed that Action Research methods have been used successfully by several organizational studies to deal with issues presented in people’s daily activity (Whyte et al, 1991; Checkland, 1991, and Argyris and Schon, 1996). French and Bell (1995) and Susman (1983) also point out the use of Action Research by practioners outside the academic settings.

The study focused on emerging technology trials. By definition, such projects comprise a set of cyclic processes that entail the four elements of planning: acting, observing, reflecting, and examining the innovation practice within XYZ. The primary motivation behind such projects is experiential learning. The study adopted Kolb’s (1995) model for experiential learning, which is a recurring cycle within which the participants test new concepts and modify them as a result of the reflection and conceptualization.  This cyclic process has been depicted in Figure 1.

Learning Through ‘Failure’

It can be both expensive and embarrassing when a project goes through the entire research and development process and turns out to be a ‘failure.’ XYZ’s trial for use of digital pen technology in material requisition appeared to be one such project. A digital pen is a battery-operated writing instrument that allows the user to digitally capture a handwritten note or drawing and has been used in various construction operations (Sommerville and Craig (2004). The selected application domain within XYZ was the recording of information during material requisition. The conventional process was based on the use of a notebook to capture the delivery of materials on site. This information was subsequently transferred into COINS, an accounting package used within the company. An external technology provider was contracted to design a form that could be used with a digital pen to capture the delivery information electronically thus eliminating double entry, and therefore allow the operational crew to concentrate on value added tasks.

The project team had great expectations on how the use of digital pen technology would substantially reduce their workload. However, during the trial, several challenges emerged which complicated the use of the technology. The immediate reaction among the operational staff was anger, frustration, and disappointment. In their view, the project was a total failure, and all their efforts were therefore wasted. In light of this reaction, it would be easy to dismiss the use of digital pen technology as not warranting further internal funding in the selected application domain.

However, it is important to delay making any final decisions because what may seem a ‘failure’ can lead to new opportunities, especially if the generated knowledge on why the project failed is exploited. The reality of life is that some projects will not result in the expected outcomes. This does not mean that the efforts put into the project have been wasted. Such knowledge can be created through the use of appropriate debriefing questions focusing on both project content and the project development process.

The construction industry has several examples of how engineering failures generally arise from factors that can be managed. The primary causes of engineering disasters are usually considered to be human factors, design flaws, materials failures, and extreme conditions or environments (Department of Materials Science and Engineering, State University of New York at Stony Brook). A recent study conducted at the Swiss Federal Institute of Technology in Zurich analyzed 800 cases of structural failure, and where engineers were at fault, the researchers classified the causes of failure as shown in Table 1.

Table 1

Project Failures (Department of Materials Science and Engineering, State University of New York at Stony Brook

Through careful diagnosis of the reasons behind the non-accomplishment of original goals, ‘failure’ can be transformed into success. In fact, some of the most amazing structures were the results of designers and engineers working diligently to address such causes.  Modern society's ability to achieve unachievable feats, reach unreachable heights, and scorn the notion ‘it can't be done’ has always depended on the existence of individuals unwilling to give up in despair when things do not turn out as expected.

Even where the original goals cannot be attained because of factors that cannot be reversed, the history of innovation is full of examples where the eventual best use of a new product or technology was far different from the initial intended purpose of the idea. As Manz (2002) established, although most people hate to be labeled as ‘failures,’ history has proved that most of the greatest successes have arisen from things that initially failed.

In the late 1980s, scientists for a New York City-based drug-maker, Pfizer, began testing what was then known as compound UK-92,480 for the treatment of angina (Chesbrough, 2003). Though the drug had negative results during its trials, the company decided to capitalize on what they thought was an interesting side effect. This investment steered innovation to a different direction and culminated in the launch of Viagra. Pfizer developed a successful new drug by effectively managing what later turned out to be an incorrect indication of failure.

Businesses enjoying streams of success in innovation always have to endure in patience through several false starts before attaining their goals. Gates (1999) affirms this strategy in his approach to business: ‘Once you embrace unpleasant news not as negative but as evidence of a need for change, you aren't defeated by it. You're learning from it.’ Many costly Microsoft product failures provided a forum for organizational learning that subsequently led to the development of many of Microsoft's biggest successes. Examples include a failed initiative to develop a database called Omega, which resulted in the development of Microsoft Access and a failed Multiplan spreadsheet, which provided valuable lessons used in the development of Microsoft Excel.

It takes great business acumen to see beyond a ‘false negative,’ but some companies have learnt that the cost of missed opportunities can be quite high. By their very nature, ‘false negatives’ are tricky to spot in advance. Xerox created a number of ‘false negatives’ out of its Palo Alto Research Centre lab (Chesbrough, 2003). When it didn't see the results it sought, Xerox terminated further funding for projects that eventually resulted in Ethernet (by 3Com) and PostScript (by Adobe). Xerox’s inability to recognize opportunities in ‘false negatives’ resulted in external projects with a combined market capitalization twice its size.

With this in mind, XYZ needs to think very carefully before dismissing digital pen technology. It has to remember that the most effective way for learning to take place is to actually be in real situations, make decisions, deal with the consequences of those decisions, and learn from real mistakes. The primary value of the pilot is based on the principle that most effective learning occurs when people teach themselves through their own struggles. Nothing will ever replace learning from experience. The Digital Pen Pilot allowed the team to ‘simulate’ the use of a new technology. The operational crew experimented with a real situation, made decisions, and felt the consequences. The project flagged various pressures and considerations that would have to be confronted to make the technology work. The primary outcome of the pilot is, therefore, a clear understanding of practical skills that the team needed to develop.

In hindsight, the project team realized that the pilot centered on an array of partially ordered, ambiguous, seemingly contradictory, and reasonably unstructured facts, opinions, inferences, and bits of information. During the project design and implementation, the team ‘created’ order by selectively choosing which bits to use and which to ignore. The team had no way of being certain before major decisions were made that they had picked the best or right choices. This is a common reality of life. The pilot project provided the company with an opportunity to minimize the inherent risks by experimenting with the technology on a small scale. Within this controlled environment, there was an opportunity for:

The study also provided evidence that can be used to develop business logic for future pilots. It revealed that there is a general lack of understanding within the company on the real value of innovation: innovation provides a platform for trialing new things. Some of these new things will work immediately while others will not. The company needs to develop a framework for encouraging reasonable risk-taking behavior. Additionally, the paper affirms the view that the valuable lessons learnt from the pilot experience should be assessed and explored with a view of trying to find hidden opportunities for exploiting digital pen technology. This should be used to develop a framework for managing future ‘failure.’

Obviously, there needs to be framework for managing failure because some projects should never have been pursued in the first place. Charles Schwab adopted an approach in which ‘stupid failure’ is distinguished from ‘noble failure’ (Jennings and Haughton, 2000). In their approach, ‘noble failure’ occurs when:

Charles Schwab has institutionalized the celebration of ‘noble failure’ through establishing the maintenance of a journal of failures, lessons learnt, and failed innovations.  The lessons learnt have also been documented in a videotape shown during employee orientation. This approach has resulted in an organizational culture that encourages people to reassess previous decisions and take corrective measures. XYZ can very easily embrace this strategy by formally rewarding people for reasonable risk taking behavior, which would formalize the celebration of ‘noble failure.’

The project also revealed that one of the key barriers to investment in new technologies is: the targeted employees are often so busy correcting issues in current/ adopted systems that they have little time to anticipate and plan for the future. Interestingly, spending more time in the planning phase could potentially reduce quite a number of these problems. It has actually been established that a significant part of human effort in ICT is focused on solving problems with existing systems (Hagen et al, 2006). Real Options Analysis can be used to lure the targeted employees from their ‘reactive mode’ by showing them the benefits that could be obtained from spending more time developing a strategy for the future. Real Options Analysis has been used successfully in multiple industries including oil and gas exploration, pharmaceutical research and development e-commerce valuation, IT investment justification and privatization of venture capital investment (Mun, 2002). A real option is the right, but not the obligation, to take an action at a predetermined cost for a predetermined period of time. XYZ can use this method to close the gap between the current pressures on the employees and the need for continuous growth and improvement.

The ‘failed’ pilot project provided an ideal opportunity for organizational learning, but until XYZ formulates a strategy for learning through failure, employees will remain disappointed.

Conclusions and Recommendations

The continual existence of any organization depends on its optimal performance within the context of a highly dynamic environment. To rise up to the challenges in the constantly changing context, organizations must innovate. Innovation is the means by which they exploit change as an opportunity for a different business or a different service (Ducker, 1993). Innovation must therefore be defined in a way that identifies its goal as implementing change that creates a new dimension of performance.

The lessons learnt from the Digital Pen Trial indicate that XYZ needs to move away from presenting innovation as an esoteric concept. There appears to be a general understanding, especially at the operation level, that innovation is all about ‘making new things work.’ A follow-up questionnaire in which employees at different levels were asked to define innovation confirmed that there is a mismatch of perception and/ or expectations between employees at the operational level and XYZ’s management board. This problem can be rectified through the top management,  taking into account all the different  views and unifying them into a single statement defining what innovation is and what the company’s expectations are as far as innovation is concerned.

Since innovation is about performance, it must be based on a clearly defined mission. There should also be clear understanding of what constitutes success. It is treacherous to define success as getting new things to work on the first attempt because this type of thinking discourages risk taking. This attitude also results in complacent satisfaction with past performance levels. XYZ can address this problem through developing an innovation strategy that clearly identifies ‘lessons learnt’ as the primary outcome of innovation.

XYZ’s performance appraisal system also provides innovation as one of the assessment criteria. However, the interpretation of how an employee exhibits his or her innovativeness has been left rather ambiguous, and scoring is largely at the discretion of the line managers. The organization should have a clear definition on what will constitute active participation in innovation. This would result in the innovation culture being a mandatory lifestyle for anyone working for XYZ.

Most importantly, the company needs to develop innovation and ‘lessons learnt’ portfolios. The activities carried out within the organization should clearly be mapped on a blueprint that identifies how the employees contribute to business growth. Adopting this approach will ensure that innovation efforts have been balanced between present business needs and long-term survival. The company also needs to launch a ‘lessons learnt’ portfolio in which project teams are compelled to describe in some detail the key factors of any perceived ‘failure’ and to identify possible corrective actions.

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