RT243 – Enhancing Innovation in the Construction Industry

1. RT243 – Enhancing Innovation in the Construction Industry Implementation Session

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

3. Agenda

4. Innovation – Why? • Advantage: Admired ~ Innovative • Adaptability: Shape Your Future, Rapid Change • Add Value: Strategic, Process • Attracting Personnel: Get ahead of the cycle

5. 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

6. Innovation – An Industry Perspective Presented by: Howard Irwin AMEC

7. 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

8. 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

9. 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?

10. 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)

11. 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

12. 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?

13. Innovation Economics Presented by: John Strickland CH2M HILL Construction Program Manager

14. 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

15. 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

16. Economic Models of Risk Behavior SINGLE PROJECT : RISK BASED APPROACH MULTIPLE PROJECTS: EXPECTED VALUE APPROACH

17. 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?

18. 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

19. 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

20. 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.

21. 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

22. The Innovation Maturity Model Presented by: Mauricio Rodriguez Smithsonian Institution

23. 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

24. Innovation Maturity Model Resources 5 Leadership 4 3 Risk Perspective 2 1 Learning Customer Focus Processes 1 = Initial (ad hoc) 2 = Repeatable Process 3 = Defined 4 = Managed 5 = Organized Culture Collaboration

25. Maturity Model Score Your Company • Where do you think your company is today?

26. Maturity Model Questions - Sample

27. Maturity Model Analysis

28. Maturity Model Recommendations • Where would you like your company to be?

29. Maturity Model Recommendations - Sample

30. Are You Ready to Use an Innovation? • Push green arrow button to wake up the clicker if asleep • Push the number corresponding to your answer • Push the green arrow button to send your answer

31. 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

32. 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

33. 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

34. 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

35. 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

36. 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)

37. Summary and Q&A

38. 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