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 innovation Importance of innovation Paul Status of innovation in EPC todayHoward Insights from economicsJohn Maturity model Interactive questions Mauricio How you can get there How you can help Paul Q&APanel

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 Irwin AMEC

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 Strickland CH2M 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

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 Model Presented by: Mauricio Rodriguez Smithsonian 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 Leadership Resources Processes Culture Risk Perspective Collaboration Customer Focus Learning 1 = Initial (ad hoc) 2 = Repeatable Process 3 = Defined 4 = Managed 5 = 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? 30 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 –Mike Toole

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 you the maturity model tool –Might be willing to participate in Phase 2