innovativeness gives companies a competitive … · innovativeness gives companies a competitive...

Innovativeness gives companies a competitive edge

A case study in the construction sector

Grazyna Kosno

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© copyright Grazyna Kosno Institutionen för byggvetenskaper, Byggproduktion, Lunds tekniska högskola, Lund ISRN LUTVDG/TVBP—13/5471—SE Lunds tekniska högskola Telefon: 046-222 74 21 Institutionen för byggvetenskaper Telefax: 046-222 44 20 Byggproduktion Box 118 221 00 LUND Hemsida: www.bekon.lth.se Tryckt av Media-Tryck 2013

http://www.bekon.lth.se/

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Abstract The construction sector is known for being traditional and not highly innovative. Innovative companies, in general, show higher profitability and growth and many parties could benefit from more innovation in the construction sector. The target of this study is to identify success factors for innovation in the construction sector. The study is conducted as a case study of a company that is recognized as an innovative company in the construction sector. The study covers a literature overview of innovation theory and specific characteristics of the innovation in the construction sector. The empirical findings are gathered through access to company internal information, interviews and the author’s knowledge and experience acquired during six years of employment with the company. The conclusions list several factors identified through the theoretical overview that are contributing to the success of the company. Each one of these contributes to but cannot be identified as the sole bearer of the innovative behavior. Other companies could copy several of the identified factors but doing so would not necessarily lead to success. The reason the company in the case study is more innovative than others is the fit of the chosen approach to the context within which the company operates. When trying to design a successful concept for other companies, no matter how the processes are designed they need to fit the context of the specific company in question. An insight that has grown during the study is the importance of alignment of the implementation plan with the company’s overall business plan. Both these also need to be aligned with the context within which the company operates.

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Sammanfattning Byggindustrin är inte känd för att vara innovativ. Innovativa företag uppvisar överlag högre lönsamhet och tillväxt och många parter skulle kunna dra nytta av mer innovationer inom byggindustrin. Målet med detta arbete är att identifiera framgångsfaktorer för innovation i byggindustrin. Arbetet utförs som en fallstudie av ett företag som är erkänt som ett innovativt företag inom byggindustrin. Arbetet omfattar en litteraturgenomgång om innovationsteori och speciella karaktäristika som hör till innovationsverksamhet inom byggbranschen. Empiriska data samlas genom tillgång till intern företagsinformation och intervjuer samt författarens kunskap och erfarenheter om företaget inhämtade under sex års anställning på företaget. Slutsatserna listar flera faktorer identifierade i teoriavsnittet som framgångsfaktorer som bidragande till företagets goda resultat. Var och en av dessa bidrar till men kan inte identifieras som enskild framgångsfaktor för det framgångsrika sättet på vilket man för innovationer till marknaden. Andra företag skulle kunna kopiera flera av de identifierade faktorerna men det kommer inte nödvändigtvis att leda till framgång. Anledningen till att företaget i fallstudien är mer innovativt än andra är att det valda arbetssättet passar den miljö, kontexten, som företaget är verksamt i. När andra företag väljer arbetssätt och oavsett hur det utformas, är det viktigt att modellen passar det företagets givna kontext. En insikt som har växt fram under arbetets gång är betydelsen av synkronisering mellan implementeringsplanen med företagets affärsplan. Båda dessa måste vara synkroniserade med den kontext som företaget är verksamt i.

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Innovativeness gives companies a competitive edge

A case study in the construction sector Master of Science Thesis by

Grazyna Kosno Supervisor

Dr. Kristian Widén Research assistant, Division of Construction Management Faculty of Engineering, Lund University Opponents

Niklas Blomdahl Anna Wikner Examiner

Anne Landin Professor, Division of Construction Management Faculty of Engineering, Lund University

Keywords

Innovation, feedback, organizational learning, stage-gate process, corporate culture Nyckelord

Innovation, återkoppling, organisatoriskt lärande, stage-gate process, företagskultur

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Acknowledgements This thesis is the last part of my Master of Science in Civil Engineering studies at the technical Faculty of Engineering, LTH (Lunds Tekniska Högskola), at Lund University. I would like to express my deepest gratitude to my tutor, Kristian Widén, at the Division of Construction Management within the Department of Construction Sciences, who has been a great support and a source for inspiration and motivation during the project. I would also like to thank my family and colleagues at Hilti for patience and support during and with the project. Lund, April 2013 Grazyna Kosno

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Table of Contents

1. Introduction .................................................................................... 15

Background .................................................................................. 15

Purpose ....................................................................................... 16

Objective ...................................................................................... 16

Limitations.................................................................................... 16

Disposition ................................................................................... 16

2. Methodology ................................................................................... 19

Scientific attitude .......................................................................... 19

Case studies ................................................................................ 20

Quantitative and qualitative methods ............................................. 21

Induction, deduction, abduction ..................................................... 21

Validity, reliability, objectivity ......................................................... 22

Chosen approach ......................................................................... 23

Definitions .................................................................................... 24

3. Theory ............................................................................................. 25

Diffusion of innovations ................................................................. 25

Innovation ................................................................................ 25

Communication channels ......................................................... 25

Over time ................................................................................. 26

Social system........................................................................... 29

Time to market – the innovation life cycle ...................................... 29

Technology, innovation and organization ....................................... 31

Integrating across boundaries ................................................... 32

Organizing internal structures and processes ............................ 32

Learning, creativity and knowledge ........................................... 33

Innovation in the construction sector ............................................. 33

Project based companies ......................................................... 35

Acting on precipitating events ................................................... 36

Factors influencing innovative behavior of small construction companies ............................................................................... 39

Organizational learning............................................................. 42

Impact of intra-organizational knowledge interaction activities .... 43

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Individuals leading innovation – champions ............................... 44

Team members, leadership & culture ........................................ 46

Motivation by senior management commitment ......................... 47

Strategy giving a competitive edge............................................ 49

4. Hilti and innovation processes at Hilti ............................................ 51

Hilti through history ....................................................................... 51

Hilti in Sweden ......................................................................... 52

Hilti today ..................................................................................... 52

Organization ............................................................................ 53

Product and services portfolio ................................................... 54

Market reach ............................................................................ 55

Investments in technology & cooperation with universities ......... 56

Information and communication ................................................ 57

Business model ............................................................................ 57

People, people development and feedback ................................... 59

Innovation is emotion .................................................................... 60

TTM-process ................................................................................ 60

Gates ...................................................................................... 61

Value proposition ..................................................................... 62

The TTM team ......................................................................... 63

Case study HIT-CleanTec ............................................................. 64

Characteristics of the Construction Sector in Sweden ................ 65

Environmental awareness in the construction industry ............... 65

Customer need ........................................................................ 66

Product & Value Proposition ..................................................... 68

Launch preparations ................................................................ 69

Launch .................................................................................... 69

After launch ............................................................................. 70

Further strengthening system solution ....................................... 70

5. Analysis .......................................................................................... 71

Diffusion of innovations ................................................................. 71

Innovation ................................................................................ 72

Certain channels ...................................................................... 72

Over time ................................................................................. 73

Social system........................................................................... 73

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Use of innovation technologies...................................................... 73

Solid processes allow project team to focus on the task ................. 73

TTM teams and projects ............................................................... 74

Case of HIT-CleanTec .................................................................. 74

Communication, knowledge transfer and feedback ........................ 75

Private ownership giving freedom to act ........................................ 76

Strategic intent supports innovativeness ........................................ 76

Corporate culture.......................................................................... 76

Selecting the right people ............................................................. 76

Leadership, motivation and senior management commitment ......... 77

6. Conclusion ...................................................................................... 79

Discussion ................................................................................... 79

Conclusions ................................................................................. 80

Future research ............................................................................ 81

7. Bibliography ................................................................................... 83

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1 Introduction Innovativeness in general is considered to be giving companies competitive advantages

1. New and better solutions out-compete old school methods and

ultimately generate growth. Although most companies are in business to generate profitability and growth not all companies are really leveraging the innovation potential of their businesses.

1.1 Background The construction sector is often considered not to be highly innovative

2. The

highest rate of innovative behavior is found in the high-tech manufacturing sector and the lowest percentage is found in small construction firms

3. Larger companies

show a higher rate of innovativeness no matter what sector4.

When changing work methods or products used the reason is often lower total cost of ownership and hence innovations should be well perceived in all sectors. The construction sector is, however, very traditional with a ‘we do as we always have done’ attitude. Many companies in the construction sector struggle in their efforts to get acceptance of their new products. Other parties would like to benefit from new ideas and solutions in their projects. There are characteristics of construction products that set boundaries for development; these are: immobility, complexity, durability, costliness and a high degree of social responsibility.

5 Regardless of the characteristics of different

sectors, there are companies within each sector that perform better than others. There are many stakeholders involved in construction and adoption of an innovation by one company might mean large impact on others involved in the project that do not benefit from this particular new solution and therefore do not accept it or desire it. Some companies in the construction sector are better at introducing new products and solutions than others and it is relevant to explore whether there are certain variables that can be identified behind their success and possibly even implemented by others.

1 Toke Reichstein, Ammon J. Salter, David M. Gann (2005), Last among equals: a

comparison of innovation in construction, services and manufacturing in the UK p 632 2 Toke Reichstein, Ammon J. Salter, David M. Gann (2005), Last among equals: a



comparison of innovation in construction, services and manufacturing in the UK p 638 5 Nam, C.M and Tatum, C.B (1988), Major characteristics of constructed products

and resulting limitation of construction technology p 133-148

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The field of innovation research in the construction sector is not deeply penetrated and not much literature can be found. A deeper understanding of the topic could help bringing more innovative behavior to the sector.

1.2 Purpose The purpose of this study is to increase the knowledge regarding successful innovative behavior within the construction sector so that this knowledge can be used in order to find better ways to work with innovations.

1.3 Objective The objective of this study is to identify specific parameters of a company that has proven to be more successful than others when it comes to innovative behaviour so that other companies in the construction sector can elaborate with these parameters and achieve higher innovativeness. The objective is also to explain why innovativeness is desirable for companies in a long term perspective. To reach this objective this study will:

Clarify whether there are characteristics of the construction sector that are less beneficial to innovativeness than in other sectors.

Clarify whether companies in the construction sector benefit from innovativeness.

Identify success factors for innovativeness in the construction sector.

Identify which success factors might be easily adopted by other parties in the construction sector.

1.4 Limitations This study is limited to identifying success factors of Hilti, the company chosen for the case study, and not companies in the construction sector in general. The focus lies on how Hilti works with innovations. The product development in terms of a technology project is not covered by this thesis and neither is the supply chain.

1.5 Disposition The outcome of this study is presented in following chapters: Background – This chapter explains the background of this study and objectives

and limitations. Methodology – This chapter explains the chosen method for this study and the

why this method was chosen. Theory – This chapter presents the theory used for this study.

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Empirics – In this chapter the data gathered for the study is presented. The

data consists of a description of Hilti as a company, how Hilti works with innovations and a more in-depth description of a specific product case.

Analysis – In this chapter an analysis is done of the data gathered based on

the theory. Conclusions – This chapter starts with a discussion on topics related to the

study but covered by it and continues with the conclusions of the analysis and an overview of interesting future fields of study.

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2 Methodology Academic theses are based on scientific grounds. The goal of academic work is to generate new knowledge

6. Academic works are characterized by its cumulative

nature where new knowledge can be added to or replace existing knowledge7. To

avoid double work and creation of new designations on old phenomena, the author must know existing theories, models and data and the study should start from or consider existing theories, models and data.

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When it comes to the choice of methodology it is important the author is aware of existing models and the pro’s and con’s with the various models

9. The target of this

chapter is to present the methodology chosen and explain why it was chosen.

2.1 Scientific attitude All human beings have certain attitudes towards the reality and how knowledge is created. These attitudes can have a large influence on how data is gathered and analyzed and the outcomes of the studies. Thus, it is important for the researcher to be aware of existing attitudes and understand how their own attitudes are influencing their choice of method.

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Epistemology is the study of knowledge and the definition of it. In Websters dictionary it is defined as “The theory or science of the method or grounds of knowledge”

11.

A quote of Russell illustrates how difficult philosophers have to understand what knowledge is: "The question how knowledge should be defined is perhaps the most important and difficult of the three with which we shall deal. This may seem surprising: at first sight it might be thought that knowledge might be defined as belief which is in agreement with the facts. The trouble is that no one knows what a belief is, no one knows what a fact is, and no one knows what sort of agreement between them would make a belief true."

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6 Maria Björklund & Ulf Paulsson (2003), Seminarieboken – att skriva, presentera

och opponera, p 11 7 Maria Björklund & Ulf Paulsson (2003), Seminarieboken – att skriva, presentera

och opponera, p 12 8 Maria Björklund & Ulf Paulsson (2003), Seminarieboken – att skriva, presentera

och opponera, p 12-13 9 Maria Björklund & Ulf Paulsson (2003), Seminarieboken – att skriva, presentera

och opponera, p 57 10

Maria Björklund & Ulf Paulsson (2003), Seminarieboken – att skriva, presentera och opponera, p 57 11

http://machaut.uchicago.edu/?resource=Webster%27s&word=epistemology&use1913=on 2013-01-19 12

Bertrand Russell (1926), Theory of Knowledge, (For the Encyclopedia Britannica)

http://machaut.uchicago.edu/?resource=Webster%27s&word=epistemology&use1913=on

http://machaut.uchicago.edu/?resource=Webster%27s&word=epistemology&use1913=on

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A definition of knowledge often attributed to Plato is “justified true belief”13

. This definition has later been challenged by Gettier, proposing two scenarios where the criteria of truth, belief and justification seem to be met but where the reader would not feel the result was knowledge

14, commonly known as the Gettier problem. The

Gettier problem has later been discussed by many philosophers, one of them being Kirkham, explaining Plato’s theory is correct and explaining that to become knowledge an item not only has to be true, justified and believed, but the justification must also be necessary for the truth

15.

2.2 Case studies There are many definitions regarding case studies. One example is “an intensive analysis of an individual unit (as a person or community) stressing developmental factors in relation to environment”

16. Studying single cases allows the observer to

achieve “more detail, richness, completeness and variance – that is depth”17

. Case studies also consider the context, the relationship to the environment. Case studies have been considered as studies where the results cannot be generalized and hence not contributing to the scientific development. Case studies have been considered to be useful only when generating hypothesis; that is in the beginning of the studies. Bent Flyvbjerg finds that case studies have been found in low regard within the academy and he identifies five misconceptions as being the reason for that.

18 After straightening these misconceptions out, Flyvbjerg

summarizes the complementarity of case studies and statistical methods, see figure 1.

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Case studies Statistical methods

Strengths Depth Breadth

High conceptual validity Understanding how widespread a

phenomenon is across a

population

Understanding of context and

process

Measures of correlation for

populations of cases

13

Plato (369 BC), Theaetetus 14

Edmund L. Gettier III (1963), Analysis 23 Is Justified True Belief Knowledge? p 121-123 15 Richard L. Kirkham (1984), Mind, New Series, Vol. 93, No. 372 (Oct., 1984),

Does the Gettier Problem Rest on a Mistake pp. 501-513 16

http://www.merriam-webster.com/dictionary/case%20studies 2013-01-19 (search word case studies) 17

Bent Flyvbjerg (2011), in Norman K. Denzin and Yvonna S. Lincoln, The Sage Handbook of Qualitative Research, p 301 18

Bent Flyvbjerg (2011), in Norman K. Denzin and Yvonna S. Lincoln, The Sage Handbook of Qualitative Research, p 301-316 19

Bent Flyvbjerg (2011), in Norman K. Denzin and Yvonna S. Lincoln, The Sage Handbook of Qualitative Research, p 314

http://www.merriam-webster.com/dictionary/case%20studies

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Understanding of what causes a

phenomenon, linking causes

and outcomes

Establishment of probabilistic

levels of confidence

Fostering new hypotheses and

new research questions

Weaknesses Selection bias may overstate or

understate relationships

Conceptual stretching, by

grouping together dissimilar

cases to get larger samples

Weak understanding of

occurrence in population of

phenomena under study

Weak understanding of context,

process, and causal mechanisms

Statistical significance often

unknown or unclear

Correlation does not imply

causation

Weak mechanisms for fostering

new hypotheses

Figure 1 Complementarity of case studies and statistical methods20

2.3 Quantitative and qualitative methods A quantitative study answers questions like: how often, how many or how common is. Quantitative studies are preferred when the outcome of the study is to be presented in a statistical way.

21 The study often uses surveys and mathematical

models when dealing with quantitative studies22

. When the objective is to understand or identify patterns in the field of study qualitative methods are more appropriate

23. The studies often make use of

interviews and observations24

.

2.4 Induction, deduction, abduction There are different levels of abstraction in research where the theory and the empirics are the endpoints. Induction means the researcher starts with the facts without first having read already existing theories. Deduction starts with theories and the researcher tries to predict the empirics which then should be verified. Figure 2 shows an illustration of the inductive and the deductive approach. Abduction means the researcher is going back and forth the different levels of abstraction.

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20

Bent Flyvbjerg (2011), in Norman K. Denzin and Yvonna S. Lincoln, The Sage Handbook of Qualitative Research, p 314 21

Jan Trost (2001), Enkätboken, p 22 22


Jan Trost (2001), Enkätboken, p 22 24


Maria Björklund & Ulf Paulsson (2003), Seminarieboken – att skriva, presentera och opponera, p 62

22

Figure 2 Illustration of inductive and deductive apporach, after Björklund & Paulsson

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2.5 Validity, reliability, objectivity Validity, reliability and objectivity are measurements of an academic work’s trustworthiness. Validity is a measurement of whether the measurements are covering what is intended to be measured. Reliability is a measurement of the accuracy of the measurements and to what extent the results will be the same if the survey is repeated. Objectivity is concerned with how the researcher’s values are affecting the study.

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Validity and reliability can be illustrated through darts on a dartboard in figure 3

28.

26



Maria Björklund & Ulf Paulsson (2003), Seminarieboken – att skriva, presentera och opponera, p 60

23

Figure 3 Reliability and validity illustrated by darts on a dart board, after Björklund & Paulsson

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The target in research should be to achieve as high validity, reliability and objectivity as possible. High scores on these three parameters always need to be weighted to the amount of resources required.

30

The validity of a study can be increased by approaching the subject from several different perspectives. The reliability of a study can for example be increased by the use of control questions. The objectivity of a study can be increased by clarifying and motivating choices that are done so that the reader himself can evaluate the outcome.

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2.6 Chosen approach The objective of this study is to get a deeper understanding of the context and process of the reasons why Hilti is successful with innovations in general. Due to the nature of the topic a qualitative method in terms of a case study is chosen. This study is a deductive study starting from innovation theories already existing and trying to apply them to the Hilti and the construction industry context. The study should also identify which topics cannot be covered by existing theories and suggest interesting future fields of study. The data gathering method for the theoretical framework and a deeper understanding of innovations is literature studies. The theories covered in this thesis are only those that are found to be relevant for this study. The data regarding Hilti is gathered from Hilti internal documentation, interviews, information available publicly regarding Hilti and to a large extent from knowledge and experience gathered during six years as a Hilti employee in different positions. The

29



Maria Björklund & Ulf Paulsson (2003), Seminarieboken – att skriva, presentera och opponera, p 60-61

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author has herself participated in the development project used in the case study as a product manager in the marketing department at Hilti in Sweden. The theories are later applied to the case study and analyzed. The conclusions include recommendations for future fields of study; either as a result of this study not being able to clarify the topic or as a discovered interesting field to investigate. The project workflow is illustrated in figure 4.

Figure 4 Project workflow

To increase the validity and reliability of this study innovation theories from many researchers are used and the topic is approached from several perspectives. The outcomes of the different authors’ studies, in several aspects, seem to be aligned. The objectivity of this study might be affected by the author’s values based on several years of experience as a Hilti employee which the reader should be aware of when evaluating the outcome.

2.7 Definitions The case in this study is defined as Hilti and the TTM of HIT-CleanTec. The context is defined as the construction sector in which Hilti is a player.

Hilti

TTM-process

HIT-CleanTec case

Innovation theory

Innovation in the construction

sector

Analysis Conclusions

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3 Theory ‘Innovation’ can be defined as “the introduction of something new”

32, “a new idea,

method or device”33

or in many other ways. ‘Innovative’ means “characterized by, tending to, or introducing innovations”

34 and ‘innovativeness’ is the noun

associated with ‘innovative’. Though often considered to be a modern buzzword the eldest known use of the ‘innovative’ can be traced back to 1608

35.

3.1 Diffusion of innovations Rogers defines diffusion as “Diffusion is the process by which an innovation is communicated through certain channels over time among the members of a social system”

36. The four key elements

37 in this definition are

innovation

communicated through certain channels

over time

social system

3.1.1 Innovation The first element, innovation is defined by Rogers as “An innovation is an idea, practice or object that is perceived as new by an individual or other unit of adoption”

38. Innovations are adopter quicker if they have

39

greater relative advantage

compatibility

trialability

observability

less complexity.

3.1.2 Communication channels “A communication channel is the means by which messages get from one individual to another”

40. Communication channels are categorized in mass media

32

http://www.merriam-webster.com/dictionary/innovation?show=0&t=1359020799 2013-01-24 (search word innovation) 33

http://www.merriam-webster.com/dictionary/innovation?show=0&t=1359020799 2013-01-24 (search word innovation) 34

http://www.merriam-webster.com/dictionary/innovativeness 2013-03-01 (search word innovative) 35

http://www.merriam-webster.com/dictionary/innovativeness 2013-03-01 (search word innovative) 36

Everett M. Rogers (2003), Diffusion of Innovations p 5 37



Everett M. Rogers (2003), Diffusion of Innovations p 15-16 40

Everett M. Rogers (2003), Diffusion of Innovations p 18

http://www.merriam-webster.com/dictionary/innovation?show=0&t=1359020799

http://www.merriam-webster.com/dictionary/innovation?show=0&t=1359020799

http://www.merriam-webster.com/dictionary/innovativeness

http://www.merriam-webster.com/dictionary/innovativeness

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and interpersonal channels where mass media channels are found to be more effective when it comes to creating knowledge about an innovation whereas interpersonal channels show to be more effective when it comes to influencing decisions

41.

Another aspect to consider is the extent of homophily or heterophily between individuals who interact. Homophily between individuals who interact means the individuals are very similar in certain terms as e.g. education, beliefs and socioeconomic status. Heterophily is the opposite, explaining to what degree the individuals are different.

42

In general, innovations are not evaluated by individuals on the basis of scientific studies. Most individuals rely on information about the innovation they receive from others.

43

Individuals who are more similar in terms of beliefs, education and socioeconomic status tend to interact more with each other. Communication usually works best when individuals are homophilous but this also means diffusion cannot take place; if there are no differences between two individuals, there is no information to exchange.

44

Some extent of heterophily is always present when diffusion of innovation can take place as knowledge of innovations is usually related to education, socioeconomic status etc. Communication between heterophilous individuals is often more difficult as messages are often inconsistent with beliefs.

45

In systems characterized by a high degree of homophily change agents need to work with opinion leaders on several levels. In systems with high heterophily the change agent can concentrate on only a few opinion leaders on high level.

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3.1.3 Over time There are three important time aspects involved in diffusion

47:

“The innovation decision process (how an individual passes from first knowledge of an innovation to adoption)

The innovativeness of an individual or unit of adoption (the relative earliness/lateness with which an innovation is adopted)

An innovations rate of adoption (number of members who adopt the innovation in a given time period)”

41








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The ‘innovation decision process’, illustrated in figure 5, deals with how individuals pass from first knowledge of an innovation to adoption or rejection

48.

Figure 5 A model of the five stages in the innovation-decision process, after Rogers

49

“Innovativeness is the degree to which an individual or other unit of adoption is relatively early in adopting new ideas than the other members of a system”.

50

Individuals are clustered into five adopter categories, figure 6; innovators (venturesome), early adopters (respect by peers), early majority (deliberate, may interact with peers but no opinion leadership in system), late majority (skeptical) and laggards (traditional)

51.

Figure 6 Adopter Categorization on the Basis of Innovativeness, after Rogers

52

48




Everett M. Rogers (2003), Diffusion of Innovations p 282-285) 52


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The rate of adoption is the speed with which an innovation is adopted, also called the S-curve, figure 7. Different innovations have different S-curves

53.

Figure 7 The Diffusion Process

54

The rate of adoption can be influenced by certain variables shown in figure 8.

55

Figure 8 Variables influencing the Rate of Adoption, after Rogers

56

53



Everett M. Rogers (2003), Diffusion of Innovations p 221-223

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3.1.4 Social system A social system consists of interrelated units (individuals, groups, organizations). It has a structure and established behavior patterns, norms. The structure can simplify or slow down the diffusion of innovations.

57

“Opinion leadership is the degree to which an individual is able to influence other individuals’ attitudes or overt behavior informally in a desired way with relative frequency”

58. Opinion leaders are not the most innovative individuals in a system.

The most innovative individuals often get a status of low credibility as they deviate too much from the social system and hence have little influence on the diffusion of innovations

59.

“A change agent is an individual who influences clients’ innovation-decisions in a direction deemed desirable by a change agency”

60. Change agents usually have

professional training and are heterophilous from their clients. Many change agencies also employ aides, who are homophilous with the average client to support a better communication.

61

There are three main types of innovation decisions

62:

Optional – decisions made independent on decisions made by others

Collective – decisions made by consensus of the members of the system

Authority – someone with higher status or power makes the decision Contingent decisions are decisions to adopt or reject after an earlier decision either to adopt or reject. These can be considered as a forth type of decision.

63

The consequences of innovation-decisions can be

64

Desirable – undesirable

Direct – indirect

Anticipated - unanticipated

3.2 Time to market – the innovation life cycle It takes time before ideas can be made into products that can be launched on markets. The time from idea generation to market introduction is called Time-to-Market. It is important to be first out on the market with new products. Having

56









Everett M. Rogers (2003), Diffusion of Innovations p 30-31

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processes in place supporting efficient product development is a key factor.65

Figure 9 show the innovation life cycle according to Atkins.

Figure 9 Innovation life cycle, after Atkins

66

Several phases can be identified from idea generation to market launch. These are formalized and described in the stage gate process, figure 10

67. The gates are

checkpoints where decisions are made whether to go further with or stop the process, “go, kill, hold or recycle the project”

68. Activities belonging to each stage

can be done simultaneously and not one after the other which allows for time savings during the process.

69

Figure 10 Stage-gate process for managing innovation, after Atkins

70

65

Brian Atkins (1999), Innovation in the Construction Sector p 19 66





Brian Atkins (1999), Innovation in the Construction Sector p 21

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3.3 Technology, innovation and organization Dodgson, Gann and Salter discuss the relationship between innovation technologies, the tools (e.g. simulation tools, virtual reality, data mining, rapid prototyping) that can be used to facilitate innovation

71 and strategic management of

innovations and have summarized their findings in a model, figure 11, describing the impact of innovation technology on strategic management

72.

Figure 11 Impact of innovation technology on strategic management, after Dodgson, Gann & Salter

73

In this model competencies refer to resources or competencies that allow companies to create value and capabilities refers to the kind of elements that help reconfiguration or creation of new competencies

74. The model covers three kinds of

capabilities.

Integrating across boundaries

Organizing internal structures and processes

Learning, creativity and knowledge If innovation technologies are used wisely they can create competencies that are difficult to copy for others and also simplify communication and integration with innovation technologies of others. This allows companies to concentrate on core competencies as complementary technologies are easily accessible.

75

Many companies are going from being product-based to become solution providers. Innovation technology does not push companies either upstream or

71

Mark Dodgson, David Gann, Ammon Salter (2005), Think, Play, Do – Technology Innovation and Organization p 1 72

Mark Dodgson, David Gann, Ammon Salter (2005), Think, Play, Do – Technology Innovation and Organization p 164-166 73



Mark Dodgson, David Gann, Ammon Salter (2005), Think, Play, Do – Technology Innovation and Organization p 165

32

downstream in the value chain but it forces companies to rethink their competencies, skills and expertise. As shown in the model, the challenge extends beyond competencies and includes also capabilities.

76

3.3.1 Integrating across boundaries Integrating across boundaries can have a positive impact both internally and externally. It can help when forming new business relationships and partnership and it can also help internal processes such as integration of engineering, marketing and operations. Information technologies can give companies competitive advantages in integrating with customers, integrating with suppliers, integrating with the science base, integrating with competitors and also in systems integration.

77

3.3.2 Organizing internal structures and processes Innovation and creativity benefit from a different organizational approach than organization of routine operations and production activities. “Innovation tends not to prosper in organizations reliant on highly formal processes and procedures.”

78

Innovative people respond to enthusiasm, opportunity, newness and achievement through delivery. Managers that attempt to plan, direct or coordinate innovative people sometimes fail.

79

Project-based organizations coordinating individuals and coordinating complex innovations seem to be useful for promoting innovation.

80 Long lasting teams can

develop a resistance towards changing innovation processes and many organizations try to achieve rotation in team compositions and high diversity in terms of discipline, nationality and geographical locations

81.

Innovation technology supports teamwork both in teams where individuals are located close to each other and also in teams where the individuals are distributed geographically

82. The use of information technology enables efficient knowledge

exchange but never replaces face-to-face communication and even keen users of electronic tools acknowledge the effective community in which they achieve

76







Mark Dodgson, David Gann, Ammon Salter (2005), Think, Play, Do – Technology Innovation and Organization p 175-176

33

success is highly dependent on personal interaction when it comes to problem solving, idea generation and assessing the quality of the outcome

83.

Engineering in product development organizations is developing to be focusing more on the social and economic impact and consequences of technological solutions which requires new skills in the organizations

84. Especially important are

skills of pattern recognition, applying analogies, multiple insights and thinking systematically

85. Leaders need to have diplomacy and advocacy skills as the need

to influence people in other organizations where they lack direct organizational sanction

86.

3.3.3 Learning, creativity and knowledge Innovation technologies can be used to codify tacit knowledge. It is easier to share codified knowledge with colleagues and codified knowledge also facilitates learning in the organization. However, no matter how much knowledge is codified, managers agree that there is always a last bit of a tacit element which ultimately might be the element defining competitive advantage.

87

Innovation technologies can automate ordinary repetitive tasks and free up time to develop and share ideas for creative people

88. Innovation technologies encourage

work styles that are collaborative, networked and distributed which in turn facilitates learning and creativity

89.

3.4 Innovation in the construction sector Innovation literature is mainly focusing on the manufacturing industry. The construction sector differs from manufacturing by several factors. The size of the product, the building, is large, complex and has a long lifetime. The buildings are built by individuals from several different organizations which form a temporary alliance for the time of the project.

90

83








E. Sarah Slaughter (1998), Models of Construction Innovation p 227

34

The size of the buildings makes it difficult to test ideas that require full-scale prototypes. The complexity of the different parts all being dependent on each other also make it difficult to implement changes as these can affect other part of the building. The long life time of the buildings also makes it important for the new solutions, the innovations, to be lasting over a very long period of time. Explicit attention needs to be addressed to potential failures and the possibility to extract, repair or modify the innovation during the life time of the building.

91

The alliances formed on specific projects are usually tied to that project only and not repeated on other projects. Innovation in the construction sector that requires adaptation of other system components necessitates a higher degree of negotiation between organizations than in manufacturing.

92

Building constructions have a direct influence on the health, safety and well-being of people and are hence covered by codes and regulations to a large extent. In the manufacturing industry products are evaluated by their performance and not prescribed in the design as in the construction sector. The organization, scale, complexity, life time and legal framework generate a different context for construction companies.

93

The construction sector is well-established with strong local tradition and culture

94.

It is considered to be a low-technology sector with large price competition, low levels of entering the business and low investments in innovations. Innovation in the construction sector is mainly driven by product introductions by suppliers.

95

In the construction sector the building owners, the clients of the final products, are often heavily involved in decision making on technical matters and sometimes share a large risk

96. Failure for a small company is not limited to lost profits; the

consequence can be that the company goes out of business97

. Despite the customers significant role in the design of the final product, market conditions are found to be one of the main reasons for not to innovate

98.

As potential failure has serious consequences and often large costs, building owners with a limited understanding of the technology prefer a conservative

91

E. Sarah Slaughter (1998), Models of Construction Innovation p 227 92



Geroge Saeden and André Manseau (2001), Public policy and construction innovation p 183 95

Toke Reichstein, Ammon J. Salter, David M. Gann (2005), Last among equals: a comparison of innovation in construction, services and manufacturing in the UK p 631 96

C. H. Nam and C. B. Tatum (1997), Leaders and champions for construction innovation p 263 97


Toke Reichstein, Ammon J. Salter, David M. Gann (2005), Last among equals: a comparison of innovation in construction, services and manufacturing in the UK p 633-639

35

approach to innovation. Building owners with good understanding of technology have a progressive impact on use of innovations.

99

The environment in which construction firms operate with the high amount of specialist and high level of uncertainty promotes a culture of passing on risks and charging additional work arising to clients. The tradition of this opportunistic behavior does not encourage innovation.

100

Innovative solutions in the construction industry in many cases might require substantial investments. The fluctuation in the demand in the construction sector makes it difficult to amortize innovative ideas on several projects.

101

3.4.1 Project based companies The construction sector is to a large extent project based. Teams are formed and work on projects for a limited time and the workers, supervisors and engineers move on to new challenges with new team constellations. The temporary nature undermines the transfer of learning form one project to another.

102 Problems

occurring on job sites are often not foreseen and for the solutions to become true innovations they would need to be “learned, codified and applied to future

projects”103.

Communication in project-based companies often relies on informal channels between project groups. Knowledge needs to be codified in order to be transferrable to other organizations, which seldom happens in informal channels. The complexity also affects the degree to which knowledge can be spread, the simpler the message gets the easier it becomes to make it spread. Knowledge sharing between firms is most effective in long term relationships.

104

Innovation does not occur simply by transferring knowledge. The organization needs “to be able to recognize the value of knowledge and apply it strategically”

105.

The organization also needs to have an ‘absorptive capacity’ meaning the turnover of staff, the internal and external communication structures and political and

99


James Barlow (2000) Innovation and learning in complex offshore construction projects p 986 101

Andreas Hartmann (2006), The context of innovation management in construction firms p 574 102

Toke Reichstein, Ammon J. Salter, David M. Gann (2005), Last among equals: a comparison of innovation in construction, services and manufacturing in the UK p 631 103

Martin Sexton, Peter Barrett (2003), A literature synthesis of innovation in small construction firms: insights, ambiguities and questions p 615 104


James Barlow (2000) Innovation and learning in complex offshore construction projects p 979

36

cultural environments are important factors106

where non-hierarchical communication structures enhance innovative behavior

107. The role of champions

in project-based firms as an organizational ‘memory’ and integration of project experiences with continuous business processes are other influential factors.

108

As two projects never are the same, project-based firms’ work is always unique and project-based firms should behave like innovative firms

109. Despite the large

opportunities for innovation, companies in the construction sector are not always good at adopting new processes and products

110. The focus usually lies on how to

manage projects and not on how to manage innovation which is often seen as costly and dangerous instead of universally useful

111.

3.4.2 Acting on precipitating events The generic innovation model, figure 12, explains how “innovation ‘outcomes’ are achieved through an appropriate innovation ‘focus’ that is responsive to ‘contextual factors’, realized by appropriate organizational ‘capabilities’ and channeled through effective and efficient innovation ‘processes’”

112.

Figure 12 Generic innovation model, after Sexton & Barrett

113

106




Anne Keegan and J. Rodney Turner (2002), The Management of Innovation in Project-Based Firms p 371 110

Geroge Saeden and André Manseau (2001), Public policy and construction innovation p 186 111



Martin Sexton, Peter Barrett (2003), A literature synthesis of innovation in small construction firms: insights, ambiguities and questions p 614

37

When it comes to the context there are two main schools of thought regarding the driving forces for innovation: the market-based view and the resource-based view

114. The market-based view claims that firms innovate to capitalize on

changing market conditions. “Innovative firms tend to have the organizational aptitude and capability to be sensitive to these precipitating events and perceive them as imperatives/opportunities for pursuing innovation activity; conversely, non-innovative firms tend not to notice or act upon these activities.”

115 Innovative firms

pick up signals in their external and internal environment and act upon these to create foundations for successful innovation.

116

The resource-based view tries to bridge the gap between internal organizational capabilities and external competitive strategy

117. A synthesis in recent research of

the market-driven and the resource-based view is: “resource endowments may determine strategy success, strategy choice is… restricted by market structure”

118.

Figure 13 Synthesis of market-based and resource-based views of innovation, after Sexton & Barrett

119

114




Martin Sexton, Peter Barrett (2003), A literature synthesis of innovation in small construction firms: insights, ambiguities and questions p 615-616 118



38

Linking the synthesis of the market-based and the resource-based views of innovation with the impact of precipitating events shows that it is important to create a balance between the market-pull and resource-push in order to achieve an ‘Appropriate innovation focus’, see figure 13.

120 “Innovative firms are those that

can sense and act upon ‘precipitating events’ in both external market conditions and internal resource conditions in appropriately balanced and integrated fashion”

121. To successfully foster innovation, information needs to be gathered and

gained but not to be accumulated and stored. Innovation occurs when information is created by ongoing circles of exchange.

122

The capabilities of a firm that support and facilitate innovation strategies can be categorized in cognitive and organizational capabilities. Cognitive capabilities of people are the extent to which individuals are able to be receptive to innovation and to innovate as ideas are the foundation of innovation. Individuals need to understand when to manage steady state activities and when innovation is required.

123 The challenge of knowing when to switch from one state to the other is

called the “management of attention”124

. Management of attention is difficult as people adapt to the environment in the long run. The process of switching cognitive gears is illustrated in figure 14.

Figure 14 Switching cognitive gears, after Sexton & Barrett

125

120





Van de Ven (1986), Central problems in the management of innovation p 590-607 125


39

“The challenge for organizations is getting people to pay attention to the creation of new ideas instead of the protection of existing practices.”

126 This can be done by

an innovation champion who “envisions and motivates others to positively buy into the idea or at least allow it safe passage”

127. The presence of a sponsor, “a senior

manager who symbolically nurtures and protects the innovation from political forces within the organization that are hostile to the innovation”

128, also has a significant

impact. The presence of a senior sponsor is dependent on the capability of senior management to “recognize the potential of a proposed innovation”

129.

Organizational capabilities can be grouped into functional and integrative capabilities. Functional capabilities are those that deepen a firm’s knowledge base and integrative capabilities broaden the knowledge base through capturing, blending and disseminating knowledge. Knowledge can be explicit or tacit and is gained through experiential learning. Innovative firms recognize learning as vital for long term competitiveness.

130

To allow learning a certain amount of ‘slack’, the “pool of resources in an organization that is in excess of the minimum necessary to produce a given level of organizational output”

131, is argued to be necessary. There is an inverted U-shaped

relationship between slack and organizational output. Too much slack encourages unfocused and wasteful innovation and too little slack does not allow risk-taking and experimentation.

132 When companies experience periods with little innovation

more resources are added but when the results emerge too slow the slack is seen as negative and inefficient and hence the added resources are removed which can create an accordion effect

133.

3.4.3 Factors influencing innovative behavior of small construction companies

Three main reasons are identified as motivational for small construction companies to innovate

134. These can be seen in figure 15.

126









Martin Sexton, Peter Barrett (2003), Appropriate innovation in small construction firms p 626

40

1. ‘Survival’ – due to the market conditions, lack of organizational resources

and slack small companies focus on survival 2. ‘Stability’ – once survival is achieved companies can consolidate and

stabilize their position and ensure mid-term steady-state conditions 3. ‘Development’ – when mid-term stability is achieved companies can find

the motivation to develop and grow135

Figure 15 Hierarchy of motivational drivers for innovation, after Sexton & Barrett

136

For small construction companies the organizational factors critical to innovation can be summarized in the model in figure 16

137. The model shows that the ‘content’

of the innovation as well as the ‘process’ and ‘context’ are important factors for small construction firms

138.

135

Martin Sexton, Peter Barrett (2003), Appropriate innovation in small construction firms p 626-627 136

Martin Sexton, Peter Barrett (2003), Appropriate innovation in small construction firms p 627 137



41

Figure 16 Organizational factors of innovation model, after Sexton & Barrett

139

‘given environment’ – the business environment influencing companies which companies cannot influence

‘interaction environment’ – the business environment that companies can influence and interact with

‘business strategy’ – the purpose and long term direction of the company

‘market positioning’ – the orientation towards desired target markets in order to achieve sustainable profitability

‘technology’ – the machines, tools and work routines used together with information inputs

‘people’ – the individuals necessary to perform a variety of tasks having knowledge, skills and motivation

‘organization of work’ – the creation and co-ordination of project teams and networks both within and outside of the company

140

In small firms the innovation activities are often triggered by external factors. The owners prioritize and filter these triggers

141. As the owners have a dominant role

quick decision-making and innovation activity is allowed142

. If the owner does not

139





42

have the vision and systemic thinking the dominant role of the owner can become a constraint to innovation activity

143.

3.4.4 Organizational learning Organizational learning is “the process of improving actions through better knowledge and understanding”

144. There are two types of organizational learning,

single-loop and double-loop. Single-loop learning occurs when individuals respond to changes and correct their errors in order to maintain organizational norms and purposes. Double-loop learning includes questioning the current assumptions in order to establish new organizational norms and assumptions.

145

The only lasting resource of competitive advantage is knowledge

146. Companies

that are able to improve learning from experience and empower the employees to make use of corporate information of lessons learned learn faster than competitors

147.

Evaluation, or feedback, plays an important role in organizational learning as decisions can be based on objective information, credible answers and an understanding of the effects of the activities and the reasons for success or failure

148.

Lessons learned transform to knowledge when they are “analyzed, systematized, disseminated and internalized within an organization through evaluative processes”

149. Evaluation supports behavioral and attitudinal change amongst

individuals affected by the change processes and reduces the resistance to change. By communicating the outcome of the gathered and analyzed information effectively it becomes easier to adapt the organization to external and internal changes.

150

“Organizational learning and innovation are ‘intangible’ resources as they are difficult to imitate”

151. Organizational learning is a kind of capital and a source of

143


Maria Vakola and Yacine Rezgui (2000), Organizational learning and innovation in the construction industry p 175 145


P. Drucker (1988), The coming of the new organization p 45-53 147

Maria Vakola and Yacine Rezgui (2000), Organizational learning and innovation in the construction industry p 174-175 148




Maria Vakola and Yacine Rezgui (2000), Organizational learning and innovation in the construction industry p 177

43

competitive advantage152

. Innovation has a dynamic nature. “An innovative firm is not a stable solution to achieve, but a developmental process to keep active.”

153 An

organizations ability to continuously change is necessary for survival154

.

3.4.5 Impact of intra-organizational knowledge interaction activities Successful innovation in small construction companies is characterized by ‘project pull’ individual-organization-individual knowledge spirals which create “dynamic project and/or client driven knowledge capital”

155. The left part of figure 17 shows

how project requirements pull ‘organizational knowledge’ and ‘individual knowledge’ to form ‘project individual knowledge’. When the ‘project individual knowledge’ is integrated and leveraged upon ‘project team knowledge’ is created.

156

The right parts of figure 17 show the feedback spiral where ‘project team knowledge’ develops ‘project individual knowledge’ which enhance ‘individual and organizational knowledge’. The basis for successive spirals is “tacit, experiential knowledge accumulation and learning”

157.

Figure 17 Successful innovation driven by operational focus, after Lu & Sexton

158

152




Shu-Ling Lu & Martin Sexton (2009), Innovation in Small Professional Practices in the Built Environment p 160 156



Shu-Ling Lu & Martin Sexton (2009), Innovation in Small Professional Practices in the Built Environment p 161

44

Unsuccessful innovation is characterized by ‘organizational push’ of “’social’ non-project and/or non-client-driven knowledge capital being ‘rejected’ by day-to-day project priorities and activities”

159. The individual-organization-individual knowledge

spiral does not happen and innovation fails.160

When generic ‘organizational knowledge’ is ‘pushed’, see figure 18, into a project team setting without adaptation to meet project specific needs and with no project needs ‘pulling’ individual and organizational knowledge together, ‘organizational knowledge’ does not benefit from ‘individual knowledge’ and tacit understanding. The feedback loop does not take place and the ‘organizational knowledge’ is ‘rejected’ by the project.

161

Figure 18 Unsuccessful innovation driven by social focus, after Lu & Sexton

162

3.4.6 Individuals leading innovation – champions Individuals have an important role in innovation. Individuals who are highly committed and enthusiastic and willing to take risks and make special efforts have a great influence on the process of innovation

163. Inventors/entrepreneurs who are

159





C. H. Nam and C. B. Tatum (1997), Leaders and champions for construction innovation p 260

45

“need or achievement oriented, experts and fanatics”164

, enjoy flexibility and quickness and underestimate obstacles and time required to succeed are crucial for innovation

165.

These kinds of individuals often become champions leading innovation

166. To a

certain extent, the role of specific individuals sometimes seems so crucial to the project that an absence of that specific individual might have caused delay or even prevented success of an innovation

167. There are three types of champions and

their role must be linked with the entrepreneurial function.168

The technical champion – carries the idea from concept to development into product or process

The business champion – provides the business framework, the business case

The executive champion – “sponsors the idea at highest level, using his/her power to protect it, move it along and seize the opportunity to exploit it

169”

Innovation in the construction sector is often based on experiences on past projects and managers recognize technical proficiency of individuals as an underlying requirement for successful innovation. These individuals do not, however, have the strongest educational background or most extensive experience.

170

It shows to be more important to allow the champions to have a certain amount of slack in terms of time or funds and power. The slack needs to be limited to avoid disproportionally increased costs.

171 Another important factor is to have committed

top managers who personally push projects through. As the consequences of failure are very high in the construction sector, technical competence of top managers is a necessity for efficient decision making regarding innovations.

172

164








C. H. Nam and C. B. Tatum (1997), Leaders and champions for construction innovation p 267-269 172

C. H. Nam and C. B. Tatum (1997), Leaders and champions for construction innovation p 268

46

3.4.7 Team members, leadership & culture Team members that are highly interested in the project and fully committed until the innovation has been successfully implemented; show to be a key factor for the innovation

173. Team members with a positive attitude regarding alternative

approaches, with necessary skills and capability of working in teams are also found to be important

174.

Effective and strong leadership and in particular technology leadership is essential. Management must be determined to commit the required resources to the project and should also have the vision and ability to recognize forces and opportunities for innovation.

175 Many managers have a limited view of their role in the innovation

process and believe they should not be personally involved in engineering176

. The large impact of failure in construction makes technical understanding of managers necessary for efficient decision making in the innovation process in construction

177.

A company culture with supportive policies and priorities and a no blame attitude from management motivates employees to experiment

178.

There are several barriers, constraints, to innovation. Organizational rigidity and complexity, excessive bureaucracy (formalization), top management isolation (centralization), excessive rationalism, intolerance of fanatics, short time horizons and inappropriate incentives are identified as the most notable ones.

179

Important factors facilitating innovation are a supportive atmosphere, small and flat organizations, market orientation, use of multiple approaches and interactive learning. Innovation does not need detailed planning, excessive rationalism and cumbersome procedures.

180

“Climate, direction, commitment and knowledge management”

181 are key factors

for successful innovation.182

“Longer strategic horizons, risk tolerance and

173

Florence Yean Yng Ling (2003), Managing the implementation of construction innovations p 645-646 174

Florence Yean Yng Ling (2003), Managing the implementation of construction innovations p 646 175

Florence Yean Yng Ling (2003), Managing the implementation of construction innovations p 646-647 176



Florence Yean Yng Ling (2003), Managing the implementation of construction innovations p 637 179




47

management, vertical integration of decision-making processes, flexible organizational structures and proper matching of personnel to roles”

183 are also

stressed as important.184

A positive effect on a firm’s innovative practices can be seen from developing the skills/knowledge of the employees and using multi-skilled teams. Hiring experienced employees, shows to have a negative effect on the innovative practices.

185 Inhibiting factors are also centralization and formalization of work

186.

Several studies identify specific characteristics of corporate culture and leadership as deterministic for a company’s innovativeness. Corporate cultures where employees are encouraged to question the usual ways of doing things and where bad ideas of innovative employees are not punished and conflicts are accepted and handled constructively promote innovativeness

187.

Innovation in the construction industry often involves individuals from several organizations. Personal characteristics facilitating cooperation between organizations with different culture and structures are empathy, negotiation skills and self-confidence.

188

3.4.8 Motivation by senior management commitment ‘Senior management commitment’ is crucial for motivating employees to engage in the individual-organization-individual knowledge accumulation and learning which is a prerequisite for innovation.

189 Involvement and commitment of senior

management encourages staff to get involved in innovation activities.190

“Senior management commitment to appropriate ‘leadership’ is necessary to generate an inclusive, galvanizing strategic vision which balances and progresses both individual and organizational needs within a project-based setting; and, which empowers knowledge workers to meaningfully ‘participate’ in the innovation

182




George Seaden, Michael Guolla, Jerome Doutriaux and John Nash (2002), Strategic decisions and innovation in construction firms p 609 186




Shu-Ling Lu & Martin Sexton (2009), Innovation in Small Professional Practices in the Built Environment p 160-162 190


48

process and to delegate appropriate ‘ownership’ and ‘accountability’ of the innovation to encourage its enduring relevance and success.”

191 An ideal

integration of individual and organizational needs can be seen in figure 19.

Figure 19 An ideal integration of individual and organizational needs, after Lu & Sexton

192

Management capabilities of managing all aspects of the innovation process and effective communication within and between project teams are two aspects identified as important in bringing innovation around.

193 Management needs to

appropriately promote and resource innovation activities otherwise the innovation will fade and employees will see future innovation activities doomed to failure

194.

Management needs to assure there are adequate capabilities for the innovation activities. If these are not present within the company they should be brought in from external expertise. The capabilities brought in from external expertise should

191





49

be transferred to the company in such a way that they are available after the external agent is gone.

195

3.4.9 Strategy giving a competitive edge Innovativeness is linked to greater competitive advantage and higher profitability

196.

“Innovative firms have a strong sense of strategic intent by responding quickly to market changes and thinking of future opportunities.”

197 Innovative firms hire highly

skilled people and act as receptors and users of knowledge; they also have relationships with sources of necessary information.

198

A positive effect on a firm’s innovative behavior can also be seen if innovativeness is part of the corporate strategy and there is a managerial aim to enhance the competitiveness of a company.

199

195





Andreas Hartmann (2006), The context of innovation management in construction firms p 569-571

51

4 Hilti and innovation processes at Hilti Hilti offers tools, consumables and professional services to construction professionals worldwide. Despite being a player in a trade where diffusion of innovations is very slow, Hilti is often considered to be a highly innovative company. 2011 Hilti was recognized as one of the Top 100 most innovative companies in the world on the Global Innovator list

200 by Thompson Reuters.

4.1 Hilti through history Hilti is a family owned company founded by Martin, figure 20, and Eugen Hilti 1941 in Liechtenstein, figure 21. The first years the company produced mechanical components and commissioned parts and supplies. 1948 the company started the development of the first direct fastening systems. The fastening system was primarily developed to fasten metal to metal by shooting powder actuated nails through the metal to be fastened into the base metal. This system has been further developed to be working also for fastenings in concrete which made it a revolution for the construction sector.

Figure 20 Martin Hilti

Figure 21 Liechtenstein in Europe

The first foreign representative office was created 1952 in Italy. After that followed expansion also to other countries and by 1960 Hilti had local representatives in Finland, Norway, Germany, Denmark, the Netherlands, Canada, Portugal, Austria,

200

http://top100innovators.com/2011-list.php 2013-01-19

Liechtenstein

http://top100innovators.com/2011-list.php

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France, Australia, the United States, South Africa, Sweden, Ireland, Peru, Great Britain and Switzerland. In the early days all development and production was located to Liechtenstein but from 1960 and onwards Hilti started the build-up of production facilities also in other countries, first Austria and Germany but later also in the United States. During 1980 the Martin Hilti family trust was created and all shares of the Hilti family were deposited to long term safeguard the Corporation. Hilti went public 1986 in the Swiss market but to further secure independence, in 2003, the Martin Hilti family trust purchased the publicly held stock back and Hilti once again became a family owned company, now with a family trust with very strong statues guaranteeing the wellbeing of the company for the future. Hilti sales have grown steadily over the past decades with an exception of the crisis that hit the world economy in the beginning of 1990-ies. See figure 22.

Figure 22 Hilti sales growth 1950-2011, million CHF

4.1.1 Hilti in Sweden In 1957 Nordisk Trading started selling Hilti products on the Swedish market and was finally acquired by Hilti and incorporated as a market organization in the Hilti Corporation in the early 1990-ies. The main office in Sweden is situated in Arlöv and so is the central warehouse and repair center for the Swedish and Danish market organizations.

4.2 Hilti today Today Hilti has worldwide presence with more than 20 000 employees in over 120 countries. Michael Hilti, figure 23, son of Martin Hilti, is a trustee of the Martin Hilti family trust. Michael Hilti became Chairman of the Board of Directors 1994 but passed that position over to Dr. Pius Baschera in January 2007 and continued as a member of the Board of Directors.

0

1000

2000

3000

4000

5000

1950 1960 1970 1980 1990 2000 2011

53

Figure 23 Michael Hilti

4.2.1 Organization Hilti’s headquarter is allocated in Schaan, Liechtenstein, and corporate functions are concentrated to Liechtenstein and surroundings. Figure 24 shows plant 1 in Leichtenstein which is also the main office. The product development departments are nowadays mostly located in Kaufering in Germany except for a few which still are in Liechtenstein where a new Innovation center is being built. By today, Hilti production facilities are also present in the Czech Republic, Mexico, China, Australia and India.

Figure 24 Hilti main office, Plant 1, Schaan, Liechtenstein

The product development and production functions all report directly to corporate level. To assure a close relationship with customers Hilti’s sales representatives, Account Managers (AM), all belong to Market Organizations, MO’s. Market Organizations are usually tied to the countries the Account Managers operate in. Market organizations are clustered together in hubs. MO Sweden belongs to hub E1, Europe 1, together with Great Britain, Ireland, Denmark, Finland and Norway. Hub E1’s headquarter is in Manchester, Great Britain. The marketing departments within Hilti operate both on corporate, hub and MO level. Figure 25 shows an overview of the organization. On corporate and MO level, marketing focuses on product marketing with Product Managers, PM’s, while the hub level also includes expertise on sub segmented customer groups, taken care of by Trade Managers.

54

Figure 25 Hilti Group organization

201

The Hilti Group is still privately owned. According to Bo Risberg, Hilti CEO 2007-2012: “We know what we can do and where we want to go and we have a certain something that many other companies envy. We are owned by a family trust which is oriented towards the long term. We also have a motivated and competent worldwide team, innovative products and services, as well as the courage and ability to change and adapt to a shifting framework. This gives us what we need to generate sustainable success, even in a volatile environment.”

202

4.2.2 Product and services portfolio Hilti is mostly recognized for tools; rotary hammers, breakers, screw and impact drives, direct fastening, etc. What is not that commonly known about Hilti is that consumables in terms of building materials constitute a large share of sales. The main product lines in terms of consumables are anchoring systems, screws, pipe hanging systems (channels, brackets, pipe rings) and passive fire prevention products. Besides products Hilti also offers “professional services” ranging from engineering services in terms of help with design and specification to Lifetime Service on tools, repair service, customer trainings and advice on jobsite and Fleet Management of the customers’ tool fleets. Figure 26 shows an overview of the Hilti products and services range.

201

The Hilti Group Corporate Presentation March 2012 p 7 202

2011 Company Report p 9

55

Figure 26 Overview of Hilti product and services range

203

4.2.3 Market reach Hilti has five sales channels; Account Managers, Customer Service, Hilti Online, Hilti Centers (shop) and Hilti ProShops (shop-in-shop concept)

204, illustrated in

figure 27. Hilti products cannot be found at resellers. Hilti works solely with a direct sales model where all people involved in representing Hilti in front of a customer are Hilti employees.

Figure 27 Hilti Sales Channels

205

203



The Hilti Group Corporate Presentation March 2012 p 13

56

As an example MO Sweden has 100 Account Managers organized in 14 regions, covering all of the country. 12 employees answer the phone in customer service and one person takes care of Hilti online. To reach also the engineering community doing the design and specifications of buildings 12 field engineers and 3 project engineers support the other sales channels. MO Sweden has 14 Hilti Centers, mainly allocated to the big cities in the country. ProShops have never been introduced in Sweden. Together Hilti sales channels account for over 200 000 customer interactions per day, worldwide

206, divided by channel in figure 28.

Figure 28 Customer contacts per day

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The majority of the account managers work with single, sub-segmented groups of customers. The main trades Hilti in Sweden segments customers into are General Contractors, Installation (pipe hanging and electrical), Steel and Metal, Civil Engineering, Diamond Service Contractors and Fire Stop Specialist.

4.2.4 Investments in technology & cooperation with universities Hilti invests over 1 billion SEK yearly in development. Besides internal development Hilti is continuously monitoring the technology development also outside of the company to spot relevant and interesting project where the company can benefit. Several interesting technologies have been acquired to the company this way. Hilti cooperates with universities where necessary to assure the development is based on latest science. Examples of past cooperation include development of new calculation models for anchoring in concrete and post-installment of rebar in concrete using injection mortars.

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Hilti koncernen – Företagspresentation Jan 2012 p 22

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4.2.5 Information and communication Hilti uses an intranet available in almost all markets which contains product and applications information. Depending on what function an individual has at the company, different parts of the intranet are accessible.

4.3 Business model The Hilti Business Model explains how Hilti’s values, strategies and processes are connected together and which way Hilti believes is the correct way to achieve sustainable, profitable growth. The Hilti business model can be seen in figure 29.

Figure 29 Hilti Business Model

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The business model starts with the company purpose and values. The purpose, the reason for existence, has been formulated as: “We passionately create enthusiastic customers and build a better future”

209. The four Values are the foundation of the

corporate culture. The values are: Teamwork, Integrity, Courage and Commitment

210.

Teamwork is essential to the success of the company and reward systems are to a large extent built on team results, “We don’t want prima donnas here” says Michael Hilti. Integrity includes honesty and predictability and a total ban on corruption in any cases, even if it has meant lost business. Courage means to look into the mirror, manage oneself and change and break out of the circle of habits.

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Commitment shows in the employees’ dedication to the firm and to achieving the goals.

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Hilti invests a lot in people offering long term career opportunities worldwide

212. To

assure everyone understands the corporate culture and the company values Hilti invests 32 000 working days per year in corporate culture workshops, OCJ, Our Culture Journey

213. The goal of OCJ is to assure all 200 000 customer contacts per

day are with high quality214

. In 1996 the Champion 3C Corporate Strategy was introduced

215, see figure 30. The

target of this strategy is to achieve a leadership position through the 3 C’s. Hilti wants to be the customers’ best partner by actions driven by customer needs, competent in terms of excelling in innovation, total quality, direct customer relationships and effective marketing, and also to concentrate on products and markets where a leadership position can be achieved and sustained.

Figure 30 Strategy Champion 3C

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The business processes, Product Portfolio Management, Market Reach, Supply Chain Management and Professional Services all begin in the Customer Needs. On Team Camp 4 of Our Culture Journey, all Hilti employees discussed the topic of one customer coming to the conclusion all Hilti employees are to serve the

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Tim Hindle, Briefings on Talent And Leadership (Q4/2011), Global player from a very small country – The Case of Hilti p 65 212






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customer who is the paying customer. At Hilti there are no internal customers and all employees work together. By delivering Innovative and Value Adding Solutions Hilti achieves Customer Satisfaction, Employee Satisfaction, Partner and Supplier Satisfaction and a Positive Influence on Society and Environment, all in the end leading to Sustainable and Profitable Growth. Continuous improvement is assured through a feedback loop with Management and Support.

4.4 People, people development and feedback During the recruitment process Hilti is looking more into whether an individual will fit into the culture and be able to contribute positively to reach the company goals than on formal educational background. Hilti has a target of reaching a level where 90% of all leadership positions are filled with internal candidates and to be able to reach that many individuals entering the company should be candidates that have the potential to develop into future leaders. An absolute requirement is that candidates approve of the values; teamwork, integrity, courage and commitment. Hilti focuses much on coaching and development of people. Early each year every employee discusses and agrees yearly targets with his/her manager. These are followed up during the year and at the end of the year an evaluation is done regarding target achievement. All employees also have continuous dialogs with their management regarding career development, individual wishes and what measures need to be taken to achieve individual goals. Some employees choose to stay in their positions for decades and others prefer moving on, either vertically or horizontally in the organization. Hilti encourages a feedback culture both in terms of giving and receiving feedback. At all levels employees are encouraged to ask for feedback and to seriously consider how they can improve based on that feedback. Hilti measures employee satisfaction worldwide in a yearly anonymous survey, GEOS, Global Employee Opinion Survey, conducted by an external institute. The outcome of the survey is discussed on team basis and action points are agreed together with management on topics where the teams want to improve. In addition to this many market organizations participate in national employee satisfaction surveys, like e.g. Great Place to Work. Hilti in Sweden ranked #6 in the category of large companies 2012

217. 2013 Hilti in Sweden was awarded the TrustStar Award

for showing the best improvement and ended up on second place amongst large companies in Sweden

218.

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http://www.greatplacetowork.se/baesta-arbetsplatser/sveriges-baesta-arbetsplatser 2013-04-06 218

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4.5 Innovation is emotion Innovation has many dimensions. According to Bo Risberg, CEO of the Hilti Corporation 2007-2012, one of the dimensions is emotion: “When I meet with our developmental engineers, I sense a passion in them that they may not consciously detect… …I see a similar passion in our product managers in individual countries and at our headquarters in Liechtenstein… …The inner spark is transferred to our salespeople, our employees in Hilti Centers… …and in telephone-based customer service. It’s nice to be able to offer the customer the highest quality… …It means a great deal to us to share this passion, that forms the basis for each innovation and success we experience, with others.”

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4.6 TTM-process The TTM-process, at Hilti defined as Time to Money, in one of the process documents is headlined by “Delight our customers… shock the competition”

220.

The TTM-process has six milestones called gates and five phases, see figure 31. At each Gate there is a defined list of deliverables required in order to proceed to the next Phase. All deliverables are described in process documents. The decision to proceed is based on positive answers to a number of questions that need to be addressed at each gate.

Figure 31 The TTM Process

A TTM always involves two or three Lead MO’s, Market Organizations that are chosen for the customer input. The selection of the MO’s is dependent on the relevance of the customer and MO input but also MO resources.

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The magazine of the Hilti Group 2/2007 p 3 220

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4.6.1 Gates The process description specifies all key deliverables and the deadlines for the deliveries. It is up to the team to work out a plan on how to reach the deliverables and decide in which order the necessary activities should be performed. At each gate there are several questions that need to be answered with Yes in order for the project to continue to the next phase. Different gates have different sets of key deliverables and key questions. Depending on the answers to those questions following decisions can be the outcome, figure 32 show an example from Gate 2.

Figure 32 Decision by BU at Gate 2

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Each TTM begins with an idea. The origin of the idea can come from many sources, marketing, customers, sales, development etc. If the idea is found to be interesting to explore a BOD is prepared and discussed in G1. If the project passes to the next phase, the definition phase, it is time to define the requirements of the product and what has to be done, the Product System Vision. The Product System Vision also includes a global marketing strategy for the product. When a project passes G2 it enters the concept phase during which the Customer Acceptance Test, CAT, is performed. This involves letting customers try the tools or consumables and give feedback. The feedback is collected in a structured way with defined questionnaires answered during customer visits. A lot of effort is put into the CAT. The customers are visited by BU and MO PM’s but also by representatives from the development departments. At this stage the marketing strategies in the Lead MO’s are developed and targets are set. Together with a detailed technical description of the product these comprise the Product Solution, which is discussed in G3. After G3 the Marketing Plans from the Lead MO’s need to be finalized. From a development perspective working prototypes need to be in place and the quality of the product needs to be guaranteed in order to pass G4.

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During the Launch Preparation Phase the quality in the serial production needs to be checked and guaranteed. At this stage the products need to pass the “field test” – they need to be tested by customers working with the relevant applications on job sites. These tests need to be passed with positive feedback before the project will be allowed to enter G5. From a marketing perspective the market launch plans need to be ready for execution and an Early Warning System needs to be in place before entering G5. G5 is the final gate that needs to be passed before the product is allowed on any market. The first markets to launch are the Lead MO’s. The Lead MO’s monitor the development closely and give feedback to the BU’s if any kind of improvement activities might be required. The BU’s steer the launches in other MO’s depending on the experiences from the markets that have already launched. Before entering G6, the final gate in the TTM-process, a Customer Satisfaction Test, CUSAT, needs to be performed in the Lead MO’s. A Gap Analysis is done where a comparison with the targets set at G3 is performed. If all key questions at this gate are answered with Yes then the project can be concluded and the project team dissolved. If not the project team must make additional efforts to reach conclusion. The results and learning from G6 are fed back to the organization and new TTM’s.

4.6.2 Value proposition The development of the value proposition is the red thread through the PPM. The goal is to describe the added value the customer gets in a clear, consistent and concise message.

The value proposition starts in the application and customer needs and is an important aspect already in the early stages of decision making. The value

Pre-phase (definition/research/technology)

TTM G1 G3 G5

Product

maintenance

Phase

out

V P a s r e d t h r e a d

Business unit Strategies

Brand Identity

Trade Strategies

Challenge & Prioritize

Specify & Compromise

Customer/field input

Final confirmation

Figure 33 Value proposition as red thread

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proposition of products affects the strategies for different business units and trades and also the brand identity. Once the strategies are set, the products that are developed should fit into the agreed upon direction. This is illustrated in figure 33. During the development process challenges can be expected. The challenges can show as limitations of technology or divergent needs from different customer groups or even single users. Depending on the nature of the challenges relevant decisions need to be made in order to proceed with the project.

4.6.3 The TTM team The TTM team consists of members from several departments like marketing, development, supply chain and quality, see figure 34. The steering bodies are the Business Unit management team or the Business Unit management team and the product board, consisting of corporate top level management.

Figure 34 The TTM team

The TTM team presents the business case and the deliverables to the steering bodies including good and bad news but also possible risks. The presentation includes a clear recommendation and the rationale for it. The task of the steering bodies is to challenge the deliverables and approve commitment to the decisions. The project manager, together with the global product manager, PM, is leading the TTM and coordinating all activities. The PM in the market organization, MO, is coordinating all MO activities, including customer input, alignment and commitment from MO management and sales force readiness for product launch.

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The TTM-teams are encouraged to work with an entrepreneurial mindset, using the flexibility of the processes and taking well prepared decision at the right point of time. Entrepreneurship is identified as a key success factor for TTM-projects

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it is also explicit that “successful business entrepreneurs spot opportunities and turn them into profits fast.”

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4.7 Case study HIT-CleanTec HIT, Hilti Injection Technology, mortars are two-component chemical products used for fastening either threaded rods or rebar in concrete. Fastenings done with threaded rods can for example be used for fastening of heavy loads such as steel columns or beams to concrete structures or much lower loads as e.g. staircases, handrails etc. Another interesting field of use is the post-installment of rebar. The most common way of placing rebar in concrete is to preinstall it before the concrete is poured. In some situations this is not possible or very cumbersome to do as it affects the design of the formwork etc. In other cases it might not be possible because the concrete is already there as could be the case when trying to extent a slab, widen a bridge, add a balcony to existing buildings etc. In those cases HIT injection mortars can be used to post-install the rebar. The first step is to find the spot where the fastening is to be made and drill a hole in the concrete. The next step is to clean the hole. When working with chemical injection mortars it is very important to make sure no concrete dust is left in the bore hole after the drilling and cleaning needs to be done according to certain procedures. The most common way of cleaning the dust from the bore holes is to use a blow-out pump and a steel brush. After the hole is cleaned the mortar is injected into the holes with help of dispensers. Figure 35 shows HIT-CleanTec injection mortar and HDM 330 dispenser.

Figure 35 HIT-CleanTec and HDM 330 dispenser

When the correct amount of mortar is in the bore hole the fastening element, threaded rod or rebar, is inserted. Different mortars have different curing times, fast curing mortars cure in 30 minutes at 20ºC and slow curing mortars cure at 12 hours

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at 20ºC. After the curing time has passed the fastening point can be fully loaded with the design load calculated by the design engineer. The largest customer groups interested in using injection mortars are building construction, civil engineering and structural steel erectors. HIT-CleanTec was introduced on the Swedish market August 2011.

4.7.1 Characteristics of the Construction Sector in Sweden A few major companies account for a large part of the activities in the construction sector in Sweden. Many of the smaller firms are subcontractors to the major companies. The decisions on which products subcontractors may use on construction sites are often made by the large companies. Hence the sales volumes that are affected by decisions made by the largest contractors are higher than the volumes the large companies buy alone.

4.7.2 Injection mortars in Sweden Hilti launched the first chemical injection mortar in Sweden during the 1980-ies, HIT-C 100. Chemical products for fastening applications did exist prior to that but there were many limitations to their use. Traditionally the chemical components were portion made and packed in glass capsules. This made the use in any other applications than in exactly the size of bore holes the capsules were intended for impossible. As the capsules were of glass they also often broke. The use of chemical anchoring instead of mechanical anchoring solutions in concrete has many advantages. The three most important ones are

placement of fastenings points close to concrete edges and with small spacing,

flexibility in the setting depth and bolt diameter

possibility to post-install rebar without using grouts. When chemical injection mortars were first introduced they were a revolution to the industry. Many problems that required extensive intrusions in the structures of the buildings could be solved in much more cost efficient ways which in the same in time meant better working conditions on the job site. The use of some chemicals in the construction industry got restrictive after the misuse of a thermosetting product at the Hallandsås tunnel project 1997 causing negative health impact on workers and environmental damage.

4.7.3 Environmental awareness in the construction industry The restrictive use of thermosetting plastics in the Swedish construction industry was identified as one of the key explanations to why the Swedish market for chemical anchors was under-proportionate compared with other countries. The use of chemical injection mortars in Sweden is covered by the Thermosetting Plastics Ordinance issued by the Swedish Work Environment authority. The scope

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of this provision is to prevent ill-health that could be the result from exposure to thermosetting plastic components. Due to global trends and the advanced environmental awareness in Sweden major construction professionals have internal guidelines banning the use of non-environmentally products where environmentally friendly alternatives exist. This created a lot of workload for internal environmental departments, as most job site managers, purchasers and installers have limited knowledge on the environmental impact of chemicals. In the long run most large contractors had developed their own internal lists of banned and allowed chemical products. Similar trends could be seen on the building owner side where the choice and use of environmentally friendly products started to be included as requirements already in invitations to tender. Smaller contractors that did not have internal environmental departments needed to turn to consultants to get professional opinions on which products to use. This quickly led to a bundle of environmental consultants creating own definitions and databases of banned and allowed products. Most of the databases rely on an assessment of the products done by either the database owners’ internal expertise or consultants. As many databases existed and the assessments were associated with fees this quickly added up to large costs on the material supplier side. It also led to very long lead times from the need to purchase a product for use on a construction site to the moment when the product was finally assessed. In order to be able to assess a product the consultants in many cases had to request documentation from the suppliers that was not easily available and in some cases classified. One of the initiatives excelled from the others, BASTA. The BASTA database was initiated by large contractors in the building construction industry that wanted to find a smoother way to work with these topics. The responsibility of assessing the products was identified to be a task that was best done by the party that has most expertise on the product, the supplier. The founders of BASTA agreed on a certain list of criteria that products need to fulfill in order to be allowed to be registered in their database. Suppliers that want to register their products in the BASTA registry need to assess the products against the criteria. If the criteria are fulfilled the products can be registered. The database is fully accessible online. To assure suppliers have the competency required to assess the products BASTA contracts consultants to perform audits. BASTA is a non-profit organization where the lump sum yearly fees, same for all suppliers not related to how many products are registered, are spent on administration, maintenance of software and consultants performing audits.

4.7.4 Customer need Customers in Sweden asked for a ‘green’ mortar for a long time. The inquiries came from job site supervisors and installers as well as design engineers and

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health & safety and environmental departments. ‘We are not allowed to specify HIT’ was a very common reply from design engineers when discussing fastening solutions with Hilti engineering team on applications where chemical fastenings from a technical perspective would make most sense. Similar requests started to arise also from customers in France and Hilti decided to start a TTM. The Lead MO’s chosen were Sweden and France, the countries where the inquiries came from and where the product needed to fit the customer need. One of the first key issues was to identify the customer need. The Swedish customers were asking for a green mortar but it was understood they were not referring to the color; they were referring to the environmental and user impact. For a successful market introduction in Sweden compliance with the BASTA criteria was important. Besides the environmental and user impact there are other important criteria of injection mortars used for fastenings. Questions like, load values, curing time, working time, temperature range, viscosity, shelf life etc. needed to be carefully assessed against the limitations set by technology. Another important aspect was the approval landscape. Extensive external approvals require resources and time which delays the market introductions. It also turned out that the necessary approvals where not the same in Sweden and France. MO France needed an ETA, European Technical Approval, for post-installation of rebar while the Swedish market was mostly using the ETA approvals for anchoring (fastening in concrete). The decision was to go for both approvals. More questions that needed to be answered were the color of the mortar, fragrance, name of the product and design of the packaging. Hilti already had a “Clean-Tec”-logo for products fulfilling certain environmental and user friendly criteria. The logo can be seen in figure 36. The green mortar was not the first product of this kind to be developed and it was decided to use this logo also for the new product.

Figure 36 Hilti Clean-Tec logo

The name was agreed to be HIT-CT 1. HIT is short for Hilti Injection Technology, similar as in all names of Hilti injection mortars. CT is short for CleanTec and 1

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stands for product number 1 in the series; all according to Hilti product naming standards. A definition workshop was held in Zürich where all requests on the product were discussed. These requests were then checked against limitations of technology but also the competitive landscape to make sure the product Hilti was bringing would have better performance. Before making any final decision the list of requests was checked and aligned by each team participant with relevant parties, team leaders and management. During the workshop the team also discussed what input was needed from customers in the planned CAT, Customer Acceptance Test. The topics were later provided to the Hilti internal market research department, the specialist on how to formulate the questionnaires in a way that gives you the answers to what you need to know.

4.7.5 Product & Value Proposition When performing the CAT it is important to get input from all kinds of relevant customers, both the ones that are buying Hilti products today but also customers that have chosen not to buy Hilti. The recruitment of customers is crucial. During the CAT, 100 customers were interviewed, 75 in France and 25 in Sweden. The questionnaires were translated and the interviews were performed in Swedish and French to assure the respondent can easily convey his message. The purpose of the CAT is to check which design of a product fits best and to determine the value proposition of the product, the attributes and the pricing. Once all input was analyzed by market research a new workshop was held in Munich to discuss the outcome. The results confirmed all assumptions with a few exceptions:

The color of the packaging, black foil with blue plastic connector, did not convey a CleanTec message.

The customers rated “high load values” higher than assumed. The load values of the new product could not be increased without starting a new technology project and hence delaying the market introduction for an undefined, long period of time. The customer input was still relevant and sales projections were adapted to account for this input. The color of the packaging was discussed on several levels within the company. Hilti products are red and black with white text. This is part of the global Hilti Brand Strategy. To make an exception from the color coding was a big but necessary step in order to meet the customer requirements. To further enhance the CleanTec message it was also decided to color the leaf in the CleanTec logo green.

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4.7.6 Launch preparations Hilti launches products in three “waves” during the year; January, April/May and August/September. Product launches are prepare many months in advance to secure everything in terms of logistics, marketing material, trainings etc. is in place in due time for the sales start. Different product launches require different activities. During the TTM the launch date in Sweden for HIT-CleanTec was set to August 2011. To assure a good sales start for the product the pre-launch activities started as soon as the message came from the development department all tests were passed. As the demand for HIT-CleanTec was very high from Swedish customers many large customers were informed regarding the development of the product a long time before the actual product launch. All of these customers agreed to test the mortar on chosen job sites prior to the product launch. Experiences from these job sites were later used as references both in printed material from Hilti but also on customers’ internal communication channels such as intranets, internal magazines, newsletter etc. Health & safety and environmental departments at large customers were visited to raise the awareness regarding the product but also to gather insight in which aspects these stakeholders identify as most important. These insights were later used during the launch trainings. The pre-launch activities involved many Hilti employees and created internal excitement and a hunger for sales when the news spread from one employee to another. A press release was sent out to assure media coverage and published in several trade magazines in time for the product launch.

4.7.7 Launch The actual launch focused on ensuring competency of all sales channels, creating internal excitement with HIT-CleanTec and commitment of all MCS members to sell. Account Managers, Hilti Center representatives, Field Engineers and Customer Service representatives all got an 80 minute training on the value proposition of the product including product features and benefits, and sales approach to different stakeholders at customer; i.e. which arguments to use when discussing with job site supervisors, construction workers, health and safety officers, purchasers, company owners, building owners etc. To make the launch memorable in the organization and add an extra element of excitement a Guinness World Record of fastening the highest amount of rods in concrete by 100 people in 5 minutes was set. To assure as many customers as possible got the news regarding HIT-CleanTec as soon as possible many different channels were used. Besides training all Hilti

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employees with direct customer contact HIT-CleanTec got much attention in the brochure always printed and distributed to customers at the different launch waves. Other activities were email send-outs to reach offices of customers but also through for example the goods shipped to the customers where a flyer was added to all goods leaving the central warehouse during the first month of sales.

4.7.8 After launch After launch, the tracking of key performance indicators starts. Important KPI’s for product launches at Hilti are sales figures, quantity sold, number of customers buying but also which Account Managers are actually selling and which are not. Sales figures and quantities are important to keep track of to assure availability. The number of customers and the amount of Account Managers selling the product show how well the product has been perceived both internally and by customers. Sales of HIT-CleanTec started immediately after launch and rose to the expected sales per day level within one month. 100% Account Manager participation within relevant customer groups was achieved within 8 working days of sales. Within only a couple of weeks HIT-CleanTec became the best-selling injection mortar on the Swedish market. To quickly collect the first feedback from customers and check how the product was perceived by the market a mini version of a CUSAT, customer satisfaction test, was performed in mid-September, 3 weeks after introduction. The feedback was overall positive and the customers were very pleased this product was finally available. The actual CUSAT was performed in June 2012, almost a year after introduction. The feedback was positive and examples from customers on what to improve further were very few. A couple of customers mentioned that it would be good if they did not have to clean the holes although they did understand why it was necessary.

4.7.9 Further strengthening system solution The launch of HIT-CleanTec upset the Swedish market and competitors wanted to follow. Hilti’s launch gave many competitors hard arguments to bring similar solutions to market. When no supplier could deliver the product that was requested by the market the customers needed to make their decisions based on other criteria. One thing was clear; Hilti did not expect competition to stand still and not to react. The development did not stop with the launch of HIT-CleanTec. In January 2013, 1,5 years after the introduction of HIT-CleanTec Hilti launched the Hollow Drill bit; a drill bit that is connected to a vacuum cleaner and cleans the holes while the operator is drilling the hole. No extra cleaning is necessary. Cleaning the holes with the hollow drill bit is a method that is approved according to the ETA documentations for HIT-CleanTec. Discussions on how to further strengthen the value proposition of HIT-CleanTec are still on the agenda and more introductions are to be expected.

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5 Analysis Hilti is a player in the construction sector but when it comes to innovation activities Hilti benefits of several factors identified as characteristic for the manufacturing industry. Some of the factors decelerating innovation in the construction sector do not apply to Hilti. Although Hilti supplies tools and consumables to large construction projects the impact of most Hilti products on the structure of the building is limited and the problem of full-scale testing usually does not occur. It is quite easy to test full-scale prototypes of most Hilti products. The only exceptions are anchors used for transferring high loads to concrete structures and post-installation of rebar. The products that Hilti provides to the building sector can be grouped into tools with accessories and products for fastening and protection. When it comes to products such as fastening and protection the use of these is covered by codes and regulations also with regards to the design. Tools are also covered by regulations but in most cases these are limited to regulations concerning user health and safety (max limits for vibrations, dust emission etc.). The extensive legislative environment gives the market certain characteristics that need to be taken into account in product development and launch. Building owners often have a large influence on the design of the final product, the building. This can be a limiting factor when the building owners do not have technical expertise as they are often more conservative towards ideas that have not been tested as they cannot assess the impact of the innovation themselves. To assure acceptance for new ideas Hilti’s Field Engineers visit design engineers to introduce new products or ideas and assure the design engineer has an understanding at such a level he can argue with the building owner, if necessary. To support also on the construction sites Account Managers visit different stakeholders from general manager to installer on site. The problem of amortizing development costs is not an issue Hilti needs to argue with the customer as product development costs are spread over the life cycle of the product and over a large amount of customers. This is another factor differentiating Hilti from many other stakeholders in the building sector. The project based nature of the construction sector can be an obstacle to diffusion of innovations. The amounts of problems that are solved on site are a good base for innovation. The fact that project teams on building projects to a large extent consist of new constellations of team members decelerates the speed of diffusion as knowledge transfer needs to rely on informal channels. Informal channels rely on non-codified information which is not easy to share. Successful Hilti Account Managers quickly learn how to get involved in the projects to learn and transfer knowledge regarding Hilti solutions to future projects.

5.1 Diffusion of innovations As seen in the theoretical overview diffusion of innovations, according to Rogers, has four key elements being ‘innovation’, communicated through certain channels’,

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‘over time’ and ‘social system’. The Hilti business model including the champion 3C strategy and direct sales approach give a solid foundation for quick diffusion of innovations.

5.1.1 Innovation According to Rodgers an innovation is adopted faster if it has greater relative advantage, compatibility, trialability, observability and less complexity. When developing the value proposition aspects like ‘relative advantage’, ‘compatibility’ and ‘less complexity’ are taken into account. To further reduce the complexity the marketing departments’ tasks are to make the messages simple and easy to communicate. Hilti develops, produces and sells Hilti products. Owing the whole value chain (only exception being logistics) gives Hilti better knowledge about the products than most competitors know about theirs. Combined with a better understanding of customer needs, obtained through the direct sales model giving ownership of market reach including closeness to the customers, the products that are developed have a better market fit, ‘relative advantage’. The communication packages describing the products and their value propositions can also be better tailored to suit the customers’ perception of their needs, ‘less complexity’. To assure ‘trialability’ Hilti Account Managers all have a selection of Hilti products to demonstrate to customers and let the customers try the tools. The value proposition of a certain tool might not be visible at a first glance. A rotary hammer from one supplier might look very similar to a rotary hammer from another supplier. To really convince customers that one tool is superior to another a live demonstration is often what it takes to feel the difference. The differences, or product differentiation, could in the case of tools take shape of lower vibrations giving less impact on the worker, more efficient tools offering productivity and other similar aspects. The relatively quick rates of adoption of new products together with the consistent design of Hilti products and a good coverage of customers using Hilti products on construction sites increases the ‘observeability’ of Hilti products.

5.1.2 Certain channels Hilti’s direct sales model gives much shorter ways from idea generation or feedback on an existing product to the marketing and development departments than in many competitors’ cases. Ownership of market reach simplifies the communication of the messages to the customers. All relevant information regarding the product and the value proposition is communicated directly from the marketing departments to all sales channels during the launch waves. Segmentation of the sales force according to the segmentation of customers allows for an even sharper knowledge transfer.

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5.1.3 Over time The follow-up of number of customers and number of Account Managers selling the product, show the rate of adoption. In the case of HIT-CleanTec the rate of adoption was extremely quick. The great success was attributed to a product developed to fit relevant customer needs and a solidly prepared and executed plan for market introduction.

5.1.4 Social system Rodgers has also observed that individuals, in the general case, do not evaluate innovations on the basis of scientific studies but rely more on information from individuals that resemble themselves in terms of beliefs, education and socioeconomic status. Hilti Account Managers play an important role in the diffusion of innovations. By helping customers to find the best solutions for their needs a certain amount of trust is developed for the Hilti Account Manager. Having earned that trust from a customer makes it much easier next time the customer needs help.

5.2 Use of innovation technologies Hilti is a frequent user of innovation technologies. Business processes that can be automated are automated to as large extent as possible. Automated processes for reporting, ordering, invoicing, calculation etc. free up valuable time. Other innovation technologies as for example data bases accessible for Hilti employees worldwide with in-depth information regarding products is a good example of how tacit information is codified and made available to be used anywhere in the world where Hilti is present.

5.3 Solid processes allow project team to focus on the task The TTM process at Hilti is principally following the stage gate logic in the management of innovation. The difference can be found in the last gate, G6. Whereas the stage gate process is colloquially called the “Time to market” process, at Hilti TTM stands for “Time to money”. The last gate is always at least one year after the market introduction of the product to ensure evaluation is done based on enough data after the introduction. The conclusions from G6 are fed back to other TTM projects as part of organizational learning. The TTM process documents explicitly focus on what should be delivered for the different ‘gates’. What should be done during the ‘stages’ is up to the team members to identify, plan and execute. This supports an entrepreneurial mindset and encourages team members to take ownership of the project. With solid processes in place the TTM teams have a quick start and can focus on the project itself.

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5.4 TTM teams and projects TTM teams are project based and the team members consist of people from different departments and market organizations which almost by nature assures diversity in terms of discipline, nationality and geographical locations. The composition of team members automatically assures the teams are multi-skilled. Team member competency and commitment are key questions to be answered during the early gates in the TTM-process and only with positive answers to these questions is the project allowed to proceed to the next phase. The diversity in the team composition facilitates the roles of the development champion, the business champion and the executive champion. The development champion naturally comes from the development department and the role of business champion is usually a product manager from the marketing side. The executive champion is the senior sponsor who protects the innovation and helps and personally commits to push the projects through. The success of TTM’s might depend on how well the roles of technical and business champions are filled within the TTM teams and whether there actually appears an executive champion in the sense that it is a person that becomes personally committed. The success of TTM projects also depends on the level of entrepreneurial mindset the TTM teams achieve. Technical understanding of management is an important factor for success of innovations. The steering bodies of the TTM’s consist of people with diverse background and this way the technical understanding of management making the decisions is secured. As the teams are geographically distributed most communication is done through innovation technologies such as email and telephone but the TTM’s also have several workshops where the whole TTM team gathers. As project success in terms of problem solving and idea generation is dependent on how well team members interact with each other it is crucial to organize opportunities for the team members to get to know each other. The capabilities of the team members to benefit from dynamic project or client driven knowledge capital and create positive individual-organization-individual knowledge spirals defines whether the project will be driven by an operational project pull or not. Teams that successfully achieve this state are more successful with innovations. Choosing the team members carefully where the individuals understand and are committed to perform activities leading to success lays a strong foundation for the projects. TTM projects where the positive individual-organization-individual spirals do not start are not as successful as the ones which are driven by a project pull.

5.5 Case of HIT-CleanTec All actions during the development, the launch preparations and the market introduction of HIT-CleanTec were tailored to fit the strategy of the company and the business model. A clear plan for the introduction was made, committed at all levels within the company, clearly communicated, executed and monitored.

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The development of the value proposition starts very early in the project to assure the products that are finally introduced will meet the market requirements and fit in the context. Several waves of customer interviews are performed during development to get the last details in place. The direct sales model of Hilti allows Hilti to adapt the products to the customer needs in a larger extent than competitors can do it. Adaptations were made even to the packaging of the product as the customer input showed that the Clean-Tec message was not conveyed clearly with the design of the first version of the foil pack. Despite no signs were coming that there was any dissatisfaction from customers the first customer satisfaction interviews were performed only a few weeks after launch to assure there were no warning signs for this strategically important product. The activities driven by market needs are supported by resources allocated where necessary to assure an optimal innovation balance between market-pull and resource-push.

5.6 Communication, knowledge transfer and feedback The feedback culture at Hilti facilitates open communication and gives the employees a chance to improve. This open atmosphere also supports questioning the ways things are done and gives new ideas on how to improve processes and actions. Feedback facilitates learning and companies that learn from experience and manage to empower employees to use lessons learned learn faster than competition. The Hilti intranet, accessible to all market organizations, is a great source of information for the employees. It facilitates communication as everyone speaks the same language when using the same source of information. The intranet is a great example of how tacit knowledge is codified so that it becomes accessible for others who can learn from the experiences already made. The feedback loop in the business model supports decisions based on objective information and an understanding of the effects of activities performed and the reasons behind. Learning faster than competition gives companies a competitive advantage. Innovation is a continuous process which requires constant feedback loops and this is a process that needs to be kept active. Hilti will never stop changing; hence employees will always be required to change, adapt, work with new assignments or perform the tasks in different ways. Feedback reduces uncertainties and resistance to change. The non-hierarchical communication ways at Hilti allow ideas to reach decision-makers that can recognize the value of the idea or innovation.

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5.7 Private ownership giving freedom to act Hilti is owned by the Martin Hilti Family trust. The private ownership structure gives the company freedom to act and invest in what the company thinks is the best way forward in contrast to focusing on short term positive quarterly reports that many publicly owned companies need to prioritize. This independence allows for quick actions to precipitating events as resources quickly can be allocated where there is found to be a need. Hilti delivers products and services to construction professionals worldwide. A diversified product portfolio designed to fit sub segmented customer groups constitutes a good base for survival. Solid processes and continuously evaluated resource allocation ensure stability with steady-state conditions. With the basics in place people can concentrate on how to develop and grow, both in terms of the company and the individuals. Hilti will never stop changing. Organizations which are quick to adapt and leverage on changing market conditions are constantly ahead of competition.

5.8 Strategic intent supports innovativeness Companies with a managerial aim to enhance competitiveness are more innovative than others. Hilti’s Champion 3C strategy with actions driven by customer needs, excellence in innovation, quality, customer relationships and marketing as well as concentration on products and markets where Hilti can achieve and sustain a leadership position lays a solid ground for innovativeness. To assure excellence in innovation Hilti continuously monitors emerging technologies to spot and acquire ideas useful for the company.

5.9 Corporate culture Hilti invests 32 000 working days a year to assure everybody understands the corporate culture and the company values: teamwork, integrity, courage and commitment. Corporate cultures where the employees are encouraged to questions the usual ways of doing things, going outside the circle of habits, promote innovativeness. Investing in the corporate culture secures everybody knows what is expected and allows Hilti to do what others can only talk about.

5.10 Selecting the right people Already during the external recruitment process Hilti secures a pipe line of competent and capable individuals that later proceed to further challenges in the organization. Recruiting internally from a pipeline full of candidates reduces

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recruitment costs and the time required to fill vacancies, and shortens the introduction periods of individuals on new positions. Individuals with the strongest educational background do not seem to be important for innovativeness and focusing, as Hilti does, on finding individuals with the necessary skills and capabilities of working in teams, having an entrepreneurial mindset and having a positive attitude towards alternative approaches gives an organization with highly interested team members that are committed until the innovations are successfully introduced. As Hilti realizes people need new challenges, a close dialogue is kept with all employees to be able to offer career development opportunities that fit individual wishes and this way keep the competency within the company. Individuals working with innovation need to have an ability to understand when to switch from steady state supportive tasks to innovation activities. This ‘management of attention’ can be difficult to maintain in the long run as people have a tendency to adapt to their environment. The career development opportunities Hilti offers with new challenges when the right timing arises, places people in new environments, new closest colleagues, new managers and new assignments.

5.11 Leadership, motivation and senior management commitment Senior management commitment and involvement in the process is found to be a great motivational factor for employees and encourages employees to participate in the innovation activities. The request for commitment also from MO management facilitates the appearance of a senior sponsor. If there is no commitment from MO management the TTM is done in cooperation with other market organizations in other countries. Another factor influencing on whether a senior sponsor will appear is the capability of the person in question to recognize the potential in the project.

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6 Conclusion The special context of Hilti has been a limitation to which answers to the objectives could be obtained. The way Hilti works cannot be imitated by all companies in the construction sector as different companies play different roles and every company needs to tailor their actions to fit their context.

6.1 Discussion The identified success factors are known elements to elaborate with when organizing a well-functioning company. Picking and implementing one or two of these in another company might improve the innovative behavior or not give any impact at all. Even copying the whole business model might show not to be successful to another company. To successfully foster innovative behavior every company needs to find its own way that is appropriate for the specific context, make a plan for how to achieve the targets and execute the plan. During this study the importance of synchronization between business plans and plans for implementation with the context has emerged. The implementation plans should be consistent with the business plans and must be developed to fit the market, the context. It has become very evident that this is a prerequisite for success. The great success with the HIT-CleanTec launch is to a very large extent attributed to:

a launch plan and an execution appropriate to the context Hilti works in

a launch plan consistent with the business plan

Construction industry – the context -customers -design -legislative and regulatory framework

Launch – implementation plan

Business model – -strategy -people/culture -processes

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6.2 Conclusions Hilti is a player in the construction sector but the nature of the products and services offered by Hilti puts Hilti in a different context than other players as for example contractors or material suppliers delivering large volume building materials to construction sites where changes in the design can affect the structure of the buildings. The context within which Hilti operates in many aspects resembles the context when innovating in the manufacturing industry when it comes to development of tools. When developing products used for fastenings which can affect the structural building safety the context is more similar to the construction sector. Hilti has been able to find a way of working in the given context that is successful. Innovativeness is identified as strategically important to reach ‘sustainable profitable growth’. To achieve an environment which supports innovation Hilti has built in following factors encouraging innovativeness into the business model and processes:

Feedback supporting organizational learning

Selecting the right people

Innovation as part of the strategic intent

Ownership of market reach (direct sales)

Ownership of value chain The feedback culture at Hilti and the intentional feedback loop in the business processes stimulate organizational learning which allows Hilti to learn faster than competition. Hilti is careful when selecting the right people and in these people’s development. Selecting the right people, fostering them in the company culture, coaching them and offering career fulfillment to people who are willing to learn and change helps keeping the competency in the company. Excellence in innovation is at Hilti identified as so important that it is part of the Champion 3C Strategy. The direct sales model, ownership of market reach, simplifies the communication of the value propositions to the customers and gives Hilti a better understanding of the customer needs. The ownership of the value chain allows Hilti to have full control of the development, production and sales of Hilti products. Every aspect identified as needing improvement, either it is a product, process or a service, can easily be corrected. The ownership structure gives Hilti a freedom to act. Hilti can make long term investments but also take quick actions to precipitating events and change path when necessary.

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Hilti is an advanced user of innovation technologies which support efficiency in the business processed and professionalism. The use of innovation technologies also frees up time which can be used for other activities. The TTM-process at Hilti covers the Time-To-Money. It includes a feedback loop, G6, facilitating learning from experience and giving a better base when defining new TTM’s. The solid definition of deliverables in the TTM-process not including details on what should be done empowers the teams to take ownership and set the agenda of the project. Involvement in decision-making lays the ground for commitment from team members and supports an entrepreneurial mindset. The way Hilti works with innovations fits Hilti. This does not mean it would be the best solution for other companies. Hilti has chosen a direct sales model, a certain product portfolio and added services to that, targeted certain customer groups, chosen how to select and develop people and a corporate culture etc. because these factors have been identified as important for Hilti and the way Hilti wants to operate in the given environment within which Hilti operates, the context. If other companies try to copy Hilti they would not by default succeed. All companies have a different context and every company must themselves define what they want to achieve and find ways that will lead to that state. This might include copying certain elements from successful companies but it might also require finding out own, new ways of doing things. This thesis has tried to identify the underlying reasons to why Hilti is successful. Above conclusions show elements identified as important. Removing a few of these or adding new ones might or might not affect the success of Hilti. Above findings are supported in innovation literature and any company could work like this already today. The difference is that Hilti already does it. From the theoretical overview and also from studying the Hilti case it seems there always is a last bit of tacit element which makes it intangible and difficult to copy.

6.3 Future research There are many questions with regards to innovativeness in the construction sector that are not covered by this thesis. Due to the limitations of this thesis but also the specific context of Hilti, the company chosen for the case study, not all topics can be covered without other studies. Interesting future fields of study are:

To what extent is synchronization between a business plan, a plan for implementation and the context crucial for success with innovations?

To what extent do companies in the construction sector work with people development? Is the project based nature of the construction sector an obstacle for offering career opportunities for individuals seeking career fulfillment or can it be used as an asset?

What kinds of skills and competencies of team members are necessary when contractors are trying to innovate?

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What kinds of incitements exist for innovation in the construction industry? Is innovation at all important for contractors?

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