innovation as a source of competitive advantage in construction Özge bican murat ayhan sertaç...
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INNOVATION
As a Source of Competitive Advantage in Construction
Özge Bican
Murat Ayhan
Sertaç Arslan
Middle East Technical University – Civil Engineering Department
CE 726 Strategic Management of Construction Companies
METU
26/12/2013
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What is Innovation?
The Meaning of Innovation
Framework For Analysıng Innovatıon In Constructıon
Types of Innovations
Why Innovation is Needed?
Developing the Innovation Process: Innovation Models & The 4 Dimensions Prior to Innovation Design
Drivers of Innovation
Obstacles to Innovation
Case Studies from the Literature
Example Cases of Innovation in Construction: A Process, A Management & A Product Innovation
OUTLINEMETU
The word innovation originally comes from Latin word 'innovare' that means "to make something new".
WHAT IS INNOVATION?METU
a process of creating a new product or service, new technologic process, new organization, or enhancement of existing product or service, existing technologic process and existing organization.
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‘A technological product innovation is the implementation/ commercialisation of a product with improved performance characteristics such as to deliver objectively new or improved services to the customer. A technological process innovation is the implementation/ adoptation of new or significantly improved production or delivery methods. It may involve changes in equipment, human resources, working methods or a combination of these.’
OECD, 1997
WHAT IS INNOVATION?METU
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‘Application of technology that is new to an organization and that significantly improves the design and construction of a living space by decreasing installed cost, increasing installed performance, and/or improving the business process.’
(Toole, 1998)
A new idea that is implemented in a construction project with the intention of deriving additional benefits although there might have been associated risks and uncertainties.
WHAT IS INNOVATION?Construction Industry METU
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Terms like innovation, improvement, invention, and creativity are often used interchangeably.
THE MEANING OF INNOVATIONMETU
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An ’improvement’ that only meets the market standard. Introducing an improvement that does not significantly differentiate the company from its competitors and also can be easily copied.
An ’innovation’ is about creating that breakaway differentiation; it’s about creating superior economic returns.
THE MEANING OF INNOVATIONInnovation - Improvement METU
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An ’invention’ is an idea, a sketch or model for a new or improved device, product, process or system. It has not yet entered to economic system, and most inventions never do so.
An ’innovation’ is accomplished only with the first commercial transaction involving the new product, process, system or device. It is part of the economic system.
THE MEANING OF INNOVATIONInnovation - Invention METU
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Creativity represents an opportunity to create new appearance, content or process by combining existing inputs or factors of production.
Inventiveness is a process of creating something new, which assigns a contribution to the level of overall mankind knowledge. Innovation is linked to the definitive marketing of the new product, service or technologic process, which is a result of the inventiveness.
THE MEANING OF INNOVATIONInnovation - Creativity METU
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FRAMEWORK FOR ANALYSING INNOVATIONIN CONSTRUCTION METU
Hansen & Birkinshaw (2007)10
Innovation refer to
Radical Incremental
TYPES OF INNOVATIONS
production service process management
changes to
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TYPES OF INNOVATIONS
Exploits existing technology Explores new technology
Low uncertainty High uncertainty
Focuses on cost or feature improvements of existing processes, products or services
Focuses on products, processes or services with unprecented performance features
Improves competitiveness within current markets or industries
Creates dramatic change that transforms existing markets or industries, or creates new one
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innovations in production – development or enhancement of a specific product
innovations in services – offering new or enhancing of existing services
innovations in process – finding of new ways of organizing and combining inputs in the process of production of specific products or services
innovations in management – creating new ways of organizing business resources.
TYPES OF INNOVATIONSMETU
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According to Drucker (1993),
Incremental Innovation – Doing more of the same things you have been doing with somewhat better results;
Additive Innovation – More fully exploiting already existing resources, such as product lines extensions, and can achieve good results.
Complementary Innovation – Offers something new and changes the structure of the business;
Breakthrough Innovation (Radical Innovation) – Changes the fundamentals of the business, creating a new industry and new avenues for extensive wealth creation.
TYPES OF INNOVATIONSMETU
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This century has been full of innovation. New technologies, new products, new services, whole new industries have emerged.
Lots of companies have made new investments.
WHY
WHY INNOVATION IS NEEDED?METU
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Improving quality Creation of new markets Extension of the product range Reducing labour costs Improving production processes Reducing materials Reducing environmental damage Replacement of products/services Reducing energy consumption Conformance to regulations For competition
WHY INNOVATION IS NEEDED?METU
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‘For firms, the way to achieve competitive advantage is to create a competitive strategy that is consistent with trends in the firm’s industry and appropriate to the firm’s resources and capabilities which can be achieved through innovation.’
WHY INNOVATION IS NEEDED?Competition
Porter, 2006
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Firms innovate to defend their existing competitive position as well as to seek new competitive advantages.
A firm may take a reactive approach and innovate to avoid losing market share from the innovative competitors.
It may take a proactive approach to gain a strategic market position relative to its competitors.
WHY INNOVATION IS NEEDED?Competition METU
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The list of innovation with whom an organization can gain competitive advantage on the market;
Operational innovation Organizational innovation Supply-side innovation Core-competence innovation Sell – side innovation Product and service innovation Product and service innovation
WHY INNOVATION IS NEEDED?Competition METU
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Successful innovation is mainly dependent to a company’s ability to find solutions to:
technical changes
economic changes
social changes
by designing and establishing efficient innovation processes in time
How do processes for innovation should be designed so that their results create
competitive advantages?
DEVELOPING THE INNOVATION PROCESSMETU
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Simple Model of Firm-Level Innovation (Seaden et al., 2003)
Focuses on:
Business Environment
Determines the need for innovation (Process Birth)
Business Strategies
Block or unblock innovation processes
DEVELOPING THE INNOVATION PROCESS (2)METU
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Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001)
A successful innovative company should assess its complete structure by considering its special attributes
Similar to SWOT Analysis
Benefits:
Company identifies weak/strong points within company’s innovation activities and processes
Reduce the effects of weak points
Improve effects of strong points
DEVELOPING THE INNOVATION PROCESS (3)METU
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Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001)
For this analysis, a company should answer the following questions:
1. Which innovations does the market require? Is it possible to introduce them with the services and technologies at one’s disposal and with the present structures of the company?
(characteristics of the sector and market)
2. Which actors have to be taken so that the innovations will be successful on the market?
(company strategies)
DEVELOPING THE INNOVATION PROCESS (4)METU
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Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001)
For this analysis a company should answer the following questions:
3. Are the norms and values respected within the company suitable for introducing the desired innovations?
(company culture)
4. Which tasks have to be fulfilled in order to introduce the innovations? How do these tasks have to be divided and coordinated within the company?
(organizational structure)
DEVELOPING THE INNOVATION PROCESS (5)METU
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Integrated Model of Innovation Management in Construction Companies (Girmscheid and Hartmann, 2001)
DEVELOPING THE INNOVATION PROCESS (6)METU
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There are four dimensions to be considered prior to design of innovation:
1. Company-Related Dimension
- Open to innovation
- Ready to take risks
- Willing to co-operate and communicate
- Ready to give its staff freedom to innovate
- Possessment of necessary organizational culture
- Compatibility with the aims and strategies of the company
DEVELOPING THE INNOVATION PROCESS (7)METU
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There are four dimensions to be considered prior to design of innovation:
2. Object-Related Dimension
- Service/Process/Product Innovation
- Small Improvement/Radical Change
3. Phase-Related Dimension
- Stimulation of Idea
- Generation of Idea
- Assessment of Idea
- Realization of Idea
DEVELOPING THE INNOVATION PROCESS (8)METU
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There are four dimensions to be considered prior to design of innovation:
4. Person-Related Dimension
- The ability of staff
- Willingness of staff to innovate
- Willingness of staff to co-operate and communicate
DEVELOPING THE INNOVATION PROCESS (9)METU
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Asad et al. (2005)
1.Clients
- by applying pressure on the supply chain partners with the aim of improving the overall performance
- by helping the supply chain partners to develop strategies to overcome any challenges
- by demanding high standard works
- by identifying specific novel requirements for a project
2.Procurement Method (Ex: Design-Build Contracts)
3.Attitudes and Processes
DRIVERS OF INNOVATIONMETU
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Manley (2006)
1.Clients (due to competitive nature of construction industry)
- Highest rate of investment in R&D
- Highest rate of adoption of advanced practices and technologies
- Best return on innovation
- Changing needs
2.Crises (require effective reactive innovation)
Manley and McFallan (2006)
1.Business Strategies
2.Business Conditions
DRIVERS OF INNOVATION (2)METU
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Tatum (1989)
1.Organization Structure
- Innovative firms used small organizations with limited hierarchical levels
- Small teams of engineers, technicians, designers to develop products
- Types of organization structures that facilitate innovation (Little, 1985):
(1) task teams or small groups focused on new product development
(2) venture teams or small groups focused on new product dev.
(3) isolated development groups focused on one subject
(4) new venture division or business start-ups as development groups that are physically separated from the parent company
DRIVERS OF INNOVATION (3)METU
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Tatum (1989)
2.Organizational Environment
- Elements of organizations that support innovations (Little, 1985):
(1) policies and objectives for innovation
(2) interpersonal skills that support integration
(3) longer term perspective & willingness to wait for major returns
(4) ability to provide appropriate environment for innovators
(5) high levels of communication and coordination
- Successful innovative organizations should:
(1) expect failure in large portion of new product initiatives
(2) separate the organization into subgroups for intensive focus
(3) encourage internal competition
(4) support communication and cooperation
3.Role of Key Individuals
DRIVERS OF INNOVATION (4)METU
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Competitive nature of construction industry based on cost & duration
Limited resources due to limited cost & duration
Not enough time before starting a project to review and assess innovative ideas and alternatives
Innovations require multi-disciplinary approach
OBSTACLES TO INNOVATIONMETU
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Technical innovations vs. project based-industry & uniqueness
Lack of technical capability
Lack of innovative organizational culture
Top management’s & organization’s approach to innovation process
OBSTACLES TO INNOVATION (2)METU
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Client: Highway Agency
Joint Venture: AmeyMouchel
Project: Improvement of a road section (open to users)
Driving Force of Innovation: Client
Client developed a new procurement method
Get the best value through partnering
Early contractor involvement
Openness
Collaboration
Particular Conditions to facilitate innovations
CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATIONMETU
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Factors considered during development of innovation process:
Innovation management improved by decreased bureaucracy
Current best practices are considered by a team involving client, supply chain partners, independent experts, dedicated facilitators, and documentation team
Establishment of innovation culture by encouraging employees to express their ideas and opinions
Communication enhancements
Transparent decision-making process
CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATIONMETU
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Designed Innovative ProcessCASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATION
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Examples of Innovative Ideas Established Using the Process
CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATIONMETU
IDEAQuick Win Y/N
Business Case Y/N
Alignment with Client Aims Area of Operations Improved
Overall BenefitsInformed Travelers
Safer Roads
Reliable Journeys
Quality Env.Health
and Safety
CAT 1 Marker Flags Y N + + + Faster rectification of defects
Major Incident Text Messaging
Y N + + + + +Faster deployment of resources and reduced
incident times
Communications Vehicle
N Y + + + + + + Reduced Incident Times
Cathodic Protection N Y + + Reduced costs and disruption
Emergency spill kits N Y + + + +Faster deployment, reduced
impact, reduced incident times
Folding Road Closure Sign
Y N + Reduction in disruption and
more satisfied road users
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Outcomes of the Case:
The role of client and procurement method is significant in promoting innovation
Contractor-Client cooperation promotes innovative thinking
Reduced bureaucracy, feedback to idea originators about the progress, identifications of the responsibles who can take the process further, and rewarding the idea originators
Better quality, health & safety, and environmental outcomes
CASE STUDY 1: CLIENT AS DRIVING FORCE OF INNOVATIONMETU
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Study: Survey
Respondents: 335 Australian road industry companies
Ranking the innovativeness levels of companies: 46 advanced technologies and practices considered as innovative actions
CASE STUDY 2: UNDERSTANDING THE FACTORS THATMAKE FIRMS TO INNOVATE METU
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Business Strategies: 18 strategies that high innovation adaptors use
CASE STUDY 2: UNDERSTANDING THE FACTORS THAT MAKE FIRMS TO INNOVATE METU
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Outcomes of the Case:
High innovation adopters prefer youthful staff instead of older staff that might not be as creative and flexible as young staff.
High innovation adopters give importance to introducing new technologies to processes. It shows that high innovation adopters give importance to research and development.
Enhancing the organization’s technical capabilities as such capabilities comprise the technologies and technical skills that empower the firm to adapt quickly to opportunities.
CASE STUDY 2: UNDERSTANDING THE FACTORS THAT MAKE FIRMS TO INNOVATE METU
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Study: Interview
Respondents: 12 completed projects (range: $13000-$112 million)
Projects: Non-residential buildings
1. Energy Cost Savings in 5-Star Office Building
2. Clever Planks at Sports Stadium
3. Port of Brisbane Motorway Alliance
4. Fire Engineering at National Gallery of Victoria
5. Fiber-Reinforced Polymer Bridge Deck
6. Ground Penetrating Radar and Defective Bridge Beams
7. Managing Storm Water with Storage Gutters and Infiltration
8. Saving On-Site Remediation Costs
9. Post-Tensioned Steel Trusses for Long Span Roofs
10. Twin-Coil Air Conditioning at the Art Gallery of South Australia
11. Better Project Outcomes with Relationship Management and 3D CAD
12. Using Recycled Tyres to Construct an Access Road over Saturated Terrain
CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION METU
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Innovation Definitions
Drivers of Innovation on Projects
CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION METU
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Identified Obstacles to Innovation
Main Obstacle Encountered during Innovation on Projects
CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION METU
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Outcomes of the Case:
Main innovation driver: Client
Crises can be used as facilitator to innovation processes
Majority of the obstacles encountered during innovation: non-technical aspects
Non-technical aspects can be removed by appropriate training of managers and employees in non-technical areas
CASE STUDY 3: IDENTIFYING DETERMINANTS OF CONSTRUCTION INNOVATION METU
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EXAMPLE CASES OF INNOVATION IN CONSTRUCTIONMETU
Case # 1: A Process Innovation Example
Case # 2: A Management Innovation Example
Case # 3: A Product Innovation Example
For each case, with;
reasons behind the need for such an innovation,
its concept and proposed improvements,
benefits and/or drawbacks of the innovation.
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Case # 1: A Construction Process Innovation METU
2D Design
+ Gantt-Charts & Critical Path Method (CPM)
A New Project Implementation Process
+ Time = Modeling
Design (Schedule)
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Case # 1: Why 4D (Modeling) Planning ?METU
It is known that;
Effective planning is one of the most important aspects of a construction project and influences the success of a project.
(Chevallier & Russel, 1998)
However,
The outputs of traditional planning techniques are very difficult to communicate and validate as the complexity of the projects increase.
(Marasin et al., 2007)
Yet,
4D planning provides a new opportunity for the presentation of construction scheduling, which could advance the principles of planning, past the Gannt chart…
(Richmoller et al., 2001)
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Case # 1: How is 4D-Modeling practised?METU
Traditional 2D-CAD 3D Parametric Modeling
Objects are formed using simple lines and curves Colored layers for different sets of elements
Objects have semanticsi.e., each object inherits its unique properties (dimension, location, material properties) Much better visualization
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Case # 1: How is 4D-Modeling practised?METU
On top of 3D-Modeling, Schedules are embedded:
Using software packages like:
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Case # 1: Benefits of 4D-ModelingMETU
► Earlier and more accurate visualization of a design
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Case # 1: Benefits of 4D-ModelingMETU
► Visual aids for site logistics planning
Stock locations Concrete pump boom operations Tower & mobile crane positions Scaffoldings
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Case # 1: Benefits of 4D-ModelingMETU
► Awareness of clashes and collaboration between
disciplines while preparing the schedule (through 3D visualization)
► Improved quality of the design
► Reduced uncertainties during construction
► Earlier & quicker decision making
All leading to Cost & Time savings..
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Case # 1: Drawbacks of 4D-ModelingMETU
In contrast to Automative and Aerospace Industries,
there still is a resistance in Construction Industry towards 4D-Modeling.
Some of the reasons for such a resistance may be listed as follows:
Lack of skilled employees on necessary softwares, Investment cost (software & hardware), Fragmented industry (no strong drivers), Lack of clients’ demand, Technical challenges (interoperability issues), Insufficiency of time available before tenders, Resistance to change.
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Case # 1: A RemarkMETU
In 90’s the AEC Industry resisted also to…
…leave light tables & blueprints and adopt 2D CAD.
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Traditional Project Delivery Methods
Design-Bid-Build (DBB) or Design-Build (DB)
A new Project Delivery Method
Construction Manager at Risk (CM@R)
Major difference from DB or DBB:
Constructor signs both preconstruction and construction contracts.
Case # 2: A Construction Management InnovationMETU
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Constructor is involved in the Project at early design phase.
Preconstruction Contract is coordinated with Designer’s Contract
to maintain a high degree collaboration
between CMR and Designer
(also improves constructability)
BECAUSE
The owner and CMR will negotiate on a GMP
Granted Maximum Price (GMP) :
Established during design process when the CMR can minimize the contingency for scope creep (generally when % 50-70 of design is completed)
Provides risk allocation for the owner
Case # 2: Why 2 Contracts?METU
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Improved quality of work Due to constructor’s input in the design
through constructability reviews & design validation
Due to owner’s control over the design
Accelerated Schedule
Contractor doesn’t have to wait for the whole design to be completed
Completed Design Packages Separate Bid Packages
Earlier cost certainty than DBB
Cost control with Granted Maximum Price (GMP)
Biddability for subcontractors (detailed design documents)
Even suncontractors may participate in the design phase
Case # 2: Advantages of CM@RMETU
Lead to
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Difficulty in reconciling different agendas of CM@R and Designer during design stages
Because:
CMR acts cost-focused,
while
Designer conforms to codes, laws, regulations and technical issues.
Owner needs to administer 2 contracts as opposed to DB
Case # 2: Disadvantages of CM@RMETU
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Case # 3: A Construction Product InnovationMETU
Road Repairs
ASPHALT
CONCRETE
Till 1980’s, concrete was not a suitable product to use for road repairs in U.S.A
In 1986, a 10-cm concrete overlay was first applied to 11 kms of U.S Highway 71 in Iowa
WHY & HOW ?
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Case # 3: Aspahlt Repairs vs Concrete RepairsMETU
For Road Repairs;
In comparison with Asphalt Overlays
Traditional Concrete has 2 main disadvantages:
Higher initial construction cost
The need for a lengthy cure time of 5-14 days
road closure causes inconvenience to the public
(asphalt needs 6-12 hours)
However;
Concrete has More load capacityLower life-cycle cost
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Case # 3: Trigger for an Innovation..METU
During 1980s in Iowa
All interstate, primary and municipal road networks were completed
Concrete Paving Contractors experienced a serious market reduction
So they began to feel an urgent need to develop something new
TO SURVIVE
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Case # 3: Trigger for an Innovation..METU
In October 1985, an informal group of 30 people including Concrete paving contractors, Cement producers, Admixture suppliers, Equipment manufacturers, Managers and engineers of Iowa Dept. of Transportation (DOT)
set the goal of developing concrete pavement that can be built Fast,
With unequalled quality,
Without causing significant traffic interruption.
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Case # 3: Innovation of Fast-Track ConcreteMETU
During 8 months
Several meetings had been held,
A series of experiments had been done for the right mix design,
A couple of trial projects had been done.
And eventually
FAST-TRACK CONCRETE was developed and officially used on a running highway’s repair by July,1986.
Traffic was allowed onto the road in only 24-hours.
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Case # 3: Innovation of Fast-Track ConcreteMETU
Actually the concept Fast-Track Concrete was not new to U.S Construction Industry.
A similar – but too expensive to be applied to road paving – product had been used for small batches before.
However this time;
Little additional cost was achieved,
Fast-setting of concrete with internal chemical reactions was first accomplished!
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Case # 3: Outcomes of the CaseMETU
Contributions of Fast-Track Concrete Innovation: (C.H. Nam & C.B. Tatum, 1992)
Many projects involving fast-track concrete paving followed in U.S,
Concrete Paving Contractors could have survived against Asphalt,
Cement producers were forced to improve quality of type-III cement,
Some university researchers began to investigate the mix design,
The FHWA started investigating the min early concrete str. for traffic.
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Case # 3: Drivers of Fast-Track Concrete InnovationMETU
This case provides an example of innovation that occured;
in response to market demands [shrinkage],
as well as to competition with asphalt [another] technology.
(C.H. Nam & C.B.Tatum, 1992)
However,
The contractor became an innovator with his product-oriented strategy
while others focused mainly on cost cutting.
Authors also point out to highly cooperative government-industry environment in Iowa, and
Iowa DoT’s effective implementation of long-term procurement policies.
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THANK YOU!
METU