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Master Builders of Iowa

“Innovation – The World of Construction 2.0”

Jeremy Brown, Consultant FMI Corporation February 24, 2015

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Focus of this Session

• Challenge conventional thinking of innovation • Introduce a framework to think about innovation • Give examples of innovation – outside and within the

construction industry • Discuss innovation as part of your role • Think about creating a framework for fostering innovation

in your organization

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Discussion:

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• What does innovation mean to you and your organization?

• Why should we care?

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Where does “innovation” apply?

• Technology? • Equipment? • Product and material improvements? • Marketing approach? • Customer engagement? • Employee engagement? • Process improvement? • Project management processes? • Expanding services offered? • Partnerships?

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… answer:

• All of the above! • … think Porter’s Five Forces

Competitive Rivalry

Bargaining Power of Suppliers

Threat of new Competitors

Bargaining Power of Customers

Threat of Substitute Products

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Porter’s Five Forces – Said Another Way…

Hyper-Competition (not going

away!)

Supply Chain Human Capital practices Materials / procurement Owned / leases equipment

Threat of new Competitors Defining your markets / competition Expanding services

Bargaining Power of Customers

Contracting methodologies Project requirements / GCs Differentiation of your firm

Threat of Substitute Products Competitor differentiation Technology / process / materials

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Discussion:

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• If your company was publicly traded or an outside investor was looking to invest, why would he or she invest?

• What innovations or differentiators do you bring to the table?

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What’s the state of innovation in the construction industry?

• Historically laggard / late adopter. Why? – Low profits = low investment and innovation – Very decentralized buyers; few “serial” buyers – Commoditized buying practices of owners – Operationally-focused business – More of an “open book” business – Long investment payback period – Owners control much or most of the process and end product – The repository of innovation – mostly the people – can easily walk – Construction firm owners are typically “sales focused”, not as

focused on the details of the business – Less incentive for non-owners to innovate – Lower risk tolerance of the industry (very left-brained workforce)

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= +

Having good ideas alone is not innovation

Activity is not innovation

Innovation is a discipline (similar to scientific disciplines)

Innovations don’t need to be a new idea, just new to a market or industry

There’s no such thing as having too many innovations, but you can have too many ideas without discipline

Product and technology innovations alone will not create long-term sustainable advantage (very easy to copy)

Most “strategic plans” are not strategic, nor innovative

Innovation Lessons Learned

- Adapted from Ten Types of Innovation by Larry Keeley

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Some Points of View on Innovation in the Construction Industry

• The innovations that give the best competitive advantages are the hardest ones to spot

• The innovations that are easy to spot are not long-term innovations, are easily replicable and do not create long-term competitive advantage – Most discussion about innovation in the construction industry is

around technology – this is easily replicable and therefore not innovative long-term

• Innovations can be private, guarded and secretive – but not deceptive or unethical

• Innovations require a high level of discipline – our industry is easily distracted and has the hardest time with the discipline and focus pieces

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Three Categories of Innovation…

Category 1: Configuration

Category 2: Offering

Category 3: Service

9. Brand

1. Profit Model

2. Network

3. Structure

4. Process

5. Product Performance

6. Product System

7. Service

8. Channel

10. Customer Engagement

… and Ten Types of Innovation

- Adapted from Ten Types of Innovation by Larry Keeley

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Three Categories of Innovation (1 of 3): Configuration

Configuration: focused on the internal workings of the company and its business system/model. Answers the questions: How do you make money? How do you structure assets and

team to deliver profitable streams of revenue? What do you consider the profitable aspects of your business, and which ones are break even or loss leaders?

- Adapted from Ten Types of Innovation by Larry Keeley

Outside Industry Examples • Gillette – where do they make their money? • Hilti – what do they sell? • Southwest Airlines – how standardized is their product? • Whole Foods – how do they manage internal teams and

“profit centers”? Construction Industry Examples

• Mechanical contractors that make all of their profits on service

• Internal profit centers – e.g. self-insurance, technology company, etc.

• Pooling of resources for buying leverage – e.g. internal Universities

• Project contracting / delivery methods – i.e. JV, IPD, etc. • Decentralization of business units – i.e. Kiewit

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Three Categories of Innovation (2 of 3): Offering

Offering: These types of innovation are focused on the company’s core product(s) or service(s). Answers the questions: What unique processes or tools do you use to deliver? What

unique features and benefits of product can’t your customers get anywhere else? How do you “package” the product or expertise?

- Adapted from Ten Types of Innovation by Larry Keeley

Outside Industry Examples • Toyota – how do they manufacture? • Ikea – what do they sell? • TurboTax – what is their product? • MS Office and Oscar Meyer Lunchables – what do

they have in common? Construction Industry Examples

• Partnering with non-construction firm with expertise with a specific market / customer

• Bundled preconstruction services • Prefabrication / modular construction • Field technologies • Virtual modeling / BIM • Sustainable building techniques

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Three Categories of Innovation (3 of 3): Service

Service: These types of innovation are focused on more customer-facing elements of the company and product/service. Answers the questions: What can you “give away” that costs you little or nothing, but

is of huge value to your customers? What channels of selling and relationship-development do you utilize? How do you pre-position your firm for opportunities?

- Adapted from Ten Types of Innovation by Larry Keeley

Outside Industry Examples • Men’s Wearhouse – what do they “give away”? • Zappos – what is their brand promise? • Nespresso – how/where do they sell? • Ford – what did Henry Ford do first? • Amazon – what did they do first?

Construction Industry Examples • Maintaining access to a client via offering other

services – e.g. hospital contractor example • Interesting and useful newsletters or speaking

engagements • Educational forums for current / prospective

customers • Tracking customer activity (ethically and legally) • Establishing master service agreements (MSA)

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“Ten Types of Innovations: The Discipline of Building Breakthroughs” by Larry Keeley (Suggested Reading!)

9. Brand

1. Profit Model

2. Network

3. Structure

4. Process

5. Product Performance

6. Product System

7. Service

8. Channel

10. Customer Engagement

Ten Innovation Types

Configuration: these types of innovation are focused on the internal workings of the company and its business system/model

Offering: These types of innovation are focused on the company’s core product(s) or service(s), or a collection of its products and services

Service: These types of innovation are focused on more customer-facing elements of the company and product/service.

Three Innovation Categories

- Adapted from Ten Types of Innovation by Larry Keeley

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“Ten Types of Innovations: The Discipline of Building Breakthroughs”

Stoc

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ice

(Inde

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2007 2008 2009 2010 2011

Year

5+ Types

3-4 Types 1-2 Types

S&P 500

Key

- Adapted from Ten Types of Innovation by Larry Keeley

Innovative Companies Performance Against S&P 500

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Innovation Example: Uber – “Everyone’s Private Driver”

What types of innovations?

Configuration Profit model – non-traditional revenues and pricing model

Network – partner companies, such as United Airlines and American Express

Structure – does not have employee drivers, but instead private drivers, many who work part time and when they want

Offering Process – cashless payment system; ride linked to your account / credit card

Product performance – effortless application, transparency to customer

Product system – variability and scalability of product offerings (UberX, Black Car, SUV, UberXL)

Service Service – driver (and passenger) rating system

Channel – ability to book Uber services on United Airlines app; incentivizes “promoters” to sign up friends

Brand – very memorable brand and tag line

Customer engagement – took customers from an arcane and troubled industry (taxi service) and make the experience “fun” and memorable

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Innovation Example: Contractor “X”

What types of innovations?

Configuration Profit model – majority of profits from self-perform services or ongoing maintenance work

Network – established partnerships with specialty firms, some outside of construction industry

Structure – high-autonomy groups with their own R&D and P&L

Offering Process – established and high discipline around project execution processes – e.g. pre-job planning, short interval planning, and post-job reviews; also early adoption of virtual design and mobile technology

Product performance – improvements to materials, means and methods

Product system – integration with modular construction or prefabrication

Service Service – active read of “market perception” and ability to react

Channel – unique marketing channels; activism in board and community

Brand – very memorable vision and values

Customer engagement – customer “portal” to view progress and project dashboard; promotion of contractor-owner “success stories”

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Innovation and Your Firm

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Clearing the Innovation “Chasm”: Diffusion of Innovations

2.5 % 13.5 %

34 % 34 % 16 %

Not Mature Innovations Successful / Mature Innovations

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1. Centrally managed, incentivized, funded and communicated; locally led

2. Align innovations to rest of the firm’s strategy (low cost vs. value-added provider)

3. Manage innovation like a project (budget, schedule, scope)

4. Communicate progress, success... AND “lessons learned”

5. Don’t pay for an education twice

6. Don’t ever say “we’ve already tried that” but instead ask “what are we going to do different this time?”

7. Innovators should put “skin in the game”

Best Practices for Innovation in the Construction Industry

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Fact or Fiction?

1. Innovation requires someone with the talent of Steve Jobs

2. Innovation is merely technical advancements

3. A company can survive the next 5 years without innovating

4. Innovation is mostly about having a great idea

5. A great innovation will make itself known when we see it

6. It is tough to incentivize innovation 7. If we force our project managers to sit in

a room each week, we’ll become more innovative

?

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1. What are the greatest innovations your company has had in the past two years?

2. What inhibits innovation in your company?

3. Who is the champion for innovation?

4. How well do we adapt to and implement change?

5. Are decisions a team sport at your company or are they the domain of “one brain”?

6. Does your company learn from failures?

7. Is your company strategy revisited and communicated at least one time a year?

8. What innovations or ideas has your company had that have not cleared the innovation “chasm” of 16-20% population acceptance?

Innovation Concepts For Your Consideration

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Speaker Information

Specialties: Strategy, Operations and Talent Consulting FMI Experience and Clients: 30+ construction industry clients, including GCs, Civil, Electrical,

Mechanical, Specialty Subcontractors, Industry Associations (AGC, ABC)

Prior Experience: Strategy and Operations Consultant: Deloitte Consulting Corporate Real Estate Project Manager: Continental Airlines Laborer and Surveyor: Kamtech/AMEC Construction Education/Training: Masters in Real Estate and Construction Management: University of

Denver Bachelor of Science in Management, Minor in Management

Information Systems: Penn State Project Management Professional (PMP) & LEED AP

Jeremy Brown Consultant FMI Corporation Tel: 303.398.7205 jbrown@fminet.com www.fminet.com

Let’s connect! www.linkedin.com/in/jeremyryanbrown

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