While the sector is known for innovation in research and development, this focus on breakthrough thinking does not often cascade down to construction contracts and activities on site, where innovation is typically viewed with cynicism as a cost reduction exercise. It is time for the industry to “look down the opposite end of the telescope” and view value as the output of innovation.
A typical approach within the sector is to challenge suppliers to deliver innovation immediately and throughout the life of the contract; yet this ignores one of the cornerstones of creating value through innovation: “it takes two to tango.”
Collaboration with suppliers can be a source of innovation, and sometimes a change of suppliers can result in fresh ideas...
Understanding the appropriate method is essential as the first step to implementing innovation. The approach needs to be identified, then facilitated.
- Where are you starting from? Conduct initial project health checks and a review of current structures, risks and opportunities; together with an assessment of how well the project is performing against its objectives and how well it adheres to organizational processes and standards.
- Where are you trying to get to and why? This seems a simple question but can often be overlooked. It requires market intelligence and experience to understand the benefits and risks that are inherent with value through innovation delivery.
- Is there appetite for change? Negative value will occur where effort is wasted on trying something that can’t be adopted and/or supported.
Value can then be determined and captured based on short-, medium- and long-term business drivers, and can include:
- Time adherence/reduction
- Quality improvement
- Safety improvement
- Risk Management
- Life Cycle Asset Management (LCAM)
- Return on Investment (ROI)
- Service levels
- Process improvement
- Reputational improvement
- Resource reduction
- Spend reduction (savings/cost avoidance)
Collaboration with suppliers can be a source of innovation, and sometimes a change of suppliers can result in fresh ideas, i.e., through tendering of contracts. Creating the right environment, encouraging the correct behaviors and implementing the precise processes, including how to measure success and who takes the value, is key. Creating a fair model to support the promotion of innovation throughout the life of the contract is vital.
Innovation is frequently cited as a “value added” service from suppliers, and often they hold back on disclosing innovative practices due to their concern of disclosing areas of competitive advantage. While there may not be incentive to encourage the supplier to bring innovation to a client, the ability to propose innovations is seen as a strong indicator of position in the marketplace and evidence of proactivity, both of which can be decision points for further work.
A shared "innovation log" is beneficial to ensure team members are credited for their innovations.
Financial incentives can be used to encourage innovation. This approach succeeds when the supplier has an opportunity to gain additional revenue or “gain share,” a percentage of validated savings measured against established key performance indicators. On those occasions where a particular innovation holds no financial value, a discretionary bonus payment could be awarded to the supplier (corporately), or to the supplier’s team members or individuals. Rewarding non-financial innovations can help unlock further added value due to the wider engagement it achieves.
Difficulties can occur in recognizing the individual or firm who brought the innovation forward, particularly where there are multiple suppliers involved on a project. A shared "innovation log" is beneficial to ensure team members are credited for their innovations. This shared approach across suppliers can also unlock synergy benefits that cannot be realized with a supplier-by-supplier approach.
Another potential issue is when a supplier offers up a valuable innovation that a customer cannot adopt. Suppliers should be recognized for expending effort looking for innovative methods even when they potentially receive no return. This situation may also be an opportunity to ask the client a thought-provoking question: “Why can’t we adopt this innovation?” This may lead you back to one of the original key questions: “Is there an appetite for change?”
In summary, critical enablers to innovation are:
- The facilitation / leadership of the approach to identifying true value
- Creating the right environment for innovation
- Creating a fair model to support promotion of innovation throughout the life of the contract
Delivery of success in innovation is established on "the what" and "the how" – a combination of process and behaviors. Obtaining the appropriate balance will optimize relationships and the opportunity to create true value.