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