INNOVATION SPACE FOR SUSTAINABILITY IN BUILT ENVIRONMENT

Transcription

1 INNOVATION SPACE FOR SUSTAINABILITY IN BUILT ENVIRONMENT Authors Lauri Pulkka, Aalto University, Juho-Kusti Kajander, Aalto University, Matti Sivunen, Aalto University, Seppo Junnila, Aalto University, Abstract The built environment has been estimated to have the largest climate change mitigation potential worldwide in the upcoming decades. Living up to the potential requires swift diffusion of radical sustainability innovations, which has created a sense of urgency in the industry. The need for innovations poses a challenge, however, because the built environment is considered as one of the least innovative industries and there is very limited research on the industry specific features of the sustainability innovation process in the built environment. The traditional research and development conceptualization of the innovation process is often inadequate to capture the complex relationships in the built environment. Although the paradigm change from closed to open innovation has brought with it significant improvements, the current innovation models still have a poor fit for the specific field of built environment. In this paper we present a model that conceptualizes the inherent challenges of sustainability innovation in the built environment, and describes the variety of pre-defined interactions which must take place in the course of a successful innovation process. Our thinking owes much to the existing literature on open innovation and service-dominant logic. The notions that companies should share information and utilize as well as produce external knowledge, and that innovating does not occur in a vacuum but in constant interaction with other organizations, belong to the core of the modern innovation paradigm. Conceiving the innovation process as circular or spiral instead of linear, especially when aiming at radical innovation, is also an established view. Models of open innovation have a proven track record for accurately describing innovation activities in many industries. They do not perform as well, however, when tested against data gathered from built environment. Backed by approximately 60 international interviews, several case studies and survey data we argue that the models need to be customized in two regards. First, existing models emphasize the role of the innovating firm as the central beneficiary in the innovation process. The built environment, however, is very fragmented and comprises a multitude of actors, none of which possess game-changing innovation potential on their own. Thus, clear multi-stakeholder benefits have to be produced. Second, established innovation models portray interactions with other organizations as crucial, but treat them as possibilities, i.e. the challenge is in finding the best organizations to work with. In built environment, in addition to finding the right partners, the challenge is in finding the right balance amid a complex network of predetermined actors, such as city authorities, local stakeholders and legislative bodies, as well as industry specific structure with a separate client and customer. To meet the above-mentioned needs we present a gravitational slingshot model of radical innovation in built environment. As the title suggests, the model draws inspiration from a proven method of interplanetary travel known as the gravitational slingshot or gravity assist maneuver. This technique utilizes the gravity and motion of planets in order to change the speed and direction of a spacecraft without using propellant, which often makes it the fastest and the most economical means of space travel. In the context of innovation the gravitational slingshot provides a strong metaphor that captures the unique characteristics and complexities of the built environment without sacrificing the simplicity that is behind the appeal of the existing open innovation models.

2 In line with the literature on open innovation and service-dominant logic, we identify the innovating company, active customer participation (both the client and the end-customer), value network involvement (e.g. regulatory bodies, various stakeholders) and utilization of broader market feedback as key elements of a successful process aiming at radical innovation in built environment. In the model these elements are portrayed as planet-like bodies in innovation space. The innovation process metaphorically bends upon interaction with different elements, much like a spacecraft's path does upon entering and exiting the gravitational fields of planets. In addition to redirecting the path, these interactions also serve the purpose of gaining momentum. The gravitational slingshot model offers a useful mindset for practitioners and academics to approach innovation in built environment for two reasons. First, it provides a powerful visual and conceptual framework for shared understanding, which forms the basis for effective change management. Second, it portrays challenges as opportunities. Why fight gravity when you can use it to your advantage? Although a successful innovation process is pictured in the visual presentation of the model, it should be noted that the model contains the element of failure. Innovation processes can crash or drift into oblivion. Hence, interaction with the various bodies in innovation space should be treated as a prerequisite at most, not a guarantee, of radical sustainability innovation. Key Words: Innovation process, innovation model, built environment, construction industry, sustainability, service-dominant logic, open innovation

3 Paper 1. INTRODUCTION Growing concern over climate change has led to political action. A policy initiative by the European Union calls for a 20 % reduction of greenhouse gas (GHG) emissions below 1990 levels coupled with a 20 % increase in energy efficiency and raising the share of renewables to 20 % by the year 2020 (EC 2010). Looking into the future, EU has set an additional long-term objective of reducing GHG emissions by % below 1990 levels by the year 2050 (EC 2011). Energy production and renewables often dominate the discussion on sustainability innovations because energy production has such a big impact on the environmental performance of other sectors (Huber 2004). However, to meet the above-mentioned sustainability targets in the given timeframe, radical environmentally oriented innovations addressing energy efficiency are also needed. The built environment is an especially important domain in this regard due to its large unfilled potential. It has been estimated that the built environment constitutes approximately 40 % of all energy consumption and as large a share of the GHG emissions in Europe (UNEP 2007). In fact, the buildings sector has been estimated to have the largest climate change mitigation potential worldwide in the upcoming decades, but living up to the potential requires both strong regulatory efforts as well as the diffusion of new innovations (IPCC 2007). The need for innovations poses a challenge, however, because the built environment is generally considered as one of the least innovative sectors of the economy. The uniqueness of the built environment sector, particularly the construction industry, in comparison to other sectors of the economy is well documented in earlier literature (e.g. Dewick and Miozzo 2002; Miozzo and Dewick 2004). To summarize some of its distinctive features, the built environment is very fragmented, it is project-based by nature and the R&D expenditures in the sector are extremely low. These are often considered as obstacles to development, introduction and diffusion of innovations. This should not mean that innovation in the built environment is futile or of no interest to innovation researchers, actually quite the opposite is true. Because the built environment constitutes a major share of the national wealth in many developed countries, and since it plays such a central part in mankind s efforts to mitigate climate change, a better understanding of the sustainability innovation process in the built environment can be considered crucial. Research on innovation process models is also important because models are analytical tools not only for researchers but for companies as well. Ever since Pavitt s (1984) taxonomy of innovations it has been commonly agreed that there is no grand theory of innovation that applies as such to all fields, but that there are sectoral differences in innovating and innovation processes. Although some studies on the subject can be found (e.g. Winch 1998), we argue that the built environment sector is underrepresented in research concerning innovation process models. In this paper we take one step to balance out the situation. We attempt to incorporate some of the industry specific features of the built environment sector to the existing models of the innovation process. Since a comprehensive treatment of all innovation models in one paper would be nearly impossible, we have decided to concentrate on open innovation and especially service-dominant logic innovation, which seems to provide the sturdiest theoretical backbone for our endeavor. In the next two sections of the paper we discuss the theoretical background of existing innovation models and the applicability of the models to the built environment sector. We identify closed innovation or new product development as a linear process that relies mainly on in-house competence and vision, and is thus perhaps better suited for developing incremental instead of radical innovations in the built environment. Theories of open innovation and the closely related

4 service-dominant logic innovation seem to have a much better fit for the built environment sector, but they too have two shortcomings. First, they emphasize the role of the innovating firm as the central beneficiary in the innovation process, which is often not the case. Second, interactions with other actors in the innovation environment play a key role in service-dominant logic innovation, which is accurate, but the interactions are treated solely as opportunities. Existing innovation models fail to take into account, that on top of voluntary interactions, innovation processes in the built environment depend on and are influenced by many predetermined actors. Therefore in the final section of the paper before conclusions we present a model of radical innovation in the built environment, which attempts to take into account the above mentioned sector-specific features. 2. THEORETICAL BACKGROUND OF EXISTING INNOVATION MODELS In this section we review shortly the theory behind the most common innovation models. We begin by taking a look into the traditional new product development process or closed innovation, followed by open innovation and service-dominant logic innovation. They are not yet discussed from the built environment perspective, but only on a very general level. The closed model of innovation can be described as the conventional industrial R&D approach, in which innovating takes the form of a goods-dominant new product development (NPD) process. Common features of NDP processes are detailed planning and relying on in-house competences. It is also typical to keep the innovation secret from competitors throughout the process. NDP processes are linear by nature. First a number of product ideas are submitted to technical and market assessment. Then, after preliminary elimination, the surviving ideas are transferred into the research and development pipeline as projects. Finally, only a few of the original product ideas are actually converted into products and introduced to the market. (Chesbrough 2003.) Perhaps one of the best known NPD processes is the stage-gate model originally developed by Cooper (1990) and later elaborated by him (e.g. Cooper 2007) as well as others (e.g. O Connor, 2002). In stage-gate systems, methods similar to product manufacturing processes are used to manage the innovation process. The development process is divided into sequential stages with decision gates between them, which act as quality control checkpoints. How the potential product ideas are generated is not typically explained in stage-gate process literature in more detail, other than that they are invented in-house. Although there is some variance in practice, the set of stages often resembles the following: 1) preliminary assessment of potential R&D ideas, 2) detailed investigation, 3) development, 4) testing and validation, and 5) full production and market launch (Ettlie and Elsenbach, 2007). It should be noted, however, that this is only a very broad generalization and that there also exist so called new generation closed innovation models that are more dynamic and non-linear (Rothwell 1994). A more remarkable change in innovation process literature than the new generation models of closed innovation came in the form of a paradigm shift from closed to open innovation. According to the open innovation paradigm, innovation is based on both internal and external ideas. It has been said that in the last one or two decades the foundation of a successful innovation process has increasingly shifted away from in-house capabilities towards the capability of monitoring the external environment. What is of great interest to this paper is that cooperation with different actors such as suppliers, competitors, other non-competitive companies, research institutes, and endcustomers, is seen as a key element of successful innovation in open innovation. (Chesbrough 2003.)

5 Service-dominant (S-D) logic innovation theory (Vargo and Lusch, 2004; 2008; Michel et al., 2008; Lusch et al., 2010) has quickly spread from marketing to other fields of science. In many respects it is very similar to open innovation. It attempts to better explain the discontinuous innovation process by removing the artificial distinction between product and service innovation. The key argument behind the S-D logic is that traditional, goods-dominant R&D processes overlook major radical innovations, because goods are merely a distribution mechanism for service provision. S-D logic focuses intensely on the role of the customer. This is evident for example in the definition of radical innovation. According to the S-D logic an innovation is radical if it changes both the value creation of the innovating organization and the role of the innovation s customer. The change in value creation can take place in three ways: how the organization embeds operant resources into objects, how it integrates resources or how it reconfigures its value network. In addition, a discontinuous innovation changes how the customer pays for, buys or uses a service. (Michel et al ) 3. APPLICABILITY OF THE INNOVATION MODELS TO THE BUILT ENVIRONMENT On top of earlier research literature, we base our arguments about the sectoral peculiarities of the built environment and their effects on innovation processes on data collected since 2009 for the Sustainable Business Innovations in the Built Environment research project at Aalto University in Finland. The data consists of approximately 60 international interviews, several case studies and two surveys. The interviewees and respondents include academics as well as practitioners from both private and public sectors. The papers produced in the course of the research project cover a wide array of topics from the challenges of sustainability innovations in the built environment (e.g. Kajander et al. 2011) to utilization of the service-dominant logic innovation in companies (Sivunen et al. 2012) and the economic significance of sustainability innovations (Kajander et al. forthcoming). But now of interest is the applicability of the innovation models presented in the previous section to the field of built environment. There is strong evidence that new product development processes such as the stage-gate model are effective in increasing the efficiency of development activities in companies (e.g. Ettlie and Elsenbach, 2007). On the other hand it seems they are much better suited for the development of incremental rather than radical innovations. Radical innovations can form the foundation of a new product line or an entirely new business, but their development processes involve many risks and uncertainties. Therefore it is unlikely that a tightly controlled linear process where risks are avoided by closing down projects even at an early stage if they do not seem promising is an optimal way to develop radical innovations. NDP processes should not, however, be completely dismissed. For example Miller (2006) argues that effective innovation management requires the simultaneous use of two processes: a linear stage-gate process for incremental innovations and a spiral stage-gate process for discontinuous innovations. We are mainly interested in the latter since radical innovations seem to, according to our understanding, pose a much larger problem for built environment organizations. Due to the fragmented nature of the built environment one should also have certain skepticism towards the notion that built environment organizations are able to develop even incremental innovations in-house. Because of the close ties to organizations outside the industry (for example materials providers) the concept of in-house development is always questionable. This is communicated well by Miozzo and Dewick (2004, 84) when they state that construction industry innovation can only be understood in relation to the networks in which construction firms are embedded.

6 As said many times before, innovation process models based on theories of open innovation and service-dominant logic seem to have a much better fit for the built environment sector than closed innovation models, especially for the development of radical innovations. S-D logic innovation is highly customer-centric, and according to it the customer is seen as a co-creator of value instead of a passive payer (Vargo and Lusch 2008). The need to integrate the customer into the development process as a way of ensuring that resources are being put to good use has come up in many of the research interviews as well. Furthermore, it has been argued that the utilization of the value network is of utmost importance in tackling several key questions in the development of radical innovations (Lusch et al. 2010). This is all in line with the view that in the built environment the capabilities of a single organization operating alone are very limited. Although the paradigm change from closed to open innovation has brought with it significant improvements, innovation models based on open innovation need to be customized in two regards. First, existing models emphasize the role of the innovating firm as the central beneficiary in the innovation process. The built environment, however, is very fragmented and comprises a multitude of actors, none of which possess game-changing innovation potential on their own. Thus, clear multi-stakeholder benefits have to be produced in order for a complex network of actors to work together to develop radical innovations. Second, established innovation models portray interactions with other organizations as crucial, but treat them as possibilities, i.e. the challenge is in finding the best organizations to work with. In built environment, in addition to finding the right partners that one wants to work with, the challenge is also in finding the right balance amid a complex network of predetermined actors, such as city authorities, local stakeholders and legislative bodies, with whom cooperation is not voluntary but necessary. The industry specific structure with a separate client and customer also poses a challenge for innovation. 4. A NEW WAY TO CONCEPTUALIZE RADICAL INNOVATION PROCESSES IN THE BUILT ENVIRONMENT As one possible way of combining the peculiarities of the built environment sector with existing innovation models we present the gravitational slingshot model of radical innovation in the built environment (figure 1). As the title suggests, the model draws inspiration from a proven method of interplanetary travel known as the gravitational slingshot or gravity assist maneuver. This technique utilizes the gravity and motion of planets in order to change the speed and direction of a spacecraft without using propellant, which often makes it the fastest and the most economical means of space travel. In the context of innovation the gravitational slingshot provides a strong metaphor that captures the unique characteristics and complexities of the built environment without sacrificing the simplicity that is behind the appeal of the existing open innovation models. In line with the literature on open innovation and service-dominant logic, we identify the innovating company, active customer participation (both the client and the end-customer), value network involvement (e.g. regulatory bodies, various stakeholders) and utilization of broader market feedback as key elements of a successful process aiming at radical innovation in the built environment. In the model these elements are portrayed as planet-like bodies in innovation space. The innovation space comprises of both the actors the company wants to interact with, that is, the actors it chooses to cooperate with, as well as those with whom interactions are involuntary but necessary in order for the innovation process to be successful. The shift from an innovatingcompany-centric viewpoint to a more network-oriented view is backed up visually by placing the innovating company away from the center of the model.

7 The line in figure 1 represents an exemplary path of a successful innovation process aiming at radical innovation. Although it originates at the innovating company, the departure is not to be confused with the initial discovery or invention behind the innovation. According to the principles of open innovation it may as well be exogenous to the organization. Rather it should be thought of as the innovating team setting out on a mission based on that idea, the start of the innovation project. The path bends upon interaction with different elements, much like a spacecraft s path does upon entering and exiting the gravitational fields of planets. In addition to redirecting the path of the process, these interactions also serve the purpose of gaining momentum. Finally, after passing the market pilot the line fans out representing the diffusion of the innovation in the built environment. Figure 1. Gravitational slingshot model of radical innovation in the built environment. The gravitational slingshot model offers a useful mindset for practitioners and academics to approach innovation in built environment for two reasons. First, it provides a powerful visual and conceptual framework for shared understanding, which forms the basis for effective change management (Morgan 1993). The metaphor is very flexible and allows for an endless number of reconfigurations and case-specific customizations. This is important because the innovation space differs from project to project. Second, it portrays challenges as opportunities. Why fight gravity when you can use it to your advantage? When innovating in a sector such as the built environment, other actors in the innovation space must not be seen as hurdles but as necessary components of success. According to our understanding the importance of utilizing other bodies in innovation space even seems to increase the more radical the innovation is, i.e. the more it differs from business as usual.

8 Finally, although a successful innovation process is pictured in figure 1, it should be noted that the model contains the element of failure. Innovation processes can crash or drift into oblivion. Hence, interaction with the various bodies in innovation space should be treated as a prerequisite at most, not a guarantee, of radical sustainability innovation. Many important factors that apply to any innovation project in any field, such as timing of the innovation, the competence of the project team and availability of financing, apply also to innovation projects in the built environment. They should be taken into account although they are not explicitly present in the model. 5. CONCLUSIONS In this paper we have argued that existing innovation models have a poor fit for the built environment sector for two reasons. First, the built environment is very fragmented. Established innovation models are organization-centric in the sense that the main beneficiary is often portrayed to be the innovating company. According to our view this is seldom the case in the built environment. Clear multi-stakeholder benefits have to be produced in order for an innovation process to be successful, because in the built environment sector a single organization does not possess game-changing potential on its own. Second, established innovation models portray interactions with other organizations as crucial, but treat them only as possibilities. In the built environment sector the problem is not only in finding the right partners, but also in finding the right balance amid a complex network of predetermined actors, such as city authorities, local stakeholders and legislative bodies. As one way of combining the above mentioned features of the built environment sector into existing innovation models, we presented the gravitational slingshot model of radical innovation in the built environment. The theoretical background of the model is in open innovation and servicedominant logic innovation, but it is customized to better reflect the peculiarities of the built environment. The model is meant as an analytical tool for academics and practitioners alike. It is but one way of visualizing the process of radical innovation in the built environment. Hopefully it will stimulate more discussion on the subject because innovation processes in the built environment are still not very well understood, and secondly because from a climate change mitigation point of view radical sustainability innovations in the built environment are urgently needed.

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