Impact of Exploitation on Long-‐term Innovation
Ambidextrous behaviour in construction-‐related firms in the Netherlands
Master Thesis Business Studies Executive Program
Supervisor: Dr. Ranjita M. Singh
Date: 26-01-2014
Student name: ing. Wasim Haji
"We shall not cease from exploration, and at the end of all our exploring will be to arrive where we started and know the place for the first time."
T. S. Eliot
Preface
Four years ago, after working in the construction industry for over twenty years, I decided to shift from business to education and become a lecturer at a university of applied sciences: the Hogeschool of Amsterdam. I have always been interested in business studies, and for this reason, enrolled in a part-time Master’s program at the University of Amsterdam two and a half years ago. This offered me the opportunity to combine the two worlds and review the construction industry from a business point of view rather than a practical one.
Writing this thesis has been an intense yet interesting period; a steep learning curve. Without the support, help, guidance and patience of numerous people, it would never have been possible for me to complete the thesis. First, I would like to thank all respondents for their time and openness, and for providing the useful information that has been indispensable for the conduction of this study. I would like to thank the Hogeschool of Amsterdam for providing me the opportunity to finish my studies. I extend my gratitude and sincere
appreciation to my supervisor dr. Ranjita Singh, for her support and her guidance. Her critical
questions, professional feedback and push in the right directionallowed me to complete the
final phase. Finally, I would like to thank my wife and my children for their support and patience. In conducting research on ambidextrous behavior in the construction companies for the past six months, I have personally been very monodextrous. I will attempt to make up for lost quality time.
! ! Wasim ! H aji !
Abstract
Innovation plays a key role in creating competitive advantage. A study conducted by the Central Bureau of Statistics (2010) illustrates that with regard to innovation, the construction firms in the Netherlands significantly lag behind firms in other industrial sectors.
Constructions firms’ actions are oriented towards short-term innovation and are more likely to focus on exploitation rather than on exploration (March, 1991). According to Benner & Tushman (2003), exploitative innovations are designed to meet the needs of existing customers or markets, whereas exploratory innovations are designed to meet the needs of emerging customers and markets.
Exploitative activities are more likely to result in incremental innovation, while exploration activities often lead to radical innovations. Thus, firms require the appropriate organizational set-up in order to generate these two different types of innovations, so as to deal with the tension that exists between exploitation and exploration. Although both forms of innovation lead to better business performance and successfully confirm that innovation is fruitful, this study aims to discover the extent to which short-term innovation inhibits long-term innovation.
In order to be successful in the long run, firms must engage in both exploration and
exploitation (e.g. Benner & Tushman, 2002; Eisenhardt & Martin, 2000; Feinberg & Gupta, 2004; March 1991). To achieve this, the firm is challenged with balancing and synchronizing exploitative and exploratory innovations, a phenomenon referred to as ‘ambidexterity’ (Gibson & Birkinshaw, 2004). This research identifies the way in which construction-related firms focus on both short- and long-term innovation, and aims to deepen our understanding of the underlying antecedents of ambidexterity.
Keywords: exploitation, exploration, incremental, radical innovation, ambidexterity, project-‐based view,
Table of Contents
Preface ... 2
Abstract ... 3
Chapter 1. Introduction ... 6
Chapter 2. Literature review ... 10
3.1 Innovation vs. Invention ... 10
3.2 Types of innovation ... 12
3.3 Exploitative and exploratory innovations ... 13
3.4 Ambidexterity ... 15
Chapter 3. Theoretical framework ... 18
3.1 Introduction ... 18
3.2 Project-based industry ... 19
3.2.1 Project-based view ... 19
3.2.2 Effect of lean management on innovation ... 20
3.2.3 (Lack of) Innovation in the construction industry ... 21
3.3 Knowledge sharing ... 23
3.4 Absorptive capacity ... 27
3.4.1 The role of Absorptive capacity ... 27
3.4.2 Determinants of absorptive capacity ... 29
3.4.3 Absorptive capacity and construction related firms ... 32
Chapter 4. Research design and methodology ... 35
4.1 Research design ... 35
4.2 Data collection method ... 37
4.3 Data analysis ... 38
Chapter 5. Analysis and results ... 41
5.1 The preparation for analysis ... 41
5.2 The role of organizational and environmental characteristics ... 42
5.3 Data analysis ... 44
5.3.1 Public Private Partnership and PFI ... 46
5.3.2 Construction Supply Chain Management ... 48
5.3.3 Building Information Modelling ... 48
5.3.4 Lean ... 50
5.3.7 Fragmentation in the construction ... 53
5.4 Hypothesis and overview results ... 55
5.4.1 Hypothesis 1 ... 55
5.4.2 Hypothesis 2 ... 57
5.4.3 Hypothesis 3 ... 58
5.5 Results of ambidexterity ... 60
Chapter 6. Conclusion ... 61
Chapter 7. Discussion and limitations ... 65
7.1 Exploitative and explorative learning ... 66
7.2 Rules and procedures ... 67
7.3 Absorptive capacity / Lean ... 68
7.4 Limitations and recommendations ... 69
Chapter 8. References ... 71
Appendix 1: Interview questions ... 77
Appendix 2: Top 50 construction firm ... 79
Appendix 3: Variables coding schemes ... 80
Appendix 4: Qualitative analysis total overview ... 81
Chapter 1. Introduction
The indispensable role of technological and organizational innovations in the enabling and supporting of prosperity and welfare is an undisputed given. Innovation is regarded as one of the main challenges for organizations today. Through the research and development of new or improved products, service or production methods may serve as a way to create value.
Increasing global competition, fragmentation of markets and convergence of technologies obliges the established companies to continuously renew themselves (Guth & Ginsberg, 1990). Hence, firms must refrain from stagnant business and instead create new valuable sources through the combination of innovation and new resources (Guth & Ginsberg, 1990; Volberda et. al, 2001). Porter (1996) claims that the practises of restructuring, re-engineering and benchmarking often succeed in improving the operational effectiveness but fail to yield strategic advantages. Hamel and Prahalad (1994) propose that rather than adhering to the ‘more of the same' or ‘try harder' approaches, companies must fundamentally revise their existing core in order to change or diversify. A quote from Alice in Wonderland story by Lewis Carroll (1946: 178) neatly exemplifies this concept: “Now, here, you see, it takes all the running you can do to keep in the same place”.
Despite the fact that firms are progressing rapidly, they somehow fail to gain any competitive advantage; this is referred to as ‘the Red Queen-effect’ (Volberda, 1998a), named after the Red Queen character in the book Through the Looking Glass (Lewis Carroll, 1946). In an attempt to stay competitive, firms tend to focus on downsizing, benchmarking and rationalising their business portfolio. The issue is that this easily adapted strategy is carried out by the majority of the competitors, as well, thereby not allowing the firm to set itself apart and enjoy any competitive advantage. This effect arises frequently, especially for firms within the construction industry. The following section describes the reason for why firms in this particular industry may prove of interest to this research.
Firms within the field of construction – one of the largest industries in the world – are service-enhanced enterprises that are project-based. Despite the scope of the industry, such firms have thus far been inadequately addressed in the literature on innovation (David, Gann, Ammon & Salter, 2000). One of the firms’ characteristics is their sole execution of projects specifically for their clients, designed by a third party; each project ranges from six months to three years. The firms’ managers are traditionally autodidactic and their primary focus is on project-based efficiency. Construction-related firms operate in an increasingly competitive environment, in
an industry where design-bid-build1 process is common.Construction projects are complex
and require the mobilization and management of a wide range of capabilities. It is rare for a single firm to control or own such capabilities; instead, the construction project is
disintegrated into smaller parts and outsourced to the specialist, resulting in the construction industry being largely fragmented. The fact that the projects are built in open space and the building sites are in different locations, routinization forms a predominant issue for managers. Management must additionally deal with a changing work force (and thus varying quality) for each project. These issues render the profits lower and the construction firms face numerous risks, such as return of investment, stagnation due to weather conditions, penalties due to delays, high failure cost due to outsourcing and low quality, and so on. It is beneficial for firms to minimize the risk, which often implies that they refrain from engaging in radical innovations.
A construction project must be completed in time in order to avoid penalties and to ensure a return on investment. The predominant focus on ‘learning from the job’, or ‘learning by doing’ creates little room for radical change. Hence, constructions firms’ actions are oriented towards short-term innovation and are more likely in the nature of innovation emphasizing exploitation rather than exploration (March, 1991). Benner & Tushman (2003)
1 Traditional contracting method in which design and construction phases of a construction project are bid and performed by
(http://www.businessdictionary.com/definition/design-bid-state that where exploitative innovations are designed to meet the needs of existing customers or markets, exploratory innovations serve to meet the needs of emerging ones. Current
literature elaborates extensively on innovation and firms’ exploitative versus explorative behaviour, but is meagre with regards to the dynamics of innovation within project-based firms. David et al. (2000) claim that existing literature fails to place a link between project and business processes. Hence, this study aims to contribute to the research by yielding more insight into the innovative behaviour of project-based, service-enhanced firms.
Both exploration and exploitation are associated with learning; according to March (1991), the two constitute concepts of organizational learning, which are fundamentally important resources for firms within the construction industry. Argyris and Schön (1978) categorize the levels of organizational learning in ‘single-loop’ learning and ‘double-loop’ learning, which will be further discussed in Section 3.4.
An extensive and substantial amount of literature exists on the topic of innovation. Regardless, relatively little is still known about the interplay between short-term and long-term innovation, and it remains undelong-termined whether firms are able to easily pursue both types of innovation. Moreover, does doing one hamper the other? In this thesis I seek to understand whether short-term innovation is in the nature of incremental innovation, and long-term innovation is linked to radical innovation.
Short-term innovation is characterized by a firm’s focus on existing design, the current market, risk reduction and efficiency enhancement. The operating companies – such as
construction firms – benefit from, among others, productions and efficiency; hence, they tend to focus on the refinement of knowledge and current procedures. This refinement aligns with formal structures and rules and routines. Long-term innovation, on the other hand, entails the search of new markets and knowledge. Firms engaged in long-term innovation adopt a loose and flexible organizational structure and focus primarily on growth. Although long-term
innovation leads to a sustainable competitive advantage, it is risky and the benefits are not blatantly visible; short-term innovation involves the least risk and effort. Both types of innovation improve business performance, a due confirmation that innovation is fruitful. This has led to the following research question:
“To what extent does a focus on short-term innovation hamper long-term innovation?”
Furthermore, the construction companies operate in a moderate environment, in which the necessity for radical innovation is low. The source of competitive advantage in a high velocity environment is unique in comparison to the source of competitive advantage in a moderate velocity environment (Eisenhardt & Martin, 2000). Firms operating in the former
environment aim to stay up to date continuously with environmental changes. In a moderate velocity environment (Eisenhardt & Martin, 2000), however, firms that adapt to an
environmental change will risk being imitated if they resort to simple adaption processes (Eisenhardt & Martin, 2000). Providing that the future is relatively predictable in such an environment, previous experience proves highly valuable (Eisenhardt & Martin, 2000). In order to achieve sustainable competition and success in the long run, it is wise for firms to engage in both exploration and exploitation (e.g. Benner and Tushman, 2003; Eisenhardt and Martin, 2000; Feinberg and Gupta, 2004; and March, 1991). In a moderate velocity
environment, firms employ analytical approaches to decision-making at a slow pace
(Eisenhardt & Martin, 2000) and focus primarily on short-term operations and processes. It is in this environment in which the construction firms operate. The goal of this study is to determine the way in which a firm’s focus on short-term innovation restrains long-term innovation.
Chapter 2. Literature review
In the following chapter, a literature review is presented that explains and elaborates on the most fundamental concepts associated with innovation. It is crucial to fully understand the concepts and the subtle differences between them, before an in-depth analysis can be made.
First, the concept of innovation is set apart from the concept of invention, after which the two main types of innovation, incremental and radical, are extensively discussed in Section 2. In the third section, these two are linked to the concepts of exploration and exploitation, respectively. In the fourth and final section, the concept of ambidexterity – the utilisation of both types of innovation – is explained, as well as the extent to which firms are capable of performing this. The current gap in existing literature regarding short- versus long-term innovation is introduced, and the chapter concludes with a reference to the main research question.
3.1 Innovation vs. Invention
Schumpeter's (1942) pioneering work on firms’ 'gales of creative destruction' has brought
home to organizations the criticality of innovation and renewal.Although a considerable
amount of literature has been published on the subject of innovation, confusion remains with regard to the precise definition of ‘innovation’. Prior to building the theoretical foundation, the contradictory aspect of the concept of innovation must be clarified. Below, the various differences between innovation and invention are presented.
Schumpeter (1947) describes a ‘trilogy’ of innovation, in which he distinguishes between three concepts: invention, innovation and diffusion. Invention refers to the original idea for a new product, method or process. The innovation process is the development and transformation of new ideas into marketable products and processes; innovation itself entails conducting entirely new actions/concepts or carrying out existing actions/concepts in a new
way. Finally, diffusion is the process whereby the new products and processes are distributed across the potential market. The main difference between invention and innovation is that the former is the formulation of a novel idea or concept for the product, process or method, whereas the latter is the actual (practical) application of the new invention to vendible products or services. In short, an invention is the creation of a new idea, and innovation
commercializes it (Hitt, Hoskisson, & Nixon, 1993; Schumpeter, 1943). Arthur (2007, pg.
278) notes that an invention possesses the quality of "a change in a base principle by which the purpose is achieved [...]. When we designate a novel technology as an ‘invention’, we find always a purpose carried out by a new or different base principle”.
An additional difference is that inventions refer to new ideas in a general sense, whereas innovations entail new ideas within a specific context or situation (Damanpour,
1987;Van de Ven et al., 1989). Invention can often be considered an exploratory process.
Although the outcome is generally uncertain or unknown, an invention has the potential to be a radical breakthrough, given that it is fully functional and does not stem from an existing model or idea.
As the difference between innovation and invention is clarified, the topic of innovation remains diffuse within literature. Kline and Rosenberg (1986) claim that the term ‘innovation’ is related to a time frame and that it is not merely heterogeneous. The changes that take place within a certain time frame helps determine the way in which the innovation is perceived. Although this is a subjective element, Kline and Rosenberg (1986: 283) notes “it is a serious mistake to treat an innovation as if it were a well-defined, homogenous thing that could be identified as entering the economy at a precise date – or becoming available at a precise point in time. […] The fact is that most important innovations go through drastic changes in their lifetimes – changes that may, and often do, totally transform their economic significance. The subsequent improvements in an invention after its first introduction may be vastly more
important, economically, than the initial availability of the invention in its original form”. Clear from this is that innovation cannot be regarded as a one-dimensional concept with a simple-to-measure indicator. Thus, numerous aspects of innovation, along with the degrees of novelty, must be considered. For example: is the idea new to the business or new to the industry? Is the extent of innovativeness in the Netherlands equal to other countries?
The adoption of innovation reveals its various different dimensions, of which the most prominent are: technological, administrative (organizational), product, process and market (Utterback, 1994). Damanpour & Aravind (2006) suggest that comparing different types of innovation is necessary for fully understanding and identifying the determinants of firms’ adoption behaviour. The differing types of innovation influence the way in which
organizations adopt the innovation, followed by a consequent difference in the causal mechanisms and decision-making processes that they employ (Daft, 1978; Damanpour, 1991). Varying types of innovation naturally impact firms’ strategy, structure and process in different ways. The impact/degree of innovation may be either incremental or radical
(Damanpour, 1989); this thesis explores both types.
3.2 Types of innovation
The following section describes the two types of innovation that can be undertaken by an organization: incremental and radical. The first entails minor improvements or simple adjustments to current, existing technology (Munson & Pelz, 1979), i.e.: it builds upon and exploits existing knowledge and resources within a certain firm. This increases the
competitive advantage, thereby making incremental innovation a competence-enhancing innovation (Tushman & Anderson, 1986). Incremental innovators tend to be evolutionary and think in terms of short-term actions, restricting their search for answers to their problem at the
limitation of existing solutions. A final characteristic of incremental innovation is that it is often related to low risk and low profit.
Radical innovation, on the contrary, is related to high risk and high profit. It requires an entirely new set of knowledge and resources, and will therefore be detrimental to a firm’s competence (Tushman & Anderson, 1986). Given that it involves large technological
advancements, it renders the existing products non-competitive and obsolete. Revolutionary innovators broaden their horizons by devising and posing unique questions that have not been conceived before.
Both types of innovation require a unique approach; hence, firms must possess the appropriate resources for implementing each type. According to Benner and Tushman (2003), firms must balance exploration and exploitation by simultaneously generating radical and incremental innovations, in order to be effective in both the short- and long-term. This will be elaborated on at a later stage (Sections 2.3 and 2.4).
Exploration is related to radical innovation and exploitation is related to incremental innovation (Atuahene-Gima, 2005). Atuahene-Gima’s (2005) definition of exploitation is extending current knowledge and seeking greater efficiency and improvements, so as to enable incremental innovation. Exploration is defined as the development of new knowledge, using experimentation to foster the variation and novelty required for more radical innovation. This study lays a linear link between incremental innovations as being exploitative, and radical innovations as being exploratory.
3.3 Exploitative and exploratory innovations
In the process of innovating, organizations will pursue new knowledge and develop new products and services on the one hand, and build on existing knowledge and skills, on the other (March, 1991). In short, they employ both exploratory and exploitative innovation.
Benner and Tushman (2003) note that exploitative innovation is of additive value to existing customers; it fulfils their needs, as well as those of the existing market. Given the focus on efficiency of existing products and processes, this type of innovation leads to
increased firms performance, allowing the firm to maintain and exploit its core competencies. A firm’s commitment to a particular core competence could result in ‘core rigidity’ (Leonard-Barton, 1992), or the so-called ‘competence trap’ (Levinthal & March, 1993; Volberda, 1996).
Short-term innovations require usually exploitative activities and characterized by a firm’s focus on existing design, the current market, risk reduction and efficiency
enhancement. The operating companies – such as construction firms – benefit from other refinements, productions and efficiency; hence, they tend to focus on the refinement of knowledge and current procedures. This refinement aligns with formal structures and rules and routines. Exploitative activities are more likely to result in incremental innovation. Long-term innovations, on the contrary, require exploitative activities and entail the search of new markets and knowledge. Firms engaged in long-term innovation adopt a loose and flexible organizational structure and focus primarily on growth. Although long-term innovation leads to a sustainable competitive advantage, it is risky and the benefits are not blatantly visible. Exploration activities often lead to radical innovations.
Exploratory, radical innovations are “designed to meet the needs of emerging customers and markets” (Benner & Tushman, 2003: 243). According to Abernathy & Clark (1985), this form of innovation offers new designs, creates new markets, and develops new channels of distribution. It requires new knowledge, veers away from existing knowledge (Levinthal & March, 1993; McGrath, 2001) and relates to new searches, variation,
experimentation, flexibility, risk-taking (March, 1991) and internal variety (McGrath, 2001). The creation of internal variety results from seeking new organizational routines, and the
discovery of new approaches relates to technologies, businesses, processes, and products (McGrath, 2001). Firms that focus excessively on exploration and become over-sensitive to short-term variations and local errors (Volberda, 1996) without reaping any benefits, can find themselves in a ‘renewal trap’ (Levinthal & March, 1993), or a so-called ‘failure trap’. To summarize, the differences between exploitative (incremental) innovation and exploratory (radical) innovation (Benner & Tushman, 2003) is presented in the following table:
Table 1: Exploratory innovation versus exploitative innovation (Jansen et al., 2005)
Organizations must often realize concrete results in order to survive in the short run, while simultaneously maintaining or improving their competitiveness in the long run (Volberda, 1996). To succeed in this, they must seek to balance and synchronize exploitative and
exploratory innovation, a phenomenon referred to as ‘ambidexterity’ (Birkenshaw and Gibson 2004).
3.4 Ambidexterity
In order to be successful in the long run, firms must engage in both exploration and
Exploratory innovations Exploitative Innovations
Definition Exploratory innovations are radical and are designed to meet the needs of emerging customers or markets
Exploitative Innovations are incremental and are designed to meet the needs of existing customers or markets Outcomes New designs, new markets, and new
distribution channels
Existing designs, current markets, and existing distribution channels Knowledge base Requires new knowledge and veers
away from existing knowledge
Builds upon and expands existing knowledge and skills
Results from Search, variation, flexibility,
experimentation, and risk-taking Refinement, production, efficiency and execution Performance
implications Long-term benefits Short-term benefits
2004; and March 1991). Birkenshaw and Gibson (2004) argue that companies may achieve long-term success by focusing on adaptability and alignment. The combination of these two concepts yields what is known as ‘ambidexterity’ (Tushman & O’Reilly, 1996).
Birkenshaw and Gibson. (2004) have developed and extensively explored the concept of contextual ambidexterity, in which individual employees divide their time between
activities focused on alignment and activities focused on adaptability, all within the context of their daily work. As such, improving firms’ ambidexterity entails exploiting existing products to enable incremental innovation, and exploring new opportunities. Here, the social support and performance management are of equal importance.
Ambidexterity is a dynamic capability that refers to the routines and processes by which firms mobilize, coordinate and integrate contradictory efforts, as well as (re) allocate and (re)combine resources across exploration and exploitation (Jansen et al. ,2007). From a generic standpoint, ambidexterity entails striking a balance, rather than choosing between two extremes (Eisenhardt & Martin, 2000; Birkinshaw & Gibson 2004). Where structural
ambidexterity is based on a structural mechanism, contextual ambidexterity arises out of an appropriate organizational culture. The two types of ambidexterity are complementary rather than substitutive (Birkinshaw & Gibson (2004). In order to improve ambidexterity, firms must seek to stimulate a positive learning environment, where information and knowledge flows freely across exploratory and exploitative boundaries. Simultaneously, a single organizational unit conducts paradoxical activities.
An ‘innovation capability’ refers to the firm’s ability to continuously transform
knowledge and ideas into new products, services, processes and methods, so as to create value for the firm. Teece & Pisano (1994, p. 541) propose the dynamic capabilities theory as the “subset of the competences/capabilities which allow the firm to create new products and processes and respond to changing market circumstances”. Hence, innovation capabilities
constitute a subset of dynamic capabilities. The theory aids in understanding the influence of a firm’s performance in a dynamic market, be it a moderate or high-velocity market. Dynamic capabilities explain a firm’s constant pursuit of the renewal, reconfiguration and recreation of resources.
In the framework created by Teece et al. (1997), the dynamic capabilities have been divided into three capabilities: to sense, to seize and to reconfigure. First, it is crucial to sense and to shape all existing opportunities and threats, made possible solely through the presence of creativity and innovativeness. Second, managers must seize all opportunities; sound organizational strategy and infrastructure are required for making appropriate decisions and absorbing and integrating resources, so as to create and capture value from addressing opportunities (Katkalo et al., 2010). This is equivalent to the exploitation of new ideas. The final capability – reconfiguring – refers to the continuous renewal and modification of routines and resources.
In order to sense, seize and manage threats and opportunities, firms must possess absorptive capacity. Cohen and Levinthal (1990) define this as the ability to recognize the value of new information, assimilate it, and subsequently apply it to reach commercial ends.
Chapter 3. Theoretical framework
3.1 Introduction
In order to be able to properly answer the main research question, it is crucial to gain a deep and solid understanding of the issues at hand, i.e.: the relevant theories and literature
pertaining to construction-related firms versus project-based firms, the types and degrees of innovation they engage in, the way innovation is affected by various types of management, exploitation versus exploration, and so on. Naturally, conclusions may only be drawn once the facts have been explored.
First, the nature of the construction industry is explained, including the various types of building projects and approaches within this industry. The role of lean management and general lack of innovation within the construction industry is discussed, as well. The first hypothesis, which predicts the effect of a project-based approach on construction firms’ innovation, is presented. Section 2 expands on the concept of knowledge sharing,
differentiating between explicit and tacit knowledge and the added value of each. Single-loop (exploitative) learning and double-loop (explorative) learning are explored, along with a discussion on which type yields the highest degrees of innovation. The section concludes with the second hypothesis, which links the type of learning to the degree of innovation within the firm. The third and final section discusses the concept of absorptive capacity, a firm’s ability to absorb new knowledge. The role and determinants of absorptive capacity are discussed and subsequently, the effect it has on firms’ innovation. The third and final hypothesis links the use of Lean philosophy within construction firms with increasing efficiency of the projects.
Ultimately, all three hypotheses aim to predict construction firms’ degree of innovation based on several characteristics, or factors: project-based approach, knowledge sharing and absorptive capacity related to use of Lean philosophy.
3.2 Project-based industry
This section contains a literature review about the project-based view of firms on innovation. First, the various types of construction-related firms are analysed, after which the project-based industry in relation to the construction-related firms is elaborated on. Discussed next is the use of lean management in a project-based industry, and the subsequent effect that it has on innovation. Finally, the section discusses a project-based view in the context of
incremental and radical innovation in construction-related firms. 3.2.1 Project-based view
The construction industry covers a wide range of architecture and civil engineering. By and large, the construction industry can be categorized as residential and commercial building construction, civil construction, and industrial construction. This study will consider and focus solely on the first.
Firms within the construction industry – one of the largest industries in the world – are project-based forms of organization (Taylor and Levit, 2004). Unlike with most other
industries, increased competition here does not result in greater innovation (Glunk and Olie, 2008); this is most likely attributable to price competition within the sector. According to Glunk and Olie (2008), the competition in the construction industry enhances cooperation between the contractors, which elucidates the way in which the firms control the cost.
As explained in the previous section, construction-related firms operate in an increasingly competitive environment, in an industry where design-bid-build process is common. The project commences with the project owner hiring an architect for the design, development of the program and for preparing feasibility reports. Following the design phase and the finalisation and authorization of formal documents, the project is ‘opened’ for
bidding, i.e.: the project is tendered. Several construction firms are invited to calculate the total project cost and to submit their bid. Traditionally, and logically, the firm that offers the
lowest price will be selected to complete the project. It will subsequently outsource parts of the project to the subcontractors (specialists), making the construction industry not merely highly competitive, but largely fragmented, as well.
Due to low profits, high failure costs and high risks, project-based forms of
organization focus primarily on efficiencies, i.e.: the main goal is to control for the risks and ensure maximum profit accumulation. Given the low level of uncertainties, incremental innovations will serve to improve the existing product, process and service. The success of exploitation will be rewarded. Success from investment as a result of exploration activities (like R&D), on the other hand, is not perceptible and will not be rewarded.
3.2.2 Effect of lean management on innovation
Fifteen years ago, Winch (1998) stressed in his research that for a long time, the construction industry was in dire need of heightened innovation. Despite the general willingness of firm within this sector to transform their traditional and out-dated work methods to more modern ones, many firms continue to lack innovation. Koskela and Vrijhoef (2000) claim that the construction industry – due to independence of activities – is counterproductive and flawed, and that the communication and agreements are inadequate. Within the industry, it is widely known and accepted that construction projects always consume significantly more time and money than initially planned (Koskela, 2000).
Despite the counterproductive management philosophy and lack of innovation, the market for construction has been profitable; over the past decades, the market has continued to grow considerably due to a shortage of residential and commercial buildings. Given that the margins and yields are declining due to a rapidly changing environment, a structural change in the management philosophy is arising. One way to improve results in the construction projects is the ‘lean philosophy’ (Koskela, 1992).
industry. After the Second World War, the Toyota factory developed a new management philosophy that combined the advantages of traditional handicraft production and a mass production system. By focusing on eliminating waste and adding more value to the production line, the manufacturing process within the automobile industry was improved significantly (Alarcon, 1997; Womack et al., 1990). The lean methodology gained world- and industry-wide attention and popularity directly after Womack, Jones and Roos (1990) published the results of their five-year landmark study. Many other companies, both in the automotive sector as in others, have since endorsed and internalized the lean philosophy (Gerritsen, van Gerven & de Jongh, 2007). Numerous differences, however, made so that the original system (from the automobile manufacturing) could not be exactly replicated.
Koskela (1994) notes three distinctive features of the system: uniqueness of the products, production location and temporary organization consisting of several parties, also known as a multi-organization.
The lean construction differs from the traditional construction in two main ways. First, where traditional construction is focused primarily on conversion (from input to output), lean construction focuses more on the flow of information and materials and the value generated for the customer (Ballard & Howell, 1998; Koskela et al, 2002). The lean implementations have not been a product of radical technology changes, but rather of a philosophical application resulting in lean production (Alarcon, 1997). Lean construction focuses on production efficiency, cost reduction and time reduction. This, per definition, leads to increased incremental innovation.
3.2.3 (Lack of) Innovation in the construction industry
The construction industry is changing rapidly. Assertive consumers, low regime
appropriability (more market, less government), a growing need for sustainable and creative solutions for the sustainability building environment, a demand for increased cooperation,
increased innovation and a building culture that fits with these new challenges (Glunk and Olie, 2008). The construction industry’s degree of innovation lags behind that of other sectors; this is in large part due to the fact that construction-related firms contain relatively few knowledgeable workers, invest little in innovation, produce few innovative products and are less successful in implementing process innovations (Glunk & Olie, 2008).
A second reason for the low levels of innovation is that construction firm tend to focus on clients and other competitors, rather than on parties such as suppliers and customers; it is these parties that provide incentives for innovation (TNO, 2005; Regieraad Bouw, 2007). Research conducted by EIB (2007) reveals that suppliers in the construction industry are the most innovative party within the sector. Construction firms are unique in that they regard customer information as being irrelevant for achieving innovation. It may be concluded that innovation in the construction industry is less demand-driven.
The construction related firms that do invest in innovation are more focused on exploitation than exploration. In other words, construction related companies are more focused on efficiency, incremental innovation and cost reduction than on radical innovation and development of future innovation. But doing both forms of innovation lead to better business performance and reveals that innovation pays off.
Although construction companies may find that monodexterity (employing only exploitative innovation) can pay off in the short run, they are likely to become vulnerable in the long run, when changing circumstances require new solutions. Several companies have proven their ability to combine both forms of innovation, whereby it must possess both adaptability and alignment (Gibson & Birkinshaw, 2004). Birkenshaw and Gibson (2004) argue that if a company wishes to obtain long-term success, it must focus on these two elements, i.e.: the concept of ambidexterity. Results indicate that the construction firms that score high on ambidexterity achieve better corporate performance (TNO, 2005). In short, it is
safe to assume that engaging in incremental and radical innovation is necessary for construction firms’ short-term survival and long-term sustainable competitive advantage. Given the fragmented and project-based nature of the industry, however, this often presents a challenge. The tension between short- and long-term innovation results from a firm’s desire to be efficient in the short run and flexible (to achieve sustainable competitive advantage) in the long run, hence, firms tend to focus on only one type of innovation. The following subsequent hypothesis can be constructed:
H1: The project-based focus of construction firms increases their efficiency, which
in turn decreases the chance of the firm engaging in radical innovation.
3.3 Knowledge sharing
The resource-based view establishes a firm’s resources as the fundamental drivers of competitive advantage and performance. Barney (1991) defines resources to include all assets, capabilities, organizational processes, firm attributes, information and knowledge. Resource uniqueness (heterogeneity) is considered one of the prerequisite conditions for a firm to gain competitive advantage. In analyzing the sources of competitive advantage, the two assumptions are that the firm – within an industry or strategic group – may be
heterogeneous due to the collection of the resources they possess, and that resource
heterogeneity may persist over time because the resources used to implement firms’ strategies are not perfectly mobile and imitable across firms.
From a firm’s strategic point of view, knowledge is classified as the most important resource (e.g. Grant, 1996; Kogut & Zander, 1992; Teece et al., 1997). A firm’s resources are tangible and intangible assets used to conceive and implement the firm’s strategies (Barney, 1991). Tangible assets include machinery, equipment and property, whereas intangible assets include
knowledge, information and skills (e.g.: the firm’s name, manager skills, organizational culture). Knowledge can constitute one of the firm’s intangible resources. According to the logic of the Resource Based View (RBV), intangible assets are more likely to constitute strategic assets, as they are more inimitable and non-substitutable (Barney, 1991).
As mentioned, knowledge may be defined as explicit and tacit knowledge, whereby the latter is partly transferable, given that it is acquired by and stored within the individual’s mind (Grant 1996). Hence, possessing a wide array of knowledge will lead to a strong, potentially monopoly, market position. When external markets change over time, a firm’s internal resources and capabilities would appear a more stable basis for strategy formulation than the external customer focus that is traditionally associated with the marketing-orientation to strategy.
Tacit knowledge is closely related to production tasks, and raises complex transferability issues (Grant, 1996). Tacit knowledge integration forms the essence of organizational capabilities; Grant (1996) describes several mechanisms for this integration. Knowledge should be directed using policies and procedures, embodied with the knowledge of technical specialists. Additionally, organizational routines in which individuals develop sequential patterns of interaction should be formed; this will allow for the integration of their specialized knowledge without the need for communicating it to others (Grant, 1996). The efficiency of this integration is dependent on the degree of common knowledge, for instance: in the case of a common language, the frequency and variability with which the tasks are performed, as well as the degree of structure in which the organization supports to share knowledge (Grant 1996). Furthermore, the extent of the integration also determines the efficiency of the integration. Various types of knowledge may be complementary rather than substitutive, and the greater the scope of the knowledge being integrated into a capability, the more difficult it is for competitors to replicate that capability; the "causal ambiguity" is
increased (Grant, 1996). Grant (1996) additionally mentions that the flexibility of integration is an important determinant of efficiency. The flexibility is dependent on the communicability of knowledge, and the ease with which the knowledge may be shared.
The relationship between competencies and competitive advantage forms the focal point in the resource-based view (Barney, 1991; King & Zeithaml, 2001). The ambiguity of the relationship between firm resources and competitive advantage is referred to as causal ambiguity, which is in due party related to organizational learning (Levitt & March, 1988)
and dynamic capabilities (Zollo & Winter, 2002). According to King (2007), the variance in
profitability and knowledge transfer between firms is the direct result of such causal ambiguity.
Collis et al. (2008) argue that firms gain sustainable competitive advantage by competing with inimitable, durable, appropriate, sustainable, and competitively superior capabilities and resources. The resources cannot be evaluated in isolation. Dynamic
capabilities extend far beyond the solitary focus on the environment or internal resources. The unit of analysis is no longer limited to either external or internal, but instead combines the ‘best of both worlds’ by emphasizing the importance of processes and paths, innovation, intangible assets, path dependencies, contexts, networking and culture. In a dynamic
environment, organizations must manage both exploratory and exploitative learning in order to stay competitive (March, 1991; Levinthal & March, 1993).
As mentioned, exploration and exploitation constitute the two types of organizational learning; while both are indispensable for the firm, they form drivers largely incompatible with organizational learning: “The essence of exploitation is the refinement and extension on existing competencies, technologies, and paradigms (...) The essence of exploration is
experimentation with new alternatives” (March, 1991, p. 85). Argyris and Schön (1978) describe two levels of organizational learning: ‘single-loop’ and ‘double-loop’.
Single and double learning can be compared to the firm’s exploitative and explorative behavior, respectively. Single-loop learning is also known as adaptive or behavioral learning, and is characterized by repetition, routine, rules, structure and a clearly understood context (Argyris and Schön, 1978). Such learning is characterized by short-term thinking and problem solving, and is associated with incremental changes. It occurs at all levels of an organization.
Double-loop, also referred to as generative learning, occurs through the use of
heuristics and insights. Contrary to single-loop learning, it is characterized by non-routine, the development of differentiated rules and structure, ambiguous contexts, and problem
definition; it occurs primarily at the higher level of an organizations (Argyris & Schön, 1978). Firms that focus on both incremental and radical innovation will adapt double-loop learning.
Although organizational ambidexterity denotes that firms should focus on both learning modes, the exploratory activities are based on different routines within a common context (Güttel & Konlechner 2009, Gibson & Birkinshaw 2004). To survive in the short-term, firms require efficiency and the refinement and extension of extant knowledge
(exploitation). Contrary to acquiring new knowledge, exploiting knowledge is likely to result in incremental innovation. The tension between a firm’s focus on incremental innovation and on radical innovation has become increasingly important. As Raisch et al. (2009) describe, a firm must seek to strike a balance between both types of innovation, so as to achieve a sustainably superior performance (Raisch et al., 2009; Jansen et al., 2009).
The developments of learning routines that facilitate either exploratory or exploitative are the result of accumulated experience. Zollo and Winter (2002) describe organizational knowledge from an evolutionary perspective, dubbing it an iterative process. A firm’s knowledge, along with its routines, passes through several stages of exploratory and exploitative activities before embedding in the organizational routines (Zollo and Winter 2002). Firms create knowledge on the basis of simple rules that evolve from new routines
(Eisenhardt & Martin 2000, Zollo & Winter 2002), which constitutes a form of exploratory learning: “search, variation, risk taking, experimentation, play, flexibility, discover,
innovation” (March, 1991, p. 71). A complex set of rules and routines will work to stagnate the evolvement of new routines and will enhance exploitative learning (Eisenhardt & Martin, 2000; Zollo & Winter, 2002). Hence, exploitative knowledge sharing refers to a learning process whereby extant knowledge and skills are refined and extended, which is likely to result in incremental innovation. Hence, the second hypothesis reads as follows:
H2: The sharing of exploitative knowledge within construction firms will increase short-term thinking, which is likely to result in decreased long-term thinking and exploratory knowledge.
In order to internalize new knowledge, a firm must possess absorptive capacity; this is crucial for creating new knowledge and for organizational learning. In the following section, the role of absorptive capacity, as well as firms’ exploitative and explorative behavior, will be
discussed.
3.4 Absorptive capacity
In the following section, various views on absorptive capacity are first presented, along with subsequent definitions, after which the determinants of absorptive capacity are analysed. Next, the precise roles and tasks of the research and development departments are reviewed. Finally, absorptive capacity is discussed in the context of innovation with construction-related firms. The review of absorptive capacity in this study has been restricted to this particular context, given the focus on incremental and radical innovation in construction-related firms. 3.4.1 The role of Absorptive capacity
Absorptive capacity refers to a firm’s ability to absorb new knowledge, which is necessary for it to sense, seize and manage threats and opportunities. In the 1960s, the concept of absorptive
capacity was frequently used to indicate the human capital dimension and to adopt foreign technology. In the late 1980s and early 1990s, Cohen and Levinthal (e.g. 1989 and 1990) published a series of papers on the topic of absorptive capacity. They present absorptive capacity as a rational strategy for industrial competitiveness, defining it as “the ability of a firm to recognize the value of new external information, assimilate it and apply it to
commercial ends” (Cohen and Levinthal, 1990: 128). This requires the firm in first instance to possess the ability to sense new knowledge in the environment (Teece, 2007). Second, it must be capable of assimilating this newly gained knowledge, after which it must exploit it. It is this ability that Cohen and Levinthal (1989) define as learning capacity, or absorptive capacity. Such capacity provides firms with the possibility to adopt, or even imitate,
innovations already developed elsewhere, and which may subsequently be used in the process of innovation. For this reason, Cohen and Levinthal (1989) emphasize the importance of investing in Research and Development (R&D), as this will result in the subsequent creation of knowledge. Early investments in R&D will ‘ease’ the adoption of external knowledge, which is highly relevant for the firm.
The extensive research conducted by Cohen and Levinthal (1990) on absorption capacity is widely considered as one of the most valuable sources within the literature, although it is not entirely void of critique. According to Zahra and George (2002), for example, the focus on R&D investment as a way to develop absorptive capacity is limited; maintaining a sole focus on this disregards the other potential mechanisms for developing absorptive capacity, leaving them ignored and unexplored. In response, Zahra and George (2002) reviewed the concept and reformulated the definition of absorptive capacity as follows: “a set of organizational routines and processes by which firms acquire, assimilate, transforms and exploit knowledge to produce a dynamic organizational capability” (Zahra and George, 2002:186). They expanded absorptive capacity into consisting of ‘potential’
absorptive capacity and ‘realized’ absorptive capacity. The former contains two components: acquisition and assimilation, the two capabilities an organization must possess. Acquisition is transformed from acquiring external new knowledge, to “a firm’s capability to identify and acquire externally generated knowledge that is critical to its operations”; assimilation refers to “the firm’s routines and processes that allow it to analyze, process, interpret and understand the information obtained from external sources” (Zahra & George, 2002, p. 189). Here, assimilation indicates friendly organizational learning and acquisition indicates that firms are continuously sensing and seizing new knowledge. This study suggests that firms who have internalized the values of organizational learning and who continuously seek new knowledge and create skills for exploiting it, are more likely to benefit from exploratory innovation.
The relevance of importing new external knowledge is stressed by Zahra and George (2002); organizational processes and routines are required to ensure the successful integration of knowledge (exploitation) into the organization. The realized absorptive capacity consists of two components: transformation and exploitation capabilities. This refers to transforming and exploiting assimilated knowledge for the ultimate goal of profit generation (Zahra & George, 2002).
Despite the definite difference between potential and realized absorptive capacity, it is crucial for a firm’s performance for both versions to coexist at all times (Zahra & George, 2002). This once again confirms that which has been previously established: firms must engage in both exploration and exploitation (Eisenhardt & Martin, 2000; Feinberg & Gupta, 2004; March, 1991).
3.4.2 Determinants of absorptive capacity
This section presents and describes the various determinants of construction firms’ absorptive capacity. For this, the overview drafted by Daghfous (2004) will be used, as it neatly aligns with Cohen and Levintal’s (1990) theory on absorptive capacity. Daghfous (2004) categorizes
the determinants of absorptive capacity into internal and external factors. The internal factors contain 4 determinants, namely: R&D, prior organizational knowledge, the individuals’ level of education, and the presence of a gatekeeper. The two external factors are external
knowledge and interaction with other firms (Daghfous, 2004). 3.4.2.1 Research and development
In Cohen and Levinthal’s (1990) model, the R&D expenditures hold a central and indispensable role in the development of absorptive capacity. Argued is that R&D in the innovation process of the firm leads not only to realization of absorptive capacity, but simultaneously generates new knowledge and (radical) innovation (Cohen & Levinthal, (1990). The relationship between R&D expenditures and absorptive capacity is referred to as a ‘bidirectional causation’ (Daghfous, 2004), implying that absorptive capacity affects the direction and intensity of the R&D (Vinding, 2000), and the R&D expenditures influence the efficiency of absorptive capacity (Daghfous, 2004). A firm’s investment in R&D directly impacts its absorptive capacity; if the firm invests sufficiently in its R&D activities, it will in turn to able to reap the benefits of new external information.
Cohen and Levinthal (1990) furthermore link absorptive capacity with a cumulative character: “the cumulativeness of absorptive capacity and its effect on expectation formation suggest an extreme case of path dependence in which once a firm ceases investing in its absorptive capacity in a quickly moving field, it may never assimilate and exploit new information in that field, regardless of the value of that information” (Cohen and Levinthal 1990; 136). Hence, it is beneficial for a firm to continuously invest in its internal R&D and subsequently develop its absorptive capacity.
Daghfous (2004) similarly confirms that a sufficient amount of R&D resources is positively correlated to absorptive capacity, in small firms with limited R&D capacities. Much like small and middle enterprises (SME) in various industries, construction-related
firms lack formal R&D departments. The R&D activities are often embedded in other
departments, which complicates concrete and continuous investment in such activities and in turn decreases the firm’s absorptive capacity.
3.4.2.2 Prior knowledge and level of education
Cohen and Levinthal (1990) stress the value of prior knowledge in the development of firms’ absorptive capacity. According to Kim (2001, p. 271), “prior knowledge base refers to existing individual units of knowledge available within the organization”. Cohen and
Levinthal describe absorptive capacity as “the firm’s ability to identify, assimilate and exploit knowledge from the environment,” thereby indicating that prior knowledge has a positive effect on absorptive capacity. Such knowledge establishes a firm’s ability to acknowledge the value of new, external information, to assimilate it and to exploit it for commercial ends (Cohen and Levinthal, 1990). Numerous other authors agree on the importance of prior related knowledge – also referred to as internal knowledge – in developing and adopting new knowledge (e.g. Zahra & George, 2002; Kim, 2001). Internal knowledge, mostly possessing a tacit dimension, refers to learning experience, common language, and prior skill. Employees’ personal abilities, motivations and educational backgrounds also constitute knowledge, and form a requirement for the assimilation and exploitation of new knowledge (Cohen & Levinthal, 1990).
Vinding (2000) has found the level of an individual’s education to significantly influence the degree of the firm’s absorptive capacity. As expected, the higher the individuals’ education and training, the better they are able to assimilate and utilize new knowledge. It must be noted that absorptive capacity is measured at an organizational level, whereas prior related knowledge is measured at an individual level (personal skills and education).
3.4.2.3 Gatekeepers
Sharing knowledge within an organization and adjusting routines and structures are complex processes. It is important to consider that an employee attaches his or her own meaning and interpretation to information he or she receives (Fernie et al., 2003). The process of receiving new information, recollecting and forming thoughts occurs within the individual’s personal framework (Illeris K., 2003). In order to disseminate the knowledge beyond the individuals and groups, it is crucial for a broad internal network to exist. It is here that gatekeepers play an important role in the development of absorptive capacity.
Daghfous (2004) explain the way in which gatekeepers serve to minimize the
communication gap between the sender and the receiver of knowledge. Cohen and Levinthal (1990) distinguish two types of gatekeepers: a boundary spanner inside the firm and a
gatekeeper operating as an interface. The former joins two groups together, whereas the latter acts between the organization and environment, as well as between the firm and its
environment (Cohen & Levinthal, 1990; Vinding, 2000). In general, gatekeepers function to positively influence the firm’s absorptive capacity. It is interesting to discover which persons take on the role of the gatekeepers, and what their precise roles are within the construction-related firms.
3.4.3 Absorptive capacity and construction related firms
Absorption capacity ensures innovation, a balance between exploration and exploitation; it additionally has the ability to influence business performances (Volberda, 2010). This may include organizational growth, employee productivity, lowering costs, and developing the competencies of employees. Generally, organizations that develop their absorptive capacity are capable of recognizing major development in the market and subsequently assimilating and commercializing them. Organizations with a high rate of absorption capacity can also
adopt the strategy of ‘second mover’2, as first movers are not always able to benefit from being first. Firms who are first to enter the market with a new product may gain a substantial market share due to lack of competition; however, they efforts may also fail. Being a ‘second mover’ allows an organization to wait for the new development to penetrate the broader market, while still absorbing the required knowledge at a high pace (Dutta et al., 1995).
The construction industry has traditionally been a transaction-oriented industry, unconcerned with the development of new products. Construction firms produce a product designed by another party, often with few internal and external resources. They operate in an increasingly competitive environment, in an industry where design-bid-build process is common. This industry is commonly acknowledged as being volatile and greatly varied (Cheng and Li, 2004). Daghfous (2004) stresses that for this reason, both the firm and its employees must be able to learn quickly, absorb new knowledge, and transform and
implement this new knowledge within the business processes, procedures and routines. This dynamic capability is crucial for increasing the firm’s effectiveness and competiveness (Daghfous, 2004).
Although the literature review in this section has focused primarily on radical innovation, increase in absorptive capacity do not have precludes incremental innovations. Hence, organizations that develop their absorptive capacity are able to increase their innovativeness in both the short- and long run. Although absorptive capacity should be yielded with both incremental and radical innovation, the main question that remains is what precisely the organizations are using it for and gaining from it. At a certain point, the amount of incremental innovation is exhausted (Rothaermel & Hess, 2007). As mentioned, numerous firms within the construction industry have incorporated lean management into their
organization. With this, they per definition focus on high efficiency and productivity. In such
situations, incremental innovations are often applied as a way to improve overall productivity and quality within the system (Abernathy & Utterback, 1978).
Despite the increase of absorptive capacity within the organization, radical innovation is likely to be impeded by lean management. Absorptive capacity offers the firm the ability to gain new knowledge and to use existing knowledge in new ways. Construction firms use the lean philosophy for increasing project efficiency, which is likely to result in lower radical innovation.
H3: Construction firms use the Lean philosophy to increase project efficiency, with
a focus on short-term thinking; this is likely to result in decreased flexibility and a search for new knowledge and markets.
In the following chapter, research design and methodology is presented that explains and elaborates set up of the research and the used of the methods to finds results.
Chapter 4. Research design and methodology
4.1 Research design
The aim of this study is to identify the way in which construction-related firms focus on both short- and long-term innovation, and the way in which a firm’s focus on short-term innovation restrains long-term innovation.. For this analysis, the three hypotheses presented earlier will be tested empirically, through qualitative research at several companies operating within the construction industry in the Netherlands. In the sections thereafter, the findings will be analysed and discussed. Finally, a conclusion is drawn whereby the research question is answered.
Hypothesis 1: The project-based focus of construction firms increases their efficiency,
which in turn decreases the chance of the firm engaging in radical innovation.
Hypothesis 2: The sharing of exploitative knowledge within construction firms will
increase short-term thinking, which is likely to result in decreased long-term thinking and exploratory knowledge.
Hypothesis 3: Construction firms use the Lean philosophy to increase project
efficiency, with a focus on short-term thinking; this is likely to result in decreased flexibility and a search for new knowledge and markets. An in-depth, case study approach has been chosen for the investigation of incremental and radical innovation within the construction industry, and to understand the phenomenon of ambidexterity within the firms. Since the literature on the topic ambidexterity within project-based firms is not at all extensive, the approach in this research is mainly explanatory.
Saunders and Lewis define explanatory studies as “research that focus on studying a situation or a problem in order to explain the relationships between variables” (2012: 113). Saunders & Lewis (2012) note that the focus of the explanatory research can be either quantitative,
qualitative or a combination of the two. Quantitative approaches are appropriate when seeking to establish causal relationships between variables and to answer the according who, where,
how much and how many questions. Qualitative approaches, however, are more appropriate
for exploring the why and how questions (Saunders & Lewis, 2012; Yin, 2003). As this study aims to gain a broad understanding of the context of the research, rather than an explanation of the relationships between the variables, a qualitative, explanatory approach is most appropriate.
Saunders and Lewis (2012) explain the several strategies that may be used in explanatory studies, one of which is the case study. Eisenhardt (1989: 534) defines case study research as “a research strategy, which focuses on understanding the dynamics present within single settings.” It entails a group of methods that emphasizes qualitative analysis (Yin, 1984). Benbasat et al. (1987) note three main strengths of case study research: first, the researcher is able to study information systems in a natural setting and generate theories from practice; second, he comes to understand the nature and complexity of the process; third, he may gain valuable insights into new topics emerging in the rapidly changing information systems field. Yin (1984) suggests that case studies are most suitable when the objective is the study of contemporary events.
A case study may involve a single case or multiple cases. In this study, the aim is to discover the degree of radical innovation within construction-related firms in the Netherlands. In order to determine the units of analyses, the construction industry must first be elaborated on.
The construction industry encompasses a broad range of architecture and civil engineering. In general, the industry may be divided into three areas: residential and commercial building construction, civil construction, and industrial construction. This
research examines only the first: residential and commercial building constructions. There are many participants within this sector, such as the designers (architects), construction engineers, sub-contractors and main contractors. The main contractors are also known as construction firms. Despite the involvement of numerous partners and organizations, we consider
construction companies as one case. Hence, the unit of analysis is ‘construction companies’, whereby a single case study is most suitable.
4.2 Data collection method
The first stage of the process comprises the collection of secondary data through literature review, as detailed in the previous chapters. Next, primary data was obtained through semi-structured interviews with CEOs and other (top) management members in the construction firms. All interviewees were involved in the strategic decision-making. In order to ensure validity, the literature on this research topic was drawn upon, i.e.: the design of the questions was based on existing theories. Following the first interview, the questions were reviewed to determine whether they had been comprehended as intended; if needed, questions were restructured or modified. The final version of the interview can be found in the Appendix.
The construction firms were selected through Bouwend Nederland, the Dutch
association of construction-related firms. Eleven medium to large sized firms were selected. In order to triangulate the data, primary data (i.e.: publications, internal archival reports, annually reports) were analysed. Furthermore, two members outside the unit of analysis were interviewed: an architect and the chairman of Bouwend Nederland. The data yielded by these interviews enriches the collected data and was hence included in the triangulation. In total, thirteen interviews were conducted; the duration was approximately 45 minutes and they were audio recorded, after which they were fully transcribed (see table 2). The transcribed verbatim was coded in NVivo 10. The analysis is provided in the following section.
