Implementing Innovation Partnerships: Influencing factors and their consequences

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IN

DEGREE PROJECT MECHANICAL ENGINEERING, SECOND CYCLE, 30 CREDITS

STOCKHOLM SWEDEN 2018,

Implementing Innovation Partnerships

Influencing factors and their consequences

AMANDA FAGERSTRÖM EMMA GRUNDÉN

KTH ROYAL INSTITUTE OF TECHNOLOGY

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Master Thesis

Implementing Innovation Partnerships

Influencing factors and their consequences

Amanda Fagerström Emma Grundén

Master of Science Thesis MMK TRITA-ITM-EX 2018:461 KTH Industrial Engineering and Management

Machine Design SE-100 44 STOCKHOLM

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Examensarbete MMK TRITA-ITM-EX 2018:461

Implementerande av innovationspartnerskap

Påverkande faktorer och deras konsekvenser

Amanda Fagerström Emma Grundén

Godkänt Examinator

Sofia Ritzén

Handledare

Sofia Ritzén

Uppdragsgivare

Skanska

Kontaktperson

Elif Wahlund

Sammanfattning

Innovation har visat sig vara nödvändigt för ett företags överlevnad. I dagens samhälle sker utvecklingen snabbare än någonsin tidigare vilket har lett till att många företag undersöker nya sätt att innovera. De senare åren har många företag ingått innovationspartnerskap för att stärka sitt innovationsarbete. Partnerskapet gör det möjlig att ta del av andras tillgångar och kunskap vilket kan ge fler idéer och insikter samtidigt som det kan göra att innovationsprocessen går snabbare.

Syftet med detta arbete var att undersöka vilka faktorer som kommer att påverka implementeringen av ett innovationspartnerskap i byggbranschen, samt vilka konsekvenser dessa faktorer skulle få.

Arbetet genomfördes i samarbete med Skanska Sverige på verksamhetsgrenen Skanska Industrial Solutions (SIS). Skanska Sverige är ett av de största byggbolagen i Sverige och SIS är den verksamhetsgren som tillverkar asfalt, betong, grus och sten, driftar vägar samt hyr ut byggutrustning. Data samlades in via semistrukturerade intervjuer och observationer, samt genom att genomföra en workshop och ta del av internt material.

Den insamlade datan analyserades och jämfördes med tidigare litteratur inom området. Analysen resulterade i flertalet slutsatser. Elva faktorer som kan påverka implementeringen av innovationspartnerskap identifierades och till varje faktor hittades en eller flera konsekvenser. De identifierade faktorerna delades in i tre kategorier då de var beroende av eller hade en anknytning till dessa kategorier. De tre kategorierna är: Intern innovationsstrategi, projektbaserat och organisationsstruktur. Slutsatserna, liksom resultaten och analysen, har slutligen legat till grund för rekommendationer till SIS om vilka åtgärder som ska vidtas för att lyckas med implementering av innovationspartnerskap.

Nyckelord: Innovationspartnerskap, innovationsledning, partnerskapsledning, implementering av partnerskap, byggbranschen

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Master of Science Thesis MMK TRITA-ITM-EX 2018:461

Implementing Innovation Partnerships

Influencing factors and their consequences

Amanda Fagerström Emma Grundén

Approved Examiner

Sofia Ritzén

Supervisor

Sofia Ritzén

Commissioner

Skanska

Contact person

Elif Wahlund

Abstract

Innovation has shown to be essential for a company’s survival. In today’s society, development of new technology is faster than ever before, which has led to that many companies are searching for new ways to innovate. In the latest years, companies have entered innovation partnerships to strengthen their innovativeness. Partnerships make it possible to use assets and knowledge from other firms, which may result in new ideas and insights as well as making the innovation process faster.

The purpose of this thesis was to investigate what factors that will influence the implementation of innovation partnerships in a construction firm, and what consequences these factors will have.

The thesis was performed in collaboration with Skanska Sweden at the operational area Skanska Industrial Solutions (SIS). Skanska Sweden is one of the largest construction companies in Sweden, and SIS is the operational area producing asphalt, concrete, gravel/stone, laying out asphalt, performing operation and maintenance of roads and rents out construction machines. Data were collected through semi-structured interviews and observations, as well as taking part of the internal material, and by conducting a workshop.

The collected data was analysed and compared with previous literature in the area which resulted in several conclusions. Eleven factors were identified as having an impact on the implementation of innovation partnerships, and each of the factors had one or more consequences. The identified factors were divided into three categories: Internal Innovation Strategy, Project-based and Organisational Structure, based on their dependence or connection to each category. The conclusions, as well as the results and analysis, has finally been the basis for recommendations to SIS on which actions to take in order to succeed with the implementation of innovation partnerships.

Keywords: Innovation Partnership, Innovation Management, Managing Partnerships, Implementation of Partnerships, Construction

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ACKNOWLEDGEMENT

This thesis concludes the degree in Master of Science in Innovation Management and Product Development at The Royal Institute of Technology in Stockholm and is the final delivery on the programs Mechanical Engineering and Design and Product Realization respectively. This thesis has been performed in collaboration with the construction company Skanska Sweden, at the Business Development department for the operational area Skanska Industrial Solutions.

Throughout the thesis, we have received invaluable feedback, motivation, and support from people at the thesis company as well as from the university. Here we want to acknowledge these people, whom in one way or another has helped us with finishing this thesis.

First, we would like to give a big thank our academic supervisor at KTH Royal Institute of Technology, Sofia Ritzén. Your support and guidance have been crucial for being able to complete this report. We would also like to thank our two industrial supervisors at Skanska, Elif Wahlund, and Niclas Odermatt, for your support, good insights, and for taking good care of us and making us feel very welcome at the office throughout the thesis. An extra thank you, Elif, for guiding us through the complex organisational structure, and helping us get in contact with the right people.

Additionally, we want to thank Karin Levander at Skanska, for finding a good match between our idea of thesis and a suitable division within Skanska.

We would also like to thank all the inspiring and engaged employees at SIS and Skanska, who have always made us feel welcome, taken care of us throughout the project, and that have always reached out a hand if needed. Thank you Annhelen Tångemar, for organising meetups, field trips and inspiring seminars with the other master thesis students. An additional thanks to the management team of SIS, for taking the time to meet with us, and showing your interest in the project. And lastly, a great thank you to all the interviewees, for taking the time and sharing your thoughts and experiences with us during the interviews.

Stockholm, May, 2018

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NOMENCLATURE

On this page are the Definitions and Abbreviations that are used in this thesis explained. In addition, a dictionary is added for Swedish readers to explain the translations we have done.

Definitions

Definition Description

Innovation Partnerships When companies form partnerships with the aim to innovate together, sharing knowledge, resources, and competencies for one common outcome.

Abbreviations

SIS Skanska Industrial Solutions

OA Operational Area

IP Intellectual Property

CSF Critical Success Factors

R&D Research & Development

OIS Organisational Innovation System

STA Swedish Transport Administration

Dictionary

Here follow a dictionary to show the translation of the Swedish definitions and business language into English.

English Swedish

Operational Area Verksamhetsgren Skanska Tech & Design Skanska Teknik Skanska New Homes Skanska Nya Hem Development Council Utvecklingsråd

Region Region

The Swedish Trafikverket

Transport Administration

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1. INTRODUCTION

This chapter aims to give the reader some background on the topic of the master thesis, as well as of Skanska as a company. The chapter also includes the purpose of the thesis, the research questions to be answered, and the delimitations of the project.

1.1 Background

During the last few decades, there has been an increase in collaboration between firms and organisations to maintain their competitiveness (Schilling, 2017; Ahuja, 2000; Grant R. M., 2010). By working together using open innovation, and include external partners in solving different problems, firms have been able to solve difficult tasks more frequently, and meet customer demands to a larger extent than before (Dahlander & Gann, 2010; Schilling, 2017).

This way of working has shown especially important in growing competition, due to digitalization and globalisation, where large established companies must integrate new technologies into their processes and offerings to maintain innovativeness (Lai & Chou, 2017).

Working together, and forming different kinds of alliances¹, opens up for co-creation and allow companies to develop faster than they would do individually since they gain knowledge and competence from others (Kazadi, Lievens, & Mahr, 2016).

Even though co-operation and alliances have been an important source of innovation since the 80s, the partnerships that are joined today are going through a transformation in context and arrangements (Dahlander & Gann, 2010). Previous partnerships between companies have been characterised by clear separations of the companies when it comes to responsibility, costs, and risks. These partnerships have usually been between suppliers and/or customers, where innovations have been close to the existing operations and activities within the companies.

Today, however, the partnerships are becoming a shared business, where firms from different fields and industries are joining together to get access to others resources and capabilities (Davidson, Harmer, & Marshall, 2014). In this new setting, the companies innovate together to create new radical ideas that will contribute mutually to both organisations. Here, the risks as well as costs and profits, are shared among the partners, contributing to stronger commitments and trust among the involved parties (Mohr & Spekman, 1994).

This thesis was performed at the Business Development department at Skanska Industrial Solutions, Skanska Sweden AB. Along with many other companies, Skanska and Skanska Industrial Solutions meet the struggle of maintaining their competitiveness in the fast-changing environment. In order to stay innovative, meet customer demands, and increase value offers, Skanska has started to explore the possibilities to form partnerships with other firms.

Partnerships provide opportunities for learnings in new areas, access to new technologies and new ways of thinking. This can streamline enterprise innovation efforts, resulting in more radical, disruptive and more productive ideas and products (Schilling, 2017).

To be able to take advantage of the benefits of partnerships, companies have to overcome potential obstacles that are connected to the implementation of innovation partnerships, where questions such as knowing exactly what to gain and expect from a partnership might arise.

These concerns are the foundation of the purpose of this thesis, which is further described in section 1.3 – Purpose.

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1.2 Skanska

Skanska Sweden AB is one of the largest construction companies in Sweden with 9000 employees and a turnover of 38.5 billion SEK year 2017. The company was founded in 1887 in Sweden and is now a global company. Skanska Sweden AB is one of several business units in Skanska AB. Skanska AB has operations in both Europe and in the US (Skanska Sweden, 2018). Skanska Sweden is divided into four operational areas; Industrial Solutions, Civil, Building, and Business Development. The Operational Area (OA) in focus will be Skanska Industrial Solutions (SIS), which in turn is divided into five Regions; Asphalt, Concrete, Aggregate, Rental and Infrastructure. The organisational chart of Skanska Sweden can be seen in Figure 1. Skanska Sweden also has several support functions, however, only the one that is relevant to for this thesis, Operational Effectivity, is shown in this chart (on the right side of Figure 1).

Figure 1. Organisational Chart of Skanska Sweden (Modified from Skanska Sweden, 2018)

1.2.1 Skanska Industrial Solutions

For a better understanding of SIS, the organisational chart for SIS can be seen in Figure 2. SIS has operations in Sweden, Finland, and Norway. The operations include producing asphalt, concrete, gravel/stone, laying out asphalt and performing operation and maintenance of roads.

The Region called Rental rents out machinery, cranes, shelves, lifts, safety equipment etc. SIS operates as an individual company within Skanska and has both internal and external customers.

Internal customers are the rest of Skanska’s Operational Areas (OAs), and external customers can be local firms as well as competitors. The reason why competitors is also a customer is due to that the quarries are located in remote places, and the closest quarry will be the one used for the nearby constructions.

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Figure 2. Organisational Chart of Skanska Industrial Solutions (Modified from Skanska Sweden, 2018)

1.3 Purpose

The purpose of this thesis was to investigate what factors that will have an influence on the implementation of innovation partnerships in a construction firm, along with the consequences that these factors will have. This includes an identification of success factors and potential pitfalls associated with such partnerships. The goal of the thesis was to propose recommendations for Skanska Industrial Solutions of what critical factors to consider when implementing innovation partnerships, and what actions that should be taken to succeed. From the purpose the following research questions were formulated:

RQ1: What factors influence implementation of innovation partnerships with other firms?

RQ2: What are the consequences of the identified factors when implementing innovation partnerships with other firms?

1.4 Delimitations

Timeframe: The thesis was conducted over 20 weeks, between January and June 2018.

Geographic: The master thesis was performed at the business unit Skanska Sweden, and the headquarters in Stockholm. Most interactions with interviewees were held on site in Stockholm, and the Stockholm area, covering both people at the headquarters and in the production. The thesis was mainly focused on Skanska Industrial Solutions.

Time of research: This research was conducted before a major re-organisation within Skanska, which had its base in a new IT-organisation. Due to that the re-organisation took place during the course of the thesis, consideration has not been taken to the new setting. Rather, the thesis has focused on the prior setting within SIS and Skanska.

Implementation: Implementation, or a strategy for implementation, of the concluding recommendations of the thesis will not be included in the scope of the project.

Generalizability: The concluding recommendations from this thesis, of what factors that will be of importance when implementing a partnership will be focused on Skanska, rather than the construction industry as a whole. Furthermore, the operational area Skanska Industrial Solutions will be the primary focus, and the recommendations will be based on this OA.

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2. LITTERATURE REVIEW

This chapter presents the relevant findings from the previous literature, divided into two areas;

Innovation Management and Managing Partnerships. Innovation Management includes the importance of having an innovation strategy, some essential conditions for being innovative, and describes the role of innovation in a project-based company. Managing Partnerships includes why partnerships should be used, how to initiate them, how to select partners, and how to maintain the partnership.

2.1 Innovation Management

Internal innovation work is important to be able to have the absorptive capacity needed to achieve the desired innovation outcomes when working in an alliance. It is also stated that, once a moderate internal knowledge is achieved, partnerships can be used to improve the innovation performance (Xu, Wu, & Cavusgil, 2013). Therefore innovation management is considered being of great importance when implementing an innovation partnership.

Innovation is defined to be the “initial commercialisation of invention by producing and marketing a new good or service or by using a new method of product” (Grant R. M., 2010) and can be either technical; referring to product, processes, or organisational; referring to organisational structure, management techniques, strategic orientations (Schilling, 2017). In order for organisations to be innovative, there are several factors to consider. Studies have shown that the main source of firm innovation is based on its own Research & Development (R&D) investments (Roberts, 2001). There is also a strong positive correlation between how much companies spend on innovation and the sales of new products, and hence the company’s profitability (Schilling, 2017). Several sources state that having a strategy for innovation is necessary for a successful innovative work (Afuah, 2003; Tidd, 2001; Schilling, 2017), as this will guide the companies in the search for new ideas and opportunities, as well as having a structure and understanding of how to use the identified possibilities. Afuah (2003) states that the collection and processing of information is an important variable in how well a firm will recognise the potential of innovative ideas, which supports the need for a strategy. This strategy should include what innovation the company should focus on, how to collect ideas, what ideas and projects to pursue with, and how to allocate resources between the regular business and the innovations. However, due to the many different influencing factors affecting innovation, and the large differences between companies, no common tool for innovation management has been developed (Lendel, Hittmár, & Siantová, 2015; Tidd, 2001). To make the work with innovation a bit easier, companies are encouraged to follow an innovation process. According to Lendel et al. (2015), an innovation process includes all activities between recognizing innovative ideas to transforming them into innovations. Factors that are important in an innovation process are:

“Recognizing customer needs and innovation opportunities, generating innovation ideas and their elaboration, work with information and knowledge regarding innovation, [and]

realization of innovation activities.” (Lendel et al., 2015) Following such a process will increase the likelihood of companies to be innovative. There are three main innovation process phases, including idea development, invention, and commercialisation (Van Lancker, Mondelaers, Wauters, & Huylenbroeck, 2016). These are needed to transform an innovative idea into an invention that is incorporated into the firm and its business. The following sections will elaborate on innovation activities, important conditions

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2.1.1 Conditions for Innovation

As this thesis focuses on the implementation of innovation partnerships, important factors contributing to innovation will be brought up in this section, covering idea management, decision-making, and culture for innovation.

Idea management is in this thesis described as the creation of ideas and the process of taking care of those ideas, which are both actions that are crucial for innovation. In her book, Schilling (2017) describes the importance of creativity when working with innovation; creativity is the ability to create new ideas and make them useful, which is essential first steps of being innovative. In companies that pursue innovation and development, it is essential to have people on-board that are creative and that will bring up new ideas to move the company forward. These people will need to have knowledge within the field of development, and a mind-set of thinking of new ways of solving old problems. Knowledge sharing has also shown having a positive impact on a firm’s innovation capability (Podrug, Filipović, & Kovač, 2017). Moreover, in order to be innovative, there must be support from within the organisation to foster new ideas.

This is called organisational creativity and includes the structure of the organisation, its processes, and incentives for people to work with innovation (Schilling, 2017). A lack of organisational creativity could be a reason to why it is hard for companies to intercept new ideas from within the organisation.

Furthermore, companies must have a way to capture those ideas that arise. To enhance the possibility to capture ideas, companies could start by implementing an idea collection system, such as an idea box, a common database, or performing idea workshops or competitions (Schilling, 2017). In this way, ideas that would not have come up could do so. Moreover, it is not only collecting ideas that are of importance. Schilling (2017) discuss the importance of sharing ideas and thoughts with others within the firm:

“Through active exchange, the employees can evaluate and refine the ideas, improving their fit with the diverse needs of the organisation’s stakeholders.”

Successful innovative companies such as 3M, Intel, and Hewlett-Packard have emphasised the need for allocating new ideas. To do so, these companies have implemented creativity training programs, which will make sure that their employees will be creative and that there will be an allowing culture within the company that will foster creative ideas (Schilling, 2017).

As brought up at the beginning of this section, creativity is an important factor when working with innovation. Creativity can be described as being built up by three blocks: expertise in the area; having skills of thinking creatively; and intrinsic task motivation (Amabile, 1997). Of these three, the intrinsic motivation was suggested to be the most important factor when it comes to being creative. The study showed that people with intrinsic motivation to perform a task, such as having a personal connection or interest in it, was much more creative than other people (Amabile, 1997). In line with this, it has been seen that the main motivator for innovators are things that they themselves find exciting, and not necessarily what would be beneficial for the company (Lempiälä & Vanharanta, 2018). To align the motivation of the individual, and the possible gain for the company, prosocial motivation – the feeling of benefiting others, is suggested (Grant & Berry, 2011). People that are motivated in this way will consider the organisation as an important factor when innovating and will work with ideas that go in line with the organisation’s work and goals (Grant & Berry, 2011).

As personal interests may go against the gain of a company, Lempiälä & Vanharanta (2018) mean that it is important for organisations to have a managerial vision when it comes to

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innovation. It is also important to allow individuals to pursue their ideas and be creative, in a way that includes both personal interests and the individual’s perception of what the organisation needs to succeed. To be sure that the most useful and innovative ideas will be developed, “a continuous balance between creative freedom and managerial control is recognised as an essential part of innovation management.” (Lempiälä & Vanharanta, 2018) Furthermore, it is important to have a clear decision-making process when it comes to innovation (Lempiälä & Vanharanta, 2018). Decision-making can be either centralised or decentralised, where centralised refers to having decision-making authority kept at top levels, and decentralised refers to having decision-making authority pushed down to lower levels of the firm. Having a decentralised R&D makes it easier to meet the development that the division needs. At the same time, there is a risk of re-inventing the wheel. On the other hand, a centralised R&D is more economically effective and enables the opportunity to develop ideas that are useful for more than one division (Schilling, 2017):

“Decentralised firms may be better able to respond to some types of technological or environmental change because not all decisions need to be passed up the hierarchy to top management; employees at lower levels are empowered to make decisions and changes independently and thus may be able to act more quickly.”

Another factor that will influence a firm’s innovativeness is its size. In many aspects, companies have an advantage of being big sized, such as having more resources and better global reach.

But with innovation in mind, large firms also have some disadvantages. Decisions might be delayed due to the difficulty to coordinate and communicate, and incentives for the employees might diminish since it is hard to see what each employee does and reward them properly. Both might lead to that the firm will be less innovative and less flexible to change. One method to make the big sized firms have the same advantages as a small size firm is to “break the overall firm into several smaller subunits, and then encourage an entrepreneurial culture within these subunits” (Schilling, 2017).

Furthermore, for a successful innovation process, it is also important to have an organisational culture that supports innovation. A model by Martins & Terblanche (2003), seen in Figure 3 below, describes what cultural factors that influence the creativity and innovation in a firm. To start with, it is important that the firm’s vision and mission support innovation, and that the goals and objectives have a purposefulness (Martins & Terblanche, 2003). It is also important to consider the way the firm is organised, as this will have an impact on the innovation culture.

According to Martins & Terblanche (2003), flexibility and freedom will promote innovation while rigidity and control will hinder innovation. Moreover, it is considered important to have support mechanisms available in the organisation, examples of such can be seen in Figure 3 below. One support mechanism that is mentioned is the rewarding and recognition of creative thinking. To both reward and recognise has shown to have a positive impact on the innovation culture. However, one problem that has been recognised in many companies is that employees are rewarded for fault-free work and not for taking risks. To promote an innovative culture it is important that employees also are rewarded for taking risks, experimenting and generating ideas. Furthermore, employees must be allowed to put time on innovation (Martins &

Terblanche, 2003). Lastly, support for change from management, as well as having a good mistake handling and open communication built on trust, have been considered to be factors that will positively influence the organisational culture for innovation (Arad, Hanson, &

Schneider, 1997; Brodtrick, 1997; Barret, 1997).

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Figure 3. Factors that influence the creativity and innovation (Modified from Martins & Terblanche, 2003)

2.1.2 Innovation in Project-based Construction Firms

Most construction firms are project-based, due to that construction is both technically and organisationally complex. A description of what defines a project-based firm in construction is (Gann & Salter, 2000):

1) Their design and production processes are organised around projects,

2) That they usually produce one-off, or at least highly customised, products and services, 3) That they operate in diffuse coalitions of companies along the supplier–customer chain.

There are dozens of factors that will both drive and hinder innovation within companies in construction. In this section, some of them will be brought up. Managing innovation in project- based firms is “complicated by the discontinuous nature of project-based production in which, often, there are broken learning and feedback loops” (Gann & Salter, 2000). Based on construction companies, Serpel & Alcarez (2014) identified six main innovation drivers, which companies need to manage for a successful innovation process. These were culture and human capital, organisational structure, technology, research and development, partnering, and knowledge management. Partnering was also brought up by Blayse & Manely (2004) as a factor driving innovation. With a focus on the knowledge management, both internal and external knowledge was emphasised as important. The internal knowledge includes organisational learning, how well the company learns from the projects, and its capacity for storing and sharing knowledge within the company. Furthermore, knowledge sharing has been stated as important for a firms innovation capabilities (Podrug et al., 2017). However, project-based firms often transfer knowledge through informal channels. Many firms use support functions to share knowledge, but because project-teams are often independent, they tend to not use central services such as technical and R&D support to a large extent (Gann & Salter, 2000). The external knowledge refers to how well the organisation learns from others and adapts best practices into the own company (Serpell & Alvarez, 2014). In their study, it became clear that none of the construction companies have an extensive work with either of these drivers. Hence,

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it is also suggested that the possibility for the construction companies to be innovative is low (Serpell & Alvarez, 2014).

In addition, Blayse & Manely (2004) also identified internal and external factors that both hinder and drive innovation in construction firms. External factors that might hinder innovation activities are the structure of production and the procurement systems. With the structure of production in mind, the fact that each project usually is a one-off reduces the benefit of innovation and therefore also the incentives. Gann & Salter (2000) mentions the non-routine as a hinder for innovation since “routines can stimulate innovation, providing opportunities for standardization and sustained process improvements”. There is not much knowledge transferred between the projects, which also hinders innovation (Blayse & Manley, 2004).

External factors that drive innovation are the promotion from clients, deliveries of innovative components from manufacturers, and relationships between individuals and firms within the industry or between the industries, as this enhances knowledge flow. The influence of external factors is further emphasised by (Reid & Brentani, 2004; Afuah, 2003), who state that the environment in which a company operates is important for driving innovation. Furthermore, it has been shown that the greater autonomy and flexible role the construction managers have, the higher the level of innovativeness (Winch, 2000). More use of subcontractors creates a greater need for tried approaches, which also affect the ability and willingness to innovate (Blayse &

Manley, 2004). According to Blayse & Manely (2004), a higher level of innovation arise when a more innovative procurement method is chosen. In Sweden, the construction industry is regulated by public procurement. At SIS one of the biggest clients is the Swedish Transport Administration (STA). Today, the STA have their own R&D department, where they develop what they need in the future. Now, however, they want to move away from controlling the contractor in their execution and methods, and instead take on the role of a client. Working in this way will allow more freedom in the design of the projects. The contractor will be able to suggest their own solutions and ideas, and this is thought to increase the level of innovation in the projects (Trafikanalys, 2017).

The internal factors that drive innovation is stated to be; innovation culture (where there is an openness for new ideas), absorptive capacity which refers to the ability to use research conducted elsewhere, innovation champions, knowledge codification so that knowledge required in projects can transfer from one to another, and innovation strategy (Blayse & Manley, 2004; Schilling, 2017). Moreover, an internal factor that might hinder innovation is considered to be the firms’ resources. Few firms in the construction industry have the resources or incentives to maintain a formal research and development programme. This reinforces the importance of having an effective implementation process to enable adoption of innovation developed elsewhere. Effective innovation performance, therefore, requires a formal innovation strategy (Blayse & Manley, 2004). In project-based firms, it is hard to articulate an innovation strategy, often this is due to that they have limited knowledge of the current state of the firm’s portfolio of projects. “Monthly or quarterly meetings of project managers may act as a device for ensuring that the status of different projects is understood, but they rarely provide a strategic direction for the firm” (Gann & Salter, 2000). In part, this situation is created by the organisational structure of project-based firms. With limited central functions, project-based firms need to find mechanisms to interpret project-based activities (Gann & Salter, 2000).

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2.1.3 Incremental, Radical and Discontinuous Innovation

Innovation in construction firms can take many forms. Two commonly mentioned ones are incremental and radical innovation. Incremental innovation is a minor change of an existing solution or process (Schilling, 2017; Slaughter, 1998). This kind of innovation could be an update, change of tool, a new way of manufacturing etc., and is important for companies to maintain their position on the market and their customers, without too much risk or resources.

Radical innovation is instead something that is very new and different compared to existing products and processes (Schilling, 2017; Slaughter, 1998). Radical innovation may contribute to long-term competitive advantages, enhanced performance of the company, as well as great new value for the customers. Radical innovation may also result in completely new markets or attraction of new customers (Schilling, 2017; Sadovnikova, Pujari, & Mikhailitchenko, 2016).

Something that also is mentioned a lot in the literature is discontinuous innovation, which refers to an innovation that builds on a new knowledge base and fulfils a similar market need (Schilling, 2017). Many companies struggle with discontinuous innovations. One reason for this can be because discontinuous innovations are uncertain and hard to foresee, and also because it is hard to change a routine that previous has been successful (Birkinshaw, Bessant,

& Delbridge, 2007). It is said that discontinuous innovations enter an organisation in different ways than incremental innovations, and therefore need to be addressed in a different manner (Reid & Brentani, 2004).

Even though there are great advantages of working with radical and discontinuous innovations, these are associated with great risks. This is due to that it is not possible beforehand to know where one will end up with these innovations, or what competences or resources that will be needed to continue to develop them (Schilling, 2017). New ideas and solutions might require new technology, new capabilities, and a lot of resources which may prevent companies to invest in them. One way to achieve more radical innovation is to open up the firm’s innovation process to other companies (Greco, Grimaldi, & Cricelli, 2016). This is called open innovation and will be further described in the next section.

2.1.4 Open Innovation

Open innovation describes how firms can innovate by interacting with other firms (Chesbrough, 2003). Using external sources for innovation is becoming an important managerial strategy, and innovation processes are becoming more open (Laursen & Salter, 2014). The use of open innovation has shown to have a positive effect on the innovation performance, especially with the development and commercialization of radical innovations (Greco et al., 2016).

Additionally, Birkinshaw et al. (2007) claim that new networks can enable discontinuous innovation. However, more openness is not certainly better. Laursen & Salter (2006) found that there were decreasing returns to openness. Firms that were too open had lower performance than those able to balance openness with internal activities.

Open innovation is suggesting to work with other companies to strengthen the firm’s innovativeness (Chesbrough, 2003). One way of doing this is to align in an innovation partnership together with another firm. Next section will dig deeper into how partnerships should be managed, initiated, and maintained.

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2.2 Managing Partnerships

There are many advantages of forming a partnership with other firms. One of these is that they may increase the competitiveness of the companies if handled correctly. Through these relationships, firms can quickly gain access to assets and resources that could not be bought, or that would have taken a long time to develop in-house. This will reduce the firm’s commitment to assets, and hence increase its flexibility (Ahuja, 2000; Schilling, 2017). Furthermore, the partnerships will allow insights of how the other partner works, thereby the company will receive tacit knowledge that they would not be able to gain in any other way. Companies may also find new markets and customers, as well as finding the competences to develop new technology from a partnership (Schilling, 2017). Koza & Lewin (2000) found several reasons for companies to enter an alliance, including:

“gaining access to a restricted market or overcoming barriers to entry; gaining market power; maintaining market stability; acquiring technologies products or new skills; pooling resources; reducing uncertainty; sharing risky research and development projects; speeding up entry into new markets; [and] deriving new incremental sources of revenue from combining complementary assets”

This goes in line with what Schilling (2017) mentions as advantages with collaborating;

collaboration can reduce lead time, enhance the flexibility, reduce the risk and cost, and be a source of learning, which can be especial importance during high-risk projects.

However, there are of course also difficulties with managing partnerships. Today, many partnerships fail. According to a conducted report, the failure rate for partnerships is 60 % (BPI Network, 2014). Koza & Lewin (2000) argue that one of the most common reason for alliances to fail is due to the lack of recognition of the close relationship between the overall strategy of the firm and the role of the partnership in that strategy. Other reasons for failure have shown to be lack of trust between the partners, that the partners want to control rather than collaborate, and that the partners think that their own technology is the best (Hitt, Tyler, Hardee, & Park, 1995). The source of these failures may also be a misalignment in incentives that the different firms have for entering the partnership (Khanna, Gulati, & Nohria, 1998). Additionally, Hitt et al. (1995) mention not agreeing in advance on how to run the business, and unchangeable contractual agreements, as reasons for failure. Beyond the risks of failure, there are also some other reasons to why firms may not want to collaborate with others. One reason could be that the firm has all the competences in-house, and therefore it does not have the need to collaborate with others. Another reason is the risk of exposing the firm’s proprietary technology and risking new competitors (Schilling, 2017).

Depending on the type of business, industry and involvement of several different actors, the partnership may vary and so does the managerial needs (Koza & Lewin, 2000). These following sections will describe the strategic importance of partnerships in a firm’s business strategy, what to consider when initiating a partnership, the importance of choosing the right partner, and how a firm is supposed to maintain a partnership.

2.2.1 Strategic Importance

According to Koza & Lewin (2000), the most important reason for companies to enter a partnership with another firm is to ensure and support the strategy of the parent company. They have seen that companies that have understood the power of strategic alliances in turbulent and

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to be able to enter partnerships, and be aware of what partners that may be a good fit, there has to be a strategic support for entering and searching for partners. The alliance must be recognised in each partner’s business strategy for the concept to be profitable. Moreover, the partnerships have to have the possibility to evolve and be maintained over time, to follow the needs and development of the alliance (Koza & Lewin, 2000). Therefore, there must be a continuous flow of resources to the partnership, which has to be supported by each partner.

2.2.2 Initiating Partnerships

Two challenges that companies face today when it comes to partnerships are (1) to know which technology, or what market to start looking into and (2) to find and form relationships with partners that are relevant for that technology and market. According to Birkinshaw et al. (2007), the challenge of creating new networks is first to identify relevant new partners, and then to learn how to work with them. This can be seen as a three-stage process: finding, forming and performing, where finding and forming is part of initiating the partnership:

“Finding [a partner] is enabled by the scope and diversity of your operations and by your capacity to move beyond the traditional way of thinking in your industry. It is hindered by a combination of geographical, technological, and institutional barriers. Forming is enabled by your past experiences with relationship building, the strength of your position within your industry, and an open attitude towards knowledge sharing. It is hindered by a range of barriers that may be ideological, demographic, or ethnic in nature, as well as by more generic concerns about the protection of intellectual property.” (Birkinshaw et al., 2007).

In Figure 4 the factors of finding and forming are put together, which results in four approaches to initiating partnerships. To succeed with partnerships, companies first need to be familiar with what obstacles they will need to overcome when building new networks and then the different approaches they can use in each case.

Figure 4. Matrix of finding and forming new relationships (Modified from Birkinshaw et al., 2007)

Creating new networks in proximate areas (number 1 in Figure 4) will be easy, but the payoff might be uncertain and long-term. The partnership will most likely not be the best for finding radical innovations. When the partner is harder to find, the challenge is to locate the right one (shown as number 2 in Figure 4). When having found it, however, the forming part is quite

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easy. To find the potential partners Birkinshaw et al. (2007) suggests that boundary-spanners and scouts are appropriate to use.

“Boundary-spanners are individuals who understand both worlds and can make the necessary links between them. Scouts are individuals who have or are prepared to build diverse networks into places or sectors that your firm is unfamiliar with” (Birkinshaw et al., 2007).

When the formation of a partnership is more difficult (number 3 in Figure 4), an effective strategy for the parties is to gather around a shared goal (Birkinshaw et al., 2007). For enabling disruptive innovation, moving into uncharted territory (number 4 in Figure 4) might be needed.

To be able to approach this kind of network, one way is to break down some of the institutional or demographic barriers and separate them from the firm. By doing this the relationship will be pushed down into category 2 and the same action for finding partners can be used. However, the challenges in category 4 are larger and will take a lot of time (Birkinshaw et al., 2007).

When initiating a partnership, one must also consider the intentions of each partner, as well as with the alliance. Koza & Lewin (2000) found that the exploration and exploitation intent of the company results in three different types of alliances; Learning, Business, and Hybrid. The level of exploration and exploitation will result in a specific alliance, see Figure 5.

Figure 5: Three types of Strategic Alliance (Modified from Koza & Lewin, 2000)

The learning alliance (upper left corner in Figure 5) has characteristics of increasing the knowledge of the partners. This may result in better understanding of markets, regulations, and customers among others. This alliance can also reveal insights about the core competences within each partner, as well as new technologies and ways to operate the business. The business alliance (lower right corner in Figure 5) is a suitable strategy for companies that aim to explore new possibilities, and need new competences in order to do so. This could include incremental development of products, new geographic positions, or an increased market segment. The last alliance is a hybrid of the two prior ones, where the companies want to explore new possibilities on the market, at the same time as they want to absorb the partners’ way of working and learn from it (Koza & Lewin, 2000). As these three alliances are of different strategic intent, they also need to be managed in different ways. This is further developed in section 2.2.4 – Maintaining partnerships.

2.2.3 Selecting Partners

The initiation of partnerships also includes a selection of who to partner with. The choice of partner is a critical decision that will have an effect on the performance of the partnership (Hitt,

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is one of the most important factors for creating a successful partnership (Wu, Shih, & Chan, 2009). According to Schilling (2017), it is required to have both a resource fit and a strategic fit to reach a successful collaboration when selecting partners. Resource fit refers to “the degree to which potential partners have resources that can be effectively integrated into a strategy that creates value”, while strategic fit refers to “the degree to which partners have compatible objectives and styles” (Schilling, 2017). Cummings & Holmberg (2012) have divided the critical success factors (CSF) for choosing a partner into four categories; task related, learning related, partnering related and risk related. When evaluating which partner to select, all of these factors must be taken into consideration. It has been shown that in successful partnerships the partners have had similar CSFs. It is also stated that when choosing a partner, one must be aware that the CSFs will change over time.

The task-related category includes objectives that relate to the task that should be solved by the alliance. These objectives can be found by evaluating the own firm’s opportunities and challenges. Examples of objectives can be to gain synergy advantages, to achieve greater specialization, to access new capabilities, or to increase the speed of the firm’s development projects (Cummings & Holmberg, 2012)

Learning-related CSFs on the other hand focus on the wanted learning opportunities rather than a direct use of the partner’s competences. In the learning related CSFs there are some aspects that need to be taken into consideration. However, just because a potential partner has the wanted knowledge it does not guarantee that the firm will be able to apply or use it in the future, the knowledge first needs to be located and then transferred successfully from one partner to the other. If the knowledge is easily found there is a higher opportunity for successful knowledge sharing and therefore a better learning outcome. A better learning partner will, therefore, be someone with less tacit knowledge (Cummings & Holmberg, 2012). Having knowledge in-house that other companies might be interested in has shown to be a driver for partnerships. Ahuja (2000) showed that companies with high technical or commercial capital are more attractive potential partners than companies will less expertise. These companies also tend to have more collaborations and connections with other firms (Ahuja, 2000).

Partnering-related CSFs refers to the relational aspects of the alliance. Some factors that are important to consider are differences in national and corporate cultures, past associations, organisational norms, and structures. It is also important to have shared goals, values, joint rules, and having strong convergent interests (Cummings & Holmberg, 2012).

The last CSF when selecting a partner is risk related, which refers to potential risks when entering a partnership. One of the biggest risks with partnerships is asymmetric knowledge sharing, where the firm gives away knowledge but does not get any in return. This can lead to even bigger risks, such as emergent competition risks, damage to customer relationships or even that the partnering firm takes over the business. A good risk-fit consists of a mix of risk identification, limitations, reciprocity, and tolerance between the companies (Cummings &

Holmberg, 2012).

Furthermore, Wu et al. (2009) have also found some criteria that determine how to choose the best partner. One criterion is the characteristics of the partner, which includes compatible management styles, compatible strategic objectives, and equal or higher level of technical capabilities. Additionally, marketing knowledge capabilities for increasing market share, the intangible asset such as patents or trademarks, and degree of fitness such as compatible culture and willingness to share knowledge are all important factors.

Implementing Innovation Partnerships: Influencing factors and their consequences

Implementing Innovation Partnerships

Influencing factors and their consequences

AMANDA FAGERSTRÖM EMMA GRUNDÉN

Master Thesis

Implementing Innovation Partnerships

Influencing factors and their consequences

Amanda Fagerström Emma Grundén

ACKNOWLEDGEMENT

NOMENCLATURE

Definitions

Abbreviations

Dictionary

TABLE OF CONTENTS

1. INTRODUCTION

2. LITTERATURE REVIEW