INNOVATION AMONG EMERGING CONSTRUCTION FIRMS

Various authors argue that innovation has demonstrated a strong and influential relationship with small business performance (Akgun, Keskin, Byrne & Aren, 2007;

Valmohammadi, 2012). This relationship was also extended to other areas of business by authors as innovation has been demonstrated to play significant roles in forging competitiveness, profitability and sustainability of businesses across the globe (Valmohammadi, 2012). Other studies have also found that a positive relationship exists between innovation, competitiveness and firm performance (Masso & Vahter, 2007; Rosli & Sidek, 2013). Rosli and Sidek (2013:9) found that product and process innovation positively and significantly impacted firm performance.

In order to perform well economically, it is apparent that emerging construction firms need to innovate. Various scholarly literature indicates the significant relationship between innovation and firm performance (Mohnen & Therrien, 2003; Ncwadi &

Dangalazana, 2005; Mansury & Love, 2008). Innovation boosts economic performance should be a basic understanding for ECFs that intend to compete. In fact, innovation is seen as the critical factor “for fuelling long-term sustainable economic growth and, concomitantly, employment creation and poverty alleviation in all economies, both developed and developing (Gyekye et al., 2012:915).

According to Sidumedi (2009: iv), innovation in corporate culture has been identified as one of the ingredients that can be used to improve the performance of South African construction firms. The findings of these studies imply that ECFs, in order to enjoy a better firm performance, must find innovative means of delivering their products and/or services to their customers. This further implies better and unique organisational and marketing initiatives. For instance, in Estonia, decisions of firms to innovate positively related with the orientation to international market, existence of formal legal institutions protecting innovations and access to national subsidies (Masso & Vahter, 2007). In a study that aggregated empirical evidence regarding the innovation–performance relationship in SMEs, Rosenbusch, Brinckmann and Bausch (2011:454) found that both innovation orientation and innovation activities create value for new and established SMEs. Alsaaty (2011:3) also argues that innovation translates into organisational renewal, financial gain, improved productivity and firm competitiveness.

Despite having always been among the driving forces of the economy, the construction industry around the world has always been criticized for its lack of efficiency with regard to research and development in comparison to other industries and its unwillingness to innovate (Ozorhon et al., 2010:1). Conventional perspectives on innovation emphasize product research and development and the construction industry fails to engage in innovative methods of creating new offerings. Similarly, the construction industry in South Africa is renowned for low levels of innovation and therefore, there is a need to stimulate innovation in this industry (de Jong & Hulsink, 2010:5; Rust & Koen, 2011:2).

Innovation, particularly radical innovation, which entails both intensive and extensive investments over time, has usually been associated with large business enterprises (Hogan & Coote, 2014:1610). Product innovation in large, established firms resulting in new products has received extensive research attention to the neglect of process innovation, which often occurs in small businesses such as ECFs. Yet small businesses are known to dominate the economic map of all economies, irrespective of level of development (Okpara & Kumbiadis, 2008:109). This means that innovation

in small businesses has not received the much-needed attention considering the critical role they play in local as well as international economies.

Despite the perception that ECFs are characterized by low propensity to innovate due to low technology usage, resource scarcity and incapability, construction practitioners are said to actively pursue innovation management as an explicit or tacit business strategy (Sexton et al., 2001; Alsaaty, 2011). Rosli and Sidek (2013) argue that emerging businesses in the construction sector in South Africa must adapt to changes and innovate for success. It is therefore imperative for ECFs to innovate. The source of innovation for small businesses, which invariably includes ECFs, is largely derived from networking, especially with external entities. The next section investigates challenges faced by ECFs which could be the main sources of the lack of innovation in construction.

4.5.1 BARRIERS TOWARDS INNOVATION AMONGST SMALL BUSINESSES Over the last decade or so, numerous research projects have sought to identify barriers to innovation in the construction industry. Various scholars (Mohnen & Roller, 2005; Bratianu, 2009; Guijarro, 2009) have pointed out several barriers that are an impediment to innovation in the construction industry. For example, Barrett, Abbott, Ruddock and Sexton (2007) cite clients and industry bodies protecting their own interests; complex network structure of construction; supply chain problems; costs associated with innovation; poor strategy and implementation; inappropriate legislation and employment practices and organisational culture, leadership and philosophy. These barriers are discussed in the next section.

4.5.1.1 Clients and industry bodies protecting their own interest

Ivory (2005) posits that many clients are unwilling and unable to effectively encourage innovation because of competition with other priorities; short term capital cost involved in innovating; internal politics and difficulties in achieving consensus among project stakeholders; increased risk exposure and workloads in managing innovation. Sexton

et al. (2008) point out that there are many client types and regulating bodies and while some prominent clients and bodies take their leadership responsibilities seriously, the majority of construction clients and bodies play a passive role in the innovation process.

In the context of ECFs, government priority in terms of innovation is more focused toward established construction firms who are believed to have enough resources and expertise to innovate. ECFs in South Africa are further entangled between regulating bodies (CIDB and NHBRC) whose requirements and/or specifications are at times in conflict with one another. For example, ECFs graded 5CE/GB in terms of CIDB grading will often be rated poorly by NHBRC measures when ECFs tender for low cost housing contracts.

4.5.1.2 Complex network structure of construction

Construction occurs through complex and often unwieldy constellations and networks.

The way the risks and benefits of innovation are distributed through these networks is often problematic in not fairly reflecting the proportion of each firm’s contribution to the process (Winch, 2008). This separation of potential innovators from the potential benefits of their innovations will always demotivate ECFs, as most of the time ECFs are sub-contractors in such complex projects.

4.5.1.3 Supply chain problems

The construction industry is often affected by lack of integration of manufacturers (Winch, 2008; Dodgson & Gann, 2010). In ECFs’ context, this would mean that while a contractor’s benefits are project-specific, manufacturer’s benefits are product- specific. This will often present a dilemma that while ECFs are best placed to identify innovations, material/product manufacturers have little incentive to respond in a time–

frame which enables ECFs to benefit from them.

4.5.1.4 Costs associated with innovation

Businesses, big or small, would love to engage in innovative activities but sometimes the fear of failing to succeed after investing a lot of money becomes a constant worrying factor. Most studies reveal that the cost of innovation is one of the most important and common barrier to innovation (Mohnen & Roller, 2005). A study by Lim and Peltner (2011) revealed that high innovation costs have a negative and significant effect on the innovation propensity of the firm and small businesses, due to their limited resources. In ECFs’ context, it will be easier and cheaper to innovate in incremental innovation (as in improving construction methods) than radical innovation (as in inventing a new technology to install new pipes) due to the costs involved in disruptive innovation.

4.5.1.5 Organisational culture, leadership and philosophy

Cultural impediments to innovation also exist in construction industries around the world. In general, innovation is perceived as an academic activity, which in most instances produces theoretical results of little commercial value (Dodgson & Gann, 2010; Loosemore & Phua, 2011). The South African construction industry is characterized by middle class individuals who are not educated and are fascinated by materialistic possessions such as expensive German cars. Such fascinated ECFs’

owner/managers will not be committed to invest in their businesses but their culture, leadership style and philosophy will be to outsource or hire out wherever possible.

4.5.1.6 Inappropriate legislation and employment practices

Innovation can also be stifled by clients’ employment practices. Research indicates that non-traditional relational procurement methods such as alliances and partnerships would seem to benefit innovation (Walker & Maqsood, 2008). However, alliance contracts are often undermined by the culture of the industry in which they have to exist and ultimately, alliance contracts, like any other project, are staffed by people who have been educated and instilled in the confrontational and fragmented traditions of the construction industry.

A typical example in ECFs’ terms is a case where a South African contractor is to joint venture with a foreign-based contractor who is not used to working with women in the civil industry. While the South African counterpart endeavours to create a suitable working program for the females, the foreign-based partner normally sees that as a waste of time and resources. This factor is also compounded by the inappropriate legislation where government will be expecting ECFs to employ equal numbers of females to males in an industry where physical work is the order of the day.