Managing Knowledge to Produce Innovation in Sri Lankan Consultancy Firms

Transcription

1 Managing Knowledge to Produce Innovation in Sri Lankan Consultancy Firms Suthanthirapalan Kousihan, Department of Building Economics, University of Moratuwa ( Sepani Senaratne, Department of Building Economics, University of Moratuwa ( Abstract Innovation is one of the major issues identified as being important to improve the performance of the construction industry. Construction firms are increasingly being challenged for successful innovation. The knowledge resources such as human, structure and relationship of the firms are taken a significant part in the process of innovation. Managing these capitals to achieve innovation is a challenging task to firm s management. Thus, the aim of this study is to explore how consultancy firms in Sri Lanka, manage this knowledge capital towards innovation. Multiple case studies were conducted by direct observation and interviews with top and middle level managers of the firms. During interviews documents and archival records were examined. Nvivo software was used to codify and content analyse the transcripts. The findings explore the nature of innovation in Sri Lankan consultancy firms. The results indicate that in the process of innovation, client s requirements are a key factor. The firms mostly focus to satisfy their clients and survive in the market. The innovation is pushed by client s requirements and internal professional s skills. At the same time inadequate resources and clients inadequate attention obstruct the process. Firms have enough knowledge capitals such as communication networks, efficient management, professional s skills, energetic young peoples and standard documentation to produce innovation. However, due to the less intention of clients and the management on innovation, the innovation process is slow in Sri Lanka. Through established guidelines, training and development programs employees can be given opportunity to manage knowledge capitals effectively. Key words: Construction Innovation, Knowledge Capitals, Consultancy firms, Sri Lanka 1. Introduction This research focuses on managing knowledge to produce innovation in Sri Lankan consultancy firms. The paper contains several sections: introduction, research methodology, development of conceptual model, case study findings, and conclusion. Innovation is one of the major issues in many industries around the world. It is essential for the success in industry performance and for development. Innovation is one of key activities identified as being important to improve the performance of the construction industry [1]. Construction industry faces major challenges, 471

2 including that of improving its environmental performance and every new construction project has its specific new requirements depending on the demands, existing knowledge, technical and other developments which are combined to form something new. There are several definitions for innovation introduced by authors from time to time with different viewpoints. For example, Urabe (1998 cited [2]) revealed that innovation includes the generation of a new idea and its implementation into a new product, process, or services that lead to the dynamic growth of the national economy and the increase of employment, as well as the creation of pure profit for the innovative business enterprise. The similarity between those definitions is that something new is created, a product or a process, and put to use. Innovation really means change [2] and the change can be one of the two types; firstly, change in the product or service being provided, or secondly, change in the process by which the product or service is created. In the current thinking, innovation is not treated as a purely technological change; it can be classified according to its process; as radical and incremental innovations [3]. Radical is a very new product or service for the community whereas, Incremental innovation is a significant improvement of the existing product or service that happens gradually. Each case of innovation is affected by factors such cultural, human and management factors [4]. Cultural factors are the factors, which related with the organisational environment. Individual s personal characteristics are included in human factors and the management factors are especially connected to the support from top management. The generic innovation model (see Figure 1) show, that successful innovation outcomes are achieved through an appropriate innovation focus that is responsive to contextual factors, realised by appropriate organisational capabilities and channelled through effective and efficient innovation processes [2]. There are two principal clusters of thought in the general innovation literature concerning the process of innovation in firms: multi-stage process, which comprise of recognition, invention, development, implementation and diffusion stages [2] and non-linear cycle process of different and convergent activities [5]. The contextual factors and organisation capabilities in the generic model shows that innovation process in the firms depend on the internal and external driving factors as well as barriers. Context of innovation Innovation focuses Innovation Process Innovation Outcomes Organisational Capabilities Figure 1 - Generic innovation model [2] 472

3 Egbu [6] revealed that knowledge is a vital organisational and project resource that contributes organisational innovations and project success. Knowledge management takes an essential part in the process of innovation. One starting point for the study of the role of knowledge in innovation at firm level is to focus on the various forms where knowledge can be taken and the modalities in which it plays a role in innovation. Managing knowledge is a critical challenge for knowledge-intensive firms in bringing innovation. As Lu and Sexton [7] suggests, appropriate human capability within construction firms is vital for successful innovation and performance improvement in the construction firms. Furthermore, they argue that innovation in service firms are significantly different to manufacturing firms, and; also, project-based firm to non-project-based firms. This has implications to construction industry, which is project-based and more service-oriented. Consultancy firms are more service-oriented and identifying their innovation behaviours is noteworthy in nature. Relation Capital (KC) Knowledge Capital (KC) Structure capital (SC) Human Capital (KC) Figure 2 - Knowledge-Based innovation model [7] Egbu [6] mentioned knowledge is the vital organisational resource, at the heart of innovation. Coombs and Hull (1997 cited [8]) have stated path dependency is a very important concept to the understanding of mechanisms which link knowledge to innovation. Path-dependency means that firms acquire specific capabilities over time and these capabilities create a strong shaping force over what the firm will do in the future. Lu and Sexton [7] recognised knowledge capital (KC) (see Figure2), which is a combination of human capital (HC), relationship capital (RC) and structure capital (SC), is the driver for innovation in knowledge-intensive firms. By effectively managing these HC, RC and SC, firms can achieve successful innovations. Innovation in consultancy firms can be a new idea or new process put to use. Managing the human knowledge (HK), structural knowledge (SK) and relationship knowledge (RK) is a major challenge for the firms to produce innovation. Next section describes the research methodology adopted for the study. 473

4 2. Research Methodology Based on the background study, the aim of this research is to explore the overall approach of managing knowledge to produce innovation by consultancy firms in Sri Lanka. The aim was achieved through several objectives; identify key drivers and barriers, understand the innovation with its focuses and outcomes, explore how to manage knowledge capitals to produce innovation and develop an appropriate framework for successful innovation. The literature search was made more specific and more focused by restricting the analysis to the fundamentals of innovation. Whilst carrying out the literature review much care was given to inculcate appropriate breadth and depth; consistency; clarity and brevity and effective analysis and synthesis. The collected literature was used to develop a conceptual framework denoting the research problem. The research focused on consultancy firms in Sri Lanka and studied three cases (see Table 1), as it provides multiple sources of evidence and probable replication of findings. The case study method was chosen as it allows an in-depth investigation into a phenomenon in its real-life context [9]. The data were collected from the key participants of organisations such as Architects, Engineers and Quantity Surveyors (QSs) through semi-structured interviews. The interview questions were open-ended to allow the discovery of new issues. While conducting the interviews, follow-up questions were used to receive more details. At each interview, a brief introduction about research was given to help the respondent understand the context. Interviews were tape- recorded with the permission of the interviewees. Interviews were followed based on the guidelines prepared prior to interviews. At the same time documents were accessed to strengthen data collection. The organisational culture, communication system and flexibility of the organisational structure were observed. The interview data was analysed using content analysis with Nvivo software. The following section illustrates the development of conceptual model. 474

5 Table 1 - Case study details Organis ation Name of the interviewee Designation Duration Description of the organisation Case A Case B Case C Engineer Architect QS Engineer Architect QS Architect Engineer QS Senior Engineer & Director Senior Architect Senior QS Engineer and Post contract manager Senior Architect Senior QS Chief Architect & Director Senior structural engineer Chief QS One hour 40 minutes 30 minutes 50 minutes 30 minutes 40 minutes 35 minutes 30 minutes 40 minutes Case A is the leading consulting organisation and is in the good books in the local construction industry. The company was founded in 1977 to include a consortium of main professional skills required for construction projects of any type of works. Case B is a multi-disciplinary independent consulting organisation established in 1968 as a partnership firm. After 30 years it was incorporated in 1997 as a private limited liability company. The organisation structure includes the major functions of engineering consultancy and architecture. Case C is one of the leading consultancy organisations in Sri Lanka. It was established in 1976 and, it is a limited liability company consisting of charted Architects, Engineers, Quantity Surveyors and Urban planners. The firm offers comprehensive architectural and engineering services for all types of projects. 3. Development of Conceptual Model The literature findings were synthesised, in particular, Sexton & Barrett and Lu & Sexton work, in developing the framework. In this, organisational capabilities and context components were represented by drivers and barriers. Knowledge capital was added to explore knowledge-based innovation. 475

6 Drivers Context Barriers Focus Innovation process Outcomes SC HC Knowledge Capitals (KC) RC Figure 3 - The Conceptual framework for SL construction consultancy firms. In this model, innovation is initiated by Focus and influenced by contextual factors in terms of drivers and barriers (see Figure 3). These factors are acting internal as well as external. Knowledge is highly associated with innovation and as an essential element for innovation. Thus, Knowledge capitals are incorporated in to the model to balance these drivers and barriers and achieve successful innovation outcomes. The overall approach and nature of innovation in consultancy firms was explored, in the case study firms through focus, outcomes, contextual factors in terms of drivers and barriers and knowledge capital includes human capital, structural capital and relationship capital. These findings are discussed in the next section. Case study findings are analysed in the following section, which includes innovation focuses, innovation outcomes, innovation drivers, innovation barriers, knowledge capitals, and managing knowledge capital. 4. Case Study Findings Through the field study, the conceptual framework was reviewed with the identified factors under each elements of innovation. In this model (see Figure 4), key innovation focuses, outcomes, drivers, barriers, and knowledge capitals were identified and managing knowledge capital to successful innovation was explored in selected consultancy firms in Sri Lanka. This section discusses factors under each element in detail to understand the overall approach of innovation. 476

7 DRIVERS Professional s skills Taking challenges Clients requirements CONTEXT BARRIERS Inadequate resources No proper response by clients Less management intention Lack of communication skills FOCUSES Survival in market Obtain client's satisfaction Keep competitive advantage Attention on multiple projects Problem solving PROCESS Establish guidelines Share the profits of innovation Training and development Management employee oriented attitudes Opportunity to sharing knowledge OUTCOMES Client s satisfaction Increase efficiency of management Technological improvement Opportunity to carry out mega projects KNOWLEDGE CAPITALS HC Professional s skills Energetic young employee s attitudes SC Efficient management Flexible organisation culture RC Communication networks Standard documentation Figure 4 - Framework for Successful Innovation in SL Consultancy Firms 4.1 Innovation Focuses Survival in the market and intention on multiple projects were the most dominating focuses in each case. In all three professionals view, survival in the market was the most significant focus. Engineer, in Case B mentioned, as a private company, nobody thinks about innovation. To make profit, organisation is carrying some new idea. As was as by doing this we could survive in the market with the good name. Problem solving was identified as a focus by the engineer as well as a director in Case A. He said, basically, every day we are doing innovation. 477

8 Every site has problems. Even a house project we have to do some work for the first time. There is an innovation. Architect, Engineer and Quantity Surveyor s of the three cases indicated that intention on multiple projects as a focus of the firms. Through this, they supposed to increase the efficiency of firms as well as give value for organisation rather than give value to a particular project. The QS in Case A said, we are considered to give a value to organisation rather than make success in a particular project. Respondents from Case A and C and one from Case B indicated that get competitive advantage is also one of the key focuses for innovation. Offer a sustainable product with client and end-user satisfaction and linearly increase the profit was a point highlighted by them. Pay attention on getting Client s satisfaction was explained as a focus by the engineer and QS in Case B. Engineer of Case A also supported to this factor. The QS of Case C stated, we have to satisfy the client. Otherwise they won t come to this organisation for their future projects. As per the innovation focuses, factors identified through the research, the key factors that the consultancy firm s focuses could be summarised as survival in market, keep competitive advantage, intention on multiple projects, client's satisfaction and problem solving. 4.2 Innovation Outcomes The client s satisfaction or client relationship development was identified as a most dominant outcome. Respondents from all three cases supported this. Focus on survival in the market; get competitive advantage and client s satisfaction encourage the firms to produce the outcome of client s relationship development. Architect of Case A said, most of our client have trust on us, and keep them with us, our inputs are more flexible. Not like other consultants, some times we are trying more options for them to feel comfortable and, they require us to do the feasibility study as well. Both architect and QS from Case A and B, declared that increased management efficiency is an outcome of innovation. In Case A, all three respondents stated that opportunity to carry out mega projects of the country is their successful outcome due to their reputation. The architect of Case A expressed, if you take tallest project in the country, nobody knows what to do at the beginning. Even the client is also confused with local consultants, so we took the challenge and were able to produce drawings. As well, in Case C, carrying out unique hotel project was identified as an outcome. For example, two respondents from Case C proudly expressed, we are specialist for hotel projects in the country. Technological improvement, which could be computer-aided drawings and communication were stated by respondent in each Case A and C. 4.3 Innovation Drivers Client s requirement was identified as a key driver from outside of the organisation. In Case B, all three respondents and two respondents from other cases mentioned that the client s requirement of the project is the most important driver towards innovation. For example, 478

9 Architects of Case A s statement was as follows; nowadays clients are very sophisticated. They need product within a short period. We are capable to do that, and our philosophy is to satisfy the client is the main thing. Architect of Case B confirmed the views of the former stating, client s tight time schedule, meet client s cost targets are externally and our professional skills, knowledge are internally forced for the innovation. External factors take important place in the innovation approach. We mainly concern about the external factors. Among internal drivers, the capabilities of the professionals who are working in the organisation drive the innovation process. The capabilities are articulated in different forms as professional s skills, and knowledge from education. Professional s skills on individual fields as well as individual skill force towards innovations. This fact was supported by architect and QS from Case B and C. Other important pushing factor was identified that the attitudes of the individuals which is taking challenges and professional s intention were drivers for innovation in Case A and C. Professional s intention towards innovation was recognised as power to innovation in Case A and C. Director as well as architect of Case C mentioned that the intention of a professional or a person will affect the innovation of the project. It will vary according the project. The person is earning for living. If the person will get more salary, he will spend enough time on project success. The respondents indicated that employees may motivate to take challenges due to their knowledge and their experience. In particular, young professionals generally like to take challenges. One of the directors of Case A confirmed; we have given maximum freedom to young professionals. That s why we are better. There is a reason, that is young people can take challenges. Some people don t like to take challenge. If you motivate to take challenge, it will be an innovation. The discussion identified that from the architects, engineers and QSs view; client s requirement, professional s skills and attitude of take challenges are the key internal and external drivers to innovation. 4.4 Innovation Barriers Inadequate resources for projects were indicated as a leading barrier by QSs of Cases A and B. In addition to this point, Engineer of Case C said; not allocating enough human resources; resources with less experience; not supplying the drawings on time and inadequate technology are responsible for unsuccessful innovations. In Case B, architect and QS declared that not receiving the proper response from the clients contribute for unsuccessful innovation. In addition, most of the clients are concerned only on their time and cost limits but not on innovation. That makes professionals to think and work on cost and time dealing not even on quality of final product or service. Some other barriers were identified in Case A and C, such as less management intention towards innovation; high employee turnover; not updated knowledge; and lack of communication. Even though, these factors were mentioned mainly by one respondent; the effect of these factors on innovation process is significant. Team members not having the attitude to share knowledge on problem-solving and other important matters, was referred as 479

10 lack of communication. Director from Case C indicated that non updated knowledge as a significant barrier to innovation. In addition, he explained as follows, here our professionals are not updated most of their knowledge. We have to be always updated, when the new technology comes. That is the main problem we have. Other one is communication problem (not a language problem) there is a lack of discussion between individuals. Due to that the knowledge is not transferred among the individuals. Engineer from Case A mentioned, top management has less intention towards the new ideas rather they are interested in making a good profit. Barriers to innovation in consultancy firms can be summarised as follows; inadequate resources, no proper response by clients, less management intention and lack of communication. 4.5 Knowledge Capitals The case studied organisations have professionals skills, knowledge from education and young energetic people attitudes, which are recognised as human capital. In both Cases A and B, professional s skills were the most dominant factor. The professionals posses a good technological knowledge with experience and they were graduated from leading universities. Their skills lead them to come out with new ideas based on their knowledge. In Case A, one respondent stated that attitudes of employees and energetic young people are their secret for success. In addition, they declared, as a Sri Lankan we have a remarkable history, we can make good buildings if we are willing to take challenge. This thinking was motivated towards innovation as well the young people adapted to this thinking and they think in new ways rather than going with what is existing. They feel that enough responsibility and authority to be given to young professionals to carry out the tasks entrusted. Engineer of Case A said, we are thinking about foreign knowledge and people. But we could do innovations with local knowledge, local people when taking challenges. Structural capitals such as standard documentation, established system and the efficient organisation structure were identified through the interviews as well as observation. Standard documentation by using new computer technology was identified in Case B. The computer technology gives good opportunity to share information quickly and firm maintains a small library within the organisation too. In Case C, there is a recently established system, which gives opportunity for its employees to carry on tasks of each division without delays and errors. Director of Case C declared; being professionals we should perform well in the project whether the project is small or big. Starting from the design, our capable architects are producing good design. We have good documentation system for each and every project and well established process towards innovation. Respondents indicated that the flexible hierarchy of organisation structure with adequate communication channels also support to carry out the work efficiently. Efficient management system was identified as a good structural capital and relationship capital. For example, give opportunity to employees to come up with new ideas (decentralization); informal parties; and, site meetings can be seen as efficient management activities. 480

11 The communication network is helpful to increase the relationship internally as well as externally, which was mentioned in Cases A and C. In Case A, deal with foreign consultants was identified as power to relationship capital. Other than these, flexible friendship culture and informal get-togethers were recognised as good relationship capital. The relationship capital is used to integrate the human and structural capitals. 4.6 Managing Knowledge Capital Most of the respondents indicated that managing human knowledge towards innovation was a critical task for management. The research findings on managing knowledge capitals (KC) identified that the most of the activities are related to human capitals. Arrangement of training and development program is a key way to increase innovation. This was declared by engineers, architect and QSs in three cases. The organisations send out or abroad their employees for trainings and arranging workshops within the firms as well. Case C allocates funds to pursue higher studies to their professionals. The senior people shared their knowledge and experiences with juniors, which helped juniors to think creatively. This indicated knowledge sharing takes important place in managing KC. Make opportunities to share the knowledge is one of the efficient ways to produce innovation. The management is sharing their success of innovation ideas in monetary terms with employees by giving them monitory incentives. This makes employees to feel happy and remain in the firm. In all three cases, respondents declared that giving additional compensation encourages the humans. The next important management activity is established standard guidelines to carry out the tasks as a way of managing relationship capital. In all three cases respondents identified that the working procedures, practicing formal relationships, and coding knowledge were built good base towards innovation. Not only formal relationship but also improving informal relationship by arranging get-togethers, trips and celebrations make sprit between employees. In Case B, top management has been arranging celebration every month called Happy hour. Statement of director in Case C was as follows; really we have not a very systematic programme.but, when any problem occurs; informally we are solving that with the involvement of top level management by using the relationships with other individuals or other parties. Other than these, some of the other management activities were identified from the cases; give adequate responsibility; develop database; and, cost planning. In the middle of these, allocate and give adequate responsibility to suit their skills, increase the productivity of employees are on the way to innovation. In Case A, respondent said that allocating proper tasks to young professionals facilitated innovative ideas on the way of innovation. Next section concludes all the findings of this section. 5. Conclusions The results indicated that in every project, there is an innovation to satisfy client. To get competitive advantages, firm introduced new ideas and process from time to time. Mostly, firms are concerned with multiple project success and they are not in favour of getting success 481

12 from a single project. Outcomes of innovation depend on focus. Findings indicated that there is a relationship between focuses and outcomes. Case study firms achieved satisfaction from the client and they are contented with that. In addition, innovation approach helped to increase the efficiency of management in organisational level as well as project level. The findings indicated that external drivers were considered as the most affecting factors. Client s requirements represent tight time schedule, budget and special requirements, which are related to the project. Though they had resources, not delivering or allocating resource to project on time was observed as an obstacle to innovation process. Most of the clients require projects adhere to time and cost but less concerns on new ideas or processes. The results indicated that the management intention was mainly on profit making. They do not realise the advantages, which can be achieved from innovation. Lack of communication between team members also obstructs the process of innovation. The members do not have the attitude to share the ideas and other important matters with other team members. These circumstances discouraged innovation. Knowledge capital plays an important role in the process of innovation. Improvement in knowledge capitals increases the efficiency of top management. In addition to this, results show that three capitals cannot be treated separately. However, case study firms mainly concern on managing human and relationship capitals. In Sri Lankan consultancy firms, innovations have been taking place through their operations. However, they could not be recognised as innovations. Since they could not identify the performance lying on that, the process was not successful all the time. In this context barriers have more power than drivers. To balance this, top management needs to manage knowledge capital. This research explored a framework for successful innovation in the Sri Lankan context (see Figure 4). This framework may be used as a decision making tool by the top management in the direction of innovation. References [1] Page, M., Limeneh, M., Pearson, S. and Pryke, S. (1999) Understanding innovation in construction professional service firms: A study of quantity surveying firms. RICS research foundation. [2] Sexton, M. and Barrett, P. (2003a) A literature synthesis of innovation in small construction firms: insights, ambiguities and questions. Construction Management and Economics, 21, [3] Sexton, M. and Barrett, P. (2003b) Appropriate innovation in small construction firms. Construction Management and Economics, 21, [4] Widen, K. (2003) Innovation in the construction process. [Online]. Available from: [Accessed date 24th February 2007]. 482

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