09.02.2016

Challenges in the innovation economy

If governments can lead by example as a major client, encouraging innovation in their contracts and sharing risk appropriately, then engineers may come out of the innovation closet and show what they can really do.

On Monday, 7 December 2015, Australia’s Prime Minister, Malcolm Turnbull launched his first major policy since being voted into office in September 2015 – an Innovation Strategy. He announced a raft of initiatives to promote the development of ideas, processes and products that will set Australia ahead in the global market, including changes to bankruptcy laws, tax breaks for start-up companies, and measures to promote science, maths and technology in schools; Turnbull also promised that Australians could look forward to an enduring ’ideas boom’, which would drive the economy in decades to come.

For Australian engineering consultants, this could be a glimmer of hope in a grim business landscape.

Already coping with a shrunken market since the demise of the mining boom, the domestic engineering sector is now facing the further challenge of increasing competition from overseas market entrants taking advantage of the China and Trans-Pacific Trade deals.

Without a means of differentiating themselves from international providers, Australian firms that rely on traditional engineering services for their existence risk being priced out of the market by new entrants from lower cost economies, like our clothing and car makers before them.

But the converse also applies. If our engineers can develop a reputation for consistently providing innovative solutions to complex problems in the built environment, and then exploit the markets opened by recent trade deals, it will provide them with new revenue streams to replace the bulk engineering that is migrating to lower cost, offshore providers.

It’s not just our engineering firm owners, employees and the Federal government that would celebrate if the industry seizes this opportunity to innovate its way to a prosperous future. The Victorian government is also urgently working to identify industries that can replace the state’s dwindling manufacturing base. In its search to find something to fill the gap that will be left when the last car rolls off the assembly line in Victoria in 2017, it has launched a $200m Future Industries initiative, which is seeking to seed sectors that have the potential to contribute new employment opportunities and revenue streams to its economy.

Professional Services is one of the six priority sectors identified in the Victorian initiative; Urban Design, Environmental Services and Construction Technologies were also highlighted as potential opportunity areas. Each area will have a strategy and policy statement developed and released over the coming months. Then it will be left to the sector to capitalise on the opportunities presented by the opening of markets through trade agreements.

Already bankers and financiers, as part of the professional services sector, are jumping at the opportunity presented by lowering of trade barriers and rising government support. For engineers working in the built environment, becoming an economic growth generator through innovating internationally competitive products might be a bit harder.

While our engineering professions deserve to be included in the process, the construction sector is not a hotbed of new ideas when compared to fields such as IT, medicine or finance. Turning our domestic sector into an innovation-driven, export-earning power house will be a challenge. Here are four areas where a change in approach can help achieve this ambition:

1. Mending a fragmented supply chain
Consult Australia estimates that there are over 50,000 individual businesses providing consulting services in the built and natural environment. These businesses make up one link in a supply chain that includes other consultants, contractors, subcontractors and material suppliers.

To get an idea from drawing board to reality, an engineer has to bring this diverse gaggle of stakeholders along for the ride. An outstanding design idea from a consultant might not get the support of the contractor because it is slower or more difficult to build or buy-in from the material supplier because it involves re-tooling their factory.

Compare this to a financial services product developed by a bank – in this case, the bank will own or closely control the supply chain making it much easier to drive product design through to reality.

Those wanting to participate in the ideas boom will need to form networks with like-minded firms from each facet of the supply chain. If they can add better connections to our world class universities – as the government wants to do – then these coalitions of the willing could lead the industry towards a more innovative culture.

2. Shifting the conservative mindset
Over the last century, the construction industry has hardly been a fountain of new ideas. The basic form of a stand-alone house hasn’t changed radically for centuries. Office buildings have become taller due to the invention of the elevator by Elisha Otis in 1852. There have been similar advances in fire protection, air-conditioning and construction techniques, and bridges and tunnels have also become longer. These advances, however, pale into insignificance when compared to say the development of the aircraft since Orville and Wilber Wrights' first flight in 1903.

Part of this is because what we have works and so there has been no pressing need to innovate. Also, because of the way building design can impact on the physical well-being of users and passers-by, both the training and regulation of the built asset design is focused around the removal of risk - the antithesis of innovation. Engineers are trained to use factors of safety on their factors of safety.

Given what is at stake, this is understandable, but such conservatism means that pushing the limits or challenging the norm is not normal behaviour. After all, people don’t use the expression “as safe as houses” for nothing. This is one of the biggest challenges facing any aspiring innovator in the industry. No one can instantly change the way a profession thinks and indeed some level of risk awareness is desirable. It will take a few determined individuals and some striking examples of success to demonstrate the advantage of an innovative mindset. In the meantime, those who dare should be encouraged to do so.

3. From risk shifting to risk sharing
Innovation involves risk and client behaviour in the construction industry acts as a significant disincentive for designers to take unnecessary risks to achieve an outcome. Any new idea that reduces costs, increases performance or extends the life of a constructed asset delivers a benefit to its owner and operator, not the designer and hence it is only fair that risk and reward are equally shared.

Yet designers suggesting new approaches are inevitably told that yes, we will try it, but you will carry the risk of it not working. Where the reward is received by others, there is little incentive for designers to roll the dice for the benefit of their clients, if they don’t share in the winnings.

This is an area where the government can play a significant role. If governments can lead by example as a major client, encouraging innovation in their contracts and sharing risk appropriately, then engineers may come out of the innovation closet and show what they can really do.

4. Diversity
In 2007, a McKinsey study, 'Women Matter – Gender Diversity as a Performance Driver' noted that a diverse, gender -balanced business was likely to outperform more male dominated businesses in many fields, including innovation.

If this is the case, the engineering sector has some work to do before it can boast an environment that promotes this sort of behaviour. According to the 2011 Australian Census, only 51% of women with engineering qualifications work in the industry and women make up only 11% of the engineering workforce.

The industry is becoming more aware of this issue, with Consult Australia convening the Champions of Change group to lead the sector. The issue won’t be solved overnight, however at least a start on the journey has been made.

The changes above present significant challenges for our industry. However, there is one thing that the profession favours – most engineers love solving problems. If they can turn this skill to work out how to overcome the challenges above and tap in to the ideas boom, they could become a power house of the Australian export sector.

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