Business models in construction

Revision as of 15:53, 8 May 2013

THIS ARTICLE IS UNDER DEVELOPMENT

Business models are a fundamental concept required to realize the latent value in new ideas or technologies. However, it is often considered a ‘buzzword’ born out of the dotcom period. The reality is that business models have been around since people realized the exchange value of goods and services. But, the earliest known academic article written about it is was in the 50s, according to Vickers (Vickers, 2000 #494).

However, the subject has gained momentum since Timmers’ (Timmers, 1998 #484) EU-funded research about business models for e-businesses in 1998. Timmers defined business models as the ‘architecture of flows’ of products, service and information as well as including the description of the various business actors and their roles, potential benefits to them and revenue sources. While; Magretta (Magretta, 2002 #359) deemed business models as ‘the story about how an enterprise works’. The story states who the target customers are, how does the business make money and what the customer values (Magretta, 2002 #359). More recent definitions include a componential perspective e.g. Osterwalder, Pigneur and Tucci (Osterwalder, 2005 #54)’s 9 elements which are value proposition, core competency, target customer, distribution channel, relationship, value configuration, partner network, cost structure and revenue model. While, Johnson et al (2008)’s influential Harvard Business Review article describes business models as comprising 4 elements: customer value proposition (CVP), profit formula, key resources and key processes (Johnson, 2008 #581). A business model definition that has gained currency comes from a group of Wharton academics: ‘…the content, structure and governance of an activity system for value creation’ (Zott, 2008 #87). These Wharton academics have been writing on the subject since 2001 up till their latest state-of-the-art article in 2011 which categorised the business model literature into three streams suggesting future research be conducted in these three categories for cumulative research (Zott, 2010 #86; Zott, 2011 #8). However, they did not offer a prescriptive business model framework that could be applied in the marketplace.

Further, there is a growing literature on business models in the mobile and telecommunications sector as well as business models that cross firm boundaries, often around a technological platform. This changes the unit of analysis from the firm to the value network (or innovation ecosystem) of firms around a technological platform. The elements of this new unit of analysis need to be explicated. Further, despite the expansion of cumulative academic research on business models e.g. (Desyllas, 2013 #630; Lobo, 2013 #631; Mutka, 2013 #633), there remain gaps in the literature. For instance, there is no widely accepted taxonomy for business models (Lambert, 2006) despite several attempts to do so and not enough work on how to capture value/profit from business models (Zott, Amit and Massa, 2011). In addition, issues like privacy, security and IP issues have not been explored enough. However, some elements seem to be part of most business model definitions: value proposition, capabilities and value (for the business).

There has been an explosion of interest by practitioners to design the right business models for their technological innovations. The extant knowledge about business models can be used as the basis for insight into designing these business models. It could also be used in policy documents providing the foundation for discussion on challenges and opportunities in the UK digital economy.

Further, there are several areas where ‘business models’ could be used as a useful analytical tool for the construction sector. These include business models for SME/entrepreneurial businesses as SMEs make up the largest part of the construction industry in the UK. With the mandating of BIM, this becomes a crucial exercise to persuade SMEs that it is possible to make money using SaaS models for instance, even with the costs associated with implementing BIM. Another would be data-driven business models e.g. business models for BIM. An approach to take for the analysis would be to determine the value proposition offered by BIM to users and clients, map the capabilities (digital and otherwise) required for BIM and determine the business value of BIM for the industry in terms of deciison-making, lower costs etc. The analysis could be done by profession or by project phase. Attempts to clarify the business value of BIM already exist like the SmartMarket Report on the Business Value of BIM (2009) and on Green BIM (2010).

Yet another useful area for analysis would be business models for sustainability (or renewable energy) or green building (Aho, 2013 #641; Mokhlesian, 2012 #634). According to Aho (2013), there is a need to transform the construction sector’s prevailing cost-plus based business model to a performance-based one. The latter may be achieved by taking a whole lifecycle performance approach which involves all parts of the industry from design to maintenance/decommissioning. Getting this right will be beneficial to the UK economy in terms of jobs, increased GDP and even wealth creation.

References:

Aho, I. (2013). Value-added business models: linking professionalism and delivery of sustainability. Building Research & Information 41(1), 110-114.

Desyllas, P., & Sako, M. (2013). Profiting from business model innovation: Evidence from Pay-As-You-Drive auto insurance. Research Policy, 42, 101-116.

Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing Your Business Model. Harvard Business Review.

Lobo, S. (2013). A Systematic Review of Business Models in the Digital Economy: funded by NEMODE network; RCUK Digital Economy Theme.

Magretta, J. (2002). Why Business Models Matter. Harvard Business Review, 86-92.

Mokhlesian, S. , & Holmén, M. (2012). Business model changes and green construction processes. Construction Management and Economics, 30(9), 761-775.

Mutka, S., & Aaltonen, P. (2013). The impact of a delivery project's business model in a project-based firm International Journal of Project Management, 31(2), 166-176.

Osterwalder, A, Pigneur, Y, & Tucci, C.L. (2005). Clarifying Business Models: Origins, Present and Future of the Concept. Communication of the Association for Information Science (CAIS), 15.

Timmers, P. (1998). Business Models for Electronic Markets. Electronic Markets, 8 (2), 3-8.

Vickers, M. (2000). Commentary: Dot-Com Business Models from Mars. Business Week Online, 4.(September ).

Zott, C., & Amit, R. (2008). The Fit Between Product Market Strategy and Business Model:Implications for Firm Performance Startegic Management 29(1-26).

Zott, C., & Amit, R. (2010). Business Model Design: An Activity System Perspective. Long Range Planning, 43(2-3), 216-226.

Zott, C., Amit, R., & Massa, L. (2011). The Business Model: Recent Developments and Future Research. Journal of Management 37(4), 1019-1042.

Articles needing more work