Last edited 30 Aug 2016

Business models in construction

Business models are fundamental to realising the latent value in new ideas or technologies. Whilst it is sometimes assumed that the phrase 'business model' emerged in the dotcom period, the reality is that business models have existed since people first established exchange values for goods and services. The earliest known academic article written about business models was in the 1950s, (Vickers, 2000).

The subject then gained momentum, in particular with Timmers' EU-funded research about business models for e-businesses in 1998. Timmers defined business models as the 'architecture of flows' of products, services and information, as well as including descriptions of various business actors, potential benefits to them and revenue sources.

Magretta (2002) described business models as 'the story about how an enterprise works', defining who the target customers are, how the business makes money and what the customer values. More recent definitions include a componential perspective. For example, Osterwalder, Pigneur and Tucci (2005) describe 9 elements:

  • Value proposition
  • Core competency
  • Target customer
  • Distribution channel
  • Relationship
  • Value configuration
  • Partner network
  • Cost structure
  • Revenue model

Johnson et al (2008)'s influential Harvard Business Review article describes business models as comprising 4 elements (Johnson, Christensen, & Kagermann, 2008):

  • Customer Value Proposition (CVP)
  • Profit formula
  • Key resources
  • Key processes

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 & Amit, 2008). The Wharton academics have been writing on the subject since 2001. Their state-of-the-art article in 2011 categorised business model literature into three streams suggesting areas for future research (Zott & Amit, 2010; Zott, Amit, & Massa, 2011), however, they did not offer a prescriptive business model framework that could be applied in the marketplace.

There is a growing literature on business models in the mobile and telecommunications sector as well as business models that cross company boundaries, often around a technological platform. This changes the unit of analysis from the single company to the value network (or innovation ecosystem) of companies around a technological platform.

Despite the expansion of academic research on business models e.g. (Desyllas & Sako, 2013; Lobo, 2013; Mutka & Aaltonen, 2013), there remain gaps in the literature. For example, there is no widely accepted taxonomy for business models (Lambert, 2006) despite several attempts to create one, and more work is needed on the best ways to capture value/profit from business models (Zott, Amit and Massa, 2011). In addition, issues like privacy, security and intellectual property need more research especially for Web 2.0 business models. However, some common elements seem to be part of most business model definitions:

  • Value proposition
  • Capabilities
  • Value (for the business)

There are several areas where 'business models' could be used as an analytical tool for the construction sector. These include business models for SME (small and medium-sized enterprises) /entrepreneurial businesses as SMEs make up the largest part of the construction industry in the UK. With the mandating of BIM (building information modelling), this becomes a crucial exercise to persuade SMEs that it is possible to make money using SaaS (software as a service) models for instance, even with the costs of implementing BIM. Another possibility is data-driven business models such as business models for BIM. Analysis could 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 decision-making, lower costs etc. This analysis could be done from the perspective of the professions or of projects. Existing attempts to assess the business value of BIM include the SmartMarket Reports on the Business Value of BIM (2009) and Green BIM (2010).

Analysis could also assess business models for sustainability, renewable energy or green building (Aho, 2013; Mokhlesian & Holmén, 2012). 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 wealth creation.

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[edit] External 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.