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 nine 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):
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.
[edit] Related articles on Designing Buildings Wiki
- Architectural practice.
- Business advisers to offer free services to small firms.
- Building Information Modelling.
- Business administration.
- Business case.
- Business process outsourcing (BPO).
- Construction organisations and strategy.
- Construction organisation design.
- Consortium.
- Environmental scanning.
- Funding options.
- Open shop construction.
- Practice.
- Practice management.
- Preliminary business case.
- Private sector.
- Public sector.
- Sustainability.
- Special purpose vehicles.
- Succession planning.
- Types of construction organisations.
[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.
Featured articles and news
Boiler Upgrade Scheme and certifications consultation
Summary of government consultation which closes 11 June 2025.
Deputy editor of AT, Tim Fraser, discusses the newly formed society with its current chair, Chris Halligan MCIAT.
Barratt Lo-E passivhaus standard homes planned enmasse
With an initial 728 Lo-E homes across two sites and many more planned for the future.
Government urged to uphold Warm Homes commitment
ECA and industry bodies write to Government concerning its 13.2 billion Warm Homes manifesto commitment.
Places of Worship in Britain and Ireland, 1929-1990. Book review.
The emancipation of women in art.
CIOB Construction Manager of the Year 2025
Just one of the winners at the CIOB Awards 2025.
Call for independent National Grenfell oversight mechanism
MHCLG share findings of Building Safety Inquiry in letter to Secretary of State and Minister for Building Safety.
The Architectural Technology Awards
AT Awards now open for this the sixth decade of CIAT.
50th Golden anniversary ECA Edmundson awards
Deadline for submissions Friday 30 May 2025.
The benefits of precast, off-site foundation systems
Top ten benefits of this notable innovation.
Encouraging individuals to take action saving water at home, work, and in their communities.
Takes a community to support mental health and wellbeing
The why of becoming a Mental Health Instructor explained.
Mental health awareness week 13-18 May
The theme is communities, they can provide a sense of belonging, safety, support in hard times, and a sense purpose.
Mental health support on the rise but workers still struggling
CIOB Understanding Mental Health in the Built Environment 2025 shows.
Design and construction material libraries
Material, sample, product or detail libraries a key component of any architectural design practice.
Construction Products Reform Green Paper and Consultation
Still time to respond as consultation closes on 21 May 2025.
Resilient façade systems for smog reduction in Shanghai
A technical approach using computer simulation and analysis of solar radiation, wind patterns, and ventilation.