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Review

Can Business Models Facilitate Strategic Transformation in Construction Firms? A Systematic Review and Research Agenda

by
Priyadarshini Das
1,2,
Amer A. Hijazi
2,3,4,5,
Duncan W. Maxwell
2,3 and
Robert C. Moehler
2,6,*
1
Department of Civil Engineering, Monash University, Melbourne, VIC 3168, Australia
2
Building 4.0 CRC, Caulfield East, VIC 3145, Australia
3
Faculty of Art, Design & Architecture, Monash University, Melbourne, VIC 3145, Australia
4
Department of Civil Engineering, Al-Ahliyya Amman University, Amman 19328, Jordan
5
Hourani Center for Applied Scientific Research (HCASR), Al-Ahliyya Amman University, Amman 19328, Jordan
6
Department of Infrastructure Engineering, University of Melbourne, Melbourne, VIC 3052, Australia
*
Author to whom correspondence should be addressed.
Sustainability 2023, 15(17), 13022; https://doi.org/10.3390/su151713022
Submission received: 4 August 2023 / Revised: 23 August 2023 / Accepted: 28 August 2023 / Published: 29 August 2023
(This article belongs to the Special Issue Sustainable Innovation and Management of the AEC Sector in the New Normal)
Browse Figure
Versions Notes

Abstract

:
A business model represents an organisation’s value logic with a value proposition as the central dimension. The construction industry has been categorised as fragmented, slow to move and destructively competitive, idealising only cost-based perceptions of performance; however, recent trends indicate a paradigm shift in the sector emphasising value-based perspectives such as early engagement, design for manufacture and assembly, and a lifecycle approach by promoting a conscious discourse on business model innovation. This paper presents a systematic review and integration of research on business models in the construction industry. The findings illuminate the potential of business models as creative tools for strategy formulation, the importance of strategic partnerships in novel business models, and the bridging role that business models play between technology integration and strategy formulation. Based on the findings, the paper proposes future research directions, including understanding how managers can steer conflicts towards cooperative competition (coopetition), exploring various pathways (leaping and drifting) for business model innovation and project-based business model innovation. The paper establishes that using a business model approach to facilitate strategic transformation can help construction firms resolve some of the most pressing challenges, such as customer dissatisfaction, fragmentation, and slow technology uptake.

1. Introduction

The construction industry is grappling with many pressures, chiefly the demand for green and sustainable building practices and a critical need for enhanced productivity, requiring industry players to adapt and innovate rapidly. The industry is making an attempt to improve project efficiency, reduce waste and enhance worker safety through technological innovation, including but not limited to the use of Building Information Modelling (BIM), 3D printing, drones, and artificial intelligence-powered software [1]. Additionally, adopting green technologies like energy-efficient materials, renewable energy systems, and smart building solutions is aiding the industry in reducing its environmental footprint and making strides towards a more sustainable future [2]. However, as an industry, construction has its own idiosyncrasies; its fragmented nature has hampered performance, improvement, and continuous learning leading to poor value for money over other sectors [3,4,5]. There are three dimensions of fragmentation found in the construction sector: horizontal, which occurs in the trade-by-trade, competitive bidding environment of traditional project deliveries; vertical that occurs over the duration of the project from design to construction and operation; and longitudinal, which occurs due to the temporal nature of project organising [6,7]. Such a plurality and fragmentation have limited concerted efforts toward strategic collective action [8], and construction still remains one of the least digitalised industries [9], leaning towards a conservative attitude in relation to innovation and showing a lack of agility in adjusting to shifts within the industrial landscape [10].
Industries that are front-runners in creating value through technology have realised very early on that transformation occurs only when innovative technology is paired with a transformative business model [11]; technological innovations that have fundamentally changed their respective industries in the form of service aggregators such as Uber, AirBnB and Netflix, have all emerged as new and transformative business models [12,13]. Numerous efforts have been made to determine the essential characteristics of long-term change, and central to these features are business model innovations [14]. Conventional management techniques focus on “nominal” factors like resources over time, but when confronting a transformation, these methods fall short, and firms must contemplate superior systematic organisational traits like business model innovation that evaluate experiences over time [15]. Several recent studies have illustrated that creating value through digitalisation and sustainable value propositions requires business model innovation to make an impact [16,17,18,19]. However, new business models, derivations of business models or innovations in developing business models have always been a very low priority in the construction industry; the industry is in a “survival mode” as businesses go from job to job to maintain viability [20]. A recent study that conducted a bibliometric review of 257 construction innovation-related studies reported only seven articles discussing business models [21]. The adoption of offsite construction and the increasing need for circular economy approaches necessitated the consideration of alternative business models; these involve a complex network of collaborating entities, and new business models are needed to motivate these participants to refrain from self-serving actions and optimise their input to the client’s value creation process [22,23,24,25]. Even with the narrative changing, no stage-wise development of business model research has occurred in the construction-related literature [26].
It is often said that the term ‘business model’ could be one of the most misunderstood terminologies in the literature and in practice; however, if understood in the right way, a good business model leads to successful organisations, whether a start-up or an incumbent [27,28]. Gordijn, Osterwalder [29] and Osterwalder [30] proposed that systematic strides towards the evolution of business model research should begin with defining terms, and the field would be considered mature when possibilities for applying business models within specific domains can be examined. Drawing from them, Abeynayake, Perera [31] proposed a definition of a construction business model as “a simplified conceptual representation of a construction business that performs value creation according to client requirements with key resources, considering the appropriate level of involvement of relevant stakeholders in the key processes towards revenue and profit generation while expressing the company’s strategic choices with the awareness of the changes required and opportunities available”. However, they elucidated that further research should be concerned with understanding how business model innovation can solve the industry’s problems which would make practitioners keen on its uptake. The academic discourse underpins a crucial interdependent relationship between technological innovation and business models, shifting from purely cost-based perceptions of performance to shared value creation [19]. The industry’s evolving value perception underscores the significance of broader, socially responsible, and environmentally sustainable business models. Contemporary annual reports show that leading firms are integrating Environmental, Social and Governance (ESG) criteria, signalling a strategic transformation in priorities as the modern investment landscape increasingly values ESG performance. Companies with business models that are ESG-aligned often find favour with institutional investors who prioritise sustainable and responsible investments. Therefore, a profound understanding of what constitutes business models and their utilisation is indispensable to navigating the emerging priorities of construction organisations. This is the crux of the current review—elucidating the terminology, evaluating its application in the construction industry to date, and determining its future utility to facilitate strategic transformation.
Keeping the above points in mind, the following research questions were formulated for this research: (a) How has business model research evolved in the construction-related literature, and what are the main focus areas? (b) What emergent themes can be derived from business model research in construction-related literature? and (c) Can business model research be applied to solve some of construction’s pressing problems? The paper is organised as follows: First, we define the terminologies utilised in this paper. Then, we introduce the systematic research method used, including the search strategy and shortlisting of papers to identify the emergent themes in construction-related business model research. Next, we present the findings of the paper, followed by a critique of business model research in construction in the discussion and research agenda section. Finally, we present the conclusions, contributions, and limitations of the study.

2. Terminologies

While the terminology of “business model” and “strategy” are frequently fused within professional discourse, it is important to recognise that these terms represent separate, albeit interconnected, notions in the realm of business management. This section delineates the precise interpretations of the specific terminologies, establishing definitions that will be consistently applied throughout this paper.
Business Models—An early definition of a business model in the literature describes it as an architecture for the product, service, and information flows and the roles and benefits of the various business actors [32]. Mahadevan [33]’s definition introduced the term ‘value’ to the definition and articulated that a business model is a blend of three streams critical to a business: the value stream, revenue stream and logistical stream. As the era of technological innovation was ushered in, the definition of business model expanded and was conceived as a focusing device that mediates between technology development and economic value creation [11]. While the definitions so far looked at a business model in its entirety, Johnson, Christensen [34] made an attempt to interrogate the constituents elements of a business model and stated that it consists of four critical elements: customer value proposition, profit formula, key resources and key processes. Evidently, the definition of a business model has evolved in the literature, and has led to a very structured framework in the form of a business model canvas developed by Osterwalder, Pigneur [35]. The canvas which was originally used by technology-based start-ups to develop new business models has aided in operationalising the concept of business models into an understanding of how companies create value for their customers [36,37].
Despite the evolving definition, the perception of ‘value’ remains a constant in the conversation around business models; Fielt [38] conducted a review of all historical definitions of a business model to arrive at a simple working definition as a representation of the value logic of an organisation in terms of how it creates value and captures customer value. Given this, the narrative that incumbent organisations can also use business models for strategy reformulation and ensuring competitive advantage gained interest [39]. This makes it critical to understand the definition of strategy, which will be discussed next.
Strategy—The definition of strategy has also evolved over the years, much like the definition of business models. Porter’s [40] definition, which defined strategy as creating a unique and valuable position involving a different set of activities that are different from rivals, remains classic. Several researchers in the strategic management literature associate strategy with competition [41,42,43]. Strategy had been the foundation for competitiveness of firms for a long time until the macroscopic impacts of technological change and globalisation forced companies to begin their quest for competitive advantage with business models [44]. While the business model concept enables cooperation, partnership and integrated value creation [45], competition, value capture and ensuring competitive advantage is taken care by strategy [28,46,47].
In the context of business models and strategy, Coes [48] stated that “if you understand all the components of an airplane doesn’t imply that you can fly it”. Even though a business model can give the architecture of what a firm is expected to do at a given point in time, it cannot build a story of ‘how’; strategy, however, allows drawing inferences from experiments with testable assumptions [49]. Therefore, it can be comprehended that a business model reflects a firm’s realised strategy [50]; while strategy is in the real-world, the business model is its abstraction [51]. Teece [47] stated that once a business model is in place, it shapes strategy by limiting certain actions and enabling others; the feasibility of strategy is impacted by the costs and profitability, which is an integral part of the business model. Even though there are many views on business models and strategy, the scholars are aligned on the fact that business modelling and strategy are complements, not substitutes [52]. To sum it up, it is clear that strategic transformation drives the development and evaluation of new and alternate business models [53], and it creates the need for further research to be conducted across industries on how this can be formalised.
Employing the business model as a cognitive lens provides a holistic purview of an organisation [54], encapsulating all its intrinsic components and external interactions. Such a perspective allows for a nuanced understanding of the intricate inter-relationships between various facets of the business, from value proposition and customer relationships to revenue streams and key resources. Crucially, this lens aids in strategic formulation, ensuring that strategies are rooted in the comprehensive understanding of the entire business ecosystem [55]. Contrary to traditional approaches, which often culminate in static strategy documents with limited lifespans (e.g., a ‘3-year’ plan), viewing strategy through a business model lens treats it as a continuous, iterative process [42]. Such an approach is more agile, responsive, and adaptive to evolving market dynamics. To illustrate, consider a global steel manufacturer that has, over the years, acquired a slew of businesses, each operating as distinct units. While these independent entities might be individually profitable, a more integrated approach could enhance value. By converging these units under a singular marketplace business model [56], the firm can foster synergies, streamline operations, and optimise business outcomes, ultimately creating a more sustainable and trusted shareholder value.

3. Research Method

In this section, the systematic research method adopted in the paper will be described in three parts: (1) the rationale for using a systematic literature review (SLR), (2) the search strategy for shortlisting papers and (3) the coding constructs of the content analysis to identify emergent themes from the short-listed papers. SLRs can enhance integrative reviews in management research by applying transparent and replicable protocols [57], thereby synthesising previously published work while maintaining transparency and reducing bias using the established principles of PRISMA [58]. This paper aims to integrate research related to the study of business models in construction to elucidate the terminology, evaluate its application in the construction industry to date, and determine its future utility in facilitating strategic transformation. A significant aspect of achieving this aim is synthesising different theoretical viewpoints on business models, which can be accomplished through SLRs [59,60].
Briner and Denyer [61] recommended five steps for management SLRs: developing the protocol for search, identifying the relevant studies, determining which articles from the review to include, gathering knowledge, analysing and integrating information and finally reporting the process, findings and knowledge discerned. Several researchers in the field of construction have utilised SLRs and have recommended the Scopus database for the search due to its accuracy and coverage of articles [62,63,64]. Given this, the Scopus database was searched for the keywords “business model” and “construction industry” in this paper to identify relevant studies that have presented research on business models in the construction industry. The search was conducted on 30 June 2023. Articles that were published in English were only included in the search results. Figure 1 illustrates the search strategy and the refining of articles. A total of 146 articles were retrieved from the initial search, from which only 48 articles were selected for full paper review by reading through the abstracts; the eliminated articles were unrelated, or the terminology “business model” was not used as the construct we defined in the paper. The ‘business model’ construct as the ‘value logic of an organisation’ is critical as we use it from an elimination standpoint beyond the keywords.
Given the limited research retrieved, no articles were eliminated based on the publication date, and we opted to analyse the qualitative constructs instead of relying only on evidence-based data discovery processes such as text mining [57,65]. Using qualitative content analysis to analyse the outcomes of an SLR is an established practice and has been recommended by earlier researchers to enhance the robustness of the theory development [66,67]. The content analysis was built on Schreier’s [68] steps for qualitative content analysis: deciding the research question, selecting the material, iteratively developing and improving the coding frame, analysis and presentation of findings. The coding constructs emerged from an initial read-through and involved four steps: first, understanding the scope of the research, if it was applicable to a particular stakeholder in construction, or had any geographical affiliations or was related to a particular type of construction; second, understanding the rationale for conducting the research, why did business model research matter? third, determining if any well-known business model framework, such as Osterwalder, Pigneur’s [35] business model canvas, was utilised in the research and fourth, understanding how business models can facilitate strategic transformation. By following a thematic analysis, we established the merging constructs, allowing repeatability and trustworthiness. The content analysis facilitated the development of the narrative of how business model research evolved in construction and identified the emergent themes in business model research in construction, which will be presented in the following sections.

4. Findings

This section will present the findings obtained from the SLR. First, the evolution of business model research in construction is explained, followed by the focus areas of business model research in construction. The findings are then assimilated to identify three emergent themes in business model research, demonstrating how business models can facilitate strategic transformation. The articles shortlisted through the SLR and subjected to qualitative content analysis are listed in Table A1 in Appendix A.

4.1. Elucidating the Terminology of ‘Business Models’ in Construction

Early research that mentions business models in the construction-related literature does not contextualise business models as we have defined earlier, “…a representation of the value logic of an organisation”, and instead refers to it as a means of justifying the cost, or in other words, a commercial model [69,70]. Varied interpretations of business models are also found in the recently published literature. In Lamptey, Owusu-Manu [71], the terms ‘business model’ and ‘business process’ are interchangeably used, and in Lin, Lyu [72], the emphasis is on a procurement model, which are recent examples of articles that deviated from contextualising business models as the “value logic of an organisation”. Brady, Davies [73] presented one of the first articles that analysed business models in construction from the perceptions of value, systems integration, and integrated solutions by extending the notion of value beyond just ‘cost’ to include ‘use’, ‘esteem’, and ‘exchange’. They utilised this expanded interpretation of value from the management literature to develop their claim that integrated solutions that cater to construction clients from development to decommissioning would require newer business models; thus, the first instance of understanding business models in construction emerged out of the need to integrate its fragmented supply chain by adding value upstream. This eventually led to learning from the manufacturing sector; Li, Guo [74] contextualised business models as an inherent value logic when they studied the virtual prototyping methodology engaged in IKEA’s lean production process and its underlying business model to implement it in a real-world construction project. In the first instance of recognition, Wong, Ng [75] stated that it is incumbent upon industry stakeholders to periodically modify and diversify their business model to respond to the ongoing evolutions within the marketplace adequately. As more manufacturing principles began to be implemented in construction, lean business models emerged as a viable strategy for construction projects; Zimina and Pasquire [76] discussed several attributes of lean business models ranging from long-term orientation and systems thinking to the decentralisation of decision making. However, while lean business models considered various perspectives of value, they remained limited to projects and did not explore how such a model would impact interactions at an organisational level.
Adding a new dimension to business model research in construction, Rottke, Schiereck [77] mentioned business models in an organisational context as they examined the vertical expansion of construction companies into the real estate value chain through mergers and acquisitions to improve their market position. Aho [78] wrote one of the earliest articles to emphasise that it is a business model that authentically links price and profit to the tangible value delivered to the consumer and the broader community. However, even though there were traces of evidence of business model research in construction, Morrissey, Dunphy [20] stated that new business models and business model innovation are still of very low priority for construction organisations because they are in a ‘survival mode’ going from project to project to maintain viability with minimal resources to spare in business model innovation. It can be said that only with the advent of industrialised house building in the Swedish context did the narrative of business model research in construction completely coincide with being the ‘value logic of an organisation in terms of how it captures and delivers value to its client’ [23]. The evolution of business model research in construction reached its current state when the pressure to become more sustainable prompted the development of circular business models that initiate reform in each stage of the value chain [79]. Industrialised house building and circular business models were the main focus areas of business model research identified through our SLR. In parallel, many publications have attempted to understand the role of business model concepts in the organisational transformation and strategy of construction firms belonging to different stakeholder groups. These are discussed in detail in the following subsection.

4.2. Business Model Research in Construction—Focus Areas

4.2.1. Industrialised House Building

Industrialised House Building (IHB) or offsite construction involves the prefabrication of components in a factory instead of the conventional on-site building method. IHB enhances the speed of delivery, quality of the buildings delivered and removes the ‘project-centric’ issues such as fragmentation of the supply chain [22]. The concept of offsite construction has been around for a long time, but its uptake has been restricted. Business model researchers in construction are of the opinion that the reason behind this is a lack of understanding of how industrialised building fits into the overall company’s business model; Girmscheid and Rinas [80], whose research was in the Swiss context, stated that IHB involves a complex system of cooperating players and new business models are required to empower the players to be free from opportunistic behaviour and maximise their contribution to the client’s value creation process; Goulding, Pour Rahimian [81] stated that the uptake of IHB would require the evaluation of alternate business models to produce effective solutions; and Uusitalo and Lavikka [82] found that IHB involves technology transfer between companies and this is feasible only through newer viable business models. In a very recent publication, Dowsett, Green [83] stated that wider adoption needs non-technological innovations, including business model modifications and evolved contractual relationships.
Brege, Stehn [22], whose research was in the Swedish context, established that the IHB business model can be deconstructed into its offering, operational platform, and market position. By empirically identifying viable business models for IHB companies, Brege, Stehn [22] confirmed that analysing IHB through the lens of its business model can help understand its role in the building value chain, i.e., the interaction between the IHB company and the other stakeholders such as the main contractor or developer. Lessing and Brege [23] extended the study to business models of Swedish and North American IHB companies, and stated that a good fit between the offering, operational platform, and market position is essential for an IHB company’s success and this occurs over time through fine-tuning. Analysing IHB companies from the perspective of its business model emphasised the need to offer competitive end-products aimed at very specific customer segments (niche market), thereby achieving high customer value. Additionally, the emergence of such alternate business models led to a grand vision that the construction industry might transform from a project-based delivery to a platform-based ecosystem in the future [7]. Most of the business model research related to IHB originated in a particular country, and international comparisons are rare but slowly emerging [84,85,86]. Thus, integrating business model research in construction is essential to understand emergent themes beyond localised factors, such as market segments and institutional and social structures.

4.2.2. Circular Business Models

A circular economy is a restorative or regenerative system used to enable a shift from a ‘cradle-to-grave’ to a ‘cradle-to-cradle’ approach, and firms need to alter their business models to benefit from it [24,87,88]. Circular business models originated from the circular economy approach when corporate social responsibility evolved into creating a shared value [89]. Circular business models have been explored in the construction literature using Osterwalder, Pigneur’s [35] business model canvas, which is one of the well-established business model frameworks. Mokhlesian and Holmén [87] modified the nine elements of the business model canvas proposed by Osterwalder, Pigneur [35] and determined that ‘value configuration’ and ‘cost structure’ were the business model elements most impacted when we shift to circular business models followed by the ‘partner network’. They found that circular business models require radically distinct value configuration, i.e., the arrangement of activities and resources, thereby altering the cost structure significantly; this additional cost could either be absorbed by the construction firm or passed on to the customer, which creates a new vision of sharing environmental and societal benefits along with profit making. Mokhlesian and Holmén [87] claimed that this could be achieved if the partner network acts as a source of knowledge sharing and innovation. Munaro, Freitas [24] offered a more generalised approach to circular business models by presenting a circular business model canvas, adopted from Osterwalder, Pigneur [35], to develop and test new circular business models iteratively. However, their claims remained aligned with Mokhlesian and Holmén [87] as both studies emphasised the importance of partnerships and the integration of actors as critical for circular business models.
Selberherr [90] presented two perspectives of a circular business model: an outside view that concerns the market positioning and a holistic consideration of sustainability in the new offering and an inside view that deals with the organisation and processes within to create a new offering. In a way, this is similar to the framework that was presented by Brege, Stehn [22] related to IHB, where the market position coincides with an ‘outside view’ and the operational platform coincides with an ‘inside view’ of the company’s business model. However, unlike IHB business model research, circular business model research had a global approach and was not specific to any country, which is probably due to the presence of overarching constructs such as the United Nations Sustainability Development Goals (SDGs) [79,91]. In addition to its universal approach, circular business models reaffirm the fact that technology can be an enabler; Zhao, Hwang [92] stated that business model innovation plays a significant role in translating emerging technologies into commercial value; Guerra, Shahi [25] highlighted the role of material technology innovation in leveraging circular business models; and Giorgi, Lavagna [93] asserted that digital platforms for exchanging materials and enhancing collaboration to ensure circularity of materials were forms of circular business models. Circular business models create the need for re-arranged relations among the different partners of the value chain and necessitate innovative schemes that encourage incentives and risk sharing [90,93,94].
In the preceding sections of this discourse, the intersectionality of IHB and circular business model attributes has been established. This integration has been recognized by Heesbeen and Prieto [95], as they have proposed two archetypical circular business models that blend the principles of IHB with a circular economy focus: (a) “Adaptable building”, a model that delivers adaptability and facilitates technical, functional, and spatial flexibility and upgradability in order to extend user satisfaction; (b) “Never-ending building”, a model that delivers longevity, durability, easy maintenance and repair, seeking to reduce end-user dissatisfaction by fostering a timeless quality. The burgeoning fields of circular business models, deconstruction, and supply chain management present substantial potential for the confluence of circular economy principles and IHB [96]. A discernible nexus between these emerging areas has evolved into ‘servitization’ as a business model where production processes influence the inclusion of services in company business models in a circular economy [97,98].

4.2.3. Generic Business Model Research

A growing number of publications have attempted to understand the role of business models in fulfilling organisational objectives [99,100,101]. As mentioned earlier, Brady, Davies [73] was among the first to present the ‘Built Environment Solution Provision (BESP)’, a concept of bundling construction products and services into an integrated value chain, enhancing repeatability and standardisation. The BESP can be considered as a predecessor of IHB business models, which operate on the basis of repeatability and standardisation that facilitate the shifting of value-adding activities upstream [22]. In fact, even Liu, Li [102], while studying business model innovation in Chinese construction companies, considered prefabrication as a case to be analysed; they stated that business model innovation can convert emerging technologies like prefabrication into commercial value and is likely to produce four times more revenue growth than product or service innovations. The underlying philosophy also aligns with circular business model literature, where it has been shown that technology may serve as an enabler and the business model as a mediating construct to generate commercial value [92,93,103].
Similarly, both the IHB and circular business model literature established that such innovative concepts were implemented at a project level, and often its impact on the company’s business model was not accounted for, leading to its slow uptake. This is confirmed in the work of Hjelmbrekke, Lædre [104]; they stated that while project managers conceive of delivering on time, within budget and with quality as success, the top management of the company aims at long-term benefits through the initiation of projects and there always remains a gap between the perceptions of both parties. Project goals are often not oriented towards the organisation’s business model [105]. In an earlier work, Pekuri, Pekuri [106] claimed that managers in construction found it difficult to describe their company’s business model and value-creation logic, which pointed to their lack of understanding of customer values. They asserted with great audacity that this might be one of the foremost reasons for the persistent client dissatisfaction in the industry.
Verstraete, Jouison-Laffitte [107] stated that business models can go beyond start-ups, where they originated, and incumbent organisations can use them. Given this, there is evidence of business model researchers in construction utilising well-established frameworks in the management literature to address questions related to their growth. Ling and Li [108] based their research on Porter [109]’s cost leadership and differentiation strategies to understand the value creation in Chinese construction firms. They recommended that firms could create value by offering niche/specialty products or services and proposed that one-stop services covering the entire value chain could be one of the possibilities. In the work of Berg, Thuesen [110], we also found evidence of reconfiguring the value chain. They used a simplified version of Christensen, Bartman [111]’s four-block business model comprising priorities (value proposition, and profit formula) and capabilities (resources, and processes) to identify points of friction between the four main actors of the construction value chain: the architect, engineer, contractor and material supplier as they enter into new cross-value-chain interactions. Berg, Thuesen [110] highlighted a scenario when the architect’s profit formula is impacted due to the involvement of engineers, contractors and material suppliers in design decisions and recommended that a form of profit sharing could be introduced in strategic partnerships to remedy this.
Guided by Zott, Amit’s [46] work which stated that business models could be used as a unit of analysis for boundary-spanning activities performed by a focal firm and its partners, suppliers or customers, Wang et al. (2021) presented the design and implementation of a blockchain-enabled supply chain. Their research reaffirmed that the ‘business model is a valid system-level theoretical framework and can act as a generative mechanism’, enabling actors to coordinate and bundle activities to create value from emerging technologies. Consolidating the previous points, it can be said that end-to-end digital transformation of the construction value chain would require one to be business model focussed [54], and an understanding of the value-creating interlinkages within an existing business model could help construction companies retain business model elements that are contributing to value creation while renewing others that are not [8].

4.2.4. Emergent Themes—How Can Business Models Facilitate Strategic Transformation?

Strategic transformation refers to the profound, organisation-wide change that fundamentally reshapes an organisation’s culture, value proposition, or business model to adapt to new market conditions, technologies, or challenges. This form of transformation is proactive and future-oriented, often driven by a need to address long-term opportunities or threats instead of merely reacting to immediate business exigencies [112]. A notable example of strategic transformation within a construction organisation relevant to the context would be a decision to identify and aggregate the pipeline of demand and optimise based on repeatability and standardisation. It was found that ‘strategy’ or ‘strategic transformation’ is integral to business model research. Three themes emerged from the SLR findings: business models can be used as a creative tool for strategy formulation, strategic partnerships are crucial for newer business models, and technology is the bridge between new business models and strategy. This section will elaborate on the emergent themes.
Theme 1.
Business models can be used as a creative tool for strategy formulation.
Using business models as a creative tool for strategy reformulation can resolve an eternal ambiguity in the construction industry ‘who is the customer?’; while developers and owners of assets are considered as the customer to whom buildings must be delivered, the requirements of the occupiers are often overlooked [113]. As seen in the case of IHB, using business models as a tool resulted in a strategy that produces competitive end-products aimed at very specific customer segments (niche market), thereby achieving high customer value [22]. Customer-facing business model elements such as customer segments, value proposition, customer relationships and channels can act as a means to understand what value are our occupiers really willing to pay for [35]. Criado-Perez, Shinkle [8] stated that business model analysis can be conducted at the functional, project, firm and industry levels, and they suggested using Zott and Amit [52] and Zott, Amit’s [46] activity-system view to develop a detailed understanding of the activities that enables a construction firm to create and capture customer value. The notion of a business model is of fundamental relevance because it interprets and operationalises the vision of an organisation and offers a potent means of comprehending, analysing, communicating, and managing strategic-oriented choices [114]. Thus, business models could be considered an intermediate layer between business strategy and business processes, and the entrepreneurial cognition of a firm’s top management directly influences its ability to perform business model analysis [92,102]. In light of the above, there is convergence in scholarly work that using business models to develop strategy leads to a holistic consideration of how a firm can create and capture value; in an attempt to address all the elements of a business model in an attempt to address all the elements of a business model, conversations that would have otherwise remained tacit, becomes explicit [22,24,54,90].
Theme 2.
Strategic partnerships are crucial for newer business models.
The construction industry is characterised as ‘fragmented’ given the multitude of stakeholders with competing interests operating across the value chain. Business models can be used as a lens to analyse the fragmentation in the industry in terms of identifying the conflicts of interest between the business models of the key stakeholders and then formulating a strategy to smooth out the areas of friction by negotiating win-win solutions [110]. As is evident in the case of circular business models, stable supply chain relationships facilitate the development of service-based win-win solutions [93,94,115]. The partner network impacts the business model in a two-directional manner, both the considerations of the stakeholders’ expectations and the quality of resources provided by the network [107]. While strategic partnerships began as a means of knowledge sharing [87], the ongoing digital transformation of the construction industry has spearheaded technology-based partnerships in capacity building [54]. Technology transfer between key stakeholder groups requires reorganising the relationships among the different partners in the value chain [82]. From another perspective, collective sensemaking among the partner network actors reduces the barriers of adopting an emergent technology into the construction industry [114].
Theme 3.
The business model is the bridge between technology integration and strategy.
The construction industry remains one of the least digitalised; however, the inflow of significant venture capital into construction technology indicates a strong desire for digital transformation [116]. Construction companies are undertaking ad hoc digital transformation initiatives where the technology plays a central role without much consideration for the underlying business model; often, such initiatives cannot be scaled [8]. A robust digital strategy for a construction firm should involve new data-centric business models based on wider asset and performance data use, i.e., asset optimisation [117]. However, top-down integration of technology through government mandates can only compel construction companies to achieve minimal standards while a great extent of the technology’s potential value remains untapped [118]. It is well-accepted in the academic literature that an effective business model can translate emerging technologies into a firm’s commercial strategy [82,92,102], which is a greater impetus than government mandates alone. This would ultimately bring about a fundamental change in the industry’s mindset, from ‘lack of enough capital to implement new technology’ to ‘what commercial value the new technology can bring for the company’.
BIM’s trajectory has seen it metamorphose from a tool geared primarily towards process efficiency to being an intrinsic deliverable in its own right. This transition necessitates a substantive shift in the prevailing business model [119,120]. Although ample research has delved into BIM implementation, there is a conspicuous dearth of studies examining the altered, data-centric business model it espouses. Consequently, the inherent value of Asset Information, underscored by BIM, remains underexploited. This lacuna not only signifies a gap in the extant literature but also underscores an avenue for advancing the research paradigm of BIM-based business models.

5. Discussion and Research Agenda

The research community has long dedicated its efforts to exploring the facets of IHB and circularity; yet, a new perspective has arisen that promises to shed light on novel development avenues. It is essential to underscore the unique and innovative stance of examining these constructs through a business model lens. This approach holds the potential to actualise its fullest capacity in an era marked by relentless technological advancements. Our proposition rests on the premise that the business model perspective can effectively mitigate the current challenges that pervade the construction industry. The strength of the business model approach lies in its capacity to map intricate inter-relationships and its holistic nature. These attributes position it as a potent tool for instigating and managing systematic innovation in the construction sector. Historically, achieving systematic innovation within the construction industry has proved to be a formidable task. Adopting the business model perspective, which inherently fosters comprehensive understanding and facilitates strategic planning, can lead to an unprecedented transformation. We can catalyse coherent, aligned, and sustainable innovation by comprehending and leveraging the interactions and dependencies among various components. The themes demonstrating how business models can facilitate the strategic transformation of construction organisations that emerged from assimilating the SLR findings when contextualised to the strategic management literature helped assess how construction is positioned and how it can improve, as elaborated in the following subsections.

5.1. Thriving on Contradiction

Historically resistant to cultural change, the construction industry has started altering its narrative towards a conscious discourse of business model innovation. In their recent work, Farjoun and Fiss [121] state that contradictions often drive strategic transformation if disciplined incoherence is established through strong leadership, shared values, defined boundaries, rules of engagement and safe spaces. In the Scandinavian context, IHB business models stand out as exemplars of business model innovation in construction with disciplined incoherence, which enabled companies to continually learn, integrate, and pivot, leading to a competitive advantage. The wider construction industry comprises many configurations presenting an image of pluralism and thinly spread diversity; however, conflicts often lead to adversarial relationships. Understanding how managers can alter the course for such conflicts by allowing them to foster coopetition over competition, drawing on organisational arrangements, is subject to further research.

5.2. The Interplay between Competition and Coopetition

The interplay between competition and coopetition is a fairly well-researched topic in the strategic management literature [122]. Dyer, Singh [123] stated that the interdependence between the complementary resources of partners is critical in alliance value creation and capture, and often determines how quickly the alliances are formed or might dissolve. To progress towards defining its strategic partnerships that enable new business models, construction research must identify and analyse internal and external factors to the alliance that trigger weakened value creation and heightened competition among partners. The growing significance of technology-based partnerships in construction reaffirms that inter-firm cooperation is a possible avenue for incumbent organisations to respond to discontinuous technological changes [124]. Yet, the greater dependence on technology often entices incumbent construction firms to expand their value creation by acquiring new entrants that are equipped with advanced technological capacity; this often leads to failed ventures if the expected pipeline of work falls short. Understanding when incumbents need to cooperate with new entrants, acquire them, or compete with them by alliancing with other incumbents is critical to warrant strategic partnerships.

5.3. Leaping and Drifting

Technology integration through business model innovation may result in improved value creation; however, there is a strong implication that construction firms often consider it beyond their capability or not a priority [8,106]. It may result from a persistent misunderstanding that technology integration through business model innovation is too complex and always necessitates a resource-intensive “leapfrogging” effort. In the work of Berends, Smits [125], two distinct patterns of business model innovation have been identified: leaping, where the business model elements and their interdependencies are created upfront, followed by the business model going into operation and certain fine-tuning based on experiential learning; and drifting, where the emphasis shifts from experiential learning to cognitive search for a reconceptualised business model which allows substantial divergence from the initial business model. Berends, Smits [125] stated that established firms typically adopt drifting as it originates from the experiential learning gathered from ongoing business activities. Understanding different pathways for business model innovation could facilitate construction firms to overcome their resistance to technology integration through business model innovation; for instance, drifting addresses cognitive constraints upfront, and the incremental process enables firms to ease into an eventual radically changed business model.

5.4. Project-Based Business Model Innovation

A noticeable shortcoming in construction identified through the SLR is the disregard for a company’s business model while selecting and delivering projects. As seen in the case of both IHB and circular business models, project success does not necessarily build into an organisation’s business model. Pekuri, Pekuri [105] presented a conceptual framework that associated project selection with two filters: the fitness of the project to a company’s business model and the project’s risk vs. profit potential. While it was a step in the right direction, the model was empirically validated only in the context of Finnish construction companies. There is an opportunity for further research on the business model innovation in construction companies at the project and organisational levels. Such research can potentially inform strategic management research, demonstrating how project-based industries can utilise business model innovation for strategy reformulation.

6. Conclusions

This paper provides a comprehensive overview of business model research in the construction industry, highlighting the main focus areas and demonstrating how business models can facilitate strategic transformations. Industrialised house building and circular business models emerged as the main focus areas of business model research in the construction industry. Several articles also analysed how business models are a key contributor to a firm’s performance. It was observed that most successful instances of business model innovation in construction demonstrated a strong preference for the concept of shared value and strategic partnering and used digital means to achieve them. The review illustrated that using the business model approach can help resolve practical challenges for construction firms by leading to strategies that produce competitive end-products for specific customer segments (niche market), thereby achieving high customer value, identifying conflicts of interest between key stakeholders to help formulate strategies to smooth out areas of friction, and facilitating the accelerated integration of technology by translating emerging technologies into a firm’s strategy. Contextualising the findings with the strategic management literature helped assess how construction is positioned and how it can improve using the business model approach to offer a research agenda for the future. Further research is anticipated to understand how coopetition can foster in project-based industries where there is a plurality of stakeholders and contradictions alongside identical business models with limited strategies to differentiate themselves. Moreover, whether such industries would work best with the leaping or drifting strategy of business model innovation could also be a subject of future research. Cross-industry comparisons could further lead to robust outcomes informing business model research.

Author Contributions

Conceptualization, R.C.M. and P.D.; methodology, P.D. and A.A.H.; formal analysis, P.D. and A.A.H.; resources, R.C.M. and D.W.M.; writing—original draft preparation, P.D. and A.A.H.; writing—review and editing, R.C.M. and D.W.M.; supervision, R.C.M. and D.W.M. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Conflicts of Interest

The authors declare no conflict of interest.

Appendix A

Table A1. List of articles included in the content analysis.
Table A1. List of articles included in the content analysis.
Sl. No.SourceTitleSource Title
1[26]A roadmap for business model adaptation in the construction industry: a structured review of business model researchConstruction Innovation
2[31]Defining a ‘business model’ in the construction contextIntelligent Buildings International
3[78]Value-added business models: Linking professionalism and delivery of sustainabilityBuilding Research and Information
4[110]Reconfiguring the construction value chain: analysing key sources of friction in the business model archetypes of AEC companies in strategic partnershipsConstruction Management and Economics
5[73]Can integrated solutions business models work in construction?Building Research and Information
6[22]Business models in industrialized building of multi-storey housesConstruction Management and Economics
7[8]Digital Transformation in the Australian AEC Industry: Prevailing Issues and Prospective Leadership ThinkingJournal of Construction Engineering and Management
8[54]Developing a construction business model transformation canvasEngineering, Construction and Architectural Management
9[83]Speculation beyond technology: building scenarios through storytellingBuildings and Cities
10[97]Exploring servitization in industrial construction: A sustainable approachSustainability
11[98].The product-service system approach for housing in a circular economy: An integrative literature reviewJournal of Cleaner Production
12[93]Drivers and barriers towards circular economy in the building sector: Stakeholder interviews and analysis of five European countries policies and practicesJournal of Cleaner Production
13[80]Business Design Modeling for Industrialization in Construction: Cooperative ApproachJournal of Architectural Engineering
14[81]New offsite production and business models in construction: priorities for the future research agendaArchitectural Engineering and Design Management
15[21]Circular economy applications in the construction industry: A global scan of trends and opportunitiesJournal of Cleaner Production
16[84]Principles for adopting offsite construction in design and construction companies focused on multifamily projects in the USAEngineering, Construction and Architectural Management
17[100]Strategic orientation, business model innovation and corporate performance—Evidence from construction industryFrontiers in Psychology
18[95]Archetypical CBMs in construction and a translation to industrialized manufactureSustainability
19[104].The need for a project governance bodyInternational Journal of Managing Projects in Business
20[99]Business models and performance of international construction companiesSustainability
21[126]Classifying the Business Model Types of International Construction ContractorsJournal of Construction Engineering and Management
22[103]Impact of Technology Recombination on Construction Firm Performance: Evidence from Chinese Construction SectorJournal of Management in Engineering
23[108]Business models for foreign firms offering construction-related consultancy services in ChinaConstruction Management and Economics
24[102]Business Model Innovation and Its Drivers in the Chinese Construction Industry during the Shift to Modular PrefabricationJournal of Management in Engineering
25[89]Redefining the use of sustainable development goals at the organisation and project levels-a survey of engineersAdministrative Sciences
26[118]Uncertainty, variability, price changes and their implications on a regional building materials industry: The case of Swiss canton ArgoviaJournal of Cleaner Production
27[87]Business model changes and green construction processesConstruction Management and Economics
28[24]Circular Business Models: Current State and Framework to Achieve Sustainable BuildingsJournal of Construction Engineering and Management
29[86]Integrated business model for improving integration IBS project team in Malaysian construction industryAmerican-Eurasian Journal of Sustainable Agriculture
30[96]Establishing underpinning concepts for integrating circular economy and offsite construction: a bibliometric reviewBuilt Environment Project and Asset Management
31[106]The role of business models in Finnish construction companiesAustralasian Journal of Construction Economics and Building
32[105]Business models and project selection in construction companiesConstruction Innovation
33[127]Managing value creation: The business model approach in constructionInternational Journal of Business Innovation and Research
34[113]Transformation of the real estate and construction industry: Empirical findings from GermanyJournal of Business Economics
35[128]SME Contractor Multi-Criteria Business Model on Adaptation of Construction Industry Revolution 4.0 in Malaysia—A Review on Business Models and Adaptation ChallengesChemical Engineering Transactions
36[101]Management control and business model innovation in the context of a circular economy in the Dutch construction industrySustainability
37[85]Broader use of the Modern Methods of Construction (MMC) in the UK public sector: A Business Model Canvas (BMC) perspectiveJournal of Open Innovation: Technology, Market, and Complexity
38[94]Designing a business model to reduce CO2 emissions from construction machinery: Aligning business and environmental objectivesInternational Journal of Construction Supply Chain Management
39[90]Sustainable life cycle offers through cooperationSmart and Sustainable Built Environment
40[79]Circularity assessment tool development for construction projects in emerging economiesJournal of Cleaner Production
41[115]Sustainability-driven new business models in wood construction towards 2030World Sustainability Series
42[82]Technology transfer in the construction industryJournal of Technology Transfer
43[107]Assessing business model relevance for business leaders in the construction industry InternationalJournal of Entrepreneurship and Small Business
44[114]Designing a blockchain enabled supply chainInternational Journal of Production Research
45[75]Strategic planning for the sustainable development of the construction industry in Hong KongHabitat International
46[91]Delivering Zero Carbon Buildings: The Role of Innovative Business ModelsProcedia Engineering
47[129]Disentangling the relationships between business model innovation for low or zero carbon buildings and its influencing factors using structural equation modellingJournal of Cleaner Production
48[88]Business model innovation for delivering zero carbon buildingsSustainable Cities and Society

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Sustainability 15 13022 g001
Figure 1. Search strategy.
Figure 1. Search strategy.
Sustainability 15 13022 g001
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MDPI and ACS Style

Das, P.; Hijazi, A.A.; Maxwell, D.W.; Moehler, R.C. Can Business Models Facilitate Strategic Transformation in Construction Firms? A Systematic Review and Research Agenda. Sustainability 2023, 15, 13022. https://doi.org/10.3390/su151713022

AMA Style

Das P, Hijazi AA, Maxwell DW, Moehler RC. Can Business Models Facilitate Strategic Transformation in Construction Firms? A Systematic Review and Research Agenda. Sustainability. 2023; 15(17):13022. https://doi.org/10.3390/su151713022

Chicago/Turabian Style

Das, Priyadarshini, Amer A. Hijazi, Duncan W. Maxwell, and Robert C. Moehler. 2023. "Can Business Models Facilitate Strategic Transformation in Construction Firms? A Systematic Review and Research Agenda" Sustainability 15, no. 17: 13022. https://doi.org/10.3390/su151713022

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