Towards systemic transformation in the construction industry: a complex adaptive systems perspective

Petri Uusitalo (Department of Civil Engineering, Aalto University, Helsinki, Finland)
Antti Peltokorpi (Department of Civil Engineering, Aalto University, Helsinki, Finland)
Olli Seppänen (Department of Civil Engineering, Aalto University, Helsinki, Finland)
Otto Alhava (Flow Technologies Oy, Vantaa, Finland)

Construction Innovation

ISSN: 1471-4175

Article publication date: 26 November 2024

Issue publication date: 16 December 2024

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Abstract

Purpose

This study aims to investigate the strategies that successful companies in the construction industry use to achieve systemic transformation within their value chains and broader ecosystems. This study focuses on understanding how these companies navigate the challenges of a mature and slow-changing industry through innovative approaches.

Design/methodology/approach

A multiple case study design is used to analyze the systemic innovation dynamics across construction subsystems, through the lens of Complex Adaptive Systems theory. This research involves an empirical examination of nine case companies, selected based on their innovations in at least two construction subsystem areas and markers of success such as growth, profitability or invested capital. This methodology facilitates a detailed understanding of the company-level transformation.

Findings

This study identifies four distinct development paths toward systemic transformation within the construction industry: product-driven, product platform-driven, process integration-driven and business model-driven. These paths are characterized by unique strategies integrating technology, optimizing processes and innovating business models, demonstrating how companies can effectively adapt to and evolve within the construction ecosystem.

Originality/value

This research contributes original insights into company strategies and how they achieve systemic transformation. This study expands existing knowledge on systemic transformation in the construction industry by integrating empirical evidence with theoretical frameworks, offering a novel perspective on how successful companies innovate within a traditionally slow-changing sector.

Keywords

Citation

Uusitalo, P., Peltokorpi, A., Seppänen, O. and Alhava, O. (2024), "Towards systemic transformation in the construction industry: a complex adaptive systems perspective", Construction Innovation, Vol. 24 No. 7, pp. 341-368. https://doi.org/10.1108/CI-01-2024-0015

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Petri Uusitalo, Antti Peltokorpi, Olli Seppänen and Otto Alhava.

License

Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode


Introduction

The construction sector is currently at a critical crossroads. Despite its significance, the industry lags in efficiency, productivity and innovation, markedly trailing sectors such as manufacturing. This stagnation can be attributed to a fragmented organizational structure and a traditionally conservative approach, which hinders the formation of long-term partnerships and stifles innovation (Egan, 1998; Ericsson et al., 2002; Lessing, 2015; Barbosa et al., 2017). As Hall et al. (2020) assert, companies within this sector are confronted with a stark choice: evolve through the adoption of innovative systems or face obsolescence. This pivotal moment echoes paradigm shifts observed in evolutionary economics (Dosi and Nelson, 2010; Hall and Rosenberg, 2010; Baldwin and Von Hippel, 2011). In this context, systemic transformation signifies a profound change impacting the entire system’s operation, fundamentally altering its core principles to effect true change (Donaldson and Walsh, 2015).

In an era where rapid technological advancement is the norm, the construction industry’s adherence to antiquated methods not only limits its potential for modernization but also precludes the exploration of new avenues for transformation (Colfer and Baldwin, 2016; Hall et al., 2020). To address this pressing challenge, our paper leverages the framework of Complex Adaptive Systems (CAS) theory. CAS provides a nuanced understanding of the intricate dynamics and adaptations within economic systems, thereby offering invaluable insights for stakeholders striving to devise effective strategies for change.

This study highlights the pivotal role of focal companies in the construction sector, particularly in the context of for systemic change (Aksenova et al., 2019; Chan, 2020; Hall et al., 2020), and the increasing emphasis on transformation processes and lean practices (Robinson et al., 2016; Lohne et al., 2022). These central entities in the innovation ecosystem play a crucial role in adapting and strategically shaping their environment. Given the complexity and multifaceted nature of transformation, academic literature comprehensively addressing this topic is limited (Kane et al., 2015; Abdelkafi and Täuscher, 2016; Iansiti and Lakhani, 2017). This underscores the significance of our research in contributing to a deeper understanding of transformation in the construction industry.

The objective of this research is to systematically investigate the strategies used by leading construction firms for systemic transformation within their value chains and ecosystems. By highlighting these strategic approaches, this study aims to provide actionable steps for companies to overcome entrenched issues and initiate sustainable, beneficial transformations across the construction ecosystem.

The structure of this article is methodically organized as shown in Figure 1. We begin by analyzing the unique characteristics of the construction ecosystem and its current structure. This is followed by a review of the theoretical foundations of systemic transformation through the lens of CAS theory, in addition to exploration of relevant literature on construction subsystems, setting the stage for our empirical inquiry. This paper then details our research design and data analysis methodology. Subsequent sections present and discuss findings from nine comprehensive case studies within the industry. In conclusion, this paper reflects on the wider implications of these findings for the construction sector and suggests directions for future research.

Research background

Peculiarities of the construction ecosystem

The construction industry is known for its maturity and resistance to change, often taking decades to adopt new technologies (Grübler et al., 1999; Slaughter, 2000; Carlander and Thollander, 2023). It features a diverse market that spans from local one-person companies to global multinationals (Langford and Male, 2008; Ye et al., 2018). Despite this, it is marked by intense competition, with a high number of small, regionally dominant companies leading to an oligopolistic structure in building construction (Cooke, 1996; Ngai et al., 2002; De Valence, 2011a, 2011b; Ballesteros-Pérez and Skitmore, 2016).

Companies in the construction industry seek competitive advantages through specialization in project types, procurement, financial management and customer relationships (Drew, 2011). Competitive tendering is common, encouraging short-term outlooks and prioritizing flexibility over productivity, which leads to maintaining broad resources to manage the variations in demand and risk (Winch, 1998; Lessing and Brege, 2015; Hinton and Hamilton, 2016).

The prevailing contracting and financial practices, like fixed-price payments, discourage long-term investment, promoting a focus on project-level development rather than systemic improvement (Eriksson, 2013; Pekuri et al., 2015; Vestola and Eriksson, 2023).

Systemic transformation through the lens of complex adaptive systems

In this study, we delve into the systemic transformation of businesses and economies through the lens of CAS theory. Systemic transformation refers to the fundamental changes in the structure and behavior of systems, encompassing not just individual components but also the entire network of interactions and relationships (Anderson, 1999). CAS, consisting of diverse agents that adapt and respond to environmental changes and to each other, encapsulates this concept. These systems demonstrate collective behavior that arises from their non-linear spatio-temporal interactions among these agents (Holland and Miller, 1991; Simon, 1996; Choi et al., 2001; Surana et al., 2005), highlighting the dynamic nature of systemic transformation. Companies are considered as agents as they act as autonomous entities that interact with other agents (such as other companies, customers and regulatory bodies), adapt to their environment and evolve over time (Holland and Miller, 1991).

The CAS theory is particularly effective in elucidating systemic transformation. It allows for the observation of emergent behaviors that result from complex interplays within a certain system. This approach is useful in understanding systemic transformation, as it focuses on how the system evolves and adapts in response to external and internal stimuli. By emphasizing adaptability and interconnectedness, the CAS theory provides valuable insights into the systemic transformation of businesses and economies (Pathak et al., 2007; Miller and Page, 2009; Mitchell, 2009).

There are few academic articles that focus on the issue of transformative change for businesses. For example, it has been argued that businesses can “transform” themselves by incorporating various digital technologies (Kane et al., 2015), including blockchain (Iansiti and Lakhani, 2017), artificial intelligence and application programming interfaces, among other innovative technologies (Kavadias et al., 2016). On the other hand, companies can “transform” their approach to managing to achieve greater productivity or efficiency from employees through product, technological and process innovations (Abdelkafi and Täuscher, 2016) and, hence, make more money or grow faster.

In the construction context, Lavikka et al. (2021) highlight that existing research identifies a range of social, political, economic and technical factors that can either hinder or facilitate the implementation of systemic innovations. In addition, Robinson et al. (2016) focused on processes and tools involved in systemic change, whereas Lohne et al. (2022) showed that lean construction has enabled a paradigmatic change in the Norwegian construction industry. Previous research focuses only on a single aspect that may lead to transformation. However, as argued by Beinhocker (2006) and Peltokorpi et al. (2021), for a transformation to occur, companies should progress in multiple systems.

Applications of complex adaptive systems in construction industry

CAS approach has been less used in exploring the multifaceted nature of construction projects and industry practices. Notably, the examination of estimating practices in construction as a complex network of non-linear relationships challenges traditional linear methodologies, advocating for a more nuanced approach that acknowledges unpredictability and emergent behavior (Bentley and Stacey, 1998).

Similarly, the integration of CAS into the management of complex projects and systems has been proposed as a means to enhance adaptability and responsiveness, incorporating concepts like emergence and self-organization (Ireland and Statsenko, 2020). The analysis of the Hinkley Point C megaproject as embodying CAS characteristics further underscores the utility of CAS theory in comprehending the evolution and decision-making dynamics within megaprojects (Aritua et al., 2009). Furthermore, the management of construction client multi-projects through a CAS lens emphasizes the interconnected, adaptive nature of handling multiple projects simultaneously, presenting a shift from traditional isolated project management practices (Daniel and Daniel, 2019).

Systemic transformation in a specific industry

Teece (1987) argued systemic change within a paradigm is challenging without unified capabilities among stakeholders, as it demands collective action for success. Paradigm shifts, which replace old frameworks with new ones, typically result from significant technological innovations or fresh problem-solving approaches (Dosi and Nelson, 2010; Baldwin and Von Hippel, 2011). Such shifts are likely when a critical mass of businesses undergo deep, scalable transformations (Waddock, 2020).

Leaders of successful companies can sometimes drive these transformations, leading to improved user experiences and more innovative, cost-effective problem-solving (Baldwin and Von Hippel, 2011; Evans et al., 2017). Wal-Mart’s retail market transformation, led by its CEO, centered on strategic store expansion and economies of density. The introduction of the “supercenter” concept, combining groceries and general merchandise in large stores, along with a focus on low prices and wide accessibility, solidified Wal-Mart’s position as a retail sector powerhouse (Holmes, 2011). Toyota has significantly transformed the manufacturing industry (not only the car industry) through its Toyota Production System, which introduced groundbreaking concepts like Just-In-Time manufacturing and lean production (Ohno, 1982). Their approach has become a benchmark for manufacturing excellence and operational efficiency, inspiring companies worldwide to adopt similar methodologies (Takeuchi et al., 2008).

Understanding construction subsystems for industry transformation

To achieve a paradigm shift within the construction sector, understanding the system’s complexity and the connections between its various subsystems is essential. The construction industry operates within the broader CAS of the economy. Bertelsen (2003) and Beinhocker (2006) have emphasized the significance of this systemic perspective for handling the inherent intricacies of the sector. Peltokorpi et al. (2021) build on top of CAS approach and argue that addressing the array of challenges in the construction industry requires a comprehensive view of its interconnected subsystems. Singular efforts are inadequate as the subsystems collectively influence business operations.

Peltokorpi et al. (2021) identified five key subsystems (Figure 2) within the construction industry that are crucial for any company aiming to drive systemic transformation:

  1. Product: A product within the construction industry is described as the integration of diverse components to address challenges, particularly in the context of prefabricated solutions. These products face hurdles because of entrenched project processes and disruptions to existing business models. A product in this context is a tangible outcome of construction activities, characterized by its complexity and the need for meticulous design and assessment to ensure compatibility and innovation within the industry's ecosystem (Lavikka et al., 2021).

  2. Process: A process is described as the methodological approach toward integrating various aspects of construction projects, including design, manufacturing and stakeholder engagement. It focuses on overcoming challenges related to disjointed design and manufacturing processes, aiming for a more cohesive and integrated workflow (Arayici et al., 2011).

  3. Organizing and people: Organizing and people in construction involves the systematic coordination of human resources, processes and systems to achieve the successful completion of construction projects. This aspect of construction management focuses on the effective mobilization, coordination and leadership of various stakeholders involved in a construction project, including workers, subcontractors, suppliers, clients and consultants (Aksenova et al., 2019).

  4. Information and digitalization: Information and digitalization in construction refers to the integration and application of digital technologies to manage, streamline and enhance various processes and phases within the construction industry. This encompasses a wide range of tools, systems and methodologies aimed at improving the efficiency, productivity, safety and sustainability of construction projects (Zheng et al., 2020).

  5. Value creation and business models: Value creation and business models in construction are critical concepts that underpin the strategic positioning and operational effectiveness of companies within the industry. These concepts are intertwined, with value creation focusing on the generation of benefits for customers, stakeholders and the company itself, while business models describe the framework through which these benefits are delivered and captured as economic value (Pekuri et al., 2013).

The framework offers a structured method for analyzing how construction companies can adapt and innovate. Recognizing the interplay between these subsystems is vital for addressing systemic challenges and fostering sustainable development within the industry. A paradigm shift in construction requires progress across these multiple systems, not just isolated innovations. For companies to transform the construction industry successfully, they must not only adapt to new technologies but also evolve their organizational structures, business models and industry-wide collaboration approaches, all while fostering a culture of continuous learning and improvement.

Research design and methods

The objective of our empirical research was to identify the strategies used by successful companies within the construction ecosystem, with a focus on achieving systemic transformation in their value chains or broader ecosystems.

Methodological approach

We sought to identify complex causal relationships within the construction industry. We selected a multiple case study design, a method considered suitable for such an intricate exploration (Eisenhardt, 1989; Bennett and Elman, 2006). The robustness of evidence generated from multiple case studies is well-documented (Baxter and Jack, 2015), and it allows for the discovery and evolution of more convincing theories (Eisenhardt and Graebner, 2007).

Selection of case companies

The selection of case companies was based on the conceptual framework developed by Peltokorpi et al. (2021). We looked for successful systemic innovations that solve multiple challenges simultaneously (Hall and Lehtinen, 2015; Peltokorpi et al., 2021). Companies were considered successful if they exhibited innovations in at least two construction subsystem areas (e.g. product, process, organizing and people, information and digitalization, value creation and business models) and demonstrated growth, profitability or attracting external invested capital.

We conducted an open survey to identify successful companies. The survey, disseminated through various channels, successfully garnered nominations for 36 companies, reflecting a broad spectrum of industry recognition.

Data collection

A research group consisting of three senior researchers and one senior executive from the construction industry analyzed the survey results. In all, 11 companies were chosen for deeper analysis. Nine participated in the final study, as two companies never responded to the interview requests (Figure 3).

In-depth, semi-structured interviews were conducted with elite informants – founders, CEOs, general managers, managing directors and R&D directors – between February 2022 and October 2022. Interviewees were selected for their deep knowledge of the company’s history and activities, providing insights for organizational narratives and forming a basis for developing strategic management theories, as noted in works by Felin et al. (2015), Foss and Pedersen (2016), Basu and Palazzo (2008) and Hambrick and Mason (1984).

The selection criteria made the number of interviewees relatively small. However, the targeted selection (Patton, 1990) ensured that each interviewee could speak with authority about their company’s activities over the years, as they possessed a high degree of expertise related to the research questions (Romney et al., 1986). The interviews were recorded, transcribed and stored on a secure server. Secondary data (Table 1) sources were used for triangulation to strengthen the company narratives.

Analysis

The first step involved the transcription of interviews verbatim. The transcribed data laid the foundational groundwork for our subsequent analytical phases.

The core of our analysis used the theoretical framework of the five subsystems: Product, Process, Organizing and People, Information and Digitalization and Value Creation and Business Models. This framework provided a lens through which the interview transcriptions were scrutinized. The interview transcription was carried out by an external transcription service. We then searched for implications, references and nuances related to each subsystem. This phase was pivotal in unraveling how the companies navigate and influence these subsystems amidst their pursuit of systemic transformation in the construction industry.

Building on the insights from this analysis, we compiled a structured comparative table (Table 2). This table juxtaposed the participating companies against the five subsystems. It shows how each company’s strategies and operations align with these subsystems. The table was used to compare and contrast the different strategies and approaches of the companies, highlighting unique practices, common trends and identifying potential areas for innovation and improvement within the industry.

This approach enabled us to distill research data into meaningful insights. By applying the five subsystems framework, we illuminated the diverse and multifaceted strategies that successful construction companies are using to catalyze systemic change. The comparative table further enriched our understanding, offering a snapshot of the current landscape of the industry and paving the way for in-depth discussions and conclusions about systemic transformation in the construction sector.

Synthesis and strategic insights

The retrospective case descriptions were based on historical data, with the events and activities under investigation already having occurred. The analysis followed the approach suggested by Dubois and Gadde (2002), systematically combining case data and existing theory. The first step was to understand how the company strategy evolved in each case and how it could be explained by the framework of the five subsystems. The cases were then compared to assess the opportunities and drawbacks of each approach and to identify similarities in their strategic approaches.

Description of the case companies

In this section, the case companies and their overall journey of business development are described.

Company A

Company A’s journey, emerging from a visionary concept to becoming a leader in affordable and sustainable housing, is a story of strategic collaboration and innovative thinking. Founded through a unique partnership between Skanska and IKEA in 1993, the company was born out of a shared goal of making housing more accessible to “ordinary people,” particularly key workers and those with lesser incomes. This vision was significantly influenced by Ingvar Kamprad, IKEA’s founder, whose drive to create a better everyday life for many laid the groundwork for Company A’s mission.

This led to a deep dive into customer priorities and a thorough product development process. Company A’s approach was to create a repeatable product, suitable for various market segments. The company evolved into a project developer, buying land suitable for its housing products, ensuring the feasibility of its offerings at competitive prices.

Company A’s operational model involves a mix of total contracting and subcontracting, maintaining control over land, products and manufacturing, while subcontracting smaller tasks. This model allows for efficient and controlled operations. Over the years, Company A expanded to four markets, but the core logic remained consistent.

Later, innovations have resulted in a portfolio of multiple product platforms and families, from single family houses to multi-family buildings. Past decade, Company A has invested a lot in factory development, automatization (introducing robotics) and digital support systems, which enables better control, planning and collection of feedback. In recent years, because of significant increase in market shares and demand, the focus has been on standardizing processes, increasing lean elements in every process, continues improvement.

Company B

Company B, a UK-based global firm, stands as a pioneer in reshaping the construction landscape through their innovative approach. Specializing as an architectural and engineering firm, Company B has always placed a strong emphasis on manufacturability and buildability, central to their Design for Manufacture and Assembly (DfMA) philosophy. This focus has been integral in simplifying construction processes and addressing complex construction challenges.

Early in their journey, Company B recognized the potential of merging the bespoke nature of construction with the efficiency of mass production. This vision led them to embrace Modern Methods of Construction and develop their Platform approach to Design for Manufacture and Assembly (P-DfMA). They were among the first to realize the importance of generative design and integrated design automation in construction, which supported their overarching goal of “Design to Value.” Their innovative digital design platforms, which cater to various building types, reflect a fusion of component libraries and manufacturers, ensuring buildability and ease of installation.

Company B’s expertise was significantly honed through their involvement in high-profile projects, such as the expansions of London’s Heathrow and Gatwick airports and the Elizabeth Line project. These projects not only showcased their capabilities in off-site manufacturing and on-site assembly but also allowed them to refine their BIM-based platforms and tools. The result was a more efficient implementation for their clients and a ready platform for future projects.

The company’s evolution saw a shift from focusing on complex and strategic customer projects to establishing digital product platforms for different building types. This transition marked a significant step in streamlining both design and installation processes, offering a compelling value proposition to their clients. Today, with offices in six countries, Company B’s business model remains predominantly project-based, but with a strong emphasis on the utilization and development of their innovative platforms within these projects.

Company C

Company C’s journey began in 1997, initially focusing on meeting the information needs of architects by providing digital data from manufacturers. Initially, this data was distributed on CD-ROMs, but the company soon transitioned to online platforms, reflecting the broader digitalization trend in the industry.

The company’s direction took a pivotal turn in 2001 following environmental incidents in Sweden and Norway. Recognizing the growing importance of environmental safety and responsibility, Company C developed a platform for tracking chemical information. This platform, aimed at enhancing safety and compliance in the construction industry, became widely used in Norway and set the foundation for Company C’s future direction.

Embracing digital transformation, Company C began to focus more on data management and standardization within the construction industry. The company’s expertise in handling complex data, particularly in regards to construction materials, positioned it uniquely in the market. Company C’s approach involved not only managing data but also ensuring its standardization across different stakeholders in the industry. This was crucial in an industry where discrepancies in data can lead to significant inefficiencies and errors.

The company’s global expansion strategy involved a shift from a direct service model to a licensing model. This enabled Company C to share its technology and expertise with a wider array of international partners, facilitating a more standardized approach to data management in construction globally. The adoption of GS1 standards for product identification further underlined Company C’s commitment to global data standardization.

Looking to the future, Company C is concentrating on the development of standards for data templates. This initiative aims to enhance data-driven decision-making in construction and streamline communication across various industry stakeholders. By focusing on creating a more standardized and efficient flow of data, Company C is positioning itself at the forefront of the digital transformation in the construction industry.

Company D

Established in 2020, Company D is a Finnish general contractor that has chosen a business model that is different from that of the prevailing market to realize higher customer value and shorter lead times. As a difference from the prevailing method of project delivery, Company D has chosen a consortium as a business model, where the cooperating companies strive to connect their own product development expertise to shorten the building’s lead time. In the prevailing market, Company D has succeeded in forming a consortium, with the help of which Company D has been able to produce changes in the manufacturing process of a residential apartment building at a fast pace.

These implemented changes have been significant both in terms of lead time and especially market-based delivery models, because Company D has been able to challenge the market’s common delivery methods in terms of both products and delivery methods. Company D has demonstrated to the market that the prevailing methods of implementing the established construction methods for parts of buildings can be challenged and implemented significantly faster and more realistically than previous implementation methods. More importantly, Company D has brought to the market alternative construction models and company alliances, with which Company D has been able to supplant old-fashioned construction business models and behavior.

Company E

Company E’s transformation is a compelling tale of innovation and strategic foresight. Initially a conventional construction firm, Company E faced a significant challenge during the building crisis in the 1990s. This crisis catalyzed a shift in their process, moving toward factory-based production. This shift was crucial in enhancing their product line, focusing on prefabricated wooden elements, which significantly reduced construction time and environmental impact.

The organizational adaptability of Company E was evident as they expanded into new markets and collaborated with academic and industry partners to refine their construction techniques and processes. This expansion was not just geographical but also conceptual, embracing new construction methodologies and standards. The integration of modern technologies in construction processes marked a significant leap toward precision, efficiency and sustainability. This technological shift not only streamlined their operations but also reinforced their commitment to sustainable development.

The evolution of Company E’s business model is particularly notable. Balancing traditional building methods with innovative, sustainable practices, they have established themselves as a leader in the wood modular construction industry. Their journey from a conventional construction firm to a pioneering, and efficient business model is a testament to the power of adaptive strategies and innovation in the face of industry challenges.

Company F

Company F was founded by Hubert Rhomberg as part of the Rhomberg group, a collection of construction-related companies. This initiative was part of a visionary approach to revolutionize the construction industry.

In 2009, Rhomberg initiated the Lifecycle Tower research project, aimed at exploring the feasibility of a 20-story timber-based building. This innovative approach marked a significant shift from conventional construction practices. The company aimed to combine energy-efficient building models, prefabricated elements and timber-based construction, steering clear of traditional methods. This shift was driven by a desire to innovate and lead in sustainable construction. The positive international response to the research led to the decision to construct a model building, which was a departure from academic research toward practical implementation.

The company introduced composite elements combining concrete and timber and opted for concrete staircases for safety, reflecting a strategic blend of materials for optimal performance and safety. Initially, Company F focused on designing and building projects directly. However, to expand globally, the company shifted to a licensing model, allowing international partners to use Company F’s technology and know-how. Company F’s expansion involved licensing its technology to major construction companies worldwide, including markets like Japan, Singapore, Canada and various European countries.

This approach facilitated international growth and technology transfer. Recognizing the importance of digitalization in pre-fabrication and design, Company F developed digital tools and platforms for collaboration and knowledge sharing, further enhancing its innovative edge. Company F continues to engage in strategic research, advocating for hybrid structures that integrate timber with other materials. The company positions itself at the forefront of sustainable construction innovation.

Company G

Company G designs and lends learning environments to municipalities that can be adapted to their needs. The company has its roots as a producer of site huts. Gradually, the company has become a provider of quality kindergarten and school buildings whose facilities are flexible according to the needs of the users.

Originally the competitive advantage was created around a modular product and industrial production process. However, there are many providers who can copy such a product and factory production. Therefore, the leasing business model, in which the company leases spaces for clients for 3–10 years, was the factor that differentiated the company from its rivals. They found that flexible buildings could be used in municipality centers where the population is expected to fall in the future because of low birth rates and urbanization.

As the need for space increases or decreases, the number of spaces can be changed flexibly. Their space can be connected to existing buildings and moved to a completely new location later, if necessary. This satellite model considers the conversion flexibility of municipal facilities already at the city planning stage. Around the basic buildings, the premises borrowed from Company G can be connected for different purposes. Facilities may include a daycare center, teaching facilities, day activities for the elderly or health care.

Company H

Company H targets bridging the gap between as-designed and as-built buildings. They sell services and process knowledge related to how to achieve constructible and coordinated designs. The competitive advantage of the company is based on the unique process “Plan and Control,” where designers no longer produce detailed design coordination. They ensure the design intent is accurately portrayed in the design deliverables without paying much attention to the final positions of elements. Company H then increases the level of detail to fabrication level and carries out detailed coordination. Almost all elements designed by the design team change position during the detailed coordination. Company H delivers their output in a contractor-friendly format which includes all the details needed by contractors. To improve their productivity in this task, they have developed detail libraries and software for processing product information. Their services also extend to the construction phase, where they ensure that builders follow the designs.

The major changes during the evolution of the company have happened in their business model. The company has gradually learned who is willing to pay for constructible designs. The first successful project was carried out for the employer of the founder, then the practice spread to other projects for the same company and wider through architects and contractors associated with the early projects. All stakeholders in construction projects saw enough evidence that their business improved with a proper quality control process and recommended the process to their other projects, thus enabling growth. Gradually, even architects have started to buy these services.

Company I

Company I was founded to make prefabrication possible with a new horizontally distributed business model, where the company does not own any factories. Their products are kits of parts, and they partner with manufacturing companies. Company I do not carry out any construction work and are not engineers or architects of record. Rather, they design a kit of parts for the needs of a particular client and collaborate with other actors in the value chain to enable prefabrication.

The kits developed by Company I are often kits for core and shell, including windows, wall enclosures, a roofing system and the whole structural system. This allows more flexibility in the design of interior finishes and fit-out, which are not prefabricated. A general contractor procured by the owner-operator is responsible for the on-site installation of both prefabricated elements and elements built in place.

The competitive advantage for the company comes from knowing how to reverse engineer kits based on a building prototype of the owner-operator, its ability to educate the team on prefabrication and having a process for bringing in the manufacturers and supply chain. In addition, the company has developed a software product, KitConnect, which helps manage kits in a BIM design environment. The idea of KitConnect is that buildings become a collection of products to be assembled in a BIM environment. Product creators can develop their kits of parts and distribute them to designers in a structured way. When designers use the kits, the original detailed information stays, so the product creator can later have detailed bills of materials and assemblies back from the fully designed building.

In summary, each company demonstrates a nuanced approach taken toward systemic transformation. The approaches include interplay of product innovation, process optimization, collaborative organizing, digital integration and innovative business models. The key findings from the companies are summarized below.

Company A: Strategic Prefabrication and Collaboration:

  • Strategic prefabrication: It embraces industrialized, prefabricated housing solutions, showcasing an advanced approach to product innovation focused on design compatibility.

  • Collaborative synergy: It breaks traditional silos by integrating the retail-focused mindset of IKEA with Skanska's construction expertise, fostering cross-industry innovation.

Company B: Integrated Design and Sustainability:

  • Modern construction methods: It advocates for integrated design and automation, setting a new standard in process optimization.

  • Sustainability focus: Their sustainable and value-driven design philosophy permeates the business model, highlighting a forward-thinking approach to construction.

Company C: Digital Transformation Leader:

  • Digitalization core: It leads in enhancing information management and standardization, underlining the critical role of digital integration in transforming traditional construction processes.

Company D: Consortium Model and Market Challenge:

  • Market disruption: It challenges traditional construction methods with innovative apartment building manufacturing, representing a shift in the product approach.

  • Consortium model: It uses a collaborative business model that fosters stronger relationships, enhancing both organizing efforts and value creation.

Company E: Technological Innovation and Efficiency:

  • Prefabricated modules: It specializes in technologically advanced prefabricated modules, illustrating product development focus.

  • Lean and automated: It adopts lean methods and automation, indicating a streamlined process approach aligning with efficiency and customer needs.

Company F: Eco-Friendly Building and Knowledge Sharing:

  • Eco-friendly innovation: It focuses on large-volume wood buildings, reflecting a commitment to sustainable product development.

  • Collaborative platform: It uses a platform for sharing intellectual property, emphasizing the importance of digitalization and collaborative knowledge exchange.

Company G: Flexible Solutions and Municipal Collaboration:

  • Modular and flexible: It offers modular designs for adaptable learning environments, showcasing innovative product design.

  • Leasing model innovation: It implements a customer-driven leasing model focusing on municipal needs, highlighting an adaptable business model approach.

Company H: Bridging Design and Construction:

  • Constructible designs: It specializes in bridging the gap between design intent and construction reality, improving process cohesion.

  • Software development: Their emphasis on software for product information points toward strong capabilities in digital integration and innovation.

Company I: Prefabrication and Distributed Model:

  • Prefabrication kits: It leads in the design of prefabrication kits, signaling a significant product innovation aligned with modern construction needs.

  • Distributed business model: It demonstrates a horizontally distributed model focusing on flexibility and collaboration across the value chain, underscoring the importance of organizing and digital tools for comprehensive ecosystem engagement.

Strategies and development paths toward transformation

In the analysis phase, the nine case companies were evaluated using an analytical framework, identifying the influence of five key subsystems on each company’s development (Table 2). This led to the distillation of four main development paths that signify systemic transformation within the construction ecosystem, which will be further explored and contextualized with previous literature in the following section and summarized in Figure 4.

Product-driven path

In the realm of construction, product innovation is pivotal, with modular products manufactured in factories being central to such innovation. Companies differ in their production strategies, level of industrialization, technological integration and product types. Companies A and E stand out for their high industrialization levels, using product standardization, modularity, lean and takt techniques to enhance efficiency. These methods also facilitate the incorporation of technology and automation, boosting speed and precision. The nature of the products significantly influences the production strategies of these companies, aiming to minimize construction costs and time.

Productization, although complex and varied, is evident in companies like Companies A and E, which market their offerings as standardized products or services. This process involves structuring a product to be easily sold, managed and supported (Flamholtz and Aksehirli, 2000), ensuring consistency and reliability. Proponents argue that productization enables scaling by reducing customization, leading to quicker delivery and consistent customer experiences (Wirtz et al., 2021). Critics, however, caution that a uniform approach may stifle innovation and fail to meet specific customer needs, potentially resulting in dissatisfaction (Khurum et al., 2015). Despite these concerns, productization remains a strategic approach for companies to scale operations and meet customer demands effectively.

Product platform-driven path

In contrast to the product-driven path, product platform-driven approach represents a paradigm shift toward a more open system. Here, the product is not created by centralized effort, but is created from various components and products that meet specific overarching specifications and interfaces. This approach, which fosters transformation at the company level, is supported by the work of Glass et al. (2022) and Jones et al. (2021), who advocate for the standardization of construction processes, products and services to achieve cost savings, efficiency and flexibility (Jones et al., 2021).

Advocates of construction platforms argue for their potential to cut costs, enhance efficiency and add design flexibility (Sköld and Karlsson, 2013; Jansson et al., 2014), suggesting that platforms can foster technological innovations that transform construction management. However, critics warn that such platforms may stifle creativity and reduce oversight, as projects become centralized (Le Masson et al., 2011).

In this evolving landscape, companies like Companies C and F leverage domain expertise to transform customer data into actionable insights through data enrichment (Lewis, 1957), enhancing marketing and customer service strategies. Company I’s KitConnect software treats buildings as product kits within a BIM environment, allowing for detailed material and assembly tracking.

Digital design platforms used by Companies B, F and I integrate component libraries with manufacturing, facilitating design-to-value approaches that consider buildability. Company C provides a digital platform for comprehensive information management, enhancing standardized digital information exchange.

Companies B, F and I have adopted DfMA strategies, integrating platforms across design, engineering, construction and operations to deliver projects faster, more economically and with increased transparency (Lu et al., 2021). This strategic integration exemplifies the seamless transition from product-driven innovation to platform-driven efficiency, marking a significant evolution in the construction industry’s approach to delivering high-quality, cost-effective building solutions.

Process integration-driven path

Process integration path does not require development of own product or using a product platform. This shift from a focus on the tangible aspects of production and platform standardization to the more nuanced integration of processes is a more gradual path of evolution in construction management. It underscores the industry’s recognition that true transformation is about not solely the products or platforms but also the processes that underpin the entire lifecycle of a building.

Process integration, as supported by Fischer et al. (2014), emphasizes the importance of early integration of diverse knowledge to optimize building performance. Yet, the challenge lies in effectively combining this knowledge. Company D has addressed this challenge by adopting a project-specific approach that implements significant process changes in tandem with product developments. Their creation of the ASSI© concept – a platform for collaborative product development – exemplifies an ecosystem approach that has led to innovations such as pre-assembled balcony fittings, which streamline or even eliminate certain development processes.

This approach is mirrored by Company H, where the traditional roles of designers have been changed to achieve better coordination of designs. This ensures a seamless transition from design to construction where detail libraries and standardized content are used to ensure constructible outcomes. The use of robotic total stations continuously during construction closes the loop and ensures that buildings conform to designs.

The examples of Companies D and H underscore the potential of harmonizing product innovation with process optimization. Company D’s strategy of using small, agile teams within the broader ASSI community shifts the focus from project-centric to process-centric, with an emphasis on standardization in design, material flow and prefabrication. Company H’s approach to standardization aids in replicating successful processes across various projects, enhancing efficiency and consistency.

Together, these strategies demonstrate the transformative power of integrating product and process – a synergy that is essential for the construction industry to advance. As Teece (1987) argued, for a transformation to be successful, harmonized actions are essential. By embracing process integration, companies like Companies D and H are not only optimizing their current operations but are also paving the way for future innovations in the construction industry.

Business model-driven path

Company G’s leasing model is a paradigm shift, providing customers with temporary, tailored buildings without the hefty financial commitment of ownership, thereby enhancing Company G’s asset utilization over time. This innovative approach, which aligns with Waldman's (1997) insights on asset utilization, allows for a flexible payment structure based on usage. It offers a sustainable alternative to traditional ownership and addressing the challenges of the second-hand market through the transportability of buildings.

The model’s flexibility is a testament to its alignment with the dynamic needs of customers, allowing for the scaling of leased spaces as needs evolve. This aspect of service delivery echoes the principles outlined by Tuli et al. (2007), emphasizing the strategic importance of customization and adaptability in meeting customer demands.

Company G’s business model is not merely a standalone transformation. It can be synergized with other innovative practices. These practices can encompass novel product or service offerings that set a company apart in the marketplace or operational innovations that streamline processes and reduce costs.

Thus, while Company G’s business model is the fulcrum of its transformation, it reaches its full potential when it is part of a larger ecosystem of innovation. This ecosystem may include advancements in product design, service delivery, operational processes, organizational structures or marketing strategies, each contributing to a competitive edge and operational efficiency.

Discussion

In this study, we sought to unravel the strategies of successful companies in the construction industry and how they contribute to systemic transformation at both company and industry levels. Our selection process involved nine companies, representing a diverse range of entities within the construction ecosystem. Notably, only one conventional construction company, Company D, met our criteria because of its multidimensional innovation approach. It was different from other construction companies who often adhere to traditional construction methodologies and show reluctance in embracing new technologies, as Carlander and Thollander (2023) and Slaughter (2000) have identified.

This reluctance for innovation in conventional construction companies can be attributed to a preference for established methodologies, limited investment in research and development leading to stagnation in business practices (Lavikka et al., 2021) and a risk aversion that hampers exploration of innovative concepts (Eriksson, 2013; Vestola and Eriksson, 2023).

Our research identified four developmental paths followed by these successful companies. The product-driven path focuses on modular products, promoting productization to enable scalability and market share growth. The product-platform-driven path differs by promoting openness to diverse components and products, fostering knowledge transfer and learning within the construction ecosystem. The process-integrated path emphasizes standardization in design, material flow and prefabrication and highlights the importance of integrating information flow among design, construction and operation phases. Finally, the business model-driven path reveals the transformative potential of innovative business models in opening new market opportunities and growth paths.

In line with Aksenova et al. (2019), the emphasis on technological innovation was evident across these paths. Overemphasis on a technology push without adequate consideration for cross-sectoral collaboration and knowledge diffusion can lead to siloing of innovations rather than holistic industry progression. Vertical siloing, marked by separation along the value chain, can cause inefficiencies and hinder collaborative problem-solving. Horizontal siloing, on the other hand, as demonstrated by the Skanska-IKEA collaboration in Company A, can foster innovation and efficient allocation of resources through competition and collaboration between companies.

In some cases, the primary motivation for technology adoption was centered around productivity enhancement. While this focus on isolated company-level gains is valuable, it may not trigger the transformative changes needed at a systemic level within the construction ecosystem. However, many companies have aimed to improve the productivity of the entire value chain.

Despite the market and customer influence on the development of companies like Companies A, G and H, the predominance of a technology push approach, coupled with the absence of a strong market pull factor, may have limited the widespread integration of new products and technologies into mainstream industry practices. Systemic transformation requires alignment among various stakeholders (Teece, 1987), changes in industry practices and reshaping of established norms (Hall et al., 2020).

Our findings suggest that certain development paths may be more transformative for the industry than others. Hall et al. (2020) indicated that relational project-based contracts through vertical and horizontal integration could enable systemic innovation. In our analysis, the product-platform-driven path and the process-integration path, with their emphasis on open systems and integration, used these characteristics. Instead, in the product-driven and business-model-driven paths, the focus is more on individual company’s competitive advantage, and the innovation is not, therefore, transforming the broader ecosystem but disrupting the market by superior offering.

Speed as a catalyst for systemic transformation

The construction industry’s emphasis on speed catalyzes not only efficiency gains but also a systemic transformation across its multiple facets, impacting financial dynamics and operational methodologies. By significantly shortening on-site construction times, companies enable quicker client access to finished projects. This is particularly crucial in high-demand sectors like residential and commercial real estate. Shorter construction times facilitate faster revenue generation and immediate return on investment. This rapid project turnover, combined with savings from minimized on-site financing needs, waste reduction and labor optimization, heightens project financial appeal.

Speed’s role extends beyond economic implications, driving changes across the sector’s subsystems as identified in Table 2. It necessitates more detailed component planning and compatibility. This enables industrialized prefabrication, design innovation and rapid prototyping, thus shortening the time-to-market. Moving away from ad hoc to streamlined production, leveraging factory production and adopting lean methods enhance precision and sustainability. Furthermore, speed fosters improved stakeholder collaboration, breaking down silos for a unified project approach, while the integration of digital tools accelerates information exchange and decision-making. This comprehensive transformation, driven by need for speed, propels technological, processual and organizational advancements (Riekki et al., 2023).

Evaluating the framework of the five subsystems

The four paths earlier discussed are product-driven, product platform-driven, process integration-driven and business model-driven paths. Each of these paths corresponds to a distinct construction subsystem or subsystems identified by Peltokorpi et al. (2021), namely, the product, process, organizing and people, information and digitalization and value creation and business models subsystems. Comparatively, the subsystem least connected to the four paths seems to be the “organizing and people” subsystem. This subsystem deals with management paradigms, contractual methods, associations and education levels among construction professionals, aspects that are only minimally or indirectly addressed in the context of the paths (Peltokorpi et al., 2021).

While people and their roles, decisions and interactions undeniably underlie every process, product, digital platform and business model, the explicit focus on organizational structures, relationships and workforce education and engagement appears to be somewhat absent in the given paths (Peltokorpi et al., 2021). One conclusion that can be drawn from this analysis is that the four paths, while effective in advancing construction industry transformation from various angles, might be ignoring the crucial role of human capital and organizational management in industry evolution. Even the most innovative products, processes, digital platforms and business models could falter without effective human engagement, cooperation and leadership (Mintzberg, 1983). Therefore, further development and implementation of strategies explicitly addressing the “organizing and people” subsystem could potentially contribute to more comprehensive, sustainable transformation within the construction industry (Mintzberg, 1983).

Limitations and suggestions for further research

This study on systemic transformation in the construction industry is limited by its focus on companies selected by experts, omitting broader ecosystem perspectives from stakeholders, regulators and customers. Such an approach may not fully reflect the complex interplays within the industry, suggesting future research should encompass a wider business ecosystem and value chain analysis to uncover deeper innovation insights.

The findings’ applicability may be limited by regional and industry-specific variances, cautioning against overgeneralization. The dynamic nature of the construction industry, with its shifting market trends, technological advancements and regulatory changes, also means that the study’s conclusions are temporally constrained. Continuous research, including longitudinal studies, is needed to track the industry’s evolution.

Moreover, the potential for unconscious bias from the researchers, despite efforts to minimize it, could have influenced the study’s outcomes. Recognizing these limitations is crucial and addressing them through inclusive future research could deepen the industry’s understanding.

Additionally, considering the top-down influence of government policies on industry transformation is essential. Governmental initiatives can significantly drive change, and their role should be integrated into the systemic transformation framework. This integration could provide a more holistic view of the transformation process and highlight the importance of aligning company strategies with public policies.

In summary, while this study sheds light on company behaviors and strategies within the construction industry’s transformation, it also highlights the need for broader, more inclusive research to capture the full scope of industry dynamics and the potential top-down influence of government-led transformation.

Conclusions

This research contributes original insights into corporate strategies and their role in driving systemic transformation within the construction industry. By integrating empirical data with theoretical frameworks, it enhances our understanding of how successful companies foster innovation in a traditionally conservative sector, offering a fresh viewpoint on the dynamics of systemic change.

The four key development paths identified in this study – product-driven, product platform-driven, process integration-driven and business model-driven – highlight the varied and innovative strategies companies are adopting to navigate the complexities of the construction ecosystem. These paths showcase how companies are leveraging innovation in products, processes and business models to drive industry change, each path demonstrating unique strengths and challenges.

Through the lens of CAS theory, we can better understand these companies’ roles in their ecosystems and how their innovative actions are helping to overcome the construction industry’s entrenched challenges. Companies focusing on product and product platform-driven paths demonstrate how innovation in factory production and design platforms can lead to enhanced efficiency and cost-effectiveness. Process integration-driven companies highlight the importance of incorporating knowledge from construction and operations phases early in the design stage, while those on the business model-driven path, like Company G, show how novel business models can address changing customer needs and market disruptions.

This study underscores the significance of understanding and applying CAS theory as a lens to comprehend the positive transformation in the construction sector. It emphasizes the pivotal role of construction subsystems in shaping industry’s evolution, drawing attention to the need for a multifaceted approach to transformation. These focal companies’ actions and approaches shed light on the path for the industry to overcome its longstanding challenges and foster sustainable change, ultimately benefiting the entire ecosystem.

In conclusion, the construction industry’s journey toward systemic transformation is marked by innovation, adaptation and a readiness to challenge traditional practices. The insights from these case studies provide valuable lessons for the industry at large, illustrating that the path to overcoming its challenges and fostering sustainable change lies in embracing a holistic and adaptive approach.

Figures

Flowchart to guide the reader

Figure 1.

Flowchart to guide the reader

Framework for integrating subsystem solutions for construction industry transformation

Figure 2.

Framework for integrating subsystem solutions for construction industry transformation

Screening process of companies

Figure 3.

Screening process of companies

Key subsystems influences, strategies and development paths toward transformation

Figure 4.

Key subsystems influences, strategies and development paths toward transformation

Data collection

CompanyInterviewsCompany visitPodcast and seminarsPublications and reportsDigital and social media
Company A R&D Director (latest 4.2.2022) Factory and site visits Sustainable homes for All – R&D director.
Cities for people podcast – CEO
PhD thesis, master thesis Company Web page
Company B Director (latest 27.4.2022) Two seminar presentations Two reports on production systems and platforms Company Web page
Company C Founder, CEO (latest 25.5.2022) Transparency and act report Company Web page
Company D Founder, CEO (latest 15.5.2022) Onsite Seminar presentation Company Web page
Company E CEO (latest 28.2.2022), Three CEO of Subsidiary company Factory and site visits Hela kedjan podcast CEO stefan linbäcks. Youtube modular home factory using robotics and automation: BTS tour with helena lidelöw Historical biography (Westerlund, 2009). Journal articles, PhD thesis and master thesis Company Web page
Company F Managing Director (latest 26.4.2022) Company Web page
Company G CEO and Head of Board (latest 2.5.2022), Four producer, four client Factory and three site visits Common project database including photos and other additional material, such as brochures Company Web page
Company H Founder, CEO (latest 26.4.2022) Seminar presentation Master thesis Company Web page
Company I Chief Product Officer (latest 17.5.2022) Company visit Webinar Journal articles Company Web page

Source: Authors’ own creation

Role of the five subsystems in the transformation at the case company level

CompanyProductProcessOrganizing and peopleInformation and digitalizationValue creation and business models
Company A Focuses on industrialized, prefabricated housing solutions, aligning with the need for meticulous design and compatibility in components Adopts a systematic approach to production, contrasting typical ad hoc construction methods Integrates insights from both IKEA and skanska, breaking traditional silos in design and construction Lately, incorporation of automation, particularly in the form of robotic wall production lines for exterior and interior walls Emphasizes affordable housing for average income customers, showing customer-driven model innovation
Company B Pioneers in modern construction methods, suggesting a focus on compatible and innovative product design Engages in integrated design and automation, indicating an improvement over disjointed process Involves a range of professionals (architects and engineers), indicating collaborative organizing Strong focus on digital design platforms, addressing challenges in information and digitalization Business model centers on sustainable and value-driven design, indicating customer-focused innovation
Company C Not in the core of the business Process improvements through digitalization, indirectly impacting construction processes Not in the core of the business Core focus is on enhancing information management and standardization in construction Business model revolves around digital transformation, differing from traditional construction models
Company D Innovates in residential apartment building manufacturing, suggesting product development focus Challenges traditional construction methods, indicating a shift from ad hoc processes Uses a consortium model, fostering stronger business relationships and collaboration Not in the core of the business Demonstrates a unique business model challenging market norm, aligned with customer value creation
Company E Specializes in prefabricated modules, aligning with the need for well-designed, compatible products Emphasizes lean methods and automation, suggesting a streamlined and integrated process approach Focus on technological innovations likely requires collaborative efforts across various stakeholders Not in the core of the business Business model focuses on technological innovation and efficiency, potentially aligning with customer needs
Company F Focused on eco-friendly, large-volume wood buildings, indicating innovative product development Systemized process integrating design, production and assembly, showing process improvement Promotes knowledge sharing and best practices, indicating integrated organizing and collaboration Platform shares intellectual property and processes, implying digitalization and information sharing Product platform for knowledge sharing suggests a customer-centric and innovative business model
Company G Modular design for learning environments, reflecting careful product design and compatibility Flexible building solutions suggest a departure from typical ad hoc construction methods Leasing model implies collaboration with municipalities, breaking traditional procurement methods Flexibility in building solutions may involve digital tools, but not explicitly mentioned Customer-driven leasing model, focusing on adaptability and municipal needs, shows innovative business modeling
Company H Not in the core of the business Process focuses on bridging design and construction, improving traditional disjointed methods Changes the roles of various stakeholders (architects and builders) in the design and construction phases and improves coordination Emphasizes software development for product information, indicating strong digital capabilities Business model revolves around providing constructible designs, differing from traditional construction approaches
Company I Designs prefabrication kits, indicating a focus on innovative and compatible product development Prefabrication approach signifies a shift from traditional, ad hoc construction processes Collaborative business model involving different actors in the value chain, indicating integrated organizing Develops software for kit management in BIM environments, showcasing strong digital integration Horizontally distributed business model focuses on prefabrication and flexibility, aligning with customer needs

Source: Authors’ own creation

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Acknowledgements

The authors would like to thank the case company interviewees for their time and insights.

Data availability statement: The participants of this study did not give written consent for their data to be shared publicly, so because of the sensitive nature of the research supporting data is not available.

Declaration of interest statement: The authors report there are no competing interests to declare.

Funding: The research in this paper has been carried out and financially supported by the Building-2030 consortium of 21 industrial partners. The authors are grateful for all provided financial and technical support.

Corresponding author

Petri Uusitalo can be contacted at: petri.uusitalo@aalto.fi

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