Leading the Change: How Sustainable Business Models Drive Transformation in Construction

This paper offers a summary of the key findings of our thesis titled "The Importance of Sustainable Business Models in driving Sustainable Transformation - investigated through a Case Study in the Construction Industry" at the Sten K. Johnson Centre for Entrepreneurship, School of Economics and Management at Lund University.

Keywords: Sustainable Business Models, Sustainable Construction, Construction Industry, Implementation Challenges, Swedish Case Study

In an era where environmental concerns are at the forefront of global discussion, it's impossible to ignore the impacts of the construction industry. Responsible for substantial environmental, economic, and social impacts, it's an industry that stands at a pivotal crossroads. Addressing these challenges goes beyond merely revamping old structures—it involves innovating sustainable business practices and embracing models like the Circular Economy (CE).

But what are the hurdles when implementing such models, and how can they be overcome?

This article offers a holistic overview of how change, specifically sustainable practices, is facilitated in the construction industry. Drawing from a case study of an established Swedish construction company and existing literature, we highlight key aspects of this complex transition, including stakeholder roles, innovation barriers, and regulatory perceptions.

Currently, there is a noticeable lack of case studies that offer insight into the practical challenges of implementing sustainable business models in construction. This article aims to fill that gap by addressing the research question:

"What are the specific challenges encountered during implementation of sustainable business models within a construction company, and what enabling conditions facilitate development?"

This article explores the implementation of sustainable business models in the construction sector, specifically focusing on a leading Swedish firm. Given the industry's significant environmental impact, it's critical to understand the challenges and benefits associated with this transition. The article addresses this by examining both existing literature and a real-world case study, seeking to fill the research gap on sustainable construction, especially within the Northern European context. It also delves into the motivations behind these initiatives and the management adaptations required, contributing to a broader understanding of sustainable construction.

The Challenges

The focus of this article is on four major challenges that emerged during the study, which a Swedish construction company faced in its journey towards implementing sustainable business models. The order of these challenges is based on their significance as perceived by the interviewees, namely Acceptance, Knowledge, Costs, and Institutional setting. The Enabling conditions will be explained at a later stage.

Acceptance

The challenge of acceptance includes three sub-themes: management, employees, and customers.

1. Management: There are difficulties in standardizing the calculation of CO2 emissions, which affects communication with management and project teams. The expectation for immediate results further complicates the acceptance of long-term sustainable practices.
2. Employees: The ease of integration of new changes or technologies into employees' workflows significantly impacts their acceptance.
3. Customers: As the industry transitions to more environmentally friendly practices, gaining customer acceptance for these new practices presents a unique set of challenges. Misunderstandings about sustainable materials, such as the idea that wood is the sole solution for climate-positive buildings, can result in unrealistic customer expectations.

Knowledge

The construction industry faces a knowledge challenge, which includes the need for employee education, becoming more data-driven, and adapting to new materials and methods to address climate change concerns. For example, educating employees about new technologies and organizational changes is essential. The industry also needs to become more data-driven to address environmental issues.

Costs

Addressing costs is critical for driving sustainable change. There is a need for a shift in perspective that considers not just the initial cost but also the long-term benefits of reduced CO2 emissions. Costs are also connected to new methods and materials, with costs likely to decrease as more efficient processes are established.

Institutional setting

Lastly, the challenge of addressing the institutional setting in the construction industry environment is multifaceted. The lack of standardization, particularly for calculating CO2 emissions, hinders consistent monitoring and improvement of environmental performance. Bureaucratic barriers can also impede the implementation of more sustainable energy solutions in construction projects.

By understanding these challenges, the construction industry can better navigate the transition to more sustainable practices. It's hoped that this summary provides valuable insights for other businesses in similar industries looking to adopt sustainable business models.

Enabling Conditions for Sustainable Business Models

In the quest for sustainable practices, companies must navigate a complex landscape of challenges and opportunities. This section explores the 'enabling conditions'—the unique attributes or circumstances that can facilitate the implementation of sustainable business models (SBMs) in a company.

Sustainability: A Core Principle in the company's DNA

A critical factor to implementing sustainable practices successfully lies in the integration of sustainability into the company's DNA. Our case study underscores the fact that sustainability, instilled by the company's founders, is closely tied to the core values and ethos of the organization. These principles drive decision-making, innovation, trust-building, professionalism, and, crucially, environmental sustainability.

The Self-Reinforcing Loop

The company's commitment to sustainability sparks a fascinating dynamic—the self-reinforcing loop. Sustainability-oriented companies attract like-minded employees who, in turn, further fuel the sustainable transformation. This virtuous cycle fortifies the company's commitment to sustainability and enhances its attractiveness to potential hires, customers, and business partners.

The Influence of Progressive Industry Standards

Industry standards play a crucial role in driving sustainable transformation. With standards and regulations evolving constantly, companies face pressure to reduce their emissions. These progressive industry standards compel companies to innovate, explore the use of non-traditional materials, and push the boundaries of current norms to stay competitive.

The Role of Sufficient Funding

From a financial perspective, sufficient funding is paramount to the effective implementation of sustainable business models. Necessary investments in research, development, and innovation enable the development and deployment of environmentally friendly practices and technologies. Considered not as mere costs, these investments can strategically generate long-term value.

The Power of Effective Communication

Lastly, the importance of strong internal and external communication is emphasized. Effective communication—both within the company and with customers—is essential in driving change and demonstrating the value of sustainable practices. Fostering a shared understanding of sustainability goals among employees or clearly articulating the company's commitment to sustainability to customers, can establish trust and loyalty.

Taken together, these enabling conditions provide a comprehensive roadmap on how companies can navigate their journey towards sustainable business models—a journey that is challenging, yet ultimately rewarding.

Summary

This article explored the practical application of sustainable business models in a Swedish construction company, identifying the challenges faced and the conditions that facilitate success. The four main challenges that surfaced include acceptance, knowledge, costs, and institutional setting.

1. Acceptance: This refers to the difficulty in gaining buy-in from stakeholders, including employees, management, and customers, to adopt more sustainable business models.
2. Knowledge: Acquiring and applying the necessary knowledge to develop sustainable business models is a challenge. This involves understanding new technologies and best practices for sustainability.
3. Costs: Implementing sustainable business models often requires significant investment, presenting financial challenges.
4. Institutional Setting: Companies often face barriers related to regulations, standards, and institutional norms that are not yet aligned with sustainable practices.

Practical Recommendations for Companies

The process of adopting sustainable business models in the construction industry poses various challenges. However, addressing these hurdles in a timely and structured manner is essential for achieving successful implementation. This entails recognizing these difficulties and devising proactive strategies and action plans to counter them effectively. The allocation of necessary resources to surmount these barriers is equally important.

Creating a conducive environment that allows for the substantial presence of sustainable business models is another crucial task for companies. This undertaking is a long-term commitment and requires constant diligence. It entails several key components:

1. Infusing Sustainability into Corporate Culture: Sustainability should not just be an add-on; it needs to be embedded deeply within the company's ethos and everyday operations. This forms the backbone for the company's sustainability vision.
2. Attracting and Retaining Sustainability-Minded Employees: A workforce that is not only knowledgeable about sustainability but is also committed to it can propel the company's sustainable efforts forward.
3. Recognizing the Significance of Progressive Industry Standards: Keeping abreast of evolving industry benchmarks helps companies maintain a competitive edge and align their sustainability initiatives accordingly.
4. Securing Adequate Financial Backing for Innovative and Eco-Friendly Practices: Sufficient financial support is crucial for the execution of innovative and green initiatives.
5. Promoting Robust Internal and External Communication: Clear and continuous communication helps unite all stakeholders towards the company's sustainability goals and keeps them informed about the progress.

Moreover, it's vital to sustain a constructive dialogue with employees during the transition towards more sustainable business models. By soliciting their viewpoints and recommendations and involving them throughout the process, companies can leverage the diverse skills and perspectives of their workforce. This open and inclusive atmosphere not only enhances employee engagement but also facilitates the crafting and implementation of effective sustainability initiatives.

In summary, to successfully adopt sustainable practices and assure enduring sustainability in the construction industry, companies should focus on promptly addressing the challenges mentioned above, fostering the right conditions, and actively engaging employees in dialogue and decision-making processes.

Our Methodology: This article provides an in-depth qualitative case study that employed interpretivism and pragmatism research philosophies to comprehend the firm's sustainable business model innovations and decision-making processes. The methodology of the study includes a systematic selection of interviewees for semi-structured interviews, an iterative data collection process, and a combination of deductive and inductive thematic analysis of the collected data to provide a nuanced understanding of the firm's sustainable transformation, challenges, and corresponding solution strategies.

Co-author: Lennert Brokop

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