Browsing by Author "Siitonen, Wilma"

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Creation and distribution of added value and innovation gains among stakeholders in construction
(2022-04-25) Siitonen, Wilma
Insinööritieteiden korkeakoulu | Master's thesis
The construction sector, known for its fragmentation and lack of consolidation across firms and stagnating productivity, is in genuine need for renewal and increased levels of innovation. This thesis argues that these challenges, often recognized on the level of the entire industry, stem from firm-level differences in firms’ capabilities to create and appropriate added value and innovate. Identifying how added value and innovation gains are created and distributed between stakeholders in the value chain allows drawing conclusions that help to reform the whole construction industry and adapt it to today’s customer needs. However, in the construction industry context, such knowledge of the dynamics of added value creation and innovation has been mainly accumulated through qualitative studies. Empirical studies have been mainly focused on other areas than the distribution of economic gains across stakeholders. This thesis applies the Value Creation and Appropriation (VCA) model, which provides a theoretical methodology allowing for such empirical analysis based on firm-level financial statistics. The VCA model describes how added value and innovation are distributed across predefined stakeholder groups over time. This thesis studies general contractors, material and service suppliers, designers and consultants, and real estate developers as stakeholder groups. For these groups, a data set covering the years 2006–2019 was compiled and then divided into three periods. The results indicate that suppliers are in the best position to create and/or appropriate added value. This is true for suppliers of both general contractors and suppliers themselves, reflecting a highly cost-driven nature of the industry where business models typically depend on cost-based pricing. Due to issues related to data quality, selection of studied firms, and definition of variables, the resulting decomposition of economic gains into customer, supplier, employee, and capital gains was sufficiently reliable only for the groups of general contractors and suppliers. The decomposition was performed on the two other stakeholder groups for illustrative purposes. Nevertheless, the application of the VCA model was particularly successful for four companies in all three different time periods, which were further analyzed. The empirical data suggests that few companies were capable of creating sustained economic gains from one period to the next. Combining results on value distribution to innovation investment statistics in the construction industry, the studied firms were considered more likely to replicate others’ innovations than to directly invest in innovating themselves, which could yet reduce the overall innovation gains on an industry level. The study concludes with preliminary managerial recommendations and provides multiple future research venues on both innovation and added value creation in the construction industry.