Over 40% of global energy is consumed by the real estate industry, which includes constructing and operating buildings. They don’t just account for large energy consumption, but they also produce 25% of the global waste. The demand for sustainable technology is on rise and the construction industry is aligning its resources to provide sustainable building solutions.
Firms that operate in the construction industry have to make specific changes to their business model to tap into rising demands for sustainable buildings. Research identifies that traditional construction industry business models do not align with green building market needs. This article highlights the business model changes that are required to compete in the green building market.
Figure: Construction Industry Value Chain
The above figure outlines the key elements of the construction industry value chain. All elements in the value chain have to make changes in their business model to provide a seamless green offering to the end customer. They include real estate agents, developers, investors, manufacturers, architects, architectural rendering firms, 3d design firms, architectural modeling firms, architectural illustrators, construction workers and other similar contractors.
However, changes to business model effects firm’s profitability. This can even lead to financial risks.
The traditional value proposition must change. The value proposition of green buildings is completely different. The green construction industry leverages green materials, sustainable ideas and green design guidelines. They also leverage green architecture designs. Industry suppliers such as contractors, architects and architectural rendering firms must incorporate sustainable green architectural designs to create sustainable blueprints. Difficulty to define measures for the performance of a green building is a key setback in the blueprint process. Architects and real estate construction firms can leverage two well-known assessment tools to define these measures. Leadership in Energy and Environment Design (LEED) and Building Research Establishment Environmental Assessment Method (BREEAM) are the two reliable tools.
Leadership in Energy and Environmental Design (LEED) is a rating system that is recognized as the international mark of excellence for green building in over 132 countries. Since 2002, the Canada Green Building Council (CaGBC) has been redefining the buildings and communities where people can live, work and learn. BREEAM sets the standard for best practice in sustainable building design, construction and operation and has become one of the most comprehensive and widely recognized measures of a building’s environmental performance. It encourages architects, architectural visualization firms, rendering firms, home designers, clients and others to think about low carbon and low impact design, minimizing the energy demands created by a building before considering energy efficiency and low carbon technologies.
Green construction industry has a completely different target market. There are essentially two markets segments. The first segment cares about environment. The second cares about the long term cost differentiation of green buildings. Clients from both of these segments push for green design, green architecture, green visualization, green materials and green construction methodology. These clients drive the changes in the value proposition. A research by McGraw-Hill shows that high cost of green building acts as a barrier for over 90% of green homeowners however these clients still acquired green assets.
Customer support is an essential part of any business model. However research suggests that firms don’t need to overhaul their customer support.
Research suggests that firms have to overhaul their entire supply chain. This requires changes to their supplier base and materials. The supply chain must be transformed to include contractors with sustainable practices and green business ethics. Changes to firms cost structure are expected in this process.
Firms may find it difficult to communicate with traditional contractors such as architects, consultants and other suppliers. Suppliers may not share enough information with other suppliers due to difference in focus and lack of understanding of the green construction industry. This may have an impact on project costs and may also increase risks. The new business model must mitigate these risks.
Firms that make changes to its value proposition, supply chain and communication model has greater chances to acquire significant market share in the green building industry.
Copy rights: Above and Beyond rendering Inc
1. Business model changes and green construction processes by S. Mokhlesian& Magnus Holmen
2. Leadership in Energy & Environmental Design at http://www.usgbc.org/leed
3. Building Research Establishment Environmental Assessment Method at http://www.breeam.org