Building Renovation Business: The Effects of Specialization on Profitability

Abstract

The importance of renovations is widely recognized, for example, due to renovation backlogs in the developed countries. The urbanization megatrend, among many other factors, is still increasing the need for renovations in the long run. One approach to review the renovation issue is the profitability of the companies that will tackle the increasing demand in the sector. By applying mainly quantitative methods, using the 15-year timeframe (2005–2019) and earnings before interest, taxes, depreciation, and amortization (EBITDA) and return on assets (ROA) as measures, this study reviewed the profitability of the building renovation (BR) companies from two perspectives: how does focusing on certain special services (specialized BR) fare compared to focusing on a wide range of services (wide BR) and what are the profitability differences among specialized BR companies? The results show that, when reviewing the research timeframe in total, there are no differences in profitability between wide BR and specialized BR companies. However, an annual review reveals that specialized BR companies are profitability-wise more vulnerable to economic cycles. Among the specialized BR companies, there are several differences in profitability; classically, specialization in a niche market with a deliberate customer base and low competition level is gainful. The research provides new information about an unresearched area encouraging companies to re-think their strategic choices considering service specialization and performance.