Building renovation business in Finland : paths to enhanced profitability management

Abstract

The need for building renovation (BR) has increased in recent decades, particularly in developed countries. This need is driven by aging building stocks, renovation backlogs, and the push for CO2 emission reductions through energy-efficiency improvements. To meet this increasing need, BR companies are essential. Many of these companies face poor profitability, and the trend is declining. Despite poor profitability being a significant issue, it remains under-researched. This dissertation fills the research gap by deepening the understanding of the profitability of small and medium-sized BR companies and identifying paths to enhance their profitability management. The research questions, (1) what are the contemporary defining features of profitability and (2) what kinds of strategic and operational management practices contribute to profitability, guide the research. Quantitative methods, including financial statement analysis and analysis of variance, address the first question, while qualitative methods, including case study design and semi-structured interviews, address the second – together forming a mixed methods approach.

The findings reveal that labour intensity, and the resulting capital-light nature of the BR business promote BR companies’ relative profitability (ROA). However, these same features keep the barriers to entry low, resulting in small players and intense competition. This competition, combined with the complexity and unpredictability of the BR business, leads to weak absolute profitability (EBITDA). To solve this issue, three paths, which integrate strategic and operational management practices, are proposed to enhance profitability management: (1) customer focus, (2) agility, and (3) business orientation. Among these paths, customer focus is the most essential, as it influences and is reinforced by the other two. Aligning businesses with these three paths can help BR companies avoid the most intense competition within the industry, thereby leading to enhanced absolute profitability, particularly. Overall, the findings contribute even to interdisciplinary research on profitability management by elucidating key drivers that influence profitability.