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AALTO UNIVERSITY
SCHOOL OF SCIENCE AND TECHNOLOGY
Faculty of Information and Natural Sciences Degree Program of Information Networks – Business Process Networks
Teemu Lehtinen
ADVANTAGES AND DISADVANTAGES OF VERTICAL INTEGRATION
IN THE IMPLEMENTATION OF SYSTEMIC PROCESS INNOVATIONS:
Case studies on implementing building information modeling (BIM) in the
Finnish construction industry
Master’s Thesis Espoo, May 8 th^2010
Supervisor: Professor Riitta Smeds, D.Sc. (Tech.) Instructor: Antero Hirvensalo, M.Sc. (Tech.)
Aalto University School of Science and Technology Faculty of Information and Natural Sciences Degree Program of Information Networks
ABSTRACT OF THE MASTER’S THESIS
Author: Teemu Lehtinen
Title: Advantages and disadvantages of vertical integration in the implementation of systemic process innovations: Case studies on implementing building information modeling (BIM) in the Finnish construction industry
Number of pages: 124 Date: 8.5.2010 Language: English
Professorship: Business and service processes in digital networks
Code: T-
Supervisor: Professor Riitta Smeds, D.Sc. (Tech.)
Instructor: Antero Hirvensalo, M.Sc. (Tech.)
Abstract: Vertical integration refers to a combination of several or all functions in the value chain under a single firm. Many researchers have suggested that vertical integration facilitates the development and implementation of systemic innovations. As opposed to autonomous innovations that can be introduced as such without any major changes or modifications to the rest of the business system, systemic innovations require significant adjustments in other parts of the business system in order to be implemented successfully. However, systemic innovations are often too complex and large to manage and coordinate under a single integrated firm. Building information modeling (BIM) is an example of a systemic process innovation in the construction industry. BIM is a set of interacting policies, processes, and technologies generating a methodology to manage the essential building design and project data in digital format throughout the life-cycle of a building. BIM has been expected to bring significant improvements in productivity in the construction industry since the 1980’s but the implementation and diffusion of BIM have been proved to be slower and more difficult than expected, largely due to its interorganizational and systemic nature. At the same time, there has been a trend of vertical integration in the construction industry in recent years. This study aims to shed more light on the connection between BIM implementation and the organizational structure, and examines the advantages and disadvantages of vertical integration in the implementation of BIM as an example of a systemic process innovation. The empirical research is based on two opposite case studies from the Finnish construction industry; a vertically disintegrated project network and a vertically integrated project network. Both case studies included a single construction project where BIM was being implemented. The qualitative data consists of project documentation, interviews, and observations. A theoretical model of the advantages and disadvantages of vertical integration is first constructed based on the literature review. The model is later tested with the empirical data and refined into an improved model based on the analysis. The findings of the study propose that there are seven structurally relevant factors in BIM implementation; (1) management support, (2) coordination and control, (3) learning and experience, (4) technology management, (5) communication, (6) motivation, and (7) defining roles. There are both advantages and disadvantages of vertical integration related to each of these implementation factors. Thus, in order to achieve as smooth implementation as possible, managers should understand the impact of the organizational structure in BIM implementation and plan the implementation projects accordingly.
Keywords: vertical integration, technology implementation, systemic process innovation, building information modeling (BIM), construction industry
Acknowledgements
This journey has finally come to an end. And what a ride it has been! This Master’s Thesis has been written during the ECPIP Finland research project in the Enterprise Simulation Laboratory SimLab of the Aalto University School of Science and Technology. I would like to express my deepest gratitude to everyone who has contributed to this work along the way.
The ECPIP Finland project has given me an extraordinary chance to dive into the fascinating world of research in the complex context of the construction industry. The project has taken me to Stanford University in California and to GSA in Washington DC. I have met an in- credible amount of researchers and construction industry professionals both in Finland and abroad. In fact, I have personally met 18 authors from the reference list of this thesis during the project. That’s amazing! I really want to thank Tekes, VTT, and all the participating firms for making this project possible.
SimLab has provided an excellent environment to find out what academic research is all about. I want to thank professor Riitta Smeds, the supervisor of my thesis, for all the opportu- nities and of course the guidance and support in writing this thesis. I am also deeply grateful to my instructor, Antero Hirvensalo, for great advice and comments when I needed them the most. Working at SimLab wouldn’t have been the same without all the great co-workers. Spe- cial thanks to my teammates in ECPIP Finland: Hanna Björkstrand, Kaarina Kaste, Juha Ku- jala, Antti Maunula, and Sami Ruotsalainen. And all the rest SimLabbers, present and past, thanks for making it so much fun!
Finally, I want to thank my family for all the love and support during my studies and through- out my whole life. And all my friends, thanks for understanding my busy schedule and stress- ful state of mind. Hopefully now, I got some more time for you again! And last but definitely not least, I want to thank my beautiful wife, Jessica, for never-ending love and support. With- out you, all of this would have been meaningless.
Let the next journey begin!
Teemu Lehtinen Espoo, May 8 th^2010
Table of Contents
- I INTRODUCTION
- 1 BACKGROUND AND MOTIVATION
- 2 FOCAL CONCEPTS AND THE CONTEXT OF THE STUDY
- 2.1 Vertical integration
- 2.2 Systemic process innovation
- 2.3 Construction industry
- 2.4 Building information modeling (BIM)
- 3 RESEARCH PROBLEM, OBJECTIVES AND SCOPE
- 4 RESEARCH APPROACH
- 4.1 Case study research
- 4.2 Action research
- 4.3 Constructive research
- 4.4 Research process..............................................................................................
- 5 STRUCTURE OF THE STUDY
- II LITERATURE REVIEW
- 6 ADVANTAGES AND DISADVANTAGES OF VERTICAL INTEGRATION
- 6.1 General advantages and disadvantages of vertical integration
- 6.2 Vertical integration and systemic innovations.................................................
- 6.3 Vertical integration in the construction industry
- 7 I MPLEMENTATION OF SYSTEMIC PROCESS INNOVATIONS
- 7.1 Implementing organizational and operational change
- 7.2 Implementing collaboration technologies
- 7.3 Implementing systemic innovations in the construction industry
- 8 SYNTHESIS OF THE LITERATURE REVIEW
- 8.1 Summary of the literature review
- 8.2 Constructed theoretical model
- 8.3 The detailed research question
- III EMPIRICAL RESEARCH...........................................................................................
- 9 DESCRIPTION OF THE CASES
- 9.1 Background of the cases
- 9.2 Case descriptions
- 9.3 Key differences of the cases
- 10 DATA COLLECTION AND ANALYSIS METHODS
- 10.1 SimLab™ business process development method
- 10.2 Data collection methods
- 10.3 Data analysis methods
- IV FINDINGS......................................................................................................................
- IMPLEMENTATION 11 ADVANTAGES AND DISADVANTAGES OF VERTICAL INTEGRATION IN BIM
- 11.1 Management support
- 11.2 Coordination and control
- 11.3 Learning and experience..................................................................................
- 11.4 Technology management
- 11.5 Communication
- 11.6 Motivation
- 11.7 Additional factor: Defining roles.....................................................................
- 12 I MPROVED THEORETICAL MODEL
- V DISCUSSION
- 13 CONCLUSIONS
- 14 THEORETICAL IMPLICATIONS
- 15 M ANAGERIAL IMPLICATIONS
- 16 EVALUATION OF THE RESEARCH
- 17 FUTURE RESEARCH
- Figure 1: The concept of vertical integration (adapted from Porter 1980)............................................... List of Figures
- Figure 2: The difference between autonomous and systemic innovation (Maula et al. 2006, 247) .........
- (modified from Eastman et al. 2008, 3) ......................................................................................... Figure 3: Typical organizational boundaries between the participants in a construction project
- Figure 4: From paper-based set of plans to virtual model (modified from Taylor 2007, 995) ..............
- Figure 5: BIM maturity stages (modified from Succar 2009, 363) ........................................................
- Figure 6: Elements of constructive research (Kasanen et al. 1993, 246) ...............................................
- Figure 7: The research process of the study ...........................................................................................
- Figure 8: The structure of the study .......................................................................................................
- Figure 9: Matching organization to the type of innovation (Chesbrough & Teece 2002, 132) .............
- (Munkvold 2003, 64) ..................................................................................................................... Figure 10: The categories of factors influencing implementation of collaboration technologies
- Figure 11: Innovation processes in the construction industry (Winch 1998, 273) .................................
- (Taylor 2007, 1000) ....................................................................................................................... Figure 12: The framework for a successful 3-D CAD implementation in the construction industry
- Figure 13: Case Alpha – Vertically disintegrated project network ........................................................
- Figure 14: Case Beta – Vertically integrated project network ...............................................................
- Figure 15: The SimLab™ process simulation project (adapted from Smeds et al. 2005, 342)..............
- Figure 16: The interactive process of qualitative data analysis (Miles & Huberman 1994, 12) ............
- Figure 17: The distribution of the quotes under different implementation factors ................................
- BIM implementation ................................................................................................................... Figure 18: Improved theoretical model – The advantages and disadvantages of vertical integration in
- Table 1: Summary of the general advantages and disadvantages of vertical integration ....................... List of Tables
- systemic innovations ..................................................................................................................... Table 2: Summary of the advantages and disadvantages of vertical integration in the context of
- construction industry ..................................................................................................................... Table 3: Summary of the advantages and disadvantages of vertical integration in the context of the
- Table 4: Problems, implications and related action steps for change management (Nadler 1981) ........
- Table 5: Potential success factors of change management (Salminen 2000, 97) ...................................
- Table 6: Implementation factors related to the organizational context (Munkvold 2003, 66) ...............
- Table 7: Implementation factors related to the implementation project (Munkvold 2003, 68) .............
- Table 8: Implementation factors related to the collaboration technology (Munkvold 2003, 70) ...........
- Table 9: Implementation factors related to the implementation process (Munkvold 2003, 76) ............
- Taylor & Levitt 2004) ................................................................................................................... Table 10: The four constructs affecting the implementation of systemic innovations (adapted from
- the implementation of systemic process innovations .................................................................... Table 11: Constructed theoretical model – The advantages and disadvantages of vertical integration in
- Table 12: The key differences between the case studies ........................................................................
- Table 13: Empirical data from Case Alpha used in this thesis ...............................................................
- Table 14: Empirical data from the first process simulation in Case Beta used in this thesis .................
- Table 15: Empirical data from the second process simulation in Case Beta used in this thesis ............
- Table 16: The findings related to the management support ...................................................................
- Table 17: The findings related to the coordination and control .............................................................
- Table 18: The findings related to the learning and experience ..............................................................
- Table 19: The findings related to the technology management .............................................................
- Table 20: The findings related to the communication ............................................................................
- Table 21: The findings related to the motivation ...................................................................................
- Table 22: The impact of the findings in the constructed theoretical model .........................................
List of Acronyms
2-D CAD 2-Dimensional Computer Aided Design 3-D CAD 3-Dimensional Computer Aided Design 4-D CAD 4-Dimensional Computer Aided Design (3-D + time) 5-D CAD 5-Dimensional Computer Aided Design (3-D + time and cost) AECO Architecture, Engineering, Construction and Operations BIM Building Information Modeling BU Business Unit CAD Computer Aided Design CAM Computer Aided Manufacturing CIFE Center for Integrated Facility Engineering ECPIP Engineering and Construction Project Information Platform FM Facilities Management GDP Gross Domestic Product GSA U.S. General Services Administration IAI International Alliance for Interoperability ICT Information and Communication Technology IFC Industry Foundation Classes IPD Integrated Project Delivery IT Information Technology MEP Mechanical, Electrical, and Plumbing Mgmt Management NIBS The National Institute of Building Sciences NVD New Venture Development OECD Organisation for Economic Co-operation and Development TCE Transaction Cost Economics Tekes The Finnish Funding Agency for Technology and Innovation TKK Helsinki University of Technology VDC Virtual Design and Construction VTT Technical Research Centre of Finland
Teemu Lehtinen: Advantages and Disadvantages of Vertical Integration in the Implementation of Systemic Process Innovations
I INTRODUCTION
“A long march starts from the very first step.”
- Ancient Chinese proverb
This introductory part presents the point of departure and the content of this Master’s Thesis. The part consists of five chapters; background and motivation (Chapter 1), focal concepts and the context of the study (Chapter 2), research problem, objectives and scope (Chapter 3), re- search approach (Chapter 4), and structure of the study (Chapter 5). Overall, the purpose of this part is to describe the starting point of this thesis before submerging into the literature re- view in Part II.
1 Background and motivation
Many organizations struggle with their make-or-buy decisions as there is usually more in it than just economic profitability considerations. The concept of vertical integration is funda- mentally based on these decisions, and thus, it determines where the organizational bounda- ries are drawn in a given situation. Traditionally, the term vertical integration has been un- derstood as the degree of ownership of different functions along the value chain of a product or a service (Fergusson 1993, 28). Improved coordination, increased control, and various ad- vantages from synergies are often cited as the main benefits of being a vertically integrated organization (e.g. Harrigan 1984, 639). Historically, vertical integration has played an espe- cially important role during the creation of new industries where the existing market has not necessarily been capable of satisfying the demands of an emerging industry (e.g. Afuah 2001). However, as an industry matures and competition evolves, the incentives for vertical integration usually decrease as it may be more cost-efficient to buy needed products or servic- es from the market rather than to produce them in-house.
The development of information and communication technology (ICT) has, however, had its effect on the concept of vertical integration. With ICT it is possible to achieve at least some of the benefits of vertical integration without the actual ownership of different business units along the value chain. Some researchers have even started to talk about digital vertical inte- gration meaning that interorganizational ICT systems could enable separate organizations to collaborate together in a similar way as internal business units do in a traditional vertically
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Teemu Lehtinen: Advantages and Disadvantages of Vertical Integration in the Implementation of Systemic Process Innovations
anyway (De Laat 1999; Maula et al. 2006). Nevertheless, more research is needed in this area to find out if some degree of vertical integration is indeed a facilitating factor.
This Master’s Thesis aims to shed more light on the dynamics between vertical integration and systemic innovations. The motivation for this study emerged from ECPIP Finland (Engi- neering and Construction Project Information Platform) research project where the implemen- tation of building information modeling (BIM) was studied in the contexts of both vertically disintegrated and vertically integrated project networks in the Finnish construction industry. BIM is a textbook example of a systemic process innovation and refers to different technolo- gies and processes that enable different actors of a construction project network to collaborate and develop a virtual model of the planned building (Taylor & Bernstein 2009, 69; Taylor 2007, 995). Vision after vision, BIM has been expected to bring significant improvements in productivity in the construction industry. In fact, tools and processes for BIM have been de- veloped since the 1980’s (Penttilä 2006, 403) but the actual implementation and diffusion have been proved to be slower and more difficult than expected, largely due to its interorgani- zational and systemic nature (e.g. Fischer & Kam 2002; Fox & Hietanen 2007; Taylor & Le- vitt 2004; Taylor & Levitt 2007; Taylor 2007). Interestingly now, when BIM is gaining mo- mentum again, there seems to be a trend of vertical re-integration within the construction in- dustry (e.g. Cacciatori & Jacobides 2005; Lukkari 2008). Coincidence or not, it supports the objective of this thesis to examine closer the impact of vertical integration in the implementa- tion of BIM. Furthermore, most of the systemic innovation literature actually deals with sys- temic product innovations, and therefore, this study will contribute to the largely ignored area of systemic process innovations of which BIM is a prime example.
Finally, as ICT has been a major driver for innovation and increasing productivity in many industries, the construction industry has been slow in adopting and utilizing new technologies (e.g. Mitropoulos & Tatum 1999, 330; Kadefors 1995, 406). The development of the con- struction industry is an important issue for general economic growth worldwide. In most OECD countries, the construction industry contributes around 7 % of GDP (Gann & Salter 2000, 956). In Finland, the built environment constitutes 70 % of the Finnish national assets and the construction industry employs more than 20 % of the Finnish work force (Kiviniemi 2006, 2). Bearing all this in mind, this study also aims to contribute to the positive develop- ment of the construction industry by increasing the understanding about the impact of organi- zational structure (i.e. vertical integration) in the implementation of BIM, and thus, fostering BIM implementation and diffusion within the industry.
Teemu Lehtinen: Advantages and Disadvantages of Vertical Integration in the Implementation of Systemic Process Innovations
2 Focal concepts and the context of the study
This chapter introduces the focal concepts and the context of this thesis in more detail before introducing the research problem and objectives. The concepts of vertical integration (Section 2.1) and systemic process innovation (Section 2.2) will be explained and defined. In addition, the industrial context of the construction industry has some special characteristics that need to be taken into account in this study (Section 2.3). Similarly, building information modeling (BIM), as an example of a systemic process innovation in this study, is a complex concept with multiple dimensions. Therefore, the concept of BIM will be reviewed in order to gain more understanding about the topic (Section 2.4).
2 .1 Vertical integration
Vertical integration can be understood in various ways and the definition has evolved in the literature during the past several decades. The term first emerged in the economics literature as early as 1930’s (e.g. Coase 1937). Coase (1937, 388-389) described vertical integration in his famous article, the Nature of the Firm , as being the “ coordination of the various factors of production ” which is “ carried out without the intervention of the price mechanism ”. Few dec- ades later, in the 1970’s, Blois (1972, 253) defined vertical integration as being “ the organiza- tion of production under which a single business unit carries on successive stages in the processing or distribution of a product which is sold by other firms without further processing ”. Blois’s definition, however, included only the production and distribution func- tions and left out, for example, the selling function for other firms to carry out.
Later on, Porter (1980, 300) provided a more thorough definition in the 1980’s in which ver- tical integration was defined as “the combination of technologically distinct production, dis- tribution, selling, and/or other economic processes within the confines of a single firm. As such, it represents a decision by the firm to utilize internal or administrative transactions ra- ther than market transactions to accomplish its economic purposes. ” In other words, accord- ing to Porter (1980), vertical integration describes an organization’s ownership and control of more than one of the functions in the value chain, and thus, relates to organization’s make-or- buy decisions. Porter (1980, 315-318) also defined the more specific concepts of forward and backward integration. By forward integration, Porter (1980, 315-317) means integrating verti- cally downstream toward the market to be served. And conversely, by backward integration,
Teemu Lehtinen: Advantages and Disadvantages of Vertical Integration in the Implementation of Systemic Process Innovations
the possible contingencies in a transaction, making it extremely costly to write, monitor, and enforce complete contracts (Grossman & Hart 1986 cited in Afuah 2001, 1212). Similarly, the more uncertainty there is in the relationship and less frequent the transactions are, the more difficult it is to draw the complete contract which leads to opportunism. And finally, the rela- tionship is asset-specific if the assets of the firm cannot be profitably deployed for any other application. (Afuah 2001, 1212) According to Williamson (1981), these factors determine the efficient boundary of a firm , and thus, the degree of vertical integration.
As an extension to vertical integration by ownership, Harrigan (1984; 1985a) introduced a new concept of vertical integration where a firm can control vertical relationships through contracts without owning the different functions in the value chain. According to Harrigan (1984, 641), “ the concept of vertical integration should be expanded to encompass a variety of arrangements by which the firm can use outsiders (as well as its own business units) to forge an optimal vertical system for supplying goods, services, and capabilities”. Similarly, Blair (1983 cited in Fergusson 1993, 25) emphasized that “ ownership of functions is not a prerequisite for successful vertical integration, and that the distinction between integration through ownership versus integration through voluntary or contractual control is not impor- tant in assessing the benefits that might accrue to customers of the integrated process’s prod- ucts. Mahoney (1992, 559) also argued that “ the vertical integration strategy may be imple- mented by a continuum of governance structures which include spot markets, short-term con- tracts, long-term contracts, franchising, joint ventures, and vertical financial ownership (hie- rarchy) ”. Thus, vertical integration does not always mean vertical financial ownership and at least part of it can be achieved with different governance structures.
With these different governance structures, firms may adjust to different degrees of vertical integration depending on competitive environment and strategy. Harrigan (1984) defines four degrees of vertical integration which are (1) non-integration , (2) quasi-integration , (3) taper integration , and (4) full integration. Non-integration means incorporating only one function in the value chain and buying everything from the market. Quasi-integration means that dif- ferent functions in the value chain are integrated through joint ventures, franchises, minority equity investments, loan guarantees etc. Taper integration means the situation where some of the inputs and outputs are bought and sold outside of the firm and the rest in-house. Finally, full integration means that everything is transferred in-house. (Harrigan 1984, 642-646) Ma- honey (1992) calls full integration vertical financial ownership.
Teemu Lehtinen: Advantages and Disadvantages of Vertical Integration in the Implementation of Systemic Process Innovations
The evolution of the definition of vertical integration has continued even further with the de- velopment of ICT. Davies et al. (2009, 112) introduced a term digital vertical integration which enables separate organizations to achieve vertical integration through interorganiza- tional ICT systems. Similarly, Fergusson (1993, 22) has defined integration to be “ the flow of information and knowledge between industry functions (vertically), between disciplines (hori- zontally), and through time (longitudinally). This flow of information and knowledge is ac- complished by organizational (human ware) and technical (hardware and software) means of coordination ”.
In this study, however, vertical integration is studied from the financial ownership structure point of view, and thus, is defined in the following way:
Vertical integration is a combination of several or all functions in the value chain un- der a single firm. Forward integration means expanding towards customers and back- ward integration towards suppliers. The number of sequential functions under a verti- cally integrated firm defines the degree of vertical integration.
2.2 Systemic process innovation
Innovations are usually defined as successfully commercialized inventions or ideas (e.g. Smith 2006). According to Smith (2006, 22), innovations can be grouped in three different forms based on the idea of application; (1) product innovations , (2) service innovations , and (3) process innovations. Product innovations come in the form of a product and are probably the most visible form of all innovations, whereas service innovations are service applications that are either entirely new services or already established services provided in a new way. As product and service innovations are something that individuals and organizations can directly buy and sell, process innovations , on the other hand, are innovations related to working prac- tices and operations behind the products and services. Although not as visible as product or even service innovations, process innovations have the largest impact on the society as a whole. (Smith 2006, 22-26)
Processes, as such, can be defined as “ a set of logically related tasks performed to achieve a defined outcome”. According to this definition, basically all operations can be considered as processes or sub-processes of a broader process. Davenport and Short (1990, 12) identify two important characteristics for processes. First, all processes have customers who receive the
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Teemu Lehtinen: Advantages and Disadvantages of Vertical Integration in the Implementation of Systemic Process Innovations
However, Teece’s (1996) definition above – as almost all references on systemic innovations in the literature – refers to systemic product innovations. In fact, the references on systemic process innovations are almost nonexistent in the literature. For example, Chesbrough and Teece (2002) examined the IBM PC as an example of a systemic innovation, and only briefly mentioned lean manufacturing as an example of systemic process innovation as it requires interrelated changes in product design, supplier management, and information technology. Similarly, De Laat (1999) examined the development of DVD as an example of systemic product innovation and mentioned nothing about systemic process innovations. Furthermore, Maula et al. (2006) mention the internet, 3G mobile telephony, and different operating sys- tems as the examples of systemic innovations, which in fact can be seen as process innova- tions from the users’ point of view. Langlois (1992, 117), on the other hand, lists the factory mode of production, the moving assembly line, refrigerated meat-packing, and containerized shipping as the examples of systemic process innovations. In the context of the construction industry, Taylor and Levitt (2004) investigated the diffusion of prefabricated subcomponent walls as an example of a systemic product innovation. Additionally, Harty (2005) examined the implementation of 3-D CAD in the UK, but instead of calling it a systemic process inno- vation, he introduced the term unbounded innovation.
Taylor and Levitt (2004, 6) define systemic innovations as innovations that reinforce the ex- isting product but require multiple companies in a network to change practices in a coordi- nated way. When achieving this coordinated change, systemic innovations will typically create significant increases in overall productivity over the long run. As a drawback, however, adopting a systemic innovation may induce switching or start-up costs for some participants and reduce or eliminate the role of others. (Taylor & Levitt 2004, 6)
Harty (2005) adds even another dimension to the definition systemic innovations with his bounded and unbounded modes of innovation. According to Harty (2005, 515), a systemic innovation can be either bounded or unbounded, and similarly, a bounded innovation can be either autonomous or systemic. By boundedness, Harty (2005, 515) distinguishes between innovations that can be contained within an implementer’s control and those that cannot. Inte- restingly related to the topic of this thesis, by Harty’s (2005, 515) definition, systemic innova- tions that are being implemented within a vertically integrated network could be considered as bounded innovations, and similarly, systemic innovations that are being implemented within a vertically disintegrated network could be considered as unbounded innovations.
Teemu Lehtinen: Advantages and Disadvantages of Vertical Integration in the Implementation of Systemic Process Innovations
Finally, the forms and types of innovations depend on from which perspective they are being examined. BIM, for example, can be considered as a product innovation for the software pro- viders offering the BIM tools, but at the same time it can be seen as a process innovation for the users, such as designers and contractors who are using the tools in a construction project. Furthermore, BIM has been said to be a systemic innovation because its implementation and utilization require changes in the operations of several actors in a construction project network (e.g. Taylor & Levitt 2004). In this thesis, BIM is examined from the users’ point of view, thus being a systemic process innovation.
Summarizing the above, a systemic process innovation is defined in this study in the follow- ing way:
A systemic process innovation is a collection of interconnected innovations related to the boundary spanning working practices of the whole business system, and require all the actors in the business system to change accordingly in a coordinated way when be- ing implemented.
2.3 Construction industry
According to Eccles (1981, 450), the construction industry covers the erection, maintenance and repair of immobile structures, the demolition of existing structures, and land develop- ment. These immobile structures include all the buildings and infrastructure that constitute the built environment. This thesis focuses, however, on the buildings, and more specifically on architecture, engineering, construction and operations (AECO) industry because it is the con- text where BIM is being developed and implemented.
AECO industry has some special characteristics that affect the two focal concepts of this study, vertical integration and innovation management. First of all, AECO industry is one of the most fragmented industries (Krippaehne et al. 1992, 156) which means that it is a large industry of small firms. Only a small fraction of these firms are large and no single firm or group of firms has a monopoly (Fellows et al. 2002, 3). Furthermore, AECO industry is a project-based industry and these projects are considered as being amongst the most complex of all production undertakings (Winch 1987, 970). The complexity arises from different tech- nical, financial, political, and social factors being involved in construction projects (Sandhu & Helo 2006, 601). Considering the facts above, it is impossible for any firm in the industry to
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