Navigating Innovation within a Contractor's Business Model: A System Dynamics Approach

Innovation is essential in the construction industry, but current practices often focus narrowly on specific aspects rather than taking a comprehensive approach. To address this, systematic innovation through business model innovation (BMI) is proposed to enhance overall performance. Despite increasing interest in BMI research, it remains in its early stages, lacking quantitative analysis of its impact on business model components. This paper develops a framework using system dynamics to assess changes to a construction company's BM when faced with a variety of innovations across various projects. This shall be accomplished by (1) establishing factors and their relationships that define a contractor's BM over time, (2) modeling the said factors using AnyLogic using synthetic data, and (3) evaluating the emergent behavior of BM's value creation. The study found that the impact of innovation on a contractor's long-term value creation is not linear; it varies based on when and what type of innovation is implemented. This complexity arises from the trade-offs between cost reductions and additional expenses associated with innovation. The paper introduces a comprehensive framework to assess how innovation affects a contractor's business model, enabling practitioners to understand better and manage their long-term value-creation strategies.