Integrating contractor and property developer for product system innovations

Abstract

Purpose The aim of this paper is to explain why construction groups facing opportunities for product system innovations, such as green buildings, may choose to integrate construction and property development, taking on facilities management (FM) for a limited period. Design/methodology/approach Conceptual analysis based on prior literature and illustrated by a single case of integration. Findings For product system innovations, an in-house developer should be more able to reduce uncertainty than independent developers, due to unobservable long-term technological quality for customers, because the property becomes associated with lower risk after having been owned and operated. Alternatives such as building certification systems support incremental innovations, warranties suffer from double moral hazard in the long run and risk allocation in public–private partnership projects often fails to encourage system innovations. Integration allows the contractor to work continuously with innovative projects, developing new capabilities, which allow the firm to signal proficiency to the market, employees and the investment community. Research limitations/implications The phenomenon is new, and further empirical surveys are needed to confirm the hypothetical conclusions drawn here. Practical implications The value of close collaboration between those who develop innovative green building technologies and facilities managers is outlined. Originality/value The relation between the scope of corporate activities in construction groups, technological innovations and FM has not been studied before.