It’s good to be green: The green building sector is amongst the fastest-growing sectors worldwide. Upfront investment in green construction increases a building’s value, reports the U.S. Green Building Council (USGBC). In the United States, nearly half of all nonresidential construction will be “green” and more than 13.8 billion square feet of building space will be LEED-certified by the end of 2016. Demand for green buildings goes hand-in-hand with smart product innovations. Customers now expect connected homes and office buildings to be powered by smart products that harness IoT to boost energy savings, strengthen security, and enhance comfort.
Green construction and sustainability trends are pushing the building products industry to innovate new business models and rethink traditional supply chain relationships. At the same time, new players from the telecommunications industry are challenging the home automation providers by providing solutions for the connected home. As green construction and sustainability continues to upend traditional business models in the building products industry, companies must be ready to innovate–or risk permanent business loss.
Green construction goes global
From South Africa to Norway, an increasing number of firms anticipate that more than 60% of their work will be green, reports McGraw-Hill Construction. From 2012 to 2015, this figure has more than tripled in South Africa and more than doubled in Germany, Norway, and Brazil. In the UK and Singapore, more than two-thirds of firms plan green retrofit and renovation projects. In the UAE, 73% of firms have green institutional projects planned.
The trend towards “going green” is not limited to developed countries. Significantly, McGraw-Hill Construction’s World Green Building Trends Report found that “the green building market is not isolated to one particular region, economic condition or culture.” An increasingly competitive global marketplace is pushing global construction and building manufacturers toward a green future. Businesses no longer go green because they are “doing the right thing,” according to McGraw-Hill Construction. Instead, businesses go green because it is essential to their bottom line.
Customers demand green construction, and companies are pivoting practices to respond.
Smart products and IoT disrupt traditional business models
Smart products enabled by the Internet of Things (IoT) for connected homes and buildings can help improve energy and labor efficiency and security for homes and buildings. IoT investment makes smart financial sense: 80% of companies invested in IoT increased their revenues. But IoT investment is also changing the very nature of business. As building products companies embed IoT sensors in their products and processes, they become technology companies that must rethink their value delivery system and form new strategic alliances.
These alliances have the potential to change complete business models and entice new entrants into the mix. For example, Nest is not just a thermostat company. The company is orchestrating an ecosystem of home automation partners to empower consumers to optimize their home environments. Google acquired the startup for $3.2 billion in 2014, making a splashy entrance into the smart home industry. In 2012, Nest formed a partnerships with retail energy provider Reliant Energy, followed by a 2013 partnership with home solar providers Sunrun, further laying the groundwork to disrupt the building materials industry.
New supply chain relationships and business models
Increasing globalization, including the emergence of new competitors, building regulations, and digitization, is upending established business models in building products industries. At the same time, trends like green construction and “smart” buildings are also driving innovation. Companies must be willing to reinvent traditional business models and find synergistic partnerships across industries – like Nest did with Reliant Energy and Sunrun – in order to stay competitive. Seamless collaboration is now possible around new business models involving partnerships that may not have made sense just a few short years ago.
As building product companies shift their focus towards green construction and smart, connected buildings, they must also evolve their business processes and supply chain management. To start, companies must ask, “What role will we play in the building products value chain?” and “How will we make money?” The answers to these questions drive a new approach towards collaboration and engagement. A new innovation framework must include strategy alignment, opportunity assessment, solution roadmap, value realization, and ongoing refinement.
Next steps: New platforms power green business and smart building technology
Building products companies are adjusting their strategies to meet the demand for green construction and smart building technology. In the past, a strategic advantage could be achieved through inventory reduction, operations efficiency, and shorter lead times. Today, that’s no longer the case. Consequently, green building products companies need a powerful platform to proactively predict, identify, and respond to opportunities and risks as the marketplace evolves.
SAP enables the digital building products company with a digital core, business networks, supply chains, and the Internet of Things (IoT). For example, Woodgrain Millwork used SAP to eliminate handwritten paperwork and manual quality tracking. Now, product innovation, improved quality, and higher sales are increasing customer satisfaction. The continued simplification of transaction processing, account management, and customer service is essential to harnessing the power of sustainability disruption for a competitive advantage in the building products industry.