Pekka Rajala has explored ways to improve the profitability of building renovation companies in his dissertation in industrial engineering and management at LUT University. He maintains that the companies themselves hold the keys to profitability, and the three paths to achieving it are customer focus, agility, and business orientation.
“It seems like contractors do too much work simply for the love of the craft. They tend to forget that it’s a business and that profitability is also a factor to consider – particularly in the long term and at the company level, not merely for individual projects,” Rajala points out.
The low profitability of building construction companies is a serious threat, because bankruptcies may delay and even prevent renovation projects. Bankruptcies in the construction industry have increased significantly in recent years. The industry operates largely based on subcontractors and temporary workforce, which weakens the skill level and work quality. The instability of operators in the field can contribute to this concerning trend.
Attention to contractors and their business
According to Rajala, construction efficiency and performance are often discussed without actually defining them. Profitability may be examined in terms of individual projects, and studies do not specify whose viewpoint they take: the client’s, contractor’s, or someone else’s.
“Attention should be paid specifically to building renovation companies – that is, contractors – and their business activity. Building renovation companies play a key role in maintaining the functionality and sustainability of the building stock. However, many companies are struggling with poor profitability, and the trend is declining. My study sheds light on how to improve profitability management,” Rajala states.
Three paths to better profitability
Rajala says that companies can affect their profitability primarily through their own actions. The dissertation lists three paths that building renovation companies can take to develop their business. The paths help companies improve their absolute profitability, which is depicted by the company's operating margin, for example.
The most important of the paths is customer focus, because it influences the two other paths and is strengthened through them. The two other paths are agility and business orientation. Aligning the business with these paths may help avoid the most intense industry competition and improve the operating margin.
“In construction, the contractor has limited influence, because clients and other stakeholders mainly define the project's conditions. Therefore, careful client selection is an especially efficient approach to profitability,” Rajala says.
The role of the EU, national government, and legislation is smaller, but they could support building renovation more, as it could reduce emissions and conserve buildings. In addition, the reuse and longer life cycle of buildings and structures should be further promoted.
“We should shine a spotlight on the importance of building renovation instead of paying excessive attention to new construction. Building renovation companies, in turn, should focus on company-level profitability and its management,” Rajala sums up.
About the building renovation industry
- Over 90% of construction and renovation companies are small or medium-sized (EC 2020).
- Depending on the country and continent, the construction industry covers roughly 10–12% of the gross national product when closely related industries such as the construction product industry and design are included.
- In Finland and other European countries, building renovation’s share of the entire construction volume in euros has, in recent years, been roughly 40–50%.
- In low-income countries, rapid urbanisation is leading to significant growth in the building stock, which will result in considerable renovation needs in the future.
- In Finland, the share of building renovation in the construction industry has grown from about 20% in 1975 to about 45% in 2023.
More information
Pekka Rajala
pekka.rajala@student.lut.fi
Pekka Rajala's dissertation will undergo a public examination on LUT University's Lappeenranta campus on 10 June 2025 at noon.
