1. Introduction
The aim of this paper is to present the research and development process of the new business model for Hallaus Oy. In this context, a new business model has been given both descriptive and strategical tasks.
The process began when Hallaus Oy recognized a growing demand for highly productized, local renovation services on market. Strategic paper of Renovation Services in Finland points out, that in the field of disconnected renovation services, the supply and demand do not meet. In minor renovation projects, there is demand for one-stop renovation services (Korjausrakentamisen strategian toimeenpanosuunnitelma 2009–2017, 2009, 27).
On the other hand, Hallaus Oy is a young startup company which has a strong desire to grow. However, the company’s willingness to grow should not limit to growing without a purpose. Company must aim at an intelligent grow to stay healthy (Gorchels 2012, 35). Growing should not be too fast, because that creates a hazard for company’s profitability. The strategic growing plan of Hallaus Oy is to network with paraller companies, for example building contractors, and to develop new customer-oriented renovation service products.
Building up a business network started almost immediately after Hallaus Oy was established in 2012. In two separate cases, the customers ordered interior design plans from Hallaus Oy, and after that, hired building contractors independently. The unpleasant result was that the builders could not fulfill required quality standards. Schedules and budgets went over. Some materials were replaced to cheaper ones. Eventually, both customers were unsatisfied. Business network was rapidly aggregated to make sure that these kind of undesirable situations will not occure in the future.
Partner companies of the business network are all located in Heinola district. All partner companies are small and they operate customer-oriented way. Hallaus is a now a design company with its “own” builders. This is very unorthodox way for an interior architect to do business in Finland.
Interior architecture is a part of the creative industries sector. Creative industries is a term with many meanings and they vary in different countries. Interior architecture services is closely connected to other planning services, for example architecture, and of course house construction and renovation.
Table 1 figures the swot-analysis for creative industries in Finland.
TABLE 1. SWOT-analysis for creative industries (Metsä-Tokila 2013, 59)
STRENGHTS
|
WEAKNESSES
|
POSSIBILITIES
|
THREATS
|
Recently the employment trend for interior achitects in Finland has been alarming. According to statistics published by trade union Ornamo, there were 1 260 unemployed interior design jobseekers in March 2013. Year before that the total amount was 989. Unemployment has grown by 28 % (Tiainen 2013, 28).
Construction business and interior design are paraller business fields, which traditionally operate in chains and by project base. During the past years, the biggest construction companies in Finland have tried to figure out why the net profit of renovation has not increased fast enough, even though the volume of renovation projects has multiplied, and is still growing fast. One major reason for the problem has been identified to be the lack of abilities to co-operate (Vainio et al. 2012, 35).
Ministry of environment reports, that the house renovation demand will grow strongly between 2006–2015. The biggest need is at apartment buildings, almost 30 %. In the period 2016–2025 the renovation demand increases in one family houses and rowhouses, while the demand in apartment buildings still stays high (Korjausrakentamisen strategia 2007–2017).
As a result of a one stop shop – model research in Europe, the experiences showed that lead actors for One Stop Shop development in Belgium were not necessarily contractors. Depending on the targeted housing segment, new business development ideas also emerge from prefab-oriented companies, consultants, architect/managers or network actors (Mlecnik et al. 2012). Therefore, a new efficient way to do business can be developed in small companies.
2. Theoretical framework
2.1 Business model and its mission
Every company has its business model, in other words, its core logic that combines company’s supply, revenue logic and a value that it produces for its customers (Vainio et al. 2012, 37).
Figure 1 describes the elements of a business model and their connections to each other.
Osterwalder and Pigneur (2010) and Pulkkinen et al. (2005) present a definition, that a business model is a simplified picture of how a company makes profit form certain business activities – in other words – what is the supply, to whom is it targeted to, and how is it done in practical basis. Business model is a structural solution that combines value creation and value capturing (Pulkkinen ym. 2005, 10). Mason and Spring (2011) point out that a business model is seen as a property of a firm (Mason & Spring 2011, 1032). Its essence and mode can and must be run from inside of a company. A business model must be constantly updated for the purpose to act as a strategic management tool. Business models are not first designed and then implemented, but are more usefully thought of as strategy-as-practice, incrementally emergent and ever-changing (Mason & Spring 2011, 1033).
Torkkeli (2012) notifies that company’s competitivity and profitability can be significantly improved by developing its business model, but developing must be done in all three areas represented in Figure 1. If any of these three key factors is limping, there can not be profitable specialist entrepreneurship (Torkkeli 2012, 18).
Torkkeli combines the main elements of a good business model as follows:
- business model serves customer needs better, from a new point of view, or more fulfilling way
- it is profitable and protean
- it contains key elements, that competitors can not copy or imitate profitably.
(Torkkeli 2012, 20).
Business model should answer the question, which customer needs the business fulfills, what customer problems does it solve (Johnson et al. 2008, 58). It means, that the business model must find confluences with the core of the customer-business- relationship: emotional level. Shaw (2012) points out that emotions account for more than 50 % of a customer’s experience (Shaw 2012, 2).
Baden-Fuller and Morgan (2010) submit that business models act as various forms of model: to provide means to describe and classify businesses; to operate as sites for scientific investigation; and to act as recipes for creative (Baden-Fuller & Morgan 2010, 156). Company’s business model includes certain ingredients, and by certain actions they form an output. The idea of the recipe suggests how the chef, within broad constrants of the principles of cooking and the kind of dish chosen, may create variations and innovations (Baden-Fuller & Morgan 2010, 166).
Entrepreneur’s job is not just to produce and deliver a best possible solution for customer’s problem, but to develop a business model that works. Maurya (2012a) even argues that company’s product is actually not it’s “product”. The whole business model should be defined as a product (Maurya 2012a, 6).
As a summary: It is a company’s job to decide what kind of mission it gives to its business model. New business model of Hallaus Oy describes the company’s mission and strategy and acts as a brand promoting tool. As Vesalainen (2007) says, companies have always searched support from external operators, but a new way to act is to base business models on co-opertation structures (Vesalainen 2007, 154). The major strategic goal of Hallaus is to grow by expanding it’s business network (outsourced growth strategy) and do it in a controlled way, so that company’s profitability stays steady.
2.2 Intellectual capital
Intellectual capital signifies the knowledge and skills that company has. It is difficult to set out a financial definition or value for it. However, intellectual capital is a major competitive tool for a company. It is also an identifying factor that makes all the difference in business. Fields of intellectual capital are categorized in figure 2.
The value of intellectual capital is a complicated matter, especially in situations when a young startup company needs funding. In Denmark, some fast grown and successful companies were examined (Poulfelt 2007). The research study indicated that intellectual capital attributes had a remarkable role in company success. The most important issue was a strong concentration on company’s core competence (Poulfelt 2007, 145). Successful startup companies were also aware of their position in the market. Everyone of them were near customers, and most of them even saw customers as their partners. Companies realized, that a distinct profile, clear vision and business goals are crucial (Poulfelt 2007, 151).
Successful startup – entrepreneurship demands balance between three attributes: business profitability, growth and financial solidity. Laitinen (2007) explains, that the most unwanted situation is when a company grows fast but does not make profit. This combination leads to poor income financing, and it will eventually undermine liquidity and solidity, if the company can not get inexpensive external funding. (Laitinen 2007, 345).
2.3 Brand
Brand has crucial value for company’s success. Malmelin and Hakala (2008) state that production systems, effectivity or quality no longer are as important competitive advantages as before. Immaterial assets like brand and network, that can be difficultly copied, are increasingly important economical factors (Malmelin & Hakala 2008, 29). In this study, brand is defined as a certain labelled name which is identified in some target groups, and what differs from other labelled names. Brand has visual and communicational identity and image (Koskinen 2010).
Communicational identity demands that a company has a strategic presence strategy in social media, because that is where the customers are nowdays. In successful companies, the brand has been built and purposefully managed for years. Mooney and Rollins (2008) note, that the essence of a brand is chanching: it has become open. The most advanced companies understand that controlling a brand is impossible (Mooney & Rollins 2008, 21). People are communicating widely, fast and actively in social media passing the brand image forward. People have need to be involved in branding process, and the brand must engage the consumer through transparent communication, trust the consumer to co-create the brand message and learn to be guided by impassioned amateurs (Mooney & Rollins 2008, 24).
Mooney and Rollins boil down the brand management of the present as follows:
Be O.P.E.N. – on-demand, personal, engaging and networked (Mooney & Rollins 2008, 186).
Brand will be formed even though it is not purposefully built. From company’s perspective, trying to control everything that is said about the company is useless. Hsieh (2013) asks a justified question, what a company must do if it can not buy the brand? What is the best way to create a brand in a long term? In one word: culture (Hsieh 2013, 164).
2.4 Business network
Networking is a set of co-operation models which make different operators work together. Intensity of networking can vary from voluntary work to strictly specified and followed co-operation rules (Pirnes 2002, 7). Table 2 compares the differences between traditional entrepreneurship and network entrepreneurship.
TABLE 2. Comparisation of traditional entrepreneurship and network entrepreneurship (Toivola 2006, 94)
| Traditional entrepreneurship | Network entrepreneurship | |
| Market orientation | domestic | global |
| Focus | wide | narrow, specialized |
| Success factor | quality | customer relationships |
| Environment (meaning) | connections, customers | potential partners, tight interaction |
| Attitude | distrust, independence | trust, openness |
| Growth | by building organization | trough partners |
| People | boss – employee, manager, routines |
equality, capabilities, conversation |
| Network | subcontracting, co-operation |
partnership, sharing, way to work |
| Meaning of networks in business | customer oriented, vendor oriented |
crucial, strategic, win/win-relationships |
Networks give many kinds of benefits for a small company. The main benefits are:
- Network makes companies work more efficient ways.
- Network gives resources that would otherwise be out of reach.
- By using networks a company can concentrate on things that are most important in competition.
- Network makes companies grow and stay flexible.
- Companies can benefit on each others skills in netwoks.
- Networks create learning possibilities.
- Networks can increase competitivity, get access to new markets and speed up the learning new markets.
(Toivola 2006, 77.)
In the field of renovation business in Finland, demand of small enterprise network has been recognized. Report of Ministery of environment specifies, that in the future, small and middle-sized companies are networked and they operate for customer’s benefit, and plenty of new supply has arisen. Renovation is profitable for both customer and service provider (Korjausrakentamisen strategian toimeenpanosuunnitelma 2009–2017, 2009, 12).
However, Toivonen (2005) thinks that a network only has value as an instrument. He presents, that network should not be an objective, but only an instrument. The aim of the company must be customer orientation and success. Network must be seen as a tool, and that way it should be treated (Toivonen 2005, 25).
Without exception, a team for a construction project is established for one certain case. Long-term development and planning between companies is difficult because of temporary structures. Teams are often build up in tendering situations. That is why long-term co-operation is therefore conflicting with boundary conditions and aims of the current project (Koivu 2005, 52).
The traditional organization structure makes competitivity improvement a challenging job (Koivu 2005, 94). It is paradoxal, that the organization structure of construction business was developed to minimize process idling (waste) but, on the contrary, the traditional way to work actually increases waste.
Varamäki and Tornikoski (2007) remind that company growth through networks is not risk-free. In the worst case
- dependency goes up
- uncertainty grows
- company’s own profit gets smaller
- cumulation of critical success factors inside a company diminishes
- image and value do not grow in the same rythm than in internal
- quality control requires more work.
(Varamäki & Tornikoski 2007, 173.)
Vesalainen (2007) points out that networking is a right choice for a startup company – especially when the strong need of resources is taken into account. Networking must yet not be automatic decision, but a result of strategic analysis (Vesalainen 2007, 154). As well it is important to reflect company’s growing strategy to competitors.
Johnson, Christensen and Kagermann (2008) recommend companies with new business models be patient for growth (to allow the market opportunity to unfold) but impatient for profit (as an early validation that the model works). A profitable business is the best early indication of a viable model (Johnson et al. 2008, 10).
2.5 Understanding the customer behaviour
Customer behaviour studies have traditionally concentrated on consumers and their behaviour. Recently the service business actions between companies have been examined, and understanding about the motives of the b-to-b customers has risen. Despite of differences in business fields, Korhonen, Valjakka and Apilo (2011) have discovered that even if business client’s actions in trading are based on process management and procedures, the significance of emotions is still strong (Korhonen ym. 2011, 22). People do not transform into top rational decision-makers when they come to work.
Arantola and Simonen (2009) define six sources of information for building customer insight:
- customer history data, use of services and background information (personal data, address and a name of the company)
- customer and market research, for example net promoter score
- business intelligence
- customer participation in service development and customer feedback
- tacit knowledge
- use of devices, for example website browsing.
(Arantola & Simonen 2009, 21.)
Net promoter score is a customer loyalty metric, that was introduced in 2003. The score measures the loyalty that exists between a provider and a customer. NPS has been criticized on its validity. However, customer behaviour can never be totally understood or forecasted because a half of the customer behaviour is based on feelings. There are always emotional motives that a customer can not or is not willing to tell in measurement situation. In any case, using NPS is much better choice than not using any system at all.
The core of net promoter score is only one direct question: ”In scale 0–10, How likely are you to recommend our company to your friends or colleagues? ” Respondents are categirized in three groups: detractors, passives (or fence sitters) and promoters. NPS is calculated by diminishing promoter’s percentage amount out of detractor’s percentage amount. The score is kind of an index of the net promoter score (Suosittelun johtaminen ja Net Promoter Score 9/2011). NPS can be as low as −100 (everybody is a detractor) or as high as +100 (everybody is a promoter). +50 is seen as en exellent rank.
Meeting and even outreaching customer needs is a matter of life and death for service provider. Quality of the service reflects directly to the quality of customer experience. This is however a two-way process. The service qualities themselves do not create value for customer. The benefits, consequences and influence has impact on customer’s own goals. Value is created when service provider and customer work together. Value is not delivered or produced one-sidedly but it is a result of common process (Arantola & Simonen 2009, 2).
Customer wants to be heard and understood by the company. However, many industrial services are so poor that clients rather expect diminishing of bad service experiences than bringing up awesome new service qualities. (Korhonen et al. 2011, 21). Customer’s expectations towards renovation services are low. When you expect the worst, then an average service performance might be acceptable for a customer. In One Stop Shop-project (Mlecnik 2012) various working groups identified important customer values for business development like better communication, speed, quality, improved comfort, energy performance guarantee and having one single contact point for the renovation (Mlecnik 2012, 1). Concentrating on these values alone could give good results in customer understanding.
Gaining lead customers is a significant way for a company to increase customer insight. With lead customer’s assistance, a company can create and improve new service concepts. Features for lead customers are vision, openness for partnership, willingness to innovate and take risks, and bilateral trust (Arantola & Simonen 2009, 27). Lead customers can be both companies and consumers. Consumers of today have plenty of power in service development through social media tools. Consumers are as well more aware of different kind of alternatives is service production.
2.6 Lean
Construction industry has been taking advantage of lean tools. The goal is to improve processes by diminishing variation. (Lean-vocabulary 28.4.2013). Another notable lean term is waste. Everything that does not add value to product from the customer’s point of view is considered as waste. It is an activity of which customer would not be willing to pay if he or she knew that it is done. During the last few years, lean methods have been adapted to service development as well.
Especially in construction business – but also in design – the most common approach to business development is searching gain and and decreasing variation, not considering customer’s state in processes (Koivu 2005, 97). If the goal is to create a repeatable standard service, lean methods are suitable for use. Lean streamlines processes by eliminating waste. But it is also waste to outsource a customer from her own project and to see her only as a target of actions. That way a valuale opportunity to learn from a customer is wasted. Besides, waste is produced in temporary project organization structures. People have to use a lot of energy to getting to know each other.
Eric Ries (2011) recommends a three-step build-measure-learn-loop for entrepreneurs. According to Ries, for startups, the information is much more important than dollars, awards, or mentions in the press, because it can influence and reshape the next set of ideas (Ries 2011, 75). Startup company should create and launch a simple product to market (and not waste time to perfection) so the developing process is exposed to customer feedback. This way the operations become customer-oriented by itself (figure 3).
According to Ries, it is important to minimize total time through the loop.
Lean canvas is business planning tool created by Ash Maurya (2012a). It is based on business model canvas tool by Osterwalder and Pigneur (2010). By using business model canvas tool, a company must consider its actions in holistic way: from company’s own, the customer’s and from its partner’s point of view. Maurya (2012b) has refined canvas tool for more suitable for needs of startup entrepreneurs. Maurya says that a lean canvas is created for entrepreneurs, not consultants, advisors or investors. Differences between business model canvas and lean canvas are presented in table 3.
TABLE 3. Business model canvas and lean canvas differences (Maurya 2012b)
| Business model canvas | Lean canvas |
| Key partners | Problem |
| Key activities | Solution |
| Key resources | Key metrics |
| Customer relationships | Unfair advantage |
Hallaus Oy ended up to use lean canvas, because it gives a customer oriented insight to business. Lean canvas forces to think customer’s problems first, and after that try to figure out the solutions. Another issue is key metrics which enables learning from business actions.
Benefit of lean canvas is, that it does not only describe things but also helps company to target its actions to desirable direction.
Making a business plan is one of the most important things for an entrepreneur when starting a business. Without a business plan it is not possible to get public starting money or financing, and that way it is compulsory. Instead of a business plan Maurya encourages entrepreneur to use one A4 page lean canvas during the actual business development. It makes it possible to test and develop processes with customers Lean canvas tells more about current situation than business plan, which by its name is based on assumptions about the future (Maurya 2012a, 5).
At lean canvas, business model is developed by three phase process. First phase is to document the status quo and plans of company by using lean canvas. First box to fill is customer problems, because customer is firstly interested in her problems, not company’s solutions to them (Maurya 2012a, 7).
After filling out lean canvas, the next phase is to recognize issues that are most risky for the company. Maurya thinks that the biggest risk for a startup company is to create something that nobody actually wants. Entrepreneur’s first job is to figure out
- is there a problem that customer wants to be solved
- does she want to pay for solution and
- can that problem be solved in general. (Maurya 2012a, 8.)
After these question are answered, it is time to consider the substance of the service product: Do customers want to have it, and are willing to buy it. In this phase the key metrics that evaluate service market suitability must be created.
The third phase in business model development is to test it systematically. After business plan has been documented and risks are evaluated it is time to test it with real customers by using build–measure–learn- loop by Ries.
2.7 Service design tools
Service design is a context, that automatically leads company to more customer oriented way to operate. The main idea of a service design is to make hard values (business transactions) and soft values (things based on customer’s point of view) equally important in business development (Tuulaniemi 2011, 95).
When you place people in the middle
- you design to people who actually are going to use services
- you minimize the risk to fail because a service is designed based on the actual needs of the customers (Tuulaniemi 2011, 72).
One of the main terms of service design is a service journey. It is a description of the service points located on timeline. Service path consists of service moments. Service path experienced by customer is described in stages, so it can be analyzed and designed (Tuulaniemi 2011, 78 ).
Other pivotal term in service design is touch points. Through these points service is experienced and seen. Touch points are categorized into four different categories: spaces, objects, processes and people. Touch points are places or situations where company and customers meet. They can be interactive moments like meetings or phone calls, or passive moments when customer for example sees an advertisement or visits company website (Futurelab 2013, 2).
Term iterative development is widely used in service design. It means that the solution is built rapidly and repeated until the goal is achieved. Apparently unlike methods, lean and service design, seems to have at least one thing in common: speed.
Valerie Carr works at a service design company in Scotland. She has summarized differences between lean methods and service design (table 4).
TABLE 4. Lean and service design, differences (Carr 2012)
| Lean / Six sigma | Service design |
| process driven | experience driven |
| focused on reducing variation | gaining insights from the outliers |
| problem focused | possibility focused |
| eliminating waste | sometimes it’s the generous gesture that wins and keeps customers |
| intimidating, confrontational language (black belt) | focus on the positive – asset based, what works |
| management driven – things done to staff | co-design approach – things done with people |
| deductive ontology | abductive ontology |
| focused on learning from past, proven methods | focused on prototyping new possibilities |
| analytical thinking | intuition |
| reductionist approach | holistic approach |
| top down | bottom up |
Analytical process based thinking can not be totally ignored in business development. Roger Martin (2009) points out, that neither analysis nor intuition alone is enough. Martin argues that aspects of both analytical and intuitive thinking are necessary but not sufficient for optimal business performance (Martin 2009, 6). Martin calls this kind of combination as design thinking. Design thinking is the form of thought that enables movement along the knowledge funnel, and the firms that master it will gain a nearly inexhaustible, long-term business advantage (Martin 2009, 7).
In lean, the purpose of process development is not to add value for a single customer. However, to achieve this goal, service design has lot to offer. Thereby an interior architecture company like Hallaus Oy should choose tools that endorse process development (lean) in co-operation of business partners, and accentuate the shared added value for customer (service design).
3. Research context and methods
Hallaus Oy is a small interior architecture company which provides services for both consumers and corporative clients. Hallaus was established in 2009. First three years it operated as a trade name, and since 2012, as a public limited company. Hallaus Oy is a young company which wants to grow fast. In 2012, net sales was 23 000 euros and the company made profit. In second year, the net sales was almost doubled. The aim is to double the net sales in first three years, and the target sales in 2016 is 120 000 euros.
Startup companies in Finland are
- Younger. Over the half of the companies are less than 10 years old. Less than 10 % are over 25 years old.
- Smaller. 60 % startup companies have less than 20 employers.
- In services. Approximately 70 % of the startup companies operate on service sector.
- All around the country. 46 % of the startup companies and almost 1/3 of the business is located at Uusimaa area in Southern Finland.
- Less international. 14 % of the startup companies operate on export business.
- Knowledge intensive. The stuff is highly educated. Untechnical innovations are highlighted; formal research and development action is less frequent.
(Kasvuyrityskatsaus 2012, 9.)
Separate small companies form a network that concentrates on solving renovation problems of the customer. Hallaus Oy rounds up a team for every single project. Renovation sites are various and that is why teams are not the same in every case. The partner network however stays the same. The network includes contractors (builders, electricians, plumbers) and other specialiced designers (architects, engineers, garden planners). In addition, there are supporting services like financing, real estate services and personal organizing services for customers who have far too many things. The aim is to increase the amount of network partners from 20 companies to 40 in 2014.
Table 5 categorizes the customers of Hallaus Oy.
TABLE 5. Customer segments of Hallaus Oy
| Customer segment | Problem | % of all customers |
| Households at Päijät-Häme region
Homes and leasure homes |
|
60 %.
Consumer segments revenue is not at satisfactory level. The aim is to downsize percentage to 20 %. |
| Local companies, that otherwise would not use design services at all
Offices, shops, training centres etc. |
|
30 %.
The amount is average. This customer segment has significant hidden demand for services |
| Insurance companies, real estate managers, other real estate actors
Condominium and detached house renovation projects |
|
10 %.
The aim is to grow this segment into half of the total amount of customers. Doing business with professionals makes processes more fluent. Bigger entireties would also make working more predictable in a long run. |
Local business network is a significant competitive edge for Hallaus Oy. However, working culture among renovation teams must be made visible. Customers should see how liaison and learning from others makes people motivated and devoted. When this positive working climate reflects to customers and potential investors, it will transact as an attraction factor that can not be easily produced or bought.
Significant amount of the customers of Hallaus Oy have never used interior architecture services before. Services have not been available, or the need for services have not occurred. From this reason, Hallaus Oy has a major role in branding the whole industry in its area of business operation. Area extends about 100 kilometers to north, south-east and east from Heinola. At this area of Southern Savonia, Kymenlaakso and Päijät-Häme regions, there is approximately inhabitants, thousands of companies and several large leasure home communities.
3.1 Objectives of the study
The objective of this study was to develop an innovative and customer focused business model, that
- combines paraller business sectors as a business network,
- ensures that the critical success factors are going on,
- is constantly in progress
- is measurable.
The research question of this study was: What are the critical success factors in interior architecture business? A sequel question is: By what kind of metrics can the critical success factors be measured?
Critical success factors are a limited group of things that make the business successful. Those things must go on smoothly so that the goals can be reached (Lecklin 2006, 23). The company chooses factors that it believes are the most important ones, and focuses on making on those things stronger. When company grows up, the factors change. According to Keso, Lehtimäki and Pietiläinen, this kind of strategic decision making demands three kind of business ability:
- ability to impose company to business field and create a revenue logic that works
- knowledge of the different ways of using service or product, and definition of the use value and evolution needs
- ability to build up network that supports business, in other words, to find partners that fit to revenue logic, and to rule network business processes.
(Keso et al. 2006, 243.)
Critical success factors of new business model of Hallaus Oy are defined to be
- A fair revenue logic. How must a revenue inside network be arranged so that marketing and customer after-care costs are split fairly?
- Increasing customer understanding. Customer understanding management might become a new capability in service business. It could even be a competitive advantage, because it takes a lot of time to build and is awkwardly copied (Arantola & Simonen 2009, 32). How network can share and capitalize its customer understanding?
- Ongoing development of new service concepts. Faster and smoother processes make profit for companies and for customers. Companies are required to be more and more agile towards customer needs, and that demands interaction. Tools for ongoing conversation and tacit information must be created. This information can be used for creating new service concepts. How can a constant climate of development be delivered and kept alive?
3.2 Research strategy
This study is an action research. Action research is situational, collaborative, participatory and self-evaluative (Metsämuuronen 2005, 217). Research is based on mixed methology which combines qualitative and quantitative research methods (Kananen 2012, 19).
This research consists two separate materials. First material is a structured survey for Finnish Association of Interior Architects SIO. The survey was executed web-based (Kyselynetti.com) in May 16th 2013. From all the members (637 persons) of SIO, 300 persons were selected randomly. 40 responses were received so the response rate was 13,3 %. The aim of the survey was to gather information of how business development is executed in Finnish interior architecture companies, how important is it to cowork with paraller business branches now and in the future, and what kind of threats and possibilities there might be for interior architects in Finland today. Respondents that are currently working as an entrepreneur were selected to closer analysis.
Data is presented in numeric and graphics. Answers to last open question were grouped and explained verbally.
Other research material is semi-stuctured interviews to business partners of Hallaus Oy. Interviews were executed in October and November 2013 at Hallaus premises. The interviewees (7 persons) were selected among companies that constantly and regularly do projects with Hallaus Oy. Topic for interviews was the critical success factors defined for the new business model. Selected companies represent civil engineering, design and retail sales (furnishings and building materials). Entrepreneurial experience ranged from 2 to 25 years. In three companies there are employees and other four entrepreneurs work alone. Annual sales ranged from 40 000 euros to 1.5 million euros. All companies are located in Heinola. Interviews are pivotal source of data because all the interviewees are obtaining of this research, and were therefore motivated to give information for Hallaus Oy.
Research questions were handled in a free order. Interviewees were oriented to used terminology beforehand. Answers were exactly noted, and after that, grouped as strategic trails. A future board was used as a grouping tool. Future board analyzes relevant factors, acting environment and alternative situations as well as the future. Problem is defined and variables are listed. Every factor gets several options (Vainio 2009, 125). Critical success factore were defined as a problem.
4. Empirical findings
4.1 Business improvement needs at interior architecture
Table 6 presents SIO survey results.
TABLE 6. SIO survey results
| QUESTION | ||
|
n |
% |
|
| 1. Do you work (or have you worked) as an entrepreneur or freelancer? |
40 |
100 |
| yes |
30 |
75 |
| no |
10 |
25 |
| 2. Entrepreneur experience in years |
40 |
100 |
| 0-2 years |
10 |
25 |
| 3-5 years |
6 |
15 |
| 6-10 years |
3 |
7 |
| over 10 years |
21 |
53 |
|
n |
% |
|
| 3. Business branch of the company is… |
37 |
100 |
| interior architecture |
25 |
67 |
| furniture design |
4 |
11 |
| design |
2 |
7 |
| architecture |
4 |
11 |
| marine engineering |
1 |
2 |
| renovation engineering |
1 |
2 |
| 4. Do you have hired employees in your company? | ||
| No, I work independently |
16 |
43 |
| Yes, I have employees |
14 |
38 |
| I do not work as an entrepreneur * |
7 |
19 |
| *) those who answered that they are not working as an entrepreneur were not allowed to answer previous questions 5-12. |
||
| 5. How important are these matters from your company’s perspective?Scale: 1= meaningless, 2= some meaning, 3=quite important, 4= very important |
n=27 |
100 |
|
average |
||
| Company must get external support (funding, educational services etc.) |
1,78 |
|
| Company premises must be reformed |
1,85 |
|
| Company must become international |
2,04 |
|
| Company must employ people |
2,15 |
|
| Company sales must grow |
2,63 |
|
| Company must seek and find new customer segments actively |
2,7 |
|
| Conspicuousness of the business field must grow |
2,7 |
|
| Company must become more well-known |
2,89 |
|
| Company’s profitability must grow |
2,96 |
|
|
n |
% |
|
| 6. Have you had any help concerning your business development? |
27 |
100 |
| No, and I don’t think business development is relevant |
1 |
3 |
| No, I execute business development by myself |
15 |
42 |
| Yes, from puclic sector (ELY-keskus, Tekes, Sitra etc.) |
5 |
14 |
| Yes, from Ornamo or other association |
4 |
11 |
| Yes, peer support from other entrepreneurs |
9 |
25 |
| Yes, from elsewhere * |
2 |
5 |
| * Entrepreneur study programme, entrepreneutical degree programme | ||
|
n |
% |
|
| 7. Do you co-operate with other companies? |
24 |
100 |
| Yes, with companies operating on a same business sector |
10 |
33 |
| Yes, with consruction companies |
9 |
30 |
| Yes, with other companies * |
3 |
10 |
| No, I don’t co-operate with other companies, or I do it rarely |
8 |
27 |
| * Other partners: architects, graphic designers, 3D-modelling companies, engineers, other designers and professionals | ||
| 8. Amount of co-operation |
24 |
100 |
| We co-operate regularly |
12 |
50 |
| We co-operate randomly if the project requires it |
7 |
29 |
| We rarely or never co-operate |
5 |
21 |
| 9. Depth of co-operation |
23 |
100 |
| I work as a sub-consultant |
2 |
9 |
| I buy services from sub-consultants |
3 |
13 |
| We work together and everyone has her own area of responsibility |
10 |
43 |
| We work together as equal partners |
6 |
26 |
| Other* |
2 |
9 |
| * Other answers: The depth of co-operation varys: sub-consulting two-way, various projects with shared responsibilities. No peer-to-peer customerships but deep co-operation anyway. | ||
| 10. How do you find a need for co-operation in the future? |
24 |
100 |
| Prevalent situation is good |
10 |
42 |
| I am searching for opportunities to increase or deepen co-operation with other companies |
13 |
54 |
| I am not interestend in increasing or making deeper co-operation with other companies |
1 |
4 |
| 11. Most wanted business partners for me are: |
24 |
100 |
| Same business branch companies abroad |
0 |
0 |
| Same business branch companies in Finland |
4 |
17 |
| Paraller business branch companies abroad |
1 |
4 |
| Other partners * |
3 |
12 |
| Paraller business branch companies in Finland |
16 |
67 |
| * Other partners: Furniture manufacturers, contractors and constructors, structural engineers and other professionals | ||
30 respondents (75 %) works or have worked as an entrepreneur or freelancer. Over a half, 21 respondents (53 %) had worked that way over ten years already. Experienced interior achitects seems to be interested in business development, and they naturally have a lot of practical knowledge about business. 10 respondents (25 %) were beginners, their entrepreneutical experience was 0-2 years. Their interest towards business matters differs from veterans. It might be fruitful to put these people to same table to talk as mentor-actor principle.
Business improvement needs were examined by scale 1-4. 1 presented value “meaningless”, 2 “some meaning”, 3=”quite important”, and 4=“very important”.
Two main improvement factors were (average):
- Company’s profitability must grow 2,96
- Company must become more well-known 2,89.
Two least important improvement factors were
- Company premises must be reformed 1,85
- Company must get external support (funding, educational services etc.) 1,78.
At the moment, construction industry is suffering in Finland. Interior architects have faced the fact, that building costs are decreased with any possible means. Usually this is done by cutting design. Challenge of company’s profitability is that way connected to the big picture of economy.
Getting to be more well-known turned to be second important factor. Interior architects that operate as entrepreneurs should take more intensive grip to marketing and branding challenges of whole business branch.
Question 6 discoursed help in business development. 15 respondents (42 %) told that they are exeduting business development independently. 9 respondents (25 %) told that they had received peer support from other entrepreneurs. Puclic sector actors like ELY-keskus, Sitra or Tekes had helped in 5 cases, and 4 had received help form Ornamo or some other association. Other sources mentioned were entrepreneur study programme and entrepreneutical degree programme. Only one of the respondents notified that help has not been available, and business development is not relevant.
4.2 Co-operation
Half of the respondents told that they co-operate with other companies regularly. Random co-operations was mentioned by 8 respondents, and 5 respondents told that they co-operate rarely or never with other companies.
Results to question about the depth of co-operation scattered quite much. Almost half of the respondents told that they work together the way that everyone has her own area of responsibility. This is expectable according to regulations in building and design in Finland. 2 respondents work as sub-consultant, 3 orders sub-consultant work from others and 6 respondents work with others as equal partners. At open answers it was mentioned that the depth of co-operation varies. It is not necessarily a peer-to-peer customership, but the nature of co-operation is tight. One respondant highlighted that all co-operators have a customership with constructor, and only this external customer relationship is significant.
Increasing or deepen co-operation would be a desiderable trend for over half of the respondets. (13 persons, 54 %). Prevalent situation is good for 10 respondents (42 %). Only one person notified that increasing or making deeper co-operation with other companies is not desirable.
It was remarkable to find out that not one of the respondents found foreign collegue companies the most wanted partners. Even paraller business companies abroad did not get endorsement; only one person finds them as wanted partners.
Last question of the survey was an open question about business possibilities and threats for Finnish interior architects. Some respondants criticized the way interior architecture is presented in media – expecially tv-programmes. This raises uncovered expectations and confucion among consumers. On the other hand, some good aspects are seen in publicity as well. Appreciation towards interior architecture is growing, and “for suitably networked professionals there is plenty of work to do”.
4.3 Revenue logic of business network
Revenue logic of Hallaus Oy consists actice and passive revenue streams. Design fees from customers are rated per hour. In addition, percentage comission is charged from business network partners. It covers the costs caused by supervision, marketing and customer care. Moreover some revenue is gained through retail. A customer might want her purchase billed all at once even if products come from different suppliers.
Business partners were unanimous about clarity of percentage comission system. Rules are similar for all. At the same time, few interviewees reminded of the fact that financial benefit is not only, or even primary, goal: network strengthening, shared customerships and learning from partner companies were seen much more significant than mutual money movements. Renovation contractors pointed out that seasonal fluctuation can be reduced as a result of networking. Renovation sites can be shared and scheduled better, personal workload is leveled. Even holidays can be kept together with family at the first time.
4.4 Increasing customer understanding
Lack of customer data gathering and utilization of feedback is a soft spot of many small companies. The entrepreneurs interviewed paraphrased that they all ask for customer feedback. “Even if reclaims are the most booming feedback. If there is silence, then everything is ok, I suppose.”
For customer understanding, it is important that
- ”Vendor has a face; things are done interpersonally.”
- ”Initial data of a renovation project is examined properly. If customer has bad experiences from previous renovations, then we automatically are behind in customer satisfaction because we fix errors made by others.”
- ”Processes of a customer are identified well.”
- ”Customer data is documented, and files are available for all.”
- ”Increasing customer understanding must cause increasing service demand.”
From customer’s point of view, it is important that she is aware of things that are happening on her property, she stays informed during the project, and is not outsourced from her own case. All interviewees were able to see this from customer’s angle.
Every interviewee requests customer feedback. Things are discussed, no structured form or electrical technology is used. System exercise was seen very important as long as system use is as simple as face-to-face conversations.
4.5 Service concept development
Customer often has trouble understanding the total costs of renovation project. The most significant reason to reclamations is budget crossing. To avoid this, network co-operation is supreme. Partners know each other’s cost structure, and are thereby capable to estimate total costs of the project in advance. This, together with finished and elegant renovation output, increases trust towards network companies. This trust and happiness must be turned into customer’s willingness to recommend services of Hallaus Oy. Happy customers are the most important marketing channel in interior architecture business.
Selling consultant services is a hard business. Interior architects are often evaluated by cultural expectations. Media has created stereotypes about occupational tasks. Prejudices are strong between professionals as well. Designers do not understand building, and builders have no idea what aestethics is. These, partly gender-related preoccupations should be demolished. Every labour input is significant.
Interviews indicated service consept development as the most significant critical success factor, because through that Hallaus Oy can specialize on its core competence: renovation planning and producing, and by doing that, strenghtening its brand on disjointed market. This can be done rapidly. Transition from consumer-centred service provider to b-to-b- actor is the most significant chance in business model of Hallaus Oy. New service product targeted to real estate actors, SAMU – saneerauskohteiden muutospalvelu (SAMU renovation services), was lauched in April 2014.
Producing new service products leaded network partners to discussion about formal incorporation. In this topic, the opinions were cautious so far.
4.6 Metrics for critical success factors
What comes to revenue logic, analysis of cash flow statement has been started montly, not casually like before. Financial balance must be attended so that liquidity stays high and profitability will grow. Investments to business development activity must be controlled. Hallaus Oy must survey passive revenue streams more closely, so that the amount of work does not grow at the costs of entrepreneur’s personal life. New customer accent and service products also aim at better business profitability.
For increasing of customer understanding, Hallaus Oy now verifies net promoter score rate during renovation project and instantly after it. The situations have proven to be emotionally different to customers. Customers might be critical and anxious during the project, but inevitably happy when the work is done. That is why score must be measured twice, not only at the end.
Build–measure–learn- loop will be a main tool for service concept development in the future. Some previous customers have engeged to service development as well. Via these customers the network culture is presented outward. This supports brand knowledge.
5. Discussion and conclusions
As an outcome of this research, the lean canvas is presented in figure 5.
On creative industries, it is important to search for innovative and even experimental solutions for business development, if you have urge for success. What kind of strenghts could a small professional service business company have, when it comes a time to grow? One good thing is a capability to look things from a different perspective.
In a beginning of a project, in 2012, ten Heinola based entrepreneurs started to practice different kind of business to execute renovation projects. Facilitated by Hallaus Oy, more intence and communicative way to work was imported to renovation sites. This kind of co-operation has naturally existed before: contructor knows a plumber, and so on. What was new is, that actions are administrated by a designer, network has an aspiration towards standardized processes and learning from each other, and the network wants its co-working culture to become visible. Customer was positioned in the middle, and her opinions about the fluency was asked during the process and as well as at the end.
Network assiciation demands commitment and sacrifices from its members. You must open your ideas to other entrepreneurs, be honest and reliable partner in all situations, and respect other people’s labor input. Every member must get a fair and satisfying income. Money is a central part in business, and transparency of a revenue logic is a way to contribute fair network climate. How tight memberships will be composed in the future, and how the group dynamics chances when new companies join in, the time will tell. However, the new business model has already caused positive results: seasonal fluctuation has decreased, learning from each other has enhanced processes, and customers revere the quality of service. In addition the network has overtaken new target customers, and systematic exploiting of customer data has been started. Just convestions about the significance of customer understanding made network companies think and act more customer-oriented way.
Renovation business in Finland is multi-colored and regionally shattered. At Päijät-Häme district, there is plenty of labour, but at Helsinki metropolitan area it is already hard to find skilled and reliable constructors. Costruction business needs renovation education programmes. Otherwise the business is in trouble. Expertise on renovation will disappear through retirement. Learning by doing, interaction skills and entrepreneutical way to work should be well represented in renovation studies.
Throgh the times, building new houses and designing public spaces has given steady income for interior architects. Economical resession in early 2000 has radically diminished building business in Finland. Sadly, interior design is easily cutted out of building projects. That is paradoxal, because the expertice of interior architects consists issues that customers value most: functionality, safety and atmosphere. There should be enough design recources available throughout the project. This is an effective way to improve customer experience.
Designers should make themselves familiar with practical building execution and visit building sites more often. Only way to become a designer who understands customer needs, is interaction with builders and other project members as well as customers. Contractors, from their part, should understand that a designer does not do things similarly every time, because the clients are not identical either. A good designer recognizes customer needs in a holistic way and is capable to justify design decisions in a technical and cost-effective way as well.
Third critical success factor of the business model, ongoing development of new service concepts, turned out to be more important than anticipated. Well-designed, highly productized renovation services can be the key factor that helps Hallaus Oy to achieve its aims sooner than expected.
Topic for further study is to create a web-based data management system for renovation network and customer communication. This idea came up in several partner interviews. Preparation work started right after the interviews. If the project gets financing, the system development starts at spring 2014. Data management system and quality manual are products that can be licenced.
In the future, the aim of Hallaus Oy is to develop its business model towards more intence and diverse co-operation with its network. New business model was launched and it is continuously renovated. One interesting future possibility is to productize and establish a franchise-business chain that provides renovation and design services nationwide.
Author
Susanna Halla, Interior Architect, Entrepreneur (CEO), Hallaus Oy Ltd, susanna.halla@phnet.fi
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