asymmetric procurement in the public sector

Strat. Change 23: 21–29 (2014)Published online in Wiley Online Library(wileyonlinelibrary.com) DOI: 10.1002/jsc.1957 RESEARCH ARTICLE

Copyright © 2014 John Wiley & Sons, Ltd.Strategic Change: Briefi ngs in Entrepreneurial Finance

Strategic Change DOI: 10.1002/jsc.1957

Asymmetric Procurement in the Public Sector1

Michelle Deasy, Gareth R.T. White, Scott Parfi tt, and Kath RingwaldUniversity of South Wales, Pontypridd, UK

Introduction

Public services procurement forms a considerable proportion of overall govern-ment spend, comprising 17% of the European Union’s GDP (€1900 billion) in 2006 (European Commission, 2008). It has been a subject of debate among European leaders for many years (Cabras, 2011). Th e UK government spends around £240 billion per annum on the procurement of goods and services (Maude, 2012). Approximately £5 billion of this is spent in Wales (Ringwald et al., 2009), and consequently it is one of the key economic measures of the Welsh government (Th ai, 2001; Ringwald et al., 2009).

Developing an eff ective and strategic procurement function is increasingly becoming a priority for managers, who recognize that it has a defi nitive role in the ultimate success of the public sector (Gershon, 2004; Matthews, 2005; Green, 2010; McClelland, 2012). Some argue, however, that strategic procurement can incur costs for organizations. Th is includes costs such as the purchase of technol-ogy and the associated training costs, and many believe this increases business risk (Angeles and Nath, 2007). Others believe that the long-term benefi ts of develop-ing strategic procurement practices far outweigh the upfront costs, with many agreeing that such an approach actually improves the fi nancial performance of an organization (Biemans and Brand, 1995; Carter and Narasimhan, 1996; Carr and Smeltzer, 1999; Vickery et al., 2003).

Despite the increasing recognition of the need to develop a strategic approach to public-sector procurement, the academic focus has largely been based on the private sector (Murray, 2001) and on conceptual frameworks (Cousins et al., 2006) — although it is recognized that authors such as Quayle (1998), Quayle and Quayle (2000), and Beukers et al. (2006) have attempted to address this.

The degree of procurement

maturity can differ across

functions within a single

organization.

The strategic procurement

frameworks imply that

increasingly mature or strategic

approaches to procurement are

always desirable.

It may be more important to

consider what is an appropriate

procurement strategy for an

organization, department, or

commodity rather than to

relentlessly pursue strategic

approaches in all eventualities.

Certain operational issues related to information technologies and staff training

turn out to be particularly important for successful procurement practice in public

emergency services.

1 JEL classifi cation codes: L32, L80, M10.

22 Michelle Deasy, Gareth R.T. White, Scott Parfi tt, and Kath Ringwald

Copyright © 2014 John Wiley & Sons, Ltd. Strategic Change DOI: 10.1002/jsc

Public-sector procurement

Public-sector procurement is concerned with the purchase of goods or services to enable public-sector organizations to undertake their primary functions (Uyarra and Flana-gan, 2010; Cabras, 2011). It diff ers greatly from private-sector procurement, most noticeably through the potential for government infl uence and the highly regulated nature of the sector (Schapper et al., 2006).

It is recognized that procurement has a much more strategic role within public-sector organizations since there are increasingly complex product choices, increased use of technology, increased consideration of environmen-tal issues, and a switch of focus from cost to value for money (VFM) (Gelderman and van Weele, 2005; Beukers et al., 2006; Paulraj et al., 2006; Zheng et al., 2007; McCue and Gianakis, 2011). Many authors agree that procurement has become increasingly valued at the cor-porate level, with some suggesting that it should be con-sidered equally important as other strategic functions such as marketing, fi nance, and operations (McIvor et al., 1997; Cavinato, 1999; Rink and Fox, 1999; Paulraj et al., 2006). Despite this, it has been observed that public pro-curement is still focused on reducing transaction costs and fails to consider the total acquisition costs of products (Staples and Dalrymple, 2011).

Research aim

Th is research aims to further our understanding of strate-gic procurement practices in the public sector. Specifi cally, it explores the degree of purchasing maturity in two departments of an emergency service (ES) in South Wales.

ES operates in the Welsh public sector and was estab-lished in 1996 following the amalgamation of three ser-vices. Its main function is to provide a service throughout South Wales, covering a total area of 2712 km2 and a population of 1.4 million.

Th e two departments of ES examined in this study are business support (BS) and property services (PS). BS is responsible for all administrative support that the orga-nization requires, including items such as stationery, cater-ing, and legal functions. Comprising 25 staff , in 2011/12 its purchasing budget was £374,119. PS is responsible for the maintenance of grounds and facilities. Comprising four staff , in 2011/12 its purchasing budget was £3,091,607.

Th e study adopts the Beukers et al. (2006) procure-ment alignment framework, as shown in Figure 1. Th e model does have criticisms, such as those who believe it is too generalized (Brand et al., 2011). However, the ability to easily operationalize this framework is deemed to outweigh its limitations.

Business

Dimensions

Transactional

Orientation

Commercial

Orientation

Purchasing

Coordination

Internal

Integration

External

Integration

Value Chain

Integration

Strategy and Policy

Increasing maturity

Monitoring and Control

Increasing maturity

Organisationand Processes

Increasing maturity

People and Culture

Increasing maturity

Information Technology

Increasing maturity

Source: Adapted from Beukers et al. (2006).

Figure 1. Th e procurement alignment framework.

Asymmetric Procurement 23


Firstly, the study endeavors to determine if the imple-mentation of the procurement strategy is uniformly applied across the organization (Beukers et al., 2006). In identifying any degree of asymmetry between depart-ments, the study highlights defi ciencies in the implemen-tation of the procurement strategy. Th e approach adopted in this study also generates valuable information to guide the further development of the organization’s strategic procurement practices.

Research methods

Th is study employs instrumental triangulation, using focus group and survey techniques, to yield greater rich-ness, depth, and understanding than a single-method approach (Robson, 2002; Masadeh, 2012). Triangulation increases the validity, reliability, and credibility of the fi ndings and reduces bias within the investigation (John-stone, 2004; Mangan et al., 2004; Lilis and Mundy, 2005). Anonymity and confi dentiality were ensured and informed consent was gained from those taking part in the survey and focus group (Babbie, 2009).

Survey

A survey, in the form of a questionnaire, was utilized that aims to elicit valid and accurate information effi ciently (Oppenheim, 1992; Robson, 2002; McNabb, 2008). Th e questionnaire consisted of 11 closed questions, developed according to the ‘business dimensions’ shown in Figure 1 and operationalized to pertain to the ES. A pilot study was conducted to improve question clarity and reduce ambiguity (Robson, 2002; Black, 2011).

Th e survey was distributed to employees of the ES and BS departments. Th e inclusion of serial numbers on each questionnaire and a return envelope improved the return rate (Johns and Lee-Ross, 1998). Of the 34 surveys dis-tributed, 32 were completed and returned, providing a response rate of 94%.

Focus group

Focus groups facilitate multi-voiced interaction between individuals (Engestrom, 1999) and enable the researcher

to probe and develop understanding (Fagerheim and Weingart, 2005; Rose-Anderssen et al., 2010; Curseu et al., 2012). Th e focus group lasted 45 minutes and consisted of the fi ve managers responsible for the two departments. Questions were based upon the dimensions of the purchasing maturity framework.

Data analysis

Th ematic analysis was used to analyze the focus group discussions (Guest et al., 2012). Participant statements are quoted throughout the analysis and discussion section to illustrate the fi ndings.

Th e Mann–Whitney U test was used to identify sta-tistical diff erence in the survey results between the two departments being investigated. When U has a value of less than 0.05, populations are deemed to be statistically diff erent (Comrey and Lee, 2007; Gravetter and Wallnau, 2009).

Analysis and discussion

Mann–Whitney U test

Th e Mann–Whitney U test illustrated that mostly, the populations are statistically diff erent along the dimension of ‘Monitoring and Control’ (U = 0.01). ‘People and Culture,’ specifi cally communication within the depart-ment, is statistically diff erent but not signifi cant (U = 0.09). ‘Strategy and Policy’ is also found to be statistically diff erent but not signifi cant (U = 0.06). Other dimen-sions are not statistically diff erent.

Strategy and policy

Th e diff erences observed between the two departments are a major concern for the organization. All PS staff were aware of a purchasing strategy for the department, with 80% of these staff saying that the strategy was always implemented. Th is was further evident in the focus group, where all PS participants stated that the existence of a purchasing strategy was important, with Participant C



stating that the strategy was: ‘. . . integral to our business plan as it facilitates the objectives we set out.’

Rink and Fox (1999) state that the existence of a long-term plan is indicative of a strategic approach, which is now a necessity in the complex procurement arena. Furthermore, the existence of a strategy and its implemen-tation in the PS department indicates a high level of strategic purchasing maturity (Rink and Fox, 1999).

In contrast, only 56.52% of BS staff are aware of a purchasing strategy for the department and only 13.04% of these respondents believe that this was imple-mented. Th is attitude was further highlighted in the focus group, where a BS representative stated that the responsi-bility to develop such a strategy lay at a higher level than the individual departments, but that it was seen as a ‘concern.’

Th e ‘Fallacy of Detachment’ (Mintzberg, 1994) warns of the problems that arise when strategy developers are separated from strategy implementers. Th e lack of strategy implementation in the BS department is particularly problematic since this has been argued to be as worthless as not having a strategy at all (Jackson, 2001). It is there-fore vital that the procurement strategy is not seen as the property of a single department or of senior management, but instead as a company-wide approach to achieve com-petitive advantage.

Supplier selection

When undertaking purchasing decisions, PS staff tend to consider a combination of product and service cost, avail-ability, lead time, and quality. In contrast, 65.22% of BS staff state that they mainly considered cost. In the focus group, Participant E stated that

cost is a key concern, particularly in times of such budget constraints as we are now facing.

However, there is a suggestion that the focus is chang-ing, with 43.48% of BS staff stating that quality was also a consideration. Whilst this is representative of the respon-sibility to stewardship of public funds that such organiza-tions face, it also refl ects observations that public-sector

organizations are still cost focused (McIvor et al., 2002; Staples and Dalrymple, 2011).

Monitoring and control

Th e nature and frequency of monitoring and control activities undertaken by the departments display another considerable diff erence, as confi rmed by the Mann–Whitney U test (U = 0.01). Participant C from the PS department indicated a relatively high degree of procure-ment maturity when stating:

We constantly monitor expenditure against contracts, as managing risk is our biggest concern. We ensure that the suppliers complete the work in the allotted time, ask for weekly reports, and highlight patterns of inconsistency

In contrast, 86.96% of BS staff stated that they did not undertake any form of contract management. Th is was further emphasized in the focus group, in which Participant E claimed that monthly contract management was only undertaken on certain contracts and was reactive in nature. Although this is indicative of a commercial orientation and therefore a lower degree of purchasing maturity, it is identifi ed that this could be due to diff ering levels of spend and criticality being dealt with by both departments. As Participant E stated:

. . . there is no need to [undertake contract management] on all contracts.

Th e fi ndings illustrate that the BS department has a more transactional approach to procurement, with cost being the main concern in most purchasing decisions. Th is is consistent with Kraljic’s (1983) assertion that the approach to procurement must be appropriate for the nature of the commodity being purchased. In this case, the BS depart-ment’s purchasing budget is a relatively low-cost risk to the organization compared with that of the PS depart-ment. Furthermore, the nature of the commodities being procured by BS — catering and stationery — is of lower



operational risk to the organization. Th ese factors would merit an approach that favored maximizing the effi ciency of purchasing above a strategic approach that would entail the establishment of long-term relationships and supplier development.

Processes

A notable area of diff erence was the level of skills and responsibilities within the departments. All PS staff were involved in supplier selection, whereas 30.43% of BS staff did not make decisions about supplier selection, and 91.30% were not involved in the spend analysis process. Th is may be due to the relative degree to which the pur-chasing strategy is said to have been implemented in each of the departments, but appears to be more closely linked to the type of products and services that are procured by the BS department and its relatively small procurement budget. However, since strategic procurement practices are expected to deliver bottom-line savings, it can be argued that the nature of the product should not infl uence the approach toward procurement. Additionally, if orga-nizations are to gain maximum fi nancial benefi t from their procurement function then ‘best practices’ should be adopted irrespective of the size of the procurement budget.

People and culture

Despite the claimed benefi ts that multi-skilling can yield, both departments stated procurement training was poor. About 80% of PS staff stated that they had never received training and 47.82% of BS staff stated that training was received some time in the past but that no further training had been provided. Gelderman and van Weele (2005) note that the skilling of staff is a crucial requirement in order to achieve purchasing maturity as it increases knowl-edge and resilience, and off ers a vehicle for continuous improvement in the organization.

Th is is a cause for concern that can lead to increased vulnerability, reduced resilience, and barriers to collabora-tion, decreasing opportunities to generate increased

buying power and effi ciencies (Cabras, 2011). However, it has been recognized by the organization and steps are being taken to address these training issues, with Partici-pant A noting that:

We now hold directorate training days where we try to educate staff on [Information Systems] and also on Procurement Th resholds and making sure staff are aware of aggregate spend and its impact on the thresholds.

Information technology

Some further similarity existed between the two depart-ments concerning their views on information technology (IT) to support procurement within the organization. Th e majority of respondents rated IT as ‘average,’ with only 34.78% of BS staff rating it as ‘good.’ Th is indicates a low purchasing maturity for both departments in this dimen-sion. All participants in the focus group agreed that IT was not integrated, with Participant C stating:

. . . creates a massive amount of duplication and this creates a time lag as well and is a barrier to collaboration both internally and with external parties in many situations.

Th e perception that the supporting IT is poor is of concern, for both the BS and PS departments. As we have shown above, the BS department’s transactional approach was appropriate for the types of commodities being pro-cured, and we suggested that the organization’s eff orts should focus upon maximizing the effi ciency of the department’s purchasing processes. Typically, effi cient purchasing processes make use of IT to facilitate ‘buy-side’ e-commerce (Chaff ey and White, 2010). Th e PS depart-ment’s eff orts to adopt a more strategic approach to procurement may also require the provision of eff ective supporting information technologies: initiatives such as vendor-managed inventory and information sharing increasingly use web-based technologies (Chaff ey and White, 2010).



Conclusion

Th is research investigates the degree of purchasing matu-rity across two departments in an emergency service using a framework adapted from Beukers et al. (2006). Th e study contributes to our understanding of public-sector purchasing, building upon the literature that has previ-ously focused upon private-sector purchasing.

Both the quantitative and qualitative analyses indi-cate asymmetry in the maturity of purchasing strategy and practice between the PS and BS departments. A sta-tistically signifi cant diff erence in the dimension of ‘Mon-itoring and Control’ was confi rmed through focus group discussions, and revealed considerable diff erences in the way that both departments handled contract man-agement. Th e diff erences are deemed appropriate for the nature of the commodities that both departments pur-chase and the cost and operational risk that their supply presents to the organization. Th e transactional approach adopted by the BS department permits the development of effi cient purchasing systems. However, this may be hindered by the supporting information systems that are largely perceived to be weak.

Statistical diff erences in ‘Strategy and Policy’ and ‘People and Culture’ were also confi rmed through focus group discussions: a lack of awareness of the purchasing strategy was evident in the BS department. Lack of staff training was found in both departments, in line with McClelland (2012). Th e lack of awareness of the procure-ment strategy within the BS department is a notable defi -ciency. As this department does not undertake long-term and strategic supplier selection and development, this appears to be a conscious decision that the organization has made. Should the value of purchases made by this department rise over time, they may reach a point where they become a signifi cant cost risk, and therefore become of strategic importance. Th is would entail a re-evaluation of the organization’s approach to procuring these com-modities. As such, it is imperative that this department’s approach to procurement be included in the organization’s strategy and be appropriately communicated to all staff .

Th is research has implications for both researchers and practitioners. Th e survey employed in this study has been benefi cial in revealing evidence of asymmetric purchasing practices. However, the rich data provided through focus group discussions had enabled us to study important operational issues.

Th e fi ndings of this study indicate that even in rela-tively small public organizations, signifi cant diff erences can exist between departments with similar roles and responsibilities. In the examined case, the implementation of the procurement strategy was inconsistent. At a time when attention is being drawn to the control of public spending, the increasing recognition is that a strategic perspective of purchasing can have considerable cost and performance benefi ts for all organizations. Th e consistent implementation and execution of purchasing strategy is of paramount importance.

Since this study has focused on a single organization, these fi ndings cannot be generalized. However, the discov-ery that purchasing strategy and practice are asymmetric across a relatively small organization suggests that this may be a common problem in many organizations. Th e adop-tion of the Beukers et al. (2006) procurement alignment framework using the survey and focus group approach would appear to be an accessible means for organizations to undertake assessments of their own purchasing strategy and practices.

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BIOGRAPHICAL NOTES

Michelle Deasy obtained her BA in Business Excellence from the University of Glamorgan prior to working in the fi eld of public-sector procurement. She now works for a procurement outsourcing fi rm, managing a range of projects across diff erent sectors and commodity types.

Gareth R.T. White is Senior Lecturer in Supply Chain Management at the University of South Wales. He obtained his PhD in Knowledge Acquisition from the University of the West of England, and an MSc in Management from the University of Glamorgan. He supervises doctoral students and conducts research in operations, environmental, and information management.

Correspondence to:

Gareth R.T. White

CSCOPE

University of South Wales

Pontypridd

South Wales CF37 1DL

UK

e-mail: [email protected]

Scott Parfi tt is Senior Lecturer in Supply Chain Management at the University of South Wales. His main area of interest is public-sector procurement and he undertakes regular work with the Welsh government (Value Wales), Cardiff Council, and Rhondda Cynon Taff (RCT).

Kath Ringwald is Senior Lecturer in International Supply Chain Management and Advanced Procurement and Director of the Procurement Best Practice Academy at the University of South Wales. Her current research interests include relationships management and social network analysis in a supply chain context, innovative procurement, and various aspects of national and international public-sector procurement. She supervises PhD, DBA, and Masters students in these areas.

asymmetric procurement in the public sector

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