Efficiency Exchange Achieving more with less in local government

Wagner, S.M., Eggert, A. and Lindemann, E.  Journal of Business Research (in press).

This research is of interest as it considers the perceptions of procurement managers in collaborative relationships – to us it could suggest something about how procurement managers may perceive value gained in PBOs, shared services and RIEPs.  It’s also interesting to see in parallel with my previous blog on CSFs for purchasing groups.

First, let’s clear up what we’re talking about.  Value creations refers to the total value of outcomes generated as a result of the collaboration less the total inputs; say efficiency gains – consider that as ‘the pie’.  Value appropriation refers to how the benefits of ‘the pie’ are apportioned to the participants – in the context of the buyer/provider and we’re discussing the benefits from ‘partnership’ relationships as opposed to ‘adversarial’  purchasing relationships.

The research is based on responses from German and Swiss purchasing managers in industrial firms.  So there are considerable differences to factor in.  it would have been much more interesting to have also had the other partners view, namely, what do the suppliers say?

Nevertheless, we can ask ourselves if this research is transferable to local government procurement managers what would be the lessons for PBOs and RIEPs, if they wanted to ensure council clients felt they were getting a good deal.  It could be inferred:

1. Procurement managers are not just interested in the value of total efficiency savings created through the collaboration but in how that value is fairly allocated, and praise give, between the provider, say the PBO, and the buyer – they benefit from reassurance that the provider is not reaping disproportionate benefits.  So, if more and more buyers use a PBO it would be advantageous to demonstrate that there is a reduction in the overhead cost borne by the purchasing manager’s organisation, and if suppliers prices are reduced, these duly cascade.
2. Let’s accept that there is always a competitive tension between the provider and the purchaser – a good flow of information can ease that.  Good communications are required, aimed at helping the procurement manager understand the value sharing process, particularly if there is a need for temporary inequity.
3.   Not counter-intuitively, if you want to retain to retain relationships for the future, and you’re a provider, concentrate on client satisfaction based on appropriate value creation and appropriation.

Healthwarning:  the research design has built in bias in that it’s based on purchasing managers perceptions only.  Equally, the research wasn’t looking at PBOs, RIEPs etc., but it would be interesting to hear what you think about my inferences from the research findings?  Tell me!