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Organizational design in public procurement: A stakeholder approach
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Journal of Purchasing & Supply Management 13 (2007) 127–136 www.elsevier.com/locate/pursup
Organizational design in public procurement: A stakeholder approach Dirk-Jan F. Kamann Faculty of Management and Organization, Groningen Research Institute of Purchasing (GRIP), P.O. Box 800, 9700 AV Groningen, The Netherlands Received 14 August 2006; received in revised form 30 April 2007; accepted 7 May 2007
Abstract Organizing the purchasing function for public bodies and other non-profit and/or non-market bodies starts with the selection of an appropriate organizational strategy. In order to be able to select between generic strategies like low cost and differentiator or strategies described as operational excellence, customer intimacy and product leadership, a stakeholder based model was used. The selected strategy forms the basis to design the nature of three organizational elements: policies (P), organization (O) and processes (P). The aspect system of the purchasing function and the sub-system of the purchasing department reflect the nature of these three POP elements. It helps to translate the selected organizational strategy into a appropriate supplier strategy and clarifies the idealized mix of suppliers in terms of portfolio archetypes. Ten policy aspects of purchasing and four organizational aspects are described to redesign purchasing. r 2007 Elsevier Ltd. All rights reserved. Keywords: Purchasing; Stakeholder analysis; Customer intimacy
1. Introduction Modern purchasing has gone beyond ‘just buying’ or ‘fulfilling the buying needs of the organization’. These days, the purchasing activity is defined as ‘selecting those suppliers and dealing in such a way with them, that it enables the organization to implement its market strategy best in the way it has decided to serve the end customers’ needs’ (Carter et al., 2000; Kamann, 1999). For companies in the market economy, where customer needs usually are known, we may—and actually, should—derive purchasing strategies from the overall company strategy. The theoretical model—the so-called POP-model—describing this process is grounded in contingency theory (Lawrence and Lo¨rsch, 1967): given their task environment (Wheelen and Hunger, 1992), companies in the market economy adopt a certain strategy (Johnson and Scholes, 1989; Porter, 1980; Treacy and Wiersema, 1993) on a particular technology– product–market combination. This strategy may be in line with the Structure–Conduct–Performance paradigm (Bain, Tel.: +31 50 313 2222/+33 493 575230; fax: +31 50 313 4986/+31 621255334 (GSM). E-mail addresses: [email protected], [email protected] (D.-J.F. Kamann).
1478-4092/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.pursup.2007.05.002
1959; Sherer and Ross, 1990), which means the prevailing market structure determines company behaviour, or, it may be the opposite, by showing collusive or discretionary behaviour (Kamann, 1988, 2003). Whatever the choice is, companies act as part of an open system which means according to congruency theory (Nadler and Tushman, 1979) that the organization has to be shaped in accordance with the characteristics of their environment (Kamann, 1986; Nelson and Winter, 1977) where the selected strategy and technology is translated into three important elements: the policies—including goals—of the organization (P), reflected in the way everything is being organized (O) and the processes (P) used, including their corresponding activities. One could add that these three elements are embedded into the particular set of knowledge of that particular organization. Hence, to be an effective working system, the three interdependent elements P, O and P have to fit each other and, as a set, have to be congruent with their external context. The purchasing function—as an aspect system—and the purchasing department—as a subsystem—should reflect the nature of the three POP elements. For example, a centralized purchasing function with a central purchasing department does not match with a company with a decentralized organization philosophy; processes should be in line and goals should be congruent.
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Although the statement that purchasing goals should be congruent with company goals and strategies seems rather obvious, in-depth case studies (Kamann et al., 2001) indicate that this actually is rather an exception than the rule. When screening 55 master theses in purchasing at the University of Groningen, I found that at best seven companies had what could be seen as a ‘proper fit’ between purchasing policies and company strategies. Hence, if this ‘translation’ of customer needs into purchasing policies— apparently—is difficult for market oriented companies, one can imagine, it is even more difficult for public bodies and semi-state organizations. First of all, there may be a problem in identifying ‘the’ customer at all, or ‘the market’ and ‘the’ technology applied. While in the market economy, the customer is the one who pays the bill, with public bodies this may be much more difficult to trace. Who pays and who is the customer in the case of unemployment benefits? Or, who is the customer in the case of prisons; the prisoner? He usually does not pay for his lodgings and food. Who is the customer in health care: the patient or the health insurance companies? And, when the ‘customer’ is not evident, even more obscure becomes the question ‘what does he want’ and what should be the effect of this on the composition of my supply base and the demands I put to my suppliers. Hence, even if a strategy exists, usually this is a rather political statement or phrased in container terms like ‘best value’ as in the case of British health care. Therefore, I looked for a substitute for the straightforward ‘company strategies’ and ‘customer profile’ and ‘customer demands’. I found this by incorporating the literature on stakeholders and stakeholder mapping and combining this with the concept ‘customer intimacy’. After the discussion of stakeholders, I will discuss the mechanism that translates these stakeholder demands into goals and strategies of the organization, introducing the ‘web’ and ‘club’ concepts. Then, the POP-model will be expanded to incorporate modern market strategies like operational excellence, product leadership and customer intimacy. This will result in a number of archetypes for public bodies. These archetypes are used in the successive sections to differentiate between the formulation of purchasing policies and between various ways to design the organization, given a particular organizational strategy adopted to meet certain stakeholder demands. 2. Stakeholders According to the stakeholder literature (Rhenman, 1968; Freeman, 1984; Mitchell et al., 1997; Wheeler and Sillpana¨a¨, 1998; Elias et al., 2002), the most used definition of a stakeholder is the broad definition of ‘‘any group or individual who can affect or is affected by the achievement of the organization’s objective’’ (Freeman, 1984, p. 46). Mitchell et al. (1997, p. 854) identified three attributes the stakeholders may possess: (1) the power to influence the organization; either coercive, utilitarian or normative; (2) the legitimacy of the relation with the organization; either
individual, organizational or societal based; (3) the urgency of the stakeholders claim on the organization; calling for immediate action; either time sensitive or critical to the stakeholder. These authors developed a typology, used to describe a theory of stakeholder salience. This is described as ‘‘the degree to which managers give priority to competing stakeholder claims’’ (p. 854). Salience will rise when stakeholders accumulate any combination of these three attributes (Neville et al., 2004). In communicating with stakeholders, various levels of communication are distinguished in modern marketing communication literature (Podnar and Zlatko, 2006): inevitable, necessary and desirous levels. The author is aware that these terms lack operational accuracy; however, it depends on whether an organization opts to try to ‘neutralize’ stakeholders in order to keep them quiet, or actually wants to include them in a strategic discussion in the context of a Corporate Social Responsibility (Harrison and Freeman, 1999; Miles et al., 2006). Donaldson and Preston (1995) also go into the descriptive accuracy of stakeholder concepts. When using stakeholder analysis, we should bear in mind that stakeholder attributes are (1) variable, not steady state; (2) socially constructed, not objective, reality; (3) consciousness and willful exercise may or may not be present. This implies that stakeholder analysis or mapping is a dynamic exercise full of iterations. Making the right decision and actions on this issue may be the difference between success and closure, transfer of the organization’s activities into another service or privatization after too many questions in parliament, complaints or poor evaluations. To rephrase this—the apparent lack of dealing properly with this issue results in organizational mortality (Caroll and Hannan, 1989). The purpose of stakeholder analysis also is to make clear who decides on this issue. In the case of public bodies, usually some kind of single political actor represents the interests of a large group of other stakeholders, lacking power. It is the difference between a definition of stakeholder as ‘‘benefit from or are harmed by, and whose rights are violated or respected by (y)’’ (Evan and Freeman, 1988, p. 79) representing well the actual users, and ‘‘ywithout whose support the organization would cease to exist’’ (Bowie, 1988, p. 112, note 2), referring to those actors, who represent ‘the public interest’. Here, we have representative stakeholdership. Here, we could make the difference between a single individual—‘‘a face’’ (McVea and Freeman, 2005)—and a ‘‘community’’ (Dunham et al., 2006). Hence, the relevance of the various definitions in literature (Kaler, 2003) may differ between market oriented firms and non-market operating organizations. However, whether the definitions have a narrow focus on the organization’s core economic interests—either required for the organization to survive (Bowie, 1988), on the stakeholders in exchange relationships (Cornell and Shapiro, 1987) or whether they are relevant because of moral claims (Freeman, 1994) will be left out of the
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Power
Low
Level of interest
129
Type A
Low
High
A
B
minimal
keep
effort
informed
Type B
POLICY ORGANISATION
Type C PROCESSES
High
Type D Key player
D
C keep
key
satisfied
players
Fig. 1. Types of stakeholders.
discussion here. We simply state that stakeholders are of importance to any organization in that they may obstruct the organization in reaching its goals and targets the way it has in mind to do. In terms of strategic management, they may be one of the causes of strategic drift of the company (Johnson and Scholes, 1989); a drift that may have fatal consequences for the organization once dominant stakeholders take on the role of ‘defender of the weak’. Stakeholders may be internal stakeholders—workers, religious groups etc.—and external stakeholders. Usually, literature agrees (Johnson and Scholes, 1989; De Boer et al., 2003) on the framework represented in Fig. 1, where the type of stakeholders—and the corresponding type of efforts required—are expressed in a matrix using ‘power’, and ‘level of interest’ as axes. Several methods are available to operationalize these concepts. Given the public nature of the organizations involved in this contribution, models on collective decision-making are also of interest here, both the exchange models and the conflict models (cf. Bueno de Mesquita and Stokman, 1994; Rojer, 1999; Thomson et al., 2003) or ‘multi-objective multi-stakeholder decisions analysis’ (Winn and Keller, 2001). Fig. 1 represents the basic matrix used to differentiate between four types of stakeholders, differing in (a) the interest they have in the organization and (b) the power they—potentially—hold. Using these four different types of stakeholders and their demands and actions as part of the selection or task environment of an organization, we come to Fig. 2 showing the three POP concepts and their— yet to be selected—appropriate strategies in relation to the various stakeholders. The arrows between the three POP elements indicate their interdependence. Fig. 2 replaces in fact the traditional picture, where a company operates with a certain strategy on a Product– Market–Combination. In the case of this contribution, we represent it as an organization operating on a ‘market’, represented by, respectively, stakeholder (types) A, B, C and D with their specific demands. Some may have general
Fig. 2. POP-model and stakeholders.
information demands, some may want to have specific performance information and some may actually want goods and services provided to either themselves our their ‘constituency’ according to certain standards. Let us assume that, given the fact that it is known who the stakeholders are, who really do count in terms of the concepts used by Mitchell et al. (1997) or any other type of analysis. Let us assume that we also know what they want and how. In other words, we are able to derive the organizational strategy in focusing on the appropriate value discipline in terms of customer intimacy; the proper strategy to meet the specified user demands with specified goods and services in a particular way. We have user profiles, demands for certain levels of organizational efficiency and demands from dominant stakeholders we have to fulfil which may have to be dealt with in a different way. Earlier in this section, I referred to a difference between private—market-oriented—companies and public organizations in the role of stakeholders where public bodies are supposed to be subject to public scrutiny. In other words, public bodies have potential-key-players; in stakeholder terminology: an actor that may turn from a ‘dominant stakeholder’—scoring high on the two attributes Legitimacy and Power but lacking Urgency—into a ‘definitive stakeholder’, scoring high on this attribute, too. Usually, this type of stakeholder represents the ‘Discretionary stakeholders’: possessing the attributes legitimacy, but they lack the power to influence the firm and have no urgent claims. The tragic thing about this type of stakeholder is ‘‘there is absolutely no pressure on managers to engage in an active relationship with such a stakeholder’’ (Mitchell et al., 1997, p. 875). However, these—‘atomistic’—stakeholders may organize themselves—patient associations for special diseases, rail passenger associations, automobile clubs and other ‘lobbies’—and by doing so may turn into ‘key-player’. At this point, I will discuss a difference between market oriented organizations and non-market organizations in the way organizations deal with their stakeholder demands and relationships, in particular the ‘discretionary type’, so typical for public bodies.
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Organizations usually adapt or adjust their objectives and strategy in order to minimize strategic drift after they have established the nature of (1) the level of importance of various stakeholder groups; and (2) the nature of their respective demands. In contrast, for public bodies and semi-state organizations these two points are their main source of input for formulating a strategy and—at a more operational level—the organizational policies. When we represent the total of the focal organization and the network it operates in including its stakeholders as a network with various types of actors, we find that the way the stakeholder demands are incorporated into the organizational strategy and goals very much depends on the nature of that network. In order to explain this difference, we use two concepts here to describe two archetypes: the club-type and the web-type (Capineri and Kamann, 1998; Kamann and Kara´sek, 1999). A club-type—the tennis club being the archetypical example—consists of actors with similar interests, who usually have no interest in having transactions with all other members—actors—but have a shared interest in using particular services. This may be using the tennis court, the telephone network, the public railroad network, roads, etc. Synergy effects occur when the number of actors increases. ‘Congestion’—hindering the desired level of use of the infrastructure or the services aimed for—occurs when the number of transactions in the network passes a certain threshold: too many members want to play tennis at the same time, pick up the telephone at the same time, want to use the train at the same time, fall ill at the same time. Hence, the number of actors has a positive effect, the number of transactions a negative effect. The rules are established by the members—or on their behalf—to regulate membership and use. In a web-type, on the contrary, transaction chains exist between the actors. This type of network corresponds to the average market-based production network with a variety of supply chains. Here, the number of actors— apart from the end-users—is usually restricted to keep the network within the span of control of actors involved. Present waves of supplier reduction schemes coinciding with stronger supplier relations (Cousins and Spekman, 2003) is just an expression of this. The number of transactions is, contrary to the club-type networks, a driver for increased specialization and scale effects. These follow normal positive externalities of industrial agglomeration effects (Capineri and Kamann, 1998). Therefore, the number of actors usually depends on the degree of specialization which is influenced by the volume of transaction, perceived as having a positive impact. Fig. 3 shows the two types with the two major drives for reaching synergy: the number of actors and the number of transactions.
web type synergy positive externalities
3. Web or club: goal congruency between organization and major stakeholders
0
club type volume of transactions
synergy positive externalities
130
club type
web type
number of actors Fig. 3. Club-type and web-type networks: the drives for synergy.
Club- and web-types can be seen as two different governance structures (cf. Williamson, 1975). The relevance of the distinction between club- and web-type for this topic is that the organizational strategies and goals of the decision makers operating in a web-type are individual actor specific, while those of club-types are more likely to be network based rather than ‘manager based’. In clubtypes, we do find that the larger the ‘club’ and the group of actors—members—involved, the more likely the actual managers are ‘alienated’ from the goals of the individual club members (Durkheim, 1933, 1951). Public bodies and semi-state bodies are assumed to represent the common good and should be seen as a clubtype, catering for some kind of ‘need’ for the stakeholders. Whether this is the provision of passports, building permits or healthcare, these are all ‘club-type’ items the members of the club—civilians, companies or patients—ask for. For this reason, stakeholder mapping is of importance not only to prevent strategic drift as is the case for market oriented organizations. It is comparable to marketing research to find out the customer profiles and corresponding customer demands and wishes. Stakeholder mapping is a prerequisite for public bodies to have an equivalent approach to ‘customer intimacy’ (Treacy and Wiersema, 1993), or ‘customer value added’ for organizations in the market
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sector. Following this concept, the organization should stay ahead in meeting customer needs on three aspects: (1) operational excellence, (2) customer intimacy and (3) product leadership. The term ‘leadership’ may sound slightly out of place when we refer to public bodies, but the moment people start promoting privatization of public activities, they apparently assume that these would do a better job taking on the role of leadership, compared to the present public bodies. From this point of view, ‘leadership’ may be simply operationalized as ‘beyond serious dispute of being privatized’. Operational excellence is described as ‘‘providing customers with reliable products or services at competitive prices and delivered with minimal difficulty and inconvenience’’ (Treacy and Wiersema, 1993, p. 84). The ‘competitive prices’ part can be translated into ‘socially acceptable prices’; this enables operationalization of public goods including merit goods and demerit goods—hence equaling the actual price of producing a good, including subsidies and levies. The term ‘customer intimacy’ has all the potential of becoming a container term, such as for instance ‘best value’ in the British health care. The authors define ‘‘customer intimacy’’ as ‘‘segmentation and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches’’ (Treacy and Wiersema, 1993, p. 84). This in fact is equally possible for and—in the eyes of many—required from public bodies. Segmenting health care, education, safety to assume that ‘one-size-fits-all’ applies to public services is a rather outdated idea. Paraphrasing the authors (p. 85), one may say that organizations that excel in stakeholder and user intimacy combine detailed stakeholder and user knowledge with operational performance in getting the stakeholders—including the end-user—precisely the product or information he or she wants. While operational excellence typically coincides with ‘mean-and-lean’ operating, which is something almost alien to many public bodies, customer intimacy relates to ‘agile’ operations: flexibility with boundaries of a particular increased specialization; a given ‘value discipline’. To give an example, organizations focusing on the well-being of elderly people can for instance be segmented into organizations providing home assistance, organizations hospitalizing the elderly and even home delivered hot meals. These segments require different processes to run the operations efficiently and effectively in order to achieve value for their respective users; different organizations, different processes and usually even a different type of personnel. Merging these organizations because of perceived scale effects can only lead towards sub-optimalization of the segmented value disciplines involved. The third discipline, ‘product leadership’ requires organizations to strive for a continuous stream of state-ofthe-art products and services (p. 89). The problem for public bodies evidently is the question what the state-ofthe-art is and, most important, who decides about that. This brings us back to our stakeholder analysis. Organizations who claim to be ‘product leaders’—research institutes, Universities, marine shipyards, monopolistic space
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vehicles producers and other public and non-market organizations will have to cope with decision makers who decide on budgets, government spending or semi-state insurance companies. Decision makers who set the agendas for what the criteria for evaluation are. This adds a recursive element to stakeholder analysis: the stakeholders being subject to lobbying by the organizations they have a stake in, to make sure they have the right agendas and criteria. In this contribution, I will not go into a detailed analysis of stakeholder mapping as such, given the abundant literature on this subject. I assume that this has been done and the two steps mentioned above—importance and nature of demand—are known. Given the outcome of that analysis, I will continue with the way the POP-model leads to different ways to organize the purchasing function of public bodies with a club-type nature. 4. The POP-model further developed Depending on the specific content of the three POP elements for the total organization, the Purchasing function should reflect these three elements. In case of a centralized organization—like for instance any Defence department usually is—it will be hard to promote a decentralized decision authority in the case of purchasing. The opposite, a rather decentralized departmental public body may not like to give away ‘budget power’ to ‘some centralized unit’. Also, the policies of the purchasing function—usually worded by the purchasing department—should be in line with the policies of the total organization. Finally, processes that run separately from all other processes are bound to lead to additional activities to link processes where appropriate. Apart from technical problems that may well arise, this increases additional costs and may even lead to specialized departments dealing with this datainformation interchange. Having stated that the ‘Purchasing POP’ elements should be reflecting the ‘regular’ POP elements, we then may derive the optimal mix of supplier types that should follow from the given purchasing policies. We distinguish four categories of suppliers, following the mainstream use of portfolio analyses, which leads to a distinction between suppliers of strategic goods, leverage goods, routine goods and bottleneck goods (Kraljic, 1983). We are aware of the shortcomings here (Olsen and Ellram, 1997; Kamann, 1999), but will take this distinction as a proxy for those typologies, based on more sophisticated methods. The assumption is that each type of policy sets will have a certain mix of these four suppliers and a specific way of dealing with them. The total figure is represented in Fig. 4. The expected ideal nature of the mix of suppliers considered to fit a certain policy can be derived from the following arguments. According to literature, the dynamics (Mintzberg, 1979), turbulence (Emery and Trist, 1965) and complexity (cf. Gadde and Ha˚kansson, 1993) play a role in determining the required degree of innovativeness of any
ARTICLE IN PRESS D.-J.F. Kamann / Journal of Purchasing & Supply Management 13 (2007) 127–136 Product leadership Innovative, complex
stakeholder strategies Type A
Type C
PROCESSES
Type D purch POLICY purchORGANISATION
Input type 1
purchPROCESSES
purchasing strategies
Input type 2 Input type 3
Input type 4
Decentralised organic
Central coordination organic
Type B Operational excellence Generic
POLICY ORGANISATION
Star + Teams sattellites
Central coordination mechanistic
Segmented Mechanistic decentralised
Squeezers
Flexibilizers
User intimacy User specific
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Fig. 4. The POP-model for public procurement. Standard; stable
organization (Porter, 1980; Johnson and Scholes, 1989). The most important variables related to ‘complexity’ in this case are the amount of differentiation among users with different demands, demands from different (dominant, latent or dormant) stakeholders being users, and different types of inputs (materials, know-how, knowledge, different types of socially segmented markets). I translated these aspects into the following questions: (a) is the product required by the stakeholder a standard product, used by the stakeholders in a repetitive routine pattern?; (b) is production by the club-type organization user specific or generic; (c) are users only concerned about the availability of products (hence, of a generic nature that does not need personalization of the service and because of this is comparable to the ‘make-to-stock-environment’ as described by Hoekstra and Romme (1992)? The second aspect can be expanded, in that provision typically takes place (d) for unique products, specified by the user or key-stakeholder; (e) with low repetition of demand resulting in new task purchasing; (f) with keystakeholders or users involved from the beginning of the chain (in market oriented companies, this would be named ‘engineer-to-order-environment’); (g) with aspects difficult to measure, such as high complexity, subjective concepts— ‘well-being’, ‘best value health care’, ‘safety’, ‘justice’—and dominant stakeholders with contradicting demands to choose from. While in real life many different types may result from the aspects above, I will start with the following two archetypes: (1) the organization that has to cater for noninnovative standard services in a rather stable environment where efficiency and price do count; mainly process oriented. Examples are the provision of passports, building—and other permits, garbage collection. Here, operational excellence is expected by the dominant stakeholder, representing ‘the public interest’. (2) The organization that
Fig. 5. Various archetypes of public bodies.
has to provide services, described as concepts subject to rapid changes in connotation, with high complexity (either because of, rapidly changing and differentiated demands and/or users or changing technologies), with a focus on innovation of products and processes. Examples are health care, safety, education. This organization is supposed to show ‘product leadership’ as described above. Fig. 5 represents the two archetypes in a matrix: the lower left quadrant being the first type, the upper right quadrant being the second type. In the matrix, we also find two ‘hybrids’ in the other two quadrants: (3) the public organization in a situation of a stable demand for certain services, but where the demand is not generic but segmented. Examples are employment services, where services should be efficient and effectively serving the user by knowing his needs well (user intimacy). (4) The organization that has to be innovative in a dynamic environment with a high complexity but with rather generic services or products to provide. Examples are energy, transportation, road safety. Here, product leadership also applies, but because of the generic nature of the products supplied, segmentation is not required, which has different organizational implications. I will refer to the innovative types which have to combine product leadership with user intimacy as teams, and to the organizations in a stable environment supplying generic standard services and combining operational excellence with a stable demand for a standard product, as squeezers. I derived some of the organizational forms from Mintzberg’s (1979) typology and added these to the matrix, together with the concepts of flexible automation and segmentation. One of the two hybrids received a descriptive name, related to a metaphor expressing the relation between the organic central
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Squeezers
strategic
routine
bottleneck
leverage
strategic
routine
Flexibilizers
leverage
routine low
bottleneck
strategic
bottleneck low
routine
strategic
bottleneck high
complexity of supply market
low
high
complexity of supply market
Fig. 6. Ideal types of portfolios for four archetypes.
Table 1 Teams and squeezers: from organizational strategy to purchasing policy
high
leverage
low
Teams leverage
high
Star & Satellites
The assumed mix of suppliers to each of the four types is represented in Fig. 6. The underlying assumption is: the more innovative an organization, the more strategic suppliers for strategic products are involved. Organizations in stable environments with very little demand for
share in total valueinputs share in total value inputs
team and the various bodies in the field being involved through material experts: ‘star & satellites’. The other hybrid was named after the technology that possibly could be employed to reach economies of scope across several segments—flexible automation—‘flexibilizers’.
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innovation typically have leverage products to reduce costs as much as possible; routine products are supplied on basis of Vendor Managed Inventory schemes and Service Level Agreements. 5. Organizing the purchasing function The differentiation into different archetypes in Fig. 5 can be used to differentiate the organization of the purchasing function. For Table 1, I selected the two ‘pure’ types—the ‘team’—combining user intimacy with product leadership—and the ‘squeezers’—combining operational excellence for generic products with a stable non-innovative demand. For the teams, I assume stakeholders, asking for what might be called an innovation-differentiation strategy. For the squeezers, I assume that dominant stakeholders demand a general cost focus as part of the operational excellence. While Table 1 gives 10 aspects of the organization’s purchasing policy, Table 2 shows four aspects of the ideal purchasing organization, given the particular purchasing policies (cf. Burns and Stalker, 1961, 1995). When designing the best fit for the archetypes, the notions ‘organic’ and ‘mechanistic’ from organizational literature (Mintzberg, 1979) were used. The two hybrid Table 2 Teams and squeezers: from purchasing policies to organizing purchasing
forms—the ‘star & satellites’ and the ‘flexibilizers’—show a mix of organizational characteristics (Table 3) which could be described as ‘centralized organic’ and ‘decentralized mechanistic’ (Mintzberg, 1979). These hybrids may actually be more difficult to manage because of this mixed nature. The model was tested on a range of smaller and medium sized local governments, hospitals, geriatric care centres, various types of semi-state bodies, ministerial departments and police departments. In spite of the archetypical nature of the various types described where they obviously differ in the final lay-out, the structuring structure of the model enabled easy and clear communication about their elements. 6. Conclusions and recommendations Organizing the purchasing function for public bodies and other non-profit bodies starts with its identifying its stakeholders and the various demands they pose. After reviewing the nature of these demands and the way they have to be met, the organization should translate this into an appropriate strategy: operational excellence, product leadership or customer intimacy. This strategy forms the basis for the design of three interdependent elements:
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Table 3 Characteristics of the two hybrids: ‘Star & Satellites’ and ‘Flexibilizers’ Archetype
Type ‘Star & Satellites’
Type ‘Flexibilizers’
Organizational strategy
Product leadership on generic products; where possible, combined with operational excellence because of the generic nature of products Competitive positioning plus partnering
Segmented user intimacy at optimal process efficiency; striving for economies of scope; niche strategies
Purchasing policies Degree of outsourcing Centralized/decentralized Formalization of purchasing function Training/education purchasing Specialization of purchasing staff Degree of standardization of purchasing process
Relatively high Standard inputs: centralized; innovative inputs: decentralized led commodity teams High: mechanistic purchasing function standard inputs low: organic purchasing function for innovative inputs; possible confusion High; in availability and budget
Competitive position; relations with preferred suppliers for segment unique inputs Relatively low Standard inputs: centralized; ‘unique’ inputs: decentralized within central umbrella contracts Predominantly high: mechanistic purchasing function for standard inputs Average
Low/average: flexible and focus on employability
Average
High
High
policies (P), organization (O) and processes (P). The way these three elements are filled in for the purchasing function, differs between strategies. This implies that when the organization finds that two opposite strategies are required, this would require two different ways to organize the POP elements. This would either cause friction or suboptimization. Splitting up then is a better solution. The POP-model also helps to formulate an appropriate supplier strategy, to create a suitable supply base: it clarifies the idealized mix of suppliers in terms of portfolio archetypes. Discussing the various elements and arguments as such may be a useful exercise for many public bodies to become aware of the ‘stakeholder’ orientation of public bodies. Also in public bodies, the purchaser has to be aware that at the end, he is serving the final user and should fill in his supplier relations in such a way that the final user and the dominant stakeholder representing those users, is satisfied. If this contribution could stimulate this way of thinking in some way, I would be satisfied.
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Journal of Purchasing & Supply Management 13 (2007) 127–136 www.elsevier.com/locate/pursup
Organizational design in public procurement: A stakeholder approach Dirk-Jan F. Kamann Faculty of Management and Organization, Groningen Research Institute of Purchasing (GRIP), P.O. Box 800, 9700 AV Groningen, The Netherlands Received 14 August 2006; received in revised form 30 April 2007; accepted 7 May 2007
Abstract Organizing the purchasing function for public bodies and other non-profit and/or non-market bodies starts with the selection of an appropriate organizational strategy. In order to be able to select between generic strategies like low cost and differentiator or strategies described as operational excellence, customer intimacy and product leadership, a stakeholder based model was used. The selected strategy forms the basis to design the nature of three organizational elements: policies (P), organization (O) and processes (P). The aspect system of the purchasing function and the sub-system of the purchasing department reflect the nature of these three POP elements. It helps to translate the selected organizational strategy into a appropriate supplier strategy and clarifies the idealized mix of suppliers in terms of portfolio archetypes. Ten policy aspects of purchasing and four organizational aspects are described to redesign purchasing. r 2007 Elsevier Ltd. All rights reserved. Keywords: Purchasing; Stakeholder analysis; Customer intimacy
1. Introduction Modern purchasing has gone beyond ‘just buying’ or ‘fulfilling the buying needs of the organization’. These days, the purchasing activity is defined as ‘selecting those suppliers and dealing in such a way with them, that it enables the organization to implement its market strategy best in the way it has decided to serve the end customers’ needs’ (Carter et al., 2000; Kamann, 1999). For companies in the market economy, where customer needs usually are known, we may—and actually, should—derive purchasing strategies from the overall company strategy. The theoretical model—the so-called POP-model—describing this process is grounded in contingency theory (Lawrence and Lo¨rsch, 1967): given their task environment (Wheelen and Hunger, 1992), companies in the market economy adopt a certain strategy (Johnson and Scholes, 1989; Porter, 1980; Treacy and Wiersema, 1993) on a particular technology– product–market combination. This strategy may be in line with the Structure–Conduct–Performance paradigm (Bain, Tel.: +31 50 313 2222/+33 493 575230; fax: +31 50 313 4986/+31 621255334 (GSM). E-mail addresses: [email protected], [email protected] (D.-J.F. Kamann).
1478-4092/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.pursup.2007.05.002
1959; Sherer and Ross, 1990), which means the prevailing market structure determines company behaviour, or, it may be the opposite, by showing collusive or discretionary behaviour (Kamann, 1988, 2003). Whatever the choice is, companies act as part of an open system which means according to congruency theory (Nadler and Tushman, 1979) that the organization has to be shaped in accordance with the characteristics of their environment (Kamann, 1986; Nelson and Winter, 1977) where the selected strategy and technology is translated into three important elements: the policies—including goals—of the organization (P), reflected in the way everything is being organized (O) and the processes (P) used, including their corresponding activities. One could add that these three elements are embedded into the particular set of knowledge of that particular organization. Hence, to be an effective working system, the three interdependent elements P, O and P have to fit each other and, as a set, have to be congruent with their external context. The purchasing function—as an aspect system—and the purchasing department—as a subsystem—should reflect the nature of the three POP elements. For example, a centralized purchasing function with a central purchasing department does not match with a company with a decentralized organization philosophy; processes should be in line and goals should be congruent.
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Although the statement that purchasing goals should be congruent with company goals and strategies seems rather obvious, in-depth case studies (Kamann et al., 2001) indicate that this actually is rather an exception than the rule. When screening 55 master theses in purchasing at the University of Groningen, I found that at best seven companies had what could be seen as a ‘proper fit’ between purchasing policies and company strategies. Hence, if this ‘translation’ of customer needs into purchasing policies— apparently—is difficult for market oriented companies, one can imagine, it is even more difficult for public bodies and semi-state organizations. First of all, there may be a problem in identifying ‘the’ customer at all, or ‘the market’ and ‘the’ technology applied. While in the market economy, the customer is the one who pays the bill, with public bodies this may be much more difficult to trace. Who pays and who is the customer in the case of unemployment benefits? Or, who is the customer in the case of prisons; the prisoner? He usually does not pay for his lodgings and food. Who is the customer in health care: the patient or the health insurance companies? And, when the ‘customer’ is not evident, even more obscure becomes the question ‘what does he want’ and what should be the effect of this on the composition of my supply base and the demands I put to my suppliers. Hence, even if a strategy exists, usually this is a rather political statement or phrased in container terms like ‘best value’ as in the case of British health care. Therefore, I looked for a substitute for the straightforward ‘company strategies’ and ‘customer profile’ and ‘customer demands’. I found this by incorporating the literature on stakeholders and stakeholder mapping and combining this with the concept ‘customer intimacy’. After the discussion of stakeholders, I will discuss the mechanism that translates these stakeholder demands into goals and strategies of the organization, introducing the ‘web’ and ‘club’ concepts. Then, the POP-model will be expanded to incorporate modern market strategies like operational excellence, product leadership and customer intimacy. This will result in a number of archetypes for public bodies. These archetypes are used in the successive sections to differentiate between the formulation of purchasing policies and between various ways to design the organization, given a particular organizational strategy adopted to meet certain stakeholder demands. 2. Stakeholders According to the stakeholder literature (Rhenman, 1968; Freeman, 1984; Mitchell et al., 1997; Wheeler and Sillpana¨a¨, 1998; Elias et al., 2002), the most used definition of a stakeholder is the broad definition of ‘‘any group or individual who can affect or is affected by the achievement of the organization’s objective’’ (Freeman, 1984, p. 46). Mitchell et al. (1997, p. 854) identified three attributes the stakeholders may possess: (1) the power to influence the organization; either coercive, utilitarian or normative; (2) the legitimacy of the relation with the organization; either
individual, organizational or societal based; (3) the urgency of the stakeholders claim on the organization; calling for immediate action; either time sensitive or critical to the stakeholder. These authors developed a typology, used to describe a theory of stakeholder salience. This is described as ‘‘the degree to which managers give priority to competing stakeholder claims’’ (p. 854). Salience will rise when stakeholders accumulate any combination of these three attributes (Neville et al., 2004). In communicating with stakeholders, various levels of communication are distinguished in modern marketing communication literature (Podnar and Zlatko, 2006): inevitable, necessary and desirous levels. The author is aware that these terms lack operational accuracy; however, it depends on whether an organization opts to try to ‘neutralize’ stakeholders in order to keep them quiet, or actually wants to include them in a strategic discussion in the context of a Corporate Social Responsibility (Harrison and Freeman, 1999; Miles et al., 2006). Donaldson and Preston (1995) also go into the descriptive accuracy of stakeholder concepts. When using stakeholder analysis, we should bear in mind that stakeholder attributes are (1) variable, not steady state; (2) socially constructed, not objective, reality; (3) consciousness and willful exercise may or may not be present. This implies that stakeholder analysis or mapping is a dynamic exercise full of iterations. Making the right decision and actions on this issue may be the difference between success and closure, transfer of the organization’s activities into another service or privatization after too many questions in parliament, complaints or poor evaluations. To rephrase this—the apparent lack of dealing properly with this issue results in organizational mortality (Caroll and Hannan, 1989). The purpose of stakeholder analysis also is to make clear who decides on this issue. In the case of public bodies, usually some kind of single political actor represents the interests of a large group of other stakeholders, lacking power. It is the difference between a definition of stakeholder as ‘‘benefit from or are harmed by, and whose rights are violated or respected by (y)’’ (Evan and Freeman, 1988, p. 79) representing well the actual users, and ‘‘ywithout whose support the organization would cease to exist’’ (Bowie, 1988, p. 112, note 2), referring to those actors, who represent ‘the public interest’. Here, we have representative stakeholdership. Here, we could make the difference between a single individual—‘‘a face’’ (McVea and Freeman, 2005)—and a ‘‘community’’ (Dunham et al., 2006). Hence, the relevance of the various definitions in literature (Kaler, 2003) may differ between market oriented firms and non-market operating organizations. However, whether the definitions have a narrow focus on the organization’s core economic interests—either required for the organization to survive (Bowie, 1988), on the stakeholders in exchange relationships (Cornell and Shapiro, 1987) or whether they are relevant because of moral claims (Freeman, 1994) will be left out of the
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discussion here. We simply state that stakeholders are of importance to any organization in that they may obstruct the organization in reaching its goals and targets the way it has in mind to do. In terms of strategic management, they may be one of the causes of strategic drift of the company (Johnson and Scholes, 1989); a drift that may have fatal consequences for the organization once dominant stakeholders take on the role of ‘defender of the weak’. Stakeholders may be internal stakeholders—workers, religious groups etc.—and external stakeholders. Usually, literature agrees (Johnson and Scholes, 1989; De Boer et al., 2003) on the framework represented in Fig. 1, where the type of stakeholders—and the corresponding type of efforts required—are expressed in a matrix using ‘power’, and ‘level of interest’ as axes. Several methods are available to operationalize these concepts. Given the public nature of the organizations involved in this contribution, models on collective decision-making are also of interest here, both the exchange models and the conflict models (cf. Bueno de Mesquita and Stokman, 1994; Rojer, 1999; Thomson et al., 2003) or ‘multi-objective multi-stakeholder decisions analysis’ (Winn and Keller, 2001). Fig. 1 represents the basic matrix used to differentiate between four types of stakeholders, differing in (a) the interest they have in the organization and (b) the power they—potentially—hold. Using these four different types of stakeholders and their demands and actions as part of the selection or task environment of an organization, we come to Fig. 2 showing the three POP concepts and their— yet to be selected—appropriate strategies in relation to the various stakeholders. The arrows between the three POP elements indicate their interdependence. Fig. 2 replaces in fact the traditional picture, where a company operates with a certain strategy on a Product– Market–Combination. In the case of this contribution, we represent it as an organization operating on a ‘market’, represented by, respectively, stakeholder (types) A, B, C and D with their specific demands. Some may have general
Fig. 2. POP-model and stakeholders.
information demands, some may want to have specific performance information and some may actually want goods and services provided to either themselves our their ‘constituency’ according to certain standards. Let us assume that, given the fact that it is known who the stakeholders are, who really do count in terms of the concepts used by Mitchell et al. (1997) or any other type of analysis. Let us assume that we also know what they want and how. In other words, we are able to derive the organizational strategy in focusing on the appropriate value discipline in terms of customer intimacy; the proper strategy to meet the specified user demands with specified goods and services in a particular way. We have user profiles, demands for certain levels of organizational efficiency and demands from dominant stakeholders we have to fulfil which may have to be dealt with in a different way. Earlier in this section, I referred to a difference between private—market-oriented—companies and public organizations in the role of stakeholders where public bodies are supposed to be subject to public scrutiny. In other words, public bodies have potential-key-players; in stakeholder terminology: an actor that may turn from a ‘dominant stakeholder’—scoring high on the two attributes Legitimacy and Power but lacking Urgency—into a ‘definitive stakeholder’, scoring high on this attribute, too. Usually, this type of stakeholder represents the ‘Discretionary stakeholders’: possessing the attributes legitimacy, but they lack the power to influence the firm and have no urgent claims. The tragic thing about this type of stakeholder is ‘‘there is absolutely no pressure on managers to engage in an active relationship with such a stakeholder’’ (Mitchell et al., 1997, p. 875). However, these—‘atomistic’—stakeholders may organize themselves—patient associations for special diseases, rail passenger associations, automobile clubs and other ‘lobbies’—and by doing so may turn into ‘key-player’. At this point, I will discuss a difference between market oriented organizations and non-market organizations in the way organizations deal with their stakeholder demands and relationships, in particular the ‘discretionary type’, so typical for public bodies.
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Organizations usually adapt or adjust their objectives and strategy in order to minimize strategic drift after they have established the nature of (1) the level of importance of various stakeholder groups; and (2) the nature of their respective demands. In contrast, for public bodies and semi-state organizations these two points are their main source of input for formulating a strategy and—at a more operational level—the organizational policies. When we represent the total of the focal organization and the network it operates in including its stakeholders as a network with various types of actors, we find that the way the stakeholder demands are incorporated into the organizational strategy and goals very much depends on the nature of that network. In order to explain this difference, we use two concepts here to describe two archetypes: the club-type and the web-type (Capineri and Kamann, 1998; Kamann and Kara´sek, 1999). A club-type—the tennis club being the archetypical example—consists of actors with similar interests, who usually have no interest in having transactions with all other members—actors—but have a shared interest in using particular services. This may be using the tennis court, the telephone network, the public railroad network, roads, etc. Synergy effects occur when the number of actors increases. ‘Congestion’—hindering the desired level of use of the infrastructure or the services aimed for—occurs when the number of transactions in the network passes a certain threshold: too many members want to play tennis at the same time, pick up the telephone at the same time, want to use the train at the same time, fall ill at the same time. Hence, the number of actors has a positive effect, the number of transactions a negative effect. The rules are established by the members—or on their behalf—to regulate membership and use. In a web-type, on the contrary, transaction chains exist between the actors. This type of network corresponds to the average market-based production network with a variety of supply chains. Here, the number of actors— apart from the end-users—is usually restricted to keep the network within the span of control of actors involved. Present waves of supplier reduction schemes coinciding with stronger supplier relations (Cousins and Spekman, 2003) is just an expression of this. The number of transactions is, contrary to the club-type networks, a driver for increased specialization and scale effects. These follow normal positive externalities of industrial agglomeration effects (Capineri and Kamann, 1998). Therefore, the number of actors usually depends on the degree of specialization which is influenced by the volume of transaction, perceived as having a positive impact. Fig. 3 shows the two types with the two major drives for reaching synergy: the number of actors and the number of transactions.
web type synergy positive externalities
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club type
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number of actors Fig. 3. Club-type and web-type networks: the drives for synergy.
Club- and web-types can be seen as two different governance structures (cf. Williamson, 1975). The relevance of the distinction between club- and web-type for this topic is that the organizational strategies and goals of the decision makers operating in a web-type are individual actor specific, while those of club-types are more likely to be network based rather than ‘manager based’. In clubtypes, we do find that the larger the ‘club’ and the group of actors—members—involved, the more likely the actual managers are ‘alienated’ from the goals of the individual club members (Durkheim, 1933, 1951). Public bodies and semi-state bodies are assumed to represent the common good and should be seen as a clubtype, catering for some kind of ‘need’ for the stakeholders. Whether this is the provision of passports, building permits or healthcare, these are all ‘club-type’ items the members of the club—civilians, companies or patients—ask for. For this reason, stakeholder mapping is of importance not only to prevent strategic drift as is the case for market oriented organizations. It is comparable to marketing research to find out the customer profiles and corresponding customer demands and wishes. Stakeholder mapping is a prerequisite for public bodies to have an equivalent approach to ‘customer intimacy’ (Treacy and Wiersema, 1993), or ‘customer value added’ for organizations in the market
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sector. Following this concept, the organization should stay ahead in meeting customer needs on three aspects: (1) operational excellence, (2) customer intimacy and (3) product leadership. The term ‘leadership’ may sound slightly out of place when we refer to public bodies, but the moment people start promoting privatization of public activities, they apparently assume that these would do a better job taking on the role of leadership, compared to the present public bodies. From this point of view, ‘leadership’ may be simply operationalized as ‘beyond serious dispute of being privatized’. Operational excellence is described as ‘‘providing customers with reliable products or services at competitive prices and delivered with minimal difficulty and inconvenience’’ (Treacy and Wiersema, 1993, p. 84). The ‘competitive prices’ part can be translated into ‘socially acceptable prices’; this enables operationalization of public goods including merit goods and demerit goods—hence equaling the actual price of producing a good, including subsidies and levies. The term ‘customer intimacy’ has all the potential of becoming a container term, such as for instance ‘best value’ in the British health care. The authors define ‘‘customer intimacy’’ as ‘‘segmentation and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches’’ (Treacy and Wiersema, 1993, p. 84). This in fact is equally possible for and—in the eyes of many—required from public bodies. Segmenting health care, education, safety to assume that ‘one-size-fits-all’ applies to public services is a rather outdated idea. Paraphrasing the authors (p. 85), one may say that organizations that excel in stakeholder and user intimacy combine detailed stakeholder and user knowledge with operational performance in getting the stakeholders—including the end-user—precisely the product or information he or she wants. While operational excellence typically coincides with ‘mean-and-lean’ operating, which is something almost alien to many public bodies, customer intimacy relates to ‘agile’ operations: flexibility with boundaries of a particular increased specialization; a given ‘value discipline’. To give an example, organizations focusing on the well-being of elderly people can for instance be segmented into organizations providing home assistance, organizations hospitalizing the elderly and even home delivered hot meals. These segments require different processes to run the operations efficiently and effectively in order to achieve value for their respective users; different organizations, different processes and usually even a different type of personnel. Merging these organizations because of perceived scale effects can only lead towards sub-optimalization of the segmented value disciplines involved. The third discipline, ‘product leadership’ requires organizations to strive for a continuous stream of state-ofthe-art products and services (p. 89). The problem for public bodies evidently is the question what the state-ofthe-art is and, most important, who decides about that. This brings us back to our stakeholder analysis. Organizations who claim to be ‘product leaders’—research institutes, Universities, marine shipyards, monopolistic space
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vehicles producers and other public and non-market organizations will have to cope with decision makers who decide on budgets, government spending or semi-state insurance companies. Decision makers who set the agendas for what the criteria for evaluation are. This adds a recursive element to stakeholder analysis: the stakeholders being subject to lobbying by the organizations they have a stake in, to make sure they have the right agendas and criteria. In this contribution, I will not go into a detailed analysis of stakeholder mapping as such, given the abundant literature on this subject. I assume that this has been done and the two steps mentioned above—importance and nature of demand—are known. Given the outcome of that analysis, I will continue with the way the POP-model leads to different ways to organize the purchasing function of public bodies with a club-type nature. 4. The POP-model further developed Depending on the specific content of the three POP elements for the total organization, the Purchasing function should reflect these three elements. In case of a centralized organization—like for instance any Defence department usually is—it will be hard to promote a decentralized decision authority in the case of purchasing. The opposite, a rather decentralized departmental public body may not like to give away ‘budget power’ to ‘some centralized unit’. Also, the policies of the purchasing function—usually worded by the purchasing department—should be in line with the policies of the total organization. Finally, processes that run separately from all other processes are bound to lead to additional activities to link processes where appropriate. Apart from technical problems that may well arise, this increases additional costs and may even lead to specialized departments dealing with this datainformation interchange. Having stated that the ‘Purchasing POP’ elements should be reflecting the ‘regular’ POP elements, we then may derive the optimal mix of supplier types that should follow from the given purchasing policies. We distinguish four categories of suppliers, following the mainstream use of portfolio analyses, which leads to a distinction between suppliers of strategic goods, leverage goods, routine goods and bottleneck goods (Kraljic, 1983). We are aware of the shortcomings here (Olsen and Ellram, 1997; Kamann, 1999), but will take this distinction as a proxy for those typologies, based on more sophisticated methods. The assumption is that each type of policy sets will have a certain mix of these four suppliers and a specific way of dealing with them. The total figure is represented in Fig. 4. The expected ideal nature of the mix of suppliers considered to fit a certain policy can be derived from the following arguments. According to literature, the dynamics (Mintzberg, 1979), turbulence (Emery and Trist, 1965) and complexity (cf. Gadde and Ha˚kansson, 1993) play a role in determining the required degree of innovativeness of any
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Fig. 4. The POP-model for public procurement. Standard; stable
organization (Porter, 1980; Johnson and Scholes, 1989). The most important variables related to ‘complexity’ in this case are the amount of differentiation among users with different demands, demands from different (dominant, latent or dormant) stakeholders being users, and different types of inputs (materials, know-how, knowledge, different types of socially segmented markets). I translated these aspects into the following questions: (a) is the product required by the stakeholder a standard product, used by the stakeholders in a repetitive routine pattern?; (b) is production by the club-type organization user specific or generic; (c) are users only concerned about the availability of products (hence, of a generic nature that does not need personalization of the service and because of this is comparable to the ‘make-to-stock-environment’ as described by Hoekstra and Romme (1992)? The second aspect can be expanded, in that provision typically takes place (d) for unique products, specified by the user or key-stakeholder; (e) with low repetition of demand resulting in new task purchasing; (f) with keystakeholders or users involved from the beginning of the chain (in market oriented companies, this would be named ‘engineer-to-order-environment’); (g) with aspects difficult to measure, such as high complexity, subjective concepts— ‘well-being’, ‘best value health care’, ‘safety’, ‘justice’—and dominant stakeholders with contradicting demands to choose from. While in real life many different types may result from the aspects above, I will start with the following two archetypes: (1) the organization that has to cater for noninnovative standard services in a rather stable environment where efficiency and price do count; mainly process oriented. Examples are the provision of passports, building—and other permits, garbage collection. Here, operational excellence is expected by the dominant stakeholder, representing ‘the public interest’. (2) The organization that
Fig. 5. Various archetypes of public bodies.
has to provide services, described as concepts subject to rapid changes in connotation, with high complexity (either because of, rapidly changing and differentiated demands and/or users or changing technologies), with a focus on innovation of products and processes. Examples are health care, safety, education. This organization is supposed to show ‘product leadership’ as described above. Fig. 5 represents the two archetypes in a matrix: the lower left quadrant being the first type, the upper right quadrant being the second type. In the matrix, we also find two ‘hybrids’ in the other two quadrants: (3) the public organization in a situation of a stable demand for certain services, but where the demand is not generic but segmented. Examples are employment services, where services should be efficient and effectively serving the user by knowing his needs well (user intimacy). (4) The organization that has to be innovative in a dynamic environment with a high complexity but with rather generic services or products to provide. Examples are energy, transportation, road safety. Here, product leadership also applies, but because of the generic nature of the products supplied, segmentation is not required, which has different organizational implications. I will refer to the innovative types which have to combine product leadership with user intimacy as teams, and to the organizations in a stable environment supplying generic standard services and combining operational excellence with a stable demand for a standard product, as squeezers. I derived some of the organizational forms from Mintzberg’s (1979) typology and added these to the matrix, together with the concepts of flexible automation and segmentation. One of the two hybrids received a descriptive name, related to a metaphor expressing the relation between the organic central
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Squeezers
strategic
routine
bottleneck
leverage
strategic
routine
Flexibilizers
leverage
routine low
bottleneck
strategic
bottleneck low
routine
strategic
bottleneck high
complexity of supply market
low
high
complexity of supply market
Fig. 6. Ideal types of portfolios for four archetypes.
Table 1 Teams and squeezers: from organizational strategy to purchasing policy
high
leverage
low
Teams leverage
high
Star & Satellites
The assumed mix of suppliers to each of the four types is represented in Fig. 6. The underlying assumption is: the more innovative an organization, the more strategic suppliers for strategic products are involved. Organizations in stable environments with very little demand for
share in total valueinputs share in total value inputs
team and the various bodies in the field being involved through material experts: ‘star & satellites’. The other hybrid was named after the technology that possibly could be employed to reach economies of scope across several segments—flexible automation—‘flexibilizers’.
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innovation typically have leverage products to reduce costs as much as possible; routine products are supplied on basis of Vendor Managed Inventory schemes and Service Level Agreements. 5. Organizing the purchasing function The differentiation into different archetypes in Fig. 5 can be used to differentiate the organization of the purchasing function. For Table 1, I selected the two ‘pure’ types—the ‘team’—combining user intimacy with product leadership—and the ‘squeezers’—combining operational excellence for generic products with a stable non-innovative demand. For the teams, I assume stakeholders, asking for what might be called an innovation-differentiation strategy. For the squeezers, I assume that dominant stakeholders demand a general cost focus as part of the operational excellence. While Table 1 gives 10 aspects of the organization’s purchasing policy, Table 2 shows four aspects of the ideal purchasing organization, given the particular purchasing policies (cf. Burns and Stalker, 1961, 1995). When designing the best fit for the archetypes, the notions ‘organic’ and ‘mechanistic’ from organizational literature (Mintzberg, 1979) were used. The two hybrid Table 2 Teams and squeezers: from purchasing policies to organizing purchasing
forms—the ‘star & satellites’ and the ‘flexibilizers’—show a mix of organizational characteristics (Table 3) which could be described as ‘centralized organic’ and ‘decentralized mechanistic’ (Mintzberg, 1979). These hybrids may actually be more difficult to manage because of this mixed nature. The model was tested on a range of smaller and medium sized local governments, hospitals, geriatric care centres, various types of semi-state bodies, ministerial departments and police departments. In spite of the archetypical nature of the various types described where they obviously differ in the final lay-out, the structuring structure of the model enabled easy and clear communication about their elements. 6. Conclusions and recommendations Organizing the purchasing function for public bodies and other non-profit bodies starts with its identifying its stakeholders and the various demands they pose. After reviewing the nature of these demands and the way they have to be met, the organization should translate this into an appropriate strategy: operational excellence, product leadership or customer intimacy. This strategy forms the basis for the design of three interdependent elements:
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Table 3 Characteristics of the two hybrids: ‘Star & Satellites’ and ‘Flexibilizers’ Archetype
Type ‘Star & Satellites’
Type ‘Flexibilizers’
Organizational strategy
Product leadership on generic products; where possible, combined with operational excellence because of the generic nature of products Competitive positioning plus partnering
Segmented user intimacy at optimal process efficiency; striving for economies of scope; niche strategies
Purchasing policies Degree of outsourcing Centralized/decentralized Formalization of purchasing function Training/education purchasing Specialization of purchasing staff Degree of standardization of purchasing process
Relatively high Standard inputs: centralized; innovative inputs: decentralized led commodity teams High: mechanistic purchasing function standard inputs low: organic purchasing function for innovative inputs; possible confusion High; in availability and budget
Competitive position; relations with preferred suppliers for segment unique inputs Relatively low Standard inputs: centralized; ‘unique’ inputs: decentralized within central umbrella contracts Predominantly high: mechanistic purchasing function for standard inputs Average
Low/average: flexible and focus on employability
Average
High
High
policies (P), organization (O) and processes (P). The way these three elements are filled in for the purchasing function, differs between strategies. This implies that when the organization finds that two opposite strategies are required, this would require two different ways to organize the POP elements. This would either cause friction or suboptimization. Splitting up then is a better solution. The POP-model also helps to formulate an appropriate supplier strategy, to create a suitable supply base: it clarifies the idealized mix of suppliers in terms of portfolio archetypes. Discussing the various elements and arguments as such may be a useful exercise for many public bodies to become aware of the ‘stakeholder’ orientation of public bodies. Also in public bodies, the purchaser has to be aware that at the end, he is serving the final user and should fill in his supplier relations in such a way that the final user and the dominant stakeholder representing those users, is satisfied. If this contribution could stimulate this way of thinking in some way, I would be satisfied.
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