Supplier perceived value: Differences between business-to-business and business-to-government relationships

ARTICLE IN PRESS Journal of Purchasing & Supply Management 15 (2009) 3–11

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Supplier perceived value: Differences between business-to-business and business-to-government relationships Sharon Purchase a,, Tony Goh a, Ken Dooley b a b

UWA Business School, University of Western Australia, 35 Stirling Highway, Crawley, Western Australia 6009, Australia Central Queensland University, Australia

a r t i c l e in fo

abstract

Article history: Received 16 June 2008 Received in revised form 11 November 2008 Accepted 26 November 2008

This research investigates suppliers’ perceptions of value and compares business-to-business (B2B) and business-to-government (B2G) relationships. This paper highlights that suppliers perceive greater value benefits from their business customers than their government customers. The volume of sales in both B2B and B2G relationships impacts perceived value. In B2G relationships, information exchange on how to do business had the largest significant influence on perceived value. The implication for suppliers is that they need to consider which relationships offer them better value and then allocate resources towards those relationships, which in this case are their business customers. The implication for government procurement managers is that their methods of dealing with suppliers is putting them at a disadvantage when compared with businesses which may be competing for supply. & 2009 Elsevier Ltd. All rights reserved.

Keywords: Value Government procurement Supplier value

1. Introduction There is a plethora of purchasing literature outlining strategies and best practice for companies within the private sector with little attention focusing on government or public sector purchasing (Wang and Bunn, 2004; Schiele and McCue, 2006). Therefore, a knowledge gap exists in our understanding of government procurement strategies (Bryntse, 1996; Murray, 1999, 2001; Wang and Bunn, 2004). It is recognized that the strategic goals of government are often quite different from those in the private sector and consequently purchasing goals in the public sector can be fundamentally different from those in the private sector (Knott, 1993; Murray, 2001; Furneaux et al., 2008; Van Der Wal et al., 2008). Strategic goals in the private sector are generally centered on profit maximization, while government goals include fairness, equality, democracy, public accountability, efficiency, competitiveness, balancing interests and political advocacy. The differences in goals develop from the obligation and hence necessity for government organizations to serve the public interest, while private enterprise is more focused on creating wealth for their stakeholders (Van Der Wal et al., 2008). These differences result in procurement approaches/processes and evaluation methods followed in the private sector often being quite different to those in the public sector (Murray, 1999, 2001; Wang and Bunn, 2004; A˚stro¨m and Bro¨chner, 2007).

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E-mail addresses: [email protected] (S. Purchase), [email protected] (T. Goh), [email protected] (K. Dooley). 1478-4092/$ - see front matter & 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.pursup.2008.11.003

Research tends to focus on the difficulties in dealing with government (see Williams and Smellie, 1985; Martin et al., 1999) or the policy issues of improving the value obtained by using the public procurement function (see A˚stro¨m and Bro¨chner, 2007; Loader, 2007; Murray, 2007). The difficulties in obtaining government contracts are often due to the requirement for transparency and accountability to ensure the process is conducted in an ethical and equitable manner (Erridge and Greer, 2002; Loader, 2007). Rainey and Bozeman (2000) highlight that government procurement processes have a greater degree of formalization and are therefore perceived to involve much more red tape. Consequently, there is a fundamental perception of complexity and tediousness related to conducting business with the government (Bryntse, 1996; Erridge and Greer, 2002). Yet, many businesses actively pursue government supply contracts claiming to understand government processes and receive ‘value’ from these contracts. This raises an interesting question: ‘Are the value propositions they claim to receive from government contracts different and are they better or worse than those received from their private customers?’ Research into value is an increasing area of study that is seen as a priority by the marketing research institute (Lindgreen and Wynstra, 2005). This paper focuses on investigating the value of relationships, a research avenue proposed by Lindgreen and Wynstra (2005). Current research on value tends to focus on business-to-consumer (B2C) rather than business-to-business (B2B) or business-to-government (B2G) relationships and almost exclusively considers the customers perspective even though the requirement of suppliers to understand relationship value is a ‘matter of survival’ (Lindgreen and Wynstra, 2005, p. 739;

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Sweeney and Webb, 2007). There is still a lack of understanding about what value entails (Woodall, 2003; Mandjak and Simon, 2007), which is not surprising given the complexity surrounding the construct (Ismail and Khatibi, 2004). For this research, value is considered the benefits obtained from the relationship less the costs of maintaining the relationship (Lapierre, 2000). Even though supplier and customer value propositions are going to be different (Sweeney and Webb, 2002; Lindgreen and Wynstra, 2005), there is little research on how suppliers receive value (Walter et al., 2001). Lamming et al. (1996) report that suppliers receive fewer benefits from their business relationships than customers, but a detailed analysis of the benefits received is lacking. This research considers value from the perspective of the supplier and focuses on how relationships offer value to suppliers, similar to the research of Walter et al. (2001) and Mo¨ller and To¨rro¨nen (2003). Overall, suppliers’ perception of value is an under-researched area, when compared with customer value, and requires much more attention if the development of purchasing strategies are to benefit suppliers. The paper begins with an examination of the differences between government and private sector purchasing strategies and a discussion on how value is conceptualized. Following this is the methodology and then outcomes of the data analysis. The paper concludes with an outline of the results and then implications for suppliers and government procurement departments.

2. Comparison of public and private sector procurement strategies Goals within the public sector tend to be more complex and ambiguous when compared with those in the private sector (Rainey and Bozeman, 2000; Van Der Wal et al., 2008). Accountability and ensuring an absence of corruption have been found to be significantly more important in public organizations than the standard goals of efficiency and profit maximization (Williams and Smellie, 1985; Rainey and Bozeman, 2000; Murray 2001; Wang and Bunn, 2004; Van Der Wal et al., 2008). Others have noted the influence of the political process on shaping public sector practice (Knott, 1993; Murray, 2001, 2007). Goals such as equity and the development of small business are also important for public procurement (Wang and Bunn, 2004; Loader, 2007; Ram et al., 2007). Yet research has shown that even when policies have been implemented, changing public practice to emulate that of their private counterparts results in emerging conflict (A˚stro¨m and Bro¨chner, 2007). Thus, procurement within the public sector has a different set of goals and approaches that suppliers need to take into account when developing their offerings. This section outlines some of the main differences between procurement practices in the public and private sectors. To avoid corruption and to ensure probity and accountability the government sector has introduced strict regulatory requirements surrounding the procurement process (Erridge and Greer, 2002; Murray, 2007). These regulations result in a large degree of formalization and bureaucracy surrounding the procurement process (Rainey and Bozeman, 2000; Erridge and Greer, 2002; Wang and Bunn, 2004). Regulatory requirements on government spending are particularly prevalent in lower levels of government, where directives from higher levels of government are common (Bryntse, 1996). For example, in Europe there are EU directives on public procurement that impact at the local level (Martin et al., 1999). In Australia, public accountability boards make recommendations on how public funds should be spent. Such regulatory requirements ensure that ‘due process’ is achieved, but the result is difficulty in developing long-term relationships as the focus of the review is effectively on a single transaction (Wang and Bunn,

2004). Within the private sector such regulations do not apply thus allowing the procurement process to best match the organization’s needs, increase flexibility, develop long-term relationships, adapt systems to suit long-term goals of efficiency and create an atmosphere of trust and commitment (Ha˚kansson and Snehota, 2000; Wang and Bunn, 2004). Transparency is an important requirement to ensure public funds are ethically spent and allow for scrutiny from political committees (Murray 2007) and public interest groups (Erridge and Greer, 2002). Such close scrutiny has been likened to ‘buying in a fishbowl’ (Bryntse, 1996, p. 194) and can result in procurement people avoiding personal involvement, giving less flexibility and freedom within the procurement decision process and possibly reducing efficiency (Wang and Bunn, 2004; Furneaux et al., 2008). This reduced efficiency has resulted in various reports such as Report 369: Australian Government Procurement and Report 379: Contract Management in the Australian Public Service, which are both aimed at ensuring the best outcome for the Australian public’s interest (JCPAA, 1999, 2000). Private sector procurement people are not restrained by close disclosure rules, allowing them to implement close strategic supplier relationships across numerous transactions over an extended period of time (Wang and Bunn, 2004). There are supplier benefits in pursuing government contracts. In particular these are the stability of government procurement and the volume of goods and services available. For example, 2007 figures show government expenditure of OECD countries topped US$5,326,226 million accounting for 17% of the total GDP for all OECD countries (OECD, 2008). The Australian Government expenditure amounted to US$113,969 million accounting for 17.8% of its total GDP in 2007. Another astounding fact is that the Australian Government has increased its spending by 34% over the 5 years from 2000–2006 to AUD$334,456 million (ABS, 2006). The overall buying power of government is large and actively pursued by suppliers because of the volume of supply. Government buying in most developed countries is of the order of 30–40% of all supply contracts. Government procurement is also relatively stable in that the government is unlikely to be declared bankrupt and government spending is generally consistent over time, even during a recession (Williams and Smellie, 1985; Loader, 2007). Thus, stability is often used as a risk mitigation strategy by suppliers to minimize variation in demand due to changes in the economic cycles (Loader, 2007). Suppliers count on the stability in government supply contracts to ensure their longer term survival. The consequences of the government practices outlined above is that government procurement is often considered risk adverse and not innovative (Murray, 2001).

2.1. Value Woodall (2003) highlights 18 different names for constructs that encompass the value notion. Value is a trade-off between benefits obtained and sacrifices given (or costs paid) by the customer, a conceptualisation commonly outlined in the literature (Ravald and Gro¨nroos, 1996; Flint et al., 1997; Zeithaml, 1988; Lapierre, 2000; Teas and Agarwal, 2000; Hogan, 2001; Woodall, 2003; Lin et al., 2005; Lindgreen and Wynstra, 2005; Cretu and Brodie, 2007). There is an underlying focus on achieving the product and service benefits required for the lowest possible cost without lowering quality (Flint et al., 1997; Fong et al., 2001). Value benefits obtained by customers are different from those obtained by suppliers, with differing levels of value obtained by customers versus suppliers (Lamming et al., 1996; Lindgreen and Wynstra, 2005; Sweeny and Webb, 2007). Value is an important

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concept within the area of purchasing and supply as it has been closely linked with the concept of total cost of ownership (Wouters et al., 2005; Lindgreen and Wynstra, 2005). In particular, it allows procurement people to consider the value benefits of alternative offerings rather than being price focused. Non-price focused benefits include quality of the offering, improvements in inventory holding costs, improvements in transaction costs and improvement in delivery to customers (Lindgreen and Wynstra, 2005). Lindgreen and Wynstra (2005) also highlight the fact that suppliers receive value from loyal customers via cross selling, reduced time for personal selling, benefits from word-of-mouth advertising, lower price sensitivity, and reduced acquisition and marketing costs. When considering relationship value it is important to consider the benefits gained including both the product/service offering as well as those gained from the relationship (Ravald and Gro¨nroos, 1996; Lapierre, 2000). Monetary sacrifices such as costs (Cannon and Homburg, 2001) and non-monetary sacrifices such as time and energy put into building relationships (Lapierre, 2000) are also important considerations. 2.2. Sacrifices Sacrifice encompasses the negative aspects of value and includes outgoing resources (Ravald and Gro¨nroos, 1996). For example, sacrifices from a customer perspective include the costs of buying the product/service. These encompass direct costs such as the price paid for the product and indirect costs such as the time spent searching for the product, energy expended in maintaining the relationship with the supplier (if any), and resources involved in using the product (Lapierre, 2000). Sacrifice from a supplier’s perspective includes the costs of producing the product, distributing the product and marketing the product. Sacrifice is ensuring that the product produced suits the market requirements at the price customers are willing to pay. There is immense complexity in the number of issues involved in the total cost analysis of supplier sacrifice. Furthermore, the sacrifice peculiar to each supplier is based on their individual cost structures, making this aspect of research beyond the scope of this paper. 2.3. Benefits Benefits are categorized into direct and indirect benefits (Ravald and Gro¨nroos, 1996; Walter et al., 2001). Direct benefits are those received mainly within the dyadic relationship, while indirect benefits have network effects and relate to the broader network concept. Although this categorization broadly covers

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customer and supplier perceptions of value, the items measuring direct and indirect benefits vary according to whether they are viewed from a supplier or customer perspective. This section begins with a discussion on customer perceptions of direct benefits most commonly cited in the literature and ends with suppliers’ perceptions of direct benefits. Ravald and Gro¨nroos (1996) note that customers achieve direct benefits through the use function of the product or service acquired. These direct benefits are considered the ‘use value’ of the offering (Lindgreen and Wynstra, 2005). Yet, customers acquire products for more than just their functional use, and therefore indirect benefits accrue. Indirect benefits include social and psychological benefits (Sweeny and Webb, 2007) and/or relationship benefits (Lapierre, 2000). Relationship benefits are an integral aspect of a customer’s value consideration (Ravald and Gro¨nroos, 1996; Ha˚kansson and Snehota, 2000; Lapierre, 2000; Wathne et al., 2001; Lindgreen and Wynstra, 2005). Relationship benefits include aspects such as trust, commitment, conflict and communication (Ha˚kansson and Snehota, 2000). Lapierre (2000) also includes the supplier’s image within relationship benefits, highlighting the ‘esteem value’ (Lindgreen and Wynstra, 2005) of the offering. There is relatively little research into the relationship value received by suppliers with these papers categorising value benefits into different elements called functions (Walter et al., 2001; Mo¨ller and To¨rro¨nen, 2003). Direct functions are the benefits that directly affect the organizational performance (Walter et al., 2001, 2003; Lindgreen and Wynstra, 2005). Given that actors are oriented in a wider network of relationships, some of the benefits suppliers receive from one relationship assist them during their interactions with other network actors. These value benefits do not directly link to firm performance and are categorized as indirect functions. Table 1 gives the definitions of the different types of direct and indirect functions. Direct functions include profit, volume and safeguard function. All these value benefits accrue to the immediate dyad with none of the benefits spreading into the wider supply network. Indirect functions include the value benefits that are used by the suppliers to assist them to improve interactions outside the immediate dyad and do not directly affect performance. Different relationships contribute different amounts of direct and indirect functions, with high-performing relationships contributing high levels of both direct and indirect value benefits (Lindgreen and Wynstra, 2005). All value functions were tested by Walter et al. (2001) and are independent and explain a large proportion of the variance (49%). This research focuses on understanding the value creation processes from a supplier’s perspective and is an important avenue of future research (Lindgreen and Wynstra, 2005).

Table 1 Definition of direct and indirect functions.

Direct functions Profit function Volume function Safeguard function

Indirect functions Innovation function Market function Scout function Access function

Suppliers must have profitable customer relationships for survival. Suppliers make concessions in prices to handle customers, who purchase comparatively large portions of their production. Given the uncertainties in competitive markets, suppliers establish certain customer relationships that are held as insurance.

Suppliers establish relationships with customers who are seen to be at the forefront of technology or whose product expertise is high. Customers refer the supplier to new opportunities. If the referring customer is especially large and prestigious (that is, known to apply stringent criteria to their selection of supplier companies) they have a valuable reference effect. Customers are described as scouts in the marketplace with the task of gathering and disposing of information about market developments. Customer experience in dealing in business-to-business markets can be of considerable help.

Source: Adapted from Walter et al. (2001) and Lindgreen and Wynstra (2005).

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3. Conceptual framework The research objective is to investigate the value benefits perceived by suppliers and compare whether government and private enterprise customers offer the same or different types of value benefits. The research adapts the value framework outlined by Walter et al. (2001) and extends it further to allow for comparison of value benefits. Subsequent hypotheses are created at the end of each narrative. 3.1. Dependent variable The dependent item used by Walter et al. (2001, p. 377) was to ‘Please rate the profitability of the customer relationship by considering all revenues and costs associated with the relationship’. Pre-testing of the survey instrument showed that suppliers are unable to differentiate between the dependent items, as outlined by Walter et al. (2001), and the profit function. Further discussions with suppliers resulted in the conclusion that this question is so similar to the profit function that the profit function would serve as the dependent variable. Therefore, the dependent variable for the research was the profitability of the relationship. It is also hypothesized that private customers would supply a higher level of profit function than government organizations. This resulted in the development of the hypothesis: H3a. B2B relationships have a stronger impact on profit function than B2G relationships. 3.2. Value functions The value function considers the volume of sales that the customer orders through the supplier. Walter et al. (2001) show that the volume function positively influences value perceptions of suppliers. Williams and Smellie (1985) highlight that government consolidation of their spend results in larger volume orders to contracted suppliers. Given the large buying power of government procurement, it is expected that government suppliers would experience a higher level of volume function when compared with their private counterparts. This results in the following two hypotheses: H1a. Increased fulfilment of volume function leads to increase in suppliers’ perceived value. H3b. B2G relationships have a stronger impact on volume function than B2B relationships. The safeguard function measures the businesses practice of seeking relationships with stable customers for risk mitigation purposes. Stable customers mean customers who are deemed financially strong, have a fair amount of previous transactions and there is reasonable assurance of continued patronage (Walter et al., 2001; Lindgreen and Wynstra, 2005). This sort of customer is especially important during economic crises as a safeguard against downturn in business from other customers. Previous research highlights that some suppliers prefer government procurement as governments are considered as safe and consistent customers (Williams and Smellie, 1985; Boyett et al., 1996; Loader, 2007). Particular aspects highlighted include preservation, steady ordering, less business removed in falling market conditions and risk mitigation strategies. As a result the following hypotheses were developed: H1b. Increased fulfilment of safeguard function leads to increase in suppliers’ perceived value.

H3c. B2G relationships have a stronger impact on safeguard function than B2B relationships. The innovation function describes the aspect of relationship value where product and process innovations are co-developed with customers eventually improving the overall value of the supplier’s offerings to the wider network (Walter et al., 2001). Boyett et al. (1996) and Bovaird (2006) show that innovative contracting processes by government results in process and product improvements by their suppliers. Bovaird (2006) also discusses a case where government departments following a standard win/lose contracting philosophy resulted in suppliers not benefiting at all from the innovative practices. Williams and Smellie (1985) also found that government discourages innovative practices with their suppliers. In relation to private enterprise, Holmen and Kristensen (1998) show that some suppliers purposely bid low for supply contracts with Toyota to benefit from the innovation and quality assurance programs inherent in the contract. These suppliers consider the innovative practices learnt from Toyota are critical in improving their offering to other customers. This has resulted in the following hypotheses being developed: H2a. Increased fulfilment of innovation function leads to increase in suppliers’ perceived value. H4a. B2B relationships have a stronger impact on innovation function than B2G relationships. Suppliers can receive useful or even privileged information from their customers, which can be used to improve their offerings within the wider network. Thus, a customer acts as a scout in the marketplace (Walter et al., 2001). Bovaird (2006) describes partnering cases where government customers do share information with their suppliers to improve their market knowledge and also shows the opposite where government customers using a win/lose philosophy, not willing to share information with their suppliers. He suggests that in those cases, where information is exchanged, overall performance improved for both the government customer and the supplier. Wang and Bunn (2004) also indicate that when a win/lose philosophy is dominant, the information exchanged is the minimum required for contract negotiation. Therefore the following hypotheses were developed: H2b. Increased fulfilment of scout function leads to increase in suppliers’ perceived value. H4b. B2B relationships have a stronger impact on scout function than B2G relationships. Customers who have had good experiences with a supplier offer referrals and recommendations to others (Salminen and Mo¨ller, 2006). These recommendations fulfill the market function of value benefits (Walter et al., 2001). The market function allows a supplier to enjoy a better reputation and gain new business opportunities. Ram et al. (2007) highlight that suppliers gain access to new government opportunities from their existing government customers. It is noted that this relates only to government opportunities and does not include opportunities within the private sector. Therefore the following hypotheses were developed: H2c. Increased fulfilment of market function leads to increase in suppliers’ perceived value. H4c. B2B relationships have a stronger impact on market function than B2G relationships. Customers who have previous experience dealing with trade associations, chambers of commerce and banks may aid suppliers

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by passing on their experiential knowledge (Walter et al., 2001). Dealing with government contracts can be complex and tedious, requiring a lot of time, effort and money (Rainey and Bozeman, 2000) and government customers are likely to know and accept that the red tape and formal processes involved are difficult to understand. ‘Meet the buyers’ sessions are often organized to educate suppliers on how to deal with government procurement (Ram et al., 2007). Ram et al. (2007) demonstrate that suppliers do feel they get value from these sessions. Therefore, the following hypotheses were developed:

Table 2 Number of willing participants.

H2d. Increased fulfilment of access function leads to increase in suppliers’ perceived value.

number of suppliers who only supplied private organizations and there were no modifications made to any items. Respondents were asked to complete the survey for their second best government and private customer. The request for the second best customer in each relationship classification limited any bias that could occur if a more important customer was eliminated. The term ‘best’ was used instead of ‘largest’ to reflect the complexity of value which is not definable by quantity alone but also considers a myriad of other qualitative outcomes of a relationship.

H4d. B2G relationships have a stronger impact on access function than B2B relationships.

4. Methodology The context of this research is Australian suppliers who supply both government and private organizational customers. The following government departments provided supplier listings to help with the research: Western Australian Local Government Association and three tertiary education facilities in Western Australia. From these institutions a list of prospective suppliers was developed. Further selection criteria included the requirement that the respondent occupied an executive position, which included responsibility for managing customer accounts and substantial decision-making power concerning the relationship. These criteria excluded operational staff such as order-processing clerks or customer management officers who may not view the relationship holistically. Given that the list of possible respondents was small, the research was designed to maximize the response rate. Six strategies were used for maximizing the response rate (Duncan, 1979; Smith and Bost, 2007). Step 1 involved telephoning all respondents to gain consent prior to sending the survey. During the telephone conversation the specific project sponsors were mentioned in an attempt to gain a positive attitude towards participation (Porter and Whitcomb, 2003). Step 2 involved developing a user-friendly interface for the survey, which consisted of two aspects. First, the survey was pre-tested on a number of suppliers to ensure the items were readily understood. The outcome of the pre-test showed that items were succinct and clearly understood for its intended meaning. Second, as the survey was conducted online, the user-friendliness of the survey interface was an important criterion during survey site development. Step 3 involved sending weekly reminders to all consenting respondents who had not completed the survey. Step 4 involved making five call-backs at different times of the day if the respondent could not be reached on initial telephone contact. There were twenty-four (24) potential participants that did not respond despite five different attempts to contact them. The main reason for potential respondents being non-contactable was attrition. Other reasons included, but were not limited to, annual leave, sick leave and attending interstate meeting. Despite 24 noncontactable potential respondents, 66 respondents were contacted and agreement to participate in the survey was solicited. Table 2 gives the response rate statistics for this research which came to 56.1% (37/66) after partially completed responses were deleted. Instrument design followed the items developed by Walter et al. (2001) and used multiple items for each construct. Walter et al. (2001) achieved good reliability and uni-dimensionality in their study so it was considered acceptable to use their items. The survey instrument (shown in Appendix 1) was pre-tested on a

Starting number of suppliers

Number of refusals

Number of customers not reached

Number of customers willing to participate

Actual number of responses recorded

98 Total (100%)

8 8.2

24 24.5

66 67.3

37

5. Data analysis The respondents came mainly from middle (38%) to high (40%) level management and could therefore evaluate relationships more holistically (that is, could look beyond the short-term gains and profit) and were actively involved with both government and private enterprise customers (on average 2 years for B2G and 2.6 years for B2B). The respondents also made a point of meeting their customers at least once a month, on average 16 times per year for B2G and 17.5 times per year for B2B. The data were checked for multiple entries as the survey was conducted online. This was done by checking the IP address, date and time submitted and the demographic information given (Forrest, 1999). The data were also checked for consistency and for missing items. A strategy to replace missing value with the item’s mean value was employed. Summated factor scores were used to overcome a disadvantage of factor analysis, which is of differential loadings on each factor. Since the study sought to compare the same factors (functions) between two samples (B2B versus B2G relationships), factor analysis would produce non-comparable (different weighted) factors (Hair et al., 1995). On the other hand, summated factor scores produce a constant weight allowing comparison of the two samples under exact comparability. Table 3 gives the results of the reliability analysis. All factors except the safeguard function for B2G relationships are above 0.7. These results indicate that the factors (except safeguard) are reliable and will be used for further analysis. The lower than expected reliability for the B2G safeguard function could be due to short-term contracts being used. Also procurement people spoke anecdotally about how they wanted to encourage competition and did not want suppliers to feel ‘comfortable’ in their contracts. This culture of short-term focus may have contributed to the unreliability of the safeguard function. Multiple regression was used to test H1 and H2, while paired t-tests were used to test H3 and H4. Multiple regression requires an R2 of greater than approximately 0.3 (for a sample size of 35) to ensure a power level greater than 0.8 and be considered significant (Hair et al., 1995). For paired t-tests the minimum recommended sample size is 25 for each independent variable (N1+N2 ¼ 50) (Hair et al., 1995) and the study sample size of 37 for each independent variable (N1 and N2) is greater than the minimum recommended. Section 5.1 outlines the results of the

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Table 3 Results of reliability analysis—Cronbach a.

Profit function (dependent) Volume function Safeguard function Innovation function Market function Scout function Access function

Table 5 B2B model.

B2G relationship (a)

B2B relationship (a)

Construct

b

t

Significance

VIF

0.923 0.897 0.437 0.881 0.887 0.875 0.825

0.879 0.778 0.701 0.872 0.949 0.787 0.701

(Constant) Volume function Innovation function Market function Scout function Access function

0.729 0.270 0.031 0.010 0.244

0.224 5.535 2.446 0.220 0.066 1.499

0.824 0.000 0.020 0.827 0.948 0.144

1.636 1.151 1.883 2.043 2.491

The bold face values indicates the results are significant when compared to insignificant results.

Table 4 Results of paired t-test.

Table 6 B2G model.

Construct

Mean B2G

Mean B2B

Mean difference

t

Significance level

Profit function Volume function Safeguard function Innovation function Market function Scout function Access function

3.34 4.75 3.00 3.79 3.48 3.59 3.66

4.85 5.57 3.39 4.72 4.59 4.76 4.22

1.51 0.82 0.39 0.93 1.11 1.17 0.93

7.1 4.19 1.71 4.25 4.15 5.95 2.37

0.000 0.000 0.096 0.000 0.000 0.000 0.023

 po0.01.  po0.05.  po0.1.

paired t-test followed by the results of the multiple regression analyses. 5.1. Comparison of differences Paired-sampled t-test was used to discern two sets of responses provided by the same set of respondents (Hair et al., 1995). In this study these responses were for B2G and B2B relationships from the same respondents. The means of the responses were then paired and tested for significant differences. Table 4 gives the results of the paired t-tests. Results of the paired t-test show that the B2B relationships offered higher levels of value than B2G relationships across all functions. These results are surprising as it was expected that B2G would offer greater value in the volume, safeguard and access functions. The result regarding the safeguard function should be used with some caution due to the low reliability score achieved with the B2G construct. Also the safeguard and access functions display a lower level of mean difference indicating that perceptions comparing B2B and B2G are only just significantly different. Therefore H3b, H3c and H4d are rejected while H3a and H4a, H4b and H4c are accepted. 5.1.1. B2B multiple regression model Table 5 gives the results of the multiple regression analysis for the B2B model. Results show that only volume and innovation function significantly influence the perceived value in the relationship. The final model was highly significant with an R2 of 0.672, po0.001 and F-test change of 12.67. Given the sample size and specified significance level, the R2 was great enough to ensure acceptable power level (Hair et al., 1995). Variance inflation factors were all above 1, indicating that multicollinearity is not a problem (Hair et al., 1995). These results show that H1(B2B)a is accepted while H1(B2B)b and H2(B2B)a, H2(B2B)b, H2(B2B)c and H2(B2B)d hypotheses are rejected. The innovation function is rejected due to the negative

Construct

Beta

t

Significance

VIF

(Constant) Volume function Innovation function Market function Scout function Access function

0.475 0.045 0.156 0.039 0.500

1.224 3.54 0.357 1.015 0.267 2.770

0.23 0.001 0.723 0.318 0.791 0.009

1.735 1.5 2.29 2.08 3.139

The bold face values indicates the results are significant when compared to insignificant results.

influence rather than the positive influence hypothesized. The negative b from the innovation function could be significant as this function is seen as a sacrifice due to the outgoings in revenue for product or process development rather than a benefit to be passed on to other customers. The negative relationship could be due to the respondent product types, that is mainly consumables such as office supplies and computers. Innovation improvements relating to other product types, such as direct manufacturing inputs (as per the Toyota example from Holmen and Kristensen (1998)), are more likely to be passed on to other customers. 5.1.2. B2G model Table 6 gives the results of the multiple regression analysis for the B2G model. Results show that only volume and access functions significantly influence the perceived value in the relationship. The final model was highly significant with an R2 of 0.678, po0.001 and F-test change of 13.076. Given the sample size the specified significance level of R2 was great enough to ensure an acceptable power level (Hair et al., 1995). Variance inflation factors are all above 1 indicating that multicollinearity is not a problem (Hair et al., 1995). The results indicate that volume function and access function significantly influence the perceived value. Interestingly, the access function has a larger b value than the volume function, indicating that suppliers perceive the information provided by the government customers on how to do business with government as important. The results of this analysis show that H1(B2G)a and H2(B2G)d are accepted, while H1(B2G)b and H2(B2G)a, H2(B2G)b and H2(B2G)c hypotheses are rejected.

6. Discussion and implications 6.1. Comparison of government and business value propositions These results align with suggestions by Wang and Bunn (2004), who indicate that government customers need to build relationships with their suppliers based on trust, information exchange and flexibility. By adapting to the suppliers’ needs and building

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long-term strategic relationships, government customers should be able to improve the value perceptions of their suppliers. In particular, improving information exchange should increase value perceptions within the scout and market functions. The research does not support the findings of Loader (2007) and Williams and Smellie (1985), who suggest that suppliers perceive value through risk mitigation strategies, steady supply even during times of economic downturn, with the associated improvement in their likely chances of survival. The results indicate that suppliers perceive that B2B relationships offer better value in mitigating the risk involved in economic downturns. This unexpected finding might be explained with the following:

 Australia is currently experiencing a 10-year period of



economic growth, and the confidence in the economy may be affecting supplier perceptions that B2B customers will be consistent customers in the future. Public procurement is focusing on achieving best practice and increasing competitive tension in the market. The increase in competitive tension would lead to increased perceptions of uncertainty as to whether they will ‘win’ government contracts.

In relation to the innovation function, suppliers do perceive they receive higher levels of value from the B2B relationships than from their B2G relationships. This result supports the findings of Williams and Smellie (1985), who indicate that government customers are perceived to not be innovative. Bovaird (2006) and Wang and Bunn (2004) indicate that when government use a win/loose philosophy they are perceived as not being innovative in their procurement processes. It could be that, in the cases researched, the contract negotiations used by government customers followed this philosophy. The results relating to the value functions considering information exchange (market function and scout function) indicate that B2B relationships are perceived to be significantly better at assisting the suppliers with information exchange. These results support the argument put forward by Wang and Bunn (2004), who indicate that customers within a private enterprise environment are not subject to the same levels of scrutiny and equity considerations and are more likely to discuss strategic information. On the other hand, government customers, operating under a win/lose philosophy, are more likely to only exchange basic information relating to contract negotiations. 6.2. Discussion on the hypothesized models The results of the two models indicate that the volume function is significant for both business and government relationships and support the results of Walter et al. (2001). Yet, the b value for business relationships (0.729) is much higher when compared with government relationships (0.475). This indicates that the volume function plays a much larger role in perceived value benefits for B2B than B2G relationships. Many government departments are centralizing their procurement to leverage volume and increase their bargaining position. It seems that these efforts have so far not resulted in the higher level of perceived value benefits when compared with B2B relationships. The access function has a positive influence on perceived value in B2G relationships and even has a greater b value than the volume function. This result supports the previous findings of Ram et al. (2007), who found that ‘meet the buyer’ sessions run by government agencies in the UK receive positive feedback from the suppliers. Ram et al. (2007) found that the information suppliers learned through the ‘meet the buyers’ sessions also assisted them

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to improve their dealings with corporate clients, thus further substantiating the indirect aspects of the access function. The negative influence of the innovation function in the B2B model contradicts the findings by Walter et al. (2001) and Holmen and Kristensen (1998), who emphasize the positive influence of innovation on value perceptions. The different findings by this research could be explained via the different contexts used. Walter et al. (2001) and Holmen and Kristensen (1998) concentrate on manufacturing contexts, while this research focuses on organizations supplying both government and private enterprise and consist mainly of suppliers of consumables (e.g. office equipments), service suppliers (e.g. professional recruitment) and solution providers (e.g. IT service and equipments). The results might reveal that consumable suppliers and service suppliers perceive themselves to be negatively influenced by their customers’ attempts to innovate products and processes. The scout and market functions in value benefits were not significant in either of the two models. This contradicts the results of Walter et al. (2001), where indirect functions (as a single construct) significantly influenced value perceptions. The lack of significance could be due to product type, with this research focusing on consumables where the market is stable and known. Therefore, new opportunities and information may not play a significant role in value perceptions.

6.3. Implications Our results indicated that for private enterprises their overall value offered to suppliers is greater than that of government departments. The volume function had a strong positive influence on perceptions of value, while the innovation function is perceived negatively by suppliers. Therefore, private organizations need to consider either minimizing the negative consequences of trying to change products or processes, or improving other value functions to outweigh the negative aspects. Minimizing the negative consequences would require organizations to investigate why these aspects are perceived negatively. Our results highlight that B2G relationships are perceived to offer lower levels of value across all functions when compared with B2B. While it may not be possible to positively compare B2B customers across all value functions, government customers need to develop a differentiating image that highlights the advantages of government supply to suppliers. The results of this research indicate that the safeguard function has the closest mean differences and would be the most likely area where government customers could improve their perceived value image. The other area in which government could improve their image is in information exchange, particularly the access function. The results of the regression model highlighted the likelihood that giving suppliers information on how to win government contracts had the largest positive effect on overall perceived value and improving this type of information exchange offers the best prospects of improving image. Implications for suppliers would suggest that they get greater value from their B2B relationships than their B2G relationships. Therefore, investing more resources in their B2B customers and fewer resources in their B2G customers should produce perceived improvements in value. The results of this research have implications for suppliers when conducting their customer portfolio analysis, indicating that they should expend more resources in their private business customers to achieve a greater return of value than focusing on government customers. Implications for government buyers would be that they develop a clear differentiating value proposition that highlights the advantages of government supply over other business

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customers. The study’s conceptualisation would recommend that government procurement consider the volume, safeguard and access functions, in particular, as possible differentiating advantages. The advantages need to be communicated to all stakeholders, including internal government procurement personnel and external suppliers. Interestingly, Bryntse (1996) also recommended that government procurement need to develop good communication strategies with their suppliers to overcome the complexity and tediousness of dealing with government service contracts.

7. Conclusion The results of this study imply that suppliers perceive private enterprise customers offer greater value benefits in all areas. Results also show that the volume of sales received significantly influences value for both B2B and B2G relationships. Unexpectedly, in B2B relationships the innovation function is perceived as a sacrifice rather than a benefit by suppliers. Suppliers perceived the ability to exchange information on how to conduct government business had a positive influence on value. A limitation of this research is the sample size. However, given that this is the first phase of the research it is expected that further efforts on increasing the sample size will overcome this. Furthermore, this research did not incorporate all levels of government procurement and different results may be obtained from respondents at state and federal levels. Another limitation is that the research concentrates on only one side of value perception. The sacrifices aspect of value is not included. Given that different perceptions exist between suppliers and buyers, future research needs to consider the effect of sacrifice on overall value. It could be that suppliers need greater sacrifices for their business customers thus offsetting the higher benefits. This research has raised more questions and possibilities for future study. The results were inconsistent, in some areas, with those of Walter et al. (2001), which could be due to a number of issues. Firstly, future research should consider the product type more closely. This research focused on suppliers of consumable items, while Walter et al. (2001) focused on supplies to manufacturing. Also, different levels of government have different types of relationships with their suppliers. Future research needs to consider these different relationship types to see whether they offer different types of value benefits. This research has indicated that some suppliers perceive the innovation function of value in B2B relationships as a sacrifice rather than a benefit. However, the most important implication of this research is that government customers need to consider how they can differentiate their supplier perceived value position when compared with their private enterprise counterparts. Furthermore, business customers need to consider how changing processes and/or products will affect their suppliers’ perceptions of value.

Appendix 1 List of survey items Profit function 1. Margin per product/service sold to the customer 2. Overall profit gained from the customer 3. Amount (dollar value) of deliveries to the customer Volume function 4. Benefits from long-term supply agreements with customer 5. Sales volume with the customer

Safeguard function 6. Possibility of the customer asking for short notice deliveries 7. Possibility of the customer buying over-capacity stock 8. Level of dependency on other customers for assistance due to this relationship Innovation function 9. Benefits from joint development of the production process 10. Benefits from joint concept development of new products 11. Adoption of new technologies by the customer 12. Benefits of prototype testing with the customer Market function 13. Provide contacts with potential new customers 14. Provides information about potential new customers 15. Number of referrals made by the relationship to potential new customers Scout function 16. Provides information about the market 17. Provides information about your competitors 18. Provides information about relevant third party organizations (e.g. supplier of your supplier) Access function 19. Provides support for handling contacts with other agencies 20. Initiates contacts to important persons (‘movers’ and ‘shakers’) 21. Promotes you to other influential institutions and committees

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