Buyers need market orientation and strategic capability to create customer value in public procurement

Public procurers should have a clear and well-communicated strategy, which is backed up by involvement of management and suitable resources, a recent study from the University of Eastern Finland shows. This kind of strategic procurement capability is associated with better customer value and satisfaction in both regular public procurement and in that of innovations.

Published in Science and Public Policy, the study examined the associations of a public purchasing entity’s market-oriented organisational culture, strategic procurement capability, use of public procurement of innovations, and customer performance. The data were collected through a nationwide survey of Finnish procurement entities. Finland makes an interesting case to study procurement processes, as it is among the frontrunners in setting up innovation goals for public procurement. The statistical analyses showed that the public sector buyer’s market-oriented culture is positively associated with the procurer’s strategic procurement capability, which in turn predicts the use of public procurement of innovations to create customer value.

The findings are novel in the literature on public procurement because prior studies have not examined a market-oriented organisational culture in purchasing entities. Market orientation refers to a culture that aims to create superior customer value based on market insight. “Market orientation is as important to public organisations as it is to private ones, because it guides them to listen to customers and, in doing so, , enables them to better meet customer needs and to improve public services,” University Lecturer Helen Reijonen of the University of Eastern Finland notes

However, market orientation alone isn’t enough. The findings highlight the importance of strategic procurement capability as an essential ingredient in the creation of customer satisfaction and value in regular procurement and in that of innovations. “Based on the results, strategic procurement capability can serve as a missing link between purchasing entities’ information gathering and processing, as well as between public procurement of innovations and better customer performance,” University Lecturer Timo Tammi of the University of Eastern Finland says.

The results encourage managers of public purchasing bodies to foster a market-oriented culture and formulate a procurement strategy, which is congruent with broader strategies that public sector entities, such as municipalities, have.

“Proper resources should be provided, too,” adds Professor Jani Saastamoinen of the University of Eastern Finland. “This shifts the focus to knowledge, skills, structures and tools needed to carry out the procurement.”

Finally, the findings support the idea that various stakeholders should pay attention to the important role of strategic purchasing capability when supervising, legislating, financing and interacting with purchasing entities.