The procurement dilemma: short-term savings or long-term shareholder value?

Abstract

Purpose

Research has shown the potential contribution of properly managed suppliers to the competitive position of firms. Major strategy schools of thought such as the industry view and the resource-based view have evolved in their perspective about supplier’s contributions, replacing a transactional perspective of supplier management with a more comprehensive view of their role in corporate strategy. This study aims to understand if procurement professionals have evolved in the same direction.

Design/methodology/approach

During a corporate wide assessment for a large consumer product corporation, the author had the opportunity to incorporate a four-statement question aimed at identifying the perception of value creation by different levels of procurement staff. The answers were compared with responses of a reference group that comprised business school students who had never been exposed to professional procurement as a function or skill.

Findings

The results show that buyers, even at senior levels, more clearly identify value as the result of price negotiation, a functional perspective, than as the construction of sustainable competitive advantages, the shareholder perspective. They do not discriminate sufficiently between short-term transactional value transfer and long-term shareholder value capture.

Research limitations/implications

The study was conducted on a sample of 500 people from four continents but limited to a single corporate environment. This study focused on innovation as a source of value and competitive advantages.

Originality/value

The paper shows to corporate deciders the impact of overly cost-focused procurement departments. This study reinforces their need to better balance the objectives assigned to their procurement team. This study outlines the steps necessary to align the cultural competitiveness of procurement to the objectives of the firm, with an extended enterprise scope.

Citation

Philippart, M. (2016), "The procurement dilemma: short-term savings or long-term shareholder value?", Journal of Business Strategy, Vol. 37 No. 6, pp. 10-17. https://doi.org/10.1108/JBS-11-2015-0114