How is service procurement different from goods procurement? Exploring ex ante costs and ex post problems in IT procurement
Section snippets
Procurement of services: is it different?
Over the past decades, the importance of the service sector in the global economy has increased substantially, bringing its share in world GDP to 68.3% in 2014 (World Bank, 2017). In parallel, the share of business-to-business services in the total procurement expenditures of individual organisations has grown as well (Axelsson and Wynstra, 2002, Ellram et al., 2007). Many organisations, however, find it challenging to effectively organise their procurement of services (Caldwell and Howard, 2010
Recent research on service procurement
Although the first publications on service procurement date back to the 1960s (Wittreich, 1966), the number of studies only started to grow significantly at the beginning of the 21st century (Nordin and Agndal, 2008). Recent literature distinguishes four major topics: specification setting, segmentation, servitisation and performance-based contracting. This set of topics is not exhaustive, but it does cover a substantial part of recent studies. A review of publications in the Journal of
Data collection
We investigate the differences between transactions involving services and transactions involving goods by using survey data on the purchase of IT services and goods by Dutch small and medium sized enterprises (SMEs) with 5–200 employees. Two samples of IT transactions have been collected in 1995. The aim was to collect a multi-purpose dataset, resulting in a broad range of publications to test hypotheses on how transaction characteristics, embeddedness and other variables affect ex ante and ex
Data analysis and findings
Using the Hardware, Software and Services dummy variables, we first split our sample into two groups: transactions that (among others) involve service components versus transactions that do not involve service components. In a second step, we use the dummy variables and subsequently Proportion of Services as independent variables in regression analyses, in addition to transaction and embeddedness characteristics, to explain ex ante and ex post transaction costs.
For the two groups, Table 5 shows
Discussion
Our first analysis shows that transactions that involve services are indeed different in some respects than transactions that do not involve services. Search costs and contracting costs are higher, and service transactions lead to more problems ex post. While previous studies mainly measured perceptions of buyers and perceived differences between goods and service procurement, our analysis demonstrates that transactions involving services are indeed executed differently. However, our findings
Conclusions and recommendations
The findings from our study of a large set of IT procurement transactions provide a possible explanation of the hitherto mainly anecdotal evidence that managing the procurement process for services is different from managing transactions that do not involve services. Our study largely confirms prior studies suggesting that service procurement is more difficult and more expensive than goods procurement (Ellram et al., 2007, Ellram et al., 2008, Fitzsimmons et al., 1998, Van der Valk and
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