Strategy to deliver public procurement: customer value

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Christine Bridges
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1 Strategy to deliver public procurement: customer value Alessandro Ancarani Associate Professor Managerial Engineering Dept.Civil Engineering and Architecture

2 Value for money or value for customer? Value for money has long been advocated as the primary objective of government purchasing The role of procurement has increasingly been advocated also for its scope to improve service delivery However, such a concept has to be replaced by a wider one which takes into account the request by the stakeholders of the public organizations Thus, VfM concept has evolved in CV concept

STAKEHOLDER THEORY Stakeholder are any group of individual who can affect or is affected by the achievement of the organization's objective (Freeman, 1984) 4 subgroups of stakeholders can be

3 STAKEHOLDER THEORY Stakeholder are any group of individual who can affect or is affected by the achievement of the organization's objective (Freeman, 1984) 4 subgroups of stakeholders can be identified (Mitchell et al., 1997; Neville et al., 2004) depending on the power and the interest that these stakeholders have on the service When the managers identify a stakeholder with low interest and low power they could assume no needing to be focused on them When a stakeholder has a relevant power and interest on the service, it turns on being a key player for the service, and managers should pay most of their attention on this kind of stakeholder (Kamann, 2007)

4 PUBLIC SERVICES CHARACTERISTICS User's ignorance of actual service supplied User s limited knowledge of the service technical characteristics Ambiguity of the customers preferences due to their conflicting interests (Donnelly et al., 2006) Relevance of the involvement of the citizens into the service provision Limited resources available Decreasing willingness by citizens to pay for general public services Willingness of citizens to pay for customized services (Rose, 1990)

5 CUSTOMER SATISFACTION The customer satisfaction approach has been proposed and broadly used to evaluate the quality of service General agreement in literature that customer satisfaction can be defined as the gap between customer expectations and perceptions (Gronroos, 1982; Parasuraman et al., 1985) Customer satisfaction was evaluated as the result of three main dimensions, namely technical quality, functional quality (Gronroos, 1984) and corporate image (Gronroos, 2001)

6 SERVQUAL MODEL

7 FACTORS TANGIBLES 4 RELIABILITY 4 RESPONSIVENESS 4 ASSURANCE 5 EMPATHY 5 22 Propositions like: XYZ readily provides the service Employees behaviour inspires trust Total disagreement 7 In agreement

8 FACTORS

9 INTERACTIONS AMONG MAIN STAKEHOLDERS International trend to contestability and market approach in public service provision New Public Management (Hood, 1995) Separation between buyer and supplier and processes of rationalization of expense to improve services quality A central role is played by measures of level of service representative of value perceived by the customers of the service Vote LOCAL GOVERNMENT Service Agreement Contract / Service Chart CITIZEN SUPPLIER National Authority

10 SUPPLIER CUSTOMER GAP 1 GAP MODEL WITH 3 ACTORS Word of mouth GAP 3 USER Personal needs Expected service quality GAP 5 = CS Perceived service quality Service supplied Translation perception in technical specifications Past experience GAP 4 GAP A External communications to customers GAP D Institutional needs Past experience BUYER Benchmarking Expected service quality GAP B Contractual service quality GAP C Physical/ economical constraints GAP 2 Managers perceptions of cunsumer expectation Manager s interpretation of buyer s requests

VALUE FOR CUSTOMER VALUE FOR THE CUSTOMER Balance of benefits and sacrifices Perceived product attributes Marketing VC Net VC Value For Customer Use/experience outcome

11 VALUE FOR CUSTOMER VALUE FOR THE CUSTOMER Balance of benefits and sacrifices Perceived product attributes Marketing VC Net VC Value For Customer Use/experience outcome Derived VC Sale VC Rational VC Option determined primarily on price Monetary difference from objective reference point Value for customer is an aggregated measure (Woodall, 2003)

12 VALUE FOR CUSTOMER IN A TEMPORAL PERSPECTIVE Pre- purchase At the point of trade or experience Post- purchase After use/experience Public Authority Collecting informations Buy Learning End of the contract Emergency User / Citizen Collecting informations Buy Learning End of the contract Emergency

13 CO-PRODUCTION 1/5 Defined by Zeithaml (1988), where CV is the consumer s overall assessment of the utility of a product based on perceptions of what is received and what is given CV is perceived by customer, who defines the value of the product, not the supplier (Vargo and Lusch, 2008; Woodruff, 1997) CV is individual in terms of characteristics (needs, wishes, knowledge, experiences, financial resources (Grönroos, 2011; Holbrook, 1999) The perceived value depends on the circumstances, the timing, and the location (Woodruff, 1997; Woodruff and Gardial, 1996) CV implies and interaction between customer and product, is experiential, thus depends on the experience in using the product

14 CO-PRODUCTION 2/5 Value is not created and delivered by the supplier but emerges during usage in the customer s process of value creation (Grönroos and Ravald, 2011) Supplier helps in the creation of CV providing resources that represent potential value Customers may integrate resources to get the expected benefits, using different sources among which customer s self-generated activities (e.g., by accessing their own personal knowledge and skill sets and through their cerebral processes) that contribute to CV and are pat of in the cocreation logic (Vargo and Lusch, 2011) Importance of these activities consists in the experience and in the satisfaction to be in control of the process (Bateson 1985; Dabholkar, 1996) This is likely to require effort and to determine physical, financial, psychological, performance, social, and time related risks (Etgar, 2008) Consequently, not all customers are likely to engage in these activities

15 CO-PRODUCTION 3/4 In recent years rationalization of public expenses and increasing customer demand for quality (Sweeney and Soutar, 2001) Evaluation of the performance of suppliers is gaining more importance (Bovaird, 2006) Rising emphasis on customer-orientation and customer value (Brady and Cronin, 2001) also in public services (Osborne et al., 2013; Thomas, 2013) makes it essential for organizations to understand how to assess value from the customer s perspective (Woodruff, 1997; Leroi-Werelds et al., 2013) Attributes Growth of of the outsourcing service should implies be carefully that buyers planned increasingly considering operate customer in needs product and triads, expectations, whereby in order the provider to maximise directly benefits delivers provided services with to the the citizen service (Lai and Chen, 2011) In some Buyers specific are for public their services, business among performance which MSW is highly prominent, dependent providing on customer providers, value who is crucial control also service to avoid delivery, a lack of and customer must collaboration, take measures which to ensure appropriate behaviour (van der Valk and van Iwaarden, may undermine the effectiveness of the service provision itself 2011) (Ancarani and Mascali, With 2012) respect to triads in the private sector, the relationships involved in public sector triads are much more complex (Ancarani, 2009)

16 CO-PRODUCTION 4/4 Collaboration of users is paramount and a proactive role of the users is asked for, as the capacity of the provider to meet the targets strongly depends on the willingness of the users to differentiate waste before passing it to the collector for waste recycling Effective service provision and value co-creation is grounded in a commitment to collaborative processes among users, buyers, and providers (Lusch et al., 2007; Lusch et al., 2008) Novelty is that service providers are only providing partial inputs into the customer s value-creating processes, with input coming from other sources (Vargo and Lusch, 2011), including customer s own activities Assessment of users preferences is crucial for service design, in order to motivate and promote collaboration and maximise customer value Prior to proceeding to entrusting a provider with service delivery, procurers should incorporate these preferences in the definition of SLA