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People often compare the public and private sectors, which can lead to heated debates. The aim of these comparisons is to determine which sector is performing better than the other, but most of the arguments rely on generalizations and stereotypes. The same is true in procurement.
However, because these sectors operate within different contexts, trying to compare the two often amounts to comparing apples and oranges. Understanding the unique contexts the private and public sectors operate in is important to make valid comparisons. The public sector faces several specific trade-offs that the private sector does not.
Best Practices Are Only Best in a Particular Context
There is virtue in benchmarking practices across sectors and industries that goes beyond the public and private divide; practices can vary based on many other factors, such as industry, company size and category. Organizations should be benchmarking regularly to identify areas for improvement and to foster creativity.
When benchmarking, it is important to take context into account; there may be differences simply because the nature of the business is different, but those differences do not automatically denote superiority or inferiority. There are, however, some specific characteristics of procurement in the public sector that, I believe, explain some differences in how procurement is, and should be, done.
Key Characteristics of Procurement in the Public Sector
At first glance, procurement in the public and private sectors are very similar. The purpose of procurement remains the same: to source goods and services from the supply market while maximizing value for money. To achieve this, procurement relies on the SRM² model, which is based on three main pillars:
- An understanding of customers and suppliers
- Value-based experiences
- Being a facilitator or enabler
However, upon closer consideration, some specific characteristics and differences emerge when comparing procurement in the public and private sectors:
As illustrated in the Venn diagram, there is an important overlap in public procurement that does not exist in the private sector. Firstly, citizens benefit, directly or indirectly, from public services that are funded by their taxes. Secondly, these services are performed by suppliers from the private sector that are also taxpayers and benefit from these services. The dependency on taxpayers’ money explains why people expect public institutions to demonstrate frugality and put public funds to good use.
The funding and governance aspects explain why procurement in the public sector is risk averse. The likelihood that a misuse of funds will end up in the press is much higher than in the private sector. This is because public affairs affect everybody, which makes them a potential target for media outlets that act as a watchdog.
Additionally, such incidents can be exploited by nongoverning politicians and supporters to increase their chances in the next election.
Risk aversion, therefore, plays a key role in shaping procurement practices in the public sector. One of the consequences of this approach is that process interests tend to overwhelm other interests. On the other hand, this also explains why the public sector is more advanced than the private sector in areas like digital procurement. The imperative for transparency and fairness is a strong motivation for organizations to use electronic portals to publish RFPs and RFQs, as well as communicate award decisions.
Of course, this approach also introduces potential hindrances that do not exist, or exist to a lesser extent, in the private sector. For example, many countries have rules for contesting awards. As a safeguard mechanism, these regulations have merit. However, they also have drawbacks (e.g. requirement for publishing decisions, waiting time) that can limit speed and agility, which are essential to organizations in the private sector.
Public procurement plays a major role in our society. It comes with specific duties, responsibilities and threats because of the size of the expenditures and the high stakes involved. Such risks mean that procurement teams have to manage multiple, complex trade-offs — from preventing fraud to maximizing supplier participation, even from the smallest suppliers — in order to deliver on their promises of effectiveness and efficiency. Specifically, the promises refer to providing the best value proposition to end users while optimizing frugality and process costs.
Despite the challenges involved, there are many procurement teams in the public sector that have successfully managed to balance risk prevention and performance!
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