Organizing Corporate Procurement for Performance: Strategy, Organization and Ambidexterity

Abstract

Over the past decade, procurement focus has gradually shifted from pursuing mainly short-term goals toward a mix of short term goals pursued through exploitation and long term strategic goals pursued through exploration. This dissertation investigates organizational antecedents and performance consequences of exploration, exploitation, and their balance in procurement activities. In my theorizing I draw upon procurement literature and research on organizational ambidexterity from organization theory. I argue that centralization of procurement activities influences exploration and exploitation and their balance because it provides efficiency and scale benefits, creates critical mass and coordination across projects, and supports the resolution of conflicts. I further argue that strategic integration influences exploration and exploitation and their balance because it is likely to increase the focus on long-term goals, yet also allows procurement to deliver impact on short-term projects and provides procurement with the necessary information to manage trade-offs among the two. Contextual ambidexterity is expected to enhance exploration, exploitation and their balance through a set of norms, values, incentives, processes and practices that enable to manage conflicting demands. Regarding the performance implications of exploration, exploitation and their balance, I predict positive effects given that exploitation allows the organization to address short-term goals while exploration enables achieving longer term goals and the balance of exploration and exploitation enables the organization to simultaneously achieve these often conflicting goals. Using data from a survey of 118 industrial organizations in Finland and Switzerland I find that, in line with my predictions, centralization is positively related to exploration, exploitation, and their balance. I further find that strategic integration is positively related to all three, as I predicted. For contextual ambidexterity, I find that performance management, one of the sub-dimensions of contextual ambidexterity, is positively related to exploration, exploitation, and their balance whereas support, a second sub-dimension, is related to exploitation and trust, a third sub-dimension, is related to the balance of exploration and exploitation. Regarding performance implications, I find that both exploration and the balance between exploration and exploitation are positively related to financial procurement performance and procurement innovation performance whereas exploitation exhibits no relationship to any dimension of procurement performance. My arguments and results add important new theoretical insights to the literatures on strategic contributions of corporate procurement, procurement's role in innovation, and the literature on ambidexterity on the organizational unit level and have important practical implications for the design and management of procurement organizations.