Procurement strategies: Looking for Efficiency or Effectiveness?
This month Martyn Jones examines the kind of inter-organisational relationships and ways of working we need in construction as we face our current challenges, and asks if we differentiate enough between Efficiency and Effectiveness in our procurement strategies.
Improving inter-organisational relationships and processes have been at the heart of the Construction Reform Movement since the emergence of the Information and Communication (ICT) paradigm in construction in the early 1990s. Back then, The Reading Construction Forum’s report Unlocking specialist potential: A more participative role for specialist contractors, set out, along with other publications, the importance of improving relationships, integrating processes and being focused on the needs of customers along the whole supply chain.
But that was then and this is now. We have moved on. We are now facing new challenges but in dealing with them we have a much greater understanding of the importance, nature and role of inter-organisational relationships and how to work more seamlessly in project teams and supply chains.
One of the things we’ve learnt is that there is a range of relationships and purchasing strategies available to us. We have also learnt to think in terms of supply networks rather than supply chains and in value streams rather than supply chains. But, do we differentiate enough between Efficiency and Effectiveness in setting our procurement goals?
The main purchasing goals and options are set out in the following proposed framework, which challenges us to differentiate between Efficiency and Effectiveness:
The horizontal arm of the framework sets out our key strategic goals. The vertical arm presents the three main procurement strategies, inter-organisational relationships and ways of working to achieve these goals: Transactional, Relational Partnerships and Collaborative Network. The Transactional and Relational Partnerships approaches are well documented and practised and so are not examined here.
In addition, the horizontal arm of the framework presents, side by side, the two main overarching approaches to achieving our goals within Collaborative Networks: Efficiency and Effectiveness. You will see that the proponents of the former I’ve called “The perfectionists” and the latter, “The Cocreators”.
But why differentiate between efficiency and effectiveness? Although they sound similar and are often interchanged, they mean quite different things.
Efficiency refers to doing things in the right way or manner. As margins are normally low in this approach it’s about getting the maximum output with the minimum resources. It’s to do with continuous incremental improvement but within the present state or the status quo, as thinking about the future or significantly changing resources might impact on the current state of efficiency. This can build inflexibility into the system
Effectiveness on the other hand is about thinking “outside the box” to do the right things. Its proponents constantly measure if the actual outcomes are delivering the desired outcomes. They believe in meeting the end goals and willingly seek out and embrace any variables that may change in the future. They keep the long-term strategy in mind and are more adaptable to changes both in the market and the wider environment in which they operate. The approach requires learning and innovation as people have to think in different ways to satisfy the desired goals or outcomes.
In construction we have tended to focus on the Efficiency approach, placing an emphasis on cost reduction, resulting in what many view as a race to the bottom. However, in responding to the quality and safety of our buildings and the climate crisis, we have become increasingly aware of the need for the Effectiveness approach in dealing with uncertainty, ensuring the future business potential for our organisations, and repurposing our industry.
More than ever, purchasers of construction products and services need to be clear whether they are seeking – through their purchasing behaviours – efficiency of operation and cost leadership, or effectiveness and innovation.
The proponents of the Efficiency approach prescribe a network of key relationships that work like clockwork. The main objective is strict efficiency achieved through collaborative relationships, integrated systems and processes, and the synchronisation of value-adding activities of each value stream partner.
In this approach, flow of work, timeliness, compliance and the reduction of waste and cost are essential, since they have direct effects on the operability and efficiency of the whole supply network. The core ideology of this purchasing strategy is integrating the processes of each of the partners to produce and deliver products and services accurately, efficiently, seamlessly and without interruptions.
Given the immense challenges we face in construction, including amongst other things, the need to radically improve the quality of our outcomes and address climate change, we need the Effectiveness approach.
But given the nature of our clients and their divers needs, we have to offer both approaches. Where clients have a pipeline of standardised products and well-established processes, then the Efficiency approach is most appropriate. Also, where extensive offsite production is being deployed.
On the other hand, Effectiveness networks might be seen as being more appropriate in developing the innovative products and services we need to combat climate change. They can support cocreation based on open knowledge sharing and competence transfer between the partners in the network and support the more radical Research and Development (R&D) activity that we sorely need.