The characteristics of service buying in the business-to-business sector

280 Int. J. Procurement Management, Vol. 6, No. 3, 2013

Copyright © 2013 Inderscience Enterprises Ltd.

The characteristics of service buying in the business-to-business sector

Jukka Hallikas, Tuukka Kulha and Katrina Lintukangas* School of Business, Lappeenranta University of Technology, Skinnarilankatu 34, P.O. Box 22, FI-53851 Lappeenranta, Finland Fax: +358-5-621-7299 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] *Corresponding author

Abstract: The purpose this paper is to identify the special features of service buying, with specific reference to Finland, and to describe the organisational characteristics of firms that are more heavily involved in buying services in the business-to-business (B2B) context. The research results reveal an association between the volume of service buying and certain functional aspects of the business. Companies engaged heavily in service purchasing are willing to seek outsourcing opportunities in the area of supply management in order to improve their service-purchasing competence. Furthermore, it was found that the rate of service purchasing indicates the structure of supply management organisation – the more the company is engaged in service procurement the more likely the purchasing is decentralised in various locations. Moreover, successful service purchasing requires continuous and active interaction between all the parties involved in the procurement process.

Keywords: purchasing; supply management; survey; business services; service buying; procurement; service-based thinking; Finland.

Reference to this paper should be made as follows: Hallikas, J., Kulha, T. and Lintukangas, K. (2013) ‘The characteristics of service buying in the business-to-business sector’, Int. J. Procurement Management, Vol. 6, No. 3, pp.280–296.

Biographical notes: Jukka Hallikas is a Professor of Supply Management at the Lappeenranta University of Technology, School of Business. His research interests focuses on the supply management and networks, risk management in supply networks, and service business. He has published several scientific articles, books, and book chapters on supply management and inter-firm networking.

Tuukka Kulha works as a Research Assistant at the Technology Business Research Centre (TBRC) in Lappeenranta University of Technology and is currently performing his master studies related to supply management.

Katrina Lintukangas is an Associate Professor of Supply Management at the Lappeenranta University of Technology, School of Business. Her research interests include supplier relationship management (SRM), global supply management and international business.

The characteristics of service buying in the business-to-business sector 281

1 Introduction

Given the massive expansion in service businesses early in the 21st century services are increasingly attracting the attention of academics and educational institutions, which makes it a highly current topic. Little by little the industrial revolution and the industrial society are losing ground to the service society (Axelsson and Wynstra, 2002). The size of the service sector is rated approximately 70% of the national income in the USA (Fitzsimmons and Fitzsimmons, 2011), and at the same time services are having a profound effect on economic progress. This trend towards service-based thinking is somewhat in line with service-dominant (S-D) logic (Vargo and Lusch, 2008), which strongly emphasises the role of service as the basis of economic activity, and even argues that, in the context of developed countries, all today’s economies are service economies (Lusch, 2011).

In the business-to-business (B2B) context the purpose of services is not just to complete the goods production processes, but also to build its own multidimensional ensembles. Furthermore, service business could be seen as a source of various capabilities. Companies nowadays are focusing more and more on their core competences, and many of them are therefore allocating the provision of the necessary complementary know-how to outside companies instead of in-house sources. There are numerous reasons for buying services when forces such as rapid technological change and increasing worldwide competition (Agndal et al., 2007) are driving companies to differentiate their final offerings to match end customers’ forever-changing demands. As Lindberg and Nordin (2008) point out, whatever the reasons are, buyers are increasingly looking into buying entire solutions that may comprise elements of both services and goods. Hence, buying, including both materials and services (i.e., the ‘systemic buying’ or ‘hybrid buying’) is considered to be common industry practice (Fitzsimmons and Fitzsimmons, 2011). Effectively managing both the complexity and the challenges of buying services is a prerequisite for achieving procurement efficiency at the top level.

2 Background for the research

The procurement of business services have been studied extensively with different research focus areas such as antecedents, strategy, process, and outcomes as Nordin and Agndal (2008) have pointed out in their literature review. However, according to them the service sourcing research is still fragmented focusing on narrow and specific issues and having certain geographical contexts. Furthermore, in supply management the literature concerning service buying has mainly concentrated on particular type of services and has not paid attention to business service buying as a common and developing phenomenon in firms (Van der Valk et al., 2009). Moreover, research of service buying has been less theoretically driven and thus generated only little generalisable knowledge for academics and practitioners (Nordin and Agndal, 2008).

The discussion of business service buying is closely linked to outsourcing of business processes. Today, companies are moving from outsourcing of manufacturing and assembly towards outsourcing innovation and higher value activities (Sharma and Loh, 2009); hence, service buying is in crucial role in many firms. Furthermore, service providers aim to industrialise their offering by making it more tangible, standard,

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separable, and non-perishable (Sharma and Loh, 2009). However, strategic outsourcing of the firms’ value activities, i.e., sourcing of knowledge-intensive business services, requires fit with the sourcing strategy and firm’s dynamic capabilities (Murray et al., 2009). According to Murray et al. (2009), the degree of variation in service’s standard, the inseparability of the services, the degree of tacit and/or explicit knowledge involved in to provided service, and the degree of sourcing innovations to external knowledge leader should be in balance with firm’s absorptive capacity and integration capability.

In the previous literature, differences in buying services domestically or internationally are discussed especially in outsourcing situations (Oumlil, 2012). Studies examining e-procurement of services (Azadegan and Ashenbaum, 2009) and studies focusing on service buying in the context of public procurement (Lindskog, 2008; Rod, 2011) have offered other perspectives.

3 Research objectives and methodology

The complex service buying process, the nature of services, and the difficulties in classifying and evaluating them may require more resources, new capabilities, and the restructuring of working processes. Given the increasing amount of resources companies are spending on buying business services, it is more than obvious why they continue to attract interest among researchers and practitioners. As Nordin and Agndal (2008) have pointed out, there is little generalised knowledge produced concerning service procurement. Consequently, the need to study procurement of business services is growing rapidly. The aim of this paper is therefore to empirically examine what kind of characteristics can be found related to service buying in B2B context and if there are any general features among the companies conducting service buying. Thus, this paper aims to bring common knowledge on issue. Furthermore, a national level view on the issue is taken, and therefore, a survey method is selected. Survey data from 165 Finnish firms is used to examine the characteristics of business service buying and their relationships. In order to generalise the results more firmly, a regression analysis is conducted by using the SPSS software.

This article proceeds as follows: First the key concepts are introduced and previous perspectives on service buying are clarified. Next, the characteristics of the data and methodological aspects of the study are described. Finally, the results of correlation and regression analysis are presented and discussed in the light of previous literature. The limitations concerning the study and directions for future research will end the paper.

4 Defining services

Thus far there have been many definitions of services and little consistency. Elementary definitions describe what is not included. Services are compared with goods, and are treated as aberrant deviations from the normalcy of goods (Spring and Araujo, 2009). This quite rarely used notion of residual services characterises them only in terms of what they are not (Ambrose and Brandon-Jones, 2010). The most commonly identified characteristics of services are the following; intangibility, heterogeneity, inseparability and perishability (IHIP) (Grönroos, 2000; Axelsson and Wynstra, 2002; Van der Valk et al., 2005; Ambrose and Brandon-Jones, 2010; Holschbach and Hofmann,


2010; Fitzsimmons and Fitzsimmons, 2011, Lovelock and Gummesson, 2004; Spring and Araujo, 2009).

According to Ambrose and Brandon-Jones (2010), the two most recent concepts related to service definition are Institutional and Unified Service Theory. These are being further developed whereas the residual and IHIP definitions have received a lot of criticism. Lovelock and Gummesson (2004) argue that the root sources of IHIP characteristics established in the 1970s were not based on empirical research, nor did they build on the existing literature. Spring and Araujo (2009) point out that the widely used IHIP definition may be misleading, whereas Ambrose and Brandon-Jones (2010), for example, refer to it as limited. The institutional approach is based on the notion of services as operations (Spring and Araujo, 2009) in which the part-time ‘ownership’ of resources and access to capabilities are traded (Ambrose and Brandon-Jones, 2010). Behind this notion is the rental/access paradigm attributed to Lovelock and Gummesson (2004), which describes service as access to a temporary possession that offers benefits upon the payment of rental or access fees. Table 1 Summary of the differences in characteristics between goods and services

Characteristics of services Characteristics of goods

Intangible Tangible Heterogeneous Homogeneous Simultaneous process including production, distribution and consumption

Production and distribution are separate from consumption

Cannot be stored Storable More difficult to demonstrate before purchase Can be clearly demonstrated before purchase Expectations; vague service-level agreement Expectations; specifications are precise Quality; subjective, user-dependent Quality: measurable, pre-specified Cannot be transported Can be transported An activity or a process An item Core value produced in the buyer-supplier interaction; value as co-created

Core value produced in the facility; value as produced

Cost; dependent on changing scope and requirements, situation-specific, often is renegotiated, or changes with scope

Cost; pre-negotiated, per unit, easy to determine in advance

According to Sampson and Froehle (2006), the above-mentioned descriptions are not flawless: services might include all the characteristics mentioned, but the ultimate comprehensive definition is still lacking. Sampson and Froehle (2006) report a significant development going beyond IHIP and the other perspectives: Unified Services Theory (UST), which clearly defines and distinguishes service processes from non-service processes in terms of the nature of the input. They refer to the presence of customer inputs as a necessary and sufficient condition in the service process. Customer inputs here mean the customers themselves, together with their belongings or other tangible objects, as well as information. As in the case of the production process, the purpose of the service process is to modify the inputs in a way that is valued by customers. As mentioned, in defining services the literature tends merely to emphasise specific ways in which they differ from goods (Axelsson and Wynstra, 2002). After all, it seems that their


definition is not that far removed from the usual comparison between goods and services. Table 1 lists the commonly identified differences (e.g., Grönroos, 2000; Ellram et al., 2004; Rantala and Virolainen, 2001; Van der Valk et al., 2005; Ellram et al., 2007; Vargo and Lusch, 2008) between the two.

What is essential from the purchasing and supply management standpoint is that a service is a process of doing something for another party in collaboration by integrating internal and external capabilities in order to co-create value, and the exchange of intangible value elements in particular (Vargo and Lusch, 2008). Furthermore, service functions are as the foundation upon which the components of the service-delivery system are built (Goldstein et al., 2002). It is also argued that service purchases are considered even more important than the purchase of goods on account of their better profit-increasing potential (Fearon and Bales, 1995).

5 Classifying services

In general, business, or B2B services are defined as services delivered by one company or organisation and purchased by another company or organisation (Axelsson and Wynstra, 2002; Van der Valk and Rozemeijer, 2009; Holschbach and Hofmann, 2010). Business services are wide-ranging, from cleaning services to professional services such as consultancy. Therefore, it is necessary to classify business services before analysing or discussing purchasing options. It has been found, for example, that categorisation and the analysis of needs facilitates the more effective application of new services that are better fitted to the company’s processes. A further and significant purpose of service classification is to enhance understanding of effective variation in buyer-supplier interaction during the service purchasing process (Wynstra et al., 2006).

In terms of classification, consumer services have attracted far more attention than business services. At the same time, authors have been developing new classifications of business services that only serve a specific purpose at the time (Van der Valk and Axelsson, 2010). By far the best approach would be from the user’s (buyer) perspective. According to Wynstra et al. (2006), this application-based classification of buyer-supplier interaction in business services represents a practical usage-based approach aimed at supporting the purchasing process, and is therefore applicable in many kinds of circumstances. Consequently, business services can be categorised in four types based on how they are used by the buying company: consumption-related, instrumental, semi-manufacture-related, and component-related services (Van der Valk and Axelsson, 2010).

Consumption services do not directly affect the buying company’s primary processes. They are more likely to be routine-like, which is why they are often compared with MRO services. Their only function is to support the buying company’s processes by covering its basic needs. Instrumental services, for example, directly affect the buying company’s primary processes, but are not delivered to its customers. Even so they may have an indirect impact on the end customer (Wynstra et al., 2006; Van der Valk and Axelsson, 2010). Semi-manufacture- and component-related services are often referred to as production services (Fitzsimmons et al., 1998; Wynstra et al., 2006). The difference between the two lies in whether or not the service is transformed before its delivery to the buying company’s end customer. Semi-manufacture-related service is delivered to the end customer after having been transformed by the buying company. It is thus part of the


buying company’s offering to the end customer. Services without intervention or transformation are termed component services, and as such are delivered straight to the buying company’s end customers. (Wynstra et al., 2006; Van der Valk and Axelsson, 2010) It is important when buying component services to ensure that the service being purchased fits into the buying company’s current offerings (Van der Valk et al., 2009).

Recent studies criticise the focus in the literature only on up-front service definitions and specifications and the neglect of post-contract issues (Selviaridis et al., 2011). Selviaridis et al. (2011) demonstrate how service definitions and specifications alter during the interactions in the purchasing process. They argue that the definitions and characteristics are only temporarily stabilised, and are more likely to be destabilised in buyer-supplier interactions. It is clear from this discussion of service definition and classification that buying business services is far more complex than buying goods (Fitzsimmons et al., 1998), the processes and management of which are more systematic, starting from substantially simple definitions. Simply defining the service concept divides academics, not to mention classifying business services. It is also noticeable that the pace of change and development in services is increasing.

6 Buying services

The value of a particular service is always unique (Lusch, 2011). Service suppliers provide value-supporting resources and utilise interactive processes that facilitate the customer’s (buyer) value creation. Consequently, the service provider and the buyer are co-producing the service, and thus are both value co-creators. Hence, the interaction between buyer and supplier defines the success of service buying to a great extent.

The buying company will consistently differentiate its interacting depending on which type of business service is being purchased (Wynstra et al., 2006; Van der Valk et al. 2009). This interaction could be described in terms of key objectives, buyer and supplier capabilities, the involvement of buyer representatives, and communication. The main purpose of the interactions is to communicate information related to the coordination and adaptation of activities and the resources the companies are using and/or allocating in their relationship. In addition to that, making certain competences available in order to handle problems of various kinds while fulfilling the requested functions at any stage of the purchasing process is also considered important (Axelsson and Wynstra, 2000). Moreover, it has been found that these interaction processes are more formally defined and better designed in the case of high-risk services (Wynstra et al., 2006; Van der Valk et al., 2008).

The purchasing department buying the service needs to cooperate with the department for which it is being procured (Van der Valk and Rozemeijer, 2009). Normally, this internal expert, also called the internal customer, has much more knowledge about the service in question than the buyer (Van Weele, 2010). By becoming involved the internal customer extends the group of parties engaged in the purchasing process. Driedonks et al. (2010) highlight the importance of the purchasing manager’s assignment in the sourcing team to make the boundary-spanning teams of people from different business units work effectively together as planned at each stage of the purchasing process. In this the collaboration and interaction at the buyer-supplier interface are highly important. Buying business services constitutes a chain of interactions, dependent on many actors: internal


customer(s), the purchasing department, the marketing department with its knowledge about end-customers’ needs, and various representatives of the service provider. Consequently, the process of buying a service is multidimensional and should be fully understood and solidly managed on the interaction level. Not only is the service being produced, its final value and implementation are also being established. Active interaction and open communication between the buying company and the supplier are required throughout the whole process of service buying.

The main difference between the processes of buying services and goods is in the initial stage, in which the importance of detailed specification is highlighted. A further clear distinction is in the contract management, in other words the post-contractual phase of the process. Van der Valk and Rozemeijer (2009) conclude that the upcoming interactions between buyer and supplier should also be taken into account in the initial stages in order to facilitate the contract-management phase.

Service-level agreement (SLA) is one way of specifying business services The expected quality of the service, which may present some challenges, very much depends on the initial steps of the process in which upfront SLA thinking (Van der Valk and Rozemeijer, 2009) should dominate. Upfront SLA thinking makes it easier to move towards performance-based contracts, which are natural for services. The key performance indicators (KPIs), which are the key components of SLAs (Van Weele, 2010), are also determined during the specification phase. The more intangible and complex the service is, the more challenging is the specification. The customer will eventually evaluate the quality of the service on the basis of SLA comparison, in other words the expected service quality and the experienced service (Axelsson and Wynstra, 2002), whereas KPIs are used for measuring and evaluating the final outcome. In the case of service triads the subcontractor (service supplier) delivers the purchased service straight to the end customer, which makes the control of quality and delivery much harder (Van der Valk and Van Iwaarden, 2011). Thus, SLAs and KPIs are in a primary position in terms of specifying the service in order to facilitate the buying process.

The post-contractual stage is the most important phase of the purchasing process (Van Weele, 2010). The need to interact with the supplier becomes paramount, and from now on it is more or less continuous. Thus, at this point of executing the service the main focus should be on effective interaction. In as much as the true value of the service is being created through active interaction, its expected value and quality are also assured. Selviaridis et al. (2011) present a simplified service-sourcing process in which service implementation is one step. It is nevertheless a vital part, and has not been specifically highlighted by other academics. The authors also note that the post-contract aspect of supplier performance management is undervalued in the existing literature in that it is rarely brought out.

At its best, contract management, in other words the interaction between buyer and seller, is a key success factor in the purchasing process (Van der Valk and Rozemeijer, 2009). With regard to the whole process it is suggested that evaluation should not be limited to measuring the eventual service but should also include the supplier’s satisfaction. This would enable the buying company to see both sides of the process from the supplier’s feedback, which in turn could facilitate improvements in terms of future procurement.


7 Empirical study

The aim of this study was to examine what kind of characteristics can be found related to service buying in B2B context and to describe the current state of business-service buying in Finland, as well its essential role in Finnish companies. To get a national level view on the issue a survey method was selected. The survey was part of a national research project exploring supply-management capability as a source of competitive advantage in global networks. The project was launched and financed by the Finnish Funding Agency of Technology and Innovation, and seven Finnish firms. The survey targeted large Finnish companies operating in different industries with a turnover of at least 30 million Euros and at least 100 employees. A total 372 companies were found eligible to take part in the survey drawn from the commercial Amadeus database and the list of the biggest firms published yearly by the Finnish ‘Talouselämä’ magazine.

A web-based electronic form was developed for the purpose, and a link to the questionnaire was e-mailed to the respondents. The questionnaire was addressed to the directors responsible for supply management. 165 responses were received, yielding a satisfactory response rate of 44% (165/372). More than one third (33%) of the final respondents represented top management, and more than a half middle management (57%). Over half of them had more than five years of experience in their present assignment.

The respondents represented ten different industries. Over half of the respondent companies (55.2%) were established during the 1990s or later. The companies were categorised in line with the NACE industry classification, by a wide margin the metal industry, with 45 responses, was the industry with the best representation in this study. The average turnover in 2009 among all the participant companies was 704 million Euros, and the total sum of all 163 companies was over 55 billion Euros. The category named ‘Other’ comprises six industries being: financial services, accommodation services, human health activities, textile industry, manufacture of ceramic household and ornamental articles, and steam and air conditioning supply. Figure 1 categorises the respondents by industry in terms of both quantity and percentage.

Figure 1 Respondents by industry


In sum, given that nearly all the respondents were in charge of purchasing and supply management, the group clearly comprised the most suitable actors carrying the most information on purchasing, in accordance with the objective of the research. The generally high level of education (67% university or college degree), in turn, indicates that the tasks of purchasing and supply management are fairly demanding, requiring both decision-making skills and analytical intelligence. The long working careers, both in purchasing and in other assignments, suggest that, on the whole, the respondents possessed a good understanding of the company’s activities, and also saw purchasing and supply management as key factors of the business. Table 2 summarises the basic information about the respondents and their companies. Table 2 Basic information about the respondents

Items N Min. Max. Mean Std. Dev.

Turnover, 2009 (MEUR) 163 4,179 41,322 703 3,370 Number of employees, 2009 141 18 123,171 3,362 11,675 Number of full-time purchasing staff 162 0 400 18 50 Share of total purchases from turnover (%) 156 5 94 53 18 Share of total purchases centralised (%) 161 0 100 67 29 Overall work experience (years) 164 3 38 22 8 Experience in supply management (years) 163 1 33 12 7

7.1 Service buying in Finland

In Finland, as in other developed countries, the supply of services has expanded rapidly due to the increasing numbers and variety of service businesses. There is evidence that in many developed countries, such as Finland, the GDP share of industrial manufacturing has been decreasing over the long term (Arantola, 2010). Arantola (2010) argues that the service sector is the largest industry no matter what angle it is viewed from, thus services are considered a focal factor affecting the whole economy and society. A further indication of the high significance of services in Finland is the fact that every second industrial enterprise produces and offers services as a part of its total offering.

These changes have had their impact on service procurement in the B2B sector, too, in which the purchasing of business services has become more common. The average share of service purchasing among Finnish companies was 24.37% of the total spend. Differences between companies were naturally considerable: the minimum was zero % and the maximum was 98%. It is notable that 38%, a total of 62 of the 161 companies, purchased 10% or less of their services. At the same time, only one company claimed to purchase no services at all. On the other hand, a quarter of the respondents reported a level of service purchasing of over 30%. Three companies reported purchasing 90% or more of their service requirement. The average estimated share of total purchases of turnover was 53%. There were few differences between industries: information and technology reported the mean of 44%, and wholesale and retail trade 66%. Almost half of the companies reported a share of over 60%. Table 3 shows also the amount of spending on services among these companies: the maximum was as much as 1.64 billion Euros a year, whereas the average of all 153 companies was over 80 million Euros. The total expenditure of the 153 respondents in 2010 was enormous – 25.7 billion Euros


(calculated as the sum of respondents’ 2010 turnover multiplied by the average rate of service purchasing). Table 3 Summary of service buying

Items N Value

Share of service purchasing of the total spend (%) 161 24.37 Average spending on services (MEUR) 153 80 Maximum spending on services (MEUR) 153 1,640 Total expenditure on services (Sum, MEUR) 153 25,704

There were noticeable industry differences in service procurement. Figure 2 illustrates the polarisation in the purchasing of both services and goods. Transport and logistics services constituted the only case in which the share of service purchasing (74%) represented a bigger proportion of total procurement than the purchasing of goods and materials (26%). In the cases of environmental and housing services (43%) and the construction industry (42%) the purchasing of services is essential to the company’s overall procurement system. Logically, service purchasing is least significant in wholesale and retail trade at only 13%. Where the overall rate of purchasing does not reach 100% the root of the problem is within the responses: the respondent either did not match the rates, or did not make them amount to 100%.

Figure 2 Dividing purchasing by industry

The industries differ remarkably in terms of the average annual expenditure on purchasing services. Transport and logistics services had the biggest expenditure on service purchasing at around 260 million Euros. The woodworking and forestry (€170 M), information and technology (€130 M) and construction (€120 M) industries recorded clearly over 100 million Euros of spending on services. The others spent ca. 21 million Euros or less to services.


7.2 Correlation analysis

According to the literature the complex service buying process, the characteristics of services and the difficulties in classifying and evaluating them may require more resources, new capabilities and the restructuring of working processes. Hence, it is examined if these are the general features among the companies conducting service buying. In this paper the resources assigned to service buying in a firm are considered to be

1 spend from turnover

2 the centralisation level of the supply-management organisation

3 the amount of purchasing staff.

Possible additional requirements are considered to be

4 interest in outsourcing the purchasing process

5 capability development.

Possible correlation between these items and the share of service buying from total spend are examined next in order to find out the characteristics of service buying firms. Moreover, to strengthen the results of bivariate correlation analysis the relationships between the items were studied also by conducting a regression analysis.

Following items were included to the analysis: the share of service buying from total spend (%), the share of total spend from turnover (%), the number of purchasing staff, and the share of centralised purchasing from total spend (%). For the items “Interest in outsourcing of supply management” and “Importance of capability development of service buying” were used seven-point Likert-scaled ranging from ‘1 = Not at all’ to ‘7 = Extremely much’. Hence, Pearson product-moment correlation coefficient for continuous variables could be calculated for all the items. Table 4 presents the correlation matrix. Table 4 Correlation matrix

Items N Mean SD 1 2 3 4 5 6

1 Share of service buying from total spend (%)

162 24.72 20.92 1

2 Share of total spend from turnover (%)

156 52.99 17.64 .104 1

3 Number of purchasing staff

162 17.98 50.06 –.013 –.039 1

4 Share of centralised purchasing from total spend (%)

161 66.97 29.15 –.201* .132 .067 1

5 Interest in outsourcing of supply management

163 2.98 1.537 .194* –.015 .205** –.171* 1

6 Importance of capability development of service buying

161 4.54 1.275 .188* .124 .070 –.018 .253** 1

Notes: * p < 0.05; **p < 0.01.


Direct (positive) correlation (0.194, p < 0.05) was found to be between service buying and interest in outsourcing of supply management. It seems that companies with high value of service buying are more interested in outsource their purchasing process. In other words, by outsourcing supply management companies wish to compensate for a lack of competence in service procurement. Similarly, importance of capability development correlates with service buying directly (0.188, p < 0.05). Obviously, effective service procurement is a complex and challenging task, and if there is a lack of resources the company is willing to find the necessary expertise externally.

Interestingly, there was also a direct correlation (0.205, p < 0.01) between the number of purchasing staff and interest of outsourcing of supply management. It seems that the more resources is involved in supply management function the more companies are seeking new solutions for purchasing processes. If that is a lack of capability, or if companies do not see supply management as their core competence and strategic asset of a firm, is a question for further studies. Furthermore, outsourcing of supply management and capability development correlate directly as well (0.253, p < 0.01). Therefore, further examination of the causality and possible interactions between the items is needed.

In-direct (negative) correlation (–0.201, p < 0.05) was found between the rate of service purchasing and centralisation of purchasing implying that in the case of a high level of service buying the company’s procurement is more likely to be decentralised, possibly managed by separate departments located elsewhere. Companies with a high level of centralisation generally buy goods or materials in high volumes, and service buying is less important. It is also worth noting that companies that tend to do their purchasing centrally through the purchasing department are not looking to outsource their supply management (–.171, p < 0.05).

7.3 Regression analysis

To examine further the relationships between the variables linear regression analysis was conducted next. All the items were included to analysis where the item “Share of service buying from total spend” was considered to be dependent variable. To fulfil the requirements of normality for the regression analysis two items were transformed according the suggestions of Cohen et al. (2003). The variable “Share of service buying from total spend” was moderately skewed on the negative end of the curve, and thus a square root was calculated (√ item). The item ‘Number of purchasing staff’ was strongly skewed on the negative end and logarithmic transformation (Ln(1/√item)) was calculated to ensure the normality of the item.

Preliminary analyses were conducted to ensure no violation of the assumptions of normality, multicollinearity and homoscedasticity. The values of the variable inflation factor (VIF) scores and condition indices were examined in order to test for multicollinearity. All the VIF values were below the common rule of thumb cut-off value of 10 (Cohen et al., 2003). The condition reached a value of 13.9 being substantially less than 30 (i.e., the rule of thumb) (Cohen et al., 2003). Thus, multicollinearity was not a problem. The examination of the residuals and scatterplots showed that heteroscedasticity in the regression was not a problem. The normality of the variables was estimated graphically. As no violations of the assumptions in the regression analysis were found, it could be concluded that the tests were performed successfully. Table 5 summarises the results of the analysis.


Table 5 Regression analysis

Standardised coefficients Variable

β t SE Sig. 1 Constant (transformed) 4.431 0.816 0.000 2 Share of total spend from turnover (%) 0.076 0.953 0.009 0.342 3 Number of purchasing staff (transformed) 0.087 1.068 0.265 0.287 4 Share of centralised purchasing from total spend (%) –0.179 –2.225* 0.005 0.028 5 Interest in outsourcing of supply management 0.173 2.040* 0.109 0.043 6 Importance of capability development of service buying 0.129 1.570 0.128 0.119 R2 0.109 Adjusted R2 0.079 F-value 3.573** 0.004

Notes: * p < 0.05; **p < 0.01

Based on the regression analysis it can be concluded that centralisation of the supply management function is associated with service buying (Beta –0.179, p < 0.05). The negative relationship indicates that companies with less service buying are more centralised. Therefore it can be assumed that the de-centralised structure of supply management function characterises service buying companies. Furthermore, it can be concluded that interest of outsourcing purchasing function (Beta 0.173, p < 0.05) is a character of a service buying company. These results verify the results of correlation analysis. However, according the regression analysis importance of capability development of service buying is positively associated (Beta 0.129) with the service buying, but not statistically supported. Together the examined items explain 10.9% of the variance of the service buying.

8 Conclusions

It is reasonable to assume that the volume of service buying will increase rather than decrease in the future. Services already have an essential role in the business field, and this will only be further emphasised. Companies and their purchasing and supply management should highlight the role of services and give them more attention given the complexity and characteristics of the service-buying process. Again, the research results show that companies seem to be still feeling their way more in the buying of services as opposed to buying goods and materials. It is generally assumed that services tend to be carried out by an actor with the necessary competence, other than the purchasing expert. Thus the service being purchased is seen not as a purchase, but as a necessary addition to the company in which the purchasing department is overlooked. For some reason service buying is not perceived in the same way as the purchasing of goods and materials.

According to the results of this study, currently service buying comprises around 25% of the total procurement among the focal companies operating in the Finnish business field. The volume is still at a low level compared to the purchasing of goods and materials, but it is clear that services are gaining visibility given the increasing interest in


service buying. Only one of the companies indicated that it did not purchase any services. Naturally, there were many inter-industry differences. Transport and logistics services are inherently involved in service purchasing in the form of subcontracting, for example. This is also the case in the construction industry, particularly in the building phase with its intrinsic and overwhelming complexity.

The research results reveal an association between the volume of service buying and certain functional aspects of the business. Companies on the higher end of the scale are more willing to seek outsourcing opportunities in the area of supply management in order to improve their service-purchasing competence. The rate of service purchasing also indicates the nature of supply management in terms of whether internal purchasing is decentralised in various locations or conducted centrally through the purchasing department. Here, the decentralised purchasing structure shows a positive connection with service buying.

The main managerial implication of this study is that S-D logic (Vargo and Lusch, 2008) appear to have a perfect fit for the purchasing and supply function competencies. However, it seems that firms’ purchasing staff often lacks those competencies (they would like to outsource or decentralise service buying). It is a common assumption that service purchasing acts as some kind of bridge that has an impact on partners and potential affiliates, as well as customers. Companies that have better assimilated the characteristics of services are also more prepared to purchase them, as well as products that comprise of bundles of services and physical elements. Nowadays, when sourcing activities constitute of countless kinds of interconnected systems of products and services, effective service purchasing may constitute a valuable business asset. Given the comprehensive and complex nature of service buying and the positive effect of interaction, the whole process assumes a higher level of importance. The process may be carried out by actors who are not proficient in it and there are definitely grounds for optimising the purchasing process. Giving the job to purchasing professionals would facilitate cost efficiency, for example, and there would be probably more firm-level standardisation in the purchasing process and decision-making. Indeed, whether or not there is the necessary expertise, successful service purchasing requires continuous and active interaction between the parties involved in the process.

Thus far the purchasing of services has attracted little academic interest, which leaves a lot of room for future research. Given that service purchasing is becoming increasingly relevant in the procurement process, service buying should be studied progressively and systematically. This study opens up new possibilities and perspectives for future research. It would be useful to examine more closely the differences in activities and tasks in different contexts (i.e., countries and continents). These perspectives give a solid basis on which to develop a clear understanding of the true nature of services. In addition to highlighting these basic research themes, this study also raised questions about the real status of service purchasing within the companies concerned. It turned out that services were often in the hands of someone without the required competence in the area of purchasing. It would be important to assess the effects of these unprofessional service purchases, as well as the underlying reasons. Furthermore, and related to this, it would be useful to investigate the extent of buying of services beyond firm formal purchasing process (maverick buying). Methodologically, it would be worthwhile to use qualitative methods in conjunction with interviewing, which brings out true insights into service buying and the applied means, routines, practices and assignments, for example. From a


wider perspective, it would be useful to investigate the whole purchasing process and the interaction among all the involved parties, especially on the supplier side.

There are some limitations connected with this study. The percentual aspect, used in the study, is one way of describing the degree of service buying in the companies. Another option would have been to take a financial perspective and show the amount of money spent in practice. Also, the examined items in the regression explain together only 10.9% of the variance of the service buying which means that there are other uncovered characteristics and factors associated with service buying, and which should be revealed in the future studies. Furthermore, the decision to use single informants in the data collection always involves the risk of common method bias. This risk could be minimised in future studies through the use of multiple respondents. Moreover, the study was based on a national survey, and the results may differ in a different context. Finally, the empirical findings are descriptive and explorative in nature and conclusions regarding the causal relationships must be drawn with caution.

Acknowledgements

The authors appreciate highly the feedback of the reviewer, whose helpful suggestions have improved the paper substantially.

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The characteristics of service buying in the business-to-business sector