Public Value Management Theory.

Applying Public Value Management Theory to Procurement (July 2017)

AuthoredAlan Turrell FCIPS

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IntroductionFor many procurement professionals, public value management theory is likely to be a new concept but is one that that offers valuable insights for procurement professionals, particularly those working in the public sector.

This paper summarises its key elements and demonstrates how they can be applied to procurement and in doing so can enhance the credibility of procurement as a strategic function.

The Concept of Public ValueThe concept of public value management was devised by US academic, Mark Moore, in 1995 as an alternative approach to the “New Public Management” which at the time was a major influence on public policy and was characterised by targets, individual preferences and market mechanisms. In contrast, the public value concept is centred around the needs of the public as citizens as well as consumers, the creation of value rather than achieving targets, and public value being more than the aggregation of individuals needs with deliberation as to what constitutes public value at its core. In examining Moore’s concept and the various deliberations that this has provoked, it is possible to identify the key elements of public value theory that are most relevant and transferrable to public procurement particularly in the context of a profession continuing to strive for recognition as a strategic function. These are:

1. The contention that Public Value can only be created by a public body if all 3 elements of the Strategic Triangle are in place. These are: Strategic goals and values; the authorising environment (eg gaining legitimacy to undertake specific projects); and operational capability (eg resources and skills etc.)

2. The emphasis on societal rather than individual needs with two dimensions of public value being “What do the public most value?” and “What adds value to the public sphere?” (Benington, 2011). This means that public bodies in addition to providing good quality services to individuals, have a duty to provide broader benefits to the local community as a whole, with such benefits being measurable.

3. The role of public managers as “explorers” and creators of public value by looking outward, upward, downward and inward, as co-ordinators of the three elements of the strategic triangle and with an emphasis on political management skills.

4. The emphasis on networked governance with public bodies working and leading across organisational boundaries including within a “mixed economy” network of public, private and third sector providers.

5. Co-production is core to the creation of public value with public organisations and their providers working with the public and clients in both designing and delivering services.

Public Value and Public Procurement Although there is a scarcity of literature specifically linking public value to procurement (exceptions include Staples and Dalrymple, 2011, Erridge, 2005 & 2007 and Turrell, 2013a&b & 2016), other relevant elements that have been raised about creating public value, or more precisely, protecting public values in the context of public procurement include: The need to promote a public service ethos amongst non-public sector providers and to

apply a more relational approach to contracting.

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The broad definition of outcomes and optimised tendering, and the need to combine the application of public procurement goals with public and stakeholder participation.

Procurement competency, having a guiding policy and the explicit application of values to the conduct of the procurement process together with an emphasis on shared culture, networks, and organisational “collaborative capability”.

Values, institutions and markets all impact on contracting strategy and the failure to articulate public values, a scarcity of providers, and threats to dignity, may result in “public value failure” (Bozeman, 2002)

A Public Value Healthcare Procurement FrameworkAs illustrated in Figure 1, a Framework has been devised (Turrell, 2013a&b) that attempts to combine these features and is particularly focussed on the procurement of healthcare in order to address the specific challenges, particularly the increased emphasis on choice and competition, being faced in that sector at the time (2012) the Framework was devised. However this could easily be adapted as a Procurement Strategy to other public procurement environments.

Figure 1 –The Public Value Healthcare Procurement Framework

The key features of the Framework are:

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It is based around the Strategic Triangle with some of the key elements of each of the three spheres being as follows:

1. Values and Strategy:Procurement activity is driven by the overall strategy, values, objectives and priorities of the organisation for the benefit of the local population and this includes applying selection and award criteria that take into account the compatibility of values, together with the general promotion of a public service ethos by providers. Providers are encouraged to deliver broader public value to the local community, such as economic, social and environment benefits whilst providing quality and value for money services and are expected to report progress through the publication of annual Public Value Accounts.

2. The Authorising Environment:This segment emphasises stakeholder engagement requiring political management skills, a strategic relationship management approach based around relational contracting, and the promotion of co-production of service planning and delivery by providers and equally by the purchasing organisation itself.

3. Operational Capability:This requires that all staff engaged in procurement activity must have the appropriate skills and competences, that there is the optimum procurement structure, a clear process for determining the sourcing strategy, and “collaborative capability” in terms of the organisation collaborating with other commissioners and providers co-operating with purchasers and other providers.

The inter-locking centre highlights the role of the procurement function as a network co-ordinator bringing the three facets of the Strategic Triangle together.

The outer triangle demonstrates that this approach will deliver three principal outcomes: increased legitimacy for the procurement function, the provision of quality services and improved outcomes and, the overall creation of public value benefitting communities and society.

Lessons for Public ProcurementWhat then can public procurement practitioners, indeed all procurement professionals, learn from the public value approach? Although the above Framework does embrace many of the characteristics that are associated with “best in class” procurement operations, such as commercial skills and competences, customer engagement and supplier relationship management, it also adds some new perspectives:

Firstly, public value has a wider conception of “value” which is broader than purely economic value associated with “surplus value”. The classification of public values summarised in Figure 2 gives an indication of this broader value which procurement should be aiming to deliver. Indeed, this approach has to some extent been reinforced and imposed by the obligations on commissioners of services within the Public Services (Social Value) Act 2012 to “consider (a) How what is proposed to be procured might improve the economic, social and environmental well-being of the relevant area, and (b) How, in conducting the process of procurement, it might act with a view to securing that improvement.” However, as discussed below, there are differences between public value and social value.

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Figure 2 – Classification of Public Values

Economic value Adding value to the public realm through the generation of economic activity and employment.

Social and Cultural value Adding value to the public realm by contributing to social capital, social cohesion, social relationships, social meaning and cultural identify, individual and community well-being.

Political value Adding value to the public realm by stimulating and supporting democratic dialogue and active public participation and citizen engagement.

Ecological value Adding value to the public realm by actively promoting sustainable development and reducing public ‘bads’ like pollution, waste, global warming.

Source: Benington, 2011

Secondly, the role of public managers specified by Moore (1995) as one of “explorers” and “moral leaders” whose “ethical responsibility is to undertake the search for public value conscientiously” radically changes the perspective of public procurement professionals. This calls for a more dynamic approach whereby it is responsibility of individual managers to identify opportunities for creating public value and through the authorising environment gaining the internal and external authority to progress these ideas. In order to do so, a key skill to be added to the procurement manager’s toolkit is political management skills. This approach concurs with the views of those commentators (such as Lonsdale and Watson, 2005) who regard procurement as primarily an exercise in managing conflict and power rather than a technical function.

Thirdly, the key role of the procurement function is to help deliver the strategic objectives of the organisation and to enforce its values and to promote a public service ethos irrespective as to whether a provider is from the public, third or private sector. Purchasing procedures, including evaluation criteria and performance measurement, need to be built around this philosophy.

Fourthly, the Framework’s interpretation of public value sees the procurement function playing the key role at the core of the strategic triangle as the “network co-ordinator” being the principal interface between the organisation and its external providers; co-ordinating, interpreting and consolidating the requirements of internal customers to avoid fragmentation of spend (Lonsdale and Watson, 2005); and “steering networks of providers in the quest for public value creation” (O’Flynn, 2007). The importance and complexity of this role is reinforced by the increasing emphasis on collaborative procurement across organisational boundaries within the public sector.

Public Value and Social ValueThe concept of “social value” rather than “public value” is one that most public procurement professionals will be aware of, not least because of the obligations imposed by the above-mentioned Social Value Act. However it is important to recognise the distinction between the ©CIPS 2017/ Alan Turrell asserts his right to be identified as the author of this work. 4

two. Although many of the elements included within the classification in Figure 2 above are synonymous with the common view of social value as the provision of broader social, economic and environmental benefits to the local community, public value as a management approach may be regarded as the theoretical basis and the means of achieving the delivery of social value ie such public or social value cannot be achieved unless all the elements of the strategic triangle are embraced and linked together.

It is unlikely that those public procurement professionals that have enthusiastically embraced social value and have incorporated it into their procurement processes have approached it from this perspective and therefore the characteristics of the public value approach outlined here should provide both a theoretical perspective and valuable practical tools to enhance the achievement of social value aims.

The Application of the Public Value Procurement FrameworkAlthough the Framework was originally designed as a new approach to the procurement of healthcare in the context of the NHS reforms associated with the 2012 Health and Social Care Act, it could easily be adopted for other sectors. In doing so, it potentially has a variety of uses. As well as being a means to help promote social value as explained above, it can be adopted as the basis of an overall Procurement Strategy with further detail and ambitions attached to each element included within the three spheres as relevant to the specific organisation. Alternatively, it could be used as a check-list or audit tool to measure the degree of maturity of a public procurement department including a means of identifying gaps that need to be filled in order that the function can make its full contribution to the organisation’s obligation to deliver public value to the local community.

ConclusionPublic value management theory will be a new concept to most procurement professionals and although it has received much attention academically, there have been limited attempts to apply it to a procurement scenario. However in doing so, it is clear that it can provide valuable additional perspectives on how to approach public procurement including: ensuring that procurement is a core instrument in achieving the objectives and promoting the values of the organisation; that it is a key contributor in determining strategic direction; that it has the appropriate capabilities to fulfil these tasks; and acts as the co-ordinator of the complex network of internal and external players. A by-product of such a role will surely be the achievement of the much craved for recognition that procurement is a core strategic function integral to the achievement of organisational goals.

AuthorAlan Turrell FCIPSLinkedIn

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Selected Biography• Benington, J. & Moore, M. (eds.) (2011) Public Value Theory and Practice. Palgrave

Macmillan, Basingstoke• Benington, J. (2011). “From Private Choice to Public Value?” In Benington, J. & Moore, M.

(Eds.) Public Value Theory and Practice (pp. 31-51). Basingstoke: Palgrave Macmillan.• Bozeman, B. (2002). “Public-Value Failure: When Efficient Markets May Not Do.” Public

Administration Review, 62 (2): 145-161. • Coyle, D., with Woolard, C., (2010) Public Value in Practice: Restoring the Ethos of Public

Service. BBC Trust, London. Accessible from www.bbc.co.uk/bbctrust• Erridge, A. (2005) UK Public Procurement Policy and the Delivery of Public Value.

Accessible from: http://unpcdc.org/media/6700/uk%20public%20procurement%20policy%20and%20the%20delivery%20of%20public%20value.pdf

• Erridge, A. (2007) Public Procurement, Public Value and the Northern Ireland Unemployment Pilot Project. Public Administration 85 (4): 1023-1043

• Lonsdale, C. and Watson, G. (2005) The internal client relationship, demand management and value for money: evidence from the NHS, Journal of Purchasing and Supply Management 9 (4) 159-172

• Moore, M. (1995) Creating Public Value: Strategic management in Government, Harvard University Press, London

• O’Flynn, J. (2007). “From New Public Management to Public Value: Paradigmatic Change and Managerial Implications.” The Australian Journal of Public Administration, 66 (3): 353-366.

• Stoker, G. (2006). “Public Value Management: A New Narrative for Networked Governance?” The American Review of Public Administration, 36 (1): 41-57.

• Staples, W. (2010) Public Value in Public Sector Infrastructure Procurement. (Doctor of Philosphy Thesis) RMIT University.

• Staples, W. & Dalrymple, J (2011) Exploring Infrastructure procurement by Australian state governments. International Journal of Managing Projects in Business 4 (3): 512-523

• The Stationery Office (2012), Public Services (Social Value) Act.• Turrell, A. (2013a) Challenging Traditional Methods of Procurement, Health Service Journal

5th July 2013• Turrell, A (2013b) Developing a Public Value Procurement Framework, Journal of Public

Procurement 13 (4)• Turrell, A. (2016) Caring for the Community, Healthcare Manager Issue 29• Williams, I. & Shearer, H. (2011) Appraising Public Value: Past, Present and Futures. Public

Administration doi: 10.111/j.1467-9299.2011.01924.x

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