How do critical incidents influence the legitimacy of the purchasing function?

How do critical incidents influence the legitimacy of the

purchasing function?

MSc Supply Chain Management

University of Groningen, Faculty of Economics and Business

Author: Matthias Viets

Student number: 4057724

Email: matthias.kinta.viets@gmail.com

Word count: 10 438

Supervisor: Dr. K. Scholten

Second Supervisor: Dr. Bruce Tong

Abstract:

Purpose: This study aims to explore how critical incidents influence the legitimacy of the purchasing function. In particular, this study investigates the mechanisms of how critical incidents have an impact on the status, accountability and competency of purchasing functions.

Method/Design: Qualitative exploratory case study research was conducted. Four purchasing functions in the food, chemical, high-tech and (food) packaging industries were investigated with 12 interviews in total and one expert interview.

Findings: The findings show that different critical incidents influence the legitimacy of purchasing in different ways. The study provides evidence that critical incidents are an opportunity for purchasing functions to gain legitimacy. Underlying mechanisms of how critical incidents challenge and create legitimacy are identified.

Originality/Value: This is one of the first studies to provide insights into purchasing’s internal legitimacy by recognizing that incidents lead to higher status, accountability and competency of the purchasing function.

Table of Contents

1. Introduction ... 2

2. Theoretical Background ... 3

2.2.1 Internal and external incidents ... 6

2.2.2 Critical incidents and the link to purchasing legitimacy ... 7

2.3 Conceptual Model ... 8

3. Methodology ... 9

4. Findings ... 17

4.1.1 Challenging purchasing legitimacy ... 19

4.1.2 Creating purchasing legitimacy ... 20

4.2 Strategic incidents ... 21

5. Discussion ... 23

5.1 The link between critical incidents and purchasing legitimacy ... 23

5.2 The influence of strategic and operational incidents on purchasing legitimacy ... 24

5.3 Challenging legitimacy ... 25

5.4 Purchasing legitimacy and purchasing maturity ... 25

6. Conclusion ... 26

6.1 Managerial implications ... 26

6.2 Limitations and directions for future research ... 27

7. References ... 28

Appendix ... 31

A. Pre-interview questionnaire ... 31

B. Interview guide ... 32

1. Introduction

While the importance of purchasing to business performance is widely acknowledged (Chen et al., 2004; Ellram & Carr, 1994; Handfield et al., 2015; Paulraj et al., 2006; Weigel & Ruecker, 2017), procurement today is still not perceived as an effective internal business partner (Deloitte, 2016, 2019). As such, the purchasing functions lack intra-organizational legitimacy, which drives this perception of purchasing as a strategic partner by others within the organization (Reck & Long, 1988) through “desirable, proper, or appropriate” actions (Suchman, 1995). Accordingly, purchasing needs to align its decisions and actions with internal customers to be perceived as legitimate and an effective internal business partner (Tchokogué et al., 2017).

Research in the field of social sciences, organizational studies or management show that legitimacy is established through the actions of individuals within organizations (e.g. Bitektine & Haack, 2015; Drori & Honig, 2013; Johnson et al., 2006). Hence, it is the purchasers actions and decision that can heavily affect how the department is perceived by others and make it more or less legitimate (Bitektine, 2011). For one, in order to establish legitimacy purchasers need to make purchasing’s contribution to the company’s performance transparent (Tchokogué et al., 2017). For instance, if top management is able to attribute cost savings to the purchasing function, purchasing’s actions are accountable which establishes legitimacy. Second, scholars in social sciences find that legitimate departments stand out with strong links to functions within the organization (Johnson et al., 2006). A lack of healthy ties to other departments might therefore be a reason for the issue that these days procurement is not perceived as a strategic alliance partner.

While the outcomes are similar, purchasing legitimacy is different to maturity. Tchokogué et al. (2017) show that legitimacy and maturity are two different concepts: highly capable and interconnected purchasers can lead to a high perceived legitimacy of the department, while the department itself is not on a high strategic level. Vice versa, the authors also argue that just because the department itself is mature, it does not mean that it is also perceived as such by other departments. It is therefore of both theoretical and practical interest to better understand how legitimacy is influenced in order to increase the stability of the purchasing function.

handled wrongly, they can have an impact on how the department is perceived internally (Beelitz & Merkl-Davies, 2012). Surprisingly however, this link has not been explored to date.

Through investigating critical incidents and their influence on legitimacy, we want to gain insight into the workings of legitimacy. Especially, how critical incidents can change the perception of the purchasing function among its internal business partners. By exploring multiple cases of purchasing functions, we therefore aim to find answers to following research question: How do critical incidents influence the internal legitimacy of the purchasing function?

In light of the current literature, this study makes three contributions by answering the research question. First, this paper is building on research by Tchokogué et al. (2017), who suggest that there is a direct link between critical incidents and purchasing legitimacy. We hereby extent the current knowledge on purchasing legitimacy by providing detailed insights into the mechanisms of legitimacy that explain this relationship. Second, we pick up on the point of maturity and show that purchasing legitimacy is evidently different to purchasing maturity. However, we show that internal legitimacy is needed in order for purchasing to contribute strategically to the organization, hence, reach or maintain higher levels of maturity. Lastly, this paper gives managerial insights into how organizations can benefit from legitimate departments. We outline how critical incidents can be an opportunity for purchasing functions to improve their competencies.

2. Theoretical Background

The concept of legitimacy can be traced back to institutional theory where social entities such as departments are conforming with what is desired or expected of them by other entities (Suchman, 1995). In literature the focus is often on external legitimacy (e.g. Baldini et al., 2018; Delmar & Shane, 2004; Turcan, 2012), that is, external stakeholders perceive the actions and decision of the entire organization as legitimate (Zimmerman & Zeitz, 2002). However, in the following this paper looks at internal legitimacy as it allows the analysis of the perception of internal customers on the perceived effectiveness of the procurement function (Tchokogué et al., 2017).

2.1 Internal legitimacy

Over the past decades research in the field of purchasing has recognized procurement’s increasing internal relevance (Handfield et al., 2015). This internal relevance is argued to be attributable to the increasing strategic contribution of purchasing to the organizational performance (Chen et al., 2004; Paulraj et al., 2006) as a consequence of reaching legitimacy (Ellram & Carr, 1994).

Zsidisin et al. (2003) highlight that legitimacy stems from 1) the status it receives from top management and internal customers and 2) the accountability of purchasing in contributing to the firm’s performance. Tchokogué et al. (2017) extend these variables by arguing that the legitimacy is also dependent on purchasing’s competencies “which enable purchasing managers to develop and/or hinder internal legitimacy” (Tchokogué et al., 2017, p. 164). Purchasing’s internal legitimacy is therefore captured as status, accountability and competency. Figure 1 depicts the theoretical framework that will be discussed in the following.

2.1.1 Status

Status relates to how important and relevant other departments and top management perceive purchasing (Zsidisin et al., 2003). When purchasing is recognized by other departments and top management as at least equally important to other departments, purchasing is able to also make strategic decisions (Luzzini & Ronchi, 2016). That is, when purchasing holds a high status, it is seen as legitimate and can have an influence on strategic planning processes and with that on the organization’s performance (Hartmann et al., 2012). When purchasing is moving from being occupied with clerical activities to strategic decisions, its status within the company increases which creates legitimacy (Cousins et al., 2006; Luzzini & Ronchi, 2016). Purchasing departments with a high status are also highly supported by top management and its internal peers (Cousins et al., 2006). A purchasing department is therefore being recognized if it is a appreciated member of the management team, seen as a peer to other departments and involved in strategic decisions. Bakker and Kamann (2007) show that relationships to other manager’s is what builds trust, inclusion in decisions and promotes its importance within the firm. The authors also found that in departments where purchasing status is missing, there is a lack of coordination among departments resulting in conflicts and misalignment of supply chain actions.

2.1.2 Accountability

can hold the purchasing department accountable for fulfilling or exceeding their expectations, can purchasing gain legitimacy within the firm. Moreover, the transparent communication with internal business partners builds strong relational ties, which are needed to be recognized as legitimate (Tchokogué et al., 2017).

2.1.3 Competency

Competency relates to the knowledge and technical skills that purchasers need to have in order to “better manage supply chain risks and make better-informed decisions.” (Eltantawy et al., 2009, p. 933). For instance, if purchasers possess the abilities to foresee and prepare possible critical incidents and make informed decisions, it brings value to the organization. This value evolving from purchasing competency is what “develop[s] and/or hinder[s] internal legitimacy” (Tchokogué et al., 2017, p. 164) as purchasing’s actions is what is visible to other departments. Competence is not only expressed by the knowledge purchasers have but also its willingness to collaborate with other departments internally by sharing this knowledge (Tchokogué et al., 2017). If purchasing is able to be a competent partner by benefiting other departments with its actions, it is a source of purchasing legitimacy (Tchokogué et al., 2017). Table 2 gives an overview of the three constructs used by scholars that operationalize legitimacy and their corresponding definitions.

Table 2: Operationalization of purchasing legitimacy

Variable Definition Construct Reference Status Status of the purchasing function refers to

other function’s and top management view and treatment of purchasing (Carr & Smeltzer, 1997)

Purchasing recognition

(Ho et al., 2015) (Carr & Smeltzer, 1997) Top management

support

(Tchokogué et al., 2017) (Cousins et al., 2006)

Accountability Accountability refers to purchasing’s

ability to contribute and align to organizational goals and standards (Zsidisin et al., 2003) Strategic contribution to organizational goals (Zsidisin et al., 2003) (Chen & Paulraj, 2004) (Baier et al., 2008) Transparency of purchasing’s actions (Baier et al., 2008) (Tchokogué et al., 2017)

Competency Competency refers to purchasing’s expertise, knowledge and effort to monitor changes in the supplier market and align its decisions with other departments (Tchokogué et al., 2017)

Cross-functional cooperation

While legitimacy is built over time (Bunduchi, 2017) sudden changes to the purchasing department can threaten its internal legitimacy (Beelitz & Merkl-Davies, 2012). That is, when purchasing’s actions are no longer valued by its peers (status), no longer aligned with internal customers (accountability) or unravel a lack of professionalism (competency). For instance, a disruption in the supply of a product which could have been avoided could indicate a lack of competence to other departments and consequently purchasing could lose its legitimacy.

2.2 Critical Incidents

A critical incident is an event that “that can be described in detail and that deviates significantly, either positively or negatively, from what is normal or expected.” (Bejou et al., 1996, p. 36). As such, incidents do not necessarily have to be unexpected. In light of our research question, we therefore consider events related to the purchasing function that are positive or negative in nature which form a deviation to purchasing’s ‘standard’ way of working.

2.2.1 Internal and external incidents

As purchasing functions have to match internal supply requirements to external environments, purchasing is not only exposed to internal incidents but also influenced by external changes (Pereira et al., 2014). Therefore, procurement related incidents are often categorized in literature based on where they occur: internal or external (e.g. Sunil & ManMohan, 2004; Wu et al., 2006).

Accordingly, the first type of incidents relevant for this study is internal incidents, which are incidents that occur within the organization and are related to internal purchasing processes. That is, incidents that originate from organizational operations which have an impact on the efficiency of purchasing processes as they require attention and handling from purchasing managers (Wu et al., 2006). Internal incidents challenge the department as the root cause is often attributable to mistakes which can lead to avoidance of responsibility, tension between departments and reputational damage (Macdonald & Corsi, 2013). For instance, forecasting errors, production disruptions or an organizational restructuring relate to incidents that are caused internally.

Table 3: Examples of internal/external critical incidents Internal › Information delays

› Forecasting error › Production disruption

(Ho et al., 2015)

› Reduction in report layers between top management and purchasing

(Pearson et al., 1996)

› Breakdown of information systems › Internal system integration

(Sunil & ManMohan, 2004)

› Labor strike

› Miscommunication between departments

(Wu et al., 2006)

› Change in business strategy › Implement new purchasing strategy

(Hartmann et al., 2012)

External › Natural disaster › Market growth › Market change

(Ho et al., 2015)

› Supplier bankruptcy (Sunil & ManMohan, 2004)

› Demand increase › Demand decrease

(Wu et al., 2006)

2.2.2 Critical incidents and the link to purchasing legitimacy

As legitimacy is built upon relationships, it leaves a department very vulnerable to incidents affecting those relationships (Suchman, 1995). It is hereby not the occurrence of the incident itself that threatens or promotes the internal legitimacy of purchasing, but more the reaction of the purchasers to that incident. When managers do not try to justify and handle an incident but instead start blaming others or shift responsibilities, it signals a lack of managerial control (Suchman, 1995). That is, internal legitimacy would be influenced by losing status, failing to provide accountability for its actions and revealing a lack of competence. Only when purchasers are investing resources into the prevention of incidents, is the department also able to maintain its legitimacy internally (Tchokogué et al., 2017).

Kamann (2007) shows that a failed partnership with a supplier exposes the entire organization to a supply risk. This influences purchasing legitimacy as it negatively affects the status of purchasing internally and exposes a lack of competence (Bakker & Kamann, 2007). However, as critical events can affect relationships between a social entity (e.g. a department) and its stakeholders both positively and negatively (Oldenburger et al., 2008), an investigation of both creating’ and ‘legitimacy-demolishing’ incidents is needed. For instance, a restructuring of the organization can have a positive impact if there are less report levels between purchasing and top management after the change (Luzzini & Ronchi, 2016). Or a change in corporate strategy might require the department to get involved in new product development projects which in turn improves its strategic relevance (Schiele, 2007). Both examples would constitute a critical incident as the event entails a positive change to the purchasing function.

2.3 Conceptual Model

As shown in theory, purchasers need to gain status from internal customers, create accountability and prove their competence. Legitimacy develops over time and requires the necessary skills of purchasers and support from internal partners. Since purchasing legitimacy is built upon relationships to internal customers, critical incidents can have an influence on these social ties and therefore challenge legitimacy – both positively and negatively.

Figure 1 presents the conceptual model used for this study. Internal legitimacy consists of status, accountability and competency. While the concept of legitimacy has been explored and the impact of critical incidents on legitimacy investigated, it has not been researched in the field of purchasing. Neither – to the best of our knowledge – has it been explored if different type of incidents, i.e. internal and external, influence purchasing legitimacy differently. As the legitimacy of purchasing contributes to the organizational performance (Tchokogué et al., 2017), understanding the mechanisms influencing legitimacy is important. We therefore aim to answer following research question: “How do critical incidents influence the internal legitimacy of the purchasing function?”.

Critical Incidents › Internal

› External Accountability

Purchasing Legitimacy

3. Methodology

3.1 Research design

Even though scholars have made the link between critical incidents and internal legitimacy, it remains unknown how critical incidents influence the internal legitimacy of the purchasing function. Therefore, we used an exploratory multiple case study design as it allows for an empirical investigation of novel concepts (Eisenhardt, 1989). To study the mechanisms underlying the influence of critical incidents on purchasing legitimacy, the research design needed to enable us to conduct an in-depth analysis of each incident. Case study research is particularly suited to study the behavior and perception of individuals (Woodside & Wilson, 2003), which will provide us with detailed insights into the relationships between departments. Especially because we aim to investigate different incidents, the contexts in which these occur matter and case studies provide the necessary descriptions of contextual settings (Yin, 2013). As incidents are very unique in the way that they occur, choosing a multiple-case study (vs. single-case) allows us to compare results across cases to gain generalizable insights (Gerring & McDermott, 2007). Next to improving external validity of our results, multiple cases also create a more robust theory and reduce the researcher bias (Eisenhardt & Graebner, 2007). In light of our research question, the unit of analysis for this study is a purchasing function and in total 4 cases were studied.

3.2 Research setting

We decided to focus on multinational companies that source globally and where procurement is expected to have encountered incidents related to the supply of products. In particular, companies operating in the (food) packaging, food, high-tech and chemical industries. These four industries are perceived to be most prone to disruptions (Donadoni et al., 2019), which increased our chances that companies operating in these sectors have experienced critical incidents. The food and (food) packaging industries were expected to deliver insightful results as products need to move quickly through the supply chain in high volumes, which makes purchasing vulnerable to incidents occurring both external in the supplier market and internally. The chemical and high-tech industries were of interest as few raw materials make up for a large share of the companies’ turnover. Purchasing decisions therefore have to be very strategic as incidents occurring in the supply chain could have a high financial impact due to the high costs of products sold. Overall, all four industries were expected to show a sophisticated level of purchasing legitimacy, whereby the chemical and high-tech industry was expected to show a higher level of legitimacy than the others. This allows for a theoretical replication as we expect different results for predicted reasons (Yin, 2009), which will be discussed in the following section.

influence on the legitimacy of the purchasing functions. Table 4 gives further insights into the selected cases and corresponding characteristics.

3.3 Case selection

Table 4: Case Selection

Industry Description of company Legitimacy characteristics

Critical incidents

A High-Tech Large scale manufacturer for electronic components in the automotive, medical, defense and semiconductor industries operating globally

High

Have experienced a critical incident (internal and external) in the past 2 years B Chemical Large scale manufacturer in the

chemical, health and nutrition sector with a focus on innovation operating globally

High

C Food Manufacturer for bakery goods and products with global sourcing in place

Low D (Food)

Packaging

Manufacturer for (food) packaging goods, plastics and components operating globally

Low

Legitimacy characteristics

High: represented in top management (status); involved in strategic organizational decisions (status,

accountability); collaborating closely with most internal departments (competency)

Low: Is not represented in top management (status); Is not involved in strategic organizational decisions

(status, accountability); Is only collaborating with supply chain related departments (Operations, Logistics) (competency)

3.4 Data collection

All interviews were held online via video conferences, as personal meetings were not possible related to the COVID-19 situation. Each interview time ranged from 40 to 60 minutes and were conducted in English. The interviews were recorded, then transcribed verbatim independently by two researchers following the 24-hour rule (Eisenhardt, 1989) and cross-checked. We then sent back the transcripts to the interviewees for verification. This rigor in the collection of data reduced the observer-bias and ensured inter-rater reliability (Voss et al., 2002).

3.5 Data analysis

In analyzing the data, we followed the three steps suggested by Miles and Huberman (1994): data reduction, data display and conclusion. We used Excel to maintain the data base and manage the analysis of our data. After transcribing the interviews, data was reduced by labelling quotes relevant to our study with first-order codes. Consequently, these first-order codes were then grouped to second-order categories, which were derived from theory based on the constructs of status, accountability and competency. This process of building second order categories is shown in Table 6. Each of these second order categories were then grouped to the corresponding dimensions of purchasing legitimacy. Further, we categorized the codes based on internal and external incidents according to our theory. When looking into the data further we realized there was no difference in the influence of internal and external incidents on legitimacy. Even though our theory suggested different influences on purchasing legitimacy, we were not able to make that link. Internal and external incidents had the same effect on purchasing legitimacy. However, we found a pattern that suggested a different influence on legitimacy between strategic incidents and operational incidents. Strategic incidents were incidents that were often initiated by other parts of the organization, e.g. an implementation of identical KPIs across departments. Operational incidents were purchasing related internal and external incidents that were a challenge to purchasing functions and often of more negative nature (e.g. supply disruptions). In the following parts, we will therefore not relate to internal and external incidents but to strategic and operational incidents.

Table 5: Overview of interviews

Case Industry # Position of the interviewee

Length (min)

A High

Tech

A1 Managing Director 59 min A2 Operations Manager 55 min A3 Purchasing Manager 58 min

B Chemical B1 VP Indirect Procurement 57 min B2 VP Procurement Sustainability 50 min

B3 Global Director _Procurement Transformation

55 min

C Food

C1 Project Coordinator 55 min C2 Purchasing Manager 40 min

C3 Sales Manager 49 min

D (Food)

Packaging

D1 Sales Manager 47 min

D2 Managing Director 49 min E Consultancy E Procurement

Consultant

Accordingly, we also categorized our coding trees for strategic and operational incidents and excerpts are presented in Table 7a and 7b, with the entire coding tree in Appendix C.

After reducing and organizing the interview data, we started with the within-case analysis and looked for patterns in the way incidents occurred and how they influenced purchasing legitimacy per case. Using these insights together with the general information about the purchasing functions per case, we wrote case narratives as part of explanation building (Yin, 2009). When conducting the within-case analysis, we realized that certain incidents only occurred in specific cases. In consequence, we made an overview of all critical incidents that interviewees reported per case, grouped by operational and strategic incidents. These revealed patterns that strategic incidents were mostly reported in case A and B, but not so much in case C and D. This pattern is illustrated in Table 8.

Table 6: Building second-order categories

First-order codes Second-order categories

Legitimacy construct: Status

Legitimacy construct: Accountability

Legitimacy construct: Competency

Management support gives purchasing power (a)

Incident gives purchasing immediate recognition (c)

Incident creates immediate opportunity to prove professionalism (g)

Incident creates transparency of actions (f) Incident improves strategic contribution (e) Incident improves purchasing recognition (d)

Incident promotes cross-functional cooperation (i) Incident is an opportunity to become more professional (h)

Management gives purchasing initial control Receiving initial full management support

Incident gives purchasing attention Incident gives purchasing responsibility Incident unravels purchasing’s’ importance Receiving high reputation

Receiving acknowledgement because of pressure Gaining respect

Reputation of purchasing improves

Showcasing contribution to organizational goals Gain strategic importance

Take strategic actions Creating transparency Creating credibility

Incident unravels competence Coordinating departments Provide initial transparency Take strategic actions Satisfy business needs Proving competence Results drive competence

Incident reveals improvement potentials Competence is dependent on cooperation

Learning from incidents

Competence is dependent on cooperation Importance of communication

Table 7a: Excerpt of coding tree for status (operational incidents)

Representative quote First-order codes Second-order categories Dimension

We've [top management] got to say hey, purchasing is in control, they monitor the world, they are capable of transferring the impact. (A1)

Management gives purchasing initial control

Management support gives purchasing initial power

Status What we do at the moment is more or

less, helping them to set the priorities. (A2)

Receiving initial full management support And of course, I also need the support

from management. So, for me to work well I also need their support. (C2)

Management support needed Importance of management support Because if we have a critical incident, I

think the first thing that we do mostly is to inform my purchasing (A1)

Incident gives purchasing immediate attention

Incident gives purchasing immediate recognition

On the other hand, we know that doing this is really playing the role as a business partner. We have to mitigate that risk. (A3)

Incident gives purchasing responsibility

And purchasing is now playing a very important role for that, which we respect a lot. (C3)

Incident unravels purchasing’s importance Well purchasing has a good reputation

in these times. (D1)

Receiving high reputation

Incident improves purchasing recognition Because purchasing is a really tough job

[during a demand increase]. (D1)

Receiving acknowledgement because of pressure And purchasing is now playing a very

important role for that, which we respect a lot. (C3)

Gaining respect

Table 7b: Excerpt of coding tree for status (strategic incidents)

Representative quote First-order codes Second-order categories Dimension

We have a full commitment of the board to what we are doing. (B2)

Gaining management support by serving them better

Strategic incident enabling top management support

Status [Engineers] should go to purchasers so

that the product is also in line with the standard brand of our company so that we don't have so many brands. (A1).

Gaining recognition through more responsibility

Recognition through influence But these particular metrics […] make

procurement a very trusted business partner and important part of every conversation (B1)

Gaining trust

We need to be the master of supply data. It means we have to create some sort of platform with information, and with data, which can be made to information, which is important for the organization to use it as a trend information for the organization. (A3)

Creating influence

the only way to overcome that (negative) perception is to deliver results (B2)

Departments recognizing success

Recognition through success And so we did that for about a year and

a half, and then you saw the turnaround in the business, not so much

complaining about sourcing, but more involving sourcing or procurement into decision making and really upfront in the process. (B2)

Next, we conducted a cross-case analysis and examined how both operational and strategic incidents influence purchasing legitimacy across cases. We were only able to identify a pattern, when looking at the strategic and operational incidents separately. Here, we investigated each second-order category (see Table 6), which led us to identify that that there are two different mechanisms at place in how critical operational incidents influence purchasing legitimacy (see Table 10): challenging legitimacy and creating legitimacy. In doing the same for strategic incidents, we identified the mechanism at place to be only creating legitimacy for strategic incidents.

Furthermore, we ensured research quality in relation to validity and reliability as presented in Table 9.

Table 9: Research quality

Construct validity Triangulation per case, as three interviews per purchasing function were conducted to validate insights within each case. Interview were transcribed within 24-hours and interview questions evaluated after each interview. Internal validity Within-case and cross-case analysis to identify patterns. Causal links

within cases and across cases were identified and presented in the data analysis.

External validity Multiple cases from different industries investigated to increase

generalizability. Theoretical (high/low legitimacy) and literal replication (2 x high, 2 x low legitimacy) logic applied.

Reliability Interviews were conducted in the same manner for all cases with a consistent set of initial questions across all interviews. Interviews

transcribed verbatim and anonymity of interviewees protected at all times. Transcripts were sent back for verification to each interviewee.

Table 8: Overview of critical incidents across cases

Case A B C D Op er at io na l in cid en ts Demand increase x x x x Demand decrease x x Sudden growth x x x x Supply disruption x x x Wrong/forgotten orders x x x St rat egi c inc ide nt s Structural reorganization x x

Improve supplier relation x x

Change in business strategy x x

Implementation of improved ERP x x

Implementation of KPIs x

Table 10: Mechanisms of the influence of critical incidents

Second-order themes Mechanism 1. Challenging Legitimacy Operational incidents

2. Creating legitimacy Operational incidents

3. Creating legitimacy Strategic incidents

Management support gives purchasing power (a)

Incident gives purchasing immediate recognition (c) Incident creates immediate opportunity to prove professionalism (g)

Incident creates transparency (f) Incident improves strategic contribution (e) Incident improves purchasing recognition (d)

Incident promotes cross-function cooperation (i) Incident is an opportunity to become more professional (h)

Challenging legitimacy

Importance of management support (b)

Creating status

Creating accountability

Creating competency

Strategic incident enabling top management support

Incident improves purchasing recognition

Contributing more to organizational goals Incident creating transparency of purchasing’s actions

Creating more professional processes

Strategic incidents improving functional collaboration

Creating status

Creating accountability

4. Findings

Based on our data analysis we found two interesting phenomena of how critical incidents influence purchasing legitimacy. For one, we found that the influence of critical incidents on purchasing legitimacy is dependent on the type of incident. In fact, different than what theory suggested, we do not find a difference in the influence on legitimacy between internal and external incidents. Instead, we found the pattern that the influence is more dependent on whether the incident is either strategic or operational. Second, we found that these two types of incidents influence purchasing legitimacy differently. Operational incidents influence purchasing legitimacy by 1) challenging legitimacy and 2) creating legitimacy.

Challenging legitimacy hereby refers to the initial point in which the critical incident has an influence on the purchasing function. For one, it unravels the importance of purchasing in handling the disruption immediately, which leads to a higher recognition of purchasing by its internal customers and top management. Second, it demonstrates the competency of the department and to what extent it is professional enough to take the right measures. In the second step (creating legitimacy), we found that the incidents create legitimacy by making the value of the purchasing function visible internally. That is, the department is able to gain recognition by receiving acknowledgement from both top management and peers for its actions. Also, the incident influences legitimacy in giving the department an opportunity to prove its professionalism and become more competent. Purchasing is able to showcase its contribution to organizational goals, which led in our cases to higher accountability.

Strategic incidents could only be related to the aspect of creating legitimacy. These strategic incidents were often initiated by the organization and similar to operational incidents influenced legitimacy via status, accountability and competency. However, different to operational incidents we found that legitimacy was often not gained by proving its worth, but more by improving it.

Table 11: Overview of findings

Challenging Legitimacy Creating Legitimacy Operational

incidents

Demonstrating recognition (status):

› Making purchasing importance immediately visible (A, B, C)

› Managing more responsibility (all cases) › Becoming visible (A, B, C)

Receiving top management support

(status)

› Giving purchasing control (A, C, D) › Acknowledging purchasing’s

importance (all cases)

Prove professionalism (competency)

› Incident unravels competence (A, B, D) › Providing initial transparency (A, B) › Coordinating all departments (A)

Gaining recognition (status):

› Improving recognition (all cases)

› Receiving acknowledgement and respect (all cases)

Creating transparency and strategic contribution (accountability):

› Gaining strategic importance (A, B, C) › Showcasing contribution (A, B, C) › Creating transparency (A, B, D) › Creating credibility (A, B)

Becoming more professional (competency):

› Proving competence (A, B, C)

› Revealing improvement potential (all cases) › Learning from incidents (A, B)

› Closer cooperation (all cases)

Strategic incidents

Gaining recognition (status):

› Improving recognition (A, B) › Receiving more responsibility (A, B) › Gaining trust and influence (A, B) › Departments recognizing contribution (B)

Gaining top management support (status):

› Gaining management support by serving them better (B)

Creating transparency and strategic contribution (accountability):

› Contributing to business opportunities (all cases)

› Making purchasing’s contribution more transparent (B)

Becoming more competent (competency):

› Making purchasing processes more professional (A, B)

4.1 Operational incidents

Throughout all cases, operational incidents disrupted the way purchasing was working internally and in most instances the nature of an incident was negative. That is, supply disruptions or unanticipated demand increases, for example, first constituted a threat to the organization and the purchasing function. Such incidents changed the focus of the purchasing department by disrupting core purchasing activities, “Our first priority now is to save our company” (A1). However interestingly, we found that these incidents did not pose a threat to purchasing legitimacy. In fact, we find that by first challenging purchasing legitimacy and then creating legitimacy, the incidents are an opportunity for the department to gain legitimacy by influencing its status, accountability and its competence. This will be discussed in more detail in the following.

4.1.1 Challenging purchasing legitimacy

First, we found that the impact of operational incidents challenged the status of purchasing internally, that is, the relationship of purchasing to top management and its internal customers. Different than expected, we found that operational incidents challenge legitimacy by demonstrating the existing trust to internal partners. With the occurrence of the corona crisis and a resulting supply disruption in case A, top management has given purchasing immediate control and power, “We've [top management] got to say hey, purchasing is in control, they monitor the world, they are capable of transferring the impact.” (A1). It immediately shifts the focus of top management to purchasing, making purchasing a priority for management, “Yes they are central, they are key within the solution for that problem [increase in demand], […] even more than sales.” (D2). The incident immediately unravels the importance of purchasing to others, influencing its recognition by creating respect and appreciation, “I think during this time. It's actually when this type of group shines, you know, and we are valued more.” (B1).

Second, the incident challenges the competency of purchasing, testing the professional expertise of the department. For instance, the purchasing function in case B was able to immediately showcase their professionalism as it had the right measures in place to deal with the disruption. Therefore, the department could support the other departments, providing value to them and prove its competence, “[T]hen it's easier to support, then it's easier to provide that value. Because you have visibility on what's going on in the supply chain.” (B2). In case C we found that this competence was lacking, the critical incidents influenced legitimacy by causing frustration the moment the incident occurred, “I think for every mistake purchasing made more frustration appeared.” (C1).

key.” (A1). The corona crisis and the resulting supply disruptions and demand increases immediately created and opportunity for procurement to prove its risk management capabilities that are usually not tested, “When a crisis like this happens [Corona], you forget some of the skills, and some of the risk mitigation that a procurement group can offer because it's not tested” (B1).

In this initial step, the incident therefore influences purchasing legitimacy by challenging and demonstrating the recognition and competency of the department. The department is able to showcase capabilities that are usually not tested. We did not find any influence of the incident on accountability, as this only seemed to be relevant in gaining legitimacy, which will be discussed in the following.

4.1.2 Creating purchasing legitimacy

First, we found that the occurrence of critical incidents is an opportunity for the purchasing department to positively change the recognition it receives from top management and internal partners. In mitigating the risk of a supply disruption, purchasing was able to ensure that the processes of other departments run smoothly, which improved the role of purchasing as an internal business partner, “But overall I think that yes other departments see us as a better partner when we can handle the situation well. Because if we don’t handle the situation professionally, it has a bad impact on them also. So, when we do it well, they like that, it improves our role.” (C2).

But not only does an operational incident improve the role of purchasing, it also creates respect and credibility: In case A, a sudden increase in demand has left purchasing with the need to source new suppliers in order to satisfy production, sales and management. Top management gave purchasing credits for being able to satisfy this unanticipated demand, recognizing the effort of the department, “purchasing really took the role of managing the supply chain” (A2).

The importance of purchasing becomes visible to other departments and especially to top management, which positively contributes to a higher position within the organization. It creates legitimacy as the general importance of purchasing improves, “If you are visible and if you are working and coming up with solutions, and if you are contributing to the result meaning less risk or less damage then your role gets more important, even after the crisis.” (E).

achieving company goals across departments. Other departments depend on the contribution of purchasing to their targets, which especially in difficult times reveals purchasing’s importance to the organization, “that information comes from our supplier department, that is purchasing. So, we need purchasing and the information to make our plans.” (A2).

Third, purchasing is able to prove but more importantly to improve its competency with the occurrence of an incident. We found that certain qualities of purchasing (e.g. risk management) are often not tested in day-to-day operations. However, with the impact of an incident, the department is able to prove its expertise internally, which improves legitimacy, “Yeah that's almost like the ownership of procurement. We know what is needed to handle disruptions, so we make it happen.” (B2).

Case B has used the current corona crisis and its impact on the purchasing function to improve its practices to become more competent for internal partners, “The point of improvement is again in tools and transparency. Because, even now also with Corona we found out that we don't really have the right tools to do it in a very efficient way” (B3). The incident therefore reveals potential of improvements to make the department more legitimate internally. Further, we found that critical incidents improve how purchasing collaborates with other departments. In case A we found that a demand increase has led to close collaboration between purchasing and sales, which improved the competence of purchasing going forth. Purchasing was able to understand sales’ needs better, creating higher legitimacy of the purchasing function, “And you know what the problems in the world are and you connected each other, you are talking the same language.” (A1).

Moreover, we found that incidents did not only improve how well procurement is serving internal partners, but also how well other departments collaborate with procurement. We found that the competency of procurement is also influenced by the willingness of other departments to help the department, “So when something bad happens nobody blames me, actually they help me then.” (C2). Operational incidents overall led to a higher cross-functional cooperation, which improves purchasing legitimacy.

4.2 Strategic incidents

Different to operational incidents, strategic incidents mainly created legitimacy among purchasing functions. Also, strategic incidents were predominantly found in cases A and B (see Table 8), which were also the cases that showed high existing legitimacy as per our case selection.

deliver results.” (B2). Through the change in strategy the department gained status by building trust, satisfying the needs of internal customers and bringing innovation to the company, “then you saw the turnaround in the business, not so much complaining about sourcing, but more involving sourcing or procurement into decision making and really upfront in the process” (B2).

A restructuring of the internal organization (case A) has given purchasing the sole buying power within the company. It enabled purchasing to make all sourcing related decision internally, which gave it more responsibility and power within the firm, “[Engineers] should go to purchasers so that the product is also in line with the standard brand of our company so that we don't have so many brands.” (A1). The implementation of organization wide KPIs has improved the recognition of purchasing by creating trust and influence. Other departments were able to recognize the importance of the department in driving the success of the firm, “So, therefore, when you have a metric like that. Then it cuts across maybe that necessary evil perception, because then we have actually a really critical role in driving that success.” (B1).

Second, we found in all cases that market shifts were a source for procurement to contribute significantly to new business opportunities, “‘Hey, what are the trends in the market? What we see over there. Can we use it to gain our business to make our organization better?’” (A3). By sourcing new innovations, purchasing made strategic contributions to the organization and created value in doing so. Further, the implementation of KPIs helped in maintaining the accountability needed to prove purchasing legitimacy internally. It made purchasing’s contribution to organizational goals transparent and created alignment in working towards the same goals across departments, “it creates transparency, it creates accountability and what it also does is it removes emotion from the conversation” (B1).

5. Discussion

To the best of our knowledge, this is the first study to investigate how critical incidents influence the legitimacy of the purchasing function. While legitimacy has been explored extensively in other fields of social sciences, it still has not received much attention in purchasing or supply chain management studies. Our research builds on the work of Tchokogué et al. (2017) by acknowledging that critical incidents can be a source for purchasing functions to gain internal legitimacy. While the link between external legitimacy and critical incidents has been made among scholars (Bunduchi, 2017; Turcan, 2012), we were able to also make the link between incidents and internal legitimacy.

5.1 The link between critical incidents and purchasing legitimacy

This research shows the influence of both operational and strategic incidents on the legitimacy of the purchasing department. In doing so, we were able to find results that are to some extent contradictory to existing research and therefore unravel new insights. While Tchokogué et al. (2017) found that in order for a department to maintain its legitimacy it has to anticipate and prevent disruptions or challenges, we were not able to make such link. Similarly, we also did not find evidence that incidents led to lasting reputational damages or a shifting of responsibilities (Macdonald & Corsi, 2013). Instead, we actually find that both operational and strategic critical incidents are an opportunity for purchasing to gain legitimacy via status, accountability and competency. Our analysis shows that operational and strategic incidents hereby influence legitimacy differently. While operational incidents influence the purchasing function by first challenging legitimacy and consequently creating legitimacy, strategic incidents ‘only’ create legitimacy. Accordingly, we propose the following:

5.2 The influence of strategic and operational incidents on purchasing legitimacy

Our findings show that operational incidents influence the status, accountability and competency of the purchasing function. For one, scholars argue that the status of the purchasing function is mainly dependent on the importance internal stakeholders attribute to the purchasing function (Zsidisin et al., 2003). We find that operational incidents influence purchasing’s status by making the importance of purchasing visible to internal partners. The status improves as purchasing receives control and power from top management to handle the incident and bring value to the organization. In moving towards more strategic decisions, the status of purchasing improves (Luzzini & Ronchi, 2016). Second, in overcoming operational incidents, the department clearly contributes to the organizational performance, creating the accountability (Chen et al., 2004) needed to be perceived as legitimate. Third, Tassabehji & Moorhouse (2008) argue that the value of purchasing functions can only be acknowledged when purchasers are also able to demonstrate their importance to the company. Our findings show that this holds true as purchasing functions were able to prove their competency in handling incidents and mitigating the risk for the organization. Moreover, operational incidents unraveled improvement potential for the purchasing function to become more competent to its internal partners.

Different to operational incidents, strategic incidents did not challenge the legitimacy of the purchasing function. In line with Schiele (2007), we found that changes to the corporate strategy in favor for purchasing can be an opportunity for purchasing to improve its internal position. We found that also strategic incidents were an opportunity for purchasing departments to improve their internal legitimacy. Accordingly, the findings show, that strategic incidents influence purchasing legitimacy through a gain in status, accountability and competency – similar to operational incidents. These findings lead to the following propositions:

P2. Both operational and strategic incidents influence purchasing legitimacy by improving status, accountability and competency:

P2a. Through operational and strategic incidents purchasing functions can gain recognition and top management support and, hence, purchasing legitimacy P2b. Through operational and strategic incidents purchasing functions can create

accountability of their actions and, hence, improve purchasing legitimacy P2c. Through operational and strategic incidents purchasing functions can

5.3 Challenging legitimacy

In studying the influence of critical incidents, we were able to show that operational incidents had an influence on purchasing legitimacy that was twofold in nature: 1) challenging legitimacy and 2) creating legitimacy. Zsidisin et al. (2003) show that the legitimacy of the department is dependent on the status and accountability of the purchasing function. Our theory shows that in order for purchasing to arrive at mutually desired results, it has to align with other departments, create transparency and credibility. However, we were not able establish this link regarding purchasing accountability when purchasing legitimacy was challenged. It seems that in this initial step purchasing has to focus on proving its competencies and demonstrating its importance, but not necessarily to create

accountability of its actions. We therefore propose the following:

P3. In challenging legitimacy, operational incidents only influence purchasing legitimacy through status and competency.

5.4 Purchasing legitimacy and purchasing maturity

As outlined in the introduction, Tchokogué et al. (2017) state that maturity and legitimacy are two different concepts. The authors argue that mature purchasing departments are likely to achieve high legitimacy levels as they are able to implement best practices that prove the competency of the department. However, the authors do not state why purchasing legitimacy and maturity are different concepts. Clearly, there is a considerable overlap between the two concepts as high competency, accountability and status are often prerequisites of high purchasing maturity levels (Úbeda et al., 2015). Nonetheless, highly mature purchasing departments do not necessarily have to be perceived as such by other departments or top management (Tchokogué et al., 2017). It is only with top management’s and other departments’ support that purchasing is also able to execute its practices according to its maturity level (Carr & Smeltzer, 1997). With the investigation of critical incidents, we were able to show that this support from internal peers is driven by purchasing legitimacy and that legitimacy is needed for departments to be perceived as competent and to improve its role internally. Different to purchasing maturity, legitimacy is built upon the social ties of the department with its internal stakeholders. Consequently, we propose the following:

6. Conclusion

Our findings in this exploratory paper contribute to the rather new research field of purchasing legitimacy by shedding light on the influence of critical incidents on the constructs of purchasing legitimacy. We identified that critical incidents did not influence legitimacy based on whether they occurred internal or external to the purchasing function. Instead, we found that the distinction lies in whether incidents are operational or strategic. There are two mechanisms in place in how operational incidents influence purchasing legitimacy: challenging legitimacy and creating legitimacy. First, incidents make the importance of purchasing visible to internal partners, challenging the competencies and status of the department. Second, the department is able to prove their contribution to the organization and gain recognition. Strategic incidents led to higher competency and departments were able to improve their strategic role within the organization. For both types of incidents, we found that they are opportunities for the purchasing department to (im)prove their capabilities and gain strategic importance. Moreover, we argue that purchasing departments have to be perceived as legitimate by other departments in order to reach or maintain higher levels of maturity. It is only with the trust and legitimate perception of others that the purchasing department is also able to make strategic decisions according to its maturity level.

6.1 Managerial implications

Next to our contribution to research, this work also provides managerial implications. First, we show that by aligning purchasing goals with those of other departments, purchasing is able to contribute to the success of other departments and work towards similar organizational goals. This creates accountability as the added value of purchasing becomes visible to other departments. In doing so, the actions of purchasers are evidently perceived as more legitimate, which improves the internal position of purchasing. We found that creating this accountability also leads to more strategic decisions, which makes the department more relevant to internal customers and top management.

Second, this research gives managers insights into the importance of investing resources into building the legitimacy of the purchasing function. Legitimate departments were able to absorb operational incidents and handle them professionally. Due to the competencies of purchasers, incidents did not pose a serious threat to the department, in fact, legitimate departments were able to use an incident as an opportunity to showcase their value to the organization.

6.2 Limitations and directions for future research

While we did our best to ensure reliability and validity of our research, certain limitations are possible which should be highlighted. First, our research focused on the legitimacy of purchasing functions and therefore we interviewed departments and top management that work closely with purchasing to get reliable insights. Other departments, however, might have a different perception of purchasing and its role within the company. We tried to circumvent this by also interviewing managing directors with a better insight into the workings of the company for validation. However, we were not able to interview all departments that were working together with purchasing.

Also, we were only able to study the incidents that the interviewees were able to recall. While we believe that we have gathered interesting insights into different types of incidents, there are also other incidents of relevance to supply chain management that have not been discussed in our study. The findings from this paper can therefore only reflect on the incidents that were found in our cases. We therefore suggest scholars to look further into the mechanisms caused by other incidents that have not been discussed in this study. A comparison of such findings to those of our study, might also lead to more generalizable insights.

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