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Retail Price: $9.99 Public or Private Sector Buying? Does It Really Matter? Everybody knows that selling to the public sector is different to selling to the private sector. But the old public-private dichotomy is blurring and that means sellers should be cautious about letting it prejudice their sales p“The public-private distinction can In this article we will see that while many public and privateh as it organizations still conform to the stereotype, a growing reveals.” number do not. To overcome this challenge we will provide a new way of looking beyond the public-private dichotomy to get to the core of how different organizations buy. Is The Public-Private Dichotomy Out-of-Date? Trends in modern buying mean that the old ways of looking at the differences between public and private sector buying are being undermined. The reality is that the public-private distinction can hide as much as it reveals. That is not a problem however as there is a better way to look at the issue. It is important to go beyond the superficial public-private distinction to examine the style of buying. That involves examining dimensions that are more relevant and meaningful for the salesperson instead of trying to decide what sales technique to adopt. We have developed a tool that will help you to get to the core of an organization's approach to buying. It is called the 4 Procurement Styles and involves placing an organization, public or private, along a spectrum that examines key dimensions of procurement best practice: The Focus of Procurement – Some procurement organizations are focused on achieving results, while others are more concerned with complying with the rules. The Role of Procurement – Some procurement teams try to control all buying decisions, while others seek to enable, coach and support those closest to the decision. P a g e | 2 © The ASG Group 2012 Where an organization fits along these two axes determines the optimal way of selling to them – as shown in the diagram. Why Map Procurement This Way? There are many dimensions of best practice procurement, but the two we have chosen (i.e. Role and Focus of procurement) are of particular importance to sellers. They determine so many aspects of the buying decision, including the: − Level of interaction between buyer and seller, − Degree of sensitivity to risk, − Formality and structure of the buying decision, − Decision making criterion, − Composition of the buying team. As a result the two axes (the Focus and Role of procurement) determine the best way to sell to the organisation in question. “Traditionally, it was easy to tell the difference The Traditional View Of Public-Private Buying between public Traditionally, it was easy to tell the difference between public and and private private sector buyers and to predict how each would act. That made buyers.” selling easy. Public buyers were generally assumed to be rules obsessed - focused on the lowest price and somewhat controlling in their approach. At the other end of the spectrum private sector buyers were expected to be more results-focused, with a greater degree of flexibility when it comes to buying. P a g e | 3 © The ASG Group 2012 It is fair to say that compared to the private sector, public sector buying is dominated by procedures and regulations. Indeed, when it comes to the Procurement FOCUS, compliance is the 'true North' for public sector buyers. When asked for his views on the difference between public and private sector buyers, one sales manager joked ‘it is about 10,000 pages of regulations backed up by directives and even treaties!’ In the public sector there are rules, lots of them, and everybody must apply them. It is not a voluntary code and there are penalties for non compliance. In the private sector the rules vary from company to company, but more important still; compliance is (with a few exceptions) not generally mandated by law. Of course some public sector buyers would rightly argue that you cannot have results, without rules, however the dominant view of public procurement would be that rules come first and results come second. P a g e | 4 © The ASG Group 2012 If rules matter then policing them becomes very important. That often results in procurement adopting a controlling, rather than coaching role and pushes the organization into Quadrant 1 and Quadrant 3 of the grid. In such organizations procurement is often seen as the 'policeman on the beat' when it comes to buying decisions. Most public buyers will admit to an obsession with the rules, while most sellers in turn see public buyers as bureaucrats. But anybody who says public procurement is not measured in terms of results achieved would in the case of most public organizations be wrong. But do public sector buyers see the results differently. Cost savings have certainly come to dominate public procurement, but of course getting the lowest price is only one measure of what procurement can achieve. By its very nature public procurement is however limited in terms of the criteria it can consider (something you can find out more about here). Sellers will talk of public procurement as being blinded by lowest price. That is despite the fact that buyers are constantly reminded of the importance of MEAT (Most Economically Advantageous Tender) and total rather than lowest cost. “Buyers are Problems With The Traditional Stereotypes failing to In the past sellers making traditional assumptions about how public conform to the long held and private buyers would act were generally proven to be correct. But, that is no longer the case. Buyers are failing to conform to long stereotypes...” held stereotypes and are refusing to be pigeon-holed. They are giving sellers a surprise. Some public buyers are behaving like private buyers: they are innovating around procurement to achieve new results. Perhaps more alarming still (from the seller's point of view), some private sector P a g e | 5 © The ASG Group 2012 buyers are acting like public sector buyers: implementing new rules and procedures to regulate buying. 7 Trends That Blur Public-Private Distinctions There are seven reasons why the traditional distinctions between public and private buying are being eroded: 1. There is not just one approach to public procurement, but many. That is to say there are considerable differences across public procurement regimes in different countries (the rules may be the same across Europe, but that still leaves great scope for clever approaches to implementation). 2. The gap between public and private sector buying is narrowing, for example: − Buying in the private sector is becoming more rules driven, with managers increasingly being required to follow a defined set of steps or procedures in respect of buying decisions. − Buying in the public sector has become increasingly results and costs focused, with strict targets set for the curtailment of spending across the public sector. 3. Public procurement is undergoing a process of review so many aspects of what define public procurement within the EU are 'up for grabs' (we have written about the review of EU procurement). 4. What is public and what is private can be confusing. Public procurement has a wider reach than many would suspect, with organizations with significant public ownership, or in receipt of public funds being governed by regulations. 5. Public sector buying comes in many shapes and sizes, for example the Utilities directives governing public Telcos and Electricty companies provide for greater flexibility when buying. In addition different schedules, classifications and thresholds determine what P a g e | 6 © The ASG Group 2012 rules apply and when. To complicate matters even further buyers in the public sector are increasingly prone to follow EU procurement rules even if they are not mandated. 6. Traditionally the private sector procurement executive was better paid and had a greater chance of being promoted up the ranks. Procurement in large organization has won for itself a seat at the table “What matters in terms of senior management decision-making. However, it is the golden age of procurement in the public sector too and as many more than public sellers have noticed there are clear signs of increased professional- or private, is the ization and sophistication among public sector buyers. extent best 7. Public bodies may not be as well represented in the speakers line practice is up at global procurement conferences, but there are organizations, applied.” such as; La Poste France whose stories of procurement best practice are as inspiring as any other. The bottom line is that it is not whether an organization is public or private that matters, but the extent to which best practice is applied and neither the public nor private sector have a monopoly on that. Equally important is the notion of 'fit for purpose' buying. There is no one ideal way to buy, rather that depends on a range of factors, such as; the level of risk, cost and complexity involved. Quite simply, you don't buy office stationary the same way you buy a new ERP, or CRM system. That is yet another reason why a simple public versus private view is inadequate. Conclusion The bottom line is stereotypes can be dangerous. So don't pigeon hole the buyer too soon and let it prejudice how you sell. In today's marketplace sellers must look beyond the traditional public-private labels and take each buying organization on a case-by-case basis. Where do your customers fit on the dimensions shown and does it affect how you sell to them? P a g e | 7 © The ASG Group 2012 The Science Behind This Paper These insights and tools are based on: 1. Buyer Research – our ground-breaking research into how modern buying decisions are made and the implications for sellers. 2. Best Practice Research – Over 1 million pages of best practice sales case studies, books and research. 3. Common Practice Research – Our peer comparison benchmark of 1,000s of your competitors and peers. The Sales Engine® and SelleNare trademarks of The ASG Group. The entire contents of this document are copyright of The ASG Group and cannot be reproduced in any format without written permission. Want help in tackling your sales challenges? Contact enquiries@theASGgroup.com www.theASGgroup.com P a g e | 8 © The ASG Group 2012
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