Bologna, 28 Aprile 2010 Buyer-supplier relationship as a lever to increase competitiveness and sustainability. Empirical findings from the construction industry Paolo Barbieri, Mariolina Longo, Matteo Mura Department of Management University of Bologna

Barbieri P., Longo M. and Mura M. 2 Construction industry represents a particularly rewarding terrain for the analysis of CSR issues  A general lack of awareness about the environmental impact produced.  The existence of best practices in terms of eco-compatibility of the production processes and products.  High rate of work-related injuries.  Frequent use of sub-contractors and other modes of outsourcing.  Long and fragmented supply chains that are difficult to control and monitor in terms of quality of work and effectiveness in the management of sub-contract relationships. (Eurostat, 2004) Introduction

Barbieri P., Longo M. and Mura M. 3 Introduction Construction industry is frequently perceived as generally inefficient (Cox and Thompson, 1997; Kadefors, 2004)  cost overruns  high defectiveness (and perceived low quality of tasks’ execution)  frequent project delays  poor productivity  low innovativeness (Dainty et al., 2001; Khalfan et al., 2006)

Barbieri P., Longo M. and Mura M. 4 Inter-firm relational instability due to:  adversarial culture (Cox and Thompson, 1997)  scarce collaboration (Kadefors, 2004)  reciprocal perception of opportunistic conducts (Egan, 1997)  frequent disputes and high level of competitive behaviour (Kamann et al., 2006)  dominant blame-culture (Khalfan et al., 2007)  low level of trust (Korczynski, 1996)  in sum, low satisfaction of the trading parties Introduction

Barbieri P., Longo M. and Mura M. 5  Governance mechanisms of the inter-firm relationships based on transactional / short-term arrangements  These elements reduce the global efficiency of the supply chain and may inhibit company competitiveness (Dainty et al. 2001; Cox, Thompson, 1997) The management of the buyer-supplier relationship represents a critical aspect for construction companies in terms of reduced company competitiveness CSR/ethical practices: The lever to reinforce the contractor-subcontractor relationship (Barnett, 2007; Carter, 2000; Kadefors, 2004; Orlitzky et al., 2003) Introduction

Barbieri P., Longo M. and Mura M. 6 Research gap  Identification of indicators that capture CSR issues that are specific for construction companies (e.g. GRI, 2008; BITC, 2007).  These indicators mainly focus on traditional CSR areas of interest (e.g.health and safety, equal opportunity, eco-compatibility of products and processes), and only marginally consider the buyer-supplier relationship. Aims 1.To identify CSR/ethical practices that address the buyer-supplier relationship and that are perceived to be relevant by managers of construction companies; 2.To explore the adoption of such practices by EU construction companies; 3.To investigate the link between the adoption of such CSR practices and the strengthening of the buyer-supplier relationship. Research Gap and Aims

Barbieri P., Longo M. and Mura M. 7 Step 1 Systematic review of the literature Methodology Step 2 Multiple dyadic case study Step 3 Survey on EU construction firms COMPLETED ON GOING

Barbieri P., Longo M. and Mura M. 8 STEP 1: Systematic review of the literature Construction industry (15 papers revised) CSR practices in the buyer supplier relationship (12 papers revised) CSR and company performance (30 papers revised) Total of 57 papers revised Methodology Identification of a pool of 20 unethical/questionable practices (UP) pursued by the buyer in the relationship with its suppliers Classified in three phases of the contractor-subcontractor relationships: (Hinze and Tracey, 1994) 1. Bidding and entering sub-contract agreement 2. Work execution and sub-contract administration 3. Penalty management and project close-out

Barbieri P., Longo M. and Mura M. 9 STEP 2: Multiple dyadic case study Dyadic study of governance relationships between three Italian general contractors and two suppliers for each organization involved Theoretical sampling: cooperative vs non-cooperative firms Development of a semi-structured questionnaire. Face to face interviews with two top managers for each general contractor and with two suppliers for each general contractor. Methodology

Barbieri P., Longo M. and Mura M. 10 Methodology STEP 3: Survey on EU construction firms 1.Development of a structured questionnaire 2.Development of a database of European construction companies that represent the population of the survey: 1091 companies selected Selection criteria: a)be a construction company (NACE code 41, 42, 43); b)have a turnover of more than 150 M€; c)operating in the EU 15 countries + Hungary; d)Company selection: Amadeus database. 3.Survey on companies (dyadic approach) 4.Analysis of the data collected by using multivariate statistical techniques (e.g. exploratory factor analyses, OLS regression models, structural equations modelling).

Barbieri P., Longo M. and Mura M. 11 STEP 1: Systematic review of the literature Phase 1: Bidding and entering subcontract agreements Preliminary findings 1.Writing specifications that favour a particular supplier 2.Invent a second source of supply to gain competitive advantage 3.Over-estimating the demand to gain advantages 4.… Phase 2: Work execution and subcontract administration 1.Exaggerating the seriousness of a problem to gain concessions 2.Making disparaging remarks about sub-contractors, their products, their performance 3.… Phase 3: Penalty management and project closeout 1.Use penalty deduction systematically, as it was a profit centre. 2.Charge the supplier for delay in task execution, even though the delay could have been originated by someone else. 3.…

Barbieri P., Longo M. and Mura M. 12 Case studies: company interviews Multiple Case Study G.C. A S.A-1: Electrical and Mechanical plants S.A-2: Painting, Flooring, and similar G.C. B S.B-1: Prefabricated pillars and beams S.B-2: Electrical and Mechanical plants G.C. C S.C-1: Formed steel for reinforced concrete S.C-2: Applied geotechnics (Interviews: 2) (Interviews: 1)

Barbieri P., Longo M. and Mura M. 13 Drivers of supplier’s strategic importance Economic impact on buyer’s business (Magnitude of buyer’s annual expense) Supply technical content and impact on safety Impact on final customer’s satisfaction Multiple Case Study (II)

Barbieri P., Longo M. and Mura M. 14 Findings (I) PhasePracticesFrequencyEthical content Bidding/ Supplier Selection Invent a second source of supply to gain advantage / Solicit quotations from suppliers with little chances HighLow to Moderate Over-estimating the demand HighLow Reveal confidential information on quotations Moderate Writing specifications that favor certain suppliers OccasionalRelatively High

Barbieri P., Longo M. and Mura M. PhasePracticesFrequencyEthical content Work Execution Exaggerating the seriousness of problems to gain concessions HighModerate Making disparaging remarks about supplier LowRelatively High Subcontract Administration Penalty managementhighly case- specific Potentially High Findings(II)

Barbieri P., Longo M. and Mura M. 16 Findings(III): Analysis of dyads Occurrence and seriousness of questionable practices: LOW Dyad 1 Strategic value: High Uncertainty: High Supplier performance: Very High Supplier satisfaction: Very High Buyer Satisfaction: Very High Dyad 2 Strategic value: Relatively High Uncertainty: Low Supplier performance: Relatively High Supplier satisfaction: High Buyer Satisfaction: Relatively High Collaboration Cordial agreement on unexpected contingencies Compensations Predictability  Contract Limitations to (potential) unethical conducts

Barbieri P., Longo M. and Mura M. 17 Findings(IV): Analysis of dyads Occurrence and seriousness of questionable practices: LOW Dyad 3 Strategic value: Low Uncertainty: Relatively low Supplier performance: Relatively Low Supplier satisfaction: Moderate Buyer Satisfaction: Relatively Low High pressure on price Difficulties in achieving commitment

Barbieri P., Longo M. and Mura M. 18 Findings(V): Analysis of dyads Occurrence and seriousness of questionable practices: RELATIVELY HIGHER Dyad 4 Uncertainty: Low Supplier bargaining power: Relatively High Contract clauses for supplier protection Cost of negotiation Performance is moderately high, but rigid Buyer’s satisfaction: moderate Dyad 5 Uncertainty: Relatively High Criticality in bidding phase Supplier risk esposure Supplier performance: High Buyer satisfaction: High Importance of proper attitude in work execution Dyad 6 Uncertainty: High Several criticalities Average supplier perfomance, but frequent disputes Buyer satisfaction: moderate Supplier satisfaction: Relatively low

Barbieri P., Longo M. and Mura M. 19 Main Findings Low occurrence/seriousness of questionable practices for strategic suppliers are associated to high performance, and relatively higher reciprocal satisfaction – particularly under higher uncertainty Low occurrence/seriousness of questionable practices for non-strategic suppliers help relationship maintenance Higher occurrence/seriousness of questionable practices lead to context-specific impacts on supplier performance, however: - Degree of conflictuality tends to increase in the dyad; - Suppliers can require protective contract clauses that increase negotatiation costs and rigidness of the relationship; - Degree of mutual satisfaction is generally lower

Barbieri P., Longo M. and Mura M. 20 The proposed model Model Supplier’s Performance 1.Flexibility 2.Quality 3.Reliability 4.Economic performance. Trust Commitment Buyer’s CSR Practices ( + ) ( – ) ( + ) Dominance of price as variable of supplier selection Supplier satisfaction Buyer satisfaction ( – ) ( + ) Supplier’s strategic value ( + )

Barbieri P., Longo M. and Mura M. 21 Survey on BUYERS  Identification of relevant CSR practices adopted by EU construction companies  Development of CSR indicators in the area of:  Buyer-supplier relationship  Environment  Health & Safety  Human Rights  Screening of CSR attitude of construction companies at the EU level Expected Results (I)

Barbieri P., Longo M. and Mura M. 22 Survey on BUYERS and on SUPPLIERS (Dyadic approach) Quantitative analyses of the effect that the adoption of CSR practices has on: 1.Supplier performance 2.Strengthening of the buyer-supplier relationship (governance mechanisms, trust, collaboration …) 3.Buyer performance Analysis of the role played by specific contextual factors like: supplier’s strategic relevance; management of disputes; project modifications; pressure on price/bargaining power Expected Results (II)