Leveraging social capital for value creation in public procurement: the role of strategic purchasing integration

Strategic purchasing and supply management (PSM) integration, also known as internal integration or “fit,” is a dynamic, complex process demanding the establishment of advanced practices and competencies within an organization (Kern et al., 2011). As such, strategic PSM integration not only relates to practices directed internally, such as a purchasing function’s access to strategic information and its participation in strategic decision-making but also emphasizes the importance of supply-oriented practices, such as supplier selection and supplier development (Narasimhan and Das, 2001). Furthermore, strategic PSM integration encompasses more than just the tactical management of supplier involvement in short-term projects (Wynstra et al., 2003); it entails adopting a functional orientation that aligns with an organization’s value creation objectives, emphasizing strategic and long-term decision-making and actions (Handfield et al., 2015). Consequently, true value creation through the PSM function requires both internal organizational fit and external alignment.

From an internal organizational fit viewpoint, effective organizational functioning requires the achievement of congruence between purchasing objectives and actions and between operational and business goals (Watts et al., 1995). From an external alignment perspective, an organization relies on value-creation processes within its strategic networks encompassing a distinct set of organizations (Kähkönen and Lintukangas, 2012). Within these networks, value creation entails establishing and developing strong relationships, fostering mutual trust, and embracing shared norms to generate beneficial outcomes. Successful value creation, therefore, includes the active engagement of network actors in specific relationships and the development of a strong sense of belonging to such networks. Thus, strategic PSM integration brings the PSM function closer to the organizational strategy, makes it an integral part of it, and enhances its role as a crucial mediator in comprehending, influencing, and translating the strategy across the supply base.

Several studies have pointed to the relevance of internal strategic PSM integration in achieving external integration, mainly through creating social capital in buyer–supplier relationships (Horn et al., 2014; Zhao et al., 2011). However, these studies focused primarily on the private sector and neglected the public sector. Not only is public sector procurement relevant regarding its economic impact (on average, 14.8% of GDP is spent on procurement in OECD countries; OECD, 2021), but also the public sector has different requirements and processes compared to the private sector, influencing the setup and effectiveness of procurement practices (Harland et al., 2019). The impact of social capital on value creation in public organizations is unique, as it is shaped by institutional settings that influence how pressures to deliver value under scrutiny translate into outcomes. In such contexts, practices commonly viewed as positive and necessary may have different implications when managers must adhere to additional regulations in value creation with the supplier base.

Additionally, studies that have found that internal strategic PSM integration leads to external integration (e.g. through the development of social capital) often neglect the potential value-creation processes. We suggest that strategic PSM integration helps create social capital in buyer–supplier relationships, enabling the establishment and management of effective value-creation processes. This, in turn, helps harness the value-generating potential inherent in buyer–supplier relationships. Hence, we aim to bridge the internally focused perspective of strategic PSM integration with the externally oriented processes of an organization’s operational, innovative, and environmental value creation.

In doing so, we align the strategic PSM integration literature (e.g. Baier et al., 2008; Narasimhan and Das, 2001) with social capital theory (e.g. Bernardes, 2010; Nahapiet and Ghoshal, 1998) and value creation research (Malacina et al., 2022; Meynhardt et al., 2017). This approach allows us to develop a more comprehensive understanding of the importance of internal PSM integration in developing a robust social capital foundation with suppliers and its relationship to value creation. Therefore, we address the following research question:

• What is the relationship between internal strategic PSM integration and social capital development in buyer–supplier relationships in the public procurement (PP) context, and how is this associated with environmental, innovative, and operational value creation in these relationships?

This study investigates the PSM function in public sector organizations characterized by several distinct features. First, public entities prioritize delivering value beyond just financial gains. This context aligns closely with value-focused studies (e.g. Cabral et al., 2019). Since PP does not predominantly focus on achieving a competitive advantage, it can serve as an exemplary model for demonstrating its relationship with diverse values, extending beyond mere financial gains. This has been reflected in a recent uptake in research studying the role of social capital in contexts where financial drivers are not the main organizational objectives for PSM (Taylor and Rosca, 2023). Second, public organizations are often complex regarding rules, hierarchies, and conflicting goals, meaning that strategic PSM integration is often not only imperative but also challenging to reach. Finally, PP operates under unique societal accountability and transparency requirements (Kohler and Dimancesco, 2020), which create distinct pressures for procurement decision-making and value creation compared to private organizations. Despite these particularities, the realm of public organizations, NGOs, and social enterprises has been notably less explored in research than that of the private sector (Harland et al., 2019), marking a relevant research opportunity we aim to address.

To answer our research question, we formulated testable hypotheses exploring the link between strategic PSM integration, social capital development, and value creation. Given that public organizations prioritize creating value for society rather than pursuing profit or competitive advantage (Arlbjørn and Freytag, 2012; Malacina et al., 2022), this study focuses on operational, innovative, and environmental value outcomes. While financial outcomes are highly relevant in the context of private organizations, they are intentionally excluded from this research to better align with the distinct objectives of PP. We employed structural equation modeling (SEM) to analyze survey data from 173 PP professionals in Finland and conducted 19 post-survey interviews with PP experts to triangulate the findings and gain deeper insights into the underlying processes. Our analysis indicates that strategic PSM integration within public organizations is positively associated with developing relational, cognitive, and structural social capital. However, different forms of value creation necessitate distinct combinations of social capital. Qualitative insights from post-survey interviews suggest that these variations are embedded in the institutional settings of public organizations in Finland, while interviewees also acknowledged similar mechanisms at play in other Nordic countries.

This study defines strategic PSM integration as the “extent to which the purchasing strategies and activities are aligned with the organization’s strategies to achieve its long-term goals” (Ateş and Memiş, 2021, p. 832). A strategically integrated purchasing function can “naturally serve as a boundary-spanning role in the dyadic interaction between a focal firm and its supply network” (Bernardes, 2010, p. 47). Handfield et al. (2015) established the significance of internal PSM and external supply network alignment. Although the importance of this alignment is recognized, there remains a gap in understanding its broader impacts, particularly value implications.

Organizations are often complex entities with multiple and ambiguous goals (Hu and Bettis, 2018). When the PSM function is knowledgeable about and aligned with the strategic direction of an organization, it can build strategic and collaborative supplier relationships (Paulraj et al., 2006). For example, Patrucco et al. (2023) found that increased uncertainty in supply markets demands implementing relationship-focused purchasing strategies. Still, these strategies will fail if the level of strategic PSM integration is low. Relationship-focused PSM, therefore, necessitates more complex purchasing strategies with clear expectations for purchasing’s contribution to value creation, including quality, innovation, and differentiation from competitors (Patrucco et al., 2023). The most straightforward cost reduction and process standardization strategy might reach its goals without strategic PSM integration. Elsewhere, strategic PSM integration is necessary to direct these activities when purchasing serves internal stakeholders and seeks opportunities from the suppliers’ side through collaboration (Ateş et al., 2018; Patrucco et al., 2023).

Social capital theory primarily focuses on the complex social dynamics among individuals, relationships, and networks (Coleman, 1990; Nahapiet and Ghoshal, 1998). In Coleman’s (1990) seminal work, social capital was perceived as a collective trait that drives interpersonal cooperation in social structures and facilitates value creation. Nahapiet and Ghoshal (1998) extended the conceptualization of social capital, describing it as “the sum of the actual and potential resources embedded within, available through, and derived from the network of relationships possessed by an individual or social unit” (p. 243). Following Nahapiet and Ghoshal’s (1998) view, social capital can be examined with three dimensions—relational, cognitive, and structural—which we briefly discuss.

Relational capital relates to the nature of relationships that have evolved through repeated interactions (Nahapiet and Ghoshal, 1998). It encompasses relational attributes, such as trust, reciprocity, friendship, and identification (Villena et al., 2011). In the buyer–supplier relationship context, trust is a key aspect of relational capital that stimulates collaborative behavior and supports supplier integration (Paulraj et al., 2006; Santos and Cabral, 2022). It reflects commitment toward the expectations and interests of other parties (Tsai and Ghoshal, 1998), fostering cooperation and knowledge exchanged between buyers and suppliers and alleviating opportunistic behavior.

Cognitive capital includes the shared representations of values, ideologies, and beliefs inherited in organizational networks, such as supply networks (Nahapiet and Ghoshal, 1998). For example, Inkpen and Tsang (2005) determined two facets of cognitive capital: shared culture, which refers to aligning norms and traditions that govern behavioral patterns in a network, and shared goals, which relate to a common understanding of the approaches and tasks that drive corresponding outcomes. Sharing these facets between buyers and suppliers facilitates mutual understanding and more effective integration of resources (Villena et al., 2011).

Structural capital relates to the actual connection between actors, the overall network structure, and the degree of interaction among network actors (Nahapiet and Ghoshal, 1998). These interactions are the conduits for information and resource flows between actors (Zaheer et al., 1998). Structural capital also includes social events, trade shows, and business meetings, facilitating face-to-face interactions, strengthening existing relationships, and establishing new supply network connections (Carey et al., 2011).

The primary goal of PP is to create value for society (Cabral et al., 2019; Malacina et al., 2022), which entails addressing demands and needs that are “valuable for society” (Meynhardt et al., 2017). Following Meynhardt (2015, p. 148), we define public value as “a value from and for the public,” where PP is a critical actor in co-creating value with suppliers (Malacina et al., 2022). Studies have identified various components of public value creation, mainly aggregated into operational, innovative, and environmental value (Malacina et al., 2022; Meynhardt et al., 2017).

Operational value pertains to the efficiency and effectiveness of procurement operations. This can encompass risk management (e.g. Edler and Yeow, 2016), process agility (e.g. Meehan et al., 2017), and the reliability or robustness of the purchasing process (e.g. Guarnieri and Gomes, 2019). Beyond operational value, PP can foster innovative value by inspiring and disseminating novel solutions among other public and private organizations. For instance, PP can encourage suppliers to develop more creative solutions by offering financial support and opportunities to experiment with new technologies in the public sector (Selviaridis, 2021). Finally, environmental value creation emphasizes PP’s contribution to generating positive environmental externalities, such as clean air and water. For example, a public buyer might prioritize eco-friendly products or services in green procurement initiatives (Ahsan and Rahman, 2017) or incentivize suppliers to invest in green technology development (Lundberg et al., 2015).

Research has shown supplier interactions can improve public value (Malacina et al., 2022). Public organizations and private firms aiming to maximize public value through procurement should prioritize fostering strong relationships with their supplier bases. Therefore, it can be suggested that building social capital within public buyer–supplier relationships can likely drive greater public value creation. Earlier research indicated that social capital can have wide performance implications; however, a simultaneous and more defined performance understanding of public value creation from the three dimensions of social capital remains unclear.

In this study, we argue that strategic PSM integration in public organizations is required to develop social capital with suppliers. This assumption is based on previous research in the private sector that found that internal strategic PSM integration is an essential prerequisite for achieving external integration (Horn et al., 2014; Zhao et al., 2011). Internal strategic PSM integration helps reduce fragmented structures and processes within an organization, which can otherwise hinder the capabilities and resources needed to support external integration actively (Zhao et al., 2011). The development of social capital requires internal coordination, resources, and effort, particularly in the context of operating within the constraints of legal frameworks and the traditional culture of arm’s-length competitive tendering (Erridge and Greer, 2002).

First, the strategic role of PP as an instrument for value creation through improved integration better positions a purchasing department to undertake more strategic initiatives with suppliers, enhancing long-term relationships. At the same time, strategic integration enhances a PSM function’s ability to anticipate and communicate risks (Handfield and Bechtel, 2002), advancing relational capital. Finally, strategic PSM integration enhances PSM’s ability to be attuned to an organization’s overarching objectives (Narasimhan and Das, 2001), facilitating consistent and transparent communication of the organization’s objectives with the supply base (e.g. Bernardes, 2010; Paulraj and Chen, 2007). It can be expected that the more consistently a strategic vision is communicated, the better relational capital can be achieved with suppliers. Taking these arguments together, we propose the following:

Second, we expect that strategic PSM integration is also required to develop cognitive capital. When strategically integrated, PSM leads to shared norms, narratives, and language, benefiting all parties, such as suppliers engaging with purchasing (Bernardes, 2010) and avoiding organizational culture misalignment with the supply base. In contrast, the absence of strategic integration of the PSM function may “re-enforce hierarchical and silo-type mentalities” within organizational boundaries, reducing overall cohesion and cultural identity, which later translates into less effective supplier relationships (Toon et al., 2016, p. 5). Hence, strategic integration enhances the PSM function’s comprehension of an organization’s values, objectives, and aims while improving its capacity to convey these shared values to suppliers. Accordingly, we hypothesize the following:

Third, strategic PSM integration can lead to the formation of structural capital. Improved strategic integration will likely empower a purchasing department to assume a more proactive role, facilitating enhanced supplier engagement, organized communication avenues (e.g. supplier events), and collaborative platforms, which are the key components of structural capital (Handfield et al., 2015). Additionally, effective integration fosters the development of more advanced data system architectures and information systems (Wynstra et al., 2003). Such systems often better capture existing complex relationships and supply networks, creating the foundation for emerging structural capital. Finally, strategic integration can empower the PSM function to get the long-term outlook of an organization’s operations and better plan engagements such as events with suppliers and the required budget (Kaufmann and Gaeckler, 2015). This leads to the following hypothesis:

The previous section discussed the relationship between strategic PSM integration in public organizations and social capital development in buyer–supplier relationships. In turn, we expect this social capital with suppliers developed through strategic PSM integration to contribute to the three types of organizational value creation (i.e. operational, innovative, and environmental).

First, research has shown that high relational capital is crucial in mitigating the risk of opportunistic behavior (Kale et al., 2000). This leads to improved quality of purchased materials, more efficient delivery lead times, and the increased ability of suppliers to meet a buyer’s service requirements (Chowdhury et al., 2019). Hence, relational capital can enhance operational value creation and shield against relationship loss. Trust, as a key element of relational capital, may play a more significant role in sustaining long-term, efficient buyer-supplier relationships in markets with fewer suppliers, where limited alternatives heighten dependency between the parties (Gulati and Sytch, 2007).

Relational capital is also needed for innovative value creation. Research has shown that close interactions and reciprocity facilitate learning in innovation projects and successful joint product development (Huikkola et al., 2013). Additionally, because innovative projects are often associated with high risks (Blonska et al., 2013), trust between partners can inspire more initiative behavior from suppliers (Chen and Hung, 2014; Panayides and Lun, 2009). In uncertain conditions, such as when developing products not yet available on the market, trust can complement formal contracts by enabling flexibility in the face of frequent changes (Poppo and Zenger, 2002). Unlike the private sector, where long-term strategic partnerships are common, PP practices often restrict repeated collaborations with suppliers, limiting the opportunity to build trust through repeated contracts (Gulati, 1995).

Finally, private-sector research has found relational capital pivotal in creating environmental value. Partners are more likely to engage in joint environmental projects when they share robust relational capital. This capital fosters a cooperative environment conducive to sharing green knowledge and resources necessary for implementing sustainable practices (Sukoco et al., 2018). Therefore, we hypothesize the following:

Second, we expect that cognitive capital is also a critical factor in fostering the development of public value. Cognitive capital supports operational value creation through the alignment of buyers’ and suppliers’ interests, objectives, and viewpoints in the early stages of a relationship (Jap et al., 2013). Furthermore, cognitive capital strengthens the cooperative norms between partners, leading to cost, quality, delivery, and flexibility improvements (Krause et al., 2007). Li et al. (2014) suggested that cognitive capital is associated with reduced information asymmetries and operational excellence. Cognitive capital is likely to strengthen in buyer-supplier relationships that facilitate personnel transfers, as these interactions promote shared understanding and knowledge exchange (Inkpen and Tsang, 2005).

Furthermore, cognitive capital is also important for innovative value creation because it provides the basis for partners to understand each other’s needs and commit to common practices, values, and goals, contributing to innovation performance (Krause et al., 2007; Chen and Hung, 2014). By coinciding cultural values and goals, cognitive capital enhances the communication of knowledge that directly supports a buyer’s innovation performance (Carey et al., 2011). The role of cognitive capital is particularly pronounced in complex and high-value industries, where embedded relationships facilitate the transfer of tacit knowledge and trust-based governance mechanisms, enabling firms to navigate uncertainty more effectively (Uzzi, 1997). In PP, this dynamic may be particularly relevant to innovative value creation.

Lastly, cognitive capital contributes to enhanced environmental value. Effective communication of environmental goals at the beginning of a relationship, which is likely enhanced by cognitive capital, encourages buyers to initiate collaboration practices that directly enhance environmental management (Vachon and Klassen, 2008). In line with these arguments, research has shown that cognitive capital significantly affects knowledge-sharing behaviors among supply chain members, specifically regarding green practices (Hung et al., 2014). Thus, we hypothesize the following:

Finally, structural capital can create operational value in buyer–supplier relationships (Carey et al., 2011; Tsai and Ghoshal, 1998; Villena et al., 2011). Consistent and structured interactions between a buyer and a supplier support a clear interpretation of shared information and promote operational excellence (Krause et al., 2007). At the same time, a structurally embedded network with integrated communication lines facilitates access to reliable information (Lawson et al., 2008) and increases transparency in supply networks (Hartmann and Herb, 2014), enhancing both buyers’ and suppliers’ operational performance. Structural capital tends to be stronger in environments characterized by dense relationships (Gulati, 1995) and stable, formalized structures (Uzzi, 1997). Additionally, in highly regulated environments such as PP, structural capital is shaped by formalized requirements (Luk et al., 2008).

Furthermore, it has been shown that such structural capital ultimately leads to greater access to exclusive resources, thereby fostering innovative outputs (Ahuja, 2000). Structural capital involves indirect social ties extending beyond existing networks, enabling organizations to integrate novel information and resources effectively. For instance, Zhang et al. (2015) showed that structural capital indirectly contributes to a buyer’s product innovation capabilities. Lastly, structural capital enables organizations to understand a supply network’s complexity and the governance mechanisms that influence environmental performance (Tachizawa and Wong, 2015). Structural capital allows buyers to expand their linkages to include other knowledgeable stakeholders (e.g. suppliers), supporting the development of buyers’ capabilities and enhancing their environmental performance (Parmigiani et al., 2011). Therefore, we hypothesize the following:

Figure 1 shows the theoretical framework and specifies the links among the constructs.

This empirical study is situated within the specific context of Finland, where PP is characterized by high levels of transparency and effective governance (Public Procurement Advisory Unit, 2023). Furthermore, Finland adheres to rigorous standards in PP, enforcing strict rules related to conflicts of interest, competitive bidding, and contract management (Finlex, 2016). Its current policy landscape emphasizes social and environmental well-being (Ministry for Foreign Affairs of Finland, 2022), promoting effectiveness and sustainable value creation within public organizations. Lastly, as part of the Nordic model, Finland is characterized by a robust welfare state, a strong emphasis on research and development, elevated tax rates, and high levels of public expenditure resulting from its wide-ranging public service provision (Deloitte, 2020).

Data were collected through a web-based survey in autumn 2022. The sampling frame consisted of public organizations in Finland, with participants identified using the services of Innolink, a Finnish research service company. Innolink specializes in conducting surveys for government agencies, research institutes, and foundations. The sample was established using the service provider’s registry database, which was developed for this research using various public sources and included the procurement specialists of registry offices of municipalities, healthcare districts, and parish unions. We specifically targeted respondents who played active roles in PP, including specialists directly responsible for procurement activities and governance, project managers, and subject matter experts for whom PP still formed an integral part of their broader responsibilities.

Before the survey was distributed, its clarity and suitability were vetted through a review process involving subject matter experts from the field of PP—namely, the head of the procurement department of a large governmental organization in Finland, the procurement manager of a major Finnish city, and the director of purchasing services at a Finnish regional welfare association. All experts confirmed that the survey was well designed to achieve its intended purpose and was easily understandable for potential respondents. The survey was administered in Finnish to enhance the accuracy of the responses. The questionnaire was initially developed in English and then translated into Finnish. Subsequently, the Finnish version was translated back into English to verify the consistency and integrity of the items.

The survey invitations were disseminated to 860 professionals listed in the registry, spanning 321 distinct public organizations in Finland. When initial email inquiries elicited no response, the service provider followed up by telephone. The response rate was 23% (200 out of 860 surveys emailed), which is considered high compared to similar public organization studies (e.g. Andrews et al., 2013). The majority of organizations were municipalities (49%) and government offices (18%), and most respondents were procurement specialists (35%) and middle managers (21%). The diversity of the public sector was comprehensively represented in our sample, encompassing a range of supply categories, types of organizations, and organizational sizes. Detailed demographic data can be found in Table 1.

Four responses exhibited an almost complete absence of values, and an additional 24 responses lacked values across all dimensions of social capital, indicating that the missing data were not missing at random (Allison, 2003). After eliminating these 28 incomplete responses and confirming the absence of systematic patterns of missing values using Little’s (1988) missing completely at random test (p = 0.13 >0.05), the final analytical sample encompassed 173 responses. Complete case analysis could have resulted in biased estimates or a loss of power because of unused partial data (Graham, 2009), and removing the responses with mostly missing data enhanced the reliability of our findings. To evaluate the potential for nonresponse bias within our dataset, we conducted a comparative analysis between early respondents (constituting the initial 25% of the sample) and late respondents (comprising the final 25% of the sample). Statistical tests revealed no significant differences between the two groups, affirming the absence of evidence suggesting that the research findings were compromised by nonresponse bias.

We undertook imputation procedures because our dataset contained missing values and was identified as missing at random. To ascertain the robustness of our imputation strategies, we employed multiple techniques, including multiple imputation via chained equations (MICE) and missing forest imputation. A comparison was conducted to assess the consistency of the outcomes across these methods. Among the tested methods, MICE yielded results most congruent with the original sample’s distribution and were subsequently employed in analyses. In MICE, each variable with missing data is modeled by considering the values of other variables, and it preserves the relations in the data, including uncertainty about these relations (Van Buuren and Groothuis-Oudshoorn, 2011).

We used a reflective measurement methodology and five-point Likert scales for our multi-item constructs (Hair, 2009). The details of the scale items and sources from which they were derived are presented in Appendix A. The scales used in this study served different purposes. The scale for measuring the dimensions of social capital was directly adapted from Alghababsheh and Gallear (2020). Only minor modifications were made to the original scale items—specifically, changing the term “suppliers” to either “major suppliers” or “main suppliers” for greater contextual relevance. The scale for strategic PSM integration was directly adapted from Ateş and Memiş (2021). A single modification was made in item position 2, where “firm’s strategy” was altered to “organization’s strategy” for greater contextual applicability.

To the best of our knowledge, no existing scale in the literature has been specifically designed to quantify the value generated by PP. Therefore, we drew upon various prior studies to construct scales for assessing operational, innovative, and environmental value. The operational value scale was intended to evaluate facets of value creation, such as quality, availability, customer satisfaction, and cost-effectiveness. Specifically, items 1, 2, and 4 on the operational value scale were adapted from Villena et al. (2011) to suit the PP context by incorporating terms such as “public services.” Not all items from Villena et al.’s (2011) original scale were utilized in our study, as they did not fit into the PP context. “Availability of services,” “citizen satisfaction,” and “value for taxpayers’ money” were added as additional performance metrics in the PP sector (Guarnieri and Gomes, 2019).

The scales for assessing innovative and environmental value were each constructed by drawing upon the comprehensive literature review by Malacina et al. (2022), which synthesized existing studies on value in the context of PP. Specifically, the innovative value scale was designed to address the efficacy of PP in generating innovative solutions and promoting their diffusion and adoption within the marketplace, while the environmental value scale focused on capturing aspects such as carbon footprint reduction, encouraging environmental innovations, and developing long-term sustainable solutions.

Finally, the model includes several control variables. We control for organizational size, specifically the number of employees within the public buyer organization. We also control whether the product or service the public buyer procures is software. These controls are relevant as public buyer size may influence the resources available for managing supplier relationships and the complexity of procurement practices. At the same time, the nature of the product or service can affect procurement dynamics. Finally, we introduced additional controls to assess relationship fluctuations, including short-term relationships and supplier instability in the model (Ateş and Memiş, 2021).

The measure validation included assessments of face validity, convergent validity, and discriminant validity to ensure the consistency and accuracy of the operational definitions used in the survey to represent the theoretical constructs they were meant to measure. Face validity was confirmed using feedback from PP experts. Convergent and discriminant validity were assessed using confirmatory factor analysis (CFA). First, we performed an exploratory factor analysis to evaluate the item-to-total correlation of the items. As such, we omitted items with an item-to-total correlation of less than 0.60 and/or with uniqueness higher than 0.70 from the subsequent analysis.

The CFA, performed using Lavaan in R with the weighted least squares with mean and variance adjusted algorithm, resulted in an acceptable level of fit with our data (chi-square p < 0.05; comparative fit index = 0.93; root mean square error of approximation [RMSEA] = 0.04; Tucker–Lewis index [TLI] = 0.92; standardized root mean square residual = 0.05). The convergent validity of each measure was estimated using composite reliability and the measure’s alpha coefficient. For all measures, composite reliability was higher than 0.72, exceeding the recommended cut-off of 0.60 (Bagozzi and Yi, 1988). The coefficient alpha also exceeded the recommended level of 0.70 for all measures (Nunnally, 1978). Therefore, we concluded that our measures had high convergent validity. Discriminant validity was assessed using an average variance extracted (AVE) comparison by comparing the square root of the AVE for each construct with the correlations between that construct and all other constructs in the model. In all instances, the AVE was higher than the squared correlations, establishing discriminant validity. Table 2 reports the descriptive statistics and the correlation matrix for all variables.

In addition to Lavaan, we also tested the model in AMOS (version 28) and SmartPLS (version 4), as they would give unique insights through further analyses of common method bias, discriminant validity, and endogeneity. In AMOS, we performed a common marker variable test and heterotrait–monotrait ratio of correlations (HTMT) analyses of discriminant validity. We used the supply chain complexity item ^[1] as the marker variable for the former. This variable was measured on the same Likert scale as the other variables and was suitable for detecting common method bias. The results showed that the constrained and unconstrained models (including the marker variable) were not statistically different (i.e. invariant) (chi-square_(df = 29) = 34.01, p = 0.24), indicating no sign of common method bias (Gaskin et al., 2022). The HTMT analysis showed that the highest value in the HTMT matrix was only 0.52, well below the threshold of 0.85 (Henseler et al., 2015). Finally, we used SmartPLS to test for endogeneity using Gaussian copulas, following Becker et al. (2022). We ensured that the residuals were normally distributed, and the Cramer–Mises test of nonnormality was significant for the univariate distribution of the endogenous variables. The eventual test, including the Gaussian copulas for all structural relationships in the model, showed no significant copulas. The copulas were strongly nonsignificant (average p = 0.56, ranging from 0.17 to 0.96), showing no indication of endogeneity. However, it is important to note that our sample was slightly below the 200-response minimum threshold recommended for the test (Becker et al., 2022).

We utilized SEM with Lavaan in R software to test the model presented in Figure 1. The global fit indices indicated a satisfactory fit of the research model to the data (chi-square p < 0.05; confirmatory fit index = 0.91; TLI = 0.90; RMSEA = 0.04; SRMR = 0.06). Estimates and confidence intervals for the path effects in the SEM model are reported in Appendix B. The outcomes of the SEM model are illustrated in Figure 2.

Concerning antecedents of social capital, the results showed that strategic PSM integration had a positive effect on relational capital (β = 0.35; p = 0.00), structural capital (β = 0.46; p = 0.00), and cognitive capital (β = 0.38; p = 0.00), thus supporting H1, H2, and H3, respectively. According to the analysis results, while strategic PSM integration was significantly related to all types of social capital, the strongest relationship was with relational capital. Similarly, but to a lesser extent, strategic PSM integration was essential for developing cognitive and structural capital.

Next, we examined the relationship between each type of social capital and value creation. The results indicated that relational capital significantly and positively affected innovative value creation (β = 0.44; p = 0.00), thus supporting H4b. Conversely, the evidence did not indicate that relational capital has a significantly positive relationship with operational (β = 0.14; p = 0.13) or environmental (β = 0.25; p = 0.11) value creation. Thus, H4a and H4c, respectively, were not supported.

The results showed that cognitive capital had a strong positive relationship with value creation in the form of operational (β = 0.34; p = 0.00) and innovative (β = 0.39; p = 0.00) performances. Thus, H5a and H5b, respectively, were supported. The results did not support H5c, which states that cognitive capital has a strong and positive relationship with value creation in the form of environmental value creation (β = 0.09; p = 0.54). Therefore, the results indicate that when suppliers and public buyers share a common view and are aligned in their thinking, they are more effective in achieving high innovative and operational performance. However, the low β in the context of environmental value creation suggests that cognitive capital’s influence is not substantial.

Finally, the results indicated that structural capital had a strong and positive relationship with operational (β = 0.35; p = 0.01), innovative (β = 0.47; p = 0.01), and environmental value creation (β = 0.62; p = 0.00). Thus, H6a, H6b, and H6c, respectively, were supported.

We used several approaches to evaluate the robustness of our model by performing a structured sensitivity analysis. First, we introduced variation in our original model by removing paths with the weakest empirical support and including the interaction between different forms of capital (Carey et al., 2011) to see if their interplay is essential for value creation. We also used different estimators and bootstrapped the model (5,000 samples, percentile bootstrap) to get robust confidence intervals. Our results remained consistent across the models.

Additionally, excessive social capital may negatively impact organizational performance (Villena et al., 2011), suggesting potential curvilinear relationships between social capital and value creation in a public context. To test this hypothesis, we included squared terms for the three types of social capital in the full model. The results were not significant for all relationships, namely for innovative value (relational capital [β = 0.00; p = 0.92]; cognitive capital [β = 0.03; p = 0.58]; structural capital [β = 0.07; p = 0.26]). Operational value (relational capital [β = 0.09; p = 0.08]; cognitive capital [β = 0.04; p = 0.61]; structural capital [β = 0.06; p = 0.43]) and environmental value (relational capital [β = 0.08; p = 0.13]; cognitive capital [β = 0.07 p = 0.28]; structural capital [β = −0.08; p = 0.16]).

We wanted to assess the validity of the findings and the underlying processes via additional interviews with experts outside the survey sample. Following the approach of Deng et al. (2022), we conducted semi-structured interviews to provide a richer context (Eisenhardt, 1989) and explanatory qualifications for our survey results. We conducted interviews with 11 PP professionals, focusing on questions specifically related to the results of the hypothesis testing. Additionally, we interviewed 8 experts from firms supplying public buyers, with the discussions centering on the model segment that addresses the connection between social capital and value. The supplier-side interviewees also shared some insights into strategic PSM integration within public buyer organizations. Details of all 19 interviewees, each lasting about 48 min on average, are provided in Appendix C. The results are summarized in Table 3.

First, the results of the post hoc interviews strongly supported the importance of the strategic integration of PSM in public organizations for the creation of social capital with a supply base. For example, Interviewee I2 pointed out that when the purchasing function is strategically integrated into a public organization, purchasers approach suppliers differently and with different mindsets: “Without integration, purchasers focus on conducting tenders lawfully, with as few losses as possible. But when [purchasers] are aligned with strategic organizational goals, relations with suppliers also become strategic.” I6 suggested that strategic PSM integration “makes it possible for us [public buyers] to start building supplier cooperation in a better way.” Interviewees from the supplier side have further supported this finding. Interviewee SI1 explained that public buyers they supply to often “have multiple projects running simultaneously, funded from different sources” and that “funding from one project occasionally serves as the co-financing portion for another project proposal, creating a chain effect.” Consequently, SI1 highlighted the importance of strategic PSM integration to ensure smooth transitions between projects and maintain a holistic outlook, which suppliers rely on. Furthermore, supplier experts highlighted that strategic PSM integration is vital for establishing the public buyer vision (SI1, SI6, SI7). Finally, according to SI8, PSM integration within public buyers is necessary if the innovative procurement requires engagement within an ecosystem that the supplier has no power to carry on.

The interviews and survey results concerning the role of social capital in operational value creation were consistent. The interviewees viewed cognitive and structural capital as necessary for operational value creation but suggested that relational capital is less important or even harmful for operational value creation. They stated that public procurers must be especially careful not to become too friendly with suppliers that may be perceived as unlawful. For example, I1 said, “In PP, you sort of fear being too friendly or close to the supplier.” I2 highlighted that too much relational capital can hinder operational performance, as public procurers “are no longer strict ‒ you have good relations but will not tell your supplier when it is not performing well enough.” Suppliers highlighted the importance of clear and consistent communication, such as emails and phone calls, especially for maintaining quality and ensuring reliable deliveries (SI2, SI4).

We also found consistent results regarding social capital’s association with creating innovative value. The survey and interviews suggested that all three types of social capital are necessary for developing innovative value within a supply network. Interviewee SI8 from the supplier side particularly emphasized the importance of cognitive capital and suggested that successful innovative value creation with public buyers is impossible without sharing a similar “innovative and forward-looking mindset.” This observation aligns with the finding that cognitive capital has the strongest relationship with innovative value compared to other types of value.

Finally, regarding the role of social capital in creating environmental value, the surveys and interviews yielded somewhat inconsistent results. While some interviews supported the survey findings, suggesting that only structural capital is associated with environmental value creation, others contradicted these findings, highlighting the greater importance of cognitive capital. Follow-up questions revealed that interviewees believed that PP of environmentally friendly solutions or products relies more on selecting the most appropriate supplier than joint co-development. They argued that structural capital enables PP to screen potential suppliers, stay informed about developments in environmental sustainability, and incorporate these considerations into future tenders. I4 suggested that “the environmental values often come from some legislative reasoning; they are basic requirements that you have to meet … You know of them at the stage you make the tender, and then, perhaps, you do not generate as much value as you would with the buyer and the service provider.” This suggests that legislative mandates predominantly shape environmental solutions, relying on standardized market offerings that require less supplier engagement. Interviewee I7 further clarified, “There have been so many years now talking about GPP [green PP]. We have so many criteria created nationally and internationally and on the EU level and on other levels, such as bulbs in street lighting and so on. They have become a kind of commodity.” Additionally, I3 highlighted that suppliers are often much more advanced than public buyers in terms of environmental capabilities; therefore, public buyers need not co-develop this value with the supply network but procure it directly.

Interestingly, the interviewees supported our nonsignificant finding regarding the size effect of the public buyer. While supplier-side interviewees suggested that larger public buyers may be preferable for securing tenders, their size does not affect subsequent collaboration significantly. For instance, SI3 noted that smaller public buyers are “quite dynamic, which makes them a pleasant partner to collaborate with.” Similarly, SI7, representing a large supplier, emphasized their aim to collaborate “on equal footing” with public buyers, suggesting that size plays a less critical role in PP value creation. Additionally, the effects identified in the model appear consistent across different product types (e.g. software procurement or not), as noted by interviewee I10, who described them as being “pretty much the same” in both ICT and other procurement contexts. Finally, some interviews suggested that the “procurement office, as in many cases, tends to be somewhat faceless” (SI3); interviewee SI7 highlighted the importance of lower staff turnover within public buyers.

Overall, interviewees highlighted the significant role institutional frameworks play in shaping how social capital is developed with suppliers and utilized in creating different types of value. For instance, interviewee I7 emphasized various existing regulations that govern procurement within the EU and local resources available to public buyers in Finland, such as the criteria provided by Motiva Kriteeripankki. However, as noted by I3, “procurement practices still differ from country to country,” with Nordic countries sharing more cultural and institutional similarities than others. These institutional settings favor certain types of capital, such as structural capital, which aligns more closely with legislative requirements, over relational capital, which often demands more innovative and unconventional approaches from public buyers. As stated by I10: “We know that the [PP] procedure is quite detailed and regulated in Finnish law. The main focus may be just doing the right thing, doing the right procurement, and avoiding court proceedings. And that will make you less willing to take extra risks and be innovative.” This effect, however, seems to differ in the context of innovative value creation, where greater flexibility in building public buyer−supplier relationships is more apparent.

Our study corroborates earlier research suggesting that strategic PSM integration is essential, especially when applying a relationship-focused approach to procurement (Patrucco et al., 2023; Paulraj et al., 2006). Our findings emphasize the critical role of a PSM department as an intermediary in fostering supply network relationships and generating the social capital required for effective value creation.

Regarding the specific dimensions of social capital, our study demonstrated that strategic PSM integration is most relevant in developing structural capital. This may suggest that by aligning internal strategies and values, the PSM function can more effectively streamline processes, reduce uncertainty, enhance communication channels, and fortify organizational infrastructure with its supply base.

Although the influence of strategic PSM integration on the development of relational and cognitive capital was weaker, our findings affirmed its significance in these areas. This finding highlights the need for a purchasing department to solidify the foundation of trust and confidence in its internal organizational strategy. Such robust internal integration is beneficial and critical in cultivating external supplier relationships rooted in trust and reciprocity. This interplay between internal trust and building external relationships is a cornerstone of creating value (Yu et al., 2021). The association between strategic PSM integration and cognitive capital was significant, indicating that integration is essential for fostering similar cultures and norms and possibly effectively developing a shared vision of the future. This creation of cognitive capital necessitates the purchasing function first to possess a thorough internal understanding. This finding aligns with behavioral theories (e.g. Bandura and Walters, 1977) suggesting that comprehending and internalizing an organization’s norms, values, and behaviors is fundamental for their adoption and dissemination—in this case, to external stakeholders.

Our results also addressed how social capital is associated with operational, innovative, and environmental value creation in the public sector. First, regarding operational value, contrary to our initial hypothesis, relational capital did not significantly influence operational value creation. As the follow-up interviews showed, in the context of PP, this may indicate a risk-averse approach whereby considerable attention is placed on compliance with regulatory procedures and formal arrangements (Erridge and Greer, 2002) instead of developing close relationships with suppliers.

Second, our findings showed that structural and cognitive capital are more critical for operational value creation. Structured interactions in public organizations are maintained on standardized and formal levels, as public buyers may only engage with suppliers to address specific issues revolving around operational value (Alghababsheh and Gallear, 2020) without engaging in personal interaction. In turn, the importance of cooperative norms in terms of shared goals and cultural values, such as risk aversion, may explain cognitive capital’s positive relationship in the PP context. Aligning shared goals in procurement enables public and private partners to enhance their mutual understanding of operational performances, which is about reaching set operational targets. Thus, public buyers and suppliers comprehend the necessary improvements to create operational value. Additionally, sharing similar cultural norms mitigates buyers’ monitoring activities and associated costs (Alghababsheh and Gallear, 2020), often connected to operational performance elements. Relational capital appears less relevant in operational value creation as public buyers are more cautious in developing too deep relationships with suppliers that may be perceived unlawful.

Third, our findings indicated that all types of social capital are relevant to fostering innovative value creation. While innovative processes are often associated with high risk, to be effective, they also demand close relationships with suppliers (Yan et al., 2017). Social capital addresses these challenges not only by enhancing absorptive capacity, which enables both buyers and suppliers to assimilate new knowledge (Chowdhury et al., 2017), but also by developing trust as a critical element of relational capital, thereby reducing uncertainties in information exchange (Kulangara et al., 2016). While previous studies in the private sector have demonstrated a link between cognitive capital and innovation performance (e.g. Carey et al., 2011; Krause et al., 2007), our research establishes similar findings in the public sector context.

Finally, only structural capital has been positively associated with environmental value among the three types of capital. As a concept, environmental sustainability is increasingly gaining importance in PP (Malacina et al., 2022). This requires public organizations to seek new knowledge and specialized expertise from the private sector through formal invitations and attending trade shows to drive the transformation toward greener practices. Structured buyer–supplier interaction is helpful at the pre-tender stage because suppliers seek to voice their concerns before developing complex specifications, particularly with environmental objectives. This also aligns with the follow-up interviews, in which buyers emphasized that they often used suppliers’ inputs to improve specifications aimed at buying off-the-shelf environmentally friendly solutions instead of co-creating environmental value.

Limited research has examined how institutional environments influence the role and effect of social capital in value creation. Previous studies, such as Luk et al. (2008), have highlighted that social capital is often leveraged for malign purposes in transitional economies due to institutional voids and weak regulatory structures. Our study advances the literature by focusing on PP in a setting characterized by strong regulatory frameworks, specifically Finland.

Our findings suggest that robust PP regulations significantly shape how public buyers utilize different forms of social capital to create specific value types. Specifically, we find that institutional environments marked by well-defined regulations ensuring transparency in PP processes, as well as comprehensive frameworks and catalogs for green procurement, enhance the influence of structural capital on operational and environmental value creation.

Based on the interviews, the findings likely apply to Nordic countries and Northern European EU nations, which share similar public sector characteristics, such as transparency-focused procurement practices and well-developed environmental frameworks. Interviewees familiar with these contexts (e.g. I7, I10, and I11) emphasized that such institutional environments enhance the prominence of structural capital, particularly through formalized processes that support operational and environmental value creation. Conversely, in less regulated markets, we anticipate relational capital may play a more significant role (Luk et al., 2008); however, without robust legal frames, this could also involve a higher risk of opportunistic behavior.

Our study makes several theoretical contributions. First, it posits that the public sector purchasing function plays a vital intermediary role as a bridge, translating an organization’s strategic objectives into alignment with suppliers through social capital building. This role enables an organization to generate value beyond mere financial gains. We contribute to the research on strategic PSM integration and its role in effective operations (e.g. Baier et al., 2008; Wynstra et al., 2003), offering additional insights into the dynamics of organizational value creation and PSM’s role in it (Kähkönen and Lintukangas, 2012) and enhancing this contribution by adopting a social capital perspective (Bernardes, 2010; Nahapiet and Ghoshal, 1998). Previous studies have extensively researched the benefits of social capital; however, limited attention has been given to internal strategic alignment as a potential antecedent for social capital building. While the body of research on social capital in private sector settings is substantial, the findings on its benefits are inconsistent, raising the need to understand better the potential contextual features underlying the findings. Appendix D summarizes how our findings contribute by providing additional insights into the existing private sector-focused literature and expanding the discourse to encompass the public sector context.

Second, this study represents an advancement in PP value research (e.g. Malacina et al., 2022; Meynhardt et al., 2017). We demonstrate how different combinations of social capital an organization develops with its suppliers can generate various forms of public value. Our study offers a holistic perspective on the contributions of different dimensions of social capital to operational, innovative, and environmental value. By simultaneously examining value creation across multiple dimensions, we provide a theoretical contribution to social capital theory, which has traditionally focused on singular value types.

Third, we found that structural capital exerts the most significant influence on environmental value creation. This finding, further corroborated by expert interviews, can be attributed to the advanced state of Finnish GPP legislation. This legislation provides systematic guidelines for addressing environmental value creation, highlighting the critical role of institutional frameworks in shaping the influence of social capital and contributing to research that integrates social capital and institutional theories (e.g. Luk et al., 2008). Notably, this finding differs from the private procurement literature (e.g. Lee, 2015), emphasizing the importance of joint discussions and long-term reciprocal exchanges in creating environmental value.

Furthermore, both survey results and data triangulation indicate that relational capital plays a relatively minor role in operational value development. This finding can be attributed to the Finnish institutional framework, which prioritizes transparency, integrity, and good governance. Consequently, PP practices in Finland tend to favor detailed contractual agreements over social exchanges, particularly in contexts where value development does not require co-creation. Instead, public buyers predominantly depend on structural capital in operational value creation to facilitate communication and ensure adequate adherence to procurement terms.

Finally, this study contributes to the research on PP and similar organizations with a more social focus than profit-driven private sector organizations. In this context, we demonstrate from a more holistic perspective that strategic PSM integration is crucial, contributing to all three types of social capital influencing value creation. Notably, while social capital theory is well explored in private sector research, its application in public and nonprofit contexts remains underexplored (Taylor and Rosca, 2023). Therefore, we extend the existing literature by providing further evidence of social capital antecedents and implications for value creation in public and nonprofit contexts (Erridge and Greer, 2002).

Our research has several important practical implications. Our findings emphasize that it is essential for the purchasing function in public organizations to be aware of the existing strategy and take a proactive role in shaping it, with a long-term perspective on potential risks and opportunities to promote value creation through procurement. Effective strategy development and execution are, therefore, nearly impossible without the purchasing department’s clear understanding and active involvement in these processes.

Effective supplier relationship management requires PP managers to focus not only on operational tasks but also on creating and managing social capital within these relationships. While concerns about supplier favoritism and the risk of unequal treatment are valid and inevitable, these fears should not overshadow the practical importance of recognizing and leveraging social capital in procurement.

Practitioners could consider how social capital contributes to certain types of value creation in their strategic planning. Organizations aiming to boost operational value should focus on fostering cognitive and structural capital, which involves implementing a unified procurement strategy that aligns goals, values, and norms within and with external partners. Managers can focus more on developing structural capital if the goal is to create environmental value. However, the interview findings indicated that for more advanced environmental value solutions, a public organization might first need to develop the necessary co-creation capabilities to fully utilize cognitive and relational capital’s benefits.

Finally, for innovative value, all types of social capital are essential, with relational capital having the most considerable relationship. Therefore, for the relational part, organizations aiming to develop more innovative solutions should emphasize, for example, trust-building practices and close interactions at multiple levels with suppliers. Additionally, aligned values and culture enable procurement managers to better coordinate tasks, responsibilities, and innovation goals with suppliers, and formalized network ties help identify and contact innovative providers. We suggest that it is crucial to consider the simultaneous effects and utilization of relational, cognitive, and structural capital since all are likely vital for achieving the desired innovative value.

This study has some limitations. First, our findings are drawn from a specific context characterized by strong regulatory frameworks and high institutional maturity (i.e. Finland). As such, the relationships observed may not fully generalize to settings with weaker regulatory environments or regions with less mature PP systems. Our findings suggest potential future research extending the result of this study and exploring the difference in the effect of different types of social capital on value creation within different institutional environments.

Second, while our analysis using survey data and qualitative triangulation from 19 interviews provides a robust foundation for interpreting the results, the study does not establish causality. Future research could address this limitation by employing longitudinal designs or experiments. Additionally, while our findings suggest no evidence of potential non-linear effects in our model, future research should investigate the possibility of curvilinear relationships in value creation.

Although PP legislation in Finland has not undergone significant changes in recent years, even minor legal adjustments may influence the relationships in our model. Therefore, this study should be interpreted with this limitation in mind. Additionally, we do not address the potential issue of reverse causality. Future research could consider using instrumental variables to mitigate this risk more effectively.

Third, our study focuses on three value types: operational, environmental, and innovative. Although these categories capture important aspects of value that organizations can create for society in collaboration with their supply networks, future research could explore other specific types of value, such as supply-market development (Malacina et al., 2022). Furthermore, while our focus is limited to environmental value creation, social value creation is another essential goal for public organizations (Caldwell et al., 2017; Malacina et al., 2022). Future research should explore this as a potential direction.

Finally, while we took steps to ensure the robustness of our survey findings and triangulated these results with interview data, both the independent and dependent variables in the survey were derived from the same data source. Moreover, while we accounted for the effects of organizational size and the type of product procured in our model, we did not explicitly address the level of supplier capabilities or the relative size between the public buyer and supplier. Although our interviews suggested that size differences may not be a critical factor, future research should examine these aspects and consider the potential impact of power dynamics in the relationship. Future studies could also explore more granular differentiation across procurement contexts to better understand how specific factors, such as the complexity of goods procured, influence social capital dynamics and value creation dynamics.

Funding: This research is supported by the INNOPROCU project funded by the Academy of Finland.

The supplementary material for this article can be found online.