Does formalization or centralization mitigate uncertainty in knowledge-intensive procurement?

This study aims to assess the following question: “which information processing approach, formalization or centralization, responds to procurement complexity and how does this affect procurement performance in knowledge-intensive procurements?”

This study draws on a survey of 294 Project Managers with recent experience of knowledge-intensive procurement. It uses AMOS version 21 to perform confirmatory factor analysis and structural modeling to assess the hypotheses.

The findings suggest that procurement complexity directly encourages formalization and that formalization has significant, positive effects on procurement performance. Centralization, on the other hand, appears not to respond to procurement complexity and has negligible effects on procurement performance.

Drawing on information processing theory, this study highlights the importance of two information management approaches in knowledge-intensive procurement, and that such procurement situations share similarities with new product development and other innovation-rich, team-based activities. Knowledge-intensive procurement situations, therefore, require different information management practices than other types of procurement.

The findings suggest that procurement complexity directly encourages formalization and that formalization has significant, positive effects on procurement performance. Centralization, on the other hand, appears not to respond to procurement complexity and has negligible effects on procurement performance.

The study is the first to examine information management approaches (formalization and centralization) in knowledge-intensive procurement as responses to project complexity, and as contributors to procurement performance.