The interplay of formal and informal institutions for procurement innovation : a social network approach

Abstract

The primary aim of this research is to examine the impacts of the interplay between formal and informal institutions on procurement innovation, and in turn, on project performance. In construction, firms, professionals, or individuals, all under the same project-based organization (PBO) umbrella, interact with each other according to different formal institutions associated with a particular procurement system. In recent years, researchers have begun to emphasize the parallel importance of informal institutions. The two types of institutions are characterized by the designed formal networks and the actual informal networks. The informal networks are the organization’s “central nervous system”, and must be appropriately fitted with the formal networks as the organization’s “skeleton”, so that the organizational productive engine could be fully steamed. In this research, the central research hypothesis is: The greater the extent of “fit” between the formal and informal institutions associated with an innovative procurement system, the better the project performance will be. The essential part of the methodology is the mixture of quantitative and qualitative methods, and the mixture of plural research methods, including case studies, interviews, questionnaire/survey, archival study, field study, correlational analysis, and Social Network Analysis. Three case studies were conducted; Case Alpha is a public infrastructure project procured by the procurement systems Construction Management, Cases Beta 1 and Beta 2 are two public housing projects procured by Design-Bid-Build, and Case Gamma is a building project procured by Turnkey. The data collected through mixed research methods was fed into the SNA software package Ucinet and R. It was found that the better the fit between the SNA metrics (e.g. density, average path length, diameter, degree centrality, closeness centrality, betweenness centrality, local and global clustering coefficient) of formal and informal social networks of a PBO, the better the project performance. The hypothesis to the central research question is confirmed. To the best of my knowledge, this is the first study to articulate the interplay of formal and informal institutions in construction procurement innovation and its impacts on project performance, particularly by using the social network approach. In this study, the extent of “fit” is visualized and measurable, and thus its impact on project performance can be empirically examined. Another theoretical contribution of this research lies in its translation of the interplay between formal and informal institutions under different procurement systems into social networks. Practitioners can use this approach to periodically diagnose their procurement systems with a view to continuously improving their project performance, and, whenever possible, intervene to solve these problems.