COMPLEX PURCHASING ? A CASE STUDY OF EVALUATION MODELS FOR LONG-TERM NETWORK CAPITAL INVESTMENTS

This paper addresses purchasing evaluation models in the European electrical grid sector, with a particular focus on complex and long-term network capital investments. The findings are based on 49 interviews with 10 organizations (power companies, engineering firms, the regulatory body, and special interest groups). This research contributes to knowledge building in the under-researched area of evaluating value in complex long-term purchasing. The study finds that the inherent long-term nature of the investments in products and systems, and the underlying financial situation are of the utmost importance in evaluations, together with strong regulator influence. In fact, the regulatory body not only defines the willingness to pay for the end-consumers through regulations with a focus of protecting consumers from monopolists unfair/high-prices, but also defines the opportunity costs by the predefined a number of costs in the grids in terms of ‘standard-costs’. Although theoretically customer value is defined as the perception of benefits minus the sacrifices for the end-user, in this setting it is the regulatory body that defines this value on behalf of the end-user/consumer. Thus, the regulatory body plays a pivotal role defining the value, value creation and value sharing, and is therefore pivotal in the way in purchasing evaluation models are structured.