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THE ANTECEDENTS OF THE EMPLOYEE LOYALTY-CUSTOMER LOYALTY RELATIONSHIP
Antony Frederick PELOSO
B. A. (Psych) UQ Grad.Dip.Bus (Man) QUT M.Bus (Marketing) QUT
School of Advertising, Marketing and Public Relations
Faculty of Business Queensland University of Technology
Submitted in fulfilment of the requirements for the degree of Doctor of Philosophy, 2004
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Keywords
Customer loyalty Perceived service quality Service climate Employee loyalty Job satisfaction Employee self-efficacy Employee empowerment Behaviour-based evaluation Direct leadership support Senior leadership support Work facilitation resources Management customer orientation
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Publications Referred Conference Proceedings Galliford, Bryan and Antony Peloso 2003. The Certain, or the Unknown? Learner
Choices and their Antecedents. In SMA Annual Conference Proceedings: In print. New Orleans, LA: Society for Marketing Advances.
Karlsen, Cecilie and Antony Peloso 2003. The Influence of Internal Communication Quality in the Franchisor, Franchisee, Employee and External Customer Relationships. In SMA Annual Conference Proceedings: In print. New Orleans, LA: Society for Marketing Advances.
Matthews, Shane, Allan Duckwitz, Christopher Davies, and Antony Peloso 1999. Bridging the Gap Between Market Readiness and Market Entry. In Marketing in the New Millennium, ANZMAC Proceedings. Sydney: ANZMAC.
Peloso, Antony 1998. Service Quality and Product Development Strategies. In 1998 Marketing Exchange Colloquium Proceedings, ed. Lou E Pelton and Peter Schnedlitz: 260-270. Vienna, Austria: American Marketing Society.
Peloso, Antony 1999. Business to Business New Service Development: The Roles of Entrepreneur and Client. In AMA Educators Conference: Enhancing Knowledge Development in Marketing, ed. Peter J Gordon and Bert J Kellerman:117-123. San Francisco: American Marketing Association.
Sambath, Vathany, Alexander Morse, and Antony Peloso 2003. The Antecedent Role of Individual Differences in Motivation, Perseverance and Protection of High Involvement Goals. In SMA Annual Conference Proceedings: In print. New Orleans, LA: Society for Marketing Advances.
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Abstract Increasing and maintaining customer loyalty has been shown to enhance service firm
profitability. This research focuses on the antecedents of customer loyalty in a large
national North American banking organisation, in particular the relationship between
employee loyalty and customer loyalty, and further within the organisation, the
antecedents of the employee loyalty-customer loyalty relationship. Thus the current
research investigates the chain of events from managerial actions to customer loyalty
with the aim of identifying relevant managerial practices and their influences within the
organisation that lead to customer loyalty.
The research provides tangible evidence supporting the importance of providing
organisational resources to increase employee loyalty as a means of increasing customer
loyalty in service organisations. To achieve this goal, the study suggests that a
comprehensive set of managerial practices will enhance an organisation’s service climate,
foster positive employee attitudes and behaviours in relation to service provision, that
impact on employee loyalty, service quality, and ultimately customer loyalty. These
practices include support provided by senior leadership, the provision of resources that
facilitate effective work practices, a positive management orientation on customers, and
the use of employee evaluation and remuneration based on service-oriented behaviours
and attitudes. By instituting these managerial practices, management can increase
employee perceptions of self-efficacy, employees’ beliefs in the abilities to perform well
in their jobs, increase employee satisfaction, which in turn drive employee loyalty.
These managerial practices also enhance the favourable nature of the organisation’s
service climate so that customer perceptions of service quality are likely to be more
positive.
Overall the study provides evidence to support the existence of a chain of events from
managerial actions to employee and customer loyalty intentions. Evidence also exists to
support the relationship between employee loyalty and customer loyalty, so that higher
levels of loyalty within service a service organisation can potentially lead to higher levels
of customer loyalty.
The implications of the research are that management within service organisations can
impact customer loyalty by focussing directly on service delivery issues and by providing
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a favourable service climate. Managers can also influence employee beliefs about their
abilities to do their jobs and the level of satisfaction employees have within those
organisational roles.
The study also suggests that a service organisation’s service climate is an important
mechanism by which management can communicate to both employees and customers
that a customer orientation is a primary managerial imperative. Finally, the study
provides valuable insight into the processes by which employees perceive managerial
orientation and support, and how those perceptions influence customer perceptions of
service quality and impact on their loyalty intentions towards service organisations.
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Table of Contents
CHAPTER 1 INTRODUCTION TO THE RESEARCH AND OVERVIEW OF THE THESIS.............................................................................................................. 1
1.1 OVERVIEW OF THE RESEARCH ....................................................................... 1 1.2 THE RESEARCH QUESTIONS, OBJECTIVES AND POTENTIAL CONTRIBUTIONS OF THE STUDY ................................................................................................................ 3 1.3 THE RELEVANCE OF THE MANAGERIAL CONTRIBUTIONS ............................... 5 1.4 THE RELEVANCE OF THE THEORETICAL CONTRIBUTIONS............................... 7 1.5 OVERVIEW OF THE THESIS............................................................................. 9
CHAPTER 2 THE EMPLOYEE-CUSTOMER INTERFACE........................... 15
2.1 OVERVIEW OF CHAPTER TWO ..................................................................... 15 2.2 PUTTING THE RESEARCH IN CONTEXT.......................................................... 17 2.3 THE CUSTOMER LOYALTY CONSTRUCT........................................................ 20 2.4 DEFINING CUSTOMER LOYALTY .................................................................. 20 2.5 THE DIMENSIONS OF THE CUSTOMER LOYALTY CONSTRUCT ....................... 20 2.6 THE LINK BETWEEN CUSTOMER COMMITMENT AND CUSTOMER LOYALTY .. 34 2.7 CUSTOMER LOYALTY IN THE SERVICES CONTEXT........................................ 35 2.8 MEASUREMENT ISSUES RELATING TO THE CUSTOMER LOYALTY CONSTRUCT 37 2.9 THE EMPLOYEE LOYALTY CONSTRUCT........................................................ 39 2.10 DEFINING EMPLOYEE LOYALTY................................................................... 39 2.11 THE DIMENSIONS OF THE EMPLOYEE LOYALTY CONSTRUCT........................ 40 2.12 THE LINK BETWEEN BEHAVIOURAL INTENT AND TURNOVER BEHAVIOUR.... 49 2.13 EMPLOYEE LOYALTY IN THE SERVICES CONTEXT ........................................ 50 2.14 MEASUREMENT ISSUES RELATING TO THE EMPLOYEE LOYALTY CONSTRUCT 55 2.15 THE EMPLOYEE LOYALTY-CUSTOMER LOYALTY RELATIONSHIP.................. 56 2.16 OVERVIEW OF THE BALANCE OF THE EMPLOYEE-CUSTOMER INTERFACE .... 57 2.17 THE PERCEIVED SERVICE QUALITY CONSTRUCT .......................................... 57 2.18 DEFINING PERCEIVED SERVICE QUALITY ..................................................... 58 2.19 THE DIMENSIONS OF PERCEIVED SERVICE QUALITY..................................... 58 2.20 MEASUREMENT ISSUES RELATING TO THE PERCEIVED SERVICE QUALITY CONSTRUCT............................................................................................................. 63 2.21 THE PERCEIVED SERVICE QUALITY-CUSTOMER LOYALTY RELATIONSHIP .... 65 2.22 THE JOB SATISFACTION CONSTRUCT............................................................ 66 2.23 DEFINING JOB SATISFACTION ...................................................................... 67 2.24 DIMENSIONS OF THE JOB SATISFACTION CONSTRUCT .................................. 67 2.25 MEASUREMENT ISSUES RELATING TO THE JOB SATISFACTION CONSTRUCT . 69 2.26 THE JOB SATISFACTION-PERCEIVED SERVICE QUALITY RELATIONSHIP ........ 72 2.27 THE EMPLOYEE SELF-EFFICACY CONSTRUCT............................................... 73 2.28 DEFINING EMPLOYEE SELF-EFFICACY.......................................................... 73 2.29 DIMENSIONS OF THE EMPLOYEE SELF-EFFICACY CONSTRUCT...................... 73 2.30 MEASUREMENT ISSUES RELATING TO THE EMPLOYEE SELF-EFFICACY CONSTRUCT............................................................................................................. 76 2.31 THE EMPLOYEE SELF-EFFICACY-PERCEIVED SERVICE QUALITY RELATIONSHIP 76
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2.32 SUMMARY OF THE JOB SATISFACTION AND EMPLOYEE SELF-EFFICACY-SERVICE QUALITY RELATIONSHIPS .......................................................................... 78 2.33 SUMMARY OF CHAPTER TWO, THE EMPLOYEE-CUSTOMER INTERFACE RELATIONSHIPS ....................................................................................................... 79
CHAPTER 3 THE SERVICE CLIMATE-CUSTOMER INTERFACE............ 80 3.1 OVERVIEW OF CHAPTER THREE .................................................................. 80 3.2 THE SERVICE CLIMATE CONSTRUCT ............................................................ 81 3.3 DEFINING SERVICE CLIMATE ....................................................................... 82 3.4 DIMENSIONS OF THE SERVICE CLIMATE CONSTRUCT ................................... 82 3.5 MEASUREMENT ISSUES RELATING TO THE SERVICE CLIMATE CONSTRUCT .. 84 3.6 THE SERVICE CLIMATE-PERCEIVED SERVICE QUALITY RELATIONSHIP ......... 85 3.7 SUMMARY OF CHAPTER THREE, THE SERVICE CLIMATE-CUSTOMER INTERFACE RELATIONSHIP....................................................................................... 87
CHAPTER 4 THE EMPLOYEE-ROLE INTERFACE ...................................... 88 4.1 OVERVIEW OF CHAPTER FOUR.................................................................... 88 4.2 THE EMPLOYEE SELF-EFFICACY-JOB SATISFACTION RELATIONSHIP............. 89 4.3 THE JOB SATISFACTION-EMPLOYEE LOYALTY RELATIONSHIP...................... 90 4.4 SUMMARY OF CHAPTER FOUR, THE EMPLOYEE-ROLE INTERFACE RELATIONSHIPS ....................................................................................................... 92
CHAPTER 5 THE MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE ............................................................................................................ 93
5.1 OVERVIEW OF CHAPTER FIVE ..................................................................... 93 5.2 MANAGERIAL PRACTICES IN SERVICE ORGANISATIONS ............................... 94 5.3 THE MANAGERIAL SUPPORT PRACTICES-SERVICE CLIMATE INTERFACE....... 97 5.4 THE DIRECT LEADERSHIP SUPPORT CONSTRUCT .......................................... 99 5.5 DEFINING DIRECT LEADERSHIP SUPPORT ..................................................... 99 5.6 DIMENSIONS OF THE DIRECT LEADERSHIP SUPPORT CONSTRUCT ................. 99 5.7 MEASUREMENT ISSUES RELATING TO THE DIRECT LEADERSHIP SUPPORT CONSTRUCT........................................................................................................... 101 5.8 THE DIRECT LEADERSHIP SUPPORT-SERVICE CLIMATE RELATIONSHIP ....... 101 5.9 THE SENIOR LEADERSHIP SUPPORT CONSTRUCT ........................................ 102 5.10 DEFINING SENIOR LEADERSHIP SUPPORT ................................................... 102 5.11 DIMENSIONS OF THE SENIOR LEADERSHIP CONSTRUCT.............................. 102 5.12 MEASUREMENT ISSUES RELATING TO THE SENIOR LEADERSHIP CONSTRUCT 103 5.13 THE SENIOR LEADERSHIP SUPPORT-SERVICE CLIMATE RELATIONSHIP ....... 104 5.14 THE WORK FACILITATION RESOURCES CONSTRUCT ................................... 104 5.15 DEFINING WORK FACILITATION RESOURCES.............................................. 105 5.16 DIMENSIONS OF THE WORK FACILITATION RESOURCES CONSTRUCT.......... 105 5.17 MEASUREMENT ISSUES RELATING TO THE WORK FACILITATION RESOURCES CONSTRUCT........................................................................................................... 106 5.18 THE WORK FACILITATION RESOURCES-SERVICE CLIMATE RELATIONSHIP.. 106 5.19 THE MANAGERIAL CONTROL PRACTICES-SERVICE CLIMATE INTERFACE.... 107 5.20 THE MANAGEMENT CUSTOMER ORIENTATION CONSTRUCT ....................... 108 5.21 DEFINING MANAGEMENT CUSTOMER ORIENTATION .................................. 108
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5.22 DIMENSIONS OF THE MANAGEMENT CUSTOMER ORIENTATION CONSTRUCT 109 5.23 MEASUREMENTS ISSUES RELATING TO THE MANAGEMENT CUSTOMER ORIENTATION CONSTRUCT .................................................................................... 109 5.24 THE MANAGEMENT CUSTOMER ORIENTATION-SERVICE CLIMATE RELATIONSHIP....................................................................................................... 110 5.25 THE EMPLOYEE EMPOWERMENT CONSTRUCT ............................................ 111 5.26 DEFINING EMPLOYEE EMPOWERMENT....................................................... 111 5.27 DIMENSIONS OF THE EMPLOYEE EMPOWERMENT CONSTRUCT................... 111 5.28 MEASUREMENT ISSUES RELATING TO THE EMPOWERMENT CONSTRUCT.... 114 5.29 THE EMPOWERMENT-SERVICE CLIMATE RELATIONSHIP ............................ 114 5.30 THE BEHAVIOUR-BASED EVALUATION CONSTRUCT................................... 116 5.31 DEFINING BEHAVIOUR-BASED EVALUATION.............................................. 116 5.32 DIMENSIONS OF THE BEHAVIOUR-BASED EVALUATION CONSTRUCT.......... 116 5.33 MEASUREMENT ISSUES RELATING TO THE BEHAVIOUR-BASED EVALUATION CONSTRUCT........................................................................................................... 119 5.34 THE BEHAVIOUR-BASED EVALUATION-SERVICE CLIMATE RELATIONSHIP . 120 5.35 SUMMARY OF CHAPTER FIVE, THE MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE RELATIONSHIPS .................................................................... 122
CHAPTER 6 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE .......................................................................................................... 124
6.1 OVERVIEW OF CHAPTER SIX ..................................................................... 124 6.2 OVERVIEW OF THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE ............................................................................................................ 125 6.3 THE MANAGEMENT CUSTOMER ORIENTATION-EMPOWERMENT RELATIONSHIP 126 6.4 THE MANAGEMENT CUSTOMER ORIENTATION-BEHAVIOUR-BASED EVALUATION RELATIONSHIP.................................................................................. 126 6.5 THE EMPLOYEE EMPOWERMENT-EMPLOYEE SELF-EFFICACY RELATIONSHIP 127 6.6 THE BEHAVIOUR-BASED EVALUATION-JOB SATISFACTION RELATIONSHIP. 128 6.7 SUMMARY OF THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE 129 6.8 SUMMARY OF THE LITERATURE REVIEW SECTION, CHAPTERS TWO TO SIX130
CHAPTER 7 THE CONCEPTUAL MODEL OF THE ANTECEDENTS OF THE EMPLOYEE LOYALTY-CUSTOMER LOYALTY RELATIONSHIP 132
7.1 OVERVIEW OF CHAPTER SEVEN ................................................................ 132 7.2 PURPOSE OF THE STUDY ............................................................................ 132 7.3 OVERVIEW OF THE CONCEPTUAL MODEL................................................... 133 7.4 THE THEORETICAL FOUNDATION OF THE CONCEPTUAL MODEL ................. 140 7.5 THE RELATIONSHIPS AND HYPOTHESES THAT UNDERPIN THE CONCEPTUAL MODEL 142 7.6 CONCLUSIONS OF CHAPTER SEVEN........................................................... 149
CHAPTER 8 METHODOLOGY AND RESULTS OF THE PATH MODEL 150 8.1 OVERVIEW OF CHAPTER EIGHT................................................................. 150 8.2 OVERVIEW OF THE ANALYSIS STRATEGY................................................... 150
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8.3 THE MODEL BUILDING PROCESS ................................................................ 152 8.4 FIT ASSESSMENT ....................................................................................... 154 8.5 MODEL FIT INDICES: ASSESSING ABSOLUTE FIT, COMPARATIVE FIT AND PARSIMONIOUS FIT ................................................................................................ 156 8.6 DATA COLLECTION AND ANALYSIS ........................................................... 160 8.7 DETAILS OF DATA COLLECTION AND THE DATA SOURCE; SAMPLE AND SAMPLING ISSUES .................................................................................................. 160 8.8 MEASURE VALIDATION ............................................................................. 164 8.9 DEVELOPING AND TESTING THE MEASURES............................................... 173 8.10 DIRECT LEADERSHIP SUPPORT................................................................... 173 8.11 SENIOR LEADERSHIP SUPPORT................................................................... 174 8.12 WORK FACILITATION ................................................................................ 174 8.13 MANAGEMENT CUSTOMER ORIENTATION.................................................. 174 8.14 SERVICE CLIMATE ..................................................................................... 175 8.15 EMPLOYEE EMPOWERMENT....................................................................... 175 8.16 BEHAVIOUR-BASED EVALUATION ............................................................. 175 8.17 EMPLOYEE SELF-EFFICACY ....................................................................... 176 8.18 JOB SATISFACTION .................................................................................... 176 8.19 EMPLOYEE LOYALTY ................................................................................ 177 8.20 PERCEIVED SERVICE QUALITY................................................................... 177 8.21 CUSTOMER LOYALTY ................................................................................ 177 8.22 SUMMARY OF THE MEASURE DEVELOPMENT AND MEASURE ASSESSMENT PROCESS................................................................................................................ 178 8.23 CONVERGENT VALIDITY............................................................................ 184 8.24 DISCRIMINANT VALIDITY .......................................................................... 184 8.25 CONTENT VALIDITY .................................................................................. 187 8.26 THE VARIANCE INFLATION FACTOR........................................................... 188 8.27 TESTING THE HYPOTHESISED PATH MODEL ............................................... 189 8.28 OVERVIEW OF THE RESULTS...................................................................... 193 8.29 THE EMPLOYEE-CUSTOMER INTERFACE RELATIONSHIPS ........................... 195 8.30 THE SERVICE CLIMATE-CUSTOMER INTERFACE RELATIONSHIPS ................ 196 8.31 THE EMPLOYEE-ROLE INTERFACE RELATIONSHIPS .................................... 196 8.32 MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE RELATIONSHIPS. 196 8.33 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE RELATIONSHIPS ..................................................................................................... 197 8.34 OVERALL CONSIDERATION OF THE RESULTS OF THE PATH MODEL............. 198 8.35 CONCLUSION TO CHAPTER EIGHT ............................................................. 198
CHAPTER 9 DEVELOPING AND TESTING A MODIFIED MODEL......... 200
9.1 OVERVIEW OF CHAPTER NINE................................................................... 200 9.2 DEVELOPING AND TESTING A MODIFIED MODEL........................................ 200 9.3 A MODIFIED MODEL BASED ON SPECIFICATION SEARCHES......................... 200 9.4 OVERVIEW OF THE SIGNIFICANT RELATIONSHIPS IN THE MODIFIED MODEL205 9.5 GOODNESS OF FIT STATISTICS – COMPARING THE PATH MODEL AND THE MODIFIED MODEL .................................................................................................. 206 9.6 DISCUSSION OF THE FIT INDICES................................................................ 208 9.7 CONCLUSION TO CHAPTER NINE............................................................... 209
CHAPTER 10 DISCUSSION OF THE RESULTS OF THE HYPOTHESISED MODEL AND THE MODIFIED MODEL ......................................................... 210
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10.1 THE EMPLOYEE-CUSTOMER INTERFACE RELATIONSHIPS IN THE PATH AND MODIFIED MODELS ................................................................................................ 210 10.2 THE SERVICE CLIMATE-CUSTOMER INTERFACE RELATIONSHIPS ................ 214 10.3 THE EMPLOYEE-ROLE INTERFACE RELATIONSHIPS .................................... 215 10.4 THE MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE RELATIONSHIPS IN THE PATH AND MODIFIED MODELS .................................................................... 217 10.5 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE RELATIONSHIPS IN THE PATH MODEL AND THE INFLUENCE OF THE INTERACTIONS BETWEEN MANAGERIAL SUPPORT AND CONTROL PRACTICES IN THE MODIFIED MODEL 219 10.6 CONCLUSION TO CHAPTER TEN ................................................................ 227
CHAPTER 11 CONCLUSION AND IMPLICATIONS .................................... 229 11.1 OVERVIEW OF CHAPTER ELEVEN.............................................................. 229 11.2 REVISITING THE RESEARCH OBJECTIVES.................................................... 229 11.3 CONCLUSIONS........................................................................................... 232 11.4 IMPLICATIONS OF THE RESEARCH.............................................................. 235 11.5 IMPLICATIONS OF THE RESEARCH FINDINGS .............................................. 236 11.6 MANAGERIAL AND THEORETICAL CONTRIBUTIONS. .................................. 237 11.7 LIMITATIONS AND FUTURE RESEARCH POSSIBILITIES ................................ 241
REFERENCES....................................................................................................... 247
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Table of Tables
TABLE 1.1 SUMMARY OF THE 2 STEP SEM PROCEDURE .............................................. 14 TABLE 2.1 OVERVIEW OF CUSTOMER LOYALTY RESEARCH......................................... 22 TABLE 2.2 LOYALTY CATEGORIES .............................................................................. 24 TABLE 2.3 THE ATTITUDE STRENGTH-ATTITUDE DIFFERENCE RELATIONSHIP ............. 27 TABLE 2.4 THE RELATIVE ATTITUDE-BEHAVIOUR RELATIONSHIP ............................... 28 TABLE 2.5 COGNITIVE-AFFECTIVE-CONATIVE ATTITUDE MODEL WITH CONSTITUENT
COMPOSITION...................................................................................................... 30 TABLE 2.6 A FOUR PHASE PROGRESSIVE LOYALTY DEVELOPMENT FRAMEWORK ........ 33 TABLE 2.7 OVERVIEW OF EMPLOYEE LOYALTY RESEARCH ......................................... 41 TABLE 2.8 SUBSTANTIVE CATEGORIES OF ORGANISATIONAL CITIZENSHIP BEHAVIOURS:
ORGANISATIONAL LOYALTY, OBEDIENCE AND PARTICIPATION............................ 52 TABLE 2.9 THE FIVE CORE DIMENSIONS OF SERVQUAL ........................................... 59 TABLE 8.1 STAGES IN THE ANALYSIS OF THE DATA: 2 STEP SEM PROCEDURE .......... 151 TABLE 8.2 FIT AND TEST OF THE COVARIANCE MATRIX ............................................ 153 TABLE 8.3 ITEM, MEASURES, CONSTRUCTS, AGGREGATION AND SAMPLE SIZES ........ 167 TABLE 8.4 CONSTRUCT DEFINITIONS ........................................................................ 172 TABLE 8.5 EMPLOYEE SCALE AND MEASURES, FACTOR LOADINGS AND ITEM SOURCE:
CONFIRMATORY FACTOR ANALYSIS RESULTS. EMPLOYEE DATA (N = 18,821).. 179 TABLE 8.6 CUSTOMER SCALE AND MEASURES, FACTOR LOADINGS AND ITEM SOURCE:
CONFIRMATORY FACTOR ANALYSIS RESULTS. CUSTOMER DATA (N = 55,335) . 183 TABLE 8.7 MEASURE CORRELATIONS: EMPLOYEE DATA (N = 18,821) ...................... 185 TABLE 8.8 MEASURE CORRELATIONS: CUSTOMER DATA (N=55,355) ...................... 185 TABLE 8.9 VIF FOR ENDOGENOUS CONSTRUCTS ....................................................... 189 TABLE 8.10 RESULTS FROM THE HYPOTHESISED MODEL (N = 59) ............................. 190 TABLE 8.11 COMPLETELY STANDARDISED SOLUTION – PATH MODEL (N = 59)......... 191 TABLE 8.12 CORRELATION MATRIX OF ETA AND KSI – PATH MODEL (N = 59)........ 192 TABLE 8.13 HYPOTHESES AND SUMMARY OF THE PATH MODEL RELATIONSHIPS...... 194 TABLE 9.1 RESULTS FROM THE MODIFIED MODEL BASED ON SPECIFICATION SEARCHES
(N = 59)............................................................................................................. 202 TABLE 9.2 COMPLETELY STANDARDISED SOLUTION – MODIFIED MODEL BASED ON
SPECIFICATION SEARCHES (N = 59).................................................................... 203 TABLE 9.3 CORRELATION MATRIX OF ETA AND KSI – MODIFIED MODEL BASED ON
SPECIFICATION SEARCHES (N = 59).................................................................... 204 TABLE 9.4 MODEL FIT INDICES: HYPOTHESISED VERSUS MODIFIED MODEL............... 208
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Table of Figures
FIGURE 1.1 OVERALL STRUCTURE OF THE LITERATURE REVIEW, CHAPTERS TWO TO SIX............................................................................................................................ 10
FIGURE 2.1 THE EMPLOYEE-CUSTOMER INTERFACE FRAMEWORK............................... 15 FIGURE 3.1 THE SERVICE CLIMATE-CUSTOMER INTERFACE FRAMEWORK ................... 80 FIGURE 4.1 THE EMPLOYEE-ROLE INTERFACE FRAMEWORK........................................ 88 FIGURE 5.1 THE MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE FRAMEWORK
............................................................................................................................ 93 FIGURE 6.1 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE
FRAMEWORK ..................................................................................................... 124 FIGURE 7.1 CONCEPTUAL MODEL OF THE ANTECEDENTS OF THE EMPLOYEE LOYALTY-
CUSTOMER LOYALTY RELATIONSHIP ................................................................. 134 FIGURE 8.1 PATH MODEL OF THE ANTECEDENTS OF THE EMPLOYEE LOYALTY-
CUSTOMER LOYALTY RELATIONSHIP ................................................................. 193 FIGURE 8.2 INTEGRATION OF THE ORGANISATIONAL INTERFACES AND THE SIGNIFICANT
RELATIONSHIPS IN THE PATH MODEL ................................................................. 195 FIGURE 9.1 MODIFIED MODEL OF THE ANTECEDENTS OF THE EMPLOYEE LOYALTY-
CUSTOMER LOYALTY RELATIONSHIP, BASED ON SPECIFICATION SEARCHES – SIGNIFICANT PARAMETERS ONLY...................................................................... 205
FIGURE 10.1 COMPARISON OF THE PARAMETER ESTIMATES AT THE EMPLOYEE-CUSTOMER INTERFACE IN THE PATH AND MODIFIED MODELS, INCLUDING ALL TESTED RELATIONSHIPS..................................................................................... 210
FIGURE 10.2 COMPARISON OF THE PARAMETER ESTIMATES AT THE SERVICE CLIMATE-CUSTOMER INTERFACE IN THE PATH AND MODIFIED MODELS ............................ 215
FIGURE 10.3 COMPARISON OF THE PARAMETER ESTIMATES AT THE EMPLOYEE-ROLE INTERFACE IN THE PATH AND MODIFIED MODELS .............................................. 216
FIGURE 10.4 COMPARISON OF THE PARAMETER ESTIMATES AT THE MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE IN THE PATH AND MODIFIED MODELS, INCLUDING ALL TESTED RELATIONSHIPS ........................................................... 218
FIGURE 10.5 COMPARISON OF THE PARAMETER ESTIMATES AT THE MANAGERIAL PRACTICES-EMPLOYEE INTERFACE IN THE PATH AND MODIFIED MODELS – ALL TESTED RELATIONSHIPS SHOWN ........................................................................ 220
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List of Abbreviations
AGFI Adjusted Goodness of Fit Index
AIC Ahaike Information Criterion
CFA Confirmatory Factor Analysis
CFI Comparative Fit Index
GFI Goodness of Fit Index
JDI Job Descriptive Index
NCP Non-Centrality Parameter
NFI Normed Fit Index
NNFI Non-Normed Fit Index
OCB Organisational Citizenship Behaviour
OCQ Organizational Commitment Questionnaire
PGFI Parsimony Goodness-of-Fit Index
PNFI Parsimony Normed Fit Index
RMSEA Root Mean Square Error of Approximation
SEM Structural Equation Modeling
SRMR Standardised Root Mean Squared Residual
VIF Variance Inflation Factor
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Declaration
The work contained in this thesis had not been previously submitted for a degree or diploma at any other higher education institution. To the best of my knowledge and belief, the thesis contains no material previously published or written by another person except where due reference is made.
Signed: ________________________________ Date: ________________________________
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Acknowledgments
Every major project has a captain who has the patience, foresight, skills and vision to
see the end at the beginning. For this project, Pr Charles Patti was that captain.
Through dark days and triumphs, Charles guided, chided, encouraged, championed and
supported. Without his presence, this project would not have been completed.
Similarly, without the impetus to start, nothing happens. Pr William Renforth was the
person who encouraged me to set out on this journey and gave me the courage to take
the plunge. Pr Boris Kabanoff with his broad scope made sure that obstacles in the
research work itself along the way did not become blocks. Dr Stephen Cox gave me the
gentle reminders and support to stay true to the principles. The QUT community
provided much of the financial support and the flexibility to allow me to take an
approach to my work and research that was at times unconventional but I hope fruitful.
My research mentors at Arizona State University, Dr Mike Hutt, Dr Beth Walker and
Dr Ajith Kumar committed countless hours and precious insights that gave life to the
process. My adopted family at Arizona State University, Michelle, Felicia and Dimitri,
and my whole cohort, Deb, Gabe, Kate, Mark, and Claudia inspired and sweated along
with me, as did Diane, Dr Mokwa and the whole crew at ASU.
Many people sacrificed, encouraged, fed, coffeed and endured. Cathy Neal patiently
listened and plied the coffee. My close friend Sarah Milburne believed I could do it, and
always told me so. My friends Mark and Yianni patiently endured the missed phone
calls and periods of silence. My partner Danny Keenan smiled and listened
optimistically through 14 months of typing, word games and endless drafts. My parents
and their partners, as parents do, understood the missed family dinners and visits, and
waited for the day when it would be over, ever encouraging and loving in their sacrifice.
To all these people, institutions and the many more who helped me, thank-you.
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CHAPTER 1 INTRODUCTION TO THE RESEARCH AND OVERVIEW OF THE THESIS
1.1 Overview of the research
What can leaders in service organisations do to enhance customer loyalty? This
question suggests a chain of events and processes initiated by leaders of a service
organisation that ends with customers of the organisation. The chain involves a service
organisation’s employees, the environment of the organisation and the organisation’s
services.
Why the focus on customer loyalty? Previous research suggests that customer loyalty is
a key driver of financial performance in service organisations (Ganesh, Arnold, and
Reynolds 2000; Jones and Sasser 1995; Reichheld and Teal 1996). Customer loyalty may
be a more important determinant of profit than market share and position (Heskett et
al. 1994). By identifying the antecedents of customer loyalty and understanding the
impact of these antecedents on customer loyalty, marketers can set in place practices
that enhance the relationships that organisations develop with their customers,
potentially resulting in higher levels of customer loyalty.
Higher levels of customer loyalty in service organisations initiate a series of economic
effects in a business system. Revenues and market share grow as loyal customers
commit to the organisation, become repeat customers, and recommend the organisation
to others (Reichheld and Teal 1996). Studies across 14 industries in the United States
suggest that a 5% increase in customer retention leads to an increase in profit of
between 25% and 95% (Reichheld and Sasser 1990; Reichheld and Teal 1996).
Customer loyalty also leads to lower costs of retention compared to the costs of
attracting new customers (Zeithaml 2000). Relationships with loyal customers are
typically less expensive to service, and loyal customers contribute to the organisation by
buying more and paying premium prices, and engaging in behaviours that are beneficial
to the organisation such as acting as advocates of the organisation (Ganesh, Arnold, and
Reynolds 2000). Other benefits also accrue. Customers who enter a relationship with
an organisation as a result of a personal referral tend to be more loyal than those who
buy because of an advertisement (Reichheld 1993).
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Disloyal customers who defect from an organisation create costs for the organisation.
Organisations lose future revenue streams and must encounter higher costs to acquire
new customers (Keanevey 1995; Rucci, Kirn, and Quinn 1998). The costs of defections
have a higher impact on company profits than many other factors (Zeithaml 2000).
If this set of outcomes from higher levels of customer loyalty occur, then service
managers should conceivably dedicate substantial resources to enhancing and
maintaining customer loyalty. But what actions should leaders take and in which part of
the organisation should they focus?
The purpose of the current research is to investigate the chain of events from
managerial actions to customer loyalty with the aim of identifying relevant managerial
practices and their influences within the organisation that lead to customer loyalty.
Organisational behaviour literature indicates that managerial practices affect both
organisational climate and employees’ attitudes towards their jobs and the organisation.
Applied psychology literature suggests that an organisation’s climate communicates to
employees and customers the culture and values of an organisation, which influence
perceptions about the organisation. Services marketing literature suggests that the
interaction and ensuing relationship between employees and customers during service
delivery leads to customer decisions about whether or not to remain with the
organisation. These three bodies of literature underpin the domain of the current
research.
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1.2 The research questions, objectives and potential contributions of the study
Specifically the research questions to be addressed in this study are:
1. Is there a relationship between employee loyalty and customer loyalty?
2. What influence do service quality and employee role attitudes have on customers in terms of customer loyalty to a service organisation?
3. How does an organisation’s service climate influence service quality?
4. How do employee role attitudes influence employee loyalty to a service organisation?
5. What is the set of key managerial practices in terms of service management and how do these practices influence an organisation’s service climate?
6. What influences do managerial practices have on employee role attitudes within a service organisation?
7. Overall, what is the set of managerial practices that drive customer loyalty in service organisations and how do they operate?
The research objectives that flow from these research questions are:
1. To make explicit the relationship between employee loyalty and customer loyalty.
2. To test the relationship between service quality and customer loyalty.
3. To establish the impact of employee role attitudes on service quality.
4. To test the relationship between an organisation’s service climate and customer perceptions of service quality.
5. To establish the relationship between employee role attitudes and employee loyalty in a service organisation.
6. To identify the set of key managerial practices that impact an organisation’s service climate and empirically test the influence of these practices on the organisation’s service climate.
7. To explicate the relationship between managerial control practices and employee role attitudes.
8. Overall, to develop and operationalise a comprehensive organisational model that demonstrates and explains the development and maintenance of customer loyalty in service organisations.
4
The potential contributions of the study relate to these research objectives. There are
managerial and theoretical contributions.
Briefly, the potential managerial contributions are:
1. That by increasing employee loyalty within a service organisation, customer loyalty can also be expected to increase.
2. That by focussing on positive employee role attitudes, customer perceptions of service quality are likely to improve, and improved service quality will increase customer loyalty.
3. That by creating a more favourable service climate, service quality will be improved.
4. That when employee role attitudes are more positive then employee loyalty will increase, prompting management to seek practices that lead to more positive employee attitudes.
5. That certain managerial practices are likely to create a more favourable service climate.
6. That certain managerial practices enhance employee role attitudes.
7. That overall, a comprehensive set of practices and chain of events exist that service managers can utilise to achieve the important organisational goals of increasing and maintaining customer loyalty.
The potential contributions to marketing theory are:
1. An explanation of the nature of the link between employee loyalty and customer loyalty and how employee loyalty influences customer loyalty.
2. An explanation of the set of relationships between employee attitudes and behaviours, and their impact on service quality and customer loyalty and thus how employee behaviours affect customer loyalty.
3. That the psychological metaphor of an organisation’s service climate is a valid organisational medium that communicates to both customers and employees that service quality and a customer orientation are important strategic initiatives of the organisation.
4. How managerial practices influence customer loyalty via the organisation’s service climate and through employee attitudes and behaviours
5. That the same set of managerial practices influences both employee loyalty and customer loyalty.
6. That the managerial practices constructs and the service climate construct belong in marketing literature because their impact on customer loyalty can be demonstrated.
5
1.3 The relevance of the managerial contributions
The managerial contributions of the study are relevant to service organisations in several
ways. If managers can identify the set of relationships between employees and
customers that influence customer loyalty, then they can allocate resources and set up
mechanisms that enhance these relationships in the knowledge that these resources and
mechanisms will increase and maintain customer loyalty.
Thus the first managerial contribution is a result of empirically establishing the
employee loyalty-customer loyalty link in service organisations. The contribution is to
build tangible evidence supporting the importance of providing organisational resources
to increase employee loyalty as a means of increasing customer loyalty, that is known to
increase an organisation’s long term viability (Epstein and Westbrook 2001; Fornell et
al. 1996; Heskett, Sasser, and Schlesinger 1997; Reichheld and Teal 1996).
The second managerial contribution relates to the research objectives regarding
employee role attitudes, service quality and customer loyalty. The study seeks to more
fully examine the nature of the employee-customer relationship. Disparate research
exists on the influence of service quality on customer loyalty as well as the influences of
job satisfaction and employee self-efficacy on employee loyalty. To date, these
relationships have not been examined simultaneously. The current research examines
these relationships simultaneously using customer and employee data collected in the
same service context. The study demonstrates the nature of the relationships between
employee attitudes and behaviours.
By understanding these relationships it becomes clear to what degree employee beliefs,
including perceptions about their ability to perform service roles, and satisfaction with
their jobs, influence customer perceptions of service quality and in turn customer
loyalty. The outcome is to establish which strategies are most effective to management
in the quest to focus organisational constituents on service quality. Furthermore, it
establishes which strategies enhance employee role attitudes with the aims of increasing
and maintaining customer loyalty.
The third managerial contribution of the study relates to the research objective
concerning the relationship between service climate and service quality. Service climate
has been conceptually examined in the marketing literature. However, there have been
6
few empirical studies that comprehensively explicate the nature and function of a
climate for service. By making explicit the nature and influence of the service climate,
management can more carefully support and control the service climate, which in turn
influences perceptions of service quality and signals to employee and customers the
service orientation of the organisation.
The fourth managerial contribution of the study relates to the research objective that
deals with the relationships between employee role attitudes and their loyalty intentions
to the organisation. If the influence of the relationship between employee role attitudes
and employee loyalty is clear, then management can take steps within the organisation to
ensure that these employee attitudes are favourable so that the likelihood that valued
employees will remain with the organisation is increased.
The fifth and six managerial contributions concern the research objectives relating to
the impact of managerial practices. Combined, these two contributions relate to the
research objective connected with the impact of managerial practices on the service
climate and the impact of the managerial control practices on employee role attitudes.
Together they constitute comprehensive knowledge regarding the comparative
influences of managerial practices on the organisation’s service climate that impacts
customer perceptions of service quality, and on employee beliefs about their abilities to
do their jobs and on job satisfaction. These beliefs by employees potentially influence
customer loyalty through the impact on employee loyalty, and through an influence on
service quality. Service quality is thought to influence customer loyalty. That is, the
study seeks to demonstrate to managers what actions to take to influence service quality
and employee loyalty.
The final managerial contribution relates to the research objective concerning the overall
model of the employee loyalty-customer loyalty antecedents. This contribution is more
general in that it seeks to provide an overall view of the organisational workings relating
to the development and maintenance of customer loyalty. In essence, the study allows
for the simultaneous examination of managerial influence on service quality through the
foundation conditions that support the service climate, managerial practices influence
on service quality by their impact on employee behaviours and attitudes, and the
relationship between these employee attitudes and behaviours, and service quality, and
their combined effect on customer loyalty.
7
As a result of this comprehensive examination of the influence of managerial actions,
the overall managerial contribution is that managers in service organisations can
implement an effective set of managerial practices and conditions that most thoroughly
contribute to the organisation’s health as a consequence of customer loyalty. This is a
crucial benefit to service managers because they can gauge the relative and collective
influence of a set of managerial practices on key relationships within the organisation,
and plan and allocate resources to effectively impact long term customer loyalty, and
thus organisational survival.
1.4 The relevance of the theoretical contributions
The contributions to marketing theory are important because of the deeper
understanding of how the management-employee, employee-customer and indirectly,
the management-customer relationships function in service organisations, in terms of
the processes by which management communicates its implicit and explicit service
objectives, and how employees and customers develop their perceptions of an
organisation, and the mechanisms that influence those perceptions.
The first two contributions to marketing theory relate to the employee-customer
interface. If an empirical link exists between employee loyalty and customer loyalty, and
if there is a more complex set of relationships between employee attitudes and
behaviours, customer perceptions of service quality and finally customer loyalty, then
researchers have support for the notion that customers use more than service
performance criteria when evaluating service quality and making decisions about
whether or not to remain with an organisation. In terms of organisational behaviour,
this research contributes to the understanding of the mechanisms by which
management supports and controls function within service organisations. Marketing
support and control theory suggests that management exerts influence by both support
and control mechanisms, and that these mechanisms differ in their influence and
direction (Hartline, Maxham, and McKee 2000). Which mechanisms influence which
sets of employee and customer attitudes, what are the paths of these influences, and
how do the participants garner their perceptions of these mechanisms?
The importance of these contributions is that management can gain a more precise
understanding of how customers develop their loyalty intentions as a result of
perceptions regarding both the actual service and their relationship with the
8
organisation, so that the most effective set of support and control practices can be put
in place. This is of benefit to theory because by demonstrating these relationships the
study establishes how employee behaviours and attitudes affect customer perceptions of
service quality and in turn affect customer loyalty.
The third marketing theory contribution relates to the service climate-customer
interface. If the psychological metaphor service climate is a valid concept in the context of
a service organisation that communicates to both customers and employees that service
quality and a customer orientation are important strategic initiatives of the organisation,
then researchers have a clearer understanding of the mechanisms by which managers
communicate about crucial strategic objectives to stakeholders and disseminate the
organisation’s orientation regarding service expectations. This study seeks to define and
quantify this rather slippery concept, and determine whether or not it is a separate and
discrete dimension within service organisations that affords customers and employees
an opportunity to examine the organisation’s service commitment intentions. How
employees and customers sense this climate, and how they develop their perceptions of
whether not the service climate is a favourable one, is of benefit to both theory and
practice. For theory, it would explain how in complex people-intense interactions,
individuals develop impressions of organisations that are at times in conflict with the
positions that that organisations take care to communicate. For practitioners, it would
provide more concrete evidence that organisational policies and organisational practice
need to be congruous and consistent with each other.
The fourth marketing theoretical contribution comes from the knowledge that
managerial practices influence customer loyalty via the organisation’s service climate and
through employee attitudes and behaviours. This confirmation would provide crucial
understanding of the means by which managers exercise indirect support for and
control of the service delivery process. A related contribution is the test of the theory
that the same set of managerial practices influences both employee loyalty and customer
loyalty. This suggests that not only are managerial practices explicit to employees, but
that they become explicit to customers, and that both implicit and explicit organisational
values and culture affect employees and customers. The understanding that employees
develop about the organisation is also conveyed to customers.
9
The final marketing theory contribution relates to the validity of the managerial
practices-service climate constructs and relationship in the marketing literature. If
managerial practices influence customer loyalty, and the service climate communicates
managerial strategy and values and organisational culture regarding service management,
then these constructs belong in the marketing domain and are valid aspects of marketing
theory research.
1.5 Overview of the thesis
The thesis is set out in three major sections. The first section addresses the foundation
of the study, including the literature review and the development of the conceptual
framework and research hypotheses. The second section addresses the methodology of
the research, a discussion and presentation of the data analysis process, and provides the
results of the study. The final section of the thesis includes discussion of the results and
the implications of the research.
The first section includes Chapters One to Seven and addresses the foundations of the
study. Chapter One provides an overview of the study in terms of justifying customer
loyalty as an important organisational objective, placing the study in the context of
existing research, and establishing the importance and contributions of the study.
Chapters Two to Six present a review of the literature in order to establish the set of
constructs and relationships to be tested in relation to the antecedents of the employee
loyalty-customer loyalty relationship. The constructs and relationships are the result of
a review of the organisational behaviour, applied psychology and services marketing
literature in particular, and also the more general marketing literature. These bodies of
literature relate to the examination of employee loyalty and customer loyalty in service
organisations.
The aims of the literature review are to identify the key factors that relate to the chain of
events from managerial practices to customer loyalty in the context of service
organisations and to develop a conceptual model that best describes the set of
relationships that influence customer loyalty. The literature review is organised to
reflect a set of four interfaces that occur in service organisations. The structure of the
literature review and a depiction of the interfaces are presented in Figure 1.1.
10
Figure 1.1 Overall structure of the literature review, Chapters Two to Six
Figure 1.1 illustrates the set of interfaces and the relevant constructs, the chapters that
deal with each interface, and the overall structure of the literature review section,
moving from right to left.
Chapter Two examines the employee-customer interface. At this interface customer
contact employees and customers interact. As a result of these interactions customers
develop their loyalty intentions based on their perceptions of the level of employee
loyalty and of customer perceptions of the nature of service quality. Service quality is
influenced by the employees’ degree of job satisfaction and the beliefs they have about
their abilities to do their jobs. Chapter Two examines in detail the customer loyalty,
employee loyalty, perceived service quality, job satisfaction and employee self-efficacy
constructs and the relationships between these constructs.
The goal of this chapter is to investigate the literature relating to the first three research
objectives, regarding the relationships between employee loyalty and customer loyalty,
and employee role attitudes, service quality and customer loyalty.
Employee-RoleInterfaceChapter 4
Supp
ort
Con
trol
EmployeeSelf-Efficacy
JobSatisfaction
BehaviourBased
Evaluation
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomerOrientation
EmployeeLoyalty
Managerial Practices
Employee Attitudes
CustomerLoyalty
ServiceQuality
Customer Beliefs
ServiceClimate
Service Environment
Empowerment
Service Climate-CustomerInterface Chapter 3
Managerial Control Practices-Employee Interface Chapter 6
Employee-CustomerInterface Chapter 2
Managerial Practices-ServiceClimate Interface Chapter 5
11
The review establishes customer loyalty as a distinct construct in the services marketing
context by tracing the development of customer loyalty as a strategic objective in service
organisations. First, customer loyalty is defined. The relevant dimensions of customer
loyalty are established and the measurement issues are highlighted as they relate to the
specific definition and dimensions.
Next the employee loyalty construct is defined for the study. The literature review
examines the ongoing debate that focuses on the nature of employee loyalty and the
dimensions of employee loyalty. This examination includes the associated behaviours
that are manifestations of employee loyalty and the importance of employee loyalty in
the context of a service organisation. The dimensions of employee loyalty to be
measured are presented and measurement issues are discussed. The relationship
suggested in the literature between employee loyalty and customer loyalty is presented
and the implications of this relationship are discussed.
Following, the perceived service quality construct is defined and the perspective and
dimensions that emerge from the literature on service quality are discussed. The
measurement issues are presented and the relationship between service quality and
customer loyalty is examined.
Next, job satisfaction is defined and its importance as a managerial objective is
established. This discussion includes a brief history of job satisfaction research. The
evolution of the measurement of job satisfaction is presented to justify the choice of the
dimensions of job satisfaction measured in this study. The relationship between job
satisfaction and service quality is examined and the influence of job satisfaction on
service quality established. Next the employee self-efficacy construct is defined and
discussed, and relevant measurement issues are presented. The links between employee
self-efficacy and customer perceptions of service quality are examined. Finally in
Chapter Two, a summary of the employee-customer interface relationships is presented
in relation to the study.
Chapter Three investigates the second interface in service organisations, the service
climate-customer interface. At this interface, customers experience the organisation and
its service offerings. The chapter investigates the influence of the service climate on
customer perceptions of service quality. First, Chapter Three presents an overview of
the service climate-customer interface, followed by an introduction to and a definition
12
of the service climate construct, and an examination of the literature that investigates
the relationship between an organisation’s service climate and service quality.
Chapter Four examines the third interface, the employee-role interface. At this
interface, employees have direct experience with their organisational role. In this role,
employees develop attitudes about their role, the job and the organisation, and develop
beliefs about their ability to fulfil that role. Chapter Four also examines the impact of
employee self-efficacy on employee job satisfaction and the impact of job satisfaction
on employee loyalty. Definitions and measurement issues relating to these constructs
are presented previously in Chapter Two, and building on this discussion, Chapter Four
investigates the literature on the relationship between employee self-efficacy and job
satisfaction, and job satisfaction and employee loyalty.
Chapter Five examines the fourth interface, the managerial practices-service climate
interface. At this interface consists of a broad set of relationships between managerial
practices and the organisation’s service climate. Chapter Five begins with an overview
of the managerial practices-service climate interface and managerial practices in service
organisations. The discussion examines leadership functions and discusses managerial
practices in terms of support and control mechanisms. These are important in service
organisations because of the nature of service delivery processes and direct interactions
between customer contact employees and customers, and because management can
typically exercise limited amounts of influence during these interactions.
Chapter Six relates to the fifth interface, the managerial practices-employee interface.
This interface consists of a series of relationship between managerial control practices
and employees of the organisation. At this interface employees experience the influence
of the organisation’s customer orientation, the degree to which the organisation enables
employees to fulfil their roles within the organisation and the organisation’s reward and
control mechanisms. The discussion investigates the influence of the managerial
control practices, management customer orientation, behaviour-based evaluation and
employee empowerment on self-efficacy beliefs and employee job satisfaction. These
constructs have been discussed individually in detail in previous chapters.
First the relationship between management customer orientation and employee
empowerment, and management customer orientation and behaviour-based evaluation
is discussed based on the extant literature. Next, the relationship between employee
13
empowerment and employee self-efficacy is examined and the conclusions about this
relationship are presented. Similarly, the relationship between behaviour-based
evaluation and job satisfaction is reviewed. Following, the conclusions related to this
interface are presented.
Chapter Six concludes with a summary of the overall set of relationships that have been
examined in relation to the antecedents of the employee loyalty-customer relationship.
This is in preparation for the set of research hypotheses that are discussed in detail in
Chapter Seven.
Chapter Seven revisits the purpose of the study and presents the conceptual framework
and literature in support of the integrated conceptual framework. Following the
framework is a summary of the relevant theoretical foundations and the set of
relationships and hypotheses to be tested in the study.
Chapter Eight, the second section of the thesis, relates to the methodology, data
collection, data analysis and results of the study. Chapter Eight begins with an overview
of the analysis strategy, Structural Equation Modelling (SEM). The model building
process is discussed and model fit assessment measures are specified and reviewed for
both measurement and path models.
The remainder of Chapter Eight follows the structure of the suggested stages in the
analysis of the data that is presented in brief in Table 1.1. This two-stage procedure is
proposed by Anderson and Gerbing (1988).
14
Table 1.1 Summary of the 2 step SEM procedure
Chapter Eight concludes with an overview of the tested relationships in the path model
and makes the recommendation to develop and test a modified model. Chapter Nine
provides support for developing a modified model based on specification searches. The
results from the modified model are presented and the fit indices of the path and the
modified model are compared and discussed in relation to the overall set of results.
The third and final section of the thesis, Chapters Ten and Eleven, relates to the
discussion of the results and the implications. Chapter Ten presents a discussion of the
outcome of the test of the hypothesised path model and of a modified model based on
specification searches. Overall, these results are examined in relation to the extant
literature and the theoretical implications of the findings. Chapter Eleven examines the
findings in relation to the research objectives and details the contributions of the study,
limitations of the study, and future research possibilities.
15
CHAPTER 2 THE EMPLOYEE-CUSTOMER INTERFACE
2.1 Overview of Chapter Two
Chapter Two is the first chapter of the literature review section and aims to provide the
foundation of the first three research objectives of the study. This necessitates
investigation of the set of relationships that occurs at the employee-customer interface
in the organisation that is represented by the shaded areas in Figure 2.1. The
relationship between employee loyalty and customer loyalty, between employee self-
efficacy and service quality and job satisfaction and service quality, and between service
quality and customer loyalty, occurs at this interface, as shown by the connecting
arrows.
Figure 2.1 The employee-customer interface framework
The employee-customer interface is where the relationships that directly influence
customer loyalty occur. These relationships result from the interaction between the
organisation’s customer contact employees and the organisation’s customers. This is the
outcome of the direct relationship between customers and employees in terms of
interpersonal interaction, and the indirect relationship that customers have with
employees as the result of the perceptions of the service quality that customers receive
as a result of employee actions.
Employee-Role Interface Chapter 4
Supp
ort
Con
trol
Behaviour Based
Evaluation
Work FacilitationResources
Direct Leadership
Support
Senior Leadership
Support
ManagementCustomerOrientation
EmployeeLoyalty
Managerial Practices
Employee Attitudes
Customer Loyalty
Service Quality
Customer Beliefs
Service Climate
Service Environment
Empowerment
Service Climate-Customer Interface Chapter 3
Managerial Control Practices-Employee Interface Chapter 6
Managerial Practices-Service Climate Interface Chapter 5
Employee Self-Efficacy
Employee-Customer Interface Chapter 2
Job Satisfaction
16
The importance of the employee-customer interface is that contact between employees
and customers in service organisations has potentially more of an impact on customer
perceptions than in other types of organisations (Zeithaml, Berry, and Parasuraman
1996). Therefore, these interactions must be carefully understood and managed to
maximise their positive impact on customers’ service quality perceptions and loyalty
intentions.
The purpose of Chapter Two is to examine the literature that deals with the
relationships between employees and customers in service organisations. By examining
this literature the nature and influence of the set of employee attitudes and behaviours
on customer beliefs becomes explicit and their effects on customer loyalty can be
hypothesised. Thus Chapter Two relates to the first three research objectives that
pertain to how the attitudes and behaviours of customer contact employees who deliver
the service affect customer perceptions of service quality and customer loyalty.
In Chapter Two, first the customer loyalty construct is introduced and defined and the
literature relating to customer loyalty is examined in detail. The discussion of the
customer loyalty literature includes establishing the dimensions of customer loyalty,
making the link between customer commitment and customer loyalty, noting the special
role that customer loyalty plays in service organisations, and finally describing the
measurement issues that relate to the customer loyalty construct.
Finally, the employee loyalty construct is introduced and defined. The literature relating
to employee loyalty is then examined in detail. The discussion of the employee loyalty
literature includes establishing the dimensions of employee loyalty, the link between
employee intentions and commitment and employee loyalty in the form of turnover
behaviour, the special role that employee loyalty plays in service organisations, and
finally the measurement issues that relate to the employee loyalty construct. Following
the development of the two loyalty constructs, the literature that links employee loyalty
with customer loyalty is explored and the conclusions drawn regarding this conceptual
link. This relationship is the focus of the first research objective of the study.
The remainder of Chapter Two relates to the second and third research objective of the
study. The aim is to explicate in detail the broader employee-customer relationship in
terms of the factors that directly influence customer perceptions of the organisation and
thus customer loyalty, including the service quality-customer loyalty relationship, and the
17
job satisfaction and employee self-efficacy-service quality relationship. Continuing the
overview outlined in Figure 2.1, the service quality literature is reviewed, with the view
to defining the service quality construct, determining the dimensions of service quality
to be measured, and discussing the measurement issues. To complete the discussion
relating to customer loyalty and service quality, the literature relating to the service
quality-customer loyalty relationship is reviewed to establish the conceptual link between
these two constructs.
Next, the job satisfaction construct is introduced and defined. The pertinent
dimensions of the construct are outlined and measurement issues are discussed. The
relationship between job satisfaction and perceived service quality as suggested by the
literature is specified. The employee self-efficacy construct is introduced and defined,
along with the dimensions of the construct and the measurement issues. Finally from a
review of the relevant literature the employee self-efficacy-service quality relationship is
explored.
The conclusion to Chapter Two includes a summary of the relationships that occur at
the employee-customer interface in the context of the antecedents of customer loyalty
in service organisations.
2.2 Putting the research in context
In their encounters with service organisations, customers have many situations and a
great deal of tangible and intangible evidence to use to make decisions about whether or
not to remain a customer, and about what sort of customer to be. Apart from the actual
service they commit to buy, customers assess the behaviours and attitudes of the
employees of the organisation, the overall performance of the organisation, the
appearances of employees, delivery locations, communication messages, and what
employees and other customers say about the organisation, to develop an overall feeling
about the organisation as a place to do business.
Customers evaluate these cues and manifest their decisions about what sort of customer
they want to be by the amount of their business in that category they want to give the
organisation, their intentions to adopt new and sometimes more expensive services, and
by what they say about the organisation to relevant others.
18
This study takes place in the context of relationships between a consumer banking
organisation and its customers. In such a context, customers make decisions about
whether to use the bank for some, or all, of their personal banking needs, to adopt new
service offerings, and whether or not to pay premium prices for some or all of their
business with the bank. Customers also make an overall decision of whether or not to
continue as a customer of the bank into the future.
Beyond the transactional nature of the interactions with a bank, a customer may also
form a more visceral bond with the bank. This may for example be in the form of a
personal attachment to or association with the bank. A long-term customer may refer
to the bank as ‘my bank’, or make statements that suggest that the bank has become to
some degree a part of the customer’s personal infrastructure. This relationship will
often endure when the bank doesn’t fulfil part or all of the psychological contract that
the customer has willingly established with the bank. This psychological state might
adjust for service errors, and discount enticing offerings by competitor banks or tales of
woe by other customers. In this state, loyal customers of the bank will often actively
tout for their bank, and willingly protect their relationship with the bank.
So what are the cues that customers use in the banking context, and what are the
processes that are evident during the journey that customers undertake to become
actively loyal customers? Apart from the competitiveness and effectiveness of the actual
banking services that customers consume, customers look to other cues in the course of
the relationship. How does the bank in an overall sense perform in its duties as a
service provider? How effective is the banking branch at its part in the process? Do
employees of the bank seem to have a sense that they know what they are doing in the
course of their jobs, and do they seem satisfied in those jobs? Do customers get a sense
that those same employees will be around in the longer term to provide the services and
to deliver service in a consistent and high quality manner? Finally customers also seem
to evaluate cues about whether or the bank appears to value its customers by providing
and projecting an environment that communicates that customers and indeed
employees are important to the organisation.
Customers glean these cues and develop these perceptions in the service environment in
its many guises, and as a result of their interactions with the employees of the bank.
19
These evaluations take place in the mind space or interfaces between themselves and the
bank’s service space, and between themselves and the bank’s employees.
The nature of the service space, or service climate, and the overall attitudes of the
bank’s employees, are somewhat directly an outcome of the policies, actions, decisions,
strategies and implicit and explicit attitudes that the bank’s leaders initiate, to direct and
manage service interactions between bank employees and customers, in the pursuit of
the bank’s long-term goals. These managerial practices support and control the bank’s
various resources to achieve desired outcomes.
The behaviours and attitudes of employees that customers are assessing are largely the
result of these policies and practices on the part of the bank’s leaders. Bank employees
will feel competent in their abilities to do their jobs, and satisfied in those jobs, when
managers put in place the mechanisms to support those beliefs. Evidence suggests that
when bank employees feel they have the skills and abilities to do their jobs, and are
satisfied in those jobs they are more likely to stay with the bank. So what are the
mechanisms and signals that bank employees rely on to make those attributions?
Typically employees might make sense of the means by which leaders manage
employees. This includes how they are rewarded for serving the bank’s customers, the
degree of responsibility that they are allowed to perform in their roles as customer
contract employees, and the degree to which leaders appear to have concern for both
customers and employees in the organisational context. Bank employees might also
consider how effectively the bank provides the actual support resources needed to
provide service quality, such as workplace requirements, and the active leadership
performance in the traditional role of allocating resources and making and implementing
decisions and strategies that will ensure long-term survival of the bank. At some point,
managerial practices, including reward, control, and support practices, and leadership’s
stance towards employees and customers, interact with employee perceptions about
managerial practices, and then create an environment that customers can perceive and
evaluate. Thus bank customers are exposed directly and indirectly to implicit and
explicit cues and processes that communicate the bank’s overall orientation to service
provision.
20
This study seeks to operationalise these many factors in the complex context of banking
services and empirically test these relationships in a scientific manner to make explicit
the exact nature and importance of these factors.
2.3 The customer loyalty construct
The central thrust of the marketing activities of an organisation is to develop, maintain
and enhance customer loyalty towards its products or services (Dick and Basu 1994).
The ensuing development of the customer loyalty construct builds on both the
chronological development of the loyalty construct, and the progression from studies of
repeat purchase of goods, through to an affective commitment to service providers.
This set of distinctions is used because while the customer loyalty construct in the
context of service organisations is built on research conducted in the context of tangible
goods and loyalty to brands, customer loyalty in a service context is distinct because of
the nature of the relationships between a customer and a service organisation.
2.4 Defining customer loyalty
Customer loyalty is a combination of commitment to a service relationship and the
outcome of an overall state of feeling or attachment to the service organisation,
manifest by overt loyalty-related behaviours. These behaviours include primary
behaviours, such as repeat patronage and share of purchase, and active and passive
secondary behaviours such as expansion of service usage, price insensitivity, resistance
to counter-persuasion, customer referrals, endorsements and spreading positive word-
of-mouth (Ganesh, Arnold, and Reynolds 2000; Jones and Sasser 1995; Zeithaml, Berry,
and Parasuraman 1996). Service loyalty is the degree to which a customer exhibits
repeat purchasing behaviour from a service provider, possesses a positive attitudinal
disposition toward the provider, and considers using only this provider when a need for
this service arises (Gremler and Brown 1999).
For this research, customer loyalty is defined as a measure of customer-stated current
commitment to the organisation, intentions to remain with the organisation, intentions
to expand service usage, and advocacy of the organisation to others.
2.5 The dimensions of the customer loyalty construct
The discussion of customer loyalty is built around the literature shown in Table 2.1.
The table seeks to build a composite of the development of the conceptualisation of
21
customer loyalty over time. Each research paper is classified in terms of the behaviour-
based, attitudinal and/or relationship viewpoint that the paper takes.
The studies in the table are listed in chronological order and are the key studies cited in
this literature review. The context of the research is classified as goods, branding, or
services.
The behaviour-based aspect of customer loyalty is categorised as primary or secondary.
Primary behaviour-based are those that are repeat purchase concepts. Secondary
behaviours are grouped as either active or passive. Active behaviours are those that
require conscious and deliberate effort to undertake. Passive behaviours are those that
result from a state of resistance to change the existing relationship with the organisation.
When a paper includes an attitudinal approach to customer loyalty, that paper is
categorised as adopting a general, relative, or component based attitude approach. A
further attitude category includes an action category that encompasses an attitudinal
mindset in which a consumer would take steps to foster a positive attitude towards a
brand or service. Finally the table notes whether or not customer loyalty is
conceptualised as having a relationship-based foundation.
22
Table 2.1 Overview of customer loyalty research COMPOSITE CONCEPT OF CUSTOMER LOYALTY
Author/s Context
Behaviour-based
Attitude approach Relation-ship basis
Primary Secondary General Relative Component Action Repeat Active Passive Cognitive Affective Conative (Day 1969) Goods (Jacoby and Chestnut 1978)
Goods
(Crosby and Taylor 1983)
Services
(Czepiel and Gilmore 1987)
Services
(Bitner 1990) Services (Boulding et al. 1993) Services (Dick and Basu 1994) Good/B
rands
(Jones and Sasser 1995) Goods/ Services
(Zeithaml, Berry, and Parasuraman 1996)
Services
(Oliver 1999) Brands (Gremler and Brown 1999)
Services
(Ganesh, Arnold, and Reynolds 2000)
Services
(Sirdeshmukh, Singh, and Sabol 2002)
Services
23
The conclusion drawn from Table 2.1 is that current research on customer loyalty
centres on customers’ primary and secondary behaviours regarding the organisation,
customers’ intent to remain with the organisation, and the relationships customers have
with the organisation. The following discussion regarding the dimensions of the
customer loyalty construct is developed in the context of this conclusion.
The research stream relating to customer loyalty began with studies that focussed on
repeat purchase of tangible goods. Because loyalty as a pattern of repeat purchase was
inadequate to explain actual repurchase behaviour, researchers sought to explain
motivation to continue buying a good by turning to attitudinal explanations. Research
then turned to studies of brand loyalty again in the context of tangible goods. This
behaviour plus attitude approach became more complex and also explained with more
certainty actual long-term behaviour. Finally, concepts of customer loyalty were
developed in the services context. The discussion of customer loyalty is structured
around the dimensions of customer loyalty as they developed from simple repeat
purchase of goods conceptualisation to complex relationship-attitude-advocacy-
behaviour concepts. That is, customer loyalty is the state that arises from a customer’s
beliefs about an organisation, feelings towards an organisation, and intent to behave in a
particular manner in relation to the organisation. Early research conceptualised
customer loyalty as a pattern of repeat purchase. This research also notes an
unexplained element to repeat purchase cycles (Oliver 1993). This unknown element
suggests a strong motivation akin to commitment to purchasing behaviours beyond
habit that have become the focus of subsequent research. To explain this unknown
element of loyalty, and other aspects of loyalty and switching behaviours, researchers
turned to attitudinal explanations for brand-specific purchase patterns within a product
category.
Day (1969) defined loyalty as repeated purchases based on a strong internal disposition
and spurious loyalty as purchases not based on this same strong attitude. Loyalty in this
framework has two dimensions - composites of attitude and composites of behaviour.
When an individual has a strong disposition to purchase a product from a set of
alternatives, the choice is based on an appraisal of those alternatives. Loyalty is a
combination of the held attitudes, the situation in which the choice is made, and the
subsequent behaviour consistent with that combination.
24
To measure loyalty, Day (1969) suggested using a composite index consisting of a
simultaneous consideration of loyal attitude and subsequent behaviour. The behavioural
aspect of loyalty was a measure of the proportion of purchase of a specific brand.
However, purchase consistency did not necessarily mean that the customer was brand
loyal. Purchase consistency could mean that the behaviour was spuriously driven by
price or other factors and not the strongly held loyalty attitude (Day 1969). Thus brand
attitude and brand-related behaviour combine in Day’s loyalty conceptualisation. This
conceptualisation forms the foundation of subsequent research and is thus a key
advance in brand loyalty research.
Jacoby (1971) proposed a model of multi-brand loyalty, using a psychological
framework where brands could be viewed as substitutes for each other, if they were
perceived to be within an acceptable quality range. A later analysis of loyalty defined
loyalty as the nonrandom purchase over time of one brand from a set of brands by a
consumer using an explicit evaluation process (Jacoby 1971; Jacoby and Kyner 1973).
Additional research builds on this definition and conceptualisation of loyalty as a
psychological construct (Oliver 1997). Jacoby and Chestnut (1978) distinguish among
degrees of loyalty to a brand of interest, in relation to competing brands (Table 2.2).
Table 2.2 Loyalty categories
(Jacoby 1971; Jacoby and Chestnut 1978; Oliver 1997) Psychological loyalty to:
Focal Brand Multiple Brands
Other Brand No Brand
Focal Brand
True loyalty buyer
Multi-brand loyal buyer
Non-loyal repeat buyer
Happen-stance buyer
Repeat purchase
of: Other Brand
Happen-stance other brand buyer
Multi-brand loyal buyer
Other brand loyal buyer
Happen-stance buyer
This categorisation interrelates the nature of a customer’s psychological loyalty in a
brand category (to either the focal brand, a collection of brands including the focal
brand, other brands excluding the focal brand, or no brand in the category) to
purchasing behaviour in that brand category. The resulting set of brand loyalty
categories allowed for more detailed study on the factors that influence each loyalty
25
category in relation to the focal brand. Subsequent research sought to explain how
consumers came to their loyalty decisions.
Amongst the categories, true focal brand loyalty is loyalty to the brand of interest. True
multi-brand loyalty is loyalty to the focal brand and similar competing brands. Non-
loyal repeat purchasing of the focal brand indicates loyalty to another brand.
Happenstance purchasing of the focal brand indicates non-brand loyal purchase.
Happenstance purchasing includes any repeat purchase sequence due to factors other
than true psychological loyalty, such as when a favoured brand is unavailable or there
are temporary disruptions to purchase behaviour (Jacoby and Kyner 1973).
Jacoby and Chestnut (1978) sought to differentiate psychological concepts of loyalty
from behavioural, repeat purchase definitions. They conclude that consistent purchasing
as an indicator of loyalty could be invalid because of happenstance buying or a
preference for convenience. Inconsistent purchasing could mask loyalty if consumers
were multi-brand loyal, suggesting that inferring loyalty or disloyalty based on repetitive
purchase patterns without further analysis is simplistic.
The preceding research was in the context of tangible goods. Research had also begun
in service contexts. Czepiel and Gilmore (1987) examine the concept of loyalty in
services firms. They define loyalty as a specific attitude to continue in an exchange
relationship based solely on past experiences. This definition distinguishes loyalty
towards service firms from repeat purchase and preference based definitions. The
suggestion is that services have a greater capacity to generate or create loyalty than do
goods (Czepiel and Gilmore 1987). That is, loyalty is crucial for service firms since
loyalty is more prevalent among services consumers than among goods consumers
(Zeithaml 1981). This is because services provide more opportunities for interactions
between customer contact employees and customers, and customers and the
organisation, supporting the development of an ongoing relationship that can lead to
loyalty.
Czepiel and Gilmore (1987) suggest that marketplace loyalty is an attitude that develops
under specific conditions and as a result of particular psychological processes. As an
attitude, loyalty is manifest as a predisposition to continue in a particular relationship
based solely on the nature of past experiences, and a willingness to voice opinions, both
positive and negative. Continuing the relationship is the ultimate manifestation of
26
loyalty (Czepiel and Gilmore 1987). The resulting relationship fosters identification
with, trust in, and commitment to the service provider. These outcomes demonstrate
that the customer may allow the provider to modify service practices, and make amends
for service failure, without interrupting the relationship. This dynamic process for the
development of loyalty provides the mechanisms for customers and service provider to
resolve differences and to continue the relationship.
Since loyalty is the result of the development of a relationship over a series of
interactions (Czepiel and Gilmore 1987) and because of the nature of services,
customers may expect that the service could be specifically tailored to their needs or
alternatively expect a consistency of service provision under differing circumstances.
Because of the interactive nature of services, bonds develop between customers and
customer contact employees, and customers and the service organisation. These
simultaneous sets of interactions may contribute to the formation of customer loyalty
(Czepiel and Gilmore 1987).
To this point in the loyalty research, most service loyalty concepts had been adapted
from the brand loyalty literature. Subsequently, researchers began to consider the
effects of the nature of services and relationship marketing concepts on customer
loyalty and its conceptualisation. This includes consideration of employee-customer and
customer-organisation interaction.
Dick and Basu (1994) examine the development of the loyalty construct and seek to
establish an integrated conceptual framework of customer loyalty. The contribution of
this work is to include brand comparison as a component of attitude to the focal brand.
While the discussion is positioned as a consideration of customer loyalty, the domain is
predominantly that of brand loyalty, that is, customer loyalty to a specific brand. The
important contribution of the work is the conceptualisation of customer loyalty as the
relationship between an individual’s relative attitude towards an entity, such as a brand,
service, store or vendor, and patronage behaviour. A relative attitude is one that exists
in relation to brand or service alternatives, so that the nature of relative attitudes is likely
to provide a stronger indication of repeat patronage than the attitude toward a brand or
service without comparison to other brands (Dick and Basu 1994).
Two dimensions underlie an individual’s relative attitude. The first is the strength of the
attitude and the second is the degree of difference between attitudes. Using this
27
concept of attitudes, there are four possible conditions of the attitude strength-attitude
difference relationship (Table 2.3). Condition 1 consists of little perceived attitudinal
differentiation and strong attitudinal strength termed low relative attitude. Condition 2
consists of high perceived attitudinal differentiation and a strong attitude strength, the
highest relative attitude. Condition 3 consists of little perceived attitudinal
differentiation and weak relative attitude, thus the lowest relative attitude towards an
entity. Condition 4 consists of high perceived attitudinal differentiation and weak
attitudinal strength termed high relative attitude. Thus there is an interrelationship
between the strength of the attitude towards a brand, and the degree of differentiation
that the individual perceives among brands.
Table 2.3 The attitude strength-attitude difference relationship
In the context of these four conditions, Dick and Basu (1994) propose a relative
attitude-behaviour relationship classification, to explain the conditions of and the
development of loyalty. Dick and Basu (1994) imply that Conditions 1 and 2, that is,
low relative attitude or weak attitudinal differentiation and strong attitudinal strength,
and the highest relative attitude or significant attitudinal differentiation and strong
attitudinal strength, hold the most potential within which to develop loyalty. The
classification integrates the degree of loyalty relative to competing products, with the
level of repeat patronage, to create classifications of loyalty types (Table 2.4).
28
Table 2.4 The relative attitude-behaviour relationship
A low relative attitude toward the entity and low repeat purchase is an absence of
loyalty, classified as no loyalty. A low relative attitude and high repeat patronage is
classified as spurious loyalty, driven by non-attitudinal influences. These include
familiarity, social influence, and market conditions. This is similar to the concept of
inertia. Latent loyalty is high relative attitude with low repeat patronage. Here non-
attitudinal influences are stronger than attitudes in determining behaviour. Loyalty is
the result of a favourable interaction between relative attitude and repeat patronage.
The loyalty condition is a situation where there is potential for long-term firm-customer
relationships.
Defining customer loyalty as the relationship between relative attitude and repeat
patronage enables examination of which factors enhance or decrease loyalty, how
underlying processes influence loyalty, and what follows loyalty (Dick and Basu 1994).
Identifying causal antecedents that influence the relative attitude-repeat patronage
relationship is vital in both understanding and managing the underlying process that
support the development of loyalty (Dick and Basu 1994). Adoption of Day’s (1969)
proposal of composite loyalty indices based on attitude and behaviour allows customer
loyalty to be placed in the attitude research domain.
The multi-component theory of attitudes, the belief that attitudes consist of cognitive,
affective and conative components, allows for each component to be examined in
relation to its role in defining the nature of the attitude and its relationship to patronage
behaviour (Dick and Basu 1994). Table 2.5 presents and defines the three components
of attitude and lists the measurement constituent that is associated with each
component of an attitude.
29
There are two important outcomes from this integration of relative attitude and repeat
patronage relationship conceptualisation, and the use of the three-component of
attitude theory. First, customer loyalty can be measured within the framework of the
three attitude components and their constituents. Second, if cognitive, affective and
conative antecedents of loyalty are consistently favourable towards an entity, the degree
of differentiation in its relative attitude is expected to increase (Dick and Basu 1994).
This implies that customer loyalty is based on consistently favourable cognitions, affect
and conative antecedents. This is the basis for the relative attitude-repeat patronage
model proposed by Dick and Basu (1994). Social norms and situational factors mediate
the relationship. Cognitive, affective and conative elements of relative attitude are
identified as contributing to loyalty, among with motivational, perceptual and
behavioural consequences.
For researchers of customer loyalty, the implication of the integration of relative attitude
and repeat patronage, with a comprehensive attitude measurement specification, is that a
comprehensive set of potential measurement criteria is available, so that the precursors
of the development of customer loyalty can be examined.
30
Table 2.5 Cognitive-affective-conative attitude model with constituent composition
(Dick and Basu 1994) Attitude Component
Cognitive Affective Conative
Definition Associated with informational determinants.
Associated with feeling states. Associated with behavioural intentions or dispositions.
Accessibility:
The ease with which an attitude can be retrieved from memory.
Emotions:
Intense states of arousal which lead to focused attention on specific targets and can disrupt ongoing behaviour.
Switching costs:
Incurred one-time costs that must be borne again or relative resources that are lost if an alternative is chosen.
Confidence:
The level of certainty with which the individual holds an attitude or evaluation.
Moods or feelings:
Less intense than emotions, less disruptive to ongoing behaviour and less permanent.
Sunk costs:
Costs that decrease over time as the level of usage increases.
Centrality:
The degree to which an attitude toward an object is related to the value system of the individual.
Primary affect::
Primary responses that are the result of contact with the object that are independent of cognition.
Future expectations:
A reflection of the fit between current and future needs or beliefs.
Constituent
Clarity:
The degree to which an individual’s attitude to alternatives to the object find alternatives are unacceptable when many alternatives are available.
Satisfaction:
A response to an object that occurs through a matching of expectations and perceived performance.
31
The stronger the relative attitude towards the brand, the more likely the individual is to
resist alternate brands, for certain brand categories. Dick and Basu (1994) also explore
the consequences of customer loyalty in relation to relative attitude. From previous
literature they note that as experience, learning, satisfaction, and repeat purchase
increase, search for information about alternative brands decreases (Furse, Punj, and
Stewart 1984; Moore and Lehmann 1980; Newman and Staelin 1972). A strong
attitude-repeat purchase relationship leads to information processing parsimony,
reduced search motivation (Dick and Basu 1994; Holbrook and Batra 1978), resistance
to counter persuasion (Belch 1981; Tellis 1988) and positive word of mouth
communications (Oliver 1980). With loyalty, while the strength of the relative attitude-
repeat patronage relationship may mediate the post-purchase communications,
antecedents such as emotions and mood may act as facilitators (Dick and Basu 1994).
The contribution of Dick and Basu (1994) to customer loyalty research is to modify
Day’s concept of a composite index of loyalty, to specify a more explicit interaction
between attitude and behaviour, match these components of attitude to the foundation
of an overall attitude in the service context, highlight the potential consequences of
loyalty attitudes, and provide a potential measurement regime.
The work of Oliver (1997, 1999) builds on the Dick and Basu (1994) framework, with a
comprehensive attempt within the marketing literature to develop a theory of the
development and continuance of brand loyalty, using psychological constructs and
theories to provide a comprehensive explanation of brand loyalty. However, the theory
of brand and customer loyalty has some key limitations in the context of services
marketing research (Zeithaml, Berry, and Parasuraman 1996). First, the customer
loyalty construct in the services marketing literature is a more global construct than
brand loyalty. Second, the theory is based on a tangible product focus rather than a
service organisation focus. Third, the theory has a foundation in the attributes of a
single product, service or brand, rather than a composite of products and services within
an organisation. Finally, the theory fails to acknowledge the importance of the
employee-customer and customer-organisation interface in many organisations.
The outcome however is that the research provides a theory of relationship building
between organisations and their customers (Oliver 1997; Oliver 1999). This theory
suggests that there is a loyalty stage, action inertia or action loyalty, where consumers
32
can become devotees of a brand and exist in a purchase environment that reinforces
their brand choice. That is, loyalty is an attained state of enduring preference that
includes a defence of the brand to others (Oliver 1999). Building from the Dick and
Basu (1994) framework which suggests that loyalty is preceded by the three components
of attitude, Oliver (1997) proposes a four stage loyalty model that is linked to the three
attitudinal components, and action loyalty.
Oliver (1999) notes that loyalty definitions progressed from patterns of repeat
purchasing to multibrand and attitude-based models leading to the cognitive-affective-
conative representation of brand commitment.
Thus, Oliver (1997) deepens the discussion of loyalty to include the enduring effects of
loyalty, so that loyalty is conceptualised as enduring preferences for products and
services. Loyalty implies continued purposeful interaction, however infrequent, with a
product or service. This framework follows the cognition-affect-conation pattern but
differs in that he argues that consumers can become loyal at each attitudinal phase
relating to different elements of the attitude development structure. That is, consumers
become loyal in a cognitive sense first, then in an affective sense, followed by a conative
manner, and finally in a behavioural manner, action inertia. Consumers progress
through these phases. Cognitive loyalty focuses on critical evaluation of the brand
attitudes, affective loyalty focuses on emotional reaction to the brand, conative loyalty
focuses on the desire to rebuy the brand, and action loyalty is commitment to the action
of rebuying (Oliver 1997). Table 2.6 outlines each loyalty phase, showing the
progression through the phases and the characteristics of each phase.
33
Table 2.6 A four phase progressive loyalty development framework
(Oliver 1997; Oliver 1999)
Loyalty phase
Characteristics of the phase
Cognitive loyalty
Brand attribute information processing indicates that one brand is preferable to its alternatives.
This state is built on brand belief only, from prior or vicarious knowledge or on recent experience-based information.
The consumer either remains at this level, or may enter the affective domain and remains susceptible to counter-persuasion.
Affective loyalty
A liking or attitude toward the brand develops on the basis of the outcomes of cumulatively satisfying usage occasions.
This stage exists in the consumer's mind as a combination of cognition and affect.
The degree of affect or liking for the brand provides resistance to counter-persuasion, although customers are still prone to switch brands.
Conative loyalty
Behavioural intention is influenced by repeated episodes of positive affect toward the brand.
This implies a brand-specific commitment to repurchase.
This is a state of intention or motivation that appears to be a deeply held commitment to rebuy the brand, and is more like a desire to repurchase, which may or may not be acted upon.
Action loyalty
The last or final phase, the motivated intention of conative loyalty becomes a readiness to act, accompanied by an additional desire to overcome obstacles that might prevent that action .
If repeated, an action inertia develops, thereby facilitating ongoing repurchase.
This framework provides an insight into the attitudes and intentions of consumers. It
suggests that with increasing involvement with a brand, in a series of cumulative
satisfactory episodes that result in an increasingly positive affective intent towards the
brand, that eventually a consumer will enter a state where potential repurchase is akin to
an automatic response.
The benefit of adopting this development framework is that it is potentially possible to
classify and measure each of the loyalty states. Of particular interest in the current study
is the action loyalty phase. The definition and characteristics of action loyalty related
strongly to the definition of customer loyalty used for this study.
34
Loyalty is operationalised as a cumulative progression based on the attitudinal
components theory, and includes the act of consuming. The outcome of this
conceptualisation is that loyalty is seen as a deeply held commitment to rebuy or
repatronise a preferred product or service consistently in the future, resulting in the
repurchase of the brand, despite situational influences and marketing efforts having the
potential to cause switching behaviour (Oliver 1999). A loyal consumer strongly desires
to rebuy a product or service and not accept a substitute (Oliver 1997). The action-loyal
consumer has a deep commitment to repurchase, so that the behaviour may be
reinforce itself (Oliver 1999).
The preceding discussion proposes how consumers become loyal. Loyalty develops as
customers develop and hold a commitment to repurchase and a resistance to
alternatives. The dimensions of customer loyalty relate to the strength of the relative
attitude towards a brand and the degree to which consumers are likely to become
actively loyal. When customers are actively loyalty they form a strong psychological
attachment to the brand that goes beyond objective evaluation and is manifest in the
form of overt behaviours that are of benefit to the organisation.
2.6 The link between customer commitment and customer loyalty
The definition and conceptualisation of customer loyalty in the previous section
specifies commitment as a key characteristic of action loyalty. Conceptually
commitment requires examination because of the long-standing issue of the link
between commitment, behavioural intentions, and subsequent action, and their
relationship with loyalty.
Loyalty and commitment are to some synonymous and represent each other (Assael
1987). Dick and Basu (1994) claim there is a distinction between loyalty and related
concepts such as commitment. Commitment serves as a precursor to a loyal attitude.
Commitment is the emotional or psychological attachment to a brand that develops
before a customer can determine that repeated purchase is the outcome of a sense of
loyalty (Pritchard, Havitz, and Howard 1999). Commitment ties an individual to a
behavioural disposition (Festinger 1957). Commitment can also be conceptualised as a
relationship. For example, an employee’s commitment to a job is the relative strength
of an individual’s identification with, and involvement in a particular organisation
(Mowday, Porter, and Steers 1982; Mowday, Steers, and Porter 1979). This implies
35
intent to remain with the organisation. Commitment consists of the employee’s beliefs
and opinions about the organisation and also the level of intent to act in a particular way
(Pritchard, Havitz, and Howard 1999).
Crosby and Taylor (1983) define customer commitment as a stable preference bound by
an attitude of resistance to change. Commitment is manifest by a tendency to resist a
change of preference. Two antecedent processes explain this attitude (Crosby and
Taylor 1983). The first process helps maximise resistance to change because of the need
for individuals to maintain a consistent information structure, for example, between
beliefs and reasons for purchase and repurchase. The second process supports the
sense of resistance to change preference when an individual strongly identifies with the
values and images embodied by a particular brand (Pritchard, Havitz, and Howard
1999).
The conclusion is that commitment is a stable preference for a particular product or
brand in the context of alternatives that is bound by a resistance to these alternatives.
The preference takes the form of attachment to that product or brand.
2.7 Customer loyalty in the services context
Having previously established loyalty in the context of a product or brand, this section
examines research in the context of service organisations.
Bitner (1990) linked customer perceptions of service quality with stated intent to remain
with the organisation, willingness to recommend, likelihood to repurchase, the
likelihood of switching, and the likelihood of complaining. She found a strong
relationship between perceptions of service quality and these stated intentions, which
she terms expressions of loyalty. In another study examining perceived service quality
and measures of behavioural intent and other actions towards an organisation, Boulding
et al (1993) found a positive correlation between service quality and repurchase
intentions, willingness to recommend the organisation to others, saying positive things
about the organisation, planning for long term involvement, paying a price premium,
and remaining loyal to the company.
Examining the behavioural and financial consequences of service quality, Zeithaml,
Berry, and Parasuraman (1996) found that the behavioural consequences of service
quality are either retention or rejection by the customer, leading to financial gains or
36
losses by the service provider. Behavioural intentions were operationalised as
indications of whether customers would remain with, or defect from the company.
Zeithaml, Berry, and Parasuraman (1996) view loyalty in terms of consumer bonding
with an organisation. Behaviours that indicate that customers were forging bonds with
a company included praising the firm, expressing preference for the company over
others, continuing to purchase, increasing the volume of purchases, and agreeing to pay
a price premium.
The customer loyalty construct as defined and operationalised in this manner has
become firmly entrenched in marketing literature. This research established the
perceived service quality-customer loyalty link, strongly supporting customer loyalty as a
key measurement of organisational success.
Subsequent studies continued to develop the customer loyalty construct. Fornell,
Johnson, Anderson, Cha, and Bryant (1996), in research published from data collected
in conjunction with the American Customer Satisfaction Index, use customer loyalty as
the ultimate dependent variable because of its value as a proxy for profitability (Fornell
et al. 1996).
Following Zeithaml, Berry, and Parasuraman (1996), Sirdeshmukh, Singh, and Sabol
(2002) define consumer loyalty as a state indicated by an intention to perform a diverse
set of behaviours that signal a motivation to maintain a relationship with an
organisation, including allocating a higher share of the category wallet to that service
provider, engaging in positive word of mouth and repeat purchasing.
Jones and Sasser (1995) define customer loyalty as customers’ feelings of attachment to,
or affection for a company’s people, products, or services, where these feelings manifest
themselves in many forms of customer behaviour. The paper makes the important
distinction between repurchase intentions, and primary and secondary behaviours.
Repurchase intent is the self-stated intent to continue to patronise an organisation.
Primary behaviour is the actual repurchasing behaviour that customers engage in, which
includes frequency and recency of purchase, the amount purchased, remaining with the
organisation, and length of association. Secondary behaviours, such as customer
referrals, endorsements, and word of mouth are those behaviours that result from a
sense of attachment to and affection for an organisation. These behaviours would be
those expected from a consumer considered to be in the action loyalty phase of
37
customer loyalty, proposed by Oliver (1999). These secondary behaviours are extremely
important forms of consumer behaviour for a company and are taken to represent the
behaviour of a loyal customer.
Ganesh, Arnold, and Reynolds (2000) define customer loyalty as a combination of both
commitments to the relationship and other overt loyalty behaviour. They establish an
important distinction. Loyalty behaviours are classified as either active or passive loyalty
behaviours. Active loyalty behaviours are a customer’s proactive behaviours or
behavioural intentions that require conscious and deliberate effort to undertake
(Ganesh, Arnold, and Reynolds 2000). These behaviours include repeat patronage,
positive word of mouth and expansion of service usage. Passive loyalty behaviours are
those behaviours that result from a state of resistance to change to the existing
relationship. These behaviours include resistance to switching despite significant
changes to the service relationship or service environment, price insensitivity, and self-
stated retention.
In summary, customer loyalty is an important consideration for service firms. Customer
loyalty is manifest by primary and secondary behaviours. Primary behaviours include
the actual purchase behaviours that customers engage in. Secondary behaviours are
associated with attitudinal outcomes of the customer relationship with the service
organisation. These secondary behaviours can be defined as active or passive
manifestations of customer loyalty. The attitudinal outcomes associated with the
secondary behaviours exist in the form of affective attachment to the organisation or
motivation to remain with the organisation.
2.8 Measurement issues relating to the customer loyalty construct
Zeithaml, Berry, and Parasuraman (1996) examined five factors as key outcomes of
perceived service quality, measured with the Behavioural Intentions Dimensions
instrument. The first factor, termed loyalty, was measured with five items. Loyalty was
defined as the decision to remain with the organisation, in some cases despite
dissatisfaction with the organisation. The loyalty factor as measured had high internal
consistency across four samples, and was operationalised as saying positive things about
the organisation to others, recommending the organisation to someone seeking advice,
encouraging friends and relatives to do business with the organisation, considering the
38
organisation as the first choice to buy the services, and doing more business with the
organisation over the next few years (Zeithaml, Berry, and Parasuraman 1996).
Sirdeshmukh, Singh, and Sabol (2002) operationalised consumer loyalty using items that
included intentions to perform a diverse set of behaviours that signal a motivation to
maintain a relationship with an organisation, including allocating a higher share of the
category wallet to that service provider, engaging in positive word of mouth and repeat
purchasing.
Jones and Sasser (1995), when investigating customer loyalty, distinguish between of
repurchase intentions, and primary and secondary behaviours in the context of
measurement. Actual behaviour measures provide a snapshot of the overall share of
purchase and are most indicative of changes over time. This information is difficult to
collect, so alternative measurements such as stated intent to repurchase are more useful
to marketers (Jones and Sasser 1995). Secondary behaviours, such as customer referrals,
endorsements, and word of mouth are those behaviours that result from a sense of
attachment to, and affection for an organisation and are also suggested as loyalty
intention measures.
Chaudhuri and Holbrook (2001) operationalised brand loyalty with two dimensions,
purchase or behavioural loyalty and attitudinal loyalty. Behavioural loyalty is measured
by intent to buy the brand at the next repurchase, and intention to keep purchasing the
brand. Attitudinal loyalty is measured as a commitment to the brand, and a willingness
to pay a higher price for the brand over other brands (Chaudhuri and Holbrook 2001).
Ganesh, Arnold, and Reynolds (2000) used six related measures to operationalise the
active and passive dimension of their customer loyalty construct. Measures of active
loyalty included assessment of repeat patronage, positive word of mouth and expansion
of service usage. Passive loyalty measures included resistance to switching despite
significant changes to the service relationship or service environment, resistance to
persuasion, price insensitivity, and self-stated retention.
In summary, the examination of the measurement of customer loyalty suggests that an
appropriate means of capturing customer loyalty intentions appears to be to measure the
likelihood of customers to engage in primary behaviours such as current future
repurchase intentions and secondary behaviours related to advocacy to others.
39
2.9 The employee loyalty construct
This section of Chapter Two begins with a brief overview of the employee loyalty
construct and a definition of the construct in the context of this study. This is followed
by a review of the literature relating to the dimensions of the employee loyalty construct
and a discussion of the link between employee commitment and employee turnover
behaviours, and of the importance of employee loyalty to service organisations. The
relevant measurement issues are highlighted. At the conclusion of the discussion of the
employee loyalty construct is a review of the literature relating to the relationship
between employee loyalty and customer loyalty and a conclusion in terms of the
employee-customer interface.
A primary focus of management activity is the development and enhancement of
employee loyalty (Katz and Kahn 1978). The belief is that enhanced levels of employee
loyalty lead to outcomes that are beneficial to the organisation, including increased levels
of customer loyalty, higher levels of efficiency, lower recruiting costs, and higher levels
of innovation (Ganesh, Arnold, and Reynolds 2000; Heskett, Sasser, and Schlesinger
1997; Reichheld and Teal 1996).
2.10 Defining employee loyalty
Employee loyalty is an organisational citizenship behaviour that reflects allegiance to the
organisation through the promotion of its interests and image to outsiders (Bettencourt,
Gwinner, and Meuter 2001). Employees who engage in these loyalty behaviours act as
advocates to outsiders of the organisation’s products, services and image. Employee
loyalty is a manifestation of organisational commitment, the relative strength of an
individual’s identification with and involvement in a particular organisation (Mowday,
Porter, and Steers 1982), based on internalisation and identification (O'Reilly and
Chatman 1986). These behaviours can be characterised by three related factors. They
are a strong belief in and acceptance of the organisation’s goals and values, a willingness
to exert considerable effort on behalf of the organisation, and a strong desire to
maintain membership in the organisation (Mowday, Steers, and Porter 1979).
Employee loyalty is manifest by an active relationship with the organisation such that
individuals are willing to give something of themselves in order to contribute to the
organisation’s well-being (Moorman and Blakely 1995). Commitment includes beliefs
and actions (Mowday, Porter, and Steers 1982). Loyalty reflects a general affective
40
response to the organisation as a whole and is stable over time (Van Dyne, Graham, and
Dienesch 1994).
For this study, employee loyalty is defined as a measure of the level of customer contact
employees’ current commitment to the organisation and their intentions to remain with
the organisation, their personal affiliation with the organisation, and advocacy of the
organisation to others.
2.11 The dimensions of the employee loyalty construct
The discussion of employee loyalty is built around the literature shown in Table 2.7.
The table seeks to build a composite of the conceptualisation of employee loyalty from
the literature. Each research paper is classified in terms of the behavioural, attitudinal
and relationship viewpoint that the paper takes.
The table is in chronological order and lists the key studies that were used in this
literature review. The context of the research is classified as either a general, sales, or
services context. The behaviour-based aspect of employee loyalty is categorised as
either in-role or extra role. In-role behaviours include those that are expected in the job
including remaining in the job. Extra-role behaviours are those that are considered
voluntary and are not explicitly prescribed by the organisation. Active extra-role
behaviours are those that require conscious and deliberate effort to undertake. Passive
extra-role behaviours are those that result from a state of resistance to change the
existing relationship with the organisation.
Each of the papers includes an attitudinal approach to employee loyalty. The papers are
categorised according to whether attitude is operationalised as a general, relative or
component-based attitude approach. Finally the table notes the basis of the relationship
with the organisation, consisting of continuance, temporal and affiliation foundations.
41
Table 2.7 Overview of employee loyalty research COMPOSITE CONCEPT OF EMPLOYEE LOYALTY
Author/s Context Behaviour-based Attitude approach Basis of relationship
In-role Extra-role General Relative Component Cont* Temp* Affil* Active Passive Cognitive Affective Conative (Mowday, Porter, and Steers 1982)
General
(Rusbult and Farrell 1983)
General
(Meyer and Allen 1984) General (O'Reilly and Chatman 1986)
General
(Mathieu and Zajac 1990) General (Johnston et al. 1990) Sales (Graham 1991) General (Van Dyne, Graham, and Dienesch 1994)
General
(Moorman and Blakely 1995)
Services
(Podsakoff and MacKenzie 1997)
Services
(MacKenzie, Podsakoff, and Ahearne 1998)
Sales
(Babin and Boles 1998) Services (Bettencourt, Gwinner, and Meuter 2001)
Services
* Contin = Continuance commitment; Temp = Temporal commitment; Affil – Affiliation with organisation
42
The conclusion drawn from Table 2.7 is that current research on employee loyalty centres
on employees’ primary and secondary behaviours, their general attitude towards the
organisation, employee intentions in relation to the job and the organisation, and the
affiliation that employees have with the organisation. The following discussion regarding
the dimensions of the employee loyalty construct relates to this conclusion.
The employee loyalty construct has its origins in studies of organisational commitment,
behavioural intentions towards the organisation, employee turnover behaviour, and
organisational citizenship behaviour (OCB). The key element of the employee loyalty
construct, organisational commitment, comes largely from the organisational behaviour and
applied psychology literature. The work of Mowday, Steers, and Porter (1979) and
Mowday, Porter, and Steers (1982) is the starting point for this discussion.
Mowday, Steers, and Porter (1979) developed and validated a measure of organisational
commitment, the Organisational Commitment Questionnaire (OCQ). The purpose of the
scale was to causally relate the attitudes and behaviours of employees in an organisation to
their length of tenure within the organisation. Commitment had repeatedly appeared as an
important variable in a large volume of previous research that attempted to operationalise
the commitment construct, and to investigate the antecedents and consequences of
commitment.
The outcome of this research has been significant. The scale has been used variously as a
research instrument, and as a foundation for a series of definitions of employee
commitment and subsequently employee loyalty.
The two major aspects of commitment identified by Mowday, Steers, and Porter (1979)
centre on commitment related attitudes and commitment related behaviours. Attitudinal
commitment exists when the identity of the person is linked to the goals of the organisation
and the individual’s goals become increasingly integrated or congruent with those of the
organisation. Attitudinal commitment thus represents a state in which an individual
identifies with a particular organisation and its goals and wishes to maintain membership in
order to facilitate these goals (Mowday, Steers, and Porter 1979). Such commitment often
encompasses an exchange relationship in return for certain rewards or payments from the
43
organisation. Commitment related behaviours represent sunk costs in the organisation
where individuals forgo alternative courses of action and choose to link themselves to the
organisation.
Mowday, Steers and Porter (1979) operationalised the OCQ as a measure of the relative
strength of an individual’s identification with, and involvement in a particular organisation.
Identification with, and involvement in was characterised by three related factors: a strong
belief in and acceptance of the organisation’s goals and values; a willingness to exert
considerable effort on behalf of the organisation; and a strong desire to maintain
membership of the organisation. This operationalisation suggests that commitment is more
than passive loyalty to an organisation, and that it develops slowly over time as employees
evaluate and consider their relationship with their employing organisation, such that
individuals have an active relationship with the organisation, are willing to give something
of themselves in order to contribute to the organisation’s well being. Commitment could
be inferred from an individual’s expressions of beliefs and opinions and from their
observed behaviours. Commitment to an organisation as a construct is a global attitude
that reflects a stable affective response to the organisation as a whole (Mowday, Steers, and
Porter 1979).
Mowday, Porter and Steers (1982) further developed the conceptual foundations of
employees’ organisational commitment and delineate more specifically the antecedents and
consequences of this commitment. They noted that attitudinal and behavioural
commitment as phenomena are closely related and should be studied in terms of their
relationship with each other. That is, attitudinal commitment relates to employee attitudes
about the organisation, and actions and behaviours of employees are overt manifestations
of employee commitment to the organisation, such that the two are reciprocally related over
time (Mowday, Porter, and Steers 1982). Commitment attitudes lead to behaviours that
subsequently reinforce and strengthen attitudes. These cycles are self-reinforcing, they
evolve on the job, and over time strengthen employee commitment to the organisation.
From a conceptual viewpoint, Mowday, Porter and Steers (1982) highlighted the
importance of the notion of exchange to organisational commitment, noting that employees
come to organisations with certain needs, desires, and skills, anticipating a work
44
environment where they can use their abilities and satisfy many of those needs. The
premise is that when organisations can provide such an environment, the likelihood of
employee commitment is increased. When an organisation fails to provide employees with
challenging and meaningful tasks, commitment levels would diminish (Katz and Kahn
1978).
The main consequence of organisational commitment is its relationship to employee
turnover. The loyalty maxim suggests that highly committed employees wish to remain
with their employing organisation and work towards organisational goals and are thus less
likely to leave. Mediating variables in the commitment-turnover relationship are the level of
desire to remain with the organisation, the intention or otherwise to stay, and intention or
otherwise to search for another job (Mowday, Porter, and Steers 1982).
Thus the foundation work from Mowday, Steers, and Porter (1979) and Mowday, Porter,
and Steers (1982) provided empirical outcomes, measurement instruments, and identified
antecedents and consequences of organisational commitment. The work provided the
foundation of much subsequent research on organisational commitment.
In an important study in the organisational behaviour domain, Rusbult and Farrell (1983)
investigated the impact of job commitment, job satisfaction, and job investment over time,
on employee turnover. Job commitment refers to the likelihood that an individual will stick
with a job and feel psychologically attached to it, whether or not it is satisfying. This
implies both attitudinal and behavioural commitment to the job. Job investment refers to a
consideration of job rewards, such as the level of pay, autonomy and variety, and job costs,
such as workload, deadlines, the level of resources and promotion practices.
Following Mowday, Steers, and Porter (1979) and Mowday, Porter and Steers (1982),
Rusbult and Farrell (1983) made a distinction between attitudinal and behavioural
commitment, so that their definition includes both behavioural commitment and some
elements of attitudinal commitment. The study introduced two additional elements, a
temporal element, and a continuance element (Rusbult and Farrell 1983). The temporal
element suggests that commitment will change over time, and that length of stay directly
impacts on employees’ level of commitment. Continuance commitment suggests that
45
employees will consider the instrumental investment costs and benefits of the job, including
potential alternatives.
The key finding of this study was that job commitment directly influences job turnover
(Rusbult and Farrell 1983). Although changes in rewards, investment costs, and the
attractiveness of alternatives, were significantly related to job commitment and stay or leave
decisions, a decline in job commitment appeared to most directly and powerfully affect
these stay or leave decisions. Finally, the study demonstrated the processes by which job
commitment changes over time and how these changes and the level of job commitment
influence leave or stay decisions.
Meyer and Allen (1984) investigated organisational commitment measurement scales, to
demonstrate that these measures are skewed towards measuring and reporting affective
commitment, and exclude to a large degree, continuance commitment. Continuance
commitment encompasses factors investigated by Rusbult and Farrell (1983) such as
investments the individual has made in an organisation, including time, effort or money,
that would be deemed as lost or worthless if the individual left the organisation.
Continuance commitment also comprises job rewards and job costs. A perceived lack of
alternatives might enhance the perceived investment loss.
That is, continuance commitment is a commitment to continue a certain course of action
on the basis of an economic rationale (Meyer and Allen 1984). This form of commitment is
the foundation of the ‘side-bet theory’. This theory suggests that the accumulation of job-
related benefits is lost if the individual leaves the organisation, which influences the decision
to remain committed to the organisation. Affective commitment, however, is
conceptualised as an affective or emotional orientation to an organisation, so that affectively
committed employees remain with an organisation for its own sake, apart from the
instrumental benefits (Meyer and Allen 1984). Thus affective commitment and continuance
commitment are conceptualised as being independent of each other. The main outcome of
this research is that continuance commitment is a less significant component of
organisational commitment than affective commitment.
46
O’Reilly and Chatman (1986) investigated the underlying dimensions of psychological
attachment to organisations and test the impact of those dimensions on in-role and extra-
role behaviours. Organisational commitment is defined as the psychological attachment felt
by an employee for the organisation that reflects the degree to which the individual
internalises or adopts characteristics of the organisation (O'Reilly and Chatman 1986).
Within the framework developed so far, this would be similar to the affective element of
the commitment component. This study highlighted the importance of employee
commitment to the organisation. That is, when individual members contribute more of
themselves to their jobs and organisations, the organisation benefits (O'Reilly and Chatman
1986).
The results suggested that there are at least three dimensions underlying an individual’s
psychological commitment to an organisation. These are compliance or exchange,
identification or affiliation, and internalisation or value congruence. Compliance occurs
when attitudes and behaviours are adopted to gain specific rewards, not because of shared
beliefs. In this state, explicit and private attitudes may differ. This is conceptually similar to
continuance commitment in that it has an economic rationale as its basis. Identification and
affiliation occur when individuals accept organisational influence to establish or maintain a
satisfying relationship, and may feel proud to be part of an organisation, respecting its
values and accomplishments, without adopting them as their own. Internalisation occurs
when influence is accepted because the attitudes and behaviours are congruent with
employees’ own values so that the values of the employee and the organisation align.
This research established measures of organisational commitment based on an employee’s
psychological attachment to an organisation due to compliance commitment for specific
external rewards, conceptually related to continuance commitment, identification or
involvement based on a desire for affiliation, and internalisation or involvement based on
congruence between individual and organisational values.
The study also examined two sets of variables, in-role and extra-role behaviours. In-role
behaviours are those prescribed behaviours that are expected of all employees. Extra-role
or pro-social behaviours are those behaviours not directly specified by a job description but
are of benefit to the organisation and which are not of direct benefit to the individual.
47
Smith, Organ, and Near (1983) found that many crucial outcomes in organisations rely on
acts of cooperation, altruism and spontaneous unrewarded help. Employees who perform
those acts are likely to have strong attachment to the organisation beyond simple
compliance (O'Reilly and Chatman 1986).
Attachment based on identification, or pride in affiliation, was significantly positively related
to extra-role behaviour, intentions to remain with the organisation, and negatively related to
actual turnover (O'Reilly and Chatman 1986; Smith, Organ, and Near 1983). Compliance
commitment was negatively associated with intention to stay with the organisation.
Commitment based on identification and internalisation led to higher levels of intention to
remain and lower levels of actual employee turnover, independent of length of service.
When length of service was controlled, only identification was significantly associated with
extra-role behaviour (O'Reilly and Chatman 1986). Length of tenure was found to be
negatively related to levels of compliance commitment, and positively related to
identification or affiliation commitment, suggesting that identification and affiliation
commitment is associated with length of service.
The results suggested that identification or affiliation commitment, extra-role behaviours,
intentions to remain, and length of tenure, are significantly correlated. A second study by
the authors found that extra-role behaviours that require the expenditure of personal time
and effort on behalf of the organisation are most strongly related to internalisation or
identification and affiliation commitment, and not to compliance commitment (O'Reilly and
Chatman 1986).
The results have important implications for the development of the loyalty construct in the
current study. The conclusions are that there are three dimensions that underlie an
employee’s psychological commitment to an organisation. These are compliance or
exchange, identification or affiliation, and internalisation or value congruence. Results also
suggest that there are strong links between commitment, based on internalisation and
identification, and extra-role behaviours. Commitment based on compliance is unrelated to
extra-role behaviour or actual turnover, although it is related to intent to leave. Extra-role
behaviours that are not specified by job descriptions are largely a function of identification
and internalisation rather than compliance or continuance involvement. The findings of
48
this study begin to refine the definition of the commitment construct and to clarify
measurement issues relating to employee commitment.
Commitment was defined and operationalised as the relative strength of an individual’s
identification with and involvement in a particular organisation, characterised by the related
factors of a strong belief in and acceptance of the organisation’s goals and values, a
willingness to exert considerable effort on behalf of the organisation, and a strong desire to
maintain membership of the organisation (Mowday, Steers, and Porter 1979). The O’Reilly
and Chatman (1986) study suggested that it is likely that commitment as a belief in the
organisation’s goals and values is focused on the psychological basis for attachment, while a
willingness to exert considerable effort on the part of the organisation and a desire to
maintain organisational membership, are consequences of commitment.
The study also suggested that the basis for an employee’s commitment may be related to
positive and outward manifestations of involvement such as voluntary participation and
extra-role contributions and the likelihood of remaining with an organisation. Secondly the
study strongly linked stated behavioural intentions in the form of leave or stay intentions,
and actual turnover behaviour. Intention and actual behaviour are fundamental for further
research and are closely related to organisational commitment (O'Reilly and Chatman 1986).
Mathieu and Zajac (1990) conducted a meta-analysis of organisational commitment research
and identified 26 variables related to organisational commitment. The conclusions from
this meta-analysis assisted in building general consensus and focus for future work. The
various definitions and operationalisations of organisational commitment share a common
theme in that they are considered to be a bond linking the individual to the organisation
(Mathieu and Zajac 1990). There are two foundational forms of organisational
commitment, attitudinal and calculated or continuance. Attitudinal commitment, the
psychological attachment to the organisation (O'Reilly and Chatman 1986), is closely related
to organisational commitment (Meyer and Allen 1984; Mowday, Porter, and Steers 1982;
Mowday, Steers, and Porter 1979), and job commitment (Rusbult and Farrell 1983), but is
distinct from calculated commitment, which is related to continuance commitment (Meyer
and Allen 1984), job commitment (Rusbult and Farrell 1983), and compliance commitment
(O'Reilly and Chatman 1986). This was supported both conceptually and empirically.
49
While the attitudinal and calculated components were related and the measurement of each
may have contain elements of the other, they are distinct enough to allow for comparisons
between them with other variables (Mathieu and Zajac 1990). The predictive validity of
attitudinal commitment appears to be higher than that for calculated commitment.
Organisational commitment is conceptually distinct from other forms of work
commitment. Organisational commitment was found to have relatively high correlations
with behavioural intentions, intention to search for job alternatives, and intention to leave
the current position, although its relationship with actual behaviours was modest. The
influence of organisational commitment may be mediated by behavioural intentions, since
studies have found that the average correlation between intention to quit and actual
turnover is strong (Steel and Ovalle 1984). Overall, organisational commitment perhaps
serves as a composite of work-related experiences and influences behavioural intentions
directly, while employee intentions have a more immediate impact on behaviours (Mathieu
and Zajac 1990).
In summary, employee organisational commitment is largely comprised of four aspects of
commitment. The first is attitudinal commitment, in the form of affective or emotional
commitment, as a psychological attachment. The second is continuance, instrumental or
calculative commitment in the form of commitment in return for expected rewards. The
third is a temporal and behavioural intent element of commitment, the intention to remain
with the organisation and the length of the employee’s association with the organisation.
Finally, the degree to which employees are prepared to signal affiliation and association with
an organisation signals an important aspect of their commitment.
2.12 The link between behavioural intent and turnover behaviour
Behavioural intent is a key element of the definition and operationalisation of employee
loyalty. Research also establishes the link between behavioural intent and actual behaviour,
suggesting that stated behavioural intentions are a suitable proxy for future behaviour.
Chandrashekaran, McNeilly, Russ, and Marinova (2000) examined the formation of
intentions to leave or stay with the organisation among salespeople and the link between
these intentions and subsequent behaviour. In a longitudinal study using affective and
50
continuance commitment elements, the research found that stated intention contained
information about the strength and certainty of intention and that the higher the level of
affective or continuance commitment, the lower the magnitude of intentions to quit
(Chandrashekaran et al. 2000). Quitting intent is the likelihood that a person will leave his
or her job within a given period of time (Babin and Boles 1998). Quit intentions remain the
best predictor of actual turnover (Griffeth, Hom, and Gaertner 2000). Whereas affective
commitment fosters a desire to stay with the organisation, the effect of continuance
commitment is based on a need to stay with the organisation. This is a crucial distinction.
Affective commitment has the strongest influence when continuance commitment is low,
and affective commitment is negatively related to quitting intent and quitting, mediated by
the level of continuance commitment.
In summary, intentions to remain with an organisation are a reliable predictor of actual
behaviour and the level of employees’ affective commitment to an organisation has the
strongest relationship with turnover intentions and behaviour.
In concert with the dimensions of employee loyalty, the suggestion is that the underlying
dimensions of interest are the likelihood of employees remaining with the organisation, of
engaging in behaviours that further the interests of the organisations such as advocacy of
the organisation, and of being prepared to express an affiliation with the organisation.
2.13 Employee loyalty in the services context
Customer contact employee attitudes in the workplace are especially important in service
organisations because of employees’ close interactions with customers in the performance
of their service role. Employee-customer relationships are paramount in services
organisations and potentially have more of an impact on customer perceptions than in
other types of organisations (Zeithaml, Berry, and Parasuraman 1996).
Mathieu and Zajac (1990) suggest that employees’ levels of commitment to an organisation
may make them more eligible to receive both extrinsic and intrinsic rewards. Organisations
value commitment among their employees because of the perceived benefits to the
organisation. Committed employees may be more likely to engage in a broad range of
extra-role behaviours, which are often what keeps an organisation competitive (Katz and
51
Kahn 1978). This conclusion highlights the value to the organisation of employee
commitment, and supports the proposition that an organisation ought to commit resources
to the specific aim of increasing employees’ attitudinal commitment to the organisation.
Behavioural intentions and actual behaviours are generally considered to be consequences
of organisational commitment.
Johnston, Parasuraman, Futrell, and Black, (1990) conducted a longitudinal study to
examine the antecedents and consequences of the development of salespeople's
organisational commitment during early employment. They measured the impact of
changes in leadership behaviour, role stress, and job satisfaction, on the development of
commitment. Changes in commitment level were then examined to determine the effect on
turnover intentions and actual behaviour. Job satisfaction was a significant contributor to
the development of organisational commitment during early employment. Organisational
commitment influenced turnover through its substantial impact on the propensity to leave,
leading to the conclusion that organisational commitment is a reliable predictor of key
behaviours such as employee turnover (Johnston et al. 1990).
Moorman and Blakely (1995) examined individualism and collectivism as different
predictors of employee commitment behaviour. Employee commitment behaviours are
those on-the-job behaviours that are discretionary, not formally or directly recognised by
the organisational reward system, and yet promote the effectiveness of the organisation that
are conceptually similar to extra-role behaviours (O'Reilly and Chatman 1986). Of
particular interest is loyal boosterism, the promotion of the organisational image to
outsiders, and promotion of the organisation in general rather than of a particular work
group. Loyal boosterism is a behavioural demonstration of an employee’s attitudinal
commitment to the organisation. These behaviours include defending the organisation
when employees and outsiders criticise it, encouraging others to use the organisation’s
products and services, and demonstrating pride in representing the organisation to outsiders
(Moorman and Blakely 1995).
Van Dyne, Graham, and Dienesch (1994) examined organisational citizenship behaviour
and its contribution to long-term organisational effectiveness. They suggested that this
behaviour is conceptually similar to pro-social behaviour and extra-role behaviour (O'Reilly
52
and Chatman 1986) and prosocial organisational behaviour (Brief and Motowidlo 1986).
They also noted that organisational citizenship behaviour should be conceived as a global
construct that includes all positive organisationally relevant behaviours of individual
organisation members (Graham 1991; Van Dyne, Graham, and Dienesch 1994).
The broader conceptualisation of organisational citizenship behaviour includes in-role job
performance behaviours, organisationally functional extra-role behaviours, and full and
expected organisational participation. Organisational citizenship behaviour is a global
construct that encompasses a set of related attitudes, behaviours, and perceived and actual
responsibilities, and is a useful theoretical foundation from which to build the loyalty
construct. Graham (1991) described three interrelated categories of citizenship behaviours
in organisational settings. These are organisational loyalty, obedience and participation
(Table 2.8).
Table 2.8 Substantive categories of organisational citizenship behaviours: organisational loyalty, obedience and participation
53
These definitions and the categorisation of citizenship behaviour proposed by Graham
(1991) provide a foundation from which to differentiate various behavioural manifestations
of involvement in an organisation. Of particular in the current study is the definition
relating to organisational loyalty and the behaviours that manifest organisational loyalty
include defending the organisation against threats, contributing to its good reputation, and
cooperating with others to serve the interests of the whole.
This definition of organisational citizenship behaviour echoes the concepts of affective and
behavioural organisational commitment, and psychological attachment with its dimensions
of identification and internalisation (O'Reilly and Chatman 1986), and the Moorman and
Blakely (1995) conceptualisation of loyal boosterism, a behavioural demonstration of an
employee’s attitudinal commitment to the organisation. Defining organisational citizenship
behaviour thus suggests that organisational commitment can be conceptualised in the same
global manner. The various components of organisational commitment, and their
respective elements and attendant dimensions form a global construct, namely
organisational commitment.
From these two related global constructs, organisational citizenship behaviour and
organisational commitment, loyalty, and loyalty related behaviours are an important
outcome. Van Dyne, Graham, and Dienesch (1994) found that the loyalty component of
organisational citizenship behaviour effectively represents an individual’s state of
engagement with an organisation. That is, organisational loyalty is identification with the
organisation as a whole and is manifest by behaviours that defend and contribute to the
overall functioning and long term success of the organisation.
MacKenzie, Podsakoff and Ahearne (1998), in a study of sales person commitment,
established that the relationship between organisational commitment and turnover intent is
mediated by extra-role performance and that organisational commitment reduces employee
turnover. Most research in the sales management literature uses propensity to leave the
organisation, a behavioural intention, as a surrogate for actual turnover (Brown and
Peterson 1993) since the intention precedes actual turnover. Attitudes such as commitment
are related more strongly to behavioural intentions, such as propensity to leave, than they
54
are to actual behaviours, such as turnover (MacKenzie, Podsakoff, and Ahearne 1998).
That is, commitment is related to turnover but not as strongly as it is to propensity to leave.
A low propensity to leave an organisation is a fundamental part of what it means to be
committed to an organisation, and scales that measure both constructs include items related
to the likelihood that an employee might leave an organisation (Reichers 1985). An
important outcome of organisational commitment research is the suggestion that in some
settings customer-oriented behaviours, a form of extra-role behaviour, are crucial to the
organisation’s performance (Podsakoff and MacKenzie 1997).
Bettencourt, Gwinner, and Meuter (2001) further develop the employee loyalty construct in
a study that links job satisfaction and perceived organisational support to organisational
citizenship behaviours. The authors proposed that there are three dimensions of
organisational citizenship behaviour, namely loyalty, employee participation, and employee
conscientiousness. Loyalty citizenship behaviours reflect allegiance to the organisation
through the promotion of its interests and image to outsiders. An important aspect of
citizenship behaviour research is the focus on customer and service-oriented citizenship
behaviours of customer contact employees. Previous research identified that customer-
contact employees in service firms act as representatives of the firm to outsiders and can
enhance or diminish organisational image (Bitner and Hubbert 1994). Thus it is important
for these employees to engage in loyalty behaviours, acting as advocates to outsiders not
only of the organisation’s products and services but also of its image.
In summary, these studies established the nature and importance of customer contact
employee loyalty to service organisations. When service employees manifest loyalty
behaviours, they act as advocates for the organisation’s products, services, and image, and
demonstrate long-term allegiance to the organisation (Bettencourt, Gwinner, and Meuter
2001; Moorman and Blakely 1995; Van Dyne, Graham, and Dienesch 1994). That is,
committed employees, those who attach themselves to, identify with, and become part of
the organisation are more effective employees. When they are committed to the
organisation, employees perform better and stay longer than employees who are not
committed to the organisation.
55
2.14 Measurement issues relating to the employee loyalty construct
Mowday, Steers and Porter (1979) and Meyer and Allen (1984) measured commitment as a
global attitude that reflects a stable affective response to the organisation as a whole.
Further work on the OCQ suggested that organisational commitment was based on explicit
factors of an employee’s psychological attachment to an organisation, so that that an
employee’s commitment could be measured by manifestations of involvement and
intentions, which are strongly related to actual turnover behaviour (O'Reilly and Chatman
1986).
Following these conclusions, measurement focused on this psychological attachment.
Using the items from the original OCQ scale, Van Dyne, Graham, and Dienesch (1994)
found that the loyalty component as conceptualised had the strongest and most uniform
loading patterns, suggesting that the loyalty construct as conceptualised and operationalised,
effectively represents an individual’s state of engagement with an organisation. The loyalty
factor and its items represented allegiance to an organisation and promotion of its interests
to organisation members and outsiders. The items capture representation of the
organisation to others, defence of the organisation to employees and others, advocacy of
the organisation as a place to work, advocacy of the organisation’s products and services
and as a place to invest. These items were based on the original OCQ (Mowday, Steers,
and Porter 1979).
The items operationalised the Graham (1991) definition of organisational loyalty, namely
that organisational loyalty is identification with the organisation as a whole, and is manifest
by behaviours that defend and contribute to the overall functioning and long term success
of the organisation. The research of Moorman and Blakely (1995) supports this
conceptualisation and operationalisation.
Using responses from service contact employees, Bettencourt, Gwinner, and Meuter (2001)
examined loyalty behaviours that reflect allegiance to an organisation through the
promotion of the organisation’s interests and image to outsiders. The measures for the
study include telling outsiders that this is a good place to work, saying good things about
the organisation to others, generating favourable goodwill for the organisation, encouraging
56
friends and family to use the organisation’s goods and services, and actively promoting the
organisation’s products and services.
Babin and Boles (1998) measure quitting intention, in relation to job satisfaction, with items
measuring the likelihood that the respondent will leave the organisation within a specified
period.
In summary, employee loyalty in the context of a service organisation can be measured as
an intention to engage in behaviours that are of benefit to the organisation, intention to
remain with the organisation, and stated affiliation with the organisation.
2.15 The employee loyalty-customer loyalty relationship
Previous sections define customer loyalty and employee loyalty as they relate to service
organisations. This section examines the literature that links employee loyalty and customer
loyalty and seeks to establish the conceptual relationship between these two concepts that
interrelate at the employee-customer interface (Figure 2.1).
The discussion of employee loyalty has established that employee loyalty is crucial to service
organisations. Many organisations need individual members in critical customer contact
positions to perform above and beyond the call of duty for the benefit of the organisation
(O'Reilly and Chatman 1986). Employee loyalty engenders behaviours that are expressions
of loyalty, such as identification with and advocacy of the organisation and its products
(O'Reilly and Chatman 1986).
Similarly the discussion relating to customer loyalty established that a key objective of
marketing activities of the organisation is the development, maintenance and enhancement
of customers’ loyalty towards its products or services (Oliver 1997). Customer loyalty is an
especially important goal for service firms since loyalty among customers of service firms is
more prevalent than among tangible products’ customers (Zeithaml 1981).
Anecdotal evidence suggests that behaviours and attitudes resulting from employee loyalty
positively influence customer loyalty (Reichheld and Teal 1996), just as customer-centred
behaviours influence service quality (MacKenzie, Podsakoff, and Ahearne 1998). That is,
employees who deal directly with customers have a powerful effect on customer loyalty
57
since employee loyalty directly influences customer loyalty (Reichheld 1993; Reichheld and
Teal 1996). Loyal customer-contact employees contribute to the positive encounters that
customers experience in their interactions with the firm.
While this anecdotal support suggests that employee loyalty is linked to customer loyalty,
little empirical evidence exists in the marketing literature to support this link. Service
encounters provide more opportunities for interactions between employees and customers
that often enhance the potential for customer loyalty to develop (Gremler and Brown
1999). Czepiel and Gilmore (1987) also suggested that customer loyalty can only be created
and exist as the result of the development of a relationship that consists of a series of
interactions. Those employees who deal directly with customers day after day have a
powerful effect on customer loyalty (Reichheld 1993). It may be that to maintain customer
loyalty employee loyalty is essential (Reichheld and Teal 1996).
In summary, interactions occur at the employee-customer interface that directly influence
customer loyalty. Employee loyalty towards the organisation and the behaviours that result
from that loyalty are crucial to service organisations. Service organisations that have loyal
employees are more likely to have loyal customers (Rucci, Kirn, and Quinn 1998). Loyal
customers are more likely to be committed to their relationship with the organisation, are
likely to remain with the organisation and increase their patronage of the organisation’s
services, and to recommend the organisation to others.
2.16 Overview of the balance of the employee-customer interface
The remainder of Chapter Two is dedicated to establishing the remaining factors that
influence customer loyalty at the employee-customer interface. The purpose of this review
is to establish the set of relationships that relate to the second, third and fourth research
objectives.
2.17 The perceived service quality construct
This section of Chapter Two provides an overview of a key driver of customer loyalty,
perceived service quality. In the following three sections the construct is defined, the
dimensions of service quality are developed from the literature and the relevant
58
measurement issues are outlined. The final section summarises the literature relating to the
relationship between service quality and customer loyalty.
2.18 Defining perceived service quality
Perceived service quality is the consumer’s judgment about a firm’s overall excellence or
superiority, based on perceptions of the overall performance and quality of service, as a
result of interaction with, and evaluation of service-related dimensions. That is, perceived
quality is a customer’s general attitude toward the organisation’s service (Bitner 1990).
Service quality is defined by either some or all of a customer’s perceptions regarding an
organisation’s technical and functional quality, the service product, service delivery, and
service environment, and some combination of the reliability, responsiveness, empathy,
assurances, and tangibles associated with a service experience (Brady and Cronin 2001).
For this study, perceived service quality is a measurement of customer perceptions of the
organisation’s overall performance, overall performance at the interaction level and overall
perception of the quality of service, based on evaluations of attributes of the service itself,
the delivery process and the organisation.
2.19 The dimensions of perceived service quality
Perceived service quality is crucial to services marketers because of the premise that when
customers have positive perceptions of an organisation’s service quality they are likely to
remain customers of that organisation (Schneider, White, and Paul 1998). Eventually the
organisation is assumed to benefit from this customer loyalty because of direct outcomes
such as higher profits (Deshpande, Farley, and Webster 1993; Narver and Slater 1990; Rust
and Zahorik 1993) and lower costs (Reichheld and Teal 1996), and indirect outcomes from
customer advocacy (Gremler and Brown 1999). To facilitate service quality, a service
climate must be created which serves to focus employee attention, efforts and competencies
on delivering service quality, which yields positive experiences for customers, and in turn
customer perceptions of service quality (Schneider 1990; Schneider, Gunnarson, and Niles
1994; Schneider, White, and Paul 1998).
Service quality differs from the objective quality that one typically associates with a tangible
product. It also differs from satisfaction with a service and results from a comparison of
59
expectations with perceptions of performance (Parasuraman, Zeithaml, and Berry 1985).
Perceived service quality is thus viewed as the degree and direction of discrepancy between
customers’ perceptions and expectations (Parasuraman, Zeithaml, and Berry 1988).
Satisfaction relates to a specific transaction, while perceived service quality is a global
judgment, or attitude, relating to the superiority of the service (Parasuraman, Zeithaml, and
Berry 1988).
Parasuraman, Zeithaml, and Berry (1985) proposed customer judgments of service quality
were based on ten service dimensions, reliability, responsiveness, competence, accessibility,
courtesy, communication, credibility, security, understanding or knowing the customer and
tangibles relating to the service. A later study proposed this set of dimensions as a tool that
could assist organisations to better understand the service expectations and perceptions of
customers and thus improve service (Parasuraman, Zeithaml, and Berry 1988). After
quantitative studies these dimensions were reduced to five core dimensions, which are
measured by the SERVQUAL instrument (Parasuraman, Berry, and Zeithaml 1991;
Parasuraman, Zeithaml, and Berry 1988). These five dimensions are typically used to assess
service quality in service organisation (Table 2.9).
Table 2.9 The five core dimensions of SERVQUAL
60
While subsequent research challenged the efficacy of the scale on several fronts, this
conceptualisation of perceived service quality and the measurement tool SERVQUAL form
a foundation of the understanding of perceived service quality.
The key outcome of this research is that service quality is clearly established as a key factor
to monitor in service organisations. While customer satisfaction as an organisational
objective is important, researchers note that satisfaction is not a stable measure and high
satisfaction ratings on one occasion is are no guarantee of satisfaction on a subsequent
occasion (Deighton 1994). Parasuraman, Zeithaml, and Berry (1988) suggest that service
quality is an overall evaluation similar to attitude that acts as a relatively global value
judgement.
Cronin and Taylor (1992) reviewed the marketing literature and concluded that there is
considerable support for simple performance-based measures of service quality. They also
suggested that perceived service quality should be conceptualised as an attitude, that the
adequacy-importance model is the most effective attitude-based operationalisation of
service quality, and that current performance adequately captures consumers’ perceptions of
the service quality offered by a specific service provider. Research found that supported
these suggestions and noted that using only current performance-based measures is most
efficacious (Cronin and Taylor 1992). Satisfaction appeared to have a stronger and more
consistent effect on purchase intentions than service quality. However, in high involvement
service situations, perceived service quality may play a bigger role in influencing customer
purchase intentions than satisfaction.
Since perceived service quality is the consumer's judgement about a firm's overall excellence
or superiority (Bitner 1990; Parasuraman, Zeithaml, and Berry 1988), perceived quality is
similar to an individual's general attitude toward the firm (Bitner 1990). Bitner and Hubbert
(1994) suggested that perceived quality is an overall attitude, a general, overall appraisal of a
product or service. Perceptions of quality occur at multiple levels in a service organisation,
so that the customer is likely to be able to distinguish between the quality of the interaction
with the service provider, the quality of the core service, and the overall quality of the
organisation (Bitner and Hubbert 1994). Perceived service quality is different from
objective or actual quality. Perceived service quality is more abstract than a specific
61
attribute of a product. Thus, perceived service quality is also likely to be influenced by the
firm’s overall image (Bitner and Hubbert 1994). In this context, service quality is the
customer’s overall impression of the relative inferiority or superiority of the organisation
and its services, so that service quality relates to the overall quality of the organisation and
its offerings.
An organisation’s reputation for providing quality will not change quickly, although changes
in the level of quality provided by a firm will enhance or erode a firm’s reputation for
quality over time (Anderson, Fornell, and Lehmann 1994). As customers gain more
experience, they weigh prior assessments of service quality more heavily and place less
emphasis on new information in evaluating service quality (Bolton and Lemon 1999).
Service quality is a long-run evaluation (Bitner 1990; Bitner, Booms, and Tetreault 1990;
Zeithaml, Berry, and Parasuraman 1996).
Brady and Cronin (2001) sought to provide an integrated conceptualisation of the perceived
service quality construct and provide empirical evidence to support their three-tier
conceptualisation. They noted that in the Nordic literature, perceived service quality is
compared to the expected service (Churchill and Suprenant 1982; Grönroos 1990; Howard
and Sheth 1969). This literature conceptualises service quality as two service quality
dimensions - functional quality and technical quality (Grönroos 1990). Functional quality
represents how the service is delivered and how it influences customers’ perceptions of the
interactions that take place during service delivery. Technical quality reflects the outcome
of the service encounter. Developments of this approach include the addition of the
service environment (Bitner 1992; Oliver and Anderson 1994).
The North American perspective is based on the SERVQUAL studies, (Cronin and Taylor
1992; Zeithaml, Berry, and Parasuraman 1988; Zeithaml, Berry, and Parasuraman 1996) and
defines service quality in terms of service encounter characteristics or core dimensions of
service quality (Cronin and Taylor 1992; Cronin and Taylor 1994; Parasuraman, Berry, and
Zeithaml 1994; Parasuraman, Zeithaml, and Berry 1988).
The interpersonal interactions between customer contact employees and customers that
take place during service delivery often have a strong effect on service quality perceptions
62
(Bitner, Booms, and Mohr 1994; Hartline and Ferrell 1996; Schneider and Bowen 1985).
That is, service quality is the result of service processes and service outcomes. The
interactions are an important element of perceived service quality. Interaction quality is
comprised of customer focus on employee attitude, behaviours, and expertise (Bitner,
Booms, and Tetreault 1990; Brady and Cronin 2001; Grönroos 1990). The attitudes and
behaviours of contact employees largely influence customer perceptions of functional
quality (Bitner, Booms, and Tetreault 1990). These perceptions combine with customer
evaluations of technical quality and the service environment to define service quality.
Crosby and Stevens (1987) compared two models of relationship marketing in the context
of a complex high credence service. The first model proposed that the relationship within
the firm between customers and the firm is a quality surrogate and customers generalise
positive feelings about the provider to core aspects of the service. The second model
proposed that relationship marketing adds value to the service by providing certain
demanded peripherals, but buyers mainly care about core service quality and consider
evidence from a variety of sources in their evaluations. Some segments of buyers may
generalise their feelings about the contact employee or the company, to the core service, but
typically the effects seem to flow in the opposite direction (Crosby and Stephens 1987).
The findings suggested that some segments of buyers may generalise their feelings about
the service provider to the core service. However, despite the relationship the customer
may have with customer contact employees or other representatives of the firm, the
perception of quality of the core service is a separate and crucial issue and is not directly
affected by these relationships (Crosby and Stephens 1987).
Outcome or technical quality - what the customer is left with when the service has been
performed or the process is complete - affects customer perceptions of service quality (Rust
and Oliver 1994b). Outcome quality however is difficult to specify in terms of specific
elements. Thus, overall or global measures of service quality are often used. The service
environment is also important to customers’ perceptions of service quality since cues from
the environment can have a significant influence on perceptions of the service encounter
(Bitner 1992).
63
In summary, there are three themes of recent work on service quality. The first is an
advancement of versions of the SERVQUAL model. The second is the renewed interest in
technical and functional quality dimensions, while the third is the structure of the service
quality construct. Brady and Cronin (2001) provide a new and integrated conceptualisation
of the service quality construct. Based on the existing literature and exploratory research,
they propose a model with three structural levels of perceived service quality. The first level
is the customer’s overall perceptions of service quality. The second level consists of
primary dimensions of service quality, and the third level consists of sub-dimensions or
attributes of service quality. Service quality is viewed as a higher-order factor that is defined
by two additional levels of dimensions (Brady and Cronin 2001). This fits with the Rust
and Oliver (1994) view that the overall perception of service quality is based on the
customers’ evaluation of three dimensions of the service encounter; the customer-employee
interaction or functional quality, the service environment, and the outcome, technical
quality. The third level consists of sub-dimensions of level two attributes.
The conclusion of this section is that service quality can be conceptualised as either a
customer’s overall evaluation of the service organisations’ service, evaluation of specific
elements of service performance that sum to form a comprehensive evaluation of service
dimensions, or a combination of both.
2.20 Measurement issues relating to the perceived service quality construct
These five dimensions of service quality are often measured using the SERVQUAL
instrument, namely tangibles, reliability, responsiveness, assurance, and empathy
(Parasuraman, Berry, and Zeithaml 1991; Parasuraman, Zeithaml, and Berry 1988).
However Cronin and Taylor (1992) have suggested that current performance adequately
captures consumers’ perceptions of the service quality offered by a specific service provider.
As well as specific measures of customers’ expectations, performance measures, and the
relative importance of each performance measure, some researchers suggest the use of a
single overall measure of service quality (Bitner, Booms, and Mohr 1994; Boulding et al.
1993; Cronin and Taylor 1992; Cronin and Taylor 1994), since outcome quality is difficult
to specify in terms of specific elements (Rust and Oliver 1994b). Finally, measures of
quality of the service environment are often included (Bitner 1992).
64
Lytle, Hom and Mokwa (1997) propose a service orientation scale, SERV*OR, that is in
some ways is more robust than the much more well known SERVQUAL scale. However,
neither the scale nor the concept of service orientation, were directly relevant to the current
research. The customer orientation measures and construct definition used in the present
research are much more closely in the domain of the Narver and Slater (1990)
conceptualisation of customer orientation, a facet of market orientation, than the more
specific service orientation suggested by Lytle, Hom and Mokwa (1997). For example, both
SERV*OR and SERVQUAL investigate respondent perceptions of specific aspects of
service delivery, while the present research investigates managerial orientation to service
delivery.
Rust and Oliver (1994) support the view that service quality is a multiple component
construct. Furthermore, each of primary component is composed of multiple sub-
dimensions. That is, consumers form an overall perception of the quality of service based
on their evaluation of the primary components in relation to the three corresponding sub-
dimensions that underlie each component. Finally, Brady and Cronin (2001) suggest that
reliability, responsiveness and empathy are modifiers of the sub-dimensions. The
consequence is a multilevel measurement scale. For perceptions of overall service quality
the global measures offer a measure of service on a cumulative basis. Similarly, researchers
can focus on the quality of the primary dimensions, or conduct a comprehensive analysis
using the complete scale (Brady and Cronin 2001).
The conclusion of this section is that since service quality can be conceptualised as either a
customer’s overall evaluation of the service organisations’ service, evaluation of specific
elements of service performance that sum to form a comprehensive evaluation of service
dimensions, or a combination of both, then service quality can be measured in the manner
that is most appropriate for the research context. For example, when the purpose of the
study is to examine customer perceptions of specific service attributes say in the context of
a service improvement intervention, then evaluation of specific elements is more
efficacious. In the context of this study, which focuses on the impact of service quality on
customer loyalty, then measures of overall performance quality and overall service quality
are assumed to capture the customer’s perceptions based on more global perceptions.
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2.21 The perceived service quality-customer loyalty relationship
Building on the previous discussion of perceived service quality and the earlier discussion of
customer loyalty, this section examines the relationship between perceived service quality
and customer loyalty, in terms of the influence that customer perceptions of service quality
have on customer loyalty in service organisations at the employee-customer interface
(Figure 2.1).
Bitner (1990) suggests that service encounter satisfaction positively influences customer
perceptions of service quality, which in turn leads to customer loyalty. While a customer
satisfaction-behavioural intent link exists, the link between service quality and customer
intentions to remain with the organisation is stronger (Bitner 1990). Perceived service
quality influences later behaviours toward the firm such as word of mouth, service
switching, and service loyalty so that a high level of perceived service quality will lead to
service loyalty (Bitner 1990).
Research suggests an association between service quality and specific behavioural intentions
(Boulding et al. 1993; Parasuraman, Zeithaml, and Berry 1988; Reichheld and Sasser 1990;
Rust and Zahorik 1993; Rust, Zahorik, and Keiningham 1995). Certain behavioural
intentions towards an organisation are indicators of whether customers will remain with or
defect from the organisation (Zeithaml, Berry, and Parasuraman 1996). That is, service
quality and behavioural intentions are related. Service quality is a determinant of whether a
customer ultimately remains with, or defects from an organisation. When service quality is
perceived to be high, behavioural intentions are favourable, and the reverse when
assessments are low (Bitner and Hubbert 1994).
Certain key behaviours signal that customers are forging bonds with a company. These
include a positive and significant relationship between customers’ perceptions of service
quality and their willingness to recommend the company (Parasuraman, Berry, and
Zeithaml 1991), a positive and significant relationship between service quality and
repurchase intentions, such as increasing the volume of purchase and paying a price
premium, willingness to recommend, and links between service quality and behavioural
66
intentions such as saying positive things and recommending the service to others (Bitner
1990; Boulding et al. 1993).
The higher a company’s service quality ratings, the more loyal its customers, and the lower
the customer intentions to switch service provider, complain to other customers, or take
other external negative steps against the company (Zeithaml, Berry, and Parasuraman 1996).
The service quality link with customer loyalty and the likelihood of switching service
providers is consistently higher for service companies than for product companies. The
service quality-loyalty link is especially high when services are the core offering of the
organisation (Zeithaml, Berry, and Parasuraman 1996).
In conclusion, the importance of perceived service quality is that when customers have
positive perceptions of an organisation’s service quality they are more likely to remain loyal
to the organisation (Bitner 1990; Schneider, White, and Paul 1998; Zeithaml, Berry, and
Parasuraman 1996). Furthermore, the organisation will benefit from this customer loyalty
through improved organisational outcomes, such as higher profits (Deshpande, Farley, and
Webster 1993; Narver and Slater 1990; Rust and Zahorik 1993), and customers who engage
in behaviours that have strategic importance for the organisation (Reichheld and Teal 1996).
2.22 The job satisfaction construct
This section of Chapter Two provides an overview of the job satisfaction construct. First is
the definition of the construct. This is followed by the discussion of the dimensions of the
construct as they are developed from the literature, and third, measurement issues are
outlined. Finally is a summary of the literature relating to the relationship between job
satisfaction and perceived service quality.
At the employee-customer interface Figure 2.1, the attitudes and behaviours of customer
contact employees directly influence customers’ perceptions of service quality. Employees’
attitudes towards their job and the organisation as a whole, and employees’ beliefs about
their abilities to perform their jobs, are directly related to service quality.
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2.23 Defining job satisfaction
Job satisfaction is the degree to which the individual positively evaluates the job (Rusbult
and Farrell 1983), the organisation as a place to work (Bettencourt, Gwinner, and Meuter
2001; Hartner, Schmidt, and Hayes 2002), facets of the job and the job situation (Brown
and Peterson 1993), and the intrinsic and extrinsic satisfactions that result (Bettencourt,
Gwinner, and Meuter 2001).
For this study, job satisfaction is defined as satisfaction with various facets of the job,
including compensation, opportunities for advancement, overall satisfaction with the job
itself, and overall satisfaction with the organisation as a place to work, including the policies
directed towards the employee.
2.24 Dimensions of the job satisfaction construct
Katz and Kahn (1978) provide a useful starting point to the investigation of the job
satisfaction construct because of the comprehensive nature of their review of organisational
factors. They found that employees derive important satisfaction from their jobs because
of the demonstration and use of their skills, because of the sense of accomplishment from
the successful performance of tasks, and as a result of interesting and challenging work.
Katz and Kahn’s (1978) summary supports several conclusions. First, job satisfaction
consists of an individual’s intrinsic and extrinsic satisfactions. Second, job satisfaction is
predicated on various facets or aspects of the job itself. Finally, job satisfaction has an
overarching global affective component. Studies dealing with satisfaction with the job as a
whole rather than with intrinsic job satisfactions, report differing outcomes from those that
measure only intrinsic satisfaction (Katz and Kahn 1978). Job satisfaction encompasses
overall liking for the job situation as well as intrinsic job satisfaction with the content of the
work process (Katz and Kahn 1978). The nature of the work influences the level of
satisfaction so that higher levels of gratification can be due to factors related specifically to
the work.
Katz and Kahn’s review of the job satisfaction literature suggested that measurement of the
job satisfaction construct positioned job satisfaction as a higher order construct and that
several constructs could be measured as antecedents of job satisfaction rather than as
68
components of job satisfaction. From this point, research began to focus on the
antecedents and consequences of job satisfaction. Job satisfaction was operationalised as a
global satisfaction, satisfaction with various facets of the job, or as a combination of
intrinsic and extrinsic satisfactions (Netemeyer et al. 1997).
Extrinsic job satisfaction relates to the external rewards that result in satisfaction with
conditions of the job and the workplace. These include pay, company policies and support,
fringe benefits, promotion opportunities, job security, working conditions, recognition, and
status (Walker, Churchill, and Ford 1977).
Intrinsic job satisfaction refers to employee’s satisfaction as a result of internal rewards that
result from the job itself, including satisfaction with the work and the opportunity the
position provides for self-actualisation, personal growth and accomplishment (Lucas et al.
1987; Walker, Churchill, and Ford 1977). These are generally self-generated satisfactions
(Walker, Churchill, and Ford 1977).
Both affective and cognitive aspects were incorporated in definitions. For example,
satisfactions were thought to result in emotional states from the appraisal of the job or job
experiences, and from characteristics of the job itself and the work environment that were
rewarding, fulfilling, and satisfying, or frustrating and unsatisfying (Brown and Peterson
1993; Churchill, Ford, and Walker 1974). That is, job satisfaction is an overall state
pertaining to the job (Netemeyer et al. 1997), resulting from employees’ appraisal of their
job situation (Babin and Boles 1998), akin to an overall affective evaluation of the intrinsic
and extrinsic facets of the job, and evaluation of the organisation overall as a place to work
(Bettencourt, Gwinner, and Meuter 2001). Related conceptualisations of job satisfaction
include job satisfaction defined as an attitude towards a work related condition, facet or
aspect, measured as a composite of job characteristics, including satisfaction with pay,
promotion, supervisor, co-workers and the work itself (Johnston et al. 1990).
Fostering employee job satisfaction is of value to organisations. When employees have an
overall perception that organisations support and value members, the positive outcomes
include employee behaviours and attitudes that are beneficial to the organisation
(Eisenberger, Fasolo, and Davis-LaMastro 1990; Van Dyne, Graham, and Dienesch 1994).
69
Following Argyris (1964), Van Dyne et al. (1994) suggested that mutual benefits accrue to
employees and their employing organisations when organisational values include respect for
individuals and for their work-related development needs. That is, respect shown for the
individual by the organisation will be reflected in behaviours towards others, and will
manifest in organisational citizenship behaviours, in particular loyalty behaviours towards
the organisation (Argyris 1964; Van Dyne, Graham, and Dienesch 1994). Van Dyne et al.
(1994) found that the relationship between job satisfaction and loyalty was mediated by
employee perceptions of socially desirable workplace values.
In summary, research associated with job satisfaction typically encompasses the job
satisfaction construct as consisting of the dimensions of overall job satisfaction, satisfaction
with various facets of the job situation, intrinsic and extrinsic job satisfaction (Netemeyer et
al. 1997), and evaluation of the organisation’s values and policies (Van Dyne, Graham, and
Dienesch 1994) and the organisation overall (Bettencourt, Gwinner, and Meuter 2001).
2.25 Measurement issues relating to the job satisfaction construct
Hartline and Ferrell (1996) measured job satisfaction as an average across facets of the job
to create a global measure of job satisfaction, following the work of Brown and Peterson
(1993). Netemeyer, Boles, McKee, and McMurrian (1997) defined job satisfaction in a
similar manner and operationalised the construct as an overall global state relating to the
job. The items included measures of satisfaction with the present line of work, a sense of
satisfaction from the work, and a global measure suggesting a general consideration of
satisfaction, including pay, promotion, supervisors and co-workers in relation to the present
line of work.
Bettencourt, Gwinner, and Meuter (2001) defined job satisfaction as the employee’s overall
affective evaluation of the intrinsic and extrinsic facets of the job. The study included
measures of both intrinsic and extrinsic work-related aspects of the organisation, and one
measure of overall job satisfaction, and one measure of satisfaction with the organisation
(Bettencourt, Gwinner, and Meuter 2001). Interestingly, operationalisation also included a
measure of the amount of support and guidance received from supervisors. That is, the
definition of job satisfaction operationalised in this study was satisfaction with various
70
facets of the work itself, including feelings of satisfaction with external aspects of the job,
affective or internal satisfactions, and an overall feeling of satisfaction with the job and with
the organisation as a place to work.
A meta-analysis of antecedents and consequences of job satisfaction assessed the
nomological validity of using either global or facet oriented approaches to measuring job
satisfaction (Brown and Peterson 1993). Definitions of job satisfaction were considered,
including job satisfaction as a pleasurable or positive emotional state relating to the job or
job experiences, and job satisfaction resulting from all characteristics of the job itself and
the work environment that employees find rewarding, fulfilling and satisfying (Churchill,
Ford, and Walker 1974). Operationalisation of job satisfaction included measurement as
the employee’s affective state relative to facets of the job, including the supervisor, the work
itself, pay, promotion opportunities, and co-workers (Brown and Peterson 1993). In some
studies these facets were summed into a global measure, while in others the facets were
considered separately. Some studies measured intrinsic and extrinsic components
separately. Others used only global measures to capture overall job satisfaction (Brown and
Peterson 1993).
However, studies could be grouped into either those that measured satisfaction by facet, or
those that measured satisfaction globally. The researchers compared the results of the
effects of role ambiguity and role conflict on job satisfaction measured by both global and
facet measures. They found that the effects of role ambiguity and conflict on job
satisfaction were larger when job satisfaction was measured by facet than by global
measures. This suggests that when job satisfaction is measured by facet the outcome may
be a more comprehensive measure. Some researchers suggest however that simple global
measures best capture the construct. For example, a two-item scale was used to capture
likelihood to remain with the organisation, and overall satisfaction with the job (Jaworski,
Stathalopoulos, and Kristnan 1993). These items were taken from an earlier study, and
measured consideration of quitting the job, and overall satisfaction with the job (Jaworski
and Kohli 1991).
Hartline and Ferrell (1996), testing the items in Brown and Peterson’s (1993) 8-item job
satisfaction scale, found that items that measure support provided by the organisation and
71
satisfaction with the organisation’s policies, loaded well on the job satisfaction construct
(Hartline and Ferrell 1996). Bettencourt et al. (2001) found that satisfaction with the
organisation as a whole loaded well as an overall global measure of job satisfaction
(Bettencourt, Gwinner, and Meuter 2001). These studies support the notion that the degree
of respect shown for individuals, and the facilitation of employee development needs, are
crucial facets of employee job satisfaction.
The Job Descriptive Index (JDI) was designed to measure five sub-dimensions or facets of
job satisfaction. These sub-dimensions are satisfaction with work, supervision, co-workers,
pay, and promotion (Smith, Kendall, and Hulin 1969). A later version of the JDI added an
overall measure of satisfaction with the general nature of the job. Tests of the validity of
the JDI suggest that job satisfaction correlates more strongly with employee attitudes, such
as commitment, than with actual behavioural outcomes, such as turnover. That is, job
satisfaction will indirectly influence actual behaviour via organisational commitment.
Positive correlations were found between each of the facets of the JDI and organisational
commitment and citizenship behaviours (Kinicki et al. 2002). The researchers also suggest
that an individual’s extreme satisfaction or dissatisfaction with a particular job facet may
effect or bias perceptions of other facets, so that moderate correlations among facets are
expected.
The Gallup Organisation, using the Gallup Workplace Audit, captured employee overall
satisfaction and perceptions of work characteristics using one overall satisfaction item and
twelve facet-related items (Hartner, Schmidt, and Hayes 2002). The inclusion of one item
referring to overall satisfaction with the organisation is seen as a generalised summary of
specific affect-based reaction to work (Hartner, Schmidt, and Hayes 2002). One item
measures have reasonable reliability when responses are averaged across many individuals.
In a meta-analysis that examined the relationship between job satisfaction and composite
organisational performance, comprising financial performance, customer satisfaction and
loyalty measures, and employee retention, higher levels of job satisfaction lead to higher
scores on the performance composite (Hartner, Schmidt, and Hayes 2002). The observed
correlations between the overall satisfaction score and the five facets of satisfaction
antecedents was high, suggesting that the overall score performed well, while individual
72
facet relationships could be tested with performance outcomes. For example, companies
that scored in the top quartile on a summed score for the facets produced between one to
four percent more profit. Griffeth, Hom and Gaertner (2000) also found that predictive
validity was similar for overall job satisfaction and facet satisfaction, and that quit intentions
remain the best predictor of actual turnover.
Measuring job satisfaction typically employs any or all of a global satisfaction measure,
items that measure satisfaction with various facets of the job situation, and measures of
intrinsic and extrinsic job satisfaction (Netemeyer et al. 1997). These include satisfaction
with the present line of work, and an overall consideration of various facets of the job
including pay, promotion, supervisors, and co-workers.
In summary, the measurement issues of job satisfaction that are pertinent to this study are
that job satisfaction can be measured as an employee’s overall evaluation of the job, as
satisfaction with the organisation as a whole, as satisfaction with various facets of the job
itself, or as a combination of two or more of these approaches.
2.26 The job satisfaction-perceived service quality relationship
This section examines the literature that suggests the relationship between job satisfaction
and perceived service quality. The discussion builds on the examination of the job
satisfaction construct in the previous sections and the discussion of perceived service
quality construct from earlier in Chapter Two.
At the employee-customer interface (Figure 2.1), because of the interpersonal interactions
that take place during service delivery, these interactions often have a strong effect on
service quality perceptions (Bitner, Booms, and Mohr 1994; Hartline and Ferrell 1996;
Schneider and Bowen 1985). These interactions have been identified as the customer-
employee interface (Hartline and Ferrell 1996) and are an important element in a service
encounter (Bitner 1990; Bitner, Booms, and Tetreault 1990). That is, service quality is more
the result of processes than outcomes so that interaction is an important element of
perceived service quality. This interaction quality is the result of the focus that customers
place on employee attitudes, behaviours and expertise (Bitner, Booms, and Tetreault 1990;
Brady and Cronin 2001; Grönroos 1990).
73
Bitner (1990) suggested that the attitudes and behaviours of contact employees largely
influence customer perceptions of functional quality, and these perceptions are combined
with customer evaluations of technical quality and the service environment so that
customers develop their evaluations of service quality.
In summary, the level of job satisfaction that employees experience influences their
interactions with customers, so that job satisfaction has a positive influence on customers’
perceptions of service quality (Hartline and Ferrell 1996). This is because satisfied
employees are more likely to engage in voluntary customer-oriented activities (Mathieu and
Zajac 1990) which influence perceptions of service quality through customer-centred
behaviours such as adapting to customer needs, exceeding customer expectations and
resolving customer problems (MacKenzie, Podsakoff, and Ahearne 1998).
2.27 The employee self-efficacy construct
This section of Chapter Two provides an overview of the employee self-efficacy construct.
In the following four sections the construct is defined, the dimensions of the construct are
developed from the literature, and measurement issues are outlined. The final section
summarises the literature relating to the relationship between employee self-efficacy and
perceived service quality. The discussion of the employee self-efficacy-perceived service
quality relationship builds on the sections in Chapter Two that refer to perceived service
quality.
2.28 Defining employee self-efficacy
For this study, employee self-efficacy is defined as the degree to which customer contact
employees believe they have the skills and ability to perform job-related tasks and can
continue to acquire a range of generative skills, to develop and build over time the
confidence to effectively perform their role in the organisation.
2.29 Dimensions of the employee self-efficacy construct
Self-efficacy refers to the individual’s belief in the capacity to perform a specific task, and
arises from the gradual acquisition of relevant skills through experience and the appraisal of
personal capabilities (Gist 1987). Self-efficacy is a comprehensive summary of that
74
perceived capability, and in an organisational context, is based on information relating to an
employee’s self-knowledge, the pertinent job tasks, and the work environment (Gist and
Mitchell 1992).
The key premise of self-efficacy is that individuals can exercise influence over what they do
(Bandura 1997). Based on their understanding of what is possible and beliefs about their
own capabilities, individuals seek to create courses of action to achieve chosen outcomes.
Individuals appear to assess their capabilities, and then regulate their choices and efforts as
a result (Gist 1987). Those with moderate to high self-efficacy engage more frequently in
task-related activities and persist longer in coping efforts which improves performance and
effectiveness and in turn enhances self-efficacy (Gist 1987). People also do things that give
them self-satisfaction and a sense of self-worth, and their beliefs in their efficacy affects
almost everything they do, including how they think, motivate themselves, feel and behave
(Bandura 1997).
Once developed, employees’ beliefs about their self-efficacy influence aspirations, choices
regarding behaviour in the workplace including the decision to begin and continue effort,
and affective reactions to events (Bandura 1997). By influencing employees’ choices about
activities and motivational levels, beliefs in personal self-efficacy support the acquisition of
the knowledge structures on which skills are based (Bandura 1997). Perceived self-efficacy
relates to the skills employees have, and how they can be applied in a variety of situations,
which requires continuous improvisation to manage those changing situations that may be
ambiguous, unpredictable, and stressful (Bandura 1997).
In organisations, employee self-efficacy is the employee’s belief in his or her ability to
perform job-related tasks (Hartline and Ferrell 1996), with respect to individual perceptions
of levels of mastery within a limited task domain (Chowdhury 1993). Self-efficacy
influences choices, goals, emotional responses, effort, coping, and persistence, and changes
over time with learning, experience, and feedback (Gist and Mitchell 1992). However,
personal efficacy is exercised within the constraints and opportunities offered by the
organisation (Bandura 1997). Employee self-efficacy can only be changed by altering
employees’ overall impressions of their general capabilities in the specified performance
area (Chowdhury 1993).
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Competence to perform the appropriate tasks requires appropriate learning experiences and
does not emerge spontaneously. Self-development and maintenance of personal efficacy
requires considerable time, effort, and resources (Bandura 1997). Employees develop
different sets of competencies and use them according to their perceptions of self-efficacy,
the specific situation, and on anticipated outcomes (Bandura 1997). Generative skills are
those that form a subset of skills that can be flexibly coordinated to fit the circumstances at
hand, so that generative skills support flexibility and innovativeness. Generative skills are
crucial in situations that entail uncertainty and ambiguity.
Self-efficacy theory distinguishes between performance efficacy beliefs and learning efficacy
beliefs (Bandura 1997). Perceived learning efficacy is a good predictor of the acquisition of
the skills necessary to perform complex tasks (Stajkovic and Luthens 1998). Since skills
have to be expanded and restructured over time with changes to the work environment and
differing situations, beliefs in learning self-efficacy play an important role in the willingness
to try new avenues and approaches.
Organisations can enhance employees’ sense of self-efficacy through various means,
including training programs, effective feedback, rewards for innovation and ingenuity, and
opportunities for self-regulated learning (Bandura 1997). Opportunities and programs
should focus on enhancing employee self-efficacy, and employee beliefs in their abilities to
apply their skills in innovative ways (Stajkovic and Luthens 1998).
Perceived self-efficacy is a uniformly good predictor of diverse forms of behaviour
(Bandura 1997) including work-related performance (Gist 1987; Stajkovic and Luthens
1998), productivity (Taylor et al. 1984), and positive affective states (Bandura 1997). That
is, it is not just experience and skills themselves, but the beliefs of self-efficacy constructed
from those experiences that shape performance, choices and affective outcomes.
In summary, the underlying dimensions of self-efficacy are comprised of employee beliefs
in their abilities to perform in their role, that they are aware of new skills they need to
acquire, and that the mechanisms are in place within an organisation to do so.
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2.30 Measurement issues relating to the employee self-efficacy construct
Hartline and Ferrell (1996) operationalised employee self-efficacy with an eight item scale
that was developed from existing items from the literature (Jones 1986). Confirmatory
factor analysis reduced the scale to four items, which reflect employees’ perceptions of their
abilities in relation to their work peers, self-expectations, and the nature of the job. A study
of the influence of performance on self-efficacy and the subsequent influence on personal
goals used simple measures of the number of times respondents thought they would need
to find a solution to a problem, and how likely was the possibility of finding a solution
(Vancouver, Thompson, and Williams 2001).
Bandura (1997) suggested that self-efficacy relates to multiple aspects of individuals’ beliefs
in their capabilities. These include current skills and abilities, perceptions of learning
capabilities, the environment in which the skills are acquired and applied, and the
perception that the environment supports, facilitates and rewards the development and
application of the necessary generative skills. That is, measurement of employee self-
efficacy should consider the broader organisational environment as well as specific aspects
of the job requirements.
In summary, measuring employee self-efficacy can reflect on the one hand employees’
perceptions of their abilities in regard to peers, perceptions of their abilities to perform
certain tasks. On the other hand measurement can reflect a more global approach that
relates to current skills and abilities, including the ability to continue to acquire and practice
new skills in a variety of settings.
2.31 The employee self-efficacy-perceived service quality relationship
This section examines the literature that suggests a relationship exists between employee
self-efficacy and perceived service quality. The discussion builds on the examination of the
employee self-efficacy construct in the previous sections and the discussion of perceived
service quality construct from earlier in Chapter Two. The relationship between employee
self-efficacy and perceived service quality occurs at the employee-customer interface (Figure
2.1).
77
Perceived self-efficacy is a judgement people make about their ability to organise and
execute given types of performances (Bandura 1997). Self-efficacy refers to the belief that
individuals have about how they can use generative skills in a variety of situations. Those
with the same skill sets and levels but higher levels of self-efficacy will typically perform
better than those with lower levels of self-efficacy so that perceived self-efficacy is an
important contributor to achieving outcomes at any skill level (Bandura and Jourden 1991).
Employees who have high levels of self-efficacy are able to overcome organisational
constraints and take advantage of opportunities to do so. Employees also perform actions
that provide self-satisfaction and a sense of self-worth, so that self-efficacy beliefs affect
how they think, motivate themselves, feel and behave (Bandura 1997). A high sense of self-
efficacy in a responsive environment that rewards valued actions, helps organisational
members to build positive aspirations, to engage productively in activities beneficial to the
organisation, and to experience a sense of fulfilment (Bandura 1997). Individuals who have
the efficacy to perform well and regard themselves as self-directed, will have the belief that
their actions are influential and will impact on their performance outcomes (Bandura 1997),
which influence customers’ perceptions of service quality (Bitner 1990).
Perceived service quality is the customer’s judgment about an organisation’s overall service
excellence or superiority, similar to a general attitude toward the organisation (Bitner 1990).
Service quality is defined by either or all of a customer’s perceptions regarding an
organisation’s technical and functional quality, the service product, service delivery, and
service environment, or the reliability, responsiveness, empathy, assurances, and tangibles
associated with a service experience (Brady and Cronin 2001).
Individuals with high self-efficacy beliefs who cannot achieve their desired outcomes may in
fact increase efforts and even attempt to change practices within organisations to overcome
perceived barriers (Bandura 1997). That is, employees with high levels of perceived self-
efficacy may go to considerable lengths to provide customers with quality service outcomes,
in spite of incidental and ongoing impediments.
Because employees see outcomes as a result of the adequacy of their performance, they rely
on their efficacy beliefs to decide which course of action to take and how long to pursue it.
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Employees are thought to engage in behaviours that they believe they can perform
successfully and that are encouraged by the organisation’s reward system and management
supported orientations (Bandura 1997). In most circumstances, individuals with high self-
efficacy expect favourable outcomes (Netemeyer et al. 1997).
Self-efficacy grows over time as employees build confidence in their abilities and as the
actual performance of service-related behaviours increases (Gist and Mitchell 1992). As this
confidence and ability increases, employees perceive that they are able to fulfil the required
role within the organisation (Hartline and Ferrell 1996). Bitner, Booms and Tetreault
(1990) found that customers are more satisfied when employees possess the ability,
willingness and competence to solve their problems (Bitner 1990; Bitner, Booms, and
Tetreault 1990).
In conclusion, employees who have higher levels of self-efficacy beliefs are more likely to
provide more customer-oriented service encounters. These service encounters are in turn
more likely to increase customers’ perceptions of service quality (Hartline and Ferrell 1996).
Employees with high levels of self-efficacy encourage customers to develop positive
perceptions of the service encounter since these customers are likely to receive higher
quality service, because employees who are confident in their abilities to perform the
necessary service tasks are more likely to deliver high quality service (Hartline and Ferrell
1996).
2.32 Summary of the job satisfaction and employee self-efficacy-service quality relationships
The previous literature review regarding job satisfaction and employee self-efficacy suggests
that both these factors that are important components of employees’ attitudes within their
organisational role, will impact a service organisation’s service quality as perceived by
customers. These relationships suggest that employee attitudes and subsequent behaviours
in the workplace can indirectly influence customers’ loyalty through their impact on the
organisation’s service quality at the employee-customer interface. These relationships relate
to the second, third and fourth research objectives of the study that seek to more fully
explain the nature of the employee-customer relationship.
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2.33 Summary of Chapter Two, the employee-customer interface relationships
Chapter Two sought to establish the importance of the series of relationships that occur at
the employee-customer interface as they relate to the employee loyalty-customer loyalty
relationship (Figure 2.1). The purpose of the literature review was to examine these
relationships between employee loyalty and customer loyalty, and between employee self-
efficacy and job satisfaction, as they relate to the first three research objectives of the study.
The first objective of the study concerns establishing the empirical link between employee
loyalty and customer loyalty in service organisations and an explanation of this link. The
second research objective relates to the relationship between a service organisation’s service
climate and customer loyalty. The third objective concerns establishing and explaining the
broader set of relationships between employees and customers that influence customer
loyalty. The outcome of this literature review is the specific set of relationships between
employee attitudes and customer beliefs that are to be tested in the study. These
relationships are presented in detail in Chapter Seven.
The conclusion of Chapter Two is that employee loyalty potentially positively influences a
service organisation’s customers’ levels of loyalty. Secondly, the broader set of employee
beliefs drive customer perceptions of service quality, which also potentially impacts
positively on customer loyalty. This is because when employees are loyal to their employing
organisation, they are more likely to perform acts and express attitudes that are favourable
to the organisation and could be perceived positively by customers as they evaluate their
overall relationship with the organisation. As well, the literature suggests that when
employees are satisfied with their jobs and believe in their personal efficacy in their roles,
then customers will experience more favourable service quality that will positively affect
their loyalty intentions. The implications for the employee-loyalty relationship is that when
organisations place customer loyalty as a priority they are more likely to set in place the
conditions that enhance positive employees attitudes and engender higher levels of
employee loyalty that influence customers at the employee-customer interface.
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CHAPTER 3 THE SERVICE CLIMATE-CUSTOMER INTERFACE
3.1 Overview of Chapter Three
Chapter Three is the second chapter of the literature review section and aims to provide
the foundation of the fourth research objective of the study. This necessitates
investigation of the relationship that occurs at the service climate-customer interface in
the organisation that is represented by the shaded areas in Figure 3.1. The relationship
between service climate and service quality occurs at this interface, as shown by the
connecting arrow.
Figure 3.1 The service climate-customer interface framework
The service climate-customer interface is where customers experience the overall
psychological space of the organisation. Here the outcomes of the influences of
management, manifest in employee attitudes and beliefs, influence customer perceptions
of the organisation, as they experience the quality of service provided by employees. A
climate for service is theorised to be the mechanism by which management in service
organisations makes explicit the service culture of the organisation and disseminate it
throughout the organisation (Reichers and Schneider 1990; Schneider and Bowen 1993).
Employee-Role Interface Chapter 4
Supp
ort
Con
trol
Employee Self-Efficacy
Job Satisfaction
Behaviour Based
Evaluation
Work FacilitationResources
Direct Leadership
Support
Senior Leadership
Support
ManagementCustomerOrientation
EmployeeLoyalty
Managerial Practices
Employee Attitudes
Customer Loyalty
Service Quality
Customer Beliefs
Service Climate
Service Environment
Empowerment
Employee-Customer Interface Chapter 2
Managerial Control Practices-Employee Interface Chapter 6
Managerial Practices-Service Climate Interface Chapter 5
Service Climate-Customer Interface Chapter 3
81
The fourth research objective of the study is to test the relationship between a service
organisation’s service climate and customer perceptions of service quality. This
relationship is important because at this interface customers experience the more
general set of organisational conditions which they use, along with service quality and
employee attitude and behavioural cues, to make decisions about their relationship with
the organisation.
The importance of the service climate-customer interface is that if management can
understand and influence the organisation’s service climate, then they have a means of
indirectly influencing service quality perceptions.
The purpose of Chapter Three is to examine the literature that deals with the service
climate-service quality relationship that occurs at the service climate-customer interface.
By examining this literature, the nature and influence of the service climate on service
quality can be hypothesised.
Chapter Three first provides an overview of the service climate-customer interface. The
service climate construct is then introduced and defined. Following, the literature
relating to the dimensions of the construct is examined in detail, and pertinent
measurement issues are addressed. Building on the discussion of perceived service
quality in Chapter Two, the literature on the relationship between service climate and
service quality is reviewed. The conclusions regarding this relationship are established,
in terms of its place in the employee loyalty-customer loyalty relationship antecedents.
This discussion involving service quality builds on the earlier review of the service
quality construct in Chapter Two.
3.2 The service climate construct
The organisational setting influences people’s attitudes, values and perceptions of
organisational events, such that climates arise from aspects of the work setting.
Climates emerge out of the interactions that members of a work group have with each
other (Schneider and Reichers 1983), in the pursuit of various personal and
organisational goals (Schneider, Parkington, and Buxton 1980). This outcome develops
from the process that occurs when members learn what is expected of them and what
membership has to offer.
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The perceptions of members tend to be consistent, so that employees within a particular
organisation perceive the organisation similarly and respond with some consistency
(Schneider and Reichers 1983). These perceptions of the rewards and routines that
constitute a climate influence employee behaviour (Schneider 1990). Thus, members’
perceptions of organisational practices and procedures are critical in their understanding
of organisational behaviour.
3.3 Defining service climate
For the purpose of this study, perceived service climate is defined as the employees’
perceptions that practices and procedures are in place to facilitate the delivery of
excellent service, and that management supports, expects and rewards excellent service.
3.4 Dimensions of the service climate construct
In organisations, climate and culture interact (Schneider 1987). Climate focuses on how
the organisation functions, including what it rewards, supports and expects. Culture
addresses the assumptions and values attributed to why particular activities and
behaviours are rewarded, supported and expected. To develop a more complex
understanding of the psychological life of organisations, it is also necessary to better
understand the relationship between climate and culture (Carr, Schmidt, Ford, and
DeShon, 2003). Both constructs describe the ways organisational participants experience
and make sense of organisations, but they are unique in that climate refers to what
happens in an organisation and culture refers to why it happens (Schneider, 2000).
Thus, these are complementary constructs that reveal overlapping yet distinguishing
patterns in the psychological life of organisations.
Organisations develop different and distinctive climates, which reflect the types of
people the organisation attracts, its work processes and physical layout, the modes of
communication and the exercise of authority within the system (Katz and Kahn 1978).
Climate theory assumes that members of organisations perceive and make sense of
policies, practices and procedures in psychologically meaningful terms (Rentsch 1990).
These policies, practices and procedures are considered to be objective and enduring
characteristics of the organisation.
Climates have psychological and organisational components. People make sense of
clusters of related events. Psychological climates are the meanings that an individual
83
attaches to a work setting (Schneider and Reichers 1983). Organisational climates are
the global meanings that people attach to a particular feature of the work setting, and
are ways that organisations use to demonstrate to members what is important for
organisational effectiveness (Schneider and Reichers 1983).
The events, practices and procedures of organisations are the routines of a work setting
(Schneider 1990) which define the psychological makeup of an organisation in the form
of the organisation’s climate (Schneider and Bowen 1993). The behaviours that are
rewarded, supported and expected are the rewards of a work setting (Schneider 1990).
The routines and rewards of a setting are perceived by members of the organisation
who attach meaning to these routines and rewards (Schneider and Snyder 1975). The
meanings serve to signal the outcomes that are valued in the setting and focus energies
and competencies on achieving those outcomes (Schneider 1990). Thus organisations
can indicate that service quality, for example, is an organisational imperative (Schneider
1987; Schneider and Bowen 1985).
Management in organisations makes implicit and explicit choices to adopt certain
practices and procedures and to reward and support certain behaviours such that even
implicit goals become clear to the organisation’s employees (Schneider 1990). These
practices and procedures and the activities that are rewarded and supported play a
critical function in organisations since they are the criteria on which employees base
their work decisions (Schneider 1990).
Organisational dynamics have a direct impact on customers as well as employees’
performance and their attitudes. Positive outcomes for both customers and employees
are thus a direct function of the same set of organisational dynamics (Schneider 1980).
This suggest then that customer contact employees will be sensitive to customer
requirements in the context of the organisational practices that relate to service
provision (Schneider, Parkington, and Buxton 1980). Climate perceptions of an
organisation may be perceptions of events or experiences perceived by those who
interact with it (Schneider 1973). Customers’ perceptions of an organisation’s climate
may be developed from their perceptions of the customer contact employees, based on
the performance of the organisation’s employees and those employees’ general
behaviours and attitudes in the service environment (Schneider 1973).
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In conclusion, the dimensions of an organisation’s service climate consist of employee
perceptions of the degree of managerial focus on customer service issues, on the
perception that service performance is expected, supported and rewarded, and that an
overall climate exists that is focussed on delivering excellent service. That is, the service
climate is an arena in which management communicate implicitly and explicitly the
organisation’s service goals, and which customers and employees alike perceive and
respond to those service goal clues.
3.5 Measurement issues relating to the service climate construct
The service climate construct and its antecedents and consequences have been carefully
examined in several studies in which the measurement focus has been on defining and
measuring service climate as a psychological construct that exists as a result of, yet
distinct from, conditions that support and facilitate that climate (Schneider and Bowen
1985; Schneider, Parkington, and Buxton 1980; Schneider, White, and Paul 1998).
Since employee perceptions of service climate are correlated with customer perceptions
of service quality, and employee and customer perceptions of service quality are
correlated, internal employee data is considered a valid measure of the views of
customers of organisations (Schneider 1990; Schneider, Parkington, and Buxton 1980;
Schneider, White, and Paul 1998).
Research within organisations that links customer and employee perceptions of service
quality suggests that customer contact employees perceive that the organisation’s service
climate is correlated with the service quality perceived by the organisation’s customers
(Schneider and Bowen 1995). In studies of banking services, branches where service
policies and practices were seen to be positive by employees were the same branches
where customers perceived the service quality to be positive (Schneider and Bowen
1985; Schneider, Parkington, and Buxton 1980). Employee perceptions of the routines
and rewards for service were correlated with customer perceptions of service quality
within the same bank branches (Schneider and Bowen 1985; Schneider, Parkington, and
Buxton 1980).
Early studies of service climate, often in personal banking contexts, measured employee
perceptions of the presence and effectiveness of specific aspects of the service
environment such as bank branch management response to heavy customer traffic
85
(Schneider, Parkington, and Buxton 1980), somewhat akin to Servicescape cues (Bitner
1992). Later studies began to evaluate more global aspects of the service environment
such that measures related to those more broad implicit and explicit service goal choices
made my management (Schneider, White, and Paul 1998), akin to the climate concepts
discussed by Katz and Kahn (1978)
In summary, measurement relating to the dimensions of the service climate construct
suggest that measures of employees’ perceptions of the service-oriented practices in the
organisation capture the nature of the service climate and that for the purpose of this
study measures of the global aspects of a service climate capture the overall nature of
the climate as it relates to customer perceptions of the service philosophy of the
organisation.
3.6 The service climate-perceived service quality relationship
This section examines the literature that deals with the relationship between an
organisation’s service climate and customer perceptions of service quality, that occurs at
the service climate-customer interface (Figure 3.1). Chapter Two examined in detail the
service quality construct so that the following discussion develops from that
examination.
Building and maintaining relationships with customers is a central component of
understanding how service quality leads to customer loyalty (Berry 1995a). Services
marketers seek to understand and assess the relationship between an organisation’s
practices and the level of commitment or loyalty that customers feel toward the service
organisation (Reichheld and Teal 1996; Schneider and Bowen 1995). The service
climate extends beyond the formal boundaries of the organisation so that when
management supports employees, employees support customers (Schneider 1990).
Organisations that pay the closest attention to their customers’ expectations and needs
are the organisations that are most likely to create conditions yielding a climate for
service, which in turn, yields behaviours that result in customer perceptions of service
quality (Schneider, White, and Paul 1998).
Parkington and Schneider (1979) found that there was a strong relationship between
employees’ and customers’ views of service quality, suggesting that there is a sharing of
86
perceptions about the organisation’s accomplishments. Schneider et al (1980) also
found that employees were sensitive to customer perceptions of service quality.
Schneider and Bowen (1985) tested the relationship between employee perceptions of
organisational practices and customer perceptions of service, to examine the
relationship between service quality attitudes and the intentions that both employees
and customers had of remaining with the organisation. The study proposed that the
same set of practices, and employee and customer perceptions of their outcomes, would
influence the level of loyalty of both customers and employees, so that loyalty of both
employees and customers should be positively related (Schneider and Bowen 1985).
The results suggested that customer perceptions, attitudes and intentions appear to be
influenced by what employees experience, both in their specific role of service
employees, and in their more general role as organisational members. Employee
perceptions of service-oriented practices and procedures were consistently related to
customer perceptions of specific aspects of the service provided, while customer and
employee perceptions of service quality were related (Schneider and Bowen 1985).
Importantly, Schneider (Schneider and Bowen 1985) also demonstrated that while
customer and employee perceptions of service quality were correlated, perceptions of
service quality were related to the intentions of customers to switch their accounts
elsewhere. The results suggested that employee reports of the service quality they
offered customers were somewhat related to customer turnover intentions. Since
employees both experience and help create the service climate, they are able to
accurately predict how customers rate service quality. Schneider and Bowen (1993)
found that the degree to which employees believe their work is facilitated, strongly
relates to customer perceptions of the service quality (Schneider and Bowen 1993).
In summary, Schneider and Bowen (1993) suggested that customer contact employees’
perceptions of the organisation’s service climate correlate with customers’ perceptions
of service quality, through the psychological and physical closeness that exists in service
encounters, so that services are judged for quality on cues experienced during the
delivery process. That is, when employees perceive that the service climate is
favourable, then customers will perceive that service quality is higher. It is the service
climate that provides many of these cues (Schneider and Bowen 1993). The suggestion
87
is that in the pursuit of service quality the service organisation’s managers should seek to
create a favourable climate for service.
3.7 Summary of Chapter Three, the service climate-customer interface relationship
Chapter Three investigated the nature of the service climate-service quality relationship
that occurs at the service climate-customer interface (Figure 3.1). The purpose of the
literature review was to examine the relationship between these two constructs as it
relates to the fourth research objective of the study. This objective concerns the
influence of the service climate on service quality. The study seeks to test the
proposition that a more favourable service climate as perceived by employees leads to
customer perceptions of higher levels of service quality.
88
CHAPTER 4 THE EMPLOYEE-ROLE INTERFACE
4.1 Overview of Chapter Four
Chapter Four of the literature review section aims to provide the foundation for the
fifth research objective which relates to the relationships among the attitudes that
employees have in regard to their role with the organisation. This set of relationships
occurs at the employee-role interface that is represented by the shaded areas in Figure
4.1. The relationships that occur at this interface, the employee self-efficacy-job
satisfaction, and job satisfaction-employee loyalty relationships, are indicated by the
connecting arrows.
Figure 4.1 The employee-role interface framework
The employee-role interface is where the relationships that directly influence employee
loyalty occur. The employee-role interface deals with the relationships among employee
behaviours, responses and attitudes (Hartline and Ferrell 1996). The implication is that
if a service organisation can take steps to positively influence employees’ perceptions of
their abilities to do their jobs, and to influence the degree to which employees derive
satisfaction from the performance of their jobs, then employees are more likely to
express loyalty to the organisation. The importance of the employee-role interface is
that it provides a mechanism by which service managers can potentially indirectly
Supp
ort
Con
trol
Behaviour Based
Evaluation
Work FacilitationResources
Direct Leadership
Support
Senior Leadership
Support
ManagementCustomerOrientation
EmployeeLoyalty
Managerial Practices
Employee Attitudes
Customer Loyalty
Service Quality
Customer Beliefs
Service Climate
Service Environment
Empowerment
Service Climate-Customer Interface Chapter 3
Managerial Control Practices-Employee Interface Chapter 6
Employee-Customer Interface Chapter 2
Managerial Practices-Service Climate Interface Chapter 5
Employee Self-Efficacy
Job Satisfaction
Employee-Role Interface Chapter 4
89
influence employee loyalty, by facilitating higher levels of self-efficacy and job
satisfaction.
The purpose of Chapter Four is to examine the literature that deals with the employee-
role relationships. By examining this literature, the nature and influence of employee
self-efficacy on job satisfaction, and job satisfaction on employee loyalty, can be
hypothesised.
Because the employee self-efficacy, job satisfaction and employee loyalty constructs
have been examined in detail in Chapter Two, Chapter Four deals directly with the
nature of the relationships that occur at the employee-role interface. First, there is an
examination of the literature that relates employee self-efficacy to job satisfaction,
followed by an examination of the literature that relates job satisfaction to employee
loyalty. Chapter Four concludes with a summary of the employee-role interface and the
nature of its impact in relation to the employee loyalty-customer loyalty relationship.
4.2 The employee self-efficacy-job satisfaction relationship
Hartline and Ferrell (1996) found that employee self-efficacy is significantly and
negatively correlated with job satisfaction, suggesting that those who have high levels of
self-efficacy are less satisfied with their jobs, perhaps because of the nature of the
customer-contact role in some service organisations. McDonald and Siegall (1992)
however, found a significant positive correlation between self-efficacy and job
satisfaction, because of the feelings of competence and confidence that arise from self-
efficacy (McDonald and Siegall 1992). In the context of academic learning, increases in
efficacy lead to an increased attraction to academic activities and a sense of fulfilment
through personal accomplishment (Bandura 1997).
Bandura (1997) notes that affective self-reactions to one’s own performances constitute
the principle source of reward, which suggests that personal satisfaction is one of the
primary outcomes of personal achievement.
Effective service provision and outcomes that employees achieve will be influenced by
self-beliefs. In some service situations, these achievements should lead to higher levels
of job satisfaction experienced by employees. The importance of self-efficacy as an
antecedent to job satisfaction is its impact on employee perceptions of performance
capabilities, and the value that the organisation places on the resultant customer-
90
oriented performances. High self-efficaciousness in an activity however, will not boost
self-satisfaction if the activity is not valued within the organisation (Bandura 1997).
Thus, self-efficacy is most valuable in supporting customer-oriented behaviours and
attitudes when organisations are oriented to the needs of customers. Management
customer orientation will indirectly effect the degree of job satisfaction as a result of
employee perceptions of the value management has for customer-oriented behaviours
and attitudes.
Meaning, competence, self-determination, and impact are four dimensions of
empowerment that together add a unique facet to an individual’s experience of
empowerment (Spreitzer 1995; Spreitzer, Kizilos, and Nason 1997). While Spreitzer et.
al. (1995; 1997) provide empirical support for this conceptualisation of empowerment,
considerable work supports the belief that each of these dimensions is a conceptually
separate construct, each with its own unique nomonological framework. The
competence dimension fits very well with Bandura’s conceptualisation of self-efficacy
(Bandura 1997). Spreitzer et al. (1997) do report however that self-efficacy and
competence are the same dimension of empowerment. Taken as a separate construct,
competence was found to contribute to both affective and performance outcomes of
employees’ work experiences (Spreitzer, Kizilos, and Nason 1997). That is,
competence, or self-efficacy contributes to employees’ sense of job satisfaction, since
employees are likely when feeling more competent to experience job-related
satisfactions. That is, empirical support exists for conceptualising self-efficacy as a
separate construct that directly influences job satisfaction.
In conclusion, a positive relationship between perceived self-efficacy and job
satisfaction is expected, since a high level of perceived self-efficacy creates interest
through engagement in activities and personal challenges including the acquisition of
generative skills. These generative skills support innovative means of doing the job,
which in turn leads to positive affective beliefs towards the job and the organisation
itself (Bandura 1997).
4.3 The job satisfaction-employee loyalty relationship
Job satisfaction is a key mediating variable between factors that management can
influence, and various employee-stated measures of attachment to the organisation,
including commitment, loyalty, and intentions to remain with the organisation. Porter
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and Steers (1982) report a high degree of association between high job satisfaction and
low turnover. In a study of the antecedents and consequences of organisational
commitment in early employment, job satisfaction was found to positively influence
organisational commitment (Johnston et al. 1990). The study also found that changes in
organisational commitment had a significant impact on the variation of employee’s
propensity to leave. That is, the link between organisational commitment and propensity
to leave is strong, as is the relationship between propensity to leave and actual quit
behaviour (Johnston et al. 1990). This suggests that job satisfaction is a key factor for
organisations to foster in their quest to influence employee leave or stay intentions.
Along with higher levels of organisational commitment, job satisfaction influences
discretionary behaviours of employees that directly contribute to the organisation, such
as advocacy of the organisation (Brown and Peterson 1993; Organ and Ryan 1995).
That is, job satisfaction will indirectly influence actual behaviour via organisational
commitment. Positive correlations were found between each of the five facets of the
JDI and organisational commitment and citizenship behaviours (Kinicki et al. 2002).
Satisfied employees are more likely to engage in extra-role behaviours (Mathieu and
Zajac 1990). Job satisfaction and commitment motivate employees to perform extra
role behaviours voluntarily (Organ and Ryan 1995). Van Dyne, Graham, and Dienesch
(1994) found that overall job satisfaction had a direct and positive relationship with the
organisational citizenship behaviour, loyalty, a finding that was later supported by
Bettencourt, Gwinner and Meuter (2001) in service-related settings.
Similar support was found in a study that examined antecedents of organisational
citizenship behaviours. Organisation citizenship behaviours are discretionary
behaviours that employees perform that directly promote the effective functioning of an
organisation (Netemeyer et al. 1997). Independent of a person’s objective performance,
these extra-role performances are a consequence of job satisfaction (Netemeyer et al.
1997). These behaviours included sportsmanship or fair play and seeing situations in
perspective, civic virtue, behaviours that responsibly show concern for the organisation
and its members, conscientiousness, behaviours over and above the role requirements,
and altruism, discretionary behaviours that help others in the organisation. MacKenzie,
Podsakoff, and Ahearne (1998) suggested that organisational commitment leads to
higher levels of extra-role performance which consequently reduces employee turnover.
Organisational commitment predicts turnover better than job satisfaction while
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intentions to leave remain the best predictor of actual turnover (Griffeth, Hom, and
Gaertner 2000).
Following Van Dyne, Graham, and Dienesch (1994) and Bettencourt, Gwinner, and
Meuter (2001), the conclusions of the literature review are that job satisfaction is a direct
positive driver of employee loyalty.
4.4 Summary of Chapter Four, the employee-role interface relationships
Chapter Four investigates the nature of the employee-role relationships that occur at the
employee-role interface (Figure 4.1). The purpose of the literature review was to
examine the relationships between employee self-efficacy, job satisfaction, and employee
loyalty as they relate to the fifth research objective of the study. This objective concerns
the influence of the effect of employee attitudes about their role on their loyalty
intentions. The study seeks to test the proposition that when employees feel more
capable in their jobs, they are more likely to be satisfied with those jobs and the
organisation, which in turn leads to increased commitment to the organisation in the
form of higher levels of employee loyalty.
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CHAPTER 5 THE MANAGERIAL PRACTICES-SERVICE CLIMATE INTERFACE
5.1 Overview of Chapter Five
Chapter Five of the literature review section presents an examination of the literature
that provides a foundation for research objective six that relates to the set of managerial
practices that drive loyalty manifestations within service organisations via the
organisation’s service climate. These practices influence the service climate at the
managerial practices-service climate interface in a service organisation, which is
represented by the shaded areas of Figure 5.1. The relationships between the
managerial practices and the organisation’s service climate as they occur at the
managerial practices-service climate interface, are represented in Figure 5.1 by the
connecting arrows.
Figure 5.1 The managerial practices-service climate interface framework
The managerial practices-service climate interface is where the relationships that directly
influence employee perceptions of the organisation’s service philosophy occur. The
implication is that if managerial practices in service organisations influence the
organisation’s service climate, then managers have a mechanism by which to support
and control the service climate, which communicates service imperatives to employees
Supp
ort
Con
trol
Employee Self-Efficacy
Job Satisfaction
EmployeeLoyalty
Managerial Practices
Employee Attitudes
Customer Loyalty
Service Quality
Customer Beliefs
Service Climate
Service Environment
Managerial Control Practices-Employee Interface Chapter 6
Employee-Customer Interface Chapter 2
Employee-Role Interface Chapter 4
Service Climate-Customer Interface Chapter 3
Behaviour Based
Evaluation
Work FacilitationResources
Direct Leadership
Support
Senior Leadership
Support
Managerial Practices-Service Climate Interface Chapter 5
ManagementCustomerOrientation
Empowerment
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and customers of the organisation. The importance of this interface to the study is that
the nature of the service climate can influence customers’ perceptions of service quality.
Thus managerial actions that form the foundations of, and foster the maintenance of
the service climate, must be understood in terms of how they enhance or detract from
the service climate.
The purpose of Chapter Five is to examine the literature that deals with the
relationships between managerial practices and an organisation’s service climate. By
examining this literature, the nature and influence of the set of managerial practices
become explicit and their effect as loyalty antecedents can be hypothesised.
The structure of Chapter Five is such that first is a general definition of managerial
practices in service organisations and an overview of what managerial practices are and
how they influence the service climate. The service climate construct was introduced
and discussed in detail in Chapter Four. Managerial practices are discussed in terms of
support and control practices.
Second is a general overview of the interface between support practices and the service
climate. The managerial support practices are direct leadership support, senior
leadership support, and work facilitation resources. Literature relating to each
managerial support practice is examined. The practice is defined and dimensions are
highlighted, along with relevant measurement issues. Following, the literature that links
the managerial support practice in question with an organisation’s service climate is
reviewed. This is followed by a general overview of the control practices-service climate
interface. The managerial control practices are management customer orientation,
employee empowerment and behaviour-based evaluation. The same sequence is used as
for support practices.
Finally, the managerial practices-service climate interface is discussed in the context of
the antecedents of the employee loyalty-customer loyalty relationship.
5.2 Managerial practices in service organisations
Leadership is any act of influence of organisational relevance that includes routine acts
of supervision and also guidance and control that go beyond routine (Katz and Kahn
1978). Managerial practices are the active management behaviours, processes and
attitudes that constitute the ongoing facilitation and achievement of the organisation’s
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short and long term goals (Schneider and Bowen 1985; Schneider, White, and Paul
1998).
A primary task of management is to channel and direct human energy towards the
activities, tasks, and objectives of the organisation (Kolb, Rubin, and Osland 1991).
Deeper organisational attributes, such as managerial competencies, human resource
routines, and operations routines, impact the organisation’s service climate, which in
turn influences customers’ service quality experiences (Reichers and Schneider 1990).
An examination of the dynamics of the relationships among internal functioning is
important to the understanding of employee and customer perceptions of the
organisation (Schneider, White, and Paul 1998).
These perceptions include perceptions of a service climate (Reichers and Schneider
1990; Schneider 1990; Schneider and Snyder 1975; Schneider, White, and Paul 1998),
employee perceptions of routines and practices that support employee behaviours and
satisfactions (Hartline and Ferrell 1996), employee and customer perceptions of service
quality (Hartline and Ferrell 1996; Schneider and Bowen 1985; Schneider, Parkington,
and Buxton 1980; Schneider, White, and Paul 1998), and employee and customer
reports of intent to remain with the organisation (Schneider and Bowen 1985;
Schneider, Parkington, and Buxton 1980).
The climate that customer contact employees create for their customers is an extension
and result of the climate management creates for employees (Schneider 1973).
Managerial practices impact on employee behaviour towards customers via the service
climate that impacts service quality. If service quality in turn impacts customer loyalty,
then the link between managerial actions and customer loyalty can be identified
(Schneider 1973).
Management must first lay the appropriate foundations for developing a service climate,
then focus on developing a service climate that facilitates and emphasises service quality
(Schneider, Gunnarson, and Niles 1994; Schneider, White, and Paul 1998).
Management practices directly influence the service climate via support and control
practices.
Schneider, White, and Paul (1998) proposed and partially tested the proposition that a
set of managerial foundation conditions support employee work and service quality in
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organisations. These foundation conditions are necessary for a climate for service, but
are not a sufficient cause of a climate for service. The climate for service results in
customer experiences (Schneider, White, and Paul 1998). A climate for service rests on
these foundation issues that require management policies and practices that centre on
service quality. Due to sample size considerations, this model was not tested directly.
However, the global construct, service climate, correlated with the organisation’s
services practices and foundation conditions at about the same magnitude, suggesting
that foundation conditions and service policies and practices are important for a global
service climate (Schneider, White, and Paul 1998). These findings endorse the proposal
that foundation conditions support a climate for service that in turn leads to customer
perceptions of service quality.
The researchers concluded that direct managerial practices and work facilitation
function as sets of service support practices (Schneider, White, and Paul 1998). The
service climate is related to overall customer perceptions of service quality and reflects
these service practices. That is, the global service climate is the result of a complex set
of systems issues, including both foundation issues and service policies and practices
(Schneider, White, and Paul 1998).
Considerable research suggests that an organisation’s service climate is the result of
employee actions, attitudes and outcomes. Indeed, much of the current research was
focused on clarifying nature and role the direct and indirect drivers of an organisation’s
service climate. Both this study, and the twenty or so years of research, most of it
associated with Schneider’s works, suggest that the service climate is an outcome, not a
driver of managerial actions and employee beliefs and attitudes. There was little to
suggest that the theoretical model should have been based on the reverse relationships.
Managerial control practices are the means that management use to effectively manage
customer contact employees so that their behaviours and attitudes are focussed on
customers and behaviours that are beneficial to the organisation (Hartline and Ferrell
1996). These control practices include management customer orientation, employee
empowerment and behaviour-based evaluation. Management customer orientation
impacts on employees by setting up mechanisms and processes that guide, instruct and
support employee behaviours and attitudes (Schneider, Gunnarson, and Niles 1994;
Schneider, White, and Paul 1998).
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The managerial practices of behaviour-based evaluation and employee empowerment
create the situation where employees are evaluated and rewarded on the basis of their
behaviour towards customers in relation to the organisation’s service orientation, and
are empowered to carry out those behaviours (Hartline and Ferrell 1996).
Customers often equate services with the employees who render them (Schneider and
Bowen 1985). The internal service climate visible to employees is experienced by
customers as a consequence of the psychological and physical closeness that exists
between employees and customers (Schneider and Bowen 1993). In many service
situations, customers will also have some direct contact with the service climate via
quality service based on the cues that are experienced during the delivery process.
In conclusion, in service organisations managerial practices result in outcomes that
influence the organisation’s service climate and also influence later employee attitudes
and behaviours. These practices can be classified as either control practices or support
practices. Support practices are those that facilitate and support the provision of service
and service quality in the organisation. Control practices are those that guide, instruct
and manage employee behaviours and attitudes in relation to service provision.
5.3 The managerial support practices-service climate interface
This section examines the general impact of managerial support practices on an
organisation’s service climate.
In the pursuit of service quality, managers need to create two related but different
climates, a climate for service and a climate for employee wellbeing. A climate for
service requires practices such as systems and logistic support, so that customers feel
their needs are being met. A climate for employee wellbeing serves as a foundation for
a climate for service (Schneider and Bowen 1993). Management must make continual
investments to support customer contact employees, in the form of technology and
processes that supports frontline people in relation to customer service (Schneider,
White, and Paul 1998).
Employee-customer relationships are paramount in services organisations and
potentially have more of an impact on customer perceptions than in other types of
organisations (Zeithaml, Berry, and Parasuraman 1996). Creating and maintaining a
climate is a function of many facets of the organisation operating relatively
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simultaneously and independently but all focused on a particular organisational
imperative (Schneider, Wheeler, and Cox 1992). These complex issues require active
management input so that employees are aware that the employing organisation has a
particular strategic objective. Organisations can foster a service climate by establishing
practices that facilitate service delivery, and make choices to adopt certain practices and
procedures that support the development of a positive service climate (Schneider 1990).
Further actions in the organisation that focus directly on service quality yield a service
climate (Schneider 1980; Schneider and Bowen 1985).
From the customers’ perspective, service climate is the overall perception that
customers have of their service provider (Schneider 1980; Schneider 1990; Schneider,
White, and Paul 1998). Schneider conceptualises perceived service climate as an
intervening variable, a global perception based on specific service related events but
preceding customer account switching (Schneider 1980; Schneider 1990; Schneider,
White, and Paul 1998).
From the employees’ perspective, the service climate is the shared perception of the
events, practices, and procedures as well as perceptions of the behaviours that are
rewarded, supported and expected (Schneider, Wheeler, and Cox 1992), and that
influence the customers’ experience of the service climate. Customers’ experience of
this service climate is thought to impact on their perceptions of service quality. A
service climate rests on direct and higher level managerial practices and work facilitation
resources (Schneider and Bowen 1995; Schneider, White, and Paul 1998).
In conclusion, the degree to which employees believe their work is facilitated and
supported strongly relates to customer perceptions of service quality (Schneider and
Bowen 1993). In the pursuit of service quality, managers need to create two related but
different climates, a climate for service and a climate for employee wellbeing. The
conclusion is that a climate for employee well-being serves as a foundation for a climate
for service (Schneider and Bowen 1993). Those organisations that create the proper set
of support conditions for employee work have also provided a basis for the
development of a service climate (Schneider, White, and Paul 1998).
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5.4 The direct leadership support construct
This section of Chapter Five provides an overview of the managerial support practice,
direct leadership support. In the sections following is a definition of the construct, the
dimensions of the construct developed from the literature, and the measurement issues.
Finally, Section 5.8 summarises the literature relating to the relationship between direct
leadership support and an organisation’s service climate.
Managerial function is the set of active management behaviours and processes that
constitute the ongoing facilitation and achievement of the organisation’s short and long
term goals (Schneider and Bowen 1985; Schneider, Parkington, and Buxton 1980).
Managerial function, manifest as direct leadership, typically constitutes primary
relationships, the direct interactions between customer contact employees and their
immediate supervisor. In these relationships, acts of leadership and management
practice use existing organisational devices and follow established organisational rules
(Katz and Kahn 1978).
However, the exercise and administration of existing rules goes beyond process.
Elements of direct leadership include interpersonal issues such as supervisor
consistency, supportiveness and fairness. These practices and interpersonal elements
constitute a layer between the employee and the larger organisation that facilitates the
development, implementation, and ongoing nature of the service climate (Schneider,
White, and Paul 1998). From the employees’ perspective, direct leadership support is
the degree of support and consideration that employees perceive they receive from their
immediate supervisor (Netemeyer et al. 1997).
5.5 Defining direct leadership support
For this study, direct leadership support is considered as an organisation’s employees’
positive perceptions of and overall satisfaction with, the acts of leadership and
management practice by their immediate supervisor that signal support and
consideration.
5.6 Dimensions of the direct leadership support construct
Supervisory behaviour has a significant impact on employees’ work attitudes (Kohli
1985). Supportive supervisory characteristics include supportive behaviours such as
consideration for employees, communication effectiveness and closeness to co-workers
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(Singh, Verbeke, and Rhoads 1996), and providing guidance, fair treatment and a
positive environment in regard to employee input (Netemeyer et al. 1997).
Consideration is the concern that supervisors show for employees in the form of a
facilitative environment of psychological support, mutual trust, friendliness, and
helpfulness (Singh 1993).
Supervisory behaviours such as providing feedback and sharing information have a
positive effect on employee perceptions of the organisation as a place to work
(Schneider and Bowen 1993). Similarly, when managers are seen by employees to
perform managerial functions such as supporting new ideas from employees and
facilitating the use of differing skills towards achieving workplace goals, customers
report good overall quality in service situations (Schneider, Parkington, and Buxton
1980).
Supervisors who provide more accurate and timely communication enhance the work
environment, such that employees are more likely to be loyal to the organisation, while
overall positive perceptions of supervisory practices foster positive affective responses
(Mathieu and Zajac 1990). For example, the nature and quality of the interaction that
managers have with employees influence employee job satisfaction. That is, supervisory
behaviours such as showing greater consideration for employees and more frequent
communication improve job satisfaction (Brown and Peterson 1993). Overall,
supportive leadership is seen to increase job satisfaction (Netemeyer et al. 1997).
Finally, overall satisfaction with supervisors appears to be strongly influenced by the
level of guidance that is given in relation to how to perform tasks, and the degree to
which feedback is given in relation to workplace behaviours rather than feedback based
solely on output performance (Jaworski and Kohli 1991).
In conclusion, the literature suggests that the key dimensions of the managerial support
practice, direct leadership support, include perceptions of the type and frequency of
communication, especially in terms of providing guidance and sharing information, the
consideration of employees by supervisors in terms of valuing employee input,
facilitating and coordinating work activities to achieve workplace goals, and the overall
satisfaction employees have with supervision and their direct supervisors.
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5.7 Measurement issues relating to the direct leadership support construct
One set of measures of direct leadership support focuses on employee evaluations of
specific supervisor activities and behaviours in the workplace. These measures
encompass the supervisor’s ability to achieve goals in terms of detailed facets of the
service environment (Schneider and Bowen 1985; Schneider, Parkington, and Buxton
1980).
Another set of measures of direct managerial support focuses on employee evaluations
of more general behaviours and approaches in the workplace such as communication
strategy and style, general facilitation of workplace goals, and subordinates’ overall
consideration of satisfaction with their immediate supervisor (Schneider and Bowen
1993; Schneider, White, and Paul 1998).
The implications are that direct managerial support can be measured either from a
detailed perspective so that the incidence of specific practices is measured, or measures
can encompass the more broad stance of supervisors in terms of their more general
support of employees in the service organisation’s employees’ quest to provide for
customers. For the current study, overall measures of direct leadership support are
considered appropriate because they attempt to capture employees’ perceptions of the
overall level of support and consideration shown by immediate supervisors, and the
overall satisfaction with that supervision.
5.8 The direct leadership support-service climate relationship
Supervisors who engage in timely and accurate communication with staff enhance the
work environment (Mathieu and Zajac 1990). Supervisory behaviours impact employee
attitudes and behaviours, since the immediate supervisor is often the employee’s primary
link with the organisation (Johnston et al. 1990). Branch manager support for good
service includes the degree to which branch managers assume the traditional functions
of giving good service at an everyday activity level, such as planning, coordinating, goal
setting, and establishing routine (Schneider 1980). Supervisory behaviours include
providing feedback, sharing information, and planning, organising, and managing for
service in the employee-customer environment (Schneider and Bowen 1993).
These functional managerial practices foster the development of a positive service
climate (Schneider 1980; Schneider, White, and Paul 1998) which in turn correlates with
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customer perceptions of higher quality service (Schneider, Wheeler, and Cox 1992).
Specifically, Schneider, White and Paul (1998) found that the effects of direct
supervisory practices are significantly related to an organisation’s global service climate
that predicts customer perceptions of service quality.
In conclusion, the literature review of the direct leadership support-service climate
relationship suggests that the nature of this support and employees’ perceptions of its
effectiveness have a significant influence on an organisation’s service climate. In terms
of the antecedents of loyalty manifestations in service organisations, the conclusion is
that this managerial support practice-service climate relationship would have important
and enduring effects in the organisation in the long term that indirectly influence
customer loyalty.
5.9 The senior leadership support construct
This section of Chapter Five provides an overview of the managerial support practice,
senior leadership support. Following is the definition of the construct, then the
dimensions of senior leadership support are developed from the literature and
measurement issues are outlined. Finally the literature relating to the relationship
between direct leadership support and the service climate is summarised.
Higher level leadership typically encompasses secondary relationships between senior
leaders and employees. Higher level leadership seeks to create strategy, formulate and
perpetuate organisational values, and direct the achievement of organisational goals and
practices towards employees, customers and other stakeholders (Schneider and Bowen
1985; Schneider, White, and Paul 1998).
5.10 Defining senior leadership support
For this study, senior leadership support is defined as the behaviours and attitudes that
are visible to employees throughout the organisation that communicate and direct the
overall strategies and values of the organisation.
5.11 Dimensions of the senior leadership construct
Higher level leadership typically involves secondary relationships that are interpersonal
transactions required by an employee’s organisational role. Senior leaders seek to create
strategy, formulate and perpetuate organisational values, and direct the achievement of
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organisational goals and practices towards employees, customers and other stakeholders
(Schneider and Bowen 1985; Schneider, White, and Paul 1998). Employees observe and
perceive what is around them and draw conclusions that inform them of the
organisation’s priorities which in turn they use to make decisions regarding their own
priorities and orientation (Schneider, Gunnarson, and Niles 1994). This process is an
important factor in creating a service climate. Employees make these decisions often
unconsciously. Senior managers create climates within organisations and must act in
ways that lead employees to make the kinds of decisions that result in commitment to
senior management’s values (Schneider, Gunnarson, and Niles 1994).
For an organisation to develop the type of climate that senior management desires,
employees must be able to recognise that management espouses the attendant values,
such as commitment to service, so that they can then adopt and share these values. An
employee and customer orientation can only be effective when the organisation puts in
place the necessary structures, processes and incentives to operationalise the
organisation’s values (Hartline, Maxham, and McKee 2000). Finally, perceptions of
senior leadership support rest on the belief by employees that their managers make and
keep commitments in the long term to support both employees and uphold the
organisation’s values (Katz and Kahn 1978).
Ambiguity in the workplace tends to impede employee job satisfaction and increase
turnover intentions (Brown and Peterson 1993). Katz and Kahn (1978) suggest that an
important function of senior management is develop paths and processes that assist
organisational members to deal with change, ambiguity and uncertainty.
In conclusion, the underlying dimensions of the managerial support practice senior
leadership support identified from the literature relate to management’s consistent
demonstration of and commitment to the set of values that signal to employees that
management has a customer and employee orientation. As well as attention to the
organisation’s values, senior leaders also are the source of guidance in terms of
organisational change and dealing with ambiguity.
5.12 Measurement issues relating to the senior leadership construct
Measurement of employee perceptions of senior leadership support focuses on
employee evaluations of the underlying dimensions of consistent demonstration of and
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commitment to the organisation’s values, and of senior management as a source of
guidance in terms of organisational change and dealing with ambiguity. Katz and Kahn
(1978) provide substantive support for this concept as a measurable construct, without
providing specific measurement instruments.
5.13 The senior leadership support-service climate relationship
Senior leaders typically take charge of relating sub-systems of an organisation to the
external environment, by facilitating adaptation to change, coordinating and adjudicating
competing internal and external goals to maintain balance and working structure, and
managing the processes of teaching and learning of organisational roles (Katz and Kahn
1978). Senior leaders formulate the organisation-wide service strategies and
organisational structures that develop and guide the customer orientation of service
firms.
Since senior leaders formulate and communicate strategy, navigate organisations
through times of change and uncertainty, and are powerful role models that
communicate the organisation’s values and service imperatives to the organisation’s
members and customers, senior leaders have a direct impact on the service climate that
exists in service organisations (Hartline, Maxham, and McKee 2000; Katz and Kahn
1978; Schneider, Gunnarson, and Niles 1994).
In conclusion, when senior leadership is seen to support employees and consistently
espouses organisational values that focus on guiding the organisation towards success
including a positive orientation towards employees and customers, then the structures
and processes are in place to create and sustain a positive service climate.
In terms of the antecedents of loyalty manifestations in service organisations, the
conclusion is that the senior leadership support-service climate relationship helps create
the service climate in service organisations. These facilitate the development of
perceptions by customers regarding service quality and would have important and
enduring effects in the organisation.
5.14 The work facilitation resources construct
This section of Chapter Five is an overview of the managerial support practice, the
provision of work facilitation resources. First is the definition of the construct,
followed by discussion of the dimensions of the construct developed from the literature
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and a discussion of measurement issues. Finally in relation to work facilitation
resources is a summary of the literature relating to the relationship between work
facilitation resources and the service climate.
The view that work facilitation resources are available depends on the customer contact
employees’ perceptions that the organisation makes available sufficient information
support, technology support, budget support, and the physical requirements to allow
employees to perform effectively (Loveman 1998; Schneider, Wheeler, and Cox 1992;
Schneider, White, and Paul 1998; Sergeant 2000).
5.15 Defining work facilitation resources
For the purpose of this study, work facilitation resources are defined as the
organisational and job conditions that enhance or inhibit task performance including the
physical, technical and information resources that facilitate customer-oriented service
delivery.
5.16 Dimensions of the work facilitation resources construct
Work facilitation includes organisational and job conditions that enhance or inhibit
employees in the performance of their job-related tasks (Schneider and Bowen 1985;
Schneider, White, and Paul 1998). Typically this involves the provision of the various
resources to support customer-oriented service delivery. These include the physical,
technical, informational and financial resources that facilitate customer-oriented service
delivery (Schneider and Bowen 1985; Schneider, White, and Paul 1998). Physical
resources include the necessary tools, equipment and supplies to provide appropriate
service to customers. Technical and informational resources include such systems as
appropriate technology, accessible operations and systems support services, and access
to information systems, including personnel support (Schneider and Bowen 1993).
Financial resources include budgets, and available funds to adequately support ongoing
work performance.
In conclusion, the relevant dimensions of work facilitation resources identified from the
literature are the provision of the physical, technical, informational and financial
resources that facilitate customer-oriented service delivery.
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5.17 Measurement issues relating to the work facilitation resources construct
Early operationalisation of the work facilitation resources construct included items
concerning specific facets of facilitation including the provision of basic supplies and
provisions and that equipment and facilities were functioning and maintained
(Schneider, Parkington, and Buxton 1980; Schneider, Wheeler, and Cox 1992). More
recently, measures have focussed on more general perceptions in the workplace that
resources are provided that support and facilitate the development of perceptions of a
positive service climate (Schneider, White, and Paul 1998).
The implications are that the provision of work facilitation resources can be measured
either from a detailed perspective so that the provision of specific resources is
measured, or that measures can encompass the more general provision of resources in
terms of more general support of employees in the service organisation’s employees’
quest to provide for customers.
5.18 The work facilitation resources-service climate relationship
Schneider, White and Paul (1998) established that work facilitation resources precede a
climate for service, which in turn precedes customer perceptions of service quality.
That is, work facilitation resources provide a foundation for a service climate. The
implication is that when employees’ work is facilitated via supporting mechanisms such
as adequate resources then they can devote themselves to meeting the demands of
customers (Schneider, White, and Paul 1998). By providing the working conditions for
delivering excellent service, management supports employees in their efforts to do so
because employees have the resources necessary. Because employees feel that their
work is facilitated in turn customers perceive the service to be better (Schneider and
Bowen 1985). A focus on service quality and employee well-being alone without the
provision of appropriate work facilitation resources is insufficient for the development
of a positive service climate (Schneider and Bowen 1993).
In conclusion, the literature suggests that when work facilitation resources are available
to support employees in their work, then the structures and resources are in place to
sustain a positive service climate.
In terms of the antecedents of customer loyalty in service organisations, work
facilitation resources support the service climate in service organisations because
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resources are in place to signal that the service climate is oriented to providing quality
service, and that employees can focus on the behaviours and attitudes that enhance the
customer experience. This relationship is important to the development of customer
loyalty because when management provide the necessary resources then employees are
better facilitated in their activities and can convey to customers that service quality is a
personal and organisational priority.
5.19 The managerial control practices-service climate interface
This section examines the general impact of managerial control practices on an
organisation’s service climate.
Churchill, Ford and Walker (1976) suggested that employees will be less satisfied with
aspects of their job that are under direct management control, such as organisational
policies, support, pay, promotion, and supervisors, and more satisfied with the general
nature of their jobs. Thus overall employee attitudes are influenced by many factors
including organisational characteristics, interpersonal relationships, and other aspects of
the work environment which represent the employee’s perceptions of the work situation
(Churchill, Ford, and Walker 1976). Since managerial actions influence employee
responses (Singh 1993), the work environment of service employees has a strong
influence on how customers experience the service and can ultimately influence
customers’ service experience (Schneider and Bowen 1985).
Hartline and Ferrell (1996) proposed that the formal managerial control mechanisms,
employee empowerment, and behaviour-based employee evaluation, influence customer
perceptions of service quality and the service encounter as a result of the responses of
customer contact employees. Managers who are committed to service quality are more
likely to empower their employees and use behaviour-based evaluation strategies. This
is based on the assumption that the responses of customer-contact employees influence
customers’ perceptions of service quality and the service encounter. The extent to
which employees perceive that the firm is oriented to customer needs also has a direct
influence on the behaviours of employees in their interactions with customers (Siguaw,
Brown, and Widing 1994).
When management provides for employees, employees will provide for customers
(Schneider and Bowen 1985). Management in organisations make choices, implicitly or
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explicitly, to adopt certain practices and procedures and to reward and support certain
behaviours such that even implicit goals become clear to the organisation’s employees
(Schneider 1990). These practices and procedures and the activities that are rewarded
and supported play a critical function in organisations. Employees use these as criteria
on which to base their work decisions.
In conclusion, at the managerial control practices-service climate interface, the degree to
which managers empower employees, use reward and control mechanisms such as
behaviour-based evaluation to guide customer-related behaviours, and implicitly and
explicitly demonstrate a customer orientation, influences employee behaviours and
attitudes. These behaviours and attitudes influence the organisation’s service climate,
which in turn impact on customer perceptions of the organisation’s service quality.
5.20 The management customer orientation construct
This section of Chapter Five is an overview of the managerial control practice,
management customer orientation. In the following sections, the management
customer orientation construct is defined and the dimensions of the construct are
developed from the literature. Measurement issues are discussed and the literature
relating to the relationship between management customer orientation and an
organisation’s service climate is examined.
Customer orientation is the philosophy implied by the policies, procedures, and goals of
management in relation to the provision of customer oriented service (Parkington and
Schneider 1979). Customer orientation is the behavioural component of an
organisation’s market orientation, and includes all of the activities involved in acquiring
and disseminating information about customers, competitors and market information,
throughout the organisation (Narver and Slater 1990).
5.21 Defining management customer orientation
For this study, management customer orientation is defined as the philosophy implied
by the policies, procedures, and goals of management, that support the set of beliefs
that puts the customer’s interests first, so that the values and beliefs of the organisation
reinforce this customer focus.
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5.22 Dimensions of the management customer orientation construct
A customer orientation implies a sufficient understanding of the organisation’s target
customers to enable the organisation to create continuous superior value (Narver and
Slater 1990). This is based on the set of beliefs that puts the customers’ interests first,
so that the values and beliefs of the organisation reinforce this customer focus
(Deshpande, Farley, and Webster 1993).
A customer orientation also implies that the organisation also understands changes over
time to customers’ value requirements (Narver and Slater 1990). Management customer
orientation acts as a control mechanism because it guides and directs employees to the
philosophy that management expects employees should adopt in relation to customer
service.
5.23 Measurements issues relating to the management customer orientation construct
Management customer orientation is the degree to which an organisation emphasises
meeting customer needs and wants in relation to service quality (Schneider, White, and
Paul 1998). Narver and Slater (1990) measure management’s customer orientation using
items related to management’s commitment to customers, the creation of customer
value, understanding of customer needs, and customer satisfaction-related issues. The
Customer Orientation Scale (Schneider, White, and Paul 1998) measures the degree to
which an organisation emphasises meeting customer needs and expectations for service
quality. These measures suggest that measuring management customer orientation
relates to identifying and capturing information in relation to the set of processes that
facilitates the organisation’s quest to implement the philosophy that is implied by
management customer orientation.
This suggests that the measurement of management customer orientation relates to
capturing employees’ perceptions about the degree to which management has set in
place processes and a philosophy that directs the organisation’s resources and activities
towards providing for customer needs and wants, and meeting customer expectations.
Measures of management customer orientation thus capture employees’ beliefs about
management’s customer orientation.
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5.24 The management customer orientation-service climate relationship
The relationships that service employees have with customers is a function of
management’s orientation to customer service. This has been conceptualised as
customer orientation, the service philosophy implied by the policies, procedures, and
goals of management (Parkington and Schneider 1979).
Management commitment to service quality is the conscious choice of quality initiatives
as operational and strategic options for the firm, and participation in activities such as
visible service leadership that facilitate the adoption and implementation of quality
initiatives (Hartline and Ferrell 1996). This choice involves a strong managerial
commitment to quality improvement, and a visible and active involvement in the
quality-improvement process. The outcome of this commitment is customer
perceptions of service quality, which is the difference between customer expectations of
service quality and customers perceptions of the actual service (Zeithaml, Berry, and
Parasuraman 1996).
Management can encourage a customer-oriented philosophy in an organisation by
providing resources and reward systems to support and motivate employees (Siguaw,
Brown, and Widing 1994).
Employees and customers of service organisations experience positive outcomes when
the organisation operates with a customer service orientation (Schneider 1980). This
orientation seems to result in superior service practices and procedures that are
observable by customers and that seem to fit employee views of the appropriate style
for dealing with customers (Schneider 1980).
In conclusion, the literature review suggests that management customer orientation
precedes the establishment of a service climate (Schneider, White, and Paul 1998) which
in turn facilitates customer perceptions of service quality.
In terms of the antecedents of customer loyalty in service organisations, it is expected
that management customer orientation has a strong relationship with the service climate
in service organisations. When the organisation has a customer orientation, practices
are in place that signal that the organisation is oriented to providing quality service. The
management customer orientation-service climate relationship is important to the
development of customer loyalty because it facilitates the dissemination of knowledge
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about customers and supports the ongoing and evolving satisfaction of customer needs
(Narver and Slater 1990).
5.25 The employee empowerment construct
Following is an overview of the managerial control practice, employee empowerment.
First, the definition of the construct is provided, then the dimensions of the construct
are developed from the literature, and the measurement issues are discussed. The last
section summarises the literature relating to the relationship between direct leadership
support and the service climate.
As an overview, empowerment is the process by which a leader or manager shares his or
her power with subordinates (Conger and Kanungo 1988) and enables employees to
perform their role to facilitate both management and customer requirements.
5.26 Defining employee empowerment
For this study employee empowerment is defined as the state where customer contact
employees have the discretion to make day-to-day decisions about job-related activities
and processes, can influence organisational policies that relate to their workplace, and
can use their judgment without fear of punishment.
5.27 Dimensions of the employee empowerment construct
Empowerment can be viewed as the process of enabling employees by giving them the
power and autonomy to exercise control over job-related situations and decisions
(Conger and Kanungo 1988). Leadership and supervisor practices that are empowering
include fostering opportunities to participate in decision-making, providing autonomy
from bureaucratic constraint, and goal setting (Conger and Kanungo 1988). Greater
autonomy in employee roles allows employees freedom and discretion in planning and
determining the procedures for accomplishing their role requirements, and helps
employees cope with the unique demands of their role (Singh 1993).
Managers who enable empowerment in the workplace create a situation where they give
employees the discretion to make day-to-day decisions about job-related activities
(Bowen and Lawler 1992; Conger and Kanungo 1988). That is, managers can influence
the level of knowledge and control that employees have (Bitner, Booms, and Tetreault
1990). By allowing customer contact employees to make these decisions, the manager
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relinquishes control over many aspects of the service delivery process. Thus, employee
empowerment is the state where employees have the discretion to make day-to-day
decisions about job-related activities and processes (Hartline and Ferrell 1996; Hartline,
Maxham, and McKee 2000).
Empowerment is thought to be necessary because contact employees need the flexibility
to make on-the-spot decisions to completely satisfy customers (Hartline and Ferrell
1996). Allowing contact employees to use their discretion in serving customers has
many positive influences on their responses and the service encounter. Management
support for customer service should be made tangible by involving service workers and
by empowering customer contact employees with flexibility in carrying out their work
(Schneider, Brief, and Guzzo 1996).
When employees can influence policies and procedures of the firm, these policies and
procedures are more likely to be accepted and understood, and employees should be
more satisfied with the policies themselves (Churchill, Ford, and Walker 1976). The
manner in which policies and practices are developed, administered, and controlled is as
important as the policies and practices themselves (Churchill, Ford, and Walker 1976).
Empowerment should have a positive influence on the attitudinal and behavioural
responses of customer contact employees since those who perceive increased discretion
and flexibility in their jobs experience an increase in their confidence in performing job-
related tasks, and in their ability to adapt to changing conditions within the service
encounter (Hartline, Maxham, and McKee 2000). Employees also often feel more
confident in their ability to contribute to the firm’s success, a result that fosters creative
thinking and problem solving (Kelley, Longfellow, and Malehorn 1996). Empowerment
in service firms tends to focus on developing a corporate structure in which frontline
employees eagerly perform their tasks of satisfying the customers by using their best
judgment to tailor-make solutions that satisfy the customers and are in the
organisation’s best interests (Rust, Zahorik, and Keiningham 1994).
Empowerment brings several advantages to service firms (Bowen and Lawler 1992).
These include faster response to customer needs and problems, more satisfied
employees, enthusiastic and warm customer interactions, innovative new ideas, and loyal
customers. Empowered employees are more likely to exhibit customer oriented
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behaviours because they become more flexible and adaptive in the face of changing
customer needs (Hartline, Maxham, and McKee 2000).
Giving employees control empowers them to act in the customers’ interests by
correcting problems and responding in effective ways (Bitner, Booms, and Tetreault
1990). The lack of authority to act is a key reason why employees believe they cannot
recover from a service failure or alter service procedures to facilitate customers needs
(Bitner, Booms, and Mohr 1994).
Hartline, Maxham, and McKee (2000) view empowerment primarily as a management-
initiated process control mechanism. Self-control in organisations refers to employee
behaviour which is functional in terms of the goals of the organisation as defined by the
control system and motivated by factors other than the fear of punishment or extrinsic
rewards (Lawler 1976). Self-control results in behaviours that are functional,
intrinsically motivated and based on organisational goals.
For empowerment to work effectively a service firm must also reduce its reliance on
standardised rules and procedures. Rigid rules can inhibit the ability of customer
contact employees to exercise their empowered authority to respond to customer needs
on the spot. High formalisation generally dictates that employees must first seek the
input of management before acting on customer concerns or requests (Hartline,
Maxham, and McKee 2000). Such bureaucracy is undesirable in customer-oriented
service firms, because it slows and stifles employees’ responses to customers. From a
management perspective, empowerment is the degree to which managers allow
employees to use their own initiative and judgment on the job (Hartline, Maxham, and
McKee 2000).
In conclusion, the literature suggests that the underlying dimensions of the
empowerment construct highlight that empowerment is a management control process
in that management relinquishes control over many aspects of the service delivery
process (Hartline and Ferrell 1996). The dimensions encompass the degree to which
management allows employees to make their own decisions and informs employees
about their job responsibilities in relation to decision-making and job performance.
Finally, for employees to feel empowered they must be able to act without fear of
punishment.
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5.28 Measurement issues relating to the empowerment construct
Hartline and Ferrell (1996) operationalise empowerment from the manager’s
perspective. These measures include whether managers encourage the use of judgment
in problem solving, the use of initiative, and to what degree initiative can be exercised.
Lawler (1996) emphasises that for employees to be empowered, they also must feel that
management supports the outcomes of that empowerment, so that employees are free
to make decisions and act without fear of punishment. This important distinction
should be reflected in the measurement of employee empowerment. Empowerment
operationalised from the employees’ point of view measures the degree to which
employees feel they are empowered in the workplace.
The implication is that if the employees’ view is important to the measurement of
empowerment, then the measurement must take place from the point of view of the
degree to which employees feel empowered, rather then whether or not management
believes they take steps to empower their employees.
5.29 The empowerment-service climate relationship
Empowered employees are more likely to exhibit customer oriented behaviours, because
they become more flexible and adaptive in the face of changing customer needs (Bowen
and Lawler 1992). Bateson (1985) argues that contact employees are better able to
satisfy customers when the employee has some control over the service encounter.
An organisation’s climate is linked to antecedent variables, such as internal structure and
environment, and serves as an important determinant of individual and organisational
outcomes (Lindell and Brandt 2000). Organisations develop different and distinctive
normative climates which reflect the organisation’s internal and external history, the
types of people employed, the work processes and layout, the modes of communication,
and the exercise of authority within the system (Katz and Kahn 1978).
Earlier a service climate was defined as a psychological perception that an organisation’s
employees and customers have of the events, practices, and procedures and the kinds of
behaviours that are rewarded, supported, and expected in an service environment
(Reichers and Schneider 1990). A set of foundation conditions support employee work
and service quality in organisations (Schneider, White, and Paul 1998). These
foundation conditions are necessary for a climate for service, but not sufficient cause of
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a climate for service, which results in employee and customer perceptions and
experiences (Schneider, White, and Paul 1998). A climate for service rests on these
foundation issues and requires management policies and practices that centre on service
quality. These foundation conditions yield a climate for service that in turn leads to
customer perceptions of service quality.
Correlations exist between customer perceptions of service quality and employee
perceptions of an organisation’s human resource policies (Reichers and Schneider 1990).
In organisations where human resources practices and procedures promote employee-
wellbeing and are perceived as treating employees well, customers report that they
receive high quality service (Schneider, Gunnarson, and Niles 1994). Organisations
expect and reward certain behaviours and when employees feel enabled to perform
those expected and rewarded behaviours, they feel empowered (Schneider, Brief, and
Guzzo 1996). That is, when employees encounter human resource practices that
facilitate a more positive experience for themselves, they will create a more positive
experience for customers (Reichers and Schneider 1990).
Schneider and Bowen (1993) suggest that human resource practices should focus on
customer-expected service attributes, so that employee empowerment, where employees
are enabled to exercise personal discretion in service encounters, should only be
facilitated when customers desire flexible and adapted service (Schneider and Bowen
1993). In many high contact service organisations, customers desire flexible and
individual service, so that employee empowerment would be crucial to the provision of
a service climate that supports customers’ perceptions of high service quality.
In conclusion, empowerment aids in the dissemination of a customer-oriented strategy
through increased employee flexibility and adaptation and reduced decision times, so
that empowered employees can more effectively meet customers’ needs (Hartline,
Maxham, and McKee 2000). That is, when employees sense they are empowered by
management, their perceptions that a positive service climate exists will be heightened,
and customers will benefit in terms of service quality because employees have the
responsibility and authority to act in their best interests, in the context of the
organisation’s policies and procedures.
This literature review suggests that employee empowerment fosters a positive service
climate which in turn facilitates customer perceptions of service quality. In terms of the
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antecedents of customer loyalty in service organisations, the conclusion is that employee
empowerment has a positive relationship with the service climate in service
organisations. When the organisation empowers employees, processes are in place that
support the provision of quality service. The employee empowerment-service climate
relationship is important to the development of customer loyalty because it facilitates
the devolution of control to those who satisfy customer needs (Hartline and Ferrell
1996).
5.30 The behaviour-based evaluation construct
This section is an overview of the managerial control practice, behaviour-based
evaluation. In following sections, the construct is defined and the dimensions of
behaviour-based evaluation are developed from the literature. Following, the
measurement issues are discussed and finally the literature relating to the relationship
between behaviour-based evaluation and an organisation’s service climate is addressed.
Broadly speaking, employees are rewarded on the basis of some combination of the
outcomes they achieve, the behaviours that they engage in, and other elements that may
not be directly related to their performance or achievements.
5.31 Defining behaviour-based evaluation
Behaviour-based evaluation is the perception employees have that they are rewarded on
the basis of their performance in regard to the organisation’s goals, and that they receive
constructive performance feedback and recognition for organisational contributions in a
manner that encourages and supports employees in their quest to achieve positive
outcomes for themselves and the organisation.
Behaviour-based evaluation includes the employee’s perceptions of the organisation’s
expectations of them in regard to the organisation’s service orientation, and the degree
to which those customer-oriented behaviours are rewarded.
5.32 Dimensions of the behaviour-based evaluation construct
Control systems in organisations strongly influence the behaviours that are present in
organisations (Lawler 1976). Control refers to the task of ensuring that planned
activities are producing the desired results. In many organisations rewards are tied into
control systems, which can lead to employees seeking to perform well on those areas
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measured by the control system that are rewarded. This can either be dysfunctional, or
may be a major motivation for employees to perform their jobs in ways that make the
organisation effective (Lawler 1976).
Rewards in organisations are utilised to maintain specified role performance according
to a set of rules (Katz and Kahn 1978). Employees are attracted to and encouraged to
remain in organisations to satisfyingly perform a role. To do so, organisations seek to
ensure that rewards hold and motivate employees, with remuneration, prestige and
status, gratification from interesting work and organisational or product identification,
and satisfaction from decision-making (Katz and Kahn 1978).
Employee behaviours are important in service settings because service customers
evaluate the service process when assessing service quality (Parasuraman, Zeithaml, and
Berry 1985). Various means exist to reward employees. Behaviour-based evaluations
are those that reward employees in relation to the satisfactory performance of desired
activities in relation to the employee’s role in the organisation, and the possession of
desired attitudes towards chosen goals (Anderson and Oliver 1987; Cravens et al. 1993;
Hartline and Ferrell 1996). In some organisations the performance of contact
employees is measured by output, which may not be appropriate for service firms
attempting to measure employee performance of quality service (Zeithaml, Berry, and
Parasuraman 1988).
Performance can be measured through behavioural control systems based on measures
of the way employees work or behave. The use of behaviour-based systems encourages
employees to provide service that fits with customer perceptions of quality service
(Zeithaml, Berry, and Parasuraman 1988). Control systems in service organisations can
be examined on the extent to which they evaluate employees on what they do rather
than their output.
Anderson and Oliver (1987) suggested that behaviour-based control systems involve
considerable monitoring of employees’ activities, require high levels of management
direction and intervention in the activities of employees, and involve subjective and
complex methods based on employees’ knowledge, activities, and strategies to evaluate
and compensate employees. Behaviour-based evaluation systems may be difficult to
implement and the highly subjective nature of such systems can make it difficult for
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managers to know which behaviours to emphasise in the evaluation process (Oliver and
Anderson 1994).
As a result, managers may need to monitor employee performance more closely and
provide considerable direction to employees’ efforts (Cravens et al. 1993). However by
using behaviour-based control systems, managers can monitor and direct employee
behaviours, based on behaviours managers believe are necessary to achieve desired
results. Managers can direct employee behaviours without the need to engage
employees in embracing a belief in company strategy (Anderson and Oliver 1987).
Cravens, Ingram, LaForge, and Young (1993) tested the Anderson and Oliver (1987)
propositions. They found support for the idea that the achievement of important
outcomes may be linked with controlling the behaviours of employees. Among
salespeople, when behaviour-based management controls were used, sales force
members did not necessarily engage in other important behaviours that were not directly
related to the specific selling behaviours that were encouraged. There was strong
support for the hypothesis that employees did engage in desired behaviours that were
supported by management and compensation systems.
That is, when management uses behaviour-based employee control systems and
compensation systems that support desired employee behaviours, employees engage in
those behaviours for the good of the organisation (Cravens et al. 1993). They also
noted that motivating employees by appealing to intrinsic satisfactions using means such
as recognition of excellent performance, can be increased through management control,
which is important when there are limits to the available financial rewards.
Kohli (1985) examined supervisory behaviours and their influence on sales employees’
job satisfaction. The study found that contingent approving supervisory behaviour
increases intrinsic, extrinsic and overall job satisfaction. Contingent approving
supervisory behaviour includes giving recognition and approval to employees based
upon effective effort, performance and performance improvement. Jaworski and Kohli
(1991) compared the use of output-based feedback with behaviour-based feedback.
They found that the use of positive behavioural feedback increased employees’
satisfaction with supervisors, and behavioural performance, which was positively related
to output performance (Jaworski and Kohli 1991).
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Positive output feedback had the strongest effect on salesforce performance, followed
by positive behavioural feedback, while positive behavioural feedback had a stronger
influence on job satisfaction than positive output performance. Singh (1993) found that
performance feedback helps employees learn their roles in organisations.
Hartline and Ferrell (1996), following the work of Cravens et al. (1993), defined
behaviour-based evaluation as the employee’s perceptions of the organisation’s
expectations of them in regard to the organisation’s service orientation, and the degree
to which those customer-oriented behaviours are rewarded. They suggested that
behaviour-based evaluation is appropriate for customer contact employees because their
performance in serving customers’ needs is directly related to customer-oriented
behaviours, such as courtesy, friendliness, and problem-solving, rather than specific
work-related outcomes, such as quota, sales, and volume (Hartline and Ferrell 1996).
Previous studies have found a strong relationship between the use of behaviour-based
evaluation and customer-oriented employee behaviours. For example, behaviour-based
evaluation has been linked to increases in employee competence (Cravens et al. 1993),
confidence, and job satisfaction (Oliver and Anderson 1994).
In summary, the dimensions of behaviour-based evaluation are focused on the extent to
which employees are rewarded for what they do in their service role rather than solely
on their output quantity (Zeithaml, Berry, and Parasuraman 1988). In effect,
management seeks to exercise control over employee behaviour by encouraging and
rewarding behaviours that are oriented towards providing customers with quality
service.
5.33 Measurement issues relating to the behaviour-based evaluation construct
Hartline and Ferrell (1996) operationalised behaviour-based evaluation from the
manager’s perspective and employed items that measure the occurrence of specified
behaviours in the workplace. Evidence suggests that in some circumstances rewarding
specific behaviours is both limiting and difficult to do (Cravens et al. 1993; Oliver and
Anderson 1994). Kohli (1985) found that contingent approving supervisory behaviour
increases intrinsic, extrinsic and overall job satisfaction.
Achievement oriented supervisory behaviour encourages employees to strive for
continual performance improvement, while rewards encourage overall performance.
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Contingent approving supervisory behaviour included giving recognition and approval
to employees based upon effective effort, performance and constructive feedback to
enable performance improvement (Kohli 1985). The measures Kohli (1985) specified
for contingent approving behaviour include measures of the incidence of recognition
and praise by supervisors. Achievement oriented behaviour measures include the
incidence of encouragement of performance improvement.
These issues mean that measurement of the behaviour-based evaluation construct
entails capturing employee perceptions regarding the degree to which they are guided
towards behaviours that are desirable in the organisation in terms of service provision,
and their perceptions regarding the degree to which they are rewarded for those
behaviours.
5.34 The behaviour-based evaluation-service climate relationship
Earlier a service climate was defined as a psychological perception that an organisation’s
employees and customers have of the events, practices, and procedures and the kinds of
behaviours that are rewarded, supported, and expected in an service environment, in
relation to customer service and service quality (Reichers and Schneider 1990; Schneider
1980; Schneider 1990; Schneider, Parkington, and Buxton 1980).
A set of foundation conditions support employee work and service quality in
organisations (Schneider, White, and Paul 1998). These foundation conditions are
necessary for a climate for service, but are not sufficient cause of a climate for service,
which results in employee and customer perceptions and experiences (Schneider, White,
and Paul 1998). A climate for service rests on the foundation conditions that require
management policies and practices that centre on service quality. Foundation
conditions yield a climate for service that in turn leads to customer perceptions of
service quality.
Employees value the ability and authority to achieve results for customers (Heskett et al.
1994). The work environment of service employees has a strong influence on how
customers experience the service (Schneider and Bowen 1985; Schneider and Bowen
1993). An organisation’s human resource practices can ultimately influence customers’
service experiences (Schneider and Bowen 1985; Schneider and Bowen 1993).
Employee behaviours are important in service settings, because service customers often
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evaluate the service process in their quality evaluations (Parasuraman, Zeithaml, and
Berry 1985).
When human resources practices and procedures promote employee-wellbeing and are
perceived as treating employees well, customers report that they receive high quality
service (Schneider, Gunnarson, and Niles 1994). Fair reward systems based on broad
contributions promote organisational effectiveness (Schneider, Gunnarson, and Niles
1994).
When employees are rewarded only for very specific performance behaviours and little
else, then they may conclude that those rewarded behaviours are the only behaviours of
importance to their roles, and to the organisation. On the other hand, when employees
experience both financial and non-financial recognition and feedback for a broad and
diverse range of behaviours and contributions to the organisation, and these rewards
and feedback are perceived to be fair (Schneider, Gunnarson, and Niles 1994), then
employees are more likely to experience a sense of well-being (Schneider and Bowen
1993).
Specific aspects of organisational reward systems such as performance feedback, the
performance appraisal process, compensation, career development opportunities,
(Schneider and Bowen 1993), and recognition for contributions to the organisation
(Schneider, Gunnarson, and Niles 1994), have been directly linked to favourable
outcomes, such as employee perceptions of a positive service climate and customer
perceptions of high quality service. Performance feedback will produce positive
outcomes if it is given in such a way as to build employee’s confidence in their abilities,
and to bring to the employee’s attention successes and improvements, and constructive
correction of deficiencies (Bandura 1997).
When employees see co-workers being recognised for a diverse range of behaviours that
promote organisational effectiveness, they are more likely to engage in these behaviours
themselves (Schneider, Gunnarson, and Niles 1994). When the goals of work and the
standards of excellence are widely known and shared, this condition supports the
development of a positive service climate (Schneider, Brief, and Guzzo 1996).
In general, employees can be evaluated on the basis of work-related outcomes or their
behaviours. Behaviour-based evaluation is particularly suited to customer contact
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employees because employees’ performance in serving customers’ needs is directly
related to customer-oriented behaviours, such as courtesy, friendliness, and problem-
solving, rather than specific work-related outcomes, such as quota, sales, and volume.
Customer contact employees are responsible for their behaviours in the service context
(Hartline and Ferrell 1996). Behaviour-based evaluation involves evaluating employees
on the basis of how they behave or act rather than on the basis of the measurable
outcomes they achieve (Anderson and Oliver 1987). Customer contact employees are
evaluated and compensated on their performance and other self-directed behaviours
that are focused on organisational imperatives, such as service excellence (Hartline and
Ferrell 1996; Schneider and Bowen 1985). Research on learning theory suggests that a
focus on behavioural criteria in employee evaluations is ideally suited to reinforcing
desirable employee behaviours (Bandura 1997).
In conclusion, to the extent that employees perceive they are rewarded for delivering
quality service, their organisation’s service climate will be stronger (Schneider and
Bowen 1993; Schneider, White, and Paul 1998). That is, when employees perceive that
the organisation is focused on providing excellent service, and rewards in the
organisation are based on performance to achieve this outcome, the service climate will
be enhanced.
This review suggests that behaviour-based evaluation fosters a positive service climate
because when behaviour-based control strategies are in place, employees are guided to
and rewarded for behaviours that are beneficial to customers and the organisation. In
terms of the antecedents of customer loyalty in service organisations, the conclusion is
that behaviour-based evaluation has a positive relationship with the service climate in
service organisations. When the organisation uses behaviour-based evaluation to
control and reward employees, processes are in place that support the provision of
quality service. The behaviour-based evaluation-service climate relationship is
important to the development of customer loyalty because it guides and controls those
who deliver service to customers (Hartline and Ferrell 1996).
5.35 Summary of Chapter Five, the managerial practices-service climate interface relationships
Chapter Five sought to establish the importance of the series of relationships that occur
at the managerial practices-service climate interface as they relate to the employee
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loyalty-customer loyalty relationship (Figure 5.1). The purpose of the literature review
was to examine these relationships between managerial practices and an organisation’s
service climate, as they relate to the sixth research objective, which concerns establishing
the set of managerial practices that drive loyalty manifestations within service
organisations via the organisation’s service climate. The outcome is the set of
relationships between managerial practices and the service climate to be tested in the
study.
The conclusion of Chapter Five is that there is a specific set of managerial practices that
potentially positively influence a service organisation’s service climate. These consist of
managerial support practices, direct leadership support, senior leadership support, and
work facilitation resources, and managerial control practices, management customer
orientation, employee empowerment and behaviour-based evaluation. As a group, and
individually, these practices that constitute direct and indirect managerial actions and
attitudes, influence the service climate as it is perceived by an organisation’s employees
and customers.
This is because when employees believe their work is facilitated and supported by
management, then the service climate will benefit and customers will perceive that the
organisation’s service quality is superior (Schneider and Bowen 1993; Schneider, White,
and Paul 1998). Similarly, when employees believe that managerial control practices are
in place that empower employees, appropriately reward and guide service-oriented
outcomes in the form of behaviour-based evaluation mechanisms, and instil a positive
orientation to customers, then employee behaviours and attitudes will be positively
influenced, which impact the organisation’s service climate, and in turn affect the
organisation’s service quality.
The implication for the employee-loyalty relationship is that when organisations pay
close attention to their customers’ expectations and needs they are likely to create the
conditions that yield a positive service climate. Employees within organisations perceive
these conditions created by management and respond by exhibiting behaviours and
attitudes that result in customer perceptions of service quality (Schneider, White, and
Paul 1998). When customers have positive perceptions of service quality they are more
likely to become loyal to the organisation (Zeithaml, Berry, and Parasuraman 1996).
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CHAPTER 6 THE MANAGERIAL CONTROL PRACTICES-EMPLOYEE INTERFACE
6.1 Overview of Chapter Six
Chapter Six concludes the review of the literature that examines the sets of relationships
that occur at the various interfaces within service organisations. Objective seven, to
explicate the relationship between managerial practices and employee role attitudes, is
the focus of this chapter. These interactions occur at the managerial control practices-
employee interface that is highlighted by the shaded area in Figure 6.1. The
relationships between the managerial control practices and employee attitudes that occur
at this interface are shown with the connecting arrows.
Figure 6.1 The managerial control practices-employee interface framework
The managerial control practices-employee attitude interface is where the relationships
that directly influence employee attitudes about the organisation occur, as a result of
management control policies and actions. At this interface, managers directly influence
employee attitudes towards their jobs and the organisation. This influence is the result
of management’s customer orientation, and the reward and control practices that are
put in place. The importance of this relationship is that managerial control practices are
Employee-Role Interface Chapter 4
Supp
ort
Con
trol
Employee Self-Efficacy
Job Satisfaction
Behaviour Based
Evaluation
Work FacilitationResources
Direct Leadership
Support
Senior Leadership
Support
ManagementCustomerOrientation
EmployeeLoyalty
Managerial Practices
Employee Attitudes
Customer Beliefs
Service Climate
Service Environment
Empowerment
Service Climate-Customer Interface Chapter 3
Managerial Practices-Service Climate Interface Chapter 5 Customer
Loyalty
Service Quality
Employee-Customer Interface Chapter 2
Managerial Control Practices-Employee Interface Chapter 6
125
the means by which management in service organisations influence employee
perceptions about how well they can perform in their roles and how satisfied employees
are with their jobs. If management can positively influence these perceptions then there
is the possibility that valued employees will remain with the organisation, contribute
over and above their expected roles, and in turn positively influence customer
perceptions of service quality and also customer loyalty. The potential contribution of
this research objective is to facilitate management’s understanding of how employees
develop their efficacy beliefs and satisfaction evaluations, and how management can
work to positively influence these key employee states.
The purpose of Chapter Six is to examine the literature that deals with the relationships
that occur at the managerial control practices-employee interface, in relation to the
employee loyalty-customer loyalty relationship.
Chapter Six builds on the review of the literature regarding the managerial control
practices of management customer orientation, employee empowerment and behaviour-
based evaluation that was reviewed in Chapter Five, and the employee attitudes
literature regarding employee self-efficacy and job satisfaction that was presented in
Chapter Two.
6.2 Overview of the managerial control practices-employee interface
The managerial control practices-employee interface section examines the literature that
links the perceptions that employees have of management customer orientation, to their
views about management’s use of employee empowerment and behaviour-based
evaluation. Also examined are the links between employee perceptions of
empowerment and self-efficacy, and between employee empowerment and job
satisfaction. Since all these constructs have been introduced in previous chapters, the
relationships among the constructs will be immediately addressed.
The implication is that if management creates situations where employees perceive they
are enabled in their work environment and supported in their decisions, then
management can influence employees’ perceptions of their abilities to do their jobs.
Similarly, if management takes steps to positively reward customer contact employees
for working towards organisational imperatives, these employees will be more satisfied
with their jobs
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6.3 The management customer orientation-empowerment relationship
The use of empowerment is consistent with the adoption of a customer-oriented
strategy (Hartline, Maxham, and McKee 2000). Empowerment is a management control
process. Managers can use empowerment during strategy implementation as a means of
increasing employee discretion so that customers are better served. Empowerment thus
aids in the dissemination of a customer-oriented strategy by bringing the service firm
closer to its customers through increased employee flexibility and adaptation and the
reduction of decision lag time (Bowen and Lawler 1992). The end result is that
empowered employees can more effectively meet customers’ needs. Yet empowerment
cannot take place unless all the structures, practices and policies are in place to enable
employees, and to create the mindset that employees are empowered to achieve
customer and organisational goals (Bowen and Lawler 1995).
In conclusion, when employees perceive that management has customer interests as an
important values that is manifest by an explicit customer orientation, then they are more
likely to feel empowered and enabled to do their jobs (Hartline, Maxham, and McKee
2000). The management customer orientation-empowerment relationship is important
as a foundation of the development of customer loyalty because it signals to employees
that not only is management focused on customer needs but also that management
allows employees to use their personal initiative to satisfy those needs.
6.4 The management customer orientation-behaviour-based evaluation relationship
Service may be better provided when managers in service organisations focus
employees’ efforts and attitudes toward benefiting customers (Parkington and Schneider
1979). To accomplish this, Parkington and Schneider (1979) noted that management
should provide a reward system conducive to employees meeting customer needs. The
study found that discrepancies between employees’ expectations of management’s
service orientation and their perceptions of management’s actual service orientation,
strongly related to their organisational satisfaction, levels of frustration, turnover
intentions, and their views on service quality (Parkington and Schneider 1979).
Schneider, Wheeler and Cox (1985) found that when a work place is characterised by
service-focused routines and rewards, customers of a service outlet reported receiving
higher quality service. Other research has found that when employees reported that
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they work in a setting where they received effective performance feedback,
customer perceptions of service quality were positive (Schneider and Bowen 1993).
Behaviour-based evaluation is relevant in service settings because the performance of
customer contact employees is related to customer-oriented behaviours. Behaviour-
based evaluation encourages employee performance that is consistent with customer
expectations of service quality (Zeithaml, Berry, and Parasuraman 1988). Managers who
are committed to service quality are more likely to use behaviour-based evaluation
strategies (Hartline and Ferrell 1996; Hartline, Maxham, and McKee 2000).
The conclusion is that when managers have a positive customer orientation, they are
more likely to use behaviour-based evaluation as a reward and control strategy. This is
because when managers have a customer orientation, they guide and direct employees in
terms of the expectations that management has of employees in relation to customer
service (Deshpande, Farley, and Webster 1993). Managers can monitor and direct
employee behaviours using behaviour-based evaluation (Anderson and Oliver 1987)
because when control and compensation systems support desired behaviours then
employees are more likely to engage in those behaviours for the good of the
organisation (Cravens et al. 1993). These customer-oriented behaviours that are a result
of behaviour-based evaluation include courtesy, friendliness and problem-solving
(Hartline and Ferrell 1996).
The management customer orientation-behaviour-based evaluation relationship is
important as a foundation of the development of customer loyalty because it signals to
employees that not only is management focused on customer needs but also that
management will reward employees for engaging in behaviours and service
performances that satisfy customer needs.
6.5 The employee empowerment-employee self-efficacy relationship
This section examines the relationship between employees’ sense of empowerment and
their perceptions of self-efficacy.
One of the primary outcomes of empowerment is increased employee self-efficacy
(Conger and Kanungo 1988). Empowerment is a state that implies an enabling process
that affects the initiative and persistence of employee behaviour, so that an individual’s
self-efficacy beliefs and expectations are enhanced. Empowered employees are more
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likely to be adaptive because of the increased flexibility that accompanies
empowerment (Hartline and Ferrell 1996), and empowered employees are also more
likely to experience intrinsic rewards from their work (Spreitzer, Kizilos, and Nason
1997).
Empowerment removes the constraints imposed on customer contact employees which
gives them room to manoeuvre as they attempt to serve customer needs.
Empowerment should have a positive influence on the attitudinal and behavioural
responses of customer contact employees. This is because the increased discretion and
flexibility experienced by empowered workers helps them feel better about their jobs.
Other outcomes include a reduction in the stress employees feel in performing their
jobs, an increase in confidence in their ability to perform job-related tasks and an
increase in their ability to adapt to changing conditions within the service encounter
(Hartline and Ferrell 1996).
To conclude, beliefs about self-efficacy vary according to organisational factors.
Hartline and Ferrell (1996) found that management’s use of employee empowerment
directly increased employees’ perceptions of self-efficacy. As employees gain more
discretion over how their jobs are performed, perceived levels of self-efficacy increase
because employees decide the best way to perform a given task (Gist and Mitchell
1992). That is, the degree of empowerment that employees perceive will impact self-
efficacy (Bandura 1997).
6.6 The behaviour-based evaluation-job satisfaction relationship
This section examines the literature that describes the link between behaviour-based
evaluation and job satisfaction.
Hartline and Ferrell (1996) provided conceptual support for a behaviour-based
evaluation-job satisfaction link. They suggested that because managers make employees
responsible for their behaviours and give them control over work conditions, then
employees should respond by feeling more satisfied in their jobs. That is, when
employees perceive they receive constructive performance feedback and recognition for
organisational contributions and have positive perceptions of extrinsic rewards, they are
more likely to be satisfied in their roles in an organisation (Hartline and Ferrell 1996).
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The use of behaviour-based evaluation leads to increases in employee job
satisfaction because when employees understand the organisation’s performance system
and feel that they are intrinsically and extrinsically rewarded for their performance, they
feel better about their jobs and the organisation (Oliver and Anderson 1994). Similarly,
the perceived use of behaviour-based evaluation can increase employees’ affective
commitment to the organisation (Hartline, Maxham, and McKee 2000).
Supervisory behaviours, such as contingent approving supervisory behaviour, positively
influence sales employees’ job satisfaction (Kohli 1985). Contingent approving
supervisory behaviour includes giving recognition and approval to employees contingent
upon effective effort, performance, or both. Positive behavioural feedback has a
stronger influence on job satisfaction than positive output performance (Jaworski and
Kohli 1991).
In conclusion, because positive behavioural feedback has a strong positive influence on
job satisfaction (Jaworski and Kohli 1991), helps employees learn their job roles (Singh
1993) and increases intrinsic satisfactions (Cravens et al. 1993), then a higher incidence
of behaviour-based evaluation can be expected to lead to higher levels of job
satisfaction.
6.7 Summary of the managerial control practices-employee interface
Chapter Six sought to establish the nature of the set of relationships that occur at the
managerial practices-employee interface (Figure 6.1). The purpose of the literature
review was to examine the relationship between the managerial control practices and
employee beliefs, in relation to research objective seven of the study. This objective
relates to how managerial control practices in service organisations influence employees’
perceptions of their abilities to perform in their jobs and their level of satisfaction in
those jobs.
The literature review suggests the use of empowerment and behaviour-based evaluation
is dependent on the nature of managers’ customer orientation (Hartline and Ferrell
1996). When managers are customer-oriented, they are more likely to use the control
practices of empowerment and behaviour-based evaluation. When employees feel they
are empowered by their managers, they are more likely to have strong efficacy beliefs
about abilities to perform in their jobs and to continue to develop necessary skills for
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role performance (Bandura 1997). When employees sense that they are rewarded
for their behaviours in the performance of their service roles then they are more likely
to be satisfied in their jobs (Jaworski and Kohli 1991).
6.8 Summary of the literature review section, Chapters Two to Six
The purpose of the first section of this thesis was to review the relevant literature to
develop the theoretical foundation of the study of the relationship between employee
loyalty and customer loyalty. The outcome of the literature review is the set of
relationships that will be tested in the study.
The conclusion of Chapter Two is that employee loyalty potentially positively influences
a service organisation’s customers’ levels of loyalty. In turn, the broader set of
employee beliefs about their abilities to perform in their role and about their satisfaction
in that role, influences customer perceptions about the service quality of the
organisation. Finally, when customers feel that the quality of service is high, they are
more likely to be loyal to the organisation.
From the review of the literature Chapter Three suggests that a more favourable service
climate as perceived by employees leads to customer perceptions of higher levels of
service quality.
Chapter Four suggests that that when employees feel more capable in their jobs, they
are more likely to be satisfied with those jobs and the organisation, which in turn leads
to higher levels of commitment to the organisation in the form of higher levels of
employee loyalty.
Chapter Five highlighted the set of managerial practices, direct leadership support,
senior leadership support, and work facilitation resources, and managerial control
practices, management customer orientation, employee empowerment and behaviour-
based evaluation, that positively influence a service organisation’s service climate. As a
group and individually, these practices influence the service climate as it is perceived by
an organisation’s employees and customers.
From Chapter Six came the suggestion when managers are customer oriented, they are
more likely to use empowerment and behaviour-based evaluation strategies to achieve
the organisation’s goals (Hartline and Ferrell 1996). When employees feel they are
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empowered by their managers, they are more likely to have strong efficacy beliefs
about their abilities to perform in their jobs to and continue to develop the necessary
role skills (Bandura 1997). Finally, when managers use behavior-based evaluation
strateiges and employees are rewarded for their behaviours in the performance of their
service roles then they are more likely to be satisfied in their jobs.
The literature review presented from Chapter Two to Chapter Six established the
specific factors that precede the development of customer loyalty in service
organisations. These chapters also established the set of relationships between these
factors that are pertinent to the study.
Chapter Seven seeks to integrate the set of constructs and relationships that have been
defined and examined in the literature review sections into a comprehensive conceptual
model so that the hypotheses can be determined and the data collected to address the
research questions.
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CHAPTER 7 THE CONCEPTUAL MODEL OF THE ANTECEDENTS OF THE EMPLOYEE LOYALTY-CUSTOMER LOYALTY RELATIONSHIP
7.1 Overview of Chapter Seven
Chapter Seven revisits the purpose of the study and presents the conceptual model and
literature in support of the foundations of the study of the antecedents of the employee
loyalty-customer loyalty relationship. Following the model is a summary of the relevant
theoretical foundations and the set of relationships and hypotheses to be tested in the
study.
Chapter Seven establishes the foundation of the eighth and final research objective,
which relates to the comprehensive nature of the conceptual model of the antecedents
of the employee loyalty-customer loyalty relationship.
7.2 Purpose of the study
The purpose of this study is to empirically establish the relationship between employee
loyalty and customer loyalty, to investigate the key drivers of employee loyalty, of
customer loyalty, and to examine a service organisation’s managerial practices and the
influence of those practices on the depth of the relationships that employees and
customers experience with a service organisation. The research questions are presented
in Chapter One.
Because of the nature of services, managers in service organisations have a reduced
ability to control the active service process (Schneider 1990). These managers must
create conditions using routines and rewards that focus employees on service excellence
(Bowen and Lawler 1992; Bowen and Lawler 1995; Schneider 1990; Schneider and
Bowen 1993). However, the potential for customer loyalty to develop may be greater in
service organisations than in organisations that produce tangible goods because service
encounters allow for interactions between the organisation’s customer contact
employees and its customers that often provide opportunities for customer loyalty to
develop (Gremler and Brown 1999).
Those employees who deal directly with customers day after day have a powerful effect
on customer loyalty (Reichheld 1993). Because of the interpersonal interactions that
take place during service delivery between the organisation’s customer contact
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employees and its customers, these interactions often have a strong effect on service
quality perceptions (Berry 1995a; Berry 1995b). Perceptions of interaction quality are
the result of a customer focus on employee attitudes, behaviours, and expertise (Bitner,
Booms, and Tetreault 1990; Brady and Cronin 2001; Grönroos 1990) that are the
criteria customers use to base their leave or stay decisions.
The current study seeks to extend the existing literature by making explicit the
connections between managerial practices, employee beliefs about their roles, customer
perceptions of service quality, and customer loyalty. The study examines the managerial
support and control practices of a large national North American bank. By using such
an organisation as a setting for the study, the study captures data within an organisation
with multiple outlets, regional level variations in management performance, and from
both the customer and employee perspective (Zeithaml 2000).
The study investigates the outcomes of these practices by measuring employee
perceptions of those practices, their impact on the organisation’s service climate, and
employee attitudes towards their role and the organisation. The study then links these
employee perceptions to customer perceptions of service quality and customers’ loyalty
intentions.
7.3 Overview of the conceptual model
The conceptual model consists of a comprehensive integration of managerial practices,
the organisation’s service climate, employee perceptions of their role and of the
organisation, and the effect on customer loyalty of the managerial practices, the
organisation’s service climate, and the employees’ role and organisation perceptions
(Figure 7.1). The model was developed as a result of the relationships that were
identified from the review of literature reported in Chapters Two to Six. The model
depicts the described sets of relationships. The model as it is represented in Figure 7.1
does not include a depiction of the interfaces as has been the custom in previous
chapters. Here the model is presented using the LISREL model representation
conventions (Jöreskog and Sörbom 1996). Each construct is represented and its
relationship with other relevant constructs is shown using connecting arrows.
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Figure 7.1 Conceptual model of the antecedents of the employee loyalty-customer loyalty relationship
The following discussion integrates discussion of the sets of relationships that have been
covered in the literature review to date, and provides support for the overall theoretical
foundation of the model.
The theoretical conceptual model is underpinned by the belief that loyal customers
provide crucial short and long term benefits to the organisation. Overall the model is a
conceptualisation and assessment of the relationships between an organisation’s
practices and the depth of the loyalty relationship that customers feel towards a service
organisation (Reichheld and Teal 1996; Schneider and Bowen 1995).
Loyalty manifestations are strongly influenced by management since management’s
policies, practices, procedures and goals facilitate and guide the achievement of an
organisation’s short and long term goals (Katz and Kahn 1978; Parkington and
Schneider 1979).
When employees perceive that their efforts are supported by the service of others, and
where they receive effective performance feedback, customer perceptions of service
quality are positive (Schneider and Bowen 1985; Schneider, Parkington, and Buxton
EmployeeSelf-Efficacy
JobSatisfaction
BehaviourBased
Evaluation
CustomerLoyalty
ServiceClimate
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomer
Orientation
EmployeeLoyalty
ServiceQuality
Empowerment
H2
H7
H15
H4
H9 H3
H13
H1
H8
H5
H6
H17
H10
H11
H12
H14
H16
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1980; Schneider, White, and Paul 1998). Thus internal linkages from management
practices to customers in service delivery is a key internal activity in the chain between
internal organisational functioning and customer perceptions of service quality
(Grönroos 1990). If the internal organisational functioning is conceptualised as the
foundation for customer perceptions of service quality, then internal cooperation would
lead to employees effectively supporting customers. The outcome could be
interpersonal behaviours used by employees in their interactions with customers.
Certain employee behaviours may be critical to influence customer perceptions of
service quality (Bitner, Booms, and Tetreault 1990).
Schneider and Bowen (1985) proposed that since there was potentially a positive
relationship between employee perceptions of organisational practices and customer
perceptions of service, there would be a relationship between service quality attitudes
and the intentions that both employees and customers have of remaining with the
organisation. That is, the same set of practices and employee and customer perceptions
of their outcomes will influence the level of loyalty of both customers and employees,
so that loyalty of employees and customers will be positively related (Schneider and
Bowen 1985). Customer perceptions, attitudes and intentions appear to be affected by
what employees experience, both in their specific role of service employees, and in their
more general role as organisational members (Schneider and Bowen 1985; Schneider
and Bowen 1993; Schneider, Gunnarson, and Niles 1994; Schneider, White, and Paul
1998).
When employees perceive that the organisation facilitates performance, enhances career
opportunities, and provides positive supervision, they are enabled to perform the
organisation’s main goal of serving customers. Thus, in service organisations, the same
set of human resource practices may be related to positive perceptions for not only
employees but for customers as well (Schneider and Bowen 1985). Thus the
perceptions, attitudes and intentions of employees and customers of service
organisations are interdependent.
Perceived leadership behaviours do not have a direct impact on organisational
commitment (Johnston et al. 1990). Employee commitment is affected by the
employee, quality, and customer focus of the organisation (Crosby, Grisaffe, and Marra
1994). Focusing on the employee reinforces employee loyalty. To achieve employee
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support of the customer service process, the most important driver appears to be
the organisation's customer focus. Thus when employees perceive that organisations
have an employee and customer orientation demonstrated by a strong commitment to
both employees and customers, those organisations benefit from these employee
perceptions. The organisation also benefits when customers perceive this organisational
commitment and from the additional influence of employees’ reactions to that customer
orientation (Crosby, Grisaffe, and Marra 1994). Employees’ perceptions of the quality
of service are correlated with customers’ perceptions of service quality (Schneider,
White, and Paul 1998), which is influenced by employee job satisfaction (Hartline,
Maxham, and McKee 2000).
Furthermore, a base of loyal employees is necessary to maintain customer loyalty
(Reichheld and Teal 1996), since loyal employees are a key to customer retention
(Reichheld 1993). Long-term loyal employees increase organisational efficiency and
improve quality so that customers experience better service and higher value so that the
organisation experiences higher productivity (Reichheld and Teal 1996). Employee
loyalty and customer loyalty are primary drivers of profitability (Loveman 1998).
Loyalty considerations provide a framework that enables managers to develop practices
that better serve the long-term interests of customers, employees and investors
(Reichheld and Teal 1996).
In encounters between customer contact employees and customers, loyal employees,
those who are strong advocates of the firm and who exert considerable effort on behalf
of the firm (Bettencourt, Gwinner, and Meuter 2001; Mowday, Steers, and Porter 1979),
have a powerful effect on service quality (MacKenzie, Podsakoff, and Ahearne 1998)
and on customer loyalty (Reichheld 1993). Since service quality impacts on customer
loyalty (Bitner 1990), and employee actions exert a strong influence on service quality
(Hartline and Ferrell 1996), employee loyalty directly and indirectly influences customer
loyalty (Reichheld and Teal 1996). Loyal employees also reduce organisational costs
through lower recruiting costs and higher productivity, and are a consistent source of
referrals of both potential employees and customers (Heskett, Sasser, and Schlesinger
1997).
Service quality is central to strategic initiatives for service firms striving for long term
success (Schneider 1990). The internal organisation must be managed with service as a
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key outcome if customers are to develop positive perceptions of the service quality.
A strategic focus on the internal organisation includes the service delivery environment
(Bitner 1992), the customer contact employees who deliver service and are responsible
for the customers’ perceptions of service quality (Hartline and Ferrell 1996) and the
front line service managers who manage the direct interactions between customers and
customer contact employees (Hartline and Ferrell 1996; Schneider 1990). These internal
issues must be coordinated to give the customer a positive service experience that is
perceived as quality service (Schneider and Bowen 1993; Schneider, White, and Paul
1998).
Several studies have examined the association between service quality and more specific
behavioural intentions that suggest a positive and significant relationship between
customers’ perceptions of service quality and their willingness to recommend the
company (Parasuraman, Zeithaml, and Berry 1988; Reichheld and Sasser 1990; Rust and
Zahorik 1993; Rust, Zahorik, and Keiningham 1995). The American Customer
Satisfaction Index measures the quality of products and services and links these to
customer loyalty indications (Fornell et al. 1996). Consistently this Index finds that
perceived quality influences customer loyalty, which is measured because of its value as
a proxy for profitability (Fornell et al. 1996; Reichheld and Sasser 1990).
The higher the customer perceptions of a firm’s overall service quality, the more likely
customers are to engage in behaviours beneficial to the organisation, including
generating positive word of mouth, saying positive things about the organisation,
willingness to recommend, positive repurchase intentions and planning for long term
involvement (Boulding et al. 1993). Behavioural intentions signal whether customers
will remain with or defect from the organisation. That is, positive service quality
perceptions positively influence intentions to remain loyal. Service quality is a
determinant of whether a customer ultimately remains with or defects from a company
(Zeithaml, Berry, and Parasuraman 1996).
A primary source of employee job satisfaction is customer contact employees’
perceptions of their ability to meet customer needs (Heskett et al. 1994; Reichheld and
Teal 1996). In the service quality literature, studies have found that both job satisfaction
and employee self-efficacy increase customer perceptions of service quality (Hartline
138
and Ferrell 1996). Self-efficacy had a stronger effect on service quality than job
satisfaction (Hartline and Ferrell 1996).
Schneider, White, and Paul (1998) proposed a set of foundation issues that support
employee work and service quality, which they suggested are a necessary but not
sufficient cause of a climate for service, which in turn is reflected in customer
experiences of service quality. They noted that a climate for service rests on these
foundation issues which require management policies and practices that centre on
service quality. In a culmination of a series of studies, Schneider et al (1998) indicated
that these foundation issues yield a climate for service that in turn leads to customer
perceptions of service quality. They concluded that direct and senior level management
support, work facilitation resources, and management customer orientation, are drivers
of the service climate. The effectiveness of the service climate influences service quality
and employee perceptions of management’s commitment to customers.
Job satisfaction appears to be a primary driver of employee loyalty among high-contact
service workers (Bettencourt, Gwinner, and Meuter 2001). When employees
understand the connection between their work and the company’s strategic objectives,
this becomes a driver of positive work-related behaviour. Employees’ attitudes toward
their jobs and towards the organisation as a whole have a strong influence on employee
loyalty and on behaviour towards customers (Rucci, Kirn, and Quinn 1998).
When customer contact employees and customers are at the centre of management
objectives, both employee and customer loyalty increase (Heskett et al. 1994). It follows
then that the quality of management is a driver of employee attitudes (Rucci, Kirn, and
Quinn 1998). Management practices such as investment in technology that supports
frontline employees, effective recruiting and training practices, and compensation that is
linked to employees’ performance, all increase employee loyalty outcomes (Heskett et al.
1994). When employees are purposely involved, empowered, encouraged to contribute
new ideas, and work in a positive environment where they can realise their personal
goals and develop their skills and abilities, service quality should increase, resulting in
employee satisfactions and loyalty, all of which leads to enhanced customer loyalty
(Rucci, Kirn, and Quinn 1998).
Employee empowerment can have a positive effect on pride in workmanship,
teamwork, and shared organisational values (Bowen and Lawler 1992). A sense of
139
control enables the development of personal pride as a result of role-related
outcomes (Rust, Zahorik, and Keiningham 1994). Empowerment facilitates the
development of a customer-oriented strategy by increasing employee flexibility and
adaptation and outcomes such as reducing decision time (Hartline, Maxham, and
McKee 2000). The end result is that empowered employees can more effectively meet
customers’ needs.
Managerial practices also drive organisational culture. Employees perceive the culture
of the organisation, which is reflected in their attitude towards the organisation, their
jobs, their loyalty towards the organisation (Katz and Kahn 1978), and finally in their
behaviours and attitudes towards customers (Hartline and Ferrell 1996).
In service organisations and during service delivery, managers of service organisations
have a reduced ability to control the active service process, so that they must use less
immediate forms of control (Schneider 1990). That is, managers in service organisations
must create conducive service delivery conditions using routines and rewards that focus
employees on service excellence (Bowen and Lawler 1992; Bowen and Lawler 1995;
Schneider 1990; Schneider and Bowen 1993). These routines and rewards create a
service climate that emphasises the importance of a positive experience for customers
during service delivery. The service climate guides employee behaviour so that
management intervention into the service sequence is reduced. That is, the climate for
service serves as a substitute for management control (Schneider and Bowen 1993).
Hartline and Ferrell (1996) found that management commitment to service quality
impacts customer perceived service quality. Management control mechanisms such as
behaviour-based evaluation and employee empowerment lead to higher levels of
employee self-efficacy and job satisfaction, which impact positively on service quality.
When employees can also be influential in developing these control mechanisms,
satisfaction increases. Employee influence in determining performance standards, such
as how performance is supervised and evaluated, has a strong impact on job satisfaction
components (Churchill, Ford, and Walker 1976).
Overall, management commitment to service quality, employee empowerment, and
behaviour-based evaluation, are key management practices that enable employees to
perform effectively in their customer-contact roles (Hartline and Ferrell 1996).
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7.4 The theoretical foundation of the conceptual model
Underlying the conceptual model is a series of theoretical concepts. These include the
psychological nature of the employee-customer relationship, the metaphor of an
organisational service climate, which is a mechanism that communicates managerial
imperatives and is created and acted upon by employees, and the nature of and
processes by which managers influence employee and customer loyalty.
Organisational climate is the shared perceptions that employees have about the
practices, procedures and kinds of behaviours that are rewarded and supported in a
particular setting (Katz and Kahn 1978). A climate for service refers to employee
perceptions of the practices, procedures and behaviours that are rewarded, supported
and expected, with regard to customer service and customer service quality (Schneider,
White, and Paul 1998). A climate for service rests on resources, training, managerial
practices and the assistance required to perform effectively. Schneider and Bowen
(1993) suggested that an organisational climate for employee well-being is a foundation
for a climate for service (Schneider and Bowen 1993). Theory suggests that an effective
service climate exists when employee perceptions are integrated in a theme that indicates
that service quality is an important objective of the organisation (Johnson 1996;
Schneider 1980; Schneider 1990; Schneider, Wheeler, and Cox 1992).
A climate is theoretically related to antecedent variables such as an organisation’s
internal structure and organisational context, and serves as an important determinant of
individual and organisational outcomes, including employee effort, performance and
behaviours related to job satisfaction, and employee turnover intentions (Lindell and
Brandt 2000). The service climate construct is useful in conceptualising organisational
members’ shared experiences and how these experiences influence individual’s
perceptions, behaviours, and the success of the organisation.
From the employee’s perspective, a service climate rests on managerial support practices
including management customer orientation, direct and higher level managerial
practices, and work facilitation resources (Schneider and Bowen 1985; Schneider, White,
and Paul 1998). Furthermore, the way routines and rewards are related to a service
emphasis strengthens the service climate (Schneider, Wheeler, and Cox 1992).
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Customers are influenced by the service climate since it is the source of many of the
cues that are available for customers, including those that reflect employees’ perceptions
of management inputs (Schneider and Bowen 1993).
The underlying theory suggests that managerial attitudes, actions and support create the
basis that form customer contact employee attitudes and actions, which also create the
basis for the development of a service climate. A service climate facilitates employee
actions that deliver service and creates customer perceptions of the quality of customer
service. Further actions in the organisation that focus directly on service quality yield a
service climate, and rewards for those actions strengthen a service climate, lead to
employee focus on actions that improve service quality, and increase levels of employee
job satisfaction (Bowen and Lawler 1995; Schneider and Bowen 1993; Schneider, White,
and Paul 1998). Employee’s perceptions of the strength of the service climate are
related to customers’ perceptions of service quality. A stronger service climate leads to
higher levels of perceived service quality. A relationship also exists between the level of
job satisfaction of customer contact employees and service quality (Hartline and Ferrell
1996), which leads to customer loyalty (Bitner 1990; Zeithaml, Berry, and Parasuraman
1996). In turn, satisfied employees are more likely to be loyal employees (Bettencourt,
Gwinner, and Meuter 2001), and loyal employees are more likely to positively influence
the long term loyalty of customers (Reichheld 1993; Reichheld and Teal 1996; Rucci,
Kirn, and Quinn 1998).
Strong relationships exist between employee perceptions of service practices and
procedures and customer perceptions of service practices and quality; employee and
customer attitudes and loyalty intentions are significantly related to each other
(Schneider and Bowen 1985; Schneider, Parkington, and Buxton 1980).
In summary, the same set of practices and employee and customer perceptions of their
outcomes, will influence the level of loyalty of both customers and employees, so that
loyalty of employees and customers will be positively related (Schneider and Bowen
1985). Thus customer perceptions, attitudes and intentions appear to be affected by
what employees experience, both in their specific role as service employees, and in their
more general role as organisational members.
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This climate serves as a guide to employee behaviour such that management
intervention into the service sequence is unnecessary so that the climate for service
serves as a substitute for management control (Schneider and Bowen 1993).
7.5 The relationships and hypotheses that underpin the conceptual model
This section presents a brief summary of the literature that establishes the theoretical
relationships within the conceptual framework, and states the hypotheses. Thus the
relationships and the attendant hypotheses that underpin the model are made explicit.
Employee loyalty towards the organisation and the behaviours that result from that
loyalty are crucial to service organisations. Service encounters allow for interactions
between the organisation’s customer contact employees and its customers that often
provide opportunities for customer loyalty to develop (Gremler and Brown 1999).
Those employees who deal directly with customers day after day have a powerful effect
on customer loyalty (Reichheld 1993). Service organisations that have loyal employees
are more likely to have loyal customers (Reichheld and Teal 1996).
This leads to the hypothesis that:
H1: Higher levels of employee loyalty lead to higher levels of customer loyalty.
The higher a company’s service quality ratings, the more loyal its customers, and the
lower the customer intentions to switch service provider, complain to other customers,
or take other external negative steps against the company (Zeithaml, Berry, and
Parasuraman 1996). The importance of perceived service quality is that when customers
have positive perceptions of an organisation’s service quality, they are more likely to
remain loyal to that organisation (Bitner 1990; Schneider, White, and Paul 1998;
Zeithaml, Berry, and Parasuraman 1996).
As a result of this discussion the following hypothesis is proposed:
H2: Higher levels of perceived service quality lead to higher levels of customer loyalty.
Because of the interpersonal interactions that take place during service delivery between
the organisation’s customer contact employees and its customers, these interactions
often have a strong effect on service quality perceptions (Bitner, Booms, and Mohr
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1994; Hartline and Ferrell 1996; Schneider and Bowen 1985). Service quality is
more the result of processes than outcomes so that interaction is an important element
of perceived service quality. This interaction quality is the result of customer focus on
employee attitude, behaviours, and expertise (Bitner, Booms, and Tetreault 1990; Brady
and Cronin 2001; Grönroos 1990). The level of job satisfaction that employees
experience influences their interactions with customers, so that job satisfaction has a
positive influence on customers’ perceptions of service quality (Hartline and Ferrell
1996).
This results in the hypothesis that:
H3: Higher levels of job satisfaction lead to higher levels of perceived service quality.
Employees are thought to engage in behaviours that they believe they can perform
successfully and that are encouraged by the organisation’s reward system and
management supported orientations (Bandura 1997). In most circumstances,
individuals with high self-efficacy expect favourable outcomes (Netemeyer et al. 1997).
A high sense of self-efficacy in a responsive environment that rewards valued actions
fosters aspirations, productive engagement in these activities, and a sense of fulfilment
(Bandura 1997). Individuals that have the efficacy to perform well and regard
themselves as self-directed will have the belief that their actions are influential and that
they will impact on performance outcomes (Bandura 1997). These performance
outcomes influence customers’ perceptions of service quality (Bitner 1990). Employee
self-efficacy fosters positive perceptions of service encounters since customers are more
likely to receive higher quality service, because employees who are confident in their
abilities to perform the necessary service tasks are more likely to deliver high quality
service (Hartline and Ferrell 1996).
Drawn from this discussion is the hypothesis that:
H4: Higher levels of employee self-efficacy lead to higher levels of perceived service quality.
Customer contact employees’ perceptions of the organisation’s service climate correlate
with customers’ perceptions of service quality, through the psychological and physical
closeness that exists in service encounters (Schneider and Bowen 1993). Employees
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both experience and help create the service climate and can predict how customers
rate service quality. When employees perceive that the service climate is favourable then
customers will perceive that the organisation provides higher levels of service quality
(Schneider, White, and Paul 1998).
This suggests the hypothesis that:
H5: A more favourable service climate leads to higher levels of perceived service quality.
A positive relationship should exist between employees’ perceived self-efficacy and their
job satisfaction because of the satisfactions that arise from the acquisition of generative
skills and the successful performance of the job role. These positive affective beliefs
towards the job and the organisation itself arise from the self-reactions to successful
performance because of the rewards resulting from personal achievement (Bandura
1997).
Hence, the hypothesis that:
H6: Higher levels of employee self-efficacy lead to higher levels of job satisfaction.
Job satisfaction is a direct positive driver of loyalty behaviours (Bettencourt, Gwinner,
and Meuter 2001). Satisfied employees are more likely to voluntarily engage in loyalty
behaviours that are of benefit to the organisation (Mathieu and Zajac 1990; Organ and
Ryan 1995). This occurs because employees who work in a fulfilling environment and
are satisfied with their jobs are more likely to reciprocate by supporting the organisation,
by performing extra-role behaviours, and by stronger commitment to the organisation
(Eisenberger et al. 2001; Eisenberger et al. 1997; Griffeth, Hom, and Gaertner 2000).
In conclusion, the hypothesis that follows from this relationship is that:
H7: Higher levels of job satisfaction lead to higher levels of employee loyalty.
Supervisory behaviours in relation to rewards and performance feedback that are
positively perceived by employees influence those employees’ feelings of job satisfaction
(Kohli 1985). When management uses behaviour-based employee control systems and
compensation systems that support desired employee behaviours, employees engage in
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those behaviours for the good of the organisation (Cravens et al. 1993). The use of
means such as appealing to intrinsic satisfactions and the recognition of excellent
performance contributes to employees’ overall feelings of satisfaction (Hartline and
Ferrell 1996; Jaworski and Kohli 1991; Oliver and Anderson 1994).
To test this relationship, the proposed hypothesis states that:
H8: A higher incidence of behaviour-based evaluation leads to higher levels of job satisfaction.
The degree of empowerment that employees perceive in the work environment will
impact self-efficacy (Bandura 1997). Hartline and Ferrell (1996) found that
management’s use of employee empowerment increased employees’ perception of self-
efficacy. As employees gain more discretion over how their jobs are performed, their
levels of self-efficacy increase because they decide the best way to perform a given task
(Gist and Mitchell 1992). The increased discretion and flexibility experienced by
empowered customer contact employees increase their confidence in their ability to
perform job-related tasks, and increase their ability to adapt to changing conditions
within the service encounter (Hartline and Ferrell 1996).
Thus, the study hypothesises that:
H9: Higher levels of empowerment lead to higher levels of employee self-efficacy.
Supervisory behaviours impact employee attitudes and behaviours since the immediate
supervisor is often the employee’s primary link with the organisation (Johnston et al.
1990). Effective functional managerial practices foster the development of a positive
service climate (Schneider 1980; Schneider, White, and Paul 1998) because immediate
supervisors provide feedback, share information, and provide planning, organisation,
and facilitation of service in the employee-customer environment (Schneider and Bowen
1993).
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This leads to the hypothesis that:
H10: Higher levels of direct leadership support lead to a more favourable service climate.
Senior leaders formulate and communicate strategy, and are powerful role models that
communicate the organisation’s values and service imperatives to the organisation’s
members and customers (Katz and Kahn 1978). As such, senior leaders have a direct
impact on the service climate that exists in service organisations. Employees perceive
these choices and behaviours which influence their understanding of the organisation’s
orientation (Schneider 1990). These practices and procedures and the activities that are
rewarded and supported play a critical function in organisations since they are the
criteria on which employees base their work decisions (Schneider 1990). In this manner,
organisations indicate that service quality is an organisational imperative (Schneider
1980; Schneider and Bowen 1985).
This review suggests the hypothesis that:
H11: Higher levels of senior leadership support lead to a more favourable service climate.
Work facilitation resources facilitate customer-oriented service delivery (Schneider and
Bowen 1985). Schneider, White and Paul (1998) established that work facilitation
resources precede a climate for service. By providing resources for customer contact
employees, management is providing the underpinnings for the perceptions employees
develop that a positive service climate is being supported (Schneider 1990).
The outcome of this examination is the hypothesis that:
H12: The higher the availability of work facilitation resources, the more favourable the service climate.
Employees and customers of service organisations experience positive outcomes when
the organisation operates with a customer service orientation (Schneider 1980). This
orientation results in superior service practices and procedures that are experienced by
customers and fit employee views of the appropriate style for dealing with customers
(Schneider 1980). Because management customer orientation puts the customers’
interests first, so that the values and beliefs of the organisation reinforce this customer
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focus, management customer orientation precedes the establishment of a service
climate (Schneider, White, and Paul 1998).
This leads to the hypothesis that:
H13: Higher levels of management customer orientation lead to a more favourable service climate.
To the extent that employees perceive they are given effective feedback, and are
rewarded and recognised for delivering quality service, the organisation’s service climate
will be stronger (Jaworski and Kohli 1991; Kohli 1985; Schneider and Bowen 1993;
Schneider, White, and Paul 1998). That is, when employees perceive that the
organisation is focused on providing excellent service, and rewards and processes in the
organisation are based on performance to achieve this outcome, the service climate will
be enhanced (Schneider, Gunnarson, and Niles 1994; Schneider, White, and Paul 1998).
Accordingly, the hypothesis is that:
H14: A higher incidence of behaviour-based evaluation leads to a more favourable service climate.
When employees encounter human resource practices that facilitate a more positive
experience for themselves, they will create a more positive experience for customers
(Reichers and Schneider 1990). One such practice, empowerment, aids in the
dissemination of a customer-oriented strategy through increased employee flexibility
and adaptation and reduced decision times, so that empowered employees can more
effectively meet customers’ needs (Hartline, Maxham, and McKee 2000). In many
service organisations, customers desire flexible and individual service, so that employee
empowerment would be crucial to the provision of a service climate that supports
customers’ perceptions of quality service (Bowen and Lawler 1992; Bowen and Lawler
1995).
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Thus the following hypothesis is proposed that suggests that:
H15: Higher levels of employee empowerment lead to a more favourable service climate.
Behaviour-based evaluation is relevant in service settings because the performance of
customer contact employees is related to customer-oriented behaviours. Behaviour-
based evaluation encourages employee performance that is consistent with customer
expectations of service quality (Zeithaml, Berry, and Parasuraman 1988). When
managers in service organisations focus employees’ efforts and attitudes toward
benefiting customers, service will be better (Parkington and Schneider 1979).
Management should provide a reward system conducive to employees meeting
customer needs. Managers who are committed to service quality are more likely to use
behaviour-based evaluation strategies (Hartline and Ferrell 1996; Hartline, Maxham, and
McKee 2000). That is, management customer orientation supports the use of
evaluation strategies that reward, support and recognise customer-oriented behaviours.
In line with these findings, the hypothesis is that:
H16: Higher levels of management customer orientation lead to a higher incidence of behaviour-based evaluation.
The use of empowerment is consistent with the adoption of a customer-oriented
strategy (Hartline, Maxham, and McKee 2000). Empowerment aids in the
dissemination of a customer-oriented strategy by bringing the service firm closer to its
customers through increased employee flexibility and adaptation and the reduction of
decision lag time (Bowen and Lawler 1992; Hartline, Maxham, and McKee 2000). The
end result is that empowered employees can more effectively meet customers’ needs.
Empowerment is more likely to be supported by management when the structures,
practices and policies are in place to enable employees, and to create the mindset that
employees are empowered to achieve customer and organisational goals (Bowen and
Lawler 1995). That is, managers who have customer-oriented beliefs are more likely to
use employee empowerment as a control practice (Hartline and Ferrell 1996).
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The final hypothesis is that:
H17: Higher levels of management customer orientation lead to higher levels of employee empowerment.
7.6 Conclusions of Chapter Seven
Chapter Seven revisits the purpose of the study and presents the conceptual framework
and related literature in support of the conceptual model. This chapter integrated the
literature review presented from Chapters Two to Six by presenting a complete
conceptual model of the antecedents of the employee loyalty-customer loyalty
relationship including the set of constructs and the attendant hypotheses. The
relationships among the antecedents and the hypotheses are specified so that in Chapter
Eight the discussion deals with the development and testing of the measures of the
constructs and with testing the theoretical model.
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CHAPTER 8 METHODOLOGY AND RESULTS OF THE PATH MODEL
8.1 Overview of Chapter Eight
Chapter Eight, the second section of the thesis, relates to the methodology, data
collection, data analysis and results of the study. Chapter Eight begins with an overview
of the analysis strategy using Structural Equation Modelling (SEM) which includes
measurement model and structural or path model testing. The model building process
is discussed and model fit assessment measures are specified and reviewed for both
measurement and path models.
The remainder of Chapter Eight follows the structure of the suggested stages in the
analysis of the data presented in Table 8.1. This two-stage procedure is proposed by
Anderson and Gerbing (1988).
First the stages of the development and testing strategy are presented. The model
building and testing process is discussed. The model fit assessment strategy is outlined
and the various fit indices that will be used are overviewed. The sample and data
collection are discussed.
Next the measure validation process is outlined and the constructs are defined along
with discussion of the scales and items used to measure each construct. The results of
the confirmatory factor analysis of the measures are presented and the fit statistics are
presented. Convergent and discriminant validity issues are discussed and the results of
the test of the path model are presented. Finally, the chapter concludes with the
recommendation to develop and test a modified model.
8.2 Overview of the analysis strategy
Table 8.1 presents the format of the conceptual development and testing used in this
study.
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Table 8.1 Stages in the analysis of the data: 2 step SEM procedure
The analysis strategy is based on structural equation modelling techniques (Jöreskog and
Sörbom 1993). The overall suggested strategy for development and testing of the model
follows. First the original model should be specified on the basis of theory and stated
hypotheses. Construct validity is then evaluated. Convergent validity is assessed by
determining whether each indicator’s estimated path loading on its proposed underlying
factor is significant (Anderson and Gerbing 1988).
Discriminant validity between two constructs is supported when the correlation is less
than 1.0 by an amount greater than twice its standardised error (Bagozzi and Warshaw
1990). The measurement model for each construct is estimated separately, then for
each pair of constructs, combining them two by two. The measurement model for all
constructs is estimated without constraining the covariance matrix of the constructs.
Finally the structural equation model is estimated for the constructs jointly with the
measurement models.
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For each model in the confirmatory factor analysis stage, the fit was evaluated by
noting χ2, standard errors, t-values, standardised residuals, and modification indices. If
the χ2 is large relative to the degrees of freedom, the model must be modified to fit the
data better. If it is small relative to the degrees of freedom, the model is over-fitted and
parameters with very large standard errors and thus very small t-values could possibly be
eliminated. If χ2 is near the degrees of freedom, the model may be acceptable but the
researcher should examine the estimated solution to determine if there are any
unreasonable values or other anomalies. For each estimated model these steps should
be repeated if the previous steps lead to a modified model.
8.3 The model building process
Constructs are classified as dependent or endogenous and independent or exogenous.
For each dependent construct the theory specifies which of the other constructs it is
postulated to relate to (Jöreskog and Sörbom 1993). Since the theoretical constructs are
not observable, the theory cannot be tested directly so that the researcher can only
examine the theoretical validity of the proposed relationships in the study. Before the
theory can be empirically tested, a set of measurable indicators or items must be defined
for each dimension of each construct. The theoretical relationship between the
constructs constitutes the structural equation or path model, and the relationships
between the observable indicators and the theoretical constructs constitute the
measurement model. In order to test the conceptual model, each of these parts must
first be formulated as a statistical model (Jöreskog and Sörbom 1993).
The statistical model requires the specification of the form of the relationship.
Typically, the relationships in the model are not exact deterministic relationships. The
independent constructs account for only a fraction of the variation and covariation in
the dependent constructs, because there may be many other variables that are associated
with the dependent constructs, but are not included in the model (Jöreskog and Sörbom
1993). The aggregation of all such omitted variables is represented in the model by a set
of stochastic error terms, one for each dependent construct. These error terms
represent the variation and covariation in the dependent constructs left unaccounted for
by the exogenous constructs.
The basic assumption in structural equation models is that the error term in each
relationship is uncorrelated with all the independent constructs (Jöreskog and Sörbom
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1993). The relationships in the measurement model also contain stochastic error
terms that are usually interpreted to be the sum of specific factors and random
measurement errors in the observable indicators.
The testing of the structural or theoretical model occurs after it has been established
that the measurement model holds. In many cases, this is completed first for each
construct, then for the constructs two at a time, then for all constructs together. The
constructs should be left to freely correlate. The covariance matrix of the constructs
should be unconstrained. Once the measurement model has been formulated, it can be
tested with empirical data to see if it is consistent with the data. If the model is rejected
by the data, the problem is to determine what is wrong with the model and how the
model should be modified to fit the data better. Even if the model fits the data, it may
not be the correct or even the best model as there may be many alternatives (Jöreskog
and Sörbom 1993). To conclude that a model is the best the researcher must be able to
exclude all other seemingly suitable models on logical or substantive grounds.
To be testable, the theory should be ‘over-identified’ in that the structural equation part
of the model is over-identified. If the covariance matrix of the construct variables is
unconstrained by the model, any test of the model is essentially just a test of the
measurement models for the indicators of the constructs. To fit and test a covariance
structure three options are available (Table 8.2).
Table 8.2 Fit and test of the covariance matrix
(Bollen 1989; Jöreskog and Sörbom 1993; Kline 1998)
Fit and test options Description
Strictly confirmatory tests
The researcher has formulated one single model with data to empirically test it, so that it is either accepted or rejected.
Alternative models The research specifies several alternative models and on the basis of a single set of empirical data, one of the models is selected.
Model generating approach
The researcher specifies a tentative initial model, which is modified if the model does not fit the data, and is tested again. The goal is that the model can be given a substantively meaningful interpretation. This approach is model generating rather than model testing.
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Typically, the model generating approach is the most common method of fitting
and testing theory. Once the relationships in the theoretical model have been translated
into a statistical model of a set of linear stochastic equations among random observable
variables, the indicators, and the theoretical constructs, the model can be estimated and
tested on the basis of empirical data using statistical methods (Bollen 1989; Jöreskog and
Sörbom 1993; Kline 1998). In this case, the researcher has specified an initial model
that is not assumed to hold exactly in the population and may only be tentative. The
goal is to find a model that fits the data well statistically but that also has the property of
every parameter having a substantively meaningful interpretation. The output from
structural equation calculations provides useful information for model evaluation and
assessment of fit. This includes examination of the solution, measures of overall fit, and
detailed assessment of fit (Bollen 1989; Jöreskog and Sörbom 1993; Kline 1998).
By examining the parameter, estimates the researcher can see if there are any
unreasonable values or other anomalies. Parameter estimates should have the correct
sign and size according to theory and the a priori specifications. If the R2, which is a
measure of the strength of linear relationship, is small, this indicates a weak relationship
and suggests that the model is not effective. Secondly, the measures of overall fit,
especially the generalised likelihood ratio χ2, interpreted as a Pearson χ2 in large sample
sizes, should be examined to see whether they indicate a poor fit of the data.
8.4 Fit assessment
Assessment of the model fit includes assessment of the absolute fit of the model, the
assessment of comparative fit, and allied with the latter, assessment of parsimonious fit
(Kelloway 1998). Assessing absolute fit concerns the ability of the model to reproduce
the actual covariance matrix. Comparative fit concerns comparing two or more
competing models to assess which one provides a better fit to the data (Kelloway 1998).
Assessing parsimonious fit is based on the knowledge that a better fitting model can be
found by estimating more parameters. Measures of comparative fit and absolute fit will
always favour more complex models. Measures of parsimonious fit provide a more
balanced basis for comparison by adjusting for the known effects of estimating more
parameters (Kelloway 1998). Overall, model fit is concerned with favourable values of
a number of indices, so that assessment is multifaceted, and couched in terms of
somewhat neutral expressions such as adequate or satisfactory (Kline 1998).
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Importantly, model fit should also be considered in the light of variance explained.
R2 for individual endogenous constructs are measures of variance accounted for. That
is, it is possible to have a well-fitting model that explains only to a limited degree the
amount of variance in the endogenous constructs (Kelloway 1998). The consideration
of individual parameters is important for assessing the accuracy of the model but are not
tests of model fit. The theory can be disconfirmed even though the model may provide
a good fit to the data. In conclusion, the fit of the model does not address the validity
of the individual predictions within the model. The assessment of global fit of
structural equation modelling is only one part of the process to evaluate the results
(Kelloway 1998).
These goodness of fit statistics include measures of absolute fit, comparative fit, and
parsimonious fit.
The tests of absolute fit include the Chi-square Test (χ2), the Jöreskog-Sörbom
Goodness of Fit Index (GFI), Adjusted Goodness of Fit Index (AGFI), Standardised
Root Mean Squared Residual (SRMR), Root Mean Square Error of Approximation
(RMSEA), and the Non-Centrality Parameter (NCP).
Measures of comparative fit include Bentler’s Comparative Fit Index (CFI), Normed Fit
Index (NFI), and Bentler and Bonett’s Non-Normed Fit Index (NNFI).
Measures of parsimonious fit include the Parsimony Goodness-of-Fit Index (PGFI), the
Parsimony Normed Fit Index (PNFI), and the Ahaike Information Criterion (AIC)
(Bagozzi and Yi 1994; Baumgartner and Homburg 1996; Bollen 1989; Byrne 1998;
Jöreskog and Sörbom 1996; Kelloway 1998; Kline 1998; Marcoulides and Drezner
2001).
Since the χ2 test is highly sensitive to sample size influence and can cause models being
tested with data from a large sample size to be rejected as inadequate even though they
might be acceptable with a smaller sample (Anderson and Gerbing 1988), it is necessary
to use additional methods for testing model fit. Other methods are proposed to
eliminate or reduce the dependence on sample size (Jöreskog and Sörbom 1993). These
additional fit indices measure how much better the model fits. A typical set of model fit
indices would include the χ2 statistic and its degrees of freedom and significance level,
an index that describes the overall proportion of explained variance, an index that
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adjusts the proportion of explained variance for model complexity, and an index
that is based on the standardised residuals (Kline 1998).
8.5 Model fit indices: assessing absolute fit, comparative fit and parsimonious fit
This section presents an overview of the fit tests that will be used in the study, along
with a discussion of the efficacy of each test.
First the tests of absolute fit are discussed. These indices are concerned with the ability
to reproduce the covariance matrix.
The Chi-square Test (χ2) The χ2 test is a likelihood ratio statistic for testing an
hypothesised model against an unconstrained covariance matrix (Bagozzi and Yi 1988).
This is the most basic fit index and reflects the sample size and the value of the multiple
likelihood (ML) estimation function. ML estimation is simultaneous in that estimates of
all model parameters are calculated at once. ML describes the statistical principle that if
the estimates are assumed to be population values, they are the ones that maximise the
likelihood or probability that the data or observed covariances were drawn from this
population. The χ2 statistic for a just-identified model equals zero and has no degrees of
freedom. For over-identified models the number of degrees of freedom is positive and
the value of the χ2 statistic may be positive as well (Kline 1998). Within large samples
the χ2 statistic for an over-identified model is interpreted as a test of significance of the
difference in fit between that model and a just-identified version of it.
A small χ2 corresponds to good fit and a large χ2 to bad fit. Zero χ2 corresponds to
perfect fit. That is, low and non-significant values of the χ2 index are desired.
However, there are considerable problems associated with χ2, including with large
samples, which is a condition of SEM, such that a non-significant χ2 is unlikely
(Kelloway 1998).
Jöreskog-Sörbom Goodness of Fit Index (GFI) This is a measure of the proportion
of variance and covariance that the proposed model is able to explain (similar to R2 in a
regression analysis). This usually has a range between 0 and 1, and is usually close to 1
for well-fitting models. Suggestions are that GFI should be greater than 0.90 (Kline
1998), which indicates a good fit to the data (Kelloway 1998), although some suggest
that models with GFI in the mid-0.90’s or higher are thought to represent a reasonably
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good approximation of the data (Hu and Bentler 1999). Values greater than 1 may
be found with just-identified models or with over-identified models with almost perfect
fit to the data. Negative values are most likely to happen when the sample size is small
or the fit of the model is very poor (Kline 1998).
Since the GFI has no known sampling distribution, interpretation about when it
indicates a good fit are highly arbitrary and to be treated cautiously (Kelloway 1998).
Adjusted Goodness of Fit Index (AGFI) The AGFI adjusts the GFI for degrees of
freedom in the model, which means that there is a penalty for including additional
parameters. Values of 0.90 and above indicate good fit, with values possible from 0 to
1, unless the model is just identified or overidentified.
Standardised Root Mean Squared Residual (SRMR) This test is useful since it
provides information about the fit of individual parts of the model. This test is a
standardised summary of the average covariance residuals, the differences between the
observed and model-implied covariances (Kline 1998). When the fit of the model is
perfect the SRMR equals 0, but a cut off close to 0.08 is recommended (Hu and Bentler
1998). A standardised residual close to or above +3 indicates that the model
considerably under-explains a particular relationship between two variables, while a
standardised residual close to or below –3 over-explains the relationship between the
two variables.
Root Mean Square Error of Approximation (RMSEA) The RMSEA takes into
account the error of approximation in the population and measures how well the model
would fit the population if it were known. That is, it represents an analysis of residuals.
The RMSEA is expressed per degree of freedom, so that it takes into account the
number of parameters or complexity of the model. Values below 0.10 suggest a good fit
to the data (Kelloway 1998) and represent reasonable errors of approximation in the
population. Values below 0.05 indicate a very good fit to the data.
This is one of the most informative criteria in structural equation modelling (Byrne
1998). However, Hu and Bentler (1999) note that with small sample sizes (n < 250), a
combination rule such as CFI in combination with SRMR should be chosen, as those
based on RMSEA and SRMR tend to reject more complex models true-population
models.
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Non-Centrality Parameter (NCP) For some researchers, this is a preferred
criteria (Marcoulides and Drezner 2001). It is a measure of the discrepancy between the
observed covariance and the model implied covariance matrices. This is in essence a
badness of fit measure.
The following fit indices are concerned with comparative fit, which relate to the
assessment of whether the model under consideration is better than some competing
model.
Bentler’s Comparative Fit Index (CFI) This index follows the logic of comparing a
proposed model with the null model assuming that no relationships exist between the
measures (Bentler 1990). The null model typically has considerably higher non-
centrality that a proposed model because it is expected to fit the data poorly. This test is
moderately sensitive to simple model mis-specification but very sensitive to complex
model mis-specification. It is not influenced by estimation method under true
population models but is substantially influenced by estimation method under mis-
specified models. This fit index is recommended and is preferable when sample size is
small (Hu and Bentler 1998).
Models with CFI of 0.95 or higher are thought to represent a reasonably good
approximation of the data (Hu and Bentler 1999). Others suggest that values above
0.90 indicate good fit to the data (Kelloway 1998).
Normed Fit Index (NFI) The NFI reports the percentage improvement in fit over
the null or independence model. Values of 0.90 and above indicate good fit (Kelloway
1998).
Bentler and Bonett’s Non-normed Fit Index (NNFI) The NNFI is a simple variant
of the NFI (computed by relating the difference of the χ2 value of the proposed model
to the χ2 value for the independence or null model) that takes into account the degrees
of freedom of the proposed model. This is done to take into account model
complexity, reflected by the degrees of freedom of the proposed model. More complex
models have more parameters and hence fewer degrees of freedom, and less complex
models have less parameters and thus more degrees of freedom (Raykov and
Marcoulides 2000). The degrees of freedom are indicators of the complexity of a
model. Models with NNFI close to 1 are considered to be more plausible means of
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describing the data than models for which these are indices are further away from 1.
Models with NNFI of 0.95 or higher are thought to represent a reasonably good
approximation of the data (Hu and Bentler 1999). Others suggest that higher values of
NNFI indicate a better fitting model, with 0.90 as the common value to apply as
indicating a good fit to the data (Kelloway 1998).
Expected Cross-Validation Index (ECVI) The ECVI is a means of assessing, using
a single sample, the likelihood that the model cross-validates across similar-sized
samples, by measuring the discrepancy between the fitted covariance matrix in the
analysed sample, and the expected covariance matrix that would be obtained in another
sample of equivalent size (Byrne 1998). The model with the smallest ECVI value has
the greatest potential for replication.
The following set of indices test for parsimonious fit, which relates to the cost-benefit
trade-off of fit and degrees of freedom.
Parsimony Goodness-of-Fit Index (PGFI) The PGFI takes into account the
complexity, the number of estimated parameters, of the hypothesised model in the
assessment of overall fit. Thus this index incorporates the goodness of fit of the
hypothesised model and the parsimony of the model. This provides a more realistic
evaluation of the hypothesised model (Byrne 1998). There is no standard cut-off for
how high the index should be, and it is unlikely that it would reach the 0.90 of other
indices. It is best used to compare two competing theoretical models, and choose the
one with the highest index of parsimonious fit (Kelloway 1998).
Parsimony Normed Fit Index (PNFI) As with the PGFI, the PNFI takes into
account the issue of parsimony, but ties into the NFI so that the NFI is multiplied by
the parsimony ratio. As with the PGFI, there is no standard cut-off for the index, and
again it is best used to compare two competing theoretical models, and choose the one
with the highest index of parsimonious fit (Kelloway 1998).
Ahaike Information Criterion (AIC) This index also considers the fit of the model
and the number of estimated parameters. Smaller values indicate a more parsimonious
model. The index is not scaled to range between 0 to 1, and there are no standards.
Interpretation is based on comparing competing models, and choosing the one that is
most parsimonious (Kelloway 1998). This index indicates the extent to which
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parameter estimates from the original sample will cross-validate in future samples
(Byrne 1998). The AIC however does have a bias in favour of more complex models
(Kelloway 1998).
8.6 Data collection and analysis
The balance of Chapter Eight addresses the issues of data collection, sample details and
sampling strategies, presents the results of the tests of the measurement models for the
study and discusses measurement issues, and finally presents the results of the test of
the path model. The results of test of the path model are discussed in detail in Chapter
Nine.
8.7 Details of data collection and the data source; sample and sampling issues
Data for the current research were secondary data. The data sets were originally
collected from employees and customers of a large national North American bank. The
research was conducted as part of the bank’s corporate strategy to win customer loyalty
through service excellence. Internal measures suggested that the bank was suffering
from increasing levels of customer defection, and the organisation sought to understand
the causes of that increase in customer defections. Following this research the bank
intended to investigate potential strategies to stem the defection and enhance customer
loyalty. The belief driving the research program was that by monitoring employee
attitudes towards the bank’s leaders in terms of policies and behaviours, and employee
attitudes towards their jobs and the organisation as a whole, then the bank could gain
valuable insights into employee satisfaction levels and how likely employees were to
remain at the bank. In turn, the bank believed that if the appropriate polices and
practices were in place at the bank, and employees were satisfied and more likely to stay,
then customers would experience higher levels of service quality and would be more
likely to remain with the bank.
Data remain the property of the bank and the bank’s market research consultancy.
Access was provided to the researcher on the condition that the identify of the bank
remain cloaked, that no identifying characteristics be revealed and that only covariance
matrices calculated from the data would be released to the researcher, to be used only in
conjunction with the market research consultancy. As such, invaluable access was
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permitted but was somewhat limited. Some analyses were not possible and
descriptive data were either limited or not released.
The original research program was designed in conjunction with a market research
consultancy associated with Arizona State University, USA. The employee and
customer survey instruments were devised from the extant literature and initial iterations
were tested using standard procedures in relation to their psychometric properties.
Items selected for the study were in most cases adapted from validated scales. As is
typical for applied research, items were required to be context specific and also to fit the
research brief of the bank. The bank’s human resources division oversaw the study and
approved the final copies of the survey instruments.
The market research consultancy devised the sampling plan and provided the data
collection plan for the bank. Data were collected from both employees and customers
at all divisions of the bank. This included corporate headquarters, the personal banking
division that provided in-branch services for individual customers, the business banking
division specialising in small to medium businesses, private banking for high wealth
customers, a specialised financial services division, and a stockbroking division.
Employee data were collected internally using self-administered questionnaires. The
employee surveys were sent to all organisational employees via internal mail, with a
cover letter from the parent bank’s chairman and chief executive officer stating the
purpose of the survey and encouraging participation. Branch managers were recruited
to encourage employees to respond. Employees were provided with a package that
included a cover letter from the chairman and chief executive officer of the parent bank,
a copy of the survey, a coded response sheet and a preaddressed return envelop. Survey
copies and the response sheet were customised to reflect the division that the employee
worked at and the respective organisational area.
Employees were told in the survey that their responses would be aggregated to a level at
which individuals could not be identified. The instructions included a statement that
indicated that the response sheet had been pre-coded to indicate which area of the
organisation the employee was affiliated with, and that an independent external
consulting firm had been contracted to enter and analyse the data. Employees were
asked to return the completed coded response sheet only.
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The response sheet allowed for employee responses to the items on 5-point Likert-
type scales, with ‘Strongly agree-Strongly disagree’ anchors. A section also allowed for
written comments. The employee answer sheets were designed for computer scanning
for data entry. The written comments were separately entered. No qualitative data
from the employee responses were used for the current study.
The customer surveys were conducted by telephone interview. Trained interviewers
read the questions to respondents and repeated the response categories after each
question. The response categories allowed for customer responses to the items to be
coded on 5-point Likert-type scales, with ‘Strongly agree-Strongly disagree’ anchors.
The interviewer also asked the respondents for additional comments. The written
comments were separately entered. No qualitative data from customer responses were
used for the current study.
An external marketing research call centre was used to contact and interview customers.
Operators were provided with computer-assisted telephone interview packages that
allowed direct data entry. Instructions sets included details to be given to customers
that included information regarding the purpose of the study, details of how the
customer was selected for the study, a telephone hot-line number for customers to
contact regarding the survey and the survey questions. The telephone system held the
telephone numbers to be dialled. In all, three attempts were made to contact each
potential respondent. If customers declined the opportunity to respond, their details
were deleted from the calling system.
Importantly for this study, the sampling plan was constructed and implemented so that
data were collected from each division of the bank, and within the personal banking
division, customers and employee from each branch were sample. Employees could be
identified to the branch level. However, customers were not asked to indicate which
branch was the one at which they completed the bulk of their banking, so that data from
customers relates to the customers’ total experience with the bank. For the purpose of
this study, data from the personal banking division were deemed most appropriate. In
the personal in-branch banking division, high levels of interpersonal contact occurred,
both between customers and banking customer contact employees, and between
customer contact employees and direct and high level supervisors. Specialised banking
functions were performed in other divisions. That is, the functions in the branch
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settings allowed for close interaction among customers, customer contact employees
and banking management hierarchies.
Care was taken to ensure that customers from each branch were sampled. Using the
bank’s routing codes and customer account classifications, clusters of customers were
identified and then randomly selected to be called. Thus the sampling plan included
customers from each branch and from within each of the customer classification
groups, and thus from each region of the bank. This ensured that representatives of
each customer group were targeted but that as much as possible systematic error was
reduced. Only current active customers were included in the research consultant’s
sampling frames.
Branches were grouped by regions for the analysis. Importantly for the research, each
region had a regional manager who had a high level of autonomy over the region’s
branches and was expected be to be actively involved in the respective branches. This
included regular visits and contact with the branches. The slightly more than 1000
branches were grouped into 59 regions. Branches varied in size from small branches in
rural cities to large branches in major city centres. Unless otherwise stated, the ‘bank’
refers to the personal in-branch banking division. The conclusion for the study in
relation to this regional level influence is that regional level managers exert significant
influence on employee and customer perceptions as a result of the management
decisions and directives that take place at that level. In the employee instrument,
employees were specifically directed to consider both their direct supervisor, and their
regional level manager, when considering their perceptions of the leadership of the
bank.
In all, 18,821 useable responses were collected from approximately 21,000 employees of
the personal banking division. This represented approximately a 90% response rate
which included responses from each branch. In essence the data represent a census of
employees within the division. Because the responses were coded to allow for
classification of employees, the responses used in the current study were from
employees whose job at least partly entailed direct contact with customers.
In all, 55,335 useable interviews from customers of the personal banking division were
included in the analyses. This represents a response rate of approximately 2.8%. Thus
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data were collected from both employees and customers at the bank’s individual
branch level.
Data used for the employee and customer measurement models were collected and
analysed from each banking branch. The data for the path model were aggregated at the
regional level. To do this, the employee and customer data sets were integrated.
Responses to items were averaged for responses for each construct for both employee
and customer data. The final covariance matrix was calculated from this aggregated
data. Thus this single data set is one in which the sample corresponds to the number of
banking regions rather than individual employees and customers of the bank.
For the present research the market research consultancy provided the researchers with
copies of the sets of instructions, the survey instrument, information regarding data
collection procedures, and covariance matrices of each of the data sets.
Three separate covariance matrices were provided by the research consultancy. These
matrices consisted first of the employee data from the corporate centre, the second the
employee data from the personal banking division, and the third of the personal banking
customers. The first covariance matrix relating to the data collected from the corporate
centre was used to calculate the single factor models for the employee instrument.
There were 1051 employee responses in this data set. This was deemed an appropriate
data set and sample size for the single factor models. The second matrix consisted of
data from employees of the personal bank. The measurement model was tested using
this matrix. The third covariance matrix calculated from customer data was used first
for the customer measurement model. Finally the separate personal bank employee and
customer matrices were aggregated and used to run the path model that tested the
overall set of relationships.
8.8 Measure validation
Construct definitions are provided in Table 8.4 and the items and factor loadings are
reported in Table 8.5 for the employee survey and Table 8.6 for customer data.
The measure validation for the current study consisted of post hoc analyses. While the
employee and customer surveys were administered as part of the bank’s internal market
research, the theoretical framework and the constructs for the present study were
developed from an extensive literature review.
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Operational definitions of the constructs were developed, and measures were
investigated that had been designed to reflect these constructs. Thus the first stage of
the study consisted of developing a series of single factor models to confirm that the
items used in the primary data collection process actually measured the construct they
were assigned to measure. In essence the first series of single factor models were run as
single factor theoretical models. The literature was used to build the definitions of the
construct and match them with the item used. The employee data from the corporate
division was used to test these models. Each construct was examined with a single-
factor analysis using LISREL 8.54 (Jöreskog and Sörbom 2002). Fit indices for each
factor indicated that the each of the constructs had a satisfactory degree of internal
consistency among the measures for the construct in question.
This process ensured that the constructs were supported by theory and that the
measures consisted of multi-item scales for each construct that had been tested as single
factor models. Multi-item scales provide several advantages over single-item measures
(Churchill 1979).
The measurement model was then tested using the method proposed by Anderson and
Gerbing (1988). Two confirmatory factor analyses were conducted in separate stages on
the employee data and the customer data. First, for each data set, confirmatory factor
analysis was used to establish the validity of the scales used to measure the constructs.
In the initial stage of the analysis, items within scales were tested for significance, run as
single factor models. This checks which items to exclude from the analysis because of
non-significant values. This item-deletion procedure has been suggested as a method
for re-specifying indicators that do not load (Anderson and Gerbing 1988). For the
remaining items, t-values are calculated. These t-values should exceed +/- 1.96 to meet
the criterion for convergent validity (p < 0.05) (Anderson and Gerbing 1988). All items
loaded as specified, with t≥1.96. Table 8.4 provides the operational definition of each
construct.
Other than for the perceived service quality construct, all latent constructs were
measured with at least four observed or manifest variables. The theory strongly guided
the final scales used to include in the measurement model. Firstly, at least two items
should be measured so that measurement reliability and construct validity can be
assessed (Nunnally 1970). Second, three items are necessary to yield a unique solution
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in single construct models and thirdly in complex models less than three items can
lead to problems of under-identification, negative degrees of freedom and non-unique
solutions, especially as some constructs in the model are not correlated with each other
(Bollen 1989).
The concern with low factor loadings is somewhat reduced by the number of items used
to measure each construct. As the number of items increases the composite reliability
of the construct will increase (Nunnally 1970). As well, a respondent’s true score is
better represented when a larger number of items is used (Little et al. 2002). Simple
logic suggests that more is better to measure a mean. More items helps overcome non-
normal distribution, and scale intervals become smaller and more equal as the number
of items aggregated is increased.
Taking all these issues into consideration, the maximum possible number of items was
retained in line with theoretical definitions which were based on the underlying
dimensions of the construct. If an item loading was low but the item was deemed to be
necessary to capture the substantive meaning and full range of the underlying
dimensions of the construct, then the item was retained.
The number of observed measures is also an important consideration when models are
run using small samples.
Models containing more items per factor have been found to be better because they
demonstrated more proper solutions, more accurate parameter estimates and greater
reliability (Kenny and McCoach 2003). At the same time, models with many factors and
small samples may be more inclined to experience degradation in absolute fit indices
than models with many factors and large sample sizes. In fact models with more
variables tend to approximate the data more poorly than models with fewer variables
(Kenny and McCoach 2003). The authors note that it is likely that as more complex
models appear in the literature, these theoretically interesting models with many
variables may be penalised by some fit indices.
Some suggest that because fewer parameters are needed to define a construct when
parceling or aggregating is used, then parceling is preferred, particularly when sample
sizes are relatively small (Bagozzi and Edwards 1998). Others suggest that overall
model fit will be more acceptable when parcels or aggregations, rather than items, are
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used because of the psychometric and estimation advantages of parcels (Little et al.
2002). This is because models based on parceled data are more parsimonious in terms
of estimated parameters in defining a construct and in representing an entire model, and
have fewer chances for residuals to be correlated because fewer items are used and
unique variances are smaller. Parceled data also lead to reductions in various sources of
sampling error (MacCallum et al. 1999).
For the path model a one-indicator index was formed for each construct by averaging
the items underlying that construct in the measurement model. The practice of
parcelling or aggregating is considered by some to be controversial. Little et. al (2002)
suggest that when parcelling can be justified, it should be performed based on a
systematic foundation. A suggested set of practices include determining the
dimensionality of the items prior to parcelling, ensuring the theoretical dimensionality of
the constructs to be estimated and verifying item to construct relationships across
relevant sub-groups and in particular with different samples. Multi-dimensionality can
also cause problems with parcelling, if an item loads on more than one factor so that
only items that load on a single factor should be used. Finally if the relationships among
the latent variables are the primary goal of the modelling, then parcelling is justifiable.
This in effect creates a single uni-dimensional latent variable that is appropriate when
the researcher’s desire is to model the effects of a latent variable at a given general level
(Little et al. 2002).
Next consideration is given to the dual implications of sample size and the use of item
aggregation or parcelling for the path modelling. Sample size should be as large as
possible, with a minimum of 100 cases, especially in the case of CFA. There should be
an adequate number of indicators that are carefully chosen and reliable, so that statistical
tests and parameter estimates can be relied upon (Jackson 2003). The current study
followed this strategy (Table 8.3).
Table 8.3 Item, measures, constructs, aggregation and sample sizes
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Goal Procedure
Develop strong theoretical single factor model underpinned by sound items
Single factor models tested using large independent sample (n = 1051) for employee-related constructs; used large customer sample for all of single factor customer-related constructs, measurement model and path model (n = 55,355)
Large number of items where possible with strong theoretical underpinnings
Test measurement model for all constructs
CFA using relevant data sets with large samples (employee n = 18,821; customer n = 55,355)
Test path model Items for each construct parcelled and data for customers and employees aggregated at the bank’s regional level (n = 59).
Finally consideration should be given to the sample size for the path model. While the
sample size for the path model is small, steps have been taken to diminish the potential
negative impact of a small sample size using SEM. Namely, adequate numbers of items
have been used to measure each construct, and large sample sizes were used for single
factor model testing, and for CFA. Data were aggregated at the regional level and items
were parcelled to limit the number of parameters to be estimated, to increase the
composite reliability of the construct and to enhance the underlying dimensionality of
the constructs. This technique has been used to aggregate individual level data from
disparate samples at a desired level of an organisation (Hartline and Ferrell 1996;
Ostroff, Kinicki, and Clark 2002). In these cases, while the data were collected from
larger sample sizes, the aggregation clearly decreased the number of cases of the path
modelling. The trade-off between sample size and data set integration is necessary to
achieve the goal of relating data collected from these disparate samples.
In operational terms, since customers typically use numerous branches for banking
services, customer and employee data could be not be linked to a branch level because
customers develop their perceptions from multiple sources. Regional level managers
exert a strong influence on the service culture of the organisation. The focus on the
dual perspectives of both employees and customers for diagnosing organisational
effectiveness yields data useful not only for making global evaluations but also for
specifying some facets of group practices and procedures (Schneider, Parkington, and
Buxton 1980). In the present study the level of analysis was the region. Regions are
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thought to be the most appropriate level of analysis because regional managers exert
considerable influence across the region, customers typically bank at more than one
branch even though their account is anchored at a specific branch, and employees are
thought to share relatively similar experiences within regions.
The sample size for the path model analyses is a result of the level to which the data are
aggregated. Since the regional level is the most appropriate level from which to
investigate the influences on employees and customers of the bank, and there are 59
regions, then that is the final sample size. The challenge arises because the data are
from disparate sources, that is, both customers and employees provide measures of
perceptions of the bank’s practices. This is one of the great strengths of the study. At
the same time, because the data have to be aggregated to a level at which they can
appropriated be related, then the consequence is the relatively small sample size.
This of course raises issues about the tentativeness of the results from such an analysis,
given that SEM requires large sample sizes. The thesis deals in some detail with the
issue of sample size and provides a strong rationale for the efficacy of the analyses
conducted. In particular, Section 8.8, summarised in Table 8.3, discusses the steps taken
to counter the arguments that the sample size is too small.
In conjunction with the discussion in those sections, the following paragraphs provide
both literature-based discussion of the practice, including support for the practice of
using SME with small sample sizes, and cites several examples of published works that
use similar methodology, logic and sample sizes.
That is, there is a trade off between adequate sample size considerations, the relevance
of the issue at stake, and the use of a large number of responses before data is
aggregated, especially when steps are taken to overcome the sample size inadequacy,
such as limiting the number of parameters to be estimated. Tabachnick and Fidell
(1996) note that a minimum of 5 observations per parameter is necessary, while 10 is
preferred.
Anderson and Gerbing (1988) note that problems with small samples include non-
convergence, improper solutions, and systematic error. Models underpinned by
constructs with three or more items do not require as large a sample size as those that
have constructs measured by fewer than three items. Systematic error can partly be
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overcome by larger response sets. Finally, model fit is positively biased by sample
size, so that larger samples are typically correlated with sample size, even though some
fit indices such as CFI perform well even with sample sizes of 50 (Bentler, 1990).
Larger sample sizes provide greater power to detect small differences between
competing models, and increase the likelihood of significant results.
This logic suggests that when significant results and satisfactory fit statistics are
produced with smaller sample sizes, as long as an adequate number of items per
construct have been used, the respondent size before aggregation was large, the number
of parameters to be estimated is restricted, and the model converges with theoretically
plausible conclusions, then small sample sizes can be justified especially when the
nomological network is rich, provides important results and has a solid theoretical
foundation. When data is aggregated at a level that allows for meaningful linking of
disparate information sources, then the research also potentially provides meaningful
and more valid information. As well, in certain settings there may be important
substantive areas where subjects or unit numbers are rare and scarce (Cudeck and
Henly, 1991).
Tests using SEM with small samples have been carried out using constructs aggregated
to the unit level using data collected from individuals, where bootstrapping was used to
assess the likelihood that the findings were due to chance (Klein, Conn and Sorra,
2001). This technique treats the sample as if it were the population, and applies Monte
Carlo sampling to generate an empirical estimate of the statistic’s sampling distribution,
by drawing a large number of ‘samples’ of size n from this original sample randomly
with replacement (Mooney, 1993).
In one of the foundation studies used for the present research, the authors averaged the
items in each scale to create a summed-scale indicator for each construct (Hartline and
Ferrell 1996), because the final sample size (97 units) was small in relation to the
number of scale items. In a similarly setup, aggregation occurred at the hotel level, with
71 hotels (that is, n = 72), 8052 employees and 7 constructs (Ostroff, Kinicki, and Clark
2002).
In another example, in a study linking social exchange theory to organisational
outcomes of safety and accidents, the authors deal with a limited sample size and SEM
analysis (Hofmann, 1999). They limit parameter estimation and the numbers of core
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constructs. They argue however that the model would benefit from a wider variety
of variables to provide a richer approximation of the nomological network. They also
suggest that the small sample size for the path analysis results from the primary linking
unit, in this case, group leaders. This group provides a key means of a link between
management and employees, and the result is albeit a small sample size, but one that
allows research on a crucial issue that has practical implications for organisations.
Klein, Conn and Sorra (2001) used a unit number of 28, from an employee response
sample of 1219, with the average number of responses from each unit of 31. Six
constructs were captured for the path model analysis. Similarly, in a study of employee
reports of customer satisfaction with customer-server interactions (Susskind, Kacmar,
and Borchgrevink, 2003), a unit size of 26, with 390 responses from employees and 269
responses from customers, was used to estimate a model with 5 constructs. In yet
another study, 652 individuals working in 51 teams, assessed at team level 9 constructs,
underpinned by measures assessed at the team level to ensure conformity to the level of
the theory (Barrick, 1998, Stewart, Neubert, and Mount, 1998).
Note that the order of the construct definitions presented below follow the order of the
item progression on the survey instrument presented to respondents. For consistency,
the discussion of the development and testing of the measures, and the factor loadings
and item source, are presented in this sequence. (See Table 8.5 for items relating to
employees Table 8.6 for items relating to customers).
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Table 8.4 Construct definitions Direct leadership support
The acts of leadership and management practice by the immediate supervisor that signal support and consideration of customer contact employees.
Senior leadership support
The behaviours and attitudes that are visible to employees throughout the organisation and that communicate and direct the overall strategies and values of the organisation.
Work facilitation resources
The organisational and job conditions that enhance or inhibit task performance including the physical, technical and information resources that facilitate customer-oriented service delivery.
Management customer orientation
The philosophy implied by the policies, procedures, and goals of management, that support the set of beliefs that puts the customer’s interests first, so that the values and beliefs of the organisation reinforce this customer focus.
Service climate The customer contact employees’ perceptions that practices and procedures are in place to facilitate the delivery of excellent service, and that management supports, expects and rewards excellent service.
Employee empowerment
The state where customer contact employees have the discretion to make day-to-day decisions about job-related activities and processes, and can influence organisational policies that relate to their workplace, can use their judgment without fear of punishment.
Behaviour-based evaluation
The perception customer contact employees have that they are rewarded on the basis of their performance in regard to the organisation’s goals, and that they receive constructive performance feedback and recognition for organisational contributions, in a manner that encourages and supports employees in their quest to achieve positive outcomes for themselves and the organisation.
Employee self-efficacy
The degree to which customer contact employees believe they have the skills and ability to perform job-related tasks and can continue to acquire a range of generative skills, to develop and build over time the confidence to effectively perform their role in the organisation.
Job satisfaction The level of satisfaction customer contact employees have with various facets of the job, including compensation, opportunities for advancement, overall satisfaction with the job itself, and overall satisfaction with the organisation as a place to work, including the policies directed towards the employee.
Employee loyalty The level of the customer contact employees’ current commitment to the organisation and intentions to remain with the organisation, their personal affiliation with the organisation, and their advocacy of the organisation to others.
Perceived service quality
Customer perceptions of the organisation’s overall performance, overall performance at the interaction level and overall perception of the quality of service, based on evaluations of attributes of the service itself, the delivery process and the organisation.
Customer loyalty The level of the customer-stated current commitment to the organisation, intentions to remain with the organisation, intentions to expand service usage, and advocacy of the organisation to others.
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The following section discusses specific issues in relation to the development of the
measures for each construct.
8.9 Developing and testing the measures
All items and factor loadings are provided later in Chapter Eight in Table 8.5 for items
relating to employees, and in Table 8.6 for items relating to customers.
Where possible, existing scales were used or adapted to operationalise the constructs.
For the senior leadership support constructs, a pool of items were developed from the
marketing, management, and applied psychology literature. The scales were constructed
using items to reflect the dimensions of the constructs. The practice of adapting
measures from existing scales, or developing new measures from the literature, is well
established (Sarin and Mahajan 2001), provided that the new scales are carefully tested
(Byrne 1998; Kelloway 1998; Kline 1998).
All scales in this questionnaire were first subjected to single-factor model analysis, in the
form of a CFA. The measurement model was then tested using CFA and loadings and
correlations inspected. In the case where intercorrelations were deemed somewhat high,
the single factor models for those constructs were compared to competing single factor
models, using systematic substitution of items, to check that the scale as developed was
the best fitted model.
Thus within the development of the scales, theoretical and statistical considerations
were incorporated (Anderson and Gerbing 1988). That is, due consideration was given
to issues of content, discriminant and convergent construct validity. In particular,
specific attention was given to the theoretical development of the measurement model.
When factor loadings were low, if the item in question was deemed to be integral to the
construct, and as long as the loadings exceeded 0.45, they were included in the single
factor model and thus in the survey instrument.
The following section addresses specific issues with each measure.
8.10 Direct leadership support
For this study, direct leadership support is a measure of employees’ positive perceptions
of and overall satisfaction with, the acts of leadership and management practice by their
immediate supervisor that signal support and consideration. The direct leadership
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support construct and its measures were adapted from Schneider, Parkington and
Buxton (1980). These items focus on direct managerial function within individual bank
branches. The scale includes a global measure of satisfaction with the direct supervision
provided at the branch level (Jaworski and Kohli 1991).
8.11 Senior leadership support
Senior leadership support is operationalised as employees’ positive perceptions of the
behaviours and attitudes that are visible to employees throughout the organisation that
communicate and direct the overall strategies and values of the organisation. No
suitable scale existed for this construct. The items were created to operationalise the
definition of senior leadership support from the extant literature (Katz and Kahn 1978;
Schneider and Bowen 1985; Schneider, White, and Paul 1998). The scale also includes a
global measure of satisfaction with the organisation’s leaders (Jaworski and Kohli 1991).
8.12 Work facilitation
The work facilitation resources construct is operationalised as employee perceptions of
the availability of the physical, technical and information resources that facilitate
customer-oriented service delivery. The work facilitation resources measures are
adapted directly from the items in the Work Facilitation component of the Foundation
Issues Scales used by Schneider, White and Paul (1998) and Schneider, Wheeler and Cox
(1992), and from Passion for Service themes (Schneider, Wheeler, and Cox 1992).
8.13 Management customer orientation
Here, management customer orientation is measured as employee perceptions of the
level of the degree to which management fosters a customer orientation. Management
customer orientation is the philosophy implied by the policies, procedures, and goals of
management, that support the set of beliefs that puts the customer’s interests first, so
that the values and beliefs of the organisation reinforce this customer focus. The
management customer orientation construct and measures are developed from two
perspectives, that of Narver and Slater (1990) and of Schneider, White and Paul (1998).
The items used are directly adapted from the two scales. From the Customer
Orientation scale (Narver and Slater 1990) come the dimensions of satisfying customer
needs and requirements, commitment to serving customer needs, and the understanding
of customers’ needs. From the Customer Orientation Scale (Schneider, White, and Paul
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1998) come the dimensions and measures related to managing changes that affect
customers, and planning means to improve customer satisfactions.
8.14 Service climate
A service climate rests on the way rewards and routines within the organisation are
related to the provision of service, and are supported by management actions and
attitudes. For the purpose of this study, perceived service climate is measured as the
degree to which employees perceive that practices and procedures are in place to
facilitate the delivery of excellent service, and that management supports, expects and
rewards excellent service. The service climate construct and items were developed from
the Schneider, White and Paul (1998) Global Service Climate and internal service
measures.
8.15 Employee empowerment
In this study employee empowerment is operationalised as employee perceptions that
they have the discretion to make day-to-day decisions about job-related activities and
processes, can influence organisational policies that relate to their workplace, and can
use their judgment without fear of punishment. Two of the items in the study were
adapted from those used by Hartline and Ferrell (1996), who measured the degree to
which managers believed they used empowerment controls in the workplace. A number
of the items originally used in the Hartline and Ferrell study did not load well on the
construct. To ensure that the dimensions of the construct were measured in this study,
items were included that emphasised the risk without punishment and policy
implementation dimensions of the construct. These items were adapted from the
literature (Churchill, Ford, and Walker 1976; Lawler 1976).
8.16 Behaviour-based evaluation
Behaviour based evaluation is operationalised as employee perceptions that they are
rewarded on the basis of their performance, and that they receive constructive
performance feedback, and recognition for organisational contributions. The items
were adapted from the contingent approving behaviour, achievement oriented
behaviour, and positive reinforcement rewards variables from the Supervisory
Behaviour Instrument (Kohli 1985).
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8.17 Employee self-efficacy
In the current study, employee self-efficacy is captured as a measure of the degree to
which customer contact employees believe they have the skills and ability to perform in
their current role, and that they can continue to acquire skills, which includes the
confidence and ability to do so, and have perceptions that the organisation supports this
development. This definition was developed from the extensive research and
conceptual development provided by Bandura, Gist, and Hartline and Ferrell, among
others (Bandura 1997; Bandura and Jourden 1991; Gist and Mitchell 1992; Hartline and
Ferrell 1996). The definition of the construct was largely based on that developed by
Hartline and Ferrell (1996), who however, did not find strong support in their
confirmatory factor analysis for several of their measures associated with this definition.
The operationalisation in the current study is developed by reworking the measures used
by Hartline and Ferrell (1996), and careful consideration of the various dimensions of
the construct. Bandura (1997) suggests that self-efficacy can include organisational
support, learning efficacy and general feelings of self-efficacy that are based on the
ability to acquire and apply generative skills. The items are developed to more directly
measure these dimensions of self-efficacy.
8.18 Job satisfaction
The job satisfaction construct is operationalised to capture employees’ level of
satisfaction with various facets of the job, including compensation, opportunities for
advancement, overall satisfaction with the job itself, and overall satisfaction with the
organisation as a place to work, including the policies directed towards the employee.
The satisfaction with the organisation’s policies, job facets, advancement, compensation
and overall job satisfaction items were adapted from the measures developed by
Hartline and Ferrell (1996) to capture the employee job satisfaction construct. The
satisfaction with the organisation’s policies item was further defined in the context of
the importance of the impact of the organisation’s policies on job satisfaction
(Eisenberger, Fasolo, and Davis-LaMastro 1990; Van Dyne, Graham, and Dienesch
1994). The overall satisfaction with the organisation item was adapted from
Bettencourt, Meuter and Gwinner (2001).
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8.19 Employee loyalty
The employee loyalty construct is defined as a measure of the level of customer contact
employees’ current commitment to the organisation and intentions to remain with the
organisation, their personal affiliation with the organisation, and their advocacy of the
organisation to others.
The measures used to capture these dimensions of employee loyalty are adapted from
the loyalty construct of the Service-Oriented Citizenship Indicators Scale (Bettencourt,
Gwinner, and Meuter 2001), that was developed from similar measures (Moorman and
Blakely 1995; Van Dyne, Graham, and Dienesch 1994), which captured current
commitment, personal affiliation, and advocacy to others, while the intentions to remain
with the organisation dimension item was developed from the Quitting Intent scale
(Babin and Boles 1998) and the Turnover Intentions Scale items (Singh, Verbeke, and
Rhoads 1996). These items were adapted to express relevance to employees of the
bank.
8.20 Perceived service quality
The items were selected to capture customer perceptions of the organisation’s overall
performance, overall performance at the interaction level and overall perception of the
quality of service, based on evaluations of attributes of the service itself, the delivery
process and the organisation. The set of items for the study were directly adapted from
the measures used to capture overall performance of the bank (Brady and Cronin 2001;
Parasuraman, Zeithaml, and Berry 1988; Schneider, White, and Paul 1998), overall
perceptions of the performance on the attributes of the service delivery (Brady and
Cronin 2001; Parasuraman, Zeithaml, and Berry 1988; Schneider, White, and Paul 1998),
and perceptions of the overall quality of service at the bank (Brady and Cronin 2001;
Cronin and Taylor 1992; Parasuraman, Zeithaml, and Berry 1988; Schneider,
Parkington, and Buxton 1980).
8.21 Customer loyalty
The measures were designed to capture customer-stated intentions to remain with the
bank, intentions to expand service usage with the bank, and advocacy of the bank to
others. The measures were directly adapted from the loyalty dimension of the
Behavioural-Intentions Battery (Zeithaml, Berry, and Parasuraman 1996), and modified
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to reflect the current context, banking services. Consideration was also given to the
Ganesh, Arnold, and Reynolds (2000) classification of active and passive loyalty.
8.22 Summary of the measure development and measure assessment process
The measures were developed from the literature so that they accurately represented the
construct to be operationalised. The measurement model using the employee data was
run as a confirmatory factor analysis with 44 items to assess ten latent constructs. The
model for customer data was run with seven items to assess two constructs. The results
for the confirmatory factor analyses are reported in Table 8.5 for the employee
instrument measures and Table 8.6 for the customer instrument measures.
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Table 8.5 Employee scale and measures, factor loadings and item source: confirmatory factor analysis results. Employee data (n = 18,821)
Scale and measures Factor loading
Source
Direct leadership support
‘Refers to the person/s to whom you directly report’
Adapted from:
The person I report to does a good job of communicating plans to those who must implement them
0.80 Managerial function. Schneider, Parkington and Buxton 1980
The person I report to listens to my suggestions and seriously considers them
0.84 Managerial function. Schneider, Parkington and Buxton 1980
The person I report to effectively utilizes the differences between employees within my work group
0.83 Managerial function. Schneider, Parkington and Buxton 1980
All in all, I am satisfied with the person I report to
0.90 Satisfaction with supervisor. Jaworski and Kohli 1991
Senior leadership support
‘As demonstrated by the VP(s) and above in your business unit’
Adapted from:
The BANK does a good job of communicating its strategy to its employees
0.46 Global service climate. Schneider, White and Paul 1998
Our leaders demonstrate the organisation’s values consistently
0.74 Measure developed from Katz and Kahn 1978
Our leaders keep their commitments to employees
0.80 Measure developed from Katz and Kahn 1978
Our leaders help people cope constructively with ambiguity and uncertainty
0.78 Measure developed from Katz and Kahn 1978
Our leaders can successfully make the changes needed to keep this organisation moving in the right direction
0.78 Measure developed from Katz and Kahn 1978
All in all, I am satisfied with our leaders 0.87 Satisfaction with supervisor. Jaworski and Kohli 1991
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Work facilitation resources Adapted from:
I have enough relevant information to perform very effectively.
0.64 Work facilitation. Schneider, White and Paul 1998
I have enough appropriate technology to perform very effectively.
0.62 Work facilitation. Schneider, White and Paul 1998
I have the appropriate financial resources to perform effectively.
0.61 Availability of budget resources. Schneider, Wheeler and Cox 1992
I have an appropriate work environment (e.g. physical conditions of my work location) to perform very effectively
0.51 Office conditions and facilities. Schneider, Wheeler and Cox 1992
Management customer orientation Adapted from:
We do a good job of anticipating customer needs and requirements
0.68 Customer orientation. Narver and Slater 1990
In this organisation, we keep our commitment to customers
0.75 Customer orientation. Narver and Slater 1990
We are managing the rapid pace of change in a way that preserves good customer relationships
0.76 Customer orientation. Schneider, White and Paul 1998
We are utilizing the full potential of technology to satisfy our customers
0.50 Customer orientation. Schneider, White and Paul 1998
We are successfully changing our focus from product sales to customer needs
0.64 Customer orientation. Narver and Slater 1990
Service climate Adapted from:
Overall, this organisation is focused on providing customers with excellent service
0.66 Global Service Climate. Schneider, White and Paul 1998
Our leaders inspire people in the organisation to strive for excellent performance
0.69 Global Service Climate. Schneider, White and Paul 1998
Working together in a common effort with other departments/work units to meet customer needs is a norm in this organisation
0.50 Foundation issues – interdepartmental service. Schneider, White and Paul 1998
In our organisation, most rewards are based on performance
0.46 Global Service Climate Schneider, White and Paul 1998
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Employee empowerment Adapted from:
I understand what decisions I can make myself and which require approval from others
0.59 Empowerment. Hartline and Ferrell 1996
I am encouraged to take well-thought-out risk without fear of reprisal
0.76 Self-control. Lawler 1976
I have the authority I need to carry out my job responsibilities
0.73 Empowerment. Hartline and Ferrell 1996
When significant changes occur in my unit, I have an opportunity to influence how best to implement them
0.66 Policy implementation. Churchill 1976
Behaviour-based evaluation Adapted from:
My performance is reviewed in a way that helps me improve it
0.60 Achievement oriented evaluation. Kohli 1985
Performance feedback. Schneider and Bowen 1993
If I do my job especially well I will be recognized for my contribution
0.83 Contingent approving evaluation. Kohli 1985
If I do my job especially well I will receive financial rewards
0.77 Positive reinforcement rewards. Kohli 1985; Schneider and Bowen 1993
If I do my job especially well I will be more likely to obtain desirable job assignments
0.79 Positive reinforcement rewards. Kohli 1985; Schneider and Bowen 1993
Employee self-efficacy Adapted from:
I have the necessary skills and abilities to do my job well
0.48 Employee self-efficacy. Hartline and Ferrell 1996
I know what skills and abilities I need to be effective in the future
0.57 Employee self-efficacy. Bandura 1997
The organisation provides me with a clear picture of how to acquire the skills and knowledge I need to perform
0.78 Organisational support for self-efficacy. Bandura 1997
The organisation provides me with appropriate learning opportunities for my professional growth
0.77 Learning efficacy. Bandura 1997
I can find the time I need to further develop my skills and abilities
0.52 Organisational support for self-efficacy. Bandura 1997
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Job satisfaction Adapted from:
Respect for the individual s reflected in decisions made in our organisation
0.62 Satisfaction with organisational policies, respect for individuals. Hartline and Ferrell 1996; Van Dyne et al. 1994.
I am compensated fairly compared to similar positions in the marketplace
0.49 Job satisfaction. Hartline and Ferrell 1996
I have sufficient opportunity to realize my career goals in this organisation
0.61 Satisfaction with growth and development opportunities. Bettencourt, Gwinner and Meuter 2001; Hartline and Ferrell 1996
All in all, I am satisfied with my current job
0.69 Overall job satisfaction. Hartline and Ferrell 1996; Netemeyer, Boles, McKee, and McMurrian 1997
All in all, I am satisfied with this organisation as a place to work
0.84 Satisfaction with the organisation. Bettencourt, Gwinner and Meuter 2001
Employee loyalty Adapted from:
I rarely think about leaving to go to a different company
0.67 Quitting intent. Babin and Boles 1998; Singh, Verbeke, and Rhoads 1996
I am proud to be identified with this organisation
0.78 Employee loyalty. Moorman and Blakely 1995; Van Dyne, Graham, and Dienesch 1994
I would recommend this organisation to others as a good place to work
0.87 Employee loyalty. Bettencourt, Gwinner and Meuter 2001; Moorman and Blakely 1995; Van Dyne, Graham, and Dienesch 1994
I would recommend this organisation to others as a good place to do business
0.76 Employee loyalty. Bettencourt, Gwinner and Meuter 2001; Moorman and Blakely 1995; Van Dyne, Graham, and Dienesch 1994
Fit Statistics: χ2 = 56874.74, df = 900, P-value = 0.000; GFI = 0.88; AGFI = 0.86; SRMR = 0.055; RMSEA = 0.057; NCP = 55974.67; CFI = 0.97; NFI = 0.97; NNFI = 0.97; ECVI = 3.04; PGFI = 0.77; PNFI = 0.89; AIC = 57144.67
183
Table 8.6 Customer scale and measures, factor loadings and item source: confirmatory factor analysis results. Customer data (n = 55,335)
Scale and measures Factor loading
Source
Perceived service quality Adapted from:
How would you rate the overall performance of The Bank? This includes all of The Bank’s personnel and services.
0.76 Overall customer perceptions of performance quality. Parasuraman, Zeithaml, and Berry 1988; Bitner 1990; Cronin and Taylor 1992, 1994; Brady and Cronin 2001
How would you rate your branch’s overall performance? This includes the location, place, people and management of the place where you bank.
0.69 Overall customer perceptions with service attributes. Parasuraman, Zeithaml, and Berry 1988; Cronin and Taylor 1992, 1994; Brady and Cronin 2001
How would you rate the overall quality of service you receive at The Bank?
0.87 Customer perceptions of overall service quality. Parasuraman, Zeithaml, and Berry 1988; Cronin and Taylor 1992, 1994; Brady and Cronin 2001
Customer loyalty Adapted from:
If you knew of a friend or relative who was dissatisfied with their current bank or financial institution, what is the likelihood that you would recommend The Bank to them?
0.81 Active Loyalty. Ganesh, Arnold, and Reynolds 2000; Zeithaml, Berry and Parasuraman 1996
Within the next twelve months, what is the likelihood that you would continue using The Bank for all services you use today?
0.68 Passive loyalty. Ganesh, Arnold, and Reynolds 2000; Zeithaml, Berry and Parasuraman 1996
If you haven’t already done so, what is the likelihood that you would give more of your banking business to The Bank in the next twelve months?
0.71 Active loyalty. Ganesh, Arnold, and Reynolds 2000; Zeithaml, Berry and Parasuraman 1996
If you were looking for a new financial service such as a loan, mortgage, or a place to invest some money, what is the likelihood you would look only at The Bank to provide that service?
0.72 Active loyalty. Ganesh, Arnold, and Reynolds 2000; Zeithaml, Berry and Parasuraman 1996
Fit Statistics: χ2 = 4355.57, df = 13, P-value = 0.000; GFI = 0.98; AGFI = 0.95; SRMR = 0.029; RMSEA = 0.078; NCP = 4342.57; CFI = 0.98; NFI = 0.98; NNFI = 0.96; ECVI = 0.079; PGFI = 0.45; PNFI = 0.60; AIC = 4385.57
184
8.23 Convergent validity
If the a priori measurement model is reasonably correct then indicators specified to
measure a common underlying factor should all have relatively high loadings on that
factor. This is an indicator of convergent validity. Table 8.5 reports details for the
employee data, and Table 8.6 for the customer data. These tables include the measure
used for each construct, the source of each measure, the regression coefficient for each
measure, and the fit statistics for each data set. The fit indices indicate reasonable fit for
the measurement model. The factor loadings indicate reasonable loadings for most
items on the respective constructs. For those constructs where loadings were below
0.50, due consideration was given to the theoretical support for the item. As well,
examples exist in the literature were items with loadings as low as 0.43 are included in
the measurement model (Hartline and Ferrell 1996).
8.24 Discriminant validity
Discriminant validity is assessed in two phases. First a one-at-a-time χ2 difference test
was performed for the largest cross-construct correlations within the samples. The
output was examined to check where the largest correlations occurred and that the
increase in the value of χ2 exceeded the critical value by a suitable margin and that no
confidence interval contained the value 1.00. Then the discriminant validity was
assessed across both the samples by aggregating and matching responses.
Estimated correlations between the factors should not be excessively high. Kline (1998)
and Kelloway (1998) for example, note that correlations should not be greater than 0.85.
This indicates discriminant validity. All correlation measures are reported in Table 8.7
and Table 8.8. The correlation matrix for the combined employee and customer data is
not available. Most fall below the 0.85 level as suggested. If the estimated correlation
between the sequential and simultaneous factors of the model is approaching 0.95, then
the indicators cannot be said to measure two distinct constructs (Kelloway 1998). Of
some concern is the inter-correlation between management customer orientation and
service climate (0.89). Of more concern is the inter-correlation between job satisfaction
and employee loyalty (0.92) and senior leadership support and service climate. The next
section, the discussion on content validity, outlines the steps taken to address these
concerns.
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Table 8.7 Measure correlations: Employee data (n = 18,821)
loyemp jobsat selfeffi servclim bbeval empow dirlead senlead wkrsrc mgcus loyemp 1.00 jobsat 0.92 1.00 selfeffi 0.53 0.64 1.00 servclim 0.77 0.84 0.59 1.00 bbeval 0.60 0.72 0.53 0.73 1.00 empower 0.55 0.67 0.54 0.63 0.56 1.00 dirlead 0.46 0.57 0.41 0.55 0.56 0.59 1.00 senlead 0.64 0.73 0.49 0.92 0.59 0.56 0.50 1.00 wkrsrcs 0.51 0.61 0.59 0.64 0.50 0.56 0.39 0.54 1.00 mgcusor 0.59 0.62 0.48 0.89 0.45 0.47 0.38 0.64 0.56 1.00
Table 8.8 Measure correlations: Customer data (n=55,355)
servqual loycust
servqual 1.00 - - loycust 0.84 1.00
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8.25 Content validity
During development of the survey instrument, items were developed for each construct
scale from the extant literature. In most cases items were either exactly used or adapted
for the context. Content validity is established by expert opinion of the
representativeness of the items (Kline 1998). The process of construct definition and
item development for all constructs consisted of literature review and item matching
(Kline 1998). Items used in each of the various operationalisations of the constructs in
the literature were compared, and the items that were most consistently used to measure
those constructs were included in the scale. Because the original survey instrument
included up to seven items per construct, items that did not load well or did not fit
closely with the theoretical definition of the construct were made redundant.
In posthoc analyses, in particular those that exhibited high correlations, such as job
satisfaction and employee loyalty, meta-analyses that examined the constructs were re-
examined to ensure that the constructs were defined and operationalised according to
the traditions suggested in the literature (Brown and Peterson 1993; Churchill et al.
1985; Griffeth, Hom, and Gaertner 2000; Hartner, Schmidt, and Hayes 2002; Kinicki et
al. 2002; Mathieu and Zajac 1990; Organ and Ryan 1995).
As a further measure, a series of additional single factor models were run on all
constructs using a sub-set of the data collected from the research. Consecutively, for
each single factor, one item was removed and replaced with one other relevant item
from the redundant items and the factor model rerun. This pattern was continued until
each item for each construct had been replaced with each one of the redundant items
from the pool of items developed to measure that construct. This pattern was then
repeated with pairs of items. The loadings and fit indices were then compared. The
scales as specified for all the constructs retained the best overall single factor fit. Tests
for multi-collinearity were then conducted as indicated below.
As a further measure, a series of additional single factor models were run on the job
satisfaction and employee loyalty constructs. Consecutively, for each single factor, one
item was removed and replaced with one item from the other construct, and the factor
model rerun. This pattern was continued until each item for each construct had been
replaced with each one of the items from the alternate construct. This pattern was then
repeated with pairs of items. The loadings and fit indices were then compared. The
188
scales as specified for the two constructs retained the best overall single factor fit.
Tests for multi-collinearity were then conducted.
The high inter-correlations may also have implications for the hypothesised model.
Unduly high correlations may indicate either multi-collinearity or perhaps that some
relationships within the model when correlated work together to mask other paths
within the model.
Unexpected correlations may indicate that paths within the model are unspecified.
Consideration should be given to this when interpreting the results of the relationships
within the path model and when examining overall model fit.
8.26 The variance inflation factor
The variance inflation factor (VIF) for each variable was checked in order to assess
multi-collinearity. In this test each variable becomes a dependent variable and is
regressed on the remaining independent variables (Hartline and Ferrell 1996). The VIF,
the inverse of (1-R2), is the ratio of a variable’s total variance in standardised terms to its
unique variance (Kline 1998). The score should be close to 1.00, which indicates little
or no multi-collinearity. A cutoff value of 10.00 is suggested as an acceptable VIF (Hair
et al. 1995) since values over 10 indicate that the variable may be redundant with others.
More conservatively, a suggested rule is that a VIF should be no more that 6.0 or 7.0
(Maruyama 1998). Table 8.9 reports VIF for the endogenous constructs. All scores fall
within or very close to the suggested guidelines, suggesting that multi-collinearity may
not be a problem in the study. However, if one follows the correlation matrix for the
employee data measures (Table 8.7) and the path model correlations (Table 8.12) then it
is possible that some collinearity exists, the suggestion being that simple correlations
greater then 0.8 or 0.9 indicate multi-collinearity (Maruyama 1998). Countering this
suggestion is the clear delineation of the theoretical foundations of the constructs,
which provides overwhelming evidence that both discriminant validity and nomological
validity exists in relation to job satisfaction and employee loyalty. Neither in items nor
in definitions do the latent variables overlap. This is less apparent in the senior
leadership support and management customer orientation relationship.
189
Table 8.9 VIF for endogenous constructs
Construct VIF
Service climate 7.70
Empowerment 1.54
Behaviour-based evaluation 1.33
Self-efficacy 1.28
Job satisfaction 3.70
Employee loyalty 2.94
Perceived service quality 1.40
Customer loyalty 2.56
8.27 Testing the hypothesised path model
The final complete path model included four exogenous constructs and eight
endogenous constructs. The employee and customer data sets were combined as
described in Sections 8.7 and 8.8, and Table 8.3. In brief, the items for each construct
were parcelled and data from customers and employees were aggregated at the bank’s
regional level, to create a combined covariance matrix with data from both data sets.
The combined covariance matrix was created by the research consultancy. This matrix
was the input data that was analysed using LISREL 8.54 in which the completely
standardised solution was requested (Jöreskog and Sörbom 2002). Thus the path model
was tested using structure equation modelling procedures.
The completely standardised beta-coefficients, their t-values, and R2 were examined and
are listed in Table 8.10 along with the goodness of fit statistics. Table 8.10 has been
arranged so that the construct that the path leads to is in the left-hand column, and the
construct that the path leads from, is to the right of the target construct with the
corresponding hypothesis number, the R2 for the target construct, path loading estimate
and finally the t-value. Table 8.10 shows the beta and gamma matrices for the path
model, and Table 8.12 the correlation matrix. The structural estimates from the model
are reported and the path model is presented in Figure 8.1. Non-significant paths are
represented.
190
Table 8.10 Results from the hypothesised model (n = 59) Construct Path from: Ho R2 β-coeff t-value
Customer loyalty Employee loyalty H1 0.61 0.22 *2.61
Service quality H2 0.72 **8.65
Job satisfaction Self efficacy H6 0.73 0.29 **4.20
Behaviour-based evaluation H8 0.77 **11.12
Employee loyalty Job satisfaction H7 0.66 0.81 **10.51
Service quality Job satisfaction H3 0.29 -0.17 -1.15
Self efficacy H4 -0.09 -0.77
Service climate H5 0.63 **4.52
Self efficacy Empowerment H9 0.22 0.47 **4.02
Behaviour-based evaluation
Customer orientation H16 0.25 0.50 **4.39
Empowerment Customer orientation H17 0.35 0.59 **5.56
Service climate Direct leadership H10 0.87 0.07 1.08
Senior leadership H11 0.16 *2.24
Work facilitation H12 0.01 0.15
Customer orientation H13 0.49 **6.09
Empowerment H15 0.10 1.66
Behaviour-based evaluation H14 0.36 **6.45(* p < 0.05; ** p < 0.01)
Fit Statistics: χ243 = 228.41, df = 43, p-value = 0.000; χ2/df = 5.31; GFI = 0.63; AGFI = 0.33; SRMR = 0.22; RMSEA = 0.25; NCP = 160.75; CFI = 0.84; NFI = 0.81; NNFI = 0.75; ECVI = 4.72; PGFI = 0.35; PNFI = 0.53; AIC = 273.75
191
Table 8.11 Completely standardised solution – path model (n = 59)
BETA loycus loyemp servqual jobsat selfeffi servclim bbeval empower
loycus - - 0.22 0.72 - - - - - - - - - - loyemp - - - - - - 0.81 - - - - - - - - servqual - - - - - - -0.17 -0.09 0.63 - - - - jobsat - - - - - - - - 0.29 - - 0.77 - - selfeffi - - - - - - - - - - - - - - 0.47 servclim - - - - - - - - - - - - 0.36 0.10 bbeval - - - - - - - - - - - - - - - - empower - - - - - - - - - - - - - - - -
GAMMA
dirlead senlead Wkrsrcs mgcusor loycus - - - - - - - - loyemp - - - - - - - - servqual - - - - - - - - jobsat - - - - - - - - selfeffi - - - - - - - - servclim 0.07 0.16 0.01 0.49 bbeval - - - - - - 0.50 empower - - - - - - 0.59
192
Table 8.12 Correlation matrix of ETA and KSI – path model (n = 59)
loycus loyemp servqual jobsat selfeffi servclim bbeval empow dirlead senlead wkrsrc mgcus
loycus 1.00 loyemp 0.32 1.00 servqual 0.75 0.15 1.00 jobsat 0.31 0.81 0.18 1.00 selfeffi 0.08 0.32 0.01 0.39 1.00 servclim 0.47 0.49 0.50 0.61 0.27 1.00 bbeval 0.35 0.65 0.29 0.81 0.14 0.70 1.00 empower 0.25 0.29 0.26 0.36 0.47 0.57 0.29 1.00 dirlead 0.19 0.13 0.23 0.17 0.10 0.42 0.18 0.21 1.00 senlead 0.32 0.25 0.37 0.31 0.19 0.69 0.34 0.40 0.55 1.00 wkrsrcs 0.20 0.17 0.23 0.21 0.12 0.44 0.22 0.26 0.51 0.49 1.00 mgcusor 0.40 0.37 0.44 0.46 0.28 0.86 0.50 0.59 0.36 0.67 0.45 1.00
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Figure 8.1 Path model of the antecedents of the employee loyalty-customer
loyalty relationship
8.28 Overview of the results
Overall, reasonable support is provided for the sets of relationships hypothesised in
theoretical model of the antecedents of the employee loyalty-customer loyalty
relationship. Average R2 for each construct indicates sufficient explained variance for
each construct. Significant relationships were at least at the p<0.05 level. The following
sections examine the results of the tests of the hypothesised relationships in the model,
as they relate to the various interfaces within the organisation. The outcomes of the
tests of the relationships at each interface are discussed. The overall implications in
terms of the theoretical model are examined in Chapter 10. Table 8.13 presents the
hypotheses and summarises the results. Figure 8.2 depicts the organisational interfaces
and the sets of relationships that were tested in the path model. The parameter
estimates for the significant relationships and the non-significant relationships are also
shown.
EmployeeSelf-Efficacy
JobSatisfaction
BehaviourBased
Evaluation
CustomerLoyalty
ServiceClimate
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomer
Orientation
EmployeeLoyalty
ServiceQuality
Empowerment
N/S
0.16
N/S
0.49
0.50
0.59
N/S
0.36
0.63
0.72
0.22
0.29
0.77
0.81
0.47
N/S
N/SH2
H7
H15
H4
H9 H3
H13
H1
H8
H5
H6
H17
H10
H11
H12
H14
H16
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Table 8.13 Hypotheses and summary of the path model relationships
H1: Higher levels of employee loyalty lead to higher levels of customer loyalty.
SIG
H2: Higher levels of perceived service quality lead to higher levels of customer loyalty.
SIG
H3: Higher levels of job satisfaction lead to higher levels of perceived service quality.
N/SIG
H4: Higher levels of employee self-efficacy lead to higher levels of perceived service quality.
N/SIG
H5: A more favourable service climate leads to higher levels of perceived service quality.
SIG
H6: Higher levels of employee self-efficacy lead to higher levels of job satisfaction.
SIG
H7: Higher levels of job satisfaction lead to higher levels of employee loyalty.
SIG
H8: A higher incidence of behaviour-based evaluation leads to higher levels of job satisfaction.
SIG
H9: Higher levels of empowerment lead to higher levels of employee self-efficacy.
SIG
H10: Higher levels of direct leadership support lead to a more favourable service climate.
N/SIG
H11: Higher levels of senior leadership support lead to a more favourable service climate.
SIG
H12: The higher the availability of work facilitation resources, the more favourable the service climate.
N/SIG
H13: Higher levels of management customer orientation lead to a more favourable service climate.
SIG
H14: A higher incidence of behaviour-based evaluation leads to a more favourable service climate.
SIG
H15: Higher levels of employee empowerment lead to a more favourable service climate.
N/SIG
H16: Higher levels of management customer orientation lead to a higher incidence of behaviour-based evaluation.
SIG
H17: Higher levels of management customer orientation lead to higher levels of employee empowerment.
SIG
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Figure 8.2 Integration of the organisational interfaces and the significant relationships in the path model
8.29 The employee-customer interface relationships
The first research objective sought to investigate the employee loyalty-customer loyalty
relationship. The study demonstrated that there is an explicit significant positive
relationship between the level of employee loyalty and the level of customer loyalty in
service organisations. This is a crucial aspect of the study.
The second research objective sought to test the relationship between service quality
and customer loyalty. This relationship was also found to be significant and positive.
That is, employee statements regarding their loyalty to the organisation and customer
perceptions of service quality were both found to be key drivers of the level of loyalty
customers held towards the organisation.
Regarding the third research objective, contrary to previous research and to the
relationships hypothesised in the conceptual model, the relationships between job
satisfaction and service quality and self-efficacy and service quality were not significant
in this study.
Employee-RoleInterfaceChapter 4
Supp
ort
Con
trol
Managerial Practices
Employee Attitudes
CustomerLoyalty
ServiceQuality
Customer BeliefsService Environment
Managerial Control Practices-Employee Interface Chapter 6
Managerial Practices-ServiceClimate Interface Chapter 5
Employee-CustomerInterface Chapter 2
Service Climate-CustomerInterface Chapter 3
BehaviourBased
Evaluation
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomerOrientation
ServiceClimate
Empowerment
EmployeeSelf-Efficacy
JobSatisfaction
N/S
0.16
N/S
0.49
0.50
0.59
N/S
0.36
0.63
0.72
0.22
0.29
0.77
0.81
0.47
N/S
N/S
EmployeeLoyalty
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That is, employee job satisfaction and employee self-efficacy were not found to
significantly influence customer perceptions of service quality, in the presence of the
service climate construct. However, careful examination of the results of the employee
data measurement correlation matrix and to a lesser extent the path model suggest that
service climate, employee self-efficacy and job satisfaction are highly correlated. The
result of this occurrence may be that the effect of employee self-efficacy and job
satisfaction on service quality may be masked by the service climate-service quality
relationship.
8.30 The service climate-customer interface relationships
The fourth research objective relates to the service climate-customer interface. Strong
support exists for the relationship between employee perceptions of the service climate
and customer perceptions of service quality. That is, employee perceptions that a
favourable service climate exists were found to be strongly positively correlated with
customer perceptions of quality service.
8.31 The employee-role interface relationships
The fifth research objective concerns the relationships that take place at the employee-
role interface. The hypothesised relationships between employee self-efficacy and job
satisfaction, and job satisfaction and employee loyalty, were supported. That is, when
employees perceive that they have the skills and abilities to do their jobs and to continue
to develop their capabilities, the findings suggest they are more likely to be satisfied in
that job. Overall job satisfaction had a direct and strong positive relationship with
employee loyalty, suggesting that employees who were satisfied with their jobs and the
organisation as a place to work were more likely to remain with that organisation.
8.32 Managerial practices-service climate interface relationships
The sixth research objective sought to identify and investigate the influence of
managerial practices as foundation conditions for a favourable service climate. The
influences of managerial practices, consisting of both support and control practices,
were empirically tested. Of the support practices, only the relationship between
employee perceptions of the level of senior leadership support and a favourable service
climate, and employee perceptions of management customer orientation and service
climate, were found to be significant.
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The management customer orientation-service climate relationship was especially
strong. Employee perceptions of management customer orientation and its impact on
the direct relationships with the managerial control practices, employee perceptions of
the degree to which they are empowered and perceptions of the use of behaviour-based
evaluation, were also significant. That is, management customer orientation was found
to directly positively influence employee perceptions of empowerment and the
incidence of behaviour-based evaluation. Of the managerial control practices, only the
relationship between behaviour-based evaluation and the organisation’s service climate
was positive.
8.33 The managerial control practices-employee interface relationships
The seventh research objective relates to the relationships between managerial control
practices and employee role perceptions. In line with the hypothesised relationships at
the managerial practices-employee role interface, high levels of management customer
orientation lead to high levels of both employee perceptions of empowerment and the
use of behaviour-based evaluation. This suggests that when employees perceive they are
empowered then this leads to perceptions of self-efficacy. When managers use
behaviour-based evaluation then the study suggests that employees report higher levels
of job satisfaction.
In conclusion, the results support the following hypotheses. First, that higher levels of
perceived empowerment lead to higher levels of employee self-efficacy. Second, that a
higher incidence of behaviour-based evaluation leads to higher levels of job satisfaction.
This set of relationships, in conjunction with the positive relationship between employee
perceptions of the incidence of behaviour-based evaluation and a more favourable
service climate, suggests that managerial support practices and managerial control
practices, underpin the creation and maintenance of the organisation’s service climate.
The set of positive relationships between the managerial control practices that directly
and indirectly impact on employee job satisfaction provide support for the notion that
the same set of managerial practices influence both employee and customer outcomes.
These include influence on the level of loyalty of both customers and employees.
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8.34 Overall consideration of the results of the path model
The final research objective relates to the desire to develop and operationalise a
comprehensive organisational model that demonstrates and explains the development
and maintenance of customer loyalty in service organisations.
The analyses of the data provide strong support for most of the hypothesised
relationships in the model that was constructed from the organisational behaviour,
applied psychology and service marketing literature. The theoretical foundations for the
model fit well within the marketing and organisational behaviour and applied
psychology literature. However, the lack of effect of all the managerial practices in
relation to the service climate suggests that a more complex set of relationships might
exist.
Supporting this concern with the outcome of the analyses is the interpretation of the χ2
results and the fit statistics. While the χ2 is significant, this does not present a major
concern. As reported in many sources, a non-significant χ2 is unlikely with large
samples (Byrne 1998; Jöreskog and Sörbom 1996; Kline 1998). A close examination of
the group of fit statistics however combine to suggest that the data is a less than
reasonable approximation of the model.
8.35 Conclusion to Chapter Eight
Chapter Eight began the second section of the thesis and presented the development
and testing of the measurement and path models for the study, and the overall set of
results of the path analysis.
Chapter Eight established that there is reasonable support for the efficacy of the
measures used in the study and that overall there is support for most of the
hypothesised relationships within the model. The correlation matrix and the
coefficients in the path model suggest that anomalies exist within the model that need to
be teased out. The fit indices for the path model suggest that the model is not a good fit
to the data.
When assessing a path model, consideration should be given to both the results of the
tests of the sets of relationships within the model, and the overall model fit. Overall,
the results of the test of the path model provide reasonable support for the
hypothesised relationships in the path model. In concert with the high correlations
199
reported in Table 8.7 for the employee data and to a lesser degree Table 8.8 for the
customer data, in concert with the correlation matrix for the path model (Table 8.12),
the results of the tests of the relationships within the path model suggest that some
predictors are highly correlated and that these correlations mask other relationships
within the model. Finally the fit indices indicate that the model provides less than
reasonable approximation of the data.
In conclusion, the data provide a reasonable level of support for the hypothesised
antecedents of the employee loyalty-customer loyalty relationship. The results are
considered in detail in Chapter Ten.
Further examination of the correlation matrices and the beta-coefficients of some paths
within the model suggest that some relationships within the model are masked. While
there is strong support for key relationships within the hypothesised model, based on
the evidence provided by the fit indices, the conclusion is to investigate model
modification, that is, to systematically search for better fit using model trimming and
model building and then examining those outcomes in relation to extant theory and the
path model. The process and outcome of this search for better fit is examined in
Chapter Nine.
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CHAPTER 9 DEVELOPING AND TESTING A MODIFIED MODEL
9.1 Overview of Chapter Nine
Chapter Nine provides support for developing a modified model based on specification
searches. The results from the modified model are presented and the fit indices of the
path and the modified model are compared and discussed in relation to the overall set
of results.
9.2 Developing and testing a modified model
Following the conclusion that while the analyses provide reasonable support for the
overall sets of relationships in the hypothesised path model, the goodness of fit statistics
suggest that reestimation and respecification of the model is desirable. It is important to
note that this now places the analysis in the exploratory framework (Byrne 1998). These
further analyses focus on detecting misfitting parameters in the hypothesised model. A
specification search entails the modification of an initially specified model to improve fit
(Marcoulides and Drezner 2001). A specification search is intended to detect and
correct specification errors between a hypothesised model and the true model that
characterises the population and constructs under study.
This post hoc analysis, or specification search, should only proceed when two
conditions are satisfied. First is the condition that the modification be substantively
meaningful, and second, that the respecified model would not lead to an overfitted
model (Jöreskog and Sörbom 1993). That is, respecification should only take place
within the context of substantive theory and only if the respecification does not lead to
the addition of parameters that have weak effects, that standard errors are not inflated
or become excessively large, and that the additional parameters do not influence the
primary parameters in the model. There are however many situations where including
additional parameters makes theoretical sense and therefore should be included in the
model (Byrne 1998). The overall goals of model building and trimming is to find a
parsimonious model that still approximates the data reasonably well (Kline 1998).
9.3 A modified model based on specification searches
Predicted and other possible paths for the model were examined. The changes to the
hypothesised model were conducted following suggestions that modification should be
201
guided by theoretical knowledge (Kline 1998). Kline (1998) also suggests that the
results of model building and model trimming are more meaningful when the more
complex model fits the data, given that large sample sizes mask improvements in model
fit.
A strong theoretical case exists for the use of specification searches. The results of the
influences of the set of managerial practices suggest that there is a more complex set of
relationships than is indicated by the path model. Each of the managerial practices and
their relationships proposed in the hypothesised model has strong empirical and
theoretical support in the literature. Previous empirical testing has not however
included such a comprehensive set of relationships and the service climate concept has
not been tested in such an exhaustive manner. That key mechanisms such as direct
leadership support and work facilitation resources did not appear to support the
foundation of a service climate suggests that other relationships exist.
The model was rerun based on the post hoc model respecification conditions stipulated
above, with careful consideration of the theoretical implications. The non-significant
paths were dropped from the model (Kline 1998). Model trimming is appropriate in
some circumstances, especially exploratory research if it is not used as a substitute for a
priori hypothesis development (Anderson and Gerbing 1988). The model building case
involves releasing constraints so that previously fixed parameters can be freely estimated
so that the effect is added to the model (Kline 1998). A significant result after a path
has been added to the model suggests that the just-added path should be retained.
Once again the model building and trimming process should be guided strongly by
theory.
The structural estimates from the modified model are reported and the most
parsimonious model with a best fit to the data is presented. Table 9.1 presents the
outcomes of the model trimming and specification searches and the ensuing modified
model.
202
Table 9.1 Results from the modified model based on specification searches (n = 59)
Construct Path from: R2 β-coeff t-value
Customer loyalty Employee loyalty 0.64 0.22 *2.49
Service quality 0.68 **7.86
Job satisfaction Self efficacy 0.79 0.23 **3.33
Behaviour-based evaluation 0.46 **4.28
Senior leadership 0.33 *3.03
Employee loyalty Job satisfaction 0.77 0.55 **6.56
Self efficacy 0.16 1.88
Customer orientation 0.31 **3.80
Service quality Service climate 0.32 0.31 *2.41
Work facilitation 0.33 *2.58
Self efficacy Empowerment 0.43 0.18 1.42
Work facilitation 0.32 *2.81
Customer orientation 0.31 *2.44
Behaviour-based evaluation
Direct leadership 0.76 0.12 1.47
Senior leadership 0.75 **7.70
Work facilitation 0.25 *3.13
Customer orientation -0.16 -1.80
Empowerment Customer orientation 0.59 0.22 1.93
Direct leadership 0.32 *3.18
Senior leadership 0.38 *2.99
Service climate Senior leadership 0.87 0.19 1.91
Customer orientation 0.49 **7.58
Empowerment 0.11 1.74
Behaviour-based evaluation 0.40 **4.70(* p < 0.05; ** p < 0.01)
Fit statistics: χ237 = 87.00, df = 37, p-value = 0.00; χ2/df = 2.35; GFI = 0.81; AGFI = 0.60; SRMR = 0.076; RMSEA = 0.15; NCP = 45.18; CFI = 0.96; NFI = 0.93; NNFI = 0.92; ECVI = 2.83; PGFI = 0.38; PNFI = 0.52; AIC = 164.18
203
Table 9.2 Completely standardised solution – modified model based on specification searches (n = 59)
BETA loycus loyemp servqual jobsat selfeffi servclim bbeval empower
loycus - - 0.22 0.68 - - - - - - - - - - loyemp - - - - - - 0.55 0.16 - - - - - - servqual - - - - - - - - - - 0.31 - - - - jobsat - - - - - - - - 0.23 - - 0.46 - - selfeffi - - - - - - - - - - - - - - 0.18 servclim - - - - - - - - - - - - 0.36 0.11 bbeval - - - - - - - - - - - - - - - - empower - - - - - - - - 0.18 - - - - - -
GAMMA dirlead senlead wkrsrcs mgcusor
loycus - - - - - - - - loyemp - - - - - - 0.31 servqual - - - - 0.33 - - jobsat - - 0.33 - - - - selfeffi - - - - 0.32 0.31 servclim - - 0.15 - - 0.49 bbeval 0.12 0.75 0.25 -0.16 empower 0.32 0.38 - - 0.22
204
Table 9.3 Correlation matrix of ETA and KSI – modified model based on specification searches (n = 59)
loycus loyemp servqual jobsat selfeffi servclim bbeval empow dirlead senlead wkrsrc mgcus
loycus 1.00 loyemp 0.50 1.00 servqual 0.77 0.41 1.00 jobsat 0.47 0.82 0.43 1.00 selfeffi 0.38 0.66 0.35 0.60 1.00 servclim 0.50 0.76 0.49 0.77 0.55 1.00 bbeval 0.46 0.69 0.45 0.84 0.46 0.80 1.00 empower 0.37 0.61 0.36 0.63 0.50 0.67 0.62 1.00 dirlead 0.33 0.47 0.33 0.55 0.38 0.52 0.60 0.61 1.00 senlead 0.45 0.74 0.43 0.82 0.49 0.85 0.83 0.70 0.55 1.00 wkrsrcs 0.46 0.53 0.50 0.56 0.54 0.55 0.60 0.44 0.51 0.49 1.00 mgcusor 0.43 0.71 0.40 0.58 0.56 0.81 0.50 0.59 0.36 0.67 0.45 1.00
205
Figure 9.1 presents the significant relationships in the modified structural model based
on specification searches.
Figure 9.1 Modified model of the antecedents of the employee loyalty-customer loyalty relationship, based on specification searches – significant parameters
only
Consideration is given to the goodness of fit indices followed by a discussion of the
relationships between the constructs in the modified model. Finally, the modified
model is discussed in terms of substantive theory.
9.4 Overview of the significant relationships in the modified model
Earlier it is was established that a post hoc analysis, or specification search, should only
proceed when the modification is substantively meaningful and the respecified model
does not lead to an overfitted model (Jöreskog and Sörbom 1993). Respecification
should only take place within the context of substantive theory (Byrne 1998). There are
many situations where including additional parameters makes theoretical sense and
therefore should be included in the model (Byrne 1998) if the overall goal to find a
parsimonious model that still fits the data reasonable well is achieved (Kline 1998).
Non-significant paths were dropped from the path model (Kline 1998). (Another
iteration of the model was run after this post hoc analysis, with the empowerment-service
climate relationship left free, because of the theoretical importance of this relationship.
EmployeeSelf-Efficacy
JobSatisfaction
BehaviourBased
Evaluation
CustomerLoyalty
ServiceClimate
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomerOrientation
EmployeeLoyalty
ServiceQuality
Empowerment
0.33
0.49
0.75 0.40
0.31
0.68
0.22
0.23
0.46
0.55
0.32
0.38
0.32
0.25
0.33
0.31
0.31
206
However, this relationship was not significant. For the sake of consistency, the model
respecification rules of Kline (1998) were followed in the reported modified model
results). The model building case involves releasing constraints, so that previously fixed
parameters can be freely estimated and that effect is added to the model (Kline 1998).
The previously fixed parameters were released so that the parameters were freely
estimated and the effect was added to the model. To satisfy suggestions that these paths
should be included in the modified model because of theoretical considerations, a series
of iterations of restricted models were also run so that each of the non-significant paths
were included in turn and then collectively, to the modified model reported here. Either
these iterations produced models that did not have better approximation to the data, or
else they produced exploratory models that suggested significant relationships that were
nonsensical in relation to the literature and theoretical foundations.
Overall the same set of relationships was supported in the modified model. The
employee loyalty-customer loyalty relationship held. As well, the modified model
suggests that the service climate-service quality relationship, as well as the job
satisfaction-employee loyalty relationship, impact the level of customer loyalty within
the organisation, as hypothesised. The important relationship between employee
perceptions of the incidence of behaviour-based evaluation with perceptions of a
positive service climate also held, suggesting that employee perceptions of the climate
for service correlate with customer perceptions of service quality, and that employee
behaviours in the service environment influence customer perceptions of the service
quality.
Before the specific sets of significant relationship in the modified model, and how these
fit with theoretical considerations and the findings of the path model are discussed, the
goodness of fit statistics of the two competing models are examined.
9.5 Goodness of fit statistics – comparing the path model and the modified model
Consideration of improvements to the fit indices should guide the post hoc
interpretation. The overall assessment of model adequacy should be based on multiple
criteria that include theoretical, statistical and practical considerations (Byrne 1998).
Overall, the judgment and interpretation must be made in the context of whether the
modified model is plausible.
207
First, the absolute fit indices are considered. This includes examining χ2 statistics with
corresponding degrees of freedom for comparison purposes (Jöreskog and Sörbom
1996). In addition to the χ2, a pragmatic approach to evaluating the model fit should be
adopted (Byrne 1998). The GFI and AGFI are absolute indices of fit which compare
the hypothesised model with no model, and should be close to 1.0, with 0.90 being an
indication of fairly good fit. The goodness-of-fit statistic, RMSEA, has been recognised
as one of the most informative criteria in structural equation modelling (Kline 1998). It
takes into account the error of approximation and tests how well the model, with
unknown but optimally chosen parameters values, would fit the population covariance
matrix if it were available (Byrne 1998). Ideally values of 0.1 or lower are indicative of
moderate fit, with 0.05 indicating good fit.
Next, comparative fit indices should be considered. NFI is considered a practical
criterion of choice (Byrne 1998), along with the CFI, which both provide a measure of
complete covariation in the data, and should be greater then 0.90, which indicates
acceptable fit to the data.
Examples exist in the marketing literature where goodness of fit statistics that are
somewhat less indicative of good fit have been accepted. For example, examples of
NNFI of 0.81 and RMSEA of 0.14 have been reported as adequate (Grewal and
Tansuhaj 2001). In another study, a GFI of 0.80, in association with a CFI of 0.92, was
reported as outside the accepted range, but in the context of the acceptable CFI, and
theoretical considerations, considered as a whole to support the model (Dixon, Spiro,
and Jamil 2001). Finally, in a CFA of a measurement model, fit statistics of GFI of 0.73,
AGFI of 0.70, CFI of 0.722 and RMSR of 0.1, were deemed to be acceptable (Hartline
and Ferrell 1996).
While citing examples of current practice in the marketing literature does not directly
support the acceptability of indices deemed to be outside good fit guidelines, given the
trade-offs between establishing strong empirical evidence of good approximation to the
data, and testing complex and theoretically well-grounded models, then due
consideration should be given to an overall consideration of fit.
Table 9.4 presents the comparison between the fit indices of the hypothesised model
versus the modified model.
208
Table 9.4 Model fit indices: hypothesised versus modified model
Test Hypothesised model
Modified model
Absolute fit: These indices are concerned with the ability to reproduce the covariance matrix
Χ2 χ243 = 228.41 χ2
37 = 87.00
GFI 0.63 0.81
AGFI 0.33 0.60
SRMR 0.22 0.076
RMSEA 0.25 0.15
NCP 160.75 45.18
Comparative fit: These indices deal with the assessment of whether the model under consideration is better than some competing model
CFI 0.84 0.96
NFI 0.81 0.93
NNFI 0.75 0.92
ECVI 4.72 2.83
Parsimonious fit: These indices relate to the cost-benefit trade-off of fit and degrees of freedom
PGFI 0.35 0.38
PNFI 0.53 0.52
AIC 273.75 164.18 9.6 Discussion of the fit indices
The fit indices of the modified model based on specification searches provide evidence
of an improvement in absolute fit. χ2 is again significant as it was with the hypothesised
model. However, a non-significant χ2 is unlikely (Kelloway 1998). There is however an
improvement in the χ2 result with the modified model. GFI and AGFI both improved.
The RMSEA, one of the most informative criteria in SEM, also improved. While some
suggest that RMSEA should be 0.1 or less, reports of RMSEA of 0.14 exist in the
marketing literature and are reported as adequate in conjunction with other satisfactory
comparative fit scores (Grewal and Tansuhaj 2001). Also, Hu and Bentler (1999) note
that with small sample sizes (n < 250), a combination rule such as CFI in combination
with SRMR should be chosen, as those based on RMSEA and SRMR tend to reject
more complex models true-population models. Finally among the absolute fit indices,
209
the NCP score for the modified model showed improvement over the path model as
well.
Among the comparative indices, the CFI for the modified model shows improvement
of fit, and indicates good fit to the data (Kelloway 1998). The NFI and NNFI display a
similar outcome. The ECVI assesses, using a single sample, the likelihood that the
model cross-validates across similar-sized samples. The results suggest that the
modified model has the greater potential for replication (Byrne 1998).
The parsimonious fit indices also suggest an improvement in fit for the modified model
over the hypothesised model. These indices are used to compare two competing
models.
9.7 Conclusion to Chapter Nine
Overall, the fit of the modified model appears to be a better approximation of the data
than that of the path model. However, the overall assessment of model adequacy
should also be considered in terms of substantive theoretical considerations. Having
established that statistically the modified model is a better fit of the data, consideration
should be given to the theoretical grounding of the results of the modified model.
Chapter Ten discusses in detail the findings relating to the path model analysis, the
possibilities that arise from the results of the modified model, and integrates and
discusses the two sets of results in relation to the overall study.
In summary, the set of relationships at the employee-customer interface, at the service
climate-customer interface, and the employee-role interface, were supported in both the
path model and the modified model. Because these relationships were also supported in
the modified model and the overall fit indices suggest the modified model is a better fit
of the data, then a focus on the relationships at the managerial practices-service climate
interface and at the managerial control practices-employee interface is appropriate.
210
CHAPTER 10 DISCUSSION OF THE RESULTS OF THE HYPOTHESISED MODEL AND THE MODIFIED MODEL
This begins the third and final section of the thesis. Chapter Ten presents a discussion
of the outcome of the test of the hypothesised path model and of a modified model
based on specification searches. The discussion deals with each of the interfaces within
the organisation where the customer, employees and management of the bank interact,
and the set of relationships that were tested at each interface. In Chapter Nine it was
established that the modified model provided a closer approximation to the data. Here,
the findings from both models are examined separately and then integrated. Overall,
these results are examined in relation to the extant literature and the theoretical
implications of the findings.
10.1 The employee-customer interface relationships in the path and modified models
Figure 10.1 shows the relationships and the parameter estimates at the employee-
customer interface in the path and modified models.
Figure 10.1 Comparison of the parameter estimates at the employee-customer interface in the path and modified models, including all tested relationships
The relationship between the level of employee loyalty and the level of customer loyalty
at the bank was significant in both the path and modified models, as was the
Modified modelPath model
Employee Attitudes
CustomerLoyalty
ServiceQuality
Customer Beliefs
Employee-CustomerInterface
0.68
0.22
EmployeeLoyalty
EmployeeSelf-Efficacy
Employee Attitudes
CustomerLoyalty
ServiceQuality
Customer Beliefs
Employee-CustomerInterface
EmployeeSelf-Efficacy
JobSatisfaction
0.72
0.22
N/S
N/S
EmployeeLoyalty
JobSatisfaction
211
relationship between service quality and customer loyalty. That is, employee statements
regarding their loyalty to the organisation and customer perceptions of service quality
were both found to be key drivers of the level of loyalty customers held towards the
organisation.
Contrary to previous research and to the relationships hypothesised in the conceptual
model, the relationships between job satisfaction and service quality and self-efficacy
and service quality were not significant in this study.
The implications of this set of findings are the crux of the current research. Since
customer loyalty is a key objective of the marketing activities of a service organisation
(Oliver 1997), this study suggests that regardless of the influence of service quality on
customer perceptions, higher levels of employee loyalty lead to higher levels of
customer loyalty. The significance of this relationship is that if managers can influence
the level of loyalty of employees, then they can influence customer loyalty, since higher
levels of employee loyalty lead to higher levels of customer loyalty.
Employee loyalty is manifest by such behaviours and attitudes as commitment to the
organisation, identification with the organisation, and advocacy of the organisation to
others (Babin and Boles 1998; Bettencourt, Gwinner, and Meuter 2001; Moorman and
Blakely 1995; Mowday, Steers, and Porter 1979; Van Dyne, Graham, and Dienesch
1994). Also loyal employees who are dissatisfied with organisational practices are more
likely to use internal informal means of seeking redress and to prefer more consensual
procedures so that grievances remain within the organisation (Olson-Buchanan and
Boswell 2002).
Customers perceive and experience these attitudes and behaviours as a result of their
interactions with customer contact employees during service encounters (Gremler and
Brown 1999) and over a series of interactions (Czepiel and Gilmore 1987). Loyal
customers are more likely to remain with the organisation as a result of decision-making
processes that rely on affective states rather than on more objective means (Reinartz
and Kumar 2000). These loyal customers become advocates of the organisation, have
the intention to increase the level of business they conduct with the organisation and
consider the organisation as their first choice for new business requirements (Ganesh,
Arnold, and Reynolds 2000; Zeithaml, Berry, and Parasuraman 1996). Overall, a more
loyal customer base leads to higher levels of long-term profitability (Reichers and
212
Schneider 1990; Reichheld and Teal 1996). This is because loyal customers are more
likely to buy more and pay premium prices (Ganesh, Arnold, and Reynolds 2000) and
bring new customers to the organisation who are themselves more likely to become
loyal (Reichheld 1993).
Consistent with previous research, the results of both models found that customer
loyalty was positively influenced by increases in customer perceptions of service quality.
Perceived service quality is the customer’s judgement about an organisation’s overall
excellence or superiority, based on perceptions of the overall performance and quality of
service, as a result of interaction with and evaluation of service-related dimensions.
Favourable service quality evaluations influence customer loyalty intentions because of
the building and maintenance of relationships with customers, which is a central
component of service quality (Berry 1995a). Perceptions of service quality develop over
time, as a result of long-term evaluations over a series of interactions with the service
provider (Bitner 1990; Bitner, Booms, and Tetreault 1990; Zeithaml, Berry, and
Parasuraman 1996), that builds the potential for customer loyalty.
These interpersonal interactions that take place between customer contact employees
and customers during service delivery have a strong influence on service quality
perceptions, since service quality is a result of service processes and service outcomes
(Bitner, Booms, and Mohr 1994; Hartline and Ferrell 1996; Schneider and Bowen 1985).
The attitudes and behaviours of customer contact employees largely influence customer
perceptions of functional quality (Bitner, Booms, and Tetreault 1990) that combine with
customer perceptions of outcome quality (Rust and Oliver 1994b) so that customers
form overall perceptions of the service quality (Brady and Cronin 2001).
Since the attitudes and behaviours of customer service employees influence customer
perceptions of service quality, the assumption is that employee job satisfaction would be
positively related to service quality, especially since perceived service quality is thought
to be very much the outcome of the customer focus on interaction quality (Bitner,
Booms, and Tetreault 1990; Brady and Cronin 2001; Grönroos 1990). However this
relationship was not significant in the study.
This suggests that perhaps when the more complex set of interactions examined in this
study are accounted for, it is possible that customers in fact focus on functional or
outcome quality as the key factor in the formation of their quality perceptions rather
213
than the quality of the interaction with customer contact employees. The findings of
Crosby and Stevens (1987) support this conclusion. That is, some segments of buyers
may generalise their feelings about customer-contact employees to the core service.
However, despite the relationship customers may have with customer contact
employees or other representatives of the organisation, the perception regarding the
quality of the core service is a separate and crucial issue and is not directly affected by
these relationships (Crosby and Stephens 1987).
The relationship between employee perceptions of self-efficacy and perceived service
quality was not significant in the present context. This suggests that employee attitudes
about their abilities to provide customer-oriented service encounters and employee
confidence in those abilities, as they are perceived by customers, are not as important to
customer perceptions of service quality as are customer perceptions of the functional
quality aspects of the service. Bitner and Hubbert (1994) suggest that customers are
able to distinguish between the quality of the interaction with the service provider, the
quality of the core service, and the overall quality of the organisation.
Thus although previous research indicates that self-efficacy and job satisfaction increase
service quality, these relationships were not found to be significant in the current
research. The lack of a self-efficacy-service quality and job satisfaction-service quality
relationship could be due to the ability of other constructs in the model (largely service
climate) to predict service quality better than self-efficacy and job satisfaction. In
particular, the influence of the service climate may suppress the effects of self-efficacy
and job satisfaction on service quality.
In conclusion, in the relationships between employees and customers that occur at the
employee-customer interface, the findings suggest that there is in fact a positive
relationship between employee loyalty and customer loyalty in service organisations.
Customer perceptions of service quality also positively impact the level of customer
loyalty within service organisations.
The non-significant relationships in the path model between job satisfaction and service
quality, and between employee self-efficacy and service quality, suggest that employee
attitudes about their current and potential skills and abilities in relation to their role, and
their level of job satisfaction, do not directly influence customer perceptions of service
quality. The implication is that customers primarily take their service quality cues from
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the functional aspects of service rather than from the attitudes of the customer contact
employees towards their role and the organisation.
10.2 The service climate-customer interface relationships
Strong support exists for the relationship between employee perceptions of the service
climate and customer perceptions of the service quality in both models. That is,
employee perceptions that a favourable service climate existed at the bank were strongly
positively related to customer perceptions of quality service.
It appears from the results that when customers considered the bank’s service quality,
they derived their service quality perceptions from the service climate to a greater degree
than they directly made their judgements about service quality based on an assessment
of the bank’s customer contact employees’ job satisfaction and self-efficacy. This
suggests that customers take many of their service quality cues from the service climate
of the organisation. That is, consistent with previous research, when employees
perceive that the organisation has in place practices and systems that reward, support
and create expectations of customer-oriented service, customers have perceptions that
the service quality is high (Schneider and Bowen 1985; Schneider, Parkington, and
Buxton 1980; Schneider, White, and Paul 1998).
This positive service climate exists when employees perceive that the organisation has a
fundamental set of values that signals that service quality is an organisational objective,
and that the organisation has made implicit and explicit choices that attention to
customer needs and expectations is an organisational imperative (Schneider 1990).
In conclusion, the study suggests that an organisation’s service climate influences service
quality perceptions by signalling to employees and customers that management has as a
primary objective customer-oriented outcomes.
That customers can differentiate among core service, the organisation’s implicit and
explicit service goals, and the degree to which the organisation provides the necessary
resources for service delivery, could be even more pertinent after examination of the
relationships in the modified model that impact service quality (Figure 10.2). There was
a significant relationship between work facilitation resources and service quality,
suggesting that customers indeed make their service quality evaluations via these various
attributions, including service performance and overall service quality, the service
215
environment, and the provision and support provided by the organisation for service
delivery. That is, consistent with previous research, if management provides the
necessary resources for quality service [Schneider, 1985 #51], and they foster a
favourable service climate that is evident to both customers and employees, then
customers will report higher levels of service quality.
Figure 10.2 Comparison of the parameter estimates at the service climate-
customer interface in the path and modified models
10.3 The employee-role interface relationships
The hypothesised relationships between employee self-efficacy and job satisfaction, and
job satisfaction and employee loyalty, were supported, both in the path model and the
modified model (Figure 10.3). That is, when employees perceive that they have the
skills and abilities to do their jobs and to continue to develop their capabilities, they are
more likely to be satisfied in that job. Overall job satisfaction had a direct and strong
positive relationship with employee loyalty, suggesting that employees who were
satisfied with their jobs and the organisation as a place to work were more likely to
remain with the bank.
Modified modelPath model
ServiceQuality
CustomerBeliefs
ServiceEnvironment Service Climate-
Customer Interface
ServiceClimate
0.63
CustomerLoyalty
ServiceQuality
CustomerBeliefs
ServiceEnvironment Service Climate-
Customer Interface
ServiceClimate
0.31
CustomerLoyalty
0.33Work
FacilitationResources
216
Figure 10.3 Comparison of the parameter estimates at the employee-role interface in the path and modified models
The conclusion is that when employees are satisfied with their role within an
organisation, they are more likely to remain with that organisation, and in turn,
customers are more likely to remain actively loyal. The implication is that customers
experience service quality directly as a result of the service climate-service quality-
customer interface, and indirectly experience the benefits of employee role satisfaction
through the influence of those satisfaction on employee loyalty and its relationship with
customer loyalty.
It would appear that rather than the premise that employee efficacy and satisfaction
directly influence customer perceptions of service quality, in fact self-efficacy and job
satisfaction directly influence the level of employee loyalty and thus indirectly influence
customer loyalty. That is, when employees feel that they have the confidence and
abilities to perform their jobs well, they are more likely to be satisfied in their jobs.
These attitudes and affective states influence their level of loyalty towards the
organisation. Employee self-efficacy and employee job satisfaction lead to behaviours
and attitudes by employees that include commitment to the organisation, identification
with the organisation, and advocacy of the organisation to others (Babin and Boles
1998; Bettencourt, Gwinner, and Meuter 2001; Moorman and Blakely 1995; Mowday,
Steers, and Porter 1979; Van Dyne, Graham, and Dienesch 1994). These behaviours
Modified modelPath model
Employee Attitudes
0.23
0.55
EmployeeLoyalty
EmployeeSelf-Efficacy
Employee Attitudes
EmployeeSelf-Efficacy
JobSatisfaction
0.29
0.81
EmployeeLoyalty
JobSatisfaction
Employee-Role
Interface
Employee-Role
Interface
217
and attitudes are perceived by customers as a result of their interactions with customer
contact employees during service encounters over time (Czepiel and Gilmore 1987;
Gremler and Brown 1999) and customers respond to these perceptions by themselves
experiencing increased levels of affective commitment to the organisation.
The experience of functional service quality, as a result of the cues from the service
climate and the employees’ performance of the service, influences customer loyalty
directly. The employee satisfactions and attitudes about their abilities to perform their
role and their satisfactions with the role and the organisation are manifest in employees’
loyalty towards the organisation, which in turn positively influences customer loyalty.
In conclusion, the study suggests that employee role attitudes positively influence their
loyalty towards service organisations.
10.4 The managerial practices-service climate interface relationships in the path and modified models
Managerial practices consist of both support and control practices. In the path model,
of the support practices, only the relationship between employee perceptions of the
level of senior leadership support and a favourable service climate was significant
(Figure 10.4). Of the managerial control practices, the significant relationships were
those between employee perceptions of management customer orientation and service
climate, and between behaviour-based evaluation and the organisation’s service climate.
That perceptions of direct leadership support did not foster favourable service climate
perceptions, yet those of senior leadership support did, suggests that the function of
senior leaders to formulate and communicate strategy and to act as role models that
communicate the organisation’s values and service imperatives to the organisation’s
members and customers (Katz and Kahn 1978) is more influential from the employees’
viewpoint for creating a favourable service climate. Perhaps the role of direct
supervisors of providing feedback, sharing information, planning, and organising and
facilitating service encounters in the employee-customer environment forms a more
mundane set of activities within the direct-leader-customer contact employee
relationship. Customer-contact employees may take their service orientation cues from
those of the organisation’s senior leaders and from the more specific sense of
management customer orientation. These may supersede the role of the direct leaders
218
to create part of the foundation conditions that cause the perceptions of a favourable
service climate.
Figure 10.4 Comparison of the parameter estimates at the managerial practices-
service climate interface in the path and modified models, including all tested relationships
A more surprising outcome was the lack of support for the work facilitation resources-
service climate link. Considering support from the literature and an intuitive sense of
organisational functioning, one would strongly expect that the provision of service-
related resources would form an integral part of the foundation conditions for a
favourable climate for service. By providing resources for customer contact employees,
the assumption is that management is providing the underpinning for the perceptions
employees develop that a positive service climate is being supported (Schneider 1990).
Speculation suggests that a more complex set of relationships might exist that explains
more accurately the influences of the foundation conditions. In support of this
speculation, the modified model suggested that the provision of work facilitation
resources is directly related to customer perceptions of service quality (Figure 10.2).
Of the managerial support practices, only employee perceptions of the level of senior
leadership support were positively related to employee perceptions that conditions were
in place that supported employee work and service quality in the organisation and thus a
Supp
ort
Con
trol
ManagerialPractices
ServiceEnvironment
Managerial Practices-ServiceClimate Interface
BehaviourBased
Evaluation
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomer
Orientation
ServiceClimate
Empowerment
N/S
0.16
N/S
0.49
N/S
0.36
Supp
ort
Con
trol
ManagerialPractices
ServiceEnvironment
Managerial Practices-ServiceClimate Interface
BehaviourBased
Evaluation
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomer
Orientation
ServiceClimate
N/S
0.49
0.40
Modified modelPath model
Empowerment
219
favourable service climate. Of the managerial control practices, only employee
perceptions of the degree of management customer orientation and the incidence of
behaviour-based evaluation were positively related to perceptions of a positive service
climate. That is, employee empowerment was not found to influence perceptions of the
nature of the service climate.
In the modified model, senior leadership support was not significantly related to service
climate. Consistent with the path model, management customer orientation and
behaviour-based evaluation influenced employee perceptions of the bank’s service
climate. The lack of significance of several of the hypothesised relationships between
managerial practices and the bank’s service climate, and the complex set of relationships
that were significant in the modified model, suggest that the direction of influence of
the set of managerial drivers tested in the study requires further investigation.
10.5 The managerial control practices-employee interface relationships in the path model and the influence of the interactions between managerial support and control practices in the modified model
The comparison of the fit indices of the two models indicate a less than adequate fit for
the hypothesised model. The intriguing results in relation to the managerial practices
suggest a more detailed examination of the relationship between the managerial support
and control practices, and their impact on the attitudes of the bank’s employees.
In the path model, management customer orientation was found to directly influence
the bank employees’ sense of empowerment and their perceptions of the incidence of
behaviour-based evaluation. In turn, empowerment was significantly related to
employee self-efficacy and behaviour-based evaluation to job satisfaction (Figure 10.5).
That empowerment was not significantly related to employee perceptions of a
favourable service climate is puzzling. Empowerment is thought to assist in the
dissemination of a customer-oriented strategy through increased employee flexibility
and adaptation and reduced decision times, because empowered employees can more
effectively meet customers’ needs (Hartline, Maxham, and McKee 2000). In the current
research however, although results of the path model indicated that when employees
perceived that management was customer-oriented, employees felt empowered, in the
model this relationship did not influence employee perceptions that a favourable service
climate existed.
220
Figure 10.5 Comparison of the parameter estimates at the managerial practices-employee interface in the path and modified models – all tested relationships shown
Employee Attitudes
Con
trol
Managerial Control Practices-Employee Interface
BehaviourBased
Evaluation
ManagementCustomerOrientation
Empowerment
EmployeeSelf-Efficacy
JobSatisfaction
0.50
0.59
0.360.77
0.47
EmployeeLoyalty
ManagerialPractices
Path model
Modified model
Supp
ort
Con
trol
Managerial Practices
Employee Att itudes
Managerial Support and ControlPractices-Employee Interface
BehaviourBased
Evaluat ion
Empowerment
EmployeeSelf-Efficacy
JobSatisfact ion
0.33
0.45
0.750.46
0.31
EmployeeLoyalty
0.31
0.32
0.32
0.25
ManagementCustomerOrientation
WorkFacilitat ionResources
SeniorLeadership
Support
DirectLeadership
Support
0.38 N/SN/S
N/S
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The positive relationship between employee perceptions of empowerment and levels of
self-efficacy suggests that perhaps when managers are customer-oriented, which fosters
employee feelings of empowerment, this state of empowerment manifests itself in terms
of employees’ feelings of competence and confidence in their abilities to perform their
role. In the modified model, although direct and senior leadership support were
significant drivers of employee empowerment perceptions, empowerment did not have
any significant relationship with other factors in the modified model.
While these relationships were not hypothesised in the path model, that direct and
higher level leadership support are positively related to employee empowerment is well
documented in the literature (Linden, Wayne, and Sparrowe 2000). However
empowerment was not found to have further influence in the modified model, in the
presence of the significant relationships in the model. Considerable research highlights
the importance of the empowerment construct in psychological, managerial and
strategic marketing contexts. One suggestion is that because empowerment was
measured from the employees’ perspective, findings may be clouded. Employees may
not feel empowered in the work environment in the sense that empowerment is a state
of independence and autonomy (Kark, Shamir, and Chen 2003). Second, some support
exists for the notion that empowerment is a higher order construct with self-efficacy as
a component of empowerment (Spreitzer 1995; Spreitzer, Kizilos, and Nason 1997).
Third, Spreitzer, Kizilos, and Nason (1997), in their four component operationalisation
of empowerment, found that the self-determination component had limited substantive
effect on job satisfaction, despite the fact that previously Spreitzer (1995) had found
that self-determination had the strongest loading on a second-order empowerment
factor, and that all components were expected to influence job satisfaction. Spreitzer,
Kizilos, and Nason (1997) suggested that ‘the marginal influence of the self-
determination dimension may indicate that having autonomy to do your own thing is
less important than having a sense of meaning (passion), competence (efficacy), and
impact (making a difference) in the workplace’ (697). Other research has suggested that
empowerment, dominated by the competence (self-efficacy) dimension, may result in
higher levels of job satisfaction (Linden, Wayne, and Sparrowe 2000). This fits with the
findings in the present study that self-efficacy exerts a positive influence on job
satisfaction. A possibility is that in the context of the present study, independence and
autonomy are not necessarily work-place attributes that contribute to a more positive
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service climate or lead to higher levels of job satisfaction. In other research contexts
such as the lodging industry, the influence of empowerment has been significant and
positive (Hartline and Ferrell 1996).
The significant relationship between managerial customer orientation and the service
climate and also indirectly through the influence of management customer orientation’s
influence on behaviour-based evaluation, suggests that the role of management
customer orientation in the support of the service climate is substantial. Customer
orientation is fundamental to the formation of a service climate. Previous studies have
suggested that it is a signal to employees that customer concerns are at the centre of the
marketing function (Narver and Slater 1990). When management has a customer
orientation then employees would perceive that they should act in customers’ best
interests and that they would be rewarded for doing so. When employees perceive that
they are rewarded for customer oriented performance then they would also perceive
that the organisation has set in place the conditions that foster a favourable service
climate. The results of the study support this conclusion.
In contrast to the path model, the modified model provides no support for the
relationship between senior leadership support and the organisation’s service climate.
However, the modified model suggests that senior leadership support has direct
relationships with the managerial control practices of employee empowerment and
behaviour-based evaluation, and with employee job satisfaction.
In the modified model, one should consider the significant relationships between senior
leadership support and the managerial control practice of behaviour-based evaluation,
between work facilitation resources and behaviour-based evaluation, and between work
facilitation resources and service quality (Figure 10.5).
These relationships suggest that employees perceive that when the organisation’s leaders
consistently demonstrate the organisation’s values and support employees in their quest
to fulfil organisational goals, employees are more likely to be rewarded on the basis of
their performance and to be recognised for their organisational contributions.
Schneider and Bowen (1993) suggested that in the pursuit of service quality, managers
need to create two related but different climates; a climate for service and a climate for
employee wellbeing. A climate for employee wellbeing serves as a foundation for a
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climate for service (Schneider and Bowen 1993). When management in organisations
makes choices, implicitly or explicitly, to adopt certain practices and procedures and to
reward and support certain behaviours then even implicit goals become clear to the
organisation’s employees (Schneider 1990). These practices and procedures and the
activities that are rewarded and supported play a critical function in organisations.
When management provides for employees, employees will provide for customers
(Schneider and Bowen 1985). When employees believe that the organisation’s practices
and procedures are focused on employee needs, then customers report receiving quality
service (Schneider, Gunnarson, and Niles 1994).
The relationship between management customer orientation and behaviour-based
evaluation was not significant in the modified model. However the relationship
between management customer orientation and a favourable service climate was
significant, along with the relationship between behaviour-based evaluation and a
favourable service climate.
Perhaps in the bank, management support for the facilitation of a climate for service
was signalled by perceptions of customer orientation, while the bank’s leaders
demonstrated leadership per se and communicated the organisation’s values and goals
to employees by implementing policies that demonstrated to employees that rewards
and controls within the organisation operated in concert with these values and goals.
That is, that senior leaders put in place rewards and support when employees performed
in a manner that facilitated organisational outcomes such as customer oriented
beahaviours.
Another signal that supports this conclusion in relation to a climate for employee well-
being is the relationship between work facilitation resources and behaviour-based
evaluation. In Chapter Nine the lack of support for a work facilitation-service climate
relationship was noted with surprise. That employees would perceive that management
supports service provision and thus a service climate by providing appropriate resources
for employees appears a forgone conclusion. However, since a positive relationship was
found in the modified model between work facilitation resources and behaviour-based
evaluation, this suggests that employees perceived that by leaders providing appropriate
service-provision resources, those leaders were signalling to employees that in fact
employee performance was being supported. This in turn supports the perception that
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a favourable service climate exists. When management provided the necessary resources
for employees to perform, and rewarded employees for that performance, then a more
favourable service climate was reported and employees were more satisfied in their jobs.
In the modified model, work facilitation resources were found to influence the bank
employees’ sense of self-efficacy. This suggests that in relation to the bank’s work
facilitation resources, when the employees felt that the necessary resources were
available to them, then those employees were more likely to feel that they could perform
in their roles. Gist and Mitchell (1992) found that factors controlled by organisations,
such as task resources, influence employees’ efficacy beliefs. As an external factor in
relation to the branch, task resources affected self-efficacy indirectly by influencing
performance strategies (Gist and Mitchell 1992). Since individuals have limited
perceived control over external factors, it is important that employees are provided with
the necessary resources.
In the modified model there was a positive relationship between work facilitation
resources and customer perceptions of service quality. Again, rather than influence
service indirectly via the service climate, this suggests that customers also note directly
the cues that management provide in relation to making available necessary resources
for employees to be able to deliver service quality. That is, customers assess separately
the organisation’s service climate and the provision of service facilitation resources
when they form their service quality evaluations. Schneider, Gunnarson and Niles-Jolly
(1994) note that in organisations where employees report that they are well trained and
have appropriate equipment and work-related resources, customers report superior
service. Schneider and Bowen (1993) note that customers make their service quality
evaluations via the service climate which is the source for many of the seemingly
tangential cues that customers experience during the service process. As well,
customers assess the functional aspects of service quality independently of functional
(Grönroos 1990) and relational aspects of service evaluation (Crosby and Stephens
1987).
Also in the modified model, senior leadership was found to significantly influence-
employee job satisfaction. Supportive behaviours by leaders have been found to be
strongly related to job satisfaction (Brown and Peterson 1993) and indirectly to
organisational citizenship behaviours (Podsakoff et al. 2000). That is, research has
225
found that leadership support can affect organisational citizenship behaviours such as
employee loyalty through their effect on job satisfaction (Netemeyer et al. 1997;
Podsakoff et al. 2000). Senior leaders support directly affects employee satisfaction
since senior leaders are active in setting organisational policies. Satisfaction with an
organisation’s values and policies is a component that employees consider when
evaluating their satisfaction with their jobs (Van Dyne, Graham, and Dienesch 1994).
Senior leader support had a significant impact in the model and direct leadership
support had limited influence. Direct leaders are more likely to attend to employees’
socio-emotional needs (Chen and Bliese 2002) while higher level leaders are more likely
to define, clarify and assign organisational roles and to interact with front-line
employees indirectly and less frequently (Katz and Kahn 1978).
A fundamental objective of this research was to investigate the set of managerial
practices that influence employees in their endeavours to provide service for customers
and that influence customer perceptions of service quality. This was based on the
findings by Schneider, White, and Paul (1998) that a set of foundation conditions
support employee work and service quality in organisations. The nature of these
practices and the paths of influence within and through the organisation are crucial
issues in the management of employee and customer loyalty.
The conclusion is that within service organisations employees perceive that sets of
managerial practices relate to supporting employees directly in their roles, and also sets
of managerial practices that relate to supporting the service climate and service quality.
Schneider and Bowen (1993) report that a climate for employee well-being serves as a
foundation for a climate for service. Senior leadership support and work facilitation
resources help build employees perceptions that the organisation is prepared to provide
resources and rewards for employee performance, while management customer
orientation and behaviour-based evaluation systems support the foundation for a
favourable climate for service. Together, work facilitation resources and a favourable
service climate drive customer perceptions of service quality.
Of particular interest here is the role of management customer orientation. Research
suggests that employee commitment is affected by the level of focus managers have on
employees, service quality, and customers (Crosby, Grisaffe, and Marra 1994), so that by
focusing on the employee, managers can reinforce employee loyalty. In fact, Crosby,
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Grisaffe, and Marra (1994) suggest that the most important driver to achieve employee
support of the customer service process appears to be the organisation's customer focus
(Crosby, Grisaffe, and Marra 1994).
That is, when employees perceive that organisations have an employee and customer
orientation, demonstrated by a strong commitment to both employees and customers,
those organisations benefit from these employee perceptions. The organisation also
benefits when customers perceive this organisational commitment as a result of their
interactions with the service climate and with customer contact employees, in the form
of the additional influence of employees’ reactions to that customer orientation (Crosby,
Grisaffe, and Marra 1994).
An organisation’s human resource practices can influence customers’ service
experiences (Schneider and Bowen 1985; Schneider and Bowen 1993). Specific aspects
of organisational reward systems such as performance feedback, the performance
appraisal process, compensation, career development opportunities, (Schneider and
Bowen 1993), and recognition for contributions to the organisation (Schneider,
Gunnarson, and Niles 1994), have been directly linked to favourable outcomes, such as
employee perceptions of a positive service climate and customer perceptions of high
quality service. When employees perceive they are rewarded for delivering quality
service, their organisation’s service climate is stronger (Schneider and Bowen 1993;
Schneider, White, and Paul 1998). That is, when employees perceive that the
organisation is focused on providing excellent service and rewards in the organisation
are based on performance to achieve this outcome, the service climate is enhanced.
Gist and Mitchell (1992) also suggest that the task environment will influence employee
self-efficacy. Since the task environment is perceived to be external and largely under an
organisation’s control and is subject to high levels of variability and is relatively stable
over time, then a negative task environment will reduce employee self-efficacy. Sigauw,
Brown and Widing (1994) suggest that an organisation’s environment is influenced by
the level of market and customer orientation, which influence employees’ attitudes and
behaviours. It can be concluded that if the environment is customer oriented, then
employees will feel that their efficacy is enhanced because the environment is one that
limits impediments to employees in relation to acquiring the skills they need to grow and
develop in the role within the service organisation (Bandura 1997; Schneider, White, and
Paul 1998).
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The modified model suggests that when the organisation’s leaders are customer
oriented, then employees are more likely to be loyal. In a sales force setting, Siguaw,
Brown and Widing (1994) found that if a firm is perceived as having a high market
orientation, then the sales force practice a greater customer orientation and express
higher levels of organisational commitment. That is, when employees perceive that an
organisation is focused on customer needs and satisfaction, then the organisation is
known to be striving to support employees and in turn employees are more likely to be
committed to the organisation (Siguaw, Brown, and Widing 1994). When employees
self-report high levels of customer orientation, they are more likely to be committed to
their organizations (Donavan, Brown and Mowen, 2004).
10.6 Conclusion to Chapter Ten
Chapter Ten reviewed the outcomes of the analyses of the path model and a subsequent
modified model. The results of the specification searches suggest that the set of
relationships between the employee-customer interface, the service climate-service
quality and the employee-role interface were supported as in the path model. The
managerial practices-service climate and managerial practices-employee interfaces
outcomes suggest a more complex mechanism by which management influences
employee and customer loyalty in service organisations.
In conclusion, the results suggest that when senior leaders consistently demonstrate the
organisation’s strategies and values, then employees are more likely to feel rewarded for
their customer-oriented performance and are more likely to be satisfied. Thus senior
leadership has an indirect influence on the organisation’s service climate via behaviour-
based evaluation strategies rather than the direct influence on service climate that was
hypothesised.
The results also suggest that work facilitation resources impact directly on employees’
beliefs about their abilities to do their jobs and on customers’ perceptions of the quality
of service received. Rather than having an effect on the organisation’s service climate,
the results from the test of the modified model suggest that customers and employees
directly experience the impact of the organisation’s service provision resources rather
than via their influence on the organisation’s service climate.
228
Finally, the role of management customer orientation appears to be more complex and
far-reaching than at first thought. Crosby, Grisaffe, and Marra (1994) found that the
most important means to achieve employee support of the customer service process
was the organisation's customer focus (Crosby, Grisaffe, and Marra 1994). When
employees perceive that organisations have a employee and customer orientation
demonstrated by a strong commitment to both employees and customers, those
organisations benefit. Customers benefit from this customer orientation because
employees experiences and reactions to management customer orientation result in
desirable employee attitudes and behaviours (Crosby, Grisaffe, and Marra 1994).
A key theoretical contribution of this study was to verify the premise that the same set
of managerial practices positively influences both employee and customer loyalty
intentions. While only a sub-set of the foundation conditions in fact directly influenced
employee perceptions of the service climate, the set of relationships that is significant
suggests that as theorised, the same set of managerial practices that influences employee
perceptions of the service climate also influences customer perceptions of perceived
service quality.
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CHAPTER 11 CONCLUSION AND IMPLICATIONS
11.1 Overview of Chapter Eleven
Chapter Eleven revisits the research objectives and discusses the implications of the
research, the research contributions, and presents the limitations of the study and
suggests future research possibilities.
11.2 Revisiting the research objectives
The first research objective related to the relationship between the level of employee
loyalty and customer loyalty in a service organisation. Clear support was provided for
this relationship. This suggests that managers of service organisations can influence
customer loyalty by focusing organisational resources on actions within the organisation
that will increase employee loyalty. The second research objective examined the
influence of service quality on customer loyalty. The study found that in the banking
context higher levels of service quality led to higher levels of customer loyalty.
The third objective sought to make explicit the impact of employee attitudes on service
quality. In the presence of the service climate-service quality and the employee loyalty-
customer loyalty relationships, employee self-efficacy and employee job satisfaction did
not significantly impact service quality. Employee attitudes towards their role did
however significantly influence employee loyalty which directly contributed to customer
loyalty states.
The fourth research objectives investigated the relationship between the organisation’s
service climate and customer perceptions of service quality. The study provided
support for the hypothesis that a more favourable service climate positively influences
service quality.
The fifth research objective sought to establish the relationship between employee role
attitudes and employee loyalty in service organisations. Employee self-efficacy and
employee job satisfaction were found to be positively related, as were job satisfaction
and employee loyalty.
The balance of the research, to address research objectives six to eight, sought to
explore the impact of the set of managerial practices within service firms that influence
service climate and ultimately employee and customer loyalty. The sixth and seventh
230
research objectives concerned the relationships between managerial practices within the
organisation and the organisation’s service climate and the attitudes that employees
develop in their roles with the organisation. The results of the path model and those
relationships suggested by the modified model based on specifications searches were in
some ways contradictory. The relationships in the path model hypothesised that the
three managerial support practices and the three managerial control practices directly
supported the organisation’s service climate, and that the managerial control practices
influenced employee role attitudes. The results of the path model test suggested that
only senior leadership support, management customer orientation and behaviour-based
evaluation directly influence the nature of the organisation’s service climate. The results
also suggested that management customer orientation influenced both employee
empowerment and the sense that rewards and employee feedback were reviewed in
terms of behaviour-based evaluations. Employee empowerment influenced employee
self-efficacy and behaviour-based evaluation influences job satisfaction. This suggests
that direct leadership support, work facilitation resources and employee empowerment
did not exert significant influence on the organisation’s service climate. The existing
research and an examination of the fit indices of the path model suggest that there could
be a better approximating of the data to the true model. Using these points as support,
a modified model based on specification searches was run using the existing data.
While the modified model can only be classified as exploratory, the suggested
relationships in the model provide some insight into the influence of managerial
practices with service organisations that were not fully explained by the path model.
The modified model supported the findings of the path model in that direct leadership
support did not influence service climate and that overall employee perceptions of
empowerment did not have a strong influence in the model.
Five issues regarding the modified model are of note. The first is that the overall fit
indices of the modified model indicate that it offers a better approximation to the data.
Second, most of the significant relationships in the path model were also supported in
the modified model. Third, the relationships of the managerial practices with the
organisation’s service climate and with employee attitudes to their role in both models
suggest that senior leadership support, management customer orientation and
behaviour-based evaluation are key managerial actions that influence the development
and maintenance of both employee and customer loyalty in service organisations.
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The fourth issue of note is that the modified model suggests a set of relationships
between managerial practices and the service climate and employee attitudes that appear
to explain with more clarity the influences of those practices. Support for these
relationships were also found in the literature.
The final issue relates to the overall complexity of the model and the source of the
hypothesised relationships. The relationships in the path model were developed from
the groups of relationships suggested by the organisational behaviour, applied
psychology and services marketing literature, and organised according to the interfaces
in the research context. The first hypothesis proposed the general employee loyalty-
customer loyalty relationship (Reichheld 1993; Reichheld and Teal 1996; Rucci, Kirn,
and Quinn 1998). The second set contributed the set of relationships that support an
organisational climate and influence service quality (Schneider and Bowen 1985;
Schneider, Parkington, and Buxton 1980; Schneider, White, and Paul 1998), potentially
influencing customer loyalty (Bitner 1990; Boulding et al. 1993; Zeithaml, Berry, and
Parasuraman 1996). The third set of relationships concerned the influence of
managerial practices on employee attitudes (Hartline and Ferrell 1996; Hartline,
Maxham, and McKee 2000; Jaworski and Kohli 1991; Katz and Kahn 1978). The
fourth set of relationships related to the interaction between employees and customers
in the delivery of quality service in organisations (Crosby, Grisaffe, and Marra 1994;
Crosby and Stephens 1987; Grönroos 1990; Hartline and Ferrell 1996). The final
proposition of the study was the set of hypotheses that related to the organisational
dynamics that drive organisational success (Fornell et al. 1996; Jaworski, Stathalopoulos,
and Kristnan 1993; Narver and Slater 1990; Rucci, Kirn, and Quinn 1998; Rust and
Zahorik 1993; Siguaw, Brown, and Widing 1994).
The current research is the first study that simultaneously and comprehensively tested
these sets of relationships. In such a theoretically comprehensive model, a more
realistic approximation of the true model can be expected. Thus, even though the
modified model results are considered to be in the realm of exploratory research, the
modified model was built on a strong theoretical background, AND the results of the
findings of the hypothesised model. The modified model grew out of the path model
results, guided by a balance of theory and empirical support.
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11.3 Conclusions
In the light of research objectives, the path model results, and the issues relating to the
exploratory modified model, the following conclusions can be drawn.
While the path model suggests that senior leadership support acts directly on the
organisation’s service climate, the modified model suggests that senior leadership
support indirectly influences the organisation’s service climate via its influence on
behaviour-based evaluation. Previous indicates that it is the higher level leaders who
create strategy and perpetuate organisational values and direct the achievement of
organisational goals and practices (Schneider and Bowen 1985; Schneider, White, and
Paul 1998). Senior managers create climates within organisations and act in ways that
lead employees to make the kinds of decisions that result in commitment to senior
management’s values (Schneider, Gunnarson, and Niles 1994). Perceptions of senior
leadership rest on the belief by employees that their managers make and keep
commitments in the long-term to support both employees and uphold the
organisation’s values (Katz and Kahn 1978).
Given that managerial actions influence employee responses (Singh 1993) and senior
leaders formulate and implement the organisation-wide service strategies and
organisational structures (Katz and Kahn 1978) that develop and guide the customer
orientation of service firms, then the relationship between senior leadership support and
behaviour-based evaluation is plausible.
Behaviour-based evaluation includes the employee’s perceptions of the organisation’s
expectations of them in regard to the organisation’s service orientation, and the degree
to which those customer-oriented behaviours are rewarded (Schneider and Bowen
1993). The use of behaviour-based systems encourages employees to provide service
that fits with customer perceptions of quality service (Zeithaml, Berry, and Parasuraman
1988). In effect, management seeks to exercise control over employee behaviour by
encouraging and rewarding behaviours that are oriented towards supporting
organisational goals (Kohli 1985).
In the context of this explanation and the strong relationship between behaviour-based
evaluation and the bank’s service climate, then the logic is that senior management guide
and develop organisational goals and values, and also create the mechanisms that
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encourage and reward employees when they perform in accord with those goals and
values.
That work facilitation resources have a direct relationship with customer perceptions of
service quality and with employee perceptions of the use of behaviour-based evaluation
and its influence on employee self-efficacy is not surprising. Schneider, Gunnarson and
Niles-Jolly (1994) note that in organisations where employees report that they are well
trained and have appropriate equipment and work-related resources, customers report
superior service. Schneider and Bowen (1993) report that together work facilitation
resources and the organisation’s service climate drive customer perceptions of service
quality. When employees perceive they have the necessary resources to perform in their
roles, they are more likely to believe that they are able to perform those roles (Gist and
Mitchell 1992). The conclusion is that when management provides the necessary
resources for employees to perform, then employees perceive they are given the
resources they need to perform and feel they are able to perform in their jobs. This
leads to perceptions of being rewarded on the basis of supporting organisational goals
and of employees believing that they are able to perform in their roles, and do so
effectively. Customers also perceive that management has provided the necessary
resources required for quality service and that the employees who are supporting them
are engaging in customer-oriented behaviours.
The extended influence of managerial customer orientation suggested by the modified
model is also insightful. Siguaw, Brown and Widing (1994) found that employees were
more committed to their organisation when they perceived that management was
focused on customer needs and satisfaction. This communicates to employees that the
organisation is striving to support employees. Management customer orientation
supports the development of a favourable service climate because it facilities the
dissemination of knowledge about customers and supports the ongoing and evolving
understanding of customer needs and requirements (Narver and Slater 1990). Finally
management customer orientation supports employee efficacy because in organisations
that have a customer orientation, systems and processes are focussed on anticipating
customer needs, managing change, and adopting new technologies to enhance customer
service (Narver and Slater 1990; Schneider, White, and Paul 1998), which remove
impediments to service provision and enables employees to believe they can perform
their roles (Bandura 1997; Schneider, White, and Paul 1998).
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The potential of the powerful influence of management customer orientation is
supported by Crosby, Grisaffe, and Marra (1994), who suggest that the most important
driver to achieve employee support of the customer service process appears to be the
organisation's customer focus (Crosby, Grisaffe, and Marra 1994).
In this study, it is possible that direct leadership support and employee empowerment
are redundant in terms of employee perceptions of managerial influences because of the
powerful influence of senior leaders, adequate work facilitation resources and
management’s customer orientation, not because immediate supervisor support and
empowerment of employees are not necessary or desirable. Senior leaders predicate
organisational policies, goals, strategies and values. Senior leaders put in place the
mechanisms that reward and control employees and control the provision and allocation
of organisational resources (Katz and Kahn 1978). Management customer orientation
communicates the philosophy of the organisation that puts the customer first. Work
facilitation resources provide the necessary resources for employees to do their jobs.
Behaviour-based evaluation provides employees with the guidance and incentives to
perform the necessary service oriented behaviours.
Management in service organisations makes implicit and explicit choices to adopt
certain practices and procedures and to reward and support certain behaviours so that
organisational imperatives and even implicit goals become clear to the organisation’s
employees (Schneider 1990). These practices and procedures and the activities that are
rewarded and supported play a critical function in organisations since they are the
criteria on which employees base their work decisions (Schneider 1990). In service
organisations, when managers pay attention to their customers’ needs and expectations,
they create a positive climate for service that yields employee behaviours that result in
customer perceptions of service quality (Schneider, White, and Paul 1998).
Within the service climate, customers’ perceptions of an organisation’s climate are
developed from their perceptions of the customer contact employees, based on the
performance of the organisation’s employees and those employees’ general behaviours
and attitudes in the service environment (Schneider 1973). This transfer of the
perceptions of the service climate from management to employees, and between
employees and customers, occurs through the psychological and physical closeness that
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exists in service encounters (Schneider and Bowen 1993) and through the influence of
management customer orientation on employees (Crosby, Grisaffe, and Marra 1994).
11.4 Implications of the research
The research was conducted in a consumer banking context, and makes explicit the
influence of managerial support and control practices within a service environment.
How do the differing functions of the organisation combine to achieve the overarching
organisational goal of long-term performance and survival? The study examined a
comprehensive set of managerial practices, and established their relative influence and
importance, individually and collectively. The outcome is a deeper understanding of
these managerial actions and their consequences, in terms of employee loyalty and
customer loyalty.
The study also demonstrated the paths by which management practices influence
organisational outcomes, and the interconnectedness of managerial actions, employee
perceptions, and customer perceptions. This allows management to make more
informed human resource decisions and resource allocation decisions concerning
training, service support technologies and the facilitation of internal relationships.
The study also made explicit the influence that an organisation’s practices have on
employee attitudes, including commitment to the organisation in terms of loyalty
intentions, and the influence of those intentions on customer loyalty intentions. The
study demonstrates the impact of managerial practices on employees’ attitudes and their
impact on customer loyalty. The implication is that actions that affect employee loyalty
will also influence long-term customer loyalty. Enhanced customer loyalty has a series
of positive effects on organisational outcomes, including higher profit, lower costs, and
thus a potential advantage over competitors.
Long-term loyal employees contribute to the organisation as a result of their in-role
performance, and of the outcomes of their extra-role performance. These outcomes
lead to positive outcomes for the organisation in terms of keeping valuable employees,
attracting high calibre potential employees, and reducing the costs of recruiting new
employees and the lack of productivity of poorly performing employees (Reichheld and
Teal 1996; Rucci, Kirn, and Quinn 1998; Rust, Zahorik, and Keiningham 1995).
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11.5 Implications of the research findings
This study contributes to both the marketing strategy and the organisational behaviour
literatures in a number of ways. Firstly the scope of the study is extensive. It has both
internal employee perceptions of management, the organisation and their role
outcomes, and external customer measures of perceptions of service quality and loyalty
intentions, aggregated to the regional level of the bank’ operations. Rare is a
simultaneous examination of the broad set of factors that influence both employee and
customer outcomes, especially studies that include data collected from multiple sources
within the organisation.
The outcome of the findings is a more complete understanding of the processes by
which customers form their loyalty intentions towards a service organisation.
Considered in combination, the research suggests that management can impact
customer loyalty by focussing directly on service delivery issues and providing a
favourable service climate. Managers can also focus on employee beliefs about their
abilities to do the job and satisfaction with the job and the organisation. However, these
beliefs and satisfactions do not directly influence customer perceptions of service
quality. Their influence on customer attitudes towards the organisation takes place via
the impact of employee loyalty on customer loyalty. In light of the suggestion that work
facilitation resources directly influence service quality, the implication is that customers
evaluate service quality by considering functional or core quality (Crosby and Stephens
1987; Rust and Oliver 1994a), the service environment (Bitner 1992), the technical
aspects of quality (Grönroos 1990), and the relational quality (Brady and Cronin 2001;
Crosby and Stephens 1987).
Because the employees of service organisations develop their perceptions of
organisational practices and procedures that influence their behaviours and attitudes in
relation to providing customer service, leaders must act to influence these behaviours to
effectively manage the service encounters and the service climate.
Overall it appears that in service organisations managerial practices put in place the set
of conditions that facilitate employees in their performance of their roles and also
provide processes and circumstances that create the set of beliefs and attitudes that
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employees have about the organisation in terms of the jobs and the organisation itself.
These managerial practices also form the basis of the organisation’s service climate.
Customers develop their perceptions of the organisation’s service climate from
employees’ behaviours and attitudes which influence their perceptions of service quality
(Schneider 1973). Customers’ perceptions of service quality develop through the
psychological and physical closeness that exists in service encounters so that services are
judged for quality on cues experienced during the delivery process (Schneider and
Bowen 1993). It is the service climate that provides many of these cues.
It would appear that customers take their service quality cues directly from the service
itself and from the service climate within the organisation. The service climate is
directly influenced by managerial practices.
Customers perceive and respond to the deeper employee attitudes and behaviours that
relate to employee attitudes about ability and confidence to perform the service role,
and satisfactions with that role and the organisation. That is, in relation to their overall
commitment to the organisation in the form of customer loyalty, customers respond to
employee attitudes about their roles separately to customer perceptions of the delivery
of the service itself.
The implications are that customers can separately assess service and service quality in
terms of the influence of managerial practices and management customer orientation,
that are manifest by the organisation’s service climate. Customers also assess employee
behaviours and the functional aspects of service in their service quality assessments.
Customers also factor in employee attitudes to employee roles within the organisation
and employee loyalty intentions, when customers are making their loyalty decisions.
11.6 Managerial and theoretical contributions.
From a managerial perspective, the research suggests that by increasing employee loyalty
within a service organisation customer loyalty can also be expected to increase. This
relationship is enhanced indirectly by positive employee role attitudes, which are likely
to increase employee loyalty. Managers can influence service quality by creating a
favourable service climate. By putting in place the conditions that create a favourable
service climate, managers have also put in place the conditions that foster more positive
employee role attitudes that lead to increased employee loyalty.
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The conclusion is that overall, a comprehensive set of practices and chain of events
exist that service managers can utilise to achieve the important organisational goal of
increasing and maintaining customer loyalty. The main managerial contribution of this
study is to demonstrate to managers the sets of managerial practices that impact
customer loyalty, and the internal mechanisms within organisations that transfer and
communicate those practices through the organisation. Thus managers can understand
and initiate the chain of events and processes within a service organisation that ends
with customers of the organisation that can ensure the organisation’s long-term viability.
This chain involves the service organisation’s employees, the environment of the
organisation and the organisation’s services.
These managerial contributions of the study are important to service organisations in
several ways. Because managers can identify the set of relationships between employees
and customers that influence customer loyalty, then they can allocate resources and set
up mechanisms that enhance these relationships in the knowledge that these resources
and mechanisms will increase and maintain customer loyalty.
The study builds tangible evidence for the importance of providing organisational
resources to increase employee loyalty as a means of increasing customer loyalty, which
is known to increase an organisation’s long-term viability (Epstein and Westbrook 2001;
Fornell et al. 1996; Heskett, Sasser, and Schlesinger 1997; Reichheld and Teal 1996).
Explicitly, service leaders must be consistent in their attitudes towards customers and
employees. Because both sets of stakeholders, employees and customers, can perceive
not only the explicit policies, behaviours and provisions for service quality, but the also
the implicit attitudes of leaders, these must be consistent. Leaders must, in concert,
focus on putting in place reward systems that focus employee behaviours on customer
outcomes, provide appropriate workplace resources for employees and customers, being
consistent in their vision and implementation tactics, and maintain a genuine customer
orientation. These managerial actions create and maintain the foundations of the
organisation’s service climate, drive the key employee perceptions of feelings of self-
efficacy, job satisfaction and employee loyalty, and also create a complex state in the
service organisation where these factors impact on customer loyalty. Finally, because of
the key finding that loyal employees foster a state where customers are more loyal, then
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leaders must actively and directly focus on building and sustaining an organisation that is
people by loyal employees.
From a theoretical perspective, the study provides an explanation of the nature of the
link between employee loyalty and customer loyalty and how employee loyalty
influences customer loyalty. Because loyalty employees engage in extra-role behaviours
that are of benefit to service organisations, employees communicate to customers that
the organisation, regardless of customer perceptions of service quality, supports, values
and rewards employee loyalty, which in turn is fostered so that customers will benefit
(Heskett, Sasser, and Schlesinger 1997). The study shows that employee behaviours
directly influence customer perceptions of service quality in terms of the functional
aspects of service, but that overall employee attitudes such as self-efficacy and job
satisfaction impact on the customer via their influence on customer loyalty, not via
service quality.
The implication for theory is that customers are able to discern the nature of the
organisation’s service climate, whether senior management provide appropriate and
adequate resources for employee in the service role, and evaluate the service process and
functional aspects of the service including employee behaviours that relate to the
delivery of service. Finally, customers take into account the broader set of employee
attitudes and behaviours as they relate to employees within their larger organisational
role. This partly supports the notion of Brady and Cronin (2001) that customers form
their service quality evaluations based on an overall perception of service quality, and an
evaluation of interaction, physical environment, and outcome or functional quality
components. The contribution of the current study is that further support exists for the
Crosby and Stephens’ (1987) findings that interaction quality is assessed as separate to
evaluations of core service quality. The current research suggests that customers
consider the interaction quality in the service environment when they are forming the
loyalty intentions.
The research also adds credence to marketing support and control theory, which
suggests that management exerts influence on customer outcomes by the use of support
and control mechanisms that operate discretely and collectively to management service
encounters. Because service encounters are outside the direct control of management,
especially once they are under way, managers can only indirectly influence employee
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behaviours and attitudes. The study shows that these support and control mechanisms
do exert influence within the organisation and impact on the outcomes of complex
human interactions.
The current research also supports the notion that the psychological metaphor of an
organisation’s service climate is a valid facet of a service organisation. This service
climate communicates to both customers and employees that service quality and a
customer orientation are important strategic initiatives of the organisation. Managerial
practices influence customer loyalty via the organisation’s service climate and through
employee attitudes and behaviours. Importantly, the same set of managerial practices
influences both employee loyalty and customer loyalty.
Because the research has demonstrated that managerial practices in service organisations
influence customer loyalty, then the suggestion is that the managerial practices
constructs and the service climate construct belong in marketing literature because their
impact on customer attitudes towards the organisation in terms of loyalty can be
demonstrated.
These contributions to marketing theory are important because of the deeper
understanding of the manager-employee-relationship in service organisations, in terms
of how employees and customers develop their perceptions of an organisation, and the
mechanisms that influence those perceptions.
The first two theoretical contributions relate to the employee-customer interface.
Because an empirical link exists between employee loyalty and customer loyalty, and
because the complex set of relationships between employee attitudes and behaviours,
customer perceptions of service quality and finally customer loyalty, is explicit, then
researchers have support for the notion that customers use more than service
performance criteria when evaluating service quality and making decisions on whether
or not to remain with an organisation. This provides a more precise understanding of
how customers develop their loyalty intentions as a result of perceptions regarding both
the actual service and their relationship with the organisation. This is of benefit to
theory because by demonstrating these relationships the study establishes how employee
behaviours and attitudes affect customer perceptions of service quality and in turn affect
customer loyalty.
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The third theoretical contribution relates to the service climate-customer interface.
Because the psychological metaphor service climate is a valid concept in the context of a
service organisation that communicates to both customers and employees that service
quality and a customer orientation are important strategic initiatives of the organisation,
researchers have a clearer understanding of the mechanisms by which managers
communicate crucial strategic objectives to stakeholders and disseminate the
organisation’s orientation regarding service expectations.
The fourth marketing theoretical contribution comes from the knowledge that
managerial practices influence customer loyalty via the organisation’s service climate and
through employee attitudes and behaviours. This knowledge provides crucial
understanding of the means by which managers exercise indirect support for and
control of the service delivery process. A related contribution is the test of the theory
that the same set of managerial practices influences both employee loyalty and customer
loyalty. This suggests that not only are managerial practices explicit to employees, but
that they become explicit to customers, and that both implicit and explicit organisational
values and culture affect employees and customers. The understanding that employees
develop about the organisation is also conveyed to customers.
The final marketing theory contribution relates to the validity of the managerial
practices constructs and the service climate construct in the marketing literature.
Because managerial practices influence customer loyalty and the service climate
communicates managerial strategy and values and organisational culture regarding
service management, then these constructs belong in the marketing domain and are
valid aspects of marketing theory research.
11.7 Limitations and future research possibilities
Limitations arose during the research due to the use of an existing data set and survey
instrument that had been designed in the context of internal market research for the
sponsoring organisation. These included the need to include additional items to the
survey instrument and accommodate requirements that would support the managerial
objectives of the organisation. Furthermore, privacy requirements prevented the release
and analysis of demographic data that could have impact on the results.
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Limitations were also set by limited access to the data sets, which the property of the
sponsoring organisation. The researcher had access to the survey instrument that was
used and was given restricted access to two separate covariance matrices, one for each
of the employee and customer data sets. Concern exists also regarding the matching of
data from the employee and customer data sets. The ‘case’ or matching level means that
data were aggregated at a macro-level, which deprived the researcher of branch level
comparisons.
In relation to the perspective captured in the research, inherent bias exists. Measures
captured employee and customer perceptions, without measures of managerial beliefs.
However, previous research (cf. Schneider and Bowen 1980; Schneider, White and Paul
1998) suggest that employees are an effective source of perceptions regarding
organisational climate, customer orientation and service quality.
Notwithstanding these limitations, the use of secondary data is an accepted practice for
many disciplines, and in the current context, provides a rare and invaluable tool to study
the real contextual issues and nuances that drive important organisational outcomes
such as employee and customer loyalty.
Future research should also seek to capture managerial perceptions so that a complete
picture of managerial perceptions of their actions, employee perceptions of those
actions and the attendant customer outcomes can be compared to verify the proposed
model.
As well, the modified model should be tested with independent data sets. Further
investigation is necessary in regard to the influences of the various levels of
management within the organisation. The results suggest that senior leaders have a
stronger influence on service quality. Perhaps a more comprehensive comparison of the
influences between managerial levels on both employee loyalty and customer loyalty
could be examined.
Clearly, employee attitudes will impact the firm’s relationships with customers, and as
suggested by a number of research efforts (c.f. Ganesh, Arnold, and Reynolds 2000;
Heskett et al. 1994; Jones and Sasser 1995; Reichheld and Teal 1996), employee
outcomes directly impact on firm’s financial outcome and long term success, as a result
of higher productivity, lower costs of retention, lower costs of attracting new
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employees, and indirectly impact on firm outcomes via the benefits of more loyal
customers.
Considerable work exists that addresses the impact of employee attitudes on employee
performance. For example, Schneider, Hanges, Smith, and Salvaggio (2003) examine
much of the existing literature that links employee attitudes to employee and
organisational performance, and conduct research to determine the direction of the
relationship between attitudes and performance. The authors report key findings, some
counter intuitive. Overall, they suggest that overall job satisfaction of employees is
more strongly predicted by a firm’s rate of return on assets (ROA) and market
performance (earnings per share EPS), than the reverse relationships. Satisfaction with
a firm’s reward structure is a stronger predictor of ROA and EPS than the reverse
relationships. Too, implied in customer measures of perceptions of service quality and
customer loyalty, are customer beliefs about employee performance (Bitner 1990; Bitner
and Hubbert 1994; Zeithaml, Berry and Parasuraman 1996).
For several reasons, the effects of employee performance were not included in the
research model. Theoretical issues include parsimony of the theoretical model, the
focus in the current research on the drivers of customer loyalty, and the existing
research outcomes that suggest that proxies for employee performance at the
organizational level, such as EPS and ROA, can actually drive employee attitudes.
Methodological issues include challenges of capturing and including subjective measures
of employee performance.
However, for future research, the addition of performance measures would add an
interesting and valuable element to the research. For example, much previous research
uses aggregated organizational level performance measures, and proxies such as EPS
and ROA. What is the relationship between say, supervisor-designated employee
performance measures, and employee attitudes such as job satisfaction? Is it possible
that in fact employee attitudes are driven by performance?
While the research has been conducted in the context of a service organisation, service
excellence clearly could impact the perceptions of customers of organisations that
primarily provide tangible goods. Parasuraman, Zeithaml, and Berry (1988) note service
quality is an overall evaluation similar to attitude that acts as a relatively global value
judgement. This evaluation relates, in a consumer’s mind, to a firm's overall excellence
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or superiority and is a strong factor in the development of a general attitude towards the
firm, whether or not the context is a good or service firm (Bitner 1990; Bitner and
Hubbert 1994; Parasuraman, Zeithaml, and Berry 1988). Indeed, perceived service
quality is different from objective or actual quality. Perceived service quality is more
abstract than a specific attribute of a product and relates to the overall quality of the
organisation and its offerings. Thus, the findings could be extrapolated to firms with
tangible offerings. In future research, the current model of the employee-customer
loyalty relationship could be tested in a series of contexts, including business-to-business
organisations that specialise in manufactured goods.
Another important question is whether customers form relationships with firms or
employees. In the present study, the results suggest that customers focus on functional
or outcome quality as the key factor in the formation of their quality perceptions rather
than the quality of the interaction with customer contact employees. The findings of
Crosby and Stevens (1987) support this conclusion. That is, some segments of buyers
may generalise their feelings about customer-contact employees to the core service.
However, despite the relationship customers may have with customer contact
employees or other representatives of the organisation, the perception regarding the
quality of the core service is a separate and crucial issue and is not directly affected by
these relationships (Crosby and Stephens 1987).
That is, customers can distinguish between the performance of the firm, and the
performance of individuals within the firm. Future research could extend the present
research by examining the degree to which employees feel loyal towards the overall
service organisation, and the degree of loyalty towards employees, and how likely
customers are to defect with those employees, should they leave for other organisations.
As well, researchers might investigate the influence of the length of the relationship
between the service organisation, the service employee and the customer. Too, the
nature of the service might impact the set of relationships. For example, the loyalty
bond that a customer might develop within intense service relationships such as that
with a dentist or hairdresser, might be different from that with a bank teller or
restaurant server. Finally, loyalty relationships might be influenced by the maturity of
the industry. For example, in industries where the service is mature and has become to
some degree a commodity, the relationship with the organisation may be more
significant than in a high tech emerging industry where the bond between employee and
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customer has a pioneering element. For example, early adopters in the digital music
industry tend to follow the paths of respected employees who are in the know about the
latest advances, rather than follow a brand.
As always with organisational research, the context plays an important role. The
research should be replicated across a range of industries and also across differing levels
of organisations. Finally, more direct links could be established between managerial
actions and actual organisational outcome measures, such as long-term customer
retention, profit and market-share. One limitation of this study is the use of self-report
questionnaires to collect data. This limits the ability to draw conclusions about the
causal nature of the relationships.
Another limitation is that because the data is limited to the number of business units or
other level of aggregation, then the number of units becomes the sample size (Harter,
Schmidt, and Hayes 2002). Data should be aggregated at a level that allows for
meaningful linking of disparate information sources. If this is done, then the research
also potentially provides meaningful and more valid information. As well, in certain
settings there may be important substantive areas where subjects or unit numbers are
rare and scarce (Cudeck and Henly, 1991). For example, when responses from both
customers and employees of an organisation can be used, then the responses should be
aggregated to a level that is meaningful, and where specific influences that are pertinent
to the study potentially have effect. If the actions of say, hotel managers within a hotel
chain are relevant to the variables of interest, and both customer and employee
responses are required, then the individual hotel property would be a logical level of
aggregation (Hartline and Ferrell 1996). In climate research, for example, Schneider,
Hanges, Smith, and Salvaggio (2003) suggest that there has been “some success in
aggregating individual employee perceptions and exploring their relationships to
meaningful organizational (or unit-level) criteria (836). Replications of some of the
many Schneider studies points to their robustness, when taking into consideration the
level of analysis. That is, results have been replicated at more than one level of analysis
of an organisation, suggesting generalisability of the results. A number of statistical tests
assess the extent to which individual-level data show within unit agreement, and may be
aggregated to a higher unit level within an organisation (Klein, 2001). For example, the
ICC(1), the intraclass correlation, provides an estimate of between unit variability that is
not biased by either unit size or the number of units in the sample and ICC (2) which
246
indicates the reliability of the aggregated plant means, which are a function of ICC(1)
and average group size. Thus, the greater the ICC(1) and the larger the number of
individuals sampled per unit, the more reliable the unit means. In several replications,
the ICC (1) suggest that higher level data aggregation, providing that the influence of the
independent variable(s) is relevant at those levels, is viable.
Despite these limitations, the study provides evidence regarding the managerial practices
that drive customer loyalty. The research suggests that managerial actions are important
in terms of service quality and employee loyalty, which are crucial links between
managerial practices and customer loyalty intentions. Supportive practices indicating
investment in providing the appropriate tools to support service quality and the
organisation’s service climate, and in employees, mediates the relationships between
managerial practices and customer loyalty. This provides a greater understanding of the
process by which organisations influence the customer loyalty intention process.
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