THE ANTECEDENTS OF THE EMPLOYEE LOYALTY-CUSTOMER LOYALTY … · employee loyalty and customer...

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.

halla

This figure is not available online. Please consult the hardcopy thesis available from the QUT Library

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


EmployeeLoyalty


Employee Attitudes

Customer Loyalty

Service Quality

Customer Beliefs

Service Climate

Service Environment

Empowerment

Service Climate-Customer Interface Chapter 3


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).

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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.

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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

halla


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

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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

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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

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(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).

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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).

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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

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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

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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

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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).

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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

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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).

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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).


Supp

ort

Con

trol


Job Satisfaction

Behaviour Based

Evaluation


Direct Leadership

Support

Senior Leadership

Support


EmployeeLoyalty


Employee Attitudes

Customer Loyalty

Service Quality

Customer Beliefs

Service Climate

Service Environment

Empowerment





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

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(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.

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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


Direct Leadership

Support

Senior Leadership

Support


EmployeeLoyalty


Employee Attitudes

Customer Loyalty

Service Quality

Customer Beliefs

Service Climate

Service Environment

Empowerment






Job Satisfaction


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


Job Satisfaction

EmployeeLoyalty


Employee Attitudes

Customer Loyalty

Service Quality

Customer Beliefs

Service Climate

Service Environment





Behaviour Based

Evaluation


Direct Leadership

Support

Senior Leadership

Support



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


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


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


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


Supp

ort

Con

trol


Job Satisfaction

Behaviour Based

Evaluation


Direct Leadership

Support

Senior Leadership

Support


EmployeeLoyalty


Employee Attitudes

Customer Beliefs

Service Climate

Service Environment

Empowerment


Managerial Practices-Service Climate Interface Chapter 5 Customer

Loyalty

Service Quality



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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


JobSatisfaction

BehaviourBased

Evaluation

CustomerLoyalty

ServiceClimate


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

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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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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


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).


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).

177

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

178

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.

179

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


The person I report to effectively utilizes the differences between employees within my work group


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


Our leaders help people cope constructively with ambiguity and uncertainty


Our leaders can successfully make the changes needed to keep this organisation moving in the right direction


All in all, I am satisfied with our leaders 0.87 Satisfaction with supervisor. Jaworski and Kohli 1991

180

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


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


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

181

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

182

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.

185

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

187

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


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

193

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.


JobSatisfaction

BehaviourBased

Evaluation

CustomerLoyalty

ServiceClimate


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

194

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

195

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


Employee Attitudes

CustomerLoyalty

ServiceQuality

Customer BeliefsService Environment


Managerial Practices-ServiceClimate Interface Chapter 5

Employee-CustomerInterface Chapter 2

Service Climate-CustomerInterface Chapter 3

BehaviourBased

Evaluation


DirectLeadership

Support

SeniorLeadership

Support


ServiceClimate

Empowerment


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

196

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

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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.

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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


Customer orientation 0.31 *2.44


Direct leadership 0.76 0.12 1.47

Senior leadership 0.75 **7.70


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

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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

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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.


JobSatisfaction

BehaviourBased

Evaluation

CustomerLoyalty

ServiceClimate


DirectLeadership

Support

SeniorLeadership

Support


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.

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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.

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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


Employee Attitudes

CustomerLoyalty

ServiceQuality

Customer Beliefs

Employee-CustomerInterface


JobSatisfaction

0.72

0.22

N/S

N/S

EmployeeLoyalty

JobSatisfaction

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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

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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

214

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.


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


Employee Attitudes

0.23

0.55

EmployeeLoyalty


Employee Attitudes


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


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


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


DirectLeadership

Support

SeniorLeadership

Support

ManagementCustomer

Orientation

ServiceClimate

N/S

0.49

0.40


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


Empowerment


JobSatisfaction

0.50

0.59

0.360.77

0.47

EmployeeLoyalty

ManagerialPractices

Path model

Modified model

Supp

ort

Con

trol


Employee Att itudes

Managerial Support and ControlPractices-Employee Interface

BehaviourBased

Evaluat ion

Empowerment


JobSatisfact ion

0.33

0.45

0.750.46

0.31

EmployeeLoyalty

0.31

0.32

0.32

0.25


WorkFacilitat ionResources

SeniorLeadership

Support

DirectLeadership

Support

0.38 N/SN/S

N/S

221

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

222

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

223

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

224

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,

226

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).

227

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.

229

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.

231

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


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

245

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.

247

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