Incorporating human resource management initiatives into customer services: Empirical evidence from Chinese manufacturing firms

Industrial Marketing Management 43 (2014) 126–135

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Industrial Marketing Management

Incorporating human resource management initiatives into customerservices: Empirical evidence from Chinese manufacturing firms

Taiwen Feng a,⁎, Dan Wang b,1, Daniel Prajogo c,2

a School of Management, Northwestern Polytechnical University, Xi'an, Chinab School of Business and Economics, Gippsland, Monash University, Room 143 Building 5N, Northways road, Churchill, VIC 3842, Australiac Department of Management, Monash University, Room 7.28 Building N, Caulfield East, VIC 3145 Australia

⁎ Corresponding author at: School of ManagementUniversity, No. 127 YouyiWest Road, Xi'an, Shaanxi 710072

E-mail addresses: [email protected] (T. Feng), s(D. Wang), [email protected] (D. Prajogo).

1 Tel.: +61 3 9902 6620.2 Tel.: +61 3 9903 2030.

0019-8501/$ – see front matter © 2013 Elsevier Inc. All rihttp://dx.doi.org/10.1016/j.indmarman.2013.08.007

a b s t r a c t

Article history:Received 21 October 2012Received in revised form 17 March 2013Accepted 22 July 2013Available online 27 August 2013

Keywords:Service rewardService trainingEmployee satisfactionCustomer serviceCustomer satisfaction

The existing operations management literature has extensively investigated the associations between customersatisfaction and firm performance. However, how to improve customer satisfaction through employeeempowerment, service reward, and service training has rarely been investigated. In this research, we tiedhuman resource and service operations management to each other and examined the relationshipsamong employee empowerment, service reward, service training, employee satisfaction, customer serviceand customer satisfaction based on empirical study of 214 Chinese manufacturing companies. Using struc-tural equation modeling, we found that both employee empowerment and service training have significantimpacts on employee satisfaction and customer service, while service reward only has significant impact oncustomer service. We also found that both employee satisfaction and customer service have significant im-pact on customer satisfaction. However, the impact of employee satisfaction on customer service is insignif-icant. The findings suggest that employee empowerment, service reward and service training are importantconsiderations for operations managers to boost employee satisfaction and customer service, which in turnimprove customer satisfaction. We provide empirical evidence that employee empowerment, servicereward and service training play significant roles in increasing customer satisfaction in the context ofmanufacturing businesses.

© 2013 Elsevier Inc. All rights reserved.

1. Introduction

Due to the shrinking of product life cycles and increasing global com-petition, as well as volatile market dynamics, organizations have be-come more active in seeking ways of improving customer satisfactionto raise performance (Yee, Yeung, & Cheng, 2010). Service operationsmanagement (SOM) has emphasized providing excellent customer ser-vice as a means to improve customer satisfaction. In recent years, manymanufacturing companies have made service transition a priority tomaintain a long-term competitive advantage (Gebauer, Gustafsson, &Witell, 2011; Jacob & Ulaga, 2008). Substantial research has also beendevoted to such topics as innovating, managing and optimizing servicesystems, in order to enhance customer service and operational perfor-mance (e.g., Kumar & Telang, 2011). However, many firms have enthu-siastically applied the operation-centric approach which focuses on themanufacturing process of optimization, sequencing and timing as aneffective means for improving organizational performance, while the

, Northwestern Polytechnical, China. Tel.: +86 [email protected]

ghts reserved.

impact of human resource management (HRM) practices on opera-tional systems has often been overlooked (Boudreau, Hopp, McClain,& Thomas, 2003). The importance of HRM practices such as employeeempowerment, service reward and service training and their impactson employee satisfaction and customer satisfaction have largely beenneglected in the existing SOM literature (Boudreau, 2004).

On the other hand, issues related to HRM have been widely investi-gated in the fields of organizational behavior (OB) and psychology formany decades. The pervasive interest in HRM among OB researchersand practitioners is grounded on the premise that HRM practices areclosely related to the cognitive, attitudinal and behavioral aspects ofemployees which are crucial to organizational effectiveness, and theultimate profitability and growth of the firm (Jun, Cai, & Shin, 2006;Yee et al., 2010). Therefore, a great number of researches have been call-ing for studies to examine HRM practices, particularly to what extentthese practices influence customer service, customer satisfactionand organizational performance (e.g., Batt, 2002; Guest, 2011; Rogg,Schmidt, Shull, & Schmitt, 2001).

Yet, for a long time, HRM and SOM remained as separate fields withvery few studies looked at the integration of those two areas in thecontext of service industries (Boudreau et al., 2003). We believe thatthe impact of HRM practices on service operations cannot be ignoredand is particularly essential for the manufacturing industry because

127T. Feng et al. / Industrial Marketing Management 43 (2014) 126–135

manufacturing firms are increasingly evaluated not only by theirproducts, but also by the quality of the services provided to their cus-tomers (Gebauer, Krempl, & Fleisch, 2008). For example, more andmore manufacturing companies are offering various high value-added services, such as preventive maintenance, remote diagnosisand financial leasing to maximum customer value. In the process ofservice delivery, activities of service employees connect organiza-tions to their customers (Yee, Yeung, & Cheng, 2008). Therefore,how to empower, motivate and train service employees to improvetheir satisfaction and to increase the service value provided to cus-tomers has become an important issue to be addressed.

In this study, we attempt to investigate a fundamental question inSOM: Do employee empowerment, service reward and service train-ing have significant impacts on customer satisfaction in manufactur-ing companies? If so, what are the possible relationships amongemployee empowerment, service reward, service training, employeesatisfaction, customer service and customer satisfaction? We em-pirically examined these relationships through a survey of 214manufacturing companies in China and the development of theory-based structural equations model.

2. Hypotheses development

2.1. Employee empowerment, employee satisfaction and customer service

Empowerment relates to task discretion and providing more auton-omy to employees (Abbasi, Khan, & Rashid, 2011) which aims at gener-ating improved individual and organizational performance throughemployee participation in the decision-making process (Geralis &Terziovski, 2003). Applying this concept to service workers, Bowenand Lawler (1992, 1995) argued that the empowerment approach en-courages frontline employees to exercise initiative and imagination insolving problems relating to customer service, which leads to higher in-volvement and performance of service providers as compared to thetraditional top–down, control-oriented management approach.

A number of previous studies found that empowered employeesexperience positive psychological status towards their jobs and them-selves, have a clear sense of contribution, and are able to initiate andregulate behaviors through autonomy (Bowen & Lawler, 1992, 1995;Harris, Wheeler, & Kacmar, 2009; Seibert, Silver, & Randolph, 2004).The rationale behind the positive impact of empowerment on employeesatisfaction is the job characteristics theorywhich specifies that the spe-cific job characteristics (i.e., task identify, task significance, skill variety)are the key predictors for psychological status (Hackman & Oldham,1976). With more autonomy, employees will perceive job tasks asmore interesting and challenging, thereby leading to a higher levelof self-achievement and satisfaction accompanying job completion(e.g., Spreitzer, Kizilos, & Nason, 1997). Employee empowerment hasnot been researched extensively in customer services of manufacturingfirms, although a few empirical studies found that empowerment leadsto improved employee satisfaction in the banking industry (Akbar,Yousaf, Haq, & Hunjra, 2011). Recently, Jun et al. (2006) indicatedthat empowerment has a positive impact on employee satisfactionin the total quality management of manufacturing firms. Therefore,our first hypothesis is:

H1a. Employee empowerment has a positive impact on employeesatisfaction.

Research in the service industry has shown that empowered em-ployees have more service-oriented organizational citizenship be-haviors, which is essential to the quality of services delivered tocustomers (Jiang, Sun, & Law, 2011). Organ (1988) defined organiza-tional citizenship behavior as “individual behavior that is discretion-ary, not directly or explicitly recognized by the formal rewardsystem, and that the aggregate promotes the effective functioning

of the organization” (p.4). Self-consistency theory can be applied toaccount for the relationship between empowerment and customerservice (Jiang et al., 2011). According to self-consistency theory,individual will be motivated to perform on a task in a mannerwhich is consistent with the self-image with which they approachthe task situation (Korman, 1970). Empowered employees will havethe self-image of taking control over the situation and being responsiblefor the service outcomes (Conger & Kanungo, 1988), and the job rolealso becomes less explicit because any actions that contribute to thefinal performance might be considered as in-role behaviors (Jianget al., 2011). Therefore, employees with enlarged authority are willingto make best use of their creativity and initiative to produce serviceexcellence (Subramony, 2009). Hence, we hypothesize that:

H1b. Employee empowerment has a positive impact on customerservice.

2.2. Service reward, employee satisfaction and customer service

Service reward, which involves the financial and non-financial ben-efits for service quality, has a major impact on the motivation andbehaviors of service employees (Manolopoulos, 2008). Generally, re-wards are associated with positive psychological feelings (i.e., passion,energy) within individuals (Macey & Schneider, 2008), as recognitionsof behaviors or performance that are valued by the organization.Rewarded employees will experience a higher level of self-efficiencyand self-esteem, which fulfill the basic human needs of striving for suc-cess and being affiliated. Financial rewardswill make service employeesmore satisfiedwith their payment, while non-financial rewards are pos-itive indications for promotion opportunities and career success withinthe company (Tymon, Stumpf, & Doh, 2010). With such positive feed-back, employees' spirits can be lifted up which leads to improved satis-faction. Therefore, we hypothesize that:

H2a. Service reward has a positive impact on employee satisfaction.

Service reward also has a positive impact on the performance ofemployees, especially in terms of the services they provided to cus-tomers (Sun, Hsu, & Wang, 2012). According to reinforcement theoryof motivation, behavior is driven by its anticipated or experienced con-sequences (Skinner, 1953). Rewards are positive consequences that canreinforce the efforts in providing high quality services, whichmake ser-vice employees more energetic and creative in taking extra responsibil-ities to meet customers' expectations. Furthermore, rewards provideincentives for employees to engage more with their tasks and be morecommitted towards achieving better outcomes (Bhatnagar, 2007), lead-ing to customer satisfaction and improved service quality perceived bycustomers (Yee et al., 2010). Consequently, rewarded service em-ployees are usually more self-motivated and flexible in performing in-role and extra-role behaviors to meet customer needs (Subramony,2009). Thus, we hypothesize that:

H2b. Service reward has a positive impact on customer service.

2.3. Service training, employee satisfaction and customer service

Training is a vital component of HRM, which provides opportunitiesfor the employees to enhance their knowledge, ability and skill levels(Subramony, 2009). Previous research has reported that service em-ployees who received training performed better than those who didnot (Chang, Chiu, & Chen, 2010), and experienced a higher level ofsatisfaction regarding the nature of the job (Choo & Bowley, 2007). Inparticular, service training not only upgrades the interpersonal andcommunication skills of employees while encountering customers, butalso increases employees' general professionalism and commitment(Bushardt & Fretwell, 1994). This results in higher levels of satisfaction

128 T. Feng et al. / Industrial Marketing Management 43 (2014) 126–135

due to self-growth and better promotion opportunities within the com-pany. It has also been found that training provides the socialization op-portunity, which facilitates general satisfaction of employees inteamwork and daily cooperation (Autry & Wheeler, 2005). There-fore, we propose the linkage between service training and employeesatisfaction as the following:

H3a. Service training has a positive impact on employee satisfaction.

Previous studies also indicated that training has a positive impacton employees' productivity and performance (Choo & Bowley, 2007;Subramony, 2009). Service training is viewed as a strategic activitythat equips employees with the adequate knowledge, skills, behaviorsand attitudes that meet or exceed customers' expectations (Lytle,Hom, & Mokwa, 1998). Through training, employees become morecompetent and flexible in managing the relationships with cus-tomers, and in coping with unexpected problems such as customercomplaints. A recent study found that trained employees becamemore satisfied, motivated and loyal to the organization (Glaveli &Karassavidou, 2011), and such positive emotional status could im-prove the service quality provided to customers (Yee et al., 2008).Hence, the next hypothesis is:

H3b. Service training has a positive impact on customer service.

2.4. Employee satisfaction, customer service and customer satisfaction

Employee satisfaction describes a pleasurable or positive emotionalstate resulting from one's job appraisal (Locke, 1976). Heskett, Jones,Loveman, Sasser, and Schlesinger (1994) and Heskett, Sasser, andSchlesinger (1997) have introduced the framework of service-profitchain to the service management literature, providing rationales forthe links between profitability, customer loyalty, and employee satisfac-tion. From the service-profit chain perspective, it is argued that satisfiedemployees are more likely to engage in organizational citizenship be-havior and create external service value for customers (Yoon & Suh,2003), which leads to improved customer satisfaction, loyalty and reve-nue growth (Brown & Lam, 2008). Yee et al. (2008) applied socialexchange theory to explain the relationship between employee satisfac-tion and customer service. According to this theory, social exchange in-volves a series of negotiations between parties to generate explicit orinexplicit obligations (Emerson, 1976; Gouldner, 1960). The basic as-sumption is that most people expect equity or justice in social ex-changes and therefore, individuals are obliged to reciprocate andreturn favors if social benefit is accorded in excess of what is anticipated(Cropanzano & Mitchell, 2005). Based on this theory, it is evident thatwhen employing organizations offer favorable conditions to make ser-vice employees satisfied, the latter will reciprocate by being committedto providing high-quality service for the benefit of the employer (Flynn,2005; Yee et al., 2008). Therefore, customer service will be enhanced byextra effort performed by satisfied service employees.

H4a. Employee satisfaction has a positive impact on customer service.

Apart from affecting customer satisfaction via service quality, em-ployees are also able to influence customer satisfaction directly throughtheir emotional status (Brown & Lam, 2008; Yee et al., 2008). Howardand Gengler (2001) found that customers who are exposed to happyservice employees experienced positive attitudinal judgments towardsa product. The theory of emotional contagion, which focuses on affecttransfer in the context of employee–customer encounters (Brown &Lam, 2008), posits that there is a tendency of individuals to automat-ically mimic the expressions, postures and movements of othersespecially of those who they “like” (Barsade, 2002). Such mimicryproduces corresponding emotions of the receiver and facilitates theconvergence of emotions from the sender and the receiver (Hatfield,

Cacioppo, & Rapson, 1994). Therefore, when engaging in employee–customer interactions, customers are likely to experience correspond-ing emotions of service employees who are dealingwith them. Satisfiedemployees are likely to display pleasant and inspiring emotions infront of customers, resulting in higher levels of customer satisfaction(Homburg & Stock, 2004). Based on this argument, we propose that:

H4b. Employee satisfaction has a positive impact on customersatisfaction.

Brown and Lam (2008) showed that the service value perceived bycustomers is the foundation for the employee–customer relationship,suggesting that service quality is a determining factor for customer sat-isfaction. In the service industry, it is widely agreed that high-qualityservice will lead to satisfied customers (Yee et al., 2008), which isapplicable to the manufacturing industry. As discussed previously,the service-profit chain perspective also supports a positive relation-ship between customer service and customer satisfaction. Therefore,we hypothesize:

H5. Customer service has a positive impact on customer satisfaction.

Based on the above hypotheses, we capture the relationship be-tween HRM practices and operational performance in an integratedframework as depicted in Fig. 1.

3. Research method

3.1. Sampling and data collection

The data used for empirical analysis was collected frommanufactur-ing companies in China. Since China is such a large country, we strategi-cally selected five provinces (or municipality) to represent the widegamut of economic development stages in China: Shaanxi, Shandong,Beijing, Guangdong and Jiangsu. Shaanxi, a traditional industrial basein northwest China, resides in a relatively early stage of economic re-form and market formation. Shandong and Beijing are industrial basesin the north and reflect the average stage of economic reform and mar-ketization in China. Guangdong and Jiangsu, located in the affluent PearlRiver delta and Yangtze River delta respectively, have enjoyed a higherdegree of economic development and market formation. Thus, we be-lieve that Shandong, Shaanxi, Beijing, Guangdong and Jiangsu are repre-sentative of Chinese economic development with varying degrees ofmarket economy, and therefore were selected as target samples forour research. The strategic selection should capture different economicdevelopment and market formation stages in today's China.

We drew samples from government directories of firms in themanufacturing sector to obtain a representative sample of manufactur-ing companies. The sampled firms were randomly selected on the listsand then contacted through telephone calls. After consulting with sup-ply chain executives, we determined that the bestmethodwas to obtainone key informant who is knowledgeable about human resource man-agement and familiar with operations management. Our pretest of thesurvey proved that such an informant existed in each company wecontacted, and we called those companies to identify the right contactperson, who usually comes with such titles as CEO/president, vice pres-ident or director, human resource manager. Although customers aremore preferred to be informants of customer service and customer sat-isfaction, empirical findings from similar studies have demonstratedthat internal and external measures of customer service and customersatisfaction are highly correlated (Goldstein, 2003; Hays & Hill, 2006),justifying our use of internal measures of customer service and custom-er satisfaction. To validate whether the use of internal measures is reli-able, we collected data of customer service and customer satisfactionfrom an extra 15 manufacturing companies. In each company, wesurveyed two employees and three random selected customers. We

EmployeeEmpowerment

Service Training

Service Reward

EmployeeSatisfaction

CustomerService

H1a

H2a

H3b

CustomerSatisfaction

H5H2b

H3a

H1b

H4b

H4a

Fig. 1. Conceptual model.

129T. Feng et al. / Industrial Marketing Management 43 (2014) 126–135

examined the correlations between the averaged ratings obtained fromemployees and customers. We found that, given the small sample size(15), the correlations of all the items of customer service and customersatisfaction are significant at the level of 0.1, providing empirical sup-port for the use of internal measures.

The questionnaire together with a cover letter explaining ourresearch objectives and assuring confidentiality was mailed to theidentified informants. To improve the response rate, both follow-up calls and mailings were used. Out of the 226 questionnairesreceived (12 incomplete), 214 are usable resulting a response rateof 28.53% (214/750). The sample covers a diversity of industriesand firm sizes, which can make the sample representative of Chinesemanufacturing companies and the results more generalizable. Thecharacteristics of sampled firms are depicted in Table 1.

In order to examine the possible response bias of the sample, weconducted several tests proposed by Swink and Nair (2007). First,follow-up phone calls were made to the 12 respondents of incompletesurveys. No serious biases were indicated in their comments. Second,we compared the responses of early and late respondents in terms of

Table 1Distribution of sampled firms.

Total Shandong Shaanxi Beijing Guangdong Jiangsu

Sample size 214 53 50 39 38 34

Industry (%)Food and beverage 2.80 0.00 6.00 2.56 0.00 5.88Textile and apparel 3.27 0.00 2.00 5.13 5.26 5.88Paper and printing 1.40 0.00 2.00 2.56 0.00 2.94Chemicals andpetrochemicals

5.14 9.43 4.00 5.13 5.26 0.00

Rubber and plastics 1.40 3.77 0.00 0.00 2.63 0.00Non-metallic mineralproducts

6.54 13.21 4.00 5.13 2.63 5.88

Smelting andpressing

5.14 15.09 4.00 0.00 2.63 0.00

Metal products 9.81 16.98 10.00 2.56 2.63 14.71Mechanical andengineering

19.16 13.21 34.00 10.26 10.53 26.47

Electronics andelectrical

25.70 16.98 20.00 28.46 34.21 23.53

Instruments andrelated products

12.15 5.67 10.00 12.82 21.05 14.71

Others 7.48 5.67 4.00 15.38 13.16 0.00

Number of employees (%)b50 11.68 1.89 18.00 20.51 7.89 11.7650–99 18.69 26.42 12.00 17.95 23.68 11.76100–299 27.10 41.51 24.00 23.08 26.32 14.71300–999 18.69 20.75 10.00 17.95 21.05 26.471000–1999 9.35 1.89 16.00 2.56 10.53 17.652000–4999 8.88 3.77 14.00 7.69 5.26 14.71≥5000 5.61 3.77 6.00 10.26 5.26 2.94

number of employees, annual sales and total assets. On the basis oft-tests, we found no statistically significant differences across lateand early responses. As a third test, we analyzed the differences innumber of employees between the responding and non-respondingfirms. The result was not significant which suggests no significantdifferences. Therefore, we concluded that non-response bias is notserious in the study.

3.2. Variable measures

The measures used in this study were drawn from previous litera-ture in human resource management and operations management.The English version of the questionnaire was first developed and thentranslated into Chinese by two researchers. The Chinese version wasthen translated back into English by another two researchers. Thisback-translation was then checked against the original English versionfor any possible discrepancies. In the survey, the Chinese version ofthe questionnaire was used. Before sending out, we submitted thequestionnaire to three academicians and five practitioners for theirreview and incorporated their feedback.We pre-tested the question-naire using a sample of eight companies, then made additional modifi-cations and clarifications to ensure it was understandable and relevantto the practices in China. A complete list of the items used is exhibitedin Appendix A.

For employee empowerment, four questions related to make cus-tomer decisions and solve problems were used, including withoutseeking management approval, independently, have freedom andauthority and using own judgment (Lytle et al., 1998). A seven-pointLikert scale anchored at 1 = “totally disagree” and 7 = “totally agree”was used.

Service reward was captured by three items: providing incentivesand reward, rewarding employees providing excellent service and ser-vice quality that is an important performance indicator (Lytle et al.,1998). Respondents were asked to rate on each item on a seven-pointLikert scale anchored at 1 = “totally disagree” and 7 = “totally agree”.

Service training reflects to what extent service training exists in anorganization. We chose personal skill training, time and effort andexercises as indicators (Lytle et al., 1998). For each item, respondentswere asked to provide an assessment on a seven-point Likert scalewith 1 = “totally disagree” and 7 = “totally agree”.

We referred employee satisfaction as the degree to which serviceemployees are satisfied with their job. We chose five questions listedin the Job Descriptive Index, namely salary, promotion, job nature,relationship with fellows and rules and regulations (Yee et al., 2008).Respondents were asked to rate these five items on a seven-point Likertscale anchored at 1 = “totally disagree” and 7 = “totally agree”.

High level of customer servicemeans that employeesmust pay atten-tion to satisfying the customers' needs and preferences, and offer indi-vidualized attention and response to make each customer feel special

130 T. Feng et al. / Industrial Marketing Management 43 (2014) 126–135

(Gonzalez & Garazo, 2006). It is also important for employees to put theneeds of customers before their own (Lytle et al., 1998) and to restrictthe occasions when customers are disappointed. In this study, fouritems adopted from Lytle et al. (1998) were employed to measurecustomer service. A seven-point Likert scale anchored at 1 = “totallydisagree” and 7 = “totally agree” was used.

Consistent with previous research, customer satisfaction was mea-sured using five perceptual questions reflecting customer satisfactionwith the organization's responsiveness, quality levels and ability tosatisfy or exceed customers' requirements (Bozarth, Warsing, Flynn, &Flynn, 2009). We asked the informants to assess the above five indica-tors on a seven-point Likert scale ranging from 1 = “much lower” to7 = “much higher”.

As a manufacturer may have many customers, and the levels of cus-tomer service and customer satisfaction might be different for differentcustomers, we limited our questions on customer service and customersatisfaction as they apply to the company's major customer. The majorcustomer is defined as the customer who buys the highest dollar valueof the respondent's products. There are two reasons for limiting ourquestions to the major customer. First, the major customer is the mostimportant partner for the respondent, and as such the manufacturermay pay more attention to improve the level of this customer's serviceand satisfaction. Second, the single informant is more familiar withthe major customer, and is more likely to provide accurate informationon customer service and customer satisfaction related to that customer.

Although perceptual datamay impose limitations through increasedmeasurement error, the use of suchmeasures is notwithout precedence(Yee et al., 2008). Researchers have found measures of perceived orga-nizational performance data to be positively correlated with objectivemeasures of firm performance (Powell, 1992).

Table 2Results of confirmatory factor analysis.

Construct Item code Factorloading

t-value Cronbach α Compositereliability

Employeeempowerment

EE2 0.93 18.06 0.969 0.969EE3 0.98 19.65EE4 0.95 18.76

Service reward SR1 0.90 16.55 0.912 0.913SR2 0.84 14.88SR3 0.90 16.70

Service training ST1 0.92 17.69 0.962 0.964ST2 0.93 17.94ST3 0.99 20.13

Employeesatisfaction

ES2 0.74 12.12 0.878 0.885ES3 0.91 16.42ES4 0.89 16.07

Customer service CS1 0.92 17.52 0.949 0.950CS2 0.95 18.60CS3 0.91 17.23

Customersatisfaction

CSA1 0.87 15.87 0.945 0.945CSA2 0.90 16.72CSA3 0.94 18.31CSA4 0.90 16.70

3.3. Common method variance

When two or more variables are collected from the same respon-dents and an attempt is made to interpret their correlation, a problemof common method variance (CMV) could happen (Podsakoff &Organ, 1986).We selected two informants in each of the ten respondingfirms and then interviewed them separately with the same question-naire to assess potential single-respondent bias. For practical reasons,these ten firms were selected according to their geographic proximityto the researcher's university. The reliability test suggested a highlevel of internal consistency between two sets of answers.

Analysis of Harman's one-factor test of CMV (Podsakoff, MacKenzie,Lee, & Podsakoff, 2003) revealed six factors with eigenvalues aboveor near 1.0, explaining 89.0% total variance. The first factor captured19.1% of the variance, which is not the majority of the total variance.As a second test of CMV, we conducted confirmatory factor analysis(CFA) for Harman's one-factor test (Podsakoff et al., 2003; Yeung,Selen, Zhang, & Huo, 2009). Harman's one-factor model of variablesyielded χ2 = 2303.77 with 152 degrees of freedom (compared withthe χ2 = 364.16 and d.f. = 137 for the CFA model). The fit indicatesseveral distinct factors for the variables, which suggests that CMV isnot an issue. To further evaluate the CMV, ameasurementmodel includ-ing only the traits and one including a method factor in addition to thetraitswere tested (Cao & Zhang, 2011;Williams, Cote, & Buckley, 1989).The results of the method factor model marginally improved the modelfit indices (NNFI by 0.01 and CFI 0.00), with the commonmethod factoraccounting for 7.8%of the total variance. Also, the factor loadings are stillsignificant in spite of the inclusion of a method factor, suggesting thatthe model was robust (Flynn, Huo, & Zhao, 2010). This provides furtherindication that the CMV is not a problem. Moreover, we tried to furtherreduce the effect of CMV by separating the measurement items withinthe questionnaire, which was adopted in this research (Podsakoffet al., 2003). Thus, it is reasonable to conclude that CMV is rather negli-gible in this study.

4. Data analysis and results

We employed structural equations modeling (SEM) to examine ourhypothesizedmodel. Similar to relevant studies (e.g., Koufteros, Babbar,& Kaighobadi, 2009; Yee et al., 2008, 2010), we followed Andersonand Gerbing's (1988) two-step approach to validate measurementprior to the structural model. The results of the validation of measureswere firstly presented. LISREL 8.80 was then used to test the hypothe-sized model.

4.1. Validation of measures

As suggested by Narasimhan and Jayaram (1998), an exploratoryfactor analysis (EFA) was conducted to ensure the unidimensionalityof the scales. The items are deleted if they load onmore than two factors,or the difference between factor loadings was less than 0.10 acrossfactors (Flynn, Schroeder, & Sakakibara, 1994). Moreover, items thatdo not load on the factor they intended to measure, but instead onfactors they did not intend to measure, should also be dropped (Yeunget al., 2009). EFA results demonstrate that unidimensionality is ensured.

The generally agreed threshold value for Cronbach's alpha is 0.70(Fornell & Larcker, 1981). Cronbach's alpha values in Table 2 indicatethat all constructs are reliable for this research. Composite reliability(CR) was also computed to assess construct reliability (Fornell &Larcker, 1981). Table 2 indicates that all CR values were larger than0.80, which is higher than the minimum acceptable value of 0.60.Based on the Cronbach's alpha values and CR values, we concludethat the scales are reliable. Content validity was established througha domain search of the literature, careful synthesis and critical eval-uation of existing constructs and an iterative construct review bydomain experts.

CFA was used to assess convergent validity of the multi-itemconstructs (O'Leary-Kelly & Vokurka, 1998). The model fit indicesare as follows: χ2(137) = 364.16 (χ2/d.f. = 2.66), root mean squareerror of approximation (RMSEA) = 0.062, non-normed fit index(NNFI) = 0.97, comparative fit index (CFI) = 0.98 and standardizedroot mean square residual (SRMR) = 0.034. These indices indicatethat the model is acceptable (Hair, Black, Babin, Anderson, & Tatham,2006). Moreover, all factor loadings were greater than 0.60, and thet-values were all larger than 2.0, further demonstrating convergentvalidity (Flynn et al., 2010). The AVE values were all above the sug-gested criterion of 0.50 (Fornell & Larcker, 1981), with a rangefrom 0.721 to 0.913. Therefore, convergent validity of the constructis confirmed.

Table 3Mean, standard deviations and correlations of the constructs.

Constructs Mean S.D. EE SR ST ES CS CSA

Employee empowerment (EE) 4.803 1.054 0.955Service reward (SR) 4.953 0.955 0.666⁎⁎⁎ 0.883Service training (ST) 5.191 1.024 0.597⁎⁎⁎ 0.638⁎⁎⁎ 0.949Employee satisfaction (ES) 4.409 0.982 0.596⁎⁎⁎ 0.472⁎⁎⁎ 0.511⁎⁎⁎ 0.849Customer service (CS) 5.000 1.008 0.558⁎⁎⁎ 0.605⁎⁎⁎ 0.639⁎⁎⁎ 0.398⁎⁎⁎ 0.929Customer satisfaction (CSA) 4.912 0.919 0.685⁎⁎⁎ 0.600⁎⁎⁎ 0.572⁎⁎⁎ 0.562⁎⁎⁎ 0.435⁎⁎⁎ 0.901

Square root of AVE is on the diagonal.Note:⁎⁎⁎ Indicates significance at the 0.001 level.

131T. Feng et al. / Industrial Marketing Management 43 (2014) 126–135

Discriminant validity can be evaluated by comparing the square rootof AVE for each construct with the correlation between that constructand the other constructs. Results in Table 3 indicate that the squareroot of AVE for each construct was greater than the correlation betweenthat construct and the other constructs, indicating good discriminantvalidity (Fornell & Larcker, 1981). Moreover, a constrained CFA modelwas built for each possible pair of constructs, in which the correlationsbetween the paired constructs were fixed to 1.0. This was comparedto the original unconstrained model, in which the correlations amongconstructswere freely estimated. A significant difference of theχ2 dem-onstrated discriminant validity (O'Leary-Kelly & Vokurka, 1998). All theχ2 differences between the fixed and unconstrainedmodel were signif-icant at the 0.01 level, which provides further evidence of discriminantvalidity.

4.2. Structural models results and hypothesis testing

We provide the results of the structural equations model in Fig. 2,along with the standardized coefficients. The goodness-of-fit indicesfor our model are as follows: χ2(140) = 425.66, RMSEA = 0.074,NNFI = 0.97, CFI = 0.97 and SRMR = 0.075. These indices are ac-ceptable compared with the threshold values suggested by Hu andBentler (1999).

The results provide support to seven of the nine hypotheses at thelevel of 0.05. Specifically, employee empowerment has positive and sig-nificant impact on both employee satisfaction (t = 5.85) and customerservice (t = 2.21). These findings provide support for H1a and H1b.This suggests that employee empowerment may be necessary for afirm to improve employee satisfaction and customer service. Our resultssupport H2b, but do not support H2a, because the impact of servicereward on custome0072 service was significant (t = 2.86) and theimpact of service reward on employee satisfaction was insignificant(t = −0.34). It was expected that service rewardwould play an impor-tant role in improving customer service.

The findings support H3a and H3b and indicate that service traininghas positive and significant impact on employee satisfaction (t = 3.13)

EmployeeEmpowerment

Service Training

Service Reward

EmploSatisfa

CustoServ

0.55

-0.03

0.38

0.26

0.25

0.20

-0.0

Fig. 2. Hypothesized stru

and customer service (t = 4.62), suggesting that service training isconducive to improve employee satisfaction and customer service.Furthermore, H4b is confirmed while H4a is not supported. The resultsindicate that higher levels of employee satisfaction were related tohigher levels of customer satisfaction (t = 7.66) but not customerservice (t = −0.56). Therefore, customer service does not play an in-termediate role on the relationship between employee satisfactionand customer satisfaction. Finally, customer service was predicted toaffect customer satisfaction in H5. The findings support H5 and indicatethat customer service has a positive and significant impact on customersatisfaction (t = 3.72).

4.3. Alternative models

To allow for alternative models, the model was re-specified toaccommodate different assumptions concerning causality of theexogenous variables. It is possible that employee empowerment,service reward and service training could only have direct effectson employee satisfaction, which would then affect customer service.However, the overall fit of the alternative model was unaccept-able (χ2(144) = 513.91, RMSEA = 0.10, NNFI = 0.86, CFI = 0.87,SRMR = 0.14). Although either model may be theoretically plausible,an evaluation of the fit indices clearly favors the original model.

4.4. Equivalent models

Several equivalent models were also considered (cf., Lee &Hershberger, 1990) involving the just-identified block of endoge-nous variables that relate the employee satisfaction, customer serviceand customer satisfaction constructs. According to the Lee–Hershbergerreplacing rules, unidirectional relations to variables and correlated dis-turbances are interchangeable. Equivalentmodels can also be generatedby changing the path direction. Application of these rules to the originalmodel generated the four equivalent models presented in Fig. 3. Inmodel (a), the disturbance correlation between employee satisfactionand customer satisfaction is substituted for a direct effect. Model

yeection

merice

CustomerSatisfaction

0.24

0.55

4

cture model results.

EmployeeSatisfaction

CustomerService

CustomerSatisfaction

EmployeeSatisfaction

CustomerService

CustomerSatisfaction

EmployeeSatisfaction

CustomerService

CustomerSatisfaction

EmployeeSatisfaction

CustomerService

CustomerSatisfaction

Equivalent (a) Equivalent (b)

Equivalent (c) Equivalent (d)

Fig. 3. Equivalent models.

132 T. Feng et al. / Industrial Marketing Management 43 (2014) 126–135

(b) substitutes the direct effect between employee satisfaction andcustomer service for disturbance correlation. In model (c) the pathdirection between employee satisfaction and customer satisfactionis reversed. Model (d) reverses the path direction between employeesatisfaction and customer satisfaction, and substitutes the direct ef-fect between employee satisfaction and customer service for distur-bance correlation. As all equivalent versions of the model explain thedata equally well, the choice between them must be justified on atheoretical rather than a mathematical/statistical basis.

5. Discussion and conclusions

In this study, we developed and tested a theory-based model thatdepicts the associations among employee empowerment, service re-ward, service training, employee satisfaction, customer service and cus-tomer satisfaction in the context of Chinese manufacturing industries.The results obtained from this study show that employee empower-ment is important for satisfying employees and delivering excellent ser-vices to customers. This highlighted the vital role plays by employeeempowerment in eliciting customer satisfaction via enhancing thelevels of employee satisfaction and customer service, especially in thesetting of manufacturing businesses. The results are consistent withthe findings of Snipes, Oswald, LaTour, and Armenakis (2005). Althoughperspectives from strategic operations management suggest thatachieving employee satisfaction may be costly (Yee et al., 2008),we found that empowerment can be an alternative to satisfy em-ployees with a low cost.

Service reward is found to be significantly related to customerservice but insignificant related to employee satisfaction. This find-ing is inconsistent with the study of Tymon et al. (2010) wherebythe researchers indicated that service reward can contribute to em-ployee satisfaction improvement. Our results show that service re-ward is not a good predictor for employee satisfaction, especiallywithin manufacturing businesses in China. This may be attributedto three possible reasons. First, employee empowerment and servicerewards are linked tomotivation while training is linked to qualifica-tion or skills. The difference between empowerment and rewardconsists in the first typically being considered as providing intrinsicmotivation and the latter extrinsic motivation. Intrinsic motivationand qualification may be more important than extrinsic motivationfor improving employee satisfaction. Second, rewards play differentroles for employees with different attributes. Our findings showthat empowerment and training, which involve more authority andself-growth, are more significant indicators than reward in leadingto employee satisfaction. Third, one item measuring employee satis-faction (i.e. employees are satisfied with the salary of this company)was deleted after validity analysis. This could also contribute to the non-significant relationship between reward and employee satisfaction as

financial stimulus is still one of the most useful ways to boost satisfac-tion particularly for employees in emerging markets such as China(Newman& Sheikh, 2012). However, service reward plays an importantrole in improving customer satisfaction through delivering superiorcustomer services by employees. The remarkable impact of service re-ward on customer satisfaction found in this study validates the findingsof Sun et al. (2012).

The results indicate that service training has significant impactson both employee satisfaction and customer service. These findingsconcurred with the assertions of Glaveli and Karassavidou (2011) andWang, Lee, and Chen (2012) that well trained employees could con-tribute towards the levels of employee satisfaction and customerservice. However, Chang et al. (2010) found a negative relationshipbetween service training and employee satisfaction within the con-text of government.

According to social exchange theory, service employees who aresatisfiedwith their employing organizationswill be committed to deliv-ering services with higher levels of quality to customers (Yee et al.,2010). It seems quite logical to hypothesize that employee satisfactionhas a positive impact on customer service. Surprisingly, the result ofthe sampled firms in this study does not support this argument. Twopossible reasons are: (1) most Chinese manufacturing companies arestill in their early stages of transforming fromproduct to service, the im-portance of services has not been fully recognized by service employeesand therefore, satisfied employees may not convert their satisfactioninto high quality services. Thus, customer satisfaction may be improvedby providing preeminent products other than high quality services;(2) another possible explanation may relate to the Chinese culturethat values modesty and depresses self-boasting behaviors. In order tocomply with such social virtues, satisfied employees may consciouslyconstrain their expressions towards promoting the product and mayuse introverted communication styles in service encounters, whichcould to some extent inhibit the service quality they provided tocustomers.

The results provide strong support for the assertion that employeesatisfaction is an important determinant of customer satisfaction. Thefindings are consistentwith the theory of emotional contagion that cus-tomers are likely to be influenced by emotions of service employees(Tsai &Huang, 2002). Similarly, anecdotal evidence frommanufacturingcompanies, such as Shaanxi Heavy Duty Truck Company, where re-searchers found that an increase in employee satisfaction leads to a cor-responding change in customer satisfaction. However, Yee et al. (2008)found that service partially mediates the relationship between em-ployee satisfaction and customer satisfaction while we only provideevidence for the direct effect in our study.

Our findings bear some managerial implications for serviceoperations management in manufacturing companies. Managersin manufacturing businesses often face a similar dilemma when

133T. Feng et al. / Industrial Marketing Management 43 (2014) 126–135

initiating strategic actions to enhance customer satisfaction. Our resultssuggest that customer satisfaction emanates from satisfied employeesand excellent customer service, which can be further enhanced byempowerment, reward and training. Organizations in manufacturingindustries should exert effort on improving employee satisfaction andenhancing customer service, and satisfied employees and superiorcustomer servicewill ensure customer satisfaction. Thus, employee sat-isfaction and customer service are important considerations for opera-tionsmanagers to boost customer satisfaction inmanufacturing sectors.

The findings also suggest that manufacturing companies should notbe overly concerned about the on-going costs for sustaining employeesatisfaction and delivering excellent service in the long run. However,in practice, the costs of improving employee satisfaction and servicelevel are often the first area to receive cuts when firms are tryingto tighten their belts financially. Our research findings, together withprevious evidence, suggest a re-consideration of such strategy (Oliva &Sterman, 2001; Yee et al., 2008).

Our research highlights the issue of emotional contagion inmanufacturing industries. This suggests the need for service man-agers to maintain a pleasurable and harmonious atmosphere by forservice encounters. Employee empowerment and service trainingare essential factors for service managers to improve employee satis-faction, and then satisfied employees will transfer positive emotionsto customers. In particular, research has shown that manufacturingcompanies are experiencing a transition from product to service(Gebauer et al., 2011; Jacob & Ulaga, 2008). In such circumstances,customer contact time is likely to increase and emotional contagionis becomingmore important for achieving desired outcomes. Furtherexamination indicates that the relationship between employee empow-erment and employee satisfaction is stronger than the relationshipbetween service training and employee satisfaction (p b 0.05). Thus,managers should pay more attention to employee empowerment.

Our study provides opportunities for future research in the inter-face of SOM and HRM. First, we investigate the relationship betweenemployee satisfaction and customer satisfaction in this study. How-ever, emotional commitment of employees is likely to mediate thisrelationship. For future research, we believe that it would be inter-esting to find out how the association between employee satisfactionand customer satisfaction can be mediated by other factors. For ex-ample, would a lack of employee satisfaction impede emotionalcommitment, hindering customer satisfaction? Second, further re-search can explore the impacts of contingency variables on the hy-pothesized relationships, such as switching cost, environmentaluncertainty and organizational learning. We hope this research pro-vides an impetus to SOM researchers to critically examine the relation-ships between HRM practices and operational performance. We alsohope that further research will seek to move beyond the demonstra-tion of main effects to an investigation of how and why HRM prac-tices are related to operational performance under differentoperating contexts. Third, we rely upon the employee report of cus-tomer satisfaction. Since there could be a self confirmation bias, i.e.,‘I'm happy, the customer must be happy’, self-generated validitywill be created and thus inflated associations between employee sat-isfaction and customer satisfaction (Feldman & Lynch, 1988;Podsakoff & Organ, 1986). In future, we can attempt to blend indata from customers in an effort to validate the findings.

Acknowledgments

Our thanks go to the editor and the two anonymous referees. Thisresearch was supported by the Humanity and Social Science YouthFoundation of Ministry of Education of China (No. 13YJC630031), Na-tional Natural Science Foundation of China (No. 71102087 and No.71172124) and Ph. D. Programs Foundation of Ministry of Educationof China (No. 20116102110036).

Appendix A. Measurement items

Employee empowerment (adapted from Lytle et al., 1998)

EE1 Employees often make important customer decisions withoutseeking management approval*

EE2 Employees can dispose and solve customer complaints inde-pendently

EE3 Employees have freedom and authority to act independentlyin order to provide excellent service

EE4 We encourage employees to solve problems using theirown judgment

Service rewards (adapted from Lytle et al., 1998)

SR1 Management provides excellent incentives and rewards at alllevels for service quality, not just productivity

SR2 We will reward employees providing excellent serviceSR3 In our company, service quality is an important performance

indicator

Service training (adapted from Lytle et al., 1998)

ST1 Every employee receives personal skill training which enhanceshis/her ability to deliver high quality service

ST2 We spend much time and effort in simulated training activitiesthat help us provide higher levels of service when actuallyencountering the customer

ST3 During training sessions we work through exercises to identifyand improve attitudes toward customers

Employee satisfaction (adapted from Yee et al., 2008)

ES1 Employees are satisfied with the salary of this company*ES2 Employees are satisfied with the promotion opportunity of

this companyES3 Employees are satisfied with their job natureES4 Employees are satisfied with the relationship with their fellow

workersES5 Employees are satisfied with the rules and regulations of this

company*

Customer service (adapted from Lytle et al., 1998)

CS1 Employees care for customers as they would like to be cared forCS2 We meet and exceed customer expectations on serviceCS3 We are noticeably more friendly and courteous to customers

than our competitorsCS4 Employees go out of their way to reduce inconveniences

for customers*

Customer satisfaction (adapted from Bozarth et al., 2009)

CSA1 Our company satisfies or exceeds the requirements and expecta-tions of our customers

CSA2 Customer standards are always met by our companyCSA3 Our customers are pleased with the products and services we

provide themCSA4 Our customers seem happy with our responsiveness to their

problemsCSA5 Our customers have always been well satisfied with the quality

of our products over the past three years*

*Items are deleted after reliability or validity analysis.

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Taiwen Feng (corresponding author) is an associate professor at School of ManagementNorthwestern Polytechnical University, China. His research interests are CollaborativeInnovation Management, Operations Management and Supply Chain Management.His research has been published in International Journal of Production Research, Indus-trial Marketing Management, Energy Policy and other journals.

Dan Wang is an Early Career Development Fellow at School of Business and Economics,Monash University. Her research areas are International Management and HumanResource Management in Emerging Market Multinationals. Her work has been publishedin the International Journal of Human Resource Management, International Journal ofProduction Research, Industrial Management & Data Systems and other journals.

Daniel Prajogo is an associate professor in Department of Management, MonashUniversity, Australia. His research has been primarily focused on the areas of QualityManagement, Operations and Supply Chain Management and Innovation Management.Among the journals in which his papers have been published are International Journalof Operations & Production Management, International Journal of Production Research,International Journal of Production Economics, Supply Chain Management: An InternationalJournal, Omega, R&D Management and other journals.