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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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
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.
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.
1
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).
2
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.
3
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
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).
halla
This figure is not available online. Please consult the hardcopy thesis available from the QUT Library
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.
halla
This figure is not available online. Please consult the hardcopy thesis available from the QUT Library
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)
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
130
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
131
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
133
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.
134
Figure 7.1 Conceptual model of the antecedents of the employee loyalty-customer loyalty relationship
The following discussion integrates discussion of the sets of relationships that have been
covered in the literature review to date, and provides support for the overall theoretical
foundation of the model.
The theoretical conceptual model is underpinned by the belief that loyal customers
provide crucial short and long term benefits to the organisation. Overall the model is a
conceptualisation and assessment of the relationships between an organisation’s
practices and the depth of the loyalty relationship that customers feel towards a service
organisation (Reichheld and Teal 1996; Schneider and Bowen 1995).
Loyalty manifestations are strongly influenced by management since management’s
policies, practices, procedures and goals facilitate and guide the achievement of an
organisation’s short and long term goals (Katz and Kahn 1978; Parkington and
Schneider 1979).
When employees perceive that their efforts are supported by the service of others, and
where they receive effective performance feedback, customer perceptions of service
quality are positive (Schneider and Bowen 1985; Schneider, Parkington, and Buxton
EmployeeSelf-Efficacy
JobSatisfaction
BehaviourBased
Evaluation
CustomerLoyalty
ServiceClimate
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomer
Orientation
EmployeeLoyalty
ServiceQuality
Empowerment
H2
H7
H15
H4
H9 H3
H13
H1
H8
H5
H6
H17
H10
H11
H12
H14
H16
135
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
136
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
137
key outcome if customers are to develop positive perceptions of the service quality.
A strategic focus on the internal organisation includes the service delivery environment
(Bitner 1992), the customer contact employees who deliver service and are responsible
for the customers’ perceptions of service quality (Hartline and Ferrell 1996) and the
front line service managers who manage the direct interactions between customers and
customer contact employees (Hartline and Ferrell 1996; Schneider 1990). These internal
issues must be coordinated to give the customer a positive service experience that is
perceived as quality service (Schneider and Bowen 1993; Schneider, White, and Paul
1998).
Several studies have examined the association between service quality and more specific
behavioural intentions that suggest a positive and significant relationship between
customers’ perceptions of service quality and their willingness to recommend the
company (Parasuraman, Zeithaml, and Berry 1988; Reichheld and Sasser 1990; Rust and
Zahorik 1993; Rust, Zahorik, and Keiningham 1995). The American Customer
Satisfaction Index measures the quality of products and services and links these to
customer loyalty indications (Fornell et al. 1996). Consistently this Index finds that
perceived quality influences customer loyalty, which is measured because of its value as
a proxy for profitability (Fornell et al. 1996; Reichheld and Sasser 1990).
The higher the customer perceptions of a firm’s overall service quality, the more likely
customers are to engage in behaviours beneficial to the organisation, including
generating positive word of mouth, saying positive things about the organisation,
willingness to recommend, positive repurchase intentions and planning for long term
involvement (Boulding et al. 1993). Behavioural intentions signal whether customers
will remain with or defect from the organisation. That is, positive service quality
perceptions positively influence intentions to remain loyal. Service quality is a
determinant of whether a customer ultimately remains with or defects from a company
(Zeithaml, Berry, and Parasuraman 1996).
A primary source of employee job satisfaction is customer contact employees’
perceptions of their ability to meet customer needs (Heskett et al. 1994; Reichheld and
Teal 1996). In the service quality literature, studies have found that both job satisfaction
and employee self-efficacy increase customer perceptions of service quality (Hartline
138
and Ferrell 1996). Self-efficacy had a stronger effect on service quality than job
satisfaction (Hartline and Ferrell 1996).
Schneider, White, and Paul (1998) proposed a set of foundation issues that support
employee work and service quality, which they suggested are a necessary but not
sufficient cause of a climate for service, which in turn is reflected in customer
experiences of service quality. They noted that a climate for service rests on these
foundation issues which require management policies and practices that centre on
service quality. In a culmination of a series of studies, Schneider et al (1998) indicated
that these foundation issues yield a climate for service that in turn leads to customer
perceptions of service quality. They concluded that direct and senior level management
support, work facilitation resources, and management customer orientation, are drivers
of the service climate. The effectiveness of the service climate influences service quality
and employee perceptions of management’s commitment to customers.
Job satisfaction appears to be a primary driver of employee loyalty among high-contact
service workers (Bettencourt, Gwinner, and Meuter 2001). When employees
understand the connection between their work and the company’s strategic objectives,
this becomes a driver of positive work-related behaviour. Employees’ attitudes toward
their jobs and towards the organisation as a whole have a strong influence on employee
loyalty and on behaviour towards customers (Rucci, Kirn, and Quinn 1998).
When customer contact employees and customers are at the centre of management
objectives, both employee and customer loyalty increase (Heskett et al. 1994). It follows
then that the quality of management is a driver of employee attitudes (Rucci, Kirn, and
Quinn 1998). Management practices such as investment in technology that supports
frontline employees, effective recruiting and training practices, and compensation that is
linked to employees’ performance, all increase employee loyalty outcomes (Heskett et al.
1994). When employees are purposely involved, empowered, encouraged to contribute
new ideas, and work in a positive environment where they can realise their personal
goals and develop their skills and abilities, service quality should increase, resulting in
employee satisfactions and loyalty, all of which leads to enhanced customer loyalty
(Rucci, Kirn, and Quinn 1998).
Employee empowerment can have a positive effect on pride in workmanship,
teamwork, and shared organisational values (Bowen and Lawler 1992). A sense of
139
control enables the development of personal pride as a result of role-related
outcomes (Rust, Zahorik, and Keiningham 1994). Empowerment facilitates the
development of a customer-oriented strategy by increasing employee flexibility and
adaptation and outcomes such as reducing decision time (Hartline, Maxham, and
McKee 2000). The end result is that empowered employees can more effectively meet
customers’ needs.
Managerial practices also drive organisational culture. Employees perceive the culture
of the organisation, which is reflected in their attitude towards the organisation, their
jobs, their loyalty towards the organisation (Katz and Kahn 1978), and finally in their
behaviours and attitudes towards customers (Hartline and Ferrell 1996).
In service organisations and during service delivery, managers of service organisations
have a reduced ability to control the active service process, so that they must use less
immediate forms of control (Schneider 1990). That is, managers in service organisations
must create conducive service delivery conditions using routines and rewards that focus
employees on service excellence (Bowen and Lawler 1992; Bowen and Lawler 1995;
Schneider 1990; Schneider and Bowen 1993). These routines and rewards create a
service climate that emphasises the importance of a positive experience for customers
during service delivery. The service climate guides employee behaviour so that
management intervention into the service sequence is reduced. That is, the climate for
service serves as a substitute for management control (Schneider and Bowen 1993).
Hartline and Ferrell (1996) found that management commitment to service quality
impacts customer perceived service quality. Management control mechanisms such as
behaviour-based evaluation and employee empowerment lead to higher levels of
employee self-efficacy and job satisfaction, which impact positively on service quality.
When employees can also be influential in developing these control mechanisms,
satisfaction increases. Employee influence in determining performance standards, such
as how performance is supervised and evaluated, has a strong impact on job satisfaction
components (Churchill, Ford, and Walker 1976).
Overall, management commitment to service quality, employee empowerment, and
behaviour-based evaluation, are key management practices that enable employees to
perform effectively in their customer-contact roles (Hartline and Ferrell 1996).
140
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).
141
Customers are influenced by the service climate since it is the source of many of the
cues that are available for customers, including those that reflect employees’ perceptions
of management inputs (Schneider and Bowen 1993).
The underlying theory suggests that managerial attitudes, actions and support create the
basis that form customer contact employee attitudes and actions, which also create the
basis for the development of a service climate. A service climate facilitates employee
actions that deliver service and creates customer perceptions of the quality of customer
service. Further actions in the organisation that focus directly on service quality yield a
service climate, and rewards for those actions strengthen a service climate, lead to
employee focus on actions that improve service quality, and increase levels of employee
job satisfaction (Bowen and Lawler 1995; Schneider and Bowen 1993; Schneider, White,
and Paul 1998). Employee’s perceptions of the strength of the service climate are
related to customers’ perceptions of service quality. A stronger service climate leads to
higher levels of perceived service quality. A relationship also exists between the level of
job satisfaction of customer contact employees and service quality (Hartline and Ferrell
1996), which leads to customer loyalty (Bitner 1990; Zeithaml, Berry, and Parasuraman
1996). In turn, satisfied employees are more likely to be loyal employees (Bettencourt,
Gwinner, and Meuter 2001), and loyal employees are more likely to positively influence
the long term loyalty of customers (Reichheld 1993; Reichheld and Teal 1996; Rucci,
Kirn, and Quinn 1998).
Strong relationships exist between employee perceptions of service practices and
procedures and customer perceptions of service practices and quality; employee and
customer attitudes and loyalty intentions are significantly related to each other
(Schneider and Bowen 1985; Schneider, Parkington, and Buxton 1980).
In summary, the same set of practices and employee and customer perceptions of their
outcomes, will influence the level of loyalty of both customers and employees, so that
loyalty of employees and customers will be positively related (Schneider and Bowen
1985). Thus customer perceptions, attitudes and intentions appear to be affected by
what employees experience, both in their specific role as service employees, and in their
more general role as organisational members.
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This climate serves as a guide to employee behaviour such that management
intervention into the service sequence is unnecessary so that the climate for service
serves as a substitute for management control (Schneider and Bowen 1993).
7.5 The relationships and hypotheses that underpin the conceptual model
This section presents a brief summary of the literature that establishes the theoretical
relationships within the conceptual framework, and states the hypotheses. Thus the
relationships and the attendant hypotheses that underpin the model are made explicit.
Employee loyalty towards the organisation and the behaviours that result from that
loyalty are crucial to service organisations. Service encounters allow for interactions
between the organisation’s customer contact employees and its customers that often
provide opportunities for customer loyalty to develop (Gremler and Brown 1999).
Those employees who deal directly with customers day after day have a powerful effect
on customer loyalty (Reichheld 1993). Service organisations that have loyal employees
are more likely to have loyal customers (Reichheld and Teal 1996).
This leads to the hypothesis that:
H1: Higher levels of employee loyalty lead to higher levels of customer loyalty.
The higher a company’s service quality ratings, the more loyal its customers, and the
lower the customer intentions to switch service provider, complain to other customers,
or take other external negative steps against the company (Zeithaml, Berry, and
Parasuraman 1996). The importance of perceived service quality is that when customers
have positive perceptions of an organisation’s service quality, they are more likely to
remain loyal to that organisation (Bitner 1990; Schneider, White, and Paul 1998;
Zeithaml, Berry, and Parasuraman 1996).
As a result of this discussion the following hypothesis is proposed:
H2: Higher levels of perceived service quality lead to higher levels of customer loyalty.
Because of the interpersonal interactions that take place during service delivery between
the organisation’s customer contact employees and its customers, these interactions
often have a strong effect on service quality perceptions (Bitner, Booms, and Mohr
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1994; Hartline and Ferrell 1996; Schneider and Bowen 1985). Service quality is
more the result of processes than outcomes so that interaction is an important element
of perceived service quality. This interaction quality is the result of customer focus on
employee attitude, behaviours, and expertise (Bitner, Booms, and Tetreault 1990; Brady
and Cronin 2001; Grönroos 1990). The level of job satisfaction that employees
experience influences their interactions with customers, so that job satisfaction has a
positive influence on customers’ perceptions of service quality (Hartline and Ferrell
1996).
This results in the hypothesis that:
H3: Higher levels of job satisfaction lead to higher levels of perceived service quality.
Employees are thought to engage in behaviours that they believe they can perform
successfully and that are encouraged by the organisation’s reward system and
management supported orientations (Bandura 1997). In most circumstances,
individuals with high self-efficacy expect favourable outcomes (Netemeyer et al. 1997).
A high sense of self-efficacy in a responsive environment that rewards valued actions
fosters aspirations, productive engagement in these activities, and a sense of fulfilment
(Bandura 1997). Individuals that have the efficacy to perform well and regard
themselves as self-directed will have the belief that their actions are influential and that
they will impact on performance outcomes (Bandura 1997). These performance
outcomes influence customers’ perceptions of service quality (Bitner 1990). Employee
self-efficacy fosters positive perceptions of service encounters since customers are more
likely to receive higher quality service, because employees who are confident in their
abilities to perform the necessary service tasks are more likely to deliver high quality
service (Hartline and Ferrell 1996).
Drawn from this discussion is the hypothesis that:
H4: Higher levels of employee self-efficacy lead to higher levels of perceived service quality.
Customer contact employees’ perceptions of the organisation’s service climate correlate
with customers’ perceptions of service quality, through the psychological and physical
closeness that exists in service encounters (Schneider and Bowen 1993). Employees
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both experience and help create the service climate and can predict how customers
rate service quality. When employees perceive that the service climate is favourable then
customers will perceive that the organisation provides higher levels of service quality
(Schneider, White, and Paul 1998).
This suggests the hypothesis that:
H5: A more favourable service climate leads to higher levels of perceived service quality.
A positive relationship should exist between employees’ perceived self-efficacy and their
job satisfaction because of the satisfactions that arise from the acquisition of generative
skills and the successful performance of the job role. These positive affective beliefs
towards the job and the organisation itself arise from the self-reactions to successful
performance because of the rewards resulting from personal achievement (Bandura
1997).
Hence, the hypothesis that:
H6: Higher levels of employee self-efficacy lead to higher levels of job satisfaction.
Job satisfaction is a direct positive driver of loyalty behaviours (Bettencourt, Gwinner,
and Meuter 2001). Satisfied employees are more likely to voluntarily engage in loyalty
behaviours that are of benefit to the organisation (Mathieu and Zajac 1990; Organ and
Ryan 1995). This occurs because employees who work in a fulfilling environment and
are satisfied with their jobs are more likely to reciprocate by supporting the organisation,
by performing extra-role behaviours, and by stronger commitment to the organisation
(Eisenberger et al. 2001; Eisenberger et al. 1997; Griffeth, Hom, and Gaertner 2000).
In conclusion, the hypothesis that follows from this relationship is that:
H7: Higher levels of job satisfaction lead to higher levels of employee loyalty.
Supervisory behaviours in relation to rewards and performance feedback that are
positively perceived by employees influence those employees’ feelings of job satisfaction
(Kohli 1985). When management uses behaviour-based employee control systems and
compensation systems that support desired employee behaviours, employees engage in
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those behaviours for the good of the organisation (Cravens et al. 1993). The use of
means such as appealing to intrinsic satisfactions and the recognition of excellent
performance contributes to employees’ overall feelings of satisfaction (Hartline and
Ferrell 1996; Jaworski and Kohli 1991; Oliver and Anderson 1994).
To test this relationship, the proposed hypothesis states that:
H8: A higher incidence of behaviour-based evaluation leads to higher levels of job satisfaction.
The degree of empowerment that employees perceive in the work environment will
impact self-efficacy (Bandura 1997). Hartline and Ferrell (1996) found that
management’s use of employee empowerment increased employees’ perception of self-
efficacy. As employees gain more discretion over how their jobs are performed, their
levels of self-efficacy increase because they decide the best way to perform a given task
(Gist and Mitchell 1992). The increased discretion and flexibility experienced by
empowered customer contact employees increase their confidence in their ability to
perform job-related tasks, and increase their ability to adapt to changing conditions
within the service encounter (Hartline and Ferrell 1996).
Thus, the study hypothesises that:
H9: Higher levels of empowerment lead to higher levels of employee self-efficacy.
Supervisory behaviours impact employee attitudes and behaviours since the immediate
supervisor is often the employee’s primary link with the organisation (Johnston et al.
1990). Effective functional managerial practices foster the development of a positive
service climate (Schneider 1980; Schneider, White, and Paul 1998) because immediate
supervisors provide feedback, share information, and provide planning, organisation,
and facilitation of service in the employee-customer environment (Schneider and Bowen
1993).
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This leads to the hypothesis that:
H10: Higher levels of direct leadership support lead to a more favourable service climate.
Senior leaders formulate and communicate strategy, and are powerful role models that
communicate the organisation’s values and service imperatives to the organisation’s
members and customers (Katz and Kahn 1978). As such, senior leaders have a direct
impact on the service climate that exists in service organisations. Employees perceive
these choices and behaviours which influence their understanding of the organisation’s
orientation (Schneider 1990). These practices and procedures and the activities that are
rewarded and supported play a critical function in organisations since they are the
criteria on which employees base their work decisions (Schneider 1990). In this manner,
organisations indicate that service quality is an organisational imperative (Schneider
1980; Schneider and Bowen 1985).
This review suggests the hypothesis that:
H11: Higher levels of senior leadership support lead to a more favourable service climate.
Work facilitation resources facilitate customer-oriented service delivery (Schneider and
Bowen 1985). Schneider, White and Paul (1998) established that work facilitation
resources precede a climate for service. By providing resources for customer contact
employees, management is providing the underpinnings for the perceptions employees
develop that a positive service climate is being supported (Schneider 1990).
The outcome of this examination is the hypothesis that:
H12: The higher the availability of work facilitation resources, the more favourable the service climate.
Employees and customers of service organisations experience positive outcomes when
the organisation operates with a customer service orientation (Schneider 1980). This
orientation results in superior service practices and procedures that are experienced by
customers and fit employee views of the appropriate style for dealing with customers
(Schneider 1980). Because management customer orientation puts the customers’
interests first, so that the values and beliefs of the organisation reinforce this customer
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focus, management customer orientation precedes the establishment of a service
climate (Schneider, White, and Paul 1998).
This leads to the hypothesis that:
H13: Higher levels of management customer orientation lead to a more favourable service climate.
To the extent that employees perceive they are given effective feedback, and are
rewarded and recognised for delivering quality service, the organisation’s service climate
will be stronger (Jaworski and Kohli 1991; Kohli 1985; Schneider and Bowen 1993;
Schneider, White, and Paul 1998). That is, when employees perceive that the
organisation is focused on providing excellent service, and rewards and processes in the
organisation are based on performance to achieve this outcome, the service climate will
be enhanced (Schneider, Gunnarson, and Niles 1994; Schneider, White, and Paul 1998).
Accordingly, the hypothesis is that:
H14: A higher incidence of behaviour-based evaluation leads to a more favourable service climate.
When employees encounter human resource practices that facilitate a more positive
experience for themselves, they will create a more positive experience for customers
(Reichers and Schneider 1990). One such practice, empowerment, aids in the
dissemination of a customer-oriented strategy through increased employee flexibility
and adaptation and reduced decision times, so that empowered employees can more
effectively meet customers’ needs (Hartline, Maxham, and McKee 2000). In many
service organisations, customers desire flexible and individual service, so that employee
empowerment would be crucial to the provision of a service climate that supports
customers’ perceptions of quality service (Bowen and Lawler 1992; Bowen and Lawler
1995).
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Thus the following hypothesis is proposed that suggests that:
H15: Higher levels of employee empowerment lead to a more favourable service climate.
Behaviour-based evaluation is relevant in service settings because the performance of
customer contact employees is related to customer-oriented behaviours. Behaviour-
based evaluation encourages employee performance that is consistent with customer
expectations of service quality (Zeithaml, Berry, and Parasuraman 1988). When
managers in service organisations focus employees’ efforts and attitudes toward
benefiting customers, service will be better (Parkington and Schneider 1979).
Management should provide a reward system conducive to employees meeting
customer needs. Managers who are committed to service quality are more likely to use
behaviour-based evaluation strategies (Hartline and Ferrell 1996; Hartline, Maxham, and
McKee 2000). That is, management customer orientation supports the use of
evaluation strategies that reward, support and recognise customer-oriented behaviours.
In line with these findings, the hypothesis is that:
H16: Higher levels of management customer orientation lead to a higher incidence of behaviour-based evaluation.
The use of empowerment is consistent with the adoption of a customer-oriented
strategy (Hartline, Maxham, and McKee 2000). Empowerment aids in the
dissemination of a customer-oriented strategy by bringing the service firm closer to its
customers through increased employee flexibility and adaptation and the reduction of
decision lag time (Bowen and Lawler 1992; Hartline, Maxham, and McKee 2000). The
end result is that empowered employees can more effectively meet customers’ needs.
Empowerment is more likely to be supported by management when the structures,
practices and policies are in place to enable employees, and to create the mindset that
employees are empowered to achieve customer and organisational goals (Bowen and
Lawler 1995). That is, managers who have customer-oriented beliefs are more likely to
use employee empowerment as a control practice (Hartline and Ferrell 1996).
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The final hypothesis is that:
H17: Higher levels of management customer orientation lead to higher levels of employee empowerment.
7.6 Conclusions of Chapter Seven
Chapter Seven revisits the purpose of the study and presents the conceptual framework
and related literature in support of the conceptual model. This chapter integrated the
literature review presented from Chapters Two to Six by presenting a complete
conceptual model of the antecedents of the employee loyalty-customer loyalty
relationship including the set of constructs and the attendant hypotheses. The
relationships among the antecedents and the hypotheses are specified so that in Chapter
Eight the discussion deals with the development and testing of the measures of the
constructs and with testing the theoretical model.
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CHAPTER 8 METHODOLOGY AND RESULTS OF THE PATH MODEL
8.1 Overview of Chapter Eight
Chapter Eight, the second section of the thesis, relates to the methodology, data
collection, data analysis and results of the study. Chapter Eight begins with an overview
of the analysis strategy using Structural Equation Modelling (SEM) which includes
measurement model and structural or path model testing. The model building process
is discussed and model fit assessment measures are specified and reviewed for both
measurement and path models.
The remainder of Chapter Eight follows the structure of the suggested stages in the
analysis of the data presented in Table 8.1. This two-stage procedure is proposed by
Anderson and Gerbing (1988).
First the stages of the development and testing strategy are presented. The model
building and testing process is discussed. The model fit assessment strategy is outlined
and the various fit indices that will be used are overviewed. The sample and data
collection are discussed.
Next the measure validation process is outlined and the constructs are defined along
with discussion of the scales and items used to measure each construct. The results of
the confirmatory factor analysis of the measures are presented and the fit statistics are
presented. Convergent and discriminant validity issues are discussed and the results of
the test of the path model are presented. Finally, the chapter concludes with the
recommendation to develop and test a modified model.
8.2 Overview of the analysis strategy
Table 8.1 presents the format of the conceptual development and testing used in this
study.
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Table 8.1 Stages in the analysis of the data: 2 step SEM procedure
The analysis strategy is based on structural equation modelling techniques (Jöreskog and
Sörbom 1993). The overall suggested strategy for development and testing of the model
follows. First the original model should be specified on the basis of theory and stated
hypotheses. Construct validity is then evaluated. Convergent validity is assessed by
determining whether each indicator’s estimated path loading on its proposed underlying
factor is significant (Anderson and Gerbing 1988).
Discriminant validity between two constructs is supported when the correlation is less
than 1.0 by an amount greater than twice its standardised error (Bagozzi and Warshaw
1990). The measurement model for each construct is estimated separately, then for
each pair of constructs, combining them two by two. The measurement model for all
constructs is estimated without constraining the covariance matrix of the constructs.
Finally the structural equation model is estimated for the constructs jointly with the
measurement models.
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This figure is not available online. Please consult the hardcopy thesis available from the QUT Library
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For each model in the confirmatory factor analysis stage, the fit was evaluated by
noting χ2, standard errors, t-values, standardised residuals, and modification indices. If
the χ2 is large relative to the degrees of freedom, the model must be modified to fit the
data better. If it is small relative to the degrees of freedom, the model is over-fitted and
parameters with very large standard errors and thus very small t-values could possibly be
eliminated. If χ2 is near the degrees of freedom, the model may be acceptable but the
researcher should examine the estimated solution to determine if there are any
unreasonable values or other anomalies. For each estimated model these steps should
be repeated if the previous steps lead to a modified model.
8.3 The model building process
Constructs are classified as dependent or endogenous and independent or exogenous.
For each dependent construct the theory specifies which of the other constructs it is
postulated to relate to (Jöreskog and Sörbom 1993). Since the theoretical constructs are
not observable, the theory cannot be tested directly so that the researcher can only
examine the theoretical validity of the proposed relationships in the study. Before the
theory can be empirically tested, a set of measurable indicators or items must be defined
for each dimension of each construct. The theoretical relationship between the
constructs constitutes the structural equation or path model, and the relationships
between the observable indicators and the theoretical constructs constitute the
measurement model. In order to test the conceptual model, each of these parts must
first be formulated as a statistical model (Jöreskog and Sörbom 1993).
The statistical model requires the specification of the form of the relationship.
Typically, the relationships in the model are not exact deterministic relationships. The
independent constructs account for only a fraction of the variation and covariation in
the dependent constructs, because there may be many other variables that are associated
with the dependent constructs, but are not included in the model (Jöreskog and Sörbom
1993). The aggregation of all such omitted variables is represented in the model by a set
of stochastic error terms, one for each dependent construct. These error terms
represent the variation and covariation in the dependent constructs left unaccounted for
by the exogenous constructs.
The basic assumption in structural equation models is that the error term in each
relationship is uncorrelated with all the independent constructs (Jöreskog and Sörbom
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1993). The relationships in the measurement model also contain stochastic error
terms that are usually interpreted to be the sum of specific factors and random
measurement errors in the observable indicators.
The testing of the structural or theoretical model occurs after it has been established
that the measurement model holds. In many cases, this is completed first for each
construct, then for the constructs two at a time, then for all constructs together. The
constructs should be left to freely correlate. The covariance matrix of the constructs
should be unconstrained. Once the measurement model has been formulated, it can be
tested with empirical data to see if it is consistent with the data. If the model is rejected
by the data, the problem is to determine what is wrong with the model and how the
model should be modified to fit the data better. Even if the model fits the data, it may
not be the correct or even the best model as there may be many alternatives (Jöreskog
and Sörbom 1993). To conclude that a model is the best the researcher must be able to
exclude all other seemingly suitable models on logical or substantive grounds.
To be testable, the theory should be ‘over-identified’ in that the structural equation part
of the model is over-identified. If the covariance matrix of the construct variables is
unconstrained by the model, any test of the model is essentially just a test of the
measurement models for the indicators of the constructs. To fit and test a covariance
structure three options are available (Table 8.2).
Table 8.2 Fit and test of the covariance matrix
(Bollen 1989; Jöreskog and Sörbom 1993; Kline 1998)
Fit and test options Description
Strictly confirmatory tests
The researcher has formulated one single model with data to empirically test it, so that it is either accepted or rejected.
Alternative models The research specifies several alternative models and on the basis of a single set of empirical data, one of the models is selected.
Model generating approach
The researcher specifies a tentative initial model, which is modified if the model does not fit the data, and is tested again. The goal is that the model can be given a substantively meaningful interpretation. This approach is model generating rather than model testing.
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Typically, the model generating approach is the most common method of fitting
and testing theory. Once the relationships in the theoretical model have been translated
into a statistical model of a set of linear stochastic equations among random observable
variables, the indicators, and the theoretical constructs, the model can be estimated and
tested on the basis of empirical data using statistical methods (Bollen 1989; Jöreskog and
Sörbom 1993; Kline 1998). In this case, the researcher has specified an initial model
that is not assumed to hold exactly in the population and may only be tentative. The
goal is to find a model that fits the data well statistically but that also has the property of
every parameter having a substantively meaningful interpretation. The output from
structural equation calculations provides useful information for model evaluation and
assessment of fit. This includes examination of the solution, measures of overall fit, and
detailed assessment of fit (Bollen 1989; Jöreskog and Sörbom 1993; Kline 1998).
By examining the parameter, estimates the researcher can see if there are any
unreasonable values or other anomalies. Parameter estimates should have the correct
sign and size according to theory and the a priori specifications. If the R2, which is a
measure of the strength of linear relationship, is small, this indicates a weak relationship
and suggests that the model is not effective. Secondly, the measures of overall fit,
especially the generalised likelihood ratio χ2, interpreted as a Pearson χ2 in large sample
sizes, should be examined to see whether they indicate a poor fit of the data.
8.4 Fit assessment
Assessment of the model fit includes assessment of the absolute fit of the model, the
assessment of comparative fit, and allied with the latter, assessment of parsimonious fit
(Kelloway 1998). Assessing absolute fit concerns the ability of the model to reproduce
the actual covariance matrix. Comparative fit concerns comparing two or more
competing models to assess which one provides a better fit to the data (Kelloway 1998).
Assessing parsimonious fit is based on the knowledge that a better fitting model can be
found by estimating more parameters. Measures of comparative fit and absolute fit will
always favour more complex models. Measures of parsimonious fit provide a more
balanced basis for comparison by adjusting for the known effects of estimating more
parameters (Kelloway 1998). Overall, model fit is concerned with favourable values of
a number of indices, so that assessment is multifaceted, and couched in terms of
somewhat neutral expressions such as adequate or satisfactory (Kline 1998).
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Importantly, model fit should also be considered in the light of variance explained.
R2 for individual endogenous constructs are measures of variance accounted for. That
is, it is possible to have a well-fitting model that explains only to a limited degree the
amount of variance in the endogenous constructs (Kelloway 1998). The consideration
of individual parameters is important for assessing the accuracy of the model but are not
tests of model fit. The theory can be disconfirmed even though the model may provide
a good fit to the data. In conclusion, the fit of the model does not address the validity
of the individual predictions within the model. The assessment of global fit of
structural equation modelling is only one part of the process to evaluate the results
(Kelloway 1998).
These goodness of fit statistics include measures of absolute fit, comparative fit, and
parsimonious fit.
The tests of absolute fit include the Chi-square Test (χ2), the Jöreskog-Sörbom
Goodness of Fit Index (GFI), Adjusted Goodness of Fit Index (AGFI), Standardised
Root Mean Squared Residual (SRMR), Root Mean Square Error of Approximation
(RMSEA), and the Non-Centrality Parameter (NCP).
Measures of comparative fit include Bentler’s Comparative Fit Index (CFI), Normed Fit
Index (NFI), and Bentler and Bonett’s Non-Normed Fit Index (NNFI).
Measures of parsimonious fit include the Parsimony Goodness-of-Fit Index (PGFI), the
Parsimony Normed Fit Index (PNFI), and the Ahaike Information Criterion (AIC)
(Bagozzi and Yi 1994; Baumgartner and Homburg 1996; Bollen 1989; Byrne 1998;
Jöreskog and Sörbom 1996; Kelloway 1998; Kline 1998; Marcoulides and Drezner
2001).
Since the χ2 test is highly sensitive to sample size influence and can cause models being
tested with data from a large sample size to be rejected as inadequate even though they
might be acceptable with a smaller sample (Anderson and Gerbing 1988), it is necessary
to use additional methods for testing model fit. Other methods are proposed to
eliminate or reduce the dependence on sample size (Jöreskog and Sörbom 1993). These
additional fit indices measure how much better the model fits. A typical set of model fit
indices would include the χ2 statistic and its degrees of freedom and significance level,
an index that describes the overall proportion of explained variance, an index that
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adjusts the proportion of explained variance for model complexity, and an index
that is based on the standardised residuals (Kline 1998).
8.5 Model fit indices: assessing absolute fit, comparative fit and parsimonious fit
This section presents an overview of the fit tests that will be used in the study, along
with a discussion of the efficacy of each test.
First the tests of absolute fit are discussed. These indices are concerned with the ability
to reproduce the covariance matrix.
The Chi-square Test (χ2) The χ2 test is a likelihood ratio statistic for testing an
hypothesised model against an unconstrained covariance matrix (Bagozzi and Yi 1988).
This is the most basic fit index and reflects the sample size and the value of the multiple
likelihood (ML) estimation function. ML estimation is simultaneous in that estimates of
all model parameters are calculated at once. ML describes the statistical principle that if
the estimates are assumed to be population values, they are the ones that maximise the
likelihood or probability that the data or observed covariances were drawn from this
population. The χ2 statistic for a just-identified model equals zero and has no degrees of
freedom. For over-identified models the number of degrees of freedom is positive and
the value of the χ2 statistic may be positive as well (Kline 1998). Within large samples
the χ2 statistic for an over-identified model is interpreted as a test of significance of the
difference in fit between that model and a just-identified version of it.
A small χ2 corresponds to good fit and a large χ2 to bad fit. Zero χ2 corresponds to
perfect fit. That is, low and non-significant values of the χ2 index are desired.
However, there are considerable problems associated with χ2, including with large
samples, which is a condition of SEM, such that a non-significant χ2 is unlikely
(Kelloway 1998).
Jöreskog-Sörbom Goodness of Fit Index (GFI) This is a measure of the proportion
of variance and covariance that the proposed model is able to explain (similar to R2 in a
regression analysis). This usually has a range between 0 and 1, and is usually close to 1
for well-fitting models. Suggestions are that GFI should be greater than 0.90 (Kline
1998), which indicates a good fit to the data (Kelloway 1998), although some suggest
that models with GFI in the mid-0.90’s or higher are thought to represent a reasonably
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good approximation of the data (Hu and Bentler 1999). Values greater than 1 may
be found with just-identified models or with over-identified models with almost perfect
fit to the data. Negative values are most likely to happen when the sample size is small
or the fit of the model is very poor (Kline 1998).
Since the GFI has no known sampling distribution, interpretation about when it
indicates a good fit are highly arbitrary and to be treated cautiously (Kelloway 1998).
Adjusted Goodness of Fit Index (AGFI) The AGFI adjusts the GFI for degrees of
freedom in the model, which means that there is a penalty for including additional
parameters. Values of 0.90 and above indicate good fit, with values possible from 0 to
1, unless the model is just identified or overidentified.
Standardised Root Mean Squared Residual (SRMR) This test is useful since it
provides information about the fit of individual parts of the model. This test is a
standardised summary of the average covariance residuals, the differences between the
observed and model-implied covariances (Kline 1998). When the fit of the model is
perfect the SRMR equals 0, but a cut off close to 0.08 is recommended (Hu and Bentler
1998). A standardised residual close to or above +3 indicates that the model
considerably under-explains a particular relationship between two variables, while a
standardised residual close to or below –3 over-explains the relationship between the
two variables.
Root Mean Square Error of Approximation (RMSEA) The RMSEA takes into
account the error of approximation in the population and measures how well the model
would fit the population if it were known. That is, it represents an analysis of residuals.
The RMSEA is expressed per degree of freedom, so that it takes into account the
number of parameters or complexity of the model. Values below 0.10 suggest a good fit
to the data (Kelloway 1998) and represent reasonable errors of approximation in the
population. Values below 0.05 indicate a very good fit to the data.
This is one of the most informative criteria in structural equation modelling (Byrne
1998). However, Hu and Bentler (1999) note that with small sample sizes (n < 250), a
combination rule such as CFI in combination with SRMR should be chosen, as those
based on RMSEA and SRMR tend to reject more complex models true-population
models.
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Non-Centrality Parameter (NCP) For some researchers, this is a preferred
criteria (Marcoulides and Drezner 2001). It is a measure of the discrepancy between the
observed covariance and the model implied covariance matrices. This is in essence a
badness of fit measure.
The following fit indices are concerned with comparative fit, which relate to the
assessment of whether the model under consideration is better than some competing
model.
Bentler’s Comparative Fit Index (CFI) This index follows the logic of comparing a
proposed model with the null model assuming that no relationships exist between the
measures (Bentler 1990). The null model typically has considerably higher non-
centrality that a proposed model because it is expected to fit the data poorly. This test is
moderately sensitive to simple model mis-specification but very sensitive to complex
model mis-specification. It is not influenced by estimation method under true
population models but is substantially influenced by estimation method under mis-
specified models. This fit index is recommended and is preferable when sample size is
small (Hu and Bentler 1998).
Models with CFI of 0.95 or higher are thought to represent a reasonably good
approximation of the data (Hu and Bentler 1999). Others suggest that values above
0.90 indicate good fit to the data (Kelloway 1998).
Normed Fit Index (NFI) The NFI reports the percentage improvement in fit over
the null or independence model. Values of 0.90 and above indicate good fit (Kelloway
1998).
Bentler and Bonett’s Non-normed Fit Index (NNFI) The NNFI is a simple variant
of the NFI (computed by relating the difference of the χ2 value of the proposed model
to the χ2 value for the independence or null model) that takes into account the degrees
of freedom of the proposed model. This is done to take into account model
complexity, reflected by the degrees of freedom of the proposed model. More complex
models have more parameters and hence fewer degrees of freedom, and less complex
models have less parameters and thus more degrees of freedom (Raykov and
Marcoulides 2000). The degrees of freedom are indicators of the complexity of a
model. Models with NNFI close to 1 are considered to be more plausible means of
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describing the data than models for which these are indices are further away from 1.
Models with NNFI of 0.95 or higher are thought to represent a reasonably good
approximation of the data (Hu and Bentler 1999). Others suggest that higher values of
NNFI indicate a better fitting model, with 0.90 as the common value to apply as
indicating a good fit to the data (Kelloway 1998).
Expected Cross-Validation Index (ECVI) The ECVI is a means of assessing, using
a single sample, the likelihood that the model cross-validates across similar-sized
samples, by measuring the discrepancy between the fitted covariance matrix in the
analysed sample, and the expected covariance matrix that would be obtained in another
sample of equivalent size (Byrne 1998). The model with the smallest ECVI value has
the greatest potential for replication.
The following set of indices test for parsimonious fit, which relates to the cost-benefit
trade-off of fit and degrees of freedom.
Parsimony Goodness-of-Fit Index (PGFI) The PGFI takes into account the
complexity, the number of estimated parameters, of the hypothesised model in the
assessment of overall fit. Thus this index incorporates the goodness of fit of the
hypothesised model and the parsimony of the model. This provides a more realistic
evaluation of the hypothesised model (Byrne 1998). There is no standard cut-off for
how high the index should be, and it is unlikely that it would reach the 0.90 of other
indices. It is best used to compare two competing theoretical models, and choose the
one with the highest index of parsimonious fit (Kelloway 1998).
Parsimony Normed Fit Index (PNFI) As with the PGFI, the PNFI takes into
account the issue of parsimony, but ties into the NFI so that the NFI is multiplied by
the parsimony ratio. As with the PGFI, there is no standard cut-off for the index, and
again it is best used to compare two competing theoretical models, and choose the one
with the highest index of parsimonious fit (Kelloway 1998).
Ahaike Information Criterion (AIC) This index also considers the fit of the model
and the number of estimated parameters. Smaller values indicate a more parsimonious
model. The index is not scaled to range between 0 to 1, and there are no standards.
Interpretation is based on comparing competing models, and choosing the one that is
most parsimonious (Kelloway 1998). This index indicates the extent to which
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parameter estimates from the original sample will cross-validate in future samples
(Byrne 1998). The AIC however does have a bias in favour of more complex models
(Kelloway 1998).
8.6 Data collection and analysis
The balance of Chapter Eight addresses the issues of data collection, sample details and
sampling strategies, presents the results of the tests of the measurement models for the
study and discusses measurement issues, and finally presents the results of the test of
the path model. The results of test of the path model are discussed in detail in Chapter
Nine.
8.7 Details of data collection and the data source; sample and sampling issues
Data for the current research were secondary data. The data sets were originally
collected from employees and customers of a large national North American bank. The
research was conducted as part of the bank’s corporate strategy to win customer loyalty
through service excellence. Internal measures suggested that the bank was suffering
from increasing levels of customer defection, and the organisation sought to understand
the causes of that increase in customer defections. Following this research the bank
intended to investigate potential strategies to stem the defection and enhance customer
loyalty. The belief driving the research program was that by monitoring employee
attitudes towards the bank’s leaders in terms of policies and behaviours, and employee
attitudes towards their jobs and the organisation as a whole, then the bank could gain
valuable insights into employee satisfaction levels and how likely employees were to
remain at the bank. In turn, the bank believed that if the appropriate polices and
practices were in place at the bank, and employees were satisfied and more likely to stay,
then customers would experience higher levels of service quality and would be more
likely to remain with the bank.
Data remain the property of the bank and the bank’s market research consultancy.
Access was provided to the researcher on the condition that the identify of the bank
remain cloaked, that no identifying characteristics be revealed and that only covariance
matrices calculated from the data would be released to the researcher, to be used only in
conjunction with the market research consultancy. As such, invaluable access was
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permitted but was somewhat limited. Some analyses were not possible and
descriptive data were either limited or not released.
The original research program was designed in conjunction with a market research
consultancy associated with Arizona State University, USA. The employee and
customer survey instruments were devised from the extant literature and initial iterations
were tested using standard procedures in relation to their psychometric properties.
Items selected for the study were in most cases adapted from validated scales. As is
typical for applied research, items were required to be context specific and also to fit the
research brief of the bank. The bank’s human resources division oversaw the study and
approved the final copies of the survey instruments.
The market research consultancy devised the sampling plan and provided the data
collection plan for the bank. Data were collected from both employees and customers
at all divisions of the bank. This included corporate headquarters, the personal banking
division that provided in-branch services for individual customers, the business banking
division specialising in small to medium businesses, private banking for high wealth
customers, a specialised financial services division, and a stockbroking division.
Employee data were collected internally using self-administered questionnaires. The
employee surveys were sent to all organisational employees via internal mail, with a
cover letter from the parent bank’s chairman and chief executive officer stating the
purpose of the survey and encouraging participation. Branch managers were recruited
to encourage employees to respond. Employees were provided with a package that
included a cover letter from the chairman and chief executive officer of the parent bank,
a copy of the survey, a coded response sheet and a preaddressed return envelop. Survey
copies and the response sheet were customised to reflect the division that the employee
worked at and the respective organisational area.
Employees were told in the survey that their responses would be aggregated to a level at
which individuals could not be identified. The instructions included a statement that
indicated that the response sheet had been pre-coded to indicate which area of the
organisation the employee was affiliated with, and that an independent external
consulting firm had been contracted to enter and analyse the data. Employees were
asked to return the completed coded response sheet only.
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The response sheet allowed for employee responses to the items on 5-point Likert-
type scales, with ‘Strongly agree-Strongly disagree’ anchors. A section also allowed for
written comments. The employee answer sheets were designed for computer scanning
for data entry. The written comments were separately entered. No qualitative data
from the employee responses were used for the current study.
The customer surveys were conducted by telephone interview. Trained interviewers
read the questions to respondents and repeated the response categories after each
question. The response categories allowed for customer responses to the items to be
coded on 5-point Likert-type scales, with ‘Strongly agree-Strongly disagree’ anchors.
The interviewer also asked the respondents for additional comments. The written
comments were separately entered. No qualitative data from customer responses were
used for the current study.
An external marketing research call centre was used to contact and interview customers.
Operators were provided with computer-assisted telephone interview packages that
allowed direct data entry. Instructions sets included details to be given to customers
that included information regarding the purpose of the study, details of how the
customer was selected for the study, a telephone hot-line number for customers to
contact regarding the survey and the survey questions. The telephone system held the
telephone numbers to be dialled. In all, three attempts were made to contact each
potential respondent. If customers declined the opportunity to respond, their details
were deleted from the calling system.
Importantly for this study, the sampling plan was constructed and implemented so that
data were collected from each division of the bank, and within the personal banking
division, customers and employee from each branch were sample. Employees could be
identified to the branch level. However, customers were not asked to indicate which
branch was the one at which they completed the bulk of their banking, so that data from
customers relates to the customers’ total experience with the bank. For the purpose of
this study, data from the personal banking division were deemed most appropriate. In
the personal in-branch banking division, high levels of interpersonal contact occurred,
both between customers and banking customer contact employees, and between
customer contact employees and direct and high level supervisors. Specialised banking
functions were performed in other divisions. That is, the functions in the branch
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settings allowed for close interaction among customers, customer contact employees
and banking management hierarchies.
Care was taken to ensure that customers from each branch were sampled. Using the
bank’s routing codes and customer account classifications, clusters of customers were
identified and then randomly selected to be called. Thus the sampling plan included
customers from each branch and from within each of the customer classification
groups, and thus from each region of the bank. This ensured that representatives of
each customer group were targeted but that as much as possible systematic error was
reduced. Only current active customers were included in the research consultant’s
sampling frames.
Branches were grouped by regions for the analysis. Importantly for the research, each
region had a regional manager who had a high level of autonomy over the region’s
branches and was expected be to be actively involved in the respective branches. This
included regular visits and contact with the branches. The slightly more than 1000
branches were grouped into 59 regions. Branches varied in size from small branches in
rural cities to large branches in major city centres. Unless otherwise stated, the ‘bank’
refers to the personal in-branch banking division. The conclusion for the study in
relation to this regional level influence is that regional level managers exert significant
influence on employee and customer perceptions as a result of the management
decisions and directives that take place at that level. In the employee instrument,
employees were specifically directed to consider both their direct supervisor, and their
regional level manager, when considering their perceptions of the leadership of the
bank.
In all, 18,821 useable responses were collected from approximately 21,000 employees of
the personal banking division. This represented approximately a 90% response rate
which included responses from each branch. In essence the data represent a census of
employees within the division. Because the responses were coded to allow for
classification of employees, the responses used in the current study were from
employees whose job at least partly entailed direct contact with customers.
In all, 55,335 useable interviews from customers of the personal banking division were
included in the analyses. This represents a response rate of approximately 2.8%. Thus
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data were collected from both employees and customers at the bank’s individual
branch level.
Data used for the employee and customer measurement models were collected and
analysed from each banking branch. The data for the path model were aggregated at the
regional level. To do this, the employee and customer data sets were integrated.
Responses to items were averaged for responses for each construct for both employee
and customer data. The final covariance matrix was calculated from this aggregated
data. Thus this single data set is one in which the sample corresponds to the number of
banking regions rather than individual employees and customers of the bank.
For the present research the market research consultancy provided the researchers with
copies of the sets of instructions, the survey instrument, information regarding data
collection procedures, and covariance matrices of each of the data sets.
Three separate covariance matrices were provided by the research consultancy. These
matrices consisted first of the employee data from the corporate centre, the second the
employee data from the personal banking division, and the third of the personal banking
customers. The first covariance matrix relating to the data collected from the corporate
centre was used to calculate the single factor models for the employee instrument.
There were 1051 employee responses in this data set. This was deemed an appropriate
data set and sample size for the single factor models. The second matrix consisted of
data from employees of the personal bank. The measurement model was tested using
this matrix. The third covariance matrix calculated from customer data was used first
for the customer measurement model. Finally the separate personal bank employee and
customer matrices were aggregated and used to run the path model that tested the
overall set of relationships.
8.8 Measure validation
Construct definitions are provided in Table 8.4 and the items and factor loadings are
reported in Table 8.5 for the employee survey and Table 8.6 for customer data.
The measure validation for the current study consisted of post hoc analyses. While the
employee and customer surveys were administered as part of the bank’s internal market
research, the theoretical framework and the constructs for the present study were
developed from an extensive literature review.
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Operational definitions of the constructs were developed, and measures were
investigated that had been designed to reflect these constructs. Thus the first stage of
the study consisted of developing a series of single factor models to confirm that the
items used in the primary data collection process actually measured the construct they
were assigned to measure. In essence the first series of single factor models were run as
single factor theoretical models. The literature was used to build the definitions of the
construct and match them with the item used. The employee data from the corporate
division was used to test these models. Each construct was examined with a single-
factor analysis using LISREL 8.54 (Jöreskog and Sörbom 2002). Fit indices for each
factor indicated that the each of the constructs had a satisfactory degree of internal
consistency among the measures for the construct in question.
This process ensured that the constructs were supported by theory and that the
measures consisted of multi-item scales for each construct that had been tested as single
factor models. Multi-item scales provide several advantages over single-item measures
(Churchill 1979).
The measurement model was then tested using the method proposed by Anderson and
Gerbing (1988). Two confirmatory factor analyses were conducted in separate stages on
the employee data and the customer data. First, for each data set, confirmatory factor
analysis was used to establish the validity of the scales used to measure the constructs.
In the initial stage of the analysis, items within scales were tested for significance, run as
single factor models. This checks which items to exclude from the analysis because of
non-significant values. This item-deletion procedure has been suggested as a method
for re-specifying indicators that do not load (Anderson and Gerbing 1988). For the
remaining items, t-values are calculated. These t-values should exceed +/- 1.96 to meet
the criterion for convergent validity (p < 0.05) (Anderson and Gerbing 1988). All items
loaded as specified, with t≥1.96. Table 8.4 provides the operational definition of each
construct.
Other than for the perceived service quality construct, all latent constructs were
measured with at least four observed or manifest variables. The theory strongly guided
the final scales used to include in the measurement model. Firstly, at least two items
should be measured so that measurement reliability and construct validity can be
assessed (Nunnally 1970). Second, three items are necessary to yield a unique solution
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in single construct models and thirdly in complex models less than three items can
lead to problems of under-identification, negative degrees of freedom and non-unique
solutions, especially as some constructs in the model are not correlated with each other
(Bollen 1989).
The concern with low factor loadings is somewhat reduced by the number of items used
to measure each construct. As the number of items increases the composite reliability
of the construct will increase (Nunnally 1970). As well, a respondent’s true score is
better represented when a larger number of items is used (Little et al. 2002). Simple
logic suggests that more is better to measure a mean. More items helps overcome non-
normal distribution, and scale intervals become smaller and more equal as the number
of items aggregated is increased.
Taking all these issues into consideration, the maximum possible number of items was
retained in line with theoretical definitions which were based on the underlying
dimensions of the construct. If an item loading was low but the item was deemed to be
necessary to capture the substantive meaning and full range of the underlying
dimensions of the construct, then the item was retained.
The number of observed measures is also an important consideration when models are
run using small samples.
Models containing more items per factor have been found to be better because they
demonstrated more proper solutions, more accurate parameter estimates and greater
reliability (Kenny and McCoach 2003). At the same time, models with many factors and
small samples may be more inclined to experience degradation in absolute fit indices
than models with many factors and large sample sizes. In fact models with more
variables tend to approximate the data more poorly than models with fewer variables
(Kenny and McCoach 2003). The authors note that it is likely that as more complex
models appear in the literature, these theoretically interesting models with many
variables may be penalised by some fit indices.
Some suggest that because fewer parameters are needed to define a construct when
parceling or aggregating is used, then parceling is preferred, particularly when sample
sizes are relatively small (Bagozzi and Edwards 1998). Others suggest that overall
model fit will be more acceptable when parcels or aggregations, rather than items, are
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used because of the psychometric and estimation advantages of parcels (Little et al.
2002). This is because models based on parceled data are more parsimonious in terms
of estimated parameters in defining a construct and in representing an entire model, and
have fewer chances for residuals to be correlated because fewer items are used and
unique variances are smaller. Parceled data also lead to reductions in various sources of
sampling error (MacCallum et al. 1999).
For the path model a one-indicator index was formed for each construct by averaging
the items underlying that construct in the measurement model. The practice of
parcelling or aggregating is considered by some to be controversial. Little et. al (2002)
suggest that when parcelling can be justified, it should be performed based on a
systematic foundation. A suggested set of practices include determining the
dimensionality of the items prior to parcelling, ensuring the theoretical dimensionality of
the constructs to be estimated and verifying item to construct relationships across
relevant sub-groups and in particular with different samples. Multi-dimensionality can
also cause problems with parcelling, if an item loads on more than one factor so that
only items that load on a single factor should be used. Finally if the relationships among
the latent variables are the primary goal of the modelling, then parcelling is justifiable.
This in effect creates a single uni-dimensional latent variable that is appropriate when
the researcher’s desire is to model the effects of a latent variable at a given general level
(Little et al. 2002).
Next consideration is given to the dual implications of sample size and the use of item
aggregation or parcelling for the path modelling. Sample size should be as large as
possible, with a minimum of 100 cases, especially in the case of CFA. There should be
an adequate number of indicators that are carefully chosen and reliable, so that statistical
tests and parameter estimates can be relied upon (Jackson 2003). The current study
followed this strategy (Table 8.3).
Table 8.3 Item, measures, constructs, aggregation and sample sizes
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Goal Procedure
Develop strong theoretical single factor model underpinned by sound items
Single factor models tested using large independent sample (n = 1051) for employee-related constructs; used large customer sample for all of single factor customer-related constructs, measurement model and path model (n = 55,355)
Large number of items where possible with strong theoretical underpinnings
Test measurement model for all constructs
CFA using relevant data sets with large samples (employee n = 18,821; customer n = 55,355)
Test path model Items for each construct parcelled and data for customers and employees aggregated at the bank’s regional level (n = 59).
Finally consideration should be given to the sample size for the path model. While the
sample size for the path model is small, steps have been taken to diminish the potential
negative impact of a small sample size using SEM. Namely, adequate numbers of items
have been used to measure each construct, and large sample sizes were used for single
factor model testing, and for CFA. Data were aggregated at the regional level and items
were parcelled to limit the number of parameters to be estimated, to increase the
composite reliability of the construct and to enhance the underlying dimensionality of
the constructs. This technique has been used to aggregate individual level data from
disparate samples at a desired level of an organisation (Hartline and Ferrell 1996;
Ostroff, Kinicki, and Clark 2002). In these cases, while the data were collected from
larger sample sizes, the aggregation clearly decreased the number of cases of the path
modelling. The trade-off between sample size and data set integration is necessary to
achieve the goal of relating data collected from these disparate samples.
In operational terms, since customers typically use numerous branches for banking
services, customer and employee data could be not be linked to a branch level because
customers develop their perceptions from multiple sources. Regional level managers
exert a strong influence on the service culture of the organisation. The focus on the
dual perspectives of both employees and customers for diagnosing organisational
effectiveness yields data useful not only for making global evaluations but also for
specifying some facets of group practices and procedures (Schneider, Parkington, and
Buxton 1980). In the present study the level of analysis was the region. Regions are
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thought to be the most appropriate level of analysis because regional managers exert
considerable influence across the region, customers typically bank at more than one
branch even though their account is anchored at a specific branch, and employees are
thought to share relatively similar experiences within regions.
The sample size for the path model analyses is a result of the level to which the data are
aggregated. Since the regional level is the most appropriate level from which to
investigate the influences on employees and customers of the bank, and there are 59
regions, then that is the final sample size. The challenge arises because the data are
from disparate sources, that is, both customers and employees provide measures of
perceptions of the bank’s practices. This is one of the great strengths of the study. At
the same time, because the data have to be aggregated to a level at which they can
appropriated be related, then the consequence is the relatively small sample size.
This of course raises issues about the tentativeness of the results from such an analysis,
given that SEM requires large sample sizes. The thesis deals in some detail with the
issue of sample size and provides a strong rationale for the efficacy of the analyses
conducted. In particular, Section 8.8, summarised in Table 8.3, discusses the steps taken
to counter the arguments that the sample size is too small.
In conjunction with the discussion in those sections, the following paragraphs provide
both literature-based discussion of the practice, including support for the practice of
using SME with small sample sizes, and cites several examples of published works that
use similar methodology, logic and sample sizes.
That is, there is a trade off between adequate sample size considerations, the relevance
of the issue at stake, and the use of a large number of responses before data is
aggregated, especially when steps are taken to overcome the sample size inadequacy,
such as limiting the number of parameters to be estimated. Tabachnick and Fidell
(1996) note that a minimum of 5 observations per parameter is necessary, while 10 is
preferred.
Anderson and Gerbing (1988) note that problems with small samples include non-
convergence, improper solutions, and systematic error. Models underpinned by
constructs with three or more items do not require as large a sample size as those that
have constructs measured by fewer than three items. Systematic error can partly be
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overcome by larger response sets. Finally, model fit is positively biased by sample
size, so that larger samples are typically correlated with sample size, even though some
fit indices such as CFI perform well even with sample sizes of 50 (Bentler, 1990).
Larger sample sizes provide greater power to detect small differences between
competing models, and increase the likelihood of significant results.
This logic suggests that when significant results and satisfactory fit statistics are
produced with smaller sample sizes, as long as an adequate number of items per
construct have been used, the respondent size before aggregation was large, the number
of parameters to be estimated is restricted, and the model converges with theoretically
plausible conclusions, then small sample sizes can be justified especially when the
nomological network is rich, provides important results and has a solid theoretical
foundation. When data is aggregated at a level that allows for meaningful linking of
disparate information sources, then the research also potentially provides meaningful
and more valid information. As well, in certain settings there may be important
substantive areas where subjects or unit numbers are rare and scarce (Cudeck and
Henly, 1991).
Tests using SEM with small samples have been carried out using constructs aggregated
to the unit level using data collected from individuals, where bootstrapping was used to
assess the likelihood that the findings were due to chance (Klein, Conn and Sorra,
2001). This technique treats the sample as if it were the population, and applies Monte
Carlo sampling to generate an empirical estimate of the statistic’s sampling distribution,
by drawing a large number of ‘samples’ of size n from this original sample randomly
with replacement (Mooney, 1993).
In one of the foundation studies used for the present research, the authors averaged the
items in each scale to create a summed-scale indicator for each construct (Hartline and
Ferrell 1996), because the final sample size (97 units) was small in relation to the
number of scale items. In a similarly setup, aggregation occurred at the hotel level, with
71 hotels (that is, n = 72), 8052 employees and 7 constructs (Ostroff, Kinicki, and Clark
2002).
In another example, in a study linking social exchange theory to organisational
outcomes of safety and accidents, the authors deal with a limited sample size and SEM
analysis (Hofmann, 1999). They limit parameter estimation and the numbers of core
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constructs. They argue however that the model would benefit from a wider variety
of variables to provide a richer approximation of the nomological network. They also
suggest that the small sample size for the path analysis results from the primary linking
unit, in this case, group leaders. This group provides a key means of a link between
management and employees, and the result is albeit a small sample size, but one that
allows research on a crucial issue that has practical implications for organisations.
Klein, Conn and Sorra (2001) used a unit number of 28, from an employee response
sample of 1219, with the average number of responses from each unit of 31. Six
constructs were captured for the path model analysis. Similarly, in a study of employee
reports of customer satisfaction with customer-server interactions (Susskind, Kacmar,
and Borchgrevink, 2003), a unit size of 26, with 390 responses from employees and 269
responses from customers, was used to estimate a model with 5 constructs. In yet
another study, 652 individuals working in 51 teams, assessed at team level 9 constructs,
underpinned by measures assessed at the team level to ensure conformity to the level of
the theory (Barrick, 1998, Stewart, Neubert, and Mount, 1998).
Note that the order of the construct definitions presented below follow the order of the
item progression on the survey instrument presented to respondents. For consistency,
the discussion of the development and testing of the measures, and the factor loadings
and item source, are presented in this sequence. (See Table 8.5 for items relating to
employees Table 8.6 for items relating to customers).
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Table 8.4 Construct definitions Direct leadership support
The acts of leadership and management practice by the immediate supervisor that signal support and consideration of customer contact employees.
Senior leadership support
The behaviours and attitudes that are visible to employees throughout the organisation and that communicate and direct the overall strategies and values of the organisation.
Work facilitation resources
The organisational and job conditions that enhance or inhibit task performance including the physical, technical and information resources that facilitate customer-oriented service delivery.
Management customer orientation
The philosophy implied by the policies, procedures, and goals of management, that support the set of beliefs that puts the customer’s interests first, so that the values and beliefs of the organisation reinforce this customer focus.
Service climate The customer contact employees’ perceptions that practices and procedures are in place to facilitate the delivery of excellent service, and that management supports, expects and rewards excellent service.
Employee empowerment
The state where customer contact employees have the discretion to make day-to-day decisions about job-related activities and processes, and can influence organisational policies that relate to their workplace, can use their judgment without fear of punishment.
Behaviour-based evaluation
The perception customer contact employees have that they are rewarded on the basis of their performance in regard to the organisation’s goals, and that they receive constructive performance feedback and recognition for organisational contributions, in a manner that encourages and supports employees in their quest to achieve positive outcomes for themselves and the organisation.
Employee self-efficacy
The degree to which customer contact employees believe they have the skills and ability to perform job-related tasks and can continue to acquire a range of generative skills, to develop and build over time the confidence to effectively perform their role in the organisation.
Job satisfaction The level of satisfaction customer contact employees have with various facets of the job, including compensation, opportunities for advancement, overall satisfaction with the job itself, and overall satisfaction with the organisation as a place to work, including the policies directed towards the employee.
Employee loyalty The level of the customer contact employees’ current commitment to the organisation and intentions to remain with the organisation, their personal affiliation with the organisation, and their advocacy of the organisation to others.
Perceived service quality
Customer perceptions of the organisation’s overall performance, overall performance at the interaction level and overall perception of the quality of service, based on evaluations of attributes of the service itself, the delivery process and the organisation.
Customer loyalty The level of the customer-stated current commitment to the organisation, intentions to remain with the organisation, intentions to expand service usage, and advocacy of the organisation to others.
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The following section discusses specific issues in relation to the development of the
measures for each construct.
8.9 Developing and testing the measures
All items and factor loadings are provided later in Chapter Eight in Table 8.5 for items
relating to employees, and in Table 8.6 for items relating to customers.
Where possible, existing scales were used or adapted to operationalise the constructs.
For the senior leadership support constructs, a pool of items were developed from the
marketing, management, and applied psychology literature. The scales were constructed
using items to reflect the dimensions of the constructs. The practice of adapting
measures from existing scales, or developing new measures from the literature, is well
established (Sarin and Mahajan 2001), provided that the new scales are carefully tested
(Byrne 1998; Kelloway 1998; Kline 1998).
All scales in this questionnaire were first subjected to single-factor model analysis, in the
form of a CFA. The measurement model was then tested using CFA and loadings and
correlations inspected. In the case where intercorrelations were deemed somewhat high,
the single factor models for those constructs were compared to competing single factor
models, using systematic substitution of items, to check that the scale as developed was
the best fitted model.
Thus within the development of the scales, theoretical and statistical considerations
were incorporated (Anderson and Gerbing 1988). That is, due consideration was given
to issues of content, discriminant and convergent construct validity. In particular,
specific attention was given to the theoretical development of the measurement model.
When factor loadings were low, if the item in question was deemed to be integral to the
construct, and as long as the loadings exceeded 0.45, they were included in the single
factor model and thus in the survey instrument.
The following section addresses specific issues with each measure.
8.10 Direct leadership support
For this study, direct leadership support is a measure of employees’ positive perceptions
of and overall satisfaction with, the acts of leadership and management practice by their
immediate supervisor that signal support and consideration. The direct leadership
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support construct and its measures were adapted from Schneider, Parkington and
Buxton (1980). These items focus on direct managerial function within individual bank
branches. The scale includes a global measure of satisfaction with the direct supervision
provided at the branch level (Jaworski and Kohli 1991).
8.11 Senior leadership support
Senior leadership support is operationalised as employees’ positive perceptions of the
behaviours and attitudes that are visible to employees throughout the organisation that
communicate and direct the overall strategies and values of the organisation. No
suitable scale existed for this construct. The items were created to operationalise the
definition of senior leadership support from the extant literature (Katz and Kahn 1978;
Schneider and Bowen 1985; Schneider, White, and Paul 1998). The scale also includes a
global measure of satisfaction with the organisation’s leaders (Jaworski and Kohli 1991).
8.12 Work facilitation
The work facilitation resources construct is operationalised as employee perceptions of
the availability of the physical, technical and information resources that facilitate
customer-oriented service delivery. The work facilitation resources measures are
adapted directly from the items in the Work Facilitation component of the Foundation
Issues Scales used by Schneider, White and Paul (1998) and Schneider, Wheeler and Cox
(1992), and from Passion for Service themes (Schneider, Wheeler, and Cox 1992).
8.13 Management customer orientation
Here, management customer orientation is measured as employee perceptions of the
level of the degree to which management fosters a customer orientation. Management
customer orientation is the philosophy implied by the policies, procedures, and goals of
management, that support the set of beliefs that puts the customer’s interests first, so
that the values and beliefs of the organisation reinforce this customer focus. The
management customer orientation construct and measures are developed from two
perspectives, that of Narver and Slater (1990) and of Schneider, White and Paul (1998).
The items used are directly adapted from the two scales. From the Customer
Orientation scale (Narver and Slater 1990) come the dimensions of satisfying customer
needs and requirements, commitment to serving customer needs, and the understanding
of customers’ needs. From the Customer Orientation Scale (Schneider, White, and Paul
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1998) come the dimensions and measures related to managing changes that affect
customers, and planning means to improve customer satisfactions.
8.14 Service climate
A service climate rests on the way rewards and routines within the organisation are
related to the provision of service, and are supported by management actions and
attitudes. For the purpose of this study, perceived service climate is measured as the
degree to which employees perceive that practices and procedures are in place to
facilitate the delivery of excellent service, and that management supports, expects and
rewards excellent service. The service climate construct and items were developed from
the Schneider, White and Paul (1998) Global Service Climate and internal service
measures.
8.15 Employee empowerment
In this study employee empowerment is operationalised as employee perceptions that
they have the discretion to make day-to-day decisions about job-related activities and
processes, can influence organisational policies that relate to their workplace, and can
use their judgment without fear of punishment. Two of the items in the study were
adapted from those used by Hartline and Ferrell (1996), who measured the degree to
which managers believed they used empowerment controls in the workplace. A number
of the items originally used in the Hartline and Ferrell study did not load well on the
construct. To ensure that the dimensions of the construct were measured in this study,
items were included that emphasised the risk without punishment and policy
implementation dimensions of the construct. These items were adapted from the
literature (Churchill, Ford, and Walker 1976; Lawler 1976).
8.16 Behaviour-based evaluation
Behaviour based evaluation is operationalised as employee perceptions that they are
rewarded on the basis of their performance, and that they receive constructive
performance feedback, and recognition for organisational contributions. The items
were adapted from the contingent approving behaviour, achievement oriented
behaviour, and positive reinforcement rewards variables from the Supervisory
Behaviour Instrument (Kohli 1985).
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8.17 Employee self-efficacy
In the current study, employee self-efficacy is captured as a measure of the degree to
which customer contact employees believe they have the skills and ability to perform in
their current role, and that they can continue to acquire skills, which includes the
confidence and ability to do so, and have perceptions that the organisation supports this
development. This definition was developed from the extensive research and
conceptual development provided by Bandura, Gist, and Hartline and Ferrell, among
others (Bandura 1997; Bandura and Jourden 1991; Gist and Mitchell 1992; Hartline and
Ferrell 1996). The definition of the construct was largely based on that developed by
Hartline and Ferrell (1996), who however, did not find strong support in their
confirmatory factor analysis for several of their measures associated with this definition.
The operationalisation in the current study is developed by reworking the measures used
by Hartline and Ferrell (1996), and careful consideration of the various dimensions of
the construct. Bandura (1997) suggests that self-efficacy can include organisational
support, learning efficacy and general feelings of self-efficacy that are based on the
ability to acquire and apply generative skills. The items are developed to more directly
measure these dimensions of self-efficacy.
8.18 Job satisfaction
The job satisfaction construct is operationalised to capture employees’ level of
satisfaction with various facets of the job, including compensation, opportunities for
advancement, overall satisfaction with the job itself, and overall satisfaction with the
organisation as a place to work, including the policies directed towards the employee.
The satisfaction with the organisation’s policies, job facets, advancement, compensation
and overall job satisfaction items were adapted from the measures developed by
Hartline and Ferrell (1996) to capture the employee job satisfaction construct. The
satisfaction with the organisation’s policies item was further defined in the context of
the importance of the impact of the organisation’s policies on job satisfaction
(Eisenberger, Fasolo, and Davis-LaMastro 1990; Van Dyne, Graham, and Dienesch
1994). The overall satisfaction with the organisation item was adapted from
Bettencourt, Meuter and Gwinner (2001).
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8.19 Employee loyalty
The employee loyalty construct is defined as a measure of the level of customer contact
employees’ current commitment to the organisation and intentions to remain with the
organisation, their personal affiliation with the organisation, and their advocacy of the
organisation to others.
The measures used to capture these dimensions of employee loyalty are adapted from
the loyalty construct of the Service-Oriented Citizenship Indicators Scale (Bettencourt,
Gwinner, and Meuter 2001), that was developed from similar measures (Moorman and
Blakely 1995; Van Dyne, Graham, and Dienesch 1994), which captured current
commitment, personal affiliation, and advocacy to others, while the intentions to remain
with the organisation dimension item was developed from the Quitting Intent scale
(Babin and Boles 1998) and the Turnover Intentions Scale items (Singh, Verbeke, and
Rhoads 1996). These items were adapted to express relevance to employees of the
bank.
8.20 Perceived service quality
The items were selected to capture customer perceptions of the organisation’s overall
performance, overall performance at the interaction level and overall perception of the
quality of service, based on evaluations of attributes of the service itself, the delivery
process and the organisation. The set of items for the study were directly adapted from
the measures used to capture overall performance of the bank (Brady and Cronin 2001;
Parasuraman, Zeithaml, and Berry 1988; Schneider, White, and Paul 1998), overall
perceptions of the performance on the attributes of the service delivery (Brady and
Cronin 2001; Parasuraman, Zeithaml, and Berry 1988; Schneider, White, and Paul 1998),
and perceptions of the overall quality of service at the bank (Brady and Cronin 2001;
Cronin and Taylor 1992; Parasuraman, Zeithaml, and Berry 1988; Schneider,
Parkington, and Buxton 1980).
8.21 Customer loyalty
The measures were designed to capture customer-stated intentions to remain with the
bank, intentions to expand service usage with the bank, and advocacy of the bank to
others. The measures were directly adapted from the loyalty dimension of the
Behavioural-Intentions Battery (Zeithaml, Berry, and Parasuraman 1996), and modified
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to reflect the current context, banking services. Consideration was also given to the
Ganesh, Arnold, and Reynolds (2000) classification of active and passive loyalty.
8.22 Summary of the measure development and measure assessment process
The measures were developed from the literature so that they accurately represented the
construct to be operationalised. The measurement model using the employee data was
run as a confirmatory factor analysis with 44 items to assess ten latent constructs. The
model for customer data was run with seven items to assess two constructs. The results
for the confirmatory factor analyses are reported in Table 8.5 for the employee
instrument measures and Table 8.6 for the customer instrument measures.
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Table 8.5 Employee scale and measures, factor loadings and item source: confirmatory factor analysis results. Employee data (n = 18,821)
Scale and measures Factor loading
Source
Direct leadership support
‘Refers to the person/s to whom you directly report’
Adapted from:
The person I report to does a good job of communicating plans to those who must implement them
0.80 Managerial function. Schneider, Parkington and Buxton 1980
The person I report to listens to my suggestions and seriously considers them
0.84 Managerial function. Schneider, Parkington and Buxton 1980
The person I report to effectively utilizes the differences between employees within my work group
0.83 Managerial function. Schneider, Parkington and Buxton 1980
All in all, I am satisfied with the person I report to
0.90 Satisfaction with supervisor. Jaworski and Kohli 1991
Senior leadership support
‘As demonstrated by the VP(s) and above in your business unit’
Adapted from:
The BANK does a good job of communicating its strategy to its employees
0.46 Global service climate. Schneider, White and Paul 1998
Our leaders demonstrate the organisation’s values consistently
0.74 Measure developed from Katz and Kahn 1978
Our leaders keep their commitments to employees
0.80 Measure developed from Katz and Kahn 1978
Our leaders help people cope constructively with ambiguity and uncertainty
0.78 Measure developed from Katz and Kahn 1978
Our leaders can successfully make the changes needed to keep this organisation moving in the right direction
0.78 Measure developed from Katz and Kahn 1978
All in all, I am satisfied with our leaders 0.87 Satisfaction with supervisor. Jaworski and Kohli 1991
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Work facilitation resources Adapted from:
I have enough relevant information to perform very effectively.
0.64 Work facilitation. Schneider, White and Paul 1998
I have enough appropriate technology to perform very effectively.
0.62 Work facilitation. Schneider, White and Paul 1998
I have the appropriate financial resources to perform effectively.
0.61 Availability of budget resources. Schneider, Wheeler and Cox 1992
I have an appropriate work environment (e.g. physical conditions of my work location) to perform very effectively
0.51 Office conditions and facilities. Schneider, Wheeler and Cox 1992
Management customer orientation Adapted from:
We do a good job of anticipating customer needs and requirements
0.68 Customer orientation. Narver and Slater 1990
In this organisation, we keep our commitment to customers
0.75 Customer orientation. Narver and Slater 1990
We are managing the rapid pace of change in a way that preserves good customer relationships
0.76 Customer orientation. Schneider, White and Paul 1998
We are utilizing the full potential of technology to satisfy our customers
0.50 Customer orientation. Schneider, White and Paul 1998
We are successfully changing our focus from product sales to customer needs
0.64 Customer orientation. Narver and Slater 1990
Service climate Adapted from:
Overall, this organisation is focused on providing customers with excellent service
0.66 Global Service Climate. Schneider, White and Paul 1998
Our leaders inspire people in the organisation to strive for excellent performance
0.69 Global Service Climate. Schneider, White and Paul 1998
Working together in a common effort with other departments/work units to meet customer needs is a norm in this organisation
0.50 Foundation issues – interdepartmental service. Schneider, White and Paul 1998
In our organisation, most rewards are based on performance
0.46 Global Service Climate Schneider, White and Paul 1998
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Employee empowerment Adapted from:
I understand what decisions I can make myself and which require approval from others
0.59 Empowerment. Hartline and Ferrell 1996
I am encouraged to take well-thought-out risk without fear of reprisal
0.76 Self-control. Lawler 1976
I have the authority I need to carry out my job responsibilities
0.73 Empowerment. Hartline and Ferrell 1996
When significant changes occur in my unit, I have an opportunity to influence how best to implement them
0.66 Policy implementation. Churchill 1976
Behaviour-based evaluation Adapted from:
My performance is reviewed in a way that helps me improve it
0.60 Achievement oriented evaluation. Kohli 1985
Performance feedback. Schneider and Bowen 1993
If I do my job especially well I will be recognized for my contribution
0.83 Contingent approving evaluation. Kohli 1985
If I do my job especially well I will receive financial rewards
0.77 Positive reinforcement rewards. Kohli 1985; Schneider and Bowen 1993
If I do my job especially well I will be more likely to obtain desirable job assignments
0.79 Positive reinforcement rewards. Kohli 1985; Schneider and Bowen 1993
Employee self-efficacy Adapted from:
I have the necessary skills and abilities to do my job well
0.48 Employee self-efficacy. Hartline and Ferrell 1996
I know what skills and abilities I need to be effective in the future
0.57 Employee self-efficacy. Bandura 1997
The organisation provides me with a clear picture of how to acquire the skills and knowledge I need to perform
0.78 Organisational support for self-efficacy. Bandura 1997
The organisation provides me with appropriate learning opportunities for my professional growth
0.77 Learning efficacy. Bandura 1997
I can find the time I need to further develop my skills and abilities
0.52 Organisational support for self-efficacy. Bandura 1997
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Job satisfaction Adapted from:
Respect for the individual s reflected in decisions made in our organisation
0.62 Satisfaction with organisational policies, respect for individuals. Hartline and Ferrell 1996; Van Dyne et al. 1994.
I am compensated fairly compared to similar positions in the marketplace
0.49 Job satisfaction. Hartline and Ferrell 1996
I have sufficient opportunity to realize my career goals in this organisation
0.61 Satisfaction with growth and development opportunities. Bettencourt, Gwinner and Meuter 2001; Hartline and Ferrell 1996
All in all, I am satisfied with my current job
0.69 Overall job satisfaction. Hartline and Ferrell 1996; Netemeyer, Boles, McKee, and McMurrian 1997
All in all, I am satisfied with this organisation as a place to work
0.84 Satisfaction with the organisation. Bettencourt, Gwinner and Meuter 2001
Employee loyalty Adapted from:
I rarely think about leaving to go to a different company
0.67 Quitting intent. Babin and Boles 1998; Singh, Verbeke, and Rhoads 1996
I am proud to be identified with this organisation
0.78 Employee loyalty. Moorman and Blakely 1995; Van Dyne, Graham, and Dienesch 1994
I would recommend this organisation to others as a good place to work
0.87 Employee loyalty. Bettencourt, Gwinner and Meuter 2001; Moorman and Blakely 1995; Van Dyne, Graham, and Dienesch 1994
I would recommend this organisation to others as a good place to do business
0.76 Employee loyalty. Bettencourt, Gwinner and Meuter 2001; Moorman and Blakely 1995; Van Dyne, Graham, and Dienesch 1994
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
Figure 9.1 presents the significant relationships in the modified structural model based
on specification searches.
Figure 9.1 Modified model of the antecedents of the employee loyalty-customer loyalty relationship, based on specification searches – significant parameters
only
Consideration is given to the goodness of fit indices followed by a discussion of the
relationships between the constructs in the modified model. Finally, the modified
model is discussed in terms of substantive theory.
9.4 Overview of the significant relationships in the modified model
Earlier it is was established that a post hoc analysis, or specification search, should only
proceed when the modification is substantively meaningful and the respecified model
does not lead to an overfitted model (Jöreskog and Sörbom 1993). Respecification
should only take place within the context of substantive theory (Byrne 1998). There are
many situations where including additional parameters makes theoretical sense and
therefore should be included in the model (Byrne 1998) if the overall goal to find a
parsimonious model that still fits the data reasonable well is achieved (Kline 1998).
Non-significant paths were dropped from the path model (Kline 1998). (Another
iteration of the model was run after this post hoc analysis, with the empowerment-service
climate relationship left free, because of the theoretical importance of this relationship.
EmployeeSelf-Efficacy
JobSatisfaction
BehaviourBased
Evaluation
CustomerLoyalty
ServiceClimate
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomerOrientation
EmployeeLoyalty
ServiceQuality
Empowerment
0.33
0.49
0.75 0.40
0.31
0.68
0.22
0.23
0.46
0.55
0.32
0.38
0.32
0.25
0.33
0.31
0.31
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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.
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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
EmployeeSelf-Efficacy
Employee Attitudes
CustomerLoyalty
ServiceQuality
Customer Beliefs
Employee-CustomerInterface
EmployeeSelf-Efficacy
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
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than the quality of the interaction with customer contact employees. The findings of
Crosby and Stevens (1987) support this conclusion. That is, some segments of buyers
may generalise their feelings about customer-contact employees to the core service.
However, despite the relationship customers may have with customer contact
employees or other representatives of the organisation, the perception regarding the
quality of the core service is a separate and crucial issue and is not directly affected by
these relationships (Crosby and Stephens 1987).
The relationship between employee perceptions of self-efficacy and perceived service
quality was not significant in the present context. This suggests that employee attitudes
about their abilities to provide customer-oriented service encounters and employee
confidence in those abilities, as they are perceived by customers, are not as important to
customer perceptions of service quality as are customer perceptions of the functional
quality aspects of the service. Bitner and Hubbert (1994) suggest that customers are
able to distinguish between the quality of the interaction with the service provider, the
quality of the core service, and the overall quality of the organisation.
Thus although previous research indicates that self-efficacy and job satisfaction increase
service quality, these relationships were not found to be significant in the current
research. The lack of a self-efficacy-service quality and job satisfaction-service quality
relationship could be due to the ability of other constructs in the model (largely service
climate) to predict service quality better than self-efficacy and job satisfaction. In
particular, the influence of the service climate may suppress the effects of self-efficacy
and job satisfaction on service quality.
In conclusion, in the relationships between employees and customers that occur at the
employee-customer interface, the findings suggest that there is in fact a positive
relationship between employee loyalty and customer loyalty in service organisations.
Customer perceptions of service quality also positively impact the level of customer
loyalty within service organisations.
The non-significant relationships in the path model between job satisfaction and service
quality, and between employee self-efficacy and service quality, suggest that employee
attitudes about their current and potential skills and abilities in relation to their role, and
their level of job satisfaction, do not directly influence customer perceptions of service
quality. The implication is that customers primarily take their service quality cues from
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the functional aspects of service rather than from the attitudes of the customer contact
employees towards their role and the organisation.
10.2 The service climate-customer interface relationships
Strong support exists for the relationship between employee perceptions of the service
climate and customer perceptions of the service quality in both models. That is,
employee perceptions that a favourable service climate existed at the bank were strongly
positively related to customer perceptions of quality service.
It appears from the results that when customers considered the bank’s service quality,
they derived their service quality perceptions from the service climate to a greater degree
than they directly made their judgements about service quality based on an assessment
of the bank’s customer contact employees’ job satisfaction and self-efficacy. This
suggests that customers take many of their service quality cues from the service climate
of the organisation. That is, consistent with previous research, when employees
perceive that the organisation has in place practices and systems that reward, support
and create expectations of customer-oriented service, customers have perceptions that
the service quality is high (Schneider and Bowen 1985; Schneider, Parkington, and
Buxton 1980; Schneider, White, and Paul 1998).
This positive service climate exists when employees perceive that the organisation has a
fundamental set of values that signals that service quality is an organisational objective,
and that the organisation has made implicit and explicit choices that attention to
customer needs and expectations is an organisational imperative (Schneider 1990).
In conclusion, the study suggests that an organisation’s service climate influences service
quality perceptions by signalling to employees and customers that management has as a
primary objective customer-oriented outcomes.
That customers can differentiate among core service, the organisation’s implicit and
explicit service goals, and the degree to which the organisation provides the necessary
resources for service delivery, could be even more pertinent after examination of the
relationships in the modified model that impact service quality (Figure 10.2). There was
a significant relationship between work facilitation resources and service quality,
suggesting that customers indeed make their service quality evaluations via these various
attributions, including service performance and overall service quality, the service
215
environment, and the provision and support provided by the organisation for service
delivery. That is, consistent with previous research, if management provides the
necessary resources for quality service [Schneider, 1985 #51], and they foster a
favourable service climate that is evident to both customers and employees, then
customers will report higher levels of service quality.
Figure 10.2 Comparison of the parameter estimates at the service climate-
customer interface in the path and modified models
10.3 The employee-role interface relationships
The hypothesised relationships between employee self-efficacy and job satisfaction, and
job satisfaction and employee loyalty, were supported, both in the path model and the
modified model (Figure 10.3). That is, when employees perceive that they have the
skills and abilities to do their jobs and to continue to develop their capabilities, they are
more likely to be satisfied in that job. Overall job satisfaction had a direct and strong
positive relationship with employee loyalty, suggesting that employees who were
satisfied with their jobs and the organisation as a place to work were more likely to
remain with the bank.
Modified modelPath model
ServiceQuality
CustomerBeliefs
ServiceEnvironment Service Climate-
Customer Interface
ServiceClimate
0.63
CustomerLoyalty
ServiceQuality
CustomerBeliefs
ServiceEnvironment Service Climate-
Customer Interface
ServiceClimate
0.31
CustomerLoyalty
0.33Work
FacilitationResources
216
Figure 10.3 Comparison of the parameter estimates at the employee-role interface in the path and modified models
The conclusion is that when employees are satisfied with their role within an
organisation, they are more likely to remain with that organisation, and in turn,
customers are more likely to remain actively loyal. The implication is that customers
experience service quality directly as a result of the service climate-service quality-
customer interface, and indirectly experience the benefits of employee role satisfaction
through the influence of those satisfaction on employee loyalty and its relationship with
customer loyalty.
It would appear that rather than the premise that employee efficacy and satisfaction
directly influence customer perceptions of service quality, in fact self-efficacy and job
satisfaction directly influence the level of employee loyalty and thus indirectly influence
customer loyalty. That is, when employees feel that they have the confidence and
abilities to perform their jobs well, they are more likely to be satisfied in their jobs.
These attitudes and affective states influence their level of loyalty towards the
organisation. Employee self-efficacy and employee job satisfaction lead to behaviours
and attitudes by employees that include commitment to the organisation, identification
with the organisation, and advocacy of the organisation to others (Babin and Boles
1998; Bettencourt, Gwinner, and Meuter 2001; Moorman and Blakely 1995; Mowday,
Steers, and Porter 1979; Van Dyne, Graham, and Dienesch 1994). These behaviours
Modified modelPath model
Employee Attitudes
0.23
0.55
EmployeeLoyalty
EmployeeSelf-Efficacy
Employee Attitudes
EmployeeSelf-Efficacy
JobSatisfaction
0.29
0.81
EmployeeLoyalty
JobSatisfaction
Employee-Role
Interface
Employee-Role
Interface
217
and attitudes are perceived by customers as a result of their interactions with customer
contact employees during service encounters over time (Czepiel and Gilmore 1987;
Gremler and Brown 1999) and customers respond to these perceptions by themselves
experiencing increased levels of affective commitment to the organisation.
The experience of functional service quality, as a result of the cues from the service
climate and the employees’ performance of the service, influences customer loyalty
directly. The employee satisfactions and attitudes about their abilities to perform their
role and their satisfactions with the role and the organisation are manifest in employees’
loyalty towards the organisation, which in turn positively influences customer loyalty.
In conclusion, the study suggests that employee role attitudes positively influence their
loyalty towards service organisations.
10.4 The managerial practices-service climate interface relationships in the path and modified models
Managerial practices consist of both support and control practices. In the path model,
of the support practices, only the relationship between employee perceptions of the
level of senior leadership support and a favourable service climate was significant
(Figure 10.4). Of the managerial control practices, the significant relationships were
those between employee perceptions of management customer orientation and service
climate, and between behaviour-based evaluation and the organisation’s service climate.
That perceptions of direct leadership support did not foster favourable service climate
perceptions, yet those of senior leadership support did, suggests that the function of
senior leaders to formulate and communicate strategy and to act as role models that
communicate the organisation’s values and service imperatives to the organisation’s
members and customers (Katz and Kahn 1978) is more influential from the employees’
viewpoint for creating a favourable service climate. Perhaps the role of direct
supervisors of providing feedback, sharing information, planning, and organising and
facilitating service encounters in the employee-customer environment forms a more
mundane set of activities within the direct-leader-customer contact employee
relationship. Customer-contact employees may take their service orientation cues from
those of the organisation’s senior leaders and from the more specific sense of
management customer orientation. These may supersede the role of the direct leaders
218
to create part of the foundation conditions that cause the perceptions of a favourable
service climate.
Figure 10.4 Comparison of the parameter estimates at the managerial practices-
service climate interface in the path and modified models, including all tested relationships
A more surprising outcome was the lack of support for the work facilitation resources-
service climate link. Considering support from the literature and an intuitive sense of
organisational functioning, one would strongly expect that the provision of service-
related resources would form an integral part of the foundation conditions for a
favourable climate for service. By providing resources for customer contact employees,
the assumption is that management is providing the underpinning for the perceptions
employees develop that a positive service climate is being supported (Schneider 1990).
Speculation suggests that a more complex set of relationships might exist that explains
more accurately the influences of the foundation conditions. In support of this
speculation, the modified model suggested that the provision of work facilitation
resources is directly related to customer perceptions of service quality (Figure 10.2).
Of the managerial support practices, only employee perceptions of the level of senior
leadership support were positively related to employee perceptions that conditions were
in place that supported employee work and service quality in the organisation and thus a
Supp
ort
Con
trol
ManagerialPractices
ServiceEnvironment
Managerial Practices-ServiceClimate Interface
BehaviourBased
Evaluation
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomer
Orientation
ServiceClimate
Empowerment
N/S
0.16
N/S
0.49
N/S
0.36
Supp
ort
Con
trol
ManagerialPractices
ServiceEnvironment
Managerial Practices-ServiceClimate Interface
BehaviourBased
Evaluation
WorkFacilitationResources
DirectLeadership
Support
SeniorLeadership
Support
ManagementCustomer
Orientation
ServiceClimate
N/S
0.49
0.40
Modified modelPath model
Empowerment
219
favourable service climate. Of the managerial control practices, only employee
perceptions of the degree of management customer orientation and the incidence of
behaviour-based evaluation were positively related to perceptions of a positive service
climate. That is, employee empowerment was not found to influence perceptions of the
nature of the service climate.
In the modified model, senior leadership support was not significantly related to service
climate. Consistent with the path model, management customer orientation and
behaviour-based evaluation influenced employee perceptions of the bank’s service
climate. The lack of significance of several of the hypothesised relationships between
managerial practices and the bank’s service climate, and the complex set of relationships
that were significant in the modified model, suggest that the direction of influence of
the set of managerial drivers tested in the study requires further investigation.
10.5 The managerial control practices-employee interface relationships in the path model and the influence of the interactions between managerial support and control practices in the modified model
The comparison of the fit indices of the two models indicate a less than adequate fit for
the hypothesised model. The intriguing results in relation to the managerial practices
suggest a more detailed examination of the relationship between the managerial support
and control practices, and their impact on the attitudes of the bank’s employees.
In the path model, management customer orientation was found to directly influence
the bank employees’ sense of empowerment and their perceptions of the incidence of
behaviour-based evaluation. In turn, empowerment was significantly related to
employee self-efficacy and behaviour-based evaluation to job satisfaction (Figure 10.5).
That empowerment was not significantly related to employee perceptions of a
favourable service climate is puzzling. Empowerment is thought to assist in the
dissemination of a customer-oriented strategy through increased employee flexibility
and adaptation and reduced decision times, because empowered employees can more
effectively meet customers’ needs (Hartline, Maxham, and McKee 2000). In the current
research however, although results of the path model indicated that when employees
perceived that management was customer-oriented, employees felt empowered, in the
model this relationship did not influence employee perceptions that a favourable service
climate existed.
220
Figure 10.5 Comparison of the parameter estimates at the managerial practices-employee interface in the path and modified models – all tested relationships shown
Employee Attitudes
Con
trol
Managerial Control Practices-Employee Interface
BehaviourBased
Evaluation
ManagementCustomerOrientation
Empowerment
EmployeeSelf-Efficacy
JobSatisfaction
0.50
0.59
0.360.77
0.47
EmployeeLoyalty
ManagerialPractices
Path model
Modified model
Supp
ort
Con
trol
Managerial Practices
Employee Att itudes
Managerial Support and ControlPractices-Employee Interface
BehaviourBased
Evaluat ion
Empowerment
EmployeeSelf-Efficacy
JobSatisfact ion
0.33
0.45
0.750.46
0.31
EmployeeLoyalty
0.31
0.32
0.32
0.25
ManagementCustomerOrientation
WorkFacilitat ionResources
SeniorLeadership
Support
DirectLeadership
Support
0.38 N/SN/S
N/S
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The positive relationship between employee perceptions of empowerment and levels of
self-efficacy suggests that perhaps when managers are customer-oriented, which fosters
employee feelings of empowerment, this state of empowerment manifests itself in terms
of employees’ feelings of competence and confidence in their abilities to perform their
role. In the modified model, although direct and senior leadership support were
significant drivers of employee empowerment perceptions, empowerment did not have
any significant relationship with other factors in the modified model.
While these relationships were not hypothesised in the path model, that direct and
higher level leadership support are positively related to employee empowerment is well
documented in the literature (Linden, Wayne, and Sparrowe 2000). However
empowerment was not found to have further influence in the modified model, in the
presence of the significant relationships in the model. Considerable research highlights
the importance of the empowerment construct in psychological, managerial and
strategic marketing contexts. One suggestion is that because empowerment was
measured from the employees’ perspective, findings may be clouded. Employees may
not feel empowered in the work environment in the sense that empowerment is a state
of independence and autonomy (Kark, Shamir, and Chen 2003). Second, some support
exists for the notion that empowerment is a higher order construct with self-efficacy as
a component of empowerment (Spreitzer 1995; Spreitzer, Kizilos, and Nason 1997).
Third, Spreitzer, Kizilos, and Nason (1997), in their four component operationalisation
of empowerment, found that the self-determination component had limited substantive
effect on job satisfaction, despite the fact that previously Spreitzer (1995) had found
that self-determination had the strongest loading on a second-order empowerment
factor, and that all components were expected to influence job satisfaction. Spreitzer,
Kizilos, and Nason (1997) suggested that ‘the marginal influence of the self-
determination dimension may indicate that having autonomy to do your own thing is
less important than having a sense of meaning (passion), competence (efficacy), and
impact (making a difference) in the workplace’ (697). Other research has suggested that
empowerment, dominated by the competence (self-efficacy) dimension, may result in
higher levels of job satisfaction (Linden, Wayne, and Sparrowe 2000). This fits with the
findings in the present study that self-efficacy exerts a positive influence on job
satisfaction. A possibility is that in the context of the present study, independence and
autonomy are not necessarily work-place attributes that contribute to a more positive
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service climate or lead to higher levels of job satisfaction. In other research contexts
such as the lodging industry, the influence of empowerment has been significant and
positive (Hartline and Ferrell 1996).
The significant relationship between managerial customer orientation and the service
climate and also indirectly through the influence of management customer orientation’s
influence on behaviour-based evaluation, suggests that the role of management
customer orientation in the support of the service climate is substantial. Customer
orientation is fundamental to the formation of a service climate. Previous studies have
suggested that it is a signal to employees that customer concerns are at the centre of the
marketing function (Narver and Slater 1990). When management has a customer
orientation then employees would perceive that they should act in customers’ best
interests and that they would be rewarded for doing so. When employees perceive that
they are rewarded for customer oriented performance then they would also perceive
that the organisation has set in place the conditions that foster a favourable service
climate. The results of the study support this conclusion.
In contrast to the path model, the modified model provides no support for the
relationship between senior leadership support and the organisation’s service climate.
However, the modified model suggests that senior leadership support has direct
relationships with the managerial control practices of employee empowerment and
behaviour-based evaluation, and with employee job satisfaction.
In the modified model, one should consider the significant relationships between senior
leadership support and the managerial control practice of behaviour-based evaluation,
between work facilitation resources and behaviour-based evaluation, and between work
facilitation resources and service quality (Figure 10.5).
These relationships suggest that employees perceive that when the organisation’s leaders
consistently demonstrate the organisation’s values and support employees in their quest
to fulfil organisational goals, employees are more likely to be rewarded on the basis of
their performance and to be recognised for their organisational contributions.
Schneider and Bowen (1993) suggested that in the pursuit of service quality, managers
need to create two related but different climates; a climate for service and a climate for
employee wellbeing. A climate for employee wellbeing serves as a foundation for a
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climate for service (Schneider and Bowen 1993). When management in organisations
makes choices, implicitly or explicitly, to adopt certain practices and procedures and to
reward and support certain behaviours then even implicit goals become clear to the
organisation’s employees (Schneider 1990). These practices and procedures and the
activities that are rewarded and supported play a critical function in organisations.
When management provides for employees, employees will provide for customers
(Schneider and Bowen 1985). When employees believe that the organisation’s practices
and procedures are focused on employee needs, then customers report receiving quality
service (Schneider, Gunnarson, and Niles 1994).
The relationship between management customer orientation and behaviour-based
evaluation was not significant in the modified model. However the relationship
between management customer orientation and a favourable service climate was
significant, along with the relationship between behaviour-based evaluation and a
favourable service climate.
Perhaps in the bank, management support for the facilitation of a climate for service
was signalled by perceptions of customer orientation, while the bank’s leaders
demonstrated leadership per se and communicated the organisation’s values and goals
to employees by implementing policies that demonstrated to employees that rewards
and controls within the organisation operated in concert with these values and goals.
That is, that senior leaders put in place rewards and support when employees performed
in a manner that facilitated organisational outcomes such as customer oriented
beahaviours.
Another signal that supports this conclusion in relation to a climate for employee well-
being is the relationship between work facilitation resources and behaviour-based
evaluation. In Chapter Nine the lack of support for a work facilitation-service climate
relationship was noted with surprise. That employees would perceive that management
supports service provision and thus a service climate by providing appropriate resources
for employees appears a forgone conclusion. However, since a positive relationship was
found in the modified model between work facilitation resources and behaviour-based
evaluation, this suggests that employees perceived that by leaders providing appropriate
service-provision resources, those leaders were signalling to employees that in fact
employee performance was being supported. This in turn supports the perception that
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a favourable service climate exists. When management provided the necessary resources
for employees to perform, and rewarded employees for that performance, then a more
favourable service climate was reported and employees were more satisfied in their jobs.
In the modified model, work facilitation resources were found to influence the bank
employees’ sense of self-efficacy. This suggests that in relation to the bank’s work
facilitation resources, when the employees felt that the necessary resources were
available to them, then those employees were more likely to feel that they could perform
in their roles. Gist and Mitchell (1992) found that factors controlled by organisations,
such as task resources, influence employees’ efficacy beliefs. As an external factor in
relation to the branch, task resources affected self-efficacy indirectly by influencing
performance strategies (Gist and Mitchell 1992). Since individuals have limited
perceived control over external factors, it is important that employees are provided with
the necessary resources.
In the modified model there was a positive relationship between work facilitation
resources and customer perceptions of service quality. Again, rather than influence
service indirectly via the service climate, this suggests that customers also note directly
the cues that management provide in relation to making available necessary resources
for employees to be able to deliver service quality. That is, customers assess separately
the organisation’s service climate and the provision of service facilitation resources
when they form their service quality evaluations. Schneider, Gunnarson and Niles-Jolly
(1994) note that in organisations where employees report that they are well trained and
have appropriate equipment and work-related resources, customers report superior
service. Schneider and Bowen (1993) note that customers make their service quality
evaluations via the service climate which is the source for many of the seemingly
tangential cues that customers experience during the service process. As well,
customers assess the functional aspects of service quality independently of functional
(Grönroos 1990) and relational aspects of service evaluation (Crosby and Stephens
1987).
Also in the modified model, senior leadership was found to significantly influence-
employee job satisfaction. Supportive behaviours by leaders have been found to be
strongly related to job satisfaction (Brown and Peterson 1993) and indirectly to
organisational citizenship behaviours (Podsakoff et al. 2000). That is, research has
225
found that leadership support can affect organisational citizenship behaviours such as
employee loyalty through their effect on job satisfaction (Netemeyer et al. 1997;
Podsakoff et al. 2000). Senior leaders support directly affects employee satisfaction
since senior leaders are active in setting organisational policies. Satisfaction with an
organisation’s values and policies is a component that employees consider when
evaluating their satisfaction with their jobs (Van Dyne, Graham, and Dienesch 1994).
Senior leader support had a significant impact in the model and direct leadership
support had limited influence. Direct leaders are more likely to attend to employees’
socio-emotional needs (Chen and Bliese 2002) while higher level leaders are more likely
to define, clarify and assign organisational roles and to interact with front-line
employees indirectly and less frequently (Katz and Kahn 1978).
A fundamental objective of this research was to investigate the set of managerial
practices that influence employees in their endeavours to provide service for customers
and that influence customer perceptions of service quality. This was based on the
findings by Schneider, White, and Paul (1998) that a set of foundation conditions
support employee work and service quality in organisations. The nature of these
practices and the paths of influence within and through the organisation are crucial
issues in the management of employee and customer loyalty.
The conclusion is that within service organisations employees perceive that sets of
managerial practices relate to supporting employees directly in their roles, and also sets
of managerial practices that relate to supporting the service climate and service quality.
Schneider and Bowen (1993) report that a climate for employee well-being serves as a
foundation for a climate for service. Senior leadership support and work facilitation
resources help build employees perceptions that the organisation is prepared to provide
resources and rewards for employee performance, while management customer
orientation and behaviour-based evaluation systems support the foundation for a
favourable climate for service. Together, work facilitation resources and a favourable
service climate drive customer perceptions of service quality.
Of particular interest here is the role of management customer orientation. Research
suggests that employee commitment is affected by the level of focus managers have on
employees, service quality, and customers (Crosby, Grisaffe, and Marra 1994), so that by
focusing on the employee, managers can reinforce employee loyalty. In fact, Crosby,
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).
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The modified model suggests that when the organisation’s leaders are customer
oriented, then employees are more likely to be loyal. In a sales force setting, Siguaw,
Brown and Widing (1994) found that if a firm is perceived as having a high market
orientation, then the sales force practice a greater customer orientation and express
higher levels of organisational commitment. That is, when employees perceive that an
organisation is focused on customer needs and satisfaction, then the organisation is
known to be striving to support employees and in turn employees are more likely to be
committed to the organisation (Siguaw, Brown, and Widing 1994). When employees
self-report high levels of customer orientation, they are more likely to be committed to
their organizations (Donavan, Brown and Mowen, 2004).
10.6 Conclusion to Chapter Ten
Chapter Ten reviewed the outcomes of the analyses of the path model and a subsequent
modified model. The results of the specification searches suggest that the set of
relationships between the employee-customer interface, the service climate-service
quality and the employee-role interface were supported as in the path model. The
managerial practices-service climate and managerial practices-employee interfaces
outcomes suggest a more complex mechanism by which management influences
employee and customer loyalty in service organisations.
In conclusion, the results suggest that when senior leaders consistently demonstrate the
organisation’s strategies and values, then employees are more likely to feel rewarded for
their customer-oriented performance and are more likely to be satisfied. Thus senior
leadership has an indirect influence on the organisation’s service climate via behaviour-
based evaluation strategies rather than the direct influence on service climate that was
hypothesised.
The results also suggest that work facilitation resources impact directly on employees’
beliefs about their abilities to do their jobs and on customers’ perceptions of the quality
of service received. Rather than having an effect on the organisation’s service climate,
the results from the test of the modified model suggest that customers and employees
directly experience the impact of the organisation’s service provision resources rather
than via their influence on the organisation’s service climate.
228
Finally, the role of management customer orientation appears to be more complex and
far-reaching than at first thought. Crosby, Grisaffe, and Marra (1994) found that the
most important means to achieve employee support of the customer service process
was the organisation's customer focus (Crosby, Grisaffe, and Marra 1994). When
employees perceive that organisations have a employee and customer orientation
demonstrated by a strong commitment to both employees and customers, those
organisations benefit. Customers benefit from this customer orientation because
employees experiences and reactions to management customer orientation result in
desirable employee attitudes and behaviours (Crosby, Grisaffe, and Marra 1994).
A key theoretical contribution of this study was to verify the premise that the same set
of managerial practices positively influences both employee and customer loyalty
intentions. While only a sub-set of the foundation conditions in fact directly influenced
employee perceptions of the service climate, the set of relationships that is significant
suggests that as theorised, the same set of managerial practices that influences employee
perceptions of the service climate also influences customer perceptions of perceived
service quality.
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CHAPTER 11 CONCLUSION AND IMPLICATIONS
11.1 Overview of Chapter Eleven
Chapter Eleven revisits the research objectives and discusses the implications of the
research, the research contributions, and presents the limitations of the study and
suggests future research possibilities.
11.2 Revisiting the research objectives
The first research objective related to the relationship between the level of employee
loyalty and customer loyalty in a service organisation. Clear support was provided for
this relationship. This suggests that managers of service organisations can influence
customer loyalty by focusing organisational resources on actions within the organisation
that will increase employee loyalty. The second research objective examined the
influence of service quality on customer loyalty. The study found that in the banking
context higher levels of service quality led to higher levels of customer loyalty.
The third objective sought to make explicit the impact of employee attitudes on service
quality. In the presence of the service climate-service quality and the employee loyalty-
customer loyalty relationships, employee self-efficacy and employee job satisfaction did
not significantly impact service quality. Employee attitudes towards their role did
however significantly influence employee loyalty which directly contributed to customer
loyalty states.
The fourth research objectives investigated the relationship between the organisation’s
service climate and customer perceptions of service quality. The study provided
support for the hypothesis that a more favourable service climate positively influences
service quality.
The fifth research objective sought to establish the relationship between employee role
attitudes and employee loyalty in service organisations. Employee self-efficacy and
employee job satisfaction were found to be positively related, as were job satisfaction
and employee loyalty.
The balance of the research, to address research objectives six to eight, sought to
explore the impact of the set of managerial practices within service firms that influence
service climate and ultimately employee and customer loyalty. The sixth and seventh
230
research objectives concerned the relationships between managerial practices within the
organisation and the organisation’s service climate and the attitudes that employees
develop in their roles with the organisation. The results of the path model and those
relationships suggested by the modified model based on specifications searches were in
some ways contradictory. The relationships in the path model hypothesised that the
three managerial support practices and the three managerial control practices directly
supported the organisation’s service climate, and that the managerial control practices
influenced employee role attitudes. The results of the path model test suggested that
only senior leadership support, management customer orientation and behaviour-based
evaluation directly influence the nature of the organisation’s service climate. The results
also suggested that management customer orientation influenced both employee
empowerment and the sense that rewards and employee feedback were reviewed in
terms of behaviour-based evaluations. Employee empowerment influenced employee
self-efficacy and behaviour-based evaluation influences job satisfaction. This suggests
that direct leadership support, work facilitation resources and employee empowerment
did not exert significant influence on the organisation’s service climate. The existing
research and an examination of the fit indices of the path model suggest that there could
be a better approximating of the data to the true model. Using these points as support,
a modified model based on specification searches was run using the existing data.
While the modified model can only be classified as exploratory, the suggested
relationships in the model provide some insight into the influence of managerial
practices with service organisations that were not fully explained by the path model.
The modified model supported the findings of the path model in that direct leadership
support did not influence service climate and that overall employee perceptions of
empowerment did not have a strong influence in the model.
Five issues regarding the modified model are of note. The first is that the overall fit
indices of the modified model indicate that it offers a better approximation to the data.
Second, most of the significant relationships in the path model were also supported in
the modified model. Third, the relationships of the managerial practices with the
organisation’s service climate and with employee attitudes to their role in both models
suggest that senior leadership support, management customer orientation and
behaviour-based evaluation are key managerial actions that influence the development
and maintenance of both employee and customer loyalty in service organisations.
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-
and Quinn 1998). The second set contributed the set of relationships that support an
organisational climate and influence service quality (Schneider and Bowen 1985;
Schneider, Parkington, and Buxton 1980; Schneider, White, and Paul 1998), potentially
influencing customer loyalty (Bitner 1990; Boulding et al. 1993; Zeithaml, Berry, and
Parasuraman 1996). The third set of relationships concerned the influence of
managerial practices on employee attitudes (Hartline and Ferrell 1996; Hartline,
Maxham, and McKee 2000; Jaworski and Kohli 1991; Katz and Kahn 1978). The
fourth set of relationships related to the interaction between employees and customers
in the delivery of quality service in organisations (Crosby, Grisaffe, and Marra 1994;
Crosby and Stephens 1987; Grönroos 1990; Hartline and Ferrell 1996). The final
proposition of the study was the set of hypotheses that related to the organisational
dynamics that drive organisational success (Fornell et al. 1996; Jaworski, Stathalopoulos,
and Kristnan 1993; Narver and Slater 1990; Rucci, Kirn, and Quinn 1998; Rust and
Zahorik 1993; Siguaw, Brown, and Widing 1994).
The current research is the first study that simultaneously and comprehensively tested
these sets of relationships. In such a theoretically comprehensive model, a more
realistic approximation of the true model can be expected. Thus, even though the
modified model results are considered to be in the realm of exploratory research, the
modified model was built on a strong theoretical background, AND the results of the
findings of the hypothesised model. The modified model grew out of the path model
results, guided by a balance of theory and empirical support.
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11.3 Conclusions
In the light of research objectives, the path model results, and the issues relating to the
exploratory modified model, the following conclusions can be drawn.
While the path model suggests that senior leadership support acts directly on the
organisation’s service climate, the modified model suggests that senior leadership
support indirectly influences the organisation’s service climate via its influence on
behaviour-based evaluation. Previous indicates that it is the higher level leaders who
create strategy and perpetuate organisational values and direct the achievement of
organisational goals and practices (Schneider and Bowen 1985; Schneider, White, and
Paul 1998). Senior managers create climates within organisations and act in ways that
lead employees to make the kinds of decisions that result in commitment to senior
management’s values (Schneider, Gunnarson, and Niles 1994). Perceptions of senior
leadership rest on the belief by employees that their managers make and keep
commitments in the long-term to support both employees and uphold the
organisation’s values (Katz and Kahn 1978).
Given that managerial actions influence employee responses (Singh 1993) and senior
leaders formulate and implement the organisation-wide service strategies and
organisational structures (Katz and Kahn 1978) that develop and guide the customer
orientation of service firms, then the relationship between senior leadership support and
behaviour-based evaluation is plausible.
Behaviour-based evaluation includes the employee’s perceptions of the organisation’s
expectations of them in regard to the organisation’s service orientation, and the degree
to which those customer-oriented behaviours are rewarded (Schneider and Bowen
1993). The use of behaviour-based systems encourages employees to provide service
that fits with customer perceptions of quality service (Zeithaml, Berry, and Parasuraman
1988). In effect, management seeks to exercise control over employee behaviour by
encouraging and rewarding behaviours that are oriented towards supporting
organisational goals (Kohli 1985).
In the context of this explanation and the strong relationship between behaviour-based
evaluation and the bank’s service climate, then the logic is that senior management guide
and develop organisational goals and values, and also create the mechanisms that
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encourage and reward employees when they perform in accord with those goals and
values.
That work facilitation resources have a direct relationship with customer perceptions of
service quality and with employee perceptions of the use of behaviour-based evaluation
and its influence on employee self-efficacy is not surprising. Schneider, Gunnarson and
Niles-Jolly (1994) note that in organisations where employees report that they are well
trained and have appropriate equipment and work-related resources, customers report
superior service. Schneider and Bowen (1993) report that together work facilitation
resources and the organisation’s service climate drive customer perceptions of service
quality. When employees perceive they have the necessary resources to perform in their
roles, they are more likely to believe that they are able to perform those roles (Gist and
Mitchell 1992). The conclusion is that when management provides the necessary
resources for employees to perform, then employees perceive they are given the
resources they need to perform and feel they are able to perform in their jobs. This
leads to perceptions of being rewarded on the basis of supporting organisational goals
and of employees believing that they are able to perform in their roles, and do so
effectively. Customers also perceive that management has provided the necessary
resources required for quality service and that the employees who are supporting them
are engaging in customer-oriented behaviours.
The extended influence of managerial customer orientation suggested by the modified
model is also insightful. Siguaw, Brown and Widing (1994) found that employees were
more committed to their organisation when they perceived that management was
focused on customer needs and satisfaction. This communicates to employees that the
organisation is striving to support employees. Management customer orientation
supports the development of a favourable service climate because it facilities the
dissemination of knowledge about customers and supports the ongoing and evolving
understanding of customer needs and requirements (Narver and Slater 1990). Finally
management customer orientation supports employee efficacy because in organisations
that have a customer orientation, systems and processes are focussed on anticipating
customer needs, managing change, and adopting new technologies to enhance customer
service (Narver and Slater 1990; Schneider, White, and Paul 1998), which remove
impediments to service provision and enables employees to believe they can perform
their roles (Bandura 1997; Schneider, White, and Paul 1998).
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The potential of the powerful influence of management customer orientation is
supported by Crosby, Grisaffe, and Marra (1994), who suggest that the most important
driver to achieve employee support of the customer service process appears to be the
organisation's customer focus (Crosby, Grisaffe, and Marra 1994).
In this study, it is possible that direct leadership support and employee empowerment
are redundant in terms of employee perceptions of managerial influences because of the
powerful influence of senior leaders, adequate work facilitation resources and
management’s customer orientation, not because immediate supervisor support and
empowerment of employees are not necessary or desirable. Senior leaders predicate
organisational policies, goals, strategies and values. Senior leaders put in place the
mechanisms that reward and control employees and control the provision and allocation
of organisational resources (Katz and Kahn 1978). Management customer orientation
communicates the philosophy of the organisation that puts the customer first. Work
facilitation resources provide the necessary resources for employees to do their jobs.
Behaviour-based evaluation provides employees with the guidance and incentives to
perform the necessary service oriented behaviours.
Management in service organisations makes implicit and explicit choices to adopt
certain practices and procedures and to reward and support certain behaviours so that
organisational imperatives and even implicit goals become clear to the organisation’s
employees (Schneider 1990). These practices and procedures and the activities that are
rewarded and supported play a critical function in organisations since they are the
criteria on which employees base their work decisions (Schneider 1990). In service
organisations, when managers pay attention to their customers’ needs and expectations,
they create a positive climate for service that yields employee behaviours that result in
customer perceptions of service quality (Schneider, White, and Paul 1998).
Within the service climate, customers’ perceptions of an organisation’s climate are
developed from their perceptions of the customer contact employees, based on the
performance of the organisation’s employees and those employees’ general behaviours
and attitudes in the service environment (Schneider 1973). This transfer of the
perceptions of the service climate from management to employees, and between
employees and customers, occurs through the psychological and physical closeness that
235
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).
236
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
244
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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