managerial choice and performance in service management—a comparison of private sector...

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Journal of Operations Management 23 (2005) 179–195

Managerial choice and performance in service management—a

comparison of private sector organizations with

further education colleges

Chris Vossa,c,*, Nikos Tsikriktsisa, Benjamin Funka,David Yarrowb, Jane Owenb

aLondon Business School, Operations and Technology Management, London NW1 4SA, UKbNorthumbria University, Centre for Business Excellence, Newcastle upon Tyne NE1 8ST, UK

cAdvanced Institute of Management Research, London NW1 6DD, UK

Received 30 October 2003; received in revised form 10 April 2004; accepted 15 July 2004

Available online 2 November 2004

Abstract

The debate as to whether public sector organizations should emulate private sector managerial practices in light of

contextual differences is long running. This paper reports the result of an empirical study comparing application of service

management principles in one public sector area, further education (FE) colleges, with private sector service organizations.

Although within our sample marked differences exist between the levels of service drivers and outcomes, our findings suggest

that the same management model is applicable to both sectors. Based on a sample of 291 service organizations, we

demonstrate that a managerial model, represented by the service profit chain, is valid in both our FE college and private sector

sample. Specifically, progressive human resource management practices led to employee satisfaction, which in turn impacted

both service quality and customer satisfaction in both the public and private organizations. The results indicate that the

performance of FE colleges arose in part from the managerial choices made in adoption of practices, and that it is lack of

employee focus that may be holding back performance. Relevant to both public and private sectors is that the research

indicates that human resource factors have a stronger impact than quality procedures, on both service quality and customer

satisfaction.

# 2004 Elsevier B.V. All rights reserved.

Keywords: Service profit chain; Public sector; Empirical research

* Corresponding author. Tel.: +44 20 7262 5050.

E-mail addresses: [email protected]

(C. Voss), [email protected] (N. Tsikriktsis),

[email protected] (B. Funk),

[email protected] (D. Yarrow),

[email protected] (J. Owen).

0272-6963/$ – see front matter # 2004 Elsevier B.V. All rights reserved

doi:10.1016/j.jom.2004.07.005

1. Introduction

The research in this paper examines the use of

service management practices in UK further education

(FE) colleges. FE colleges are part of the public sector

.

C. Voss et al. / Journal of Operations Management 23 (2005) 179–195180

focusing on non-degree, post high school level

education.1 There is a long continuing debate as to

whether public sector organizations should seek to

emulate the private sector in its management practices

in order to increase both efficiency and effectiveness.

It can be argued that the public sector has a number of

significant contextual differences that invalidate some

of the private sector management models (Alford,

2002). On the other hand, it has been argued that the

essential difference is simply the lack of market

mechanisms or the state of monopoly in the public

sector (Nielsen and Host, 2000) and many of the

alleged differences have been used as excuses for not

adopting and implementing models and practices that

have demonstrably led to better performance in private

sector services (Kim, 2002; Prabhu et al., 2002). The

research in this paper seeks to examine and inform this

debate in the context of service operations manage-

ment.

A range of areas has been examined in trying to

understand the fundamental differences between the

public and private sectors. The most marked

differences include, though are not limited to,

stakeholders, legal constraints, accounting practices

and external reporting requirements (Black et al.,

2001; Ring and Perry, 1985; Whorton and Worthley,

1981). Traditionally, public sector organizations have

not had to compete for scarce resources (Roberts,

1982) but rather are highly subsidized (Ansoff, 1979),

thus promoting inefficiency (Ring and Perry, 1985)

and discouraging goal setting and strategic action

(Montanarie and Bracker, 1986). Further reducing the

public manager’s need to take strategic action, is that

whereas there are typically many competing providers

within the private sector; historically the customer of

public services often has no other alternatives (Black

et al., 2001; Andreassen, 1994). These problems are

well recognized, and governments and institutions

have been taking many steps to address them from

compulsory public tendering, to creating customer

1 According to the UK Department for Employment and Learn-

ing, further education is defined in legislation as full-time and part-

time education (other than higher education) for persons over

compulsory school age. The objectives of FE colleges are to support

regional economic development to increase participation and widen

access to those previously under-represented in the sector; and, to

improve the quality of provision and enhance standards of perfor-

mance.

choice in areas, such as education, where choice might

not have existed before. Incorporating financial and

HRM functions of the private sector, the emergence of

a new ‘‘managerialist’’ form of public management

enables a shift from purpose to process (Ryan, 1997)

allowing public service providers to venture ‘‘further

from politics and nearer to the market’’ (Painter,

1998). Critics, however, argue that formidable barriers

such as managerial resistance, financial constraints,

the largely prescriptive nature of reforms and relative

inexperience of public managers not only impedes the

goals of public ‘‘managerialism’’ but perhaps renders

them unattainable (Gramberg and Teicher, 2000).

From the time the concept of ‘‘service’’ captured

the attention of operations management scholars in the

1980s, a widespread global movement focusing on the

management of services has emerged (Johnston,

1999). Most service literature concentrates explicitly

on the private, competitive and for-profit business

landscape (Silvestro and Silvestro, 2003); although as

Johnston and Clark (2001) point out, the public sector

has a comparable need for strategic service integration

that is largely ignored. Strategic management scholars

have also highlighted that strategic management of the

not-for-profit public organization in general is little

explored (Wortman, 1979; Montanarie and Bracker,

1986; Ring and Perry, 1985), indicating that this

problem of disparity is neither a fresh nor isolated

concern.

We can thus develop two sets of propositions. The

first relates to the level of use of established

management practices. If the public sector FE colleges

have less incentive to manage efficiently and

effectively, then the levels of use of practice and

the outcomes of these practices will be lower than

those of the private sector. Second, if there are

contextual differences then we might expect the

relationships between practices and outcomes to be

different for organizations from the public and private

sector. We can address this proposition through the

null hypothesis that there will be no differences in

these relationships between FE colleges and private

sector organizations.

Applying an established model of service manage-

ment we test these propositions using data drawn from

both public and private sector organizations in the

United Kingdom. Specifically, we assess, compare and

contrast the relationships between employee satisfac-

C. Voss et al. / Journal of Operations Management 23 (2005) 179–195 181

tion, service quality and customer satisfaction of both

FE colleges, and private sector service providers,

examining critical elements of the service profit chain

(Schlesinger and Heskett, 1991; Heskett et al., 1994,

1997).

2. Theoretical foundation

2.1. Public versus private sector

Wortman (1979) proposed that few not-for-profit

organizations could be credited as being well managed

in either the long or short term. Newman and

Wallender (1978) also characterized not-for-profit

organizations as inadequately managed with little or

no long-term goals, but conceded that constraining

characteristics of non-for-profit and profit making

organizations are markedly different. Whorton and

Worthley (1981) suggest that managers in the public

sector are faced with unique challenges not borne by

their private sector counterparts. Specifically, they

argue that public managers are paradoxically given

widespread resources and discretion for administra-

tion while being subject to vast laws, norms and

controls to monitor their behavior, forcing them to

trade off between efficiency and accountability. Also,

drawing attention to the primary differences between

managing in the public and private sectors, Ring and

Perry (1985) argue that distinctions are critical to

understanding the disparity in management processes.

Moore (1995) too concedes that there are substantial

differences between the environments in which public

and private sector organizations operate making it

difficult to transfer certain management concepts from

the private to the public sector.

That there are differences in the level of use of

some service operations management practices and

outcomes between the public and private sector has

been argued in a number of studies (Fornell, 1992;

Andreassen, 1994; Black et al., 2001). There exist a

number of competing propositions that can be put

Fig. 1. Service p

forward to explain such differences. The first is that

the differences reflect the dissimilar context of public

and private sector organizations. The second is that

they reflect a slower adoption rate of these practices

and models than the private sector. We therefore put

forward the following proposition.

Proposition 1. Levels of use of service management

practices and their performance outcomes in FE

colleges will be significantly lower than private sector

organizations.

If these differences are concerned with funda-

mental context differences between public and private

sector organizations, then we would expect that the

models found to lead to performance improvement in

the private sector will not hold in the public sector

environment. If on the other hand, the differences are

due to slower diffusion, then we would expect that

these models would be supported, despite the different

levels of practice adoption. We therefore examine

whether the relationships between established service

management practices and outcomes are the same in

the public as in the private sector. The null proposition

related to the latter argument is as follows.

Proposition 2. The relationships between practice

and performance will be the same for FE colleges

and private sector organizations.

2.2. The service profit chain

The service profit chain (Fig. 1) proposed by

Schlesinger and Heskett (1991) integrates distinct

bodies of research including human resource manage-

ment, services marketing and services operations,

suggesting a series of relationships linking employee

outcomes to customer and business outcomes (Heskett

et al., 1994; Loveman, 1998). Specifically, the service

profit chain proposes that human resource manage-

ment practices designed to both support and enable

employees result in capable and satisfied employees

(Heskett et al., 1994). This is consistent with the

rofit chain.


resource-based view in which the resources and

capabilities of an organization serve as a foundation

for sustained competitive advantage (Barney, 1991,

1995; Wright and McMahan, 1992; Wright et al.,

1994). One way to increase organizational perfor-

mance and increase overall competitiveness is to

better utilize the internal human resources through

more progressive human resource management

(Youndt and Snell, 1996; Pfeffer, 1994; Kleiner

et al., 1987; Russell et al., 1985). Employees are

often considered an organization’s most valuable

resource, and increased productivity and performance

are dependent upon the contribution of employees of

the organization (Youndt and Snell, 1996). The profit

chain posits in turn, that capable and satisfied

employees are more productive, and deliver high

levels of service quality. This combination of quality

and productivity creates value (Loveman, 1998;

Heskett et al., 1994). Customers ultimately buy

quality results, not merely products or services

(Heskett, 1986), and higher service quality results

in greater customer satisfaction (Heskett et al., 1994).

This in turn leads to customer retention and improved

business results. Increased profit allows further

investment in the service and employees thus creating

a positive feedback loop (Jones and Sasser, 1995;

Fornell, 1992), connecting customer loyalty to profit-

ability (Heskett et al., 1994). Proposition 2 implies that

this chain should be equally applicable in the public

service sector as in the private. This is consistent with

Meyer and Collier (2001) who reported that the theory

of the service profit chain holds for health care

providers. However, as many public organizations are

effectively not for profit, the final links in the chain are

not strictly applicable.

2.3. Development of hypotheses

To test our propositions, we develop a series of

hypotheses based on the service profit chain. Previous

empirical work based on a large sample of both public

and private sector organizations has reported the

importance of HRM practices in shaping both

employee and organizational outcomes (Delaney

and Huselid, 1996). Organizations can implement a

wide range of human resource management practices

to augment employee skills, however if their employ-

ees are not motivated to carry out their jobs, the

effectiveness of even skilled employees is limited

(Delaney and Huselid, 1996). Not surprisingly, staff

frustration has been associated with minimal training

and inadequate rewards (Schlesinger and Heskett,

1991). Led by Peters and Waterman’s (1982) portrayal

of ‘‘excellent’’ organizations, a general awareness of

the benefits of progressive HRM practices and systems

have emerged (Delaney and Huselid, 1996). More-

over, Meyer and Collier (2001) have proposed that a

wide range of human resource management practices,

including the improvement of employee training and

the measurement of staff well being, should result in

increased employee satisfaction. This leads to the

following hypothesis.

H1. Human resource management practices lead to

employee satisfaction.

A competent and passionate workforce is capable

of delivering high levels of service quality (Loveman,

1998). Schlesinger and Heskett (1991) suggest that

unhappy employees are more likely to defect, thus

resulting in poor customer service quality. On the

reverse side, employee satisfaction is related to

improved levels of quality, productivity and overall

business performance (Deming, 1985; Ishikawa,

1985). The service profit chain indicates that improved

employee satisfaction motivates employees to

improve the overall service quality (Heskett et al.,

1994; Meyer and Collier, 2001). Schlesinger and

Zornitsky (1991) report that employee satisfaction is

tightly bound to their self-perceived capabilities,

suggesting that employees take pride in their ability to

correct a breech in service. Moreover, Silvestro and

Cross (2000) have highlighted that process ownership

will lead to employee satisfaction, suggesting that

enabling employees with the power and framework to

amend service mishaps will promote greater employee

fulfilment. We therefore propose the following

hypothesis.

H2. Employee satisfaction leads to service quality.

Relationships between employee and customer

satisfaction have been well documented in the service

literature (Schlesinger and Heskett, 1991; Heskett

et al., 1994; Carlzon, 1987; Hostage, 1975). Employee

satisfaction is also reported to have a significant

positive impact on customer satisfaction in the health


Fig. 2. Conceptual model.

care industry (Meyer and Collier, 2001). On the other

hand Silvestro (2002), in a sample drawn from a UK

network of large family supermarkets, found a more

complex set of links than had previously been

identified, and proposed that the nature of these links

is contingent upon a number of factors. This circular

effect of employee and customer satisfaction is well

framed by Heskett et al.’s (1997) ‘‘satisfaction

mirror’’, which proposes that business success stems

from employee satisfaction being ‘‘reflected’’ upon

customer satisfaction. This leads to the following

hypothesis.

H3. Employee satisfaction leads to customer satisfac-

tion.

Service quality is a complex objective and the

design of the framework and procedures used to

deliver services is of fundamental concern (Fitzsim-

mons and Fitzsimmons, 2003). Anderson and Sullivan

(1991) have demonstrated that a customer’s negative

experience has a proportionally greater downside

effect than a customers’ positive experience has to the

upside, illustrating the importance of providing high

quality service at the first service encounter. Fitzsim-

mons and Fitzsimmons (2003) have added that an

investigation into the cost of quality underscores the

value of circumventing service failure. This leads to

the following hypothesis.

H4. The use of quality procedures leads to service

quality.

Service quality is central to the success of all

organizations (Zeithaml et al., 1990) and is a

‘‘cornerstone of marketing strategy’’ (Asubonteng

et al., 1996). The quality of services is of fundamental

importance and ‘‘critical concern’’ to the private and

public sector alike (Black et al., 2001). According to

Yi (1989), perceived service quality is a strong

determinant of customer satisfaction. Similarly,

Andreassen (1994) argues that customer satisfaction

in the public services arena is largely influenced by the

experienced service performance and that dissatisfac-

tion is largely a function of low service quality.

Because service quality is widely believed to impact

market performance, organizations in both sectors are

interested in improving their service quality (Black

et al., 2001). This leads to the following hypothesis.

H5. Service quality leads to customer satisfaction.

These hypotheses are represented in the conceptual

model shown in Fig. 2.

3. Dataset

3.1. Data collection

The data to test the hypotheses in this study were

obtained from the United Kingdom subset of

organizations participating in the International Service

Study (ISS). This dataset includes a sample of 291

organizations overall, 229 of which representing the

private sector and 62 from the UK public sector—

further education colleges. The main areas of the

private sector represented were financial services,

retail and hotels. Further qualitative data from the

colleges were collected by the UK Learning and Skills

Development Agency (LSDA). This affords us the

opportunity to triangulate our empirical analysis with

more qualitative findings.

The ISS is an ongoing study, started in 1996 with

data collected in the UK, US, Germany, Cyprus as

well as a number of other countries. The UK FE

college data was collected in 2002/2003. The ISS

research framework, drew on a range of sources,

the most central of which was the ‘‘service profit

chain’’ (Heskett et al., 1994), which as discussed

earlier, postulates a chain of interaction from

management of the workforce, through productivity,

service quality, customer satisfaction, customer

retention, to profitability. The questionnaire was

designed specifically to determine state-of-the-art

service management practices and to investigate a


wide set of factors hypothesized to influence

performance (Roth et al., 1997; Voss et al., 1997).

The questions were designed to be used for both

public and private sector organizations, and pilot

testing was conducted with public sector organiza-

tions to validate this.

To increase the validity of the overall model, it was

tested against three established practitioner models:

the Malcolm Baldrige National Quality Award (NIST,

1996), the European Quality Award (European

Foundation for Quality Management, 1986), and

from the United Kingdom, the Citizens’ Charter

(1996). All three were widely used and accepted by

commercial and non-commercial service organiza-

tions at the time of the study. The Baldrige model has

been shown to have content, construct, and predictive

validity; it is also broader than other models in these

areas (Pannirselvam et al., 1998).

Overall, 80 questions were developed for the ISS

survey. The structure of the questionnaire and a list of

the individual question topics are available in Roth

et al. (1997). Each was assessed on a 5-point scale, and

each had a question descriptor. The scales also had

descriptors of the states of practice or performance,

ranging from 1 to 5, where 1 indicated low (poor)

levels of best practices (performance) and 5 indicated

state-of-the-art (outstanding) levels of practices

(performance). Descriptors 2, 3, and 4 represented

intermediate points. All questions were field tested,

reviewed by subject experts, and where appropriate,

revised before final use, based on tentative reliability

and validity.

Sample firms were selected from a variety of

sources, including trade directories and government

sources. The sample was stratified to envelop a wide

range of organizational sizes; very small services were

excluded from the study. Although the resulting

sample is somewhat biased toward leading service

organizations, such sampling is suitable for explora-

tory research investigating unique or complex

phenomena (Pinsonneault and Kraemer, 1993).

Data was collected by interview. At each site a

‘diagonal slice’ team was formed of knowledgeable

people from a range of departments, ranging from

front line employees to senior management. Each

answered the questionnaire individually, and then met

to form a consensus. One or two researchers or

facilitators met with the team. The scores used in this

analysis were determined by the research interviewers

based on structured discussion of areas of disagree-

ment among the individual responses, extensive

probing for clarification, and supplemental data

collected to validate individual responses. The use

of interviews rather than survey methods for data

collection addressed the difficulties associated with

the use of single respondents (Huber and Power,

1985), and greatly reduced the possibility of both

response and common-method bias (Flynn et al.,

1990). To minimize the effect of response bias and to

minimize any interviewer effects, the interviewers

were exposed to a wide range of firms and their

assessment scoring of organizations were cross-

evaluated for calibration and consistency. Because

common-method bias is a potential problem in survey

research, Harmon’s one-factor test (Podsakoff and

Organ, 1986) was used to check whether common-

method bias was present. Four factors with eigenva-

lues greater than one were extracted from all the

measures in this study and in total accounted for 56%

of the variance. The first factor accounted for 17% of

the variance. A single factor did not emerge and one-

factor did not account for most of the variance,

suggesting that the results were not due to common-

method bias.

3.2. Scale development

Multi-item scales have been constructed to

capture each construct enabling finer distinctions

among respondents to be drawn (Boyer and Pagell,

2000; Flynn et al., 1990). The full operationalization

of the scales is outlined in Appendix A. Each of the

scales has been empirically validated with factor

analysis using maximum likelihood extraction. To

further establish the reliability of the scales,

Cronbach’s alpha was used to measure the degree

of internal consistency. Conventional wisdom holds

that values greater than or equal to 0.70 are preferred

but values above 0.60 have been seen as acceptable

(Boyer and Pagell, 2000; Churchill, 1979; Flynn

et al., 1990). All of the tests for internal validity

were satisfactory; Cronbach’s alpha for the scale

measuring service quality exceeded 0.70, and all

of the scales far exceeded 0.60. Tables 1 and 2

provide correlations, descriptive statistics and con-

struct reliabilities.


Table 1

Correlation matrix

HRM practices Quality procedures Service quality Employee satisfaction Customer satisfaction

HRM practices 1.00 0.62 0.41 0.60 0.36

Quality procedures 0.62 1.00 0.39 0.38 0.33

Service quality 0.41 0.39 1.00 0.52 0.53

Employee satisfaction 0.60 0.38 0.52 1.00 0.44

Customer satisfaction 0.36 0.33 0.53 0.44 1.00

*All correlations are significant at 0.01 (two-tailed).

3.2.1. Exogenous variables

This study employs two multi-item indices to

capture the study’s exogenous variables.

Human resource management assesses the nature

of the human resource management systems. Higher

scores on this scale are indicative of a more prog-

ressive HRM system, whereas low scores indicate a

more human controlling structure. Cronbach’s alpha

was satisfactory at 0.68.

Quality procedures is a measure of the quality

procedures and frameworks that organizations have in

place to help maintain and drive service quality. This

scale incorporates organization’s quality procedures

and framework, attempts at continuous improvement

and management involvement. Cronbach’s alpha was

satisfactory at 0.68.

3.2.2. Endogenous variables

This study employs three multi-item indices, to

capture the study’s endogenous variables.

Service quality assesses the level of organizations’

service quality. Measures of staff responsiveness,

courtesy, reliability and relative performance were

utilized to construct the scale. Cronbach’s alpha was

satisfactory at 0.71.

Table 2

Descriptives statistics and construct reliabilities (N = 291)

Mean Standard deviation

HRM Practices 3.04 0.75

Quality procedures 3.19 0.65

Service quality 3.53 0.58

Employee satisfaction 3.18 0.60

Customer satisfaction 3.37 0.55

a The percent of variance explained by the one-factor extracted.

Employee satisfaction assesses the organizations’

overall human resource management performance.

Measures of employee loyalty, attitude and satisfac-

tion were used to build the scale. The reliability of the

scale was assessed with Cronbach’s alpha. Although

the least reliable of our scales, an acceptable

Cronbach’s alpha score of 0.65 indicates that the

scale is still valid to use in our analysis.

Customer satisfaction measures the organizations’

market performance. Measures of customer satisfac-

tion, retention and base were used to build the scale.

Cronbach’s alpha was satisfactory at 0.67.

4. Results

To test Proposition 1, t-tests for equality of the

means were performed on the five scales. The results

are shown in Table 3. They indicate that the private

organizations outperform the FE sector in human

resource management, employee satisfaction and

customer satisfaction, while the differences in quality

procedures and service quality were not significant.

We test our hypotheses using structural equation

modelling. This is preferred over traditional regression

as the latter fails to address that many constructs are

interrelated and its use potentially biases results by

% Variance explaineda Cronbach’s alpha

65.57 0.68

61.26 0.68

63.92 0.71

59.31 0.65

60.64 0.67


Table 3

FE colleges vs. private sector: t-tests results

Scale Private sector FE colleges Two-tailed significance

HRM practices 3.15 (0.74) 2.64 (0.63) 0.000

Employee satisfaction 3.24 (0.59) 2.95 (0.61) 0.001

Customer satisfaction 3.40 (0.57) 3.25 (0.46) 0.031

Service quality 3.54 (0.58) 3.48 (0.57) 0.473

Quality procedures 3.22 (0.65) 3.26 (0.66) 0.665

The values are mean (S.D.).

omitting important interdependencies from the ana-

lysis (Asher, 1983; Bollen, 1989; Chin, 1998;

Marcoulides and Schumacker, 1996).

For the full sample, the model achieved an extremely

good level of fit (x2 = 3.918, P = 0.431, NFI = 0.99,

CFI = 1.000, Tucker–Lewis index = 1.000, RMSEA =

0.00). The model accounted for 37% of the variance in

employee satisfaction, 32% of the variance in service

quality and 32% of the variance in customer satisfac-

tion. The results, shown diagrammatically in Fig. 3,

provide strong empirical support for all five hypotheses,

namely that human resource management practices

have a direct impact on employee satisfaction and an

indirect impact on both service quality and customer

satisfaction. Employee satisfaction directly affects both

service quality and customer satisfaction. All relation-

ships are significant at the 0.001 level.

In order to test Proposition 2, we split our sample

and conducted the analysis for each of the two groups.

Fig. 3. Empirical model, overall (N = 291). Letter a denotes standardize***P < 0.001.

To check whether the split was a meaningful one, we

reviewed the t-tests described above. The two groups

differed significantly for three of the five constructs

(human resource management practices, customer

satisfaction and employee satisfaction) which sug-

gests that dividing the data into public and private

sectors was appropriate for our analysis.

With regard to the private sector (see Fig. 4a),

the model achieved an even better level of fit than

the overall model (x2 = 2.052, P = 0.726, NFI =

0.995, CFI = 1.000, Tucker–Lewis index = 1.000,

RMSEA = 0.000). The results were similar to the

overall model, indicating strong support for all

hypotheses. Overall, the private sector model

accounted for 30% of the variance in employee

satisfaction, 29% of the variance in service quality,

and 30% of the variance in customer satisfaction.

The model for the public sector FE colleges

(Fig. 4b) also achieved a very good level of fit (x2 =

d coefficients; letter b denotes correlation; *P < 0.05, **P < 0.01,


Fig. 4. (a) Empirical model, Private sector (N = 229). Letter a denotes standardized coefficients; letter b denotes correlation; *P < 0.05,**P < 0.01, ***P < 0.001. (b) Empirical model, FE colleges (N = 62). Letter a denotes standardized coefficients; letter b denotes correlation;*P < 0.05, **P < 0.01, ***P < 0.001.

Table 4

Direct, indirect and total effects

HRM practices Quality framework Employee satisfaction Service quality

Direct Indirect Total Direct Indirect Total Direct Indirect Total Direct Indirect Total

(a) All organizations (N = 291)

Employee satisfaction 0.60a 0.00 0.60 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Service quality 0.00 0.26 0.26 0.23 0.00 0.23 0.44 0.00 0.44 0.00 0.00 0.00

Customer satisfaction 0.00 0.25 0.25 0.00 0.10 0.10 0.23 0.18 0.41 0.42 0.00 0.42

(b) FE colleges (N = 62)


Service quality 0.00 0.36 0.36 0.27 0.00 0.27 0.49 0.00 0.49 0.00 0.00 0.00


(c) Private sector organizations (N = 229)


Service quality 0.00 0.23 0.23 0.21 0.00 0.21 0.42 0.00 0.42 0.00 0.00 0.00


a Standardized coefficients.


6.797, P = 0.15, NFI = 0.955, CFI = 0.980, Tucker–

Lewis index = 0.951, RMSEA = 0.107). Overall, the

public sector FE college model accounted for 54% of

the variance in employee satisfaction, 43% of the

variance in service quality and 42% of the variance in

customer satisfaction. However, the results show that

unlike the private sector, the relationship between

employee satisfaction and customer satisfaction was

not significant, despite the fact that the coefficient had

the same size in both cases. This is primarily due to the

smaller sample size for FE colleges compared to the

private sector sample. Finally, the relationship

between quality procedures and service quality was

less significant for FE colleges (at the 0.05 level) than

the private sector (at the 0.001 level).

The overall results showing both the direct and

indirect effects are shown in Table 4.

5. Discussion

The results provide partial support for Proposition

1. They show that marked differences exist between

the public sector FE colleges and private sector

organizations in human resource management prac-

tices, employee satisfaction, and customer satisfac-

tion. All were significantly higher in our sample of

private sector organizations.

The differences in human resource practices were

significant at the 0.00l level, suggesting that the FE

colleges’ HRM practices lagged those of the private

sector. To gain further insights into these findings, we

triangulated our results with qualitative data from the

survey of public sector further education staff. A

selection of comments from this qualitative study is

shown in Appendix B. These indicate that staff

consistently stressed the need for greater two-way

communication and empowerment and recorded

dissatisfaction with the rigidity of the hierarchical

structure and lack of trust from superiors. Constructive

criticism from staff was not always encouraged with

some staff feeling that they could not openly question

things. This is likely to result in senior managers not

receiving the quality of information about the

organization’s problems that they need in order to

make good quality decisions. The need to improve

cross-departmental communication was also men-

tioned in many colleges. Staff wanted more empow-

erment and a greater involvement in decision-making

at colleges. There are many enthusiastic staff in the

sector whose enthusiasm could be tapped by allowing

them a greater role.

As might be expected from the above, employee

satisfaction was significantly lower (at the 0.001 level)

in FE colleges than in the private sector organizations.

These findings are also supported by triangulation

with our qualitative analysis (see Appendix B).

College staff often commented that they do not feel

adequately valued by their employers. This lack of

perceived value was reflected in their low salaries, the

lack of communication, the increasing workload

without attendant reward or recognition of a job well

done and the stress that was apparent in some college

staff. Some staff commented on the fact that several of

their colleagues were on relatively long-term sick

leave. Staff morale was considered to be a problem in a

number of colleges. Contributory factors were seen as

including workload, stress, feeling unvalued and lack

of security.

The data indicated that there was no significant

difference in the level of quality procedures between

the FE colleges and private sector organizations. There

was also no significant difference between the service

quality levels of the two sectors. As we postulate that

service quality is likely to be driven by employee

satisfaction as well as quality procedures, this is a

rather surprising finding. There are at least two

possible explanations. The first is that the compar-

ability in service quality of FE colleges and the private

sector may be in part explained by customers’

expectations. Service quality has been defined as

‘‘the extent of discrepancy between the customers’

expectations and desires and their perceptions’’

(Zeithaml et al., 1990). If both expectations and

perceptions of service quality are in fact lower in

the public sector, than the ultimate score as defined

by Zeithaml et al., could be largely the same for

both groups despite the fact that the private sector

provides greater service in absolute terms. A second

possible explanation is that FE college employees

feel a strong sense of duty to perform public service

and will continue to deliver service despite low

morale.

The mean difference in customer satisfaction was

significant, indicating that private sector customers

were indeed more satisfied than the customers of FE


colleges. This is consistent with other comparisons of

public and private services, which have shown the

public sector as having lower satisfaction scores. The

American Customer Service Index (ACSI, 2003) has

consistently found that public sector organizations

were rated lowest of all of the sectors measured. For

example in 2003 Q2, public sector organizations had a

mean score of 67.9 compared with the mean for all

sectors of 73.8. Andreassen (1994) proposes that

‘‘public services lack the invisible hand which guides

the resource allocation based on consumer prefer-

ences’’ thus resulting in less satisfied customers than

those of the private space.

These findings for FE colleges are consistent with a

maturity model, where adoption of new practices in

the public sector lags that of the private sector. They

also indicate that this lag is not uniform. Governments

and other institutions can choose to try to catch up, and

indeed lead, in some areas. Quality procedures is one

such area, where in the UK there have been

considerable efforts from central government to

develop and implement quality initiatives. A wide

range of quality procedures are specified and all

institutions of higher education in the UK are regularly

reviewed and rated on their teaching and research

quality. Self-assessment is mandated: ‘‘Self-assess-

ment should be a systematic process in which

providers collect and analyse evidence in order to

make judgements about their performance in relation

to agreed goals. The main purpose of self-assessment

is self-improvement’’.

Our second proposition examines the question of

whether the management models used in the private

sector as captured by the service profit chain are

applicable to the FE colleges. The earlier analysis

indicates that this might not be so, with equal levels of

service quality in both sectors, despite much lower

levels of employee satisfaction in FE colleges.

However, structural equation modelling shows strong

explanatory power for the model in both the private

and FE colleges, though in the latter one link was not

significant (the link between employee and customer

satisfaction). In both FE colleges and private sector

organizations, employee satisfaction has a much

greater impact on service quality than quality

procedures. A greater emphasis on employee related

factors will not only impact employee morale but will

have a greater impact on service quality. Indeed, as the

public sector seems to be able to achieve similar

service quality levels with lower satisfaction, if their

satisfaction levels were comparable to that of the

private sector, then they would have likely achieved

superior service quality to the private sector.

That the service profit chain-based model holds for

FE colleges as well as the private sector does not

necessarily mean that FE colleges should seek to

transfer all of the associated practices directly from the

private sector. Both sectors, public and private, have

contextual differences and the transfer of practices

requires intelligent adaptation. For example, one

author recently experienced a very poor attempt to

transfer quality management practices from manu-

facturing firms to public sector organizations with no

attempt at adaptation. In addition, attention has to be

paid to implementation. Observations on implementa-

tion in the FE sector have indicated that there may be

problems due to:

� L
ayering. Initiatives are laid on top of initiatives.
Previous systems tend to work in parallel with each

other rather than be replaced.

� M
onitoring rather than improvement. Many sys-
tems that at first sight are there to improve the

quality of management at the organization are used

to monitor the organization.

� B
its and pieces. The systems that are imposed on
the sector do not have a focused approach.

We conclude that practices associated with the s-

ervice profit chain should be adopted in FE colleges,

but they need intelligent adaptation and careful im-

plementation.

Public sector organizations have tended to lag in

both their management practices and performance.

However, there has been considerable action to bring

new practices to the public sector in order to improve

organizational performance. Managers in any organi-

zation, including the public sector, having limited

financial and managerial resources, have choices in

where to invest and prioritise actions in seeking to

improve organizational performance. The data from

our public sector sample of FE colleges clearly

indicates that managers have chosen to invest more in

quality procedures than in human resource practices.

Our data indicate that this may have been the wrong

choice. Although quality procedures have a significant


impact on service quality, HRM practices have a

higher total effect on both service quality and

customer satisfaction. That human resource practices

and employee satisfaction have a greater impact on

service quality than quality procedures is as important

to private sector firms as it is to the public.

We propose that this emphasis of procedures over

people may be fundamental to understanding the

differences between FE colleges and private sector

organizations. The question is whether this is a result

of the contextual differences between public and

private sectors, or whether there are few fundamental

differences and this reflects the choices made. There

are contextual differences between public and private

sectors. For example, it may not be possible to match

levels of pay, leading to both lower employee morale

and loss of better trained employees to the private

sector. However, the evidence from the comparisons

using the service profit chain as a model leads us to

argue that it is also a matter of choice. It is possible

that managers assume that employees will go the extra

mile to satisfy their customers and thus are

emphasising the role of quality procedures. The core

models of service management as reflected in the

service profit chain are applicable equally in public

and private sectors. In the public sector organizations

represented by our sample, the choice has been made

to develop procedures, but not to address the human

resource aspects. It has been proposed that the lower

customer satisfaction scores in the public sector have

been due to contextual reasons in that the private

sector has a stronger focus on the customer (Fornell,

1992; Andreassen, 1994). Our data leads us to

question this for FE colleges, and indicates that lower

customer satisfaction may be due to lack of manage-

rial emphasis on the employee.

We have examined FE colleges, with particular

attention being paid to the fact that they are public

sector organizations. We have argued that the context

of FE colleges is typical of public sector organizations.

However, we cannot necessarily conclude that we can

generalize to the public sector in general. FE colleges

may have particular characteristics within the public

sector, the nature of lecturers may be different from

other groups delivering service in the public sector, and

their pay and employment conditions may be different.

That our propositions are supported in one area of the

public sector leads us to posit that our propositions

apply to other parts of the public sector. First, our

findings are consistent with earlier research indicating

that the service profit chain model was applicable in the

public as well as private sector. Second, they are

consistent with a maturity model of the public sector

lagging the private sector in the adoption of manage-

ment practices. Third, when choosing which manage-

ment practices to adopt, in particular in a sector that is

catching up, choices have to be made in what new

practices to emphasise and what to ignore or leave until

later. It is likely that this dilemma will face many public

service organizations. There is insufficient evidence to

indicate that the emphasis of procedure over employ-

ees as chosen by FE colleges is a choice that will be

made by other organizations in the public sector, or

elsewhere. But our data indicates that this is the wrong

choice to make.

6. Summary

We set out to examine whether the public should

emulate private sector managerial practices in light of

contextual differences. Our findings are consistent

with a maturity model, where public sector organiza-

tions tend to lag the private sector in the use of

managerial practices. However, this is not necessarily

uniform across all areas. In our sample from FE

colleges, the adoption of quality procedures matched

that of other service sectors and led to similar levels of

service quality. Although within our sample marked

differences exist between the levels of service drivers

and outcomes, our findings suggest that the same

management model is applicable to both sectors.

Based on a sample of 291 service organizations, we

demonstrate that a managerial model, represented by

the service profit chain, is valid in both our FE college

and private sector sample.

In the FE college sample, the human resource

practices significantly lagged those of the private

sector. The lag of this set of public sector organiza-

tions in adopting practices may be due to their context,

but our data indicates that the effectiveness of

adoption was adversely affected by managerial

choices. The emphasis on procedure over people

exhibited in this sample may or may not be typical of

all public sector organizations, however, our data

indicates that this is not an effective choice.


Our findings do not imply that the public sector

should adopt all private sector practices as a matter of

routine. Managerial practices need to be adapted to

their environment in both the public and private sector.

Although previous work indicates that lower customer

satisfaction in the public sector may be due to lack of

emphasis on the customer, our data from one sector

indicates that it may be also be due to lack of

managerial emphasis on the employee.

There are two important managerial implica-

tions arising from this study. First, we conclude that

if the public sector managers are to improve their

level of service, they should address the practices

represented by the service profit chain and adapt them

intelligently to the public sector context. Second,

when there are choices to be made as to which area to

emphasise, human resource factors will have a

stronger impact on service quality and customer

satisfaction than quality procedures. Although we

have focused on the public sector, these managerial

implications are as important for the private sector. In

setting priorities, managers should recognize that

human resource practices have a stronger impact on

service quality and customer satisfaction than quality

procedures.

7. Limitations and implications for future

research

Finally, as with any piece of research, our study is

subject to some limitations. A potential limitation of

this study arises from the cross-sectional nature of the

data. While the study sheds some light regarding the

relationships among human resource management

practices, quality procedures, employee satisfaction,

service quality and customer satisfaction, the

employed measures record only one point in time.

Longitudinal research is needed to establish causality

Appendix A. Operationalization of the variables

Question Score of 1

Human resource management practicesa

Recognition and reward No feedback or recognitio

service performance at the

employee level

and to assess the particular order of the sequence of

events. All of the variables employed in this study

were constructed with multi-item scales to allow

greater richness of the constructs. Cronbach’s alpha

exceeded the minimum requirements as prescribed in

the literature for all of the scales, but the measures

could be improved with further development. In

addition, we used measures from an existing study

with a broad scope; future research in this area could

develop a comprehensive set of more focused

measures. The qualitative data that we incorporated

to triangulate our findings and enrich our under-

standing of the relationships among the constructs

represented only public sector organizations and

employees. The study would benefit from similar

triangular support stemming from the private sector.

The study represents only UK organizations and the

ability to generalise findings across countries and

cultures is somewhat limited. Also, further education

colleges were a good source of data but were the only

group representing the public sector, thus reducing the

ability to generalize the results. Greater insights may

be developed from the replication of this study in a

wider range of countries and with a wider variety of

public organizations.

Finally, we have demonstrated empirically that

there was no significant difference between the service

quality levels of the two sectors and we have proposed

some alternative explanations, but we have been

unable to determine which of these is the cause. Future

research could investigate this further.

Acknowledgements

The authors wish to acknowledge the support given

to this research by the UK Economics and Social

Research Council through the Advanced Institute of

Management Research.

Score of 5

n of Recognition is everyone’s responsibility

and is based on exceeding internal and

external expectations


Appendix A (Continued ).

Question Score of 1 Score of 5

Education and training

for quality

Limited training for quality Comprehensive quality training plan,

training in quality values, tools and

techniques

Employee involvement Blocked by attitudes of both

management and employees,

limited teamwork

Employees are highly involved and able to

make real contributions to business

improvement, extensive teamwork

Quality proceduresb

Quality procedures

and framework

No procedures for quality

management in place

Comprehensive framework followed

for quality management

Management involvement

in quality leadership

Managers are generally

disinterested in quality issues

Senior executives exert personal leadership

of organization’s overall quality program

Collection and use of data

on quality

Fragmentary data collection

of quality measures

Actively collects data from a variety

of sources on customer feedback, quality

improvement, and competitors, as a basis

of improvement and strategic planning

Service qualityc

Reliability Customers frequently

feel let down

Seen as an organization that

you can always rely on to

deliver the promised service

Quality performance,

relative to industry

Poor overall quality record,

compared to industry

Achieved a reputation for

excellence in quality services

and products that is notable in

the industry and significantly

better than the competition

Staff responsiveness Staff seen as slow to respond

to customer needs

Staff go out of their way to respond

to customer needs even when not part

of core service

Employee satisfactiond

Employee satisfaction Moderate or serious internal

morale problems

Optimism and confidence; highest

levels of employee satisfaction

Employee loyalty,

relative to industry

High turnover, worse than

industry average

Staff turnover at low end of industry;

very high levels of loyalty and

commitment

Employee attitude Little respect for the services

they deliver

Understand and are fully

committed to customer service

Customer satisfactione

Customer retention High rate of customer turnover Customers are exceptionally loyal

Customer base The overall customer base is

declining faster than

competitors

The customer base is expanding,

with many defecting from

competitors


Appendix A (Continued ).

Question Score of 1 Score of 5

Perceived

value (quality/price)

Customer perception of value

is lower than competitors

The organization is perceived

in the market as offering high valuea This study constructed one multi-item scale to assess the nature of the human resource management systems.b This study employs one multi-item scale to assess how well organizations are structure to ensure quality

standards are kept.c This study employs one multi-item scale to measure the degree of organizations’ service quality.d This study constructed one multi-item scale to assess organizations overall human resource management

performance.e This study constructed one multi-item scale to assess the organizations’ market performance.

Appendix B. Qualitative data from a survey of

UK FE colleges

HRM practices

� T
he divide between departments, teaching and non-
teaching staff, management and non-management

staff, and between permanent and contract staff was

raised at a number of colleges. In some colleges this

appeared to be a major problem. Comments about

the need for everyone to realise that ‘‘we are all

working for the same organization’’ or ‘‘we are all

on the same team’’ were fairly common.

� T
he loss of staff rooms in colleges was once again
raised as a barrier to forming useful social and

professional relationships across the organization.

Staff felt that they rarely had the chance to meet

with any staff with whom they did not work closely.

� M
anagement style was raised as a concern by staff
in many colleges. Many staff expressed a desire for

more a more open management style. Staff at all

levels in a number of colleges commented on

rudeness. A typical comment was that a principal

did not even answer when members of staff said

hello. A bullying management was also mentioned

at several colleges.

� C
omments were also made about the lack of
trust in staff by managers. Negative comments

about management should not be seen to imply

that staff do not want to see managers. In fact a

lack of visibility was something that was referred to

in a many colleges. Staff in these colleges wanted to

see more of the management team and the

governors.

Employee satisfaction

� T
here is a general feeling that the workload within
colleges is unreasonable. Staff often work con-

siderably more hours that they are paid for. There

was also concern expressed in some colleges about

the ‘equality of workload’. Several colleges appear

to be increasing their learner intake without a

corresponding increase in staff and this made

matters even more difficult.

� T
here continues to be considerable unhappiness
about the removal of central staff rooms where staff

can meet with each other, relax and talk about

college issues away from learners. This was

considered to be a major contributory factor in

the perceived breakdown of cross college relation-

ships. It is also likely to add to staff stress if there is

nowhere for them to take time out during the day.

� C
asualization of contracts is still affecting team-
work and morale. The lack of job security meant that

many staff could not plan for the future. Part-time

staff felt that they were expected to attend meetings

and training outside of their contracted hours and

were not paid for additional hours worked. There

were also many comments made about the fact that

vacancies were not filled when staff left the college.

Posts were often either filled on an ad hoc temporary

basis or the remaining staff were expected to take on

additional duties to cover the gaps in the team.

Miscellaneous

� I
ssues around resources continue to be raised. For
example, classroom equipment was often old or


inappropriate. IT was also raised as a weakness in

some colleges, particularly in satellite facilities.

Staff at several colleges mentioned litter and the

general state of disrepair. Several staff commented

on the need to improve sports and leisure facilities

for both staff and learners.

� S
taff continued to raise concerns about the lack of
work areas or the inappropriate areas provided for

both college staff and learners. Some staff were

forced to store their files in their cars as they had no

filing cabinets or desks that they could use as a base.

This was often made even more difficult when there

was insufficient car parking with staff having to

carry heavy files over a considerable distance

several times a day.

� T
eaching staff continues to voice concerns about the
bureaucracy that surrounds their work. This was not

only a problem because they did not enjoy the

administrative duties that they had to perform but

because they felt that they were being taken away

from their primary role of teaching.

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