examining the influence of strategic profit emphases on employee engagement and service climate
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Journal of Workplace LearningExamining the influence of strategic profit emphases on employee engagement and service climateCarolyn (“Casey”) Findley Musgrove Alexander E. Ellinger Andrea D. Ellinger
Article information:To cite this document:Carolyn (“Casey”) Findley Musgrove Alexander E. Ellinger Andrea D. Ellinger , (2014),"Examining the influence of strategicprofit emphases on employee engagement and service climate", Journal of Workplace Learning, Vol. 26 Iss 3/4 pp. 152 -171Permanent link to this document:http://dx.doi.org/10.1108/JWL-08-2013-0057
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Examining the influence ofstrategic profit emphases onemployee engagement and
service climateCarolyn (“Casey”) Findley Musgrove
Department of Marketing, Indiana University Southeast, New Albany,Indiana, USA
Alexander E. EllingerDepartment of Marketing and International Business,
Culverhouse College of Commerce & Business Administration,University of Alabama, Tuscaloosa, Alabama, USA, and
Andrea D. EllingerDepartment of Human Resource Development and Technology,
University of Texas at Tyler, Tyler, Texas, USA
Abstract
Purpose – Research suggests that employee engagement favorably influences the provision ofcustomer service, that high levels of service employee engagement are rare, and that firms’ strategicprofit emphases affect engagement and service climate. This study responds to calls for research thatidentifies drivers of employee engagement and foundational issues that promote effective serviceclimates within service organizations.
Design/methodology/approach – A survey method is utilized to assess data from 502 keyinformant service employees from multiple service industries.
Findings – The findings indicate that service organizations’ revenue enhancement and costcontainment strategic profit emphases differentially influence employee engagement, and thatorganizational and job engagement differentially influence service climate.
Research limitations/implications – Data comprised of individual service employees’ perceptionsof their firms’ strategic profit emphases and service climates are utilized. Although it is conceivablethat some respondents’ perceptions of these variables may be misguided, the study findings are basedon a large sample of experienced service employees from multiple service industries.
Practical implications – The findings suggest that the most effective approach for promotingeffective service climate is to hire service employees with a track record of job engagement and thenfocus on encouraging organizational engagement by creating working environments that support,value, and reward service quality.
Originality/value – Managers increasingly realize that how firms treat service employees criticallyaffects customer service quality. However, relatively few studies examine service employees’perceptions of their own engagement and their organizations’ working environments. This researchincorporates social exchange theory and concepts from the fields of strategy and organizationalbehavior to assess service employees’ perceptions of their organizations’ strategic profit emphasis andits influence on engagement and service climate.
Keywords Employee engagement, Social exchange theory, Service climate, Strategic profit emphases,Organizational engagement, Job engagement, Revenue enhancement, Cost containment, Service employee
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1366-5626.htm
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Received 14 August 2013Accepted 26 November 2013
Journal of Workplace LearningVol. 26 No. 3/4, 2014pp. 152-171q Emerald Group Publishing Limited1366-5626DOI 10.1108/JWL-08-2013-0057
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Current strategic priorities for service organizations include identifying ways todevelop and maintain service climates that promote superior customer experiences andbetter understanding how to more effectively engage service employees (Bowen, 2010;Ostrom et al., 2010; Schneider and Bowen, 2010). Service climate refers to “employeeperceptions of the practices, procedures and behaviors that are rewarded, supportedand expected by a service organization with regard to customer service and servicequality” (Schneider et al., 1998, p. 151). Research indicates that service climatefavorably influences employee performance (de Jong et al., 2004), firm performance(Schneider et al., 2009) as well as customer perceptions of service quality (Schneideret al., 1998; Schneider et al., 1998). A recent study also shows that customer perceptionsof service quality are greatly affected by service employee engagement (Menguc et al.,2012). Yet, although many organizations realize that how they treat employeescritically affects customer service quality (Bowen, 2010; Lusch et al., 2007), high levelsof employee engagement are rare in service provision contexts (Ashill and Rod, 2011;Menguc et al., 2012).
Employee engagement is “the harnessing of organization members’ selves to theirwork roles.” To be engaged, an employee must be “cognitively, psychologically, andphysically present when occupying and performing an organizational role” (Kahn,1990, p. 694). Extant theoretical and empirical research indicates that employeeengagement favorably influences multiple work-related outcomes (e.g. Kahn, 1990,1992; Harter et al., 2002; Saks, 2006). Highly engaged employees have a passion forwhat they do (Kahn, 1990; Truss et al., 2006), and will work out of “happiness,excitement and the sheer joy of providing excellent service to customers” (Menguc et al.,2012). However, according to Rothbard (2001), levels of engagement are highlycontingent on employees’ perceptions of the roles assigned to them by theirorganizations. Thus, Menguc et al. (2012) contend that service organizations need abetter understanding of antecedent factors that encourage service employeeengagement, while Schneider et al. (1998, p. 151) call for research that identifiesadditional “foundation issues” (or “contextual factors that sustain work behavior”),claiming that organizations with supportive working practices for service employeesencourage positive service climates.
To address these gaps, our study draws on social exchange theory (SET) (Thibautand Kelley, 1959) to extend a recent stream of research that examines the influence offirms’ strategic profit emphases on service employees’ work-related performance(e.g. Ye et al., 2007; Marinova et al., 2008). The extant literature contains multipleorganizational-level assessments of the effect of firms’ strategic profit emphases onfirm performance (e.g. Rust et al., 2002). However, employees’ perceptions of theirorganizations’ strategic profit emphases and the influence of these emphases on theirown work-related engagement has received far less attention. This research studyresponds to Menguc et al.’s (2012) call for additional evaluation of how employeeengagement affects customer-related outcomes, and to de Jong et al.’s (2004) request forresearch on work-related factors that shape service employee perceptions of their firms’service climates. A survey-based approach is utilized to examine key informant serviceemployees’ perceptions of their own levels of job engagement as well the strategicprofit emphasis and service climate within their organizations. In addition, consistentwith research that suggests employee engagement mediates relationships betweenantecedent work life factors and work-related outcomes (e.g. Maslach et al., 2001; Rich
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et al., 2010; Saks, 2006), we assess the influence of employee engagement on therelationship between organizational strategic profit emphasis and service climate.
The following sections provide a review of the relevant literature and the theorythat informs the study hypotheses, describe the method and results, discuss the studyfindings and their implications for services theory and practice, and suggest directionsfor future research.
BackgroundKahn’s (1990) conceptualization of employee engagement incorporates three conditionsthat must be present for engagement to occur: meaningfulness, safety, and availability.Drawing on Kahn’s notion of work-related “meaningfulness,” Shuck et al. (2013, p. 6)state that employee engagement is contingent on “contextually sensitive levels ofmeaningfulness [. . .] as well as the adequacy and availability of work toward a givenwork task.” Subsequent research also elaborates on Kahn’s conceptual definition tocharacterize employee engagement as the amount of discretionary effort exhibited byemployees in their jobs (Frank et al., 2004) and employees’ passion for their work(Truss et al., 2006). Indeed, Zigarmi et al. (2009, p. 302) discuss engagement and passionfor work, interchangeably describing the construct as an “energetic state ofinvolvement with personally fulfilling activities to enhance one’s sense of professionalefficacy.”
Saks’ (2006) examination of the antecedents and consequences of employeeengagement makes an important distinction between two types of employeeengagement: job and organizational engagement. Job engagement focuses on passionfor the job itself, while organizational engagement entails passion that is focused on theemployee’s specific organization. Saks’ study proposes that job and organizationalengagement are related but distinct constructs that diversely influence antecedentsand consequences. Saks supports this contention by illustrating the differential effectsof job characteristics and procedural justice on the two types of employee engagementas well as the differential influences of job and organizational engagement onorganizational citizenship behavior concluding that employee engagement is a“meaningful construct that is worthy of future research” (p. 613).
Empirical research consistently indicates that employee engagement is associatedwith positive work-related outcomes (e.g. Christian et al., 2011; Harter et al., 2002; Richet al., 2010). However, as an individual-level construct, engagement is affected byemployee attitudes and perceptions about work environment “in an intimate fashion”(Shuck et al., 2013, p. 5). Thus, consistent with the tenets of Hackman and Oldham’s(1976) Job Characteristics Model, large-scale industry surveys that assess levels ofemployee engagement report that employee perceptions of work-related contextualfactors like job autonomy and work role meaningfulness greatly influence levels ofengagement (e.g. Towers Perrin US Talent Report, 2003; Sirota Survey Intelligence,2010). Based on these ideas, the current research examines the influence of serviceemployees’ job and organizational engagements on service climate.
According to Ostrom et al. (2010, p. 10) service climate is “the surface layer” oforganizational culture that is easier to manage, measure and change than culture itself.Since service climate involves the shared perceptions of service employees, Schneideret al. (1998) suggest that service climate strength is contingent on the extent thatemployees perceive that quality service is valued by their organizations. Improving
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organizational service climates because positive associations between service climateand multiple beneficial work-related outcomes are well documented in the literature.Research studies indicate that service climate favorably influences market andfinancial performance (Schneider et al., 2009), employee performance (de Jong et al.,2004; Salanova et al., 2005), customer satisfaction (Yagil and Gal, 2002; Schneideret al., 2009), customer perceptions of service quality (Dean and Rainnie, 2009;Garcia et al., 2010), employee job satisfaction, and organizational commitment andcitizenship behaviors (Paulin et al., 2006). While the work-related performance benefitsassociated with positive service climates are widely recognized, there is less researchthat links variables from the fields of organizational strategy and organizationalbehavior to better understand the antecedents of service climate.
Theory and hypothesis developmentSocial exchange theory. Social exchange theory (SET) (Thibaut and Kelley, 1959; Blau,1964) provides the theoretical basis for the relationships proposed in this study. SETdraws its roots from anthropology, social psychology, and sociology (Cropanzano andMitchell, 2005). The basic principle of SET is that relationships between entities arebased on a series of interactions between parties who are in a state of “reciprocalinterdependence” (Saks, 2006, p. 603). These entities may be individuals ororganizations. Through a series of interactions, one party within a relationshipbecomes indebted to the other that results in the obligated party making some sort ofrepayment to the relationship counterpart. These debts and repayments come in avariety of forms, including financial, ideological, social, behavioral, and emotional.Status or resource differences ensure continuity of the relationship by maintaining animbalance between the entities. Relationships evolve to become more trusting overtime as the number of interactions grows and each of the parties remains in therelationship as long as the benefits outweigh the costs.
SET is used to explain workplace relationships involving employees and theirmanager/supervisor (e.g. Lee and Cadogan, 2009), coworkers (e.g. Deckop et al., 2003;Ensher et al., 2001; Flynn, 2003), organization (e.g. Moorman et al., 1998; Tekleab andChiaburu, 2011), customers (e.g. Grandy et al., 2011; Sheth, 1996) and suppliers(e.g. Perrone et al., 2003). In terms of the relationships between organizations andemployees, Cropanzano and Mitchell (2005) suggest that when organizations providefulfilling work-related resources for their employees, employees repay the organizationin some way that is beneficial. For example, Lee and Cadogan (2009) report that whensales managers offer responsiveness and caring, salespeople repay them with loyaltyand competence.
Drawing on SET and consistent with Schneider et al.’s (1998) articulation of the“foundation issues” that sustain service employee work-related behavior and the firm’sservice climate, the conceptual model presented in Figure 1 proposes that a serviceorganization’s strategic profit emphasis (e.g. revenue enhancement or costcontainment) can be viewed as a supportive (or conflicting) work-related resourcethat influences service employee engagement and organizational service climate byfacilitating (or discouraging) the provision of superior customer service. Contingent onthe perceived meaningfulness of the organization’s strategic profit emphasis, serviceemployees may repay the organization with higher levels of job and organizationalengagement that, in turn, favorably influence organizational service climate. Job and
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organizational engagement are tested separately to further assess Saks’ (2006)assertion that the two types of engagement are related but distinct constructs thatdifferentially influence other constructs. The next sub-sections propose studyhypotheses to test the relationships depicted in Figure 1.
Strategic profit emphasis and service climate. Seminal strategic research theorizesthat business organizations emphasize two very different approaches for satisfyingcustomers and achieving financial success – cost leadership (cost containmentemphasis) and differentiation (revenue enhancement emphasis) (Porter, 1985). Porter’sstrategic profit emphases are frequently applied in service contexts as alternativestrategies for enhancing firm profitability and competitiveness. Revenue enhancementfocuses externally on favorably influencing customer perceptions by providingsuperior products and services to increase sales and profits, while cost containmentfocuses internally on reducing the costs of materials and labor required to produceoutput in order to increase profit (Rust et al., 2002).
Porter contends that effectively implementing either of these strategies requirestotal commitment and alignment of customer-focused activities within an organization.Thus, when pursuing cost leadership “a great deal of managerial attention to costcontrol is necessary,” and when pursuing a differentiation strategy, managers mustrecognize “a trade off with cost position” (Porter, 1985, pp. 35-6). Moreover, althoughfirms may try to simultaneously pursue a “hybrid” strategy that combines bothstrategic profit emphases, doing so can have adverse effects. For example, from aresource deployment perspective, revenue enhancement that emphasizes servicequality is not consistent with a cost containment that focuses on cutting costs(Marinova et al., 2008).
Accordingly, researchers suggest that firms should make trade-offs betweenrevenue enhancement and cost containment strategic emphases (e.g. Anderson et al.,1997; Singh, 2000). However, research on the relative benefits of strategic profitemphasis is somewhat inconclusive. While Rust et al. (2002) report that firms with arevenue enhancement focus perform better than firms that emphasize cost containmentor those that attempt to use a “hybrid” approach, Mittal et al.’s (2005) study indicatesthat it is possible for a dual emphasis to achieve long-term success, but that short-termsuccess is uncommon. Rust et al. (2002) conclude that the two strategic profit emphases
Figure 1.Conceptual model
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are distinct and differentially affect firm performance. Of the two strategic profitemphases, revenue enhancement is the most closely aligned with market orientationand customer focus, both of which are linked to beneficial customer-related firmperformance (Deshpande et al., 1993; Day and Nedungadi, 1994).
Research has long recognized that service employee customer focus is influenced bymanagement service orientation (e.g. Crozier, 1964; Siguaw et al., 1994; Suh et al., 2011)with studies indicating that discrepancies between employee self-orientation to serviceand employee perceptions of the firm’s service orientation negatively affectwork-related outcomes (Parkington and Schneider, 1987). Therefore, on the basisthat service employees who choose a career that primarily comprises of ongoinginteraction with customers traditionally embrace revenue enhancement goals andservice quality values (Donavan et al., 2004), we propose that revenue enhancementstrategic profit emphasis most closely aligns with service employees’ dominantschema: to serve customers well.
More recent research also indicates that value congruence and person-environmentfit is particularly important for job-related behavioral outcomes in service contexts(e.g. Ostroff et al., 2005; Elmadag et al., 2008) further suggesting that firms, that areperceived by their employees to prioritize revenue enhancement, provide more of whatSchneider et al. (1998) describe as the “general facilitative conditions” that create aclimate for service, than firms that are perceived by their employees to focus on costcontainment. Indeed, cost containment strategic profit emphasis runs counter to thecustomer-focused schema and training of many service employees and may thereforerequire more effort to adjust service employees attitudes and behavior towards internalcost containment goals rather than on external customer-focused goals (Ye et al., 2007).Ye et al. (2007, p. 167) further suggest that cost containment emphasis has“dysfunctional effects” on service employees while a revenue enhancement focus“diminishes . . . detachment.”
The current research proposes that a firm’s strategic profit emphasis represents afoundation issue or antecedent “contextual factor that sustains work behavior”(Schneider et al., 1998). Thus, firms that focus on revenue enhancement offer serviceemployees the resource of a work environment with a strategic profit emphasis that isconsistent with their own aspirations of being able to serve customers well, whereasfirms that emphasize cost containment do not. Social exchange theory further suggeststhat service employees who perceive their firms value and encourage practices andbehaviors that enable the provision of quality customer service feel obliged to repaytheir organizations by contributing towards a positive service climate. Thus:
H1. Revenue enhancement strategic profit emphasis has a greater positive effecton service climate than cost containment.
Strategic profit emphasis and employee engagement. Saks (2006) suggests thatindividuals repay their organizations through their levels of engagement. Thus, serviceemployees with firms whose strategic profit emphases generate working conditionsconsistent with their aspirations of providing customers with quality service mayrepay their organizations by being more engaged than service employees with firmsthat emphasize internal efficiency and cost control. Saks’ contention is furthersupported by empirical studies which demonstrate that employees perceiving higherlevels of supportive work-related contextual factors like supervisor support, job
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autonomy, and performance feedback reciprocate with higher levels of engagement(Demerouti et al., 2001; Menguc et al., 2012; Simpson, 2009). This stream of research isalso consistent with social exchange theory and with Robinson et al.’s (2004)characterization of engagement as a two-way relationship between the organizationand employee.
Drawing on the basic principle of SET – that relationships between serviceemployees and their organizations are in a state of reciprocal interdependence – and onKahn’s (1990) assertion that employees engage when they feel their engagementmatters, we propose that service employees who perceive their firms are providingsupportive, congruent, work-related resources (i.e. revenue enhancement strategicprofit emphasis) repay their organizations by being more engaged and immersingthemselves in their work. In contrast, consistent with Ye et al.’s (2007) research, serviceemployees who perceive their work environments are inconsistent with providingquality service (i.e. cost containment strategic profit emphasis) may withdraw and beless engaged. We therefore propose:
H2. Revenue enhancement strategic profit emphasis has a greater positive directeffect than cost containment on (a) job engagement, and (b) organizationalengagement.
Employee engagement and service climate. The extant research positively associatesemployee engagement with multiple aspects of organizational success and financialperformance (Harter et al.’, 2002). The link between employee engagement andwork-related issues is further underlined by Shuck et al.’s (2013) statement thatemployee engagement has a “focus toward work” and Robinson et al.’s (2004)suggestion that engaged employees have a “sense of business awareness.”Nevertheless, employee engagement is an individual-level construct that primarilyrelates to individuals’ attitudes, intentions and behaviors and is a function ofemployees’ emotional experiences and perceptions of well-being (May et al., 2004).Service climate, as described by Schneider et al. (1998) is a shared, collectivephenomenon that emanates from organizational practices, as well as serviceemployees’ individual affective, and motivational responses that are comprised ofshared perceptions of the extent that their organization values and supports customerservice quality.
Social exchange theory supports the notion that when service employees receivemeaningful job-related resources from their organizations, they reciprocate bybecoming more engaged in their job roles of providing excellent service to customers aswell as their roles as members of their organization. By doing so, they promote apositive service climate (Cropanzano and Mitchell, 2005; Salanova et al., 2005). Inaddition, since service climate involves shared perceptions, when service employees’levels of engagement and efforts to build a positive service focus increase, a contagioneffect occurs as other service employees share in their perceptions (Salanova et al.,2005). Thus, service employee engagement can reasonably be expected to favorablyinfluence service climate. We therefore extend May et al.’s (2004) contention thatindividuals who experience deep engagement in their roles come to identify with theirjobs to propose that engaged service employees who are positive, vigorous andpassionate about the meaningfulness of their roles also collectively identify with andfeel positive about their firm’s service climate:
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H3. (a) Job engagement and (b) organizational engagement have positive directeffects on service climate.
Mediating influence of employee engagement. Our final hypothesis further assesses themediating role of employee engagement identified in extant empirical research byexamining its effect on the relationship between revenue enhancement strategic focusand service climate. Previous research indicates that employee engagement mediates(or partially mediates) relationships between antecedent work-related foundationconditions and multiple work-related outcome variables (e.g. de Jong et al., 2004;Maslach et al., 2001; Rich et al., 2010; Salanova et al., 2005). Research also shows thatfirm strategic profit emphasis directly affects work-related outcomes like financialperformance (e.g. Rust et al., 2002). However, Marinova et al. (2008) suggest thatfrontline service employee “mediation mechanisms” play a critical role in explicatingrelationships between firm strategic profit emphases and service-related outcomes.Marinova et al.’s (2008) ideas are consistent with Heskett et al.’s (1997)conceptualization of service employees’ role in the firm’s “service profit chain” andwith Schneider et al.’s (1998) contention that foundation issues (in the current context:firms’ strategic profit emphases) are necessary but not sufficient conditions for aneffective service climate. Thus, drawing on SET and Schneider et al.’s (1998) assertionthat service climate is stronger in organizations where employees perceive that theprovision of superior customer service is valued and rewarded, we propose thatemployee engagement mediates the relationship between revenue enhancementstrategic profit emphasis and service climate:
H4. The relationship between revenue enhancement strategic profit emphasis andservice climate is mediated by (a) job engagement and (b) organizationalengagement.
MethodSample and data collectionAn online survey was used to collect data from key informant service employees.Consistent with established practice (e.g. Gwinner et al., 1998), undergraduate studentsin a marketing research class were trained as data collectors. The students thenidentified and contacted potential respondents either in person, online, or by telephoneto request participation in the research study. To be eligible and receive the URL to theonline survey, potential respondents had to be at least 21 years of age and currentlyemployed in a services industry. In total, 14 of the returned surveys containedinsufficient data, leaving a total of 502 usable questionnaires. The data collectionprocess continued for approximately three weeks at which point the principalresearchers made random follow-up calls to 10 percent of the sample to confirmrespondents’ demographic information and verify actual participation. More thantwo-thirds of the student data collectors obtained a respondent.
The respondent pool is a convenience sample of 502 full-time employees who workin multiple organizations in a wide range of service industries. Just over half of therespondents are female (50.9 percent) and mean respondent age is 35.8 years(SD ¼ 11.82). The mean organizational tenure is 8.26 years (SD ¼ 8.09) and the meantenure in their service industry is 11.52 (SD ¼ 9.97). The most frequently representedservice industries are: retail (20.16 percent), restaurant and hospitality (17.64 percent),
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banking and financial services (12.21 percent), sales (6.98 percent), healthcare (6.40percent), real estate (4.26 percent) and education (2.33 percent). The remaining 30.04percent of respondents comes from a wide variety of other service industries.
Researchers claim that self-report employee surveys that focus on organizationalpractices and procedures are valid (Saks, 2006), and “more than just opinion”(Schneider et al., 1998, p. 160). Previous studies examine service employees’self-reported perceptions of service climate (e.g. de Jong et al., 2004; Garcia et al., 2010;Little and Dean, 2006). Marinova et al. (2008) contend that service employee perceptionsare useful for the study of firms’ strategic profit emphases and their influence onwork-related outcomes.
MeasuresEstablished, previously validated scales are utilized to assess the five constructs in thestudy hypotheses. All items (shown in Table I) are measured on five-point scales, withhigher values indicating stronger agreement or a more positive evaluation. The twostrategic profit emphases (revenue enhancement and cost containment) are measuredwith Ye et al.’s (2007) scales. Since the original scales are applied in the context ofhealthcare services, slight modifications are made to ensure applicability in any serviceindustry. Job engagement (the extent of an individual’s psychological presence in theirjob) and organizational engagement (the extent of an individual’s psychologicalpresence in their organization) are measured with Saks’ (2006) five- and six-item scales.Service climate is measured with Schneider et al.’s (1998) eight-item global serviceclimate scale. This scale provides a summary measure of service employees’perceptions of their respective organizations’ climate for service. All items aremeasured on Likert scales (1 ¼ strongly disagree to 5 ¼ strongly agree) except serviceclimate (1 ¼ very bad to 5 ¼ very good).
ResultsLISREL 8.8 ( Joreskog and Sorbom, 2006) is used to test the measurement andstructural models. A confirmatory factor analysis is conducted to test the measurementmodel. Overall, this analysis yields adequate fit for the hypothesized five-factor model(x 2 (364) ¼ 1063.95 p , 0.01). While chi-square values are typically significant forsamples of this size, several other key fit indices demonstrate that the measurementmodel has good fit (Kenny et al., 2006). For example, the mean square error ofapproximation (RMSEA) is 0.062, the non-normed fit index (NNFI) is 0.97, theincremental fit index (IFI) is 0.98, and the standardized RMR is 0.047. The errorcovariances of one pair of items from organizational engagement and two pairs ofitems from service climate are allowed to correlate within the same scales since itemswithin the same scale are expected to be correlated with one another (Gerbing andAnderson, 1984). Each of the standardized factor loadings is significant ( p , 0.01).
A Harman single factor test is used to assess common method variance for thedataset. Consistent with this approach, another measurement model is estimated with ameasurement factor in place of the latent variables. This method factor model producesa worse fit than the hypothesized measurement model (x 2 (374) ¼ 6034.13 p , 0.01,RMSEA ¼ 0.174, NNFI ¼ 0.88, IFI ¼ 0.89, SRMR ¼ 0.11). A x 2 difference testconfirms that the difference in fits for the two models is significant (x 2
diff (10) ¼ 99.73,p , 0.001). This result indicates that a common underlying factor is not the best
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Measure Std. coeff.
Revenue enhancement strategic profit emphasisManagers implement initiatives that bring new sources of revenue 0.75New technologies are regularly adopted that allow our company to offernew customer services
0.65
Employees provide ideas for expanding customer services 0.74Employees are appropriately recognized for developing new sources ofrevenue
0.57
Managers closely monitor the financial success of customer initiatives 0.82
Cost containment strategic profit emphasisNew innovations are regularly adopted to reduce organizational costs 0.67Managers use cost data to make changes in organizational practices 0.79Workers are asked to be aware of the cost implications of their decisions 0.72Training programs emphasize cost control in job-related decisions 0.72Strict cost control systems are in place for most of the things that we do 0.72
Job engagementI really “throw” myself into my job 0.75Sometimes I am so into my job that I lose track of time 0.65This job is all consuming; I am totally into it 0.74My mind often wanders and I think of other things when doing my job(R)
0.57
I am highly engaged in this job 0.82
Organizational engagementBeing a member of this organization is very captivating 0.79One of the most exciting things for me is getting involved with thingshappening in this organization
0.79
I am really not into the “goings-on” in this organization (R) 0.78Being a member of this organization makes me come “alive” 0.79Being a member of this organization is exhilarating for me 0.83I am highly engaged in this organization. 0.84
Service climateHow would you rate the job knowledge and skills of employees in yourbusiness to deliver superior quality work and service?
0.64
How would you rate efforts to measure and track the quality of the workand service in your business?
0.72
How would you rate the recognition and rewards employees receive forthe delivery of superior work and service?
0.71
How would you rate the overall quality of service provided by yourbusiness?
0.66
How would you rate the leadership shown by management in yourbusiness in supporting the service quality effort?
0.82
How would you rate the effectiveness of your firms’ communicationsefforts to employees?
0.78
How would you rate the effectiveness of your firms’ communicationsefforts to customers?
0.76
How would you rate the tools, technology, and other resources providedto employees to support the delivery of superior quality work andservice?
0.79
Note: n ¼ 502, x 2 (364) ¼ 1063.95 ( p, 0.01), x 2/df ¼ 2.92, NNFI ¼ 0.97, SRMR ¼ 0.047, IFI ¼ 0.98,RMSEA ¼ 0.062
Table I.Measures and
confirmatory factoranalysis results
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representation of the data and that common method variance is not a pervasiveproblem for our dataset.
Table II reports alpha reliabilities, average shared variance estimates, andinter-construct correlations. Construct reliability is evaluated using Cronbach’s alpha.All of the measures exhibit acceptable levels of reliability with the minimum coefficientalpha at 0.81. Fornell and Larcker’s (1981) index of the average variance in each latentfactor accounted for by its indicators is b 0.50 for all constructs. Evidence fordiscriminant validity comes from the fact that the shared variance among any twoconstructs is less than the average variance explained in the items (ry c(h)) by theirintended construct. Collectively, these results provide evidence of adequate convergentand discriminant validity and indicate that it is appropriate to test the studyhypotheses.
To test the study hypotheses, a structural equation model is estimated, using themaximum likelihood method of parameter estimation. Figure 2 presents the final
M SD 1 2 3 4 5
Revenue enhancement 3.63 0.67 0.84/0.66Cost containment 3.57 0.68 0.60 * 0.81/0.72Job engagement 3.66 0.69 0.27 * 0.27 * 0.82/0.71Organizational engagement 3.59 0.77 0.43 * 0.37 * 0.66 * 0.92/.81Service climate 3.88 0.64 0.62 * 0.46 * 0.40 * 0.56 * 0.90/0.74
Notes: n ¼ 502 for all correlations, italicised diagonal entries are coefficient alpha reliability estimatesand the square roots of the average variance extracted, *p , 8.01, one-tailed
Table II.Means, standarddeviations, reliabilities,inter-correlations, andsquare-roots of theaverage varianceextracted
Figure 2.Final structural results
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structural model. The overall fit of the model is acceptable (x 2 (364) ¼ 1063.95,p , 0.01). Several key fit indices provide supporting evidence of good fit; the root meansquare error of approximation (RMSEA) is 0.062, the non-normed fit index (NNFI) is0.97, incremental fit index (IFI) is 0.98, and the standardized RMR is .047. The samecorrelated error covariances from the measurement model are also present in thestructural model. The structural error terms in the Psi matrix are allowed to correlatebetween job engagement and organizational engagement. This correlation isreasonable as both variables are types of employee engagement. As shown inTable II, the correlation between these two variables is significant at the p , 0.01 level.
The study findings provide support for H1 by indicating that revenue enhancementstrategic profit emphasis has a greater direct positive effect on service climate thancost containment. The direct relationship between revenue enhancement strategicprofit emphasis and service climate is highly significant (g ¼ 0.54, t-value ¼ 7.75,p , 0.001), whereas no significant direct relationship is found between costcontainment and service climate (g ¼ 0.02, t-value ¼ 0.27, p , ns).
H2 predicts that revenue enhancement strategic profit emphasis has a strongereffect on employee engagement than cost containment. The study findings indicatethat both revenue enhancement (g ¼ 0.22, t-value ¼ 2.77, p , 0.01) and costcontainment (g ¼ 0.17, t-value ¼ 2.10, p , 0.05) have significant, positiverelationships with job engagement. Although revenue enhancement has a slightlystronger relationship with job engagement than cost containment, when equalityconstraints are placed on these two parameters to test a nested model, the x 2 differencetest shows that the relationships are not significantly different from each other( p . 0.05). Thus, H2a is not supported. However, the study findings do providesupport for H2b. Revenue enhancement has a significant effect on organizationalengagement (g ¼ 0.40, t-value ¼ 5.44, p , 0.001), while the relationship between costcontainment and organizational engagement is not significant (g ¼ 0.13,t-value ¼ 1.87, p ¼ ns).
H3 predicts a direct positive relationship between employee engagement andservice climate. As with H2, the study findings support H3b but not H3a. While theproposed relationship between job engagement and service climate is not significant(b ¼ 0.02, t-value ¼ 0.25, p ¼ ns), the results show a significant positive relationshipbetween organizational engagement and service climate (b ¼ 0.33, t-value ¼ 4.40,p , 0.01).
The final study hypothesis, H4, further assesses the mediating role of employeeengagement suggested in previous studies by proposing that the relationship betweenrevenue enhancement strategic profit emphasis and service climate is strengthened byemployee engagement. As with the previous hypotheses, the results are significant fororganizational engagement but not for job engagement, with the study findingsshowing that the relationship between revenue enhancement and service climate isstrengthened by organizational engagement, but not by job engagement. Therefore,H4b is supported by the data, but H4a is not.
The support for H4b indicates that revenue enhancement strategic emphasissignificantly influences service climate both directly and indirectly. To further assessthe relationship between revenue enhancement and service climate by more completelyinterpreting the study findings, an examination of the indirect effects is performed. Theprocess of decomposition of effects, recommended for use in structural equation
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models, is used to examine the mediation (Brown, 1997; Kline, 2005). Thedecomposition of effects results indicate that revenue enhancement has a significantindirect effect on service climate through organizational engagement (standardizedindirect effect ¼ 0.14, t-value ¼ 4.53, p , 0.001). Therefore, since the study findingsshow a significant direct relationship, the pattern of effects signifies thatorganizational engagement also serves as a partial mediator between revenueenhancement strategic profit emphasis and service climate (Kline, 2005). Moreover,consistent with Brown (1997), a comparison of the direct, indirect, and total effectsreveals that 79.7 percent of the covariance between revenue enhancement strategicprofit emphasis and service climate is explained by the direct effect, with the remaining20.3 percent being explained by the mediation of organizational engagement.
Since the study findings indicate that cost containment strategic profit emphasis doesnot have a direct relationship with service climate or an indirect relationship througheither type of employee engagement, assessing decomposition of effects is unnecessary.
DiscussionOur research addresses current strategic priorities for service organizations by linkingvariables from the fields of strategy and organizational behavior to examine how firmsmay exploit strategic profit emphasis to encourage work environments that engageservice employees and stimulate service climate. The study findings indicate thatalternative strategic profit emphases differentially affect employee engagement andservice climate, and that service climate is driven by organizational engagement ratherthan job engagement. These findings further illustrate the diverse effects oforganizational revenue enhancement and cost containment emphases highlighted byMarinova et al. (2008) and extend several other research themes in the services andemployee development literatures.
First, despite compelling indications that managerial policy and practice influenceservice climate (e.g. Bowen, 2010; Schneider et al., 1992; Schneider et al., 1998), serviceclimate is often assessed as an antecedent rather than as an outcome variable. Ourstudy findings suggest that service climate may also be viewed as a customerservice-related outcome variable that is influenced by the “foundation issue” oforganizational strategic profit emphasis. The identification of revenue enhancementstrategic emphasis (but not cost containment) as a contextual factor that directlysustains work-related attitudes (i.e. service employees’ perceptions of service climate)is consistent with Schneider et al.’s (1998) assertion that firms paying closest attentionto customer needs are most likely to create conditions yielding a climate for service andwith research that indicates firms with revenue enhancement emphases perform better(e.g. Rust et al., 2002). The strong influence of revenue enhancement is also consistentwith the premise that work environments that emphasize revenue enhancement aremore congruent with service employees’ dominant mental schemas because theyprovide job-related resources that enable employees to serve customers well. Thebenefits associated with matching employee aspirations of delivering superiorcustomer service with organizational strategic profit emphases is also consistent withprior work that assesses service employee value congruence and person-environmentfit (Elmadag et al., 2008; Ostroff et al., 2005).
Second, by highlighting the influential role of employee engagement, our findingsalso build on Menguc et al.’s (2012) assertion that employee engagement has
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implications for customer-related outcomes, respond to de Jong et al.’s (2004) call forresearch that further examines organizational characteristics that influence employees’perceptions of service climate, and extend recent examinations of linkages betweenfirms’ strategic profit emphases and service-related outcomes (e.g. Ye et al., 2007;Marinova et al., 2008). Schneider et al. (1998) attribute service climate to employeeperceptions of the job-related resources (or foundation issues) provided by theirorganizations, but temper their claim by proposing that foundation issues (orcontextual factors that sustain work behavior) are necessary but not sufficient foreffective service climate. Consistent with this proposition as well as social exchangetheory, our findings highlight employee organizational engagement as a potentiallyrobust driver of service climate by suggesting that when a firm provides serviceemployees with job-related resources that are consistent with their aspirations ofserving customers well, employees repay the firm with higher levels of organizationalengagement.
Third, our findings provide additional support for evidence from the employeedevelopment literature that employee job and organizational engagement are relatedbut distinct entities that are differentially influenced by antecedent work-relatedfactors and, in turn, differentially influence work-related outcomes (e.g. Rich et al.,2010; Rothbard, 2001; Saks, 2006). The significant sequence of relationships foundbetween revenue enhancement, organizational engagement and service climate areconsistent with previous studies that examine organizational engagement,(e.g. Cropanzano and Mitchell, 2005; Salanova et al., 2005). In contrast, although costcontainment and revenue enhancement are both shown to significantly influence jobengagement, the findings indicate that job engagement does not affect service climate.
Upon reflection, this somewhat unanticipated result may be explained by thefollowing logic. Service employees with high levels of organizational engagement thatwant to see their firms do well are likely to favorably perceive their firms’ serviceclimate. However, employees with high levels of job engagement may be so wrappedup and absorbed with the job itself that they do not have as strong feelings about theirfirms. Accordingly, in contrast to service employees with high levels of organizationalengagement, service employees with high levels of job engagement may focus theircognitive, affective, and physical energies (Rich et al., 2010) on serving customers andmay feel less obligation to compensate the firm for its provision of job-relatedresources. Besides, individuals who are overly engaged with the job rather than theorganization are less likely to be loyal and could easily take their passion for the job toa competitor firm.
Our study findings also have implications for practice. Since job and organizationalengagement consistently behave differently in our model, an intriguing pattern ofresults surfaces that may help managers and human resource developmentprofessionals to better understand the nuances of devoting resources and effort tomore effectively engage service employees. Although Di Mascio (2010) contends thatservice employees may not all share a common understanding of customer service,extant research indicates that the dominant aspiration for service employees is to servecustomers well (e.g. Donavan et al., 2004; Ye et al., 2007). Moreover, as mentionedearlier, it appears reasonable to expect individuals who choose a career where dailyface-to-face customer contact is obligatory and pervasive to be engaged in their jobs –but not necessarily the firms for who they carry out their jobs. Thus, consistent with
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Donavan et al.’s (2004) prescription that service organizations should be careful to hireservice employees who are predisposed to serving customers, we propose that firmsshould devote resources towards promoting organizational engagement – after hiringindividuals that have already demonstrated a track record of job engagement. In short,the most effective approach to employee engagement may be to hire for jobengagement and then focus on providing job-related resources and work environmentsthat service employees perceive to support, value, and reward customer service quality,thereby making them favorably perceive the firm to the extent that they feel obliged toreciprocate through organizational engagement. Thus, consistent with SET andSchneider et al.’s (1998) ideas, our findings strongly suggest that service organizationscan lay a strong foundation for service climate by devoting their efforts and resourcestowards increasing service employees’ organizational engagement.
From a managerial perspective, this study informs the need to develop morecustomer-focused service organizations through more effective motivation andmanagement of service employees. Our confirmation that “employee engagementmatters” is consistent with previous research and with an earlier study thatdemonstrates that the success of customer relationship management programs inservice industries is dependent on employee engagement (Bohling et al., 2006). Asdiscussed previously, our study findings also strongly suggest that to create a climatefor service, service organizations should create work environments that emphasizerevenue enhancement. However, firms like Hampton Inn, Walmart and Southwest thatcompete on price must endeavor to promote organizational engagement by creatingclimates for service that are fine-tuned to the type of service that is consistent withorganizational objectives.
As in all research, the current study has limitations that also present opportunitiesfor future research. The current study utilizes a convenience study that draws on onekey informant employee’s perceptions of organizational level variables (e.g. strategicprofit emphasis and service climate). However, although it is conceivable that someemployees’ perceptions of these phenomena may be incorrect, our results are based ona large sample of experienced service employees from multiple service industries.Nevertheless, dyadic or even triadic perceptual data from service employees, managersand/or customers might have yielded different or more informative findings. Inaddition, as with most empirical research studies, longitudinal rather thancross-sectional data would help to better establish causality.
Looking ahead, based on our finding that service employees who perceive theiraspirations are consistent with their firms’ strategic profit emphases are more engagedand more favorably perceive their organizations’ service climates, an interestingdirection for further research would be to incorporate a third “hybrid” category toexamine the influence of matches and mismatches between individual serviceemployee and organizational perceptions of strategic profit emphases and theirassociations with work-related performance. Incorporating additional moderators likeindividual difference variables, whether service employees are customer facing orinternal service providers, and the extent that service employees engage in sales versusservice may also provide fruitful avenues for future research. Further, in the context ofsales, differences in levels of engagement may exist based on whether or not serviceemployees are compensated with commission. Future research could also test thealternative strategic emphases and forms of employee engagement with other
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antecedent and outcome work-related variables to supplement and extend our studyfindings.
In conclusion, just as Ye et al. (2007) suggest that firms can create innovativestrategies and practices by leveraging service employee learning and knowledge, wepropose that service organizations can create unique service climates (and customerexperiences) by focusing on revenue enhancement to exploit service employeeengagement. We therefore hope that our research encourages additional examinationsof how employee engagement in service organizations contributes towards the designof superior customer service experiences.
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Ye, J., Marinova, D. and Singh, J. (2007), “Strategic change implementation and performance lossin the front lines”, Journal of Marketing, Vol. 71 No. 3, pp. 156-171.
Zigarmi, D., Nimon, K., Houson, D., Witt, D. and Diehl, J. (2009), “Beyond engagement: toward aframework and operational definition for employee work passion”, Human ResourceDevelopment Review, Vol. 8 No. 3, pp. 300-326.
About the authorsCarolyn (“Casey”) Findley Musgrove (PhD University of Alabama) is Assistant Professor ofMarketing at Indiana University Southeast. Her research focuses on the front line interactionsbetween companies and both internal and external customers. She is specifically interested in theareas of service employee engagement and organizational investments in social capital. Her otherrelated research interests include retailing and innovation.
Alexander E. Ellinger (PhD University of Georgia) is Frank Schultz Professor of BusinessAdministration in the Culverhouse College of Commerce and Business Administration at TheUniversity of Alabama. He is the Co-editor of International Journal of Physical Distribution &Logistics Management and serves on six editorial boards. His research interests include theinfluence of human resource development strategies in logistics organizations,marketing/logistics functional integration, and customer service and firm performance.
Andrea D. Ellinger (PhD University of Georgia) is a Professor of Human ResourceDevelopment in the College of Business and Technology at The University of Texas at Tyler. Sheis the Editor of Human Resource Development Quarterly and serves on several editorial boards.She has published and presented her research on managerial coaching, informal learning, andlearning organizations nationally and internationally. Andrea D. Ellinger is the correspondingauthor and can be contacted at: [email protected]
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