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

Industrial Marketing Management 43 (2014) 126–135

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Industrial Marketing Management

Incorporating human resource management initiatives into customer services: Empirical evidence from Chinese manufacturing firms Taiwen Feng a,⁎, Dan Wang b,1, Daniel Prajogo c,2 a b c

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

a r t i c l e

i n f o

Article history: Received 21 October 2012 Received in revised form 17 March 2013 Accepted 22 July 2013 Available online 27 August 2013 Keywords: Service reward Service training Employee satisfaction Customer service Customer satisfaction

a b s t r a c t The existing operations management literature has extensively investigated the associations between customer satisfaction and firm performance. However, how to improve customer satisfaction through employee empowerment, service reward, and service training has rarely been investigated. In this research, we tied human resource and service operations management to each other and examined the relationships among employee empowerment, service reward, service training, employee satisfaction, customer service and customer satisfaction based on empirical study of 214 Chinese manufacturing companies. Using structural equation modeling, we found that both employee empowerment and service training have significant impacts on employee satisfaction and customer service, while service reward only has significant impact on customer service. We also found that both employee satisfaction and customer service have significant impact on customer satisfaction. However, the impact of employee satisfaction on customer service is insignificant. The findings suggest that employee empowerment, service reward and service training are important considerations for operations managers to boost employee satisfaction and customer service, which in turn improve customer satisfaction. We provide empirical evidence that employee empowerment, service reward and service training play significant roles in increasing customer satisfaction in the context of manufacturing businesses. © 2013 Elsevier Inc. All rights reserved.

1. Introduction Due to the shrinking of product life cycles and increasing global competition, as well as volatile market dynamics, organizations have become more active in seeking ways of improving customer satisfaction to raise performance (Yee, Yeung, & Cheng, 2010). Service operations management (SOM) has emphasized providing excellent customer service as a means to improve customer satisfaction. In recent years, many manufacturing companies have made service transition a priority to maintain a long-term competitive advantage (Gebauer, Gustafsson, & Witell, 2011; Jacob & Ulaga, 2008). Substantial research has also been devoted to such topics as innovating, managing and optimizing service systems, in order to enhance customer service and operational performance (e.g., Kumar & Telang, 2011). However, many firms have enthusiastically applied the operation-centric approach which focuses on the manufacturing process of optimization, sequencing and timing as an effective means for improving organizational performance, while the ⁎ Corresponding author at: School of Management, Northwestern Polytechnical University, No. 127 Youyi West Road, Xi'an, Shaanxi 710072, China. Tel.: +86 13572190964. E-mail addresses: [email protected] (T. Feng), [email protected] (D. Wang), [email protected] (D. Prajogo). 1 Tel.: +61 3 9902 6620. 2 Tel.: +61 3 9903 2030. 0019-8501/$ – see front matter © 2013 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.indmarman.2013.08.007

impact of human resource management (HRM) practices on operational systems has often been overlooked (Boudreau, Hopp, McClain, & Thomas, 2003). The importance of HRM practices such as employee empowerment, service reward and service training and their impacts on employee satisfaction and customer satisfaction have largely been neglected in the existing SOM literature (Boudreau, 2004). On the other hand, issues related to HRM have been widely investigated in the fields of organizational behavior (OB) and psychology for many decades. The pervasive interest in HRM among OB researchers and practitioners is grounded on the premise that HRM practices are closely related to the cognitive, attitudinal and behavioral aspects of employees which are crucial to organizational effectiveness, and the ultimate profitability and growth of the firm (Jun, Cai, & Shin, 2006; Yee et al., 2010). Therefore, a great number of researches have been calling for studies to examine HRM practices, particularly to what extent these practices influence customer service, customer satisfaction and organizational performance (e.g., Batt, 2002; Guest, 2011; Rogg, Schmidt, Shull, & Schmitt, 2001). Yet, for a long time, HRM and SOM remained as separate fields with very few studies looked at the integration of those two areas in the context of service industries (Boudreau et al., 2003). We believe that the impact of HRM practices on service operations cannot be ignored and is particularly essential for the manufacturing industry because

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manufacturing firms are increasingly evaluated not only by their products, but also by the quality of the services provided to their customers (Gebauer, Krempl, & Fleisch, 2008). For example, more and more manufacturing companies are offering various high valueadded services, such as preventive maintenance, remote diagnosis and financial leasing to maximum customer value. In the process of service delivery, activities of service employees connect organizations to their customers (Yee, Yeung, & Cheng, 2008). Therefore, how to empower, motivate and train service employees to improve their satisfaction and to increase the service value provided to customers has become an important issue to be addressed. In this study, we attempt to investigate a fundamental question in SOM: Do employee empowerment, service reward and service training have significant impacts on customer satisfaction in manufacturing companies? If so, what are the possible relationships among employee empowerment, service reward, service training, employee satisfaction, customer service and customer satisfaction? We empirically examined these relationships through a survey of 214 manufacturing companies in China and the development of theorybased structural equations model. 2. Hypotheses development 2.1. Employee empowerment, employee satisfaction and customer service Empowerment relates to task discretion and providing more autonomy to employees (Abbasi, Khan, & Rashid, 2011) which aims at generating improved individual and organizational performance through employee participation in the decision-making process (Geralis & Terziovski, 2003). Applying this concept to service workers, Bowen and Lawler (1992, 1995) argued that the empowerment approach encourages frontline employees to exercise initiative and imagination in solving problems relating to customer service, which leads to higher involvement and performance of service providers as compared to the traditional top–down, control-oriented management approach. A number of previous studies found that empowered employees experience positive psychological status towards their jobs and themselves, have a clear sense of contribution, and are able to initiate and regulate behaviors through autonomy (Bowen & Lawler, 1992, 1995; Harris, Wheeler, & Kacmar, 2009; Seibert, Silver, & Randolph, 2004). The rationale behind the positive impact of empowerment on employee satisfaction is the job characteristics theory which specifies that the specific job characteristics (i.e., task identify, task significance, skill variety) are the key predictors for psychological status (Hackman & Oldham, 1976). With more autonomy, employees will perceive job tasks as more interesting and challenging, thereby leading to a higher level of self-achievement and satisfaction accompanying job completion (e.g., Spreitzer, Kizilos, & Nason, 1997). Employee empowerment has not been researched extensively in customer services of manufacturing firms, although a few empirical studies found that empowerment leads to improved employee satisfaction in the banking industry (Akbar, Yousaf, Haq, & Hunjra, 2011). Recently, Jun et al. (2006) indicated that empowerment has a positive impact on employee satisfaction in the total quality management of manufacturing firms. Therefore, our first hypothesis is: H1a. Employee empowerment has a positive impact on employee satisfaction. Research in the service industry has shown that empowered employees have more service-oriented organizational citizenship behaviors, which is essential to the quality of services delivered to customers (Jiang, Sun, & Law, 2011). Organ (1988) defined organizational citizenship behavior as “individual behavior that is discretionary, not directly or explicitly recognized by the formal reward system, and that the aggregate promotes the effective functioning

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of the organization” (p.4). Self-consistency theory can be applied to account for the relationship between empowerment and customer service (Jiang et al., 2011). According to self-consistency theory, individual will be motivated to perform on a task in a manner which is consistent with the self-image with which they approach the task situation (Korman, 1970). Empowered employees will have the self-image of taking control over the situation and being responsible for the service outcomes (Conger & Kanungo, 1988), and the job role also becomes less explicit because any actions that contribute to the final performance might be considered as in-role behaviors (Jiang et al., 2011). Therefore, employees with enlarged authority are willing to make best use of their creativity and initiative to produce service excellence (Subramony, 2009). Hence, we hypothesize that: H1b. Employee empowerment has a positive impact on customer service. 2.2. Service reward, employee satisfaction and customer service Service reward, which involves the financial and non-financial benefits for service quality, has a major impact on the motivation and behaviors of service employees (Manolopoulos, 2008). Generally, rewards are associated with positive psychological feelings (i.e., passion, energy) within individuals (Macey & Schneider, 2008), as recognitions of behaviors or performance that are valued by the organization. Rewarded employees will experience a higher level of self-efficiency and self-esteem, which fulfill the basic human needs of striving for success and being affiliated. Financial rewards will make service employees more satisfied with their payment, while non-financial rewards are positive indications for promotion opportunities and career success within the company (Tymon, Stumpf, & Doh, 2010). With such positive feedback, employees' spirits can be lifted up which leads to improved satisfaction. Therefore, we hypothesize that: H2a. Service reward has a positive impact on employee satisfaction. Service reward also has a positive impact on the performance of employees, especially in terms of the services they provided to customers (Sun, Hsu, & Wang, 2012). According to reinforcement theory of motivation, behavior is driven by its anticipated or experienced consequences (Skinner, 1953). Rewards are positive consequences that can reinforce the efforts in providing high quality services, which make service employees more energetic and creative in taking extra responsibilities to meet customers' expectations. Furthermore, rewards provide incentives for employees to engage more with their tasks and be more committed towards achieving better outcomes (Bhatnagar, 2007), leading to customer satisfaction and improved service quality perceived by customers (Yee et al., 2010). Consequently, rewarded service employees are usually more self-motivated and flexible in performing inrole and extra-role behaviors to meet customer needs (Subramony, 2009). Thus, we hypothesize that: H2b. Service reward has a positive impact on customer service. 2.3. Service training, employee satisfaction and customer service Training is a vital component of HRM, which provides opportunities for the employees to enhance their knowledge, ability and skill levels (Subramony, 2009). Previous research has reported that service employees who received training performed better than those who did not (Chang, Chiu, & Chen, 2010), and experienced a higher level of satisfaction regarding the nature of the job (Choo & Bowley, 2007). In particular, service training not only upgrades the interpersonal and communication skills of employees while encountering customers, but also increases employees' general professionalism and commitment (Bushardt & Fretwell, 1994). This results in higher levels of satisfaction

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due to self-growth and better promotion opportunities within the company. It has also been found that training provides the socialization opportunity, which facilitates general satisfaction of employees in teamwork and daily cooperation (Autry & Wheeler, 2005). Therefore, we propose the linkage between service training and employee satisfaction as the following:

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

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

H4b. Employee satisfaction has a positive impact on customer satisfaction.

Previous studies also indicated that training has a positive impact on employees' productivity and performance (Choo & Bowley, 2007; Subramony, 2009). Service training is viewed as a strategic activity that equips employees with the adequate knowledge, skills, behaviors and attitudes that meet or exceed customers' expectations (Lytle, Hom, & Mokwa, 1998). Through training, employees become more competent and flexible in managing the relationships with customers, and in coping with unexpected problems such as customer complaints. A recent study found that trained employees became more satisfied, motivated and loyal to the organization (Glaveli & Karassavidou, 2011), and such positive emotional status could improve the service quality provided to customers (Yee et al., 2008). Hence, the next hypothesis is: H3b. Service training has a positive impact on customer service.

2.4. Employee satisfaction, customer service and customer satisfaction Employee satisfaction describes a pleasurable or positive emotional state resulting from one's job appraisal (Locke, 1976). Heskett, Jones, Loveman, Sasser, and Schlesinger (1994) and Heskett, Sasser, and Schlesinger (1997) have introduced the framework of service-profit chain to the service management literature, providing rationales for the links between profitability, customer loyalty, and employee satisfaction. From the service-profit chain perspective, it is argued that satisfied employees are more likely to engage in organizational citizenship behavior and create external service value for customers (Yoon & Suh, 2003), which leads to improved customer satisfaction, loyalty and revenue growth (Brown & Lam, 2008). Yee et al. (2008) applied social exchange theory to explain the relationship between employee satisfaction and customer service. According to this theory, social exchange involves a series of negotiations between parties to generate explicit or inexplicit obligations (Emerson, 1976; Gouldner, 1960). The basic assumption is that most people expect equity or justice in social exchanges and therefore, individuals are obliged to reciprocate and return favors if social benefit is accorded in excess of what is anticipated (Cropanzano & Mitchell, 2005). Based on this theory, it is evident that when employing organizations offer favorable conditions to make service employees satisfied, the latter will reciprocate by being committed to providing high-quality service for the benefit of the employer (Flynn, 2005; Yee et al., 2008). Therefore, customer service will be enhanced by extra effort performed by satisfied service employees. H4a. Employee satisfaction has a positive impact on customer service. Apart from affecting customer satisfaction via service quality, employees are also able to influence customer satisfaction directly through their emotional status (Brown & Lam, 2008; Yee et al., 2008). Howard and Gengler (2001) found that customers who are exposed to happy service employees experienced positive attitudinal judgments towards a product. The theory of emotional contagion, which focuses on affect transfer in the context of employee–customer encounters (Brown & Lam, 2008), posits that there is a tendency of individuals to automatically mimic the expressions, postures and movements of others especially of those who they “like” (Barsade, 2002). Such mimicry produces corresponding emotions of the receiver and facilitates the convergence of emotions from the sender and the receiver (Hatfield,

Brown and Lam (2008) showed that the service value perceived by customers is the foundation for the employee–customer relationship, suggesting that service quality is a determining factor for customer satisfaction. In the service industry, it is widely agreed that high-quality service will lead to satisfied customers (Yee et al., 2008), which is applicable to the manufacturing industry. As discussed previously, the service-profit chain perspective also supports a positive relationship between customer service and customer satisfaction. Therefore, we hypothesize: H5. Customer service has a positive impact on customer satisfaction. Based on the above hypotheses, we capture the relationship between HRM practices and operational performance in an integrated framework as depicted in Fig. 1. 3. Research method 3.1. Sampling and data collection The data used for empirical analysis was collected from manufacturing companies in China. Since China is such a large country, we strategically selected five provinces (or municipality) to represent the wide gamut of economic development stages in China: Shaanxi, Shandong, Beijing, Guangdong and Jiangsu. Shaanxi, a traditional industrial base in northwest China, resides in a relatively early stage of economic reform and market formation. Shandong and Beijing are industrial bases in the north and reflect the average stage of economic reform and marketization in China. Guangdong and Jiangsu, located in the affluent Pearl River delta and Yangtze River delta respectively, have enjoyed a higher degree of economic development and market formation. Thus, we believe that Shandong, Shaanxi, Beijing, Guangdong and Jiangsu are representative of Chinese economic development with varying degrees of market economy, and therefore were selected as target samples for our research. The strategic selection should capture different economic development and market formation stages in today's China. We drew samples from government directories of firms in the manufacturing sector to obtain a representative sample of manufacturing companies. The sampled firms were randomly selected on the lists and then contacted through telephone calls. After consulting with supply chain executives, we determined that the best method was to obtain one key informant who is knowledgeable about human resource management and familiar with operations management. Our pretest of the survey proved that such an informant existed in each company we contacted, and we called those companies to identify the right contact person, who usually comes with such titles as CEO/president, vice president or director, human resource manager. Although customers are more preferred to be informants of customer service and customer satisfaction, empirical findings from similar studies have demonstrated that internal and external measures of customer service and customer satisfaction are highly correlated (Goldstein, 2003; Hays & Hill, 2006), justifying our use of internal measures of customer service and customer satisfaction. To validate whether the use of internal measures is reliable, we collected data of customer service and customer satisfaction from an extra 15 manufacturing companies. In each company, we surveyed two employees and three random selected customers. We

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

Employee Empowerment

Employee Satisfaction

H1a a H2 H3 a

H4 b

Service Reward

Customer Satisfaction

H4a b H1

H2 b

Service Training

129

H5

Customer Service

H3b

Fig. 1. Conceptual model.

examined the correlations between the averaged ratings obtained from employees and customers. We found that, given the small sample size (15), the correlations of all the items of customer service and customer satisfaction are significant at the level of 0.1, providing empirical support for the use of internal measures. The questionnaire together with a cover letter explaining our research objectives and assuring confidentiality was mailed to the identified informants. To improve the response rate, both followup calls and mailings were used. Out of the 226 questionnaires received (12 incomplete), 214 are usable resulting a response rate of 28.53% (214/750). The sample covers a diversity of industries and firm sizes, which can make the sample representative of Chinese manufacturing companies and the results more generalizable. The characteristics of sampled firms are depicted in Table 1. In order to examine the possible response bias of the sample, we conducted several tests proposed by Swink and Nair (2007). First, follow-up phone calls were made to the 12 respondents of incomplete surveys. No serious biases were indicated in their comments. Second, we compared the responses of early and late respondents in terms of

Table 1 Distribution of sampled firms.

Sample size Industry (%) Food and beverage Textile and apparel Paper and printing Chemicals and petrochemicals Rubber and plastics Non-metallic mineral products Smelting and pressing Metal products Mechanical and engineering Electronics and electrical Instruments and related products Others

Total

Shandong Shaanxi Beijing Guangdong Jiangsu

214

53

2.80 3.27 1.40 5.14

50

39

38

34

0.00 0.00 0.00 9.43

6.00 2.00 2.00 4.00

2.56 5.13 2.56 5.13

0.00 5.26 0.00 5.26

5.88 5.88 2.94 0.00

1.40 3.77 6.54 13.21

0.00 4.00

0.00 5.13

2.63 2.63

0.00 5.88

5.14 15.09

4.00

0.00

2.63

0.00

9.81 16.98 19.16 13.21

10.00 34.00

2.56 10.26

2.63 10.53

14.71 26.47

25.70 16.98

20.00

28.46

34.21

23.53

12.15

5.67

10.00

12.82

21.05

14.71

7.48

5.67

4.00

15.38

13.16

0.00

Number of employees (%) b50 11.68 1.89 50–99 18.69 26.42 100–299 27.10 41.51 300–999 18.69 20.75 1000–1999 9.35 1.89 2000–4999 8.88 3.77 ≥5000 5.61 3.77

18.00 12.00 24.00 10.00 16.00 14.00 6.00

20.51 17.95 23.08 17.95 2.56 7.69 10.26

7.89 23.68 26.32 21.05 10.53 5.26 5.26

11.76 11.76 14.71 26.47 17.65 14.71 2.94

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

3.2. Variable measures The measures used in this study were drawn from previous literature in human resource management and operations management. The English version of the questionnaire was first developed and then translated into Chinese by two researchers. The Chinese version was then translated back into English by another two researchers. This back-translation was then checked against the original English version for any possible discrepancies. In the survey, the Chinese version of the questionnaire was used. Before sending out, we submitted the questionnaire to three academicians and five practitioners for their review and incorporated their feedback. We pre-tested the questionnaire using a sample of eight companies, then made additional modifications and clarifications to ensure it was understandable and relevant to the practices in China. A complete list of the items used is exhibited in Appendix A. For employee empowerment, four questions related to make customer decisions and solve problems were used, including without seeking management approval, independently, have freedom and authority and using own judgment (Lytle et al., 1998). A seven-point Likert scale anchored at 1 = “totally disagree” and 7 = “totally agree” was used. Service reward was captured by three items: providing incentives and reward, rewarding employees providing excellent service and service quality that is an important performance indicator (Lytle et al., 1998). Respondents were asked to rate on each item on a seven-point Likert scale anchored at 1 = “totally disagree” and 7 = “totally agree”. Service training reflects to what extent service training exists in an organization. We chose personal skill training, time and effort and exercises as indicators (Lytle et al., 1998). For each item, respondents were asked to provide an assessment on a seven-point Likert scale with 1 = “totally disagree” and 7 = “totally agree”. We referred employee satisfaction as the degree to which service employees are satisfied with their job. We chose five questions listed in the Job Descriptive Index, namely salary, promotion, job nature, relationship with fellows and rules and regulations (Yee et al., 2008). Respondents were asked to rate these five items on a seven-point Likert scale anchored at 1 = “totally disagree” and 7 = “totally agree”. High level of customer service means that employees must pay attention to satisfying the customers' needs and preferences, and offer individualized attention and response to make each customer feel special

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(Gonzalez & Garazo, 2006). It is also important for employees to put the needs of customers before their own (Lytle et al., 1998) and to restrict the occasions when customers are disappointed. In this study, four items adopted from Lytle et al. (1998) were employed to measure customer service. A seven-point Likert scale anchored at 1 = “totally disagree” and 7 = “totally agree” was used. Consistent with previous research, customer satisfaction was measured using five perceptual questions reflecting customer satisfaction with the organization's responsiveness, quality levels and ability to satisfy or exceed customers' requirements (Bozarth, Warsing, Flynn, & Flynn, 2009). We asked the informants to assess the above five indicators on a seven-point Likert scale ranging from 1 = “much lower” to 7 = “much higher”. As a manufacturer may have many customers, and the levels of customer service and customer satisfaction might be different for different customers, we limited our questions on customer service and customer satisfaction as they apply to the company's major customer. The major customer is defined as the customer who buys the highest dollar value of the respondent's products. There are two reasons for limiting our questions to the major customer. First, the major customer is the most important partner for the respondent, and as such the manufacturer may pay more attention to improve the level of this customer's service and satisfaction. Second, the single informant is more familiar with the major customer, and is more likely to provide accurate information on customer service and customer satisfaction related to that customer. Although perceptual data may impose limitations through increased measurement error, the use of such measures is not without precedence (Yee et al., 2008). Researchers have found measures of perceived organizational performance data to be positively correlated with objective measures of firm performance (Powell, 1992).

3.3. Common method variance When two or more variables are collected from the same respondents and an attempt is made to interpret their correlation, a problem of common method variance (CMV) could happen (Podsakoff & Organ, 1986). We selected two informants in each of the ten responding firms and then interviewed them separately with the same questionnaire to assess potential single-respondent bias. For practical reasons, these ten firms were selected according to their geographic proximity to the researcher's university. The reliability test suggested a high level of internal consistency between two sets of answers. Analysis of Harman's one-factor test of CMV (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003) revealed six factors with eigenvalues above or near 1.0, explaining 89.0% total variance. The first factor captured 19.1% of the variance, which is not the majority of the total variance. As a second test of CMV, we conducted confirmatory factor analysis (CFA) for Harman's one-factor test (Podsakoff et al., 2003; Yeung, Selen, Zhang, & Huo, 2009). Harman's one-factor model of variables yielded χ2 = 2303.77 with 152 degrees of freedom (compared with the χ2 = 364.16 and d.f. = 137 for the CFA model). The fit indicates several distinct factors for the variables, which suggests that CMV is not an issue. To further evaluate the CMV, a measurement model including only the traits and one including a method factor in addition to the traits were tested (Cao & Zhang, 2011; Williams, Cote, & Buckley, 1989). The results of the method factor model marginally improved the model fit indices (NNFI by 0.01 and CFI 0.00), with the common method factor accounting for 7.8% of the total variance. Also, the factor loadings are still significant in spite of the inclusion of a method factor, suggesting that the model was robust (Flynn, Huo, & Zhao, 2010). This provides further indication that the CMV is not a problem. Moreover, we tried to further reduce the effect of CMV by separating the measurement items within the questionnaire, which was adopted in this research (Podsakoff et al., 2003). Thus, it is reasonable to conclude that CMV is rather negligible in this study.

4. Data analysis and results We employed structural equations modeling (SEM) to examine our hypothesized model. Similar to relevant studies (e.g., Koufteros, Babbar, & Kaighobadi, 2009; Yee et al., 2008, 2010), we followed Anderson and Gerbing's (1988) two-step approach to validate measurement prior to the structural model. The results of the validation of measures were firstly presented. LISREL 8.80 was then used to test the hypothesized model. 4.1. Validation of measures As suggested by Narasimhan and Jayaram (1998), an exploratory factor analysis (EFA) was conducted to ensure the unidimensionality of the scales. The items are deleted if they load on more than two factors, or the difference between factor loadings was less than 0.10 across factors (Flynn, Schroeder, & Sakakibara, 1994). Moreover, items that do not load on the factor they intended to measure, but instead on factors they did not intend to measure, should also be dropped (Yeung et al., 2009). EFA results demonstrate that unidimensionality is ensured. The generally agreed threshold value for Cronbach's alpha is 0.70 (Fornell & Larcker, 1981). Cronbach's alpha values in Table 2 indicate that all constructs are reliable for this research. Composite reliability (CR) was also computed to assess construct reliability (Fornell & Larcker, 1981). Table 2 indicates that all CR values were larger than 0.80, which is higher than the minimum acceptable value of 0.60. Based on the Cronbach's alpha values and CR values, we conclude that the scales are reliable. Content validity was established through a domain search of the literature, careful synthesis and critical evaluation of existing constructs and an iterative construct review by domain experts. CFA was used to assess convergent validity of the multi-item constructs (O'Leary-Kelly & Vokurka, 1998). The model fit indices are as follows: χ2(137) = 364.16 (χ2/d.f. = 2.66), root mean square error of approximation (RMSEA) = 0.062, non-normed fit index (NNFI) = 0.97, comparative fit index (CFI) = 0.98 and standardized root mean square residual (SRMR) = 0.034. These indices indicate that the model is acceptable (Hair, Black, Babin, Anderson, & Tatham, 2006). Moreover, all factor loadings were greater than 0.60, and the t-values were all larger than 2.0, further demonstrating convergent validity (Flynn et al., 2010). The AVE values were all above the suggested criterion of 0.50 (Fornell & Larcker, 1981), with a range from 0.721 to 0.913. Therefore, convergent validity of the construct is confirmed. Table 2 Results of confirmatory factor analysis. Construct

Item code

Factor loading

t-value

Cronbach α

Composite reliability

Employee empowerment

EE2 EE3 EE4 SR1 SR2 SR3 ST1 ST2 ST3 ES2 ES3 ES4 CS1 CS2 CS3 CSA1 CSA2 CSA3 CSA4

0.93 0.98 0.95 0.90 0.84 0.90 0.92 0.93 0.99 0.74 0.91 0.89 0.92 0.95 0.91 0.87 0.90 0.94 0.90

18.06 19.65 18.76 16.55 14.88 16.70 17.69 17.94 20.13 12.12 16.42 16.07 17.52 18.60 17.23 15.87 16.72 18.31 16.70

0.969

0.969

0.912

0.913

0.962

0.964

0.878

0.885

0.949

0.950

0.945

0.945

Service reward

Service training

Employee satisfaction Customer service

Customer satisfaction

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

Mean

S.D.

EE

SR

ST

ES

CS

CSA

Employee empowerment (EE) Service reward (SR) Service training (ST) Employee satisfaction (ES) Customer service (CS) Customer satisfaction (CSA)

4.803 4.953 5.191 4.409 5.000 4.912

1.054 0.955 1.024 0.982 1.008 0.919

0.955 0.666⁎⁎⁎ 0.597⁎⁎⁎ 0.596⁎⁎⁎ 0.558⁎⁎⁎ 0.685⁎⁎⁎

0.883 0.638⁎⁎⁎ 0.472⁎⁎⁎ 0.605⁎⁎⁎ 0.600⁎⁎⁎

0.949 0.511⁎⁎⁎ 0.639⁎⁎⁎ 0.572⁎⁎⁎

0.849 0.398⁎⁎⁎ 0.562⁎⁎⁎

0.929 0.435⁎⁎⁎

0.901

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

Discriminant validity can be evaluated by comparing the square root of AVE for each construct with the correlation between that construct and the other constructs. Results in Table 3 indicate that the square root of AVE for each construct was greater than the correlation between that construct and the other constructs, indicating good discriminant validity (Fornell & Larcker, 1981). Moreover, a constrained CFA model was built for each possible pair of constructs, in which the correlations between the paired constructs were fixed to 1.0. This was compared to the original unconstrained model, in which the correlations among constructs were freely estimated. A significant difference of the χ2 demonstrated discriminant validity (O'Leary-Kelly & Vokurka, 1998). All the χ2 differences between the fixed and unconstrained model were significant at the 0.01 level, which provides further evidence of discriminant validity.

4.2. Structural models results and hypothesis testing We provide the results of the structural equations model in Fig. 2, along with the standardized coefficients. The goodness-of-fit indices for our model are as follows: χ2(140) = 425.66, RMSEA = 0.074, NNFI = 0.97, CFI = 0.97 and SRMR = 0.075. These indices are acceptable compared with the threshold values suggested by Hu and Bentler (1999). The results provide support to seven of the nine hypotheses at the level of 0.05. Specifically, employee empowerment has positive and significant impact on both employee satisfaction (t = 5.85) and customer service (t = 2.21). These findings provide support for H1a and H1b. This suggests that employee empowerment may be necessary for a firm to improve employee satisfaction and customer service. Our results support H2b, but do not support H2a, because the impact of service reward on custome0072 service was significant (t = 2.86) and the impact of service reward on employee satisfaction was insignificant (t = −0.34). It was expected that service reward would play an important role in improving customer service. The findings support H3a and H3b and indicate that service training has positive and significant impact on employee satisfaction (t = 3.13)

Employee Empowerment

0.55

and customer service (t = 4.62), suggesting that service training is conducive to improve employee satisfaction and customer service. Furthermore, H4b is confirmed while H4a is not supported. The results indicate that higher levels of employee satisfaction were related to higher levels of customer satisfaction (t = 7.66) but not customer service (t = −0.56). Therefore, customer service does not play an intermediate role on the relationship between employee satisfaction and customer satisfaction. Finally, customer service was predicted to affect customer satisfaction in H5. The findings support H5 and indicate that customer service has a positive and significant impact on customer satisfaction (t = 3.72). 4.3. Alternative models To allow for alternative models, the model was re-specified to accommodate different assumptions concerning causality of the exogenous variables. It is possible that employee empowerment, service reward and service training could only have direct effects on employee satisfaction, which would then affect customer service. However, the overall fit of the alternative model was unacceptable (χ2(144) = 513.91, RMSEA = 0.10, NNFI = 0.86, CFI = 0.87, SRMR = 0.14). Although either model may be theoretically plausible, an evaluation of the fit indices clearly favors the original model. 4.4. Equivalent models Several equivalent models were also considered (cf., Lee & Hershberger, 1990) involving the just-identified block of endogenous variables that relate the employee satisfaction, customer service and customer satisfaction constructs. According to the Lee–Hershberger replacing rules, unidirectional relations to variables and correlated disturbances are interchangeable. Equivalent models can also be generated by changing the path direction. Application of these rules to the original model generated the four equivalent models presented in Fig. 3. In model (a), the disturbance correlation between employee satisfaction and customer satisfaction is substituted for a direct effect. Model

Employee Satisfaction

3

0.5 5

0.2 5

0 -0.

Service Reward

Customer Satisfaction

-0.04 0 0.2

0 .2

Service Training

4 0.2

6

0.38

Customer Service

Fig. 2. Hypothesized structure model results.

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Employee Satisfaction

Customer Service

Customer Satisfaction

Employee Satisfaction

Equivalent (a) Employee Satisfaction

Customer Service

Customer Service

Customer Satisfaction

Equivalent (b) Customer Satisfaction

Employee Satisfaction

Equivalent (c)

Customer Service

Customer Satisfaction

Equivalent (d) Fig. 3. Equivalent models.

(b) substitutes the direct effect between employee satisfaction and customer service for disturbance correlation. In model (c) the path direction between employee satisfaction and customer satisfaction is reversed. Model (d) reverses the path direction between employee satisfaction and customer satisfaction, and substitutes the direct effect between employee satisfaction and customer service for disturbance correlation. As all equivalent versions of the model explain the data equally well, the choice between them must be justified on a theoretical rather than a mathematical/statistical basis. 5. Discussion and conclusions In this study, we developed and tested a theory-based model that depicts the associations among employee empowerment, service reward, service training, employee satisfaction, customer service and customer satisfaction in the context of Chinese manufacturing industries. The results obtained from this study show that employee empowerment is important for satisfying employees and delivering excellent services to customers. This highlighted the vital role plays by employee empowerment in eliciting customer satisfaction via enhancing the levels of employee satisfaction and customer service, especially in the setting of manufacturing businesses. The results are consistent with the findings of Snipes, Oswald, LaTour, and Armenakis (2005). Although perspectives from strategic operations management suggest that achieving employee satisfaction may be costly (Yee et al., 2008), we found that empowerment can be an alternative to satisfy employees with a low cost. Service reward is found to be significantly related to customer service but insignificant related to employee satisfaction. This finding is inconsistent with the study of Tymon et al. (2010) whereby the researchers indicated that service reward can contribute to employee satisfaction improvement. Our results show that service reward is not a good predictor for employee satisfaction, especially within manufacturing businesses in China. This may be attributed to three possible reasons. First, employee empowerment and service rewards are linked to motivation while training is linked to qualification or skills. The difference between empowerment and reward consists in the first typically being considered as providing intrinsic motivation and the latter extrinsic motivation. Intrinsic motivation and qualification may be more important than extrinsic motivation for improving employee satisfaction. Second, rewards play different roles for employees with different attributes. Our findings show that empowerment and training, which involve more authority and self-growth, are more significant indicators than reward in leading to employee satisfaction. Third, one item measuring employee satisfaction (i.e. employees are satisfied with the salary of this company) was deleted after validity analysis. This could also contribute to the nonsignificant relationship between reward and employee satisfaction as

financial stimulus is still one of the most useful ways to boost satisfaction particularly for employees in emerging markets such as China (Newman & Sheikh, 2012). However, service reward plays an important role in improving customer satisfaction through delivering superior customer services by employees. The remarkable impact of service reward on customer satisfaction found in this study validates the findings of Sun et al. (2012). The results indicate that service training has significant impacts on both employee satisfaction and customer service. These findings concurred with the assertions of Glaveli and Karassavidou (2011) and Wang, Lee, and Chen (2012) that well trained employees could contribute towards the levels of employee satisfaction and customer service. However, Chang et al. (2010) found a negative relationship between service training and employee satisfaction within the context of government. According to social exchange theory, service employees who are satisfied with their employing organizations will be committed to delivering services with higher levels of quality to customers (Yee et al., 2010). It seems quite logical to hypothesize that employee satisfaction has a positive impact on customer service. Surprisingly, the result of the sampled firms in this study does not support this argument. Two possible reasons are: (1) most Chinese manufacturing companies are still in their early stages of transforming from product to service, the importance of services has not been fully recognized by service employees and therefore, satisfied employees may not convert their satisfaction into high quality services. Thus, customer satisfaction may be improved by providing preeminent products other than high quality services; (2) another possible explanation may relate to the Chinese culture that values modesty and depresses self-boasting behaviors. In order to comply with such social virtues, satisfied employees may consciously constrain their expressions towards promoting the product and may use introverted communication styles in service encounters, which could to some extent inhibit the service quality they provided to customers. The results provide strong support for the assertion that employee satisfaction is an important determinant of customer satisfaction. The findings are consistent with the theory of emotional contagion that customers are likely to be influenced by emotions of service employees (Tsai & Huang, 2002). Similarly, anecdotal evidence from manufacturing companies, such as Shaanxi Heavy Duty Truck Company, where researchers found that an increase in employee satisfaction leads to a corresponding change in customer satisfaction. However, Yee et al. (2008) found that service partially mediates the relationship between employee satisfaction and customer satisfaction while we only provide evidence for the direct effect in our study. Our findings bear some managerial implications for service operations management in manufacturing companies. Managers in manufacturing businesses often face a similar dilemma when

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initiating strategic actions to enhance customer satisfaction. Our results suggest that customer satisfaction emanates from satisfied employees and excellent customer service, which can be further enhanced by empowerment, reward and training. Organizations in manufacturing industries should exert effort on improving employee satisfaction and enhancing customer service, and satisfied employees and superior customer service will ensure customer satisfaction. Thus, employee satisfaction and customer service are important considerations for operations managers to boost customer satisfaction in manufacturing sectors. The findings also suggest that manufacturing companies should not be overly concerned about the on-going costs for sustaining employee satisfaction and delivering excellent service in the long run. However, in practice, the costs of improving employee satisfaction and service level are often the first area to receive cuts when firms are trying to tighten their belts financially. Our research findings, together with previous evidence, suggest a re-consideration of such strategy (Oliva & Sterman, 2001; Yee et al., 2008). Our research highlights the issue of emotional contagion in manufacturing industries. This suggests the need for service managers to maintain a pleasurable and harmonious atmosphere by for service encounters. Employee empowerment and service training are essential factors for service managers to improve employee satisfaction, and then satisfied employees will transfer positive emotions to customers. In particular, research has shown that manufacturing companies are experiencing a transition from product to service (Gebauer et al., 2011; Jacob & Ulaga, 2008). In such circumstances, customer contact time is likely to increase and emotional contagion is becoming more important for achieving desired outcomes. Further examination indicates that the relationship between employee empowerment and employee satisfaction is stronger than the relationship between service training and employee satisfaction (p b 0.05). Thus, managers should pay more attention to employee empowerment. Our study provides opportunities for future research in the interface of SOM and HRM. First, we investigate the relationship between employee satisfaction and customer satisfaction in this study. However, emotional commitment of employees is likely to mediate this relationship. For future research, we believe that it would be interesting to find out how the association between employee satisfaction and customer satisfaction can be mediated by other factors. For example, would a lack of employee satisfaction impede emotional commitment, hindering customer satisfaction? Second, further research can explore the impacts of contingency variables on the hypothesized relationships, such as switching cost, environmental uncertainty and organizational learning. We hope this research provides an impetus to SOM researchers to critically examine the relationships between HRM practices and operational performance. We also hope that further research will seek to move beyond the demonstration of main effects to an investigation of how and why HRM practices are related to operational performance under different operating contexts. Third, we rely upon the employee report of customer satisfaction. Since there could be a self confirmation bias, i.e., ‘I'm happy, the customer must be happy’, self-generated validity will be created and thus inflated associations between employee satisfaction and customer satisfaction (Feldman & Lynch, 1988; Podsakoff & Organ, 1986). In future, we can attempt to blend in data from customers in an effort to validate the findings.

Acknowledgments Our thanks go to the editor and the two anonymous referees. This research was supported by the Humanity and Social Science Youth Foundation of Ministry of Education of China (No. 13YJC630031), National Natural Science Foundation of China (No. 71102087 and No. 71172124) and Ph. D. Programs Foundation of Ministry of Education of China (No. 20116102110036).

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Appendix A. Measurement items Employee empowerment (adapted from Lytle et al., 1998) EE1 Employees often make important customer decisions without seeking management approval* EE2 Employees can dispose and solve customer complaints independently EE3 Employees have freedom and authority to act independently in order to provide excellent service EE4 We encourage employees to solve problems using their own judgment Service rewards (adapted from Lytle et al., 1998) SR1 Management provides excellent incentives and rewards at all levels for service quality, not just productivity SR2 We will reward employees providing excellent service SR3 In our company, service quality is an important performance indicator Service training (adapted from Lytle et al., 1998) ST1 Every employee receives personal skill training which enhances his/her ability to deliver high quality service ST2 We spend much time and effort in simulated training activities that help us provide higher levels of service when actually encountering the customer ST3 During training sessions we work through exercises to identify and improve attitudes toward customers Employee satisfaction (adapted from Yee et al., 2008) ES1 Employees are satisfied with the salary of this company* ES2 Employees are satisfied with the promotion opportunity of this company ES3 Employees are satisfied with their job nature ES4 Employees are satisfied with the relationship with their fellow workers ES5 Employees are satisfied with the rules and regulations of this company* Customer service (adapted from Lytle et al., 1998) CS1 Employees care for customers as they would like to be cared for CS2 We meet and exceed customer expectations on service CS3 We are noticeably more friendly and courteous to customers than our competitors CS4 Employees go out of their way to reduce inconveniences for customers* Customer satisfaction (adapted from Bozarth et al., 2009) CSA1 Our company satisfies or exceeds the requirements and expectations of our customers CSA2 Customer standards are always met by our company CSA3 Our customers are pleased with the products and services we provide them CSA4 Our customers seem happy with our responsiveness to their problems CSA5 Our customers have always been well satisfied with the quality of our products over the past three years* *Items are deleted after reliability or validity analysis. References Abbasi, M. M., Khan, M. M., & Rashid, K. (2011). Employee empowerment, service quality and customer satisfaction in Pakistani banks. IUP Journal of Bank Management, 10(4), 47–60. Akbar, S. W., Yousaf, M., Haq, N. U., & Hunjra, A. I. (2011). Impact of employee empowerment on job satisfaction: An empirical analysis of Pakistani service industry. Interdisciplinary Journal of Contemporary Research in Business, 2(11), 680–685.

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T. Feng et al. / Industrial Marketing Management 43 (2014) 126–135 Yee, R. W. Y., Yeung, A.C. L., & Cheng, T. C. E. (2010). An empirical study of employee loyalty, service quality and firm performance in the service industry. International Journal of Production Economics, 124(1), 109–120. Yeung, J. H. Y., Selen, W., Zhang, M., & Huo, B. (2009). The effects of trust and coercive power on supplier integration. International Journal of Production Economics, 120(1), 66–78. Yoon, M. H., & Suh, J. (2003). Organizational citizenship behaviors and service quality as external effectiveness of contact employees. Journal of Business Research, 56(8), 597–611. Taiwen Feng (corresponding author) is an associate professor at School of Management Northwestern Polytechnical University, China. His research interests are Collaborative Innovation Management, Operations Management and Supply Chain Management. His research has been published in International Journal of Production Research, Industrial Marketing Management, Energy Policy and other journals.

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

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