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    MANAGING EMPLOYEES IN THE SERVICESECTOR: A LITERATURE REVIEW AND

    CONCEPTUAL DEVELOPMENT

    Jonathan R. AndersonUniversity of West Georgia

    ABSTRACT: Our economy is slowly shifting from a manufacturing base to a

    service base. Yet, management literature has been slow to respond. We know

    little about the unique challenges faced by managers in the service sector. This

    paper reviews literature on research on management practice and employee

    perceptions that lead to positive customer outcomes. Specifically, relational

    coordination efforts by a manager are suggested to lead to specific employee

    behaviors that have been correlated with customer outcomes. This literature

    review and conceptual development are presented here in hopes that future re-

    search will take a deeper look at the challenges faced by service sector managers.

    KEY WORDS: service management; customer-service employees.

    INTRODUCTION

    The United States Department of Labor and the Bureau of Labor

    Statistics (1999) state that the service producing sector of the economy

    is projected to grow by 19.1 million wage and-salary jobs between 1998

    and 2008. This represents nearly 95% of total employment growth over

    that period. In the later year, the service-producing sector will account

    for almost three out of every four jobs in the [United States] economy

    (p.1) Additionally it has been noted that the service sector now domi-

    nates employment and GNP figures for the United States and, more

    broadly, the economically developed world (Bowen & Hallowell, 2002).

    As our economy moves from a manufacturing base to a service base,

    management scholars have been slow to respond to the unique chal-

    lenges faced by service sector firms (Bowen & Ford, 2002). In practice,

    despite the long run of service dominance, we still find two things to be

    true. One, key indicators of customer satisfaction with services confirm

    Journal of Business and Psychology, Vol. 20, No. 4, Summer 2006 (2005)

    DOI: 10.1007/s10869-005-9002-5

    501

    0889-3268/06/0600-0501/0 2005 Springer Science+Business Media, Inc.

    Address correspondence to Jonathan R. Anderson, Management and Business Systems,University of West Georgia, Carrollton, GA 30118-3030. E-mail: janderso@westga.edu

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    that in direct phrasing, Service stinks Second, the academic man-

    agement literature still offers little in the way of comprehensive treat-

    ment of the differences between managing service organizations and

    managing goods-producing organizations (Bowen & Hallowell, 2002).

    As the service sector grows, some have even suggested that the

    quality of service in organizations is actually declining (Oliva & Sterman,

    2001). Yet, as the service sector becomes the dominant sector in our

    economy, it is imperative that management scholars better understandthe role of management practice in increasing employee service perfor-

    mance (Bebko, 2000; Schlessinger & Heskett, 1991).

    Much of the management literature focuses on the distinct nature of

    managing in the manufacturing sector (Batt, 2002). Early work in sci-

    entific management and human relations focused on management

    practices that intend to increase employee productivity (McGregor, 1960;

    Taylor, 1911). In a manufacturing setting both the design of the job

    (Hackman & Oldham, 1980) and the reward systems (Skinner, 1953) candirectly influence the performance of an employee. Additionally, man-

    agement behavior directly influences the production level and quality of

    an employee.

    A manufacturing organizations output (whatever the widget is)

    will eventually end up in the hands of a customer. This customer willbuild an opinion of the organization based on the effectiveness of the

    widget. If the widget works, the company is viewed as successful. The

    customer may refer friends to the companys products and return formore widgets at a later time. In a manufacturing setting the quality of

    the widget is a buffer between variables such as employee attitude,

    employee satisfaction, employee performance, and customer perceptions

    of the organization. An organization can place many control systems

    between the employee and the final widget the customer holds. This is

    not the case in the service sector.

    Customers perceptions rather than widget quality are the drivingforce behind management practice in the service sector (Maxham &Netemeyer, 2002). Service sector firms are aware that if a customer is

    satisfied with the organization, the customer will likely do business with

    the firm many times in the future (Curasi & Norman, 2002). Unlike the

    manufacturing firm, a service sector firms reputation is built on the

    quality of service delivery, not on the quality of a widget. Therefore,

    there is no buffer between an employees attitude, an employees satis-

    faction, or an employees performance and the customers perception of

    the organization. Key participants in any service transaction are service

    employees. It is they whom customers meet on entering a department

    store or boarding an aircraft. Thus, a single employee may tint a cus-

    tomers image of a service enterprise (Rafaeli, 1989). This challenge is

    amplified when, as is the case in many service sector firms, the customer

    JOURNAL OF BUSINESS AND PSYCHOLOGY502

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    interacts with an employee who works in the lowest level of the organi-

    zation.

    As our economy moves from a manufacturing base toward a service

    base, it is essential for firms to understand the new economics of service,

    [such that] frontline workers and customers need to be the center of

    management concern (Heskett, Jones, Loveman, Sasser, & Schlesinger,

    1994). Hesket et al. (1994) suggests that this new focus on the customer

    as a measure of the bottom line will alter management practice withinorganizations.

    Yet, little is known about the influence of a managers behavior on

    employee outcomes and how those employee outcomes in turn influence

    customer perceptions of organizational performance in a service sector

    setting (Tellefsen & Nermin, 2002). Improving customer outcomes

    through improved management practice relies on this triadic link.

    Understanding this process of management behavior influencing em-

    ployee perceptions, and employee perceptions influencing customer out-comes, is critical to improving management practice in the service sector

    (Pugh, Dietz, Wiley, & Brooks, 2002). The aim of this paper is to help

    scholars better understand management practice in the service sector by

    addressing several research questions. First, does a managers behavior

    toward an employee influence how the employee perceives the organi-zation and his or her work? Second, does the employees perception of

    management and the organization influence how an employee interacts

    with a customer and is a customers outcome influenced by the employ-ees perceptions of the organization? Finally, do employee perceptions

    have a mediating effect between management practice and customer

    outcomes? These questions will be addressed throughout this paper on

    the manageremployeecustomer triad level. The intended contribution

    of this paper is to identify the relationships between constructs that

    provide a framework for understanding and managing employees in a

    service sector setting.Organizations in the service sector work continually at building and

    maintaining customer loyalty. Many service organizations spend large

    sums of money as they work to create customer satisfaction with im-

    proved interactions between employees and customers. Yet, it is difficult

    to directly measure the influence of these programs on organizational

    performance. This paper will add substance and direction to programs

    that aim to increase customer outcomes through employee perceptions

    and managers behaviors. If an organization intends to create better

    relationships between management and employees in an effort to

    increase positive customer outcomes, this paper provides a framework for

    evaluating customer-service programs and their intended impact on

    organizations.

    J. R. ANDERSON 503

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    MANAGING EMPLOYEES IN THE SERVICE SECTOR

    Managers in the service sector are faced with increasing challenges.

    The span of control of these managers continues to grow, while the de-

    mand for customer satisfaction is also on the rise. With more employees

    to manage and greater demands on performance, service sector manag-

    ers can easily feel restricted in their ability to develop relationships with

    employees on the dyad-level. Indeed, managing employees in a servicesector setting provides unique challenges for managers, particularly if

    the manager attempts to develop quality dyadic relationships with

    employees. Bowen and Ford (2002) suggest that managing employees in

    the service sector is different than managing employees in the manu-

    facturing sector on several fronts: first, the process of delivering a service

    involves the customer in the production process; second, service

    employees must respond to each situation in a unique ma

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