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A CASE STUDY: MEASURING SERVICE QUALITY OF A BANK BRANCH USING THE SERVQUAL METHOD
A THESIS
SUBMITTED TO THE DEPARTMENT OF MANAGEMENT AND GRADUATE SCHOOL OF BUSINESS ADMINISTRATION
OF BILKENT UNIVERSITY
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION
By
IDIL ERIM June, 1994
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A B S T R A C T
A CASE STUDY: MEASURING SERVICE QUALITY OF A BANK BRANCH USING THE SERVQUAL METHOD
IDIL ERIM M.B.A.
SUPERVISOR: ASS. PROF. MEHMET PASA JUNE 1994
Today the importance of quality management is also being understood by the service industries. However, most managers still see it as something qualitative, and so do not employ it as part of their organizational culture. This study attempts to measure the level of service quality of one branch of a Turkish private bank by using the SERVQUAL method. Servqual is a method to measure the quality of service organizations quantitatively. The aim is not to search the relevance of the Servqual method, but to use it as part of a case study.
ÖZET
SERVgUAL METODUNU KULLANARAK BİR BANKA ŞUBESİNİN HİZMET KALİTESİNİ ÖLÇEN BİR ÇALIŞMA
id il e r im
YÜKSEK LİSANS TEZİ, İŞLETME FAKÜLTESİ TEZ YÖNETİCİSİ: DOÇ. DR. MEHMET PAŞA
Günümüzde kalite yönetiminin önemi hizmet sektörü tarafından da anlaşılmıştır Fakat birçok yönetici kalite kavramını niteliksel olarak değerlendirdikleri için, kaliteyi yönetim şekillerinin bir parçası olarak görmemektedirler. Bu çalışma özel bir Türk bankasının bir şubesinin, Servqual metodunu kullanarak hizmet kalitesini ölçmeyi amaçlamaktadır Servqual, hizmet kalitesini niceliksel olarak ölçen bir yöntemdir. Amaç bu yöntemin geçerliliğini ölçmek değil, Türkiye'de uygulamasını yapmaktır.
I gratefully acknowledge patient supervision and helpful comments of Ass. Prof Mehmet Paşa, throughout the preparation of this study. I would also like to thank to Ass. Prof Selçuk Karabati for his valuable support in the preparation of the quality management section. I would also like to express thanks to the other members of the examining committee.
ACKNOWLEDGEMENTS
I also thank to all my friends, especially Can Murat Alpaslan, for their help during the preparation of this research project and to my family and my sister for their continuos support.
TABLE OF CONTENTS
I. INTRODUCTION... 1
II. EVOLUTION OF THE QUALITY CONCEPT ( MANUFACTURING vs. SERVICE)... ... 2
III. SERVICE QUALITY IN BROAD TERMS...Z.^9 A. QUALITY MANAGEMENT MODELS FOR THE SERVICE INDUSTRY... 13
IV. A NEW APPROACH TO SERVICE QUALITY...19
A. SERVQUAL; How to Measure Service Quality... 23
A.l. GAPS: SERVQUAL SCORE... 23
A.2. GAPl: CUSTOMERS' EXPECTATIONS- MANAGEMENT-PERCEPTIONS ... 25
A.3. GAP2: MANAGEMENTS' PERCEPTION- SERVICE QUALITY SPECIFICATIONS... 26
A.4. GAP3: SERVICE QUALITY SPECIFICATIONS- SERVICE DELIVERY GAP... 27
A.5. GAP4: SERVICE DELIVERY- EXTERNAL COMMUNICATIONS G A P... 28
V. UNDERSTANDING OF QUALITY IN TURKEY... 30
VI. STUDY...33
A. RESEARCH QUESTION... 33
B. METHODOLOGY... :... 33
C. QUESTIONNAIRE DESIGN:... 35
C.l. Questionnaire for Customers (append. 1):... 35
C.2. Questionnaire for Branch Employees (append.2):...36
C.3. Questionnaire for managers (append.3 ):... 36
C. 4. Questionnaire for the Customer Contact Personnel (Append.4):... 37
D. RESULTS AND DISCUSSIONS... 38
D. 1. The Current Situation of the Banking Sector ( Results of Interviews) ... 38
D.2. Results of Gap5: Servqual Score:... 40
D.3. Results of G apl: Customers' Expectations- Management Perception Gap... 45
D.4. Results of Gap2: Managements' Perception - Seiwice Quality Specifications...46
D.5. Results of Gap3: Service Quality Specifications- Service Deliveiy...47
D.6. Results of Gap4:Service Delivery- External Communications... 48
D.7. Determining The Antecedents Of Gaps... 48
I. INTRODUCTION
When technology became cheaper during the 1970's, production capacity started to increase. Until then, supply Wcis less than demand and so it was possible to sell almost
anything produced. As supply increased over demand the customers started to gain power. The result was the change from seller's market towards buyer's market. Since capacity was more than demand, quality started to become the driving force of modern business. This transition made companies, especially the manufacturing companies, start to question what quality is. Garvin (1984) identified five major approaches to the definition of quality:
1. The transcendent or philosophic approach: quality is "innate excellence," which, like beauty, can be understood only through exposure to objects that display its characteristics.
2. The product-based approach: differences in quality reflect differences in measurable attributes. Quality is precise and measurable. This implies that "more" or "higher" of some attribute is "better." There are two corollaries to this approach:
a. Higher quality can be obtained only at higher cost (attributes are considered costly to produce).
b. Quality is viewed as an inherent characteristic of goods, rather than as something ascribed to them. Because quality reflects the presence or absence of measurable product attributes, it can be assessed objectively, and is based on more than preferences alone.
3. The user-based approach: quality lies in the eyes of the beholder. Those goods that best satisfy user wants or needs are those that customers regard as having highest quality. This is the "fitness for use" idea. The problem is that while "user satisfaction" and quality are related, they are not the same concepts. Preferable may not be better.
4. The manufacturing-based approach: quality is conformance to requirements. Deviation from specifications implies a reduction in quality ("making it right the first time"). This recognizes the customer's interest in quality. A product made to specifications is less likely to be poorly made and unreliable than one that is not, but the focus is internal.
5. The value-based approach: quality is defined in terms of costs and prices. A quality product is one that provides performance at an acceptable price, or conformance at an acceptable cost.
Reliance on a single definition of quality usually causes problems as stated under each definition. Instead, the manufacturing world has come to a point where all definitions are combined as parts the whole picture.
II. EVOLUTION OF THE QUALITY CONCEPT ( MANUFACTURING vs. SERVICE)
Quality Control Model starts with identifying the product characteristics through market research fuser-based approach) desired by the customers. These characteristics must be translated into identifiable product attributes where the product is designed to meet these standards (product and value based approaches). During production, the manufacturing process must be organized to ensure conformance to standards (manufacturing-based approach). Nonstandard output is analyzed to find the root causes, so that the process can be improved.
As seen from the above definitions understanding of quality mostly refers to the manufacturing world but not the service sector. This is because, in the early 1980's US economy started to fhce high competitive challenge from abroad, especially from Japan. US companies did not track and understand the rate of progress that the foreign competition was making in the late 70's. The notion of quality, started to gain acceptance within the manufacturing industiy to bring their competitive power back.
As the understanding of quality among manufacturing fimis evolved, the idea also spread into the service industry. However, there was not even a clear description of services, although in 1987 about 70% of US work force was employed in services. The US government's Standard Industrial Classification system described service firms as those: " Primarily engaged in providing a wide variety of services for individuals, business and government establishments, and other organizations. Hotels and other lodging places, establishments providing personal, business, repair, and amusement services; health, legal, engineering, and other professional services; educational institutions, membership organizations, and other miscellaneous services are included." (Williams and Zigli, 1987)
The above description lacks several non-manufacturing sectors such as real estate, financial services, retailers, wholesalers, transportation, and public utilities. Within this ambiguous environment where service is not described well enough, it was even harder to define quality for the service sector.
Many US manufacturers have spent a great deal of energy to improve their competitiveness since 1980s. Armed with the techniques of Edward Deming, Joseph .luran, Philip Crosby, Yoji Akao, and others, they made significant movements to improve manufacturing operations and quality. The tools for total quality management
(flow charts, cause and effect diagrams, control charts, histograms, pareto charts, check sheets, scatter diagrams) were known by the manufacturing firms. The concept of quality planning, quality control, and quality improvement were understood by most company executives.
The results of 1987 Gallup Survey, among a sample size of 615 executives, explains the above interpretation with more detail. As Dana M. Cound, vice president of quality for DiversiTech General, states : (Cound, 1988) " The reason for conducting this survey of executive perceptions concerning the quality of American products and services is not because executives posses a better sense of objective reality. Consumer perceptions are the ultimate reality. It is for all of us sense, on a macro basis, the rate and the directions of change in the thinking of our corporate leaders."
David T. Kearns, chairman and CEO of Xerox Corporation, analyzed the result of the survey as follows: (Kearns, 1988) " This year's Gallup Survey shows that quality has become more important-more than just a buzzword- to American industry. Virtually all executives seem to think that quality helps them compete. I agree that many of them don't know how it helps to compete but they do believe that it helps. Eight out of ten executives said that the quality of American products must increase.
The Gallup survey was a thorough one. There are five findings that I think are particularly important. The first one is that 43% of the American executives believe you have to change corporate culture to improve quality. The second Gallup finding is that American business executives believe better internal management is the single most important way to strengthen competitiveness. Three, the majority of survey respondents see their biggest competitive challenge coming from other American companies, not foreign companies. This is a good sign, but our experience proves different. Our biggest
competitive challenge clearly comes from abroad. Fourth, the survey shows that many people still do not understand the connection between cost and quality. Finally, most of the survey respondents recognized the importance of quality, but they are not really doing what they need to do to achieve it. The Rolls Royce mentality still exists in our country, and that is the idea that quality is expensive. As many as 30% of the respondents said they do not use the tools of statistical analysis, process control, customer surveys, and employee teams. If you do not do that, you will not achieve quality."
The Gallup Survey sample was taken from about an equal number of Fortune 500 industrials and Fortune 500 service companies among the large company sample. Among the smaller companies, service firms constitute two-thirds. This fact makes a person believe that quality concept has also settled down and already understood in the service industries. However, published articles in the years 1987-1988 do not reflect the same idea. The same conscious movements was not seen in administrative and non manufacturing areas. The results of the Gallup Survey are not separately provided for the manufacturing and service sectors. So, one can not make the judgment about the real status of quality in the service sector, when the articles reflect questioning ideas.
Carol King in his article " Seiwice Quality Assurance is Different " stated his ambiguity as : (King, 1985) " How well are we doing in meeting the customer's expectations? A seemingly logical approach to answering this question is to identify attributes within the service delivery system, in the hope that these attributes will relate to the quality of service delivered. Statistical tools, such as X-bar, R-bar, and range charts, have been useful, especially within the intermediate and administrative operations of service delivery systems. However, these models have not been widely adapted to the high consumer contact operations of service organizations; they do not seem to fit the
organizations' intangible outputs." As stated, it was not easy to use these tools and methods without any modifications by the service sector.
In addition to this, Roy H. Wiliams reflected the difference between the quality concept in the manufacturing and service worlds as : (William and Zigli, 1987) "It is difficult to precisely define quality parameters in service industries. Managers are faced with establishing quality goals, and in so doing must deal with imprecision. Some progress is being made in understanding service quality issues, but a manufacturing mentality still exists in much of the writing and in applications. There is a desperate need for additional research .... to develop valid service quality standards."
The initial step to resolve the complexities associated with service quality is to identify the differences between manufacturing and service finn's operations. One of the principal differences between a service business and a manufacturing business is the make-up of the customer base. Most manufacturing business operate from a large amount of orders heavily dependent upon a few key customers. Whereas service companies operate from a large customer base with many repeat customers. Another different characteristic is that, although services often include tangible actions such as eating a meal, getting a damaged equipment repaired, ore depositing money, the service performance itself is basically intangible. Other important different characteristics are:
service outputs camiot be stored
produetion and consumption cannot be separated generally more labor intensive
customer's participation in the delivery system is required delivery system is very time sensitive
• requires a higher degree of customization • different distribution channels
• for services behavior is a quality characteristic
• since image creates expectations, image is a quality characteristic for service firms
• different techniques for measuring conformance to standards • different measures of system efficiency
• customized and personalized services can be standardized to a degree
Service industries, as compared to manufacturing industries, involve a great deal of uncertainty. In manufacturing, statistical quality control programs are well accepted because there is a clear understanding of the production environment and how various activities affect quality. However, this understanding generally does not exist in the service environment.
The uncertainty in the service industry is on both the service providers and the customers. From the view of the service companies, uncertainty exists in identifying the customer needs and performance standards. Since services are produced and consumed at the same time, the people delivering the seiwice face uncertainty. When it comes to the customers, their perceived risk is higher in purchasing services than goods, because less pre-purchase information is available since services are intangible. There is always a recurring uncertainty about the outcome. Also services are not accompanied by warranties or guaranties. In addition to these, it is harder for customers to evaluate their level of satisfaction.
Quality of service involves both the technical aspect of providing services and the human behavioral aspects of the interactions between supplier and customer. Therefore, companies must have a technique that helps them satisfy both parts of this quality challenge. This shows that service quality is not only customer service, although customer service and customer relations are important parts of service quality.
Unlike manufacturing firms, which require physical distribution channels for moving goods from factory to customers, service businesses either use electronic channels (such as electronic funds transfer used by banks) or combine the service factory, retail outlet, and point of consumption into one. So, service firms oiten find themselves responsible for managing customer-contact personnel. They may also have to manage the consumption behavior of customers who enter the service factoiy to ensure that the operation runs smoothly and that one person's behavior does not irritate other customers who are present at the same time.
The differences are mostly marked in the " front o ffice," where customers interface with the service operation. " Back o ffic e " operations, by contrast, may be sealed off from the customer and managed in ways that are often not unlike a manufacturing plant.
Although there were absolute differences, the understanding of quality in broad terms had converged in these two industrial areas. James R. Houghton, CEO of Corning Glass Works, defined quality as understanding the customer's requirements and meeting them 100% of the time. David T. Kearns, CEO of Xerox Corporation, explained the concept as," At Xerox quality means meeting customer requirements." Robin L. Lawton, in his article. Creating a Customer Centered Culture in Service Industries, approached the notion almost from the same point by saying; a company with quality culture must be responsive to the needs of both internal and external service customers. As seen, quality
represents the same idea in both manufacturing and non-manufacturing industries. The differentiating point is the understanding of service quality standards.
Ill addition to these, almost all organizations compete on some degree on the basis of service. It is difficult to name even one industry for which service matters are unimportant. As manufacturing executives find it increasingly difficult to establish sustainable, technology based competitive advantages, they will start to direct more attention to value-added service as a truer source of superiority. And as manufacturers compete more on service, there will be less distinction between manufacturing and service businesses.
Today in US, companies know for their superior quality such as Federal Express, Disney World, Club Med, Marriott use service to be different. They use service to increase productivity; they use service to earn customers' loyalty; they use service to benefit from world of month advertising; they use service to seek more shelter from price competition.
III. SERVICE QUALITY IN BROAD TERMS
The two key elements that need improvement, after examination of the differences of services, are defining and measuring service quality. As said earlier, quality exists, in the broadest sense, to the degree that customers are satisfied with a companies service. Christian Gronroos (May, 1983) distinguished between " technical quality " - what is delivered- and " functional quality"- how it is delivered. He believes that " how " of service deliveiy is critical to the perceptions of service quality. An example could be the appearance and behavior of a bank teller. Jarmo Lehtinen (1983)views service quality in terms of " process quality " and " output quality. " Proeess quality is judged by the
customer during the service. Output quality is judged by the customer after the service is performed. Patrick L. Townsend (June, 1985) described the meeting of customer expectations as " quality in perception " and conformance to requirements as " quality in fact. "
It is also important for service companies to understand that quality improvement would not work unless it is measured. According to researches a typical organization will not hear from 96% of its unhappy customers. This pi'oves that, relying on complaints to measure performance does not work.
For manufacturing companies " zero defects " was a guiding goal. At first sight, it seems hard to find a parallel goal for the services. However, service companies have their own kind of scrap which is their customers who will not come back. Their aim should be "
zero defections" that is keeping eveiy customer the company can profitably serve. In the
service business, more customers almost always mean more profit. Due to this direct relationship, maintenance of the customer base, customer retention, is crucial to the survival and growth of a service business.
Giving importance to defection rates provides an accurate indicator to profit swings. Also, this will direct managers' attention to the specific causes of customer leaves. By using customers as feedback, companies can figure out the weaknesses that really matter and strengthen them before it is too late. Too late means, customers are being lost at an increasing rate, company image is damaged, and profits are falling down. True service leadership builds a climate for excellence that prevails over operational complexities, external market pressures, or any other impediments to quality service that might exist.
Actually improving service in the eyes of the customers is what pays off When service improvement investments lead to perceived service improvement, quality becomes a profit strategy. It has been proved by the Profit Impact of Market Strategy(PIMS) program that there is a positive relationship between perceived quality and profitability.
This relationship shows that, in the long-run, the most important factor affecting a company's performance is the quality of its products and services, relative to those of competitors. (Buzzell and Gale, 1987) "Quality will lead to both market expansion and gains in market share. The resulting growth in volume means that a superior-quality competitor gains scale advantages over rivals. As a result, even when there are short-run costs connected with improving quality, over a period oi time these costs are usually offset by scale economies."
Excellent service pays off because it creates true custemers. Companies usually do not know or underestimate how much it really costs to lose a customer . Today's accounting system does not capture the value of a loyal customer. When served correctly, customers generate increasingly more profits each year they stay with a company. It is not wrong to say, the profits a loyal customer brings to a company increase like annuities.
Service quality costs can be considered to exist in two distinct parts: (Hagan and Scanlon, 1983)
1. That portion of operating costs caused by " inadequate conformance to performance standards " - costs resulting from customer rejections or complaints, as well as costs incurred due to internal errors or substandard performance, requiring some redoing of work.
2. Lost revenues due to unsatisfactory service quality- sales not achieved because of unhappy or lost customers.
It seems obvious that losing a customer is not only losing the expected future profits of this specific customer but also the cost of acquiring a new customer. Acquiring a new customer entails certain one time costs for advertising, promotions and the like. As purchases rise, operating cost decline. Also, as the company gains experiences with the customers, it can serve them more efficiently. It has been found by research that costs drop by two-thirds from the first year to the second. This is because customers know what to expect from the company and have fewer questions or problems.
In addition to these, companies with long-time customers can often charge more for their products and services. Customers respond to these firms because they perceive more value in their offers than in competitive offerings. Many people will pay more to use the service they are familiar with rather than take chance on a less expensive competitor. A customer would not be willing to take the high perceived risk to switch to a new company. A firm that has developed such a loyal following can charge a premium for the customer's confidence in the business.
Another economic advantage of long-time customers is the free advertising they provide. On the other hand, the negative effect of " word o f mouth, " of a lost customer or perceived poor quality should not be forgotten by the service firm. This means, in case of poor quality losing even only one customer will bring further costs due to this " word
o f m outh" effect.
The above cost saving and additional revenues from a loyal customer combine to produce a steadily increasing stream of profits. To calculate a customer's real worth, a company must take all of these projected streams into account. Companies with loyal, long-time
customers can financially outperform competitors with lower unit costs and high market shares.
In addition to improved profitability and lowered costs, service quality management has a benefit of improving image. It improves reputation among the customers and also employees. Image is usually considered as part of marketing department. It is also closely related to service performance in the customer's mind. It is a major factor in shaping
customers' expectations of a service, and in setting standards by which they will evaluate
that service. Therefore, the company should determine the desired image and keep up with it as part of the service quality assurance system.
As mentioned earlier, quality is also important to improve the company environment for the internal customers, the employees. Quality improvement surely reduces employee frustrations, and leads to improvements in human relations, morale increasing motivation. Since customer contact personnel are the core success factors of quality, human resource management becomes an important tool in reaching the desired end. Other benefits can be summarized as improved productivity, reduced expenses, and improved marketability.
A. QUALITY MANAGEMENT MODELS FOR THE SERVICE INDUSTRY
In many different articles, researchers have come up with models of their own explaining how to achieve quality in service industries. Almost all of them have several steps that reflect the same idea stated in a different framework. Among these models Robin L. Lawton has come up with " six steps," which combines quality with productivity, profitability and innovation. His model is called Total Performance Management Model
(TPM). Here, Lawton's model will be taken as the basic framework, under which similar models' ideas will be summed up to come up with an integrated quality approach.
In this framework the first step is to define the service as a product. A service is generally thought as something intangible and therefore it seems to be unmeasurable. A product, on the other hand, is a tangible which is countable. If the service is defined as a "seiwice product," a noun rather than a verb, it will be easier to set the quality standards, goals, and the mission. Simple examples can include: insurance policy, loan, meal, etc.
The second challenge for the company is to identify who the customers are and ensure that their separate requirements are accounted for in a balanced way. Customer requirements for a product can be viewed as attributes or characteristics that can be measured. A list of attributes of service required by the customers and their perceived importance of these attributes will make up the balance. If a financial report is a service product, the requirements might include a certain level of accuracy, ease of use, timeliness, etc. The degree to which the product meets the measurable expectations of its customers is the determinant of quality.
d'hese attributes and their relative importance should be viewed continuously since customers' views change with time, depending on their knowledge, experience, available alternatives, prevailing economic conditions, etc. The list of attributes desired by the customers should be translated into a list of product characteristics. This approach can be called " service quality deployment," as it has been used in manufacturing firms.
Most service processes involve a greater interaction with the end customer and this often makes it easier to identify customer needs and expectations. When customer population is
large, market research surveys are needed to find out these expectations. Most managers set quality standards tor characteristics they themselves think are important. These may or may not be important to the customer. Managers who do not understand the customer's expectations will either fail to provide customer satisfaction or waste effort on irrelevant characteristics or both. This wrong trend of managers bring the need for the next step.
The third step is to compare the measured requirements with the actual service product delivered. Except when a new service product is being developed, most organizations compare a current product's attributes with the customers' expectations. Usually one of the two conditions is discovered:
1. The product has fewer attributes or performs at a lower level than required. 2. The product has more attributes than required.
The first case represents a chance to improve quality. The second is a challenge to improve productivity, because the product is requiring more resource investment to produce it than is really necessaiy. Rarely there is a perfect match between customer requirements and the actual service product delivered, because expectations constantly change. Only having a customer centered approach, where market research surveys are constantly applied, will lead to a success.
The fourth step is to describe the process that produces and delivers the service product. Since most processes in large organizations cut across many functional units, it is usually hard to find an owner for the process. If there is no clear owner, there can be no easy control exerted on the process to produce what the customers expect. The objective is to make any process come as close as possible to a straight line between two points. This also means minimizing process complexities and chronic problems. All of these improvements will increase the efficiency and effectiveness of the work process and will make possible obtaining the desired output the first time through. " Doing the thing right
for the first tim e" is a very important concept, which will increase customer satisfaction,
in service quality management.
" According to Deming and Juran, most of the quality and productivity problems can be traced to the system. The object of quality planning is to design the system so that the desired results are obtained the first time through. The obstacle to effective quality planning include time constraints, lack of resources, lack of training in technical aids , and lack of relevant experience. Trying to improve efficient processes under operating conditions only postpones the problem- it does not solve them. The result is a great loss of time and money. " (Kacker, 1988)
Managers usually make the mistake of dealing with the symptoms of errors rather than cure the causes of errors. When they notice errors, they add extra inspection and correction steps. This is only a temporary measure. As time goes by, people forget the reason why these extra steps were put. These extra steps begin to add complexity to the process itself People start accepting these complexities and they become part of the process.
Graphically describing the flow of the service process can be a method to see what is actually being done by whom. It will also identify the errors that are responsible for the extra steps, reduce these errors, and eliminate the extra steps. And therefore it will help to improve the existing process. In addition to these, this approach will make it easier to identify targets, will reduce complexity and costs.
Within this step, the target value and intermediate goals for each identified characteristic must also be established. The target value should be set to ensure continuous quality improvement. The intermediate goals are the standards to be met with a given period of
time, under operating conditions. Setting measurable service levels is the equivalent of setting product standards. An example of such a standard may be the maximum amount of time a customer should wait for service. It should not be forgotten that for critical jobs or characteristics there should not be any intermediate goals. For example, a bank can not afford to make any errors in customers' account balances. The only goal must be no accounting errors of any kind.
As in a manufacturing operation, the performance standard should include the mechanics such as : the equipment to be used, physical layout of the premises, etc. It should also include the systems and procedures. The procedures tell exactly how each task is to be performed. The overall system definition describes how each procedure fits into the overall context of the system.
When setting standards, some important customer needs are seen as details and are not even considered. However these " details " are usually the first impressions that heavily effect the customers' perceptions and shape their expectations. These may be very important in the customers' decision to use the service the next time or not. Examples of such standard may include, " every customer is greeted in arrival; eye contact is made at least once during a transaction; when a customer has given his name, he or she is subsequently addressed by name. "
The fifth step is the measurement side of the overall picture. The only one measurement to represent success has always been the routine evaluation of financial data. Financial information is usually favored by producer centered organizations. Instead three types of measures should be used in a broad basis : quality, productivity, and profitability. If these measures are managed in an integrative way, there will be an objective basis for constant improvement.
Ill measuring quality, measuring conformanee to standards conies in the first place. This means output evaluation and it should come from the customer, who is the only one to really experience the transaction. Carol A. King in his 1987 article talked about tluee types of output evaluation :
1. Unsolicited complaints and compliments 2. Solicited feedback via comment cards
3. Solicited feedback in the form of customer surveys
Unsolicited feedback, is the most immediate source of customer evaluation, but as mentioned earlier it will not reflect all the facts about the service quality. However, complaints should still be recorded for future analysis. These data should be grouped into usable classifications and analyzed.
Customer surveys and market researches are more unbiased information. Other forms of output evaluation are observation of the transaction by supervisors or company observers. In addition to output the process should be evaluated by operating audits and the use of operating statistics.
The last step is a step to go back to the beginning. Including customers as part of the product development team. This way of thinking will provide the basis for product quality and its improvement, and it will also help in developing new innovations.
IV. A NEW APPROACH TO SERVICE QUALITY
Until this section, the evolution of quality till 1990's has been evaluated. The concept of service quality and the general approaches to manage quality in a service firm has been presented in an integrative model.
In 1990, Valerie A. Zeithaml, A. Parasuvaman, Leonard L. Berry from Texas A&M University, have approached the same subject in, their book " Delivering Quality Service " from a point of view of customer perception and expectations. Although the understanding of quality and reasons of failure have been identified almost the same when compared to previous models, this model brought the possibility to measure service quality quantitatively. Until then, since service quality was a qualitative concept, it was harder for managers to believe in it and work on such an intangible concept. Such a model, called SERVQUAL, will enable managers, who mostly believe in numbers rather than qualitative measures, to start to view service quality as something tangible and something of real value.
The model aims to answer mainly three questions: 1. What is service quality?
2. What causes service quality problems?
3. What can organizations do to solve these problems and improve their service?
To get the answers to these questions focus group interviews were conducted among users of four types of services; retail banking, credit cards, securities brokerage, and product repair and maintenance.
According to these focus group findings good quality means meeting or exceeding customer expectations. So this understanding brings that, judgment of quality depends on how customers perceive the actual service performance in accordance with what they expect. In other words, service quality is the extent of discrepancy between customers' expectations or desires and their perceptions. " Perceived quality is how the customers feel about the quality of service that has been actually provided by the company. Expected quality is the quality that the customer assumes will be received when a service is purchased. This expectation often includes both a quantitative and a qualitative factor. The customer's values can be influenced by the service provider's actions. This provides both an opportunity and a threat. The opportunity is that public actions and public relations can be used to change customer expectations. The threat is the possibility of lowering expectations to sucli a point that potential customers go elsewhere. " (Booth, 1990) The whole model is developed over this understanding.
The outcomes of the focus group surveys showed several additional factors that would influence customers' expectations. One of them is " word o f mouth, " which is what a customer hears from another customer. The detailed impact of " word of mouth " on quality was examined earlier. Personal needs of customers is another factor that might shape expectations to a degree. The third one is the customer's past experience using the specific service. It has been observed that more experienced customers have lower expectations regarding behavioral attributes such as greetings and friendliness. On the other hand, these customers were more demanding with respect to technical characteristics. The last one is the effect of external communications such as advertisements. Through external communications, customers get direct or indirect messages which promise certain things. The advertisements, brochures, commercials, promotions, etc. make customers expect what is promised as superior service.
The next and most important conclusion from the focus groups is about the criteria used by customers in judging service quality. It was understood from the focus groups that the same set of criteria was essential for all four sectors' quality judgment. Ten general criteria or dimensions of service quality were identified as: tangibles, reliability, responsiveness, competence, courtesy, credibility, security, access, communication, and understanding customers. These dimensions are not independent of each other and in some cases they may even overlap. It is important that, the ten criteria are appropriate in general for assessing quality in a broad variety of services.
The definitions of the dimensions with a specific example concerning the banking sector about that dimension are :
Tangibles: Appearance of physical facilities, equipment, personnel, and communication materials. (Are the bank's facilities attractive?)
Reliability : Ability to perform the promised service dependably and accurately. (When a loan officer says she will call me back in 15 minutes, does she do so?)
Responsiveness: Willingness to help customers and provide prompt service. (When there is a problem with my bank statement, does the bank resolve the problem quickly?)
Competence: Possession of required skills and knowledge to perform the service. (Is the bank teller able to process my transactions without fumbling around?)
Courtesy: Politeness, respect, consideration, and friendliness of contact personnel. (Does my bank teller refrain from acting busy or being rude when I ask questions?) Credibility: Trustworthiness, believability, honesty of the service provider. (Does the bank have a good reputation?)
Security: Freedom from danger, risk, or doubt. (Is it safe for me to use the bank's automatic teller machines?)
Access: Approaehability and ease of contact. (How easy is it for me to talk to senior bank officials when I have a problem?)
Communication: Keeping eustomers informed in language they ean understand and listening to them. (Can the loan officer explain clearly the various eharges related to the moi'tgage loan?)
Understanding the Customer: Making the effort to know eustomers and their needs. (Does someone in my bank recognize me as a regular customer?)
The model ean also be ealled the " gaps model " sinee it focuses on discrepaneies and gaps that need to be closed to offer exeellent serviee. The model helps to understand service quality, measure it, diagnose service quality problems and derive solutions to the problems, whieh is what is needed to improve quality.
The authors have identified five gaps that need to be elosed to reaeh exeellenee: GAP 1: Customers' Expeetations- Management Perception Gap
GAP 2 : Management's Pereeption- Serviee Quality Specifications Gap GAP 3 : Service Quality Speeifications- Service Delivery Gap
GAP 4 : Serviee Delivery- External Communieations Gap GAP 5 : Customers' Expectations- Perceived Serviee Gap
Gap 5 is the service quality shortfall perceived by customers and Gaps 1 through 4 are considered as shortfalls with the serviee provider's organization. In fact these four gaps are the major eauses of the serviee - quality gap that eustomers pereeive, whieh is Gap 5. So the model's methodology is to first measure Gap 5, by using the dimensions of service quality speeified earlier. The next step is to measure the other four gaps to diagnose the causes of Gap 5. After these steps, eomes the time, to find solutions to the problematic areas of the organization.
The examination of the gaps in the servqual method does not only measure the overall quality of service perceived by customers, but it also identifies the key dimensions, and facets within these dimensions on which the company should focus its quality improvement efforts.
A. SERVQUAL: How to Measure Service Quality A.l. GAPS: SERVQUAL SCORE
While these surveys were done in US for four different service categories on nationally loiown firms, correlation was observed among some of the ten dimensions of quality mentioned earlier. This observation lead to consolidation of the dimensions into 5 criteria. The five dimensions are: tangibles, reliability, responsiveness, assurance, and empathy.
First 10 D im e n s io n s T a n g ib le R e lia b ility R e s p o n s iv e n e ss C o m p e te n c e A c c e ss
C o u rtesy C o m m u n ica tio n C red ib ility U n d ersta n d in g S ecu rity the C u sto m er C o n so lid a te d 5 D im e n s io n s T a n g ib le R e lia b ility R e s p o n s iv e n e s s A ssu ra n ce E m p ath y
Since the first tluee dimensions did not change, the previous definitions still hold. For the next two consolidated dimensions, it is needed to define them in their new context. Assurance: Knowledge and courtesy of employees and their ability to convey trust and confidence.
Empathy: Caring, individualized attention the firm provides its customers.
The quantitative phase to measure Gap 5 consists of two sections; an expectations section and a perceptions section. The people who fill the questionnaires are asked to evaluate
these statements on a seven-point scale ranging from 1 (strongly disagree) to 7 (strongly agree). The method to meeasure the servqual score is presented in the questionaire design section.
The SERVQUAL score can be measured as an unweighted score, which is the simple average of the scores on the five dimensions. A weighted score can also be computed. In the questionnaire, customers are asked to allocate 100 points among the five dimensions. These points will be the weights to each set of questions that match with the dimensions. So the weighted score is computed by taking into account these points and taking their weighted averages.
If the servqual scores reflecting expectations and perception is examined over time, this will allow the firm to track the position of quality (gap) within the company. When expectations and perceptions are tracked at fixed time periods the managers will also understand how the gap between the two is changing by observing whether the changes are stemming from changing expectations, changing perceptions, or both.
The servqual questionnaire will also allow the company to compare its scores against that of its competitors. This can easily be done by including additional sets of perception statements for each of the competitors. There is no need to repeat the expectations section for each different firm. This approach will allow the organization to figure out its relative strengths and weaknesses compared to its competitors, over the quality dimensions.
The servqual scores can also be categorized into different customer segments and Gap 5 for each segment can be analyzed separately. This will help the firm understand the shortfalls of its quality perceived by its " best customers "and therefore can shape itself
accordingly. In this case it is needed to include additional questions in the servqual questiomiaire, to get appropriate information that is needed.
In addition to all these different applications, a company should not forget to measure quality of service provided to its internal customers. It should not be forgotten that overall quality cannot be achieved fully without the satisfaction of internal customers. With appropriate adaptation, servqual can be used by departments within a company to ascertain the quality of service they provide to employees in other departments and divisions. This survey rests on the understanding in the company that one department is the customer of another.
After measuring Gap5, which monitors and helps to understand customers' perceptions of service quality, the company should identify the causes of service quality shortfalls. Servqual approach develops a conceptual model linking " customer- perceived quality " deficiencies to " within company " deficiencies. The deficiencies or the gaps to be measured tluough exploratoiy surveys are gaps 1 through 4.
A.2. GAPl: CUSTOMERS' EXPECTATIONS- MANAGEMENT-PERCEPTIONS
Gap 1 tries to understand the shortfall between customers' expectations and the managers' understanding of these expectations. Company executives may not always be aware of the characteristics customers value the most. They may not laiow which features of services are critical in satisfying the customers and which level of performance the customers desire for these features. Wrong understanding of customers' expectations may lead the management to end up with " a chain of bad decisions and suboptimal resource allocations." Stressing wrong attributes which do not connote high quality to customers does not add anything to the firms' quality perception. Spending a lot of money on
physical appearance of the company, when the customers' expectations are convenient, comfortable, and functional facilities, is throwing away money. Focusing on internal aspects of the job, such as many beurocratic steps for control, would not concern the customers much. They might value personal attention such as answering the questions patiently.
The managers' inaccurate understanding of customers' expectations would result in perception of poor sei-vice delivery performance. In such a case, the initial step to narrow Gap5, to improve quality of service, is to close Gapl. This is possible if the management gathers accurate information about customers' expectations.
A.3. GAP2: MANAGEMENTS' PERCEPTION- SERVICE QUALITY SPECIFICATIONS
When there is no Gapl or when this gap is closed, this does not mean that the company has achieved superior quality service. In other words, correct perception of customers' expectations is not enough. The second step is to have concrete performance standards which reflect the correct perception of customers' expectations. In most organizations the problem is that, managers face difficulty in translating their knowledge of customers' expectations into service quality specifications. Some executives believe that setting standards to services is impossible, since the degree of variability inherent in services does not allow standardization. Other reasons may be that they find customers' expectations unreasonable or believe that the company's operations cannot be changed. All of these reasons stem from the real fact that the management does not believe in or is not committed to service quality.
Standards tell contact personnel about the management's priorities and the types of performance they should show. When service specifications are absent or when Gapl exists where these standards do not reflect customers' expectations, quality of service will be inversely effected. These standards directly effect the quality of service delivered by the customer contact personnel to the customers, since these standards are the performance evaluation and compensation criteria of the personnel. When these standards reflect customers' expectations, the quality of service delivered to or received by the customers will be improved. An example for a proper standard for a bank could be quick response or fulfilled promises. Therefore, the way to close Gap2 is to set performance standards that reflect customers' expectations. Closing Gap2 will definitely narrow Gap5.
A.4. GAP3: SERVICE QUALITY SPECIFICATIONS- SERVICE DELIVERY GAP
Another problem could emerge from the discrepancy between service performance standards and actual service delivery. Well designed standards that fulfill expectations may exist, but if the contact personnel cannot meet them, Gap3 widens. This may be due to the unwillingness or inability of the employees, which proves the pivotal role of customer contact personnel in achieving quality. Another reason may be that, the volume of transactions being highly over the process capacity. So a service- performance gap is usually due to some internal constraints such as unqualified employees, inadequate internal system to support contact personnel, or insufficient capacity to serve. This proves that for an effective service deliveiy, service standards should be supported with adequate and appropriate resources.
The necessary resources are of " people, systems, and technology " type. For effective "people resources," the company should have correctly designed performance appraisal system. That is, employees must be measured and compensated on their basis of performance along the right company standards. This requires the top management to be committed to quality improvement by encouraging and requiring the achievement of standard. So narrowing Gap3 by ensuring that all the necessary resources to achieve the standards are available, will also reduce Gap5.
A.5. GAP4: SERVICE DELIVERY- EXTERNAL COMMUNICATIONS GAP
The discrepancy between the actual delivered service and the promised service, Gap4, has a negative effect on customers' perceptions of service quality, Gap5. Many customers might perceive poor service quality because of broken or unmet promises, since the most important determinant of customers' expectations is the external communication of the company.
Customers judge service quality by the information they collect through external communications of companies. Companies make promises through media advertising, brochures, its sales force, and other communication tools, which raise their expectations. Unmet promises mean widening of Gap5 since as expectations increase, poor perceptions bring a larger discrepancy.
One of the reasons of " broken promises " may be the lack of coordination between operations and marketing people. When marketing people promise things, the operations people are not informed or not ready to fulfill, the result will be definitely discouraging. The marketing or the customer relations departments are usually responsible for describing, promoting, and communicating the service to customers. The operations
people are responsible for delivering the service. There should be a close coordination between the two. If the first group does not understand the realities or the capacity of actual service delivery the result will be a failure. Exaggerated promises may bring new customers at the beginning, but when it is seen that in reality there is no such thing the company may lose everything.
Another fact of external communications is their possible affect of shaping customer perceptions. Customers are usually not aware of the effort of the employees behind the counter. This is an important opportunity that would influence customers' perceptions favorably. Companies can improve their customers' service perceptions by making them aware of company's commitment to quality. If customers know that the services in a company is always at their best interest, they will be more tolerant and will perceive the services more favorably.
Service perception may also be shaped by educating customers. People usually do not know how to use the service and do not understand why the company does the things the way they do. Educating them to be better users of the service and explaining to them the steps of the service process which they find irrelevant and cumbersome.
So through effective external communications customers' expectations and perceptions are both effected in different ways. The important thing is to effectively coordinate the actual possible service delivery with the right external communications to narrow Gap4. Its affects will be favorably achieved in closing Gap5.
For managers to achieve superior quality of service Gaps 1 through 4 should be shut to close Gap5. If one or more of the Gaps 1 through 4 exists, customers will definitely
perceive service-quality shortfalls. The Servqual conceptual model works in a logical process which companies can use easily to measure and improve quality of seiwice.
V. UNDERSTANDING OF QUALITY IN TURKEY
In Turkey, there is a growing awareness that we live in a global economy, not one only dominated by US and the Japanese. Competition has increased both at home and within this global context. Turkey is also no longer a sellers market. Customers are becoming more knowledged and are going after their rights in cases of problems.
At the beginning of 1980's producers believed that they could sell whatever they produced. Customers had almost no right to complain. With the changes in the economy to a more liberal, free market conditions Turkish firms also had to compete with foreign products. This forced them to improve their quality so that they could become competitive in the marketplace. As the buyers started to gain more power, quality became an important issue in the manufacturing world.
Some Turkish firms realized that, as a nation, as industries, as companies, and as individuals, we must compete on five dimensions. The most basic one is price. The others are service, marketing, innovation, and quality. These are essential to produce goods that are better and competitive. This understanding is mostly valid in joint ventures, Turkish branches of multinational firms, and a few big Turkish companies. These companies are becoming proactive in finding out what the customer needs, wants, and expects.
However this does not mean that we are late to cateh the global trend. As told earlier, the US manufacturing companies learned that quality does not improve unless it is measured in the 1980s. Measuring service quality is even a newer concept that has not been settled down in US. Since quality is not an unknown concept, it is not impossible to widen this culture to all companies. That is, all Turkish firms must learn that quality is important for gaining competitive advantage. It should not be forgotten that, Turkey is moving towards a customs union in 199.'', and so '' quality management "will become the only way to survive among a global environment.
When it comes to quality management in service industries, almost all the companies do not know the term or do not believe in it. The situation is really contrasting to the manufacturing companies who are familiar with and positively investigating to start the quality culture in their own businesses. In Turkey, among the service industries, the ones that are managed as real businesses are some private hospitals among the health sector, educational institutions, banks within financial services, hotels, and transportation. Other services like retailers, wholesalers, repair, amusement, and legal services are usually small establishments of individuals which are not managed professionally. So one does not expect to find quality awareness in this latter group.
Among the first group, banks constitute the largest financial portion of Turkey's economic life within the service sector. Over the years, it remained as a constant fact that banking is a business built on credibility, tmst, and good faith. When there is a breach in one of these attributes, the effects on a financial institution are invariably damaging and of long duration. The Turkish banking system has newly experienced such a broken trust and all the financial system is effected inversely. However, when a bank has proved to be strong in these areas, customers look tor something more.
Today, an increasingly competitive environment is forcing banking services industries to set standards to survive. It is apparent that price and product differences do not necessarily gain customers. Since the cost of services is similar in most institutions, successful institutions must provide a level of service quality above its competitors. That is, they must seek to provide customers with an extra measure of value. These are the facts, but are the bank's management aware of these? Do they believe in quality management?
It is important for banks to realize that they provide immediate customer benefits during their services. In some other sectors, such as product repair services, the benefits are more enduring. This means, for banks customer perception during transactions is the really important factor to influence customers' preferences. When a customer enters a branch, the way the customer contact personnel treats him, helps him, solves the problems till he leaves, shapes all his perception. Usually he does not have the chance to evaluate the service later as one can do for a repaired product. This means, perception of the service can be positively shaped with proper quality management in such a competitive environment.
According to Richard Thomas, president of First Chicago Corp., " there are really only two ways to achieve and sustain outstanding performance over the long tenn: you have to take the exceptional care of your customers through supei'ior service and superior quality and you have to innovate constantly." (Thomas, 1987)
This section deals with the research question and the steps of the overall study including the detailed explanation of questionnaire. Follows the results of the survey and case analysis.
A. RESEARCH QUESTION
This study attempts to measure the level of service quality of one branch of a Turkish private bank by using the SERVQUAL method. The aim is not to search the relevance of the SERVQUAL method, but to use it as part of a case study. This study is the first example in Turkey to measure service quality quantitatively.
For this purpose, this study employed personal observations and interviews to obtain qualitative data at the first step to understand the bank's current situation. Personal observations and interviews, being exploratoiy, were veiy beneficial in helping the researcher support the findings obtained from the questionnaires.
In the quantitative part, main study, four different sets of questionnaires were used to measure Gaps 1 through 5. The respective aims to be reached from each of these Gap maesurements were presented in the earlier sections. The quantitative findings were evaluated on the basis of the results of these questionnaires.
B. METHODOLOGY
Pre-study: Bank managers were interviewed to understand the current situation of the bank and general view about " service quality. " The General Manager, the Branch Manager, Customer Relations Department Manager, and three other department managers were interviewed. In addition to these, the branch's department managers were also interviewed.
Sample: The first part of the study measuring customer expectations and perceptions aimed to cover around 100 branch customers. 250 questionnaires were distributed and 82 of them could be collected back. These customers were chosen arbitrarily. A demographics section was included at the end of the questionnaire to understand the general profile of the customers.
The second p a rtis answered by 17 branch employees. These are, 7 customer contact personnel, 4 sef, 1 accounting specialist, 4 managerial employees, 1 branch manager. The
third part is completed with two different samples. One representing the branch
managers of 3 employees, 1 manager and 2 department managers. The other sample represents the thoughts of the top management, where 5 top managers answered the questions. The fourth partis consists of a sample of 7 customer contact personnel of the branch.
Main Study: Four different sets of questionnaires were used to measure Gaps 1 tluough 5. The first set (append. 1) is aimed to measure GAPS, where customers perceptions and expectations are evaluated. The second set (append.2) is designed to measure Gaps 1 through 4, where the questionnaire is filled by the branch employees and managers. The third set (append.3) measui'es the antecedents of Gaps 1 and 2, where the questionnaire is filled by the bank and branch managers. The antecedents of Gaps 3 and 4 are found out in the fourth set (append.4) where the questions are answered by the customer contact personnel. The quantitative findings were evaluated on the basis of the results of these questionnaires.
C.
QUESTIONNAIRE DESIGN:
C. 1. Questionnaire for Customers (Append. I ):
The quantitative phase to measure Gap 5 consists of two sections;
• An expectations section that contains 22 statements to understand general expectations of customers concerning a service in a given service category.
• A perceptions section that contains a matching set of 22 statements to measure customers' assessment of a specific firm with the specific service category in part one.
The people who fill the questionnaires are asked to evaluate these statements on a seven- point scale ranging from 1 (strongly disagree) to 7 (strongly agree).
Questions are designed according to the following purposes:
The statements in the questionnaire are grouped into five dimensions mentioned earlier. The first four questions i<^\-Q4) aim to identify the " tangibles " dimension. Questions from five to nine (Q5-Q9) are for " reliability, " ten to thirteen (Q10-Q13) are for " responsiveness, " fourteen to seventeen (Q14-Q17)are for " assurance, " eighteen to
twenty-two {Ql^-Q22) are for the " empathy " dimension.
The questionnaire data is converted into perception minus expectation scores for each statement.
SERVQUAL SCORE = PERCEPTION SCORE - EXPECTATION SCORE These difference scores range from +6 to -6, where more positive scores mean higher perceived service quality. The more negative the servqual scores, the more serious the service quality shortfall is in the eyes of the customer.
