International Journal of Bank Marketing

Emerald Article: Interrogating SERVQUAL: a critical assessment of service quality measurement in a high street retail bank Karin Newman

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To cite this document: Karin Newman, (2001),"Interrogating SERVQUAL: a critical assessment of service quality measurement in a high street retail bank", International Journal of Bank Marketing, Vol. 19 Iss: 3 pp. 126 - 139 Permanent link to this document: http://dx.doi.org/10.1108/02652320110388559 Downloaded on: 17-01-2013 References: This document contains references to 64 other documents Citations: This document has been cited by 51 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 5009 times since 2005. *

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Karin Newman, (2001),"Interrogating SERVQUAL: a critical assessment of service quality measurement in a high street retail bank", International Journal of Bank Marketing, Vol. 19 Iss: 3 pp. 126 - 139 http://dx.doi.org/10.1108/02652320110388559 Karin Newman, (2001),"Interrogating SERVQUAL: a critical assessment of service quality measurement in a high street retail bank", International Journal of Bank Marketing, Vol. 19 Iss: 3 pp. 126 - 139 http://dx.doi.org/10.1108/02652320110388559 Karin Newman, (2001),"Interrogating SERVQUAL: a critical assessment of service quality measurement in a high street retail bank", International Journal of Bank Marketing, Vol. 19 Iss: 3 pp. 126 - 139 http://dx.doi.org/10.1108/02652320110388559

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Interrogating SERVQUAL: a critical assessment of service quality measurement in a high street retail bank
Karin Newman Professor, Middlesex University Business School, London, UK
Keywords

SERVQUAL, Banking industry, Marketing management, Human resource management, United Kingdom

Introduction
Published studies of applications of SERVQUAL have focused mainly on the USA and, in relation to retail banking have featured banks in North America, Australia, Hong Kong and Singapore. This paper presents a case study of a pioneering use of SERVQUAL in the UK by one of the top ten retail banks. Unlike most existing accounts of service quality improvement initiatives this study is empirical and qualitative rather than conceptual and quantitative. Such an approach is supported by Gummesson (1998), who observed: ``There is a need for inductive research that allows reality to tell its own full story without forcing received theory on it''. This study therefore seeks to add some empirical insights to the theoretical literature on service quality through a depiction of a major High Street bank's fiveyear quality improvement programme, at the heart of which lay the systematic application of SERVQUAL. Specifically, this paper explores the ways in which SERVQUAL was used in a retail bank as a diagnostic tool. It examines the difficulties that arise in the measurement process (including the administration and collection of the data, sample selection, timing, retrospection) and suggests that its value may not be fully realised if the measuring process is not well executed. Indeed, it may be easy to adopt SERVQUAL and implement large-scale surveys and continue to measure outcomes but if they are not acted on it becomes a futile exercise. Finally, this paper explores the relationship between SERVQUAL use and the management of service quality. The paper is structured into the following sections: 1 the financial services environment; 2 a review of the relevant industry and academic literature; 3 explanation of the methodology; 4 the case study itself; and 5 discussion of selected aspects.
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Abstract

This paper presents a case study of a pioneering nationwide implementation of SERVQUAL by a major UK high street bank between 1993 and 1997 at an annual cost of one million pounds. In addition to highlighting serious weaknesses in the value of SERVQUAL as a measure of service quality and as a diagnostic tool, this study raises some of the practical difficulties entailed in its implementation. Moreover, in this particular instance, it becomes apparent that difficulties are introduced by the separation of service quality management from the management of marketing and human resources. In addition, there was a discernible lack of top management commitment, as well as obstacles in the form of functional and informational silos, which served to constrain an integrated company response to SERVQUAL criteria.

The study closes with observations on both practical and theoretical aspects of the implementation of SERVQUAL. The conclusion briefly stated highlights the difficulties of translating service quality improvements into financial results in the context of free banking and the profitability profile of UK retail banking customers.

Financial services environment

Increasing competition, technology, social and cultural factors were the chief drivers of service quality initiatives during the 1990s. The onset of competition in consumer financial services can be traced to the regulatory changes of the 1970s, which allowed the banks' entry into the mortgage market and ended the rationing of housing finance. In the 1980s further deregulation with the Building Societies Act facilitated a diversification of Building Societies into unsecured lending, insurance brokerage and paved the way for demutualisation and conversion to plc status. The Financial Services Act 1986 promoted competition in the savings industry and put in place a system of industry self-regulation to protect consumers of investment products. The traditional business boundaries or horizons of banks, building societies and insurance companies crumbled away. Traditional players now competed against each other for the custom of personal customers of current accounts, savings products, personal loans, mortgages, credit cards and insurance products. New entrants attracted by the liberalisation cherry-picked their way into profitable segments and niche products in an expanding market as household income and wealth increased substantially (Harrison, 2000) while shares and savings accounts and new tax-sheltered products such as PEPS and TESSAs were created to absorb the increase in net wealth. Simultaneously, the development of corporate treasury operations reduced the bank profits from corporate banking. The
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International Journal of Bank Marketing 19/3 [2001] 126139 # MCB University Press [ISSN 0265-2323]

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Karin Newman Interrogating SERVQUAL: a critical assessment of service quality measurement in a high street retail bank International Journal of Bank Marketing 19/3 [2001] 126139

banks' high-cost income ratios of between 60 and 70 per cent (Dalton, 1998) were no longer sustainable and the drive to reduce fixed costs and raise revenues preoccupied the banks' business strategies during much of the 1990s. The drive to reduce fixed costs centred on a restructuring of services, heavy investments in technology and the application of service quality improvements. Technology facilitated the automation of services (processing of accounts and transactions, error and cost reduction and increased efficiency) and allowed the transfer of the ``back office'' into a few regional processing centres. Improvements in IT and database competencies allowed the establishment and development of telephone banking with over 15 million accounts by 1999 (British Bankers' Association, 2000). Sophisticated automatic teller machines (which allowed cash withdrawals, balance enquiries and statements) increased from 14,606 in 1994 to 23,212 in 1999 of which 1,725 and 6,163 (British Bankers' Association, 2000) respectively were located away from branches in supermarkets, shopping centres and railway stations, thereby improving customer accessibility and convenience. The number of customer visits to expensive bank branches fell and so did the number of branches from 13,950 to 11,274 between 1994 and 1999 (British Bankers' Association, 2000). Such changes inaugurated the emergence of ``Martini banking'' services available ``anytime, anyplace, anywhere'' (Financial Times, 2000) fuelled by more recent innovations such as Internet, PC and digital TV banking. In the process of these changes financial service providers moved from the process driven control and check to a sales and customer orientation (Dalton, 1998). Service quality improvements were necessary not only to reduce costs and increase competitiveness but also to improve revenue (by selling a greatly enlarged portfolio of products to an increasingly wealthy, aware and demanding consumer). A survey in mid 1994 of quality initiatives amongst UK financial services reports the following main motivations for quality initiatives: competitive pressure to improve service quality (74 per cent), enthusiasm of the CEO and senior management (70 per cent), competitive pressure to reduce cost (52 per cent) and customer demand for quality of service (51 per cent) (McCabe et al., 1997). Quality of service is also attractive to retail banks as a competitive differentiator (McCabe et al., 1997). Between 1992 and 1994 over 90 per cent of companies within the financial services sector had adopted one or

more quality initiatives: business process re-engineering (75 per cent), customer care (69 per cent), service quality (59 per cent) and total quality management (46 per cent).

Relevant industry and academic research

Service quality as a route to competitive advantage and corporate profitability
The service marketing literature of the 1990s has advocated customer service excellence and prescriptions for improving service quality as a way to enhance customer satisfaction and loyalty leading to increased competitiveness and profitability. Several studies have identified a significant relationship between service quality and performance. Findings demonstrate that firms offering superior service attained higher than normal market share (Buzzell and Gale, 1987), that service quality impacts on profits via enhanced market share as well as premium prices (Gummesson, 1993) and that, compared to competitors, organisations in the top quintile of relative service quality on average achieve an 8 per cent higher price premium (Buzzell and Gale, 1987). Other consequences of superior service have been found including word of mouth recommendation (Parasuraman et al., 1991). Consequently service quality is accepted as a winning competitive strategy, good for service providers and their customers. Such findings are encapsulated in the service profit chain, a conceptual framework that postulates that in service firms profitability and growth are stimulated mainly by customer retention. Retention is a direct result of customer satisfaction and satisfaction is primarily influenced by the value of services provided to customers. Customer satisfaction is the result of the buyers' perception of service quality and satisfaction leads to customer retention, which leads to repeat purchase and increased scope for relationship building and word of mouth recommendation. The consequence, increased revenue, derives from reduced customer acquisition costs and lower costs of serving repeat purchasers leading to increased profitability (Heskett et al., 1994). A 5 per cent increase in customer retention can increase profitability by between 25 and 85 per cent (Reichheld and Sasser, 1990). The antecedents to customer retention include service quality (Storbacka, 1994), customer satisfaction (Rust and Zahorik, 1993; Hallowell et al., 1996), relationship quality (Storbacka, 1994), service recovery (Hart and Bogan, 1992) and customer service

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(Lewis and Entwistle, 1989; Berry et al., 1989). Companies that focus on customer service retain customers 50 per cent longer, increase profits by 7 to 17 per cent and reduce their marketing costs by between 20 to 40 per cent (Zemke, 1997). Yet, despite this evidence in favour of the value of satisfaction and quality, in practice, customer satisfaction in itself may be insufficient, for between 65 and 85 per cent of customers who defect are satisfied customers (Reichheld, 1993). More generally, the service profit chain has very limited empirical validation (Loveman, 1998) and may even be largely irrelevant in some cases. For example, in the UK retail banking is subject to an adverse variation of the Pareto principle, which states that the top 20 per cent of profitable customers account for 80 per cent of a company's profits. For UK retail banks, burdened by the inheritance of free banking, only between 10 and 30 per cent of the customer base is profitable (Dalton, 1998; Parker, 1998). In such circumstances indiscriminate customer retention can be uneconomic. Moreover, the competitive drive to customer satisfaction and retention in UK banking in the 1990s was in reality a phoney war as clearly demonstrated by the findings contained in the Cruickshank Report (2000) on banking which noted the limited amount of switching and information gathering undertaken by consumers and the relatively high level of customer retention reflecting loyalty in behaviour if not in attitude. Thus, in many senses the true value of customer satisfaction and service quality in contributing to genuine attitudinal loyalty and subsequently to profitability remains open to some debate. Notwithstanding such caveats, investment in quality continues to be seen by many as a route to competitive success and one which is of particular significance in financial services.

(1996) observed, ``while job satisfaction may not lead to customer satisfaction directly, service organizations rarely have satisfied customers without having satisfied employees''. Of equal importance is that employees' perceptions of service and actual customer perceptions of service quality tend to match (Naumann and Giel, 1995). Similarly, commitment to customer service and service capability are significant influencers of customer satisfaction, service quality and performance (Bergkhoff, 1995; Garvin, 1988; Hallowell et al., 1996). Commitment to customer service depends on recruiting the ``right'' employees and rewarding good service. Service capability depends on internal service quality, processes, IT, and equipment (Roth and Jackson, 1995). Employee attitude and employee and customer perceptions of service quality have all been shown to be related to profitability (Schneider, 1990; Johnson, 1996; Rucci et al., 1998). The service profit chain (Heskett et al., 1994) encapsulates these linkages.

Service quality measurement

There is still no consensus on a definition for quality. For this paper, that of Parasuraman et al. is adopted:
Service quality as perceived by the customer is the degree and direction of discrepancy between customer service perceptions and expectations (Parasuraman et al., 1985).

Employee perceptions of service and customer satisfaction

Customer service is a prerequisite for customer satisfaction. In service industries, employees play a key role in the provision of service (Albrecht and Zemke, 1985; Schneider and Bowen, 1995; Johnson, 1996). Employees influence the quality of, and delivery of, products and services to external customers (Zeithaml et al., 1990; Schneider and Bowen, 1995). Evidence of a positive relationship between employee satisfaction and customer satisfaction has been documented by classic studies (Schneider and Bowen, 1985; Schlessinger and Zornitsky, 1991; Johnson, 1996; Rucci et al., 1998) and, as Hallowell et al.

It is this gap between perceptions and expectations that underpins the formulation of SERVQUAL, the service quality measuring instrument of Parasuraman et al. (1988) and its subsequent refinements (1990, 1993, 1994). Since its formulation, SERVQUAL has been used in a variety of service industries and countries. Several authors of SERVQUAL-based studies have questioned its psychometric soundness and its usefulness. Principal among these are criticisms of its reliance on two scales measuring perceptions and expectations when one scale (that of perceptions or a simple performance measure) would be shorter, simpler and more easily understandable and ultimately more effective. The use of expectations is questioned by Babakus and Mangold (1992) and Cronin and Taylor (1992), who in measuring service quality in banking conclude that the disconfirmation approach has little support either theoretically or empirically. Similarly, Teas (1993) questions the interpretation and operationalisation of expectations and Avkiran (1999) notes a tendency to set expectations higher than perceptions thus making a gap between

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perceptions and expectations inevitable. Moreover on practical grounds the use of two scales and the negatively worded question items are both time consuming and too complex for most respondents (Avkiran, 1999). The reliability and validity of SERVQUAL's difference score formulation has been questioned by Babakus and Boller (1992) and Brown et al. (1993) and SERVQUAL's dimensionality has not proved universal. Published empirical studies have produced a variety of dimensions. Babakus and Boller (1992) in their study of electricity and gas confirmed two SERVQUAL dimensions and added two from the original (Parasuraman et al., 1985) ten dimensions of service quality. In a banking context, Lam (1995) reports that there were problems with the dimensions of SERVQUAL thus raising a fundamental question of what is SERVQUAL measuring? Buttle (1996) and Genestre and Herbig (1996) argue that SERVQUAL only measures process of delivery rather than the outcomes of service whilst Gilmore and Carson (1992) observe that SERVQUAL is narrowly focused on service or product dimensions to the neglect of the rest of the marketing mix. The debate continues, the pioneers have been scalped and Robinson (1999) in his synthesis of such critiques has concluded:
. . . it is questionable whether SERVQUAL is a reliable measure of service quality or, indeed, whether it is measuring service quality at all.

``treatment'' of customers' priority problem areas (Joseph et al., 1999).

Academic criticism of the validity and feasibility of SERVQUAL as a measure of service quality has been accompanied by proposals for alternative service quality measures. Prominent among these are Cronin and Taylor's (1992) SERVPERF measure which has the claimed advantage of one scale designed to measure service quality performance using a seven-point semantic differential scale with answers ranging from very poor to excellent. It eliminates the expectations scale and has been tested in dentistry and telecommunications. BANKSERV (Avkiran, 1999) is a single scale measure of service quality designed to allow customers to reflect on their perceptions and expectations in a single statement. Another approach is the importance-performance measure of service attributes, which measures how well a service meets customer needs (Ennew et al., 1993). The importanceperformance grid was redeveloped by Hemmasi et al. (1994) and tested in banking:

Since then the Banking Service Quality (BSQ) measure comprising 31 items for six dimensions (effectiveness and assurance, access, price, tangibles, services portfolio and reliability) has been constructed (Bahia and Nantel, 2000) This measurement tool, dedicated to measure service quality in banking, is essentially an adaptation of SERVQUAL. Thus, the accumulation of academic research over the past decade has highlighted many of the weaknesses and difficulties associated with the use of SERVQUAL. Nevertheless, it continues to be one of the most widely recognised methods of measuring service quality, notwithstanding these criticisms. More pertinently perhaps, at the time when Bank 1 was seeking to improve its service quality measures beyond the standard internal operations measures, SERVQUAL was a pioneering tool, adopted by a leading US bank and heavily promoted by management consultants. In such a context it was not surprising that SERVQUAL was selected as a basis for monitoring and managing service quality development. In contrast to the existing literature, the current study focuses attention, not so much on the properties of SERVQUAL as a measurement instrument, but rather on the costs and benefits of using such an instrument as part of a service quality improvement process.

Methodology
The methodology adopted for this combined an examination of SERVQUAL survey data for 1993-97 and of customer commitment survey data for 1995-98,with the bank's own literature annual report and accounts 199399, employee opinion surveys and company leaflets. The company documentation was augmented with in-depth interviews employing an evolutionary interview structure in which the focus, issues and practice-areas grew over time as the programme progressed from pilot in 1993 to the eve of its sixth year. Fourteen in-depth interviews were conducted at headquarters with senior managers including the director of the national retail branch network with overall responsibility for the selection and implementation of the SERVQUAL surveys together with senior managers from retail support, personnel, marketing and human resources over a period from January 1995 to May 1999. These interviews were augmented by drawing on the few accessible executive

It is considered that the Hemmasi et al. (1994) method is the most appropriate way of measuring service quality in the banking industry'' for it allows ``diagnosis'' and

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summaries of the bank's employee opinion surveys conducted during this time in order to improve the representativeness of the information. The available information and a spectrum of viewpoints is presented prior to a discussion reflecting on the experience of this major high street bank's quality initiative and the prescriptions of the academic literature.

The case study

This retail bank (referred to as Bank 1) is one of the top ten high street banks in the UK. Employing some 18,000 people it offers over 80 distinct products to over 15 million customers through 850 high street branches, 30 ``instore'' branches of a major grocery retail chain and through the telephone. The average account holdings per customer was 1.7 (The Sunday Times, 1999) although 2.6 million (or 17.33 per cent) of Bank 1's customers were found to hold three or more accounts (Bank 1, 1997). As repeatedly proclaimed in its Annual Reports and Accounts (1994-1997) Bank 1 is explicitly committed to:
. . . secure and maintain competitive advantage through superior customer service [and to] achieve above average growth in shareholder value over the long term by meeting the needs of our customers, our staff and all other stakeholders in our business.

a re-emergence of mortgage demand as the UK came out of recession exposed Bank 1's uncompetitiveness due to weaknesses in the mortgage process. It was developments such as these, together with a visit to the Bank of Chicago and Omega (a management consultancy), which proved highly influential in the Branch Network Director's decision to champion SERVQUAL as the keystone to improving quality of service. This initiative is all the more striking for the bank initiated its quality improvement programme without benchmark measurements and prior to any management plans for a ``whole bank'' quality management programme. Moreover the quality initiative was to be distinguished by its innovatory external orientation towards customers' perceptions of service quality and devolution of quality solutions to local branches. Such features were novel to an organisation hitherto characterised by its top-down and directive management style and introversion (Senior Manager in Personnel, 1995, 1999). This quality initiative stimulated the formulation of an operational definition of service quality, which acknowledges the tension between the quest for service quality and the drive for sales and revenue. In its own words, for Bank 1 the measure of service quality is:
. . . consistently meeting or exceeding customers' expectations, at a price which is acceptable to the customers and at a return which is acceptable to the company.

In pursuit of these objectives Bank 1 has, in common with its rivals, enlisted a number of distinct but mutually reinforcing strategies ranging from cost reductions initiatives, revenue growth through a strong selling focus, product diversification and a twin commitment to increasing customer and product profitability through greater crossselling, up-selling and more significantly increasing the commitment of valuable customers. The investments in new information technology, including ATMs and a new Branch PC network, were designed to improve processing efficiency thereby releasing staff for customer service and sales activities.

In 1992 a national survey of financial customers' perceptions of who offers excellent service in financial institutions placed Bank 1 in the middle of its rivals. As a senior manager put it: ``we were all the same. Only two financial providers stood out from the pack and they were miles above us.'' (Bank 1, Retail Support, 1999). Added to this,

Triggers for interest in service quality improvement

Sales and service are therefore seen as interdependent since Bank 1's aim ``is to keep long term relationships with our customers in which service quality is critical'' (Head Office Briefing Notes for Managers, August 1993). The next section describes the implementation of the measurement programme and typical quality improvement measures undertaken by individual branches in relation to their scores on each of the five SERVQUAL dimensions. It illustrates the usefulness to this bank of SERVQUAL as a diagnostic tool, and records the outcomes as they were perceived by customers and the resultant degree of customer commitment. The hallmark of Bank 1's service quality initiative was the implementation of an annual year-long cycle of SERVQUAL measurement, staff feedback, action and evaluation that has to date outlasted all its other service improvement initiatives. The cycle is based on the administration of two principal surveys:

Administration of SERVQUAL 1994-1998

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1 the national telephone Market Survey administered to around 500 Bank 1 customers and over 1,000 customers of seven main competitors; and 2 the Branch Survey administered face-toface to around 100,000 of Bank 1's customers while visiting their branch. These measures were supplemented by the customary customer satisfaction surveys and, from 1995, through branch inspections conducted by ``mystery shoppers''. Since the pilot surveys in 1993-4, BMRB, a well-known market research company, has regularly administered the market survey in May and June and the Branch Survey in October. These are large-scale surveys. For example, data collection for the Branch Survey alone represents the equivalent of 850 working weeks. The surveys have been consistently administered with only minor adjustments in order to provide a consistent year-on-year measure of Bank 1's customer perceptions of service quality and the service quality gap. A minor adjustment to wording in 1997 from ``This branch never makes mistakes on customer accounts'' to ``This branch never makes mistakes on my account'' improved the score, which had fallen owing to unfavourable publicity generated by the absorption of a rival. From 1994 SERVQUAL scores were augmented by customer satisfaction surveys which have regularly produced an average score of between 60 and 70 per cent. The year 1995 saw the introduction of the ``mystery shopper'' Branch Survey focusing on specific aspects of service delivery highlighted by SERVQUAL scores. This case study embodies the largest and most consistent application of SERVQUAL by any financial services company in the UK. Together, the ``mystery shopper'' and SERVQUAL surveys cost the bank around 1m per annum.

the five dimensions and most critically for a banking service reliability, a ``hard quality'' dimension, saw the largest gap between customer expectations and perceptions.

Reliability

Reliability became the prime focus of organisational activity. ``Getting it right first time all the time'' became the target for account accuracy, keeping promises, meeting deadlines and providing timely and accurate information to customers. Efforts to improve cash machines' availability and dependability received unprecedented attention. National operating standards were devised and a monitoring and measurement system put in place alongside a major programme of investments in information technology. The essentially ``soft'' or ``people'' quality dimensions of responsiveness, empathy and assurance accounted for significant gaps between customer perceptions and expectations. A gap of 12 points in staff responsiveness indicated a particular need for urgent attention. The responsiveness dimension actually incorporates a number of activities, including the readiness of staff to tell customers exactly when things will be done, the provision of prompt service, giving customers their undivided attention as well as being demonstrably responsive to customers' requests. Improvements in staff behaviour became a prime focus for individual staff as well as for teams' improvement initiatives with apparent success. The staff responsiveness gap diminished over the five years thanks only in part to improved staff performance but also, it seems, to declining expectations. Similarly, ``empathy'' was identified as a quality displayed by staff when they demonstrably had ``customers' best interests at heart'' by offering convenient opening hours, understanding of individual customer needs and problems as well as providing individual attention. Empathy scores indicate an overall decline in both perceptions and expectations. By 1997, both had fallen sufficiently to narrow the gap by a single point. ``Assurance'' requires staff to have the knowledge to answer customers' questions and the ability to provide competent, confidential, courteous and friendly service. Scores of the assurance dimension displays similar trends, with expectations falling by some eight points while perceptions hover between one and two points and the gap being reduced rather more by the decline in expectations than by staff behaviour.

Responsiveness, empathy and assurance

The Market Research Company presents the results of the two surveys to the retail sales department of the branch network located at head office from where they are cascaded directly to individual branch managers. As the national director of the retail network explained, ``in essence we present the problems and it is up to the branches to solve the issues. They are responsible.'' Table I shows how expectations and perceptions have changed during the years 1994-97 and how, contrary to customary prescriptions, Bank 1's customers' expectations appear to fall. Moreover, expectations are not being met on four out of

Dissemination of SERVQUAL data from head office to branches and action

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Karin Newman Interrogating SERVQUAL: a critical assessment of service quality measurement in a high street retail bank International Journal of Bank Marketing 19/3 [2001] 126139

Table I Bank 1 overall SERVQUAL gap scores 1993-1997 P Reliability Responsiveness Assurance Tangibles Empathy 80 82 88 88 84 1993 E 95 94 96 90 95 G 15 12 8 2 11 P 86 84 86 92 79 1994 E 95 92 92 91 91 G 9 8 6 1 12 P 87 85 87 92 81 1995 E 90 87 88 87 82 G 3 2 1 5 1 P 85 83 86 90 81 1996 E 91 88 89 87 84 G 6 5 3 3 3 P 88 84 87 91 82 1997 E 91 87 88 87 83 G 3 3 1 4 1

Notes: Bank 1 (score out of 100); P = perception; E = expectation; G = gap between P and E

In the ``tangible'' dimension Bank 1 exceeded its customer expectations. Owing to the legacy of an earlier branch refurbishment programme and a parallel investment in equipment, the appearance of branches in terms of appeal, cleanliness and tidiness exceeded customer expectations. However SERVQUAL revealed a considerable weakness on customer leaflets, letters, statements and communications in general. The organisational response included the adoption of a ``plain English'' policy for all correspondence and, after considerable benchmarking the Bank adopted the housestyle of a well-known retailer for its product literature. Customers' perceptions improved. Process and systems re-design and IT investments formed the heart of the organisational hard quality improvements. Tactical human resource strategies included encouraging staff to behave more responsively by using customer names more often, offering greetings, saying ``please'' and ``thank you'' and providing customers with undivided attention. In 1995 SERVQUAL performance scores were being incorporated into the branch managers' variable pay. In 1998 staff were empowered to spend up to 500 in service recovery. Table I reveals a considerable diminution of the gap scores owing to a marked improvement in performance on all three dimensions, where one point is significant and three is ``phenomenal''. An overall improvement of eight points in perceptions was registered between 1993 and 1997. At the same time, contrary to popular and academic received wisdom, customers' expectations show a decline, which is hard to explain.

Tangibles

As can be seen from Table II, Bank 1 made considerable inroads in the most seriously weak elements of the reliability and empathy dimensions from the third year. These results are mirrored in an increase in customers' word-of-mouth recommendation scores. Bank 1's customer commitment scores as expressed by answers to the question, ``would not hesitate to recommend'' displayed in Table III rise to a peak of 88 out of 100 points in 1997 thereafter falling to 83 points in 1998 perhaps mirroring the expansion of its banking operations through supermarkets. As can be seen from Tables III and IV above, Bank 1's scores on customer commitment and service quality are high and rise to a peak in 1997 reflecting the bank's multifaceted actions at national and local level to improve service quality. These scores also reflect well on Bank 1 when compared with its seven main rivals. Bank 1 customers appear considerably more committed to their bank than the customers of rivals A-E. Overall, only banks F and G appear to possess higher levels of support. Two striking features are the ability of Bank 1's rivals to catch up in the mid 1990s and for financial providers D-G to overtake Bank 1 in perceived service excellence, thus throwing doubt on the use of service quality as a unique differentiator.

Discussion
Interviews with head office senior management in the retail sales, human resources, personnel and the brand marketing department provide a mixed view on the role and contribution of this service quality improvement initiative.

SERVQUAL as a diagnostic tool

The elements that make up the SERVQUAL dimensions can also be displayed for diagnostic purposes. Table II shows the most severe gaps under each dimension and records the company's success in tackling individual problems.

Service quality outcomes

In the opinion of its champion, the SERVQUAL measurement programme was instrumental in reducing the myopia of the organisation by introducing an external view, the customer's, on the quality of the bank's services and more significantly

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responding to the customers' verdict. In the opinion of its sponsor, adoption of this quality initiative marks the bank's conversion from introspection to customer responsiveness and an external orientation (director of branch network). These tracking surveys also revealed a major divide between customers' expectations and perceptions in the North and South and exposed differences in performance, not only internally between branches but externally relative to competitors, thus providing management with a detailed, comparative overview. SERVQUAL provided the means to introduce an element of devolution and self-autonomy to bank branches in an organisation whose management style was

Table IV ``Quality of service is excellent'': Bank 1 v. competitors Bank 1 1995 1996 1997 1998 86 87 88 82 A 9 7 0 1 B 11 1 2 2 C 6 2 2 1 D 6 2 0 0 E 7 3 4 2 F 2 2 6 0 G 4 5 6 3

Note: Bank 1 score out of 100

variously described, by its management and staff alike, as bureaucratic, autocratic and hierarchical. SERVQUAL had the merit of being equally well understood by staff and managers and among staff in particular it escaped the cynical, ``flavour-of-the-month'' reaction to past quality and customer service initiatives and paved the way for the acceptance of a more intrusive check on branches such as the ``mystery shopper'' programme. However, it is arguable that SERVQUAL's greatest contribution was to raise the profile of service quality, bringing it to the attention of senior management and on to the board agenda. In 1995 a quality steering group chaired by the chief executive was formed to consider and select corporate-wide actions necessary to underpin customer service improvements. Hard quality operational performance targets were set for every department in the retail bank. However, the adoption and implementation of SERVQUAL also raised a number of issues internally and these may limit some of the potential benefits discussed above. The potential impact of service quality measurement was reduced by the existence of information silos. SERVQUAL and ``mystery shopper'' measures were selected, introduced, sponsored, financed and ``owned'' by the retail sales division at head office: the customer satisfaction surveys were sponsored and financed by the marketing department and the employee opinion surveys were sponsored, financed and owned by Human Resources! These potentially valuable sources of information on customers' perceptions and judgements, employee performance and company operations were neither co-ordinated nor integrated, thus losing the benefits of synthesis, cross-fertilisation and co-operation between departments and reducing the possibility of concerted and combined action to create and deliver service quality. Customer perceived quality was the preserve of retail sales rather than of

Table II Using SERVQUAL as a diagnostic tool: Bank 1 gaps on selected constituents Dimension 1995 16 12 15 6 8 14 11 7 9 12 11 3 2 10 7 11 13 13 8 1996 12 7 2 2 9 4 8 5 5 4 5 6 3 2 5 6 4 4 5 1997 5 4 2 2 8 2 7 3 3 3 4 7 4 1 6 4 2 3 3

Reliability Does not make mistakes Promise by certain time Cash machines are operating when needed Responsiveness Staff willingness Prompt service Staff can tell me when things will be done Tried to speed up service Assurance Staff authority to make decisions on the spot Knowledge to answer questions Privacy Staff are competent Tangibles Professional appearance of staff Up-to-date equipment Easy to read leaflets, letters and statements Empathy Call me by my name Trust staff Staff understand special needs Staff concerned and understanding of problems Convenient opening hours

Information silos

Table III ``Would not hesitate to recommend'': Bank 1 v. competitors Bank 1 1995 1996 1997 1998 84 87 88 83 A B C 7 2 1 5 D 7 3 0 5 E 7 3 0 2 F 1 2 4 5 G 4 4 4 1 7 13 10 3 4 2 2 5

Note: Bank 1 score out of 100

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marketing. The placing of quality with and under the umbrella of retail sales rather than the marketing department suggests a sales rather than a customer focus and suggests a subordinate importance of both service quality and marketing within the organisation. This, when combined with the organisational barriers, limited Bank 1's ability to be market oriented and reduced the potential effectiveness of both marketing and service quality strategies. Similarly, employees are both internal customers as well as part time marketeers (Berry et al., 1989) yet the connection between employee recruitment and training and the needs of service quality and marketing is severed. It is these organisational barriers that limited the impact of this service quality improvement initiative. The impact of the service quality drive and the employment of a ``people'' sensitive quality measure such as SERVQUAL were hardly discernible on HR strategy, practice or employee behaviour. There were no special training programmes to indicate to employees what they had to do in order to provide a quality service and SERVQUAL itself offers no practical guidance for behaviour. Similarly, staff appraisal seemed to favour sales at the expense of service. As one employee put it ``Commitment and service do not seem to count for much, sales are the most important aspect now'' and ``you could lose points on service quality but you can't gain points'' (Employee Survey, 1997). Consequently the failure to link service quality, customer satisfaction and employee reward and appraisal limited the penetration and impact of SERVQUAL for, as one senior management put it, ``Unless such measures are directly linked to pay nothing really happens'' (Senior Manager, Marketing, 1999). Indeed, concern for sales, rather than a service culture, pervaded the organisation. It was not until 1998 that a branch manager's variable pay became sensitive to customer satisfaction scores while the remuneration of top management remained firmly locked to the profit and loss account. Top management support for customer service must be seen to be total (Schneider and Bowen, 1985) but Bank 1 employees seemed less than convinced that this was the case. While 65 per cent believed the company was committed to customer satisfaction this is significantly below the 73 per cent norm for the financial services sector and 93 per cent achieved by the best company (Bank 1

Service climate and service orientation

Staff Opinion Survey, 1993). As one employee observed ``I think the management would like staff to think they are committed to customer service, but at the end of the day they are more interested in profit'' and another observed ``I have no job satisfaction anymore. We just have to get sales''. Indeed less than 45 per cent of staff believed that senior management demonstrated that customer satisfaction was an important goal and only 56 per cent of staff expressed themselves as satisfied with quality and customer service issues this was due largely to insufficient staff numbers to ``provide the high standards we want to offer our customers'' (Employee Opinion Survey, 1997). In any quality improvement programme top management has to be seen to believe in customer service and demonstrate that customer service and quality really matter before a service culture becomes embedded and a significant and sustained improvement in service quality and customer satisfaction occurs. Consequently, the scores at the end of the programme reflect the reluctant conclusion of one of SERVQUAL's admirers that ``Five years of measuring service quality has not changed very much the way we deliver the service to customers'' (Senior Manager, Retail Support 1999). Setting aside the practical difficulties the lack of top management commitment and the dominance of a sales climate together suggest that senior management may have been merely paying lip service to service quality improvement.

Reflections on the limitations of SERVQUAL.

From the experience of administering SERVQUAL over a five-year period a number of questions and issues centring on administration and measurement, HR practices, business culture and performance have emerged. A fundamental issue on the composition of the branch sample has emerged. It is suspected that the branch survey involving interviews with over 100,000 customers a year in branches might be capturing disproportionate numbers of the ``wrong customers'' those regular low-value branch visitors who appear easily satisfied rather than the profitable high-net-worth customers who are reluctant to visit branches and are more discerning and harder to please. Thus, these high SERVQUAL scores may encourage a false sense of security and feed

Respondents' suitability

Absence of top management commitment

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complacency. Furthermore, the visual selection of customers by independent market researchers may not be sufficiently sensitive to either customer or product ownership segments or the purpose of the service encounter. It is therefore an undifferentiated measure unsuited to a situation in which as research has shown perceptions and expectations vary across customer segments, product ownership and purpose of service encounter (Kangis, 1997). Such weaknesses assume great importance in a bank where less than 20 per cent of customers provide 80 per cent of profits (Director of Retail Branch Network, 1998), where another 15-20 per cent cost the bank money and the remainder might be made profitable only with the abandonment of free banking.

The employment of unweighted SERVQUAL measures fails to gauge customers' priorities across the five quality dimensions and their constituent elements and so may mislead. For example, a 5 score gives a false picture of importance. ``Using customer names'' became de rigueur in branches yet this was subsequently found not to be important to branch customers and may have diverted attention and resources from a more relevant element. Doubt also exists on the value of SERVQUAL as a diagnostic and prescriptive tool. For example SERVQUAL failed to reveal the extent of the lunchtime queues problem in branches. Similarly in a mortgage situation, the symptom or effect ``my mortgage didn't arrive in time'' is captured by SERVQUAL but the causation, the who, where, what, when, remains hidden and has to be discovered by other means. The SERVQUAL instrument is no substitute for customer relevant operational standards and requires supplementation by other performance measures. A more significant limitation of SERVQUAL in this case is that, by its very nature, it tends to be retrospective. The cycle of administration, collection, analysis and report-back of one year's duration is further exacerbated by the contemporaneous nature of the questions. Managers operating in a turbulent marketplace require real-time as well as forward-looking information as a basis for anticipating or responding fast to shifts in expectations, priorities and performance levels. There is a case for rephrasing the SERVQUAL questions to make them more managerially valuable along the following lines ``if we did this . . . would you'' . . .?

Prioritisation, diagnostics and retrospection

Finally, there remains the question ``what is SERVQUAL measuring?'' where the corporate image and reputation is highly favourable. To what extent does SERVQUAL measure perceptions and expectations engendered by corporate brand and reputation? How far do the corporate brand and image influence customers' expectations and perceptions of the local branch service encounter? Recent experience by Bank 1 is suggestive that the branch SERVQUAL survey scores reflect more on corporate brand and reputation than on branch performance. Support for this view originates from the finding that only five points separate the best and worst performing branches of a network totalling over 850. Further support is provided from the finding that the biggest recorded change in SERVQUAL scores of three points coincided with the relaunch of the corporate brand in a substantial television and press campaign in 1998. Gronroos (1984) and Lehtinen and Lehtinen both recognise the power of corporate image as a filter, mediator or influencer of service quality (cited in Le Blanc and Nguyen, 1988). Similarly research by Bloemer et al. (1998) on banks in The Netherlands has shown that corporate image affects customer perceived service quality. Support for a link between corporate image or reputation and quality is seen across the Atlantic in America where Fortune's corporate reputations survey concludes that quality of management and the quality of products and services that a company delivers are its most important attributes. Quality and service excellence fosters reputation (Brown and Kleiner, 1997). In the UK the success of new entrants with powerful brand names in life assurance, retailing and even airlines suggest that company image or reputation override considerations of service quality perceptions. That there is a connection is evident. However the direction of the linkage is not yet clear and requires further research. What is clear is the widespread belief that it is pointless to switch banks because all banks are the same (Abbey National Survey, 1998).

The influence of corporate image and reputation on SERVQUAL scores

The three soft quality ``people'' dimensions, responsiveness, empathy and assurance, are widely regarded as critical in service marketing. The crux of the service is the customer experience in which staff involvement their willingness and ability to serve determines customers' perceptions of

``Soft'' quality is no compensation for inadequate ``hard'' quality

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quality. It is at this point of the service profit chain that the quality of internal processes, staff empowerment, training and corporate leadership are fused. The experience of Bank 1 demonstrates that where hard quality, especially reliability of service delivery, is low then ``soft'' quality cannot compensate.

Conclusions
Much of the existing literature which critically evaluates SERVQUAL has focused attention on either the coverage of the items, the principles of measurement or issues in administration. Despite these concerns, SERVQUAL has been widely used, not least in the financial services sector. However, adopting and implementing SERVQUAL in a business context may raise other issues about the value of this approach to monitoring and measuring service quality. This paper reports on a case analysis of a pioneering service quality improvement programme which used SERVQUAL as the main driver of organisational quality improvement initiatives. The evidence from the case has highlighted a number of practical lessons and theoretical issues and questions which overall cast further doubt on the value of SERVQUAL as a measure of service quality. Beginning with the most important practical issues associated with this programme, several areas of concern have arisen. One stems from the mode of SERVQUAL's administration, which has raised fundamental questions about the composition of the sample, and its insensitivity to customer, product ownership and service encounter. The second stems from the use of an unweighted SERVQUAL measure, which fails to gauge customers' priorities across the five quality dimensions let alone their associated elements. The third practical issue is that of retrospection caused by both the construction of the questions and the length of time it takes to collect, process and analyse the data and disseminate the information. Internally, it is apparent that other concerns affected the value of SERVQUAL and these included the presence of information silos which meant that important information from a range of sources, including SERVQUAL, was not effectively disseminated. This may in part reflect a problem relating to the integration of aspects of the service quality improvement programme across the organisation as is evidenced by the lank of any clear linkages between SERVQUAL and the bank's HR strategy. An inescapable conclusion is that,

while it may be easy to adopt SERVQUAL and implement large scale surveys and continue to measure outcomes, it becomes a futile exercise if they are not acted upon and are not seen as an integral part of the organisation's activities as a whole. These concerns are currently being addressed by Bank 1. Starting in 1999 the bank replaced the face-to-face annual administration of SERVQUAL in branches with a twice-yearly postal questionnaire to a representative sample of its customer base thereby improving the respondent profile and timeliness of the information. In addition, survey sponsorship has been transferred from the retail sales department to the marketing department, a move that now places the results of the customer satisfaction surveys, ``mystery shoppers'' and SERVQUAL in the hands of a single department. This unification of customer data within the marketing department not only reduces the information silo structure but is significant for locating service quality firmly within the orbit of marketing a responsibility which all too often has been placed in operations, customer care or isolated quality departments. In this case the recognition that service quality belongs to marketing represents a major step forward towards the acceptance in practice of marketing as a strategic department within retail banking. The case also raises a theoretical concern. What is SERVQUAL measuring? The finding that only five points (out of 100) separate the best and worst performing branches of a network of over 850 branches and the finding that the largest recorded change in SERVQUAL scores of three points coincided with the relaunch of the corporate brand in a substantial television and press campaign in 1998 suggest the need for further empirical and conceptual work on the role and significance of corporate image and reputation on service quality. This case study also raises questions about the link between service quality and business performance in the UK. A major issue for financial services, and retail banking in particular, is the profitability profile of bank customers. A recent survey reports that the percentage of profitable customers is around 42 per cent with some banks reporting a low of 20 per cent. A total of 31.5 per cent of customers are described as profit neutral and 26.5 per cent are deemed to be non-profitable (King, 1999). Such a profile raises fundamental issues for banks' strategies from elimination of free banking to customer migration to low cost delivery channels such as ATMs, the telephone, and the Internet, to

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customer deselection and segmentation strategies (The Banker, 1999). Such skewed customer profiles also lend support to the strategy of creating separate ``wealth'' divisions to cater to high net worth individuals who expect, and are willing to pay for, a commensurate level of service excellence. However, such strategies depend on the availability of holistic customer information and it is this which is often lacking in financial institutions owing to the evolution of customer information based on the account rather than the person. In a recent survey of 12 large financial services companies King (1999) concludes that only 8 per cent could capitalise fully on their customer information, leaving some 84 per cent who could only partially use the information they stored. Banks are obstructed and frustrated in practising their new-found customer focus expressed by such marketing strategies as segmentation and customer targeting for new products, direct mail, promotions, distribution and relationship management by their technological infrastructure, the proliferation of activities and fragmentation of delivery channels. Essentially, to be truly customer focused requires holistic information in real time on the whole customer not the account. A recent survey by King (1999) of KPMG reports that only 6 per cent of bankers believe their organisations have been successful at integrating all the different customer information streams while 67 per cent said that it was not possible to analyse customer contacts across delivery channels and it is this which makes successful customer targeting for service excellence, new product sales, customer retention and cross selling difficult to operationalise. Furthermore, the reality for financial services, such as savings and mortgages and credit cards, is the commodification of service in which price is the key to acquisition and retention of financially aware and ``high net worth'' individuals. Of wider interest is the finding that, despite a number of quality improvement initiatives in retail banking over the last decade, customer dissatisfaction with their banks appears to be increasing. In 1993-1994 there were just over 8,000 written complaints to the Banking Ombudsman; in 1997-1998 there were over 10,500 (The Banking Ombudsman, 1993-1994, 1997-1998). Card machines, direct debits, standing orders, cheques and drafts, current, deposit and savings accounts administration continued to attract the most complaints with some 4 per cent of complaints centring on errors

(The Banking Ombudsman, 1996-98) reflecting failures of IT, people and service recovery. It is therefore more remarkable that 83 per cent of consumers have not changed their current account in the past five years (Mintel Report, 1999) and 59 per cent are still using their first ever current account (Cruickshank, 2000). However, a change in the law in 1999 which allows customers to move all standing orders and direct debits to new accounts using a single letter to their old bank together with automated current accounts, Internet and interactive TV will end the phoney war and introduce severe competition for the acquisition and retention of existing and potential ``profitable'' customers.

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