International Journal of Quality & Reliability Management

International Journal of Quality & Reliability Management Emerald Article: Bank Service Quality (BSQ) Index: An indicator of service Firdaus Abdullah, Rosita Suhaimi, Gluma Saban, Jamil Hamali Article information: To cite this document: Firdaus Abdullah, Rosita Suhaimi, Gluma Saban, Jamil Hamali, (2011),"Bank Service Quality (BSQ) Index: An indicator of service performance", International Journal of Quality & Reliability Management, Vol. 28 Iss: 5 pp. 542 - 555 Permanent link to this document: http://dx.doi.org/10.1108/02656711111132571 Downloaded on: 17-10-2012 References: This document contains references to 46 other documents Citations: This document has been cited by 3 other documents To copy this document: permissions@emeraldinsight.com Users who downloaded this Article also downloaded: * Hui Chen, Miguel Baptista Nunes, Lihong Zhou, Guo Chao Peng, (2011),"Expanding the concept of requirements traceability: The role of electronic records management in gathering evidence of crucial communications and negotiations", Aslib Proceedings, Vol. 63 Iss: 2 pp. 168 - 187 http://dx.doi.org/10.1108/00012531111135646 Riadh Ladhari, Ines Ladhari, Miguel Morales, (2011),"Bank service quality: comparing Canadian and Tunisian customer perceptions", International Journal of Bank Marketing, Vol. 29 Iss: 3 pp. 224 - 246 http://dx.doi.org/10.1108/02652321111117502 Charles Inskip, Andy MacFarlane, Pauline Rafferty, (2010),"Organising music for movies", Aslib Proceedings, Vol. 62 Iss: 4 pp. 489 - 501 http://dx.doi.org/10.1108/00012531011074726 Access to this document was granted through an Emerald subscription provided by UNIVERSITY OF ECONOMICS HO CHI MINH For Authors: If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service. 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The current issue and full text archive of this journal is available at www.emeraldinsight.com/0265-671X.htm IJQRM 28,5 542 Received May 2010 Revised November 2010 Accepted November 2010 Bank Service Quality (BSQ) Index An indicator of service performance Firdaus Abdullah, Rosita Suhaimi, Gluma Saban and Jamil Hamali Universiti Teknologi Mara (UiTM), Sarawak, Malaysia Abstract Purpose – This study aims to design and validate a new measuring instrument of service quality, and ultimately to establish a national service quality index for the banking sector. The primary contribution is the insight offered regarding what factors affect service quality and the BSQ Index, a national indicator reflecting the level of service quality within the banking sector. Design/methodology/approach – A total of 3380 questionnaires were distributed to the customers of 21 commercial and Islamic banks, of which only 1,519 were deemed usable, yielding a response rate of 44.9 per cent. The proposed 29-item instrument has been empirically tested for unidimensionality, reliability and validity using both exploratory and confirmatory factor analysis. Findings – A factorial analysis suggests that service quality has three dimensions namely “Systemization”, “Reliable Communication” and “Responsiveness”, and subsequent multiple regression analysis revealed that “Systemization” is the most important service quality dimension within the banking sector. The overall weighted BSQ Index of 4.00 implies that banking customers are generally pleased with the quality of services rendered by banking institutions. Practical implications – The new Bank Service Quality Index (BSQ Index) is expected to be an important complement to traditional measures of economic performance, providing useful information to the banking institutions, shareholders, investors, government regulators, and customers. This composite index shall become an indicator reflecting the level of service quality in the banking institutions. Originality/value – The results from the current study are crucial because previous studies have produced scales that bear a resemblance to SERVQUAL, a generic measure of service quality, which may not be totally adequate to assess the perceived quality in the banking sector. Thus, the present study captured customers’ evaluation of service quality in a 29-item questionnaire exclusively adapted to the unique nature of the banking sector. Keywords Quality, Indexing, Banking, SERVQUAL, Customer service management, Malaysia Paper type Research paper Introduction The financial services industry is changing rapidly. Technology, government regulation, and increasing customer sophistication are forcing financial service institutions to re-evaluate their current business practices. Financial institutions across the globe are re-examining how they are meeting their customer’s needs today and developing business plans needed to align them strategically to remain competitive and profitable in the future. Service quality in banking has recently become a topic of interest for academicians and researchers alike despite being considered markedly important over the years. Such interest may be the result of a reduced customer base Reliability Management and decreased market share affecting a portion of the banking industry (Bowen and pp. 542-555 Hedges, 1993). Banks that excel in quality service can have a distinct marketing edge qEmerald Group Publishing Limited since improved levels of service quality are related to higher revenues, increased DOI 10.1108/02656711111132571 cross-sell ratios, higher customer retention (Bennett and Higgins, 1988), and expanded market share (Bowen and Hedges, 1993). Likewise, provision of high quality services enhancescustomer retention rates, helps attractnew customers through word of mouth advertising, increases productivity, leads to higher market shares, lowers staff turnover and operating costs, and improves employee morale, financial performance and profitability (Julian and Ramaseshan, 1994; Lewis, 1989, 1993). Therefore, delivering quality service to customers is a must for success and survival in today’s competitive banking environment (Samli and Frohlich, 1992). A review of literature indicates that there are many areas of disagreement in the debate over how to measure service quality. Recent research has raised many questions over the principles on which the instruments are founded. The use of existing measures, in particular SERVQUAL as a means of measuring service quality throughout the marketing sectors may have been tested with some degree of success, but this may not be the case for other service sectors, particularly the banking sector. As such, it may not be fruitful to continue pursuing the development of a standard measurement scale applicable to a wide variety of services. Instead, an instrument that is exclusively designed for a particular industry is a more viable research strategy to pursue. It is against this backdrop that a new service quality measurement instrument is developed and tested empirically, and eventually forms the basis for capturing the authentic determinants of service quality within the banking sector. In an effort to promote quality and create a more competitive and market oriented banking sector, BSQ Index reflecting the level of service quality is proposed. The new index isexpected to be an important complement to traditional measures of economic performance, providing useful information not only to the banking institutions themselves, but also to shareholders and investors, government regulators, and customers. BSQ Index: indicator of performance 543 Research background Many researchers (Parasuraman et al., 1985; Carman, 1990; Bolton and Drew, 1991) concur that service quality is an elusive concept, and there is considerable debate in literature about how best to conceptualise this phenomenon. They seem to come to an agreement that a comprehensive definition of service quality is notoriously difficult to produce. However, they acknowledge that service quality is a dynamic, multidimensional concept, incorporating a number of aspects of both past and present service experience. Nonetheless, there seems to be a broad consensus that service quality is an attitude of overall judgement about service superiority, although the exact nature of this attitude is still obscure. It is a well-established argument in the literature that a person learns about a concept and at the same time forms an attitude towards the concept. A substantial number of empirical studies on bank service quality were sighted in the literature, however most of these studies measured service quality by replicating or adapting the SERVQUAL model (Kumar et al., 2010; Petridou et al., 2007; Jabnoun and Al Tamimi, 2003; Blanchard and Galloway, 1994; MacDougall and Levesque, 1994a, b; Newman and Cowling, 1996; Athanassopoulos, 1997; Lloyd-Walker and Cheung, 1998; Marshall and Smith, 2000). However, the SERVQUAL model was questioned for its conceptual suitability by several authors. Carman (1990) and Babakus and Boller (1992) noted that the five dimensions are not generic, and that they should be industry-specific. Both authors argued that some dimensions required expansion in order to capture service quality adequately across different services, and that service IJQRM 28,5 544 quality is a simple unidimensional construct in some context, but a complex multidimensional construct in others. Whereas the reliability and validity of SERVQUAL’s difference score formulation has been questioned by Babakus and Boller (1992) and Brown et al. (1993), and that SERVQUAL’s dimensionality has not proved universal. Likewise in the banking context, Lam (1995) reported some problems with the dimension of SERVQUAL thus raised a fundamental question of what is SERVQUAL measuring. The insufficiency of SERVQUAL being a measure of service quality raised concerns whether SERVQUAL really is a reliable measure of service quality or, indeed whether it is measuring service quality at all. Seth et al. (2005) recognized that the outcome and measurement of SERVQUAL were dependent on type of service setting, situation, time and number of encounter, competitive environment and needs. Perhaps the most comprehensive study thus far was conducted by Avkiran (1994), who developed a utilitarian multi-dimensional instrument, for measuring customer-perceived quality, of retail branch banking. Berry et al. (1988) noted that most financial institutions are alike in the services provided to their customers, and as they grow there is a tendency for service to give way to volume delivery to enhance profitability. These large banks appear to have mistakenly concluded that quality service caused profits to erode. It would appear that service quality could make a difference according to Lewis (1993), who noted that service quality leads to reduced costs, increased profitability, and other beneficial elements. Acquiring customers and having them leave is not only disconcerting but it is counterproductive, and a profit drain on the organization. In today’s banking environment, banks’ profitability levels have been compressed due to increased competition and spread reductions. Banks once relied on products to make their profit margin in a highly regulated industry, and the customers basically were on the sidelines, but today, banks are driven by customers, who demand service quality (Stone, 1995). Berry et al. (1988) observed that quality of service is very important in separating competing businesses in the retail sector as well as in banking. Banks seeking to maximize profitability have come to realize that good quality helps a bank obtain and keep customers and poor quality will cause customers to leave a bank. Lewis (1993) found that service quality was one of the most effective means of establishing a competitive position and improving profit performance. To establish a competitive position, it was noted by Hall (1995) that banks must measure and determine their level of service quality, if they desire to keep their customers and satisfy their needs. There have been a large number of researchers who identify service quality as a primary means of providing a competitive advantage to banks, and according to Soteriou and Stavrinides (1997) the importance of service quality has been documented in numerous studies. Research design and methodology This study aims to design and validate a new measuring instrument of service quality, and ultimately to develop a national service quality index for the banking sector in Malaysia. The stages involved are shown by means of the flow chart in Figure 1. The draft questionnaire consisted of four sections namely A, B, C and D. Section A contained ten questions pertaining to respondent profile. Whereas section B contained 31 items related to different aspects of bank’s service offering, and the items were BSQ Index: indicator of performance 545 Figure 1. Developing Bank Service Quality (BSQ) Index ... - tailieumienphi.vn