Profiling Top Service Firms Brendan Gray, Sheelagh Matear, Kenneth Deans, Philip Matheson, Jim Bell, Tony Garrett, Graham Cowley David Buisson University of Otago Abstract Although the services sector is expanding rapidly, and there is a growing literature about ways to improve services marketing, there is a dearth of studies that take a holistic view of the relationships between marketing practices, firm characteristics and company performance. This study reports the results of the first phase of a four-year research project aimed at improving the competitiveness of New Zealand s services sector. The results suggest that the top performing firms are those with higher levels of market orientation, greater investment in brand management, better-managed service innovation processes, and greater Web presence. Introduction The services sector is an increasingly important source of job creation and national wealth, and the ability to compete effectively in both domestic and international markets is critical for continued growth. Competition in services is largely concerned with intangible assets and innovation. Therefore, to be successful, service providers need to concentrate on intangible assets such as brand equity and innovation competencies (Bharadwaj et al., 1993). Although better performing New Zealand firms are also more market-oriented (Gray et al., 1998a and 1998b), there is a lack of research about the management procedures used by successful service marketers to achieve this. The present study is part of a four-year research program aimed at identifying ways of improving the competitiveness of the New Zealand services sector. The first stage involves surveying a wide variety of service providers to profile the top performers. The second phase will use depth interviews to identify best practice service marketing procedures of firms that distribute products or offer commercial or other services. The third phase will be devoted to technology transfer, with tangible outcomes including best practice guidelines to be published electronically and in booklets, training manuals and seminars. Business Development Boards, Chambers of Commerce, the Chartered Institute of Transport, New Zealand Manufacturers Federation, Tradenz and Maori-owned corporations have indicated a need for this information and a willingness to help disseminate it to managers and staff of small and medium-sized companies. The fourth and final phase involves a follow-up survey of those companies which have received information from the research group. Its aim will be to identify any barriers to the implementation of recommended strategies and tactics to improve services performance and competitiveness.
This paper discusses the relevant literature, describes the methodology used in the first phase of the study, and provides a profile of top performing service firms. Literature Review A comprehensive review of empirical studies of competitive strategy and services marketing (Bharadwaj et al., 1993) highlights the importance of brand equity and product, process and managerial innovations as potential sources of sustainable competitive advantage in services industries. Although the authors provide a conceptual model and propositions for researching sustainable competitive advantage in service industries, these have never been tested empirically. Five intangible assets contribute to brand equity: brand loyalty, name awareness, perceived quality, brand associations and proprietary assets such as patents, trademarks and channel relationships (Aaker, 1992). These assets provide value to customers by enhancing information processing, purchase confidence and use satisfaction, and provide value to firms by enhancing the efficiency and effectiveness of marketing programmes, brand loyalty, prices and margins, brand extensions, trade leverage and competitive advantage (Aaker, 1992). The new product development/innovation process in firms that produce physical products has received a great deal of managerial and academic attention, yet research into new service innovation is comparatively new (see the comprehensive review by Johne and Storey, 1998). Developing an organisational climate of innovation (Schwartz, 1984), improving the skills of employees (Boon et al., 1984), and developing systems for capturing organisational knowledge and sharing market information among different functional groups, appear to be essential for successful service innovation (Edgett, 1994). Previous research has established links between market-oriented behaviour (customer orientation, competitor orientation, inter-functional co-ordination, responsiveness and profit focus) and performance among a wide range of New Zealand companies (Gray et al., 1998a). A growing number of studies have supported the links between market-oriented behaviour and company performance, including recent studies in the services sector (Chang and Chen, 1998; Han, Kim and Srivastava, 1998; Van Egeren and O Connor, 1998). Another characteristic identified in more market-oriented New Zealand firms has been the adoption of new information technologies such as the Internet (Gray et al., 1998b). It was considered essential to use a broad range of performance measures in the present study to address the multidimensional nature of performance (Park and Mason, 1990) and to overcome criticisms of too narrow a focus and/or the use of inappropriate measures (Hart, 1993). From previous research, then, it could be posited that company performance in the services sector might be positively linked to: Market-oriented behaviour (or a market orientation); Investment in brand management; Effective and efficient innovation strategies; and Adoption of new media such as the Internet.
Methodology The first stage of the research involved developing an instrument to measure predictors of superior performance in service firms, including innovation and brand management activities. This component of the research followed the development procedure recommended by Churchill (1979). The validity and reliability of the scales contained in the questionnaire were assessed using Cronbach's alpha and methods suggested by Bagozzi (1994) and Hair et al. (1995) before commencing analysis. The market orientation scale used in the study was that developed by Gray et al. (1998a), which is an intersection of three North American models (Narver and Slater, 1990; Jaworski and Kohli, 1993; Deng and Dart, 1994). This five-dimensional 20-item scale has been validated in the New Zealand context (Gray et al., 1998b). The brand management measures were those suggested by Aaker (1992), and the service innovation measures were those suggested by de Brentani (1989 and 1993). Exploratory questions were developed to test the relationships between the use of new information technologies and media such as the Internet. Nearly 2,000 service firms in New Zealand were surveyed in March 1999. Responses were received from 400 firms (25% response rate). However, further analysis indicated 50 of these organisations were primarily involved in manufacturing, rather than services, and so were dropped from further analysis. There were single respondents (usually the CEO or marketing manager) from each organisation. One-way analysis of variance and Chi square tests were used to identify significant differences in the characteristics of the top 25% and bottom 25% of services firms that responded to the survey. Results A wide variety of services were represented in the sample, with 15% involved in property and business services (including consulting), 14% in transport and storage, 12% in finance and insurance, 9% in building, mechanical or other trades and 6% involved in communication services. Most of the respondents were managers of small companies, with 57% having fewer than 50 employees and 47% making less than $500,000 pretax profit in the previous year. Some larger companies were also represented, with18% having more than 200 employees and 8% making more than $10 million pretax profit. Principal components analysis and confirmatory factor analysis were used to reduce seven relative/subjective measures of company performance into three factors which explained 57% of the performance variance: Revenue performance (total revenue, profitability and profitability change over the past three years compared to nearest competitor); Brand performance (brand equity and brand awareness compared to nearest competitor); and Customer performance (customer satisfaction and customer loyalty compared to nearest competitor).
The three factors were then combined into an overall relative performance measure (alpha.72) which was used to separate the top and bottom-performing organisations. One-way analysis of variance and Chi square tests were used to identify differences in the mean company characteristics of the groups in the top 25% and bottom 25% of performance scores. The top service companies (see Table 1) are characterised by: Higher levels of market orientation; Greater investment in brand management; Better-managed service innovation processes; and Greater Web presence. Table 1: Differences between high and low performing service firms Performance category Company characteristics High Low 1. Market orientation (alpha =.77) Customer orientation (.70) Competitor orientation (.77) Interfunctional coordination (.80) Responsiveness (.20) Profit emphasis (.79) (top 25%) 18.83* 4.29* 3.72* 3.69* 3.65 3.58* (bottom 25%) 16.47* 3.82* 2.76* 3.39* 3.38 3.04* 2. Brand management (alpha =.83) Invest in managing & promoting service brands Invest in managing & promoting reputation/image Invest in customer loyalty programs Invest in internal perceptions of brands Invest in external perceptions of brands 3. Innovation management (alpha =.80) Well-managed and coordinated NSD process (.87) Proficient process (good fit, efficient) (.82) Good teamwork (.68) Formal NSD process (.62) 4. Information technology Email is important to business Intranet is important to business Extranet is important to business E-commerce increasingly important to business Have own website 17.26* 3.92* 4.10* 3.08* 2.98* 3.42* 3.45* 3.93* 3.60* 3.39* 2.89* 4.13 3.42* 3.20* 4.19 34%* 13.39* 2.98* 3.32* 2.47* 2.22* 2.43* 2.93* 3.45* 3.28* 2.72* 2.27* 3.83 2.67* 2.62* 3.75 16%* * Pearson correlation (two-tailed significance at.01 level) Note Website differences were assessed using Chi square tests (.01 significance level)
Conclusions The results support the four research propositions: that better performing service firms are likely to be those with superior market orientation, greater investment in brand management, more effective and efficient innovation strategies and greater adoption of new media such as the Internet. The results have important implications for managers wishing to improve the performance of their service firms. In particular, it appears that service firms need to get closer to their customers and respond quickly to changing customer needs and competitor actions to add greater value to their service offerings. Service innovation, though, requires top management support, a climate which encourages creativity and communication and a wellcoordinated innovation program. Customers also need to be made aware of the superior benefits being offered through greater investment in service branding, corporate image development and customer loyalty programs. Managers should also consider using the Internet as one means of improving communications with customers. Further research should be undertaken in other country-markets to see if the results may be generalisable to other country-market contexts. Limitations The results in this paper are based on a preliminary analysis of the data from the initial survey of this four-year research program. At the time of writing, researchers were still analysing the data and seeking further performance information from respondents to enable more rigorous testing of the research model and posited organisational characteristic and performance relationships, as suggested by the two reviewers of this paper. Further research results should be available for presentation at the conference. References Aaker, D. A. (1992), "The value of brand equity", Journal of Business Strategy, Vol 13, No. 4, pp 27-32. Bagozzi, R.P. (1994), "Measurement in marketing research: basic principles of questionnaire design" in Bagozzi, R.P. (Ed.), Principles of Marketing Research, Blackwell Publishers. Bharadwaj, Sundar G., P.R. Varadarajan and John Fahy (1993), Sustainable competitive advantage in service industries: A conceptual model and research propositions, Journal of Marketing, 57 (October), 83-99. Boon, B.H, D. Davis and D. Guseman (1984), Participant perspectives on developing a climate for innovation of new services. In Developing New Services (Eds. W.R. George & Claudia E. Marshall), Chicago: American Marketing Association Proceedings Series, 23-26. Chang, T-Z and S-J Chen (1998), Market orientation, service quality and business profitability: A conceptual model and empirical evidence, Journal of Services Marketing, 12 (4), 246-264. Churchill, Gilbert A. (1979), "A paradigm for developing better measures of marketing constructs", Journal of Marketing Research, XVI (Feb), 64-73.
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