chapter  8
28 Pages

Service quality and business performance

ByDia Zeglat, Yuksel Ekinci, Andrew Lockwood

While it is argued in the literature that product quality is incompatible with profits because of incurring high levels of costs and needing different sets of actions (Philips et al., 1983), significant evidence also suggests that this apparent incompatibility of quality and profits can be false (Smith, 1980; Wheelwright, 1981). Indeed the quality notion emerged in 1980s as a fundamental competitive strategy for organizations (Zeithaml and Bitner, 2003). In other words, quality is considered one of the key methods to attain a differential position and advantage over competitors in order to achieve high levels of revenues and profits (Hall, 1980; Porter, 1980). As a result, the concept of quality has been adopted by researchers and practitioners as a major theme in the service sector (Parasuraman et al., 1988) in order to deliver a positive impact on business performance and profitability (Harrington and Akehurst, 1996). The service sector plays an important economic role both in terms

of its contribution to gross domestic product (GDP) as well as through the percentage of the total workforce employed in service companies (Kotler et al., 2003). The service sector covers a very broad variety of organizations such as banking, hotels, transport, communication, and consultancy firms. In these service organizations, quality management practices have received increasing attention as a way of improving competitiveness (Hasan and Kerr, 2003). As mentioned, some previous studies have found evidence that an

organization’s profit is a consequence of service quality. In addition, these studies suggest that the link between service quality and profitability is indirect and complicated. To put it another way, the literature shows that there are a number of variables that mediate the relationship between service quality and profitability, such as customer satisfaction, customer retention, price, costs, and market share (Zeithaml, 2000). The main purpose of this chapter is to investigate the complex rela-

tionship between service quality and profitability in the hotel industry through the development of a conceptual framework. The factors involved in this relationship have emerged from the literature and indicate an indirect relationship between service quality and profitability. The conceptual framework recognizes the importance of customers’ perceptions of service quality to determine which aspects or dimensions of service quality have a significant impact on profitability. This chapter consists of three sections. The first section reviews the theoretical background of service quality and business performance measurement. The second section introduces the conceptual framework, and the final section develops the propositions for future studies.