Human Resource Management Sub-Systems and the Service Profit Chain

Abstract

This study draws insights from the strategic human resource management literature to improve our understanding of the functioning of internal service quality, the key foundation of the service profit chain. We identify three human resource management sub-systems, i.e. skill-, motivation-, and empowerment-enhancing practice bundles, as proxies for internal service quality and examine the differential impacts of these bundles on job satisfaction, customer-focused citizenship behaviours, and business sales performance. We investigate these relationships by using nested data obtained from 1,151 customer contact employees working from 192 branches of a Thai retail bank. Findings provide support for the hypothesis that these three bundles generate different levels of job satisfaction, which in turn drive employee discretionary efforts in service encounters resulting in improvements in branch sales performance. The results also shed light on the particular importance of the motivation-enhancing practice bundle in the retail banking sector. These results point to the need for organizations to vertically align their HRM practices with business strategy and the contextual characteristics within which employees are working in order to have the strongest impact on organizational performance.