Human Resource Management in the Service Sector

Jody Hoffer Gittell and Rob Seidner

INTRODUCTION
RELATIVE IMPORTANCE OF HRM IN THE SERVICE SECTOR
HOW HRM IMPACTS PERFORMANCE IN SERVICES: COMMITMENT,
SKILL AND RELATIONSHIPS
CONCLUSION
ENTRY CITATION

INTRODUCTION
The service sector now accounts for over 70% of employment in the industrialized
economies of the world, with Norway and the United States out front at over 75% of
employment (OECD, 2005). Telecommunications, transportation, wholesale/retail,
finance, insurance and business services account for about 60% of all employment
created in the industrialized economies over the past decade, while community, social
and personal services, including health and education, account for the remaining 40%.
Looking ahead, this growth is expected to continue, with nearly 20% employment
growth expected in services in the next decade in the US, with no change expected in
manufacturing employment (US Bureau of Labor Statistics, 2006). Given that many
existing human resource management practices were developed in the context of
manufacturing, these data suggest a need to consider seriously a human resource
management (HRM) perspective on service work.
Our starting point is that service work differs from work in the manufacturing sector
and, moreover, that it differs in ways that are relevant for HRM. The most obvious
and perhaps important difference lies in the degree of contact between employees and
customers. As we know from both the Schneider and Bowen (1985) service mirroring
model and the Schlesinger and Heskett (1992) service profit chain model, front-line
employees matter in services in part because they develop relationships with
customers, directly influencing organizational performance. Organizational scholars
have focused on the customer interface as a distinctive feature of service delivery,
examining customer/provider dynamics in the context of air travel (Hochschild,
1983), fast food restaurants (Leidner, 1991), retail stores (e.g. Rafaeli, 1989; Sutton
and Rafaeli, 1988), nursing homes (e.g. Eaton, 2000; Dodson and Zincavage,
forthcoming), restaurants and hotels (Salanova et al., 2005), hair salons (Liao and
Chuang, 2007), and hospitals (e.g. Wrzesniewski and Dutton, 2001). This literature
describes vividly the interpersonal dynamics between individual providers and
individual customers that shape the service delivery experience.
Relative to manufacturing work, service work is characterized by the simultaneity of
production and consumption, by high levels of uncertainty and task interdependence,
and by the role that customers play as potential co-producers in the service delivery
process. Together, these features of service work pose a dilemma for HRM. On the
one hand, employee behavior is potentially more influential due to the direct
customer/provider interface, but at the same time it is more difficult to control due to

the greater difficulty of measuring performance, supervising work, pre-programming

work and coordinating work, between service workers and with the customer.
Together, these conditions suggest the importance of investments in HRM. But at the
same time, another feature of service work is that it is labor intensive relative to
manufacturing and as a result, cost competition in this sector tends to focus on the
reduction of labor costs, which may discourage investments in HRM.
Drawing upon an extensive research literature on HRM in the service sector, this
chapter addresses two fundamental questions. First, we ask whether HRM is
important for achieving performance outcomes in the service sector. We contrast the
argument that HRM is more important in the service sector due to the direct
customer/provider interface, with the argument that HRM may be less important in
this sector due to the labor intensive nature of the work process and the resulting
tendency to compete through the reduction of labor costs at the low end of the product
market. Second, we ask how HRM influences performance outcomes in the service
sector. We consider three alternative mechanisms1) motivation and commitment, 2)
human capital and skills, and 3) social capital or relationships through which HRM
may influence service performance.

RELATIVE IMPORTANCE OF HRM IN THE

SERVICE SECTOR
There are two competing arguments regarding the importance of human resource
management in the service sector relative to manufacturing. The first argument
suggests that HRM is more important for achieving performance outcomes in the
service sector than elsewhere due to the direct customer/provider interface, while the
second argument suggests that HRM may be less important for achieving
performance outcomes in the service sector, or at least in large segments of it, due to
the labor intensive nature of the work and the resultant tendency to compete on labor
costs at the lower end of the product market.

HRM matters more in service sector

Schneider and Bowen (1993) argue that service work is distinctive: first, in services
there is a permeable boundary between customers and employees such that the
behavior of one directly influences behavior and outcomes for the other. Due to direct
contact between customers and employees in the process of service delivery, a process
of psychological mirroring occurs such that the satisfaction of one affects the
satisfaction of the other. Secondly, services are produced and consumed
simultaneously so that there is a need to achieve quality throughout the organization,
even by employees who do not have direct customer contact, due to the inability to do
a quality control check after production to ensure quality. According to Schneider and
Bowen, these characteristics of service work increase the importance of human
resource management for achieving desired performance outcomes in the service
sector. More specifically:
Managers, in their pursuit of service quality, need to create two related, but different,
climates: a climate for service and a climate for employee well-being. The first
requires practices such as systems and logistics support anything that creates an

organization setting in which customers feel their needs are being met. The second
focuses on meeting the needs of employees through quality HRM practices (Schneider
and Bowen, 1993: 43)
Building on this argument Schlesinger and Heskett (1991; 1992) developed a
theoretical model called the service profit chain, arguing that customer satisfaction is
a critical driver of profitability in the service sector, and that service employees in turn
are a critical driver of customer satisfaction. By extension, companies that seek to be
profitable in the service sector should invest heavily in the management of their
human resources. This literature documents the prevalence and cost of employee
turnover in the service sector, and the potential for a so-called cycle of failure to
develop, in which poor working conditions lead to employee turnover, which
increases employee workload and customer dissatisfaction, which further decreases
employee satisfaction, further contributing to employee turnover.
Ulrich and colleagues (1991) argued similarly for the importance of HRM in the
service sector based on the fact that service employees have direct contact with
customers and therefore a direct influence on their satisfaction. If managers can build
something positive with employees, they argued, then they should be able to see
results with their customers because customers will bond with employees and respond
to good service. Managers should therefore develop HRM practices with the goal of
building both employee attachment and customer attachment. But to do this,
managers need to be familiar with customer expectations and requirements as well as
with employee expectations and requirements.
Consistent with these arguments, studies have demonstrated links between human
resource management and service outcomes. Chase and Bowen (1991) found
evidence that employee selection and training impact service quality and customer
satisfaction. In a study of customers and employees in 28 bank branches, Schneider
and Bowen (1993) found that climates of service and employee well being are
correlated with overall customer perceptions of service quality. HRM positively
influences quality outcomes such as patient mortality (West et al., 2002) and patient
satisfaction with the quality of care (Gittell et al., 2009), while also explaining
performance differences among call centers (Batt, 1999), airlines (Gittell, 2001),
nursing homes (Bishop, et al., 2008) and banks (Richard and Johnson, 2004; Hunter,
2000; Bartel, 2004). Arecent testof the service profit chain model, based on a sample
of 291 service organizations, demonstrated that progressive HRM practices led to
employee satisfaction, which in turn impacted both service quality and customer
satisfaction (Voss et al., 2005). Together this stream of work supports the argument
that HRM plays an important role in achieving desired outcomes in the service sector,
implying that investments in HRM pay off in this sector.

HRM matters less in service sector

Other theorists have argued that there are attributes of the service sector that may
discourage substantial investments in HRM. Legge (1995: 67) pointed out that an
organization that chooses to compete in a labour intensive, high volume, low cost
industry generating profits through increasing market share is likely to adopt human
resource practices that treat employees as a variable input and a cost to be
minimised. In manufacturing, by comparison, firms can more readily gain from

investments in progressive HRM regardless of whether they choose to compete on

costs or on quality. Due to relatively high capital intensity of manufacturing firms,
even firms that choose to compete on costs can do so by increasing the productivity of
their capital assets rather than by reducing labor costs. Manufacturing firms can
therefore benefit from investments in HRM, whether their strategy is to engage
employees in increasing quality, or in reducing costs. Consistent with Legge's
argument, Keltner and Finegold (1996: 57) report that:
Most service-sector firms have been slow to redesign work practices. From hotels to
banks to retail outlets, service-sector managers continue to rely on an industrial
model of service delivery. They have organized work so as to tolerate low skills and
short employment tenures and continue to concentrate on cutting costs rather than
adding value (Schlesinger and Heskett, 1991). By thinking mainly about price
competition, most service managers have invested minimally in their employees.
Downward pressure on wages, minimal training expenditures, and heavy use of parttime workers have reduced personnel costs and maintained managers flexibility to
cut the work-force when demand slackens.
Likewise, Batt (2000) argued, because service industries are labor intensive with
relatively few barriers to entry, service firms that compete on costs tend to compete
through the reduction of labor costs, leaving little room for achieving payoffs from
investments in HRM. In other higher value-added segments of the service sector,
firms can earn rents and compete on dimensions other than cost, thus giving them
greater potentialtoinvestin HRM and earn a return on their investment. As Batt (2000:
547) explained:
In service operations, labour still comprises 60 per cent of costs, and labour
productivity continues to grow at less than 1 per cent annually. Despite the vision of
high involvement and quality service, therefore, reducing labour costs continues to be
a major priority in services, particularly in price-conscious mass markets. Put simply,
for low margin customers, the costs of high involvement work systems are likely to be
prohibitive but for high value-added customers, relationship management via high
involvement work systems has a high pay-off. The logic of customer segmentation in
services, therefore, suggests a fairly straightforward relationship between the choice
of work system and the potential revenue stream of the customer.
Similarly, Boxall (2003: 15) argued: Cost-based low margin competition in services
tends to drive out possibilities for HR advantage, except where firms can fund greater
HR investment out of premium branding. In support of these arguments, a recent
study of the hotel industry in Australia found that while hotel workplaces in general
continue to be associated with high levels of numerical and temporal flexibility and
greater informality of HR policies, larger luxury hotels were adopting more
systematic employee management techniques and strengthening their internal labor
markets through functional flexibility initiatives, moving toward a more progressive,
value-added approach to HRM (Knox and Walsh, 2005).
This segmentation argument is not completely contradictory to that of Schneider and
Bowen; indeed the implication of this argument is that the Schneider and Bowen
argument can hold true in high-value added segments of services. But in low-value
added segments of services, where costs are the primary determinant of competitive

success, the segmentation argument implies that neither the permeable boundary
between employee and customer nor the simultaneity of production and consumption
may be sufficient to encourage significant investments in HRM. Even though gains in
service quality could certainly be achieved through HRM in these firms, consistent
with Schneider and Bowen, these gains in service quality might not command a
sufficient premium to make an investment in them worthwhile and sustainable.
Others have argued that the impact of HRM on service performance is contingent not
on a firm's focus on high versus low value added segments of the market, but rather
on other competitive factors such as the need for strategic flexibility (Roca-Puig et al.,
2005), or strategic positioning more generally (Skaggs and Youndt, 2005). Hunter
(2000) argues for yet a different kind of contingency, namely that service firms are
more likely to use HRM to achieve flexibility in deployment across time rather than
function, therefore adopting human resource innovations that allow employees the
ability to match their work to idiosyncratic schedules or demands of customers.

Relevance of HRM for firms engaged in low cost competition?

Given the rise of the service sector as a proportion of developedeconomies, and given
the spread of low cost competition across broad segments of the service sector, the
segmentation argument made by Legge (1995) and others has important ramifications
for the future viability of high performance HRM. From the airline industry to the
healthcare industry, service industries that were once relatively protected from
competition and which once served as sources of high wage middle class jobs are now
subject to the onslaught of low cost competition. There is pressure for even high-end
providers, including professional service firms, to provide cost-effective solutions and
services, particularly when the client is another business that is facing cost
competition in their own product market, and particularly as the potential for offshoring some elements of professional services is realized. If the segmentation
argument is correct, then by implication the relevance of high performance HRM may
soon be confined to a relatively small segment of developed economies, i.e. capital
intensive manufacturing, and services that are protected from low cost competition.
But although the segmentation argument may accurately describes the competitive
strategies of many firms that operate in low cost segments of service industries, it
does not necessarily suggest that firms do not have other viable choices. Even when
labor costs are the focus of a firm's competitive strategy, those costs can be reduced
not only through cutting wages and benefits but also through increasing labor
productivity. To the extent that investing in HRM is a viable strategy for increasing
labor productivity as well as service quality, investments in HRM should pay off quite
well in segments of the service sector where low costs are essential for competitive
success.
Interestingly, this argument has surfaced from time to time as a possibility, but is then
largely ignored by those who raise it, as though it is a logical possibility but one that
does not deserve serious consideration. For example, Boxall's (2003) analysis of
potential competitive strategies is based on a two by two matrix between service
differentiation and business outcomes, in which one quadrant includes firms with low
service differentiation but nevertheless the ability to achieve sustained competitive
advantage through unique cost-reduction skills in mass markets (2003: 11).

However, in the detailed analysis that accompanies this matrix, this particular type of
firm is not discussed.
Secondly, even in low cost markets, there are basic quality standards that customers
continue to demand. In the airline industry, these basic quality standards no longer
include frills such as meals and business class seating, but they do include safe,
reliable, on-time travel along with decent treatment by service providers. In
healthcare, which has also been hit by pressures to reduce costs, the quality standards
expected by customers and managed care payers still include basics such as patient
safety, desired healthcare outcomes and decent treatment by care providers.
There is little doubt that HRM investments are relevant for achieving this challenging
set of goals. In other words, low cost competition is not just about moving down the
cost/quality curve to a lower cost segment, sacrificing quality in the effort to achieve
low costs. Rather the most successful low cost competitors in the service industry, just
as in manufacturing, are those who find ways to push out the production possibilities
frontier, achieving the basic quality standards demanded by customers without the
frills while increasing productivity to achieve lower costs at the same time. Put
simply, successful lower cost competition requires companies to meet both
productivity and quality goals, and investments in HRM contribute significantly to
their ability to do so. Womack et al. (1990) made this argument based on the concept
of lean manufacturing, while Heskett and colleagues (1990) made this argument based
on the concept of breakthrough service. Batt (1999; 2002) demonstrated that
companies pursuing low cost competition can indeed benefit from investments in
HRM, showing that HR strategies can help firms to achieve both quality and
productivity outcomes in low cost segments. In airlines a service industry that has
been re-defined by low cost competition, Gittell (2003) showed that HRM enables
firms to achieve both higher quality and productivity by building relational
coordination across front-line workers in different functions.

HOW HRM IMPACTS PERFORMANCE IN

SERVICES: COMMITMENT, SKILL AND
RELATIONSHIPS
In addition to the fundamental question of whether HRM matters for performance in
the service sector, there is a secondary argument regarding how HRM impacts
performance in this sector. What are the mechanisms through which HRM is expected
to make a difference in the service sector, and are those mechanisms expected to be
any different in services than in manufacturing? In this section, we evaluate three
alternative mechanisms motivation and commitment; human capital and skill; and
social capital and relationships and their ability to explain how HRM affects
performance in the service sector. We do not see these mechanisms as mutually
exclusive but rather as a set of mechanisms that together can help to explain the
impact of HRM on service performance.

Motivation and commitment in the service sector

The most common argument for how HRM affects performance in the service sector,
often implicit but sometimes tested explicitly, is that HRM increases employee
commitment and that committed employees in turn deliver higher quality services to
customers due to higher levels of effort (Ulrich et al., 1991; Worsfold, 1999).
Commitment is considered to be particularly important in service settings due to the
challenges of monitoring and measuring employee behavior. Investments in HRM are
believed to increase commitment, involvement and empowerment, transforming
employees from mere employees into partners for achieving organizational goals
(Caspersz, 2006). Commitment-based HRM practices create an organizational climate
that motivates employees to act in the best interest of the organization, thus enhancing
performance (Osterman, 1988; Lawler, 1988; Mahoney and Watson, 1993; Tsui,
Pearce, Porter and Hite, 1995; Bishop et al., 2008).
Consistent with this view, studies have found that particular work practices are
associated with increased employee control over work, increased employee
involvement and higher levels of commitment (e.g. Tsui et al., 1997; Whitener, 2001),
and that these behaviors in turn are positively associated with performance (e.g.
Rosenberg and Rosenstein, 1980; Estrin et al., Ichniowski et al., 1996, 1987; Tomer,
2001). Findings from a recent study suggests that different HRM practices may matter
for commitment depending on the type of service employee professional, manager
or front-line worker (Kinnie et al., 2005), but supports the argument that HRM builds
commitment, thus supporting performance goals.
Bartel's (2004) finding of a positive relationship between bank branch performance
and employees satisfaction with the quality of performance evaluation, feedback, and
recognition suggests the importance of the motivational dimension of a high
performance work system. Her findings suggest that these HRM practices positively
affect performance due to their impact on employee motivation and commitment,
even though the intermediate variables are not measured. In a study of South African
service organizations, organizational commitment was measured explicitly and was
found to play a mediating role in the relationship between frontline employees
perceptions of HRM and their service behavior (Browning, 2006).
HRM practices that inspire employee commitment are believed to include
involvement, discretion and empowerment and are often contrasted to HRM practices
that aim to establish control. The argument has typically been that commitment-based
HRM is more effective than control-based HRM in the service sector, but some argue
this is only true when there is some degree of customization to be carried out by
service employees, and enough job autonomy that discretionary effort can make a
difference for performance outcomes (Frenkel et al., 1998). Frenkel et al. (1998)
found further that customer service call centers tend to use a hybrid form of human
resource management based on both commitment and control, due to the organization
of work that allows some degree of employee autonomy along with fairly
standardized work processes. They label this hybrid form mass customized
bureaucracy. In a review of frontline service work, Korcynski (2005) notes that there
has been an increase in discretion given to service workers inrecent years, but that this
discretion tends to be narrowly confined, particularly to the service recovery aspects
of the job rather than to the original service delivery.

Interestingly, Rees (1995) found that service firms that engage in quality management
tend to use a mixed form of HRM, including some elements of control and other
elements of commitment. On the one hand, these firms tendtouse forms of employee
empowerment such as a flattening of the hierarchy and the reduction of direct
supervision, but on the other hand, this empowerment is coupled with closer
monitoring and tighter controls over work. Other findings also question the dichotomy
between commitment and control forms of human resource management. Gittell
(2001) found that airlines that reduced supervision as part of a move toward
empowerment also increased the intensity of performance measurement, while
airlines with higher levels of supervision used more informal forms of performance
measurement, which was more conducive to teamwork and to achieving desired
service quality outcomes, as well as efficiency performance. Boselie et al. (2003)
found that control forms of human resource management based on direct supervision
and direct forms of quality control were associated with certain desirable outcomes,
such as the reduction of employee absenteeism and the reduced length of employee
absences.

Human capital or skill in the service sector

HRM is often presumed to affect service outcomes by increasing the human capital or
skills of frontline service providers. According to human capital theory, HRM
practices can improve organizational performance by increasing the knowledge or
skills of employees (Becker, 1975). To be successful, firms must invest in and
maintain the workforce just as they invest in and maintain the capital infrastructure.
Progressive HRM can foster the development of human capital in the form of firmspecific idiosyncratic skills (Gibbert, 2006), creating a performance advantage for
organizations (e.g., Freid and Hisrich, 1994; MacMillan et al., 1987; Tyebjee and
Bruno, 1984) through processes such as improved problem-solving and improved
customization by employees (Batt, 2002).
Skaggs and Youndt (2004) test a model in which human capital is the mediating
variable between HRM and performance outcomes. Sometimes human capital is
interpreted as the mediating variable between HRM and outcomes, even when human
capital is not measured. For example, Prez, and Falcn (2004) found that savings
banks with HR policies aimed at the creation and development of their staff achieved
higher productivity than those without such policies, and interpreted this as evidence
that HRM influences productivity outcomes through its impact on the development of
human capital.
An alternative interpretation of the association between high performance HRM and
human capital is offered by Bacon and Hoque (2005). Their analysis found that the
strongest overall predictor of the extent of adoption of HRM practices in small to
medium sized enterprises was the skill-mix of the workforce. Firms with a higher
proportion of low-skilled workers were less likely to have adopted five of the eight
practices asked about, suggesting the possibility that human capital is a predictor of
the adoption of HRM practices, rather than an outcome of these practices. More
likely, the selection of skilled employees, investment in their training and design of
jobs to make use of those skills, are complementary HRM factors that together result
in higher levels of human capital and higher service performance.

Social capital and relationships in the service sector

Relationships are another potential mediator between progressive human resource
management and service outcomes. While relationships are recognized as an
important driver of outcomes in the service workplace, much of the focus has been on
the employee/customer relationship. As argued by both the Schneider and Bowen
(1985) service mirroring model and the Schlesinger and Heskett (1992) service profit
chain model, front-line employees matter in services in part because they develop
relationships with customers, thereby directly influencing organizational performance.
As noted in the introduction to this chapter, organizational scholars have focused on
the customer interface as a distinctive feature of service delivery, examining
customer/provider dynamics in many service contexts, vividly describing the
interpersonal dynamics between individual providers and individual customers that
shape the service delivery experience and the outcomes experienced by customers.
Other scholars have argued that organizations can go beyond customer/provider
relationships to achieve customer/organization relationships with the result of
improving customer satisfaction and customer loyalty (Siehl et al., 1992; Peppers and
Rogers, 1993; Bitner, 1995; Cross and Smith, 1995). Gutek and her colleagues argue
that while only individual providers can establish real relationships with customers,
due to the importance of interpersonal dynamics in building a relationship,
organizations can establish pseudo-relationships with customers that offer many of the
same benefits (Gutek, 1995; Gutek et al., 1999; Gutek, 1999). HRM can play an
important role in supporting employee/customer relationships, according to Remy and
Kopel (2002), if HRM is explicitly tailored for that purpose. When building
customer/provider relationships is the goal:
The aim [of HRM] is to establish a certain flexibility in the customer relationship
while remaining faithful to the interests of the companies. The tools and practices of
HRM facilitate the adaptation of the staff to meet the needs of the customer. HRM
becomes less standardized and is rather geared to the control of work behavior
consistent with the new relational objectives of the company (Remy and Kopel,
2002: 50).
This argument is highly consistent with the commitment model of HRM presented
above, not surprisingly, since the focus of the HRM literature in the service sector has
been on the customer/provider relationship and the need for a commitment rather than
control approach to managing this relationship.
However, there is another type of relationship beyond the customer/provider
relationship that plays a critical but relatively overlooked role in the service delivery
process: the relationships that exist among service providers who are engaged in
jointly providing a service to a given customer. The importance of coordination is
already well established in the organizational literature (Fayol, 1925; Coase, 1937;
Kogut and Zander, 1996). Service and production processes involve interdependent
tasks that must be integrated effectively in order to achieve high quality, efficient
outcomes. Often coordination occurs through routines, scheduling, preplanning or
standardization, with minimal need for interaction among service providers
(Galbraith, 1977). However, because these programmed means of coordination have
limited bandwidth (Daft and Lengel, 1986), they are expected to be most effective in

settings with pooled or sequential interdependence rather than reciprocal

interdependence (Thompson, 1967), with low levels of uncertainty (Argote, 1982; Van
de Ven et al., 1976), and without severe time constraints (Adler, 1995).
Service operations typically have coordination requirements that cannot be met by
programmed forms of coordination alone (Gittell, 2002). Service operations typically
are characterized by reciprocal interdependence, requiring iterative inter actions
among service providers rather than the sequential hand-offs performed by workers
on a production line. Many service operations also have high levels of uncertainty
relative to manufacturing due to the difficulty of buffering service operations from the
external environment. Finally, most service settings are highly time-constrained; they
are designed to provide a service to customers, real time, simultaneous with the
demand, without imposing excessive waiting times on customers. Under these
conditions, effective coordination has been argued to depend on the nature of the
relationships that exist among those engaged in providing the service. Relational
coordination, a mutually reinforcing process of interaction between communication
and relationships carried out for the purpose of task integration, is expectedto
increase performance in settings that require improvization rather than simple reliance
on pre-programmed modes of action (Gittell, 2002: 301).
Though the human capital perspective recognizes that skills and knowledge must be
shared among employees to be useful, and though the commitment-based perspective
recognizes the importance of manager/worker relationships in achieving motivation
and commitment, neither of these perspectives explicitly conceptualizes relationships
between employees as the desired intermediate outcome of high performance human
resource management in the service sector. Relatively little is known about how
organizations influence the development of relationships among their employees
though some progress has been made. Leana and Van Buren (1999) argued that stable
employment relationships and reciprocity norms can facilitate the formation of social
capital among employees, though this argument was not made specifically with
respect to service organizations. Gittell (2000) argued that human resource practices
can be redesigned to foster relational coordination among employees who are engaged
in a common work process. When carried out consistently across work practices, this
form of redesign is argued to result in a high performance work system that is
amenable to the development of working relationships. These re-designed work
practices, including selection, conflict resolution, performance measurement,
supervision and boundary spanner roles, predicted significantly higher levels of
relational coordination among airline employees.
Lopez et al. (2005) argued that high performance work practices encourage
employees to engage in collective learning, resulting in increased multi-disciplinary
knowledge and thereby contributing to firm performance. They showed that hiring,
training, incentive pay and participation in decision-making contribute to
organizational learning, which in turn contributes to firm performance. Vogus (2006)
argued that that high performance work practices such as selection, training,
performance appraisal, empowerment and job security contribute to high quality
interactions and mindfulness by signaling to employees the importance of
relationships, and that these high quality interactions contribute to higher quality
outcomes for patients, particularly patient safety. Vogus demonstrated that the impact
of these high performance practices on patient safety outcomes is mediated by the

quality of interactions and mindfulness among the nursing staff on hospital units.
Gittell et al. (2009) further developed this argument by focusing on the development
of relational coordination across multiple workgroups engaged in delivering patient
care. They identified the work practices that increased levels of relational
coordination among doctors, nurses, physical therapists, social workers and case
managers, in turn improving quality and efficiency outcomes for patients.
Though the forms of social capital explored in the above empirical studies are varied,
including relational coordination (Gittell, 2000), collective learning (Lopez et al.,
2005) and mindful organizing (Vogus, 2006), together these studies suggest an
alternative model of HRM in the service sector in which work practices influence
organizational outcomes by helping to build relationships between employees, thus
increasing the ability of employees to provide high quality service to their customers,
and to do so efficiently.

CONCLUSION
This chapter has considered two questions regarding HRM in the service sector. First,
we asked whether HRM is important for achieving performance outcomes in the
service sector, relative to the manufacturing sector. We contrasted the argument that
HRM is more important in the service sector due to the direct customer/provider
interface with the argument that HRM may be less important in this sector due to the
labor intensive nature of the work process, and the resultant tendency to compete
through the reduction of labor costs at the low end of the product market. Due to the
increasing importance of low cost competition in the service sector, the stakes behind
this particular argument are high. We found that the segmentation argument tends to
overlook the importance of HRM for increasing productivity and efficiency, and thus
for achieving low costs. It also seems to overlook the importance of achieving quality
even in a no frills environment, given the continued importance of basic good
treatment and reliability of outcomes even in a no frills environment. Once we
consider these issues, the potential for HRM investments to pay off, even in low cost
segments of the market, becomes clear. For example, organizations like Southwest in
the airline industry and Costco in the retail industry stand out as examples of a viable
approach to low cost competition in which progressive HRM plays a central role.
Still, it is useful to recognize the pressures for firms that engage in low cost
competition to under-invest in HRM, and to consider potential ways to counteract
these pressures.
One potential way to counteract the incentives to under-invest in HRM is through a
vibrant union movement, and in particular through unions that are willing to engage
employers in joint efforts to invest in the workforce. Much of the employment growth
expected in the service sector in industrialized countries in the coming decade is
expected to be in low wage service occupations due to the increasing exodus of highly
skilled jobs overseas to less developed countries (AFL-CIO, 2006), suggesting
additional potential for the growth of service sector unionization. Many segments of
service workers are now more highly unionized than production workers in the United
States with 13% of manufacturing workers represented by unions, relative to 23% of
transportation workers, 27% of utilities workers, 21% of telecommunications workers,
14% of information workers, and 37% of public sector workers (US Bureau of Labor
Statistics, 2006). But some segments of the service industry have very low levels of

representation, such as financial services at 2%, business services at 3%, and

leisure/hospitality at 3%.
Unions that are devoted to the service sector, like SEIU and UNITE HERE, are
among the most active unions in the United States from an organizing standpoint,
with SEIU also seeking to expand its reach by partnering with unions in other
countries (Bai, 2005). Similarly, in Canada, service sector unionization is on the rise.
The late 1990s saw an increase in service sector unionization after the nation's labor
unions made a concerted effort to focus on the growing part of the Canadian economy
that had been viewed as the labour movement's Achilles heel (Yates, 2003: 21).
Service sector union activism is evident in Europe as well. In Belgium, service sector
employees staged a 10-day strike in 2005 before receiving a five-year contract (EIRR,
2005: 1), while in Switzerland service unions negotiated to establish minimum wages
in addition to increased pay (EIRR, 2005: 2). Many countries are still dominated by
their manufacturing unions, however (Zientara, 2006), and unionization overall is on
the decline. Although previous studies suggest little to no difference in the adoption of
HRM by union and non-unionfirms (Osterman, 1994; Verma, 2005), it remains to be
seen whether these new service sector union movements will have a more significant
positive impact than traditional manufacturing unions did on the adoption of
progressive HRM.
Second, we asked how HRM influences performance outcomes in the service sector.
We considered three alternative mechanisms 1) motivation and commitment, 2)
human capital and skills, and 3) social capital or relationships through which HRM
may influence service performance. Each of these arguments has a compelling
rationale behind it related to the nature of service work, and a solid set of research
findings to support it. We conclude that HRM impacts service performance in a multidimensional way, by producing commitment, skills and relationships. How HRM
practices can be shaped to meet these three objectives simultaneously is a question for
further exploration. Starting in this direction, Leana and Pil (2006) have explored the
contribution of both human capital and social capital to performance outcomes
inpublic schools, though the human resource practices that are needed to develop high
levels of both human and social capital have not yet been identified. In principle, there
is no reason why human resource practices cannot be designed to serve these multiple
purposes employees can be selected for their commitment to organizational goals,
for the appropriateness of their individual knowledge and skills, and at the same time
for their ability to connect with others to coordinate the work process. Similar
arguments could be made with respect to the design of hiring, training, performance
measurement, job design and so on.
In conclusion, service work is distinct from manufacturing work due to the direct
interface between customers and employees, the simultaneity of production and
consumption, the relatively high levels of uncertainty and task interdependence, and
the role that customers play as potential co-producers in the service delivery process.
Given the importance of these differences, the attention given in the past fifteen years
to HRM in service settings has been well placed. But there are also increasing
similarities between services and manufacturing. Some service work is being made to
follow more of a standardized production model, particularly in back office
operations, perhaps decreasing the distinctiveness of service work. At the same time,
some manufacturing processes are taking on more of the characteristics of service

work, as inventories are reduced to enable goods to be produced just in time in

response to customized demand (Womack et al., 1990; Abernathy et al., 1999;
Holweg and Pil, 2004), thus moving toward the simultaneity of production and
consumption and toward the higher levels of uncertainty and task interdependence
that have traditionally made service work distinctive. In addition, manufacturing
companies are moving down the value chain to play a growing role in service
delivery, as after-sales service support becomes an increasingly important dimension
of the product value proposition.
Looking forward, we offer several recommendations for further research. First, as the
boundaries between services and manufacturing become more blurred over time,
HRM scholars would be well advised to focus less on the sector and more on the
characteristics of the work itself when drawing implications for human resource
management. Second, we recommend continued efforts to identify the work practices
that build relationships in the workplace, particularly among frontline service
personnel who are engaged in direct service provision. These work practices are likely
to include traditional human resource practices that have been redesigned to
encourage shared goals, shared knowledge and mutual respect across functions for
example hiring and training for relational competence as well as functional expertise,
and performance measurement systems that encourage workers to look beyond their
immediate jobs to the larger work process that they are engaged in. Third, our
research needs to look beyond organizational boundaries given that service delivery
across multiple organizations is increasingly common as organizations reduce vertical
integration and outsource non-core services in order to achieve strategic focus. The
relational model of high performance work systems discussed in this chapter can be
extended to address cross-organizational service delivery, but work systems have to
be designed to encourage the development of relationships with external as well as
internal service workers.
Further Readings

Entry Citation:
Gittell, Jody Hoffer, and Rob Seidner. "Human Resource Management in the Service
Sector." The SAGE Handbook of Human Resource Management. 2009. SAGE
Publications. 16 Apr. 2010. <http://www.sageereference.com/hdbk_humanresourcemgmt/Article_n30.html>.
Chapter DOI: 10.4135/978-1-8570-2149-3.n30