PERCEPTION GAPS BETWEEN THE CUSTOMER, EMPLOYEE, AND EXECUTIVE

IN BANKING SERVICE QUALITY

Minjoon Jun
Department of Management (MSC 3DJ), College of Business, New Mexico State University,
Las Cruces, NM 88003, U.S.A., E-mail : minjun@nmsu.edu

Shaohan Cai
Sprott School of Business, Carleton University, 1125 Colonel By Drive, 710 Dunton Tower,
Ottawa, Ontario, K1S 5B6, Canada, E-mail: acai@sprott.carleton.ca

ABSTRACT
One prerequisite to successful implementation of TQM is to develop and implement effective
marketing and operations strategies, which can only be attained if the two are closely-consistent
between each other. This study examined the strategic consistency between the marketing and
operations functions of banks in delivering loan products to customers.
Key Words: Banking Service Quality, Bank Operations, Bank Marketing, Loan Service,
Perception Gap Analysis, Service Quality Management

INTRODUCTION
During the past decade the banking industry has witnessed dramatic and far-reaching changes.
In 1982, congress enacted a major deregulation program which substantially left banks free to
pay what they wanted in interest-bearing accounts and charge what they wished for their services.
In succeeding years, laws would also less sharply demark between banks and non-bank financial
institutions. Thus, community banks now face increased competition from other banks and non-
traditional institutions such as money management companies, security firms, and insurance
companies (Angelis, Lymperopoulos, and Dimaki, 2005).
Other forces have combined to present bankers with severe marketing and operations challenges.
These include new information technologies, the erosion of product and geographic boundaries,
and change in consumers’ financial awareness. The impact of these can be expected to continue
unabated in the foreseeable future.
In order to retain and enlarge a competitive edge in such a highly competitive marketplace, a
large number of banks, in the past decade, have been forced into designing and implementing
various strategic programs such as total quality management (TQM), continuous quality
improvement (CQI), company reengineering and restructuring, value engineering, and other
TQM-type programs (Kayis, Kim, and Shin, 2003). Although different names are used by banks
for their programs, all of the programs have commonly focused on the improvement of service
quality, productivity, competitiveness, and financial results.
There has also been considerable literature addressing various conceptual frameworks of, and
critical factors for successful implementation of, TQM, CQI, and other TQM-type programs

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(Sila and Ebrahimpour, 2005; Amsden, Ferratt, and Amsden, 1996; Carman, Shortell, Foster,
Hughes, Boerstler, O’Brien, and O’Connor, 1996; Haksever, 1996; Arndt and Bigelow, 1995;
Eskildson, 1995; Ehrenberg and Stupak, 1994; Grant, Shani, and Krishnan, 1994). The primary
theme of the literature can be summarized as “on going effort to provide services that meet or
exceed customer expectations through a structured systematic process for creating organization-
wide participation in planning and implementing quality improvements” (Carman et al., 1996,
p.48). And four key elements for successful implementation of TQM or TQM-type programs can
be identified: (1) customer-focused service and continuous improvement, (2) strategic planning
and leadership of top management, (3) communication and training, and (4) empowerment of
employees. The authors attempt to examine the question of whether the key elements of TQM
are being successfully implemented through a series of gap analyses between executives, loan
officers, and consumers, in their evaluation of the importance of various banking service quality
attributes.
In the context of the perception gap analysis, building on Oliver’s (1980) expectation-
disconfirmation paradigm, Parasuraman et al. (1985, 1988) propose the gap-based service quality
model in which service quality perceptions are conceptualized as the difference between quality
expectations and perceived performance of the service. The conceptual model of service quality
developed by Paraasuraman et al. (1985) defines customer-perceived service quality as the
magnitude and direction of the discrepancy between service expectations and perceptions and
depicts this discrepancy as a function of four organizational gaps associated with the design,
marketing, and delivery of services. The gaps are: (Gap 1) differences between customer
expectations and management perceptions of customer expectations; (Gap 2) differences
between management perceptions of customer expectations and service quality specifications;
(Gap 3) differences between service quality specifications and the service actually delivered; and
(Gap 4) differences between service delivery and what is communicated about the service to
consumers. Later, Zeithamal et al. (1990) and Zeithamal et al. (2002) argue that when customers’
perceptions of the service received fall short of their expectations, which is called as “Gap 5,” the
fault can ultimately be linked to one of the previously mentioned four gaps.
The present study focus on the first three gaps, namely Gaps 1, 2, and 3, in conjunction with the
identified four key elements of TQM in the investigation of perception gaps among bank
customers, employees, and executives groups. The discussion of each of the TQM elements and
perception gaps among the three groups, and related hypotheses are set forth in the next section.

LITERATURE REVIEW
Key Elements of TQM and Related Hypotheses
Customer-focused service and continuous improvement are important considerations. Many
banks have been employing focus group interviews, customer surveys, and customer comment
cards in order to determine what capabilities they need in services bundles offered to meet or
exceed customer-defined expectations. Since the needs and expectations of customers are
constantly changing and competition is pushing standards to increasingly higher levels, banks
should continually monitor changing customers’ preferences and improving bank services.
H1: For each bank service, there is an agreement among bank customers on the perceived
relative importance of various banking service quality attributes.

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The second variable considered is strategic planning and leadership of top management. The
leaders are well advised to pursue the creation of strategies, systems, and methods for achieving
excellence. These managerial processes should guide all activities and decisions of the company
and encourage participation and creativity by all employees, all to the end of customer
satisfaction. Top managers must be determined to establish TQM initiatives and be committed
to sustain TQM activities through daily actions after they have carefully examined alternative
revenue generating criteria and found what particular parts of the service packages contribute to
the consumers’ expectations and perceptions of service quality. Thus, if the leaders in the bank
industry have performed their functions properly, there should be no gap between what top
managers think customers expect and what customers actually expect from the banks. Two
hypotheses are posed to test this assertion:
H2: For each bank service, there is an agreement among bank executives on the
perceived relative importance of various banking service quality attributes.
H3: For each bank service, there is an agreement between bank executives and customers
on the perceived relative importance of various banking service quality attributes.
The third variable of interest is communication and training. Top managers, as consensus
builders, are charged with the responsibility of inspiring organizational members with a shared
sense of purpose aimed at creating both value for the customer and the committed involvement
of organizational members. All functions at all levels of an organization should focus on quality
to achieve corporate goals. Vertical-teamwork between top management and lower-level
employees and horizontal-cross-functional teams play a pivotal role in satisfying customers
without undue bureaucracy and communication barriers between levels in banks. Good
teamwork between the levels in the organizational hierarchy and within multifunctional teams
can only be obtained through effective communications between members of an organization and
well-conceived training programs. These can bring all employees to a common understanding of
goals and objectives and the means to attain them. Therefore,
H4: For each bank service, there is an agreement between bank executives and employees
on the perceived relative importance of various banking service quality attributes.
The last of the four concepts to be analyzed is empowering employees. In turn, empowerment of
employees is an effective means not only to deliver service bundles that can meet or exceed
customer needs but also to respond effectively to customer problems as they arise. Employees
with delegated authority can proactively perform their assigned tasks particularly when they
meet the “service encounter, which is defined as “the period of time during which a consumer
directly interacts with a service” (Schmenner, 1995, p. 18) and has a strong impact on the
customer’s impressions and judgments about the firm. In order for an “empowerment of
employee” program to be successful, employees should clearly understand top management’s
chosen policy and changing customers’ preferences. This leads to hypothesis five:
H5: For each bank service, there is an agreement between bank employees and customers
on the perceived relative importance of various banking service quality attributes.

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The objective of this article is to provide insights that would assist in promoting the consistent
and coherent integration of operations issues in the bank’s strategic plan. That is, a bank should
develop and implement effective marketing and operations strategies. And effective marketing
and operations strategies can only be attained if the two are closely-consistent between one
another. In turn, consistency should be useful in that it supports corporate strategy. Once
corporate objectives and target markets are selected and potentially profitable strategies are
assessed through marketing research, the operations task should be to furnish the output which
will enable the bank to be competitive in the marketplace. However, much of the past research
in banking has focused on either the marketing function (Furash, 1996; Elliott, Shatto, and
Singer, 1996; Stacy, 1995; Lian, 1993) or internal banking operations (Carpenter, 1996; Ponicki,
1996; Parker, 1996; Boaden, 1993). Relatively modest research has been directed to the linkage
between marketing and operations strategies. The present study attempts to assist in filling the
knowledge gap by investigating the strategic consistency between marketing and operations
functions of community banks in delivering loan products to customers. Loan services were
selected for the study since they are the most important source for profit generation in
community banking among many product lines, including trust services, consulting, demand
deposits, electronic funds transfer, and investment services.

RESEARCH METHOD
This study investigates the strategic consistency between the marketing and the operations
functions of community banks in delivering three primary loan products: mortgage, installment,
and commercial loans, to loan customers.
Specifically, the research first identifies and prioritizes salient service quality attributes for the
three loan products in the market place, as perceived by three groups: executives, loan officers,
and customers. Second, this study measures the similarities and differences of viewpoints within
each of the three groups and among the three groups. Third, if there are significant differences
among the three groups with regard to the perceived importance of the service quality attributes
for the three loan products, this research will examine the following three gaps: (1) the
differences between executives’ perceptions of banking service quality attributes and customers’
perceptions of these; (2) the differences between executives’ perceptions of banking service
quality attributes and loan officers’ perceptions; (3) the differences between loan officers’
perceptions of banking service quality attributes and customers’ perceptions. Finally,
recommendations for filling gaps, if they exist, would be set forth.
A mail survey was employed to obtain information about the perceptions of executives, loan
officers, and loan customers. Survey questionnaires were initially developed by the researchers,
based upon previous studies, and then reviewed by two academics and two practitioners from the
industry. Alterations were made, based upon their inputs.
A total of 21 key bank selection criteria were identified by the authors through a content analysis
of the relevant literature and interviews with practitioners. The criteria were categorized into
two groups: loan service product quality and loan customer service quality.
In the questionnaire, executives and loan officers were asked to rate each of the 21 service
quality attributes, in terms of their capability to attract and retain eligible loan customers. In turn,
the customers were asked to rate each of the criteria in terms of their importance in selecting a

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bank for their loans. A seven-point scale was employed, encompassing 1 (no importance), 2
( little importance), 3 (some importance), 4 (moderate importance), 5 (considerable
importance), 6 (great importance), and 7 (extreme importance).

References are available upon request.

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