The Hidden Costs of Downsizing?

Managers who think downsizing will boost profitability need to be aware of its potentially damaging long-term effects, according to a new study in the Journal of Service Research (JSR). Mahesh Subramony of Northern Illinois University and Brooks C. Holtom of Georgetown University, who published “The Long-Term Influence of Service Employee Attrition on Customer Outcomes and Profits” on July 24, 2012 in JSR, kindly provided the following commentary about their findings:

How does losing your key staff affect your service brand and future profits?

In our past work with service firms, we have observed that employee turnover can result in a loss of valuable human capital and affect customer service levels. However, we found very little research linking the decline in customer service levels with the erosion of the firm’s brand image or the resultant negative effects on profitability. Moreover, most past studies examined the performance outcomes of either voluntary turnover or downsizing, but not both. We conducted our research to address these gaps in literature.

Our study examined the influence of service employee attrition on customer outcomes and profits using time-lagged data obtained from more than 5000 customers and 1500 full time staff working for 64 business units of a temporary help services (staffing) firm. We found that high levels of attrition—whether through downsizing or voluntary turnover—have a negative impact on customer perceived service brand image (SBI), which predict subsequent declines in unit profitability. Specifically, high voluntary turnover units had significantly lower customer service scores and staff of units that engaged in high levels of downsizing had significantly lower levels of customer orientation or focus. Both customer service and customer orientation levels, in turn, influenced SBI. Further, units that had strong SBIs tended to be more than four times more profitable than units with weaker SBIs. These findings highlight the financial benefits of creating positive SBI in the minds of customers as well as the importance of controlling employee turnover, and improving customer orientation and service delivery levels.

The primary practical implication of this work as it relates to downsizing is to be cognizant of its potential impact. Similar to the delay in observing the positive effect from marketing actions or service enhancements designed to improve satisfaction, the negative effects of downsizing are most likely to be delayed. Thus, while there are obvious financial savings from planned attrition, there may be material long-term financial implications from downsizing that managers may not predict. However, these hidden costs from downsizing and turnover may be significant and therefore important for managers to anticipate.

Read the article in the Journal of Service Research. To learn more about the journal, follow this link.

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Is CSR Worthwhile to Firms?

“Doing Good And Doing Better Despite Negative Information? The Role Of Corporate Social Responsibility In Consumer Resistance To Negative Information” by Andreas B. Eisingerich, Gaia Rubera, Matthias Seifert, and Gunjan Bhardwaj appears in the February 2011 issue of the Journal of Service Research. Today, Dr.  Eisingerich provides some background on this article:

Who is the target audience for this article?

More than 90% of the Fortune US 500 companies employ CSR initiatives and an increasing number of medium- and small-sized companies invest in CSR. In line with prior research, we define CSR as extent to which a firm benefits and contributes to society in positive ways. Despite an increase in CSR initiatives, we still do not know whether companies can do better by doing good. In this research we investigate the role of CSR in consumer resistance to negative information about a firm (i.e., consumers do not change their opinion about a firm when confronted with negative information about it). The research findings will be of interest to any firm, large or small-sized, that considers the effectiveness of its CSR activities.

What Inspired You To Be Interested In This Topic?

Prior research suggests that CSR may allow companies to insulate themselves from scrutiny because they enjoy greater levels of goodwill with consumers and different stakeholders (Luo and Bhattacharya 2006; Peloza 2006). Previous research findings also indicate that the quality of interpersonal treatment and communication during an encounter with a company influence subsequent consumer behaviour (Bell and Eisingerich 2007; Eisingerich and Bell 2007, 2008). In this research we were interested to examine whether CSR, customer orientation, or service quality orientation would be most effective in insulating companies from scrutiny when faced with negative information.

Were There Findings That Were Surprising To You?

Contrary to popular belief, the protection CSR offered was largely limited to CSR-related negative information, we found. Therefore, a company’s perceived level of CSR may not insure it against damage from negative information about service quality. Our findings suggest that CSR may be less of a blanket insurance that insulates firms from scrutiny because it generates greater levels of goodwill with consumers and acts more as a focused protection against CSR-related negative information.

How Do You See This Study Influencing Future Research And/Or Practice?

Our research complements existing work and provides an avenue for further research on the various relationships consumers form with companies or brands (e.g., Escalas and Bettman 2003; Fedorikhin, Park, and Thomson 2008; Fournier 1998; Park et al. 2010). Managerially, our findings demonstrate that CSR may offer less of blanket insurance than assumed in prior research. Moreover, the results of this research indicate that companies with a consumer base of experts should favor a focus on service quality orientation over CSR; conversely, when consumers are novices firms should focus on CSR for greater consumer resistance to negative information.

How Does This Study Fit Into Your Body Of Work/Line Of Research?

CSR is frequently suggested to create higher levels of goodwill with stakeholders. In previous work, we examined whether enhancing customers’ service related knowledge results in higher levels of goodwill and positive consumer behaviour, including customer trust and loyalty (Bell and Eisingerich 2007; Eisingerich and Bell 2007, 2008). The debate about CSR and whether it helps companies to do better by doing good is still going on. Further research on CSR and its impact on consumer-firm relationships is richly deserving.

How Did Your Paper Change During The Review Process?

The editor and anonymous reviewers offered critical insights and our research has benefited very much from their comments in terms of enhanced clarity.

What, If Anything, Would You Do Differently If You Could Go Back And Do This Study Again?

It would have been interesting to collect data before and after BP’s oil spill disaster and Toyota’s recall of cars but alas those kind of events are hard to predict. Additional research on consumer-firm/brand relationships is needed to gain a better understanding of how relationships may change in the context of negative events.

Bell, Simon J. and Andreas B. Eisingerich (2007), “The Paradox of Customer Education: Customer Expertise and Loyalty in the Financial Services Industry,” European Journal of Marketing, 41, 466-486.

Eisingerich, Andreas B. and Simon J. Bell (2008), “Perceived Service Quality and Customer Trust: Does Enhancing Customers’ Service Knowledge Matter?” Journal of Service Research, 10 (February), 256-268.

Eisingerich, Andreas B. and Simon J. Bell (2007), “Maintaining Customer Relationships in High Credence Services,” Journal of Services Marketing, 21, 253-262.

Escalas, Jennifer Edson and James R. Bettman (2003), “You Are What They Eat: The Influence of Reference Groups on Consumers’ Connections to Brands,” Journal of Consumer Psychology, 13 (3) 339-348.

Fedorikhin, Alexander, C. Whan Park, and Matthew Thomson (2008), “Beyond Fit and Attitude: The Effect of Emotional Attachment on Consumer Responses to Brand Extensions,” Journal of Consumer Psychology, 18 (4), 281-291.

Fournier, Susan (1998), “Consumers and Their Brands: Developing Relationship Theory in Consumer Research,” Journal of Consumer Research, 24 (March), 343-373.

Luo, Xueming and C. B. Bhattacharya (2006), “Corporate Social Responsibility, Customer Satisfaction, and Market Value,” Journal of Marketing, 70 (October), 1-18.

Park, C. Whan, Deborah J. MacInnis, Joseph Priester, Andreas B. Eisingerich, and Dawn Iacobucci (2010), “Brand Attachment and Brand Attitude Strength: Conceptual and Empirical Differentiation of Two Critical Brand Equity Drivers,” Journal of Marketing, 74 (November), 1-17.

Peloza, John (2006), “Using Corporate Social Responsibility as Insurance for Financial Performance,” California Management Review, 48 (2), 52-72.

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Does CSR Insulate Firms From Scrutiny?

Dr. Andreas B. Eisingerich, Imperial College Business School, Imperial College London, takes a moment today to provide some background for his article recently published in the Journal of Service Research Online First.

“Doing Good and Doing Better despite Negative Information?: The Role of Corporate Social Responsibility in Consumer Resistance to Negative Information”, was written by Andreas B. Eisingerich, Gaia Rubera, Matthias Seifert, and Gunjan Bhardwaj.

Who is the target audience for this article?

More than 90% of the Fortune US 500 companies employ CSR initiatives and an increasing number of medium- and small-sized companies invest in CSR. In line with prior research, we define CSR as extent to which a firm benefits and contributes to society in positive ways. Despite an increase in CSR initiatives, we still do not know whether companies can do better by doing good. In this research we investigate the role of CSR in consumer resistance to negative information about a firm (i.e., consumers do not change their opinion about a firm when confronted with negative information about it). The research findings will be of interest to any firm, large or small-sized, that considers the effectiveness of its CSR activities.

What Inspired You To Be Interested In This Topic?

Prior research suggests that CSR may allow companies to insulate themselves from scrutiny because they enjoy greater levels of goodwill with consumers and different stakeholders (Luo and Bhattacharya 2006; Peloza 2006). Previous research findings also indicate that the quality of interpersonal treatment and communication during an encounter with a company influence subsequent consumer behaviour (Bell and Eisingerich 2007; Eisingerich and Bell 2007, 2008). In this research we were interested to examine whether CSR, customer orientation, or service quality orientation would be most effective in insulating companies from scrutiny when faced with negative information.

Were There Findings That Were Surprising To You?

Contrary to popular belief, the protection CSR offered was largely limited to CSR-related negative information, we found. Therefore, a company’s perceived level of CSR may not insure it against damage from negative information about service quality. Our findings suggest that CSR may be less of a blanket insurance that insulates firms from scrutiny because it generates greater levels of goodwill with consumers and acts more as a focused protection against CSR-related negative information.

How Do You See This Study Influencing Future Research And/Or Practice?

Our research complements existing work and provides an avenue for further research on the various relationships consumers form with companies or brands (e.g., Escalas and Bettman 2003; Fedorikhin, Park, and Thomson 2008; Fournier 1998; Park et al. 2010). Managerially, our findings demonstrate that CSR may offer less of blanket insurance than assumed in prior research. Moreover, the results of this research indicate that companies with a consumer base of experts should favor a focus on service quality orientation over CSR; conversely, when consumers are novices firms should focus on CSR for greater consumer resistance to negative information.

How Does This Study Fit Into Your Body Of Work/Line Of Research?

CSR is frequently suggested to create higher levels of goodwill with stakeholders. In previous work, we examined whether enhancing customers’ service related knowledge results in higher levels of goodwill and positive consumer behaviour, including customer trust and loyalty (Bell and Eisingerich 2007; Eisingerich and Bell 2007, 2008). The debate about CSR and whether it helps companies to do better by doing good is still going on. Further research on CSR and its impact on consumer-firm relationships is richly deserving.

How Did Your Paper Change During The Review Process?

The editor and anonymous reviewers offered critical insights and our research has benefited very much from their comments in terms of enhanced clarity.

What, If Anything, Would You Do Differently If You Could Go Back And Do This Study Again?

It would have been interesting to collect data before and after BP’s oil spill disaster and Toyota’s recall of cars but alas those kind of events are hard to predict. Additional research on consumer-firm/brand relationships is needed to gain a better understanding of how relationships may change in the context of negative events.

Bell, Simon J. and Andreas B. Eisingerich (2007), “The Paradox of Customer Education: Customer Expertise and Loyalty in the Financial Services Industry,” European Journal of Marketing, 41, 466-486.

Eisingerich, Andreas B. and Simon J. Bell (2008), “Perceived Service Quality and Customer Trust: Does Enhancing Customers’ Service Knowledge Matter?” Journal of Service Research, 10 (February), 256-268.

Eisingerich, Andreas B. and Simon J. Bell (2007), “Maintaining Customer Relationships in High Credence Services,” Journal of Services Marketing, 21, 253-262.

Escalas, Jennifer Edson and James R. Bettman (2003), “You Are What They Eat: The Influence of Reference Groups on Consumers’ Connections to Brands,” Journal of Consumer Psychology, 13 (3) 339-348.

Fedorikhin, Alexander, C. Whan Park, and Matthew Thomson (2008), “Beyond Fit and Attitude: The Effect of Emotional Attachment on Consumer Responses to Brand Extensions,” Journal of Consumer Psychology, 18 (4), 281-291.

Fournier, Susan (1998), “Consumers and Their Brands: Developing Relationship Theory in Consumer Research,” Journal of Consumer Research, 24 (March), 343-373.

Luo, Xueming and C. B. Bhattacharya (2006), “Corporate Social Responsibility, Customer Satisfaction, and Market Value,” Journal of Marketing, 70 (October), 1-18.

Park, C. Whan, Deborah J. MacInnis, Joseph Priester, Andreas B. Eisingerich, and Dawn Iacobucci (2010), “Brand Attachment and Brand Attitude Strength: Conceptual and Empirical Differentiation of Two Critical Brand Equity Drivers,” Journal of Marketing, 74 (November), 1-17.

Peloza, John (2006), “Using Corporate Social Responsibility as Insurance for Financial Performance,” California Management Review, 48 (2), 52-72.

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