241 International Review of Business Research Papers Vol. 5 No. 3 April 2009 Pp.


Customer-Focused Strategies And Information Technologycapabilities: Implications For Service Quality Of Malaysian Local Authorities
Jamaliah Said, Wee Shu Hui, Dennis Taylor and Rohana Othman1
The purpose of this paper is to explore the relationship between the extent of CF-strategies implementation and IT capability on organizational performance, and the moderating role IT capability on the relationship between CF-strategies and performance. Questionnaires were distributed to a sample of Malaysian Local Authorities (LGAs). The result supports a strong positive relationship between the extent of CF-strategies and IT capability on organizational performance. This study also finds that IT capability moderates the relationship between CF-strategies and organizational performance and provides justification for LGAs to invest, in term of resources and commitment, in implementing CF-strategies and IT as these variables contribute

Field of research: Management Accounting, Public Sector, Information Technology.

1. Introduction
Public sector financial management in Western countries had been based on principles of economic rationalism and managerialism during the era since the 1980s known as ‘new public management’ (NPM) (e.g., Guthrie & English, 1997; Hood, 1995). By the 2000’s the arguments have grow that the ideology underlying NPM has glossed over those social and public interest effects that conflict with a narrow financial performance oriented view of public sector management (McCrae et al., 2004). In Malaysia, there has been growing media attention on cases of public sector customer grievances, especially at the local government level. The response has been to push initiatives aimed at improving the quality of public service delivery. The Malaysian Federal Government established a unit called MAMPU to introduce ‘best-practice’ initiatives to LGAs,
1 Jamaliah Said, Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Malaysia Wee Shu Hui, Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Malaysia Dennis Taylor, School of Accounting & Law, RMIT University, Melbourne, Australia Rohana Othman, Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Malaysia

8 points Abdullah. Joiner (2007) found a positive link between TQM adoption and service quality performance. 242 . & Gosh. bureaucratic. ranked City Council the lowest(14th) with a score of 61. However. 2006). their study did not attempt to answer how IT can be used to enhance service quality provision and the focus was not specifically on LGAs. Client Charters. Leung. & Nassir (2003). Hence the objective of this study is to provide empirical evidence about the relationship between CFstrategies and IT capability on service quality performance of Malaysian LGAs. Knowles. especially within Malaysian LGAs has never been explored. Hui. wasteful. Much has been written about how IT could be and has been used to enhance service quality eg (Ali & Green. For example. the establishment of the Multimedia Super Corridor in 1996 had. 2002). the enhancement of service quality at local levels in Malaysia. Taylor & Othman and assist their capacity-building through providing training programs and operating procedures guidelines. unresponsive and not citizen friendly (Hazman. However. Zhu. & Paul. The Public Complaints Bureau under the Prime Minister’s Department revealed that about 17% of total complaints on civil service are on local governments. This literature examines various issues such as the link between service quality and customers satisfaction (Sureshchandar & Chandreskharan. (2000) examined how IT can support quality management practices of 110 public sector organizations in Malaysian. Rosacker & Olson. Quality control initiatives have been introduced to LGAs throughout the past decade under the banners of Counter Service. However. 2002). the focus of the literature has been qualitative in nature. the link between CF-strategies and organizational performance. Walter Wymer. Shirley-Ann & Frances (2003) highlights a number of problematic issues relating to the use of IT in enhancing service quality provision in the public sector. Ittner & Larcker (1997) examined quality strategy and organizational performance. Chooi-Leng. Perera (1997) carried out study on the customer focus manufacturing strategy and it links to organizational performance. CF-strategies studies on public sectors are scarce. Complaints Systems. ISO 9000 and Benchmarking. Quality Control Circles. Husain. Although the quality of service provision among public sector has been extensively researched. A tremendous body of research has been built up in recent years on the role of new management accounting technique in enhancing organizational performance.6 which is below the average national score of 67. A separate initiative. & Chen. inefficient. Computerized Accounting. Total Quality Management. 2002) and critical success factors of delivering quality service(Antony.Said. The Malaysian Customer Satisfaction Index (MCSI) for service sector industry. Malaysian LGAs have been often criticised for their poor services. 2008. Empirical studies on the relationship between IT and service quality especially among LGAs in Malaysia have never been addressed. as one of its intended outcomes. Despite this extensive effort. 2007. Subramaniam & Ishak (1998) found support for a relationship between competitor analysis practices on organizational performance. Mark.

2007). CF-strategies emphasize the need to provide customers with high value service through improvements in efficiency by way of eliminating waste. is one of the philosophies. acquisition and loss of customers. in the accounting literature which emphasises the importance of monitoring customers on the premise that an organization should value customers as an asset. the importance of monitoring customers’ complaints. Hendricks & Singhal. Hendricks & Singhal. finding solutions to poor service. Organizations that focus on continuous improvement. 2002. retention and satisfaction. Lee. product reliability. andregularly measuring customer service (Guilding & McManus. Brah. One of the four dimensions of the balanced scorecard focuses on customer perspective and the importance of monitoring the rate of customer acquisition. Foster & Gupta’s (1994) study is among the earliest studies. For example Kaplan & Norton (1992) introduced the concept of balanced scorecard measures of performance. Harrison. building closer links with customers. Literature Review and Development of Hypotheses 2.Said. CF-strategies is an organization strategic tool for improving product/service quality (Guilding & McManus. 2001). The results are presented in section 5. Lee.g. motivate employees to achieve quality output. 2001. Taylor & Othman Subsequently. CF-strategies started to appear in the management literature as an important tool (Guilding & McManus. Perera. 1997). & Poole. Douglas & Judge. and focus on satisfying customers’ needs are found to have a competitive edge (Joiner. Within an increasingly competitive environment. having a management approach of meeting customers’ need. Hui. non value added activities/cost and reducing lead times at all stage of services (Chenhall. 2003. Several studies report a positive relationship between CF-strategies and performance (Brah. 2002). 2002) in both private and public organizations. 243 . The remainder of this paper is structured as follows. & Rao. Organizations placing greater emphasis on CFstrategies will tend to attach a relatively high degree of importance to eliminating non value added activities and cost. this study aims to investigate the moderating effect IT capability on the relationship between CF-strategies and organizational performances. A discussion of the results and their implications are provided in the last section 2. Section 3 provides a discussion of the research framework and hypotheses underpinning this study and section 4 outlines the research design. Kaynak.1 Customer-Focused Strategies During the last decade. Likewise in total quality management (TQM). Most studies report a positive relationship between CFstrategies and performance (e. 1997).. on time delivery as important capabilities for competitiveness in the manufacturing firms. & Rao. The next section provides a review of relevant literature. 2002. 2002. Kim & Miller (1992) identify customerfocused activities such as activities associated with conformance quality.

Said. Kaynak. 1997. Likewise. Willett. 2. Hui. Loveman (1990) found no correlation between various IT ratios and performance measures of return on investment. Joiner. 1997. Powell & DentMicallef. has IT experience and is effective in IT utilization. and in creating knowledge links for identifying and sharing organizational expertise (Quinn et al. 2003). 1994. 1993. return on equity and return on investment. Herbert. Taylor & Othman 2001. reduce transaction errors and increase consistency in performance.. Clark (1997) noted that IT experience in combination with other IT elements directly determines an organization’s ability to rapidly develop and deploy more innovative techniques to enhance performance. and anticipates customer needs (Bhatt & Grover. reduction of long term cost. 1994). An extensive body of IT capabilities literature concurs that IT capabilities are a resource to facilitate an effective collection and utilization of information (e. develops reliable and cost effective systems for the organization. Ittner & Larcker. However. Additionally. Powell & Dent-Micallef. The purpose of these studies is mainly to examine the effects of IT investment on firm productivity and financial performance such as return on assets. 2005. are due to the fact that 244 . A high level of IT experience enables the smooth implementation of the organization’s strategy.. Baily. Sager (1988) and Venkatraman & Zaheer (1990) reveal that IT has no impact on performance. improve service reliability and reduced transaction errors (Tippins & Sohi.. 1997) Floyd et al (1990) contend that IT capabilities enhance service reliability. 2007. Further contentions are that capabilities can contribute to enhancing service quality can through better customized or individualized services. & et al. Santhanam & Hartono. Floyd & Wooldridge.g (Bharadwaj. 2005). A group of IT studies suggests IT capabilities provide a basis of gaining competitive advantage (Bhatt & Grover. 1990.2 Information Technology Capabilities Tippins & Sohi (2003) define IT capabilities as the extent to which an organization is equipped with IT infrastructure. it is argued. The first group of IT studies focuses on the relationship between IT spending (IT investment) and productivity/performance.This leads to the following hypothesis for this study in the setting of LGAs in Malaysia: H1: There is a significant positive relationship between the use of CF-strategies and service quality performance. claims are made that IT capabilities enhance performance through an elimination of inefficiency. 2003) and enhancing organizational performance (Adam & J. Santhanam & Hartono. 2003). Studies on the relationship between IT capabilities and performance can be divided into two groups. 2000. Quinn. These poor results. The role of IT capabilities in enhancing organizational performance is wel l established in the literature. 2003).

. 2000. speed and responsiveness (Brynjolfsson. Tippins & Sohi. Deshpande. the following hypothesis is put forward in the context of service quality performance of LGAs in Malaysia: H2: There is a positive relationship between an LGA’s IT capabilities and service quality performance. Powell & Dent-Micallef. Hui. Powell. It is hypothesised that: 245 . IT capabilities provide a basis of gaining competitive advantage and enhancing organizational performance (Adam. 1993). 1990. Hence. 2005. Santhanam & Hartono.g. 2003). Douglas & Judge (2001) identified the need to examine the moderating effect of contextual factors on the strength of the relationship between CSstrategies within TQM and performance. Taylor & Othman they have overlooked the benefits of IT productivity in terms of increased quality. 2005. 2.. Jover. It is contended that IT capabilities would be a major contextual factor influencing the effectiveness in which CF-strategies will produce high service quality performance. customer service. Byrd & Turner. Harrison. 2007. Santhanam & Hartono. & Fernandez. 1993. These studies range from exploring the effects of IT capabilities on organizational performance to the effects of a combination of IT and non-IT capabilities on organizational performance. Bharadwaj. 1993). & Ahire.3 Interaction Of CF-Strategies And IT Capabilities In Affecting Service Quality Performance A study by Perera. Among the IT dimensions are IT knowledge. Quinn et al. variety. this study examines the role of IT in enhancing the relationship between CF strategies and service quality performance in LGAs. Montes. 1997. 2001. Finding from this second group of IT studies support the expectation that IT capabilities enhance organizational performance (e. 1995). 2003). IT business experiences and relationship infrastructure (Bhatt & Grover.Said. & Poole (1997) found no support on the customer focus manufacturing strategy and organizational performance and recent TQM literature emphasized the importance of including contextual factors in the relationship between TQM implementation and organizational performance (Golhar. They have explored the link between the more comprehensive dimensions of IT and various measures of organizational performance (e. Brynjolfsson (1993) has suggested that researchers should look beyond ‘conventional productivity’ as applied in the first group of IT studies. IT operation. Bhatt & Grover. 1994. 1997. Mata. Measurement of factors like management quality and customer service are not accounted in productivity and financial accounting numbers (Brynjolsson & Hitt.. Based on this second group of IT studies. IT object. 2003). Joiner. Floyd & Wooldridge. 1997. The second group of IT studies started to include IT capabilities with other IT and non-IT elements to examine their effect on organizational performance. 2003) .g.

the more positive is the relationship between its CF-strategies and service quality performance. Public sectors are also under intense public scrutiny to perform and produce results. (Figure 1). Subsequently. The framework positions CF-strategies and IT capabilities as independent variables and organizational performance as the dependent variable. As such IT capability is posited as one of the moderating variables that influence the relationship between CF-strategies and service quality. Management can continuously improve service quality through the information provides by CF-strategies at a faster rate with the existence of IT capability. the moderating role of IT capability on the relationship between CF-strategies and organizational performance is also examined. Hui. Taylor & Othman H3: The higher the IT capabilities of an LGA. 3. Empirical Framework As has been discussed in the preceding section. 246 . studies on CF-strategies and IT capabilities mostly focuses on private sectors.Said. The framework suggests that interaction of CF-strategies and the level of IT capability leads to better organizational performance. Lack of IT capability will hamper management initiative in improving organizational performance. The role of CF-strategies and IT capability on performance is therefore examined within the context of Malaysian LGAs. Speed is crucial in handling and solving customers’ complaints and responding to customers’ queries.

seeking solutions for poor service. However. 4. monitoring of each activity in a value chain.Said. identifying whether the activity is value-adding. Methodology and Research Design 4. IT capabilities and service quality performance. especially the small ones do not have a post of Head of IT . CFS H3 IT capability H1 Service Quality H2 4.1 Sample This study uses a mail questionnaire distributed to all Malaysian LGAs. Eight items were selected to represent the construct of CF-strategies. All the 144 LGAs were invited to participate in this study to maximize the possible respondents. Head of Acounting and Head of IT. A Likert scale is used ranging from 1 (never practice at all) to 7 (extensively practice). using techniques to identify solutions for failure and. Taylor & Othman Figure 1 The relationships between CF-strategies. a few LGAs. 247 .2 Design of the Questionnaire Instrument 4. Hui. There are 144 LGAs in Malaysia comprising of 13 city council.2. the Mayor/president. 34 municipal council and 97 district council. having close relationships with customers. having a management approach of meeting customer needs. The eight items comprise of the following: techniques to evaluate whether to undertake or outsource a service.1 CF-Strategies The measurement scales for CF-strategies are based on Cravens and Guilding (2001) and Joiner (2007) with appropriate contextual modification. namely. in which case only two questionnaires were sent. Questionnaires were sent to three separate members of the senior management team in each LGA.

reliability of service delivery. as in the case in the present study’. As an organization increases in size and its number of employees also correspondingly increases. LGAs with an inferior resident socio-economic status tend to collect lower revenue and this may affect their performance. Similarly. level of staff responsiveness in attending to customers. Self rating instrument have been widely used indicating a wide acceptance in it use. our study identifies types of LGAs. its chances for survival and growth increase (Drummond and Chell. staff skills. and service accuracy. this is less concern where such bias is generic and where the ratings are needed for relative rather than absolute analysis. Hui.2. 248 . Using a seven point Likert scale that ranged from 1 (strongly agree) to 7 (strongly not agree). has sufficient yearly budget for IT infrastructure. managers are asked to indicate to what extent they agree with the following nine statements about their organization: it has a formal IT department. Respondents were asked about customer satisfaction towards physical appearance. staff competency in carrying out tasks. Respondents are asked to evaluate their service quality performance for the past 3 years against average service quality performance using a Likert scale ranging from 1 (much worse) to 7 (much better). & Poole (1997) argued that self rating measures ‘although self rating measures have been criticized for leniency bias. 1996).4 Control Variables Previous studies in the LGA setting have identified numerous environmental and organizational variables affecting LGAs’ performance. number of employees and its geographical location. 4. IT is use for managing customer information. geographical locations may also affect performance. Zeithaml. Taylor & Othman 4. 1994: Hager et al.2 IT Capabilities Levels of IT capability are measured using a slightly modified version of the instrument developed by Tippins & Sohi (2003). Harrison. staff are linked by computer network.Said. In order to control their effect.2. considerable opportunities are provided for IT training. The states where the LGAs are situated are used as a control factor to avoid the confounding effect of this factor on organizational performance. 4. & Berry (1988) is adapted to measure service quality performance. first developed by Parasuraman. For example. Perera. IT is link to external customers.3 Service Quality A self rating instrument of service quality.2. One of the major determinants of revenue generation is the ability of local residents to pay rates and taxes. it enables enhanced service responsiveness and reengineering of business process.

Levene’s test for equality of variances shows value range from 0. indicate that there is no significant different between mean score of the two groups. Out of 140 returned. The alpha coefficient of each construct was compared to the cutoff value of . Taylor & Othman 4. correlation matrix of the dependent and independent variable and alpha reliability statistics. normality and response bias are performed. no response bias was detected.19). 249 . both the accountant and IT head have views about the situation in their organization that are not systematically different. The response from the first mailing that was received before the cut off date and the second mailing after the phone call reminder were compared.594 to 0. The correlation between independent variables (CF-strategies and IT capability) and the dependent variable (service quality) is considered high (r = 0.48 and r = 0.061 to 0.52) providing preliminary support for the research model.980 (p>. Table 1 exhibits the result of descriptive statistic. the p value of these variables was 0.766 to -. tests of reliability.05). A response bias test was also conducted.1 Descriptive Statistic Of the 350 questionnaires distributed. that is. 98 were from the Accountant and 42 from the IT head.05). none of the mayors/presidents returned the questionnaire. 5. The responses from the Heads of IT and accounting were also compared. Result And Discussion 5.18 and r = 0. In terms of control variables. The z-value for skewness and kurtosis for all the variables range from . These 140 respondents represent 109 LGAs because a few LGAs returned more than one questionnaires.3 Data Analyses Before testing the hypotheses in this study. Reliability for each construct measurement was assessed using the Cronbach alpha coefficient which was obtained using a reliability analysis in SPSS package version 15.Said. 140 were returned representing a response rate of 40%. Skewness and kurtosis test were carried out to confirm the normality of data distribution. Levene’s test for equality of variances shows values of 0.01 probability level.700 indicating that normality could be assumed at the . Hui.803 which indicates that there is no significant different between the mean score of the two groups.884 (p>. In other words.70 suggested by Nunnaly (1967). type of LGAs and number of employees exhibited weak relationship to service quality (r = 1.

40** . 2003). H2 is supported.05 level (2-tailed)..032 1.121 0.52** ** Correlation is significant at the 0. All regression results are reported in Table 2. the interaction term is entered to determine the moderating role of IT capabilities on the relationship between CF-strategies and service quality performance. p =0. Hence. By inference.19* 1 0. Brah et al 2002.019 0.06 -0.2 Multivariate Results Hierarchical regression analysis was employed to test the three hypotheses. The finding is supportive of earlier findings in the TQM literature relating to customer-focused perspectives (e.Said. Kaynak. Hui.091 3 4 5 4.802 5. more responsive staff in attending to customers. and having close relationships with customers. stronger CF-strategies should enable continuous improvement in satisfying customer needs. identifying whether the activity is value-adding. CF-strategies and IT capabilities.g.78** . Model 2 addes the two main variables of the study.01 level (2-tailed). This result supports H1 and indicates that an LGA’s set of CF strategic techniques aimed at meeting customers’ needs contributes positively to the service quality of the organization.22** 0.15 .D Cronbach alpha 1 2 1 -0.076 0.340.00)). p =0.878 1 -0.971 4. Model 1 represents the regression of the three control variables (Number of employees. LGAs with more sophisticated IT capabilities are able to achieve improved service quality.963 -1. type of LGAs and geographical location) on service quality performance.062 0. will enable the LGAs to understand and find ways and means to enhance quality of service through providing more reliability of service delivery. Various CF approaches including techniques to evaluate whether to undertake or outsource a service. Table 2 shows that there is a significant positive relationship between IT capability (B= .42** 0. 2001.887 -0. Hendericks and Singhal. and greater staff competency in carrying out tasks. In Model 3. * Correlation is significant at the 0.311. monitoring of each activity in a value chain. Turning to the effect of IT capabilities.00) and service quality performance.18* 1 0. The result in Table 2 shows that the relationship between CF-strategies and service quality is statistically significant ((B= .48** 1 0.937 -0. 5. This is likely to be due 250 .077 1. Taylor & Othman Table 1: Descriptive statistic and correlations mean Type Location No of emp CFstrategies IT capabilities Ser Qty S.50** 0. H1 stated that there is positive relation between CF-strategies and service quality.

p =0.507 .951 .910 .000 -.586 .581 -.374 -. Zhu.304 3.004 . LGAs with good IT infrastructure.277 B 2.408 .000 . This finding supports findings from large firms in the private sector that IT capabilities have a positive affect on organizational performance (Bharadwaj. This hypothesis expected that the relationship between the use of CF-strategies and extent of achievement of service quality would be stronger for organization with high IT capabilities.000 .800 -.340 .113 .030 . Location No of emp Main variables CF-strategies IT Interaction: CF-strategies x IT R² ÿ in R² Adjusted R² Sig F change B 4.013 .061 .684 B 1.024 .013 251 . Hitt & Brynjolfsson. IT skills and IT usage are expected to have a better chance to increase the customer service quality. Taylor & Othman to reduced transaction errors and increased consistency in performance.354 4.30 to the explanatory power of the model.040 Model 2 t Sig 3. Hui.026 .000 . The result in Table 2 provides empirical support for the moderating effect of IT capabilities on the relationship between CF-strategies and service quality performance (B= . The R-square increase from only about 5% (model 1).105 .192 . It added 0.126 t Sig 7.148.559 .1994).047 . 2004).908 -.425 . to monitor activity in a value chain.013).057 Model 3 t Sig 2. IT enhances LGAs ‘ ability to cope with higher level of information related to service/activity through its ability to process great amount and more varied information faster and more accurately.681 -.562 . Santhanam & Hartono.321 .298 .716 4.Said. 1996.363 .000 .840 -.259 .148 4.012 -.021 .872 2. Zhu.346 0. The use of IT enables LGAs to detect and eliminate non-value adding activity. K. 2004).249 . Table 2 : The effects of use of CF-strategies and possession of IT capabilities on service quality performance DV:SERVICE QUALITY PERFORMANCE Model 1 Constant Control Variable: Size Geog. to 35% (model 2) to 38% model 3.092 .047 .000 .05.088 .414 1. and to model solutions for poor service which in turn leads to better service quality.375 .894 -.345 . IT capabilities can enable firms to create better customized or individualized services (Quinn and Baily. This final increase is significant at p <.009 -.159 1.311 . K.000 .680 . 1997.013 . H3 posited that the interaction between CF-strategies and IT capabilities would enhance service quality. 2000. This finding supports the complementary perspective that suggests the interaction of IT and other non IT factors can lead to superior performance ((Powell & Dent-Micallef. 2003.

Cavanaugh. LGAs with low level of IT capability as characterized by lack of IT infrastructure. Wright.. are important factors pertinent to the service quality of LGAs. enabling LGAs to improve service quality performance. store and retrieve information efficiently. downsizing of operations and increasing user-pay services). A further result of this study reveals strong support for the positive influence of IT capabilities on service quality performance. will result in poor service quality by LGAs to their customers.e. The results of this study support the hypothesis that when CFstrategies and IT capabilities are developed simultaneously. On the other hand.g customer complaints and non-value added activities).strategies and IT capabilities on LGAs’ service quality performance. The adoption of CF-strategies has increased the amount of non financial information (e. This indicates that these two variables and their interaction. without attention to CF strategies. They suggest that the relationship between CF-strategies and organizational performance is stronger for organization with higher IT capabilities. three hypotheses were developed. one-stop centre and the reduction of processing time has led to faster. process. & Ketchen (2001) who suggest that the synergy between two or more resources will create sustainable competitive advantage.0 Discussion In examining the relationship between CF. This finding is consistent to the argument put forward by Barney. Customers needs would not be fulfilled in time. 1997). Brown. Hui. and critical for problem solving would get choked in the system. This implies that a greater focus by management on CF-strategies requires the use of more relevant information facilitating prompt reaction of the management of LGAs to customers’ queries or complaints and to anticipate customers’ needs..Said. 252 . High level of IT capabilities enables LGAs to perform services with greater speed. LGAs with high level of IT will be able to utilize this enormous amount of information through the efficient processing machinery of IT deployment. & Sambamurthy. more accuracy and more convenient ways for the customer. The findings further offer new practical insights into the moderating role of IT capabilities on the effectiveness of CF-strategies. Introduction of modern IT method/technique of public service delivery introduced by the LGAs such as e-payment. cost savings. prompt and higher level of service quality. IT experience and usage of IT are unlikely to be able to fully manage. The daily traffic of voluminous information necessary to deliver customer services. The finding implies that IT capabilityiesin combination with CF-strategies enhance an organization’s ability to rapidly develop and deploy more innovative customer-focused techniques or processes to enhance performance (Clark. There is an inference that overemphasis by LGAs on ‘economic rationalism’ (i. The empirical results show LGAs’ service quality performance is positively associated with the use of their CF-strategies and also the level of IT capabilities. they positively affect organizational performance. Taylor & Othman 6.

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