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An integrated service recovery system (ISRS): Inﬂuence on knowledge-

intensive business services performance
Article in European Journal of Marketing · May 2013

DOI: 10.1108/03090561311306994
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European Journal of Marketing
An integrated service recovery system (ISRS): Influence on knowledge-intensive business services
performance
María Leticia Santos-Vijande Ana María Díaz-Martín Leticia Suárez-Álvarez Ana Belén del Río-Lanza
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María Leticia Santos-Vijande Ana María Díaz-Martín Leticia Suárez-Álvarez Ana Belén del Río-Lanza, (2013),"An
integrated service recovery system (ISRS)", European Journal of Marketing, Vol. 47 Iss 5/6 pp. 934 - 963
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EJM
47,5/6 An integrated service recovery
system (ISRS)
Influence on knowledge-intensive business
934 services performance
Received 10 November 2010 Marı́a Leticia Santos-Vijande
Departamento de Administración de Empresas,
Revised 23 March 2011

Accepted 31 August 2011 Universidad de Oviedo, Oviedo, Spain
Ana Marı́a Dı́az-Martı́n
Departamento de Financiación e Investigación Comercial,
Universidad Autónoma de Madrid, Madrid, Spain, and
Leticia Suárez-Álvarez and Ana Belén del Rı́o-Lanza
Departamento de Administración de Empresas,
Universidad de Oviedo, Oviedo, Spain
Abstract
Purpose – Appropriate management of service failures involves a complex organizational response
that allows an effective internal and external recovery, learn from mistakes and introduce future
service innovations. Empirical evidence on the organizational recovery practices more suitable to
achieve these objectives, leading to superior performance, is limited. The present work seeks to extend
the existing literature by identifying the potential dimensions that constitute an integrated service
recovery system (ISRS), introducing a strategic, proactive and relational approach to service failure
and recovery management, and by proposing a causal model linking the ISRS with performance.
Design/methodology/approach – The ISRS dimensions and their attributes are derived from an
extensive literature review and suggestions from academics and business experts. Structural
equations modeling is used to test a model linking the ISRS (conceptualized as a second order
construct), with client, employee and business performance indicators, using data from a Spanish
sample of 151 Knowledge-Intensive Business Services (KIBS).
Findings – Results confirm that the firms’ ability to approach service recovery from a strategic,
proactive and relational perspective allows improving performance among clients and employees, that
is, the external and internal recovery to occur, which leads to a superior competitive performance.
Practical implications – The ISRS scale can provide managers with a diagnostic tool to analyze
their recovery practices and to further improve their competitiveness in the long term.
Originality/value – The need to assess the integrative nature of effective service recovery systems
has been claimed theoretically. An empirical study showing the link between comprehensive service
recovery practices and performance was lacking.
Keywords Service failures, Recovery, Business performance, KIBS, Service delivery systems
Paper type Research paper
European Journal of Marketing

Vol. 47 No. 5/6, 2013 The authors wish to thank the EJM anonymous reviewers for their valuable comments on this
pp. 934-963 paper as well as the Spanish Ministry of Science and Innovation for the financial support
q Emerald Group Publishing Limited
0309-0566
provided for this research under the 2008-2011 Call for R&D projects (Project reference number:
DOI 10.1108/03090561311306994 ECO2008-03698/ECON).
1. Introduction An integrated
In the last two decades, service recovery has generated great interest among academics service recovery
and practitioners due to the increasing development of relationship marketing and to
the inevitability of service failures (Hays and Hill, 2001; Miller et al., 2000; Sajtos et al., system
2010; Tax et al., 1988). Prior research on recovery management has mainly focused on
determining how failures, and the subsequent recovery practices developed by service
firms, influence client behavior (Grewal et al., 2009; Reynolds and Harris, 2009; Smith 935
et al., 2009), as well as on the benefits that effective recovery can generate in terms of
intention to re-purchase, employee and client satisfaction, and positive word-of-mouth
(East et al., 2007; La and Kandampully, 2004; Michel et al., 2009).
However, corrective actions do not guarantee that the failure has been completely
dealt with and will not recur (Schoefer and Ennew, 2005; Wirtz and Mattila, 2004). In
fact, recent research warns that the rate of failures has not improved and that service
recovery management still fails too often (Michel et al., 2009).
Hence, since the mid-1990s the literature stresses the need to pay increased attention
to the information on service failures, learn from mistakes, transform such information
into process improvements, and increase our understanding of how recovery affects the
firm’s overall performance in the long term and/or its future relationships with clients
(Hart et al., 1990; Johnston, 2005; Johnston and Michel, 2008; La and Kandampully, 2004;
Lovelock et al., 2009; Michel et al., 2009; Reichheld, 1996; Schibrowsky and Lapidus, 1994;
Slater, 2008; Smith et al., 2009; Spreng et al., 1995; Tax and Brown, 1998). Under this
renewed approach, failure management achieves a strategic consideration since it
involves a profound revision of overall firms operations and the organizational
commitment to proactively prevent failures, efficiently recover and learn from mistakes
and successfully maintain long-term relationships. Thus, failures are dealt with as
opportunities to learn and undertake changes aimed at providing added value for clients,
improving firms’ operations, as well as at attaining competitive advantages.
Accordingly, the main objective of this research is to identify, the management
dimensions (first-order factors) that constitute an integrated service recovery system
(ISRS): a higher-order construct which represents the firms’ ability to anticipate and
prevent failures, react efficiently to recovery needs, maximizing the quality of the
long-term client relationship, and enhance the firm’s organizational learning processes
so as to improve its future provision of services. Additionally, we also test the impact
of the ISRS on business competitiveness using client-related, employee-related, and
overall business performance indicators. In this way, we assess the ISRS’ impact on the
firms’ relationships with their external and internal clients as well as on market and
financial indicators.
The research extends previous findings and seeks to contribute to the marketing
literature in several ways.
First, the ISRS vocation is to allow both internal (referred to employees) and external
recovery (referred to clients) after failures, an aspect that, although reinforced in the
literature, is not considered in previous empirical studies (Johnston and Michel, 2008).
Based in the operations management literature, Smith et al. (2009) validated seven
possible dimensions related with service recovery management, but without considering
the issue of learning from mistakes. Such question is taken into account in the present
investigation, as suggested by these authors. The ISRS conceptualized in this study also
EJM includes external recovery actions addressed to customers extending in this way Smith
47,5/6 et al.’s (2009) research.
Second, the identification of the management dimensions that constitute the ISRS
implies analyzing service firms operations instead of customer perceptions, which have
been by far the more studied. Additionally, previous studies mainly focus on recovery
practices in consumer markets, but service recovery in industrial markets, and more
936 specifically in B2B services, is still an under-researched topic (Gounaris, 2005;
Yanamandram and White, 2006; Jayawardhena, 2010). This research is thus performed
among knowledge-intensive business services (KIBS): private organizations which have
a high degree of professional knowledge and which provide other companies with high
quality industrial services based on this knowledge (Miozzo and Grimshaw, 2005;
Viljamaa et al., 2010). These firms are of particular interest because of their contribution
to growth, innovation, and competitiveness in the service sector (Miles, 2005) and the
strong impact of their activities in their clients’ operations (Murray et al., 2009). The later
factor makes service recovery management especially crucial to KIBS’ long term
competitiveness, due to the strategic nature of the services provided.
Finally, the research also addresses the effect of the ISRS on business
competitiveness. Business performance is evaluated, on the one hand, in terms of
the firms’ increased capacity to generate satisfaction, loyalty and added value among
their internal and external clients. And on the other, in terms of improved results in
financial and market indicators (profits, sales and market share). The exclusive use of
financial and market performance indicators may be a limiting approach in academic
research because it does not reflect other benefits that the organization can achieve as a
consequence of its activity (Storey and Easingwood, 1999) and especially from the
implementation of the ISRS. By investigating how the ISRS contributes to different
types of performance, an aspect that has not been directly addressed in the literature,
we gain a better understanding of service failure management implications. In this
sense, the current article can serve as a basis for future research on service design and
service innovation, two topics included in the ten research priorities focused on the
service science that have been recently identified by the Arizona State University’s
Center for Services Leadership (Ostrom et al., 2010).
The reminder of the paper is organized as follows. First, we review the literature on
service recovery and the managerial implications of developing an integrated service
recovery system. We then set out the causal relationships that constitute the
hypotheses of the research work, aimed at analyzing the effects of using the ISRS in the
business context. The following section presents the methodology of the study carried
out, including a justification of the importance of the KIBS sector, a description of the
process of development of the scale, data collection, and the techniques used in the
empirical analysis. Finally, we discuss the results obtained, the study’s implications
and future lines of research.
2. Literature review
2.1 Service failure and recovery management
Studies in both B2C and B2B contexts provide various set of practices to help
managers achieve effective service recovery (Hart et al., 1990; Johnston and Michel,
2008; La and Kandampully, 2004; Michel et al., 2009; Schibrowsky and Lapidus, 1994;
Smith et al., 2009; Tax and Brown, 1998). Thus, it is necessary to anticipate and
identify the requirements of recovery (Hart et al., 1990; Tax and Brown, 1998), to An integrated
analyze the information obtained from each complaint (Schibrowsky and Lapidus, service recovery
1994; Tax and Brown, 1998; Durvasula et al., 2000; Homburg and Fürst, 2005; González
et al., 2010) and to respond to service failures by acting rapidly (Hart et al., 1990), system
keeping clients informed about the changes or improvements made to the service as a
result of assuming responsibilities (Hart et al., 1990), learning and making the
necessary improvements to the process to avoid future failures (La and Kandampully, 937
2004; Schibrowsky and Lapidus, 1994; Tax and Brown, 1998; Vos et al., 2008), and
training and supporting the employees in their complicated task of dealing with client
complaints and claims (Hart et al., 1990; Johnston and Michel, 2008; Lin, 2010).
These issues were initially addressed as isolated activities. Currently, though, service
recovery is no longer conceived as a set of specific, one-off actions in response to an
unsatisfied consumer, or as an operational mechanism of damage control, but as an
integral part of the service company’s long-term strategy which involves comprehensive
management practices (González et al., 2010; Gruber et al., 2010; Johnston and Michel,
2008; Lovelock et al., 2009; Michel et al., 2009; Smith et al., 2009). An integrated approach
to service recovery gives the organization a new opportunity to maintain dissatisfied
clients, recover employees and learn, and hence to prevent or reduce the likelihood of
future errors (Michel et al., 2009). Under this perspective, service recovery strategies are
defined as all the initiatives carried out by the service provider either to anticipate (Smith
and Bolton, 1998; Smith et al., 1999) or to mitigate possible shortfalls in the firm’s
provision of services. The ISRS should therefore offer the possibility of carrying out
proactive and reactive responses as efficiently as possible.
In this sense, Michel et al.(2009) explain how tensions among the three basic
constituents of service recovery, named customer recovery, process recovery and
employee recovery ( Johnston and Michel, 2008) cause service recovery to fail,
reinforcing that effective recovery management requires an integrated approach.
Similarly, Smith et al. (2009) suggest the need to look at service recovery as an
integrated system and they propose seven “structural dimensions” of effective service
recovery systems. Among these dimensions one refers to failure detection –
“accessibility” –, two are linked to failure analysis – “comprehensiveness” and
“system intensity” – , and the remaining reflect different aspects linked to response to
failures related to customer involvement in the recovery process – “influence” – and
supporting employees – “formality”, “decentralization” and “human intensity”.
In the present work, drawing on the contributions described above, we propose the
existence of three main dimensions or factors underlying the construct we denominate
integrated service recovery system. These are: failure detection, failure analysis, and
response to failure. The response dimension, as shown in Figure 1, comprises four
different initiatives: rapid response, fair outcome, employee empowerment, and
learning– innovation. It is proposed that simultaneously taking into account all these
dimensions the organization can implement the strategic, relational and proactive
focus desirable in service recovery management as well as to meet both the external
and internal service recovery requirements (with clients and employees). Thus, the
ISRS involves firstly obtaining and analyzing service failure information. Failure
detection procedures have a external and internal orientation since the firm tries to
know and/or anticipate any shortcomings related to service provision detected by it
clients and/or employees. As explained later, the failure analysis dimension is the next
EJM necessary step to develop a proactive and strategic approach to failure management.
47,5/6 Failure analysis involves that service shortcomings are recognized collectively, and the
willingness to work to avoid them becomes tangible. Given that the ISRS is a cohesive
system the response shown in the ISRS includes interrelated initiatives for the
organization’s improvement of both external and internal recovery actions. The
training and empowerment of employees, or employee support, aids in the recovery of
938 employees as internal clients, since they develop a better ability to avoid failures and to
take responsibility for service recovery when a failure does happen. It also contributes
to the dissemination of the service failure-related knowledge that employees
accumulate, so that the firm can learn and internally improve its overall future offer.
Externally oriented service recovery practices include a fair and rapid response.
Employee support (lying between the external and internal recovery actions) can also
contribute both to the recovery efforts with the affected clients, who will receive a fairer
and speedier response. The following subsection explains the content of each of these
dimensions in more detail.
2.2 Failure detection

The percentage of formal complaints made by dissatisfied clients is very low,
compared with the total number of services rendered deficiently (Harari, 1992;
Singh, 1990; Tax and Brown, 1998). In these cases firms do not have the option of
recovering from the failure, facing uncontrollable consequences for their image,
long-term relationships, and/or market share. Thus, as the first essential step in any
recovery system, firms need to develop specific procedures to know immediately
whether there have been shortcomings in service provision and/or whether the
clients or the employees anticipate any potential problem (Colgate and Norris, 2001;
Johnston and Michel, 2008; La and Kandampully, 2004; Michel et al., 2009; Tax and
Brown, 1998).
The user of the service must perceive that the communication channels are simple
and accessible; otherwise there will be a greater likelihood of losing the feedback. Also,
management must have timely availability to the data generated as an aid in taking the
opportune decisions. We believe that such practices, with a clear external focus, allow
the recovery process to be anticipated even before or at least immediately after the
failure occurs, as well as to promptly ascertain the client’s recovery needs, if failure
occurs, and facilitate their instant fulfillment. Smith et al. (2009) named failure
identification as “accessibility”, although these authors limit this dimension to
capturing the voice of the customer when the failure occurs.
Figure 1.
Dimensions of an integral
service recovery system
2.3 Failure analysis An integrated
Failure detection presupposes the existence of an organizational culture centered on service recovery
creating customer value understood as a dynamic concept (Parasuraman, 1997), which
in turn requires a continuous effort of adaptation and improvement by the organization system
(Slater, 1997; Woodruff, 1997). Accordingly, given the potential complexity of the
organizational response necessary to achieve service recovery and value creation, it is
essential to share and analyze information on service problems and failures at all levels 939
so as to foster the joint interpretation of its implications, reach a consensus on service
improvement priorities ( Johnston and Clark, 2008), and achieve long-term
improvements in performance (Tax and Brown, 1998). Johnston and Michel (2008)
include the analysis and interpretation of information on failures within the so-called
“process recovery”, and Smith et al. (2009) use the “system intensity” and
“comprehensiveness” dimensions as a measure of the magnitude of the resources
devoted to monitoring and controlling failures and gathering information about all
potential recovery activities. We therefore believe that the ISRS should include the
analysis and collective assessment of information available on the failure in order to
establish proactively the necessary measures for improvement and to respond as
efficiently as possible when failures do occur.
If the organization’s usual practice includes a critical review of service operations,
conducted at all levels in a spirit of improvement, we believe that it will contribute
primarily to creating a climate in which employees do not feel threatened when they
identify and report service failures. This type of behavior has been called “see no evil,
hear no evil, speak no evil” (Homburg and Fürst, 2005). In this way, employees, by
suppressing information about failures, neutralize their perceived potential threats to
their self-esteem, reputation, autonomy, resources, and job security (Homburg and
Fürst, 2007; Luria et al., 2010). Thus, a willingness of workers and managers to admit
mistakes and discuss their implications it is deemed that will allow internal service
recovery (Michel et al., 2009) and also foster the possibility of both proactively and
reactively improving the external service recovery.
2.4 Response
In the present work response to failures has a twofold orientation. One is external,
targeted at the consumer, and primarily related to front-office corrective actions that
seek to maintain or even increase client satisfaction and avoid damaging the intention
to repurchase (Kau and Loh, 2006). The other is internal, and corresponds to back-office
operations that seek to transform the knowledge generated within the firm into service
improvements, innovation and allow employees’ recovery (La and Kandampully, 2004).
With respect to front-office corrective actions, among the recovery practices most
studied in the literature are the speed of the response, the suitability of the final
outcome of the service, and the interactive process involved in resolving the problem
(McCollough et al., 2000; Tax and Brown, 1998). In light of this evidence, we propose
breaking the consumer-oriented response down into three factors: rapid response, fair
outcome, and employee support. Figure 1 shows employee support as lying between
the external and internal orientation. The reason is that this dimension contributes to
both customer recovery and employee recovery, with the latter having a positive effect
on the capacity to generate knowledge from failures. These three dimensions are
closely related to the concept of perceived justice (rapid response is related to process
EJM justice, fair outcome to distributive justice, and employee support to interactive justice).
47,5/6 In the present work, however, we do not deal with the measurement of consumer
perceived justice, for which there already exist validated scales, but with evaluating
whether or not the firm provides the means with which to give a fair overall response.
Back-office response to service failures is also represented by the learning-innovation
construct.
940 2.4.1 Rapid response. Several researches report a decline in clients’ satisfaction and
loyalty when the response to their complaints is perceived as too slow (Spreng et al.,
1995; Wirtz and Bateson, 1999), as well as that service users are very frustrated when
recovery procedures involve long and cumbersome processes (Tax and Brown, 1998).
In this sense, La and Kandampully (2004) reinforce that recovery primarily demands
an immediate solution, and that the proximity in time between the problem and its
recovery can be crucial to the service experience. The study of Gross et al. (2007), on
4,000 clients of nearly 600 service firms, also confirms that most of the respondents still
believe that service firms are slow to respond and fix recurring problems. Similarly,
Rı́o-Lanza et al. (2009) find that, in the cell-phone sector, users invariably want the
recovery to focus on restoring service as soon as possible.
The ISRS must therefore consider the speed with which the solution is offered to the
consumer as a key activity in its management of failures. As noted by Hart et al. (1990)
twenty years ago, rapid identification of a problem, even before the client is aware of it,
will only be fruitful if the firm also responds rapidly; if possible by the first person who
is contacted (Boshoff, 1997).
2.4.2 Fair outcome. According to Tax et al. (1988), as well as speed in the recovery
process, consumers expect compensation for the damages the failure may have caused
them and/or the costs they incurred to obtain a solution. In this sense, La and
Kandampully (2004) propose that the second crucial recovery action is to compensate
the clients and thank them for their understanding.
Such compensation may be both tangible and psychological (Webster and
Sundaram, 1998). Thus, firms can assign tangible resources to correct problems and
restore the interchange with the client by returning the money, replacing the service, or
offering discounts on a future purchase (Martinez-Tur et al., 2001). Psychological
efforts to minimize the problem involve showing concern for the client’s needs, desires,
and concerns. Normally, the client will respond more favorably to tangible efforts or to
a combination of psychological and tangible efforts (Webster and Sundaram, 1998). In
this sense, we believe that the ISRS should include explicit recognition of the failures
committed, the design of solutions tailored to user expectations, and the fulfillment of
the acquired rectification commitments.
2.4.3 Employee support. A basic principle of quality management is that quality is
the responsibility of all members of the organization. Employees therefore need to have
minimum levels of responsibility and authority to detect and resolve any
quality-related problem. This premise is especially applicable to front-line
employees. It is essential to empower them to prevent failures and fix them rapidly
if they should occur (DeWitt and Brady, 2003). The positive effects of the allocation of
service recovery responsibilities to the employees have been demonstrated in several
studies (De Jong and De Ruyter, 2004; Miller et al., 2000). Responsibility has to be
backed up with appropriate training in how to recover the service (Tax and Brown,
1998), which encourages employees in their work and gives them confidence to use the An integrated
discretion they have received appropriately. service recovery
For some authors, however, empowering employees to fix problems in real time
may lead to different service recovery solutions for any given case depending on which system
person is dealing with it, hence diminishing recovery justice (Michel et al., 2009). From
this standpoint, it would be advisable to set out clearly formalized service recovery
policies and procedures, even if this is to the detriment of the employee’s 941
decision-making capacity (Smith et al., 2009). Formalized procedures will also avoid
managers’ neglecting to give the employees the support and attention they need in
practice to take effective responsibility for customer service recovery (Schneider and
Bowen, 1995).
This aspect is less of a problem, however, in professional services. Since the
employees are highly qualified, and usually experienced, professionals, they naturally
have the autonomy and authority to decide how to solve client problems. In other
words, given a failure in the provision of the service, the judgment of the professional
may be the only valid criterion to determine how to resolve conflicts in rendering the
service. For this reason, in this type of firm it is common to find sector-wide ethical
codes of behavior to prevent opportunism in the necessary autonomy of professional
practice (Løwendahl, 2005).
The ISRS should therefore include a factor referring to the necessary combination of
employee empowerment and training to develop successful recovery strategies. This
dimension should contribute to employee satisfaction after the failure since it is the
employee who can make decisions to rectify the process and to compensate the client
immediately if necessary, and thus alleviate the tensions that arise from dealing with
service recovery. In turn, all this can strengthen the employees’ collaboration in the
processes of detection and analysis of failures.
2.4.4 Learning and innovation. While correcting mistakes and ensuring the loyalty
of the service user by means of rapid and fair compensation and appropriate treatment
are important, the changes necessary to allow the organization to prevent future
failures, to minimize the risk of problems, and to reduce the costs of any lack of quality,
cannot be overlooked.
As observed by Nonaka (1991), successful firms are those that consistently create
new knowledge, disseminate it throughout the organization, and embody it rapidly in
new technologies and products. Knowledge can come from the field of technology or
from the market (Slater, 2008) and, accordingly, the reasons for client dissatisfaction
constitute experiences from which the firm can learn (Reichheld, 1996) and service
failures need to be seen as opportunities for learning (Nevis et al., 1995). A firm’s ability
to learn from failures, and thereby offer improved or completely new services, can have
an influence on its long-term results (La and Kandampully, 2004; Lovelock et al., 2009;
Slater, 2008; Vos et al., 2008).
When service organizations achieve effective feedback from their clients’ service
failure perceptions and collectively distribute and interpret this information, learning
closes the loop to enable the system improvement and the development of new
innovative services based on the active incorporation of relevant information into the
design process (Alam, 2006).
The recovery system designed by Smith et al. (2009) is more internally focused than
the ISRS proposal since the only aspect related to the external response included is the
EJM “influence dimension”, defined as the ability of the system to adapt to different
47,5/6 customers’ recovery needs. Also, Smith et al. (2009) state that the “intensity” of the
recovery system – the ways in which data are gathered, maintained, and utilized –
closes the loop to enable learning and system improvement, but their service recovery
system does not explicitly take into account the learning and innovation arising from
the management of failures.
942
3. ISRS impact on performance
To inquire into the relevance of firms’ ability to manage service recovery from a
strategic comprehensive approach, we posited six research hypotheses linking the

ISRS with two types of organizational outcomes: client-related indicators (both internal
and external) and measures of the firm’s overall performance (both financial and
market performance).
Client performance refers to the results of the relationships that firms have with
their customers in a defined period. In this respect, various studies have confirmed the
positive impact that effective service recovery has on client satisfaction and loyalty,
and on corporate image (Bou-Llusar et al., 2009; González et al., 2010; Patterson et al.,
2006). Maxham and Netemeyer (2003) note a positive relationship between recovery
satisfaction and overall satisfaction and purchase intent and Ha and Jang (2009) also
found that perceived justice brought about through service recovery efforts has a
positive impact on customers’ revisit intention. Indeed, effective service recovery is a
transparent form of finally satisfying clients who are unhappy about a service failure
and retaining or gaining their loyalty (Boshoff, 1997; Boshoff and Leong, 1998;
Durvasula et al., 2000; McCollough et al., 2000; Michel, 2001; Wirtz and Mattila, 2004).
Customers of firms that implement an integrated service recovery system should
experience fewer failures and more effective solutions to their problems, which in turn
should enhance customer satisfaction and retention (Yoo et al., 2006), resulting in the
firm having a better image in the market (Mittal et al., 2008). Thus, with efficient and
effective management of service failures through the ISRS the firm can increase the
added value it provides its clients (Cheng et al., 2008; Sajtos et al., 2010; Smith and
Karwan, 2010). Given these arguments we hypothesize that:
H1. A firm’s development of the ISRS positively affects client performance.
The ISRS is also designed to gather information from employees. The aim is to
anticipate failures and to analyze collectively the available data (Johnston and Michel,
2008). These practices allow employees to acknowledge internally the existence of
failures when they occur, and to avoid the stresses in the performance of their duties
that might arise from inefficient processes and conflict with clients and/or
management (Michel et al., 2009). In this sense, frontline service employees are the
ones who usually deal with service failure situations and these experiences lead to a
high level of stress and job dissatisfaction. As frontline personnel are seldom provided
with the autonomy or resources to handle external service recovery, they are likely to
experience a sense of helplessness derived from their inability to control outcomes
(Bowen and Johnston, 1999). Similarly, the response to failures is translated internally
into the learning and innovation needed to improve services, together with the rapid
and fair response to the client. These initiatives are accompanied by employee training
to ensure that they can be appropriately implemented. Consequently, the development
of an ISRS helps employees to better execute their job and it contributes to increase the An integrated
level of satisfaction with their work.
In sum, although previous empirical evidences on this relationship are limited (Lin,
service recovery
2010), the ISRS contributes to better communication with employees, to their greater system
satisfaction with their duties and a consequent lower personnel turnover, as well as to
improving their ability to meet the changing needs of the firm’s clients. The second
hypothesis is therefore: 943
H2. A firm’s development of the ISRS positively affects employee performance.
In the services context, the high level of interaction that service users have with the
firm’s staff conditions their value judgments on the provision of the service to the
treatment they receive from employees (Zeithaml et al., 2002). During the service
encounter, customers base their impressions of the firm on the performance of
customer contact personnel (Parasuraman et al., 1985). As a result of this scrutiny
of contact employees by customers, it has been shown that the attitudes and behaviors
of customer contact employees influence customers’ perceptions of the service they
receive (Foster and Cadogan, 2000). According to Bowen and Schneider (1985)
employees not only deliver and create the service, but are actually part of the service in
the customer’s view. In this sense, employees or internal clients’ performance constitute
one of the determinant factors of the service firms’ results with external clients (Foster
and Cadogan, 2000).
The consistent and satisfactory performance of front-line employees will only be
possible if they feel closely involved with the firm, have a strong service orientation,
are satisfied with their work, have appropriate upward communication systems in the
firm’s hierarchy, and are allowed discretion in making decisions (Ahmed et al., 2003;
Gounaris, 2006). González et al. (2010) found that organizations that engage in tracking
service failures, monitoring recovery efforts and providing feedback to employees
achieve greater customer performance. All this aspects are considered among the
employees’ performance indicators and, consequently, the third hypothesis is
formulated as follows:
H3. Employee-related performance positively affects client performance.
Heskett et al. (1997) proposed a theoretical model in which employee job satisfaction
begins a chain of benefits leading to quality, productivity, service value, customer
satisfaction and loyalty, which in turn leads to profits and growth. Additionally,
previous research has reported that increases in retention rates lead to increases in
profits (Reichheld and Sasser, 1990; Gupta et al., 2004). This means that enhanced client
performance measures of satisfaction, loyalty and perceived value allow the firm to
achieve better business performance (increased sales, market share, benefits, etc.). This
direct positive effect has been observed in various studies focused on client loyalty and
its consequences for organizations (González et al., 2010; Hunt, 1997; Zeithaml et al.,
1996; Lee et al., 2008). Business performance improves because the clients’ greater
satisfaction and loyalty makes it possible to increase sales and market share and
reduce costs as a result of improvements in efficiency and effectiveness, thereby
obtaining positive word-of-mouth and, a greater preponderance relative to competitors.
Thus the fourth research hypothesis is that:
H4. Client-related performance positively affects business performance.
EJM The improvement of the firm’s internal working climate and employee satisfaction also
47,5/6 favor business performance in service firms. Thus, reduced staff turnover rates
diminish the costs of recruiting and training new staff. Moreover, greater satisfaction
and loyalty of a firm’s internal clients allows the service provided to be of greater value
and quality (Lings, 2004). A result will be increased external client trust in and loyalty
to the firm, redounding positively on market share and sales (Lings, 2004; Little and
944 Dean, 2006; Malhotra and Mukherjee, 2004). The fifth hypothesis is therefore:
H5. Employee’s performance positively affects business performance.
Finally, a firm’s financial and market results can also be favored by a better holistic
service recovery system which will contribute to preventing future costs of failures,
and their associated negative word-of-mouth that could undermine market share and
sales. In a recent study conducted by Smith and Karwan (2010), firms that exhibited a
more advanced and integrated recovery system demonstrated superior performance.
We therefore posit the sixth hypothesis of the conceptual model depicted in Figure 2:
H6. The development of the ISRS allows improving the firm’s performance.
4. Empirical study: methods

4.1 Scope of the study and sample characteristics
The target population of the empirical study was extracted from the Sistema de
Análisis de Balances Ibéricos (SABI) database. SABI is a database of Spanish and
Portuguese companies which provides access to general information about more than
480,000 Spanish companies and 40,000 Portuguese companies. The NACE codes
considered to identify KIBS sectors are those used by the European Monitor Centre of
Change (EMCC) (2005)[1]: computer and related activities (72), research and
development (73), other business activities (74). We randomly selected a stratified
population of 1,587 Spanish firms with more than ten employees. First, each of these
firms was contacted by telephone in order to verify their contact information, their
willingness to participate in academic studies, and the accuracy of the data referring to
the key informant. This procedure allowed us to more specifically delimit the target
population, since it was found that several of the firms had ceased activity due to the
current crisis, and others had reduced their employee numbers below the threshold we
had set.
This led to 1,236 surveys being sent out by post, e-mail, or fax. General managers
and CEOs were identified a priori as key informants, because they are expected to have
Figure 2.
Proposed causal model
an adequate knowledge of all the firm’s strategies and performance (Thorpe and An integrated
Morgan, 2007). service recovery
The sample finally obtained comprised 151 firms (response rate of 11.5 percent). Of
these, 21.85 percent belonged to the computer and related service sector (code 72), system
21.19 percent to business management, legal, and accounting consultancies (codes
74.11, 74.12, and 74.14), 28.49 percent to engineering, architecture, and environment
consultancies (code 74.20), 9.27 percent to market research, advertising, and personnel 945
selection and training consultancies (codes 74.13, 74.4, and 74.5), and 19.21 percent to
other business activities (code 74.8). The absence of firms in the research and
development sector (code 73) is due to the low weight of this sector in the Spanish
economy in general.
The responses of early and late waves of returned surveys were compared to
provide additional support of non-response bias (Lambert and Harrington, 1990). The
final sample was split into two (92 and 59 surveys), depending on the dates the
responses were received; t-tests performed on these two groups yielded no statistically
significant differences (at 99 percent confidence interval). These results suggest that
non-response may not be a problem.
4.2 Development of the ISRS scale

In accordance with the usual recommendations (Churchill, 1979; Menor and Roth,
2007), the ISRS measurement scale was developed in two main stages. Initially, we
prepared a list of 47 items based on a literature review and also on in-depth interviews
with a panel of nine academic and professional experts in the field of quality
management, service failure and complaints management. Although the development
of the scale was based on previous research, specific attributes were proposed for this
study – the first attempt to empirically asses the integrative nature of service recovery
was published during the accomplishment of our data collection (Smith et al., 2009).
After checking for and removing duplicates, the remaining 36 items were assigned,
according to the researchers’ criterion, to the different dimensions of the ISRS proposed
in the present study. The researchers pre-tested the resulting measurement instrument
by means of personal interviews with 14 firms. The interviewees have considerable
managerial experience to examine the questions and they provided a valuable opinion
about: the suitability of the ISRS concept and its different dimensions to the reality of
the sector under study, the correspondence of the items with the proposed dimensions
of the ISRS, and their readability and correct understanding. As a result, several items
were re-drafted to facilitate their interpretation, to avoid confusion and thus prevent
research bias, and seven of them, considered confusing and/or redundant, were
eliminated. This process left a final list of 29 items deemed suitable to measure the
dimensions of the ISRS (see Appendix). The development of the items reinforced by an
extensive literature review and the detailed evaluations by academics and practitioners
try to ensure that the ISRS scale addresses all issues relevant to the content domain
under study and that, therefore, the ISRS constructs have content validity. Following
Ahire and O’Shaughnessy (1998), a seven-point Likert scale was used for all items to
ensure higher statistical variability among survey responses. Thus, for each ISRS
criterion, respondents evaluated how well the different statements described their
companies practices on a scale from 1 (“strongly disagree”) to 7 (“strongly agree”).
EJM The following step was to analyze the internal consistency of the dimensions of the
47,5/6 ISRS scale by means of Cronbach’s alpha. This suggested eliminating three items (in
italics in the Appendix). Then the reliability and the validity of the measurement scale
were tested by means of a confirmatory factor analysis (CFA). The results of this
analysis will be presented in section 4.
946 4.3 Measures of performance used in the study

Performance was evaluated against the firms’ main competitors to introduce an
explicit reference to the attainment of competitive advantages (Weerawardena et al.,
2006). The reference to the major competitor in the industry allows both minimizing the
industry effect and decreasing the response’s subjectivity establishing a point of

reference to make the comparison (Kraft, 1990). While perceptual judgments have a
potential for self-reporting bias, prior research has also shown that perceived
performance can be a reasonable substitute for objective measures and that managers
prefer to avoid offering precise quantitative data (Taylor and Wright, 2003). In all
cases, responses were also given on a seven-point Likert scale ranging from
1 ¼ completely disagree to 7 ¼ totally agree.
Client performance measurement has to rely on an adequate number client
performance indicators, which can be defined as customer-related monetary or
non-monetary criteria. In this study, the client performance scale includes the clients’
level of satisfaction (Clienperf1) (Gounaris, 2005; Hooley et al., 2005), loyalty and
staying with the firm (Clienperf2) (Hooley et al., 2005; Lings, 2004; Zahay and Griffin,
2004), the added value provided by the service (Clienperf3) (Vorhies and Morgan, 2005),
the level of communication attained (Clienperf4), the reduction in the number of
complaints and claims (Clienperf5), improvement in the clients’ image of the firm
(Clienperf6), and increased retention of the market’s best clients (Clienperf7) (Lings,
2004).
The employee performance scale relates to the internal environment in the firm. It
includes aspects of employee satisfaction (Empperf1) (Lings, 2004; Lings and Greenley,
2005) and communication among employees (Empperf2) (Ahmed and Rafiq, 2003),
reduced absenteeism (Empperf3) (Lings, 2004), employees’ ability to cope with change
(Empperf4) (Varey and Lewis, 1999), and the workforce’s service orientation
(Empperf5) (Ahmed and Rafiq, 2003).
The business performance scale includes items commonly referred to in the
literature (Theoharakis and Hooley, 2003; Tippins and Sohi, 2003; Vorhies and Morgan,
2005; Weerawardena et al., 2006): market-related indicators such as sales (Busperf1)
and market share (Busperf2) and financial measures as the firm’s benefits (Busperf3).
5. Data analysis and results

With the twofold aim of verifying the proposed factorial structure of the ISRS and of
checking the reliability and validity of the scales used in the study, we followed the
sequence of procedures described below.
5.1 Validation of the ISRS scale

Before conducting CFA, the set of 26 attributes comprising the different measurement
scales conforming the ISRS construct were subjected to an exploratory factor analysis.
A varimax rotated factor analysis using the eigen value-greater-than-one criterion
revealed six distinct factors that accounted for 74.30 percent of the variance and An integrated
provided six distinct factors. The scales were tested for normality and outliers using service recovery
and the Bartlett test of sphericity. For the theoretical constructs in this study, the
Kaiser-Meyer-Olkin (KMO) measure of sampling adequacy was 0.90 and the Bartlett system
test of sphericity was 3811.75 with a significance level of p , 0.0001. These numbers
suggest the data could be reliably tested using factor analysis.
We subsequently performed several confirmatory factor analyses, using the 947
program EQS version 6.1 for Windows, and the maximum likelihood estimation
method. In the first analysis, we studied the correlation of the six dimensions that
constitute the ISRS in order to determine their convergent and discriminant validities.
These results confirmed the convergent validity of the different dimensions since the
standardized lambda parameters relating each observed variable with its
corresponding latent variable ranged between 0.62 and 0.92, and were significant in
all cases at a 95 percent confidence level (x2 S-B (284) ¼ 493.642, p , 0.000,
BBNNFI ¼ 0.900, CFI ¼ 0.911, IFI ¼ 0.903, RMSEA ¼ 0.069). Construct reliability
was again evaluated using estimated model parameters. Each construct manifests a
composite reliability and an average variance extracted (AVE) greater than the
recommended threshold values of 0.6 and 0.5 respectively. In addition, the discriminant
validity was confirmed since for any pair of factors their correlation was less than the
square root of their respective AVE (Fornell and Larcker, 1981).
Then, in view of the theoretical existence of a concept underlying the first-order
factors rapid response, fair outcome, employee empowerment, and learning-innovation,
we performed a second-order confirmatory factorial analysis to determine whether these
dimensions indeed converged onto a single latent factor denominated response. The
results confirmed the theoretical indication: the standardized lambda values were
between 0.61 and 0.84, and were significant in all cases at a 95 percent confidence level,
and the goodness-of-fit indices were satisfactory (x2 S-B (116) ¼ 229.527, p , 0.000,
BBNNFI ¼ 0.902, CFI ¼ 0.926, IFI ¼ 0.908, RMSEA ¼ 0.070). The composite reliability
index and the AVE of this construct are also above the recommended threshold values.
The next phase of validating the ISRS scale was to determine the existence of an
underlying factor for the three major concepts considered in the ISRS: failure detection,
failure analysis, and response. In this study the ISRS is conceptualized as a
three-dimensional second-order reflective measure. This decision is primarily based on
theoretical considerations regarding the causal priority between the ISRS and its
indicators (Diamantopoulos and Winklhofer, 2001); that is, we understand that the true
existence of a service recovery system involves the simultaneous development and
implementation of the basic ISRS dimensions: failure analysis, detection and response.
That is to say that the ISRS causes the detection, analysis and response to service
failures and that this three basic dimensions are expected to covariate if the ISRS value
varies (Jarvis et al., 2003). Therefore, our test of the second-order structure assumes
that the three dimensions are different forms manifested by the ISRS. Likewise, these
three dimensions are explained by their respective observable indicators. This view
agrees with the taxonomy of reflective multidimensional constructs by Edwards
(2001), and has been labeled as “superordinate construct” (Edwards, 2001, p. 145).
The ISRS can also be considered as an organizational process. The literature
provides some examples of organizational processes measured either as a second-order
formative construct (Reinartz et al., 2004) or a second-order reflective construct
EJM (Tippins and Sohi, 2003), depending on the conceptualization proposed by the authors.
47,5/6 However, in the service recovery literature previous measures such as Smith et al.
(2009, p. 177) also conceptualize a recovery system as a second order reflective
construct: “the literature and anecdotal information consistently imply the existence of
a second-order construct (i.e. an overall, integrated approach to service recovery)”.
The rest of the paper takes into account the methodological procedures for the
948 specification and estimation of models with multidimensional constructs suggested by
Edwards (2001). As the ISRS is considered to be a reflective measurement model its
indicators are expected to have positive intercorrelations. This can be seen in Table I,
which shows the correlation matrix, means, standard deviations, and Cronbach’s alpha
coefficients for the latent variables of the study. Also, we checked the existence of
convergent and discriminant validity among the aforementioned three constructs. To
do so we used the means of the response dimensions, in order to avoid violating the
ratio of sample size to number of parameters (Jöreskog and Sörbom, 1995). Tables II
and III show that the ISRS dimensions are highly intercorrelated, they have good
reliability indicators and their AVEs are always above 0.5. The evaluation of the
second-order factor (Tables II and III) provides satisfactory goodness-of-fit indices
which show that a latent factor under lays the detection, analysis and response
dimensions: the ISRS[2]. Therefore, the scale proposed in the present study is thus
reliable and valid, fulfilling the initial objective.
To reinforce the reflective nature of the second order factor it can be also considered
that the positive intercorrelations among the reflective indicators of ISRS allow
assessing empirically ISRS’s reliability with the help of Cronbach’s alpha (CA ¼ 0.873),
average variance extracted (AVE ¼ 0.660), and composite reliability (CR ¼ 0.852).
These measures of reliability of ISRS “are based in the assumptions of internal
consistency [. . .] they are inappropriate for formative indicators, where there is no
theoretical assumption made about inter-item correlation” (Coltman et al., 2008, p. 1253).
5.2 Analysis of the proposed causal model

Prior to testing the causal model, it was necessary to verify the adequacy of the
measurement model. To this end, we assessed the reliability and validity of the scales
used in measuring the model’s constructs.
The results are presented in Table IV. The convergent validity of each of the
constructs is positively tested as well as the reliability of the scales since the composite
reliability and the AVE indices surpass the recommended thresholds (Bagozzi and Yi,
1988). The discriminant validity was also confirmed since for any pair of concepts the
correlation was less than the square root of the respective AVEs (Fornell and Larcker,
1981). No items were deleted in these procedures.
Mean SD Detection Analysis Response

Table I. Detection 4.90 1.57 0.89
Validation of the ISRS Analysis 4.77 1.37 0.56 0.91
scale: correlations, means, Response 5.76 0.76 0.49 0.69 0.81
standard deviations, and
Cronbach’s alpha Notes: SD ¼ Standard deviations; Cronbach’s alpha coefficients are shown in italics on the diagonal.
coefficients Correlations are shown below the diagonal
An integrated
Dimension
Standardized Composite Average service recovery
lambda reliability (CR) variance system
Variables parameters t-values index extracted AVE Correlations
Detection (F1) 0.90 0.65

Detec1 0.67 8.92 949
Detec2 0.84 17.04
Detec3 0.90 16.81
Detec4 0.88 15.57
Detec5 0.69 8.18 F1-F2 0.59

Analysis (F2) 0.91 0.72
Anal1 0.78 11.30 F1-F3 0.53
Anal2 0.86 11.49
Anal3 0.89 13.90
Anal4 0.85 13.29 F2-F3 0.61
Response (F3) 0.81 0.51
Rapid response 0.71 7.24
Fair outcome 0.73 10.12
Employee support 0.61 6.92 Table II.
Learning – Validation of the ISRS
Innovation 0.80 11.76 scale: reliability and
2
validity of the dimensions
Notes: x S-B (62)=135.15 ( p , 0.000); BBNNFI=0.91; CFI=0.92; IFI=0.91; RMSEA=0.07 of the ISRS scale
Second-order factor Dimensions Standardized lambda parameters t-values Reliability
ISRS Detection (F1) 0.67 5.24 CR ¼ 0.85 Table III.

Analysis (F2) 0.85 10.20 Validation of the ISRS
Response (F3) 0.90 7.99 AVE ¼ 0.66 scale: second-order factor:
definition of the ISRS
2
Notes: x S-B (63)=138.85 ( p , 0.000); BBNNFI=0.90; CFI=0.92; IFI=0.906; RMSEA=0.07 scale
Additionally, the potential for common method bias was assessed at this stage
(Podsakoff et al., 2003) using the Harman’s (1967) single factor approach. Again a
varimax rotated factor analysis including the ISRS dimensions and the results items
revealed four distinct factors that accounted for 75.1 percent of the variance. The first
factor captured only 24 percent of the variance in the data. Since a single factor did not
emerge and the first factor did not account for most of the variance, we concluded that
common method variance might not be an issue.
Also, as the ISRS is considered a reflective higher-order measure “it is required that
the indicators have a similar (positive/negative, significant/non-significant)
relationship with the antecedents and consequences of the construct” (Coltman et al.,
2008, p. 1254). Specifically, when the dimensions of ISRS: analysis, detection and
response, were included each separately in the structural model specified in the study
the causal relationships confirmed remained the same. The fit indices of the models
were also satisfactory. This approach allows us to establish ISRS’s criterion and
nomological validity.
EJM
Dimension
47,5/6 Average
Standardized Composite variance
lambda reliability extracted
Variables parameters t-values index (AVE) Correlations
950 ISRS (F1 second-order factor) 0.83 0.73

Detection 0.64
Analysis 0.89
Response/action 0.99
Client performance (F2) 0.92 0.61

Clienperf1 0.84 11.18 F1-F2 0.67
Clienperf2 0.77 9.41
Clienperf3 0.80 11.62 F1-F3 0.61
Clienperf5 0.76 13.32 F1-F4 0.38
Clienperf7 0.76 10.98 F2-F3 0.62
Employee Performance (F3) 0.86 0.54
Empperf1 0.89 12.37
Empperf2 0.80 11.07 F2-F4 0.58
Empperf3 0.72 10.80
Empperf4 0.86 11.77 F3-F4 0.50
Empperf5 0.75 8.96
Business Performance (F4) 0.92 0.79
Busperf1 0.95 14.36
Busperf2 0.86 11.01
Table IV. Busperf3 0.86 11.88
Evaluation of the
measurement model Notes: x2 S-B (335) ¼ 458.89 ( p , 0.000), BBNNFI ¼ 0.94, CFI ¼ 0.95, IFI ¼ 0.93, RMSEA ¼ 0.05
After determining the adequacy of the measurement model, we proceeded to test the
research hypotheses. Table V shows the results together with the goodness-of-fit indices.
Results indicate that the ISRS has a direct positive influence on client performance (H1)
and employee performance (H2), and an indirect positive influence on business results by
means of client performance (H4). Results also show that employee performance has a
direct positive influence on client results (H3). However, H5 and H6 are not supported;
neither the ISRS nor employee performance exert a direct effect on the firms’ performance.
These findings will be discussed in the following section.
Paths specified Standardized coefficient (t-value)
H1. ISRS – Client Performance (þ) 0.40 (3.47)

H2. ISRS – Employee Performance (þ) 0.72 (7.25)
H3. Employee Performance – Client Performance (þ) 0.49 (4.61)
H4. Client Performance – Business Performance (þ ) 0.65 (4.26)
H5. Employee Performance – Business Performance (þ ) 0.07 (0.38)
Table V. H6. ISRS – Business Performance (þ) 2 0.15 (2 0.69)
Results of the test of the
causal model Notes: x2 S-B (343)=558.83 ( p , 0.000), BBNNFI=0.94, CFI=0.94, IFI=0.92, RMSEA=0.07
The research model is multiple-step multiple mediator model since two mediators are An integrated
considered in the relationship between the ISRS and business performance and also a service recovery
mediator (employee performance) is allowed to causally affect other mediator (client
performance). In this context, the Sobel test (Sobel, 1982, 1986) has been used to system
statistically test for the relevant mediation effects following the procedures described
by Preacher and Hayes (2008) and Shrout and Bolger (2002). Table VI shows the results
of these analyses as well as the direct, indirect and total effects observable in the 951
model’s significant paths.
The Sobel test results confirm that client performance and employee performance
significantly mediate the influence of the ISRS on business performance exerting a
total indirect effect of 0.492. In fact, these variables act as pure mediators since the
relationship between the ISRS and business performance is not significant. Also the
ISRS effect on client performance is reinforced through employee performance exerting
a combined total effect of 0.759. Employee performance does not significantly affect
business performance but it does have an indirect effect on the latter through client
performance (0.318).
6. Conclusions, limitations and future research lines

6.1 Theoretical implications
For years, service recovery has been seen by academics and managers as an essentially
operational matter, the main focus being on isolated corrective actions and their impact
on the behavior of current clients. In the last two decades, several authors have
theoretically suggested the need to consider service recovery as a comprehensive set of
management practices that allow firms to perform the recovery procedures in a
proactive, relational, and ultimately strategic manner. Thus, long-term
competitiveness requires service firms to incorporate a strategic approach to failures
that allows learning, the improvement of the quality of services and the satisfaction
and performance of employees; always with the ultimately objective of creating and
delivering value to current and future clients.
The present work contributes to a holistic view of service recovery and it reinforces
the advisability of considering service recovery as a comprehensive management
system which provides the firm not only with procedures to recover from failures, but
also with an invaluable way of learning. The study attempts to provide an instrument
Direct effect (DE) Sobel Sign. level Total

(t-value) Indirect effects (IE) z value (two-tailed) effects
ISRS-business 20.147 (2 0.693) H1 *H4 ¼ 0.26 2.18 0.03 0.49

performance H2 *H3 *H4 ¼ 0.23 2.20 0.03
Total IE ¼ 0.49
ISRS-client 0.404 (3.475) H2 *H3 ¼ 0.36 4.00 0.00 0.76
performance Total IE ¼ 0.36
Employee 0.072 (0.385) H3 *H4 ¼ 0.32 2.38 0.02 0.32 Table VI.
performance- Total IE ¼ 0.32 Direct, indirect and total
business effects in the causal
performance model
EJM with which to analyze whether service firms leverage the information about failures to
47,5/6 improve customer and employee recovery, and to learn and innovate, or, conversely,
whether that information is underused and confined to isolation in one department or
specific area of the firm, leading to an approach to service recovery that is reactive, and
hence operational and transactional.
Another theoretical contribution of this research is that we offer insights into the
952 specifics of B2B service recovery and its influence on business performance. Most
previous studies related to service failure and recovery strategies focus on B2C
markets and findings in industrial settings adopting the provider’s perspective are still
scarce. A few attempts have been made to extend the B2C approach to B2B markets,
although not always related to service sectors: in Smith et al.’s (2009) study business
services accounted only for 20 percent of the sample size and no specific service type
was predominant; González et al. (2010) analyzed data from both manufacturing and
services firms’ samples; Chou et al. (2009) examine manufacturing companies; other
researchers, such as Lockshin and McDougall (1998), Durvasula et al. (2000) and
Jayawardhena (2010), adopt the buying firm point-of-view; finally, Homburg and Fürst
(2005) and Gruber et al. (2010) helped enrich the existing limited stock of literature on
service failure in B2B relationships, but their investigation deals with complaint
management. Therefore, our findings expand the knowledge on service recovery
management in B2B services and, specifically, they contribute to the growth of the
literature stream pertaining to KIBS. These firms are a major source of innovation
transfer, and their involvement in the development of their client firms’ strategic
activities contributes to the growth of many other sectors of the economy (Viljamaa
et al., 2010). They thus merit increased attention on the part of researchers.
The results obtained reveal the importance of developing an ISRS in industrial
settings, given its impact on client and financial outcomes. Indeed, a strategic approach
to service recovery should be management’s priority in businesses services. Such an
approach will not guarantee error-free service provision, but it will allow the firm to go
beyond the mere act of recovery itself and overcome the operational view of service
failure management. The strategic approach means accepting that failure management
is a continuing process, based on the systematic detection and analysis of all the
failure-related information which provides a valuable source of learning to improve
the future provision of services. All this processes are reinforced when implementing
the ISRS.
The proactive approach, i.e. when the firm tries to anticipate possible future errors,
is also supported within the ISRS by the collection and analysis of all the data related
to potential failures. A fair service recovery (fair response), offered in the shortest time
possible (rapid response), is also fundamental to the quality of the long-term
relationship with the client. These aspects are further strengthened when the firm’s
employees are trained and empowered to proactively prevent failures and, if they do
occur, to respond to them as correctly as possible.
6.2 Managerial implications

The results of this research suggest that a service recovery system should be
developed around three basic constructs: failure detection, failure analysis and failure
response. These dimensions are in line with the ones proposed by Smith et al. (2009),
although their research is based in the operations management literature and is more
internally focused than ours. Our study also takes into account the works on service An integrated
recovery that have been reported in the marketing literature and it contributes to a service recovery
balanced internal and external orientation in service firms. The ISRS is conceptualized
as a higher-order construct which represents the firms’ ability to anticipate and prevent system
failures, to react efficiently to recovery needs, maximizing the quality of its long-term
relationships, and to enhance the firm’s organizational learning processes, so as to
improve its future provision of services. The ISRS involves adopting a wide 953
perspective of the failure-recovery process that allows understanding both its external
and internal implications for the firms.
Empirical evidence from this research demonstrates that firms with the ISRS
achieve a more valuable client base, since customer satisfaction, loyalty, and perceived
value are enhanced, and, at the same time, clients’ complaints diminish, the firm’s
market image improves and the best clients decide to stay with the company. In
addition, the ISRS not only adds value to the firm’s external clients, but it also
improves the employee (and internal client) performance – prime assets in any service
company. The ISRS’ human resource management practices, which involve a clear
commitment to the employees, who become aware of the firm’s objectives by engaging
with them, reinforces the employee performance and this also has a positive impact on
the results obtained from final clients. More satisfied employees lead to more satisfied
clients.
Therefore a well-developed ISRS increases service companies’ competitiveness by
improving the results obtained from clients and employees. However, a better
employee performance does not directly lead to an improved business performance, it
needs to be turned into a better customers’ performance to impact on organizational
results. Similarly, contrary to expected, we do not find any direct relationship of the
ISRS with business results. Indeed, aspects such as the sales growth, market share,
and benefits are closely related to the market behavior of clients. It is thus not
surprising that, in the model proposed, the clients’ performance mediates the indirect
influence of both the ISRS and the employee results on the business performance.
Also, there are of course costs that have to be borne by the organization in the
implementation and strategic management of a good failure recovery system, which
may also explain these outcomes. In any case, since the data corresponding to the
client, employee, and business results were reported relative to the competition over
the preceding three years, the present findings indicate that the ISRS allows the firm
to achieve sustainable better results than the market average, thus making it an
invaluable resource for the long-term competitiveness of service companies (Grant,
1991).
6.3 Limitations and suggestions for future research

There are a number of limitations in the work that need to be kept in mind. First, this
was a cross-sectional study. It is thus impossible to be certain that the causal
relationships identified will not vary or even lose their meaning over time. A
longitudinal study would overcome this limitation, and further strengthen the results.
Second, the constructs are measured based on the subjective perceptions of a single
informant per firm. This procedure may possibly be a source of bias. And third, the
ISRS scale was developed and validated in a specific context (KIBS firms). It is clearly
necessary to study its validity and composition in other sectors.
EJM Future research lines will be targeted at determining what type of management
47,5/6 culture is the most likely to be effective for the development of the ISRS, and what
will be the effects of such a system on the firm’s image or brand value. Also, it would
be very useful to validate the present scale and model in other contexts, to determine
how appropriate it is for applications to other sectors and even to further discuss the
reflective vs formative nature of the ISRS, as it is currently happening in the
954 literature with more consolidated concepts such as market orientation (Brettel et al.,
2008) or service quality (Collier and Bienstock, 2009). Research would also benefit
from the design of a multi-level study where level-1 data would involve customers
and level-2 data would involve servicing companies. The scale developed could also
be used by managers and academics to examine the current status of recovery

practices in service firms and identify areas in need of improvement by comparing
them with actual practices.
Notes
1. In view of the specifications given by the EMCC, some sub-sectors were not included in the
table as they could not be considered to be KIBS: investigation and security activities (NACE
code 74.6); industrial cleaning (NACE code 74.7); packaging activities (NACE code 74.82);
and secretarial and translation activities (NACE code 74.83).
2. To check the suitability of the proposed scale and endow the results with consistency, we
compared two alternative models to validate the ISRS scale. The first consisted of defining
the ISRS concept as a second-order factor underlying the six dimensions discussed at the
theoretical level. The second defined the ISRS concept as a second-order factor in which the
response dimension underlies the means of the observed variables of each of the concept’s
four components. Comparison of the two models showed the superiority of the second, since
its goodness-of-fit indices were higher and the AIC and CAIC indicators (Akaike’s
information criterion and consistent Akaike’s information criterion) were lower (Bozdogan,
1987; Rudd et al., 2008). In addition to this test, and taking into account the number of cases
available in this study, the ISRS scale was also analyzed using partial least squares analysis
(PLS). The results obtained also confirm the adequacy of the ISRS scale conceptualization
adopted.
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Appendix. Items for the measurement of the integrated service recovery system
Detection of failures
.
Formal procedures exist to collect employees’ information on any shortcomings related to
the provision of the service.
.
We ask our clients about the existence of potential problems or failures in the services we
provide.
.
Management has easy access to any information on complaints and service shortcomings.
.
We have clear and explicit procedures for receiving client complaints.
.
Simple procedures exist to notify the firm any failure or problem in service provision.
Analysis of failures
.
Relevant information on service problems or failures are quickly distributed to all staff.
.
In the firm, the information collected on service problems or failures is closely analyzed.
.
The staff participates in the analysis of the information collected on service problems or
failures so as to set priorities for service improvements.
EJM .
The different service provision shortcomings are analyzed jointly.
47,5/6 .
After detection of a failure, the firm assesses how to rectify or improve service provision
processes.
Rapid response
962 . Given problems in service provision, the firm seeks to give the client a rapid response.
.
Complaints from the client because of the existence of some problem with the service are
dealt with in a timely manner.
.
Service provision failures are resolved quickly.
. For this firm, immediate response to service failures is a priority.

.
This firm always seeks to rectify a failed service with the utmost dispatch.
Fair response
.
When a service failure occurs, the firm lets the affected clients know that it recognizes and
accepts its responsibility.
.
The firm fulfils its commitments in connection with the rectification of errors that it might
commit in providing the service.
.
The firm makes every effort to resolve any service failures that might occur.
. The solutions which the firm proposes for the resolution of any failures that might occur
in providing the service take the clients’ expectations into account.
Employee support
.
Employees have the necessary discretion and authority to rectify problems related to
service failures.
.
Management trusts the decision-making capacity of employees to resolve problems that
the client may experience with the service.
.
Management allows employees to take decisions so as to permit a rapid resolution of
possible service provision failures.
. Our employees receive specific training to deal with clients’ complaints and claims.
.
Our employees are trained to know how to act when service failures occur.
Learning-innovation
.
Based on its analysis of service failures, the firm has developed new ideas about its
services and/or processes to improve client satisfaction.
.
In this firm, there arise initiatives to change or vary existing processes based on the
analysis of service failures.
.
The necessary changes in services and/or processes that are detected as a result of the
presence of service failures are appropriately managed.
.
This firm seeks to use the information clients transmit with their complaints to improve
its services and/or processes.
.
This firm has developed new services and/or processes from the information provided by
clients in their complaints and/or claims.
About the authors An integrated
Marı́a Leticia Santos-Vijande is a Professor of Marketing at the University of Oviedo (Spain). Her
research work has focused on product and service innovation, marketing orientation, service recovery
relationship marketing, quality management and marketing strategy. She co-authors several system
books on these topics as well as articles published in specialized journals such as the European
Journal of Marketing, Industrial Marketing Management, Journal of Marketing Management,
Journal of Strategic Marketing, Supply Chain Management: An International Journal,
International Journal of Quality & Reliability Management, Total Quality Management and 963
Business Excellence, Technovation, Journal of Business Research, International Small Business
Journal, and Journal of Business to Business Marketing. She also works as a consultant with both
private and public sector organizations. Marı́a Leticia Santos-Vijande is the corresponding
author and can be contacted at: [email protected]

Ana Marı́a Dı́az-Martı́n is an Associate Professor of Marketing at the Universidad Autónoma
de Madrid, Spain. Her areas of special interest are service quality, service failure and recovery,
relationship marketing and tourism marketing. She has published articles related to these topics
in academic journals including Psychology and Marketing, Marketing Letters, Journal of Business
Research, The Service Industries Journal, European Journal of Marketing, Journal of Travel
Research, International Journal of Retail & Distribution Management, and The Journal of Services
Marketing.
Leticia Suárez-Álvarez is an Assistant Professor of Marketing at the University of Oviedo,
Spain. Her research interests are primarily in the areas of tourism marketing, relationship
marketing and consumer behavior. She received her PhD in Business Administration in 2004,
and she has published papers, both in national and international journals, such as The Service
Industries Journal, Journal of Travel Research, Journal of Applied Social Psychology, Management
Research, Journal of Marketing Management, and Psychology and Marketing.
Ana Belén del Rı́o-Lanza is an Associate Professor of Marketing at the University of Oviedo,
Spain. Her research lines include brand equity, brand management, service recovery and
relationship marketing. She has published papers on these topics in journals such as the Journal
of Business Research, Marketing Letters, Journal of Marketing Management, Journal of Applied
Social Psychology, Journal of Consumer Marketing, and Journal of Product & Brand
Management.
To purchase reprints of this article please e-mail: [email protected]

Or visit our web site for further details: www.emeraldinsight.com/reprints
This article has been cited by:
1. Sanjit Kumar Roy, Walfried M. Lassar, Gul T. Butaney. 2014. The mediating impact of stickiness
and loyalty on word-of-mouth promotion of retail websites. European Journal of Marketing 48:9/10,
1828-1849. [Abstract] [Full Text] [PDF]
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An integrated service recovery system (ISRS): Inﬂuence on knowledge-

Article in European Journal of Marketing · May 2013

María Leticia Santos-Vijande Ana María Díaz-Martín

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Leticia Suárez Álvarez A.Belén del Rio

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Revised 23 March 2011

European Journal of Marketing

2.2 Failure detection

strategic comprehensive approach, we posited six research hypotheses linking the

4. Empirical study: methods

4.2 Development of the ISRS scale

946 4.3 Measures of performance used in the study

industry effect and decreasing the response’s subjectivity establishing a point of

5. Data analysis and results

5.1 Validation of the ISRS scale

5.2 Analysis of the proposed causal model

Mean SD Detection Analysis Response

Detection (F1) 0.90 0.65

Detec5 0.69 8.18 F1-F2 0.59

Second-order factor Dimensions Standardized lambda parameters t-values Reliability

ISRS Detection (F1) 0.67 5.24 CR ¼ 0.85 Table III.

950 ISRS (F1 second-order factor) 0.83 0.73

Client performance (F2) 0.92 0.61

Paths specified Standardized coefficient (t-value)

H1. ISRS – Client Performance (þ) 0.40 (3.47)

6. Conclusions, limitations and future research lines

Direct effect (DE) Sobel Sign. level Total

ISRS-business 20.147 (2 0.693) H1 *H4 ¼ 0.26 2.18 0.03 0.49

6.2 Managerial implications

6.3 Limitations and suggestions for future research

be used by managers and academics to examine the current status of recovery

and Surprenant, C.F. (Eds), The Service Encounter: Managing Employee/Customer

construct development and measurement validation”, Journal of Operations Management,

quality”, Journal of Marketing, Vol. 60 No. 2, pp. 31-46.

. For this firm, immediate response to service failures is a priority.

author and can be contacted at: [email protected]

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