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International Journal of Accounting & Business Management

www.ftms.edu.my/journals/index.php/journals/ijabm

Vol. 1 (No.1), April, 2013 Page: 138-147

ISSN: 2289-4519

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Creative Commons Attribution 4.0 International License.

Examining the Effects of Solution Quality Dimensions on Customer Satisfaction in Outsourcing Relationships among Malaysian SMEs Using the Kano’s Attractive

Quality Theory

Hooi Min Song Faculty of Engineering and Science,

Universiti Tunku Abdul Rahman, Kuala Lumpur, Malaysia

cygnet86@gmail.com

Pei Hwa Siew Faculty of Creative Industries,

Universiti Tunku Abdul Rahman, Petaling Jaya, Malaysia

siewph@utar.edu.my

Abstract In order to help Malaysia’s IT outsourcing vendors to stay competitive, a questionnaire survey has been carried out to examine the effects of the eight dimensions of solution quality on customer satisfaction. These eight dimensions of solution quality (i.e. performance, reliability, conformance, serviceability, aesthetics, perceived quality and solution integration) have been identified through literature reviews. The classification was done based on Kano’s Attractive Quality Theory. Kano’s Attractive Quality Theory classified the customer satisfaction attributes into five dimensions which include Must-be quality, attractive quality, one-dimensional quality, reverse quality, and indifferent quality. The survey was carried out among 145 clients of an SME software company in IT outsourcing industry in Malaysia. The results show that performance, reliability,

conformance, and solution integration fall under the must-be category; feature, serviceability, and perceived quality belong to attractive quality; and aesthetics is an indifferent quality. Keywords: IT outsourcing, solution quality, Kano’s Attractive Quality Theory, customer satisfaction, SME

I. Introduction In IT outsourcing, customer satisfaction is very important to contract continuation and maintenance of long term relationships. However, customer satisfaction remains low in IT outsourcing. An outsourcing industry report (cited in Wilson and Brown 2008) stated that there was only 33 percent of clients satisfied with their offshore outsourcing vendors There are several reasons why focusing on customer satisfaction is more important now than before. The first reason is the increasing number of mature and

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informed buyers. Customers nowadays focus more on VOI (Value on Investment) rather than simply ROI (Return on Investment) (Hopfner 2007). They want IT outsourcing to help enhance their business outcomes (Stamford 2008). The second reason is the trend of moving from mega deals to multi sourcing method where outsourcing contracts are being split into smaller portions and allocated to different vendors (Overby, 2012). The third reason is the increasing number of vendors in the market. This presents customers with more choices to choose from. The number of vendors has increased nearly 16 times from about 306 vendors in 2004 to about 4893 vendors in 2008 (Personal Communication, Brown, 2008). From the discussion above, it is evident that managing customer satisfaction is an important task for vendors if they want to maintain their competitiveness in the market. Only through meeting or exceeding customer satisfaction will vendors be able to improve customer loyalty and attract new customers. Since gaining popularity in the late 1980s, the IT outsourcing market has continued to grow and has captured a large market share. In 2012 survey, 60 percent respondents agreed that it’s a waste to have in-house information technology team, increased from 38 percent in 2010 (Fathers 2012). Global outsourcing market is predicted to generate 325 billion USD by 2013 (Qi and Chau 2012), IT outsourcing appears to be a lucrative business for vendors. However, as IT outsourcing strategy moves beyond national boundaries, competition among vendors become stiffer. To ensure contract continuation, vendors strive

very hard to provide the best quality of products and services so that they will meet customer expectation (Wong 2011) and retain customer satisfaction (Auh and Johnson 2005). To gain insight into how the quality affects customer satisfaction in outsourcing relationships in Malaysian SMEs, a survey was carried out among 145 clients of an SME software company in IT outsourcing industry in Malaysia using the Kano’s Attractive Quality Theory. The remainder of the paper is organized as follows. Section 2 defines the definition of IT outsourcing, while section 3 describes the quality versus customer satisfaction in IT outsourcing. Section 4 presents the research model, section 5 reported the findings and discussion, and section 6 concludes the paper. II. The Definition of IT Outsourcing In the Oxford Dictionary of Business and Management (2009), outsourcing is defined as “The buying in of components, sub-assemblies, finished products and services from outside suppliers rather than by supplying them internally.” Outsourcing can also be defined as the function which used to perform internally being moved out to perform by third parties (Tajdini and Nazari 2012).

According to Loh and Venkatraman (1992) and Dibbern et al. (2004), information technology outsourcing (ITO) is a strategy of engaging external vendors to provide information technology (IT) services for a period of time and for a fee. IT services are referred to as the IT products that

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delivered and provision of an IT department (Hussin et al., 2006). The goal of employing such a strategy is to meet internal IT needs (Balaji and Brown 2005) and focus on the core business (Tajdini and Nazari 2012). From the time ITO was first popularized by the success of Eastman Kodak’s outsourcing venture in 1989, (Loh and Venkatraman 1992), ITO has grown dramatically (Levina and Ross 2003; Qi and Chau 2012). Global outsourcing market is predicted to generate 325 billion USD by 2013 (Qi and Chau 2012). According to Asia’s top 100 users of IT, more than half of the organizations choose to outsource their projects (MIS Asia 2006; Computer Economics 2012). III. Quality versus Customer

Satisfaction in IT Outsourcing

According to The Merriam-Webster Dictionary, quality means the “degree of excellence”; where in business environment, quality is always being used to differential the position in market place. In the existing literature, quality is the issue that heavily studied by these four disciplines of scholars, they include philosophy, economics, marketing, and operational management. Each stream of the scholars defined the term “quality” differently. These end up having a number of contended view points and each of them work on different analytical framework and their own terminology (Garvin 1984a). From literature reviews, Garvin (1984a) had come out with the following five approaches to define the quality: a. The transcendent approach:

Transcendent view means the extent

to which a product provided by vendor is constitutionally good in nature which is absolute and universally recognizable. In transcendent view, good quality attributes are inheritable. This view proposed that quality cannot be precisely measure and analyzed, it is through the judgment by accumulated experiences.

b. The product-based approach: Product-based view is inherited from the economic point of view. It is the extent to which a product provided by vendor is containing a large amount of desire attributes by the client and it is highly depend on the materials used to produce the product. In this view, product quality is a measurable variable where product quality is positively related to price.

c. The user-based approach: User-based view means the extent to which a product provided by vendor fit the user demand. This view is highly subjective based on the personal standpoint of quality. The end-user opinions are influential in product design and development processes. In product development, demand of the majority is taken into consideration while demand of minority is being ignored.

d. The manufacturing-based approach: Manufacturing-based view means the extent to which a product provided by vendor is produced according to the original design, meeting all requirements stated. The major concern of this view is the engineering, production, and industrial practices. The more deviation from the original model (original design is considered

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perfect) will indicate reduction in quality.

e. Value-based approach: Value-based view means the extent to which a product provided by vendor is best fit the actual usage of the user with a reasonable price. This view promoted “affordable excellence”; however, it is still lack of clear definition.

Based on the five approaches as described above, Garvin (1984b) had identified eight dimensions of product quality. These product quality dimensions are initially used to measure a physical product quality. Since a “product” in IT outsourcing environment may cover both the product itself and components beyond the product such as services (Das, Soh and Lee 1999) , so the term “solution quality” is used. According to Whyte, Bytheway and Edwards (1997, p. 40), solution quality refers to the extent to which “products and services provided by vendors help to solve client problems and/or improve client business needs”. Then, Das, Soh and Lee (1999, p. 190) suggests that solution quality should measure “the quality of vendors’ solution in term of their innovativeness, their effectiveness in solving the business problem, their operating efficiency, the integration of the solution with other systems, and the smoothness of the implementation process”. According to Das, Soh and Lee (1999) and Wong (2011), managing expectation and hence customer satisfaction is critical to the success of an IT outsourcing contract. With ever-demanding and changing customer requirements, vendors should allocate

their resources to meet these needs. Szwarc (2005, p. 120) noted that customer satisfaction is about fulfillment of client needs. It reflects “customer viewpoints towards an organization’s products or services according to their own experiences with that organization or product or service, and by comparison with what they have heard or seen about other similar organization or product or service”. Auh and Johnson reported that sustainable competitiveness and long-term profit of an organization depend not only on attracting new customers, but also on retaining existing customers. Customer satisfaction plays an important role in building loyalty among existing clients (Auh and Johnson 2005) and in attracting new customers (Chi and Girsoy 2009). Chi and Girsoy added that loyal customers will increase the market share and profitability for vendors. With low customer satisfaction, low retention rate and strong competition among vendors, it calls a need to understand what satisfy customers the most and hence lead to loyalty and successful long term outsourcing relationship. IV. Research Model To gain better understanding of what made an outsourcing contract a success, a research model as shown in Figure 1 was developed to examine how the attributes in solution quality affect customer satisfaction. The study also aims to find out which attributes of solution quality that contributed significantly to customer satisfaction by using Kano’s Attractive Quality Theory as the underlying theoretical foundation. Kano’s Attractive Quality Theory classified the customer satisfaction

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attributes into must-be, attractive, one-dimensional, reverse and indifferent.

Figure 1: Research Model

As can be perceived through the proposed research model in Figure 1, eight dimensions of solution quality are identified and defined as follows (Garvin 1984b): a. Performance: The extent to which a

product provided by vendor is having the primary operating function that meets the fundamental operational characteristics of that particular product.

b. Feature: The extent to which a product provided by vendor is having unique functions compared to other competitors. The extent to which a product provided by vendor demonstrates the least likelihood of failure occurring in a given time frame.

c. Reliability: The extent to which a product provided by vendor demonstrates the least likelihood of failure occurring in a given time frame.

d. Conformance: The extent to which a product provided by vendor does not deviate from the original design. Both internal and external functions are taken into consideration.

e. Serviceability: The velocity, ability and competency to be repaired and to recover to its original condition.

f. Aesthetic: The extent to which a product provided by vendor is attractive in term of the physical appearance. This dimension is highly subjective.

g. Perceived quality: The extent to which a product provided by vendor matches the product image that customers have in mind. It is also highly subjective and customers tend to compare this feature across different brands.

h. Solution integration: The extent to which a solution provided by vendor is able to work integratively with existing or systems.

V. The Findings and Discussion In this study, a survey questionnaire approach was used to collect data. The questionnaire was constructed based on Kano’s questionnaire model which uses a pair of functional and dysfunctional questions. Functional questions ask customer how they feel if an attribute is present, whereas dysfunctional questions ask customer how they feel if an attribute is absent. The survey was conducted among 145 clients of a small-and-medium sized software company in IT outsourcing industry in Malaysia. The main way of collecting survey data is by asking people with a set of structured and predefined questions. The survey questions will be based on the contractual and relationship form quality perspective. In view of the fact which a client may outsource different IT activities to different vendors, the level of analysis adopted in this phase is at the contractual level. This means the

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participants (i.e., clients) were surveyed on the extent to which they are satisfied with their individual outsourcing contracts. The data collected was being evaluated in three steps: Step 1: The rating of each pair of

functional and dysfunctional questions was matched to the evaluation table as shown in Table 1. The result of each dimension was recorded it into the result table as revealed in Table 2. This step was repeated for each pair of question in each survey questionnaire collected. Results were then recorded into an Excel file,

Step 2: The result table (Table 2) was used to analyse and categorise the quality attributes into customer satisfaction categories. The satisfaction categories are Must be (M), One-Dimensional (O), Attractive (A), Reverse ®, and Indifferent (I). The result in Step 1 should not fall into questionable category as it indicates that the result is not reliable, and

Step 3: Interpret and analyse the results.

Solution Quality

Attributes

Dysfunctional Question

I like it that way

It must

be that way

I am neutral

I can live

with it that way

I dislike it that way

Fu

nct

ion

al

Qu

est

ion

I like it that way

Q A A A O

It must be that

way R Q I I M

I am neutral

R I I I M

I can live with it

that way R I I Q M

I dislike it that way

R R R R Q

Note: M – Must be O – One-dimensional A – Attractive I – Indifferent R– Reverse Q – Questionable

Table 1: Evaluation Table

Quality Attribute

Percentage Total %

Category

A O M I R Q

Performance 2% 2% 94% 1% 0% 0% 100% M

Feature 65% 27% 0% 8% 0% 0% 100% A

Reliability 11% 11% 78% 0% 0% 0% 100% M

Conformance 0% 0% 100% 0% 0% 0% 100% M

Serviceability 47% 27% 2% 22% 2% 0% 100% A

Aesthetics 24% 1% 1% 74% 0% 0% 100% I

Perceived Quality

55% 37% 0% 8% 0% 0% 100% A

Solution Integration

12% 29% 48% 10% 0% 0% 100% M

Note: M – Must be O–One-dimensional A – Attractive I – Indifferent R– Reverse Q – Questionable

Table 2: Results table

The results in Table 2 shows that the performance, reliability, conformance and solution integration fell under must-be (M) category. Meantime, the feature, serviceability and perceived quality are belonged to the attractive (A) quality. Aesthetics make little or no difference in the customer satisfaction. However, a more comprehensive interpretation is needed to answer the question how significant is a particular dimension to the customer satisfaction. For instance, feature, serviceability and perceived quality are belonged to the attractive quality, with the realistic constraint, which dimension should the vendor adopt to increase customer satisfaction? The Customer Satisfaction Coefficient (CS Coefficient) comes into picture. The CS Coefficient tells the satisfaction if the quality exist and the dissatisfaction when it absent (Berger, et

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al., 1993). CS coefficient is the indicator of how strong a present of a quality dimension may influence satisfaction or vice versa (Sauerwein et al., 1996). Below are the formulas to calculate CS Coefficient by Berger et al., (1993):

Using the result in Table 2, the CS Coefficient was calculated for each dimension using the formulas above. The extension of satisfaction tells the satisfaction level if the quality attribute present, while the extension of dissatisfaction tells the level of dissatisfaction if the attribute absent. According to Kano’s Attractive Quality Theory, the ideal score of CS coefficient for attractive quality is (1, 0), which means when the attractive quality present, the satisfaction is highly achieved while there is no dissatisfaction while the attractive quality absent. However in real life situation, this would be rare. Hence the definition of attractive quality in term of CS coefficient will be those which have satisfaction more than 0.5 and dissatisfaction lower than -0.5. In this case, satisfaction rate is higher than dissatisfaction. For one-dimensional quality the satisfaction should be positively related to dissatisfaction. Hence the satisfaction score should be more than 0.5 and dissatisfaction also should be more than -0.5. Must-be quality present does not bring to high satisfaction; it will be less than 0.5 while it absent, it will cause high

dissatisfaction which greater than -0.5. For those which are less than 0.5 satisfaction and less than -0.5 dissatisfaction fall under indifferent categories. For indifferent categories, the score is also positively related, however, look at the satisfaction and dissatisfaction rate it’s rather low to be impact on the satisfaction level or vice versa. Based on the results in Table 2, if there is only one attractive dimension the vendor can achieve, the CS Coefficient could help in the decision making. Table 3 shows the results of CS coefficient.

Table 3: CS Coefficient Results

The three attractive qualities and its CS Coefficient are shown in Figure 2. Firstly, serviceability can eliminate from the list since the extension of satisfaction is the lowest among the three. Feature and perceived quality share the same extension of satisfaction

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which is 0.92. Hence, extension of dissatisfaction needs to take into consideration. Extension of dissatisfaction of feature is -0.28 while perceived quality is -0.37, perceived quality will lead to a higher dissatisfaction level if absent. Therefore here draw a clear conclusion that perceived quality should be priorities among the three attractive qualities. Figure 2 shows a clear picture of where these eight dimensions play their roles in term of customer satisfaction and vice versa.

Figure 2: CS Coefficient Graph

VI. Conclusions It is valuable to vendors if they are able to understand customer perspective in evaluating the outsourcing services. Vendors would be able to satisfy their clients with the focus on limited resources by promoting qualities which will increase customer satisfaction and avoid the absent of must be quality. Through this study, vendor would be able to achieve this objective using the research findings. This would help a vendor to maintain a successful long term relationship with their clients. The strategies that draw from this study for all the vendors would be: Must be quality should always be

fulfilled.

One dimensional quality enables vendors to stay competitive.

Attractive quality is the key to stand out from the rest.

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