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Three outcomes
Three outcomes of service of service
recovery recovery
Customer recovery, process recovery
and employee recovery 79
Robert Johnston
Warwick Business School, University of Warwick, Coventry, UK, and
Stefan Michel
Thunderbird, School of Global Management, Glendale, Arizona, USA

Abstract
Purpose – Based on a review of the literature, this paper sets out to suggest that an organisation’s
service recovery procedures lead to three distinct outcomes; customer, process, and employee
recoveries. The objective of the paper is to investigate the impact of service recovery procedures
(i.e. the way service recovery is managed and executed) on these three outcomes and their relative
impact on an organisation’s financial performance.
Design/methodology/approach – A model, linking recovery procedures to the outcomes of
recovery and financial performance, is tested using empirical data from a detailed survey of
60 organisations in the UK.
Findings – It would appear that many organisations and academic researchers have focused their
efforts on customer recovery and have, to some extent, ignored the potentially higher impact outcomes
of process and employee recovery. The main finding was that service recovery procedures have a
greater impact on employees and process improvement than on customers. Furthermore, while many
organisations appear to be concerned with service recovery few seem to be good at it or gaining the
benefits of recovered customers, improved processes or recovered employees.
Research limitations/implications – This paper tries to encourage wider research into the impact
of service recovery. The main limitations were sample size and selection.
Practical implications – It challenges the way some organisations have focused their recovery
procedures on satisfying or delighting customers and suggests that by doing so they are missing out
on substantial benefits. It also suggests that many organisations have a long way to go to develop
their recovery procedures.
Originality/value – This work proposes three outcomes of service recovery and finds that the
impact of process and employee recoveries may be more significant than customer recovery.
Keywords Service failures, Customers, Financial performance, Quality improvement
Paper type Research paper

Introduction
Service operations are usually complex, human-based systems involving the
concurrent provision of many customer experiences and outcomes, with both
employees and customers taking part in the process (Johnston and Clark, 2005).
International Journal of Operations &
Production Management
The authors would like to thank John Hughes and Bruce Rance, from the Customer Service Vol. 28 No. 1, 2008
Network UK, and Mark Bradley of Mark Bradley Projects Ltd for their assistance in this research pp. 79-99
q Emerald Group Publishing Limited
and the development of this paper and the anonymous referees and the Editors for their 0144-3577
constructive feedback and guidance. DOI 10.1108/01443570810841112
IJOPM Consequently, in the delivery of service, errors, mistakes and failures are inevitable,
28,1 requiring the need for service recovery (Hart et al., 1990). Indeed, Tax and Brown (1998)
suggested that managing complaints well and recovering customers, i.e. dealing with
them after a service failure and (usually) a complaint, should be the cornerstone of an
organisation’s customer satisfaction strategy.
Research into service recovery has been rapidly developing over the past 20 years
80 with the emergence of service economies and customer-focused strategies employed by
increasing numbers of organisations. However, the vast majority of the literature
currently takes a marketing view of recovery, primarily concerned with the impact on
customer satisfaction. Thus, the outcome of service recovery is often defined in terms
of returning a dissatisfied customer to a state of satisfaction (Berry and Parasuraman,
1991; Lewis and Spyrakopoulos, 2001; Zemke and Schaaf, 1990). Boshoff (1997), for
example, suggested that according to the service quality literature, the outcomes of
service recovery are improved customer satisfaction and improved service quality
perceptions leading to positive behaviour intentions such as repeat purchases and
loyalty.
However, there seems to be an emerging realisation both by practitioners and in the
academic literature that service recovery is not just about recovering the dissatisfied
customer to regain their satisfaction and loyalty. There is also a view that a, if not the,
prime purpose (outcome) of service recovery is to help drive improvement through an
organisation. Spreng et al. (1995), for example, were some of the first to point out that
although service recovery procedures (i.e. the way service recovery is managed and
executed) can be expensive, they should be viewed as opportunities to
make improvements. Such improvements should lead both to cost reductions,
through the removal of inefficient and ineffective processes, and also to fewer failures
in the future and thus fewer dissatisfied customers. However, few papers appear to be
concerned with the operational outcomes associated with service recovery, such as
investigating the issue, finding root cause and making improvements to processes.
A search of the ABI/Inform Global (Proquest) database (up to and including 2006) for
scholarly articles published in the area of service recovery revealed 107 contributions
with the words “service recovery” in the titles, abstracts or keywords. Excluding ten of
which were published in conference proceedings, out of the remaining 97 papers only
seven were published in operations management (OM) journals (Decision Sciences – 2,
Journal of Operations Management – 2, International Journal of Quality & Reliability
Management – 2, and Production and Operations Management – 1). The remainder
were found in service management journals (Journal of Service Research, the
International Journal of Service Industry Management and Managing Service Quality,
for example) marketing journals (such as Marketing Management, Journal of Interactive
Marketing, European Journal of Marketing), sector specific journals (such as Public
Personnel Management, Cornell Hotel and Restaurant Administration Quarterly and
general management journals (such as MIT Sloan Management Review and Journal of
Business Strategy). Figure 1 shows the proportions of papers published in each type of
journal.
It would appear that the OM community has not yet recognised the importance of
service recovery or the opportunities that it may afford.
This may not be surprising since, despite the size of the service economy, which is
typically around 70-85 per cent of GDP of developed nations, service and service
 7% Three outcomes
6% of service
recovery
35%
13% Services
Marketing 81
Sector specific
General management
OM
Figure 1.
Categorisation of papers
published in service
recovery (to the end of
2006)
39%

operations seem to feature little in OM journals. A search on the word “service” in the
titles, abstracts and keywords of the two leading OM journals, JOM and IJOPM (up to
and including 2006) identified 191 service operations papers in JOM and 145 in IJOPM,
accounting for 28 and 11 per cent of their total outputs, respectively. This suggests that
these journals appear not to reflect the size of the service economy or the importance of
service operations versus production OM.
In one of the papers on service recovery published in Decision Sciences the authors
stated that:
. . .although previous research has extensively examined customer satisfaction in
service-failure and recovery encounters, few studies have explored recovery solutions from
a service firm’s perspective. In particular, the cost of providing effective service recovery has
rarely been considered in past research. Likewise, there is a lack of research on the link
between the value of a customer to the firm and its recovery decisions (Zhu et al., 2004, p. 494).
An additional outcome of service recovery, which has been the focus of an even smaller
amount of work, is employee attitude. Dealing with complaining customers may be a
difficult and sometimes upsetting experience, made even more stressful if the organisation
has customer-unfriendly policies and inadequate recovery procedures. Poor recovery
processes can be the cause of much stress for employees (Bowen and Johnston, 1999).
We would therefore argue that service recovery can be seen as leading to three
outcomes; customer recovery (satisfied customers), process recovery (improved
processes) and employee recovery (satisfied staff). The next sections provide a review
of the literature in each of these three areas. This leads to a simple model of the three
outcomes of recovery that is tested to evaluate the impact of the service recovery
process on these outcomes and their respective impact on financial performance.

Customer recovery
There appear to be four main themes in the extensive service recovery literature
concerned with recovering the customer; how to satisfy the customer following a
failure, the impact of recovery on loyalty, the impact of recovery on delight and the
impact of recovery on profit. While the earlier contributions in the field were mainly
normative, more recent work has been empirically-based.
IJOPM How to satisfy the customer following a failure
28,1 Much of the literature on service recovery is focused on the steps or procedures for
recovering, that is satisfying, the customer following a service failure (Andreassen, 2001;
Boshoff, 1997; Boshoff and Leong, 1998; Colgate, 2001; DeWitt and Brady, 2003; Hess et al.,
2003; Johnston, 1998; Johnston and Fern, 1999; Smith and Bolton, 2002; Taylor, 2001;
Van Ossel and Stremersch, 1998; Weun et al., 2004). Summarising these contributions, it
82 would appear that recovering the customer involves seven key activities:
(1) Acknowledgement. Acknowledging that a problem has occurred (Bitner et al.,
1990).
(2) Empathy. Understanding the problem from a customer’s point of view (Johnston
and Fern, 1999).
(3) Apology. Saying sorry (Kelley et al., 1993).
(4) Own the problem. Taking ownership of the customer and the issue (Barlow and
Møller, 1996).
(5) Fix the problem. Fixing, or at least trying to fix the problem for the customer
(Michel, 2004).
(6) Provide assurance. Providing assurance that the problem has been/will be
sorted and should not occur again (Barlow and Møller, 1996).
(7) Provide compensation. Providing a refund, and/or a token and/or compensation,
depending on the severity of the problem (Boshoff, 1997).

The impact of recovery on loyalty

It is also recognised that recovering the customer will have an important impact on
customer loyalty and their re-purchase intentions (DeWitt and Brady, 2003; Dubé and
Maute, 1996; Feinberg et al., 1990; Halstead and Page, 1992; Mattila, 2001; Maxham,
2001; Swanson and Kelley, 2001; Tax et al., 1998).

The impact of recovery on delight

Further, it has been found/suggested that recovery can lead to higher levels of
satisfaction than is achieved through normal (good) service delivery. This is sometimes
referred to as the service paradox (Bjorlin Liden and Skalen, 2003; McCollough and
Bharadwaj, 1992; McCollough and Gremler, 2004; Michel, 2002).

The impact of recovery on profit

Tax and Brown (1998, p. 86) argued that “the relationship between service recovery
and profit can be clearly seen by examining the service profit chain”. They argued that
profit is affected by customer loyalty, which results from customer satisfaction
generated from good service recovery procedures. Their research, like others (Johnston,
2001) suggests that dealing well with problems and failures indeed has a strong impact
on financial performance.
It would also appear that many customers are dissatisfied with the way
organisations handle their complaints. Tax and Brown (1998, p. 76), for example, noted
that “the majority of customers are dissatisfied with the way companies resolve their
complaints”. Indeed, it has been reported that more than half of attempted recovery
efforts reinforce dissatisfaction (Hart et al., 1990).
 Furthermore, in some parts of the economy the number of complaints about the way Three outcomes
complaints have been handled is on the increase. There have been many reports in the of service
press from consumer councils in the UK about the increasing number of complaints
they receive about the way organisations handle complaints. For example, complaints recovery
to the Consumer Council for Water about Severn Trent Water, which serves more than
eight million customers in the UK, rose by 54 per cent in 2005-2006 (BBC News, 2006a).
More recently the same council reported an overall rise in complaints about the way all 83
water companies handled consumer complaints in 2006-2007 citing Severn Trent as
being worse than the average. Dame Yve Buckland, Chair of the Consumer Council for
Water, said “In some cases these problems are compounded when customers cannot
even reach the company’s staff on the phone to complain” (BBC News, 2007). This rise
in complaints about complaints appears in other sectors, for example, the Air
Transport Users’ Council said the number of written complaints it received in 2006 had
nearly trebled (BBC News, 2006b). According to Energywatch, the consumer watchdog,
British Gas was not only the UK’s most expensive energy provider, but it also provided
the worst customer service. Energywatch said it received 15,433 complaints about
British Gas in the six months to September 2006, more than double in the same period
in 2005 (BBC News, 2006c).

Process recovery
The extant literature on service and service recovery in the OM area recognises the
need to undertake OM-based research. Leal and Pereira (2003, p. 646) stated that
“Empirical research in quality improvement in service organisations has been growing
in recent years but it still lags behind the developments observed in manufacturing.”
Simons (2004, p. 11) supported the concern about limited research in this area,
“However, while service recovery has anecdotal support, the literature has so far not
offered management tools for analytically evaluating a system’s needs for recovery
measures or assessing their potential benefit.” Goldstein et al. (2002) stated that there is
an absence in the OM literature about the role of financial measures in the design of
service delivery systems, including service recovery systems.
Yet process improvement is what many customers wish to see happen. Research
carried out for the Citizen’s Charter Unit in the UK (MORI, 1997) found that about
50 per cent of people complain in order that the organisation might improve its
services. More recently one national survey, The National Complaints Culture Survey
(2006), has indicated that the prime customer expectation is to have the problem fixed.
Tokenism and even compensation are not the key customer requirements. The survey
also found that the offer of free goods or services following poor service was only
deemed important by less than 5 per cent of those questioned. Furthermore, when there
is a problem, customers most want organisations to apologise and fix the original
problem not just for themselves but for future users.
The literature to date does address several process improvement issues following
service failures; failure types and impact, profiling service failures, the link between
operational factors and customer outcomes, the link between operational processes and
financial outcomes, the impact of system reliability on service recovery, an operational
framework for service recovery, process improvement, collecting failure data, and
analysing and interpreting failure data.
IJOPM Failure types and impact
28,1 Zhu et al. (2004) introduced the notion of process recovery to differentiate between
outcome failures; failures from a customer perspective and process, operational,
failures. This is the term we have adopted here. They developed an analytical model
for determining the optimal allocation of a firm’s service recovery resources, linking
outcome and process recovery to customer types and importantly also to cost, which
84 is an area in need of more research (Zhu et al., 2004; Rust et al., 1995). Their work,
although primarily focusing on outcomes for the customers, takes into account the type
and magnitude of failure but not the operational processes to deal with the failures.

Profiling service failures

Craighead et al. (2004) focused on profiling service failures and assessing the
appropriate treatment (improvement) required to deal with different failure types.
However, only two of the variables in their model are concerned with process
improvement (fix problem and quickly find the problem), though fixing the problem
appears to be primarily aimed at solving the issue for the customer rather than
operational process improvement.

The link between operational factors and customer outcomes

Leal and Pereira (2003) investigated the impact caused by operational factors (internal
measures) on customer perceptions (external measures) and linked them to the required
OM actions. Whereas the customer-focused research often uses critical incident or
complaint-based methodologies or hypothetical scenarios (Michel, 2001), their research
employed operational tools of root cause analysis and tree diagrams to identify the
failures modes and identify appropriate management priorities and actions.

The link between operational processes and financial outcomes

Simons’ (2004) paper focused on providing support to managers who need to balance
the cost of recovery efforts with their benefits to the company’s bottom line. Simons
also questioned the focus of service recovery on dealing with customers who have been
the recipient of poor service and suggested that it should focus more on dealing with
the mechanisms that generate errors and improve correction capabilities.

The impact of system reliability on service recovery

Simons (2004, p. 14) also voiced concern that “there has almost no multi-stage modeling
of service recovery to facilitate system improvement” yet reliability has been shown to
be a key component of service quality (Simons, 2004; Cook et al., 2002). Simons’
research considered the success probabilities in the steps of the service recovery
process. Using reliability theory he demonstrated that when the individual
recovery steps are highly reliable, overall system reliability can be higher that that
of any individual step and that the relationship between the reliability of individual
steps and overall system reliability is nonlinear. However, his method does not tell a
manager why a step has failed or how to fix it.

An operational framework for service recovery

Miller et al. (2000, p. 387) provided “a framework for managers to understand service
recovery from an operations perceptive as well as a starting point for researchers
in operations management to identify issues for further study”. Their three-stage Three outcomes
framework covers pre-recovery, immediate recovery and follow-up recovery. However, of service
it only takes limited cognisance of the operational issues and focuses predominantly on
the impact on the customer. The researchers also recognised that the timing, sequence recovery
(placement), and benefits of the service recovery steps within the broader context of the
service delivery system are still not well understood.
85
Process improvement (process recovery)
From an operations perspective, and the focus of this paper, a key purpose of service
recovery, in addition to satisfying the customer, is to use the information gleaned from the
failure and its consequences to drive improvements through an organisation by focusing
managerial attention on specific problem areas. Learning from failures moves service
recovery away from a transactional activity, interested only in recovering and satisfying an
individual customer, toward management activity that improves systems and processes to
ensure future customers are satisfied and costs are reduced. Indeed, learning from failures
may be more important than simply recovering individual customers, because process
improvements that influence customer satisfaction represent the most significant means of
creating bottom-line impacts through recovery (Hart et al., 1990; Johnston and Clark, 2005;
Reichheld and Sasser, 1990; Schlesinger and Heskett, 1991; Stauss, 1993).
The importance and impact of process improvement is an area raised in several
books and papers (Barlow and Møller, 1996; Hart et al., 1990, Johnston, 2000; Johnston
and Clark, 2005, Michel, 2001; Simons and Kraus, 2005; Spreng et al., 1995; Tax et al.,
1998; Tax and Brown, 1998; Van Ossel and Stremersch, 1998). But the topic is little
developed. Simons and Kraus (2005, p. 279) stated, for example:
The literature appears to contain no prior research of a prescriptive nature that offers
managers guidance about the extent to which service recovery can benefit their systems and
merit incorporation into the design of the service delivery system.
They go on to develop a theoretical model linking improvement to investments in
service recovery. Tax and Brown (1998) recognise the importance of improving the
service system as part of service recovery, which is one section within one part of their
four stage model. This task includes classifying service failures, capturing the issues
internally to facilitate organisational learning, generating service performance data,
disseminating the data and investing in quality improvements.
Johnston and Clark (2005) suggested that process improvement involved four key
stages:
(1) Data collection. The collection of information about both complaints and
operational recovery procedures so that data about problem areas are made
available to managers.
(2) Data analysis. The analysis of the data to identify problems and establish
priorities.
(3) Costing. Assessing the cost and other implications of rectifying or improving
the processes.
(4) Improvement. Improving, where appropriate, operational and organisational
processes and assessing the impact after implementation.

There is some literature covering the first two of these; data collection and analysis.
IJOPM Collecting failure data
28,1 There appear to be three key methods used to detect service failures and collect
information about them; the adoption of a total quality management (TQM) approach,
mystery shopping and the use of the critical incident technique.
While most manufacturing companies adopt some tools and concepts associated
with TQM (Powell, 1995), so too have many service companies (Lovelock and Wirtz,
86 2007). These may involve programmes and approaches such as ISO 9000 certification
(Corbett, 2006), national quality award schemes (Lee et al., 2006), and application of six
sigma methodologies (George, 2003). Although these programmes differ in their scope
and method, all require organisations to collect data about failures.
Mystery shopping offers another way to detect problems (Finn, 2001), because it
involves field researchers making test purchases, challenging service centres with test
problems, and filing test complaints. Although the data may not be representative,
they help in identifying error-prone processes and can also be useful for staff training
and for establishing service benchmarks.
The third approach to gathering service failure data makes use of customer surveys
that explicitly ask about critical incidents (Bitner et al., 1990; Johnston, 1995).
Application of the critical incident technique and other critical incident studies combine
the advantages of qualitative studies, because respondents describe what happened in
their own words, with those of quantitative studies, because they can categorise
incidents systematically. Although critical incident studies are well developed (Gremler,
2004), only a few companies use this approach for service recovery management.

Analysing and interpreting failure data

There are several techniques for analysing and interpreting failure data including
Frequency-Relevancy Analysis of Complaints (FRAC), fishbone diagrams and Quality
Function Deployment (QFD).
The FRAC approach helps managers prioritise their process recovery efforts by
categorising issues in terms of their frequency of occurrence and their relevancy or
potential impact (Stauss and Seidel, 2005). In contrast, the fishbone diagram (Ishikawa,
1985) qualitatively links internal problems (causes) with service failures (effects) to
identify the main causes of the problem (Stauss and Seidel, 2005). Alternatively, using
critical incident information, QFD tools can be applied to transform problem
information into problem solutions and problem prevention activities (Stauss, 1993).
Despite the many traditional OM tools and techniques for failure data collection and
analysis and the more recent work on identifying and categorising service failures and
understanding their impact, few organisations appear to learn from their mistakes
and problems (Armistead and Clark, 1994; Johnston and Clark, 2005; Johnston and
Mehra, 2002; Tax and Brown, 1998). Tax and Brown, for example, reported that many
customers are less than satisfied that improvements have been made to the system to
prevent future problems. The research cited earlier (MORI, 1997) which reported that
about 50 per cent of people complain in order that the organisation might improve its
services also found that only one in ten felt that the service had improved as a result.

Employee recovery
A critical component in service recovery procedures is the front-line employee who has
to deal with complaining and aggrieved, and sometimes highly emotional, customers.
They often find themselves sandwiched between understandable customer grievances Three outcomes
and intransigent management or unchangeable organisational policies and procedures, of service
giving rise to high levels of stress in employees. Much of the employee literature
associated with recovery has concerned the role of the employee, such as their ability to recovery
adapt (Boshoff and Leong, 1998), their need to be proactive (Iacobucci, 1998) and the
role of self managing teams (de Jong and de Ruyter, 2004).
Bowen and Johnston (1999) take a different approach and introduce the notion of 87
employee recovery. They found that while the organisations in their study were well
aware of the concept of customer recovery they were poor at, or had a limited notion of,
the need to “recover” employees, i.e. supporting their employees in their difficult role of
dealing with complaining customers. (Bowen and Johnston referred to this as “internal
service recovery”.)
Johnston and Clark (2005, p. 398) further suggested that:
. . . some organisations just let their staff soak up the pressure resulting from their inadequate
service systems leading not only to dissatisfied and disillusioned customers but also stressed
and negatively disposed staff who feel powerless to help or sort out the problems.
This helpless feeling (known as “learned helplessness” see for example Martinko and
Gardner, 1982) “encourages” or rather induces employees to display passive, maladaptive
behaviours, such as being unhelpful, withdrawing or acting uncreatively. The employee
alienation associated with this helplessness will be compounded when employees feel that
management does not make efforts to recover them, the employees, from this helpless state.
This alienation impacts directly on customers, especially complaining or aggrieved
customers. In a recent critical incident study of 2,520 service failures and recoveries in a
Swiss Bank, Michel (2003) reported that incorrect actions and inappropriate behaviour
by employees were not the cause of the majority of the failures. A content analysis of all
the incidents revealed that 25 customers reported impoliteness, 33 lack of empathy,
13 lack of effort, 11 missing explanations, 35 dishonesty, and five an unfavourable
attitude. These cases represented less than 5 per cent of the total reported service
failures. However, employee behaviour was a more important factor in the recovery
process. A frequency analysis indicated that customers described 1,380 different
recovery activities following the 2,520 service failures. Of those, 336 (24.3 per cent) were
employee related, whereby 171 incidents (50.8 per cent) were perceived as negative and
dissatisfactory, and 165 incidents (49.2 per cent) were perceived as positive and
satisfactory. Interestingly, some of the customers empathised with the employees who
appeared stressed and did not have enough time to serve them well.

Service recovery management

Our review of the service recovery literature indicates that the focus tends to be on
customer recovery (i.e. the marketing perspective) – the majority, or employee
recovery (i.e. the management/HR perspective) or process recovery (i.e. the OM
perspective). Recent evidence suggests that managers need to integrate these three
approaches rather than to prioritise one perspective over the others. For example,
although most managers might agree that learning from customer feedback is an
important, efficient, and effective tool for process improvement, one of the biggest
hurdles to doing so stems from the lack of information that flows between the part of
the business that collects and deals with customer problems (for example, the customer
IJOPM service department) and the rest of the organisation. Research suggests that the more
negative feedback the customer service department collects, the more isolated this
28,1 department becomes (Fornell and Westbrook, 1984). Furthermore, Tax and Brown
(1998, p. 83) noted that “employees showed little interest in hearing the customer
describe the details of the problem. They treated the complaint as an isolated incident
needing resolution but not requiring a report to management”. This approach has been
88 labelled as “See no evil, hear no evil, speak no evil” (Homburg and Fürst, 2005a), which
arises out of a defensive organisational behaviour approach to complaint handling.
Actual or potential threats to employees’ self-esteem, reputation, autonomy, resources,
and job security lead to the suppression of information. Consequently, a lack of
employee recovery leads to both poor customer recovery and poor process recovery.
Conversely, combining state-of-the-art employee recovery with process recovery can
lead to superior customer recovery. A cross-industry study that explored the effectiveness
of an organic (employee-driven) versus a mechanistic (process-driven) approach to
complaint handling in terms of justice, satisfaction, and loyalty showed that the effect of
the mechanistic approach, which pertains mainly to distributive and procedural justice, is
stronger overall, but the approaches complement each other. In other words, an over
reliance on an organic approach, which considers mainly culture and is more applicable to
international justice, may be shortsighted because it requires empowerment. An organic
approach may be more successful for customised, complex offerings (Homburg and Fürst,
2005b).

Developing the research model

The purpose of this paper was firstly to highlight these multiple outcomes of service
recovery and secondly to investigate the impact of service recovery procedures
(i.e. the way service recovery is managed and executed) on the three outcomes of service
recovery – recovery of the customer, recovery (i.e. improvement) of the processes, and
recovery of the employees. These three are outcomes (results) of the recovery procedures
employed by an organisation when a failure or error has occurred. The procedures may
involve, for example, the speed and manner in which the customer is dealt with, the
degree of discretion available to staff in dealing with the customer, and the procedures
for collecting and analysing failure information. These procedures will result in:
(1) customer recovery (for example, satisfied customers which in turn may lead to
higher levels of customer retention and more word-of-mouth recommendations);
(2) process recovery (for example, improved processes with higher levels of
efficiency, or less complexity resulting in fewer errors); and
(3) employee recovery (for example, a less stressed workforce with a more positive
attitude towards the job and customers, which in turn may result in less
absenteeism and reduced staff turnover).
One acid test of the impact of these three outcomes is their relative impact on the
financial performance of the organisation, such as contribution to profits or revenue
streams or reduction in costs. This might be achieved by increased customer retention
or spending (from customer recovery), or reduction in costs (from process
improvement) or from reduced absenteeism or staff turnover (from employee
recovery). Thus, the model shown in Figure 2 links recovery procedures through the
three outcomes of recovery to financial performance (Johnston, 2001).
 Three outcomes
Customer recovery of service
recovery

Recovery
Process recovery
Financial 89
procedures performance

Figure 2.
Employee recovery The outcomes of service
recovery

The study
Questionnaires were administered as part of the Complaint Management Excellence
Programme organised by the Customer Service Network in conjunction with Warwick
Business School. This study is based on detailed data from all of the 60 respondents.
The questions were based on reviews of the literature, focus group interviews with
customer service managers not associated with the study, and refined following a pilot
study involving 20 organisations.
The respondent in each organisation was typically the senior manager responsible
for the customer service department. The organisations were self-selected to take part
in the study.
The survey comprised about 200 questions which were used to benchmark the
organisations against each other. About half the questions collected data on numbers
and types of complaints, training undertaken, etc. the other half, 41 of which were the
basis for this study, used a 1-5 scale with descriptions associated with points 1, 3 and 5
with 1 representing poor practice and 5 good practice (Table I).
The constructs relevant to this study were recovery procedures, customer
satisfaction and retention (representing customer recovery), process improvement
(representing process recovery) and employee attitude and retention (representing
employee recovery), and financial performance (Figure 3).
Totally 13 questions in the survey concerned the recovery procedures (Cronbach
a ¼ 0.889):
(1) complaints process;
(2) complaint management process;
(3) comprehension of the need for fast response;
(4) ease of using the complaint process;
(5) complaints process understanding;
(6) users’/customers’ expectations;
(7) responsiveness;
(8) complaint management service delivery;
(9) reliability;
 90
28,1

Table I.
IJOPM
1 2 3 4 5

Enter grading of attribute

eg, 4, N/A, etc.
Complaints process There is no The complaint The organisation
procedure for procedures are has clear and
dealing with implied rather explicit
complaints than explicitly procedures for
defined dealing with
complaints
Complaint management There is no clear The process is User/customer
process route for either confusing. May with a problem or
queries or have to speak to complaint will
complaints several normally deal
users/customers. with a single
Several forms, person
etc.
Comprehension of the need Staff do not There is an All staff
for fast response understand the implicit understand the
link between understanding link between
delay and that complaints delay in dealing
dissatisfaction need to be dealt with a complaint
with quickly and intensity of
dissatisfaction
 Three outcomes
Customer recovery
of service
Customer Customer recovery
satisfaction retention

Process recovery
91
Recovery Financial
procedures Process performance
improvement

Employee recovery

Employee Figure 3.
Employee
attitude The constructs in the
retention
model

(10) service problems and failures;

(11) discretion and empowerment;
(12) service recovery; and
(13) complaint follow-up.

There were three questions on customer satisfaction, covering (Cronbach a ¼ 0.727):

(1) satisfaction trends;
(2) satisfaction with service or product; and
(3) satisfaction with complaint management process.

There were five questions covering customer retention (Cronbach a ¼ 0.731):

(1) user/customer loyalty;
(2) user/customer turnover (churn);
(3) user/customer referral;
(4) user/customer portfolio; and
(5) market share.

Process improvement was captured in seven questions (Cronbach a ¼ 0.808):

(1) employee involvement in complaint management process improvement;
(2) process improvement;
(3) complaint management process improvement ideas;
(4) process change initiatives;
(5) process driven changes;
(6) communication of improvement ideas; and
(7) use of complaint data.
IJOPM Employee attitude involved five questions concerning (Cronbach a ¼ 0.791):
28,1 (1) complaint handling staff attitude to the complaint management process;
(2) complaint handling staff empowerment;
(3) complaint escalation;
(4) problem ownership; and
92 (5) responsiveness of complaint handling staff.

There were three questions on employee retention (Cronbach a ¼ 0.777):

(1) retention;
(2) loyalty; and
(3) employee morale.
Five questions captured financial performance (Cronbach a ¼ 0.840):
(1) lifetime values;
(2) profitability;
(3) switching;
(4) overall, costs associated with the management of complaints; and
(5) cost of complaints (replacement goods, compensation, etc.).

The constructs were developed with industry partners. All the constructs meet the
reliability test of Cronbach a larger than 0.7 (Nunnally and Bernstein, 1994). Out of the
60 respondents, only 22 (36.7 per cent) answered all 41 questions. Therefore, for each
construct, the average score of all items was calculated. The limited number of
respondents in relation to the number of items and missing data precluded the use
of techniques such as confirmatory factor analysis or structural equation modelling, so
simple correlation coefficients were calculated between the constructs in the model.
For the same reason, common method bias could not be controlled for, which is a
limitation of our study.
Results and findings
The data for each pair of constructs in the model were plotted and correlation
coefficients calculated. Analysis of the data has shown significant correlations between
the constructs at a 1 per cent level. Figure 4 shows the correlation coefficients.
Customer recovery. The recovery procedures appear to have a lower impact on
customer recovery than the other outcomes. The pair of relationships with the weakest
correlation is customer satisfaction and customer retention. However, for those customers
who are satisfied and retained, customer recovery has a fair impact on financial
performance. While customer recovery has been a key focus for many service academics
and many organisations this path has the lowest overall impact on organisation’s financial
performance.
Employee recovery. The greatest impact of recovery procedures was on the
employees in terms of their attitude and retention but with only a fair impact on
financial performance. Those organisations with “good” complaint procedures appear
to have a great impact on employees by generating positive employee attitudes and
high levels of retention leading to a positive impact on financial performance.
 Customer recovery
Three outcomes
of service
Customer 0.36 Customer recovery
satisfaction retention
0.54 0.58
93
Process recovery
Recovery Financial
0.66 Process 0.67
procedures performance
improvement

0.75 0.52
Employee recovery

Employee 0.75 Employee Figure 4.

attitude retention The outcomes of service
recovery

Process recovery. The second largest impact of recovery procedures was on process
recovery. It would appear that the organisations with the better recovery procedures
led to improvements in process which in turn had a high, indeed the highest, impact on
financial performance.
Furthermore, few organisations in the sample scored highly on both pairs of
constructs. For example, Figure 5 shows the relationships between one pair of
constructs, recovery procedures and customer satisfaction for the 60 respondents.
The scatter diagram in Figure 5 shows that only four out of the 60 organisations
(7 per cent) scored above four on both constructs (the top right box in the chart). Indeed,
the scatter diagrams for all the pairs of relationships reveal that very few organisations
scored above four (out of five) on both dimensions (Table II).

5
Customer Satisfaction

2
Figure 5.
Recovery procedures
1
1 2 3 4 5 versus customer
satisfaction
Recovery procedures
IJOPM Few organisations (despite the potential positive biases from self reporting) appear to
have good (above 4) recovery procedures and good (above 4) outcomes. Despite the
28,1 importance of service recovery and its impact on customers, process improvement and
employees, and indeed the bottom line, it would appear (as suggested by Tax and
Brown, 1998; Bowen and Johnston, 1999) that many customers are dissatisfied with the
way organisations handle their complaints and, worse still, few organisations learn
94 from their mistakes and problems and leave the employee feeling stressed. “Good”
service recovery procedures seem to elude many organisations.
While many organisations, and the literature, are concerned with service recovery
few seem to be good at it, whether customer recovery or process recovery or employee
recovery.

Conclusions
Service recovery procedures appear to have a greater impact on employees and process
improvement than on customers. We would suggest that many organisations and
academic researchers have taken a limited view of service recovery by concentrating
on the less potent area of customer recovery and largely ignoring the potentially higher
impact outcomes of process and employee recovery. This work supports the emerging
view that service recovery is not simply about recovering the customer. From a
practitioner perspective it challenges the way some organisations have focused their
recovery procedures on satisfying or indeed delighting customers and suggests that by
so doing they are missing out on substantial benefits. It also suggests that many
organisations have a long way to go to develop the management and execution of
service recovery.
This paper seeks to challenge practitioners to assess whether their recovery
procedures are seen simply as a sunk cost of the business or as an important financial
generator. As a sunk cost, recovery tends to be focused on providing short-term relief
to customers who have experienced a failure. Having procedures in place which focus
managerial attention on driving process improvement and helping staff cope with
stressful failure situations appears to have a significant impact on an organisation’s
financial performance.
From an academic point of view it highlights the limited research into process and
employee recovery and seeks to encourage academics to bring other perspectives, in
particular OM and human resource management, to bear on the topic of service
recovery. The two outcomes of process recovery and employee recovery appear to be

Pairs of constructs Percentage

Recovery procedures Customer satisfaction 7

Recovery procedures Process improvement 10
Recovery procedures Employee attitude 3
Table II. Customer satisfaction Customer retention 3
Percentage of Customer retention Financial performance 7
organisations scoring Process improvement Financial performance 7
greater than 4 on both Employee attitude Employee retention 5
constructs Employee retention Financial performance 7
under-researched when compared to the material on customer recovery and its impact Three outcomes
on customer retention. of service
Limitations and further work recovery
This study is not without its limitations. The small sample size and missing items
precluded the use of techniques such as confirmatory factor analysis or structural
equation modelling. In addition common method bias could not be controlled for. 95
Furthermore, the sample was limited to organisations which volunteered to take
part in a benchmarking exercise. In addition, the questionnaire was self administered
by the senior managers in the organisation, which opens up the question of
over-reporting.
Further, work is required to test the findings; indeed it would be helpful to take data
from specific service sectors. While this work looks at the some of the consequences, or
outcomes, or service recovery, it would be helpful to consider the antecedents, the
drivers, of “good” recovery procedures, such as performance measurement systems,
communication systems, and organisational culture. It may be possible to identify
which of these have the larger or smaller impacts on, not only the quality of recovery
processes, but also the outcomes of customer, process and employee recovery, and
importantly, a firm’s financial performance.

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Corresponding author 99
Robert Johnston can be contacted at: bob.johnston@warwick.ac.uk

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