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THE IMPACT OF TOTAL QUALITY MANAGEMENT ON SERVICE QUALITY, CUSTOMER ENGAGEMENT, AND CUSTOMER LOYALTY IN

BANKING

Rosa Harimurti 1 , Tatik Suryani

1 Department of Business and Marketing Management STIE Perbanas, Jl. Nginden Semolo No.34-36,

Surabaya 60118, Indonesia 2 Master of Management STIE Perbanas, Jl. Nginden Semolo No.34-36, Surabaya 60118, Indonesia

Email: 1 [email protected];

2 [email protected]

*Corresponding author

Abstract

The purpose of the research is to examine the impact of Total Quality Management (TQM)

implementation on Service Quality, the effect of Service Quality on Customer Engagement and Customer Loyalty in banking industry. The other objective of the research also to examine the effect of Customer Engagement on Customer Loyalty. This research was conducted in East Java Province which involved 209 State Owned Enterprises (SOE) bank customer’s as respondents. All variables are measured by Likert scale from bank customer perspectives. By Partial Least Square SEM analysis, the research found that TQM practices has positive effect on Service Quality, Service Quality has positive effect on Customer Engagement and Customer Loyalty and Customer engagement has positive effect on Customer Loyalty. The implication of this research is that SOE banks should implement TQM well so that it has a positive impact on service quality. Keywords: Total quality management, service quality, customer engagement, customer loyalty.

Introduction

The biggest challenge for global business is to

survive and achieve better business performance in

the global market (Zakuan, Yusof, Laosirihongthong,

& Shaharoun, 2010). Quality management has an im-

portant role for improving business performance.

Total Quality Management (TQM) practices will

affect the company's business performance (Psomas

& Jaca, 2016). Other research also found the positive

outcome of TQM implementation in banking (Petnji,

Marimon, & Casadesus, 2011).

State Owned Enterprise (SOE) banks as a global

business also faced many challenges to achieve better

performance. SOE banks in Indonesia have to com-

pete with foreign banks. SOE banks such as Mandiri,

BTN, BNI, and BRI should operate more efficiently

than foreign banks and provide world-class services in

order to win the competition. In fact, they are not as

efficient as Thailand and Philippines Banks (Mongid

& Muazaroh, 2017). In addition, the service quality

should be improved. Hence, in order to improve their

efficiency, it is important for SOE to improve their

TQM, their service quality and other business per-

formance. This competition is predicted to be even

higher in 2020 where the Asean financial sector inte-

gration will be carried out.

TQM research is essential because it could dis-

cover critical factor to support TQM implementation,

especially within the service sector which are rarely

studied (Al-Tabbaa, Gadd, & Ankrah, 2013; Mensah,

Copuroglu, & Fening, 2012). In detail, TQM research

is rarely done within banking service and its impact

toward marketing performance such as customer en-

gagement and customer loyalty.

TQM consists of five important dimensions such

as such as customer focus, management involvement,

continuous improvement, organizational context defi-

nition, and continuous improvement (Psomas & Jaca,

2016). In practice, to improve the banking service

TQM, company should consider these dimension.

This research is specifically focused in the effect

of TQM toward marketing performance which are

service quality (Psomas & Jaca, 2016). This is impor-

tant because customer engagement could affect custo-

mer engagement and loyalty (Hapsari, Clemes, &

Dean, 2017).

Total Quality Management (TQM)

Total Quality Management (TQM) is a way to

continuously improve performance at each level of

the process, in each functional area of an organization,

by using all available human and capital resources. By

implementing TQM, bank enable identifies customer

requirements, improve process to deliver services, and

reduce error in services (Baidoun, Salem, & Omran,

2018).

JMK, VOL. 21, NO. 2, SEPTEMBER 2019, 95–103 DOI: 10.9744/jmk.21.2.95–103 ISSN 1411-1438 print / ISSN 2338-8234 online

JURNAL MANAJEMEN DAN KEWIRAUSAHAAN, VOL. 21, NO. 2, SEPTEMBER 2019: 95–103

The aim of TQM is to improve service quality in the hope of fulfilling and satisfying the needs and desires of the target customers. Previously studies reported the benefits of TQM implementation such as increasing the efficiency and productivity, market share, employees’ morale, quality, employee perfor- mance and competitive advantage (Sadikoglu & Zehir, 2010; Zairi, 2013; Weckenmann, Akkasoglu, & Werner, 2015; Rad, 2005).

The aim of TQM is to improve service quality in the hope of fulfilling and satisfying the needs and desires of the target customers. Psomas and Jaca (2016), TQM components for the advancement of service quality include: total employee involvement, continuous improvement, ongoing training, team- work, empowerment, commitment and support from top management, democratic management style, cus- tomer satisfaction focus and quality culture. After reviewing the description above, this study focuses on three dimensions of TQM are the quality of human resources, customer focus, and employee knowledge. Three of dimensions will be described in the follow- ing explanation:

Human Resources (HR) Development Quality

TQM implementation is highly influenced by

top leaders’ commitment toward human resource

(HR) development. (Talib, Rahman, & Qureshi, 2013).

HR development result could be described as the

ability of employees to provide internal and consumer

services, such as speed of service and solutions to

applicable customer complaints in government banks

that apply to customers (Psomas & Jaca, 2016). The

company can develop HR through various programs

which enable employees to fulfill their job spe-

cifications, including on the job training (OJT), skills

training, and career development. Employee develop-

ment is also influenced by the commitment of each

employee to develop (Lau & Tang, 2009). The

quality of HR development is a measured based on

the competency development program or HR training

and employees’ commitment to develop competen-

cies (Psomas & Jaca, 2016).

Customer Focus

In TQM, customer focus is an essential part of company to improve their service quality. Customers focus consists of internal and external customers who will determine the direction of the company's quality. Internal customers are the company or employees who are responsible for customers, whereas external parties are customers who determine the direction of the company's quality. The customer focus can be

measured based on several indicators (Psomas & Jaca, 2016). These indicators are ease of customer complaint, consumer evaluation, and consumer treat- ment.

Employees Knowledges

Employee knowledge is important toward cus- tomer service. Employee who has good or enough knowledge could explain and solve customer pro- blem. This knowledge is practiced when the emplo- yee informs, handle complaints, and give other ser- vices to the customers (Psomas & Jaca, 2016).

Service Quality

In banking industry, service quality has strategic role for gaining competitive advantage. It’s difficult to differentiate product in banking industry, so service quality become one of the attribute to distinguish bank from another bank. According to Khorshidi ̧ Naghash, and Mohammadian (2014) high quality of services enable bank achieving competitive advantage.

There are many definitions and concept about service quality. Most of previously studies revealed that satisfaction is the result of a process of com- parison between customer’s expectations and percep- tions of performance (Shayestehfar & Yazdani, 2019). When customers perceive about many kinds of service attributes, it means that they evaluate about quality of services.

Zeithaml et al. (1988) in Lin (2012), identifying SERVQUAL dimensions into five aspects as follows:

 Tangibility: Physical facilities, equipment, and personnel appearance.

 Reliability: Able to perform the promised service properly and accurately.

 Responsiveness: Willingness to help customers and provide prompt service.

 Assurance: Knowledge and politeness of em- ployees, as well as their ability to convey trust and confidence.

 Emphaty: Caring, individual attention given by service providers to their customers.

SERVQUAL model is chosen to measure service quality because it could portrait service dimensions and it could be measured based on the banking service customer perspective (Fauzi & Suryani, 2019).

An excellent service is a service that prioritizes customers with high quality who prioritize fast, relia- ble service, understand customer needs, in this case customer focus (Rahmayanti, 2010). If the imple- mentation of service quality is implemented in an integrated manner, it will make customers feel valued.

https://www.emeraldinsight.com/author/Qureshi%2C+MN

Harimurti: The Impact of Total Quality Management on Service Quality

TQM Implementation and Service Quality

Based on the description above, the imple-

mentation of TQM on the company will improve the

quality of service to customers (Calvo-Mora, Picón,

Ruiz, & Cauzo, 2014). TQM implementation could

affect quality service improvement (Psomas & Jaca,

2016). Company whose top management implement

TQM will have higher commitment to develop their

HR. Furthermore, they will also be more focused on

their customer as well having higher concern toward

employee knowledge. All these factors will affect the

company service quality toward its customer. Hence,

based on The first hypothesis in this study is:

H1: Implementation of the TQM Dimension has

positive significantly effect on service quality in

banking industry.

Customer Engagement (CE)

Customer engagement occurs on two parties

who will be involved in a relationship with marketing

are between consumers or companies. The occurrence

of involvement between customers and companies is

because there are dynamic relationships and emotio-

nal attachments in the transaction process. So et al.

(2012) in Hapsari et al. (2017) identify five dimen-

sions of customer engagement:

1. The level of a consumer’s perception or sense of

belonging to the brand (identification);

2. Levels of attention that focus and connect with the

brand (attention);

3. Level of passion and interest in brand (enthu-

siasm);

4. Pleasant conditions where the customer animates

with a positive response when playing the role of

the customer brand (absorption);

5. Various levels of participation that customers have

with brands (interaction).

Customer engagements play an important role in

a company, where in making customer engagement

or customer involvement as a company's marketing

strategy, it will achieve the company's goals of in-

creasing customer loyalty. Loyalty increases because

there is a positive response from consumers to the

company that raises interest in other consumers (So,

King, Sparks, & Wang, 2016). CE represents a per-

son's psychological state, characterized by a certain

level of intensity that plays a central role in the

process of customer involvement. Apart from that it is

an impact in the CE process. Thus, CE is defined as a

multidimensional concept consisting of cognitive,

emotional, and behavioral dimensions (Brodie et al.,

2011 in Fernandes & Esteves, 2016). According to

Hapsari et al. (2017), Dhasan, Suwanna, and Theingi

(2017), customer engagement is measured based on

two indicators: (1) a sense of pride in the company,

(2) Feel comfortable with the company.

Customer Loyalty

Customer loyalty is a deeply held commitment

to repurchase or rebuy preferred products or services

consistently in the future. (Ribbink, van Riel, Liljan-

der, & Streukens, 2004). Loyal customer will most

likely buy rather than a normal customer. Griffin

(2002) stated that a consumer is said to be loyal or

loyal if the consumer shows buying behavior regu-

larly or there is a condition which requires consumers

to buy at least twice in a certain time interval. Kotler and Keller (2012) argue that, loyalty is a

commitment held deeply to buy or support a product

or service that is favored in the future even though the influence of the situation and marketing efforts has

the potential to cause customers to switch. According to Hapsari et al. (2017), Dhasan et al. (2017), custo-

mer loyalty is measured from consumer behavior such as: their willingness to recommend to others,

their preferences to the product and intensity to con- sume / buying products.

Customer loyalty is not only about attitude but also behavior (Suryani, 2013). So, in many research

for measuring customer loyalty can be seen form atti- tude (affective, cognitive, and conative components)

and behavior related with product or services.

Service Quality on Customer Engagement (CE)

and Customer Loyalty

Maintaining the quality of service so that it

remains good is very necessary for the company so

that the customer's perception of the company is

positive. The quality of service will have a positive

impact on companies CE by involving the compe-

tencies of each internal company to customers. The

decision is on the part of the customer that the quality

received can meet their needs and desires. If the

quality received by the customer is in line with ex-

pectations or even exceeds, the customer feels proud,

happy, satisfied, and their expectations are realized.

The research results of Dhasan et al. (2017)

which show that, from the functional side of service

quality, it has a significant effect on customer enga-

gement (CE) in the offline context. Consumers will

respond positively to services that are accepted by

recommending to others. Companies need to improve

service quality to maintain and increase consumer

loyalty. The positive response that consumers will

give when the quality received can be felt to meet the

JURNAL MANAJEMEN DAN KEWIRAUSAHAAN, VOL. 21, NO. 2, SEPTEMBER 2019: 95–103

needs of consumers is to be loyal to the selected

product. Kotler and Keller (2012) also argue that

loyalty is a commitment held deeply to buy or support

a product or service that is favored in the future even

though the influence of the situation and marketing

efforts have the potential to cause customers to

switch. Lin (2012), which states that multi - channel ser-

vice quality as measured by SERVQUAL dimensions has a significant effect on consumer loyalty. These dimensions are tangibility, responsiveness, and empa- thy. In accordance with the opinion of Zeithaml et al. (1988) in Lin (2012) Tangibility dimensions in the form of physical evidence, facilities, and personal appearance. The responsiveness dimension is willing- ness to help customers and provide fast service, and the empathy dimension is how service providers pay attention to individuals by providing solutions to customer complaints. In addition, the results of testing So et al. (2016), which states that service brand evaluation with indicators of service quality, perceiv- ed value, and customer satisfaction, has a significant effect on brand loyalty but not as much as other variables. Then the second and third hypotheses of this study are: H2: Service quality has a significant positive effect

on customer loyalty in banking industry. H3: Service quality has a significant positive effect

on customer engagement in banking industry. Customer Engagement (CE) and Customer Loyalty

The customer concept plays an important role in building customer loyalty to the brand. Interaction with companies, facilitate better business decisions and encourage customer loyalty. Dhasan et al. (2017) in their research explored the impact of customers online and their effect on customer brand loyalty. The role of online experience has a greater influence on the positive influence of customer loyalty on the brand.

In addition, customers are willing to share their experience and quality of service with their family and friends and also with service providers, (Theingi et al., 2016 in Dhasan et al., 2017). The company will strive to gain a competitive edge on the quality of service that given to customers, because customers with a positive mindset will have an impact on increasing positive WOM to relatives or other people. So et al. (2016), also states that customer engagement has a significant effect on brand loyalty. states that overall customer engagement factors have the greatest influence on loyalty when compared to other varia- bles. So the fourth hypothesis of this study is: H4: Customer engagement has a significant positive

effect on customer loyalty in banking industry.

Figure 1. The conceptual research framework

Research Methods

This study use survey methodology using ques- tioner as the instrument to gather data. Variables were measured by Likert scale with five categories of res- ponses ranging from strongly disagree (score 1) to strongly agree (score 5) where respondents were asked to indicate the level of agreement or disagree- ment with some statements related to the object (Malhotra, 2010). Sample selected based on purpo- sive sampling. They must be SOE bank customers in Surabaya and Sidoarjo, and Gresik.

There are two steps required to gather data, which are: 1. Finding Bank customer which meet certain

criteria, such as: customer of SOE bank who are actively using the banking service at least one every two weeks and live in Surabaya or Sidoarjo or Gresik.

2. Customer fill the questioners, including their pro- file and the questions regarding this study.

Purposive sampling technique where the sample is selected according to several criteria (Sugiyono, 2015) is used in this study. The criteria used in this study are people who have signed up as the bank customer for at least two years, and within one month the customer must interact minimum of two times within the bank.

In total, 235 questionnaires were distributed to respondents who meet the sampling criteria. Accord- ing to the previous research conducted by Ghozali and Latan (2014), the sampling size is sufficient to represent the population. However, from 235 ques- tionnaires twenty-six questionnaires were not returned to the author. In the end there are 88.94% response rate within this study.

WarpPLS 4.0 is used to analyze the data in this study. WarpPLS 4.0 is one of many alternative method for structural equation models (SEM), which is to test simultaneously the relationship between latent constructs in linear or nonlinear relationships with many indicators in the form of A mode (reflective), B mode (formative) and or M mode

Harimurti: The Impact of Total Quality Management on Service Quality

(MIMIC) (Ghozali & Latan, 2014). The steps of this research method include: 1. Model conceptualization 2. Determine the method of analysis algorithm 3. Determine the resampling method 4. Draw a path diagram 5. Evaluate the model

Results and Discussion

Validity and Reliability Analysis

The analysis of validity and reliability is present-

ed in Table 1. The items are valid if the loading factor

value is between 0.6–0.7. Hence, all the items are

valid (Ghozali & Latan, 2014)

Table 1

Indicator Loadings and Latent Variable Coefficient

Item Factor

Loading P Value

Cronbach's Alpha

Composite Reliability

HR1 0.892 <0.001 0.913 0.935 HR2 0.867 <0.001 HR3 0.817 <0.001 HR4 0.874 <0.001 HR5 0.854 <0.001 CF1 0.8 <0.001 0.886 0.913 CF2 0.82 <0.001 CF3 0.751 <0.001 CF4 0.815 <0.001 CF5 0.841 <0.001 CF6 0.758 <0.001 EK1 0.78 <0.001 0.868 0.905 EK2 EK3

0.833 0.738

<0.001 <0.001

EK4 0.861 <0.001 EK5 0.833 <0.001 SQ1 0.755 <0.001 0.917 0.932 SQ2 0.741 <0.001 SQ3 0.762 <0.001 SQ4 0.78 <0.001 SQ5 0.788 <0.001 SQ6 0.825 <0.001 SQ7 0.827 <0.001 SQ8 0.818 <0.001 SQ9 0.685 <0.001 CE1 0.786 <0.001 0.913 0.933 CE2 0.847 <0.001 CE3 0.814 <0.001 CE4 0.867 <0.001 CE5 0.85 <0.001 CE6 0.847 <0.001 CL1 0.874 <0.001 0.924 0.939 CL2 0.783 <0.001 CL3 0.845 <0.001 CL4 0.801 <0.001 CL5 0.817 <0.001 CL6 0.849 <0.001 CL7 0.827 <0.001

The reliability analysis in Table 2 show that the

AVE root value of HR development (HR) is 0.74.

Customer Focus (CF) value is 0.64, Employee Know-

ledge (EK) value is 0.66, and Service Quality (SQ) is

0.6, Customer Engagement (CE) value is 0.7 and

lastly Customer Loyalty (CL) value is 0.69. Accord-

ing to these results, all the instrument used to measure

the variable are all reliable. This is because the com-

posite reliability value range between 0.6-0.7

(Abdillah & Jogiyanto, 2015).

Table 2

Correlations Among Latent Variables and Errors

HR CF EK SQ CE CL

AVE 0.74 0.64 0.66 0.60 0.70 0.69

Descriptive analysis in Table 3 shows that all the

variables which are TQM implementation, Service

Quality, Customer engagement and Customer Loyal-

ty have mean in high category. It means bank have

implemented TQM in good conditions, they have

high service quality. From SOE bank it’s a good asset

for gaining advantage in facing competition with

private bank and financial institutions who deliver the

same services.

Table 3

Descriptive Analysis of Variables

Variables Mean Category

TQM Implementation 3.99 High

HR Development Quality (HR) 4.05 High

Customer Focus (CF) 3.91 High

Employee Knowledge (EK) 4.02 High

Service Quality 4.01 High

Customer Engagement 3.73 High

Customer Loyalty 3.80 High

Results of PLS-SEM Analysis

The result of data analysis conducted using

WarpPLS 4.0 is shown in Figure 2. The results show

that:

1. Human Resource Management development qua- lity (HR), Customer Focus (CF), and Employee

Knowledge (EK) are the dimensions of TQM im-

plementation. HR development quality has posi-

tive effect significantly Service Quality (p value <

0.01 smaller than required, which is < 0.01). The

direction of the relationship between HR quality

and service quality is positive 0.274. Then the rela-

tionship between customer focus (CF) and service

quality (SQ) has also significant with p value <

0.01. The path coefficient value of 0.221 indicates

that the direction of the relationship between

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100

customer focus and service quality is positive. The

relationship between relationship between emplo-

yee knowledge (EK) with service quality is also

significant with a value of p value < 0.01.

Figure 2. Outer model framework

Table 4

Path Coefficient

HR CF EK SQ CE CL

SQ 0.274 0.221 0.436

CE 0.614

CL 0.315 0.591

The path coefficient value of 0.436 means that the

results show that the relationship between know-

ledge of employees (KE) and service quality (SQ)

is positive.

2. TQM implementation has positive effect signifi-

cantly on Service Quality (SQ) (p < 0.01) and the

coefficient value 0.31).

3. Service quality has positive significantly effect on

customer engagement (p value <0.01). The direc-

tion of the relationship between service quality

and customer engagement is positive because the

path coefficient value is 0.614. So the H2 hypo-

thesis which states service quality (SQ) has a

positive significant effect on Customer Engage-

ment (CE) is accepted.

3. Service quality has positive effect significantly on

customer loyalty (p value < 0.01). The direction of

the relationship between service quality and custo-

mer loyalty is positive with path coefficient value

is 0.315. So, H3 hypothesis which states service

quality (SQ) has a significant positive effect on

Customer Loyalty (CL) is accepted.

4. Customer engagement has positive effect sig-

nificantly on customer loyalty (p value < 0.01).

The direction of customer engagement and custo-

mer loyalty is positively with path coefficient

value is 0.591. It means that the H4 hypothesis

which states Customer Engagement (CE) has a

significant positive effect on Customer Loyalty

(CL) is accepted.

Discussion

The purpose of this research is to examine the

effect of the Implementation of Total Quality Mana-

gement (TQM) from customer perceptions on Service

Quality, Customer Engagement, and Customer

Loyalty in government bank.

Effect of the Implementation of TQM

on Service Quality

The result on this study show that the implemen-

tation of TQM could positively impact the service

quality of SOE banks. This result is also consistent

with the previous study conducted by Psomas and

Jaca (2016). Previous studies and this study showed

that the TQM implementation contributes to company

performance, such as financial performance, product/

service quality, customer satisfaction, and operational

performance (Psomas & Jaca, 2016).

These results indicate that better the quality of

human resource development, the better will it affect

the company TQM implementation. Similarly, the

better company employee knowledge will also affect

the company TQM implementation.

Research in small service organization in Malay-

sia also found that implementation of TQM has

positive significantly effect on satisfaction and service

quality (Ooi, Lin, Tan. & Chong, 2011). Service qua-

lity provided by the bank to its customer will also

improve it is supported by better human resource

quality and better human resource management.

Furthermore, other factor such as Customer

Focus play important role in TQM implementtation

(Psomas & Jaca, 2016). Customer centric company

view that ultimately the customer will judge the

company quality. Company who actively listen and

try to meet customer expectation will serve customer

better.

In addition, customer centric company will

involve customer in their product development.

According to Flynn et al. (in Herzallahah, Gutiérrez-

Gutiérrez, & Rosas, 2014), customer development in

product or service development will reduce future

potential risk problem within the production process.

By involving customer, the production process will

result in a product/service that meet the customer

needs.

Effect of Service Quality on Customer Engagement

(CE)

The result show that service quality has a signi-

ficant positive effect toward customer engagement in

SOE banks. This study is consistent with the previous

Harimurti: The Impact of Total Quality Management on Service Quality

101

study conducted by Dhasan et al. (2017) which

showed that based from the the functional side of

service quality, it has a significant effect on customer

engagement (CE) in the offline context. The functio-

nal aspect within banking service quality consist of

products knowledge, ability to serve faster, ability to

help customer, willingness to overcome customer

complaints, and employee hospitality and courtesy

when serving the customer. If the banks give a quality

service toward its customer, customer are most likely

willing to engage with the bank. Furthermore, custo-

mer who had served with good quality service will

also engage with other customers (Dhasan et al.,

2017). This positive experience regarding the bank

service will drive customer engagement on the

company.

In this study, customers were giving good marks

on bank who provide secure online transactions. This

secure online transaction is shown by the availability

of PIN code change which could protect the custo-

mers. In addition, this initiative is positively perceived

by the customer. Therefore, customers are more will-

ing to engage with SOE banks. Security as a part of

service quality could determine the superiority of

service quality offered by a company. In the end the

good and bad service quality provided by the com-

pany could affect the customer engagement toward

SOE banks.

Effect of Service Quality on Customer Loyalty

The results show that service quality has a signi-

ficant positive effect on customer loyalty at govern-

ment banks. The results of the study are the same as

the results of previous research conducted by Lin

(2012), which states that the multi-channel service

quality supported by the SERVQUAL dimensions

have a significant effect on consumer loyalty. Cus-

tomer who perceived a good service quality will stay

loyal as a customer for the bank. They are less willing

to change their banks, which ultimately show their

loyalty toward the bank.

This study result also in line with the previous

study conducted by So et al. (2016), which proved

that service quality has a significant effect on loyalty.

There are three key element which contributes in ser-

vice quality, those are employee responsiveness when

serving its customer, the banking atmosphere which

result in more comfortable customer. All of these will

affect customer loyalty. Banks should view this as an

important factor because if it’s done correctly, the

could save their promotion budget. Furthermore, loyal

customer could also act as a good marketer for the

bank products and service. When the customer is

loyal toward a bank, customer will more likely to only

use the service or product offered the banks rather

than churning or using other banks (Kotler & Keller,

2012).

Effect of Customer Engagement (CE) on Customer

Loyalty

Based on the analysis, the results show that customer engagement has a significant positive effect on customer loyalty at government banks. This result was consistent with the previous studies conducted by Hapsari et al. (2017) which states that customer enga- gement has a significant positive effect on passenger loyalty. Customer who engage with the banks could be viewed as a loyal customer and will most likely stay with the same bank for a longer time or commit- ment,

The results of the study also support the previous study conducted by Dhasan et al. (2017) who found that customer engagement in an offline context has a significant effect on consumer loyalty. In this study, the determinant of offline is that people say positive things and recommend to others. In addition, the research conducted by So et al. (2016), also states that customer engagement has a significant effect on brand loyalty. This research also found that overall customer engagement factors had the greatest influ- ence on loyalty when compared to other variables, such as satisfaction.

The more positive customer involvement in the company, the more it will increase customer loyalty to the SOE bank they choose. The positive engagement from customer toward the bank is shown as their intention to promote the superiority of the bank pro- ducts/service to the other customers, telling a positive experience, and recommend the bank product/service to their friends or banks customers. Customer who engage with bank tend to show several behaviors such as identification, enthusiasm, and absorption which also included in the Customer Engagement variable (So et al., 2012 in Hapsari et al., 2017).

Conclusion The result of this study shows that the imple-

mentation of TQM which focused on three dimensi- ons of TQM including Human resource development quality, Customer Focus and Employee knowledge could positively affect toward SOE bank service qua- lity. Better service quality will result in improvement toward Customer Engagement (CE) and SOE bank customer loyalty. In addition, Customer Engagement (CE) itself could positively affect SOE bank customer loyalty.

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102

The implication of this study show that within

the implementation of TQM, SOE bank should acti-

vely seek to improve human resource development,

customer focus, and improve employee knowledge.

All of these three could contribute positively toward

the improvement of SOE bank service quality. In

order to improve employee knowledge, SOE bank

should conduct training program, coaching, and

knowledge sharing within the workplace. Thus, a

great service quality will positively affect customer

engagement and customer loyalty.

Secondly, the service quality SOE bank should

focus is to improve employee respond on solving cus-

tomer problem when they engage with their problem.

In result this will improve positive customer expe-

rience from the customer.

Thirdly, SOE Banks should not neglect their

technology quality to support their customer. The

development of digital technology enables customer

to access the banks without any constraint such as

time and place. Technology allow customer to get

faster information and it also improves customer ease

of access toward the banks. These are also viewed as

important in the perspective of customer.

There is also limitation of this study. The future

study should review all the TQM dimensions. This

will help company to discover the full implementation

within TQM. This study recommends future study to

refer to Voon, Abdullah, Lee, and Kueh (2014) TQM

implementation which includes total employee invol-

vement, continuous improvement, continuous train-

ing, teamwork, empowerment, top management com-

mitment and support. Additionally, there is also an

alternative dimension which were used by Talib et al.

(2013) who have more dimensions and tailored to the

banking industry. However, the consequent of using

that dimensions is to involve not only the customer

but also the bank’s employee.

Lastly, future studies could also be improved by

increasing the region scope and the bank type. If it is

possible future study should also cover the entire

banking industry in Indonesia. In addition, future

study could also improve the Bank scope which is not

only cover the SOE Banks, but also private Banks,

conventional and Islamic bank.

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