12-10-2012, 05:36 PM
The Impact of Employee Satisfaction on Quality and Profitability
in High-contact Service Industries
The Impact of Employee Satisfaction on Quality.pdf (Size: 265.17 KB / Downloads: 253)
Introduction
In response to the pressure of globalization, increasingly competitive markets, and volatile market dynamics, many organizations are actively seeking ways to add value to their services and improve their service quality. Organizations are usually keen on making operational efficiency a priority. Operations management (OM) has emphasized the optimization of operational processes as a means to profitably deliver value to customers and to meet or even exceed customer expectations. Substantial research has been devoted to such topics as designing, managing, and optimizing service delivery systems, with a view to raising service quality and operational efficiency (e.g., Frei et al. 1999, Soteriou and Zenios 1999, Hill 2007, Saccania et al. 2007). Many firms have enthusiastically applied the operation-centric approach and demonstrated that it is an effective means for improving organizational efficiency. Nevertheless, the impact of human resources on operational systems has often been overlooked (Boudreau et al. 2003). The importance of employee attitudes, such as job satisfaction, employee loyalty, and organizational commitment, and their impacts on operational performance have largely been neglected in the extant OM literature (Boudreau 2004).
On the other hand, issues related to human resources have been widely investigated in the disciplines of organizational behavior (OB) and psychology for many decades. The pervasive interest in human resources among OB researchers and practitioners is grounded on the premise that employee attributes are crucial to organizational effectiveness (Vroom 1964, Schwab and Cummings 1970), which ultimately influences a firm’s profitability. A vast amount of research has been conducted to examine employee attributes and to what extent employee attributes influence employee morale, commitment, and job performance (e.g., Becker et al. 1996, Meyer et al. 2004).
Yet, OM and human resources seem to have a long history of separateness (Boudreau et al. 2003). Although human resources and operations are intimately tied to each other in virtually all business scenarios, the impact of employee attributes on operations systems has remained largely unexplored. The studies of the impact of employee attributes on operations are particularly essential in the service industry where activities of service employees connect organizations to their customers, and operations managers rely heavily on service employees’ personal interactions to impress customers (Chase 1981, Heskett et al. 1994, Oliva and Sterman 2001).
In this research we attempt to address a fundamental question in OM: Does employee satisfaction have an impact on the operational performance in high-contact service industries where there are direct and close contacts between employees and customers? If so, what are the likely relationships among employee satisfaction, service quality, customer satisfaction and firm profitability? We empirically examined the consequences of employee satisfaction in service operations through a survey of 206 service shops in Hong Kong and the development of theory-based structural equations models.
2. Theoretical Background and Hypothesis Development
2.1 Theoretical Background
Research on employee attributes and performance has traditionally resided in the domain of organizational psychology, not OM. However, as operations managers are increasingly involved in service management (Oliva and Sterman 2001, Ukko et al. 2007), they find employee attributes potentially a vital factor for operational efficiency. On the other hand, the relationship between employee attributes and performance has long been of interest to behavior researchers. The interest of behavior psychologists in studying the linkage between
employee satisfaction and work behaviors goes back to the Hawthorne studies (Roethlisberger and Dickson 1939) – a landmark study that ushered in the organizational behavior perspective. In spite of decades of research, the findings have remained elusive. In their meta-analysis, Mathieu and Zajac (1990) concluded that employee satisfaction has little direct influence on business performance in most instances. Although much research has been successfully conducted to correlate employee satisfaction with individual work behaviors such as turnover, absenteeism, lateness, drug use, and sabotage (Fisher and Locke 1992), the relationship between employee satisfaction and operational performance is less explicit as little rigorous empirical research has been conducted. In particular, from the perspective of strategic operations management, employee satisfaction is not achieved without a cost in view of the fact that reducing expenses on employees is a viable choice for achieving operational efficiency.
Although much research in OM has been conducted to investigate the relationships between quality, customer satisfaction and business performance (e.g., Heim and Sinha 2001, Balasubramanian et al. 2003, Nagar and Rajan 2005), research on the impact of employee satisfaction on operational performance is relatively scarce. In the last decade, the importance of human resources to operational performance has been noted by a few researchers. Roth and Jackson III (1995) revealed that organizational knowledge residing in employees is the primary determinant of superior service quality, influencing market performance. On the other hand, factor productivity, i.e., efforts to become leaner and more efficient, may cause service quality to diminish. Lee and Miller (1999) maintained that a dedicated workforce may serve as a valuable, scarce, non-imitable resource to enhance profitability from a strategic perspective. Oliva and Sterman (2001) found that managers’ attempt to maximize throughput per employee eventually reduces employees’ attention given
to customers. The reduction of time per customer, while resulting in an immediate increase in throughput, eventually gives rise to a vicious cycle of erosion of service standards.
It is generally agreed that service employees are often the first party to represent the whole service firm and therefore are pivotal to shaping customers’ perception of service quality (e.g., Parasuraman et al. 1985, Hartline and Ferrell 1996). Bateson (1985) considered service employees’ job as a ‘three-cornered fight’, in which the customer and the organization are at the two ends, while service employees are ‘caught-in-the-middle’ among them. It is important for service employees to meet the target of productivity performance in the organization and to fulfill customers’ needs and external quality goals. However, there are limited studies that attempt to investigate the relationship between organizational strategies and service employees’ attributes (e.g., Hartline et al. 2000, Sirdeshmukh et al. 2002). Relatively few studies have examined the relationship between service employees’ attributes and service quality (Hartline et al. 2000, Singh and Sirdeshmukh 2000). Earlier studies by Brown and Peterson (1993) identified a weak relationship between employees’ satisfaction and performance (r = 0.15). Nevertheless, it is reasonable to expect that this relationship may be stronger in the small and high-contact service industries.
Inspired by the service-profit chain (Heskett et al. 1994, Heskett et al. 1997), attempts to examine the impact of employee attributes on business performance from the perspective of OM have been increasing. Investigating into the model of the Malcolm Baldrige National Quality Award (MNBQA), Meyer and Collier (2001) showed that human resources management practices are related to customer satisfaction in a health care environment. Goldstein (2003) illustrated the importance of employee development in service strategy design to managing service encounters in hospitals. Based on interviews in the private sector and further education colleges, Voss et al. (2005) developed an empirical model to account
for the impact of employee satisfaction on service quality and customer satisfaction. Though such stream of research is still rare, it provides some theoretical grounds and preliminary evidence for the importance of employee satisfaction in service operations.
High-contact service industries typically involve activities in which service employees and customers have close and direct interactions for a prolonged period (Chase 1981). A high contact environment of services is characterized by longer communication time, intimacy of communication, and richness of the information exchanged (Kellogg and Chase 1995). Through close contacts, service employees and customers have ample opportunities to build up their ties and exchange information about purchase. This enhances the ability of service employees to deliver a high level of service quality and influence their customers’ purchase decisions, contributing to sales performance. Researchers have argued that satisfied employees are more committed to serving customers (e.g., Loveman 1998, Silvestro and Cross 2000, Yoon and Suh 2003). Small service firms are more likely to experience constraints on organizational resources, therefore they rely more on the motivation of individual employees in providing good services to customers (McCartan-Quinn and Carson 2003, Haugh and McKee 2004, Coviello et al. 2006). In line with the above arguments, we believe that satisfied employees in a small, high-contact environment are more likely to have greater influence on service quality, customer purchase, and sales performance. Thus, small organizations in the high-contact service sector are particularly suited for examining how employee satisfaction affects organizational performance through service quality and direct customer contacts.
Development of Hypotheses
Previous studies have provided some empirical support and theoretical backing that employee satisfaction, service quality, customer satisfaction, and firm profitability are likely to be
associated to one another. We develop the following hypotheses and establish our research model grounded in pertinent theories and empirical works accordingly.
Employee satisfaction and service quality. Yoon and Suh (2003) showed that satisfied employees are more likely to work harder and provide better services via organizational citizenship behaviors. Employees who are satisfied with their jobs tend to be more involved in their employing organizations, and more dedicated to delivering services with a high level of quality. Previous research has also suggested that loyal employees are more eager to and more capable of delivering a higher level of service quality (Loveman 1998, Silvestro and Cross 2000). Researchers have argued that service quality is influenced by job satisfaction of employees (e.g., Bowen and Schneider 1985, Hartline and Ferrell 1996). Hartline and Ferrell (1996) found evidence that job satisfaction felt by customer-contact employees is associated with service quality.