Today increased globalisation and declined market conditions like decreasing brand loyalty, high levels of information transparency and fast shifting technological developments complicate the road to success for many companies. Particularly for service organisations, and the sales departments of manufacturing companies, front-line employees play a key role in securing and boosting profits under difficult market conditions as they directly interact with customers. The interaction between employees and customers is very critical as employees are mainly responsible for creating an excellent public image of the company. For that reason new management practices were developed in order to enhance customer focus as well as employee satisfaction. Many scholars argue that what happens to employees inside a company considerably affects what happens to customers outside the company. They establish a direct context between employee satisfaction, customer satisfaction and – as a pre-eminent consequence – the company’s performance.
This academic assignment demonstrates the impact of employee satisfaction on organisational performance and profitability especially in regard to companies in the service sector. The service profit chain of Hesskett et al. (1994) suggests that employee satisfaction and loyalty are the key drivers of service value, customer satisfaction, customer loyalty and profitability. Based on this model the general linkages are critically analysed in order to prove whether a positive relationship does really exist. In this context the intent is not to provide an analysis of the factors that cause employee satisfaction but the resulting effects that can be realized regarding the following components of the chain.
Table of Contents
Abstract
Introduction
Characteristics of services
The Service-Profit Chain
The impact of employee satisfaction on job performance
The impact of employee satisfaction on customer satisfaction – Mirror effect and balance theory
The impact of customer satisfaction on customer loyalty and the company’s performance
Shortcomings of the service-profit chain
Conclusion
Objectives and Core Topics
This paper examines the validity of the "service-profit chain" model, specifically investigating whether a direct, positive causal link exists between employee satisfaction, customer satisfaction, and a company's overall financial performance within the service sector.
- Analysis of the relationship between employee satisfaction and job performance.
- Evaluation of the "satisfaction mirror" and balance theory in service environments.
- Impact of customer satisfaction on loyalty and organizational profitability.
- Critical review of the service-profit chain's limitations and empirical challenges.
Excerpt from the Book
The impact of employee satisfaction on job performance
For many years the so called ‘happy-productive worker hypothesis’ was taken for granted. This hypothesis suggests that employees who are happy and satisfied with their jobs will perform better at the same time (Fisher, 2003). The expectancy theory can act to explain this positive influence. Vroom (1964) defines expectancy as a ‘momentary belief concerning the likelihood that a particular act will be followed by a particular outcome’ (Vroom, 1964, p.170). Accordingly it can be assumed that satisfied employees are more motivated to perform better as they forecast that providing high-quality service to customers will lead to a special reward like praise of the supervisor which in turn results again in job satisfaction. This approach presumes that satisfied employees strive for receiving credit for their daily work in order to remain satisfied (Meffert. and Schwetje, 2000, p.118-119).
However, many research papers (e.g. Vroom, 1964; Petty, McGee and Cavender, 1984; Iaffaldano and Muchinsky, 1985) demonstrated that there is indeed a positive relationship between both components but it is relatively weak at the same time (Fisher, 2003).
Other research papers even opposed the assumption that happiness reduces an employee’s motivation to improve performance. Authors of several explorations claim that increased job satisfaction leads to decreased motivation to satisfy customers which in turn leads to decreased customer satisfaction (Argyle, 1989). From this point of view dissatisfaction causes a kind of searching behaviour whereas employees intensify actions which soonest activate customer- and employee satisfaction. So according to this assumption it can be assumed that employees generally increase their commitment to avoid further reproach from their supervisor (Meffert. and Schwetje, 2000, pp. 119-120).
Summary of Chapters
Introduction: Provides the context of global competition and argues for the necessity of focusing on both employee and customer satisfaction as key organizational drivers.
Characteristics of services: Explains the intangible nature of services and emphasizes the human factor as the core of service quality and company image.
The Service-Profit Chain: Introduces the conceptual model of the service-profit chain and examines the theoretical links between service quality, employee satisfaction, and profitability.
The impact of employee satisfaction on job performance: Discusses the 'happy-productive worker hypothesis' and reviews conflicting evidence regarding the link between job satisfaction and employee efficiency.
The impact of employee satisfaction on customer satisfaction – Mirror effect and balance theory: Examines the 'satisfaction mirror' concept and how employee attitudes and management practices influence customer perceptions.
The impact of customer satisfaction on customer loyalty and the company’s performance: Analyzes the disconfirmation-of-expectation paradigm and the financial value of customer loyalty.
Shortcomings of the service-profit chain: Highlights the model's limitations, particularly its lack of consideration for environmental context and industry-specific factors.
Conclusion: Summarizes that while the model is useful, the relationship between these variables is complex and context-dependent, requiring company-specific analysis.
Keywords
Employee satisfaction, Customer satisfaction, Service-Profit Chain, Service quality, Job performance, Customer loyalty, Profitability, Management practices, Service sector, Mirror effect, Balance theory, Internal marketing, Organizational performance, Human factor, Employee empowerment
Frequently Asked Questions
What is the primary focus of this research paper?
The paper examines the validity of the service-profit chain model and whether employee satisfaction can be proven as a precondition for the economic success of service companies.
What are the main thematic areas addressed?
The study covers the characteristics of services, the link between employee satisfaction and performance, the relationship between employees and customers, and the financial implications of customer loyalty.
What is the central research question?
The paper asks whether a positive, causal relationship exists between employee satisfaction and organizational profitability within the service sector.
Which scientific methods are employed?
The author uses a theoretical analysis of existing literature and management models, such as the service-profit chain, the expectancy theory, and the disconfirmation-of-expectation paradigm.
What is discussed in the main body of the text?
The main body critically assesses the links between employee attitudes and job performance, the 'satisfaction mirror' effect, and the impact of customer loyalty on company financial outcomes.
Which keywords best characterize this work?
Key terms include employee satisfaction, customer satisfaction, service-profit chain, service quality, job performance, customer loyalty, and organizational profitability.
What is the 'satisfaction mirror' effect mentioned in the paper?
The satisfaction mirror assumes that customer satisfaction is a direct reflection of employee satisfaction within the service environment, suggesting that happy employees lead to happy customers.
What are the main criticisms of the service-profit chain model?
The paper argues that the model lacks empirical evidence for some linkages, ignores environmental and operational contexts, and fails to account for service strategies that do not rely on direct employee-customer interaction.
- Quote paper
- Juliane Kuballa (Author), 2006, Employee satisfaction - A precondition for economical success of service companies?, Munich, GRIN Verlag, https://www.grin.com/document/66942
