Employee satisfaction - A precondition for economical success of service companies?

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

References

Abstract

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.

The aim of this article is to demonstrate 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.

Introduction

Today, due to the increasing global competition, for companies the relevance of satisfying customer needs has become as important as never before in order to secure survival (Evans, Lindsay, 2005, p.4). Quality and technical innovations do no longer guarantee competitive advantage so companies have for some years been aware of the need to increase their efforts to satisfy individual customer expectations. Thus, the contact to customers as well as the knowledge about their particular needs becomes a key factor for creating real customer value of products and services (Holland, 2003).

Usually customer satisfaction plays a more essential role for management than employee satisfaction as management normally assume a more direct linkage to company performance. However, particularly in the service sector employees undertake a critical role (Heskett et al., 1994). They represent the company outwards and do finally establish a relationship to customers in order to satisfy their needs. So it is important that management practices do not only focus on customer satisfaction but employee satisfaction as well (Ulrich et al., 1991). Internal marketing and related strategies should be recognised as a crucial topic (Christopher, Payne, Ballantyne, 2002, p.112) as employees who are committed to their company are more likely to share their positive feelings about the organisation with customers, too (Ulrich et al., 1991). Thus, management should empower front-line employees to react flexible to customer needs rather than providing rigid guidelines to which they must adhere to (Fitzsimmons and Fitzsimmons, 2004, p.111). This way, employees can develop more commitment and thus, become more satisfied at the same time which in turn shall stimulate a chain of positive actions which end in an improved company performance (Heskett et al., 1994).

Characteristics of services

Particularly for service companies it is crucial to consider the human factor especially due to the intangible nature of services (Fitzsimmons, Fitzsimmons, 2004, p.24). The output of a service is not a tangible object but an activity. However, most often services have an important tangible component or refer to a tangible product (Johns, 1999). Today many companies have equal access to capital and provide similar products. Thus, they have to search for another way to differ from their competitors in order to enhance customer value. Providing an excellent service may be a way to meet customer needs in unique ways, and as a result, to gain competitive advantage (Ulrich et al., 1991). The real core of services builds the interaction between employees and customers of the service company. In a social process service provider and customer influence each others and thus determine the experience of service quality. For customers, service quality results from the comparison of expectations of the service and their perception of the service experience (Fitzsimmons, Fitzsimmons, 2004, pp. 25-47). So it mainly depends on employees to provide a consistent uniform quality service that is able to create an excellent company image. Management can only influence the so-called ‘moments of truth’ by introducing appropriate practices that support certain attributes like employee commitment, empowerment and customer focus (Bailey and Dandrade, 1995).

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