employee satisfaction and customer satisfaction

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CASE STUDY

Putting the customer secondRonald J. Burke, James Graham and Frank J. Smith

York University, Toronto, Canada

AbstractPurpose Two studies examined the relationship between employee satisfaction and customersatisfaction in two service organizations.Design/methodology/approach Employee satisfaction and customer satisfaction data weregathered separately and aggregated to branch or store level measures.Findings The data indicated generally positive and statistically signicant relationships betweenemployee satisfaction and customer satisfaction. Customers reported greater service satisfaction withbranches or stores whose employees indicated higher levels of work and employees satisfaction.

Originality/value Implications for the delivery of high quality customer service are offered.Keywords Customer service management, Customer satisfaction, EmployeesPaper type Case study

Structural changes in the North American economy during the past two decades haveresulted in increases in the size and importance of the service sector (Albrecht andZemke, 1985). The service sector now accounts for almost three quarters of GDP, aboutthree-quarters of current employment and will account for a disproportionate share of future job growth. These changes, coupled with increased foreign competition andgreater customer demand for higher quality service and products, have forcedorganizations to examine present levels of service they provide to clients and increasequality of service if required (Berry et al., 1990; Henkoff, 1994).

Providing a service is fundamentally different from manufacturing a product. Whenan individual purchases a refrigerator, for example, he or she has no contact with thoseindividuals who manufactured the product. The consumer may have someexpectations about the product based on advertising, word of mouth or previousownership of the product, and develop some feelings about the quality of the productafter some experience with it, but these perceptions of product quality are notinuenced by personal contact with those individuals who manufactured the product.

When individuals purchase a service, however, they are inuenced by the serviceprovider and the quality of the experience or encounter they have with the serviceprovider. The provision of service is face-to-face; the receipt of service is both apersonal and a psychological experience. There is a psychological and a physicalcloseness between service providers or employees and customers in the serviceencounter (Schneider, 1990a, b; Schneider and Bowen, 1985, 1993).

In addition, there is no quality control in the customer contact. If the transaction is donepoorly, the organization ends up with a dissatised customer. And such customers may

The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available atwww.emeraldinsight.com/researchregister www.emeraldinsight.com/0954-478X.htm

Preparation of this manuscript was supported in part by Organizational Studies InternationalInc. and the School of Business, York University. We acknowledge the cooperation of the twoorganizations in collecting the data. Louise Coutu prepared the manuscript; Cobi Wolpin assistedwith data analysis.

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The TQM MagazineVol. 17 No. 1, 2005

pp. 85-91q Emerald Group Publishing Limited

0954-478XDOI 10.1108/09544780510573075
http://www.emeraldinsight.com/researchregisterhttp://www.emeraldinsight.com/0954-478X.htmhttp://www.emeraldinsight.com/0954-478X.htmhttp://www.emeraldinsight.com/researchregister


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not only take their business elsewhere but also share their negative experiences withothers. This relates to the increased attention servicesrms have devoted to understandinghow they might attract customers, coupled with recent interest in how rms might retaincustomers once they have been attracted to them. Customers are reactive. They areinuenced by the service provider and the quality of the experience they receive.Customers who are more satised with the service they receive are more likely to remainloyal to the organization. Conventional marketing wisdom advocates putting the customerrst; we suggest as the title indicates putting the customer second.

There are two major ways in which rms can increase the service satisfaction of customers. The rst involves human resource management practices leading to highlevels of employee satisfaction or morale (Batt, 2002). The logic behind this is fairlystraightforward. Employees generally self-select into service occupations because theywant to use their skills and aptitudes in delivering a high quality service to customers.When they are able, rewarded and supported in doing so, this realization will beassociated with the belief that they are in fact providing a high quality service to theircustomers. In addition employee satisfaction or morale will also directly translate intohigher levels of customer satisfaction with the service experience. Employees will bemore enthusiastic and positive during the service encounter. The positive climate of theorganization will be exposed to the customer through higher levels of employeesatisfaction (Uhlrich et al ., 1991). For many customers, the employees are theorganization (Barlow and Mail, 2000).

The second involves the development of organizational values, policies andprocedures which support the delivery of high quality service to clients (Dennison,1990). Evidence from a variety of sources (see Schneider and Bowen, 1995, for a review)shows that when employees work for an organization they believe values the deliveryof high quality service, customers report that they receive high quality service.

Burke (1995) found that employees reporting greater job and supervisor satisfaction

also rated the quality of the rms products and services more highly. More satisedemployees believed they and the rm were delivering a higher quality of servicerelative to their competitors. And not surprisingly employees who identied higher levelsof support for quality service, and fewer barriers to quality service, rated the quality of therms products and services more favorably compared to their major competitors.

It is important to understand how service employees feel about the quality of servicethey provide to clients since previous research has shown that these assessments aresignicantly related to independently obtained ratings from clients about the quality of service they receive. That is, when employees think they are providing good (or bad)service, clients agree (Schneider et al., 1980).

In addition, there is accumulating evidence that client perceptions of service qualityare related to long-term rm protability. Bernhardt et al. (1994), in a study of protability among 472 restaurants, reported that customer satisfaction data collectedat any point in time were related to restaurant prots nine months later. Similarly,Anderson et al. (1993), in a study of a diverse group of 77 rms, observed that customerperceptions of quality were positively related to ROI.

Two studies examining the relationship of employee satisfaction and customersatisfaction are reported here. In these studies, employee satisfaction is theindependent variable and customer satisfaction is the dependent variable. In both,employee and customer satisfaction were obtained separately and aggregated to

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branch and store level measures. Do customers report greater satisfaction with servicequality when employees indicate higher levels of work satisfaction?

Organization AOrganization A is a large Canadian rm in the nancial services sector. The researchwas undertaken in 130 of their branch ofces, with the data being collected in 1994.This rm measures employee morale in about one-third of its branches on a regularbasis, so the 130 branches represent the total population considered at this particulartime. Employee morale was measured by a standardized and widely used instrumentcalled the Index of Organizational Reactions (IOR). The IOR contains 42 items whichmeasure eight aspects of job satisfaction (Dunham et al ., 1979). These were:

(1) leadership and direction;(2) work appeal;(3) work demands;

(4) teamwork;(5) physical surroundings;(6) nancial rewards;(7) career future and security; and(8) organizational commitment.

These eight scales were found to have good convergent and discriminate validity andreliability. In addition to these eight job satisfaction factors, a ninth measure, termedthe Alienation Index, based on a subset of 14 items from the initial eight satisfactionfactors was available.

The eight job satisfaction measures were signicantly and positively

intercorrelated ( n 28), correlations ranging from 0.24 to 0.74. Branch employeesmore satised on one satisfaction factor were also more likely to be satised on theother job satisfaction factor.

Customer satisfaction levels were measured by means of a mechanical devicelocated in each branch location for a specied period. Twelve aspects of customersatisfaction were considered using single item measures. These included:

. making you feel they want your business;

. condent that problems will be taken care of;

. identifying customer needs and offering solutions;

. staff knowledge;

. staff friendliness; and

. staff speed in providing service.

These 12 aspects were combined into an overall measure of branch satisfaction sincethey were signicantly and positively intercorrelated. That is, customers moresatised with a particular aspect of service in a branch were also more likely to besatised with other aspects of service provided by the branch. Branch-level scores weredeveloped based on the average satisfaction of all employees in a branch completingthe IOR and the average customer satisfaction with a branch based on those customers


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completing the in-branch survey. We then examined the correlations between thesetwo independently obtained measure of satisfaction.

The 12 customer satisfaction measures were all positive and generally signicantlydifferent from zero (62 of 66, 93 per cent), correlations ranging from 0.16 to 0.94.

The results are shown in Table I. Four of the eight scales of the IOR producedsignicant correlations with the aggregate measure of customer satisfaction. TheAlienation Index, based on a sub-set of items from the eight original IOR scales, wasalso signicantly correlated with average customer satisfaction. In each of these cases,levels of employee satisfaction in a branch were related to levels of customersatisfaction with these branches. These data show a strong relationship between themorale of employees in a branch and the level of service customers report receivingfrom that branch. And some elements of morale had a more salient role in predictingcustomer satisfaction than did others.

Organization B

Organization B is part of an international retail rm with over 800 stores or operationsworldwide. These stores operate relatively independently, selling a variety of consumer products including clothes, tools, appliances and automotive services. Thisstudy was carried out in 1994 in a representative sample of 44 stores in the Canadianoperation.

Employee job satisfaction was again measured by the IOR. A total of 2,302employees of the rm completed the IOR across the 40 stores. Customer satisfactionwas measured by a series of 150 interviews carried out in each store by an independentresearch organization. Customers indicated their satisfaction with service in a givenstore in 14 categories. These categories are listed in Table II. The extent and depth of these interviews made for an unusually comprehensive and reliable measure of customer satisfaction.

The eight job satisfaction measures were positively and generally signicantlydifferent from zero (34 of 36, 94 per cent). Correlations ranged from 0.27 to 0.90( n 44). The 14 customer satisfaction items were positively and generallysignicantly different from zero (81 of 91, 89 per cent), correlations ranged from 0.06to 0.94 ( n 44).

To simplify the analysis and reporting of ndings, the results using only onemeasure of employee morale, the 14 item scale labelled the Alienation Index, will be

Average branch satisfaction Average customer satisfaction

Alienation Index 0.19*Leadership and direction 0.12Work appeal 0.29**Work demands 0.30**Teamwork 0.08Physical surroundings 0.01Career future and security 0.07Financial rewards 0.25**Organizational commitment 0.21**

Notes: * p , 0:05; ** p , 0:001; n 130 branches

Table I.Correlations betweenemployee satisfaction andcustomer satisfaction

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presented. The predictive validity of this measure has been demonstrated over a 20year period.

Half the correlations were signicantly different from zero. Stores whose employeesreported higher morale (scoring lower on the Alienation Index) also had customers whoexperienced greater satisfaction with most facets of customer service.

A distinction was then made among the 14 customer satisfaction categories. Thiswas accomplished by having two store executives estimate the degree of employeecontrol over, or inuence on, each customer satisfaction category. For example, suchthings as credit accuracy and promptness were controlled by centralized credit centerswhich serve all stores and as a result were completely independent of store employees.

Similarly a stores in-stock condition was largely controlled by store management andthe companys centralized buying and distribution practices. It was only marginallyinuenced by employees who might, for example, suggest substitutes for anout-of-stock item. The results showed a clear and highly signicant relationshipbetween employee morale scores as reected in the Alienation Index and all measuresof customer satisfaction on which employees had an inuence, while showingzero-order and statistically insignicant correlations with those customer satisfactionmeasures on which employees had little or no inuence. While correlation does notprove causation the nature of the data collection and the pattern of ndings reduces thelikelihood, that customer satisfaction causes employee satisfaction, though the two areobviously correlated.

Discussion Implications for service organizationsWhat should management do to meet customer needs for high quality service? Ourresearch and consulting work, along with recent writing in this area (Schneider andBowen, 1995), indicates that organizations must develop two distinct, but relatedclimates a service quality climate and a human resource management climate.Organizations can only manage service quality through organizational climate sincemanagers cannot be present during every interaction.

Customer service categories Alienation index

1. Allowing customers to pay for merchandise quickly 0.45**2. Short waiting times at cash register 0.50**3. Having salespeople with good product knowledge 0.44**4. Getting problems solved quickly 0.38**5. Having good sales 0.31**6. Smiling and being friendly 0.30**7. Trying hard to satisfy customers 0.188. Being clean, neat and well-organized 0.199. Having merchandise in-stock 0.12

10. Standing behind its merchandise 2 0.0711. Making it easy to use a credit card 2 0.1212. Promptly crediting customers account 2 0.2013. Having a no-hassle return policy 2 0.2414. Accurate credit account statements 2 0.30*

Notes: * p , 0:05; ** p , 0:001; n 44 stores

Table II.Correlations betweenalienation index and

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Developing a service quality climateThis aspect of climate involves the development of organizational policies andprocedures that support and reward employee behaviors associated with the deliveryof high quality services to clients. Specic initiatives would include:

. having available the required supplies, equipment and machinery to deliverquality service;

. encouraging employee behaviors demonstrating the importance of customers,and their retention;

. managerial behaviors such as planning organizing and managing servicethrough the use of denite quality standards of good customer services; and

. providing adequate staff (numbers, skills) to support quality service.

Developing a human resource management climateThis aspect of organizational climate involves human resource management practiceswhich lead to high employee satisfaction or morale. How can rms create positive workexperiences for their employees?

The following human resource management practices have been found to beimportant in this regard:

. hiring staff that are right for service jobs;

. providing orientation, training and socialization experiences to help newcomersget started;

. providing information and counselling to employees in support of career growthand development;

. rewarding supervisor behaviors such as providing feedback, sharinginformation and rewarding good behavior via praise and performanceappraisal; and

. reducing stress experienced by staff at the boundary between managers andcustomers.

It is important that both climates exist for all members of the rm, not only thosehaving front-line service delivery responsibilities. The delivery of high quality servicesstarts at the top levels. And as Henkoff (1994) succinctly put it: You cannot expectyour employee to delight your customers unless you as an employer delight your

employees. His specic advice is equally straight-forward and consistent with puttingcustomers second and employees rst:. hire nice people;. treat them well;. encourage them to bind emotionally with the company;. train them continuously; and. equip them with the best technology.

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ReferencesAlbrecht, K. and Zemke, R. (1985), Service America: Doing Business in the New Economy , Dow

Jones-Irwin, Homewood, IL.Anderson, E.W., Fornell, C. and Lehman, D.R. (1993), Economic consequences of providing

quality and customer satisfaction, Working Paper Report , Marketing Science Institute,Cambridge, MA, pp. 93-112.

Barlow, J. and Mail, D. (2000), Emotional Value: Creating Strong Bonds with Your Customers ,Berrett-Koehler, San Francisco, CA.

Batt, R. (2002), Managing customer service: human resource practices, quit rates, and salesgrowth, Academy of Management Journal , Vol. 45, pp. 587-98.

Bernhardt, K.L., Dontho, N. and Kennett, P.A. (1994), The Relationship between Customer Satisfaction, Employee Satisfaction, and Protability: A Longitudinal Analysis , Departmentof Marketing, Georgia State University, Atlanta, GA.

Berry, L., Zeithaml, V. and Parasuraman, A. (1990), Five imperatives for improving servicequality, Sloan Management Review , Summer, pp. 29-38.

Burke, R.J. (1995), Management practices, of employees satisfaction and perception of quality of service, Psychological Reports, Vol. 77, pp. 748-50.Dennison, D. (1990), Corporate Culture and Organizational Effectiveness , John Wiley, New York,

NY.Dunham, R.B., Smith, F.J. and Blackburn, R.S. (1979), Validation of the index of organizational

reactions with the JDI, the MSQ and faces scale, Academy of Management Journal , Vol. 20,pp. 420-32.

Henkoff, R. (1994), Finding, training and keeping the best service workers, Fortune , 3 October,pp. 110-22.

Schneider, B. (1990a), The climate for service: an application of the climate construct,in Schneider, B. (Ed.), Organizational Climate and Culture , Jossey-Bass, San Francisco, CA.

Schneider, B. (1990b), The service organization: climate is crucial, Organizational Dynamics ,Autumn, pp. 52-65.

Schneider, B. and Bowen, D.E. (1985), Employee and customer perceptions of service in banks:replication and extension, Journal of Applied Psychology, Vol. 70, pp. 423-33.

Schneider, B. and Bowen, D.E. (1993), The service organization: human resources managementis crucial, Organizational Dynamics , Vol. 24, pp. 39-52.

Schneider, B. and Bowen, D.E. (1995), Winning the Service Game , Harvard Business School Press,Cambridge, MA.

Schneider, B., Parkington, J.J. and Buxton, V.M. (1980), Employee and customer perceptions of service in banks, Administrative Science Quarterly , Vol. 25, pp. 252-67.

Uhlrich, D., Halbrook, R., Meder, D., Stuchlik, M. and Thorpe, S. (1991), Employee and customerattachment: synergies for competitive advantage, Human Resources Planning , Vol. 14,

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