Why do we expect satisfied employees to provide higher-quality service to customers?

Several studies suggest that there is a positive relationship between employee satisfaction and customer satisfaction (Bernhardt et al., 2000, Harter et al., 2002, Koys, 2003, Tornow and Wiley, 1991, Wangenheim et al., 2007). Because of this assumed positive relationship, employee satisfaction has received significant attention from researchers and became a critical issue within the last two decades (Matzler and Renzl, 2007). There is no doubt that employee satisfaction is critical in the service industry because of the nature of the industry (Lam et al., 2001). As suggested by “the service-profit chain” providing employees with a superior internal working environment is likely to lead to satisfied employees who are both loyal to the organization and able to provide the customer with an excellent service experience. Customers will recognize and value the outstanding service offered to them. Over time, they will exhibit loyalty behaviors, such as continued purchasing and increased referrals. These loyalty behaviors will generate both market share and profitability increases for the service firm (Heskett et al., 1994, Heskett et al., 1997).

Because of the assumption that satisfied employees will create satisfied and loyal customers, which will result in higher sales and, therefore, higher financial returns, service companies have been allocating significant resources for employee and customer satisfaction and retention. However, some researchers raise serious concerns about the heavy emphasis placed on both employee satisfaction and customer satisfaction and whether or not they relate to bottom-line performance (Bernhardt et al., 2000, Zeithaml et al., 1990). Gursoy and Swanger (2007) suggest that in hospitality and tourism industry attention to service and customer satisfaction is considered to be a “given” factor, which is an expected and a natural part of day-to-day operations. Hospitality and tourism companies cannot survive without satisfied customers; however, having satisfied customers may not guarantee the success of any hospitality and tourism business. In order to succeed, a company has to do a better job in creating satisfactory experiences for both employees and customers than its competitors. Even though both customer satisfaction and employee satisfaction and their retention have been studied extensively, impacts of employee satisfaction and customer satisfaction on financial performance measures have not received much attention.

The purpose of this study is to examine the relationship between employee satisfaction and customer satisfaction, and to examine the impact of both on hospitality company’s financial performance measures. Specifically, this study explores three direct relationships and an indirect relationship between employee satisfaction and financial performance and the mediating role of customer satisfaction on that indirect relationship. Fig. 1 presents the three direct relationships examined in this study: (1) the relationship between customer satisfaction and financial performance; (2) the relationship between employee satisfaction and financial performance; and (3) the relationship between employee satisfaction and customer satisfaction. In the next section, the theoretical background for this study highlighting past research linking employee satisfaction to customer satisfaction and their impact on financial performance measures are presented. Once an understanding of the appropriate theoretical framework is presented, employee satisfaction, customer satisfaction and their relationships with financial performance are established, appropriate hypotheses are presented, and the methodology and findings of the study are furnished. Finally, in Section 5, the conclusions and limitations are presented along with managerial and research implications of the study finding.

Review of the literature

Globalization and free trade continue to change the business environment and increase global competition. In today’s business environment, to stay competitive and deliver satisfactory financial returns to the owners and shareholders, managers depend heavily on how effectively they can cope with continuous and unexpected changes. The ability to respond quickly and effectively (time-based competition) and to satisfy customer needs has become a defining characteristic of competitiveness and of

Methodology

Data for this study were collected from the employees, customers and managers of three and four star hotels located in five destinations. In each destination, 50 three and four star hotels were recruited to participate in the study using a snowball sampling methodology. A packet of materials were delivered to each hotel by a member of the research team. Each packet contained 10 employee surveys, 20 customer surveys and 1 survey for the manager. Before collecting the data, each property was

Results

Details on the properties of the measurements are provided in Table 1. As shown in Table 1, all of the composite reliabilities are above .70. The overall fit of this final measurement model is χ(32)2=85.27 (P = 0.0); GFI = .98; NFI = .97; CFI = .98; and IFI = .98. Further, the root mean square residual (RMR) is .028 and the standardized RMR is .038.

Two types of validity measures – discriminant and convergent – were examined. Discriminant validity addresses the concept that the measures (observed

Discussion and implications

Within the last few decades, customer satisfaction has emerged as one of the most important factors for the financial success of hospitality and tourism industry (Iacobucci et al., 1994). As suggested by others, this study found that level of customer satisfaction plays a significant role in a company’s financial performance. Basically, this study suggests that the higher the level of customer satisfaction the better the financial performance. Findings of this study also suggest that employee

Conclusion

This study examined the relationship between employee satisfaction and customer satisfaction, and the impact of both on hospitality companies’ financial performance utilizing the service-profit-chain framework as the theoretical base, which links service operations, employee satisfaction, and customer satisfaction to a firm’s financial performance (Heskett et al., 1994). The service-profit chain provides an integrative framework for understanding how a firm’s operational investments into

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