The Impact of Employee Satisfaction on Quality and Profitability in High-Contact Service Industries

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The Impact of Employee Satisfaction on Quality and Profitability in High-contact Service Industries

Rachel W. Y. Yee Department of Logistics, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong E-mail: Rachel.wyyee@polyu.edu.hk

Andy C. L. Yeung* Department of Logistics, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong E-mail: lgtandyy@inet.polyu.edu.hk Tel.: (852) 2766 4063 Fax: (852) 2330 2704 *Corresponding Author

T. C. Edwin Cheng Department of Logistics, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong E-mail: lgtcheng@inet.polyu.edu.hk

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The Impact of Employee Satisfaction on Quality and Profitability in High-contact Service Industries

Abstract: The extant operations management literature has extensively investigated the associations among quality, customer satisfaction, and firm profitability. However, the influence of employee attributes on these performance dimensions has rarely been examined. In this study we investigate the impact of employee satisfaction on operational performance in highcontact service industries. Based on an empirical study of 206 service shops in Hong Kong, we examined the hypothesized relationships among employee satisfaction, service quality, customer satisfaction, and firm profitability. Using structural equations modeling, we found that employee satisfaction is significantly related to service quality and to customer satisfaction, while the latter in turn influences firm profitability. We also found that firm profitability has a moderate non-recursive effect on employee satisfaction, leading to a “satisfaction-quality-profit cycle”. Our empirical investigation suggests that employee

satisfaction is an important consideration for operations managers to boost service quality and customer satisfaction. We provide empirical evidence that employee satisfaction plays a significant role in enhancing the operational performance of organizations in the high-contact service sector. Keywords: Employee satisfaction, service quality, customer satisfaction, firm profitability, empirical research

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1. 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...
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