High-contact service industries

Summary of the Reviewed Article

High-contact service industries are those in which service employees and customers have
close and direct interactions for a prolonged period of time (Chase, 1981). A high-contact
environment of services has the characteristics of longer communication time, understanding
of communication, and richness of the information exchanged (Kellogg and Chase,1995).
In this article, the impact of employee satisfaction on, quality and operational performance in
high-contact service industries is investigated. The hypothesized relationships among
employee satisfaction, service quality, customer satisfaction, and firm profitability are
examined. Employee satisfaction plays a significant role in enhancing the operational
performance of organizations in the high-contact service sector. Firm profitability has also a
moderate effect on employee satisfaction, which lead to a ”satisfaction-quality-profit cycle’.
The reason of conducting this research is that the research in operational management to
investigate the relationships between quality, customer satisfaction and business performance
has been conducted (e.g., Heim and Sinha, 2001; Balasubramanian et al., 2003; Nagar and
Rajan, 2005), but research on the impact of employee satisfaction on operational
performance is relatively scarce. In order to represent the whole service firm, service
employees are often the first party and therefore are essential to shaping customers’
perception of service quality (e.g., Parasuraman et al., 1985; Hartline and Ferrell, 1996).
Service employees’ job is considered as a ‘three-cornered fight’, in which the organization
and customer are at the two ends, while service employees are ‘caught-in-the-middle’ among
them, Bateson (1985). It is important for service employees to meet the target of productivity
performance in the organization and to fulfill customers’ needs and external quality goals.

Hypotheses

There are four hypotheses made by the writers of this article with empirical support and
theoretical backing of the previous studies that employee satisfaction, service quality,
customer satisfaction, and firm profitability have relationships with one another.
Hypothesis-1. Employee satisfaction has a positive influence on service quality.
Hypothesis-2. Service quality has a positive influence on customer satisfaction.
Hypothesis-3. Employee satisfaction has a positive influence on customer satisfaction.
Hypothesis-4. Customer satisfaction has a positive influence on firm profitability.

Data Collection

This study was conducted in Hong Kong. They identify 12 main shopping areas in Hong
Kong (e.g., Tsimshatsui and Causeway Bay) and they selected five major shopping centers
randomly from each area. They choose small service organizations with only two to five
service employees, because employee satisfaction level tends to be more consistent and
easier to capture. in small organizations (George and Bettenhausen, 1990). To collect the
data, they prepared survey packets, in which one ”shop-in-charge” questionnaire and two
”service employee” questionnaires are included and they choose eight different types of
service shops.

Results

In their results they show that All the four hypothetical relationships were supported at the
significance level of p = 0.01. The linkage between employee satisfaction and service quality
(Hypothesis 1) is highly significant (P = 0.423, t = 4.778). Supporting hypothesis-2 service
quality has a positive influence on customer satisfaction (P = 0.287, t = 3.33). Employee
satisfaction has a significant and direct impact on customer satisfaction, H-3, ( P = 0.234,
t = 2.77). The relationship between customer satisfaction and firm profitability (Hypothesis
4) is also highly significant (P = 0.270, t = 3.64).

Hypothesized model

Alternative Models

In this study, the writers have also made some alternative models which shows the different
relationships among employee satisfaction, service quality, customer satisfaction, and firm
profitability. They did this work keeping in view the point of Bentler and Chou (1987), who
said that to shed light on the key features of the hypothesized model, the researcher should
build a few alternative models in an ideal situation.

Critical Review

In this article, it is asserted that employee satisfaction is an important determinant of
operational performance and is crucial in achieving quality and profitability in the service
industry. While in another research paper it is suggested that customer satisfaction has a
significant impact on financial performance, findings also suggest that employee satisfaction
has no direct impact on financial performance because the relationship between employee
satisfaction and financial performance is an indirect one, which is mediated by customer
satisfaction(Christina G. Chi *, Dogan Gursoy, 2009). In another study of the relationship
between employee loyalty, service quality and firm performance in the service industry, it is
argued that employee satisfaction has no direct relationship with customer satisfaction. When
there is an employee satisfaction, then employee loyalty is created which has the direct effect
on customer satisfaction and employee loyalty is an important determinant of firm
profitability. In the same study it is concluded that a loyal employee has more opportunities
to understand and fulfill the specific needs of the customers, leading to a greater impact of
employee loyalty on service quality and if there is low contact time between employee and
customer, then the relationship between employee loyally and service quality would
diminish. Employee loyalty plays a significant role in enhancing the performance of
organizations in high-contact service sectors and is used to boost service quality, customer
satisfaction and customer loyalty. Workers who are strongly committed to the organization or
highly satisfied with their jobs show up at work more often than those with weak
commitment and low satisfaction. Employees who are highly satisfied with their jobs and are
strongly committed to the organization will avoid withdrawal behaviors, (like absenteeism,
lateness), and maintain continued attachment to work (Blau & Boal, 1989). An employee who
is absent from work intentionally or unintentionally is expressing negative attachment to the
organization.

In the reviewed article a lot of material is written on the relationships between employee
satisfaction, service quality, customer satisfaction and financial performance and it is highly
asserted that employee satisfaction is very important and cannot be neglected in any case.
But how an employee satisfaction can be gained, it is not emphasized. In another research,
some factors are mentioned as antecedents of employee satisfaction.

These antecedents are the employee empowerment, Employee training, teamwork, appraisal
systems, and employee compensation. When an organization focus on these factors, then
employee compensation is automatically created. All employees will become satisfied, when
they are given empowerment, training, teamwork, compensation and their efforts are
appraised. Formal and informal training could focus on instilling the employees with the
thought that service quality involves also transferring positive emotions to customers. The
writers of study have found that top management commitment has a positive impact on all
the antecedents. And as a result, all these factors have a positive impact on employee
satisfaction (Minjoon Jun , Shaohan Cai , Hojung Shin, 2005).

Relevant to the Organizational Policies

This topic is highly related to our subject that is organizational policies, because while
making policies, employee satisfaction cannot be neglected. Oliva and Sterman (2001)
unambiguously showed that maximizing throughput that drives employees to working
overtime traps service organizations in a vicious cycle of declining service quality, causing
severe and permanent financial losses. There is a concept of ”balanced scorecard”, where
employee morale and growth, internal business process, customer satisfaction and financial
measures are regarded as four balanced quadrants that drive the strategic initiatives of an
organization (Kaplan and Norton, 1996). In case of a lack of focus on any of these four
perspectives, the entire organization will be thrown out of balance, causing strategic efforts
in operations to collapse. As it is concluded that organizational profitability emanates from
satisfied employees, so it is suggested that organizations in high-contact service industries
should thus focus their efforts on improving employee satisfaction, and only satisfied
employees can maintain the service quality and ensure customer satisfaction.