Employee Satisfaction and Firm Performance - Essay Example

Employee satisfaction and firm performance “When companies put employees and s first, their employees are satisfied, their s are loyal, their profits increase, and their continued success is sustained.” (p. 16) This remark was published in “Putting the Service-Profit Chain to Work” article written by James L. Heskett, Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr. and Leonard A. Schlesinger, and published in Harvard Business Review. The authors are members of the faculty of Harvard Business School and they work in group of service management. It is known, that there are many studies, articles and research devoted to customer satisfaction, but the writings, theories and strategies related to employee satisfaction with job are few. The ideas that employee satisfaction is related to productivity in the same degree as customer satisfaction, appeared at the beginning of 90s, and it was confirmed in the practice and experience of various companies. The number of studies devoted to this problem constantly grows. The authors of the article, mentioned above, provided a scheme, defined as “the service profit chain”. (p. 15) This scheme included all necessary element of achieving success and prosperity for the company. These authors investigated experience of various companies from different branches of industry, and made important conclusions. They insisted that the correlation of employee and customer satisfaction with the profit directly influence company’s performance. The results of the study provided a basis for new patterns of managing success in business. The methods they observed, concentrate on the effect of employee job satisfaction and performance on “the value of products and services delivered so that managers can build customer satisfaction, loyalty and assess the corresponding impact on profitability and growth.” (p. 17) The authors add that “...the lifetime value of a loyal customer can be astronomical, especially when referrals are added to the economics of customer retention and repeat purchases of related products.” (p.17) The scheme of service profit chain illustrates the relations between profit received, consumer loyalty, and employee satisfaction, performance and loyalty. The elements of the chain are as follows: “• Profit and growth are stimulated primarily by customer loyalty. • Loyalty is a straight result of customer satisfaction. • Satisfaction is largely influenced by the value of services provided to customers. • Value is created by satisfied, loyal and productive employees. • Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers.” (p. 19) The authors note: "Putting employees and customers in the spotlight is common to Quality programs. As anyone working in support of Quality knows, Quality doesn’t just happen. Those running a company must be fully committed to it. In the case of the companies under discussion, their CEOs and top managers exhibited a special kind of leadership. “CEOs of exemplary service companies emphasize the importance of each employee and customer. For these CEOs, the focus on customers and employees is no empty slogan tailored to an annual management meeting.” (p. 23) There are the writings of various authors that are important for evaluating the necessity of employee satisfaction for company productivity and performance. For instance, David Ulrich in his work “Tie the Corporate Knot: Gaining Complete Customer Commitment” highlights connection between satisfaction of customer and satisfaction of employees. Psychologists have identified two major principles that help determine how individuals develop commitment such as information and behavior. When individuals have access to extensive, understandable, and credible information, they engage in activities consistent with the information. For example, when we hear from many people whose opinions we value that a restaurant offers good food or services, we are more likely to act on the information and visit the restaurant. Providing credible information is a first principle of creating commitment. Information does not sustain commitment without the second principle, behavior. Complete customer commitment flows from the same two principles of information and behavior. When customers receive more information about the firm, they are more apt to take action that demonstrates commitment to the firm. Customer commitment may develop at two tiers: strategic and organizational. The strategic tier includes products and services. The organizational tier includes firm practices that translate strategies into action. Partial customer commitment focuses exclusively on the strategic tier, where firms build commitment by sharing information about how products have been adapted to meet customer criteria and by encouraging customer is to participate in the design and delivery of products. Creating unity with customers through human resource practices ensures complete customer commitment because customers receive information and participation not only on strategic activities, but on organizational ones as well.” (p. 76) Ulrich offers to use these arguments in productivity appraisal, including relevance of customer sensitive measures. In 1991 a writing “Employee and Customer Attachment: Synergies for Competitive Advantage” was published, and the authors of the article discussed a new tendency concentrated on employee satisfaction: “With changing demographics, employees have increasingly become a scarce resource. Since company strategies focus on securing scarce resources, managerial commitment to employee involvement, culture change, and employee loyalty has increased. ”The most common outcome of the employee focus has been to increase employee commitment, ownership, and dedication to the firm” (Ziegenfuss p. 66). “Managers are beginning to recognize that employee attachment (indicators of employee dedication, commitment, productivity, and affective response to a company) may be a predictor of customer attachment (indicators of customer dedication, commitment, productivity, and affective response to a company). What happens to employees inside a firm effects what happens to customers outside a firm. If managers can build organizational systems and processes that increase employee attachment, they may be able to see an effect on customers.” (Ulrich et al, p. 76) MCI carried out a study of telephone service centers for customers, and found connection between the employees’ ideas about quality of the services provided by the company they work in and their job satisfaction. This survey allowed to link customer satisfaction and tendency to choose the services of the company to employee satisfaction. Frederick Reichheld is another author, studying this question “When a company consistently delivers superior value and wins customer loyalty, market share and revenues go up, and the cost of acquiring and serving customers goes down...The better economics mean the company can pay workers better, which sets off a whole chain of events. Increased pay boosts employee morale and commitment; as employees stay longer, their productivity rises and training costs fall; employees’ overall job satisfaction, combined with their knowledge and experience, leads to better service to customers; customers are then more inclined to stay loyal to the company...” (p. 36) The data provided by various studies and researches make evident that employee satisfaction directly influences productivity. Concentration on consumer and employee satisfaction, paying attention to increasing the quality of services and products positively affects productivity. Experience of various companies makes evident that those companies and firms that support positive service and business atmosphere and productiveness encourage employees. In November, 1994 Robert Rosen listed elements that constitute successful company in “Monitor” of the American Psychological Association: The chief executives of the company openly discuss with the staff the choices and plans of the company, share should be carried out on all levels Employees should participate in making decisions, scheduling the working process, planning and resolving the problems Company should provide employees with the possibilities to study and the staff should learn during all their working experience. Diversity should be seen by both managers and employees as a source of enrichment and opportunities that are equal to all. Company supports and promotes privacy, respects and the rights of their employees to disagree, the staff, in turn, should respect the practices and strategies of the company. Individual productivity of employees is to be rewarded by the company; the employees should apply all their efforts to their job Company’s policy should recognize that financial security of the company in general and of each employee in particular have equal importance, employees should share financial burdens with the managers. Employee-oriented technologies are to be introduced, and the staff should use these technologies. Company cares about employees’ health, both physical and mental and provides necessary working conditions to promote the health; employees should also care about their physical and mental condition. Company encourages creativeness and diversity at the workplace, employees seek for work of a high quality. Company should recognize that employees need to share their time among work, family and recreation. Organization takes part in the events of public interest, and employees assume civic duties. Both company and employees preserve and restore environment and promote nature-friendly technologies (Rosen) Much attention is paid by the authors to the problem of employee health: “Healthy, committed people are likely to build healthier, more productive organizations, and healthy organizations are more likely to retain and inspire healthy people”. (Ernshoff, 1994, p. 77) The elements listed above should of course be complemented with attention to customers’ necessities and interests, innovations applied to products and services, etc to result in company’s success and prosperity. Companies should make up special programs, taking into account all these elements. These programs should aim at connecting the needs and interests of customers with the needs and interests of the staff, and the programs are to be implemented on all levels of company’s practice, they should be reflected in general company’s culture. Regarding employees and customers as the most significant resource and making up a culture and practice which value their needs leads to profitability and increasing competitive advantage, which would be a sample for many other companies. Banking system in UAE The banking system of UAE is unique. It is much different even from the banking systems in other countries of the Arab world. At first, the experts state that it is congested. The population of the country is comparatively small (about 3 million of people), and the number of banks and banks braches is relatively large for such amount of people. There are 49 foreign and national banks in the UAE at present. National banks have more than 260 branches; each bank has average of 12 branches. Foreign banks have average 4 branches each, with total branches amount of 106 branches. Besides, foreign banks have representative offices. The total number of representative offices is 45. Foreign banks are limited to 8 branches allowed for each bank. Such large number of banks in the country resulted in “a branch density of 12.8 branches for every 100,000 people. If one compares the number of banks and bank branches with UAE nationals then it has the highest levels of bank congestion in the world”. (Awamleh et al) Modern conditions on the global market led to significant changes to banking systems all over the world. This sector underwent development with established patterns of leadership and management system. But this doesn’t apply to banking sector in the UAE, because this sphere of economy is relatively small in comparison to other developed countries. But regardless of this fact, the system is profitable and capitalized. Financial sector in the state is determined by legislation and judicial system. The scholars examine employee satisfaction and its connection with the productivity through the scope of leadership styles. It has been established that these issues are interrelated. The styles of leadership observed are transformational and transactional styles of leadership on a banking background. The results of the study are relevant not only for the banking sector of the UAE economy, but for other countries with similar economic setting as well. Banking sector plays significant role in country’s economy, so it is important to define the effect of these two leadership styles. The other issue to be observed is to what degree these leadership styles are represented in UAE banking system. How leadership style implemented in particular bank influence employee satisfaction and productivity? Individual peculiarities of employee self-esteem and leadership styles, and their influence on job satisfaction, and as the result, on the productivity, are to be observed. Literature review and current banking setting allow making up a set of hypothesis related to the question of relations connecting, leadership styles in the organization, job satisfaction and productivity. 1. There is a relationship between leadership styles (transactional and transformational) of bank chief executors and managers and job satisfaction of bank employees and their performance. 2. There is a relationship between peculiarities of self-esteem of bank employees, RLS (romance of leadership) and the impact of these relations on employees’ job satisfaction and productivity. 3. Relations between styles of leadership of bank supervisors and employee job satisfaction and performance are determined by individual features of employees (RLS and their self-esteem). Methodology The study was conducted with the helps of questionnaires spread among the banks functioning in the United Arab Emirates. The total amount of the questionnaires is 865. The number of questionnaires given to each bank was defined by the size of the staff. The target audience for investigation was bank employees who work fulltime on non-managerial posts. Questionnaire comprised 85 items totally, and a discussion of the items included into the questionnaire provided in a separate sector. From the total number of the questionnaires 247 pieces were collected, part of them was removed due to incomplete info provided. The finale example included 194 respondents. Almost all respondents have Bachelor degrees, most of them are males, the age group is 25-40 years, and average term of bank employment is 5 years. Countries of employees’ origin were UAE, India and Pakistan. The questionnaire was arranged on a basis of the Multifactor Leadership Questionnaire (Bass & Avolio, 1990). It was used for measuring concepts of transactional and transformational styles of leadership. 4 subscales were used for transformational leadership: Charisma, for instance, “this manager implants the sense of pride to be associated with his person”; Inspiration, for instance, “the manager reveals interest and enthusiasm while providing the task to be fulfilled”, Individualized consideration, for instance, “the manager helps in advancing individual skills” and Intellectual stimulation, for instance, “the manager looks for alternative ways of resolving the matters”. Transactional leadership was measured with the help of 2 subscales, Management by exception, for instance, “the manager interferes only where it is necessary”, and Contingent rewards, for instance, “manager helps me in exchanges for my achievements”. To observe and evaluate the results of the present study it is necessary to define some terms that will be used in the present paper. Charisma. Originally, “charisma” is gift of grace. Charismatic authority is derived from faith in the leaders exemplary character (Conger & Kanungo, 1987). Furthermore, "the charismatic is set apart from ordinary men and treated as endowed with supernatural, superhuman, or at least ... exceptional powers and qualities ... [which] are not accessible to the ordinary person but are regarded as of divine origin or as exemplary, and on the basis of them the individual concerned is treated as a leader" (Ernshoff, 1994, p. 112). “Transactional leadership is based on the exchange process where the leader administers rewards and sanctions. One way or another, the leader and follower agree, explicitly or implicitly, that desired follower behaviors will be rewarded, while undesirable behaviors will draw out punishment. Potential rewards include an increase in salary, promotions, and more benefits.” (Heskett et al., p.67) As defined by Bass, “transactional leadership is comprised of two fundamental dimensions: contingent rewards and management-by-exception, while transformational leadership is comprised of four central components: charisma, inspiration, individualized consideration, and intellectual stimulation.” (p. 46) Ziegenfuss (1998) define self-esteem as “being a set of attitudes and beliefs that a person brings with him or herself when facing the world.” (p. 80) Romance of Leadership. “This construct refers to the generalized beliefs that individuals have regarding the significance of leadership to organizations which may influence how they see their leaders. Consequently, these beliefs enhance followers perceptions of charismatic/transformational qualities” (Meindl, Ehrlich, 1997, p. 67). To study this individual difference, Meindl and Ehrlich (1988) founded the Romance of Leadership Scale (RLS). Discussion The results of the study show that style of transactional leadership of the chief executors and managers in the banks doesn’t significantly influence performance of the workers and their job satisfaction. Therefore, the first part of the first hypothesis is not supported by the results of the study. But transformational style of the leadership positively influences the employee job satisfaction and their performance. Thus, the second hypothesis is supported by the results of the study. The third hypothesis was confirmed partly. The results demonstrated the RLS and employee self-esteem influence job satisfaction and performance of the employees. It is evident that self-esteem is related to satisfaction of the job, and as a result, productivity. RLS does not influence job satisfaction and performance. As regard to the last hypothesis, correlation of the two individual features does not show a weaker correlation of independent and dependent variables. This makes evident that interrelated self-esteem and RLS do not determine the relationship either positively or negatively. Mixed Effects of Leadership Styles To understand and evaluate the results of the study, it is necessary to describe the effects of both styles of leadership. The theories and previous experience allowed assuming that independent variables of the study will have relation to satisfaction and productivity. A number of theories state that both transactional and transformational styles of leadership are complementary to each other (Al-Dmour & Awamleh, 2002; Bass, 1985). But the results of the study described in this paper make evident that this is transformational style that positively influences productivity and satisfaction. This result demands additional explanations. This result may be interpreted so that the functional banking operations are standardized on the level of processing. The background is watched and controlled; the working tasks have specific structure, so there is a little space for transactional style of leadership. Personal performance of the employee us mostly defined by the working flow to a larger extent than immediate requires and managers’ expectations. Transformational leadership style produces a significant influence on the employee satisfaction and performance. While the employees at the bank supposed that their productivity and job satisfaction were not influenced by the transactional style of their manager, they credited their productivity and satisfaction mostly to transactional skills of this manager. On a casual and programmed background performance, defined by self-esteem and job satisfaction are the results of calling to needs of higher degree, the needs that are necessary for overcoming working routine. This is also the result of appointing administration of various kinds of rewards. This finding is to be observed in relation to the Bass’ (1985) idea that the both transformational and transactional styles of leadership are interrelated and complimentary. This idea is true, but it cannot be applied to the present case. The findings of the present study confirm conception of Burns (1978), who stated that these two styles are on the opposite sides of the continuum. It is also possible to assume that the results of the present study are an exception to the concept of Bass and this is a specific case. Effects of self-esteem and RLS As it has been mentioned above, the results of the study provided mixed support of RLS. According to the findings, this aspect positively influences the performance, but has no relation to job satisfaction. In other words, “The more positive a disposition toward leadership that a bank employee has, the more likely he or she will have high perceived performance, but not satisfaction”. (Awamleh, 1999, p. 76) In addition, the workers who believe in significance of leadership are likely to suppose that this leadership may assist their performance. The results of the present study confirm general assumption of the study. Job satisfaction of the employees in this case seems to be influenced by other various factors. Self-esteem is significantly interrelated with job satisfaction and productivity, according to the results of the study. Thus, the higher degree of the self-esteem each employee has, the higher his job satisfaction and performance are. Direction of the Future Research There are specific areas left that need to be special attention in future. These areas include the relations between transactional and transformational styles of leadership and performance, which evaluated independently. It is also necessary to pay scholarly attention to evaluation of the effects produced by skills levels, experience, career expectations and plans on the concepts of the leadership. Relationship of the satisfaction is to be investigated as well. For instance, how structure of working tasks, post power and norms within the group influence job satisfaction. The banking system of the United Arab Emirates provides a fertile ground for further investigation, because a significant part of the workers are immigrants. The study will be relevant in relation to the nationalization policy implemented by the UAE government. This background provides opportunities for studies in the field of cultural leadership. References Al-Dmour, H, & Awamleh, R. (2002). 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