WHITE PAPER – FEBRUARY 2005

Employee Satisfaction &

Customer Satisfaction:
Is There a Relat ionship?
By Cat er ina C. Bulgar ella, Ph. D,
GuideSt ar Resear ch Analyst
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Employee Satisfaction &

Customer Satisfaction:
Is There a Relat ionship?
Numerous empirical st udies show a st rong posit ive relat ionship bet ween employee sat isfact ion and
cust omer sat isfact ion (e.g., Band, 1988; George, 1990; Reynierse & Harker, 1992; Schmit t &
Allscheid, 1995; Schneider & Bowen, 1985; Schneider, Whit e, & Paul, 1998; Schneider, Ashwort h,
Higgs, & Carr, 1996 Johnson, 1996; Ulrich, Halbrook, Meder, St uchlik, & Thorpe, 1991; Wiley,
1991). As suggest ed by t his wealt h of findings, posit ive changes in employee at t it udes lead t o
posit ive changes in cust omer sat isfact ion.
Some invest igat ions have provided explicit measures of t his relat ionship. For example, a st udy at
Sears Roebuck & Co. showed t hat a five-point improvement in employee at t it udes led t o a 1.3 rise
in cust omer sat isfact ion which, in t urn, generat ed a 0.5 increase in revenues. Brooks (2000)
reviewed t he relat ionship bet ween financial success and cust omer and employee variables (e.g.,
cust omer sat isfact ion, employee sat isfact ion, et c.) and found t hat , depending on market segment
and indust ry, bet ween 40 and 80 percent of cust omer sat isfact ion and cust omer loyalt y was
account ed for by t he relat ionship bet ween employee at t it udes and cust omer-relat ed variables.
Similarly, Vilares and Cohelo (2000) found t hat perceived employee sat isfact ion, perceived
employee loyalt y, and perceived employee commit ment had a sizable impact on perceived
product qualit y and on perceived service qualit y (see model below).

Perceived
Employee
Commitment Perceived
Product Quality
Perceived
Value
Perceived
Employee Perceived
Satisfaction Service
Quality

Perceived
Employee Loyalty
Customer
Satisfaction

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According t o t heir model, employee sat isfact ion not only affect s employee commit ment and
employee loyalt y, but it also has a t wofold impact (i.e., direct and indirect ) on crit ical cust omer
sat isfact ion-relat ed variables.

The relat ionship bet ween employee sat isfact ion and cust omer sat isfact ion has received furt her
empirical confirmat ion from t wo met hodologically st rong st udies. Specifically, a recent met a-
analyt ic invest igat ion (Hart er, Schmidt , & Hayes, 2002), based on 7,939 business unit s in 36
companies, found generalizable relat ionships, large enough t o have subst ant ial pract ical value,
bet ween unit -level employee sat isfact ion-engagement and business-unit out comes such as
cust omer sat isfact ion, product ivit y, profit , employee t urnover, and accident s. Finally, Berhardt ,
Dont hu, and Kennet t (2000) measured t he relat ionship bet ween employee sat isfact ion, cust omer
sat isfact ion, and profit longit udinally showing t hat , alt hough t he effect s of employee sat isfact ion
and cust omer sat isfact ion on business profit at a given point in t ime might not be det ect able, t hey
become visible and prominent over t ime. Specifically, t hese researchers found a posit ive
relat ionship bet ween change in cust omer sat isfact ion and change in profit / sales, a posit ive
relat ionship bet ween change in employee sat isfact ion and change in business profit , and a st rong
relat ionship bet ween employee sat isfact ion and cust omer sat isfact ion at any point in t ime.

Understanding the Relationship Between

Employee Satisfaction and Customer Satisfaction

The lit erat ure offers several explanat ions as t o why employee sat isfact ion affect s cust omer
sat isfact ion:

1. Employees t hat int eract wit h cust omers are in a posit ion t o develop awareness of and
respond t o cust omer goals and needs.
2. Sat isfied employees are mot ivat ed employees; t hat is, t hey have t he mot ivat ional
resources t o deliver adequat e effort and care.
3. Sat isfied employees are empowered employees; in ot her words, t hey have t he resources,
t raining, and responsibilit ies t o underst and and serve cust omer needs and demands.
4. Sat isfied employees have high energy and willingness t o give good service: at a very
minimum, t hey can deliver a more posit ive percept ion of t he service/ product provided.
5. Sat isfied employees can provide cust omers wit h int erpersonal sensibilit y and social account
(i.e., adequat e explanat ions for undesirable out comes). It has been suggest ed t hat t hese
component s of int eract ional j ust ice (i.e., qualit y of int erpersonal t reat ment provided in a
negot iat ion/ exchange) have a significant impact on cust omer sat isfact ion. According t o
t his view, because sat isfied employees experience int eract ional j ust ice, t hey can deliver
it ; t hat is, sat isfied employees have enough emot ional resources t o show empat hy,
underst anding, respect , and concern.

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Organizational Antecedents of Employee Satisfaction and Employee Customer Service

Some researchers have focused on organizat ional ant ecedent s of employee sat isfact ion and
employee cust omer service. A model offered by Yoon, Hyun Seo, and Seog Yoon (2000)
ident ifies t hree ant ecedent s:

1. Perceived organizat ional support (POS), t hat is, t he ext ent t o which employees perceive
t hat t he organizat ion values t heir cont ribut ions and cares about t heir well-being.
2. Perceived supervisory support (PSS), t hat is, t he ext ent t o which supervisors develop a
climat e of t rust , helpfulness, and friendliness; high PSS implies t hat import ant socio-
emot ional resources are immediat ely available in t he work environment .
3. Cust omer part icipat ion, t hat is, t he ext ent t o which a cust omer is physically, ment ally,
and emot ionally involved in t he delivery of a service/ product . At t his level, bot h t he
resources/ informat ion t hat cust omers bring int o t he t ransact ion and t he act ual behaviors
t hey engage in are import ant .

A represent at ion of t his model is shown below:

Perceived
Organizational Employee
Support Service Effort

Employee
Perceived Service
Supervisory Quality
Support
Job Satisfaction

Customer
Participation

As t he model indicat es, all t hree ant ecedent s affect employee service qualit y t hrough t heir effect
on employee service effort and perceived j ob sat isfact ion. Empirical findings suggest t hat :

1. Of t he t hree ant ecedent s, perceived supervisory support is t he single most powerful

predict or of j ob sat isfact ion and employee service effort .
2. Job sat isfact ion is a more import ant predict or of employee service qualit y t han employee
service effort .

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A model by Hee Yoon and Beat t y (2001) present s t wo ant ecedent s of j ob sat isfact ion and
employee service qualit y:

1. Support ive management , t hat is, t he ext ent t o which management is support ive of and
shows concern for employees.
2. Service climat e, t hat is, employees’ shared percept ions of how much t he organizat ion
values service.

A represent at ion of t his model is shown below:

Service
Climate Work Effort
Employee
Service
Supportive Quality
Management

Job Satisfaction

As illust rat ed in t he model, service climat e affect s work effort but not j ob sat isfact ion. However,
support ive management has bot h an effect on work effort and perceived j ob sat isfact ion. Work
effort influences employee service qualit y direct ly as well as t hrough j ob sat isfact ion. An
empirical t est of t he model showed t hat , relat ive t o work effort , j ob sat isfact ion was a bet t er
predict or of employee service qualit y.

Conclusions

The empirical lit erat ure summarized in t his report highlight s t he crit icalit y of t he relat ionship
bet ween employee at t it udes and cust omer sat isfact ion. How employees feel about t heir j ob has
an impact on t heir work experience, but also on t angible business out comes such as cust omer
sat isfact ion, sales, and profit . Employees can st rongly cont ribut e t o an organizat ion’ s success by
having a cust omer-cent ric approach in t heir work and in t heir work-relat ed int eract ions.
However, t hey are more likely t o do so if t hey are sat isfied wit h t heir j ob. The quest ion is t hen:
“ What should organizat ions do t o ensure high j ob sat isfact ion among t heir employees?” As found
in t he pract ices of Fort une 100 companies, employee sat isfact ion is t he result of a holist ic
approach t hat involves st rat egic st eps such as:

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1. Ident ify root causes of dissat isfact ion among employees

2. Conduct benchmark st udies of best pract ices in select ed ot her companies
3. Develop employee sat isfact ion measurement syst ems t hat can be used corporat e wide and
worldwide
4. Monit or employee sat isfact ion on a regular basis
5. View employees as t he primary source of compet it ive advant age
6. Show concern for t ot al employee well-being
7. Develop meaningful employee involvement and effect ive communicat ion channels
8. Int roduce managerial account abilit y for people management

Given t he impact of cust omer sat isfact ion on organizat ional profit , it is crit ical for organizat ions
t o underst and what dimensions of service qualit y need t o be monit ored and used t o develop
account abilit y, cust omer sat isfact ion awareness, and cust omer orient ed work behavior. In t his
regard, t he lit erat ure suggest s t he following dimensions:

•
•
Accessibilit y

•
Communicat ion

•
Compet ence

•
Court esy

•
Credibilit y

•
Reliabilit y

•
Responsiveness

•
Securit y

•
Tangibles
Underst anding of t he cust omer

Regardless of t he levers an organizat ion chooses t o operat e, a basic st ep t o achieving cust omer
sat isfact ion is t o underst and cust omer needs t hrough research. Only when cust omer needs are
well underst ood, can adequat e service st andards be set and t he appropriat e service cult ure
developed and maint ained.

Finally, careful considerat ion should be given t o how t o creat e a link bet ween employee
sat isfact ion and cust omer sat isfact ion. The models present ed in t his report refer t o some
import ant drivers of t his relat ionship. Research on employee sat isfact ion, furt hermore, point s t o
compensat ion as an essent ial organizat ional det erminant of j ob sat isfact ion. Because
compensat ion is also a prominent means t o generat e account abilit y and t hus influence work
behavior, by using cust omer sat isfact ion (CS) based compensat ion organizat ions may achieve t wo
key goals:

1. They may increase j ob sat isfact ion (e.g., by using CS incent ives t hat are perceived as
having a posit ive valence).
2. They may st rengt hen cust omer orient ed work behavior (e.g., by using CS incent ives t hat
are linked t o specific behaviors).

In sum, CS based compensat ion should focus on performance dimensions t hat employees can
cont rol, influence, and underst and. Wit hout such focus, not only will it be unlikely t o affect work
behavior, but it will be likely t o generat e dissat isfact ion.

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