Linking Employee Satisfaction to Business Results

Paula S. Topolosky

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781135695453
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This study investigated the relationship between employee satisfaction and business results. Using data from a Fortune 100 Company, the research examined trends in thirty employee satisfaction variables over a six-year period and identified the relationship of the variables to various corporate and business unit financial metrics. The outcomes of the study suggest that there is a moderately strong positive correlation between an employee's satisfaction with personal development, levels of involvement and participation, use of skills and abilities, promotion practices, and opportunities for a better job and financial indicators of business success. By providing a research prototype, this book serves as a starting point for Human Resource and Business leaders who struggle to identify and to communicate the value of investing in assessing and improving work environments to increase levels of employee satisfaction. As the pace of change increases and the availability to resources decreases in most organizations, this study provides a way for leaders to identify and prioritize improvement initiatives that might result in both increased levels of employee satisfaction and indices used to measure business success.

CHAPTER 1

Introduction

CENTRAL THEME

“Perhaps the greatest competitive challenge companies face is adjusting to—indeed, embracing—nonstop change” (Ulrich, 1998, p. 127). In business, “a rapidly changing economic environment characterized by such phenomena as the globalization and deregulation of markets, changing customer and investor demands, and ever-increasing product-market competition, has become the norm…. To compete, [business leaders] must continually improve their performance by reducing costs, innovating products and processes, and improving quality, productivity, and speed to market” (Becker & Gerhart, 1996, p. 779). In response to the competitive pressures, many leaders have experimented with, and continue to grasp at, a variety of improvement and change strategies to increase shareholder value and to gain a sustainable competitive advantage in the global market place. Both traditional techniques, such as pricing and product differentiation, as well as non-traditional methods, such as downsizing, re-engineering, and outsourcing, have been implemented in attempts to quickly and positively impact financial bottom lines (The Conference Board, 1993). However, in many firms, these attempts to compete have neither reaped the expected economic benefits, such as lower operating expenses, higher profits, increased rates of return on investments or improved stock prices, nor the organizational benefits, such as lower overhead costs, improved communications, greater entrepreneurship, or increases in productivity (Cascio, 1993, p. 95). Instead, “despite billions spent on process improvement and reorganization, workplaces are filled with fear, distrust, and paranoia” (Willingham, 1997, p. 1). Ironically, as employees were displaced by many of the business improvement strategies, and as other competitive strategies proved less successful, business leaders discovered that people are a unique source of competitive advantage (Pfeffer, 1994). In 1986, Schuster wrote that “it appears that increased attention to employees is going to have a major impact on business during the next two decades. Companies that begin to manage their human resources effectively to harness the untapped potential for commitment to the goals of the organization will forge ahead, while others will find they are unable to remain competitive” (p. 166).

This study focused on employee satisfaction as one measure of the effectiveness of managing human resources. Over twenty years ago, Locke (1976) estimated that more than 3,350 studies of employee satisfaction already existed in the research literature. By the volume of research, it would seem that knowledge of employee satisfaction is of some interest to industrial and organizational psychologists. But why should business leaders be concerned with employee satisfaction? Some might agree that satisfying employees makes moral and ethical sense. But does it make economic sense?

Using data from a Fortune 100 Company, this historical study assessed trends in employee satisfaction over a six-year period and identified the relationship between employee satisfaction and both corporate and business unit financial results. Though causality cannot be implied by the correlational design of this study, knowledge of the trends and relational outcomes might prove helpful to business leaders and Human Resource (HR) professionals in the identification and prioritization of work environment improvement initiatives that are better aligned with strategic business objectives.

STATEMENT OF THE PROBLEM

Is there a significant relationship between employee satisfaction and business results? Leaders are becoming aware that “people issues are business issues” (Schuler, 1990, p. 49). In her research investigating the links between employee satisfaction and organizational performance, Ostroff (1992) wrote that “it has been proposed that satisfaction and the happiness of personnel heighten organizational effectiveness…. Organizations that alienate workers through their practices will be less effective and efficient” (p. 964). This concept is not new. Past studies, including those of Etzioni (1964), Likert (1961), and McGregor, (1960), have implied that satisfied workers are productive workers. Ostroff (1992) noted that these theorists claimed that “organizational productivity is achieved through employee satisfaction and attention to workers' physical and emotional needs…. Whether or not an employee will give his or her services-wholeheartedly to the organization and produce up to potential depends, in large part, on the way the worker feels about the job, fellow workers, and supervisors” (p. 964).

In 1996, Jones noted that “today's managers recognize that they cannot achieve their key business objectives without the focus and commitment of the entire workforce. At the same time, however, they know that employees are more disillusioned than at any time in recent history with their companies' commitment for the long term” (p. 22). Denton (1991, p. 45) observed that there was evidence of a growing disenchantment and dissatisfaction in the workforce, even within organizations many had thought of as well run.

It is becoming clear to many corporations that to survive in the market place, business leaders must manage their human resources differently if they are to compete successfully (Beer, Lawrence, Mills, Spector, and Walton, 1984, p. vii). However, with all of the intense competitive pressures, organizations cannot afford to support improvement initiatives that are not obviously contributing to the strategic goals and success of the enterprise (Fitz-enz, 1994). Though leaders prefer to select and implement human resource improvement initiatives that would have the largest positive impact on financial and organizational results, there is currently limited relational research data available with which to make informed decisions.

PURPOSE OF THE STUDY

By investigating the relationship between employee satisfaction and financial results, this study attempted to provide research data to enhance leadership decisions to invest in human resource improvement initiatives that support business strategies.

In 1984, Beer et al wrote, “If [business leaders] are to determine what human resource policies and practices their firm should employ, they need some way to assess the appropriateness or effectiveness of those policies” (p. 15). One way to obtain feedback on the effectiveness of human resource initiatives is to ask employees directly. Snetsinger and Pellet (1996) wrote that “employee research provides essential information to propel improvement processes…. Acting on the voice of the employee is a key component in many successful organizational strategies” (p. 13). Employee attitude surveys are important for organizations looking to improve communications, to evaluate the impact of policies and programs, to monitor reactions to change, to assess business strategy, and to diagnose the reasons for organizational problems. A survey conducted for Personnel Journal by the Gallup Organization found that of the 429 Human Resource directors surveyed, 1) 93% believe employee research can be useful; 2) 70% of firms of all sizes report that they have been involved in an employee attitude survey at least once during the past 10 years; and, 3) 69% of companies say they are likely to conduct another survey (Gallup, 1988, p. 42). However, despite the high usage rates, Shull (1995) perceived surveys to have a poor return on investment because few companies used survey information for decisions or action planning, much less change (p. 138). In his book, Integrating the Individual and the Organization, Argyris (1995) supported the use of employee data for organizational change when he noted that attempts to assess and improve employee satisfaction are not just about keeping people happy. He wrote that the goal of most organizations should be to foster competent, committed, self-responsible, fully functioning individuals in order to ensure active, viable, and vital organizations (p. 4). Outcomes of this study might help business leaders target improvements in work environments that can be mutually rewarding to both people and financial bottom lines.

NEED FOR THE STUDY

Three areas of need were identified for this study. These were the limited amount of data from empirical studies linking systems of HR activities and employee satisfaction to firm performance, methodological limitations of past studies, and the demand within organizations for Human Resources to provide evidence that would increase its value and capacity to contribute to the success of business strategies. Huselid (1995, p. 636) wrote:

There is a growing consensus that organizational Human Resource policies can, if properly configured, provide a direct and economically significant contribution to firm performance. The presumption is that more effective systems of HRM [Human Resource Management] practices, which simultaneously exploit the potential for complementarities [alignments] or synergies among such practices and help to implement a firm's competitive strategy, are sources of sustained competitive advantage. Unfortunately, very little empirical evidence supports such a belief. What empirical work does exist has largely focused on individual HRM practices to the exclusion of overall HRM systems.

MacDuffie (1995) observed that “despite claims that innovative human resource (HR) practices can boost firm-level performance … few studies have been able to confirm this relationship empirically, and still fewer have systematically described the conditions under which it [the relationship] will be the strongest” (p. 197). Becker and Gerhart (1996) noted the importance of getting a better understanding of the role of human resource decisions in creating and sustaining organizational performance and competitive advantage. They wrote, “Given the importance and complexities of the issue, the work that has been done is relatively small, and most of the key questions are sorely in need of further attention…. HR systems represent a largely untapped opportunity to improve firm performance” (p. 780). The authors suggested that “future work on the strategic perspective must elaborate on the black box between a firm's HR systems and the firm's bottom line” (p. 793). They observed that none of the past studies used business unit-level outcomes that indicated the difficulty of measuring performance at this level. Becker and Gerhart identified a need to fill in the gap at the business-unit level and to pay attention not only to traditional financial outcomes, but also to intermediate and process-related criteria that describe how financial results are achieved. They noted that past efforts suffered from method bias that occurred when one respondent was asked to provide information on both HR performance and firm performance. According to Becker and Gerhart, “Future research would benefit from the use of multiple raters from each organization, business unit, or facility [site] studied, particularly where subjectivity or judgment is required” (p. 795). The authors cited a need to hasten the development of a cumulative body of knowledge to provide a new strategic lever to senior management (p. 797).

Dewey and Hawk (1996) pointed out that “it is a truth of organizational life that HR has typically not been a player in the development of business strategies…. One reason is that HR professionals often lack a consistent business-based context for their work” (p. 30). Human Resources must increase business acumen and adopt measures of effectiveness that are aligned with business strategies. Ulrich, Losey, and Lake (1997) suggested that the measure of HR effectiveness will not just be how well data on employee satisfaction is collected but on the commitment to improve people processes based on the results and on the ability to link improvement efforts to business strategies and results. Schuster (1986, p. 156) recommended that one way for HR to demonstrate business value was to link employee data to business outcomes. He suggested that

Once a climate survey process has been in operation for several years, it is advantageous to make regular determinations of the correlation between changes in the measures of organizational climate and changes in the measures of organizational performance. This process can then serve as a control mechanism to assure that the organizational change strategy is having the intended payoff in terms of profitability and other long-term hard measures of performance…. The simplest way to measure the relationship is to determine the linear coefficient of correlation over a series of years between the numerical data representing the organizational climate and the numerical data representing the hard performance measures that have been selected [by the organization].

RESEARCH QUESTIONS

This study was designed to address the following questions:

1. What is the relationship between employee satisfaction variables and seven business unit financial metrics: sales, growth, after-tax operating income, return on net assets, controllable cash flow, fixed cost productivity, and shareholder value added?

2. What is the relationship between employee satisfaction variables and nine corporate financial metrics: US sales, US earnings, US after-tax operating income, corporate sales, corporate earnings, corporate return on shareholder investment, earnings per share of common stock, dividends per share, and year-end stock market price?

3. Which employee satisfaction variables demonstrate the greatest and the least point estimates with respect to variability during the period of the study?

DEFINITION OF TERMS

The following are descriptions of terms that were used in this dissertation. Financial definitions, unless otherwise noted, were cited from an i...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Contents
• List of Tables
• Preface
• Chapter 1: Introduction
• Chapter 2: Review of the Literature
• Chapter 3: Methodology
• Chapter 4: Results
• Chapter 5: Conclusions, Discussion, and Recommendations
• Reference
• Appendix A. Sampling Formula
• Appendix B. Description of Employee Satisfaction Variables, Survey Questions, and Reference Numbers
• Appendix C. 1994 Survey: Factor Labels and Internal Consistency Reliability Estimates
• Index