Dispelling the modern myth: Employee satisfaction and loyalty drive service profitability

This paper reports some empirical findings which appear to challenge the received wisdom prevailing in the operations management, service management, TQM and HRM literatures, namely, that employee satisfaction and loyalty are key drivers of productivity, efficiency and profit. An empirical study of one of the UK’s four large supermarket chains reveals an inverse correlation between employee satisfaction and the measures of productivity, efficiency and profitability, the most profitable stores being those in which employees are least satisfied. Employee loyalty, measured in terms of length of service, also appears to be inversely correlated with productivity and profitability. It also emerges that the pressure to maximise store efficiency may be leading to dysfunctional managerial behaviour at store level. These preliminary findings suggest two imperatives for managers and academics. For managers, it is advocated that they analyse the relationship between employee satisfaction, loyalty and financial performance in their own organisations rather than assuming that the rhetoric of the management literature applies in all operational contexts. For academics, four contingent variables are proposed which distinguish those service contexts in which the assumed relationship may pertain: services where customer contact with staff is high; services where there is little opportunity for technological substitution; services where staff contact is critical to the customer value proposition; and services with high labour costs.