ABSTRACT

CUSTOMER SATISFACTION:
HOW DO WE GET THERE AND HOW LONG DOES IT TAKE?

Lisa Getta, Ed.D.

Department of
Northern Illinois University, 2011
Christopher Parker, Director

This study addresses the issue of whether employee attitudes and behaviors

influence customer satisfaction or whether customer satisfaction influences employee

attitudes and behaviors. Additionally, the time lag between relationships was

examined. It was hypothesized that there would be a reciprocal relationship between

employee satisfaction and customer satisfaction and between employee turnover and

customer satisfaction, which would be stronger in a more proximal time frame. Data

were gathered from the units of a large Midwest healthcare system via employee

surveys, customer surveys, and organizational records. Cross-lagged panel analyses

show that customer satisfaction at Time 1 is related to employee satisfaction at Time

3, with a one-year time lag. Additional cross-lagged panel analyses show no

significant relationship employee satisfaction Time 1 and customer satisfaction Time

1, 2, or 3. Further, analyses show no significant relationships between customer

satisfaction and employee turnover at any time period. These results add to the

evidence that customer satisfaction influences employee satisfaction.

 NORTHERN ILLINOIS UNIVERSITY

DE KALB, ILLINOIS

DECEMBER 2011

CUSTOMER SATISFACTION:

HOW DO WE GET THERE AND HOW LONG DOES IT TAKE?

BY

LISA GETTA

©2011 Lisa Getta

A DISSERTATION SUBMITTED TO THE GRADUATE SCHOOL

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS

FOR THE DEGREE

DOCTOR OF EDUCATION

DEPARTMENT OF PSYCHOLOGY

Doctoral Director:
Christopher Parker
 UMI Number: 3495007

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 ACKNOWLEDGMENTS

This dissertation represents the concerted effort of multiple individuals. First, I

am deeply indebted to my advisor Dr. Chris Parker whose help, stimulating

conversations and encouragement helped me in the writing of this dissertation and

motivated me to achieve my career goals and happiness in this chapter of my life. I

would also like to thank Dr. Lisa Finkelstein for inspiring me to continue, and

believing in me when I no longer had faith in myself. Additionally, I would like to

thank the rest of my committee members for providing me with invaluable feedback

throughout the dissertation process: Dr. Brad Sagarin, Dr. George Neuman, and Dr.

Lacie Barber.

Finally, I am also indebted to my former colleagues from Advocate Health

Centers who supported me in my research. I want to thank them for all their help,

support, interest and valuable hints.

 DEDICATION

I would like to express my gratitude to all those who gave me the possibility to

complete this dissertation. I would not have been able to maintain the motivation and

persistence without the support of my family and friends. In particular, I would like to

thank my daughter, Lauren Azoury for supporting my efforts and assisting in any way

possible – from making her own meals during my endless study hours to listening and

providing the constant reinforcement to push forward.

I would also like to honor and thank my parents, Samuel and Betty Getta, who

provided me the words of wisdom and encouragement, enabling me to go the extra

10,000 miles to attain this degree.

I would like to express my gratitude to Dr. Eric Bradburn, Annette Dariano,

and Julane Sullivan for waking me up, inspiring me to start this journey, and making

me realize that I could achieve this great accomplishment Additionally, I am forever

indebted to my close friends who encouraged me and never let me quit– especially Dr.

Rachel DeMuth, Dr. Jolene Skinner, and Thomas Croy. You inspire me to constantly

achieve and to keep my heart in the right place. I am grateful to have all of you in my

life! You are all truly incredibly, strong, intelligent, and successful. Thank you for

being my colleagues and more importantly, my good friends.

 TABLE OF CONTENTS

Page

LIST …………………………………………………………………………………..vi

LIST OF FIGURES…………………………………………………………………..vii

Chapter

1.INTRODUCTION…………………………………………………………………...1

2. LINKAGE RESEARCH……………………………………………………………..5
Linkage Research in the Healthcare Industry............................................................. 8
Specifying the Appropriate Level of Aggregation/Analysis .................................... 10
Employee Satisfaction .......................................................................................... 11
Turnover ............................................................................................................... 12
Customer Satisfaction............................................................................................... 13
Employee Satisfaction as It Relates to Customer Satisfaction ............................. 14
Turnover as It Relates to Customer Satisfaction .................................................. 17
Lag Time .................................................................................................................. 18
Lag Time: Employee Satisfaction-Customer Satisfaction ................................... 19
Lag Time: Turnover-Customer Satisfaction ......................................................... 20

3. METHODS…………………………………………………………………………21
Participants ............................................................................................................... 21
Procedures ................................................................................................................ 22
Patient Satisfaction ............................................................................................... 22
Employee Satisfaction .......................................................................................... 23
Measures ............................................................................................................... 24

4. RESULTS…………………………………………………………………………..34
Descriptive Statistics ................................................................................................ 34
Test of the Causal Model.......................................................................................... 37
Hypotheses 1a, 1b, 1c, and 3 ................................................................................ 37
Hypotheses 2a, 2b, 2c, and 4 ................................................................................ 42

EXPLORATORY ANALYSES ............................................................................... 45

Voluntary versus Involuntary Turnover ................................................................... 45
Control for Types of Departments............................................................................ 47

REFERENCES ......................................................................................................... 54
 v

APPENDIX: EMPLOYEE SATISFACTION ITEMS ........................................... 64

 LIST OF TABLES

Table Page

1. Zero-Order Correlations and Descriptive Statistics Between Study Variables …………………….36

2. Cross-Lagged Panel Analysis Model Beta Estimates and T Values………………………………..38

3. Cross-Lagged Panel Analysis Model Psi Estimates and T Values…………………………………39

4. Zero-Order Correlations and Descriptive Statistics Between Turnover Types and Customer

Satisfaction…………………………………………………………………………………………46
 LIST OF FIGURES

Figure Page

1. Service-profit-chain model………………………………………..…………………………………6

2. Base Model: Hypothesized relationships……………………………..…………………………….29

 CHAPTER 1

INTRODUCTION

Recent research has placed a strong emphasis on linking employee data,

customer data, and business performance (e.g., Currall, Towler, Judge, & Kohn, 2005;

Gelade & Young, 2005; Pugh, Dietz, Wiley, & Brooks, 2002; Schneider, Hanges,

Smith, & Salvaggio, 2003). One area of research that has focused on both the internal

aspects of service organizations and the relationship of those aspects to customer

satisfaction has come to be called “linkage research” (Wiley, 1996). Although the

specific variables change from one linkage model to another, “The general sequence

of events underlying linking is that employee attitudes influence organizational

outcomes through their effect on employee behavior and customer evaluations of

service” (Lundby, Fenlason, & Magnon, 2001, p. 27). Understanding these

relationships can help organizational consultants determine where to focus in order to

achieve the greatest impact on an organization’s bottom line.

There have been two general threads in linkage research. First, a significant

amount of literature has focused on the impact of employee satisfaction on customer

satisfaction (e.g., Currall et al., 2005; Harter, Schmidt, & Hayes, 2002; Schmit &

Allschied, 1995). Second, there has been a virtual cornucopia of research examining

the relationship of service climate to customer satisfaction and organizations’ financial

performance (e.g., Gelade & Young, 2005; Schneider, 1991; Schneider, Ehrhart,

Mayer, Saltz, & Niles-Jolly, 2005). This area has been predominately developed by
 2
Schneider and his colleagues. Results from both streams of research have shown that

customer satisfaction is directly related to business performance (e.g., Harter et al,

2002; Schneider, White, & Paul,1998; Wiley, 1991) and is, therefore, of great

importance to service organizations.

The first major line of linkage research has examined the relationship between

employee satisfaction and customer satisfaction for more than 15 years. Currall et al.

(2005) suggested that “job satisfaction is an index for a broad array of collective

behaviors” (p. 619) which causes an organization to be effective or ineffective.

Several researchers have found a link between employee satisfaction--aggregated to

the business-unit level--and customer perceptions of service (Johnson, 1996;

Reynierse & Harker, 1992; Schmit & Allscheid, 1995; Schneider, 1991; Schneider,

Ashworth, Higgs, & Carr, 1996; Schneider & Bowen, 1992; Schneider, White, &

Paul, 1998; Ulrich, Halbrook, Meder, Stuchlik, & Thorpe, 1991; Wiley, 1991). The

majority of this research is based on the concept that satisfied employees will behave

in a manner that will lead to satisfied customers.

Researchers have acknowledged that employee attitudes and perceptions

cannot influence organizational effectiveness on their own (Koys, 2001). Employee

behaviors play a key part in the relationship between employee attitudes and

perceptions with customer satisfaction (e.g., Koys, 2001; Schneider & Bowen, 1985).

Employee turnover is a crucial organizational behavior when examining the impact of

employee satisfaction on customer satisfaction. More experienced employees have

greater knowledge of the organization and customer goals. Therefore, lower employee
 3
turnover in a service industry should be indicative of higher employee satisfaction as

well as organizations having retained employees who are better equipped to serve the

customer. Unlike employee satisfaction and service climate, there is less research on

the impact of unit-level turnover on customer satisfaction.

It appears that employee satisfaction, service climate, and turnover each have

an impact on customer satisfaction, although the level of support for each variable

varies greatly. Existing research has yet to determine a clear understanding of the

causality of employee satisfaction, and employee turnover with customer satisfaction.

There is a need to establish whether these variables are, in fact, causing customer

satisfaction or if the relationships are better described as reciprocal.

In addition, even where causality can be determined, the relationships are

likely to be affected by important lag times. Schneider et al. (2005) reasoned that

products are intangible in the service industry. These intangible products are

developed and consumed simultaneously, and customers participate in the service

delivery process. Therefore, when compared to industries with more tangible

products, the lag time in the relationships between employee and customer attitudes

and behaviors in service industries may be very short. Harter et al. (2002) called for a

greater examination of the lag time between employee attitudes, perceptions and

behaviors with business unit outcomes. Specifically, they stated that “Future research

should continue to focus on causality and directionality issues. The most convincing

causal evidence comes not from one study but from a body of research and a multitude
 4
of types of evidence, including qualitative analysis of high performing business units,

path analyses, predictive studies, and studies of change over time (p. 276).”

Although there has been a plethora of linkage studies, few have studied how

employee satisfaction and employee turnover jointly impact customer satisfaction.

However, it is necessary to first understand the causality and lag time of these

relationships prior to analyzing the differences in their impact upon customer

satisfaction. Therefore, the purpose of this study is to broaden the linkage research

related to predicting customer satisfaction.

First, a brief discussion on the linkage research will be provided and the

importance of customer satisfaction, particularly in the healthcare industry. The next

sections will provide details on the literature that explores the impact of employee

satisfaction and turnover on customer satisfaction. Each section will focus primarily

on the causality of these relationships. Wrapping up the review of these relationships

will be a reflection of the minimal literature that has looked at the lag time in the

aforementioned relationships.
 CHAPTER 2

LINKAGE RESEARCH

Copious linking projects have suggested a strong relationship between

employees’ and customers’ attitudes and behaviors with financial performance

(Lundby, Fenlason, & Magnon, 2001; Wiley, 1996). Researchers have developed

numerous models to explain the relationships between customers, employees, and

productivity (for a review see Dean, 2004). Although the variables that have been

examined change from model to model, they all portray the same general sequence of

events (Dean, 2004). The proposed sequence is that employees’ attitudes and

perceptions drive employees’ service-related behavior and that this behavior then

influences customers’ attitudes and behaviors (see Figure 1) (Lundby, Fenlason, &

Magnon, 2001). Although there are numerous models and variables that have been

studied, customer satisfaction has been a consistent focal point of these models.

Another area of research that focuses on interactions between service

employees and customers is emotional contagion (Huang & Dai, 2010). Emotional

contagion is the interplay between customer feelings and employee feelings in service

interactions (Brown & Lamm, 2008; Grandey, Goldberg, and Pugh, 2011; Hatfield,

Cacioppo, & Rapson, 1994).

 Operating System and Customers Bottom
Service Delivery System Line

Employee Revenue
Retention Growth

External Customer Customer

Internal Employee Service Satisfaction Loyalty
Service Satisfaction Quality
Quality

Employee Profitability
Productivity

Figure 1: Service-profit-chain model.

6
 7
Hatfield et al. (1994) defined emotional contagion as the tendency to

experience another person’s emotional appraisals, subjective feelings, expressions,

patterned physiological processes, and behaviors. The emotional contagion approach

and the linkage approach are not contradictory; however they do suggest different

reasons for the relationship. The service profit chain perspective suggests that

satisfied employees enhance the customer experience by delivering a higher quality of

service (Koys, 2001). The emotional contagion perspective suggests that the link

between employee and customer satisfaction is a direct link, such that affect transfers

during interpersonal contact (Grandey et al., 2011).

A primary finding of both bodies of research is essentially that customer

satisfaction affects the organization’s financial outcomes. Growth and revenue are

derived from loyal customers who are satisfied (Brown & Lamm, 2008; Heskett,

Sasser, & Schlesinger, 1997). Although there are numerous factors that influence

profit margins, the revenue and growth of an organization is largely reliant upon

retaining a loyal customer base. Further, satisfied and especially dissatisfied

customers are likely to tell several people about the service they have experienced,

which, in turn, is likely to impact growth of the organization. Organizations in the

service sector have made considerable efforts in improving service quality (Schmidt &

Allscheid, 1995). The anticipated result of improved service quality is improved

financial performance (Tompkins, 1992), a relationship that has been conditionally

supported by various researchers (see Schneider, 1991 for a review).

 8
Linkage Research in the Healthcare Industry

Healthcare is a service industry that is struggling in an uncertain and

competitive environment. Consistent with the findings of the linkage research and

emotional contagion approach, a prevalent strategy in this industry is to enhance

organizational performance by increasing customer/patient satisfaction (Otani, Kurz,

& Barney 2004). Both the linkage research and the emotional contagion approach

suggest that employees influence customer satisfaction when there is an opportunity

for interpersonal contact, and there is time for that contact to distinguish a level of

quality (Schneider, Parkington, & Buxton, 1980). This also suggests that the employee

satisfaction-customer satisfaction relationship is greater in personal services (e.g.

healthcare) compared to other services (e.g. banking) due to greater opportunity for

interaction, greater observation for quality of service and therefore greater opportunity

for affect transfer (Grandey et al., 2011).

In an extensive study regarding the impact of patient satisfaction on financial

outcomes in a hospital setting, Nelson and colleagues reported that patients’ ratings of

quality were significantly related with three measures of profit: earnings, net revenue

and return on assets (Nelson, et al., 1992). Patient ratings of quality accounted for 10-

29% of the variability in these three measures of financial performance. In addition, a

few studies have demonstrated a significant relationship between patient satisfaction

and patients’ intent to recommend the hospital to friends and relatives (Clearly, Keroy,

Karpanos, & McMullen, 1983; Doering, 1983; Strasser, Aharony, & Greenberg,
 9
1993). Given the aforementioned results, patients’/customers’ ratings would be

expected to have an indirect impact on financial outcomes.

Although the importance of customer satisfaction has been well established by

extensive research in several service industries, the importance of customer

satisfaction in healthcare cannot be overstated. In addition to customer/patient

satisfaction’s link to financial and competitive advantage, there are even greater

benefits of customer satisfaction in this particular service industry. Customers who

are satisfied with their health care are more likely to continue to utilize services,

maintain a relationship with specific healthcare providers, and comply with medical

recommendations (Aharony & Strasser, 1993). In summary, increased customer

satisfaction has been shown to contribute to the hospital’s bottom line and the patients’

well-being, which in turn is likely to contribute to lower overall healthcare costs for

society.

In healthcare settings, customer satisfaction represents patients’ affective

reactions to the context, process, and result of health care service experiences (Berger,

1983; Pascoe, 1983). Customer satisfaction in healthcare has been shown to be

directly related to several health-related behaviors (Ware & Davies, 1983) and there is

a growing consensus among health care researchers that patient perceptions are an

important indicator of healthcare quality (Nelson, et al., 1992). Several studies have

determined that patient satisfaction is reliably related to maintaining a relationship

with a specific provider (Dimatteo, Prince & Tarantan, 1979; Kasteler, 1976; Marquis,

1983), continued use of medical care services (Thomas & Penchansky, 1984; Ware,
 10
Wright, Snyder, & Chu, 1975), and compliance with medical regimens (Diamatteo &

DiNicola, 1983; Hulka, Cassel & Kupper, 1976; Wartman, 1983) as well as adhering

to prescribed treatment regiments (Ahoarony & Strasser, 1993; Bartlett, et al., 1984).

As the healthcare industry becomes more competitive, patient-rated quality and

patient satisfaction information are becoming increasingly available to the public. In

fact, patient satisfaction surveys are mandatory in managed care settings with

Medicare. Organizations are being forced to be transparent by insurance companies as

well as the competitive market. All of this is causing hospitals and clinics to compete

on quality as judged by patients.

As previously stated, financial performance, an increasingly competitive

marketplace, public knowledge of patient satisfaction ratings, and most importantly

patient health, all establish patient satisfaction as an essential measure of success for

healthcare organizations. Therefore, it is critical for healthcare organizations to

determine how to have the greatest impact on customer satisfaction.

Specifying the Appropriate Level of Aggregation/Analysis

Several researchers have pointed out that the work-unit is the appropriate level

of study in linkage research (Koys, 2001; Ryan, Schmit & Johnson, 1996; Schneider et

al., 2005). In addition, it is those employees and work groups that have direct

customer interaction that are expected to have the greatest impact on customer

satisfaction. Dietz, Pugh, and Wiley (2004) examined unit-level and organizational

level service climate in relation to customer satisfaction. They found a significantly

 11
stronger relationship at the work-unit level than the organization level. It was

determined that the greater amount of customer-employee interaction was the primary

reason for the difference. Given the established financial and practical importance of

patient satisfaction, and the theoretical determination of the appropriate level of

analysis, it is next imperative to understand the key variables related to customer

satisfaction in the linkage research. Employee satisfaction has gained a great deal of

attention and support in the linkage research.

Employee Satisfaction

The Service Management Interest Group at Harvard Business School coined

the term “Service Profit Chain” in one area of linkage research (Heskett & Jones,

1994). The Service-Profit-Chain Model is a theoretical framework that links

employee, customer outcomes, and financial performance at the unit level in service

organizations. In their model, employee loyalty and customer loyalty are the primary

drivers of profitability. More specifically, profit and growth in the service industry are

consequences of customer loyalty and satisfaction. Customer loyalty and satisfaction

are created through employee loyalty and satisfaction, which drive service quality

(Loveman, 1998). Following this theoretical approach, Rucci et al. (1998) describe an

application of “Employee-Customer-Profit chain at Sears” where they reported links

between employee attitudes, customer satisfaction, and store revenue and growth.
 12
At about the same time, a more complex linkage model was proposed by

Wiley (1996). Wiley’s model explicitly acknowledges that the employee-customer

relationship can be moderated by work characteristics, such as closeness of customer.

Turnover

Koys (2001) stated that “Employee attitudes cannot influence organizational

effectiveness on their own; employees must also behave appropriately” (p. 103). Koys

suggests that retention is a primary behavior of interest due to its relationship with

increased employee experience, greater knowledge of the organization, and greater

knowledge of customer goals. Reichheld (1996) suggested that employees in the

service industry tend to develop relationships with their customers over time. These

positive interactions between service employees and customers function as a

foundation for high customer satisfaction (Reichheld, 1996).

Although limited research has found support for the impact of turnover on

customer satisfaction, many service organizations, such as MCI, have realized the cost

of employee turnover as well as the impact on customer service. MCI found from

studying its employees that “A new hire can accomplish only 60% as much in the first

3 months as an experienced worker, and serves customers less well” (Shellenbarger,

1998, p. 2). Further, just a 5% drop in employee productivity cuts annual revenue by a

“couple of hundred million dollars” (Shellenbarger, 1998, p. 2).

The medical industry specifically feels the extreme costs of nursing turnover,

both direct and indirect, through a decrease in service levels. Healthcare organizations

are currently under increased pressure to provide excellent care at lower costs. This
 13
requires that organizations attract and retain highly skilled employees (McNeese-

Smitt, 1999). Additionally, the shortage of experienced nurses has prompted a great

interest in nursing retention. In the late eighties, nursing turnover cost was estimated

to range between $10,000 and $25,000 per nurse (Johnston, 1991; Jones, 1990). In

2000, the Nursing Executive Committee estimated nursing turnover for hospital-

surgical nurses at $24,000 and specialty nurses at $64,000 (Stone, et al., 2003).

Due to the established importance of customer satisfaction in the service

industry, the primary focus of this study is to examine what has a significant impact on

customer satisfaction. The variables that have an overwhelming amount of empirical

research and aforementioned theoretical links to customer satisfaction--employee

satisfaction and turnover--are examined and compared in greater detail.

Customer Satisfaction

In order to determine what variables have a greater impact on customer

satisfaction it is necessary to understand what is being measured. Consistent with

recent employee satisfaction literature, Strasser et al. (1993) define customer

satisfaction in healthcare as a form of attitudinal reactance that incorporates both the

cognitive and affective components of human attitude formation. They distinguish

between the attitude and behavior, although both are a critical part of customer

satisfaction. Pascoe (1983) described customer satisfaction as an evaluation of the

service. The evaluation is a comparison between the characteristics of the individual’s

service experience and their expectations, which is also defined as the subjective
 14
standard. Pascoe described the subjective standard as a combination of “a subjective

ideal, a subjective sense of what one deserves, a subjective average of past experiences

in similar situations, or some minimally accepted level” (p. 189). Based on this

comparison, the customer forms a cognitively based evaluation of the service and an

affectively-based response to different aspects of service. This view is supported by

Strasser et al.’s (1993) theoretical work. Further, it is consistent with both social and

cognitive psychological research on how satisfaction attitudes are formed.

Employee Satisfaction as It Relates to Customer Satisfaction

As researchers began to recognize that relations between job attitudes and

individual effectiveness are often weak at the individual level (Iaffaldano &

Muchinsky, 1985), and armed with theoretical justification for group-level analysis,

they began to focus on organizational-level links between satisfaction and

performance. Several researchers have reported employee-attitude-customer

satisfaction relationships at the organization or group level (e.g., Ashworth, Higgs,

Schneider, Shepherd & Carr, 1995; Harter et al., 2002; Schlesinger & Zornitsky, 1991;

Schneider, Chung & Yusko, 1993; Tornow & Wiley, 1991; Wiley, 1996). Harter et al.

(2002) stated that preliminary findings generally suggest that employee attitudes at the

unit level have positive relations with customer satisfaction.

In an extensive study, Sears Roebuck found that if employee attitudes improve

by 5%, customer satisfaction would increase 1.3%. This increase in customer

satisfaction would drive a half percentage-point rise in revenue (Shellenbarger, 1998).

 15
Shellenbarger suggested these results imply that “employees’ attitudes have a

measurable effect on customer satisfaction and revenue” (p. 2).

Harter et al. (2002) conducted a meta-analysis which examined the relationship

between employee satisfaction and business-unit outcomes, such as customer

satisfaction and profit. Their results supported the hypothesis that business-unit-level

employee satisfaction has a significant positive average correlation with the business-

unit-level outcome of customer satisfaction. However, they stated that the direction of

this relationship is unresolved and concluded that future research should focus on

determining its causality.

Aharony and Strasser (1993) suggested that staff who interact with patients and

who are most satisfied with their jobs, organizational reward systems, supervisors,

coworkers, levels of stress, and so on, will behave in ways that patients find more

satisfying. Aharony and Strasser’s suggestion is consistent with affective events

theory. Affective events theory suggests that events in the workplace have a

significant impact on employees’ emotional reactions. Further, the emotional reactions

impact work attitudes and behavior (Weiss & Cropanzanno, 1996). However, Aharony

and Strasser (1993) also suggested that the reverse linkage should be investigated.

Huang and Dai (2010) also pointed out that past emotional contagion studies have

been limited to the one-way influence of employees’ moods on customers. It may be

that, when interacting with dissatisfied patients, employees are more likely to feel

dissatisfied with their jobs (Aharony & Strasser, 1993). In terms of the emotional

contagion approach, customers’ positive and negative moods may influence

 16
employees’ moods, which in turn influence service performance. This relationship

may be exacerbated in lengthy service interactions that include strong emotional

exchanges (Huang & Dai, 2010).

Several studies (e.g., Schmidt & Allscheid, 1995; Schneider & Bowen, 1985)

have supported that employee satisfaction may cause customer satisfaction. However,

Ryan et al.’s (1996) findings have caused some question about the directionality of the

employee-customer satisfaction relationship. Ryan et al. (1996) examined employee

attitudes, turnover, organizational performance and customer satisfaction in 142

financial service branches for two consecutive years. Causal analyses suggested that

employee satisfaction at Time 1 was not significantly related to customer satisfaction

at Time 2. However, customer satisfaction at Time 1 was related to employee

satisfaction at Time 2. Their findings, therefore, indicate that customer satisfaction

may cause employee satisfaction (Ryan et al., 1996). Therefore, the following is

hypothesized:

Hypothesis 1a: Employee satisfaction will be positively related to customer

satisfaction.

Hypothesis 1b: Customer satisfaction will be positively related to customer

satisfaction.

Hypothesis 1c: There will be a significant reciprocal relationship between

employee satisfaction and customer satisfaction.

 17
Turnover as It Relates to Customer Satisfaction

A great deal of research has focused on the organizational costs of turnover

(Heskett et al., 1997; Johnston, 1991; Jones, 1990; Loveman, 1998; Shellenbarger,

1998) and on determining the variables that impact turnover and intent to quit (Cotton

& Tuttle, 1986; Harter et al., 2002; Kammeyer-Mueller, Warnberg, Glamb, &

Ahlburg, 2005). Numerous studies have even examined unit-level employee

satisfaction with customer satisfaction at the same time they examined employee

satisfaction with employee turnover (Harter et al., 2002; Wiley, Brooks, & Lundby,

2007). However, very little research has examined the relationship between employee

turnover and customer satisfaction. Shellenbarger suggested that new employees are

less experienced and, therefore, less capable of serving customers well. Schneider and

his colleagues have implied that it is the ability of employees to focus on the customer

that drives customer satisfaction. However, it is also highly likely that very low

customer satisfaction would cause employee dissatisfaction and lead to higher unit-

level employee turnover. Heskett et al. (1997) performed a study with employees in a

property and casualty insurance company and concluded that low employee turnover

is correlated with high customer satisfaction, without any indication of directionality

in the relationship.

Koys (2001) used a cross-lagged regression analysis of data from a regional

restaurant chain with 24 locations. She hypothesized a significant relationship

between Year 1 employee satisfaction, organizational citizenship behaviors, and

employee turnover with Year 2 unit-level customer satisfaction. Her underlying

 18
theory was that employee behaviors would have more of a direct impact than

employee attitudes on customer attitudes. The results did not show a significant

relationship between unit-level employee turnover and customer satisfaction, in either

direction. Given the one-year time frame and relatively low sample size, the results

are inconclusive. Further research is required that looks at the possible reciprocal

relationships between turnover and customer satisfaction. Therefore it is

hypothesized:

Hypothesis 2a: There will be a significant negative relationship between unit-

level employee turnover and customer satisfaction.

Hypothesis 2b: There will be a significant negative relationship between unit-

level customer satisfaction and employee turnover.

Hypothesis 2c: There will be a significant reciprocal relationship between

employee turnover and customer satisfaction.

Lag Time

As stated earlier in this paper, “The general sequence of events underlying

linking is that employee attitudes influence organizational outcomes through their

effect on employee behavior and customer evaluations of service” (Lundby, Fenlason,

& Magnon, 2001, p. 27). Implied in this statement and in much of the linkage

research is that the causal relationships in each link of the chain follow a specific a

temporal sequence. Schneider and colleagues propose that in service industries,

intangible products are developed and consumed simultaneously. As a result they

 19
suggest that the lag time between variables should be very short (e.g., Schneider,

Holcombe, & White, 1997). The question of lag time is not only of empirical interest,

but also of practical interest to organizations. “Depending on the lag time between

employee attitudes, customer attitudes, and financial outcomes, the consultant can help

clients prioritize their actions by choosing to focus on employee attitudes, customer

perceptions or both” (Lundby, Fenalson, & Magnan, 2001, pp. 24-25).

Lag Time: Employee Satisfaction-Customer Satisfaction

Ryan et al. (1996) is one of the few studies that considered lag time in

examining the relationship between employee satisfaction, organizational

performance, customer satisfaction and turnover. They used a cross-lagged model and

found that morale at Time 1 is unrelated to customer satisfaction at Time 2, but that

customer satisfaction at Time 1 was related to morale at Time 2. From this finding,

they concluded that morale does not cause customer satisfaction, but that customer

satisfaction may cause morale. An area of concern, however, is the time frame of their

data. They only examined data aggregated at the one-year time frame. Based on

Schneider’s proposition about time in service industries, it is probable that employee

satisfaction has a stronger impact on customer satisfaction at a closer time period than

one year. Therefore, it is hypothesized:

Hypothesis 3: There will be a significant reciprocal relationship between unit-

level employee satisfaction and customer satisfaction, which will be stronger in a more

proximal time frame.

 20

Lag Time: Turnover-Customer Satisfaction

Little research has looked at the relationship between employee turnover and

customer satisfaction. Even less has examined the directionality or lag time involved

in this relationship. Koys (2001) is the only study found that looked at these two

variables at two time periods. As mentioned earlier, the structure of their data and

study only looked at turnover at Time 1 and customer satisfaction one year later in the

restaurant industry. There has been little to no research which has examined the

direction and time frame of the relationship between nursing turnover and patient

satisfaction. This study will examine the relationship of unit-level turnover in a

hospital setting with customer satisfaction across three time periods. Based on the

study by Koys (2001) as well as Heskett et al. (1997), a reciprocal relationship is

expected, although the exact time frame of when this relationship is strongest is

difficult to predict. However, given the amount of time it takes for a new employee to

become fully efficient within a work-unit and the organizational setting, it would be

expected that turnover would have a relatively immediate impact on customer

satisfaction. Therefore, it is hypothesized:

Hypothesis 4: There will be a significant reciprocal relationship between unit

level employee turnover and customer satisfaction, which will be stronger in a more

proximal time frame.

 21
CHAPTER 3

METHODS

Participants

Archival data were gathered from employees, patients and human resource

records of a large Midwestern healthcare system. Data from seven hospitals and one

medical group were analyzed. Data were only used where the data collection

procedures, including time periods and survey administration, were consistent and

could be matched across all three data sets. It is important to note that Kenny (1979)

advocated choosing the time lag to be studied based on conceptual grounds. Research

on these variables to date has examined one-year and two-year time lags; however,

Schneider theorized that employee attitudes and behaviors have an immediate impact

on customer satisfaction. Therefore, the shortest time lag possible of six months was

chosen for analyses. Whether six months is the appropriate lag and whether the results

revealed here will generalize to other lags are questions for future research. Therefore,

unit-level data for all three variables at six-month intervals ending April 2006, October

2006, and April 2007 was analyzed.

Turnover data were available at all three time periods for 782 departments,

employee satisfaction data was available for 272 departments, and patient satisfaction

were available for 146 departments. After all three variables were coded and matched

there were 75 hospital departments and 13 medical group clinics, for a final sample

size of 88 units. This is a small sample size; however, it is suggested that that use of
 22
longitudinal, unit-level data will still contribute to the HR strategy literature.

Department size across all 88 groups (i.e., personnel level) varied from 4 to 155 for all

three time periods, with an average size of 34 employees at Time 1, 28 employees at

Time 2, and 21 employees at Time 3.

Procedures

Patient Satisfaction

Patient satisfaction surveys were administered by an independent external

survey company. Random samples of patients were asked to participate in a survey on

their satisfaction with the care they received. The surveys were mailed to customers

within two weeks of their medical visit. Response rates ranged from 16.8% to 37.3%

across the seven hospitals and 13 clinics for the time period of November 2005

through April 2007. The average response rate was 29.2%. The monthly responses

were aggregated to match the employee satisfaction six-month time frames with

November 2005 through April 2006 as Time 1, May 2006 through October 2006 as

Time 2, and November 2006 through April 2007 as Time 3. For each department and

clinic, a six-month mean of patient responses between November 2005 and April 2007

was computed. Means were only created for groups with a minimum of 3 patient

responses. Six-month means of the number of patient responses ranged from 3 to

1011, with a mean of 124 for Time 1, 130 for Time 2, and 185 for Time 3.
 23
Employee Satisfaction

An employee satisfaction survey process was conducted by an external

independent survey company every six months from April 2006 through April 2007.

All employees were asked to participate in a voluntary, anonymous survey process via

intranet or paper for all three survey periods. In order to minimize duplication of

responses, an individual code was provided to each employee in order to access the

survey or to pick up a paper survey from their local HR office. Survey responses were

coded for site, department and employee position. Responses were only aggregated to

the department level if the department had a minimum of three employee responses.

Response rates ranged from 34% to 96%, with an overall average of 65.5%.

Employee turnover records were acquired from company human resource

records for November 2005 thru April 2007. Both voluntary and involuntary turnover

records were available; however, overall turnover was the theoretical focus here and

therefore used for all analyses. Turnover percentages in each department for the six-

month time periods that coincided with each of the employee survey time periods were

used. Specifically, Time 1 consisted of departmental turnover from November 2005

through April 2006, Time 2 consisted of data from May 2006 through October 2006,

and Time 3 consisted of data from November 2006 through April 2007.
 24
Measures

Customer (Patient) Satisfaction

The number and type of patient satisfaction survey questions varied based on

the service area of the hospital and medical group. However, all surveys shared three

overall assessment questions; (1) Friendliness/courtesy of the nurses, (2) Likelihood of

your recommending this “hospital or clinic” to others, and (3) Overall rating of care

given. The response format was a traditional 5-point Likert-type scale with anchors

labeled: 1-very poor, 2-poor, 3-fair, 4-good, and 5-very good. Reliability (Cronbach’s

alpha) for the Patient Satisfaction scale ranged from .957 to .978 across all three time

periods, with an average of .966.

Employee Satisfaction

The employee satisfaction survey in April 2006 and 2007 consisted of 50

items; however, the October 2006 survey only consisted of 25 of those 50 items. The

items on the survey asked employees about their attitude about their site, their co-

workers, their job, and the person they reported to. The response format was a

traditional 5-point Likert-type scale with endpoints labeled (1) “strongly disagree” and

(5) “strongly agree.” A principal component factor analysis with varimax rotation

indicated a single factor that accounted for 70% of the variance; however, several

items were cross-loaded on a second factor. Therefore, general satisfaction items,

without reference to specific facets of satisfaction, were chosen. A second principal

component factor analysis with varimax rotation was run on the six general
 25
satisfaction items, and showed a single factor that accounted for 84% of the variance.

Across the three time periods, the six-item scale had an average internal reliability of

.96. The six items are included in Appendix A.

Employee Turnover

Turnover at the department level was obtained from HR records. The

percentage turnover in each department was determined by the number of employees

leaving, both voluntarily and involuntarily, compared to the total department size. The

turnover rate used here corresponded to the same time periods as the other data, for

three six-month time periods.

Data Aggregation

Consistent with previous linkage research (Johnson, 1996; Schneider et al.,

1998) all of the variables were conceptualized and defined at the department or clinic

level of analysis. Additionally, this was the unit of analysis for managerial decision

making, and the unit of analysis in regards to patient care. Therefore, individual

responses were aggregated to the department level for both the employee surveys and

patient surveys at the 7 hospitals. For the medical group, responses were aggregated

to the clinic level.

Conceptual aggregation should be coupled with statistical justification (Klein,

Dansereau, & Hall, 1994). Intraclass correlations are commonly used to justify
 26
aggregation of data to higher levels of analysis (e.g., Bartko, 1976; Shrout & Fleiss,

1979).

ICC(1) and ICC(2) are commonly used to determine whether it is statistically

justifiable to aggregate individual responses to the group or department level (Bliese,

2000). ICC(1) is the intra-class correlation measure of between-group differences, and

the median value in organizational research is typically .12 (James, 1982). Employee

satisfaction for Time 1 had an ICC(1) value of .68, Time 2 was .60 and Time 3 was

.69. ICC(2) was used to compare the relative status of between and within variability

using the average ratings of respondents within each department for employee

satisfaction. It is an expression of the mean square between minus the mean square

within, divided by the mean square between (Schmit & Allscheid, 1995). Employee

satisfaction for Time 1 had an ICC(2) value of .97, Time 2 was .95 and Time 3 was

.96. These values exceed Glick’s (1985) recommended cutoff of .60.

Rwg was also used to further justify aggregation of individual level data. Rwg

indicates agreement or interchangeability among raters (Kozlowski & Hattrup, 1992;

Ryan et al., 1996). Interrater agreement was computed for the employee satisfaction

measure for each department or clinic. Average rwg values for the employee

satisfaction times were .83 and .82, and .87 respectively. For the employee

satisfaction measure, the average rwg was .84. These rwg values exceed the .60 cutoff

recommended by Schneider, White, and Paul (1998).

Patient satisfaction was collected at the department level for hospitals and at

the clinic level for the medical group. Individual customer satisfaction ratings were
 27
not available; therefore it was not possible to calculate the ICC or Rwg for this

variable.

Employee turnover was reported as a percentage of employees per department

or clinic that have left in that time frame. Therefore, it was not necessary to

statistically justify aggregation for this variable. In sum, the aggregation statistics

provided sufficient support for aggregation of the employee satisfaction data and

theoretical justification for patient satisfaction and employee turnover.

Analytic Procedure

Structural equation modeling (SEM) using LISREL 8.8 was conducted to test

all hypotheses (Joreskog & Sorbom, 1993). Covariance matrices were utilized to

conduct SEM. The Maximum Likelihood method was used for parameter estimation,

as it performs reasonably well under conditions such as small sample size and non-

normality of data (Anderson & Gerbing, 1988).

Hypothesized structural relationships were tested using cross-lagged panel

analysis (CLPA). CLPAs have been used to examine issues of causality for some time

in the social sciences (e.g., Cook & Campbell, 1979; Schneider et al.,1998; Shingle,

1985), with causality being inferred from differences in the cross-lagged part

correlations, partial correlations, or regression coefficients. One overall CLPA model

with the three variables in three time waves was used as the base model to test all

hypotheses (see Figure 2).

 28
Although the final sample of 88 departments is sufficient for unit-level

analyses, it is small for analytic purposes using structural equation modeling (EQS;
 Employee G Employee H Employee
TO TO TO
Time 1 Time 2 N Time 3
O H2A, 2C
M
H2A, 2C
H2A,2C

K L
J
H2C H2C
H2C

P Q
H2B, 2C R
H2A, 2C
H2A, 2C
Customer Customer Customer
A B
Satisfaction Satisfaction Satisfaction
Time 1 AA Time 2 Z Time 3
Y
H1B, 1C H1B, 1C H1B, 1C
C

T
H1C U
S H1C
H1C

V W
H1A, 1C X
H1A, 1C
H1A, 1C
Employee Employee Employee
Satisfaction Satisfaction Satisfaction
Time 1 D Time 2 E Time 3

Figure 2: Base model: Hypothesized relationships.

Note: Paths between employee satisfaction and employee turnover were estimated, but are not depicted
Note: Hypothesis 3 includes paths from Hypotheses 1A, 1B and 1C. Hypothesis 4 includes paths from Hypotheses 2A, 2B, and
2C.

29
 30
Bentler, 1995). This necessitated restricting the number of variables in the model.

Single-indicator latent factors were used for all three variables. Error variances and

paths were fixed according to the reliabilities of the manifest variables. Reliabilities

for the turnover composites were set at 1.0.

The relationship between employee satisfaction and employee turnover is

fairly well established in the literature (Tett & Meyer, 1993) and not estimating these

paths could potentially decrease model fit. Therefore, in addition to the hypothesized

relationships between customer satisfaction with employee satisfaction, and customer

satisfaction with employee turnover, paths between employee turnover and employee

satisfaction were estimated. This created a fully justified model; therefore model fit

was not used to test hypothesized relationships. Each hypothesis was tested by

examining the significance of the related paths, and then constraining paths to

determine significant differences where necessary.

Hypothesis 1a states that: Employee satisfaction will be positively related to

customer satisfaction. To test this hypothesis, paths from employee satisfaction to

customer satisfaction, paths V,X and W in Figure 2, were examined for significance.

It was expected that these paths would have a positive sign.

Hypothesis 1b states that: Customer satisfaction will be positively related to

employee satisfaction. To test this hypothesis, paths from customer satisfaction to

employee satisfaction, paths Y,AA, and Z in Figure 2, were examined for significance.

It was expected that these paths in the base model would have a positive sign.
 31
Hypothesis 1c states that: There will be a significant reciprocal relationship

between employee satisfaction and customer satisfaction. This hypothesis was to be

tested in two steps: First, all paths from all times of customer satisfaction to all times

of employee satisfaction (paths S, T, U, Y, Z, and AA in Figure 2) were constrained to

zero. A significant difference in model fit between this model and the base model

would reveal whether there is a significant relationship from all times of customer

satisfaction with all times of employee satisfaction. Second, all paths from all times of

employee satisfaction to all times of customer satisfaction, paths S,T,U,V,W, and X in

Figure 2, were constrained to zero. The difference in model fits between this model

and the base model would indicate significant effects of employee satisfaction on

customer satisfaction. A significant change in both models would support a reciprocal

relationship between customer satisfaction and employee satisfaction.

Hypothesis 3: There will be a significant reciprocal relationship between unit-

level employee satisfaction and customer satisfaction, which will be stronger in a more

proximal time frame. To test this hypothesis, the paths from customer satisfaction at

Time 1 to employee satisfaction at Time 1, Time 2 and Time 3 (paths S, Y and AA in

Figure 2) will be constrained to be equal. When compared to the baseline model, a

non-significant difference in model fit indicates no difference in the relationship of

customer satisfaction to employee satisfaction based on lag time.

This was followed by a similar series of tests for the effects of employee

satisfaction on customer satisfaction. Specifically, first paths from employee

satisfaction Time 1 to customer satisfaction Time 1, Time 2 and Time 3 (paths S, V

 32
and X in Figure 2) will be constrained to be equal. A non-significant difference in

model fit would indicate that there was no difference in the effect of employee

satisfaction on customer satisfaction based on lag time.

Hypothesis 2a states that: There will be a significant negative relationship

between unit-level employee turnover and customer satisfaction. To test this

hypothesis, paths from employee turnover to customer satisfaction, paths M,N and O

in Figure 2, were examined for significance. It was expected that these paths would

have a negative sign.

Hypothesis 2b: There will be a significant negative relationship between unit-

level customer satisfaction and employee turnover. To test this hypothesis, paths from

customer satisfaction to employee turnover, paths P,Q and R in Figure 2, were

examined for significance. It was expected that these paths would have a negative

sign.

Hypothesis 2c: There will be a significant reciprocal relationship between

employee turnover and customer satisfaction. To test this hypothesis, all paths from all

times of customer satisfaction to all times of TO, paths J, K, L, and P through R in

Figure 2, will be constrained to zero. The difference in model fit between this model

and the base model will suggest if there is a significant relationship from all times of

customer satisfaction with all times of TO. Next, all paths from all times of TO to all

times of customer satisfaction, paths J,K,L, and M through O in Figure 2, will be

constrained to zero. The difference in model fit between this model and the base

model will suggest if there is a significant relationship from all times of TO with all
 33
times of customer satisfaction. If both changes in model fit are significant, it will

support a significant reciprocal relationship between customer satisfaction and TO.

Hypothesis 4 states that: There will be a significant reciprocal relationship

between unit-level employee turnover and customer satisfaction, which will be

stronger in a more proximal time frame. To test this hypothesis, paths from customer

satisfaction Time 1 to TO Time 1, Time 2 and Time 3 (Paths J, P and R in Figure 2)

will be constrained to be equal. A non-significant difference in model fit would

indicate that there was no difference in the relationship of customer satisfaction to TO

based on lag time.

This was followed by a similar series of path refinements for TO to customer

satisfaction. Specifically, first paths from TO Time 1 to customer satisfaction Time 1,

Time 2 and Time 3 (Paths J, M and O in Figure 2) will be constrained to be equal. A

non-significant difference in model fit would indicate that there was no difference in

the relationship of TO with customer satisfaction based on lag time.

Exploratory Analyses

Several additional analyses were conducted to understand the results found in

the previous analyses. Analyses included additional LISREL structural models to

examine the relationships between employee satisfaction with customer satisfaction,

and employee turnover with customer satisfaction. Alternative models that could

explain the data controlled for department type, and were limited to two time periods.

In addition, correlations of voluntary and involuntary turnover with customer

satisfaction were examined to determine if further analysis was justified.

 CHAPTER 4

RESULTS

Descriptive Statistics

Data were inspected to ensure no violation of regression assumptions of

independence, normality, linearity, and homoscedasticity. Although turnover for all

three times was slightly skewed, linear approximations are assumed to be robust and

reasonable. In order to examine the difference between the short-term and the long-

term relationship between customer satisfaction with employee satisfaction and

employee turnover, correlations across all time periods were examined.

The overall customer satisfaction mean was relatively consistent across all 3

time periods. Customer satisfaction Time 1 had a mean of 88.13, Time 2 had a mean

of 89.12, and Time 3 had a mean of 88.92, on a 100-point scale. Customer satisfaction

Time 1 department means ranged from 76.48-100, Time 2 ranged from 76-100, and

Time 3 ranged from 72.08-100. As expected, customer satisfaction at Time 1 was

correlated with customer satisfaction at Time 2 (r = .34, p < .01) and Time 3 (r = .67, p

< .01). Customer satisfaction at Time 2 was also correlated with customer satisfaction

at Time 3 (r = .61, p < .01).

As with customer satisfaction, the overall employee satisfaction means were

relatively consistent across all three time periods. Employee Satisfaction Time 1 had a

mean of 3.75, Time 2 had a mean of 3.80, and Time 3 had a mean of 3.87, all on a 5-

point scale. Employee satisfaction Time 1 department means ranged from 2.49-4.60,
 35
Time 2 ranged from 2.86-4.66, and Time 3 ranged from 2.40-4.73. As expected,

employee satisfaction at Time 1 was correlated with employee satisfaction at Time 2 (r

= .45, p < .01), however Time 1 was not correlated with Time 3 (r = .20, p > .05).

Employee satisfaction at Time 2 was correlated with employee satisfaction at Time 3

(r = .42, p < .01).

Employee turnover was relatively similar between Time 2 and Time 3, but

appears to be slightly lower at Time 1. Employee turnover Time 1 had a mean of

3.82%, Time 2 had a mean of 6.50%, and Time 3 had a mean of 6.50%. Employee

turnover Time 1 department means ranged from 0%-22.22%, Time 2 ranged from 0%-

26.60%, and Time 3 ranged from 0%-17.65%. Employee turnover at Time 1 was not

correlated with employee turnover at Time 2 (r = .20, p > .05) or Time 3 (r = .06, p >

.05). Employee turnover at Time 2 was correlated with employee turnover at Time 3

(r = .46, p < .01). All correlations, means, SDs, and reliability estimates can be found

in Table 1.
 Table 1

Zero-Order Correlations and Descriptive Statistics Between Study Variables

M SD α 1 2 3 4 5 6 7 8 9
1 Customer Satisfaction Time 1 88.13 4.99 .94 --
2 Employee Satisfaction Time 1 3.75 .40 .97 .18 --
3 Employee Turnover Time 1 3.82 4.59 -- .14 -.19 --
4 Customer Satisfaction Time 2 89.12 5.12 .94 .34** -.03 -.06 --
5 Employee Satisfaction Time 2 3.80 .36 .95 .15 .45** -.14 .03 --
6 Employee Turnover Time 2 6.50 5.22 -- -.10 -.36** .20 -.13 -.08 --
7 Customer Satisfaction Time 3 88.92 5.21 .96 .67** .21 .08 .61** .15 -.09 --
8 Employee Satisfaction Time 3 3.87 .46 .96 .32** .20 -.03 .04 .42** -.08 .29** --
9 Employee Turnover Time 3 6.50 4.72 -- -.27* -.35** .06 -.14 -.20 .46** -.27** -.28** --
Notes. * p < .05, ** p < .01, N = 88

36
 37
Test of the Causal Model

The Cross-Lagged Panel Analysis (CLPA) used to examine the relationships

between customer satisfaction, employee satisfaction, and employee turnover were

based on the model shown in Figure 2. Relationships between employee satisfaction

and employee turnover, although specified in the model, are not depicted in Figure 2.

Therefore, the CLPA provided a just identified model with a perfect overall fit. Path

coefficients (Paths A-I, M-R, and V-AA in Figure 2) and Psi coefficients (Paths J-L

and S-U in Figure 2) for the CLPA model are shown in Table 2 and Table 3,

respectively.

Hypotheses 1a, 1b, 1c, and 3

In order to test Hypotheses 1a and 1b, which state that employee satisfaction

will be positively related to customer satisfaction and customer satisfaction will be

positively related to employee satisfaction, correlations were inspected.

Employee satisfaction at Time 1 was not correlated with customer satisfaction

at Time 1 (r = .18, p > .05), and employee satisfaction at Time 2 was not correlated

with customer satisfaction at Time 2 (r = .03, p > .05). However, employee

satisfaction at Time 3 was positively correlated with customer satisfaction at Time 3 (r

= .29 p < .01).

Employee satisfaction at Time 1 was not correlated with customer satisfaction

at Time 2 (r = -.03, p > .05), or Time 3 (r = .21, p > .05). Further, employee

satisfaction at Time 2 was not correlated with customer satisfaction at Time 3 (r = .03,

p > .05).
 Table 2

Cross-Lagged Panel Analysis Model Beta Estimates and T Values

1 2 3 4 5 6 7 8 9
1 Customer Satisfaction Time 1 -- -- -- -- -- -- -- -- --
2 Customer Satisfaction Time 2 .41 -- -- 6.32 -- -- -.03 -- --
(1.63) (1.26) (.14)
3 Customer Satisfaction Time 3 1.08 0.37 -- -3.58 -2.01 -- -.14 -.03 --
(3.29)* (1.44) (.70) (.48) (.69) (.18)
4 Employee Satisfaction Time 1 -- -- -- -- -- -- -- -- --
5 Employee Satisfaction Time 2 .05 -- -- -1.04 -- -- -.04 -- --
(1.86) (1.51) (1.75)
6 Employee Satisfaction Time 3 .12 -.06 -- -.52 -.76 -- -.04 -.02 --
(2.03)* (1.41) (.57) (.98) (1.17) (.54)
7 Employee Turnover Time 1 -- -- -- -- -- -- -- -- --
8 Employee Turnover Time 2 -.53 -- -- 10.21 -- -- .50 -- --
(1.69) (1.42) (2.06)*
9 Employee Turnover Time 3 -.74 .31 -- 4.85 3.93 -- .22 .52 --
(1.75) 1.00 (.74) (.73) (.86) (2.32)*
Notes. * p < .05, ** p < .01, N=88, DF=87 ,T Values = ( ).

38
 Table 3

Cross-Lagged Panel Analysis Model Psi Estimates and T Values

1 2 3 4 5 6 7 8 9
1 Customer Satisfaction Time 1 16.16 -- -- -- -- -- -- -- --
(4.00)*
2 Customer Satisfaction Time 2 -- 14.97 -- -- -- -- -- -- --
(2.79)*
3 Customer Satisfaction Time 3 -- -- -1.36 -- -- -- -- -- --
(.41)
4 Employee Satisfaction Time 1 .41 -- -- -.04 -- -- -- -- --
(1.68) (1.39)
5 Employee Satisfaction Time 2 -- -.57 -- -- -.05 -- -- -- --
(1.17) (.63)
6 Employee Satisfaction Time 3 -- -- .15 -- -- .09 -- -- --
(.34) (.96)
7 Employee Turnover Time 1 3.39 -- -- -.38 -- -- 21.08 -- --
(1.33) (1.73) (6.60)*
8 Employee Turnover Time 2 -- 2.71 -- -- -.67 -- -- 31.73 --
(.53) (.99) (3.58)*
9 Employee Turnover Time 3 -- -- -1.25 -- -- -.49 -- -- 17.28
(.38) (.85) (3.43)*
Notes. * p < .05, ** p < .01, N=88, DF=87 ,T Values = ( ).

39
 40
Customer satisfaction at Time 1 was not correlated with employee satisfaction

at Time 2 (r = .15, p > .05). However, it was correlated with employee satisfaction

Time 3 (r = .32, p < .01). Customer satisfaction at Time 2 was not correlated with

employee satisfaction at Time 3 (r = .04, p > .05).

In summary, only two of the nine possible correlations were significant,

customer satisfaction Time 1 with employee satisfaction Time 3 and customer

satisfaction Time 3 with employee satisfaction Time 3.

To further examine Hypothesis 1a, that employee satisfaction will be positively

related to customer satisfaction, corresponding paths from employee satisfaction to

customer satisfaction in the CLPA model were examined (Paths V-W in Figure 2).

Employee satisfaction at Time 1 does not predict customer satisfaction at Time 2 (β =

6.32, t(87) = 1.26, p>.05), or Time 3 (β = -3.58, t(87) = .70, p>.05). Further,

employee satisfaction at Time 2 does not predict customer satisfaction at Time 3 (β = -

2.01, t(87) = .48, p>.05). Hypothesis 1a was not supported; employee satisfaction was

not positively related to customer satisfaction.

To further examine Hypothesis 1b, that customer satisfaction will be positively

related to employee satisfaction, corresponding paths from customer satisfaction to

employee satisfaction in the CLPA model were examined (Paths Y-AA). Customer

satisfaction at Time 1 is not predictive of employee satisfaction at Time 2 (β = .05,

t(87) = 1.86, p>.05). However, it does predict employee satisfaction at Time 3 (β =

.12, t(87) = 2.03, p<.05). Customer satisfaction at Time 2 does not predict employee

satisfaction at Time 3 (β = -.06, t(87) = 1.41, p>.05).

 41
With only one significant path between customer satisfaction at Time 1 that

predicts employee satisfaction at Time 3, further analyses and path constraints were

not necessary. Although there was a single significant relationship, Hypothesis 1b

was not fully supported.

In order to test Hypothesis 1c, that there will be a significant reciprocal

relationship between employee satisfaction and customer satisfaction, the correlations

and paths examined for Hypothesis 1a and 1b were considered, with the additions of

paths S-U in Figure 2. Employee satisfaction at Time 1 was not related with customer

satisfaction at Time 1 (psi = .41, t(87) = 1.68, p>.05), employee satisfaction at Time 2

was not related to customer satisfaction at Time 2 (psi = -.57, t(87) = 1.17, p>.05).

Finally, although employee satisfaction Time 3 was correlated with customer

satisfaction Time 3, in the CLPA they were not significantly related (psi = .15, t(87) =

.34, p>.05). No further path constraints were necessary. With only one significant

path, customer satisfaction Time 1 predicting employee satisfaction at Time 3,

Hypothesis 1c was not supported. There was no support for a reciprocal relationship

between employee satisfaction and customer satisfaction.

In order to test Hypothesis 3, that there will be a significant reciprocal

relationship between unit-level employee satisfaction and customer satisfaction, that is

stronger in a more proximal time frame, the same correlations and paths examined for

Hypotheses 1a,b and c were considered. No further path constraints were necessary.

With the only significant path being between customer satisfaction at Time 1 and
 42
employee satisfaction at Time 3 (i.e., the longest time period), Hypothesis 3 is not

supported.

Hypotheses 2a, 2b, 2c, and 4

In order to test Hypothesis 2a and 2b, which state that there will be a

significant negative relationship between unit-level employee turnover and customer

satisfaction, and a significant negative relationship between customer satisfaction and

unit-level employee turnover, correlations were inspected. Employee turnover at Time

1 was not correlated with customer satisfaction at Time 1 (r = .14, p > .05), and

employee turnover at Time 2 was not correlated with customer satisfaction at Time 2

(r = -.13, p > .05). However, employee turnover at Time 3 was negatively correlated

with customer satisfaction at Time 3 (r = -.27, p < .01). Employee turnover at Time 1

was not correlated with customer satisfaction at Time 2 (r = -.06, p > .05), or Time 3 (r

= .08, p > .05). Further, employee turnover at Time 2 was not correlated with

customer satisfaction at Time 3 (r = -.09, p > .05). Customer satisfaction at Time 1

was not correlated with employee turnover at Time 2 (r = -.10, p > .05). However, it

was negatively correlated with employee turnover Time 3 (r = -.27, p < .05).

Customer satisfaction at Time 2 was not correlated with employee turnover at Time 3

(r = -.14, p > .05).

In a similar pattern as the employee satisfaction with customer satisfaction

analyses, only two of the nine possible correlations were significant: customer

satisfaction at Time 1 with employee turnover at Time 3, and customer satisfaction at

Time 3 with employee turnover at Time 3.

 43

To further examine Hypothesis 2a, that employee turnover will be negatively

related to customer satisfaction, corresponding paths from employee turnover to

customer satisfaction in the CLPA model were examined (Paths M-O in Figure 2).

Employee turnover at Time 1 does not predict customer satisfaction at Time 2 (β = -

.03, t(87) = .14, p>.05), or Time 3 (β = -.14, t(87) = .69, p>.05). Further, employee

turnover at Time 2 does not predict customer satisfaction at Time 3 (β = -.03, t(87) = -

.18, p>.05). Hypothesis 2a was not supported; employee turnover was not

significantly related to customer satisfaction.

To further examine Hypothesis 2b, that customer satisfaction will be

negatively related to employee turnover, corresponding paths from customer

satisfaction to employee turnover in the CLPA model were examined (Paths P-R in

Figure 2). It was expected that these paths would have a negative sign. Customer

satisfaction at Time 1 does not predict employee turnover at Time 2 (β = -.53, t(87) =

1.69, p>.05), or turnover at Time 3 (β = -.74, t(87) = 1.75, p>.05). Customer

satisfaction at Time 2 does not predict employee turnover at Time 3 (β = .31, t(87) =

1.00, p>.05).

In order to test Hypothesis 2c, that there will be a significant reciprocal,

negative relationship between employee turnover and customer satisfaction, the same

correlations and paths examined for Hypothesess 2a and 2b were considered, with

examination of the additional paths J,K, and L. Employee turnover at Time 1 was not

related with customer satisfaction at Time 1 (psi = 3.39, t(87) = 1.33, p>.05),
 44
employee turnover at Time 2 was not related with customer satisfaction at Time 2 (psi

= 2.71, t(87) = .53, p>.05), and employee turnover at Time 3 was not related with

customer satisfaction at Time 3 (psi = -1.25, t(87) = .38, p>.05). With no significant

paths between customer satisfaction and turnover, further analyses and path

constraints were not necessary. Hypothesis 2c was not supported. There was no

support for a reciprocal relationship between employee turnover and customer

satisfaction.

In order to test Hypothesis 4, that there will be a significant reciprocal

relationship between unit-level employee turnover and customer satisfaction, that is

stronger in a more proximal time frame, the same correlations and paths examined for

Hypotheses 2a, 2b, and 2c were considered. No further path constraints were

necessary. Hypothesis 4 was not supported.

 45
CHAPTER 5

EXPLORATORY ANALYSES

Voluntary versus Involuntary Turnover

The correlations of voluntary and involuntary turnover at each time period with

customer satisfaction at each time period were examined to better understand the

relationship between employee turnover and customer satisfaction. All correlations,

means, and SDs can be found in Table 4.

The correlation patterns were similar to overall turnover with customer

satisfaction. Identical to overall turnover, two of the nine possible correlations were

significant for voluntary turnover: customer satisfaction at Time 1 with voluntary

turnover at Time 1 (r = -.30, p < .01), and customer satisfaction at Time 3 with

turnover at Time 3 (r = -.27, p < .05). The only different relationship was that

involuntary turnover at Time 2 was correlated with customer satisfaction at Time 2 (r

= -.30, p < .05). This single relationship was not enough to warrant additional

analyses; therefore Hypotheses 2a, 2b, and 4 were not supported.

 Table 4

Zero-Order Correlations and Descriptive Statistics Between Turnover Types and Customer Satisfaction

M SD 1 2 3 4 5 6 7 8 9
1 Customer Satisfaction Time 1 88.13 4.99 --
2 Voluntary Turnover Time 1 2.59 3.38 .14 --
3 Involuntary Turnover Time 1 1.22 2.83 .07 .09 --
4 Customer Satisfaction Time 2 89.12 5.12 .34** -.14 .07 --
5 Voluntary Turnover Time 2 3.67 3.69 -.06 .13 -.22* -.00 --
6 Involuntary Turnover Time 2 .90 1.68 -.14 .29** .09 -.30** .04 --
7 Customer Satisfaction Time 3 88.92 5.21 .67** .02 .10 .61** .04 -.26* --
8 Voluntary Turnover Time 3 4.77 4.08 -.30** .01 -.14 -.13 .35** .18 -.27* --
9 Involuntary Turnover Time 3 1.76 2.41 -.02 .31** .11 -.04 .08 .27* -.08 .00 --
Notes. * p < .05, **p < .01, N = 88

46
 47
Control for Types of Departments

There were departments from both hospitals and from primary care clinics.

The patient interaction with the employees in these departments varies in several ways

(e.g., amount of time spent together), which could cause significant difference in the

relationship between employee satisfaction and customer satisfaction, and turnover

with customer satisfaction. In order to explore the potential impact of department type

on the relationships of employee satisfaction with customer satisfaction and employee

turnover with customer satisfaction, analyses that controlled for department type were

conducted. Therefore, a general linear model was run for each variable by hospital

versus clinic, and the regression residuals were saved. A covariance matrix of the

residuals was utilized in the CLPA to determine if controlling for department type had

an impact on the relationships between the study variables. The results of the CLPA,

while controlling for department type, did not reveal any differences in significant

relationships.

This study was conducted to expand on “linkage” and the service-profit-chain

research, specifically examining the relationships between employee satisfaction with

customer satisfaction, and employee turnover with customer satisfaction. The

foundation behind linkage research states that “The general sequence of events

underlying linking is that employee attitudes influence organizational outcomes

through their effect on employee behavior and customer evaluations of service”

(Lundby, Fenlason, & Magnon, 2001, p. 27). However, existing research has not yet

substantiated the causality of the relationships between employee attitudes and

 48
behavior to customer satisfaction (Harter et al., 2002). There has been some evidence

that customer satisfaction drives employee attitudes and behaviors (Ryan et al., 1996).

Additionally, Schneider et al. (1997) suggested that in the service industry, where

products are intangible, developed and consumed simultaneously, and customers

participate in the delivery process, the lag time in the relationship between employee

and customer attitudes may be very short. Therefore, this study examined the

causality and lag time between employee satisfaction and customer satisfaction, and

between employee turnover and customer satisfaction.

The results of this study do not provide evidence to support the premise behind

the “linkage” research, or for a reciprocal relationship between employee satisfaction

and customer satisfaction, as hypothesized. Employee satisfaction at Time 1 was not

related to customer satisfaction at Time 1, 2, or 3. Further, customer satisfaction at

Time 1 was only related to employee satisfaction at Time 3. Although previous

research had established substantial support for the relationship between employee

satisfaction and customer satisfaction (Harter et al., 2002; Schneider et al., 1997), very

little research had examined the causality of that relationship (Harter et al., 2002). In

this study, employee satisfaction at Time 1 was not significantly related to customer

satisfaction at Time 1, 2 or 3. However, consistent with Ryan et al.’s (1996) findings,

customer satisfaction at Time 1 was significantly related to employee satisfaction at

Time 3. This indicates that contradictory to the “linkage” theory, customer

satisfaction may cause employee satisfaction. Consistent with emotional contagion

theory, and Huang and Dai’s (2010) findings, it may be that customers’ positive and
 49
negative moods have an influence on employees’ moods. This may be particularly true

in situations where the interaction is likely to involve a strong emotional reaction. In

the healthcare industry, the customers’ emotions are strongly tied to their health, and

there is often a strong reaction to the service they are provided by their care givers

(e.g. nurses, doctors). The customers’ emotions may be stronger and more influential

than the employees’ moods in this industry, and others with similar characteristics.

Further, this evidence suggests that the relationship between customer and

employee satisfaction is stronger at a one-year time frame, opposed to the more

proximal frame hypothesized by Schneider et al. (1997). Again, this finding is

consistent with the one-year time frame in reported in Ryan et al.’s (1996) study. It

may be that time-lag varies based on different industry characteristics. Industries such

as healthcare, where there is a higher interaction with an individual service provider,

may increase the opportunity for affect transfer. Emotional contagion theory suggests

that there is “greater opportunity for affect transfer and observation of service delivery

processes…in context where service providers have close contact with customers…”

(Brown & Lam, 2008, p. 252). This would also suggest that the strength of the

interaction would increase over time; thus a longer time frame would increase the

significance of the relationship between customer and employee satisfaction.

In addition to the proposed relationship between employee attitudes and

customer evaluations, linkage research suggests that employee behaviors, such as

employee turnover, should also impact customer evaluations. Shellenbarger (1998)

suggested that new employees are less experienced and less capable of serving
 50
customers well; therefore employee turnover should negatively impact customer

satisfaction. However, it is also highly likely that very low customer satisfaction

would cause employee dissatisfaction and lead to higher unit-level employee turnover.

Very little research has examined the relationship between employee turnover and

customer satisfaction.

The results of this study do not provide evidence for a relationship between

employee turnover and customer satisfaction, in either direction. This finding is

consistent with Koys (2001), however, Koys was only able to examine the relationship

with a one-year time lag. This study examined both a six-month and one-year time

lag, and did not find a relationship with either time lag.

There are several possible explanations for these results. The lack of support

for a relationship between turnover and customer satisfaction may be confounded by

additional variables.

In healthcare, research has found a strong correlation between satisfaction with

nursing to overall patient satisfaction. A large number of studies have suggested that

patient satisfaction with both nurses and physicians is the most important determinants

of overall satisfaction (Abramowitz, Cote, & Berry, 1987; Clearly et al., 1983).

Several hospital studies have shown that overall patient satisfaction is most related to

satisfaction with nursing care (Carey & Posavac, 1982; Doering, 1983; Fleming, 1981;

McNeese-Smith 1999). Future research should duplicate this study with a focus

specifically on unit-level nursing turnover and unit-level nursing satisfaction, instead

of the full department.

 51
Additionally, recent research suggests that nursing turnover may indirectly

impact customer satisfaction through its impact on work processes. Bae, Mark, and

Fried (2010) examined how nursing-unit turnover affects workgroup processes, and

how the processes mediate the impact on patient satisfaction. They found that

turnover is related to workgroup learning, and the number of patient falls. Further,

workgroup cohesion and relational coordination were related to patient satisfaction.

However, this study only examined a six-month period of data and did not look at

causality or the impact of lag time. Future research should consider investigating the

relationship between unit-level nursing turnover with patient satisfaction, mediated by

workgroup processes across time for causality and lag time.

A question worthy of consideration is if the length of the physician-patient

relationship impacts the relationship between unit-level employee satisfaction and

patient satisfaction and unit-level employee turnover and patient satisfaction. In some

service industries, such as healthcare, customers may be more loyal to individuals than

to the organization. People will often follow their physician, or their hairdresser, to

other organizations. Sabiote and Roman (2009) looked at the moderating role of

length of relationship between the service provider and the customer on the effects of

social regard on customer relationship outcomes. In both financial services and hair

salon services, length of relationship was found to moderate the effect of social regard

on customer satisfaction. This is an area to be explored in detail by future research.

Does the length of the provider-customer relationship moderate the relationship

 52
between employee and customer satisfaction, and between employee turnover and

customer satisfaction?

In summary, given the inconsistent findings of the current linkage research,

several additional variables may need to be considered, specifically additional

provider relationship factors and service quality. A CLPA model that examines unit-

level nursing satisfaction and turnover, service climate, and the length of provider-

customer relationship may add to the understanding of when and how employee

satisfaction and employee turnover impact customer satisfaction.

Additionally, future research should continue to examine the causality and

order of the variables. Linkage research suggests that employee satisfaction affects

organizational outcomes through employee behavior and customer evaluations;

however, given the results of this study and Koys (2001), future research may need to

question how these variables impact organizational outcomes. The model may be

much more complicated, and dependent on the type of service industry. For example,

the lag time between each variable and the impact on organizational outcomes may

vary by industry type and would be of practical importance to organizations. Research

should continue to test these relationships across industries, including causality and

lag time.

Although the sample size of this study was relatively small for CLPA,

Schneider et al. (2003) found significant results with a sample size of 35, and Koys

(2001) had a sample size of 28 and did not find a significant relationship between

customer satisfaction and turnover. Future research would benefit from a larger data
 53
set with particular focus on department types that foster long-term provider-customer

relationships.

Although this study does not definitively answer the questions regarding the

relationships of employee satisfaction, turnover and customer satisfaction, the current

findings are of importance. Overall, the results of this study expand the current

research by broadening the understanding of causality and lag time in a service

industry not commonly explored in the linkage or service-profit-chain literature.

A considerable amount of previous research focused on correlations between

employee satisfaction and customer satisfaction. However, several studies have called

for an increase in research that examines causality and lag time (Schneider et al.,

2005; Harter et al., 2002). For example, in the conclusion of their meta-analysis,

Harter et al. stated that “The most convincing causal evidence comes not from one

study but from a body of research and a multitude of types of evidence” (p. 276). This

study provided additional evidence that the relationship between employee satisfaction

and customer satisfaction, and the relationship between employee turnover and

customer satisfaction, are not as straightforward as the linkage research and service-

profit-chain literature suggests.

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APPENDIX: EMPLOYEE SATISFACTION ITEMS
 65
I am satisfied with my involvement in decisions that affect my work.

I would recommend my site as a good place to work.

I would like to remain with my site for at least the next three years.

I would stay with my site if offered a similar job elsewhere for slightly higher pay.

I am proud to tell people that I work for my site.

Overall, I am a satisfied associate.