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Size does matter: the effect of organizational size on customer satisfaction
Journal of Quality Management 6 (2001) 47 – 60 www.journalofqualitymanagement.com
Size does matter: the effect of organizational size on customer satisfaction Nadav Goldschmidta,*, Beth G. Chungb,1 a
Department of Organizational Behavior, School of Industrial and Labor Relations, Cornell University, 379 Ives Hall, Ithaca, NY 14853, USA b Department of Management, College of Business, San Diego State University, 5500 Campanile Drive, San Diego, CA 92182, USA Received 1 March 2001; received in revised form 1 May 2001; accepted 1 June 2001
Abstract Drawing from literature in both organizational behavior and service marketing and management, we develop a conceptual model for explaining the effect of organizational size on customer satisfaction. We propose that organizational size affects customer satisfaction directly and through the intervening variable of employee job satisfaction. We focus on the second effect since it has not been previously identified in the literature. We then use the model to provide an explanation as to why a large company/small company hybrid can produce higher levels of customer satisfaction than either the small or large organizations in isolation — an explanation that also has not been previously discussed in the literature. We conclude by exploring the theoretical and practical significance of our model for future work. D 2001 Elsevier Science Inc. All rights reserved. Keywords: Organizational size; Employee job satisfaction; Customer satisfaction
1. Introduction For decades, researchers have argued that on one hand, ‘‘bigger is better,’’ and on the other hand, ‘‘small is beautiful.’’ In the 1970s and 1980s, growth and large size were
* Corresponding author. Tel.: +1-607-253-5458; fax: +1-607-255-2261. E-mail addresses: [email protected] (N. Goldschmidt), [email protected] (B.G. Chung). 1 Tel.: + 1-619-594-2699; fax: + 1-619-594-3272. 1084-8568/01/$ – see front matter D 2001 Elsevier Science Inc. All rights reserved. PII: S 1 0 8 4 - 8 5 6 8 ( 0 1 ) 0 0 0 2 8 - 1
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considered natural and desirable. However, in the 1990s, small — or at least the ability to behave as a small company — is beautiful. Anecdotal evidence suggests that many large companies, including Johnson & Johnson, Hewlett-Packard, AT&T, and more recently, IBM and Microsoft, are undergoing massive reorganizations by forming groups of small companies or divisions within the overall organization (Daft, 1998; Lawler, 1997). The reorganization is aimed at embracing a large company/small company hybrid that combines a large corporation’s resources, market share, and capital with a small company’s mindset of simplicity, flexibility, and ability to get closer to the customer (Lawler, 1997). This hybrid helps organizations achieve, among other things, higher customer satisfaction. This pattern of organizational transformations suggests that organizational leaders believe that there is a connection between organizational size and customer service. However, this trend is not based on theoretical grounding or much empirical evidence. Surprisingly, very little research has been done on the relationship between organizational size and customer satisfaction despite the attention that each of these subjects has received in their respective fields. Organizational size has long been suggested as a significant macro variable in the organizational behavior literature (Blau, 1974; Blau & Schoenherr, 1971; Hall, 1999; Kimberly, 1976). Similarly, customer satisfaction has dominated much of the attention of researchers in the services marketing and management literature (Heskett, Sasser, & Schlesinger, 1997; Schneider & Bowen, 1995; Zeithaml, Parasuraman, & Berry, 1990). Nevertheless, the two topics have rarely been studied together. In fact, we found only one article (Venkataraman & Low, 1994) that examined the relationship between organizational size and customer satisfaction. They found that organizational size directly affects certain dimensions of customer satisfaction. We have two purposes in this article. First, we develop a conceptual model that provides a more comprehensive theoretical foundation for how organizational size affects customer satisfaction. By inserting employee job satisfaction as an intervening variable, we offer an additional path for the effect of organizational size on customer satisfaction. That is, we discuss how organizational size affects customer satisfaction both directly, as demonstrated by Venkataraman and Low (1994), and through the intervening variable of employee job satisfaction. Second, using the model, we propose that management must take into account employee job satisfaction in creating a successful large/small hybrid if they wish to achieve high overall customer satisfaction. To achieve these goals, we integrate literature from two different fields/areas — organizational behavior and service marketing and management — that have not often been examined in the same study. Since organizations are complex and different disciplines often operate independently of one another, integrating these two areas of study will provide a more comprehensive picture of how organizations function. The article is organized in the following fashion. After outlining the relationship between organizational size and customer satisfaction, we discuss our model. Specifically, we describe the different links in the model, provide testable propositions, and explain why a large/small hybrid can help organizations achieve high customer satisfaction. We conclude with some implications for research and practice.
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2. The effect of organizational size on customer satisfaction As mentioned above, we found only one article that examined the direct relationship between organizational size and customer satisfaction (Venkataraman & Low, 1994). They found a positive correlation between organizational size and service depth satisfaction and a negative correlation between organizational size and response satisfaction (see Fig. 1). Service depth satisfaction was defined as the range, depth, and quality of services provided to the customer in critical areas such as product, price, credit, and after-sales service. Response satisfaction, on the other hand, measures satisfaction with the speed with which an organization responds to customers’ needs and changes in these needs. In this paper, we use Schneider and Bowen’s (1995) definitions of customer satisfaction because it better suits our discussion. Schneider and Bowen suggested that customer satisfaction dimensions can be looked at in what is called personal contact and nonpersonal contact aspects of service. Nonpersonal contact, which is similar to service depth satisfaction, includes dimensions that do not involve direct contact with people (e.g., price, location, product variety, credit options, and opening hours). Personal contact, which is similar but broader than response satisfaction, includes dimensions that involve service quality derived from employee performance and behaviors (e.g., responsiveness, reliability, assurance, and empathy). Looking at these dimensions, we believe that there is a relationship between organizational size and nonpersonal/service depth satisfaction as found by Venkataraman and Low (1994). That is, large organizations have access to more resources such as labor, capital, and technology than smaller organizations. Thus, large organizations can provide a variety of products, afford to choose better locations, and provide price elasticity and flexibility in credit. As a result, the size of the organization has a direct effect on nonpersonal contact aspects of customer satisfaction. However, we also believe that the relationship between organizational size and personal contact/response satisfaction, found by Venkataraman and Low, is not as simple as it looks. That is, since customer satisfaction from personal contact is derived from interactions with service employees, we believe that these employees, and not organizational size, affects customer satisfaction. In addition, we believe that organizational size affects these
Fig. 1. Summary of Venkataraman and Low (1994) results. + means a positive effect.
means a negative effect.
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service employees. Therefore, we suggest that service employees act as an intervening variable between organizational size and personal contact/response satisfaction. Specifically, we analyze employee job satisfaction because it has been suggested that this variable is a primary reason for delivering quality service that leads to customer satisfaction (Schneider, 1980). Furthermore, Schlesinger and Heskett (1991) suggested that unless service employees are happy and satisfied in their job, it would be difficult to achieve high customer satisfaction. Below, we focus on building the relationship between organizational size, employee job satisfaction, and customer satisfaction from personal contact.
3. The effect of organizational size on customer satisfaction from personal contact through employee job satisfaction As mentioned above, we believe that organizational size affects customer satisfaction from personal contact through the intervening variable of employee job satisfaction. The analysis of this effect will be divided into two sections. First, we discuss the effect of organizational size on employee job satisfaction. Second, we discuss the effect of employee job satisfaction on customer satisfaction. 3.1. The effect of organizational size on employee job satisfaction Large organizations have an advantage relative to small organizations in market share, brand recognition, global reach, research and development, and access to low-cost capital. Small organizations, on the other hand, have advantages in terms of flexibility and speed in adapting to environmental changes (Aldrich & Auster, 1986; Lawler, 1997). In addition, small organizations have an internal climate and structure that provide for more interactive relationships between managers and employees (Child, 1973). Given that large and small organizations have unique advantages in a number of areas, we believe that large and small organizations also differ in how they affect employee job satisfaction. Several studies that examine the relationship between organizational size and overall employee job satisfaction have found that small organizations, as compared to large organizations, tended to have employees with higher job satisfaction (Kovach, 1978; Zemke, 1988). However, it is important to mention that overall employee job satisfaction is composed of several facets, and it is important to see if organizational size affects these facets in different ways. That is because it has been suggested that observing the different facets of employee job satisfaction can provide a more complete picture of a person’s job satisfaction than the overall job satisfaction (Spector, 1997). Thus, employee can have different feelings about the various facets. An employee can enjoy and be satisfied from one facet of the job and be dissatisfied with another one. The conceptual domain of employee job satisfaction is broad and consists of several facets including satisfaction with pay, promotions, work itself, supervision, and coworkers (Smith, Kendall, & Hulin, 1969). In the following section, we analyze the effect of organizational size on the different facets of employee job satisfaction. These effects are
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depicted in Fig. 2. Specifically, we first discuss the effect of organizational size on employee satisfaction derived from pay and promotion. Then, we discuss the effect of organizational size on employee satisfaction from the work itself and supervision, which is through the intervening variable of structural complexity. We make no prediction regarding employee satisfaction from coworkers because previous research (Kovach, 1978) has found no significant effect of organizational size on employee satisfaction from coworkers. In other words, Kovach found no significant difference between employee satisfaction from coworkers in large versus small organizations. A positive relationship between organizational size and satisfaction with earning levels has been clearly established, at least for the United States (Brown & Medoff, 1989; Kalleberg & Van-Buren, 1996). However, there is less agreement on whether there is a relationship between organizational size and other job-related characteristics that are valued by employees, such as promotion opportunities (Kalleberg & Van-Buren, 1996). Nevertheless, Kalleberg and Van-Buren (1996) found that employees in large organizations obtained higher earnings and more promotion opportunities than employees in small organizations. Kovach (1978) found that employees in large organizations received more pay than employees in small organizations and as a result employees in large organizations were more satisfied with this facet. Following this line of research, we propose: Proposition 1: Employees in large organizations tend to be more satisfied with the facets of pay and promotion, than employees in small organizations. Unlike the direct effect of organizational size on employee satisfaction from pay and promotion, we propose that organizational size affects employee satisfaction from work itself
Fig. 2. The effect of organizational size on employee job satisfaction. + means a positive effect. negative effect.
means a
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and supervision through the intervening variable of structural complexity. The relationship between organizational size and structural complexity has long been established (Carter, 1984; Hall, 1999; Singh, 1986). It is well known that larger organizations have a greater need for control and coordination and, as a result, become more bureaucratic (Indik, 1965). Other research have shown that large organizations, as compared to small organizations, have more hierarchical levels (Blau, 1972) and show greater horizontal and vertical differentiation (Child, 1973). Likewise, large organizations have a structure that makes employees follow many written rules and resolve problems ‘‘by the book’’ (Schneider, Parkington, & Buxton, 1980). This occurs as the organization tries to increase standardization and stability (Lincoln & Kalleberg, 1990). Small organizations, in comparison, tend to have relatively informal climates and more flexible structures. In addition, these organizations have fewer hierarchical levels, less bureaucracy, less division of work, and fewer rules and procedures (Blau, 1972; Ingham, 1970; Kovach, 1978). Together, these studies suggest that large organizations tend to have more structural complexity than small organizations. Different structures contain different ranks and positions that people fill and different rules and regulations that specify, in varying degrees, how to behave in those positions (Hall, 1999). As a result, different structures will probably shape people’s practices, behaviors, and their work in different ways. The relatively simple and less complex structures in small organizations increases the variety of tasks the employee has to perform in his or her job, increases the employees’ autonomy on the job, and allows the employee to be involved in decision-making (Ingham, 1970; Kovach, 1978). As a result, employees have a greater feeling of satisfaction derived from their work (Filley, 1961; Worthy, 1950). Conversely, the structural complexity of large organizations increases employee task specialization, decreases the complexity and variety of tasks the employee has to perform in his or her job, and limits the employees’ autonomy on the job (Blau & Schoenherr, 1971; Indik, 1965; Kalleberg & Van-Buren, 1996; Talacchi, 1960). Therefore, we believe that employees in large organizations will have low satisfaction derived from work itself. Overall then, we propose that: Proposition 2: Employees in small organizations tend to be more satisfied with the facet of work itself than employees in large organizations. It has also been suggested that structural complexity can also affect the management style used by managers toward their employees (Lincoln & Kalleberg, 1990). Specifically, Lincoln and Kalleberg (1990) suggested that managers in large organization with a bureaucratic complex structure used more formal, distant, and bureaucratic channels to communicate with employees. As a result, little interaction occurs between managers and employees and empowerment practices are rarely implemented. In contrast, managers in small organizations with simple and flexible structures frequently interact with their employees, help employees to solve their problems, and empower employees to make decisions (Ingham, 1970; Schneider & Bowen, 1995). The way employees are managed will have personal consequences for them (Hallowell, Schlesinger, & Zornitsky, 1996; Weatherly & Tansik, 1993). Blau (1974) described
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bureaucratization as a process by which energy is diverted from providing service toward implementing new rules and procedures. As a result, a bureaucratic management orientation appears to foster negative consequences for employees. Indeed, a high level of formality in manager–employee interactions in large organizations reduces employee satisfaction with their managers (Child, 1973; Goldthorpe, Lockwood, Bechhofer, & Platt, 1968). In contrast, small organizations, with fewer hierarchical levels tend to foster friendlier, interactive, and closer relationships between employees and managers, which contribute to higher employee satisfaction with their supervisors (Filley, 1961; Worthy, 1950). Based on the discussion above we propose: Proposition 3: Employees in small organizations tend to be more satisfied with the facet of supervision than employees in large organizations.
3.2. The effect of employee job satisfaction on customer satisfaction from personal contact Heskett et al.’s (1997) discussion on the profit chain suggests that satisfied employees provide better service quality, which results in more satisfied customers. We suggest a similar relationship, as depicted in Fig. 3. The nature of the service encounter places employees and customers at the heart of the service exchange. During this encounter, the service employee and the customer become physically and psychologically close (Schneider & Bowen, 1995). In this close relationship, satisfied employees are more likely to engage in behaviors that assist customers (Locke & Latham, 1990; Weatherly & Tansik, 1993). That is, because of the interactive
Fig. 3. The effect of employee job satisfaction on customer satisfaction from personal contact. + means a positive effect.
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nature of service delivery, the attitudinal and behavioral responses of front-line employees are important in determining the quality of service delivered to the customer (Gronroos, 1983). Therefore, satisfied employees tend to provide better service quality (Locke & Latham, 1990; Schneider, 1980). Overall service quality, in turn, has been found to lead to overall customer satisfaction (Bitner, Booms, & Tetreault, 1990; Desatnik & Detzel, 1993; Schneider & Bowen, 1995). Service quality is thought to be composed of five major dimensions: responsiveness, assurance, reliability, empathy, and tangible (Zeithaml et al., 1990). Among these five dimensions, the first four are related to employee performance while the last dimension (tangible) refers to physical evidence such as the facilities, appearance of personnel and the like. We propose that employee satisfaction affects employee relevant aspects of service quality that, in turn, affect employee-related aspects of customer satisfaction (i.e., personal contact satisfaction). We should mention that past research in the management literature (e.g., Iaffaldano & Murchinsky, 1985) has shown only a small positive correlation between employee job satisfaction and employee performance. However, as mentioned above, the relationship between employee job satisfaction and the delivery of service quality has been shown to be highly correlated. At first glance, these results seem contradictory. However, when one takes into account that delivery of service quality has rarely been examined as a performance variable in the OB/HR literature, the two sets of results become reconcilable. In light of this, we believe that a strong employee job satisfaction–service quality relationship does indeed exist. Thus: Proposition 4: Overall employee job satisfaction is positively related to service quality delivered by service employees that, in turn, is positively related to customer satisfaction derived from personal contact. Employees are also able to provide high-quality service if they demonstrate customeroriented behaviors such as helping customers in their purchase, avoiding putting pressure on the customer, and helping customers assess their needs (Dunlap, Dotson, & Chambers, 1988). Hoffman and Ingram (1992) found that overall employee job satisfaction, as well as the facets of work itself, supervision, and promotion, are positively related to service employees’ customer orientation behavior. Therefore, we propose that: Proposition 5: The different facets of employee job satisfaction (except pay) are positively related to service employees’ customer-oriented performance that, in turn, leads to quality service delivered by the service employee. The discussion above on the effect of organizational size on customer satisfaction from personal contact through the intervening variable of employee job satisfaction is divided into two parts (shown in Figs. 2 and 3). Integrating the two parts and adding the direct effect of organizational size on customer satisfaction from nonpersonal aspects
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Fig. 4. The model of the effect of organizational size on customer satisfaction. + means a positive effect. a negative effect.
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means
represents our conceptual model, as depicted in Fig. 4. From this model, we conclude the following. Proposition 6: Organizational size has a direct effect on customer satisfaction from nonpersonal aspects. Proposition 7: Organizational size affects customer satisfaction derived from personal contact aspects through overall employee job satisfaction, as well as the different facets of employee job satisfaction (except coworkers). Let us mention that the proposed model, as depicted in Fig. 4, is conceptual and, thus, empirical research is needed to test it.
4. The large/small hybrid for higher customer satisfaction Lawler (1997) suggested that given the advantages of being large, it seems almost inevitable that large organizations will dominate markets. However, this will not be the case if ‘‘large’’ also means slow, ponderous, consumed with internal politics and bureaucracy, and staffed with dissatisfied and poorly motivated employees that deliver low-quality service that results in low customer satisfaction. In order to avoid these problems, large organizations are looking for ways to incorporate the advantages of both large and small organizations in customer service while avoiding the disadvantages. Lawler provides several examples of large/small hybrids and how these hybrids operate. Our model, as presented in Fig. 4, suggests that organizational leaders that want to implement a successful large/small hybrid should pay close attention to employee job satisfaction. In other words, achieving higher
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customer satisfaction through a large/small hybrid may not be possible if employee job satisfaction is overlooked. The model suggests that achieving a successful hybrid that will result in high customer satisfaction requires the organization to achieve two goals. First, achieve high employee job satisfaction from the different facets of employee job satisfaction. Second, achieve customer satisfaction derived from the nonpersonal contact aspect of the service. Integrating the advantages of large and small organizations with regard to employee job satisfaction requires a structural transformation. That is, the large organization has to combine its advantages in satisfaction from pay and promotion aspects with the small organization’s advantages in satisfaction derived from the work itself and supervision. This means that a large organization has to transform its management style and structure. It should be able to provide the employees with more meaningful jobs and supportive supervision while retaining its ability to provide higher wages and promotion opportunities. One way to achieve this is through the ‘‘front–back’’ organizational design (Lawler, 1997). In this approach, the company is divided into units with different roles with respect to products, services, or customers. In essence, each unit becomes a ‘‘small business’’ within the large corporation. The small unit atmosphere should provide employees with more autonomy, task variety, and interactive management, while the larger corporation can still maintain the provision of higher wages and growth possibilities. Achieving a successful combination between the facets of employee job satisfaction is only the first of two parts required to achieve a successful hybrid. The second part is that the organization has to retain the advantages of being large to achieve customer satisfaction derived from the nonpersonal contact aspect of the service. Although this seems like a mundane point, we should caution that as the large organization goes through a structural transformation, its ability to retain the advantages of being large in the nonpersonal contact domain may become affected. For example, as the smaller organizational units become more autonomous over time they may start to function separately from one another and not as a cohesive entity. In this situation, the advantages of being large may be lost. Small organizations can also use the model to achieve a successful small/large hybrid. A small organization would need to retain the advantages of being small while enhancing its ability to achieve the advantages related to large organizations. In order for a small organization to develop the capabilities of a large organization, it needs to create linkages and working relationships with other small organizations (Lawler, 1997). The most common small/large hybrid includes network organizations, virtual organizations, and value-added partnerships. Linking with other companies could provide the small company with a greater ability to pay higher wages, as well as provide more opportunities for promotion within the other companies. Together, the companies can merge their capabilities to simulate the positives associated with a large organization. Given the preceding discussion, we propose that: Proposition 8: In order to achieve a successful large/small hybrid and higher customer satisfaction from personal contact, organizations must successfully integrate
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the advantages of large and small organizations with regard to the facets of employee job satisfaction.
5. Implications 5.1. Implications of the model for research The model presented above is the first attempt that we can find at integrating overall employee job satisfaction as an intermediate variable between organizational size and customer satisfaction from personal contact. Since little research has been done on the relationship between these variables, our intent was to provide a framework that will assist other researchers in their future study of this topic. Some measurement issues have to be addressed when planning a research project on this topic. First, we recommend two levels of analysis — individual and organizational. The following variables — management style, the facets of employee job satisfaction, as well as overall job satisfaction, service quality, and customer satisfaction — should be analyzed at the individual level and then aggregated to the organizational level. Obviously, the other variables — organizational size and structure — should be analyzed at the organizational level. The benefits of multilevel analysis are nicely illustrated by Klein, Tosi, and Cannella (1999, p. 243): Multilevel theories begin to bridge the micro– macro divide, integrating the micro domain’s focus on individuals and groups with the macro domain’s focus on organizations, environment, and strategy. The result is a deeper, richer portrait of organizational life — one that acknowledges the influence of the organizational context on individuals’ actions and perceptions and the influence of individuals’ actions and perceptions on the organizational context. Thus, multilevel theory building fosters much needed synthesis and synergy within the organizational sciences. Multilevel theories connect the dots, making explicit the links between constructs previously unlinked within the organizational literature. They begin to complete the gestalt of organizational behavior and theory.
Second, since the model is based on customer satisfaction derived from the quality of service provided by the employee, a research project on this topic should include only service organizations that have direct service encounters between employees and customers (e.g., banks and hotels). Finally, thought should be given to the concept of organizational size regarding both the classification of small and large organizations and the way organizational size is measured. Previous research on organizational size has varied in the classification of ‘‘large’’ and ‘‘small’’ organizations (Ingham, 1970). Venkataraman and Low (1994) stated that there is no a priori theory or precedent to suggest when ‘‘small’’ size ends and when ‘‘large’’ size begins. As a result, any categorization of size seems to have been, in many cases, purely arbitrary (Ingham, 1970; Kovach, 1978). Different researchers have suggested using different cut-off points (e.g., 60 or 100 employees) for determining when a change in organizational structure
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will occur (Caplow, 1957; Ingham, 1970; Kovach, 1978). Regardless of the actual boundary chosen, researchers should have a sound rationale for their classification scheme and choose an organizational sample that clearly delineates small versus large. Another aspect of organizational size that should be considered is how the variable should be measured. Organizational size has been measured in different ways — number of employees, physical capacity measures, assets value, and magnitude of output transactions (Kimberly, 1976). Most articles look at organizational size as the number of employees in the organization. Hence, we recommend using this measure in order to compare future findings with past research on this topic. 5.2. Practical implications Our model has important implications for the management of organizations. With customer satisfaction as a major determinant of company performance, it is imperative for organizational leaders to understand the variables and the relationships between the variables that affect customer satisfaction. The model presented in this article can provide organizational leaders with a ‘‘road map’’ toward understanding these variables and focusing on how to create a successful large/small hybrid. In addition, the model shows that changes in organizational variables (size) can have a profound effect on individual level variables (employee job satisfaction and customer satisfaction). Many organizations are reorganizing in order to cut cost or make structural changes. Often, these organizations are forgetting the impact on the individual level. Therefore, a reorganization may achieve its goal of cost cutting but still fail because management did not pay attention to the profound effects a reorganization can have on individuals. The model can also provide guidelines for growing organizations. That is, the model specifies the aspects of the system that have to be monitored so the advantages of small organizations are maintained as the organization grows and goes through structural and management style transformations.
6. Conclusions The research literature has given considerable independent attention to the subjects of organizational size and customer satisfaction. However, very little research has been done on the relationship between these variables. The conceptual model developed in this article sheds light on this relationship. Our model illustrates a set of links that provide a theoretical foundation for how organizational size affects customer satisfaction directly and also indirectly, through overall employee job satisfaction. The model also shows that management must consider employee job satisfaction in creating a successful large/small hybrid if they wish to achieve high overall customer satisfaction. Therefore, we believe that our model is a step forward in establishing a theoretical framework for the relationship between organizational size, employee job satisfaction, and customer satisfaction. Nevertheless, empirical research is needed to test the model.
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Size does matter: the effect of organizational size on customer satisfaction Nadav Goldschmidta,*, Beth G. Chungb,1 a
Department of Organizational Behavior, School of Industrial and Labor Relations, Cornell University, 379 Ives Hall, Ithaca, NY 14853, USA b Department of Management, College of Business, San Diego State University, 5500 Campanile Drive, San Diego, CA 92182, USA Received 1 March 2001; received in revised form 1 May 2001; accepted 1 June 2001
Abstract Drawing from literature in both organizational behavior and service marketing and management, we develop a conceptual model for explaining the effect of organizational size on customer satisfaction. We propose that organizational size affects customer satisfaction directly and through the intervening variable of employee job satisfaction. We focus on the second effect since it has not been previously identified in the literature. We then use the model to provide an explanation as to why a large company/small company hybrid can produce higher levels of customer satisfaction than either the small or large organizations in isolation — an explanation that also has not been previously discussed in the literature. We conclude by exploring the theoretical and practical significance of our model for future work. D 2001 Elsevier Science Inc. All rights reserved. Keywords: Organizational size; Employee job satisfaction; Customer satisfaction
1. Introduction For decades, researchers have argued that on one hand, ‘‘bigger is better,’’ and on the other hand, ‘‘small is beautiful.’’ In the 1970s and 1980s, growth and large size were
* Corresponding author. Tel.: +1-607-253-5458; fax: +1-607-255-2261. E-mail addresses: [email protected] (N. Goldschmidt), [email protected] (B.G. Chung). 1 Tel.: + 1-619-594-2699; fax: + 1-619-594-3272. 1084-8568/01/$ – see front matter D 2001 Elsevier Science Inc. All rights reserved. PII: S 1 0 8 4 - 8 5 6 8 ( 0 1 ) 0 0 0 2 8 - 1
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considered natural and desirable. However, in the 1990s, small — or at least the ability to behave as a small company — is beautiful. Anecdotal evidence suggests that many large companies, including Johnson & Johnson, Hewlett-Packard, AT&T, and more recently, IBM and Microsoft, are undergoing massive reorganizations by forming groups of small companies or divisions within the overall organization (Daft, 1998; Lawler, 1997). The reorganization is aimed at embracing a large company/small company hybrid that combines a large corporation’s resources, market share, and capital with a small company’s mindset of simplicity, flexibility, and ability to get closer to the customer (Lawler, 1997). This hybrid helps organizations achieve, among other things, higher customer satisfaction. This pattern of organizational transformations suggests that organizational leaders believe that there is a connection between organizational size and customer service. However, this trend is not based on theoretical grounding or much empirical evidence. Surprisingly, very little research has been done on the relationship between organizational size and customer satisfaction despite the attention that each of these subjects has received in their respective fields. Organizational size has long been suggested as a significant macro variable in the organizational behavior literature (Blau, 1974; Blau & Schoenherr, 1971; Hall, 1999; Kimberly, 1976). Similarly, customer satisfaction has dominated much of the attention of researchers in the services marketing and management literature (Heskett, Sasser, & Schlesinger, 1997; Schneider & Bowen, 1995; Zeithaml, Parasuraman, & Berry, 1990). Nevertheless, the two topics have rarely been studied together. In fact, we found only one article (Venkataraman & Low, 1994) that examined the relationship between organizational size and customer satisfaction. They found that organizational size directly affects certain dimensions of customer satisfaction. We have two purposes in this article. First, we develop a conceptual model that provides a more comprehensive theoretical foundation for how organizational size affects customer satisfaction. By inserting employee job satisfaction as an intervening variable, we offer an additional path for the effect of organizational size on customer satisfaction. That is, we discuss how organizational size affects customer satisfaction both directly, as demonstrated by Venkataraman and Low (1994), and through the intervening variable of employee job satisfaction. Second, using the model, we propose that management must take into account employee job satisfaction in creating a successful large/small hybrid if they wish to achieve high overall customer satisfaction. To achieve these goals, we integrate literature from two different fields/areas — organizational behavior and service marketing and management — that have not often been examined in the same study. Since organizations are complex and different disciplines often operate independently of one another, integrating these two areas of study will provide a more comprehensive picture of how organizations function. The article is organized in the following fashion. After outlining the relationship between organizational size and customer satisfaction, we discuss our model. Specifically, we describe the different links in the model, provide testable propositions, and explain why a large/small hybrid can help organizations achieve high customer satisfaction. We conclude with some implications for research and practice.
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2. The effect of organizational size on customer satisfaction As mentioned above, we found only one article that examined the direct relationship between organizational size and customer satisfaction (Venkataraman & Low, 1994). They found a positive correlation between organizational size and service depth satisfaction and a negative correlation between organizational size and response satisfaction (see Fig. 1). Service depth satisfaction was defined as the range, depth, and quality of services provided to the customer in critical areas such as product, price, credit, and after-sales service. Response satisfaction, on the other hand, measures satisfaction with the speed with which an organization responds to customers’ needs and changes in these needs. In this paper, we use Schneider and Bowen’s (1995) definitions of customer satisfaction because it better suits our discussion. Schneider and Bowen suggested that customer satisfaction dimensions can be looked at in what is called personal contact and nonpersonal contact aspects of service. Nonpersonal contact, which is similar to service depth satisfaction, includes dimensions that do not involve direct contact with people (e.g., price, location, product variety, credit options, and opening hours). Personal contact, which is similar but broader than response satisfaction, includes dimensions that involve service quality derived from employee performance and behaviors (e.g., responsiveness, reliability, assurance, and empathy). Looking at these dimensions, we believe that there is a relationship between organizational size and nonpersonal/service depth satisfaction as found by Venkataraman and Low (1994). That is, large organizations have access to more resources such as labor, capital, and technology than smaller organizations. Thus, large organizations can provide a variety of products, afford to choose better locations, and provide price elasticity and flexibility in credit. As a result, the size of the organization has a direct effect on nonpersonal contact aspects of customer satisfaction. However, we also believe that the relationship between organizational size and personal contact/response satisfaction, found by Venkataraman and Low, is not as simple as it looks. That is, since customer satisfaction from personal contact is derived from interactions with service employees, we believe that these employees, and not organizational size, affects customer satisfaction. In addition, we believe that organizational size affects these
Fig. 1. Summary of Venkataraman and Low (1994) results. + means a positive effect.
means a negative effect.
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service employees. Therefore, we suggest that service employees act as an intervening variable between organizational size and personal contact/response satisfaction. Specifically, we analyze employee job satisfaction because it has been suggested that this variable is a primary reason for delivering quality service that leads to customer satisfaction (Schneider, 1980). Furthermore, Schlesinger and Heskett (1991) suggested that unless service employees are happy and satisfied in their job, it would be difficult to achieve high customer satisfaction. Below, we focus on building the relationship between organizational size, employee job satisfaction, and customer satisfaction from personal contact.
3. The effect of organizational size on customer satisfaction from personal contact through employee job satisfaction As mentioned above, we believe that organizational size affects customer satisfaction from personal contact through the intervening variable of employee job satisfaction. The analysis of this effect will be divided into two sections. First, we discuss the effect of organizational size on employee job satisfaction. Second, we discuss the effect of employee job satisfaction on customer satisfaction. 3.1. The effect of organizational size on employee job satisfaction Large organizations have an advantage relative to small organizations in market share, brand recognition, global reach, research and development, and access to low-cost capital. Small organizations, on the other hand, have advantages in terms of flexibility and speed in adapting to environmental changes (Aldrich & Auster, 1986; Lawler, 1997). In addition, small organizations have an internal climate and structure that provide for more interactive relationships between managers and employees (Child, 1973). Given that large and small organizations have unique advantages in a number of areas, we believe that large and small organizations also differ in how they affect employee job satisfaction. Several studies that examine the relationship between organizational size and overall employee job satisfaction have found that small organizations, as compared to large organizations, tended to have employees with higher job satisfaction (Kovach, 1978; Zemke, 1988). However, it is important to mention that overall employee job satisfaction is composed of several facets, and it is important to see if organizational size affects these facets in different ways. That is because it has been suggested that observing the different facets of employee job satisfaction can provide a more complete picture of a person’s job satisfaction than the overall job satisfaction (Spector, 1997). Thus, employee can have different feelings about the various facets. An employee can enjoy and be satisfied from one facet of the job and be dissatisfied with another one. The conceptual domain of employee job satisfaction is broad and consists of several facets including satisfaction with pay, promotions, work itself, supervision, and coworkers (Smith, Kendall, & Hulin, 1969). In the following section, we analyze the effect of organizational size on the different facets of employee job satisfaction. These effects are
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depicted in Fig. 2. Specifically, we first discuss the effect of organizational size on employee satisfaction derived from pay and promotion. Then, we discuss the effect of organizational size on employee satisfaction from the work itself and supervision, which is through the intervening variable of structural complexity. We make no prediction regarding employee satisfaction from coworkers because previous research (Kovach, 1978) has found no significant effect of organizational size on employee satisfaction from coworkers. In other words, Kovach found no significant difference between employee satisfaction from coworkers in large versus small organizations. A positive relationship between organizational size and satisfaction with earning levels has been clearly established, at least for the United States (Brown & Medoff, 1989; Kalleberg & Van-Buren, 1996). However, there is less agreement on whether there is a relationship between organizational size and other job-related characteristics that are valued by employees, such as promotion opportunities (Kalleberg & Van-Buren, 1996). Nevertheless, Kalleberg and Van-Buren (1996) found that employees in large organizations obtained higher earnings and more promotion opportunities than employees in small organizations. Kovach (1978) found that employees in large organizations received more pay than employees in small organizations and as a result employees in large organizations were more satisfied with this facet. Following this line of research, we propose: Proposition 1: Employees in large organizations tend to be more satisfied with the facets of pay and promotion, than employees in small organizations. Unlike the direct effect of organizational size on employee satisfaction from pay and promotion, we propose that organizational size affects employee satisfaction from work itself
Fig. 2. The effect of organizational size on employee job satisfaction. + means a positive effect. negative effect.
means a
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and supervision through the intervening variable of structural complexity. The relationship between organizational size and structural complexity has long been established (Carter, 1984; Hall, 1999; Singh, 1986). It is well known that larger organizations have a greater need for control and coordination and, as a result, become more bureaucratic (Indik, 1965). Other research have shown that large organizations, as compared to small organizations, have more hierarchical levels (Blau, 1972) and show greater horizontal and vertical differentiation (Child, 1973). Likewise, large organizations have a structure that makes employees follow many written rules and resolve problems ‘‘by the book’’ (Schneider, Parkington, & Buxton, 1980). This occurs as the organization tries to increase standardization and stability (Lincoln & Kalleberg, 1990). Small organizations, in comparison, tend to have relatively informal climates and more flexible structures. In addition, these organizations have fewer hierarchical levels, less bureaucracy, less division of work, and fewer rules and procedures (Blau, 1972; Ingham, 1970; Kovach, 1978). Together, these studies suggest that large organizations tend to have more structural complexity than small organizations. Different structures contain different ranks and positions that people fill and different rules and regulations that specify, in varying degrees, how to behave in those positions (Hall, 1999). As a result, different structures will probably shape people’s practices, behaviors, and their work in different ways. The relatively simple and less complex structures in small organizations increases the variety of tasks the employee has to perform in his or her job, increases the employees’ autonomy on the job, and allows the employee to be involved in decision-making (Ingham, 1970; Kovach, 1978). As a result, employees have a greater feeling of satisfaction derived from their work (Filley, 1961; Worthy, 1950). Conversely, the structural complexity of large organizations increases employee task specialization, decreases the complexity and variety of tasks the employee has to perform in his or her job, and limits the employees’ autonomy on the job (Blau & Schoenherr, 1971; Indik, 1965; Kalleberg & Van-Buren, 1996; Talacchi, 1960). Therefore, we believe that employees in large organizations will have low satisfaction derived from work itself. Overall then, we propose that: Proposition 2: Employees in small organizations tend to be more satisfied with the facet of work itself than employees in large organizations. It has also been suggested that structural complexity can also affect the management style used by managers toward their employees (Lincoln & Kalleberg, 1990). Specifically, Lincoln and Kalleberg (1990) suggested that managers in large organization with a bureaucratic complex structure used more formal, distant, and bureaucratic channels to communicate with employees. As a result, little interaction occurs between managers and employees and empowerment practices are rarely implemented. In contrast, managers in small organizations with simple and flexible structures frequently interact with their employees, help employees to solve their problems, and empower employees to make decisions (Ingham, 1970; Schneider & Bowen, 1995). The way employees are managed will have personal consequences for them (Hallowell, Schlesinger, & Zornitsky, 1996; Weatherly & Tansik, 1993). Blau (1974) described
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bureaucratization as a process by which energy is diverted from providing service toward implementing new rules and procedures. As a result, a bureaucratic management orientation appears to foster negative consequences for employees. Indeed, a high level of formality in manager–employee interactions in large organizations reduces employee satisfaction with their managers (Child, 1973; Goldthorpe, Lockwood, Bechhofer, & Platt, 1968). In contrast, small organizations, with fewer hierarchical levels tend to foster friendlier, interactive, and closer relationships between employees and managers, which contribute to higher employee satisfaction with their supervisors (Filley, 1961; Worthy, 1950). Based on the discussion above we propose: Proposition 3: Employees in small organizations tend to be more satisfied with the facet of supervision than employees in large organizations.
3.2. The effect of employee job satisfaction on customer satisfaction from personal contact Heskett et al.’s (1997) discussion on the profit chain suggests that satisfied employees provide better service quality, which results in more satisfied customers. We suggest a similar relationship, as depicted in Fig. 3. The nature of the service encounter places employees and customers at the heart of the service exchange. During this encounter, the service employee and the customer become physically and psychologically close (Schneider & Bowen, 1995). In this close relationship, satisfied employees are more likely to engage in behaviors that assist customers (Locke & Latham, 1990; Weatherly & Tansik, 1993). That is, because of the interactive
Fig. 3. The effect of employee job satisfaction on customer satisfaction from personal contact. + means a positive effect.
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nature of service delivery, the attitudinal and behavioral responses of front-line employees are important in determining the quality of service delivered to the customer (Gronroos, 1983). Therefore, satisfied employees tend to provide better service quality (Locke & Latham, 1990; Schneider, 1980). Overall service quality, in turn, has been found to lead to overall customer satisfaction (Bitner, Booms, & Tetreault, 1990; Desatnik & Detzel, 1993; Schneider & Bowen, 1995). Service quality is thought to be composed of five major dimensions: responsiveness, assurance, reliability, empathy, and tangible (Zeithaml et al., 1990). Among these five dimensions, the first four are related to employee performance while the last dimension (tangible) refers to physical evidence such as the facilities, appearance of personnel and the like. We propose that employee satisfaction affects employee relevant aspects of service quality that, in turn, affect employee-related aspects of customer satisfaction (i.e., personal contact satisfaction). We should mention that past research in the management literature (e.g., Iaffaldano & Murchinsky, 1985) has shown only a small positive correlation between employee job satisfaction and employee performance. However, as mentioned above, the relationship between employee job satisfaction and the delivery of service quality has been shown to be highly correlated. At first glance, these results seem contradictory. However, when one takes into account that delivery of service quality has rarely been examined as a performance variable in the OB/HR literature, the two sets of results become reconcilable. In light of this, we believe that a strong employee job satisfaction–service quality relationship does indeed exist. Thus: Proposition 4: Overall employee job satisfaction is positively related to service quality delivered by service employees that, in turn, is positively related to customer satisfaction derived from personal contact. Employees are also able to provide high-quality service if they demonstrate customeroriented behaviors such as helping customers in their purchase, avoiding putting pressure on the customer, and helping customers assess their needs (Dunlap, Dotson, & Chambers, 1988). Hoffman and Ingram (1992) found that overall employee job satisfaction, as well as the facets of work itself, supervision, and promotion, are positively related to service employees’ customer orientation behavior. Therefore, we propose that: Proposition 5: The different facets of employee job satisfaction (except pay) are positively related to service employees’ customer-oriented performance that, in turn, leads to quality service delivered by the service employee. The discussion above on the effect of organizational size on customer satisfaction from personal contact through the intervening variable of employee job satisfaction is divided into two parts (shown in Figs. 2 and 3). Integrating the two parts and adding the direct effect of organizational size on customer satisfaction from nonpersonal aspects
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Fig. 4. The model of the effect of organizational size on customer satisfaction. + means a positive effect. a negative effect.
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means
represents our conceptual model, as depicted in Fig. 4. From this model, we conclude the following. Proposition 6: Organizational size has a direct effect on customer satisfaction from nonpersonal aspects. Proposition 7: Organizational size affects customer satisfaction derived from personal contact aspects through overall employee job satisfaction, as well as the different facets of employee job satisfaction (except coworkers). Let us mention that the proposed model, as depicted in Fig. 4, is conceptual and, thus, empirical research is needed to test it.
4. The large/small hybrid for higher customer satisfaction Lawler (1997) suggested that given the advantages of being large, it seems almost inevitable that large organizations will dominate markets. However, this will not be the case if ‘‘large’’ also means slow, ponderous, consumed with internal politics and bureaucracy, and staffed with dissatisfied and poorly motivated employees that deliver low-quality service that results in low customer satisfaction. In order to avoid these problems, large organizations are looking for ways to incorporate the advantages of both large and small organizations in customer service while avoiding the disadvantages. Lawler provides several examples of large/small hybrids and how these hybrids operate. Our model, as presented in Fig. 4, suggests that organizational leaders that want to implement a successful large/small hybrid should pay close attention to employee job satisfaction. In other words, achieving higher
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customer satisfaction through a large/small hybrid may not be possible if employee job satisfaction is overlooked. The model suggests that achieving a successful hybrid that will result in high customer satisfaction requires the organization to achieve two goals. First, achieve high employee job satisfaction from the different facets of employee job satisfaction. Second, achieve customer satisfaction derived from the nonpersonal contact aspect of the service. Integrating the advantages of large and small organizations with regard to employee job satisfaction requires a structural transformation. That is, the large organization has to combine its advantages in satisfaction from pay and promotion aspects with the small organization’s advantages in satisfaction derived from the work itself and supervision. This means that a large organization has to transform its management style and structure. It should be able to provide the employees with more meaningful jobs and supportive supervision while retaining its ability to provide higher wages and promotion opportunities. One way to achieve this is through the ‘‘front–back’’ organizational design (Lawler, 1997). In this approach, the company is divided into units with different roles with respect to products, services, or customers. In essence, each unit becomes a ‘‘small business’’ within the large corporation. The small unit atmosphere should provide employees with more autonomy, task variety, and interactive management, while the larger corporation can still maintain the provision of higher wages and growth possibilities. Achieving a successful combination between the facets of employee job satisfaction is only the first of two parts required to achieve a successful hybrid. The second part is that the organization has to retain the advantages of being large to achieve customer satisfaction derived from the nonpersonal contact aspect of the service. Although this seems like a mundane point, we should caution that as the large organization goes through a structural transformation, its ability to retain the advantages of being large in the nonpersonal contact domain may become affected. For example, as the smaller organizational units become more autonomous over time they may start to function separately from one another and not as a cohesive entity. In this situation, the advantages of being large may be lost. Small organizations can also use the model to achieve a successful small/large hybrid. A small organization would need to retain the advantages of being small while enhancing its ability to achieve the advantages related to large organizations. In order for a small organization to develop the capabilities of a large organization, it needs to create linkages and working relationships with other small organizations (Lawler, 1997). The most common small/large hybrid includes network organizations, virtual organizations, and value-added partnerships. Linking with other companies could provide the small company with a greater ability to pay higher wages, as well as provide more opportunities for promotion within the other companies. Together, the companies can merge their capabilities to simulate the positives associated with a large organization. Given the preceding discussion, we propose that: Proposition 8: In order to achieve a successful large/small hybrid and higher customer satisfaction from personal contact, organizations must successfully integrate
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the advantages of large and small organizations with regard to the facets of employee job satisfaction.
5. Implications 5.1. Implications of the model for research The model presented above is the first attempt that we can find at integrating overall employee job satisfaction as an intermediate variable between organizational size and customer satisfaction from personal contact. Since little research has been done on the relationship between these variables, our intent was to provide a framework that will assist other researchers in their future study of this topic. Some measurement issues have to be addressed when planning a research project on this topic. First, we recommend two levels of analysis — individual and organizational. The following variables — management style, the facets of employee job satisfaction, as well as overall job satisfaction, service quality, and customer satisfaction — should be analyzed at the individual level and then aggregated to the organizational level. Obviously, the other variables — organizational size and structure — should be analyzed at the organizational level. The benefits of multilevel analysis are nicely illustrated by Klein, Tosi, and Cannella (1999, p. 243): Multilevel theories begin to bridge the micro– macro divide, integrating the micro domain’s focus on individuals and groups with the macro domain’s focus on organizations, environment, and strategy. The result is a deeper, richer portrait of organizational life — one that acknowledges the influence of the organizational context on individuals’ actions and perceptions and the influence of individuals’ actions and perceptions on the organizational context. Thus, multilevel theory building fosters much needed synthesis and synergy within the organizational sciences. Multilevel theories connect the dots, making explicit the links between constructs previously unlinked within the organizational literature. They begin to complete the gestalt of organizational behavior and theory.
Second, since the model is based on customer satisfaction derived from the quality of service provided by the employee, a research project on this topic should include only service organizations that have direct service encounters between employees and customers (e.g., banks and hotels). Finally, thought should be given to the concept of organizational size regarding both the classification of small and large organizations and the way organizational size is measured. Previous research on organizational size has varied in the classification of ‘‘large’’ and ‘‘small’’ organizations (Ingham, 1970). Venkataraman and Low (1994) stated that there is no a priori theory or precedent to suggest when ‘‘small’’ size ends and when ‘‘large’’ size begins. As a result, any categorization of size seems to have been, in many cases, purely arbitrary (Ingham, 1970; Kovach, 1978). Different researchers have suggested using different cut-off points (e.g., 60 or 100 employees) for determining when a change in organizational structure
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will occur (Caplow, 1957; Ingham, 1970; Kovach, 1978). Regardless of the actual boundary chosen, researchers should have a sound rationale for their classification scheme and choose an organizational sample that clearly delineates small versus large. Another aspect of organizational size that should be considered is how the variable should be measured. Organizational size has been measured in different ways — number of employees, physical capacity measures, assets value, and magnitude of output transactions (Kimberly, 1976). Most articles look at organizational size as the number of employees in the organization. Hence, we recommend using this measure in order to compare future findings with past research on this topic. 5.2. Practical implications Our model has important implications for the management of organizations. With customer satisfaction as a major determinant of company performance, it is imperative for organizational leaders to understand the variables and the relationships between the variables that affect customer satisfaction. The model presented in this article can provide organizational leaders with a ‘‘road map’’ toward understanding these variables and focusing on how to create a successful large/small hybrid. In addition, the model shows that changes in organizational variables (size) can have a profound effect on individual level variables (employee job satisfaction and customer satisfaction). Many organizations are reorganizing in order to cut cost or make structural changes. Often, these organizations are forgetting the impact on the individual level. Therefore, a reorganization may achieve its goal of cost cutting but still fail because management did not pay attention to the profound effects a reorganization can have on individuals. The model can also provide guidelines for growing organizations. That is, the model specifies the aspects of the system that have to be monitored so the advantages of small organizations are maintained as the organization grows and goes through structural and management style transformations.
6. Conclusions The research literature has given considerable independent attention to the subjects of organizational size and customer satisfaction. However, very little research has been done on the relationship between these variables. The conceptual model developed in this article sheds light on this relationship. Our model illustrates a set of links that provide a theoretical foundation for how organizational size affects customer satisfaction directly and also indirectly, through overall employee job satisfaction. The model also shows that management must consider employee job satisfaction in creating a successful large/small hybrid if they wish to achieve high overall customer satisfaction. Therefore, we believe that our model is a step forward in establishing a theoretical framework for the relationship between organizational size, employee job satisfaction, and customer satisfaction. Nevertheless, empirical research is needed to test the model.
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