KEY FINDINGS
· While practitioners and researchers assume that higher employee satisfaction equals higher sales and profits, analysis shows that there is no direct link between the two.
· Between the beginning point of employee satisfaction and the endpoint of profitability lie three crucial intervening factors: employee retention, employee responsiveness to customers, and customer satisfaction.
· By understanding the interplay among these factors, organizations can target their HR efforts to positively affect the bottom line

Center for Advanced Human Resource Studies

English

KEY FINDINGS  · While practitioners and researchers assume that higher employee satisfaction equals higher sales and profits, analysis shows that there is no direct link between the two. · Between the beginning point of employee satisfaction and the endpoint of profitability lie three crucial intervening factors: employee retention, employee responsiveness to customers, and customer satisfaction.  · By understanding the interplay among these factors, organizations can target their HR efforts to positively affect the bottom line.No6_10ResearchLink_DyerWFSatisfaction_Perf.pdf: 1884 downloads, before Oct. 1, 2020

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Identify Critical Factors to Turn Workforce Satisfaction into Bottom-Line Results

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4-2010 
Identify Critical Factors to Turn Workforce Satisfaction into 
Bottom-Line Results 
Center for Advanced Human Resource Studies 
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Identify Critical Factors to Turn Workforce Satisfaction into Bottom-Line Results 
Abstract 
KEY FINDINGS 
· While practitioners and researchers assume that higher employee satisfaction equals higher sales and 
profits, analysis shows that there is no direct link between the two. 
· Between the beginning point of employee satisfaction and the endpoint of profitability lie three crucial 
intervening factors: employee retention, employee responsiveness to customers, and customer 
satisfaction. 
· By understanding the interplay among these factors, organizations can target their HR efforts to 
positively affect the bottom line. 
Keywords 
Employee Engagement, HR Strategy, Financial performance, employee satisfaction, retention, customer 
satisfaction 
Comments 
Recommended Citation 
Center for Advanced Human Resource Studies. (2010, April). Identify critical factors to turn workforce 
satisfaction into bottom-line results (CAHRS Research Link No. 6). Ithaca, NY: Cornell University, ILR 
School. 
This article is available at DigitalCommons@ILR: https://digitalcommons.ilr.cornell.edu/cahrs_researchlink/9 
Identify Critical Factors to Turn Workforce 
Satisfaction into Bottom-Line Results
THE TOPIC: DO HAPPY WORKERS EQUAL 
BIGGER PROFITS?
Organizations are perennially seeking to optimize HR practices 
to improve their financial performance. To this end, HR 
professionals and researchers have long been interested in the 
effect that employee satisfaction has on a business’s bottom line.
The relationship between workforce satisfaction and financial 
performance may seem obvious—satisfied employees provide 
better service, leading to satisfied customers, who bring 
substantial business to a store. However, the path from satisfied 
workforce to profitability is not a direct one. In fact, there are 
crucial junctures in between, and how each of these is managed 
will significantly affect the organization’s profits. 
This study broke down the relationship between workforce 
satisfaction and financial performance, examining each link in 
the chain (employee behaviors and customer satisfaction) to 
determine ways in which HR practices can be designed to enrich 
an organization’s financial results.
THE STUDY QUESTIONS
In this study, researchers asked the following questions:
◊	 To what extent does the level of workforce satisfaction affect a firm’s bottom line?
◊	 Will increased employee satisfaction necessarily yield better financial performance? 
◊	 If not, how can HR policies and procedures be retooled to improve financial performance?
KEY FINDINGS
◊	While practitioners and researchers assume 
that higher employee satisfaction equals 
higher sales and profits, analysis shows that 
there is no direct link between the two.
◊	Between the beginning point of employee 
satisfaction and the endpoint of profitability 
lie three crucial intervening factors: employee 
retention, employee responsiveness to 
customers, and customer satisfaction.
◊	By understanding the interplay among these 
factors, organizations can target their HR 
efforts to positively affect the bottom line.
No. 6, April 2010
The Center for Advanced Human Resource Studies (CAHRS) is an 
international center serving corporate human resources leaders and 
their companies by providing critical tools for building and leading high-
performing HR organizations. CAHRS’ mission is to bring together 
partners and the ILR School’s world-renowned HR Studies faculty to 
investigate, translate and apply the latest HR research into practice 
excellence.
CENTER FOR ADVANCED 
HUMAN RESOURCE STUDIES
Cornell University
ILR School
193 Ives Hall
Ithaca, NY 14853
Tel: 607-255-9358
www.ilr.cornell.edu/cahrs
cahrs@cornell.edu
esearchLink
2  CORNELL CENTER FOR ADVANCED HR STUDIES | ResearchLink
THE RESULTS
While financially successful businesses tend 
to have satisfied employees, the reverse is not 
necessarily true. Workforce satisfaction does 
not lead directly to better financial performance.
If the relationship between employee satisfaction 
and financial performance was “direct,” 
workforce satisfaction would lead directly to 
profitability, and intervening factors would 
simply affect the relationship in various ways. 
On the contrary, each of the intervening factors 
(employee retention, employee responsiveness 
to customers, and customer satisfaction) is vital 
to financial performance.
In addition, the farther one travels along the 
path, the more likely it becomes that financial 
performance will be affected by non-employee 
related factors, such as customer expectations 
or economic conditions. 
The missing link
Many previous studies have been unable 
to establish a strong relationship between 
workforce satisfaction and customer 
satisfaction. By contrast, this study found 
evidence of a significant relationship between 
the two by recognizing a crucial intervening 
variable: employee behavior.
Understanding the importance of employee 
behavior (specifically, employee retention and 
responsiveness to customers), and its place in 
the chain, is crucial to uncovering the keys to 
profitability.
Satisfied employees typically stay with a store 
longer, resulting in employees building up their 
bank of knowledge and skills. This, in turn, 
improves the store’s ability to provide high-
quality service, resulting in satisfied customers. 
In a similar vein, satisfied employees tend to 
provide better service; at the store level, employees 
providing improved service tend to encourage 
similar efforts by fellow workers—again leading 
to increased customer satisfaction. 
And, finally, satisfied customers generally lead 
to greater profitability, through increased repeat 
business, customer retention, and referral of new 
customers (Heskett, et al., 1994)3. This last link 
in the service-profit chain has been illustrated through evidence of profit and sales 
(Bernhardt, Donthu, & Kennett, 2000)2 and return on investment (Anderson, et al., 
1994)1. 
Weighing relevant factors and evaluating context
Because workforce satisfaction is not directly related to financial performance, 
targeted efforts to improve employee satisfaction will not necessarily translate 
into bottom-line improvements. Managers should instead focus on patterns across 
different measures of organizational performance, and address and assess each of 
these to enhance financial performance. 
Since this study was limited to one U.S.-based retail chain of home-improvement 
stores, the researchers point out that their findings are somewhat dependent on 
context. The link between operational performance and profitability may be stronger 
in other settings, especially those in which employee interactions are particularly 
important for achieving organizational outcomes. 
In a consulting firm, for instance, teams of employees—configured specifically for 
each engagement—must deliver a range of operational outcomes, customer service, 
3  CORNELL CENTER FOR ADVANCED HR STUDIES | ResearchLink
and bottom-line results. Thus, improved customer service in this situation is 
more likely to lead to bigger profits. 
Another example is a small manufacturing firm, in which employees work 
interdependently to produce efficiencies, top-quality products, and profits. 
Improvements in worker satisfaction should increase operational efficiency, 
most likely resulting in improved financial performance.
Applicability to various industry settings
This study used data from multiple sources—employee and customer input, 
company financial records, and data from the U.S. Bureau of Labor Statistics. 
In addition, it focused on employee satisfaction and performance at the store 
level, offering observations on the behavior of a store’s employees as a unit. 
The researchers point out that they may have overlooked other significant 
factors, such as employee commitment, organizational citizenship, or 
organizational climate. However, they suggest that their findings are most 
likely relevant across many different types of organizations. 
In addition, the researchers highlight the fact that they were able to see 
complex relationships from data gleaned almost exclusively from company 
records. Managers are likely to have just as much valuable information readily 
available—the raw materials they need to uncover the keys to converting 
workforce satisfaction into measurable financial results.
THE TAKEAWAY
How can HR practitioners retool their policies and procedures to improve 
financial performance through workforce satisfaction?
◊	 An investment in improving workforce satisfaction will not necessarily 
translate directly to the bottom line; rather, managers should start with 
the bottom line and trace a path backwards, searching for factors that 
might affect profits and be affected by workforce satisfaction.
◊	 In retail firms, such as the one studied, efforts to increase employee 
satisfaction at the store level would probably manifest initially as 
improved employee retention and better employee responsiveness to 
customers. The best scenario would be to have a workforce with varying 
levels of experience, since relatively new employees tend to provide 
better customer responsiveness, but senior ones tend to provide more 
knowledgeable and personalized service.
◊	 Once employee turnover is under control and customer responsiveness 
and service begin to improve, the store would expect to see incremental 
improvements in customer satisfaction, and, after a while, improvements 
in revenues as customers return more often, spend more, and bring in 
friends. Eventually, the result would be better financial performance.
◊	 Virtually all firms of any size have the information 
they need to track this type of indirect path, 
and can use the metrics to show the ongoing 
effects of efforts to improve not only workforce 
satisfaction, but other employee attitudes and 
attributes as well.
THE DATA SOURCE
Data came primarily from the extensive records 
of a large U.S.-based home-improvement retailer, 
comprising about 96,000 employees in 782 stores. Data 
were obtained for fiscal years 2003 (Year 1) and 2004 
(Year 2).
Employee satisfaction was measured by 12 items 
scored on a 5-point scale (1=strongly agree, 5=strongly 
disagree; “no opinion” was also an option). The 
items addressed store-level management practices 
and employees’ perceptions of their work. Individual 
responses were aggregated up to the unit level.
Employee retention was calculated at each store by 
comparing the number of employees who remained 
in a given store from Year 1 to Year 2 versus the 
number of employees in the store in Year 1. Employee 
responsiveness was measured as the average time 
employees took to respond to customer requests for 
assistance. 
The company measured customer satisfaction with 
phone- and internet-based surveys (future discounts 
were offered as an incentive). The questions, on a seven-
point scale (1=completely dissatisfied; 7=completely 
satisfied), addressed customers’ satisfaction with the 
company over time and their satisfaction with the 
company versus its competitors. 
Financial performance was defined as profit per square 
foot, and scaled by square footage, since larger stores 
are expected to generate more profits because of 
economies of scale and a wider product offering. 
Control variables from the company’s records 
included store age, number of employees, and 
transactions per square foot. A final control variable 
was unemployment-rate data, obtained from the U.S. 
Bureau of Labor Statistics. 
4  CORNELL CENTER FOR ADVANCED HR STUDIES | ResearchLink
THE RESEARCHERS
This study was conducted by:
• Jake Holwerda, Ph.D. candidate, ILR School, Cornell University
• Lee Dyer, Professor of Human Resource Studies and Chairperson of the Department of Human Resource Studies, ILR School, Cornell 
University
For an in-depth discussion of this topic, see:
Holwerda, Jake and Dyer, Lee. Unit-Level Satisfaction and Performance: Intervening Variables 
and Indirect Relationships. Accepted for presentation at the 2010 Academy of Management 
Annual Meeting, August 2010.
◊	Questions about this research should be directed to Lee Dyer at ldd3@cornell.edu.
REFERENCES
1. Anderson, E. W., Fornell, C., & Lehmann, D. R. 1994. Customer satisfaction, market share, and profitability: findings from Sweden. 
Journal of Marketing, 58(July 1994): 53-66.
2. Bernhardt, K. L., Donthu, N., & Kennett, P. A. 2000. A longitudinal analysis of satisfaction and profitability. Journal of Business Research, 
47: 161-171.
3. Heskett, J. L., Jones, T. O., Loveman, G. W., Sasser, W. E., Jr., & Schlesinger, L. A. 1994. Putting the service-profit chain to work. Harvard 
Business Review, March-April 1994: 164-174.


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