Internal quality drives employee satisfaction

Part of the service-profit chain business model, this relationship between internal quality and employee satisfaction can give you a new understanding on how you can engage and retain employees.

You’ve probably already heard of the service-profit chain theory, which was advanced in the nineties by Harvard University researchers James L. Heskett, Thomas Jones, Gary Loveman, W. Earl Sasser, and Leonard Schlesinger. These are its premises:

  • Internal service quality drives employee satisfaction
  • Employee satisfaction drives loyalty
  • Employee loyalty drives productivity
  • Employee productivity drives value
  • Value drives customer satisfaction
  • Customer satisfaction drives customer loyalty
  • Customer loyalty drives profitability and growth

Source: Harvard Business Review

There are no shortcuts to increasing profitability. All the links are equally important and they depend on each other.

For me, internal quality has many dimensions, some of which are not part of the original service-profit chain theory. Let’s take a look.

Internal quality

In the original theory, internal service quality is a link of the service-profit chain. Researchers measured it by analyzing workplace design, job design, employee selection and development, employee rewards and recognition and customer service tools.

“What we call the internal quality of a working environment contributes most to employee satisfaction. Internal quality is measured by the feelings that employees have toward their jobs, colleagues, and companies. What do service employees value most on the job?”

It seems that in this case, internal quality equals employee engagement, the way we understand it today.

When I think of internal quality, I have in mind product/service, processes and work experience. I think that delivering internal quality on these aspects inspires employees to stay and deliver external quality.

Quality of product/service

It’s about believing in what your company offers. As part of the organization, an employee has ownership of your product or service, to some extent.

If the company makes a product or provides a service, a simplistic view is that the employee made a product or provided a service. Because the employee is part of the company. He is the company, from a cultural standpoint.

So how does the quality of the product/service influence employee satisfaction?

The same way a parent’s happiness levels spike when you tell them their baby is gorgeous.

In order to increase employee satisfaction, you want your employees to feel like what they are providing is a qualitative product or service. That it matters, that it makes a difference, that it’s their baby and it’s gorgeous.

If you offer quality in your product or service, you provide meaningful work and that’s the main driver for employee engagement and employee satisfaction. A work that has intrinsic value and is an achievement on its own.

When your employees care about your product/service, they invest part of themselves, working harder and providing a bigger value. They will care more and that will, in return, increase their workplace satisfaction.

Quality of processes

When talking about improving employee engagement in an organization, we often mention autonomy and freedom. We encourage managers to allow employees to manage their own space and time to achieve both performance and satisfaction.

But this autonomy does not imply chaos and confusion. No matter how small your business is, you need to have procedures and protocols. You need to have a framework; an efficient project management tool can help you achieve this.

The degree to which employees are satisfied working for a company is strongly influenced by the way their work is organized.

And this can mean several things; for example the quality of recruitment and preparation processes so that one can efficiently work with a colleague because he has the skills and abilities required. Or the quality of internal communication processes that allow for a given degree of transparency.

In their research of process-oriented organizations, Peter Willaert, Joachim Van den Bergh, Jurgen Willems and Prof. Dirk Deschoolmeester talk about the strong link between culture and quality of process.

“Aspects of process orientation, like customer orientation should be reflected in the beliefs, values, and principles that the organization has publicly committed to. (…) This relates to teamwork, innovative culture, awareness of mission and values of your company, etc.”

Quality of work experience

This is the overall quality that is usually measured in early surveys to assess employee satisfaction. It involves everything from the basic needs (salary, job description) to employee engagement and employee perks.

Robinson (2004) and Penna (2007) developed a model of employee engagement, combining job satisfaction, feeling valued at work, communication and training & development as key influences on staff engagement and overall satisfaction at work (Robinson et al (2004) Model Of The Drivers Of Employee Engagement).

Employee satisfaction is an engagement metric

In a recent article, we talked about the distinction between employee satisfaction and employee engagement.

Job satisfaction defines how happy an employee is with their job. The subjective, personal stand that they take in view of who they work for, where they work, the rewards and benefits they get etc. Bluntly put, the relationship between that person and their job.

On the other hand, I see employee engagement as the relationship between an employee and the company they work for. The commitment to the organization and its brand, in view of the fact that they are a part of it work there.

In the objective measurement of employee engagement, employee satisfaction is a subjective metric that you can only obtain by asking employees.

Measuring employee satisfaction

Like any business KPI, employee engagement is also dependent on data. Gathering data is difficult enough as it is. When you add a human, subjective factor to it, it’s even more difficult. But that doesn’t mean you should quit.

Our solution? Ask employees how they feel on a regular basis. We talked about this in a recent article, when we asked you if you know how your employees are feeling.

Hppy gives you an overview how people feel by tracking daily moods registered in the workplace. The system collects and aggregates the moods in a Happiness Index that gives us a clear indication of how employees feel at work.

Benchmark your data after several months and cross-check it with your industry benchmark to see how you can improve.

The business bottom line

Companies usually measure employee satisfaction to reduce the downtime and expense associated with losing team members and having to recruit and train replacements. In a recent report, Dale Carnegie estimates the annual costs of turnover in the US at $11 billion.

The long-term goal is to genuinely make the company and its office environment a better place in which to work. An efficient employee engagement strategy leads to increased productivity, reduction of staff turnover and rise of company profitability.

Research from Tower Watson and Aon Hewit shows that happy, engaged employees lead to a 19% increase in profitability, 22% increase in productivity and 37% higher sales. Furthermore, it is believed that HR turnover is reduced by 51% and employee burnout by 125%, with a 66% drop in sick leave costs.


Investing in internal quality allows you to fight two battles at the same time: you’re optimizing the way your company functions and you’re building employee satisfaction at the same time.

Employees are satisfied when the company they work for provides qualitative products/services, when they are efficient in their job and function with qualitative processes and when their work experience is engaging.

Image credit: Neil Cummings under C.C.2.0