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Analysis of the Reading ”Which Comes First: Employee Attitudes or Organizational Financial and Market Performance?

Nishant Agarwal September 17, 2013

The objective of this paper, in simple words, is to establish the direction of causality between an organizations financial and market performance measures such as ROA and EPS and its employees attitudes, such as overall job satisfaction, satisfaction with security, pay etc.

Gaps in previous research Finding Opportunities for contribution
The authors Schneider, Hanges, Smith, and Salvaggio primarily contribute by finding certain gaps in research previously conducted on this topic. They observed that researchers micro-orientation towards the job attitude-performance relationship is somewhat surprising; given that the interest in employee attitudes had much of its impetus in the 1960s when organizational scientists such as Argyris (1964), Likert (1961), and McGregor (1960) suggested that the way employees experience their work would be reflected in organizational performance. Majority of the researchers exploring employee attitudes and organization performance always explored this relationship at an individual level. The authors argue that such a relationship should be analyzed at an organization level, by aggregating the individual level data. Another opportunity for a new contribution originated from the fact that most of the research, even at a macro level, was not done across time periods. Denison (1990) measured employee attitudes in 34 publicly help firms and analyzed the correlations between employee attitudes and organizational performance. Though Denisons data was time series of 5 successive years, it was not a time series in the true sense, because he measured only organizational performance over 5 years, keeping the attitudes benchmarked to the first year. Schneider, Hanges, Smith, and Salvaggio therefore conducted a true time series analyses 1

They first assumed one of the employee attitudes (e. The same process was done for each of the attitudes. and in fact attempt to show that this causality flows in both directions. The causal directionality from financial and market performance to overall job satisfaction proved to be very strong. This does not however mean there is no relationship in the other direction. while the minimum was 12 companies in 1989. Then the roles were reversed. S. was from the fact that most studies assumed a one directional causality. just that in one direction it is stronger. Methodology The authors have adopted a complex methodology for this study. The companies in the consortium were large organizations. with the year 1992 offering a maximum of 35 companies. though in case of former. mostly featuring in the Fortunes list of most admired companies. ROA and EPS proved to be a strong predictor of satisfaction with security and pay. The authors measured time lagged correlation between employee attitudes and ROA and EPS using a two pronged approach. pay etc) to be the predictor of each of ROA and EPS. Results The result from the analyses conducted by the authors showed that both satisfaction with security and pay had a positive relationship with both ROA and EPS. the relationship was equally strong in both directions. the authors assume no such direction for causality. and then measured the correlation across time periods. i. with the employee attitudes being the cause and the organizational performance being the result. with each of ROA and EPS being the predictor of the same employee attitude.by measuring both the variables across a period of 8 years. The final opportunity for contribution. though it was necessary given the nature of the problem being analyzed. and perhaps the most crucial one from the perspective of this study. The number of companies available for analyses varied over these 8 years. at times organizational performance being a significant cause for a certain employee attitude. In this study. 2 . They collected data from a consortium of U. and the final results were compiled (Table 6 in the article). security. overall job satisfaction. This research demonstrates that employees can derive satisfaction in their work from the fact that their organization is doing well financially as well as in the stock market. Results concerning relationship between overall job satisfaction and the performance criteria created a stir in the research community.g. Companies. with the relationship much stronger in the reverse direction. The time period under consideration was 1987-1995.e.

such as lack of Generalizability of the results to smaller companies.Strengths and Weaknesses: The critique The biggest strength of the analyses is the longitudinal design of the research. and the demonstration that financial performance has changed in the similar direction in the same time period. since it enforced the macro outlook of the research. For establishing a significant causal relationship. Another interesting research study could be the analysis of changes in employee attitude with time. one needs to dive further into the data and possibly build a regression model between these variables. The biggest limitation of the research is also the most obvious one. the fact that the data was aggregated at the organizational level proved to be beneficial. and the lack of information about how the survey was conducted Opportunities for future research As mentioned previously. moderator mediator analysis and other statistical techniques. The correlation between two variables does not necessarily imply causality. Authors have self admitted other limitations. There is a lot more complexity surrounding the EPS and ROA of a firm. Such complexities have been ignored in the research. a deeper relationship between various variables can be explored through regression analysis. Also. with these outcomes depending on a host of other factors. the bidirectional relationship could be analyzed. 3 . With a proper time series data on both predictor and predicted variables.