A comprehensive measure of business performance : a study of the commercial banking industry in Ethiopia

Abstract

The purpose of the study was to identify a comprehensive measure of performance by assessing the relationship between employee satisfaction and customer satisfaction on the profitability of the commercial banking industry in Ethiopia. The study adopted unidimensional path models, multivariate approach and factor analysis in predicting the dependent variable, determining the independent variables and the sample size and justifying the objectives of the sturdy. Primary data were obtained through structured questionnaires from valid sample responses of 180 employees and customers selected on convenient sampling method. Profitability (ROA & ROE) was measured based on the average data from the financial statements of 2007/8-2001/12 of the banks. Variant of empirical studies and theoretical frameworks, drawn from motivational, psychological and behavioural theories, were used to formulate the hypothesis and establish the relationship between internal service quality, employee satisfaction, customer service quality, customer satisfaction, customer loyalty and profitability. Results of the study indicated internal marketing influenced employee job satisfaction which in turn partially influenced customer service quality and customer satisfaction; customer service quality influenced customer satisfaction which then influenced customer loyalty. But, no relationship was observed between customer loyalty and profitability. However, due to the timing gap of the data on profitability and the data on customer satisfaction and customer loyalty, the relationship is apparently realizable in the long run. Therefore, due emphasis is required by the management of the banks to exert the necessary strategic effort on employee satisfaction, customer service quality, and customer satisfaction because of their implicit effects on profitability. Finally, the relevance of the research to the literature on performance measurement is demonstrated by contextualizing comprehensive models in the context of commercial banking industry in Ethiopia.