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CHAPTER 2 LITERATURE REVIEW INTRODUCTION No research study is complete and justified unless it is focused around certain theories, hypothetical ideas and empirical findings. So also this research study
CHAPTER 2 LITERATURE REVIEW INTRODUCTION No research study is complete and justified unless it is focused around certain theories, hypothetical ideas and empirical findings. So also this research study started with a review of the conceptual theories and empirical evidences for a detailed understanding of employee loyalty as a research topic of interest. A comprehensive review the literature on employee loyalty offered very few studies linked specifically to the keyword employee loyalty. Most of these methods, concepts, theories, approaches and findings closely overlap with the concept of organizational commitment as they sometimes considered as synonyms in the field of management, psychology, organizational behavior and business ethics. Loyalty is a term most widely used in the field of organizational Behavior, business administration and management, whereas the commitment is most commonly used in the field of Psychology. Hence, for this research study literature on both loyalty and commitment is referenced carefully and cautiously. 2.1 THE CONCEPT OF EMPLOYEE LOYATY Traditionally, employee loyalty implied ability to remain in the organization for a long term or all through one s work tenure. Loyalty was a thought that would prompt an employee to remain focused and committed to the organizations for what its vision and values are. These loyal and dependable employees always chose the organization's interests and were willing to make personal sacrifices to a certain extent.there are various definitions for employee loyalty and each of them address loyalty in a different manner. 25 Mowday, Porter & Steers (1982) defined loyalty as productivity that exceeds normal expectations, i.e., goes past the call of duty. Solomon (1992) defined employee loyalty as A willingness to remain with the organization. (Silvestro, 2002) defined employee loyalty as a measure of the amount of time one works for the company. J. Meyer and N. Allen (1997) stated organizational loyalty as a conditional drive for personal identification and involvement in a particular organization. These loyal employees tend to decline the job offers, and accept that their relationship with the organization is the best alternative they have chosen.this way loyal employees are indispensable assets to the organization as their loyalty to the organization helps in better interaction with external and internal customers and they are able to deliver better services to maximize the profits of their organization (Michlitsch, et al, 2000). From the above definitions, it can be presumed that employee loyalty is the psychological attachment of employees to their employer. This kind of loyalty is evident from the sentiments, disposition, positive conduct and actions of employees. In the past, trustworthiness and loyalty of the employees were expected as an exchange of the long term benefits like job security, annuity, retirement and lifetime employment. But in recent times, the scenario is not the same due to drastic changes in the economy as well as organizational dynamics and employee loyalty cannot be best understood only with reference to the tenure with the employer. This is best justified in the research outcome of Payscale discussed in the first chapter of this thesis. According to Phaneuf (2013), employee loyalty cannot be simply measured by the amount of time, but also on a lot of other factors that an employee commits while 26 on the job. It is the extent to which employees recognize themselves with the organization s work ethics, objectives of the organization and contribute to the corporate performance. Thus the definition and the concept of employee loyalty has undergone a major shift in the theory and practice of employee management in today s business environment. From the modern organization perspective, employee loyalty can be defined as long-lasting, dependable, trustworthy relationship that an employee holds by acting as brand ambassador of the organization while working with it IMPORTANCE OF EMPLOYEE LOYALTY The famous quote by Napoleon Hill ( ) in his book Think and Grow Rich published in 1937 says Lack of loyalty is one of the major causes of failure in every walk of life. This is true and could be applied to businesses and even more to organizations of today largely driven by employees. The absence or little loyalty on either side of employer and employee can result in critical failure of the systems and processes within the organization resulting in an exodus of talent thereby crippling the operational efficiency of businesses. Renowned Loyalty experts Keiningham, Aksoy( 2009) assert that the long term success of the company is largely dependent on the quality and loyalty of its employees.they give an insight on the statistics related to steady decline in the employee loyalty levels based on a comprehensive global examination.on an average, an organization looses fifty percent of its workforce within four years and loses fifty percent of its customers within five years.the traditional conviction of life time employment does not apply to the current generation of employees and this way job hopping has become a norm. 27 Organizations in their golden reign and good times of growth may not give careful consideration on aspects of employee loyalty. Then again, when the business environment gets testing and when employees perceive unfavorable work conditions within the system and their intentions to quit gets stronger. This is the time employees venture out in search of opportunities resulting in voluntary turnover. This triggers an alarm to organizations and they try to address the issues at the onset of a problem. An effort of this kind may not be as fruitful in changing the magnitude of the problem in the loyalty levels. These problems have been identified by researchers in the academic fields to pursue research studies related to employee loyalty and commitment in the different regions of the globe. The subsequent sections of this chapter discuss the various theories and empirical findings that have the most significance for a developing an appropriate theoretical framework for this study REFERENCE THEORIES LINKED TO EMPLOYEE LOYALTY AND ITS CONSTRUCTS A review of literature traced many management theories spinning around loyalty, yet for the current study those theories that best supports this research study has been considered relevant and has been incorporated. Much of the empirical findings concerning to employee loyalty are intensely influenced by Allen and Meyer s Three Component Model of organizational commitment and job Characteristics theory Three Component Model of Organizational Commitment The three-component model developed Allen and Meyer (1990). According to this model, commitment is of three types. a. Affective Commitment: It is the emotional attachment to the organization. Employees infer satisfaction from their work, their peers, and their work 28 surroundings are strong of that fulfillment. Employees who have a high affective commitment are those who will go past the obligation at hand for the benefit of the organization. Likewise affective commitment is alluded in the recent literature to as engagement and it is this type of commitment that is measured most often by organizations. b. Continuance Commitment: It is the cost associated with leaving the organization. c. Normative Commitment: It is the moral obligation of an employee to remain in the organization. Employees see the organization to be on their side and inspires a feeling of shared commitment in which both the organization and the employee feel an awareness of other's expectations of one another. Employees believe they are involved in a reasonable financial exchange in which they benefit from the relationship. These act as temptations to enter and stay in the organization. Based on the three component model of organizational commitment, employee loyalty can be best understood as a function of affective commitment Job Characteristics Theory: This is the most widely studied for its relevance to job characteristics. According to Hackman and Oldham s (1975) job characteristics theory, there are five important factors that keep employees' job more satisfying. They are skill variety, task significance, task identity, autonomy and feedback. According to this theory, job or the task itself is the key to employee motivation. Thus, by offering challenges and variety in the tasks, an employee s motivation levels can enhance and adds more meaningfulness to the work. It is therefore important to note that in a job design phase, these factors need to form a right amalgam to receive increased performance. 29 2.4. EMPIRICAL STUDIES ON EMPLOYEE LOYALTY In the present research, employee loyalty is viewed as employees being committed to the organization and have a positive feeling about the job. This means to say that even if they have not put long years of service with their current organization, they are dedicated to adding value and enhancing the image of the organization through positive work behaviors and actions. However, in the course of time, even if employees choose to quit the organizations due personal emergencies, they still continue to endorse the same positive feeling of the organization. Chen et al., (2002) & Alvesson (2000) argued that loyal employees willingly put the needs and interest of their employer to a level higher than giving priority to their desires and interests. Loyal employees are not attracted to any sort of financial motivators (Reichheld, 1996) that prompts them to quit the company. They likewise uphold the image of the company and are less likely to complain or resist changes in the organization (Walz and Niehoff, 2000). Raju and Srivastava (1994) elaborated that organizational commitment as a factor that promotes the attachment of the individual to the organization. Employees are said to be committed to their organizations if they enthusiastically continue their association with the organization and exhibit significant exertion in achieving organizational objectives. The authors argue that these elevated levels of effort exerted by employees increase organizational commitment. This will prompt higher levels of performance and viability of both the individual and the organizational levels. Jai Prakash Sharma and Naval Bajpai (2010) did a comparative study in public and private sector companies in India of 250 employees in the limit of managerial and non-managerial ranks. Their results revealed that employees in public sector 30 organization have more prominent levels of organizational commitment compared to private sector organizations. Furthermore, the job satisfaction increases or decreases when there is an increment or diminishing organizational commitment. This possible finding was important in light of the fact that most of the Indian employees have an alternate social presentation to the occupation status and holding work out in the public is seen to be more secure in terms of professional stability. Ramanathan and Senthil (2013) conducted a study to investigate the role of employee loyalty and to examine crucial factors influencing quality service in the business units of equipment rentals. The study was undertaken on a sample size of 100 across the South Indian cities. The results revealed that organizational culture is the leading contributing factor to employee loyalty followed by superior leadership style.on the negative side, stringent HR policies, discrepancies in pay, lack of rewards and recognition, severity in the work loads, conflicts due to contract nature of the business and personal problems resulted in lower levels of employee loyalty hampering the development of the company.however, when viewed totally, most of the respondents agreed that employee loyalty is important for the success of the company. A research study was conducted by Tymon et al., (2009) to examine the talent management practices of twenty eight companies in India. A sample of 4, 811 employees was surveyed to understand employee s attitudes towards their employer. They identified four important factors within the control of employer can drive employee attitude to stay in the company. These four important factors are professional development practices, performance management practices, the quality of supervision and the company s socially responsible posture. The research confirmed that these result in higher levels of satisfaction and pride with the 31 organization and employees will be more attached to the organization and are more likely to stay. According to the findings based on a survey Employee Engagement Insights of India and in an interview with Economic Times, Brad Adams, Head of HR Research in Asia, Corporate Executive Board said that Indian workforces exhibited lowest employee loyalty in Asia of the 28 major economies surveyed. This survey also revealed interesting needs of employees working in Asia. They were work-life balance, location preference, career development opportunities, upward mobility, the growth of the company, stable career and earning potential were more important than just an attractive compensation (Economic times, 2014). According to Ipsos Reid (2009) study it was found that 22 per cent of 1,128 Canadian employees were less loyal to their employers. In organizations where employees experienced layoffs, 36 percent reported that their loyalty decreased and when their salaries were freezed, it was 31 percent. A survey conducted by Spherion Corp. (2007) found that employees remain committed to their organizations when there is long term job security. Employees are also less loyal when they feel ignored and not valued by their employers. Decreased face to face interactions by relying too much on teleconferencing, video conferencing and exchanges lead to the to the erosion of social relationships and thereby decline in the loyalty levels within the organization. Yee, Yeung, Edwin (2010) carried out an empirical study of 210 high contact service shops in Hong Kong to assess the influence of employee loyalty on service quality, customer satisfaction, customer loyalty and business performance. They tested this relationship using structural equation modeling and results of this study 32 uncovered that employee loyalty has a significant influence in extending the profitability of the firm through increased customer satisfaction and customer loyalty. Gupta and Aityan ( 2012) conducted a survey on employee loyalty in the bay area, San Francisco on random sample of 151 participants across multiple industries like healthcare, hi-tech,finance, retail, services, manufacturing and few others.the objective of the study was to evaluate the trust employees hold towards their managers furthermore to know how the organizations believe their employees.the results of the study demonstrated that larger part of the non-managerial employees felt that organizations were not loyal and neglected to perceive employees interests.however, this was not true for managerial employees and they positively assessed the situation JOB SATISFACTION AND EMPLOYEE LOYALTY A review of the literature shows that job satisfaction is the most widely studied construct in the literature related to loyalty, commitment, turnover, attrition and in anticipating other related behavioral as well as attitudinal outcomes of a job. Job satisfaction itself, then again, is the consequence of numerous variables and thus, job satisfaction in this study examines in detail by isolating it into six subcomponents as supervisory support, coworker support, intellectual stimulation, career development and growth, rewards and recognition and pay. Literature with reference to each of the sub-component with respect to employee loyalty is reviewed and introduced under six different headings in this chapter. Before, each of these subdimensions of job satisfaction is discussed, an overview on job satisfaction is presented. 33 The term job satisfaction is not a new concept and it is as old as the origin of employment itself.but the way it is viewed today is not the same as viewed in the past. Traditional definitions of job satisfaction spin around the monetary or extrinsic factors as key motivators for increased job satisfaction. The concept of job satisfaction was first developed by Landsberger in 1958 with the Hawthorne effect. Although, job satisfaction as a segment was not specified in his study. However, he did distinguish that workers work for a bundle of reasons other than just pay. A standout amongst the most prevalent study identified with job satisfaction could be linked to Motivation hygiene theory developed by psychologist Frederick Herzberg in He found that there are out and out two separate factors that impact job satisfaction. One, the elements leading to job satisfaction were termed as Motivators and these were the nature of the work itself, including the needs of accomplishment, competency, status, individual worth, and self-realization which subsequently make employee blissful and satisfied on the job. Second, elements leading to job dissatisfaction were called hygiene factors and these consist of company policies, supervision, technical problems, pay, interpersonal relations at work, and working conditions. Basically, hygiene factors are required to guarantee an employee that he is not dissatisfied with the job. Motivation factors are needed to spur an employee to higher performance. One of the most widely used definitions of job satisfaction in organizational research is that of Locke (1976), who defines job satisfaction as a pleasurable or positive emotional state resulting from the appraisal of one's job or job experiences . A more recent definition of the concept of job satisfaction is from Hulin and Judge (2003), who have distinguished job satisfaction as multidimensional 34 psychological responses to an individual's job, and that these personal responses have cognitive (evaluative), affective (or emotional), and behavioral components. Job satisfaction can be understood in terms of its relationships with other key factors, such as general well-being, stress at work, control at work, homework interface, and working conditions. It is assessed at both the global levels or at the facet levels (whether or not the individual is satisfied with different aspects of the job. Spector (1997) listed fourteen common facets of job satisfaction: Appreciation, Communication, Coworkers, Fringe benefits, Job conditions, Nature of the work, Organization, Personal growth, Policies and procedures, Promotion opportunities, Recognition, Security, and Supervision). A study titled Analysis of factors affecting job satisfaction of the employees in public and private sector (geeta and Pandey, 2011) in India concluded that Indian employees tend to love their job if they get what they believe as an important attribute of a good job. The study also showed that most of the employees in Indian industry are not satisfied with their job except for a few males in commerce sector and females in the education sector. Total job satisfaction levels of males were found to be higher than that of women. Total job satisfaction levels in the manufacturing sector are found to be very low. The research conducted by Bajpai & Srivastava (2002) uncovered that a safe and great welfare approaches expand the levels of job satisfaction while the risk of layoff, quick turnover, insufficient welfare plans, and less scope for vertical development increase the levels of job dissatisfaction. If the organization invests in employee s well-being it results in higher satisfaction in employees. In case if organizations invest resources into employees's prosperity, it brings about higher satisfaction among employees. Along these lines, job satisfaction predominantly 35 concentrates on the attitude of employees to the job while employee loyalty depend
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