Abstract
The interaction between employee and customer satisfaction, respectively, as well as interactions between these criteria and productivity and cost efficiency in service production, are considered in this paper. Data from Swedish pharmacies on quality measured as a customer satisfaction index (CSI) and an employee satisfaction index (ESI) are used. The quality measures are derived from questionnaires and obtained using a partial least squares estimation procedure. Productivity is defined as a partial labor productivity measure. The interaction effects between quality, productivity and economic performance in terms of cost efficiency are derived and estimated using a restricted second-order approximation of a general functional structure. The analysis is based on data from 1993 to 1995 and indicates significant positive relations from ESI to CSI and significant positive relations from ESI to productivity. As for the interaction with cost efficiency, the estimated combined effect from CSI and productivity indicates improvements in cost efficiency in most cases. For 'highly productive' pharmacies, with productivity above an estimated threshold value, the partial effect from increased CSI is also an improved cost efficiency.