Customer Satisfaction in Contracted Privatized Relationships: The Role of Organizational Context

Executive Summary Managing customer satisfaction is an inherently important but often challenging task. The challenge becomes particularly pronounced when the buyer-seller relationship is the result of a longterm contracted privatization effort. A priori expectation suggests that there are organizational context differences between the two organizations. These differences can influence the extent to which there is customer satisfaction. Based on a study of 56 buyer-seller dyads in a privatization relationship, we find that there are significant differences between the dyad's organizational attributes of goal clarity, bureaucracy and red tape. We also found bureaucracy in the buyer organization is positively related to the level of customer satisfaction. Conversely, autonomy in the seller organization is positively related to customer satisfaction. Further, red tape in the seller organization is negatively related to the level of customer satisfaction. We conclude with a discussion of implications from our findings and suggest future research agenda. The importance of developing customer satisfaction has been recognized in numerous business research streams. A strategic management perspective considers customer satisfaction as an indicator of an organization's performance (e.g., Venkatraman & Ramanujam, 1986). A marketing perspective considers that customer satisfaction provides insight into the extent to which there will be repeat purchase behavior and a lower incidence of customer complaint (Henard & Szymanski, 2001). Market orientation and quality management literatures suggest that the manner in which an organization operates is an important indicator of its ability to develop customer satisfaction (e.g. Evans, 2008; Kohli & Jaworski, 1990; Slater & Naver, 1994). A primary contention of this body of research is that organizations which embrace coordinated yet flexible customer focused practices and promote facilitated communication processes are most poised to anticipate and respond appropriately to customers (Day, 1994). As such, characteristics of the organization setting (i.e., organizational context) can provide insight into its ability to meet this criteria (Kirca, Jayachandran & Bearden., 2005). A suitable organizational context is relevant not only for internal conditions found within a single organization, but also for conditions found in more complex configurations such as outsourcing. In these arrangements customer oriented conditions would be found throughout the structure of the supply chain (e.g., Eichorn, 2004). That is, the nature of each organization's context plays a role in the success of the supply relationship (Koulikoff-Souviron & Harrison, 2006). As such, there exists an even greater challenge in developing a customer orientation because attributes of both the selling organization and the buying organization become significant. -Similar challenges in developing a successful customer orientation also exist in many types of privatized initiatives. Privatization is a broad and general term which includes consideration of any activity which shifts functions and/or the provision of services from the public sector to a private sector organization (e.g., Auger, 1999; GAO/GGD-97-121, 1997; Ramamurti, 2000). Although a full discussion of the characteristics of privatization is beyond the scope of our study, it is recognized that there are numerous methods by which such transfers can take place ranging from the outright sale of a state-owned enterprise to instances such as long-term contractual relationships in which the public sector retains an on-going influence in the provision of the service (Lawther, 2002; Ramamurti, 2000). The characteristics of long-term contractual relationships is a complex organizational configuration comprised of a relationship between a private sector organization (the seller) and a public sector organization (the buyer) for the provision of goods/services to end-using customers and citizens. …