The interactions between quality, productivity and economic performance: The case of Swedish pharmacies

The interaction between employee and customer satisfaction, respectively, a s well as interactions between these criteria and productivity and cost eff iciency in service production are considered in this paper. Data from Swedi sh pharmacies on quality measured as a customer satisfaction index (CSI) an d an employee satisfaction index (ESI) are used The quality measures are de rived from questionnaires and obtained using a partial least squares estima tion procedure. Productivity is defined as a partial labor productivity mea sure. The interaction effects between quality, productivity and economic pe rformance in terms of cost efficiency are derived and estimated using a res tricted second-order approximation of a general functional structure. The a nalysis is based on data from 1993 to 1995 and indicates significant positi ve relations from ESI to CSI and significant positive relations from ESI to productivity As for the interaction with cost efficiency, the estimated co mbined effect from CSI and productivity indicates improvements in cost effi ciency 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.