The service-profit chain is...
The link showing how employee satisfaction leads to customer satisfaction and so higher
profits i.e. happy employees mean happy customers.
The concept first appeared in a 1994 Harvard Business Review article (see below) and is linked to the idea of
Who are internal customers?
Employees supplied with goods and services by other employees in a chain ending with delivery to the paying
How to satisfy employees to satisfy customers
i.e. employees putting in more effort to satisfy customers – how?
- Recruit conscientious people who are passionate about customer satisfaction.
- Reward people for their contribution to customer satisfaction.
- Give people customer satisfaction targets (e.g. no complaints).
- Make sure that employees are passionately proud of their work and their
- so the organization's activities must be worthwhile, ethical and socially
i.e. employees taking responsibility for work results and customer satisfaction – how?
- Recruit self-motivated people.
- Give them responsibility for solving customers’ problems either individually, or in
- Give them the skills, information and resources to deliver the best and quickest
possible service to customers.
- Encourage them to think about customers in everything they do
- test every action with the question: ‘But does it help to sell our product?’.
3. Corporate culture
All employees must believe in customer
satisfaction and do all they can to put it into action.
4. Leadership and management
Bosses and their managers must:
- Lead by example, treat all customers well and keep in constant contact with them to know
how their needs are changing.
- Explain to all employees the organization’s policy on customer satisfaction and train
them how to do it.
- Constantly remind them that the customer comes first.
- Ask for (and listen to) employees' views on customer satisfaction and how to satisfy
their needs e.g. more money and interesting work.
- Remove any obstacles to customer satisfaction e.g. low quality and poor property and
- Encourage learning by employees and continuous improvement in
customer satisfaction and quality.
5. Systems (e.g. production) and organization
These must help employees to satisfy customers.
Some organizations think of their structure as an inverted pyramid with most importance
given to employees in contact with customers (called front line employees)
Key quotes explained
“Treat customers like guests and employees like
Peters , American management writer (pictured right)
This is Peters’ formula for business success.
“People, service, profit”
- the slogan of Fed Ex Express (formerly Federal
Express), the American global delivery company.
This is the central belief of the service-profit chain – put employees first, so that they can provide the best
possible customer service that boosts profits.
“We know that, if we treat our employees correctly, they’ll treat the customers right”,
John Willard Marriott (the founder of Marriott hotels) said.
“The company can’t give job security only customers
Welch (ex-boss of General Electric, pictured right)
Even if employees are happy, they won’t keep their jobs, if they can’t satisfy customers.
“The real and effectual discipline which is exercised over a workman is...that of his customers. It is
the fear of losing their employment which restrains his frauds and corrects his negligence”, said the
Scottish philosopher, Adam Smith.
Best books and articles
James Heskett (pictured right), Thomas Jones and Gary Loveman, Putting The Service-Profit Chain
To Work (1994 Harvard Business Review article)
The article that first introduced the idea of the service-profit chain.
(pictured right), The Loyalty Effect (1996)
The most profitable companies inspire loyalty amongst employees, customers and shareholders by developing
long-term partnerships with them.
Employee loyalty increases customer loyalty.
Valerie Zeithaml (pictured right
top), A. Parasuraman (pictured right middle)
and Leonard Berry(pictured right bottom), Delivering
Quality Service (1990)
Quality service is determined by RATER, five factors showing how vital employees are to customer
We shall use McDonald's as an example:
Reliability – delivering what was promised (e.g.100%
Assurance – knowledgeable support from employees.
Tangibles – physical facilities and equipment (e.g.
restaurants and staff appearance).
Empathy – attentive understanding of customer
Responsiveness – helpful, prompt service.