Service-Profit Chain

Service-Profit Chain

🔥 Nowadays to be successful, service managers have to pay attention to internal factors such as employee satisfaction, productivity as well as external factors such as customer satisfaction and loyalty. The service profit chain helps the managers understand which are the factors that are important to improve the profitability as well as the revenue growth.

Various links in the Service-Profit Chain:
The following diagram shows us the service profit chain which helps us understand how profitability is related to customer loyalty and which in turn is related to customer satisfaction. The service profit chain includes both, the internal service quality as well as the external service value and how these are interdependent.

The first link is the internal service quality which includes the internal factors of an organization such as the workplace, employee selection, various tools used for serving customers, and the various employee development programs. These factors lead to greater employee satisfaction. If employees are satisfied in your organization, it leads to increased employee productivity and thus they will be able to provide much better service to the customers. A satisfied employee is an asset to a company and this satisfaction also prevents the employee from defecting i.e. leads to employee retention.

If the above links are nurtured well, they enhance the external service value provided to the customer but if the previous links are not nurtured well it may even weaken the next link. External service value is what a customer feels he is getting for what he is paying, if the gap between customer's expectations and the company's offerings is minimum then the customers feel that they are getting a high service value. Greater service value leads to greater customer satisfaction. Customer satisfaction is increased by the frequency of good service and also it has to be maintained in order to keep the customers happy and thus the internal employees play a big role in increasing customer satisfaction. If a customer is satisfied with the service provided, it means that if given a chance he will choose the same service again the next time. Customer Loyalty depends on customer satisfaction, research has shown that people who were satisfied and very satisfied showed a significant difference in customer loyalty. The results showed that a very satisfied customer can be as 6 times as loyal as a satisfied customer. More loyal customers directly lead to faster revenue growth and increased profitability. Good quality of sales leads to more profitability than a high number of low-quality sales.

Managers who understand the service profit chain are able to provide better results. To deliver better results, one must try to strengthen each link of the service profit chain as the previous link strengthens or weakens the next link in the chain, so a good amount of time and resources should be spent on the internal attributes such as employees and also on the external attributes such as customers. A proper feedback system will help you look over the working of your organization.

Soruces: James L. Heskett , Thomas O. Jones , Gary W. Loveman , W. Earl Sasser, Jr. and Leonard A. Schlesinger, "Putting the Service-Profit Chain to Work", Harvard Business Review, August 2008

Aniket Deolikar
Consultant, India

The Second Term Value Profit Chain Originated from the Earlier Service Profit Chain

@Anonymous: Service Profit Chain (SPC) and Value Profit Chain (VPC) are two terms / models that were formulated by the same people, "Heskett, Sasser and Schlesinger". The SPC model was published first (in an HBR article in 1994 followed by a book in 1997). This model was aimed specifically at the service providers. The VPC model was formed a little later and was based on the earlier SPC model. This included the value for the organizations which are manufacturers as well as service providers. A book on this was published in 2003.
So if you ask me, the SPC model describes in depth about how it can be implemented in a service industry where customers are directly involved with the service provider whereas the VPC model helps to create value in various links in manufacturing as well as the service industry. the VPC model can be considered as a generalized model and caters to a more broad variety while the SPC model can be used for the specific service industry.