Featured image for post: The Importance of the Service-Profit Chain Theory

The Importance of the Service-Profit Chain Theory

The Service-Profit Chain is a theory and business model evolved by a group of researchers from Harvard University. In their book The Service Profit Chain – How Leading Companies Link Profit and Growth To Loyalty, Satisfaction and Value they prove the direct link between superior service experiences and customer loyalty to financial performance (profit and growth). By linking employee engagement to profitability, human resources has strategic imperative to impact the financial results of an organization.

Of course as with almost any concept, the path human resources must take to create the ideal conditions for employees to create great customer experiences is sometimes challenging. However, we often make the path more complicated than it has to be. In 2006, Work Institute began working with Renal Advantage Inc. (RAI) to help understand how to retain their employees and to avoid high turnover. RAI took the service profit chain concept and made this a focal point of how the company operated.

We worked with them to focus their feedback program on three simple questions asked on a routine basis. The case study of Renal Advantage Inc. is documented on our website here. Further results indicated that over the three years that followed from 2008 until 2011, turnover fell to an industry low 12% annually and the cost of customer care was the lowest in the industry. The results of the Service Profit Chain were on full display and the company was sold at an impressive premium.

Focusing on the customer is of course an important part of a successful business model, but so is a focus on the employee. There is a clear connection between employee engagement and company profits; and it’s time company leaders realize this. The Service Profit Chain is one of the simplest ways to significantly impact profits and build a successful business.