Preparing to do Research, © Irene Ng, Nottingham University Business School, Malaysia

Putting the Service-Profit Chain to Work

Heskett J.L., Jones T.O., Loveman G. W., Sasser Jr W.E., Schlesinger L. A., Harvard
Business Review, Mar-Apr 1994, Pg 164 - 174

A critique by XXXXXX

Summary

This article outlines the Service - Profit Chain which establishes the links between

profitability and internal service quality. In the study, the authors posit that customer

loyalty drives profitability and growth; customer satisfaction drives loyalty; value drives

customer satisfaction; employee productivity drives value; employee loyalty drives

productivity; employee satisfaction drives loyalty and internal quality drives employee

satisfaction. The authors declares that this service-profit chain form the backbone of

service successes. The authors also provided a service-profit chain audit which would

help companies determine the necessary actions to the firms’ long term profitability.

Research Methodology

The complete service-profit chain derived by the authors was illustrated with case

studies. Case studies pose concerns. The most serious problem is that it is difficult to

generalize beyond the case in question. Case studies serve to illustrate what one

company did, providing insights for others to learn from and build on. It is probably for

this reason that the service-profit chain audit was derived as this provides the manager

the opportunity to evaluate if the service-profit chain can be applied to his firm. Also,

except for Southwest Airlines, the case studies were centred on services which are more

tangible on the tangibility-intangibility continuum and hence more easy to evaluate 1. The

applicability of the service-profit chain across all services is called in question here.

Theoretical Contribution

Whilst the service-profit chain is logical, the relationships defined in it is by no means the

only set of relationships which would determine profitability. Other factors such as price

and the accompanying tangible good quality could also be instrumental. For example, if
Preparing to do Research, © Irene Ng, Nottingham University Business School, Malaysia

a customer buys a McDonalds Burger, service, no matter how good it is, will not be able

to compensate for the customer’s dissatisfaction if the Burger itself falls below

expectation. Furthermore, the service profit chain may be more effective when the

service is accompanied by a tangible good than when the service is purely experiential.

This is because customers will be able to evaluate the service more effectively and

decide if they have actually obtained value. However, in services which have high

credence or experience qualities, the evaluation process become more difficult and

would require customers to possess some measure of cognitive skills. Lack of customer

satisfaction information may potentially weaken the service-profit chain. Also, the

environment in which the service-profit chain exist may serve to complicate the tasks at

hand. In Asia, with it’s diversity in culture and language, differences in the perception of

value may occur. This heterogeneous customer base create difficulties within a service

firm in both marketing management tasks and communication tasks, both of which would

shape the customers’ satisfaction levels.

Managerial Implications

This article can be extremely useful for managers, especially the service-profit chain

audit. Most service firms possess some of the links in the chain. The audit provides the

manager with the opportunity to check the weak links in the chain and improve the

strength of the chain. It also serves to focus the organisation on its’ employees. But

there is a greater danger here. This article may cause practitioners to infer that

employee satisfaction is the only driving factor for success. While the service-profit chain

offers useful guidance, it is important to realise that other factors exist in the eventual

success of service firms.

1
Rushton, A.M and Carson, D.J. (1989), “The marketing of services: managing the

intangibles”, European Journal of Marketing, Vol 23, No. 8, pp 23-43