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Service-Profit Chain: Build Business Profitability

Have you ever wondered how large companies like Amazon and Apple continue to stay successful? People continue to buy their products and use their services, and it seems like there’s no dropoff coming soon.

You could say the increase in sales has been a big part of why they’re successful. But that’s not what business models focus on today. Instead, the focus is on investing in employees to help them perform better while simultaneously assessing profitability and customer loyalty.

Each of these is a small component of the service-profit chain. Please continue reading to learn more about how businesses use this model to separate themselves from their competitors.

What Is the Service-Profit Chain?

The service-profit chain is a business model that researchers developed at Harvard in the 1990s. It illustrates the relationships between various sectors of business, such as profitability, customer loyalty, employee satisfaction, productivity, and loyalty, which lead to business growth

Here’s how part of the model works:

  1. Employee satisfaction is a direct result of company policies and support services that empower them to deliver quality products and services
  1. Value gets created by satisfied and productive employees
  1. Satisfaction is influenced by the quality and value of service provided to customers
  1. Loyalty is directly affected by customer satisfaction
  1. Customer loyalty stimulates profit and growth

As you can see, each facet of the service-profit chain is directly linked to the other. So as a business owner, it’s up to you to figure out the weak link that’s stopping your company from taking that next leap forward.

Think about a time you walked into a business. Did a happy employee greet you? We’re not talking about one who was there to collect a paycheck; you can sense that aura the moment you step into an establishment.

We’re talking about those employees who you knew were genuinely happy to be greeting you. Yes, they could just be having a good day. But it also falls back to the service-profit chain

Since employees are satisfied with their company’s policies, it’s easier to facilitate a jubilant attitude. As a result, it helps consumers have a pleasurable experience and enables them to come back. They will also tell friends and associates about your company, leading to more business for you.

Now consider a terrible experience you’ve had in an establishment. What were the factors that turned you off? Was it the management style or how employees treated you? Did you notice a high turnover rate of employees?

Whatever the reason, you decided that you would no longer buy any products or use services there unless something changed. Due to your dissatisfaction, you may have left a negative review or told your friends and family to stay away.

Although larger companies may not miss your business as much, the loss in revenue could be devastating to smaller businesses. One bad review can drive away up to 60% of potential customers, which is a lot of business to lose. So you’ll need to ensure each customer has a great experience in your establishment. 

Related: How to Be a Team Player in Business

Improving Your Service-Profit Chain

Any business owner looking to increase their company’s revenue will need to take a step back and look at their company as a whole. What are the strongest and weakest parts of your business? Who are your current customers and those you’re now trying to target?

These are just some questions you’ll ponder as you look to grow your company. But again, it falls back on improving your service-profit chain. Here’s how you begin taking your business to the next level.

Find Your Weakest Link and Fix It

Every business will have its strong and weak points. But a common weak link for many companies is employee satisfaction. As we mentioned in our example above, it takes one bad review to decrease your company’s revenue, and the source is often related to customer service.

However, bad customer service stems from unhappy employees. To build better rapport with your employees, try a new management style. Instead of having an authoritative what-I-say-goes type of leadership, corroborate with your employees to enhance problem-solving methods.

That way, they know that they can trust management when there’s a problem. Once that weak link is fixed, then you will see an increase in sales.

Use Social Media To Improve Communication

We’ve all heard and seen stories about bosses using social media to out their employees. An employee will use social media to vent about the current conditions at their job, and their boss will subsequently fire them.

Who would you say is at fault? Is it the worker who used a public platform to vent or the boss who used the situation as a pitfall? Most people would say the employee because they didn’t communicate their feelings to management. 

But what if frustrations fell on deaf ears? It would leave employees with no choice but to vent online. 

So instead of outing employees online and punishing them at work, use the opportunity to learn about how you can improve certain business practices. Reach out to your employees and work together to address their concerns.

You can also use social media to read your customer reviews. If consumers had any problems with your product or service, personally reach out to them to figure out the issue and assure them the quality will be better next time. Doing so can help you build rapport with not only that customer but an entire community.

Use Employee Satisfaction To Measure Management Performance

Before you became the successful business owner you are today, like most, you probably started as a low-level employee trying to work your way up. But blocking your path was a mid-level manager who was constantly picking at you and was overly authoritative.

Practices like the one mentioned above are often common in multi-tier companies. So to work around that, try getting to know your low-level employees and managers alike. Use the employee’s satisfaction to gauge how well their manager is doing.

Depending on the situation, it may not be grounds for termination. But you can implement new practices to increase morale.

Reward

If supervisors make the workplace an enjoyable environment for those under their command, reward them with a bonus, positive review, or commendation in front of the entire management staff. It can help motivate other managers to implement the same practices.

Measure 

By using surveys, customer/employee retention percentages, and lifetime customer values, you can track the satisfaction of both groups.

Enact 

Create programs or initiatives to solve the most pressing issues your employees have while working. Ensure your management teams implement these practices and follow through with results.

Communicate

Your entire team is essential to the success of your company. So make sure that everyone from interns to high-level staff is on board with making your business a pleasant place to work.

Acknowledge your team each time they solve a workplace challenge. You can also engage in conversations with multiple members of your staff. They need to see that your number one priority is their happiness.

Related: The Importance of Multidisciplinary Teams

Learn more about the benefits of program management offices from B STATE!

Empowerment is Key

Once your employees are satisfied with your workplace conditions, there’s nothing they won’t do for you. So your next step is to share your vision with them and empower them to make decisions. 

It’s not the same as “forcing” them to post press releases or posts on your social media. Instead, you’re giving them the authority to explore their full potential within your company. 

By including frontline workers and management staff, you’ll be opening up your company to many avenues for growth. It will also keep others from feeling alienated by everyone’s success.

As the saying goes, “teamwork makes the dream work,” and you can make sure of that by empowering your employees.

Also, by giving your employees the support they need to get through their daily tasks, you may encourage them to take the next step in their professional careers. You may have front-line workers who want to become assistant managers or managers who want to land an executive role.

Regardless of whether or not it’s with your company, it will still reflect well on your business practices. So new staff coming in know they’re entering an environment where there’s unlimited growth potential and support.

With your entire staff loving your work environment, they’ll be more likely to:

  • Authentically recommend your products and services to friends or colleagues
  • Mentor other employees
  • Take non-mandated courses to improve their skills

How do you get your employees to this level of dedication? You can start by:

  • Providing no-cost training of necessary workplace skills
  • Regularly meet with employees one-on-one
  • Administer leadership opportunities
  • Feature personal stories or projects on your company’s website

It may be tough convincing your employees that you care about their well-being. Most believe you only care about your bottom line. But through your actions, you can prove them wrong.

Translating Employee Empowerment To Profitability

When it comes down to it, businesses need customers to survive. Money is part of the reason why you’re in business. But without your employees, it won’t be possible for any business to attract customers.

After fixing your workplace culture, sales will increase since employees are now all in. In fact, 67% of employees feel inclined to perform better at their jobs when they feel empowered by their managers.

As a result, you’ll attract or increase your relationship with loyal customers, which is part of the service-profit chain. Remember, profit isn’t the goal; it’s the result you’re aiming for. 

Your goal is to ensure that each person who enters your establishment leaves satisfied, from employees to customers. If you handle that correctly, you’ll see an increase in profits.

Related: 7 Habits of High Functioning Teams

Leadership Is Integral To The Service-Profit Chain

As you can see, the service-profit chain is a model that focuses on profits and the entire employee and consumer experience. It’s a never-ending loop with various points that lead to profits.

To recap:

  • Your current policies and support will directly affect employee satisfaction
  • If employees aren’t satisfied, your product or service will have no value until they are happy
  • Customer satisfaction is influenced by the quality of service they receive, which trickles down to customer loyalty
  • Customer loyalty will directly affect profitability and company growth

As a business owner, it’s your job to create an environment that can successfully facilitate the service profit chain.

Remember, take the time to get to know your employees. Also, listen to their suggestions and address their concerns. 

Those gestures can make a significant difference as you’re trying to revamp your company culture. As a result, you’ll see changes in the attitudes of your employees and customers. Best of all, you’ll see an increase in profits too.

Are you looking for business solutions to increase your company’s efficiency? If so, then contact B STATE today!

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