The Service-profit chain: An Empirical Analysis in High-contact Service Industries

In their well-known conceptual framework of the Service-Profit Chain (SPC), Heskett et al. (1994) suggest that there are strong relationships among employee satisfaction and loyalty, service quality, customer satisfaction and loyalty, and firm profitability. However, there is little empirical evidence on this proposition. In this research, we empirically examine the relationships among employee attributes, operational performance, and business outcomes. We collected data from 210 high-contact service shops in Hong Kong. Using structural equation modeling, we find that most of the postulated relationships in SPC are highly significant, supporting the SPC concept. Our findings parallel anecdotal evidence in many service organizations that an increase in employee satisfaction and loyalty triggers a corresponding change in customer satisfaction and loyalty, resulting in significant increase in sales revenues. We provide strong empirical evidence that employee satisfaction and loyalty play a significant role in enhancing the operational performance of organizations in the high-contact service sectors.