How to profit from service

How to profit from service
Published: 
April 2014

Customer satisfaction depends on the staff, experts believe. But how can you motivate your employees to create the best possible customer experience? Research at a Queensland restaurant chain holds some valuable clues.

Employee attitudes and customer outcomes drive revenue growth – but there are too many external factors affecting profitability.

Customer satisfaction has replaced market share as the Holy Grail for leading service sector businesses.

Enlightened companies now see quality rather than quantity as the key to improving profitability. They recognise the value of loyal customers and in motivating their staff to help retain them.

The shift in thinking has largely come about as a result of studies analysing the success of service businesses, which have found a direct connection between the job satisfaction of staff, customer satisfaction and financial performance.

Prominent amongst these has been the work of Professor James Heskett and his colleagues at Harvard University, who developed the ‘service-profit chain’ to explain the links between these factors. According to their model, originally developed in the 1990s, a better working environment improves job satisfaction and productivity, which in turn results in more satisfied customers, and greater profitability.

The service-profit chain approach has been widely adopted in banking and finance, but critics have argued that there is still no conclusive proof that it works and that it leaves a number of questions unanswered.iStock_000023796367Small - service

Is it true that job satisfaction has a direct effect on profitability? If so, how can employers encourage staff to create the best possible customer experience? And how well does the model work outside of banking – for example in the hospitality sector in Australia?

A study by UQ Business School aimed to find out. Tourism and hospitality expert Dr David Solnet, who led the research, spent 18 years in management roles in hospitality before becoming an academic.

Through his consultancy work with a chain of restaurants in Queensland, he has collected data on employee attitudes, customer satisfaction and financial results spanning a five-year period. He and his team have carried out detailed analysis of the data to find out whether these factors were related.

The study found that the work environment was indeed closely linked to job satisfaction and employees’ commitment. Dr Solnet said: “This result is not surprising and reinforces to managers – and particularly those in high customer contact environments – that positive employee attitudes are influenced by the workplace environment created by management.

“However direct supervisors may have less influence on employee attitudes and behaviours than we thought. It appears that line level staff take more notice of the company itself, the opportunities on offer, the vision of the owner and their co-worker relationships than the supervisor.”

The study also found that job satisfaction was linked with customer satisfaction and with higher revenues – though not necessarily with profits. Dr Solnet adds: “Employee attitudes and customer outcomes drive revenue growth – but there are too many external factors affecting profitability. Revenue, on the other hand, is a mark of repeat patronage and word of mouth recommendation.

“Profitability aside, the study confirmed the basic principles of the service-profit model – however it is important to take into account the particular circumstances affecting a company and the environment it operates in. For example, in areas of high unemployment, staff might tolerate poor management because they need the job! This is where past research into the service-profit chain has often failed because it has tested companies in multiple contexts.”

Dr Solnet has these tips for employers:

  • Create a ‘service climate’

Creating an environment which encourages staff to deliver excellent customer service has a twofold benefit. It improves customer experiences, and leads to reduced employee turnover which has a positive impact on revenue and profit.

  • Win the hearts and minds of staff

“The authoritarian approach no longer works – certainly not with Gen Y,” says Dr Solnet. “To ensure a great customer experience, employers must first win over their workforce.” Encourage staff to try your product or service, so they know exactly what it’s like to be in the customer’s shoes. And give one-to-one feedback on their performance – research indicates that it has a highly beneficial effect on employee attitudes and engagement.

  • Influence their attitudes

If you rely on employees to be brand ambassadors, make sure you allocate time and resources to ‘get into their heads’. Attitudes influence behaviours – so you need to shape their attitudes.

  • Communicate the perfect customer experience

If staff are to create the perfect customer experience, they need a crystal clear picture of what it looks like. Communicate to them the standard you are aiming for – and check they understand it through some type of anonymous evaluation or feedback.

  • Ask for staff feedback

Run regular employee attitude surveys and ask tough questions about the workplace, managers, brand, customer focus, etc. Employees love giving feedback, but make sure you ask in a non-threatening way. If you use their feedback to improve the working environment, you’ll really increase commitment and loyalty.

  • Ask staff to assess customer satisfaction

The study showed that frontline staff really do know how customers feel – so ask them about it!

  • Be patient

Don’t despair if your efforts don’t pay off immediately. “There are clear time lags between improved customer satisfaction and increased financial performance,” adds Dr Solnet. “The hard work you put in now will likely impact your bottom line next year. Consider it an investment for the future.”