We are ignoring the Service-Profit Chain, and it’s damaging customer experience

It’s everywhere. Load up your LinkedIn feed or any news source, and there are people around the globe waxing lyrical about the same thing: The global workforce is undergoing significant change, and organisations need to adapt to meet employee expectations.

The number of studies telling us that employees – regardless of age or location – want better pay, more flexibility, and greater well-being is astounding. While it might seem obvious, why is it that more companies aren’t able to address this?

Let’s dive in.

Culture eats strategy for breakfast

Volatility is a feature, not a bug, in running businesses today, but companies aren’t equipped to manage it. In our work with organisations that ask us to help improve their employee experiences, we find that many rarely concentrate on preparation for big market shifts, and instead only focus on a single facet of change, such as tackling a specific challenge like a digital transformation project. As a result, they neglect to holistically review and transform structures, processes, and personnel to recover from crises and bounce forward, and emerge relatively unharmed to move forward with renewed momentum.

Looking more closely at how this affects our work in marketing and advertising for example, I often meet with teams that absolutely refuse to talk to each other. This includes:

• Marketing teams that chase marketing qualified leads (MQLs) based on the number of articles viewed.
• Sales teams that hunt pipeline and closed deals.
• Sales teams that don’t communicate what makes a great customer back to marketing. 
• Marketing teams that run on history and assumption.
• Sales teams working in the dollars of the here and now.

Next, imagine the above but throw an M&A into the mix. A young, promising start up that uses Discord has joined the chat. But the chat is already happening on Teams, and they’ve missed the daily scrum meeting.

Zoom out at an even wider organisational level, and you’ve got multiple tribes running around thinking they’re inventing the best thing since sliced bread –  all independently.

This doth not an excellent employee culture make. 

The Service-Profit Chain: Connecting Employee Satisfaction and Culture to Profitability

We conducted a global survey of 3,600 senior buyers and users of B2B services that looks at customer experience, and recognised a correlation between employee satisfaction and customer-centric thinking. Companies that emphasise responding to increasing customer expectations have the highest Employee Net Promoter Scores (eNPS) by a mile.

This is a living, breathing example of why customer experience through the lens of a service-profit chain is critical for organisations today.

The Service-Profit Chain model highlights the interconnected relationship between employee satisfaction, customer satisfaction, and profitability. That’s the relationship between leadership, marketing, delivery teams, and sales teams, respectively. 

The Service-Profit Chain Model. Source: Uzma Atcha/Merkle B2B

Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers. While this might sound reductionist, at its core, the Service-Profit Chain argues that happy employees lead to satisfied customers, which in turn leads to higher profits. Investing in your employees and creating a positive work culture can establish a self-reinforcing cycle of success.

Take for example Salesforce, a global leader in CRM technology, who has made substantial investment in its Employee Value Proposition (EVP) to foster a strong workplace culture by simply asking, "What if we treated our employees as well as our customers?" Salesforce upholds the Hawaiian family concept known as "Ohana" at its core, generously contributing to employee well-being, trust, and satisfaction, and actively promoting an inclusive, values-driven environment which has cascaded into exceptional customer experiences. Coupled with a commitment to continuous learning through platforms such as Trailhead, Salesforce has been fueling employee growth and empowering its workforce to focus on delivering unique customer outcomes. Consequently, by establishing a holistic employee experience and vested interest in their people, they've been able to cultivate a competitive advantage in the marketplace while remaining committed to exceptional customer service.

Similarly, Cisco has recently strategically prioritised its employee value proposition to focus on nurturing leaders, being unwaveringly inclusive, and solving global problems from wherever in the world you are situated. Through initiatives such as Webex Holograms, the company has invested in sustainable remote work solutions, paving the path for a future-proof, flexible work environment where team members can thrive. As a mainstay in the Great Place to Work rankings, Cisco's intentional focus on cultivating a diverse and inclusive culture has undoubtedly empowered employees to be their authentic selves, promoting creativity and innovation. 

Fostering a compelling EVP

Creating a compelling EVP is important for several reasons. First, it helps you attract top talent. In a competitive job market, candidates are looking for more than just a pay cheque – they want to work for a company that aligns with their values and offers a fulfilling work experience. Second, an EVP can help retain employees. By offering a compelling set of benefits, you can keep employees engaged and motivated. Finally, a strong EVP can boost your brand reputation and help you stand out in a crowded marketplace.

As Peter Drucker's quote famously highlights, "Culture eats strategy for breakfast." Companies need to recognise how people think about work is changing and take a more human-centred approach to managing employee satisfaction and customer experience. Cultivating a positive company culture is as important as having a solid business strategy. 

Terms like the great resignation, quiet quitting, and loud firing are symptoms of a much more significant generational and labour shift that isn’t going away anytime soon.

So, how do we ensure employee satisfaction and engagement while also staying productive?

Several key components form the backbone of this:

1. Internal service utility - By investing in employee development and fostering a supportive work environment, companies can enhance internal service quality. This results in employees who feel empowered and valued.
2. Employee satisfaction - Happy and motivated employees are more likely to deliver exceptional service to customers. Consequently, employee satisfaction correlates with customer satisfaction.
3. Customer satisfaction - When employees provide excellent service consistently, customer satisfaction increases. This, in turn, cultivates long-term loyalty and drives positive word-of-mouth.
4. Customer loyalty & retention - Loyal customers are more likely to make repeat purchases and become brand advocates, thus generating a stable revenue flow.
5. Profitability & growth - Companies with higher customer satisfaction and loyalty are more likely to experience increased profitability and accelerated growth.

A strong EVP and a commitment to the Service-Profit Chain can help companies build a workplace culture that attracts top talent and leads to long-term success in today's ever-changing business landscape.

Uzma Atcha is a Strategy Director at Merkle B2B.