How to leverage The Service Profit Chain to connect employee engagement, the customer experience, + business outcomes

Junichi Kato | Apr 21, 2021 Junichi Kato 04/21/21

Why should employee engagement efforts be at the top of your organization’s priority list? Engaged employees are more loyal, helping create highly satisfied and loyal customers. And highly satisfied, loyal customers lead directly to growth in sales and profits. This progression is called The Service Profit Chain, and it’s the principle SMG was founded on.


In this blog, we’ll discuss how The Service Profit Chain came to life, its impact on both employee and customer experiences, and what organizations can do to incorporate the concept into their experience management program.

What is The Service Profit Chain?

The Service Profit Chain is a concept developed by a group of colleagues at Harvard Business School consisting of a five-year study linking employee engagement, customer satisfaction, and financial performance. Their research, published in 1994 as The Service Profit Chain, revealed that increasing the number of loyal employees + customers is a proven way to drive sustainable, profitable sales growth.



What’s SMG’s connection to The Service Profit Chain?

In 1991, Bill Fromm and Andy Fromm co-founded SMG with former Harvard Business School professor Len Schlesinger. While at Harvard, Schlesinger was one of the group members who founded The Service Profit Chain.

Today SMG uses that foundational principle to inspire experiences that improve people’s lives. Through our software with a service (SwaS) approach, we help brands get smarter about their customers, patients, and employees—linking engagement and satisfaction insights with tangible business outcomes.

How can the employee experience impact the customer experience?

Through The Service Profit Chain, we see when an organization treats their employees well, they become satisfied with their jobs, more loyal to the organization, and provide better customer experiences. When excellent services are delivered by a highly motivated staff, customers feel happy and are more connected to the brand.

What’s the impact of the employee-customer relationship on your business?

This is the second part of The Service Profit Chain equation. Happy customers who are supported by a highly engaged staff become more loyal to the brand (e.g., make more purchases more frequently and provide positive word-of-mouth)—enabling the organization to achieve sustainable business growth. This allows the organization to focus resources on improving employee and customer satisfaction.

Where should brands begin if they want to incorporate The Service Profit Chain into their experience management program?

If your brand already has a customer experience program in place, we recommend prioritizing improvements to the employee experience to have the biggest impact on the customer experience and financial performance.

If you haven’t yet launched a customer experience program, like many service brands, you should start there. Customer-centric business culture can be built gradually once you are consistently collecting customer feedback. Over time, you will begin to see The Service Profit Chain at work—driving improvements across the board and helping you prove ROI.

Putting the employee first pays off

It’s only through a comprehensive employee experience (EX) program—one that listens across the employee life cycle and ties results back to business outcomes—that organizations can truly move the needle on engagement and identify the best actions to attract, develop, and retain employees.

Organizations that prioritize the employee experience are rewarded—not just with more engaged employees, but with more loyal customers.


To learn more about how to reduce turnover + demonstrate the ROI of your employee engagement efforts, download the best practice guide: Why customer-centric organizations prioritize the employee experience.

Junichi Kato | Managing Director, Japan  
Customer Experience Update