What matters most in the service-profit chain? An empirical test in a restaurant company

The purpose of this paper is to empirically test the validity of the service-profit chain (SPC) in a restaurant company context to comprehensively explicate the relationship between organizational practices, employee attitudes with customer and financial outcomes.

The method used both questionnaire and company proprietary data to measure the predicted SPC outcomes through structural equation modeling. The research data were obtained from employees, customers and management at five restaurants in one casual theme restaurant chain in Australia.

The findings indicate that revenue may be a more appropriate outcome than profit in the SPC, that context and individual unit circumstances matter and that there may be a time lag between organizational actions, employee behavior, customer satisfaction and financial outcomes.

Because of the nature of field research, there are limitations. As restaurants were added during the study, data per unit were impacted. Moreover, budgetary constraints limited the number of customer surveys. Nonetheless, the data set includes management, customer, employee and proprietary financial measures which are rarely available in the research literature. These data allow a thorough study of the SPC that provides both important findings and a model for future investigations into the SPC.

As the SPC is a widely cited model used to explain the linkages between managerial and organizational actions and financial outcomes as they work through employee interactions with customers, the findings suggest that the chain may have a more direct impact on revenue than profit. Moreover, the data strongly suggest that context matters as the unique context of the restaurants had important influences on financial outcomes. The findings also indicate that a time lag exists between managerial and organizational actions and financial outcomes, suggesting that it can take time for such actions to ripple through the SPC.

Structural equation modeling and standardized measures allowed the authors to overcome prior limitations in SPC research. Moreover, SPC researchers seldom have access to the proprietary data that enabled a test of the entire SPC. Consequently, this study contributes new insights into this classic model’s value in predicting and explaining financial outcomes resulting from the actions of an organization’s leadership influencing employee behavior toward customers in the restaurant industry.