Financial management is an integral part of running a successful organisation. It involves the management of an organisation’s resources with the objective of maximizing shareholder or owner returns whilst minimizing risks. An organisation’s resources however are not just of a financial nature, they include human resources (employees), customers, brand and reputation, intellectual property along with a myriad of other things that contribute to the success or failure of an organisation.

Using financial figures alone to manage your business is like driving in the rain using nothing more than your rear-vision mirror. You can see where you’ve been, but not where you are going. Financial figures are retrospective, not prospective. They show you where you have been, but not necessarily where you are going. As those Industry Super Funds say “Past performance is not an indicator of future performance.”
Service Profit Chain can help change that through the use of predictive indicators. It takes time, it takes senior-level commitment, but it works.

The Financial Benefits of the Service Profit Chain

Loyal Employees are generally engaged Employees. Gartner defines Employee Engagement in three ways. Employees feeling a) energised, b) purpose in their work and c) empowered to do valuable work. thus the definitions and concepts of Engaged and Loyal Employees overlap and are intertwined. A June 2023 Gartner (US) survey found that approx 70% of Employees don’t feel as engaged as they should be and aren’t feeling a meaningful connection to their job.  The remaining approx 31% reported being energized and excited about their work and that they were more likely to stay at their organization, 31% more likely to go above and beyond (discretionary effort). They also contribute 15% more. 

The Service Profit Chain can help:

• Creating a Customer-Centric Culture Customer-Centric cultures focus on delivering Service Excellence, which helps to develop Loyal Customers who deliver repeat business.
• Reduce Employee Turnover, particularly in challenging environments with high staff turnover like Professional Services, Call Centres, Accommodation and Retail. According to Gallup, the cost of replacing an employee can range from one-half to two times the employee’s annual salary. That’s a significant cost burden on any business that CFO’s and Accountant Departments shouldn’t ignore.
• Reduce Absenteeism. Loyal Employees take less time off work. Their absenteeism rate is between 30 and 40% lower than for disengaged employees.
• Improve Productivity. Loyal and Capable Employees are typically 15 to 20% more productive than disengaged Employees.
• Increase Customer Retention. Depending on your industry, studies suggest that acquiring a first-time customer can cost between 5 and 25 times more than retaining an existing one. Repeat business from Loyal Customers can significantly reduce Sales, General and Admin (SG&A) costs.
• Create more Promoters and Fewer Detracters. Promoters are Loyal Customers who will talk favourably to their family and friends about your products and services. They are effectively free sales and marketing people for your business. Detracters are Customers who give a negative review of your products and services to their family and friends. Detractors are louder than promoters. Some studies indicate that Detractors share their bad opinion of your business with around 20 other people, whereas Promoters may only tell only other 3 people about how good your business is.
• Improved Profitability. All of the above factors contribute to improving the profitability of an organisation.

For the Service Profit Chain to be truly effective, organisations must measure not just the traditional retrospective financial indicators but both prospective Employee and Customer indicators.
Along with a myriad of operational indicators. Our Organisational Performance Management page provides more information on this subject.
If Employee and Customer Satisfaction and Loyalty indicators fail, then over time so will the Financial indicators.