IDEAS home Printed from https://ideas.repec.org/a/eee/jouret/v88y2012i3p356-366.html
   My bibliography  Save this article

Perils of Managing the Service Profit Chain: The Role of Time Lags and Feedback Loops

Author

Listed:
  • Evanschitzky, Heiner
  • Wangenheim, Florian v.
  • Wünderlich, Nancy V.

Abstract

The tendency of managers to focus on short-term results rather than on sustained company success is of particular importance to retail marketing managers, because marketing activities involve expenditures which may only pay off in the longer term. To address the issue of myopic management, our study shows how the complexity of the service profit chain (SPC) can cause managers to make suboptimal decisions. Hence, our paper departs from past research by recognizing that understanding the temporal interplay between operational investments, employee satisfaction, customer satisfaction, and operating profit is essential to achieving sustained success. In particular, we intend to improve understanding of the functioning of the SPC with respect to time lags and feedback loops. Results of our large-scale longitudinal study set in a multi-outlet retail chain reveal time-lag effects between operational investments and employee satisfaction, as well as between customer satisfaction and performance. These findings, along with evidence of a negative interaction effect of employee satisfaction on the relationship between current performance and future investments, show the substantial risk of mismanaging the SPC. We identify specific situations in which the dynamic approach leads to superior marketing investment decisions, when compared to the conventional static view of the SCP. These insights provide valuable managerial guidance for effectively managing the SPC over time.

Suggested Citation

  • Evanschitzky, Heiner & Wangenheim, Florian v. & Wünderlich, Nancy V., 2012. "Perils of Managing the Service Profit Chain: The Role of Time Lags and Feedback Loops," Journal of Retailing, Elsevier, vol. 88(3), pages 356-366.
    • Handle: RePEc:eee:jouret:v:88:y:2012:i:3:p:356-366
    DOI: 10.1016/j.jretai.2012.01.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0022435912000048
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jretai.2012.01.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Homburg, Christian & Stock, Ruth, 2005. "Exploring the Conditions Under Which Salesperson Work Satisfaction Can Lead to Customer Satisfaction," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35543, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    2. Erling Moxnes, 1998. "Not Only the Tragedy of the Commons: Misperceptions of Bioeconomics," Management Science, INFORMS, vol. 44(9), pages 1234-1248, September.
    3. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    4. Bernhardt, Kenneth L. & Donthu, Naveen & Kennett, Pamela A., 2000. "A Longitudinal Analysis of Satisfaction and Profitability," Journal of Business Research, Elsevier, vol. 47(2), pages 161-171, February.
    5. Aleda V. Roth & William E. Jackson, III, 1995. "Strategic Determinants of Service Quality and Performance: Evidence from the Banking Industry," Management Science, INFORMS, vol. 41(11), pages 1720-1733, November.
    6. Mark Paich & John D. Sterman, 1993. "Boom, Bust, and Failures to Learn in Experimental Markets," Management Science, INFORMS, vol. 39(12), pages 1439-1458, December.
    7. Wangenheim, Florian v. & Evanschitzky, Heiner & Wunderlich, Maren, 2007. "Does the employee-customer satisfaction link hold for all employee groups?," Journal of Business Research, Elsevier, vol. 60(7), pages 690-697, July.
    8. Homburg, Christian & Stock, Ruth, 2004. "The Link Between Sales People’s Job Satisfaction and Customer Satisfaction in a Business-to-Business Context: A Dyadic Analysis," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35550, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    9. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    10. Brown, Steven P. & Lam, Son K., 2008. "A Meta-Analysis of Relationships Linking Employee Satisfaction to Customer Responses," Journal of Retailing, Elsevier, vol. 84(3), pages 243-255.
    11. Jacobson, Robert & Aaker, David, 1993. "Myopic management behavior with efficient, but imperfect, financial markets : A comparison of information asymmetries in the U.S. and Japan," Journal of Accounting and Economics, Elsevier, vol. 16(4), pages 383-405, October.
    12. James G. Maxham, III & Richard G. Netemeyer & Donald R. Lichtenstein, 2008. "The Retail Value Chain: Linking Employee Perceptions to Employee Performance, Customer Evaluations, and Store Performance," Marketing Science, INFORMS, vol. 27(2), pages 147-167, 03-04.
    13. Sunil Gupta & Valarie Zeithaml, 2006. "Customer Metrics and Their Impact on Financial Performance," Marketing Science, INFORMS, vol. 25(6), pages 718-739, 11-12.
    14. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    15. Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993. "Risk Management: Coordinating Corporate Investment and Financing Policies," Journal of Finance, American Finance Association, vol. 48(5), pages 1629-1658, December.
    16. Snipes, Robin L. & Oswald, Sharon L. & LaTour, Michael & Armenakis, Achilles A., 2005. "The effects of specific job satisfaction facets on customer perceptions of service quality: an employee-level analysis," Journal of Business Research, Elsevier, vol. 58(10), pages 1330-1339, October.
    17. Rogelio Oliva & John D. Sterman, 2001. "Cutting Corners and Working Overtime: Quality Erosion in the Service Industry," Management Science, INFORMS, vol. 47(7), pages 894-914, July.
    18. John D. Sterman, 1989. "Modeling Managerial Behavior: Misperceptions of Feedback in a Dynamic Decision Making Experiment," Management Science, INFORMS, vol. 35(3), pages 321-339, March.
    19. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    20. Eugene W. Anderson & Claes Fornell & Roland T. Rust, 1997. "Customer Satisfaction, Productivity, and Profitability: Differences Between Goods and Services," Marketing Science, INFORMS, vol. 16(2), pages 129-145.
    21. Andreas Soteriou & Stavros A. Zenios, 1999. "Operations, Quality, and Profitability in the Provision of Banking Services," Management Science, INFORMS, vol. 45(9), pages 1221-1238, September.
    22. John D. Sterman & Nelson P. Repenning & Fred Kofman, 1997. "Unanticipated Side Effects of Successful Quality Programs: Exploring a Paradox of Organizational Improvement," Management Science, INFORMS, vol. 43(4), pages 503-521, April.
    23. Natalie Mizik & Robert Jacobson, 2007. "Myopic Marketing Management: Evidence of the Phenomenon and Its Long-Term Performance Consequences in the SEO Context," Marketing Science, INFORMS, vol. 26(3), pages 361-379, 05-06.
    24. Homburg, Christian & Stock, Ruth, 2004. "The Link between Sales People’s Job Satisfaction and Customer Satisfaction in a Business-to-Business Context: A Dyadic Analysis," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 60486, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    25. Sterman, John D., 1989. "Misperceptions of feedback in dynamic decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 43(3), pages 301-335, June.
    26. Homburg, Christian & Stock, Ruth, 2005. "Exploring the Conditions Under Which Salesperson Work Satisfaction Can Lead to Customer Satisfaction," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 60481, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jeremy S. Wolter & Dora Bock & Jeremy Mackey & Pei Xu & Jeffery S. Smith, 2019. "Employee satisfaction trajectories and their effect on customer satisfaction and repatronage intentions," Journal of the Academy of Marketing Science, Springer, vol. 47(5), pages 815-836, September.
    2. Laurent Scaringella & Anna Górska & Dennis Calderon & Jose Benitez, 2022. "Should we teach in hybrid mode or fully online? A theory and empirical investigation on the service–profit chain in MBAs," Post-Print hal-03519796, HAL.
    3. Rafael Bravo & Jorge Matute & José M. Pina, 2016. "Corporate identity management in the banking sector: effects on employees’ identification, identity attractiveness, and job satisfaction," Service Business, Springer;Pan-Pacific Business Association, vol. 10(4), pages 687-714, December.
    4. Hanen Khanchel & Karim Ben Kahla, 2019. "Job Dissatisfaction and Turnover Crises in Tunisia," Business and Management Research, Business and Management Research, Sciedu Press, vol. 8(3), pages 53-73, September.
    5. Katsifaraki, Georgia D. & Theodosiou, Marios, 2020. "How different (dis)engagement behaviors affect performance within an e-market ecosystem: A longitudinal analysis," Journal of Business Research, Elsevier, vol. 121(C), pages 578-591.
    6. Ramos, Amaya Alexandra, 2022. "Opportunities for enhanced institutional accountability and professionalization: Essay on the relationships between refugee resettlement organizations, humanitarian bodies, industry and academia," SocArXiv ef89d, Center for Open Science.
    7. Briggs, Elten & Deretti, Sandro & Kato, Heitor Takashi, 2020. "Linking organizational service orientation to retailer profitability: Insights from the service-profit chain," Journal of Business Research, Elsevier, vol. 107(C), pages 271-278.
    8. Lambert, Abbie & Jones, Robert Paul & Clinton, Suzanne, 2021. "Employee engagement and the service profit chain in a quick-service restaurant organization," Journal of Business Research, Elsevier, vol. 135(C), pages 214-225.
    9. Silvestro, Rhian, 2014. "Performance topology mapping: understanding the drivers of performance," International Journal of Production Economics, Elsevier, vol. 156(C), pages 269-282.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zeynep Ton, 2008. "The Effect of Labor on Profitability: The Role of Quality," Harvard Business School Working Papers 09-040, Harvard Business School, revised Jul 2009.
    2. Brown, Steven P. & Lam, Son K., 2008. "A Meta-Analysis of Relationships Linking Employee Satisfaction to Customer Responses," Journal of Retailing, Elsevier, vol. 84(3), pages 243-255.
    3. Dorothea Wahyu Ariani, 2015. "Employee Satisfaction and Service Quality: Is There Relations?," International Journal of Business Research and Management (IJBRM), Computer Science Journals (CSC Journals), vol. 6(3), pages 33-44, September.
    4. Barnes, Donald C. & Ponder, Nicole & Hopkins, Christopher D., 2015. "The impact of perceived customer delight on the frontline employee," Journal of Business Research, Elsevier, vol. 68(2), pages 433-441.
    5. Kim, Sang-Joon & Bae, John & Oh, Hannah, 2019. "Financing strategically: The moderation effect of marketing activities on the bifurcated relationship between debt level and firm valuation of small and medium enterprises," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 663-681.
    6. Jeremy S. Wolter & Dora Bock & Jeremy Mackey & Pei Xu & Jeffery S. Smith, 2019. "Employee satisfaction trajectories and their effect on customer satisfaction and repatronage intentions," Journal of the Academy of Marketing Science, Springer, vol. 47(5), pages 815-836, September.
    7. Miriam Benitez & Jose M. Leon-Perez & Alejandro Orgambídez & Francisco J. Medina, 2021. "Interpersonal Conflicts in the Unit Impact the Service Quality Rated by Customers: The Mediating Role of Work-Unit Well-Being," IJERPH, MDPI, vol. 18(15), pages 1-13, July.
    8. Federico Cosenz & Guido Noto, 2016. "Applying System Dynamics Modelling to Strategic Management: A Literature Review," Systems Research and Behavioral Science, Wiley Blackwell, vol. 33(6), pages 703-741, November.
    9. Wangenheim, Florian v. & Evanschitzky, Heiner & Wunderlich, Maren, 2007. "Does the employee-customer satisfaction link hold for all employee groups?," Journal of Business Research, Elsevier, vol. 60(7), pages 690-697, July.
    10. Edward G. Anderson & David R. Keith & Jose Lopez, 2023. "Opportunities for system dynamics research in operations management for public policy," Production and Operations Management, Production and Operations Management Society, vol. 32(6), pages 1895-1920, June.
    11. Elizabeth Chinomona & Tebogo Mofokeng, 2015. "The Influence Of Workplace Condition And Employee Satisfaction On Employee Commitment In South African," Journal of Social Sciences (COES&RJ-JSS), , vol. 4(1), pages 649-663, January.
    12. Elizabeth Chinomona & Tebogo Mofokeng, 2015. "The influence of workplace condition and employee satisfaction on employee committee in South African Companies," Journal of Business & Management (COES&RJ-JBM), , vol. 3(2), pages 356-369, April.
    13. Brexendorf, Tim Oliver & Mühlmeier, Silke & Tomczak, Torsten & Eisend, Martin, 2010. "The impact of sales encounters on brand loyalty," Journal of Business Research, Elsevier, vol. 63(11), pages 1148-1155, November.
    14. Vincent de Gooyert, 2019. "Developing dynamic organizational theories; three system dynamics based research strategies," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(2), pages 653-666, March.
    15. Gatzer, Sebastian & Hoang, Daniel & Ruckes, Martin, 2015. "Internal Capital Markets and Diversified Firms: Theory and Practice," EconStor Preprints 169432, ZBW - Leibniz Information Centre for Economics.
    16. Xin Qu & Majella Percy & Fang Hu & Jenny Stewart, 2022. "Can CEO equity‐based compensation limit investment‐related agency problems?," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2579-2614, June.
    17. Bae, John & Kim, Sang-Joon & Oh, Hannah, 2017. "Taming polysemous signals: The role of marketing intensity on the relationship between financial leverage and firm performance," Review of Financial Economics, Elsevier, vol. 33(C), pages 29-40.
    18. Jukka Isohätälä & Alistair Milne & Donald Robertson, 2020. "The Net Worth Trap: Investment and Output Dynamics in the Presence of Financing Constraints," Mathematics, MDPI, vol. 8(8), pages 1-32, August.
    19. Drobetz, Wolfgang & Pensa, Pascal & Wöhle, Claudia B., 2004. "Kapitalstrukturtheorie in Theorie und Praxis: Ergebnisse einer Fragebogenuntersuchung," Working papers 2004/09, Faculty of Business and Economics - University of Basel.
    20. Hazhir Rahmandad & Nelson Repenning, 2016. "Capability erosion dynamics," Strategic Management Journal, Wiley Blackwell, vol. 37(4), pages 649-672, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jouret:v:88:y:2012:i:3:p:356-366. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-retailing .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.