The first step in the service-profit chain is internal service quality, meaning the quality of treatment that employees receive from a company's internal service providers, such as management, payroll and benefits, human resources, etc. Employee satisfaction occurs when companies treat employees in a way that meets or exceeds their expectations. In other words, the better employees are treated, the more satisfied they are, and the more likely they are to give high-value service to satisfy customers.
Service capability is an employee's perception of his or her ability to serve customers well. When an organization serves its employees in ways that help them to do their jobs well, employees, in turn, are more likely to believe that they can and ought to provide high-value service to customers.
Finally, high-value service leads to customer satisfaction and customer loyalty, which, in turn, lead to long-term profits and growth. What's the link between customer satisfaction and loyalty and profits? The average business keeps only 70 to 90 percent of its existing customers each year. Also, new customers typically buy only 20 percent as much as established customers. In fact, keeping existing customers is so cost-effective that most businesses could double their profits by simply keeping 5 percent more customers per year!