Virtuous cycles of service quality : an empirical test

Purpose: Research on the service–profit chain (SPC) provides important insights regarding how organizations attain service excellence. However, this research stream does not shed light on the mechanisms by which service organizations sustain such excellence, despite the struggles of many organizations to do so. Thus, the purpose of this paper is to develop the SPC as a more dynamic system characterized by feedback loops, accumulation processes, and time delays based on the service operations, human resources, and marketing literatures. Design/methodology/approach: The authors posit the feedback loops operate as virtuous cycles, such that increases in customer perceptions of service quality and in profit margins lead to subsequent increases in the quality of the internal working environment, which ultimately reimpacts performance in a positive way, and so on. The authors test the hypotheses using five years of archival data on 417 full-service US hotels. The unique data set combines longitudinal data from multiple functions, including employee assessments regarding their tools, practices, and abilities to serve customers, customer perceptions of service quality, and objective measures of financial performance. Findings: The authors find support for the idea that some organizations provide customers with high-quality service over time by reinvesting in the inputs responsible for generating the initial success, i.e., in various aspects of the internal working environment. Research limitations/implications: The analysis of 417 hotels from a single firm may influence the extent to which the findings can be generalized. Originality/value: By expanding the boundaries of previous conceptual and empirical models investigating SPCs, the authors offer a deeper understanding of the cross-functional character of modern operational systems and the complex dynamics that these systems generate.