1. Assessing the Service Profit
Chain Model in the Kuwaiti
Banking Sector
Presented by: Thamir Ahmed AL-Qadri
Supervised by: Dr. Hassan AL-Zubaidi
KMBS – Kuwait, March 28th
2010

2. Problem Definition……………………….………….3
Research Objectives…………………….....…………4
Research Questions………………………………….5
Literature Review……………………………………6
Derived Hypothesis……………………………….....8
Conceptual Framework……………………………....9
Research Methodology………………………………10
Data Analysis & Findings……………………………11
Conclusion & Discussion of the Findings……...…….15
Recommendations…………………………………...16
Research Limitations………………………………....17
Future Research……………………………………...18
Presentation Outline

3. Problem Definition
 Financial service providers rising up again
from the effects, both financial and
reputational, of the global liquidity crunch in
2008.
 The need for bankers to make strategic
decisions and investments to get their banks
back on track.

4. Literature Review
The Service Profit Chain Model
 Developed in the early nineties by James Heskett,
Earl Sasser and Leonard Schlesinger.
 Is a collaboration of concepts from several business
academic fields, including human resources, service
marketing and service operations.
 Provides ground for a logical and sequential chain
reaction that starts with employees of an
organization and ultimately leads to financial gains.
 Establishes relationships between a firm’s
profitability, customer satisfaction and employee
satisfaction.

5. Literature Review Cont.
The Links
 Internal Service Quality drives Employee satisfaction.
 Employee satisfaction drives Employee loyalty.
 Employee loyalty drives employee productivity.
 Employee productivity drives External Service Value.
 External Service Value drives Customer satisfaction.
 Customer satisfaction drives Customer loyalty.
 Customer loyalty drives Financial performance.

6. Diagram of the Service Profit Chain model

7. Conceptual Framework
Job
Design
Information &
Communication
Workplac
e design
Employee
rewards &
Recognitio
n
Tools &
Resource
s
Employee
Selection &
Development
Interna
l
Servic
e
Quality
Employe
e Loyalty
Financial
Performanc
e
Custome
r Loyalty
Employee
Satisfaction
Employee
Productivity
External
Service
Value
Customer
Satisfaction
Employee
Stated
Loyalty
Employee
Avg.
Retention
Period
Customer
Referral
Customer
Repurchase
Intentions
Customer
Stated
Retention
Profit
Growth
Revenue
Growth
H1 H2 H3 H4 H5 H6 H7
H8 (Full Model)

8. Research Objectives
 To assess the assumed relationships claimed
within the Service Profit Chain Model.
 To identify whether the Service Profit Chain
Model can be utilized by Kuwaiti conventional
banks as a decision making tools.

9. Research Questions
MRQ: Can the Service Profit Chain Model be considered as a strategic
decision making tool to make critical investments that ultimately improve
financial performance?
RQ1: Do improvements in Internal Service Quality levels positively impact
Employee Satisfaction levels?
RQ2: Does improving Employee Satisfaction increase Employee Loyalty?
RQ3: Does improving Employee Loyalty lead to higher Employee
Productivity?
RQ4: Does improving Employee Productivity lead to higher levels of
External Service Value?
RQ5: Does improving External Service Value lead to higher Customer
Satisfaction levels?
RQ6: Do improvements in Customer Satisfaction levels increase Customer
Loyalty?
RQ7: Do improvements in Customer Loyalty levels lead to improvements in
the organization's Financial Performance?

10. Derived Hypothesis
H1: Internal Service Quality has significant positive influence on
Employee Satisfaction.
H2: Employee Satisfaction has significant positive influence on
Employee Loyalty.
H3: Employee Loyalty has significant positive influence on Employee
Productivity.
H4: Employee Productivity has significant positive influence on Service
Value.
H5: External Service Value has significant positive influence on
Customer Satisfaction.
H6: Customer Satisfaction has significant positive influence on
Customer Loyalty.
H7: Customer Loyalty has significant positive influence on Financial
Performance.
H8: The service profit chain model is significantly accepted and can be
used as a strategic decision making tool.

11. Research Methodology
Research Approach: Deductive
Research Type: Quantitative
Target Industry: Financial Services Industry (Banking)
Data Sources: The data was collected on the branch network of a Kuwaiti
conventional banks.
 Primary Data: Employee satisfaction survey.
 Secondary Data: Bank Database and monthly conducted customer
satisfaction survey.
Data Period: Quarter 4, 2009.
Sample: Population 519 branch employees. Usable responses 348. Response
rate 67%.
Data Merging: Conducted to match secondary data to primary data and get
overall sample size of n=348.
Data Analysis Techniques: Descriptive Analysis, Reliability Tests using SPSS &
Structured Equation Modeling (AMOS)

12. Data Analysis & Findings
Descriptive Analysis: Frequencies analysis conducted on the
employee satisfaction survey distributed. (Appendix 1)
Reliability Test: Cronbach’s alpha test was conducted on the
employee satisfaction survey distributed.
Questions Variable Cronbach's alpha
Q1 – Q5 Workplace Design 0.830
Q6 – Q11 Job Design & Decision Making Latitude 0.747
Q12 – Q25 Employee Selection & Development 0.899
Q26 – Q30 Employee Rewards & Recognition 0.851
Q31 – Q35 Information & Internal Communication 0.807
Q39 – Q39 Tools & Resources to Serve Customers 0.828
ALL ALL 0.939

13. Data Analysis & Findings
Inferential Analysis:
 Model Fit Indices after each set of modifications
Relative CMIN GFI CFI RMSEA
Initial Model 2.598 0.736 0.790 0.068
Model 2 2.067 0.791 0.864 0.055
Final Model 1.927 0.801 0.882 0.052

14. Data Analysis & Findings
 SEM output (Regression Coefficients)
Variable Relationship
Regression
Weights
Standardized
Regression
Weights
t-
value
Sig.
B S.E Beta (p value)
Internal Service Quality ----> Employee Satisfaction 1.712 0.231 0.660 7.410 **
Employee Satisfaction ----> Employee Loyalty 0.930 0.044 0.428 21.025 **
Employee Loyalty ----> Employee Productivity 0.002 0.005 0.038 0.321 0.748*
Employee Productivity ----> External Service Value 1.033 0.331 0.160 3.121 **
External Service Value ----> Customer Satisfaction 0.811 0.032 0.804 25.181 **
Customer Satisfaction ----> Customer Loyalty 3.171 0.563 0.692 5.628 **
Customer Loyalty ----> Financial Performance 0.089 0.020 1.000 4.498 **
Regression Coefficients – Conceptualized Service Profit Chain Model
* p>0.05 = insignificant relationship, ** p<0.05 = significant relationship

15. Data Analysis & Findings
 Path Diagram with SEM results
Job
Design
Information &
Communication
Workplac
e design
Employee
rewards &
Recognitio
n
Tools &
Resource
s
Employee
Selection &
Development
Interna
l
Servic
e
Quality
Employe
e Loyalty
Financial
Performanc
e
Custome
r Loyalty
Employee
Satisfaction
Employee
Productivity
External
Service
Value
Customer
Satisfaction
Employee
Stated
Loyalty
Employee
Avg.
Retention
Period
Customer
Referral
Customer
Repurchase
Intentions
Customer
Stated
Retention
Profit
Growth
Revenue
Growth
0.712
0.428 0.038* 0.160 0.804 0.692 1.000
0.922
0.503
0.893
0.789
0.585
0.589
1.750 -0.011*
0.660
0.878 0.330
0.423 0.137
Note: All path coefficients are significant at p<0.05 except marked by * insignificant at p>0.05

16. Discussion of the findings & Conclusion
Hypothesis Significance
and
Strength
Consistent with following Researchers Accepted
or
Rejected
H1 Internal Service Quality has significant
positive influence on Employee
Satisfaction.
Significant
and Strong
Heskett et al., (1994, 1997)/ Hallowell et al., (1996)/
Lau, (2000)/ Pritchard and Silvestro, (2005)/ Xu, (2004)
Accepted
H2 Employee Satisfaction has significant
positive influence on Employee Loyalty.
Significant
and Strong
Heskett et al., (1994, 1997)/ Loveman, (1998)/ Silvestro,
(2000)/ Xu, (2004)
Accepted
H3 Employee Loyalty has significant
positive influence on Employee
Productivity.
Insignificant
and Weak
Silvestro, (2000) / Pritchard and Silvestro, (2005) Rejected
H4 Employee Productivity has significant
positive influence on Service Value.
Significant
but Weak
Heskett et al., (1994, 1997)/ Reichheld and Sasser,
(1990)
Accepted
H5 External Service Value has significant
positive influence on Customer
Satisfaction.
Significant
and Strong
Heskett et al., (1994, 1997)/ Caruana et al., (2000)/ Xu,
(2004)/ Pritchard and Silvestro, (2005)
Accepted
H6 Customer Satisfaction has significant
positive influence on Customer Loyalty.
Significant
and Strong
Heskett et al., (1994, 1997)/ Silvestro, (2000)/ Xu,
(2004)/ Pritchard and Silvestro, (2005)
Accepted
H7 Customer Loyalty has significant
positive influence on Financial
Performance.
Significant
and Strong
Reichheld and Sasser, (1990)/ Hallowell, (1996)/ Heskett
et al., (1994, 1997)/ Lau, (2000)/ Smith and Wright,
(2004)/ Xu, (2004)
Accepted
H8 The service profit chain model is
significantly accepted and can be used
as a strategic decision making tool.
Significant
and Strong
Heskett et al., (1994, 1997)/ Lau, (2000)/ Xu, (2004)/
Stodnick, (2005)/ Gelade and Young, (2005)
Accepted

17. Recommendations
 Managers should consider taking up service profit chain initiatives as this study
confirms the impact on financial performance. However, before doing so the
model might require fine tuning to the fit the business situation.
 Managers with limited resources should use the model as a resource allocation
tool.
 Managers should try to increase the availability of information and improve
internal communication policies to support a healthy relationship between
employee and employer.
 Implement management control systems such as, service quality policies and or
customer loyalty programs.
 Utilize the model as a Leadership style through developing and maintaining a
corporate culture centered on providing excellent service to customers and
fellow employees.
 Upon conducting such an analysis managers would receive insight on customer
and employee perceptions on service quality and value thus helping them to
determine areas for improvements.

18. Research Limitations
 Confidentiality Constraints.
 Data was only gathered from a single conventional bank
in Kuwait.
 Employee productivity was not measured through activity
based costing as proposed by the service profit chain
literature.
 Time constraints posed a limitation to collect longitudinal
data to conduct a Multi-period analysis to examine the
effects of changes in the model’s dimensions.

19. Future Research
 Collecting longitudinal data to conduct a Multi-period
analysis.
 Collect data from more than one financial service
organization for a more universal assessment of the
model.
 Measure employee productivity from an activity based
costing perspective.

20. Thank you

22. Variable Measurement Source
Internal Service Quality · Statements designed in the questionnaire to collect data on the perception of employees on internal service
quality, which are; workplace design (Q1 to Q5), job design and decision making latitude (Q6 to Q11),
Employee selection and development (Q12 to Q25), Employee rewards and recognition (Q26 to Q30),
Information and Internal Communication (Q31to Q35, Tools and resources to serve customers (Q36 to Q39).
Researcher developed
questionnaire
Employee Satisfaction · Questionnaire statement; Overall I am satisfied working for the Bank. (Q40) Researcher developed
questionnaire
Employee Loyalty · (Soft Measure) Loyalty statement in questionnaire; I would recommend working in the Bank to others (Q41).
· (Hard Measure) Data on average employee retention period, in years, per branch was collected from the
Bank's database.
Researcher developed
questionnaire
and Bank data
Employee Productivity · Sales achievements from branch target were multiplied by their corresponding weighted average as per the
bank's higher management. The weighted average results of percentage sales target achievement was divided
by the number of employees in the same branch. Thus, giving indication of per branch output (Sales
achievement) ratio in respect to its input (Staffing).
Bank data
Service Value · 10 point Likert scale statements designed in the customer satisfaction survey collects data on the perception of
customers on service quality with respect to its Value. Of which, average per branch was extracted. (Q9)
Bank Data (Customer
satisfaction
questionnaire)
Customer Satisfaction · From the bank's customer satisfaction survey; (How satisfied or dissatisfied are you with you overall
experience with the bank?), (Q7) results were collected to represent this dimension. Of which, average per
branch was calculated.
Bank Data (Customer
satisfaction
survey)
Customer Loyalty · 3 Questionnaire statements utilized from the bank's customer satisfaction survey;
1. Would you recommend the Bank to others? (To capture customer referral intention) (Q12)
2. To What Extent do Prefer Gulf Bank over Other Banks in the Market? (To capture intentions of repeat
business) (Q13)
3. One year from now, how likely are you to still be dealing with the Bank? (To capture customer's retention)
(Q6)
Bank Data (Customer
satisfaction
survey)
Financial Performance · Per branch data collected, for the last quarter of 2009 fiscal year, on the percentage change in;
• Revenues
• Profits
Bank Data

23. Observed, endogenous variables Unobserved, endogenous variables Unobserved,
exogenous
variables
Variables
Questionnaire statements (Q1 to 41)
Employee Avg. Retention period
Employee productivity
External Service Value
Customer Satisfaction
Customer Referral
Customer Stated Retention
Customer Stated Re-purchase
Intention
Revenue Growth
Profit Growth
Workplace Design
Job Design & Decision Making
Latitude
Employee Selection & Development
Employee Reward & Recognition
Information & Internal Communication
Tools & Resources to serve customers
Employee Loyalty
Customer Loyalty
Financial Performance
Internal
Service
Quality

24. Theoretical concept Finding Researchers in support
The service profit chain model ·Employee satisfaction leads to customer satisfaction which
influences financial performance.
·Heskett et al., 1994, 1997/Loveman, 1998/ Xu,
2004/Gelade and Young, 2005/Chi and Gursoy, 2008
·Improving internal service quality means improving
financial performance
·Lau, 2000
Internal service quality drives employee
satisfaction
·Internal service quality is directly and positively linked to
employee satisfaction levels.
·Heskett et al., 1997/Hallowell et al., 1996/Conduit and
Mavondo, 2001/Xu, 2004/Pritchard and Silvestro,
2005/Bellou and Andronikidis, 2008
Employee satisfaction drives employee loyalty ·Dissatisfied employees have turn over rates three times more
over satisfied employees
·Schlesinger and Heskett, 1991
·Satisfied employees are more loyal and show decreased
turnover rates.
·Heskett et al., 1994, 1997/ Dimensions Development
International, 1997/ Silvestro 2002/ Gallop.com report;
cited by Corporate Leadership Council, 2003/ Xu, 2004
·Satisfied employees are willing to stay longer with the
company and to refer the workplace to others.
·Loveman, 1998/Silvestro, 2002
Employee loyalty drives employee productivity ·Employee turnover negatively affects employee
productivity.
·Reichheld, 1993/Heskett et al., 1994/Berry, 1995
·Employee tenure has a positive relationship with their
productivity.
·Payne et al., 2000
Employee productivity drives External service
value
·Positive link between productive employees and output
quality.
·Heskett et al., 1994, 1997/Silvestro and Cross, 2000
External service value drives customer satisfaction ·Service value is a better indicator of customer satisfaction. ·Heskett et al., 1994, 1997/Lau, 2000
·Service value perception by customers positively affects
their satisfaction level.
·Pritchard and Silvestro, 2005/ Zeithmal et al.,
1996/Blanchard and Galloway, 1994/Bolten, 1998, Van
Monfort et al., 2000/Caruana et al., 2000/ Xu, 2004
Customer satisfaction drives customer loyalty ·Customer satisfaction is related to customer loyalty. ·Rust and Zahorik, 1991/Heskett et al., 1994,
1997/Jones and Sasser, 1995/Hallowell, 1996 /Xu, 2004
·Customer satisfaction is related to stated customer loyalty. ·Silvestro, 2002/ Pritchard and Silvestro, 2005
Customer loyalty drives Financial performance ·Increased customer loyalty has positive impact on financial
performance.
·Reichheld and Sasser, 1990/Hallowell, 1996/Heskett et
al., 1994, 1997/Lau, 2000/Smith and Wright, 2004/Xu,
2004