Service Quality and Profitability in UK Call Centres

Despite a long term interest in service quality and profitability, there is still a debate concerning the exact nature of relationship between the two concepts.  Although some studies suggested that there is a positive relationship between service quality and financial profitability (e.g., Garuana and Pitt, 1997; Duncan & Elliott, 2002), other studies indicated that the nature of relationship is negative and therefore increasing the quality of service may decrease profitability of the firms in the short term (Bounds et al., 1994; Reger et el., 1994; Sterman et al., 1997; Harrington & Akehurst, 1996). Meanwhile a number of scholars argue that improving quality may have a weak impact on business performance (Kearney, 1992; Eskildson, 1994). Furthermore, they suggest that the impact of service quality on profitability is indirect which may operate through a number of mediating factors such as customer satisfaction, productivity, reputation, market share and premium price.

In 2004 Harding & Yorke, a UK based company, constructed a three-year benchmark programme measuring ‘how it FEELS to be a customer' and ‘how it FEELS to be processed as a customer'. From the outset this was considered very different from the more common Customer Satisfaction Indices as it was looking at the effect prescribed processes and employee attitudes had on customers. The programme was called ERIC (Empathy Rating Index Company) and includes some unique methodologies which have since been validated and found to be extremely robust.

In 2007, Harding & Yorke shared the ERIC data with Dr Yuksel Ekinci. He was supported by Prof. Merlin Stone in determining the relationship between service quality - as defined by ERIC - and financial profitability in the UK call centre industry.

The study included 1400 customers and 28 UK companies from the service and manufacturing industries.

The findings of the study suggest that ERIC has a statistically significant and direct impact on profitability as measured by Return on Capital Employed (ROCE).  The inter-correlation between the six dimensions of ERIC and profitability was very strong (85).  The ERIC model explains 72 per cent of the total variance in profitability which was extremely good (p < .05).

Five out of the 6 ERIC dimensions had a statistically significant impact on profitability.  Importantly, the EMPATHY dimension had a positive impact on profitability.  Two dimensions had negative impacts on profitability but had positive correlations with the Empathy dimension.

The study provides major implications for managing profitability of call centres and all indications point to the methodology being equally valid across Retail, Internet and Correspondence channels. 

Accordingly, ERIC is set to become one of the UK's, and possibly the world's most important service quality indices.

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