Summary of “The Effect of Labor on Profitability: The Role of Quality” Zeynep Ton Harvard Business School, Boston, MA 02163, zton@hbs.edu Abstract Store labor is a large expense in retail operations. Although there is overwhelming evidence that CQ(conformance quality—how well employees execute prescribed processes) and SQ(service quality—the extent to which customers have a positive service experience at the stores) improve sales, there is limited evidence indicating their effect on profitability. When the costs of increasing labor are obvious and benefits are indirect, managers may not employ more staff. And this paper studies the effect of labor on profitability through its impact on quality, both conformance quality and service quality. Key words: labor; quality; retail corporation
1. Literature review and hypothesis of this paper
1.1 Service quality(SQ) SQ is measured by customers’ assessment of their service experience. the writer present some studies that show profitability is stimulated by loyal customers. But the evidence is limited. Some other studies show that the relationship between profitability and customer loyalty is not strong. In a study of Swedish firms, Anderson et al.(1997) find that the relationship between customer satisfaction and return on investment varies across industries.The mixed evidence about the effect of SQ on profitability suggests that the effect depends on the operating context.
1.2 Conformance quality(CQ) CQ is an internal measure of quality and is defined as the degree to which stores conform to prescribed standards related to logistics activities. Many scholars like Maani et al. (1994), White (1996), and Krishnan et al. (2000) argue that investment in CQ may benefit the company in a long term, but there is limited empirical evidence for the positive effect of CQ on financial