Concept of Service Profit Chain for Apple

The Service-Profit Chain Today by by James L. Heskett, W. Earl Sasser, Joseph Wheeler Relevance Today The service-profit chain (SPC) is as relevant today as it was when we wrote about it in “Putting the Service-Profit Chain to Work,” in the March 1994 issue of Harvard Business Review. In fact, three of the co-authors of that article have since left the academy to apply SPC principles in the business world. Company Examples Highly successful companies like Bouygues Telecom in France (now the third largest in its markets in the ten years since its founding) and ING DIRECT (now the 17th largest bank in the U. S. after just seven years) have been created since then, based on service-profit chain (SPC) relationships. Others, such as Rackspace Hosting (engaged in Web site design and management), Westpac (one of Australia’s leading banks), CEMEX (one of the world’s largest cement companies, based in Mexico), Harrah’s Entertainment (a leader in branded casino entertainment, based in Reno, Nevada), and Baptist Health Care (a not-for-profit health care organization centered in northwest Florida and southern Alabama), have been revitalized through actions suggested by SPC relationships.

Positive examples of SPC practice are commonly found in companies at the top of Fortune’s 100 Best Places to Work and the Wall Street Journal’s best-performing companies. Other companies, such as Circuit City, provide examples of what happens when organizations manage themselves into a “doom loop” of negative SPC relationships. In March 2007, Circuit City announced that it would replace 3,400 of its more experienced, higher-paid salespeople with new, lower-paid hires. In so doing, it damaged customer satisfaction and ultimately suffered the financial consequences.

Service-Profit Chain Analysis

In the past 14 years literally hundreds of academic studies have examined one or more of the seven links in the service-profit chain we described in our 1994 article. (David Maister, author of : What Managers Must Do to Create a High Achievement Culture (New York: The Free Press, 2001), proved in an extensive study the cause-and-effect relationships that exist between various elements of the SPC. ) Of the studies that have been done, all but a handful have confirmed the relationships in all kinds of for-profit and not-for-profit service activities.

Some researchers have taken issue with certain of our hypotheses. In particular, several have found weak or negative relationships between employee satisfaction and productivity and between customer satisfaction and financial measures. In part, this can be explained by sudden management actions that have not yet been fully felt throughout the SPC. For example, changes in such things as staffing policies and organizational structure produce effects that may temporarily disrupt relationships between measures of employee and customer satisfaction. The Importance of All the Links in the Chain

As we have continued our work, we have learned, among other things, that:

  • An organization and its leadership can’t “cherry pick” ideas or focus on single relationships in the SPC; for maximum effectiveness, all of them must be addressed.
  • Firms performing well on one SPC dimension are probably doing well on others, too.
  • It all begins with the first link between the quality of the workplace and employee satisfaction.

This link includes such variables as employee selection and recognition, as well as amenities and benefits designed to help employees achieve results for customers and themselves.

Companies such as SAS (a leader in business intelligence and predictive analytics software, headquartered in Cary, NC) and Wegmans supermarkets (a regional chain centered in the northeast U. S. ) that invest deeply in workplace quality are consistently found near the top of the list of best places to work in the US. * There are patterns of practice that lead to SPC success. For example, many best-practice organizations have been built on teams of employees with latitude to hire, develop, and, if necessary, fire team members and with responsibility for the growth and profitability of a piece of the business. Customers that we termed “apostles” in 1994 drive most or all of a firm’s profits through what we have more recently come to think of as the five Rs of customer or employee “ownership”: retention, related sales, referral, recruitment, and research and development. Wegmans Supermarkets Take the case of Wegmans supermarkets. The company’s mission is to “set our goal to be the very best at serving our customers. Every action we take should be made with our customers in mind. We also believe that we can achieve our goal only if we fulfill the needs of our own people. At Wegmans, these are more than just words. According to Fortune, Wegmans has ranked in the top five places to work in the U. S. for several years. In part, this is because CEO Danny Wegman and his team seek to create exciting experiences — centered around food – for both their employees and their customers. This even involves sending selected employees to Europe to study the practices of chefs creating gourmet cuisine. After interacting with employees, a surprising number of the company’s customers apply for jobs, self-selecting into an organization they believe in.

A substantial portion of the company’s marketing effort fosters word-of-mouth referrals from existing customers. Ideas for new food items, recipes, and presentations are regularly solicited from and provided by customers and employees. As a result, Wegmans delivers unmatched value in spite of prices that are sometimes higher than competitors’. This, in turn, leads to profitable performance and growth in a very competitive business. Customers and Employees as “Apostles”

Following the publication of “Putting the Service-Profit Chain to Work,” the work of two of us (Heskett and Sasser, in cooperation with Joe Wheeler) has focused on the payoffs from applying service-profit chain concepts to groups of employees and customers that exhibit what we call “owner” behaviors. Findings from this work will comprise the contents of our new book, The Ownership Quotient, to be published by Harvard Business Press later in 2008. These employees and customers aren’t just satisfied, loyal, and willing to recommend a company or its products or services to others.

They are “apostles” who actually recruit others to an organization–either as a place to work or to bring their business. And they recommend improvements in how a product is designed or a service delivered, often through constructive complaints that are noted, processed, and acted upon by companies that foster “owner” behaviors. Our attention to “owners” was captured when we found that in the organizations we have studied so far, a customer/owner is worth more than a hundred price-sensitive, non-loyal customers.

Organizations that understand this, such as Harrah’s Entertainment and Rackspace Hosting, have designed ways of identifying and catering to customer/owners, often by creating ownership attitudes among their employees. These organizations build ownership in a number of ways:

  • They organize around cross-functional teams of employees, each of which is responsible for managing itself and developing relationships with a group of dedicated customers. (For example, at Rackspace Hosting, teams of “Rackers” are responsible for building business relationships with assigned groups of customers seeking help in managing their Web sites.
  • They carefully select the customers they will serve. (For example, at ING DIRECT, desired customers for on-line banking are targeted and others are “fired. ”)
  • They use firm-wide databases that enable employees to share information in order to tailor products and services to customer needs. (For example, Harrah’s Entertainment has a Total Rewards customer database.)
  • They understand and meet individual customer needs and interests. (For example, employees at Build-A-Bear Workshops are trained to look for and respond to needs of individual customers in the store itself, as well as those who visit the company’s Web site.
  • They often engage customers in the delivery of a product. (For example, IKEA customers are encouraged to transport and assemble their furniture purchases themselves. )
  • They identify values, behaviors, measures, and actions necessary to build and maintain an ownership mentality. (For example, Baptist Health Care has identified the critical elements of its organizational culture: integrity, vision, innovation, superior service, stewardship, and teamwork. )

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