Putting the Service Profit Putting the Service Profit Chain to Work Chain to Work Ref: Heskett, Jones, Loveman, Ref: Heskett, Jones, Loveman, Sasser, Schlesinger Sasser, Schlesinger HBS/ Service Management HBS/ Service Management
1. Putting the Service ProfitPutting the Service Profit Chain
to WorkChain to Work Ref: Heskett, Jones, Loveman,Ref: Heskett,
Jones, Loveman, Sasser, SchlesingerSasser, Schlesinger HBS/ Service
ManagementHBS/ Service Management
2. 22 Key Learning PointsKey Learning Points Understand the
linkages betweenUnderstand the linkages between Profitability,
Customer Loyalty, Value andProfitability, Customer Loyalty, Value
and Employee ProductivityEmployee Productivity Diagnose drivers of
ProfitDiagnose drivers of Profit
3. 33 Value Creation: What A Business Aims to AchieveValue
Creation: What A Business Aims to Achieve Delighted Shareholders
Delighted Shareholders Revenue Growth Incrsd Mkt Share Delighted
Customers Deliver grtr Prcvd value Committed Mgmt Committed
Employees > Margins > Com. Positn Lower Costs Waste dn
Productivity up Cont. refine Processes Innovation
4. 44 The Links in the Service Profit ChainThe Links in the
Service Profit Chain Rev Grwth Profit ability Custmr Loyalty Custmr
Satisfn Extrnl Service Value Employe Retn Employe Prodvty Employe
Sat Intrnl Service Qlty Service concepts Results for customers
Service designed & delivered to meet targeted customers needs
workplace design job design employee seln & dev rewards/ recogn
tools for serving customer Operating Strategy & Service
Delivery System retention rpt biz referral
5. 55 1. Customer loyalty drives profitability & growth1.
Customer loyalty drives profitability & growth A 5% increase
inA 5% increase in customer loyalty cancustomer loyalty can boost
profits by 25%boost profits by 25% to 85%to 85%
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quality of marketThe quality of market share, measured inshare,
measured in terms of customerterms of customer loyalty, deserves
asloyalty, deserves as much attention asmuch attention as quantity
of marketquantity of market share.share.
6. 66 2. Customer satisfaction drives customer loyalty2.
Customer satisfaction drives customer loyalty Xerox found that
itsXerox found that its very satisfiedvery satisfied customers
werecustomers were 6 times more likely to repurchase company6 times
more likely to repurchase company equipment than were customers who
wereequipment than were customers who were merelymerely
satisfied.satisfied. A Satisfied Customer is Loyal 0 20 40 60 80
100 120 1.ExtremlyDissati sfied 2.somewhat dissatisfied 3.slightly
dissatisfied 4.satisfied 5.verysatisfied Loyalty%(Retention)
7. 77 3. Value drives customer satisfaction3. Value drives
customer satisfaction An insurerAn insurers efforts tos efforts to
deliver maximumdeliver maximum value include fundingvalue include
funding a team that providesa team that provides special services
at thespecial services at the sites of majorsites of major
catastrophes.catastrophes. TheThe company has one ofcompany has one
of the highest margins inthe highest margins in its industryits
industry
8. 88 4. Employee productivity drives value4. Employee
productivity drives value Southwest airlinesSouthwest airlines
deplanes & reloadsdeplanes & reloads two thirds of its
flightstwo thirds of its flights in 15 minutes or less;in 15
minutes or less; pilots fly an avg. of 20pilots fly an avg. of 20
hrs more/month thanhrs more/month than competitors.
Farescompetitors. Fares stay low while servicestay low while
service remains high.remains high.
9. 99 5. Employee loyalty drives productivity5. Employee
loyalty drives productivity One auto dealerOne auto dealerss annual
cost ofannual cost of replacing a sales repreplacing a sales rep
who had 8 years ofwho had 8 years of experience with oneexperience
with one who had less than awho had less than a year was $432000
inyear was $432000 in lost sales.lost sales.
10. 1010 6. Employee satisfaction drives loyalty6. Employee
satisfaction drives loyalty In one company study..In one company
study.. Dissatisfied - 30%*Dissatisfied - 30%* Satisfied only
10%*Satisfied only 10%* * Wanted to leave* Wanted to leave
11. 1111 7. Internal quality drives employee satisfaction7.
Internal quality drives employee satisfaction Service workers
areService workers are happiest when theyhappiest when they are
empowered toare empowered to make things right formake things right
for customers and whencustomers and when they havethey have
responsibilities thatresponsibilities that add depth to theiradd
depth to their work.work.
12. 1212 Lifetime Value of a customer can be astronomical!
13. 1313 Service Profit Chain Audit QuestionsService Profit
Chain Audit Questions Do measurements of customer profitabilityDo
measurements of customer profitability include profits from
referrals?include profits from referrals? How are customersHow are
customers perceptions of value perceptions of value shared with
those responsible forshared with those responsible for designing a
product or service?designing a product or service? What proportion
of business developmentWhat proportion of business development
expenditures and incentives are directedexpenditures and incentives
are directed to the retention of existing customers?to the
retention of existing customers?
14. 1414 From the CustomerFrom the Customers Perspective.s
Perspective. Customer Needs/Wants Business Process Capabilities
Supporting Orgn structure Bus. Practices Measures/ rewards/ culture
Technology Moments of Truth Service standards Performance
capabilities I want I need I would change vendors to get Enablers
Design
15. 1515
16. 1616 The Virtuous Cycle of LoyaltyThe Virtuous Cycle of
Loyalty Loyalty Profitability Hi Pay Attracts Talent Hi
Productivity Superior Service
18. 1818 Banc OneBanc One MeasuresMeasures Customer
retentionCustomer retention Depth of relationshipDepth of
relationship Lvl of customer satLvl of customer sat ImpactImpact
ROA > 2xROA > 2x nearestnearest competitorcompetitor
19. 1919 480000480000 thethe number of customersnumber of
customers polled by Xerox every year.polled by Xerox every
year.
20. 2020 Loyalty Productivity Capability Quality of Service
(internal & external) Retention Referrals reduce Acquisition
costs Share of Mind Employee Value Satisfaction
21. 2121 Loyalty Retention Referrals reduce Acquisition costs
Share of wallet Customer Value Satisfaction .Value
22. 2222 Loyalty Retention Referrals enrich Investor base Share
of Portfolio Investor Value Satisfaction Value
23. 2323 Long Term Revenue Growth & Profitability Customer
Em ployee Investor Value Profit Chain