Friday, July 18, 2008

Customers and Employees Drive Profit in Service Chains

Putting the Service-Profit Chain to Work.
By: Heskett, James L., Jones, Thomas O., Loveman, Gary W., Sasser, Jr., W. Earl, Schlesinger, Leonard A.,
Harvard Business Review,
Jul-August 2008, Vol. 86, Issue 7/8

Best of HBR

• HBR EDITOR'S NOTE: This article sets out a simple, elegant, and ultimately tough-minded way to build profitability in a service business. Originally published in 1994, it offers as much today as it did then and is a perennial best seller.

The service-profit chain establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The links in the chain (which should be regarded as propositions) are as follows: Profit and growth are stimulated primarily by customer loyalty. Loyalty is a direct result of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created by satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality support services and policies that enable employees to deliver results to customers.

CEOs of exemplary service companies emphasize the importance of each employee and customer.

(We can intrepet the above sentence as in service companies each employee and each customer is equally very very important.

Customer Loyalty Drives Profitability and Growth
Customer Satisfaction Drives Customer Loyalty
Value Drives Customer Satisfaction

Employee Productivity Drives Value
Employee Loyalty Drives Productivity
Employee Satisfaction Drives Loyalty
Internal Quality Drives Employee Satisfaction

Leadership Underlies the Chain's Success


James L. Heskett is a Baker Foundation Professor, Emeritus, of Harvard Business School, in Boston, and a coauthor, with W. Earl Sasser, Jr., and Joe Wheeler, of The Ownership Quotient: Putting the Service-Profit Chain to Work for Unbeatable Competitive Advantage, forthcoming from Harvard Business Press. Thomas O. Jones is the president of eLanes, in Andover, Massachusetts. Gary W. Loveman is the CEO of Harrah's Entertainment, in Las Vegas. W. Earl Sasser, Jr., is a Baker Foundation Professor at Harvard Business School. Leonard A. Schlesinger has been named the 12th president of Babson College, in Babson Park, Massachusetts.

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