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

Authors

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.

Managing Customer Introduced Variability

BREAKING THE TRADE-OFF Between Efficiency and Service.
By: Frei, Frances X.,
Harvard Business Review,
November 2006, Vol. 84, Issue 11

Customers introduce variability to service operations in no fewer than five ways, so it is critical to sort out which type is causing mischief before designing interventions.

Arrival variability.
Request variability.
Capability variability.
Effort variability.
Subjective preference variability.

The four strategic responses are: classic accommodation, classic reduction, low-cost accommodation, and uncompromised reduction.

An example of an uncompromised reduction approach:

A company can greatly reduce the impact of variability on its operating environment without compromising the service experience by targeting customers on the basis of variability type. If, for example, a college fears that admitting students of varying intellectual capabilities will complicate its operations, it can choose only students whose standardized test scores fall within a narrow band. The students get the benefit of a tailored curriculum without the school's having to support more than one.

Frances X. Frei (ffrei@hbs.edu) is an associate professor of business administration in the Technology and Operations Management unit at Harvard Business School in Boston.

What is 6S Workplace for Administrative Areas?

What is 6S Workplace for Administrative Areas?

6S for the Office is a systematic approach to improving office organization, ordering, cleanliness, and standardization while simultaneously improving office efficiency and reducing lead times.


The 6S System for Administrative Areas includes the following activities:

Safety - identifying and eliminating unsafe conditions

Sorting - evaluating the need for items currently located within the targeted area and removing unnecessary items

Setting in Order - arranging the necessary items in the most logical and most efficient configuration. Also encompasses setting inventory limits, making location indicators, establishing reorder points, etc.

Shine - cleaning everything in the selected area and using cleaning to ensure office equipment and area cleanliness are maintained

Standardization - creating uniformity in the way work within the targeted area is performed and incorporating the first three S's into everyone's daily routines by creating visual displays, checklists and processing controls.

Sustainment - creating accountability for the preservation and continuance of the 6S System through self-discipline, training, communication and total employee involvement.


Needs & Benefits: 6S System learning and implementation is ideal for businesses that are experiencing:

employees spending too much time locating files, documents or supplies

customers placed on hold and waiting while the Customer Service Rep searches for information

misplaced or lost orders, quotes and other documents due to an unorganized office environment
reduced server space due to obsolete electronic files
employees searching for supplies and materials due to poorly organized and maintained supply area

unsafe work conditions - extension cords without safety covers, improperly marked door signs, trip hazards, etc.

lack of a feeling of ownership and responsibility among employees for the upkeep and appearance of the area in which they work

http://www.nepirc.com/news_classes_time.php?class_id=48

Why Mentoring Matters in Professional Service Firms?

Why Mentoring Matters in a Hypercompetitive World.
By: DeLong, Thomas J., Gabarro, John J., Lees, Robert J.,
Harvard Business Review,
Jan 2008, Vol. 86, Issue 1

Today's professional service firms (PSFs) are so busy making money that they've lost the art of making talent

our research reveals that 67% to 85% of all the professionals in PSFs have an extreme need to achieve.

The truth is that in today's PSFs, with their limited resources, associates can no longer just expect to be assigned a mentor; they also have to learn how to attract one.


One particularly interesting approach developed at McKinsey & Company is to encourage associates to "build [their] own McKinsey." members of the firm are counseled to seek out the subordinates, peers, and partners toward whom they naturally gravitate because of mutual chemistry, interests, and goals.

A wise leader told the group that only by supporting one another could they be competitive (in the market place). He created team metrics that encouraged them to work together not against one another.


More than any other type of organization, PSFs live and die by their intellectual capital. If you fail to nurture this talent, you will lose the heart and soul of your firm, as well as the very people you recruited to give you an edge in a hypercompetitive world.

Delivering excellent service: Lessons from the best firms

Delivering excellent service: Lessons from the best firms
Robert C Ford, Cherrill P Heaton, Stephen W Brown.
California Management Review. Berkeley:
Fall 2001. Vol. 44, Iss. 1; pg. 39, 18 pgs

Many principles derived from the success of outstanding service organizations are now more applicable to non-services than ever before.

Lesson 1: Base Decisions on What the Customer Wants and Expects

Lesson 2: Think and Act in Terms of the Entire Customer Experience

Lesson 3: Continuously Improve All Parts of the Customer Experience

Lesson 4: Hire and Reward People Who Can Effectively Build Relationships with Customers

Lesson 5: Train Employees in How to Cope with Their Emotional Labor Costs

Lesson 6: Create and Sustain a Strong Service Culture

Lesson 7: Avoid Failing Your Customers Twice

Lesson 8: Empower Customers to Co-produce Their Own Experiences

Lesson 9: Get Managers to Lead from the Front, Not from the Top

Lesson 10: Treat All Customers as if They Were Guests

For further reading

T.H. Davenport, J.G. Harris, and A.K. Kohli, "How Do They Know Their Customers So Well?" Sloan Management Review, 42/2 (Winter 2001): 63-72.

B.E. Ashford and R.H. Humphrey, "Emotional Labor in Service Roles," Academy of Management Review, 18/11 (January 1993): 88-115;

E.H. Schein, Organizational Culture and Leadership: A Dynamic View (San Francisco, CA: Jossey-Bass, 1985);

J.M. Kouzes and B.Z. Posner, The Leadership Challenge - How to Keep Getting Extraordinary Things Done in Organizations (San Francisco, CA: Jossey-Bass, 1995).

The Four Things a Service Business Must Get Right

The Four Things a Service Business Must Get Right.
By: Frei, Frances X.,
Harvard Business Review,
April, 2008, Vol. 86, Issue 4

This article outlines an approach for crafting a profitable service business based on four critical elements (collectively called the "service model"). Developed as a core teaching module at Harvard Business School, this approach recognizes the differences between service businesses and product businesses.

1. The Offering

2. The Funding Mechanism

3. The Employee Management System
Companies often live or die on the quality of their workforces, but because service businesses are typically people intensive, a relative advantage in employee management has all the more impact there. Top management must give careful attention to recruiting and selection processes, training, job design, performance management, and other components that make up the employee management system.

4. 4. The Customer Management System
a service business, however, employees and customers are both part of the value-creation process.

When students participate more in a classroom environment, for example, they learn more.

How Product Companies can Sell Services MORE Profitably

How to Sell Services MORE Profitably.
By: Reinartz, Werner, Ulaga, Wolfgang,
Harvard Business Review,
May2008, Vol. 86, Issue 5

Some interesting points

For every success story of a product company that sold valued added services profitably, at least five cautionary tales remind us that manufacturing companies will most likely struggle to turn a profit from their service businesses.

Over the past three years we have investigated how manufacturers in business markets can develop profitable services. We conducted in-depth studies of 20 industrial companies operating in a broad variety of product markets. We went on to have discussions with more than 500 B2B managers in a series of executive workshops; these complemented the insights from our interviews.


The Path to Profits in Industrial Services

1 Recognize That You Are Already a Service Company

2 Industrialize the Back Office

3 Create a Service-Savvy Sales Force

If companies are to move away from straightforward product-related services into more complex customer solutions, managers must take a new look at sales management strategies. Services require longer sales cycles, and the sales process is often more complex and strategic, meaning that decisions are made high up in the customer's hierarchy.

4 Focus on Customers' Processes

Werner Reinartz (werner.reinartz@uni-koeln.de) is a professor of marketing at the University of Cologne in Germany and an associate professor of marketing at Insead in Fontainebleau, France. Wolfgang Ulaga (ulaga@hec.fr) is an associate professor of marketing at HEC School of Management in Jouy-en-Josas, France.

Service design

Service design isn't so much about making a hotel lobby look fab as it is about crafting every interaction between a company and its customers in a way that gives them the experience the company intends.


Source
Tools for Change
FROM THE EDITOR
Harvard Business Review,
Jun2008, Vol. 86, Issue 6