Putting the Service-Profit Chain to Work (10)

Relating Links in the Chain for Management Action

While many organizations are beginning to measure relationships between individual links in the service-profit chain, only a few have related the links in meaningful ways—ways that can lead to comprehensive strategies for achieving lasting competitive advantage.

The 1991 proprietary study of a property-and-casualty insurance company, cited earlier, not only identified the links between employee satisfaction and loyalty but also established that a primary source of job satisfaction was the service workers’ perceptions of their ability to meet customer needs. Those who felt they did meet customer needs registered job satisfaction levels more than twice as high as those who felt they didn’t. But even more important, the same study found that when a service worker left the company, customer satisfaction levels dropped sharply from 75% to 55%. As a result of this analysis, management is trying to reduce turnover among customer-contact employees and to enhance their job skills.

Similarly, in a study of its seven telephone customer service centers, MCI found clear relationships between employees’ perceptions of the quality of MCI service and employee satisfaction. The study also linked employee satisfaction directly to customer satisfaction and intentions to continue to use MCI services. Identifying these relationships motivated MCI’s management to probe deeper and determine what affected job satisfaction at the service centers. The factors they uncovered, in order of importance, were satisfaction with the job itself, training, pay, advancement fairness, treatment with respect and dignity, teamwork, and the company’s interest in employees’ well-being. Armed with this information, MCI’s management began examining its policies concerning those items valued most by employees at its service centers. MCI has incorporated information about its service capabilities into training and communications efforts and television advertising.

No organization has made a more comprehensive effort to measure relationships in the service-profit chain and fashion a strategy around them than the fast-food company, Taco Bell, a subsidiary of PepsiCo. Taco Bell’s management tracks profits daily by unit, market manager, zone, and country. By integrating this information with the results of exit interviews that Taco Bell conducts with 800,000 customers annually, management has found that stores in the top quadrant of customer satisfaction ratings outperform the others by all measures. As a result, it has linked no less than 20% of all operations managers’ compensation in company-owned stores to customer satisfaction ratings, realizing a subsequent increase in both customer satisfaction ratings and profits.

However, Taco Bell’s efforts don’t stop there. By examining employee turnover records for individual stores, Taco Bell has discovered that the 20% of the stores with the lowest turnover rates enjoy double the sales and 55% higher profits than the 20% of stores with the highest employee turnover rates. As a result of this self-examination, Taco Bell has instituted financial and other incentives in order to reverse the cycle of failure that is associated with poor employee selection, subpar training, low pay, and high turnover.

In addition, Taco Bell monitors internal quality through a network of 800 numbers created to answer employees’ questions, field their complaints, remedy situations, and alert top-level management to potential trouble spots. It also conducts periodic employee roundtable meetings, interviews, as well as a comprehensive companywide survey every two or three years in order to measure satisfaction. As a result of all this work, Taco Bell’s employee satisfaction program features a new selection process, improved skill building, increased latitude for decision making on the job, further automation of unpleasant “back room” labor.

Relating all the links in the service-profit chain may seem to be a tall order. But profitability depends not only on placing hard values on soft measures but also on linking those individual measures together into a comprehensive service picture. Service organizations need to quantify their investments in people—both customers and employees. The service-profit chain provides the framework for this critical task.


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