Putting the Service-Profit Chain to Work


Putting the Service-Profit Chain to Work
by James L. Heskett, Thomas O. Jones, Gary W. Loveman,
W. Earl Sasser, Jr., and Leonard A. Schlesinger

Top-level executives of outstanding service organizations spend little time setting profit goals or focusing on market share, the management mantra of the 1970s and 1980s. Instead, they understand that in the new economics of service, frontline workers and customers need to be the center of management concern. Successful service managers pay attention to the factors that drive profitability in this new service paradigm: investment in people, technology that supports frontline workers, revamped recruiting and training practices, and compensation linked to performance for employees at every level. And they express a vision of leadership in terms rarely heard in corporate America: an organization’s “patina of spirituality,” the “importance of the mundane.”

A growing number of companies that includes Banc One, Intuit Corporation, Southwest Airlines, ServiceMaster, USAA, Taco Bell, and MCI know that when they make employees and customers paramount, a radical shift occurs in the way they manage and measure success. The new economics of service requires innovative measurement techniques. These techniques calibrate the impact of employee satisfaction, loyalty, and productivity on the value of products and services delivered so that managers can build customer satisfaction and loyalty and assess the corresponding impact on profitability and growth. In fact, the lifetime value of a loyal customer can be astronomical, especially when referrals are added to the economics of customer retention and repeat purchases of related products. For example, the lifetime revenue stream from a loyal pizza eater can be $8,000, a Cadillac owner $332,000, and a corporate purchaser of commercial aircraft literally billions of dollars.

The service-profit chain, developed from analyses of successful service organizations, puts “hard” values on “soft” measures. It helps managers target new investments to develop service and satisfaction levels for maximum competitive impact, widening the gap between service leaders and their merely good competitors. (tobe cont)

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