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The Idea in Brief

What drives growth and profitability in a service business? Highly satisfied customers. And to go on those customers profitable, you need to manage all the aspects of your functioning that affect client satisfaction—what the authors telephone call the service-profit chain.

Here'southward how the service-turn a profit chain works: Employee satisfaction soars when you lot enhance internal service quality (equipping employees with the skills and ability to serve customers). Employee satisfaction in turn fuels employee loyalty, which raises employee productivity. Higher productivity means greater external service value for customers—which enhances customer satisfaction and loyalty. A mere 5% bound in client loyalty can boost profits 25%–85%.

To maximize your profits, strengthen all the links in your service-profit chain. For case, fast-nutrient behemothic Taco Bong establish that its stores with low workforce turnover (a central mark of employee loyalty) enjoyed double the sales and 55% higher profits than stores with high turnover. To heave profitability across stores, it enhanced internal service quality—for instance, by giving employees more breadth for on-the-job decision making.

The Idea in Exercise

To optimize your profitability, the authors recommend these practices:

Sympathize the Links in the Service-Turn a profit Chain

Starting with internal service quality, each link in the service-profit chain can directly strengthen—or weaken—the side by side:

This link…#…affects this link#ExampleInternal service quality#Employee satisfaction#Financial-services company USAA makes information technology easier for call-center reps to achieve results for customers by equipping them with country-of-the-art information systems. It also offers more 200 courses in its employee development program.Employee satisfaction#Employee loyalty#At Southwest Airlines, employee satisfaction levels are so high that at some of its operating locations, turnover rates are lower than five% per year.Employee loyalty#Employee productivity#An experienced broker who stays with a securities firm for five or more than years may account for $2+ million in revenue over several years.Employee productivity#External service value#Cheers to Southwest employees' unusual productivity (including rapid deplaning and reloading), customer perceptions of service value are very high—fifty-fifty though Southwest doesn't assign seats or offer meals.External service value#Customer satisfaction#Insurance provider Progressive creates service value for customers by sending teams to the scene of major accidents and providing back up services like transportation and housing. By processing and paying claims chop-chop and reducing policyholder attempt, the company enhances customer satisfaction.Customer satisfaction#Customer loyalty#Xerox constitute that customers who rated their satisfaction level with the company with a "5" ("very satisfied") on a scale of 1 to 5 were 6 times as probable to demonstrate loyalty—by repurchasing Xerox equipment—equally those who rated their satisfaction level with a "4" ("satisfied").Customer loyalty#Growth and profitability#By regularly taking steps to improve customer loyalty, Banc One accomplished a render on assets more than double that of its competitors.

Mensurate—and Manage—the Relationships in Your Service-Turn a profit Chain

To enhance profitability, measure the relationships betwixt links in your company'south service-profit chain. And then mode strategies for strengthening them. Example:

To assess the relationship between internal service quality and employee satisfaction, Taco Bell: 1) Monitors internal service 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. two) Conducts periodic employee roundtable meetings, interviews, and companywide surveys to measure employee satisfaction. The results of this work prompted Taco Bell to design an employee satisfaction program that features a new choice process, improved skill building, and automation of unpleasant "back room" labor.

Editor's Note: This article sets out a uncomplicated, elegant, and ultimately tough-minded style to build profitability in a service business organisation. Originally published in 1994, it offers every bit much today as it did and then and is a perennial best seller.

♦ UPDATE: Acquire virtually companies that are applying this timeless advice today.

Top-level executives of outstanding service organizations spend little time setting profit goals or focusing on marketplace share, the management mantra of the 1970s and 1980s. Instead, they empathize that in the new economics of service, frontline workers and customers need to exist the heart of management concern. Successful service managers pay attention to the factors that bulldoze 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 1, Intuit, Southwest Airlines, ServiceMaster, USAA, Taco Bell, and MCI know that when they brand 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 and so that managers can build customer satisfaction and loyalty and appraise the respective bear on 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 retentivity 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. Information technology 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.

The Service-Turn a profit Chain

The service-turn a profit chain establishes relationships betwixt profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The links in the chain (which should exist regarded equally propositions) are every bit follows: Turn a profit and growth are stimulated primarily past customer loyalty. Loyalty is a directly upshot of customer satisfaction. Satisfaction is largely influenced by the value of services provided to customers. Value is created past satisfied, loyal, and productive employees. Employee satisfaction, in turn, results primarily from high-quality back up services and policies that enable employees to evangelize results to customers. (Run into the exhibit "The Links in the Service-Turn a profit Concatenation.")

The Links in the Service-Turn a profit Chain

The service-profit chain is as well defined past a special kind of leadership. CEOs of exemplary service companies emphasize the importance of each employee and client. For these CEOs, the focus on customers and employees is no empty slogan tailored to an annual management meeting. For example, Herbert Kelleher, CEO of Southwest Airlines, can be constitute aboard airplanes, on tarmacs, and in terminals, interacting with employees and customers. Kelleher believes that hiring employees who have the right attitude is then important that the hiring procedure takes on a "patina of spirituality." In addition, he believes that "anyone who looks at things solely in terms of factors that can easily be quantified is missing the heart of business, which is people." William Pollard, the chairman of ServiceMaster, continually underscores the importance of "teacher-learner" managers, who have what he calls "a retainer's heart." And John McCoy, CEO of Banc One, stresses the "uncommon partnership," a system of support that provides maximum latitude to individual bank presidents while supplying information systems and common measurements of client satisfaction and financial measures.

A closer wait at each link reveals how the service-profit chain functions as a whole.

Client Loyalty Drives Profitability and Growth

To maximize profit, managers have pursued the Holy Grail of becoming number ane or two in their industries for nearly two decades. Recently, even so, new measures of service industries like software and banking suggest that client loyalty is a more important determinant of profit. (Come across Frederick F. Reichheld and West. Earl Sasser, Jr., "Zero Defections: Quality Comes to Services," HBR September–October 1990.) Reichheld and Sasser gauge that a 5% increase in customer loyalty tin can produce profit increases from 25% to 85%. They conclude that quality of market share, measured in terms of client loyalty, deserves as much attention as quantity of share.

Banc Ane, based in Columbus, Ohio, has developed a sophisticated arrangement to rails several factors involved in customer loyalty and satisfaction. Once driven strictly by financial measures, Banc I now conducts quarterly measures of client retention; the number of services used by each client, or depth of relationship; and the level of customer satisfaction. The strategies derived from this information assistance explain why Banc One has achieved a return on assets more than double that of its competitors in recent years.

Customer Satisfaction Drives Customer Loyalty

Leading service companies are currently trying to quantify customer satisfaction. For case, for several years, Xerox has polled 480,000 customers per year regarding product and service satisfaction using a five-point scale from v (high) to 1 (depression). Until two years ago, Xerox's goal was to achieve 100% 4s (satisfied) and 5s (very satisfied) by the end of 1993. But in 1991, an analysis of customers who gave Xerox 4s and 5s on satisfaction found that the relationships between the scores and bodily loyalty differed greatly depending on whether the customers were very satisfied or satisfied. Customers giving Xerox 5s were six times more likely to repurchase Xerox equipment than those giving 4s.

This analysis led Xerox to extend its efforts to create apostles—a term coined past Scott D. Cook, CEO of software producer and distributor Intuit, describing customers then satisfied that they catechumen the uninitiated to a product or service. Xerox's management currently wants to reach 100% apostles, or 5s, by the stop of 1996 by upgrading service levels and guaranteeing customer satisfaction. Just merely as important for Xerox's profitability is to avoid creating terrorists: customers so unhappy that they speak out against a poorly delivered service at every opportunity. Terrorists can reach hundreds of potential customers. In some instances, they can even discourage acquaintances from trying a service or production. (Come across the showroom "A Satisfied Customer Is Loyal.")

A Satisfied Customer Is Loyal

Value Drives Customer Satisfaction

Customers today are strongly value oriented. But just what does that mean? Customers tell us that value means the results they receive in relation to the total costs (both the price and other costs to customers incurred in acquiring the service). The insurance visitor Progressive is creating only this kind of value for its customers past processing and paying claims chop-chop and with little policyholder attempt. Members of the company'south True cat (ending) team fly to the scene of major accidents, providing back up services similar transportation and housing and handling claims rapidly. Past reducing legal costs and actually placing more money in the hands of the injured parties, the True cat team more than makes upwards for the added expenses the organization incurs past maintaining the squad. In addition, the True cat squad delivers value to customers, which helps explain why Progressive has one of the highest margins in the property-and-casualty insurance industry.

Employee Productivity Drives Value

At Southwest Airlines, the seventh-largest U.Due south. domestic carrier, an astonishing story of employee productivity occurs daily. Lxxx-vi percent of the visitor's 14,000 employees are unionized. Positions are designed and then that employees can perform several jobs if necessary. Schedules, routes, and company practices—such every bit open seating and the utilize of simple, color-coded, reusable boarding passes—enable the boarding of iii and four times more passengers per 24-hour interval than competing airlines. In fact, Southwest deplanes and reloads two-thirds of its flights in fifteen minutes or less. Because of shipping availability and brusque-haul routes that don't require long layovers for flight crews, Southwest has roughly 40% more pilot and aircraft utilization than its major competitors: Its pilots fly on boilerplate lxx hours per month versus 50 hours at other airlines. These factors explain how the visitor can charge fares from 60% to 70% lower than existing fares in markets information technology enters.

At Southwest, customer perceptions of value are very loftier, fifty-fifty though the airline does not assign seats, offer meals, or integrate its reservation organization with other airlines. Customers place high value on Southwest'due south frequent departures, on-time service, friendly employees, and very depression fares. Southwest's direction knows this because its major marketing inquiry unit—its 14,000 employees—is in daily contact with customers and reports its findings back to management. In addition, the Federal Aviation Administration'southward performance measures show that Southwest, of all the major airlines, regularly achieves the highest level of on-time arrivals, the lowest number of complaints, and the fewest lost-luggage claims per 1,000 passengers. When combined with Southwest'southward low fares per seat-mile, these indicators evidence the higher value delivered by Southwest's employees compared with most domestic competitors. Southwest has been profitable for 21 sequent years and was the only major airline to realize a turn a profit in 1992. (See the exhibit "How Southwest Compares with Its Competitors.")

How Southwest Compares with Its Competitors

Employee Loyalty Drives Productivity

Traditional measures of the losses incurred by employee turnover concentrate only on the price of recruiting, hiring, and training replacements. In almost service jobs, the existent cost of turnover is the loss of productivity and decreased customer satisfaction. 1 recent study of an motorcar dealer's sales personnel by Abt Associates ended that the average monthly cost of replacing a sales representative who had v to eight years of feel with an employee who had less than one year of experience was as much as $36,000 in sales. And the costs of losing a valued broker at a securities firm can be however more dire. Conservatively estimated, information technology takes nearly five years for a banker to rebuild relationships with customers that tin return $1 meg per year in commissions to the brokerage house—a cumulative loss of at to the lowest degree $ii.5 1000000 in commissions.

Employee Satisfaction Drives Loyalty

In one 1991 proprietary study of a property-and-casualty insurance visitor'due south employees, 30% of all dissatisfied employees registered an intention to leave the company, a potential turnover rate three times higher than that for satisfied employees. In this aforementioned case, low employee turnover was found to be linked closely to high customer satisfaction. In contrast, Southwest Airlines, recently named 1 of the state's 10 best places to work, experiences the highest rate of employee retention in the airline industry. Satisfaction levels are so high that at some of its operating locations, employee turnover rates are less than five% per yr. USAA, a major provider of insurance and other fiscal services past direct mail service and phone, too achieves low levels of employee turnover by ensuring that its employees are highly satisfied. Only what drives employee satisfaction? Is it compensation, perks, or costly workplaces?

Internal Quality Drives Employee Satisfaction

What we telephone call the internal quality of a working environment contributes virtually to employee satisfaction. Internal quality is measured by the feelings that employees have toward their jobs, colleagues, and companies. What do service employees value most on the task? Although our information are preliminary at all-time, they point increasingly to the power and authorization of service workers to achieve results for customers. At USAA, for case, phone sales and service representatives are backed by a sophisticated information system that puts consummate customer data files at their fingertips the instant they receive a customer'due south call. In improver, state-of-the-art, job-related preparation is made available to USAA employees. And the curriculum goes all the same further, with 200 courses in 75 classrooms on a wide range of subjects.

In most service jobs, the real cost of turnover is the loss of productivity and decreased client satisfaction.

Internal quality is also characterized by the attitudes that people have toward one another and the way people serve each other within the organization. For example, ServiceMaster, a provider of a range of cleaning and maintenance services, aims to maximize the dignity of the individual service worker. Each year, it analyzes in depth a part of the maintenance procedure, such every bit cleaning a floor, in gild to reduce the time and effort needed to complete the job. The "importance of the mundane" is stressed repeatedly in ServiceMaster's management training—for case, in the seven-footstep process devised for cleaning a hospital room: from the showtime stride, greeting the patient, to the concluding step, request patients whether or non they need anything else done. Using this process, service workers develop communication skills and larn to interact with patients in ways that add depth and dimension to their jobs.

Leadership Underlies the Chain's Success

Leaders who understand the service-profit chain develop and maintain a corporate culture centered on service to customers and fellow employees. They display a willingness and ability to listen. Successful CEOs like John Martin of Taco Bell, John McCoy of Banc 1, Herb Kelleher of Southwest, and Bill Pollard of ServiceMaster spend a great deal of time with customers and employees, experiencing their companies' service processes while listening to employees for suggestions for improvement. They care about their employees and spend a bully deal of fourth dimension selecting, tracking, and recognizing them.

For case, Brigadier General Robert McDermott, until recently chairman and CEO of USAA, reflected, "Public recognition of outstanding employees flows naturally from our corporate civilization. That culture is talked nigh all the time, and we alive it." According to Scott Cook at Intuit, "About people have culture as a given. It is around you, the thinking goes, and you can't do anything about it. However, when you run a visitor, yous accept the opportunity to determine the culture. I discover that when you champion the most noble values—including service, assay, and database decision making—employees rise to the claiming, and yous forever change their lives."

Relating Links in the Concatenation for Management Action

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

The 1991 proprietary study of a property-and-casualty insurance visitor, cited earlier, non simply identified the links between employee satisfaction and loyalty but also established that a primary source of task satisfaction was the service workers' perceptions of their ability to run into client needs. Those who felt they did run across customer needs registered job satisfaction levels more than twice every bit loftier as those who felt they didn't. Only even more important, the same written report institute that when a service worker left the visitor, customer satisfaction levels dropped sharply, from 75% to 55%. Equally 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 phone customer service centers, MCI found clear relationships betwixt employees' perceptions of the quality of MCI service and employee satisfaction. The report also linked employee satisfaction straight to client satisfaction and intentions to proceed to use MCI services. Identifying these relationships motivated MCI's management to probe deeper and determine what afflicted task satisfaction at the service centers. The factors they uncovered, in social club of importance, were satisfaction with the job itself, training, pay, advancement fairness, treatment with respect and dignity, teamwork, and the company'due south involvement in employees' well-being. Armed with this information, MCI'south management began examining its policies concerning those items valued nigh by employees at its service centers. MCI has incorporated information nearly its service capabilities into training and communications efforts and tv set advertisement.

No organization has made a more than comprehensive effort to measure relationships in the service-profit chain and style a strategy around them than the fast-food company Taco Bong, a subsidiary of PepsiCo. Taco Bell'south management tracks profits daily by unit, market manager, zone, and country. By integrating this information with the results of go out interviews that Taco Bell conducts with 800,000 customers annually, management has found that stores in the summit quadrant of customer satisfaction ratings outperform the others by all measures. Equally a result, it has linked no less than 20% of all operations managers' compensation in company-owned stores to client 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 twenty% of stores with the lowest turnover rates enjoy double the sales and 55% higher profits than the xx% of stores with the highest employee turnover rates. Equally a result of this self-examination, Taco Bong has instituted fiscal and other incentives in order to reverse the bicycle of failure that is associated with poor employee selection, subpar grooming, 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 height-level management to potential trouble spots. It likewise conducts periodic employee roundtable meetings, interviews, and a comprehensive companywide survey every two or three years in order to mensurate satisfaction. As a issue of all this work, Taco Bong'due south employee satisfaction program features a new selection process, improved skill edifice, increased latitude for decision making on the job, further automation of unpleasant backroom labor, and, finally, greater opportunities for employee promotion into management positions.

Relating all the links in the service-profit concatenation may seem to be a tall lodge. But profitability depends not just on placing difficult values on soft measures only as well 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 disquisitional task.

Service-Profit Chain Audit

A service-profit chain audit helps companies determine what drives their turn a profit and suggests actions that can atomic number 82 to long-term profitability. As they review the inspect, managers should ask themselves what efforts are under way to obtain answers to the following questions and what those answers reveal about their companies.

Profit and Growth

How practice we define loyal customers? Customers oft become more assisting over time. And loyal customers account for an unusually high proportion of the sales and turn a profit growth of successful service providers. In some organizations, loyalty is measured in terms of whether or not a customer is on the company rolls. Merely several companies have constitute that their most loyal customers—the top 20% of total customers—not but provide all the profit but besides cover losses incurred in dealing with less loyal customers.

Because of the link between loyal customers and profit, Banc One measures depth of relationship—the number of available related financial services, such as checking, lending, and safe deposit, really used by customers. Recognizing the same relationship, Taco Bong measures "share of stomach" to appraise the company's sales against all other food purchases a customer can potentially make. As a result, the fast-food chain is trying to attain consumers through kiosks, carts, trucks, and the shelves of supermarkets.

Do measurements of customer profitability include profits from referrals? Companies that measure the stream of acquirement and profits from loyal customers (retention) and repeat sales often overlook what can be the about important of the iii Rs of loyalty: referrals. For case, Intuit provides loftier-quality, free lifetime service for a personal finance software bundle that sells for as fiddling as $30. The strategy makes sense when the value of a loyal customer is considered—a acquirement stream of several thousands of dollars from software updates, supplies, and new client referrals. With this strategy in place, Intuit increased its sales to more $30 meg with just two U.S. field sales representatives.

Companies oftentimes overlook what can exist the most of import of the three Rs of loyalty: referrals.

What proportion of business development expenditures and incentives are directed to the retention of existing customers? Too many companies concentrate almost all their efforts on attracting new customers. But in businesses like life insurance, a new policyholder doesn't become profitable for at to the lowest degree iii years. In the credit-bill of fare finance business concern, the break-even point for a new customer is ofttimes six or more than years because of high marketing and bad-debt costs in the first year of a relationship with cardholders. These costs must be defrayed by profits from loyal customers, suggesting the need for a conscientious division of organizational effort between customer retentivity and evolution.

Why practice our customers defect? It's of import to observe out not merely where defectors go but as well why they defect. Was it because of poor service, price, or value? Answers to these questions provide information about whether or not existing strategies are working. In improver, exit interviews of customers can have real sales affect. For example, at one credit-card service organization, a phone call to question cardholders who had stopped using their cards led to the immediate reinstatement of one-tertiary of the defectors.

Customer Satisfaction

Are customer satisfaction data gathered in an objective, consistent, and periodic fashion? Currently, the weakest measurements being used by the companies nosotros take studied concern customer satisfaction. At some companies, high levels of reported customer satisfaction are contradicted past continuing declines in sales and profits. Upon closer observation, we discovered that the service providers were gaming the data, using manipulative methods for collecting customer satisfaction data. In one extreme case, an automobile dealer sent a questionnaire to recent buyers with the highest marks already filled in, requiring owners to alter the marks simply if they disagreed. Companies can, however, obtain more than objective results using third-party interviews; "mystery shopping" by unidentified, paid observers; or technologies like bear on-screen television.

Consistency is at to the lowest degree as important as the bodily questions asked of customers. Some of Banc Ane's operating units formerly conducted their own customer satisfaction surveys. Today the surveys have been centralized, made mandatory, and are administered by mail on a quarterly basis to around 125,000 customers. When combined with periodic measurement, the surveys provide highly relevant trend information that informs the managerial decision-making process. Similarly, Xerox'due south measures of satisfaction obtained from 10,000 customers per calendar month—a production of an unchanging prepare of survey questions and very large samples—make possible period-to-period comparisons that are important in measuring and rewarding operation.

Where are the listening posts for obtaining customer feedback in your system? Listening posts are tools for collecting data from customers and systematically translating those information into information in gild to improve service and products. Mutual examples are letters of complaint. Still more important listening posts are reports from field sales and service personnel or the logs of phone service representatives. Intuit's content analysis of customer service inquiries fielded by service representatives produced over 50 software improvements and 100 software documentation improvements in a single yr. USAA has gone one step farther by automating the feedback process to enter data online, enabling its analysis and plans departments to develop corrective actions.

How is information apropos client satisfaction used to solve client problems? In society to handle customer problems, service providers must have the latitude to resolve any state of affairs promptly. In add-on, information regarding a customer business concern must exist transmitted to the service provider rapidly. Customers and employees must exist encouraged to study rather than suppress concerns. For example, one Boston-surface area Lexus dealer notified its customers, "If you are experiencing a problem with your car or our service section and y'all tin can't answer '100% satisfied' when you receive your survey directly from Lexus, please give us the opportunity to right the trouble earlier you fill out the survey. Lexus takes its customer surveys very seriously."

External Service Value

How practice you lot measure service value? Value is a office not merely of costs to the client just besides of the results achieved for the client. Value is always relative because it is based both on perceptions of the way a service is delivered and on initial customer expectations. Typically, a visitor measures value using the reasons expressed past customers for high or low satisfaction. Considering value varies with individual expectations, efforts to improve value inevitably require service organizations to move all levels of management closer to the customer and give frontline service employees the latitude to customize a standard service to individual needs.

How is information concerning customers' perceptions of value shared with those responsible for designing a product or service? Relaying information concerning client expectations to those responsible for pattern often requires the formation of teams of people responsible for sales, operations, and service or product pattern, as well as the frequent assignment of service designers to tasks requiring field contact with customers. Intuit has created this kind of capability in product development teams. And all Intuit employees, including the CEO, must periodically piece of work on the customer service phones. Similarly, at Southwest Airlines, those responsible for flight scheduling periodically work shifts in the visitor's terminals to get a experience for the impact of schedules on customer and employee satisfaction.

To what extent are measures taken of differences betwixt customers' perceptions of quality delivered and their expectations before delivery? Ultimately, service quality is a function of the gap between perceptions of the actual service experienced and what a client expected before receiving that service. Bodily service includes both final results and the process through which those results were obtained. Differences betwixt experiences and expectations tin be measured in generic dimensions such as the reliability and timeliness of service, the empathy and authority with which the service was delivered, and the extent to which the client is left with tangible evidence (similar a calling card) that the service has been performed.

Practice our organization's efforts to improve external service quality emphasize effective recovery from service errors in add-on to providing a service right the first time? A popular concept of quality in manufacturing is the importance of "doing things right the beginning fourth dimension." But customers of service organizations oft allow one mistake. Some organizations are very good at delivering service equally long as goose egg goes wrong. Others organize for and thrive on service emergencies. Outstanding service organizations do both by giving frontline employees the latitude to effect recovery. Southwest Airlines maintains a policy of assuasive frontline employees to exercise whatever they feel comfortable doing in order to satisfy customers. Xerox authorizes frontline service employees to supercede upwards to $250,000 worth of equipment if customers are not getting results.

Employee Productivity

How do you measure employee productivity? To what extent do measures of productivity identify changes in the quality besides as the quantity of service produced per unit of input? In many services, the ultimate measure of quality may be customer satisfaction. That measure should be combined with measures of quantity to determine the total output of the service organization. At ServiceMaster, for example, measures of output in the schools and hospitals cleaned nether the visitor'due south supervision include both numbers of work orders performed per employee hour and the quality of the work done, as determined by periodic inspections performed past ServiceMaster and customer personnel. Similarly, Southwest Airlines delivers relatively loftier levels of productivity in terms of both quality and quantity. In fact, outstanding service competitors are replacing the typical "either/or" trade-off between quality and quantity with an "and/also" imperative.

Employee Loyalty

How do y'all create employee loyalty? Employee loyalty goes hand in manus with productivity, contradicting the conventional wisdom that successful service providers should be promoted to larger supervisory responsibilities or moved to a similar job in a larger business organization unit. ServiceMaster and Taco Bong have expanded jobs without promoting good service workers away from their customers. At ServiceMaster, effective single-unit managers are given supervisory responsibilities for custodial, maintenance, or other workers at more than than one hospital or school. Taco Bell gives eating house general managers a "hunting license" to develop new sales sites in the neighborhoods served by their restaurants and rewards them for doing it.

Have we made an endeavor to make up one's mind the right level of employee retention? Rarely is the right level of retention 100%. Dynamic service organizations require a sure level of turnover. However, in calibrating desired turnover levels, it is important to have into business relationship the full cost of the loss of fundamental service providers, including those of lost sales and productivity and added recruiting, selection, and training.

Employee Satisfaction

Is employee satisfaction measured in ways that tin exist linked to similar measures of client satisfaction with sufficient frequency and consistency to institute trends for management use? Taco Bell studies employee satisfaction through surveys, frequent interviews, and roundtable meetings. Customer satisfaction is measured by interviews with customers conducted biannually and includes questions well-nigh satisfaction with employee friendliness and hustle. Both the employee and the customer satisfaction rankings are comprehensive, shop-specific, and conducted ofttimes. With these data, the company tin ameliorate sympathise overall trends and the links betwixt employee and customer satisfaction.

Are employee selection criteria and methods geared to what customers, likewise equally managers, believe are important? At Southwest Airlines, for example, frequent fliers are regularly invited to participate in the auditioning and pick of cabin attendants. And many have fourth dimension off from piece of work to join Southwest'south employee selection squad as information technology carries out its work. As one customer commented, "Why not exercise information technology? It'south my airline."

To what extent are measures of customer satisfaction, customer loyalty, or the quality and quantity of service output used in recognizing and rewarding employees? Employee recognition may oftentimes involve little more than than informing individual employees or employees equally a group about service improvements and individual successes. Banc 1 goes one stride further, including client satisfaction measures for each cyberbanking unit in its periodic study of other performance measures, mostly fiscal, to all units.

Internal Service Quality

Do employees know who their customers are? Information technology is particularly difficult for employees to identify their customers when those customers are internal to the company. These employees often do not know what impact their work has on other departments. Identifying internal customers requires mapping and communicating characteristics of work flow, organizing periodic cantankerous-departmental meetings between "customers" and "servers," and recognizing skillful internal service performance.

In 1990, USAA organized a PRIDE (Professionalism Results in Dedication to Excellence) squad of 100 employees and managers to examine and improve on a function-by-office footing all processes associated with property-and-casualty insurance assistants, which included analyzing customer needs and expectations. The PRIDE effort was so successful that it led to a cross-functional review of USAA's service processing. Service processing time has been reduced, as have handoffs of customers from one server to some other.

Are employees satisfied with the technological and personal back up they receive on the chore? The cornerstone of success at Taco Bell is the provision of the latest in information technology, food service equipment, simple work-scheduling techniques, and effective team training. This exercise led to the establishment of cocky-managing teams of service providers. Also, the quality of work life involves selecting the right workers. Winners like to be associated with winners. Meliorate employees tend to refer people they like and people like themselves. Internal service quality can also be thought of as the quality of work life. It is a visible expression of an system's civilisation, 1 influenced in important means past leadership.

Leadership

To what extent is the visitor's leadership:

  • energetic, creative versus stately, conservative?
  • participatory, caring versus removed, elitist?
  • listening, coaching, and teaching versus supervising and managing?
  • motivating by mission versus motivating by fear?
  • leading by means of personally demonstrated values versus institutionalized policies? How much time is spent past the organization'due south leadership personally developing and maintaining a corporate civilisation centered on service to customers and fellow employees?

Leaders naturally have individual traits and styles. But the CEOs of companies that are successfully using the service-profit chain possess all or most of a set of traits that separate them from their merely good competitors. Of course, different styles of leadership are appropriate for various stages in an organisation'southward development. But the messages sent by the successful leaders we accept observed stress the importance of careful attention to the needs of customers and employees. These leaders create a culture capable of adapting to the needs of both.

Relating the Measures

What are the nearly of import relationships in your company's service-profit chain? To what extent does each measure correlate with profit and growth at the frontline level? Is the importance of these relationships reflected in rewards and incentives offered to employees? Measures bulldoze action when they are related in ways that provide managers with direction. To enjoy the kind of success that service organizations like Southwest Airlines, ServiceMaster, and Taco Bell take enjoyed, looking at individual measures is not enough. Only if the individual measures are tied together into a comprehensive moving-picture show will the service-profit chain provide a foundation for unprecedented profit and growth.

A version of this article appeared in the July–August 2008 upshot of Harvard Business Review.