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Putting the Service – Profit Chain to Work

PUTTING THE SERVICE – PROFIT CHAIN TO WORK Group – 5 Introduction: Factors that drives profitability Investment in people Leadership Vision – Patina of spirituality, importance of mundane Profitability Technology supporting frontline workers Successful service companies: Banc One, Intuit, Southwest Airlines, Service Master, USAA, Taco Bell, and MCI Compensation linked to performance Recruiting and training practices The Service – Profit Chain • Establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty and productivity • Measure and management techniques

Support services and policies Employee loyalty, satisfaction, productivity Value and service Customer satisfaction Customer loyalty Profit and growth The Links in the Service-Profit Chain •The service profit chain is also defined by a special leadership •Examples: Herbert Kelleher – Southwest (Patina of spirituality), William Pollard – ServiceMaster (Teacher-learner managers, servant’s heart), John McCoy- Banc One (Uncommon Partnership, system of support) Customer Loyalty that drives Profitability and Growth 5% increase in customer loyalty can produce profit increases from 25% to 85% • Quality of market share in terms of customer loyalty as important as quantity of share in the market • Example: Banc One • Measures of Customer retention • No.of services used by each customer – depth of relationship • Level of customer satisfaction • XEROX Customer satisfaction Drives Customer Loyalty • Polled 480,000 customers per year • Five point scale – satisfaction(product and service) • Relationships between the scores – actual loyalty differed greatly between 5s and 4s apostles • Terrorists – unhappy customers

Value drives Customer Satisfaction • Value – related to the total costs (price and other costs incurred) • Example: • Progressive – insurance company – Quick processing and payment to claims – Little policy holder effort – CAT (catastrophe) team Employee Productivity Drives Value • Southwest Airlines • • • • • • • • 7th largest US domestic carrier 86% of employees unionized (total 14,000) Employees can perform several jobs Schedules, routes and company practices to enable speedy boarding and deplaning (15 min.40% more pilot (70hr/month) and aircraft utilization Fare charges 60-70% lower Customer perceptions of value are very high without additional facilities 14,000 employees – marketing research unit Employee loyalty drives productivity • Study of automobile dealer’s sales personnel • More employee turn over more loss Employee Satisfaction drives Loyalty • Propriety study of a property and casualty insurance company • Southwest – highest retention (95%) • USAA – Insurance and financial services provider

Internal Quality drives Employee Satisfaction • Working environment • USAA – telephone sales and service representatives • Information system • Training • ServiceMaster • Attitudes of people toward one another • Cleaning and maintenance • Importance to mundane Leadership Underlies the Chain’s Success • Corporate culture centered on service • Willingness and ability to listen • Examples Relating Links in the chain for management Action • Few have links in meaningful way • Examples Property and casualty insurance company • MCI • Taco Bell » Employee participation » Periodic round table meetings, interviews Service – Profit Chain Audit • PROFIT AND GROWTH • How do we define loyal customers? • Do measurements of customer profitability include profits from referrals? • What proportion of business development expenditures and incentives directed to the retention of existing customers?

• Why do customers defect? Service – Profit Chain Audit • CUSTOMER SATISFACTION • Are customer satisfaction data gathered in an objective, consistent, and periodic fashion? Where are the listening posts for obtaining customer feedback in your organization? • How is information concerning customer satisfaction used to solve customer problems? Service – Profit Chain Audit • EXTERNAL SERVICE VALUE • how do you measure service value? • How is information concerning customers’ perceptions of value shared with those responsible for designing a product or service? • To what extent are measures taken of differences between customers’ perceptions of quality delivered and their expectations before delivery? Do our organization’s efforts to improve external service quality emphasize effective recovery from service errors in addition to providing a service right the first time?

Service – Profit Chain Audit • Employee productivity • How do you measure employee productivity? to what extent do measures of productivity identify changes in the quality as well as the quantity of service produced per unit of input? • Employee loyalty • How do you create employee loyalty? • Employee Satisfaction Is employee satisfaction measured in ways that can be linked to similar measures of customer satisfaction with sufficient frequency and consistency to establish trends for management use? • Are employee selection criteria and methods geared to what customers as well as managers believe are important? • To what extent measures of customer satisfaction, loyalty or the quality and quantity of service output used in recognizing and rewarding? Service – Profit Chain Audit

• INTERNAL SERVICE QUALITY Do employees know who their customers are? • Employee satisfaction with technological and personal support? • LEADERSHIP – To what extent – – – – – Energetic, creative vs stately, conservative? Participatory, caring vs removed, elistist? Listening, coaching and teaching? Motivating by mission vs motivating by fear? Leading by means personal values vs institutionalized policies? Time spent developing and maintaining culture? • RELATING MEASURES • what are the most important relationships in company’s service profit chain?

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