The Service Profit Chain

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9780684832562: The Service Profit Chain

In this pathbreaking book, world-renowned Harvard Business School service firm experts James L. Heskett, W. Earl Sasser, Jr. and Leonard A. Schlesinger reveal that leading companies stay on top by managing the service profit chain.

Why are a select few service firms better at what they do -- year in and year out -- than their competitors? For most senior managers, the profusion of anecdotal "service excellence" books fails to address this key question. Based on five years of painstaking research, the authors show how managers at American Express, Southwest Airlines, Banc One, Waste Management, USAA, MBNA, Intuit, British Airways, Taco Bell, Fairfield Inns, Ritz-Carlton Hotel, and the Merry Maids subsidiary of ServiceMaster employ a quantifiable set of relationships that directly links profit and growth to not only customer loyalty and satisfaction, but to employee loyalty, satisfaction, and productivity. The strongest relationships the authors discovered are those between (1) profit and customer loyalty; (2) employee loyalty and customer loyalty; and (3) employee satisfaction and customer satisfaction. Moreover, these relationships are mutually reinforcing; that is, satisfied customers contribute to employee satisfaction and vice versa.

Here, finally, is the foundation for a powerful strategic service vision, a model on which any manager can build more focused operations and marketing capabilities. For example, the authors demonstrate how, in Banc One's operating divisions, a direct relationship between customer loyalty measured by the "depth" of a relationship, the number of banking services a customer utilizes, and profitability led the bank to encourage existing customers to further extend the bank services they use. Taco Bell has found that their stores in the top quadrant of customer satisfaction ratings outperform their other stores on all measures. At American Express Travel Services, offices that ticket quickly and accurately are more profitable than those which don't. With hundreds of examples like these, the authors show how to manage the customer-employee "satisfaction mirror" and the customer value equation to achieve a "customer's eye view" of goods and services. They describe how companies in any service industry can (1) measure service profit chain relationships across operating units; (2) communicate the resulting self-appraisal; (3) develop a "balanced scorecard" of performance; (4) develop a recognitions and rewards system tied to established measures; (5) communicate results company-wide; (6) develop an internal "best practice" information exchange; and (7) improve overall service profit chain performance.

What difference can service profit chain management make? A lot. Between 1986 and 1995, the common stock prices of the companies studied by the authors increased 147%, nearly twice as fast as the price of the stocks of their closest competitors. The proven success and high-yielding results from these high-achieving companies will make The Service Profit Chain required reading for senior, division, and business unit managers in all service companies, as well as for students of service management.

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About the Author:

James L. Heskett, is the UPS Foundation Professor of Business Logistics at the Harvard Business School. He is also co-author of Service Breakthroughs, The Service Management Course, and Corporate Culture and Performance.

Excerpt. © Reprinted by permission. All rights reserved.:

Chapter 1

Setting the Record Straight

How many of us have attended seminars or read recently written books that admonish us to: (1) treat customers like royalty, (2) exceed customers' expectations, (3) either seek low operating costs or some means of differentiating our businesses from competitors, and (4) assume that the customer is always right. They are led by master storytellers who move with ease among the audience and are filled with enjoyable anecdotes that seem relevant at the time. We know. We've given our share of these presentations.

Who hasn't heard a Nordstrom story at one of these seminars? Most often it's the one about the Nordstrom store that accepts the return of a set of tire chains by someone claiming to have bought them there even though Nordstrom doesn't sell tire chains. The misguided moral is that by wowing the customer in that manner, Nordstrom will gain a new customer and possibly great word-of-mouth advertising. However the story is designed to make a point that is not only illogical, but is supported by no substantial evidence, quantitative or otherwise. Fortunately, few of us try to act on the implied advice. And yet we remember the story, if not the point it is designed to make.

A WORLD OF MISLEADING ADVICE

Why is it that the advice implied by these storytellers is so difficult to apply? Or worse yet, leads to the opposite results that they forecast? It's because the advice too often is sometimes totally inappropriate and always partially wrong. It nearly always is offered out of context, is based on incorrect assumptions, emphasizes symptoms instead of real causes, in the process trivializes service issues by confining them to the front line, and overemphasizes process quality while underemphasizing results.

Too Much Advice out of Context

Too much anecdote-peppered advice is given by many service gurus today without a context. We're not told that what worked in one organization may not be appropriate for another. The advice is so overly simplistic that it leads us as managers to seek the elusive "one big idea" that can help us improve performance. It is offered with little real supporting evidence other than the fact that the subjects of the anecdotes are often regarded as successes.

On the other hand, how often are we told that Nordstrom actually "fires" customers? We rarely, if ever, hear that side of the story. In fact, Nordstrom wows some customers and fires others who may be especially difficult for its staff to deal with (by advising them that, because of Nordstrom's failure to find a way to meet their needs, they should perhaps seek out other stores) as part of a careful strategy to target people with a particular profile and a record of outstanding loyalty to the company. If the tire story ever did occur, you can bet that it involved a customer that Nordstrom's people, based on facts, knew they did not want to alienate. In the context of a more carefully planned strategy, it could have made sense, although one could question the loyalty of a customer who would pull such a stunt on the company and expect to get away with it.

The Tyranny of the Trade-off

Ever since the popularization of Michael Porter's research on competitive strategy, we have been advised to seek either the lowest costs or a significant means of differentiation from competition for our businesses. The assumption here is that managers must choose, because both can't be achieved. In some cases, this is simply wrong. In fact, there is little evidence that it was the message that Porter himself intended. Furthermore, it leads us to achieve "merely good" performances as opposed to outstanding achievements that can result from strategies designed to achieve both low cost and competitive differentiation, strategies that are more achievable than is generally believed.

James Collins and Jerry Porras, in their fascinating book Built to Last, which reports their study of companies with long-term staying power in the marketplace, call this "the tyranny of either/or." They point out that many companies with long records of success practice the policy of "and/also," assuming they can "have it all."

Management by trade-offs reached its peak during an era in which the price of low inventory investments was thought to be poor customer service, or in order to achieve the economies of long production runs, factories had to stop trying to supply "one-of-a-kind" items to customers. Information systems, computer-aided design and manufacture, and robotics have killed, or at least seriously crippled, assumptions underlying trade-off management. Yes, trade-offs are a part of some businesses. But truly outstanding competitors, often limited to one or two in any one industry, achieve both outstanding results for customers and the lowest costs. A good case in point is USAA, an organization offering casualty insurance and other financial services.

USAA (United Services Automobile Association) was founded by a group of military officers to provide casualty insurance only to other officers. Given the transient nature of military duty, the service delivery system best suited to military personnel was direct mail and telephone. In fact, few USAA policy holders have ever seen a representative of the company. Nevertheless, it is hard to find anyone who has ever received less than outstanding service from the company. "War stories" abound about how USAA sends checks to repair damage based entirely on the word of the policyholder, or how a USAA claims adjustor may have pointed out damage that the policyholder had not seen and written a check on the spot for a larger-than-expected amount. At the same time, the company's system of selling through word-of-mouth recommendations to a trustworthy, disciplined group of customers pre-screened by the military has led to some of the lowest sales, administration, and total costs in the business. Although the company has expanded its line of financial services and offers some of them to nonmilitary customers, its core business continues to be a refutation of "either/or" thinking. USAA offers a differentiated service at some of the lowest rates (prices) and costs in its industry.

Emphasis on Symptoms vs. Causes

Many of the great service stories are downright misleading -- for example, the one involving the Southwest Airlines counter agent who encountered a customer who had just missed the flight that would take him to his most important business meeting of the year. The attendant decided to have his own light plane pulled out of the hangar and fueled in order to fly him to the customer's destination. We're supposed to believe that it's just part of the great service at Southwest, an airline that charges no more than $39 for many of its tickets. If so, it's the kind of great service that, offered repeatedly, will put a company out of business.

The story behind the story is much more important. It is that the counter agent knew the customer by his first name because the agent had been at his job for seven years. He knew that the customer flew over 300 segments per year and was worth more than $18,000 a year in revenue to his airline. He regarded it as his airline because he, like all other Southwest employees, had owned stock in it since his first full year of employment. And he knew that Southwest's policy for frontline personnel was "do whatever you feel comfortable doing for a customer." As an owner, he felt comfortable flying this customer to his destination. But a run-of-the-mill customer at Southwest certainly shouldn't expect this kind of service. In fact, Southwest Airlines, the paragon of good service, also fires customers, especially if they are drunk or unruly. It doesn't just put them off its planes, it tells them it never wants to see them again. But rarely do the great stories go much below the surface to suggest causes rather than symptoms of great service.

The "Trivialization" of Service

Many services occur, are marketed and produced, at the point of contact with the customer. Thus, the service "encounters" between customers and frontline service providers or electronic media are central and critical to successful results. It is entirely appropriate that a great deal of attention be drawn to the challenge of producing successful service encounters. But too much research, including some of ours, tends to confine service to the front line, neglecting the broader strategies of which the encounter and its design are a part. It overlooks the fact that frontline services are products of fundamentally strategic issues, issues that have to be understood and addressed by top management.

For example, Southwest Airlines is known for its ability to turn its planes, from arrival at the terminal gate to departure from the gate, much more rapidly than other airlines. This is undoubtedly in part due to the fact that Southwest's ground services employees work as teams, helping each other out as needed in an effort to turn two out of three flights in less than twenty minutes, less than half the time required by other major airlines.

But it is due also to the fact that Southwest's management has shunned the hub and spoke system used by other airlines, a system that slows aircraft turnaround in order to provide a larger time "window" for the arrival of connecting flights. Southwest also has structured its routes to utilize less-congested airports and cater to short-haul flyers expecting little in the way of baggage handling, catering, and other amenities that eat up ground time. The route structure and market to which it is targeted are strategic decisions made by top management. Without those decisions, the outstanding accomplishments of the frontline personnel would not be possible.

Fixation on Service Process Quality

Pick up any trade journal, management magazine, or even academic journals devoting space to service, and you rapidly conclude that service quality is the key to success. Too often, service quality is defined solely in terms of those things that contribute to process quality: dependability, timeliness, the authority and empathy (identification with the customer) with which a service is delivered, and the extent to which tangible evidence is created that a service has been delivered.

Rarely is any mention made of results delivered to customers in these reports. Carl Sewell describes this in his book Customers for Life, as follows: "Being nice to people is just 20% of providing good customer service. The important part is designing systems that allow you to do the job right the first time. All the smiles in the world aren't going to help you if your product or service is not what the customer wants."

Michael Hammer of reengineering fame is even more pointed. As he puts it, "A smile on the face of a limousine driver is no substitute for an automobile."

In fact, customers report time and again that both results and process quality are important to them in their selection of service providers. These are important elements in what we call the value equation, a concept on which we will elaborate later.

THE SERVICE PROFIT CHAIN AND OUR SEARCH FOR EVIDENCE

In part as a reaction to the repeated service stories that we got tired of hearing and the frustrated managers who have tried to apply the advice they were supposed to illustrate, we sought to understand why some service organizations succeed year-in and year-out. In addition to collecting lore and listening to countless stories emanating from outstanding service organizations, we did a risky and audacious thing. We started to collect data. Our work has grown a data base comprising inputs from several dozen well-known service organizations operating in a number of different competitive environments.

In addition to seeking facts, we developed measurements and began looking for relationships in our data that could shed light on ways of achieving service excellence and organizational success. Our work covered three phases: (1) discovery, (2) naive and simple-minded revelation, and (3) selective rejection and application. The first phase was the most exciting. The second phase was frankly exploitative. But the third, still ongoing, has yielded the deepest insights and most practical output for managers. This book is a record of our odyssey, the fact-based insights it has yielded for managers, and the translation of those insights into action in outstanding service organizations. We came to these conclusions from three very different directions.

Heskett and the Strategic Service Vision

In the mid-1980s, James Heskett set forth a set of relationships, based on a number of observations, called the strategic service vision. The "vision" comprised four important elements: (1) markets targeted on the basis of psychographic (how people think and act) as well as demographic (who people are, where they live, and how well they are educated) factors, (2) service concepts, products, and entire businesses defined in terms of results produced for customers, all positioned in relation to the needs expressed by targeted customers and the offerings of competitors, (3) operating strategies comprising organizations, controls, operating policies, and processes that "leverage" value to customers over costs to the offering organization, and (4) service delivery systems comprising bricks and mortar, information systems, and equipment that complement associated operating strategies. Questions characterizing the strategic service vision are shown in Figure 1-1.

Heskett concluded that companies achieve high profitability by having either market focus (as in ServiceMaster's almost single-minded concentration on providing cleaning and related support services to hospitals in the early years of the development of its institutional service business) or operating focus (as in United Parcel Service's long-time insistence that all packages it handled in its retail and consumer package delivery service had to weigh less than seventy pounds and have a combined length and girth of 130 inches). Organizations that achieve both market and operating focus are nearly unbeatable.

One interesting symptom of market focus is a small, but vocal group of dissatisfied customers. In fact, one of the phenomena we've observed in recent months is the growing number of pages on the Internet devoted to "clubs" of disaffected customers from service organizations with highly targeted and focused strategies. Clearly, these customers represented a poor match with the service in the first place. They should have been discouraged from utilizing the service or given the opportunity to select themselves out at an early stage in the process.

The strategic service vision embraces the idea that value is achieved by leveraging results for customers over costs, something that is integral to other concepts that would follow. As helpful as the strategic service vision might be in facilitating the development of strategy, practicing managers continued to express the need for a set of concepts that would assist them in implementing strategies, not formulating them. This need inspired Earl Sasser as he tried to identify money-making decisions and outcomes.

Sasser and Customer Loyalty

For years...

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Descripción SIMON SCHUSTER, United States, 1997. Hardback. Estado de conservación: New. New.. Language: English . This book usually ship within 10-15 business days and we will endeavor to dispatch orders quicker than this where possible. Brand New Book. In this pathbreaking book, world-renowned Harvard Business School service firm experts James L. Heskett, W. Earl Sasser, Jr. and Leonard A. Schlesinger reveal that leading companies stay on top by managing the service profit chain. Why are a select few service firms better at what they do -- year in and year out -- than their competitors? For most senior managers, the profusion of anecdotal service excellence books fails to address this key question. Based on five years of painstaking research, the authors show how managers at American Express, Southwest Airlines, Banc One, Waste Management, USAA, MBNA, Intuit, British Airways, Taco Bell, Fairfield Inns, Ritz-Carlton Hotel, and the Merry Maids subsidiary of ServiceMaster employ a quantifiable set of relationships that directly links profit and growth to not only customer loyalty and satisfaction, but to employee loyalty, satisfaction, and productivity. The strongest relationships the authors discovered are those between (1) profit and customer loyalty; (2) employee loyalty and customer loyalty; and (3) employee satisfaction and customer satisfaction. Moreover, these relationships are mutually reinforcing; that is, satisfied customers contribute to employee satisfaction and vice versa. Here, finally, is the foundation for a powerful strategic service vision, a model on which any manager can build more focused operations and marketing capabilities. For example, the authors demonstrate how, in Banc One s operating divisions, a direct relationship between customer loyalty measured by the depth of a relationship, the number of banking services a customer utilizes, and profitability led the bank to encourage existing customers to further extend the bank services they use. Taco Bell has found that their stores in the top quadrant of customer satisfaction ratings outperform their other stores on all measures. At American Express Travel Services, offices that ticket quickly and accurately are more profitable than those which don t. With hundreds of examples like these, the authors show how to manage the customer-employee satisfaction mirror and the customer value equation to achieve a customer s eye view of goods and services. They describe how companies in any service industry can (1) measure service profit chain relationships across operating units; (2) communicate the resulting self-appraisal; (3) develop a balanced scorecard of performance; (4) develop a recognitions and rewards system tied to established measures; (5) communicate results company-wide; (6) develop an internal best practice information exchange; and (7) improve overall service profit chain performance. What difference can service profit chain management make? A lot. Between 1986 and 1995, the common stock prices of the companies studied by the authors increased 147 , nearly twice as fast as the price of the stocks of their closest competitors. The proven success and high-yielding results from these high-achieving companies will make The Service Profit Chain required reading for senior, division, and business unit managers in all service companies, as well as for students of service management. Nº de ref. de la librería BZV9780684832562

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Descripción SIMON SCHUSTER, United States, 1997. Hardback. Estado de conservación: New. New.. Language: English . Brand New Book. In this pathbreaking book, world-renowned Harvard Business School service firm experts James L. Heskett, W. Earl Sasser, Jr. and Leonard A. Schlesinger reveal that leading companies stay on top by managing the service profit chain. Why are a select few service firms better at what they do -- year in and year out -- than their competitors? For most senior managers, the profusion of anecdotal service excellence books fails to address this key question. Based on five years of painstaking research, the authors show how managers at American Express, Southwest Airlines, Banc One, Waste Management, USAA, MBNA, Intuit, British Airways, Taco Bell, Fairfield Inns, Ritz-Carlton Hotel, and the Merry Maids subsidiary of ServiceMaster employ a quantifiable set of relationships that directly links profit and growth to not only customer loyalty and satisfaction, but to employee loyalty, satisfaction, and productivity. The strongest relationships the authors discovered are those between (1) profit and customer loyalty; (2) employee loyalty and customer loyalty; and (3) employee satisfaction and customer satisfaction. Moreover, these relationships are mutually reinforcing; that is, satisfied customers contribute to employee satisfaction and vice versa. Here, finally, is the foundation for a powerful strategic service vision, a model on which any manager can build more focused operations and marketing capabilities. For example, the authors demonstrate how, in Banc One s operating divisions, a direct relationship between customer loyalty measured by the depth of a relationship, the number of banking services a customer utilizes, and profitability led the bank to encourage existing customers to further extend the bank services they use. Taco Bell has found that their stores in the top quadrant of customer satisfaction ratings outperform their other stores on all measures. At American Express Travel Services, offices that ticket quickly and accurately are more profitable than those which don t. With hundreds of examples like these, the authors show how to manage the customer-employee satisfaction mirror and the customer value equation to achieve a customer s eye view of goods and services. They describe how companies in any service industry can (1) measure service profit chain relationships across operating units; (2) communicate the resulting self-appraisal; (3) develop a balanced scorecard of performance; (4) develop a recognitions and rewards system tied to established measures; (5) communicate results company-wide; (6) develop an internal best practice information exchange; and (7) improve overall service profit chain performance. What difference can service profit chain management make? A lot. Between 1986 and 1995, the common stock prices of the companies studied by the authors increased 147 , nearly twice as fast as the price of the stocks of their closest competitors. The proven success and high-yielding results from these high-achieving companies will make The Service Profit Chain required reading for senior, division, and business unit managers in all service companies, as well as for students of service management. Nº de ref. de la librería BZV9780684832562

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Descripción SIMON SCHUSTER, United States, 1997. Other book format. Estado de conservación: New. New.. Language: English . Brand New Book. In this pathbreaking book, world-renowned Harvard Business School service firm experts James L. Heskett, W. Earl Sasser, Jr. and Leonard A. Schlesinger reveal that leading companies stay on top by managing the service profit chain. Why are a select few service firms better at what they do -- year in and year out -- than their competitors? For most senior managers, the profusion of anecdotal service excellence books fails to address this key question. Based on five years of painstaking research, the authors show how managers at American Express, Southwest Airlines, Banc One, Waste Management, USAA, MBNA, Intuit, British Airways, Taco Bell, Fairfield Inns, Ritz-Carlton Hotel, and the Merry Maids subsidiary of ServiceMaster employ a quantifiable set of relationships that directly links profit and growth to not only customer loyalty and satisfaction, but to employee loyalty, satisfaction, and productivity. The strongest relationships the authors discovered are those between (1) profit and customer loyalty; (2) employee loyalty and customer loyalty; and (3) employee satisfaction and customer satisfaction. Moreover, these relationships are mutually reinforcing; that is, satisfied customers contribute to employee satisfaction and vice versa. Here, finally, is the foundation for a powerful strategic service vision, a model on which any manager can build more focused operations and marketing capabilities. For example, the authors demonstrate how, in Banc One s operating divisions, a direct relationship between customer loyalty measured by the depth of a relationship, the number of banking services a customer utilizes, and profitability led the bank to encourage existing customers to further extend the bank services they use. Taco Bell has found that their stores in the top quadrant of customer satisfaction ratings outperform their other stores on all measures. At American Express Travel Services, offices that ticket quickly and accurately are more profitable than those which don t. With hundreds of examples like these, the authors show how to manage the customer-employee satisfaction mirror and the customer value equation to achieve a customer s eye view of goods and services. They describe how companies in any service industry can (1) measure service profit chain relationships across operating units; (2) communicate the resulting self-appraisal; (3) develop a balanced scorecard of performance; (4) develop a recognitions and rewards system tied to established measures; (5) communicate results company-wide; (6) develop an internal best practice information exchange; and (7) improve overall service profit chain performance. What difference can service profit chain management make? A lot. Between 1986 and 1995, the common stock prices of the companies studied by the authors increased 147 , nearly twice as fast as the price of the stocks of their closest competitors. The proven success and high-yielding results from these high-achieving companies will make The Service Profit Chain required reading for senior, division, and business unit managers in all service companies, as well as for students of service management. Nº de ref. de la librería AAS9780684832562

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