Harvard Business Review's Service Profit Chain

At one time or another, most of us have stated in disgust that we’ll never buy another item from X store or Y company. Product quality may or may not be involved. More often than not, it is perceived lack of service or lack of caring on the part of the organization. Harvard business researchers put a label on that phenomenon in 1994. Businesses know it as the “service profit chain.”

The “chain” consists of nine components in seven positions, with the endpoint being that customer loyalty drives profitability and company growth. The researchers traced the endpoint of growth and profitability to the common denominator of internal quality. Internal quality focuses on employees and includes points such as hiring the “right” people for each job, training and development, empowering employees to truly serve customers, and recognition for a job well done. These and other points of internal quality serve to support and enhance employee motivation and therefore employee loyalty.

From the customer’s perspective, dealing with a company with loyal employees often translates to being able to speak to someone who is truly knowledgeable and can resolve the customer’s issue quickly and to the customer’s satisfaction. From the company’s perspective, employee loyalty means that it has lower turnover rates and far less need to focus on replacing employees or the loss of internal knowledge and experience lost when an employee leaves. The result for the organization is greater productivity, which in the chain model drives value. For the customer, value is the perception that the products or services gained from the organization are worth more than the price paid. Value drives customer satisfaction, which in turn creates customer loyalty.

The result for the organization is that it operates with loyal customers and loyal employees, reducing the need to replace either. The organization that cares about both its customers and employees is the one most likely to deliver value, and it also is the one least likely to disappear in tough economic times. It also is the one most focused on meeting customers’ needs, and ensuring that customers become and remain loyal to the organization’s goods or services.

Heskett, James L., Thomas O. Jones, Gary W. Loveman, W. Earl Sasser, Jr. and Leonard A. Schlesinger (2008, July-August). Putting the Service-Profit Chain to Work. Harvard Business Review. Retrieved July 4, 2011 from http://hbr.org/2008/07/putting-the-service-profit-chain-to-work/ar/1.

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