The Service Profit Chain: Reloaded

Just over 20 years since its first publication, the Service Profit Chain still appears in the presentations of leading companies at conferences around the world. Perhaps no other management model has survived the test of time and scrutiny by both business and academic leaders. Why? Well, perhaps the premise is difficult to argue with: Create a “Cycle of Success” that:

• ensures high levels of employee satisfaction and engagement, which
• generates greater retention and productivity, which
• creates more value for customers, which
• increases satisfaction, loyalty and financial results.

 

The Service Profit Chain enables an organization to take a holistic view of their business, make cause-and-effect relationships explicit, and keep score of things that matter to all three stakeholders: Employees, Customers, and Shareholders. Our research with companies we describe as Service Profit Chain Leaders reveals three major reasons why it has stood the test of time:

• It explains how the business actually works: Companies that take the time to identify and measure the unique elements in their operating model, that connect the links in the chain, simply have a better understanding of what creates superior value for all stakeholders. They have more than a theory of the business, they have an adaptable management system that facilitates “double-loop” learning. In fact, at their best, Service Profit Chain Leaders are able to predict future performance, based on leading indicators defined by the Service Profit Chain, and take corrective action.
• Culture as competitive advantage: In his recent book, The Culture Cycle, SPCI co-founder James Heskett presents empirical evidence of the degree to which a superior culture influences the profitability of one marketing services organization. It’s worth reading, but visit any Service Profit Chain Leader to see how the power of a culture focused on the company’s common purpose and core values definitely confers a competitive advantage. This is at the core of Service Profit Chain thinking. As Lanham Napier, the former CEO of Rackpace Hosting, one of the world’s leading cloud providers told us: “Our culture and the awesome people we have are the things I am most proud of…I would say it’s impossible for our competitors to copy. They’d have to start over and build it from scratch.”
• Leadership’s change model: Running an organization is hard work. Technology has helped reduce barriers to entry across many industries. Finding and retaining top talent is as competitive as finding and retaining target customers. The Service Profit Chain provides leadership with a clear roadmap to strategic success. Harvard Business School Professor Michael Beer’s formula for effective change tells us:

Successful Change = D (Dissatisfaction with the Status Quo) x M (Model) x P (Process) > C (Cost)

For countless organizations around the world, the Service Profit Chain has been the “M” in Professor Beer’s insightful equation.

In 2008, we wrote The Ownership Quotient, as a follow-up to the original book. We were struck by the degree to which Service Profit Chain Leaders like Wegmans Food Markets, SAS and others had created even higher levels of advocacy and ownership with both employees and customers. From co-creating new product and service ideas with customers to applying digital and data science technologies to anticipate and predict customer needs, these companies had pushed the boundaries of what we could only imagine back in the mid-nineties.

Now, in 2015, we would suggest three ideas should be taken to heart by managers charged with leading their companies’ efforts to enhance customer or employee experience with new technologies:

1. Make sure you understand the “defining element” of your customer experience: We learned this lesson back in 2002 when Shaun Smith and I wrote Managing the Customer Experience, but it is just as relevant today. The Defining Element of the experience refers to that Moment of Truth, when much of the value you deliver comes to life in a tangible way. For Krispy Kreme doughnuts it is that moment when you see the doughnut being made, and the anticipation of your first mouthwatering bite overwhelms your senses. Another company that really understands this is IKEA, the Swedish furniture manufacturer. Although their products can be purchased through different channels, they have apparently figured out that if you are going to stand half a chance of defending your argument for the love seat over the sectional, the discussion is most effective while in the store, standing in front of that particular item. They understand the “defining element” of the IKEA experience and don’t dilute it with distractions that move them away from something they aren’t.
2. Apply technology that adds significantly more value than cost: Building on the first recommendation, be careful not to be seduced by all that glitters. The world is full of incredible technologies to enhance the customer experience. The Brazilian retailer C&A has special clothes hangers that show how many Likes each look has collected from the social media community. Hangers with a digital display are instantly updated according to the number of Likes of the product on Facebook. The counters built into each hanger, which are networked, update in real time to reflect the input of C&A’s Facebook fans voting with their virtual thumbs on photos of each clothing item. C&A calls the system “Fashion Like.” For a target customer base that skew high on social media activity and peer group opinions, the incremental cost for Fashion Like may far outweigh what is achieved in incremental sales and brand loyalty. But this is not always the case. One retail customer in the technology business actually removed touchscreen panels piloted in several stores and replaced them with simple round tables with bar stools. Why? They found that in this case, the technology added more friction to the experience and proved a barrier to creating long term, trust based relationships. On the other hand, a toy retailer we worked with redesigned their customer experience with touchscreen technology that interconnected the whole shopping experience. Both retailers realized substantial increases in customer satisfaction, average ticket and transaction volumes: One with tables and chairs and one with powerful digital displays and interfaces. There is no one right answer, there is just the Brand Promise you have committed to deliver and the most consistent, intentional and differentiated way you have designed for your customers to experience it.
3. Be in the “relationship” rather than the “transaction” business: I’ll admit, it is tempting when you see the cost effectiveness of introducing more digital transactions in your business. For large organizations managing millions of transactions, even a few basis points of channel migration can represent significant cost savings. Service Profit Chain Leaders understand, however, they aren’t in the transaction business – they are in the relationship business. Their goal is to build lifetime value for their target customers and earn their loyalty by delivering an experience that creates significant advocacy. As a result, they drive down the cost of marketing and put those dollars to better use for real value creation. Robert Stephens, the founder of Geek Squad has said: “Advertising is the tax you pay for being unremarkable[1].”

Don’t be unremarkable. Leave that to your competitors. The Service Profit Chain represents a set of core principles that has helped countless firms achieve sustainable results. “Reloaded” with the capabilities of new technologies, the combination provides a clear path for sustainable innovation and growth.

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Join the Center for Services Leadership at Compete Through Services Symposium on November 6th, 2015, to hear Joe Wheeler, The Service Profit Chain Institute, speak on Decoding the Next Generation Digital Experience.

[1] Inc. Magazine, “Ask Robert Stephens,” October 1, 2008

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Joe Wheeler is the Executive Director of The Service Profit Chain Institute, a Boston-based consulting firm dedicated to helping companies achieve better performance by improving the linkage between employees, customers and profits. The Service Profit Chain Institute was founded by Mr. Wheeler and Professors James Heskett and W. Earl Sasser of the Harvard Business School, to partner with companies to bring the concepts associated with The Service Profit Chain® to life in their own organizations. In 2008 Joe co-authored a new book: The Ownership Quotient, Putting the Service Profit Chain to Work for Unbeatable Competitive Advantage (HBS Press Dec 2008) with Professors’ Heskett and Sasser.

Prior to launching The Service Profit Chain Institute, Mr. Wheeler was the Managing Director of Customer Experience for FleetBoston Financial which became Bank of America where he was responsible for Quality and Productivity for both Premier Banking and Small Business Divisions. Prior to this, he was an Executive Vice President with The Forum Corporation where he managed the firm’s Customer Experience Consulting Practice and co-authored a best-selling book on the subject, Managing the Customer Experience – Turning Customers into Advocates (FT Prentice-Hall 2002). In his previous position he was responsible for global marketing and product development. Mr. Wheeler’s consulting experience includes implementation of Customer Experience, Service Management and Innovation initiatives for many organizations including Kraft, Irving Oil Ltd, Override, Fairmont Hotels and Resorts, Manulife Financial, Export Development Corporation, Sigma Kalon, Sun Life of Canada, Canadian Imperial Bank of Commerce, Scotiabank, Royal Caribbean, The Steak n Shake Company, PayPal, and CA (formerly Computer Associates).

Mr. Wheeler completed his Masters in Business Administration at the Edinburgh Business School and studied Arts and Science at the University of Toronto and Queen’s University in Kingston.