The Service Profit Chain

The Service Profit Chain

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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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Product details

  • Hardback | 320 pages
  • 156 x 235 x 28mm | 503g
  • The Free Press
  • New York, United States
  • English
  • New
  • 50 half page line drawings
  • 0684832569
  • 9780684832562
  • 586,606

Table of contents




1. Setting the Record Straight

A World of Misleading Advice

Too Much Advice out of Context

The Tyranny of the Tradeoff

Emphasis on Symptoms vs. Causes

The "Trivialization" of Service

Fixation on Service Process Quality

The Service Profit Chain and Our Search for Evidence

Heskett and the Strategic Service Vision

Sasser and Customer Loyalty

Schlesinger and Determinants of Employee and Customer Loyalty

The Service Profit Chain

The Centrality of Value

Quality as One Element of Value


Results, Costs, Price, Value, and Profit

Relationship to Service Profit Chain

What Difference Does It Make?

Spreading the Word

2. Capitalizing on the Service Profit Chain

The Service Profit Chain

Managing for Results at Southwest Airlines and American Express

Profit and Growth Are Linked to Customer Loyalty

Customer Loyalty Is Linked to Customer Satisfaction

Customer Satisfaction Is Linked to Service Value

Service Value Is Linked to Employee Productivity

Employee Productivity Is Linked to Loyalty

Employee Loyalty Is Linked to Employee Satisfaction

Employee Satisfaction Is Linked to Internal Quality of Work Life

Comprehensively Relating Links in the Chain

Implications of the Service Profit Chain for Management

Measuring Across Operating Units

Communicating Results of the Self-Appraisal

Developing a "Balanced Scorecard"

Designing Efforts to Enhance Performance

Tying Recognition and Rewards to Measures

Communicating Results

Encouraging Internal "Best Practice" Exchanges

Questions for Management

Getting on with the Job: An Important Caveat

3. Managing by the Customer Value Equation

The Customer Value Equation

Results Produced for Customers

Process Quality

Price and Acquisition Costs

Customer Value Equation Relationships

Managing by the Customer Value Equation: What It Requires


British Airways

Requirements of Those Who Manage by the Customer Value Equation

Linking the Strategic Service Vision and the Service Profit Chain

Questions for Management


4. Rethinking Marketing: Building Customer Loyalty

Defining the "New" Marketing: Adding the Three Rs to the Four Ps

Estimating the Lifetime Value of a Customer


Related Sales of New Products and Services


Managing by the Three Rs

Measuring and Communicating the Lifetime Value of Customers

Identifying, Creating, and Enhancing Listening Posts

Recognizing and Creating Incentives to Build Customer Loyalty

Utilizing Customer Defections as Learning Opportunities Potential-Based Marketing

Identifying Share of Loyal Customers

Calculating Economic Impact of Customer Behavior Change

Lengthening Customer Relationships

Overall Impact of Potential-based Marketing

Implementing a Potential-based Marketing Effort

Mining Customer Data to Achieve Mass Customization

Achieving Mass Customization on a "Vertical" Data base

Achieving Mass Customization on a "Horizontal" Data base

Organizational Implications of the New Marketing

Questions for Management

5. Attaining Total Customer Satisfaction: Not Whether but When

The Xerox Experience

The Total Customer Satisfaction Imperative

Relationship of Customer Satisfaction and Loyalty

Relationship of Customer Satisfaction and Profitability

Total Satisfaction for Captive Customers

The Importance of Focus

The Tyranny of Averages

Satisfying Targeted Segments

The Ultimate Source of Focus: Affinity Groups

Measuring Customer Satisfaction and Loyalty

Customer Surveys

Customer Feedback

Marketing Research

Feedback from Frontline Personnel

Complementarity of Methods

Addressing Customer Satisfaction at the Limits: Apostles and Terrorists

The Economics of the Extreme

Investing in Existing versus New Customers

Creating Terrorists as a By-Product of Focus

Meanwhile, Back at Xerox

Questions for Management

Understanding Determinants of Customer Satisfaction

6. Managing the Customer-Employee "Satisfaction Mirror"

The Service Encounter

Evidence of the "Satisfaction Mirror"

Why the Satisfaction Mirror Occurs

Preventing Cracks in the Mirror

From Service Encounter to Relationship

Factors Creating the Successful Service Encounter

Achieving Consistency in Service Encounters

Enlisting the Customer in Relationship Building

Engineering an Organization for Customer Relationships

Developing the Service Relationship Triangle

Identifying Relationship-Critical Jobs

Dedicated Servers or Not?

Service Teams or Not?

Questions for Management

7. Building a Cycle of Capability

Frontline Frustration

Capability Defined

Hiring for Attitudes First, Skills Second

The Bugs Burger Method

Selection by "Life Themes"

Substituting Self-Selection for Selection

Involving Customers in the Process

Serving Customers Who Qualify

Designing Training as Both Ends and Means

Providing Latitude and Limits

The Traditional View

The Nontraditional View

Investing in Support Systems

Information and Communication Technology


Methods and Materials

Field Quality Control "Safety Nets"

Service Guarantees

Latitude to Fire Customers

Providing Consistent Reward and Recognition

Fitting the Elements Together

Questions for Management

Concluding Comments

8. Developing Processes That Deliver Value

Basic Tenets of Process Design That Yield Value

The World's Best Hospital

The World's Best Dinner Show Value

America's First Deming Prize Winner

Formation of Quality Improvement Teams

Development of The Process

Policy Deployment

Quality in Daily Work

Important Techniques for Process Improvement

Service Mapping

Pareto Analyses

Cause-and-Effect (Fishbone) Diagramming

Other Process Steps

Translating Techniques into Results

Value Enhancement versus Quality Improvement Process

Questions for Management

9. Designing Service Delivery Systems That Drive Quality, Productivity, and Value

Developing Single-Facility Service Delivery Systems

Planning System Designs for the Right Amount of Employee Latitude

Controlling Customer Behavior

The Ultimate Customer Control Strategy: Self-Service

Managing Information Support Systems to Enhance Customer Loyalty and Sales

Providing Process "Visibility"

Preventing Service Errors

Developing and Managing Multisite Networks

Network Characteristics

Factors in Network Design

Degree of Support for Operating Strategy

Need for Interconnectedness

Need for Standardization

Latitude Allowed Site Managers: Preserving the Core

Delivering Services Globally

The Target Market and the Need for Customization

"Total Experience" Services

Culturally Sensitive Services

Incorporating Franchising into the Strategy

"Employing" Franchisees

"Enfranchising" Employees

Questions for Management

10. Attaining Total Customer Satisfaction: Doing Things Right the Second Time

Doing It Right the First and Second Time

Getting Customers to Complain: The British Airways Experience

The Problem

Some Responses

External and Internal Service Contracting

Customer Service Contracting

Internal Service Contracting

Supplier Service Contracting

Service Guarantees

Questions in Guarantee Design

What's the Primary Purpose?

Internal Guarantees

Impact on Suppliers

The Economics of Service Guarantees

Putting Guarantees in Context

Service Recovery: A Case for Capability

The Service Recovery Payoff

Questions for Management

11. Measuring for Effective Management

Estimating the Lifetime Value of a Customer

Fitting Measurement to the Business

Fitting Measurement to Purpose: Relevance

The Xerox Experience

The AT&T Universal Card Experience

Taking Process into Account

Determining the Form in Which Results Will Be Transmitted

Other Criteria for Evaluating Measures and Methods

Designing the Balanced Scorecard

Questions for Management


12. Reengineering the Service Organization for Capability: Gains and Pains

The Theory of Managing Change

Organization Reengineering without a Crisis

John Martin and Taco Bell




William Bratton and the NYPD




Arthur Martinez and Sears




Putting Organization Reengineering in Context

Applying Cosmetics

Picking Movers and Shakers

Creating a Sense of Urgency

Choosing the Theme and Vehicle

Preparing People

Getting the Facts Straight and Fast

Restructuring the Organization

Undertaking New Initiatives

Widening the Competitive Gap: Sustaining Effort


Questions for Management

13. Leading and Living Service Profit Chain Management

Service Profit Chain Leadership at Wal-Mart

Service Profit Chain Leadership at Southwest Airlines

Leading Service Profit Chain Management

What Service Profit Chain Leaders Do: Supplying the "Extras"

Believing in and Communicating the Basics

Putting Employees First

Investing in Customers

Maintaining Measures and Rewards That Influence Behavior

Communicating the Message

Linking Organization Culture, Performance, and the Service Profit Chain

Questions for Management

14. Auditing Service Profit Chain Management Success

Leadership = Focus

Strategic Service Vision = Positioning, Leverage, and Consistency

Service Profit Chain = Value, Satisfaction, and Loyalty

Profit Model = Value to Customers versus Costs to Providers

Performing the Service Profit Chain Management Audit

Identifying the Organizational Limit

Assessing Importance

Assessing Current Practice

Measuring the Gaps

Establishing Priorities and Taking Action

A Final Word



About the Authors
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Review quote

Leonard Berry Professor of Marketing and JCPenney Professor of Retailing Studies, Texas A&M University, Author of On Great Service and Marketing Services The authors effectively integrate their wide body of research and thinking into an incisive framework for organizational leadership. David H. Maister Author of Managing the Professional Service Firm and True Professionalism If you read only one book on service industry management, this is the one to read -- and to re-read. The simple but powerful framework integrates numerous insights covering a wide range of service industry topics. John B. McCoy Chairman and CEO, Banc One Corporation Unveils a great model that managers can use to maximize both customer loyalty and profit. It links an action plan for managing all elements of a business with a thorough process for measuring results. C. William Pollard Chairman, The Servicemaster Company Profit and service do mix. Jim Heskett, Earl Sasser and Len Schlesinger have provided a systematic way for us to understand the link. The examples that the authors draw from their studies and experiences make the book come alive -- it is a real learning experience. Herbert D. Kelleher Chairman, President and CEO of Southwest Airlines Co. I am very angry with Jim Heskett, Earl Sasser and Len Schlesinger because I am deathly afraid that our competitors will read their book! The skunks have set forth in an accurate, profound, intelligible, and easily understandable way the core values, tenets, and practices that animate Southwest Airlines and can make any service business successful.
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About W. Earl Sasser

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.
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Rating details

85 ratings
4.12 out of 5 stars
5 40% (34)
4 35% (30)
3 22% (19)
2 1% (1)
1 1% (1)
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