The Idea in Brief
What drives growth and profitability in a service business? Highly satisfied customers. And to keep those customers profitable, you need to manage all the aspects of your operation that affect customer satisfaction—what the authors call the service-profit chain.
Here’s how the service-profit chain works: Employee satisfaction soars when you enhance internal service quality (equipping employees with the skills and power to serve customers). Employee satisfaction in turn fuels employee loyalty, which raises employee productivity. Higher productivity means greater external service value for customers—which enhances customer satisfaction and loyalty. A mere 5% jump in customer loyalty can boost profits 25%–85%.
To maximize your profits, strengthen all the links in your service-profit chain. For example, fast-food giant Taco Bell found that its stores with low workforce turnover (a key marker of employee loyalty) enjoyed double the sales and 55% higher profits than stores with high turnover. To boost profitability across stores, it enhanced internal service quality—for instance, by giving employees more latitude for on-the-job decision making.
The Idea in Practice
To optimize your profitability, the authors recommend these practices:
Understand the Links in the Service-Profit Chain
Starting with internal service quality, each link in the service-profit chain can directly strengthen—or weaken—the next:
Measure—and Manage—the Relationships in Your Service-Profit Chain
To enhance profitability, measure the relationships between links in your company’s service-profit chain. Then fashion strategies for strengthening them. Example:
To assess the relationship between internal service quality and employee satisfaction, Taco Bell: 1) Monitors internal service quality through a network of 800 numbers created to answer employees’ questions, field their complaints, remedy situations, and alert top-level management to potential trouble spots. 2) Conducts periodic employee roundtable meetings, interviews, and companywide surveys to measure employee satisfaction. The results of this work prompted Taco Bell to design an employee satisfaction program that features a new selection process, improved skill building, and automation of unpleasant “back room” labor.
♦ UPDATE: Learn about companies that are applying this timeless advice today.