Service-Profit Chain Empowers Employees
I advise clients to focus on “Putting the Customer or Member in Control”. To do so in a service economy, leaders must focus on both employees facing the customer as well as the customers themselves.
A Harvard Business Review article, “Putting the Service-Profit Chain to Work,” written nearly 20 years ago, described an approach that rings as true today as when it was written. Research shows an important chain reaction. Whether you are working in a credit union which services members or an organization that services customers, satisfied employees create loyal customers who in turn become apostles for your business. These apostles are your best customers.
They create new customers and they drive profit and growth. Customer loyalty is a direct result of customer satisfaction. Satisfaction results from the knowledge that the company is delivering value to them. Value is directly tied to employee productivity, which is the result of employee loyalty and engagement. Satisfied, loyal and productive employees create value for customers.
Employee engagement is related to their satisfaction, which in turn arises from respect of leadership, high-quality support services and policies that empower employees to deliver results.
When service companies put employees and customers first, a radical shift occurs in the way they manage and measure success. Leadership spends less time setting profit goals or focusing on market share. Front-line workers and customers become the center of concern. Leaders focus on assuring that the links in the chain are attained and maintained. They lead through personally demonstrated values; they are energetic, creative, participatory and caring. They lead by listening, coaching and motivating by mission.
Investment in people and the technology that supports them is a leader’s duty. Management assures that every employee knows the mission of the organization and their role in achieving it. Continuous learning is fostered. The employees understand the environment in which they operate. Measurement and analyses are employed.
Our recent column on Big Data shows how management tools are available now that were not available when the HBR article was written. Organizations can learn more about the customer than ever before. Management can measure the key factors in the service-profit chain with accuracy and precision.
Successful executives of outstanding service organizations concentrate on profitability drivers. Customer and member loyalty are key. The most satisfied customers are the most profitable ones. Their lifetime value is extremely high, especially when referrals and repeat business are considered. Indeed, many companies have found that the top 20% of customers drive the majority of the profits. Furthermore, retaining a customer is much less costly than gaining a new one.
Member satisfaction creates loyalty. The most satisfied members are much more likely to give repeat business than those who are “just” satisfied. Value drives member satisfaction. Value represents all that the member receives including convenience and other intangible benefits in relation to the total cost of the product or service, including intangible costs.
The most loyal members can become apostles, letting others know about the great service and exceptional value received, thereby generating additional sales growth. In today’s world of social media this effect can be amplified. The converse can be dangerous; dissatisfied members can damage a firm’s reputation through the megaphone of the internet.
Employee productivity drives value. Productivity can be measured by employee time or labor cost to produce a product or service. But employees are much more than units of cost. The employees facing the customers are the front line of service. They can be listening posts of the organization, feeding back to management important information to be used for continuous improvement in customer service and satisfaction. In a recent article, we highlighted how Zara engaged its employees to collect information to design and produce the exact fashion wanted by its customers.
The most productive employees are also the most loyal employees. They are most likely to stay. Not only does low employee turnover result in lower recruiting and training costs, but data show that low employee turnover is closely linked to high customer satisfaction.
Empowered engagement drives employee satisfaction. Engaged workers want to make things right for members; empowerment adds depth to their work.
Leaders make sure that this member and employee focused approach is instilled in the culture. Statistics related to the member form the foundation of measurement of employee engagement. Employees know the metrics against which they are measured, and how they are performing in relation to them. Compensation is tied to these measurements. Thus, as the Service-Profit Chain points out, a management focus on employees “Puts the Member in Control.”
Stuart R. Levine is chairman/CEO of Stuart Levine & Associates. He can be reached at (516) 465-0800 or stuartlevine.com.