The service-profit chain is a model that was originally published in a 1994 article by Harvard researchers. The model was revolutionary since it argued that center for management attention should be frontline employees and customers instead of hard metrics such as market share and profit. The reason was that employees that were satisfied gave great service to customers – which made customers satisfied and loyal – which increased growth and profit. The model did scientifically prove the relationships by providing hard metrics on soft concept.
Many service-oriented companies were successful by applying the service-profit chain and the model’s simplicity was one of the reasons it became so appreciated. Also, most of the more than hundred of academic studies have proved relationships between the links in the chain, even if some also have shown possible negative correlations. However, there’s now 20 years since the original model was invented and it has happened a lot in all areas that are included in the model. Therefore there’s reason to ask, how would the service-profit chain look today?
First of all it’s possible to believe that the chain wouldn’t actually be a chain, it’s likely that it would be designed as a wheel or maybe even more likely a loop. Second, most of the concepts like employee satisfaction and customer satisfaction would be completely exchanged to concept like employee engagement and customer loyalty. Thirdly, there would probably be new “soft” concepts included and it’s possible to argue that one of those should be culture.
Below is a suggestion of a new service-profit chain that is called culture experience loop. The overall idea is that culture is the enabler and the goal is to create outstanding experiences for employees and customers.
The mission is generally an aligning statement that sometimes answers the question why an organization exist in the market. For example Zappos mission statement is “To provide the best customer service possible.”. Amazon’s mission statement is “We seek to be Earth’s most customer-centric company for four primary customer sets: consumers, sellers, enterprises, and content creators.”. And Google’s mission is “to organize the world’s information and make it universally accessible and useful.”. In order to completely align an organization there’s likely to believe that the mission should be in the middle of the loop and motivate the organization in the right direction.
Culture is not included in the original service profit chain. Maybe this is due to the fact that culture is hard to measure and put numbers on. However it’s still a fact that culture is one of the most important factors that influence performance in organizations – and maybe even more so the last years. A good example of the importance of culture is the culture decks which innovative companies have released and spread. Netflix, HubSpot and AirBnB are some of the companies that have discussed their culture in public, maybe to attract new talent and motivate existing. Because of culture’s essential function it lies as a circle influencing every aspect of the culture experience loop.
Startups which usually is the purest essence of value generating organizations usually reinvest all their profit in the organization to enhance their capabilities to improve the product or service they offer. Larger organizations usually can’t reinvest their profit directly into product and services since they need capital for future use or the owners expect a certain return on investment. However, the aligning thought and enabler should be that the organizations grow and creates profit in order to improve their capabilities such as internal systems, processes, workplace environment, benefits etc. By improving the capabilities the organization strengthens the competitive advantage, motivate employees and will be able to serve customers in a better way.
In the service-profit chain employee satisfaction leads to employee retention and employee productivity. In the last years there’s been a shift where companies tend to focus entirely on employee engagement. The reason is that employee engagement is a better predictor of low turnover and productivity. Having employees that are emotionally committed to the workplace, highly motivated and that use their energy on the right things is truly something that organizations strive for.
Customer experience is not only the concrete value a product or service offers customers or the service that employees deliver to customers. Customer experience is the overall experience that customer have with the organization. A very good example of this thinking is Starbuck’s idea to be the third place. Having this approach means Starbucks must think in a whole new way and not only focus on serving the best coffee. The customers have broader needs and reasons to take a coffee than just the pure product. Customer experience can be measured by looking into many different touchpoints associated with the customer journey. For example a customer in a retail store that have operations online as well as offline will have a tremendous amount of touchpoints that all have to be aligned and optimized.
Customer loyalty is included in the service-profit chain and is the result of high customer satisfaction. Since then the area of customer loyalty has been heavily developed and loyal, returning customers is an important goal for many organizations. One method to put focus on customer loyalty that has gained a lot of attention is the Net Promoter System, developed by Bain & Company. NPS is built with focus on one question which usually is something like “On a scale from 0-10, how likely are you to recommend this company to a friend?”. The system introduced many new thoughts compared to traditional ways of measuring customer satisfaction. For example the recommendation is to ask one question often instead of many questions more seldom, give feedback directly to frontline employees in order to close the loop and sort customers into promoters and detractors. Promoters has been scientficially proved to buy more, stay longer, refer friends and provide valuable feedback to the organization.
GROWTH AND PROFIT
Nothing new here, companies still need to increase revenue, grow and be profitable. The important thing is that the loop indicates that by increasing profit the organization can invest in the development of the organization and improve capabilities. This is a motivational factor for employees and helps motivating why the organization should deliver the best possible customer experience to their customers.