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Putting the Service-Profit Chain to WorkAbhay GuptaRohit SinghDheer VohraAnindya Das Manoj Vuppala

Service Operations Management

What is Service Profit Chain?It is a powerful phenomenon that stresses the importance of people - both employees and customers - and how linking them can effect an organizations profitability & performanceORAn equation that establishes the relationship between an organizations policies, employee satisfaction, value creation, customer loyalty, and profitability

What is/are the most important goal(s) of an organization ?Misconception of industry position being sole determinant of profitability, quality of market share more importantOne statistics indicates 5% increase in customer loyalty can boost profits from 25% to 85%Often loyal customers help cover losses incurred in dealing with less loyal customersReferrals most important aspect of the 3 Rs of loyaltyHow to measure customer loyalty ?Quarterly review of customer retentionDepth of Relationship OR # of services leveraged by customers

What drives customer loyalty ?Relationship between score & actual loyalty differs greatly depending on whether customer was satisfied or very satisfiedPush to reduce terrorists who can speak against the company to hundreds of potential customersNeed for consistent, objective & periodic fashion of data collection for customer satisfactionMethod to track, understand and mitigate customer complaints

How to measure customer satisfaction?Customer satisfaction surveyLetters of complaints

Loyalty (Retention)

What drives customer satisfaction ?Value means results that customers receive in relation to the total costsValue is a relative term as it depends upon the comparison between perception of the service delivered to the expectation of the serviceNeed to relay information concerning customer expectation to the design teamHow to measure value?Reliability & timeliness of serviceEmpathy

Example:Intuit employees (CEO included) work on customer service phones to ensure customer expectations are understood by allSouthwest airlines flight scheduling team periodically work shifts at terminals to feel the impact on customers & employees

Personnel trained to perform multiple tasksMeasures of employee LoyaltyTurnover rate- Employee turnover leads to loss of productivity and decreased customer satisfaction.Southwest- Employee turnover as low as 5% in some operating areasWhat drives value delivery ?

Example:Example of Automobile Dealer-Cost of replacing an experienced sales dealer( 5-8 yrs experience) with a new sales man runs to over $36000 per month in lost salesFor a Securities brokerage- $ 2.5 million over 5 yearsSouthwest deplanes and Reloads two thirds of its flights in 15 minutes or lessFactors that are valued by the customers:Frequent departuresOn-time service

Friendly employeesVery low fares

Higher Value fo r Customers:

Highest level of on-time arrivalsLowest number of complaintsFewest lost baggage claims per 1000 passengersHas been profitable for 21 consecutive years6What drives employee retention & productivity?`

Factors for SatisfactionAchievementRecognitionThe work itselfResponsibilityAdvancementGrowthFactors for Dissatisfaction Company policiesSupervisionRelationship with supervisor and peersWork conditionsSalaryStatusSecurity

Example:Southwest Airlines was recently named one of the countrys 10 best places to work and experiences the highest rate of employee retention in the airline industry.

Taco Bell conducts biannual surveys for both the employees and the customers to understand the trends and the linkages between employee and customer satisfaction. What underlies the chains success?Leadership

Centred on service to employees and customersCompanys leadership must beCreativeParticipatory and caringListening, coaching and teachingMotivating by missionLeading by means of personally demonstrated values

Relating links in the chainMeasure relationships and use the links to develop service strategies

Customer satisfaction ProfitsEmployee loyalty Profits Internal service quality:

Team of 800 people forEmployee complaints, employee survey, employee roundtable meetingsInternal ServQual Em satService Profit chain AuditAnswers the question What is driving their profits?