Service-Profit Chain

Research shows an important chain reaction. Satisfied employees create loyal members who in turn become apostles for your business. These apostles are your best members. They create new members and drive profit and growth. A Harvard Business Review article, written nearly 20 years ago, “Putting the Service-Profit Chain to Work” is as relevant today as it was then.   It describes the linkage between members and employees for profitability and growth.

Member loyalty is the primary driver. The top 20% of members can provide the majority of your profits. Member loyalty is a result of member satisfaction. Satisfaction arises from their 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. Employee engagement comes from their satisfaction, which in turn arises from respect for leadership, high quality support services and policies that empower employees to deliver member results.

Putting employees and members first, causes a shift to occur in the way leaders manage and measure success. They spend less time setting profit goals or focusing on market share. Instead, they focus on confirming that the links in the chain are achieved. Frontline workers and members become the prominent focus. Measurement and analyses are employed.  Some tools are now available that were not when the HBR article was written, such as the employment of Big Data analytics. Organizations now can learn more about their members than ever before. Management can measure the key factors in the service-profit chain with accuracy and precision.

The most loyal and most satisfied members are the most profitable ones. The lifetime value of a loyal member is extremely high, especially when referrals and repeat business are considered. Furthermore, retaining a member is much less costly than gaining a new one. Value drives member satisfaction. Value represents all that the member receives in relation to the total cost of the product or service, including the value of convenience and intangible costs.

Employee productivity drives member value. Productivity can be measured by employee time and cost required to produce a product or service. Employees that face the member are the front line of service.  They can serve as the eyes and ears of the organization, feeding important information back to management to be used for continuous improvement in member service and satisfaction.

The most loyal employees are the most productive employees. They are also most likely to stay. Low employee turnover results in lower recruiting and training costs and data shows that low employee turnover is closely linked to high customer satisfaction. Employee empowerment permits them to make things right for the member. Leadership’s respect for the employee and their empowered engagement drives satisfaction. Engaged workers want to make things right for members; empowerment adds depth to their work.

Great leaders infuse the organizational culture with this member and employee focused approach. Employee engagement is tracked and statistics related to the member form the foundation of measurement. 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 describes, an integrated approach of management focus on employee engagement and member loyalty will drive profit and growth.