James L. Heskett, is the UPS Foundation Professor of Business Logistics at the Harvard Business School. He is also co-author of Service Breakthroughs, The Service Management Course, and Corporate Culture and Performance.

Contents

Preface

PART I: THE SERVICE PROFIT CHAIN A RATIONALE FOR EXCELLENCE

1. Setting the Record Straight

A World of Misleading Advice

Too Much Advice out of Context

The Tyranny of the Tradeoff

Emphasis on Symptoms vs. Causes

The "Trivialization" of Service

Fixation on Service Process Quality

The Service Profit Chain and Our Search for Evidence

Heskett and the Strategic Service Vision

Sasser and Customer Loyalty

Schlesinger and Determinants of Employee and Customer Loyalty

The Service Profit Chain

The Centrality of Value

Quality as One Element of Value

Price

Results, Costs, Price, Value, and Profit

Relationship to Service Profit Chain

What Difference Does It Make?

Spreading the Word

2. Capitalizing on the Service Profit Chain

The Service Profit Chain

Managing for Results at Southwest Airlines and American Express

Profit and Growth Are Linked to Customer Loyalty

Customer Loyalty Is Linked to Customer Satisfaction

Customer Satisfaction Is Linked to Service Value

Service Value Is Linked to Employee Productivity

Employee Productivity Is Linked to Loyalty

Employee Loyalty Is Linked to Employee Satisfaction

Employee Satisfaction Is Linked to Internal Quality of Work Life

Comprehensively Relating Links in the Chain

Implications of the Service Profit Chain for Management

Measuring Across Operating Units

Communicating Results of the Self-Appraisal

Developing a "Balanced Scorecard"

Designing Efforts to Enhance Performance

Tying Recognition and Rewards to Measures

Communicating Results

Encouraging Internal "Best Practice" Exchanges

Questions for Management

Getting on with the Job: An Important Caveat

3. Managing by the Customer Value Equation

The Customer Value Equation

Results Produced for Customers

Process Quality

Price and Acquisition Costs

Customer Value Equation Relationships

Managing by the Customer Value Equation: What It Requires

USAA

British Airways

Requirements of Those Who Manage by the Customer Value Equation

Linking the Strategic Service Vision and the Service Profit Chain

Questions for Management

PART II: BUILDING PROFIT CHAIN CAPABILITY

4. Rethinking Marketing: Building Customer Loyalty

Defining the "New" Marketing: Adding the Three Rs to the Four Ps

Estimating the Lifetime Value of a Customer

Retention

Related Sales of New Products and Services

Referrals

Managing by the Three Rs

Measuring and Communicating the Lifetime Value of Customers

Identifying, Creating, and Enhancing Listening Posts

Recognizing and Creating Incentives to Build Customer Loyalty

Utilizing Customer Defections as Learning Opportunities Potential-Based Marketing

Identifying Share of Loyal Customers

Calculating Economic Impact of Customer Behavior Change

Lengthening Customer Relationships

Overall Impact of Potential-based Marketing

Implementing a Potential-based Marketing Effort

Mining Customer Data to Achieve Mass Customization

Achieving Mass Customization on a "Vertical" Data base

Achieving Mass Customization on a "Horizontal" Data base

Organizational Implications of the New Marketing

Questions for Management

5. Attaining Total Customer Satisfaction: Not Whether but When

The Xerox Experience

The Total Customer Satisfaction Imperative

Relationship of Customer Satisfaction and Loyalty

Relationship of Customer Satisfaction and Profitability

Total Satisfaction for Captive Customers

The Importance of Focus

The Tyranny of Averages

Satisfying Targeted Segments

The Ultimate Source of Focus: Affinity Groups

Measuring Customer Satisfaction and Loyalty

Customer Surveys

Customer Feedback

Marketing Research

Feedback from Frontline Personnel

Complementarity of Methods

Addressing Customer Satisfaction at the Limits: Apostles and Terrorists

The Economics of the Extreme

Investing in Existing versus New Customers

Creating Terrorists as a By-Product of Focus

Meanwhile, Back at Xerox

Questions for Management

Understanding Determinants of Customer Satisfaction

6. Managing the Customer-Employee "Satisfaction Mirror"

The Service Encounter

Evidence of the "Satisfaction Mirror"

Why the Satisfaction Mirror Occurs

Preventing Cracks in the Mirror

From Service Encounter to Relationship

Factors Creating the Successful Service Encounter

Achieving Consistency in Service Encounters

Enlisting the Customer in Relationship Building

Engineering an Organization for Customer Relationships

Developing the Service Relationship Triangle

Identifying Relationship-Critical Jobs

Dedicated Servers or Not?

Service Teams or Not?

Questions for Management

7. Building a Cycle of Capability

Frontline Frustration

Capability Defined

Hiring for Attitudes First, Skills Second

The Bugs Burger Method

Selection by "Life Themes"

Substituting Self-Selection for Selection

Involving Customers in the Process

Serving Customers Who Qualify

Designing Training as Both Ends and Means

Providing Latitude and Limits

The Traditional View

The Nontraditional View

Investing in Support Systems

Information and Communication Technology

Facilities

Methods and Materials

Field Quality Control "Safety Nets"

Service Guarantees

Latitude to Fire Customers

Providing Consistent Reward and Recognition

Fitting the Elements Together

Questions for Management

Concluding Comments

8. Developing Processes That Deliver Value

Basic Tenets of Process Design That Yield Value

The World's Best Hospital

The World's Best Dinner Show Value

America's First Deming Prize Winner

Formation of Quality Improvement Teams

Development of The Process

Policy Deployment

Quality in Daily Work

Important Techniques for Process Improvement

Service Mapping

Pareto Analyses

Cause-and-Effect (Fishbone) Diagramming

Other Process Steps

Translating Techniques into Results

Value Enhancement versus Quality Improvement Process

Questions for Management

9. Designing Service Delivery Systems That Drive Quality, Productivity, and Value

Developing Single-Facility Service Delivery Systems

Planning System Designs for the Right Amount of Employee Latitude

Controlling Customer Behavior

The Ultimate Customer Control Strategy: Self-Service

Managing Information Support Systems to Enhance Customer Loyalty and Sales

Providing Process "Visibility"

Preventing Service Errors

Developing and Managing Multisite Networks

Network Characteristics

Factors in Network Design

Degree of Support for Operating Strategy

Need for Interconnectedness

Need for Standardization

Latitude Allowed Site Managers: Preserving the Core

Delivering Services Globally

The Target Market and the Need for Customization

"Total Experience" Services

Culturally Sensitive Services

Incorporating Franchising into the Strategy

"Employing" Franchisees

"Enfranchising" Employees

Questions for Management

10. Attaining Total Customer Satisfaction: Doing Things Right the Second Time

Doing It Right the First and Second Time

Getting Customers to Complain: The British Airways Experience

The Problem

Some Responses

External and Internal Service Contracting

Customer Service Contracting

Internal Service Contracting

Supplier Service Contracting

Service Guarantees

Questions in Guarantee Design

What's the Primary Purpose?

Internal Guarantees

Impact on Suppliers

The Economics of Service Guarantees

Putting Guarantees in Context

Service Recovery: A Case for Capability

The Service Recovery Payoff

Questions for Management

11. Measuring for Effective Management

Estimating the Lifetime Value of a Customer

Fitting Measurement to the Business

Fitting Measurement to Purpose: Relevance

The Xerox Experience

The AT&T Universal Card Experience

Taking Process into Account

Determining the Form in Which Results Will Be Transmitted

Other Criteria for Evaluating Measures and Methods

Designing the Balanced Scorecard

Questions for Management

PART III: PUTTING IT ALL TOGETHER

12. Reengineering the Service Organization for Capability: Gains and Pains

The Theory of Managing Change

Organization Reengineering without a Crisis

John Martin and Taco Bell

Actions

Gains

Pains

William Bratton and the NYPD

Actions

Gains

Pains

Arthur Martinez and Sears

Actions

Gains

Pains

Putting Organization Reengineering in Context

Applying Cosmetics

Picking Movers and Shakers

Creating a Sense of Urgency

Choosing the Theme and Vehicle

Preparing People

Getting the Facts Straight and Fast

Restructuring the Organization

Undertaking New Initiatives

Widening the Competitive...