Service Model

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Service Models, Profitability and Revenue Growth

Profitability and revenue growth in any organization is driven by satisfied customers. Whether you're an airline, a cable company, a restaurant, or provider of insurance, some percentage of the perceived quality of your product is tied to the associated service provided. The degree to which customer satisfaction is tied to your product vs. the quality of service provided naturally varies from industry to industry. However, in the tertiary sector of the economy, or the service industry, clearly the service provided will influence not only customer satisfaction but customer loyalty, which drives profitability and revenue growth.

None of these concepts are new; companies recognize that loyal customers can heavily influence profitability and growth. Companies go to great lengths to understand their customer satisfaction (C-Sat) scores, using various methods. Net Promoter Score (NPS) is a common method in use today, in addition to Voice of the Customer and general satisfaction surveys. But while organizations are commonly collecting these external scores, most organizations fail to take the temperature of "external satisfaction" and tie this measurement to the complete service model, which starts with the internal quality of service.

My service model consists of 3 layers:

  • The Optimization Model (The ROC, and tuned supporting services) - Table Stakes
  • The Service-Profit Chain (described below, originally published in 1994 *HBR), extended to include the Internal Positivity Model
  • The Core (Business dependent; Universal Approach, Segmentation Approach, Customer Relation Approach, etc)

In the center of these 3 layers is the service profit chain, which I assert most companies fail to fully understand, implement and support. I've extended the typical service profit chain to focus on the internal quality of service and what drives that.

Internal Quality of Service

When I reference internal quality of service, I am speaking of attributes associated with an employee's feelings they have toward their job, their colleagues, and their company. The notion of employee happiness or satisfaction is often either under-measured or overlooked completely. Many companies conduct an internal employee satisfaction survey annually, but rarely is internal employee satisfaction measured with the same rigor and frequency as external customer satisfaction. And elements that contribute to positive employee feelings are commonly first to go when budgets get tight and cost-cutting measures are being pursued. Company picnics, after work events, recognition programs, and other employee services; all are cut without a full understanding of the impact of the service-profit chain.

Internal quality of service is at the heart of service models I propose It is referenced in the internal Positivity Model. While I focus heavily on call center operations, this service model can be leveraged within any service-based organization. To understand why internal Positivity Model is so critical, it helps to understand the entire Service-profit chain, and the most common break in the chain: measuring and managing both internal employee satisfaction and external customer satisfaction.

Service-Profit Chain

The Service-Profit chain is a simple blueprint which can be utilized in any service-based industry and applies to all elements of operations. Whether you are running an inbound call center, an outbound sales organization, a back-office operation or an IT department, the Service-Profit model provides a solid foundation to increase profitability in your company and ultimately spur revenue growth. Originally published in 1994, the Service-Profit model provides any level of management an approach that shifts focus inward to drive the output - improved C-Sat, profitability and growth.

I've outlined it in 9 steps below, which I'll expand on individually:


1. Internal Quality of Service

Are your employees satisfied with the technology they leverage to conduct their job? Do they feel empowered? How would they speak when asked to comment on the personal support they receive on the job? These are just a few questions that lead to determining your internal quality of service. Internal quality of service is the starting point in the service-profit chain, and what I position as the most important point of focus when an organization desires to become a world-class brand. While you might have the slickest, most desired product out there, if the supporting "servicing" of that product (or service itself) is lacking, profitability and growth will suffer.

My specific blueprint for a world-class service model ties Internal Quality of Service to the internal Positivity Model - which leverages positive psychology science to form a basis for specific programs any organization can leverage to drive the end result - improved profitability and revenue growth.

2. Employee Satisfaction

Employee satisfaction is a straight-forward concept and something that can be easily base-lined and measured. How satisfied your employees are can be correlated to external customer satisfaction, given that sound selection criteria and methodology are implemented for both. In order to leverage the service-profit model successfully, employee satisfaction needs to not just be measured frequently but analyzed and tied back to the internal quality of service link. Employee satisfaction also links directly to loyalty, the next step in the chain.

3. Employee Loyalty

Employees who are satisfied are loyal. Customers who are satisfied are loyal.

The principle is identical; whether you're speaking of an internal employee or an external customer, there is a strong relationship between satisfaction and loyalty. For the company, loyalty translates directly to profit and growth. Loyal employees mean lower costs due to lower attrition. Loyal employees are natural promoters of your product or service. Employee loyalty also supports #4; employee productivity.

4. Employee Productivity

Employee productivity is often the focus of organizations - and incorrectly, as the "starting spot" when examining what can be done to drive profit and growth. Often viewed as an input to the chain, it is instead an output based on the degree of satisfaction and happiness an employee experiences. Productivity is a key area to examine but must be traced back to the core internal quality of service if an organization seeks to improve on productivity.

5. External Service Value (Quality of Service)

External service value or quality of service refers to the perceived value of service a customer has - which could reflect the core product, how the product is serviced or some combination. One could "love the internet service" being provided from their cable company, but could despise having to place a call to the service department when something goes wrong with that their internet service. Conversely, one could have service that went up and down on a daily basis, yet, when calling for service assistance, may encounter extremely friendly and helpful representatives. The perceived value of "service" - whether it is the product, service, or combination of each, is also tied to level of expectations from a customer's perspective; where you sold "super-speed internet" and yet the service just doesn't seem as fast as your previous provider. The measurement of the "value" of the external quality of service provided is commonly linked to customer satisfaction measurements.

6. Customer Satisfaction

How satisfied a customer is with a product or service (or both) is commonly measured through customer satisfaction data. Often, companies spend considerable time and energy on attempting to gather and analyze this data, yet, often this data will contradict growth and profitability. Gaming of data, frequently changing the questions, or poorly designed methodology often leads to customer satisfaction scores that paint a very different picture than what is happening from a growth and profitability perspective. There are numerous methods of establishing listening posts for gathering customer satisfaction data, but how this data is used within the entire service-profit chain is critical for success.

7. Customer Loyalty

As indicated in step 3 of the service-profit chain, employees who are satisfied are loyal. The same holds true externally - customers who are satisfied are loyal.

Customer loyalty is often referenced by the 3 R's: Retention, Repeat and Referrals. The service-profit chain model commonly references customer loyalty as a key determinant of profitability (Frederich Reichheld and W. Earl Sasser, Jr. "Zero Defections: Quality Comes to Services." HBR September–October 1990). This research suggested that a 5% improvement in customer loyalty results in a 25-85% improvement in profits. Loyal customers usually account for a high proportion of profit in organizations, and can dramatically impact growth if the referral "R" is strong as well.

8. & 9. Profitability & Growth

Profitability and growth are the company's two key metrics that measure the overall financial health of an organization. Stagnant or decreasing sales, diminishing profit margins, or worse, increasing losses - all signal a company faced with challenges that will eventually put it out of business if not corrected. For the service-profit chain, profitability and growth are intrinsically linked to satisfied and loyal customers. However, most companies fail to take profitability and growth all the way back to step 1 in the service profit chain: the internal quality of service.