We have said for a long time and in a number of articles, blogs and webinars that “happy staff make for happy customers and happy customers come back”.  The assumption being that, given that’s the case, sales and profit are likely to improve.

Now, over the years I’ve read and studied quite a lot about management, but I’ve only recently stumbled across a concept called the “service profit chain theory” which seems to add credibility to our intuitive argument.

Basically, the proposition is that how you manage people and your workplace will dictate sales growth and profitability which can be, through series of leavers, ratcheted up.

There is a service profit chain as shown in the diagram below:

Service Profit Chain

Let’s pick apart the concept and look at each of the elements in order to discover the ratchet effect that sits underneath.

Internal service quality

Internal service quality ain’t that a horrible term?

What it basically means is all stuff that you do within the company that might impact staff satisfaction.  This is likely to be a complex combination of a whole bundle of hard and soft issues which might include:

  • The selection and recruitment processes – who you allow into your orbit
  • Job design – who does what, the degree of freedom in decision-making
  • The rewards and recognition policies
  • The “tools” provided that allow staff to do a good job
    • The policies, processes, procedures, IT infrastructure, system reliability
  • The design of the working areas
  • The list is long

If we had to apply a single word to the above, I think we describe that as “culture”.  The best definition for which I’ve seen is “how stuff gets done around here”.

We’d also suggest that one of the key issues linking all of the above would be the time and energy spent developing the top team, managers and supervisors.

However, doing a little research for this piece, I discovered that a company called Digits had recently undertaken a poll of over 1000 managers and found that, astonishingly, over a quarter (26%) managers and supervisors have never had any formal training! 

That’s gotta be a pretty damning statistic given that surely managers manage as a function of their ability, personality, values and of their training and education!  The more that the leadership team is trained, energetic, participatory, caring, listening and coaching orientated rather than elitist, removed and supervisory, the better the link between culture and results.

Staff satisfaction

Continuing with the theme of management training and competence, I remember being asked about 20 years ago on a training course “What’s the difference between the best boss you’ve ever had and the others?”.  The answer was pretty unanimous.  Most delegates judged that the best boss we ever had “left us alone”.  In a good way; they set an objective, explained why they thought it was important, supported us when we asked, but otherwise left us alone.  They trusted us to get on with the job.  The worst bosses were micro managers.

We’ve published a couple of blogs previously which might, at this point, be useful to dip into:

If you can develop this “hands off” approach and in doing so raise the level of staff satisfaction the suggestion is that  that this will result in two things 1) increased staff loyalty 2) increased staff productivity.

Staff loyalty

If staff are nurtured, developed, looked after and satisfied then, the thinking goes, they are much less likely to defect.

And, in order to create excited customers which contribute to memorable customer experiences staff need to be energised against a worthy goal.  Worthy goals are about having mission, vision and values and purpose statements that truly engage and benefit society as a whole.

What it basically means is all stuff that you do within the company that might impact staff satisfaction.  This is likely to be a complex combination of a whole bundle of hard and soft issues which might include:

  • The selection and recruitment processes – who you allow into your orbit
  • Job design – who does what, the degree of freedom in decision-making
  • The rewards and recognition policies
  • The “tools” provided that allow staff to do a good job
    • The policies, processes, procedures, IT infrastructure, system reliability
  • The design of the working areas
  • The list is long

If we had to apply a single word to the above, I think we describe that as “culture”.  The best definition for which I’ve seen is “how stuff gets done around here”.

We’d also suggest that one of the key issues linking all of the above would be the time and energy spent developing the top team, managers and supervisors.

However, doing a little research for this piece, I discovered that a company called Digits had recently undertaken a poll of over 1000 managers and found that, astonishingly, over a quarter (26%) managers and supervisors have never had any formal training! 

That’s gotta be a pretty damning statistic given that surely managers manage as a function of their ability, personality, values and of their training and education!  The more that the leadership team is trained, energetic, participatory, caring, listening and coaching orientated rather than elitist, removed and supervisory, the better the link between culture and results.

Staff satisfaction

Continuing with the theme of management training and competence, I remember being asked about 20 years ago on a training course “What’s the difference between the best boss you’ve ever had and the others?”.  The answer was pretty unanimous.  Most delegates judged that the best boss we ever had “left us alone”.  In a good way; they set an objective, explained why they thought it was important, supported us when we asked, but otherwise left us alone.  They trusted us to get on with the job.  The worst bosses were micro managers.

We’ve published a couple of blogs previously which might, at this point, be useful to dip into:

If you can develop this “hands off” approach and in doing so raise the level of staff satisfaction the suggestion is that  that this will result in two things 1) increased staff loyalty 2) increased staff productivity.

Staff loyalty

If staff are nurtured, developed, looked after and satisfied then, the thinking goes, they are much less likely to defect.

And, in order to create excited customers which contribute to memorable customer experiences staff need to be energised against a worthy goal.  Worthy goals are about having mission, vision and values and purpose statements that truly engage and benefit society as a whole.

So, if staff are satisfied and loyal, the next ratchet is likely to be the fact that they are also likely to be more productive.

Staff productivity

There is also a correlation, and a balance, here between staff longevity and productivity.  On one hand the longer staff have been with a company the more productive, research would suggest, they are likely to be.  Productive staff will usually have a higher degree of product and customer knowledge. However, this needs to be balanced with the influx of new talent in order to bring new and different thinking to the fore.

External service quality – value

The more effective this heady combination off staff satisfaction, loyalty, retention and productivity, the better value and service delivered to the customer.  This is what the model calls “external service quality”.  This is essentially the value, perceived by and, delivered to the client.

One of our most popular tools is what we call the Core Activity Map; a flow chart showing the sequence of activities that need to be undertaken in order to deliver value to the client.  In delivering value to the client the company has got to deliver work (the product or service) for more than the client thinks it is worth.

Again, there is a link back to the purpose of the system all internal activities should focus on the benefits and capabilities being delivered to the client.

Customer satisfaction

Customer satisfaction is about ensuring that the service is designed and delivered to meet target audience needs.  The more the customer values your contribution the higher their satisfaction rating is likely to be.

There is a great tool that we advocate using and have detailed in a previous blog called The Ladder of Loyalty.  It differentiates between different types of customer encouraging organisations to move clients up the Ladder of Loyalty in order to create “raving fans”. 

Customer loyalty

Just think about advocates of companies like Tesla and Apple, love them or loathe them, can’t deny that many of their customers are absolutely evangelical about them.

The point is loyal customers, raving fans, are more likely to tell you, and much more importantly others, about their loyalty than customers who are merely “satisfied”.  It’s free advertising, free marketing.

Customer loyalty is driven by highly satisfied frontline staff.  Managers rarely have direct contact with the customer but their influence with staff is significant.  Managers need to cultivate a team of people that are passionate about the business.  It is very hard to be passionate if you’re not happy!

In addition to which customer expectations change all the time, so you need the feedback from the frontline to advise of any changes so that you might be able to adapt, improve and outperform others in your field.

How does this fit with my management system?

The ISO 9001, ISO 14001, ISO 27001 and ISO 45001 management systems focus, as noted, above the core activity map.  That is, the flow of work through the company; the sequence and activities undertaken to deliver value to the client.

What we think this “service profit chain theory” does is overlay “our get job, do job get money” model with the softer processes.

So, we think they marry nicely.

Conclusion

Engagement is about providing staff with a vision of the future and values to abide by so that if and when processes and procedures let them down or are insufficiently detailed there are guiding principles on which loyal staff can make their sensible decisions.

If good managers working in a healthy and adaptive culture can choose and motivate good staff who consistently deliver good service they are a long way to being able to consistently deliver the management equivalent of the golden goose… happy staff make for happy customers and happy customers come back.  The impact of which is:

  • Free promotion of your production services from raving fans
  • Significantly reduced marketing cost
  • Reduced recruitment costs because staff stay longer
  • Significantly more productive staff

All of which are going to have a positive impact either on increasing sales or reducing costs, both of which are likely to drive profitability.


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