01 Oct 1996


"Service-Profit Chain" Links Members of Service Management Unit

by Susan Young

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The following article is the sixth in a series on the activities and research taking place in each academic unit at HBS.

Why was Southwest Airlines the only U.S. airline to realize a profit in 1992? What has made crime in New York City decrease significantly in the past few years? What are the costs of employee turnover? What are the benefits of a loyal customer base?

These are questions that intrigue members of the Service Management unit. Judging from the popularity of the Service Management elective, they are questions that interest HBS students as well. Be it Benetton's response to increased competition or Booz, Allen & Hamilton's emergence into the world market, HBS professor Leonard A. Schlesinger, who is chair of the unit, notes that "the course material is immediately useful to our students. It involves people who are in situations similar to those our students will soon be confronting." Adds Schlesinger, who says he was not surprised when more than six hundred students signed up to take the course this fall, "The service sector is the only part of our economy that is growing. Students realize they need to understand it."

Members of the Service Management unit study the strategic and general management issues facing service organizations as well as the management of service in manufacturing companies. The multidisciplinary unit focuses on three functions critical to the effective delivery of service: marketing, operations, and human resources.

For more than five years, unit members have studied numerous organizations, ranging from Taco Bell to Intuit, to determine what maximizes profit and growth in service organizations. In so doing, they have formulated a key business dynamic that they term the "service-profit chain," defined by unit member Professor James L. Heskett as "a chain of relationships involving customer loyalty; customer satisfaction; the value of goods and services delivered; the quality of the process; and employee loyalty, satisfaction, productivity, and support."

The results of the unit's work are influencing the way people think about service, at HBS and beyond. Members of the unit have written case studies not only for the Service Management elective but also for other units, such as Technology and Operations Management, Organizational Behavior/Human Resources Management, Marketing, and General Management. In addition, Schlesinger and Heskett are working on a book, tentatively titled Out in Front: Building High

Capability Service Organizations, to be published later this year. Professor W. Earl Sasser, Jr., joined them in writing Service-Profit Chain Management, forthcoming in 1997. This trio has also created "People, Service, Success," a five-volume video series in which each video addresses a fundamental element of service management.

A related topic, Achieving Breakthrough Service, also the subject of a video, has been developed into a weeklong executive education offering. The course has been so successful that three-day versions of it are now being held at management schools in Mexico, Canada, and Switzerland, with the participation of HBS interest group members.

In 1995, unit member Assistant Professor Jeffrey F. Rayport (with Associate Professor John J. Sviokla) launched Managing in the Marketspace, an elective that looks at changes in the ways products and services -- both new and traditional -- will be bought and sold in the emerging universe of electronic commerce.

Associate Professor Gary W. Loveman studies service management through the lens of global labor markets and by an intensive "mining" of large corporate databases. A management information systems specialist, Professor James I. Cash, Jr., focuses on how companies use information technology to improve organizational effectiveness and how businesses are changing due to advances in technology. Assistant Professor Jody Hoffer Gittell, the newest member of the Service Management unit, joined the faculty last year. In research that covers human resources and operations management, she has studied the impact of processes on organizations. Gittell is currently using the patient-care industry as a testing ground for theories she developed while studying airlines.

Schlesinger notes that the individual perspective of each member contributes to the overall body of knowledge and the shared intellectual concerns of the unit: "We can push the envelope on the service-profit chain," he concludes, "because we each bring our own expertise to it."

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