Copyright © President & Fellows of Harvard College

What Great Service Leaders Know and Do: Creating Breakthroughs in Service Firms

Leonard A. Schlesinger

Baker Foundation Professor

Turning Knowledge into Action

•  Why before how •  Knowing comes from doing and teaching others how •  Action counts more than elegant plans and concepts •  There is no doing without mistakes •  Fear fosters knowing-doing gaps, so drive out fear •  Fight the competition, not each other •  Measure what matters and what can help turn

knowledge into action •  What leaders do, how they spend their time and how

they allocate resources, matters

Source: Jeffrey Pfeffer and Robert Sutton, The Knowing-Doing Gap, 2000

1. Leading a Breakthrough Service is Different

What GSLs know:

Leading a breakthrough service is different What GSLs do:

Take steps to ensure repeated memorable service encounters

Breakthrough Service Defined: (The Service Trifecta)

Breakthrough services are those that provide 1) extraordinary results and a high quality experience for customers and employees alike, 2) high value (not necessarily low costs) to customers, and 3) relatively high returns (for the industry) to employees and investors.

2. Shaping Service Strategies That Deliver Results

What GSLs know:

Customers buy results and value, not services or products What GSLs do:

Focus on results and value for the right customers and the employee and customer value equations that will produce them

The Strategic Service Vision

3. Designing Operating Strategies that Support the Service Vision

What GSLs know:

The best service operating strategies don’t require tradeoffs What GSLs do:

Foster “both/and” thinking in designing winning service operating strategies

Best Places to Work, Best Service and Profitability (2009-2013)

Best places to work produced 3+ times the profitability of S&P 500

firms between 1998 and 2009

Companies providing best customer service in

2011 produced customers more willing to recommend (62% to 41%) and repurchase (55% to 38% than the rest of the companies

surveyed**

Edward JonesFour Seasons Hotels & ResortsJ.W. MarriottNordstromPublixQuicken LoansSouthwest Airlines*Starbuck’sUSAAWegmansWhole Foods MarketsZappos.com

* Southwest Airlines, repeatedly included near the top of the “Fortune Best Places to Work,” lists prior to 2009, chose not to participate in the ratings for these years.

144 Best Placesto Work—

Fortune survey

57 organizations providing best

customer service on Bloomberg,

Business Week, and J.D. Power

surveys**

The Service-Profit Chain 1.0

RevenueGrowth

Profit-‐ability

• workplace  design• job  design• employee  selectionand  development

• employee  rewards  and  recognition

• tools  for  servingcustomers

• Service  Concept:Results  for  Customers

• service  designed  and  delivered  to  meet  targeted  customer’s  needs

• retention• repeat  business• referral

Internal  ServiceQuality

EmployeeProductivity

Operating  Strategy  and  Service  Delivery  System

EmployeeRetention

EmployeeSatisfaction

ExternalServiceValue

CustomerSatisfaction

CustomerLoyalty

The Service-Profit Chain 2.0 Factors  Leading  to  “Both/And”  Service  Results

Leadership  PracticesHire  for  attitudeTrain  for  skillsProvide  excellent  support  systemsAllow  latitude  (within  limits)  to  deliver  resultsEnsure  accountability

Practice  “no  surprises”  management;  meet  expectations  for:  quality  of  leadership  and  associates,  personal  development,quality  of  feedback,  latitude  on  the  job,  reasonable  compensationFoster  transparency  in  the  workplace

Internal  QualityHigh  trust  workplaceHigh  “internal  quality”

Employee  Attitudes  and  BehaviorsHigh  employee  satisfactionHigh  employee  loyaltyHigh  employee  commitmentHigh  employee  “ownership”High  trust  customer  relationshipHigh  organization  productivity

External  Service  ValueHigh  qualityLow  cost

Meeting  or  exceeding  customer  expectations  for:ResultsQuality  of  service  experienceReasonable  priceOverall  value

Customer  Attitudes  and  BehaviorsHigh  customer  satisfactionHigh  customer  loyaltyHigh  customer  commitmentHigh  customer  “ownership”

Financial  ResultsRapid  growthHigh  marginsHigh  profitability

Arrows  Indicate    Relationships  for  Which  There  are  Concentrations  of  Largely  Confirmatory  Research

Directional  Progress  in  the  Search  for  “DeepJndicators”  of  “Both/  And”  Service  Results

4. Creating and Capitalizing on Internal Quality—a “Great Place to Work”

What GSLs know:

Great service starts with the frontline employee What GSLs do:

Hire for attitude; train for skills

The Logic of a Low-Retention Strategy in Services Simplified,

tech-Assisted0Jobs

Confirmation0of0Rightness0of0Strategy

ReasonableProfit0Margins

Continued0Customer0Loyalty0if0Serviceis0Noncritical

Mediocre0CustomerSatisfaction

Can0Afford0Marketingto0Replace0Customers

Customer0Reflectionsif0Service0is0Critical

Low0Price

Mediocre0ServiceQuality

High0Productivity;0Low0Labor0Cost

Little0Latitudeto0Deliver0Results

Low-CostEmployee0Selection

Little0Training

Low0Pay

Repetitive,0Boring0Work

Low0Trustof0Employees

Emphasis0on0Rules(Possibly0Tech0Imposed)vs.0Results0for0CustomersLow0EmployeeSatisfaction

Low0EmployeeRetention

>

The Logic of a High-Retention Strategy in Services Complex(Jobs

Requiring(EmployeeJudgment

Confirmationof(Rightnessof(Strategy

ReasonableProfit(Margins

Customers(ShareMarketing(Efforts(toNew(CustomersThrough(Referrals

High(Customer(Loyalty(for

Critical(Services

High(ServiceQuality

High(Employee(Loyalty

High(Employee(Satisfaction

Emphasis(on(EmployeeFProducedResults(for(Customers

High(Levels(ofTrust(Placedin(Employees

Interesting(Work

AboveFMarketPay

ExtensiveTraining

EmployeeCareful(Selection

Extensive(EmployeeLatitude(to(

Deliver(Results

Confirmation(of(Rightness(of(Strategy

ReasonableProfit(Margins

Lost(Customers(are(Not(Replaced

Customer(Defectionif(Service(is(Noncritical

High(Price

Moderate(Productivity;High(Labor(Cost

High(Service(Quality

5. Designing Operating Strategies for Service Futures

What GSLs know:

Operating strategies have to serve both employees and customers What GSLs do:

Ensure the design and implementation of operating strategies that deliver both leverage and edge

Where leverage involves doing more with less edge is about competitive advantage. Sources of leverage may or may not provide edge. These are the “nuts and bolts” of a service operation.

6. Developing Support Systems for Service Futures

What GSLs know:

The best uses of technology create frontline service heroes and heroines What GSLs do:

Use technology to elevate important service jobs and eliminate the worst service jobs

To Replace CustomerInteraction with a Service Worker

To Expand Capabilityand Enhance Talentsof Service Workers

Source of Input to ServiceEncounter

To Enhance Productivity

and Quality of Resultsby Replacing Portions

of Service Jobs

Human

Technology-Oriented

Characteristics of the Service Encounter

Need for human “face”

Need for flexibility and judgment

Customer perceived risk

Negative impact of technology onservice worker self-perceptions

Degree to which service quality canbe enhanced by technology

Importance to customer oflow-cost affordedvby technology

Degree to which technology canenhance customer co-creation

of service

LowLowLow

?

High

High

High

HighHighHigh

High

Low

Low

Low

The Role of Technology in the Service EncounterThe Role of Technology in the Service Encounter

7. Fostering Customer “Ownership”: The Future Face of Services

What GSLs know:

Satisfying customers is not enough What GSLs do:

Take steps to develop a core of customers who are “owners”

The Customer Ownership Curve

8. Leading the Next Transformations in Service

What GSLs know:

Their current beliefs about the future of services are wrong What GSLs do:

Build agile service organizations that learn, innovate, and adapt

The Leader’s Role in Service Futures

Propagate, visibly act out, and enforce through measurement and action a set of values and behaviors that characterize learning organizations.

The Leader’s Role in Service Futures (continued)

Organize for learning. Rely heavily on team efforts. Propagate a “test, then invest” mentality. If it is necessary, create separate “laboratories” for innovation and learning staffed with people who are not burdened with the day-to-day responsibility for producing short-term profits.

The Leader’s Role in Service Futures (continued)

Mobilize the organization to foster the changes needed to preserve strategic advantage, however transient it might be.

The Leader’s Role in Service Futures (continued)

Set specific goals and recognition for innovation, whether it is the proportion of revenue and profit from new value-centered services or some other measure.

The Leader’s Role in Service Futures (continued)

Constantly seek ways of bringing people from various functions and businesses together for a consideration of agendas designed to foster the exchange of ideas and learning.

The Leader’s Role in Service Futures (continued)

Allocate human and other assets across the entire organization, recognizing those making the greatest contributions in terms of shared values and behaviors for a learning organization.

The Leader’s Role in Service Futures (continued)

Ensure that short-term results are strong enough to provide “cover” for the learning and innovation required for long-term success, satisfying a need for “ambidexterity” in an organization.

The Leader’s Role in Service Futures (continued)

Serve as a window to the public, providing the kind of transparency that anticipates and eliminates public surprises.