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In exemplary service organizations, executives understand that they need to put customers and frontline workers at the center of their focus. Those managers heed the factors that drive profitability in this service paradigm: investment in people, technology that supports frontline workers, revamped recruiting and training practices, and compensation linked to performance. They also express a vision of leadership in somewhat unconventional terms, referring to an organization's "patina of spirituality" and the "importance of the mundane." In this article, Heskett, Jones, Loveman, Sasser, and Schlesinger take a close look at the links in the service-profit chain, which puts hard values on soft measures so that managers can calibrate the impact of employee satisfaction, loyalty, and productivity on the value of products and services delivered. Managers can then use this information to build customer satisfaction and loyalty and assess the corresponding impact on profitability and growth. Describing the links in the service-profit chain, the authors explain that profit and growth are stimulated by customer loyalty; loyalty is a direct result of customer satisfaction; satisfaction is largely influenced by the value of services provided to customers; value is created by satisfied, loyal, and productive employees; and employee satisfaction, in turn, results from high-quality support services and policies that enable employees to deliver results to customers. By completing the authors' service-profit chain audit, companies can determine not only what drives their profit but how they can sustain it in the long term.

Supplements the (A) case.

Supplements the (A) case.

Details the actions of John Martin, newly named CEO, as he leads Taco Bell through a decade of incremental and radical changes. By the end of the case, total system sales within Taco Bell, a Mexican style fast-food restaurant chain and a division of PepsiCo, have grown from $700 million in 1983 to $3.9 billion in 1994, and the company is managing over 10,000 eat-in restaurants and a wide variety of other retail sites around the world.

Achieving the full profit potential of each customer relationship should be the fundamental goal of every business. The logic is as simple as it is compelling: Profits from customer relationships are the lifeblood of all businesses. And, at the most basic level, these profits can be increased in only three ways: by acquiring new customers, by enhancing the profitability of existing customers, and by extending the duration of customer relationships. Yet the business models that drive decisions in most large companies were forged before it was possible to focus directly on these key drivers of business profitability. Today companies can use information and technology tools to link their investments in customer relationships to the returns that customers generate. In other words, companies can now optimize what the authors call the value exchange: the relationship between a company's financial investment in customer relationships and the return that customers generate in responding to that investment.

Taco Bell CEO, John Martin, boldly proclaims a growth goal of 200,000 points of access by the year 2000 (the company had approximately 3,600 in 1991). To realize such growth, Martin embraces a philosophy of continual change. The implications for Taco Bell are dramatic changes in organizational structure, culture, human resources, technology, and communications. In redefining its market and "thinking outside the box" in all aspects of its business, Taco Bell hopes to become a "super brand"--transcending not only categories but industries as well.

Describes the three business segments of PepsiCo (beverages, snack foods, and restaurants). It then explores the competitive environment within each segment and the response of PepsiCo's businesses. It seeks to show how PepsiCo CEO, D. Wayne Calloway, in a very "hands-off" and decentralized manner, achieves high growth rates in each segment through a process of "continual transformation." Calloway strives to hold together a fast-growing and rapidly changing business through shared values (instead of implementing tighter controls and increasing supervision).

Air Miles Canada both increases customer loyalty by rewarding shopping frequency at specified merchants, and enables its sponsors to develop a new, more complex understanding of their customers' (and potential customers') shopping habits, thus making future customer acquisition more efficient.

Spreadsheet supplement for case 693-013.

The Walt Disney Co. theme parks historically have thrived on the basis of a formula stressing excellent customer service and a magnificent physical environment. The formula has proven successful in Japan, as well as the United States. With the controversial opening of Euro Disney in France, however, there has become reason to doubt the international appeal of the formula. The case documents issues involved with Euro Disney. Examines the transferability of a successful service concept across international boundaries.

P.K. Scherle, R.N., founder, president, and owner, struggles with her successful business and focuses on either growth or enhanced profitability.

John Martin, Taco Bell CEO, brings the company into line with its competitors through incremental change during the 1980s. In the early 1990s, he adopts breakthrough approaches to improve service levels while reducing prices, providing a distinct competitive advantage. Illustrates the power of breakthrough thinking in a service industry and demonstrates the importance of a coordinated, holistic approach to implementation.

For more than 40 years, service companies like McDonald's prospered with organizations designed according to the principles of traditional mass-production manufacturing. Today that model is obsolete, and companies like Taco Bell, Dayton Hudson, and ServiceMaster have chosen to reverse the cycle of failure by putting workers with customer contact first and designing the business around them. They are developing a model that replaces the logic of industrialization with a new service-driven logic.

Describes Star's experiment with gain sharing over a three-year period. Background on the industry and company's history are provided to establish the context for the shift to pay-for-performance. Describes the three different gain sharing programs, the resulting payouts, and organizational impact.

Describes the historic evolution and current positioning of a Christian church which focuses on the attraction of "unchurched" individuals. Describes the church's strategic service vision and its current growth and leadership problems.

Shortly after installing a new computer system designed to provide quick and accurate service, the president of Presto Cleaner received an angry letter from a customer whose laundry had been lost by the system. The case study looks at the questions: How much service does a company or store owe a customer? Is the customer always right? In 90304 and 90316, four authorities on customer service--Leonard A. Schlesinger, associate professor at the Harvard Business School; Dinah Nemeroff, corporate director of customer affairs at Citicorp/Citibank; Ron Zemke, president of Performance Research Associates; and Claus Moller, president of Time Management International--consider Presto Cleaner's customer complaint.

Shortly after installing a new computer system designed to provide quick and accurate service, the president of Presto Cleaner received an angry letter from a customer whose laundry had been lost by the system. The case study looks at the questions: How much service does a company or store owe a customer? Is the customer always right? In 90304 and 90316, four authorities on customer service--Leonard A. Schlesinger, associate professor at the Harvard Business School; Dinah Nemeroff, corporate director of customer affairs at Citicorp/Citibank; Ron Zemke, president of Performance Research Associates; and Claus Moller, president of Time Management International--consider Presto Cleaner's customer complaint.

The Oakland A's baseball team underwent a major turnaround during the 1980s, both on the field and in the business office. One of the most significant improvements came in the area of customer service. The A's management believed that if they took care of their fans, they would remain loyal through winning and losing seasons.

To be used in conjunction with Ford Motor Co.: Dealer Sales and Service.

Since Henry Ford founded Ford Motor Co., Ford vehicles have been sold and serviced the same way. By the late 1980s Ford began to consider making changes in its sales and service process. Two developments forced Ford to reconsider these processes. First, Ford found through various surveys that customers had very clear complaints about the way they were treated by car dealers. Second, with more rapid technology transfer among the automakers, product differentiation was declining. Therefore, the channels of distribution provided one of the final potential points of differentiation between automakers. This case gives the students all of the conclusions from the studies Ford had done and asks them to redesign the sales and service process to address customers' complaints and become a point of differentiation for Ford.