Executive Education

The Value Profit Chain

Achieving Breakthrough Service is an intensive Executive Education program that focuses on the value profit chain model, and how that chain redefines service throughout all areas of an organization. The course shows participants how to leverage this new model to seize opportunities that are unattainable with the existing model—and how to reap the impressive payoffs of greater employee loyalty, greater customer loyalty, increased profitability, and faster growth for their organizations.

In the 1970s, Harvard Business School Professor W. Earl Sasser first began thinking about how companies manage to get beyond "merely good" customer service to breakthrough customer service. As he developed expertise in this area, he was joined by his HBS colleague James L. Heskett. The pair has now published four books on this topic. Their research centers on a fundamental model that they call the "value profit chain."

Over the last decade, the value profit chain has had a significant impact on management practice. "We have worked with hundreds of executives who have put these ideas into practice to maximize the value that their organizations deliver," says Sasser, who is the UPS Foundation Professor of Service Management at HBS. The spectrum of firms benefiting from the value profit chain model is wide and includes organizations both small and large, public and private, and for-profit and not-for-profit.

Sasser explains that the value profit chain model acknowledges the importance of the behaviors of a company's three key constituents: customers or clients, employees, and investors. "The framework highlights the importance of the interrelationship of these three groups," says Sasser. He breaks down the behaviors into three areas: retention, related sales, and referrals.

To explain each of the behaviors, Sasser starts by examining customers. "Basically, we all want our customers to come back to us. This is a behavior that we call retention," he says, noting that retention can be measured by calculating the revenue associated with keeping customers. "Not only do we want our customers to stay with us, but we also want them to buy more from us. We want a higher share of their wallet in terms of the things they purchase." The third behavior that companies look for, he explains, involves referrals. "We want customers to feel so good about us, that they will go out and recommend our products or services to other people." Thus, getting customers to stay with a company (retention), buy more (related sales), and tell others (referrals) are crucial behaviors that, as Sasser simply puts it, lead to long-term profitability and growth for the company.

But the buck doesn't stop there, according to Sasser. "We can't expect profit and growth merely by focusing on our customers. We also need to take a look at our internal organization—at our employees," he notes. Sasser believes that it is crucial for companies to look at the same behaviors that they evaluate for their customers and see how to apply them to their employees. "Obviously, we want to retain our really good employees; we want them to care about the company—behave as if they were owners," he says. "We also want more of their mental energy, something we call 'share of mind.'" And, it follows, "we want them to feel so good about working for our organization, that they will go out and tell their family and friends that this is a great place to work."

Sasser points out that there is a mirror effect between the behavior that companies want to see in their customers and in their employees. "We want to retain our employees just as we want to retain our customers; we want a large share of our employees' energy just as we want a large share of our customers' wallets; and we want our employees to refer us to others just as we want our customers to refer us to others."

If a company does this well, he continues, then the behaviors will be repeated by investors. "If we achieve the desired behaviors from our customers and our employees, our investors will stick with us, they'll make our stock or ownership a bigger share of their portfolio, and they'll go out and tell their families and friends that this is a great place to invest."

Companies that achieve these three behaviors from these three constituents will improve the performance of their organizations. "The concepts are fairly straightforward on paper, but we all know that in practice they can be very challenging," admits Sasser, who brings some 30 years of expertise to the Achieving Breakthrough Service Executive Education program at HBS. "We help leaders at all levels of the organization apply this framework to create breakthrough value for customers, employees, and investors." By working closely with Sasser and his colleagues Frances X. Frei, James L. Heskett (his collaborator on several projects), and Das Narayandas, program participants can learn how to leverage the value profit chain model and reap the rewards of greater employee and customer loyalty, increased profitability, and faster growth for their organizations.

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