Recalling the Service Profit Chain

Tim Houlihan

In the mid-1990s, three researchers created something they called the Service Profit Chain. It was featured in Harvard Business Review and later in a book, bearing the title of the concept. The foundational idea of the service profit chain was this: how you treat your employees impacts how they treat your customers.

Their research has been validated with a longitudinal study of the city of Framingham, Massachusetts. Two researchers gathered data from the townsfolk about their happiness (and unhappiness) and their general health for 20 years. They demonstrated that how you feel impacts not just your friends, but your friends’ friends. Having a grumpy boss doesn’t just translate into a cartoonish kicking of the dog when you arrive home, your grumpy boss literally frames how you will feel and even impact how your friends feel.

This research is great news to corporations interested in differentiating their offering with excellent service. As long as frontline employees are treated with respect, they are more likely to treat their customers with respect. This can be a powerful brand differentiator in a highly competitive world.

How to Put the Service Profit Chain to Good Use

The Service Profit chain works best in organizations where the cultural ecosystem is driven by service. Recently, I was in a meeting at a global seed manufacturer’s U.S. headquarters and the business leader asked his geographically diverse team on the call, “What can I do to help you get this project done well and done on time?” Several of them responded with perceived roadblocks and he responded with commitments to resolve them or dealt with them on the spot. After the call, I asked him about his comment. He replied that he gets the same support from his leadership and he happily passes it along to his team. “They go the extra mile because they know we’re in it together,” he said.

Of course, we have goals. Of course, we have demands to deliver results. But we don’t have to do it with Captain Grumpy as our emoji. Since our behaviors will influence reps and their behaviors will in turn influence customers, it’s worth considering what you do and say before you do and say it.

On Stack Ranking

If there is one thing that is nearly universally loved by sales managers, it’s stack ranking (or rank ordering as it’s sometimes called). Putting the list of reps in order from top-selling rep to bottom selling rep is regarded by sales managers with almost mythical qualities. The stack ranked list is the just one handful of pixie dust away from waking up in Neverland with Peter Pan.

But that mythology is misplaced. While it’s true that no one wants to be at the bottom of list, the reps most commonly at the bottom of the list are still learning. Their skill development will be hobbled as a result of being labeled the bottom feeders. Is it motivational for them to rise above the last line on the spreadsheet? Definitely, it is. However, it’s motivational power is choked by the pressure to succeed.

In a study conducted by George Loewenstein, Dan Ariely, Uri Gneezy and Nina Mazari just a few years ago, they found a very profound effect of choking when the stakes were too high for a particular job. When newbies are put in front of tenured reps to make their first presentation prior to getting solid coaching from their manager, their ability to learn best practices is stagnated. And when the newbies are laid to rest at the bottom of the stack ranked list of reps, while their tenured peers hover above them, their motivations to push north are squelched.

When Stack Ranking Makes Sense

Resist the temptation to stack rank the entire team. Recognize the top performers by celebrating their achievements (top 5 or top 10) in a regularly published list. Make that list be something to strive for among the reps who are nearing the top 10 and not quite delivering enough results to make it onto the coveted Top 10 list.

By the way, it’s okay to stack rank the newbies – if in fact they really are starting from similarly unqualified positions. Let them compete against each other – but keep it to that small fraternity (sorority) of newbies. Don’t put their names on the same published list as the tenured reps if you want to keep their motivation high.

Resist the temptation to throw the newbies in front of a customer to make their first demo without carefully coaching them prior to their first call. Being baptized by fire by unprepared sales presentations and demos will leave burn marks on otherwise good reps. Don’t expect your mythological beliefs about sales management techniques to generate mythological creatures, such as the Phoenix rising from the ashes, in the real world.

Stick to good science – it will deliver the best results.

[1] Ariely, D., Gneezy, U., Loewenstein, G., Mazar, N., “Large Stakes and Big Mistakes,” The Review of Economic Studies, No. 76, 2009.