The Ownership Quotient: Putting the Service Profit Chain to Work for Unbeatable Competitive Advantage

Citation

Reynoso, J. (2010), "The Ownership Quotient: Putting the Service Profit Chain to Work for Unbeatable Competitive Advantage", Journal of Service Management, Vol. 21 No. 3, pp. 413-417. https://doi.org/10.1108/09564231011050823

The ownership of the business is mostly associated with financial aspects in relation to proprietors, investors, shareholders. In this book ownership is related to the commitment of customers and employees to the company. It is conceptualized as the next stage beyond loyalty. Employees and customers owners are those who are not only advocates but also are looking for improvements, innovative ideas to create new services or products and even willing to work on behalf of their favorite companies. As a result of more than 30 years of work, this book could be seen as the natural evolution of the service profit chain model developed earlier by two of the authors. It condensates the wisdom obtained over the years working with hundreds of organizations which have applied the model. Some of them have obtained outstanding results, using sophisticated technologies and scientific methods to deliver value to customers and employees. These companies have been able to align key elements of their companies to make customers and employees thinking and acting like owners. The book is an excellent practical guide full of rich examples, cases and business insights, for those managers and executives willing to benefit from this wisdom gathered during these years of intense learning from service profit chain applications. Such cases and examples are used dynamically, linking the same business with different topics, making more sense and giving continuity so the reader can follow the core message. To map this business evolution, an ownership hierarchy of customers and employees presented in the introductory chapter. As it is discussed later, the ownership will be measured using a quotient generated by the proportion of employees and customers displaying behaviors consistent to this hierarchy.

The book contains eight chapters. After the introduction, the second chapter is dedicated to build ownership into the business strategic value vision. The ownership quotient begins with developing strategies for creating and delivering value for customers and employees. The main claim is that everything starts with strategic value vision. This is illustrated with a savings bank like ING Direct. Building on this, four main ingredients have to be assembled into the vision of the organization. Target market focus: who are the customers the company aims to serve? Who are not? Value for customers: results of the service concept over costs. Operating leverage: policies, practices, and technologies used to produce such value over the costs involved; and support systems excellence: those resources used for the execution of the service. In targeting the customer, the importance of identifying the “pain” is emphasized, suggesting going beyond demographics to concentrate on customer psychographics to find out why they “hire” products or services. This deeper understanding of targeted customers, would in turn allow the company to redefine the business, moving from mere products and services to value. What customers really buy is value, which combines results and the quality of the service experience in relation to the associated costs. Companies like IBM and Best Buy, for example, are considered value‐driven organizations which innovate, grow and are great places to work. In building such strategic vision, it is necessary to align operating strategy to delivery of value. The service concept (“the what”) has be consonant with operation and systems (“the how”). It is not easy to do so and does not happen overnight. It could take years before the company could have a delivery system tuned to produce the expected value for customers and employees. The chapter ends providing useful insights to avoid usual mistakes. In particular, a warning is made about the risk of loosing focus and eventually damaging profitability due to the proliferation of products and services trying to solve all customer problems.

Once the role and components of strategic business vision have been discussed in the creation of ownership, the book continues discussing the importance of leveraging value over costs. Companies promoting ownership design operating strategies and systems to produce value over cost. They carefully align all key elements of strategic value vision. They put attention to deep indicators or key value levers. The PrairieStone Pharmacy is a useful and interesting example used to explain how this retail chain is gaining competitive edge by carefully aligning strategies of physical space, human talent and time to reduce preparation and delivery costs of the drugs. The value equation is introduced to further explain why leverage is crucial. Understanding the comparison made by customers (and also by employees) of results and process quality in relation to overall acquisition costs is a very useful managerial tool to effectively align key components of the strategic business vision for the creation of value. The importance of managing the key value levers is stressed, clarifying that deep indicators are not financial, but these are rather the effect. It is claimed the deep indicators are the true drivers of success. To exemplify this, key value levers used to transform NYPD are presented. This transformation was based on redefining the customer‐police officer experience, processes, jobs, and facilities; choosing the right technology; selecting the right people; changing structures, and systems and redefining performance metrics and incentives. The illustration of leveraging value over costs continues by building on deep indicators in another successful case: Victoria's Secret. Deep indicators like store productivity, customer traffic, conversion rates and initial markup are discussed in this fashion retail context to explore operating strategy and support systems that use these deep indicators to leverage value. The chapter ends clarifying the bottom line: the need to distribute a larger pot. The bigger the difference between the numerator and denominator of the value equation, the bigger the benefit for the company would be. It is necessary to put the customer to think more on the upper part of the equation, so the company could have more flexibility in the lower part. It is very interesting to note how service companies with different service concepts could manage their value equation differently. The case of the so‐called low‐cost airlines is an interesting one.

Who said value for the customers has to be produced only by the service provider? A topic discussed in the service literature is addressed here: the customer as co‐producer; customer involvement; customer participation, and so on. Authors invite readers to put the customers to work in chapter four. The argument is letting them help to create value. In recent times other researchers have written about the co‐creation of value and value‐in‐use. Many customers would be willing to work for their favorite companies and even work to obtain some of the results they expect to get from the service. It is argued that giving more control to customers during the value creation process would increase their sense of ownership with the company. They would become owners. In doing so, first, the company has to encourage customers to help create value. It is very important to identify the work customers perform best and their limitations. Shouldice Hospital is a very good example of the customer being involved in the service delivery process. IKEA shows how customers could produce personal value being involved in transporting and assembling products. InterContinental hotel group represents a customer web community built with an online forum to improve their services. It is also useful to understand the different reasons why customers work. They could be more willing or interested to participate when results are personally important; when they want to have more control over their experience; when there is community pressure; when others do not look dependable and also for cost saving reasons. It is essential to minimize negative customer work. That is, negative customers who could damage the image of the company, and perhaps have to be fired. Companies should try to turn antagonists into owners, using, for example, appropriate guarantee programs as part of a sound recovery process that could bring them back. Another important issue in putting customers to work is designing their jobs, choosing the best candidates, and managing their work. Depending on the objective the company wants the customer to work for, would be the set of actions to be taken for it. Different useful questions are provided about objectives, selection process, communication mechanisms, etc. to help readers to reflect upon those aspects during this stage. Two issues are highlighted here. The need to train or retrain customers is important to avoid frustration, so they do not become antagonists. It is interesting to note that once customers learn what and how to do “their work,” they are usually reluctant to do it differently. Also, listening and responding to customer's voice is relevant, collecting information, providing rapid response and follow up and using technology to create customer support centers. On the other hand, policy issues are identified that could contribute to make mistakes in putting customers to work. Particularly, in the effort to obtain information and referrals from customers, the business could put marketing first, being in charge of the process and jeopardizing other ownership efforts being conducted in the company. The chapter ends highlighting the importance of targeting the right level of ownership.

How to boost employees' ownership quotient is discussed in chapter five. Examples from different companies like Baptist Hospital, Fairmont Hotels & Resorts, SAS and Wegmans Food Markets are included. This is an essential part of the book, as customers ownership depends on employees' ownership. It is argued that employee ownership quotient is a prerequisite for customer ownership quotient. Employees could be loyal, but they become owners when they want to make it a better place to work and a more successful business. They provide excellent ideas for improvement and they invite high‐potential friends to work there. This is the difference between loyal employees and employees becoming owners. In this vein, it is essential to understand the employee value equation. Using the same logic as with customers, employee value equation is presented and discussed. To achieve this, the cycle of capability is introduced. Basically, it summarizes in a very practical way, key strategies to create employees owners, such as hiring for attitude and training for skills; installing outstanding support systems; offering latitude, measuring and rewarding. The cycle of capability is something practitioners could really benefit from. Another valuable contribution presented here is the so‐called mirror effect. Understanding the direct relationship between employee and customer satisfaction is crucial in creating ownership among these two sets of actors. The chapter ends illustrating the leverage of the capability cycle using the case of SAS.

Engineering ownership by outstanding companies in an anticipatory way represents the content of chapter six. Such engineering begins developing a community of owners which helps to obtain and use customer information to conduct intelligently integrated operations throughout the business. This is exemplified in detail with the cases of Harrah's Entertainment and Build‐A‐Bear Workshop. The two companies have taken the service profit chain to another level. Rather than just using indicators associated to CRM, these companies are centered on employees and customers, anticipating their needs. Building and sharing a common cross‐functional database is essential as well as coordinating operations, marketing and human resources to act on predictive intelligence. In the case of Harrah's, the operation strategy is based on a differentiated service experience, paying special attention to customer segmentation, using different tactics like, for example, customer satisfaction drivers. In the case of Build‐A‐Bear Workshop, coordinating marketing, operations and human resources to produce a simple, memorable customer experience is essential. Another useful insight in this chapter refers to the use of dynamic delivery systems. Harrah's illustrates the active enterprise, paying careful attention to match demand and capacity between each other, whereas Build‐A‐Bear emphasizes the case of a dynamic learning organization. The fact that technology is only one element of the operating strategy is also addressed here. A very good message worth remembering is that technology enables and people deliver. The chapter ends mentioning the good financial results of these two companies.

The importance to build a strong and adaptive ownership culture is touched upon in chapter seven. It uses examples from companies like SAS, Irving Oil, and Baptist Health Care to explain the importance of changing the rules of the game through culture, to create a community of employees, customers and suppliers to obtain complaints, referrals, suggestions, improvement proposals, new services and products. In building this ownership culture, some key aspects are suggested. First, creating a strong sense of shared purpose throughout the company, without creating a cult. Also, identifying core values and behaviors, without getting confused with customs. Realizing the imperative need to communicate permanently and insisting on the right leadership behaviors is also proposed. Important pitfalls about culture are also listed, including mistakes related to the arrogance of the company when taking issues like success, self‐importance or culture itself too far, loosing somehow touch with reality. The chapter ends providing a list of top ten lessons about culture from best practitioners.

The ownership quotient is finalized in chapter eight. Some practical recommendations to sustain success for those companies aiming to develop employees and customers ownership are discussed. Four key suggestions are provided. First, to face the challenge of countering the skeptics and critics. Yes, it can be done. Second, building an ownership state of mind, fostering those key strategies presented throughout the book. Third, addressing leadership issues. In particular, the definition of metrics for each level in the ownership hierarchy is something worth mentioning. Measures for satisfaction, loyalty, commitment, and ownership are suggested. At this point, the notion which gave the name to the book: the ownership quotient becomes evident. A practical score guide to build the company's OQ is provided. It is defined as a measurable proportion of customers and employees who provide evidence or specific behaviors beyond mere loyalty, such as constructive criticism, suggestions and improvements, new service and product ideas and also willingness to work the extra mile for the company in different ways. The chapter ends with a rather brief introduction to a very provocative topic: the future of ownership. New forces are grouping to redistribute control; new generations are changing the face of management. This topic rises very interesting, yet not analyzed or discussed changes and trends that would deserve longer, deeper discussion. At the end of the book, a practical diagnostic tool is provided. A full ownership audit contains sections for results about employees, customers and financial issues; as well as other sections to cover the input of those topics represented by each chapter of the book. This is definitively a bonus for the reader.

After reading this book, it is evident that the ownership quotient is much more than then next quantitative measure beyond satisfaction and loyalty. It is an excellent example of the successful evolution of a long‐term, focused research project. The service profit chain model has paid dividends over the years in several companies in a variety of sectors and has created a rich learning process for both academics and practitioners. Developing strategic business vision, leveraging value over costs, implementing the cycle of employee capability and putting customers to work for value co‐creation represent the essence of the wisdom produced during three decades combining passion, intelligence and dedication to grasp the essence of some of the most successful service organizations.