Value Profit Chain

Value Profit Chain
(Heskett Sasser Schlesinger)

http://www.12manage.com/methods_heskett_value_profit_chain.html

WHAT IS THE VALUE PROFIT CHAIN? DESCRIPTION
With their Value Profit Chain model, James Heskett, Earl Sasser and Leonard Schlesinger argue that organizations need to focus on providing what their employees, customers, investors, suppliers, and others value most. Focusing on value will bring about necessary organizational change, and tying an organization to the most valued needs of its customers will make it more responsive to its markets. In addition, giving employees what they appreciate in an organization will make them more productive and decrease the costs of employee turnover. The authors conclude that a value approach will result in greater organizational effectiveness and profitability.

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 stresses the importance of the interrelationship of these three groups.

Their behaviors can each be broken down into three areas:
Retention, Related sales, and Referrals.

1. Customers
Basically, we all want our customers to come back to us. This is a behavior that we refer to as retention. 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, involves referrals. We want that customers 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. These behaviors cause long-term profitability and growth for the company.

2. Employees
But profit and growth cannot be expected merely by focusing on our customers. We also need to take a look at our employees. 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. We want them to behave as if they were owners. We also want more of their mental energy, something we call 'share of mind'. And 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.

3. Investors
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, then the three behaviors will be repeated by investors. If we achieve the desired behaviors from our customers and our employees, our investors will stay with us. They will make our equities 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.

Performance trinity
Leadership and management
Culture and values
Vision and strategy
The five value chain virtues
Leverage
Focus
Fit
Trust
Adaptability

ORIGIN OF THE VALUE PROFIT CHAIN. HISTORY
Heskett - Service Quality, 1986
Heskett, Sasser and Hart - Service Breakthroughs: Changing the Rules of the Game, 1991
Kotter and Heskett - Corporate Culture and Performance, 1992
HBR, Putting the Service Profit Chain to Work, 1994
Heskett, Sasser and Schlesinger -The Service Profit Chain, 1997
Heskett, Sasser and Schlesinger - The Value Profit Chain, 2003
USAGE OF THE VALUE PROFIT CHAIN. APPLICATIONS
The spectrum of firms which benefit from the Value Profit Chain model is wide. It includes small and large organizations, public and private organizations, and profit and non-profit organizations.

STRENGTHS OF THE VALUE PROFIT CHAIN. BENEFITS
The thinking behind the Value Profit Chain can help us to organize the confusing array of ideas for managers that are existing today.
It can provide a basis for benchmarking an organization against best practice on various dimensions of the chain.
LIMITATIONS OF THE VALUE PROFIT CHAIN. DISADVANTAGES
The concept is fairly straightforward on paper, but can be very challenging in practice.

ASSUMPTIONS OF THE VALUE PROFIT CHAIN. CONDITIONS
Employee value causes the satisfaction, loyalty and productivity that produces customer value.
Satisfied, loyal, trusting and committed customers are the primary drive of company growth and profitability, and determinants of investor value.

VALUE PROFIT CHAIN SPECIAL INTEREST GROUP

Visit the Special Interest Group

VALUE PROFIT CHAIN FORUM