Supply Profit Chain
As promised in my last post, I will start to look more deeply at some of the ideas discussed at the Disney Institute program I attended last week. Today’s topic is the theory that a focus on internal excellence yields increased external value. And more than that, I and others would argue: it produces significant collateral benefits for employees, the consumer, and the economy as well (as opposed to collateral damage).
I also think this topic is particularly germane today, given the PR campaign being waged by Steve Jobs at Apple. Disney presented what it calls it Chain of Excellence, which is based on the Loyalty-Profit Chain (better known to me as the Service-Profit Chain) which was developed at the Harvard Business School. Here is the simple chain:
Internal Service Quality > leads to >
Employee Satisfaction >
Employee Retention >
Employee Productivity/Performance >
External Service Quality >
Customer Satisfaction >
Superior Customer Value >
Customer Loyalty >
Revenue Growth & Profitability >
Shareholder Value.
Simple enough, right? It makes sense that if your internal quality is high, and you constantly practice and hold yourself to a higher standard, people will have more pride of ownership in their work. It follows that employees will thus be more satisfied on the job, and want to stick around. Which would mean in turn that institutional knowledge would develop, and productivity would increase. This of course leads to higher external service quality, more and more satisfied customers, much higher perceived value, and a higher degree of customer loyalty. Since existing customers are easier and cheaper to keep than new customers are to recruit, it stands to reason that loyal customers lead to increased revenues and profitability.
So, the next time you are thinking about increasing the value of your organization, begin your search at your office’s front door and look inward. Are you driving external value with internal excellence? If not, this would be a great place to start!
