Value Profit Chain
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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 framework stresses the importance of the interrelationship of these three groups. Their behaviors can each be broken down into three areas:
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.
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.
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.
The five value chain virtues
Origin of the Value Profit Chain. History
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
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
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