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The Employee-Customer-Profit Chain at Sears

More than 100 top-level executives at Sears, Roebuck and Co. spent three years rebuilding the company around its customers. In this excerpt from their article in the Harvard Business Review, three members of the Sears team discuss the new business model based on new measurement techniques and the realization that "there is a chain of cause and effect running from employee behavior to customer behavior to profits."

The basic elements of an employee-customer profit model are not difficult to grasp. Any person with even a little experience in retailing understands intuitively that there is a chain of cause and effect running from employee behavior to customer behavior to profits, and it's not hard to see that behavior depends primarily on attitude. Which is not to say that implementing an employee-customerprofit chain, or model, is easy. One big problem is measurement. Unlike revenues and profits, soft data are hard to define and collect, and few measures are softer than customer and employee attitudes, or "satisfaction." In many businesses, it is difficult to measure even relatively hard behaviors like customer retention, and the inevitable result is that many companies are unwilling to expend the time, energy, and resources to do it effectively. Not surprisingly, many companies do not have a realistic grasp of what their customers and employees actually think and do.

Sears does. By means of an ongoing process of data collection, analysis, modeling, and experimentation, we have developed and continue to refine what we call our Total Performance Indicators, or TPI—a set of measures that shows us how well we are doing with customers, employees, and investors. We understand the several layers of factors that drive employee attitudes, and we know how employee attitudes affect employee retention, how employee retention affects the drivers of customer satisfaction, how customer satisfaction affects financials, and a great deal more. We have also calculated the lag time between a change in any of those metrics and a corresponding change in financial performance, so that when we see a shift in, say, employee attitudes, we know not only how but also when it will affect results. Our TPI makes the employee-customer-profit chain operational because we manage the company on the basis of these indicators, with remarkably positive results. But the system is a good deal more complex—and a good deal harder to imitate—than this glimpse suggests.

Any retailer could copy the Sears measures—even our modeling techniques—and still fail to achieve an operational employee-customer-profit chain, because the mechanics of the system are not in themselves enough to make it work. It goes without saying that you must be able to measure and manage the drivers of employee and customer satisfaction, and we will explain how we do this at Sears. But two additional elements are indispensable. First, a company must build anagement alignment around the model and the measures—which, for all practical purposes, make up a single system. Because this system is to be the cornerstone of management decision making, it is critically important that every manager—especially those at the top of the company—understand the system and buy into it wholeheartedly. Second, it is essential to deploy the system properly in order to create a sense of ownership among sales associates and staff. Deployment is easy to shrug off. It looks like a simple communication challenge, but it is a good deal more. It is an issue of trust and of business and economic literacy. Unless employees grasp the purpose of the system, understand the economics of their company and industry, and have a clear picture of how their own work fits into the employee-customer-profit model, they will never succeed in making the whole thing work.

See the exhibit The Revised Model: The Employee-Customer-Profit Chain.

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Excerpted with permission from the article "The Employee-Customer-Profit Chain at Sears" in the Harvard Business Review,Vol. 76, No. 1 January 1998.

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