Driving profits through customer satisfaction

Werner Reinartz, associate professor of marketing at INSEAD, has chosen to emphasize the impact of customer satisfaction on a company's bottom line, through the case of the Danish facility services ISS (Integrated Service Solution). Founded in 1901, the company was acquired in 2005 by a private equity consortium backed by Goldman Sachs and EQT, a Swedish private equity fund.

by Werner Reinartz
Last Updated: 23 Jul 2013

Feeling pressure to increase revenues from existing customers as well as to improve his margins, Peter Soltoft, senior vice-president of sales and market development at ISS, implemented a new strategy geared towards organic growth. Named "Route 101", the strategy was meant to ensure that all the companies in the group delivered the expected growth rates that the shareholders demanded.

It laid out ambitious financial targets for ISS, the core business of which is facility services - covering a range of business support services such as cleaning, property services, catering and office support. ISS borrowed Einstein's famous formula, E=MC2, to represent the key performance drivers: margin, continuous organic growth and cash conversion.

The facility services industry is highly fragmented and composed of thousands of small service providers against a handful of global players such as ISS, Rentokil and Johnson's control. Facility service providers had so far responded to that competition by offering an integrated solution that went beyond outsourced cleaning, and including catering, pest control, landscaping.

Until it was taken over, ISS's expansion was based primarily on acquisitions of competitors in selected markets such as aircraft cleaning or hospital services. A key element of Route 101 was setting clear targets. The company recognized that the competitive environment in each market differed, so each country manager received a growth target that reflected local conditions.

There is no single way to raise customer satisfaction, so ISS managers responded to customer complaints on a case-by-case basis. Clearly, the sales staff played an important role, and some ISS branches linked employee's cash bonuses to the level of customer satisfaction. Whereas all country managers reported key financial indicators back to Copenhagen, customer and employee satisfaction rating were analysed in each branch.

The surveys highlighted a positive link among customer satisfaction, organic growth and customer retention. Likewise, they indicated a positive link between employee satisfaction and growth in revenue per customer.

INSEAD 2006

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