The service-driven service company.

For more than 40 years, service companies like McDonald's prospered with organizations designed according to the principles of traditional mass-production manufacturing. Today that model is obsolete. It inevitably degrades the quality of service a company can provide by setting in motion a cycle of failure that produces dissatisfied customers, unhappy employees, high turnover among both--and so lower profits and lower productivity overall. The cycle starts with human resource policies that minimize the contributions frontline workers can make: jobs are designed to be idiot-proof. Technology is used largely for monitoring and control. Pay is poor. Training is minimal. Performance expectations are abysmally low. Today companies like Taco Bell, Dayton Hudson, and ServiceMaster are reversing the cycle of failure by putting workers with customer contact first and designing the business system around them. As a result, they are developing a model that replaces the logic of industrialization with a new service-driven logic. This logic: Values investments in people as much as investments in technology--and sometimes more. Uses technology to support the efforts of workers on the front lines, not just to monitor or replace them. Makes recruitment and training crucial for everyone. Links compensation to performance for employees at every level. To justify these investments, the new logic draws on innovative data such as the incremental profits of loyal customers and the total costs of lost employees. Its benefits are becoming clear in higher profits and higher pay--results that competitors bound to the old industrial model will not be able to match.