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Understanding Customer Relations Management

Written by: Dr. Fathi El-Nadi

Article Overview: CRM initiatives have resulted in increased competitiveness for many companies as witnessed by higher revenues and lower operational costs. Managing customer relationships effectively and efficiently boosts customer satisfaction and retention rates (Reichheld, 1996a, b; Jackson, 1994; Levine, 1993). CRM applications help organizations assess customer loyalty and profitability on measures such as repeat purchases, dollars spent, and longevity. CRM applications help answer questions such as “What products or services are important to our customers? How should we communicate with our customers? What are my customer's favorite colors or what is my customer's size?” In particular, customers benefit from the belief that they are saving time and money as well as receiving better information and special treatment (Kassanoff, 2000).

Understanding Customer Relations Management

Furthermore, regardless of the channel or method used to contact the company, whether it is the Internet, call centers, sales representatives, or resellers, customers receive the same consistent and efficient service (Creighton, 2000). Table I provides a brief overview of some of the benefits that CRM offers by sharing customer data throughout the organization and implementing innovative technology.
With much success, software vendors such as Oracle, SAP, PeopleSoft, Clarify, SAS, and Siebel are racing to bring off-the-shelf CRM applications to organizations. Many of these are the vendors responsible for developing enterprise resource planning (ERP) systems. AMR Research estimates that the CRM market will top $16.8 billion by 2003 (Tiazkun, 1999).
While there are many compelling reasons to consider a CRM strategy, caution and careful analysis is prudent. Hackney (2000) warns that although CRM software vendors may entice organizations with promises of all-powerful applications, to date there is no 100 percent solution. Possible risks such as project failure, inadequate return on investment, unplanned project budget revisions, unhappy customers, loss of employee confidence, and diversion of key management time and resources must be well thought out (Schweigert, 2000). In one example, a large telecommunications company rolled out a major CRM application to more than 1,000 sales reps in late 1999, at a cost of $10,000 per user, only to find a year later that fewer than 100 were using the system (Patton, 2001). Recent surveys further reveal that the average investment in CRM applications is $2.2 million dollars (CIO Research Reports, 2002), and that CRM implementation failure rate is as high as 65 percent (Apicella et al., 1999).
It is becoming increasingly clear that stalled or failed CRM projects are often the result of companies lacking a thorough understanding of what CRM initiatives entail. Thus, this paper first presents the evolution of CRM to facilitate the comprehension of the implementation issues. It then sets out to explore the underlying critical components that can enable (or hinder) the successful implementation of CRM initiatives. A CRM implementation model that integrates the three key dimensions of people, process, and technology within the context of an enterprise-wide customer-driven, technology-integrated, cross-functional organization is proposed in Figure 2. The essential roles of these three dimensions are further elaborated in the subsequent sections following the evolution of CRM.


2. CRM evolution
Customer relationship management itself is not a new concept but is now practical due to recent advances in enterprise software technology. An outgrowth of sales force automation (SFA) tools, CRM is often referred to in the literature as one-to-one marketing (Peppers and Rogers, 1999). SFA software automates routine tasks such as tracking customer contacts and forecasting. The goal of SFA is to allow the sales force to concentrate more on selling and less on administrative tasks. It should be noted, however, that CRM also has its roots in relationship marketing which is aimed at improving long run profitability by shifting from transaction-based marketing, with its emphasis on winning new customers, to customer retention through effective management of customer relationships (Christopher et al., 1991). Thus, CRM is a more complex and sophisticated application that mines customer data that has been pulled from all customer touch points, creating a single and comprehensive view of a customer while uncovering profiles of key customers and predicting their purchasing patterns. Technology that tracks and analyzes customer behavior allows companies to easily identify the best customers and focus marketing efforts and reward those who are likely to buy often. Acquiring a better understanding of existing customers allows companies to interact, respond, and communicate more effectively to significantly improve retention rates.
Innovations in technology, competitive environments, and the Internet are just several factors that make one-to-one initiatives a reality. Companies can develop these relationships to customize the shopping experience, better predict online buying patterns, entice customers with special offers or services, evaluate the economic advantage of each customer, and build long-term mutually beneficial relationships. The following examples highlight some of the benefits of CRM applications.
Ritz-Carlton, an upscale chain of hotels, records guest preferences gleaned from conversation with customers during their stay and uses them to tailor the services that customers receive on their next visit at any other Ritz-Carlton in the world. Requests for items such as hypoallergenic pillows and additional towels are recorded for future use so that personalized goods and services can be added for repeat customers. Mining customer data allowed Bank One to significantly reduce turnover among its most profitable small business customers by assigning dedicated account managers (Conlon, 1999). The service industry, however, is not the only industry to harness people, process, and technology to manage resilient customer relationships. Dell Computer Corporation exemplifies CRM success by combining IT with front and back office operations. Every PC that Dell manufactures is already sold. From the Internet, Dell customers are able to configure their own system, from thousands of hardware and software combinations, with an easy-to-use ordering system that provides delivery dates as well as progress updates.


3. The technology factor
Information technology (IT) has long been recognized as an enabler to radically redesign business processes in order to achieve dramatic improvements in organizational performance (Davenport and Short, 1990; Porter, 1987). IT assists with the re-design of a business process by facilitating changes to work practices and establishing innovative methods to link a company with customers, suppliers and internal stakeholders (Hammer and Champy, 1993). CRM applications take full advantage of technology innovations with their ability to collect and analyze data on customer patterns, interpret customer behavior, develop predictive models, respond with timely and effective customized communications, and deliver product and service value to individual customers. Using technology to “optimize interactions” with customers, companies can create a 360 degree view of customers to learn from past interactions to optimize future ones (Eckerson and Watson, 2000).
Innovations in network infrastructure, client/server computing, and business intelligence applications are leading factors in CRM development. CRM solutions deliver repositories of customer data at a fraction of the cost of older network technologies. CRM systems accumulate, store, maintain, and distribute customer knowledge throughout the organization. The effective management of information has a crucial role to play in CRM. Information is critical for product tailoring, service innovation, consolidated views of customers, and calculating customer lifetime value (Peppard, 2000). Among others, data warehouses, enterprise resource planning (ERP) systems, and the Internet are central infrastructures to CRM applications.


3.1 Data warehouse technology
A data warehouse is an information technology management tool that gives business decision makers instant access to information by collecting “islands of customer data” throughout the organization by combining all database and operational systems such as human resources, sales and transaction processing systems, financials, inventory, purchasing, and marketing systems. Specifically, data warehouses extract, clean, transform, and manage large volumes of data from multiple, heterogeneous systems, creating a historical record of all customer interactions (Eckerson and Watson, 2000). The abilities to view and manipulate set data warehouses apart from other computer systems. Constantly extracting knowledge about customers reduces the need for traditional marketing research tools such as customer surveys and focus groups. Thus, it is possible to identify and report by product or service, geographic region, distribution channel, customer group, and individual customer (Story, 1998). Information is then available to all customer contact points in the organization.
Data warehousing technology makes CRM possible because it consolidates, correlates and transforms customer data into customer intelligence that can used to form a better understanding of customer behavior. Customer data includes all sales, promotions, and customer service activities (Shepard et al., 1998). In addition to transaction details, many other types of data generated from internal operations can make significant contributions. Information related to billing and account status, customer service interactions, back orders, product shipment, product returns, claims history, and internal operating costs all can improve understanding of customers and their purchasing patterns. The ability of a data warehouse to store hundreds and thousands of gigabytes of data make drill-down analysis feasible as well as immediate. A corporate awareness survey conducted jointly by Cap Gemini and International Data Corporation (1999) found that 70 percent of US firms and 64 percent of European firms plan on building a data warehouse to support their CRM projects.

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