Applying the Strategic Approach to Assess
Customer Relationship Management
Yi-Te Wu
Department of Marketing and Logistics Management
Hsing Kuo University of Management
yitewu@mail.hku.edu.tw
Abstract
Customer relationship management (CRM) has become a popular information system to assist
companies in increasing their competitive advantage. Because of the focus of customers, they
provide customer-centered instead of product-centered products. In order to properly and
correctly implement CRM, understand how to use strategic approaches to influence an
organization. The study examines the following: 1. causes of failure associated with CRM
including of unplanned project budget revisions, inadequate return on investment, loss of
employee confidence and diversion of key management time. 2. Managers failure to implement
CRM due to lack of adequate change management. 3. How essential may be for organizations.
Most top managers regard CRM as a very important and adopt it for creating competitive
advantage even thought their companies are never properly implementing it. 4. How to treat
customers is difficult. Most CRM projects end up focusing on wrong targeting customers or
using wrong approaches to treat right customers.
Keywords: Customer Relationship Management, CRM, Customer Strategy,
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Introduction
In recent years, companies have focused more and more on customer service due to
increased business competition. Retaining a long-term customer relationship and improving
service quality have become important goals which organizations are trying to achieve (Walton
and Xu, 2005). Therefore, adopting customer relationship management (CRM) approach has
become a trend. Chou et al. (2002: 442) point out, “customer relationship management (CRM)
has became the number one focus while competitive markets nowadays are getting more
competitive and saturated.”
CRM is a 360 degree projection which requires not only technology implementation but
also strategic making and other integration in an organization (Sin et al., 2005) However, Bull
(2003 cited in Dickie 2000; 2003 cited in Giga 2001) found that “only 30.7 per cent of
companies described that they had achieved their goals which they sell and serve customers
because of well utilizing CRM.” Thus, CRM has a reputation as difficult IS to adopt for
organizations. In fact, approximately 70 per cent of organizations eventually fail to implement it
properly. As a result, even though CRM benefits organizations, it still can result in failure if
companies do not know how to properly utilize it.
Literature Review
Definitions and Characteristics of CRM
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“CRM is an information term for methodologies, software and usually Internet capabilities
that help an enterprise manage customer relationships in an organized way” (Chou et al., 2002:
443). It is also defined as “all the tools, technologies and procedures to manage, improve, or
facilitate sales, support and related interactions with customers, prospects and business partners
throughout the enterprise” ( Wen, Yen and Zeng 2003 cite in Davenport et al. 2001)
CRM can be used to analyze and distinguish individual customers and groups of
customers and, therefore, it can assist an organization in building a complete customer database
for accurately targeting markets (Chou et al., 2002). In addition, it helps organizations to gather
data swiftly, identify its most valuable customers and increase customer loyalty by providing
customized products and service (Reichheld, Rigby and Schefter, 2002) Wen, Yen and Zeng
(2003: 39) suggest that a well-designed CRM includes 4 characteristics.
1. Relationship management which increases customer satisfaction and customized service
attracts and maintains customers due to instant service response, one- to- one solution to
customer requirements and direct communication with customers.
2. Sale force automation which can track clients account history and automate of sales
promotion analysis. Thus, it provides information for future sales and repeated sales to
assist predicting sales to decide if they should increase or decrease sales.
3. Useful of technology including data mining and data warehouse to provide differentiated
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and customized service. Thus, it assists in keeping a leading position among competitors.
4. Opportunity management. It provides to manage unpredictable sales growth and demand so
can better meet customer needs and optimize the supply and demand.
The Application of CRM
In order to understand CRM systems, Figure 1 demonstrates how CRM operates and
integrates other systems in an organization. CRM front office applications include marketing,
customer service and sales. Its function is to raise revenues by increasing customer loyalty and
boost sales volume. Its back office application supports internal administration activities and
supplier relationships, including human resources, financial, logistics and operation. In addition,
CRM integrates company touch points which contain the Internet, e-mail, direct mail, call
centers, advertising and stores (Chen and Popovich, 2003; Knox et al., 2003). That means CRM
is a medium which links back office and customer touch points so the back office can efficiently
receive customer suggestions via front office. It also helps companies to create competitive
advantage and effective decision making.
Data warehousing technology plays an important role in this information flow because it
consolidates, correlates and transforms customer data into customer intelligence that can used to
form a better understanding of customer behavior (Chen and Popovich, 2003). Therefore, from
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the description above, it indicates that a complete CRM is built up in a framework which
integrates customer touch points, front office and back office.
Impact of CRM in an Organization
After mentioning characteristics of CRM and its operation, it is clear to understand that
CRM is an approach which can assist an organization increase profits and enhance its
competitive advantage.
Due to the impact of CRM, organizations begin to re-engineer their strategies and
organizations in order to align with an implementation of CRM. They are aware that
management is an important organizational asset and customers should be differentiated because
every customer has different needs. Understanding what customers need can provide a business
with a competitive edge over their competitors (Knox et al., 2003: 6).
This awareness has increased the number of organizations interested in implementing CRM
systems. However, according to statistics, 55 per cent of all CRM projects fail (Boddy, Boonstra
and Kennedy, 2005). This data indicate that even though CRM is a very helpful approach for
organizations, it still can result in a large number of companies failing if not implemented
properly. For this reason, in order to investigate what causes their failure, it is crucial for an
organization to understand how CRM affects the micro-environment.
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The Strategic Approach
The Socio-technical Approach to Assessing CRM
Social, technical and organizational factors have an interdependent relationship which
cannot be separated (Figure 2). It means it is impossible to neglect or abandon one of them since
they are key elements to construct a complete IT organization. Due to considerable advantages of
CRM, organizations commence to adopt then as their new competitive edge. Nevertheless, a
well-designed CRM operation should requires other technology, including data mining and data
warehouses.
Socio-technical Approach - Technical Factors
In order to acquire accurate and effective data which can be analyzed, data mining plays is
essential to the implementation of CRM. Chaffey and Wood (2005: 106) define data mining as
“a technique used to identify patterns within data that may prove value in understanding
customer behavior or enable targeting.” Because of these characteristics, data mining assists
CRM in gathering and recognizing useful data in order to efficiently focus on targeting markets
or consumers.
Data warehouses are large databases which contain a variety of detailed business data. Their
main function is to analyze customer behavior and needs. In addition, data warehouses assist
CRM in supporting customer data integration, customer data analysis and customer interaction
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personalization (Chou et al., 2002). Data mining and data warehouses have improved the quality
of data so organizations can utilize CRMs to serve their customers more specifically and
accurately. In sum, these technologies which are operated by CRM to help a company to gather
individual customer insights, efficiently respond to individual requirements and integrate the
business processes around individual customers (Knox et al., 2003: 6).
Technology, however, is merely a section of implementation of CRM. People are key to
making a CRM successful. According to CRM research which analyzes more than 200
companies in a wide range of industries, most executives do not know what they are
implementing, let alone how much money they will spend and how long it will take (Reichheld,
Rigby and Schefter, 2002). Chen and Popovich mention that top management support and
involvement as a key success factor for CRM implementations (2003 cited in META Group
Report 1998). If they do not fully understand CRM and adopt it without careful consideration, it
is difficult for subordinates to properly apply it. Therefore, if CRM is to be successfully
implemented in an organization, it should focus primarily on organizational social factors.
Socio-technical Approach-Social Factors
Before adopting CRM in an organization, top managers should clearly understand why their
purposes for implementing it, as well as the benefits for their organizations. When approving a
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project which CRM project team schemes out, top managers should continuously support and
authorize them to achieve the objective.
However, top management should emphasize not only CRM systems itself but also
arrangement of personnel. Customer-centric management requires top management support and
commitment to CRM throughout the entire CRM implementation (Chen and Popovich, 2003).
Top management should sufficiently empower customer-centric managers to implement
CRM as well as provide adequate resources. Furthermore, employees should receive training
which helps them understand CRM and how to solve problems and communicate with their
customers.
In order to efficiently implement and manage CRM, top management should collaborate
and communicate with customer-centric management and all other levels of employees. Top
management should build job evaluations and reward systems to ensure successful
implementation of CRM and quality employee performance (Chen and Popovich, 2003).
These changes mentioned above can accelerate and advance to form CRM systems. In sum,
re-engineering a customer-centric business model requires cultural change and an expectation
that all employees anticipate the new innovation (Chen and Popovich, 2003).
Socio-technical Approach- Organizational Factor
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Frow and Payne (2005) suggest that in order to apply CRM systems successfully, a cross-
functional integration of processes, people, operations and marketing capabilities enabled
through information, technology and applications are needed . Integrating of social factors and
technology will facilitate an organization's adoption of a new innovation such as CRM.
Therefore, well- designed CRM systems rely on cooperation between cross departments and an
organization which well integrates social factor and technology.
The Strategy of CRM
The Relationship Between CRM and Strategy
Understanding how CRMs functions in organizations and how they affect an internal
environment will assist adoption of the innovation. A successful implementation and
management of CRM, however, derives from a well-planned strategy. Grant (2005) mentions
that strategy is an approach in leading an organization or an individual to achieve objectives.
Thus, if strategic approaches can be well utilized, they are as keys to success.
Proter’s Five Forces Analysis of CRM
For the purpose of integration of CRM and strategies, primarily assessing what competitive
advantage of CRM can provide an organization is crucial. According to Proter’s five forces
model, for an organization to implement a new technology (Figure 3), it must carefully analyze
five aspects before adopting a new information system.
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1. Bargaining power of customers: Does new IS increase or decrease bargaining
power? Are customers switching coasts or barriers changed?
2. Threat of substitutes: Can new IS be used to generate new or replacement products or
service?
3. Threat of new entrants: Does IS increase or decrease the barriers to entry to a market sector?
4. Extent of rivalry between existing competitors: Does new IS change the basis of competition
with a market?
5. Power of suppliers: Does new IS increase or decrease bargaining power? Can an organization
switch suppliers more or less readily? (Chaffey and Wood, 2005:306).
Utilizing Proter’s Five Forces to Analyze Boots Advantage Card
Due to competition Boots Advantage Card, for example, they combines CRM systems with
cards which can record and analyze customer buying behavior and provide service recovery to
maintain customer loyalty. The points below explain the relationship between CRM and Boots
by assessing Porter’s five forces.
1. Bargaining power of customers. Boots Advantage Card reduces customer switching cots
and customer bargaining power since it offers points to encourage customers to purchase
again. Furthermore, customers can redeem points on future purchases so more and more
customers become loyal to Boots.
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2. Threat of substitutes. Except CRM, there are a variety of IS (Information Systems) that can
be adopted. Nevertheless, owing to differentiation of implementation, CRM systems focus
on specific approaches and therefore increases the difficulty for other IS to replace CRM.
Boots utilizes CRM approaches to understand their customers and build a high quality
database.
3. Threat of new entrants. Boots Advantage Card has successfully retained customer loyalty
and therefore increased the barriers to entry to this market sector for new competitors.
4. Extent of rivalry between existing competitors. CRM has drastically changed the business
macro- environment. Boots, however, is not the only one which implements CRM. Other
rivals in the same market sector find it difficult to compete due to CRM's well-planned
integration and information and customer strategies.
5. Power of suppliers. Boots has successfully implement CRM to enhance its competitive edge
and retain customer loyalty and thus has a stronger bargaining power for its suppliers (Bocij
et al., 2003; Curry and Kkolou, 2004; Chaffey and Wood, 2005).
The Stages of IS Strategy Development
After analyzing the influence of CRM on an organizational internal and external
environment, the next stage is to develop a strategic process. Chaffey and Wood (2005) suggest
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that using a strategic process to implement IS is essential and if an organization is to obtain a
clear concept to implement CRM systems (Figure 4).
Stage 1. Strategic analysis. In this stage, they should analyze and understand the organization's
strengths and weakness by analyzing its external environment and internal resources. From
analysis, top management can assess if the organization can implement new IS to create a
competitive edge.
Stage 2. Strategic objectives. Making a clear strategic statement can offer a clear future direction
and assist organization performance.
Stage 3. Strategic definition. After identifying clear objectives, they should select and evaluate
their proposed IS.
Stage 4. Strategic implementation. This is final stage which means they implement the new IS.
However, they should continuously detect problems and adjust their strategy.
The Relationship Between Customer Strategy and CRM
The strategic process is merely a framework to used implementation IS. A successful CRM
should more focus on business strategy which is designed to effectively segment, target and
position customers in order to compete with other rivals (Curry and Kkolou, 2004). Creating a
customer strategy is crucial because every customer has different needs and behaviors (Rigby,
Reichheld and Schefter, 2002).
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It is essential to understand how customers differ and how to create a unique and relevant
value proposition to address and exploit these differences (Knox et al., 2003: 11). Most
organizations fail to implement CRM because they only focus on IS and do not understand
customer needs and what services to provide (Rigby, Reichheld and Schefter, 2002). Therefore,
organizations need a differentiated strategy to research varying customer requirements, buying
behavior and motivations. Furthermore, they should utilize strategies to encourage or persuade
customers to share their information in order to implement CRM well.
Recommendations and Conclusion
Recommendations
Most CRMs fail because of unplanned project budget revisions, inadequate return on
investment, loss of employee confidence and diversion of key management time. In addition,
they fail because of a lack of clear strategies needed to efficiently and properly implement CRM.
Therefore, before implementing CRM systems, companies should carefully plan what strategies
to adopt and perils to avoid.
In order to avoid peril, we suggest attention to 4 key points. First, creating a customer
strategy is crucial. Implementing CRM without creating a strategy to clearly target their
customers, conduct segment analysis and decide marketing objectives is like building a house
without engineering measures or architectural plans. Most executives believe CRM systems can
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fully meet their needs and achieve their goals. As a result, they do not create customer strategies
in advance.
Second, organizations much change to match CRM systems. A survey indicates that 87 per
cent of managers failed to implement CRM due to lack of adequate change management. This
reason relates to the organizational social issue mentioned above.
Third, executives should estimate if CRM is essential for their organizations. Most top
managers regard CRM as a very important approach and adopt it to create a competitive
advantage even thought their companies are not prepared to implement CRM.
Finally, treating customers properly is difficult. Most CRM projects focus on the wrong
target customers or use wrong approaches to treat proper customers.
The recommendation is to analyze previous failure and therefore organizations should bear
these experiences in mind in order not to make the same mistakes again.
Conclusions
1. Implementing CRM can help an organization to analyze customer data swiftly, increase
information quality, make decisions efficiently, increase customer loyalty, improve
customer satisfaction and reduce costs.
2. Although CRM is beneficial for organizations, there are a number of barriers which lead to
failure. For instance, those do not understand or assess its risks and expenses, top
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management who lack sufficient CRM knowledge, organizations which do not integrate
technologies, strategies and management, and employees who do not have sufficient CRM
knowledge and trainings may fail.
3. Because of these barriers to implementing CRM, the report indentified key points which
organizations should avoid and strategic approaches which assist they in strategic making.
4. CRM provides more opportunities for organizations to compete with other rivals. The
impact of CRM in organizations is inevitable; however, its proper implementation is crucial.
CRM continue to grow. However, just adopting CRM does not ensure an organization's
competitive edge. In addition, CRM is an expensive, time- consuming and complex and
therefore, before implementing it, organizations should carefully study its potential impact on its
internal and external environment. Executives should focus on long- run vision rather than short-
run profit (Bose, 2002).
Implementing CRM should not merely consider technologic issue because CRM is not
only an information system but also an integration of technologies, management and strategies.
Organizations need to understand the theoretical and practical implication of the organizational
perspective of CRM before embarking on a CRM package implementation (Light, 2003: 616).
Although CRM can assist organizations in reducing costs, increasing customer
satisfaction, maintaining customer loyalty and gaining new customers, its successful
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implementation relies on a complete organizational micro-environment, proper strategic
approaches and integration of technologies.
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Appendix
Figure 1. A CRM implementation model
[Adopted from Chen and Popovich (2003:680)]
Social
Factor
Technical Organizational
Factor Factor
Figure 2. The Socio- technical Approach
[Adopted from Boddy, Boonstra and Kennedy (2005)]
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Power of
suppliers
Power of
Power of
suppliers The business
suppliers
and it external
threats
Power of Power of
suppliers suppliers
Figure 3. Proter’s Five Forces Model
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1.STRATEGIC ANALISIS
EXTERNAL INTERNAL
ENVIRONMENT ENVIRONMENT
2. STRATEGIC OBJECTIVES
VISION MISSION OBJECTIVES
3 STRATEGIC DEFINITION
OPTION OPTION OPTION
GENERATION EVALUATION SELECTION
4 STRATEGIC IMPLEMENTATION
PLANNING EXECUTION CONTROL
Figure 4. The Process of Strategic Implementation
[Adopted from Chaffey and Wood (2005:293)]
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