A CONCEPTUAL MODEL OF CUSTOMER RELATIONSHIP MANAGEMENT ALIGNMENT

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1 IADIS International Conference Information Systems 2012 A CONCEPTUAL MODEL OF CUSTOMER RELATIONSHIP MANAGEMENT ALIGNMENT Norshidah Mohamed 1, Nor Shahriza Abdul Karim 1, Murni Mahmud 2, Abdul Rahman Ahlan 2, Ramlah Hussein 3 and Jasber Kaur 4 1 International Business School, Universiti Teknologi Malaysia - Jalan Raja Muda Abdul Aziz, Kuala Lumpur, Malaysia. 2 Faculty of Information and Communication Technology, International Islamic University Malaysia - P O Box 10, Kuala Lumpur, Malaysia. 3 Sri Jentayu Sdn. Bhd. 43 Jln Wangsa Jaya, Taman Wangsa Jaya Kuala Lumpur, Malaysia. 4 Faculty of Computer & Mathematical Sciences, Universiti Teknologi MARA, Shah Alam, Malaysia ABSTRACT The paper proposes a conceptual model of customer relationship management (CRM) alignment. The research adopts the business-information systems (IS) strategic alignment model, CRM process and technology perspectives and effectiveness of CRM as a basis. Based on a review of CRM, we propose CRM alignment to consist of business-is strategic alignment and CRM process-is alignment. The impact of CRM alignment is CRM performance that is modeled using the Balanced Scorecard framework. As the research is in-progress, the results of pilot study are presented in the paper. KEYWORDS Business strategy, customer relationship management, strategic alignment, information systems strategy, balanced scorecard 1. INTRODUCTION Customer relationship management (CRM) has been regarded as a business strategy focusing on managing an organisation s relationship with its customers in increasing the organisation s market share and reducing costs. Ultimately, CRM is expected to create improved shareholder value through the development of appropriate relationships with key customers and customer segments (Payne and Frow 2005). Brown (2000) defined CRM as the process of acquiring, retaining and growing profitable customers that requires a clear focus on the service attributes that customers would value and thus create loyalty to the organisation. Pan and Lee (2003) coined CRM as a business strategy that provides seamless integration among marketing, sales, customer service and field support business areas that touch the customers through integrated management of people, process and technology. In recognising the growing importance of integrating CRM process and technology, many organisations worldwide are investing in CRM technology. Accordingly, Gartner predicted that the market for social CRM software will be over $1 billion by 2012 (reported in Subramanian, 2011). The Springboard Research advisory released in 2009, reported that on-demand CRM software products represented 48 percent of the CRM software market in the Asia Pacific region ( CRM technology, according to Boddy et al. (2008), represents a move from mass markets and mass production to customisation and focused production. 2. LITERATURE REVIEW AND RELATED THEORIES The term CRM conjures business strategies, CRM capabilities, CRM strategies, CRM processes, and aligned CRM strategies and technologies to business strategies. The essence of managing customer relationships lies 321

2 ISBN: IADIS in managing CRM processes and technologies and fostering employee behavior that support coordinated and more effective interactions throughout all customer channels (Kim et al. 2003). 2.1 Perspectives of CRM Measuring processes is evidently key to organisational practice. CRM metrics arises out of the complexities in managing relationships success. As evident, Kim et al. (2003) proposed metrics for CRM that emphasises customer satisfaction, customer value, customer interaction and customer knowledge. Consequently, this is further supported in Chen and Ching (2004) who suggested that CRM processes cover market orientation and customer service. Market orientation is referred to as an organisation s act in generating, disseminating and responding to market intelligence that involves coordination among several personnel in the organisation who could be in different divisions. Customer service is defined as having two components: customisation and loyalty. Customisation is the ability to tailor products that fit customers. Loyalty encourages repeat purchases and usage frequency. The impact of CRM processes is CRM performance (Chen and Ching, 2004). Reinartz et al. (2004) defined CRM as a process to support customers i.e. relationship initiation, relationship maintenance and relationship termination. CRM technology is regarded as a moderator for the relationship between CRM process and economic performance. Batenburg and Versendal (2004) proposed a CRM alignment framework. CRM is a typology comprising CRM strategy, customer insight, customer contact and marketing. Strategy, monitoring and control, organisation and processes, information technology and employee, and culture formed the business dimensions in the alignment framework. Lawson-Body and Limayem (2006) defined CRM as consisting of seven components: customer prospecting, relations with customers, interactive management, understanding customer expectations, empowerment, partnerships, and personalisation. Prospecting refers the act to track, locate and attract new customers. Relations with customers refer to organisations act that to initiate, develop, maintain, and improve relationships with other organisations. Interactive management concerns organisation s act to transform a prospective customer to an active and effective customer. Understanding customers expectations is demonstrated through the organisation s generation of knowledge in customers expectations to provide the best services in winning their loyalty. Empowerment refers to the process that organisations adopt to reward their employees who contribute in resolving customers problems. Partnership involves the act of working together with customers in developing products. Personalisation is the act of assigning a personnel to work jointly with customers to develop specific products. Boddy et al. (2008) suggested four CRM processes: customer acquisition, customer selection, customer extension and customer retention. Essentially, customer acquisition process focuses on answering a question like how an organisation can acquire customers in the most effective and efficient way. In customer selection, organisations would be interested to use criteria to determine the most profitable customers. Customer extension covers issues to increase the loyalty and profitability of customers. Finally, customer retention process aims at ensuring organisation keeps the loyal and profitable customers as long as possible. In another study, the term ecrm was introduced to mean a strategy that reflects an organisation s understanding of how the customer wants to do business with it, rather than how the organisation wants to do business with the customer (Bettis-Outland and Johnston, 2003). The components of ecrm defined are consistent with that provided in Aurelie and Laid (2008). Aurelie and Laid (2008) adopted prior definitions of CRM constituting operational, collaborative and, analytical and strategic CRM in aligning CRM strategy and information technology (IT) strategy. Operational CRM concerns the business processes and technologies to improve the efficiency of day-to-day customers operations. Operational CRM includes sales, marketing and service automation. Collaborative CRM manages all interactions between the organisation and customers ( s, face-to face interactions, voice technologies, etc.). Analytical and strategic CRM involves customer data analysis to improve business decisions and includes data warehouse systems, customer profiling, reporting, analysis and datamining. In small and medium enterprises (SMEs), Harrigan et al. (2011) defined CRM capabilities in SMEs as referring to customer information management and communication with customers. The term ecrm was coined to refer to the types of generic Internet-related resources and types of Internet-based CRM. They found evidence for the significant relationship between information technologies use and CRM capabilities. 322

3 IADIS International Conference Information Systems 2012 It appears that CRM is process-based from past literature. The notion of technology supporting CRM practice often appears to be assumed within the process and thus coined as ecrm. This research attempts to fill the gap by proposing that consistent with information systems (IS) literature that organisations with business-information systems (IS) strategy alignment will likely have IS that is aligned with CRM processes in attaining CRM performance. The subsequent section reviews theories on strategic alignment and balanced scorecard. 2.2 Business-IS Strategic Alignment Business-IS alignment exists when there is a fit between business strategies and IS strategies. Reich and Benbasat (1996) coined alignment as the degree to which the IT mission, objectives and plans are supported by business mission, objectives and plans. It has been reported in Batenburg and Varsendaal, 2004) that business-is alignment has its origin in the study made by Henderson and Venkatraman (1993). Luftman (2000) and Luftman et al. (2004) suggested business-it strategic alignment criteria to comprise communication between business and IT, competency/value measurement for both business and IT metrics, governance such as strategic business and IT planning, partnership between business and IT, IT scope and architecture and skills that cover issues in innovation, hiring and retaining. The criteria is measured against five maturity levels: initial / ad-hoc process, committed process, established focused process, improved / managed process and optimised process. Over the years, researchers in business-is strategic alignment have also explored STROBE and STROEPIS models. The use of Venkatraman (1985) Strategic Orientation of Business Enterprises (STROBE) model covering defensiveness, risk aversion, aggressiveness, proactiveness, analysis, futurity and innovativeness strategies has been widely discussed in the literature. Consequently, Chan et al. (1997) extended Venkatraman and introduced the Strategic Orientation of the Existing Portfolio of IS Applications (STROEPIS) or also called Strategic Orientation of Information Systems (STROIS) model in parallel to the STROBE model. 2.3 Balanced Scorecard Realising that traditional financial measures alone when used solely for management decision-making could be misleading, managers now rely on the Balanced Scorecard (Kaplan and Norton, 1992; 1996) as a means to monitor actual performance against set targets. The approach comprises four perspectives that business executives need to identify: financial, customer, internal business processes, and learning and growth perspectives. Financial perspective relates to answering questions like how do we look to shareholders. Measures include operating income, return-on-capital, and economic value added. The customer perspective is interested in answering questions like how do customers see us and measures concern with customer retention, new customer acquisition, customer profitability, and market share (Kaplan and Norton, 1996). The internal business process perspective is concerned with questions like at what must we excel. Thus, measures focus on time to develop the next generation of products and process capabilities (Kaplan and Norton, 1996). Finally, the learning and growth perspective answers questions like can we continue to improve and create value. Measures are concerned with employee satisfaction, retention, training, and skills (Kaplan and Norton, 1996). 3. PROPOSITIONS AND CONCEPTUAL MODEL The strategic alignment perspective suggests that the effects of IS on performance will depend on the fit between IS strategy and corporate strategy. Strategic alignment has the potential to aid organisations in leveraging their investments in IS resources. Hooper et al. (2007) reported the existence of alignment between IS and business in prior studies made by Chan (1992), Chan and Huff (1993) and Chan et al. (1997). Drawing from prior literature, in this research we conceptualise CRM alignment as comprising the link between: (i) CRM processes and IS. CRM processes refer to organisational acts of initiating, acquiring, regaining, maintaining, retaining, cross-selling/up-selling, referral and termination of customers (Reinartz et al., 2004). (ii) business and IS strategic alignment. This refers to the fit between strategic business plans and IS strategic plans (Kearns and Sabherwal, 2007; Viaene et al. 2007). Consistent with past literature, we 323

4 ISBN: IADIS propose that CRM alignment impacts CRM performance. CRM performance is based on the Balanced Scorecard four perspectives covering customer, financial, internal business process and learning and growth. Therefore, our propositions are set out: P1: CRM process-is alignment is positively and significantly correlated to CRM performance. P2: Business-IS strategic alignment is positively and significantly correlated to CRM process-is performance. P3: Business-IS strategic alignment is positively and significantly correlated to CRM process-is alignment. Figure 1 shows the proposed conceptual model. Figure 1. Conceptual Model of CRM Alignment and Performance To date, the research is at pilot stage. 50 survey questionnaires were distributed to Malaysia small and medium enterprise business owners during the pilot study. The survey instrument consists of 18 statements (see Appendix A) on a five point Likert scale used to measure the constructs of the research; 1 representing strongly disagree and 5 representing strongly agree. To ensure validity, the items were adapted from prior literature. Table 1 shows the reliability analysis results for the instrument used in the pilot study. Constructs Business-IS alignment CRM process-is alignment CRM performance Table 1. Results of pilot study Source of constructs and items used in the research Kearns and Sabherwal (2007); Viaene et al. (2007) Reinartz et al. (2004); Chen and Ching (2004) Kim et al. (2003); Chen and Ching (2004) No. of items Cronbach s alpha The Cronbach s alpha is a measure of reliability analysis. Reliability is an assessment of the degree of consistency between multiple measurements of a variable. The generally agreed upon lower limit for Cronbach s alpha is.70 although it may decrease to.60 in exploratory research (Hair et al. 1998). The research shows that the Cronbach s alpha is acceptable and that the instrument will be used in the subsequent stage of data collection. 4. CONCLUSION While researchers have widely debated the impacts of business-is strategic alignment, its link to CRM has not been fully explored. Bridging this gap and as a result of literature review, this research has clarified the notion of CRM alignment by proposing that CRM alignment consists of the link between business-is strategic alignment and CRM process-is alignment. The impact of these alignments is CRM performance built on the Balanced Scorecard framework. While the research is still in-progress, data collection has recently been completed. The subsequent stage however will be to analyse the data using structural equation modeling to confirm the model. Built on prior literature, the research has clarified the components of CRM alignment by proposing the relationships between business-is strategic alignment and CRM process-is alignment that results in an integrated model that provides a starting point for future test and validation. For 324

5 IADIS International Conference Information Systems 2012 practitioners, especially chief marketing officers, relationship managers and directors of sales, the model provides an insight into the components of CRM alignment and impact of CRM alignment. ACKNOWLEDGEMENT The research is supported by the Fundamental Research Grant Scheme Ministry of Higher Education Malaysia (504/RES/G/14/3/2/2 FRGS). REFERENCES Aurelie, D. and Laid, B The alignment between customer relationship management and IT strategy: a proposed research model. SAIS 2008 Proceedings. Paper 30 (accessed on 2 October 2011). Bettis-Outland, H. and Johnston, W. J Electronic customer relationship management (ecrm) in a business-tobusiness marketing setting in information technology for global customer service. in Reponen, T. (ed), Information Technology Enabled Global Customer Service, Idea Group Publishing, PA,pp Boddy, D., Boonstra, A. and Kennedy, G Managing Information Systems: Strategy and Organisation. FT Prentice Hall, Essex, England. Brown, S. A Customer Relationship Management: A Strategic Imperative in the World of e-business, John Wiley & Sons Canada Ltd, Ontario, Canada. Chan, Y. E., and Huff, S. L Strategic information systems alignment. Ivey Business Journal, Vol. 58, No. 1, pp Chan, Y. E., Huff, S. L., Barclay, D. W. and Copeland, D. G Business strategic orientation, information systems strategic orientation, and strategic alignment. Information Systems Research, Vol. 8, No. 2, pp Chen, J-S and Ching, R. K. H An empirical study of the relationship of IT intensity organisational absorptive capacity on CRM performance. Journal of Global Information Management, Vol. 12, No.1, pp Das, S. R., Zahra, S. A. and Warkentin, M. E Integrating the content and process of strategic MIS planning with competitive strategy. Decision Sciences, Vol. 22, pp Hair, J. F., Anderson, R. E., Tatham, R. L. and Black, W. C., Multivariate Data Analysis, Prentice-Hall, NJ. Harrigan, P. Schroeder, A. Qureshi, I., Fang, Y., Ibbotson, P., Ramsey, E. and Meister, D Internet technologies, ECRM capabilities, and performance benefits for SMEs: an exploratory study. International Journal of Electronic Commerce, Vol. 15, No., 2, pp Henderson, J.C. and Venkatraman, N Strategic alignment: Leveraging information technology for transforming organisations. IBM Systems Journal, Vol. 32, No. 1, pp Hooper, V. A., Huff, S. L. and Thirkell, P. C The impact of IS-marketing alignment on marketing performance and business performance. The DATA BASE for Advances in Information Systems. Vol. 41, No. 1, pp Kearns, G. S. and Sabherwal, R Strategic alignment between business and information technology: a knowledgebased view of behaviors, outcome, and consequences, Journal of Management Information Systems, Vol. 23, No., 3, pp Lawson-Body, A. and Limayem, M The impact of customer relationship management on customer loyalty: the moderating role of Web site characteristics. Journal of Computer-Mediated Communication. Vol. 9, No., 4, pp. 00, DOI: /j tb00295.x. Kim, J., Suh, E. and Hwang, H A model for evaluating the effectiveness of CRM using the balanced scorecard. Journal of Interactive Marketing, Vol. 17, No., 2, pp Luftman, J Assessing business-it alignment maturity. Communications of the Association for Information Systems, Vol. 4, No. 1, pp Luftman, J., Bullen, C. V., Liao, D., Nash, E. and Neumann, C Managing the Information Technology Resource: Leadership in the Information Age. Pearson, Upper Saddle River, New Jersey. Pan, S.L., and Lee, J. N Using e-crm for a unified view of the customer, Communications of ACM, Vol. 46, No. 4, 2003, pp Payne, A. and Frow, P A strategic framework for CRM. Journal of Marketing, Vol. 69, No. 10, pp Porter, M. and Millar, V.E How information gives you competitive advantage. Harvard Business Review, Vol. 63, No. 4, pp

6 ISBN: IADIS Reich, B. R. and Benbasat, I Measuring the linkage between business and information technology objectives, MIS Quarterly, Vol. 20, No. 1, pp Reinartz. W. Krafft, M. and Hoyer, W. D The customer relationship management process: its measurement and impact on performance. Journal of Marketing Research, Vol. XII, pp Subramanian, K Gartner says social CRM market will be $1 billion in on 30 September 2011). Venkatraman, N Strategic orientation of business enterprises: the construct and its measurement. PhD dissertation, University of Pittsburg, PA. Viaene, S., Cumps, B. and Dedene, G Testing the influence of two ICT management practices on business/ict alignment. ICIS 2007 Proceedings. Paper (accessed on 2 October 2011). Appendix A: Items used in the pilot study Business-IS alignment 1. Our strategic IS plan is well-aligned with the organisation s mission, goals, objectives and strategies. 2. Our strategic IS plan contains quantified goals and objectives. 3. Business and IS management processes are strongly integrated. 4. We prioritise major IS investments by the expected impact on business performance. CRM-IS alignment 1. IS in our organisation supports us in tracking of prospects. 2. IS helps us to identify different offers for prospects based on prospects economic value. 3. In our organisation, IS supports us in identifying customers lost to competitors. 4. IS helps us determine which of our customers are of the highest value. 5. IS supports two-way communication with our customers. 6. IS helps us in tracking customers and the incentives for them if they intensify their business with us. 7. IS helps us in tracking current customers and the incentives for them when they acquire new potential customers. 8. IS supports us in tracking non-profitable, low value or problem customers. CRM Performance - In our organisation, IS has helped us improve in: 1. Customer satisfaction. 2. Customer loyalty. 3. Customer retention. 4. Increased return on investment (ROI) on IS-enabled CRM processes. 5. Tremendous reduction in customer transaction cost. 6. CRM process innovation and product / service innovation. 326