Customer Orientation and Organizational Performance: Mediating Role of CRM

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1 , pp Customer Orientation and Organizational Performance: Mediating Role of CRM Dae-Yul Jeong 1, Sung-Min Kim 2, Dong-Ju Yoon 3 1 Professor, Dept. of MIS, College of Business, Gyeongsang National University(GNU); 1 Research Fellow, Cultural Convergence B.M Team of BK21 Plus, Korea, dyjeong@gnu.ac.kr; 2 Master Course, Dept. of Cultural Convergence, Graduate School, GNU, Korea; 3 Candidate Ph. D., Dept. of MIS, Graduate School, GNU, Korea, gentyoon@naver.com; Abstract. We suggests a structural model that explains relationship among customer orientation, CRM capability, marketing and financial performance. The research model was built on the basis of IT investment and resource-based theory. The empirical test proved that the customer orientation didn't affect on performances directly, but through the mediating variables, CRM capability and service quality, indirectly. Keywords: Customer Orientation, IT Investment, Organizational Performance 1 Introduction Recently market driving companies gain a more sustainable competitive advantage by delivering a leap in customer value through a unique business system. Positive connections have been found between business orientations and organizational performances, but some studies didn t get clear linkage between them. Many of the potential moderators and/or mediators have also been investigated (Hakala, 2011). Many firms sought to use IT as a means with which to enhance process efficiency and service quality, and finally organizational performances. CRM is typical relational management system represents an important technology investment option. From the 1990 s, many companies are making significant investment in IT to build relationship with customers, but surprisingly there are few evidences as how to explain the effectiveness of IT investments (Dehning and Richardson, 2002). We assume that the investment on IT assets such as CRM system will increase process efficiency and service quality directly, and it will enhance the business performance indirectly. We tested the hypotheses with the empirical data from Korea firms. 2 Research Framework and Method ISSN: ASTL Copyright 2014 SERSC

2 2.1 Research Model and Hypotheses Customer or market orientation is well recognized as one of the main contributors to the success and performance of a firm (Appiah-Adu and Singh, 1998). Smirnova et al. (2011) suggested the direct role of customer orientation on business performance and tested the impact of market orientation as direct and indirect antecedents of relational capabilities and thus subsequently of overall firm performance. Jacks et al. (2011) suggested a framework that categorizes measures of the impact of IT into productivity, profitability, and intangible benefits, while the antecedents of IT impact are categorized into IT resources and external factors. Melville et al.(2004) demonstrated the continual importance of IT to the creation of business value and competitive advantage. Aral and Weil (2007) demonstrated that IT investment allocations and organizational IT capabilities drive differences in firm performance. Most existing studies stress that for firms with high relational capabilities, superior benefits are expected (Smirnova et al., 2011). Similarly, Jacob (2006) considered market success as a direct outcome of the firm's ability to integrate customer interaction in its organizational routines. Also, many studies have been conducted to investigate the influence of service quality on business performance. Anderson et al. (1994) indicate that service quality has a positive effect on customer satisfaction and company s profitability. We suggest a research model to test empirically the relationship between firm s customer orientation and organizational performance (see Fig. 1). Firm s IT resources contribute to service quality and speed though operation efficiency. So, the more a firm has IT assets and relational capabilities, the more the firm s service quality and performance will increase. Moreover, IT investment such as CRM will increase customer service speed and quality, also decrease customer claim rate, and finally increase customer satisfaction. The previous review of theories and literatures give us a research model (Fig. 1) that suggests following five hypotheses. Fig. 1. Research Model H1: Firm s customer orientation has a positive effect on organizational (a) marketing performance and (b) financial performance (H1-1 ~ H1-2). H2: Firm s customer orientation has a positive effect on CRM capability. H3: Firm s customer orientation has a positive effect on service quality. H4: Firm s CRM capability has a positive effect service quality. H5: Firm s CRM capability has a positive effect on marketing performance. H6: Firm s service quality has a positive effect on marketing performance. H7: Firm s marketing performance has a positive effect on financial performance. 36 Copyright 2014 SERSC

3 2.2 Operational Definitions and Measures We defined each construct from the previous researches and our domain knowledge as seen in Table 1. Each construct contains 3-7 items. All the measures were assessed with 5-point Likert scales, ranging from 1-strongly disagree to 5-strongly agree. Table 1. Operational definition of constructs Constructs Customer Orientation(CO) CRM Capability (CR) Service Quality(SQ) Marketing Performance(MP) Financial Performance(FP) Operational Definition Firm pursues customer satisfaction and customer's needs through the development of customized products and services, and creation of customer's value. To establish CRM capability, firm invests on relational IT assets enough. All the channels to communicate with customer are integrated by the CRM system. Firm could enhance the process speed and customer response time through IT assets and information system. Also, product and service levels were enhanced. Firm s marketing indexes such as sales volumes, customer claim rate, market share were enhanced more and more, also customer s satisfaction were increased. Firm s financial indexes such as profitability, activity ratio, and financial income were enhanced more and more and all the financial indexes were increased. 2.3 Characteristics of Samples The survey was conducted for a month from October 14 to November 15, Most of samples come from SME in Korea. Table 2 describes the characteristics of samples. Table 2. Distribution Characteristics of Samples Variables n % Variables n % Established Year < 7 yr > 7 yr Business Type IT Manuf. and Services Non-IT Manuf Data Analysis and Tests 3.1 Evaluation of Structural Model The structural model was tested for examining the hypothesized relationships in this study. The overall fit measures show a good fit of the model with χ 2 (df, p) = 164.6(158,0.342), χ 2 /f = 1.042, RMR = 0.031, GFI = 0.935, AGFI = 0.905, NFI=0.926, TLI = 0.996, CFI = 0.997, RMSEA = Hypotheses Test Copyright 2014 SERSC 37

4 Table 3 shows the analysis results of hypotheses test. The first subgroup hypotheses test result show that all the sub-hypothesis H1-1 and H1-2 didn t supported, i.e. the customer orientations didn t affect directly on the organizational performances Whereas, customer orientation affect indirectly on the organizational performance Next, customer orientation has significantly positive impact on CRM capability and service quality. The coefficients were (p<0.01, C.R=6.560) and 0.397(p<0.01, 3.697), providing enough support for H2 and H3, and CRM capability affect directly on service quality. In the analysis of relationship among the mediating variables, CRM capability didn t affect positively on the marketing performance directly, but indirectly through service quality. Finally, there were strong relationship between marketing performance and financial performance. It suggests that high marketing performance will certainly give financial performance. The final hypothesis H7 was supported. Table 3. Results of Hypotheses Test Hypotheses Relationship between Variables Estimate Non_STD STD S.E. C.R. p Results H1-1 MP CO Rejected H1-2 FP CO Rejected H2 CR CO *** Supported H3 SQ CO *** Supported H4 SQ CR *** Supported H5 MP CR Rejected H6 MP SQ *** Supported H7 FP MP *** Supported Significance level * p < 0.10, ** p < 0.05, *** p < Implications and Conclusion The result shows that firm s CRM capability and service quality are very important mediating variables between customer orientation and performances. To explain the gap between customer orientations and organizational performances, we introduced relational capabilities with IT assets such as CRM based on the resource-based theory. The analysis results gave us many managerial implications for IT investment decision. We can conclude from the research results as follows. For whom to enhance their business performances, not only the strategic customer orientations are essential prerequisite, but also the enhancement of relational capability through CRM is very important. So, the firms who are in the edge of dynamic competitive environments need to enhance customer service quality though CRM as well as have strategic views. The evidences in this paper will contribute to the decision of strategic IT resource investment of a firm. 38 Copyright 2014 SERSC

5 References 1. Anderson, E., Fornell, C., Lehmann, D.: Customer satisfaction, market share, and profitability: findings from Sweden. J. of Marketing, 58(July), (1994) 2. Appiah-Adu, K., Singh, S.: Customer orientation and performance: A study of SMEs. Management Decision, 36(6), (1998) 3. Aral, S., Wail, P.: IT Assets, organizational capabilities, and firm performance. Organization Science, 18(5), (2007) 4. Dehning, B., Richardson, V.J.: Returns on investments in information technology: A research synthesis. J. of Information Systems, 16(1), 7 30 (2002) 5. Hakala, H.: Strategic orientations in management literature. Int l J. of Management Reviews, 13(2), (2011) 6. Jacks, T., Palvia, P., Schilhavy, R., Wang, L.: A Framework for the impact of IT on organizational performance. Business Process Management J,, 17(5), (2011) 7. Jacob, F.: Preparing industrial supplies for customer integration. Industrial Marketing Management, 35, (2006) 8. Melville, N., Kraemer, K., Gurbaxani, V.: Information technology and organizational performance: An integrative model of IT business value. MIS Q., 28(2), (2004) 9. Smirnova, M., et al.: The impact of market orientation on the development of relational capabilities and performance outcomes. Industrial Marketing Mgt., 40, (2011) Copyright 2014 SERSC 39