IT Evaluation Practices in Electronic Customer Relationship Management (ecrm)

Transcription

1 Category: Electronic Commerce 2285 IT Evaluation Practices in Electronic Customer Relationship Management (ecrm) I Chad Lin Curtin University of Technology, Australia IntroductIon Organizations are becoming increasingly aware of the need to scrutinize their bottom-line financial returns of business automation initiatives. To achieve this, organizations have to become more customer-centric. According to Karakostas, Karadaras and Papathanassiou (2005), a 5% increase in customer retention can result in an 18% reduction in operating costs. Therefore, the need to build and maintain customer relationship has become a priority for organizations. However, according to a KPMG survey, only a small percentage of companies were able to obtain even basic customer information despite the fact that 89% of companies consider customer information to be extremely important to the success of their business (McKeen and Smith, 2003). As a result, many organizations are adopting electronic customer relationship management (ecrm) applications in order to gather, organize, understand, anticipate, and respond to the constant evolution of customers requirements and demands. Indeed, ecrm is forecasted to become increasingly important as businesses seek to deliver their services and information as well as to provide transactional facilities via online and wireless platforms, in additional to the more traditional means of communication channels (e.g., call centers and customer service) (Tan, Yen and Fang, 2002). The market worldwide for ecrm applications is predicted to grow from US $3.4 billion in 2000 to US $10.5 billion in 2005 (EPS, 2001). Yet, despite the huge investment and widespread agreement that ecrm has direct and indirect impact on customer satisfaction, loyalty, sales, and profit, it has been found that 70% of ecrm solutions that have been implemented by businesses fail (Feinberg, Kadam, Hokama and Kim, 2002). Moreover, studies carried out by Gartner, Forrester, AMR Research, and the Yankee Group claim that most of CRM implementations did not return the expected ROI (Foley, 2002). This is because management tends to be myopic when considering their IT (information technology) decisions, primarily because they are unable to evaluate (specifically the indirect benefits and costs) ecrm applications (Ernst and Young, 1999). To address this issue, this paper sets out to investigate the current evaluation practices by Australian organizations implementing ecrm. The other objective is to identify the key issues faced by managers to justify and measure their ecrm. Hopefully, the finding can help business organizations to better manage their ecrm investment and its contribution to improving their long term profitability. Background ecrm characteristics and elements Advances in IT have provided businesses with an opportunity to deliver CRM functions more effectively. The use of IT to deliver CRM has lead to the emergence of electronic customer relationship management (ecrm) and specialist software vendors in the marketplace. This new generation of customer relationship management products is called ecrm because it supports the multiple electronic channels that are now available to customers (Bernett and Kuhn, 2002). The e is usually dropped when speaking about ecrm when it refers to CRM that has technology-facilitated interfaces with customers in a broad electronic commerce context which goes beyond the web (Chen and Chen, 2004). The followings are some of the definitions of ecrm found in the literature (Table 1). Many researchers consider ecrm to be a subset of CRM, meaning that ecrm is one more channel through which an organization can deploy its customer relationship management strategy. ecrm differs from CRM is three important ways (EPS, 2001): It includes , wireless channels, and Web; It is enterprise-ready rather than focused on departments or call centers; and It extends to cover partner channels such as extranets. ecrm falls into three main types: operational, analytical, and collaborative (Fjermestad and Romano, 2003). Operational ecrm is concerned with the customer touch points such as automating sales force while the analytical ecrm utilizes technology to process and analyze large amounts of customer data (Sigala, 2004). Collaborative ecrm, on the other hand, focuses on creating a real-time ecrm infra- Copyright 2009, IGI Global, distributing in print or electronic forms without written permission of IGI Global is prohibited.

2 Table 1. Various definitions of ecrm Citations Steinmueller (2002) Fjermestad and Romano (2003) Karakostas et al. (2005) ecrm Definitions ecrm is the collection of techniques that is employed, or that might be employed, to capture, retain, analyze, and productively utilize information about customers (or potential customers) for the purposes of pre-sales support, making sales and arranging delivery, and providing post-sales support. It is a combination of hardware, software, processes, applications, and management commitment. ecrm means that the sources of customer-related data are collected from the customer interactions with the Web and Internet-based systems. structure for enterprise sales, service, marketing, and product development to better support customer requirements. evaluation of ecrm As mentioned earlier, organizations invested substantial financial and organizational resources in ecrm annually, but had encountered extremely high failure rates, unhappy customers, and wasted money. While most ecrm vendors promised lots of benefits and dramatic return on investment results, it is difficult to substantiate their claims without undergoing proper evaluation and benefits realization processes (Lin, Pervan, McDermid, 2005; Love, Irani, Standing, Lin, and Burn, 2005). For example, a research conducted by Capgemini indicated that 52% of organizations surveyed could not measure their ecrm investments (Capgemini, 2004). Although there is now a well established field of research concerned with IT evaluation, there has been limited academic and practice based work undertaken on in the domain of ecrm applications (Kim, Suh and Hwang, 2003). The difficulties associated with determining the benefits and costs of IT are the major constraint to investment justification for ecrm. Consequently, many service organizations are faced with a dilemma, that is, how to manage the performance of an enterprise system that has both an internal and external focus and, thus, adds value for stakeholders (Dibb, 2001). The difficulty in evaluation centers on the fact that both benefits and costs are difficult to quantify (Sugumaran and Arogyaswamy, 2004). In particular, the less precisely bounded environment of electronic commerce technology such as ecrm adds more complexity to the measurement problem as this type of investment is physically distributed between suppliers and customers, making the evaluation process even more difficult (Straub, Hoffman, Weber and Steinfield 2002). Indeed, many organizations have found that these IT project costs and benefits can be difficult to estimate and control. Some new and old measures need to be differentially applied for evaluating phenomena such as electronic commerce and the Internet (Straub, et al., 2002). research methodology As mentioned earlier, the benefits and added value that can be obtained from implementing ecrm have not materialized for many businesses (Ernst and Young, 1999). This is because there is currently a lack of clearly defined and measurable benefits as well as systematic approach to evaluate the ecrm systems (Auer and Petrovic, 2003). Effective evaluation of IT investments is critical to its successful implementation (Lin and Pervan, 2003; Tsao, Lin and Lin, 2004; Ward and Daniel, 2006). To address this issue, specific objectives of the research are to: 1. identify the key factors and issues faced by organizations to justify the implementation of ecrm projects; and 2. determine the current evaluation practices by Australian organizations implementing ecrm projects. Case study utilizing semi-structured interviews (tape-recorded), observation, and document review were employed for this research, since the need for using multiple sources of data arises from the ethical need to increase the reliability and validity of the research processes (Mingers, 2001). According to Remenyi and Williams (1996), case study is one of the most frequently used research methods in information systems research. A series of exploratory in-depth formal and informal interviews were conducted in Australia with senior managers and key personnel from several organizations to gain an overview of the business processes and the evaluation practices of their ecrm investments. Interviews were 2286

3 carried out within 16 organizations in Australia that were involved in ecrm projects. The industries represented in the following cases: hospitality industry (8 organizations), education (1 organization), service industry (2 organizations), IT/Computer industry (2 organizations), and housing industry (3 organizations). Some of these organizations customers were also contacted. At least two interviews were conducted for each organization. More than 35 interviews were conducted. In addition to the use of the semi-structured interviews and observation data collection techniques, the researcher examined more than 1000 pages of relevant documents (e.g., annual reports, project reports) that were collected from the participating organizations. These documents provided some useful means of corroborating data from the other sources (e.g., observation and interview data) and expanded on details in order to eliminate or minimize the weakness of human memory when dealing with history. discussion A number of interesting and important issues have come from the analysis of the data gathered and some key issues are presented below in some detail. 1. Lack of proper assessment of business needs - Preproject planning and justification processes were not properly carried out to assess the needs and feasibility of the ecrm system. These systems were implemented largely based on the gut feeling or intuition of the senior executives, the adoption of similar systems by their competitors, or persuasion by the ecrm vendors. Almost all organizations interviewed admitted that no proper pre-project planning, assessment, and justification was carried out before the implementation of ecrm. They were mostly done either through intuition or they believed in the ecrm vendors words. For example, one project manager who was responsible for implementing an ecrm project said: This is the company we trust. This is the company that has just implemented a huge project for us this company has operated in couple of other companies in Australia. This is consistent with research findings where the difficulties and uncertainties associated with IT investment evaluation forced senior executives to rely on gut feeling or intuition when making IT investment decisions (Lin and Pervan, 2003). 2. Different industry requires different implementation and use of ecrm systems - The extent to which the ecrm system was used was largely depending on the type of the industry (Rigby, Reicheld, and Schefter, 2002). Chen and Chen (2004) identified industries such as retail management, office supplies and equipment, hospitality, computer hardware/software, and entertainment as some of the industries that were mostly likely to employ ecrm. From the interview transcripts and other data collected, those industries which provided mainly face-to-face (personalized) services and where the employees were in competition for commissions (e.g., housing industry) tended to use either a standalone ecrm system or less sophisticated version of ecrm system. For example, it was difficult to have a centralized ecrm system within the housing industry as all sales representatives and consultants were in competition with each other in attracting new customers and retaining existing customers. When asked about the ecrm usage within his organization, a real estate agency managing director said: I am the only sales representative who is using it. The other sales representative use their own systems and they have to use other means of keeping in contact with their customers. This is consistent with finding by Melville, Kraemer and Gurbaxani (2004) in which industry characteristics moderate the ability of firms to apply IT (such as ecrm) for improved organizational performance and to capture the resulting benefits. There was simply little incentive for them to share their customers information via ecrm. 3. Lack of formal IT investment evaluation methodology According to the interview data, less than one-third of the organizations interviewed had evaluation process. Only five out of 16 organizations interviewed had carried out some sort of evaluation processes (i.e., Scorecard, KPI analysis, benefits/costs and quantitative analysis). The rest were simply relied on their senior management s impressions or gut feeling/intuition. When asked about the evaluation process, one participant said: I have said to myself how much time it takes and what is the efficiency? If it can give me nil gain or plus gain that s good. If it gives me negative gain then I am not interested. Most organizations indicated that they did not have the capability and resources to do so, or they did not know they had no evaluation process. One project manager even did not know about the evaluation process and suggested the executive director might be responsible for doing the evaluation. While almost all of them thought it would be worthwhile to do it, most of them simply did not do it, or relied on their intuition. This is consistent with finding by Karakostas, et al., (2005) where most of the respondents did not have a universal acceptance of metrics and failed to evaluate the performance of their ecrm. Some of the other issues arising from this interpretive analysis are listed below but are not discussed due to space limitations. Details are available from the author. I 2287

4 4. Lack of user involvement. 5. Lack of benefits realization process. 6. Lack of integration with other systems. 7. Difficulties in identifying indirect costs (or intangible costs). 8. A gap in theory and practice in risk assessment by most organizations. 9. Lack of obvious linkage between the expected outcomes of the ecrm implementation and organizational objectives. 10. Lack of proper change management by many organizations. 11. Lack of incentives to use the ecrm systems. 12. Business processes versus software driven. conclusion The results show that most organizations interviewed appeared to fail in some ways to conduct a proper assessment of business needs before implementing ecrm. Pre-project planning and justification processes were not properly carried out to assess the needs and feasibility of the ecrm projects. In addition, the extent to which the ecrm system was used was largely depending on the type of the industry, size of the organizations, and type of job responsibilities. Large organizations and organizations in certain industries such as hospitality, and computer hardware and software were most likely to adopt ecrm. Not only did they have higher usage of ecrm, but also they were more likely to implement more sophisticated ecrm systems. ecrm usage had also something to do with the type of job responsibilities. The top management, for example, were more likely to use ecrm more often than their subordinates who did not always perceive ecrm systems as useful and necessary. Most organizations did not carry out pre-project justification processes. Only half of the organizations interviewed had some sort of justification process. Those which did carry out the processes had very basic form of justification processes such as assessment of the vendor s demo or simple cost/benefit analysis. Furthermore, most organizations claimed to use a variety of criteria to evaluate their IT investments. However, only less than one-third of the organizations interviewed had carried out some sort of evaluation processes (i.e., Scorecard, KPI analysis, qualitative and quantitative analysis). Finally, no formal IT benefits realization methodology (such as the Cranfield Process Model of Benefit Management (Ward and Daniel, 2006)) or process was specified by any of the participants. This is really a cause for concern as successful ecrm requires that organizations allocate sufficient resources for building customer relationships and continuously evaluating ecrm initiatives. The evaluation and benefits realization mechanisms can expedite the organizational learning process and help make ecrm work to the benefits of all customers and external partners. Future trends An article titled IT Doesn t Matter has argued that IT has become a commodity because it has become widespread, as happened to other innovations such as engines and telephones (Carr, 2003). However, Carr s (2003) views on IT are not shared by many IT practitioners and academics who argue that IT still has a lot to offer in the future and can deliver competitive advantages to organizations. In addition, more recent evidence suggests that many organizations simply got carried away with IT and spent money unwisely in late 1990s and early 2000s. It is inevitable that more successful organizations will analyze their economics carefully, spend on only those IT applications that would deliver productivity gains, and evaluate their investments carefully through a disciplined approach with innovative management practices. references Auer, C. and Petrovic, O. (2003). Evaluation of CRM-system Success. 5 th Undergraduate and Graduate Students ecommerce Conference (Merkur Day, 2003), Naklo, Slovenia, October 17, Bernett, H. G. and Kuhn, M. D. (2002). The Emergence of Electronic Customer Relationship Management, The Telecommunications Review, Capgemini. (2004). Realizing Return on Investment from CRM. Capgemini Consulting Technology Outsourcing, Source: [On-Line]: Carr, N. G. (2003). IT Doesn t Matter. Harvard Business Review, 8(1), Chen, Q. and Chen, H. (2004). Exploring the Success Factors of ecrm Strategies in Practice. Journal of Database Marketing and Customer Strategy Management, 11(4), Dibb, S. (2001). Customer Relationship Management and Barriers to the One Segment. Journal of Financial Services Marketing, 6(1), EPS, (2001). ecrm: Putting the Customers First, EPS Monthly Briefing Paper, December, Source: [On-Line] Ernst and Young. (1999). Customer Relationship Management. Special Report: Technology in Financial Services, New York, NY. 2288

5 Feinberg, R., Kadam, R., Hokama, L., and Kim, I. (2002). The State of Electronic Customer Relationship Management in Retailing. International Journal of Physical Distribution and Logistics Management, 30(10), Fjermestad, J. and Romano, N.C., Jr. (2003). Electronic Customer Relationship Management: Revisiting the General Principles of Usability and Resistance. An Integrative Implementation Framework, Business Process Management Journal, 9(5), Foley, T. (2002). Critical Success Factors for a Winning CRM Program. Inforte Corporation. Source: [On-Line] Karakostas, B., Kardaras, D., and Papathanassiou, E. (2005). The State of CRM Adoption by the Financial Services in the UK: An Empirical Investigation. Information and Management, 42(6), Kim, J., Suh, E., and Hwang, H. (2003). A Model for Evaluating the Effectiveness of CRM Using the Balanced Scorecard. Journal of Interactive Marketing, 17(2), Lin, C. and Pervan, G. (2003). The Practice of IS/IT Benefits Management in Large Australian Organizations. Information and Management, 41(1), Lin, C., Pervan, G., and McDermid, D. (2005). IS/IT Investment Evaluation and Benefits Realization Issues in Australia. Journal of Research and Practices in Information Technology, 37(3), Love, P., Irani, Z., Standing, C., Lin, C., and Burn, J. (2005). The Enigma of Evaluation: Benefits, Costs and Risks of IT in Small-Medium Sized Enterprises. Information and Management, 42(7), McKeen, J.D. and Smith, H.A. (2003). Making IT Happen: Critical Issues in IT Management, John Wiley and Sons, Ltd., Chichester, UK. Melville, N., Kraemer, K., and Gurbaxani, V. (2004). Review: Information Technology and Organizational Performance: An integrative Model of IT Business Value, MIS Quarterly, 28(2), Mingers, J. (2001). Combining IS Research Methods: Towards a Pluralist Methodology. Information Systems Research, 12(3), Remenyi, D. and Williams, B. (1996). The Nature of Research: Qualitative or Quantitative, Narrative or Paradigmatic? Information Systems Journal, 6, Rigby, D.K., Reicheld, F.F., and Schefter, P. (2002). Avoid the Four Perils of CRM. Harvard Business Review, 80(2), Sigala, M. (2004). Customer Relationship Management (CRM) Evaluation: Diffusing CRM Benefits into Business Processes. The 12th European Conference on Information Systems (ECIS, 2004), Turku, Finland, June 14-16, Steinmueller, W.E. (2002). Settling the e-crm Frontier: The Experience of Innovating European Firms, Socio-Economic Trends Assessment for the Digital Resolution (STAR). Issue Report No. 23, September. Straub, D.W., Hoffman, D.L., Weber, B.W., and Steinfield, C. (2002). Measuring e-commerce in Net-Enabled Organizations: An Introduction to the Special Issue. Information Systems Research, 13(2), Sugumaran, V. and Arogyaswamy, B. (2004). Measuring IT Performance: Contingency Variables and Value Modes. The Journal of Computer Information Systems, 44(2), Tan, X., Yen, D.C., and Fang, X. (2002). Internet Integrated Customer Relationship Management: A Key Success Factor for Companies in the E-commerce Arena. The Journal of Computer Information Systems, 42(3), Tsao, H., Lin, K. H., and Lin, C. (2004). An Investigation of Critical Success Factors in the Adoption of B2BEC by Taiwanese Companies, The Journal of American Academy of Business, Cambridge, 5(1/2), Ward, J. and Daniel, E. (2006). Benefits Management: Delivering Value from IS & IT Investments, John Wiley & Sons, Ltd., Chichester, UK. key terms Analytical ecrm: It is concerned with the technology to process and analyze large amounts of customer data. Benefits Realization: It is a managed and controlled process of making sure that expected business changes and benefits have been clearly defined, are measurable, and ultimately to ensure that the changes and benefits are actually achieved. Collaborative ecrm: It is a business model that focuses on creating a real-time ecrm infrastructure to better support customer requirements. CRM: Any initiative or process designed to assist an organization in optimizing interactions with customers via one or more touch points. ecrm: It is the element of CRM that uses the Web to create a holistic approach to internal and external communication. I 2289

6 IT Investment Evaluation: This is the weighing up process to rationally assess the value of any acquisition of software or hardware which is expected to improve business value of an organization s information systems. Operational ecrm: It is concerned with the customer touch points such as automating sales force. Productivity Paradox: Despite large investments in IT over many years, there has been conflicting reports as to whether or not the IT benefits have actually occurred. 2290