CUSTOMER RELATIONSHIP MANAGEMENT

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1 INFORMATION MANAGEMENT: STRATEGY, SYSTEMS, AND TECHNOLOGIES CUSTOMER RELATIONSHIP MANAGEMENT Ken Liang and Houston H. Carr INSIDE Customer Relationship Management; Information Technology and CRM; CRM versus ERP BACKGROUND Companies strive for a competitive advantage to remain in business. Simply stated, a competitive advantage is anything that favorably distinguishes a firm, its products, or services from those of its competitors in the eyes of its customers or end users, in such a way that the consumer chooses to purchase that product or service over another. A monopoly has absolute competitive advantage. A firm operating in pure competition has none. Thus, one objective of any firm competing in the marketplace is to have a product, service, or strategy that makes the market choose that firm over all others. Organizations gain and sustain a competitive advantage via four basic strategies: (1) low-cost leadership, (2) focus on market niche, (3) product and service differentiation, and (4) linkages to partners. 1 In considering an organization s competitive advantage, realize that three of the four strategies listed can be duplicated by others. All organizations strive for low cost, product differentiation, and finding a product niche. With time, this can occur. The one area to which a wall can be built is in customer relations. With superior relationships in place and maintained, a competitor will be hardpressed to make a valiant attack. To appreciate the need for building customer relationships, consider the forces that are driving our global economy. The five factors listed in Exhibit 1 come from a list of some 23 factors that are fueling the simple adoption of technology today. In the list one sees a customer focus. PAYOFF IDEA Customer relationship management is a business-driven strategy aimed at optimizing revenue, profitability, and customer satisfaction. This is achieved by recognizing that the only lasting competitive advantage comes from the strength of the customer relationship. Such a customercentric business architecture needs to be matched by an information technology infrastructure that puts customer information at the center, for easier information sharing, data management, and high-speed communication among diverse business systems.

2 EXHIBIT 1 Forces Fueling the Adoption of Technology 1. Product development cycle times are shortening. 2. Global competition is increasing. 3. Customized production is increasing versus mass production. 4. There is an emphasis on quality. 5. There is a customer orientation. From The Management of Telecommunications by Houston Carr and Charles Snyder, McGraw-Hill/Irwin, Boston, Massachusetts, CUSTOMER RELATIONSHIP MANAGEMENT In today s intensely competitive world, customers are more demanding, customer satisfaction rarely guarantees loyalty, and, especially in the Internet age, competitors are just a click away. Businesses have to find new ways to differentiate themselves and strengthen their market shares. Research by Bain & Co. has shown that a 5 percent increase in customer retention results in profit increases of as much as to 125 percent. The strategic objective of customer relationship management (CRM) is to build relationships with profitable, desirable, loyal customers. Loyal customers are typically less sensitive to price. Thus, the competition of a lower-cost provider is weakened. Marketing to loyal customers is far less expensive than acquiring new ones. In this case, one s market niche is the customer not the product. CRM recognizes valued customers for their exceptional loyalty, understands each customer s value to the business over the life of the relationship, and rewards the customer by personalizing the relationship and tailoring services to exact customer needs. The business strategy inherent in CRM is not new. Businesses have always talked about putting customers at the center, but their treatment has often fallen short. Many businesses have little hard information about their customers needs. Those that do, have customer data existing in isolated computer systems in finance, manufacturing, distribution, sales, and others. Often the objectives as well as the customer information contained in these areas differ and are kept private. Because corporate performance can never exceed an organization s ability to manage its information, business success today means being able to integrate, understand, and leverage customer information for better decisions. INFORMATION TECHNOLOGY AND CRM Information technology (IT) is a crucial element in achieving CRM s goals. The IT part of CRM can be defined as a computer-enabled process that begins with the acquisition of knowledge about customers, proceeds with in-depth analysis of their needs, and then uses the analysis to drive

3 profitable interactions. The key element is that businesses must dynamically balance customer value and supply chain costs to provide exceptional services to loyal customers, while appropriately satisfying all other customers needs. Businesses provide real-time, differentiated responses to customers according to their loyalty, lifetime profit potential, requirements, and cost to serve. By focusing on optimization of the entire value creation process, businesses will begin to reap the real benefits of the emerging digital economy. CRM can be seen as a specialized outgrowth of data warehousing and legacy applications containing customer data. CRM involves capturing and integrating all customers data from everywhere in the organization, analyzing and consolidating it into information, and then distributing the results to various systems and customer contact points across the enterprise. This approach goes beyond merely automating customer contacts with front-office applications in marketing, sales, call centers, and customer service. This approach creates a complete view of the customer, providing direct feedback to operational systems, and offering executives the decision support they need to make better and faster decisions. The integration with data warehousing and data mining can provide direct feedback to operational and front-office systems making the enterprise more responsive to customer needs and changing market conditions. Such an architecture for business intelligence makes information about the customer operational, turning analysis into action and, ultimately, into revenue and profit. The telecommunications industry provides a good example of this architecture in action: service providers using CRM stand the best chance of providing the right services to the right customers at the right time. By integrating demographic information with existing customer data from the Internet, billing, order management, and other front-office systems in the data warehouse, they create a complete view of the customer. Business-intelligence tools are then used to analyze the market and develop new, high-value services. Then CRM software helps develop integrated, targeted marketing campaigns using whatever channels best meet customer needs. The implementation of CRM goes beyond automating functions. It entails a fundamental change in the culture and operations of an organization. It also means addressing the infrastructure requirements for implementation on the Internet. A successful CRM implementation strategy should consider the following. 1. Database consolidation. This involves the consolidation of customer information and the reengineering of business processes around the customer. The goal is to have all interactions with a customer recorded in one place, to drive production, marketing, sales, and customer support activities.

4 2. Knowledge management. At the heart of a CRM implementation is the acquisition of knowledge about a customer, as well as its analysis, sharing, and tracking. Also integral to the use of knowledge for competitive advantage is for businesses to know what actions to take as a result of this knowledge. As a point of reference, knowledge can be considered information combined with experience, providing the user with an ability to act, where those without the knowledge cannot Integration of channels and systems. The epitome of customer service is to respond to customers in a consistent and high-quality manner through their channel of choice. This in turn dictates the seamless integration of all communication channels with the customer database. It also dictates the integration of CRM with other parts of the enterprise business systems and applications. 4. Technology and infrastructure. Sophisticated tools exist to automate and streamline customer service. The self-help model typically achieved using a combination of tools can be complemented with real-time interactions. While the tools are available, the crux of the matter is to ensure the ability of the organization and the scalability of the technology infrastructure to cope with increased volumes and demands. 5. Change management. CRM is more than technology; it involves a change in philosophy and attitudes. The new mantra is to do whatever it takes to enhance customer loyalty. Consequently, a process for managing change must be instituted to help a business move from a product-centric focus to a customer-centric one. After careful planning and consideration, a four-step roadmap can be followed: 1. Transform core business processes: a. From a product view to a customer view b. From mass marketing to 1:1 marketing c. From single channel to multi-channel distribution 2. Build new applications, including: a. Full-service Web sites b. Enterprise resource planning (ERP) integration to CRM c. An enterprise data warehouse that links data and enables data sharing across the environment 3. Run a scalable, available, safe environment, including: a. An enterprise IT infrastructure to support 24 7 services and business intelligence across multiple channels globally b. Critical E-business activities across the extended enterprise c. A secure environment that protects the business and the customers

5 4. Leverage knowledge and information by: a. Analyzing customer satisfaction history to determine product and service preferences, an optimal channel strategy, and a contact plan b. Using customer product and service preference data to attract new customers, develop loyal customers, and retain profitable customers CRM VERSUS ERP CRM application suites are sold by vendors such as Siebel, Clarify, Vantive, and others. Although most CRM vendors have their roots in only one aspect of CRM, they are broadening their focus. ERP vendors such as Oracle, SAP, and Baan are also active in CRM, working to integrate their back-office suites with front-office modules through either internal development or acquisitions such as PeopleSoft s acquisition of Vantive. AMR research predicts that the CRM market will grow to $16.8 billion by 2003, a compound annual growth rate of 49 percent. Comparing CRM to ERP sheds light on CRM s unique focus. ERP automates the back end of a company s operations, creating a consolidated view of daily enterprise revenue and production status. It does result in operational efficiencies and lower costs; but when every business has it, ERP does not create the competitive advantage. CRM, on the other hand, turns the attention outside the enterprise to the customer. Better knowledge of customers through CRM improves customer acquisition and retention. CRM accelerates profitable sales by identifying the most profitable customers and segments for focused marketing, product bundling, cross-selling, and up-selling. These are huge opportunities for businesses to create a sustainable competitive advantage. CONCLUSION By proactively responding to customers, CRM helps businesses significantly enhance customer loyalty and boost performance, while at the same time erecting formidable barriers to competition. Without access to the same detailed, customer-specific knowledge on value, requirements, and cost, it is nearly impossible for competitors to copy the CRM model. New products can be copied. Human resource models can be copied. Marketing can be copied. Customer service can be copied. Supply chain management can be copied. Manufacturing excellence can be copied. Quality standards can be copied. But it is practically impossible to copy how a company differentiates in real-time the way each and every customer and segment is served by implementing CRM through a network of suppliers, logistics providers, manufacturers, and distributors. In short, CRM creates opportunities that are too great to ignore. Note 1. For more on knowledge and its management, see Knowledge Management as a Competitive Advantage, by D. J. McManus and H. H. Carr,.

6 Ken Liang is a project leader with Riverwood International Corporation in Atlanta, Georgia. Active in the industry for the past decade, he has facilitated the establishment of customer relationship management at Riverwood to integrate the SAP back-office suites to the front-office modules. Instrumental in developing a variety of IT applications and providing system analysis to support business process reengineering, he is the chief architect for Riverwood s intranet development and actively consults for local businesses on various E-business projects. He is the inventor of several international and U.S. patents, and can be reached via at KenLiang@Ken- Liang.com. Dr. Houston H. Carr is an alumni professor of management (MIS) in the College of Business, and director of the Partnership for Information and Telecommunications Management at Auburn University, Alabama. Before completing his doctorate in information systems, he spent 21 years in industry, the last nine in analysis, design, and consulting on computer-based pricing and proposal monitoring systems. He has published numerous articles and two books on such topics as end-user computer support and management, telecommunications management, and the user-friendliness of computer applications.