MASTER'S THESIS. Customer Relationship Management Implementation

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1 MASTER'S THESIS 2006:026 Customer Relationship Management Implementation A Case Study of Two Service Companies Thomas Kwaku Obeng Karla Loria Luleå University of Technology Master's thesis Marketing Department of Business Administration and Social Sciences Division of Industrial marketing and e-commerce 2006:026 - ISSN: ISRN: LTU-DUPP--06/026--SE

2 IN MEMORY OF THOMAS... Publishing this thesis has been marked with a shade of sadness and grief. A few weeks after its defense and final corrections, Thomas Kwaku Obeng, co-author and friend, decided to go back to his country of origin, Ghana, where he encountered a tragic accident that lead to his death. Thomas was a wonderful person always willing and ready to help, considered of others needs, with very high moral values and a good friend. We shared many working hours and also many common ideas and interests. We spoke a lot about future plans and expectations. He valued knowledge and education and his wish was to serve his community and contribute to its development. This is why he hurried back. As Robert Opoku, one of his close friends stated: no amount of words could persuade him to stay. It has taken a while to assimilate the absence of Thomas. This is why the publication of this thesis comes in so delayed, almost a year after it was completed. This final step towards concluding what we started together will never be treasured in my heart as much as the invaluable process of writing, investigating and growing where we both participated. Still, this publication is the clearest testimony of how cultural, ethnical and geographic differences only have helped to enrich the process of personal growth and how close friendships can be established within different peoples and nations while bringing hope to humanity. There is no dignity and honor in anything than to serve your community Thomas Kwaku Obeng Karla Loria R. ii

3 ABSTRACT This master thesis, prompted mainly by the much publicized questioning of most Customer Realtionship Management (CRM) initiatives, was to gain a better understanding of CRM implementation in service companies. CRM has been approached by both academics and practitioners from divergent perspective and literature appears to be inconsistent and highly fragmented. The objective then is to unravel the major reasons, benefits, components and key factors of CRM implementation. To achieve the purpose of this thesis, a case study involving two Swedish service firms that have been implementing CRM were studied. Findings from the study show that service companies enjoy some benefits by implementing CRM as well those in the process of rolling out a full CRM initiative. The theory is contradicted when firms show a different mix CRM components as they unconsciously see CRM as a technology solution. Another finding is that service firms are radically re-engineering their business processes and are strategically using CRM technology to capture a complete view of the customer. Finally, findings have shown that for CRM implementation to be successful and thus achieve corporate objectives. The right mix of CRM components and all the key factors, strategy, leadership and integration need to be given due attention by service firms. iii

4 ACKNOWLEDGEMENTS The twenty weeks of meticulous and hard work contributed to the completion of this master thesis, a requirement for the E-MBA program at the Division of Industrial marketing, Luleå University of Technology. Writing a thesis of this nature has indeed broadened our knowledge and at the same time involved many challenges. The successful completion of this thesis would not have been possible without the support, encouragement, cooperation and assistance from many individuals who contributed in diverse ways to the conduct, compilation and the quality of the thesis. As a result, we would like to express our sincere thanks to first and foremost to the Heavenly father, for the strength and protection throughout the study. Our next gratitude and appreciation goes to our Supervisor Åsa Wallström, PhD. for her assistance, guidance patience and professional touch with which she guided us through this exercise. She provided us encouragement, direction and constructive suggestions which contributed in no small way to the quality of this thesis. Please, accept our humble thanks. We are also grateful to all family members, friends and loved ones who in many ways contributed and supported us both physically and spiritually. To you we say thanks. We cannot ignore the support from other members at the division of Industrial Marketing and E-Commerce who in one way or the other guided us. Last but not the least, we want to thank the two managers of the service companies that opened their doors for us in a special way, allowing us to use their companies as case study for this thesis. We owe you a great deal of gratitude. January 10, 2005 Thomas Kwaku Obeng. Karla Loria R. iv

5 Table of contents 1. Introduction...i 1.1 Background Research Problem Outline of the Thesis Literature Review Customer Relationship Management (CRM) Benefits of CRM Customer Value...11 Types of Customer Value Customer Satisfaction Customer Retention and Loyalty Components of CRM Technology Functional categories of CRM Technology...16 Collaborative CRM CRM infrastructure Business process People The Right Mix of CRM Components Implementation Key Factors of the CRM implementation Strategy Leadership Integration within the organization Frame of Reference Research Problem and Research Questions Delimitation Frame of Reference Emerged Frame of Reference Methodology Research Process Research Purpose Research Approach Qualitative and Quantitative Research Approach Research Strategy Sample selection Data Collection Criteria for Quality Measurement Empirical Data Presentation Case One: Länsförsäkringar...43 v

6 5.2 Case Two: HSB-Norr Analysis Within-Case Analysis: Länsförsäkringar Norrbotten Within-Case Analysis: HSB-Norr Cross-Case Analysis Findings and Conclusions Customer Relationship Management Research Question One: How can a firm s major reasons and benefits of implementation of CRM be described? Research Question Two: How can the components of CRM implementation (i.e. people, process and technology) be described? Research Question Three: How can the key factors of CRM implementation (i.e. strategy, leadership and integration) be described? Research Problem Implications Implications for management/practitioners Implication for theory Implications for further research...71 References...72 Appendix 1:...77 Appendix two...78 vi

7 Table of Figures Figure 1: Outline of the thesis...6 Figure 2: The integrated framework for customer value and CRM performance...12 Figure 3: Components of CRM and implementation model...15 Figure 4: Analytical CRM...17 Figure 5: Integrated Customer data on a data Warehouse...19 Figure 6: Developing the right mix of people, process, and technology...23 Figure 7: Integration of Customer relationship and customer leadership management...25 Figure 8: Motivation elements of the Integrated CRM-CRL model...27 Figure 9: 360-degrees view of the customer...30 Figure 10: Emerged Frame of reference for this study...33 Figure 11: Relevant situations for different research strategies...36 Figure 12: CRM components as assessed by Länsförsäkringar...46 Figure 13: Organizational Chart HSB-Norr...48 Figure 14: Organizational Chart HSB-Norr...51 Figure 15: Developing the right mix of people, process, and technology...55 Figure 16: CRM components as assessed by Länsförsäkringar...55 Figure 17: Developing the right mix of people, process, and technology...59 Figure 18: CRM components as assessed by HSB-Norr...59 Figure 19: Comparison chart of values assessed to the CRM components...63 Figure 20: Comparison chart of values assessed to the CRM components...68 vii

8 1. Introduction In this first chapter, we set up the basis to our area of research. An introduction and general background are provided in order to describe the area in which the study is conducted and further on, justify the importance of the specific research that has been performed. Finally, the research problem will be clearly stated followed by the outline of the thesis. As a result of globalisation of businesses and the evolving recognition of the importance of customer retention, market economies and customer relationship economics, there has been a change in mainstream marketing (Grönroos, 1997). Kevin and Yen (2003) explains that over the past few years, there has been a shift in relationship literature from focusing on the benefits of long-term relationship for companies to the benefits that accrue to customers. Because of this it is becoming evident that companies fundamentally have to change the way in which marketing is done i.e. a fundamental shift from managing a market, to managing a specific customer (Bose, 2002). Establishing relationship with a customer is to attract the customer and to build the relationship with the customer so that the economic goals of the relationships are maintained (Grönroos, 1997). Kotler (2000) maintained that it has been the practise by firms to devote greater attention and marketing effort to attracting new customers rather than retaining existing ones. This is the base for relationship marketing (RM), which came as an answer to the transactional or traditional marketing approach. Transaction marketing used to emphasise the concepts of the 4Ps of marketing: product, price, place and promotion that focused only on attracting businesses, but not so much in retention (Gummesson, 1999). Chen and Popovich (2003) stated that it has been well acknowledged and recognised that retaining firm s existing customers is more profitable that attracting new ones. As a result, relationship marketing was developed on the basis that customers vary in their needs, preferences, buying behaviour and price sensitivity. Bose (2002) added that firms in no distant future will be driven more and more by individual customer preferences. Over time there has been a gradual move in marketing thought and practice from mass marketing market segmentation niche marketing micro marketing mass customization personalization. The twenty first century marketing thought and effort is pushing for smaller and smaller groups of consumers as market targets. Increasing competitiveness in the international economy is forcing the organizations to place larger emphasis on building valuable customer relationships. CRM builds on the philosophy of relationship marketing that aims to create, develop and enhance relationships with carefully targeted customers to maximize customer value, corporate profitability and thus shareholders value (Frow and Payne, 2004). The goal then is to improve the customer's experience of how they interact with the company, which hopefully, will turn into more satisfaction, which might lead to more loyalty, and finally, to and increase in profit. (Chou et al, 2002). Kotorov (2003), while referring to the roots 1

9 of CRM mentioned that in the past, many speculated whether CRM would turn out to be just another buzzword; one more term to add to the managerial dictionary that would soon fade away. Bull (2003) adds to this thought stating that it is no longer good enough just to say that you are customer focused, but it matters what you do. Customer relationship management (CRM) is of vital importance to organizations and it requires customer- centric business approach to support effective marketing, sales and service processes (Carolyn et al, 2003) The service industry is growing and dominating world economy. According to UK office for national statistics, the service industry can be categorised into financial, transport, retail and personal service (Jick, 1999). According to Wallström (2002), the service sector comprises a wide range of companies including banks, insurance companies. She explains that the service sector employs more and more people, for example nine out of ten new jobs opportunities are created within the service sector in Sweden. Swedish Institute (2004) maintained that service sector accounted for 75 percent of all employees in Grönroos (1997) said there has been compelling interest in services in many parts of the world and in different functional areas. Advances in information technology especially the rapid growth of the Internet usage, improved production capabilities, demanding customers and accelerated flow of capital across political boundaries create business opportunities and fuel competition as well (Rodie and Martin, 2001). According to them, the service sector is considered as one of the most challenging and competitive landscape, and like all businesses services firms face some degree of competition. The ability to view all customer interactions and information is essential to providing the high quality of services that today s customers demand and service firms that want to be successful in the knowledge economy must implement a comprehensive CRM integrated solution that involves all departments, working as a team and sharing information to provide a single view of the customer (Yusuf, 2003) 1.1 Background The goal of relational marketing is the focus on customer loyalty (Asuncion et al, 2002), and CRM is becoming the foundational cornerstone of profitable financial success (Galbreath and Rogers, 1999). Customer satisfaction, understood as the meeting of the customer s expectation is related to delivering high customer value (Kotler, 2000). Customers who result of successful relationships have far more potential for loyalty as they are often prepared to pay a premium price for a range of reliable goods or services (Newell, 2000). Once these customers are recruited they are less likely to defect, provided they continue to receive quality service. Relationship Marketing emphasises that customer stickiness (retention) can substantially reduce marketing cost and contributes to firms profitability because it is always cheaper to retain a customer than to acquire a new one (Khalifa et al 2002). Customer relationship management appeared as a new concept at the climax of the Internet boom (Kotorov, 2003). It changed both the CRM market and customer-related business requirements of all sizes of companies (Chou et al, 2002). During the early 90 s providers of CRM solutions were offering products that accentuated the automating and 2

10 standardizing of internal processes related to acquiring, servicing and keeping customers. Still, these solutions were very expensive and hard to maintain (Chou et al. 2002). The new CRM system means that the existing and potential customers are now able to interact and communicate with corporations. Kotorov (2003) affirms that many management experts welcomed the concept of customer relationship management, and hurried its implementation in spite of the lack of a clear definition, vision and without an understanding of the extent and complexity of organizational restructuring required for a successful CRM implementation. This is also supported by Abbott (2001) when she mentions in her study that the majority of the companies were not ready to take advantage of the enormous amounts of data captured for CRM purposes. The increasing disappointing results of the applications of customer relationship management coincided with the technology melt down. Customer relationship management was not delivering the result that organisations expected. Sudhir (2004) estimates that CRM projects failing to achieve their objectives range anywhere from 60 percent to 80 percent. But, on the other hand, a handful of successful Customer relationship management projects were giving both a proof-of-concept and a guideline for a successful CRM implementation (Kotorov, 2003). Furthermore, the successful projects created enormous competitive advantage, making the implementation of Customer relationship management by rival companies an absolute survival necessity. The Customer relationship management concept came also with a number of opportunities for applications and consulting. The demand for CRM-related services has exceeded available resources, according to NameProtect (2001). Information technology (IT) departments within the firms are often unable to provide and implement the demand. The gap between corporate needs and the limited available resources will keep impelling the great demand for CRM-oriented implementation and integration services to increase. They also affirm that the best word to describe CRM market is "profitable" and projected a market growth from $1.2 billion in 1997 to $11.5 billion in According to Bellenger et al. (2004), the growing body of literature on CRM is somewhat inconsistent and highly fragmented. This is a result of the fact that a common conceptualisation of the phenomenon is lacking (Bull, 2003). Bellenger et al (2004) further noted that the ambiguity surrounding the nature of CRM has permeated the academic literature and due to that, has generated research streams that address CRM from seemingly incongruent perspective. Many believes that through CRM, firms are able to understand customers from strategic perspective and as a result the CRM ultimately focuses on effectively turning customer information into intelligence to more efficiently manage customer relationships (Galbreath and Rogers, 1999). Another view is that it is technologically orientated. Sandoe et al. (2001) argue that advances in database technologies such as data warehousing and data mining, are crucial to the functionality and effectiveness of CRM systems. Kotler (1997) assures that customer relationship management principally revolves around marketing and begins with a deep analysis of consumer behaviour. Bose (2002), states that CRM is an integration of technologies and business processes used to satisfy the needs of a customer during any given interaction. Chou et al (2002) also describe it as an information industry 3

11 term for methodologies, software, and usually Internet capabilities that help an enterprise manage customer relationships in an organized way. This same fragmentation of opinions reflects when it comes to implementing Customer relationship management. Creating a CRM solution for most companies is generally a matter of complex integration of hardware, software and applications and it also requires a careful analysis of business processes. The implementation of CRM impacts on a number of functions within an organisation including sales, IT, operations, marketing and finance. Bradshaw and Brash (2001) asserted that implementing CRM is certain to involve the use of new technologies. Most companies are enthusiastic about implementing CRM, but the work involved to bring such a system to reality demands an enormous deal of varied knowledge, project management and a meticulous plan (Bose2002). Thus, CRM failure rate was estimated to be between 55 percent and 75 percent in 2001 (Kotorov, 2003). Up to this point, it has been suggested that people, process and technology are key concepts to consider for the implementation of CRM (Chen, Popovich. 2003). The study of what they imply and how they are being approached by different companies becomes relevant in order to increment success of CRM implementation in the future. 1.2 Research Problem As mentioned, customer relationship marketing (CRM) has become a number one focus as today s competitive markets were getting more saturated and aggressive. Now the marketing model is changing from the product-centred stage to the customer-centred stage. Customers are demanding a different relationship with suppliers than the traditional sales model (Chou et al, 2002). According to Hamel and Pralahad (1994), the objective is to amaze customers by anticipating and fulfilling their unarticulated needs. Bose (2002) explain that service firms especially financial organisations and telecommunication are regarded as companies that most likely to benefit from CRM implementation due to the fact that they collect and accumulate a lot data on each customer, adding that firms whose customers needs and product value are highly differentiated will have the most benefits. Advances in technology, especially the Internet have greatly enhanced the flow of dialogue, and the capture, interpretation and dissemination of information. (Frow and Payne 2004). The new technologies including the use of the World Wide Web have allowed companies to reach customers in previously inaccessible markets, and to compete efficiently with the traditional suppliers (De Kare-Silver, in Gurau 2003). On the other hand, the computer technology and the Internet applications have offered for the first time in marketing's history the possibility to collect, process, analyze, and efficiently use large volumes of data, and to adopt a personalized marketing approach for every customer (Rayport and Jaworski, 2001). According to Abbott (2001), the way customer knowledge is handled becomes more and more critical to businesses. But without the right implementation process, tools and systems accessing this data the efforts are largely wasted. Scott (in Abbot 2001) sustains that: Knowledge in people's heads can be put to use; it is alive. Knowledge on disk is data. Data is by definition dead - an artifact". 4

12 As customers become more and more sophisticated and products more and more commoditized, service becomes dominant. Customer retention is critical and this requires loyalty which is brought about by great service, trust and, to different degrees, personalization (Abbott, 2001). A whole new world of demands has risen and business rush into the implementation of the Customer relationship management. This comes as an answer to a most competitive environment, availability of new technologies and naked survival; therefore, the study of the elements that determine success becomes more relevant. Even though the level of satisfaction with CRM implementation has not shown the best results, companies keep investing enormous amounts of money in the hope that this will bring them a strategic advantage. This research will focus on the experience that service companies have had so far. The research problem can then be stated as follows: To Gain a better understanding of CRM (i.e. Customer Relationship Management in Service Companies 5

13 1.3 Outline of the Thesis This part will give a description in summary form of the main content and how the thesis is organised and structured. The thesis has been divided into seven chapters and this can be represented in figure one as shown below. Chapter One Introduction, Background and Problem Area Chapter Two Literature Review Chapter Three Research Problem, Research Questions and Frame of Reference Chapter Four Methodology Chapter Five Empirical data Presentation Chapter Six Data analysis Chapter Seven Findings, Conclusions and Implications Figure 1: Outline of the thesis In chapter one of this thesis, an introduction and background of relationship marketing, service firms and Customer relationship management is presented. This forms the foundation for the development of the research area and the remaining chapters. In chapter two, the overview of previous studies in the area is presented. The chapter is divided into four main parts-customer relationship management, benefits of CRM, components of CRM and key factors of CRM implementation. Chapter three presents the problem discussion which is based on the chapter one and two, arriving at the research problem and the formulation of three research questions for the thesis. The frame of 6

14 reference which shows the conceptualization of the various variables and which also forms the basis for answering the three research questions is presented in this chapter. Chapter four highlights a description of the methodology which has been used to conduct this study. Chapter five looks at the empirical data collected from the two service companies for this study. In the sixth Chapter the empirical data will be analyzed with theory to discern commonalities and differences both within-case and across-case. In chapter seven which is the final chapter, the result of the research will be made and presented by answering the research questions posed in chapter three. Also, findings and conclusions will be clearly stated and finally implication for practitioners/management, theory and future research will be presented in this chapter. 2. Literature Review The previous chapter provided the background and the problem discussion of the area of this study and the research problem: To gain a better understanding of CRM (i.e. Customer Relationship Management) implementation in service companies. We now present the theoretical review chapter, which sole aim is to provide relevant literature in the field of our study. 2.1 Customer Relationship Management (CRM) Customer Relationship Management (CRM) has become one of the most dynamic technology topics of the new millennium. According to Chen and Popovich (2003), CRM is not a concept that is really new but rather due to current development and advances in information and enterprise software technology, it has assumed practical importance. The root of CRM is relationship marketing, which has the objective of improving the long term profitability of customers by moving away from product-centric marketing. Bose (2002) noted that CRM was invented because customers differ in their preferences and purchasing habits. If all customers were alike, there will be little need for CRM. As a result, understanding customer drivers and customer profitability, firms can better tailor their offerings to maximise the overall value of their customer portfolio (Chen and Popovich, 2003). The attention CRM is currently receiving across businesses is due to the fact that the marketing environment of today is highly saturated and more competitive (Chou et al, 2002) According to Greenberg (2004), CRM generally is an enterprise-focused endeavour encompassing all departments in a business. He further explains that, in addition to customer service, CRM would also include, manufacturing, product testing, assembling as well as purchasing, billing, human resource, marketing, sales and engineering. Chen and Popovich (2003) argued that CRM is a complicated application which mines customer data, which has been retrieved from all the touch points of the customer, which then creates and enable the organisation to have complete view of customers. The result is that firms are able to uncover and determine the right type of customers and predicting the trend of their future purchases. CRM is also defined as an all-embracing approach that seamlessly integrates sales, customer service, marketing, field support and other functions 7

15 that touch customers (Chou et al, 2002). They further stated that CRM is a notion regarding how an organisation can keep their most profitable customers and at the same time reduce cost, increase in values of interaction which then leads to high profits. The modern customer relationship management concept was shaped and influenced by the theories of total quality management (Gummesson, 1997) and by new technological paradigms (Zineldin, 2000). There is however, a perceived lack of clarity in the definition of customer relationship management, although all accepted definitions are sharing approximately the same basic concepts: customer relationships, customer management, marketing strategy, customer retention, personalisation (Zineldin 2000). However, while academics debate the subtitles of various definitions, the practitioners have developed a wealth of applicative papers analysing the concrete challenges and opportunities of implementing the systems (Bacuvier et al. 2001). CRM, in some firms, is considered as a technology solution, consisting of individual databases and sales force automation tools and sales and marketing functions so as to improve targeting effort. Peppers and Rogers (1999) argued that other organisations view CRM as a tool, which has been particularly designed for one-to-one customer communications, which is the function of sales, call centres or the marketing departments. Accordingly, Frow and Payne (2004) added that CRM stresses two-way communication from the supplier to customer and from the customer to the supplier to build the customer over time. The two-way communication has been enhanced greatly by advances in technology particularly the Internet. In term of information technology (IT), CRM means an enterprise-wide integration of technologies working together such as data warehouse, web site, intranet/extranet, phone support system, accounting, sales, marketing and production. Kotler (2000) assured that CRM uses IT to gather data, which can then be used to develop information acquired to create a more personal interaction with the customer. In the long-term, it produces a method of continuous analysis and refinement in order to enhance customer s lifetime value with the firms Goldenberg (2000) believes that CRM is not merely technology applications for marketing, sales and services but rather when it is successfully implemented; it enables firms to have cross-functional, customer-driven, technology-integrated business process management strategy that maximises relationships. Chin et al (2003) stated that due to many technological solutions available for CRM automation, it is often misconstrued as a piece of technology. But they maintained that in recent times many companies have realised the strategic importance of CRM, and as a result, it is becoming a business valueeffort rather than technology-centric effort. Using information technology as an enabler, CRM strategy leverages key functional areas to maximise profitability of customer interactions (Chen and Popovich, 2003). It has been recognised that technological advancements and innovations, keen competitive marketing environment, coupled with the Internet are the main drivers that promote one-to-one initiative. Through CRM, firms are able to understand the drivers of present and future customer profitability which makes it possible to appropriately and proportionately 8

16 allocate firm s resources to all functional areas that affect customer relationship (Chou et al, 2003). For customers, CRM offers customisation, simplicity and convenience for completing transactions irrespective of the kind of channel of interaction used (Gulati and Garino, 2000). Many businesses today realise the importance of CRM and its potential to help them achieve and sustain a competitive edge (Peppard, 2000). This view was further boosted by Bose (2002) that as a result of changing nature of the global environment and competition, firms cannot compete favourably with only minor advantages and tricks that can easily be copied by competing firms. The implementation of CRM is an enabled opportunity to rise above minor advantages with a real focus on developing actual relationships with customers. Firms that are most successful at delivering what each customer want are the most likely to be the leaders of the future. 2.2 Benefits of CRM According to Chen and Popovich (2003), CRM applications have the ability to deliver repositories of customer data at a much smaller cost than old network technologies. Throughout an organisation, CRM systems can accumulate, store, maintain, and distribute customer knowledge. Peppard (2000) noted that effective management of information has a very important role in CRM because it can be used to for product tailoring, service innovation; consolidate views of customers, and for calculating customer lifetime value. CRM systems assists companies evaluate customer loyalty and profitability based on repeat purchases, the amount spent, and longevity. Bull (2003) added CRM makes it practicable for companies to find unprofitable customers that other companies have abandoned or jettisoned. This position is supported by Galbreath and Rogers (1999) that CRM helps a business organisation to fully understand which customers are worthwhile to acquire, which to keep, which have untapped potential, which are strategic, which are important, profitable and which should be jettisoned. Greenberg (2004) emphasised that CRM can increase the true economic worth of a business by improving the total lifetime value of customer, adding that successful CRM strategies encourage customers to buy more products, stay loyal for longer periods and communicate effectively with a company. CRM can also ensure customer satisfaction through the allocation, scheduling and dispatching the right people, with the right parts, at the right time (Chou et al., 2002) According to Swift (2001), companies can gain many benefits from CRM implementation. He states that the benefits are commonly found in one of these areas: 1. Lower cost of recruiting Customers: The cost of recruiting or obtaining customers will decrease since there are savings to be made on marketing, mailing, contact, follow-up, fulfillment services and so on. 2. No need to acquire so many customers to preserve a steady volume of business: The number of long-term customers will increase and consequently the need for recruiting many new customers will decrease. 9

17 3. Reduced cost of sales: The costs regarding selling are reduced owing to existing customers are usually more responsive. In addition, with better knowledge of channels and distributions the relationship become more effective, as well as that cost for marketing campaign is reduced. 4. Higher Customer Profitability: The customer profitability will get higher since the customer wallet-share increases, there are increases in up-selling, cross-selling and follow-up sales, and more referrals come with higher customer satisfaction among existing customers. 5. Increased Customer retention and loyalty: The customer retention increases since customers stay longer, buy more and buy more frequently. The customer does also often take initiatives which increase the bounding relationship, and as a result the customer loyalty increases as well. 6. Evaluation of customers Profitability: A firm will get to know which customers are profitable, the one who never might become profitable, and which ones that might be profitable in the future. This is very important since the key to success in any business is to focus on acquiring customers who generate profit and once a firm has found them, never let them go (ibid) Curry and Kkolou (2004) refer to the major benefits and reasons for adoption of CRM which include: customers from the competition will come to prefer your organization; a simplified, customer-focused internal organization will simplify the infrastructure, shrinking the workflow and eliminating non-productive information flow; and profits will increase from more/more satisfied customers and a more compact, focused company. There are companies that adopt CRM systems just because it is the most advanced technology and they think they have to have it since their competitors have it (Chou et al, 2002). Some statistics that motivate this behavior are resumed as follows: By Pareto s principle, it is assumed that 20% of a company s customers generate 80% of its profits In industrial sales, it takes an average of 8 to 10 physical calls in person to sell to a new customer, 2 to 3 calls to sell to an existing customer It is 5 to 10 times more expensive to acquire a new customer than obtain repeat business from existing customer. For example, according to Boston Consulting Group (Hildebrand, 2000), the cost to market to existing web customer is $6.80 compared to $34 to acquire a new web customer A typical dissatisfied customer tells 8 to 10 people about his or her experience Source (Paul Gray and Jongbok Byun, centre for research on information technology and organization, University of California, March 2001) Getting to "know" each customer through data mining techniques and a customer-centric business strategy helps the organization to proactively and consistently offer (and sell) more products and services for improved customer retention and loyalty over longer periods of time. Peppers and Rogers (1999) refer to this as maximizing "lifetime customer share", resulting in customer retention and customer profitability. 10

18 2.2.1 Customer Value Real customer relationships, those that result in the customer feeling a genuine sense of loyalty to the firm, are predicated on a series of satisfying experiences with the company. Relationships are not developed overnight. Until the customer senses some attachment to the company, then no relationship can be said to exist. What, then, drives customer satisfaction? Surely it is the ongoing creation of value in the mind of the customer. (Bristol Group, 2004). Woodruff (in Chi et al. 2004) defined customer value as a customer-perceived preference for, and evaluation of, product attributes, attribute performances, and consequences in terms of the customer's goals and purposes. According to Chi et al, there have been limited studies to examine the differential effects of individual dimensions of customer value on the specific dimensions of CRM performance. They argued that investigating key dimensions of customer value and their effects is very critical and important since the delivery of superior customer value can involve significant costs for firms. Also firms even though they recognize the fact that superior customer value can lead to higher profits, they may be a bit skeptical since it can lead to profit reduction. Delivering superior customer value has become an ongoing concern in building and sustaining competitive advantage by driving customer relationship management (CRM) performance. Driven by demanding customers, keen competition, and rapid technological change, many firms have sought to deliver superior customer value, and base on this the role of the customer has changed from that of a mere consumer to a multi-faceted role as consumer, co-operator, co-producer, co-creator of value, and co-developer of knowledge and competencies, which implies a much more important position of the customer than ever hence, firms are seeking to retain existing customers and attract new customers by targeted value creation activities. (Chi et al, 2004) Ryals (2001) affirms that CRM creates value for the customer. The customer benefits from product and/or service offers which are targeted to meet individual needs and from improvements in customer service. There are a number of ways in which customer service can be improved through CRM. This includes reliability, security, efficiency, and communication as well as quality control and service monitoring. CRM systems also act as an organizational memory about the customer. This can benefit the customer by reducing the amount of repetitive form-filling that the customer has to do. Customer preferences can also be kept on record, making placing an order quicker and easier for the customer. The use of CRM to provide added value to customers can be directly linked to improved profitability and value-based marketing for the company Apart from the value CRM creates for the customer, it can also bring operational benefits and boost company performance; this, in turn, can increase customer satisfaction and longterm success through longer and closer relationships. In addition, customer data analysis enables organizations to identify the customers it does not want to have. On an average, 90% of bank clients, for example, are loss-making. Companies have known for a long time that customer profitability varies and that not all customers are equally desirable. 11

19 However, it is only with the advent of powerful systems that they are able to quantify and track customer profitability, and forecast customer lifetime value at the level of the individual customer. Previously, companies could only say that customers of a certain type were likely to be more commercially attractive; now they can pinpoint the individuals who are the most attractive customers. These are the customers with whom it is vital to retain long-term relationships. One American retail bank carried out a customer profiling and targeting exercise using data mining techniques. The impact on direct mail campaigns was dramatic. Campaign costs fell by one third and response rates doubled the number of new accounts increased by 33% and the profitability of these new accounts by the same amount. Defection rates fell by 5% and the lifetime value of these new customers grew by an estimated 20%. By combining an understanding of customer purchasing drivers and customer profitability, companies can tailor their offerings to maximize the overall value of their customer portfolio ( 2004) Types of Customer Value It is suggested that it is impossible to create sustained value for a firm s shareholders unless value is being created for its customers. In fact, they suggest, service has been enhanced because, through the use of technology, the customer can now deal with the firm in a much more convenient way. Access is available through several channels and is guaranteed 24 hours a day, seven days a week. (Bristol Group, 2004) This then raises a fundamental question about the type of value companies should create for their customer. For example, Kotler (1997) argued that customer value can be understood in terms of product value, service value, employee value, and image value. However, this approach is largely derived from the standpoint of a firm not that of customers, or at least not totally customer based. The broad theoretical framework developed by Sheth et al. in Chi et al 2004) was somewhat different in that they suggested five dimensions of value from the customer's perspective (social, emotional, functional, epistemic, and conditional) as providing the best foundation for extending the value construct. However, it is worth noting that not all these dimensions have equal significance at any time, although they are related in some sense. As a result present study, therefore, posits that customer value can be better understood in terms of four key dimensions, each of which may play a different role in the customer perception process and thus contribute differently to the performance of CRM. The next figure illustrates the types of value that a customer can experience. Figure 2: The integrated framework for customer value and CRM performance (Chi et al, p117) 12

20 Functional value refers to the utility derived from the perceived quality and expected performance of the product or service, and perceived sacrifice refers to the loss derived from the product or service due to the increment of its perceived short-term and longterm costs. Functional value pertaining to the customer s acquisition and use of the product is generated by price, convenience, access or technology. Unfortunately, competitors can most easily duplicate functional value (Bristol Group, 2004). Customers are becoming more value-oriented and are not simply influenced by high quality or lower price and value for money represents, therefore, the simplest and most easily copied form of functional value. Thus, creating functional value offers a fleeting competitive advantage. (Bristol Group, 2004). Social value refers to the social utility derived from the product or service. Emotional value refers to the utility derived from the affective states that a product or service generates. Barnes (2004) has noted that emotional value is much more lasting form of value which elicits an emotional response from customers. It is less easily duplicated by the competition and generally contributes to less emphasis on price. When a firm employs qualified, friendly, helpful employees value is created every time a customer is made to feel welcome, important and valued. The creation of such emotional value for customers is fundamentally different from the creation of functional value through price reductions, increased convenience and technology. Both forms of value are important. However, genuine customer relationships cannot be formed on the basis of functional value alone. Customer relationships require an emotional connection with the firm if they are to thrive. The emotional value is the more lasting, yet the more difficult to create. A reliance on technology alone will not do it. (Barnes, 2004) Customer Satisfaction Kotler (2000) defined satisfaction as a person s feelings of pleasure or disappointment resulting from comparing a product s perceived performance (or outcome) in relation to his or her expectations. When customers become satisfied about the value that is offered and sometimes his or her expectation is met and exceeded, can generate many benefits for a firm (Bateson and Hoffman, 2002). According to them, positive word-of-mouth coming from existing and satisfied customers sometimes can translate into more new customers coming to the firm. Also, satisfied current customers often buy more products more frequently and are less likely to defect to competitors than are dissatisfied customers. According to Bateson and Hoffman (2002) firms that have high degree of customer satisfaction, also seem to have the capacity to shield off competition particularly price competition. Kotler (2000) pointed out that it is important to measure customer satisfaction regularly through survey to determine customers level of satisfaction. He said this is because firms may think that they are getting a sense of customer satisfaction through customer complaints. However, in reality, 95 percent of dissatisfied customers do not make any complain and they just leave. As a result it is important for firms to make it easy for the customer to complain. Dissatisfied customers who usually complain, about 54 to 70 percent will continue to do business again with the organisation if their complaints are 13

21 taken care off and resolved and may even be 95 percent if the complain receive quick response and action. (Kotler, 2000) Customer Retention and Loyalty Bateson and Hoffman (2002) define customer retention as focusing a firm s marketing efforts towards the existing customer base. This explains the view that instead of trying to acquire new customers, firms engulfed in customer retention efforts must make sure that existing customers are satisfied so as to create and maintain long-term relationships. Lovelock et al (1999) said in business context, loyalty is used to describe the willingness of a customer to continue patronising a firm s goods and services over a long period of time and on a repeated and preferably exclusive basis, and voluntarily recommending the firm s products to friends and associates. In their view, customers will continue to be loyal to a particular firm if they feel and realise that better value is being offered. Kotler (2000) assured the most important consideration to attain high customer loyalty is for firms to deliver high customer value. He continued to stress that it has been the practice by firms to devote much attention and effort to attracting new customers rather than retaining existing ones, adding that traditionally firms emphasise more on making sales rather building relationships, on preselling and selling rather than caring for the customer afterwards. Kotler (2000) states the critical factor to attaining customer loyalty is customer satisfaction because a customer who is highly satisfied will exhibit the following characteristics: 1. stays loyal longer 2. buys more as the company introduces new products and upgrades existing ones 3. talks favourably about the company and its products 4. pay less attention to competing brands and advertising, and is less sensitive to price 5. cost less to serve than new customers because transactions are routinized. Bateson and Hoffman (2002) noted that firms must put in place effective tactics for retaining customers and subsequently making them loyal. They mentioned tactics such as maintenance of proper perspective, remembering customers between calls, building trusting relationships, monitoring the service delivery process, responding swiftly to customers in need and provision of discretionary effort. According to them despite that every customer is important, firms must not retain certain customers if they are no longer profitable, abusive to the extent of lowering the morale of employees, reputation is so bad that it tarnishes the image and reputation of the company should the firm associates itself with that customer. 2.3 Components of CRM To be able to satisfy and even exceed customers expectation requires 360 degrees view of the customer. This calls for CRM implementation model that integrate the key dimensions of people, process, and technology within the context of an enterprise-wide 14

22 customer-driven, technology-integrated, cross-functional organization. Each component presents significant challenges, but it is the ability to integrate all three that makes or breaks a CRM system. (Goldenberg, 2002). See figure 3. Figure 3: Components of CRM and implementation model (Chen and Popovich 2003, p. 676) Technology Davenport and Short (1990) stated that information technology (IT) for a very long period of time been seen and recognised as an enabler to make firms radically re-engine their business process if they want to achieve dramatic efficiency and improvement in performance. CRM, to many is synonymous to information technology and in most cases the core of it. The push towards better CRM technologies is a natural result of the search for businesses for greater productivity and efficiency in customer-facing operations like sales, marketing, customer service and support (Greenberg, 2004). The rapid rate at which CRM technologies are evolving gives businesses many tools which can enable them to enhance customer relationships. According to Trepper (2000) CRM technologies are designed to automate sales and service functions, aggregate customer information into data warehouses and data marts, and manage collaborations with customers through an expanding number of interaction points. Hammer and Champy (in Chen and Popovich 2003) emphasised that information technology assists and supports business process re-engineering, thus facilitating work practice changes and adopting innovative ways that link a company with its customers, suppliers and other stakeholders. Chen and Popovich (2003) argued that CRM application is capable of leveraging innovations in technology to gather and analyse customer data patterns, interprets customer behaviour, develop predictive models, respond with timely and effective customised communications, and deliver product and service value to every individual customer. 15

23 Peppard (2000) suggest that technological advances in global networks, convergence and improved interactivity, are key and critical to e-business and CRM growth. The core functionality of a CRM product is its ability to maintain a single, cohesion view of the customer for the customer-facing functions of sales, services and marketing (Trepper 2000). This view is shared by Eckerson and Watson (in Chen and Popovich 2003) that the use of technology can make companies enhance and optimise their interaction with customers by creating an integral view of customers to learn from their past interactions to optimise future ones. It is also important to note that technology does play a significant role in CRM efforts, by, among other things, seamlessly linking front (e.g. sales) and back office (e.g. logistics) functions to provide for the efficient and effective management of interactions across different customer touch-points (e.g. Internet, direct mail, sales call etc.) Chen & Popovich (2003). CRM technology enables firms to harness the power of database, data mining and interactive (e.g. Internet) technologies to collect and store unprecedented amount of customer data, build knowledge from the data, and disseminate the resulting knowledge across the organization (Bose, 2002). Thus, it seems that both over and underestimating the role that technology plays in CRM initiatives can have detrimental effects on firms relationship management efforts. From a customer's perspective, effectively identified and implemented technology can help companies directly match customer desire for customization in the products and services they seek and provide personalized after-sale service and support based on customer profile data. From a business standpoint, technology can help identify the most valuable customer relationships and equip employees with abundant and relevant information about those customers in order to provide more effective sales and service. In effect, CRM technology can integrate the enterprise, fostering an environment of shared customer knowledge and focusing the right employees on serving the right customers. (Galbreath; Rogers, 1999) Functional categories of CRM Technology CRM technology has been categorised into three distinct areas. The categorisation is meant to help better understand how a CRM strategy and technology can provide such all-inclusive architecture that is focused on serving the customer. (Reynolds, 2002). Collaborative CRM Reynolds (2002) describes collaborative CRM as the interfaces such as , conferencing, chat, real-time applications, which facilitate the interaction between a company and its customers, as well as within the business itself when dealing with customer information. Collaborative CRM stresses two-way communication instead of one-way communication. Operational CRM This, also known as front-office CRM, involves the areas where direct customer contact occurs. (Kahlifa, 2004). The automation of integrated business process that 16

24 involves front-office customer touch points such as sales, marketing and customer service through many interconnected channels of delivery, including the integration between front and back office, as well as order management, customer service, marketing automation, sales-force automation and field service. (Trepper 2000). A typical example is when sales is automatically pulls data out of inventory systems or customer services automatically calls up a customer s billing records. (Reynolds, 2002) Analytical CRM It is also known as back-office or strategic CRM and involves understanding the customer activities that take place in the front office (Kahlifa, 2004). It usually involves analysis, modelling and evaluating data in a data warehouse or various data storehouse to create a mutually beneficial relationship between a company and its customers (Reynolds, 2002). Greenberg (2004) states that analytical CRM is the capture, storage, extraction, processing, interpretation and reporting of customer data to a user. Analytical CRM enables businesses to target high-value customers and put together marketing campaign that are totally relevant to these people in terms of cross selling, product development or addition of services. Data is often stored in a data warehouse, which can be described as a large repository of corporate data (Dyche, 2002), which then give the company information that allow them to provide value to their customer. Hence, it is crucial to capture the right data, a process that must be done with great customer care and understanding (Newell, 2000). The figure below shows an example of this. Figure 4: Analytical CRM (Khalifa, M., 2004, Doctoral CRM course material, Luleå University of Technology) Collaborative CRM Collaborative CRM involves any CRM function that provides a point of interaction between the customer and suppliers. It focuses on facilitating interactions between customers and the companies (Trepper, 2000). Reynolds (2002) describes collaborative 17

25 CRM as the interfaces such as , conferencing, chat, real-time applications, which facilitate the interaction between a company and its customers, as well as within the business itself when dealing with customer information. Collaborative CRM stresses twoway communication instead of one-way communication. For example, technologies like the electronic communication is used to facilitate relevant, timely and personalized interaction with the customer (Greenberg, 2001) CRM infrastructure The technical infrastructure of CRM must integrate the customer information that flows through diverse departmental touch points and customer channels. The CRM technology must provide a way to process this sea of information so that becomes available when and where it is required. Through CRM technology the customer experience will be identical no matter what channel is used. (Reynolds, 2002). Data Warehouse technology Chen and Popovich (2003) defined data warehouse as an information technology management tool that gives decision makers of an organisation instant access to information by collecting islands of customer data throughout the enterprise by combining all databases and operational systems such as sales and transaction processing systems, financial, human resources, inventory, purchase, and marketing systems. According to Greenberg (2004) data warehouse is interpreted to mean an enterprise-wide, cross-functional repository of data which is organised around subjects that have been collected many sources and merged centrally into a coherent body over time. Eckerson and Watson (in Chen and Popovich 2003) further explained that data warehouses extract, clean, transform and manage a huge amount of data from different systems, which allows it to create a historical record of all its customer interactions. To be able to have a total customer view as in the words of Dyche (2000) a single version of truth, all data must be stored in a centralised cross-functional data where both current and past information moves in and out. The sources for data warehouse can be those from within the company itself, customers and other third party. Data warehouse, which makes it possible for companies to be able to extract knowledge about customers in a constant manner, reduces the need for traditional marketing research tools such as customer survey and focus groups (Chen and Popovich, 2003). In CRM, data warehouse is considered an important aspect because of its ability to transform consolidated customer data into customer intelligence which then provides a basis of understanding the behaviour of the customer so that the right decision on how to service the customer is made (Chen and Popovich, 2003). Dyche (2002) pointed out that if the data is not fully integrated the view of the customer relationships is based on a fraction of the customer s real interactions with the company, which then leads to false and unholistic view of the customer. Examples of customer data can be said to include all sales, promotions and customer service activities, information relating to billing and account status, customer interactions, back orders, product shipment, product returns, claims history, and internal operating cost, coupled with transaction details can enhance 18

26 the understanding of customers and their purchasing patterns. The application of data warehouse according to Chen and Popovich (2003) can provide the following benefits to an organisation: 1. accurate and more rapidly access to information to facilitate responses to questions from customers 2. quality of data and filtering to eliminate bad and duplicate data and 3. customer profitability analysis, customer profiling and retention modelling is enhanced and facilitated because data is extracted, manipulated and drill down quickly. Figure 5 depicts a typical data Warehouse fully integrated Figure 5: Integrated Customer data on a data Warehouse (Khalifa, M., 2004, Doctoral CRM course material, Luleå University of Technology) Enterprise Resource Planning (ERP) Enterprise resource planning, according to Sharp et al (2004) is a business management system that comprises integrated sets of comprehensive software. Chen (2001) explains ERP as a system highly integrated with back-office function. According to Chen, ERP links all areas of a firm s operation such as manufacturing distribution, order management, human resources and financial systems with external customers and suppliers which then becomes a highly integrated system available to all. Chen and Popovich (2003) noted that ERP is not the same as CRM and there are some differences between them. While ERP can be described as integrated back-office functions, CRM combines both front and back office functions so as to maintain relationships and build loyal customers. Also, ERP integrates all functional areas of a firm with its suppliers and customers but CRM improves front office applications and customer touch points so that customer satisfaction and profitability can be optimised. Further, ERP systems address fragmented information systems while CRM addresses fragmented customer data. 19

27 Sharp et al (2004) added that when ERP is implemented successfully, it could be used to manage and integrate all the business functions within an organisation. ERP has the ability to facilitate the flows of information between all supply chain processes both internal and external in an organisation. The further stated that ERP allows companies to have full integration of the various departments and it has been described as the information infrastructure that can perform almost everything from entry to sales to orders to customers. Internet Technology Kotler (2000) says the Internet is a network that connects users to an amazingly large information highway and in recent times business transactions over the internet are at a much higher volume. Kotler noted that there is considerable growth in the amount of Internet financial transaction in the areas of insurance sales, home banking, stock trading, but stress that though the Internet population is growing, the cyberspace population is gradually becoming more mainstream and diverse. Internet technologies are making sweeping changes in the software industry and almost every class of software application is incorporating Internet functionality as a core feature and this is also true in CRM applications. Companies are using Internet technologies to build a stronger relationship with their customers by improving customer service, increasing sales efficiency cycle and the development of more effective marketing programmes (Chou et al, 2002). In this regard, they again stated that CRM provides a new opportunity for Internet service firms, and as such Internet service firms are coming out with strategic initiatives to offer their clients CRM solution. Gilbert et al (2003) postulated that the Internet is experiencing a striking evolvement and provides the underpinning for electronic mail, the World Wide Web (WWW) and electronic commerce. They further argued that the Internet has been propagated as a nearperfect market, which provides an unparallel transparency beyond the capabilities of conventional media. This perspective was further boosted by Mols (2000) that the application of the Internet has led to the belief that it will have weighty impact on the way service firms such as insurance companies, law firms, distributors and financial service firms will do business in the future. Mols added that the Internet is believed to change the way and manner firms interact with their customers and thus the way they initiate, develop and terminate relationships with them. Kotler (2000) mentioned that the Internet has potential benefits like buyers convenience, information and few hassles, lower cost to marketers, relationship building tool that can accrue to both the firm and the customer. In the view of Mols (2000), the Internet has made the market become more transparent, leading to increased price competition in business that offers easily comparable services and which are unable to build significant switching barriers or close relationships with customers. Advances in Internet technologies have greatly enhanced the flow of dialogue, and the capture, interpretation and dissemination of information. Internet technologies enable the development and 20

28 management of more complex multiple channels and cross-channel relationship. (Frow and Payne) Business process A business process refers to a collection of tasks or activities that together result in a desired business outcome (Hammer, 1996). It could also mean a business process refers to a group of activities that convert organizational inputs (e.g. human resources) into desired outputs. The process component of CRM is the most delicate because inappropriate automation of the CRM business process will only speed up the errant process. While most companies do have customer-facing business processes in place (i.e., processes that directly interface with the customer during the purchase, payment, and usage of the company's products and services), many times these business processes need to be updated or even replaced. (Goldenberg, 2002) Processes are often difficult to implement and manage formally in an environment with many sales and marketing people. But clearly, consistent processes are essential to all areas of customer relationship management and despite the technological perspectives discussed in the previous section; the philosophical bases of CRM are relationship marketing, customer profitability, lifetime value, retention and satisfaction created through business process management. (Chen and Popovich, 2003). According to them CRM is a continuous effort that requires redesigning core business processes starting from the customer perspective and involving customer feedback. In fact, companies have been repeatedly warned that failure is eminent if they believe that CRM is only a technology solution (Goldenberg, 2000). To realize effective process change, a company needs first to examine how well existing customer-facing business processes are working. Then the company needs to redesign or replace broken or nonoptimal process with ones that have been created and/or agreed upon internally (Goldenberg, 2002). Also, processes need to be constantly reviewed for acceptability from both customers point of view and organization s perspective. Optimizing customer relationships requires a complete understanding of all customers; profitable as well as nonprofitable, and then to organize business processes to treat customers individually based on their needs and their values (Renner in Chen and Popovich 2003). Companies pursuing a CRM initiative often make the dangerous mistake of trying to correct their own customer-facing process deficiencies. The do this, not by agreeing internally on how users would like a process to be done, but rather by purchasing CRM software that contains one or more business processes that have been pre-built by the CRM vendor. By doing this, they force the "not-built-here" process upon system users. (Goldenberg, 2002) People While both technology and business processes are both critical to successful CRM initiatives, it is the individual employees who are the building blocks of customer 21

29 relationships. (Chen and Popovich, 2003). The people component is the most difficult component given the sensitivity of users to change. CRM systems, which support and/or automate integrated customer processes, often, imply changes in the way users do their day-to-day jobs. Users who have not properly understood the reasons for the change, who do not participate in formulation of the change, who do not receive sufficient information about the change, or who do not get sufficiently trained on the change will often be adverse to that change. The story of "the rotten apple spoiling the lot" is relevant here since negative feedback can substantially harm a CRM system's success (Goldenberg, 2002). An organisation s customer management, people need to be recruited, managed, developed and motivated within a supporting structure. Commitment from top level management is a requirement and crucial to the success of CRM. As a result customercentric management requires top management support and commitment to CRM throughout the entire CRM implementation (Chen and Popovich 2003) CRM projects require full-time attention of the implementation project team with representatives from sales, marketing, manufacturing, customer services, information technology, etc. (Chen and Popovich 2003). In addition, project teams require not only sponsorship by top management but also a project champion that can persuade top management for continuous change efforts (Al-Mashari and Zairi, 1999). In general, project teams assist companies to integrate their core business processes, combine related activities, and eliminate the ones that don't add value to customers. CRM initiatives require vision and each and every employee must understand the purpose and changes that CRM will bring. Re-engineering a customer-centric business model requires cultural change and the participation of all employees within the organization. Some employees may opt to leave; others will have positions eliminated in the new business model. Successful implementation of CRM means that some jobs will be significantly changed. Management must show its commitment to an ongoing companywide education and training program. In addition to enhancing employee skills and knowledge, education boosts motivation and commitment of employee and reduces employee resistance. Additionally, management must ensure that job evaluations, compensation programs, and reward systems are modified on a basis that facilitate and reward customer orientation. After all, how people are measured will determine their behavior. (Chen and Popovich, 2003). By rethinking the quality and effectiveness of customer-related processes, many organizations began to eliminate unnecessary activities, improve outdated processes, and redesign activities that had failed to deliver the desired outcomes. Then, by re-creating the process through an understanding of the capabilities of the technology, the outcomes were more predictable and the promises for a meaningful ROI more substantial and realistic. The metrics for success became the improved effectiveness in serving the customer ( The Right Mix of CRM Components Figure 6 shows the right mix of CRM components according to Limayem (2004). This mix represents the effort in term of resources required for CRM implementation. 22

30 According to Limayem (2004) for CRM to be successful and thus achieve its intended purpose, the components must be 70 percent people, 20 percent process and 10 percent technology process 20% technology 10% people 70% Figure 6: Developing the right mix of people, process, and technology (Limayem, M., 2004, Doctoral CRM course material, Luleå University of Technology) 2.4 Implementation The implementation of CRM impacts on a number of functions within an organization including sales, IT, operations, marketing and finance. Bradshaw and Brash(2001) also asserted that implementing CRM is certain to involve the deployment of new technologies that requires a re-examination of business process which should lead technology decisions. Still, many companies have difficulty in implementing an effective CRM program because they allow software vendors to drive their approach to customer management, or retrofit a customer strategy to match the CRM technology they have purchased (Rigby et al. in Jerry and Romano 2003). Bradshaw and Brash (2001) further noted that CRM applications must not only integrate functionally at the front office but also integrate with back office functions such as manufacturing and billing. CRM is a new management concept that relies heavily on technology and process automation to create its environment. However, Galbreath and Rogers (1999) affirm that to create such an environment will entail change. Change in processes. Change in people. Change in technology. Change in management styles. Change in the overall way a business looks at and conducts business with its customers. Introducing this level of change into any business can create turmoil among employees if not introduced and implemented carefully and with purpose and this therefore require a kind of leadership to spear head all these (Galbreath and Rogers (1999) Key Factors of the CRM implementation A study confirms that CRM is a complex and holistic concept requiring appropriate business processes and integrated systems. In addition, the study demonstrates the 23

31 relevance of the need for effective leadership, sourcing, targeting and evaluation within CRM strategies (Bull 2003). In the ensuing paragraphs discussion on strategy, leadership and integration as key factors of CRM implementation will be made Strategy Strategy is defined as an overall plan for deploying resources to establish a favorable position (Grant in Bellenger et al 2004). CGI Group Inc. (2004) noted that CRM initiative launched without a strategy can lead to a failure. Simply stating We are going to do CRM is not a strategy. A CRM strategy needs to clearly define how a firm will be viewed and manage all touch points with your customers and should also define how you plan to achieve results. Jill Dyche, Partner and Co-founder: Baseline Consulting Group noted that many CRM strategies are really nothing more than an intellectual exercise intended to Kick off a CRM program and that strategy view of CRM is more apt and useful as a means for the company to define its overarching objectives ( According to Crosby (2002), CRM must begin with a business strategy which drives the organization and business processes that in turn are enabled by the use of information technology. The strategic view of CRM emphasizes the fact that resources destined for relationship building and maintenance efforts should be allocated based on customer s lifetime value to the firm (i.e. estimated net profits over the cause of the relationship; (CRM Guru, 2003, IT Directory.com, 2003). This view thus suggests that all customers are not equally valuable and that maximum profitability can only be achieved when available resources are invested in customer relationships that provide a desired level of return (Ryals, 2003). The implication that stems from this strategic perspective of CRM is that firms must continually assess and prioritize customers based on their expected lifetime value, if they are to build long-term profitable customer relationships. Those who define CRM as a strategy also tend to stress that it enables firms to build the right type of relationships with each individual customer, which in some instances, implies not to build one at all (Verhoef & Donkers in Amalia et al 2003). The strategic view of CRM is not on how relationships are developed and maintained, but also, on how building the right type of relationships that can have a substantial positive impact on corporate profitability. Hence, it has been argued that customer relationships should be treated as a portfolio of assets or investments that needs to be actively managed to maximize profitability (Ryals, 2003) Leadership Galbreath and Rogers (1999) pointed out that CRM environments, by nature, are complex and require organizational change and a new way of thinking about customers - and about a business in general. Creating such an environment requires more than adequate management of the customer relationship or new technologies, it requires new forms of leadership as well. Because leaders monitor the external environment of an organization they are often the best placed to set the vision or strategic direction of CRM projects. In addition, leaders are influential in the authorization and control of expenditure, the setting and monitoring of performance and the empowerment and motivation of key personnel (Pinto and Slevin in Galbreath and Rogers 1999). 24

32 Management attention tends to be focused more on profit than customers, which probably explains why organizations are more reluctant to measure critical dimensions of the value creation process not directly reflected in the financial accounting. There are also likely to exist other constraints in the form of limited management resources, whereby priority is given to technical development, the system being too detailed to produce simple performance measures and a lack of internal expertise resulting in limited sources for obtaining accurate data on CRM to improve internal knowledge (Curry and Kkolou, 2004). While CRM environments improve business performance, initiatives undertaken in this new management field require sound leadership as well. customer relationship leadership (CRL) is a recommended approach to bridge the gap between a CRM vision and its reality so as to head the charge and rallies an organization around CRM (Galbreath and Rogers, 1999) Leadership in CRM implementation is very critical in three distinct aspects and this is explained by the three key components of customer relationship leadership (CRL) Model that are necessary in order to align an organization to better fulfill the goal of effective CRM. They are: technology; organizational environment; and atmosphere of innovation. The figure below illustrates the critical areas that management, and for that matter leadership, required for a successful CRM implementation. Figure 7: Integration of Customer relationship and customer leadership management (Galbreath and Rogers, 1999, p.166) Technology CRM is a new management concept that relies heavily on technology and process automation. As a result the customer relationship leader must be technologically inclined. If leaders do not vigorously pervade the entire organization with information technology, then this will strongly hinder front-line staff s ability to ensure effective management of customer relationships. (Galbreath and Rogers, 1999). Companies are entering a new era in which total customer care transitions from slogan to reality, a reality enabled by advancements in infrastructure technology that connect the various systems and databases associated with managing the customer from "cradle to grave". In doing so, front-line employees are being empowered through more up-to-date and comprehensive information. 25

33 In the perspective of the customer, technology can help companies directly match customer desire for customisation in the products and service they seek and provide personalised after-sale service and support base on customer profile data., technology, from the viewpoint of the company can enable it identify customers which are most valuable for relationships. It will also equip employees with rich, abundant and relevant information about customers for effective marketing. The customer relationship leader must admit and accept the fact that for CRM to be successful and beneficial, the CRM technology is given strategic orientation. Effective leadership is a requirement in making sure that CRM technology becomes functional, well integrated and ultimately embraced by the entire organisation so that the overall success is driven along (Galbreath and Rogers). Organisational Environment Haapaniemi (1998) has noted that keen competition, coupled with the fast nature of internationalization are some of the factors pushing firms to be more flexible, fast-moving and placing the customer at the centre of their business. The new organisational environment creates a challenge for the modern leader to ensure that all teams act in cooperation with each other and congruously with the vision and mission of the larger company. (Galbreath and Rogers, 1999). To this end leaders must make sure that a conducive environment for CRM is created which will allow employees to act locally and think globally. It is necessary that leadership must accomplish and facilitate a shared vision. Vision should not be imposed, because front-line employees will likely dismiss it as another heavyhanded management tactic. Also, creating an environment of action and learning is to move decision making down the hierarchy to a local, customer level. This is called frontline empowerment, but Senge s (in Galbreath and Rogers 1999, pg 167) call it "localness" instead, because of its accurateness. He says, Localness means unleashing people's commitment by giving them the freedom to act, to try out their own ideas and to be responsible for producing results. "It is abundantly clear that rigid authoritarian hierarchies thwart learning, failing both to harness the spirit, enthusiasm and knowledge of people throughout the organization and to be responsive to shifting business conditions" A conducive atmosphere of action and learning ensures higher retention rate of most skilled and talented staff. In CRM definition, using the right employees on the right type of customers will be critical to realise the vision of CRM (Galbreath and Rogers, 1999). They further noted that employees at the localised environment develops personal relationships and are in a better position to serve customer needs. Atmosphere of innovation It has been stated by Michael Porter that innovation can enable a firm to have a strategic superiority. To be able to put in place an innovative environment requires entrepreneurial thinking. It is the responsibility of the customer relationship leader to bring that innovation and encourage all employees to accept it (Galbreath and Rogers, 1999). A leader in the process of building innovative environment should also recognise that such 26

34 innovation is built in accordance with the way the firm is structured and organised. The leader must lead the workforce, putting teams in place and ensure cohesion at work place. (Galbreath and Rogers, 1999). This is illustrated below. Figure 8: Motivation elements of the Integrated CRM-CRL model (Galbreath and Rogers, 1999, p.169) Motivating CRM In the implementation of CRM, the customer relationship leader (CRL) must consider motivation as central and critical. This is because even though the best technology can be deplored, a conducive and innovative working environment created, if employees are not well motivated, very little will be achieved (Galbreath and Rogers, 1999). As a result they further said it is important that leaders should not stand back and watch from afar. And that is why it has been stated that even the greenest lawn need almost daily watering. To this end, leaders need to adhere to a firm set of behaviour and values. Challenge the process Galbreath and Rogers (1999) noted that leaders must always challenge the process by putting up questions like what is the reason for doing this? The leader must look for customer and employee value in the processes that the company employees. However, Galbreath and Rogers (1999) explains that leaders must not have the notion that customers are created equally, but rather they must find out the true value of unsatisfied customers. Blind loyalty to sub-standard customers can be a mental stumbling block to many organisations. Inspire a shared vision If a vision is shared it becomes attractive image of the future which enables employees also develop their own visions. The customer relationship leader must create an environment that helps employees feel a part of the team and a vital contributor in making sure that the vision is realised. A shared vision inspires the future and if it is shared then it becomes a 27

35 strategic tool enables a company retain and boot the morale of the best work force (Galbreath and Rogers (1999). Enable others to act Localness is a critical and important aspect of CRM. But allowing others to act means that they need to be trained and coached about it. This helps to restore confidence in front-line employees when attending to boost customers. When others are allows to act they feel motivated. Galbreath and Rogers (1999) mentioned that making others to act indicate an informational feature leadership. The leader must not only keep its employees informed but also but seek feedback from customers. Model the way In CRM the leader must lives and breathes the vision of the company almost on daily basis. The leader must interact with customers, and develops understanding of their needs as well. The leader in the process of modelling the way develops a framework that enables the firm to listen to customers. As stated by Jack Welch of General Electric, effective leader personally take time with customers and listen to them (Galbreath and Rogers. (1999). Encourage the heart CRL must not be seen as too hard or difficult but a bit flexible and soft. The customer relationship leader must develop the character of giving praises and must not allow problems to take the better part of the firm. It is critical that customer relationship leader is clear about the future prospects. Senge (in Galbreath and Rogers, 1999 pg 170) stated People follow the leader who truly has subordinated best interests close to his heart. And employees who feel valued treat customers better Integration within the organization According to Greenberg (2004), integration is the smooth flow of customer information among various company players specifically the departments and functional units. Organizational ability or willingness to co-ordinate and integrate these processes varies. The re-engineering of work processes in CRM to put the customer at the centre of the business circle entails a change in departmental roles and responsibilities. Integration of a complete CRM solution can be daunting task given the large number of packages and the diverse vendors that IT managers must coordinate with (Bose, 2002). Major challenges fall into the categories of business integration and software/hardware integration. In the e- service, for example, segment Sims (in Curry and Kkolou 2004) identifies three classes of products and services: - self-service solutions where companies allow customers to solve their own problems by 28

36 directing them to searchable online databases; - management allows customers to ask their questions and either receive automatic responses or be routed elsewhere by rules-based logic; and - real time interaction provides services accessible via a Web browser. In each instance the challenge lies in deciding which the routine, common questions are and which are the more complex ones that need to be handled by a representative. A functional organization often takes "ownership" of customer data. Many departments and individuals see customer handling as a sales or marketing function, and regard the release of their data to another function as a loss of power. A customer-centric model requires sharing the data enterprise-wide; this usually requires a fundamental paradigm shift in the culture to sharing information and knowledge. Especially in organizations where tradition has established separate goals and objectives, top management must not take a passive role in change efforts. Silo-based organizational myopia must be replaced with a customer-focus so departments will collaborate rather than compete with each other. Many of these changes efforts can be aided by effective communication throughout the entire project and reaching all levels of employees. (Chen and Popovich, 2003). Firms are traditionally made up of various functional units, with each having well-defined roles and functions towards the attainment of organizational mission of existence (Madu and Assumpta, 2003). However, these functional units sometimes operate independently as stand alone units or islands. The consequence therefore is that employees in one department or functional area are not abreast with what takes place in other departments within the same organization. Greenberg (2004) explained that firms also consist of processes and the firms ability or willingness to coordinate and integrate these processes varies. Madu and Assumpta (2003) further stated that because of stand alone functions and processes create a situation where employees in one department place their needs ahead of those of the firm as a whole resulting in internal conflicts between various departments to the extent that communication among employees virtually come to a halt. In view of this, it has been recognized by firms that to achieve business success, integration of all functional areas and sharing of customer information across the enterprise is paramount (Madu and Assumpta, 2003). CRM solution that simply uses front-office to receive and record information will eventually fail, which can harm a company s reputation with customers by highlighting the shortfalls of its back-office processes (Greenberg, 2004). As such, Bradshaw and Brash (2002) mentioned that CRM applications must not only integrate functionally at the front-office but also with backoffice functions such as manufacturing and billing. This view was further boosted by Greenberg (2004) saying achieving customer loyalty and profitability becomes real if frontoffice content generates and prompts a relevant back-office response. If firms consider the customer as the very reason for their existence and without them firms has no mission, then achieving customer satisfaction through value creation requires the integration of all participants especially enterprise resource planning, supply chain management, e-procurement and Internet technology. The Internet makes it possible to integrate both the back-office and the front-end applications. This helps firms to deliver quality and value to the customer. (Madu and Assumpta, 2003). Again, Greenberg (2004) 29

37 emphasized that achieving resource maximization in serving customers, firms must endeavor coordinate and harmonize resources in such a way that full integration of the channels for sales and customer integration, and all activities and processes are synchronized throughout the value chain. He further stressed firms must also collaborate with suppliers and other third parties-both within and outside the firm which can then deliver value for the customer. The figure 9 below illustrates integrated functional areas of a firm that provides a 100 percent view of the customer. Figure 9: 360-degrees view of the customer (Kotorov, 2002, p. 226) 3. Frame of Reference In this chapter, the research questions will be developed based on the literature review and the research problem (i.e. to gain a better understanding of CRM (i.e. Customer Relationship Management) implementation in service companies.) and the delimitations of the study will be stated. Further, the chosen relevant theories will be assessed and we will be used to develop the emerged frame of reference. 3.1 Research Problem and Research Questions Customer relationship management (i.e. CRM) has become a number one focus as today s competitive markets are getting more saturated and aggressive. The marketing model is changing from the product-centered stage to the customer-centered stage. Customers are demanding a different relationship with suppliers than the traditional sales model (Xu, Yen, Lin and Chou, 2002). According to Hamel and Pralahad (1994), the objective is to amaze customers by anticipating and fulfilling their unarticulated needs. This can be done by implementing CRM. This study intends to reach into the CRM implementation process and therefore a research problem has been stated as follows: To gain a better understanding of CRM (i.e. Customer Relationship Management) implementation in service companies. Based on the literature review three research questions can be developed which now will be: 30

38 Research Question One: How can a firm s major reasons and benefits of implementation of CRM be described? This question intends to expand into the motives that companies have to implement CRM. It is considered to be relevant to understand what drives companies into the change and to what extent the benefits assessed by the theory are experienced and expected. Research Question Two: How can the components of CRM implementation (i.e. people, process and technology) be described? CRM is a complex concept often understood in diverse ways. Still, the process of implementing it will affect the organization as a whole in different degrees. Therefore, looking into its components is expected to give a light into these areas and how they have been balanced out in the companies studied. Research Question Three: How can the key factors of CRM implementation (i.e. leadership, strategy and integration) be described? CRM implementation also involves several key factors. This question intends to look into the specific factors that have been mentioned to enhance the success of CRM. 3.2 Delimitation As discussed in previous chapters, there are many different definitions of CRM; however, for this study we have chosen to understand CRM as a management approach that enables organizations to identify, attract and increase retention of profitable customers. This is done, as mentioned, by managing relationships with them and achieving a 360 degree view of the customer within a context of an enterprise-wide, customer-driven, technology integrated, cross functional organization. This study is also delimited by other factors: it will only focus on the company s perspective of CRM implementation. The opinion and appreciations of the final customers will not be considered. It will also focus on the general concepts, factors and benefits of CRM; it does not intend to be a study of specific technologies applied to the CRM implementation so theories regarding this area will not be regarded. 31

39 3.3 Frame of Reference A frame of reference according to Miles and Huberman (1994) explains, either graphically or in narrative form, the main things to be studies-the key factors, constructs or variables and the presumed relationship between them. Consequently, a frame of reference presents the theories and models that are most suitable for the research problem and it also describes how the theories are related to each other. There are three main areas of study in this project which intends to gain a better understanding of CRM implementation: i.e. the benefits of CRM, the components and the key factors of implementation. Several variables have emerged from the theory presented in order to facilitate the comprehension and measurement of these areas. Concerning the benefits of CRM, these are understood to be the ones that derive from the implementation and use of CRM in a specific company; in other words the gains that results from implementing CRM. Swift (2001) and Curry and Kkolou (2004) summarizes these benefits in terms of cost reduction and/or profitability, customer satisfaction and loyalty, Sheth et al. (1991) and has stated the benefits in terms of value creation; these will be considered as the main variables within benefits of CRM implementation. For the purpose of this study, we have chosen to understand customer value as a customer perceived preference for, and evaluation of, products attributes, attribute performances, and consequences in terms of the customer s goals and purposes Woodruff (in Chi et al 2004). Different kinds of value creation will also be assessed (Chi et al, 2004). We intend to identify the value that service firms deliver to customers as a result of CRM. Customer satisfaction according to Kotler (2000) has to do with a person s feelings of pleasure or disappointment resulting from comparing a product s perceived performance in relation to his or her expectation. For the purpose of this study, and considering the delimitations, customer satisfaction will be assessed by identifying what the companies perceive as their customer s response to their CRM efforts and their own opinion of internal satisfaction with the implementation of CRM. Retention and loyalty are feelings that create an individual's overall attachment to a product, service, or organization and will be understood as such in this study. They will be measured by identifying the length of time customers have been with a service firm, the number of products they hold according to the company s records, the mobility tendencies to other companies and how the CRM implementation has affected these aspects. The increase in profitability of the customers, understood as customers who provide the best possible return, will also be identified by their mobility and number of products and response to sale efforts and overall growth that the companies have identified as a result of CRM implementation. When it comes to the components of CRM, we have chosen to refer to people, process and technology since Goldenberg (2002) sustains that integration makes or breaks the CRM system. People will be considered to be the individual employees who are the building blocks of customer relationships. (Chen and Popovich, 2003). Process is referred as a collection of tasks or activities that together result in a desired business outcome (Hammer, 1996). The relevance of this component is also described by Goldenberg (2002). Technology will be assessed as an enabling tool to radically redesign business process and 32

40 achieve dramatic improvements in organizational performance (Davenport and Short, 1990). The identification of these components and the description of how they have been affected by the implementation of CRM will be of interest in this project. Also, Limayem's (2004) assessment of the mix of these components will be used to analyze how the companies have balanced out the CRM implementation efforts. Finally, several key factors of CRM implementation have been identified and chosen for this study as they are repeatedly mentioned by different authors. Strategy is defined as an overall plan for deploying resources to establish a favorable position (Grant, 1998) and has been referred to as an appropriate response to the changes that CRM implies within a company (Kotorov, 2003; Crosby (2002). Leadership is to be considered as the management skills required for creating an environment and rally an organization around the CRM implementation process, defining a CRM vision that serves as a guideline is a key issue according to Lindgren (2004). We will then look at the role of the people in leadership positions within the companies and study their involvement, participation and roll towards the CRM changes (Pinto and Slevin, 1987, Galbreath and Rogers, 1999). Integration, understood as the incorporation of all departments of service firms acting cohesively and providing a holistic view of the customer with the purpose of serving the customer better (Chen and Popovich, 2003) is also a key factor to be addressed as a variable in this research Emerged Frame of Reference The figure below presents the research variables used in the research questions and the chosen operational definitions. It summarizes the benefits (research question one) as a result of the implementation process of CRM which includes the consideration of the components (i.e. people, process and technology, research question two) as well as the key factors to be studied (i.e. strategy, leadership and integration, research question three). All this in the effort to answer the research problem (i.e. To gain a better understanding of CRM). Figure 10: Emerged Frame of reference for this study (own source) 33

41 4. Methodology This chapter will describe the research methods used in this study. It will also describe the research process, the research purpose, research approach, research strategy, sample selection and data collection, qualitative data analysis and criteria for quality measurement( validity and reliability) of the research will be discussed. 4.1 Research Process Research design is defined my Malhotra (1996) as a structure to carry out research. It is a guide to the data collection and analysis fragment of the research study. It also specifies the kind of information to be collected, the sources of the data and the procedure for data collection. Scientific research can be conducted in varied ways. Despite this assertion, research involves a series or sequence of activities, which are interrelated and that together constitute the research process. As noted by Zikmund (2000), it is not possible that all research activities will follow in the same order but there is the possibility that one can recognize a common pattern. It can be realized that the research process operate in the form of a cycle because in many occasions emerging conclusions from a research study will generate new problems and ideas that have to be looked at again and investigated further. (Zikmund, 2000). In this thesis the research process presented by Zikmund was duly followed in order to be able to conduct this study. 4.2 Research Purpose According to Yin (1994) and Zikmund (2000), research can be used for three purposes. These are exploratory, descriptive and explanatory. Exploratory studies are a valuable means of finding out what is happening; to seek new insights; to ask questions and to assess phenomenon in a new light Saunders et al (2000). Robson (1993) explained that an exploratory study is a particularly useful approach if one wishes to clarify the understanding of a problem. The advantage of exploratory research is that it has great flexibility and is adaptable to change. The flexibility inherent in exploratory research does not mean absence of direction. Descriptive research is described within problem areas where there already exists plenty of literature and the aim is to study events that have occurred or happening in present time. The aim of descriptive research is to describe characteristics of a population or phenomenon. It seeks to determine the answers to who, what, when, where and how questions (Zikmund, 2000). According to Robson (1993) the object of descriptive research is to portray an accurate profile of persons, events or situations. Usually it is taken as an extension of or a forerunner to a piece of exploratory research (Robson, 1993). Zikmund (2000) noted that accuracy is of immense importance in descriptive research. Though admitted errors cannot be eliminated completely, a good research strives for 34

42 descriptive precision. It is usually taken based on some previous knowledge and understanding of the nature of the research problem. Explanatory research aims at establishing causal relationship variables. The emphasis here is on studying a situation or a problem in order to explain the relationships between variables (Saunders et al, 2000). Usually, exploratory and descriptive research precedes this kind of research and according to Zikmund (2000) the research must be knowledgeable about the research subject. The research purpose in this study has been assessed as both exploratory and descriptive. The exploratory phase of our research stems from the fact that knowledge about implementing CRM is limited, fragmented and scarce. Its study will increase our knowledge about CRM and implementation factors. Further, by exploring it will enable an insight into the new phenomenon of CRM implementation and related issues in service firms. The study is also descriptive because intentionally we relied on variables and patterns drawn from the theory and stated in the frame of reference. 4.3 Research Approach According to Saunders et al (2000), the approach to a research can either be deductive or inductive. They explain that deductive approach deals with the development of theory and hypotheses by designing a research strategy to test it. However, the inductive approach will use data collected to develop theory based on the analysis of that data. As far as this study is concerned, the deductive approach was chosen since the research is based on existing literature review. Theories were compared with the empirical findings before finally conclusions are made Qualitative and Quantitative Research Approach There are two approaches that can be applied by researchers; qualitative approach and quantitative approach (Denzin and Lincoln, 1994a). According to Yin (1994) the best method to use for a study depends on the purpose of the study and the accompanying research questions. Qualitative approach is defined as an inquiry process of understanding a social or human problem, based on building a complex, holistic picture, formed with words, reporting detailed views of informants, and conducted in a natural setting. (Creswell, 1994). The quantitative approaches can be described as a logical and linear structure, in which hypothesis take the form of expectations about likely causal links between the constituent variables stated in the hypotheses, thus leading to the rejection or acceptance of the theoretical proposition (Eldabi et al., 2002). This research study would seek to gain a better understanding of CRM (i.e. Customer Relationship Management) implementation in service companies. The whole concept of CRM and its implementation is a new management approach and as a result there are not enough studies on the topic. This provides a reason for the adoption of qualitative 35

43 approach. Another reason is the fact that there is lack of understanding and divergent perspective about CRM implementation which supports the chosen approach to be of qualitative nature. This study is not intended to make generalisations but it is aimed at developing a comprehensive understanding of the various variables of CRM implementation. 4.4 Research Strategy According to Yin (1994), there are five primary research strategies in social sciences: experiments, surveys, archival analysis, histories and case studies. He claims that each strategy has certain advantages and disadvantages, which are determined by three conditions. These conditions are: - The type of research question posed - The extend of control an investigator has over the actual behavioral events - The degree of focus on contemporary as opposed to historical events According to Yin (1994) these three conditions can be related to the five research strategies as shown in the table below. Strategy Form of Requires control over Focus research question behavioral events contemporary events Experiment How, why Yes Yes Survey Who, what, No Yes where, how many, how much Archival Who, what, No Yes/No analysis where, how many, how much History How, why No No Case Study How, why No Yes Figure 11: Relevant situations for different research strategies (Yin, 1994, p.6) on There is no need to control behavioral events in this research which experiment strategy emphasizes, this rules out experiment as a research strategy. The proposed research will be focusing on contemporary issues so historical cannot be an appropriate option. Survey and analysis of archival records are advantageous when the research goal is to describe the incident or prevalence of a phenomenon or when it is to be predictive about certain outcome (Yin, 1994). This left us with only one research strategy, which is case study. Case study, as a research strategy is defined as an inquiry that investigates a contemporary phenomenon within its real-life context, when the boundaries between phenomenon and context are not clearly evidenced and which multiple sources are evidenced and used (Yin, 1994). Case study research emphasises detailed contextual analysis of a limited number of events or conditions and their relationship. The researcher who embarks on case study 36

44 research is interested in specific phenomenon and wants to get a deeper understanding. (Dooley, 2002) Yin (1994) emphasised that case study has a distinct advantage when a how or why or in the case of exploratory what question is being asked about contemporary sets of events over which the researcher has little or no control over the variables. Even though suspicion may exist using case study as a research strategy due to its unscientific feel, it can as well be very worthwhile way of exploring existing theory and a simple well-constructed case study can enable the research to challenge an existing theory and also provide a source of new hypotheses. Another advantage of applying case study is the fact that it enables an entire company to be subjected to an in-depth investigation. According to Daymond (2002. p105) the case may be an organization, a set of people such as a social or work group, a community, an event, a process, an issue or a campaign From the above, case study is considered the most suitable research strategy for this project since it will enable us gain a deeper understanding of a process (i.e. CRM implementation), which is a contemporary event that we have no control over. In this particular study, the cases to study are two particular companies that have been faced with the event of implementing CRM. Their experiences and benefits derived from the process have been compared and addressed in comparison with the existing theory to draw conclusions and open up possibilities for future studies Sample selection In selecting a sample, it is important to have a target population in mind. The population can be described as the specific group that will be relevant to the research study. The group should possess information relevant to the researcher (Malhotra, 1996). All research, involves sampling. This is because no study, whether quantitative, qualitative or both can include everything: you cannot study everyone everywhere doing everything (Miles and Huberman, 1994: p 27). The smaller number of cases for which you need to collect data means that more time can be spent designing and piloting the means to collecting this data. According to Saunders et al. (2000), sampling saves time and data collection is more manageable. In this case, service companies were chosen since CRM implementation has been assumed to be higher in this industry, and therefore worth studying. Romano (1989, p. 36) argued that there is no precise guide to the number of cases to be included the literature recommending the use of case studies rarely specifies how many cases should be developed. This decision is left to the research We chose to select two cases for this study. One that has been working with CRM and one that is at the beginning stage of its implementation. This allows us to compare different points of view, gather relevant information from the different stages and refer to their experiences as we assess the research problem. For qualitative research like case study, Perry (1998) explained that the selection of cases is often purposeful and involves using replication logic and largely depends on the conceptual framework developed from the prior theory. Patton (1990, p. 181) emphasized 37

45 that which ever case selection strategy used, the underlying principle that is common to all of these strategies is selecting information rich cases, that is cases worthy of in-depth study. Saunders et al (2000), has noted that once a researcher has chosen a suitable sampling frame and established the actual size of the sample, determining the most appropriate sampling technique to obtain representative sample is very important. Purposive or judgmental sampling allows the researcher to use its judgment to select cases that will best enable the researcher to answer the research questions in order to achieve the objectives (Saunders et al, 2000). Since the CRM concept is quite new and it is still evolving, not many companies have implemented it. In order to answer the research questions, we needed to identify institutions that were familiar with the concept and had been using it. We then visited several service companies and asked directly to their representatives about this. After having an opinion on a number of them, we then chose to focus on the ones that seemed to be most involved with the concept and who would actually be able to share with us their experience and opinions. Any other technique, rather that judgmental sampling would not have served our purpose to collect relevant information regarding this topic. 4.5 Data Collection Yin (2003) for the purpose of case studies, documentation, archival records, interviews, direct observation, participants observations and physical artefacts can be useful. These sources complement each other. He maintains that each of these sources has its own strengths and weaknesses and no one source has a complete advantage over all the others, as a result a good case study should use as many sources as possible. According to Walliman (2001) data may be collected as either primary or secondary. In the context of this study and for us to achieve its purpose, both primary and secondary data were used. Secondary data is the one that has been already collected for the purposes other than the problem at hand. It includes both raw data and published summaries. Secondary data is very often found inside the organization(s), in the library, or on the Internet, from consumer research organizations who collect data on varied subjects for purchase. (Saunders et al, 2000). The advantages with secondary data are that it can be collected more quickly and it is an easy and inexpensive way of receiving information. It has also been shown to be useful when performing exploratory studies since it saves the researcher from reinventing the wheel. Despite these, secondary data can pose a problem of finding relevant materials. (Saunders et al 2000). Primary data is a type of data, which is collected and assembled specifically for the research project at hand (Zikmund, 2000). It can be described as the one collected by the researcher in order to carry out the research. Primary data can be collected from sources such as questionnaire, focus group discussion, personal interviews, and telephone interview. Yin (1994) explained and advocated that the use of more than one source is a good practice as it increases the validity in scientific studies. Interviews are one of the methods of data collection used in qualitative research (Ritchie and Lewis, 2003). For this study, interviews have been the primary data collection method. Interviews are, as 38

46 mentioned above, one of the most important information source in case studies (Yin, 1994). The type of interview adopted in this study was face-to-face interviews (also referred to as personal interviews). Face-to-face interviews have several advantages, e.g. it allows opportunity for the respondent to freely respond and reveal attitudes and feelings; makes it possible for probing further and has a higher rate of participation. (www2.edu.org/ntp/interviews.htm). was used to make appointments, and confirm the dates and time for the interviews as well as to send information about the study (interview guide) developed based on theory prior to the appointments. When it came to choosing the person to be interviewed, here again we applied the purposive sampling because it was very important to get hold of a knowledgeable, well informed, involved and well positioned person within the institution who could have a good understanding of the company, its strategies and processes. Therefore we contacted people in management and top management positions, asked for their consent and interest to participate in the interview, sent them a previous guide to orient the discussion (see Appendix 1) and finally set the date and time for the meetings. The actual interview(face-to-face) was conducted by the two of us (Karla and Thomas) and on the average the two interviews lasted one and half hours with the Marketing Manager in charge of Private insurance at Länsförsäkringar and the Managing Director of HSB. The interview was conducted in English since the respondents were very fluent and could express themselves well in English. In the process of the interviews, a mini disk recording device was used to record the two interviews which were in the form of informal conversation. Also, we took personal notes of certain issues of great interest and importance. Even though an interview guide was sent to the respondents some days before the interview, the whole interview took the unstructured form as the respondents were allowed to tell their own stories with intermittent questions and certain clarification. After the interview, the recorded conversations were transcribed word-by-word and were compared alongside the notes taken during the interview by us. We also sought clarification of any part that was unclear and all these took place within 48 hours. Qualitative Data Analysis Data analysis consists of examining, categorizing, tabulating, testing or otherwise recombining both quantitative and qualitative evidence to address the initial propositions of a study (Yin 2003, p.109) Miles and Huberman (1994) define qualitative data analysis as consisting of three concurrent flows of activity: data reduction, data display, and conclusion drawing and verification. Data reduction, data display, and conclusion verification were described - as interwoven before, during, and after data collection in parallel to make up the general domain called "analysis" (Miles and Huberman, 1994). In this view, the three types of analysis activity and the activity of data collection itself form an interactive, cyclical process. Pattern matching: For qualitative data analysis, one of the most desirable strategies is to use a pattern-matching logic (Yin, 1994). Such logic compares an empirically-based with a 39

47 predicted pattern. In this process, when similar results happen and for predictable reasons, the evidence produced is seen to involve the same phenomena described in the theory, and is called "literal replication". In contrast, when the qualitative data analysis produces contrasting results, but also for predictable reasons, it is called "theoretical replication". Other strategies used are the explanation building, where the goal is to analyze the qualitative data by building an explanation about the situation. (Pacitti, 1998); and the ttime series analysis which essential logic is the match between a trend of data points compared with a theoretically significant trend specified before the onset of the investigation, versus some rival trend, also specified earlier, versus any trend based on some artefact or threat to internal validity. (Yin 1994) He noted that interpreting the data when the mixed method is used, the following steps are recommended: look for patterns of agreement - across data sources, by mediating variables, with literature, with experience; look for contradictions - across data sources, by mediating variables, with literature, with experience; try to resolve contradictions - through alternative plausible explanations for a finding, by re-examining the data, by collecting specific data to test an alternative hypothesis; identify the most important findings - rank and organize them; and present the findings simply - through charts and tables, selected photos or videos that illustrate an important point. Yin (2003) adds two additional specific techniques of analyzing case studies. They are: 1. The logic model, which deliberately stipulates a complex chain of events over time. The events are staged in repeated cause-effect-cause effect pattern, whereby a dependent variable (event) at an earlier stage becomes the independent variable (causal event) for the next stage 2. Cross-case synthesis: comparing two or more cases within a multiple case study or across single case studies. In this study, the pattern matching technique will be used to compare data from previous studies/theories presented in the theory chapter and later chosen for supporting the research questions formulated. Also, a cross-case synthesis will be used to compare data from the two cases selected. This is done by looking at the similarities, contradictions and new information that each company provides in contrast with the one stipulated in the chosen theories and also in contrast with each other as their experience, results, processes and timing has been different. The first step after the interviews was then to organize the information according to the research questions and then compare it as described above. 40

48 4.6 Criteria for Quality Measurement In assessing and evaluating the quality of any research, there are basically two major criteria that are usually applied. These are validity and reliability. Validity means in essence that a theory, model, concept, or category describes reality with a good fit. A valid measure is the one which measures what it is intended to be measured. In fact, it is not the measure that is valid or invalid but the use to which the measure is put. The validity of a measure then depends on how we have defined the concept it is designed to measure (De Vaus, 2001). In this study conscious effort was made to enhance the validity. In the first place, allowing our supervisor to make critical input into the shaping of the research questions and the interview guide contributed significantly to the validity of this study. Secondly, the validity was increased by conducting face-to-face interview with responsible officials of the two service companies who were very knowledgeable about their companies and, needs and processes and above all the area of the research. Again, using both interviews and documentation as sources of evidence has increased the validity. By using multiple case studies i.e. two service companies for the study might have increased the validity of the study as it provided the opportunity to gather more information concerning the problem area of the research. Reliability, on the other hand is the extent to which a test or procedure produces similar results under constant conditions on all occasions (Yin, 1994). The object is to ensure that, if a later investigator followed exactly the same procedures, the same findings and conclusions would result. According to Saunders et al. (2000) in order to obtain high reliability researchers must ensure that the anonymity of respondents to questionnaire is kept and also introducing some form structure to the interview schedule. Both of these steps were taken for this study. As a way to increase the reliability of this study, an interview guide was designed (see Appendix 1) with general questions for the interviewees. This guide was first tested and examined by several people linked and not linked to the research process to determine its clarity and that the major aspects of interest were being covered. After having polished the questionnaire, it was then sent to the interviewees a week and a half before the interviews took place. This allowed them to examine the questions, consider their answers and have a general idea about the major points to be addressed during the conversation. Further, reliability was improved because prior information about the companies was collected via internet and read some weeks before the actual interview day. This enabled the interviewers to have a general knowledge of the companies, their interests, and operations in general before meeting with the managers, which also contributed to asking the most appropriate and relevant questions. Again, reliability was enhanced due to the fact that during the face-to-face interviews, a recording device (Mini Disk) was used to record the conversation and also notes were hand written to highlight specific points of interest. This helps to minimize certain forms of biases The interviews lasted an average of one and a half hour each and covered not only the points in the guide but also developed other areas of interest that arose during the conversations. After the interviews were over, the recordings were transcribed word-by word and then the relevant 41

49 information was organized according to the structure of the research questions together with the notes that were handwritten. These notes were compared, discussed and cross checked before writing the final text of the empirical data collection chapter by the two interviewers. Unclear information and doubts were also addressed by a phone conversation with the interviewees to make sure everything was being interpreted correctly. This process was all done within 48 hours of each interview to ensure that the events were fresh in the minds of both interviewees and interviewers. All these were done with the aim of enhancing the reliability. Lastly, reliability was enhanced because both respondents from the two service companies were very fluent in English and had no problem understanding the questions and expressing themselves well. 42

50 5. Empirical Data Presentation In this chapter, we present a brief overview of the selected firms (Länsförsäkringar and HSB-Norr), followed by the empirical data collected during the personal interviews. The information from each company will be presented separately and will follow the structure of the research questions 5.1 Case One: Länsförsäkringar Länsförsäkringar is Sweden s only customer-owned and locally based banking and insurance group. Operations consist of 24 independent regional insurance companies and the jointly owned Länsförsäkringar AB. The regional insurance companies have a combined total of more than 3 million customers and are the market leader in non-life insurance, with a market share of 31 %. Länsförsäkringar offers a broad range of insurance and financial services for companies and private individuals and manages assets of SEK 140 Billion. Today, the bank offers complete solutions in the areas of saving, lending and payments. This development has proved highly positive, and today represents a full-service alternative for private individuals and farmers. Länsförsäkringar s guiding principles are: customer-owned, locally based, accessible, and personal attention. Homeowners and farmers are the strategic target groups for the banking operations. They are offered a total customer concept with substantial customer benefits. The long-term goal is for the majority of Länsförsäkringar s insurance customers to also be bank customers. A clear objective is to raise the level of awareness about Länsförsäkringar s banking operations. This is being achieved though a number of offers that clarify Länsförsäkringar s products and services and make it attractive for customers to combine all their banking and insurance business at Länsförsäkringar. A total of 542 persons work with banking operations nation wide. Half of them at the regional insurance companies. Länsförsäkringar Norrbotten is one of the 24 independent regional insurance companies. Its area of operation is in the Norrbotten and its headquarters are located in Luleå. It has 57 employees with an annual turnover of 250million SWE crowns mainly generated from insurance premium. The company structure is very slim: Chief executive plus two marketing managers, one director of claims and one financial manager. Besides them, there s only one more level composed by the agents or staff of the different departments. ( interview Nov 2004) CRM at Länsförsäkringar - Norrbotten The CRM efforts at Länsförsäkringar started several years ago as independent ideas and activities oriented to provide a better understanding of the customer but it was not until the year 2000 when these processes started being referred to as customer relationship management. Up to that date, they have had separate systems and processes running that were not efficient in providing a good overview of the customer. Since 2000, they started operating with a new CRM data system designed by Siebel (American company) and have 43

51 adapted it to the local environment. The manager interviewed was not part of the conception of the CRM process but has been an active part of its implementation and operation during the last couple of years. The manager stated the following as main internal reasons that drove the company to adopt and implement CRM: They wanted to bring together the entire customer s knowledge that the company had; their view of the customer was scattered and this made their operations slow and inefficient. There was a need for better contact and a more Professional way to target the customers efficiently from the customer s point of view, more personalized. They were in need of a better internal control over customers activities, concerns and interests in order to serve them better. There was a need to attract the right kind of customers to the company. This is more profitable customers. Länsförsäkringar expected several tangible benefits from the CRM process regarding the company s operations implementation. According to the manager, they are already recipients of benefits like the following: The new system gives the company a more professional look overall. They are able to know more precisely the wishes and desires of their customers. They are enabled to up-sell their products by personalizing the offers to the customer. They can categorize the customers based on profitability and growth potential. They are enabled to control, track and follow up the customer s activities at the institution as well as the customer mobility. Lower costs for claims (better customer selection) Lower costs for retaining the customers. Duration (retention) has improved Efficient and more professional customer relation that reflects in customer satisfaction according to studies performed. Ability to keep track of customers history Customers are more profitable The economic result in the company is improving Improved sales between parts of the company (bank, private insurance, company insurance etc) Better control over fraud (customers that just tend to take advantage of the system) Benefits that the company has been able to provide to their final customers include: Customers are more satisfied due to the improved and personalized attention (Länsförsäkringar has the most satisfied customer index according to the studies performed). They can receive answers to their concerns promptly since the agent has access to their information as Länsförsäkringar clients without regard of the department they call or visit (bank, insurance). 44

52 They provide a bonus system called lansbonus which gives the customer discounts based on the number of products the customer has and the longevity of the customer (how long they have been customers). Low insurance rates They can access information online 24/7 Länsförsäkringar s manager also mentions that there has been a trend from younger customers (under 40) in the past years to move around from one company to the next expecting to take advantage of special promotions. This is a problem because it forces them to sell and re-sell the same product to the same person year after year. Customers that leave usually come back as soon as the promotion in the competitor s side is over, but this still generates a cost to the company. For this reason, they have now been taking advantage of the benefits that they have gathered from their CRM abilities to target customers better while seeking and promoting loyalty. At this point, the manager describes his satisfaction level with the CRM process as a very good and prognosticates that their main focus for the coming times will be increasing customer profitability (more products per customer) and loyalty. According to the manager interviewed, once the company started using CRM, the whole company was affected and probably it showed mostly once the new CRM technology started operating. He calculates that the investment for the whole system has been in the range of 500 million Swedish crowns (nation wide). As it was described, a basic CRM solution package was bought from an American company, Sibel, in the year 2000 and has been continuously readapted to fit their needs. This system came to operate as a framework, uniting all the other individual systems that operated before. The old systems somehow lie underneath the new; but with the new one, the company is now able to access and exchange information from the different departments. The new system allows them also to process the information and assess different tools to improve customer service such as a potential rate that is now assigned to each customer depending on demographic information and other considerations. This also allows them to operate better marketing, sales and other efforts, have a better control, not only in terms of activities of the customer at the company but also of the agents who provided the service. Processes in the company were also redesign and adapted to the new technology and mindset. There was a complete realignment in the way things were done and a general integration of the information within the company. The manager stated as well that the process itself didn t face any resistance from the staff, but it did take some time to adapt to the new technology since the new systems were not easy to operate. The new CRM system is complex. Getting it to run smoothly has taken a lot of time due to the fact that it operates under a different logic, so the learning process presented a problem bigger than expected, the Marketing Manager said. However, through education and clearly telling them what the benefits and effects would be in terms of better view and more satisfied customers the staff has been able to get the system in place. Once the staff was able to adapt, they agreed that it would have been extremely difficult for them to manage their customers without this system and they all feel satisfied as well. 45

53 When explaining the effort in terms of assigning resources like time and money, the manager assessed them as follows: 15% 15% 70% people process technology Figure 12: CRM components as assessed by Länsförsäkringar This mix is probably not the right one, according to the manager since people should probably be higher. He explained that in reality there is a very short period to get things running and therefore, it becomes learning by doing process and people adapt to it in that way The manager stated that leadership has been very crucial because of the way that Länsförsäkringar is set up. Common agreement and financial and logistical support from all 24 companies was indispensable to stir the change specially facing a huge monetary investment. The formal implementation decision of a CRM system came then directly from the top management in the year 2000, but for many years they had wanted a system that provided a 360 degree view of the customer. He mentioned that the company is the only one in Europe that combines the particular mix of products that they offer and this made the CRM decision even more urgent. It was indispensable to integrate the individual data systems in order to operate well and compete in the industry. They were able to see CRM as a requirement of a successful business conduct to serve the customer better, attract and select better customers and target better their campaigns. The manager believes that recognition of the customer is the main thing and believed that the CRM system provides them with this strategic tool. He added that integrating the customer information was indispensable since the agents were not able to handle the customer well: information should be available to all; otherwise the customer would have had to be transferred from one department to the other. The integration of all systems of the various functional units has enabled the company to have a complete view of the customer which in the past was not possible. An employee in the banking section can know about an insurance customer and be in a better position to serve the customer well he noted. 46

54 5.2 Case Two: HSB-Norr Hyresgästernas Sparkasse och Byggnadsförening (HSB) was established on 1923 from Hyresgästföreningen i Stockholm. The motivation was to build and maintain good apartments with low living costs for their members. The quality and general living conditions were also a concern for HSB. Today, HSB has over members and 4000 unions (bostadsrättsföreningar) in the Swedish territory. HSB-Norr is then a service company owned by its members and member of the nation wide HSB company. The company s main areas of services include administration of housing contracts, maintenance. It also provides its clients (bostadsrättsföreningar, i.e. BRF) with technical and professional support, financial service assistance, insurance and loan negotiations among other. HSB used to have banking services as well until 2003, when the bank was sold out. Since October 2004, HSB has been operating in the insurance business and the premium charged by HSB is 30% less than customers can find on the market. All the members of HSB are considered customers but the closest relationship is held with the boards of the BRF. HSB mostly with the boards and so far the relationship with these boards had been quite stable and unquestioned. However, the trend is now changing as new generations of members start serving on the boards. These new board members do not have same traditional relation with HSB, in the professional sense. The new generation of board members has brought up the possibility of going out to find other companies able to provide cheaper or better services than HSB, so the competition has risen. HSB realizes and believes that relations are, and should be the key word in its business because their particular industry is based upon trust and trust can only be built when there is a strong relationship. The organization of the company has drastically changed in the past years. Formally, there used to be 3 different companies that formed HSB-Norr. These companies merged into one three years ago. The change happened at a formal level but in practice they had continued to operate and behave as 3 different companies with different cultures. Today, the company has basically three formal levels in the organization. The VD, or general manager for HSB-Norr and there are 3 departments: Administration, Economy (financial), and technical, all of them supported by the Information department. Under each of these departments the different functional areas are distributed and now a sales team has been introduced. They work through all the areas by geographical markets. 47

55 Figure 13: Organizational Chart HSB-Norr ( Dec 13, 2004) At this time, HSB has also submerged into very aggressive building objectives. New production of apartments in Luleå is also a priority for them and this is now handled by the technical department. CRM at HSB-Norr Customer Relationship Management (CRM) has not been fully implemented yet at HSB but the company is in the process of implementing it within the shortest time possible. According to the VD, the process has consisted of 1 year of planning and 6 months of implementation so far. However, HSB has gone through most of the various stages of CRM implementation by way of restructuring the entire business process, handling the people component and implementing some of the technology. The company, as the VD explained, had the need for different systems and IT solutions since they are capable of collecting more information about the customers for the purpose of serving them well. The total investment in the CRM implementation process (including only technology and the new experts hired for this purpose) is in the range of the 2 million Swedish crowns (locally). The VD stated the following as main reasons that drove the company to adopt and implement CRM: New members of the boards started changing the stable/unquestionable position that HSB had in the past The demands of customers were changing towards tailored-made and personalized solutions; the normal one-size-fits-all contracts were no longer enough. Competition was becoming very keen They considered that there was a need to strengthen trust and generate new relations with the boards. HSB-Norr considered to have the right timing, environment and resources to face the change Internal benefits already mentioned as a result of the ongoing CRM process: Improved contact with the customers 48

56 Increase in sales of new and existing services Possibility to evaluate the relation with the boards Feedback opportunities Higher productivity More efficiency in the organization as a whole. Input from the BRF board members for product development. More legs to stand on as a company, more ways to generate revenues. Benefits that the company has been able to provide their final customers include: Personal contact from the representatives and top management Improved communication channels Improved after-sales services Provision of market information that affects the BRF (finances, regulations, taxes) Education and training for the board members HSB meets the customer when they are available. Customers feel now that they are part of the development of the company, as their thoughts are heard and implemented. Local presence supported by the whole organization One-stop shopping State of the art technology in providing services HSB apartments usually generate a higher price in the market Internet technology available 24/7 with information and services like online invoicing and reports among other. At this point, the VD for HSB-Norr describes his satisfaction level with the CRM process as a very good and prognosticates that their main focus for the coming times will be to improve the way in which the relations have been handled to obtain trust and loyalty from their existing customers. The year 2005 will be then focused on the existing customers and later (relationship improvement and retention) and, in 2006, they will move more aggressively to expand their market share. In terms of the organization, HSB-Norr was restructured almost completely. After the companies were merged 3 years ago, 80% of the management team was also changed. So, from having managers with an average age of 60+ the company moved to managers with an average age of 32. Only this part of the change was already hard to assimilate for the organization. Now, the company is faced with the implementation of new processes, new ways of working, new mentalities. A lot has happened at the same time; some have adapted quickly and for some it has been harder to understand. Another important aspect is that during the years, HSB has acquired a quite strong position on the market. This has also been a reason of resistance since it makes it hard to convince people to change when things are going fine. The changing process has not been an easy one for the organization to adapt to. To some degree, everyone has been involved in making it happen but sometimes with a measure of 49

57 resistance. The staff has all been provided with seminars and meetings where the new vision has been exposed to them and overall it has shown good results. An example of resistance to the process was the sales team in their beginning stage. They used to be managers of an administrative area before with people reporting to them. Now, all administrative tasks were reassigned so they could focus a 100% of their time to three basic processes: time to market, time to customer and time with customer. The resistance came because they perceived the change as a loss of power but just after having the process operating for 6 months, the team has shown to be extremely successful. The results are already showing and they are very satisfied themselves. Another example that has been hard to deal with is the people in what today is the front desk. Their tasks will also be reorganized so that they can pay unconditional attention to the customers concerns. This has created some resistance because so far, they have felt that the most important part of their job is the administrative one (dealing with the paper work, etc) and they have had a negative perception of the task of attending customer issues. They feel it is less important and to some degree, they have though that the customer just comes to interrupt their job. So, they haven t received so well the idea of letting go of the administrative area and attend the customer first, they have felt a bit underestimated and, as the VD described, probably a bit less indispensable. The way in which this process will be structured is the task for the next two weeks. The VD has the confidence that once it starts operating, the staff will be able to perceive the benefits and adapt to the change. The changes have also required dealing with the organizational cultures. The VD explained that they work in a very vast area (from Skellefteå to Kiruna) and the cultures tend to be very different. So one of the first things they had to attend was to somehow merge the general culture and establish a common vision for the company. Now, relations is the key word. At the same time, reorganizing the company and the different processes was a priority. Since May 2004 a sales organization was established with 6 people who were already part of the staff at HSB. Their functions were reassigned and a team leader was hired to guide them, train them and inspire them in their new task. The biggest change in this area has been the perspective towards the consumer: they don t come to us, we go to them and meet them outside the office assured the VD, and they also have to produce a 5 year tailored plan for each customer depending on their present situation and how the future looks like. Another area that has faced a big change is the front desk, as described previously. HSB now intends to have a service center and move from individual agents dealing with administrative and customer service functions, to a team of people that works under a front and back-office structure. They should then be able to have access to much more information, deal with unique contract agreements, as opposed to the one-size fits all contract, and a new IT system that can provide them with a better understanding of the customer. Other examples of processes and activities that have changed within the company are: the bank that HSB operated before was sold, a new insurance company started offering services since October and the real estate broker that has been working for HSB until now will soon be outsourced. She will still work with the HSB name under a franchise agreement. 50

58 HSB-Norr has also attended the need for new technology to support the CRM process. For the organization, a new switchboard will come in place this month that will connect all service centers in the different cities. A new CRM IT system will be fully functional before next summer comes to provide the staff with updated and complete information on the customers. So far the investment on this system has been in the range of the 2 million SEK and is expected at least to duplicate. In terms of the final customers, they already have access to features like web invoices, consulting and communication, general information on services, reports and ordering services online. This has facilitated the task of the sales team and made the communication with the boards much more efficient When explaining the effort in terms of assigning resources like time and money, the VD stated that 50% of the effort has been put into the process, 40% into people and 10% into technology. He conceded that even though money spent on technology is quite high, this will not yield any benefits if people and process are not given serious attention and effort. 10% 40% 50% people process technology Figure 14: Organizational Chart HSB-Norr ( Dec 13, 2004) At HSB-Norr the whole CRM implementation process is being led and coordinated by the VD. He states: overall I am the one leading the effort, stirring the changes. But for the specific things, he has assigned project managers. One person with IT infrastructures, another sales, the service center, etc. The VD added that as a leader, my job is to motivate the employees and set the agenda and the direction in which we should move. Management then takes the decision as of what to do and the staff decides how they will do it. The employees are big parts of making the process happen. The implementation of CRM as explained by the VD is strategic in its perspective at HSB-Norr. Despite the notion that the company over the years has generated a lot of revenue and is quite wealthy, it is looking now into the future. According him, the strong economy today can be the biggest enemy tomorrow as fat lions do not hunt He believes that the changes currently taking place aim to strengthen the company and maintain good figures in all the years to come. Right now, the changes are being done under a positive atmosphere but according to the VD, if changes don t take place now, they will be forced to take place in the future under much more stressful conditions. The 51

59 efforts would be then focused on survival instead of growth. So, implementing CRM in the company is crucial. Some strategic decisions based on the CRM concept that have been already implemented are to take care of the customers personally and give them tailor made services, change the focus from a passive company to a company that reaches the customer to meet their needs and hears their concerns, taking cultural differences into consideration and providing them with top of the line quality. As far as the company is concerned, it has been strategically important to categorize the customers depending on their size and profitability as well. The integration within the company has been a major concern, as mentioned before. Bringing together the processes, the different offices, the cultural differences, and improving the overall function of HSB-Norr as one and only team. In the near future, concluding the process of implementing the necessary IT systems will bring a better and more global support to the whole CRM process. This intends to be done within the nest 6 months. 6. Analysis This chapter contains an analysis of the empirical data presented in the previous chapter. In the analysis, the empirical data will be compared with the theories presented in the frame of reference and some support theories, all derived from the literature review. The analysis will follow in the same structure as the research questions and research problem. We begin with a within case analysis of Länsförsäkringar AB, thereafter a within-case analysis of HSB. Finally, a cross-case analysis will follow where the cases will be compared against each other in order to detect and examine common patterns and anomalies. 6.1 Within-Case Analysis: Länsförsäkringar Norrbotten According to Goldenberg (2000) CRM is not merely technology applications for marketing, sales and service, but rather, when fully and successfully implemented, a crossfunctional, customer-driven, technology-integrated business process management strategy that maximizes relationships and encompasses the entire organization. In Länsförsäkringar s case, this concept started to shape up as such after the year 2000 when a conscientious management decision came to restructure the separate systems and processes that used to run in the company since they had proven to not be efficient in providing a good overview of the customer. As mentioned in the theory chapter, there is a whole scope of definitions and different perceptions of CRM. This was also confirmed at Länsförsäkringar when the manager explained that the company had been operating with diverse ideas and activities oriented to provide a better understanding of the customer but they had never formally thought about them as CRM until the technology component came in place. 52

60 According to previous studies, CRM does not have a high satisfaction level among the managers and CRM projects tend to be unsuccessful, but as Kotorov (2003) describes, there is a handful of companies that have proven the opposite. Länsförsäkringar is one of them, since the manager stated to have a high satisfaction level with CRM after its implementation How can a firm s major reasons and benefits of implementation of CRM be described? As mentioned before, Swift (2001) has summarised the benefits of CRM implementation in terms of cost reduction and/or profitability, customer satisfaction and loyalty. He mentions for example the drop in the cost of recruiting customers, the benefits of long term consumers, and the evaluation of customer profitability. At Länsförsäkringar, it was learned that benefits concerning cost and profit improvement were present; some of them being: lower cost of production, improvement in sales volume, ability to cross and up sell and the categorization of customer profitability and potential. In terms of customer satisfaction, Länsförsäkringar has also experienced results as they assure that customers claim to be more satisfied due to the improved and personalized attention they now receive, the fact that they can receive answers to their concerns promptly since every agent is well informed and the low rates in the insurance premiums. Länsförsäkringar has assured to have the highest index of satisfied customers according to the studies performed by LTU. In the case of retention and loyalty, mentioned by Swift (2001), Länsförsäkringar states that they have started to show improvement in duration of customer loyalty and pursue to take advantage of this condition by offering a bonus system called lansbonus ; which gives the customer discounts based on the number of products and the longevity of the customer with the company. This effort can be also linked to Seth et al. (1991), as he has stated the benefits in terms of customer value creation. Chi et al (2004) can be functional, social, emotional and perceived sacrifice. From all of these, it is also shown that the company creates value for their customers mostly in the form of functional value. Curry and Kkolou (2004) outlined major benefits and reasons for adoption of CRM. At Länsförsäkringar the simplifying of the infrastructure, shrinking the workflow and elimination of non-productive information flow was present and clearly visible. They also claim that their customers are more satisfied and their profits have increased, which also matches the theory How can the components of CRM implementation (i.e. people, process and technology) be described? CRM implementation, as Goldenberg (2002) stated, requires the integration of key components of people, process and technology within the context of an enterprise-wide, customer-driven, technology-integrated, cross-functional organization. All these three aspects were identified at Länsförsäkringar and are in operation. As noted by Davenport and Short (1990), information technology has been recognized as an enabler which radically redesign business processes for attainment of dramatic 53

61 improvements in organization performance. This position was evidenced at Länsförsäkringar because as the manager put it since 2000, with the introduction of the new CRM system bought from Siebel, the whole process has changed. It was also discovered that database technologies are driving the company into high performance. This view is supported by theory that advances in technology are crucial to the functionality and effectiveness of CRM systems. The new data system, which is now operational in the company, is helping to manage its relationships with customers and according to the manager it would have been extremely difficult for them to do this without this system. Eckerson and Watson (2000) point out that using technology to optimize interactions with customers; companies can create an integral view of customers to learn from past interactions to achieve future ones. Länsförsäkringar is using technology to have a complete view of the customer by integrating with the help of the new CRM system, all customer information, history and their activities at the company. This also supports Dyche s (2002) theory about the need of all data being stored in a centralized cross-functional system which shows a single version of truth about the customer. Länsförsäkringar also shows evidence of having operational and analytical CRM fully integrated (i.e. front and back office operations). In the case of the collaborative CRM which was also stated by Trepper (2000), there customers have the possibility of accessing information online, contacting agents to answer their concerns online and through the phone and also get information about the products and prices. The only thing that is not available is buying insurance online. They can apply for it but they must wait for the company to answer once it has been approved. According to the manager, the system is complex and requires constant adaptations. Goldenberg (2002) further warned that companies implementing CRM should not purchase CRM software that has been pre-built by a CRM vendor and then forcing the not-built here process upon users. Länsförsäkringar did buy a pre-built system but they claim to have adapted it to their specific needs. In the implementation of CRM at Länsförsäkringar, the whole business process was affected and changed and this called for a shift in the way things used to be done before CRM came into the picture. The stand-alone and individual systems became sub-systems of a bigger, more complex concept. This fits well with Goldenberg s (2002) when explains that the process component of CRM is delicate and that many times these business processes need to be re-designed or broken and the non-optimal ones, replaced. According to Chen and Popovich (2003), even though technology and business process are both critical to successful CRM implementation, it is the individual employees who are the building blocks of customer relationships. He added that the people component is the most difficult given the sensitivity of users to change, stressing that employees who have not properly understood the reasons for the change, who do not participate in formulation for the change, who do not receive sufficient information about the change, or who do not get sufficiently trained on the change will often be adverse to that change. What was found out at Länsförsäkringar shows that all the employees were involved in the process. However, according to the manager, even though there was no form of resistance, they were uncomfortable with the new system due to the learning problem associated with the change. But it was discovered that the company managed to educate 54

62 the employees, telling them clearly what the benefits and effects would be in terms of better view of the customer; more satisfied customers and therefore, more satisfaction for themselves. Länsförsäkringar s manager also used incentives for the staff and stated that they have been able to get the system in place. According to Limayem (2004) the right mix of CRM components in terms of effort should be 70% people, 20% process and 10% technology. This is illustrated in figure 15. process 20% technology 10% people 70% Figure 15: Developing the right mix of people, process, and technology (Limayem, M., 2004) 15% 15% 70% people process technology Figure 16: CRM components as assessed by Länsförsäkringar However, this was not the case at Länsförsäkringar, as illustrated in figure 16. In assessing values to the mix of components in terms of time and money, the manager explained the effort in the terms shown below. This clearly demonstrates that they still consider CRM as a technology tool that will enable them maintain long term- relationship with their customers. 55

63 6.1.3 How can the key factors of CRM implementation (i.e. strategy, leadership and integration) be described? Many theories discuss the need that in implementing CRM, certain key factors ought to be given serious consideration. Crosby (2002), emphasizes that CRM must begin with a business strategy, which drives the organization and business process. The empirical data shows that at Länsförsäkringar the management team realized its inability to have a complete view of the customer before implementing CRM. In accordance with theory by Pinto and Slevin (1987), management was very crucial due to the huge financial investment involved and setting the strategic vision of CRM project at Länsförsäkringar. Also, Länsförsäkringar required a complete support from all the different locations in order to plan and motivate the change, assign the resources and proceed with the implementation which shows the strategic orientation and intention of the CRM implementation concept. So, just as Crosby (2002) stated, CRM begun with a strategic thought which then lead to the re-design of the business process and the use of new technology. The Länsförsäkringar claims that as a result, they have a complete view of the customer. The manager further explained, Our company has been able to build the right type of customer relationships. This is in line with Verhoef and Donkers (2001) theory on firms building the right type of customers. Bradshaw and Brash (2001) discussed the importance of management styles, which Bull (2003) refers to as effective leadership. This was also confirmed at Länsförsäkringar. Because of the way the institution is set up, the decision, vision and drive had to come from top management and then somehow permeate to the rest of the 24 companies involved. This also supports Senge s (1990) concept of localness since the process had to empower the local offices to make certain decisions. The manager mentioned also that there was a need to motivate the rest of the staff for the change. This was done by the local leaders and according to him, turned out to be a very positive experience. This is also in accordance with the basic principles of CRL (customer relationship leadership) mentioned by Galbreath and Rogers (1999) Chen and Popovich (2003) argument for data and information sharing enterprise-wide was found to be existing at the company. In the words of the manager, information should be available to all; otherwise the customer would have had to be transferred from one department to the other. It was also evidenced the way that CRM has changed the day-to-day work at the company and how the different functions and departments of the company have integrated and share information, just as Greenberg (2001) sustains. The integration within the organization was described as a direct result of the implementation of the IT system. 6.2 Within-Case Analysis: HSB-Norr Customer Relationship Management (CRM) implementation is an ongoing process at HSB-Norr at this time. According to the VD, the process has consisted of 1 year of planning and 6 months of implementation so far. However, HSB has gone through the 56

64 various stages of CRM implementation by way of restructuring the entire business process and the people component and implementing some of the technology. The definition of CRM by Goldenberg (2000) could then be recognized and the process has shown already a clear resemblance to the theory though it is not complete. Furthermore, the lack of a clear definition of the CRM concept (Kotorov, 2003) is not so perceivable at HSB since the process was clearly thought before starting the implementation. It did not come out as a result of the circumstances but as recognition of a need and all the steps have been clearly thought of. So the implementation at HSB has followed an integral restructuring of the company and clearly intends to place the customer at the center. Kotorov (2003) describes a handful of companies that have proven to be successful with the implementation of CRM. At HSB, even though the process is not complete, the VD described his overall satisfaction level as very good, since they have already obtained important benefits out of the implementation process How can a firm s major reasons and benefits of implementation of CRM be described? The major reason and benefits of firms implementing CRM stated by Curry and Kkolou (2003) and Swift (2001), have taken place at HSB. According to the VD, benefits that have already taken place in terms of cost and profit have to do with an easier, more effective way of communication with the customers which has resulted in an increase in sales. Curry and Kkolou (2003) don t mention anything about product development specifically, but this has come up as a major benefit under the experience of HSB. According to the VD, customer satisfaction has also increased and been manifested in the various meetings as they feel taken into account for future decisions that will affect them directly. In the case of retention and loyalty, mentioned by Swift (2001), it is still to be seen what HSB can accomplish once the whole process has taken place. This is a very important topic for them since until now their relationship with the boards had been unquestioned and now, it is not only questioned but also the time to renegotiate the contacts is soon to arrive. By that time, the results of implementing CRM will be easily measurable. The theory by Bristol group (2004) on value creation is identified at HSB. The value HSB creates for its customers can to a large extent be described as functional as well as emotional. According to the VD, the fact that HSB does not compete on price supports the emotional value creation perspective. However, creating value through their local presence, product quality and technology can be associated with functional value. There was no empirical finding to support social value as noted by Chi et al (2004) How can the components of CRM implementation (i.e. people, process and technology) be described? In line with Goldenberg (2002), all the three components of CRM implementation have been identified at HSB. HSB has a firm belief in technology to assist in the CRM implementation and this view supports Davenport and Short (1990) position on 57

65 technology to bring change in the work process. HSB is about to put in place a new switchboard of telephone interconnection that will link all service centers at different cities. Other IT technologies currently in operation, which give access to customers, include web invoices, s consulting and communication, online reports and ordering services online. What is important is that HSB makes effective use of the Internet in this regard and this supports Peppers and Roger (2000) view of the use of Internet in building lasting relationships with e-customers by offering services in traditionally impossible way. IT has then been an enabling tool for HSB to re-design its entire organization and thus affirms the theory by Hammer and Champy (1993). It must however be pointed out that even though Goldenberg (2002) emphasizes the need to have all the three components in place, HSB is yet to put in place a new CRM system. As result confirmation of the extent of operational and analytical CRM (Trepper, 2000) could not be made. Even though Goldenberg (2002) warned about shopping for CRM systems, HSB has already purchased a system from an external company and it intends to be fully functional by the summer. The business processes at HSB has been reorganised as an important component and has required a long period of redesigning. According to Goldenberg (2002), taking inappropriate steps in this area could easily lead to chaos. HSB has been conscientious about this and has taken a long time to plan and study the optimal way for restructure to take place. This was considered as the first step of the process. According to the VD, HSB has restructured almost completely. The changing process at HSB has not been easy for the company to adapt to and this supports theory about the complexity and difficult nature of changing business process. Goldenberg (2002) stressed the need to eliminate nonoptimal process and this was found out at HSB. As noted by Chen and Popovich (2003), HSB has not found it easy to effectively manage the people aspect of the change CRM implementation requires. The VD explained that some have adapted quickly and others haven t. HSB has project teams working on the various aspects with leader guiding, training and inspiring them in the new task. This is supported by Chen and Popovich (2003). Cap Gemini IDC (1999) theory is seen to be in place at HSB as the implementation team is made up of representatives from sales, marketing and information technology and customer service. At HSB, to some degree, all employees have been involved in the process but some with a measure of resistance. About 80% of management team was changed before the process started and this affected the whole company environment. After this, many functions and tasks were either eliminated or re-assigned when the CRM process began; which agrees with Chen and Popovich (2003). Despite the resistance, management at HSB is using seminars and meetings to educate the employees, which moves in line with theory. The VD s explanation of the resistance faced among employees especially the administrative staff is due to the fact that they perceive administrative functions (dealing with papers) as more important than attending to customers concerns. This situation of perception of tasks among the staff was never mentioned in the theory studied. According to Limayem (2004) the right mix of CRM components in terms of effort should be 70% people, 20% process and 10% technology. This is illustrated below in Figure 18 and figure17 show the mix estimated at HSB, which have 50% process, 40% people and 10% technology. 58

66 technology 10% process 20% people 70% Figure 17: Developing the right mix of people, process, and technology (Limayem, M., 2004) 10% 40% 50% people process technology Figure 18: CRM components as assessed by HSB-Norr (personal interview) The above figures show that HSB does not consider CRM as centred in technology since it gives 10% effort to it, which agrees with what Limayem (2004) stated. However, the effort HSB assign for both people and process fell short of the right mix as demonstrated in figure above How can the key factors of CRM implementation (i.e. strategy, leadership and integration) be described? The theory by Bull (2003) about CRM implementation factors was evidenced at HSB- Norr. CGI Inc. (2004) and Jill Dyche s ( view of CRM is present at HSB-Norr since the CRM ongoing process has had and continues to have a strategic perspective of CRM. Several specific actions support this idea, for example, changing the focus to have the customer as the center and provide personalized services, considering the internal cultural differences, categorizing the customers depending on their size and profitability, among other. This is in tune also with CRM Guru (2003). Pinto and Slevin (1987) refer to new forms of leadership being required for the CRM process to take place and at HSB-Norr, this factor was clearly visible not only in the style, but also in the physical change of the leaders. As it was stated by the VD, before he came to HSB-Norr, drastic decisions had taken place in terms of changing the management team. The average age went from 60 to 32 and only this brought a big switch in mentality, management styles and vision to HSB-Norr. The CRM process begun after this and thanks to the strategic view and vision, the leaders have been able to implement it 59

67 with great benefits. All aspects cited by Galbreath and Rogers (1999) when referring to CRL (customer relationship leadership) were found to be true at HSB also. The importance of the leaders being technology savvy shows in the efforts to connect back and front office, the new phone system, the new Internet applications for customers. The need of building teams to act in cooperation with each other shows in every department and, as stated by the VD, it is especially successful in the new sales team. And finally, the atmosphere of innovation has been promoted by integrating all the staff in the reconstruction of the processes, assignment of the new tasks and product development. To some extent, Senge s (1990) concept of localness is also recognizable since some functions will be shared and delegated to the local offices around Norrbotten. Finally, it is important to mention also that the decisions regarding CRM have been launched directly by the VD and top management team who have also been an active part of the process and have had cooperation of team leaders in some areas. Integration within the organization has also been a key concept for HSB-Norr, as stated by the VD and in accordance with Greenberg (2001). The route of bringing together the three companies that HSB-Norr was divided into, as well as integrating the functions of the departments, bringing together some tasks by geographical area, the integration of the front and back office functions into an all rounded service centre (which is now ongoing) and finally the intention of installing an IT system that will integrate all functions and locations. 6.3 Cross-Case Analysis In this section cross-case analysis will be made to examine if possible differences and/or similarities exist in the benefits of CRM implementation, components of CRM and key CRM implementation factors and through the study of this, reach for the answer of the research problem. Goldenberg s (2000) definition of CRM was identified in both Länsförsäkringar and HSB- Norr. Both consider CRM as a cross-functional, customer-driven, technology-integrated business process, management strategy even though they emphasize different aspects that will be mentioned later. Some similarities found in both service companies, apart from the definition stated, are the fact that the processes took place as a result of recognition of a specific need in the organizations to reach their customers. This is in line with Peppers and Rogers (1999) that maximizing the lifetime customer value leads to customer retention and customer profitability. Also, both managers interviewed declared to have a high satisfaction level with the implementation of CRM in their companies. This contradicts the affirmation made in the theory chapter which regarded the implementation of CRM as unpopular (Rigby et al., 2002). One discrepancy found between the companies was the timing. In Länsförsäkringar s case, the CRM implementation process was launched, according to the manager, in the year 2000 while at HSB the process is still taking place and started about one and a half year ago. This allowed reaching the opinions of the managers at different stages of the implementation processes. 60

68 6.3.1 How can a firm s major reasons and benefits of implementation of CRM be described? Curry and Kkolou (2004) outlined major benefits and reasons for adoption of CRM. At Länsförsäkringar some of reasons for adoption that were mentioned by the manager were the intention of simplifying of the infrastructure, shrinking the workflow and elimination of non-productive information flow. HSB-Norr s VD the increase in competition and changes in the expectations of the customers. Swift (2001) and Curry and Kkolou (2004) postulated some benefits that could accrue to a firm implementing CRM. Those relating to cost and profit such as lower cost of production and the ability to cross-sell were found to be consistent with empirical data found at Länsförsäkringar. Both companies mention the improvement in sales volume and categorisation of customer based on profitability and potential. This confirms theory by Bull (2003) and Galbreath and Rogers (1999). The HSB s VD mentioned that as a result of implementing CRM the lead time for new product development is shortened as a result of increased amount of inputs from customers into the product development. This could however not be confirmed either by theory or at Länsförsäkringar. In terms of customer satisfaction, both companies assured to have received good input form their customers as a result of the CRM implementation effort. The all claim to be more satisfied and this is in conformity with Curry and Kkolou (2004). According to the Länsförsäkringar s manager, their customers are satisfied due to improved and personalised attention they now receive and the fact that they can receive answers to their concerns promptly. This sentiment was shared by HSB s customers, who according to the manager have also experienced satisfaction because they feel that their concerns are now being taken care off. Swift (2001) mentioned also retention and loyalty as benefits of CRM implementation. This topic shows a bigger gap between the companies experience. Länsförsäkringar s manager maintains, for example, that they have experienced improvement customer loyalty. HSB-Norr is still waiting to see the results in terms of retention and loyalty but are actively perusing these benefits. Seth et al. (1991) and Chi et al (2004) linked the benefits of CRM to customer satisfaction, which both companies stated to be striving for. Länsförsäkringar by introducing promotional tools like the Lans-bonus and better rates for insurance premiums and HSB by local presence, product quality and technology. Both companies showed evidence of providing functional value and HSB, to some extent, emotional value. None of them mentioned any evidence of having other kinds of value creation mentioned on the theory How can the components of CRM implementation (i.e. people, process and technology) be described? Goldenberg (2002) postulated that CRM implementation requires that people, process and technology be given serious consideration as each component presents significant challenges. He further stated that it is the ability to integrate all three dimensions that 61

69 makes or breaks a CRM system. Empirical findings show that the two service companies have all the three aspects in place and were given various degree of attention. Länsförsäkringar has fully integrated its IT systems. Both companies recognize information technology as a support tool in the process redesigning. According to the manager interviewed at Länsförsäkringar, their new CRM system bought from Siebel is driving the company into high level of performance. Even though HSB is yet to fully implement the technology aspect of CRM components, it has a firm belief that the implementation of the IT system that will take place in a 6 month period, will bring a complete change in the work processes. This assertion is supported by Davenport and Short (1990). Although HSB is still in the process of rolling out a full CRM system, the idea of putting in place a new telephony switchboard to connect all their offices, which also forms part of the company s CRM technologies evidence its intention to leverage technology to bring the desired change at the work place. Länsförsäkringar has fully integrated both operational and analytical CRM which makes it possible for them to have a complete view of customers. This supports Greenberg 2004). However, this could not be confirmed at HSB. Collaborative CRM noted by Trepper (2000 on the other hand was evidenced in both companies though the use of Internet technology, and other touch points. Giving customers the possibility of accessing information online, contacting agents through phone and are some examples of this. Another commonality is that the two companies use their CRM systems to better manage their customer relationships and therefore this affirms Pepper and Rogers (2000). In both cases, the Internet was seen to have been put into effective use in building lasting customer relationships. Also, both companies admitted that the CRM system is complex because as the manager of Länsförsäkringar explains it incorporates a lot of data and as noted by the VD at HSB that changing the process at HSB has not been easy to adapt. In this area it is good to mention that both companies have purchased their CRM IT systems from a third party. Process as a component of CRM implementation is considered to be most delicate and many cases requires redesigning and re-alignment; removal of broken and non-optimal ones (Goldenberg, 2002). In support of this theory, it was revealed at both companies that all the business processes have been affected and redesigned and re-aligned through the use of information technology as stated by Hammer and Champy (1993). It also came to light that at Länsförsäkringar that the old, stand-alone and individual data systems have become sub-systems in the new data system. However this could not be confirmed at HSB as the CRM process is ongoing. One aspect about the process component at Länsförsäkringar is the fact that the CRM software purchased from Siebel was modified and changes made to suit the company s local working environment and this supports Goldenberg (2002) warning that companies about the risks of forcing the not-built here process upon users. At HSB they have also purchased the CRM system outside the company and intends to have it locally configured according to their specific needs. Chen and Popovich (2003) argued that despite the fact that technology and business process are fundamental and important to CRM implementation success, the people aspect especially the employees should be given due consideration. They explain further that the people component is the most difficult. These sentiments in theory were discovered in the two companies. Employees in both companies were involved in the 62

70 process. Though some of them were quite uncomfortable, no remarkable level of resistance was experienced by Länsförsäkringar. But the situation was different at HSB as the whole company went through drastic changes before the CRM implementation process started. Therefore, the employees at HSB have had a harder time adapting to the overall changes and some still struggle with the idea. However, what became clear is that in both companies, through seminars, training, interaction with the staff and explaining the CRM concept, have managed to get the system in place and to receive the linked benefits. Further, empirical findings from both companies suggest that the implementation of CRM at Länsförsäkringar and HSB was started and supported by top management. It has been stated by Limayem (2004) that the right mix of CRM components (defined as the total effort required) should be: People 70%, Process 20%, Technology 10%. However, it was found that none of the companies in the study declared to have the mix as stated by Limayem (2004). At Länsförsäkringar, the effort in percentage for the three components of CRM implementation is 15% for people, 15% for Process and 70% for technology At HSB, the effort, as explained by the VD was 50% for Process, 40% for People and 10% for Technology. This is illustrated as follows. MIX OF CRM COMPONENTS 80% 70% 60% 50% 40% 30% people process technology 20% 10% 0% Limayem (2004). Länsförsäkringar HSB-Norr Figure 19: Comparison chart of values assessed to the CRM components. In the figure 19 a comprehensive illustration of the differences are shown. The figure includes all three perspectives of the mix (theory and both companies) How can the key factors of CRM implementation (i.e. strategy, leadership and integration) be described? In line with Bull (2003), empirical data show CRM is a complex and holistic concept that requires strategic perspective, leadership and integration. It was found that all the companies recognized and considered the three key factors stated above. Empirical findings confirm that both of them view CRM implementation from a strategic 63

71 viewpoint. Both of them started the process as an initiative of top management to focus on the customer and give a better service, which shows their involvement, provides the support and global view required to implement CRM. Länsförsäkringar evidenced the strategic perspective also since they were in the need of coordinating with all 24 companies involved in order to make the process effective and engage all the financial support required. HSB on its side, had to restructure the whole company and find the right orientation, which was chosen to include the CRM implementation process as well as the involvement of all local offices. Moreover, the strategic perspective has resulted in targeting, categorizing, communicating and doing business with the right type of customers. All this based on customers profitability as again this fine tune with Verhoef and Donkers (2001), CRM Guru (2003). The leadership factor as a requirement for consideration in any CRM implementation as noted by Galbreath and Rogers (1999) was very much significant issue in both companies. The rolling out of CRM systems received considerable leadership attention and both companies admit that CRM implementation was a management inspired action. The manager at Länsförsäkringar noted that for many years management had wanted a system that could provide a 360 degree view of the customer. Moreover, in line with Pinto and Slevin (1987), it was discovered that leadership plays a crucial role in authorizing the huge financial investment and setting the strategic direction of the CRM project. This view was emphasized by the VD of HSB-Norr as he stated: overall, I am the one leading the effort, stirring the changes, and setting the direction and agenda of the whole process. Another finding quite interesting from the empirical findings is that the VD of knowledgeable about technology as a strategic tool in customer relationship building and very determined to push ahead to full implementation status of CRM. Even though there are no traces of evidence to the contrary at Länsförsäkringar, it could not be confirmed in this respect. Both Madu Assumpta (2003) and Chen and Popovich (2003) theory about full integration of back-end operations and front-office application is at work and fully integrated at Länsförsäkringar. It has integrated the individual and stand-alone data systems into a holistic one which provides a better view of the customer than before. However, HSB is still in the process of integrating all the functional processes and has accomplished them mostly in the organizational area but not much could be said about their level of integration within IT since it has not yet been completed. One difference that was found between the companies is that the manager at Länsförsäkringar did not mention anything about work teams, as did the VD at HSB. At Länsförsäkringar, the manager described the organization, after the management level, as just individual workers. At HSB on the other hand, it was clearly stated that they operate with teams and team leaders. In both companies there is no reported conflict among employees as theory suggests that the release or sharing of data to another function or department leads to a loss of power and breeds conflict. What was found at HSB is a general discomfort with the initial reorganization of the tasks, but also, in the departments where the process is fully in place, the level of satisfaction of the employees has reported to be high, according to the VD. Finally, the concept of localness described by Senge (1990) was found to be true in both 64

72 companies. At Länsförsäkringar since they are part of 24 others and at HSB-Norr since the office in Luleå heads all others in the Norrbotten area. In terms of integration within the organization, there are major differences in the statements that both managers expressed even though both admit this concept to be central in the implementation of CRM, in accordance with Greenberg (2001). At Länsförsäkringar, the integration was described to happen as a direct result of the IT system, when all the information was available to all functional departments. At HSB, the integration was described as a major part of the process. Bringing together the functional and regional operations and redesigning the processes first so that they integrate the appropriate technology later. 7. Findings and Conclusions Here we present the findings and conclusions with the aim of reaching the research purpose and answer the research questions. Also the implications for management, theory and future research will be stated. 7.1 Customer Relationship Management Customer relationship management (i.e. CRM) is one of the topics of the moment in the business arena. Its requirements for new and updated technology, the change of scope towards the customer and the necessities for integral change within the organizations make the implementation process a matter for great attention and careful planning. This research focused in investigating this process and its main purpose has been to gain a better understanding of CRM (i.e. Customer Relationship Management) implementation in service companies. Two service companies were chosen as stated by Goldenberg (2000) and the empirical findings have supported the theory that defined CRM as not merely technology applications for marketing, sales and service, but rather, when fully and successfully implemented, a cross-functional, customer-driven, technology-integrated business process management strategy that maximizes relationships and encompasses the entire organization. It was interesting to find that, even though the basic concept of CRM was well understood and their main objective is to center themselves in their respective customers, the interpretation of the CRM concept was quite different and emphasized different areas. We believe this can be attributed not only to the fact that the companies were at different stages of the process, but also implemented CRM under very different circumstances, realities and structures within the organizations. Another interesting finding is the opinion of the managers in terms of their high satisfaction level with the CRM process. As far as we could appreciate, this can be attributed to the fact that both companies have been able to receive benefits that they can directly relate to the CRM implementation. 65

73 In order to fully achieve the research problem, three questions were postulated and will be answered below: 7.2 Research Question One: How can a firm s major reasons and benefits of implementation of CRM be described? In this study especially from the empirical data and analysis sections, it has been revealed that service firms benefit from the implementation of CRM. The companies have benefited from CRM by way of providing customer value, high level of customer satisfaction, reduction in operation cost, profitability etc. These are in harmony with Swift (2001) and Curry and Kkolou (2004). In support of theory by Seth et al (1991), Länsförsäkringar and HSB create value for their customers. However, the study revealed that Länsförsäkringar, in an unconscious manner pursue functional value creation tactics which could make customers not bonded to the company for long-term relationship. This revelation is in order with theory that some firms create functional value using price or technology that instead of creating value for the customer rather creates shareholders value. Though the findings show that HSB creates both functional as well as emotional customer value, it must be noted that emotional value should be the ultimate aim regarding the type of value firms create for their customers, if they want to avoid shortterm relationships and take advantage of long-term relationships that impact positively on satisfaction, retention and profitability. Empirical findings about Länsförsäkringar and HSB confirm theory that there is a positive correlation between customer satisfaction, retention and loyalty. The study uncovered that customer satisfaction in the two companies is understood by the managers to be quite high. It is believed that if the companies are able to create emotional value that is less possible to duplicate by competitors, the customers will be emotionally charged and their response elicited; customers will feel bonded and this can contribute to customer retention, loyalty and ultimately, profitability. The expectancy of the benefits is always a major drive to the implementation of a change and in this case a central motivation for the CRM implementation process to take place. Other reasons for implementation are the realization of the specific needs in terms of market, competition and other macroeconomic factors. It must be emphasized that what is still to be seen is whether in the long run these benefits will continue to show and if the customers will prefer the company over its competitors as a result of the implementation of CRM. 7.3 Research Question Two: How can the components of CRM implementation (i.e. people, process and technology) be described? The studied companies have shown that even though firms to some extent consider CRM as a technology solution, this could not be found in an explicit statement by the companies. 66

74 The study has shown that the two companies have all the three components of CRM working, even though they are treated differently. This is not an unusual finding since both change processes had to adapt to the specific conditions, timing and environment within the organizations. It was found that Länsförsäkringar is quite ahead in terms of the level of integration of all the components due to the fact that it started earlier. HSB, on the other hand, is still in the rolling out phase. We discovered that, as they reach the final stage of CRM implementation, all the components will be fully integrated as postulated by Goldenberg (2002) and Chen and Popovich (2003). The two companies in this study do recognise that innovations and advancement in technology could be harnessed and leveraged to radically re-engineer business process and build stronger customer relationships. This perspective is in harmony with Davenport and Short (1990). The findings from this study also confirm theory that technology in the form of data warehouses and particularly the Internet has brought momentous change in the work process and has indeed catapulted high level of organisational performance. This might be explained by the fact that probably the most tangible and immediate evidence of the changes in the day to day work are the ones liked to the use of technology. The studied companies have shown also that there is a willingness to shop for IT solutions from external providers. They both claimed that changes were or would be made to the system to adapt it locally but the basic package was outsourced. The reasons for this were not clearly stated but we believe that companies feel safer to adapt to systems that they can see in than start from nothing and be responsible for its full development. This also confirms theory that stated that the market for CRM solutions is growing. The actual and according to Goldenberg (2000), most delicate component of CRM is the re-design in the company s processes when implementing CRM. Both companies day to day operations and response to the customers was affected by the implementation of CRM. Tasks had to be reassigned and the overall way of approaching them was altered. We also found out that employees at all levels in the two companies have been involved in the CRM implementation process. This was shown to be very positive despite the fact that there was discomfort and to some degree, resistance. It is believed that through education, training and seminars, and one-on-one conversations, management could succeed in persuading the staff to push ahead with the CRM project. This is a quite important finding when it comes to the implications of employee participation. We can deduce that being involved in the process turned to be most positive in comparison to having had the process imposed to them, especially when considering the staff as the internal customers of the change. Probably the most evident proof of discrepancy regarding the CRM process came when showing what the managers considered the mix of the CRM implementation process in their respective companies. The following chart shows the theory and the opinion of the companies individually. 67

75 MIX OF CRM COMPONENTS 80% 70% 60% 50% 40% 30% people process technology 20% 10% 0% Limayem (2004). Länsförsäkringar HSB-Norr Figure 20: Comparison chart of values assessed to the CRM components. From this, the mix of components in terms of effort evidenced that Limayem (2004) supports the idea of people being the component that requires more effort, while Länsförsäkringar showed to have paid more attention to the implementation and adaptation to technology. Process and people had small and equal designations. However, this cannot be the official perspective of the company as throughout the interview such a view was not explicitly stated. HSB shows more of balanced position, where the components even though they do not match theory, still behave in a similar way. People being the one with a higher value, then process and lastly, technology. 7.4 Research Question Three: How can the key factors of CRM implementation (i.e. strategy, leadership and integration) be described? Our study of the two service firms has strongly supported Crosby (2002) view that CRM must begin with a business strategy, which then drives the organisation. We noticed that the two companies saw CRM from strategic perspective. This was deduced from the way the two companies explained their reasons for implementing CRM. We found out that and empirical data also support that because CRM was considered as strategic, the companies are in a better position than before and as a result they are able to aim into getting a complete view of their customers. Both companies claim that CRM has made it practicable to target the right customers and communicate better with customers. We found out that Länsförsäkringar did not experience much implementation obstacles as compared to HSB. The reason could be that the origin of the implementation process at Länsförsäkringar was made under normal circumstances while at HSB there might have been an adverse environment after changing the management team and merging the three companies that earlier composed HSB-Norr. Still, we conclude that even though the firms may be facing difficult times, leadership and management can still drain through the basic 68

76 ideas and motivation for the CRM implementation process to take place and provide tangible benefits to the organization. This has also proven to be important as the new structure at HSB and the new possibilities at Länsförsäkringar have reported to give satisfaction to the employees once CRM implementation has been adopted. Further, the study has shown that for CRM implementation to be successful and certainly enable firms to have a complete view of the customer, requires a leader who is strong, determined, technologically imbued and above all, able to provide the strategic direction of the CRM project. Leadership in the two service firms demonstrated and provided a strong headship and motivation in this regard. We found out that HSB has a leader who is bent on pursuing CRM and strongly believes on its positive consequences. We think the VD has provided the kind of leadership required which supports Pinto and Slevin s position. At Länsförsäkringar, the manager was also motivated with the possibilities an internal customer satisfaction the CRM implementation provided, but his function in this regard was more passive since CRM here has operated longer, the staff has adapted to it and has become more of a daily routine. 7.5 Research Problem Going back to the Research Problem stated (i.e. to gain a better understanding of CRM (i.e. Customer Relationship Management) implementation in service companies. We believe that the main objective has been completed and that the service companies chosen were both good examples for the study. They both provided sufficient and relevant information to answer the research questions and evaluate the theory against the practice. 7.6 Implications This is the last and final section of this thesis. As a result, and based on the empirical findings, we make some recommendation for policy implication for management and practitioners. This will be followed by implications for theory and future research Implications for management/practitioners In this study, the purpose was to achieve better understanding of CRM implementation in service companies with particular reference to benefits, components and key factor of implementation. Even though the aim of this study is not to generalise our findings, we believe that it is worthwhile to come out with some findings we think that it will be of tremendous benefits to the sampled companies and other service companies which have implemented CRM, in the process or about to do so. In the first instance, empirical findings proved that service companies can also benefit from CRM implementation. For example the companies studied talk of high level of customer 69

77 satisfaction and retention, high performance in terms of sales volume and profitability. It also came to light that service firms that are in the process of CRM implementation can start to enjoy some benefits along the road. This shows that service firms can also attain some level of benefits even though the CRM implementation process is in progress. Secondly, the sampled companies have shown beyond any reasonable doubt that CRM solution provides a better platform to have a complete (360 degree) view of the customer. This was facilitated by the integration of people, process and technology. In this regard, service firms must endeavour to ensure full integration of all aspects of CRM applications and continuously upgrade the CRM systems. It is also worth mentioning that the sampled companies did not implement CRM by purchasing a whole CRM solution and imposed it on their environment. But rather, the solution bought was modified to suit their local working place. This then suggests that it is probably advisable for service firms, in their attempt to implement CRM, not rush into buying a whole CRM packaged solution and impose it on their environment. Moreover, one of the companies is very much focused in creating functional value as a way to build satisfied and loyal customer base. According to Bristol Group (2004), functional value which is mainly created through price, convenience and technology is easily duplicated by competitors, and since customers are becoming more value-oriented and are not just influenced by high quality or lower prices. It is essential that service firms recognise that creating emotional value for the customer holds the key to customer satisfaction, retention and profitability, which ultimately creates shareholders value (i.e. the financial reward for owner). It must be emphasised that creating shareholders value is not sustainable in the long-run if firms continue to create functional value. Further, the basis of CRM is about how best a firm can maintain closer relationships with its customers, especially the existing ones. This then calls for pragmatic retention schemes. In this study, it came to light that even though the two companies talk about customer retention as very important, statistically, the actual rate of customer retention or rotation has not been determined. This may create a problem with regards to the total number of customers attained and lost in a particular time period. In this respect, we recommend for service firms to be able to know the net effect of retention effort and steps be taken to actually measure in real terms, the retention rate in order to judge the effectiveness of retention programmes. Lastly, none of the service companies in the study has the right mix of CRM components put forward by Limayem (2004). In this wise, problems regarding employees resistance might have come due to that. We therefore recommend to all the companies to reconsider the mix so that by having the right mix of 70 percent for people, 20 percent for process and 10 percent for technology, implementation obstacles can be addressed. Again, the study has confirmed theory that the human component is very important and crucial in any CRM implementation. To this end, firms that are in the process and those planning 70

78 to implement CRM must ensure that it is indeed the employees who will use the CRM systems and interact on daily basis with customers. As such, employees must be well involved, informed, educated and motivated if the CRM project is to be successful Implication for theory Gaining a better understanding of CRM implementation in service companies is the bedrock of this study. Investigating and analysing the benefits, components and key factors of CRM implementation, and comparing them with existing theories which provided the basis of this study, contributes to previous theory and research. The discussions of the commonalities and differences between theory and empirical data and highlighting areas of exceptional interest that existing theories have not mentioned, adds to the theory in general. This will serve as a basis for further research in the realm of CRM, as in some instances there were some agreements and contradictions between theory and empirical data or findings. Also, since this study is a real practical experience of testing what previous theories and research have established, the findings in this thesis contributes to theory in this regard. Another contribution to theory is that previous studies and research discussed that firms can enjoy some benefits if they successfully implement CRM. However, while this study confirms this view, it has also uncovered that firms can also achieve and gain some level of benefits though the implementation is ongoing Implications for further research The subject area of Customer Relationship Management (CRM) is very encompassing and diverse. In this study, the focus was on the CRM implementation process. Even though CRM is not to be considered a technology solution, its full integration is a requirement for a successful implementation. Further research could be directed specifically at CRM applications and integration, the planning process of CRM implementation, and the customer s perspective on CRM, which was not included in this study. Also, since one of the companies is still in the process of implementing CRM to the full, it will be of interest for further research to find out the implications of the completion of the CRM implementation process. One more aspect that could also be studied is the control and evaluation methods for the CRM implementation in the companies. What happens after the implementation is complete, how the CRM concept changes over time and if and how the companies will adapt in the long run. Further, this study was conducted in service companies in Luleå, Sweden. As such, a similar one can be taken in another part of Sweden or a different area altogether either within the same service industry or another industry. This will provide the opportunity make comparisons and discern any trend in CRM implementation in different settings. 71

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84 www2.edu.org/ntp/interviews.htm accessed 4th January Appendix 1: Introduction Interview guide The interview will focus on questions related to the major reasons for and benefits of CRM implementation, components/elements of CRM, and major CRM implementation factors. The interview guide shown below will give you an idea of the areas that will be covered. Interview Guide: 1. When did your company start to implement customer relationship management? a. Can you describe the process from start until today b. Who was involved / whom has been affected and how c. What other aspects of the company were affected 2. Why did your company decide to implement CRM (Reasons for implementation) 3. Can you give us an example of major obstacles that you faced during the implementation of CRM? 4. What benefits were assumed to be derived from CRM when you first decided to implement it 5. What benefits have you seen so far, both for your company and the customer? 6. What would you improve within CRM implementation in your company? 7. Can you give us an idea of how much your company has invested in the implementation of CRM (time and monetary costs)? On a scale of 1-5 (5 being excellent), can you rate your overall satisfaction with CRM in your company 77

85 Appendix two Expanded Interview Guide 1. When did your company start to implement Customer Relationship Management? a. Can you describe the process from start until today? b. Who was/were involved and who have been affected? c. What other aspects of the company were affected? Do you consider people, process and technology to be important components of CRM in your company? Can you give us an example of how these components changed when CRM was first implemented in your company? What do you consider a good mix of these components? (in percentage terms) Do you consider leadership, strategy and integration as important factors to be considered? Can you give us some example of how they have been considered in your company when implementing CRM? Which of these factors (leadership, strategy and integration) do you consider to be more important to the implementation of CRM and why 2. Why did your company decide to implement CRM (Reasons for implementation)? 3. Can you give us an example of major obstacles that you faced during the implementation of CRM? 4. What benefits were assumed to be derived from CRM when you first decided to implement it 5. What benefits have you seen so far, both for your company and the customer? Customer value?- Customer satisfaction? (internal/external customer) Retention-Loyalty? (Rate) 6. What would you improve within CRM implementation in your company? 7. Can you give us an idea of how much your company has invested in the implementation of CRM (In terms of time and monetary costs)? 8. On a scale of 1-5 (5 being excellent), can you rate your overall satisfaction with CRM in your company? 78