Customer Relationship Management: From Strategy To Implementation. Adrian Payne, Pennie Frow, Cranfield School of Management, UK.

Transcription

1 Customer Relationship Management: From Strategy To Implementation Adrian Payne, Pennie Frow, Cranfield School of Management, UK Abstract This paper examines Customer Relationship Management, or CRM, from the perspective of both strategy formulation and implementation. We commence by briefly reviewing the origins and role of CRM and highlighting the importance of adopting a cross-functional approach to CRM strategy formulation. We review alternative approaches to CRM strategy development and, using an interaction research approach, propose a model that addresses both CRM strategy and implementation. We identify four critical implementation components of a successful CRM programme and examine these in the context of five key crossfunctional CRM processes. Keywords: CRM, customer relationship management, relationship marketing Introduction The purpose of CRM is to efficiently and effectively increase the acquisition, growth and retention of profitable customers by selectively initiating, building and maintaining appropriate relationships with them. Developments in information technology can help improve customer relationships and make it possible to gather vast amounts of customer data and to analyze, interpret and utilize it constructively. However, there is often a gap between an organisation s CRM vision and the results it obtains. The purpose of this paper is to propose an integrated model of CRM strategy and implementation that can help organizations realize their CRM vision more effectively. Specifically, the objectives of this paper are to: (1) briefly review the evolution of CRM and emphasise a cross-functional approach to CRM; (2) review the development of alternative approaches to CRM strategy development;(3) propose a model for both CRM strategy and implementation; (4) discuss initial experience of using the model in companies. The Origins and Evolution of CRM CRM is based on the principles of relationship marketing (RM) which is regarded as one of the key areas of modern marketing and has generated great research interest (Sheth 2000). We view RM as a paradigmatic shift in marketing (e.g. Grönroos, 1997; Gummesson, 1997; Parvatiyar and Sheth, 1997). The increased interest in one to one marketing (Peppers and Rogers, 1993) raised the potential for shifting from a mass to individualized or one-to-one marketing. Relationship-based approaches have been increasingly advocated over the last fifteen years (e.g., Grönroos, 1994; Gummesson, 2002b; Webster, 2002; Vargo and Lusch, 2004). With its roots in RM, CRM is a relatively new management discipline. Parvitiyar and Sheth (2001) point out the two terms are often used interchangeably. Contributors to this literature emphasize the key role of multiple stakeholders (e.g. Christopher, Payne and Ballantyne, 1991; Kotler, 1992; Buttle 1999; Gummesson, 1999). We adopt the perspective of Ryals and Payne (2001) who propose that RM is concerned with relationships with multiple stakeholders, while the focus of customer relationship management should be primarily on the customer. ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 85

2 In 2003, Zablah, Beuenger and Johnston observed that CRM was for the most part neglected in the literature and that further exploration of CRM and its related phenomena was not only warranted, but also desperately needed. Some useful initial work has been done on the conceptualization of CRM (e.g., Meta Group, 2001; Srivastava, Shervani and Fahey, 1999; Sue and Morin, 2001; Winer, 2001; Zablah, Beuenger and Johnston, 2003; Payne and Frow, 2005) and on issues associated with implementation (e.g., Ebner et al., 2002; Henneberg, 2003; Pettit, 2002; Rigby, Reichheld and Schefter, 2002), however much work still remains to be done. A brief analysis of the literature on CRM systems points, historically, to implementation problems. For example Gartner Group (2003) found some 70% of CRM projects resulted in either losses or no bottom-line improvement. As CRM vendors have largely driven the initial emphasis on CRM, they must be seen as at least part of the problem with respect to the failure of many CRM systems. However, more recent work analysis (Rigby and Ledingham, 2004) has shown companies are now reporting improved satisfaction with their CRM investments. In a recent review of CRM, Boulding et al. (2005) argue that the field of CRM has now begun to converge on a common definition: Specifically, CRM relates to strategy, managing the dual-creation or value, the intelligent use of data and technology, the acquisition of customer knowledge and the diffusion of this knowledge to the appropriate stakeholders, the development of appropriate (long-term) relationships with specific customers and/or customer groups, and the integration of processes across the many areas of the firm and across the network of firms that collaborate to generate customer value (p. 6).Recently there has been an increasing acknowledgement of the important of cross-functional processes in CRM a perspective on CRM strongly endorsed by Boulding et al. (2005). This inter-functional coordination and customer orientation is highlighted in an increasing body of work on market orientation (e.g. Kohli and Jaworski, 1990). However, much of the literature on CRM has under-emphasised its cross-functional nature and we posit this is a neglected and critical component of CRM that should form part of any CRM strategy and implementation model. CRM strategy and processes Grabner-Kraeuter and Moedritscher (2002) point to the lack of an adequate CRM strategic framework from which to define success as being a reason for the disappointing results of many CRM initiatives. A number of authors have proposed CRM strategy frameworks. Buttle (2001) provides a CRM value chain that identifies a series of primary stages : customer portfolio analysis; customer intimacy; network development; value proposition development; and manage the relationship. It also identifies a series of supporting conditions including: culture and leadership; procurement processes; human resource management processes; IT/data management processes; and organisation design. This is helpful as it considers implementation issues. Sue and Morin (2001) develop a framework for CRM based on initiatives, expected results and contributions. This framework is not process-based and, as the authors acknowledge, many initiatives are not explicitly identified in the framework. Winer (2001) outlines a model, which contains: a database of customer activity; analyses of the database; decisions about customers to target; tools for customer targeting; how to build relationships with the targeted customers; privacy issues; and metrics for measuring the success of the CRM program. All these frameworks provide some useful insights, however none appear to adopt an explicit cross-functional process-based conceptualization. Payne and Frow (2005) used an expert panel of executives with extensive experience within the CRM and IT sectors to identify specific cross-functional processes. They identify five CRM processes including: strategy development; value creation; multi-channel integration; information management; and performance assessment. This approach, used because of its ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 86

3 specific cross-functional process focus, formed the basis of the process elements used in the CRM strategy and implementation model developed in this paper. Research Approach This paper is part of a research programme into CRM that utilises learning from field-based interactions with executives together with synthesis of relevant literature. This research approach used Gummesson s (2002a) interaction research methodology which is based on his view that interaction and communication play a crucial role in the stages of research; and that testing concepts, ideas and results through interaction with different target groups of managers form an integral part of the research process. It also draws on approaches used in the work on contemporary marketing practices (Coviello, et al., 2002). This interaction research programme utilised the following: a group of 34 experienced executives independently selected by the director of a leading European research and development institute specializing in the CRM and IT sectors; interviews with 20 executives working in CRM, marketing and IT roles in companies in the financial services sector; interviews with six executives from large CRM vendors and with five executives from three CRM and strategy consultancies; 35 workshops with 18 CRM vendors, analysts and their clients; piloting the framework as a planning tool in two global organisations in the financial services and automotive sectors; and using the framework as a planning tool in two companies in global telecommunications and global logistics - six workshops were held in each of the latter companies. A CRM Strategy and Implementation Model In this section space permits only a brief overview of the model and its development. The CRM strategy and implementation model used interaction research and combined fieldbased interactions, involving the executives groups outlined above, with insights from the literature to identify four key implementation areas. These components were then incorporated into a first preliminary model. This initial model, and the development of further versions of it, was informed and further refined by interactions with the executive groups. The framework went through several iterations and a number of minor revisions. The model has two main components: four key CRM implementation elements and five cross-functional CRM processes. The final version is shown in Figure 1. It represents an organizing model for developing and implementing CRM which is recursive, rather than linear, in that its many activities need to be managed concurrently and some elements will need to be revisited as a consequence of later activities. Its components are now summarised. ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 87

4 Figure 1: CRM Strategy and Implementation Model CRM Readiness Assessment CRM Project Management Process 1: Strategy Development ENABLING PROCESSES Process 2: Value Creation Process 3: Multi-Channel Integration Process 4: Information Management Employee Engagement CRM Change Management Process 5: Performance Assessment Core cross-functional processes Figure 1 outlines the five cross-functional processes, which include: The strategy development process: The strategy development process has a dual focus on the organisation s business strategy and its customer strategy. This process not only shapes the nature of the other four key CRM processes but, more importantly, it defines the overall objectives and parameters for the organization s CRM activities. The value creation process: The value creation process is concerned with transforming the outputs of the strategy development process into programmes that both extract and deliver and co-produce (or co-create) value. The multi-channel integration process: The multi-channel integration process starts with the identification of the most appropriate channel options for specific segments; and is then concerned with creating an outstanding customer experience within and across all channels. The information management process: The information management process is concerned with the collection and collation of customer information from all customer contact points; and gaining customer insight that can be used to enhance the quality of the customer experience. The performance assessment process: The performance assessment process ensures that the organisation s strategic CRM objectives are being delivered to an appropriate and standard. Key implementation elements Figure 1 shows the four critical implementation elements of a successful CRM programme identified during the interaction research. We now review these four elements - CRM readiness assessment, CRM change management, CRM project management, and employee engagement - that need to come together to support the organisation and implementation of a CRM strategy. CRM readiness assessment: A CRM readiness assessment helps the CRM sponsors and leaders assess the overall position in terms of readiness to progress with CRM initiatives and to identify how well developed their organisation is relative to other companies. Research has shown that there are identifiable stages of maturity in CRM development (e.g. Ryals and Payne, 2001); with each stage representing a level of CRM maturity characterised by the extent to which customer information is used to enhance the customer experience and customer-generated cash flows. If an organisation is in the early stages of CRM development, ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 88

5 it may be useful to start with an overview audit to help get senior management understanding and buy-in at an early stage. The overview form of readiness audit can be used to quickly form an initial view on the key CRM priorities, to define the relative importance of these priorities and to determine where effort needs to be applied. Firms that are more advanced can consider a more comprehensive CRM audit such as one that we are currently testing as part of our broader CRM research programme. CRM change management: To implement a large-scale and complex CRM initiative, companies will typically have to undergo substantial organisational and cultural change. A critical dimension of any large CRM programme, therefore, is an effective change management programme. (We make a distinction here between change management which is concerned with strategic organisational change and employee engagement which we view as a more operationally-oriented set of activities. These activities are, however, closely entwined.) There are a number of potential obstacles to this transition, not least the entrenched interest in preserving the status quo. Understanding and acting on change management requirements is therefore a prerequisite to successful CRM implementation. A change management framework such as the Seven S framework (Peters, 1984) can be a useful tool to help the organisation identify those issues relevant to their particular context. We found lack of attention to this area a common theme in companies. CRM project management: Whilst change management is needed for virtually all CRM initiatives regardless of the scale of the CRM initiative, project management has increasing relevance as the size and complexity of CRM initiatives increase. Effective CRM project management is essential and our interviewees emphasised that CRM projects which overrun budgets and timescales create considerable damage to CRM credibility. In our research we identified several companies using the Benefits Dependency Network framework (e.g. Wilson, et al. 2000); this works backwards from the project s objectives to ensure that all necessary business changes are made, as well as CRM technology solutions implemented. Some organisations we interviewed were adopting a large-scale and very comprehensive approach to CRM implementation. However, others we interviewed had found that an incremental and modular approach to CRM development or enhancement was more appropriate. These latter companies typically engaged in a series of smaller individual CRM projects, undertaken in an appropriate sequence, each with clearly defined objectives and ROI outcomes. These projects varied in the emphasis placed on analytical CRM, operational CRM and collaborative CRM. Employee engagement: The last of the four implementation elements is the engagement of employees to support the various initiatives that comprise the overall CRM programme. Employees have a crucial role to play within each of the CRM processes and implementation activities outlined in this paper. Change management and project management are particularly dependent on engagement of employees for their success. Ensuring the delivery of a superior customer experience during times of unexpectedly high demand requires the active engagement and commitment of all customer-facing staff and is a hallmark of a well-planned CRM implementation. Interviewees stated that employee engagement is now receiving greater attention as their companies place more focus on creating outstanding customer experiences. Discussion This paper is a response to the call by Zablah, Beuenger and Johnston (2003) that further exploration of CRM is desperately needed, and also our experience, during fieldwork, of the confusion and problems that many companies experience in their efforts to implement CRM. We now briefly discuss some managerial applications of our work. Future research ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 89

6 opportunities in CRM have recently been examined in some detail in a paper by Boulding et al. (2005) so we do not repeat these here. However, first we identify some limitations to this work. First, our research was based on large industrial companies as it is in such companies, because of their complexity, that CRM is likely to have the greatest positive impact. Second, we did not explore the application of CRM strategy in non-business areas such as the government and not-for-profit sectors. Third, we have not attempted to identify highly specific components of CRM that may assume strategic importance in particular industry settings. Finally, our attention was on enterprises seeking to develop strong relationships with their customers. There may be different aspects to be considered in companies adopting more transactionally-oriented approaches. Different companies, according to their specific circumstances, will have different CRM issues they need to address. This CRM strategy and implementation model has been used in companies in a number of ways. For example, it has been used to plan the key components of a CRM strategy and highlight which implementation issues and processes need greatest attention in a large UK service company. It has also been used to undertake CRM benchmarking - a large financial services company used this model to benchmark six US companies considered to be world-class CRM leaders within the financial services sector. It can also be used to help create a platform for change. In one large logistics company, this model was used with over 100 of its senior staff in a series of workshops. Working in small groups, managers provided a team score in terms of their perception of the company s existing and desired capabilities. The findings from the eighteen groups were very consistent regarding problems; key areas for action were identified and a critical mass of executives, who shared a common perspective, undertook responsibility for implementing a major change management programme. Finally, the model has proved useful in helping identify very specific problems. For example, in planning a CRM program in a large auto company, use of the model surfaced particular integration problems between business and customer strategy and made them highly visible within the company; this led to actions being taken to address them. ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 90

7 References Boulding, W., Staelin, R., Ehret, M. and Johnston, W. J., A CRM roadmap: what we know, potential pitfalls, and where to go. Journal of Marketing, 69 (4), forthcoming. Buttle, F.A., The S.C.O.P.E. of customer relationship management. Customer Relationship Management, 1 (4), Buttle, F. A., The CRM value chain. Marketing Business, February, Christopher, M. G., Payne, A. F.T and Ballantyne, D., Relationship Marketing: Bringing Quality, Customer Service and Marketing Together, Oxford, Butterworth Heinemann. Coviello, N. E., Brodie R.J., Danaher P.J. and. Johnston W. J., How firms relate to their markets: an empirical examination of contemporary marketing practice. Journal of Marketing, 66 (July), Ebner, M., Hu, A., Levitt, D. and McCory J., How to rescue CRM. McKinsey Quarterly, (Special Edition: Technology), Gartner Group, 2003, CRM Success Is in Strategy and Implementation, Not Software, [available at Grabner-Kraeuter, S. and Moedritscher, G., Alternative approaches toward measuring CRM performance. 6 th Research Conference on Relationship Marketing and Customer Relationship Management, Atlanta, June 9-12, Grönroos, C., Quo vadis, marketing? - toward a relationship marketing paradigm, Journal of Marketing Management, 10 (June), Grönroos, C., Value-driven relational marketing: from products to resources and competencies. Journal of Marketing Management, 13 (July), Gummesson, E., Relationship marketing as a paradigm shift: some conclusions from the 30R approach. Management Decision, 35 (4), Gummesson, E., Total Relationship Marketing, Oxford, UK, Butterworth-Heinemann. Gummesson, E., 2002a. Practical value of adequate marketing management theory. European Journal of Marketing, 36 (March), Gummesson, E. 2002b. Relationship marketing in the new economy. Journal of Relationship Marketing, 1 (1), Henneberg, S.C.M., An exploratory analysis of CRM implementation models, 11th International Colloquium in Relationship Marketing, University of Gloucestershire, (September), ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 91

8 Kohli, A.K. and Jaworski, B.J., Market orientation: the construct, research propositions and managerial implications, Journal of Marketing, 54 (April), Kotler, P., Its time for total marketing. Business Week Advance, Executive Brief, 2. Meta Group, Integration: Critical Issues for Implementation of CRM Solutions, Report by Meta Group Inc., February 15. Parvatiyar, A. and Sheth, J. N., Paradigm shift in interfirm marketing relationships. In Sheth, J. N. and Parvatiyar, A., (Eds.), Research in Marketing Vol. 13, Greenwich, CT, JAI, Press, pp Parvatiyar, A. and Sheth, J. N., Conceptual framework of customer relationship management. In Sheth, J.N. Parvatiyar, A. and Shainesh, G., Customer Relationship Management Emerging Concepts, Tools and Applications, New Delhi, Tata McGraw-Hill, pp Payne, A.F.T. and Frow, P., A strategic framework for customer relationship management. Journal of Marketing, Volume 69 (4), forthcoming. Peppers, D. and Rogers, M., The One to One Future, London, Piatkus. Peters, T., Strategy follows structure: developing distinctive skills. California Management Review, 26 (3), Pettit, R., The state of CRM: addressing efficiencies and the achilles heel of CRM. Business Intelligence Advisory Service, Executive Report, 2 (3). Rigby, D. K., Reichheld F. F. and Schefter, P., Avoid the four perils of CRM. Harvard Business Review, 80 (February), Rigby, D.K. and Ledingham, D., CRM done right, Harvard Business Review, 82 (November), reprint, 2-13 Ryals, L. and Payne, A.F.T., Customer relationship management in financial services: towards information-enabled relationship marketing. Journal of Strategic Marketing, 9 (March), Sheth, J.N., Relationship marketing: paradigm shift or shaft?, Paper presented at the Annual Meeting of the Academy of Marketing Science, Miami. Srivastava, R. K., Shervani, T.A. and Fahey, L., Marketing, business processes and shareholder value: an organizationally embedded view of marketing activities and the discipline of marketing. Journal of Marketing, 63 (Special Issue), Sue, P. and Paul M., A Strategic Framework for CRM, (accessed April 13, 2002) [available at crm-forum.com] ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 92

9 Vargo S. L. and Lusch R.R., Evolving to a new dominant logic for marketing. Journal of Marketing, 68 (January), Wilson, H, Daniel, E., McDonald, M., Ward, J. and Sutherland, F., Profiting from ecrm. London, Financial Times Prentice Hall. Winer, R. S., A framework for customer relationship management. California Management Review, 43 (Summer), Zablah, A.R., Beuenger, D.N. and Johnston, W. J., Customer relationship management: an explication of its domain and avenues for further inquiry International Conference on Relationship Marketing, Relationship Marketing, Customer Relationship Management and Marketing Management: Co-Operation Competition Co-Evolution, 2003 Freie Universitat Berlin, ANZMAC 2005 Conference: Business Interaction, Relationships and Networks 93