The Impact of Knowledge Management on Customer Relationship Management

The Impact of Knowledge Management on Customer Relationship Management Hadi Nejatian Khalilabad*, Omid Nasrollah Mazandarani*, Ilham Sentosa*, Shishi Kumar Piaralal* The business environment is transforming from product-centric to customer-centric. CRM as a customer-oriented business approach is considered as one of the powerful capabilities in organizations which help to transform themselves to a customer-centric environment. The utilization of CRM is directly related with increase in customer knowledge, which in turn has positive effect on customer satisfaction. By using knowledge management companies can improve their relationship with their valuable customers, thus create loyal customers and obtain competitive advantage. Organizations can create new ideas and provide improved and new services by help of knowledge management and the knowledge originated from CRM. The customer knowledge as an integral element of relationship between Knowledge Management and CRM could help organizations to tailor their products and services and even the entire relationship with customers to increase customer satisfaction and finally economic profitability. Keywords: Customer Relationship Management (CRM), Knowledge Management (KM), Knowledge - enabled CRM Paper: Theoretical Paper * Hadi Nejatian Khalilabad, Centre of Postgraduate Studies, Limkokwing University, h.nejatian@limkokwing.edu.my * Dr. Omid Nasrollah Mazandarani, Centre of Postgraduate Studies, Limkokwing University, dr.omid@limkokwing.edu.my * Dr. Ilham Sentosa, Centre of Postgraduate Studies, Limkokwing University, dr.ilhamsentosa@limkokwing.edu.my * Dr. Shishi Kumar Piaralal, Centre of Postgraduate Studies, Limkokwing University, dr.shishipiaralal@limkokwing.edu.my

1 Introduction Today, firms are considering their customers as their most important assets (Croteau and Li, 2003), therefore they are transferring their business strategies from productcentric to customer-centric ( Chen and Su, 2006; Kotler, 2003).According to Park and Kim (2003); organizations are focusing more on acquiring and maintaining share of their customers rather than their markets and by adopting customer-centric strategies, they demonstrate their insight on the importance of managing relationships with customers (Mithas et al.,2005). Organizations recognize customer knowledge as one of the major contributors of increase in their value and therefore they review their Customer Relationship Management (CRM) initiatives (Croteau and Li, 2003) to u se in-depth and integrated customer knowledge for creating collective relationships with their customers (Boulding et al., 2005; Croteau and Li, 2003; Parvatiyar and Sheth, 2001).With arrival of knowledge-economy those organizations which successfully recognize, build and enhance their knowledge capabilities will be more successful and are considered as knowledge-enabled organizations (Rowley, 1999). These organizations segment their markets not only based on their products and services but also based on the amount of knowledge which they can learn from their customers (Zack, 2003). Romano and Fjermestad (2003) describe the existing, product-centric to customercentric, shift in firms strategies as a shift from transaction-based economy to relationship-based economy. This transformation has made organizations to collect more information from their customers such as their behavioral, demographical and interaction information which is also can be done in large quantities by help of advancements in technological capabilities. In customer-centric economy the concepts like economies of scale will be replaced by concepts such as economies of interaction or economies of relationship which are main value drivers for customer-centric economy. The good knowledge viewpoint of customers and increased switching costs due to increase of direct interaction with each customer are supplementary elements for economies of interaction. They also facilitate increase in returns and also are in contrast with economies of scale which provides decreasing returns upon increase of production s volume (Moeslein and Piller, 2002). Interestingly, the transition from product-centric to customer-centric has been followed by another shift in marketing aspect, which is the shift of power from vendor to buyer which creates lot of benefits for customers as well as demands (Romano and Fjermestad, 2003; Shanks and Tay, 2001). On the other side, the studies show that cost of keeping the current customers is much more less than the cost of attracting new ones ( Bitran and Mondschein, 1997; Chattopadhyay, 2001; Desatnick, 1988; Massey et al., 2001; Park and Kim, 2003; Reichheld and Sasser, 1990; Stone et al., 1996). Meantime establishing a good relationship with customers is an important factor in an organization s success. (Gibbert et al., 2002; Hanvanach et al., 2003; Smith and McKeen, 2005; Wood, 2003) Thus the best strategy for sustaining the current customers is establishing a long lasting relationship with them and keeping them satisfied ( Stefanou et al., 2003). In order to keep customers satisfied, organizations should identify their customers problems and 2

preferences and most importantly determine and understand the reasons for their decisions. But the issue is, organizations may know about their customers problems and preferences through transactional data, but knowing the customer themselves and understanding the reasons for their decisions is not an easy task (Annabi and Murillo, 2002; Davenport et al., 2001). Since the markets are becoming more and more complex and complicated, customers demands for having products with lower price and better quality increase (Jutla et al., 2001). Meanwhile organizations try to find answers for questions like: who are their current customers, who and where their potential customers are, what benefits their customers are expecting from them and What are their customers preferences, needs and problems (Annabi and Murillo, 2002; Rowley, 2002). Therefore for being able to compete in this competitive business environment, organizations are trying to have access to newer type of knowledge and capabilities (Jutla et al., 2001). Along with this competitive transition to a knowledge intensive environment, firms are becoming more dependent on detailed knowledge of their customers for improving their CRM objectives and finally their long-term business success (Bang et al., 2005; Bose and Sugumaran, 2003).As the result, firms are transforming their CRM from a transaction based system to a more knowledge intensive and analytical oriented system. Through this transformation, organizations can maintain and improve their relationship with their customers throughout the customer lifetime cycle but this requires capabilities that enable them to follow and examine customers activities and responses over time. They can obtain required capabilities by use of knowledge derived from CRM operations and other enterprise systems such as Knowledge Management (KM) system (Bose and Sugumaran, 2003). Although knowledge discovery in customer-centric approach companies is an important factor, but only few companies can manage this discovered knowledge in a systematic style and make this strategy more effective which provides them more economic value (Bang et al., 2005; Smith and McKeen, 2005; Zack, 2003). With help of CRM and its related technologies, organizations are able to gather, analyze and transfer customer information more easily, but they are not capable of transforming information in to knowledge. It is mainly because of relatedness of knowledge to individuals and group of them. Therefore organizations need to integrate customer knowledge in to their processes and procedures for bringing more value to their customers and themselves (Halinen and Rollins, 2005). This Integratio n helps organizations to have a successful CRM development and when they achieve a higher level of integration among their different functional areas, they will have a higher overall performance along with higher level of match between what their customers demand and what they offer (Campbell, 2001). 1.1 Background of the Study Despite the many studies that have been done, particularly in west ( Bose and Sugumaran, 2003; Brenner et al., 2005; Campbell, 2001; Gibbert et al., 2002; Stefanou et al., 2003), looking at the relationship between Knowledge Management (KM) and Customer Relationship Management (CRM), none of them are comprehensive enough to capture all the factors into one single framework. According to Bose and Sugumaran 3

(2003), true CRM could be achieved only through integration of KM with it which as the result improves business processes and allows firms to have a good evaluation on their customer s level of satisfaction, profitability and loyalty. They also pinpoint the lack of a simple and general framework for integration of CRM functionalities with knowledge management capabilities (Bose and Sugumaran, 2003). Today, the current challenge for organizations is to develop an integrated CRM platform. This platform enables organizations to collect relevant data about customers from existing customer interfaces. Although firms have access to huge amount of information about their customers like their behavioral actions, they still know little about how to manage this knowledge and use the best out of it (Campbell, 2001). Bang et al. (2005) acknowledges that successful CRM requires deep knowledge of customer (Knowledge Management), but the ways that these two types of technology fit in together needs research. Moreover, previous studies trying to link KM and CRM have been limited in scope and the results been affected by often methodological limitations or errors. Many of the previous studies have used qualitative methods (i.e. case studies, literature review) (for example, see Gibbert et al., 2002; Brenner et al., 2005; Campbell, 2001; Halinen and Rollins, 2005; Gao and Li, 2006) to conclude their research findings and some other few studies have used conclusive statistics (for example see, Stefanou et al., 2003). Therefore, in order to bridge the gap and provide organizations with assistance in dealing with management perspectives of KM s effect on CRM performance, this paper proposes a set of KM critical factors and develops a proposed model to show the relationship between KM critical factors and CRM. Given the above reasons, this paper presents an integrated model regarding the effects of KM on CRM. The next portions of this paper include the literature review which presents the theories on the literature of KM and CRM and also the relationship between them followed by presenting the integrated model of Knowledge Management effect on CRM and finally, the review of model components and conclusion. 2 Literature Review 2.1 The Concept of CRM CRM is a customer-oriented business approach which includes analyzing, planning and controlling of relationships with customers by use of state-of-the-art information technologies. It is considered as combination of business processes, customer strategies and technology for achieving better insight on organizations customers and achieving higher customer loyalty and profitability (Kim et al., 2003; Rigby et al., 2002). CRM engages each individual customer in a significant dialogue that helps firms to customize their products and services in such a way which attracts, develops and retains customers (Campbell, 2001; Grabner-Kraeutera et al., 2007). The main focus of CRM is to monitor customers behavior for better understanding of their ever changing needs and preferences. By coordinating and using this knowledge, organization can provide superior service for customers and progressively improving this excellence by communicating with them through multiple channels. Based on what companies have learned about their customers through multiple channels and different departments such 4

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