CHAPTER 2: Literature review

CHAPTER 2: Literature review 2.1 The development of CRM The objective of CRM is to provide understanding of customer needs and to influence customer behaviors through meaningful communication (Swift, 2001; Stringfellow et al., 2004). It builds long-term and sustainable customer relationships (Wayland and Cole, 1997) by aligning business processes with customer strategies so as to build customer loyalty, increase profits, and deliver customer value (Ling and Yen, 2001; Parvatiyar and Sheth, 2001; Rigby et al., 2002; Chen and Popovich, 2003). From the 1980s to the current decade, CRM research has progressed tremendously (Ling and Yen, 2001; Goldenberg, 2006). As shown in Figure 1, the evolution of CRM from target marketing (Prabhaker, 2001) and sales force automation (West, 2001) to relationship marketing (Gronroos, 1994) has increased the demand for customer information. With the advancement of information communication technology CRM, has become a crossfunctional, customer-driven, technology-integrated business process strategy that maximizes relationships and encompasses the entire organization (Chen and Popovich, 2003). However, as the scope of CRM has grown, comprehensive and complicated emphasis on technology has become the focus. CRM systems are currently one of the fastest-growing technologies and industries (Rigby et al., 2002). At the same time, the increased interest in CRM technology has led to a corresponding underestimation in the importance of people issues, which are intimately responsible for successful CRM implementation (Goldenberg, 2006). Mass Production Target Marketing Relationship Marketing Mass Marketing Direct Sales Contact Management Sales Force Automation Customer Relationship Management (CRM) Prior to the 1980s the 1980s the 1990s Figure 1: The Evolution of CRM Although CRM has experienced rapid growth (Rigby et al., 2002), CRM system implementation failure rates are as high as 55%, according to Gartner Group and Meta Group reports (Rigby et al., 2002). It has been reported that many CRM systems adopted by firms did not fully meet customer needs (Stringfellow et al., 2004) due to a lack of capable staff 8

(Rigby et al., 2002; Bull, 2003; Fjermestad and Romano, 2003), misaligned processes (Chen and Popvich, 2003), and poorly designed systems (Ling and Yen, 2001; Rigby and Ledingham, 2004). 2.2 People-driven processes in CRM In the literature on CRM there are three interpretations of CRM: data-driven CRM, processdriven CRM (Greenberg, 2004), and people-driven CRM, as proposed in this study. Datadriven CRM focuses purely on CRM systems that integrate customer information using applications, interfaces, and automation tools (Crowe, 1992) and emphasizes that the data are collected and stored in a single database that is available to all users who need to see it (Greenberg, 2004). Process-driven CRM emphasizes business integration processes between people and systems. The idea is to build around existing practices and rules and use data sources to enrich the processes (Greenberg, 2004). Examples include sales automation (Chen and Popovich, 2003), service function coordination (Oldroyd, 2005), customer service automation (Karimi et al., 2001), and integration with back office operations using ERP systems (Chan, 2005). Finally, people-driven CRM emphasizes the responsibility of executives and operational staff in using nearly face-to-face communication and their customer knowledge to process relationship with their customers. It posits that business success revolves largely around people-driven processes in performing CRM. Though different, these three orientations require equivalent consideration in delivering sustained customer value. Because the first two types of CRM have garnered the most attention from researchers, it is the aim of this paper to propose a clearer view of the third, people-driven processes in CRM. The term people-driven processes in our research refers to the processes in CRM on the human side. People-driven processes require that executives and operational staff possess the ability to understand, manipulate, and analyze customer knowledge and satisfy customer needs in a customer-oriented culture. These include processes that are difficult to implement or that cannot be carried out using technological solutions alone, such as planning customer strategy (Rigby et al., 2002; Bull, 2003), making critical decisions (Wayland and Cole, 1997), designing or improving CRM processes (Chen and Popovich, 2003), coping with customer problems (Rigby and Ledingham, 2004), understanding customer needs (Stringfellow et al., 2004), handling intimate communications and responses (Daft and Lengel, 1984; Stringfellow et al., 2004), and building long-term relationship with customers (Wayland and Cole, 1997). 9

Customers, employees, and executives are key parties in the people-driven processes of CRM. Companies create profits from customers who purchase products and services. It is no secret that business success revolves largely around people and that the critical resources are the operational staff a company hires, motivates, and retains to serve customers directly and indirectly (Barber and Strack, 2005). Business executives, on the other hand, create and design CRM strategies with aligned processes and are responsible for shaping organizational culture to construct an organizational environment for effective CRM (Rigby and Ledingham, 2004). 2.3 Major CRM processes Marketing, sales, and service are primary business functions with direct customer interaction and knowledge intensity in the customer life cycle (Porter and Millar, 1985; West, 2001). At the same time, the three major CRM processes aim respectively at specific business objects. Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and service to create exchanges that satisfy individual and organizational goals (Kotler and Keller, 2006). The sales function entails direct interaction with customers and is important for developing sales strategies at the customer level to build and maintain relationships (Ngai, 2005). Finally, high-quality customer service is the key to improving customer retention rates and maintaining good relationships with customers (Ngai, 2005). These functions involve relevant sub-processes (Gebert et al., 2003) as described in Table 1. Table 1: CRM Business Processes Major Processes Sub-processes Functions Campaign Marketing planning; marketing operations; Marketing marketing analytics Sales Service Lead Offer Contract Complaint Service Market research; customer segmentation; testing selling Sales planning; sales ; opportunity ; sales analytics Signing contracts; quality guarantee Receiving customers; solving customers problems; return After-sales service; customer self-service; loyalty ; satisfaction ; service analytics Of these CRM processes, detailed descriptions of people-driven processes and system support (summarized from Reinartz and Kumar, 2002; Chen and Popovich, 2003; Chen and Shang, 2005; Shang and Lin, 2005; Bueren et al., 2005; Kotler and Keller, 2006) are presented in Table 2. 10

Table 2: People-driven processes and System Support Processes People-driven processes System Support Campaign Marketing planning Marketing operations Marketing analytics Market research Customer segmentation Test selling Sales planning Sales Opportunity Sales analytics Developing customer strategies and plan marketing projects by identifying customers, segmentation, targeting customers, and positioning product pricing to promotions (Kotler and Keller, 2006) Conducting marketing projects over the long term, advertise for products and service, and inquire about and control real-time activity statuses with field marketing and sales, telemarketing, e-selling, and others. Performing real-time monitoring and auditing for the marketing projects and then analyzing useful information from the database for future marketing projects (Chen and Shang, 2005) Lead Extracting knowledge about customers and competition information using marketing research tools such as customer surveys and focus groups to provide knowledge of markets and customers (Chen and Popovich, 2003; Kotler and Keller, 2006) Identifying and learn about existing and emerging customer segments based on their purchasing history or forecasts (Reinartz and Kumar, 2002; Chen and Shang, 2005) Understanding new products or services that have accepted status among customers in the market, and then determining whether to make them available in the market Offer Using the sales forecasting tool to estimate sales volume in the future to allow advance planning of the goals of selling and executing programs every season Understanding current sales volume, monitoring business performance, and managing customer information from field sales and interactions, quote and order. Providing a qualified or prioritized list of presumably valuable customers (Bueren et al., 2005) and automating routine tasks such as tracking customer contacts and forecasting (Chen and Popovich, 2003) Identifying trends in product life cycles, analyzing customer or product profitability, tracking lead generation and conversion rates (Bueren et al., 2005), and providing feedback to the marketing department (Reinartz and Kumar. 2002) Marketing decision support system (MDSS) Marketing intelligence system and marketing information system (MIS) Enterprise resource planning (ERP), database marketing, data mining, and OLAP Marketing intelligence system, database tools, data mining, and OLAP Database tools, data mining, and OLAP Marketing information system (MIS) Sales force automation (SFA), Database tools and OLAP Sales force automation (SFA) and order Sales force automation (SFA) Marketing information system (MIS), database tools, data mining, and OLAP 11

Sign contracts Quality guarantee Receive customers Solve customers problems Return After-sales service Customer self-service Satisfaction Loyalty Service analytics Contract Creating contracts for the supply of products or service and maintain long-term contracts e.g., for outsourcing agreements or insurance (Bueren et al., 2005) Providing assurances of the agreement to the customer, such as signing the insurance, guaranteeing product quality, opening the invoice, and attaching a warranty Complaint Using face-to-face interaction through field service or use non-face-to-face channels, such as call centers or the internet, to contact customers and achieve understanding of customer problems Dealing with customer complaints, from understanding the problem to utilizing employee experiences, reference manuals, or FAQs to solve customer problems, and then tracking customer problems or special service requests after processing complaints Tracking product defect information and arranging the procedures for the return of goods when customers want to return goods or services Service Maintaining, repairing, and supporting activities in the after-sales phase to help customers keep purchased products in good working order (Chen and Popovich, 2003; Kotler and Keller, 2006) Developing and designing the process of customer self-service by customized and interactive Internet service, help desk, F&Q, or interactive voice response (IVR) (Bueren et al., 2005) Using periodic surveys, customer loss rate analyses, mystery shoppers, and monitoring of competitive performance to ensure consistent customer satisfaction (Kotler and Keller, 2006) Classifying according to customer loyalty in order to offer proper or value-added products or services (Reinartz and Kumar. 2002) Analyzing frequently occurring problems to create programs to win back departing customers (Chen and Shang, 2005) and to identify product or service redesign opportunities as part of continuous improvement processes (Chen and Shang, 2005) Partner relationship (PRM) N/A Call-center systems, computer telephone integration (CTI), and Web technology Database tools, knowledgebase, and callcenter systems Database tools and enterprise resource planning (ERP) Call-center systems, computer telephone integration (CTI), Web technology, and Web service Interactive voice response (IVR), Web technology, and Web service Database tools and marketing information system (MIS) Database tools, data mining, and OLAP Database tools, data mining, and OLAP 12

2.4 Factors affecting the dependency on people-driven processes The section examines factors that affect the dependency on people-driven processes in CRM. Factors relating to customers, information, employees, and organizations are arranged, and propositions are constructed (Table 3, Fig. 2). They are then described in the subsequent sections. CRM objectives should be to understand customer needs (Stringfellow et al., 2004), to rapidly gather sufficient customer data (Chan, 2005), to identify the most valuable customers (Fjermestad and Romano, 2003), to maintain long-term relationships (Wayland and Cole, 1997), and to improve the processes of CRM (Chen and Popvich, 2003). This study argues that CRM goals can be achieved through organizational understanding and handling of the four factors affecting the dependency on people-driven processes in CRM. Table 3: The Table of Propositions Key parties Propositions Effects Customer factors Information processed Employee capabilities Organizational environments P1. The greater the customer emotional needs, the greater will be the dependency on people-driven processes in CRM. P2. The greater the customer involvement in transaction processing, the greater will be the dependency on people-driven processes in CRM. P3. The greater the dynamics of customer needs, the greater will be the dependency on people-driven processes in CRM. P4. The greater the need for tacit customer information, the greater will be the dependency on people-driven processes in CRM. P5. The greater the employee experience and knowledge about customers, the greater will be the dependency on people-driven processes in CRM. P.6 The stronger the customer-oriented culture, the greater will be the dependency on people-driven processes in CRM. By industry By industry By firm By firm Customer factors Information processed Employee capabilities Organizational environments P1 P3 P4 P5 P6 People-driven processes in CRM CRM objectives Figure 2: Research Propositions 13

2.4.1 Customer Factors There are three important features of customers that are relevant people-driven interaction in CRM: customer needs, customer involvement, and customer changeability. The concept underlying marketing is human needs (Kotler and Keller, 2006). Purchase decisions are driven by two kinds of needs, as shown in Table 4: (1) functional needs satisfied by product functions, and (2) emotional needs associated with the psychological aspects of product ownership (Stringfellow et al., 2004). Understanding customers emotional needs is vital for predicting and influencing their purchasing behavior (Tehrani, 2002). Failure to meet basic needs for security and justice leads to customer dissatisfaction or outrage, while exceeding the need for self-esteem leads to customer delight (Schneider and Bowen, 1999). However, Stringfellow, Nie, and Bowen (2004) proposed that most CRM systems fail to recognize the emotional component of customer behavior, with the result that many are technology-rich but knowledge-poor. Customer Needs Functional needs Emotional needs Information Characteristics Well-defined, explicit, tangible Latent, fuzzy, hard to articulate, subconscious, intangible Table 4: Understanding Customer Needs Communication Requirements Lean channels Rich channels Data Collection Methods Transaction records, click stream data, and survey (if right questions are asked) Semi-structured interviews, archetype research, picture drawing, storytelling Customer emotion means customer feelings of the quality of service transactions (Van Maanen and Kunda 1989; Rafaeli and Sutton 1987) and affective states of the interactions with other people (Lee, 2004) through communication channels (Stringfellow et al., 2004). The content of displayed emotions is manifested in facial expressions, bodily language, tone of voice, and language (Mattila and Enz, 2002). Seven key attributes of salespersons in faceto-face interactions affect customer emotions: trustworthiness, expertise, empathy, friendliness, enthusiasm, similarity, and professional appearance (Lee and Dubinsky, 2003). Only by understanding and meeting such deeper emotional needs through direct observation (Johansson and Nonaka, 1987) and talking with customers are firms able to offer true value to their customers (Stringfellow et al., 2004). Some leading firms aim to meet customer latent needs and what customers might value but have never experienced or thought to ask for (Bentum and Stone, 2005). Eliciting emotional needs requires the use of more complex channels and methods. For example, talking face-to-face can provide rich, in-depth 14

information and allow for dealing effectively with complicated and unstructured information (Stringfellow et al., 2004). By using technology to effectively deliver a fundamental task of service delivery, employees may be able to focus on reading emotional displays of the customer (Mattila and Enz, 2002). Because emotional needs are fuzzy, intangible, and hard to articulate, the operational staff and executives need to spend more time and effort understanding the needs of customers in the people-driven processes of CRM. This leads to proposition 1: The greater the customer emotional needs, the greater will be the dependency on peopledriven processes in CRM. Customer involvement can be defined in term of the level of engagement and active processing undertaken by the consumer in responding to marketing stimulus (Kotler and Keller, 2006). High customer involvement is usually the case when the product or service is expensive, purchased infrequently, risky, or highly self-expressive (Kotler and Keller, 2006). Indeed, many high-involvement products and service require some form of face-to-face interaction (Wayland and Cole, 1997), and so marketers must understand consumers information-gathering and evaluation behaviors (Kotler and Keller, 2006). Therefore, it is necessary that operational staff and executives spend time and effort in understanding the different purchasing behaviors and different levels of involvement required. It is a continuous effort that requires redesigning core business processes starting from the customer perspective and involving customer feedback (Chen and Popovich, 2003). This leads to proposition 2: The greater the customer involvement in transaction processing, the greater will be the dependency on people-driven processes in CRM. Customer dynamics connotes the amount of instability, uncertainty, and lack of control of customer demands that require a company s attention per unit of time (Pine, 1993). Adopted from Pine (1993), three dimensions of customer dynamics are specified, from the customer perspective, to discuss the interaction between customer dynamics and people-driven processes: Uncertainty the demand levels of the company s products and the changes in the needs and wants of the customers. When customer needs and wants are uncertain, it is difficult to provide the market with a single product and more likely that a number of different products will be created to try to find pockets of need within the market. In the meantime, product life cycles shorten, development cycles must soon follow, and economies of scale 15

diminish drastically as total volume decreases and the supporting technology is updated quickly. Product life cycle the product first develops to its replacement or withdrawal (Kotler, 1991). It is reinforced by stable demand and a homogeneous market. On the other hand, decreasing and unpredictable product life cycles indicate an uncertainty of demand and an increase in market turbulence. Level of customization because customers can no longer be lumped together in a huge, homogeneous market, their individual wants and needs must be ascertained and fulfilled. The level of customization means the degree of difference in desires among individual customers and the degree to which a company plans to provide more or less customization in the future. This leads to proposition 3: The greater the dynamics of customer needs, the greater will be the dependency on peopledriven processes in CRM. 2.4.2 Information processed A CRM system is a complex and sophisticated application that mines customer data, creates a comprehensive view of key customers, and predicts their purchasing patterns (Chen and Popovich, 2003). The effective of information has a crucial role to play in CRM (Peppard, 2000). Table 5: CRM Knowledge Requirements Types Information Characteristics Information Requirements Explicit knowledge Tacit knowledge Explicit knowledge, which records what customers do during sales and service interactions (Davenport et al., 2004), can be documented and made accessible. Tacit knowledge that can be understood but that is undocumented and inaccessible. Important customer knowledge sometimes remains largely tacit (Davenport et al., 2004). External data Survey information Transaction history data Personal information Profitability information Customer needs Human data or human knowledge Employee experience Two types of knowledge are created through CRM information processing, as summarized in Table 5 (Wayland and Cole, 1997; Stringfellow et al., 2004; Davenport et al., 2004). Explicit knowledge is generated by the structural processes of the information system, while tacit knowledge is undocumented and inaccessible (Davenport et al., 2004). CRM applications take full advantage of technology innovations with their ability to collect and analyze data on customer patterns, interpret customer behavior, develop predictive models, respond with 16

customized communications, and virtually deliver product and service value to individual customers (Chen and Popovich, 2003). Nevertheless, the tacit knowledge is and can only be processed by people who comprehend and exploit personal customer information. Davenport and et el. (2004) point out that companies can better understand and predict customer behaviors by examining this "human" data, and that they can thus rely less on technologies to collect, distribute, and use transaction-driven knowledge. Human data and knowledge is classified as tacit knowledge. Nonaka and Tackeuchi (1995) proposed that tacit knowledge is highly personal and hard to formalize, making it difficult to communicate or share with others. The information knowledge based on conversations and interactions among managers and with customers is a firm s most important knowledge (Mintzberg, 1994). This implies the need to mix transaction and human data to achieve the best results (Davenport et al., 2004), and this process of translating human data into knowledge is performed by neither the hardware nor the software, but rather by human beings (Ngwenyama and Lee, 1997). Therefore, the company must make use of the tacit knowledge from people-driven processes to overcome the gaps in technology-driven information. This leads to proposition 4: The greater the need for tacit customer information, the greater will be the dependency on people-driven processes in CRM. 2.4.3 Employee capabilities Employees who deal closely with customers are the building blocks of customer relationships (Chen and Popovich, 2003). Employees need to be trained to enhance skills and knowledge, and to collect rich information while serving customers (Stringfellow et al., 2004). Organizations must also ensure that job evaluations, compensation programs, and reward systems are modified on a basis that facilitate and reward customer orientation (Chen and Popovich, 2003). Tacit knowledge from employees is not easily explicated or articulated, so the tendency is to identify someone who might be a source of knowledge within the enterprise through contact and conversation rather than to access a knowledge base that not only may contain inadequate information but also may provide answers to rather too-precise questions (Saint-Onge, 1996). For example, at the immediate problem-solving level, the representative of a service department uses both explicit and tacit information, which can be illustrated by the ability to relate his experience base to the customer s current problem (Wayland and Cole, 1997). The representative s experience and customer knowledge are important factors in building operational flexibility (Crowe, 1995) and improving the pain points of processes in CRM (Chen and Popovich, 2003; Rigby and Ledingham, 2004). This leads to proposition 5: 17

The greater the employee experience and knowledge about customers, the greater will be the dependency on people-driven processes in CRM. 2.4.4 Organizational environment CRM requires a customer-oriented business environment to support effective marketing, sales, and service processes (Oldroyd, 2005; Bolton, 2004). Many firms have switched from a product-centric to a customer-centric culture, which emphasizes the whole customer experience, from initial sale to maintenance and expansion (Davenport et al., 2004). Technology that affects customers must always be aligned with an overarching strategy, organizational structure, and customer-oriented culture if it is to work (Rigby et al., 2002; Oldroyd, 2005). Customer-oriented culture requires people and business units to coordinate in progressively more sophisticated ways (Oldroyd, 2005). It is the pattern of shared customer-centric values and beliefs that give each individual in the organizations norms for their behavior (Deshpande and Webster, 1989; Bentum and Stone, 2005). Success in customer orientation depends on limiting interdepartmental conflicts, exploiting information dissemination across functions, decentralizing governance structures, orchestrating inter-functional resources and, critically, rewarding on market-based factors, such as customer satisfaction (Bentum and Stone, 2005). Without such realignment and culture change (Bentum and Stone, 2005; Shang and Lin, 2005) and the participation of all employees within the organization (Chen and Popovich, 2003), the impacts of CRM may be limited to a few sales and marketing processes. Alternately, the goals of a customer-oriented model require customer-focused staff and executives in developing products and service to fit customer needs, promote strategies to retain customer loyalty, and improve operations to reduce the costs of sales and service (Chen and Popovich, 2003). This leads to proposition 6: The stronger the customer-oriented culture, the greater will be the dependency on peopledriven processes in CRM. 18