2. CHAPTER 2: LITERATURE REVIEW

2. CHAPTER 2: LITERATURE REVIEW 2.1. Introduction This literature review is an attempt to understand CRM Systems and its contribution towards improving organizational competitiveness, customer satisfaction and loyalty. Starting from a brief introduction, the literature review mainly highlights the Critical Success Factors (CSFs) of CRM implementations, the most common barriers and pitfalls and existing models/ frameworks for successful CRM implementations. 2.2. CRM: A Definition Over the years, many definitions have been put forward for CRM by academics and practitioners alike. Payne and Frow (2005) state that this factor itself has led to a lot of confusion among organizations seeking to implement CRM, since the definition significantly affects the way the organization accepts and practices CRM. They further state that these many definitions can broadly be categorized into the three perspectives that are as follows: Perspective 1 - Narrowly and tactically: CRM is about the implementation of a specific technology solution project Perspective 2 - Wide-ranging technology: CRM is the integration of an integrated series of customer-oriented solutions Perspective 3 - Customer centric: CRM is a holistic approach to managing customer relationships to create shareholder value They argue that organizations seeking to gain all the benefits of CRM need to adopt a strategy that reflects the third perspective, which is a customer centric approach. For the purpose of this research, the author adopts the definition of CRM given by Payne and Frow (2005) which in support of their arguments, is positioned strategically at the customer centric perspective. 7

CRM is a strategic approach that is concerned with creating improved shareholder value through the development of appropriate relationships with customers and other key customer segments. CRM unites the potentials of relationship marketing strategies and IT to create profitable, long-term relationships with customers and other key stakeholders. CRM provides enhanced opportunities to use data and information to both understand customers and co-create value with them. This requires a cross-functional integration of processes, people, operations, and marketing capabilities that is enabled through information, technology, and applications. (Payne and Frow 2005, p. 168) 2.3. Types of CRM CRM software applications can be mainly categorized as follows (O Brien and Marakas, 2006): Operational CRM provides support to the customer facing employees of an organization across many channels such as phone, email, fax, direct contact etc. Operational CRM provides a single uniform view of the customer across all channels that displays the details of the customers interactions with the organization, which enables employees to deliver a better service. Analytical CRM allows organizations to analyze the available customer data and derive patterns in customer behaviour that enables organizations to offer products/ services to customers that are tailored to their needs Collaborative CRM enables easy collaboration with customers, suppliers and partners and improves efficiency and integration and provides greater responsiveness throughout the supply chain. Organizations can implement one or more of these types of CRM applications depending on their requirements. 8

2.4. Successes vs. Failures in CRM To gain the benefits offered by CRM, organizations need to have a good understanding of what is required to make the implementation a success. As stated in the previous section, if perceived narrowly as a technological solution, the implementations will not show the expected returns. An estimated half or more of all CRM efforts fail to show a return on investment and meet their objectives (Kotler and Armstrong, 2005; O Brien and Marakas, 2006). There s no doubt that CRM systems enable organizations to delight their customers which leads to relationships that last a lifetime. In their haste to reap the promised benefits, many organization rush with the planning and implementation, without considering all aspects that lead to a successful implementation (Payne and Frow, 2005). But it s vital that organizations approach CRM with the right mindset and knowledge. Research carried out by IBM Business Consulting Services (La Velle and Scheld, 2004) indicates although the failure rates are high, if the critical activities are prioritized correctly, the likelihood of CRM success increases by more than 70%. 2.5. Causes for Failures in CRM Since CRM has a high rate of failure, many have carried out research on the factors that cause these failures. The following are some of the most common factors that affect successful implementations. CRM is just a Technology While there are a number of causes for failures of CRM systems, research indicates that the most common cause is the organization treating CRM as just a technology solution and expecting the technology to solve business problems without first developing the business strategies, process changes and change management programs that are required (Rigby et al, 2002; O Brien and Marakas, 2006, p. 250; Kumar and Reinartz, 2006). The technology is only the enabler that makes CRM more powerful, efficient and effective. Some organizations expect CRM Systems to be an off the shelf package that can be purchased and implemented and expect immediate results while others 9

believe that buying the best CRM application in the market will deliver instant results. There is also the perception that CRM is an initiative of the IT department/ division, whereas it should actually be initiated from the very top of the organization, spearheaded by a high level decision maker. Losing focus of the Customer CRM is about managing relationships with customers, therefore this factor has to be kept in the forefront throughout the planning and implementation stages. The organization needs to have a clear-cut vision and strategy regarding their customer relationship management and the business processes, which includes job descriptions, performance measures, compensation systems, training programs, customer complaints handling, win-back processes etc have to be changed to gain maximum benefits (Rigby et al, 2002). Organizations incorrectly expect the implementation of a CRM System show an immediate increase in customer loyalty and retention. For customer loyalty and retention to increase, organizations need to nurture the relationships, encourage the customers to make repeat purchases by rewarding positive behaviour through reward and loyalty programs. CRM System do not create strategies, rather, CRM enables organizations to implement the strategies efficiently and effectively. Poor integration In many cases, the CRM system has to integrate with existing systems in order to gather customer data that is scattered across various systems (Chase, 2004). Therefore, planning is vital for the successful integration of the required data that need to be extracted from such systems. Chase (2004) identifies three distinct levels if integration adopted by organizations: o Data replication this level of integrations is the simplest and least interdependent type of integration. Copies of the customer data relevant to the CRM system are taken from existing systems, and added to the customer data in the CRM system. The data moves in only one direction and cannot be modified by the user. 10

o Data synchronization this method allows the same set of customer information to be maintained in multiple systems, reflecting changes made in one system across the others. This method ensures that the same set of data used across the organization. o Process integration this is the ultimate, but most complicated integration level. Here, data is shared from one system to the next based on each systems role in an integrated process. As the name indicates, process integration centers on activities. By coordinating these activities more efficiently across the users and systems involved in these processes, companies can accelerate revenue and cash flow, eliminate redundant effort, and provide a better experience to their customers. Employee buy-in Once a CRM is implemented in an organization, the willing participation of all relevant employees is also vital to make the implementation a success. Therefore, there has to be buy-in from all parties involved. Employees resist system for many reasons that include fear of change, lack of proper knowledge/ adequate training in the new system, fear of loss of job security etc. The management has to have a focus on change management during the implementation in order to overcome the resistance successfully (Fjermestad and Romano, 2003; O Brien and Marakas, 2006). Getting the involvement of the employees throughout the planning and implementation phases and providing adequate training can greatly help in reducing resistance (Fjermestad and Romano). In hotels, the front-line employees are constantly in contact with the guests and their attitudes and behaviour play a significant role in the guest experience. Due to these factors, Sigala (2005) asserts that in order to find success with CRM, organizations need to alter job descriptions, organizational structures, the motivational thinking of the employees at all levels and implement suitable reward structures. 11

Quality of data The data that is fed into the CRM System is taken from other systems that are already implemented in organizations. The quality of this data plays a key role in the success of the CRM initiative, and in support of this statement, research has indicated that almost 80% of CRM failures can be attributed to issues with data reliability (Hannigan and Palendrano, 2002). They further highlight that issues with data reliability generally fall into one of the following categories: o Inaccurate data data that is simply incorrect o Missing or incomplete data data that was never received or incompletely entered o Stale data data that has not been verified for some period of time, and is most likely no longer valid o Inconsistent data conflicting data between different data sources (system) o Unavailable data data not accessible for the purposes needed One factor that becomes evident when analyzing the causes of failures is that most factors are related to the lack of a proper definition for CRM. This is also highlighted in research carried out by Payne and Frow (2005) and Ramsey (cited by Nguyen, 2007). Therefore, as a first step to success in CRM, it is vital that organizations begin with a proper understanding of CRM. 2.6. Existing Frameworks for Successful CRM Implementation As with implementing any significant Information System, CRM implementations too need to be approached with proper planning, strategy and leadership. Given the high failure rate of CRM, using a proper framework for implementation becomes vital. This section outlines a number of frameworks that have been developed by researchers for successful CRM implementation. 12

2.6.1. Framework 1: A Strategic Framework for Customer Relationship Management This framework developed by Payne and Frow (2005) is a cross-functional, processoriented approach that positions CRM at the strategic level (Figure 2.1). Figure 2.1: Strategic Framework for Customer Relationship Management Source: A Strategic Framework for Customer Relationship Management, A. Payne and P. Frow, October 2005 The framework is built on the following five key cross-functional CRM processes: Strategy development process o Business strategy to determine how the customer strategy should be developed and how it should evolve over time o Customer strategy involves examining the existing and potential customer base and identifying which forms of segmentation are most appropriate 13

Value creation process this process transforms the outputs of the previous process into programs that both extract and deliver value. Consists of the following key elements: o Determine what value the organization can provide its customer o Determine what value the organization can receive from its customers o By successfully managing this value exchange, maximize the lifetime value of desirable customer segments Multi-channel integration process this process takes the outputs of the business strategy and value creation process and translates them into value adding activities with customers. The multi-channel integration process focuses on decisions about what the most appropriate combinations of channels to use are; how to ensure that the customer experiences highly positive interactions within those channels; and when a customer interacts with more than one channel, how to create and present a single unified view of the customer. Information management process this process is concerned with the collection, collation, and use of customer data and information from all customer contact points to generate customer insight and generate appropriate marketing responses. Performance assessment process covers the essential task of ensuring that the organizations strategic aims in terms of CRM are being delivered to an appropriate and acceptable standard and that a basis for future improvement is established. Although this framework provides a guideline for implementing CRM at the strategic level, its main weakness is this it does not consider the human related issues related to CRM implementations. Since human related issues is one of the main factors that cause failures in CRM, this needs to be incorporated into this framework in order to make it a success. 14

2.6.2. Framework 2: The CRM done right framework This framework (Figure 2.2) was developed by the IBM Business Consulting Service after conducting a series of surveys on CRM implementations in 373 organizations worldwide (La Velle and Scheld, 2004). The participants of the survey were from small/ medium/ large enterprises from different industries in the American, Asia Pacific and Europe/ Middle East/ Africa regions. A key finding of the survey is that different geographies have different CRM risks and priorities. Figure 2.2: The CRM Done Right Framework Source: IBM Business Consulting Services, CRM done right: executive handbook for realizing the value of CRM, 2004 According to this framework, the following are the five success factors which are considered keys to doing CRM right: Realize your CRM value case for change answers the question Why we are doing this? It is the format by which management establishes projected benefits of the project, initiative or program and sets the baseline costs and business implications of making the change. 15

Identify and prioritize your CRM value propositions the process of defining specific strategies that create value for all of the stakeholders in the CRM equation, including the organization, customers, employees and partners. This factor was considered most vital by the organizations in the Asia-Pacific region who participated in the survey. Design your new CRM operational blueprint outlines how the organization will deploy resources, how new technologies and infrastructure will be built, how new processes will be designed and create a comprehensive strategy for managing the change Construct a transformational multi-generational roadmap and implement your solutions this roadmap is the plan the organization creates to realize the blueprint of the CRM operating model. It turns the blueprint into a prioritized sequence of time-fixed work programs that are implemented at the rate that the organization can handle and manage successfully. Build support for your CRM efforts and stay on track through sponsorship, governance and change management this is to ensure that the entire organization remains committed throughout the deployment of the new operations. This factor is also considered important in the Asia Pacific region. This framework stresses the importance of the calculation of a clear ROI (Return on investment) at the outset of the project. The usage of measurable and observable metrics are recommended in order to illustrate the exact return that can be achieved by implementing CRM. Figure 2.3 outlines possible metrics that can be used when establishing the ROI. 16

Figure 2.3: Metrics for the measurement of ROI Source: IBM Business Consulting Services, CRM done right: executive handbook for realizing the value of CRM, 2004 2.6.3. Framework 3: An Integrated CRM Implementation Model Sigala (2003) proposes a model that offers strategic and operational value which incorporates the following main areas: Knowledge management The collection, analysis and sharing of customer information that are used for developing highly personalized offerings. The framework stresses the difference between information and knowledge, stating that knowledge is produced when information is analyzed and used to enable and leverage strategic actions. The framework states that an overall knowledge based CRM in the hospitality industry requires the following: 17

o A hotel culture whereby every customer interaction is perceived as a learning experience and each customer contact as a knowledgebuilding opportunity and a chance to collect new information about hotels guest o a knowledge information system shaping the technical basis for information accumulation, retrieval and distribution of explicit knowledge, leadership that will motivate knowledge workers and orientation and team structures and knowledge circles that promote the personalized transfer of tacit and explicit knowledge o incentives and rewards to staff's efforts to capture, use and share knowledge for personalizing customer interactions/experiences o a redesign of customer data across the organization and a customercentric ICT integration and infrastructure o understanding of guests value drivers and requirements as well as of the ways in which hotels contribute or fail to create customer value o collection, analysis and use of three type of customer information: information of the customer (personal and transactional data); information for the customer (product/service/organizational information that are perceived useful by customers); and information by the customer (customer feedback, complaints, propositions, claims) Relationship marketing (internal and external) Setting the strategies that shape how the organization will build and maintain their relationships with customers. Since CRM also largely depends on staff attitudes, commitment and performance and so, success on the external marketplace requires initial success on the internal business by motivating and getting employees commitment. There fore the organization should focus on both internal and external aspects of relationship marketing. 18

ICT management Usage of data warehousing and data mining to analyze volumes of data in order to decipher meaning, patterns and relationships from many seemingly unrelated bits of data, they are necessary and valuable tools for trying to determine customer demographics, buying patterns, market segments, contribution margins, customer lifetime, etc. ICT is also instrumental for gathering and storing customer data, providing ways for one-to-one interactions, as well as identifying ways for disseminating and accessing information across the organization. Figure 2.4 depicts a diagrammatic representation of this model. Figure 2.4: An integrated CRM implementation model Source: Integrating Customer Relationship Management in hotel operations: Managerial and operational implications, M Sigala, September 2005 19

2.7. CRM in the Hospitality Industry: an example from a Maldivian Hotel This section describes some of the processes adopted by a Maldivian luxury boutique hotel chain after implementing a CRM System in order to deliver a more personalized service to their guests. These process descriptions are extracts from the Best Practices Manual of the hotel 1. One day prior to arrival, guest names are run through the system and guest history of repeaters is printed out. This is circulated to all the service interface areas. This information is discussed at departmental briefings to notify Hosts (staff) on the preferences of guests assigned to them. The information is reviewed by the General Manager and amended each time prior to guest s arrival to maintain only pertinent information of the guest. The guest profile will indicate the names of the butler and other key hosts who served the guest during the previous visit. If the hosts are still in the service of the company, they should be allocated to serve the guest on the current visit. For repeat guests, rooms prepared with their choice of music playing & all necessary requirements done. A complimentary bottle of champagne is placed in the room prior arrival. However, if the guest history indicates that the guest is non-alcoholic, this is replaced by a preferred fruit juice. Bicycle at arrival - there is always a bicycle per guest ready. All bicycles are tagged with a recyclable name plate that displays the guests name. For repeat guests, the name plate is prepared and fixed prior to guest arrival. If a special occasion of the guest (birthday, anniversary etc) of the guest falls during the stay, a special surprise is to be arranged for the guest. The arrangements need to be made after a careful perusal of the guest history. Preferences of each and every guest are noted down on a daily basis on a guest information collection form at every guest service interface. On guest departure, information is studied by the GM. These forms are handed over to the Guest History officer who enters this information into the Guest History 1 At the request of the organization, the name of the organization has been omitted to protect the anonymity 20

System. The information is reviewed and amended each time prior to guest s arrival to maintain only pertinent information of the guest. All frontline Hosts are empowered to take decisions worth up to USD2000 when the guest encounters a breakdown in service/ product. All Hosts are trained to do Service Recovery. Once the recovery is done, the Recovery Form is filled up and distributed to all departments. This helps other department be aware and help the situation. The decisions are reviewed by the GM and discussed at a forum of frontline Hosts to provide feedback on the decisions and how some situations and decisions could have been better handled. The points discussed are recorded and distributed to all department heads for dissemination to all frontline Hosts. Concept of magic hands - Listen and watch - make miracles happen! A guest may mention something to his partner in a car or at Lunch or dinner. Catch any service and comfort related information from guest and put it straight into action! Surprise the guest by getting things done. Example: a guest mentions at the manager s cocktail that he always has problems to bend and therefore put a chair in his bathroom at home - on the return to the room, a chair is already put in the bathroom. Arrange services proactively and not reactively. Any new information learned about the guest is to be reported to the Guest Histories officer to be included in the guest history for future reference. All Front of House Hosts will carry a Guest Observation Pad and write down any challenges no matter how small that the guest experienced and have these sent to the GM immediately so that he can provide a quick Service Recovery where necessary and also impact positively on the guest in that we take care of them and pay attention to even the smallest of things. After the guest leaves, personalized cards are to be sent on special occasions such as birthdays, anniversaries etc and also for Christmas and New Year. 21