Managing Relationships through Information System (CRM).

University Degree Business and Administrative studies

Information Systems and Management

Managing Relationships through Information System

(CRM)

Haifeng Yu & Yang Zhang

Abstract

Customer relationship management (CRM) is “a combination of people, processes and technology that seeks to understand a company’s customers”(Injazz and Karen, 2003). CRM is “an organizational strategy not a solution. Some of the factors behind this renewed interest in customer relationships include advances in information technology and data warehouses, the increasing c, a high level of market dynamism, intense competition, and disintermediation”(Lawrence, 2002). Furthermore, according to the ‘4:1’ theory (i.e.80% of a company’s profits comes from 20% of its customers), companies must focus on managing customer relationships in order to increase the retention of customers. The successful implementation of CRM strategy leads to efficient revenues maximization, customer satisfaction which is the most important way to gain customer loyalty and organizational competitive advantages. The implementation of CRM will change the business relationships, and at the same time, only if people in the organizations can understand IS roles and contribution, facilitating and managing business process is redesigned accurately, and data resource is used effectively, the implementation of CRM will be successful.

Key words: customer relationship, competitive advantage, information technology

Introduction

This paper discusses the use of CRM to manage and develop relationships associated with a business enterprise. The implementation of CRM will change a business enterprise dramatically to adapt itself to intense competition. The changes consist of the relationships between staff in different departments, the relationship between employees and information system, the process to communicate with customers, and the changes brought by information technology. Since CRM is a strategy not a solution, it is not that easy for a business enterprise to implement a CRM system. Unfortunately, some researches showed that most of the implementation of CRM failed or didn’t achieve the stated objectives.

In order to discuss the changes to the relationships and roles associated with a business enterprise clearly, the paper argues the changes from three aspects: people in a business enterprise, customer-centric process, information technology.

The organization of this paper is as follows: section1 presents a review of CRM, including the development of CRM and the benefits and pitfalls associated with the implementation of CRM. Section2 analyses the failed cases of CRM from people, process and technology aspects to illustrate the mistakes which are easily conducted in the process of aligning the CRM system within the enterprise. Section3 presents successful cases to present how to combine CRM strategy with the enterprise and the changes to the relationships and roles in a business after the implementation of CRM. Section4 is the conclusion of the paper.

Section1. The review of CRM

1.1 why CRM appears

If companies are willing to be successful even survive in the market in the long term, they must gain the competitive advantages which are differential to other competitors. Once, “market segmentation was a cost-effective way to target groups of customers and proved to be a strong competitive advantage. However, after nearly five decades of use, customer segmentation is no longer the competitive advantage it once was and is now often considered a minimum requirement of doing business. In order to regain the competitive advantage, leading firms are now ushering in a new orientation that might be termed a customer-centric orientation” (Ranjit Bose, 2002).

Because of the increasing sophistication of customers and the intense competition, “No enterprise can any longer succeed in distinguishing itself through operational excellence, customer intimacy, or product innovation without understanding the needs and desires of its customers” (Jeremy Galbreath and Tom Rogers,1999). “Companies are moving closer to their customers, expending more effort in finding new ways to create value for their customers, and transforming the customer relationship into one of solution finding and partnering rather than one of selling and order taking” (El Sawy and Bowles, 1997). “Organizations will be more successful if they concentrate on obtaining and maintaining a share of each customer rather than a share of the entire market” (Peppers and Rogers, 1995). “It has been illustrated in practice that retaining an existing customer is more profitable than acquiring a new one” (Reichheld and Sasser, 1990).

1.2 what is CRM

“At the core, CRM is an integration of technologies and business processes used to satisfy the needs of a customer during any given interaction. More specifically, CRM involves acquisition, analysis and use of knowledge about customers in order to sell more goods or services and to do it more efficiently. It is important to note that the term ``customer’’ may have a very broad definition that includes vendors, channel partners or virtually any group or individual that requires information from the organization. In IT terms, CRM means an enterprise wide integration of technologies working ...

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1.2 what is CRM

Effective implementation of CRM may require radical changes in employees, processes and information technology. If an enterprise is not already customer-oriented, it requires customer relationship leadership that rallies an organization around CRM.

1.3 what are the benefits

Firstly, the successful implementation of CRM with the advanced information technology such as data-warehouse, internet, website, etc can give customers the opportunity to gain the information they want about the enterprise from anywhere in any time. Organizations can also gain the profiles of customers through these technology. “According to the content and interaction types, customer information can be classified into three types:

(1) information of the customer;

(2) information for the customer; and

(3) information by the customer.”( Chung-Hoon Park and Young-Gul Kim, 2003)

Secondly, with the profiles in the database, organizations can use data-mining technology to analyze the target customers(not the target market), separate the profitable customers and non-profitable customers, then get the better knowledge about the profitable customers need, understand customer value, identify the perceived value of the product and deliver customer value effectively to sell more products to them and increase the profitability of organizations

Thirdly, CRM increases the satisfaction of customer to gain the customer loyalty and retention. As mentioned before, retaining an existing customer is more profitable than acquiring a new one. Similarly, finding a new customer is more expensive than retaining an existing customer.

Fourthly, CRM can change organizational environment(i.e. corporation culture) and create the atmosphere of innovation. Because CRM requires that business process should be customer-centric and employees must concentrate on the customer needs and make customers satisfied, organizational environment will be changed if it is not already customer-centric. Since employees think more about what customers really need, they will do better in product and business process innovation.

1.4 what are the pitfalls

The pitfalls of CRM usually stems from the misunderstanding of CRM among employees, incorrect implementation of CRM information system technology and align CRM with corporation infrastructure ineffectively. First, cultural change – the politics of working together. Many failures can be explained by organisations failing to wrestle this problem to the ground. Second, organisational design – the way companies facilitate cross-company working. Key concepts here are collaboration, community and knowledge sharing. Third, service – the kind that delivers value to customers.(ECCS, 2002)

Furthermore, the implementation of CRM is expensive to companies, millions of dollars will spend on the software and hardware in this system. And the integration between different departments and renewal process of old system are difficult to conduct. In the future, with the innovation of products and new system, the system up-date is also a big problem.

Section2. Failed case analysis

“Based on replies from 1,325 members, the results show that three quarters of corporate managers, consultants, vendors, academics believe that CRM is either in its infancy or growth phase, compared with 3% who believe it is in decline”(ECCS, 2002). However, “the CRM project failure rate was estimated to be between 55 percent and 75 percent in 2001 (Meta Group Inc.). The disappointing results coincided with the technology melt down. Hence, many practitioners questioned whether CRM was not just another buzzword, and many CRM projects were put on hold or cancelled altogether” (Rado Kotorov, 2003).Therefore, we can learn some lessons from the failed cases in order to implement CRM correctly to avoid failure.

2.1 The brief review of Cigna case (case in CIO.com)

Cigna Healthcare implemented a $1 billion IT overhaul and CRM initiative in 2002 and 2003 with 3.5 million members of the health insurance company transformed from 15 legacy systems to two new platforms. The implementation failed at first, the changes were that millions of dissatisfied customers walked away, lost 6 percent of its health-care membership in 2002 and share price plunged 40 percent. As the new president of Cigna HealthCare said:” transformation shortfalls have led to service shortfalls, which have led to lower new sales and [customer] retention.”

2.2 Case analysis

This is a classic failed case in the process of implementing CRM system. There are many problems in the process. The failure can be analysed from three aspects: people, process and technology.

People

Senior managers’ faults: they got the new systems up and running in haste and were eager to cash in on the technology’s promise of reduced costs and increased productivity. They thought CRM was all about information technology, but, the reality is Customer relationship management is a comprehensive business strategy. information technology needs to be aligned with the business goals of building, maintaining and enhancing customer relationships. It is important to understand how technology interacts with these other factors in determining relationship outcomes (Lawrence, 2002).

Moreover, Cigna precipitously eliminated the very people who gave the company its human face: its customer service reps. Therefore, top executives’ understanding of CRM is critical in the process of implementing the systems. The customer service reps were not trained on the new systems, Cigna made another mistake as mentioned by Lawrence(2002) in myth5 that “Putting a lot of customer data in the hands of employees will automatically make them good relationship managers.” (see appendices)

Process

Cigna misunderstood what the implementation of CRM was for. Implementing CRM is to change the business process and environment to customer-centric strategy, which can give the organization opportunity to comprehend customer needs and create customer loyalty and retention. However, they were anxious for the new systems' promised cost and employee positions reductions and productivity gains. These should be the results of CRM, but not the purpose. Ironically, because of large amount of calls from customers, there weren’t enough call center reps to handle the load.

Technology

To achieve transformation, two main platforms were applied in Cigna Healthcare: PowerMHS software, which was already on a few AS400 computers, and ProClaim software, which was still running on IBM mainframes. Because these two systems were very different and could not integrate directly, Cigna had to completely reengineer the back-end systems. The technology should be tested in a real environment and end-to-end before going live. “Take your time moving data from the legacy systems to the new platforms, and do it in bite-size chunks so that you can fix glitches as you go”.( Lessons Learned)

Section 3 Successful Case Analysis

Effective customer relationship management (CRM) has become a strategic imperative for companies virtually in every business sector. Companies are moving closer to their customers, expending more effort in finding new ways to create value for their customers, and transforming the customer relationship into one of solution finding and partnering rather than one of selling and order taking (El Sawy and Bowles, 1997).Corporations which succeed in CRM obtained more profits , market shares, as well as consumers satisfaction .The following case is about the corporation succeeded in CRM , some valuable experiences as well as relevant strategy could be extracted from it .

3.1 The brief review of ‘BCBS’ Case (case in CIO.com)

In mid-2000, John Ounjian, senior vice president and CIO of Blue Cross and Blue Shield (BCBS) of Minnesota, installed new Web-based customer self-service system, which has led to a 10 percent growth in customer base and attracted major clients away from competitors. BCBS of Minnesota experienced that growth in membership at a time when several national insurers lost millions of members. Cigna, for instance, lost 10 percent of its membership in 2002. Ounjian says his company's membership grew by 10 percent, or 200,000 new members, in 2002, largely because of its online customer self-service system.

3.2 Case analysis

This case is about the BCBS which succeeded in the process of CRM . The following analysis about the success will be set forth in three aspects : people, process and technology.

People

Implementation of enterprise technology, such as CRM and ERP, requires changes to organizational culture (Al-Mashari and Zairi, 2000).

Top management of BCBS is essential for bringing the promised regional health plan by John Ounjian: He would soon be in-stalling a Web-based customer service system that would let subscribers manage their health benefits online. The top management realized the importance of customer-centric management , they supported the CRM through the entire process .This is a crucial aspect leading to the success of CRM implementation.

During the process of CRM implementation within BCBS, some objections and disagreements arose among various functional departments . They could not reach a agreement on specific problems, at this time , these problems and objections were solved by the top management by personal intervention .The intervention resulted in the changes to the corporate culture. BCBS , as a functional organization , took ownership of the customer data .They deemed that releasing the customer data is also a type of loss of power .

The employee relationship has also changed within BCBS. The implementation of CRM requires every employee must understand the purpose and the change that CRM will bring . After the focus was moved on to the customers, employees within BCBS collaborated each other. At the same time , the relationship between departments has also changed a lot . As a culture of BCBS , the customer data , information and the knowledge were shared within the whole organization .The resource of BCBS was optimised by sharing information and knowledge. The departments not only collaborate but also share and transfer the information in time .The speed of the transaction for one customer accelerate ,so the duration of the service for customers shortened as well.

Process

It has become well known that retaining customers is more profitable than building new relationships. Customer relationship marketing techniques focus on single customers and require the corporations to be organized around the customer, rather than the product. Target marketing, or segmentation, shifted a company’s focus to adjusting products and marketing efforts to the customer requirements. ( MERIDITH,2003) Changing customer needs and preferences require corporations to define smaller and smaller segments.

BCBS deemed the customer as the centre of the whole business. Most of their customers choose to take the transaction by On-line. It could be shown that the CRM — customer-centric module –was built around the customers. Every subscriber who logons the website of BCBS ,will be transacted individually. At the same time, Ounjian used Oracle databases on the front end to reassemble and synchronize back-end data so that consumers find consistent, timely information regardless of whether they use the Web channel or the call centre channel. The clients and the organization often communicated between each other as well , so that the organization knew what the customer need exactly .

Technology

Information technology (IT) has long been recognized as an enabler to radically redesign business processes in order to achieve dramatic improvements in organizational performance (Davenport and Short, 1990; Porter, 1987). ITassists with the re-design of a business process by facilitating changes to work practices and establishing innovative methods to link a company with customers, suppliers and internal stakeholders (Hammer and Champy, 1993).

Technology played an crucial role during the process of the CRM implementation within BCBS . Especially for the moving data back and forth. If they couldn’t solve this problem ,the customers would find the information is out-of-date, inaccurate, or that varied across the Web and call center channels. The actual infrastructure for BCBS of Minnesota's website and customer service system is made up of Aspect Communications' communications platform, Kana's e-business platform, BEA's WebLogic application server and Oracle databases. In addition to the e-business platform, Kana provides e-mail management software as well as an application to track communication between call centre agents and customers so that BCBS of Minnesota knows who called, when they called and whether their issues were resolved.

Besides , the CRM within BCBS took full advantage of the abilities to collect and analyse the data on customers , including the health condition .To some degree, the factor of technology is the root of the whole success within the organization .

Section4 Conclusion

As mentioned above ,Customer relationship management (CRM) has brought remarkable benefits to corporation , as well as the customers .The successful implementation of CRM made the corporation and customer could acquire the information they want at any time , and also help the corporation understand customer value and innovate within the corporation .Besides , the satisfaction of customers which CRM bring make customer more loyal . Everything is double-faced , pitfalls should be mentioned. Cultural change, organisational design , service are the three aspects that unsuccessful implementation of CRM bring . CRM is expensive to implement , especially to small corporations .Recent surveys further reveal that the average investment in CRM applications is $2.2 million dollars (CIO Research Reports, 2002)

Not every corporation which implemented CRM succeeded in the en .CRM implementation failure rate is as high as 65 percent (Apicella et al., 1999). After deep consideration , some suggestion for corporations described as followed will be useful during the CRM implementation.

During the CRM implementation , customers should be segmented carefully at first , and served individually at the end .
Deem CRM as a business strategy , not just information technology .
After the gather of customer data , all the data should be transferred into true customer insight
Successful implementation of CRM means that some jobs will be significantly changed. Management must ensure that job evaluations, compensation programs, and reward systems are modified on the basis of customer-orientation .

Reference

1. Injazz J. Chen and Karen Popovich (2003) “Understanding customer relationship management (CRM) People, process and technology” Business Process Management Journal Vol. 9 No. 5, 2003 pp. 672-688

2. Lawrence A. Crosby(2002) “ Exploding some myths about customer relationship management” Managing Service Quality Volume 12 . Number 5 . 2002 . pp. 271±277

3. Ranjit Bose (2002) “Customer relationship management: key components for IT success” Industrial Management & Data Systems 102/2 [2002] 89±97

4. El Sawy, O.A. and Bowles, G. (1997), “Redesigning the customer support process for the

electronic economy: insights from storage dimensions”, MIS Quarterly, Vol. 21 No. 4,

pp. 457-83.

5. Peppers, D. and Rogers, M. (1995), “A new marketing paradigm: share of customer, not market share”, Planning Review, March/April, pp. 14-18.

6. Reichheld, F.F. and Sasser, W.E. Jr (1990), “Zero defections: quality comes to services”, Harvard Business Review, September/October, pp. 105-11.

7. Jeremy Galbreath and Tom Rogers (1999), “Customer relationship leadership: a leadership and motivation model for the twenty-first century business” The TQM Magazine Volume 11 · Number 3 · 1999 · pp. 161–171

8. Chung-Hoon Park and Young-Gul Kim (2003) “A framework of dynamic CRM:

linking marketing with information strategy” Business Process Management Journal Vol. 9 No. 5, 2003 pp. 652-671

9. Dr. Louis C.K. Ma, “Critical Issues of Information Systems Management in Hong Kong”, accessed: http://www.hkcs.org.hk/doc_journal/lm02.htm

10. ECCS,(2002) “What's New on ECCS?” accessed: http://www.eccs.uk.com/inside/whatsnew.asp

11. Rado Kotorov, (2003) “Customer relationship management: strategic lessons

and future directions” Business Process Management Journal Vol. 9 No. 5, 2003

pp. 566-571

12. “Cigna case study” see: http://www.cio.com/archive/031503/cigna.html

13. “lessons learned” see:http://www.cio.com/archive/031503/cigna_sidebar_1.html

14. Bocij, Paul, Business information systems : technology, development and management for the e-business, 2nd Edition, Financial Times / Prentice Hall, 2003

15. “BCBS case study”: see: http://www.cio.com/archive/051503/crm.html

Appendices

In the paper of Lawrence A. Crosby(2002), he illustrated six “myths”

Myth 1. CRM is about information technology.

Myth 2. In an age of ’’1-to-1 marketing’’, market segmentation is no longer meaningful.

Myth 3. Customer satisfaction, perceived quality, perceived value, and loyalty are interchangeable measures of relationship.

Myth 4. Customer relationship management and brand strategy have different objectives and can be

approached independently.

Myth 5. Putting a lot of customer data in the hands of employees will automatically make them good relationship managers.

Myth 6. Once the leadership team decides to pursue a customer relationship strategy, the responsibility for implementation can be delegated to others in the organization.