The Conditions when a Comprehensive CRM Program Becomes Useful for an Organization - Research Paper Example

Use Relationship Management Gives Operations A Higher Level of Efficiency Introduction The new buzzword in operations management is Customer Relationship Management (CRM), which at its best allows companies to attract customers in larger numbers and maintain their loyalty. Before the CRM system took the business world by storm, most companies customarily court customers only for that one big sale, which is no way to nurture long-term profitability. Studies also show that most efforts at establishing a long-term relationship with customers actually achieve the opposite results. A survey of 300 US firms in the automotive, financial services, high-tech and travel industries (Shankar, 2001), for example, noted that the business models and organizational structures of these firms bring them farther instead of closer to their target customers, mainly because of the rapidly changing business environment of today. This paper seeks to highlight the conditions when a comprehensive CRM program becomes useful even necessary for an organization, what processes and operational aspects should be the focus of this program, its possible risks and benefits, and what is the best CRM model a company experiencing a particular customer relationship problem can adopt. For this purpose, the essay sets a scenario involving a manufacturing firm, which we shall call Company A, whose interaction with customers can stand improvement. With this in mind, one of the company executives presented a blueprint for a CRM program for the consideration of top management. Management was duly impressed and appointed the executive as consultant to study and handle the program's implementation. Two weeks after the consultant's appointment, the Managing Director calls his attention to complaints over the way company operations and employees' behavior fail to promote good customer relations. In effect, the problem is laid at the door of the Operations Manager, who has direct responsibility for company processes and people that affect its dealings with customers. Thus, operations become the main target of the consultant's study to determine how the company can adopt and benefit from CRM. This paper assumes the role of the consultant as it evaluates the problem and proposes a specific CRM plan based on a study of how the company's people, processes and operations can be realigned and managed for them to interact better with customers. 2. The Problem in Perspective CRM is all about systematic gathering and retrieval of customer-related data and is thus associated with the Internet and computers, which skill is not among the criteria used in hiring managers, especially operations managers. Operations managers are usually hired more for their decision-making and people handling abilities than for their computer skills, such that insufficient knowledge of information management restricts their control of overall operations (Boughman, 2003). They may be knowledgeable about the company's processes and people but this does not make for good customer relations if the operations manager has no access to the wealth of information about customers offered by a CRM system. The problem is worse at Company A, where the study found that the operations manager lacks control even over the attitudes of the staff, which as a rule has been described as flippant and rude to customers. There is no open line of communication between the front office and the backroom office. This lack of coordination often results in the gathering of customer records that are either inaccurate or incomplete, while purchase orders often get lost in the shuffle. Missing in customer records are such vital data as names, addresses, purchase histories, service and support contacts. Readily available knowledge about customers and their buying patterns is considered one of the most valuable assets of a business organization. A company without any geographic and demographic information about its customers cannot engage in market segmentation, which is vital in promoting corporate names and brands. This condition obtains at the company under study. Let us say this company has a product of interest to single males age 25-35. Without a CRM system containing relevant consumer data, the firm will be hard put to isolate this market for an effective marketing campaign. With a database containing such information, however, it can simply send a flyer to this market. (Crown Online). The CRM literature suggests a checklist on customer-centered operations, which consists of these questions: Do you know who visit your web site Can real customers find you with ease Can they get what they want when they find you Will customers return to your site Can the customers place an order easily Can such order be delivered without hassle Do your provide after-sale service and support What do you know about your customers From the study of the make-believe company, it cannot provide satisfactory answers to these questions because the acknowledged building blocks of CRM are absent in its organizational setup. These include a database on customers, a software to support agents in direct contact with customers, customer interaction systems such as an interactive web site or an automated phone system, statistical analysis software, and another interactive software to help and support its web site visitors. 3. Addressing the Problem The best CRM strategy calls for a two-step process in enhancing a company's relationship with customers. In the car dealership industry, for example, the recommended first step involves a database analysis, in which the companies can utilize the information already on file in their Dealer Management System (DMS) to identify the marketing opportunities quickly. The DMS data usually consist of sales-to-service benchmarking, consumer geographic studies and vehicle ownership analysis. The next step is refining the marketing expenditure so that a portion of the budget is channeled to the less expensive marketing techniques of interacting with customers through direct mail, telephone or e-mail. The reason is that less than 10 percent of consumers who see newspaper or TV advertisements are actually in the market for a vehicle but nearly all of the customers in the DMS data know people who are (Kavanaugh, 2004). A common mistake in the use of CRM is thinking of the system as an IT function. Operations managers believe that once they acquired the software system, the technology will do the rest. Actually, the software is just one part of CRM whose function is to automate operations to collect in real time the lifecycle behavior of customers so this can be measured against the key performance indicators and help an organization achieve its customer relationship goals (Wikipedia). There are three facets to CRM: operational, collaborative and analytical CRM. The operational aspect is intended to support the front office and business processes, including the sales, marketing and service units. Its main objective is improve interaction with customers and thus considers that customers have different needs and behavior and should be handled differently. This calls for a database recording the history of contacts with customers, which information should be within the fingertips of the staff. As for collaborative CRM, this covers the direct interaction with customer and may involved different channels like the Internet, e-mail, and automated answering systems. Various departments in an organization pool the customer data gathered by different sales and communication channels for the purpose of reducing operational costs and improving service. This also includes a system called Partner Relationship Management, in which the organization manages relations with consultants, re-sellers and distributors. The analytical CRM, on the other hand, uses predictive analysis on customer data for such purposes as optimizing the company's marketing effort; designing and implementing customer-oriented campaigns such as cross-selling and up-selling, acquisition and retention; aiding product and service decisions on pricing, product development and other activities; enhancing management decisions on financial forecasting; and assessing risks. CRM is an ideal response to the 80/20 principle in business, which dictates that 80 percent of business comes from 20 percent of customers. The goal of every company is to gain intimate knowledge of this 20 percent. The problem is that attracting new customers is 10 times more costly than servicing existing one, so this justifies an investment in CRM (Crown Online). 4. CRM Concepts and Theories Customer relationship management (CRM) is defined as a holistic approach comprising a broad category of concepts, tools, policies and processes that allow an organization to understand and serve better everyone it comes in contact with, and even include frontline customer service, employee training, marketing, systems and information management (Crown Online; Wikipedia Online). The "customer" in CRM represents not only those targeted to patronize a company's product or services but also the suppliers, partners, investors and employees. Each of these stakeholders has specific and unique requirements, such that when dealing with an organization they need to be handled differently. CRM integrates all business processes involved in the direct interaction with customers - customer and field support, marketing, sales and purchasing (Aldhizer & Cashell, 2004). The CRM task is collecting data in one place, making this data readily available across the organization, identifying the best customers, finding more like them, figuring out their specific needs and turning prospective and first-time buyers into long-term, loyal customers (Henricks, 2000). The Internet-based CRM fills a critical need in the manufacturing sector for a system that would allow operations managers to get on top of overall operations, including information management (Boughman, 2003). A 2001 survey of 423 large firms conducted by KPMG consulting and accounting firm revealed that 67 percent of these companies manage customer-related information by putting up a knowledge bank whose function is to update policies and distribute manuals. However, there is no certainty that the information collected through this process is truly understood and made available 24 hours a day, 7 days a week to all company personnel. If someone in the organization needs to ask something, it is doubtful if this flows through the organization and elicit an appropriate answer. Worse, if a department head leaves, it will take time before the replacement becomes familiar with the knowledge bank. CRM was non-existent only a few years ago. The global sales of CRM software shot up starting 2004 and this may just be the beginning of the CRM boom, said David Tinjum, founder-CEO of Customer FX, a solutions provider in Minnesota. Even educational institutions jumping into the CRM bandwagon for better student relationship management, and many other such evolutions are expected in the years ahead (Henricks, 2000). International Data Corp. surveyed 30 large US and European companies regarding their use of CRM and found that 57 percent of these firms achieved a positive return on investment after 1 year of CRM implementation. The rest of the surveyed companies profited from the system within three years of CRM-based operational management (Aldhizer & Cashell, 2004). In the next few years, InformationWeek.com estimates the value of the CRM software market to reach $20 billion. The concept for CRM started to crystallize in the 1960s when Sears, book clubs and newsletter publishers separately engaged in direct mail marketing to mine data regarding customer demographics, interests and preferences. With the advent of the Internet, CRM really took off to systematize the tasks of collecting data in one place, making this widely available, identifying the best customers, finding more like them, figuring out their needs, and turning prospective and first-time buyers into loyal customers (Henricks, 2000). A CRM software is essentially a means to address the needs of marketing, sales and distribution, and customer service and support divisions of an organization to allow the three to share data on business prospects, customers, partners, competitors and employees. The idea is to manage customer relationship through the entire lifecycle, which means the cycle from childhood to adulthood, from marriage to retirement. An example of a successful CRM is Earthcars.com Inc., a US developer of software and web sites for automotive dealers. Anytime its people learn of a customer complaint, question or comment, they would turn on a laptop, log on to the Internet and enter the information in a special online service called Agillion Notes. The information then becomes available online to any of the 11 employees of Earthcars. A growing number of CRM providers, including Agillion and Salesforce.com, deliver their services online, requiring only that client firms have a computer, Internet access and browser software. 3.a. Benefits CRM provides the backbone for the development of better communication channels, collection of vital data and creation of detailed profiles on customer preferences. It also allows company-wide access to these customer data in real time, considerably reducing operating costs in the process. On the traditional offline establishment in UK, for example, contacting a customer through telephone or call center costs 25 pounds but only 2 pounds via the website. The system also enables cross selling due to a single point of contact with the company. The other proven benefits include its ability to attract more new customers with and to close deals faster, simplified marketing and sales processes, better customer service through improved responsiveness and understanding of their needs. It also isolates marketing campaigns that drive the most ideal quality leads, improves internal efficiency, provides complete customer histories and enables a company to provide the appropriate support to efforts aimed at retaining customers. The integration of all business processes useful in interacting with customers translates to customer satisfaction and increased revenues because CRM ensures that personnel across the company from accounting, marketing, call center, and sales can obtain in real time the information they need to do their jobs effectively and efficiently (Aldhizer & Cashell, 2004). Automotive retailing is among the industries that benefits handsomely from CRM because of the opportunity it offers in increasing profitability and dealership competitiveness for this sector. The Deloitte & Touche auditing firm studied members of the National Automobile Dealers Association in the US and found that most experienced a 5 percent increase in their customer retention capability with the use of CRM in operational management. Such an increase results in a 25 percent improvement in operating profit of the involved car dealers (Kavanaugh, 2001). Without a CRM system in place, the automotive dealers in the study retained business for only 1 out of every 4 customers. The customer retention program under CRM ushered in a situation in which one-time customers are seven times more likely to come to the same dealer when they need to buy a new vehicle. The nature of the car dealership business is such that companies already have all the customer data they need, and all that is needed is for them to leverage that information. 3.b. Challenges Despite its clear advantages, CRM also comes not without challenges and risks. Most of the risks fall under the responsibility of company's internal auditors, who must see that the data inputs, sales discount policies, access and security issues are identified and controlled. It is also important that the other operating departments see that call centers are functioning well. If call center operations are ineffective, this is apt to alienate customers and force them to take their business elsewhere (Aldhizer & Cashell, 2004). In the case of automotive dealers that made good use of CRM (Kavanaugh, 2001), this operational management system may not yield the expected result if it incorporates only the required information technology, and the products and services. The system must also include the people and processes that make those services work for the customer. A common mistake is assuming that once you purchase the pertinent software, the CRM will do the rest of the job. Studies show that 70 percent of CRM put to work in this manner fell short of expectations (Henricks, 2000). For CRM to yield maximum benefits, it must be taken as a multi-step exercise. The first step calls for analyzing all individual customers based on sales volume and profit trends, then selecting the best and most profitable customers and identifying their needs. This should be succeeded by attempts to make more sales to this type of customers and trying to locate more of them. Consequently, it requires that the organization stops serving the less profitable customers - those too small in size to be worth the trouble or those who actually cost more resources to serve. The Internet is an ideal platform for attracting customers, but once an organization locates a customer, the challenge is to add value to the new relationship to retain that customer. A software company has discovered a technique for getting to know the customer and building a long-term relationship. First, it allows customers to register at its web site, then downloads an industry-related document and phones the prospect with two hours to make sure the information was received. The company later followed up the call by a letter making the sales pitch (Crown Online). Another proven way of adding value to the customer relationship is by producing newsletters that can be delivered online or by e-mail, containing general information about the industry an organization is engaged in or announcements related to its products or services. Newsletters discussing 2 or 3 concepts are simple and inexpensive to produce and deliver. E-business is no different from traditional business as to the need to understand customers and delivering their expectations. 4. Operational CRM Plan Implementing a successful CRM involves recasting the whole business culture. It is no longer enough to say that the company's operations are customer-driven or customer-focused. A study of 300 US firms in automotive, energy, financial services, high-tech and travel industries (Shankar, 2001) whose operations managers claim such an orientation revealed that their organizational structures and business models Business operations that revolve around providing customer value, for one, will have to give way to the principle of customized value. Company operations that are supposed to be customer-centered or market driven may lead to a product trap in which operations are organized mainly around products rather than around customers. That's customer value, for you, which actually puts a premium on the value of the product at the expense of customized value. Customized value is creating and delivering value solutions to each customer or customer group, which means creating new experiences for customers through CRM programs, e-chat customer communities and even collaborative activities with customers in product design and customization. The imperative for the company under study is to ensure that its accounting and marketing departments, call center agents and sales representatives get the information they need to do their jobs effectively and efficiently. The operations manager must see to it that the call centers and other direct customer links are operating well because if call centers are ineffective, this could alienate customers and take their business elsewhere (Aldhizer & Cashell, 2004). Some of the recommended CRM activities for brick-and-mortar organizations that are evolving into "hybrid" click-and-mortar establishments: Conduct a customer-centered e-business audit of the business unit. Set a new e-business vision, goal and measures. Perform a customer-centered e-business gap analysis. Formulate a new e-strategy, initiatives and implementation. Set up a revised e-partnership initiative. Design and monitor a customer-focused e-business scorecard. Revise the organizational culture, including the hiring and retention process for employees. (Henricks, 2000) For businesses that sell to other businesses, the recommended CRM software are ACT! and Goldmine for smaller firms, SalesLogic and Pivotal for medium enterprises and SiebelSystems for large corporations. References: Aldhizer III, C. & Cashell, J. (2004). "Customer Relationship Management: Risks and Controls." Internal Auditor, December 2004. Boughman, V. (2003). "An IT System that Pulls Staff Together: CRM." Medquest Communications LLC. Crown (2004). "Customer Relationship Management." Available online at: http://www. Is4profit.com/business-advice/it-telecoms/crm-customer-relationship-management_6.html Henricks, M. (2000). "CRM: More than a Fling." Entrepreneur Media Inc., September 2000. Kavanaugh, K. (2001). "More Than Just Technology - CRM." Business Magazines & Media Inc., June 2001. Shankar, V. (2001). "CRM: Getting to Know You." The Chief Executive Publishing, January 2001. Wikipedia. "Customer Relationship Management." Available online at: http://en-wikipedia.org/wiki/Customer relationship management Read More