Targeting United Kingdom Manufacturing Companies - Article Example

Customer Relationship Management: Targeting UK Manufacturing Companies Literature Review Customer Relationship Management (CRM) is a process or methodology used to learn more about customers' needs and behaviors in order to develop stronger relationships with them (ASQ Sigma Forum, 2005). CRM is a cross-functional process for achieving a continuing dialogue with customers, across all their contact and access points, with personalized treatment of the most valuable customers (Jain and Singh, 2002), to increase customer retention and the effectiveness of marketing initiatives. The most salient feature of the above definition is that customer relationship management is treated as an organizational process (Grönroos 1990; Parvatiyar and Sheth 2000). The objective is increasing the rate of retention and the efficiency of marketing programs in recognition of the profit rewards (Reinartz and Kumar 2000). The intent is to integrate information from diverse sources such as direct sales, telesales, websites, customer service, resellers and channel partners, to arrive at a coherent picture of the customer and to be able to better serve that customer. The one-to-one or personalized marketing approach emphasizes that different customers be treated differently (Peppers and Rogers 1997). The rationale is that customers vary in their future economic value and that superior returns are realized by allocating resources toward the retention and growth of the most valuable customers. The definition also includes the objective of increasing the rate of retention and the efficiency of marketing programs in recognition of the profit rewards (Kalwani and Narayandas 1995; Reichheld 1996; Reinartz and Kumar 2000; Schmittlein, et al., 1987). Another ingredient of customer relationship management is trackable, timely and comprehensive information, obtained through an on-going dialogue with each customer (Day and van den Bulte, 2002). Successful CRM depends on how well the firm elicits and manages the sharing of this information, and then converts it into knowledge that can be used to change how the organization collectively behaves toward the customer. The capability to manage such information is, in principle, facilitated by the availability of data-base management tools, customer information systems, and sales automation software that have come to be identified with CRM in all too many applications. The intent is to better organize customer-relevant data so sales staff can close deals faster, customer service can be streamlined, and communications can be personalized. The organizational configuration provides the context in which the customer information and knowledge flows are embedded, activated and used. Salient aspects include organizational structure, incentives and rewards, resource commitments, and the activities and processes that enable personalized solutions. The appropriate configuration is firstly a consequence of viewing the customer relating capability as implemented through an organizational process (Srivastava et al 1999). Effective management of this process requires multi-functional teams working together to meet the needs of distinct customer groups. This is more likely to be achieved when the organization is structured around customer groups, rather than vertical functional hierarchies that impede the sharing of information and alignment of purpose. Competitive Strategy A strategy specifies how a business intends to compete in the markets it chooses to serve. This also provides a central theme for guiding and coordinating core processes and functional activities – and thus gives meaning and direction to the firm’s use of its customer relating capability. The choice of strategy carries through to the allocation of resources and the coordination of functional activities, dictates which capabilities must be distinctive versus merely on par, and prescribes performance metrics and goals. Our primary interest is whether the management of customer relationships for long-run advantage is the main thrust of the strategy or only a subordinate priority. This, we expect, determines how engaged the key implementers are with CRM and how willing they are to carry it through. Such commitment is based on collective confidence that the strategy is sound and the organization is able to implement it. This confidence will be undermined by hesitant and intermittent support by the leadership. A second dimension of interest is the motivation or rationale for pursuing a customer relating strategy. If the motivation is defensive, with the intent of imitating or catching up to competitors the objective is limited to avoiding a disadvantage. But if the motivation is primarily offensive, the objective is to offer customers a value proposition the competition can’t equal, and the there is a much better chance that the organization will indeed enjoy a positional advantage. CRM helps businesses use technology and human resources to gain insight into the behavior of customers and the value of those customers. There are many technological components to CRM. CRM is as a process that will help bring together lots of pieces of information about customers, sales, marketing effectiveness, responsiveness and market trends. Using CRM, a business can provide better customer service, increase customer revenues, discover new customers, cross sell/up sell products more effectively, help sales staff close deals faster, make call centers more efficient and simplify marketing and sales processes. The ability to have a dialogue across all customer contact points is an essential ingredient of CRM (McKenzie 2001, Peppers and Rogers 1997, Imhoff et al. 2001, Sawhney and Zabin 2001). In the Rogers Theory of Diffusion relating to CRM technology, the theoretical basis for this study is diffusion of innovation (Rogers, 1976) and innovation resistance (Ram 1987). Rogers's (1976) framework had been developed over the last 20 years and although it was traditionally designed to assess agriculture, it has been successfully applied to IT in recent years. According to Rogers, diffusion is the process by which an innovation is communicated through certain channels over time among the members of a social system, and an innovation is an idea, object or practice which is perceived as new by an individual or another unit of adoption (Kautz, 2000). The process of diffusion is largely an information seeking and processing activity, which forms five distinct stages from first knowledge to the decision to adopt or reject it. The framework then looks at innovativeness, effectively understanding that a small group of innovators must 'pilot' an innovation before it becomes widely adopted (Palmer, 2002). It finally looks at the innovation itself and how its attributes have a profound effect on the chances of successful adoption. The United Kingdom local authorities' body streamlines view of customers and improves services. The Local Government Association (LGA) represents the local authorities of England and Wales. It has four hundred fifty members in total which acts as lobbying organisation on their behalf, organises conferences, publishes a range of publications, and provides an enquiry service. Through the years it has created a huge database of around 50,000 contacts and needs a range of supporting functions. Over time, dozens of islands of information had grown up, built around different technologies, which made it increasingly difficult for anyone to get a full picture of the LGA’s activities. Because the LGA's legacy systems could not communicate with each other, it was decided to consolidate all the contacts and their related activities into a single system making it accessible to everyone in the organisation. To do so, the LGA’s IT infrastructure was significantly upgraded and a fully-integrated Microsoft® CRM (now part of Microsoft Dynamics™) with third-party add-ons was introduced. Based on the Darwin Exceutive Guides, the types of data CRM projects collect are responses to campaigns, shipping and fulfillment dates, sales and purchase data, account information and web registration data. A central goal of every business is to serve its customers. For as long as there have been merchants, success or failure has hinged on this simple rule. Customer Relationship Management (CRM) is a way of using technology to do just that. There are many pieces of software available that offer customer relationship management features, but in reality, CRM goes beyond software implementation. It is a business strategy that often involves using multiple pieces of software, as well as implementing policies that promote the collection of customer information, and the use of that information by individuals throughout the company in order to maximize customer service and increase sales. The customer relationship management system is an enterprise system, which means that it spans multiple departments. Virtually all departments within a corporation have at least some indirect access to customers, or customer information; the goal of CRM is to collect that information in a central repository, analyze it, and make it available to all departments. For example, a company's call center may have a "screen pop," a small application that is connected to the phone system. This application, which is a type of CRM, automatically senses who is calling, and by the time the agent answers the phone, produces a screen on the computer that lists important information about the caller, such as what they have purchased in the past, what they are likely to buy in the future, and what products the company may have available that would go well with what the customer has already bought. This "screen pop" is made up of several bits of information from different databases; it may draw on information from the accounting department to show the agent what their current balance may be; it may draw on information from the sales department to show what has been purchased recently, and it may draw on information from the credit department to show the agent what terms can be offered. Because a customer relationship management system is so complex, often involving multiple silos of information and multiple pieces of software, all tied together in a single interface, it's often hard to set up. Some larger companies use an integrator to put the CRM system together. Because of the complexity of CRM, smaller companies often see it as too expensive. However, even the smallest company can implement a CRM strategy. While a Fortune 500 company may spend hundreds of thousands of dollars annually on customer relationship management, a small one-man shop may even handle CRM with a box of index cards and a ball point pen. Midsize companies may use simple, off-the-shelf software such as contact managers and spreadsheets, and still have a very effective CRM system that can help them to serve customers in the best possible way, and to make the most advantageous use of information that has been collected If hosted CRM floats your boat, the current fiscal year is going to be an exciting year. The noise created by salesforce.com and others over the last few years has created a momentum for hosted offerings in the CRM market as a whole. The vendors are heading down the hosted route faster than their customers and prospects, but if they create enough momentum some end-users may be dragged there more quickly than they were planning. A lot of the new action is going on at the low end of the SMB market. In October 2005, Sage, one of the largest suppliers of business applications to small businesses in Europe, announced a hosted version of its CRM Mid-Market Edition (the former ACCPAC). Badged SageCRM.com, it is to be sold to small businesses via the same channels as ACT!, Sage’s on-premise CRM product for small businesses. Sage will not be alone in offering hosted CRM to small businesses. There are already well established vendors like NetSuite, a pure hosted play and a host of other “me too” vendors that have emerged in the last few years; some of whom will probably fall by the wayside given the increased competition. Microsoft is set to join the fray. It has just released V3.0 of its own CRM product, and whilst it is still mostly sold as an on-premise product, it too has an eye on the hosted market. In theory, Microsoft Dynamics CRM is still not suited for hosting because it does not support multi-tenancy installations (that is running a number of customers on the same server). But, this has not deterred some Microsoft partners from going full steam ahead. Aspective, a UK based CRM specialist, has launched a hosted CRM service based on the Microsoft product. Each customer will have to have their own server and Aspective limits deployments to a minimum of 10 users. It says this will enable it to maintain profits and still have a competitive per-user price. Hardware must be getting cheap – back in 2000/2001 many of the early providers of hosted products failed because they could not make a profit with such a model. But it is not just about the cost of hardware. For example, RightNow delivers its product as either on premise or hosted, but it charges the same price in either case. It claims it can do this because it’s as cheap to buy hardware and support customers on its own infrastructure as it is to supply and support on premise software. RightNow, like salesforce.com, is more focussed on the mid-market and enterprises. As is Siebel, the grand-daddy of CRM. It has also been plugging away in the hosted CRM market with its own Siebel OnDemand product. IBM, who is Siebel’s largest go to market partner for this product, sees it as part of its drive to get a bigger slice of the mid-market through managed services. But the relationship between the two is clouded by the probable takeover of Siebel by Oracle. Oracle itself has been mumbling about hosting its products as has the other giant of the business applications market – SAP. There is a lot of activity from the big vendors then; some of which are creating opportunities for the channel. It must be daunting for smaller ISVs and resellers who sell their software with on-premise licences, who may think they are missing out on the hosted action – don’t despair – there are specialists out there ready to help. For example, 7 Global, a UK based specialist in helping software vendors adapt their technology and business model to enable them to go down the hosted route (Leeflang, 2000). On the other hand you might just want to sit back, watch the bun fight, and see if the users start following the vendors who have already committed to the hosted model – but beware, indications are that, in the long-term, they will. CRM gets in your face (Madeleine Acey). Why do SAP and Oracle, leaders in the Customer Relationship Management (CRM) market, advertise at Heathrow airport, rather than just in IT magazines? An example of CRM in a manufacturing company, The Body Shop runs SAP," declared a poster campaign on my way to baggage claim last month. I thought of the SAP CEO. "That'll be news to Henning Kagermann." The companies' answer would be that specialist business software is no longer the preserve of the IT director. Apparently, everybody's buying it. Companies' budgets for CRM applications and services are projected to grow by more than 8 per cent this year, compared to flat growth for the last two years, according to AMR Research of Boston. CRM systems used to be big, expensive and sometimes cumbersome. Aimed at large companies as a way of helping to retain existing customers - therefore saving the cost of winning new ones - they received a bad press. Implementation projects were often late, over budget and rarely delivered on their promises for high return on investment. But, the analysts say, the market has matured. New, lean, nimble players are offering smaller, sometimes modular systems and many are hosted online services - avoiding the need for messy installation projects. SMEs are signing up for these services and department heads within larger organisations are sourcing their own bespoke systems. AMR, an IT market watcher, said last month that with the 8 per cent increase in CRM budgets the market would be worth $12.3 billion in 2006 and $15.7 billion by 2009. Rob Bois, lead author of the AMR study, said that the boost was coming from the online services. Fran Howarth, practice leader at UK-based IT analysts Bloor Research, said that many customers had been burnt by long CRM system implementations that ran over time and over budget, so they had turned to smaller, hosted implementations that addressed specific needs. Recently, the market had now matured. Suppliers are now providing what users want - cheaper, smaller and off-site solutions. Some industry watchers say that over several years, the total cost of ownership of some of the hosted services is nearly equal to that of in-house systems. Of those surveyed, 40 per cent were already using hosted CRM offerings. Mr Bois said that what was more impressive was that larger companies were embracing the online products. "SaaS" (software as a service) deployment was planned by 28 per cent of corporations, 39 per cent of large companies and 41 per cent of SMEs, he said. Priorities had also changed. Buyers said they were motivated by generating revenue, not cutting costs. Nearly 45 per cent of respondents said that increased revenue was the main reason for installing customer management software in 2005. Time-saving and cost-cutting reasons fell to the bottom of the list. It was just like the good old days. A small dot.com company based in Silicon Valley, with a snappy name and three co-founders in their 30s, announced that it had scooped millions of dollars in venture capital funding. If this was 1999, you would now be reading about the latest internet pet food store or a brand new player in the online delivery space – a rival to pets.com, kozmo.com or, at a push, flooz.com. But the investment was actually made last month. Almost £10 million of third-round funding poured into the coffers of SugarCRM.com, the one of the latest players in the new star of the internet commerce space – customer relationship management as a hosted, online service. If you believe SugarCRM, the investment led by New Enterprise Associates (NEA) was practically pushed on to them. "Although we were not actively looking to raise additional capital…" began CEO John Roberts, going on to explain why he had decided to accept the cash after all. It is easy to understand the VCs' interest. SugarCRM's Sugar On-Demand service belongs in a small but rapidly expanding corner of the CRM industry – one that allows people to subscribe to CRM applications, hosted on the supplier's servers. SugarCRM, which also lets people download their open-source software and run it themselves, is one of the smaller members of a growing stable including Salesforce.com, RightNow, Sage (which launched its hosted version last month) and Siebel's own Siebel OnDemand. One of the key selling points of the CRM-on-demand model is the way it removes all the headaches of software installation and network maintenance. Users just pay their regular fee, per user, per month, upload all their customer data and log on through the internet wherever they are (Darwin’s Executive Guide, 2005). There is also the fact that users can try out an online service with a small section of their sales team, rolling it out further only if they like it – without having to risk huge chunks of their IT budget on a huge software installation. But installation and software fees are not the only headaches facing IT departments these days. There is also the question of security of customer data and the related issue of compliance – the ever growing piles of legislation forcing companies to account for more and more of the information flowing over their systems (Times Online, 2005). Worries about compliance could be seen as an obstacle to the on-demand industry – why take the extra risk of storing your valuable customer data on somebody else's machines? But suppliers of CRM on-tap are actually doing all they cam to turn those concerns to their advantage – compliance as yet another reason to sign on online. The IT manager in charge of a company's in-house CRM system has scores of other issues pressing on his time – everything from spam in the internal e-mail system to employees downloading porn at their desktops. On the other hand, say the marketing departments of hosted CRM suppliers, their technicians only have one job to perform – protecting their customers' data. When it comes to small and medium-sized businesses, they add, the security systems maintained by the centralised suppliers often out-smarts the security measures installed by their customers (Wu and Chen, 2000). Few new online service launches are complete without a couple of paragraphs boasting about their ability to comply with a list of regulatory acronyms (Shawinski, 2004). Citrix's hosted GoToAssist technical support system, for example, "incorporates strong security and complete data privacy with 128-bit, end-to-end Advanced Encryption Standard (AES) data encryption as standard protection for all sessions, and enables compliance with the Health Insurance Portability and Accountability Act (HIPAA) and the Gramm-Leach-Bliley Act (GLBA)" (The Unofficial Ad:Tech 05 London, 2005) In other words sit back, forget your technology worries and trust us with your data. Not unlike the sales pitch of a tech-boom era dot.com. While CRM software overall managed double-digit growth for the first time in five years, hosted software rocketed by 105 percent in 2004. According to AMR Research, there is now a new pecking order, with SAP CRM unseating Siebel as the market revenue leader following a 30 percent sales increase in 2004. Key findings from AMR show that the overall CRM applications market grew by 10 percent in 2004. Across the top 40 customer management vendors evaluated in the report, five grew at over 50 percent from 2003-2004 (Concerto, Digital River, Salesforce.com, RightNow Technologies, and Unica). Microsoft, another winner, topped 3,500 customers and recorded 32 percent growth. The overall growth record was helped considerably by the hosted suppliers. Two leaders in the hosted CRM market, RightNow Technologies and salesforce.com, enjoyed 97 percent and 83 percent growth rates, respectively. Salesforce.com rocketed from number 22 to 12 in terms of total CRM revenue. Nonetheless, AMR points out that the market is still led by traditional installed-base application vendors. Despite the rise of CRM and the success of companies like Siebel, Salesforce.com and RightNow, most UK consumers are still unhappy with the service they receive U.K. companies are still struggling to retain customers as poor service, with endless waits on the telephone cited as major reasons for customers to move, a major survey has revealed. Some 65 percent of British consumers have withdrawn their custom because of poor customer service experiences and over a quarter (27 percent) vowed never to return, according to the UK Customer Experience Report 2006 from Harris Interactive. (CRMTutorial.com ). The same survey revealed that good service is extremely high on most consumers agenda with 78 percent saying they would give more business to companies that provided good service, indicating that good service is as important to many consumers as price. The survey of 2,300 British consumers was conducted at the end of last year and commissioned by RightNow, an on-demand CRM vendor. Overall, the survey indicated that the customer experience in the UK is a bleak one with respondents saying that a quarter (26 percent) of their customer service experiences in the last year have been negative. The survey also indicated that the penalties for losing customers can be high Co-operative Financial Services Sustainability Report 2003. More than half of respondents (53 percent) said they would need evidence that an organisation's customer service had improved before they would think of returning to a company that had upset them and 48 percent saying that an organisation would have to prove is "valued their custom" based on the Co-operative Financial Services Sustainability Report (2003). According to Wayne Foncette, RightNow's UK vice-president, the long-standing issue of balancing cost and customer service remains unresolved. "We know that consumers vote with their feet and defect if the customer experience isn't up to scratch; we also know that businesses are being mandated to control or reduce operating costs," he said. "It's a Catch-22 situation: either spend money to improve the customer experience or cut costs and risk losing customers." Foncette admits he does not have all the answers but says that "what's needed is a breakthrough to resolve this service/cost dilemma that drives enriched customer experience across all key interactions." Foncette believes that companies have to reduce their cynicism and believe that "positive customer experiences have a major impact on consumers' brand perception". He points to the 78 percent of participants in the Harris survey who said that they would be "most likely, greatly or somewhat" to increase their custom on the basis of consistently excellent service (Barker, 2006). 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