CRM and customer service: strategic asset or corporate overhead?

Alan Smith

Alan D. Smith is Professor of Operations Management at Morris University, located in Pittsburgh, PA. He can be reached at smitha@rmu.edu or Tel: (412) 262-8496 (ofce).

Customer relationship management (CRM) has been recognized since the mid-1990s; due mainly to the fact that many industries were experiencing increased demand from their customers for higher quality and less fuzzy access to service. This emphasis on renewed customer service drove corporations and the top managers to rethink the traditional ways of providing service. Originally, CRM was dened as a strategic relationship managing process that combined the best business practices, resources, knowledge and appropriate CRM software of a company to better serve its customer's personalized needs and to increase customer loyalty. This original view of CRM was heavily dependent on information technology (IT) support and software development. The original focus of these systems was to be an outward-facing customer interaction process designed to supplement the disadvantage of a company's inward-facing IT process. The aggressive growth of technology and the Internet revolution of the 1990s provided a platform for CRM by establishing a brand new direct sales channel with rapid customer interaction and shorter sales cycles. However, the initial euphoria about CRM did not last long. Companies and business leaders soon found the discrepancy between idealized CRM and reality. This group did not ``see'' immediate links between their investment in CRM and increased rm performance. According to the CRM Market Research done by Hewson Group, an independent UK-based organization specializing in market analysis and consultancy in the CRM area, CRM vendor companies have been particularly affected by the backlash from overinvestment in 1999-2001, and this has caused an increase in concern in the market about what the return-on-investment (ROI) from CRM investments should be. Yet in the meantime, consumer demand for better service has not diminished. The Hewson Group Market Research also shows the total market value of CRM systems in 2003 as $8.8 billion compared to $7.4 billion in 2001 (Compton, 2004; 2005a, b, c). According to a survey conducted by Gartner Executive programs of nearly 1,000 CIO's, two out of three CIO's consider CRM efforts in 2004 a high priority. CRM is ranked in the top third of all IT spending priorities-indicated by the December 2003 Morgan Stanley CIO Survey. Why does the paradox exist? Is CRM a competitive advantage for a company or merely a hypothesis?

To strategically understand CRM, we must learn from past project failures. These failures include: over stressing the functionality of CRM; not having a front-to-back CRM solution for customer service (this includes employee education on the benets of CRM solutions and procedures on front line follow-up); and not having the corporate culture to support the implementation of CRM. Continually monitoring of customer satisfaction and behavior and measuring successes with benchmarking, without expectations of immediate prots, will help ensure that the processes continue to evolve in the best method.

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Business best practices

Improving customer service To better understand CRM, we must learn from past project failures. These failures include: over stressing the functionality of CRM; not having a front-to-back CRM solution for customer service (this includes employee education on the benets of CRM solutions and procedures on front line follow-up); and not having the corporate culture to support the implementation of CRM. Those that failed began to learn from their failures and from examples set by successful competitors or peer organizations. The following is a list of suggested practices for CRM. Analyze your customer Analysis of customer data is a key part of CRM. A solid analysis will provide companies with a clear picture of who their customer is and what their needs are. This information includes patterns and trends in consumer behavior, customer preferences, migratory tendencies, life style, and personal habits that will be used to predict and develop future business opportunities at a later stage. Be proactive Often enough, managers spend too much time and effort on solving customer complaints and problems (Levitan, 2004). The more they try to chase dissatised customers, the more they nd themselves in the same situation. To totally break this cycle, managers should rethink their views on customer support. They should focus on improving customer loyalty by proactively reaching out to them before they have a chance to become dissatised. In other words, they should provide options to the customers, and let them decide how, when, and where they would like to receive support information. Segment the customer Segment or divide customers in ways to better understand their preferences and to more efciently allocate resources based on the information. The benet is twofold. First, it enables companies to differentiate themselves by providing appropriate and suitable services for their customers' needs, therefore building up a competitive advantage. Second, it directs companies to where their most valuable customers are located and helps allocate major capital, effort and time to generate the most prot. The KLM Royal Dutch Airlines has implemented a CRM strategy by reviewing its passenger list that contains customer's frequent-yer status. Flight attendants can quickly transform the information into a warm personal greeting when the customer rst walks in. This small greeting will make a customer feel important. Initiatives like this resulted in a 5 percent revenue growth from existing KLM customers,

which is critical during the current airline nancial hardships (Krell, 2004). Empower and involve the internal staff CRM will not succeed if it is not clearly understood and properly practiced by managers and employees who directly interact with customers on the ``front lines.'' If a retail bank wants to focus on customer retention but its branch mangers do not have authority in local decision-making, it is hard to drive home customer success and loyalty. No matter where the ``customer moment'' exists, at your employee, your web site, or your information system, it has to provide the same consistent reliability, friendliness and accessibility (Levitan, 2004). Developing a knowledge base through interviews and surveys of key relationship managers, internal partners and executives of top tier customers in the areas that companies think are crucial to the relationship, will not only help corporations establish a useful guideline for customer service, but also educate the key internal people to understand the whole concept of CRM. A process such as this will ensure a consistent service front-to-back. After all, a happy customer is a loyal customer, and a loyal customer tends to be a protable customer (Levitan, 2004).

Customer support from the resource-based view (RBV) perspective

Customer support services The goal of customer support is to assist clients so that they can gain maximum value from their purchase (Gofn and New, 2001). Customer support systems can lead to new market opportunities and negate competitive threats; therefore, it can be a valuable resource for the rm (Barney, 1991; Michalisin et al., 1997, 2000; Rumelt, 1984). However, the strategy, philosophy, implementation and management of a customer support system can be non-substitutable and hard to imitate, thus making customer support a differentiating factor that gives one product a sustainable competitive advantage. The ability of the organization to ``apply policies, processes and technologies to provide personalized and engaging experience that is consistent across all customer interactions'' (West, 2001, p. 35) is critical to the success of a customer support system. Customer support systems have always been important; but with technological advances, products have become more reliable, and at the same time, more complex. This has caused a shift in the focus of customer support systems. The old focus was on fast and reliable repair, but since technology has led to the production of more reliable, but more complex products, the focus of customer service has switched to user training and online support. There has also been a move to evaluate customer support needs during the new product development process. This has evolved from the customer's demand for

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efcient and economic support system (Gofn and New, 2001). The fact that support systems are a source of revenue (often more revenue is generated from the customer service than from the original sale of the product) for the manufacturer means that this is an expense for the customer (cost of ownership). High customer support costs can lead to customer dissatisfaction (Loomba, 1996). The emphasis on customer support systems is critical for all businesses, regardless of the number of competitors. Regardless of the number of product manufacturers, the support received from the manufacturer can be the deciding factor for many consumers. After all, most customers are looking for ``trouble-free'' use of a product over its useful life (Loomba, 1998). Customer support can also be the determinant to whether existing customers return to buy new products. One can summarize the impact of customer support on rm performance, as suggested in Figure 1. Technology solutions Building an IT infrastructure for CRM is like building a bridge, it takes understanding a need, engineering, reviewing, building, and re-building. With technology abound, how does one choose the right technology to manage customer relationships? Technology takes various shapes and forms. Advances in hardware and software work together. As an example, machines with multiple processors and relational management systems that support massive parallel processing (MPP) have made it possible to analyze vast amount of data at staggering speeds. The costs of data storage have fallen to such levels that information derived from hundreds of millions of transactions relating to millions of customers can be held ``online'' and ready for use during brief ``human moments'' when the customer and company are in contact with each other. The global marketing environment has evolved signicantly over the past ve to ten years. The continuing maturation of the Internet, global competition and the innovation of new business models have all increased customer expectations. Customers want and expect to have a value-added relationship with the companies they deal with. Mass marketing, broad segmentation and super call centers are no longer enough to

reach prospects and customers. Today, premier marketers leverage technology tools and business processes in using data to put the customer in the center of the relationship. This requires one-to-one exchanges that are intelligent, relevant and protable to both marketers and customers. If an effective CRM strategy involves the integration of all customer touch points, clearly the implementation of most effective technology components are a key enabler of a company's marketing plan. Technology has long been used to manage individual contact channels including call centers, remote sales ofces and the Web. For most it is unlikely that one rivet (solution) will be found to hold the solution together. From a customer perspective, how CRM helps them provides a framework for choosing what technologies to deploy. Figure 2 demonstrates an example of a ``Solution nder'' model that a company can use with as a technology tool to improve the customer experience. Customers can choose how they wish to carry on a dialog with the company. To retain customers it is vital to keep a dialog going and keep the customer in control. Using the web, a customer with a need can complete a form. Depending on how this form is completed, the solution nder processes the request. Depending on the mode of communication or need a customer gets a call back, a text message or e-mail. Customers enjoy being in control of their relationship. With the information the customer provides, transactional information and a set of business rules, a company can choose various methods of customer contact (like e-mail and messaging), the timing and the message that is the most likely to connect to the customer. Digital printing For example, companies like SmithKline Beecham have a stop smoking plan for Europe. Since it is a US company, SmithKline had hurdles such as postal regulations, language barriers and cultural differences to contend with. Since their stop smoking plan was highly personalized this proved to be an intriguing issue. Providing highly personalized documentation and reference material was once just printed on standard stationary. With a new concept of digital printing, SmithKline can produce highly individualized color duplexes-program material in multiple languages on demand (Gilmore and Firing, 2002). CRM solutions Increasing companies need robust solutions in an enterprise basis to meet marketing objectives. Technology needs to help the company to optimize the value of customer relationship across channels and product lines. In today's environment CRM must be interactive. Major CRM application vendors provide solutions in three major components: marketing automation, sales force automation and customer support

Figure 1 Summarizing the impact of customer support on firm performance

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Figure 2 Modeling solutions to particular customer support problems based on technology (via a solution finder)

and eld service. These solutions are truly integrated front ofce applications that involve customer touch points in marketing, sales, help desk and even customer life-cycle management. Siebel Systems is the largest vendor in the CRM market. Initially a sales-focused tool, Seibel became a true CRM vendor by acquiring a call center technology organization several years ago. Siebel is client/server architecture, which means it has a program that runs on a PC with the data residing on a server or mainframe computer. Most newer competing applications today are web-enabled which means pretty much everything runs off of a server an a web browser on the PC side is basically a looking glass to the application. Siebel 99 was the initial entre e to the web-enabled environment and one of the rst CRM implementation. Siebel has a history of enabling large enterprises to view their customers. They key though will reverse engineer and enable the customers to enter via a browser the business they are dealing with. In the banking industry, Siebel has a product called Siebel Branch Teller, which provides complete support for traditional teller nancial transactions while offering relationship functions that give agents detailed customer insight. Agents now leverage the customer insight and sales and service tools at the point of service delivery to provide a value-added customer experience leading to improved customer satisfaction and retention as well as larger share of the wallet through improved cross-sell and up-sell capabilities. Vignette is another CRM program for the enterprise. This application is totally web-enabled and originates in the highend web publishing industry. Recently, Vignette purchased a company that delivers multi-channel delivery applications. The

new product, Multi-channel Server, allows companies to issue automated messages to customers from e-mails to fax and pagers (Gilmore and Firing, 20023). Personify is a CRM that has more focus on mining customer data through the Internet (or tracking and building databases to solve customer problems) along with predictive data modeling. Typically, this product is more of a customer intelligence type application. A unique product in the CRM industry it transforms all interactive information, including web and wireless data, into privacy-protected proles of customers (Conlin, 2001), which indicates a direction to more customer intelligence tracking. With so many vendors in the internet and CRM market, business will need to consider their technology investments while balancing two important concerns: rst, the technology must be able to efciently process and distribute the information needed by internal employees to sell the product or service and supporting the customer. Second, the technology must do an equally good job allowing customers to gather information through their selected channel of communication. As the integration of customer touch points is the cornerstone of an effective CRM strategy, the integration of several CRM technologies is often the best solution. A company many choose Vignette for personalization, personify for automated rules generalization and Siebel for call center and back ofce integration. Customers choosing the best of breed products stand the chance of creating silos of data. In other words databases will ll quickly with data. Converting that to useful information will be difcult. Acxiom, a world leader in database management services, has developed a solution that helps reduce ``silos''

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and provide real time solutions for consolidating customer data. For example, Acxiom's Abilitec is a customer data integration solutions that helps business consolidate customer les; understand their customers in real time; and augment/ cleanse their current data with external references. Abilitc combines real-time integration of services with a knowledge base of consumer names and addresses. As the integration of customer touch points is the cornerstone of CRM strategy, the integration of several CRM technologies may be the best solution as depicted in the model displayed in Figure 3. As consumers become savvy in their communications with businesses, especially using the internet, their demands and expectations will inevitably increase. Thus, a business's ability to implement the appropriate set of CRM technologies is no longer a competitive edge, but a requirement.

the probability and speed of positive change in the organization. Measuring the performance of the organization's customer service strategy provides feedback, which identies the strategy's overall effectiveness. It helps the organization realize the benets, showing how the organization's customer service strategy increases retention and loyalty, creates added value to the customers and contributes to a higher quality of products and services (Pfeffer et al., 1995). Customer service strategy and creating a CRM scorecard Brewton identies a ve-step process for effectively measuring a CRM strategy. These steps include: dening a CRM strategy and creating a strategy map; selecting CRM strategic measures; cascading CRM strategic measures; selecting and implementing a CRM performance measurement system; and entrenching the CRM strategy into the organization's culture (Brewton, 2004). The following is an analysis of these ve steps as they specically relate to customer service. Step 1: Define a CRM strategy and create a CRM strategy map The rst step in measuring the customer service strategy is for the organization to dene the objectives, processes, and focal points of the strategy. In dening the strategy, Brewton suggests that the organization utilize a tool called, a CRM Strategy Map, which graphically outlines the cause-and-effect chain of events of the strategy. These events identify the specic tactics and actions that are necessary for maximizing the success of the strategy. A CRM Strategy Map focuses on three key components: perspectives, themes, and linkages. Perspectives are the critical elements that inuence the execution of the strategy. Themes are the critical success factors that dene and drive the CRM strategy. Linkages then tie specic actions with perspectives in order to maximize the performance of each success factor (Brewton, 2004). In a customer service strategy, the perspectives that need to be considered include customers, operations, nance, and human resources. An example of a theme in a customer service strategy is to maximize service quality. A specic action that then helps an organization accomplish that critical success factor is for operations to reduce the number of repeat complaints. Regardless of the tools used to dene the customer service strategy, it is important in this rst step for the strategy to be clearly communicated to the organization and that everyone in the organization clearly understands how their functions contribute to the strategy's success. Step 2: Select CRM strategic measures and identify targets Once the customer service strategy has been clearly dened, the organization must then select the necessary metrics and

Conclusion and recommendations

Once an organization has developed a CRM strategy for customer service, it must then develop a process for measuring and monitoring performance. Measurement is a critical component of the overall customer service strategy. Kim et al. (2003) identied several reasons why performance measurement is important. First, measuring performance resolves ambiguity and disparity surrounding the overall strategic objectives. Second, it provides a means for communicating what the organization wants and how it intends to accomplish it. Third, it allows continual evaluation, renement, and alignment of strategic goals. Finally, it improves

Figure 3 Summarizing the impact of customer support on firm performance

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targets that will be used in measuring performance. Metrics should be relevant to the critical success factors of the strategy and should be indicative of future performance. Targets should dene the desired level of performance for the selected metrics. Identifying good indicators of customer service effectiveness can be difcult because much of the deliverables related to customer service are intangible. Kim et al. (2003) identied four customer service strategic measurement areas: customer knowledge, customer interaction, customer value, and customer satisfaction. Customer knowledge is about understanding the customers and knowing what they are looking for in customer service. Customer interaction involves service quality and improvement in order to maintain effective channels and high levels of operational effectiveness. This can be measured through analyzing the activities of the service center. Customer value comprises of the benets gained to customers through service and support. This can be measured by reviewing the usability, intuitiveness, navigation, and consistency of the service centers. Customer satisfaction is the extent to which the level of service and support meets the expectations of the customer. This can be measured through questionnaires that evaluate areas including assurance, reliability, empathy, and responsiveness. Generic examples of CRM metrics include retention, acquisition, and market share. Other examples of metrics specic to customer service include inquiry response percent answered, number of complaints handled, error rates, average time to resolve issue, number of repeat complaints, and percent of complaints resolved satisfactorily. Once the performance metrics are identied, the organization must then dene targets. These targets specify the desired level of performance for each metric. They should not be based on the organization's current capabilities, but on what is expected in order to maximize critical success factor performance. The gaps between the actual performance and the targeted performance will identify the areas of improvement. When dening targets, organizations can research industry benchmarks, which are essentially ``best practices'' that are derived from an industry average or standard. There are benchmarking associations, such as www.csbenchmarking.org allow for organizations to participate in various benchmarking studies or research prior studies related to customer service. Organizations can then use these benchmarks to set their own goals and expectations. An organization can then build a customer service scorecard out of the selected metrics and targets to aid in its task for achieving CRM integration. An organization may have an executive scorecard that would include several customer service metrics among other organization-wide metrics such as nancial and human resource metrics. Customer-centric organizations that are focused on customer relationships, service, and support

should also have a CRM scorecard that would exclusively report on customer-oriented metrics such as those service metrics identied above. Step 3: Cascade CRM strategic measures With the customer service strategies, objectives, and measurements identied, the organization must then relate (or cascade) the enterprise goals with the individual employee actions. ``Cascading enables each lower level of the organization to align and focus its day-to-day CRM decisionmaking and performance with the strategic CRM goals and objectives of the enterprise'' (Brewton, 2004, p 10). It involves decomposing the corporate strategies down into departmental strategies, which are then further decomposed into team objectives and then employee objectives. Employees are then able to directly relate their performance to the metrics that are identied on the CRM scorecard. Step 4: Select and implement CRM performance measurement system An important part of the measurement process is to easily build and deploy performance scorecards, which allow for management to interact with the information to evaluate performance and make decisions on how to rene and improve the strategy. As more and more organizations are increasingly becoming interested in CRM strategies, a growing number of software companies are offering strategic performance intelligence solutions. These solutions allow for organizations to utilize ``sophisticated analytics that transform complex data into useful information, enabling business users to make real-time decisions that increase customer protability and retention'' (PeopleSoft, 2004, p. 1). The leading performance measuring systems include: ABC Technologies, Cognos, Hyperion, Oracle, SAP, and SAS. Implementing a CRM performance measurement system automates much of the process and allows for complex and exible reporting. Some features that an organization must consider when selecting a performance measurement systems is: its ability to integrate data from multiple systems; it ability to perform statistical analysis and handle complex calculations, views, drill-downs and drill-through; and its ability to provide dashboard performance alerts. Step 5: Entrench CRM strategy into organizational culture In order to entrench customer service measurement, it must be integrated into the organization's core functions and activities. The core functions that must be integrated in measuring a customer service strategy are: human resources, communication, improvement initiatives, strategic budgeting, and strategic learning. An organization should link performance evaluations and merit rewards directly to the cascaded

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customer service measures. Communicating the importance of the customer service initiatives and measurements is also critical for building awareness among employees, further entrenching the strategy. When justifying the implementation of process improvement initiatives, the impact to customer service should be considered. It should also be taken into consideration during budget allocation. J

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