Performance Monitoring of CRM Initiatives - IEEE Computer Society

Proceedings of the 40th Hawaii International Conference on System Sciences - 2007

Performance Monitoring of CRM Initiatives Sonja Grabner-Kraeutera Gernot Moedritscherb Martin Waigunyc Werner Mussnigb a

Department of Marketing and International Management b Department of Controlling and Strategic Management c eBusiness Institute (biztec) [firstname.surname]@uni-klu.ac.at Alpen-Adria University Klagenfurt Austria

Abstract Since the late 1990s CRM has become a buzzword especially among business practitioners and consultants. Companies have invested or are planning to invest huge amounts to implement CRM strategies, tools and infrastructure in order to attract and retain profitable customers in today’s increasingly competitive markets. However, the existing academic literature and the practical applications of CRM do not provide definite guidance how to assess the profitability of CRM projects. What is also missing is a comprehensive measurement system that allows a holistic assessment of the ongoing contribution of CRM initiatives to the financial performance of the business firm. The purpose of this paper is to develop a framework for a systematic cost-benefit-assessment and for ongoing performance monitoring of CRM initiatives. Based on well-known methods and instruments for measuring business performance the authors propose an integrated approach to determine and measure the effectiveness and efficiency of CRM projects.

1. Introduction Customer Relationship Management (CRM) is a customer-oriented business philosophy that involves analysing, planning and controlling customer relationships by means of modern information and communication technologies. CRM projects can cost up to several million dollars [1] requiring investments not only in technology but also in time and human capital. Failing of a CRM project can be cruel for an enterprise, therefore several authors discussed perils and pitfalls within the implementation process and/or operative performance [e.g. 2, 3, 4]. But avoiding these failures does not lead automatically to economic success of CRM, and in fact the evidence of the

impact of CRM on enterprise performance is scarce [5]. In spite of huge technology investments, many CRM initiatives fail to deliver benefits commensurate with their costs [6]. Grabner-Kraeuter and Moedritscher pointed out that the lack of a holistic framework for defining success criteria and metrics at the start of the CRM project [7] as well as the frequently inadequate implementation of processes for conducting ongoing performance measurement [1] are important reasons for the disappointing results of many CRM initiatives. Monitoring CRM-initiatives is often limited to project activities in the implementation phase (e.g. comparison of target dates with fulfillment dates) [8, 9], but these indicators are not adequate to measure the outcome of CRM. Higher customer lifetime values, higher retention rates or the impact on customer satisfaction [1013] are outcomes of CRM, which lead to better economic performance. However, measuring the outcome implies several pitfalls. Cap Gemini & Ernst Young pointed out that measuring the ROI of a CRM initiative is a key hurdle [14]. Nearly 42 % of enterprises which implemented CRM, do not measure the outcome anyway. According to Forrester Research, 57% of business firms cannot justify CRM investments because they cannot measure customer profitability [15]. However, understanding the importance of defining and managing success criteria and metrics will increase the likelihood for success of CRM projects [8]. In addition to former studies reflecting customer retention and profitability some recent studies focus on the contribution of CRM systems to the performance of the company e.g. [16-20]. The results are very different: In case of (roughly) estimated contribution to profits most studies show a positive relationship between the implementation of CRM and business performance. In case of exact performance metrics the relationship is mostly not significant. This is

Proceedings of the 40th Annual Hawaii International Conference on System Sciences (HICSS'07) 0-7695-2755-8/07 $20.00 © 2007 1530-1605/07 $20.00 © 2007 IEEE

1


mainly caused by difficulties in developing adequate performance metrics. What is needed is a transparent basis for prioritizing CRM initiatives and mapping business requirements to the essential informational, organizational and technological components that are necessary to operationalize CRM and create positive business results. Hence measurement of CRM initiatives has been listed among the TOP 5 research priorities of the Marketing Science Institute for a couple of years. The purpose of this paper is to develop a framework for a systematic cost-benefit-assessment and for ongoing performance monitoring of CRM initiatives. We begin by summarizing the theoretical and practical underpinnings of CRM and discussing the novelty of the concept. Based on well-known methods and instruments for measuring business performance we then propose an integrated approach to determine and measure the effectiveness and efficiency of CRM projects concerning the CRM system and the underpinning CRM strategy.

2. CRM – towards a holistic view Since the late 1990s Customer Relationship Management (CRM) has gained growing popularity and has become a buzzword especially among business practitioners and consultants. The question now arises if CRM is merely another “big new idea” which has risen on an opportunistic wave and is boosted by software firms and consultants as an application that competitive business firms must have to survive in today’s relationship economy. Or is CRM really a new concept that is able to reflect fundamental shifts in the business environment? Our view is that when the underlying principles of customer relationship management are examined, they are quite indistinguishable from the fundamental principles of modern marketing with its specific focus on relationships [e.g. 21, 22, 23]. However, the term CRM is a bit confusing, as it has come to mean many things to many people. It has been used to describe specific IT-solutions or a wide array of technical oriented initiatives such as direct mails, loyalty cards, database marketing, data mining, personalised websites and e-commerce solutions. Beyond that CRM often describes a strategic or philosophic approach for managing customers [24]. Hence CRM could be seen from a processoriented, technological, capability-oriented, philosophical, and/or strategic perspective [5]. Although no generally accepted definition of customer relationship management exists, the different perspectives could be seen as the underpinnings of a holistic view of CRM. Process-oriented definitions foster the process of building and strengthening the relationships with other marketplace entities, mainly customers [25]. To enable

these processes special information technologies are needed to analyse customers, store and share customer knowledge and use it for designing customized interactions. Similarly the capability perspective emphasises the importance of competences for generating and obtaining relationships [26]; thereby the sum of tangible and intangible resources constitute CRM [5]. Viewed as a philosophy, CRM shares with the traditional concept of marketing a deep concern for satisfying customers effectively and profitably to gain customer loyalty and retention. Definitions of relationship marketing and customer relationship management can be distinguished by their different focus on customer orientation and retention [e.g. 27, 28, 29]. Moreover, relationship marketing usually considers all relationships of an enterprise with its stakeholders (e.g. government, suppliers). As a strategy or tactic to implement principles of relationship marketing [23], CRM is concerned with the creation, development and enhancement of individualized customer relationships with carefully targeted customers and customer groups [30]. Therefore the allocation of resources based on the customer lifetime-value is necessary, due to the differentiation of customers as far as their profitability is concerned [12]. Hence, the customercentric view combined with a preferential treatment of selected customers should result in maximizing the overall customer life-time value and thus in profitable customer relationships in the long run, both for the company and its customers. From a functional perspective CRM is not only restricted to marketing and sales, actually it is a firm wide orientation [23]. Thus implementing CRM strategies and measures requires a cross-functional approach [8, 31], which includes organisational changes and processes. To sum up, the theoretical and practical underpinnings and perspectives of CRM are based on two different fields of research: relationship marketing and the more technically-oriented literature on sales force automation or computer aided selling, data warehousing and data mining. Relationship marketing literature influenced CRM valuably, by postulating the positive outcomes of customer relationships [23, 32] like customer retention, customer loyalty, trust, commitment and customer satisfaction [3]. Additionally there is widespread agreement that the rapid progress of information and communication technologies has strongly accelerated the popularity and acceptance of relationship marketing. However, the integration of these technologies in the relational concept is rarely discussed in the relationship marketing literature [23, 33]. In the computer science literature the focus of CRM is on implementation of technologies (e.g. methods, tools, and applications of data warehousing and data mining) [e.g. 8, 34], whereas questions of customer orientation and

Proceedings of the 40th Annual Hawaii International Conference on System Sciences (HICSS'07) 0-7695-2755-8/07 $20.00 © 2007

2


satisfaction only play a minor role. This technologyoriented view that is also taken by many consultants, often dominates the preceding CRM discussion. Information technology has a pivotal role to play in enabling companies to improve customer experiences in a manner that will improve customer retention and increase revenues. In this perspective CRM is seen as a “new business concept”, mainly because it goes hand in hand with implementing new technologies that enable companies to realize customer-centric business models. However, it has to be emphasized that the creation, development and enhancement of individualized customer relationships is not always dependent on the technology [23, 32]. Recent literature suggests that a holistic view of CRM is needed, which covers both research streams [30, 35]. Thereby CRM has to be seen as a combination of strategy and technology [3, 24]. Although information technology often plays a major role in improving the customers’ experience, IT is not the main driver. Especially business firms that do not need large volumes of information about their customers to serve them better can undertake customer relationship management with very little technology [3]. Investments in CRM technology (besides investments in labour, consulting services and training) have the potential to increase customer value especially for firms that serve a diverse customer base that can be segmented for differentiated treatment and need large volumes of information about their customers. In summary it may be said that the basic principles of CRM are not new. At the philosophical level CRM adheres strictly to core marketing principles that have at least to some extent been implied in services marketing or in business to business buyer-seller relationships for many years [30, 36-38]: x The individual customer with her/his specific needs and wants is the primary focus of marketing decisions. x Businesses have to get reliable information about their customers and build up a customer database suitable for treating customers on a relationship basis. x Interaction is preferred to one-way persuasion. x Cooperative and collaborative relationships between the firm and its customers lead to greater market value creation. x The achieved additional value will benefit both, the company and its customers. We argue that the most important reasons why CRM became so popular recently are factors in the business environment, especially in the technological environment. The development of sophisticated computer and telecommunication technologies has allowed stretching the relationship paradigm to situations in which there are a few or many sellers and possibly millions of buyers [23]. New information and communication technologies extend existing distribution and sales channels and serve as - rather

expensive - “enablers” for direct and personalized communication between companies and their customers. In these cases the terms CRM and e-CRM can be used synonymously. Our holistic view of CRM emphasises that a clear CRM strategy is needed which could be supported by appropriate applications and processes. It is evident that the process of the technological and organisational implementation of CRM as well as the performance and the outcome of CRM initiatives must be monitored [5, 24]. However, appropriate methods for measurement are rarely discussed in current literature. Therefore we will provide an integrated approach of assessment and performance measurement of CRM initiatives.

3. Assessment of CRM costs and benefits as a basic decision criterion for implementing CRM Implementing CRM usually requires large investments not only in technology, but also in labour resources, consulting services and training. In a time when maximizing the shareholder value [e.g. 39] is the uppermost goal of management, the success of management activities is determined primarily by criteria that measure value enhancement like ROI (Return on Investment), ROCE (Return on Capital Employed) , ROA (Return on Assets), CFROI (Cash Flow Return on Investment), SHV (shareholder value), etc. and – more and more - the return on intangibles and brand values. However, it is very difficult to estimate costs and benefits of investments in processes and information technologies. The same is true with CRM initiatives, aiming primarily at an increase in customer retention, a criterion that is difficult to operationalize and measure. Establishing a direct link between customer retention, investment in CRM initiatives and shareholder value requires gross simplifications. Usually US-American auditors base their business valuation on the assumption that marketing costs and value contributions of all regular customers have to be considered as customer equity [40, 41] and thus as assets that have to be depreciated in time. Customer equity is then compared with customer payments [42]. In this way the net present value of customer relationships (free cash flow) is calculated, thus representing the total value of customer relationships [43]. Because of the complexity of the underlying structure it is almost impossible to objectively prove the cause-effect relationship between CRM and ROI. Nevertheless, the measurement methods and instruments suggested in this paper can serve as starting point for measuring the success of CRM projects. The costs for building and maintaining customer relationships have to be compared with the


3


revenues, i.e. the costs during the whole customer life cycle have to be compared with the forecast customer revenues. Here the prospective customer value is the basis for measuring the profitability, respectively for determining the adequate investment volume for building a long term customer relationship. Surveys done by Gartner, META Group and other consulting firms show that many CRM initiatives have failed to accomplish their promises; e.g. a META Group study reports that only 10 percent of CRM initiatives have achieved a high end level of enterprise integration (META Group 2002); AMR Research indicates that only 12 percent of companies that have implemented CRM software say it has exceeded their expectations [6]. The reasons for the failure of many CRM initiatives range from technological implementation problems, to a lack of organisational integration and acceptance, to a focus on technology instead of customer centricity [44, 45]. Beyond that, the following reasons why CRM initiatives did not reap the expected benefits are mentioned (META Group 2002): x 64 percent of respondents lack techniques to measure the business value of CRM. x Less than 10 percent of companies are able to measure a tangible return on investment (ROI). x Less than 30 percent have begun to take steps to integrate operational and analytical CRM environments. If a process innovation such as CRM is introduced in a business firm and the benefits arising from it cannot be quantified, it is not surprising when CEOs as power promoters [46] do not fully support the implementation of the new system. That is even more understandable when considering that the needed investment and the organizational effects of a CRM project often go beyond that of introducing an ERP system. Without top management support a CRM project is prone to failure. The other way round it can be said that the greater and more measurable the payback, the more energy there will be continuing to implement change [47]. Based on Levitt’s [48] thoughts a number of surveys verify the general economic benefit of customer satisfaction (e.g. increased loyalty, a reduction of consumer price elasticity, a decrease of failure-related costs [49]). These benefits can primarily be attributed to the positive correlation between customer satisfaction and customer retention [50, 51]. However, there is no doubt that this cause and effect relationship can only be observed in the long run[52]. Therefore measurement systems must evaluate the long term effects of CRM initiatives because short term benefits, like cost savings, do not fulfill the criterion of long-term effects. A decisive factor for successfully implementing a CRM system is a framework for a systematic cost-benefit-

assessment and for ongoing performance monitoring of CRM initiatives x so that not only the costs but also the benefits of CRM become evident and can be estimated, x the assessment of CRM benefits is based on not too vague assumptions, x and both quantitative, monetary and qualitative evaluation criteria are considered. When developing such a framework it is also important x to choose an adequate period of time for the assessment of costs and benefits (i.e. to apply a dynamic instead of a static approach) x and to make sure that the information needed can be gained as simply as possible. To summarize, what is of central importance when implementing CRM is to make evident that the core benefit for the company is gaining a sustainable and valuable competitive advantage that is based on a comprehensive utilization of customer potentials.

4. An integrated approach towards performance monitoring of CRM There is a number of well-known management accounting methods and instruments that also can be used to assess the profitability of CRM initiatives, e.g. Customer Lifetime Value (CLV) (similar to Loyality Value Added (LVA); [40, 53-59], Analysis of customer contribution margin [58, 60], Scoring-models [61-63], RFM-method [55, 64], ABC-analysis [65, 66], Portfolio technique [62, 67-69], Total Cost of Ownership [1]. These concepts provide different – mostly one-dimensional - perspectives on business performance but do not allow a comprehensive or holistic assessment of CRM contribution to the financial success of the company. Our integrated approach intends to support the estimation of costs and benefits for implementing CRM systems. More recently, the inclusion of soft factors has become state-of-the-art in managerial accounting and business performance measurement research. Another reason for the heightened interest in the value contribution of marketing and CRM is the increased importance of company value both in research (e.g. Shareholder Value [39]) and business practice. Figure 1 shows the main dimensions of our proposed CRM-SEM – System for CRM-Excellence Measurement framework. Based on the Balanced Scorecard presented by Kaplan and Norton [70] it provides a multi-criteria, quantitative and qualitative approach towards an assessment of the return on CRM-related investments. Creation of additional value for the company (e.g. contribution to ROI, EBIT, CFROI), increase in customer value (e.g. increase in CLV, improvement of customer


4


structure), improvement of customer-centric processes (e.g. shorter Time to Delivery) as well as in the field of organisational and human resources (e.g. higher motivation, more incentives) are the main dimensions of our CRM performance evaluation system. Creation of additional value for the company Simulation of activities

Increase in customer value

CRM SEM

Improvement of customer-centric processes

Benchmarking of outcome and CRM process

Improvement in organization and human ressources

Figure 1. Framework CRM-SEM This integrated, multi-criteria monitoring system is based on the three main instruments: Benchmarking, Balanced Scorecard, and the Simulation of Scenarios: (1) Benchmarking: A core component of our costbenefit-assessment of CRM Systems is Benchmarking. Thereby three important questions concering benchmarking arise. The first question is: What are the relevant processes for customer relationship management and therefore for benchmarking in case of our company? The second question is: What are the competitors or benchmarking partners doing in these processes? A critical assessment of the ability to cultivate customer relationships and how that compares to the best of the competitors in long-term comparison is required [71]. But Benchmarking in its best way is not only comparison with the main competitor, it is comparison with and learning from the “best in field”benchmarking partner. Therefore the third question is: Why do our “best in field”-benchmarking-partners design and realize relevant processes in a certain way and what determines their success in doing that? This means that based on the relevant processes and outcome of CRM [72] the main focus is on learning from each other. The next critical step in establishing benchmarking processes is the identification and selection of adequate criteria to compare and learn from – the Benchmarks. As a starting point we choose the four perspectives of the Balanced Scorecard, because the set of criteria (main value drivers) within a Balanced Scorecard can also be used in the benchmarking process. (2) Balanced Scorecard: The Balanced Scorecard (BSC) focuses on value drivers and therefore factors determining economic success from four perspectives: financial measures, customers/market, internal business processes and learning/growth [70] (for information systems in general [73]). These perspectives allow a systematic approach to the selection of CRM focussed measures. The scorecard also helps to understand the interrelations between company goals and strategies and

defined objectives for the CRM program. Thus an extensive assessment of CRM performance can be done based on valuation criteria from the different BSC perspectives: x the value perspective: e.g. higher value for the company, increased customer profits, decreased costs for customer retention, better utilization of customer potentials etc. x the customer value perspective: e.g. increased customer retention, higher cross-selling revenues, higher rate of repeat purchases, improved customer satisfaction x the customer-centric processes perspective: e.g. new, re-designed and more efficient customer processes x the organizational and human resources perspective: e.g. higher motivation, better access to information, competitive knowledge advantages. The balanced scorecard approach supports an intuitive, transparent and pursuable analysis of CRM contributions to company value and economic success of the company [74]. Both the contribution of CRM efforts to the competitiveness of the firm and thus to general business performance and spill-over effects to other business functions become more perceptible and evident for the decision makers. In a recent explorative study Reinecke and Reibstein [75] found that managers primarily rely on quantitative performance metrics (e.g. sales, market coverage, margin, net profit, sales profitability, share of new customers), but increasingly include qualitative criteria (e.g. customer satisfaction, customer retention, brand familiarity). (3) Simulation of Scenarios: For the measurement of CRM performance and the contribution of CRM investment to the company value the prospected capitalized income value of the customer relationship (Customer Lifetime Value, Net Present Value) without CRM investment can be compared to a scenario with CRM investment, using a method like gap analysis. With the two instruments, Benchmarking and Balanced Scorecard, we intend to highlight the complex causeimpact-relationship of CRM processes. This is necessary, because a CRM system is not an isolated IT-infrastructure in a single company department but has to be carefully implemented in a number of company processes. Additionally, simulations of business cases can yield more information on possible cause-effect-relationships, e.g.: x Which effects can be expected if the company designs specific customer processes in a similar way its benchmarking partner or competitor does? x What decrease of costs can be expected by changing specific customer-centric processes and which personal and organisational skills are necessary? x What is the contribution to ROI based on the CRM initiative, if the working capital management is


5


improved and which processes and skills are necessary for attaining more efficiency? x How do company’s profits change if special customers are treated preferentially and other customer segments are treated with standard processes; which investments, costs and organisational activities (e.g. incentives for the sales staff) are necessary for that?

5. Conducting Measurement with CRM SEM To be able to evaluate CRM initiatives within the suggested framework a set of tools and techniques has to be applied in order to obtain the necessary information. The initial step is setting a basic model of metrics in the four dimensions of CRM-SEM. The secondly benchmarks has to be established to define the ranges and probabilities for the metrics. The third step is the simulation of various scenarios, and comparisons of various developments can be obtained. (1) Setting the basic model: The basic model consists of several metrics, which should - according to the BSCapproach - measure the impact of different tasks to achieve the strategic goals of the enterprise. The financial perspective in CRM-SEM can be examined with traditional criteria like ROI, ROCE, CFROI ect.. The financial criteria are primarily determined by changes in customer value [76-78]. The customer value perspective should reflect the positive effects of CRM on retention, satisfaction, positive recommendation etc. which are expressed by higher payments and revenues from the customer. Thus future revenues from customers should be measured by dynamic metrics. Moedritscher and Mussnig [79] developed a dynamic and integrated model for the evaluation of the CLV based on costs and revenues. The model is supposed to serve as a basis for a future-oriented customer potential management. Therefore in their approach various parameters are integrated in the calculation for decision-making. However, managers base their planning processes on experiences from the past, focusing on the commonly used parameters [80]. If the management gathers information predominantly from the cost accounting system, it would be counterproductivenot to consider these cost-oriented planning experiences for our purpose [81]. But costs and payments differ in most cases, e.g. payments (like investments) refer to another date than their cost equivalent (depreciation). Methodically it is possible to cancel the angular spread between the actual values through a changed calculation of the imputed interests. For this it is necessary to subtract the imputed interests based on the capital invested at the beginning of the respective period from the period profits. These considerations are based on the theorem of Luecke [82], which allows calculating on the

basis of the costs and revenues the same actual value, as with the aid of financial models. The essential advantage of this procedure is that it is no longer necessary to forecast the customer-specific dates of payment, if the specific capital investment per customer can be planned. This capital investment basically consists of customer specific equipment investment, customer specific demand volume and customer specific warehouse (for unfinished and finished products). The customer-specific investment comprises several components: there are typical investments (in the narrower sense) ("customer investment" like investment in logistics systems, information systems, CRM systems etc.) and there are expenses for the relationship management processes (customer relation expense", as for instance free samples, "buying" the remaining stock of the competition product etc.) for new customers. Two allocation problems arise as consequences: One essential allocation problem is that a fair settlement onto the individual customers according to the investment is hardly feasible in the practical application. The majority of the cost accounting systems is designed in such a way that the costs can be allocated to different products, but usually not to individual customers. In other words: most enterprises have a standardized product income statement and generate the respective customer success from special analyses at best. In our approach we propose to distribute the investment onto the individual products in a first step and afterwards onto uniform product segments. Regarding the distribution principle it is important to bring marketstrategic considerations to the application exclusively. Therefore proportional repayment rates in the sense of contribution budgets are "agreed" with the product managers as strategically controlled targets. Such market oriented contribution budgets allow to burden products at the beginning of their life cycle with less costs than products at the end of the life cycle [83]. In this context the question arises how these product specific contribution budgets can be assigned to individual customers in a consistent way. As a basic principle it can be assumed that products should be assigned higher marketstrategic contribution budgets, if they are distributed in many different sales channels and therefore are using the investment in the CRM system more intensely. These products burden operating profits more strongly during their life cycle than products that use only a few or only a single sales channel. The periodical operating profit can now be converted into a profit contribution per unit. If one multiplies the period-specific profit contribution per unit by the quantity of sales of the respective customers, one receives the customer-specific periodal profit contributions per product and/or product segment. Usually customers buy different products. Therefore, all product specific period successes must be assigned to the respective customer according to the above described method.


6


In this regard the investment will first be allocated to the individual products and/or product segments, based on strategic considerations, and secondly will be assigned to the individual customers, based on the sales volume. This procedure allows representing investment and its successrelevant consequences as components of the customer value. If one adds up these value contributions of the individual customer relationships to the value of whole customer segments and aggregates them in turn, the value of the entire enterprise can be finally determined. Beyond the CLV-Model the customer value perspective can gather information from performing a customer oriented structure analysis: x A customer-oriented ABC-Analysis by sales or contribution margins can provide useful information. Based on the results of this analysis strategies and measures to improve the turnover and profit potential of A- and B-Customers can be discussed. Another subject for discussion are alternative designs of Ccustomer-processes, if an additional customer oriented cost analysis (e.g. activity based costing) shows inefficiency and ineffectiveness of customer interaction [84]. A simulation of changes in the ABC-structure concerning revenues and profit helps to assess the usefulness of CRM activities. x In addition to the ABC analysis a customer-centric portfolio analysis can be done with similar objectives. With this instrument the limited focus of the ABC analysis could be extended. Useful criteria for this analysis are e.g. the amount of coverage of fixed costs and customer satisfaction, customer attractiveness (growth of buying volumes, accepted price levels, image of the customer etc.), customer potential and the company’s own position among other suppliers [65, 85]. Based on these results qualified simulations of alternative customer programs can be done (effects of customer retention, increased efficiency, focused services, higher prices etc.). Metrics for the processual perspective can consider the measurement of process-time, process-failure-rates, etc. The organizational perspective might include employeesatisfaction, motivation measures, incentives etc. (2) Benchmarking: CLV practitioners calculate the capitalized income value for specific customer segments, if alternative investments have to be compared and the available budget for this investment is limited [86]. Beyond that, the strengths and weaknesses of the company are related to the best conceivable product and service both to find out the necessary investment for each customer segment and the attainable Cash Flows that can be attained with different CRM initiatives. With this benchmarkoriented approach it can be analysed: x which investments are necessary for retaining the most important customer segment,

x which investments are necessary to acquire new and attractive customer segments and x which segments have the highest expected return on investment related to customer relationship initiatives. One critical issue in benchmarking is the search for and selection of adequate benchmarking partners [87]. The challenge is to identify those companies that show as “bestin-class” CRM excellence and then to create an adequate benchmarking culture and relationship based on trust and transparency of information. Those benchmark companies need not be the market leaders, but they have to be leaders in certain CRM relevant processes. Some examples of "best in class" or “best practice” solutions are offered by software or consulting firms, based on their experience with different customers. These examples can be helpful in the search for potential benchmarking partners and provide a first indication of their “best practice solution”. But benchmarking requires a thorough and detailed analysis of all relevant processes and therefore an intensive and long term collaboration with the benchmarking partner that focuses on learning processes and not only on comparison. (3) Simulation of Scenarios: For evaluating the performance of CRM initiatives e.g. two scenarios can be analyzed: First scenario is a zero scenario, which means that no additional investment in customer relationship activities is done, the second scenario is one with CRM investment and activities. For instance, a bank assumed that the basic business, which is mainly based on long-term customer relationships, would decrease at about 20 percent without investment because of intense acquisition policies of competitors. Otherwise - with heavy investment in CRM activities - the value contribution of customer loyalty could be increased by about 75 percent. However, the investment must be lower than the additional revenue and enable longterm, efficient and effective customer retention. Once again it should be emphasized that this measurement system has to be used as a dynamic model of cost-benefit-analysis [88], which mainly means to add dynamic criteria to the set of static decision criteria (like net present value of customer cash flow presented as CLV) and analyze different scenarios to gather sufficient decision support. A simple comparison of Total Costs of Ownership and additional revenues is not appropriate in the context of CRM, even when different scenarios are calculated.

5. Conclusion The difficulty in evaluating CRM performance is caused by the complexity and interdependency of CRM strategies and the required alignment of business processes across the enterprise that must take place to achieve customercentricity combined with an enhancement of economic value. The integrated CRM performance evaluation framework (System for CRM-Excellence Measurement) we


7


proposed in our paper provides a multi-criteria, quantitative and qualitative approach towards an enterprise wide assessment of the return on CRM-related investments. It is important to measure the success of CRM initiatives at an enterprise wide level, because within any single domain stand-alone measurements are limited in their ability to ascertain the success or failure of an enterprise-wide strategy that is as all-encompassing as that of a CRM strategy [1]. The proposed CRM-SEM framework integrates methods and instruments that are frequently used in strategic management accounting: Benchmarking, Balanced Scorecard and Simulation of Scenarios.The reason why a variety of measures has to be combined and multiple measurement frameworks and methodologies are inevitable is that they provide different perspectives on CRM performance. They furnish managers with a different set of lenses through which they can assess the success of CRM initiatives [89]. Depending on contextual factors it can make sense to pay special attention to different performance metrics both to evaluate whether or not CRM should be implemented and to assess ongoing results of CRM initiatives. CRM SEM can be used as simulationbased investment decision support system, which integrates also the effects on organization, customers and personnel, is already in use, and first results will be shown in the conference. To sum up there is no best way to monitor CRM performance because CRM performance is itself a multifaceted concept. Therefore it makes sense to decompose CRM into a set of constituent parts and to identify the value the constituent parts add as well as to assess potential benefits from their interaction. Further research has to be done to specifically analyze the performance contribution of individual components of CRM systems.

[6]

[7]

[8]

[9]

[10]

[11]

[12]

[13]

[14]

[15]

[16]

References [1]

[2]

[3]

[4] [5]

Gartner-Group, "CRM Economics: Figuring Out the ROI on Customer Initiatives," Stamford/CT, Working Paper 2001. D. K. Rigby, F. F. Reichheld, and P. Schefter, "Avoid the Four Perils of CRM," Harvard Business Review, vol. 80, 2002, pp. 101-109. W. Boulding, R. Staelin, M. Ehret, and W. J. Johnston, "A Cusotmer Relationship Managment Roadmap: What Is Known, Potential Pitfalls, and Where to Go," Journal of Marketing, vol. 69, 2005, pp. 155-166. S. H. Kale, "CRM failure and the seven deadly sins," Marketing Managment, vol. 13, 2004, pp. 42-47. A. R. Zablah, D. N. Bellenger, and W. J. Johnston, "An evaluation of divergent perspectives on customer relationship managment: Towards a common understanding of an emerging phenomenon," Industrial Marketing Managment, vol. 33, 2004, pp. 475-489.

[17]

[18]

[19]

[20]

Sapient, "Creating Value through CRM", http://www.sapient.com/pdfs/industry_viewpoints/crm_f s.pdf, 20. Feb. 2002, 2001. S. Grabner-Kraeuter and G. Moedritscher, "Alternative approaches toward measuring CRM performance," presented at 6th Research Conference on Relationship Marketing and Atlanta, 2002. R. Chalmeta, "Methodology for customer relationship managment," The Journal of Systems and Software, vol. 79, 2006, pp. 1015-1024. J. Dyche, "Managing Your CRM Project", http://www.informit.com/articles/article.asp?p=25181& seqNum=4&rl=1, 2002. S. Jayachandran, S. Sharma, P. Kaufman, and P. Raman, "The Role of Relational Information Processes an Technology Use in Customer relationship Managment," Journal of Marketing, vol. 69, 2005, pp. 177-192. S. Mithas, M. S. Krishnan, and C. Fornell, "Why Do Customer Relationship Management Applications Affect Customer Satisfaction," Journal of Marketing, vol. 69, 2005, pp. 201-209. L. Ryals, "Making Customer Relationship Management Work: The Measurement and Profitable Management of Customer Relationships," Journal of Marketing, vol. 69, 2005, pp. 252-261. R. Srinivasan and C. Moorman, "Strategic Firm Commitments and Rewards for Customer Relationship Management in Online Retailing," Journal of Marketing, vol. 69, 2005, pp. 193-200. "Competing in the relationship Economy: Realizing a CRM Transformation", Cap Gemini Ernst & Young, http://www.capgemini.com/news/2001/TransformationP OV.pdf, 29. May 2006, 2001. "CRM: At What Cost?" Forrester Research, http://www.forrester.com/ER/Research/Report/0,1338,1 1224,FF.html, 22. February 2002, 2001. G. S. Day and C. van den Bulte, "Superiority in Customer Relationship Management: Consequences for Competitive Advantage and Performance", MSI Working paper, Report No. 01-123,, Cambridge/Mass., 2002. T. Malmi, M. Raulus, S. Gudergan, and J. Sehm, "An Empirical Study on Customer Profitability Accounting, Customer Relationship Management and Business Unit Economic Performance,," presented at 4th Conference on New Directions in Management Accounting: Innovations in Practice and Research, Brussels, Belgium, 2004. A. Reichold, L. Kolbe, and W. Brenner, "Performance Measurement of CRM in financial services," presented at Proceedings of the 4th International Conference on Performance Measurement and Management, Edinburgh, 2004. M. Sigala, " Customer Relationship Management (CRM) evaluation – defusing CRM benefits into business processes," presented at 12th European Conference on Information Systems,, Turku/FL, 2004. W. Reinartz, J. Thomas, and V. Kumar, "Balancing Acquisition and Retention Resources to Maximize


8


[21]

[22]

[23]

[24]

[25]

[26]

[27]

[28]

[29]

[30]

[31]

[32]

[33]

[34]

Customer Profitability," Journal of Marketing, vol. 69, 2005, pp. 63-79. R. S. Sisodia and D. B. Wolfe, "Information Technology: Its Role in Building, Maintaining, and Enhancing Relationships”, in Handbook of Relationship Marketing," in Handbook of Relationship Marketing, A. Parvatiyar and J. N. Sheth, Eds. Thousand Oaks et al.: Sage Publications, 2000. A. Palmer, "The Evolution of an Idea: An Environmental Explanation of Relationship Marketing," Journal of Relationship Marketing,, vol. 1, 2001, pp. 79-94. D. Mitussis, L. O'Malley, and M. Patterson, "Mapping the re-engagement of CRM wiht relationship marketing," European Journal of Markting, vol. 40, 2006, pp. 572-589. A. Payne and P. Frow, "A Strategic Framework for Customer Relationship Managment," Journal of Marketing, vol. 69, 2005, pp. 167-173. R. K. Srivastava, T. A. Shervani, and I. Rahey, "Marketing, business processes and shareholder value: An organizationally embedded view of marketing activities and the discipline of marketing," Journal of Marketing, vol. 63, 1999, pp. 168-179. D. Peppers, M. Rogers, and B. Dorf, "Is your company ready for one-to-one marketing," Harvard Business Review, vol. 77, 1999, pp. 101-119. A. Eggert and G. Fassot, "Elektronisches Kundenbeziehungsmanagement (eCRM)," in eCRM – Electronic Customer Relationship Management, A. Eggert and G. Fassot, Eds. Stuttgart: Schaeffer Poeschel, 2001. A. Parvatiyar and J. N. Sheth, "The Domain and Conceptual Foundations of Relationship Marketing”," in Handbook of Relationship Marketing, A. Parvatiyar and J. N. Sheth, Eds. Thousand Oaks et al.: Sage Publications., 2000. C. Grönroos, "From marketing mix to relationship marketing," Management Decision, vol. 32, 1994, pp. 420. A. Payne, "Customer Relationship Management", http://www.ittoolbox.com/peer/AP_website.htm, last access: 20 Feb. 2002., 2001. D. Wehrmeister, Customer Relationship Management: Kunden gewinnen und an das Unternehmen binden. . Koeln: Deutscher Wirtschaftsdienst, 2001. E. Gummesson, "Return on Relationships (ROR): the value of relationship marketing and CRM in businessto-business contexts," Journal of Business & Industrial Marketing, vol. 19, 2004, pp. 2004. T. Hennig-Thurau and U. Hansen, "Relationship Markeing: Some Reflections," in Relationship Marketing. Gaining Competitive Advantage Through Customer Satisfaction and Customer Retention, T. Hennig-Thurau and U. Hansen, Eds. Berlin: Springer, 2001. R. Alt and T. Puschmann, "Sucessful Practices in Customer Relationship Managment," presented at 37th Hawaii International Conference on System Sciences, Hawaii/USA, 2004.

[35]

[36]

[37]

[38]

[39]

[40]

[41] [42]

[43]

[44] [45] [46]

[47]

[48] [49]

[50]

[51]

[52]

T. S. H. Teo, P. Devadoss, and S. Pan, "Towards a holistic perspective of customer relationship managment (CRM) implementation: A case study of the Housing and Development Board Singapore," Decision Support Systems, 2006, pp. in press. H. Diller, "Customer Loyalty: Fata Morgana or Realistic goal? Managing Relationships with Customers,," in Relationship Marketing. Gaining Competitive Advantage Through Customer Satisfaction and Customer Retention, T. Hennig-Thurau and U. Hansen, Eds. Berlin: Springer, 1992. A. Palmer, "The Evolution of an Idea: An Environmental Explanation of Relationship Marketing," Journal of Relationship Marketing, vol. 1, 2002, pp. 7994. J. N. Sheth and A. Parvatiyar, "The Evolution of Relationship Marketing," in Handbook of Relationship Marketing, A. Parvatiyar and J. N. Sheth, Eds. Thousand Oaks: Sage Publications, 2000. A. Rappaport, Shareholder Value – Ein Handbuch für Manager und Investoren. German edition, Stuttgart: Schaeffer-Poeschel, 1999. J. Cornelsen, "Kundenwert. Begriff und Bestimmungsfaktoren", working paper, University of Erlangen-Nürnberg, 1996. R. Rust, V. Zeihaml, and K. Lemon, Driving Customer Equity. New York et al.: The Free Press, 2000. W. Plinke, "Grundlagen des Geschäftsbeziehungsmanagements," in Geschäftsbeziehungsmanagement, M. Kleinaltenkamp and W. Plinke, Eds. Berlin: Springer, 1997. R. Blattberg, G. Getz, and J. Thomas, Customer Equity: Building and Managing Relationships as Valuable Assets. Boston: Harvard Business School Press, 2001. K. Fogarty, "Is CRM a faint hop?," Computerworld, 2001, pp. J. Masselli, "People Problems", Informationsweek, 2001. J. Hauschildt and G. Schewe, "Gatekeeper und Promotoren: Schlüsselpersonen in Innovationsprozessen in statischer und dynamischer Perspektive," Die Betriebswirtschaft, vol. 57, 1997, pp. 506-516. T. Connolly and G. Ashworth, "Managing Customers for profit,” Management Accounting," Management Accounting, vol. 72, 1994, pp. 34-39. T. Levitt, The Marketing Imagination. London: Free Press, 1983. M. M. Andrè and P. M. Saravia, "Approaches of Portuguese companies for relating customer satisfaction with business results," Total Quality Management, vol. 11, 2000, pp. 929-939. P. Dawkins and F. Reichheld, "Customer Retention as a Competitive Weapon," Director and Boards, vol. 14, 1994, pp. 42-47. D. McDougall, G. Wyner, and D. Vazdauskas, "Customer Valuation as a Foundation for Growth," Mercer Management Journal, vol. 6, 1996, pp. 13. K. L. Bernhardt, N. Donthu, and P. A. Kennett, "A longitudinal analysis of satisfaction and profitability,"


9


[53]

[54]

[55]

[56]

[57]

[58]

[59]

[60] [61]

[62]

[63]

[64]

[65]

[66]

[67]

[68]

[69] [70] [71]

Journal of Business Research vol. 47, 2000, pp. 161171. P. Andon, J. Baxter, and G. Bradley, "The Calculation of customer Lifetime Value (CLV): Theory and Practice", Working paper, University of New South Wales, School of Accounting, 1998. P. Berger and N. I. Nasr, "Customer Lifetime Value: Marketing Models and Applications," Journal of Interactive Marketing, vol. 12, 1998, pp. 17-30. F. R. Dwyer, "Customer Lifetime Valuation to Support Marketing Decision Making,," Journal of Direct Marketing, vol. 11, 1997, pp. 6-13. H. Gierl and T. M. Kurbel, "Möglichkeiten zur Ermittlung des Kundenwerte," in Handbuch Database Marketing, D. B. J. Link, Ch. Schleuning, and R. E. Kehl, Ed. Ettlingen: IM Marketing Forum, 1997. J. C. Hoekstra and E. K. Huizingh, "The Lifetime Value Concept in Customer Based Marketing," Journal of Market Focused Management, vol. 3, 1999, pp. 257274. R. Köhler, "Kundenorientiertes Rechnungswesen als Voraussetzung des Kundenbindungsmanagements," in Handbuch Kundenbindungsmanagement, M. Bruhn and C. Homburg, Eds. Wiesbade: Gabler, 2000. K. Wilde and E. Hickethier, "Erfolgsbestimmung im Database Marketing," in Handbuch Database Marketing, J. Link, D. Brändli, C. Schleuning, and R. E. Kehl, Eds. Ettlingen: IM Marketing Forum, 1997. J. Haag, "Kundendeckungsbeitragsrechnungen," Die Betriebswirtschaft, vol. 52, 1992, pp. 25-39. J. Cornelsen, Kundenwertanalysen im Beziehungsmanagement. Nürnberg: GIM Gesellschaft für Innovatives Marketing., 2000. W. Plinke, "Bedeutende Kunden," in Geschäftsbeziehungsmanagement, M. Kleinaltenkamp and W. Plinke, Eds. Berlin: Springer, 1997. J. Schemuth, Möglichkeiten und Grenzen der Bestimmung des Wertes eines Kunden für ein Unternehmen der Automobilindustrie. München: Fördergesellschaft Marketing, 1996. M. Krafft and S. Albers, "Ansätze zur Segmentierung von Kunden: wie geeignet sind herkömmliche Konzepte?," Zfbf, vol. 52, 2000, pp. 515-536. C. Homburg and D. Daum, "Die Kundenstruktur als Controlling-Herausforderung," Controlling, vol. 9, 1997, pp. 394-405. S. Scheiter and C. Binder, "Kennen Sie Ihre rentablen Kunden?," Harvard Business Manager, vol. 14, 1992, pp. 17-22. E. Böing and D. Barzen, "Kunden-Portfolio im Praktiker-Test," Absatzwirtschaft, vol. 35, 1992, pp. 8589. P. Götz and H. Diller, "Die Kundenportfolio-Analyse", working paper no. 1, University of Erlangen-Nürnberg, School of Business Administration, 1991. S. A. Rieker, Bedeutende Kunden. Wiesbaden: Deutscher Universitätsverlag, 1995. R. Kaplan and D. Norton, Balanced Scorecard. German edition, Stuttgart: Schaeffer Poeschel, 1997. R. Camp, Benchmarking. München: Hanser, 1994.

[72]

[73] [74]

[75]

[76]

[77]

[78]

[79]

[80] [81] [82]

[83]

[84] [85]

[86] [87]

[88] [89]

J. Schmitz, "Prozessbenchmarking - Methodik zur Verbesserung von Geschäftsprozessen," Controller Magazin, vol. 23, 1998, pp. 407-415. A. Baschin and A. Steffen, "IT-Controlling mit der Balanced Scorecard," krp, vol. 45, 2001, pp. 367-371. R. Kaplan and D. Norton, "Using the Balanced Scorecard As a Strategic Management System," Harvard Business Review, vol. 74, 1996, pp. 74-85. S. Reinecke and D. J. Reibstein, "Performance Measurement in Marketing und Verkauf," krp, vol. 46, 2002, pp. 18-25. E. W. Anderson, C. Fornell, and D. R. Lehmann, "Customer Satisfaction, Market share and Profitability: Findings from Sweden," Journal of Marketing, vol. 58, 1994, pp. 53-66. M. Bruhn, Wirtschaftlichkeit des Qualitätsmanagements: Qualitätscontrolling für Dienstleistungen. Berlin: Springer 1998. B. Stauss and W. Seidel, Beschwerdemanagement: Fehler vermeiden, Leistung verbessern, Kunden binden. München: Hanser, 1996. G. Moedritscher and W. Mussnig, "Evaluating the Long-Term Benefit of CRM-Systems; A Cost-oriented Approach," International Journal of Innovation and Technology Management, vol. 2, 2005, pp. 367-389. K. Bleicher, "Integriertes Management - Ein visionäres Konzept," Thexis, vol. 14, 1997, pp. 7-10. W. Mussnig, "Dynamisches Zielkostenmanagement," Controlling, vol. 13, 2001, pp. 139-148. W. Luecke, "Investitionsrechnung auf der Grundlage von Ausgaben und Kosten?," Zeitschrift für betriebswirtschaftliche Forschung, vol. 7, 1955, pp. 139-148. R. Fischer and M. Rogalski, Datenbankgestuetztes Kosten- und Erlöscontrolling - Konzept und Realisierung einer entscheidungsorientierten Erfolgsrechnung. Wiesbaden: Gabler, 1995. U. Knöbel, "Was kostet ein Kunde? Kundenorientiertes Prozesskostenmanagemen," krp, vol. 45, 1997, pp. 7-13. A. Töpfer, "Gezieltes Customer Relationship Management: Kundenwertanalyse als Grundlage von Kundenzufriedenheit und Kundenbindung," Controlling, vol. 5, 2001, pp. 185-195. I. Campbell, "Rechnet sich CRM?" http://www.acquisa.de, last access: 22 Oct. 2001, 2000. R. Pieske, Benchmarking in der Praxis - Erfolgreiches Lernen von führenden Unternehmen. Landsberg/Lech: Moderne Industrie, 1995. W. Lücke, Investitionslexikon. München: Vahlen, 1991. A. Neely and C. Adams, "Perspectives on Performance: The Performance Prism", http://www.som.cranfield.ac.uk/som/cbp/prismarticle.pd f, 2001.


10

Performance Monitoring of CRM Initiatives - IEEE Computer Society

Performance Monitoring of CRM Initiatives - IEEE Computer Society

Suggest Documents

IEEE COMPER SOCIETY - IEEE Computer Society

CallMeSmart - IEEE Computer Society

WaferCatalyst - IEEE Computer Society

Bookshelf - IEEE Computer Society

Conation - IEEE Computer Society

DOI - IEEE Computer Society

Workshop - IEEE Computer Society

Conferences - IEEE Computer Society

Spotlight - IEEE Computer Society

microLAW - IEEE Computer Society

iservo - IEEE Computer Society

Conferences - IEEE Computer Society

IEEE Computer Society - CiteSeerX

Featureous - IEEE Computer Society

eGSSM - IEEE Computer Society

PHYSIMC - IEEE Computer Society

ANFIS - IEEE Computer Society

Virtualization - IEEE Computer Society

TLT - IEEE Computer Society

Anecdotes - IEEE Computer Society

IEEE Computer Society

PENTOOLS - IEEE Computer Society

Infoparco - IEEE Computer Society

SalsaAsst - IEEE Computer Society