Technology Not the Key to CRM SuccessJuly 30, 2004
How important is technology to implementing successful CRM? While many experts have argued that technology is simply a foundation for successful CRM, they often begin by describing CRM in pre-technology terms. The corner drug store, the old general store, and other delightful images of our history are recited as examples of good CRM because the storekeepers knew their customers and used that knowledge to build stronger relationships and larger profits. These pre-information technology examples suggest that technology may not even be required for successful CRM.
Academic researchers from around the world met in Dallas last month to discuss technology and other CRM issues at the Faculty Consortium in CRM, hosted by Baylor University and the University of Georgia. Among the research studies presented was an examination of the use of technology in CRM implementations. Conducted by Satish Jayachandran and Subash Sharma of the University of South Carolina, the study found that technology enables, but does not guarantee, effective CRM through the use of information. The findings were uniform across all types of companies: B2B versus B2C, as well as product versus service firms. As Jayachandran notes, "Simply having the technology does not mean that companies will enjoy a lift in performance. They also have to have systems in place that enable employees to make use of the information that has been gathered."
But does CRM affect the bottom line? According to a study conducted by Werner Reinartz (INSEAD, Paris), Manfred Krafft (University of Muenster, Germany), and Wayne Hoyer (University of Texas), there is a direct benefit to the bottom line. They studied four industries in France, Germany, and the United States, finding that return on assets (ROA), market share growth, and sales growth were all significantly enhanced at the strategic business unit (SBU) level when CRM processes were implemented. This study, like those mentioned earlier, recognizes the importance of the CRM processes, not the technology. In fact, investment in CRM technology was not a significant predictor of ROA. Further, it did not matter whether the industry was financial services or hospitality, arguably the two leading CRM technology-using industries, or utilities (in de-regulated markets) or IT/online businesses - the findings were the same.
Nicole Coviello, marketing professor at the University of Auckland in New Zealand, agrees that technology is not a panacea. "Our research has also noted that it is not enough to have information technology. Rather, the key to success in CRM is understanding which customers value IT-enabled relationships, and then using technology to reinforce and enhance marketing practices." A team of researchers from Baylor University found similar results in sales force automation (SFA). Says Jeff Tanner, "The findings of our study indicate that technology is a ticket to entry; everyone seems to have SFA. But the more successful firms, in terms of measures such as profit growth, sales growth, market share growth, and customer satisfaction, are those that use the technology wisely, not those that spend the most."
Product innovation is another benefit from these enabling processes. According to Tanner, an interesting finding of the SFA study was that, in addition to the financial and customer satisfaction performance measures, companies with better information processing practices also innovate at a faster rate. "What this means is that these companies are learning faster than their peers from their customers, and turning that learning into new products and new programs to satisfy those customers' requirements."
As Stephanie Noble, professor of marketing at Ole Miss University, states, "The issue isn't whether a company implements technology, but whether the company does something that improves the customer's experience. Currently many CRM systems are not improving consumers' experiences, but rather annoying customers. Companies continually ask their customers for personal information, yet do not use this information in any useful way to enhance their experience. These companies have not embraced the true value of CRM programs." Martha Rogers, adjunct professor in the Fuqua School at Duke and Founding Partner of Peppers and Rogers Group, is working with her partner Don Peppers on a book examining the "return on customer" metric. In her remarks at the conference, Rogers added that "It's not enough to know how much any campaign or CRM program pays off. What really matters is whether or not anything a company does increases the value of the company toward a customer, and measurably increases the value of the customer to the company."
One conclusion from these studies is recognition of the importance of the right organizational culture. Bob Lusch, professor of marketing at the University of Arizona, notes that there have been several studies indicating that employee satisfaction is directly related to customer satisfaction. "We know from anecdotes like those of Color Line (a Scandinavian ferry company) and Ritz Carlton here in the States that when employees are empowered to serve customers, employee satisfaction goes up and employee turnover goes down. But we've also seen in several studies that there is a direct correlation between employee satisfaction and customer satisfaction." He believes that the economy is moving to a service paradigm. "Popular opinion has long held that we are moving toward a service-based economy. What my colleague, Steve Vargo, and I argue is that all customer relationships are about service, not product."
Says Noble, who also serves as the vice-president of the American Marketing Association's Relationship Marketing special interest group, "What is needed now is some understanding of how customers want that experience enhanced." She points out that specific companies have gained considerable competitive advantage when they have determined specific ways of improving customer's experience. "When you see a CRM success such as Royal Bank Canada, at the heart of that success is the customer-facing component of their strategy. They've done something that adds value to the customer, and used CRM to either reduce their cost of providing that value or identifying the opportunity to add value."
But, adds Noble, "We need to develop models or principles of customer experience." Arguing for greater collaboration between industry and academia, she identifies the Teradata Center for CRM at Duke University as "a great start. But we need more."
In order to develop the next generation of research, greater collaboration is needed so that academic researchers can access customer lists for surveys, work directly with CRM practitioners to develop experiments, and continue to dialog with CRM industry experts. As Noble says, "The issue isn't always funding. More often, academic researchers are stymied by a simple lack of opportunity to conduct the study." The pay-off, though, can be significant. "We heard the call from practitioners for more research on metrics, compensation systems, and other organizational issues that need resolution." She only hopes that industry has heard the call from academia to provide the opportunity.
Dr. John F. Tanner, Jr., Ph.D., professor of Marketing, Hankamer School of Business, Baylor University