Customer Relationship Management (CRM) Technology Impact

THE IMPACT OF CUSTOMER RELATIONSHIP MANAGEMENT TECHNOLOGY ON INFORMATION AND STRATEGY IN THE RETAIL Industry

EXECUTIVE SUMMARY:

This report examines CRMs impact on information use and strategy in the retail sector. Regarding CRM’s impact on information use the reports reveal that CRMs data warehousing, automation, mining, knowledge management and knowledge sharing capabilities have significantly impacted how organisations retain, share and disseminate information to relevant areas of the business. Key information on buying trends, customer profiles can be elicited so that appropriate modifications can be made regarding pricing, product, promotional and other elements to provide enhanced products and services. CRM, for many retail organisations, has meant information is now used as a source of competitive advantage. Examining CRMs impact on strategy, the report illustrates through the MIT90’s framework that strategic alignment between CRM technology and the organisations structure, its strategy, its people and culture is essential for technology to be integrated effectively.

The reports findings reveal numerous barriers to CRM. These centre on an over focus on the technical-requirements than on business strategy, a lack of cross-functional coordination, failure to support monitor and evaluate CRM performance, an unreceptive organisational culture to technological change and an inability to see CRM implementation from a holistic approach. An unwillingness to share information and knowledge was also highlighted as a potential inhibitor to unlocking CRM potential. Evidence illustrates that barriers essentially fall under a strategic misalignment between technology, structure, strategy or culture of an organisation. In response, a number of recommendations to aid retail organisations in unlocking CRM potential are provided. These include: a holistic perspective towards CRM implementation; a focus on strategic alignment between CRM and the organisations strategy, structure, individuals and culture; a CRM strategy, outlining its strategic objectives; understanding the organisations data needs; encouraging organisational agility to provide a more adaptable structure that CRM technology can be integrated more easily into; introducing tailored recruitment and training programs to foster the right CRM competencies backed with an effective incentive system and the facilitating a communal culture organisational culture emphasising teamwork, empowerment, communication, innovation and a strong customer orientation.

INTRODUCTION:

With managing customer relationships now central to organisational success (Kohli et al, 2001; O’Halloran, 2003; Nguyen et al, 2007), developing long-term customer relationships through user enabling Customer Relationship Management (CRM) technology has moved to the ‘top of the corporate priority list’ for many retail organisations (Smith, 2006:87). But what precisely are the direct implications CRM has on information and on strategy? and why is that many CRM projects in the past have failed? What can retail organisations do to ensure CRM success? It is these areas that this report seeks to explore within a retail sector context. The author has selected to investigate these areas in a retail sector context due to its sheer growth, impact and scale of usage within this industry (Anon, 2009). It has revolutionised the way retail companies utilise data to identify key information trends and thus elicit and apply this knowledge to potentially increase profits (Miller, 1999). The reports main body is therefore split into two sections, with section one examining the impact CRM technology has on information use and section two, using the MIT90’s framework, exploring the potential consequences CRM has on strategy for retail organisations. Lastly, barriers associated to successful CRM implementation are considered and recommendations presented as to how retail organisations can fully unlock and capitalise on their CRM capabilities.

SECTION 1: USE OF TECHNOLOGY

The following section provides an explanation of CRM from a theoretical standpoint, through an analysis of literature definitions and a practical one, in terms of hardware, software and data structures.

1.1 Explanation of Technology

The range of CRM definitions emerging over the years have provided many interpretations of what precisely CRM is and does (McKie, 2000). Broader, arguably looser definitions view CRM as a natural progression from relationship marketing (Light, 2001), where ‘information systems…enable organisations to realise a customer focus’ (Bull, 2005:593). Richer, complex definitions view CRM technology enabling organisations via the utilisation of customer related information to ‘foster closer relationships with their customers’ (Levine, 2000; Hsieh, 2009:416). More specifically, McNally (2007:169) defines CRM as a ‘strategic process addressing all aspects associated with identifying customers, creating customer knowledge, building customer relationships, and shaping organisation and product perceptions’. Nguyen (et al, 2007:103) echoes this, but provides a more simplified version, ‘CRM is a strategic process that helps companies better understand their customers’ needs so they can provide these needs to their customers at the right time while improving the company’s processes’. The emphasis on strategic process in the former two definitions fits particularly well when explaining how CRM works in the retail sector in terms of hardware, software and data structures. Here transactional data from EPOS sales systems, web systems, sales contact systems systems and loyalty schemes (data) through automated data capture is sent to the client server mainframe at head office (hardware) where an analysis of relationships (using software) is conducted (Mutch, 2008). It is then data warehoused and structured in a way that allows the user (with the use of CRM tools) to extract patterns and relationships on important trends, such as information on particular customer profile groups and their purchasing habits, average spend, preference for offers etc. This can then be utilised to identify potential ways of improving profitability and disseminated back to relevant departments.

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1.2 Impact of CRM on Information use in the Retail Sector

The following section analyses CRM technology’s impact on information use in the retail sector. Information here is broken down into three main elements: data; being raw statistics, symbols, numbers, information; processed data considered and knowledge; the application of data and information (Beynon-Davies, 2009). The relationship between one another is also presented throughout.

1.2.1 Impact of CRM on data use

A. Provided more efficient and effective use of data, through warehousing, mining and cross-functional integration.

CRMs capability for integrating multiple databases across different areas of the retail organisation has impacted data use in the sense that it has enabled users to have access to real time, relevant and accurate customer data. Fallon (2008) and Kaplan (2009) indicate that CRM allows retail companies to absorb raw customer data from multiple sources and integrate it into a centralised CRM system. There it is warehoused and later mined so important trends and information can be elicited and utilised (as applied knowledge) to improve customer relationships (Park and Kim, 2003; Chowdhury, 2009). Where CRM’s impact on data use lies is that through data warehousing, users with the aid of CRM mining tools, can analyse masses of real time transactional data such as sales amount, transaction time, place and buyer and non-transactional data, such as customer inquiries/feedback and separate this out into key information on product lines, pricing and customer profile and trends, down to each specific retail department and individual store (Miller, 1999). They can then filter back important information and knowledge to management and staff so that the right people at different organisational levels have the necessary know-how to provide enhanced levels of customer service, solve problems and increase profitability (Park and Kim, 2003).

B. Negatively impact as a form of customers surveillance

Amid growing concerns over data sensitivity and the increasing cross-referencing sale of data CRM has negatively impacted data use (Bodenberg, 2001: Mutch 2008). Literature indicates that CRM technology, with its capability to collect vast amounts of customer data for own strategic purposes, has led to a mass surveillance and monitoring of customer behaviour (Park and Kim, 2003). Consequently, data access and exchange has become more restricted due to stringent data protection legislation and company guidelines over the storage, access and lawful use of personnel customer information (Mutch, 2008).

1.2.2 Impact of CRM on information use

A. Information now used as a source of competitive advantage…using real time data and information enable a real time response

A CRM system allows retail organisations to pull all the transactional and non transactional data together and through the use of CRM tools, extracts key information critical to help coordinate sales, marketing, and customer service departments to better and faster serve customers’ needs (Smith 2006). In the retail industry CRM has particularly impacted on the way information is used to formulate customer profiles. Organisations can now quickly identify who there customers are, what they buy, how often, the quantities in which they buy etc and use this information to modify pricing, product or service offerings and other elements such as customer service to create an in-depth understanding of customer needs and provide fair value to all customers (Park and Kim, 2003). Put simply, CRM has impacted information use in that users can quickly provide comprehensive summary reports on critical business information to make informed decisions and responses to reduce costs and increase profitability at a much faster rate (McLuhan, 2001).

1.1.3 Impact of CRM on how knowledge is used

A. CRM impacts on organisations potential for improving knowledge retention, management and sharing….knowledge as a resource

Literature advocates that CRM has enhanced organisations ability to share and utilise knowledge (Krebs, 1998; Fan and Ku, 2010). Reychav (2009:235) concurs CRM has improved ‘employees ability to share knowledge’ both tacit and explicit and thus develop a customer orientation right throughout the business. This is supported by Krebs (1998) although he argues that codifying and storing tacit knowledge to be a much more intricate process. Irrespective, a wealth of evidence indicates CRM has changed the way knowledge is used in terms of how it is shared (Krebs, 1998). For example, in the retail sector, knowledge on particular buying habits of customer groups can be stored on a CRM system at head office where it is accessed by relevant departments (marketing, accounts, sales) who design appropriate promotional deals or joint offers on product lines to increase sales and profitability. This ‘knowledge’ can than be disseminated to appropriate retail outlets/stores to be implemented.

SECTION 2: STRATEGY

The following section examines CRMs impact on strategy within the retail sector and begins with a short outline of the key issues of CRM that prevent CRM from fulfilling its potential capabilities in practice. These are conceptualised in the following sections using Scott-Mortons (1991) MIT90’s framework (see below), which stresses strategic alignment and integration of CRM technology within all areas of the business is essential to capitalise on CRM potential.

2.1 Context

The key issues of implementing CRM technology and its impact on business strategy are:

1. Strategic alignment between CRM technology and business retail strategy

2. Ensuring the organisations structure works synonymously with CRM technology

3. The provision of individual training, recruitment and within this revised job descriptions to ensure the development of necessary competencies to maximise CRM potential

4. How organisational culture positively or negatively affect an organisations and its employees ability to use information elicited from CRM technology

These are now explored in more depth in the following sections using the MIT90’s framework model illustrated below.

2.1 Strategy

History is littered with past CRM failures, Carsdirect.com (Anon, 2000) and Lexmark (Songini, 2002) being perfect examples. McLuhan (2001) and Ramsey (2003) indicate most CRM failures are due to focusing overly on technical-requirements (technological determinism) rather than on the business strategy and the organisations needs. A lack of cross functional coordination, failure to support monitor and evaluate CRM performance and a failure to approach CRM implementation from a holistic approach are some of the other cited reasons as to why CRM projects fail (McLuhan, 2001; Bull, 2003). Other academics argue an unreceptive organisational culture to technological change coupled with an unwillingness to share information and knowledge as inhibitors to unlocking the potential benefits that CRM offers (Kotorov, 2003; Pavlovets, 2005).

Essentially the problems cited by literature come under the central issue of strategic alignment, a notion stressed in Henderson and Venkatramans (1993) Strategic Alignment Model and Turbans, et al. (1999) cultural model, though arguably conceptualised to greater effect in the MIT90’s framework (Scott-Morton, 1991) which is predominantly the main framework used in this report. The model advocates that for IT change to be successful, technology must be aligned to the company as a whole, so that organisational strategy, infrastructure, existing technology, individual roles, training programs, management and the organisations culture work synonymously with each other (Scott-Morton, 1991). Macredie et al. (1998), supports this perspective, concurring that CRM success is dependent on alignment between organisational strategy, structure and culture. Misalignment between these areas prevents CRM from fully delivering its potential capabilities. For example, if a retail organisations structure restricts CRM access to marketing and senior management only than it is unlikely that crucial information will be fed down to middle management and employees at operational level (those who interact with customers on a day to day basis) who require it most. Conversely, if the CRM system is not complemented with a recruitment and training policy that is designed to source and develop core competencies required to use CRM technology efectively, than it will most likely fail. Thus, a strategically aligned approach to information strategy (see appendix figure 1), ensuring information systems strategy, information management strategy, information technology strategy and information resource strategy are connected to each other and the overall organizations strategy is a critical success factor for integrating CRM effectively throughout the organisation (Earl, 2000; Van Bentum, 2005). The following sections now turn towards ensuring alignment within other areas of the organisation.

2.2 Structure

Numerous writers cite the sheer importance of aligning organisational structure with strategy, technology, the environment and its organisational culture (Mintzberg, 1989; Miller, 1989). In other words, to maximise your IT capabilities, an organisations structure must fit with its environment (Burns and Stalker, 1991; Senge, 1994). Over the years, this has led many retail organisations to shift away from traditional large-scale bureaucratic and hierarchical organisational forms to less traditional divsionalised structures facilitated by business process reengineering. However, evidence suggests such structures not only lose the benefits associated with large-scale bureaucratic organisations such as functional specialism and data interpretation from middle level managers, but also often fail to build strong links between divisions of the business, leading to a loss of shared core competencies and knowledge (Mabey, Saloman and Storey, 2001; Mutch, 2008). Literature is therefore indicative neither structure is particularly appropriate when integrating CRM technology. More recently, de-structured organisational forms, with an emphasis on high performance, knowledge creation and the empowerment of teams reflect a more suitable organisational structure in aiding retail organisations to elicit the potential their CRM application offers (Mabey, Saloman and Storey, 2001). Here, structure is built with speed, integration, innovation and flexibility in mind and an adhoc, boundaryless approach more receptive to technology change is instilled throughout the organisation. This encourages a free flowing information exchange throughout strategic, tactical and operational levels, structuring the organisation in a way where senior and middle management staff at retail organisations disseminate key important information and knowledge to employees at operational level. Where CRM role comes into play, is that it can be used to support these networked/lattice forms of organisations (Zuboff, 1988).

It therefore appears that organisational agility, termed by Gunneson (1997:3) as ‘a flat, fast, flexible organisation, with continuous interaction, support, and communications among various disciplines, with highly decentralized management that recognises what its knowledge base is and how it can manage that base most effectively’, is an essential component of structure. To achieve this, retail organisations must adopt a lattice/network like structure that has a mix of stability and flexibility to support the organisations capabilities and the empowerment of team working through cross functional teams with a focus on developing the collective intelligence of teams to meet the complexity of the dynamic environment (see Lorrimar, 1999). Such a structure is typically flat with large spans of control, features lateral communication and helps develop and maintain a project teamwork ethos and customer focus to ensure decision-making is guided by customer satisfaction (Friesen, 2005:33). This increases employee involvement, enhances communication, speeds up decision-making and breaks down boundaries thus enhancing flexibility and capacity to adapt (Clayton, 2006).

2.3 Roles

Literature advocates that it is organisational peoples use of CRM, not the technology itself, which is where organisations truly capitalise on opening up CRM’s full capabilities (McNally, 2007:169). Accordingly, recruitment, job descriptions and individual training should be amended in order to ensure the retail organisations have the right processes and programs in place to ascertain the competencies needed to utilise CRM technology. Job specifications for staff or ‘librarians’ accessing CRM should be amended to encourage a proactive approach towards their duties (Owens, Wilson and Abell, 1996). In addition, selection criteria should be adjusted to identify candidates who possess CRM capabilities through IT/CRM related qualification/certificates or direct experience gained through previous employment. Various levels of CRM training programs tailored to each department, and manager should be introduced and should centre on themes which retail procedure and policies regarding data analysis (McKean, 1999), communication competence, such as the use of emails (Ciaborra and Patriotta, 1996) and the ethical use of information to protect the identification of individual customers (Mason, Mason and Culnan, 1995), as well as CRM operational and functional use and how it works across the organisation (Mutch, 2008). The above changes should help retail organisations foster the necessary competencies to ensure CRMs correct use throughout the organisation (Alter, 2009). It is argued that these changes (jobs, processes and a lattice/network like structure), supporting richer communication and information sharing, allow workers to become informated by CRM and view the organisation in its totality, making information and processes once hidden, transparent (Zuboff, 1988).

2.4 Culture

Different aspects of organisational culture impact CRM use both positively and negatively in numerous ways. Van Bentum, (2005) analysis of organisational culture distinguishes between several variants of culture. Of these more ‘mercenary’ (characterised by heavy inward competition and intense internal and external rivalry) types of culture, often lend themselves to a communication framework that does not match with the knowledge management, knowledge retention and sharing capabilities that CRM offers. This impacts CRM use negatively, creating reluctance on behalf of the individual to use a system that transfers their core knowledge to an internal ‘rival’. It is this mismatch between culture and technology that is why many CRM projects fail. Such organisational cultures restrict CRMs knowledge sharing capability and discourage its use by workers (Van Bentum, 2005). Sub-cultures operating within departments or functions of the organisation are also seen to negatively hinder CRM use, often displaying resistance and an unwillingness to change and adapt to CRMs integration (Leverick, et al. 1998). In illustrating a more positive impact culture can have on CRM use, Van Bentum, (2005) advocates a ‘communal’ culture based on openness, innovation and continuous learning. Here culture positively impacts CRM in the sense that it is embraced by organisational people with a clear customer orientation, who in turn seek to utilise its capabilities to the fullest in their day-to-day activities. It is this type of culture that retail sector organisations currently operating a ‘mercenary’ type culture, should move towards.

Another cultural aspect impacting CRM use is that organisational peoples belief system regarding CRM ease-of-use and usefulness’ can have a significant impact on its performance highlighted (Avlontis and Panagopoulous, 2005). If perceived useful and easy-to-use, CRM leads to performance improvements. Conversely, if perceived as not useful and difficult to use, CRM will have little impact on performance and on fulfilling its strategic objectives (Avlontis and Panagopoulous, 2005).

The above cultural impacts on CRM use are indicative of a clear correlation between the type of organisational culture and IT performance (Davis, 1989; Avlontis and Panagopoulous, 2005). Literature indicates that retail organisations (particularly management spearheading/championing CRM) must nurture a communal CRM culture through an environment of teamwork, innovation, trust and a receptiveness towards CRM technology in order to ensure its embracement throughout the organisation (Avlontis and Panagopoulous, 2005:Van Bentum, 2005). an appropriate cultural foundation, is prerequisite to CRM success.

SECTION 3: CONCLUSIONS & RECOMMENDATIONS

This report has sought to examine CRM’s impact on information use and strategy in the retail sector, revealing some of the reasons was as to why CRM projects fail and recommendations to capitalise on CRM potential. The reports main findings and recommendations are summarised below:

3.1 KEY FINDINGS

1. CRM technology has significantly impacted the relationship between data, information and knowledge and their use in the retail industry. Data and information are now used as a source of competitive advantage. Knowledge is now seen as a resource through retention and sharing.

2. Strategic alignment is a critical for CRM success.

3. There are numerous barriers to successful CRM often attributable to a strategic misalignment (summarised in appendix figure 2).

3.2 RECCOMENDATIONS

1. A holistic perspective towards CRM implementation and strategic alignment between CRM and the organisations strategy, structure, individuals and culture is a critical for CRM success (Scott-Morton, 1991; Macredie, et al. 1998; Bull, 2003).

2. A CRM strategy, outlining its strategic objectives and a clear plan for integrating it into the organisations business processes and systems are perquisites for any successful CRM implementation project.

3. Understanding data needs and how the data will be used to extract information and elicit knowledge to increase profitability is critical.

4. Organisational agility to adapt to contextual factors such as new CRM technology is essential. De-structural changes in specific departments such as implementing flatter structures, introducing cross-functional teams and lateral communication channels is more suited to unlocking CRM potential (Lorrimar, 1999; Mabey, Saloman and Storey, 2001).

5. Organisational peoples role in how CRM is used is a major determinant of its success (McNally, 2007). Tailored recruitment and training programs to foster the right CRM competencies supported with an effective incentive system are critical (Avlontis and Panagopoulous, 2005).

A communal organisational culture emphasising a strong customer orientation, teamwork, empowerment, communication, innovation, accurate expectations regarding system usage and a receptiveness towards new technology is crucial to elicit employee commitment to CRM (Van Bentum, 2005).

APPENDIX

* Open focussing on technical-requirements reather than on the business strategy and organisations needs (McLuhan, 2001; Ramsey, 2003)

* Lack of cross functional coordination (McLuhan, 2001)

* Failure to support monitor and evaluate CRM performance (McLuhan, 2001; Bull, 2003)

* Failure to approach CRM implementation from a holistic approach (McLuhan, 2001; Bull, 2003)

* An unreceptive organisational culture to technological change (Kotorov, 2003) and sub cultures displaying resistance and an unwillingness to change and adapt to how CRM fits into their working duties acts as a barrier to unlocking CRM potential (Leverick, et al. 1998)

* An unwillingness to share information and knowledge as inhibiting CRM potential (Kotorov, 2003; Pavlovets, 2005)