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Assessing the Readiness of Firms for CRM: A Literature Review and Research Model
Rosalie J. Ocker, Ph.D. Susan Mudambi, Ph.D. Management Information Systems Marketing Fox School of Business & Management Temple University Philadelphia, PA ocker@temple.edu smudambi@temple.edu
Abstract The concept of customer relationship management (CRM) resonates with managers in today's competitive economy. Yet recent articles in the business press have described CRM implementation failures, and consequent company reluctance to invest in CRM. The potential for substantially improved customer relationship management, coupled with the high uncertainty surrounding failed implementation efforts, calls for a critical new look at the determinants of, and influences upon, a firms decision to adopt CRM. This paper responds by underscoring the criticality of performing a deep analysis of a firms readiness to undertake a CRM initiative. We suggest that this assessment provide detailed answers to two fundamental questions: What is a firms current CRM capability? and What changes must be in place before embarking on a CRM initiative? A model to assess readiness is developed based upon the premise that business value is enhanced through the alignment of complementary factors occurring along three dimensions, intellectual, social, and technological. Tanis, 2000:189). Occurring at project inception, the associated problems or shortcomings of this phase are multiplicative, and can exert a toxic effect on the ensuing innovation process. Although decisions made during this phase are critical to the eventual success or failure of a CRM initiative, there is a paucity of research exploring these adoption issues (Markus & Tanis 2000). Our research addresses this knowledge gap by underscoring the criticality of performing a deep analysis (Parr et al., 1999) of a firms readiness to compete based on CRM. To aid in reducing risk and uncertainty, we suggest that this assessment provide detailed answers to two fundamental questions: What is a firms current CRM capability? and What changes must be in place before embarking on a CRM initiative? In the ensuing discussion, we address these questions by delving into the relationships between the concepts of business value, complementarity, and alignment.
1. Introduction
A compelling business case and success stories continue to attract business interest and investment in customer relationship management (CRM). The CRM software market is expected to increase from $7 billion in 2000 to $23 billion in 2005, even though conventional wisdom is that 30 to 50 percent of CRM initiatives fall short of meeting company objectives, while another 20 percent actually damage customer relationships (AMR Research 2002). A seemingly myriad of challenges, conditions and circumstances contribute to the ultimate success or failure of a CRM initiative. Before investing scarce resources in such a risky technology innovation, corporate leadership is calling for a means of decreasing the sphere of uncertainty surrounding CRM. The adoption phase (Rogers, 1995) of a technologybased innovation such as CRM is where decision-making and planning activities are conducted to address whether, why, and how to implement the innovation (Markus &
organizational strategy, structures and planning processes. Here, strategy is the focal point such that positive alignment can be achieved when organizational structures and processes support strategy. In contrast, the social dimension concerns the alignment of organizational culture, stakeholder interactions and knowledge of one anothers work domain. In this context, culture is at the nucleus where positive alignment occurs when stakeholders are knowledgeable about each others domain areas such that cooperative interaction (as opposed to conflictive) occurs within the bounds of the organizations norms and values. Other related research underscores the importance of alignment between the intellectual and social dimensions. For example, using general systems theory and chaos theory as the foundation, (Semler, 1997) presents a theory of systematic organizational alignment where strategy, structure and culture are complementary. A harmonious agreement of these aspects breeds an internal environment supportive of the organizations strategy, by eliminating internal barriers to cooperation and performance. The theory outlines six aspects of alignment (process, reward system, values, norms, performance and environment) that, if in agreement, should result in positive organizational performance. As organizational performance is guided by strategy (Pearce and Robinson 1994), and given that a firms leaders develop strategy, it is the leaders and the roles and processes they prescribe that largely drive alignment. Absent from this discussion is the linkage of IT in the alignment mix. There is a relatively large literature exploring the strategic alignment of IT (i.e., the intellectual dimension) with an organizations strategy. This research focuses on the need to align business and IT strategies such that business objectives are enabled, supported, and stimulated by IT strategies (Broadbent and Weill, 1993). Strategic alignment is conceptualized along two dimensions, strategic fit and functional integration, in the strategic alignment model (Henderson and Venkatraman, 1990). Strategic fit focuses on the integration of the firms external environment (e.g. partnerships, alliances, core competencies) with its internal environment (e.g. organizational structure, business processes, human resource processes). Functional integration deals with the internal alignment of organizational infrastructure and processes and IT infrastructure and processes. This body of research generally finds that alignment enables a firm to maximize its IT investments and achieve harmony with its business strategies and plans, leading to greater profitability (Papp, 1999). A different slant to the strategic model is provided by Barua and Mukhopadhyay (Barua and Mukhopadhyay, 2000). They developed a business value complementarity model, another model premised on the concept that business performance is directly affected by the alignment
of IT and other complementary factors. At the most fundamental level, management can choose to invest in different levels of resources in each of four areas: business strategies, IT applications, business and management processes, and incentives/control systems. Changes in any one of these areas should be accompanied by complementary changes in the remaining three. As in the domain of organizational research, the social dimension of alignment has been studied to a far lesser degree than strategic alignment, and there is no comprehensive model in use. However, notable exceptions exist including Reich and Benbasats (2000) research linking the importance of communication and shared domain knowledge between IT and business stakeholders in support of corporate strategy. These researchers also found that perceptions regarding the success of IT implementations were a key influence on IT alignment. This review points to the importance of IT in achieving organizational alignment. Hence, we propose IT as an explicit third dimension of alignment to emphasize its impact. We suggest that the IT dimension includes the strategic technology enabler, in this case the CRM application, the firms IT capability, and specifically its knowledge management capability.
Structure
Planning
Stakeholder Interaction
Domain Knowledge
IT Capability
Knowledge Management
Intellectual Dimension
Social Dimension
Culture Cultural Perspective Attitudes toward change, technology, sharing Stakeholder Interactions Dynamics Involvement Technological Savvy Domain Knowledge Within Business Unit Across Business Units Sharing
Technological Dimension
CRM Application Scope Complexity Customization IT Capability Project Management Skilled Team Similar Implementations Knowledge Management Integration Data Warehouse Infrastructure
directed toward motivating the implementation effort and then to sustaining it. The literature also consistently points to the importance of a champion of the innovation effort. To qualify as a champion, an employee must be a upperlevel, highly respected individual who actively supports and promotes the innovation, providing information, material resources, and political support. As an aid to success, it is important that the same champion sees the innovation effort through to completion. In a recent field study, firms undertaking CRM projects with a dedicated high-level champion were twice as likely to report that their project was doing at least better than expected (Yu 2001). Leadership styles are a key factor when embracing a new initiative such as CRM. Nguyen-Huy (2001) identified four change management leadership styles, including: commanding; engineering; teaching; socializing; or hybrid. No one type is inherently superior to another. Much depends on the styles that have brought success in the organization's past. Also, successful change leaders have utilized one style during an initial stage, and changed to a different style in a later stage. For example, a commanding style may be important at the outset of a project, to communicate that top management is serious and committed to the change, whereas a more collaborative style may be successfully used during implementation. In the context of CRM, little research has been done to examine the change management leadership styles utilized, or to analyze under what conditions a particular change management leadership style is likely to be effective. 3.1.2 Structure. The innovation literature suggests that a firm with a flat, decentralized structure, as opposed to a centralized hierarchical structure, is most likely to support the development of innovative ideas. However, with regard to implementing the innovation, a centralized structure has been shown to be most effective. In terms of an IT innovation, structural factors pertain to the compatibility of the system with the organizational design (e.g., centralization, decentralization, organic), the authority hierarchy, reporting relationships and the like. ERP and CRM efforts revolve around business processes. Effective CRM must integrate and support the business processes that create customer experiences. These business processes span the organization, including the customer-facing business processes of marketing, sales, and customer service. However, back-office business processes such as accounting, purchasing, production, and logistics are also involved. The significance of this logical integration of customer related knowledge cannot be under-estimated. It poses a major challenge to organizational readiness. There has been debate regarding (1) whether to reengineer business processes prior to proceeding with an ERP initiative and (2) the degree that business processes
should mirror the best practices embedded in the application software. ERP literature points to the success of companies who re-engineer processes to mirror the software prior to undertaking the ERP implementation effort. It seems reasonable to assume the same applies in the realm of CRM. CRM cannot be successful unless customer information stored in the corporate knowledge bases and warehouses contains relevant data that is timely and accurate. To accomplish this requires the cooperation of a multitude of employees from sales and marketing to those involved in back-office operations. A pressing problem is that many employees who have the requisite knowledge that CRM relies upon do not directly reap the benefits, but rather only experience the cost of entering their information into the corporate knowledge bases and customer repository. 3.1.2 Planning. Planning can be defined as the state to which a high quality set of connected plans exists, involving corporate, business units, and IT. The corporate strategic plan should drive the business unit plans and IT plans. Researchers have found that IT executives who participate more in business planning believe they have a better understanding of top managements objectives than those who participate less (Lederer and Buryk 1989). Furthermore, an integrated planning process fosters communication between business and IT executives, and is important in forging a shared understanding between different functional areas within a firm. Support for the importance of connections in planning is also found in Zmud (1988) who notes that structural mechanisms (e.g., steering committees, technology transfer groups) are needed to build IT-line partnerships for the successful introduction of new technologies.
each stakeholder relative to the CRM initiative, and development of a plan for proactive management of stakeholder relations. Because a CRM initiative crosses multiple business units and organizational segments, departmental and subgroup differentiation can breed conflict that may substantially hamper or thwart a CRM initiative. Management must acknowledge the presence of diverse social, technical, and political subsystems, as well as their diversity of goals, attitudes, and allegiances (Fuller et al., 1982). 3.2.3 Domain Knowledge. In the CRM context, shared domain knowledge refers to the knowledge that customerfacing business units have with respect to one anothers business missions, objectives and plans (Reich and Benbasat, 1996), as well as their global understanding of the firm. Similarly, it also refers to the knowledge that IT executives possess with respect to functional knowledge of business units as well as to global knowledge of the firms operations. Reich and Benbasat (1996) find shared domain knowledge to be an influential antecedent to communication and alignment (Reich and Benbasat, 2000), suggesting a need to investigate the ways in which shared domain knowledge is created.
milestones, appropriate training of users and the project team) where a multi-skilled project manager possesses expertise in technical, business, and change management areas. Research indicates that a balanced team composed of experts from business units and IT, as well as thirdparty experts such as consultants and vendors is critical. An experienced, highly skilled and empowered project team is fundamental (Parr et al., 1999). Additionally, expertise in terms of comparable (e.g., size, complexity, similarity) implementations including previous attempts at CRM (e.g., departmental level applications such as sales force automation) is especially helpful. 3.3.3 Knowledge Management. A key asset and resource of an organization is the knowledge it possesses (Drucker 1993). Knowledge management is the process of managing (e.g., capturing, representing, and making available) the intelligence and expertise resident in an organization (Nonaka, 1991; Quinn et al., 1996), Tiwana 2000, Stefanou et al., in press). According to Romano (2000), companies need to explore and refine CRM knowledge management methods in order to get valueadded knowledge for themselves and their customers. To realize this value in a customer-centric context requires the integration of customer data and knowledge throughout an organization. This involves integrating business processes, front and back-office application systems, as well as on-line and off-line customer touchpoints (Tiwana 2000). Mittal (2001) states that the effort requires identifying, collecting and integrating various forms of often-disparate data into knowledge warehouses. This necessitates integration of operational, marketing, customer, and survey data, internal metrics and marketing intelligence of the industry, competitors, and customers. Data warehouse capabilities are a critical enabler of knowledge management. Data structures, standards, and models are necessary to support the requisite organization of data in the corporate knowledge repository. Fundamental to these capabilities is the technology infrastructure within a firm. The essential CRM infrastructure includes communication networks, data warehouses, computing platforms, and web servers, all of which should seamlessly work together.
4. Summary
Organizations pursue a CRM strategy for the purpose of increasing business performance and value. However, firms face a multitude of organizational challenges associated with this endeavor. To reduce their risk of failure, it was suggested that firms undertake a deep analysis of organizational readiness prior to committing to a CRM initiative. A model to assess readiness was developed based upon the premise that business value is enhanced through the alignment of complementary factors occurring along three dimensions (intellectual, social, and
technology). Throughout this discussion of complementary factors, states of being (i.e. properties) have been proposed as favorable, benefiting or enhancing organizational CRM readiness. These are summarized in Table 2. It is anticipated that, at a minimum, an organization can benchmark its capacity for CRM against the proposed states of the alignment model in the nine readiness categories (within each of the three dimensions). In this manner, a sort of scorecard approach can be used to assess readiness, the degree of change required to become ready, and the associated risk. However, it is anticipated that significantly more predictive power can be achieved through the refinement of this model, as, hopefully, relationships between proposed complementary factors both within and across categories and dimensions are discerned. It is anticipated that these relationships are driven by goals and held together by something akin to themes. For example, the goal of attaining a global view of the customer is of paramount importance to firms operating in the international marketplace. In this realm, one may uncover complementary relationships organized around the theme of integration. The literature points to the importance of shared knowledge in achieving this global customer view. However, to foster shared knowledge, business processes and planning functions must be integrated, disparate technologies and software platforms must be integrated, and then, of course, the organizational culture must support knowledge sharing such that stakeholders will rally behind the integration effort.
References
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5. Future Research
Currently, we are evaluating the content validity of the readiness model by conducting field interviews of multiple stakeholders in CRM initiatives from three industrial organizations. The purpose of these interviews is to (1) gather expert opinions regarding readiness factors from the practitioner community and (2) compare these with our model to insure its completeness. We will then use this model as a basis to develop (where necessary) and apply (pre-existing wherever possible) reliable and valid measures in the creation of a CRM readiness survey instrument. We intend to use this instrument to benchmark firms within a single industry in order to discern the more intricate relationships between and among readiness factors, searching for those combinations that have the greatest impact on business value and performance. Acknowledgements: This research was partially funded by a grant from SAP America, Inc.
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Mgmt Support Champion Structure Organizational Structure Business Processes Incentives & Rewards Planning
Corporate, Business Units, and IT Integrated, connected and established planning process SOCIAL DIMENSION Culture Perspective Integrated (shared values and behaviors), cooperative, and trust-based Attitudes Open to change, positive attitude towards technology Empowerment Employee empowerment is the norm Stakeholder Interactions Dynamics Involvement Technology experience Domain Knowledge Within business units Across business units Sharing CRM Application Scope and complexity Customization IT Capability Expertise Knowledge Management Integration Data Warehouse Infrastructure
Identification and awareness of CRM stakeholder dynamics Inclusion of stakeholders in CRM planning efforts Technologically savvy stakeholders Enhanced depth of knowledge Enhanced breadth of knowledge Willingness to share knowledge TECHNOLOGY DIMENSION Reduced functionality; phased implementation Reduced or eliminated Project management experience; balanced team of experts; experience with similar installations (e.g. ERP, SFA) Global view of customer Pre-existing data structures, standards, and models built into corporate knowledgebase Communication networks, data warehouses, computing platforms, web servers
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