CRM – optimize your company: Benefits and downsides of implementing CRM systems

Table of Content

I Table of Abbreviations

II Table of Figures

III Executive Summary
1 Aims and Objectives
2 Definition
2.1 CRM
2.2 MSE - Medium-sized Enterprises
3 CRM
3.1 CRM - Life cycle
3.2 CRM-Systems
4 CRM technologies
4.1 Operative CRM (oCRM)
4.1.1 eCRM
4.1.2 mCRM
4.1.3 EAI
4.2 Analytical CRM (aCRM)
4.2.1 Data Warehouse
4.2.2 Online Analytical Processing (OLAP)
4.2.3 Data Mining
4.3 Collaborative CRM
4.4 Goals of CRM
4.4.1 Customer-related objectives
4.4.2 Business-related objectives
4.4.3 Strategic, product-specific and financial goals
4.5 CRM market
5 Requirements for a successful CRM implementation
5.1 Change Management
5.2 Business process optimisation (organisation)
5.3 Customer Relationship Strategy
5.4 Corporate Culture
5.5 Employees
5.6 CRM system
6 CRM - Rent or Buy
6.1 CRM OnDemand
6.2 CRM OnPremise
6.3 Cost and decision criteria
7 Customer - The meaning of customer satisfaction
7.1 Aspects of customer loyalty
7.2 The change in consumer behaviour
8 Downsides and Risks
8.1 Downsides of CRM implementation
8.1.1 Strategic and conceptual Resistors
8.1.2 Management resistance
8.1.3 Employee’s resistance
8.1.4 Customer resistance
8.1.5 Other downsides
8.2 Risks of CRM implementation
9 Benefits and Chances
9.1 Benefits of CRM implementation
9.2 Chances of CRM implementation
10 Trends of CRM
10.1 mCRM
10.2 CRM 2.0 (Social CRM)
10.3 eCRM
10.4 CRM on Demand
11 Conclusion
12 Recommendation

IV References

I Table of Abbreviations

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II Table of Figures

Figure 1 Focus and strategies of CRM phases (Kalakota, 2001)

Figure 2 Closed CRM support loop (Source: based on Payne and Frow)

Figure 3 Analytical CRM in consideration in convergence of media (Source: SAP White Paper - aCRM)

Figure 4 Data Warehouse Architecture (Source: ThePCWeb "What is Datawarehouse?")

Figure 5 Corporate Objectives (Source: Capgemini Company Consulting, Technology and Outsourcing)

Figure 6 The enterprise application market, 2007-2012 (Source: IDE-study "The market of Enterprise Application in Germenay in the sigh of the crisis 2007- 2010")

Figure 7 Decision criteria (Duffy C. 2006)

Figure 8 Sample CRM Five-Year TCO Cost Percentages by Category (Source: Gartner Research May 2004)

Figure 9 Experience Based Customer Satisfaction | Dissatisfaction)

Figure 10 A typical Total Cost of Ownership Scenario (Conventional CRM) (Source: CRM next Knowledge (2008))

III Executive Summary

In the past, CRM (Customer Relationship Management) was seen more clearly as a strategic tool in conjunction with technological progress. Now more and more companies use CRM to earn benefits. It helps to understand, manage and develop customer-specific analyses in order to increase customer loyalty and customer satisfaction. The fast-growing market of the different CRM systems is becoming more and more obscure but also more and more interesting for medium sized enterprises. This implementation promises to survive in the market and achieve a competitive advantage.

This thesis therefore aims to create a guideline to set aside to a number of clients that helps the clients of medium sized companies to get a sufficient overview of the whole situation around the subject of CRM. Relevant information about the variety of systems, conditions and requirements of using CRM within an enterprise will be provided. In addition, the positive and negative aspects of CRM will be mentioned in this report.

Based on the findings this report will clarify the question which economic strategy is correct or preferred for medium sized companies. Many providers offer companies to rent their CRM system during the first steps of implementation rather than to buy it. This offers the possibility to optimise one’s own corporate strategy with regard to the procedure which will change a corporate strategy by implementation of a CRM system.

The prerequisites of successful implementation consist of many different changes within the company. These changes are the key factors to a successful and profitable decision about the failure or success of the strategy in the market.

To round off the issue of the topic, customer satisfaction, customer loyalty and changes in consumer behaviour will be analysed. To benefit from a customer it is particularly important to understand this first. It is advantageous to monitor and track changes in the consumer behaviour and to be prepared at the next step or be one step ahead.

Finally, the downsides, risks, benefits and opportunities of the CRM implementation will be analysed and evaluated at the end. Also, a recommendation is offered for the approach of medium sized companies within the implementation-stage.

1 Aims and Objectives

The starting point for the report as part of the applied management project is the topic:

“Several of your consultancy clients have asked you for your views on CRM; how it can help medium size companies and are there any downsides to its implementation. Rather than reiterating the same answer to a number of clients, you have decided to write a report for circulation to them.“

Now it is the objective to prepare and write a guide for the target group of medium size enterprises. The background of the guide is a investigation of the target group regarding the topic of CRM and its benefits during its implementation; to get started and to bring the reader to a common understanding of both the definition of CRM as well as the term medium size enterprises and the detailed consideration of the whole process. To provide an objective view, the report describes both disadvantages and risks as well as the benefits and opportunities are described regarding an implementation in the enterprise. Thus it is possible to send the report to a number of clients who want to deal precisely with the topic of CRM. These have the opportunity to inform themselves fully about the subject CRM (the technology, requirements, process, costs, trends) with this report. Furthermore, it includes the different types of objectives of the CRM. It is especially important to ask the enterprises for their own objectives in order to provide the best possible decision. This is particularly important because CRM is a long-term strategic change for the enterprise. It offers a strategy which affects and changes the entire enterprise or these departments in which it is implemented.

Furthermore, this report provides a decision guidance to support the client as well as possible with information and decision-making aid regarding the purchase or rental of a CRM-system and it compares the criteria of both. This information about the subject serves a good entry to the enterprises to make an implementation as pleasant as possible. There must be no hidden costs and all possibilities should be considered as efficiently and effectively to the work-process as possible. As the CRM deals exclusively with the customer, it is equally important to analyze this too. Here, the core parts customer loyalty and customer behaviour are analyzed. In addition to the technical understanding this report offers an overview about the customer as a person to the reader. Without this understanding it is not possible to combine the customer-specific criteria with the use of a CRM strategy and to gain the advantages and benefits from the CRM implementation.

2 Definition

2.1 CRM

To give an overview of the definition and understanding of CRM, CRM is defined first. The following presents a brief look of various CRM definitions, Anderson K. and Kerr C. (2002) stated in their book: “Customer relationship management”; Using CRM can be defined as “A comprehensive approach for creating maintaining and expanding customer relationship”. They also point out that “comprehensive” means that CRM goes beyond just sales and marketing. The second key point in their definition, “approach”, according to Webster, means to handle or deal with new and old customers and extend the relationship between the enterprise and customer. The words “creating, maintaining and expanding” are dealing with the entire customer cycle. It is important to deal with the customer intelligence and to be successful in both, finding new customers and understanding current customers. Enterprises are dependent on dealing with customer information to satisfy new and old customers.

Peel (2009) stated in his book CRM redefining customer relationship management: “Customer relationship management is the vendor’s reaction to the more slippery customers”. Customers are trying more and more to remain undetected. They are arrogant and understand more and more the entire marketing process which is behind customer relationship management. According to Gartner Group or other industry analysts, most of the implementations of customer relationship management systems fail. The reason of the failure of a CRM-system after the implementation is mostly the mistake to take no further steps after an implementation. The two most important points in the concept of CRM for Peel are consideration and communication which are united in the keyword managing.

The CRM specialist Payne describes CRM in his book Handbook of CRM (2007) in five key-factors which narrow the complex field of CRM to a plain conglomeration. CRM is related more “strategically than tactical” and, therefore, a long-term instrument that must be well planned and prepared. Wrong approaches that CRM only supports the internal marketing of a company are false interpretations of past times. Today, the customer is in the focus of CRM much more than the company. It still means that the company receives a large value from the customer relationship. Above and beyond that, CRM has to be seen as a long process. As already obtained with the comparison of strategic and tactical keywords, CRM is not simply an installation of software to achieve the desired success. Payne invalidates the notion that CRM is an automated process which does not need another major optimization after implementation. “Outcomes, not outputs” is stated by Payne as the fourth key-point in his description of CRM. Earlier, companies focus on the outputs of CRM. They have seen customer lists and order structures as a goal of CRM. Today, emphasis is placed on the outcome of CRM. Business results assist in the assessment of situations. Analysis provides valuable strategic instructions. The focus is on the business results and results in customer information which are generated by the use of CRM. The last point “long-term, not short-term, view” can be compared with the brand-building process or the shareholder value view. The letter “R” defines “relationship” in the CRM-term. A relationship always builds on a long-term view and cannot be seen as an operational instrument. There is no sales bust which can be activated on request.

The above views can be concluded with a general definition of CRM for this report:

Customer Relationship Management (CRM) is a customer-focused business strategy that attempts to use modern information and communication technologies to build a long-term profitable customer relationship through integrated and personalized marketing, sales and service concepts to optimize and consolidate the relationship between customer and enterprise. This requires a customer-driven business philosophy and culture to support effective business processes. CRM applications can be an effective CRM preconditioned the enterprise has the right leadership, strategy and corporate-culture.

This definition includes several important aspects of CRM. Prerequisites for CRM, according to this definition, are a corporate customer strategy and advanced information and communication technologies. The realignment of all business processes and responsibilities must be carried to the customer. Therefore, using information systems integrations are essential. A constitutive prerequisite for a unified image of the customer and a consistent sales approach are a consolidation of all customer information and the synchronization of all channels of communication. Another important point is the attempt to build and to consolidate profitable customers. Thus, the consideration of the customer relationship in economic terms is a fundamental part of CRM.

In addition, CRM-systems have the task to lead sales and marketing automation, call-centre and customer service centre and system integration into a technological mainstay.

2.2 MSE - Medium-sized Enterprises

Medium-sized enterprises (MSE) are usually referred to in the same breath as smallsized enterprises (SSE) and the term SME (small and medium-sized enterprise). But medium-sized enterprises are distinguished by different factors of small and large enterprises. These factors are the number of employees, the annual turnover and the total balance of the enterprise.

According to the analyst James Browning of the Research Institute Gartner.Inc, an MSE is defined with a turnover of £ 64.49 million ($ 100 million) to £ 322.45 million ($ 500 million) and a number of employees between 100 to 1,000 employees.

Contrary to the definition of James Browning, the University of Strathclyde Glasgow define a medium-sized enterprise with a turnover which is not more than £ 25.9 Million, a balance sheet total of not more than £ 12.9 million and not more than 250 employees. (University of Stratclyde Glasgow, 2010)

According to the University of Strathclyde Glasgow, the European Commission stated as a definition for medium-size enterprises a headcount of less than 250 employees, a turnover of not more than £ 41.7 million (€ 50 million) and a balance sheet total of not more than £ 35.86 million (€ 43 million). (European Commission, 2005)

Comparatively, to the Enterprise Ireland (Transforming Irish Industry), a medium-sized enterprise is defined with 50 to 249 employees, an annual turnover of not more than £ 41.7 million (€ 50 million) and an annual balance sheet total not exceeding 35.86 million (€ 43 million).(Enterprise Ireland, 2007)

After this comparison of the existing various definitions of MSE, it can be concluded that the medium-sized enterprise is defined as an enterprise with a staff headcount of not more than 250 employees that meets either the turnover of £ 41.7 million (€ 50 million) or a balance sheet total of £ 35.86 million (€ 43 million).

According to the definitions of CRM and medium sized companies that report comes now to the topic of CRM in detail. In the next part various systems, technologies and goals of CRM are analyzed. In addition, the report gives an overview of the CRM market to the reader.

3 CRM

3.1 CRM - Life cycle

The CRM life cycle consists of three phases. These three phases are:

- acquisition
- enhancing
- retaining

These three phases will help the enterprise to understanding the relationship between the company and the customer. These three steps include:

New customer acquisition: The company acquires customers through promoting products, development of customer service and leadership in customer support. (Kalakota, 2001)

Increasing customer profitability by current customers: improving and optimizing the customer relationship by promoting cross-selling and up-selling. (Kalakota, 2001)

Conservation of profitable customer for a lifetime: Retention focuses on the customer wants and needs. Not at the adaptability of the market delivering. (Kalakota, 2001)

The strategies of the different phases are fundamentally different. Companies have to use different strategies in the different stages because each phase impacts customer relationship in different ways. These strategies are listed in the table:

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Figure 1 Focus and strategies of CRM phases (Kalakota, 2001)

3.2 CRM-Systems

In many enterprises, before the introduction of a CRM concept in marketing, sales and service area, there is an IT-scenery that is embossed by many isolated applications. The individual, historical systems (e.g. Computer Aided selling, web applications, Helpdesks, Marketing Support, Call Centre, system analysis, etc.) do not permit a consistent view on customer data which exist in the company. This leads to inconsistent and outdated, erroneous or incomplete information about the customer. CRM-systems are aiming for consolidation of the individual isolated application. Applications for marketing, sales and service from the Internet, call centres or somewhere else get united in one IT-scenery. In addition, standard business software (Enterprise Resource Planning systems or tied Supply-Chain- Management systems) can get connected with the CRM-system interface. Therefore, just one logically united customer database exists that can be accessed by all corporate divisions. This allows a holistic view of each customer and an integral, cohesive dialogue with the customer. The integrative task of CRM-systems, i.e.

- synchronisation and operational support of the key customer touch-points (marketing, sales and service) and

- integration of all communication channels between customer and company, the necessary consolidation and evaluation of all customer information

imply a high complexity of the CRM-system.

According to the requirements, CRM-systems can be divided into three principle core functions that are in close exchange relationships to each other. These are operation CRM (oCRM), analytical CRM (aCRM) and collaborative CRM.

4 CRM technologies

CRM is one of the fastest growing software-genres with a wide variety. The growth rate of CRM in 2006 was 10% and up to 17% in 2007 (Krishna R., 2008). Currently, many providers offer the market a variety of different functions. CRM systems integrate different components to optimise and improve the customer processing. The range of encountered components and functionality within the CRM software is correspondingly large. It ranges from customer database via workflow capabilities for the automated distribution of information to data mining tools for the generation of new connections of customer data. According to Greenberg (2000), CRM is a business philosophy which is dedicated to the optimization of customer identification, customer conservation of status quo and the improvement of customer value. The implementation of this philosophy is carried through the automation of integrated business processes, which involve a variety of communication channels, customer- oriented business units, sales and marketing and customer service.

According to this philosophy and Payne (2007), one can identify three areas of CRM solutions which complement each other.

These three areas support CRM. But only the joint and simultaneous application in a stable system will enable an effective CRM. (Kracklauer A.H., Quinn Mills D. ,Seifert

D. , 2003) It is also stated as a “Closed Loop”. The next figure shows the specific characteristics of the three areas and their context. In the following subsection the three areas of CRM will be explained in more detail.

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Figure 2 Closed CRM support loop (Source: based on Payne and Frow)

4.1 Operative CRM (oCRM)

The operational CRM includes all applications that are in direct contact with customers (front office) (Greenberg, 2000). Solutions for marketing-, sales- and service- automations support the dialogue between customers and enterprises as well as in the necessary business processes. The task of marketing automation is the specific control and support of customer-based business processes in marketing. These important applications include:

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