Customer relationship management (CRM) is a combination of organizational strategy, information systems, and technology that is focused on providing better customer service. CRM uses emerging technology that allows organizations to provide fast and effective customer service by developing a relationship with each customer through the effective use of customer database information systems. The objectives of CRM are to acquire new customers, retain the right current customers, and grow the relationship with an organization's existing customers. An integrated business model that ties together technology, information systems, and business processes along the entire value chain of an organization is critical to the success of CRM.
CRM can also be considered a corporate strategy because it is a fundamental approach to doing business. The goal is to be customer-focused and customer-driven, running all aspects of the business to satisfy the customers by addressing their requirements for products and by providing high-quality, responsive customer service. Companies that adopt this approach are called customer-centric, rather than product-centric.
To be customer-centric, companies need to collect and store meaningful information in a comprehensive customer database. A customer database is an organized collection of information about individual customers or prospects. The database must be current, accessible, and actionable in order to support the generation of leads for new customers while supporting sales and the maintenance of current customer relationships. Smart organizations are collecting information every time a customer comes into contact with the organization. Based on what they know about the individual customer, organizations can customize market offerings, services, programs, messages, and choice of media. A customer database ideally would contain the customer's history of past purchases, demographics, activities/interests/opinions, preferred media, and other useful information. Also, this database should be available to any organizational units that have contact with the customer.
CRM has also grown in scope. CRM initially referred to technological initiatives to make call centers less expensive and more efficient. Now, a lot of organizations are looking at more macro organizational changes. Organizations are now asking how they can change their business processes to use the customer data that they have gathered. CRM is changing into a business process instead of just a technology process.
Although there are now many software suppliers for CRM, it began back in 1993 when Tom Siebel founded Siebel Systems Inc. Use of the term CRM is traced back to that period. In the mid-1990s CRM was originally sold as a guaranteed way to turn customer data into increased sales performance and higher profits by delivering new insights into customer behaviors and identifying hidden buying patterns buried in customer databases. Instead, CRM was one of the biggest disappointments of the 1990s. Some estimates have put CRM failure rates as high as 75 percent. But more than a decade later, more firms in the United States and Europe are appearing willing to give CRM another try. A 2005 study by the Gartner Group, found 60 percent of midsize businesses intended to adopt or expand their CRM usage over the next two years. Why the interest? Partially the renewed interest is due to a large number of CRM vendors that are offering more targeted solutions with a wider range of prices and more accountability.
Even though CRM started in the mid-1990s, it has already gone through several overlapping stages. Originally focused on automation of existing marketing processes, CRM has made a major leap forward to a customer-driven, business process management orientation.
The first stage began when firms purchased and implemented single-function client/server systems to support a particular group of employees such as the sales force, the call center representatives, or the marketing department. CRM initially meant applying automation to existing marketing activities and processes. However, automating poorly performing activities or processes did little to improve the quality of the return on investment.
In the second stage, organizations demanded more cross-functional integration to create a holistic view of their customers' relationships. Also, the integrated system's goal was to provide a single-face to the customer by enabling employees to work from a common set of customer information gathered from demographics, Web hits, product inquiries, sales calls, etc. Cross-functional integration allowed the whole organization to take responsibility for customer satisfaction and allowed for better predictive models to improve cross-selling and improved products and delivery options.
The third stage of CRM was heavily influenced by the Internet. Customer self-service and Internet-based systems became the next big thing in CRM. However, there were obstacles caused by a lack of seamless integration into the organization's operational systems and a lack of integration across customer touch points such as call centers, web transactions, and other various interactions. By rethinking the quality and effectiveness of customer-related processes, many organizations began to eliminate unnecessary activities, improve out-dated processes, and redesign systems that had failed to deliver the desired outcomes. In this stage, the big CRM vendors used new Internet-based systems to extend the reach of CRM to thousands of employees, distribution partners, and even the customers themselves. Also, most organizations at this stage tie together their CRM systems with their ERP (Enterprise Resource Planning) system and other organizational operational systems.
The next stage of CRM will be when systems are designed based on what matters most to the customer and customers will have direct access to all of the information they need in order to do business with an organization. Customer driven CRM means that organizations first understand the customer, and then move inward to operations. The next generation of CRM will also focus more on financial results. Not all customer relationships are profitable and very few companies can afford to deliver an equal level of services to all customers. Organizations must identify existing profitable customer segments and develop the business requirements to support sustained relationships with these profitable segments. However, organizations also need to find cost effective alternatives for current non-buyers or low-margin customers.
One of the major problems with CRM is the large investment to build and maintain a customer database which requires computer hardware, database software, analytical programs, communication links, and skilled personnel. Also, there is the difficulty of getting everyone in the organization to be customer oriented and to get everyone to actually use the customer information that is available. Providing adequate training so that personnel feel comfortable using a new system is critical. Also, not all customers want a relationship with the company and some may resent the organization collecting information about them and storing it in a database. Another problem is the long wait for a return on investment. A three-year wait for ROI is still common. Research conducted by Helms in 2001 suggests that 45 percent of companies are unable to even compute ROI from their CRM investments and research conducted by Cap Gemini Ernst and Young (CGEY) found that two-thirds of companies could not provide any estimate of their ROI on CRM investments.
CRM projects require careful planning and implementation. To be successful, CRM involves major cultural and organizational changes that will meet with a lot of resistance. CRM should be enterprise-wide in scale and scope. However, it is usually better to take an incremental approach starting with a CRM pilot. Once the pilot succeeds, then introducing one CRM application at a time is recommended. Also, it is important to be skeptical of vendor claims and to know that user expectations for CRM are often unreasonable.
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