A process-oriented perspective on customer relationship management and organizational performance: An empirical investigation

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Abstract

Research on the CRM-performance link has been fragmented due to various perspectives on CRM. This study, considering different concepts of CRM, proposes a process-oriented framework for examining the relationship among CRM resources, CRM process capabilities, and organizational performance. Based on the resource-based view (RBV) of the firm, CRM resources are classified as “technological CRM resources” and “infrastructural CRM resources”. Data from 77 Iranian Internet service provider firms were gathered in a field survey. The empirical work indicates that the measured constructs demonstrate key psychometric properties including reliability and validity. The results reveal that CRM processes are more affected by infrastructural CRM resources rather than technological CRM resources. Moreover, the findings indicate that firms with improved CRM process capabilities enjoy better organizational performance.

Introduction

In the contemporary business environment, customers are considered to be the central element of all marketing actions, and CRM has become a priority for companies (Karakostas et al., 2005, Rust et al., 2000). This is highlighted by the claim of academics and practitioners that a customer orientation strategy is necessary for companies to survive and be successful in saturated markets (Heinrich, 2005). Business firms, regardless of the size of their organization, as a whole, are spending billions of dollars each year on CRM applications (Ngai, 2005, Zablah et al., 2004). Although some academic researchers have provided some evidence of the positive relationship between CRM and performance (Coltman, 2006, Mithas et al., 2005, Sin et al., 2005), many academic and business reports have shown disappointing results (Chen and Wang, 2006, Heinrich, 2005, Richards and Jones, 2008, Rigby et al., 2002, Zablah et al., 2004). In 2003, Gartner reported that about 70% of CRM projects result in either loss or no bottom line improvement in company performance (Richards & Jones, 2008). These paradoxical results are similar to what the academicians have called “productivity paradox” in the Information Technology (IT) literature (Albadvi, Keramati, & Razmi, 2007). This could be one of the reasons that CRM is an emerging field of inquiry (Richards & Jones, 2008).

To remedy the situation, we should first determine from where the problem stems. Going through the literature, we found two problems that are relevant to the CRM-performance link.

First, many companies have considered CRM as an IT solution and a technology for a marketing strategy (Peppard, 2000, Reinartz et al., 2004, Rigby et al., 2002). Through many years, IT researchers have been trying to answer the question of why IT does not confer direct competitive advantage. The clear reason, to which many scholars pointed, was that IT is easy to acquire in competitive markets. In other words, technology cannot bring about success or failure in a business strategy by itself (Mooney, Gurbaxani, & Kraemer, 1996). The same thing happens with CRM technology. Many firms can buy the same CRM technology from the same vendor. So, what makes CRM different in competitive markets? Because the same problem has led to the IT productivity paradox, we followed the IT and performance literature to gain helpful insights. By doing so, we saw that some researchers have worked on the resource-based view (RBV) of the firm and have extended it into the IT context to explain the productivity paradox of IT (Bharadwaj, 2000, Santhanam and Hartono, 2003, Melville et al., 2004). Others have investigated complementary factors affecting the relationship between IT and performance (Keramati and Albadvi, 2006, Albadvi et al., 2007). More importantly, some researchers have made use of a process-oriented approach to explain how IT affects performance (Mooney et al., 1996, Radhakrishnan et al., 2008).

The second reason is related to the concept of CRM. That is, technology is the common aspect between CRM and IT, but CRM by itself is not a technological concept. CRM has a multifaceted nature (Payne & Frow, 2005) and has not produced the expected results through lack of a common conceptualization (LaPlaca, 2004). Various models have been developed to show how it impacts organizational performance. These models are different in two ways: first, in conceptualizing key constructs of CRM, and second, in showing the interrelationships among the constructs. Zablah et al. (2004) worked on the CRM literature and identified and conceptualized five major perspectives on CRM (i.e., philosophy, strategy, technology, process, and capability). This was an important step toward a unified framework linking CRM to performance.

This paper addresses both problems mentioned above. The main objective of this study is to propose an integrated framework which traces the path from CRM investment to organizational performance. In this framework, we are going to:

  • 1.

    Specify what resources are important for implementing CRM processes.

  • 2.

    Put different perspectives on CRM, which have caused various strands of research, into a single integrated framework.

  • 3.

    Display how and through which mechanisms CRM creates value for the firm.

By reviewing the literature on CRM and drawing on the RBV and the process-oriented approach, this study has worked towards the above objectives. The remainder of this paper is structured as follows: in the next section, the relationship between CRM and IT is reviewed. Then, the RBV, process-oriented approach, and their extension to CRM and the performance study will be discussed. A review of the models that link CRM to performance is also offered in Section 2. Then, in Section 3, the research framework and its dimensions are proposed. Research methodology is discussed in Section 4. Section 5 presents the results of the empirical study. The paper concludes with a discussion, managerial implications, and limitations in 6 Discussion, 8 Limitation and future research directions.

Section snippets

Resource-based view and process-oriented approach in the CRM value creation model

In this section, the theoretical backgrounds of CRM and IT, RBV, and the process-oriented approach are studied. Meanwhile, why RBV and the process-oriented approach can be adopted based on the CRM premise will be discussed.

Research framework

The usefulness of every theory depends on proper replications, extensions, and generalizations that provide new insights and add to the existing stock of knowledge (Santhanam & Hartono, 2003). We reviewed several studies linking CRM to performance and elaborated on their important points (see Table 1, Table 2). The integrity and harmony between different components of CRM have a crucial role in CRM's ability to create value for the firm. Therefore, different components of CRM should be linked

Instrument development

Scales for this survey were developed through extant literature reviews. Scales for CRM resources and processes were drawn out based on the defined classifications in 3.1 Technological CRM resources, 3.2 Infrastructural CRM resources, 3.3 CRM processes. Table 3 exhibits the sources from which the scales were drawn. Process capabilities can be measured using aggregate metrics (e.g., “ratio of cost of goods sold to inventory” for measuring sales and marketing process capability) or non-aggregate

Results

When the validity and reliability of each criterion are specified, one of the methods for subsequent analysis is using summated scales. In doing so, the average of the scales under each criterion is measured and used as new observed variables in a subsequent analysis (Hair, Anderson, Tatham, & Black, 1995, p. 391). This method is used in this paper. For analyzing the model, Structural Equation Modeling (SEM) with Lisrel 8.51 was performed. In SEM, two models are assessed, the measurement model

Discussion

This paper first provides evidence that the RBV and the process-oriented approach are applicable in the CRM context. Then, it provides a summary of the current literature on CRM and performance, and proposes a framework that links CRM to organizational performance based on the RBV and process-oriented approach. This framework highlights the importance of CRM resources, which should be taken into consideration by firms that want to implement CRM. It shows that not all firms can attain a

Managerial implications

This study has several implications for managers who are seeking to leverage their spending on CRM. First, managers should note that the findings of this research can be applicable to other industries. This is based on the cross-cultural, multi-industry study done by Reinartz et al. (2004), which suggests that CRM benefits do not vary greatly across industries. Nevertheless, CRM has a dynamic nature, and managers could seek other CRM processes and process capabilities as well.

Second, many

Limitation and future research directions

Two main limitations of this study which should be addressed in future research are the small sample size and the measurement of satisfaction indicators from the firm's vision. The first one is related to the small sample size of 77 firms; however, in the present study, the internal consistency of indicators, the validity, and reliability of model constructs are assessed and approved in two stages (see Table 4, Table 6, Table 7). This consistency shows the stability of the measures (Albadvi et

Abbas Keramati is an Assistant Professor at University of Tehran, Tehran, Iran. He received his PhD in the area of IT and Productivity from Tarbiat Modares University, Tehran, Iran. His major teaching and research interests include customer relationship management, information technology management, quantitative analysis for decision making and research methodology.

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    Abbas Keramati is an Assistant Professor at University of Tehran, Tehran, Iran. He received his PhD in the area of IT and Productivity from Tarbiat Modares University, Tehran, Iran. His major teaching and research interests include customer relationship management, information technology management, quantitative analysis for decision making and research methodology.

    Hamed Mehrabi received his MSc in information technology management from Information Technology Management Department, faculty of management, University of Tehran, Tehran, Iran.

    Navid Mojir received his MBA from Industrial Engineering Department, Faculty of Engineering, University of Tehran, Tehran, Iran.

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