By Francis Buttle[1], Julie Jones[2], Merlin Stone[3]
The CRM Value Chain (CRM VC), shown in figure 1, aims to demystify, characterise, and conceptualise CRM. The CRM VC is made up of three Core Processes supported by five Enablers all of which contribute to a firm’s goal of driving up customer profitability. We describe and explain the CRM VC across four articles.
In our first article, we present an overview of the CRM VC; in the second, we explore CRM’s three core processes; in our third article we identify and shed some light on the two of the 5 Enablers: data and analytics, and marketing, sales, and service processes.
In this fourth and final article, we discuss the remaining three Enablers: network relationships, organizational culture, and people.
The Five Enablers
As we show in Figure 1, the CRM’s 3 Core Processes are supported by five Enablers. These are the conditions or resources that enable the Core Processes to function effectively and efficiently to deliver customer profitability. They are:
- Data and analytics.
- Marketing, sales, and service processes.
- Network relationships.
- Organizational culture; and
- People.
In this article we review the impact of the last three Enablers on CRM performance.
Network relationships
The third Enabler of the CRM VC is network relationships. The poet John Donne is credited with saying “No man is an island”; the same can be said of businesses. All businesses are embedded in networks of relationships with other organizations and people. The health of those relationships has a huge impact on the ability of the firm to build profitable relationships with customers. We believe that company does not compete against company; rather, network competes against network. In the cell phone market, Apple’s manufacturing and distribution network competes against those of Huawei and Samsung. In FMCG manufacturing, Unilever and Procter and Gamble are network rivals. They each have over a thousand products in their consumer brand portfolios. However, each company works in alignment with upstream suppliers of a multitude of input products and services and downstream distributors to bring their products to market, and each of these network partners has in turn their networks of partners that enable their businesses to survive and flourish.
Increasingly, businesses rely on platform companies such as Salesforce.com and Amazon Web Services to support their CRM efforts. These critical network partners provide common data and systems services and applications. This has added enormous power to client companies giving them the ability to respond quickly to change and identify opportunities, with the systems and data workload falling to the platforms that have to manage rapidly fluctuating workloads whilst bringing on board new applications to support clients.
When network relationships fail, relationships with downstream customers can be put at risk. For example, Australia’s duopoly of leading supermarket businesses – Woolworths and Coles – got into a battle with some of their suppliers after refusing to approve and pass on suppliers’ price rises triggered by rising commodity costs. As a result, Nestlé stopped supplying Uncle Toby’s oats and Vita Brits to Woolworths and Mars Petcare stopped supplying both chains with pet food brands such as Whiskas, Pedigree, and Dine. The battle between these firms was essentially about how to share profits earned from the brands. When the retailers refused to accept price rises, they effectively told these suppliers to accept a lower profit margin. The disputes created empty supermarket shelves and released a flood of complaints from customers, who voiced their anger in-store and on social media. The lesson here is that firms need to develop enabling relationships with network partners to create profitable relationships with customers.
Just as trust is the foundation of successful interpersonal relationships, so it is with business network relationships. Trust is an issue particularly in the early stages of relationship development when the parties have little knowledge about or experience with each other and feel vulnerable. Trust emerges as parties interact or trade with each other and interpret and assess each other’s motives. As they learn more about each other, risk and doubt are reduced. Trust has been described as the glue that holds a relationship together over time.
Trust is focussed. That is, although the knowledge and experience of the other party may create a generalised sense of confidence and security, these feelings are directed. One party may trust the other party’s benevolence, honesty, or competence. Benevolence is the belief that one party acts in the interests of the relationship, not out of self-interest. Honesty is the belief that the other party’s word is reliable or credible. Competence is the belief that the other party has the necessary expertise to perform as promised or expected.
In business-to-business relationships trust reduces both cost and risk as network partners work together without needing to monitor each other’s compliance with contractual terms, thereby reducing transaction costs for both parties. Trust also motivates partners to invest additional capital in a relationship. These investments, which serve as relationship exit barriers, may be tangible (for example, property), intangible (knowledge), social (interpersonal relationships), or legal (joint venture). Such investments may not be retrievable if the relationship breaks down. Thus, where trust exists, the risk of investment losses is reduced.
If trust is absent, conflict and uncertainty rise and cooperation falls. Lack of trust clearly provides a shaky foundation for a successful relationship. It is well established that a strong relationship can impact positively a range of desired business outcomes including share of customer spending, word-of-mouth, and profit.
In addition to for-profit firms up and down the supply chain, network partners may also include individuals, groups of people, and not-for-profit organizations. Opinion leaders and influencers are often trusted network partners, especially for smaller businesses. Communications technologies (social media in the main) allow for fast and widespread dissemination of their influence. A positive relationship with an influencer can be highly beneficial. A fashion accessory manufacturer could partner with an Instagram influencer to wear and demonstrate the item online, massively increasing exposure. Alexa Chung, for example, has over 5 million Instagram followers. Other examples of partnership relationships beyond conventional supply chain partners include a vintage clothing store partnering with charity organizations such as Red Cross and Salvation Army to source suitable clothing for resale, and a tourist attraction owner partnering with the local government’s Tourism Office to generate leads for customer acquisition.
Consistent with our idea of Strategically Significant Customers (SSCs), which we introduced in our first article in this series, we propose the idea of Strategically Significant Partners (SSPs). Beyond conventional supply chain partners, other partners can also be of critical importance in enabling a firm to achieve its customer profit objectives. Here are some examples. A rural chilled product manufacturer partners with a trucking company that offers a refrigerated delivery service in urban areas. A pharmaceutical manufacturer partners with a university department in product development and testing. A data centre operation partners with a leading cyber-security firm to offer an ultra-secure service to government agencies.
Some CRM software developers offer Partner Relationship Management (PRM) modules that enable relationships with downstream network partners to be better managed. For example, Salesforce, one of the larger CRM software developers, offers a module called Salesforce Partner Management. Breweries use PRM applications to manage relationships with liquor stores, pubs and restaurant chains. Supplier Relationship Management (SRM) modules integrated into Enterprise Resource Planning (ERP) systems also enable companies to develop and manage better upstream relationships with suppliers of input goods and services. SAP, for example, offers an SRM module. Together PRM and SRM modules support CRM initiatives.
Organizational culture
The fourth Enabler in our CRM VC model is organizational culture (OC). Although there are many competing perspectives on OC, our position is grounded in anthropology. Anthropology is the study of human societies, particularly those societies’ belief systems and customs. Customs are shared and consistent patterns of behaviour. In organizations, these patterned behaviours may be modeled by senior management, championed in formal or informal organizational values, reflected in reward systems, and the celebration of organizational heroes and villains.
There have been many thousands of studies into the link between organizational culture and business performance, but very few investigations of the relationship between organizational culture and CRM outcomes. Researchers have found that Adhocracy, one of four organizational cultures identified in the Competing Values model (Figure 2), shows the strongest association with CRM success. Adhocracies are highly flexible, entrepreneurial organizations. They are outside-in organizations, being led by and responsive to external conditions, particularly as they are expressed in customer and competitor behaviours. This finding is compatible with a long tradition of research that has identified a positive relationship between market orientation and business performance.
Adhocracy’s core values are creativity and risk-taking. Start-ups and micro-businesses (particularly those born on the web) often fall into this category with emergent strategies based on dynamic marketplace conditions. Companies that compete on differentiation and added value through networked value co-creation with SSPs and customers tend to use trust-based partnerships this develops as a source of sustainable competitive advantage (SCA) and delivery of improved customer lifetime value (CLV). The knowledge gained from their external networks, coupled with better customer retention allows them greater flexibility in the marketplace whilst mitigating risks from competition. This promotes improved reputation which enhances customer experience and often means that price is less of an issue to customers.
CRM is more likely to prosper in a supportive culture. It’s unlikely to yield dividends in companies that only pay lip service to customer focus. Neither is it likely to succeed in organisations wedded to product-based structures or reward systems based on sales volume. One large IT company that is currently trying to implement a CRM strategy is still recruiting and rewarding salespeople who are quota driven. That’s unhelpful.
CRM often requires the overhaul of traditional organisation designs, and measurement and reward programmes. On the way out are hierarchical structures, product managers, commissionable sales volumes, and market share goals. Replacing them are flatter organisations with empowered customer-contact staff, customer or market managers, customer retention and development targets, and share-of-customer (or share-of-wallet) goals. Short-term financial goals can inhibit the achievement of successful CRM outcomes. What is needed is something like the balanced scorecard which measures means as well as ends. Measures such as customer engagement, customer retention, employee engagement and retention, and employee skill levels are important indicators of CRM performance.
People
The fifth and final Enabler on the CRM VC is ‘People’. Successful CRM initiatives – like any other business initiative – need appropriately qualified, skilled, and experienced people. This includes both back-office and front-office people. Front-office people are those who interact with customers, whether in marketing, sales, or service roles. For example, customer service agents working in customer interaction/contact centres will need different skill sets depending on whether they are involved in outbound or inbound customer interactions, and salespeople need different competencies depending on whether they are hunters acquiring new customers, or farmers developing and retaining customers. Back-office people are those who manage or otherwise support the frontline. These include C-level executives who sponsor CRM technology investments, data scientists who help CRM practitioners interpret and act on customer data, and managers who develop reward systems that encourage frontline staff to deliver the desired customer outcomes.
Conclusion
Over this series of four articles, we have introduced and described the CRM Value Chain (CRM VC), which models our contemporary understanding of CRM as a core business strategy that aims to initiate and retain profitable relationships with customers. The CRM VC is made up of three Core Processes supported by five Enablers all of which contribute to a firm’s goal of driving up customer profitability. In the first two articles, we presented an overview of the CRM VC, and we explored CRM’s 3 Core Processes. In the third and fourth articles, we discussed the 5 Enablers which are conditions or resources that support managers as they execute the 3 Core Processes.
We hope that you’ve found the series useful and insightful, and we welcome comments.
Notes
[1][email protected] Formerly Professor of Marketing and CRM at Manchester Business School (UK) and Macquarie Graduate School of Management (Australia), Consultant in CRM, Customer Experience Management and Word-of-Mouth.
[2][email protected] Lecturer in Marketing at Aberystwyth Business School, Wales. Marketing Consultant and Chartered Marketer
[3][email protected] Honorary Professor (Business Management), St Mary’s University, Twickenham, London, England
