Customer Relations Management Impact on Profitability Essay

In changing economic environment, Customer Relationship Management (CRM) becomes one of the most important business strategies and policies applied by modern organizations. The goal of this policy is to examine and analyze customers’ needs and wants in order to meet their requirement and expectations. CRM has a great impact on profitability and effective performance of organizations. The importance of CRM is explained by the fact that many organizations have begun to develop global markets and have established face-to-face sales teams either directly, using their own personnel, or indirectly, through con­tracted sales agents.

Bergeron (2002) defines customer relationship management as “the dynamic process of managing a customer-company relationship such that customers elect to continue mutually beneficial commercial exchanges and are dissuaded from participating in exchanges that are unprofitable to the company” (3).

In modern environment, CRM and development influence profitability because the attention has shifted to a greater emphasis on the management of the whole system and its relationship with other systems. In this situation, CRM can be seen as a mediator which helps to cope with different demands both within the production system itself and between that and other systems. As environ­ments change, they pose new problems for managers of organizations.

Thus, with the emphasis on CRM comes the realization that increasing operating efficiency (Dow 3). CRM influences profitability because it includes changing knowledge and technology, new values, new markets, and changes in the global distribution of wealth.

New knowl­edge, for instance, can invalidate the existing knowledge of an entire industry. “Customers are always looking for more value for their money. One way that companies can provide enhanced value-and realize greater profitability is CRM projects” (Bergeron 57). When environments become turbulent, complex, and resource con­strained, the knowledge and skills that companies once possessed can become use­less, and even a hindrance to change. CRM projects acquire new knowledge and technology, and employ these assets in produc­tion quickly (Critical CRM Decisions 2004).

According to Reynolds (2002), technology is a one of the environmental factor that continually threatens existing arrangements. At times, technological changes oc­cur so radically as to constitute a “technological discontinuity,” a sharp break in in­dustry practice that either enhances or destroys the competence of firms in an indus­try. Fast-changing technologies, such as information technology, pose a particular threat to organizations. “Technology is essential to the implementation of a CRIA strategy (it underpins the processes)” (Reynolds 33).

Such researchers as Stauss and Seidel (2005), Newell (2003) discuss the role of technology in CRM and emphasize the need of successful relations. The combination of goal difficulty and the extent of the person’s commitment to achieving the goal regulate the level of effort expended. If employees understand specific CRM goals they perform better than employees with no set goal or only a vague goal such as ‘do the best you can’.. On the basis of recent experiences in several of its key businesses, including computers, printers, and medical products, successful CRM projects have concluded that this is indeed possible (Dow 10).

The problem is that technology does not drive relations, and the importance of dialogue becomes more urgent for successful CRM. Technology is recasting the process of management, providing powerful new capabilities to help managers strategize and plan, organize, lead, and control. Technology implementation is one of the most complicated and important steps for any organization to react to changing environment and introduce new systems of management. Firms with successful strategic systems have broken down organi­zational barriers that block the sharing of data across functions (Freeland 92). Design, sales, and manufacturing departments must work together. The use of appropriate technology in properly planned systems can have dramatic effects on operations (Stauss and Seidel 54).

In banking sphere, high profitability is achieved only by placing the customer at the centre of the business (Heffeman 83). Innovation that is not based on the satisfaction of a customer need, either existing or latent, will not succeed – the world is littered with ‘better mousetraps’. Newel (2006) mentions that: “To elevate the customer to ‘client’ status, we must establish a pattern of repeat buying by making it easy for the customer to do business with us” (67).

The connection between good levels of customer service and good levels of customer satisfaction and retention underpins the common association of customer service with keeping, rather than winning, customers (Freeland 23). Customer service therefore plays a pivotal role in relation­ship marketing. Witness the rapid take-up of packages for sales force automation, direct mail, telemarketing, cus­tomer service, e-commerce and marketing analysis, which are avail­able both separately and together as integrated CRM suites (Freeland 92).

But these packages, while providing an essential infrastructure, need to be sup­plemented by managerial processes to address such fundamental ques­tions as which channels to use, and how best to use them to deliver customer value. “On the basis of security- and growth-enhancing effects, profitability goals are also achievable by means of customer retention” (Stauss and Seidel 6). Customers are more pleased with a high-quality product or ser­vice they receive. They are more apt to encourage their friends to patronize the firm, as well as giving the firm their own repeat business. Top quality also establishes a reputation for the firm that is very difficult to obtain in any other manner, and it allows the firm to charge a premium price.

CRM and development influence profitability of organizations because they allow management to design products around a number of independent modules that can be easily combined in a variety of ways. “The Heart of CRM Profitability is a measurement category that indicates whether the revenues exceed costs” (Stauss and Seidel 167). CRM tasks are designed and performed as independent modules that can be relocated or rearranged to support new requirements.

Maintenance of high standards is a key factor to maximizing CRM outcomes. The purpose of maintenance of high standards is to attempt to maximize the performance of service by ensuring that it performs regularly and efficiently (Greenberg 83). The effective operation of banking systems is dependent on the maintenance of all parts of the system. “CRM is in not a software application – it is a business strategy that can optimize profitability, revenue, and satisfaction at the individual level” (Reynolds 221).

There are more than a dozen different types of flexibility that CRM projects will not pursue here—design, volume, routing through the production system, product mix, and many others. Involving employees into CRM can offer good results obtained from these projects. Many organizations provide custom products without the customers’ knowing that a product has been customized for them. For example, an on-line computer service might track how each customer uses its service and then suggest additional features that the customer may find useful (Greenberg 34). The main problem is lack of professional staff communication with customers which reduces their response.

Faced with increasing pressure from its customers for quicker order fulfillment, employees would be able to meet all requirements only following CRM principles and tactics. Reynolds (2002) underlines that “many businesses realized they had not been actively managing their most important asset – their customers. Increased competition and decreased profitability became the wake-up call. At its most basic, CRNI is a strategic concept that manages this very important asset (84).

Very often “be ready for change” (Newell, 2003), does not mean the ability of employees to make this change. In this case, performance deficiencies can result from motivational problem, which is closely connected with lack of skills. To improve this situation companies need to train employees taking into account rapid environmental changes. The purpose of training is to improve knowledge and skills, and to change negative attitude towards CRM. “Comprehensive explanation of the correct behavior and systematic training are thus required” (Stauss and Seidel 93). This can lead to many potential benefits for both individuals and the organization.

Training can: increase the confidence, motivation and commitment of staff; provide recognition, enhanced responsibility, and the possibility of increased pay and promotion; give a feeling of personal satisfaction and achievement, and broader opportunities for career progression; and help to improve the availability and quality of staff. CRM and development is connected with profitability because “incentive changes [are] needed to support this objective.

Being specific also has the benefit of allowing the IT department to manage scope creep and focus on delivering features and functionality to achieve the objectives” (Reynolds 44). CRM allows managers to obtain information on organizational performance down to the level of specific transactions from just about anywhere in the organization at any time. This new intensity of information makes possible far more precise planning, fore­casting, and monitoring (Schwalbe 65).

In many firms CRM analysis is accompanied by the use of a variety of accounting ratios such as return on capital employed, pro­fitability and so on. Different ratios have more relevance at different stages of the firm’s development than at others, so that while profita­bility may be appropriate for established firms, productivity and sales may be more useful for newly established companies and cash flows may be more significant when firms are in decline. Thus, the systems perspective provides decision makers with a broad and complete picture of an entire situation (Kaneshige 2001).

Further­more, the CRM perspective emphasizes the relationships between the various system components, employees, technology and customers. It allows “employees to strengthen their competencies. Through these measures and the goal-oriented design of the corporate culture and the infrastructure, the firm must further guarantee that employees actually translate their skills into corresponding behavior” (Stauss and Seidel 230).

Without considering these relationships, decision makers are prone to fail. Unique talents among employees, including superior performance, productivity, flexibility, innovation, and the ability to deliver high levels of personal customer service are ways in which people provide a critical ingredient in developing CRM. People also provide the key to managing the pivotal interdependencies across functional activities and the important external relation­ships (Nicho 2004). Organization’s CRM, policies and practices are a unique blend of processes, procedures, personalities, styles, capabilities and organizational culture. «Spectra helps the chains learn enough about customers’ special needs to enrich their shopping experiences while increasing sales and profitability” (Newel 105).

Knowing customers means closing the loop between the messages sent to them and the messages they send back. Developments in IT have led to interactive communication tools being used to complement less interactive mechan­isms such as mail or media advertisements. Advances in database technology have made it possible to know and segment customers in ever more creative ways. In sum, customer service therefore plays a pivotal role in relation­ship marketing and successful organizational performance (Schwalbe 43).

Support activities are important for the organization and staff reporting some of the difficulties that arise, indicating resource con­straints and possible ameliorative actions. Support systems can range from full-blown MIS systems to much smaller systems as well as project-planning software operating on microcomputers. It means taking steps to assess and satisfy future people needs and to enhance and develop the inherent capacities of people – their contributions, potential and employability – by providing learning and continuous development opportunities.

In sum, CRM and development influence profitability and effective performance because they allow companies to build longer-term customer relationships and maintain a dynamic knowledge of customers’ requirements, prefer­ences and expectations. Getting this role right, and to a standard of expertise that is superior to that of competitors and sustainable in the longer term, requires an in-depth understanding of the nature and nuance of customer service. CRM and development influence profitability because they allow organizations build customer value by offering customers both a wider range of channels, and more personalized treatment through the integration of channels.

Works Cited

Bergeron, B. Essentials of CRM, Wiley. 2002.

Critical CRM Decisions. An eCentric Media Best Practice. 2004. Web.

Dow, D. “Exploding the Myth: Do All Quality Management Practices Contribute to Superior Quality Performance?” Production and Operations Management, 8. 1999, pp. 1-25.

Freeland, J. The Ultimate CRM Handbook: Strategies and Concepts for Building Enduring Customer Loyalty and Profitability. McGraw-Hill1, 2002.

Greenberg, P. CRM at the Speed of light, 3e. McGraw-Hill, 2004.

Heffeman, S. Modern Banking Theory and Practice. John Wiley & Sons, 1996.

Kaneshige, T. Surviving CRM. 2001. Web.

Newel, F. Why CRM doesn’t work. How to win by letting customers management the relationship. Cogan Page, 2003.

Nicho, M. “Implementation Failures in Customer Relationship Management Software. Bulletin of Applied Computing and Information Technology. 2004. Web.

Reynolds, J. A Practical Guide to CRM. CMP Books, 2002.

Schwalbe, K. Information Technology Project Management. Course Technology, 2005.

Stauss, B., Seidel, W. Complaint management: The Heart of CRM, South-Western Educational Pub 2005.