The Impact of Customer Relationship Management Implementation on the UK Commercial Banking Industry 1. Introduction: The impact of customer relationship management (CRM) implementation on firm performance Is an Issue of considerable debate. This study proposes to examine the Impact of the Implementation of CRM on two functions of firm performance – cost efficiency and the ability of firms to generate profit – profit efficiency – using a large sample of UK commercial banks.
The cost and profit efficiencies of the UK commercial banks will be estimated using a time and probability analysis method and linear doodling will be employed to assess the effect of CRM Implementation on cost and profit efficiencies. The intention of the paper is to demonstrate the different ways CRM implementation influences cost and profit measures in order to provide insights to CRM researchers and managers. 1. Background of the Study Many firms have implemented customer relationship management over the past decade to enable the development of firm-customer relationships through the Introduction of a set of Information processes and technology tools (Rogers, 2005). The academic literature in general suggests that CRM provides a firm with strategic infinite in terms of better customer satisfaction and higher levels of customer loyalty (Kumar and Shah, 2004).
CRM also offers a firm with higher levels of response in their cross-selling efforts (Anderson, 1996), along with better word-of-mouth publicity. There is a strong sense in the available literature that CRM efforts improve firm performance. However, in the more recent years there have been incidences of highly publicized failures of CRM implementation, which has led to the birth of doubtfulness among managers about it’s much written about potential to generate firm value (Riyals, 2005; cabala et al. 2004).
These reports are disturbing and disconcerting from the perspective of managers in firms that have recently implemented CRM or are planning to do so. Moreover, these reports about the failure of CRM are very alarming from the perspective of managers of companies that provide CRM technology and related services. An exploration of the Impact of customer relationship management on different firm performance measures is required to reassess its potential to create firm value and to provide any justification of the Investment that are being made in this area. 1. Research Aim Management Implementation on the I-J Commercial Banking Industry. 1. 3 Research Objectives To investigate the impact of the implementation of CRM in the I-J commercial banking industry. To investigate whether there are any benefits of implementing CRM in the I-J commercial Banking Industry. To identify the influence and relationship of CRM with the cost and profit efficiency of the I-J Commercial Banks. 1. 4 Research Question The I-J banking industry has spent considerable resources on Customer Relationship Management (CRM) technologies.
However at the same time other significant moves n banking services have been undertaken such as providing more services over the web and telephone. This has been accompanied with many changes in processes, structure, staffing, skills, product offers, cultural values, and business strategies. Retail banking has as a result a completely different profile to where it was twenty years ago. ARQ: To what extent has CRM had an impact on the I-J Banking Industry and its markets? 1. Research Hypothesis CRM has on one hand been seen to be very successful in terms of staff efficiency and “objective” or “technical quality’ service standards. However on the other hand there as been a considerable loss of customer relationship quality, dissatisfaction voiced by more marginal customers over service quality, confusion over who is responsible for service and a general decline in “functional quality’. It may be the case that CRM has produced many more ad’s-benefits than benefits. HI: CRM implementation has a negative effect on cost efficiency.
H2O: CRM implementation has a positive impact on profit efficiency. 2. Literature Review Prior research has suggested that firms implement CRM to boost their ability to communicate with customers, provide them feedback in a timely manner, analyze customer information, and customize offerings (Day, 2003). The technology components of CRM include front-office applications that support sales, marketing, and service and back-office applications that help integrate and analyze the data (Greenberg, 2001 ; Cassandra et al. , 2005).
The front-office components of CRM facilitate efficient information flow between a firm and its customers through reciprocal communications and by enabling the routing of information to appropriate employees in sales, marketing, and service. Thus, CRM implementation tries to facilitate the smooth dissemination of customer knowledge throughout the organization to improve the quality of decision making (Riyals, 2005). The back-office parts of CRM include database and data-mining tools that help identify and track customer needs better and faster.
Creating a database of centralized customer information is a critical aspect of a firm’s CRM activities. The data-mining tools more appropriate customization of their products and services. The back-office components of CRM technology also facilitate the integration of customer information that originates from multiple sources because customers interact with a firm through various points, such as sales, marketing, and service. . 1 Impact on Cost Efficiency Cost efficiency describes how well a firm uses its resources to produce a given output mix, and it depends on the extent to which it limits the wasting of resources.
Cost efficiency is defined as the ratio of actual costs expended to minimum costs that could have been expended in producing the output mix (Farrell, 1957; Greene, 1993). The implementation of CRM could be resource intensive. Compared with firms that produce standardized outputs, firms that adopt CRM face additional costs, such as those associated with the customization of outputs and customer information management. The customization of products and services results in firms losing the scale advantages of mass production (Pine, Victor, and Button, 1993).
In manufacturing, customization involves inefficiencies in supply chain management, such that firms may need to store more components and manufacture and deliver small batch sizes or single units. For services, customizing requires better-skilled and -trained employees. Employing skilled workers and training them to a level at which they can customize services to meet the demands of individual customers is likely to be less cost efficient than delivering standardized services. As a consequence, the average costs of production are likely to be higher for firms when they practice CRM than when they focus on transactional marketing. 2. Impact on Profit Efficiency Marketing studies traditionally focus on profit measures, such as return on investments and assets. In this study, we are interested in whether firms enhance their performance, and the extent to which they do so in comparison with their rivals, when they implement CRM. Therefore, we focus on profit efficiency, which measures how close a firm gets to generating maximum possible profits, given input prices and outputs and compared with a best-practice frontier (Achieve and McNally, 2005; Vent, 2002). Profit efficiency is the ratio of the profits a firm could have generated to the profits it actually generated.
The cost efficiency concept assesses the allocation of resources within a firm. However, cost efficiency measures do not estimate how well a firm meets market demand by effectively matching customer needs (Shaven, Berger, and Humphrey 1997). A firm may be cost efficient by optimally using its resources in producing a given mix of outputs. Despite being cost efficient, however, his firm may not realize maximum possible profits if it fails to estimate market demand correctly and, as a result, produces outputs that do not effectively match customer needs.
To address this issue, profit efficiency was introduced as a more inclusive concept than cost efficiency (Berger, Cummins, and Weiss, 1995). Profit efficiency focuses on unobserved differences in the extent to which the output of different firms meets customer needs, and it accounts for the notion that some firms may incur additional costs in providing superior services and products but are incept captures the cost of inputs required to produce a certain level of outputs and the additional revenues generated by producing outputs that are best suited to meeting customer needs. . Methodology The hypotheses will be tested on a sample of firms from the I-J commercial banking industry by employing efficiency measurement methods to estimate cost and profit efficiencies. Greene (1993) suggests the estimation of cost efficiency by measuring how far a firm’s inputs or costs are from the best practice for a given set of firms. The estimation of profit efficiency can be conducted by following similar logic (Bauer et l. , 1993).
For this study, measurements of both cost and profit efficiencies from cost and profit functions using SFA (Signer, Lovely, and Schmidt, 1977; Berger and Master, 1997; McAllister and Unmans, 1993) will be derived. The SFA approach and similar approaches, such as data envelopment analysis, are becoming increasingly popular in the marketing and related literature streams (e. G. , Cereal and Agglomerate, 2007; Lou and Dutton, 2006). Overall, a three-step procedure will be followed to explore the effects of CRM on cost and profit efficiencies.
In the first stage, estimation of cost and refit functions for commercial banks will be conducted. In the second stage, the residuals from the regression equations to calculate efficiency scores will be employed. In the third stage, the impact of CRM implementation on cost and profit efficiency will be estimated. 3. 1 Sample Selection and Data The choice of I-J commercial banks as the sample for this study was driven by several considerations.
First, banking provides a unique context for efficiency studies because all commercial banks use similar inputs (labor, deposits, and purchased funds) and produce similar outputs (service fees, loans, and securities). As such, meaningful comparisons of the performance of different banks can be provided (Berger, Hancock, and Humphrey, 1993). Second, because the financial services firms were early adopters of CRM (Thompson, 2005), a sufficient time horizon is available in the data to study the effects of CRM implementation on cost and profit efficiencies.
