Examining business value of customer relationship management systems: IT usage and two-stage model perspectives
Introduction
In an integrated global market, firms face strict competition in all sectors. To maintain their existing market share and to reach out to potential market demand, firms should pay close attention to their customer relationship management (CRM). The benefits of CRM systems may be great on overall customer service experience, marketing, and sales. For example, statistics from industries show that CRM gives an average return of $8.71 for every $1 spent, according to Nucleus Research; CRM can increase revenue by a whopping 41% according to Trackvia.com. Because firm executives from a wide variety of industries tout CRM’s value, CRM system sales are soaring. According to Gartner, CRM software revenue reached $39.5 billion worldwide in 2017, and it will continue to be the largest and fastest growing software market.
CRM systems are among the many types of enterprise systems. Their main functions are embedded in the business processes of firms that are related to customers, such as marketing, customer service, and customer data analysis. CRM implementation is a vital step in any CRM strategy, which, if successful, results in improved performance. However, a large percentage of firms often fail to meet their expectations of CRM implementation [26]. Therefore, corporate managers should have a profound understanding of the major targets, necessary conditions, and evaluation methods of CRM implementation. In the practical sense, marketing research scholars and information systems (IS) scholars have raised a specific research question related to the business value of CRM [61,62]. This question focuses on the performance outcome of CRM implementation, as well as on the factors that influence such performance outcome.
Existing empirical studies on CRM value can be classified into two streams. The first stream explains the underlying reasons (including the influencing and moderating factors) behind CRM value creation on the basis of theories such as customer relationship strategy, organizational resources, and information technology (IT)/IS usage; however, most of the studies under this stream conduct surveys among managers using subjective performance metrics [1,4,14,16,23,24,39,60,63,75] or internal data from certain companies [35,36,47]. The aforementioned studies require further examination using objective measurements to improve their reliability. The second stream focuses on the absolute influence of CRM on firm performance. Studies under this stream use objective data to measure the direct correlations between CRM and profitability or stock price performance. Existing evidence suggests that a firm’s stock price incurs an abnormal return around CRM implementation announcements [20,47]. However, CRM lacks a significant long-term influence on profitability ratios and stock prices compared with enterprise resource planning (ERP) and supply chain management (SCM) [5,32]. To testify the contribution of CRM to a firm’s performance, new empirical models and performance metrics should be introduced.
On the basis of a review of related studies on CRM business value, as well as the limitations and shortcomings of previous studies, the present study describes CRM usage further and categorizes its contributions to a comprehensive model. Such model includes the different types of performance metrics that may effectively illustrate how CRM creates business value. The proposed model attempts to answer two research questions: “What theories, performance metrics, and analytical framework should be adopted to measure the actual contribution of CRM?” and “What are the moderating factors in the value creation of CRM?”
The rest of this paper is organized as follows. We start with the theoretical background and related research on IT business value and then present our research framework and hypotheses. In the empirical study section, we discuss the data sources, regression models, and operationalization of the metrics and then report the results. We summarize our findings in the discussions and conclusion section.
Section snippets
Performance metrics in IT and CRM business value
The business value of CRM is among the many research topics in the area of enterprise IT and its business value. In empirical studies on the business value of enterprise IT, the performance metrics adopted by researchers include process performance and firm/organizational performance; the latter can be further classified into accounting-based firm performance and stock market performance [50,66].
Process performance metrics reflect the influence of IT on a firm’s operational efficiency in a
Operational and strategic benefits of CRM
The functional modules of CRM can be identified as front-office or back-office modules [39,45] or as “operational CRM” or “analytical CRM,” respectively [23,27]. The front-office or operational CRM functions include sales support, marketing and service processes, and improved communications between a company and its customers through an efficient flow of information. The back-office or analytical CRM functions play a key role in information integration; thus, a company can analyze the basic
Data sources
This study utilizes the Harte–Hanks CI Technology Database, Compustat, and ACSI as data sources for the empirical analysis. The original information in the CI database is acquired from Fortune 1000 companies in the US that record site-level (subsidiaries or branches) IT applications. For the CI database, we select the data covering the fiscal years 2001–2008, including the records of CRM usage and other metrics for enterprise IT. We obtain the annual financial figures and stock performance of
Descriptive statistics
Table 2, Table 3 show the descriptive statistics and correlation matrix, respectively, of the variables. The results suggest that both the performance and controlling variables have suitable variations for the regression analyses. The correlations between the controlling variables are not expected to cause multicollinearity problems.
Hypothesis testing
To estimate the above panel data models’ coefficients, we use the pooled regression method because of the following reasons. First, our approach is analogous to the
Conclusion
In this study, we performed an empirical analysis on the generation of CRM business value from the perspective of operational benefits, strategic benefits, and firm performance. The result shows that the operational benefits of CRM are reflected in firms’ high revenue per employee, whereas the strategic benefits are embodied in high customer satisfaction. Moreover, these operational and strategic benefits can promote firms’ profitability and market valuation. The analysis of moderators shows
Acknowledgements
This work is supported by the National Natural Science Foundation of China (Project Nos. 71272028 and 71490721).
Dr. Yangfan Li is a researcher at Evergrande Research Institute. Prior to the current position, he had worked as a researcher at China Center of Information Industry Development. He received his Ph.D. in Management Science and Engineering from Tsinghua University. His research interest is in IT business value and industrial policies.
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Dr. Yangfan Li is a researcher at Evergrande Research Institute. Prior to the current position, he had worked as a researcher at China Center of Information Industry Development. He received his Ph.D. in Management Science and Engineering from Tsinghua University. His research interest is in IT business value and industrial policies.
Dr. Jinghua Huang is Professor and Deputy Chair of Department of Management Science and Engineering, School of Economics and Management, Tsinghua University. She received her Ph.D. in Information Systems from Tsinghua University. She conducted research at the Sloan School of MIT, University of British Columbia, and at the University of Waterloo as a visiting scholar. In 1997, she spent 1 year at the University of Illinois as a Fulbright Scholar. Her main research interests include IT business value, electronic business, decision support systems, and IS analysis. Her papers have appeared in Information Systems Research, Information & Management, Journal of Global Information Management, Journal of Computer Information Systems, the Communications of AIS, Computers & Industrial Engineering, the IEEE International Conference on Systems, Man and Cybernetics. She is the author of nine books in Chinese.
Dr. Tingting Song is an assistant professor at Antai College of Economics and Management, Shanghai Jiao Tong University. She received her Ph.D. in Management Science and Engineering from Tsinghua University. Her current research interests include economics of IS, electronic commerce, online social media and consumer behavior. She has published research articles in Information Systems Research, Information & Management and other research journals.