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Notice that instead of concentrating on traditional business functions, or only supporting the internal business processes of a company, enterprise applications are focused on accomplishing fundamental business processes in concert with a compa- ny’s customer, supplier, partner, and employee stakeholders. Thus, enterprise re- source planning (ERP) concentrates on the efficiency of a firm’s internal production, distribution, and financial processes. Customer relationship management (CRM) fo- cuses on acquiring and retaining profitable customers via marketing, sales, and ser- vice processes. Partner relationship management (PRM) aims at acquiring and retaining partners who can enhance the selling and distribution of a firm’s products and services. Supply chain management (SCM) focuses on developing the most effi- cient and effective sourcing and procurement processes with suppliers for the prod- ucts and services needed by a business. Knowledge management (KM) applications focus on providing a firm’s employees with tools that support group collaboration and decision support.
We will discuss CRM, ERP, and SCM applications in detail in this section and cover knowledge management applications in Chapter 9. Now let’s look at a real-world example of some of the challenges involved in rolling out global, cross- functional systems.
Marketing R & D/Engineering
Product Release Product
Test Component
Design Market
Test Customer
Feedback
Market Research
Process Design
Equipment Design
Manufacturing
Production Start
FIGURE 7.2 The new product development process in a manufacturing company. This is an example of a business process that must be supported by cross-functional information systems that cross the boundaries of several business functions.
Source: Adapted from Mohan Sawhney and Jeff Zabin, Seven Steps to Nirvana: Strategic Insights into e-Business Transformation (New York: McGraw-Hill, 2001), p. 175.
Knowledge Management Collaboration • Decision Support
Employees
Customers
Customer Relationship Management Marketing • Sales • Service
Suppliers
Partners
Partner Relationship Management Selling • Distribution Supply Chain Management
Sourcing • Procurement
Enterprise Resource Planning Internal Business Processes
FIGURE 7.3
This enterprise application architecture presents an overview of the major cross-functional enterprise applications and their interrelationships.
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Here’s a question you probably never expected to find in your information system text:
Have you ever noticed how geese fly? They start out as a seemingly chaotic flock of birds but very quickly end up flying in a V-shape or echelon pattern like that shown in Figure 7.4 . As you might imagine, this consistency in flying formation is not an ac- cident. By flying in this manner, each bird receives a slight, but measurable, benefit in reduced drag from the bird in front. This makes it easier for all of the birds to fly long distances than if they just took up whatever portion of the sky they happened to find.
Of course, the lead bird has the toughest job, but geese have figured out a way to help there, as well. Systematically, one of the birds from the formation will fly up to relieve
Getting All the Geese Lined Up: Managing at the
Enterprise Level
Getting All the Geese Lined Up: Managing at the
Enterprise Level
Atefeh Riazi’s quarter-million frequent-flier miles are testament to the fact that it’s not such a small planet after all. As CIO at Ogilvy & Mather Worldwide, Riazi has spent the past years rolling out global applications, such as collaborative workflow systems, creative asset management, knowledge management, messaging, and security for the New York City–based marketing giant. Most recently, Riazi has been trying to con- vince the Asian, European, and Latin American offices to replace their legacy systems with North America’s SAP enterprise resource planning system for finance, human resources, and production. A common enterprise system, she says, would provide Ogilvy’s 400 offices in more than 100 countries with access to real-time information so they can make quick decisions, better respond to market changes, and cut costs.
The fact is that globalization adds new dynamics to the workplace, and CIOs who stick to the true-blue American business formula will fail. They must abandon the idea of force-fitting their visions into worldwide offices and move toward a glo- bal infrastructure built collaboratively by staff from around the world.
Take the company that rolls out a global system with high-bandwidth require- ments. That system might not be feasible for IT directors in the Middle East or parts of Asia, where the cost of bandwidth is higher than in New York. Is the standardized system multilingual? Can it convert different currencies? Can it accommodate com- plex national tax laws?
For global projects, working virtually is critical, but it’s also one of the biggest challenges. “You’re dealing with different languages, different cultures, different time zones,” says George Savarese, vice president of operations and technology services at New York City–based MetLife. His 6 p.m. Monday meeting, for in- stance, falls at 8 a.m. in South Korea and 9 p.m. in Brazil. Savarese adds, however, that telephone and e-mail alone won’t cut it. “You really have to be there, in their space, understanding where it’s at,” he says, adding that he spends about half of each month abroad.
“Globalization challenges your people skills every day,” says Ogilvy’s Riazi. For example, workers in the United Kingdom often rely heavily on qualitative research;
they take their time in making decisions, as opposed to Americans, who tend to be action-oriented. So, in a recent attempt to get offices in the United States and the United Kingdom to collaborate on a common system rollout, Riazi hit a wall of re- sistance because she didn’t spend enough time going over analytical arguments with the people in the U.K. office.
Having international teams run global projects goes a long way toward mending fences. Ogilvy, for instance, manages a financial reporting project out of Ireland.
“The IT director there has a European point of view, so we’re not going to be blind- sided by something that isn’t a workable solution,” she says.
“We have let control go,” she says of Ogilvy’s New York headquarters. “A lot of global companies cannot let go of that control. They’re holding so tight. It’s destructive.”
Source: Adapted from Melissa Solomon, “Collaboratively Building a Global Infrastructure,” CIO Magazine, June 1, 2003.
Ogilvy & Mather and MetLife: The Interpersonal Challenges of Implementing Global
Applications Ogilvy & Mather and MetLife: The Interpersonal Challenges of Implementing Global
Applications
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Chapter 7 / e-Business Systems ● 265
the current lead bird. In this way, the entire flock shares the load as they all head in the same direction.
Okay, so what does this have to do with information systems? This chapter will focus on systems that span the enterprise and that are intended to support three enter- prisewide operations: customer relationships, resource planning, and supply chain.
Each operation requires a unique focus and, thus, a unique system to support it, but they all share one common goal: to get the entire organization to line up and head in the same direction, just as the geese do.
We could cover these important enterprise systems in any order, and if we asked three people how to do it, we would likely get three different approaches. For our purposes, we will start with the focus of every business: the customer. From there, we will expand our view to the back-office operations and finally to systems that manage the movement of raw materials and finished goods. The end result, of course, is that we get all the “geese” in the business to fly in the same direction in as efficient a man- ner as possible.
Today, customers are in charge. It is easier than ever for customers to comparison shop and, with a click of the mouse, to switch companies. As a result, customer rela- tionships have become a company’s most valued asset. These relationships are worth more than the company’s products, stores, factories, Web addresses, and even employees.
Every company’s strategy should address how to find and retain the most profitable customers possible.
The primary business value of customer relationships today is indisputable. That’s why we emphasized in Chapter 2 that becoming a customer-focused business was one of the top business strategies that can be supported by information technology.
Thus, many companies are implementing customer relationship management (CRM) business initiatives and information systems as part of a customer-focused or customer-centric strategy to improve their chances for success in today’s competi- tive business environment. In this section, we will explore basic CRM concepts and technologies, as well as examples of the benefits and challenges faced by companies that have implemented CRM systems as part of their customer-focused business strategy.
Customer Relationship Management:
The Business Focus
Customer Relationship Management:
The Business Focus
FIGURE 7.4
Geese fly in a highly organized and efficient V- shaped formation—much like a well-run business.
Source: © Warren Jacobi/Corbis.
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Managing the full range of the customer relationship involves two related objectives: one, to provide the organization and all of its customer-facing employees with a single, com- plete view of every customer at every touch point and across all channels; and, two, to pro- vide the customer with a single, complete view of the company and its extended channels . This quote is why companies are turning to customer relationship management (CRM) to improve their customer focus. CRM uses information technology to create a cross-functional enterprise system that integrates and automates many of the customer-serving processes in sales, marketing, and customer services that interact with a company’s customers. CRM systems also create an IT framework of Web-enabled software and databases that integrates these processes with the rest of a company’s business operations. CRM systems include a family of software modules that provides the tools that enable a business and its employees to provide fast, convenient, de- pendable, and consistent service to its customers. Siebel Systems, Oracle, SAP AG, IBM, and Epiphany are some of the leading vendors of CRM software. Figure 7.5 illustrates some of the major application components of a CRM system. Let’s take a look at each of them.
CRM software helps sales, marketing, and service professionals capture and track relevant data about every past and planned contact with prospects and customers, as well as other business and life cycle events of customers. Information is captured from all customer touchpoints, such as telephone, fax, e-mail, the company’s Web site, retail stores, kiosks, and personal contact. CRM systems store the data in a common cus- tomer database that integrates all customer account information and makes it available throughout the company via Internet, intranet, or other network links for sales, marketing, service, and other CRM applications.
A CRM system provides sales representatives with the software tools and company data sources they need to support and manage their sales activities and optimize cross-selling and up-selling . Cross-selling is an approach in which a customer of one product or service, say, auto insurance, might also be interested in purchasing a related product or service, say, homeowner’s insurance. By using a cross-selling technique, sales representatives can better serve their customers while simultane- ously improving their sales. Up-selling refers to the process of finding ways to sell
What Is CRM?
What Is CRM?
Contact and Account Management
Contact and Account Management
Sales Sales
FIGURE 7.5
The major application clusters in customer relationship management.
Prospect or Customer
Fax e-Mail
Telephone Web Marketing and
Fulfillment
Sales
• Cross-sell
• Up-sell
Customer Service and
Support
Retention and Loyalty
Programs Contact and
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Chapter 7 / e-Business Systems ● 267 a new or existing customer a better product than they are currently seeking. Ex- amples include sales prospect and product information, product configuration, and sales quote generation capabilities. CRM also provides real-time access to a single common view of the customer, enabling sales representatives to check on all aspects of a customer’s account status and history before scheduling their sales calls. For example, a CRM system would alert a bank sales representative to call customers who make large deposits to sell them premier credit or investment ser- vices. Or it would alert a salesperson of unresolved service, delivery, or payment problems that could be resolved through a personal contact with a customer.
CRM systems help marketing professionals accomplish direct marketing campaigns by automating such tasks as qualifying leads for targeted marketing and scheduling and tracking direct marketing mailings. Then the CRM software helps marketing profes- sionals capture and manage prospect and customer response data in the CRM data- base and analyze the customer and business value of a company’s direct marketing campaigns. CRM also assists in the fulfillment of prospect and customer responses and requests by quickly scheduling sales contacts and providing appropriate informa- tion about products and services to them, while capturing relevant information for the CRM database.
A CRM system provides service representatives with software tools and real-time access to the common customer database shared by sales and marketing professionals.
CRM helps customer service managers create, assign, and manage requests for service by customers. Call center software routes calls to customer support agents on the basis of their skills and authority to handle specific kinds of service requests. Help desk software provides relevant service data and suggestions for resolving problems for customer service reps who assist customers with problems with a product or service.
Web-based self-service enables customers to easily access personalized support infor- mation at the company Web site, while giving them an option to receive further assistance online or by phone from customer service personnel.
Consider the following:
• It costs six times more to sell to a new customer than to sell to an existing one.
• A typical dissatisfied customer will tell eight to ten people about his or her experience.
• A company can boost its profits 85 percent by increasing its annual customer retention by only 5 percent.
• The odds of selling a product to a new customer are 15 percent, whereas the odds of selling a product to an existing customer are 50 percent.
• Seventy percent of complaining customers will do business with the company again if it quickly takes care of a service problem.
That’s why enhancing and optimizing customer retention and loyalty is a major business strategy and primary objective of customer relationship management. CRM systems try to help a company identify, reward, and market to their most loyal and profitable customers. CRM analytical software includes data mining tools and other analytical marketing software, and CRM databases may consist of a customer data warehouse and CRM data marts. These tools are used to identify profitable and loyal customers and to direct and evaluate a company’s targeted marketing and relationship marketing programs toward them. Figure 7.6 is an example of part of a proposed Web-based report format for evaluating Charles Schwab & Co.’s customer retention performance.
Marketing and Fulfillment Marketing and Fulfillment
Customer Service and Support Customer Service and Support
Retention and Loyalty Programs Retention and Loyalty Programs
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FIGURE 7.6 Proposed report format for evaluating the customer retention performance of Charles Schwab & Co.
Customer Retention
Customer Experience
Customer Spending
Navigation Customer retention rate
Household retention rate
Average customer tenure
Satisfaction by customer segment Satisfaction by cohort Satisfaction by customer scenario
Average revenue per customer
Average profitability per customer Growth in customer assets
Customer lifetime value
Performance
Retention rate by customer cohort
Retention rate by customer segment
Customer loyalty rating
Customer satisfaction by:
• Task
• Touchpoint
• Channel partner
End-to-end performance by scenario
Customer satisfaction with quality of information provided
Revenues per customer segment
Profits per customer segment
Growth in customer assets per segment
Operations
Percentage of customers who are active Web users Percentage of customers who interact via e-mail Decline in customer activity Propensity to defect Elapsed time for commonly performed tasks
Accuracy of Web search results
Percentage of trades executed with price improvement Percentage of e-mails answered accurately in one hour
Daily log-ins at market opening
Revenue trades per day Percentage increase in customer assets
Cost to serve by touchpoint
Environment Competitors’ offers Share of portfolio Comparative retention Comparative customer tenure Comparative satisfaction:
Competitors:
• Other online
brokers
• Other financial
service firms
• All products and services
Total brokerage assets
Growth in brokerage assets
Figure 7.7 illustrates another way to think about the customer and business value and components of customer relationship management. We can view CRM as an inte- grated system of Web-enabled software tools and databases that accomplish a variety of customer-focused business processes that support the three phases of the relation- ship between a business and its customers.
The Three
Phases of CRM The Three
Phases of CRM
FIGURE 7.7
How CRM supports the three phases of the relationship between a business and its customers.
Customer Life Cycle
CRM Integrated
Solution
Shared Customer Data
Collaborative Service
Partner
The Internet
Company Customer
CRM Functional
Solutions
Direct Marketing Cross-sell and Up-sell Proactive Service Sales Force Automation Customer Support
Acquire Enhance Retain
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• Acquire. A business relies on CRM software tools and databases to help it acquire new customers by doing a superior job of contact management, sales prospecting, selling, direct marketing, and fulfillment. The goal of these CRM functions is to help customers perceive the value of a superior product offered by an outstanding company.
• Enhance. Web-enabled CRM account management and customer service and support tools help keep customers happy by supporting superior service from a responsive, networked team of sales and service specialists and business partners.
And CRM sales force automation and direct marketing and fulfillment tools help companies cross-sell and up-sell to their customers, thus increasing their profit- ability to the business. The value perceived by customers is the convenience of one-stop shopping at attractive prices.
• Retain. CRM analytical software and databases help a company proactively iden- tify and reward its most loyal and profitable customers to retain and expand their business via targeted marketing and relationship marketing programs. The value perceived by customers is of a rewarding personalized business relationship with
“their company.”
The potential business benefits of customer relationship management are many. For example, CRM allows a business to identify and target its best customers—those who are the most profitable to the business—so they can be retained as lifelong customers for greater and more profitable services. It makes possible real-time customization and personalization of products and services based on customer wants, needs, buying hab- its, and life cycles. CRM can also keep track of when a customer contacts the company, regardless of the contact point. In addition, CRM systems can enable a company to provide a consistent customer experience and superior service and support across all the contact points a customer chooses. All of these benefits would provide strategic business value to a company and major customer value to its customers.
Benefits and Challenges of CRM
Benefits and Challenges of CRM
Continental Airlines: Getting to Know Your Customers
Wouldn’t it be nice if just once, one of those surly airline employees offered a sincere and unequivocal apology for losing your luggage or for a delayed flight? If you fly first class with Continental Airlines, you may finally get that apology.
Since 2001, the Houston-based carrier has been enhancing the in-flight reports it provides to flight attendants just before takeoff with more detailed information on passengers. For example, in addition to indicating which passengers ordered special meals, the expanded reports flag the airline’s high-value customers and detail such things as whether they’ve had their luggage lost in the recent past or experienced a delayed flight. Armed with this information, flight attendants can now approach these customers during the flight to apologize for the inconveniences. Such high- touch, personalized service increases customer loyalty, particularly among Continen- tal’s most valuable patrons, and that loyalty in turn drives revenue.
Continental breaks customers into different levels of profitability: Since building its new system, the airline reports earning an average of $200 in revenue on each of its 400,000 valuable customers and an additional $800 in revenue from each of the 35,000 customers it places in its most profitable tier—all because it accords them better service.
Continental’s desire to improve its ranking in a competitive industry drove it to build a real-time enterprise data warehouse (EDW). When the EDW was first being developed in 1998, its initial purpose was to bring data from some 27 systems to- gether so that the company could more accurately forecast revenue. Since then, the company has used it to determine if customer loyalty initiatives really affect revenue.
By testing a sample of 30,000 customers who experienced delays, Continental found
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