Why CRM Fails — and How to Fix It

Customer relationship marketing was supposed to be a “new paradigm,” yielding more loyal customers and much more profit for companies. It hasn’t. What should managers do?

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BMW’s investment in CRM evolved as its understanding of how consumers reacted to direct relationship initiatives expanded.

Image courtesy of Flickr user le_huf.

During this millennium, many marketers seem to have bet the family silver on customer relationship management investments with little to show for it, and those marketers are now attempting to justify further investment in order to achieve their original goals. To suggest that they have arrived at this uncomfortable place because they are regarded as unaccountable and financially innumerate,1 or that CRM technologies are immature and consumers simply won’t engage with such new technology, is too simplistic. The problem is more fundamental: Most senior management teams have an unbalanced approach to managing marketing investments, and this is particularly evident in the case of CRM. They focus on the key resources in which they invest capital, such as technology, location and advertising, but ignore the commensurate investment of time, energy and talent to develop the capabilities required to leverage those investments. Of course, this approach to marketing investment is risky: It generates excessive investment before the organization is capable of leveraging it profitably.

All of this is a far cry from CRM’s original promise. Do you remember how new forms of consumer relationships were going to revolutionize marketing, rewriting its rules and calling into question decades of scholarship and practice?2 Buying behavior would change as consumers used the information-rich environment to secure better terms of trade, personalize service and join online communities to cocreate solutions with suppliers.3 Marketers, armed with perfect information about consumers, would optimize every marketing cent they spent generating a step-change in marketing effectiveness.

The Leading Question

How should marketing investments be managed for the greatest return?

Findings
  • Develop new capabilities to improve customer relationships.
  • Backfill with capital investment to sustain and embed capability development.

Companies bought heavily into this “new paradigm” thinking: Between 2000 and 2005, organizations spent $220 billion implementing CRM solutions,4 creating a market worth almost $50 billion per annum and growing in excess of 16% prior to the credit crunch. Yet despite these enormous investments, publicly available data consistently show that 55% to 75% of companies fail to meet the expected return on their CRM investments.5 So, have organizations collectively wasted $150 billion on CRM during this period?

Our research suggests that the problem is relatively straightforward: Companies have bought sophisticated new relationship management resources, such as call centers, databases, software and websites, but continued running their businesses as they always had done and assumed that customers would value the results of their investments. (See “About the Research.”) Business leaders have also assumed that the marketing capabilities needed to interact with consumers in new ways to build more enduring and loyal relationships will develop as a natural consequence of investing in CRM resources. Alas, this is not the case.

About the Research »

Our research suggests that successful CRM investment begins by developing the new capabilities necessary to improve customer relationships and then backfilling with capital investment as needed to sustain and embed the capability development. We illustrate this through two companies considering fresh investment in CRM: BMW (UK) and Flutter.com (now a division of Betfair Group, a world leader in the online betting market). In the case of Flutter, a program of identifying its true marketing capabilities led it to invest in a less expensive and different aspect of CRM than it had first intended, whereas BMW (UK) decided to delay its investment pending further capability development in relationship management. Both companies aligned their investment strategies to the development of their marketing capabilities, resulting in reduced capital outlay and improved performance.

So what is the interrelationship between a company’s resources and its capabilities?

The Elusive Capabilities for Developing Customer Relationships

Customer loyalty cannot be fast tracked merely through buying companies, mailing lists or CRM technology. Where CRM is successful, organizations learn from customers and craft effective responses, renewing and enhancing the value each side derives to a point where the relationship itself is a source of sustainable advantage and profit. Engaging with customers and responding effectively does not develop automatically from investments in CRM technology solutions; it requires a sustained program of investing in and developing a wide range of resources (e.g., brands, distribution networks, supply chains and know-how) in consideration of customers’ needs.6 To achieve this, companies must have the capabilities to continually renew and configure resources in the service of ever-changing customer needs. It is the combination of these capabilities and CRM technology that enables a company to develop unique propositions that customers value.

Unfortunately, most managers do not seem to hold to this holistic view: the need to invest in both resources and capabilities. Generally, managers can be characterized as either resource-pickers or resource-builders.7 Resource-pickers identify resources that can be bought for less than their value to the company, while resource-builders generate internally the brands, customer relationships and distribution networks that create sustained competitive advantage. In reality, this is a false dichotomy. For example, it is hard to conceive of a company with loyal, committed customers that lacks the capabilities needed to engender that loyalty. We posit that during the recent period of massive CRM investment, managers have lacked a suitable framework for assessing and developing their marketing capabilities and, consequently, have tended to default to a resource-picking approach.

Why is this so? Perhaps managers do not fully understand the nature of these capabilities; how can they be developed and made to work with CRM technology to generate competitive advantage? Capabilities are difficult to observe, let alone understand and manage, because they arise from the tacit knowledge of managers and employees: unstated how-we-do-things-around-here routines8 that are second nature to people within the company. By definition, these routines and tacit knowledge are hard to document and transfer even within a company.9

Marketing Capabilities Framework

View Exhibit

The problem is compounded by our observation that it is unclear exactly who is responsible for ensuring the development of these new relationship marketing capabilities. Research suggests that such process-led change programs are directed mostly by the IT function.10 The marketing and sales functions typically sponsor investment in new CRM technology and write the business case; however, they generally lack the systems and process re-engineering expertise required to effect technology-led change, and so they defer to IT for implementation. The initiative then becomes a technology project whose focus is selecting and deploying new technology, and it limits the development of relationship marketing capability to training marketers in using the new technology and business processes, rather than helping marketers carry out new and different activities that glean knowledge about customers and change consumers’ attitudes and behaviors. The human resources function focuses on skills development of individual marketers, rather than addressing how the organization develops new marketing capabilities. Training to use the systems is necessary but not sufficient; marketing capabilities originate within organizations through collaboration — they are not merely the sum of the individuals’ knowledge.11

Arguably, it is relatively easy for senior executives to acquire CRM resources; it merely requires money to buy software, people and systems integrators. Resource acquisition is also time-bound; indeed, a leading software company once advertised “Global CRM in 90 days,” and today’s cloud-based vendors offer CRM virtually on demand. It is far harder to build capabilities to manage customers better; the time frame is uncertain, and it requires organizational learning and the will to change what you do as a result of what customers tell you they want. Companies that try to improve their marketing capabilities, such as enhancing their customers’ service experience to help build greater loyalty, often take years to see improvements. The question then becomes: How do managers ensure that resource acquisition and the management capabilities needed to deliver appropriate returns on such resources go hand in hand?

How to Identify and Manage CRM Capabilities

From our research, we have constructed a framework and process for identifying and managing marketing capabilities that enable executives to develop their CRM resources and capabilities concurrently. This framework is built on four principal marketing capabilities:

Demand management: generating revenue for goods and services;

Creating marketing knowledge: generating and disseminating — throughout the company — insight about consumers, markets, competitors, alliance partners, online communities, etc.;

Building brands: creating and managing brands for products, services and the organization;

CRM: developing how the company relates to consumers.

However, little is known of the fundamental skill sets that underpin each of these capabilities. Our research suggests that the evolution of these capabilities is time-based and usually coalesces around three types of marketing relationships between companies and consumers: transactions, one-to-one relationships and networks. During the 1970s, marketing was described as a series of transactions, commercial exchanges, between the company and its consumers.12 The 1980s and 1990s saw the emergence of marketing defined as long-term relationships between the company and its consumers: the one-to-one13 or relationship marketing paradigm. More recently, scholars have identified a new network marketing paradigm14 flowing from online networks of the company, its supply chain15 and the consumers themselves.

From this analysis, we built a marketing capabilities framework in the form of a matrix defined by two axes: the four capabilities cited above and the three forms of marketing relationships.16 (See “Marketing Capabilities Framework.”)

Building Marketing Capabilities

At the time of our research, both Flutter and BMW were strong brands in their respective markets, established through a traditional marketing mix based upon strong product differentiation, powerful emotional benefits and excellent service. Nonetheless, both faced challenges for which increased reliance on product-based marketing was not proving sufficient. Changing competitive conditions meant there was a clear need to manage consumer relationships differently. This required investments behind a CRM strategy. Neither team of managers was confident that “best practice” in CRM would be relevant to their particular circumstances, nor did they feel confident about investing large sums of money behind what for them was a new form of consumer relationship.

Flutter

Flutter offered a web-based means for consumers to negotiate bets (and set odds) directly with other consumers and disintermediate traditional betting shops. Flutter hoped that social interaction would create a unique community, “locking in” groups of consumers. When it was launched in the United Kingdom with a traditional mass marketing mix of advertising and promotion, it attracted the largest number of online bettors in the market. At the same time, a U.K.-based competitor, Betfair, also entered the market. Instead of encouraging bettors to find one-to-one matches for their bets, Betfair created an anonymous betting exchange whereby individuals’ bets (back or lay17) were aggregated and resolved through the exchange without individuals having to parcel bets for individual takers or even communicate with takers of their bets. Betfair’s exchange betting appealed to the serious gambler more than Flutter’s one-to-one betting. Despite having more consumers, Flutter had only 4% of the online betting market18 by the end of its launch year against Belfair’s 50%. Flutter’s low market share was a major concern, because market share is vital for survival in this business. Betting sites must be sufficiently large to accommodate bets quickly: Serious bettors will not waste time on small sites but instead will opt for the biggest or most liquid immediately. Flutter needed to build liquidity quickly. It had already decided to abandon its social networking strategy in favor of a Betfair-style betting exchange and was poised to reinforce its traditional mass marketing strategy in order to promote this in the marketplace.

When Flutter’s managers first reflected on their marketing capabilities, they were sure that the company’s capabilities were a mix of transactional and one-to-one marketing. Its demand management strategy at launch was to use mass advertising and promotion to attract the largest number of consumers. Marketing activities focused upon promoting individual product offers such as betting on horses, greyhounds and football. There was no formal program of individual consumer development. Only recently had it begun to identify and monitor the activities of its largest bettors. Flutter was contemplating further, expensive, investments in transactional marketing to address share erosion.

However, when the same managers started to look at the details of their capabilities, a very different picture emerged. They discovered that they had been compensating effectively for Flutter’s lack of liquidity versus the leading competitor by managing the overall betting community on the site to keep it in equilibrium between backers and layers, winners and losers. Managers realized that they had developed a unique ability to identify the impact that Flutter’s large, professional bettors had on the overall site and to address the implications for liquidity.

As a result of these realizations, managers identified market-making pundits who had personal followings of other bettors. Increased activity from such renowned figures correlated with increased activity from their followings. This led managers to an important conclusion: Betting markets grow in step-changes led by the market-makers’ activities rather than developing in a smooth line of increased numbers of transactions. The commercial director realized: “If you can get 20 key customers [into a new product], then they drive the liquidity and that drives the market. Identifying and getting those people are critical. They are almost stakeholders in the business. We can’t stimulate that; we need them to stimulate that [new business].”

Flutter’s accumulated consumer insight into the behavior and liquidity management issues surrounding market-makers was more advanced than that of competitors; this was verified through a series of experiments. Flutter’s CRM strategy would be built on this insight.

With a clear picture of Flutter’s both current and future marketing resources needed to deliver the strategy, managers determined the future marketing capabilities required. This process generated specific actions arising from using the framework across each of the four capabilities requiring limited investment, such as plans for collaborating with key market-makers, a new customer services program, reinstating a consumer E-bulletin board and a new working relationship with product development. By recognizing and appreciating the CRM capabilities that matter for its business model, Flutter was able to avoid what certainly would have been unprofitable expenditure in mass marketing campaigns and traditional one-to-one CRM programs. Instead, it was able to scale its business with a limited investment in new technology.

The managers’ efforts, coupled with the changes to their offer, improved performance dramatically, and Flutter’s market share increased more than sevenfold to 30%. It was at this juncture that Betfair and Flutter merged to create the world’s largest online betting company at the time.

BMW (UK)

The exclusive U.K. importer and distributor of BMW cars (including the Mini) and motorcycles, BMW (UK) is fully owned by BMW AG in Munich. Under European Union legislation at the time (known as the European Block Exemption), no other company could import BMWs to the United Kingdom, nor could BMW (UK) sell cars directly to consumers; all cars were sold through a tied network of dealers.

The EU was reviewing the Block Exemption, and BMW (UK) managers accepted that car distribution would be liberalized but were unsure to what extent and its likely impact. Some felt that liberalization would create more dealerships and new, innovative types of distribution channels, all of which would drive down BMW (UK)’s profit margins. In addition to potential changes in distribution, managers were considering the Internet’s impact on consumer purchasing behavior. Would changes in consumer buying behavior render BMW (UK)’s dealer network obsolete?

BMW AG was considering a large, global CRM investment, yet BMW (UK) was already three years into its own program, which was neither developed fully nor used to maximum effect. U.K. managers were wary of further investment, but the division faced a dilemma: Should BMW (UK) make its current program work before embarking on this new and even more ambitious project, or should it abandon its current program in order to participate fully in the new global initiative?

Aligned with these concerns was the realization among BMW (UK) management that they knew very little about their U.K. consumers, apart from the data on the original sales contract and warranty information. Virtually all consumer contact was channeled through the dealer network. However, consumer information held by dealers was not systematically shared nor mined centrally at the time. While the U.K. marketing department conducted regular surveys on satisfaction, brand image and service experience, this mostly generated aggregate consumer data and failed to provide a truly rich understanding of an individual consumer’s motivation and behavior. Hence, managers felt vulnerable should the distribution environment change dramatically. Equally, managers worried that they did not have the relationship marketing capabilities required to manage consumers directly across multiple channels to market. CRM was seen as a means of mitigating those risks, reinforcing consumer loyalty and improving the repurchase rate.

BMW managers’ exploration of marketing capabilities generated two scenarios, each with dramatically different implications for its CRM capabilities and hence CRM investment posture. Within the conservative scenario, the dealer network remained the dominant channel to market, and BMW (UK) would need merely to develop some elements of one-to-one capabilities to support a limited online presence commensurate with its view of BMW consumers’ expectations for direct access to the company.

Under the managers’ radical scenario, online relationships would change consumer behavior, European legislation would liberalize automotive distribution substantially and there would be sufficient margin in distribution to attract additional investment. Lower-cost and more interactive new channels would promote a very radical move from transactional marketing in each of the four capabilities. However, creating marketing knowledge about individual consumers was seen as the lynchpin marketing capability upon which all the others relied. Managers could not begin to understand how they could develop BMW (UK)’s capabilities for demand management, branding or customer management further without detailed knowledge of individual drivers’ motivations, purchasing behaviors and even the networks of influencers who might impact their decision making. Even when they imagined that they could identify and relate to high-value consumers, managers found it difficult to conceive of how they would use that knowledge to influence consumer behavior and increase sales.

BMW (UK) managers had reached a critical juncture in their deliberations, and a fundamental disagreement remained about the practical application of consumer insight that would be generated through any future one-to-one or network marketing capability. The emerging view was that once they got beyond the generic promise of CRM, they could not yet imagine how it would add value to BMW (UK) or the BMW driver. Without a more advanced level of one-to-one or network marketing capabilities with which to make this judgment, BMW (UK) managers could not even conceive of, let alone implement, a sensible CRM investment program.

The impasse reached by BMW (UK) managers about investing in new marketing capabilities and resources had profound consequences for its CRM investment. Instead of an immediate, large-scale investment in new technology, a series of small investments was agreed upon that would develop the U.K. company’s existing CRM resources and capabilities to a point at which it could decide upon the merits of further investment.

Implications for CRM Investment and Marketing Capabilities

From our research, four key insights emerge for managers responsible for their companies’ CRM investment decisions:

Capabilities are the precursor of CRM investment and not vice versa. The findings from our research are clear: If appropriate marketing capabilities are not developed, little or no return will be generated from investments made in CRM. The evidence from Flutter and BMW suggests that the starting point for profitable CRM investment lies in developing marketing capabilities in advance of major capital investments in resources, particularly CRM technologies.

Flutter achieved commercial success by moving quickly from transactional to one-to-one relationships and finally to network marketing, in advance of relatively small investments in CRM systems. Mostly, it added a new managerial perspective to the deployment of existing resources to get much more out of them. This suited Flutter, as it was a startup dot-com that did not want to “burn” more of its precious cash on CRM solutions.

BMW AG started from the opposite position. Globally, it had decided to ask its national operating companies to make large CRM capital investments. The U.K. company could not conceive of how it would generate sufficient return on such investment and was unwilling to hope that the answer would come from as-yet unknown benefits of a CRM system. Any business case would have been arbitrary and theoretical. For BMW (UK), the CRM investment case would be more of an evolving view based upon ever-expanding understanding about how its consumers reacted to new direct relationship initiatives.

As CRM capabilities evolve through managers’ learning from real-world experience in their markets, the business case and the exact specification of CRM resources become more evident. Moreover, the learning process underpinning this capability development means that once the company does acquire significant new CRM resources, it will have in place a team of skilled and knowledgeable people ready to make the best use of them. We suggest that companies invest enough behind a new CRM strategy to promote sufficient learning, development or experimentation to take them to the next investment decision: Do they invest in a major new CRM technology or enhance existing processes and systems? By deferring the very large investments in big CRM solutions until the business case is clearly proven (or not) and the CRM team’s marketing capabilities are evident, financial and business risks are reduced, and substantial investments are allocated only to proven ideas and teams.

The rate at which capabilities develop varies between companies. The rate of organizational learning, rather than the size of the company’s CRM budget, determines how rapidly companies can change the way they relate to a consumer, which, in turn, is linked to the length of the consumer purchasing cycle. Flutter moved through the entire capability continuum within one year, while BMW (UK) had made its first formal CRM investment three years previously and decided to move forward slowly in the future. The serious bettors targeted by Flutter were on the site several times a day, every day. Flutter managers could experiment with customer service initiatives, partner website deals and so forth and quickly measure the impact on their site’s liquidity and turnover. A small team was able to engage in rapid cycles of learning and doing. In contrast, changes in the marketing capabilities at BMW are likely to happen slowly, given their typical three-year repurchase cycle. Hence, the impact of changes to marketing activities will only reveal themselves over an extended time period.

Managers should be realistic about both the level of return and the time it will take to develop new capabilities. It is our experience that CRM programs are all too often designed to meet a short-term horizon of a business case, removing time from those in charge of implementing CRM to engage in cycles of learning and reflection; instead, there is a tendency to develop future cash flows that indicate some immediate payback.19 In such circumstances, CRM becomes little more than technology-enabled sales promotion.

CRM cannot always be driven top-down. Preceding any discussion of CRM investment, top management must, of course, arrive at an understanding that managing different customer segments through different relationships is the right strategy for them. However, the understanding of CRM capabilities and the ability to develop them are emergent rather than immediately obvious; thus it is not always possible to move through a traditional, linear strategy sequence of analysis-strategy-setting-investment case and new resource acquisition-implementation-evaluation.

In the case of Flutter, developing CRM capabilities was the result of managers’ learning, cycles of doing and analysis. Initially, it is hard for managers to see where such cycles will lead: They do not know what has yet to be learned. Over time, Flutter’s managers became better and quicker at learning about consumers and were able to move along the continuum of marketing relationships quickly. BMW (UK) had yet to engage in that learning process and hence could not agree upon a profitable CRM investment program. Top management can provide the money, software and authority to create a CRM program, but such investment must be informed by cycles of learning from consumer insight.

If CRM investment strategy is to be capability-led, then it follows that those managers with direct responsibility for consumer insight and relations will lead both the learning and subsequent specification of the resources needed for CRM investment. Top management should encourage teams of consumer relationship managers to experiment and then monitor the extent to which each team is making progress. These teams can then come back to top management when they need further investment or organizational changes to support further learning and development of their CRM programs. Companies should invest large sums in CRM only as the risk diminishes.

Top management must ensure that the organization is capable of supporting such an evolutionary approach to CRM investment decision making. We speculate that well-structured, command-and-control-style companies that demand a full-blown, evidence-based business case too early in the CRM development process will inhibit the cycles of learning and action that permit operational managers to guide CRM investments intelligently through experimentation and evaluation. Thus, rather than seeking a particular organizational structure that will promote CRM, we believe that an organizational culture that tolerates experimentation will be more successful at building new CRM capabilities.

Hard work and commitment are what it takes to develop marketing capabilities. Perhaps the most encouraging finding from our research is that the marketing capabilities linked to CRM are far from being a black box and can be developed through conscious, goal-directed learning by those responsible for CRM.

Flutter’s marketing management was directly involved in the details of CRM by understanding individual bettors’ behavior and identifying key market-makers and their networks of followers. They maintained a constant vigilance on site liquidity, adjusting the site’s inflow of visitors as much as possible to ensure a balance of backing and laying, winning and losing, and this occurred across different betting products. They did not merely know about consumer behavior — they knew their consumers. BMW (UK) traditionally relied upon survey data to know about consumers, rather than knowing their consumers. It realized that in order to develop its one-to-one marketing capabilities, it would first need to take consumer relationships and their interaction in-house in order to start “talking” to individual consumers and to learn from the experience.

Leading Radical Change — with Patience

So, why is it that so many large, well-managed and well-resourced companies fail to see adequate return on their CRM investments? We argue that it is precisely because these leading companies are usually so well endowed with resources that they rush too quickly into large-scale, IT-based CRM investments, seduced by “best practice” and management fashion. Somehow, the capabilities needed to support these resource investments get forgotten. The top team needs patience and the courage to eschew “neat” global solutions, consultants’ best practice models and their own preference for immediate results by allowing marketing capabilities to develop and lead CRM investments.

Topics

References

1. Marketing is indeed hard on itself, perhaps more so than any other function in business, and particularly on the issue of marketing accountability. See M. McDonald, “Marketing: Priority Case for a Reality Check,” Marketing Review 3, no. 3 (2003): 253-271. Despite such harsh self-critique, a growing body of high-quality research links marketing activities to business performance and increased market capitalization. A recent exemplar of this research is S. Srinivasan, K. Pauwels, J. Silva-Risso and D. Hanssens, “New Products, Sales Promotions, and Firm Value: The Case of the Automotive Industry,” Journal of Marketing 68 (Oct. 2004): 142-156.

2. J.N. Sheth and R.S. Sisodia, “Revisiting Marketing’s Lawlike Generalizations,” Journal of the Academy of Marketing Science 27, no.1 (winter 1999): 71-87.

3. J. Hagel and M. Singer, “Net Worth: Shaping Markets When Customers Make the Rules” (Boston: Harvard Business Press, 1999).

4. See A. Payne and P. Frow, “A Strategic Framework for Customer Relationship Management,” Journal of Marketing 69 (2005): 167-176. The estimates of the CRM solutions market are cited from A. Payne, “Handbook of CRM: Achieving Excellence Through Customer Management” (Oxford: Butterworth-Heinemann, 2006). Payne and Frow define CRM in the context of a continuum. The broad, strategic definition of CRM is a “holistic approach to managing customer relationships to create shareholder value,” whereas the narrow definition is about the “implementation of a specific technology solution.” In between the two extremes is the mainstream definition of CRM as “the implementation of an integrated series of customer-oriented technology solutions.”

5. See A.R. Zablah, D.N. Bellenger and W.J. Johnston, “Customer Relationship Management Implementation Gaps,” Journal of Personal Selling & Sales Management 24, no. 4 (fall 2004): 279-295. Zablah et al. provide a meta review of CRM’s very mixed results. In their article they refer to a study by Gartner Group from which we cite our failure rate. Their study is said to be the most authoritative.

6. Information systems scholars are very clear that it is the ability to leverage technology rather than the technology per se that generates competitive advantage; the technology can be bought by anyone, but only a few companies really leverage it effectively. See A. Hughes and M.S.S. Morton, “The Transforming Power of Complementary Assets,” MIT Sloan Management Review 47, no. 4 (summer 2006): 50-58; and J. Peppard, J. Ward and E.M. Daniel, “Managing the Realization of Business Benefits from IT Investments,” MIS Quarterly Executive 6, no. 1 (2007): 1-11. Strategy scholars make similar claims; see M. Zollo and S.G. Winter, “Deliberate Learning and the Evolution of Dynamic Capabilities,” Organization Science 13, no. 3 (June 2002): 339-351; and R. Sanchez and A. Heene, “Reinventing Strategic Management: New Theory and Practice for Competence-Based Competition,” European Management Journal 15, no. 3 (June 1997): 303-317.

7. R. Makadok, “Toward a Synthesis of the Resource-Based and Dynamic-Capability Views of Rent Creation,” Strategic Management Journal 22, no. 5 (2001): 387-402.

8. Zollo and Winter, “Deliberate Learning.”

9. Tacit knowledge is a foundational concept in the resource-based view of the company. Competitive advantage is derived from the combination of company-specific assets (e.g., brands, distribution networks) developed in step with dynamic capabilities to create inimitable resources. The dynamic capabilities result from organizational routines, how-we-do-things-around-here, that distinguish one company from its competitors and are based in employees’ tacit knowledge. Because this knowledge is tacit, competitors cannot acquire it; if they could, the resource would no longer be inimitable. This sets up one of the great challenges for management: How does one manage and leverage that which is tacit in order to develop competitive advantage? A means of addressing this challenge, the importance of which is widely discussed in the literature, is presented by the authors in this paper. See A.W. King, S.W. Fowler and C.P. Zeithaml, “Managing Organizational Competencies for Competitive Advantage: The Middle-Management Advantage,” Academy of Management Executive 15, no. 2 (May 2001): 95-106; D.J. Teece, G. Pisano and A. Shuen, “Dynamic Capabilities and Strategic Management,” Strategic Management Journal 18, no. 7 (August 1997): 509-533; and N.K. Kakabadse, A. Kouzmin and A. Kakabadse, “From Tacit Knowledge to Knowledge Management: Leveraging Invisible Assets,” Knowledge and Process Management 8, no. 3 (July-September 2001): 137-154.

10. CSC, pioneers in re-engineering, found that overwhelmingly, IT-process-led re-engineering was led by the IT function. In none of the companies it surveyed did marketing lead a re-engineering program. See CSC Index, “State of Reengineering Report” (Cambridge, Massachusetts: 1994). IT should not lead large change projects alone; see M. Sumner, “Risk Factors in Enterprise-Wide/ERP Projects,” Journal of Information Technology 15, no. 4 (December 2000): 317-327; and T.H. Davenport, “Mission Critical: Realizing the Promise of Enterprise Systems” (Boston: Harvard Business Press, 2000).

11. The strategy literature makes a clear distinction between individuals’ skills and abilities and the concept of the organization’s capabilities; see the references for Teece et al., “Dynamic Capabilities” and Zollo and Winter, “Deliberate Learning.” For a knowledge-based perspective on this issue, see R.M. Grant, “Toward a Knowledge-Based Theory of the Firm,” Strategic Management Journal 17, Special Issue (winter 1996): 109-122.

12. P. Kotler, “A Generic Concept of Marketing,” Journal of Marketing 36, no. 2 (April 1972): 46-54.

13. D. Peppers and M. Rogers, “The One to One Future” (London: Piatkus, 1994).

14. C. Shapiro and H.R. Varian, “Information Rules: A Strategic Guide to the Network Economy” (Boston: Harvard Business Press, 1999).

15. R.S. Achrol and P. Kotler, “Marketing in the Network Economy,” Journal of Marketing, 63 (Special Issue 1999): 146-163.

16.  Further explanation of the research behind this analysis can be found in S. Maklan and S. Knox, “Dynamic Capabilities: The Missing Link in CRM Investments,” European Journal of Marketing 43, no. 11/12 (2009): 1392-1410.

17. To “back,” for example, the New York Yankees to win the World Series, one would bet that they will win. To “lay” that bet, one would bet that they do not. Traditional bookmakers laid bets while ordinary bettors backed. Online exchanges allowed private bettors to lay bets for the first time.

18. G. Wood, “Flutter’s Departure Leaves Bitter Taste,” Guardian, Jan. 16, 2002.

19. S. Maklan, S. Knox and L. Ryals, “Using Real Option to Help Build the Business Case for CRM Investment,” Long Range Planning 38, no. 4 (August 2005): 393-410.

i. K.M. Eisenhardt, “Building Theories from Case Study Research,” Academy of Management Review 14, no. 4 (October 1989): 532-550.

ii.  The integration of business processes around the needs of individual customers or customer segments as a means of delivering the brand is discussed by M. Christopher, A. Payne and D. Ballantyne, “Relationship Marketing: Strategy and Implementation” (Oxford: Butterworth-Heinemann, 1999); D. Peppers and M. Rogers, “Enterprise One-to-One: Tools for Competing in the Interactive Age” (New York: Currency Doubleday, 1997); and J.N. Sheth, R.S. Sisodia and A. Sharma, “The Antecedents and Consequences of Customer-Centric Marketing,” Journal of the Academy of Marketing Science 28, no.1 (winter 2000): 55-66.

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Comments (8)
CRM y la red | TheGreatVine
[…] palabras de Maklan, Knox y Peppard en “Why CRM fails – and how to fix it“ (Porqué falla el CRM – y cómo arreglarlo) necesitamos pensar en nuestras capacidades de […]
CRM and the web | TheGreatVine
[…] the words of Maklan, Knox and Peppard in “Why CRM fails – and how to fix it“, we need to think of the marketing capabilities we need first, and only then look at the […]
B.Zafer Erdogan
Companies need to understand the fact that they can not manage the customer's relationships, but may be able to manage their experiences. That is why CRM efforts are bound to fail. It is the mindset that counts not the technology...Relationship marketing as understood by Europeans teaches equality of partners rather than company imposing relationships to customers.
Joseph Volcy
Excellent article with some very interesting points raised.  But I too believe that a successful CRM is not actually about the technology but more about having a clear understanding of the customer journey and the entire buying process. A successful CRM system should actually be able to make this process more efficient while also creating new opportunities for further business. 
 
As Stan rightly said, it's actually quite common to see companies buying complex CRM systems without properly preparing for it.  I believe that some of the key points in the initial CRM preparation phase should include:  

- Defining clear objectives (and how the CRM system will help achieve them)
- Aligning the business operation (across all sectors)
- Give incentives for employees to use the system (clearly explaining the objectives and the benefits, provide proper training and encourage user buying right at the start)

A recent study demonstrated that 70% of businesses in Europe have failing CRMs! 
http://www.dnb.co.uk/resources/crm-infographic

While this might shock a few of us, it's actually not such a surprise. 

Any views?
J.
Stan Maklan
Glad the article provokes such thoughts. I suspect we are largely in agreement about what it takes to make CRM successful, albeit there are definitional issues raised. How one defines CRM has been the focus of numerous articles from academics, consultants and managers. Ian Ryder chooses to define CRM as customer experience; this is increasingly a popular approach and an area in which I am research active. Experience, like CRM, can be defined widely and certainly inconsistently between writers. The really broad definitions (I loath to use the word “holistic”) of experience don’t leave much out and hence become difficult (impossible?) to make operational. Similarly, CRM can be defined very narrowly around customer selection and promotion or more broadly to incorporate customer journey and overall experience. Regardless of definition, I suggest that the core of our article remains valid: build the organisational capabilities that create relationships (experience if you prefer) and then invest in the operational processes and technology that will deliver them consistently and at scale. Organisations that invest first in technology and hope that the capabilities will follow, are more likely to be disappointed with their investment outcome. We suggest in the article that firms first innovate with their customer treatment to build capabilities and then extend from there – that is how we operationalize Ian Ryder’s comment that CRM starts and ends with the customer.
ian.ryder
Well worth a read....if only to find both violent agreement and disagreement in the same article!!(at least I did!)
This raises some great questions about CRM, its definition and understanding, neither of which is clear, and also the abilities of Boards to make rational decisions based on what they "hear" and also on what they are fed from their marketing groups.Successful CRM is NOT about technology, although this is what Mr Seibel made his fortune from, and it isn't even about "..developing the new capabilities necessary to improve customer relationships" as the authors state. Successful CRM is about understanding the customer journey and experience you want to provide, THEN developing the capabilities as they suggest and lastly the overlaying of technology to facilitate those capabilities - where it can add value! Frankly there are quite a few areas of this paper I read and thought "yes!", and an equal number where I thought "no! I don't agree..." - if you have any views at all on CRM and marketing capability then this is a must read article which will get your thoughts racing I think - for me, CRM starts and ends with the customer (People are People First)...always did, always will!
Stan Maklan
Yes, merely injecting technology does not guarantee success. We might go even further and suggest not only processes, but capabilities must develop.
pradeephenry
Clear demonstration of why injecting technology -- without accompanying business process change -- often fails.

In his New York Times interview, Forrester Research CEO George Colony has a concise statement on injecting technology (nytimes.com) ... the phenomenon recurs and I therefore call it the Law of Technology Injection (www.BT.practice.com).