Evaluation of Customer Relationship System Efficiency: Applying of Total Cost of Ownership Approach

By Jasilioniene, Regina; Tamosiuniene, Rima | Journal of Business Economics and Management, December 2009 | Go to article overview
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Evaluation of Customer Relationship System Efficiency: Applying of Total Cost of Ownership Approach

Jasilioniene, Regina, Tamosiuniene, Rima, Journal of Business Economics and Management

1. Introduction

As a result of globalisation, companies face ever increasing global competition. Consumers may choose from an increasing variety of suppliers of goods and services: where to purchase food or spend their holidays, which suppliers of telecommunication services to use, where to borrow money or keep it, etc. The privatisation of former state monopolies and elimination of various limitations increase competition to an even greater extent and force companies to reduce their expenses. As accumulation means for fixed investment, which generally drives companies' growth (Tvaronavicius, Tvaronaviciene 2008), becomes more complicated, companies are forced to put emphasis on managerial tools enhancing client's satisfaction.

Over the past few decades, one may observe the emergence of the concept of the customer relationship management. With the current level of IT systems, we may just make a step back into the past and personalise mass marketing, sales, and customer service. If earlier the owner of a shop kept information about his 100 customers in his mind, the database of the contemporary customer relationship system (CRS) can store information about 100,000 customers and on the basis of historical information, the company can offer each customer what he needs. It is essential for the companies planning to develop a CRS to use adequate evaluation methods to identify the efficiency of the CRS under consideration and form the basis for objective decisions. In the case of a CRS that has already been implemented and is in use, it is also essential to apply relevant evaluation methods to carry out regular efficiency evaluation that must help disclose the actual advantages and disadvantages of the CRS in use and demonstrate the levels at which objectives have been implemented.

In order to implement customer-centric strategies, many organizations have turned to CRS software packages from various vendors such as Oracle, SAP, Microsoft, PeopleSoft, Frontrange, etc. (Conner 2001). Successful CRS implementation initiative is deemed to integrate companies' customer-facing processes, improve the efficiencies of their sales forces and call centres, and more accurately target their campaigns with the help of sophisticated customer data analytics. Therefore this initiative is deemed to place the company in a better financial position for the future.

Companies are investing in CRS worldwide; however, the rate of successful such system implementations are below 30% (Amerongen 2004; Bordoloi 2000; Chase 2001; Kim, H. and Kim, Y. 2007; Ramdas 2001; Silvon Software 2005; Korsakiene et al. 2008). Many organizations pursue expensive CRS initiatives without first understanding the challenges and costs involved. This approach often results in CRS projects that fail to meet measurable benefit objectives (Korsakiene 2009; Sudzius 2007). The problem of CRS efficiency evaluation in the world and in Lithuania has been solved by using traditional economic efficiency evaluation methods such as Net Present Value (NPV), Internal Rate of Return (IRR), Return of Investment (ROI), Payback Period (PP), Total Cost of Ownership (TCO), Profitability Index (PI) or Economic Value Added (EVA).

The purpose of this study is to analyse TCO as financial CRS efficiency evaluation tool when developing, using, and expanding a CRS, and determine strengths and weaknesses of this cost-oriented approach.

To achieve the purpose of this study, research methods were used: scientific and practical literature analysis and generalization, and empirical research of Lithuanian companies.

2. CRS investment justification issues

Justifying the cost of CRS implementation project is not like doing a financial analysis on capital goods. A milling machine, for example, has readily identifiable acquisition and operating costs, and performance specifications can be used to accurately forecast productivity gains.

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