Academic journal article International Journal of Management

The Use of Customer Relationship Management (CRM) by Manufacturing Firms in Different Industries: A Malaysian Survey

Academic journal article International Journal of Management

The Use of Customer Relationship Management (CRM) by Manufacturing Firms in Different Industries: A Malaysian Survey

Article excerpt

With the development of technology, reaching customers and achieving sales are no longer a difficult task for an organisation. CRM promises to help companies understand their customers better and as a result to know which customers to retain and which can be left. In this way it can help companies to limit their spending. This paper investigates the use of CRM by manufacturing companies across different sectors of the Malaysian economy. A survey of 120 firms from six different industrial codes found that the objectives for CRM and the effort made to implement CRM was not the same in firms from the different sectors. Implications of these findings for managers are discussed.

Introduction

The business environment has changed significantly since the turn of the century, especially with respect to customer-orientated businesses. As competition becomes stronger, companies turn to new and more efficient techniques to help them provide better services to potential as well as existing customers.

The implementation of customer relationship management (CRM) has been viewed as a powerful competitive weapon among organisations. Organisations that have adopted CRM have the potential, inter alias, to increase plant revenue, to reduce engineering lead-time, reduce labour cost, offer better quality products and organise the firm in a much more systematic approach. Management also realises that an improved cost justification approach is required that will allow them not only to evaluate CRM as it impacts the readily quantifiable aspects of their total business, but to view it as a strategic weapon that can be used to attain leadership in the new global economy.

Customer Relationship Management (CRM) is one of the fastest growing trends in ecommerce in recent years. The concept of managing relationships with customers is not new as companies have been interfacing with customers since the beginning of trade. In fact, a good starter definition of CRM is

"the infrastructure that enables the delineation of and increase in customer value, and the correct means by which to motivate valuable customers to remain loyal - indeed to buy again (Dyche, 2002)"

CRM has been defined in a variety of different ways. This diversity of definitions is a result of differences in perspective. The first is based on a business perspective of increasing competition that is driving companies to focus on their customers. The second is based on the relatively new phenomenon of the integration of previously separate applications such as Sales Force Automation and Customer Service Support into Enterprise Applications. The third is a result of software vendors re-positioning their information technology products and services under the CRM umbrella, to take advantage of the fast growth of the CRM market. For the purposes of this paper, we propose the following definition: CRM is a technology-enabled business strategy whereby companies leverage increased customer knowledge to build profitable relationships, based on optimising value delivered to and realized from their customers; and from automating and improving the businesses processes in the areas of sales, marketing, customer service and support.

CRM is about more than simply managing customers and monitoring their behaviour. CRM has the potential to change a customer's relationship with a company and increase revenues in the bargain. The most forward-thinking companies have recognised from past failures that CRM smacks of strategy and that technology alone cannot address high-profile issues such as new-customer acquisition and web-based marketing. To these companies, CRM is much more than a stand alone project accounted for by a single organisation, it is a business philosophy that affects the company at large.

Survey of Literature

CRM is important because of changes occurring in the competitive environment. The use of CRM applications can lead to improved customer responsiveness and to a comprehensive view of the entire Customer Life Cycle. CRM also acts as an enabler for e-businesses by developing web-based collaborations between the company, its suppliers, partners and customers. It can extend the traditional channels of interaction such as direct sales force or tele-business to the web by providing a framework for managing the interactions and transactions. It also enables customers to purchase products and services on-line and receive web based services and support.

Porter (1985) suggests that competitive advantage is determined to a very large extent by how each of these elements is managed and the nature of the interactions between them. In the case of inbound logistics, for example, many organizations have developed just-in-time systems in order to avoid or minimize their stockholding costs. In this way the value of the activity is increased and the firm's competitive advantage improved. Equally, in the case of operations, manufacturers are paying increased attention to lean manufacturing processes as a means of improving levels of efficiency. Therefore, CRM is a source of competitive advantage for companies that implement its various practices, as well as it forces companies to evaluate how well it is able (a) to perform an activity in a manner that is superior to the ways competitors perform it, or (b) to perform a value-creating activity that competitors cannot compete with.

CRM applications are often used in combination with data warehousing, E-commerce applications and call centers that allow companies to gather and access information about customers' buying histories, preferences, complaints and other data so that they can better anticipate what customers are looking for.

Urich (2001) recommends that by concentrating on the last mile of customer service - outfitting the field force to be an effective extension of expensive CRM in the back office, companies can build a reputation for good service. Field service automation tracks each step of the service process, reporting it back to headquarters (often in real time via wireless connection) and even producing invoices and collections for services rendered - at the customer's front door. Mobile workers who have access to customer records during a service call are more productive and do not have to rely on multiple telephone calls to get the information they need. The ability to provide faster and better response to customers is one of the critical ways of gaining competitive advantage. This should improve profits, strengthen market position and increase sales volume (Donovan, 2001).

The value of customer data lies in its three unique qualities, which are the basis for a unique, renewable and sustainable advantage. Together these three qualities make data a potentially powerful force for defining and directing profitable business at both strategic and tactical levels (Harte-Hank Inc., 2002): -

i) unique composition based on the history and relationship with a particular business,

ii) reliable and first-hand customer intelligence, and an

iii) ability to provide insightful and timely feedback about business actions.

Low and Seetharaman (2002) argue that making the shift from traditional to one-to-one marketing requires the firm to have insights on the right customers (acquisition), right relationship (development), right retention (keeping valuable customers) and having the analytical and operational capabilities to do so. The reward for successfully developing such capabilities is increasingly profitable relationships, potentially the most enduring asset in today's ever-changing business climate. By deepening and lengthening the customer relationship, a business can derive increased revenue from its customer base even as products and sales channels continue to evolve.

Research Methodology

The sample of this study is all manufacturing firms with a total capital of at least RM50 million. The minimum level of total capital is set so that the firms chosen are more likely to invest in the relatively expensive e-CRM. The actual population from which the sample was taken is the set of private limited companies that are listed in the Federation of Malaysian Manufacturers Directory and public companies that are listed in Bursa Malaysia database - formerly known as Kuala Lumpur Stock Exchange (KLSE). A total of 120 responses were obtained from the 500 surveys mailed to prospective respondents. The questionnaire was sent to more senior managers in the firms such as plant managers, chief engineers, general managers, financial controllers, operation managers, technical directors and production managers. Six industries with their codes are chosen such as: 1) Manufacture of Industrial Chemicals (CHEM), 2) Iron and Steel Basic Industrial (STEEL), 3) Manufacture of Fabricated Metal Products (FABR), 4) Manufacture of Machinery (MACH), 5) Manufacture of Electrical Machinery, Apparatus, Appliances and Supplies (ELEC) and 6) Manufacture of Transportation Equipment (TRAN). The six industries chosen here for the study are the driving force for the manufacturing sectors in Malaysia (FMM, 2002). The final sample represents a convenience sample of the theoretical population. This is not considered a problem as many studies have been conducted using different databases, which is generally considered representative of the population.

Findings and Analysis

A total of 120 responses were obtained from the 500 surveys mailed to prospective respondents as in Table 1. Seventeen of the 120 responses were classified as unusable for various reasons, including excessive missing data and failure to provide essential data.

Table 2 shows the means and ranks of the importance of each objective by industry code. There were 103 plants included in this analysis.

All of the listed objectives were considered to be of some importance, as shown by the means. Reducing production costs was the most vital objective for all plants across industries. This was anticipated due to the economic downturn that affected the whole world. The second most important objective was the decreasing of labour costs. The results also showed that plants wished to reduce the burden of labour costs by introducing CRM in the future.

H1: The importance of the objectives for adopting CRM differs across industry codes.

Based on Table 3, the hypothesis of equal importance across industries was rejected on the basis of the reported statistics: Pillai's Trace, p- value 0.005; Wilk's Lambda, pvalue 0.0027; Hotelling's Trace, p-value 0.0093; Roy's Largest Root, p-value 0.0093. Therefore, it was concluded that the sample provided evidence of significant differences among the industry groups and H1 was confirmed.

H2: Differences in the importance of the advantages/benefits for adopting CRM are not related to the following plant characteristics:

i) Company turnover

ii) Number of employees

iii) Technology capital expenditure

A series of t-tests were used to determine if there were significant differences in the level of importance placed on each of the CRM implementation objectives according to these plant characteristics of company turnover, number of employees and technology capital expenditure. The variables were defined as follows:

Firm Turnover

0 = Otherwise

1 = more than RM50m

Firm Technology Capital Expenditure

0 = All others

1 = more than RM5 million

Number of Employees

0 = All other groups

1 = more than 199 employees

The three classification variables shown in Table 4 explained the significant difference in the level of importance to all the twenty objectives. Plants with 200 or more employees placed significantly higher level of importance on eleven of the twenty objectives with different p-value ranging from 0.001 to 0.05. There were no differences between plants for the other nine objectives. Plants with turnover of over RM50 million emphasised four out of twenty objectives; which were reducing production costs (p-value < 0.05), decreasing labour costs (p-value < 0.05), keeping up with competition (p-value < 0.001 ) and increasing market share (p-value < 0.001). Plants with technology capital expenditure of more than RM5 million expressed significantly higher levels of importance for five objectives from utilising CRM techniques.

H3: There is no relationship between the size of plants that have adopted CRM and the level of functional integration.

To develop the tests, respondents who had installed at least one technology were divided into two groups, one which has less than 200 employees and the second group for those which have 200 employees or more. Another series of tests divided the respondents into two groups, one having turnover of less than RM50 million and the other with turnover of RM50 or more (Table 5).

TURN = 0, less than RM50m; 1, more than RM50m

EMP = 0, less than 200 employees; 1, more than 200 employees

INT = Planning, Justification and Implementation Departments

Chi-square tests were used to determine whether there was any relationship between plant size and level of integration with number of employees and turnover as proxies for plant size. No relationship was found between the number of employees and the level of functional integration. However, there was a significant relationship between the level of plant turnover and the level of functional integration at 0.035 for planning department, 0.028 for justification department and 0.01 1 for implementation department respectively. The overall p-value for the combination of the three departments was 0.021. Therefore, plants with annual turnover of more than RM50 million were more likely to have a higher level of functional integration. The results here supported the hypothesis partially.

H4: There is no difference in level of effort in implementing CRM across industry codes.

Table 6 shows on average that plants across all industry codes focused their main efforts on i) involving top management in the project, ii) financial investment evaluation prior to installation, iii) strategic investment evaluation prior to installation, iv) choosing knowledgeable project leader(s), and v) hiring or retaining CRM experts to the plant staff. The areas that received least attention were i) coordinating marketing and manufacturing strategies; ii) using multi-disciplinary implementation team(s); iii) developing a longterm automation strategy; iv) considering likely impacts on suppliers; v) monitoring CRM systems being used in the industry.

A MANOVA test was used to test the hypothesis that there was no difference in the efforts placed on the implementation process across industry codes. The reported statistics of the MANOVA test (Table 7) were: Pillai's Trace, 0.0122; Wilk's Lambda, 0.009 1 ; Hotelling's Trace, 0.0029 and Roy's Largest Root, 0.0035. Therefore, the mean level of importance of objectives was not equivalent across portfolios. Null hypothesis could be rejected, indicating that the mean level of effort in implementation was not equivalent for plants across industry codes.

Limitations of the Study

This study only examined six industry classifications among the list. As a result, the findings may not be applicable to all industries. The second limitation concerns the representativeness of all samples and the theoretical population of all Malaysian manufacturing firms with more than RM50 million in company turnover and more than RM5 million in technology capital expenditure. This issue concerns the generalisability and therefore the external validity of the study. With respect to limitations, there are many on the journey to CRM success. Some obstruct the beginning of the project during business planning or requirements gathering that allows a CRM team time to set things right. However, most CRM roadblocks are not single events, but processes that gradually erode a CRM effort until the ultimate system becomes a mere shadow of its intended vision.

Directions for Future Research

The first direction for future research suggested by this study is to further investigate the relationships between the elements of Advanced Manufacturing Technology included in this research. More extensive research is needed in these areas to establish these relationships and propose any additional models for the implementation and justification of technology. Additional plant characteristics can be tested against the information obtained from surveys. Variables such as total assets, total liabilities, financial leverage, price-earnings ratios, earnings per share, organisation innovation and functional differentiation can be examined in further research.

Conclusions

From the findings above, we can conclude that CRM plays a significant role in the manufacturing sector at present. CRM is merely one of the tools available in a company to achieve its various objectives and strategies. A formal planning exercise with the usual strategic management considerations has to be conceptualised prior to undertaking a CRM initiative, as a poorly developed or unfocussed CRM initiative is unlikely to secure any competitive advantage. Keeping pace with today's technology is difficult enough. As most companies look forward to improving customer service and increasing sales uplift through better customer understanding, they should also look backward: retrofitting existing technologies, investing in new hardware and software, and hiring CRM management consultants to bolster their strategies in preparation for a revolution in customer loyalty by deploying successful CRM programmes.

[Reference]

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[Author Affiliation]

Kevin Low Lock Teng

Monash University, Malaysia

Soo Geok Ong

Monash University, Malaysia

Poon Wai Ching

Multimedia University, Malaysia

[Author Affiliation]

Contact email addresses: kevin.low@monash.edu.my wcpoon@mmu.edu.my

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