PAPER 092 Impact of Knowledge

8/8/2019 PAPER 092 Impact of Knowledge

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The Impact of Knowledge Management on Customer RelationshipManagement

Hadi Nejatian Khalilabad*,

Omid Nasrollah Mazandarani*,

Ilham Sentosa*,

Shishi Kumar Piaralal*

The business environment is transforming from product-centric to customer-centric. CRM as acustomer-oriented business approach is considered as one of the powerful capabilities inorganizations which help to transform themselves to a customer-centric environment. Theutilization of CRM is directly related with increase in customer knowledge, which in turn haspositive effect on customer satisfaction. By using knowledge management companies canimprove their relationship with their valuable customers, thus create loyal customers and obtaincompetitive advantage. Organizations can create new ideas and provide improved and newservices by help of knowledge management and the knowledge originated from CRM. Thecustomer knowledge as an integral element of relationship between Knowledge Managementand CRM could help organizations to tailor their products and services and even the entirerelationship with customers to increase customer satisfaction and finally economic profitability.

Keywords:

Customer Relationship Management (CRM), Knowledge Management (KM), Knowledge-enabled CRM

Paper: Theoretical Paper

* Hadi Nejatian Khalilabad, Centre of Postgraduate Studies, Limkokwing University, [email protected]

* Dr. Omid Nasrollah Mazandarani, Centre of Postgraduate Studies, Limkokwing University, [email protected]

* Dr. Ilham Sentosa, Centre of Postgraduate Studies, Limkokwing University, [email protected]

* Dr. Shishi Kumar Piaralal, Centre of Postgraduate Studies, Limkokwing University, [email protected]
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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1 Introduction

Today, firms are considering their customers as their most important assets (Croteauand Li, 2003), therefore they are transferring their business strategies from product-centric to customer-centric ( Chen and Su, 2006; Kotler, 2003).According to Park and

Kim (2003); organizations are focusing more on acquiring and maintaining share of theircustomers rather than their markets and by adopting customer-centric strategies, theydemonstrate their insight on the importance of managing relationships with customers(Mithas et al.,2005). Organizations recognize customer knowledge as one of the majorcontributors of increase in their value and therefore they review their CustomerRelationship Management (CRM) initiatives (Croteau and Li, 2003) to use in-depth andintegrated customer knowledge for creating collective relationships with their customers(Boulding et al., 2005; Croteau and Li, 2003; Parvatiyar and Sheth, 2001).With arrival ofknowledge-economy those organizations which successfully recognize, build andenhance their knowledge capabilities will be more successful and are considered asknowledge-enabled organizations (Rowley, 1999). These organizations segment their

markets not only based on their products and services but also based on the amount ofknowledge which they can learn from their customers (Zack, 2003).

Romano and Fjermestad (2003) describe the existing, product-centric to customer-centric, shift in firms strategies as a shift from transaction-based economy torelationship-based economy. This transformation has made organizations to collectmore information from their customers such as their behavioral, demographical andinteraction information which is also can be done in large quantities by help ofadvancements in technological capabilities. In customer-centric economy the conceptslike economies of scale will be replaced by concepts such as economies of interactionor economies of relationship which are main value drivers for customer-centric

economy. The good knowledge viewpoint of customers and increased switching costsdue to increase of direct interaction with each customer are supplementary elements foreconomies of interaction. They also facilitate increase in returns and also are incontrast with economies of scale which provides decreasing returns upon increase ofproductions volume (Moeslein and Piller, 2002). Interestingly, the transition fromproduct-centric to customer-centric has been followed by another shift in marketingaspect, which is the shift of power from vendor to buyer which creates lot of benefits forcustomers as well as demands (Romano and Fjermestad, 2003; Shanks and Tay,2001).

On the other side, the studies show that cost of keeping the current customers is much

more less than the cost of attracting new ones (Bitran and Mondschein, 1997;Chattopadhyay, 2001; Desatnick, 1988; Massey et al., 2001; Park and Kim, 2003;Reichheld and Sasser, 1990; Stone et al., 1996). Meantime establishing a goodrelationship with customers is an important factor in an organizations success. (Gibbertet al., 2002; Hanvanach et al., 2003; Smith and McKeen, 2005; Wood, 2003) Thus thebest strategy for sustaining the current customers is establishing a long lastingrelationship with them and keeping them satisfied (Stefanou et al., 2003). In order tokeep customers satisfied, organizations should identify their customers problems and


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preferences and most importantly determine and understand the reasons for theirdecisions. But the issue is, organizations may know about their customers problemsand preferences through transactional data , but knowing the customer themselves andunderstanding the reasons for their decisions is not an easy task (Annabi and Murillo,2002; Davenport et al., 2001).

Since the markets are becoming more and more complex and complicated, customersdemands for having products with lower price and better quality increase (Jutla et al.,2001). Meanwhile organizations try to find answers for questions like: who are theircurrent customers, who and where their potential customers are, what benefits theircustomers are expecting from them and What are their customers preferences, needsand problems (Annabi and Murillo, 2002; Rowley, 2002). Therefore for being able tocompete in this competitive business environment, organizations are trying to haveaccess to newer type of knowledge and capabilities (Jutla et al., 2001). Along with thiscompetitive transition to a knowledge intensive environment, firms are becoming moredependent on detailed knowledge of their customers for improving their CRM objectivesand finally their long-term business success (Bang et al., 2005; Bose and Sugumaran,2003).As the result, firms are transforming their CRM from a transaction based systemto a more knowledge intensive and analytical oriented system. Through thistransformation, organizations can maintain and improve their relationship with theircustomers throughout the customer lifetime cycle but this requires capabilities thatenable them to follow and examine customers activities and responses over time. Theycan obtain required capabilities by use of knowledge derived from CRM operations andother enterprise systems such as Knowledge Management (KM) system (Bose andSugumaran, 2003). Although knowledge discovery in customer-centric approachcompanies is an important factor, but only few companies can manage this discoveredknowledge in a systematic style and make this strategy more effective which providesthem more economic value (Bang et al., 2005; Smith and McKeen, 2005; Zack, 2003).

With help of CRM and its related technologies, organizations are able to gather, analyzeand transfer customer information more easily, but they are not capable of transforminginformation in to knowledge. It is mainly because of relatedness of knowledge toindividuals and group of them. Therefore organizations need to integrate customerknowledge in to their processes and procedures for bringing more value to theircustomers and themselves (Halinen and Rollins, 2005). This Integration helpsorganizations to have a successful CRM development and when they achieve a higherlevel of integration among their different functional areas, they will have a higher overallperformance along with higher level of match between what their customers demandand what they offer (Campbell, 2001).

1.1 Background of the Study

Despite the many studies that have been done, particularly in west (Bose andSugumaran, 2003; Brenner et al., 2005; Campbell, 2001; Gibbert et al., 2002; Stefanouet al., 2003), looking at the relationship between Knowledge Management (KM) andCustomer Relationship Management (CRM), none of them are comprehensive enoughto capture all the factors into one single framework. According to Bose and Sugumaran


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(2003), true CRM could be achieved only through integration of KM with it which as theresult improves business processes and allows firms to have a good evaluation on theircustomers level of satisfaction, profitability and loyalty. They also pinpoint the lack of asimple and general framework for integration of CRM functionalities with knowledgemanagement capabilities (Bose and Sugumaran, 2003).

Today, the current challenge for organizations is to develop an integrated CRMplatform. This platform enables organizations to collect relevant data about customersfrom existing customer interfaces. Although firms have access to huge amount ofinformation about their customers like their behavioral actions, they still know little abouthow to manage this knowledge and use the best out of it (Campbell, 2001). Bang et al.(2005) acknowledges that successful CRM requires deep knowledge of customer(Knowledge Management), but the ways that these two types of technology fit intogether needs research. Moreover, previous studies trying to link KM and CRM havebeen limited in scope and the results been affected by often methodological limitationsor errors. Many of the previous studies have used qualitative methods (i.e. case studies,literature review) (for example, see Gibbert et al., 2002; Brenner et al., 2005; Campbell,

2001; Halinen and Rollins, 2005; Gao and Li, 2006) to conclude their research findingsand some other few studies have used conclusive statistics (for example see, Stefanouet al., 2003). Therefore, in order to bridge the gap and provide organizations withassistance in dealing with management perspectives of KMs effect on CRMperformance, this paper proposes a set of KM critical factors and develops a proposedmodel to show the relationship between KM critical factors and CRM.

Given the above reasons, this paper presents an integrated model regarding the effectsof KM on CRM. The next portions of this paper include the literature review whichpresents the theories on the literature of KM and CRM and also the relationshipbetween them followed by presenting the integrated model of Knowledge Managementeffect on CRM and finally, the review of model components and conclusion.

2 Literature Review

2.1 The Concept of CRM

CRM is a customer-oriented business approach which includes analyzing, planning andcontrolling of relationships with customers by use of state-of-the-art informationtechnologies. It is considered as combination of business processes, customerstrategies and technology for achieving better insight on organizations customers andachieving higher customer loyalty and profitability (Kim et al., 2003; Rigby et al., 2002).

CRM engages each individual customer in a significant dialogue that helps firms tocustomize their products and services in such a way which attracts, develops andretains customers (Campbell, 2001; Grabner-Kraeutera et al., 2007). The main focus ofCRM is to monitor customers behavior for better understanding of their ever changingneeds and preferences. By coordinating and using this knowledge, organization canprovide superior service for customers and progressively improving this excellence bycommunicating with them through multiple channels. Based on what companies havelearned about their customers through multiple channels and different departments such


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as marketing, sales and etc., they should be able to treat each individual customerdifferently and delivering products and services along with supporting information inorder to address their specific needs and problems (Bose and Sugumaran, 2003;Mithas et al., 2005; Peppers et al., 1999).CRM can be defined as an organizational wide strategy to transform an organization to

a customer-centric organization by acquiring selected strategic customers anddeveloping and maintaining long-term beneficial relationships with them. This long termrelationship will be empowered by use of their knowledge and information which as itsultimate purpose, it improves customer support and increases organizations revenueand profit (Buttle 2001; Could-well 1999; Gosney and Boehm 2000; Kim et al., 2003;Parvitiyar and Sheth 2001; Payne and Frow, 2005; Singh and Agrawal 2003). CRM isone the most important components among organizational processes due its ability torecognize customers, originate knowledge, create relationships with them and exhibittheir insight about the company and its products (Llamas and Sule, 2004). Moreover,CRM helps organizations to customize their products and services and meantimeincrease the quality to create more value for customers and increase customer retention

by fascinating and maintaining valuable and profitable customers and dismissing theinvaluable ones (Kim et al., 2003; Romano and Fjermestad, 2003). According to Payneand Frow (2005), the way that organizations define the CRM strongly affects themethod of CRM acceptance and practice in organizations and one of the mostdangerous decisions that organizations can make regarding CRM implementation isinstallation of CRM before creation of a customer-focused environment in organizationor in the other words, before transforming themselves to a customer-centricorganization (Rigby et al., 2002).

CRM is a management approach that organizations undertake to identify and developin-depth knowledge about their customers behaviors and preferences. Finally theyadopt strategies and develop programs for developing and retaining successful

relationships with their customers to maintain and keep the right and profitablecustomers (Parvatiyar and Sheth, 2001; Stefanou et al., 2003). Therefore, the mainfocus of CRM is on establishing and sustaining a loyal and stable customer basethrough provision of excellent service to customers, supporting them and offeringproducts based on their demands. Finally, as the ultimate outcome of CRM initiative,organizations can measure the level of customer satisfaction and the value ofrelationship with their customers (Halinen and Rollins, 2005).

Relationship building and management have become an important marketing trend inbusiness. Management of relationships with customers is fundamentally changingmarketing and business models and the marketing strategy models are transferring

from marketing mix to relationship marketing (Llamas and Sule, 2004; Romano andFjermestad, 2003). Unlike traditional marketing approaches, the relationship marketingis focusing on creating and sustaining relationships with customers for improvingcustomer retention to maintain and also increase the market share (Romano andFjermestad, 2003). When companies engage in to customer relationship management,it means that they should be ready and enthusiastic to change their activities andbehaviors toward each customer based on what they know about that specific customer


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including his/her desires and preferences (Peppers et al., 1999). Concepts such asCustomer Relationship Management, relationship marketing and one-to-one marketingare all identical and interchangeable concepts but among them, CRM is moretechnology oriented that can be described as information-enabled relationshipmarketing (Payne and Frow, 2005; Parvatiyar and Sheth, 2001; Peppers et al., 1999).

But most of the time the CRM technology is mistaken with CRM and this is consideredas one of the most important reasons for failure of CRM in organizations (Payne andFrow, 2005; Peppers et al., 1999; Reinartz, Krafft, and Hoyer, 2004).

The CRM literature shows that there are various aspects toward CRM and there is noany specific agreement on the description of CRM and required strategies for itsdevelopment (Payne and Frow, 2005). In their CRM continuum Payne and Frow (2005),demonstrate three different views on CRM. In one end of continuum, there is puretechnological view of CRM and in the other end there is a pure customer centric point ofview on CRM. In the middle, a mid-range CRM view is located which views CRM ascombination of both customer-oriented and technological approaches (Payne and Frow,2005). The customer-centric view of CRM, is expressing the strategic and holistic

concept of CRM that focuses on discriminative management of relationships withpurpose of more value creation for customers (Payne and Frow, 2005). Moreover;Grabner-Kraeutera et al. (2007) have an overall perspective toward CRM and proposethat CRM can be viewed technologically, strategically, philosophically, process-orientedor capability-oriented. Bose and Sugumaran (2003) and Brenner et al., 2005 view CRMas set of components and propose that true CRM consists of multiple components suchas analytical tools, campaign management, multi-channel management, collateralmanagement, sales and service management, loyalty and complaint management.Finally from process oriented point of view Parvatiyar and Sheth (2001) have developeda four stage CRM process framework which consists of four sub-processes, namely:customer relationship formation process; relationship management and governance

process; relational performance evaluation process; and CRM evolution orenhancement process.

2.2 The Concept of KM

In recent years the worlds economy has been shifted from goods producer to serviceprovider and this has caused the transformation from industrial economy to knowledgeeconomy (Sveiby, 1998; Shanks and Tay, 2001). Drucker (1998) describes thistransformation as information revolution which is about the meaning and purpose ofinformation. Knowledge is information with high value and it is considered as one themost important assets of an organization which helps organizations to make decisions

easily and take action upon them. It is also considered as the source of success indelivery of value to customers (Crie and Micheaux, 2006; Davenport, 1998; Drucker,2003; Rowley, 2002; Shanks and Tay, 2001). With knowledge, organizations coulddeliver better value to their customers, enhance their products and services and finallysolve their problems through unification of scattered kinds of knowledge and lessonslearned derived from their past experiences (Carrion, 2006). In this paper, theDavenport and Prusaks (1998) definition of knowledge have been adopted which define


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knowledge as a fluid mix of framed experience, values, contextual information andexpert insight that provide a framework for evaluation and incorporating newexperiences and information.Knowledge management is the efficient use of knowledge and expertise within anorganization. This efficiency can be achieved by managing of knowledge assets and

enhancing of organizational processes and capabilities in creation, coordination, shareand utilization of knowledge (Ganesh, 2000; Rowley, 1999; Shanks and Tay, 2001).Moreover, knowledge management is a complex concept which goes beyond thecollection of data and its transformation to knowledge (Rowley, 2002). Organizationsconsider knowledge management as an essential strategic process which is the majorsource of competitive advantage for them (Carrion, 2006; Davenport, 1998; Grant,1996). One of the key success factors of knowledge management in organizations isthe ability of an organization to identify the relevant knowledge and exploit the value outof this knowledge. This relevant and available knowledge is the only factor which has asignificant impact on firms competitive advantage which proactively must be identifiedproactively and its embedded value should be extracted (Carrion, 2006). Today an

effective knowledge management is about real time access and processing of datawhich enables organization to respond to their customers in a faster fashion and alsoleads to more informed and reliable decisions (Jutla et al., 2001).

2.3 CRM and KM association

Companies try to improve their relationship with their valuable customers by help ofknowledge management which enables them to gain competitive advantage by creatingclose and loyal customers which will not switch to rival companies easily (Paquette,2006). Therefore companies use knowledge management as process of acquiring thecollective expertise and intelligence within an organization which leads to innovationthrough continuous organizational learning (Nonaka, 1991; Quinn et al., 1996). Since

significant parts of this acquired expertise is related to customers then it can beconcluded that KM and CRM are completely inter-related concepts (Massey et al.,2001; Romano, 2000).Therefore organizations should reinforce their KM and CRMsystems in a way that enables them to obtain value-added knowledge for theircustomers and themselves (Stefanou et al., 2003). Moreover Roscoe (2001)acknowledges that, in order to have a successful CRM, firms need to integrate thelearning from relationship with their customers into CRM and meanwhile have a clearstrategy about it. Thus acquiring customer knowledge have to be aligned with firmsbusiness objectives, otherwise it would be useless and costly.Despite other organizational solutions and concepts, CRM is not implemented forincreasing the speed of organizational processes or automating organizational

operations. CRM is combination of multiple methods which are developed withinorganization to manage customers relationships intelligently. Therefore it needsinformation and knowledge related to customers to help firms to understand theircustomers better and manage relationships with them more effectively (Bose andSugumaran, 2003).In the other side knowledge management enables organizations togenerate new ideas for creating and developing new products and services help ofcustomer knowledge generated from CRM and its related applications (Boulding et al.,


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2005; Chen and Li, 2006; Mithas et al., 2005). By use of acquired customer knowledgesuch as customers behaviors, preferences, needs, buying patterns, desired way ofrelationship, and their perception of companys products, even if it is negative,organizations will be able to increase their sales, position themselves better inmarketplace and finally customize their entire relationship with customers in order to

increase customer satisfaction (Bose and Sugumaran, 2003; Boulding et al., 2005;Chen and Li, 2006; Mithas et al., 2005; Smith and McKeen, 2005).

According to Park and Kim (2003), in each relationship two types of data can beacquired, namely: transactional and non-transactional data. Transactional data includeamount of sale, time, place and non-transactional data include inquiries or feedbackslike customer complaints and suggestions. Concepts like data mining and datawarehousing have been existed for quite a time, but todays existence is mainly due toCRM (Boon et al., 2002). CRM uses data mining techniques to analyze large amount oftransactional data to capture the knowledge such as buying behavior of customers butin this scenario the person, who is behind of this transaction, and his desires will beignored. Even sometimes when companies try to analyze the transactional data, theywill not be able to determine the true meaning and as the result they will not be able toreach correct conclusions. CRM and one-to-one marketing sometimes put extremeconfidence on statistical information which results to customer myopia. As tools forpresenting the customers buying patterns, these concepts show themselves strongeras they really are (Kendrick and Fletcher, 2002). Due to researches undertaken bycompanies, the most desirable outcome from CRM can be obtained from combination ofboth transactional data and human data. The human data are considered as tacitcustomer knowledge which is customers interests and their mental maps which conveycustomers attitudes toward companys products (Park and Kim, 2003).

Romano and Fjermestad (2003), point out some common and related concepts

between CRM and KM, such as; commitment, trust, culture and social-embeddednessof knowledge. The latter, is the important issue for CRM because knowledge unlike theinformation is embedded within customers like their preferences, desires and theirinsights and understandings on organizations products and services. In their e-Business stakeholder model Jutla et al. (2001) propose, that KM is one of the three keycritical factors for success of CRM and they state that managing the knowledge residedin all stakeholders ,including customers, should be part of customer relationshipmanagement. In other aspect, Gao and Li (2006) argue that the integration ofKnowledge Management and CRM could be considered from two point of views;Managing customers knowledge and Using customers knowledge to manage.Managing customers knowledge includes acquiring, analyzing and dissemination of

customer knowledge within organization. Based on the analyzed outcome knowledge,customers could be selected and their values will be prioritized, hence managers couldhave quick decision making with less error and mistakes. The other aspect is Usingcustomers knowledge to manage which combines organizational factors like people,process and culture with customer knowledge through utilization of special systems todevelop and enhance organizations service capability and competitive advantage.Besides, Croteau and Li (2003) acknowledge that KM has the most significant impact


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on CRM and the result of their study shows that improvement in KM capabilities couldimprove effectiveness and efficiency of customer relationships. Moreover, Brenner et al.(2005) state that CRM processes could be considered as semi structured andunstructured processes meanwhile being knowledge intensive. Having knowledgeintensive processes requires CRM to acquire, disseminate and store customers related

knowledge through employment of KM techniques. Therefore firms KM capability is animportant success factor for their CRM initiative.

3 Integrated Model of Knowledge Management effect on CRM

Based on the above literature review, an integrated model is developed to examine therelationship between KM critical factors and CRM performance. The relationshipbetween KM critical factors and CRM performance is illustrated in Figure 1.

Figure 1: Integrated Model of Knowledge Management Effect on CRM

The model consists of set of components which are categorized in to two majorsections. The first section which is related to KM critical factors contains three factorsnamely, Customer knowledge, Organizational Factors, and KM infrastructure. Thesecond section is related to CRM performance which includes two aspects towardsCRM performance in qualitative and quantitative ways.

3.1 KM Critical Factors

3.1.1 Customer Knowledge

In the business environment, which was previously driven by organizations productsofferings and now dominated by customer needs and preferences, knowledge of thecustomer is considered as an important organizational asset which can bringcompetitive advantage to organizations and help them to have a focused strategy upon


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their customers (Shanks and Tay, 2001). According to Park and Kim (2003), for havinga long term relationship with customers, firms should have a continuous relationshipwith their customers along with provision of distinguished value for them. Thus thissustainable relationship is strongly dependent on customer knowledge, with support ofinformation technology, organizations will manage customer knowledge to improve their

relationship with their customers and hence achieving competitive advantage. Thedefinition and categorization of customer knowledge varies based on different researchperspectives. One of the commonly accepted definitions of customer knowledge is fromFeng and Tian (2005), originally defined by Gebert (2003) and Blosch (2000). Theydefine customer knowledge as the dynamic combination of experience, value andinsight information which is needed, created and absorbed during the process oftransaction and exchange between the customers and enterprise. Campbell (2001)defines customer knowledge as organized and structured information about thecustomer as the result of systematic processing. According to Mithas et al., (2005)originally cited by Davenport and Klahr (1998), customer knowledge is considered a oneof the complex types of knowledge. The reason is due to existence of different sources

and channels which customer knowledge can be captured, its multiple contextualmeanings and finally its dynamic nature which makes it to be changed fast.The evolved concept of marketing, views customers as cocreators and coproducerswhich can be considered as form of value proposition (Bendapudi and Leone 2003;Prahalad and Ramaswamy 2004; Vargo and Lusch 2004; Payne and Frow, 2005).Therefore Companies should try to keep their customers as much as possible,especially those which are economically valuable and are called as frequentpurchasers. The more their customers get involved in learning relationship and transferthe knowledge of their desires and preferences to company, the more they becomereluctant to redo this process with another company (Pine et al, 1995). Shanks and Tay(2001) acknowledge that organizations are increasing the utilization of customer

knowledge in order to obtain competitive advantage. Having in-depth knowledge ofcustomer behaviors will help organizations to focus on their target customers based oncustomers evolving needs and experiences instead of customers generalcharacteristics, which finally increases the firms products perceived value and switchingcost (Mithas et al., 2005).In the other side, the shared customer knowledge could helpemployees to do cross-selling and predict the market demand which helps to leveragethe competitive advantage more effectively (Mithas et al., 2005). But although capture ofcustomers knowledge and information, provides a powerful competitive advantage toorganizations but they should be aware that they cannot treat their customers as staticindividuals. They should know that the nature of relationship between customers andorganizations is dynamic and like organizations which change throughout the timetherefore customers also change which as the result their preferences, desires,lifestyles, conditions and interaction channels always evolve and change. Thusobservation and monitoring of relationships with customers should be done constantlyand thoroughly at all aspects (Blosch, 2000; Pine et al, 1995).

As mentioned above, there are different types of definitions and classifications forcustomer knowledge. For example Gibbert et al. (2002), have classified the customerknowledge, from organizations point of view, in to three types: knowledge for


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customers, knowledge about customers and knowledge from customers. The similarclassification of customer knowledge has been made by scholars such as Brenner et al.(2005); Feng and Tian (2005); and Ye Naiyi (2002). In other classifications, Crie andMicheaux (2006) divide customer knowledge in to two types, Behavioral orQuantitative and Attitudinal or Qualitative. The behavioral knowledge is easy to obtain

and they are basically quantitative by nature which contain customers transactionalrelations with firm. On the other side, attitudinal knowledge is difficult to obtain becauseit deals with customers state of mind but meanwhile it is an important factor forenhancement of customer knowledge because they are directly related to customersthoughts and insights. For the purpose of this paper, the Gibbert et al. classification ofcustomer knowledge, which is a commonly used classification, has been adopted.

Knowledge for Customers is unidirectional knowledge which is sent from organizationsto support their customers and make customers to understand their offered productsbetter (Gibbert et al.; 2002; Smith and McKeen, 2005). This knowledge could helporganizations to sustain their customers by focusing on changing the customerspreferences and increases their demands compatibility with the offered product whichfinally leads to purchase of product by customer (Feng and Tian, 2005). Moreover, Fengand Tian (2005) also note that the meaning of what they define as knowledge forcustomers is different with the one which has been defined by Gebert and Blosch. Theyacknowledge that by mentioning the fact that: The knowledge prepared for thecustomer is not necessarily the knowledge the customer needs.

Knowledge about customers is firms comprehension on customers background,desires and preference on product characteristics (Chen and Su, 2006). Customers areinteracting with organizations through multiple and different channels and based on thetype of channel that they interact; organizations can segment their customers and alsodefine their relationships with them. Moreover this can be done through acquired

knowledge from channels which are derived from statistical information and historicaldata of customers purchases or their interactions. This acquired knowledge isconsidered as organizations insight on each customers demand and preference ororganizations knowledge about their customers (Blosch, 2000; Feng and Tian, 2005;Gibbert et al., 2002).

Knowledge from customers is the knowledge which resides in customers, andorganizations should pay attention to this knowledge more than two other types(Paquette, 2006). This knowledge contains information that customers have aboutorganizations products and services, its competitors products and services, customersinputs for product development and innovation, and their preferred channels of

communication (Feng and Tian, 2005). Knowledge for customers is generated fromdata obtained through customers direct complaints, needs and suggestions and helpsorganization to focus on correct market segments and adopt appropriate businessstrategies for their product development and marketing activities (Chen and Su, 2006;Park and Kim, 2003).


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3.1.2 Organizational Factors

According to Feng and Tian (2005), 80% of CRM implementation failures were becauseof overestimation of technological factors and ignorance of organizations aboutorganizational factors such as, organizational procedures and cultures, management

and leadership. The integration of KM and CRM is concerned with organizationalchanges which involves every direction of organization. Knowledge management hasthe highest contribution to success of organization when it is dealt with in a holisticapproach that connects all internal factors such as organizational culture, topmanagement leadership and business processes with customer relationshipmanagement (Crie and Micheaux, 2006).The most important part for managing the customer knowledge is its utilization for doingsomething different and despite the technology which has the least effect;organizational and managerial factors are playing an important role (Davenport et al.,2001). For instance, if knowledge acquired from customer indicates a change in productor service design, the barriers for using that knowledge would be refusal, delay or failure

to listen and these barriers could not be removed by use of technology (Davenport etal., 2001). Moreover, whenever there are issues regarding organizational politics anddisinterest in knowledge sharing, or little cross-functional flow of knowledge, a goodsupport environment by managers who are above functional departments inorganization hierarchy will be necessary (Davenport and Klahr, 1998). Topmanagement support is an important factor for success of CRM in an organization and italso decreases the amount of resistance to change in an organization (Croteau and Li;2003; Greve and Albers, 2006). The top management support affects employeesperception on importance of customer knowledge by transferring the concept ofcustomers knowledge value to employees and encouraging them to participate in thisview and undertaking necessary actions to create customer knowledge competence(Campbell; 2001).

Knowledge culture is another important factor on having a successful KM-enabled CRM(Paquette, 2006). Knowledge culture, as one aspect of organizational factors, iscontributing on effective creation, transfer and use of knowledge (Rowley; 2002). Thereare some initiatives that will fall into knowledge culture category. For example,increasing the level of awareness on the benefits of sharing the knowledge which isembedded in relationships and engagements with customers, and focusing onencouraging the knowledge-related behavior of employees for increasing employeescontributions on structured knowledge base of organization through utilization ofrewards and bonuses, would be considered as some of knowledge culture initiatives(Rowley; 2002).

3.1.3 KM Infrastructure

The competency of the organization to gather and utilization of knowledge is consideredas an important issue for KM-enabled CRM (Paquette, 2006). According to Paquette(2006), originally cited from Cohen and Levintal (1990), this competency consists of theorganizations knowledge to identify and unify the new knowledge, ability to gather,


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process and share of knowledge and also existence of supporting platform for thisprocesses including information systems. Information Technology is considered as anenabler for KM but the way that organizations are adopting it, is considered as asuccess factor for KM implementation (Chong, 2006). The transformation oforganizations from product-centric to customer-centric requires existence of

technological and informational infrastructure which enables organizations to knowand understand their customers better (Shanks and Tay, 2001). But the infrastructure isnot adequate for this transformation unless it is complemented by some changes inorganizations structure, culture and processes (Shanks and Tay, 2001). SimilarlyTiwana (2001) confirms that organizations which adopt IT and its applications to suit theneeds of their internal and external customers along with their employees and supplierscan have better success in KM implementation.Previously information did not have any impact on decision making processes inorganizations and information technology was only a producer of data, not informationand knowledge. But now, it is producer of new information and knowledge along withvarious new strategies (Drucker, 1998). The technology is not only used for purpose of

knowledge extraction, it also contributes in sharing of knowledge within organization. Itfacilitates structuring of knowledge which makes the right information available for rightindividual in right time. The rest depends on the individual to select the informationwhich is useful for organization in the given time. Boon et al. (2002) originally cited fromHwang et al. (2002), describe the components of organizations Information Technology(IT) infrastructure as set of IT services, including communications management,standard management, security, IT education, service management, applicationmanagement, data management, and IT research and development. Romano andFjermestad (2003) posit that the KM literature has put lot of emphasis on IT issuesrather than considering the people management aspect. They identified the peoplemanagement aspect as a critical factor for KM success.

In knowledge-enabled organizations intangible assets such as knowledge assets aremuch more important than tangible ones. In this organizations, employees who areknown as knowledge workers are highly qualified and well trained professionals whoenable organizations to use their knowledge for solving their customers complicatedproblems (Shanks and Tay, 2001; Sveiby, 1997). Therefore employees who handle orgather the customer knowledge, need to be trained for being able to use the technologyand also hold some analytical skills for better use and evaluation of the acquiredknowledge. Rewarding mechanisms and recognition of employees skills stimulatesemployees and gives them the responsibility to treat the customers in high quality levels(Crie and Micheaux, 2006).

Llamas and Sule (2004), argue that interaction of customers with organizations providesexperiences to organizations. This customer experience has intangible characteristicswhich make it to be different from person to person and employees as the otherparticipants in interaction with customers are considered as customer experienceholders and their involvement in collection and distribution of customer knowledge haspositive impact on firms performance (Boulding et al., 2005). Customer knowledgecannot be only generated from sales and marketing channels. Customers have different


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types of interactions with organizations through different channels therefore customerknowledge which is integrated into CRM can be used by different people in differentdepartments who have interactions with customers through different channels (Boon etal., 2002). The employees of the company are one of the success factors for CRM dueto their amounts involved in CRM and their level of involvement (Payne and Frow,

2005).3.2 CRM Performance

Although the demand for transformation of companies from product-centric to customer-centric is growing fast but for measuring the performance of CRM, as result of KMintegration, still, there is no any well accepted set of metrics or a measurement system(Brenner et al., 2005; Payne and Frow, 2005). According Grabner-Kraeutera et al.(2007), the absence of holistic frameworkfor determining success metrics as well asinsufficient implementation of performance measurement processes are importantreasons for failure of many CRM initiatives. Llamas and Sule (2004), confirm that bymentioning the main reasons for failure in establishment of a standard framework for

performance measurement in the field of marketing. They state reasons such as, theshort term characteristics of current performance metrics, their restricted diagnosticpower and finally the absence of a general agreement on the amount of measures andsucceeding problems in performing comparisons (Llamas and Sule, 2004).Based on reviewed literature there are different methods and categorizations for CRMperformance, such as financial versus non-financial; one-dimensional versus multi-criteria; hard versus soft; tangible versus intangible (Chi et al., 2004; Kim et al., 2003;Llamas and Sule, 2004; Payne and Frow, 2005). The most common categorizations ofCRM performance are regarding to financial and non-financial and also tangible andintangible success measures. In terms of financial or tangible measures, measuressuch as net profit, net sales, reduced costs, market share, customer share and cash

flow (Kim et al., 2003; Llamas and Sule, 2004; Pine et al, 1995) can be considered.Measures such as customer satisfaction, customer loyalty, increased customer lifetimevalue, service and quality improvement, innovation and competitiveness are consideredas nonfinancial or intangible measures (Chi et al., 2004; Kim et al., 2003; Llamas andSule, 2004; Payne and Frow, 2005). Although, financial and nonfinancial measures mayseem to be in opposition of each other, but further studies indicate the strongrelationship between nonfinancial measures such as customer satisfaction andcustomer retention and companies profitability as financial measures (Llamas and Sule,2004).

Beside different categorizations of CRM performance and outcomes, literature also

shows different methods of measuring CRM performance. In their model for evaluatingthe performance of CRM, Kim et al. (2003), used the adapted model of BalancedScored Card. They substituted factors such as customer knowledge, customerinteraction, customer value and customer satisfaction with the original elementsincluded in the traditional Balanced Scored Card (Kim et al., 2003; Llamas and Sule,2004). Payne and Frow (2005), based on their study, state different CRM performancemeasures such as profit, revenues, customer retention, customer satisfaction and


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combination of customer retention and customer satisfaction, which have been adoptedby previous researchers. Meantime they divide the CRM assessment process, as partof their strategic framework for CRM, in to two components called shareholderresults and performance monitoring. The first one provides the overall view ofrelationships and consideration of building customer and employee value as ultimate

objective of CRM and the latter provides more specific view on CRM measures andperformance indicators (Payne and Frow, 2005). Moreover, Chi et al. (2004) proposethat CRM performance can be measured from two tangible and intangible aspects. Thetangible behaviors are visible and they are concerned with customers behavioralfactors such as customer retention, cross buying/repurchase, word of mouthand etc.The tangible behaviors could generate tangible profit for organizations. MeantimeCroteau and Li (2003), point out that CRM impacts can be categorized in two types:internal focus and external focus and they adopt Jutla et al.s (2001) CRMperformance measurement framework which uses three customer metrics such as:customer retention rate, customer satisfaction and customer profitability as tools formeasurement of performance, cost and effectiveness of CRM.

Another view for CRM performance measurement is from Greve and Albers (2006)which consider different types of CRM performance measurement at its different stagesof implementation. They explain that by considering the amounts of improvement incustomer acquisition and customer recovery in initiation stage of CRMimplementation. In Maintenance stage, the improvement in cross-/-up-sellingactivities, customer satisfaction, and share of wallet will be measured and inRetention stage, the amount of improvement in customer retention and decrease incustomer defection (Greve and Albers, 2006). According to Drucker (1998), today thebusiness success is no more based on making of returns and capitals but totallydifferent factors such as achieving high life-time value for customers, high customerretention rates and customer satisfaction which all are considered as ultimate outcomes

of CRM to lead companies to positive economic performance (Grabner-Kraeutera et al.,2007). Customer satisfaction is one the main objectives of CRM. Customer satisfactionis difficult to measure because it is hard to quantify the satisfaction level. Customersatisfaction represents a modern approach for quality in enterprises and organizations,and it serves the development of a truly customer-focused management and culture.Measuring customer satisfaction offers an immediate, meaningful, and objectivefeedback about customer preferences and expectations (Kim et al., 2003). Theimprovement in customer knowledge has impact on relationship between CRM andcustomer satisfaction (Mithas et al., 2005). Measuring customer satisfaction offers animmediate, meaningful, and objective feedback about customer preferences andexpectations (Kim et al., 2003). Customer life time value is another important

performance measure for CRM. According to Pine et al. (1995), Lifetime value is thesum of the future stream of profits and other benefits attributable to all purchases andtransactions with an individual customer, discounted back to its present value. Thus, ifcompany could achieve to keep its customers longer, it will be able to receive moreprofit from them due to factors such as: increase in purchase, cost reduction inoperations, referrals and word of mouth, premium prices and cost reduction in customeracquisition processes and activities. But some customers will have a higher lifetime


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value due to the knowledge that they provide to company, because this knowledgegives the company the new skills and capabilities which can be used for othercustomers as well. Pine et al. (1995), also describe customer share as one ofperformance measures which is the companys share on each of its customers totalbusiness trade. The company can calculate its customer share through understanding

of what customer wants to buy from competitor and what she/he might be willing to buyfrom the company.

4 Conclusion

The business environment is changing from industrial to information environment andthis transition includes the reassignment of core capabilities in organizations. Forexample the focus on tangible assets such as equipment, raw materials, humanresources and etc., in industrial community is changing to intangible assets such asbrand image, customer loyalty, customer and market knowledge and business know-how in information community (Llamas and Sule, 2004). CRM as a customer-oriented

business approach is considered as one of the powerful capabilities in organizationwhich help them to transform themselves to a customer centric environment but CRMutilization is directly related with increase in customer knowledge, which in turn haspositive effect on customer satisfaction (Boulding et al., 2005).By using knowledgemanagement companies can improve their relationship with their valuable customers tocreate loyal customers and obtain competitive advantage (Paquette, 2006).Sinceknowledge management is responsible for acquiring and collecting the expertise andknowledge within organizations to promote innovation in organizations and meantimeCRM is able to capture customer preferences, desires and above all, their knowledge;the integration of these two concepts provide tremendous amount of benefits toorganizations (Massey et al., 2001; Nonaka, 1991; Quinn et al., 1996; Romano, 2000).

Organizations can create new ideas and provide improved and new services by help ofknowledge management and the knowledge originated from CRM (Chen and Li, 2006).The acquired knowledge of customers is called customer knowledge which includescustomers preferences, desires, needs, buying behaviors and their insight oncompanies products and services. The customer knowledge as an integral element ofKnowledge Management and CRM relationship could help organizations to tailor theirproducts and services and even the entire relationship with customers to increasecustomer satisfaction and finally economic profitability (Bose and Sugumaran, 2003;Boulding et al., 2005; Chen and Li, 2006; Mithas et al., 2005; Smith and McKeen, 2005).Thus, measuring the impact of Knowledge Management on CRM is a necessary actionto demonstrate the results of Knowledge Management and CRM interaction. The

outcomes of the interaction between Knowledge Management and CRM can beconsidered as both tangible and intangible. Measures such as net profit, net sales, andcustomer share are considered as tangible outcomes of CRM performance and asintangible ones, measures such as customer satisfaction, customer loyalty andincreased customer lifetime value are considered as important intangible outcomes ofCRM in perspective of relationship between Knowledge Management and CRM.Although there have been numerous amount of studies conducted on field of CRM


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performance but still, there is no any standard and well accepted model or frameworkfor measuring all aspects of CRM performance in organizations. Authors believe thatfurther study on this field on enriching the previous studies on developing a standardand overall CRM performance measurement system is necessary and worthy of furtherstudies by researchers.

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PAPER 092 Impact of Knowledge