Chapter 11 : Building a customer - Centric organization - Customer Relationship Management

Customer Relationship Management (CRM)

CRM is a business philosophy based on the premise that those organizations that understand the needs of individual customers are best positioned to achieve sustainable competitive advantage in the future.

- A customer strategy starts with understanding who the company's customers are and how the company can meet strategic goals.

- As the business world increasingly shifts from product focus to customer focus, most organizations recognize the treating existing customers well is the best source of profitable and sustainable revenue growth in the age of e-business, however, an organization is challenged more than ever before to truly satisfy its customers.

Recently, Frequency, and Monetary Value

An organization can find its most valuable customers by using a formula that industry insiders call RFM-recency, frequency, and monetary value. In other words, an organization must track:

- How recently a customer purchased items (recently)

- How frequently a customer purchases an item (frequently

- How much a customer spends on each purchase (monetary value)

The evolution of CRM

Knowing the customer, especially knowing the profitability of individual customers, is highly lucrative in the financial service industry.

There are three phases in the evolution of CRM:

1.                               CRM Reporting technology help organizations identify their customers across other applicants

2.                               CRM analysis technology helps organizations segment their customers into categories such as best and worst customers.

3.                               CRM predicts technological help organizations make predictions regarding customer behavior such as which customers are at risk of leaving.

The Ugly Side of CRM: Why CRM Matters More Now than Ever Before

Now companies have no choice as the power of the customer grows exponentially as the internet grows. In every case, customers have become an integral part of the action as a member of the aggregated, interactive, self-organizing, auto-entertaining audience on businesses. However, this should no be a surprise, since it was the customers crazy passion and hobbies and obsessions-that build up the web in the first place.

Customer Relationship Management's Explosive Growth

When customers buy on Internet, they see, and they steer, entire value chains.

- Customer web interaction become conversations, interactive dialogs with shared knowledge, not just business transaction. Web- based customer care can actually become the focal point of customer relationship management and provide breakthrough benefits for both the enterprise and its customers, substantially reducing costs while improving service.

- Current users allow allocating 20 percent of their IT budget to CRM solutions.

Using Analytical CRM to Enhance Decisions

The two components of a CRM strategy are:

- Operational CRM supports traditional transactional processing for day-to-day front-office operations or systems that deal directly with the customers.

- Analytical CRM supports back-office operations and strategic analysis and includes all systems that do not deal directly with the customers.

The primary difference between operational CRM and analytical CRM in the direct interaction between the organization and its customers.

-Personalization occurs when a website can know enough about a person's likes and dislikes that it can fashion offers that are more likely to appeal to that person. Many organizations are now utilizing CRM to create customer rules and templates that marketers can use to personalize customer messages.

Customer Relationship Management Success Factor

CRM solutions make organizational business processes more intelligent. This is achieved by understanding customer behavior and preferences, then realigning product and service offering and related communications to make sure they are synchronized with customer needs and preferences. If an organization is implementing a CRM system, it should study the industry best practices to help ensure a successful implementation.

Using he analytical capabilities of CRM can help a company Anticipate customer need and proactively serve customers in way that build relationship, create loyalty, and enhance bottom lines.

CHAPTER 9 : ENABLING THE ORGANIZATIONS - DECISION MAKING

·        Organizational information

ü Employees must be able to obtain and analyze to many different levels, formats and granularities of organizational information to make decision

ü Successfully collecting, compiling, sorting and analyzing information can provide tremendous insight into how an organization is performing

·        The value of timely information

ü Timeliness is an aspect of information that depends on the situation :

-         Real-time information – immediate up-to-date information

-         Real-time system – provides real-time information in response to query requests

·        The value of quality information

ü Business decisions are only as good as the quality of the information used to make the decisions

ü You never want to find yourself using technology to help you make a bad decision faster

ü Characteristic of high-quality information include :

-         Accuracy

-         Completeness

-         Consistency

-         Uniqueness

-         Timeliness

·        Understanding the cost of poor information

ü The four primary sources of low quality information include :

                                                       I.            Online customers intentionally enter inaccurate information to protect their privacy

                                                     II.            Information from different systems have different entry standards and formats

                                                  III.            Call center operators enter abbreviated or erroneous by accident or to save time

                                                  IV.            Third party and external information contains inconsistencies, inaccuracies and errors

ü Potential business effects resulting from low quality information include :

-         Inability to accurately track customers

-         Difficulty identifying valuable customers

-         Inability to identify selling opportunities

-         Marketing to nonexistent customers

-         Difficulty tracking revenue due to inaccurate invoices

-         Inability to build strong customer relationship

·        Understanding the benefits of good information

ü High quality information can significantly improve the chances of making a good decision

ü Good decision can directly impact an organization’s bottom line

DECISION MAKING

Reasons for the growth of decision making information systems

-people need to analyze large amounts of information

-people must take decision quickly

-people must apply sophisticated analysis techniques, such as modeling and foresting, to make good decisions

-people must protect the corporate asset of organizational information

MODEL

A simplified representation or abstraction of reality

IT SYSTEMS IN AN ENTERPRISE

EXECUTIVES - EXECUTIVE INFORMATION SYSTEM (EIS)

MANAGERS - DECISION SUPPORT SYSTEMS (DSS)

ANALYSIS – TRANSACTION PROCESSING SYSTEMS (TPS)

TRANSACTION PROCESSING SYSTEMS

-Moving up through the organizational pyramid users move from requiring transactional information to analytical information

-Transaction processing system – the basic business system that serves the operational level (analysts) in an organization

-Online transaction processing (OLTP) – the capturing of transaction and event information using technology to (1) process the information according to defined business rules, (2) store the information, (3) update existing information to reflect the new information

-Online analytical processing (OLAP) – the manipulation of information to create business intelligence in support of strategic decision making

DECISION SUPPORT SYSTEMS

-Decision support systems (DSS) – models information to support managers and business professionals during the decision-making process

-Three quantitative models used by DSSs include :

1. Sensitively analysis – the study of the impact that changes in one (or               more) parts of the model have on other parts of the model

2. What-if analysis – checks the impact of a change in an assumption on the proposed solution

3. Goal-seeking analysis – finds the inputs necessary to achieve a goal such as a desired level of output

EXECUTIVE INFORMATION SYSTEMS

-Executive information system (EIS) – a specialized DSS that supports senior level executives within the organization

-most EISs offering the following capabilities :

1.consolodation– involves the aggregation of intelligent system that mimics the evolutionary, survival-of-the-fittest process to generate increasingly better solutions to a problem

2.drill-down – enables, users to get details and details of details, of information

3.slice-and-dice – looks at information from different perspectives

ARTIFICIAL INTELLIGENCE

-INTELLIGENT SYSTEM – various commercial applications of artificial intelligence

-ARTIFICIAL INTELLIGENCE (AI) – Simulates human intelligence such as the ability to reason and learn

-advantages: can check info on competitor

-the ultimate goal of AI is the ability to build a system that can mimic human intelligence

-Four most common categories of AI include :

1. expert system – computerized advisory programs that imitate the reasoning processes of expert in solving difficult problems

2. neural network – attempts to emulate the way the human brain works

-fuzzy logic – a mathematical method of handling imprecise or      subjective information

3. genetic algorithm – an AI system that mimics the evolutionary, survival-if-the-fittest process to generate increasingly better solutions to a problem

4. intelligent agent – special-purposed-knowledge-based information system that accomplishes specific tasks on behalf of its users

DATA-MINING

-data-mining software includes many forms of AI such as neural networks and expert system

-common forms of data-mining analysis capabilities include:

1. cluster analysis

2. association detection

3. statistical analysis

CLUSTER ANALYSIS

-CLUSTER ANALYSIS – To divide an information set into mutually exclusive groups such that the members of each group are as possible to one another and the different groups are as far apart as possible

-CRM systems depend on cluster analysis to segment customer information and identify behavioral traits

ASSOCIATION DETECTION

-Association detection reveals the degree to which variables are related and the nature and frequency of these relationships in the information

-Market basket analysis such items as Web sites and checkout scanner information to detect customers’ buying behavior and predict future behavior by identifying affinities among customers’ choices of products and services

STATISTICAL ANALYSIS

STATISTICAL ANALYSIS performs such functions as information correlations, distributions, calculations and variance analysis

- forecast– predictions made on the basis of time-series information

- time-series information – time-stamped information collected at a particular frequency

CHAPTER 7 : STORING ORGANIZATIONAL INFORMATION

What is INFORMATION

Information is stored in databases.

Database – maintains information about various types of objects (inventory), events (transactions), people (employees), and places (warehouses)

Database models include:

• Hierarchical database model – information is organized into a tree-like structure (using parent/child relationships) in such a way that it cannot have too many relationships
• Network database model – a flexible way of representing objects and their relationships
• Relational database model – stores information in the form of logically related two-dimensional tables

Entity – a person, place, thing, transaction, or event about which information is stored

The rows in each table contain the entities

Attributes (fields, columns) – characteristics or properties of an entity class

The columns in each table contain the attributes

Primary keys and foreign keys identify the various entity classes (tables) in the database:

• Primary key – a field (or group of fields) that uniquely identifies a given entity in a table
• Foreign key – a primary key of one table that appears an attribute in another table and acts to provide a logical relationship among the two tables

 Database advantages from a business perspective include:

• Increased flexibility
• Increased scalability and performance
• Reduced information redundancy
• Increased information integrity (quality)
• Increased information security

A well-designed database should :

• Handle changes quickly and easily
• Provide users with different views
• Have only one physical view
• --Physical view – deals with the physical storage of information on a storage device

• Have multiple logical views
• --Logical view – focuses on how users logically access information

A database must scale to meet increased demand,  while maintaining acceptable performance levels

• Scalability – refers to how well a system can adapt to increased demands
• Performance – measures how quickly a system performs a certain process or transaction

Information integrity – measures the quality of information

Integrity constraint – rules that help ensure the quality of information

• Relational integrity constraint
• Business-critical integrity constraint

Databases offer several security features including:

• Password – provides authentication of the user
• Access level – determines who has access to the different types of information
• Access control – determines types of user access, such as read-only access

Database management systems (DBMS) – software through which users and application programs interact with a database.

Data-driven Web sites – an interactive Web site kept constantly updated and relevant to the needs of its customers through the use of a database.

 Integration – allows separate systems to communicate directly with each other :

• Forward integration – takes information entered into a given system and sends it automatically to all downstream systems and processes
• Backward integration – takes information entered into a given system and sends it automatically to all upstream systems and processes

CHAPTER 6 : VALUING ORGANIZATIONAL INFORMATION

ORGANIZATIONAL INFORMATION

• ·         Information is everywhere in an organization
• ·         Employees must be able to obtain and analyze the many different levels, formats and granularity of organizational information to make decisions
• ·         Successfully collecting, compiling, sorting and analyzing information can provide tremendous insight into how an organization is performing
• ·         Levels, formats and granularity of organizational information

THE VALUE OF TRANSNATIONAL AND ANALYTICALLY INFORMATION

• ·         Transaction information verses analytically information
  
  
  
  
  
  THE VALUE OF TIMELY INFORMATION

  
  

  ·         Timeliness is an aspect of information that depends on the situation

  §  Real-time information – immediate, up-to-date information

  §  Real-time system – provides real-time information in response to query requests

  
  

  THE VALUE OF QUALITY INFORMATION

  
  

  ·         Business decisions are only as good as the quality of the information used to make the decisions

  ·         You never want to find yourself using technology to help you make a bad decision faster

  
  

  
  

  UNDERSTANDING THE COSTS OF POOR INFORMATION

  
  

  ·         The four primary sources of low quality information include;

  
  

  §  Online customers intentionally enter inaccurate information to protect their privacy

  §  Information from different systems have different entry standards and formats

  §  Call center operators enter abbreviated or erroneous information by accident or to save time

  §  Third party and external information contains inconsistencies, inaccuracies and errors

  
  

  ·         Potential business effects resulting from low quality information include;

  
  

  §  Inability to accurately track customers

  §  Difficulty identifying valuable customers

  §  Inability to identify selling opportunities

  §  Marketing to nonexistent customers

  §  Difficulty tracking revenue due to inaccurate invoices

  §  Inability to build strong customer relationships

  
  

  
  

  UNDERSTANDING THE BENEFITS OF GOOD INFORMATION

  
  

  ·         High quality information can significantly improve the chances of making a good decision

  ·         Good decisions can directly impact an organization’s bottom line

  
  

CHAPTER 5 : ORGANIZATIONAL STRUCTURE THAT SUPPORT STRATEGIC INITIATIVES

ORGANIZATIONAL STRUCTURES

• ·         Organizational employees must work closely together to develop strategic initiatives that create competitive advantages.
• ·         Ethics and security are two fundamental building blocks that organizations must base their businesses upon.

INFORMATION TECHNOLOGY ROLES AND RESPONSIBILITIES

• ·         Information technology is a relatively new functional area, having only been around formally for around 40 years.

·         Recent IT – related strategic positions:

• Chief Information Officer (CIO)
• Chief Technology Officer (CTO)
• Chief Security Officer (CSO)
•  Chief Privacy Officer (CPO)
•  Chief Knowledge Officer (CKO)

·         Chief Information Officer (CIO) – oversees all uses of IT and ensures the strategic alignment of IT with business goals and objectives.

         Broad CIO functions include;

•  Manager – ensuring the delivery of all IT projects, on time and within budget.
• Leader – ensuring the strategic vision of IT is in line with the strategic vision of the organization.
• Communicator – building and maintaining strong executive relationships.

o   Chief Technology Officer (CTO) – responsible for ensuring the throughput , speed, accuracy, availability and reliability of IT

o   Chief Security Officer (CSO) – responsible for ensuring the security of IT systems

o   Chief Privacy Officer (CPO) – responsible for ensuring the ethical and legal use of information

o   Chief Knowledge Officer (CKO) – responsible for collecting, maintaining and distributing the organization’s knowledge

THE GAP BETWEEN BUSINESS PERSONNEL AND IT PRSONNEL

•  Business personnel possess expertise in functional areas such as marketing, accounting and sales
•  IT personnel have the technological expertise
• This typically causes a communications gap between the business personnel and IT personnel

IMPROVING COMMUNICATIONS

• Business personnel must seek to increase their understanding of IT
• IT personnel must seek to increase their understanding of the business
•  It is the responsibility of the CIO to ensure effective communication between business personnel and IT personnel

ORGANIZATIONAL FUNDAMENTALS – ETHICS AND SECURITY

•  Ethics and security are two fundamental building blocks that organizations must base their businesses on to be successful
• In recent years, such event as the 9/11 have shed new light on the meaning of ethics and security

ETHICS 

• Ethics – the principles and standards that guide our behavior toward other people
• Privacy is a major ethical issues;

• Privacy – the right to be left alone when you want to be to have control ever your own personnel possessions and not to be observed without your consent

• Issues affected by technology advances

PROTECTING INTELLECTUAL ASSETS

·         Organizational information is intellectual capital – it must be protected

·         Information security – the protection of information from accidental or intentional misuse by persons inside or outside an organization

·         E-business automatically crates tremendous information security risks for organization

CHAPTER 4 : MEASURING INFORMATION TECHNOLOGY'S SUCCESS

•      Key performance indicator – measures that are tied to business drivers
•      Metrics are detailed measures that feed KPIs
•      Performance metrics fall into the nebulous area of business intelligence that is neither technology, nor business centered, but requires input from both IT and business professionals

EFFICIENCY AND EFFECTIVENESS

·         Efficiency IT metric – measure the performance of the IT system itself including throughout speed and availability

·         Effectiveness IT metric – measures the impact IT has on business processes  and activities including customers satisfaction conversion rates and self-through increases

BENCHMARKING – BASELINING METRICS

·         Regardless or what is measured, how it is measured and whether it is for the sake of efficiency or effectiveness, there must be benchmarks – beseline values the system seek to attain

·         Benchmarking – a process of continuously measuring system results, comparing those results to optimal system performance and identifying to improve system performance

THE INTERRELATIONSHIPS OF EFFICIENCY AND EFFECTIVENESS IT METRICS

·         Efficiency IT metrics focus on technology and include :

ü  Throughput - the amount of information that can travel trough a system at any point

ü  Transaction speed - the amount of time a system takes to perform a transaction

ü  System availability – the number of hours a system is available for users

ü  Information accuracy – the extent to which a system generates the correct results when executing the same transaction numerous times

ü  Web traffic – includes a host of benchmarks such as the number of page views, the number of unique visitors, and the average time spent viewing a Web page

ü  Response time –the time it takes to respond to user interactions such as a mouse click

·         Effectiveness IT metrics focus on an organization’s goals, strategies, and objectives and include:

ü  Usability – The ease with which people perform transactions and/or find information. A popular usability metric on the Internet is degrees of freedom, which measures the numbers of clicks required to find desired information.

ü  Customer satisfaction – Measured by such benchmarks as satisfaction surveys, percentage of existing customers retained, and increases in revenue dollars per customer.

ü  Conversion rates – The number of customers an organization “touches” for the first time and persuades to purchase its products or services. This is a popular metric for evaluating the effectiveness of banner, pop-up, and pop-under ads on the Internet.

ü  Financial – Such as return on investment (the earning power of an organization’s assets), cost-benefit analysis (the comparison of projected revenues  and costs including development, maintenance, fixed, and variable), and break-even analysis (the point at which constant revenues equal ongoing costs).

·         Security is an issue for any organization offering products or services over the Internet.

·         It is inefficient for an organization to implement Internet security, since it slows down processing

v  However, to be effective it must implement Internet security

v  Secure Internet connections must offer encryption and Secure Sockets Layers (SSL denoted by the lock symbol in the lower corner of a browser) .

·         Web Site Metrics:

ü  Abandoned registrations – Number of visitors who start the process of completing a registration page and then abandon the activity.

ü  Abandoned shopping carts – Number of visitors who create a shopping cart and start shopping and then abandon the activity before paying for the merchandise.

ü  Click-through – people who visit a site, click on an ad, and are taken to the site of the advertiser.

ü  Conversion rate – potential customers who visit a site and actually buy something.

ü  Cost-per-thousand (CPM) – sales dollar generated per dollar of advertising. This is commonly used to make the case for spending money to appear on a search engine.

ü  Page exposures – average number of page exposure to an individual visitor.

ü  Total hits – number of visits to a web site, many of which may be by the same visitor.

ü  Unique visitor – number of unique visitors to a site in a given time. This is commonly used by Nielsen/Net ratings to rank the most popular Web site.

SUPPLY CHAIN MANAGEMENT METRICS

ü  Back order – an unfilled customer order.

ü  Customer order promised cycle time – the anticipated or agreed upon cycle time of a purchase order.

ü  Customer order actual cycle time – to actually fill a customer’s purchase order.

ü  Inventory replenishment cycle time – measure of the manufacturing cycle time plus  the time included to deploy the product to the appropriate distribution center.

ü  Inventory turns ( inventory turnover ) – the number of times that a company’s inventory cycles or turns over per year.

CUSTOMER RELATIONSHIP MANAGEMENT METRICS

• Customer relationship management metrics measure user satisfaction and interaction and include :

-          Sales metrics

-          Service metrics

-          Marketing metrics

BPR and ERP METRICS

• The balanced scorecard enables organizations to measures and manage strategic initiatives