CUSTOMER RELATIONSHIP MANAGEMENT: ITS DIMENSIONS AND EFFECT ON CUSTOMER OUTCOMES Frederick Hong-kit Yim, Rolph E. Anderson, and Srinivasan Swaminathan Despite the rapidly growing customer relationship management (CRM) literature, the dimensions of CRM and their effects on customer outcomes remain equivocal. In this research, we first identify the requisite activities for effective CRM implementation. We then investigate their effect on customer satisfaction, customer retention, and sales growth. Results indicate that managers need to think beyond the technological components of CRM and focus on four key CRM dimensions to significantly enhance customer loyalty and sales growth. In our analysis and discussion, we examine the expanding role of salespeople in successful CRM implementation and outcomes. Customer relationship management (CRM) has been called an inevitableliterally relentlessmovement because it represents the way customers want to be served, and offers a more effective and efficient way of conducting business (Peppers and Rogers 2004, p. 6). Underpinning the paradigm of CRM is the basic belief that customer relationships, like other important assets in an organization, can be effectively developed and managed. By better customizing of product and service offerings for individual customers (Stefanou, Sarmaniotis, and Stafyla 2003), customer retention (Parasuraman and Grewal 2000; Srinivasan, Anderson, and Ponnavolu 2002), and profitability (Oliver 1999; Ryals and Knox 2001; Sheth and Sisodia 2001) can be increased. Interest in CRM is gaining momentum among academicians and businesspeople (e.g., Gruen, Summers, and Acito 2000; Rigby and Ledingham 2004; Srivastava, Shervani, and Fahey 1999; Thomas, Blattberg, and Fox 2004), and progressive companies, such as IBM and Boise Cascade, are placing greater priority on their CRM investments (Kennedy 2004). According to a survey of nearly 1,000 chief information officers (CIOs) conducted by Gartner Executive Programs (EXP), two in three CIOs consider CRM efforts to be a high priority Frederick Hong-kit Yim (Doctoral Student), LeBow College of Business, Department of Marketing, Drexel University, hong.kit.yim@drexel.edu. Rolph E. Anderson (Ph.D., University of Florida), Royal H. Gibson, Sr. Professor of Marketing, LeBow College of Business, Department of Marketing, Drexel University, rolph.e.anderson@drexel.edu. Srinivasan Swaminathan (Ph.D., University of Texas at Austin), Associate Professor of Marketing, LeBow College of Business, Department of Marketing, Drexel University, srinivasan.swaminathan@ drexel.edu. The authors are indebted to three anonymous JPSSM reviewers and to the editors for their very helpful comments and suggestions. (Compton 2004). Moreover, according to Gartner, the CRM software market is expected to produce at least a 5 percent compound annual growth rate through the next several years (Kumar et al. 2003). CRM solutions are deemed to be so critical that investments in them continue to be funded despite shriveling information technology (IT) budgets (Brohman et al. 2003). To achieve superior performance, a growing number of companies are developing elaborate CRM systems and making creative use of sales force automation (SFA), data warehousing, data mining, push technology, and other query tools to better understand and serve customers (Speier and Venkatesh 2002). CRM programs are helping sales managers identify and target their most valuable customers as pressures mount to make more effective and efficient allocation of resources to achieve company goals (Dorsch et al. 2001). Many salespeople are leveraging the use of CRM (Widmier, Jackson, and Mccabe 2002) in enhancing their relationships with customers to improve sales forecasting, lead management, bid and quote management, and personalization (Rigby and Ledingham 2004). Operating at the frontier of the customerorganization interface, salespeople are essential in providing added value for customers (Beverland 2001) while creatively managing the buyer-seller relationship (Reynolds and Arnold 2000). With their empowerment via telecommunications technology, many salespeople have become more like \"relationship managers\" (Crosby, Evans, and Cowles 1990), \"procreators\" (Wotruba 1991), or \"directors of customer relations\" (Thorelli 1986), implementing CRM at the customer level (Guenzi 2002; Periatt, LeMay, and Chakrabarty 2004). Salespeople generally have the greatest influence in reducing customer defection (Johnson, Barksdale, and Boles 2001), and their success vis--vis customers largely determines the effectiveness of CRM implementations. Since there are often discrepancies or even disconnects between marketing strategies and their tactical implementation in sales activities (Strahle, Spiro, and Acito 1996), it is paramount for salespeople to thoroughly understand Journal of Personal Selling & Sales Management, vol. XXIV, no. 4 (fall 2004), pp. 265-280. 2005 PSE National Educational Foundation. All rights reserved. ISSN 0885-3134 / 2005 $9.50 + 0.00. 266 Journal of Personal Selling & Sales Management what CRM is, how CRM can facilitate negotiations with customers, and how CRM expands the role of salespeople as \"relationship managers.\" Although claims about the favorable effects of CRM on business performance are commonly espoused in the CRM literature (e.g., Crosby and Johnson 2001; Gruen, Summers, and Acito 2000; Kennedy 2004), actual results in the business world remain controversial with respect to the benefit- cost trade-offs (e.g., Payant 2004; Rigby, Reichheld, and Schefter 2002). Widespread application of CRM programs has not led to substantially higher customer retention rates (Thomas, Blattberg, and Fox 2004). Too often, company investments in CRM projects are made in an uncoordinated manner (Jeffery and Leliveld 2004). Unrealized expectations for CRM implementations, however, are not causing many firms to terminate their CRM efforts. Instead, executives are endeavoring to learn from their mistakes and refine their CRM activities and objectives (Sheth 2002). Review of the CRM literature reveals that ambiguous results often may be attributed to disagreement and confusion regarding the exact domain of CRM (Rigby, Reichheld, and Schefter 2002). In other words, there is no consensus on what constitutes CRM. Asking ten experts, whether academicians or businesspeople, to define CRM, one is likely to receive ten quite different descriptions (Kopf 2000). Some view CRM largely as a technology-focused database management approach to gathering and analyzing information about customers in order to more fully satisfy them (Krauss 2002). Others think of CRM in terms of initiatives such as call centers, loyalty programs, Web sites, or personalized e-mails to implement one-to-one marketing. Broader perspectives tend to see CRM as an overall mix of marketing strategy, organizational structure and processes, and technologyall centered around customer data that enables executives to better manage their companies (Hair, Bush, and Ortinau 2003). Confronted with uncertainty as to the precise meaning and domain of CRM, some executives seem conflicted and unsure about how to properly implement CRM in their organizations (Myron and Ganeshram 2002). Later, after heavy investment of resources, they may be disappointed, or even embarrassed, by unimpressive results in improving customer relationships (James 2002). CRM, as an emerging discipline, urgently cries out for theoretical assistance (Gummesson 2002a) if it is to be properly embedded within organizational strategy (Langerak and Verhoef 2003). Some even argue that, without prompt conceptual and measurement attention, CRM could be largely abandoned and perhaps experience a premature death (Fournier, Dobscha, and Mick 1998). CRM, like most initiatives that are poorly understood, improperly applied, and incorrectly measured and managed, may suffer and struggle to survive (Peppers and Rogers 2004, p. 7). Yet, despite its problems to date, CRM offers great potential for improving long-term customer relationships and enhancing profitability (Rigby and Ledingham 2004; Zikmund, McLeod, and Gilbert 2003). Thus, the present research was undertaken specifically (1) to provide more conceptual clarity to the domain of CRM, and (2) to investigate the effect of CRM implementation on important business performance metrics such as customer satisfaction, customer retention, and sales growth. THEORETICAL BACKGROUND The essence of CRM thinking originates from three concepts in marketing management: (1) customer orientation, (2) relationship marketing, and (3) database marketing. With the advancement of information and communication technology (ICT), these three marketing tenets have come together in the paradigm of CRM (Langerak and Verhoef 2003). As customers became more difficult to reach with mass advertising, CRM emerged to more accurately target customer segments on a one-to-one basis. But, exactly what is CRM? At present, in the universe of marketing management, multiple definitions abound. For instance, Kotler and Armstrong define CRM as \"the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction\" (2004, <>). This definition seems to include the broad-based essence of marketing wherein value and satisfaction are prominent. Zikmund, McLeod, and Gilbert provide a more technology-oriented perspective by defining CRM as \"a business strategy that uses information technology to provide an enterprise with a comprehensive, reliable, and integrated view of its customer base so that all processes and customer interactions help maintain and expand mutually beneficial relationships\" (2003, <>). Numerous other definitions of CRM might be citedranging from very narrow interpretations to very broad oneswith no two being the same. Lack of consensus on the meaning of CRM not only impedes academic discourse on the subject, but also adds to business practitioner skepticism and indecisiveness in establishing CRM systems. In view of the wide variance among CRM definitions, Yim (2002) attempts to provide more conceptual clarity of CRM by synthesizing the relevant marketing, management, and IT literature to identify four key areas necessary for successful CRM implementation: (1) strategy, (2) people, (3) processes, and (4) technology (Crosby and Johnson 2001; Fox and Stead 2001; Ryals and Knox 2001). Despite the fact that each of these components, by itself, is relatively straightforward; it is only when all four work in unison that a superior customerrelationship capability is developed (Day 2003; Kotler and Armstrong 2004, p. 60). Based on analyses of the CRM literature and in-depth interviews with experienced marketing managers, CRM implementations usually involve four spe- Fall 2004 cific ongoing activities: (1) focusing on key customers (Srivastava, Shervani, and Fahey 1999; Vandermerwe 2004), (2) organizing around CRM (Homburg, Workman, and Jensen 2000; Langerak and Verhoef 2003), (3) managing knowledge (Stefanou, Sarmaniotis, and Stafyla 2003), and (4) incorporating CRM-based technology (Bhaskar 2004; Chen and Ching 2004). The Four Dimensions of CRM Implementations Focusing on Key Customers A customer-focused structure, culture, policy, and reward system should permeate any organization that strives to implement CRM successfully (Ryals and Knox 2001; Sheth, Sisodia, and Sharma 2000). All interactions with key customers, who are often identified by \"lifetime value computations,\" must fully reflect this company-wide CRM focus (Jain and Singh 2002; Schmid and Weber 1998). The ultimate goal is to achieve deep customer relationships through which the seller organization becomes indispensable to its most profitable customers (Vandermerwe 2004). Equipped with company-wide understanding and internal support for key customer relationships, the sales force generally is better enabled and motivated to cultivate long-term customer relationships by offering more personalized products and services (Armstrong and Kotler 2003, p. 514; Srinivasan, Anderson, and Ponnavolu 2002). Organizing Around CRM With a strong focus on key customers deeply embedded throughout its CRM system, the entire company should be organized around cultivating these valuable relationships. The organizational structure needs to be flexible and, if necessary, reconstructed to generate customer-centric values (Homburg, Workman, and Jensen 2000) and improve coordination of customer-focused, cross-functional teams (Brown 2000; Homburg, Workman, and Jensen 2000; Sheth and Sisodia 2002). For CRM success, there also must be an organizationwide commitment of resources. With concerted efforts by all organizational functions to continuously provide a stream of value-rich actions and customer outcomes (Ahmed and Rafiq 2003; Gronroos 1990), the company and its sales force are assured that they can satisfy customers' needs and enhance customer relationships. Managing Knowledge Strongly related to knowledge management, successful CRM is predicated on effectively transforming customer information to customer knowledge (Freeland 2003; Peppard 2000; Plessis and Boon 2004; Stefanou, Sarmaniotis, and Stafyla 2003; Stringfellow, Nie, and Bowen 2004). Specifically, to 267 enhance customer profitability, information about customers should be gathered through interactions or touch points across all functions or areas of the firm (Brohman et al. 2003), so that a 360-degree customer view is established, maintained, and continually updated (Fox and Stead 2001). Customer knowledge thereby generated needs to be shared and disseminated throughout the organization (Peppard 2000; Ryals and Knox 2001) to address customers' current and anticipated needs. Salespeople are then equipped with a wealth of valuable customer knowledge to meticulously adjust marketing offers to fit the idiosyncratic needs of each customer (Armstrong and Kotler 2003, p. 514). Incorporating CRM-Based Technology Many CRM-oriented activities, such as knowledge management, cannot be optimized without leveraging the latest technology. Indeed, most CRM applications take great advantage of technology innovations with their ability to collect and analyze data on customer patterns, develop prediction models, respond with timely and effective customized communications, and efficiently deliver personalized value offerings to individual customers (Peppard 2000; Vrechopoulos 2004). With the development of sophisticated information management tools, such as database marketing, data warehousing, data mining, and push technology, companies are striving to seamlessly incorporate the latest technology into their CRM systems. In particular, salespeople frequently depend on continually updated software programs to better respond to their customers and build enduring customer relationships (Kotler 2004, p. 141). CRM technology helps companies and their salespeople collect, analyze, and distribute information for enhanced prospecting, improved communication and sales presentations, and tailored product configurations. It also facilitates cross-referencing of customers within divisions of a company for greater sales opportunities (Widmier, Jackson, and Mccabe 2002). Among the major outcomes sought by incorporating CRM-based technology are enhanced customer satisfaction, higher customer retention, and more profitable long-term customer relationships (Butler 2000). In summary, successful CRM implementations depend on combining the four aforementioned dimensionsfocusing on key customers, organizing around CRM, managing knowledge, and incorporating CRM-based technologyinto an effective overall CRM strategy. Deficiencies in any of these areas can render the firm's CRM endeavors attenuated or even ineffectual. HYPOTHESIS DEVELOPMENT Having provided more conceptual clarity to the CRM domain by exploring the critical aspects of successful CRM implementation, we now turn our attention to the desired 268 Journal of Personal Selling & Sales Management consequences of adopting a CRM orientation within the organizationcustomer satisfaction, customer retention, and sales growth. Customer Satisfaction Customer satisfaction is a vital CRM variable that must not evade our empirical scrutiny. Indeed, customer satisfaction is central to successful application of the marketing concept. Many company mission statements and marketing plans are designed around the goal of increasing customer satisfaction (Fournier and Mick 1999). Customer satisfaction can be defined as \"the extent to which a product's perceived performance in delivering value matches a buyer's expectations\" (Armstrong and Kotler 2003, p. 10). In implementing CRM, a firm seeks to establish and maintain a long-term relationship with customers based on cumulative full customer satisfaction as opposed to transaction-specific customer satisfaction (Garbarino and Johnson 1999; Reinartz and Kumar 2002). More specifically, successful CRM implementation requires a dedicated company-wide focus on key customers in one-to-one marketing efforts to fully understand and satisfy their needs and wants on an ongoing basis (Sheth, Sisodia, and Sharma 2000). The seller's entire organizational structure should be centered around customers, often with customer-focused teams (Sheth and Sisodia 2002) designed to create fully satisfying customer experiences (Ahmed and Rafiq 2003). By making creative use of the customer knowledge acquired and by leveraging CRM-based technology, an organization can provide customized offerings to its valued customers, which should boost customer satisfaction (Anderson and Srinivasan 2003; Johnson and Selnes 2004). Successful CRM activities must cultivate customer satisfaction (e.g., Stefanou, Sarmaniotis, and Stafyla 2003) by continuously adapting to the evolving needs and wants of customers (Stringfellow, Nie, and Bowen 2004). From this perspective, the following relationships are hypothesized: vances in IT are enabling organizations to more efficiently and effectively direct their CRM efforts at retaining customers (Butler 2000). Making skillful use of customer knowledge gathered over a series of interactions or touch points and applying CRM-based technology, companies can more effectively respond to the changing needs of customers with customized offerings. This personalization of products and services serves to further lock customers into long-term relationships by adding to customer switching costs (Burnham, Frels, and Mahajan 2003; Vandermerew 2004). Furthermore, by organizing their CRM operations around customer groups, companies can assign direct accountability, keep abreast of changing customer expectations for different segments, and obtain early warnings from customers who may be on the verge of leaving. With this CRM knowledge network, timely remedial actions can be taken to address the specific problems or expectations of discontent customers, thereby increasing the retention rate. Providing monetary and recognition incentives to motivate a CRM-orientation can help keep salespeople focused on customer satisfaction and customer loyalty (Johnson 2004). All in all, a variety of CRM activities can work together to enhance customer retention (Pfeifer and Farris 2004). Thus, the following relationships are hypothesized: H2a: There is a positive relationship between \"focusing on key customers\" and customer retention. H2b: There is a positive relationship between \"organizing around CRM\" and customer retention. H2c: There is a positive relationship between \"managing knowledge\" and customer retention. H2d: There is a positive relationship between \"incorporating CRM-based technology\" and customer retention. H1c: There is a positive relationship between \"managing knowledge\" and customer satisfaction. In several models of customer retention, satisfaction has been explored as a key determinant in customers' decisions to continue or terminate a business relationship (e.g., Bolton 1998; Rust, Zahorik, and Keiningham 1995). In fact, Reichheld (1996) finds that satisfaction measures account for up to 40 percent of the variance in models of customer retention. High levels of customer satisfaction generally are considered essential to customer retention. Kotler expresses it succinctly: \"The higher the customer satisfaction, the higher the retention\" (2003, p. 41). We, therefore, put forth the following hypothesis: H1d: There is a positive relationship between \"incorporating CRM-based technology\" and customer satisfaction. H3: There is a positive relationship between customer satisfaction and customer retention. H1a: There is a positive relationship between \"focusing on key customers\" and customer satisfaction. H1b: There is a positive relationship between \"organizing around CRM\" and customer satisfaction. Customer Retention Sales Growth One of the primary goals of CRM is customer retention or customer loyalty (Anderson and Srinivasan 2003; Aspinall, Nancarrow, and Stone 2001; Verhoef 2003). Continuous ad- According to Reichheld and Sasser (1990, p. 110), reducing customer defections by 5 percent can boost profits by 25 percent to 85 percent. This impressive finding has been advo- Fall 2004 cated as a strong justification for increased investments in CRM systems (Pfeifer and Farris 2004). Recently, Gupta and Lehmann (2003) estimate a less dramatic increase of 22 percent to 37 percent in customer lifetime value or revenue, for a 5 percent increase in customer retention. Although the precise numbers may vary, empirical findings consistently show a substantial jump in revenue and profits with a small gain in customer retention (Oliver 1999; Pfeifer and Farris 2004). Thus, we hypothesize the following relationship: 269 Figure 1 Conceptual Model for the Effects of CRM Performance Dimensions on Customer Satisfaction, Customer Retention, and Sales Growth H4: There is a positive relationship between customer retention and sales growth. The model we empirically tested is presented in Figure 1. METHODOLOGY Sample and Data Collection Procedure To empirically test the model proposed in Figure 1, we collected survey data on the four dimensions of CRM and company performance. The study sample consisted of 1,223 service firms selected on a random probability basis from the Business Directory of Hong Kong. Included in the sample frame were banks, investment companies, insurance companies, and other firms characterized by a high degree of relationship orientation, and thus well suited for testing our CRM framework. Questionnaires were sent directly to general managers or similarly level senior managers at each of the companies selected for the study. These senior-level respondents were highly knowledgeable about CRM implementation and practice within their companies as indicated by their ability to answer fully virtually all questions. A total of 215 returned surveys were complete and usable, for a response rate of 17.6 percent. Although this response rate is not unusual in the literature, it might have been lower than desired due to the high level of management being surveyed. To test for nonresponse bias, responses from early respondents were compared to those from late respondents on a number of variables (Armstrong and Overton 1977). No significant differences were found. Measurements Dimensions of CRM Scale items for the four dimensions of CRM were developed based on guidelines suggested by Churchill (1979) and Gerbing and Anderson (1988). Following an analysis of the relevant literature, the initial pool of 56 items was refined to 20 items based upon the following criteria: face validity, reliability, and factor loadings. The four dimensions of CRM were captured by 20 six-point Likert scale items (shown in the Appendix). Customer Satisfaction, Customer Retention, and Sales Growth Business performance variablescustomer satisfaction, customer retention, and sales growthwere measured by the respondent's evaluation of his or her company's current performance in the market relative to its major competitors on a six-point scale ranging from \"better than\" to \"worse than.\" As advocated by Narver and Slater, relative performance was used to control for performance differences among firms (1990, pp. 26-27). Subjective measures of performance are frequently used in business research, and previous studies have demonstrated a strong correlation between subjective assessments and their objective counterparts (e.g., Dess and Robinson 1984; Pearce, Robbins, and Robinson 1987). Essentially, respondents were asked to evaluate their company's performance on customer satisfaction, customer retention, and sales growth by considering a series of one-statement judgments formulated specifically to allow comparisons with major competitors in their industries. Factor Analysis In order to identify the underlying factor structure for the data collected, a factor analysis was done on the 20 items 270 Journal of Personal Selling & Sales Management using a principal components method of extraction with a varimax rotation. The same four-factor solution conceptualized previously was reproduced (see Table 1). Heavy loadings on the intended constructs provided evidence for the validity of our scale. Reliability and Confirmatory Factor Analysis To test for reliability of these scale items, Cronbach's alphas were calculated for each of the four dimensions of the CRM orientation (Churchill 1979; Nunnally 1978). Cronbach's alphas are shown in Table 2. Reliability coefficients for all scales exceeded 0.7, the threshold recommended by Nunnally (1978). To ensure that measures loaded on the constructs as expected, confirmatory factor analysis was conducted with results, as shown in Figure 2. Indicator variables correctly and significantly loaded on the four factors as predicted, providing evidence of convergent validity (cf. Venkatesh, Challagalla, and Kohli 2001). Factor loadings are provided in Table 3. Our overall model fit the data well with a chi-square value of 317 and 164 degrees of freedom. The root mean square error of approximation (RMSEA) was 0.045, goodness-of-fit index (GFI) was 0.92, and adjusted goodness-of-fit index (AGFI) was 0.90. Evidence of discriminant validity is demonstrated by the fact that correlations among the four factors are significantly different from 1.0, indicating that the four factors are not perfectly correlated. Also, the correlations are significantly different from 0.0, indicating that these factors are not fully orthogonal. Analysis and Results Given a valid and reliable scale to measure the dimensions of CRM, we tested the overall model given in Figure 1 using LISREL. The model fit the data well with a chi-square value of 428.3 and 217 degrees of freedom. Correlations between the various latent constructs are presented in Table 4 and parameter estimates of the structural model are provided in Table 5. As can be seen in Table 5, both \"focusing on key customers\" and \"managing knowledge\" have significant effects on customer satisfaction, with parameters equal to 0.50 and 0.28, respectively. However, customer satisfaction is not directly affected by \"organizing around CRM\" and \"incorporating CRM-based technology.\" LISREL results reported in Table 5 reveal that customer satisfaction positively and significantly affects customer retention (parameter = 0.3). Also, \"organizing around CRM\" affects customer retention directly (parameter = 0.21). Likewise, \"managing knowledge\" has a significant effect on customer retention directly (parameter = 0.61) and indirectly through customer satisfaction. Parameter estimates disclose that \"focusing on key customers\" affects customer retention only through customer satisfaction. Sales growth is positively and significantly affected by customer retention (parameter = 0.51). DISCUSSION In both academic and practitioner marketing, emphasis on building and maintaining customer relationships continues to grow with a central focus on customer retention. Ironically, progress made in the management of customer relationships to date generally has not substantially increased retention rates (Thomas, Blattberg, and Fox 2004). What is more, continuing enthusiasm for CRM initiatives still has not brought about a commonly accepted definition of CRM. In the present study, however, a conceptual framework is provided for empirical investigation of the CRM paradigm. Successful implementation of CRM systems depends on four pillars: \"focusing on key customers,\" \"organizing around CRM,\" \"managing knowledge,\" and \"incorporating CRM-based technology.\" Despite the apparently straightforward nature of each of these four pillars, all four are connected and must work in unison to achieve superior customer relationships (Day 2003; Johnson 2004). This requirement further underscores the importance of coordinated efforts across functional areas to actualize the full benefits of CRM (Crosby and Johnson 2001; Ryals and Knox 2001). In particular, the benefits of CRM are manifested in performance metrics such as customer satisfaction, customer retention, and sales growth. In the present study, \"focusing on key customers\" significantly affects customer satisfaction. This is in accord with the tenet that an overwhelming customerfocused mind-set should perpetuate a CRM-oriented organization with business strategy driven by key customers (e.g., Ryals and Knox 2001; Sheth and Sisodia 2001). The performance dimension of \"focusing on key customers\" also has an indirect effect through customer satisfaction on customer retention and sales growth. Salespeople, who are the company's eyes and ears in the field, particularly are encouraged to focus on key customers and foster close relationships with them (Berry 1995). Improvement in salesperson-customer relationships can be achieved by initiating more personal contacts with customers to keep abreast of their changing needs (Frankwick, Porter, and Crosby 2001). Collaborative communication is also important to enhance sales relationships (Schultz and Evans 2002). High-quality sales force performances, when supported and augmented at the senior management level, can further enhance customer satisfaction, retention, and sales growth (Liao and Chuang 2004). \"Managing knowledge\" exhibits a significant and direct effect on both customer satisfaction and retention. Also, it Eigenvalue Percentage of Variance My organization fully understands the needs of our key customers. My organization provides channels to enable ongoing two-way communication between our key customers and us. Customers can expect exactly when services will be performed. My organization provides customized services and products to our key customers. Through ongoing dialogue, we work with individual key customer to customize our offerings. My organization makes an effort to find out what our key customer needs are. When my organization finds that customers would like to modify a product/service, the departments involved make coordinated efforts to do so. All people in my organization treat customers with great care. My organization has the right software to serve our customers. My organization has the right hardware to serve our customers. My organization has the right technical personnel to provide technical support for the utilization of computer technology in building customer relationships. My organization maintains a comprehensive database of our customers. Individual customer information is available at every point of contact. Customer-centric performance standards are established and monitored at all customer touch points. My organization has established clear business goals related to customer acquisition, development, retention, and reactivation. My organization has the sales and marketing expertise and resources to succeed in CRM. Our employee training programs are designed to develop the skills required for acquiring and deepening customer relationships. Employee performance is measured and rewarded based on meeting customer needs and on successfully serving the customer. Our organizational structure is meticulously designed around our customers. My organization commits time and resources in managing customer relationships. Variables 3.770 18.851 0.603 0.558 0.421 0.627 0.737 0.698 0.812 Organizing Around CRM Table 1 Results of Exploratory Factor Analysis 3.445 17.223 0.712 0.707 0.657 0.756 0.721 Incorporating CRM-Based Technology 3.145 15.723 0.624 0.468 0.744 0.741 0.639 Focusing on Key Customers 2.814 14.072 0.649 0.463 0.812 Managing Knowledge Fall 2004 271 272 Journal of Personal Selling & Sales Management Table 2 Scale Reliabilities Number of Items Focusing on Key Customers Organizing Around CRM Managing Knowledge Incorporating CRM-Based Technology 5 7 3 5 0.8524 0.8971 0.7303 0.8326 indirectly affects customer retention and sales growth via customer satisfaction. These results may be attributable to the importance of knowledge responsiveness taking the form of customization, which acts as a critical value driver in building relationships with customers (Gwinner, Gremler, and Bitner 1998; Sheth and Sisodia 2002; Srinivasan, Anderson, and Ponnavolu 2002). Chonko et al. (2003) stress the need to establish a continuous organizational learning environment to acquire and creatively use customer knowledge to foster long-term relationships and, thereby, business performance. A continuous learning mode is especially critical in a sales context to facilitate understanding of customers and counter sales force obsolescence (Jones, Chonko, and Roberts 2004). Salespeople who exhibit a high level of learning are better able to leverage their customer knowledge and offer more personalized products and services that further customer satisfaction, retention, and sales growth (Concevitch 2003). \"Organizing around CRM\" exerts significant direct effects on customer retention as well as significant indirect effects on sales growth through retention. This result highlights the fact that organizational elements involved in implementing CRM effectively can serve as enablers of successful CRM applications and programs. However, to achieve maximum rewards from greater customer retention and sales growth, top management must invest resources and make concerted ongoing efforts to align all involved organizational components and resources toward a CRM orientation (Homburg, Workman, and Jensen 2000). Even when customers merely perceive that a company is trying to satisfy them, substantial benefits may be derived. Support for the perceptual value of investments in customer relationships comes from a study by Wulf, Odekerken-Schroder, and Iacobucci (2001). Apparently, customers feel obligated to reciprocate a retailer's investment in relationships with them by becoming more loyal. Therefore, Wulf, Odekerken-Schroder, and Iacobucci (2001) conclude that companies should proactively promote their investments in customer relationships thereby making manifest their commitment to customer satisfaction. In particular, these efforts should be focused on those customers who are most responsive or likely to reciprocate. Paradoxically, \"incorporating CRM-based technology\" shows no sign of significant effect on the performance metrics. This result counters the commonly held view that CRM mainly depends upon technology. Instead, technology seems to be only an enabler (e.g., Lovelock and Wirtz 2004, p. 378; Rigby, Reichheld, and Schefter 2002; Sheth and Sisodia 2001). Figure 2 Confirmatory Factor Analysis Note: Other and paths have been omitted for the sake of clarity. Fall 2004 273 Table 3 Factor Loadings of the Confirmatory Factor Analysis From the Latent Variable To the Indicator Variable Focusing on Key customers Incorporating CRM-Based Technology Managing Knowledge Organizing Around CRM X1 X2 X3 X4 X5 X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 X19 X20 Path Estimate* 0.81 0.67 0.73 0.84 0.73 0.68 0.82 0.81 0.80 0.60 0.67 0.76 0.62 0.78 0.77 0.77 0.69 0.68 0.75 0.80 t-Value 13.94 10.63 12.07 14.76 12.00 10.78 13.99 13.73 13.59 9.24 10.14 11.94 9.33 13.33 13.06 12.99 11.08 10.88 12.43 13.64 * All the path estimates are significant at p < 0.05. In other words, technology does not seem to significantly increase customer satisfaction and loyalty over the long run. It only makes the efforts more efficient. As Gummesson warned: \"By boosting the role of IT too far, marketing becomes technology and production obsessed and loses in customer orientation\" (2002b, p. 50). Too many business executives purchase a CRM package, thinking that its installation alone will solve all their customer relationship problems (Hall 2001). Managers are cautioned not to fall into the trap of a myopic focus on the latest CRM software (Langerak and Verhoef 2003). MANAGERIAL IMPLICATIONS Developing a CRM-Oriented Sales Force Given the favorable effects of CRM practices on organizational performance, the logical question arises: At an individual level, how can company employees, especially salespeople who interact with customers daily, increase their contributions to successful CRM? A majority of CRM software providers have roots in SFA, so the bulk of CRM software is designed to enhance sales and sales management functionality (Shoemaker 2001). CRM initiatives, therefore, need to be well understood by frontline salespeople. After all, they are an organization's key interface with its customers (Weitz and Bradford 1999; Williams and Attaway 1996). Therefore, they can play an indispensable role in CRM (Crosby, Evans, and Cowles 1990) and in ultimate customer satisfaction (Grewal and Sharma 1991). Provided with CRM systems to enhance sales performance, salespeople need to be motivated to develop and maintain a CRM orientation. This can be facilitated by management's internal marketing efforts (Ahmed and Rafiq 2003). Specifically, market training and education, internal communication, reward systems, and employee involvement are four internal marketing processes that can significantly promote a CRM orientation among salespeople (Yim 2002; Zikmund, McLeod, and Gilbert 2003). Market Training and Education Training programs with a CRM component are crucial for frontline employees (Gursoy, Chen, and Kim 2005), especially salespeople who regularly interact with customers. In particular, training programs are essential in conveying the importance and nature of a CRM orientation to salespeople so that they acquire the requisite relationship development skills and sensitivity to changing customer needs (Brendler and Loyle 2001; Brown 2000; Conduit and Mavondo 2001). Such training programs are crucial because customer expectations tend to be infinitely elastic (Anderson 1996); thus, increasingly higher customer relationship performances will be demanded in the future. Overall, if salespeople are trained Satisfaction Retention Sales Growth Focusing on Key Customers Incorporating CRM-Based Technology Managing Knowledge Organizing Around CRM 1.00 0.50 0.46 0.40 0.54 0.53 0.64 0.49 0.62 0.56 Retention 1.00 0.50 0.42 Satisfaction 0.27 0.35 0.33 0.32 1.00 Sales Growth 0.69 0.85 0.83 1.00 Focusing on Key Customers Table 4 Correlation Matrix of Latent Variables 1.00 0.73 0.78 Incorporating CRM-Based Technology 1.00 0.80 Managing Knowledge 1.00 Organizing Around CRM 274 Journal of Personal Selling & Sales Management Fall 2004 275 Table 5 Results of Structural Equation Analysis Path Path Estimate t-value 0.50 0.17 0.28 0.22 0.41 0.22 0.61 0.21 0.30 0.51 2.28* 0.24 2.41* 1.21 1.21 1.06 2.89* 2.62* 3.71* 8.53* Focusing on Key Customers Satisfaction Incorporating CRM-Based Technology Satisfaction Managing Knowledge Satisfaction Organizing Around CRM Satisfaction Focusing on Key Customers Retention Incorporating CRM-Based Technology Retention Managing Knowledge Retention Organizing Around CRM Retention Satisfaction Retention Retention Sales Growth * p < 0.05. and motivated to continually demonstrate genuine concern for customer welfare, favorable outcomes such as higher customer satisfaction, retention, and sales growth can be expected (Jain, Jain, and Dhar 2002). Internal Communication Often, managerial CRM desires are not fully understood or translated into line and staff actions that \"loyal\" customers readily perceive (Smith et al. 2004). Management should pay heightened attention to the communication of CRM strategies and objectives to all employees. CRM responsibilities must be clearly defined, assigned, and understood via unequivocal communication. As boundary spanners, salespeople are usually the business-to-business marketer's primary source of interaction and communication with customers (Sharma et al. 1999), so they, in particular, need accurate information to effectively and efficiently build customer relationships. However, like customers who reciprocate with increased loyalty when they see that a company is working hard to satisfy them (Wulf, Odekerken-Schroder, and Iacobucci 2001), salespeople respond more to observed managerial actions than mere communication concerning CRM. Organizational employees at all levels continually look to their superiors for clues as to what is really important. Words can be viewed as hypocritical and counterproductive if not backed by CRM-oriented managerial actions. Thus, senior managers serve as important role models for CRM activities. Reward Systems Instrumental in shaping the behavior of all employees, reward systems can provide direct motivation for salespeople to adopt new attitudes and behaviors in harmony with a CRM orientation. Accordingly, the traditional sales volume-oriented yardstick in measuring and rewarding salesperson success should be modified to include tangible goals and rewards for retention of key customers through CRM activities (Rigby, Reichheld, and Schefter 2002; Schmalensee, Bernhardt, and Gust 1985). It is important for the organization to openly recognize and reward superior CRM performance by its salespeople in order to reinforce CRM-oriented conduct and behaviors (Johnson 2004). In designing reward systems, however, perceptions of managerial integrity and evenhandedness are essential for maintaining highly motivated, satisfied, and committed CRM salespeople (Brashear, Brooks, and Boles 2004). Employee Involvement All company employees, especially salespeople, must \"buy in\" to CRM through internal marketing by senior management. Empowerment is a vital aspect of internal marketing that gives frontline salespeople latitude over their service activities and the ability to more fully address customer needs (Berry and Parasuraman 1991). In other words, empowerment enables salespeople to more easily negotiate mutually satisfying commitments with customers. One important way to empower salespeople is to grant them greater financial flexibilityfor example, in committing company resources to serve customers, approving reimbursements for flawed products, or in negotiating price discounts and other purchase incentives. Empowered salespeople are able to resolve customer complaints more promptly and, oftentimes, turn initially dissatisfied customers into satisfied or even loyal customers. In addition, empowered employees tend to be a great source of creative customer service ideas (Zeithaml and Bitner 2003, p. 333). Conversely, if salespeople must seek approval of management before responding to most customer requests, their clout on behalf of customers is visibly diminished and, also most likely, their enthusiasm for CRM. In order for salespeople and other employees to feel empowered, managers may need to share some of their authority and prerogatives. However, the 276 Journal of Personal Selling & Sales Management potential payoffs in higher customer satisfaction, customer retention, company profits, and employee impetus for CRM activities seem worth the managerial trade-offs. LIMITATIONS AND FUTURE RESEARCH It is important to understand some limitations associated with this study. First, cross-sectional data were used. Consequently, the time sequence of the relationships between CRM and performance metrics cannot be determined unequivocally. A longitudinal study is therefore desired to provide more insights into probable causation. Also, the data were collected from a single, although high-level management, respondent within each organization. Future replications of this research might benefit from collecting the data from multiple intraorganizational respondents. Second, customer commitment to the salesperson is a variable that needs to be examined in a CRM framework (Johnson, Barksdale, and Boles 2001). In fact, customer commitment is \"the most common dependent variable used in buyer-seller relationship studies\" (Wilson 1995, p. 337) and seems vital to relationship maintenance (Morgan and Hunt 1994). Future research should delve into the effect of this construct on salesperson-customer relationships. Finally, it seems worthwhile to examine how customer expectations of future benefits affect their decision to stay with salespeople (Lemon, White, and Winer 2002; Lewis 2004). Social penetration theory (Altman and Taylor 1973) maintains that parties involved in an exchange will continue to deepen the relationship as long as the anticipated rewards exceed the anticipated costs. It is therefore important to understand customer perceptions of seller benefits versus switching costs (Burnham, Frels, and Mahajan 2003). Lemon, White, and Winer (2002, p. 12) recommend that companies engage in dynamic customer relationship management because customers consider past, present, and future transactions, including expectations, when determining whether or not to continue doing business with a company. This is a challenging and intriguing avenue for CRM research. 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