Introduction
A customer may purchase products and services from a vendor several times, based on a positive sales experience and value received, and then never purchase from that vendor again. If another vendor offers a similar sales experience and more value, the customer moves on.
This is not to say that customer loyalty no longer exists. But it’s getting harder and harder to lock customers into loyalty programs. Thanks to the Internet, customers are better informed, more demanding, and more in the driver’s seat than ever before. They can choose suppliers from anywhere on the globe at the click of a mouse. In this highly competitive environment, targeting customer lock-in to achieve lifetime loyalty-and profits-is probably an illusion.
So if customers will not lock in, where does that leave CRM? Integration of CRM initiatives end-to-end will certainly not yield the anticipated results, and enterprise-wide integration is probably not achievable, anyway. The fact is, the fundamental nature of business relationships is changing. Companies slow to grasp this fact, and who focus too strongly on integration of the CRM solution within their enterprise, will find themselves unable to build and sustain the levels of growth required for business success. They will have only half of the answer. They need a more balanced vision to find the full answer.
An emerging organizational model for the 21st century, the Relationship-Based Enterprise, provides that vision. The Relationship-Based Enterprise places CRM in a broader context, matching the “yin” of enterprise CRM with the “yang” of how customers view the enterprise from the outside. It offers a model for establishing long-term relationships with customers who can find alternative suppliers in a minute. This model structures the “white spaces” that exist between the enterprise and its customers, as well as the economic exchanges or “conversations” that occur in these spaces so that relationships can be sustained. It is aimed at those organizations that have tried to leverage one or more of the components of CRM, but have yet to get the benefits expected from those investments.
A Relationship-Based Enterprise builds customer relationships-and sustained business growth.
What is Customer Orientation?
Customer orientation (CO) is the set of beliefs in sales that says that customer needs and satisfaction are the priority of an organization. It focuses on dynamic interactions between the organization and customers as well as competitors in the market and its internal stakeholders. It involves a continuous improvement in business processes. It is “the business seen from the point of view of its final result, that is, from the customer’s point of view.” (Peter F. Drucker, 1994)
Customer orientation and sales orientation are two extremes in dealing with customers. A salesperson can never adopt both attitudes in serving a customer. Customer orientation places an emphasis on listening to customers (e.g., I try to find out what kind of product would be most helpful to a customer) and dialogue (e.g., I try to get customer to discuss their needs with me). Customer-oriented salespeople tend to exhibit behaviors that enhance long term customer satisfaction, possibly at the expense of immediate sales.
Market Orientation & Business Performance
Performance is the result of activity over the course of a specified period. Performance is judged positively or negatively by the success of meeting determined goals. These many goals lead to the conceptualization ofperformance as a multidimensional construct. The goals of the organization are many and diverse. Every organization possesses certain goals that are unique to them. At the same time, certain goals are important to all organizations such as efficiency, quality and cost control. These dimensions of perfonnance will be tapped in this study.
Primary and secondary financial variables such as return on assets (ROA), return on equity (ROE), and net income are often used to measure organizational perfomance. Measuring perfonnance in multiple industry studies is limited by at least two factors: (1) variations in standard returns, assets, and investments and (2) data which are likely to be biased due to accounting methods and/or reasons of confidentiality.
Marketing variables such as market share and unit or dollar sales are also used to measure perfomance. A problem found in the measurement of objective market share is the accuracy of data due to the variety of sources from which the data are typically drawn and the variation in product-market definition.
There are three possible performance domains: (1) effectivenesss, (2) efficiency, and (3) adaptiveness. Effectiveness is described as the degree to which organizational goals are met (the success of a firm’s products and programs in relation to those of its competitors). Measures of effectiveness include relative sales growth and changes in market share. Efficiency is the relationship between a firm’s outputs and inputs (a firm’s programs in relation to the resources employed in implementing them). Measures of efficiency include profitability as a percentage of sales and return on investment. Adaptability is said to reflect the ability of the firm to change in order to meet opportunities and threats (the firm’s success in responding over time to changing conditions in the external environment. Measures of adaptability include the number of new product introductions relative to those of competitors and the percentage of sales accounted for by products introduced within some recent period (often operationalized as the past five years).
No single strategy, no matter how well it is implemented, can be expected to perform well on all three dimensions. Measures of organizational performance that have been investigated relative to a market orientation include return on assets, growth in sales, growth in profits, new product success and customer retention, overall performance, and competitive advantage.
It is important to examine both business profitability and sales growth because (1) they are two commonly used indicators of business-level performance by both researchers and managers and (2) they are shown to be positively related to market orientation. Two major issues underlie the measurement of business performance. One is the data source which may be primary data or secondary data. Measurements based on secondary data permit replication but may not always be accurate while reliance on primary data source may introduce method bias and may not permit replication. The second issue is whether the data are objective assessment (e.g. based on some established system such as internal accounting or tracking by external agencies) or perceptual assessment (e.g. judgements made by executives) Whereas objective assessments may reduce the possibility of overrating performance, they may not always be available in the form necessary to address a specific research question. Perceptual assessments, in contrast to objective assessments, permit one to obtain data in the desired format, but require the respondents to make complex and difficult judgements.
A New View of Relationships
Relationship-Based Enterprises take a new and different view of relationships. A relationship-with a customer, a business partner, or between organizations-is not a thing. It is not an asset that, once established, automatically lasts a lifetime. Instead, it is a process human interaction-and a constant work in progress. It involves far more than just the simple exchange of money for products or services.
For the Relationship-Based Enterprise, a relationship is a series of “conversations.” These conversations consist of (1) a set of economic exchanges, (2) the offering that is the subject of the exchange, (3) the space in which the exchange occurs, and (4) the context of the exchange-all that is known about the customer. Given this definition, it is easy to see that relationships do not just “happen.” Rather, they are the result of management decisions-decisions about the best way to design and execute conversations.
And a successful Relationship-Based Enterprise treats all relationships as conversations.
The Internet and other communication technologies have opened the door to many types of interactive conversations, business to-business (B2B), business-to-consumer (B2C), and intra-organizational. These conversations include talking, buying, selling, serving, and trading. They can start and end quickly, or they may be carried out over an extended period of time. And one conversation may lead to another. This means that some relationships may be relatively short-lived, while others may last a lifetime.
Thinking about relationships in this way allows organizations to design, build, and sustain relationships, conversation by conversation.
The Importance of Conversations
In the past, many enterprises operated successfully by securing relationships with their suppliers and those that they supplied (their customers), through ownership, agreement, contract, or partnership. Such relationships often necessitated the integration of the enterprise’s business processes and information systems with those same suppliers and customers. This kind of integration created exit barriers-locking enterprise to enterprise. But all of this has changed. The Internet provides a way for organizations to more easily connect, disconnect, and reconnect. This freedom and independence from customized and special interfaces means that something more than integration is required to sustain a relationship. Conversations are that something more.
The Relationship-Based Enterprise ensures that conversations are taking place, and that the enterprise remembers everything about individual customers and its conversations with those customers. The Relationship-Based Enterprise has the ability to recognize and create conversations with different types of customers because it understands the kind of conversation that each wants. It also uses those conversations to continually discover its customers and to make decisions concerning how it will organize itself to serve those customers. It can have a conversation with buyers or users, or simply with shoppers; with those who want to be involved in the creation of the product or service; or with those who want control over the delivery of the solutions being sought. The Relationship-Based Enterprise is a vision of what companies can become when they treat relationships as conversations.
A Relationship Management Framework
Relationship-Based Enterprises are starting to emerge as one of the major organizational forms of the 21st century, just as the mass production assembly line and the multi-divisional corporation were in the last century. Companies moving to embrace this new organizational form are seeking ways to apply the understanding that relationships are conversations, so that they can make the necessary management decisions and take the appropriate actions. Relationship-Based Enterprise requires special competencies in discovery, dialogue, and discipline. This is because the value a Relationship-Based Enterprise provides to its customers is not in any specific product or service, but is created through the conversations that it has with its customers.
Discovery focuses on the customer. It is centered on learning. And it is the basis for recognizing, remembering and understanding customers. Since “perfect information” about customers is not possible, discovery is the only realistic and practical alternative. Discovery also balances any internal bias toward cost by focusing the energies of the enterprise on both costs and revenue.
Dialogue focuses on the relationship. It is centered on conversation and ensuring that value is created in every conversation with a customer. Since the “perfect product or service” is not possible, dialogue is the only realistic and practical alternative. Dialogue balances any internal bias toward products and services, by focusing the energies of the enterprise both internally (on products and services) and externally (on customers).
Discipline focuses on the management decisions that must be taken concerning the organizational and management mechanisms that enable continued discovery and dialogue. Since the “perfect organization” is not possible, discipline is the only realistic and practical alternative. Discipline balances any internal bias toward integration, by focusing the energies of the enterprise on both internal integration and external connections.
Discovery, dialogue, and discipline are not just “to do” lists or managers. In particular, they are not a sequence of tasks or steps. Rather, they are a management focus, the day-to-day preoccupations that create a Relationship-Based Enterprise.
Finally, another Paradigm Shift?
In the new economy, business managers seem to wake up everyday to the news of some new paradigm. Each threatens to destroy the enterprise as it is known. But even with the constant waves of change hitting organizations, the sky is not falling. Building strong relationships with customers is a business strategy that has been employed for a very long time to sustain growth and to, increase the profitability of a business. The Relationship-Based Enterprise, which includes CRM, is merely a logical extension of what has gone before.
Paradigm shifts ebb and flow. But good relationships-with customers, suppliers, and other businesses-have been the keystone of business for thousands of years. The Relationship-Based Enterprise-Powering Business Success through Customer Relationship Management offers a simple and straightforward set of frameworks for building and sustaining relationships based on conversations. In sum, it enables organizations to understand how current CRM initiatives can be made to sustain growth and power business success.
The Relationship-Based Enterprise
Companies, like people, strive for perfection. Perfect information about customers is a major tent of CRM. To obtain this information, companies invest in computer and information systems that are specifically aimed at assembling, refining, and honing large, integrated customer databases. This investment, is supposed to enable dramatic improvements in marketing, such as the targeting of individual customers and the tailoring of products and services to meet these customers’ specific needs, thereby turning them into long-term loyal customers. And a complete, 360-degree view of customers is supposed to deliver the capability to cross-sell and up-sell, giving companies an increased share of their customers’ wallets, minimizing the cost of acquiring new customers, reducing churn, and thus fueling growth.
The Value is in the Conversation
The Relationship-Based Enterprise recognizes that it is conversations with customers that create value. It takes responsibility for ensuring that these conversations are occurring and that value is created in each and every exchange that is a part of the conversation. As a result, the enterprise has the mechanisms it needs to remember and recall conversations with customers.
How did this shift come about?
Companies produced, distributed, sold, and delivered products and services to customers. Customers played the role of buyer. They were the last link in a sequential supply chain. Value was “delivered” to the buyer along with the product or service. The market determined the price and it measured the value of the product. The buyer bought. End of story.
Many approaches toward customer relationships are based on this simple model. The role played by the customer in value creation is minimized. This model can be called value delivery.
Now, as customers begin to converse more freely with enterprises, the roles of both parties in the creation of value are starting to change. Customers are even becoming involved in the design, development, production, and delivery of products and services. In such cases, they act more like employees, business partners, or suppliers rather than traditional customers.
Under this emerging model, especially in markets such as software where technological change is rapid, there are major impacts for both suppliers and customers. Some customers may prefer to act only as buyers. But others may be early adopters of a new product who want to participate in prototyping and testing. Still others may be experts who are opinion leaders in the field. Or there can be customers whose opinions help evolve a product and improve its quality. When customers play these roles, the boundaries between enterprise and customer become blurred. They become co-designers and co-producers of products and services. Are they buyers or are they partners in a supply chain? They are both. If the prior model was about value delivery, the emerging model is about value creation.
Summery: Perfection is Not the Focus
The Relationship-Based Enterprise knows that value no longer comes in a box. The old value-delivery model, in which the enterprise offers products and services for consumption by customers, links value exclusively to the quality of products and services. The more perfect the products and services are, the greater the value delivered.
In contrast, the new value-creating model employed by the Relationship-Based Enterprise is about both parties exchanging value through conversations, as well as products and services. The Relationship-Based Enterprise engages its customers in working with the enterprise to produce value. The more customers it can involve in its processes, and the more that it can move that involvement upstream toward design, the greater the value that is created for both parties. Consider, for example, the customers of Dell. They are more than prepared to work with Dell to define the configuration of a computer. Value is not in the computer itself: a standard commodity, but instead is in the conversation that creates the configuration of the precise computer that they will purchase.
For the Relationship-Based Enterprise, even the best information in the world about any particular customer or group of customers has a shelf life. Customer information is perishable. The only reasonable and practical approach to knowing who customers are and what they want and expect is an ongoing conversation-a conversation that will allow the enterprise to continue to discover its customers. Through conversation, it can learn the exact nature of its customers needs, and it can learn how to adjust and adapt its business processes to support those needs. The Relationship-Based Enterprise is not only open to a dialogue with its customers but is also prepared to allow them to have access to its processes and to share control over those processes, sharing information, knowledge, and expertise.
The Relationship-Based Enterprise is not interested in perfect information about its customers. It knows that its customers are constantly changing in response to their own needs, as well as the pressures and opportunities of their environment.
