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The Impact of Knowledge Management on Customer Relationship

Management

Hadi Nejatian Khalilabad*,


Omid Nasrollah Mazandarani*,
Ilham Sentosa*,
Shishi Kumar Piaralal*

The business environment is transforming from product-centric to customer-centric. CRM as a


customer-oriented business approach is considered as one of the powerful capabilities in
organizations which help to transform themselves to a customer-centric environment. The
utilization of CRM is directly related with increase in customer knowledge, which in turn has
positive effect on customer satisfaction. By using knowledge management companies can
improve their relationship with their valuable customers, thus create loyal customers and obtain
competitive advantage. Organizations can create new ideas and provide improved and new
services by help of knowledge management and the knowledge originated from CRM. The
customer knowledge as an integral element of relationship between Knowledge Management
and CRM could help organizations to tailor their products and services and even the entire
relationship 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, h.nejatian@limkokwing.edu.my

* Dr. Omid Nasrollah Mazandarani, Centre of Postgraduate Studies, Limkokwing University, dr.omid@limkokwing.edu.my

* Dr. Ilham Sentosa, Centre of Postgraduate Studies, Limkokwing University, dr.ilhamsentosa@limkokwing.edu.my

* Dr. Shishi Kumar Piaralal, Centre of Postgraduate Studies, Limkokwing University, dr.shishipiaralal@limkokwing.edu.my
1 Introduction

Today, firms are considering their customers as their most important assets (Croteau
and 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 their
customers rather than their markets’ and by adopting customer-centric strategies, they
demonstrate their insight on the importance of managing relationships with customers
(Mithas et al.,2005). Organizations recognize customer knowledge as one of the major
contributors of increase in their value and therefore they review their Customer
Relationship Management (CRM) initiatives (Croteau and Li, 2003) to use in-depth and
integrated customer knowledge for creating collective relationships with their customers
(Boulding et al., 2005; Croteau and Li, 2003; Parvatiyar and Sheth, 2001).With arrival of
knowledge-economy those organizations which successfully recognize, build and
enhance their knowledge capabilities will be more successful and are considered as
knowledge-enabled organizations (Rowley, 1999). These organizations segment their
markets not only based on their products and services but also based on the amount of
knowledge 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” to
“relationship-based economy”. This transformation has made organizations to collect
more information from their customers such as their behavioral, demographical and
interaction information which is also can be done in large quantities by help of
advancements in technological capabilities. In customer-centric economy the concepts
like economies of scale will be replaced by concepts such as “economies of interaction
or economies of relationship” which are main value drivers for customer-centric
economy. The good knowledge viewpoint of customers and increased switching costs
due to increase of direct interaction with each customer are supplementary elements for
“economies of interaction”. They also facilitate increase in returns and also are in
contrast with economies of scale which provides decreasing returns upon increase of
production’s volume (Moeslein and Piller, 2002). Interestingly, the transition from
product-centric to customer-centric has been followed by another shift in marketing
aspect, which is the shift of power from vendor to buyer which creates lot of benefits for
customers 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 good
relationship with customers is an important factor in an organization’s success. (Gibbert
et al., 2002; Hanvanach et al., 2003; Smith and McKeen, 2005; Wood, 2003) Thus the
best strategy for sustaining the current customers is establishing a long lasting
relationship with them and keeping them satisfied (Stefanou et al., 2003). In order to
keep customers satisfied, organizations should identify their customers’ problems and
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preferences and most importantly determine and understand the reasons for their
decisions. But the issue is, organizations may know about their customers’ problems
and preferences through transactional data , but knowing the customer themselves and
understanding 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, customers’
demands 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 their
current customers, who and where their potential customers are, what benefits their
customers are expecting from them and What are their customers’ preferences, needs
and problems (Annabi and Murillo, 2002; Rowley, 2002). Therefore for being able to
compete in this competitive business environment, organizations are trying to have
access to newer type of knowledge and capabilities (Jutla et al., 2001). Along with this
competitive transition to a knowledge intensive environment, firms are becoming more
dependent on detailed knowledge of their customers for improving their CRM objectives
and 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 system
to a more knowledge intensive and analytical oriented system. Through this
transformation, organizations can maintain and improve their relationship with their
customers throughout the customer lifetime cycle but this requires capabilities that
enable them to follow and examine customers’ activities and responses over time. They
can obtain required capabilities by use of knowledge derived from CRM operations and
other enterprise systems such as Knowledge Management (KM) system (Bose and
Sugumaran, 2003). Although knowledge discovery in customer-centric approach
companies is an important factor, but only few companies can manage this discovered
knowledge in a systematic style and make this strategy more effective which provides
them 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, analyze
and transfer customer information more easily, but they are not capable of transforming
information in to knowledge. It is mainly because of relatedness of knowledge to
individuals and group of them. Therefore organizations need to integrate customer
knowledge in to their processes and procedures for bringing more value to their
customers and themselves (Halinen and Rollins, 2005). This Integration helps
organizations to have a successful CRM development and when they achieve a higher
level of integration among their different functional areas, they will have a higher overall
performance along with higher level of match between what their customers demand
and what they offer (Campbell, 2001).
1.1 Background of the Study

Despite the many studies that have been done, particularly in west (Bose and
Sugumaran, 2003; Brenner et al., 2005; Campbell, 2001; Gibbert et al., 2002; Stefanou
et al., 2003), looking at the relationship between Knowledge Management (KM) and
Customer Relationship Management (CRM), none of them are comprehensive enough
to 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 the
result improves business processes and allows firms to have a good evaluation on their
customer’s level of ‘satisfaction, profitability and loyalty’. They also pinpoint the lack of a
simple and general framework for integration of CRM functionalities with knowledge
management capabilities (Bose and Sugumaran, 2003).
Today, the current challenge for organizations is to develop an integrated CRM
platform. This platform enables organizations to collect relevant data about customers
from existing customer interfaces. Although firms have access to huge amount of
information about their customers like their behavioral actions, they still know little about
how 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 in
together needs research. Moreover, previous studies trying to link KM and CRM have
been limited in scope and the results been affected by often methodological limitations
or 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 findings
and some other few studies have used conclusive statistics (for example see, Stefanou
et al., 2003). Therefore, in order to bridge the gap and provide organizations with
assistance in dealing with management perspectives of KM’s effect on CRM
performance, this paper proposes a set of KM critical factors and develops a proposed
model to show the relationship between KM critical factors and CRM.
Given the above reasons, this paper presents an integrated model regarding the effects
of KM on CRM. The next portions of this paper include the literature review which
presents the theories on the literature of KM and CRM and also the relationship
between them followed by presenting the integrated model of Knowledge Management
effect 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 and


controlling of relationships with customers by use of state-of-the-art information
technologies. It is considered as combination of business processes, customer
strategies and technology for achieving better insight on organizations’ customers and
achieving 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 to
customize their products and services in such a way which attracts, develops and
retains customers (Campbell, 2001; Grabner-Kraeutera et al., 2007). The main focus of
CRM is to monitor customers’ behavior for better understanding of their ever changing
needs and preferences. By coordinating and using this knowledge, organization can
provide superior service for customers and progressively improving this excellence by
communicating with them through multiple channels. Based on what companies have
learned 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 customer
differently and delivering products and services along with supporting information in
order 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 and
developing and maintaining long-term beneficial relationships with them. This long term
relationship will be empowered by use of their knowledge and information which as its
ultimate purpose, it improves customer support and increases organization’s revenue
and 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 is
one the most important components among organizational processes due its ability to
recognize customers, originate knowledge, create relationships with them and exhibit
their insight about the company and its products (Llamas and Sule, 2004). Moreover,
CRM helps organizations to customize their products and services and meantime
increase the quality to create more value for customers and increase customer retention
by fascinating and maintaining valuable and profitable customers and dismissing the
invaluable ones (Kim et al., 2003; Romano and Fjermestad, 2003). According to Payne
and Frow (2005), the way that organizations define the CRM strongly affects the
method of CRM acceptance and practice in organizations and one of the most
dangerous decisions that organizations can make regarding CRM implementation is
installation of CRM before creation of a customer-focused environment in organization
or in the other words, before transforming themselves to a customer-centric
organization (Rigby et al., 2002).
CRM is a management approach that organizations undertake to identify and develop
in-depth knowledge about their customers’ behaviors and preferences. Finally they
adopt strategies and develop programs for developing and retaining successful
relationships with their customers to maintain and keep the right and profitable
customers (Parvatiyar and Sheth, 2001; Stefanou et al., 2003). Therefore, the main
focus of CRM is on establishing and sustaining a “loyal and stable customer base”
through provision of excellent service to customers, supporting them and offering
products based on their demands. Finally, as the ultimate outcome of CRM initiative,
organizations can measure the level of customer satisfaction and the value of
relationship with their customers (Halinen and Rollins, 2005).
Relationship building and management have become an important marketing trend in
business. Management of relationships with customers is fundamentally changing
marketing and business models and the marketing strategy models are transferring
from “marketing mix” to “relationship marketing” (Llamas and Sule, 2004; Romano and
Fjermestad, 2003). Unlike traditional marketing approaches, the relationship marketing
is focusing on creating and sustaining relationships with customers for improving
customer retention to maintain and also increase the market share (Romano and
Fjermestad, 2003). When companies engage in to customer relationship management,
it means that they should be ready and enthusiastic to change their activities and
behaviors 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 as
Customer Relationship Management, relationship marketing and one-to-one marketing
are all identical and interchangeable concepts but among them, CRM is more
technology oriented that can be described as “information-enabled relationship
marketing” (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 considered
as one of the most important reasons for failure of CRM in organizations (Payne and
Frow, 2005; Peppers et al., 1999; Reinartz, Krafft, and Hoyer, 2004).
The CRM literature shows that there are various aspects toward CRM and there is no
any specific agreement on the description of CRM and required strategies for its
development (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 pure
technological view of CRM and in the other end there is a pure customer centric point of
view on CRM. In the middle, a mid-range CRM view is located which views CRM as
combination 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 with
purpose of more value creation for customers (Payne and Frow, 2005). Moreover;
Grabner-Kraeutera et al. (2007) have an overall perspective toward CRM and propose
that CRM can be viewed technologically, strategically, philosophically, process-oriented
or capability-oriented. Bose and Sugumaran (2003) and Brenner et al., 2005 view CRM
as set of components and propose that true CRM consists of multiple components such
as analytical tools, campaign management, multi-channel management, collateral
management, sales and service management, loyalty and complaint management.
Finally from process oriented point of view Parvatiyar and Sheth (2001) have developed
a 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 or
enhancement process”.
2.2 The Concept of KM

In recent years the world’s economy has been shifted from goods producer to service
provider and this has caused the transformation from industrial economy to knowledge
economy (Sveiby, 1998; Shanks and Tay, 2001). Drucker (1998) describes this
transformation as information revolution which is about the meaning and purpose of
information. Knowledge is information with high value and it is considered as one the
most 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 in
delivery of value to customers (Crie and Micheaux, 2006; Davenport, 1998; Drucker,
2003; Rowley, 2002; Shanks and Tay, 2001). With knowledge, organizations could
deliver better value to their customers, enhance their products and services and finally
solve their problems through unification of scattered kinds of knowledge and lessons
learned derived from their past experiences (Carrion, 2006). In this paper, the
Davenport and Prusak’s (1998) definition of knowledge have been adopted which define

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knowledge as a “fluid mix of framed experience, values, contextual information and
expert insight that provide a framework for evaluation and incorporating new
experiences and information”.
Knowledge management is the efficient use of knowledge and expertise within an
organization. This efficiency can be achieved by managing of knowledge assets and
enhancing of organizational processes and capabilities in creation, coordination, share
and utilization of knowledge (Ganesh, 2000; Rowley, 1999; Shanks and Tay, 2001).
Moreover, knowledge management is a complex concept which goes beyond the
collection of data and its transformation to knowledge (Rowley, 2002). Organizations
consider knowledge management as an essential strategic process which is the major
source of competitive advantage for them (Carrion, 2006; Davenport, 1998; Grant,
1996). One of the key success factors of knowledge management in organizations is
the ability of an organization to identify the relevant knowledge and exploit the value out
of this knowledge. This relevant and available knowledge is the only factor which has a
significant impact on firms’ competitive advantage which proactively must be identified
proactively and its embedded value should be extracted (Carrion, 2006). Today an
effective knowledge management is about real time access and processing of data
which enables organization to respond to their customers in a faster fashion and also
leads 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 of
knowledge management which enables them to gain competitive advantage by creating
close and loyal customers which will not switch to rival companies easily (Paquette,
2006). Therefore companies use knowledge management as process of acquiring the
collective expertise and intelligence within an organization which leads to innovation
through continuous organizational learning (Nonaka, 1991; Quinn et al., 1996). Since
significant parts of this acquired expertise is related to customers then it can be
concluded that KM and CRM are completely inter-related concepts (Massey et al.,
2001; Romano, 2000).Therefore organizations should reinforce their KM and CRM
systems in a way that enables them to obtain value-added knowledge for their
customers and themselves (Stefanou et al., 2003). Moreover Roscoe (2001)
acknowledges that, in order to have a successful CRM, firms need to integrate the
learning from relationship with their customers into CRM and meanwhile have a clear
strategy about it. Thus acquiring customer knowledge have to be aligned with firms’
business objectives, otherwise it would be useless and costly.
Despite other organizational solutions and concepts, CRM is not implemented for
increasing the speed of organizational processes or automating organizational
operations. CRM is combination of multiple methods which are developed within
organization to manage customers’ relationships intelligently. Therefore it needs
information and knowledge related to customers to help firms to understand their
customers better and manage relationships with them more effectively (Bose and
Sugumaran, 2003).In the other side knowledge management enables organizations to
generate new ideas for creating and developing new products and services help of
customer 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 knowledge
such as customers’ behaviors, preferences, needs, buying patterns, desired way of
relationship, and their perception of company’s products, even if it is negative,
organizations will be able to increase their sales, position themselves better in
marketplace 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 be
acquired, namely: ‘transactional and non-transactional data’. Transactional data include
amount of sale, time, place and non-transactional data include inquiries or feedbacks
like customer complaints and suggestions. Concepts like data mining and data
warehousing have been existed for quite a time, but today’s existence is mainly due to
CRM (Boon et al., 2002). CRM uses data mining techniques to analyze large amount of
transactional data to capture the knowledge such as buying behavior of customers but
in this scenario the person, who is behind of this transaction, and his desires will be
ignored. Even sometimes when companies try to analyze the transactional data, they
will not be able to determine the true meaning and as the result they will not be able to
reach correct conclusions. CRM and one-to-one marketing sometimes put extreme
confidence on statistical information which results to customer myopia. As tools for
presenting the customer’s buying patterns, these concepts show themselves stronger
as they really are (Kendrick and Fletcher, 2002). Due to researches undertaken by
companies, the most desirable outcome from CRM can be obtained from combination of
both ‘transactional data’ and ‘human data’. The human data are considered as tacit
customer knowledge which is customers’ interests and their mental maps which convey
customers’ attitudes toward company’s 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-embeddedness
of knowledge”. The latter, is the important issue for CRM because knowledge unlike the
information is embedded within customers like their preferences, desires and their
insights 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 key
critical factors for success of CRM and they state that managing the knowledge resided
in all stakeholders ,including customers, should be part of customer relationship
management. In other aspect, Gao and Li (2006) argue that the integration of
Knowledge Management and CRM could be considered from two point of views;
“Managing customer‘s knowledge” and “Using customer’s knowledge to manage”.
“Managing customer‘s 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 could
have quick decision making with less error and mistakes. The other aspect is “Using
customer’s knowledge to manage” which combines organizational factors like people,
process and culture with customer knowledge through utilization of special systems to
develop and enhance organization’s 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 could
improve effectiveness and efficiency of customer relationships. Moreover, Brenner et al.
(2005) state that CRM processes could be considered as semi structured and
unstructured processes meanwhile being knowledge intensive. Having knowledge
intensive processes requires CRM to acquire, disseminate and store customers’ related
knowledge through employment of KM techniques. Therefore firms’ KM capability is an
important 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 the
relationship between KM critical factors and CRM performance. The relationship
between 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 major
sections. The first section which is related to KM critical factors contains three factors
namely, Customer knowledge, Organizational Factors, and KM infrastructure. The
second section is related to CRM performance which includes two aspects towards
CRM 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’ products


offerings and now dominated by customer needs and preferences, knowledge of the
customer is considered as an important organizational asset which can bring
competitive 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 having
a long term relationship with customers, firms should have a continuous relationship
with their customers along with provision of distinguished value for them. Thus this
sustainable relationship is strongly dependent on customer knowledge, with support of
information technology, organizations will manage customer knowledge to improve their
relationship with their customers and hence achieving competitive advantage. The
definition and categorization of customer knowledge varies based on different research
perspectives. One of the commonly accepted definitions of customer knowledge is from
Feng and Tian (2005), originally defined by Gebert (2003) and Blosch (2000). They
define customer knowledge as “the dynamic combination of experience, value and
insight information which is needed, created and absorbed during the process of
transaction and exchange between the customers and enterprise”. Campbell (2001)
defines customer knowledge as “organized and structured information about the
customer as the result of systematic processing”. According to Mithas et al., (2005)
originally cited by Davenport and Klahr (1998), customer knowledge is considered a one
of the complex types of knowledge. The reason is due to existence of different sources
and channels which customer knowledge can be captured, its multiple contextual
meanings and finally its dynamic nature which makes it to be changed fast.
The evolved concept of marketing, views customers as cocreators and coproducers
which 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 “frequent
purchasers”. The more their customers get involved in learning relationship and transfer
the knowledge of their desires and preferences to company, the more they become
reluctant 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 of
customer behaviors will help organizations to focus on their target customers based on
customers’ evolving needs and experiences instead of customers’ general
characteristics, which finally increases the firms’ products perceived value and switching
cost (Mithas et al., 2005).In the other side, the shared customer knowledge could help
employees to do cross-selling and predict the market demand which helps to leverage
the competitive advantage more effectively (Mithas et al., 2005). But although capture of
customers knowledge and information, provides a powerful competitive advantage to
organizations but they should be aware that they cannot treat their customers as static
individuals. They should know that the nature of relationship between customers and
organizations is dynamic and like organizations which change throughout the time
therefore customers also change which as the result their preferences, desires,
lifestyles, conditions and interaction channels always evolve and change. Thus
observation and monitoring of relationships with customers should be done constantly
and thoroughly at all aspects (Blosch, 2000; Pine et al, 1995).
As mentioned above, there are different types of definitions and classifications for
customer knowledge. For example Gibbert et al. (2002), have classified the customer
knowledge, from organization’s point of view, in to three types: knowledge for
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customers, knowledge about customers and knowledge from customers. The similar
classification 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 and
Micheaux (2006) divide customer knowledge in to two types, “Behavioral” or
Quantitative and “Attitudinal” or Qualitative. The behavioral knowledge is easy to obtain
and they are basically quantitative by nature which contain customer’s transactional
relations with firm. On the other side, attitudinal knowledge is difficult to obtain because
it deals with customer’s state of mind but meanwhile it is an important factor for
enhancement of customer knowledge because they are directly related to customer’s
thoughts and insights. For the purpose of this paper, the Gibbert et al. classification of
customer knowledge, which is a commonly used classification, has been adopted.
Knowledge for Customers is unidirectional knowledge which is sent from organizations
to support their customers and make customers to understand their offered products
better (Gibbert et al.; 2002; Smith and McKeen, 2005). This knowledge could help
organizations to sustain their customers by focusing on changing the customer’s
preferences and increases their demands’ compatibility with the offered product which
finally leads to purchase of product by customer (Feng and Tian, 2005). Moreover, Feng
and Tian (2005) also note that the meaning of what they define as ‘knowledge for
customers’ is different with the one which has been defined by Gebert and Blosch. They
acknowledge that by mentioning the fact that: “The knowledge prepared for the
customer is not necessarily the knowledge the customer needs”.
Knowledge about customers is firm’s comprehension on customer’s background,
desires and preference on product characteristics (Chen and Su, 2006). Customers are
interacting with organizations through multiple and different channels and based on the
type of channel that they interact; organizations can segment their customers and also
define their relationships with them. Moreover this can be done through acquired
knowledge from channels which are derived from statistical information and historical
data of customer’s purchases or their interactions. This acquired knowledge is
considered as organization’s insight on each customer’s demand and preference or
organizations’ knowledge about their customers (Blosch, 2000; Feng and Tian, 2005;
Gibbert et al., 2002).
Knowledge from customers is the knowledge which resides in customers, and
organizations should pay attention to this knowledge more than two other types
(Paquette, 2006). This knowledge contains information that customers have about
organization’s products and services, its competitors’ products and services, customers’
inputs for product development and innovation, and their preferred channels of
communication (Feng and Tian, 2005). Knowledge for customers is generated from
data obtained through customers’ direct complaints, needs and suggestions and helps
organization to focus on correct market segments and adopt appropriate business
strategies 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 because
of overestimation of technological factors and ignorance of organizations about
organizational factors such as, organizational procedures and cultures, management
and leadership. The integration of KM and CRM is concerned with organizational
changes which involves every direction of organization. Knowledge management has
the highest contribution to success of organization when it is dealt with in a holistic
approach that connects all internal factors such as organizational culture, top
management leadership and business processes with customer relationship
management (Crie and Micheaux, 2006).
The most important part for managing the customer knowledge is its utilization for doing
something 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 product
or 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 et
al., 2001). Moreover, whenever there are issues regarding organizational politics and
disinterest in knowledge sharing, or little cross-functional flow of knowledge, a good
support environment by managers who are above functional departments in
organization hierarchy will be necessary (Davenport and Klahr, 1998). Top
management support is an important factor for success of CRM in an organization and it
also decreases the amount of resistance to change in an organization (Croteau and Li;
2003; Greve and Albers, 2006). The top management support affects employees’
perception on importance of customer knowledge by transferring the concept of
customer’s knowledge value to employees and encouraging them to participate in this
view 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, is
contributing on effective creation, transfer and use of knowledge (Rowley; 2002). There
are some initiatives that will fall into knowledge culture category. For example,
increasing the level of awareness on the benefits of sharing the knowledge which is
embedded in relationships and engagements with customers, and focusing on
encouraging the knowledge-related behavior of employees for increasing employee’s
contributions on structured knowledge base of organization through utilization of
rewards 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 considered


as an important issue for KM-enabled CRM (Paquette, 2006). According to Paquette
(2006), originally cited from Cohen and Levintal (1990), this competency consists of the
organization’s 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 this
processes including information systems. Information Technology is considered as an
enabler for KM but the way that organizations are adopting it, is considered as a
success factor for KM implementation (Chong, 2006). The transformation of
organizations from product-centric to customer-centric requires existence of
“technological and informational” infrastructure which enables organizations to know
and understand their customers better (Shanks and Tay, 2001). But the infrastructure is
not adequate for this transformation unless it is complemented by some changes in
organization’s structure, culture and processes (Shanks and Tay, 2001). Similarly
Tiwana (2001) confirms that organizations which adopt IT and its applications to suit the
needs of their internal and external customers along with their employees and suppliers
can have better success in KM implementation.
Previously information did not have any impact on decision making processes in
organizations and information technology was only a producer of data, not information
and knowledge. But now, it is producer of new information and knowledge along with
various new strategies (Drucker, 1998). The technology is not only used for purpose of
knowledge extraction, it also contributes in sharing of knowledge within organization. It
facilitates structuring of knowledge which makes the right information available for right
individual in right time. The rest depends on the individual to select the information
which is useful for organization in the given time. Boon et al. (2002) originally cited from
Hwang 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, application
management, data management, and IT research and development”. Romano and
Fjermestad (2003) posit that the KM literature has put lot of emphasis on IT issues
rather than considering the people management aspect. They identified the people
management aspect as a critical factor for KM success.
In knowledge-enabled organizations intangible assets such as knowledge assets are
much more important than tangible ones. In this organizations, employees who are
known as knowledge workers are highly qualified and well trained professionals who
enable organizations to use their knowledge for solving their customers’ complicated
problems (Shanks and Tay, 2001; Sveiby, 1997). Therefore employees who handle or
gather the customer knowledge, need to be trained for being able to use the technology
and also hold some analytical skills for better use and evaluation of the acquired
knowledge. Rewarding mechanisms and recognition of employees’ skills stimulates
employees 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 provides
experiences to organizations. This customer experience has intangible characteristics
which make it to be different from person to person and employees as the other
participants in interaction with customers are considered as customer experience
holders and their involvement in collection and distribution of customer knowledge has
positive impact on firms’ performance (Boulding et al., 2005). Customer knowledge
cannot be only generated from sales and marketing channels. Customers have different

13
types of interactions with organizations through different channels therefore customer
knowledge which is integrated into CRM can be used by different people in different
departments who have interactions with customers through different channels (Boon et
al., 2002). The employees of the company are one of the success factors for CRM due
to 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 KM
integration, 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 framework” for determining success metrics as well as
insufficient implementation of performance measurement processes are important
reasons for failure of many CRM initiatives. Llamas and Sule (2004), confirm that by
mentioning the main reasons for failure in establishment of a standard framework for
performance measurement in the field of marketing. They state reasons such as, the
short term characteristics of current performance metrics, their restricted diagnostic
power and finally the absence of a general agreement on the amount of measures and
succeeding problems in performing comparisons (Llamas and Sule, 2004).
Based on reviewed literature there are different methods and categorizations for CRM
performance, 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 of
CRM performance are regarding to financial and non-financial and also tangible and
intangible success measures. In terms of financial or tangible measures, measures
such 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 lifetime
value, service and quality improvement, innovation and competitiveness are considered
as nonfinancial or intangible measures (Chi et al., 2004; Kim et al., 2003; Llamas and
Sule, 2004; Payne and Frow, 2005). Although, financial and nonfinancial measures may
seem to be in opposition of each other, but further studies indicate the strong
relationship between nonfinancial measures such as customer satisfaction and
customer 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 evaluating
the performance of CRM, Kim et al. (2003), used the adapted model of Balanced
Scored Card. They substituted factors such as customer knowledge, customer
interaction, customer value and customer satisfaction with the original elements
included 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 performance
measures such as profit, revenues, customer retention, customer satisfaction and

14
combination of customer retention and customer satisfaction, which have been adopted
by previous researchers. Meantime they divide the CRM assessment process, as part
of their “strategic framework for CRM”, in to two components called “shareholder
results” and “performance monitoring”. The first one provides the overall view of
relationships and consideration of building customer and employee value as ultimate
objective of CRM and the latter provides more specific view on CRM measures and
performance indicators (Payne and Frow, 2005). Moreover, Chi et al. (2004) propose
that CRM performance can be measured from two tangible and intangible aspects. The
tangible behaviors are visible and they are concerned with customers’ behavioral
factors such as “customer retention, cross buying/repurchase, word of mouth” and etc.
The tangible behaviors could generate tangible profit for organizations. Meantime
Croteau 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) CRM
performance measurement framework which uses three customer metrics such as:
“customer retention rate, customer satisfaction and customer profitability” as tools for
measurement 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 stages
of implementation. They explain that by considering the amounts of improvement in
“customer acquisition” and “customer recovery” in “initiation” stage of CRM
implementation. In “Maintenance” stage, the improvement in “cross-/-up-selling
activities”, “customer satisfaction”, and “share of wallet” will be measured and in
“Retention” stage, the amount of improvement in “customer retention” and decrease in
“customer defection” (Greve and Albers, 2006). According to Drucker (1998), today the
business success is no more based on making of returns and capitals but totally
different factors such as achieving high life-time value for customers, high customer
retention 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 satisfaction
is difficult to measure because it is hard to quantify the satisfaction level. Customer
satisfaction 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 objective
feedback about customer preferences and expectations (Kim et al., 2003). The
improvement in customer knowledge has impact on relationship between CRM and
customer satisfaction (Mithas et al., 2005). Measuring customer satisfaction offers an
immediate, meaningful, and objective feedback about customer preferences and
expectations (Kim et al., 2003). Customer life time value is another important
performance measure for CRM. According to Pine et al. (1995), “Lifetime value is the
sum of the future stream of profits and other benefits attributable to all purchases and
transactions with an individual customer, discounted back to its present value”. Thus, if
company could achieve to keep its customers longer, it will be able to receive more
profit from them due to factors such as: increase in purchase, cost reduction in
operations, referrals and word of mouth, premium prices and cost reduction in customer
acquisition processes and activities. But some customers will have a higher lifetime
15
value due to the knowledge that they provide to company, because this knowledge
gives the company the new skills and capabilities which can be used for other
customers as well. Pine et al. (1995), also describe customer share as one of
performance measures which is the company’s share on each of its customers total
business 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 buy
from the company.

4 Conclusion

The business environment is changing from industrial to information environment and


this transition includes the reassignment of core capabilities in organizations. For
example the focus on tangible assets such as equipment, raw materials, human
resources and etc., in industrial community is changing to intangible assets such as
brand 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 organization
which help them to transform themselves to a customer centric environment but CRM
utilization is directly related with increase in customer knowledge, which in turn has
positive effect on customer satisfaction (Boulding et al., 2005).By using knowledge
management companies can improve their relationship with their valuable customers to
create loyal customers and obtain competitive advantage (Paquette, 2006).Since
knowledge management is responsible for acquiring and collecting the expertise and
knowledge within organizations to promote innovation in organizations and meantime
CRM is able to capture customer preferences, desires and above all, their knowledge;
the integration of these two concepts provide tremendous amount of benefits to
organizations (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 of
knowledge management and the knowledge originated from CRM (Chen and Li, 2006).
The acquired knowledge of customers is called customer knowledge which includes
customers’ preferences, desires, needs, buying behaviors and their insight on
companies’ products and services. The customer knowledge as an integral element of
Knowledge Management and CRM relationship could help organizations to tailor their
products and services and even the entire relationship with customers to increase
customer 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 action
to demonstrate the results of Knowledge Management and CRM interaction. The
outcomes of the interaction between Knowledge Management and CRM can be
considered as both tangible and intangible. Measures such as net profit, net sales, and
customer share are considered as tangible outcomes of CRM performance and as
intangible ones, measures such as customer satisfaction, customer loyalty and
increased customer lifetime value are considered as important intangible outcomes of
CRM in perspective of relationship between Knowledge Management and CRM.
Although there have been numerous amount of studies conducted on field of CRM
16
performance but still, there is no any standard and well accepted model or framework
for measuring all aspects of CRM performance in organizations. Authors believe that
further study on this field on enriching the previous studies on developing a standard
and overall CRM performance measurement system is necessary and worthy of further
studies by researchers.

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