Master Thesis Alyanne Huisman ‘Critical Success Factors of Customer Relationship Management in a Service-Oriented Business’ Student number: 1233149 University: University of Twente Faculty: Management and Governance Master: Business Administration Track: Service Management 1st supervisor: Dr. Kasia Zalewska-Kurek 2nd supervisor: Dr. Michel Ehrenhard Date: 17th of July 2012 Summary In the fast-changing world we are currently living in with new ways of communication, the needs of the customers are changing as well. The influence of the possibilities of Internet either improves or deteriorates the success of a business today. For the business, BLMC, subject to this study the latter is the reality. BLMC is faced with the importance of the value proposition of the services it provides and the way it establishes and maintains the customer relationships. The business offer executive search and interim management procedures, assessments, and business consultancy to its customers. As these services are supplies for other businesses it is difficult to build long- term relations with the customers, since there is only interest when there is a concrete questions or problem for which the service of BLMC are solutions. However, BLMC recognizes the importance of good customer relations as they retain customers and increase share development. It also wants to evaluate the current services to assess the performance. As good quality is of significant importance for service-oriented businesses. Thus, the urgency to change in order to survive is high, the way to do this is unclear to BLMC. Moreover, the economic crisis is having an enormous impact on the market which leads to fewer requests from the customers. Underlying is the vision of BLMC. It wants to be the best among competitors and be the leading business in the industry. The business has to change, this is necessary both for the internal organization as its approach in external practices. The focus is on improving the management of customer relations and advancing the value proposition of the business. In order to do so this study was designed to determine how to improve the business and assess the current situation so that improvements can be made at BLMC. The main question for this study is to appoint the critical success factors of managing customer relationships, assess these so that the value proposition of the service- oriented business BLMC can be improved. These improvements will in the end help the business to survive to the difficult period and to live up to the vision it set for itself. First of all, a literature review was executed to describe the role of customer relationships in a business and determine the critical success factors. For service- oriented businesses the customer is top priority. The role of the customer can be explained by evaluating business models. A business model consists of several components that define the manner by which a business delivers value to the customers, enticing customer to pay for the value provided, and convert those payments into profits. It is also often used as a blueprint of a strategy to be implemented. The components can be divided into four main areas; customers, offering, infrastructure, and financial viability. In this study the business model of BLMC is evaluated on the first three areas. More information was gathered on the management of customer relations. The essence is to have a clear customer-centric strategy, select customer segments to target, focus on the value proposition, select the right channels to reach the customer, - 2 - have appropriate supporting systems, and evaluate the performance on managing customer relations. These are the general elements of a customer relationship management model, however for this study critical success factors are determined so that a business can focus and evaluate its performance. The critical success factors identified in literature were found in the external perception of the customers and the internal practices with regard to CRM. Three external factors influence CRM; customer satisfaction, relationship marketing instruments, service attributes. Five internal factors determine the operationalization of CRM within a business; managerial practices, employee’s attitude and behavior, customer knowledge, lifetime value, and customer interaction. Suggested is that customer relationship management can be carried out successfully in case of a match between the external and internal factors. The presence of a match or mismatch was tested during an empirical study. Secondly, in an empirical study these factors were tested during a quantitative and qualitative study among the customers, interim managers, and employees of BLMC. The questionnaire conducted among the customer and interim managers indicated the importance and performance of BLMC on the external factors. During the interviews with the employees of the business interesting in-sights of the current situation of customer relationship management were revealed. Interpreting and comparing the information on external and internal factors presented a good analysis of the current situation of BLMC. The results determined which dimensions of the critical success factors match or mismatch so that a concrete advice can be given to BLMC on how to improve their customer relationship management and advance the value proposition. These improvements can be placed in the context of changed business model for BLMC. Mainly the external practices, such as building loyalty, be responsive and adapt to customer needs are essential. The value proposition of the services provided can be improved by advancing the recruitment phase and communication during procedures. Internally, the key activities and resources have to be improved so that they are suitable and facilitating managing customer relationships. These main points of a new business model can be translated into the following roadmap for BLMC: 1) In order to facilitate and implement successful customer relationship management and an improved business model a clear customer-oriented strategy has to be established with a long-term perspective on customer relationship management and that is shared with all employees. This strategy can consist of two components; the business strategy that determines the vision, industry and competitive characteristics, and the customer strategy that identifies the segments, customer choice and characteristics. - 3 - 2) In order to facilitate and implement the established strategy an appropriate internal structure is needed. The key resources are essential, as the functioning of IT applications and a database that includes all customer activity determine the effectiveness and efficiency of managing customer relations. A good internal structure will also facilitate the key activities that are critical for advancing value proposition. Clear distribution of responsibilities will help the internal structure and improve the discipline, information sharing, and service-oriented attitude. 3) The employees have to be trained and selected on their service-oriented attitude. The have to be loyal, responsive, adaptive, informative and supportive. These are the most important dimension for the customer of BLMC. If the performance in these dimensions is improved the level of satisfaction will increase. 4) All attributes of the service have to be improved, most important are the recruitment phase and communication during a procedure. This requires a high level of flexibility and customization in the situation analysis, interview quality, ways of support and frequency of consultations moments. Furthermore, the service can be improved by focusing on the usability, attractiveness, content and consistency towards the customer. 5) Focus with relationship marketing on specific customer segments; expand professionalism in event marketing, establish events for specific customer segments, advance community based customization adapted to specific customer needs. 6) Invest time in frequent personal meetings as this drives the customer to engage in a relationship for a longer period. The image of BLMC has to reflect the vision and its place in the industry. Stronger and enduring relationships will change the perception of the customer from supplier to partner. 7) Besides the focus on the customer also strong relationships have to be built with the key partners. As BLMC has to flexible and adaptive to the fast-changing needs of the customers, relying on the key partner is essential. Thus, time and efforts have to be invested in the relationships with the interim managers, pool of candidates, trainers, and psychologists. - 4 - Table of contents Page 1. Introduction 6 1.1. Research context 6 1.1. Background of the practical problem in the literature 8 1.2. Research- and sub-questions 9 1.3. Expected theoretical and practical contributions 9 1.4. Structure 9 2. Literature review 10 2.1. Literature review methodology 10 2.2. Role of customer relationships 11 2.3. Business value proposition 15 2.4. Critical success factors for managing customer relationships 16 2.4.1. External critical success factors 16 2.4.2. Internal critical success factors 20 2.5. Model 22 3. Methods 25 3.1. Research methodology 25 3.2. Quantitative study 25 3.2.1. Respondents and procedure 25 3.2.2. Measurement per factor 27 3.2.3. Data analysis 29 3.3. Qualitative study 29 3.3.1. Respondents and procedure 29 3.3.2. Data analysis 30 4. Results 31 4.1 Analysis of the external critical factors at BLMC 31 4.2 Interpretation