Impact of Information Technology Management Practices on Customer Service

Recently, despite huge incentives and subsequent increases in investment in customer relationship rr.anagement technOlogy, many firms have not been able to Increase their customer satisfaction index ratings. The purp<\se of this paper is to gauge whether IT management practices differ am:mg firms ",here IT has a major role in transforming market:ng, operat:ons. or hath, which gi"e the firms advantage Joulnal oJMl1I",gem~m InjormmuJII Spltm" /Spnng 2()!)l, v,,: 17.l'io 4. pp 125-158 <f) 20'J! M F SI1OfJl", ilK' 0742-1222 i 2001 $950 + 0 ()I) Co ri hI © 2001, All ri hIs reserved_ [26 KARIMI, SOMERS, AND GUI"TA by affecting their customer service. Severa! research hypotheses are tested using data obtained from a survey of 213 IT-leaders k ,he financial services industrj. The results clearly indicate that the IT-leader firms have a higher lever of IT management sophistication and a higher role fo:, their n-~eaders compared to iT-enabled customer focus, IT-enabled operations focus, and IT-laggard firms. This pdper concludes with the Implications for both researchers and practitconers. KEy WORDS AND PHRASES: customer relationship management. customer service, information technology impact orr marketing and operation functions, information technology leader's role, informatioll. technology management practices, information technology macagement sophisticatIOn. RECENTLY, CUSTOMER SERVICE IS A -::-OP PRIORITY for many busill.ess and mformation techno~ogy (IT) executives since a i-point rise in a f:rm's customer satisfaction index corresponds to an average $240 million increase m market value 179]. According to the lnfimnatwn Week's research prior::ties stl.:dy of 300 IT executives, the top two key strategic technology, business, and IT project implementation priorities arc understandir.g and meetmg customer needs and improving customer service [281. However, despite this huge incentive and subSequent ~ncrease En mvestment in customer relationship management (CRM) technology, oany firm§ simply haven't been able to increase their cLlsWmer satisfaction 3l1dex ratings. I This IS in part due ta the fact that the extent to which IT management practices are app~ied crea:ively to critical tasks assocI<lted with cus~omer service varies widely amorrg firms. In the lIteralure, there are r:umerous examples of firms in various industries that have used IT to impact customer service by ~ 1) transforming marketing, operations, or both, (2) offering new products, and (3) providing onlme access to new services and products !2, 4, 15,37, St, 62, 791. By sharing information, cutting costs, reducing cycle times, and i:npwving customer satisfaction, these firms have credited their IT-enabled product initiatives with keeping them firm:y in place at the top of their i~du§tries despIte tremendous com?ctltion. Many t1rms have come to realize that it can cost four to ten times more:o obtain a new customer than to retain an existing one l4]. In many firms, IT gives ma.JOf transformmg advantage in marketing. operatIOns, or both by (1) providing the sa~es force with a wide array of handheld and laptop computers that enable the firms to collect detailed customer and market data or (2) managing the entire order fulfillment process, including demand planning.2 Recently, many firms have used Web Information Systems for customer service and for creating a "supply web" [7,51, 74, 83]. The supply web aHows the participants in the web (0 publish mformation about their ?roducts, prices, and availabHity directly on the Intemet. This arrangement encouruges open markets and value-added services that are inconceIVable In a world of dosed trading partner relationships, The purpose of this paper is to gauge whether IT management practices differ among firms where IT has the po:erdal to transfor:n marketing, operations, 0:' both, whk:h --Co r" bl©2001. All ri tsreserved .. INFORMA TIO[\; TECHNOLOGY MANAGEME;\lT PRACTICES ON CUSTOMER SERVICE 127 give the firms advantage by impacting their customer service The natural benefit of validating such a precept is that it would allow us to define tne appropriate IT management practices for a given level of IT's influence on cU5tnmer service. Based on the responses from 213 IT leaders in the financial services mdustry, conclusions are drawn by comparing IT management practices in firms wnel:e IT's potentiai impact on customer service varies. IT management practices are me~~sured here by the level of IT management sophistication (Le., the extent to which IT r}lanning, organization, control, and integration are carried out in a firm) and an IT leader's role ~",ithin a firm. In this study, we have found. that sigmficant differences exis~ in the IT manil.gement practices among firms and that these differences are dependent on the degree w which IT plays a role in transformmg customer service in these firms. In the foliowing section we discuss the constrJcts used In this study and proVIde exposition of arguments that motivated this study. We tten pre~ent the research methodology and the measurement of research variables, followed by a section providing analysis, discussion, and limitations. Finally, we provide the ;,ummary, condusiol1!-i, and future research. Theoretical Background IN nns SECTION WE PROVIDE THEORETICAL BASES for all the constmcts used in this study and briet1y review the literature regarding IT's impact ell customer servlce. A customer service topology for classification of firms depending on the range of marketing and/or operations aclivities that are tnmsfonned by IT IS presented next. Ther; we provide :heoretlcal justifications for the argument that the :hmst of this impact is strongly influenced by IT management practices. IT's Impact on Customer Service Previous research has reported that embedding more technology in the prod1Jct and services has profoundly changed many mdus1.ries' standard of (Ornpetition in produc~ ing goods and services \20].3 More and more service firms (sue'! as banks and bmker~ age firms) are providing IT-bascd service options to their cuShlmers. These serVH::es are expected to bring benefits silch as improved proouct and service quality, Improved customer satisfaction, higher productivity, and improved financlal perfon1lance r49V Furey [34 J s:Jggested that IT practices could help enhance customer service by increasing convenience, collecting service performance information for management use, and offering extra services. FItzsimmons and FitZSimmons [321 defined severa! competitive roles of IT in servIces, including creation of barriers to entry, productivity enhancement, and revenue generation. Service delivery '\. ia the advent of new products and options for various charmels of delivery through IT applications has emerged as an impORtant attribute in satisfying customers [40]. 1n addition, it has also been reported that more than 70 percent of the defection of customers in the fil1andal services sector is due to dissatisfaction with the quality of services delivered tIl J. Co ri hI © 2081. AI~ri hIs reserved .. ,28 IKARI:v1I, SOMERS, AND GUPTA Now, by increasing IT investment in CRM technologies and by embedding IT in marketing and operations functions, firms can reach out to their external entities and provide value-added sc:rvices A6, nj. For example, 11 billion-doBar investment in IT at Capital One was used to help the firm ~o diversify into additional markets and to contim:e its trajectory of growth by (1) squeezing about half of Capita' One's marketing budget into technology infrastructure (most notably the 3TB data warehouse for extracting the names of consumers who maintain balances and faithfully make their monthly payr:lents), (2) managing new iT projects by a three-way partGership (Le., one representative each from IT, operations, a~d marketing and analysis, the business strategis~s), (3) investing b an imemgem caB center for routing telephone inquires from users of its Visa and MasterCard products, and (L.) hiring a business-savvy CIa who knows wl'ere ~o invest in liT [4],5 In Table 1 we present ways m which IT can enable marketing and operadons functions of the firms via CRM a;rphcations. CRM is a major part of many firms' Ecom:nerce stra:egy. CRM a?plica:iom; are becoming more mt,jtifunction and vendors are forming partnerships and integrating CRM smtes with eXlstl:sg applications, such as E:oterprise Resource Planni:sg (ERP) syste:ns. CRM products a:e classified as either operational (e.g., :or improvii!g customer service, for online marketing, and for <A!.Homating the salei' force), analytical (e.g., for building a CR.M: data warehouse, analyzing customer and sales da~a, and cO!:tirmo:Jsly improving customer relationships), or collaborative (e.g., for building Web and online commm:ities. busmess-tobusiness clJlstomer exchanges, and personahzation services) ~85]. These applications amomate C;Jstomer service oper::ltions to cut costs of sales. boost revenue, and collcel hette:customer cata to improve s:lpport a.nd increase seIlkg o?portunities. They govern ma:ketmg. open:tio:m;, &ervice:, and sales force departments, as we!! as tracking CL:stO.'l1er sales h:stories and call center duta. For exam?le, on the customer focus front, (;lese applications enable :irms in automa'.:ing (1) §ales force processes to reduce l:1formntion asymmetry and celays, and to improve efficiency. (2) caH centers ~md integrating customer calabases to reduce tl:e total cost of ownership of caB centers and by head-count reduction, (3) E-mail interactions with cl.:stomers to improve cus~or:ler service and service efficiency and to integrate E-mail, telephone, and Web interfaces, and (4) customer responses and profHes, :mcking marketing campaigns through varimts media across a number of cilalmels, ane. managing quote and proposal processes from :1egot:atiol1s to closbg. On the operation focus front, these applications can enable firms in (1) '.Ising database information and supplier pipeline pro