The Customer Relationship Management (CRM) Software Market in Italy. Key Trends and Dynamics.

MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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operating in Italy. Finally, I have related together all these information obtaining the overall view of a
market, which proves to be very difficult and challenging for CRM software vendors.
My key findings relate the low penetration of CRM software in Italy, on one side to the small numbers
of large enterprises, on the other side to the fact that Italian SMEs are fundamentally non-interested in
CRM. The business culture and the lack of adequate IT infrastructure are also explored as the main
reasons for the low uptake of front office solutions.
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
6
CHAPTER 1
CUSTOMER RELATIONSHIP MANAGEMENT (CRM): THE
THEORETICAL FRAMEWORK
1.1 CRM in the Marketing Environment
Key papers and bibliography include the theoretical framework around the benefits and importance of
Customer Relationship Management (CRM) as described by P. Kotler, M. Porter and C.K. Prahalad and
A. Ravarini.
According to Kotler
2
, companies can win customers and outperform competitors mainly meeting and
satisfying customer needs. Furthermore, to survive in today’s marketplace, companies must adopt the
philosophy of ‘customer-value-creating marketing’: they must be customer-centred and deliver superior
value to their target customers.
This addresses important questions, such as ‘What are customer value and satisfaction?’ How do leading
companies organise to create and deliver high value and satisfaction?’ Highly satisfied customers
produce several benefits for the company: they are less price sensitive and they are customers for a
longer period; they buy additional products over time as the company introduces related products or
improvements, and they talk favourably to others about the company and its products. Kotler defines
‘relationship marketing’ as the process of creating, maintaining and enhancing strong relationships with
customers and other stakeholders. The goal is to deliver long-term value to clients and the measure of
success is long-term customer satisfaction; it involves building relationships at many levels, resulting in
high customer loyalty.
The company learns individual customers’ needs and wants and then individualises and personalises its
products and services.
Michael Porter proposed the ‘value chain’ as the main tool for identifying ways to create more customer
value; it includes the ‘customer service process’, to provide the client with services, answers and
resolution of problems
3
.
                                                
2
 Kotler, P., (2002) Marketing Management, 11
th
 edition, Prentice Hall
3
 Porter, M., Millar, Victor E., ‘How information gives you competitive advantage’, Harvard Business Review, July-August
1985
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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Table 1-1 The Value Chain of an Enterprise
Research and Development (R&D)
Technological research
Product development
Product design
Inbound Logistics
Purchasing / Procurement
Inventory management
Receipt of raw material/products from
suppliers
Human Resource Management
Recruitment
Reward system
Training
Operations
Production planning and management
Product manufacturing
Maintenance
Infrastructural Activities
Planning
Financial management
Legal service
Salary and wages
Quality Management
Information distribution across the firm
Payments (toward suppliers)
Incomes (from customers)
Marketing & Sales
Planning of marketing strategy
Advertising / Promotion
Sales management
Customer Relationships Management
(CRM)
Outbound logistics
Handling of goods
Distribution
Dispatch of product/services
Services
After sales service
Customer care
Source: Porter, Michael E., Millar, V., ‘How information gives you competitive advantage’, Harvard Business Review, July-
August 1985
Porter analyses the strategic significance of the information technology, and how it alters the
relationship between companies and their customers and suppliers. Dramatic reductions in the cost of
obtaining, processing and transmitting information are changing the way we do business. Technology is
no longer exclusive territory of the IS department; nowadays, also the executives recognise the need to
become directly involved in the management of new technology.
An important concept that highlights the role of information technology in competition is the “value
chain”. A company’s value chain is a system of interdependent activities, which are connected by
linkages. Linkages exist because each performed activity affects the cost or effectiveness of the other
activities. IT is permeating the value chain at every point, and is reshaping the way products meet
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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clients’ needs. In fact, a service activity uses information about service requests to schedule calls and to
generate information about the products (design and manufacturing methods) and customers’ needs and
satisfaction.
Prahalad and Ramaswamy
4
 highlight that a distinguishing feature of the new marketplace is that
consumers become a new source of competence for the corporation; engaging in a dialogue with
customers means that companies can talk to customers and, during the exchange, could find out lots of
information about them. It becomes critical, therefore, for companies to understand the purpose,
meaning, and quality of the dialogue from the customer's perspective. Companies find ways to process
what they learn from customers so they can bring the dialogue forward and keep the client’s interest.
That is particularly true of companies that sell technology-intensive products, which are sensitive to
variations in customers' sophistication.
Aurelio Ravarini and Marco Tagliavini, who are amongst the principle researchers in the field of SMEs
and IT in Italy, have also provided a very useful framework to analyse the characteristics of the IT
market in Italy. Their studies focus in particular on a specific context- the small and medium enterprises
in the northern part of Italy, which represent its economic core- and present an updated picture of the
ICT employed and of the activities ICT support within Italian SMEs.
                                                
4
 Prahalad C.K., Ramaswamy, V., (2000), Co-opting Customer Competence, Harvard Business School Press
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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CRM Defined
CRM is about understanding the preferences of customers and using that information to maximise the
probability of a sale or improve the level of service. This makes it a complex interplay of various factors
in the business. It starts with a strategy to capture accurate data, analyse it effectively, move it to the
appropriate customer contact points and use the information properly.
Many businesses fall into the trap of thinking that CRM is about automating customer contact points.
The problem is that this is often done at a departmental level, with conflicting systems that cannot be co-
ordinated. In addition, the politics of the business may result in disputes over who has ownership of the
customer.
Figure 1-1 The Essence of CRM
The result for the customer is different levels of service across different channels, the need to provide
the same information repeatedly and an inability for the business to differentiate top-tier customers from
more-mainstream ones. When this happens, businesses do not receive the benefits they expect, do not
receive the assumed return on investment (ROI), and do not see a measurable improvement in the results
of their interactions with customers.
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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As a result, these businesses feel that CRM has failed them.
CRM is a business strategy, the outcomes of which optimise profitability, revenue and customer
satisfaction by organising around customer segments, fostering customer-satisfying behaviours and
implementing customer-centric processes.
Figure 1-2 Customer Life Cycle: Key Processes
CRM is not a technology, nor is it a particular vendor solution. CRM is a business strategy designed to
optimise profitability, revenue and customer satisfaction.
CRM technologies should enable greater customer insight, increased customer access, more effective
customer interactions, and integration throughout all customer channels and back-office business
functions.
To realise CRM, businesses must foster behaviours — and implement processes and technologies —
that support co-ordinated customer interactions in all customer channels.
True CRM is a truly enterprise wide initiative, where the enterprise knows how it wants to manage
customer value and loyalty and puts all relevant capabilities in place to achieve those goals - i.e., it has a
solid CRM vision and strategy with a supportive set of integrated initiatives in the areas of
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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organisational collaboration, valued customer experience, processes, information, technology and
metrics.
1.2.1 A Business definition
Defining CRM is not an easy task.
Coined in the mid- 1990s and promoted during the late-1990s, the term CRM still means different things
to different people.
However, before analysing some of the most important definitions of CRM, I must clarify that CRM is
NOT a mere technology; or, more precisely, the technology is only one of the components of CRM.
The technology component seems to be the most overwhelming, given the ever-expanding number of
technology offerings and alternatives; nevertheless, CRM software does not create or replace a business
process, fix an ineffective or broken process, make decisions, or create or maintain customer
relationships.
Here is the definition provided by Barton J. Goldenberg, President and Founder of ISM Inc., one of the
world’s leading CRM consultancies:
CRM integrates people, process, and technology to maximise relationships with all customers. CRM is a
comprehensive approach that provides seamless co-ordination between all customer-facing functions.
CRM increasingly leverages the Internet
5
.
Goldenberg underlines that while important, too often the technology component takes on a
disproportionate emphasis within a CRM initiative to the detriment of the overall success of the
initiative. CRM does provide the opportunity to enhance the existing business processes as well as create
new, more integrated and more customer-centric processes.
CRM solutions promise an ‘ideal’ customer relationship process via instantaneous sharing of detailed
customer information across multiple interfaces; CRM acts as an enabler to individual business
processes (e.g. sales, marketing, customer service) and also to a more holistic, integrated total customer
process.
CRM success requires the integration of every aspect of business that touches the customer- including
people, process, and technology. Each component presents significant challenges: it is the ability to
                                                
5
 Goldenberg, B.J., (2002), CRM automation, Prentice Hall PTR
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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integrate all three that makes or breaks a CRM system
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. The process component of CRM is the most
delicate: while most companies do have customer-facing business processes in place, many times there
business processes need to be updated, replaced, or even put in place, as for the case of the Italian
market. Goldenberg identifies a 10-step approach to formulating a successful CRM strategy:
‰ Prepare an Executive CRM Vision
‰ Determine “Burning” Business Issues
‰ Identify CRM Technology Opportunities
‰ Determine Key People Issues
‰ Develop Multiyear Technical Architecture Plan
‰ Identify Business Processes Issues
‰ Determine Customer Desires and Likely CRM Impact to the Customer
‰ Provide CRM Observations and Recommendations
‰ Recommend a CRM Program Management Approach
‰ Prepare the CRM Program Business Case
Accordingly, Rigby and Reichheld
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 underline that CRM aligns business processes with customer
strategies to build customer loyalty and increase profits over time. “Technology” and “software” are
conspicuously absent from the definition.
CRM is the bundling of customer strategy and processes, supported by the relevant software, for the
purpose of improving customer loyalty and, eventually, corporate profitability; considering CRM only
as a software tool that will manage customer relationships for a company is a flawed assumption.
In fact, not understanding that technology must always be aligned with an overarching strategy is one of
the major perils in the implementation of CRM. Installing CRM technology before creating a customer-
focused organisation is perhaps the most dangerous pitfall.
In ‘A new way to reach small businesses’
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, Goff and Harding stress once more the importance of
alignment between people, processes and technology.
                                                
6
 Ibidem, p.13
7
 Rigby, Darrell K., Reichheld, Frederick F., Schefter, Phil, ‘Avoid the Four Perils of CRM’, Harvard Business Review, Feb.
2002, Vol. 80 Issue 2
8
 Goff, Joshua, Harding, David, Shah, Rajesh, Sing, Marc, ‘A new way to reach small businesses’, McKinsey Quarterly,
1998, Issue 3
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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Goff and Harding argue that CRM is a data-driven approach that enables companies to assess each
customer's current needs and potential profitability and tailor sales offers and service. CRM aligns
business processes with customer strategies to build customer loyalty and increase profits over time. It
often involves using multiple channels - the Internet, direct mail, telesales, and field sales - to improve
effectiveness and efficiency
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.
Industries characterised by the accessibility of transaction data and by ongoing customer relationships of
varying profitability - such as telecommunications, banking, insurance, utilities, computer hardware and
software, pharmaceuticals, and package delivery - are well suited to CRM. Banks, telecommunications
providers, and insurance companies in particular often possess detailed customer information and
transaction histories. As a result, they have been among the earliest adopters of the technique.
The data in their customers’ files, which includes contact details, estimated sales, industry code, age of
business, number of employees, payment histories, recent major purchases, and credit scores, can enable
companies to develop lifetime-value models of customers, profitability scores, and behaviour-based
segmentation models.
Peppers and Rogers, marketing consultants, define CRM as follows:
Customer-relationship management means being willing and able to change your behavior
toward an individual customer based on what the customer tells you and what else you know
about that customer. The mechanics of implementation are complex, as the company must
identify, track, and interact with an individual customer and then reconfigure its product or
service to meet customer's needs
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.
Another perspective on CRM, provided by Ronni T. Marshak, senior VP and analyst at Patricia Seybold
Group, summarises the definitions previously discussed: CRM main focus is on business strategy, not on
technology.
A company’s strategy is comprised of plans and projects which must take into account at each phase the
relationship with clients. Technology is part of the tactical plan, as a basic tool to implement and realise
the company’s strategic plans.
                                                
9
 Ibidem
10
 Peppers, D., Rogers, Martha, ‘Is Your Company Ready for One-to-One Marketing?’, Harvard Business Review, Jan/Feb99,
Vol. 77 Issue 1
MA European Business – Dissertation in Information Systems 1 /09/2003
Daniela Sepulcri Supervisor: Dr. G. Harindranath
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Table 1-2 The Evolution and Transformation of Customers
Customers are stepping out their traditional roles to become cocreators as well as consumers of value.
This table maps their evolution through three stages and along several key dimensions.
Customers as a Passive Audience Customers as Active
Players
Persuading
predetermined groups
of buyers
Transacting with
Individual buyers
Lifetime bands with
individual customers
Customers as
cocreators of value
Time frame 1970, early 1980s
Late 1980s and early
1990s
1990s Beyond 2000
Nature of Business
and role of customer
Customers are seen as passive buyers with a predetermined role of
consumption
Customers are part of
the enhanced
network; they
cocreate and extract
business value. They
are collaborators,
codevelopers and
competitors
Management mind-
set
The customer is an
average statistic;
groups of buyers are
predetermined by the
company
The customer is an
individual statistic in
a transaction
The customer is a
person; cultivate trust
and relationships
The customer is not
only an individual but
also part of an
emergent social and
cultural fabric
Company’s
interactions and
development of
products and services
Traditional market
research and
inquiries; products
and services are
created without much
feedback
Shift from selling to
helping customers via
help desks, call
centers, and customer
service programs;
identify problems
from customers, then
redisign products and
services based on that
feedback
Providing for
customers through
observation of users;
identify solutions
from lead users, and
reconfigure products
and services based on
deep understanding of
customers
Customers are
codevelopers of
personalized
experiences.
Companies and lead
customers have joint
roles in education,
shaping expectations ,
and cocreating market
acceptance for
products and services
Purpose and flow of
communication
Gain access to and
target predetermined
groups of buyers.
One-way
communication
Database marketing;
two-way
communication
Relationship
marketing; two-way
communication and
access
Active dialogue with
customers to shape
expectations and
create buzz.
Multilevel access and
communication
Source: Prahalad C.K., Ramaswamy V., (2000), Co-Opting Customer Competence, Harvard Business School Press