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EJM
38,3/4 Improving customer
relationship management
338
through database/
Internet marketing
A theory-building action research project
Chris O’Leary
Acxiom Corporation, Sydney, Australia
Sally Rao
School of Commerce, The University of Adelaide, Adelaide,
Australia, and
Chad Perry
Graduate College of Management, Southern Cross University,
Gold Coast, Australia
Keywords Internet marketing, Database marketing, Customer relations, Action learning
Abstract Firms have only just begun to use the Internet to obtain customer information in their
database marketing processes to enhance customer relationship management. This research uses
an action research approach to develop a new framework about how they can do this. The action
research project was carried out in a large Australian database company because no other sources
of empirical information about the topic were available and it could provide rich findings about an
under-researched, practical area. Results showed that integration of the Internet and database
marketing enhances the effectiveness of customer relationship management practices. For
example, the Internet offers benefits such as increased consumer data collection accuracy and
speed, cost savings, greater interaction and better relationships with customers. This research also
identifies that organizational culture, top management support and collaboration between
marketing and IT teams need to be in place to provide a supportive environment that is critical for
the success of the integration.

Introduction
Many firms have adopted the Internet for promotional purposes (Williams,
2000) but have not yet fully capitalised on its interactive marketing capabilities
(Rowsom, 1998). Nevertheless, some practitioners and consultants are realising
the potential for integrating the Internet with organizational databases. For
example, Rowsom (1998, p. 24) noted the potential of the integration of Internet
information into database marketing for electronic commerce and forecast that
European Journal of Marketing “instituting database marketing on the Web will be like making the leap from
Vol. 38 No. 3/4, 2004
pp. 338-354
playing checkers to playing multi-level chess.” However, comprehensive
q Emerald Group Publishing Limited
0309-0566
academic research about the integration of Internet and database marketing is
DOI 10.1108/03090560410518585 lacking. There has been recognition in the academic literature about Internet
and database marketing separately (for example, Forrest and Mizerski, 1995; Customer
Montgomery, 1999; Hoffman and Novak, 1996), but not about their integration. relationship
Hence the aim of this paper is to develop a framework for integrating the management
Internet and database marketing to help marketers improve customer
relationship management (CRM), based on rigorous academic research.
Essentially, we argue that the advent of Internet/database marketing brings
solutions to some of the difficulties in customer relationship management by
339
providing one-to-one interactivity and customisation. Our contributions are the
first academic study of the integration of Internet and database marketing, and
an example of how the action research methodology can be used to explore a
relatively technical issue in marketing about a general, academic research
problem (Perry and Zuber-Skerritt, 1992).
This paper has three parts. First, a preliminary framework based on the
literature is outlined. Then, the project methodology of focus groups,
convergent interviewing and action research is briefly described. Finally, a
comprehensive framework based on the findings is presented, implications and
limitations are discussed and possibilities for further research are identified.

A preliminary framework and research issues


A preliminary framework for this study was developed from the literatures
about the Internet and database marketing (Hagel and Singer, 1999; Peppers
et al., 1999). This framework has the three usual parts of a system: inputs,
processes and outputs. That is, inputs of Internet information about customers
are processed and converged with a firm’s customer databases, to produce a
series of strategic outputs such as improved customer relationship
management. Consider these three proposed parts in more detail.
First, the inputs are the customer information gathered through the Internet.
In the literature, four primary types of customer data are identified, namely,
descriptive data, transaction history, direct preference measures and externally
derived data (Hagel and Armstrong, 1999; Holtz, 1992). This information
contains both active data, or information provided by the customer with their
full knowledge, participation and often feedback, and passive data or
information derived from observation of the customer’s behaviour that may
occur without their direct knowledge (Gates, 1999; Heinen, 1996). But how these
types of information apply in the integration of Internet marketing and
database marketing needs to be discovered. Thus the first research issue is:
RI1. How can customer data be gathered passively and actively through the
Internet for customer relationship management purposes?
Second, the processes integrate information gathered from the Internet with
information in the organization’s database. The literature suggests that the
information gathered from the Internet is processed through identification,
standardisation, de-duplication and consolidation procedures, and a unique
EJM reference number is applied to a customer, irrespective of whether the customer
38,3/4 is a business or an individual (Seybold, 1999; Loney, 1998; Inmon and
Hackathorn, 1994). Records are stored in an organizational marketing data
warehouse and updated automatically through data derivation methods such
as cookies and web form log-ins (St Laurent, 1998; Strader et al., 1999). But
more details are required for the comprehensive framework sought for this
340 research. Thus the second research issue is:
RI2. How can customer data gathered through the Internet be integrated
into database marketing processes?
Finally, the strategic outputs are the possible uses of the Internet information
that can be “mined” from databases (Peacock, 1998). The literature suggests
that customer data can be used in customer relationship management, for
example, prospecting for new customers (Hanson, 2000; Campbell, 1997),
segmenting customers (Jackson and Wang, 1994; Nash, 1993), retaining
customers (Sterne, 1999; Campbell, 1997), and forging customer loyalty (Forcht
and Cochran, 1999). That is, they are used to build one-to-one, long-term and
sustainable customer relationships that add value to both the customer and the
company through the use of information technology (Buttle, 2000; Hamil, 2000).
But can Internet data about customers fulfil these strategic purposes?
Therefore the third research issue is:
RI3. How can customer information gathered through the Internet be used
in improving customer relationship management?
In brief, this preliminary framework was a starting point for understanding
how Internet and database marketing can be integrated to improve customer
relationship management. The next step was to confirm, disconfirm or extend
the framework through rigorous research.

Action research methodology


This research adopted an action research methodology in its data collection
process, that is, a cyclical process methodology that incorporates the four-step
process of planning, acting, observing and reflecting on results generated from
a particular project or body of work (Zuber-Skerritt and Perry, 2000; Dick, 2000;
Revans, 1991; Kemmis and McTaggart, 1988; Kolb, 1984). The concept is
essentially concerned with a group of people who work together to improve
their work processes (Lewin, 1946; Carson et al., 2001; Altrichter et al., 2000;
Bawden and Zuber-Skerritt, 2000).
This choice of action research was based on two counts. First, because of the
minimal research that has been conducted on integrating Internet/database
marketing for CRM noted above, the process through which this may be
completed was unclear. Thus exploratory research was required and action
research provides this capability better than many alternatives (Dick, 2000;
Farquhar, 2000; Zuber-Skerritt and Perry, 2000). An action research project Customer
within an Australian database marketing firm was used to explore the issues relationship
involved because an alternative exploratory methodology, like case research, management
could not be used as other sites that had integrated Internet/database
marketing for CRM were simply not available. The second reason was the
degree of flexibility afforded by action research within an evolving information
technology project concerning a problem about which little was known
341
(Altrichter et al., 2000; Bawden and Zuber-Skerritt, 2000; Neville, 1992).
The reconnaissance before the first stage of this action research project
involved focus groups and convergent interviews to test and refine the
preliminary theoretical framework (Carson et al., 2001). Data were collected
through two focus groups. Because the research phenomenon is contemporary
and no prior research has been conducted, focus groups were appropriate for
generating ideas and obtaining insights from Internet /database marketing
practitioners and consultants (Carson et al., 2001). Two homogeneous groups
were conducted in regional Toowoomba and cosmopolitan Sydney, because
discussions within homogeneous groups produce more in-depth information
than discussions within heterogenous groups (Bellenger et al., 1989). The first
group comprised marketing managers with some general knowledge of
Internet and database marketing but limited practical experience. The second
group comprised marketing managers with both knowledge and experience of
Internet and database marketing, and were selected from several industry
sources in Sydney. Arguably, these second focus group respondents represent
much of the expertise about integrated Internet and database marketing in
Australia n – it was certainly not possible to recruit another group despite
persistent efforts to find more respondents.
In conjunction with the focus groups, convergent interviews were used to
further test and refine the theoretical framework (Carson et. al., 2001).
Convergent interviewing involves conducting a series of in-depth interviews in
which data are collected during each interview, analysed and used to refine the
content of subsequent interviews. That is, the process is very structured but the
content of each interview remains unstructured to allow for the flexible
exploration of the subject matter (Dick, 1990). Convergence is achieved when no
new information is uncovered. Dick (1990) suggested 12 interviews are usually
necessary for convergence in organizational behaviour projects. However, Nair
and Riege (1995) found that the sample could be smaller if prior theory was
used as a foundation for the interviews about a marketing issue, as was the
situation for this research. The convergent interviews involved ten in-depth
interviews with recognised industry experts, some of them by phone to USA.
These data were later analysed and used as input into the rest of the first action
research stage.
This first action stage involved planning a prototype, integrated Internet
and database marketing system within a particular Australian Internet portal
EJM organization. It commenced with the formation of a project team (Dick, 2000;
38,3/4 Edwards and Bruce, 2000). Initial plans were formulated, and actions for their
achievement were devised and implemented. During and after implementation
of these plans, results were monitored against expectations. In the fourth,
reflection stage, the efficacy of the actions on the problem were evaluated
342 (Altrichter et al., 2000; Zuber-Skerritt, 2000). When the team consensus was that
the problem was not yet solved, the action research process began anew as the
plan for problem resolution was refined, implemented and monitored. When
reflection showed the problem was then solved, the project was concluded and
a report prepared (Passfield, 2000; Zuber-Skerritt and Perry, 2000). That is, the
cyclical process illustrated in Figure 1 continued until the initiating problem
was satisfactorily resolved and the action research process was exited (Carson
et al., 2001).
This project turned out to be emancipatory action research, rather than
merely technical or practical (Zuber-Skerrit and Perry, 2000). The relationship
between team leader (the first author) and other participants was collaborative,
the research context was somewhat ill-defined and the project involved
transformation of the entire organization as well as of workgroup
consciousness. That is, the implementation of this integrated system within
the action research organization transformed the latter’s business model from
passive observing to developing a virtual relationship with individual online
consumers, differentiating, interacting, personalising and learning from each
consumer’s communications and matching the developed consumer profile
intelligently to e-business vendor offerings. Indeed, the manager of the

Figure 1.
The action research
methodology
respondent organization confirms that this research was emancipatory: “This Customer
system has completely changed our business model from a reactive, relationship
non-differentiated style to an interactive, intelligent alternative. We are management
finally getting to understand and maximise the profitability of our customer
interactions. We could never do that before” (K. Anderson, personal
communication, 19 July 2000).
In brief, two action cycles were incorporated in this project to determine how 343
the Internet may be integrated with database marketing within an Australian
Internet portal. These action cycles, in conjunction with the reconnaissance
focus groups and convergent interviews discussed above, led to the
development of the final framework of the integration of Internet and
database marketing strategies that is described next.

Discussion of findings
The project above was done within a particular organization. We now turn to
analytic generalisation (Yin, 1994) of that action research, to build a theoretical
framework linked to extant literature that explains how Internet and database
marketing can be integrated in many other organizations, too. Our findings are
summarised in Table I and the framework is summarised in Figure 2, and they
are discussed next.

Research issue 1: inputs


The first research issue was concerned with how customer data can be
gathered passively and actively through the Internet for customer relationship
management purposes. This research confirms the literature about the two
types of primary and secondary data and also extends the literature by
identifying that primary data are the main type of data that database
marketers can gather through the Internet to form a complete database profile
of a customer. In more detail, most Internet/database organizations use both
active and passive information about customers gathered through the Internet
because they give an improved understanding of customers. However, actively
supplied customer data is the cornerstone of a better understanding customers
and thus organizations are turning to integrated permission-based e-mail
communications as a part of their total Internet marketing strategy. This
concept of permission marketing in the Web environment is based around
relationship building with consumers who have indicated an interest in
accepting promotional information from preferred e-tailers.
This research also adds to the literature by identifying additional factors
that contribute to obtaining customer data on an active basis. Apart from
corporate exchange of value in return for customer data provision identified in
the literature, the credibility of the organizations collecting data, the disclosure
of the purpose of data collection, how the organization handles security and
privacy issues, and attractiveness or stickiness of the organization’s Web site
EJM
Research issue Findings about the research issues
38,3/4
1. How can customer data Types of data collected through the Internet
be gathered passively and Both primary and secondary customer data can be collected
actively through the through the Internet
Internet for database Primary data collected through the Internet are more useful for
344 marketing purposes? Internet/database marketing purposes
Permission marketing has to be in place for the collection and use
of customer data
Active vs passive customer data
Customer data collected through the Internet can be categorized
into active and passive data
A mix of these two types of data is most effective for learning
about the customers
Passive data needs to be matched back with active data to
become meaningful
Factors influencing active customer data collection through the
Internet
Trust in a web environment
Web stickiness
The consumer must be provided with incentives and/or
compensated to provide active personal data
Data capture mechanisms
Cookies and click stream
Web registration forms and online surveys
Transaction records
Information self-service
Dealing with ongoing management and maintenance of data
currency
Minimizing number of data variables
Real time updates

2. How can customer data Data integration through data warehousing and data mining
from the Internet be requirement of supportive environment
integrated into database Supportive organizational culture
marketing processes? Appropriate e-commerce infrastructure
Top management commitment
Use of two marketing databases; one for real-time data accruing
from e-business interactions, and the other for integrating other
organizational consumer data and linking this to the real-time
database
System management and data standardisation
Integrated data analytical and campaign management
functionality within the database marketing application
Artificial intelligence learning and personalisation software for
Table I.
Findings for each of the consumer inbound marketing
three research issues (continued)
Customer
Research issue Findings about the research issues
relationship
3. How can customer Strategies that are most likely to be derived from the integration of management
information gathered Internet and database marketing to improve customer relationship
through the Internet be management
used to improve customer Prospecting new customers
relationship Segmenting customers 345
management? Retaining customers
Use of one-to-one marketing; where consumer interests are elicited
and refined on an individual basis; and the organization’s
communications, campaigns and offers are structured
accordingly
Forging customer loyalty
Promoting and advertising pertinent to a customer’s identified
interests
Cross marketing and relationship marketing
Affiliate marketing
Stealth marketing
Source: analysis of action research data Table I.

all contribute to the amount of active data that the marketers can obtain
through the Internet. Organizations may use different mechanisms to capture
and update active and passive customer data. The findings also identify
problems associated with these mechanisms, such as the inability of cookies
tracking customers at an individual level.

Research issue 2: about processes


The second research issue concerned how customer data collected through the
Internet can be integrated into database marketing processes. The findings of
this research supported the literature that standard data warehousing
procedures and techniques are used in integrating data. In addition, this
research highlights some important issues in implementing these technologies,
such as periodic updates and one unique identifier for all relevant data of one
customer. This research also identifies the elements of a supportive
organizational environment and appropriate e-commerce infrastructure as an
outbound element of the integration of the Internet and database marketing.
Further, this research found that artificial intelligence and data analytical
techniques can be applied to the integrated Internet and database marketing
infrastructure to enable the organization to effectively incorporate and respond
to the volumes of customer data in an Internet real-time environment and
provide proficient marketing strategies.
In this process, organizational culture, top management support and
collaboration between marketing and IT teams provide a supportive
environment and are critical for integration. Organizational culture must
EJM
38,3/4

346

Figure 2.
The final framework for
the integration of
Internet and database
marketing

support innovative use of the Internet in their marketing activities. Top


management must be philosophically and behaviourally committed to the
notion that the Internet is essential in collecting customer data and in enabling
effective database marketing. Finally, an effective cross-functional team of
information systems and marketing specialists must work harmoniously to
succeed in the integration of Internet and database marketing.
The next finding concerns the benefits of integrating Internet and database
marketing. First, improved quality of customer information (in box 1 of
Figure 2) enables marketers to target their most valuable prospects more
effectively, tailor their offerings to individual needs, improve customer
satisfaction, retention and loyalty, and identify opportunities for new products,
services and marketing of affiliates or through stealth (box 3 in Figure 2).
In conclusion, the extent, degree and speed of communication enabled by the Customer
Internet makes it a synergistic component of an effectual database marketing relationship
strategy. An integrated Internet and database marketing solution appears management
promising for Australian organizations.

Research issue 3: outputs 347


The third research issue concerned how customer information gathered
through the Internet can be used to improve customer relationship
management. This research shows that nine strategies are most likely to be
derived from the integration of Internet and database marketing to improve
customer relationship management: prospecting new customers, segmenting
customers, retaining customers, providing one-to-one marketing, promoting
and advertising pertinent to a customer’s identified interests, cross marketing
and relationship marketing, affiliate marketing, stealth marketing and forging
customer loyalty. The Internet and customer databases are potential means of
gathering customer information and communication to build a strong
relationship in the customer relationship management and ultimately impact
on the way in which customer relationship is built, developed and maintained.
In general, the benefit of integrating database marketing and Internet
marketing is that it enables marketers to increases the effectiveness of both
Internet marketing and database marketing. On one hand, the Internet enables
database marketers to increase their communication capabilities with their
customers in terms of the speed and relevance of the communication. That is,
by providing rich data, the Internet offers companies unprecedented
opportunities for getting to know their customers in depth and for
customizing offerings to meet their preferences on a one-to-one, personalised
basis. On the other hand, database marketing assists Internet marketers to be
more focused on their profitable customers and direct their Internet marketing
strategies to meet their needs and provide them with customized products and
services so that the relationships become enduring.
This research also emphasises that these marketing uses or marketing
strategies not only assist in achieving marketing goals for the organization but
also provide feedback as to how effective the collected data are, and thus assist
the organization in further data collection. That is, customers are fully
incorporated into the organizational value chain by identifying customer needs
and feedback through the interaction with the customer. For example, the
organization has the ability through an integrated Internet/database marketing
infrastructure to understand what specific products/services attributes appeal
to a customer. It then may be used in corporate Web site updates to encourage
customers to more actively contribute their information. Thus a feedback loop
is depicted in the framework (Figure 2).
In conclusion, there is little research about how Internet information can be
used in strategic database marketing processes. From the sparse literature and
EJM our empirical findings, a final framework about integrating Internet and
38,3/4 database marketing can be developed and was shown in Figure 2. The three
usual components of inputs, processes and strategic outputs have been
established from rigorous theory-building research about the integration of the
Internet and database marketing. That framework is a contribution because it
is a new comprehensive and rigorously researched step towards understanding
348 the important confluence of two new and powerful streams of business activity.

Implications for practice, policy and theory


Implications for practice and policy
The results of this research have implications for both theory and practice. The
first implication of this research relates to the benefits of integrating Internet
and database marketing as detailed in this research. The model developed in
this research for integrating Internet and database marketing (as shown in
Figure 2) suggests that the integration processes go through data inputs,
processing and strategic outputs. The model also highlights the feedback loop
that goes from the strategic outputs back to the data inputs. That is, there is a
circle through which the performance of the integration can be improved
continuously. The model further emphasizes the importance of organizational
culture, top management support and collaboration between marketing and IT
personnel. Thus managers need to be aware of those issues and provide a
supportive environment for the integration to take place and to make sure a
periodic evaluation eventuates, to improve their Internet and database
marketing performance.
This research showed that the most important output of the integration of
Internet/database marketing is an enabling of effective customer relationship
management. An important implication for practitioners as a result of the
increased effectiveness of Internet/database marketing is one-to-one marketing
(Peppers and Rogers, 1997). That is, marketers can use their enhanced data
capture, accurate and timely information about their customers to “understand
and satisfy the needs, wants and resources of individual customers rather,
rather than those of mass market or market segments” (Sheth et al., 2000, p. 56).
The notion of one-to-one marketing is closely linked to customer relationship
management as it relies on the building of relationships with customers to
acquire, retain and maximize the value of such relationships (Peppers and
Rogers, 1995, 1999). In the implementation of one-to-one marketing, four steps
can be taken. Table II details the specific actions based on this research’s
findings. Each of the steps is discussed next.
The first step involves identifying customers, and organizations must have
the technical capability to capture and conduct sophisticated analysis of
customer data for one-to-one marketing to be achievable. The setup costs and
expensive ongoing data management can be high. Thus it is inappropriate to
Steps required in one-to-one marketing Aims of the step Requirements of the organization

Step 1. Identifying customers To capture and store customer details (box 1 in The capacity to capture and present information
Figure 2) in a usable form
Sophisticated web sites and appropriate data
capture technology and expertise
Step 2. Differentiate customers To build an understanding of customers’ Supportive organizational environment such as
similarities and differences (box 2 in Figure 2) organizational culture
A sound understanding of customers
Data analytics, such as data mining, modeling
and OLAP
Step 3.Interact with customers To capture each contact and interact with the Flexibility to store and respond to customer
customer (boxes 1and 3 in Figure 2) information
Capability and desire to handle each customer
relationship on a individual basis
Demonstration of the benefits of sharing
information
Capability and desire of the organization to
develop the interaction and the willingness of the
customer to take part
Artificial intelligence routines to enable to
organization to interact effectively with the
multitude of customer data present through the
Internet
Step 4. Customize for customers To meet a customer’s individual needs and put Continually update and responding to customer
customers at the center of their own universe (box information
3 in Figure 2) Tangible rewards for customers from their
interaction with the organization
Personalization
Source: Analysis of the research findings
relationship
management

marketing
through the integration
one-to-one marketing

of Internet and database


implementation of
Guidelines of the
Customer

Table II.
349
EJM assess the value of the integration of Internet and database marketing without
38,3/4 comparing the costs.
The second step is to differentiate customers through customer data
analysis. By differentiating, the organization can capitalize on differing levels
of customer value and prioritize their efforts and gain the most advantage with
the most valuable customers (Peppers et al., 1999). Supportive environment is
350 required at this stage in the one-to-one marketing process. Factors such as
supportive organizational culture, top management commitment, customer
orientation and use of data analytical tools such as data mining and modeling,
all impact on the success implementation of integration of Internet and
database marketing (Figure 2)
The third step in implementing one-to-one marketing is to interact with the
customer. That is, every conversation and interaction with a customer needs to
set up the opportunity for the next. At this stage, the privacy and security
issues are important because many customers are wary about protecting their
personal information from commercial organizations (Peppers et al., 1999). The
bottom line is the practice of permission marketing in the Web environment
and the delivery of superior value to the customer (Mitchell, 2000).
The final step to implement one-to-one marketing is to customize for
customers. That is, organization must use the insights gleaned from the above
steps to meet a customer’s individual needs & being sufficiently responsive and
flexible to respond to the differences between customers. The Internet gives
customers the capability to influence how they interact with an organization
and to customize and personalize the services and offers they receive.
As well, this research has implications for policy makers. For example,
ethical considerations need to be addressed in the Internet/database marketing
process because of the increasing concerns amongst consumers about the
impact of the marketing management techniques on their privacy (Tweney,
1998; Prabhaker, 2000). Therefore, members of the direct marketing industry
should implement self-regulation themselves that met or exceed the regulatory
Personal Privacy Act due in December 2001 by moderating the amount of
intrusive and spam communications. For example, the Australian Direct
Marketing Association and other concerned businesses may require that
Internet pages that prompt users for information explicitly state how the
information will be used.

Implications for theory


The research findings and contributions have several implications for the
theory about Internet marketing and database marketing, as well as for the
qualitative research methodology of action research. This research provides
new insights into Internet and database marketing theory in two ways. First,
this research appears to provide the first investigation about the intersection of
Internet and database marketing in Australian organizations, and how it may
be achieved. Thus this research contributed to the theory-deficient area of the Customer
integration of Internet and database marketing, and provided the first relationship
theoretical framework (Figure 2) for such a phenomenon. Second, literature also management
tends to be from the perspective of countries such as the USA and the UK
which are more advanced than Australia in Internet and database applications
(for example, Smith, 1998; Geiger and Martin, 1999). Therefore there is little
literature about Internet and database marketing pertinent to countries such as
351
Australia and thus this research appears to be the first academic investigation
of this phenomenon in Australian organizations.
This research also has methodological implications. That is, this research
confirmed the usefulness of action research methodology that provided the
opportunity to build theory rather than test theory, with the end result being
the actual effective implementation of integrated Internet/database marketing
within a major Australian organization. This practical orientation
strengthened the foundations for this research and confirmed that action
research methodology useful for complex, contemporary and real life
situations. It also demonstrates that the methodology can be used in
relatively technical areas of marketing to build theories that should cover
situations other than the project’s own.

Further research
This research identifies a number of areas requiring further research. The
findings from this research could be tested from other perspectives. The
organizations included in this research represent only business-to-consumer
organizations. Future research could investigate the integration of Internet and
database marketing in the context of business-to-business because some
elements may differ from those in the context of business-to-consumer context.
For example, different types of data may be collected through the Internet and
different e-commerce infrastructures may by required. As well, further research
is needed to establish the statistical generalisability of these theory-building
findings in survey research when the population of marketing managers with
the requisite expertise becomes large enough for a survey to be done.

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Further reading
Hackathorn, R.D. (1998), Web Farming for the Data Warehouse, Morgan Kaufmann,
San Francisco, CA.
Stone, M. (2000), Data Chaos: A Court Case Waiting to Happen, Bristol Business School, Bristol.

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