Business Driven Information Systems 2e

CHAPTER 9

CUSTOMER RELATIONSHIP
MANAGEMENT
AND
BUSINESS INTELLIGENCE

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights

Reserved
 9-2

Chapter Nine Overview

SECTION 9.1 – CUSTOMER RELATIONSHIP MANAGEMENT
– Customer Relationship Management Fundamentals
– Using IT to Drive Operational CRM
– Using IT to Drive Analytical CRM
– CRM Trends: SRM, PRM, ERM
– The Ugly Side of CRM
–
SECTION 9.2 – BUSINESS INTELLIGENCE
– Business Intelligence
– Operational, Tactical, and Strategic BI
– Data Mining
– Business Benefits of BI
 SECTION 9.1

CUSTOMER
RELATIONSHIP
MANAGEMENT

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights

Reserved
 9-4

LEARNING OUTCOMES
1. Compare operational and analytical customer
relationship management

3. Explain the formula an organization can use to find

its most valuable customers

5. Describe and differentiate the CRM technologies

used by sales departments and customer service
departments
 9-5

LEARNING OUTCOMES

• Describe and differentiate the CRM technologies

used by marketing departments and sales
departments

• Compare customer relationship

management, supplier relationship
management, partner relationship
management, and employee relationship
management
 9-6

CRM FUNDAMENTALS
• Customer relationship management
(CRM) – involves managing all aspects of a
customer’s relationship with an organization
to increase customer loyalty and retention
and an organization's profitability

• Many organizations, such as Charles

Schwab and Kaiser Permanente, have
obtained great success through the
implementation of CRM systems
 9-7

CRM FUNDAMENTALS
• CRM Picture 5

overview
 9-8

CRM as a Business Strategy

• CRM is not just technology, but a strategy,

process, and business goal that an organization
must embrace on an enterprisewide level

• CRM can enable an organization to:

– Identify types of customers
– Design individual customer marketing campaigns
– Treat each customer as an individual
– Understand customer buying behaviors
 9-9

Business Benefits of CRM

• Organizations can find their most valuable

customers through “RFM” - Recency,
Frequency, and Monetary value
– How recently a customer purchased items
(Recency)
– How frequently a customer purchased items
(Frequency)
– How much a customer spends on each
purchase (Monetary Value)
 9-10

Evolution of CRM

• CRM enables an organization to:

– Provide better customer service
– Make call centers more efficient
– Cross sell products more effectively
– Help sales staff close deals faster
– Simplify marketing and sales processes
– Discover new customers
– Increase customer revenues
 9-11

Evolution of CRM

• CRM reporting technology – help organizations

identify their customers across other applications

• CRM analysis technologies – help organization

segment their customers into categories such as
best and worst customers

• CRM predicting technologies – help

organizations make predictions regarding
customer behavior such as which customers are
at risk of leaving
 9-12

Evolution of CRM
• Three phases in the evolution of CRM
include reporting, analyzing, and
predicting
Picture 5
 9-13

Evolution of CRM
Picture 4
 9-14

Operational and Analytical CRM

• Operational CRM – supports traditional

transactional processing for day-to-day
front-office operations or systems that
deal directly with the customers

• Analytical CRM – supports back-office

operations and strategic analysis and
includes all systems that do not deal
directly with the customers
 9-15

Operational and Analytical CRM

Picture 6
 9-16

USING IT TO DRIVE
OPERATIONAL CRM
Picture 4
 9-17

Marketing and Operational CRM

• Three marketing operational CRM
technologies:
– List generator – compiles customer
information from a variety of sources and
segment the information for different
marketing campaigns
– Campaign management system – guides
users through marketing campaigns
– Cross-selling and up-selling
• Cross-selling – selling additional products or
services
• Up-selling – increasing the value of the sale
 9-18

Sales and Operational CRM

• The sales department was the first to begin
developing CRM systems with sales force
automation – a system that automatically tracks
Picture 5
all of the steps in the sales process
 9-19

Sales and Operational CRM

• Sales and operational CRM technologies
– Sales management CRM system –
automates each phase of the sales process,
helping individual sales representatives
coordinate and organize all of their accounts
– Contact management CRM system –
maintains customer contact information and
identifies prospective customers for future
sales
– Opportunity management CRM system –
targets sales opportunities by finding new
customers or companies for future sales
 9-20

Sales and Operational CRM

• CRM Pointers for Gaining Prospective

Customer
1. Get their attention
2. Value their time
3. Overdeliver
4. Contact frequently
5. Generate a trustworthy mailing list
6. Follow up
 9-21

Customer Service and

Operational CRM
• Three customer service operational CRM
technologies:
1. Contact center (call center)
2. Web-based self-service system
• Click-to-talk
3. Call scripting system
 9-22

Customer Service and

Operational CRM
• Common features included in contact
centers
– Automatic call distribution
– Interactive voice response
– Predictive dialing
 9-23

CRM Metrics
• Sales Metrics
– Number of prospective customers
– Number of new customers
– Number of retained customers
– Number of open leads
– Number of sales calls
– Amount of new revenue
– Amount of recurring revenue
– Number of proposals given
 9-24

CRM Metrics
• Service Metrics
– Cases closed same day
– Number of cases handled by agent
– Number of service calls
– Average number of service requests by type
– Average time to resolution
– Average number of service calls per day
 9-25

CRM Metrics
• Marketing Metrics
– Number of marketing campaigns
– New customer retention rates
– Number responses by marketing campaign
– Number of purchases by marketing campaign
– Revenue generated by marketing campaign
– Customer retention rate
 9-26

USING IT TO DRIVE
ANALYTICAL CRM
• Personalization – when a Web site knows enough
about a persons likes and dislikes that it can fashion
offers that are more likely to appeal to that person

• Analytical CRM relies heavily on data warehousing

technologies and business intelligence to glean insights
into customer behavior

• These systems quickly aggregate, analyze, and

disseminate customer information throughout an
organization
 9-27

USING IT TO DRIVE
ANALYTICAL CRM
• Analytical CRM information examples
1. Give customers more of what they want
2. Value their time
3. Overdeliver
4. Contact frequently
5. Generate a trustworthy mailing list
6. Follow up
 9-28

CRM TRENDS: SRM, PRM, AND

ERM
• Current trends include:
– Supplier relationship management
(SRM)
– Partner relationship management
(PRM)
– Employee relationship management
(ERM)
 9-29

THE UGLY SIDE OF CRM

Picture 3

• Business 2.0
ranked “You” the
customer as the
number one
person who
mattered most
 9-30

OPENING CASE QUESTIONS

Customer First Awards
1. Summarize the evolution of CRM and provide
an example of a reporting, analyzing, and
predicting question Progressive might ask its
customers

3. How could Progressive’s marketing

department use CRM technology to improve
its operations?

5. How could Mini’s sales department use CRM

technology to improve its operations?
 9-31

OPENING CASE QUESTIONS

Customer First Awards
1. How could Progressive and Mini’s
customer service departments use CRM
technology to improve their operations?

3. Define analytical CRM and its

importance to companies like
Progressive and Mini
 SECTION 9.2

BUSINESS
INTELLIGENCE

McGraw-Hill/Irwin ©2009 The McGraw-Hill Companies, All Rights

Reserved
 9-33

LEARNING OUTCOMES

1. Explain the problem associated

with business intelligence.
Describe the solution to this
business problem

3. Describe the three common

forms of data-mining analysis?

5. Compare tactical, operational,

 9-34

LEARNING OUTCOMES

1. Explain the organization-wide

benefits of BI

3. Describe the four categories of BI

business benefits
 9-35

BUSINESS INTELLIGENCE
• Business intelligence (BI) – applications
and technologies used to gather, provide
access to, and analyze data and information
to support decision-making efforts

• Parallels between the challenges in business

and challenges of war
– Collecting information
– Discerning patterns and meaning in the
information
– Responding to the resultant information
 9-36

The Problem: Data Rich,

Information Poor
• Businesses face a data explosion as
digital images, email in-boxes, and
broadband connections doubles by
2010

• The amount of data generated is

doubling every year

• Some believe it will soon double

 9-37

The Solution: Business

Intelligence
• Improving the quality of business
decisions has a direct impact on costs
and revenue

• BI systems and tools results in

creating an agile intelligent
enterprise
 9-38

The Solution: Business

Intelligence
• BI enables business users to receive
data for analysis that is:
– Reliable
– Consistent
– Understandable
– Easily manipulated
 9-39

The Solution: Business

Intelligence
• BI can answer tough customer questions
Picture 3
 9-40

OPERATIONAL, TACTICAL,
AND STRATEGIC BI
• Claudia Imhoff, president of Intelligent
Solutions, divides the Spectrum of data
mining analysis and business intelligence
into three categories:
– Operational
– Tactical
– Strategic
 9-41

OPERATIONAL, TACTICAL,
AND STRATEGIC BI
Picture 3
 9-42

OPERATIONAL, TACTICAL,
Content Placeholder 4
AND STRATEGIC BI
 9-43

BI’s Operational Value

• Richard Hackathorn’s graph
demonstrating the value of
Picture 3

operational BI
 9-44

BI’s Operational Value

• The key is to shorten the latencies
so that the time frame for
opportunistic influences on
customers, suppliers, and others is
faster, more interactive, and better
positioned
 9-45

DATA MINING
• Data mining – process of analyzing data to
extract information

• Data-mining tools – use a variety of

techniques to find patterns and relationships in
large volumes of information
– Classification
– Estimation
– Affinity grouping
– Clustering
 9-46

DATA MINING
• Common forms of data-mining analysis
capabilities include:
– Cluster analysis
– Association detection
– Statistical analysis
 9-47

Cluster Analysis
• Cluster analysis – a technique used to divide
an information set into mutually exclusive
groups such that the members of each group
are as close together as possible to one
another and the different groups are as far
apart as possible

• CRM systems depend on cluster analysis to

segment customer information and identify
behavioral traits
 9-48

Association Detection
• Association detection – reveals the
degree to which variables are related
and the nature and frequency of these
relationships in the information
– Market basket analysis

– INSERT FIGURE 9.17

 9-49

Statistical Analysis
• Statistical analysis – performs such
functions as information correlations,
distributions, calculations, and variance
analysis
– Forecast – predictions made on the basis
of time-series information
– Time-series information – time-stamped
information collected at a particular
frequency
 9-50

BUSINESS BENEFITS OF BI

• Benefits of BI include:
– Single Point of Access to Information for
All Users
– BI across Organizational Departments
– Up-to-the-Minute Information for
Everyone
 9-51

Four Primary Categories of

BI Benefits
• Four main categories:
– Quantifiable benefits
– Indirectly quantifiable benefits
– Unpredictable benefits
– Intangible benefits
 9-52

OPENING CASE QUESTIONS

Customer First Awards
1. Explain the problems of gathering business
intelligence form car accidents. How can BI
solve this problem and help Progressive
Insurance become more efficient and more
effective?

3. Choose one of the three common forms of

data-mining analysis and explain how
Progressive Insurance can use it to gain BI
 9-53

OPENING CASE QUESTIONS

Customer First Awards
1. How can Mini use tactical, operational,
and strategic BI

3. What types of ethical and security issues

will companies face when using business
intelligence?
 9-54

CLOSING CASE ONE

Calling All Canadians
1. What are the two different types of CRM and
how can they be used to help an organization
gain a competitive advantage?

3. Explain how a contact center (or call center)

can help an organization achieve its CRM
goals

5. Describe three ways an organization can

perform CRM functions over the Internet
 9-55

CLOSING CASE ONE

Calling All Canadians
1. How will outsourcing contact centers
(call centers) to Canada change as
future CRM technologies replace current
CRM technologies?
 9-56

CLOSING CASE TWO

Fighting Cancer with Information
1. How could the ACS’s marketing department
use operational CRM to strengthen its
relationships with its customers?

3. How could the ACS’s customer service

department use operational CRM to strengthen
its relationships with its customers?

5. Review all of the operational CRM technologies

and determine which one would add the
greatest value to ACS’s business
 9-57

CLOSING CASE TWO

Fighting Cancer with Information
• Describe the benefits ACS could gain
from using analytical CRM

• Summarize SRM and describe how ACS

could use it to increase efficiency in its
business

• How could BI and data mining help

fight cancer?
 9-58

CLOSING CASE THREE

Intelligent Business
• What is the problem of gathering
business intelligence from a traditional
company? How can BI solve this
problem?

• Choose one of the three common forms

of data-mining analysis and explain how
Travelocity could use it to gain BI

• How will tactical, operational, and strategic BI

be different when applied to personal Google?

• How is IBM’s search and analysis

 9-59

CLOSING CASE THREE

Intelligent Business
• What does the term “pervasive
business intelligence” mean?
• How could any business benefit from
technology such as Personal Google?
• How could a company use BI to
improve its supply chain?
• Highlight any security and ethical
issues associated with Biggle
 9-60

BUSINESS DRIVEN BEST

SELLERS
• The Anatomy of Buzz, by Emanuel
Rosen
 9-61

BUSINESS DRIVEN BEST

SELLERS
• Loyalty Rules!, by Frederick F.
Reichheld