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    Business Process Management JournalUnderstanding customer relationship management (CRM): People, process and

    technologyInjazz J. Chen and Karen Popovich

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    To cite this document:Injazz J. Chen and Karen Popovich, (2003),"Understanding customer relationship management (CRM)",Business Process Management Journal, Vol. 9 Iss 5 pp. 672 - 688Permanent link to this document:http://dx.doi.org/10.1108/14637150310496758

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    Understanding customer

    relationship management(CRM)People, process and technology

    Injazz J. Chen and Karen PopovichDepartment of Operations Management and Business Statistics,

    College of Business Administration, Cleveland State University,Cleveland, Ohio, USA

    KeywordsCustomer relations, Business process re-engineering, Relationship marketing,

    Integration

    AbstractCustomer relationship management (CRM) is a combination of people, processes andtechnology that seeks to understand a companys customers. It is an integrated approach tomanaging relationships by focusing on customer retention and relationship development. CRM hasevolved from advances in information technology and organizational changes in customer-centric

    processes. Companies that successfully implement CRM will reap the rewards in customer loyaltyand long run profitability. However, successful implementation is elusive to many companies,mostly because they do not understand that CRM requires company-wide, cross-functional,customer-focused business process re-engineering. Although a large portion of CRM is technology,viewing CRM as a technology-only solution is likely to fail. Managing a successful CRMimplementation requires an integrated and balanced approach to technology, process, and people.

    1. IntroductionIn the mid-twentieth century, mass production techniques and mass marketingchanged the competitive landscape by increasing product availability forconsumers. However, the purchasing process that allowed the shopkeeper andcustomer to spend quality time getting to know each other was alsofundamentally changed. Customers lost their uniqueness, as they became anaccount number and shopkeepers lost track of their customers individualneeds as the market became full of product and service options. Manycompanies today are racing to re-establish their connections to new as well asexisting customers to boost long-term customer loyalty. Some companies arecompeting effectively and winning this race through the implementation ofrelationship marketing principles using strategic and technology-basedcustomer relationship management (CRM) applications.

    CRM technology applications link front office (e.g. sales, marketing andcustomer service) and back office (e.g. financial, operations, logistics andhuman resources) functions with the companys customer touch points(Fickel, 1999). A companys touch points can include the Internet, e-mail, sales,direct mail, telemarketing operations, call centers, advertising, fax, pagers,

    The Emerald Research Register for this journal is available at The current issue and full text archive of this journal is available at

    http://www.emeraldinsight.com/researchregister http://www.emeraldinsight.com/1463-7154.htm

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    Business Process ManagementJournalVol. 9 No. 5, 2003pp. 672-688q MCB UP Limited1463-7154DOI 10.1108/14637150310496758

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    stores, and kiosks. Often, these touch points are controlled by separateinformation systems. CRM integrates touch points around a common view ofthe customer (Eckerson and Watson, 2000). Figure 1 demonstrates therelationship between customer touch points with front and back officeoperations.

    In some organizations, CRM is simply a technology solution that extendsseparate databases and sales force automation tools to bridge sales andmarketing functions in order to improve targeting efforts. Other organizationsconsider CRM as a tool specifically designed for one-to-one (Peppers andRogers, 1999) customer communications, a sole responsibility of sales/service,call centers, or marketing departments. We believe that CRM is not merelytechnology applications for marketing, sales and service, but rather, when fullyand successfully implemented, a cross-functional, customer-driven,technology-integrated business process management strategy that maximizes

    relationships and encompasses the entire organization (Goldenberg, 2000). ACRM business strategy leverages marketing, operations, sales, customerservice, human resources, R&D and finance, as well as information technologyand the Internet to maximize profitability of customer interactions. Forcustomers, CRM offers customization, simplicity, and convenience forcompleting transactions, regardless of the channel used for interaction(Gulati and Garino, 2000).

    CRM initiatives have resulted in increased competitiveness for manycompanies as witnessed by higher revenues and lower operational costs.Managing customer relationships effectively and efficiently boosts customersatisfaction and retention rates (Reichheld, 1996a, b; Jackson, 1994; Levine,

    1993). CRM applications help organizations assess customer loyalty andprofitability on measures such as repeat purchases, dollars spent, andlongevity. CRM applications help answer questions such as What products orservices are important to our customers? How should we communicate with ourcustomers? What are my customers favorite colors or what is my customerssize? In particular, customers benefit from the belief that they are saving timeand money as well as receiving better information and special treatment(Kassanoff, 2000). Furthermore, regardless of the channel or method used tocontact the company, whether it is the Internet, call centers, salesrepresentatives, or resellers, customers receive the same consistent and

    efficient service (Creighton, 2000). Table I provides a brief overview of some ofthe benefits that CRM offers by sharing customer data throughout theorganization and implementing innovative technology.

    With much success, software vendors such as Oracle, SAP, PeopleSoft,Clarify, SAS, and Siebel are racing to bring off-the-shelf CRM applications toorganizations. Many of these are the vendors responsible for developingenterprise resource planning (ERP) systems. AMR Research estimates that theCRM market will top $16.8 billion by 2003 (Tiazkun, 1999).

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    Figure 1.CRM applications,supported by ERP/datawarehouse, link frontand back office functions

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    While there are many compelling reasons to consider a CRM strategy, cautionand careful analysis is prudent. Hackney (2000) warns that although CRMsoftware vendors may entice organizations with promises of all-powerful

    applications, to date there is no 100 percent solution. Possible risks such asproject failure, inadequate return on investment, unplanned project budgetrevisions, unhappy customers, loss of employee confidence, and diversion ofkey management time and resources must be well thought out (Schweigert,2000). In one example, a large telecommunications company rolled out a majorCRM application to more than 1,000 sales reps in late 1999, at a cost of $10,000per user, only to find a year later that fewer than 100 were using the system(Patton, 2001). Recent surveys further reveal that the average investment inCRM applications is $2.2 million dollars (CIO Research Reports, 2002), and thatCRM implementation failure rate is as high as 65 percent (Apicella et al., 1999).

    It is becoming increasingly clear that stalled or failed CRM projects are often

    the result of companies lacking a thorough understanding of what CRMinitiatives entail. Thus, this paper first presents the evolution of CRM to facilitatethe comprehension of the implementation issues. It then sets out to explore theunderlying critical components that can enable (or hinder) the successfulimplementation of CRM initiatives. A CRM implementation model thatintegrates the three key dimensions of people, process, and technology withinthe context of an enterprise-wide customer-driven, technology-integrated,cross-functional organization is proposed in Figure 2. The essential roles ofthese three dimensions are further elaborated in the subsequent sectionsfollowing the evolution of CRM.

    2. CRM evolutionCustomer relationship management itself is not a new concept but is nowpractical due to recent advances in enterprise software technology. Anoutgrowth of sales force automation (SFA) tools, CRM is often referred to in theliterature as one-to-one marketing (Peppers and Rogers, 1999). SFA softwareautomates routine tasks such as tracking customer contacts and forecasting.The goal of SFA is to allow the sales force to concentrate more on selling and

    Customer data sharing throughout theorganization resulting in: CRM innovative technology:

    Superior levels of customer serviceOpportunities for cross-selling and up-sellingVast information about customers habits and

    preferencesIntegrated and complete view of the customerImproved targeting to segments and individual

    customersEfficient call centers/service centers

    Extends capability to the customer forself-service and Internet applications

    Attracts existing and new customers throughpersonalized communications and improvedtargeting

    Integrates customer and supplier relationshipsConstructs metrics to analyze common and

    unique customer patternsTable I.

    CRM benefits

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    less on administrative tasks. It should be noted, however, that CRM also has itsroots in relationship marketing which is aimed at improving long runprofitability by shifting from transaction-based marketing, with its emphasison winning new customers, to customer retention through effectivemanagement of customer relationships (Christopher et al., 1991). Thus, CRMis a more complex and sophisticated application that mines customer data thathas been pulled from all customer touch points, creating a single andcomprehensive view of a customer while uncovering profiles of key customersand predicting their purchasing patterns. Technology that tracks and analyzescustomer behavior allows companies to easily identify the best customers andfocus marketing efforts and reward those who are likely to buy often.Acquiring a better understanding of existing customers allows companies tointeract, respond, and communicate more effectively to significantly improveretention rates.

    Innovations in technology, competitive environments, and the Internet are

    just several factors that make one-to-one initiatives a reality. Companies candevelop these relationships to customize the shopping experience, betterpredict online buying patterns, entice customers with special offers or services,evaluate the economic advantage of each customer, and build long-termmutually beneficial relationships. The following examples highlight some ofthe benefits of CRM applications.

    Ritz-Carlton, an upscale chain of hotels, records guest preferences gleanedfrom conversation with customers during their stay and uses them to tailor the

    Figure 2.A CRM implementationmodel

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    services that customers receive on their next visit at any other Ritz-Carlton inthe world. Requests for items such as hypoallergenic pillows and additionaltowels are recorded for future use so that personalized goods and services canbe added for repeat customers. Mining customer data allowed Bank One tosignificantly reduce turnover among its most profitable small businesscustomers by assigning dedicated account managers (Conlon, 1999). Theservice industry, however, is not the only industry to harness people, process,and technology to manage resilient customer relationships. Dell ComputerCorporation exemplifies CRM success by combining IT with front and backoffice operations. Every PC that Dell manufactures is already sold. From theInternet, Dell customers are able to configure their own system, from thousandsof hardware and software combinations, with an easy-to-use ordering systemthat provides delivery dates as well as progress updates.

    3. The technology factorInformation technology (IT) has long been recognized as an enabler to radicallyredesign business processes in order to achieve dramatic improvements inorganizational performance (Davenport and Short, 1990; Porter, 1987). ITassists with the re-design of a business process by facilitating changes to workpractices and establishing innovative methods to link a company withcustomers, suppliers and internal stakeholders (Hammer and Champy, 1993).CRM applications take full advantage of technology innovations with theirability to collect and analyze data on customer patterns, interpret customerbehavior, develop predictive models, respond with timely and effectivecustomized communications, and deliver product and service value to

    individual customers. Using technology to optimize interactions withcustomers, companies can create a 360 degree view of customers to learn frompast interactions to optimize future ones (Eckerson and Watson, 2000).

    Innovations in network infrastructure, client/server computing, andbusiness intelligence applications are leading factors in CRM development.CRM solutions deliver repositories of customer data at a fraction of the cost ofolder network technologies. CRM systems accumulate, store, maintain, anddistribute customer knowledge throughout the organization. The effectivemanagement of information has a crucial role to play in CRM. Information iscritical for product tailoring, service innovation, consolidated views ofcustomers, and calculating customer lifetime value (Peppard, 2000). Amongothers, data warehouses, enterprise resource planning (ERP) systems, and theInternet are central infrastructures to CRM applications.

    3.1 Data warehouse technologyA data warehouse is an information technology management tool that givesbusiness decision makers instant access to information by collecting islands ofcustomer data throughout the organization by combining all database and

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    operational systems such as human resources, sales and transaction processingsystems, financials, inventory, purchasing, and marketing systems. Specifically,data warehouses extract, clean, transform, and manage large volumes of datafrom multiple, heterogeneous systems, creating a historical record of allcustomer interactions (Eckerson and Watson, 2000). The abilities to view andmanipulate set data warehouses apart from other computer systems. Constantlyextracting knowledge about customers reduces the need for traditionalmarketing research tools such as customer surveys and focus groups. Thus, it ispossible to identify and report by product or service, geographic region,distribution channel, customer group, and individual customer (Story, 1998).Information is then available to all customer contact points in the organization.

    Data warehousing technology makes CRM possible because it consolidates,correlates and transforms customer data into customer intelligence that canused to form a better understanding of customer behavior. Customer data

    includes all sales, promotions, and customer service activities (Shepard et al.,1998). In addition to transaction details, many other types of data generatedfrom internal operations can make significant contributions. Informationrelated to billing and account status, customer service interactions, back orders,product shipment, product returns, claims history, and internal operating costsall can improve understanding of customers and their purchasing patterns. Theability of a data warehouse to store hundreds and thousands of gigabytes ofdata make drill-down analysis feasible as well as immediate. A corporateawareness survey conducted jointly by Cap Gemini and International DataCorporation (1999) found that 70 percent of US firms and 64 percent ofEuropean firms plan on building a data warehouse to support their CRM

    projects. SAS Corporation, a significant player in the data warehouse industry,has recently teamed with Peppers and Rogers Group to provide CRMResource, a weekly guide on industry-focused CRM. A brief outline oforganizational benefits with a data warehouse are:

    . accurate and faster access to information to facilitate responses tocustomer questions;

    . data quality and filtering to eliminate bad and duplicate data;

    . extract, manipulate and drill-down data quickly for profitability analysis,customer profiling, and retention modeling;

    . advanced data consolidation and data analysis tools for higher level

    summary as well as detailed reports; and. calculate total present value and estimate future value of each and every

    customer.

    3.2 Enterprise resource planning (ERP) systemsEnterprise resource planning (ERP), when successfully implemented, links allareas of a company including order management, manufacturing, human

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    resources, financial systems and distribution with external suppliers andcustomers into a tightly integrated system with shared data and visibility(Chen, 2001). An overview of ERP systems is provided in Figure 3. Majorenterprise systems vendors, who have been successful in the ERP market, aregearing up for the growing needs of CRM by aggressively forming allianceswith, or taking over other software companies that have been operating in theCRM market. For example, J.D. Edwards entered into a deal with Seibel, aleading CRM company, in May 1999 and subsequently shut down its in-housesales force automation team. Peoplesoft acquired Vantives CRM software inOctober 1999 to integrate with its own ERP systems. Through mySAPinitiatives, users of SAP R/3 system can add Web-based CRM and SCMfunctions while leaving the core R/3 system intact (Xenakis, 2000). Oracle hastaken the most drastic steps in forming a new bond between ERP and CRM.The new flagship ERP/CRM software package, called 11i, is heavily Internet

    oriented and allows users to seamlessly implement modules of CRM with asmaller ERP suite (Sweat, 2000).Significant differences exist between ERP technology and CRM

    applications. ERP serves as a strong foundation with tightly integrated backoffice functions while CRM strives to link front and back office applications tomaintain relationships and build customer loyalty. ERP systems promise tointegrate all functional areas of the business with suppliers and customers.CRM promises to improve front office applications and customer touch pointsto optimize customer satisfaction and profitability. While ERP systems addressfragmented information systems, CRM addresses fragmented customer data.CRM applications are Web-enabled and designed to extend the data mining

    capabilities of ERP throughout the supply chain to customers, distributors, andmanufacturers (Scannell, 1999). Organizations can use CRM analyticalcapabilities to predict and answer key business questions on customerintelligence and share the results across channels. Although ERP is notrequired for CRM, providing customers, suppliers, and employees withWeb-based access to systems through CRM will only be beneficial if theunderlying infrastructure, such as data warehouses and/or ERP, exists(Solomon, 2000). Companies with an ERP system, however, need to understandwhere they are in the implementation process, as well as assess where othertechnologies, such as data warehouses, fit in before plunging into CRMapplications (Saunders, 1999).

    3.3 Impact of the InternetThe explosive growth of the Internet has also brought new meaning to buildingcustomer relationships. Greater customer access to the organization, such asonline ordering and around the clock operations, has set the stage for a shiftingparadigm in customer service. A recent report describes how successful Websites are in building lasting relationships with e-customers by offering

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    Figure 3.An overview ofERP systems

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    services in traditionally impossible ways (Peppers and Rogers, 2000). Using aseries of richly detailed case studies, they also contended that in the broadarena of business-to-business commerce, organizations would rise or fall on thebasis of their capabilities to cultivate one-to-one relationships with theircustomers (Peppers and Rogers, 2001). Customers expect organizations toanticipate their needs and provide consistent service at levels above theirexpectations. In return, customers are loyal to the organization for longerperiods of time. For instance, the American Airlines Web site buildscustomized customer views in real time allowing two million frequent fliers tohave a unique experience each time they log on (Peppers and Rogers, 1999).Prior to the Internet, there was not a cost-effective way to tell millions ofcustomers fitting a certain profile about an immediately available special fare.With the interactive capability of the Internet, American Airlines can doexactly that without having to tell everyone about every special fare. As a part

    of CRM, American Airlines offers loyal customers promotional fares andspecial discounts to partner businesses based on individual customerpreferences.

    4. Business process changesNot long ago, companies with efficient facilities and greater resources were ableto satisfy customer needs with standardized products, reaping advantagesthrough productivity gains and lower costs. Mass marketing and massproduction were successful as long as customers were satisfied withstandardized products. As more firms entered the market, mass marketingtechniques, where the goal was to sell what manufacturing produced, started tolose effectiveness. Target marketing, or segmentation, shifted a companysfocus to adjusting products and marketing efforts to fit customer requirements.Changing customer needs and preferences require firms to define smaller andsmaller segments.

    It has become well known that retaining customers is more profitable thanbuilding new relationships. Consequently, relationship marketing wasdeveloped on the basis that customers vary in their needs, preferences,buying behavior, and price sensitivity. Therefore, by understanding customerdrivers and customer profitability, companies can better tailor their offerings tomaximize the overall value of their customer portfolio. In his seminal study,

    Reichheld (1996a, b) has documented that a 5 percent increase in customerretention resulted in an increase in average customer lifetime value of between35 percent and 95 percent, leading to significant improvements in companyprofitability.

    Customer relationship marketing techniques focus on single customers andrequire the firm to be organized around the customer, rather than the product.Customer-centric organizations seamlessly integrate marketing and otherbusiness processes to serve customers and respond to market pressures. Firms

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    Figure 4.Changing marketing

    strategies

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    The goals of a customer-centric model are to increase revenue, promotecustomer loyalty, reduce the cost of sales and service, and improve operations.Optimizing customer relationships requires a complete understanding of allcustomers; profitable as well as non-profitable, and then to organize businessprocesses to treat customers individually based on their needs and their values(Renner, 2000). Within the paradigm of business process re-engineering,Al-Mashari and Zairi (1999) offer a holistic view of success and fail factors.Specifically, change management, management support, organizationalstructure, project management, and information technology were highlighted.Companies considering CRM implementation can also benefit from addressingthese five BPR issues.

    5. People changesImplementation of enterprise technology, such as CRM and ERP, requires

    changes to organizational culture (Al-Mashari and Zairi, 2000). While bothtechnology and business processes are both critical to successful CRMinitiatives, it is the individual employees who are the building blocks ofcustomer relationships. There are several underlying dimensions surroundingmanagement and employees that successful CRM implementations require.

    Top management commitment is an essential element for bringing aninnovation online and ensuring delivery of promised benefits. Topmanagement commitment, however, is much more than a CEO giving his orher blessing to the CRM project. Customer-centric management requires topmanagement support and commitment to CRM throughout the entire CRMimplementation. Without it, momentum quickly dies out. Furthermore, topmanagement should set the stage in CRM initiatives for leadership, strategicdirection and alignment of vision and business goals (Herington and Peterson,2000). This view was reinforced in a recent META Group Report (1998) thatsingled out top management support and involvement as a key success factorfor CRM implementations.

    As in most major change efforts, objections and disagreement amongvarious functional departments that arise in the process of businessreengineering and CRM implementation can only be solved through personalintervention by top management, usually resulting in changes to corporateculture. The META Group Report (1998) concluded that investing in CRM

    technology without a customer oriented cultural mindset is like throwingmoney into a black hole. Dickie (1999) also warns against starting a CRMproject if senior management does not fundamentally believe in re-engineeringa customer-centric business model.

    CRM projects require full-time attention of the implementation project teamwith representatives from sales, marketing, manufacturing, customer services,information technology, etc. Cap Gemini and IDC found that top managementand marketing and sales management are generally the initiators of a corporate

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    CRM project (1999). In addition, project teams require not only sponsorship bytop management but also a project champion that can persuade topmanagement for continuous change efforts (Al-Mashari and Zairi, 1999). Ingeneral, project teams assist companies to integrate their core businessprocesses, combine related activities, and eliminate the ones that dont addvalue to customers.

    A functional organization often takes ownership of customer data. Manydepartments and individuals see customer handling as a sales or marketingfunction, and regard the release of their data to another function as a loss ofpower. A customer-centric model requires sharing the data enterprise-wide; thisusually requires a fundamental paradigm shift in the culture to sharinginformation and knowledge. Especially in organizations where tradition hasestablished separate goals and objectives, top management must not take apassive role in change efforts. Silo-based organizational myopia must be replaced

    with a customer-focus so departments will collaborate rather than compete witheach other. Many of these changes efforts can be aided by effectivecommunication throughout the entire project and reaching all levels of employees.

    CRM initiatives require vision and each and every employee mustunderstand the purpose and changes that CRM will bring. Re-engineering acustomer-centric business model requires cultural change and the participationof all employees within the organization. Some employees may opt to leave;others will have positions eliminated in the new business model. Successfulimplementation of CRM means that some jobs will be significantly changed.Management must show its commitment to an ongoing company-wideeducation and training program. In addition to enhancing employee skills and

    knowledge, education boosts motivation and commitment of employee andreduces employee resistance. Additionally, management must ensure that jobevaluations, compensation programs, and reward systems are modified on abasis that facilitate and reward customer orientation. After all, how people aremeasured will determine their behavior.

    6. ConclusionSomewhere along the turn of the twentieth century, buyers and sellers lost theirintimate relationships. Prior to the Industrial Revolution, sellers knew theircustomers, many times by name, and generally understood their needs. Mass

    production built a wall between buyers and sellers where the main concept wasto find customers for standardized products. Customers are more empoweredtoday than ever before and the Internet is accelerating the trend toward greatercustomer empowerment. CRM applications attempt to focus on the customerfirst, specifically one customer at a time, to build a long-lasting mutuallybeneficial relationship.

    Customer relationship management is a comprehensive approach thatpromises to maximize relationships with all customers, including Internet or

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    e-customers, distribution channel members, and suppliers. Getting to knoweach customer through data mining techniques and a customer-centricbusiness strategy helps the organization to proactively and consistently offer(and sell) more products and services for improved customer retention andloyalty over longer periods of time. Peppers and Rogers (1999) refer to this asmaximizing lifetime customer share, resulting in customer retention andcustomer profitability. On the other hand, advanced customer data analysisalso allows a company to identify the customers it does not want to serve.Beside the technological advances, CRM initiatives represent a fundamentalshift in emphasis from managing product portfolios to managing portfolios ofcustomers, necessitating changes to business process and people. Ascompanies start to re-engineer themselves around customers, individualemployees must also come to terms with changing business process,organizational culture and, thus, the ways they view their customers and how

    they treat them.Organizations today must focus on delivering the highest value to customersthrough better communication, faster delivery, and personalized products andservices. Since a large percentage of customer interactions will occur on theInternet rather than with employees (Bultema, 2000), technology must adapt tothe changing and unpredictable market. Organizations that implement CRMand e-business applications will have the greatest gains (Lange, 1999). Thefuture of CRM is e-relationship management or eRM that will synchronizecross-channel relationships (Saunders, 1999). It is also envisioned as ane-partnering ecosystem with a complex network of partners that operate asan interconnected whole, spanning entire markets and industries (Creighton,

    2000; Siebel, 2001).CRM implementations and the changing effect of the Internet offer abundant

    research opportunities. The identification of some implementation issues in thisstudy raises several important research questions. In particular, what are theroles of suppliers and supply chain partners in CRM? How does e-CRMstrategies affect brick and mortar companies? What business processes,integration challenges, and organization structures are common throughoutsuccessful CRM implementations? Research in these areas will contribute tobuilding thriving customer relationships and long-term corporate survival.Years of academically researched topics of relationship marketing andcustomer retention are now practical and cost-effective to implement due to

    emerging technology. It is time to put academic theories to practice.

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