Skip to main content
SpringerLink
Log in

The optimal level of CRM IT investments

An economic model and its application at a financial services provider

  • General Research
  • Published:
Electronic Markets Aims and scope Submit manuscript

Abstract

In light of the growing relevance of customer-oriented business strategies IT investments in the field of Customer Relationship Management have increased considerably. However, firms often could not realize sufficient returns on these IT investments. One major reason for this failure seems to be the lack of appropriate approaches to determine the economic impact of such investments ex ante. Therefore, we develop an economic model to determine the optimal level of Customer Relationship Management IT investments. Using this approach, firms can evaluate, to what extent investments in Customer Relationship Management IT are reasonable. One major result is that in most cases the “all or nothing strategy” pursued by many firms does not lead to the optimal level of investments. To illustrate the practical utility and applicability of the approach, we provide a real world example of a German financial services provider.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3

Similar content being viewed by others

Notes

  1. Other functions fulfilling the characteristics lead to similar findings.

  2. Other functions which fulfill the characteristics lead to similar findings.

  3. The fact that the new AS also positively affects the acquisition of new customers and the exhaustion of their potential is not taken into account here as the management wished for a conservative forecast.

  4. The index 1, …, i represents the cumulated functionalities 1 to i.

  5. When applying the continuous model the optimal project size has to be determined as shown in the previous section. Afterwards, a realizable project size “near” this optimal solution should be adopted.

  6. S 1 and S 2 are seen as must investments which induce ΔCE 1 =ΔCE 2  = 0 and are therefore not subject to a variation.

  7. This holds for a variation of LOC i in a symmetric interval from −16 % to +16 % and of ΔCE i in a symmetric interval from −14 % to +14 % around the respective initial values.

References

  • Ahearne, M., Jones, E., Rapp, A., & Mathieu, J. (2008). High touch through high tech: the impact of salesperson technology usage on sales performance via mediating mechanisms. Management Science, 54(4), 671–685.

    Article  Google Scholar 

  • Alt, R., & Smits, M. (2007). Networkability of organizations and business networks. In Proceedings of the 15th European Conference on Information Systems (ECIS), pp. 119–130, St. Gallen, Switzerland.

  • Anderson, J. C., Hakansson, H., & Johanson, J. (1994). Dyadic business relationships within a business network context. Journal of Marketing, 58(4), 1–15.

    Article  Google Scholar 

  • Anderson, E. W., & Sullivan, M. W. (1993). The anteceendts and consequences of customer satisfaction for firms. Marketing Science, 12(2), 125–143.

    Article  Google Scholar 

  • Ang, L., & Buttle, F. (2006). CRM software applications and business performance. Journal of Database Marketing and Customer Strategy Management, 14(1), 4–17.

    Article  Google Scholar 

  • Ang, L., & Taylor, B. (2005). Managing customer profitability using portfolio matrices. Journal of Database Marketing and Customer Strategy Management, 12(4), 298–304.

    Article  Google Scholar 

  • Barua, A., Kriebel, C., & Mukhopadhyay, T. (1995). Information technology and business value: an analytical and empirical investigation. Information Systems Research, 6(1), 3–23.

    Article  Google Scholar 

  • Beal, B. (2007). SOA muddying the CRM buy vs. build dilemma, <http://searchcrm.techtarget.com/news/1274252/SOA-muddying-the-CRM-buy-vs-build-dilemma> [Accessed January 14, 2012].

  • Benaroch, M., & Kauffman, R. (1999). A case for using real options pricing analysis to evaluate information technology project investments. Information Systems Research, 10(1), 70–86.

    Article  Google Scholar 

  • Berger, P. D., & Nasr-Bechwati, N. (1998). Customer lifetime value: marketing models and applications. Journal of Interactive Marketing, 12(1), 17–30.

    Article  Google Scholar 

  • Blattberg, R. C., & Deighton, J. (1996). Manage marketing by the customer equity test. Harvard Business Review, 74(4), 136–144.

    Google Scholar 

  • Boehm, B., Abts, C., Brown, A. W., Chulani, S., Clark, B. K., Horowitz, K., Madachy, R., Reifer, D., & Steece, B. (2000). Software cost estimation with COCOMO II. Upper Saddle River: Prentice Hall.

    Google Scholar 

  • Bohling, T., Bowman, D., LaValle, S., Narayandas, D., Ramani, G., & Varadarajan, R. (2006). CRM implementation: effectiveness issues and insights. Journal of Service Research, 9(2), 184–194.

    Article  Google Scholar 

  • Boulding, W., Staelin, R., Ehret, M., & Johnston, W. (2005). A customer relationship management roadmap: what is known, potential pitfalls, and where to go. Journal of Marketing, 69(4), 155–166.

    Article  Google Scholar 

  • Braunwarth, K., & Heinrich, B. (2008). IT-service-management—a model for determining the impact of interoperability standards on the integration of external IT service providers (in German). Wirtschaftsinformatik, 50(2), 98–110.

    Article  Google Scholar 

  • Brynjolfsson, E., & Hitt, L. (1996). Paradox lost? Firm-level evidence on the returns to information systems spending. Management Science, 42(4), 541–558.

    Article  Google Scholar 

  • Cheng, Z., & Nault, B. R. (2006). Industry level supplier-driven IT spillovers. Management Science, 53(8), 1199–1216.

    Article  Google Scholar 

  • Clermont, P. (2002). Cost-benefit analysis: it’s back in fashion, now let’s make it work. Information Strategy: The Executive’s Journal, 18(2), 6–11.

    Google Scholar 

  • Eberhardt, M., & Zimmermann, S. (2007) IT-gestützte individualisierte Altersvorsorgeberatung. Wirtschaftsinformatik, 49(2), 104–115.

    Google Scholar 

  • Eberhardt, M., Frieg, G., Mederer, M., & Neumann, B. (2008) Steueroptimierte Berufsunfähigkeitsabsicherung: Differenzierungspotenzial im Versicherungsmarkt. Discussion paper of the FIM Research Center.

  • Fox, P. (2001). CRM nightmare will go away, <http://www.computerworld.com/s/article/66195/CRM_Nightmare_Will_Go_Away?taxonomyId=120> [Accessed January 14, 2012].

  • Fromme, H. (2005). Rürup-retirement provisions involve a turnaround in sales of the financial services provider MLP (in German). Financial Times Germany (August 25 2005).

  • Gartner (2009). Gartner says worldwide CRM market grew 12.5 percent in 2008, <http://www.gartner.com/it/page.jsp?id=1074615> [Accessed January 14, 2012].

  • Gupta, S., & Lehmann, D. R. (2003). Customers as assets. Journal of Interactive Marketing, 17(1), 9–24.

    Article  Google Scholar 

  • Hadaya, P., & Cassivi, L. (2009). Collaborative e-product development and product innovation in a demand-driven network: the moderating role of eCRM. Electronic Markets, 19(2–3), 71–87.

    Article  Google Scholar 

  • Heidemann, J., Klier, M., Landherr, A., & Zimmermann, S. (2009). Economic planning of customer-oriented IT investments—a model based approach and its application at a financial services provider (in German). In Proceedings of the 9th International Conference Wirtschaftsinformatik, pp. 265–274, Wien, Austria, February 2009.

  • Heinrich, B., Leist, S., & Zellner, G. (2011) Service Integrators in business networks—the importance of relationship values. In: Electronic Markets 21(4), 215–235.

  • Heffner, R. (2008). SOA adoption: Budgets don’t matter much. White Paper, Forrester Research, Cambridge, Massachusetts.

  • Hevner, A. R., March, S. T., Park, J., & Ram, S. (2004). Design science in information systems research. MIS Quarterly, 28(1), 75–105.

    Google Scholar 

  • Ho, T. H., Park, Y. H., & Zhou, Y. P. (2006). Incorporating satisfaction into customer value analysis: optimal investment in lifetime value. Marketing Science, 25(3), 260–277.

    Article  Google Scholar 

  • Jung, H.-W., & Choi, B. (1999). Optimization models for quality and cost of modular software systems. European Journal of Operational Research, 112, 613–619.

    Article  Google Scholar 

  • Kim, H.-W., Lee, G.-H., & Pan, S. (2002). Exploring the critical success factors for customer relationship management and electronic customer relationship management systems. In Proceedings of the 23th International Conference on Information Systems, pp. 885–890, Barcelona, Spain, December 2002.

  • Kim, S. H., & Mukhopadhyay, T. (2006). Strategic investments in the right CRM technologies, in the right amount, and in the right order. In Proceedings of the 27th International Conference on Information Systems, pp. 1879–1895, Milwaukee, USA, December 2006.

  • Laux, H., Gillenkirch, R. M., & Schenk-Mathes, H. Y. (2012). Decision theory (in German). Berlin et al.: Springer.

  • Lee, C. S. (2001). Modeling the business value of information technology. Information & Management, 39(3), 191–210.

    Article  Google Scholar 

  • Legner, C. (2009). Is there a market for Web-Services? In E. Di Nitto & M. Ripeanu (Eds.), ICSOC 2007 Workshops, LNCS 4907 (pp. 29–42). Berlin et al.: Springer.

  • Liu, C.-T., Guo, Y. M., & Lee, C.-H. (2011). The effects of relationship quality and switching barriers on customer loyalty. International Journal of Information Management, 31(1), 71–79.

    Article  Google Scholar 

  • Nüttgens, M., & Dirik, I. (2008). Business models of service-oriented information systems—a strategic approach towards the commercialization of web services (in German). Wirtschaftsinformatik, 50(1), 31–38.

    Article  Google Scholar 

  • Pan, S. L., & Lee, J. N. (2003). Using e-CRM for a unified view of the customer. Communications of the ACM, 46(4), 95–99.

    Article  Google Scholar 

  • Peffers, P., Tuunanen, T., Rothenberger, M. A., & Chatterjee, S. (2008). A design science research methodology for information systems research. Journal of Management Information Systems, 24, 45–77.

    Article  Google Scholar 

  • Pfeifer, P. (2011). On estimating current-customer equity using company summary data. Journal of Interactive Marketing, 25(1), 1–14.

    Article  Google Scholar 

  • Romano, N. C., Jr., & Fjermestad, J. (2001a). Introduction to the special section: electronic commerce customer relationship management (ECCRM). International Journal of Electronic Commerce, 6(2), 7–8.

    Google Scholar 

  • Romano, N. C., Jr., & Fjermestad, J. (2001b). Electronic commerce customer relationship management: an assessment of research. International Journal of Electronic Commerce, 6(2), 61–113.

    Google Scholar 

  • Rigby, D., & Ledingham, D. (2004). CRM done right. Harvard Business Review, 82(11), 118–129.

    Google Scholar 

  • Rigby, D., Reichheld, F., & Schefter, P. (2002). Avoid the four perils of CRM. Harvard Business Review, 80(2), 101–109.

    Google Scholar 

  • Romano, N., & Fjermestad, J. (2009). Preface to the focus theme on eCRM. Electronic Markets, 19(2–3), 69–70.

    Article  Google Scholar 

  • Rust, R. T., Lemon, K., & Zeithaml, V. (2004). Return on marketing: using customer equity to focus marketing strategy. Journal of Marketing, 68(1), 109–127.

    Article  Google Scholar 

  • Ryals, L. (2005). Making customer relationship management work: the measurement and profitable management of customer relationships. Journal of Marketing, 69(4), 252–261.

    Article  Google Scholar 

  • Ryals, L., & Payne, A. (2001). Customer relationship management in financial services: towards information enabled relationship marketing. Journal of Strategic Marketing, 9, 4–27.

    Google Scholar 

  • Santhanam, R., & Kyparisis, G. J. (1996). A decision model for interdependent information system project selection. European Journal of Operational Research, 89(2), 380–399.

    Article  Google Scholar 

  • Schoder, D., & Madeja, N. (2004). Is customer relationship management a success factor in electronic commerce? Journal of Electronic Commerce Research, 5(1), 38–53.

    Google Scholar 

  • Swift, R. S. (2001). Accelerating customer relationships using CRM and relationship technologies. Upper Saddle River: Prentice-Hall.

    Google Scholar 

  • Tan, X., Yen, D. C., & Fang, X. (2002). Internet integrated customer relationship management—a key success factor for companies in the e-commerce arena. Journal of Computer Information Systems, 42, 77–86.

    Google Scholar 

  • Tansey, B., & Stroulia, E. (2007). Valuating software service development: integrating COCOMO II and real options theory. In Proceedings of 29th International Conference on Software Engineering Workshops, pp. 87–89, Minneapolis, USA, May 2007.

  • Taudes, A., Feurstein, M., & Mild, A. (2000). Options analysis of software platform decisions: a case study. MIS Quarterly, 24(2), 227–243.

    Article  Google Scholar 

  • TechTarget, & Forrester Research (2010). State of SOA 2010: Executive summary, <http://media.techtarget.com/searchSOA/downloads/TTAG-State-of-SOA-2010-execSummary-working-523%5B1%5D.pdf> [Accessed January 14, 2012].

  • Thatcher, M. E., & Pingry, D. E. (2004). An economic model of product quality and IT value. Information Systems Research, 15(3), 268–286.

    Article  Google Scholar 

  • Verhoef, C. (2002). Quantitative IT portfolio management. Science of Computer Programming, 45(1), 1–96.

    Article  Google Scholar 

  • Wiesel, T., & Skiera, B. (2007). Firm valuation based on customer lifetime values (in German). Zeitschrift für betriebswirtschaftliche Forschung, 59(September), 706–731.

    Google Scholar 

  • Wiesel, T., Skiera, B., & Villanueva, J. (2008). Customer equity: an integral part of financial reporting. Journal of Marketing, 72(2), 1–14.

    Article  Google Scholar 

  • Xu, Y., Yen, D., Lin, B., & Chou, D. (2002). Adopting customer relationship management technology. Industrial Management & Data Systems, 102(8–9), 442–452.

    Article  Google Scholar 

Download references

Acknowledgement

We thank the Austrian Science Fund (FWF): P 23567-G11 for funding this research.

Author information

Authors and Affiliations

  1. FIM Research Center of Finance & Information Management, University of Augsburg, Universitaetsstrasse 12, 86159, Augsburg, Germany

    Julia Heidemann & Andrea Landherr

  2. Department of Management Information Systems, University of Regensburg, Universitaetsstrasse 31, 93053, Regensburg, Germany

    Mathias Klier

  3. Department of Information Systems, Production and Logistics Management, University of Innsbruck, Universitaetsstrasse 15, 6020, Innsbruck, Austria

    Steffen Zimmermann

Authors
  1. Julia Heidemann
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Mathias Klier
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Andrea Landherr
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Steffen Zimmermann
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Mathias Klier.

Additional information

Responsible editor: Rainer Alt

Rights and permissions

Reprints and permissions

About this article

Cite this article

Heidemann, J., Klier, M., Landherr, A. et al. The optimal level of CRM IT investments. Electron Markets 23, 73–84 (2013). https://doi.org/10.1007/s12525-012-0096-0

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s12525-012-0096-0

Keywords

JEL classification

Search

Navigation