The Business Value of CRM Systems: A Resource-Based Perspective Shutao Dong School of Business Renmin University of China dongsht@gmail.com Kevin Zhu The Rady School of Management University of California, San Diego kxzhu@ucsd.edu Abstract Drawing upon the resource-based view and the process-oriented view, we develop a conceptual model to examine the business value of customer relationship management (CRM) systems, using a dataset of 150 U.S. banking firms. The results show that: (1) CRM resources improve firm performance mainly through creating strategic benefits (e.g. increased customer retention, improved product and service), although there are significant operational benefits (e.g. efficiency gains and cost reduction in customer- oriented business processes); (2) in different competitive environments, the same resources play different roles in creating strategic benefits: technological resources have a weaker impact on strategic benefits in more competitive environments, while organizational alignment has a stronger impact in such environments; (3) operational benefits tend to be “competed away”, while strategic benefits sustain to generate performance advantage in spite of competition. These findings provide important implications for understanding how CRM value is shaped by various resources in competitive environments. 1. Introduction As the competition for customers intensifies, firms are striving to improve their interactions with customers by investing in customer relationship management systems [36]. Customer relationship management (CRM) systems are enterprise applications that manage business interactions with customers through integrating customer-oriented business processes, including marketing, sales, and customer services [13, 19]. Firms use CRM systems not only to automate customer-oriented business processes to reduce costs, but also to collect and analyze customer data to better fulfill customer needs and improve customer satisfaction, leading to increased selling opportunities [19]. Although firms are boosting their CRM investments, it remains unclear whether such investments can generate significant business payoffs [36]. In fact, firms have seen vastly different outcomes of CRM investments [37]. Firms such as First American Corporation (FAC) and Harrah’s Entertainment have been successful in leveraging CRM systems to improve their customer understanding, product/service quality, cost efficiency, and thus profitability [14]. Some other firms, however, have failed to derive business value from their million- dollar CRM initiatives, partly due to the difficulty in managing organizational changes required by CRM implementation [36]. A survey of more than 1,500 firms finds that 41% of the firms with CRM projects were either experiencing significant difficulties or close to failure [42]. Further, existence of efficient markets for CRM systems casts doubt on the extent to which CRM systems can indeed serve as a source of performance advantage, especially when intensified competition and imitation are present [31]. On the one hand, intensified competition makes it more difficult for firms to derive and retain value from CRM technology per se due to its commoditization and competitors’ imitation [31]; on the other hand, firms in highly competitive environments such as FAC and Harrah’s are able to leverage CRM systems to enhance customer satisfaction and improve product and offering, and thus achieve superior firm performance [14]. This suggests that firms in competitive environments can develop distinctive, CRM-enabled resources to gain performance advantage. Therefore, competition may significantly affect how firms derive business value from CRM systems. CRM practice has provided mixed evidence on the business value of CRM, calling for research on this important issue [25, 39]. Two studies have empirically found that CRM use significantly increases customer satisfaction and retention [25, 18]. However, evidence on the performance effects of CRM tends to be mixed. Proceedings of the 41st Hawaii International Conference on System Sciences - 2008 1530-1605/08 $25.00 © 2008 IEEE 1