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The market enthusiasm generated around investment in CRM technology is in stark contrast to the naysaying by many academic and business commentators. This raises an important research question concerning the extent to which companies should continue to invest in building a CRM capability. Drawing on field interviews and a survey of senior executives, the results reveal that a superior CRM capability can create positional advantage and subsequent improved performance. Further, it is shown that to be most successful, CRM programs should focus on latent or unarticulated customer needs that underpin a proactive market orientation.

The contribution of information technology (IT) to business performance has been under scrutiny for more than two decades (for a review see Chan, 2000). During this time various models of IT performance have been developed to show that IT: impacts organizational performance via intermediate business processes (Davenport, 1993 and Barua et al., 1995) require complementary organizational resources such as workplace practices and structures (Powell and Dent-Medcalfe, 1997 and Ray et al., 2005) is influenced by the external environment (Hunter et al., 2003) and as a construct, should be disaggregated into meaningful components (Sethi and Carraher, 1992). The received wisdom from this extensive body of work indicates that organizations in all sectors of industry, commerce and government can generate business value when appropriate IT is applied in the right way (Melville et al., 2004). In recent times, vendors have been quick to point out that one of the “right ways” is to invest in customer relationship management (CRM) technologies. The argument put forward is that many firms have managed to punch above their weight in today’s competitive environment by using technology to identify profitable customers and then customize marketing on the basis of customer value. Some of the stellar examples that come to mind include: National Australia Bank in Australia, Otto Versand in Germany, Tesco in the United Kingdom, Travelocity.com, Capital One and Harrah’s Entertainment in the United States of America. In each case, these firms have chosen to compete through superior customer relating capabilities (knowledge, relationships, insight, etc.) based largely on the CRM programs deployed. However, the enthusiasm generated around CRM and a select concentration of “relationship winners” is in stark contrast to most firms “that have not yet realized the benefits of acquiring these expensive systems” (Kumar and Reinartz, 2006, p. xxi). For example, research and advisory firm the Gartner Group, claim that close to 50% of all CRM projects failed to meet expectations (The Australian, 8th July, 2003). Additionally, an Info World (2001) survey of chief technology officers found that close to 30% of respondents in this role said that CRM was one of the most “over hyped” technologies they had seen. A follow-up survey of IT executives from large companies found that 43% who have deployed CRM still believe it deserves the bad press. These commentaries highlight the frustration many executives experience as software glitches, poorly trained staff and disparate legacy systems continue to hinder effective deployment of CRM programs. Far from improving profits and cementing relationships, most companies found that new IT systems did not add any value to what was already being offered (Kumar and Reinartz, 2006) or in the worst case scenario, CRM systems alienated long-term customers and employees (Rigby et al., 2002).

CRM has become a buzzword of late, and like all new initiatives, suffers when it is poorly understood, improperly applied and incorrectly measured and managed. In this study, we show why CRM programs can be successful and what capabilities are required to support success. The first implication for managers is that CRM programs should be directed towards customer value that competitors cannot match. On this point the results are quite clear. High performing companies base their success on proactive rather than reactive orientations. CRM programs that support identification of latent or unarticulated customer demand are well positioned to add real business value and imply a positive future for CRM software applications, data mart and data warehouse technologies such as those offered by the SAS Institute and NCR Teradata. These applications have made it possible for pharmaceutical firms (Forrester Research, 2002), financial institutions (Kumar and Reinartz, 2006) and retailers (Humby, 2004) to gather vast amounts of customer data, analyze, interpret and utilize it in constructive ways. As true of any study, this research has limitations that qualify the findings and present opportunities for future research. For example, it is possible that those companies that have been working longer on their CRM programs are, in turn, among the better performing companies. These companies have been able to reinvest profits into CRM resource development to ensure success. The inability to capture this effect is a common limitation of cross-sectional designs, and longitudinal studies would provide greater insight into this effect. A larger sample size would provide greater power for moderation and mediation tests and enable “out of sample” validation to be conducted to enhance external validity. However, the ability to attain sufficient sample size and improved power is not simple. The standard deviation, correlation and item reliability scores detected in this study make it difficult to obtain adequate power (i.e., 0.8) as there are simply not enough companies using CRM in the Australian population. Future work will seek to extend the study beyond Australia. The ultimate litmus test of an organization’s investment in CRM is its ability to improve the way it performs against the competition. This requires that firms know not only how their company stands on a host of performance dimensions but that it can roughly benchmark itself against a correct set of peers. The multidimensional comparative nature of performance also presents many challenges for scholars and implies that performance should be measured using alternative approaches; financial or non-financial, accounting or market based, and objective or subjective. Hence, future work would benefit from alternative measures of performance to the measures used in this study, as no single measure is superior in the whole. Finally, this study compliments prior work that has investigated the way CRM affects customer satisfaction (Mithas et al., 2005), customer service processes (Ray et al., 2005) and company performance (Reinartz et al., 2004). In particular, this study provides a fresh perspective by investigating the impact of CRM on positional advantage. Furthermore, the study has shown that CRM programs are best viewed as a higher order capability that requires the orchestration of human, technological and business capabilities. By integrating three schools of thought—capabilities, market orientation and conversion feasibility—this study provides a unique view of CRM performance that is both managerially relevant and theoretically important to explain CRM program success.