Towards a Successful CRM Implementation

in Banks: An Integrated Model

RIYAD EID

In recent years, customer relationship management (CRM) has been the

favoured theme for numerous studies and reports. Yet, there is a lack of
systematic empirical evidence regarding the critical success factors
(CSFs) for the CRM implementation, the activities that are affected by
the use of the CRM programmes, and their consequent performance out-
comes. In this article, we document the role of the CRM programmes in
the banking sector and identify marketing activities that are affected by
CRM usage. Taking a sample of 159 banks that utilise a CRM system,
we found a substantial positive effect of the CRM usage on relationships
effectiveness and marketing objectives. The results of this study have
major implications for marketing people, as they suggest the notion
that the CRM critical success factors should be implemented holistically
rather than piecemeal to achieve the full potential of the CRM. The find-
ings also stress the central role of customer services in the successful
implementation of CRM programmes within banks.

INTRODUCTION

Customer relationship management (CRM) is heralded by some as the new paradigm

of marketing [see, for example, Avlonitis and Panagopoulos, 2005; Bhaskar, 2004;
Chan, 2005; Chen and Popovich, 2003; Karakostas et al., 2004; Lenskold, 2004;
McGovern and Panaro, 2004; Payne and Frow, 2004; Zablah et al., 2004]. The
recent rush of publications in the area may give rise to the impression that CRM
can be applied in any context, yet there is little empirical evidence to support this.
Using technology and human resources to understand the behaviour, values and
attitudes of customers is the basic idea of CRM. If it works as hoped, a business
can provide better customer service, increase customer satisfaction and help sales
staff close deals faster, to name a few of its benefits (Cho et al., 2002; Gupta and
Shukla, 2001). However, this doesn’t happen automatically by getting software and
installing it. To have a successful CRM, organizations need to find out first what

Riyad Eid, Wolverhampton Business School, Wolverhampton University, Compton Park Campus,
Compton Road West, Wolverhampton, WV3 9DX, UK. Email: [email protected]
The Service Industries Journal, Vol.27, No.8, December 2007, pp.1021–1039
ISSN 0264-2069 print/1743-9507 online
DOI: 10.1080/02642060701673703 # 2007 Taylor & Francis
1022 THE S ERVICE INDUS TRIES JOURNAL

type of customer information is needed and what they are going to do with that
information.
Undoubtedly, traditional marketing approaches have tended to utilise macro and
micro segmentation techniques. However, given the unpredictability of customer
buying behaviour, traditional marketing, especially in information-rich sectors like
banks, is fast giving way to one-to-one marketing; its aim is to individualise the mar-
keting effort. CRM was invented because customers differ in their preferences and
purchasing habits. If all customers were alike, there would be little need for CRM.
Mass marketing and mass communications would work just fine [McKim and
Hughes, 2000]. CRM is becoming a priority due to very powerful economic, techno-
logical, and social forces that have effectively made the traditional business models
irrelevant in the contemporary business and technological environment [Karkostas
et al., 2004].
The CRM approach improves organisations’ abilities to understand the current
needs of their customer, their previous behaviour in the past, and how they are
going to behave in the future. According to Xu et al. (2002)
“The goal is to improve the customer’s experience of how they interact, which
hopefully, in turn, creates more satisfaction, which yields more loyalty, which,
ideally, yields more sales of products and services. The central database within
CRM is available for everybody in the enterprise. By accessing the central cus-
tomer database, everybody in the enterprise can know each individual customer
so customers will not get lost”.
However, although the positive impact of CRM on organisations has been
addressed in many studies [Avlonitis and Panagopoulos, 2005; Hart et al., 2004;
Kennedy and King, 2004; Tellefsen and Thomas, 2005; Xu et al., 2002] and there
have been a number of attempts to identify the critical success factors (CSFs) for
CRM implementation [Abdullah et al., 2000; Fjermestad et al., 2003; Jutla et al.,
2001; Ocker and Mudambi, 2003], few of them can provide strong theoretical or stat-
istical support for the existence of these CSFs. This may be because of the exploratory
nature of these studies. As such they deal more with the potential than the reality of
CRM’s impact. Hence, full-scale research conducted in a highly scientific manner
must be undertaken.
To fill this gap various articles and empirical research on marketing and IT were
studied. The findings of these studies identified three types of factors that have a direct
impact on successful implementation of the CRM. Model, definitions, techniques and
discussion on these factors and how could they affect the effectiveness of the relation-
ship and marketing objectives are described in the following sections. Further discus-
sion on each category is also underpinned.

OBJECTIVES OF THE PAPER

The present paper pursues the following objectives:

. To identify the critical success factors for CRM implementation.

TOWARD SUCCESSFUL CRM IN BANKS 1023
. To develop and clarify a conceptual model integrating CRM constructs, and its
consequences on effectiveness and success of customer relationships.
. To specify and test hypothesised relationships derived from the conceptual
framework.

In the following sections, first the development of the conceptual model and the
hypotheses of the study are presented. Next, the methodology of the study is discussed
followed by the analysis and results. More specifically, the conceptual model is tested
using path analysis, with the AMOS structural equation modelling package, and data
collected by mail survey of 159 banks. Finally, the conclusions and their implications
are discussed.

Literature Review, Conceptual Model and Hypothesised Relationships

The conceptual model of this study is drawn from two streams of research: IT litera-
ture, and current relationship marketing theory. Figure 1 shows the conceptual model
with the hypothesised linkages between the constructs. These linkages deal with three
sets of hypotheses:

1. The effect of the CRM critical success factors as expressed by the strategic factors,
the tactical factors and the operational factors, on relationship effectiveness, as

FIGURE 1
PROPOSED GENERIC MODEL FOR CRM IMPLEMENTATION
1024 THE S ERVICE INDUS TRIES JOURNAL

expressed by the quality of customer relationships and transactions, and reduced

costs.
2. The relationships between the CRM critical success factors and customer
retention.
3. The effect of the relationship’s effectiveness on customer retention

The next section provides a brief definition for each construct, followed by the devel-
opment of the hypotheses. The relevant literature for each hypothesised relationship is
discussed in the appropriate hypotheses development section.

CRM Critical Success Factors

CSFs can be defined as areas where things must go right for the business to flourish
[Butler and Fitzgerald, 1999; Digman, 1990; Eid et al., 2006; Guynes and Vanecek,
1996]. Oakland [1995] viewed them as those critical areas where the organisation
must succeed to achieve the organisation’s mission through examination and categor-
isation of the impacts. In terms of CRM, they can be viewed as those activities and
practices that should be addressed in order to ensure its successful implementation.
These practices would need to be nurtured if they already existed or be developed
if they were still not in place.
Based on the literature, CRM has become one of the critical driving forces for
business success. A number of authors have conducted in-depth studies to understand
those factors that are needed to enhance CRM implementation [Abbott et al., 2001;
Avlonitis and Panagopoulos, 2005; Bhaskar, 2004; Chan, 2005; Chen and Popovich,
2003, Hart et al., 2004; Karakostas et al., 2004; Lenskold, 2004; McGovern and
Panaro, 2004; Payne and Frow, 2004; Zablah et al., 2004]. They conclude that organ-
isations need to understand how to identify the critical factors that affect the
implementation process and address them effectively to ensure that the promised
benefits can be realised and failures can be avoided. Therefore, the need for a more
systematic and deliberate study on the critical success factors for implementing
CRM is crucial. Ignorance and oversight of the necessary factors will be likely to
hinder an organisation’s effort to realise its full benefit.
In fact, successful CRM system implementation is complex and difficult. Imple-
menting a CRM package system can cause vast change that needs to be managed care-
fully to get the full advantage of CRM software. It is really a mistake to view CRM
project implementation as an IT project [Chen and Popovich, 2003; Davenport and
Short, 1990; Johnson, 2004; McKenzie 2001; Porter, 1987].
However, the literature review undertaken revealed a lack of research with regard
to some critical factors of CRM implementation (e.g. software selection, benchmark-
ing), and this could be due to the fact that these factors are related to any information
system project, not exclusively to CRM system implementation. Therefore, this paper
proposes a holistic framework for CRM system implementation based on an extensive
review of the factors and essential elements that contribute to the success of CRM
project implementation.
A broad range of factors that can influence the success of CRM implementation
has been mentioned in the literature. For example, Cho et al. [2002] noted that an
TOWARD SUCCESSFUL CRM IN BANKS 1025

effective CRM strategy has a critical role to play in the CRM systems implementation
if the appropriate training is provided. However top management team’s support is
one of the keys to integrate the previously existing systems with the CRM plan
[Pushmann and Alt, 2001]. Bose [2002] agreed that correct planning for training
sessions, management support and staff awareness programmes are important to
CRM implementation.
Central to this literature is considerable discussion on the importance of the
human dimension, that is, employee involvement and the role of technology as an
enabler, not the driver of CRM implementation [Hart et al., 2004; Jutla et al.,
2001]. Al-Mashari and Zairi [2000] also added the organisational culture factor to
the effective implementation of the CRM. Umashankar (2001) showed the import-
ance of CRM software selection as necessary to fulfil obligations in CRM-based mar-
keting. A realistic CRM implementation schedule, benchmarking and customer
satisfaction are critical factors for successful implementation of CRM [Bose, 2002;
Cho et al., 2002; Ocker and Mudambi, 2003].
Dubrovski [2001] indicated that successful CRM implementation requires an enter-
prise-wide integration of processes and a change in management focus and business
performance metrics. Chan [2005] agreed that an integrated business model that ties
together business organisations, processes, information and technologies along the
entire value chain is critical to the success of CRM strategies. However, in this study
the CSFs for CRM will be reviewed and their possible benefits highlighted.

CRM Effectiveness
CRM, from a marketing perspective, identifies and targets best customers based on
frequency and monetary scoring. It helps manage marketing campaigns with clear
goals and quantifiable objectives. It also creates and manages solid sales leads for
field and telesales representatives. Marketing and cross-selling opportunities are
also increased. The enabled tight and accurate targeting and one-to-one marketing
increases returns on marketing investment. CRM solutions also add more valuable
knowledge gained directly from customer interaction. This knowledge leads to
enhanced relations and improved transactions.
However, CRM effectiveness shows the importance of employees’ acceptance
and that the quality and substance of responses sent out by each individual represen-
tative should be looked at. One has to keep in mind that the evaluation of results
allows companies to continuously refine and improve efforts to optimise relationships
[Umashankar, 2001]. The organisation must balance the metric of finding a cost-
effective CRM solution with customer satisfaction [Dubrovski, 2001; El Sawy,
1997]. However, in this study, we specify CRM effectiveness as high quality relation-
ships resulting from the use of the CRM in certain activities, namely, customer
relations, customer transactions and sales costs (see Figure 1).

CRM Success
Generally speaking, there is no clear definition of a successful CRM project. A suc-
cessful CRM implementation is one that meets the business objectives. These objec-
tives can be customer acquisition, customer retention, customer satisfaction, customer
1026 THE S ERVICE INDUS TRIES JOURNAL

loyalty, better customer service or any other objectives that are set by the organis-
ation. Customer relationship management includes the delivery of sustained or
increasing levels of satisfaction, and the retention of customers by the maintenance
and promotion of the relationship [Palmer et al., 2005]. Light [2003] states that
trying to compete for new customers is more resource intensive than keeping existing
ones. Therefore, organisations that recognise this believe that it is important to make
improvements in CRM effectiveness to keep customers happy.
Research shows that a 5 per cent increase in customer retention can increase the
company profits by 20– 100 per cent [Reichheld et al., 2000]. However, customer
retention as has been suggested by Jutla et al. [2001] is used to measure the CRM
success in this research.

HYPOTHESES

The Relationship between the CRM CSFs and CRM Effectiveness

This study attempts to investigate the effects of the CRM critical success factors on
CRM effectiveness (see Figure 1). Thus, it makes an attempt to operationalise the
CSFs, not only in terms of the importance of each factor (means) but also in terms
of the relative importance that is given to each factor. In this way, those factors
may be classified as strategic factors which require a significant change in the way
in which business is being done [Turban et al., 1999]. Those factors include top man-
agement support, organisational culture, developing a clear CRM strategy, clear
project vision/scope and benchmarking. So, it is hypothesised that:
H1: The strategic factors examined in this study will have a positive impact on the
quality of customer relationships.
H2: The strategic factors examined in this study will have a positive impact on the
quality of customer transactions.
H3: The strategic factors examined in this study will have a positive impact on the
transactions costs.
The next group of factors can be classified as tactical factors. At the tactical level the
medium term planning of CRM-specific organisational issues are largely concerned,
where the decision are made by middle managers [Turban et al., 1999]. However,
those factors include employees’ acceptance, CRM software selection, integration
with other systems and training of CRM efforts. Therefore the following hypotheses
are offered:
H4: The tactical factors examined in this study will have a positive impact on the
quality of customer relationships.
H5: The tactical factors examined in this study will have a positive impact on the
quality of customer transactions.
H6: The tactical factors examined in this study will have a positive impact on the
transactions costs.
At the other end of the list (i.e., the least important or less critical) were the realistic
CRM implementation schedule, enterprise performance metrics for CRM,
TOWARD SUCCESSFUL CRM IN BANKS 1027

personalisation, customer orientation and data mining could come in at a later stage in
the CRM implementation, when many of the internal improvements had been accom-
plished, but involvement is definitely needed. Thus, the following hypotheses are
proposed:
H7: The operational factors examined in this study will have a positive impact on the
quality of customer relationships.
H8: The operational factors examined in this study will have a positive impact on the
quality of customer transactions.
H9: The operational factors examined in this study will have a positive impact on the
transactions costs.

Effects of CRM Effectiveness on CRM Success

There is only one valid definition of business purpose: to create and retain a customer.
It is the customer who determines what the business is [Drucker, 1954]. This study
identifies several mediating variables that comprise CRM effectiveness, all of
which influence the relationship between CRM CSFs and CRM success as defined
by customer retention. For example, many researchers have emphasised the role of
relationship quality (enhanced relations), transactions quality (improved transactions)
and reduced cost as an intangible aspect of CRM effectiveness, and dimensions such
as customer retention to measure the CRM success [Dorsch et al., 1998; Wang et al.,
2004]. However, there is no consensus on which dimensions make up relationship
effectiveness. This study considered relationship quality, transactions quality and
transactions costs as indicators to build and maintain a long-term relationship.
High quality customer relations and transactions means that fewer customers will
defect and the long-term effects on firm performance can be significant. Reichheld
and Teal [1996] showed that a 5 per cent increase in customer retention could give
a 30– 95 per cent increase in customer net present value and have a similar effect
on corporate profits. The following hypotheses are therefore proposed:
H10: The relationship quality has a direct and positive effect on CRM success
(customer retention).
H11: transaction quality has a direct and positive effect on CRM success (customer
retention).
H12: Reduced transactions costs have a direct and positive effect on CRM success
(customer retention).

Effects of CRM CSFs on CRM Success

The relationships between strategic factors, tactical factors, operational factors
and CRM success (customer retention) have been addressed in a number of studies
[Avlonitis et al., 2005; Bose, 2002; Chan, 2005; Chen and Popovich, 2003;
Kennedy and King, 2004; Zablah et al., 2004]. Chen and Popovich [2003], for
example, state that managing customer relationships effectively and efficiently
boosts customer satisfaction and retention rates. They further mentioned that
getting to ‘know’ each customer through data mining techniques and a customer-
centric business strategy helps the organisation to proactively and consistently offer
1028 THE S ERVICE INDUS TRIES JOURNAL

(and sell) more products and services for improved customer retention and loyalty
over longer periods of time. Thus, we are examining the indirect effects of the use
of the CRM on the relationship success directly and through its improvements of
relationship quality, transaction quality and reduced cost. Accordingly, we put
forward the following hypotheses:
H13: The strategic factors examined in this study will have a positive impact on CRM
success (customer retention).
H14: The tactical factors examined in this study will have a positive impact on CRM
success (customer retention).
H15: The operational factors examined in this study will have a positive impact on
CRM success (customer retention).

RESEARCH METHODOLOGY

Research Design
This research aimed to develop a generic model for CRM implementation. After
reviewing the literature, hypotheses were summarised into an integrated CRM
model (Figure 1), whose validity was tested by gathering data from banks that
utilise a CRM system. Especially, based on the model, the study investigated:

. The success of CRM implementation as considered by bank managers;

. CRM consequences on customer relationship management (CRM) effectiveness
and customer retention.

Data Collection
The generalisability of the study relied on the representativeness of the respondents.
Therefore, a representative selection of banks was made from a database of
banks. The selection included local banks, foreign banks and joint banks. All the
selected banks had implemented the CRM system at least one year before. A research
pack, which contained a covering letter and an anonymous (self-administered)
questionnaire, was mailed to the head of marketing departments; customer services
officers or customer relationship managers that were users of the CRM system (312
in total). This procedure resulted in 159 useful responses or a 50.96 per cent
overall response rate.
The sample can be described as follows: a majority of the respondents were
involved in CRM implementation (69.81 per cent), most were younger than 40 (60
per cent), and a few respondents (approximately 5.7 per cent) were over 50. With
respect to years of working with CRM, approximately 66 per cent of the sample
had used CRM for less than two years, and 34 per cent had used it for between
two and four years. In terms of ownership (35.7 per cent) of the respondents were
members of local banks, 28.5 per cent were members of joint banks and (35.8 per
cent) were members of foreign banks. Finally, more than half of the respondents
hold the position of customer service manager in their banks (52.8 per cent).
TOWARD SUCCESSFUL CRM IN BANKS 1029

On the other hand, 30.2 per cent hold the position of marketing manager, 9.4 per cent
hold the position of sales manger and 7.5 per cent are IT managers.
To ensure that the valid responses were representative of the larger population, a
non-response bias test was used to compare the early and late respondents. x2 tests
show no significant difference between the two groups of respondents at the 5 per
cent significance level, implying that a non-response bias is not a concern.

Research Instrument Development – Measures

The development of the research instrument was based mainly on new scales, because
we could not identify any past studies directly addressing all of the issues in this
study. However, and where possible, we used validated measures that have been pre-
viously applied. The constructs, scale items and factor loadings obtained from
exploratory factor analysis are presented in the data analysis section.
Two consecutive rounds of pre-testing were conducted in order to insure that
respondents could understand the measurement scales used in the study. First, the
questionnaire was reviewed by three academic researchers experienced in question-
naire design and then the questionnaire was piloted with two CRM experts known
to the researchers. The pilot took the form of an interview where the participants
were first handed a copy of the questionnaire and asked to complete it and then
discuss any comments or questions they had. The outcome of the pre-testing
process was a slight modification and alteration of the existing scales, in light of
the scales context under investigation.

ANALYSIS AND RESULTS

First, the psychometric properties of the constructs were assessed by calculating the
Cronbach’s alpha reliability coefficient and the items-to-total correlation [Nunnally
and Bernstein, 1994]. These coefficients are represented for each of the constructs
in Table 1. All scales have reliability coefficients ranging from 0.7409 to 0.9637,
which exceed the cut-off level of 0.60 set for basic research (Nunally, 1978).

TABLE 1
MEASURE OF CONSTRUCT RELIABILITY

Constructs No. of items Alpha

Strategic factorsa 5 .8685

Tactical factorsa 4 .9254
Operational factorsa 5 .9637
Relationships qualityb 4 .7409
Transactions qualityb 4 .8567
Cost reductionb 4 .8342
Customer retentionc 4 .9289
a
CRM critical success factors.
b
CRM effectiveness.
c
CRM success.
1030 THE S ERVICE INDUS TRIES JOURNAL

Second, we performed an exploratory factor analysis (with Varimax rotation) to

examine if the items for a construct share a single underlying factor (i.e. are unidi-
mensional) to assess (a) CRM critical success factors and (b) CRM effectiveness
measures to produce a concise set of classification dimensions. Items which did not
satisfy the following two criteria, were deleted: (1) dominant loadings greater than
0.5, and (2) cross-loadings less than 0.35 [Hair et al., 1998].
The 14 items (variables) measuring the CRM critical success factors in the
research model were subjected to principal component factor analysis. Eigenvalues
and scree plots were used to determine the number of factors to be extracted. A
three-factor structure was suggested using the criteria of an eigenvalue greater than
1, and the extracted factors account for 74.24 per cent of the total variance. All
factor loadings are generally high, and the lowest loading is equal to 0.515, while
the Kaiser–Meyer– Olkin test of the factor analysis is substantial (0.766). The result-
ing factor loadings are shown in Table 2 with all those less than 0.5 suppressed. All
items loaded onto the expected factors as they were originally designed. Factor
loading were all higher than 0.5 on its own factors and therefore each item loaded
higher on its associated construct than on any other construct. This supported the dis-
criminant validity of the measurement.
The ten items (variables) measuring the CRM effectiveness in the research model
were subjected to principal component factor analysis. A three-factor structure was
suggested using the criteria of an eigenvalue greater than 1, and the extracted
factors account for 78.224 per cent of the total variance. All factor loadings are gen-
erally high, and the lowest loading is equal to 0.649, while the Kaiser– Meyer–Olkin

TABLE 2
RESULTS OF FACTOR ANALYSIS FOR CSFS

Component

Factor 1 Factor 2 Factor 3

Strategic Tactical Operational
CRM critical success factors factors factors factors

Top management support .931

Organisational culture .831
Developing a clear CRM strategy .825
Clear project vision/scope .767
Benchmarking .633
Employees acceptance .910
CRM software selection .839
Integration with other systems .662
Training .828
Realistic CRM implementation schedule .797
Enterprise performance metrics for CRM .766
Personalisation .788
Customer orientation .861
Data mining .515
Initial Eigenvalues 6.088 2.253 2.053
% of variance 29.25 23.17 29.25
Cumulative % 29.25 52.42 74.24
TOWARD SUCCESSFUL CRM IN BANKS 1031

test of the factor analysis is substantial (0.632). The resulting factor loadings are
shown in Table 3 with all factor loadings less than 0.5 suppressed. All items
loaded onto the expected factors as they were originally designed.
Next, several fit statistics were utilised to evaluate the acceptability of each of the
factor models. As recommended by Bentler and Bonnet [1980], the goodness-of-fit
index was utilised and deemed acceptable if above the recommended value of
0.90. Additionally, the comparative fit index (CFI) also was used and acceptable
model fit is demonstrated with CFIs above 0.90, as well. Furthermore, the adjusted
goodness-of-fit index (AGFI), and root mean square residual (RMSEA) were also
provided. Standard cutoffs for the above indices, as proposed by experts [Bentler,
1990; Hu and Bentler, 1995; Joreskog and Sorbom, 1982], are provided in Table 4.
The results indicated that the scales were unidimensional.
Finally, given that the purpose of the study is to test the hypothesised causal
relationships among the constructs of the model, we used the structural equation-
modelling package of AMOS. Since the sample size of 159 cases is not sufficient
to support a structural equation model at the level of complete disaggregation of
measured variables (by using the multiple measured variables as indicators for
each construct), we used the factor scores as single item indicators and performed
a path analysis, applying the maximum likelihood estimates (MLE) method, follow-
ing the guidelines suggested by Joreskog and Sorbom [1982].
The application of the MLE method for estimating the model demands that the
constructs should satisfy the criterion of multivariate normality [Bagozzi and Yi,
1988]. Therefore, for all the constructs, tests of normality – namely skewness, kurtosis
and mahalanobis distance statistics [Bagozzi and Yi, 1988] – were conducted. These
indicated no departure from normality. Thus, as normality was confirmed for all the

TABLE 3
RESULTS OF FACTOR ANALYSIS FOR CRM EFFECTIVENESS

Component

Factor 1 Factor 2 Factor 3

Relationship Transaction Reduced
CRM Effectiveness quality quality cost

Responding to customers’ queries .806

Customer care 649
Complaint handling .848
Improving communication with the customer .722
Processing customer orders .895
Refining the billing system .812
Personalising service offering to each customer .790
Credit control .705
Reducing the cost of servicing customers .940
Reducing marketing costs .966
Assessing campaign effectiveness .748
Reducing the cost of sales .861
Initial Eigenvalues 3.846 2.257 1.362
% of variance 28.35 24.25 22.05
Cumulative % 28.35 52.61 74.66
1032 THE S ERVICE INDUS TRIES JOURNAL

TABLE 4
CONFIRMATORY FACTOR ANALYSIS OF MODEL CONSTRUCTS

Construct Chi-square DF P GFI AGFI CFI RMSEA

Strategic factors 13.303 5 .121 .970 .909 .979 0.10

Tactical factors 3.823 2 .148 .988 .941 .996 0.07
Operational factors 10.227 5 .069 .977 .932 .991 0.08
Relationship quality 8.398 2 .151 .977 .890 .943 0.10
Transaction quality 4.5 2 .052 .986 .932 .987 0.08
Cost reduction 5.72 2 .414 .936 .880 .964 0.07
Customer retention 11.23 2 .060 .965 .823 .987 0.09
Statistic Suggested
Goodness-of-fit index (GFI) 0.90
Adjusted goodness-of-fit index (AGFI) 0.80
Comparative fit index (CFI) 0.90
Root mean square residual (RMSEA) 0.10
Chi-square significant 0.05

constructs, we proceeded to use the MLE method to estimate the model. Figure 2 illus-
trates the path diagram for the causal model. It also presents the estimated standardised
parameters for the causal paths, their levels of significance and the square multiple
correlations for each construct.
FIGURE 2
RESULTS OF PATH ANALYSIS
TOWARD SUCCESSFUL CRM IN BANKS 1033

A more detailed analysis of the results and measures for model fit are reported in
Table 5. Since there is no definitive standard of fit, a variety of indices are provided
along with suggested guidelines. The chi-square statistic of the model was very small
(X 2 ¼ 10.962) and insignificant (P ¼ 0.082), indicating a very good fit. Additionally,
the results of the rest of the measures, together with the squared multiple correlations,
indicate that the overall fit of the model to the data is quite good.
Since the causal effects of the CRM critical success factors may be either direct
or indirect i.e., mediated via the effects of other variables (CRM effectiveness
constructs), or both, the total causal effects were computed. More specifically, the
indirect effects are the multiplicative sum of the standardised path coefficients
[Asher, 1983]. The total effects are the sum of the direct effect and all the indirect
effects. Table 6 shows the direct, indirect and total effects of the CRM critical
success factors.
However, our findings generally support our conceptual model. The results place
support to most of the hypotheses.
Table 5 shows the estimated standardised parameters for the causal paths. CRM
strategic factors positively affect all variables of the CRM effectiveness, namely
relationships quality (H1) (standardised estimate ¼ 0.161, P , 0.05), transactions
quality (H2) (standardised estimate ¼ 0.298, P , 0.01) and costs reduction (H3)

TABLE 5
STANDARDISED REGRESSION WEIGHTS

Criterion Hypothesised Standardised

Predictor variables variables relationship coefficient R2a

Strategic factors Relationship quality H1 0.161 0.561

Tactical factors Relationship quality H4 0.451
Operational factors Relationship quality H7 0.268
Strategic factors Transaction quality H2 0.298 0.603
Tactical factors Transaction quality H5 0.379
Operational factors Transaction quality H8 0.239
Strategic factors Cost reduction H3 0.098 0.609
Tactical factors Cost reduction H6 0.452
Operational factors Cost reduction H9 0.366
Relationships quality Customer retention H10 0.218 0.608
Transactions quality Customer retention H11 0.229
Reduced cost Customer retention H12 0.140
Strategic factors Customer retention H13 –0.079ns
Tactical factors Customer retention H14 0.174
Operational factors Customer retention H15 0.246
Statistic Suggested Obtained
Chi-square significance 0.05 0.082
Chi-square/degree of freedom 5.00 3.645
Goodness-of-fit index (GFI) 0.90 0.981
Adjusted goodness-of-fit index 0.80 0.822
(AGFI)
Comparative fit index (CFI) 0.90 0.989
Root mean square residual 0.10 0.044
(RMSEA)

P , 0.10;  P , 0.05;  P , 0.01, ns ¼ not significant.
1034 THE S ERVICE INDUS TRIES JOURNAL

TABLE 6
DIRECT, INDIRECT AND TOTAL EFFECT OF THE CRM USAGE

Criterion variable Predictor variables Direct effect Indirect effect Total effect

Relationship quality Strategic factors .161 .000 .161

Tactical factors .451 .000 .451
Operational factors .268 .000 .268
Transaction quality Strategic factors .298 .000 .298
Tactical factors .379 .000 .379
Operational factors .239 .000 .239
Cost reduction Strategic factors .098 .000 .098
Tactical factors .452 .000 .452
Operational factors .366 .000 .366
Customer retention Strategic factors –.079 .115 .036
Tactical factors .174 .249 .423
Operational factors .246 .165 .411
Relationship quality .218 .000 .218
Transaction quality .229 .000 .229
Cost reduction .140 .000 .140

(standardised estimate ¼ 0.098, P , 0.01). Similarly, the tactical factors

positively affect the quality of customer relations (H4) (standardised estimate ¼ 0.451,
P , 0.01), improve customer transactions (H5) (standardised estimate ¼ 0.379,
P , 0.01), and relationship costs (H6) (standardised estimate ¼ 0.452, P , 0.01).
Finally, the operational factors have a positive impact on the quality of customer
relations (H7) (standardised estimate ¼ 0.268, P , 0.01), transactions quality (H8)
(standardised estimate ¼ 0.239, P , 0.01) and relationship costs (H9) (standardised
estimate ¼ 0.366, P , 0.01). Thus, this finding gives empirical support to the anecdotal
evidence that factors such as top management support, organisational culture, CRM
strategy, project vision, benchmarking, CRM software selection, training,
personalisation, customer orientation and data mining play a critical role in applying
the CRM system.
With respect to the CRM success, it was found that all variables of CRM effec-
tiveness, namely relations quality (standardised estimate ¼ 0.218, P , 0.01), trans-
actions quality (standardised estimate ¼ 0.229, P , 0.01) and costs reduction
(standardised estimate ¼ 0.140, P , 0.10), have significant and positive effects
upon CRM success, supporting hypotheses H10, H11 and H12. The above significant
relationships provide empirical support for the theoretical views that state that the
CRM is a facilitator of customer retention strategies, enabling personalised sales
activities and customised product offerings [Kennedy and King, 2004; Wang et al.,
2004; Zablah et al., 2004].
CRM success is not directly affected by the CRM strategic factors (standardised
estimate ¼ –0.079, P . 0.10). Thus, the results do not provide support for H13.
However, this negative and insignificant direct effect is offset by the indirect positive
effect of the CRM strategic factors on CRM success. This result may be interpreted by
the fact that the strategic factors are related to the top level of the management and are
not seen directly by customers. Therefore, it is not the strategic factors per se, but
rather the efforts of customer service staff who deal directly with the final customers
TOWARD SUCCESSFUL CRM IN BANKS 1035

that lead to successful CRM implementation in terms of customer retention. The

strategic factors indirectly affect customer retention through the improvement of
CRM effectiveness. Indeed, the results indicate that customer service staff have a
positive impact on customer retention. Thus, this finding supports the views of
Chan [2005], Chen and Popovich [2003] and Johnson [2004] that the mere use of
the CRM does not automatically lead to customer retention. Rather, it implies that
the use of CRM enables the implementation of interactive marketing activities and
customised product offerings without the need to sacrifice efficiency, as was
always the case in the past. In other words, CRM is more than just technology.
While technology is a key enabler, it is only a means to the end. Therefore, customer
service staff play a central role in the successful implementation of the CRM pro-
grammes within banks.
Finally, unlike the strategic factors, the tactical and operational factors have a sig-
nificant and positive direct impact on CRM success (customer retention), providing
support for H14 (standardised estimate ¼ 0.174, P , 0.05) and H15 (standardised
estimate ¼ 0.246, P , 0.01). Since tactical and operational factors are treated at a
lower level of management and therefore could be directly experienced by the final
customer, their effect on customer retention is strong and significant.

DISCUSSION AND IMPLICATIONS

The purpose of this article is (a) to offer some useful and practical guidelines for
banks and other types of businesses wishing to successfully apply CRM systems
and (b) to enhance our understanding of its impact on the effectiveness and success
of relationships.

CRM Critical Success Factors

This study provides new theoretical grounds for studying the CRM. It also supplies
banks with a number of operative CSFs that may be essential if they are to remain
competitive in the dynamic marketplace. Not only does this study provide an empiri-
cal assessment of the essential elements in CRM implementation, but it also assesses
the critical success factors that were distilled from a comprehensive review of the rel-
evant literature. These CSFs includes three basic categories: (1) strategic related
factors; (2) tactical factors; and (3) operational factors.
Banks should consider some factors at the strategic level. To achieve strategic
advantages, top management should also be personally knowledgeable about the
potential of CRM and be proactively involved in its internal diffusion in order to
manage it effectively. Using the CRM for marketing purposes should be based on
clear goals. However, successful implementation of the CRM depends on how
clearly defined the strategic goals are for an organisation. However, while both
technology and business processes are critical to successful CRM initiatives, it is
the individual employees who are the building blocks of customer relationships.
Therefore, CRM implementation requires changes to organisational culture.
1036 THE S ERVICE INDUS TRIES JOURNAL

Finally, benchmarking plays a significant role in shaping the strategic direction to be

taken for a CRM package.
At the tactical level, the medium-range planning of CRM-specific organisational
issues is largely concerned. However, employees’ acceptance, integration with other
systems, CRM software selection and training and updating employees on CRM
systems are major challenges.
At the operational level, a realistic CRM implementation schedule, enterprise per-
formance metrics for CRM, personalisation, customer orientation and data mining
play a critical role in successful implementation of the CRM system.

CRM Effectiveness
The data suggest three effectiveness dimensions for CRM implementation. These
dimensions include relationship quality (enhanced relations), transaction quality
(improved transactions) and cost reduction. Overall, the CSF variables, strategic, tac-
tical and operational factors, explain 56.1 per cent of relationship quality, 60.3 per
cent of transaction quality and 60.9 per cent of the third dimension (cost reduction).
These findings have major implications for marketing people, as they suggest the
notion that the CRM CSFs should be implemented holistically rather than piecemeal
to achieve the full potential of CRM. Many of these CSFs exhibit synergy with one
another. For example, top management support for CRM means that it will place cus-
tomer orientation at the top of its agenda, and give a high priority to human resources
development (training).

CRM Success (Customer Retention)

The findings show that acquiring a better understanding of existing customers allows
companies to interact, respond, and communicate more effectively to significantly
improve retention rates. The results clearly demonstrated that CRM CSFs and
CRM effectiveness have a catalytic influence on CRM success (customer retention).
Overall, the CSF variables, strategic, tactical and operational factors and the CRM
effectiveness dimensions, relationship quality, transaction quality and cost reduction,
explain 60.3 per cent of CRM success (customer retention). This result supports the
theoretical view of Xu et al. [2002] that CRM implementation ensures customer sat-
isfaction and retention by solving customer problems quickly.
The standardised coefficient weights show that the Operational Factors
(B ¼ 0.246) is relatively stronger than tactical factors (B ¼ 0.174) in explaining
the CRM success. In the same spirit, the standardised coefficient weights show that
transaction quality (B ¼ 0.229) is relatively stronger than relationship quality
(B ¼ 0.218) and the cost reduction (B ¼ 0.140) in explaining the CRM success.
We were surprised, however, to find that CRM strategic factors have shown only a
negligible negative impact on CRM success. However, upon closer examination of
our study, this should not have been unexpected. This negligible negative direct
effect (– 0.079) is offset by the indirect positive effect (0.115) of the use of the
CRM implementation on customer retention. This means that it is not the use of
the CRM per se, but rather the efforts of customer services, through the use of the
TOWARD SUCCESSFUL CRM IN BANKS 1037

CRM, that lead to customer retention (CRM success). The strategic factors indirectly
affect CRM success through its use in customer service activities.

Limitations and Suggestions for Future Research

As with any study, there are certain limitations that should be recognised. First, we
assessed CRM success by using customer retention (a four-item measure), while
there is evidence that CRM success is a much broader construct that includes custo-
mer loyalty [Jutla et al., 2001] and satisfaction [Palmer et al., 2005]. Second, the
present study relied on a sample of bank managers and, consequently, we cannot
generalise the findings in other types of businesses. Third, the data are cross-sectional
in nature and hence it is not possible to determine causal relationships.
The direction for future research, which emerged from our findings, is to improve
our understanding of these CSFs in other types of business. For example, each CSF
discussed in this study warrants more detailed study. While some CSFs have been
recurring issues in marketing, information technology and management information
system research, their implications for CRM require a new perspective. Given the
high costs associated with the implementation of CRM systems, a potentially fruitful
area would be to develop the quantification of CSFs into an ‘index of practice’ so that
companies could determine the level of performance on a time-based approach. The
results from an audit, with regard to the index, could pinpoint areas that need attention
and improvement. Future research may choose to focus on one or more of the CSFs to
generate in-depth knowledge to inform both theoretical and practical applications.
Researchers could use these factors to assess the success of companies. On the
other hand, these CSFs must be subjected to review, critique, and discussion for an
extended period before gaining general acceptance. Additional items might be tried
in each category. Finally, different constructs could be tried to measure CRM
success. To this end, a very promising research approach is the development of a
model that explains how CRM technology influences variables such as customer
loyalty [Jutla et al., 2001], business development (Hart et al., 2004) and customer
satisfaction [Bueherer et al., 2005].

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