【Topic】A Long-Tailed Time Lag of IT Value: The Effects of CRM on Productivity, Profitability, and Market Value

【Speaker】Shutao Dong

【Time】2007-3-30 10:30-12:00

【Venue】453, Weilun Building

【Language】Chinese

【Organizer】Department of Management Science and Engineering

【Backgound Information】

Customer relationship management (CRM) systems are becoming increasingly important for firms to collect customer data, identify customer preferences, and analyze customer value. Yet, empirical evidence on whether firms are realizing productivity and profitability gains from CRM remains mixed. Adopting the production-function approach and the economic perspectives, this study attempts to examine the business value of CRM systems in terms of productivity, profitability, and market value growth. More importantly, we investigate how long it would take for such gains to materialize, i.e. the lag pattern of CRM value. Accordingly, wedevelop two hypotheses and test them using regressions on a dataset of 150U.S.banking firms. Our results show that: (1) CRM adoption significantly improves productivity, and moderately increases profitability (in terms of ROA, ROE, and profit margin) and market value (in terms of Tobin’s q); (2) there exists a long-tailed two-wave lag pattern of CRM value, i.e. a “first peak” in business value in about the third and the fourth years after CRM adoption, followed by a “second peak” from about the seventh year until the tenth year or even longer; further, the “second peak” has a greater effect than the “first peak” in creating CRM value; (3) marketing functionality, analytic functionality, and organizational capital are found to be significant drivers of all three measures of CRM value; sales functionality significantly contributes to profitability and market value growth, but not productivity gains, while service functionality and system integration significantly improve productivity and market value, but not profitability. These findings provide important implications for understanding whether, when, and how firms can reap the business value of CRM systems. This study thus extends the literature on IT business value to the context of CRM. Especially, the long-tailed lag period of over ten years tends to be much longer than traditionally expected, shedding new light on the lag value of specific IT applications to the literature.

Shutao Dong，PhD Candidate，The Paul Merage School of

Business，University of California, Irvine

SHUTAO DONG is currently a Ph.D. candidate in Information Systems at the Paul Merage School of Business,UniversityofCaliforniaatIrvine. He received his master degree in Technological Economics (2001) and bachelor degree in Management Information Systems (1999) fromTsinghuaUniversity,Beijing. His recent research focuses on studying the business value of customer relationship management (CRM) systems, using the resource-based view (RBV) and the economic perspectives. He has also been conducting research on firms’ assimilation and value creation of e-business and interorganizational systems based on innovation diffusion theory, the RBV and other perspectives. His further research interests include IT governance and IT-enabled business process integration. His research has been published in European Journal of Information Systems.