Integration of CRM and QFD

A novel model for enhancing customer participation in design and delivery

The Authors

Arash Shahin, Department of Management, University of Isfahan, Isfahan, Iran

Payam Nikneshan, Department of Industrial Management, Faculty of Postgraduate Studies, Islamic Azad University, Isfahan, Iran

Abstract

Purpose – The purpose of this paper is to propose an integrated model of quality function deployment (QFD) and customer relationship management (CRM) for design and delivery processes.

Design/methodology/approach – After the literature review, the elements of a CRM business cycle were integrated with different phases in QFD. The proposed model was further developed, based on customer participation in the design and delivery of products/services, as a major stage in CRM in three cases: customer participation in design; delivery; and design and delivery. As a case study, the customer participation in delivery was studied in after-sale services of the Iran Khodro Co., which is the second major carmaker company in Iran.

Findings – The results imply that QFD and CRM are complementary approaches and once they are combined, their capabilities are enhanced and managing customer relationship is empowered. According to the case study, personnel monitoring and human resources management (HRM) have been targeted as the first priorities in process parameters and process control characteristics, respectively.

Research limitations/implications – Although the developed model involves considerable advantages, due to the different matrixes used for QFD, its use might become time consuming and complicated. Also, gathering information from customers and categorizing them respectively play major roles in effective and strategic CRM.

Originality/value – The proposed model provides a means of harnessing the power of the present research innovations and advancements in order to empower customer need assessment, acquisition, development, equity leverage, retention and referrals, as well as prioritization of the features of products/services, processes, and performance indicators, according to the voice of customers.

Article Type:

Research paper

Keyword(s):

Customer relations; Quality function deployment; Integration; Design; Modelling.

Journal:

The TQM Journal

Volume:

Number:

Year:

2008

pp:

68-86

Copyright ©

Emerald Group Publishing Limited

ISSN:

1754-2731

Introduction

As the business world shifts from product focus to customer focus, managers are discovering that the enhancement of existing customer relations will be of benefit for profitable and sustainable revenue growth. Relationship is the fundamental characteristic of any “living” set of entities. Organizations are no different and therefore we see relationships as the binding force, which lend growth, vibrancy, energy and joy to both, those who supply a product or service, and those who receive it. In today's complex world, every organization works in a network of such relationships. From an organizational perspective, relationships provide perpetual stream of revenues and profits, often increasing over a period of time, resulting in positive referrals, new business opportunities and quite often, a challenge to remain focused and efficient. Therefore, whichever way we look at it, it is beneficial to build strong, positive and mutually beneficial bonds.

This paper focuses on two advanced quality management approaches, i.e. customer relationship management (CRM) and quality function deployment (QFD) by which, customer participation in design and delivery of products/services could be considerably developed. Although existing resources have promoted both approaches separately, it seems no work has been done on their integration. This paper attempts to enhance the capabilities of CRM and QFD through their integration. For this purpose, both approaches are demonstrated briefly. Then, a new model is proposed for the integration of CRM and QFD based on a comparison between different phases of QFD and elements of CRM business cycle. Also, the characteristics and parameters of CRM, which should be involved in each of the QFD phases, are addressed. The proposed model is further developed with respect to involvement stage in a six-stage model of CRM. In fact the developed model determines how many integrated phases of QFD must be used, according to the participation of customers in different conditions: in design, delivery, or design and delivery. The applicability of a part of the proposed approach is examined in a case study in Iran Khodro Co., which is the major carmaker company in Iran.

CRM

CRM is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer (Parvatiyar and Sheth, 2004). Also, according to Anton (1996) and Anton and Hoeck (2002), CRM is a comprehensive business and marketing strategy that integrates technology, process, and all business activities around the customer (Anton, 1996; Anton and Hoeck, 2002). It is mostly defined in terms of the acquisition and retention of customers and the resulting profitability (Menconi, 1999; Nykamp, 2001). Brown (2000) defines CRM as “the key competitive strategy you need to stay focused on the needs of your customers and to integrate a customer-facing approach throughout your organization”. Chatterjee (2000) also points out that CRM is a discipline which focuses on automating and improving the business processes associated with managing customer relationships in the area of sales, management, customer service, and support.

An effective CRM is assumed to lead to bottom-line benefits for the organization (Anton and Hoeck, 2002; Connelly and Yoger, 2001; Cusack, 1998; Rust and Zahorik, 1993; Swift, 2001; Tschohl, 2001). According to Feinberg and Kadam (2002), profits increase by 25-80 percent when customer retention rates increase by five points.

It is important to note that only about 40 percent of CRM implementations are successful (Feinberg and Trotter, 2001). Although it may be universally believed that CRM applications are crucial, it is, at the same time, clear that not everyone is successful in implementing CRM or even if CRM is related to customer satisfaction or sales/profit. These point sharply the need to empower CRM capabilities and seeking the opportunities of integrating it with other approaches, such as QFD. By this integration, CRM becomes more efficient and more effective.

CRM and quality approaches

One of the forces driving the adoption of CRM has been the total quality movement. When companies embraced total quality management (TQM) philosophy to improve quality and reduce costs, it became necessary to involve suppliers and customers in implementing the program at all levels of the value chain. This needed close working relationships with customers, suppliers, and other members of the marketing infrastructure.

Quality is considered as the ability to meet the stated and implied requirements of customers rather than elegance. Crosby (1979) points out that “instead of thinking of quality in terms of goodness or desirability we are looking at it as a means of meeting requirements”. CRM may enable a business to understand better the stated and, especially, the implied requirements of its customers. With this understanding, a business may have a better opportunity to provide its customers with products or services that are more in tune to their requirements and their view of quality.

CRM may provide for a business the opportunity of informed continuous quality improvement at a higher level. Russel (1999) argues that it is important for a business to understand not only the view of its internal stakeholders, but also that of its external stakeholders such as customers in order to have a clearer sense of direction and prevent changes in the wrong direction. Thus, quality may be continuously improved in the light of better customer knowledge provided by CRM.

CRM may also contribute to business excellence. Peters (1988) points out that being close to customers and listening to them are important for a business when it would like to manage change and pursue excellence. Waterman (1987) also emphasizes the importance of regarding information such as customer knowledge as a business's main strategic advantage, and also looking at the business itself from a different perspective, such as that of its customers, for the pursuit of businesses excellence. In addition, Kanji (1998) and Kanji and Wallace (2000) argue that customer satisfaction is a critical success factor for business excellence. Therefore, CRM that may create value for customers, inform further quality improvement and enhance customer satisfaction plays an important role in the pursuit of business excellence and a close examination of the CRM strategies of a business is very important for that reason.

Background of enhancing CRM

Srivastava et al. (1999) have developed a framework for understanding the integration of marketing with business processes and shareholder value. They have also emphasized that the CRM process addresses all aspects of identifying customers, creating customer knowledge, building customer values, and shaping customers’ perceptions of an organization and its products. Brown (2000) presents the strategic customer care five-pillars model to build up a CRM model for enterprises. Handen (2000) considers five dimensions (strategy, organization, technology, segmentation and process) to implement a CRM project effectively. Curry and Curry (2000) have written a clear, step-by-step guide to profit from CRM, with strategies that are aimed at the small and medium-sized business owners. Dyche (2002) provides for an enterprise the guidance for adopting and implementing its own CRM solution. Wayland and Cole (1997) have presented the value compass model, which makes an explicit connection between what managers know about their customers and how they can leverage that information to create customer value. Lin (2000) presents a systemic integrated communications model that may help enterprises identify the potential issues of CRM and finally Liedtka et al. (1997) have created a generative cycle to link knowledge and relationships. These researches imply that customers will increasingly seek to use new technologies to enhance information transparency and companies need to prepare themselves for this trend.

However, the literature review provides some evidences about the integration of CRM and other approaches, but its integration with QFD is a subject, which has not been addressed yet.

CRM business cycle

As shown in Figure 1, for any organization, business starts with the acquisition of customers. However, any successful CRM initiative is highly dependent on a sound understanding of customers.

(I) Understand and differentiate

Organizations cannot have a relationship with customers unless they understand them. What they value, what types of service are important to them, how and when they like to interact, and what they want to buy. True understanding is based on a combination of detailed analysis and interaction. Several activities are important:

Profiling to understand demographics, purchase patterns and channel preference.
Segmentation to identify logical unique groups of customers that tend to look alike and behave in a similar fashion. While the promise of “one-to-one” marketing sounds good, we have not seen many organizations that have mastered the art of treating each customer uniquely. Identification of actionable segments is a practical place to start.
Primary research to capture needs and attitudes.
Customer valuation to understand profitability, as well as lifetime value or long term potential. Value may also be based on the customer's ability or inclination to refer other profitable customers.

(II) Develop and customize: in a customer-focused world, product and channel development has to follow the customer's lead

Organizations are increasingly developing products and services, and even new channels based on customer needs and service expectations. However, it seems that the extent of customization should be based on the potential value delivered by the customer segment.

(III) Interact and deliver

Interaction is also a critical component of a successful CRM initiative. It is important to remember that interaction does not just occur through marketing and sales channels and media; customers interact in many different ways with many different areas of the organization, including distribution and shipping, customer service and online.

To foster relationships, organizations need to insure that:

All areas of the organization have easy access to relevant, actionable customer information.
All areas are trained how to use customer information to tailor interactions based on both customer needs potential customer value.

With access to information and appropriate training, organizations will be prepared to steadily increase the value they deliver to customers. Delivering value is a cornerstone of the relationship. It is important to note that value is not just based on the price of the product or the discounts offered. In fact, customer perceptions of value are based on a number of factors including the quality of products and services, convenience, speed, ease of use, responsiveness, and service excellence.

(IV) Acquire and retain

The more managers learn about customers, the easier it is to pinpoint those that are producing the greatest value for the organization. Those are the customers and customer segments a company will want to clone in its prospecting and acquisition efforts.

Successful customer retention basically involves getting it “right” on an ongoing basis. And that is exactly what an organization aims to achieve out of its CRM initiatives. Successful customer retention is based very simply on the organization's ability to constantly deliver on three principles:

Maintain interaction; never stop listening.
Continue to deliver on the customer's definition of value.
Remember that customers change as they move through differing life stages; be alert for the changes and be prepared to modify the service and value proposition as they change.

And so the cycle continues … As a cycle, the stages are interdependent and continuous. As one moves from one stage to the next, the organization hopes to gain insight and understanding that enhance the subsequent efforts. The organization shall become increasingly sophisticated in the implementation of CRM processes, and over time shall become increasingly profitable by doing so.

QFD

QFD is defined as: “how do we understand the quality that our customers expect and make it happen in a dynamic way” (Martins and Aspinwall, 2001; Chow-Chua and Komaran, 2002). QFD is also referred to as “House of Quality (HOQ)”. The reason for this is that matrixes in QFD fit together to form a house-shaped diagram (Kutucuoglu et al., 2001). QFD is oriented toward involving a team of people representing the various functional departments that have involvement in product development: marketing, design engineering, quality assurance, manufacturing/manufacturing engineering, test engineering, finance, product support, etc. (Crow, 1996).

In QFD, a four phases approach is accomplished by using a series of matrixes that guide the product team's activities by providing standard documentation during product and process development. The four phases can be described as:

program planning;
product design;
process planning; and
process control planning (Figure 2).

Each phase has a matrix consisting of a vertical column of “Whats” and a horizontal row of “Hows”. “Whats” are CR; “Hows” are ways of achieving them. At each stage, the “Hows” are carried to the next phase as “Whats”.

As a result, the HoQ can be built in many shapes and forms. The general purpose of QFD model includes the following components: CR, customer importance ratings, customer market competitive evaluations, developer technical product control characteristic, a correlation matrix, target goals, a technical difficulty assessment, a relationship matrix, a technical control characteristics competitive evaluation and overall importance ratings (Figure 3). QFD has important objectives, which could benefit CRM methodology, especially after their integration. Table I summarizes some of the important objectives of QFD.

New methodology: integration of CRM and QFD

In a comparison between CRM and QFD approaches, there exist some similarities and hence their integration seems possible. This integration is not simple and needs to be discussed deeply. According to the flexible nature of QFD, the integration could be made in different ways. In the following, a new methodology is proposed by studying the relationship between QFD phases and CRM business cycles. The proposed model is then discussed and further developed, considering customer participation in design and delivery.

I. Integration through the comparison of CRM business cycles and QFD phases

By now we know that both CRM and QFD have different stages and phases. The CRM business cycle provides a means of managing customer relationship from understanding and differentiating customer needs to acquire and retain customers. On the other hand, QFD phases interrelate different activities from customer needs to control characteristics.

In a comparison between the two approaches it could be concluded that (Figure 4):

Phase I of QFD could be integrated with cycle I and cycle II of CRM. In fact, understanding and differentiating customer needs could feed the customer desires, and developing and customizing products and services could feed the design requirements in the first phase of QFD.
Phase II of QFD could be integrated with cycle II of CRM. Developing and customizing products in CRM could provide the basis for determining parts characteristics.
Phase III of QFD could be integrated with cycle II and a part of cycle III of CRM. Since developing services directly affects process parameters and interaction with customers could be considered as a process of delivering services to them, develop, customize and interact stages of CRM could feed process parameters, which is a part of phase III in QFD. It is important to note that in every phases of QFD, the components on the top of the matrixes could be divided into two distinguished set of elements: technical and functional items. The technical items mostly deal with products and the functional items are related to services. This assumption is made, based on the work of Viaene and Januszewska (1999), who divide the top section of the house of quality into technical and sensory elements for food industry.
Phase IV of QFD could be integrated with cycle IV and a part of cycle III of CRM. In fact, delivering value to customers and acquiring and retaining them could make it easier to determine measures and characteristics of process control in the fourth phase of QFD.

As it is illustrated in Figure 4, cycle II of CRM contributes to all of the first three phases in QFD. In other words, developing and customizing products and services could be associated with design requirements, parts characteristics, and process parameters.

Discussion

Although the proposed methodology provides a new perspective for the integration of CRM and QFD, major questions could arise. For instance, one may ask what are the process parameters? Or what are the process control characteristics? As it was mentioned earlier, any parameter or characteristics in QFD phases could be divided into technical and functional items. Determining technical items is not difficult and is mostly related to the products features. The critical concept here is the functional items which need to be specified. In fact we need to know how CRM process works? And what are the control factors in CRM? According to Figures 5 and 6, some ideas are generated. In Figure 5, Parvatiyar and Sheth (2004) developed a four-stages CRM process framework. The broad framework suggests that CRM process comprise of the following four sub-processes: customer relationship formation process; relationship management and governance process; relational performance evaluation process; and CRM evolution or enhancement process. As it is clear, the management and governance elements seems to play a major role in deriving relationship performance from programs and therefore, those elements could be considered as process parameters in the integrated model of QFD and CRM.

With respect to the work of Mukhopadhyay and Nath (2004) four major enablers, i.e. pricing innovation, understanding and commitment, technical superiority and customer interaction effectiveness could influence a CRM implementation and the outcomes would be increase in sale, increase in revenue, market share growth and customer satisfaction growth (Figure 6). In fact, by developing quantitative criteria for the expressed major outcomes, they could be considered as the process control characteristics in the integrated model of QFD and CRM. The performance elements in Figure 5 could also be considered and added to the process control characteristics.

One of the important weaknesses of the QFD approach, which is addressed by some of the existing resources (Dahlgaard and Kanji, 1994; Bouchereau and Rowlands, 1999; Bouchereau and Rowlands, 2000), is the problem of conflicts between customers needs. Differentiating customer needs in CRM and developing further phases in QFD, respectively could be helpful in solving such problems. This development in turn could facilitate differentiating and customizing parts characteristics, process parameters and process control characteristics in other phases of QFD, since different QFDs are designed for different groups of customers, based on the differences in their needs. It is important to add that, although such an integration might involve considerable advantages, it also might be time consuming and hard to manage. One reason for this problem is the rapidly growing number of phases of QFD.

II. Developing the integrated model, based on the customer involvement stage in CRM and customer participation in service design and delivery

Behavioral scientists commonly use the six-stage model, shown in Figure 7, to describe the development of relationships (Devito, 1993). The six stages are contact, involvement, intimacy, deterioration, repair, and dissolution.

On the other hand, the customer may be involved in the design or delivery of services. According to Bender and Heizer (1997), three possibilities could be considered for customer participation in the design and delivery of services:

in design such as pre-arranged funeral services or cosmetic surgery;
in delivery such as stress test for cardiac exam or delivery of a baby; and
in design and delivery such as counseling, seminar, financial management of personal affairs, or interior decorating.

The Bender and Heizer's idea is used in this paper with a small difference. In fact we assume that the methodology is general and not only for services. In other words, it is assumed that when the emphasis is on “design”, product features are addressed and when the emphasis is on “delivery”, service features are addressed, i.e., “design” is compatible with “technical” elements and “delivery” is compatible with “functional” elements. Therefore, as it is illustrated in Figure 8, customer participation is generally used for design and delivery.

According to the new model we have developed, when customers only participate in design, the four phases QFD is used; when customers only participate in delivery, a two-phase QFD is used; and when customers participate in both design and delivery, both of the QFD forms are used (i.e. six phases all together). The reason we have suggested a two phases QFD for service (i.e. delivery) is that after the first phase of QFD is fulfilled in the four phases approach, the design requirements are related to the parts characteristics and since we have separated functional and technical elements, design requirements and parts characteristics are useless in services and therefore, customer desires are directly related to the process parameters. In the next step, the process parameters are related to the process control characteristics and totally two phases of QFD would be used if customers participate only in delivery. Consequently, the process planning and the process control planning phases (i.e. phase III and IV) of QFD in design are associated with the process of products, and the phases of QFD in delivery (i.e. phase I and II) are associated with the process of services. To better understand the mechanism of the proposed methodology, the CRM business cycles, which are integrated with the phases of QFD are derived from Figure 4 and are highlighted in Figure 8.

In conclusion, QFD facilitates the participation of customers in CRM and the proposed models could be applied in different cases with respect to the level of the participation in design and delivery as follows:

Customers participate only in design. In this case, only the technical features of products are developed and four phases of QFD are used.
Customers participate only in delivery. In this case, only the functional features of products are developed and two phases of QFD are used.
Customers participate both in design and in delivery. In this case, both the technical features of products and the functional features of services are developed and six phases of QFD are used.

Case study

After sale services of Iran Khodro Co., the major carmaker company in Iran is selected as a case study. The reason for such selection is the fact that the company's success is critically dependent upon its relationships with customers. On the other hand, it is important to note that the satisfaction of customers not only is dependent on the quality of the product, i.e. the car itself, but also it depends on the quality of supportive services such as after sale services and therefore, the proposed integrated approach, which is structured to be applied in both design of the product and the delivery process is expected to highlight the applicability of the new approach, effectively. Due to the complexity of products and time-consuming nature of the full project implementation, only the two phases QFD proposed for the delivery process is considered for practice. A sample of 57 customers from a target group who had experienced the after sale services of the company in the city of Isfahan is considered for collecting data. The target group includes customers with demographic characteristics such as males, married, over 40 years old, and with postgraduate education.

The first stage for entering into the QFD phases is to define customer requirements based on quality dimensions. For this purpose, ten dimensions are defined (Table II). Based on the dimensions, a questionnaire is designed in which, each of the dimensions are asked from the target group customers in terms of both importance and performance ratings. The customers are asked to fulfill the questionnaire using a ten-point scale (i.e. 1= the weakest and 10= the strongest). The Cronbach's alpha is computed for the importance and performance ratings as 0.88 percent and 0.84 percent, respectively; which implies satisfactory values. The average values of the importance and performance ratings are presented in Table II. As it is shown, among the dimensions, reliability and security have the highest importance values. Also, in case of performance, access and reliability have the highest values.

In the next stage, the process parameters are determined, based on the elements addressed in Figure 5 in order to be entered in to the roof of the first phase of QFD in delivery. Similarly, the process control characteristics are determined, based on the elements addressed in Figure 6 in order to be entered in to the roof of the second phase of QFD in delivery. However, comparing those elements with the processes of the company, some modifications are made and finally 13 items are defined for each of the process parameters and process control characteristics. After QFD analyses, the prioritized elements are determined as illustrated in Table III. As it is addressed, personnel monitoring, personnel motivation and reception process are the first priorities of the process parameters. Also, human resources management (HRM), customers return rate (CRR) and human resources effectiveness (HRE) are the first priorities of the process control characteristics.

Discussion

Considering the case study, it is emphasized that HRM plays an important role in controlling processes. This is compatible with the result of the process parameters that the personnel monitoring has the first priority. In fact, this is due to the significant role that the personnel play in satisfying customers, increase of sale and income and development of market share, particularly in the service areas in which, people are the key players in delivering services to customers.

The developed methodology has highlighted the role that different levels of customer participation might play as an important stage of relationship in the integrated approach. However, it seems necessary to pinpoint the ways by which customer participation could be facilitated and hence, the CRM methodology could be empowered.

Effective CRM implementation requires a front-line information system that shares relevant customer information across all interface units. Relational databases, data warehousing and data mining tools are thus very valuable for CRM systems and solutions. As it is shown in Figure 9, the CRM solutions platform needs to be based on interactive technology and processes. It should assist the company in developing and enhancing customer interactions and one-to-one marketing through the application of suitable intelligent agents that help develop front-line relationship with customers. Such a system would identify appropriate data inputs at each customer interaction site and use analytical platforms to generate appropriate knowledge output for front-line staff during customer interactions.

An important fact that should be noted here is that beside the potential advantages the proposed models might provide, the application of such new approaches might not be easy and might face real limitations. For example, once the CRM group has differentiated customers according to their various desires and classify them in to ten different segments, the QFD planners must employ different phases for each of the segments. In this case, if customers participate both in design and delivery, the total number of needed phases would be 60 and this might be time consuming and hard to manage.

However, it is suggested to the organizations to target their customers and spend their energy and money on developing those features of products/services that are found to be more important and have greater impact on strategic relationships, i.e. strategic customers. A few may be kept on “hold” till one could decide. This view is shown in Figure 10. It must, however, be understood that any organization will have to carry a mix of “Loyal”, “Not so loyal” and “others” type of customers, simply because the latter two constantly get sieved out to add to the first category. It is almost like retrieving gold from the sand. Constant sifting is necessary and once you have the right “prospect”, you have to put in energy to make good value out of it.

Conclusions

In this paper, a new model was proposed for the integration of two advanced quality management techniques: CRM and QFD. The flexibility of QFD was found to be an important factor, which allowed it to be integrated with other approaches such as CRM.

The proposed model was further developed, based on customer participation in design, delivery, or delivery and design. The outcomes of the research reveal that QFD and CRM are complementary approaches and once they are combined, their capabilities are enhanced and managing customer relationship is empowered. The new model empowers customer need assessment, acquisition, development, equity leverage, retention and referrals, as well as prioritization of the features of products/services, processes, and performance indicators, according to the voice of customers. Although the developed model involves considerable advantages, due to the different matrixes used for QFD, its use might become time consuming and complicated in some cases. Also, gathering information from customers and categorizing them play major roles in effective and strategic CRM, respectively.

A case study was conducted in the Iran Khodro Co., which is the major carmaker company in Iran in which, only the customer participation in delivery (i.e. the two phases QFD) was examined. The results implied that reliability and security are the most important service quality dimensions and access and reliability have the best performance ratings from customers' point of view. Also, it was found that personnel monitoring and motivation as the process parameters and HRM and CRR as the process control characteristics have the first priorities.

It has been emphasized that an organization has limited amount of energy and management's task is to make best use of what it has. It is far more desirable to focus on building long-term profitable relationships with chosen fewer customers than to drain away this crucial energy in several short-term, unstable relationships or haphazard customer acquisitions.

The proposed model, however, has a great potential to be further developed and to provide opportunities for further research. The use of such novel methodologies appears to have most obvious usefulness and benefits in different environments, i.e., service or manufacturing areas where the interaction between customers and company's process might be high or low. Besides the valuable new perspective that the theoretical proposed model could provide, its application in different organizations with different sizes could highlight its weaknesses and strengths, effectively. However, the new methodology is the theoretical body of a continuing project being undertaken at Iran Khodro Co.

Finally, it should be noted that in the world of ever changing customer expectations, cooperative and collaborative relationship with customers seem to be the most prudent way to keep track of their changing expectations and appropriately influencing it and in this respect, the integration of advanced quality management approaches, such as QFD and CRM could provide an empowered toolbox to quality managers and therefore, customer relationship could be managed more accurately, effectively and strategically.

Figure 1CRM business cycle