Using real options to help build the business case for CRM investment

Citation

(2006), "Using real options to help build the business case for CRM investment", Strategic Direction, Vol. 22 No. 3. https://doi.org/10.1108/sd.2006.05622cad.006

Using real options to help build the business case for CRM investment

Using real options to help build the business case for CRM investment

MaklanS., KnoxS., RyalsL. Long Range Planning (UK), August 2005 Vol 38 No 4, Start Page: 393, No of Pages: 18

Purpose – To introduce the idea of using real options as a way of dealing with risk and uncertainty when building a business case for CRM (customer relationship management) investment. Design/methodology/approach – Identifies the potential benefits of CRM investment from both a customer and a business perspective. Explores the limitations of discounted cash flow (DCF) and net present value (NPV) techniques of cash flow analysis in developing the business case for CRM investment. Presents a simulated case study of a telecommunications equipment manufacturer considering a CRM investment. Develops a range of business case scenarios and associated cash flow calculations. Considers the benefits of using real options in conjunction with traditional cash flow analysis for CRM project evaluation. Findings – States that the conventional cash flow calculations demonstrate wide variability, according to the business assumptions made. Suggests that they significantly underestimate the impact of the prospective investment, adding that companies may fail to take account of benefits associated with CRM such as learning from key customers and building their trust. Argues that real options thinking can promote discussion of the extent to which the business needs to adopt a “listen and respond” rather than a “make and sell” approach. Practical implications – Highlights managerial considerations on how the business case for CRM is made and the way that CRM programmes are structured and implemented. Originality/value – Shows how real options can be deployed in conjunction with traditional cash flow analysis to develop a more thorough method of building the business case for CRM investment.

Style: Technical paperISSN: 0024-6301Reference: 34AW856

Keywords: Customer relations, Discounted cash flow, Investment appraisal, Risk analysis