1. The Effect of Customer Relationship Management Systems on Firm Performance JACOB HAISLIP AND VERN RICHARDSON

2. Research Question Does implementing a Customer Relationship Management (CRM) system improve firm performance?

3. CRM Systems Payne and Frow (2005) define CRM as follows: “CRM is a strategic approach that is concerned with creating improved shareholder value through the development of appropriate relationships with key customers and customer segments.” Wikipedia (from Shaw 1991) defines it as: “Customer relationship management (CRM) is an approach to managing a company's interactions with current and future customers. It often involves using technology to organize, automate, and synchronize sales, marketing, customer service, and technical support.”

4. Prior Literature – ERP and SCM Systems Gartner (2011) notes that worldwide spending on enterprise systems exceeded $250 billion in 2011. Initial research papers in this area were unable to find a positive relation between IT spending and profitability measures (Weill 1992; Landauer 1995). More recent papers, find positive payoffs from investments in IT, and are specifically documented for ERP systems and Supply Chain Management Systems (Hitt 2002; Nicolaou 2004; Dehning et al. 2007; Hendricks et al. 2007; Brazel and Dang 2008; Dorantes et al. 2013).

5. Prior Literature – CRM Systems Customer satisfaction and knowledge improves following CRM system implementation (Sutton and Klein 2003; Boulding et al. 2005; Mithas et al. 2005). Other papers argue that customers do not necessarily desire or value strong relationships (Dowling 2002; Danaher et al. 2008). Hendricks et al. (2007) do not find improved stock returns or profitability following CRM system implementation. Spending on CRM systems alone was approximately $24 billion in 2014.

7. Vendor Claims Vendors boast improvements for the following after CRM system implementation:  Profitability  Customer Satisfaction  Sales Productivity  Sales Predictability

8. Hypotheses Hypothesis 1: Firms that implement CRM systems improve their business process measures to a greater degree than firms that do not implement CRM systems. This includes sales, sales efficiency, and accounts receivable collectability.

9. Hypotheses Hypothesis 2: Firms that implement CRM systems improve operational performance to a greater degree than firms that do not implement CRM systems. Hypothesis 3: Firms that implement CRM systems improve their sales predictability (as evidenced by management earnings forecasts to a greater degree than firms that do not implement CRM systems.

10. Sample Identify announcements of CRM system implementations using Lexis-Nexis. 138 public firms that adopt a CRM system between 2001-2011. After eliminating observations with missing data we arrive at 87 treatment firms. We then match each treatment firm with control firms based on year, industry, and ROA. Following Hendricks et al. (2007) we include all control firms within the same year and industry, and with a ROA within 10%. This gives us 1,169 control observations.

11. Table 1 Sample Statistics Panel A: Year Distributions Year CRM Implementations Control Firms All Firms 200113108121 200222304326 200311152163 200413288301 200510174184 20061189100 200731215 200811314 200921517 2010000 2011 1 14 15 Total 87 1,169 1,256 Panel B: Industry Distributions Industry 2-Digit SIC Code CRM Implementations Control Firms All Firms Chemicals28-29 6101107 Electrical36, 38 13178191 Equipment35 53944 Retail Sales50-59 93746 Services70-79 16375391 All Others 38 439 477 Total 87 1,169 1,256

12. Research Design [Performance Measures] i,t = λ 0 + λ 1 CRM i,t + λ 2 After i,t + λ 3 CRM*After i,t + λ 4 Size i,t + λ 5 MTB i,t + λ 6 RD i,t-1 + λ 7 ADV i,t-1 + λ 8 ROA i,t-1 + λ 8 CapInt i,t-1 + з i,t Abs_Error i,t = β 0 + β 1 CRM i,t + β 2 After i,t + β 3 CRM*After i,t +β 4 Size i,t + β 5 ROA i,t + β 6 Loss i,t + β 7 Leverage i,t + β 8 EarnVol i,t + β 9 CFOVol i,t + β 10 Growth i,t + β 11 IndCon i,t + β 12 Big4 i,t + β 13 LnAnalysts i,t + β 14 Std_AF i,t + β 15 Surprise i,t + β 16 Horizon j,i,t + β 17 Litigation i,t + β 18 High Tech i,t + β 19 Weak i,t + ε i,t

13. Table 4 Univariate Analysis CRM- Before Control- Before CRM & Control Before CRM- After CRM Before and After Control- After CRM & Control After N=87 N=1169 Difference P-Value N=87 Difference P-Value N=1169 Difference P-Value Abs_Error0.0210.009-0.012<0.001***0.006-0.015<0.001***0.0140.0080.002*** ADV0.0160.0170.0000.9950.015-0.0010.7650.013-0.0020.502 ARTurn11.42813.7912.3630.62315.9954.5670.38611.195-4.7990.196 CapInt2.7819.1916.4110.4394.6281.8480.4726.2241.5960.294 CFO1565.625358.033-1207.592<0.001***1985.184419.5590.503469.150-1516.034<0.001*** Doubtful129.12119.013-110.107<0.001***83.18-45.9410.25525.833-57.3470.002*** MTB3.3931.880-1.5120.7611.910-1.4830.2921.072-0.8380.776 Oper Margin-0.084-0.572-0.4880.604-1.224-1.1400.431-0.3800.8440.309 RD0.2210.4730.2520.7531.1980.9770.4120.248-0.9500.017** ROA-0.310-0.940-0.6300.2540.0200.3310.075*-0.057-0.0770.135 Sales10492.811787.851-8704.959<0.001***12494.682001.870.6102433.191-10061.489<0.001*** SGA0.3190.5240.2050.2750.294-0.0250.5950.7570.4630.531 Size7.6935.933-1.760<0.001***7.8960.2030.5676.226-1.670.002*** All p-values are two-tailed. *, **, and *** represent significance levels of 0.10, 0.05, and 0.01 respectively.

14. Table 5 Business Process Improvements -- Sales Column 1Column 2 VariablesSales Sales Scaled CRM2,808.670.138** (0.128)(0.041) After-992.544**0.100*** (0.019)(0.005) CRM*After2,103.457***0.062* (0.008)(0.078) Control Variables Included Year and Industry Indicators Included Number of observations2,512 Adjusted R20.3380.357 F-Statistic24.130*** 140.590***

15. Table 6 Business Process Improvements – Sales Efficiency Column 1Column 2Column 3 Variables Oper Margin SGA SGA Scaled CRM-0.378**0.1990.108*** (0.039)(0.140)(0.000) After0.2090.0120.063*** (0.414)(0.879)(0.001) CRM*After0.443**-0.273*-0.025* (0.049)(0.069)(0.090) Control Variables Included Year and Industry Indicators Included Number of observations2,512 Adjusted R20.6470.0400.419 F-Statistic25.360*** 20.460***80.550***

16. Table 7 Business Process Improvements -- Receivables Collectability Column 1Column 2Column 3 VariablesARTurn Doubtful Doubtful Scaled CRM-2.17666.951***0.010* (0.372)(0.000)(0.067) After-4.718*0.3570.006** (0.098)(0.969)(0.035) CRM*After0.971-50.857***-0.010** (0.279)(0.010)(0.041) Control Variables Included Year and Industry Indicators Included Number of observations1,558 Adjusted R20.1210.2020.176 F-Statistic3.690*** 15.070***5.560***

17. Table 8 Operational Performance Column 1Column 2Column 3 VariablesROA CFO CFO Scaled CRM-0.064**297.755-0.023 (0.026)(0.385)(0.198) After-0.032*-227.699*-0.031** (0.075)(0.061)(0.011) CRM*After0.037320.988**0.035** (0.111)(0.019)(0.018) Control Variables Included Year and Industry Indicators Included Number of observations2,512 Adjusted R20.3010.1690.293 F-Statistic8.510*** 42.020*** 14.430***

18. Table 9 Management Earnings Forecast Error Column 1 Variables Absolute Forecast Error CRM0.005 (0.243) After-0.004 (0.136) CRM*After-0.008** (0.012) Year IndicatorsIncluded Industry ControlsIncluded Number of observations 342 Adjusted R20.560 F-Statistic 14.330***

19. Conclusions CRM systems do provide benefits for firms especially in specific business processes. ◦Increased Sales ◦Decreased SGA Expense ◦Reduced Allowance ◦Improved Operational Performance ◦More Accurate Earnings Forecasts