The Impact of Customer Relationship Management Implementation on Cost and Profit Efficiencies: Evidence from the U.S. Commercial Banking Industry

Abstract

The impact of customer relationship management (CRM) implementation on firm performance is an issue of considerable debate. This study examines the impact of CRM implementation on two metrics of firm performance—operational (cost) efficiency and the ability of firms to generate profits (profit efficiency)—using a large sample of U.S. commercial banks. The authors use stochastic frontier analysis to estimate cost and profit efficiencies and employ hierarchical linear modeling to assess the effect of CRM implementation on cost and profit efficiencies. They find that CRM implementation is associated with a decline in cost efficiency but an increase in profit efficiency. A firm-level factor, CRM commitment, reduces the negative effect of CRM implementation on cost efficiency. The authors also find that two adoption-related factors, time of adoption and time since adoption, influence the relationship between CRM implementation and cost and profit efficiencies. Early adopters benefit less from CRM implementation than late adopters. However, time since adoption improves the performance of firms that implement CRM. By demonstrating the different ways CRM implementation influences cost and profit measures, the study provides valuable insights to CRM researchers and managers.