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Can organizational learning foster customer relationships? Implications for performance

Moustafa Battor
Middlesex University in London, London, UK, and

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Received 8 November 2012 Revised 15 March 2013 Accepted 24 April 2013

Mohamed Battour
Faculty of Commerce, Tanta University, Tanta, Egypt
Abstract
Purpose The purpose of this paper is to investigate the inuence of both organisational learning and customer relationship management (CRM) on a rms performance, as well as the potential mediating role of CRM in the link between organisational learning and performance. Design/methodology/approach Based on the literature, the authors designed a framework that links organisational learning, CRM, and performance. Data were collected through a self-administered questionnaire. Conrmatory factor analysis is used to purify the measurement scales, and structural equation modelling was used to test the hypotheses. Findings The ndings provide support for a positive relationship between organisational learning and CRM. The results also indicate that organisational learning has a signicant indirect effect (through CRM) on performance. Originality/value Knowledge of the learning-CRM-performance chain is limited to a few conceptual articles. This research is one of the rst empirical studies designed to examine the importance of CRM as one of the mediating mechanisms that can explain the association between learning and performance. Keywords Performance, Customer relationship management, Learning Paper type Research paper

Introduction An increasing number of scholars identify organisational learning as an important source of superior performance (e.g. Goh et al., 2012; Sinkula et al., 1997; Slater and Narver, 1995). Learning focuses on understanding and effectively satisfying customers expressed and latent needs through new products, services, and ways of doing business. Learning, thus, should lead to superior outcomes, such as greater new product success, superior customer retention and superior protability (Slater and Narver, 1995). CRM that is, creating and managing close customer relationships also receives increasing attention from researchers and managers because the long-held view that retaining customers can lead to dramatic enhancements in performance (e.g. Boulding et al., 2005; Reinartz et al., 2004). Recognising that loyal customers are the source of most of their prots, organisations are continually seeking to improve long-term customer relationships (Day and Van den Bulte, 2002). Recent research indicates that learning orientation has a key role to play in enhancing relationships with customers (Boulding et al., 2005; Chang and Ku, 2009;

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Jayachandran et al., 2005). Boulding et al. (2005, p. 156) argue that scholars started paying more attention to identifying the core capabilities of the rm that are necessary to develop and maintain good customer relationships. They also highlight the importance of learning orientation as a key driver of CRM because organisational learning can establish good information processes and capabilities within the rm to understand the needs and wants of customers, thus making rms more efcient and effective in managing customer relationships. Customer tastes, preferences, and behaviours all are dynamic and always changing together with the offerings of suppliers (Dickson, 1996). If rms fail to take into account the dynamic nature of customer relationships, they will miss a key opportunity to manage effectively their relationships (Lemon et al., 2002). Thus, rms that appreciate learning are more likely than other rms to build successful customer relationships, given that organisational learning can play a major role in implementing change which is required to manage relationships better ( Jayachandran et al., 2005). Despite wide recognition of the importance of CRM and learning for the long-term success of rms, the existing literature largely neglects how they together inuence performance. Remarkably, the potential impact of organisational learning on CRM receives little attention in this literature. To explore these important issues, we examine two inter-related questions: (1) How do learning orientation and CRM work together to enhance a rms performance? (2) Does learning orientation improve a rms ability to develop effective CRM? The main objective of this study, then, is to develop and test a model depicting the relationships among organisational learning, CRM and rm performance. Figure 1 presents the conceptual framework. Research framework and hypotheses CRM and performance CRM is iterative processes designed to turn customer data into customer relationships through active use of, and learning from, the information collected (Brohman et al., 2003). With detailed and up-to-date customer information, organisations can introduce the right product to the right customer at the right time through the right channel to satisfy the customers evolving demands. Such organisations are more likely to be able to build long-term relationships with customers ( Jayachandran et al., 2005; Sun et al., 2006). Increasingly, scholars recognise that managing customer relationships effectively increases retention rates (e.g. Day, 2002; Karakostas et al., 2005; Reinartz et al., 2004). The consequences of enhanced long-term relationships with customers include, among

Figure 1. Learning orientation, CRM and rm performance

other things, increased revenue, reduced customer acquisition costs, and lower costs of serving repeat purchasers, leading to greater protability (Lam et al., 2004). Long-term customers buy more, are cheaper to serve, take less of a companys time, pay less attention to competing brands, provide new referrals through positive word of mouth, and buy other products offered by the company (Reichheld, 1996). Companies with a superior CRM capability are more likely to be able to understand the value of the customer to the rm, identify the protability of each customer, and distinguish the more protable customers from the less protable ones. Companies will then be better able to manage individual customer relationships and to determine more effectively the contribution of these relationships to the protability of the rm (Reinartz et al., 2004). Empirical work investigates and supports the positive impact of CRM on rm performance. For example, Day and Van den Bulte (2002) nd that CRM is an important determinant of superior performance. Hooley et al. (2005) report similar results. Researchers also nd that CRM activities are associated with higher prots (Thomas and Sullivan, 2005), greater customer retention ( Jayachandran et al., 2005), and increased customer knowledge, which in turn is associated with greater customer satisfaction (Mithas et al., 2005). Thus, the study proposes the following hypothesis: H1. CRM has a positive impact on performance. Learning orientation and performance Learning orientation refers to organisation-wide activity of creating and using knowledge about customer needs, market changes, and competitor actions to enhance competitive advantage (Calantone et al., 2002). Learning orientation represents a set of organisational values that routinely associate with the predisposition of the rm to learn: commitment to learning, shared vision, and open-mindedness. Commitment to learning value inuences whether an organisation is likely to promote a learning culture. If an organisation places little value on learning, little learning is likely to occur (Sinkula et al., 1997). Shared vision is a common understanding about what the organisation is trying to achieve, and therefore coordinates the focus of various departments (Calantone et al., 2002). Open-mindedness is the willingness to question the organisations long-held assumptions about how events occur (Santos-Vijande et al., 2005). Evaluating the old ways to do jobs and accepting new ideas and better ways of doing these jobs are important (Calantone et al., 2002). Learning processes are difcult to develop, specic, intangible and deeply embedded in the fabric of the organisation and, therefore, a rms learning capability is difcult to imitate or buy and can serve as a sustainable source of superior performance (Hult et al., 2002). Over the long run, superior performance depends on superior learning. Learning-oriented organisations are willing to question their well-operated organisational systems, and update fundamental operating philosophies (Slater and Narver, 1995). They also foresee environmental and market changes and make adjustments (Calantone et al., 2002). Learning thus facilitates the behaviour change required to help organisations enhance performance (Calantone et al., 2002; Chang and Ku, 2009; Slater and Narver, 1995). Therefore, the study proposes the following hypothesis: H2. Learning orientation has a positive impact on performance.

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Learning and CRM Theoretical arguments suggest that learning can play a key role in customer relationships, as do a few published empirical studies (e.g. Chang and Ku, 2009; Chaston et al., 2000; Hart et al., 2004). Learning and knowledge are inextricably linked in the knowledge management literature ( Janz and Prasarnphanich, 2003). Firms with superior learning capability develop superior knowledge about customers evolving needs and preferences (Sun et al., 2006). Firms, then, can use such knowledge to develop appropriate responses to customer needs and preferences ( Jayachandran et al., 2005; Mithas et al., 2005). With the improvement of the accuracy of the rms knowledge of customer preferences, customers are better served and can recognise and respond favourably to offers that t their preferences and they are more likely to stay with the rm (Ranjan and Bhatnagar, 2011; Sun et al., 2006). Customer knowledge is of limited value unless sharing this knowledge throughout the organisation occurs (Sin et al., 2005). Sharing customer knowledge facilitates concerted actions by different departments within companies and, therefore, has a key role to play in building customer relationships (Kohli and Jaworski, 1990; Sin et al., 2005). Through sharing knowledge with all employees who come into contact with the customer, everyone can know the status of the account and current order, whether all complaints have been resolved, and so forth (Day, 2000). With such knowledge, employees can respond to any customer need in a contextual manner and better manage their relationships with customers (Mithas et al., 2005). Essentially, organisational learning will not occur in any rm until shared knowledge is in evidence (Slater and Narver, 1995). Therefore, rms seeking to build close relationships with customers need to adopt a higher level of learning because organisational learning, which plays a key role in promoting a culture of shared knowledge in the rm, is capable to help rms develop a superior CRM capability (Aragon-Correa et al., 2007). Hence, the study proposes the following hypothesis: H3. Learning orientation has a positive impact on CRM. Research design Data collection Prior to data collection, the research instrument was pretested twice. First, a pretest involving ve academics and three executives was conducted to assess the face and content validity of the measurement items. Consequently, a small number of modications to the questionnaire were made in order to clarify the intent of specic questions. Second, a pilot study was performed to conrm the appropriateness of the survey administration. We used the FAME database of UK companies as our sampling frame. We used a systematic random sampling method to draw a sample of 1000 companies with more than 50 employees from this database. The nal questionnaire was mailed to managing directors or CEOs, together with a return pre-paid envelope. One hundred eighty usable surveys were returned. Measures All constructs that this research includes were measured using multiple-item scales adapted from previous studies. All items were operationalized using a ve-point Likert scale. All the scale items are provided in the Appendix. Learning orientation, was measured using the scale developed by Sinkula et al. (1997). Learning orientation is a

second-order construct. Its rst-order indicators are commitment to learning, shared vision, and open-mindedness. Drawing on previous conceptual and empirical studies (Day, 2002; Jayachandran et al., 2005; Reinartz et al., 2004), we operationalized CRM as a second-order construct that consists of two rst-order indicators, i.e. relationship orientation and customer information management. We assessed relationship orientation as the extent to which an organisation makes customer retention a priority, and customer information management as the degree to which an organisation manages and shares information about customers that is in-depth, relevant and available in all parts of the company. Following Spanos and Lioukas (2001), among others, business performance was operationalized as a two-dimensional construct, i.e. market performance and nancial performance. Analysis and results The study uses structural equation modelling (SEM) to test the model. The study uses the two-step approach that Anderson and Gerbing (1988) recommend. First, the psychometric properties (reliability, convergent and discriminant validity) of the constructs used in the research model were evaluated. Second, the structural model and its hypothesised relationships were simultaneously analysed. Reliability and validity of the measurement scales Three separate measurement models were performed: (1) learning; (2) CRM; and (3) performance. Table I presents key results of the CFA. For the three constructs, all indicators load signicantly on their corresponding latent construct. The results also indicate that the measurement models t well for the learning construct (x 2 1:652, degrees of freedom df 1, p 0:199, goodness-of-t index GFI 0:994, Tucker-Lewis index TLI 0:993, comparative t index CFI 0:998, root mean square error of approximation RMSEA :060), the CRM construct ( x 2 21:742, df 11, p 0:026, GFI 0:968, TLI 0:980, CFI 0:990, RMSEA 0:074), and the performance construct (x 2 7:732, df 4, p 0:102, GFI 0:984, TLI 0:992, CFI 0:997, RMSEA 0:072). The composite reliability was calculated using the procedures that Fornell and Larcker (1981) suggest. Composite reliability estimates consistency on the basis of actual construct loadings (White et al., 2003). As Table II shows, the composite reliabilities for the three scales range from 0.877 to 0.967, exceeding acceptable levels for construct reliability (Fornell and Larcker, 1981). To examine the convergent validity for the three constructs, the average variance extracted (AVE) was computed by the indicators corresponding to each of the three
Measurement model Learning CRM Performance GFI 0.994 0.968 0.984 TLI 0.993 0.980 0.992 CFI 0.998 0.990 0.997 RMSEA 0.060 0.074 0.072

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x 2(df)
1.652(1) 21.742(11) 7.732(4)

p-value 0.199 0.026 0.102 Table I. Overall model ts from conrmatory factor analysis

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constructs. AVE is the amount of variance that is captured by the construct in relation to the amount of variance due to measurement error. If AVE is less than 0.50, the variance due to measurement error is larger than the variance captured by the construct, and the validity of the individual indicators, as well as the construct, is questionable (Fornell and Larcker, 1981). Therefore, convergent validity is established if the AVE for each construct accounts for 0.50 or more of the total variance. As Table II shows, the AVE exceeds the recommended level of 0.50 for learning (0.91), CRM (0.78), and performance (0.84), providing evidence for convergent validity. In addition, all the standardised factor loadings are relatively high and statistically signicant at the 1 per cent level, providing further support for convergent validity (Anderson and Gerbing, 1988). Discriminant validity was examined using the procedure that Fornell and Larcker (1981) recommend. They suggest that discriminant validity is established for a construct if its AVE is larger than its shared variance with any other construct. The AVE was compared with the highest variance that each construct shares with the other constructs in the model. The AVE for each construct is always greater than the highest shared variance (see Table II). Research model testing The study uses SEM to test the proposed hypotheses with the maximum likelihood estimation method. Table III summarises the SEM results of the relationship between learning, CRM and performance. The results of SEM analysis indicate a good overall t of the theoretical model with the data (x 2 26:881, df 10, p 0:003, GFI 0:963, TLI 0:947, CFI 0:975, RMSEA 0:09). These indexes are acceptable and, therefore, the model is an appropriate basis for hypothesis testing. The results indicate that CRM signicantly and positively relates to rm performance (b 0:32, p 0:007), providing support for H1. As H3 predicts, learning orientation has a positive relationship with CRM (b :62, p 0:001). H2 posits that learning orientation enhances rm performance. Contrary to the prediction, the impact of
Composite reliability 0.967 0.877 0.915 Average variance extracted (per cent) 91 78 84 Highest shared variance (per cent) 26 26 10 Standardised factor loadingsa 0.88-0.95 0.80-0.88 0.86-0.94

Construct Learning CRM Performance

Table II. Properties of measurement models

Note: aAll factor loadings are signicant at the 0.01 level

Hypotheses H1: CRM ! Performance H2: Learning ! Performance H3: Learning ! CRM

Standardized coefcient 0.32 0.11 0.62

p-value 0.007 0.305 0.001

Table III. Results of the test of structural equation model

Notes: Goodness-of-t statistics: x 2 26:881, df 10, p 0:003, GFI 0:963, TLI 0:947, CFI 0:975, RMSEA 0:09

learning orientation is not statistically signicant (b 0:11, p not signicant). Thus, the ndings do not support H2. To test whether CRM mediates the effect of learning on performance, the signicance of the indirect effect of learning on performance was estimated. The results show that the indirect effect of learning on performance through CRM is signicant (b 0:19, p :001). Discussion This study investigates the inuence of both learning orientation and CRM on a rms competitive performance, as well as the potential mediating role of CRM in the link between learning orientation and performance. To this end, this study develops a conceptual model that links learning, CRM, and performance. To test the proposed model empirically, the study uses perceptual measures of learning orientation, CRM, and rm performance on a cross-section of mid-size and large UK rms. Consistent with previous studies (e.g. Day and Van den Bulte, 2002; Hooley et al., 2005), the ndings provide support for a positive relationship between CRM and performance. CRM involves the continuous use of rened information about current and potential customers in order to anticipate and respond to their needs in todays highly competitive arena (Karakostas et al., 2005). Therefore, building stronger relationships with customers provides the basis for understanding the evolving requirements of customers and identifying the most appropriate ways of satisfying customers better than competitors which can provide greater opportunities for realizing superior performance (Day, 1994). Companies with superior CRM capability are more likely to be able to estimate customers lifetime values. Firms knowledge of customer protability enables them to make resource allocations in a manner that maximizes return on investment. They can align the resources spent on customers with the revenues or prots derived from the same customers (Mulhern, 1999). Companies will also be able to direct resources toward the highly protable customers or ones that are worth the resource allocation because they are high potentials (Reinartz et al., 2004). Although several studies provide conceptual support for the effect of learning on CRM, this research empirically conrms this association. Customer needs often change rapidly and unpredictably in todays markets and the CRMs aim is a quick response to those needs. Learning-oriented rms have superior information processing abilities that enable them to learn about customer preferences and adapt their strategies in a real-time fashion. With accurate and up-to-date customer information, rms can recognise customers evolving needs and preferences and then develop appropriate responses to these needs and preferences and better customize their CRM programs (Day, 1994; Sun et al., 2006). This research shows that the direct effect of learning orientation on performance is insignicant. Two previous empirical studies report similar results (Hult et al., 2004; Santos-Vijande et al., 2005). However, the study results indicate that learning orientation has a signicant indirect effect (through CRM) on performance. This nding means that being a learning organisation is not enough to gain an advantage over competitors. Rather, the rm must convert the learning efforts into rm-specic capabilities (Lei et al., 1996). Thus, organisations stressing learning must learn and then behave accordingly to be effective (Hult et al., 2002). Putting it differently, the results of investments in learning capability come when managers translate that learning into actions leading to competitive advantage in markets (Woodruff, 1997).

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Implications There are several theoretical and managerial implications of the current study. This research points to the importance of CRM as one of the mediating mechanisms that can explain the association between learning and rms performance. The implication of this is that the link between organisational capabilities and performance is neither straightforward nor simple but rather is embedded within a more complex web of relationships. Therefore, any attempt to examine the individual relationships in isolation would lead to an incomplete picture. This nding provides support for arguments made in the literature of the knowledge-based view of the rm that the primary role of the rm is integrating the knowledge of its members into goods and services (Grant, 1996). A rms ability to transform knowledge into competitive offerings drives performance, not merely having knowledge. This nding is also consistent with the argument that the value of a capability is often contingent upon the presence of other complementary capabilities (Lippman and Rumelt, 2003). The ndings support the effect of learning on CRM. In practical terms, the results indicate that rms seeking closer customer relationships should create an environment in which learning and knowledge creation can thrive. They need to pay special attention to learning activities and values. Firms must have a strong commitment to learning, establish a shared vision of goals, and remain open-minded. The results demonstrate that learning oriented rms will realize very little or no advantage if they do not have the necessary mechanisms for leveraging the advantages associated with a learning orientation into superior customer relationships. High-performing rms not only encourage learning but also translate learning outcomes into insightful actions. Limitations and further research The results reported here should be interpreted in the light of certain limitations that suggest areas for further research. The rst limitation of this study is its cross-sectional nature. The use of a cross-sectional study limits the ability to make recommendations that rely on causation, implying that a longitudinal study would be an important contribution to the literature. Self-reported data were used to measure rms performance, learning, and CRM. Common method variance could bias the results, when predictor and criterion variable are obtained from the same respondent. Future research that uses different sources to measure independent and dependent variables will be benecial. Finally, the relationship between organisational learning and performance warrants further testing. Organisational learning is hypothesised to affect rm performance directly. The ndings of this research question this hypothesis.
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Appendix. Measures of constructs Learning orientation Commitment to learning: . Managers basically agree that our business units ability to learn is the key to our competitive advantage. . The basic values of this business unit include learning as key to improvement. . The sense around here is that employee learning is an investment, not an expense. . In my organisation, learning is seen as a key commodity necessary to guarantee organisational survival. Shared vision: . There is a commonality of purpose in my organisation. . There is total agreement on our organisational vision across all levels, functions, and divisions. . All employees are committed to the goals of this organisation. . Employees view themselves as partners in charting the direction of the organisation. Open mindedness: . We are not afraid to reect critically on the shared assumptions we have about the way we do business. . Personnel in this enterprise realize that the very way they perceive the marketplace must be continually questioned. . We rarely collectively question our own bias about the way we interpret customer information.

CRM Relationship orientation: . We actively stress customer loyalty or retention programs. . In our organisation, there is an openness to sharing information about customers. . Our employees are willing to treat different customers differently. . We systematically attempt to customize services and products based on the value of the customer. Customer information: . We have comprehensive databases to give full picture of customer. . We integrate customer information across customer contact points (e.g. mail, telephone, web, fax, face-to-face). . Our databases are designed to ensure data quality.

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We continuously track customer information in order to assess lifetime value of each customer. Our information systems are integrated across several functional areas. We invest in technology to acquire and manage real time customer information and feedback.

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Business performance Financial performance: . Protability. . Return on investment. Market performance: . Market share. . Customer satisfaction. . Customer retention. . Sales growth.

Corresponding author Moustafa Battor can be contacted at: m.battor@mdx.ac.uk

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