Measurement of customer relationship value in the context of software services

Abstract

Business to Business relationships have existed since humans began trading goods and services. These relationships developed more in a natural way over time as trust and friendship developed, supported by quality products and services. In the current context of highly competitive business environment, relationships have become more "strategic and the process of relationship development and maintenance has become central to profitable businesses. It is not a matter of choice for a company whether or not it should have relationships. All companies have relationships and all companies have always had them. It would be appropriate to emphasise that no company can exist without relationships. What varies is the strength, content and duration of these relationships. 1Initial informal survey done of several customer relationship managers in software services industry, on the relevance, adequacy and effectiveness of the current tools and methods being used to measure the customer relationship value reveal an overwhelmingly felt need for a structured methodology to measure the strength of a customer relationship on qualitative factors. The objective of this study is to evolve, based on the existing research material, a template or framework for measuring the relationship parameters. This framework workbook would list the various relationship parameters and measure them on a Likert scale of 1-5. A simple arithmetic average would then measure these parameters at a rolled up level, and would result in an indicative value of a parameter. Weightages would subsequently be assigned to each of the rolled up parameter to arrive at an indicative strength of a given customer relationship. Based on the review of the available relationship research literature, the following key parameters for measurement of a strength of relationship have been derived. General Parameters which are commonly used and have a clear quantitative focus, Closeness: Parameters under this have been identified from a cross section of the research literature.,. Trust: This has reasonably clearly identified parameters, strewn across various research papers and measured usually in relation to commitment and loyalty. Commitment: This along with trust is perhaps the most researched construct in measuring the strength of a relationship.,. Performance Satisfaction: Clearly, quality deliverables are the corner stone for relationship building and the development of customer relationship. I have modified the "SERVQUAL" parameters to reflect the software specific parameters as a measure of the overall quality of the service delivery. Embeddedness: Parameters from available research literature have been adapted to software services context on the basis of inputs from interviewees. The perceived utility of this tool lies in its ability to give a measure of strength of relationship under the six categories defined and thus provide an input for strategy. One could potentially infer the areas that require closer attention in building a relationship and thus arrive at an effective customer retention strategy. This template is limited by the fact that fundamentally, relationships are grounded in behavioural' concept. Every relationship is unique in its content, its dynamics, how it evolves, how it affects the parties involved and what it requires from the involved parties for success of each of them. While it is possible to create a conceptual model /template for measuring the strength of a relationship, this can by no means be standardised and will need to be adapted to the specific context within which a company operates and the relationship exists. The other limitation is that the approach developed here analyses the relationship in the context of two firms. It assumes that there can be a clear boundary drawn between the two firms. However, in reality, they within an environment and are constantly interacting with their respective environments. The reality is that every relationship should be viewed as being a part of the network. This template does not address the question: How should the environment of these relationships be regarded?,,It should also be noted that companies are not forthcoming in providing the kind of details that this template attempts to address., Interviewing and eliciting responses to this, from the point of view of the service provider in itself is rather difficult, given the desire of every company to keep this information confidential. Validating the service provider view with that of the customer, which translates to being given access to the service provider's key customer, is almost impossible. The inferences drawn in this paper are therefore to be viewed in the context of the above limitations. In terms of future direction, there appears to be space to research further on evolving and validating a construct for measuring relationship strength on qualitative parameters. Further research is required to be carried out to create, refine and validate a model for the measurement. Finally, because of the extra ordinarily complex nature of network phenomena, without doubt, there is a need to carry out detailed in depth research in this area, to evolve a model for measuring customer relationships in the context of not just relationships but relationships in the context of the networks and environment within which they operate. I believe there is significant potential further research that has the potential to make significant contributions to the theory of relationship marketing as well as evolving a managerial practice around it in the context of rapidly growing software services arena in India.