INFLUENCE OF TECHNOLOGY ON CUSTOMER RELATIONSHIP MANAGEMENT AMONG COMMERCIAL BANKS IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The condition of the market and business environment of the contemporary time is witnessing rapid change. Business often must respond to this rapidly changing environment. Environmental change has been a business focus for decades. Now, a well established new comer is changing the traditional business environment even more: information technology; the internet and the electronic commerce are the new players disrupting the business environment. Even more critical is the development of entirely new business. Given these changes, businesses have rediscovered that, more than ever, in the face of increased competition, matured market, and ever demanding customers, treating existing customers well is the best source of profitability and sustained growth (Hair etal, 2012). Today, companies have realized that customers are the life blood of the business; business survival is largely depended on the customers. The realization of this fact has made it possible for companies to have a better chance to out perform competition. Customers are therefore, better satisfied through a competitive superior product and services beyond their expectation. Satisfying the customer eventually graduate into a relationship where the company sees the customer as part of the business and business decision making by continuously seeking customers opinion. According to Kotler and Keller (2012) marketers must connect with customers, informing, engaging, and may be even energizing them in the process. Having every detail of organization’s customers gave birth to the marketing concept known as customer relationship management (CRM).  Customer relationship management is a vital issue in the banking sector due to its capacity to enhance revenue if given the proper attention it deserves. The competitiveness of banks in Nigeria call for individual banks to strategize on how to retain and maintain both the existing and potential customers. Mahesh and Bhavani (2015) view Customer Relationship Management as a fundamental tool for building a customer-centric organization. According to them it is a Key element that allows a Bank to establish its customer base and boost revenue. Also, the goal of CRM is to manage all aspects of customer interactions in a manner that enables the organization to maximize Profitability from every customer. The Nigerian banking sector has gone through a lot of pressure due to government regulations that most times have adverse effect on their financial performance.  The recent introduction of TSA (treasury single account) has shaken the existence of most banks that the only survival option is to cordially relate with the existing customers, put smiles on their faces and then courageous marketing to reach potential customers. In that case the banks have to find out what these customers need so that such services will be made available to them. A customer’s choice of banking service can change at any time, if nothing is done to mitigate it. When a customer is allowed to be on the que for many hours he/she will be discouraged and will like to look out for where customer service is faster. That means in customer relationship management banks stand to lose important customers if the service being provided does not meet the needs of the customers and within the time frame it is required. Frazer and Peter (1984) put it that customers demand for banking services is normally a major factor for banks profitability. The top management of the banks therefore has the responsibility to ensure that customers have satisfactory service that will retain them through the use of technology.  Information technology (IT) is the management and use of information using computer based tools. It involves acquiring, processing, storing, and distributing information. Information Technology provides the tools and functions on which majority of companies run. With the new technologies in place, and the boom of the Internet, all business activities use some form of technology (Andam, 2010). Initially there was the barter trade system where people handled every aspect of running a business manually, however, with the advent of IT the pace of trade has increased. The advances in technologies have drastically reduced the cost of business operations and increased the efficiencies across organizations (James, 2009). In today's highly competitive and technological business world the success or failure of an organization depends on how organizations manage to streamline the flow of information between their departments and outside world. This involves the use of technology to automate the flow of information in an organization's information system. These strategic uses enable executives to identify opportunities for strategic use of IT (Doms, 2010). The introduction of the Information and communication technology (ICT) has revolutionized operations and service delivery in all sectors across the globe. Adoption of ICT facilitate operational efficiency, internal and external communication, operational cost reduction, knowledge management, decision making and improved service delivery. Thus, for an organization to remain competitive, there is need to invest in appropriate ICT and to continuously re-evaluate and improve the effectiveness and efficiency of its business information system (Chaffey& Wood, 2009). In both developed and developing countries, ICT is critical in the banking industry as it has greatly influenced business processes, marketing and service delivery. For instance, through the use of ICT, banks have launched new services and efficient service delivery channels such as internet banking, mobile banking and automated teller machines. Consequently, there has been a paradigm shift in operations and service delivery in the banking industry as a result of ICT adoption. Today, banks continue to invest heavily in ICT in an endeavour to improve service delivery, catch up with global developments, manage transaction costs and widen the range of value added services and products on offer. Thus, from the forgoing, this study is designed to examining the influence of technology on customer relationship management among commercial banks in Nigeria.

1.1.1 CONCEPT OF CUSTOMER RELATIONSHIP MANAGEMENT

Kotler and Armstrong (2010) definition of CRM as cited by Mahesh et al (2015) says it is "the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction". Customer Relationship Management is the strategy used by organizations to develop mutually profitable long-term relationships with the customer. It enables a firm to gather and preserve a customer’s personal data through continuous survey of information about products and services offered to the customer (Bergeron, 2010). Customer relationship management (CRM) is a way of managing a company's interaction with current and potential future customers. The CRM approach is such that data about customers' history with a company are analyzed to build business relationships with customers with specific focus to retain a customer and among others to boost revenue (Bain & Company 2015). Shaw 2011 identified one important aspect of the CRM approach which has to do with the compilation of information from a range of different communication channels, including a company's website, telephone, email, live chat, marketing materials, social media, and more. Through the CRM approach and the systems used to facilitate CRM, businesses learn more about their target audiences and the best way to cater for their needs. However, adopting the CRM approach may also occasionally lead to favoritism within an audience of consumers, resulting in dissatisfaction among customers and defeating the purpose of CRM (David 2007). Greenberg 2012 states that CRM is a business strategy which aims at increasing customer’s loyalty and satisfaction by presenting him the personalized services and some know it as a managerial approach which includes identifying, attracting, developing and maintaining the successful relationship with customer in order to increase profitability. Research showed that 5% increase in preserving the customer will lead to 95% increase in the value for organization. Wu et al., 2007 also sees CRM as a strategic necessity for all organizations because its effective implementation increases the satisfaction of customer, loyalty and attraction and revenue increase. General process of developing and maintain the profitable communication with customer is by delivery or presenting a higher value to customer and achieving his satisfaction (Kotler, 2010). Gamson (2012) as cited by Mozahrb et al (2015), considers CRM as a necessary rule for those organizations that need development and growth that in this regard, identifying the key dimensions of CRM is very important (Payne and Frow, 2010).

1.1.2 CONCEPT OF INFORMATION TECHNOLOGY IN BANKING TODAY

Information Technology (IT) is the automation of processes, controls, and information production using computers, telecommunications, software and ancillary equipment such as automated teller machine and debit cards (Khalifa 2014). It is a term that generally covers the harnessing of electronic technology for the information needs of a business at all levels. Irechukwu (2014) lists some banking services that have been revolutionized through the use of ICT as including account opening, customer account mandate, and transaction processing and recording. Information and Communication Technology has provided self-service facilities (automated customer service machines) from where prospective customers can complete their account opening documents direct online. It assists customers to validate their account numbers and receive instruction on when and how to receive their chequebooks, credit and debit cards. Communication Technology deals with the Physical devices and software that link various computer hardware components and transfer data from one physical location to another (Laudon and Laudon; 2013). ICT products in use in the banking industry include Automated Teller Machine, Smart Cards, Telephone Banking, MICR, Electronic Funds Transfer, Electronic Data Interchange, Electronic Home and Office Banking. Several authors have conducted investigation on the impact of ICT on the banking sector of the Nigeria economy. Agboola et al (2012) discussed the dimensions in which automation in the banking industry manifest in Nigeria. They include:

1. Bankers Automated Clearing Services: This involves the use of Magnetic Ink Character Reader (MICR) for cheque processing. It is capable of encoding, reading and sorting cheques.
2. Automated Payment Systems: Devices used here include Automatic Teller Machine (ATM), Plastic Cards and Electronic Funds Transfer.
3. Automated Delivery Channels: These include interactive television and the Internet.

Agboola (2013) studied the impact of computer automation on the banking services in Lagos and discovered that Electronic Banking has tremendously improved the services of some banks to their customers in Lagos. The study was however restricted to the commercial nerve center of Nigeria and concentrated on only six banks. He made a comparative analysis between the old and new generation banks and discovered variation in the rate of adoption of the automated devices. Aragba-Akpore (2008) wrote on the application of information technology in Nigerian banks and pointed out that IT is becoming the backbone of banks’ services regeneration in Nigeria. He sited the Diamond Integrated Banking Services (DIBS) of Diamond Bank Limited and Electronic Smart Card Account (ESCA) of All States Bank Limited as efforts geared towards creating sophistication in the banking sector. Ovia (2014) discovered that banking in Nigeria has increasingly depended on the deployment of Information Technology and that the IT budget for banking is by far larger than that of any other industry in Nigeria. He contended that On-line system has facilitated Internet banking in Nigeria as evidenced in some of them launching websites. He found also that banks now offer customers the flexibility of operating an account in any branch irrespective of which branch the account is domiciled. Woherem (2012) discovered that Nigeria banks since 1980s have performed better in their investment profile and use of ICT systems, than the rest of industrial sector of the economy. An analysis of the study carried out by African Development Consulting Group Ltd. (ADCG) on IT diffusion in Nigeria shows that banks have invested more on IT, have more IT personnel, more installed base for PCs, LANs, and WANs and a better linkage to the Internet than other sectors of the Nigerian economy. The study, however pointed out that whilst most of the banks in the west and other parts of the world have at least one PC per staff, Nigerian banks are lagging seriously behind, with only a PC per capital ratio of 0.18 (Woherem, 2014).

1.1.3 NIGERIAN BANKING ENVIRONMENT

The significance of banking environment means customers can have confidence and a sense of security in the banking sector. This is more acute for two reasons: in banking, there is an acute need for a favourable environment that will build confidence and trust among customers. Second, in the Nigerian banking context, previously, several banks had collapsed that result to the loss of huge customers’ deposit and capital flight (Dumbili, 2013; Sanusi, 2012). According to Williams, Etuk, and Inyang (2014), to improve the banking environment, several government prudential policies were introduced. However, due to corruption, unethical banking behaviour, abuse of power, and lack of effective implementation of prudential policies, these policies failed to yield results (Barros & Caporale, 2012; Maklan, Knox, & Michel, 2009). In 2008, 26 banks collapsed; they left more than twenty four thousand banking staff unemployed; customer lost substantial deposits (Dumbili, 2013). Regardless of the various reforms, this act of corruption, insolvency, illiquidity and overdependence on public sector accounts continues to persist up to recent times. Up to 2010, eighty nine banks operated with Naira two billion as capital (Barros & Caporale, 2012; Dumbili, 2013). To strengthen customer confidence and reduce negative effects on financial result and capital of the bank, banking consolidation was introduced in 2010 (Soludo, 2010). As Dogarawa (2011) reported, one of the most important banking reforms that positioned the banking sector in Nigeria is the reform policy introduced in 2010. The then government saw the need for the adoption of distress reduction policies (Dogarawa, 2011). According to Sanusi (2012), the main thrust of the policy was to enable banks to drive growth across various sector of the economy that require funding, minimise exposure to risk, and build markets as well as consumer confidence. Thus, the policy encouraged consolidation, as banks were compelled to raised their capital to twenty-five billion naira through mergers and acquisition (Assaf et al., 2012; Williams et al., 2014). Some of these banks went public in order to generate funds; others merged. The weak ones were acquired (Benjamin & David, 2012; Williams et al., 2014). As Benjamin and David (2012) reports, banks that were unable to source the required funds, and were unable to secure suitable merger partners, became insolvent and eventually went out of business (Barros & Caporale, 2012; Dogarawa, 2011). Table 2.1 provides information on the new banks and the component banks formed by merger and acquisition. In support of the reform, Barros and Caporale (2012) argued that this reform set the foundations of big banks and reliable banks in Nigeria. The act strengthens the financial strength of many banks and enhances their intermediation responsibility and ability to serve the market well. Specifically, it was believed by Sanusi (2012) that the policy enhanced corporate governance that focuses on reducing risk and enshrines the strict use of a rule-based regulatory framework, which was missing before this policy; the policy introduced electronic Financial Analysis and Surveillance Systems (e-fass) to ensure security of banking transactions. The implication of this measure is that it ensures transparency and accountability in corporate management and security of customer investment. It also strengthens banks’ focus on customers, as banks were compelled to expand and be market-focused. This act strengthens the financial strength of many banks, enhances their intermediation responsibility and ability to serve the market well and strengthens customers’ willingness to bank and remain financially included (Barros & Caporale, 2012; Dogarawa, 2011; Dumbili, 2013). Dumbili (2013) suggested that banks for the first time started thinking of customers and expanded their operation to other part of the country in the quest for customer investment and organic growth. The need for efficiency and cost reduction becomes apparent in the banking sector. Several banks made huge investments in technological tools (e.g., Automated Teller Machine card, Internet banking) that will assist transactions, improve customer satisfaction and reduce cost. In support of this reform, Barros and Caporale (2012) and Hesse (2007) report that the number of bank branches rose nationwide to 4,500 in 2012 from 3,382 before capitalization. Bank assets increased to 6,555 billion in 2012 from 3,209; their capital adequacy ratio stood at 21.6% in 2012 instead of 15.2% before capitalization. By implication, the banks are resilient to market uncertainties due to improved capital adequacy ratios. Its implications for customer management include increased security of investment, confidence, and proximity to customers due to the increased number of bank branches. The achievement strengthens banks’ ability to include potential customers and to strengthen banking relationships with customers.

1.1.4 TECHNOLOGICAL INNOVATIONS IN NIGERIA BANKING SECTOR

The first stage of information technology in banks started with an attempt to automate the banking process through mechanization. It was by the use of note counters and accounting calculators to speed up basic transactions. Another stage of information technology was in the storage and retrieval of information. Then in the late 1950s and 1960s, business data processing was through punched card equipment. The 1970s saw the introduction of Information Technology Management System (MIS) and Decision Support System (DSS). The 1980s saw the fusion of telecommunications and networking technologies for business deployment. It also saw to the emergence of data processing, Office Information System (OIS) and personal computers (Ibikunle, F.& James,O. 2012). The most important ICT products identified as being adopted by the banks are Automated Teller Machines (ATMs), Electronic Fund Transfer (EFT), smart cards, telephone banking, computerized credit rating, point of sales system, electronic home and office banking and electronic data exchange (Agboola, 2012; Ehikhamenor, 2010). Ehikhamenor, (2010) found that the most frequently reported applications were treasury operations (35.6%) human resources (35.2%), bank master (31.0%), reconciliation (29.9%), loan and deposit (25.5%), money market (24.8%), asset management (22.5%), fund transfer (22.1%), general ledger (20.3%), etc.

1.2 RESEARCH PROBLEM

Organizations have come to the realization that their businesses should focus on building and maintaining strong relationship with customers as they are the key drivers of business prosperity (Newby, Nguyen, & Waring, 2014). Kaura (2013) confirms that the cost of acquiring new customers has become costly due to increase in competition and this has made organizations to improve their retention strategies of existing customers by implementing customer relationship management. In line with Kaura (2013), Saxena and Khandelewa (2011) assert that CRM involves centering the business strategy on customers who are considered to be the organizations assets hence they need to be managed continuously to ensure sustainable profits over the customer lifetime. There are various CRM capabilities that have been identified in literature to increase the success of CRM implementation in firms.

Nigeria Banks have fall short of the expectations of their customers in recent time. Customers have experienced challenges ranging from delayment, stock out, non-availability of staff at service points, unprofessional conduct or rudeness by the staff of the bank, poor standard of records or improper information, failed promises among others. In the words of Ogunnaike and Ogbari (2008), customer service in our banking industry can be mistaken to mean customer delay and frustration. According to the authors almost every Nigeria bank encounters similar problem in meeting customers’ expectation of services and customer satisfaction. The issue of money transfer in banks is one major problem that customers of certain banks have been made to experience. In most cases, the customer hardly receives the payment of the money transferred in his account immediately. Also, the long queues and huge crowds in the banking halls can be highly devastating and discouraging most times, especially when the weekend is near. Most times, this long queues are as a result of the breakdown of the computers used by these cashiers, sometimes it occurs as a result of the cashier pushing duty to one another, as to who is to attend to the customer or not. However, in order for CRM to focus on the needs of customers and integrate these needs across the firm, there are three key strategic CRM capabilities. These include human resource capabilities, information technology (IT) capabilities and business architecture capabilities (Wang & 2012; Chen & Popovich 2010). The application of these CRM capabilities in Nigeria is however not highlighted in research although studies on CRM have been conducted. Wang and Feng (2012) ascertain that information technology(IT) capability may improve an organizations ability to sustain profitable customer relationships by gathering and analyzing information about customers who are profitable, facilitates efficient and effective interactions between the organization and customers, and customizing products or services thus, attract and retaining customers. However, literature on the IT capability has revealed that the incorporation of information technology capability had no significant effect on performance measures such as increasing customer satisfaction and loyalty in the long- run and that technology is only an enabler and a focus on too much IT would lead to a loss of customer orientation. This research work investigates the influence of technology on customer relationship management among commercial banks in Nigeria. Customers are the major products of every bank and the way these products are managed determine the effectiveness and efficiency of the banks and ultimately their performance. This is because most banks offer to customers the same set of services and the only way to be different from others and gain competitive advantage over other banks is to treat the customers as kings. This is why this study focuses on studying the influence of technology on customer relationship management among commercial banks in Nigeria.

1. RESEARCH OBJECTIVES

The general objective of this work therefore is to examine influence of technology on customer relationship management among commercial banks in Nigeria. The specific objectives of the study are:

1. To examine the extent to which technology is adopted in customer relationship management among commercial banks in Nigeria.
2. To examine the role of technology in customer relationship management in commercial banks in Nigeria.
3. To examine the influence of technology on customer relationship management in commercial banks in Nigeria.
4. To examine the specific technology applications within customer relationship management in commercial banks.
5. To examine the relationship between technology and customer relationship management among commercial banks in Nigeria.
6. To examine the managerial implications of technology in customer relationship management.      
   1. VALUE OF THE STUDY

The study will benefit different stakeholders in the banking sector. It will help to highlight areas of improvement for the banks and the need for managers to try to deepen their relationship with their customers as a way of ensuring sustained profitability in a highly competitive industry. The management will be in a position to evaluate how CRM implementation will manage relationships with customers and assess whether maintaining strong relationships with customers would increase their overall profits. The organizations will benefit in the long run from customer retention and customer loyalty especially with the stiff competition amongst themselves. The employees will be in a position to understand how to nurture fruitful relationships with their customers. The employees will see the need to be more customer-focused in order to satisfy their customers’ need. This will lead to more employee satisfaction as they will be retaining customers. This will reduce the chances of customers switching to competitors. The study will be helpful to academic scholars. It will contribute to literature relating to influence of technology on customer relationship management. Most of the studies in this area have been conducted in developed countries. There is also need for the study to be carried out in developing countries. The aim of this study is to add to the body of knowledge in developing countries. To the Government and policy makers, the study would provide insights at different levels on how best to tap into the vital role of banks/other financial institutions as drivers of economic growth.