Enterprise Relationship Management
Enterprise relationship management or ERM is a business method in relationship management beyond customer relationship management.
ERM - Enterprise Relationship Management is basically a business strategy for value creation that is not based on cost containment, but rather on the leveraging of network-enabled processes and activities to transform the relationships between the organization and all its internal and external constituencies in order to maximize current and future opportunities.
Overview
The art of relationship management is not an entirely new one. In fact, it has taken on many forms, addressing specific organizational constituencies (customers, channel partners, specialized service providers, employees, suppliers, etc). The most obvious being CRM (customer relationship management), that focuses on improving top-line growth by maximizing an organization's ability to identify sales and business opportunities with its customers. CRM's little brother PRM (partner relationship management), focuses on optimizing opportunity and downstream order management for an organization's channel partners (e.g. CISCO and its partner lead and referral management process) On the back end, we have ERP (enterprise resource planning) to manage internal operations including manufacturing, finance, HR, sales and distribution, etc. Specialized HRM (human resource management) solutions exist to manage employee benefits, collective agreements, performance reviews and so forth. And lastly, SCM (supply chain management, either as an ERP module or as a stand-alone application) to manage the product flow, up and down a firm's value chain, with external partners/suppliers.
However, according to Galbreath (2002), "for the most part CRM, human resources management (HRM), enterprise resource planning (ERP), supply chain management (SCM), partner relationship management (PRM) and similar programs have paid very little attention to the relationships that underpin those processes, or to the intangible “ relationship “ assets embedded in them."
Norman and Ramirez (1993) state, "One of the chief strategic challenges of the new economy is to integrate knowledge and relationships “ devise a good fit between competencies (Competencies are the technologies, specialized expertise, business processes and techniques that a company has accumulated over time and packages in its offering) and customers and keep that fit current." Galbraeth (2002) adds that "success in the relationship age requires a deliberate process of creating intangible, relationship assets, growing them and monetizing them".
Galbreath (2002) suggests Enterprise Relationship Management as a process or approach to harmonize and synergize the different types of relationships that a firm engages in order to realize targeted business benefits, for significant benefits. Harbison et al.[cite this quote] (2000) did some research on the performance of alliances and came up with the following statistics.
- Strategic alliances have consistently produced a return on investment of nearly 17 percent among the top 2,000 companies in the world for nearly a decade. This return is 50 percent more than the average return on investment that the companies produced overall.
- The 25 companies most active in alliances achieved a 17.2 percent return on equity - 40 percent more than the average return on equity of the Fortune 500.
- The 25 companies least active in alliances lagged the Fortune 500, with an average return on equity of only 10.1 percent.
- Successful alliances recognize 20 percent profitability improvements as compared to only 11 percent for the less successful companies.
- Revenue generation from highly successful alliances equates to 21 percent of overall firm sales as compared to 14 percent for less successful alliances.
In a similar study conducted for the supplier side (results of efficiently run supply chains based on electronic integration and quality processes) by Solomon Smith Barney Analyst Report, Teagarden] (2000) presents the following statistics for suppliers:
- Inventory levels reduced by as much as 50 percent.
- Inventory turns doubled.
- Stock outs reduced ninefold.
- On-time deliveries increased by as much as 40 percent.
- Cycle times decreased by as much as 27 percent overall.
- Supply chain costs reduced by as much as 20 percent.
- Revenues increased by as much as 17 percent.
When looking at these numbers, collaboration with outside firms becomes very attractive. But success in business, as in many other pursuits, is dependent on motivation, investment, trust, discipline and repeatability.
Tools and methodologies
Why do we need an Enterprise Relationship Management framework? Simply put, because relationships are becoming more and more prevalent and more integral to an organization's success. Although establishing inter-enterprise links is far from a new science, Klambach and Roussel[cite this quote] (1999) affirm that nearly 60% of business alliances do not deliver anticipated benefits while Lovallo & Kahneman (2003) and Selden & Colvin(2003) estimate M&A (Mergers & Acquisitions) failures range between 70% and 80%.
With statistics like these, the need to improve relationship success rates seems quite obvious. Many authors have addressed these issues from varying perspectives, including technology enabling a firm, reviewing or re-designing operational & administrative processes, and transforming the culture to one that is more adapted to collaboration. As Galbreath (2002) and Norman & Ramirez state, collaboration or rather the effective leveraging of relationship resources to create new sources of value, is a process of learning and developing new mental models and competencies as well as obtaining resources through new means/sources.
ERM is still a relatively new field and few players stand-out with a complete ERM methodology and tools. Nevertheless a host of best of breed tools and methodologies exist to carry out an ERM implementation, unfortunately they are not integrated and focus on very specialized problem areas.
Fundamentally adopting ERM is a cultural and change management issue more than a technology or process one. Therefore regardless of the methodology or tools that one may elect to use when integrating with outside firms, they must maintain a focus on the human side of the equations. The figure below illustrates the benefits of focusing on the human, cultural and change aspect of a project, notably deploying ERM in this case.
