CUSTOMER RELATIONSHIP MANAGEMENT AND FINANCIAL

SUSTAINABILITY IN COMMERCIAL BANKS IN UGANDA

A CASE STUDY OF STANBIC BANK

DR. BASHEKA BENON

HEAD OF HIGHER DEGREES DEPARTMENT
UGANDA MANAGEMENT INSTITUTE

A PROPOSAL SUBMITTED TO……………(DEPENDS ON IF ITS COURSE WORK

OR FOR AN MMS )………………….. UGANDA MANAGEMENT INSTITUTE

OCTOBER, 2010

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 TABLE OF CONTENT
CHAPTER ONE
1.1 Introduction……………………………………………...………………………… 1
1.2 Background to the study………………………………………………..………
1.1.1 Historical background ………………..……………..…… ….
1.1.2 Theoretical background…………………………………..…...……..…………
1.1.3 Conceptual background……………………….……..………………..………
1.1.4 Contextual background…………………………………….……………..………..….
1.3 Statement of the problem…………………………………………………………..…....
1.4 General objective…………………………………………………………………….…
1.5 Objective of the study…………………………………………………………..………
1.6 Research questions……………………………………………………………….…..
1.7 Hypotheses of the study……………………………………………………………..….
1.8 Conceptual framework………………………………………………………………….
1.9 Significance of the study…………………………………………………………….
1.10 Justification of the study………………………………………………….………
1.11 Scope of the study……………………………………….………………………...
1.12 Operational definitions……………………………………………………………..

CHAPTER THREE
3.1 Introduction …………………………………………………………………………..

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 CHAPTER ONE
INTRODUCTION
1.1 Introduction
The study will examine the impact of customer relationship management on the financial
sustainability at Stanbic bank. The two main variables of this study will be CRM and FS.
CRM is the independent variable and is operationalized into; a) Customer trust, b)
communication quality, c) Relational performance evaluation, while financial sustainability
conceived as the dependent variable is operationalized into customer loyalty and increased
revenue resulting from satisfying customer needs. It is conceptualized that effective CRM
will result into good financial sustainability and the reverse is true.

The study will proceed in this chapter with, the background to the study, the statement of the
problem, the general objective, the objective of the study, the research questions, the
hypotheses, conceptual framework, the significance, justification of the study, the scope of
the study, assumption and limitation of the study and operational definition of terms and
concept will be presented.

1.2 Background to the study

This section will address the historical, theoretical, conceptual and contextual background of
the study (Amin, 2005). Historical background will address the history of the problem,
theoretical background seeks to clearly state the basic theoretical orientation (assumptions)
about the variables being studied, the conceptual background conceptualizes the study
variables by identifying and stating the basic elements that constitute the study variables and
how such variables are related and are to be used in the study and contextual background
indicates how the research maps on the general area of interest.

1.2.1 Historical background

The concept of customer relation management traces its way back to the 1980s with the
emergency of direct marketing where there was great dependence on client databases (12
Manage, 2010)

Relationship marketing was then first described by Christan Gronroos and Evert Gummesson
of the Nordic School together with Theodore Levitt. In their study of relationship marketing
versus transaction marketing, they defined the characteristics of relation-centric organisations
and giving corresponding marketing tools.

This later was compounded by Treacy and Wiersema (1995) in the 1990s in their study and
description of value principles where customer intimacy sprouted as one of these core values.
As a result, CRM transformed from a web based contact management and information tool to
a customer oriented strategy (12 Manage, 2010)

1.2.2 Theoretical background

Customer relationship management (CRM) is a process business entities and corporations
recognise and implement as a strategy for managing the entities interactions with its
customers, clients and sales prospects. It is a methodology used to learn more about
customers’ requirements and behaviours in order to develop stronger relationships with them.

The coming up of new channels and superior technologies has considerably transformed the
way entities interface with their customers which has then created a greater scale of

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connections between marketing, sales and customer service functions in organisations
(Parvatiyar and Sheth, 2001).
It represents an entities move towards embryonic initiatives for acquiring and retaining full-
knowledge about customer behaviour and dynamics to facilitate development of programs
and strategies that promote customers to constantly improve their business relationship with
the corporation’s (Parvatiyar and Sheth, 2001).

The notion herein assumed is that developing a good relationship with customers will lead to
customer satisfaction, trust, commitment, social bond and ultimately customer loyalty. In the
long run, maintaining business relationships with satisfied customers yield to profitable
customer behaviours through more purchases over a period of time, frequent and repeated
purchases from the organisation and reference of other prospects to the organization
(MsMurrian and Matulich, 2006). This in overall generates higher level of revenue to the
organisation henceforth, building up a financially sustainable business.

1.2.3 Conceptual background

CRM aligns marketing processes and drive customer demand using functionality to enhance
management of marketing resources, segments and lists, campaigns, leads, trade promotions
and marketing analytics.
The majority of marketing scholars who study the span of CRM come up with concepts
regarding the value and process of mutual affiliation between buyers and sellers. Their
interests primarily focus on the strategies and processes for customer categorization and
choices, account management, cross-selling and other forms of partnering with customers
(Parvatiyar and Sheth, 2000).
Further studies established relationship strength measurement by setting a centre of attention
on definite key relationship attributes. This study will therefore explore in detail the regularly
and resolutely identified measures of relationship strength proposed by a number of scholars.
These measures of relationship strength include communications quality, trust, conflict,
social bonds, commitment, customer satisfaction and information flow (Lages et al., 2005;
Lang and Colgate, 2003; Roberts et al., 2003, Wongand Soal, 2002; Parvatiyar and Sheth
2001; Hausman, 2001). Trust, communication quality and commitment appear to be
prevalent.
For this study, the research will investigate the impact of these established relationship
measures of trust, communications quality and relational performance evaluation and their
impacts on the Stanbic Bank financial sustainability.

Financial sustainability implies “financial continuity and security” (Fowler, 2000) which is
not far from the definition given by Norton as “the organisation and its core work will not
collapse if external funding is withdrawn” (Norton, 2003). This definition primarily relates to
NGO settings however, is equally applicable to business entities that may desire to have a
mixture of funding of the business activities using debt in addition to equity (owners capital
investment). The measure of financial stability this study will explore are

1.2.4 Contextual Background

The discipline of customer relationship management in marketing offers business entities an
approach to gaining insights into the customer behaviours and the values of these customers
McMurrian and Matulich, 2006). Consequently, the entity then adapts its business operations
to reflect and ensure that customers are served in the best possible way.

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Scholars who have undertaken studies in the buyer-seller relationships suggest relationship
development process models (Evans and Laskin, 1994; Wilson, 1995 and Parvatiyar and
Sheth, 2001) to which this study intents to expand.
Other groups of researchers focus on strategies and practices for customer grouping before
finally making selections, customer account managements, business growth processes,
loyalty programs and collaborating with customers to create strategic alliance (Parvatiyar and
Sheth, 2000). It’s from this category of scholars that will direct this study.

1.3 Statement of the Problem

Financial sustainability is a challenge to any corporation, organisations and commercial
entities. Many organizations, businesses entities do start up every year and at the end of the
fifth anniversary, it is estimated that 95% of these entities get unsuccessful (SBR, Feb 2010).
The majority of the firms will have been weeded out of business or market. The verdict here
is business sustainability.
Empowering customers, and offering them the benefit of the highest standards of customer
care and responsiveness through a tailored customer relationship management policy results
into a stable and growing revenue streams (
Developing, sustaining and maintaining commitment and trust among customers form
universal variables in assessing successful relationships and affect relationship performance
(Morgan and Hunt, 1994)

With the continuing fierce competitive environment, without a properly established and
implemented policy in customer relationship management, organizations’/ entities’ abilities
to keep their operations functioning for the foreseeable future become susceptible to failures.

Unfortunately, according to the review of past literature, not much study has been conducted
to this marketing concept and specifically with the banking sector in the Ugandan economy
has been cited. It is therefore to this background that the purpose of this study is to find out
the impact of CRM on the financial sustainability of the commercial banks in Uganda and
specifically Stanbic bank.

1.4 Purpose of the study

This study will seek to examine the effect of CRM on financial sustainability in commercial
banks in Uganda with specific reference to Stanbic Bank.

1.5 Objectives of the study

1. To examine the effect of trust on financial sustainability of Stanbic bank.
2. To observe the result of communications quality on financial sustainability of Stanbic
bank.
3. To study the consequence of relational performance management on financial
sustainability of Stanbic bank.

1.6 Research Questions

1. What is the effect of customer trust on financial sustainability?
2. What is the effect of communications quality on financial sustainability?
3. What is the effect of relational performance management on financial sustainability?

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1.7 Hypotheses of the Study
1. There is a significant relationship between customer trust and financial sustainability.
2. There is significant relationship between communications quality and financial
sustainability
3. There is a significant relationship between relational performance management and
financial sustainability

1.8 Conceptual Framework

Figure 3 below conceptualizes the relationship between internal CRM and financial
sustainability. It is hypothesized that when CRM improve the financial sustainability will
equally improve and when the CRM declines the financial sustainability will decline. The
CRM is conceptualized as an independent variable and financial sustainability is
conceptualized as the dependent variable. Financial sustainability is operationalized into 1, 2
and 3 whereas CRM is operationalized into a) Customer trust, b) communication quality, c)
Relational performance evaluation.

. Figure 3: Relationship between CRM and Financial sustainability

CRM (Independent Variable)

 Customer Trust
Financial sustainability
- Contractual Trust
(Dependent Variable)
- Goodwill Trust

- Competence Trust  1 (Dimensions)

- indicators
 Communications Quality - indicators
Process - indicators
- Timeliness  1 (Dimensions)
- Frequency - indicators
- Accuracy & Openness - indicators
- indicators
 Relational Performance
Management
- Customer Satisfaction
- Loyalty Intention
- Customer Retention

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1.9 Significance of the study
According to Amin (2005), significance of the study highlights the benefits in carrying out
the research.
Institution: The findings, conclusions and recommendations from the study will enable the
management of Stanbic bank in understanding how CRM specifically customer trust,
communication quality and relational performance management affect financial sustainability
and as such addresses areas that need improvement.

Academia: This study will be useful to other researchers and scholars as it will add to the
existing literature of knowledge on CRM specifically customer trust, communication quality
and relational performance management, and how these relationship attributes affect financial
sustainability and as such stimulate and encourage research in the area of the study’s
limitations.

1.10 Justification

According to Mugenda and Mugenda (1999), justification of the study highlights the reasons
for conducting the study as well as the importance of carrying it. i.e talk abt the gap and how
u intend to add to the existing knowledge gap

1.11 Scope of the study

The scope of the study has three dimensions namely; the content of the study, the
geographical area and the time frame covered under the study.

1.11.1 Content of the study

The study focuses on the three dimensions of CRM namely; customer trust, communication
quality and relational performance management and their effect on financial sustainability.
These dimensions are captured in the conceptual framework.

1.11.2 Geographic area

The research will be conducted from Stanbic bank branches within Kampala district after
attaining approval communication from Stanbic bank headquarters in Crested Towers,
Kampala.

1.11.3 Timeframe
The study will cover a period of three years period from 2007 to 2009 which will provide
sufficient information that will help the researcher make conclusions on the financial
sustainability of Stanbic bank.

1.12 Operational definitions

This is how the researcher/organisation defines the terms they are not dictionary meaning or
how other researchers define it.

CRM……
1……..
2……..
3……
FS…….
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1……..
2……………..
3…………..
And any other terms used that u think need clarification

CHAPTER TWO
REVIEW OF RELEVANT RESEARCH LITERATURE

2.1 Introduction

This literature review covers critical evaluation, analysis and synthesis of existing knowledge
(Hart, 2005) in customer relationship management (CRM), financial sustainability and
commercial banks.

This chapter will be divided into three main sections, evaluating symmetrically in the order,
customer relationship management (CRM), financial sustainability and the banking sector of
the financial service industry of the Ugandan economy.

Customer Relationship Management (CRM)

From the 1990s, customer relationship management has attracted attention of marketing
scholars, researchers, business enterprises and large corporations due to its impact of
relationships on business performance.

Sometimes referred as relationship marketing, customer relationship management, has been

defined as “database marketing emphasizing the promotional aspects of marketing linked to
database efforts” (Parvatiyar and Sheth, 2001 Pg.3)

However other scholars have defined relationship marketing as “an integrated effort to
identify, maintain and build up a network with individual consumers and to continuously
strengthen the network for the mutual benefit of both sides, through interactive,
individualized and value added contacts over a long period of time” (Sani and Chalasani,
1992, Pg.44)

The later definition incorporates the marketing principle as defined by Institute of Marketing
as “the management process responsible for identifying, anticipating and satisfying customer
requirements profitability”.

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The definition by Parvatiyar and Sheth (2001) therefore looks at the sales marketing
philosophy where customer resistance to product purchase can be overcome by promotions,
advertizing and sales technique having understood the customer dynamics or behaviors. This
only focuses on the needs of the seller as noted by Levitt hence, no entirely shared benefit to
both parties.

Indeed, some scholars have concentrated on information systems and decision technologies
where new methodologies and techniques were suggested to help organisations manage
relationships with customers (Parvatiyar and Sheth, 2001). Essentially from this viewpoint,
CRM is conceived as the methodologies and tools that help businesses manage customer
relationships in an organized way. This perception encourages firms to put together a
database of customers proving detailed information that can be used by the management,
marketing and sales personnel to directly match customer needs for cross-selling and new
products/ service offerings (Thirkell et al., 2005).

This approach creates tools for documentation and storage of imperative information about
customers, providing an interface aimed at personalizing relationships with these customers.
These techniques are currently applied by many organizations to manage information on
customer interactions in order to sieve the collected information, analyze and utilize it
constructively to build better and mange relationships with customers (Parvatiyar and Sheth,
2001)

Meanwhile, aligning these decision techniques and information system methodologies with a
profound CRM policy enables entities that aim at retaining profitable customers improve the
efficiency and effectiveness of the future marketing efforts. The implication herein is that,
marketing personnel should refocus on involving prime customers in their design,
development, sales and marketing processes to facilitate future marketing success (Han et al.,
1993; Morgan and Hunt, 1994; Biong et al., 2001).

This introduces another angle of past researches that studied the CRM scope and nature,
developing concepts that take regard of value and process of shared commercial
relationships. This category of researchers concentrate on strategies and practices for
customer categorization before making selections, customer account managements, business
growth processes, loyalty programs and collaborating with customers to create strategic
alliance (Parvatiyar and Sheth, 2000)

This perspective stems from the growing intense competitive business environment and
highly demanding customers requires strategic approach to relationship management and
marketing. With the advent of information technology applications, organisations currently
concentrate on individual relations with clients (Parvatiyar and Sheth, 2001), integrating
database understanding with a primary aim of long term customer retention and growth
(Peppers and Rogers, 1993).

Its therefore noted that the developments in CRM is attributed to several factors including
customer retention, aggressive business rivalry for valuable customers and technological
advancements (Thirkell et., 2005; Buttle, 2004; Winer, 2001). The principle is to consolidate
the above factors to achieve leveraged sustainable performance.

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In response to the challenges of frequently shifting competitive environment and increasing
demand for more services linked to a sell by customers (McMurrian and Matulich, 2006),
business entities remedy the challenge by establishing relationships and partnerships with
their customer with a more collaborative approach (Dertouzos et al., 1989).

In identification of successful relationship strengths, the key indicators have been singled out
as trust, commitment, ..... (Morgan and Hunt, 1994; Naidu et al., ) that are herein discussed
below.

Trust

“customer trust can be destroyed at once by a major service problem, or it can be undermined
one day at a time, with a thousand small demonstrations of incompetence” (Reppers, Don and
Martha, 2008)

According to McMurrina and Matulich (2006), “trust consists of the perceived creditability of
an exchange partner” and more to that is “...a person’s perceived benevolence of an exchange
partner” (Kumar, Scheer and Steenkamo, 1995)

Communication quality

Relational performance

From the discussions above, it is evident that hitherto, CRM remains a typical research
domain with enormous impact in business relations. The purpose of this study is not intended
to assess the applications and technologies organisations use to manage customer information
as viewed by some section of past studies. Indeed, that is recommended for further research
especially in the Ugandan market context. The core objective of the study is to investigate on
the conceptual foundations in understanding the domain of customer relationship
management in its effect on financial sustainability.

Financial Sustainability

A key challenge to business owners/organizations is ability to keep the organisation/business

operational for the foreseeable future.

CHAPTER THREE
METHODOLOGY
3.1 Introduction
This chapter of the study describes the operational framework within which data will be
collected and analyzed. It describes the research design, study population, sample size and
selection, sample techniques and procedure, data collection methods, data collection

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instruments, validity and reliability, procedure of data collection, measurements of
variables and data analysis.

3.1 Research Design

According to Amin (2005), research design is a plan for collecting and utilizing data so that
desired information can be obtained with sufficient precision. Denscombe (2007) proposes a
number of research designs which include: Case studies, experimental designs, ethnographic
designs and surveys.

As put forth in chapter one, and further expanded in the literature review, the identified
indicators of the independent variable (CRM) with their corresponding impact on the
dependant variable (financial sustainability), the research design intended for this study is a
case study. This will provide a profound understanding and an in-depth analysis of the
marketing problem identified.

The study will involve both qualitative and quantitative research methodology approach to
validate the relations among the measureable variables that will help to predict and explain
associations.

1.2 Population of the study

The centre of the study is on the commercial banking sector of the financial services industry
in Uganda with specific reference to Stanbic bank. Currently, there twenty two (22)
established and licensed commercial banks operating in the Ugandan economy according to
BOU.

This study intends to primarily focus on the Stanbic Bank which is currently the leading
commercial bank in terms of customer base and revenue generation

1.3.1 Data Required

The data required for this study includes CRM domains as given in chapter one (trust,
communication quality and relational performance), Financial sustainability dimensions that
includes revenue. The data will be obtained from the Stanbic bank financial statements,
annual reports, independent industry magazines and other internal communications with the
bank over the last five years (2004-2009)

1.4 Data Collection Methods

To generate statistics for the study, secondary data will be used to derive truth from
collections made by independent primary sources. Data will be obtained from the banks’
published accounts, media and internal newsletters which are public domain. The methods of
collection will include observations, interviews, questionnaires, review of the related
literature.

1.6 Validity and reliability

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The model for analysis will be examined for validity by computing Pearson’s coefficient of
regression to ensure the values are closer to 1, observe, predict and ensure that the confidence
intervals are smaller for better results, using confidence intervals for each of the Parameters,
βi for inclusion to the regression analysis (excluded if the confidence interval is 0).

1.7 Data collection procedures

1.8.0 Data Analysis

The results of this study will be presented following the analysis to be conducted using SPSS
program.

The investigation of association and influences of the key CRM domains on financial
sustainability will rely on the two different statistical analyses of the predetermined
relationships.

The gradual steps to measure correlation between CRM domains and financial sustainability
are; Pearson Correlation Coefficient Test and Multivariate Regression.

1.9 Measurement of Variables

Refences:

HART C. (2005) Doing your Master’s Dissertation, Sage Publications, London, England

Peppers & Rogers' Return on Customer concept?

 Naidu, G.M, Atul Parvatiyar, Jagdisg N Sheth, and Lori Westgate ( ) Does
relationship marketing pay? An empirical investigation of relationship marketing
practices in hospitals. Journal of Business Research.

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