Key Account Management is still working

The term “key account management” first appeared in Europe in the 1970s, sometime before “national account management” was being discussed in the US. As a practice within business-to-business suppliers, it began to develop in the 1980s. There was always the risk that it might be another short-lived fad, but slowly and surely it became a way of companies successfully differentiating themselves through a strategic approach to selling. By the time I was writing up Cranfield School of Management’s first major study on key account management in 1994, there were several case studies of best practice to inspire me, and it was fascinating to examine them from the perspective of the supplier and the customer. Since then, I have met many organisations that are achieving great things with their strategic customers, but also many companies that find managing them very difficult. Recent research has demonstrated that, besides the advantages that can flow from key account management, there is also a dark side to close relationships with powerful customers. So, 40 years after its first appearance as a topic of serious study, what is happening to key account management?

The factors in the business environment that were perceived to be driving suppliers towards closer relationships with customers, such as globalisation and the growing power of the purchasing profession, are still relevant today. Although conditions in some sectors are stable, most are dynamic, if not volatile. Expectations of suppliers are high and seem to get higher. Sellers have to be lean and cost-effective while providing an ever higher quality product and service experience. These expectations are not unique to key accounts, but it would be impossible to imagine customers that know they have power over suppliers not wielding it to get more value. Some are proactive about driving mutual value, as good suppliers are worth keeping, others less so. With more and more information available to purchasing decision-makers, some observers perceive that there is more temptation for them to play off strategic suppliers against new competitors. If key accounts are losing their lustre, are there other segments in customer portfolios that could be more attractive?

COSTS TO SERVE REMAIN CRITICAL To monitor the business case for a management structure for strategic customer relationships, you first of all have to know what the costs are. Some purchasing professionals think that they have to drive suppliers into managing them as key accounts, and if that happens without a plan for realising a return, there is potential for perpetuating loss-making business.

In the early days, account managers struggled to get customer-specific costing information. Financial systems were geared to providing per-product or per-geography information. One of the advances in the past two decades that has been extremely useful to key account managers is activity-based costing (ABC), a method of allocating costs to products, services or customers based on the actual resources they consume.

The upside of having detailed financial information about the costs to serve major customers is that it can reveal new opportunities for process innovation, which can help to secure customer commitment. For example, a logistics company serving a mail order company decided to allow it to self-invoice the thousands of transactions that passed between them every day. It was costly to let the sales ledger and bought

INNOVATE BEFORE GROWTH PERIOD EXPIRES

FIGURE 1 KEY PICK

MID

KEEP DEAL

STRATEGIC VALUE OF THE ACCOUNT TO US

OUR VALUE TO THE ACCOUNT

FIGURE 2

ledger duplicate effort. Both organisations got involved in mapping processes to reduce costs and agreed to invest the savings in co-branded promotions. So, demands from key accounts for more cost efficiencies are not necessarily a threat to long-term partnerships. It just depends how willing they are to re-invest savings for mutual gain. If they are not, how “key” are they? THE DYNAMICS OF CUSTOMER STATUS An enduring problem for sales managers is determining which exactly are the “key” accounts. The reason this is as much of a problem as it ever was is because of dynamic changes in business relationships. In the 1990s, we perceived that relationships could be developed to be more cooperative or even integrated, unless some disaster occurred. But more recent empirical research has demonstrated that relationship deterioration is not just caused by negative events such as a major delivery failure. There is a natural progression towards decline and exit. The satisfaction of both parties with their partnership erodes over time. The business relationship cycle looks like the product development cycle. Innovation is needed before the growth phase tips into maturity and complacency (Figure 1 above).

In the 1990s, we also believed that relationships would polarise into those that were strategic and those that were transactional and could be served via a web portal. Dow Corning is renowned for running its successful web sub-brand Xiameter alongside its highly branded offerings to key accounts, even though Wall Street thought it would never work. Nevertheless, some researchers have since picked up on the inherent risks in polarisation – the classic case of putting too many eggs in too few baskets. Dow Corning did not lose its mid-size customers. Most companies still have a “mid-tier”, and research now indicates that the growth and profit potential of these accounts is often overlooked. In order to reduce the costs to serve smaller customers, many large companies outsourced “deal” and/or mid-tier customers to channel partners in the 1980s and 1990s, but then encountered difficulties if there was a case to re-classify a customer’s status. Today, contract sales organisations are available that can be more directly managed to develop non-key accounts into potential key accounts.

We have also discovered that supplier strategy is not always aligned with customer strategy, but that is not necessarily a reason not to do business. A classification matrix for B2B relationships was first devised in 1982, so that companies could map them and decide on a strategy per account. I have recently produced a simplified box (Figure 2).

The strategic value of an account to a supplier will probably be measured by profitable growth

potential. Companies often observe that where there is joint investment in new projects, there is a “Key” relationship. Supplier and customer perceive strategic value. But there are other possibilities. The “Keep” account prefers to buy from us but squeezes prices, or is never going to do anything leading edge. In the “Pick” account, we either need a medium-term plan to win small pieces of work to convince them of our potential, or wait for change that creates opportunities, such as the incumbent supplier making a mistake or a key decision-maker changing job. Where mutual strategic interest is minimal, we “Deal” on an ad hoc basis. These stereotypes are simplistic and, of course, circumstances in any account can change quickly. The marketing department must be market-sensing all the time to keep the sales team updated on customer news. A change in status from non-key to key is a career opportunity, so in practice and research we need to strive to find out how managing that transition can be done well. THE EMPOWERMENT OF THE KEY ACCOUNT MANAGER The role of the key account manager was the focus of a lot of studies in the 1990s, and many companies invested heavily in “academies” for key account managers and key account team members from other functions around the company. It became clear that the role is not just that of a super salesperson, but is characterised by business management and financial prowess, as well as great communication, negotiation and conflict management skills. Key account managers demonstrate creativity and analytical thinking,

which enables them to design new sources of value. They are more than relationship-builders. As suggested in the often-misrepresented “challenger” sales model, they must present new ideas to customers and encourage them to take on change and manage risks.

Although the power of the purchasing profession has been discussed since the 1990s, I still feel more can be done to encourage “boundary-spanning” into the role of purchasing. Undergraduates on sales courses find it the least engaging aspect of their learning, but without understanding how organisations buy there can be no effective business relationship. There is so much information available on the Internet that purchasers can spend less and less time discussing suppliers’ offerings (see Grant Leboff’s feature on page 42 – Ed). However, they still have to turn raw data into the best possible supplier selection decisions. That means managing risk, and when account managers demonstrate that they understand those risks and have a plan for managing risks while reaping benefits from change, there is hope of the Holy Grail of joint investment in strategic projects.

Just as purchasing has increased its status over the past few decades from an administrative job to a strategic management function, key account management has also acquired status. Key account managers have been given the power to use their knowledge and skills to make things happen. One excellent example of empowerment I have observed was at a fast-moving consumer goods supplier, where an operational problem meant that products were not on an important retailer’s shelves when they should have been. The key account manager had the authority to place an order with a competitor to fill the shelves so that the customer did not lose sales. As a result, potential disaster was averted, and the relationship remained undamaged. However, key account managers have more than tactical power to solve problems. They have power over company resources, including people. NOT FORGETTING THE SUPPORT ACT Key account managers lead key account teams. They used to moan about spending too much time negotiating with their own colleagues and not enough time with the customers. We now know that customers value the time that key account managers spend with colleagues. They like to see that the key account manager has influence in their own organisation and, in particular, they like it when senior managers identify themselves as part of the key account team as an executive sponsor. There is evidence that such a sponsor can really help to grow business from the key account and instil a culture of support for key accounts throughout a company. Some companies have board committees that regularly discuss the interests of key accounts.

Key account teams can be cross-functional, cross-border and cross-hierarchy. Some include hundreds of people. Spare a thought for the accounts clerk in Spain who has to maintain financial probity to satisfy his line manager based in the US, optimise cash flow for his country manager and provide preferential credit terms for a key account based in China. To facilitate the management of these complex matrixes, some global organisations have separate key account divisions. This raises the prospect of a new key account bureaucracy replacing or overlaying old bureaucracies. This is undesirable. Buying decision-makers love suppliers who offer ease of doing business. Who wouldn’t? But to be easy to work with, flexibility is essential. Whatever infrastructure and processes are designed to underpin key account management, they must be streamlined and it must be possible to change them quickly when the need arises. WHERE NEXT? Key account management has survived as a successful response to a business environment that has become ever more competitive over the past 40 years. Where can it go? New technology such as predictive analytics will feed more and more valuable insights to suppliers, making it easier to anticipate customer needs. That will enable more process improvements to make customers’ lives easier and trim costs even further. And it will keep key account teams busy prompting customers to work with them to be first to market with something new. Although selection will always be needed to prioritise scarce resources, the flexibility in operations that technology can bring might mean that key account-style customisation and innovation could be extended to more customers.

Many professional jobs could be automated in the next few decades, but I believe that the complex skillset and creativity necessary in key account management means it will be an attractive career for another 40 years.

One thing concerns me. Small firms could be constrained by being unable to recruit highly skilled account managers, who will have been creamed off by the powerful brands. But then there are contract sales organisations moving into key account management, so perhaps a kind of sharing arrangement, like the new business models on the Internet, will be the way forward for them.

There is still a huge buzz about key account management. It has a certain glamour as a strategic role where innovation is constantly on the agenda, while also delivering solid, day-to-day business benefits. Let’s celebrate its achievements and toast the next few decades with confidence.

BETH ROGERS is head of the Marketing and Sales Subject Group at Portsmouth Business School, which is an ISM corporate member. Visit: www.port.ac.uk/courses/ business-and-management/ ma-sales-management