Key Account Management

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1 Key Account Management Brent Warren What is KAM? the art of developing long-term relationships with selected customers The Financial Times. KAM is an art not a formula. It is a process of development, not a single action. It is a long-term process. It takes time. It involves relationships, not just a mechanical approach. It can only be done with selected customers. 1

2 Concentration of buying power 76 % of total supplier sales years ago Today Biscuit Manufacturer Board/ Packaging Speciality Adhesives Metal Bearings Sales to top 5 customers (%) over past 25 years The Process (1) 1. Select the correct accounts to be included in the KAM programme. 2. Categorise them according to their potential for helping us to grow our profits continuously. 3. Analyse their needs. 4. Develop strategic plans for and with each of them. 5. Get buy-in from all functions. 2

3 The Process (2) 6. Get the right organisational structure to serve the selected key accounts needs. 7. Get the right people and skill sets in the key account team. 8. Implement the plans on an annual basis. 9. Measure the success of the plans, particularly in respect of whether they create shareholder value. 10.Reward individuals and teams for their success. Exercise How many key accounts should your company have? Who are they for you personally or who do you think they would be? What are the characteristics of a key account? 3

4 What identifies a key account? Features of a key account A high revenue customer for your company. Provides an opportunity to increase sales. Strategically important industry or market leader. Could support your company s long-term sales strategy. Financially profitable. Has a good reputation in industry/professions. Are aligned with your company s vision and value. Willing to network your company with their customers/suppliers. Features of a key account? Not necessarily features of a key account! Large number of employees. Has a high turnover. Your biggest account although they pay late! You have a good relationship with them. They have been your customer for over 3 years. They enjoy special terms and discounts. Have a global presence. Regularly invite you to their corporate entertainment events. 4

5 High Key account selection matrix Supplier s relative business strength as seen by the customer High Low Key account attractiveness Low Strategic Customers Strategic Investment Status Customers Pro-active maintenance Key customer s spend Star Customers Investment for growth Streamline Customers Management for cash How many key accounts? A key account should be provided with significantly special treatment why would they do it if this was not the case. How many accounts can you genuinely do this with? Your company should balance the number of key customers it can handle with a number that represents enough business potential to make the initiative and effort involved worthwhile. 5

6 Key account numbers 0 20 Extreme Acceptable Optimum number Lower limits 40 Acceptable Upper limits Extreme KAM requires considerable investment and resource. The biggest mistake is too select too many key accounts. 100 Too many Choosing selection criteria Your selection criteria should identify the customer s potential not just what they are delivering today. Think about cases where you have grown customers what did they have in common? Focus on the customer their potential, their position in their marketplace, their strategy more than on your company and current yield. Look for characteristics and strategies that are aligned with you. Alignment means customer preference. 6

7 Hard quantitative criteria Selection Criteria Soft quantitative criteria Outcomes Customer needs Customer attributes Financial outcomes/profit Opportunities for products/service differentiation Risk reduction: Working together Potential spend Potential for profit Exercise What criteria could you use to help select key accounts? Come up with as many as you can. Where do you get information from? What additional information would you require? 7

8 Selection Criteria Handouts Handout 1 examples of selection criteria, aim for a balanced spread of types. Involve a range of senior managers to select. Handout 2 examples of quantitative and qualitative criteria and development of a 10 point scoring scale. Handouts 3a & 3b evaluation matrix with aim of no more than 7 criteria and relative importance weighting (total 100). Key account profitability Key account profitability are you able to measure the real profitability of your key accounts? How has the level of profitability changed over the past three years? Does the KAM programme create or destroy shareholder value? 8

9 Tools for Account Analysis PEST (or PESTLE) SWOT Analysis (internal and external) Value chain analysis Porters five forces driving industry competition. Market definition and market segmentation tools (e.g. Market mapping processes) Financial information on customers (financial ratios etc) Key account selection matrix The account attractiveness matrix is just one side of the story. Key account management requires the customer to respond positively and this depends on their view of your company. Different customers, at different stages of their lifecycle with the supplier will require and respond to different approaches. 9

10 High Key account selection matrix Supplier s relative business strength as seen by the customer High Low Key account attractiveness Strategic Customers Status Customers Star Customers Streamline Customers Low Key customer s spend Star Customers Attractiveness: Business strength now: Lifecycle stage: Strategic approach: Expectation: Net cash outflow: high low start-up/development invest for growth substantial growth in volume/sales present neutral/ negative Strategic customers of the future they a) do not rate you highly as they do not know what you do or, b) what you do does not suit them. Investment required in both cases. 10

11 Strategic Customers Attractiveness: Business strength now: Lifecycle stage: Strategic approach: Expectation: Net cash outflow: high high deep, close relationship strategic investment growth in volume/sales and profits positive, optimised rather than maximised The most innovative and important projects should be developed with these customers. Suppliers need a deep multilevel relationship with these customers. Key account managers need to be multiskilled. Status Customers Attractiveness: Business strength now: Lifecycle stage: Strategic approach: Expectation: Net cash outflow: low high maturing pro-active maintenance stable profits very positive Likely to be strategic customers of the past but you judge that their market or they are not going to grow. Treat them well, manage the cost base and make sure that the excellent relationship does not allow them to draw down resources that they cannot repay. 11

12 Streamline Customers Attractiveness: Business strength now: Lifecycle stage: Strategic approach: Expectation: Net cash outflow: low low mature manage for cash low price, low gross margin positive Constantly query the price, negotiate everything. Likely to be high volume that you need or something else that they can give you...or why do it. Manage costs carefully and make sure the gross margin is positive, even if it is not large. The customer perspective Don t second guess the customer s view. Find out what they really think. It is the essence of KAM that each has a different criteria for suppliers. Handout 4 one customer s analysis of supplier requirements. Handout 5 relative business strength analysis. Feed results of both account attractiveness and relative business strength into the selection matrix. 12

13 Exercise How do you know what your customer thinks of you? How could you find out if you do not have this information? High Key account selection matrix Supplier s relative business strength as seen by the customer High Low Key account attractiveness Strategic Customers Status Customers Star Customers Streamline Customers Low Key customer s spend 13

14 Account selection summary Selection of key customers is to ensure resources are correctly allocated. Selection criteria therefore need to be backed by a sound and effective process. Selection of key accounts can be contentious. Process therefore needs to be rigorous to avoid bringing KAM initiative into disrepute. As time goes on, some customers will need to be taken out of the key account portfolio. Agree how to approach this with tact. Getting the relationship right a means to an end...that of business development 14

15 Exploratory Relationships Selling company Buying company Directors Finance Operations marketing Sales & Key account manager Key customer contact Purchasing Operations Finance Directors Recognise potential key accounts. Be patient and manage internal expectations. The bigger the customer, the longer it takes. Basic Relationships Selling company Buying company Directors Finance Operations marketing Sales & Key account manager Key customer contact Purchasing Operations Finance Directors Simple and transactional with benefits of clarity and resource control. Disadvantages of vulnerability to competition, fragility to change, potential of bias, limited understanding of each other and limited opportunity. Should be used for streamline customers offered a manage for cash approach, stars with whom not much progress has been made and declining status categories. 15

16 Cooperative relationships Selling company Buying company Directors Directors Operations Accounts Key Customer Contact & Key Account Manager Inbound logistics & Order processing/ Customer service Operations Accounts Marketing Marketing Service Service A transitional stage, hard to control and tends to cost money. May be necessary rite of passage but key account managers are still out in the cold and the dark and the supplier is not yet trusted. Used for growing star customers, status customers where relationship is being scaled down from interdependent. Interdependent Relationships Selling company Buying company Directors Directors Key Account Manager Finance Service Operations Marketing sales Finance Service Operations Purchasing Key Customer Contact This is the stage that KAM aspires to with the right customers. Involves genuine trust, considerable exchange of information, pro-active strategy alignment and deep understanding of each other. Can lead to substantial growth and is appropriate for the majority of strategic customers. 16

17 Integrated Relationships Selling company Buying company Operations Focus Team R&D Finance Key Account Manager Focus Team Environment Focus Team Focus Team Service Focus Team Key Customer Contact Just short of a merger with dissolved boundaries between the two sides. Takes huge dedicated resource. Marketing Focus Team Integrated relationships are for a few, exceptional strategic customers. Relationship stages summary Crucial to understand the relationship stages, where they are at the moment and where they need to be to avoid inappropriate strategies. Disintegration may occur at any stage, for a large number of reasons. The more advanced the relationship stage, the less vulnerable it is...but companies have a limited appetite for intimacy, mostly because of the cost. Handout 6 Relationship stage characteristics. 17

18 Developing Key Relationships Decide carefully which ones to develop Customer profit contribution over time Retaining customers is extremely profitable Price premium Customer profit Referrals Operating costs Increased purchases/ balance growth Base profit Acquisition cost Year 18

19 Customer expectations of minimum levels of trust and relationship Essential in: All relationships All, except possibly basic relationships Contractual Trust Competence Trust Customer expects supplier to: Keep promises (written and oral) Abide by accepted rules of business practise and behaviour Perform competently (technical, managerial ect.) Operate in accordance with professional standards Interdependent and integrated relationships Goodwill Trust Show open commitment, willing to do more than formally required Potential accede to partner requests or to any observed performance-improving opportunity Refrain from opportunistic behaviour Matching relationship level with key customer strategies High Low High Strategic investment Invest for growth Key account attractiveness Strategic customers Status customers Star customers Streamline customers Low Maintain proactively Manage for cash Key customer s spend 19

20 Matching relationship level with key customer strategies High High Low Low Key account attractiveness Key customer s spend Relationship and development as a process Develop strategic plan for key customer Decide current & desired overall relationship Select relationship features to develop Understand customer s supplier relationship mgmt Map people in customer s organisation Assess importance of each current relationship Decide relationship desired with each person Monitor progress, results & costs Business review process Implement plan for relationship development Launch relationship, team building Develop plan for relationship development Research individual (objectives, needs and ambitions) 20

21 Exercise List your key accounts based on current understanding. What relationship level do you have at the moment and what do you think it should be in 12 months time? Developing key relationships - summary Too many companies think that developing the relationship alone will make a business difference...real benefit needs to materialise for the customer. The customer s view of the supplier s integrity and trustworthiness should be given more explicit care and consideration. Just doing business does not develop relationships. Handout 7 Building relationships through specific features. 21

22 What s the plan? Required for each key account Reviewed annually 3 year viewpoint Handout 8 Key Account Plan template (adapt, change to suit, develop your own or you may have an existing format) Handout 9 KAM Plan evaluation guidelines. Only plans that fall close to the left-hand side of the chart have any chance of success. The Role of the Key Account Manager or the key account team...? 22

23 Linking roles to the strategy matrix High Supplier s relative business strength as seen by the customer High Low Key account attractiveness Low Strategic Investment Business Manager Pro-active maintenance Customer Manager Key customer s spend Invest for growth Entrepreneur Manage for cash Tactician Interdependent Relationships Selling company Buying company Directors Directors Key Account Manager Finance Service Operations Marketing sales Finance Service Operations Purchasing Key Customer Contact This is the stage that KAM aspires to with the right customers. Involves genuine trust, considerable exchange of information, pro-active strategy alignment and deep understanding of each other. Can lead to substantial growth and is appropriate for the majority of strategic customers. 23

24 Practitioners view of the ideal breakdown of key account managers time Activity Developing relationships Implementing deal operationally Developing industry knowledge, strategy and planning Selling Ensuring internal alignment for deal commercially Understanding of internal capability Solving internal day-to-day problems Promoting brand/business Reporting/providing information Training and Education Other Total Share of time 20% 15% 10% 5-10% 5-10% 5% 5% 5% 5% 5% 10% 100% Exercise How does your current role differ from that suggested in terms of both time spent on various aspects of KAM? Which of the Handout 10 - Strategy, Marketplace and Operations tasks are you involved in, or if not involved currently, which of them should you be involved in? 24

25 Key Account Manager Role - Summary It is a demanding role that is determined by the what the organisation wants and expects to achieve. Operating account teams can provide competencies to support the KA Manager rather than expecting them to do it all. Identifying the relationship required for each key account, and hence which of the four roles is required, can aid in the allocation of accounts to individual key account managers. Why do it? Drivers to adopt KAM 25

26 Positive Internal Desire for growth Capitalising on broad product/service offering through cross-selling Accessing same customers through multiple channels Desire to join useful bandwagon? Better MIS systems Drivers of KAM External Customer demand- one company, less time, spent better Customer demand for strategic partnership Globalising/cross-boundary customers Negative Pressure on margins Pressure on resource Organisational change/low internal cohesion Need for cover for failing offer Mature market Embarrassment in the marketplace Customer loss/potential loss/pre-loss feedback KAM Summary KAM is a major strategic commitment for an organisation and must be driven from the very top (with a high profile champion if possible). It is a long haul, but very worthwhile and probably obligatory in some markets. The key account selection process is of crucial importance in determining the success or failure of KAM. The single largest cause of failure of KAM programmes is having too many key accounts. The second is inadequate account analysis. Successful KAM requires a willingness to share and to work across boundaries in teams, for corporate rather than territorial objectives. The role of the Key Account Manager is crucial to the success of KAM and competencies need to be matched to the needs of the accounts. 26

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