22 Feb Why Start a (True) Key Account Management Initiative?
Polarized attitudes towards Key Account Management
True Key Account Management (KAM) or Strategic Account Management (SAM) remains a topic that polarizes the thinking and behaviours of business leaders.
Since decades, some of them have boosted their company’s growth by making the capacity to develop privileged relationships with carefully selected strategic customers part of their organisation’s DNA.
At the opposite end of the spectrum, many business leaders remain cautious, if not suspicious, about KAM/SAM. Others simply do not really understand the concept, believing it is just about managing the largest customers.
This articles is intended for business owners, board members and senior executives with the aim to motivate them to take a closer look at the KAM topic before deciding if they should start a true KAM initiative and on which perimeter.
Key Account Management, what is it really?
The concept of Key Account Management (KAM) appeared in the 70s, within industrial companies who wanted to build a closer and more stable relationship with their largest customers . In the 80s and 90s, it was picked up by other industries and sectors while evolving with the global economy and the dynamic of all markets.
Today, KAM/SAM is practiced by organisations of all size across many sectors. A variety of large companies as diverse as Schneider Electric, Siemens, SKF, DHL, Marriot Hotels, Gallup, and Roche put Key Account Management at the very heart of their strategy and even of their culture.
Since the beginning of the 21st century smaller companies, for example software or service companies, have developped a more modern and agile approach to Key Account Management, not necessarily based on the massive investments of the traditional approach. Even some start-ups, especially when their business is based on ground-breaking technologies, leverage KAM concepts to acquire their first large customers.
For all organisations, large or small, who take it seriously, practicing KAM is about developing deep and strong relationships with truly strategic customers in order to accelerate innovation and growth. . Therefore, these companies make a clear distinction between a large customer and a true Key Account and these two types of customers are managed quite differently.
Key Account Management comes on top of Account Management
Account Management and Key Account Management are two different things and they complement each other.
Account Management (AM) is the set of methods, processes and practices used to manage the business relationship and operations with all customers. What exactly is covered by AM depends on the nature of the business and how the company wants to deliver the customer experience.
The Account Management principles, and their practical consequences, are common to all customers although they vary with the size of the customer and its purchasing profile.
Key Account Management, is the methodology and set of supporting processes, tools and practice used to manage the relationship with strategic customers. It does not replace the Account Management processes but rather complements them.
The foundation of KAM is about defining the goals, strategy and perimeter of the initiative. The other most usual KAM-specific processes include: the selection and deselection of Key Accounts, resources allocation and alignment, the building and management of account teams and account plans, as well as goal setting for the short and medium term along multiple dimensions. KAM processes also cover the specific collaboration and communication rituals with the strategic accounts and the programme’s governance.
Increasingly, KAM approaches include co-creation in the field of R&D or of go-to-market models. Many companies make that type of collaboration a pre-requisite for considering a customer as strategic.
The Benefits a good practice of KAM
As demonstrated by various surveys (St Gallen University in 2008, Strategic Account Management Association – SAMA – in 2012, 2014 and 2018) the key goals of KAM are accelerating growth, fulfilling customer’s expectations and protecting the business from competition. As stated earlier, boosting innovation has become a key criterion for organisations with a mature KAM practice.
The above-mentioned goals are very important but there are many other additional benefits a strong KAM practice brings to an organisation. Here are the most frequent ones:
- A sharper analysis of the customer base and of the value of each of them
- An enhanced capacity to articulate and communicate value
- A much higher customer orientation
- More collaboration between functions
- Better processes and systems
- An acceleration of the development and market introduction of new offers
- New career opportunities
- A company more attractive to talents
An example of the positive impact of KAM
We have already mentioned that some companies put Strategic Account Management at the very heart of their strategy and culture. Like its competitors, MAERSK Line, the Danish logistics giant is facing a commoditisation of marine transportation. MAERSK considers as strategic only the customers who want a higher value and, in order to get it, accept to partner with their logistics service provider to co-create it. This approach maintains a competitive advantage and contributes to protecting margin.
In the mid-2000s, Text 100, a Digital Marketing and Public Relations Agency operating in more than 20 countries on 3 continents, with a staff of 650, had been selected as one of the two global agencies of reference by a prestigious corporation. The other agency, a more established player, was about 8 times bigger. Well aware of the huge potential of this customer, but also of the potential of its other international customers, all of them representing over 70% of the total revenue, Text 100 implemented 4 key initiatives, each of them complementing the others.
- A KAM/GAM (Global Account Management) initiative based on a customer segmentation conducted at three levels (global, regional, national), the creation of the Customer Advocate (Key Account Manager) function , a dramatic intensification of the networking and relationship building activities with customers at ALL levels. The main goal of the networking effort was to develop a much deeper understanding of the business needs of the customers and to become trusted advisors to key contacts , bringing more value to them with the Agency’s most advanced services.
- The improvement of the collaboration across virtual Account Teams with, as a first step, a high focus on intercultural skills.
- The improvement of profitability by better selling the value of advanced services and optimising the pricing.
- An increased focus on customer orientation and service quality relying on a customer satisfaction survey (far more sophisticated that NPS!) and always followed by actions plans at all levels of the organisation.
In 3 years, Text 100 managed to boost the measured customer satisfaction from 77% to 93%, grow revenue on top customers by 15% year-on-year in a tough market and improve the operational margin by 5 points. In parallel, and it did not happen by chance, the employee satisfaction and the collaboration improved. In Europe, leveraging its networking efforts with its largest customer, while the communications department of customer were cutting their PR budget every year, the agency grew revenue by 65% while their competitor saw a drop of 50%. Most of the growth came from the most advanced services. Last but not least, the function of Client Advocate became the holly grail for the most talented persons in the agency.
The cost of doing nothing
Even while being aware of the concept of KAM, many executives never start acting. There are various kinds of reasons for this. Sometime, it is pure procrastination : « Yes, we should really do something about our strategic customers. But, you know, we have so many other priorities ». Sometime, the execs are not fully aware of what KAM exactly means; they have an incomplete view of the matter and/or a negative perception based on the (legitimate) fear of a high cost and questionable return on investment. Sometime, it is a question of culture and politics and giving-up in front of the challenge of driving change. Whatever the reasons, doing nothing can be a costly mistake, especially when facing competitors who practice KAM and do it smartly.
A major European player of IT services was very well established across Western, Northern and Central Europe. The list of customers was impressive but each country was operating as a kingdom with the service offering being different across countries. No effort was made to engage selected global customers with an integrated approach. A few Board members were well aware of the issue and of its consequences in terms of lost opportunities. Unfortunately, they also thought that any attempt to establish such an approach would be very badly perceived by the leadership teams of most countries. They concluded that the risk of change was too high. The status quo continued, until they were purchase by a competitor, hardly larger than them, and who had a KAM programme.
A medium-size global engineering company, specialised in very advanced technologies, has built their success on small very strong local subsidiaries operating in « commando mode ». For two decades, this model has enabled the company to grow in size and prestige. But the market has changed. It is more competitive and almost saturated. The major customers are almost exclusively global companies seeking to optimize their portfolios of technologies and their industrial investments while being innovative. The time has come where it would be a logical move to engage a few selected customers globally. Some executives and senior managers see the problem. But they also fear the political cost of going against the mentality of the country general managers and other local executives. The clock is ticking. What are the competitors doing? (What would you do in their shoes ? Nobody should say that the answer is simple).
Key Account Management is very often – not always – a very relevant instrument to keep developing a company, to help execute on a strategy and to accelerate growth.
It is also a powerful instrument to keep adapting and strengthening a company’s culture and all experienced true KAM practitioners are very vocal on its transformational power.
It is the leadership team responsibility to explore and assess the KAM opportunity and, if deemed adequate (which is not automatic), to decide to launch a KAM programme. Those who do it print their mark on their organisation, and, if they execute well, make it fit for the future.
If you want to explore the matter deeper, we, at KAM WITH PASSION and POWERING have the right service offering to help you explore how KAM fits into your business model and define the initiative adapted to your specifics.