key account management challenges theory and practice

Journal of Marketing Mamgement, 1997, 13, 737-757

MalcolmMcDonald\Tony MillmanBeth Rogers^

and

'Cranfield School ofManagement, CranfieldUniversity, Cranfield,Bedford MK43 OAL, and^University ofBuckingham, BuckinghamMK18 lEG, and ^FirstOpinion, 18 LancasterAvenue, Slough, BerksSL2 lAX

Key Account Management:Theory, Practice andChallengesKey account management is a natural development of customer focusand relationship majheting in husiness-to-huiinea markets. It offerscritical benefits and opportunities for profit enhancement to both sidesqf the seller/buyer dyad.

This paper describes a framework for understanding the develop-ment of key account relationships. It has also incorporated acomprehensive guide to the current practice of key accountmanagement and comments on the challenges for the future of keyaccount management practice. The paper is based on researchinvolving in-depth interviews with key aaount managers, theirmanagers and their main contacts in the customer organisation.

The scope of key account management is widening and becomingmore complex. The skills of professionals involved in it at strategicand operational leveb need to be constantly updated and developed.T?iiJ paper demonstrates how key aaount management can heimplemented and points decision-makers in the right direction forbetter practice in the long term.

Introduction

Key accounts are customers in a business-to-business market identified by sellingcompanies as of strategic importance. Key account management (KAM) is anapproach adopted by selling companies aimed at building a portfolio of loyal keyaccounts by offering them, on a continuing basis, a product/service package tailoredto ttieir individual needs. Success depends partiy on the strategic importance to thecustomer of what is being supplied, and the degree of receptivity demonstrated bythe customer to a partnership approach, as well as the skills of ttie supplier inmeeting customer rveeds. To coordinate day-to-day interaction under the urnbrellaof a long term relationship, selling companies typically form dedicated teamsheaded up by a "key account manager".

Key account management is a rutural development of customer focus andrelationship marketing in business-to-business markets. It offers critical benefits andopportunities for profit enhancement to both sides of the seller/buyer dyad.

This paper describes a fi-amework for understanding the development of keyaccount relationships. It also incorporates a comprehensive guide to the currentpractice of key account nutnagement, and comments on the challenges for the futureof key account management practice. The paf>er is based on research involvingin-depth interviews with key account managers, tfieir senior managers and theirmain contacts in tine customer organisation.

The scope of tey account rruinagement is widening and becoming more complex.The skills of profrasicmals involved in it at strategic and operatiorwl levels need tobe constantly updated and developed. This report demonstrates how key account

0267-257X/97/080737 + 21 $12,00/0 1997 The Dryden Press

738 Malcolm McDonald, Tony Millman and Beth Rogers

management can be implemented and points dedsion-n:\akers in the right directionfor better practice in the long term.

The Origins of Key Account Management

In order to trace the origins of key account management in the literature, it isnecessary to analyse and synthesise contributions from several areas, such as:industrial marketing; organisational buyer behaviour; sales management; purchas-ing/supply management; industrial networks and relationship marketing.

Much of the early literature cm industrial marketing and organisational buyerbehaviour concentrated on managing the marketing mix and constructing rationalfiow models, which described generic processes/procedures typicaUy found inindustrial purchasing situations (e.g. Robinson et al. 1967; Webster and Wind 1972a;Sheth 1973.)

The first major breakthrough, in the relational sense, came with the concept of theBuying Centre (Webster and Wind 1972b), which also became known as the EtecisionMaking Unit (DMU). Subsequently, a r\umber of researchers have studied structuraland behavioural characteristics of DMUs in various product/market contexts (e.g.Grashof and Thomas 1976; Wind 1978; Johnston and Bonoma 1981; Hutt et al. 1985;McWilliams et al 1992). These studies focused largely on the composition/dynamicsof the DMU and were valuable because they forced consideration of politicalbehaviour and power distributions within buying organisations. More importantly,they encouraged sodal science thinking among managers who, hitherto, had beenrather laggardly in their receptivity to "soft" methodologies.

Writers on sales management eagerly incorporated the DMU into their expositionsof the seUing process over the 1970s and 1980s. Unfortunately, sales management hastended to be labelled as a practical, non-academic subject; and many trainersspecialising in selling/negotiation techniques have done the profession a disserviceby putting the marketing/purchasing interface in adversarial mode. Thus, much ofthe literature is of the generic "how to do it" variety, with little theoretical/empiricalunderpinning and paying scant attention to context.

Only one strand of literature on sales management may be singled out as havingreceived rigorous treatment in a way that provides useful insights on the behaviourof key account managers. This normally appears in the guise of role corvflict/ambiguity or the "psychological contrad" associated with individuals performingboundary spanning roles (Walker et al. 1975; Singh and Rhoads 1991; Singh 1993).

Equally disappointing is the literature on purchasing/procurement/supplymanagement. Despite valiant attempts to professionalise the purchasing functionover many years, it is only recently that such areas as: supply chain management;total quality management; supplier development; electronic data interchange;logistics systems etc, have received the strategic consideration they deserve (Lyonset al 1990; Henderson 1990; Flood 1993; Gadde and Hakansson 1993; Lamming1993). In short, the purchasing literature is weak on strategic aspects of both inter-and intra-organisatior\al relationships.

Such literature as exists on key accovmt management reflects the malaise inindustrial marketing, purchasing and sales management in general. Key accoimt

Key Account Management: Theory, Practice and Challenges 739

management is typically dismissed in a few short paragraphs under "nationalaccount management" (e.g. Hutt and Speh 1985; Kotler 1991; Powers 1991), or isfirmly stuck in the realms of key account selling and selling to major customers(Melkman 1979; Hanan 1982; Miller et al 1988; Rackham and Ruff 1991). While thereis a pervasive belief that effective key account management leads to increased sales/profitabihty and improved sales productivity, writers seldom move beyond statingthe need for a dedicated sales force and defining the role of account managers(Shapiro and Wyman 1981; Coppett and Staples 1983; Barrett 1986).

The source of most data on trends in key account management is the annualsurvey conducted by the US National Account Marketing Association (NAMA).Various ad hoc surveys have also been pubhshed by The National Conference Board,The Research Institute of America and The Bureau of Business Practices. As far as isknown, no comparable surveys are available on companies outside the US.

The second major breakthrough came in the early 1980s with the "interactionist"approach proposed by The Industrial Marketing and Purchasing (IMP) Group(Hakansson 1982). In essence, the IMP Group advocated simultaneous analysis ofbuyer/seller relationships their model highlighting the interaction process,participants, environment and atmosphere. Relationships were deemed to representboth a valuable resource and an investment: to increase economic and technologicalefficiency; to serve as an information channel; and to reduce uncertaintySubsequently, researchers have developed the IMP model and operationalised it ina variety of contexts (e.g. see TumbuU and Valla 1985; Hakansson 1987, 1989; Ford1990).

As the IMP interactionist network approach gathered momentum, they borrowedheavily from parallel developments in industrial networks and this has greatlyenriched our understanding of social structures/relationships (see Thompson et al.1991; Axelsson and Easton 1992; Forsgren and Johanson 1992; Grabher 1993;lacobucd 1996).

Research in the increasingly popular interactionist and network traditions, thoughlargely descriptive, has much to offer a study of relational aspects of key accountmanagement. Of particular interest is the early work on dyadic interaction (Bonamaand Johnston 1978; Wilson 1978), social bonding (McCall 1966; Easton and Araujo1986; Wilson and Mummalanei 1986), co-operation (Axelrod 1984; Hakansson 1987;Hakansson and Henders 1992) and models based on courtship/marriage (de Monthou1975; Ford 1980; Dwyer et al. 1987; Pardo et al 1993; Millman and Wilson 1994,1995).

A third major breakthrough is now apparent in relationship marketing (e.g.Jackson 1985; Christopher et al 1991; McKenna 1992; Millman 1993; Payne 1995).This literature has its roots in the open-systems nature of organisations, drawingheavily on the notions of "negotiated environment" (Cyert and Mcirch 1963),"resource dependence" (Ffeffer and Salencik 1978) and internal/extemai "stake-holders" (Mitroff 1983; Freeman 1984). Christopher et al, for example, argue that"relationships outside the organisation depend on the quality of relationships withinit", making the important point that strategic intent and shared internal vciluesbecome part of the produd/services offered. McKenna re-defines marketing as"building and sustaining customer and infrastructure relationships", going on tosuggest that a company's credibility depends on the relationships it forms. Notsurprisingly, thrae and oflier recent writers (e.g. Spekman and Johnston 1986;

740 Mokobn McDonald, Tony Milbnan and Beth Rogers

Gummesson 1987; Prazier et al. 1988; Webster 1992), have called for relationships tobecome the unit of analysis in future empirical research.

And finally, for key account management systems to be successful, there is anurgent need to develop reliable diagnosfic tools and measures of performance thatsupport strategic markefing decisions. Of th^e, the most promising involvecustomer portfolio analysis and attempts to discriminate amongst customers orgroups of customers in terms of their profitability (Piocca 1982; Campbell andCunningham 1983; Ward 1982; Yorke 1986; York and Droussiofis 1993). While thedevelopment of diagnostic/analytical tools was not the main focus of this study, itis recognised that defining/monitoring key accounts is an intrinsic part of theeconomic component of buyer/seller relationships. An attempt to establish feecurrent status of these tools therefore was considered benefidal in aiding thedistillation of best-practice.

Research Approach

Objeaiues

The objectives of the resean were: To understand better the managerial processes underpinning effective key

account management. To examine both supplier and customer perspwcfives on key account

relafionships in selected industrial/commercial settings. To characterise the role of the key account manager and his/her training and

development needs. To elidt an agenda for further research on key account management best-

practice.It can be seen from the stated objecfives that the first two address the widercontextual issues in which the third is embedded. The fourth objecfive recognisesthat empirical research on key account management is in its infancy and suggests theneed for an eclecfic approach which requires careful consideration of the linkagesbetween inter-p)ersonal and inter-organisational levels of analysis.

Methodolcigy

Common-sense observations tell us that relationships between bujfing and seUingcompanies evolve over time. This process typically exhibits two salient features:first, increasing involvement and complexity associated with a shift from "transac-tional" to "collaborafive" modes of exchange; and, secondly, the building of trustand commitment towards a shared future.

Using the six-stage Key Account Reladonal Development model propKJsed byMiUman and Wilson (1994), it was possible to assess the position of sellingcompanies at various stages of key account development, analyse managerialbehaviour, and gain insights into the changing profile of skills necessary as


reladonships mature. (A graphical representadon of the model is shown below.Figure 1.)

Exploratory research and experience of working closely with Cranfield clients hadreinforced our belief in selecting the buyer/seller dyad as the basic btdlding blockthrough which to study interacdon. This allowed the relational development modelto be operadonalised in a way that captured the dynamic nature of relationships, thesituation in both buying and selling companies and the extent of prior experientiallearning.

Clearly, there are many opportunities for longitudinal and cross-secdonal researchstudies in the area of key account management. Tracking the adopdon of keyaccount management systems by a small number of companies, as a process ofinternal adjustment and external change, for example, would be particularly useful.However, such in-depth research over an extended pieriod of dme was consideredtoo narrow and of limited external validity for the purpose in hand. In contrast, alarge cross-secdonal study of dyads, while gaining coverage, would be superficialand fail to surface some of the qualitadve factors affecting reladonaldevelopment.

A more realisdc approach, within the time and resource constraints, was thoughtto be possible using a rolling, judgmenteil sample of 12 dyads representing a rangeof product/service contexts and stages of development. Given the sensidvity andcorifidential nature of the research, it was but a short step to the consideradon ofpersonal in-depth interviews as the main instrument for data collecdon.

Target respondents in selling companies were key accoimt managers andmanagers of key account managers (referred to as KAM directors or KAMstrategists), half of whom were sales or marketing directors and half of whom weregenera] managers. In buying companies, target respondents were the key accountmemager's prime contact, most of whom were purchasing directors or managers.

Complex

Level ofinvolvemeatwithcustomers

Simple

Pra-KAM

'Synergistic-KAM

PartnersHp-KAM

Mid-KAM

Early-KAM

transactional coUaborativeNature of customer relationship

Figure i. Kef account relational development

742 Malcolm McDonald, Tony Millman and Beth Refers

The interviews were semi-structured and topic based. All sets of respondents wereasked about the same topics: the selection of strategic partners in the supply chain,the success factors for tiiose relationships, measurement of the progress of thoserelationships, the role and skills required of a key account manager, the internal andexternal organisation of strategic supplier/customer relationships, and the chal-lenges for the future of these relationships. Open questions were posed, rather thanpreventing checklists. The purpose of this was to elicit what was foremost in therespondent's mind on each topic. The researchers were able to note clusters of keywords and concepts, and to analyse where consensus or contrasting attitudes couldbe discerned.

One salient requirement in dyads was, of course, gaining access to both parties atthe appropriate level. Overall, starting with selling companies, 20 were approachedand 13 (65 f>ercent) agreed to take part in the study, 11 of whom were able also tofacilitate access to a matching key account. This gave a total response rate of 55percent.

All interviews were conducted on the selling or buying company's premises andtypically each lasted 2 hours. Each interview was designed to be issues based, so asto elicit key account management experience, to facilitate reconstruction (albeitcrudely) of historical development, and to aid distillation of best-practice. Given thenature of the sample size and resource constraints, this research is at bestexploratory. The findings are indications of the state of the art in key accountmanagement, and there is already much potential for bigger longitudinal and cross-sectional studies.

Theory

The theoretical frameworks that were found to be useful in analysing relationships/potential relationships in seller/buyer dyads were the relational development model(Millman and Wilson) and the account porffolio matrix (Fiocca), A product/processmatrix was developed as a preliminary step before using the latter.

Relevance of the Stages of the Relatiortal Development Model

Key accoimt management is a strategic, long term activity. From identifying theattractiveness of an account to achieving the full potential of the relationship withthat organisation could have a 10 year span. It was obvious from the research that inselling companies with a long history of key account management, or in thoseassociated with innovation in key account rrumagerrwnt, account plans are preparedwith the rigour required for marketing plans, using a similar framework, andadopting a minimum 3-5 year outlook.

It was clear from the very first interview that selling companies practising keyaccount management do consciously plan to move key accounts from prospectstowards higher relationship levels. This finding supported ttie proposal fromMillman and Wilson (1994) that there are stages of key account management thatmatch transitions on the continuum from transactional relationships to collaborativerelationships. This is called the Relational Development Model, which is sum-marised in Figure 1.


It also became clear, however, that whilst collaborative relationships are sought,some targeted key accounts are not willing to enter into such relationships and thusremain at the transactional stage. This, in itself, seemed to confirm the validity of theRelational Development Model. There was no other evidence to suggest that theMillman and Wilson model was not a reasonable representation of the range ofpossible relationships over time, even though some may not progress to the desiredstage (see Figure 1).

This model demonstrates the typical progression of a relationship between buyerand seUer through five stages Pre-KAM, Early-KAM, Mid-KAM, Partnership-RAM and Synergistic-KAM. A sixth stage, Uncoupling-KAM, can occur at any timein the relational development process.

The operationalisation of the model can be achieved partly through an analysis ofthe volume of business between the supplier and customer and partly through theobserved working relationships between the two companies. Where no transactiorwexist, but a buying company has been targeted, the relationship is at the Pre-KAMstage. Where transactions have been established, but the supplier is still one of many,the relationship is at the Ecirly-KAM stage. Where a supplier has achieved a najorityshare of the buying company's purchases for their product/service, and the buyingcompany contact is expressing a preference for them, the Mid-KAM stage has beenachieved. The Partnership-KAM stage assumes either a single sourdng relationshipor something very close, with the existence of a partnership perfonnance index, orsomething similar. The Synergistic-KAM stage is characterised by single sourdngtogether with cross-boundary process delivery.

Pre-KAM describes preparation for KAM. A buying company is identified ashaving key account potential, and the selling company starts to focus resources onwinning some business with that prosped. (More Information about the identifica-tion of prospective key accounts is described later in this paper.) The Pre-KAM stagecould be described as a "scanning and attraction" stage. Both seUer and buyer aresending out signals (factual information) and exchanging messages (interactions)prior to the decision to engage in transactions.

The second stage is labelled Early-KAM. At this stage, the seUing company isconcerned with identifying the opportunities for account penetration once theaccount has been won. Bespoke solutions are needed, and the key accoimt managerwill be focused on understanding more about his/her customer and the market inwhich that customer is competing. The buying company wUI stiU be market testingother seUing companies, and expecting a demonstration of value for m o^ney. Theselling company must concentrate hard on product, service and intangibles thebuying company wants recognition that the product offering is the prime reason forthe relationship and expects it to work.

At the Mid-KAM stage, the selling company has established credibility with thebuying company. Contacts between the two organisations increase at aU levels andassume greater importance. Nevertheless, buying companies stiU feel the need foralternative sources of supply. This may be driven by their own customers' desire forchoice. The selling company's offering is still periodicaUy market tested, but isreliably perceived to be good value. The seUing company is now a "preferred"supplier. There will be assumed longevity, even if individual contracts are renewedarmuaUy. There may still be dear exit plans as well!

744 Malcolm McDonald, Tony MUbnan and Beth Rogers

The emphasis switches from product excellence to social integration at the Mid-KAM stage. Everyone in the selling company will be expected to know the names ofkey accounts and understand their imprortance to the company and the service thatmust be given. The buying company will now know the people in the wider keyaccount team as well, and some senior managers.

When Partnership-KAM is reached, the selling company is seen by the buyingcompany organisation as a strategic extemai resource. The two comp>anies will besharing sensitive information and engaging in joint problem resolution. Pricing wiUbe long term and stable, perhaps fixed, but it will have been established that eachside will allow the other to make a profit!

Key accounts will "beta test" all the selling company's innovations so that theyhave first access to, and first benefit from, the latest technology. The buying companywiU exped to be guaranteed continuity of supply and access to the best material.Expertise will be shared. The buying company will also exped to gain fromcontinuous improvement There may be joint promotions, where appropriate.

The partnership agreement will be long term; at kast 3 or 5 years. (Dne buyingcompany daimed that, in practice, they put no time limit on their partnershipagreements. Several categories of perfonnance are itemised in partnership agree-ments (up to 40 within our sample), and the selling company will be trying for 100percent on every measure.

Can there be any greater pinnade? We gained access to companies who were evendoser. Synergistic-KAM is the ultimate stage in the relational development model.Synergistic-KAM refers to selling company and buying company together, creatingvalue in the marketplace, i.e. quasi-integration

The selling company understands ttiat they still have no automatic right to thecustomer's business. Nevertheless, exit barriers have been built up. Whilst thebuying company is confident that their relationship with the selling company isdelivering improved quality and reduced costs, the exit barriers are not likely to betested. Costing systems become transparent Joint research and development willtake place. There will be interfaces at every level and function between theorganisations. Top management commitment will be fulfilled through joint boardmeetings and reviews. TTiere will be a joint business plan, joint strategies, jointmarket research. Information flow should be streamlined and information systemsintegration will be planned or in place. Transaction costs will be reduced and timewill be taken out of work cycles. Billing will be bespoke to that buying company.

There is a sixth stage in the relational development model tiiat demands keyaccount strategists' attention. UncoupUng-KAM, describes relational breakdownand emphasises the need for contingency plans. Breakdowns can occur at any stagefor a number of reasons, but the reason ftiat occurred most frequently in examplesgiven by resp)ondents was a breach of trust. Buying companies, in particular, feelvulnerable, and place a very higji importance on the integrity of suppliers, a fadorthat will be revisited later in this paper.

Analysing the Potential for a Collaborative Approach the Product/Process Matrix

In assessing whether or not a relationship between a supplier and customer canachieve higher relationship levels and, tiwrefore, would be stutable for a

Key Acanmt Management: Theory, Practice and Challenges 745

collaborative approach, an examinafion of the product/process mix is indicafive.This step is worth taking before an account-specific analysis (see Pigure 2).

The potenfial for Synergisfic-KAM largely dep)ends on the correlation between thecomplexity of ttie processes between selling company and buying company; and tiiecomplexity of the produd and technology the selling company is delivering.

If both product and p>rocess are complex, optimum mutual benefit, and benefit forthe end buying company, is obtained through some degree of verfical integration.This explains why partnership and synergistic relafionships are usually ol^erved inindustrial and business-to-business markets.

If both product and process are simple, it is more likely that relationships willremain "transacfional" and not move beyond the Early-KAM stage. This partiallyexplains why relafionships between some manufacturers of consumer goods andsome retailers are tradifionally adversarial.

Account Portfolio Atuilysis

The next step is to consider the charadedsfics of the prospect/customer, and howwell their expiedafions can be addressed by the seUing company. Some managers inbu)Tng companies, whose strategy was to develop long term relafionships withpreferred suppliers, commented on the lack of choice available to them. Oneremarked: "Some suppliers just can't meet the long-term challenge". Another saidthat he and his colleagues in purchasing felt that they were guiding some suppliers,doing the work for them and wasting time in the process.

However, just as buying companies bemoaned the lack of selling companies whocould meet the long term challenge, selling companies who aspired to be

KEY ACCOUNT PROCESS

Complex

PRODUCT

Simple

SimpleExamples

1. ffechnical consultancy2. Pharmaceuticals

Examples

1. Commodity electronics2. Fast moving coiuumergoods

ComplexExamples

1. Highly complex one-offmanufactured goods2. Bespoke informationsystems

Examples

1. Customised financialservioes2. Logistics

Figure 2. The product/process matrix


partnership suppliers felt that there was a significant niunber of buying companieswho were driven by short term demand for low prices rather than looking for thevalue that shared bt-practice can debver.

The diagnosdc tool that can be used to support prospecting and accountdevelopment decisions is the account f>ortfolio matrix, first identified by Fiocca(1982). It bears similarities to the GE/McKinsey matrix and Directional Policy matrix(see Figure 3).

Selling com^panies tend to define buying companies as more or less attracdve tothem depending on volume, growth potential, and market or technical leadership.Attractiveness factors often concentrate on these items alone. The reladve attractive-ness of the prospect/customer's patterns of buying behaviour, the complexity oftheir requirements, their reladve power and compeddve posidon, and their skillslevels may also be incorporated in an attracdveness index.

A selling company may judge its business strengths by researching its perform-ance against customer requirements. This is usually achieved in close seller/buyerdyads through a partnership performance index. Product quality and people qualityis often taken for granted by the customer, and such indices will often concentrate onprocess excellence (reducing "hassle factors" for the customer).

Practice

Our research clarified three major aspects of current pracdce the factors used byselling companies in selecting and idendfying key accounts, the selecdon criteriaused by buying companies in selecting preferred and partnership suppliers and theviews of both on the skills required in the key account manager.

Business Strengths

High

KeyAccount

Attractiveness

Low

High Low

Figure 3. Account portfolio matrix


The Selling Company's Perspective Selection of, and Definition of Aaounts as "Key"

Volume related factors. The Pareto 80/20 rule prevails, especially as sellingcompanies set up their key account strategy. Volume was often described by keyaccount strategists as the overriding factor in key account selection. Volume meantthat the account would be well-recognised throughout the business. Even companieswith 6 to 10 criteria for key account selection suggested that if the largest buyingcompanies did not qualify, for example, on "interest in added value", they wouldstiU be key.

Besides examining the volume of business coming through key accounts at anyone point in time, most selling company strategists also examine the potentialvolume. One explained that selling companies who concentrate too hard on existingvolume, miss out on new starts. Achieving an early entry into future market leaderswas considered a very important aspect of key account strategy. Growing sectorsattract more strategic attention than those stagnating or in decline.

Potential for profit. One reason for the domination of volume related factors in keyaccount selection criteria is that they are easy to measure. Selling companies alsoaspire to measure potential for profit, but find it more difficult. Underlying allcriteria for key account selection is the expectation of improving profit. However,few companies have developed systems capable of enabling accurate allocation ofcosts to facilitate customer profitability analysis.

Status related. Aside from quantifiable attractiveness, companies also coraiderintangible attractiveness factors. Whilst price-oriented buying companies might stillhave characteristics qualifying them as key accounts, a relational approach is bettersuited to buying companies who are results-focused and interested in working withsuppliers to achieve higher mutual value, A partnership approach is not aprerequisite for an account to be key to a sailing company, but it certainly seals its"key" status if it is in place. If it is not perceived to be in place, the potential for "key"status is reduced.

Some selling companies stated that they were likely to target national, multi-national or "blue chip" companies as key accounts. Status factors were cited, as wellas volume, as reasons for this. They felt that their credibility as a supplier wasenhanced by having well-known companies as customers. The prestige associatedwith a particular buying company can be critical to the selling company's motivationto win their business, because as a reference account, they can deliver a great dealmore business indirectly.

Whilst a selling company's strategy may be driven by their own criteria, in termsof assessing its own capability to win and keep attractive accounts, the sellingcompany has to understand the perspective of the buying company.

77ie Buying Company's Perspeaive Selecting Preferred or Partnership Suppliers

Ease of doing business. If there is one supplier strategy that can move a supplier/customer relatiorhip into partnership, it K to install quality processes that willmake it easier for customers to do business with the company. Purchasing decision-


makers hold suppliers who make it easy to do business with them in very highregard.

As one purchasing maitager put it, you have to take into account "aggravationlevels". If selling companies waste time by causing pricing or invoice queries, shortdeliveries, and so on, then buying companies wiU puU away from them. Anothersaid ftiat he did not constantly want to be chasing seUing companies. He expeded togive them the problem and feel assured that they would come back with an answer.Noticeably, few selling company respondents volunteered the existence of problemsin processes, but one culturaUy bureaucratic selling company had worked very hardto unknot process problems at every interface with each key account.

Nevertheless, it was suggested by many buying company respondents that onceprocesses are right, the selling company is established with them. A purchasingmanager said that if he wanted som^ething new he would always try and source itfrom an existing supplier who was already delivering in the way required.

Quality (product/service). An attractive produd/service offer is a prerequisite forany relationship between a buyer and seUer.

The product/service offer must consistently and continually meet the businesscriteria of the buying company and ultimately add value to the buying company'scustomers. In some cases, a strong brand name is desirable. Key accountmanagement is only valuable to some buying companies in that it should be avehicle for improving their quality standards further.

Needless to say, buying companies commented that longevity of business wasassured if the selling company's produd was well-established. One said that at theend of the day the main thing was that "the stuff works". Another buying com.panyhad been in ttie position of having to "turn a supplier off" because, although theydid everything else right, the functionality of their products had failed to keep pacewith market demands.

Quality (people factors). The personality of key selling company contacts as well astheir skills are important, although buying companies do look for helpfulness acrossthe selling company organisation. Honesty, integrity and above aU "a spirit ofunderstanding" are appredated. These factors are explored fully in the nextsection.

Skills Required in the Key Account Manager "Boundary Spanning" Setting andBuying Company Requirements

A key account manager needs far more skUls than a sales person. In fad, it ismisleading to consider it as merely an extension of a sales career. Certainly, atPartnership-KAM and Synergistic-KAM stages, this is a management role requiringkeenly developed management skills. Top key account managers manage acrosscompany boundaries, functional disdplines and different cultures. They commandhigh levels of authority and status in both their own company and the customer'sorganisation. It is not unheard of for the remureration of top key accoimt managersto exceed that of Board members.


KAM directors, key account managers and buying company contacts were allasked what skills were involved in the role. The following topics attracted the mostdtations among respondents:

Integrity. A majority of buying company contacts interviewed emphasised theimportance of being able to trust the key account manager as an individual, as wellas expecting selling companies to demorwtrate corporate integrity. The importanceof integrity to customers is either overlooked or taken for granted by sellingcompanies, but buying companies illustrated by examples how much they valuedthe conscious effort of suppliers to be trustworthy.

Product/service knowledge. Most buying companies expressed the view that it wasvery important for the key account manager to be able to handle technical questionsand they also expeded a detailed understanding of how the product or service couldbe applied. These fundamentals cannot be overlooked.

Communications. KAM diredors, key account managers and buying companycontacts acknowledged the importance of verbal fluency, presentation skills andexercising influence in meetings. Some also discussed the communications that haveto be initiated within the selling company organisation in order to get things donefor customers. In short, advanced interpersonal skills, were considered a "must".Buying company contacts also talked about "likeability". Issues of personal"chenustry" or "fit" were frequently raised.

Understanding the buying company's business and business environment. It would bedifficult for a key account manager to be successful without a thoroughunderstanding of the buying company's business. However, one KAM directorconunented that it was a relatively new requirement. A buying company contactsuggested that due to downsizing, buying companies now depend more on thesuppliere' contribution. Knowledge of the industry in which the buying companyoperates is also required. Bujong companies want the key account manager to knowas much about the political, economic, sodal and technological factors affecting theirbusiness as they know themselves.

Selling/negotiating skills. All interviewees said that selling took up a smallproportion of a key account manager's time many suggested that it was as littleas 10 percent of the key account manager's activity in a mature seUer/buyerrelationship. Buying company contacts showed little interest in the key accountmanager's selling skills and were inclined to expect key account management to besomewhat more sophisticated.

In contrast, key account managers were well aware that they were paid for gettingorders ind said that a key account manager who forgets about selling is heading fortrouble. Selling and negotiating were also highly valued by KAM directors. Onegeneral manager in charge of key account managers said that they have toimderstand that tiieir job is about making money and believed that those who fail askey account managers, whilst they might appreciate the money-making rolephilosophically, could not invest in it emotionally.

750 MtUcolm McDonaU, Totfy MiUman and Bedt Rogers

Chailenges

The biggest challenges described by selling companies involved in the Cranfieldresearch were the global/local organisational issues of key account management,process excellence, the development of key account managers and the developmentof key account teams.

Clobal/tocal Otganisational Issues

Key account management was discussed in most dyads principally in the context ofthe UK market, even between some multinational subsidiaries in the UK, althoughin four of the dyads studied, elements of globalisation were evident.

There are many advantages to the selling company and buying company who candeal with each other on a global basis, such as consistency in world-wide standardsof service and economies of scale. The challenge facing them is how to organise thevast scop>e and complexity of this type of partnership.

Progress towards globalisafion has to be taken a step at a time. The mostfrequently observed model of irutial globctlisafion observed in the Cranfield researchwas as follows: the selling company's head office defines its global capabiUfies, butthe global framework for each key account is negotiated in the buying company's"home" country. Agreements within that framework, but tailored for localcondifions, are managed in each geographic market (see Figure 4).

This model is clearly a convenient first step from mulfi-nafional to globalorganisafion to meet the needs of key accounts. There are further steps, althoughselling companies are only too aware that purer models of global key accountmanagement present considerable management challenges (see Pigure 5).

In this mddel, local account managers for a buying company cure directlyresponsible to the global account manager for that buying company. Local accountmanagers have only dotted Une resp>onsibility to local management. This model wasbeing considered in one of the dyads in the study, and has been implemented bysome leading global companies in service sectors.

Neither of ttese models have parficular relevance if the customer does not wantto be dealt with on a global basis. In this resped, it is advisable to map customer

Seiling company SA (Spain)Worldwide HQ

Local Une Local line GLOBALmanagement management FEAMEWOKK Buying coPty (Australia)(USA) (AustraUa) Worldwide HQ

LOCALLocal key account IMPLEMENTATIONmanager (USA) Local DMU (USA)

Figure 4. GloM key account management, initiation moid

Key Account Management: Theory, Pradia and ChoUenga 751

needs to the selling company's organisational capabilides, as illustrated in Figure6.

If both seller and buyer are organised for global business, there will be potentialfor achieving synergy. If botih buyer and seller prefer local or category selling, theirorganisadons are ako likely to be designed to match each other. However, wheremismatches occur, it is much more difficult for seller and buyer to achievepartnership.

Selling Co Inc (USA)Board of Directors

Buying Co PLC CUK)Board of Directors

Local

management

Global Key Account GtXIBAL FRAMEWORKManager

Etc.

Local accountmanager(Singapore)

Local accountmanager(Holland)

Local account managers areresponsible for local implementation.They have line responsibility to theGlobal Key Account Manager for thebuying company.

Fig S. Global key account management line rtspo/isibility oriented to key accounts

Group buy (local delivery) Local/catagory buyingGroup sell

(local delivery)

SELLER

Local/ategCHy selling

Matcb

Mismatch

Mismatch

Match

Figure 6. Organisational fit to meet buying company requirements: global/local matrix

752 Malcolm McDonald, Tony MiUman and Beth Rogers

Global key accoimt management is above all an organisational challenge, Asteering committee appears to be desirable at Board level, together with a keyaccount team, and functional teams to troubleshoot implementation. There could beup to 100 people devoted to one buying company. Above all, global key accountmanagement requires close attention to co-ordiriation, and sensitivity to the trade-offbetween global integration and local flexibility (see Millman, 1996),

Process Excellertce

A key factor in achieving synergy in seller/buyer relationships is the degree towhich the business processes of the two companies can be integrated. Many seller/buyer relationships, even where there is a key account manager, are marred bydisputes about inaccurate order fulfilment, invoices and other flaws in logistics andadministration. It is where companies have worked together to resolve "hasslefactors" that loyalty has built up to a degree that means the relationship might beexpected to be long term.

One dyad in this study had eight joint project teams working continuously toimprove aspects of the partnership. Processes between the two companies have beenmapped, and the teams have identified areas where costs can be reduced or qualityimprovements made. Paperwork has been streamlined, which has eliminated timewasted in invoice and docket reconciliation. Teams initially judged their success onreducing time in operations and improving accuracy and financial performance.They have now moved on to aspects of quality such as cleanliness and stocktracking. Together, selling company and buying company appear to have been ableto tackle higher risk activities more successfully than before.

Development of Key Account Managers

KAM strategists commented that it was difficult to design appropriate andsufficiently extensive training and development for key account managers. Keyaccount managers themselves, even the very experienced, are eager for more.Updates are always required on topics such as commercial awareness, interpretingbusiness performance, advanced marketing techniques, building business cases andfollowing specific trends in key accounts' business sectors. Guides to accountplanning and commercial procedures, and techniques for measuring projectprofitability are popular. Courses to teach advanced interpersonal skills and developrelationship management are also generating interest

Development is also relevant to flie period before a key account manager isappointed. People changes were described by all types of interviewee as "badnews". Key account managers do have to change from time to time and it can bemanaged in such a way as to be smooth and gradual. The new person must be giventhe time to glean tarvowledge and know-how from vvfhich they derive theircredibility.


A critical element of key account manager development is decision-making. Theindications of the research were that many selling companies have some way to goin meeting buying company expectations in terms of the authority of their keyaccoimt manager. Buying company contacts exped the key account manager to beable to get things done "nothing less". They ttiought that key account managersshould have more resources at their disposal, whilst KAM directors defended thekey account manager's need to negotiate for resources for the buying companywithin the organisation.

An indication of authority is the key account manager's reporting line. In 6 out of13 selling companies in the study, key account managers were part of a sales ormarketing department reporting to General Management. In 5 out of 13 cases thekey account managers reported diredly to the General Manager. In one case this wasthe General Manager of a separate key accounts division. In another, the GeneralManager insisted that no one would come between him and the key accountmanagers. UsuaUy, if the General Manager had key account managers reporting tohim or her, brand managers and planners would report directly into GeneralManagement as well.

Development of Key Aaount Teams

In many seUing companies, key account managers do not have fonnal or informalteams, but are expected to have influence in getting things done for their customer.Indeed, the traditional company organisation, where account managers have noother leverage over coUeagues other than escalation, is often not considered bybuying companies to be appropriate to meeting their needs. They expect key accountmanagers to have more authority. Not only are they interested in who the keyaccount manager reports to, but who reports to him/her.

Therefore, it is becoming increasingly common in seUing companies to find thatthe key account manager is in charge of a "dotted line", semi-formal team. Membersof teams tend to have different line managers, but meet regularly with the keyaccount manager and the key account and have objectives relating to customerrequirements.

in some companies in flie research, team members had objectives relating to keyaccounts and the percentage of time they should be devoting to their key accountwas one of them. In these caste, there were some elements of shared motivation andreward, and performance on that account would lead to career development and jobsecurity for team membere. In most cases of "dotted lines", operational staff wererequired to report to the key account manager as well as their line manager aboutcontacts with bujring companies. The key account manager must be able to plan andmonitor who is talking to whom at what leveL Buying companies exped their dottedline key account team to include a director, at least as a mentor.

Team members spend less time in front of the buying company than the keyaccount manager, but they are making sure everything happens at each interface seller/buyer relationships are multi-layered and multi-faceted. The key accountmanager conducts ttie orchestra.

754 Malcolm McDonald, Totty MiUman and Beth R/fgers

Condusions from the Fieldwork

Retaining and developing key accounts is vital to the survival of selling companies.In mature markets where the only growth comes at a competitor's expense, the useof key account management as a strategic route to sustainable competitiveadvantage and stabilising operations is widely recognised.

It was clear from this study that there has been a ^lift from key account selling toa much more sophisticated, value management approach from selling companies tobuying companies. It is expeded that, whilst some pxxkets of transactional andadversarial negotiation will continue in supply chains, the general trend in business-to-business markets is towards higher levels of partnership between sellingcompanies and buying companies, to the extent that company boundaries becomeblurred. Those dyads already practising partnership are convinced of its contribu-tion to reducing costs and improving quality.

Key account management requires process excellence and highly skilled pro-fessionals to manage relationships with strategic customers. For most companies,this represents a number of revolutions. A revolution is needed in the way activityis costed and costs are attributed, from product or geographical focus to customerfocus. Currently, few finandal or information systems in companies are sophisti-cated enough to support the higher levels of key account management. Atransformation is needed in the way the professional with responsibility for acustomer relationship is developed, from an emphasis on selling skills tomanagement skills, induding cross-cultural management skills. Lastly, a revolutionis needed in the way exp)ertise within companies is organised, from an emphasis ondepartmental structures and geographies, to multi-disciplinary teams devoted toparticular key accounts.

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