PoS Oct 2014 | Is Your Key Account Management Effective?

If your answer is No, you are part of the majority. Most firms do not succeed in profitably growing large global customers through key account management (KAM).

A largish Indian IT services company struggled with managing big customers for several years. They made their sales people key account managers without reorganising the software delivery organisation.

The firm was unable to respond effectively to customers’ expectation that software delivery teams in India and in customer locations work as one.

What customers want

Global customers demand uniform products, services, and quality in all locations where they operate. Many of them want co-creation of products and services.

Serving them requires vendors to conform their practices to customers’, carry out R&D and product development, and weave a complex supply chain network across plants, sales, marketing, and logistics.

A question of focus

While attempting to serve large accounts, some firms avoid shedding small customers. It not only increases cost of selling, it distracts and diverts key resources from priorities.

An Indian company responded to the long tail of small customers by progressively docking them. Account managers and delivery teams were better able to pay attention to customers that mattered. In the next two years revenue from top ten accounts powered the firm’s growth. Selling cost dropped and operating margins improved steadily.

A large engineering company created a KAM organisation while business units continued to engage with customers through their sales engineers. The company did not clarify roles for the two teams. As a result, account managers were reduced to managing customer appointments, obtaining market and competitor data, and negotiating commercial terms. Top management unfortunately did not actively engage to resolve conflicts between the two sales teams.

Not only was the firm unable to engage large customers effectively, account managers became disheartened.

Does KAM work?

A research reported in the April 2002 issue of Journal of Marketing notes that firms that did not follow KAM, or followed an unstructured methodology performed poorly compared to those that practised any form of KAM. Firms that performed best on KAM effectiveness as well as organisation level profitability showed a few interesting traits.

They extensively used cross-functional teams to deal with and co-ordinate customer centric activities. Their top management was deeply involved and formalised the management of key accounts. Key account managers had access to both top management and non-sales resources such as R&D, plants, product development teams, legal, and commercial managers.

The lynchpin

It is hard to make KAM work because it is complex and requires people to collaborate. Very few companies have been genuinely successful at it. It has taken some of them dogged determination and several years of experimentation. HP created 26 global accounts in 1993. By 1996 they had increased the number to 250, only to slash it to 95 a year later. Over the years they have ironed out the wrinkles. IBM is another very successful practitioner.

Not all clients need to be key accounts. They should be hand picked on the strength of opportunity and the supplier’s ability to profitably grow wallet share. It is absolutely vital that top management be deeply involved in monitoring the effectiveness of KAM, to engage with customers and enable internal teams.

Reference:
* A Configurational Perspective on Key Account Management, Journal of Marketing, April 2002.
* Managing Global Accounts. HBR, September 2002.