Share this content

12 steps to key account management portfolio analysis: Part one

23rd Nov 2009
Share this content

Professor Malcolm McDonald provides a step-by-step guide to obtaining the maximum value out of the methodology of key account management portfolio analysis.


Portfolio analysis is simply a means of assessing a number of different key accounts, first according to the potential of each in terms achieving the organisation’s objectives and, second, according to the organisation’s capability for taking advantage of the opportunities identified.
An adapted version of the directional policy matrix (DPM), portfolio analysis offers a detailed framework which can be used to classify possible competitive environments and their respective strategy requirements. It uses several indicators in measuring the dimensions of ‘account attractiveness’ on one hand and ‘company capabilities’ (relative to competitors) on the other. These indicators can be altered by management to suit the operating conditions of particular industrial sectors. The outcome of using portfolio analysis is the diagnosis of an organisation’s situation and strategy options relative to its position with respect to these two composite dimensions. The purpose of the following guidelines is to obtain the maximum value out of this methodology.
Prior to commencing portfolio analysis, the following preparation is advised:
  1. Data/information profiles should be available for all key accounts to be scored.
  2. Define the time period being scored. A period of three years is recommended.
  3. Ensure sufficient data is available to score the factors. (Where no data are available, this is not a problem as long as a sensible approximation can be made for the factors).
  4. Ensure up-to-date sales forecasts are available for all products/services plus any new products/services.
Analysis team
In order to improve the quality of scoring, it is recommended that a group of people from a number of different functions take part, as this encourages the challenging of traditional views through discussion.
Step 1: List the population of key accounts which you intend to include in the key account management matrix
The list can include key accounts with which you have no business yet or accounts which are currently small or entrepreneurial, but which have the potential to become big. To do this, it is suggested that a preliminary categorisation be done according to size or potential size. Thus, if there were, say, 100 key accounts, the preliminary categorisation might resemble the figure below.
It is important not to use the methodology which follows on all 100 accounts at once, as the criteria for each group may need to be different. The following methodology should, in the example shown, be carried out as three separate exercises: A, B and C.

Figure one - example of preliminary categorisation

Step 2: Define key account attractiveness
Attractiveness definition: this is a combination of a number of factors which can usually be summarised under three headings: growth rate, accessible volume or value and profit potential. Each of these headings will possess a degree of importance to the organisation which should be calculated as follows:
  1. Growth – the average annual growth rate of revenue spent on the relevant goods or services by that key account (the percentage growth 2007 over 2006 plus the percentage growth 2008 over 2007 plus the percentage growth 2009 over 2008 divided by three). If preferred, the compound growth rate could be used.
  2. Accessible volume or value – an attractive key account is not only large – it can also be accessed. One way of calculating this is to estimate the total spend of the key account in t + 3 (year three) less revenue impossible to access, regardless of investment made. Alternatively, the total spend can be used, which is the most frequent method as it does not involve any managerial judgement to be made which could distort the truth. The former method is the preferred method. Definition: Accessible volume or value is the total spend of the key account in t + 3 less revenue impossible to access, regardless of investment made.
  3. Profit potential – this is much more difficult to deal with and will vary considerably according to industry. One way of assessing the profit potential is to make an estimate of the margins available to any competitor. Definition: Profit potential is the margins available to any competitor.
Naturally, growth, size and profit will not encapsulate the requirements of all organisations. It is then possible to add another heading, such as 'soft factors', ‘risk’, or ‘other’ to the aforementioned three factors (growth rate, accessible volume or value and profit potential).
The following are the factors most frequently used to determine account attractiveness.
  • Regular flow of work – stability.
  • Strategy match.
  • Prompt payment
  • Customer who see value in a broad product offering.
  • Opportunity for cross-selling.
  • East of doing business.
  • Status/reference value.
  • Hub of network/’Focal’ company in a network.
  • Important to a sister company.
  • Requirement for global coverage.
  • Time is of the essence.
  • Requirement for a single point of total responsibility.
  • Requirement for strategic alliances.
  • Requirement to manage complex issues (for example, industrial relations and multiworkforces).
  • Abdication (customer hands over total responsibility).
  • Customer needs financial guarantees.
  • Client looking to work with a listed company.
  • Requirement to innovate on repetitive type work.
  • Blue-chip customer capable of meeting your financial security requirements (top 100 company).
Attractiveness considerations: try to keep the total list of factors to five or less, otherwise the calculations become cumbersome and trivial.
In addition, once agreed, under no circumstances should key account attractiveness factors be changed, otherwise the attractiveness of your key accounts is not being evaluated against common criteria and the matrix becomes meaningless. However, the scores will be specific to each key account.
It is also important to list the key accounts that you intend to apply the criteria to before deciding on the criteria themselves, since the purpose of the vertical axis is to discriminate between more and less attractive key accounts. The criteria themselves must be specific to the population of key accounts and must not be changed for different key accounts in the same population.
Step 3: Allocate weights to each of the attractiveness criteria, as shown in the example below.
Factors                                                 Weight
  • Growth rate                                         30
  • Accessible volume or value                  15
  • Profit potential                                     40
  • Soft factors                                          15
NB. The weightings need to be considered very carefully, as in some cases, volume may be more important than profit potential.
Step 4: Define the parameters for size, growth, profit potential and 'soft factors' 
This will obviously depend on the company doing this exercise, but the example below shows how this can be done.

K.A attractiveness


10-7 6-4 3-0 X weight
Volume/value >10m 1-10m <1m


Growth/pontential % >20% 5-20% <5% 30
Profit pontential % >25% 10%-25% <10% 40
'soft' factors good medium poor 15
Step 5: Score each key account
Score each key account on a scale of one to ten against the attractiveness factors and multiply the score by the weight. This will place each key account in the key account attractiveness axis from low to high. 
Step 6: Define business strength/position
This is a measure of an organisation’s actual strengths in each key account and it will differ according to each key account.
These critical success factors will usually be a combination of an organisation’s relative strengths versus competitors’ in connection with customer-facing needs, that is to say those things which are required by the customer. They can often be summarised as:
  • Product requirements,
  • Price requirements,
  • Service requirements,
  • Promotion requirements.
Allocate one of these labels to each key account in your matrix. The labeled list of accounts can include key accounts with which you have no business yet. 
The remaing six steps will be explored in the second part of this article next week.
Professor Malcolm McDonald is the author of books including Marketing Plans: How to Prepare Them, How to Use Them, and Key Account Management: The Definitive Guide. He was Professor of Marketing and Deputy Director, Cranfield University School of Management, with special responsibility for ebusiness, and is now an Emeritus Professor at the University as well as being an Honorary Professor at Warwick Business School. For more information on Professor McDonald and his books and classes click here.

Related articles

Related content

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.