30th Nov 2009
In the first part of his exploration of key account management portfolio analysis, Professor Malcolm McDonald provided a definition and outlined the preparatory steps that need to be taken. In this second part of the guide, the final steps to key account management success are outlined.
Step 7: Score critical success factors
Score the organisation’s actual strengths in each key account. An easy way to do this is to decide the actual stage of the relationship.
- Exploratory (you do not currently do business with this account).
- Basic (you have some transactional business with this account).
- Cooperative (you have regular business with this account and may well be a preferred supplier, but you are only one of many suppliers and pricing is still important).
- Interdependent (you have multifunctional, multilevel relationships, but the customer could still exit if necessary).
- Integrated (you have multifunctional, multilevel relationships, your systems are interlinked and exit for both parties would be difficult).
Step 8: Produce the portfolio analysis
The portfolio analysis should produce a matrix which resembles Figure one below. There are likely to be key accounts in all ten boxes. It is advisable to list the names of the accounts, one per line, in order of their position on the vertical and horizontal axes. Enter two figures next to each account name on each line.
- your current sales and
- the total available sales over three years (to any competitor).
Figure one - portfolio analysis matrix
Figure two - the key account portfolio
Figure two is a completed key account portfolio and figure three is a real example from an insurance company, with the figures disguised to protect anonymity.
Step 9: produce a forecast matrix (optional)
The analysis should position the key accounts on the horizontal axis where they are projected to be three years from now, assuming no change to your current policies. The key accounts can only move horizontally, either to the left or to the right, because you have already taken account of potential future growth on the vertical axis. Now enter a new figure for your forecast sales for each account, assuming no change in your current polices.
The first time you complete this analysis, it is unlikely that the forecast position will be satisfactory.
Step 10: Produce a matrix showing the objectives’ position
This analysis should position each key account on the horizontal axis showing the objectives’ position in three years time of each one. Accounts can either stay in their current box, move to the right or move to the left.
Enter a new figure for your objectives sales against each key account.
Step 11: Outline the objectives and strategies for each key account for the next three years.
Finally, a strategic plan for each key account should be produced. It should outline the objectives and strategies for each one. The table below sets out more specific guidelines for setting objectives for each of the key accounts in each of the four boxes. It will be observed that each box has a "label”. These labels can be changed but should NOT be changed to derogatory names such as Gold, Silver, bronze, ‘A’, ‘B’, ‘C’, ‘D’, etc !.
Step 12: Check the financial outcomes from the strategies
Very important customers, but the relationship has developed still further, to the level of partnership. The relationship is ‘win-win’, both sides have recognised the benefits they gain from working together.
Customers buy not on price but on the added value derived from being in partnership with the supplier.
The range of contacts is very broad and joint plans for the future are in place.Products and services are developed side-by-side with the customer. Because of their large size and the level of resource which they absorb, only a few customers fall into this category.
Very important customers (in terms of value).
Commit to security of supply and offer products and services which are tailored to the customer’s particular needs.
Price is less important in the customer’s choice of supplier.
Both parties have some goals in common.The two organisations have made some form of commitment to each other.Invest as necessary in these customers in order to continue the business relationship for mutual advantage, but do not over invest.
Price is still a major factor in the decision to buy but security of supply is very important and so is service.Spend more time with some of these customers and aim to develop a deeper relationship with them in time.
These customers usually want a standard product, ‘off the shelf’.
Price is the key factor in their decision to buy.
The relationship is helpful and professional, but transactional.Do not invest large amounts of time in the business relationship at this stage.
Cost out the actions which comprise the stated strategies in all boxes other than the bottom right hand box. There may be circumstances for those in which a strategic plan should be produced for some of them, but generally speaking, forecasts and budgets should be sufficient, as it is unlikely that the supplying company will ever trade on terms other than low prices.
For an explanation, see the mini case below.
Figure two is repeated here. Please pay particular attention to large key account circle in the bottom right had box. The following is a true story about a global paper company for whom the authors were doing some KAM consultancy.
A main board director was bemoaning the fact that one of the world’s biggest media companies – hence a massive user of paper – was putting its paper order out to tender and was determined to accept the two lowest price bids. It was then to drop all other suppliers. The authors quickly established that to lose such a big customer would be a blow to profitability, as all its mill fixed costs would remain the same, ……without this customer. So the author advised the paper company to bid the lowest rice in order to win the contract, then to withdraw all support other than that specified in the contract. In this case, clearly, sending a key account manager on regular visits and offering other services would have been a waste of resources, as it was clear that this particular customer didn’t want a close relationship with any supplier and was obsessed with lowest price, so making it virtually impossible for any supplier to make much profit.
It is accounts such as these, usually in the bottom right had box, which are unattractive and driven by price alone that do not justify strategic key account plans. Such plans are only justified if the supplying company believes there is a real opportunity to move them to a more favourable position in the portfolios.
Analysis for Strategic Plans for Key Accounts
We saw above the basis on which key accounts should be defined and selected. The purpose of this section is to provide a set of procedures for key account analysis prior to producing a strategic plan for each key account selected as being worthy of focused attention by the key account manager. An overview of the total process, which we have called the business partnership process, is given in Figure three.
Steps 1 to 3 should ideally be carried out by 'headquarters' personnel otherwise there is the danger of several key account managers all duplicating the same tasks. It should be clear by now that all segments in a market are not equally attractive to the supplying company. Hence, given scarce resources, a key account in a really attractive segment must be more important than a key account of similar potential in a less attractive segment. It is best, however, if the politics of this, along with defining and categorising key accounts, are left to other senior managers in the supplier’s organisation.
Suffice it to say that before preparing a plan for doing business with a key account, the following analysis needs to be carried out at Headquarters level:
- Definition and categorisation of key accounts.
- Porter’s Industry Driving Forces (or some such similar process) so that Key Account Managers fully understand the vertical markets in question.
Figure four - business partnership process
Key account analysis pre-planning
Before it is possible to plan for key accounts, a detailed analysis of each key account must be undertaken by each individual key account manager and their team, somewhat in the manner of conducting a marketing audit.
At the individual key account level, this analysis should uncover, inter alias:
- the customer’s objectives, strategies and financial constraints.
- their value chain and how the supplier can help.
- their buying processes.
- their criteria for choosing between competing suppliers.
All this adds up to what we term Critical Success Factors (CSFs) for the customer. The four box matrix is designed to help the supplier to understand what they can do for their customer that will help them to reduce costs, avoid costs, or create value for them. A few of the resulting findings may help the supplier to create advantage for the customer, whereas most things a supplier does merely helps the customer to avoid disadvantage. However, it is those few things that a supplier can do that help a customer to create advantage that can lead to higher margins and an inside track.
All this analysis should enable the key account manager to produce a winning strategic plan for each key account.
Research at Cranfield has shown that those organisations which invest resources in detailed analysis of the needs and processes of their key accounts, select and categorise their key accounts correctly, which fare much better in building long-term profitable relationships. Armed with a detailed knowledge of their customer’s business, it is more likely that they can discover ways of helping the customer create advantage in their marketplace and build these findings into a strategic key account plan which will be signed off by both the supplying company and the customer.