The theory of Key

Account Management
For AKAM Diploma students

Dr Diana Woodburn
BSc, MSc, MBA, PhD, FCIM Professionalising Key Account Management | a4kam.org
 Dr Diana Woodburn & KAM

• Specialising in Key Account Management (KAM) since 1996/7

• People and company development in KAM, research, writing, new
concepts, teaching and consultancy
• Founded Cranfield KAM Best Practice Club in 1998, Warwick in 2005
• Best-selling book ‘Key Account Management: The definitive guide’
and the ‘industry’ reference, the ‘Handbook of Strategic
Account Management’
• Multi-sector and multi-country: taught over 2,500
What is KAM?
key account managers and over 500 directors

Is it worth it?

[email protected]
How does KAM work? [email protected]
Content of this session

1. Defining Key Account Management (KAM)

2. Key Account selection and categorisation

3. KAM relationships

4. Value creation and strategic account planning

5. Implementing KAM

6. The Key Account Manager job

1. Defining Key Account Management
 KAM definitions

An integrated approach to the profitable development of

individual customers of strategic importance to the supplier

Building close relationships A process of growing, managing

between the supplier and and harvesting the supplier’s
customer organisations that add strategic customer assets.
superior value to the customers’
businesses as well as to yours.

Who What do
gets they
KAM? get?
Complete KAM definition

• A supplier-led process of inter-organisational collaboration

• that creates value

• for both supplier and strategically important customers

• by offering individually tailored propositions

• designed to secure long-term profitable business

• through the co-ordinated deployment of multi-functional capabilities.

Woodburn & Wilson

Handbook of Strategic
Account Management, 2013
6
 Who is a Key Account, who gets KAM?

By volume,
contribution
or potential

By number of Large accounts

accounts

Medium Medium
accounts accounts

Small
accounts
Small accounts
 Difference between AM and KAM

Account Management Key Account Management * not just personal

plan/only sales &
Business as usual Managed for growth and change marketing aspects

1 year supplier strategy-led action 3-5 year complete strategic business plans unique to
plans customer, closely aligned with customer strategy*

Works within normal organisation Corporate responsiveness, cross-boundary

engagement and activity

Good business Substantial potential, aligned with corporate strategy

No investment or not much Readiness to invest

Coordinated approach to account Holistic, helicopter, longer-term approach to

customer

Necessary relationships Many, multi-level, multi-function and senior

relationships

Opportunity-focused understanding Deep understanding of customer’s business

Requires Account Manager Requires Key Account/ Business Manager and KAM
team
 Integrated/co-ordinated customer approach

‘Customer ‘Integrated customer-

engagement’ driven enterprise’

Hi-tech company
 Scope of KAM

WHY? Core offer

Alternative use of capital
Profit
Help the business
Strategic

Value HOW? Integrated offer

KAM
Business Total cost of ownership

relationship

WHAT? How much?

Price & performance Service levels.
Selling
Operational/transactional
Supplier Customer
 Strategies for key accounts

Business strategy Relationship strategy

• What will happen? • How will we make it happen?
• What value can we offer? • How will the relationship help the
business strategy?
• Why should we get the business?
• With whom do we need
• What do we need to do? relationships and why?
• What will the result be ? €/£/$ • What will we say to them?
Deep • Why will they care?
understanding
of the customer
Internal strategies
• How can we align our KPIs with our key customer objectives?
• How can we maintain efficient processes that are flexible when needed?
• How can we measure progress and delivery to key customers specifically?
• How are non-sales functions involved?
The journey to KAM

Strategy
and
planning

Organisation
and culture

Processes

Woodburn, 2006
2. Key Account selection and categorisation
 Who gets what kind of KAM?

High Account’s
Star Strategic spend

Selective Strategic
investment investment
Key account
attractiveness Streamline Status

Manage for Pro-active

cash maintenance
Low
Low High

Supplier’s business strength:

account’s view
14
 Account attractiveness criteria

‘Hard’ ‘Soft’

Outcomes Customer Customer

needs attributes
Financial
Potential for profit
Opportunities for Risk reduction:
outcomes/profit product/service working together
differentiation

• Spend • Member of targeted • Strategically important

segment purchase
• Turnover
• Strategic fit (e.g. • Appropriate decision-
• Volume platforms, global) making structure
• Cost to serve • Want non-standard • Right attitude to
• Contribution solutions (what?) relationships
• Price • Specifics (e.g. speed, • Prepared to pay for
compatible systems) value
• Growth
• Prepared to invest
 Assessing account attractiveness

Account attractiveness Weight Account Account Account

criteria A B C
Rating Score Rating Score Rating Score
0-10 0-10 0-10

Total 100

Score = weight x rating (0 – 10)

 Example: DHL and manufacturers

Account attractiveness Weight Account Account Account

criteria A B C
Rating Score Rating Score Rating Score
0-10 0-10 0-10
Size of wallet 25 9 225 5 125
Moves small valuable items 25 4 100 8 200
(= need for new, valued-added
services)
Central decision-making 20 3 60 9 180
Global operator 15 6 90 3 45
Industry growth rate 15 3 45 7 105

Total 100 520 655

Score = weight x rating (0 – 10)

 Customer critical success factors

What does the customer really care about?

Different for each key account
Exclude ‘givens’ or qualifying factors

Observation Analysis

• What have they talked about? • What is happening in their marketplace?

• What are they struggling with? • What is their competition doing?

• What gets their attention? • What do their customers want?

Enquiry
Ask them!
 Customer's view of your business strength

Customer’s critical success Weight Your Best Other

factors (CSFs) company competitor competitor
Rating Score Rating Score Rating Score
0-10 0-10 0-10

Total 100
Score = weight x rating (0 – 10)
 Who gets KAM?

High Customer’s
Star Strategic spend
Relationship level:
? Basic
Key account Co-operative
attractiveness Streamline Status Interdependent

Integrated
?
Low
Low High

Supplier’s business strength

from the customer’s perspective
 VERIFY with the customer

• Their actual attractiveness

• Their real critical success factors for you
• Their view on how they rate you currently
• Their attitude to a close relationship with you

• You can’t make anyone have a close relationship with you

• KAM won’t work if you can’t build the relationship
• You must not waste resources on the wrong accounts
21
 Matching strategies and expectations

G=Growth
KAM KAM
CR=Cost Reduction Profitability Profitability
KAM=KAM input/cost possibly good
low

CR G CR G
High
Star Strategic

Key account
attractiveness Streamline Status

Low

KAM Low High KAM

Supplier’s business strength Profitability
Profitability from the customer’s perspective high
low

G CR G
CR
3. KAM relationships
Multi-layered relationships

Layers of
involvement

Activity links
Co-ordination

Resource ties
Change

People bonds
Facilitation
Gedde & Snehota, 1999
Relationship stages

Complex
Integrated

Interdependent

Co-operative

Basic Simple

Supplier Customer
 Basic relationships

• Single/limited significant points of contact

• Probably one of several suppliers
• Easy to exit
• Price and the reward structure are often the principal drivers
• Minimum information sharing
• Reactive rather than proactive
• Not seen as business partner
• Small chance of improving business
• Can be stable state or trial stage
• Transactional: emphasis on efficiency

Cranfield, 1996
 Co-operative relationships

• Wider range of functions loosely involved but few consistently,

relationship still mainly with buyer and order processing team
• Not really under control, ‘blind spots’ in relationship manager's
visibility
• One of preferred few suppliers, but minor share of spend
• Exit not particularly difficult
• Limited access especially to senior people
• Limited information sharing
• Forecasting rather than joint strategic planning
• Not seen as business partner, supplier ‘making the running’
• Not yet trusted by customer
• Danger of losing money!

Woodburn, 2000
 Interdependent KAM relationships

• Wide range of functions and senior people consistently involved

• Relationship manager positioned to manage entire relationship
• Sole supplier or major share of two
• Fully satisfactory access, including key people
• High level of information exchange, including sensitive business
information
• Deep understanding of customer and customer's business
• Pro-active
• Wider range of joint and innovative activity and projects
• Streamlined processes
• Joint strategic planning with a focus on the future
• Increasingly seen as business partnership, both invest in relationship
• Both acknowledge importance to each other, exit difficult
Woodburn, 2000 • Trust on both sides
• Wide-ranging opportunities to improve and develop business
 Integrated relationships

• Rare
• High exit barriers, exit is traumatic
• Dedicated, cross-boundary functional/project teams with
individual organisations subsidiary to team
• Open information sharing including sensitive subjects
• Transparent costing systems
• Assumption of mutual trustworthiness, at all levels
• Abstention from opportunistic behaviour
• Lowered protection against opportunism
• Joint long-term strategic planning
• Real partnership: complementary, mutually dependent
• Better profits for both

Cranfield, 1996
 Tool: quick relationship check

To what extent does this statement apply to your relationship with Score Rating Score
your customer? Strongly agree 3
Agree 2
If our relationship ended, both parties would find it difficult and Disagree 1
complicated to exit Strongly disagree 0
There is a real spirit of partnership and trust between our two companies
Together we have produced long-term strategic plans for the
development of our relationship and business together
Any information at all relevant to our business together is passed straight
on to the customer
People at all levels in both organisations are in constant communication
with each other
We have both realised substantial benefits through working together
Total Score
 Matching relationships with customer potential

High KA’s spend

Star Strategic
customers Integrated
customers
Pro-active Strategic
Key Account maintenance investment
Interdependent
attractiveness Streamline Status
customers customers
Co - operative
Manage for Selective
Basiccash investment
Low
Low High

Supplier’s business strength

from the customer’s perspective
 Do you really understand the relationship?

Selling
company
strategic
intent
Integrated

Supplier delusion
Interdependent

Co-operative

Selling company
Buying company
Basic
Buying company
strategic intent
 Relationships need management

• Relationships cost money to run.

• Relationships require investment to develop.
• Relationship levels need to be managed and monitored.
ALERT!
66% of suppliers’ top 3
accounts are at no more than
co-operative stage

• Don’t develop Basic relationships unless you can/ want to reach Interdependent
• Don’t prolong the Co-operative stage.
• If a relationship is stuck at Co-operative, move it forwards or backwards.
4. Value creation & strategic account planning
 Strategies for key accounts

Business strategy Relationship strategy

• What will happen? • How will we make it happen?
• What value can we offer? • How will the relationship help the
business strategy?
• Why should we get the business?
• With whom do we need
• What do we need to do? relationships and why?
• What will the result be ? €/£/$ • What will we say to them?
Deep • Why will they care?
understanding
of the customer
Internal strategies
• How can we align our KPIs with our key customer objectives?
• How can we maintain efficient processes that are flexible when needed?
• How can we measure progress and delivery to key customers specifically?
• How are non-sales functions involved?
 Analysis & business strategy development process

Key Account Your organisation

External Internal External Internal
Environment & Account’s value Competitors Your value
market analysis chain analysis & suppliers chain analysis

Account’s opportunities Account’s strengths Your opportunities Your strengths

& threats & weaknesses & threats & weaknesses

Account’s Your SWOT

SWOT & strategies & strategies
 Develop strategies via a 9-box SWOT
From your organisation's capabilities

S/O Leverage strengths W/O Address weaknesses

to address opportunities that undermine offensive
strategies

From the key

account’s
strategies S/T Leverage strengths W/T Take action to
to attack threats eliminate weaknesses
relevant to threats
 Differentiated Value Propositions

1. Differentiated Why your company, why not competitors?

How is it different for this customer?

2. Value Value = perceived benefit – perceived sacrifice

– benefit = attributes of importance to customer
– sacrifice = total costs as seen by customer

3. Proposition Superior value propositions must be:

– achieved
– communicated to customers
Leveraging ALL your organisation's capabilities

• Service • Marketing • Customer

development • Sales service
• Pricing • Operational • Teams
• Channels • Project • Resources
• Promotion management • Cash flow
• Communication • Internal/HR • Transactions
• Relationships • Cost-cutting • IT
• Risk

Differentiated Value Propositions

 What does a VP need?

Rackham & Kotler, 2005

How you will help the customer
succeed in its business
Impact

Value
proposition
Capability Cost
What you have and what you What the customer must pay
can do for the customer or sacrifice for the privilege
 Two key requirements of VPs

“A value proposition must be both compelling and believable” Bud Hyler

Neil Rackham, 2008

 Value Propositions for key accounts

Your capability/ strength & Benefit to Cost/ sacrifice for

strategy customer customer

Strategy 1
VP 1 …………………………………………………………………………………………………………….................
Strategy 2
VP 2 ……………………………………………………………………………………………………………………………
Strategy 3
VP 3 ……………………………………………………………………………………………………………………………

You have to write VPs into key account plans

– if you don’t, they probably don’t exist, and even if they do, you won’t be able to explain them to the key account
or your own company
Structure for strategic account plans

Writing
The plan
A. Where are we now?
Appendices
B. Customer
Background detail
understanding
Executive
Business analysis
summary C. Accord strategies &
objectives Development of
thinking
D. High level action &
review

Reading
 Critical importance of the plan

Added value
The
customer

Key
3-5 Corporate
Peers and account
Shared
functions years business Delivering
learning plan plan the vision

Key
account
team
Professor Patrick Godfrey,
Halcrow Strategic Relationship Director Team success
5. Implementing KAM
 KAM strategic processes

Key Account ▪ Key customer selection

Manager ▪ Customer portfolio management
contributes Strategy ▪ Communication of customer strategy
Future ▪ Contribution to corporate planning cycle
▪ Risk assessment
Value-add ▪ Resource allocation/prioritisation
Change ▪ Cross-boundary co-ordination
▪ Organisational learning

Operations
Present

46
 Operational processes with KA impact

Key Account
Manager
Strategy
monitors
Future

E.g.
Value-add
▪ Selling
Change
▪ Order processing
▪ Production/operations
Operations ▪ Customer service
Present ▪ Delivery
▪ Payment
 Value-adding KAM processes

C ▪ Key account analysis, strategy

o development and planning M
Key Account m ▪ Relationship development e
Manager m ▪ Business development
Strategy a
responsible Future u ▪ Marketing s
n ▪ Pricing u
Value-add i ▪ R&D/product development r
Change c ▪ Product customisation e
a ▪ Product mix management m
t ▪ Supply chain development e
Operations ▪ Transaction handling
Present i development
n
o ▪ Information provision
t
n ▪ Training
 Understanding KAM processes through mapping

Process
step
Continue
as
Person mainly necessary
responsible & until
action complete
Key account
manager’s
role
Inputs? Meetings?
Outputs? Approval points?
Tools & forms? Links to other processes?
 KAM measurement model

Making the
right strategic
decisions Strategy
PROFIT
Aligning
implementation Realisation
with strategy
VALUE

Improving Operations
efficiency and (Transactions/Process/Project)
productivity
PRICE/PERFORMANCE
SUPPLIER CUSTOMER
Alignment of measurement
 Measurement: Strategic level

Who cares? About what? Relative to what: benchmarks

Boards Profit • Performance against business plan (short-term)
Shareholders • ROI • Growth in shareholder value (long-term)
• Asset value (customers)
• Risk
• Opportunity

51
 Measurement: Operational level

Who cares? About what? Relative to what: benchmarks

Performance • Performance against previous period
• Service levels • Performance against agreement
• Price
Line Buyer • Revenue
Mgmt Users • Volume
• Failure rates etc

52
 Measurement: Realisation level

Who cares? About what? Relative to what: benchmarks

(supplier side) Value • Customer expectation
• Customer attractiveness • Account plan
• Customer risk • Portfolio contribution plan
KAMgrs
• Customer satisfaction
SBUs
• Sales?
• Business extension
• Customer retention
• Customer profitability
• KAM input
• KA portfolio contribution growth
53
Customers measure key suppliers: example

Headline
Headlinecriteria
Headline criteria
criteria Breakdown Score
Breakdown 0-5
Assured supply •Product
Productquality
qualitymanagement
management
•Supply
Supplymanagement
management
•Teamwork
Values/trust based business Teamwork
relationship
business relationship •Openness,
Openness,honesty,
honesty,fair
fairplay
play
Management excellence •Quality
Qualitymanagement
management
•Environmental
Environmentalmanagement
management
•Management
Managementdepthdepth
Low cost- best value •Competitive
Competitivevalidation
validation
•Process
Processoptimisation
optimisation
•Financial
Financialstrength
strength
System player •Communication
Communication
•Best
Bestpractices
practices
•Customer
Customersatisfaction
satisfaction
Technical competencies •Health
Health&&safety
safety
•Product
Productconsistency
consistency
Overall score
Soft (judgment) metrics matter as much to KAs as
54
hard (quantitative) metrics – you’d better believe it!
 Aligning with customers via KAM measurement

Supplier KAM organisation Customer

6. The Key Account Manager job
 The key account manager job

Relationship
development

Risk Resource
management management

Retention/
business
strategy
 Who gets what kind of Key Account Manager?

Developer

High
Star Strategic Business
manager
Selective Strategic
investment investment
Key account
attractiveness Streamline
Tactician Status Customer
manager
Manage for Pro-active
cash maintenance
Low
Low High

Supplier’s business strength:

account’s view
 Exploring the nature of the job by activity

Key Account Manager Activity As is Should be Too much time

Developing relationships 25% 20% About right

Implementing and motivating the deal operationally 25-30% 15%
Not enough time
Developing industry knowledge/ understanding strategy/ planning 0% 5-15%

Selling/achieving sales result, bid sign-off 30-50% 5-10%

Internal alignment for deal commercially 0-15% 5-10%

Internal day-to-day problem solving 15% 5%

Reporting/providing information 0-10% 5%

Training and education 0-5% 5%

Internal understanding of capability 0% 5%

Promoting brand/business 0% 5%

Team management 0% 5%

Other ? 10% 59
 The roles of the key account manager
Supplier Joint Customer
perspective perspective perspective

Understands the Expert in the Understands our

Implementation
customer ’s business customer business

Develops strategy Value Anticipates customer

and value developer needs, adds value

Defines, briefs and co - Point of

Ensures delivery
ordinates commitments accountability

LEADER
Builds relationships Leverages relationships
Boundary spanner in suppler organisation
in the customer
Facilitation

Represents supplier, Reflects customer into

builds the brand
Conduit supplier, ambassador

Reference point
Focal point of Single point of
contact contact
60
Three leadership roles for KAMs

Key
customer

KAM as
leader
Internal
KA team organisation
peers & managers

61
 In summary

• Many Key Account Managers fall into the trap of executing the role just as
salespeople and/or trouble-shooters, but it requires so much more.
• This and other sessions in this series offer concepts that should underpin
and inform what you do as a Key Account Manager every day. “Nothing is
as useful as a good theory”.
• They will also help you to demonstrate your understanding and application
of the concepts in your competency write-ups for the Diploma.

Wishing you every success in your career,

Diana Woodburn, AKAM Chairman