Key Account Management - How has it Evolved? Part 2
In our annual ThinkTank discussion this year we will focus on how Key Account Management has evolved since it became mainstream in the 1990s. The opportunity is there for a sales transformation of the practice of winning, keeping and growing key customers, yet we still struggle to achieve the outcomes of improved customer satisfaction, loyalty and joint investment.
As a prelude to the event Beth Rogers, who co-wrote the seminal work on Key Account Management that shaped much of today’s thinking, will offer, in a series of weekly blogs, a view of where we have been, where we are now and where we are going.
Where did Key Account Management come from?
Beth Rogers, Visiting Fellow Cranfield School of Management
“………firms establish buyer-seller relationships which are often close, complex and frequently long-term.”
Professor David Ford, the co-founder of the Industrial Marketing and Purchasing Group (1).
The emergence of Key Account Management (KAM) as a major business model in the 1990s has often been attributed to seismic changes in the business environment in that decade. Accessible markets dramatically increased as Asia, South America and Eastern Europe developed. Meanwhile, stagnation in mature markets encouraged consolidation in many industry sectors, meaning that large complex suppliers were selling to large complex customers, and needed to find a means of co-ordinating the exchange of value across geographies and divisions.
The 1990s may have witnessed the formalisation of KAM, but KAM-like practices had existed long before. Peter Drucker is attributed with being the first management thinker to point out that the purpose of a firm is to create and keep customers (2). In B2B, the Pareto Principle that 80% of business comes from 20% of customers was then instrumental in concentrating resources on the largest customers. Where suppliers needed to make specific investments in retaining a customer, such as machinery, stock, new processes, or dedicated staff, they had to encourage commitment from the customer to ensure that those investments delivered a return.
The special nature of supplier-customer relationships in business to business sectors (likened to quasi-integration) was observed to be a curse as well as a blessing as far back as the 1970s. The near collapse of Rolls Royce threatened the existence of all their suppliers, so a focus on major customers was a strategic risk (3). It was not just the nature of manufacturing supply chains that encouraged interdependent relationships. The concept of “account management” dates back to at least the 1960s in advertising and other business service organisations.
The development of business to business relationships was not just a matter of interest for strategists in supplying organisations. It is obvious that buying organisations would also analyse them and look for ways to develop them. The globalisation and competitiveness of the 1990s certainly triggered a “new wave” in the development of the purchasing profession which perhaps was the true driver for key account management in suppliers. Although whispered rather than shouted, the admission that “we did KAM because certain powerful customers wanted it” could be a reality in many companies.
The purchasing profession traces its history back to the 1830s. It is now so important in organisations that in the USA it has its own card-giving occasion: National Procurement Month is celebrated in March.
In the 1970s and 1980s, the purchasing profession was developing rapidly. From having been an administrative function, responding to the needs of functional managers, sourcing had become a profession in its own right, and was starting to wield some power. Financial professionals observed that savings achieved through improvements in sourcing practices went straight to the bottom line. It was not all about lower prices, the management of sourcing risk was also critical.
The development of the purchasing profession:
- 1st generation – tactical, transactional buying
- 2nd generation – applying demand management and total cost of ownership, developing sourcing expertise
- 3rd generation – strategic procurement: cross-functional buying teams and mature category management
- 4th generation – using value chain integration to achieve competitive advantage. Clear organisation; integrated processes; powerful tools and systems; P&L effectiveness; talent management; risk management, sustainability and stakeholder engagement.
Adapted from Bain & Co (Tsang et al, 2013) (4)
By the 1990s, many boards included chief procurement officers, who were overseeing strategic supply chain management from the bottom up and top down. Consultants have described “procurement” as being in its fourth generation – focused on generating value for competitive advantage using a wide variety of skills and resources. This can mean closer ties with suppliers, and many purchasers saw themselves as the drivers of key account management in suppliers. They perceived that many suppliers were not willing or able to understand their needs or offer innovative ideas. Just as suppliers who invest in key account management and value creation might complain that they come across purchasers who are only interested in price, customers with strategic procurement practices often complain that suppliers are still failing to impress them.
“When describing conditions that lead to a sales organization’s proposal not being selected, buyers are vocal in terms of the seller not understanding their firm’s most important needs….”I would say that seller did not show a thorough understanding of our most critical needs. First, they never invested much time to find our most critical issues. …. they displayed no desire to learn about (us) and never showed any interest to be involved, to educate us, or to provide new suggestions.”
Friend et al, 2014, P1128 (5)
Whatever the triggers for key account management might have been, implementation has been a struggle because it requires investment in a customer-focused infrastructure. Very often, suppliers are not aware that it is day-to-day operational gaps that lead them to exposure in front of discerning customers. Systems and processes are a foundation for better knowledge and idea creation. Is there sufficient information about customers and prospects? Is it easy to access? Do we know about decision-makers and their personal and professional expectations? Do we know enough about our own capabilities to design solutions? Do we know where to go for help and development where there are gaps?
- Ford, D. (1980). The development of buyer-seller relationships in industrial markets. European journal of marketing, 14(5/6), 339-353.
- Drucker, P. (1954). The principles of management. New York.
- Blois, K. J. (1972). Vertical quasi-integration. The Journal of Industrial Economics, 253-272.
- Friend, S. B., Curasi, C. F., Boles, J. S., & Bellenger, D. N. (2014). Why are you really losing sales opportunities? A buyers’ perspective on the determinants of key account sales failures. Industrial Marketing Management, 43(7), 1124-1135.