Strategic Account Management
Over a couple of years, Strategic Account Management (SAM) has emerged as one of the key issues for the companies striving for success through achieving competitive advantage. uuu
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Most dynamic and forward-looking companies with large corporate customers have moved to the adoption of SAM approach as ways of building teams dedicated to managing the relationship with the most valuable customers. For example, Proctor and Gamble (P&G) has a 200-member team to manage its relationship with Wal-Mart, the most valuable and biggest corporate customer. Similarly, 450 companies have established offices in Wal-Mart’s home town of Bentonville, Arkansas, in order to be close to their largest customer.
Who Are Strategic Accounts?
Strategic accounts are the key customers who produce most profit for a company or have the potential to do so. Strategic accounts can also be defined by the percentage of business turnover, added value, and potential they contribute to the company. According to Pareto Rule, 20% of customers yield 80% of the profits (80/20 rule) and vice-versa; so it is very important to find high-value customers, which are typically a small part of the total customer base. Thus, strategic accounts are increasingly considered strategic partners for the company.
A strategic account is more than just a big customer. A strategic customer requires a high level of customer contact and supports, becomes an integral part of the company's account team, and has more account penetration than non-strategic accounts.
Why Do Strategic Accounts Matter?
They have the ability to exert considerable influence and control over companies. Some of them contribute to the development of new production and services and some actively promote concentration in their supply-base and attempt to restrict supplier numbers. For example, in 2005, Ford Motor announced its intention to reduce its supply base of 2000 by around half to reduce its $90 billion purchasing budget and to improve quality. Ford announced 7 key suppliers covering about half its parts purchasing, which get enhanced access to Ford’s engineering and product planning. Ford worked more closely with selected suppliers, consulting them earlier in the design process and giving them access to key business plans on future vehicles, and committing to giving them business to allow suppliers to plan their own investments.
Without taking special care for strategic account, a company will not be able to demonstrate its value to top 20% key customers and the company is likely to be classified as a commodity supplier and will run the risk of losing our business to a cut rate competitor. It is worth treating these only 20% of customers differently from the “average” and they should receive disproportionate share of resources and special managerial attention. SAM does not mean that the marketer will focus on most valuable customers and ignore small customers. Rather, marketer will identify less expensive methods for the firm to deal with these accounts and increase profitability from them.
What Is Strategic Account Management (SAM)?
Since customers vary in their strategic importance to and expectations from the company, it is indispensable for companies to adopt SAM in their businesses. Basically, SAM is a strategic approach focused on a small number of strategically important customers, viewed as corporate assets with significant long-term value, with the objective of ensuring long-term and sustainable business development through profitable partnerships with them. SAM is not an isolated business process, but an integrative element of the business strategy.
SAM is a firm’s dynamic relational capability for customer-sensing and customer-linking. SAM focuses on co-creation of value and is both “inside-out process”, i.e. implements strategy in order to achieve agreed corporate goals, and “outside-in process”, i.e. identifies business and renewed opportunities by deeply understanding the customer’s value-creating process.
Today, SAM is practiced on the national, regional, multinational and global levels according to seller and buyer organizational characteristics and operational behavior. Installing a comprehensive SAM approach within a company requires significant financial investment, long-term focus and multi-functional capabilities along with substantial restructuring of the organization.
Strategic Partnership as the foundation of SAM
In traditional relationship, a company continues to build networks with all old customers disregarding their variations in value to and expectations from the company. To tighten the relationship, company takes them out for lunch or entertainment, depends on personal relationships and claims it has got the best products, service and people for the customers. In traditional partnership, most companies fail to achieve competitive advantage for a number of reasons. These are:
- Most customers have no time to be entertained any more.
- Most “old” friends are retiring and new, young blood coming in.
- Management is forced to look at “value” to attain success.
- Credibility of what a sales representative says is fading.
- Competitors are offering good products at an extremely low price.
- Through mergers and acquisitions, competitors are offering mass-customized offerings.
- Competitors are now offering some of the same services as we do.
- Most customers “must cut costs in all areas.”
- Our past strengths are becoming “minimum requirements” for the customers.
- Customers are falling into 80/20 category and they are reducing the number of suppliers.
The foundation of SAM is strategic partnership with the key customers where both parties choose to cooperate in an enterprise. Strategic partnership needs (a) sharing information, risks and rewards; (b) facilitating access to people; (c) clear vendor ratings and performance measures; (d) seeking value through integrated business practices and customer’s needs; and (e) trust and openness.
This partnering requires a degree of cooperation that transcends preferred supplier status, and is based on trust and openness. Trust basically comes from performance that only occurs over some period of time. To achieve trust, each member must rely on the other partner, learn partner’s intentions, believe that he has much to learn, keep his mind open and develop partnering skills in order to become an even more productive member of the partnership. Developing partnering skills needs some activities like creating shared goals (mutual vision, mission, and strategic plan), forging realistic expectations (contributions to be made by each), managing conflict productively, and redesigning systems and processes (thinking "outside the box" which also needs flexibility and adaptability).
The last level of SAM is synergistic stage. At this stage, both may share research and development, focus on innovation (Blue Ocean thinking), prepare joint business plan, apply collaborative approach to customers’ new markets and end-users, share communications and training, find ways to make and save time, and make transparent costs and margins.
Critical success factors of SAM
Successful SAM requires the development of an organized culture that facilitates both radical innovation and cross-functional working relationship. For SAM to be able to deploy its full potential and benefits, it is crucial that it be positioned in the organization as a core to the business. Thus, full commitment and involvement of the CEO at top management is the key to success. Strategic account managers act as the corporate principal points of contact for strategic customers.
The most commonly cited critical success factors for SAM are: achieving senior management commitment, having a well-defined mission and role, making organizational alignment, ensuring processes and systems for communications and knowledge management, selecting right strategic accounts, determining the value proposition based on customer need assessments, creating customer account action plans, verifying the plan (presenting findings to the clients), deploying cross functional teams (right account executives), implementing the plans, practicing world-class partnering (sharing risk and return), managing the relationship and program metrics, summarizing the results for senior leadership to make long-term strategic decisions, and ensuring the potential to realize the benefits of a mutually profitable strategic account relationship.
Strategic Account Manager: Responsibilities and Barriers
Strategic account managers act as the principal corporate contact points for strategic customers. Four areas of responsibilities of a strategic account manager in servicing strategic accounts are: strategy, investments/operations, account quality assurance and executive role.
Strategic account managers must be an observant, able to recognize patterns, able to lead cross-functional teams, comfortable working across boundaries, able to work well with ambiguity. These managers must orient and opt under uncertain conditions and must be very creative in developing structured solutions for clients from often-vague situations.
Effective strategic account service may be hampered due to some barriers. These barriers are
- Lack of teamwork, focus, trust, respect, flexibility, empathy, patience, observing ability, informed judgment.
- Varying capabilities
- Unclear authority and inadequate systems and systems support.
Caution for Strategic Account Management
Practicing strategic account management may not bring benefits all the time. The main risk of strategic account management is putting too many eggs in one basket. It may not offer sufficient benefits to the distributors and the potential key accounts. Sometimes it limits opportunities. Cost and bureaucracy factors might offset the expect benefits. Adopting strategic account management may need to bring out significant organizational change that might not be good for the organization all the time.
- Criteria for Strategic Account Management
- Are they a good cultural fit with our firm?
- Do they provide us high volume?
- Do they provide us high gross margins?
- Do they offer good potential for future growth?
- Are they technologically sophisticated?
- Do they act as opinion leaders in their industry?
- Some Findings from Strategic Account Management
- SAM is a strategic activity.
- SAM is fashionable, but difficult.
- SAM can develop beyond partnership to synergy.
- There are mismatches between suppliers and customers.
- SAM does reduce costs and improve quality but these are rarely measured.
- A key account manager needs far more skills than a sales person.
- SAM needs a customer-focused organization.
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