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THE SEVEN KEYS TO MANAGING STRATEGIC ACCOUNTS
By SALLIE SHERMAN, JOSEPH SPERRY, SAM REESE
The McGraw-Hill Companies, Inc.Copyright © 2003The McGraw-Hill Companies, Inc.
All rights reserved.
Introduction: What Is Strategic Account Management?
Let's begin by considering:
1. What is strategic account management?
2. How does strategic account management differ from key account selling?
3. What are the benefits of strategic account management?
4. What are the challenges of strategic account management?
WHAT IS STRATEGIC ACCOUNT MANAGEMENT?
Strategic account management is a systematic process for managing key interactions and relationships with critical accounts. Writers sometimes quote the Pareto Principle to describe strategic accounts: 20 percent of the customers generate 80 percent of the revenue/profit. It's usually an apt comparison, although the numbers can vary dramatically if the firm's strategy has targeted emerging or medium-sized accounts. Still, strategic accounts tend to provide a disproportionate share of a firm's revenue/profit. We call such customers co-destiny accounts.
The supplier's future tends to be intertwined with these accounts' success. With clients whose contribution is that critical, strategic account management can play a crucial role in a firm's marketing strategy. That's why successful strategic account management tends to be a firmwide initiative, systematically and proactively delivering strategic solutions to multiple contacts at targeted accounts—to capture a dominant share over time.
Strategic account managers are salespersons who must generate profitable revenue, quarter-to-quarter and over the long term. At the same time, they are general managers, over-seeing assigned relationships as separate assets in the customer portfolio. Businesspeople sometimes distinguish between salespeople who are hunters and those who are gatherers—those who get the business and those who manage the business afterwards. True strategic account managers (SAMs) are both and neither of these classifications: they are hunters but within their assigned accounts, continually working to increase account share. They also must manage those account relationships, and be accountable for ongoing and long-term financial growth.
HOW DOES STRATEGIC ACCOUNT MANAGEMENT DIFFER FROM KEY ACCOUNT SELLING?
Most of the time, the sales team initiates strategic account programs. Sales may see an opportunity to generate more revenue by focusing its efforts on the larger accounts. Sales often begins these initiatives with what we call a key account selling approach. Key account selling is a part of strategic account management but it is not the same thing. The distinction between the two is important for our discussion. The following chart distinguishes between these two (of many) approaches in managing an important account. Figure 1-1 isolates the behaviors of a key account selling approach and a strategic account management program. The chart concentrates on behaviors because of the ever-present problem of program names: a supplier may have a key account selling program called a strategic account management program (common) or a strategic account management program called a key account selling program (also common). Our primary interest is in what these firms do with their crucial customers.
KEY ACCOUNT SELLING PROGRAMS AND STRATEGIC ACCOUNT MANAGEMENT PROGRAMS: A COMPARISON
Key account selling approaches tend to be initiated by sales, they tend to work on a shorter planning horizon, to measure success primarily on incremental, perhaps quarter-to-quarter, revenue, and they tend to sell mostly existing products to a small number of people within a large number of accounts.
In many cases, these programs require a great deal of internal selling because sales, while usually not customizing offerings, may come up with creative discount, financing, delivery, or service options. Their creativity puts pressure on other departments to do things differently for large customers. This pressure can leave those other functional departments seeing key accounts as key irritations.
We know a manufacturer whose sales group decided to develop a key account selling approach. The firm kicked off the program by announcing to its 15 largest customers how great the new effort would be, and started coming up with innovative ways to serve those customers. But after they made creative commitments to the customers, internal functions continually blocked their way. Those departments saw no particular reason to do things differently. Sales spent so much time marketing internally that one sales representative joked that he needed to carry cushions around for his knees because he was begging so much. The results were not as humorous when the supplier's responsiveness and reliability—as well as account satisfaction numbers—declined markedly. At the end of the year, the key accounts program was serving only a few of the original customers— and those were not being served very effectively.
When the manufacturer tried to determine how to improve the situation, those in manufacturing said, "You have to understand: sales' dream deal is our worst nightmare." They said that when the sales teams promise a dramatically reduced delivery time for a small custom order, that lowers the entire manufacturing operation's line utilization and slows other critical production runs (both of which were major components in manufacturing's compensation). The sales team must realize that departments may have solid reasons for resisting a sales mandate—even if the initiative proposed would generate significant short- term revenue. If the program is going to succeed, the entire organization must understand and align around the account selling program's goals—particularly if the firm ultimately wants to move to a true strategic account management process. It is, at best, an uphill battle for sales to develop a strategic account management program by itself.
What Are the Benefits of Strategic Account Management?
The benefits from a strong strategic account management program can be huge. At its best, strategic account management can offer a competitive advantage, the key to greater loyalty, and the road to higher profitability.
One of the more dramatic examples of what strategic account management programs can achieve financially comes from Boise Office Solutions. Until 1992, Boise Office Solutions (BOS) was a dual distributor with one channel selling directly to business and a wholesale channel selling to office products dealers. This dual-distribution business model deepened channel conflicts during a time when BOS's largest customers were becoming much more sophisticated—and much more demanding. In 1992, BOS reinvented its business model by selling its wholesale-distribution business and establishing a national account management program. The incremental revenue generated by the BOS national account program—even allowing for revenue growth by acquisition—is dramatic:
We will hear more about Boise Office Solutions later in the book and provide other successes of customer management, such as Honeywell Automation and Control Solutions, which serves a dozen of the world's largest oil companies. In two years it grew business 61 percent in a flat-to-declining market and cut selling costs 40 percent, while moving to a systematic account management program. We will also see how Reynolds & Reynolds' Enterprise Solutions Group generated a 55 percent compounded growth rate on sales t
Excerpted from THE SEVEN KEYS TO MANAGING STRATEGIC ACCOUNTS by SALLIE SHERMAN. Copyright © 2003 by The McGraw-Hill Companies, Inc.. Excerpted by permission of The McGraw-Hill Companies, Inc..
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