Who are your business’s most important clients, and how are they selected? If this is simply done by defining the biggest as the best – then a key account management (KAM) strategy may hold untapped value for your business. This has been my experience in implementing such a strategy for a business.
A KAM strategy allows a firm to derive more value from the limited resources which it has available to achieve its strategic objectives (McDonald et al, 2009). Some notable points of a KAM strategy: –
- By adopting a KAM strategy, a business will start to apply the Pareto principle of focusing more effort on a small number of discriminate clients instead of focusing equally on all clients.
- This involves far more than simply providing a dedicated relationship resource i.e. a key account manager, and this normally requires providing a highly customised service, which in turn will need to be defined and budgeted for by your business.
- In implementing KAM, one of the most important decisions is making the right choice of key clients. Any assumptions that these are ‘a given’ or are ‘obvious’ for a business should be challenged and investigated objectively.
- A key risk of KAM is that it can become a serious drain on limited resources, particularly for a smaller business. Therefore, any business, picking the right key clients who will offer superior returns, becomes most critical.
How many key accounts is optimal is going to differ from business to business, however best practice supports an optimal number of key accounts between 15 – 50, at a stretch 75. Anything beyond this number, and certainly three digits or more would imply they have been badly chosen (e.g. on sales volume alone) and that the key clients are inadequately served, at least below the level of their expectations.
Selecting the key accounts for your business needs to be strategic in the sense that it is: –
- Based on valid forward-looking criteria, which is
- Objectively applied,
- Resistant to political pressure, and
- Dynamic – specifically it should be applied regularly (at least annually) and any accounts that do not meet the criteria should be relegated.
Forward-looking criteria which could be applied are client attractiveness in terms of long-term potential for the business, and not just what is being delivered today. Best practice is taking into account at least a three-year term. A common mistake is to over resource clients who are maturing in the near term, and not apply enough resources to clients who have potential to grow.
Understanding what makes a good client for your business and then choosing objective criteria can lead to a healthy debate and alignment of a broad management team’s view of the business strategy. It should not be left to the account managers alone to determine these criteria. The criteria typically fall into three broad categories on a spectrum of quantitative (“hard”) to qualitative (“soft”).
The criteria need to be:
- Able to differentiate clients,
- Stated clearly and unambiguously,
- Contain a mix of ‘hard’ and ‘soft’ factors,
- And should ideally be between four and seven in number
The outcome of correctly applied selection criteria is a measure of the attractiveness of your business to the client (“Ba2C”); and the attractiveness of the client to your business (“Ca2B”). These results provide the input to a matrix from which clients can be defined as Strategic, Star, Status or Streamline clients. In turn, there will be a different strategy and approach taken to each particular client at the given stage of the life cycle.
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Nick van der Merwe – Regional Director