This article originally appeared in Vol. 27, No. 12, June 25, 1997 issue of MDM Premium. This article provides a framework for managing key accounts. It gives a definition of a key account, examines the structure of key accounts, and discusses tactics for managing key account opportunities, including how to work with the different types of people that make up a key account. For this article, winning a key account is defined as follows: Of all the products and services the account could purchase from you, they are now purchasing 74% or more from your company.
The fastest way to achieve this winning position is to do it one business result produced at a time (the account's results-not yours). To produce improved business results you must sell products and services. However, the key to winning the account over time is to measure the results produced and be seen by the account as working very hard to produce those business results for the account quickly.
If you only measure your company's progress in a key account by sales to that account, you will not learn if the account is actually producing improved business results. This inevitably puts your company at risk of losing some sales to lower-priced competitors over time.
So the answer to winning a key account is one business result produced at a time. The next question: how do you maintain your74%+ position once you've achieved it? You must be seen by the account as continuously helping them improve in their most important business results. Your company better know and be talking with those people who are directly measured on producing the business results you helped improve.
Your company needs answers to all of the following questions on a regular basis to keep your winning position in key accounts:
- Who are the people directly measured on producing the business results your company has helped improve?
- What are their key measures of business performance?
- What are their most important business objectives for the coming year?
- What business results are they producing today because of your products and services?
- Are these people still satisfied with those results being produced?
The company that can answer these questions will not be displaced by any competitor. These answers are not the only learning required, but it is this learning that will cause sales to increase to the account faster than any other knowledge about the account. In my experience, no more than one salesperson in a hundred knows the numerical value of even one business result from even one key account.
What Is A Key Account?
A key account is any account that is vital to meeting the growth goals of your business. These can be accounts you have already won and need to maintain as well as those that must be grown. Generally, for a salesperson, the number of key accounts will vary from between one and I 0. For a company, it will vary from between five and 20.
The 74%+ account share mentioned in the key account definition above comes from the Lanchester Strategic Model (see October 1996 issues of MDM for discussion of market growth strategy using the Lanchester model), which says that an account will generate increasing profit for your company in direct proportion to account share from between 10% and
74%. Until you reach a 10% account share your business with that account will not be profitable. It may look profitable on your books, but that's only because you haven' l considered in your analysis the cost of the resources required to win and service those first few sales.
On the other end, efforts to increase account share beyond 74% will not necessarily correlate with more profit for your company either. Winning 100% of an account's business often means you have made some price concessions to Purchasing to get there. Also, you have taken away Engineering's choices. This can be irritating to some of the engineers, especially those who were loyal to other competitors before you won all the business.
Finally, when you have 100% of an account's business, there is a tendency by the account to place large demands on sales and service people. Once again, these are hidden costs that don't always get considered when looking at the true profitability of an account where you have all of the business.
The Key Account Management Process
The key account management process must begin with choosing those few accounts where this depth of attention and learning will be required. Every company has their own methods for deciding on who their key accounts are so I' II assume you already have a list.
The next and most difficult step is to gain the knowledge of the business results these key accounts are producing today because they buy your products and services. There are, unfortunately, two primary obstacles lo acquiring this learning:
The account doesn't know.
The account is unwilling or unable to attribute their business results to your company.
The account doesn't know the results produced. A business makes a purchase because they expect to produce better business results than they have been producing or they expect to continue to produce the business results they have been satisfied producing (examples would be MRO purchases or upgrading a process that is in danger of becoming obsolete).
If this assessment is valid, then it would seem legitimate to expect the salesperson to learn -before submitting a proposal -the application, the current business results being produced and the desired business results expected to be produced after the account buys and implements the salesperson's solution. After a key account buys a product or service, your company must ensure the account produces their desired business results as quickly as possible.
So given this reasoning, how is it that the account doesn't know the actual business results being produced? The answer lies in our definition of an account. An account is simply a collection of people -people who have different jobs, different measures of business performance and different business objectives. For simplicity, I identify these people by two groups – Evaluators and Producers.
Evaluators evaluate the various features of different suppliers to make their buying decisions; they are not directly measured on the business results produced after the solution they purchased has been implemented. These are the people salespeople spend virtually all of their time with. They are project engineers, process engineers, research and development engineers, maintenance, purchasing, information systems, third party consultants, and so on.
Of course, all these people also have measures of business performance, but they are almost always before and during the implementation of the solution they have purchased. So their desired business results tend to be such things as reduce purchase price, reduce lead times, reduce engineering hours, reduce start-up time, reduce maintenance, etc.
The reason a salesperson says their "account" doesn't know the current business results being produced is the salesperson is asking the Evaluators for this information. Since these people are not directly measured on business results after implementation, they don't know!
The only time an Evaluator will know an actual business result is when the Producer is dissatisfied and forcing the Evaluator to fix the problem. In general, the purpose of an Evaluator is to help Producers produce ongoing desirable business results.
In other words, if Producers are unhappy, you can bet there are some Evaluators who are also unhappy.
Producers are directly measured on and directly responsible for producing business results after the Evaluators are out of the picture. After the solution has been implemented, these are the people who must continue to produce day in and day out. Salespeople tend not to talk with these people because they do not normally view them as buying influences.
In accounts that use your products and services to produce their products and services (end-user accounts), Producers are always Operations or Manufacturing. The purpose of these groups is to produce more, good throughput at a lower and lower operating cost. These people will be delighted to talk with you if they believe you can help them produce more good throughout or you can help them reduce their ongoing operating expenses.
OEM Account Dynamics
In accounts that use your products in their products (Original Equipment Manufacturers or OEM accounts), Producers are Marketing, Field Service, and to a lesser degree Production. Ask salespeople who the driving groups are within an OEM and some will say Purchasing (because they' re constantly being pressured by Purchasing to lower their selling price). But who tells Purchasing what to buy? The answer is Engineering. But who tells Engineering what to engineer? The answer is Marketing!
If your product can give an OEM a competitive edge in certain market segments that will cause sales to increase, then you must get to Marketing and they will be delighted to talk with you. If there are problems with the OEM's equipment in the field, then it is Field Service who is driving Engineering to make changes. If your product can reduce warranty claims or reduce field downtime of the equipment, then you must get to Field Service and they will be delighted to talk with you.
Companies buy things to produce better business results. There is always someone in a company who is personally responsible for producing these results on an ongoing basis (a Producer). Therefore, there is always someone in an account who knows the current business results being produced with your products and services. You just have to find this person and learn the information.
The account is unwilling or unable to attribute their business results to your company. Earlier I said there are two obstacles to learning the actual business results a key account is producing today with the products and services they buy from your company. The first reason, the account doesn't know, can usually be proven to be an invalid response because your people are going to the wrong positions to get the learning. If they go to the Producers, they will learn the current business results.
But often, Producers and Evaluators will be unwilling or unable to attribute their business results to your offering. An account may be unwilling to share their business results for competitive or proprietary reasons. The only way to deal with these valid reasons is to learn percentage improvements rather than numbers. Often they will be willing to share a result such as utility expenses were reduced by 3% or errors were reduced by 10% or throughput was increased by 2%. Percentage improvements are valid improved business results and they do not reveal anything to competitors.
An account (specifically the Evaluators) may be unwilling to share their business results because they're not sure their company actually produced the expected results. Consider this: Evaluators are charged with buying something to produce a result. They are given a budget and a time frame to get the project completed. If they get the project completed on time and under budget, they consider their job well done and complete.
However, if the real purpose of the project was lo reduce errors and increase throughput, why wouldn't the Evaluators want to know if the Producers produced these results? One answer may be that if it is found the Producers did not produce the expected improvements, then the Evaluators could be in trouble, especially if they developed the budget and predicted the results in the first place!
Sound like twisted logic? With LO years of experience in Production and Engineering in a large manufacturer, I can tell you this kind of behavior went on all the time. If, as a project engineer, I'm measured by on-time, under-budget measures, I can assure you the project will be done on time and under budget.
But once the project has been implemented, I'm on to a new project and am no longer concerned about Production's actual, ongoing business results. And I certainly don't want to go back and find out if Production is happy for fear that they will make me do more work, which will take me away from my current project. Remember, I'm not saying this behavior is correct, but I am saying it is common, primarily due to the way Evaluators are measured.
On the other hand, Producers may also be unwilling to attribute their business results to your company. The cause and effect relationship is not clear cut. As an example, if your product is more accurate, does it really reduce process variability? And even if it does reduce process variability, did the Producer really reduce the product that had to be reprocessed and did throughput really increase? If an account can't tie your product to better business results, you will eventually be forced to compete on low price and fast delivery.
If your company wants to win a 74%+ position in a key account, then you must learn the real purpose of every purchasing decision before the account buys so you can be there and be seen by the Producers as helping them produce their desired results. It is much more difficult to get this learning after you've submitted your proposal and/or after the account has already bought your solution.
If you are going to win a key account one business result produced at a time, then you better know who is directly measured on producing those results (the Producers) and make sure they see you as helping them get there.
Next Step in Key Account Management Process
Once you've learned the key people's business measures, business objectives, and business results currently being produced because they buy from you, the next step is to decide what to sell them next.
There are two types of opportunities in a key account -those initiated by the account and those initiated by your company.
Opportunities initiated by the account. These make up the vast majority of sales won by most salespeople. The account (Producers or senior management) sees an opportunity or the account (Producers or senior management) becomes dissatisfied. They then turn the opportunity or problem over to the engineers (Evaluators) to solve. The engineers develop a possible solution and the specifications that each supplier must meet and get the budget approved by senior management. If your company is already the favored supplier they will ask for your help. If not, then you won't find out about it until the bid package hits the street.
The bid package is all features, which shouldn't be a surprise since this is how Evaluators make decisions. Evaluators assume if you have the right features, then your solution will produce the right business results. They bid the project out to three or more qualified (everyone has similar features and capabilities) suppliers. They take the lowest bid to their favored supplier (if they have one) and use the low bid to drive down the price of the favored supplier. They then award the project, usually (but not always) Evaluators (Engineering and Purchasing) are on time, under-budget kind of people. They do not want to pay a superior price (if it would cause them to exceed their budget), to buy superior features, that produce superior business results for the Producers.
Unfortunately, Producers don't know enough about the favored supplier, the different features to be able to properly judge which supplier really could help them produce better results, so they defer to the Evaluators.
The best way to win a key account (and to earn the favored supplier position) is to first learn the purpose of the project. In other words, do not focus on the bid package or your capabilities until you know the business results that are expected to be produced before and after implementation is complete. When you know the results the Producers are expected to produce, you can help them emphasize your features in the context of producing business results rather than comparing your features to your competitor's features.
The company that knows the results the Producer wants to produce and has learned them from the Producer will be the one most trusted by the Producer. This is the company that will win, primarily because the Producer will often insist. Remember, the role of the Evaluators is to help Producers produce desired results.
Opportunities initiated by your company. This is where superior salespeople shine. The better your salespeople are, the higher the percentage of their total sales that will come from projects initiated by the salesperson's efforts. Usually these come about because of a new product or service introduced to the account by the salesperson. Occasionally they come about because a smart salesperson was spending time with a Producer and identified some areas that could be improved.
With new products or services, the correct place to begin in a key account is with the engineers. They are the people attending the trade shows, reading the trade journals, and are usually the ones most interested in seeing the latest and greatest. However, since they are Evaluators, the engineers decide to like your new offering based on its features without usually thinking about a specific application.
The great tactical mistake made by almost all salespeople with new products or services to sell is when the Evaluator asks for a price or proposal, the salesperson gives it! Why is this such a tactical mistake? Without an application, the salesperson cannot learn current results or desired results to show the real value to the business of the solution. When the Evaluator goes to get money to buy the new product the "reasons" they give to justify buying are features -not improved business results. This can make it difficult for the person with the money to make a decision to buy.
The bottom line with anything new: do not give a formal proposal until an application has been identified. If the Evaluator wants to put something on test or trial first, then there are three questions the salesperson needs to get answered before the trial begins:
- What are you hoping to see?
- How long will it take to see it?
- 1f you do see it, what is the next application?
Getting answers to these three questions will increase the ratio of trials that convert to repeat orders and will significantly reduce the time required to get the next order. The reason the third question is so important is that while the trial is being conducted the salesperson can be learning about the targeted application if the trial turns out to be successful. Specifically, they must learn who the Producer is who is responsible for that application's performance, the current business results, and the desired business results that will be produced once the account installs your new product or service.
The best salespeople will be the ones who create the most selling opportunities within their key accounts. They do this by getting out with the people who do the work (Producers) and finding other ways to help these people produce better business results. Mediocre salespeople wait for the opportunities to come to them by spending almost all of their time with the Evaluators. The key point to remember is that Evaluators are not the ones who create a new project or opportunity. The projects that Evaluators work on are created by the needs of Producers and senior management.
KEY ACCOUNT MANAGEMENT PROCESS SUMMARY
Your company's ability to win and keep key accounts will increase to the degree that you can provide answers on a regular basis to each of the statements below:
- Identify a list of the key accounts.
- Learn the relative account share for each competitor in each key account.
- Learn the names of the Evaluators and Producers.
- Learn the actual business results all of the Producers are producing due to your products and services.
- Learn the key performance measures of all the Evaluators and Producers.
- Learn the current year's business objectives for the Evaluators and Producers.
- Learn actual business results other companies like your key account are producing today because they buy from you (this learning gives guidance as to what you can confidently predict you can do for your key account).
- Develop a list of Sales Goals you will be pursuing in each key account.
- For each Sales Goal develop a simple plan that includes who they will see and what they will learn to win each Sales Goal fast.
The gaps in the learning required become guidelines for who your company has to see and what your company has to learn Lo rapidly increase your share of your key account's total business. The next step is to assign the right resources to call on the right people to acquire the necessary learning. The faster you can get answers to each of the above statements, the more quickly you will grow your share of your key account's total business. Good luck!