Saturday, December 27, 2008

Key accounts - Big... Beautiful?

“Size matters not. Look at me. Judge me by my size, do you? Hmm? Hmm. And well you should not.”
Yoda (Star Wars)

In my recent consulting work I did a project that focused on the design of a key account management (KAM) - sometimes also referred to Strategic Account Management - strategy and the implementation and realization of KAM.

Many companies in different industry generate a significant share of their revenues with few customers – the so-called key accounts. In some extreme cases, even the old 80-20 rule is proven true, meaning 20% of customers create 80% of the company’s sales.

During the course of the project, I did some background research and stumbled across a really interesting article by some researchers from Warwick (Piercy & Lane). They wrote a paper about the dangers of key account management which I thought was well worth reading. In a nutshell, their message to CEOs and marketing VPs was to examine KAM a bit more critically. It is quite in line with my observation in the “real world”.

While there is a lot of fuss about increasing sales and strengthening the competitive position in these large accounts, very few actually discuss whether these large accounts are really as attractive as they seem, especially in regard to their profitability and fit with overall company strategy.

Is should be noted that the installation and maintenance of a KAM strategy and systems are likely to lead to further increase the costs to serve these large customers. It is important to note, that big is not always beautiful and especially, if your sales come out of an 80/20 situation, you may want to seriously reconsider your business model.

Of course, revenue generated is an important factor, but size should never be the only or main decision criteria for deciding whether an account is strategic/key or not. While Yodas sentiments may be a little too much, it should not be size that is prized alone either, finding balance as always is key.