Key Account Plans Professor Lynette Ryals SM We are going to explore some of the issues that come out of the book Key Account Plans. This is jointly authored by Lynette Ryals and Malcolm McDonald. In the studio today we have got Lynette Ryals. Now Lynette, give me some background to the book. LR The important background to the book is that we have been doing work here at Cranfield on world class key account management for probably ten or fifteen years, and consistently one of the things that is coming out of this research is that best practice companies do key account plans. They have a proper formal planning process, and they produce plans – usually one plan per key account. SM Now lots of people use the term key account and key account management very loosely – so let’s start off with a definition of what we mean by that, and therefore what does key account planning mean. LR Certainly. Key accounts we define in the book as being companies’ customers that are of strategic importance to the supplier. And of course that can be about profit and revenues and volumes; but it can also be strategically important for other reasons such as reputation or innovation or impact in the market place. So that is a definition of key accounts. Key account management is the process of managing those major strategic relationships. And then the planning part is the process of developing the plan that sets out how the relationship is going to be managed over the next few years. SM Now I was interested to see in the book that you make a clear distinction between key account management and sales. Let’s get this clear first of all. LR We have noticed that there is a substantial difference between the role of a key account manager and the role of a sales person. And really you need both; companies need both. Selling is much more focused on getting the business, getting the transaction and tends to be a bit about the shorter term. Key account management is much more about the longer term, focusing on the key relationship that that supplier has and managing them for long term value. And that becomes more like thinking about them as an investment. SM So things like sales targets and so on, they are more appropriate in a selling setting and less appropriate in a key account setting, is that right? Professor Lynette Ryals
LR That is absolutely right. And in fact setting short term targets in a key account setting could really undermine the relationship. So you need to understand that key account management is more like a long term investment. That is why the plan is important, so that the company can see how it is progressing along its target, towards improving that relationship with its customer. SM I notice in the book – and a direct quote here – ‘a long term strategic focus is essential’ in this context. So tell me something about why planning and managing key accounts is so important. LR The first thing is that there is a lot of evidence now that building closer collaborative relationships with key customers really pays off for suppliers and that evidence has been around for about years now – both in the US and in the UK. So there is something here that benefits suppliers. Now how do they benefit? They benefit through greater revenues; the more closely you are working with a customer, usually the greater your share of their spend. So it’s higher revenues. Secondly higher profits. So although we have to – as suppliers – we have to invest in the key account management process, what we see is that that investment really pays off and it results in higher profitability. Interestingly there also seems to be some tendency for reduced risk and that seems to be to do with having a better view down the track of what is happening further down in the market place. And a really nice example of that would be the relationship that Proctor and Gamble has with Walmart. Now Proctor and Gamble is a key supplier to Walmart; Walmart is a key account to Proctor and Gamble; Walmart supplies direct point of sale information, directly from its tills in its stores, back to Proctor and Gamble, to its supplier in real time. SM One of the things that I was interested to read in the book is that a common mistake is to have too many accounts labelled key accounts. LR The question of how many key accounts you have is a really important one. It makes a huge difference to the success of the key accounts planning process and I can remember one bank, and I won’t name any names here, but a bank who came to Cranfield about five or six years ago and they told us that they had 200 key accounts and we knew that that just wasn’t feasible. There was no way that they had the time or the resources to look after 200 key accounts, and in fact as we worked with them to assess which of these accounts were key and which were not key, it turned out in the end that they had about 20 key accounts. And the problem was of course, that by this point they had already gone out and indicated to 200 customers, at least 200 customers, were key accounts. Now the customers were expecting a much higher level of servicing and a much higher level of responsiveness and a much higher level of investment. Page 2
Professor Lynette Ryals
SM So is there a kind of 80:20 rule, then? That you would expect out of all your accounts to only have a smallish proportion? LR It would definitely be a smallish proportion and we would say almost certainly far fewer than 20%. As a rule of thumb, the companies that we work with, no matter how big they are, will tend to have only between 5 and about 30 key accounts. They might then have a layer below that who are major accounts where they perhaps do a scaled down version of the key account plans, but between 5 and 30 key accounts is a useful rule to thumb. SM I am interested in exploring a bit more about the detail of what is in a key account plan. LR Usually we would suggest that key account managers divide the plan up into sections: We would suggest that they start with some kind of a financial overview of the key account. And what we mean by that is the products the key account is buying and the share of business that the supplier has got. The second section is usually the more substantial section of the plan and that deals with the in depth analysis of the key account business. So it’s looking at the key account’s competitors; the key account’s customers and major market segments and market trends; the key account’s business environment – so tools like the STEEP or PEST analysis, Porter’s Fives Forces; but looking at it from the key account’s point of view, trying to understand their position, their market place. And that is a big piece of analysis. The third section then is usually about what the supplier wants to achieve out of the relationship and what kinds of strategies they might implement. And then a final section could be something like an action plan and perhaps a budget to achieve that plan and those objectives. SM One of the risks, it seems to me, is that the whole process gets far too bureaucratic and actually ends up in a paper generating exercise. LR I think the question about risks and just becoming paper generating is a very important one. One of the things that we work quite hard on is saying to companies really a key account plan should never be more than 20 pages long. If it goes beyond that, then you are absolutely right, you can get bogged down in just reams and reams of paper. And I remember doing some work with a supplier some years ago, where one of the managers proudly produced her key account plan and it was 360 pages long. Now, if I tell you that the way she produced this was that she had to root around in the back of a filing cabinet and wipe the Page 3
Professor Lynette Ryals
dust off of it before she handed it over to me, you can see that that really was a problem. So I think focusing in on a few key analytical tools and really the key elements of the plan, certainly it should be deliverable in 15 or 20 pages. SM Now, I have heard one of the interesting aspects of how key accounts are developing, is to sit down with those key accounts and jointly develop plans. Do you see this as the future? LR Very definitely. Collaborative planning, and collaborative forecasting as well actually, is a very major development now and in key account relationships particularly in the top few – in the crème de la crème, the really major, major customers of the firm. We have come across examples, like there is a major insurance company where they have a relationship with one of their key suppliers and the supplier and the insurance company are working together actually having an extranet site and the planning is done jointly on the extranet site – so there is great visibility between those two organisations about the entire marketplace and there is a lot of information sharing and close collaboration. Now not all companies are comfortable with that. Not all companies are comfortable with the idea of being quite so open and transparent. So it think that is the point that I am emphasising about it’s just the few, but where you are collaborating and forecasting together with such openness, we can see an enormous improvement in business performance on both sides – both supplier and customer. SM Lynette, thank you very much. Page 4