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Welcome to AKAM’s 1 st Technical Workshop Metrics in KAM

Join Dr. Diana Woodburn in AKAM's 1st Technical Workshop to learn about the importance of metrics in key account management and how to professionalize KAM. Gain insight into measuring key accounts, key account profitability, and key account managers. Discover the benefits of measurement in KAM, including improved relationships, strategic decision-making, and increased efficiency and productivity.

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Welcome to AKAM’s 1 st Technical Workshop Metrics in KAM

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  1. Dr Diana Woodburn 17th October 2018 Welcome to AKAM’s 1st Technical Workshop Metrics in KAM Professionalising Key Account Management

  2. Dr Diana Woodburn & KAM What is KAM? • Specialising in key account management (KAM) since 1996/7 • People and company development in KAM, research, writing, new concepts, consultancy • Cranfield KAM Best Practice Club founded in 1998, Warwick in 2005 • Best-selling book ‘KAM: The definitive guide’ and ‘Handbook of SAM’, the ‘industry’ reference. • Chairman of the Association for KAM (A4KAM.org) • Multi-sector and multi-country: taught over 2,500 key account managers and over 500 directors • Exceptional experience in KAM Is it worth it? How does KAM work?

  3. Agenda Measuring key account management top to bottom Metrics for managing key accounts Key account profitability - the ultimate metric Measuring key account managers

  4. Measurement cultures “Measurement closes perception gaps and enables us to demonstrate the value we add. People find they enjoy working in performance based projects because they know what success is and are empowered to deliver it.” Patrick Godfrey, Strategic Relationship Development Director, Halcrow Group

  5. “We may not have smoke but we do have mirrors!” Being dishonest tells you nothing

  6. Measuring key account management top to bottom

  7. Measurement essentials WHY?e.g. Improve relationship Stay on track WHAT?Purpose-driven outcomes, not just outputs HOW?Flexible, driven by supplier & customer needs Focus on purpose and response

  8. Gaining visibility, attracting attention • Numbers/data show the magnitude, importance and value of KAM internally • Creates the language for powerful communication and develops understanding instead of opinion • Puts pressure on other functions to co-operate

  9. Making the right strategic decisions • Evidence-based decisions • Objective assessment of KAM strategies • Maximises ROI • Converts strategy into implementation • Tracks progress against plan • Internal alignment: achieving motivation • External alignment with customer • Pinpoints underlying problems Aligning implementation with strategy Improving efficiency and productivity • Opportunities for performance improvement • Objective monitoring Why measure? Learning and improvement

  10. The KAM measurement model Making the right strategic decisions Strategy PROFIT Aligning implementation with strategy Realisation VALUE Operations (Transactions/Process/Project) PRICE/PERFORMANCE Improving efficiency and productivity SUPPLIER CUSTOMER Alignmentof measurement 10

  11. Measurement: Strategic level Profit • ROI • Asset value (customers) • Risk • Opportunity Boards Shareholders Benchmarks: • Performance against business plan (short-term) • Growth in shareholder value (long-term)

  12. Strategy Future Value - add Change Change Operations Present KAM programme level processes • Key customer selection • Customer portfolio management • Contribution to corporate planning cycle • Risk assessment • Resource allocation/prioritisation • Cross-boundary co-ordination • Communication of customer strategy • Organisational learning

  13. Measurement: Operational level Performance • Service levels • Price • Revenue • Volume • Failure rates etc Buyer Users Line Mgmt Benchmarks: • Performance against previous period • Performance against agreement

  14. Measurement: Realisation level (supplier) Value • Sales? • Key account attractiveness • Customer risk • Customer satisfaction/view of business strength • Customer relationship • Customer profitability • Business extension • Customer retention • KAM input • KA portfolio contribution Function Drs Supply Chain Drs KAMgrs SBUs Benchmarks: • Customer expectation • Account plan • Portfolio contribution plan

  15. ‘Lead’ indicators ‘Lag’ indicators Measurements of inputs/actions Measurements of outputs/outcomes Timing: inputs and outputs YOUR COMPANY CUSTOMER

  16. What do you think? • Sales? • Key account attractiveness • Customer risk • Customer satisfaction/view of business strength • Customer relationship • Customer profitability • Business extension • Customer retention • KAM input • KA portfolio contribution Do these metrics reflect what your company would want to know about its KAM programme? Are there others you want? What? Are any not useful? Which? Why not? Which measure inputs to KAM outcomes/which reflect outcomes?

  17. Input/outcome awareness: KAM input (i)

  18. KAM input (ii) Maximum score = 24

  19. Tool: quick relationship check One way of measuring relationships Rating Strongly agree 3 Agree 2 Disagree 1 Strongly disagree 0

  20. Metrics for managing key accounts

  21. Strategic Star Status Streamline Key account selection/categorisation matrix Who gets KAM? High Customer’s spend Relationship level: Basic Key account attractiveness Co-operative Interdependent Integrated Low Low High Supplier’s business strength from the customer’s perspective

  22. Potential for profit Account attractiveness criteria Account attractiveness factors ‘Hard’ ‘Soft’ Customer attributes Risk reduction: working together Customer needs Opportunities for product/service differentiation Outcomes Financial outcomes/profit • Spend • Turnover • Volume • Cost to serve • Contribution • Price • Growth • Strategically important purchase • Appropriate decision-making structure • Right attitude to relationships • Prepared to pay for value • Prepared to invest • Member of targeted segment • Strategic fit (e.g. platforms, global) • Want non-standard solutions (what?) • Specifics (e.g. speed, compatible systems)

  23. Assessing account attractiveness Assessing account attractiveness Score = weight x rating (0 – 10)

  24. Example: DHL and manufacturers Example Score = weight x rating (0 – 10)

  25. Hard and soft criteria scales

  26. Breakdown Breakdown Breakdown Headline criteria Headline criteria Score Score Score Score Headline criteria Breakdown 0 0 0 0 - - - - 5 5 5 5 • • • • Product quality management Product quality management Product quality management Product quality management Assured supply Assured supply Assured supply Assured supply • • • • Supply management Supply management Supply management Supply management Teamwork Teamwork Teamwork Teamwork Values/trust based business Values/trust based Values/trust based Values/trust based business • • • • Openness, honesty, fair play Openness, honesty, fair play Openness, honesty, fair play Openness, honesty, fair play • • • • relationship business relationship business relationship relationship Quality management Quality management Quality management Quality management Management excellence Management excellence Management excellence Management excellence • • • • • • • • Environmental management Environmental management Environmental management Environmental management • • • • Management depth Management depth Management depth Management depth Low cost Low cost Low cost Low cost - - - - best value best value best value best value • • • • Competitive validation Competitive validation Competitive validation Competitive validation Process optimisation Process optimisation Process optimisation Process optimisation • • • • • • • • Financial strength Financial strength Financial strength Financial strength System player System player System player System player • • • • Communication Communication Communication Communication • • • • Best practices Best practices Best practices Best practices Customer satisfaction Customer satisfaction Customer satisfaction Customer satisfaction • • • • Health & safety Health & safety Health & safety Health & safety Technical competencies Technical competencies Technical competencies Technical competencies • • • • • • • • Product consistency Product consistency Product consistency Product consistency Overall score Overall score Overall score Overall score Customers measure key suppliers

  27. Customer's view of your business strength Customer's view of your ‘business strength’ * Different for each potential key account Must be customer’s point of view Score = weight x rating (0 – 10)

  28. Your ‘soft’ criteria? Do you use qualitative factors in selecting/ categorising your customers? If not, why not? What ‘soft’ metrics about customer needs and customer attributes would be appropriate for your customers?

  29. Complete the process with the customer Process for measurement and matrix Step 1 Step 1 Decide approximately how many key accounts can be managed Step 2 Step 2 Agree the scope/identity of potential key customers Agree the scope/identity of potential key customers Step 3 Step 3 Decide your criteria for assessing key customers Decide your criteria for assessing key customers Step 4 Step 4 Determine theoretical attractiveness of likely candidates Determine theoretical attractiveness of likely candidates Step 5 Step 5 Estimate your current position with customers Estimate your current position with customers Build the key account matrix & make your provisional selection Build the key account matrix & make your provisional selection of key customers Step 6 Step 6 Verify with customers: • their actual attractiveness • their real critical success factors for you • their view on how they rate you currently • their attitude to a close relationship with you Verify with customers: • their actual attractiveness • their real critical success factors for you • their view on how they rate you currently • their attitude to a close relationship with you Step 7 Step 7 29

  30. Why measure account risk? • To input to your responses, your decisions and actions: making offers, supporting customers, prposong/accepting terms etc. • To help to understand, manage and reduce risk • To build into your calculations of the account’s longer-term value • To allow the company to evaluate and manage the risk attached to its investments in customers, and its overall financial position

  31. Identifying customer risk systematically Relative risk index

  32. Evaluating relative customer risk Score = weight x rating (0 – 10)

  33. Adding to shareholder value Any strategy below the line destroys shareholder value Risk and return Line of acceptable risk/return Return Level of return received Zero risk rate of return Specific risk of customer Relative customer risk

  34. How would you assess customer risk? How would you use a systematic assessment of customer risk in your business? What criteria would be appropriate to your business? What risks you commonly see?

  35. Operationally: aligning metrics with customers Supplier KAM organisation Customer

  36. Key account profitability - the ultimate metric

  37. Current approaches to profitability • Most organisations take a product profitability approach, not a customer profitability approach. • Approaches are usually focused on a single period which takes no account of the value of the future relationship. • The product profitability approach disregards costs of customer behavior – you don’t know who is a good or a bad customer. • Allocating costs proportional to sales revenue or number of units purchased penalizes ‘efficient’ customers • so you don’t recognize or reward their low-cost behaviour • so they are open to your competitors who do

  38. Business case Treating customers as assets Investment • development or maintenance of an asset • increase in value • short-term yield • longer-term return

  39. Valuing customers to make a business case Customer Lifetime Value (CLV) or Net Present Value (NPV) The discounted value of the cash flow (DCF) generated over the life of the relationship with the company.” Doyle, 2000 • Define exactly who is the target customer • Estimate sales each year • Identify costs • Calculate net profit contribution for each year after all account-specific costs have been deducted • Account for commercial risk • Use DCF techniques to evaluate profit contributions • Add discounted profit contributions to show overall account NPV • Compare results with other accounts Modified from Key Customer Profitability Woodburn, Holt & McDonald, 2004

  40. P P KAM high/ medium KAM high G CR G CR P P KAM low KAM medium G G CR CR Measuring v expectations of performance 40

  41. Calculate Key Account NPV

  42. NPV example

  43. How do you value customers? What kind of business projections do you make currently in your business? Are there any barriers in your business to valuing key customers by this NPV approach? Are they valid barriers? Could you align this approach with your company’s business planning cycle?

  44. Measuring key account managers

  45. The KAM’s job Relationship management Riskmanagement Resourcemanagement Retention strategy Creating value for customers

  46. Exploring the nature of the job by activity Too much time About right Not enough time 46

  47. Why have KPIs? Based on what? • Reducing uncertainty • Clarity of requirement • Rewarding • Setting targets Serious distorting factors Based on what kams control? • Results • Behaviour • Account objectives • Business objectives

  48. Factors in achieving results What is done How it’s done

  49. Elements of performance

  50. Different approaches to performance • Reward classes: • Cash bonus • Salary increase • Recognition/non-financial rewards.

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