The Use Key Account Management in Professional service firms

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THE USE OF KEY ACCOUNT MANAGEMENT

IN PROFESSIONAL SERVICE FIRMS

DR. TERRY BACON AND DR. LAURIE VOSS

RESEARCH REPORT

F ROM THE LORE RESEARCH INSTITUTE

CONTENTS

Introduction ............................................................................................................................1

What’s Different about Professionals? .....................................................................................2

Study Results

1. Do Professional Service Firms Have Key Clients?.........................................................5

2. Do Professional Service Firms Use Key Account Management? ...................................6

3. When Did Professional Service Firms Start Using KAM? .............................................7

4. What Criteria Are Used to Select Key Clients? .............................................................8

5. Who Manages Key Accounts? ....................................................................................10

6. Do Key Account Managers Receive Special Training in KAM?..................................13

7. Do Professional Service Firms Have Key Account Teams? .........................................15

8. Are There Any Issues about Getting Internal Support?...............................................19

9. What Does KAM Look Like in Professional Service Firms?

a. Do Professionals Develop Key Account Plans and Strategies?................................23

b. Do Key Clients Receive Special Treatment or Consideration?................................27

10. What Are the Benefits of Key Account Management?..............................................30

11. What Are the Critical Success Factors?.....................................................................38

12. What Are the Best Practices for Professional Service Firms?.....................................53

Implications for Professional Service Firms ...........................................................................60

Appendix: Research Methodology.........................................................................................69

References..............................................................................................................................71

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Copyright 2001 by Lore International Institute. All rights reserved.

THE USE OF KEY ACCOUNT MANAGEMENT IN PROFESSIONAL ROFESSIONAL SERVICE FIRMS

Key account management (KAM) is the systematic development and nurturing of customers who are

strategically important to an organization’s survival and prosperity. The concept originated in the 1960s with

Union Oil and is now standard practice among the majority of industrial and commercial firms in the world.

It’s not clear, however, whether the concepts and practices of KAM apply to professional service firms, which

are fundamentally different from industrial and commercial companies.

According to David Maister, author of Managing Professional Service Firms, True Professionalism, and The

Trusted Advisor, professional service firms (PSFs) do need to manage their most important client relationships.

Maister (2001) argues: “The best news is that key account management is in everyone’s interests. Clients want

it and it benefits the firm by growing relationships and generating new fees. Studies in many industries have

proven the economic benefit of creating customer loyalty, and my own work with professional firms in the last

15 years has convinced me that there is a clear link between profitability and success in nurturing key

accounts. It’s hard work, but it’s a clear path to economic success.”

The benefits of key account management seem clear, but professional service firms are typically less hierarchical

and bureaucratic than their industrial and commercial counterparts. PSFs typically do not have sales staffs;

instead, the professionals who do the firm’s work are expected to develop business and build client

relationships. Moreover, these professionals work more autonomously than the workers in industrial and

commercial firms. So, although key account management may, as Maister argues, be in everyone’s interests,

it’s not clear that professional service firms use KAM principles and practices or that they use them the same

way that industrial and commercial firms do.

We were intrigued by the idea that professionals might need to manage their key client relationships but

weren’t sure how widespread this practice might be or how key account management might differ for

professionals. So we undertook this four-month study to explore the use of KAM in professional service firms

and to better understand how and why KAM might be beneficial to the firms themselves and to their clients.

Maister argues that professional service firms should use KAM. This paper will offer empirical evidence to

support Maister’s argument.

There are many types of professional services, and it was not feasible to study the full range of them. We

narrowed the scope of this study to include four primary types of PSFs: management consulting, executive

search, IT consulting, and advertising. All proprietary and personal information has been omitted from our

report to protect the confidentiality of our participants. Interviews were conducted by telephone, consisted of

twelve questions, and required almost an hour to complete. In the appendix you will find our research

methodology and the firms represented in our report.

INTRODUCTION

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Copyright 2001 by Lore International Institute. All rights reserved.

THE USE OF KEY ACCOUNT MANAGEMENT IN PROFESSIONAL SERVICE FIRMS

WHAT’S DIFFERENT

ABOUT PROFESSIONALS?

Before presenting the results of our study, we

should first explore the unique personalities,

expectations, and mannerisms of professionals.

This is important because we hypothesize that the

formality of key account management techniques

might conflict with the informal organizational

structure and operating styles of professional

service firms and those who are drawn to work

with them.

Professionals have unique personality

characteristics. One of our interviewees offered his

own interpretation: “In professional service firms

there are huge egos sometimes, and their egos get

in the way and inhibit the firm from optimum

client service.” Another claimed: “There is an ego

drive within professional service firms to be the big

billers. So people want more to serve their own

clients than to be cooperative.”1 Jack Gabarro

(2001), a Harvard Business School professor, offers

a more systematic reading of professionals. He

contends that professionals have three primary

needs: “achievement, affiliation, and power.”

Their need for achievement is characterized by

setting and meeting goals; competing; being

number one; wanting autonomy and control over

work responsibilities; taking realistic risks; desiring

both feedback and appreciation from peers; and

wanting to be challenged by their tasks.

Professionals’ needs for affiliation are characterized

by their desire to “interact, socialize, be part of a

team, and develop friendships” (Gabarro 2001).

They desire a stimulating, collegial, nonhierarchical

work environment.

Finally, professionals’ needs for power are

characterized by the need to “influence, lead, build

a team, shape their organizations, develop people,”

and participate in politics (Gabarro 2001). We

would argue that one corollary of their pursuit of

power is the desire to practice (the activities that

produce power) not to manage (the activities that

detract from time spent practicing and might

diminish power). If this is true, then traditional

key account management principles can pose

interesting and considerable challenges in

professional environments.

According to Gabarro (2001), professionals have

the following expectations and mannerisms:

They have a strong need for autonomy and

self-management. They resist rules,

processes, and procedures that are imposed

by others, and they resist systems that seem

regimented or that restrict their freedom.

They want a stimulating environment that is

sufficiently challenging. When a task

becomes too routine, they become impatient

and want to move to something new—

something more challenging. Work that is

repetitive becomes boring, and they lose

interest.

They want professionally satisfying tasks.

The work they do must appeal to their sense

of professionalism and must satisfy the

reasons they were drawn to their profession

in the first place. In short, they want to

work in their profession not manage other

professionals or client relationships.

They want a stimulating professional

environment, which typically includes

2 Lore research report

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THE USE OF KEY ACCOUNT MANAGEMENT IN PROFESSIONAL SERVICE FIRMS

1 Consultants in executive search—an industry that has a shorter history of KAM and is attractive to professionals who desire

autonomy and handsome salaries—volunteered both comments about egos.

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Copyright 2001 by Lore International Institute. All rights reserved.

interesting clients, stimulating colleagues, and

the resources and accoutrements that enable

them to do work they consider interesting and

rewarding—both for them and their clients.

They want a minimum of bureaucracy.

They are impatient (at best) with anything

that seems like “make work” or anything that

feels bureaucratic, such as planning, reporting

requirements, and other forms of

“administrivia.”

They want leaders who are professionally

credible. They have low tolerance for

managers whose only function is to manage,

especially if those managers are unskilled or

unqualified in the profession.

Finally, they want to know the big picture.

They want to know about and contribute to

the broader workings of the firm and feel that

they are included in the sharing of

information and the shaping of the future.

Key account management, as practiced in industrial

and commercial firms, can be characterized as

follows:

It is structured and systematic. One of the

cornerstones of KAM is planning. It requires

a thoughtful and systematic analysis of

customers and competitors and the use of

tools, processes, and frameworks for

converting analysis into strategy.

It can be viewed as bureaucratic. KAM

systems in industrial firms typically assign

roles and responsibilities. Key account

managers are expected to set and achieve

account goals. They report to a sales

manager, who oversees their activities and

monitors and measures their performance.

It is hierarchical. There is a chain of

command. In well-run industrial KAM

systems, the account manager “owns” the

account relationship, and everyone else who

interacts with that key account is expected to

do so through and with the key account

manager.

It is cross functional and team based. Key

account management is usually done in cross￾functional teams, where different functions

serving the customer have representatives on

the account team. Key account teams are

often formally established and have their own

rules about cooperating, participating, and

working together to help the team achieve its

goals. The amount of autonomy that any

team member can exercise is usually

circumscribed by the greater requirement for

good teamship and cooperation. The team

members have mutual goals rather than

individual goals.

It is process driven and activity based. Good

account management in the industrial and

commercial sectors is accomplished through

clear processes and next steps, planning and

execution of activities that further the client

relationship, and clear and frequent

communication among team members.

Finally, it is usually driven by strong extrinsic

rewards. Key account managers are

compensated based, in part, on how

successfully they manage their accounts.

Bonuses, commissions, salary increases, titles,

and other extrinsic rewards form at least part

of the motivational system for attracting the

right people to key account management and

providing incentives and rewards for them

to stay.

Clearly, key account management, as it is practiced

in commerce and industry, is inconsistent with

many of the characteristics of professionals we

cited above. David Maister (1997, 19) notes:

“I observe frequently that many professionals are

undergoing status shock. They thought they were

joining an elite, intellectually driven profession

where they would be treated by clients as gurus.

They then discover that they are treated as vendors

with no special rank or privilege. Professional

schools attract many people who want to avoid

commercial life and then find themselves thrust

straight into it—and of course disliking it. They

were attracted to the prestige and money of

professional life, but don’t actually like what

getting it involves.”

Professionals typically abhor commercialism and

find selling distasteful. As one executive search

consultant asserted during a key account

management program, “If you execute well,

clients will find you.” Like many professionals, he

had the attitude expressed in Kevin Costner’s film

Field of Dreams: “If we build it, they will come.”

The dream many professionals have is that if they

execute their profession well, if they are competent

and provide good service, then clients will come to

them and there will be no selling required. They

can “keep their hands clean.”

Professionals are attracted to the elite status and

noncommercial nature of professional careers—at

least as they imagine those careers to be. They

want to work their profession, not manage key

accounts, so they are often resistant to the

processes, systems, frameworks, teamwork, and

requirements inherent in the systematic

development and nurturing of key client

relationships.

Considering these challenges, we asked the

following questions:

1. Do professional service firms have key

clients?

2. Do professional service firms currently use

KAM? What is happening in practice?

3. If professional services firms do use KAM,

how long have they been doing so? Is KAM

well established in PSFs, or is it a relatively

recent phenomenon?

4. What criteria are used to select key clients?

5. Who in the firm manages the key accounts?

6. Do the people managing key accounts in PSFs

receive any special training or coaching in

KAM techniques?

7. Do they establish key account teams? If so,

how are those teams structured and

managed?

8. Do the key account managers in PSFs

experience any difficulty getting the internal

support they need?

9. In practical terms, what does KAM look like

in professional service firms

a. Do professionals who manage key

accounts develop key account plans and

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THE USE OF KEY ACCOUNT MANAGEMENT IN PROFESSIONAL SERVICE FIRMS

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Copyright 2001 by Lore International Institute. All rights reserved.

account strategies, which are typical in

commercial and industrial firms?

b. Do key clients receive any special treatment

or consideration from PSFs?

Our final series of questions concerned the values or

benefits of key account management in professional

service firms and the factors necessary for making

KAM successful. If the PSFs we studied had, in

fact, been using KAM, we were curious about why

they did it and what they’ve found to be the best

practices for implementing a KAM system in a

professional service firm. Our final questions were

these:

10. What are the benefits of key account

management in PSFs?

11. What are the critical success factors for

KAM in professional service firms?

12. What are the best practices for professional

service firms using key account

management?

This study is intended to answer these questions.

STUDY RESULTS

1. Do Professional Service Firms Have

Key Clients?

Not surprisingly, all the professional service firms

we studied indicated that they have key clients. In

commercial and industrial firms, key clients are the

20 percent of customers who generate 80 percent of

the revenue. Although every professional service

firm has key clients, very few firms use a strict

80/20 rule to identify them. For example, in one

management consulting firm, 350 of their 8000

clients (4.5 percent), produce 60 percent of their

revenue. An executive search consultant estimated

that 70 percent of revenue comes from 30 percent

of their clients; another one estimated that 70

percent is generated by only 10 percent of their

clients. Regardless of ratio, every professional

consultant agreed that a select group of clients

generate a disproportionate amount of revenue.

Key clients go by a variety of different names,

formal and informal: “target,” “cornerstone,”

“best,” “named,” “global,” “national,” “A and B,”

“strategic,” “crown jewels,” and others. Some

professional service firms have a formal and

articulated hierarchy of accounts (e.g., “named,”

“emerging,” “target,” and “opportunity”) but

others have a much less formal system of identifying

and managing the accounts that produce a

disproportionate amount of revenue.

Management consulting and executive search firms

are the most likely to have formal and hierarchical

identifications of their key and non-key accounts.

Executive search firms have global key clients, but

they’ve only recently acknowledged the need for

managing their largest clients in a special way.