Key Account Management in Finnish small and medium-sized enterprises

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University of Eastern Finland

Faculty of Social Sciences and Business Studies Business School

Master’s Thesis, International Business & Sales Management Ville Halme 298876 14.05.2020

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Abstract

UNIVERSITY OF EASTERN FINLAND Faculty

Faculty of Social Sciences and Business Studies

Department Business School Author

Ville Halme

Supervisor Andreas Fuerst Title

Key Account Management in Finnish small and medium-sized enterprises

Main subject

International Business and Sales Management

Level

Master’s degree

Date 14.05.2020

Number of pages 69 + 1

This research studies Key Account Management (KAM) implementation and its success factors in Finnish small and medium-sized enterprises. Prior KAM research is extensive and has studied the topic from various angles such as KAM effectiveness, KAM resources and capabilities. The existing KAM literature has focused on studying KAM concepts from the perspective of big multinational companies, leaving SMEs in a research gap. The aim of this study is to fill this gap and provide a comprehensive overview of KAM implementation in Finnish SMEs. To fulfil this goal, this study analysed 10 semi-structured interviews with managers of Finnish SMEs.

The theoretical framework in this study is the Conceptualization of KAM by Homburg et al. 2002. This framework divides KAM into four key dimensions of activities, actors, resources and formalization. Analysation of Finnish SMEs KAM through these four dimensions provides a comprehensive overview of KAM implementation in Finnish SMEs, and what are the key factors affecting their performance. The four research questions for this study were created from these four dimensions and from which factors has prior literature recognised as key performance factors.

The findings of this study suggest that Finnish SMEs approach to KAM is informal and consists of frequent dialogical communication, product development and overall higher service level. Due to the organizations small size, the use of teams in KAM is rare. The person in charge of managing key accounts is often a sales manager, whose task is the coordination of KAM activities with the support of other functions in the organization. The key factors for successful KAM implementation of Finnish SMEs are effective communication, customer attentiveness, flexibility and top management support. The main key account criteria for Finnish SMEs are past sales volume, future potential and strategical criteria such as customer reference.

Keywords

Key account management, small and medium-sized enterprises, resources, formalization, top management involvement

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Tiivistelmä

ITÄ-SUOMEN YLIOPISTO Tiedekunta

Yhteiskuntatieteiden ja kauppatieteiden tiedekunta

Yksikkö

Kauppatieteiden laitos Tekijä

Ville Halme

Ohjaaja

Andreas Fuerst Työn nimi

Avainasiakkuuksien hallinta suomalaisissa pienissä ja keskisuurissa yrityksissä Pääaine

Kansainvälinen liiketalous ja myynnin johtaminen

Työn laji

Kauppatieteiden maisteri

Aika 14.05.2020

Sivumäärä 69 + 1

Tämä tutkielma tutkii avainasiakkuuksien hallintaa ja sen onnistumisen kannalta tärkeimpiä tekijöitä suomalaisissa pienissä ja keskisuurissa yrityksissä. Avainasiakkuuksia koskevaa tutkimusta on tehty paljon ja se on tarkastellut aihetta useasta eri näkökulmasta kuten avainasiakkuuden hoidon tehokkuudesta, tarvittavista resursseista ja kyvykkyyksistä.

Aikaisempi tutkimus on keskittynyt tutkimaan avainasiakkuuksien hallintaa isojen kansainvälisten yritysten näkökulmasta ja jättänyt pk-yritykset huomioimatta. Tutkimuksen tarkoitus on täydentää avainasiakkuuksien hallinnan tutkimusta pk-yritysten kohdalla ja tarjota kattava yleiskatsaus suomalaisten pk-yritysten avainasiakkuuksien hallinnasta.

Tämän tavoitteen saavuttamiseksi tässä tutkimuksessa suoritettiin kymmenen puolistrukturoitua haastattelua suomalaisten pk-yritysten työntekijöille.

Tutkimuksen teoreettisena viitekehyksenä käytettiin Homburgin ja muiden (2002) luomaa Avainasiakkuuden hallinnan käsitteellistämisen teoriaa (Conceptualization of KAM). Tämä viitekehys jakaa avainasiakkuuden neljään ulottuvuuteen:

aktiviteetteihin, tekijöihin, resursseihin ja muodollisuuteen. Suomalaisten pk-yritysten avainasiakkuuden hallinnan analysointi näiden neljän ulottuvuuden avulla tarjoaa kokonaisvaltaisen yleiskatsauksen avainasiakkuuksien hallinnasta suomalaisissa pk-yrityksissä, ja siitä, mitkä ovat tärkeimmät tekijät sen onnistumisessa. Tutkimuksen neljä tutkimuskysymystä luotiin näistä neljästä avainasiakkuuden hallinnan ulottuvuudesta ja aikaisemman tutkimuksen löytämistä avaintekijöistä.

Tämän tutkimuksen tulokset esittävät, että suomalaisten pk-yritysten lähestymistapa avainasiakkuuksien hallintaan on epävirallinen ja koostuu tiiviistä dialogisesta kommunikaatiosta, tuotekehityksestä ja ylipäätään korkeammasta palvelutasosta. Johtuen yrityksien pienestä koosta, tiimien käyttäminen avainasiakkuuksien hallinnassa on harvinaista.

Avainasiakkuuksien hallinnasta vastaava henkilö on usein myyntipäällikkö, jonka tehtäviin kuuluu avainasiakkuuden hallinnan tehtävien koordinointi ja jonka tukena on yrityksen muut toiminnot. Avaintekijöitä onnistuneessa avainasiakkuuden hallinnassa suomalaisille pk-yrityksille ovat tehokas kommunikaatio, asiakkaan huomiointi, joustavuus ja yrityksen johdon osallistuminen. Avainasiakkuuksien pääkriteerinä on aikaisempi myynnin määrä, tulevaisuuden potentiaali ja strategiset syyt, kuten asiakasreferenssi.

Avainsanat

Avainasiakkuuksien hallinta, pk-yritykset, resurssit, muodollisuus, yrityksen johdon osallistuminen

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1 Introduction

The concept of Key Account Management (KAM) is defined as the activities devoted to important customers or key accounts (KA) that require the use of devoted business resources.

KAM is used by companies to differentiate themselves from competitors by creating additional value through a constantly developed and maintained strategic relationship (Workman et al., 2003 & Mcdonald & Rogers. 2017).

Small and medium-sized enterprises (SME) are companies with less than 250 employees (OECD, 2019), SMEs are characterized by their lack of business resources and high company innovativeness (Carson & Gilmore, 2000 & Partanen et al. 2008). In industrial markets SMEs performance contributes to the efficiency and effectiveness of the market as a whole, as SMEs often act as suppliers and distributors to larger firms (Ndubisi et al. 2011). The majority of industrial companies are SME’s and in the commercial sector they employ the majority of the workforce. SME’s are also important drivers of economic growth and innovativeness. (LaPlaca, 2011 & Partanen et al. 2008).

Industrial supplier companies and their business environments have gone through significant changes in the last 40 years, due to globalization and the increase in customer power.

Globalization has provided customers with a greater choice of global suppliers, which has increased competition among suppliers and lowered their margins (Woodburn & McDonald 2011). Customer power has increased in the last four decades due to companies centralizing their buying function and because of a trend where in an industry there are only a few global leaders. This has caused issues for non-leading companies which have to compete with leading companies who benefit from economies of scale (McDonald & Rogers. 2017). To battle with these changes' supplier companies have been forced to find ways to satisfy their sophisticated customers. These customers are increasingly demanding for more than just a good deal, instead they look for long term suppliers that can in addition to good deals provide strategic alliances.

The need for strategically developing and maintaining these relationships has led to the increasing use of KAM by practitioners (Woodburn & McDonald, 2011).

KAM has received significant interest and attention by business academics since the late seventies. The existing KAM literature is extensive and has covered the topic from many different angles (Guesalaga & Johnston. 2010). Most notably the effectiveness of a KAM program for a supplier company has received a lot of academic interest (Davies & Ryals, 2014,

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Gounaris & Tzempelikos, 2014, Tzempelikos & Gounaris, 2015, Sharma & Evanschiltzky, 2015), as has the resources and capabilities needed for KAM implementation. (Guesalaga et al.

2018, Workman et al. 2003, Pardo et al. 2014, Ivens et al. 2016). The existing KAM research has been revolving around the use of KAM in big multinational companies that have extensive business resources available (Homburg et al. 2002), (Wengler et al. 2006) and (Guenzi &

Storbacka, 2015). Wengler et al. (2006) Studied KAM literature and found that there exists a gap in the research of how KAM is implemented in the context of small and medium-sized companies. To this day this gap still exists.

KAMs importance for practitioners such as suppliers has gained relevance due to increased competition and globalization (Guesalaga & Johnston, 2010). Companies who have differentiated themselves from competition by implementing KAM programs have in the last 20 years enjoyed growth in profitability (McDonald & Rogers, 2017). Supplier KAM companies have outperformed non-KAM companies because of their ability to benefit from managing their strategic relationships (Homburg et al. 2002).

Prior research has highlighted the positive effects of SMEs customer orientation and relationship building skills on their performance (Zaim & Abdallah, 2017, Partanen et al. 2008, Fleming et al. 2016). Which is why it is evident that the additional value created by developed strategic relationships of KAM, can act as a key driver of SME competitiveness.

1.1 Research objectives

The objective of this study is to bridge the gap between KAM and SME literature, that concerns the use of KAM in SMEs. This will be done by combining theories and frameworks from both the KAM literature and the SME literature. The existing SME literature argues that effectively managing and developing customer relationships has a positive effect on the company's performance (Fleming et al. 2016), but little research has been conducted on how this could and should be done.

The following research questions were formulated from the existing literature. These questions aim to providing a well-rounded overview of the subject. First question looks at SME KAM comprehensively, by searching for patterns in how Finnish SMEs conduct their KAM. Second question focuses on the most important factors affecting the success of key account

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relationships. Third question examines, which are the criteria used by Finnish SMEs for classifying their customers as key accounts. Earlier literature highlights top managements involvement in key account management as an important performance driver (Homburg et al.

2002), Which is why the fourth question examines how this is detectable for Finnish SMEs.

RQ 1: How is KAM done in Finnish SMEs’?

RQ 2: What are the key success factors affecting Finnish SME KAM performance?

RQ 3: What are the Key Account criteria used by Finnish SMEs?

RQ 4: How is SME’s top management involved in KAM?

1.2 Research context

This research discusses the phenomenon of key account management in the context of Finnish small and medium-sized enterprises. The definition of a SME used for this research is the definition by OECD, SME is a company that has less than 250 employees and does not exceed 50 million euros in annual turnover (OECD, 2019). In 2019 SMEs portion of employment in Finland was 65.2% and SMEs account of value added was 59.6%. In 2014-2018 the value- added growth was 22.1% and is expected to continue growing steadily. SMEs in Finland employ on average 4.2 people and the two largest sectors are manufacturing, wholesale and retail trade (European Commission, 2019). The importance of SMEs’ for the Finnish economy is evident from these statistics.

1.3 Structure of the study

This study is divided into 5 chapters. The present chapter is an introduction into topic and aims to give a good overview of the topic itself. Research objectives and the context is also presented in the first chapter. Second chapter focuses on presenting existing literature on KAM and SMEs, also the theoretical framework used for the study is introduced. In the third chapter research methodology is explained, including research design, data collection, data analysis and reliability. Chapter four focuses on the findings of the study and summarizes the findings for each of the four research questions. Fifth, chapter concludes the study and the findings, also managerial implications and recommendations are presented.

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2 Literature Review

This chapter describes the concepts of this study by researching and presenting existing literature. First section introduces KAM and the stages of its implementation. Second section focuses on the concept of SME and the importance these companies have on economies. SMEs marketing strategies and approaches to customer relationship management are also examined.

Finally, this chapter introduces the theoretical framework used for this study.

2.1 Key account management

Key accounts are business-to-business customers identified by supplier companies as clients of strategical importance. Key Account Management (KAM) consists of the activities and devoted business resources to special accounts that not all accounts receive. These activities include for example, differentiated products and services, client specific pricing and strategic information sharing which does not happen with average accounts. (McDonald et al. 1997 & Workman et al., 2003). Mcdonald & Rogers (2017) defined KAM as a special approach towards strategic accounts to create them value that separates your company from competitors. The goal in KAM is the retention of strategic customers and ensuring the development of long-term customer relationships. (Woodburn & McDonald, 2011).

Wengler et al. (2006) researched the motives of companies for KAM implementation and also studied companies that do not have a KAM program. The authors found out that 90% of these companies serve their most important customers like KAs but they do not have a formalized KAM program. The authors defined this phenomenon as hidden Key Account Management and questioned the effectiveness of a such non-formalized KAM program.

Workman et al., (2003) defined criteria for which accounts should be considered to being involved in KAM. First, there needs to be a process where Key Accounts (KA) are identified as the most important customers and secondly the company must be performing special activities or have devoted special resources for this KA.

McDonald et al. (1997) Researched the traits of a successful key account manager. The person in charge of managing key accounts for example a designated Key account manager, needs to have more organizational authority and a larger skill set than an average salesperson. This

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person must have well developed management skills to be able to manage across organizational cultures, boundaries and disciplines. Important management skills according to the authors are:

Integrity as an individual in demonstrating corporate integrity. Product and service knowledge, in technical questions and in spotting application possibilities. Communication skills such as presentation skills and verbal fluency. Also, the understanding of customer business and business environment is vital for successful relationship management. Final skills are negotiation and selling, meaning that a key account manager who forgets to sell and only focuses on relationship maintenance is not succeeding in a money-making role.

2.2 Stages of KAM

Davies & Ryals (2009) investigated the extensive KAM literature, to find out how companies implement KAM and identified a four-stage model. This model demonstrates the fundamental elements of a KAM programme and how has the implementation met the company’s expectations. In addition to providing an overview, this model also offers improvement suggestions for companies currently in the transitioning phase. The following four chapters explain each stage of transitioning to KAM. This model provides a tool for understanding SME KAM behavior and which are the rationale behind certain actions and initiatives.

2.2.1 KAM introduction

In the first phase companies formally announce the start of a KAM program, usually driven by a business case and start identifying important customers to be included in the program. The authors found that in this stage companies often focus too much on superficial parts such as staff naming's (KAM manager) or increasing their service levels for the chosen KAs, which will likely increase costs. Increasing or communicating the possible increase of service levels to customers is often conducted without identifying how these actions would actually affect the accounts long term profits and revenues.

2.2.2 Embedding KAM

The second stage focuses on appointing and training personnel for the new tasks arising from KAM implementation. In this stage most companies establish KAM teams with procedures and policies which the team follows. This stage transforms the key account managers role from

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selling focused role towards a marketing role, with the tasks of planning and monitoring performance.

Davies & Ryals (2009) recognized this stage to being problematic for some companies as they are not able to transition from sales first KAM to marketing first KAM. The issue arises because establishing KAM increases service costs and may include additional activities towards the customer that do not accrue immediate financial returns. This stage also requires the use of additional resources which increases cost. The authors also found positive affects arising from this stage as companies start to increase the organizational engagement in the program, which starts to direct the organization culture towards a more KAM oriented culture. At this stage companies also start to focus more on long-term potential in their criteria when choosing KAs, when at the earlier stages the criteria often concerns historical performance.

2.2.3 Optimizing KAM

In this phase companies financially invest into KAM to make the it part of the central fabric of the company. Authors found that in this stage companies change their internal structures to better suit the KAM structure. This change starts from top management and it involves engaging and educating the entire organization on KAM, Also IT Systems, policies and internal processes are adapted to be more suitable to the program.

In this stage the activities and joint investments with KAs increase, which increases the programs overall costs. At the same time authors found that companies seem to reduce the measurements of internal performance. This leads to companies relying more on customer feedback and competitor benchmarking for evaluating performance, revenues do increase but the growth pace is slowing down from the earlier phase.

The large investments and changes in performance measurement may cause some delusion about the real performance of the program. For some companies reaching this stage may mean that due to the heavy investments into KAM there is no going back to no-KAM and the company's future is invested in successful KAM implementation.

2.2.4 Continuous improvement of the KAM

Davies & Ryals (2009) suggest that the continuous development of the program is the best practice for improving KAM, which requires continuous support, rejuvenation and

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understanding throughout the organization. Refining KAM is focusing more on the customers case, which includes a more effective KA selection process with better suiting criteria that clearly segregates KA from non-KAs. In addition to this, top management should focus more on relationship building than on the maintenance of the KAM program as these resources are often the most expensive ones in the organization.

In this stage the number of KAs often decreases which leads to a more business case focused program, in which instead of benchmarking competitors or revenue targets the measurements of performance are set and measured internally. In this stage the organization is committed and supportive of investments towards a strategic KAM program. The authors noted that in this phase companies seem to be more focused on cost management. Because of the decreasing number of KAs, the need for top management maintenance, expensive structural and human refinements are also decreasing.

2.3

Small and medium-sized enterprises (SME)

OECD (2019) defined SMEs as all enterprises that employ less than 250 people. Companies with less than 10 employees are considered micro companies, 10-50 employee's small companies and companies with the number employees ranging from 50 to 250 are considered medium-sized (European Commission, 2005).

Table 1: Company categorization by the number of employees

Company category Number of employees

Medium-sized <250

Small <50

Micro <10

Source: European Commission, 2005

In 2019 SMEs accounted for over 99% of all companies in OECD economies (OECD, 2019).

SME companies tend to operate more labour intensively than larger companies which is why SMEs effect on economies employment is significant (Vives, 2005). SMEs main traits are the lack of resources due to size constraints and the need for establishing relationships and networks to overcome challenges related to their size (Partanen et al. 2008, Fleming et al. 2016, Carson

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& Gilmore, 2000). SMEs drive economic growth and, in the OECD, generate about 60% of all employment. In most economies and industries SMEs act in important roles as suppliers, distributors and consumers (Laplaca, 2011. Ndubisi et al. 2011, Soininen et al. 2012).

2.3.1 SME marketing strategies

As the paradigm in marketing has moved from emphasizing transactions to co-creating value in relationships the concept of relationship marketing (RM) has become prominent (Malhotra et al. 2016). In RM the focus is on repeated interactions and transactions between the supplier and the customer in a co-creation relationship, as before the focus was more exchange based (Prahalad & Ramaswamy, 2004). Relationship marketing perspective in managing key accounts, requires a paradigm shift. Top management support is necessary in the coordination of key account activities to ensure satisfactory service for the customer. The top management also has to be willing to invest into producing customized customer specific solutions. Through this paradigm shift, companies with fewer managerial resources can effectively manage their key account relationships. (Gounaris & Tzempelikos, 2014).

In the competitive business environments where companies currently exist in, management especially marketing competencies are essential. This is especially important for SMEs as they must compete with major limitations such as resource scarcity. The decision-making process for SME managers and owners is rarely isolated when talking about specific marketing decisions. In SMEs the decision-making process is more comprehensive and other business aspects are taken into consideration. This separates SMEs from larger companies which can have designated personnel only focusing on making marketing decisions. (Carson & Gilmore, 2000).

Resource based view (RBV) explains that for a company's competitiveness static resources are not essential but instead the company's capabilities and competencies to utilize these resources are (Newbert, 2007). These three basic capabilities are innovation capability, production capability and market management capability. Innovation capability is related to the ability to achieve superior management and technological performances such as low development costs and short time-to-market times by developing new processes and products. Production capabilities are related to the company’s ability to produce and deliver to their customers

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customized products while staying competitive in flexibility, dependability, cost and quality.

Market management capabilities regard the company’s ability to sell and market their products efficiently and effectively. (Rangone, 1998.)

The importance of capabilities was also supported by Liao et al. (2009) who found that company's effectiveness is linked to its ability to mobilize these resources and capabilities to fit its fast-changing environment and utilize emerging opportunities. The most important marketing capabilities are innovation and branding which are supported by support capabilities market orientation and management capabilities. In building innovation capacity, large companies rely more on structured processes. Whereas SMEs use customer feedback from their closer relationships with customers in their innovation development. (Merrilees et al. 2011). A Study by Partanen et al. (2008) emphasized the importance of skills in forming relationships of SMEs and the authors suggested that the coordination and allocation of resources even if scarce for processes in relationship-building are vital for SMEs performance.

Study by Rauyruen & Miller (2007) explained that building and maintaining good supplier and customer relationships has a crucial effect on the performance of an SME. This importance is further emphasized by the Pareto rule. In B2B exchanges 80 percent of company profits are generated by 20 percent of the customers (Kale, 2004). The dissolvement of a relationship between a SME and an important customer may cause severe losses of investments, in addition to the extra work needed to establish new relationships with new customers (Fleming et al.

2016). Rauyruen & Miller (2007) found that two of the most influential dimensions of relationship quality are the perception of the service quality and the overall satisfaction towards the other party. The authors found these two dimensions to have the biggest effect on purchase intentions. Customers attitudinal loyalty is positively affected by the overall relationship quality. Overall relationship quality is formed from the level of trust and commitment between the supplier and the customer. Also, satisfaction and perception of the quality of service affects overall quality.

In Linder’s (2019) study into customer orientation and information inflow of SMEs, the author found that information inflow can increase SME production flexibility and reduce production costs. Because of these factors, SMEs can minimize liabilities arising from smaller resources by developing new manufacturing routines and operations. SMEs’ focus on know-what

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information inflows allows them to focus on cost efficiency while remaining flexible (Matloub et al. 2015).

2.3.2 CRM implementation

Customer relationship management (CRM) is defined as all the processes and activities that look to build deeper relationships, understanding and market offering for individual customers.

For a successful company this is a part of core business processes. (Kotler et al. 2016.).

According to Rababah et al. (2011) the components of CRM are people, technology and processes. Due to market trends of globalization and digitalization, the trend of using information technology (IT) to approach relationship marketing has intensified (Pohludka &

Stverkova, 2019). SMEs’ should regard information technology as a resource to strengthen the company’s competitive position and not just as a tool for process automatization. IT is a critical factor for SMEs in streamlining operations and reducing costs. IT can also be used to improve customer service and communication quality. (Beheshti, 2004). The changes in the market environment has led to investments into customer relations management by SME’s that seek to analyse and understand customer perceptions and behaviours. When setting strategies, SMEs should integrate their strategic customer communication into a common communication platform. (Galvao et al. 2018.)

Information technology tools are useful in managing business relationships, but Cambra-Fierro et al. (2017) argue that their impact is not decisive and biggest factors are the employees and the company’s business model. Larger and younger SMEs possess better management capabilities regarding customer information, because of their technological infrastructure flexibility in integrating internet technologies when compared to more established older SMEs (Harrigan et al. 2014). CMR programmes can deliver substantial benefits but according to The Gartner Group research in 2001 just over half of the programmes were considered unsuccessful (Krigsman, 2009). Big reason for this was that companies fail to recognize the needed business change, because these companies considered a CMR programme to just being a systems programme. (Foss et al. 2008.)

In the research of Kale (2004) the estimation for a CRM implementation to being unsuccessful was at alarming 60-80 percent. To avoid these failures the author introduced seven key activities for successful implementation: Understanding CRM as a technology initiative, customer centricity, customer lifetime value, top management support, managing change, re-engineering

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processes and customer knowledge. First key activity is understanding that CRM system is only a tool aiding in marketing practises, but it is the employee’s customer knowledge and skills that can make using a CRM system successful. Second activity is having a customer-centric vision inside the organization. For the system to be successful the key driver of having a CRM system should be customer centrism in all divisions and functions of the company. Third important activity is understanding customer lifetime value, the focus of using CRM should be aimed at serving the customers with the potential for the highest lifetime value. When structuring CRM to focus on customer lifetime value the need for accurate data is the key, especially the costs of serving customers and the revenues accrued from these same customers. Fourth key activity is top management assuming ownership of the CRM initiative, this is especially important in the beginning of the process to get the process properly started. Fifth activity is understanding that effective CRM implementation requires managing change in the organization, only implementing a CRM system will not make the company customer-focused, this requires change throughout the organization. Sixth key activity is re-engineering and changing processes, so that they are more suitable for creating customer insights that can be leveraged in customer interactions. Final key activity is the integration of customer knowledge gathered by data mining, this requires that the suitable customer data is collected to create a comprehensive real time view of the customer. (Kale, 2014).

The choice of different CRM IT systems available on the market is immense, currently the leading IT CRM systems according to Forbes are Zoho CRM, Pipedrive CRM and SugarCRM.

Other well-known systems are Microsoft Dynamics and Salesforce (Columbus, 2019). CRM systems such as ZOHO, advertises their CRM systems as a storage platform where companies can bring together marketing, sales and customer support activities. Having all this data on one platform enables effective team collaboration and streamlines company processes. (Zoho, 2020.)

2.4

Theoretical framework

Earlier KAM literature has focused on examining KAM from a one-dimensional perspective.

Conceptualization of KAM by Homburg et al. (2002) is the first theoretical framework created from a large-scale empirical study of the performance outcomes of multiple dimensions of KAM approaches. This framework allows for a systematic and a comprehensive examination of the phenomenon of KAM, by looking at it from the four key dimensions of KAM activities,

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actors, resources and formalization. From these four dimensions, the authors have recognised key effectiveness factors. This framework was chosen because of its ability to comprehensively present KAM, which is suitable for the explanatory nature of this study.

Figure 1: Conceptualization of KAM

Source: Homburg et al. 2002

The basis of this conceptualization is the four basic questions that summarize the research done on KAM. These four questions are:

1. What is done?

2. Who does it?

3. With whom is it done?

4. How formalized is it?

From these questions Homburg et al. (2002) distinguished the four dimensions of KAM, which are activities, actors, resources and formalization.

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2.4.1 Activities of KAM

Activities are the actions that suppliers direct towards their KA’s, these activities consist for example of customized product and price offerings, special services and of the information sharing that happens between the supplier and the KA. When examining the effectiveness of activities in KAM, Homburg et al. (2002) Found on two key performance factors which are activity intensity and proactiveness. Intensity is defined as how much more is the supplier doing for the KA when compared to average accounts and proactiveness is defined as which of the activities the suppliers initiate (Homburg et al. 2002). These activities should not only create value for the supplier but also for the KA, this value should be mutual and relational. Meaning that this value should not exist only because there is an exchange relationship but it should be created by the relationship Pardo et al. (2005). KAM activities need to be able to find synergies with customers through offerings that lower transactions costs and add value which normal customer relationships do not do. This requires that the supplier offering must be especially tailored for the specific KA needs. (Wengler et al. 2006).

Tzempelikos & Gounaris (2015) in their research of KAM practises found that the first activity for companies is selecting the right account and planning the activities, choosing the current biggest customer is not always the best option and instead the focus should be on companies with the biggest potential (McDonald & Rogers, 2017). Other KAM account criteria includes volume of sales (past & future), size of the customer, strategic fit with the supplier and the customer lifetime-value for the supplier (Wengler et al, 2006, Al-Husan & Brennan, 2009, Woodburn & McDonald, 2011). In addition to the most commonly used criteria, there exists supplementary strategical criteria such as learning about key technologies, account reference and status, international scope of the account and customer demands for special treatment (Homburg et al. 2002). Status and reference related reasons were also examined by Mcdonald et al. (1997). In their research, supplier companies stated that they targeted multinational corporations as key accounts. Because their credibility as a supplier would be enhanced by having customers that are well known, by which this reference could bring forth more potential business opportunities. In the study by Boles et al. (1999) the authors found that the two most important criteria are volume of estimated potential business and past sales to the customer.

Potential was mentioned by 92% of the respondents in the study and past sales by 78%.

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In the study by McDonald et al. (1997), the authors looked at the criteria from the perspective of the customer and found three important factors. The first one is the ease of doing business with the supplier, including delivering what is promised with accurate payments and effective communication. Second factor is the quality of the service or product, this offering needs to match customer needs and should add value to the customer. In some cases, the brand name also increases supplier desirability. The final factor is the quality of the people in the supplier organization, traits that are valued are integrity, honesty and understanding.

KAs strategy should align with the companies own strategic vision to decrease the possibility of arising conflicts in the relationship (Woodburn & McDonald 2011). When choosing and planning the KA’s it is necessary to assess the resources available and the number of KAs so that these are balanced and that these relationships can be maintained sustainably (Tzempelikos & Gounaris, 2015).

After establishing a KAM program, the evaluation and control of the KA is important. In this practise the goal is to assess if the relationship satisfies both the strategical and financial objectives for the supplier (Tzempelikos & Gounaris, 2015). KAM performance should be measured on three levels. First from the strategy level, considering whether the decisions are correct and is the return on investment matching with the business plan. Second level is the strategy realization. Evaluating whether the KAM implementation is progressing according to plans from the perspectives of both parties. Finally, the operational level focuses on cost and operational effectiveness, whether the operations are effective enough to satisfy customer needs. All of these three levels should be actively monitored and reviewed and if needed also acted upon (Woodburn & McDonald, 2011).

2.4.2 Actors of KAM

Actors are the coordinators of KAM activities; these coordinators are often managers who either spend a portion of their time handling KA’s or they are key account managers whose positions are fully dedicated to KA’s. Two important effectiveness factors concerning actors are top management involvement and the use of teams.

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Top management involvement is a frequent factor in the literature when discussing KAM effectiveness. Authors define top management involvement as to which extent does the top management take part in KAM. The authors suggest that organizational strategies are reflections of top managers interests and characteristics (Homburg et al. 2002). The importance of top management involvement has been highlighted by Napolitano (1997), Salojärvi (2010) and by Homburg et al. (2002). The authors found out that when looking at profitability, companies with top management KAM programs perform the best. Top management plays a critical role in achieving benefits of key account relationships by coordinating KAM in all functions of the organization, whether it is the structure, culture, market offering or team selling (Pereira et al. 2019). In effective KAM implementation the access to other resources in the organization outside the sales and marketing function is necessary. Having top management support the KAM function will benefit from having a better access to the organization's resources (Tzempelikos & Gounaris, 2015). In conclusion top management involvement is important for KAM because it shows companies commitment to KAM trough actions and helps with combining cross-organizational efforts. Top management involvement in KAM also invites the key accounts top management to get more involved, which may lead to forming an even deeper relationship with that KA (Workman et al. 2003). Top management should also take part in decision-making, ensuring cross organizational coordination and supporting the customer interface by empowering structures and organizational culture that facilitates KAM.

In addition, top management should also coach, monitor and reward the personnel managing key accounts, whether it is in teams or not. (Pereira et al. 2019).

Second important factor regarding actors is the use of teams in KAM, which was defined by Homburg et al. (2002) as to which extent is the supplier forming teams to coordinate KAM activities. Using teams in KAM has become prevalent due to companies establishing purchasing teams to which the suppliers are then reacting by creating selling teams (Hutt et al. 1985).

Homburg et al. (2003) argue that due to customer companies becoming more complex, suppliers need to increase their specialization activities and one way to do this is to form KAM teams. Successful KAM implementation requires coordination across different functions in the organization. By using teams, broader customer knowledge can be utilized and shared more effectively companywide (Salojärvi et al. 2010). Salojärvi and Saarenketo (2013) stated that the use of teams enhances coordination and sales process integration as it improves the use of

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customer knowledge in three different dimensions acquisition, dissemination and utilisation.

This study also found that team-based KAM outperforms non-team KAM, because they benefit from cross functional expertise meaning a more diversified knowledge base. In the case that the customer regularly buys standardized products, the cost of establishing a special customer specific KAM team may exceed accrued benefits. Therefore, the use of KAM teams should be customer specific and carefully planned (Salojärvi & Saarenketo, 2013. This argument is supported by Homburg et al. (2002) who in their research found the use of teams to not being as significant as the other factors presented in this conceptualization.

2.4.3 Resources of KAM

Successful KAM implementation requires close internal coordination and cooperation of resources in the supplier company, as most often the key account manager works in the sales function the need for accessing other resources is vital for successful implementation (Wotruba

& Castleberry, 1993). These other resources are for example marketing, logistics, finance and IT. In their conceptualization Homburg et al. (2002) found two important performance factors concerning resources, these two are team spirit (esprit de corps) and access to marketing and sales resources.

Team spirit is defined as how well people involved in KAM feel towards each other and towards the common goals and targets (Homburg et al. 2002). The cohesiveness of positive team spirit among interdepartmental teams and people has a positive impact on performance (Workman et al. 2003). Salojärvi & Saarenketo (2013) proposed that KAM team should be formed into a platform where regular meetings and contacts create mutual understanding and commitment.

This commitment should also be encouraged by involving team members in decision making, which in return creates a sense of ownership. This sort of coordination among the KAM intrateam has been found related to a positive development of team spirit. (Stewart, 2006).

Access to marketing and sales resources was defined by the authors as to which level can the key account manager obtain and access resources inside the organization from other groups and functions. The authors argued that selling an idea inside an own organization is in some cases more important than external sales (Homburg et al. 2002).

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2.4.4 Formalization of KAM

This dimension has only one factor effecting performance, which is KAM approach formalization. This was defined by Homburg et al. (2002) as to which level does the supplier organization have established procedures and policies in handling its most important KA’s.

Formalization of a KAM program is an impersonal coordination mode and can be seen as the opposite of personal coordination modes such as top management involvement and the use of teams.

Earlier research on KAM formalization, even though limited, has implied that the careful planning of activities and formalized KAM programs are more successful than non-formalized programs (Wotruba & Castleberry, 1993 & Galvao et al. 2018). In Workman et al. (2003) study the result was the opposite and the authors found that KAM formalization actually has a negative effect on the performance of the KAM program. Formalization can hinder operational flexibility and the company’s ability to create customer specific customized products or service offerings. The costs of a KAM program may also increase due to formalization, whether it is administrative costs or the costs arising from dedicating best salespeople to certain accounts who might be more productive elsewhere. Summarizing prior research, it seems that the effect of formalization on the success KAM implementation is not as significant as the other three dimensions: activities, actors and resources.

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3 Methodology

In this chapter the research methods of this study are presented and explained. This chapter is divided in to four parts. The first section discusses research design, including the research method and strategy. Second section is about how the data for the research was collected. The third section focuses on how the data was analysed and the final fourth section focuses on the reliability and validity of this research.

3.1 Research design

Research methodologies are most often divided into qualitative or quantitative research. The naturalistic approach of qualitative research aims to develop a theory which explains what was experienced, when in quantitative research the process starts with a theory that is then tested to confirm or disconfirm it (Newman & Ridenour, 1998). Quantitative paradigm is formed on positivism that every phenomenon is possible to be cut down to empirical indicators that represent the absolute truth that is independent of human experiences or perceptions (Sale et al.

2002). In qualitative research the focus is on empirical material of participant perspectives and knowledge in their everyday life towards the topic that is being researched (Flick, 2007). Denzin and Lincoln (2005) summarized that in qualitative research the researchers look to interpret or to make sense of a phenomena by looking at it from the perspective of what kind of meanings people bring to them in their natural settings. Because of these differences the quantitative research method is more suitable to answering questions which are related to concrete measurements such as numerical data. These questions could be for example “how many”, Whereas in qualitative research methods the focus in on answering “how” questions. Because of this I chose the qualitative approach for my research as it better suits my goals of finding how Finnish SME companies conduct KAM and what are the factors that positively effect performance.

The qualitative method chosen for this research is a case study research. Case studies in business research provide accessible and personal formats of presenting complex business issues (Eriksson & Kovalainen, 2008). Case studies can be divided into two categories: intensive and extensive. In the intensive case study, the aim is to find out how an exact and unique case works, intensive case studies are often longitudinal and extend over time. In extensive case studies the

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focus is on issues that can be studied with several individuals as instruments, the empirical data collected from individuals needs to be similar so it can compared and so that the knowledge can be cumulated to create a better understanding of the context as a whole (Eriksson &

Kovalainen, 2008). Due to these definitions the extensive case study is suitable for this research, which looks to compare informant insights and experiences. The data is collected by conducting ten semi-structured interviews with the same structure for all participants from different companies and fields.

3.2 Data collection

Data for this research was collected by conducting 10 semi-structured theme interviews. In semi-structured interviews the interviewer creates a list of questions, but the conversation is dialogical. Because of the dialogue form in these interviews the discussion can even be directed by the informant, which leads to broader conversation about the topic and allows the informant to able to talk more about their views and experiences, when compared to a structured interview where the conversation is controlled by a strict structure of questions. (Longhurst, 2010).

Data was collected from informants who either managed KA’s or work in a managerial role in Finnish SMEs. Informants interviewed in this study are from different industries and from different locations in Finland. Informants were chosen based on their tasks which had to be related to handling accounts especially key accounts. Interviews took place between 28.2.2020- 16.4.2020 and the lengths of the interview sessions varied from twenty minutes to an hour. The interviews were conducted in Finnish and were translated to English by the author of this study.

Theme interviews were chosen because they allow for the informant to have more freedom in the interview and for example take part in the conversation by creating their own specifying questions, which then improves the quality of the conversation. Theme interviews are the most used qualitative interviewing method in business research partly because when it is planned and conducted well it is easy to set up and motivating for both parties (Koskinen et al. 2005).

The audio from these interviews was recorded by using a handheld voice recorder. These audio files were used to ensure accurate transcribing in the data analysis phase.

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3.2.1 Interview Question Design

The backbone of a semi-structured interview is the frame of the interview questions. First of all, this frame gives the interview structure and ensures that the interviewer asks all the necessary questions. Secondary function is that it makes the interview fluent. These two functions may in some cases clash, because of the need to ask a lot of questions to make sure everything important is discussed, which may interrupt the fluidity of the interview. A well- designed frame combines and balances these two functions, resulting in an easygoing conversation that covers the topic comprehensively (Koskinen et al. 2005).

To form the frame for the interview the author used Koskinen et al. (2005) advices on how to build the frame for a theme interview.

First, the author looked at the format of the questions. As Koskinen et al. (2005) suggested theme interview questions are usually open-ended, except for the introductory questions that are related to the interviewee profile such as title, area of business and so on. This study followed the guideline by formatting the questions in a way that all the questions were open- ended, except for the introductory questions.

Second design issue was the amount of questions. The authors cautioned about presenting too many questions and suggested five to twelve questions. According to authors theme interview should consist of just a few main questions which would then be supported by additional points that would help the interviewer in creating fluid conversation. The question frame for this study had 11 main questions, supported by additional points.

Third design issue is the type of questions, the authors recommended avoiding creating questions that require extensively broad answers or are too focused on opinions. The advantage of a theme interview is that is more flexible than structured interviews and the interviewer can clarify their questions during the interview. The questions chosen for this study were based on themes and constructed in a way that discouraged presenting opinions and instead focused on experiences.

Fourth advice was that the order of the questions should follow a three-stage model, where the first questions are warm up questions related to individual in question to gather basic information. The second stage focuses on the main questions related to the research topic; final stage is the ending questions which are used to signal the end of the main questions and that the

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interview is coming to an end. This model worked as a basis for the interview structure used in this study.

Other advice the authors give is to position the questions with longer predicted answers in the main question stage to minimize time issues and to make sure that the informant is already warmed up for the interview.

For this research the interview questions were formed from the Conceptualization of KAM by Homburg et al. (2002). This model proposed four key questions that underline KAM.

Table 2: Key Questions

Key Question What is done? Who does it? With whom is it done?

How formalized is it?

Dimension Activities Actors Resources Formalization Source: Homburg et al. 2002

These questions were used as a base structure for the interview to get a comprehensive picture of the company’s KAM (see Appendix 1).

First part of the interview consists of basic information of the company and of the informant, second and the main part of the interview focuses on the four key questions: What, who, with whom and how? Final section focuses on the success factors of the informant companies key account relationships and whether the informant has something to add that did not come up during the interview.

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3.2.2 Interviewee profile

Below is the table of informants, each interviewee is coded, this code will be used later in the findings section of the study when referring to a certain interview or an informant. Table also shows the industry these informants work in, how many employees do their company have and final section explains the function in which these informants work in their company.

Table 3: Informant profile

Code Industry # of employees Function

R1 Steel 20-50 Sales management

R2 Finance 50-75 Account management

R3 Machinery 150-200 Sales management

R4 Manufacturing 50-75 Sales management

R6 Machinery 50-75 Sales management

R8 Manufacturing 100-150 Account management

R10 Consultation 20-50 Account management

3.3 Data analysis

In preparation for data analysis the data from interviews needs to be transcribed to text form.

For this the author used level 3 verbatim transcribing. Verbatim transcribing means that the interviews are transcribed word by word including technical terms and the possible dialect the informant might be using. This level of transcribing is good for collecting quotes and information that in the planning phase might not seem important but can turn out to be valuable.

Using word by word transcribing the author can minimize the need to go through the data again as the data is accurately transcribed. (Koskinen et al. 2005.)

In the next step the data was coded into different themes. The most popular strategy used in qualitative data analyzation is categorization by coding (Maxwell & Miller, 2008). Coding itself does not provide answers but works as a tool for analyzing the data which helps in finding patterns. In pattern finding the author looks for regularities in the data which form patterns that

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can be used for analyzation (Eriksson & Koistinen, 2014). The coding strategy chosen for this data is coding to theme, this strategy aims at constructing summative meanings of phenomena from data by looking at extended sections of text instead of short phrases or single words. These themes can then be used to represent experiences and meanings (Leavy, 2014). The categorization used in this research was formed from the four key dimensions from the Conceptualization of KAM by Homburg et al. 2002. The data was cross tabulated using Microsoft Excel, which helped the author to look for patterns in the data.

3.4 Trustworthiness of the methodology

Reliability and validity are the most commonly used classic criteria for evaluating research.

Qualitative research method books and researchers have divided opinions whether it is more suitable for assessing quantitative than qualitative research (Eriksson & Kovalainen, 2008).

Because of this division this study uses the generally accepted trustworthiness evaluation criteria for qualitative research introduced by Lincoln & Guba (1985). This evaluation criteria examines the trustworthiness of research by looking at it from four aspects which measure the quality of the study. These four aspects are credibility, transferability, dependability and confirmability.

To ensure the credibility of this study the author used well recognized and appropriate research methods, to ensure that these methods were suitable peer debriefing was used. Peer debriefing according to Lincoln & Guba (1985) is a process of attending an analytic session where the researcher’s methods and meanings are probed and exposed to other people’s views and opinions. For this study this debriefing was conducted by the researcher attending thesis seminars where participants shared their topics, research questions and methodologies for peer review. Thesis supervisor also took part in these sessions by reviewing research plans and providing detailed feedback.

Another way of ensuring credibility is triangulation, of which one form is using a wide range of informants. By doing this, the researcher can compare and verify informant experiences by comparing them to others (Shenton, 2004). For this study the informants were gathered from different industries and from companies varying in size. This provides a better overview of the topic of key account management by examining it from different angles and viewpoints.

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Shenton (2004) presented tactics that would help with ensuring honesty from informants during data collection. These tactics include giving informants an opportunity to refuse, only involve people who genuinely want to participate and contribute without fear of giving away things that for example would lessen their credibility Infront of their own organization and managers. In this study the informants were asked to participate by email, everyone was voluntarily participating and could refuse participation at any moment. The first email asking for participation explained that all informants and their companies would be anonymized, which was later empathized in the beginning of the interview when it was explained exactly how this interview would be conducted. All participants were informed that in the final thesis, informants would be only defined according to their title, company size and the companies’ field of work.

This allowed for the participants to speak more freely without the fear of giving out business secrets or other company specific information. All recordings from these interviews would also be wiped out to ensure that information that could help identifying informants would not be available.

Second aspect is transferability, defined by Farquhar (2012) as whether the findings of this study are transferrable to other contexts. Researchers should provide thick descriptions of data, so that the reader can make their own comparisons and transfers (Lincoln & Guba, 1985).

Shenton (2004) listed background information that should be presented when introducing the boundaries of the study, this list includes: Number and location of participants, informant restrictions, data collection methods, length of data collection sessions and the time period for data collection. In this study this research background information can be found in the data collection section 3.2. Farquhar (2012) noted that thick descriptions of data are often accompanied by a detailed figure of data sources often in a tabular format to increase trustworthiness. For this study this figure can be found in the section 3.2.2.

Third aspect is dependability. Meaning that if this study would be repeated, using the same methods and participants in the same context the results would be similar. For this to happen the research needs to provide an in-depth coverage of the research practices used in the study.

This includes research design and implementation, details of data collection and reflective evaluation of the study (Shenton, 2004). Lincoln & Guba (1985) noted that due to factors of design, phenomenal or instability, the researchers may need to change data collection and

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analyzation methods from the original plan. In this study these details are transparently presented in this methodology chapter.

Fourth and final aspect is confirmability, which means that the study needs to present evidence on how the data, findings, interpretations and recommendations are supported by the data itself (Lincoln & Guba, 1985). Shenton (2004) suggested that researchers should take steps to ensure that the findings of the study are results of informant ideas and experiences, instead of researcher preferences and characteristics. To be as transparent as possible this study attached all conclusions to interview responses, so that there would be no research biase. Also, direct quotes were used to emphasize informant knowledge and experience. As the interviews for this study were conducted in Finnish and later translated to English, the possibility for mistakes in the translations exists. To ensure the transfer of experiences and meanings accurately from Finnish to English, the author focused on the translating the text precisely.

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4 Findings and Discussion

This chapter presents and discusses the findings of this study. By comparing the interview data collected from ten informants working in managerial roles in Finnish SMEs to the four themes of KAM: Activities, actors, resources and formalization. The ten informants are all either working on managing key account relationships or are in a managerial position in their company. In these positions the informants have a good knowledge of their company’s account management practices. The aim of this study is to explain how Finnish SMEs’ execute key account management. In this chapter this explanation is divided into four sections based on the four research questions.

RQ 1: How is KAM done in Finnish SMEs’?

RQ 2: What are the key success factors affecting Finnish SME KAM performance?

RQ 3: What are the Key Account criteria used by Finnish SMEs?

RQ 4: How is SME’s top management involved in KAM?

4.1 KAM in Finnish SMEs’

In this section key account management in the context of Finnish small and medium-sized enterprises will be examined through the four themes of KAM which as mentioned before are activities, actors, resources and formalization (Homburg et al. 2002).

4.1.1 KAM activity intensity and proactiveness

Earlier literature highlighted two factors with the biggest impact on effectiveness of KAM activities: Activity intensity and proactiveness. Intensity meaning how much more is done for KAs’ than to average accounts and proactiveness as which of the activities are initiated by suppliers (Homburg et al. 2002).

In the interview data, communication came up the most when talking about activity intensity.

Communication is more frequent and often more personal than for average accounts. For example, face to face meetings are more common compared to average accounts. However, the most common communication method is using phones and email. Informants R9 and R10

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explained that they regularly meet with all their customers but meetings with KAs’ are more frequent and often involve additional personal relationship building outside business situations.

These additional activities also came up in interviews with R2 and R1. Both of their companies organise special training events and conferences for their key accounts. R1 also talked about a practice in their company of personally delivering Christmas “regards” for their key accounts.

Effective communication is a key factor affecting how easy is it to do business with a supplier, which is an important criteria for customers when they evaluate their key suppliers (McDonald, 1997). From the results it is evident that communication quantity and quality are important factors from both party’s perspective.

Product development is another activity that came up a lot in the interviews: six out of ten informants said that their company does product development with their key accounts. R1 added that in some cases they even invest into their key client’s facilities to increase cohesiveness.

Shared visible and substantive investment into a key account relationships according to the study by Davies & Ryals (2014) is the single biggest measure of KAM effectiveness. When asked about the quality of their key account relationships, informant R1 answered in the following matter.

“You could say it’s more of a strategic partnership.” (R1)

This quote emphasizes the importance of long-term relationships in their industry, where for example in the company’s case of R1 approximately 80% of sales comes from four big clients.

Strategic partnership concept also came up in the interview with R3, where the informant explained that in their key account relationships both parties benefit from each other’s success.

The client gets a constant supply of very specialized products and in return provides the supplier with a long-term demand forecast which helps the supplier company with planning of production and storage. The strategic partnership presented by informant R3 has various similarities with the results from the study by Linder (2019). These results indicated that information inflow from customers can increase production capabilities, such as flexibility, and helps in minimizing liabilities arising from scarce resources. In R3’s case the product

Key Account Management in Finnish small and medium-sized enterprises

University of Eastern Finland

Abstract

Tiivistelmä

Table of contents

1 Introduction

1.1 Research objectives

1.2 Research context

1.3 Structure of the study

2 Literature Review

2.1 Key account management

2.2 Stages of KAM

Small and medium-sized enterprises (SME)

Theoretical framework

3 Methodology

3.1 Research design

3.2 Data collection

4 Findings and Discussion

4.1 KAM in Finnish SMEs’