The Assessment Centre method to the selection of Key Account Managers under aspects of the Transaction costs

The Assessment Centre method to the selection of Key Account Managers under aspects of the Transaction costs __ I

Executive Summary

To create long-term and sustainable successful relationships to key customers (Key accounts) are one of the main figures in successful business in industrial sales and marketing. To solve this challenge special Key Account Managers with special key qualifications are necessary. To select and recruit these Key Account Managers the tool of the Assessment Centre is helpful. Standardized Assessment Centre does not lead to a selection of the most of the key qualifications of Key Account Managers, because no standardized tests exist. Therefore companies using the Assessment Centre method to select Key Account Managers have to design the Assessment Centre in that kind that it measures the necessary key qualifications and tasks. All the necessary activities regarding the pre-phase of contractual conclusions, like the Assessment Centre to the selection of the right person, develop Transaction costs which can have an impact to contractual transaction after a decision as well. How to design the AC to measure the key qualifications of Key Account Managers and to achieve by this way a minimization of the TAC is the main question answered in the assignment.

  The Assessment Centre method to the selection of Key Account Managers under aspects of Transaction costs  II

Table of Contents

1  Introduction  1

2  Transaction costs theory  2

3  Key Account Management  3

3.1  Term, importance, basic principle, and goals  3

3.2  Task spectrum and instruments of the Key Account Manager  5

3.3  Demarcation of the KAM from conventional sale  5

4  Assessment Centre  6

4.1  Term, history, and ranges of application  6

4.2  Characteristics and participants  8

4.3  Components of the AC  8

5  Assessment Centre to select Key Account Managers  9

5.1  Selected relevant TAC of the AC with the selection of KA-M  9

5.2  Some aspects of application of the AC to reduce TAC  11

6  Conclusion  15

  Bibliography  IV

Appendix   VI

ITMAAAAAAA  Checklist  XIII

The Assessment Centre method to the selection of Key Account Managers under aspects of Transaction costs III

List of Abbreviations

AC Assessment Centre cp. compare e. V. eingetragener Verein (German term) e.g. for instance ed. edition fig. figure HR Human resources ILM Internal Labour Market incl. include KA Key account KAM Key Account Management KA-M Key Account Manager KA-Ms Key Account Managers KA-RM Key Account Relationship Management KAs Key accounts no. number p. page pp. pages rev. revised TAC Transaction costs tab. table vol. volume

The Assessment Centre method to the selection of Key Account Managers under aspects of the Transaction costs 1

1 Introduction

One of the most important tasks in sales is the development of long-term and sustainable relationships to key customers (Key accounts). The relationship with KAs creates the success of enterprises and its sustainable ability to survive in competition on the market. The requirements at co-workers this challenge successfully to master is very high. For this reason special key qualifications are demanded from those co-workers, who are concerned with the structure and development of the relations with key customers. So therefore one of the most important tasks in the context of the concerned personnel work is the selection of suitable high-level personnel (Key Account Managers) which meets these requirements. To be able to select these KA-Ms enterprises use often the tool of the AC which is regarded in this assignment under aspects of the TAC. This assignment answers the question how to design an AC to select KA-Ms by focus on their needed key qualifications to minimize TAC. To answer the question the assignment uses aspects of the TAC-theory, introduces the basics of KAM, and the AC-method by evaluation of selected scientific literature. The assignment starts after this introduction with chapter 2 which gives an briefly overview about the TAC-theory and introduces it in its relation to the topic and from two helpful perspectives.

Chapter 3 provides an overview about KAM and focuses in the first part on the term, the importance of KAM, its basic principles, and its goals. The second part follows with focus to spectrum of the tasks of the KA-M and the necessary instruments, followed by part three which demarcates the KAM of the conventional sale.

Chapter 4 discusses the AC in the first part by introduction of the term, the history of the AC, and its ranges of application, followed by the second part, which covers the characteristics of an AC and its participants. Part three closes this chapter by a introduction of the AC-components.

Chapter 5 discusses the AC to select KA-Ms by a focus to selected relevant TAC of an AC at KA-M-selection and finishes with some aspects of application of AC to reduce TAC.

The assignment finishes with a conclusion, which gives an evaluation by the author and an outlook.

The Assessment Centre method to the selection of Key Account Managers under aspects of the Transaction costs 2

2 Transaction costs theory

The TAC theory is based on the research of Coase which was published in 1937. The subject of the Transaction cost theory is the question over a possible dependence of the choice of the organization form and co-ordination form on socioeconomic exchange relations with focus on the arrangement of efficient mechanisms with the completion on economic exchange actions between individuals and organizations. ¹ In that sense a transaction is the transmission of a property or service inclusive the achievement of the appropriate rights of disposal. ² In the context of transactions, costs are caused - named transaction costs - for preparation, agreement, required adjustment, and control of achievement relations. ³ Appendix 1, fig. 1 presents - with refer to Albach - different development forms ⁴ of transaction costs.

Williamson placed on the base of the work of Coase a partitioning of the TAC ⁵ presented in Appendix 2, fig. 2 - in relation to his estimation: ex-ante and ex-post. He defines ex-ante transaction costs as costs for searching and information, for preparation of contracts, for its negotiation, and as costs for the security of agreements. As ex-post TAC Williamson concerns to costs for adjustments, cost for the tuning of details as well as to costs for controlling and monitoring, and for penetration of contracts. TAC are a measure for the efficiency of the evaluation of the degree of achieving a goal and for the optimization of the selected organization form. It is in its optimum, if transaction costs are in its minimum and dependent from interconnection between measured variables (environmental factors) and behaviours (human factors). ⁶ The measured variables depend on the uncertainty into a business relation and the benefit, which results from another than the originally planned use of the investment. ⁷ The more specific the investment is, the more limited is its use for another use, which leads to high TAC - in a case of omission of achievements - and on one hand to a close connection of the investor

¹ Cp. Zernott (2004), p. 48.

² Cp. Picot / Reichwald / Wiegand (1998), p. 41.

³ Cp. Picot (1982), p. 270.

⁴ Cp. Albach (1988), pp. 1160-1161.

⁵ Cp. Williamson (1990), pp. 22-24.

⁶ Cp. Gruner (1997), p. 46.

⁷ Cp. Williamson (1989), p. 139.

The Assessment Centre method to the selection of Key Account Managers under aspects of the Transaction costs 3

to the supplier, and on the other hand to high TAC for a supplier for searching alternative investors who are interested in his achievements. ⁸ Uncertainties in the behaviour of the co-operation partners and the environmental factors are additional drivers of transaction costs, which are justified in limited rationality and the possibility of opportunistic behaviour of the transaction partners. ⁹ This is because of the fact that the admission and processing of information is subject to restrictions and the maximization of the benefit for one of the partnersto disadvantages of the counterpart (e.g. by holding back or distorting of information) - could lead to possible economical inefficiency, which leads to investments in extensive control and monitoring measures. ¹⁰ On one hand reducing of TAC may be helpful to reduce costs, on the other hand TAC may be helpful to strengthen a partnership and the business relationship. If the finishing of a partnership is related to a high step-out barrier (e.g. finishing costs) by high transaction costs, maybe the partners work better and sustainable together, because they are bound together, and the losses of finishing the relationship would weaken each of the partner. To identify, to influence and to optimize TAC concerns to all activities of an enterprise and is a factor to success.

3 Key Account Management

In this assignment it is necessary to present the basics of KAM, which will have a deep impact to the search of KA-Ms and the concerned TAC.

3.1 Term, importance, basic principle, and goals

The term: In the past a lot of different terms were used which shall describe the relationship to the most important customers of enterprises. The term KAM describes a form of the organization of the sales to KAs as a form of organization where special positions are formed and the owner of the position is only concerned to the sales to KAs. ¹¹ The KA-M uses special customer related methods of sales and marketing for realization and security of business possibilities with his KA to achieve strategic successes and advantages in competition. 12

⁸ Cp. Williamson (1989), pp. 139-141.

⁹ Cp. Zernott (2004), p. 51.

¹⁰ Cp. Williamson (1981), p. 553.

¹¹ Cp. Sidow (2002), p. 11.

¹² Cp. Sidow (2002), p. 11.

The Assessment Centre method to the selection of Key Account Managers under aspects of the Transaction costs 4

The importance: The structure of partnership business relations with the most important customers of the enterprise as well as the consistent adjustment of the offering enterprise on the needs of the customer are of fundamental importance for the success of the enterprise. ¹³ These customers - the KAs - have an enormous impact on the success of a company. A company has a strategic advantage, is more efficient than others, and have lower TAC in sales than its competitors, if the company is able to build up a long-term and trustful relationship to its most important customers. ¹⁴ For the offering company this can lead to high expenditures. For example it can mean to initiate special activities for customers, to employ or to educate special sales personal, and to adapt internal structures up to a change of the sales organization to multifunctional selling teams; an offering company cannot invest these measures in each relationship, so that the relationships and the resources which has to be equipped with these investments are carefully selected (e. g. personal resources, long-term relations, annual costs, life cycle costs). 15

The basic principle: The support of multinational customers, the customized creation of attractive achievement bundles, and the optimization and co-ordination of the internal activities of the offering company on international and multihierarchical level in relation to the development of country- and product spreading thinking and customer related organizational structures are the basic principle of the KAM. 16

The goals: It can be differentiated between strategic and derived goals of the KAM. Strategic goals - which are also presented in Appendix III, Fig. 3 - are the development of customer proximity and customer connection by relationship management, the development mutual synergies and the decrease of the transaction costs. ¹⁷ To achieve these goals the main interest of the KA-M is by caring for customer proximity and connection for getting a deep knowledge of the value chain of the customer, its optimization, and to optimize the relationship between customer and offering company. ¹⁸ From the strategic goals further goals

¹³ Cp. Lambe / Spekman (1997), pp. 61-62.

¹⁴ Cp. Jensen (2004), p. 23.

¹⁵ Cp. Day (2000), p. 25.

¹⁶ Cp. Jensen (2004), p. 3.

¹⁷ Cp. Kurz / Gut (2005), pp. 104-105.

¹⁸ Cp. Storp (2003), p. 102.