Developing a sales strategy for the 'T-Mobile International' account in the Siemens Mobile Network business unit

Table of Contents

Diploma Thesis

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Sperrvermerk

Language of this thesis

Abstract

Acknowledgement

Table of Contents

Abbreviations / Acronyms

List of Illustrations

List of tables

1 Introduction
1.1 Motivation of the study
1.2 Objectives

2 Theoretical Background
2.1 Explanation of terms
2.1.1 Strategy
2.1.1.1 The background of strategy
2.1.1.2 Strategy in Business Management
2.1.2 The Key Account
2.1.2.1 Differentiating the Key Account from the Key Account Team
2.1.2.2 A special kind of customer - The Key Account
2.1.2.3 Geographical distinctions of Key Accounts
2.1.3 Key Account Management
2.1.3.1 The origin of Key Account Management
2.1.3.2 Elements of Key Account Management
2.1.3.3 Elements of geographical distinctions in Key Account Management
2.1.3.4 Reasoning for Global Account Management
2.2 Strategy Development
2.2.1 The process of strategic management
2.2.1.1 Determining the Status Quo - Initializing the Strategic Management process
2.2.1.2 Market analysis
2.2.1.3 Company analysis
2.2.1.4 Strategic analysis
2.2.1.5 Vision and Mission
2.2.1.6 Strategy development
2.2.1.7 Strategy implementation
2.2.1.8 Strategy control and adjustment
2.2.2 The various approaches to strategy development
2.2.2.1 The market-based view
2.2.2.2 The resource-based view
2.2.2.3 The dynamic view
2.2.3 Levels of strategy
2.2.3.1 Corporate level
2.2.3.2 Business unit level
2.2.3.3 Functional level
2.2.3.4 Operational level
2.2.4 Porter's three generic strategies
2.2.4.1 Cost leadership
2.2.4.2 Differentiation
2.2.4.3 Focus
2.3 Findings

3 Applying Global Account Management to the Process of Strategy Devel- opment
3.1 Adaptations to the strategic management process
3.1.1 Analysis of the business status quo
3.1.2 Environment / Market analysis
3.1.3 Company analysis
3.1.4 Strategic analysis
3.1.5 Vision and Mission
3.1.6 Strategy development
3.1.7 Strategy implementation
3.1.8 Strategy control and adjustment
3.2 Adapting the various approaches of strategic management
3.2.1 Adapting the different views of strategic management
3.2.1.1 The market-based view
3.2.1.2 The resource-based view
3.2.1.3 The dynamic view
3.2.2 Levels of strategy
3.2.2.1 Corporate level strategy
3.2.2.2 Business unit level strategy
3.2.2.3 Functional level and operational level strategy
3.2.3 Porter's three generic strategies
3.3 Findings

4 Applying Theory to Reality - The Case of T-Mobile at Siemens Mobile Networks
4.1 The Status Quo of the businesses between Siemens and T-Mobile
4.1.1 The position of Siemens and T-Mobile in the industry value chain
4.1.2 The satisfaction level of T-Mobile with Siemens MN and performance discrep- ancies
4.1.3 The current strategy of Siemens MN for the customer T-Mobile
4.2 Market and Customer analysis of the Key Account T-Mobile
4.2.1 The analysis of the competitive market forces for the mobile communication industry
4.2.1.1 Rivalry amongst the competitors
4.2.1.2 New entrants
4.2.1.3 Substitute products
4.2.1.4 Bargaining power of the supplier
4.2.1.5 Bargaining power of the customer
4.2.1.6 Complementors in the mobile communication industry
4.2.1.7 The global market for mobile communication equipment
4.2.1.8 The market paradigm in the mobile communication industry and possible changes
4.2.2 The position of T-Mobile in the mobile operator market
4.2.3 SWOT Analysis of T-Mobile
4.2.4 T-Mobile's strategy
4.2.5 Possible business development scenarios of T-Mobile
4.2.6 The organisational structure of T-Mobile in relation to the purchasing process
4.3 Company analysis of Siemens
4.3.1 The interdependence between T-Mobile and Siemens
4.3.2 The organisational setup of the T-Mobile global account team at Siemens
4.3.3 Availability of Siemens products in the customers countries
4.3.4 SWOT Analysis for Siemens MN
4.3.5 The strategy of Siemens on different company levels
4.3.6 Alliances of Siemens and the global account team
4.3.7 The global frame and pricing agreement between Siemens and T-Mobile
4.4 Strategic analysis
4.4.1 The geographical characteristics of T-Mobile
4.4.2 The market characteristics and competitive situation
4.4.2.1 The current and future addressable market split into regions
4.4.2.2 The share of wallet of the current addressable market
4.4.2.3 The suppliers footprint at T-Mobile and spending allocation by technology
4.4.2.4 Strategic match between T-Mobile and Siemens Mobile Networks
4.4.2.5 The relationship level between Siemens and T-Mobile
4.5 Vision and Mission of the Global Account Team 'T-Mobile'
4.6 The global account team strategy for the customer T-Mobile

5 Prospects, Limitations and Conclusions of the Study
5.1 Prospects
5.2 Limitations
5.3 Conclusion

Annex i

A References i

B Appendix xi

a Tables xi

b Screenshots xiii

C Expert Interviews xv

D Affidavit / Eidesstattliche Erklärung xvii

E Curriculum Vitae xviii

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Language of this thesis

This thesis has been written in partial fulfilment of the requirements for the degree of a German diploma. However, it was chosen to write this thesis in English. The basis for spelling is British English; some quotes may be in nonBritish English, but are not especially marked.

Abstract

In the course of this paper, it is illustrated how key account management, with the key account customer as core element, affects the strategic management process by using it with focus on a single customer instead of applying it to a whole industry.

After describing the essentials of strategy, key account management and stra- tegic management, these elements are merged and the different underlying analytical concepts are presented. The main analytical concept is based on Michael E. Porter's competitive strategy and the five competitive forces.

The focus lays on the adaptation of the strategic management process to the particularities of international key account management and thus to a single customer.

For the purpose of taking key account management to an international level, different levels of internationalisation are described and applied to the concept of key account management. As a result of this description, the concept of expanding key account management to a global level - global account management - is presented.

Following the description and the merging of the models, the theoretical framework is applied to the practical case of the T-Mobile account at Siemens Mobile Networks. The practical case includes the analysis of the business relationship and leads to a final strategy.

Keywords:

Global account management Key account management Strategic management Strategy Transnational business

Acknowledgement

This document has been written at the suggestion of Siemens AG.

For the task, possibility of accomplishment, and the supervision I would like to express my gratitude.

I am especially obliged to Mr. Stephan Schroeder at Siemens AG for the extensive professional, personal and organisational support during the process of writing this thesis.

For their suggestions, continuous support and constructive discussions, I would like to express my gratitude to all my colleagues at Siemens, especially Mr. Markus Scheibenbogen, Mr. Matrin Weidemann, Mr. Gerald Krebs, Ms. Jutta Juellich, Mr. Jonas Klee, Mr. Peer Wiethoff, Ms. Kerstin Pieta and Ms. Susanne Fettig.

For the professional support and providing all necessary data, I appreciate the help of a great number of employees at Siemens AG, especially all the participating members of the global account team responsible for T-Mobile that are located in subsidiaries in various involved countries.

Further persons that I would like to express my special gratitude to for their great support and advice are Ms. Sonja Biermann, Mr. Mark Pascal and Mr. Tom Gunkel.

For the support by the university, I am grateful to Prof. rer. pol. Frank Linde at the University of Applied Sciences Cologne.

Finally, I am much obliged to my family and parents Wilhelm und Gabriele Weber for supporting me all along the way through my studies. This work is dedicated to them.

Abbreviations / Acronyms

Abbildung in dieser Leseprobe nicht enthalten¹²³

List of Illustrations

Illustration 1: Different levels of geographic expansions of accounts and suppliers

Illustration 2: Types of customers by purchasing level

Illustration 3: The key to success in KAM

Illustration 4: Customer-related complexities

Illustration 5: Supplier-related complexities

Illustration 6: The strategy management process

Illustration 7: The Strategy-Making Pyramid for a diversified company

Illustration 8: Three generic strategies by Porter

Illustration 9: Macro business system

Illustration 10: Porter's five forces

Illustration 11: The ideal global product

Illustration 12: Key account relational development model

Illustration 13: Siemens MN product portfolio dimensions

Illustration 14: Value Chain of the mobile communication industry

Illustration 15: Ranking of Siemens MN competitors by worldwide sales volume 2005

Illustration 16: Shifting market paradigm in the mobile communication industry

Illustration 17: Equity share of T-Mobile and Deutsche Telekom AG of National Mobile Carriers

Illustration 18: The organisational setup of the purchasing process at T-Mobile

Illustration 19: Siemens Strategic planning process Part 1

Illustration 20: Siemens Strategic planning process Part 2

List of tables

List of tables

Table 1: The three views of strategy

Table 2: Top 10 Mobile Operators worldwide

Table 3: T-Mobile market overview

Table 4: SWOT Analysis T-Mobile

Table 5: Siemens 'Com' presence in T-Mobile countries

Table 6: Advantages and disadvantages of alternative radio technologies

Table 7: Estimated addressable spending per country 2005-2008 (EUR m)

1 INTRODUCTION

In a world with increasing competition through enhanced information flow and declining trade barriers, companies are merging and market shares are split by a shrinking number of large market players. Along with this development, new highly complex technologies and services evolved in the last two dec- ades. As a result of this development, suppliers that had historically grown structures of separate business units experienced growing difficulties to deliver such complex products out of one hand to these ever-growing custom- ers; the supplying companies were challenged to introduce new ways of sell- ing. One approach to face these challenges was the development of key account management programs which are set up for especially important cus- tomers.

1.1 Motivation of the study

For more than When starting to develop the sales strategy under the given circumstances of international key account management, it became clear that this topic had not been especially addressed, neither in practice at Siemens nor within the scientific world. However, within recent research, strategy in the context of key account management was already a topic, but it rather related to key account management as a strategic tool itself and how to set up the key account personnel strategically within the organisation. Then again, neither a specific process was described how to develop a strategy with relation to the sales process towards the customer nor did most of the literature refer to the implications of applying key account management to an international busi- ness.

The thesis is thus addressing this shortcoming by developing a theoretical background that can serve as a solid foundation for a practical solution; the core purpose is to design a process which is optimised to develop a sales strategy under the umbrella of international key account management.

1.2 Objectives

The thesis has been structured into five parts.

Chapter 1 features the introduction of the thesis and illustrates the motivation of this work.

In order to impart a basic knowledge of the main concepts, Chapter 2 introduces the models and elements of strategy and key account management with its different peculiarities as well as the concept of strategic management to the reader. In this section the term key account and key account management are defined while special attention is given to the different levels of international business and how they affect key account management. Furthermore, the strategic management process is described and, additionally, aspects relevant to developing a strategy in a company.

In Chapter 3 the concept of key account management on an international level is applied to the process of strategic management in order to develop a sales strategy. The process is divided into its single elements which are then adapted to key account management. The main focus is put on the analytical part of the process and shows the particularities which are a result of this adaptation.

Chapter 4 deals with the application of the theoretical findings to a realistic case which results in the development of a strategy for the key account cus- tomer T-Mobile at Siemens Mobile Networks. The relation between Siemens and T-Mobile is comprehensively analysed. This is done on the basis of a data collection which was conducted during the parallel active work within the company and exists of internal documents and surveys as well as external sources. This was part of the practical application and is based on the findings of Chapter 4. The 4th Chapter shows to which degree the theoretical process of strategic management can be applied to key account management in a realistic situation and follows along the process until the definition of a strat- egy.

The final and fifth chapter gives a summary of the findings and illustrates further possibilities in the field of research as well as for the practical implementation of the strategy.

2 THEORETICAL BACKGROUND

In the following chapter the theoretical basis of the thesis shall be given. This will include the explanation of key terms as well as the description of processes and models applied later on.

2.1 Explanation of terms

The following terms shall be defined as they are key concepts that are used throughout the document.

- Strategy
- Key Account
- Key Account Management

2.1.1 Strategy

As the concept of strategy is used, when defining key account and key account management (KAM), I shall be explaining this term first.

While searching for a definition of the term strategy, various interpretations and concepts were found. Accordingly, this discussion could easily be the subject of an academic thesis by itself and “within both business and academic circles, it would be quite miraculous to identify two people who share the same definition of strategy.” (Markides, 1999; p. 6). Therefore, I shall give a synopsis of the term strategy on the background of economy.

2.1.1.1 The background of strategy

The word strategy is rooted in the Greece word ‘strategos’ and is initially related to the function of an army general; hence it is drawn from the art of warfare, where a central person was in charge of various troops on the field, whose deployment could make the difference between victory or defeat (cf.: Welge et al., 1999; p. 12). “[…] The systematic study of strategy in business and management is of relatively recent origin. The concept first gained cur- rency in the area of military activity and was associated with the planning of wars, campaigns and battles […] It only began to be widely applied in busi- ness and management after the publication of Chandler’s book [Chandler, A., 1962: Strategy and Structure Cambridge, MA; MIT Press] on strategy and struc- ture in 1962.” (Mansfield, 2002; p. 6120).

2.1.1.2 Strategy in Business Management

As stated above the definitions of strategy are plentiful. It seems, though, that there is a general common understanding as to what a strategy is in practice. To give an example, below are stated three different examples of strategy definitions in the context of business management:

- Strategy is “[…] the determination of the basic long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.” (Chandler, 1962; p. 23)
- “Strategy is a deliberate search for a plan of action that will develop a business’s competitive advantage and compound it.” (Henderson, 1989; p. 141)
- “Strategy is the creation of a unique and valuable position, involving a different set of activities.” (Porter, 1996; p. 68)

Even though these definitions differ to some degree from another, they seem to have elements in common which were identified and described by LETTAU as the capabilities of a strategist - or in conclusions, strategic thinking as:

- All-embracing thinking
- Goal-oriented thinking
- Long-term thinking
- Differentiated thinking (various elements of an organisation deployed to various situations)
- Thinking about alternative courses of action
- Calculating the consequence of alternatives (cf.: Lettau, 2001; p. 19-22)

Thus “strategy is a search for economic ‘rents’ (similar to profits) - that is, economic performance above the norm […]” (Gorman et al., 2002; p. 971). This distinguishes strategy further from operations management that aims at taking decisions in the short-term, for day-to-day management of the business (cf.: Gorman et. al., 2002; p. 970). In this context, PORTER distinguishes between ‘operational effectiveness’ and ‘strategic positioning’. Following PORTER's idea, tools such as ‘total quality management’, ‘outsourcing’, ‘re- engineering’, ‘change management’ and further more belong to the opera- tional field and therefore not to strategy (cf.: Porter, 1996; pp. 61). For the term strategy in the course of this thesis, the definition by ANDREWS shall be the framework reference: “The intellectual process of ascertaining what a company might do on terms of environmental opportunity, of deciding what it can do in terms of ability and power, and bringing these two considerations together in optimal equilibrium” (Andrews, 1971; p. 12).

As ANDREWS definition already indicates, a strategy is not necessarily a writ- ten statement that can be grasped but rather a process that leads to assump- tions which are expressed in strategic objectives that are sometimes repre- sented in their essence in a Vision/Mission statement. This process, which is part of strategic management, shall be described further below. After all „it is important to remember that no one has ever seen a strategy or touched one; every strategy is an invention, a figment of someone’s imagination“ (Mintzberg, 1987; p. 16). However, the purpose of going through the process of developing a strategy gives the involved participants a more common understanding of the business focus. Furthermore, the statement of two or three strategic objectives produces a definite picture to the environment.

2.1.2 The Key Account

After having given a general explanation of the term strategy in business management, the focus shall be narrowed to KAM. Before describing the management of a subject though, a detailed definition of the subject at hand shall be given - the key account.

While conducting research on the topic of key accounts and the related KAM, various terms and book titles such as “Large Account Management” (Miller et. Al., 2004; Title), “Major Account Sales” (Rackham, 1989; Title) and “ […] Managing Strategic Accounts” (Sherman et. Al., 2003; Title) were to be found. After examining these and others, in essence, all this literature is deal- ing with the same topic. To draw distinctions between those various terms would be beyond the scope of this thesis and, in consequence, the terms key account and KAM (which are by far the most commonly used) shall be employed synonymously with the terms in question (Major, Strategic, Large, etc.), regardless of minor variations intended by the authors.

2.1.2.1 Differentiating the Key Account from the Key Account Team

First of all, in line with the common use in literature, the term key account shall refer to the customer of a supplying company throughout this thesis. This distinction is made in reference to the understanding of 'Key Account' or 'Key Accounting' at Siemens, where the term is also used in connection to the people in the internal organisation who are dealing with the customer. For this organisational unit within the supplying company, the term key account team shall be used in this document.

2.1.2.2 A special kind of customer - The Key Account

In the literature, there are several brief definitions of key accounts. MCDON- ALD, MILLMAN and ROGERS for example state that “Key accounts are custom- ers in a business-to-business market identified by selling companies as of stra- tegic importance.” (McDonald et. al., 1997; p. 737). CAPON takes this a step further by declaring that “key accounts are the firm’s single most important asset inasmuch as they supply the majority of sales revenues to support its investment and cost structures.” (Capon, 2001; Preface, p. xi). Opposing this, CHEVERTON states that there is no exact definition of a key account, as it rather depends on “your market, your aspirations, your current level of suc- cess, your competitors' activities and a lot more besides.” He says that “it is for you to choose the definition, based on the dynamics of your own industry, your own customers and your own business.” (Cheverton, 2001; p. 6). Reviewing the quotes above, it becomes clear that a key account is a business customer of a company (B-2-B) that is of more importance than other custom- ers. However, there does not seem to be a strict definition for the qualifica- tion of a customer to gaining the status of a key account.

CAPON's definition above already points out a central element that can help to narrow down the idea of a key account by addressing the issue of the amount of revenue a customer is generating, which can be found in various sources (cf.: Capon, 2001; p. 18 / Cheverton, 2002, p. 7 / Bacon, 1999; p. 43). In this context BACON quotes the “[…] Pareto principle (also known as the 80-20 rule) […]” (Bacon,1999; p. 43), meaning that “80% of the firm’s rev- enues is supplied by 20% of its customers” (Capon, 2001; p. 18). Variants of this factor like ‘90/10’ or ‘75/25’ are of course possible. (cf.: Capon, 2001; p. 18). According to CAPON “these high current (and poten- tial) volume (and profit) customers are the firm’s critical assets […] Both the high value of, and increased competition for, this special set of customers suggests that they should be treated differently from the firm’s “typical” cus- tomers. Indeed, they should receive a disproportionate share of firm resources and are worthy of greater managerial attention.” (Capon, 2001; pp. 18).

In consequence to the ‘disproportionate share of firm resources’, normally a team of employees (a key account team) is allocated to handle all dealings with the specific customer. This means that the company is spending “huge energies and vast budgets.” (Cheverton, 2001; p. 7) So a key account is not just a customer but a long-term strategic option from the perspective of the supplying company. This is the basis for CHEVERTON’s argument why the term ‘account’ instead of ‘customer’ is used: “[…] the word […] represents the customer as an investment made by the supplier in its own future. It is an investment of time and effort, in many cases requiring a short term sacrifice for prospective long-term gains.” (Cheverton, 2001; p. 7).

Although there is no strict definition as CHEVERTON already indicates. From the above quotes it can be concluded though that a key account is a business customer which accounts for a disproportionate high amount of revenue gen- erated (at current present or in the future) and is significant to the future sales development of the company. So the exact definition which specifies a customer as being a key account must be defined by the supplying company.

The key account 'T-Mobile International' has been set up for more than # years. Therefore a detailed explanation of how to choose a key account (a topic a topic that also accounts for a great deal of KAM literature) and why Siemens has chosen 'T-Mobile International' as a key account would be beyond the scope of this thesis.

2.1.2.3 Geographical distinctions of Key Accounts

As the later practical element of this thesis deals with a key account conduct- ing business not only in one country but in many, it is necessary to distinguish between the different geographical levels in this context in order to accom- modate the special circumstances which have to be observed in these cases.

In a systematic approach this means that the term key account is seen as a generic term, whose essential meaning (as described above) is still true for more specific terms that are differentiated on a geographic level in this case.

In this context WILSON and SPEAR differentiate KAM and the corresponding key accounts business activities on a national, international, regional and global level. (cf.: Wilson et al., 2002; pp. 3). Illustration1: Different levels of geographic expansions of accounts and suppliersSource: Wilson et al., 2002; p. 3

Though the purpose of this chapter is the distinction of key accounts, the differentiation as shown is not only valid for key account customers but as well for suppliers, as the idea of this distinction is to analyse where a company or business unit is conducting business. Therefore these levels apply to companies or business units in general on the supplying side as well as on the buying side and have been described by YIP and MONTGOMERY with some further distinctions by WILSON and SPEAR, including aspects of strategy.

The national level is the basic level and describes the domestic business. Quite often, but not necessarily, the basis of a strategy is developed at national level as a first version and may then be implemented at a higher geographical level. Here YIP already points out that sometimes the term 'country' can be problematic. As an example he states the 'BeNeLux' countries, which legally comprise three countries but are often managed as one market. (cf.: Yip, 2003; p. 3-8).

The next level is the international business covering everything that is not the domestic business. Typically though, this would not cover the whole world but a few extra countries. However, in this case the fundamentals of the home market strategy are carried along into the foreign markets and are then tailored to local conditions. The subsidiaries of international companies sometimes act with significant autonomy and are not always aligned with the group’s main objectives (cf.: Yip, 2003; p. 6-8).

According to YIP, the regional level is a subclass of a global strategy, relating to a continental or subcontinental level e.g. the European Union or the ASEAN trade organisation⁴.(cf.: Yip, 2003; p. 8). WILSON and SPEAR describe the regional level further as “ […] international facilities [that] are often control- led and staffed by executives from the company's home HQ and have little autonomy [in the early days]. However, as they become established, […] they develop increasing autonomy and tend to be controlled by country and regional managers who are responsible for local procurement, manufacturing, and marketing. […]. With increasing international growth and the develop- ment of country/regional operational silos, national culture will impact upon the way far-flung elements of the organization operate and will serve to accelerate the move towards decentralization.” (WILSON et al., 2002; p. 4).

An additional term that Montgomery and YIP identify between the interna- tional/regional and global level is the multilocal company or strategy that is marked by extensive international revenues and activities and may have strong country organisations and various value chain activities that are dupli- cated around the world. The focus of the decisions is put on the local needs of local customers and the coordination across borders is limited (cf.: Mont- gomery et al., 2000; p. 28).

The global company then “[…] makes strategic decisions on a globally integrated basis. [The] Value chain is geographically specialised and networked. Products and processes are designed to be global with capability for local adaptation at minimal cost […] .“ (Montgomery et al., 2000; p. 28).

On the global level a further distinction is possible and should be considered in the case of defining a global account. The highest business level is the Global Player which is a large, geocentric organisation and has integrated all major business functions worldwide. Close to this level is the level of the Global transitional company which can mostly be recognised in medium-sized organizations that exhibit a certain degree of central coordination and integration of worldwide operations. The 'entry' level to true global business is identified as the Global aspirants that are ethnocentric companies in the early stages of global expansion (cf: Wilson et al., 2002; p.5).

--->>> To avoid misunderstanding in the further course of this thesis,

whenever referring to some kind of international scope as understood in the colloquial use of this word and not specified as done above, the term 'international' is replaced by the term 'transnational'⁵<<<---

After having given the distinctions between the different geographic levels, it becomes clear that the global level is at the very end of the scale which begins with the national level of business. All the other levels are positioned somewhere in between and, though they are described above, are always sub- ject to different interpretations by different companies. As the global level is the ultimate one and also demands the furthest reach of the supplier com- pany, the resulting definition of a key account on a global level shall be given in this chapter.

“There are […] two reasons why it is important to clearly define what is meant by the term global account. Firstly […] if your cus- tomer is not truly global, then it is unlikely that it will be able to implement a global agreement that goes very far beyond a global pricing agreement” (Wilson et. al., 2002; p. 2)

This implies that the customer will use the global pricing agreement (in the following also referred to as global price book) to increase his purchasing power in order to lower the prices without a true benefit to the supplying company.

Secondly, even though it is possible to make global offerings as a global supplier, treating an account that is not a true global player in this way can become expensive and counterproductive. This does not mean that every account that is not truly global should be ignored or treated as second class; however, the difference in the geographic level should be acknowledged. It is necessary that this differentiation is understood within the supplying organisation in order to accommodate the different circumstances and potential of these customers (cf.: Wilson et. al., 2002; pp. 5).

To subsume the above, definitions from the literature help to shape the understanding of the term global account further. The definition by HENNES- SEY reflects the already stated definitions of a key account but gives further distinctions: “Global accounts are large companies that operate in multiple countries, often on two or more continents, are strategically important to the supplier and have some form of coordinated purchasing across different coun- tries.” (Hennessey et. Al., 2003; p. 1). This definition already reflects some of the important elements presented above, but is not paying tribute to all aspects. Thus WILSON and SPEARE take a further extended view at what a glo- bal account is and also what a global account is not. “To qualify as global the customer must obviously operate internationally, though not in all parts of the world, but geographical reach is not, of itself, an adequate descriptor of a global account”. (Wilson et. Al., 2002; p. 1). Three additional key qualifiers define global accounts as opposed to those customers that merely have a large international presence:

- “They must be strategically important to your company.”
- “They must demand, and be capable of accepting, a global offering from you.”
- “They must have a centrally coordinated purchasing process.” (Wilson et. Al., 2002; p. 1)

Summarising these three qualifiers is a comprehensive definition by WILSON, MILLMAN, CROOM and WEILBAKER that shall be used as the definition for the remainder of this thesis: “A global account is one that is of strategic impor- tance to the achievement of the supplier’s corporate objectives, pursues inte- grated and co-ordinated strategies on a worldwide basis, and demands a glo- bally integrated product/service offering from its suppliers.” (SAMA, 2005a; p. 6).

Concerning the centrally coordinated purchasing process, a further definition by YIP shall be give, that summarises the typical purchasing behaviours of different types of companies with respect to the level of control from HQ and the markets involved:

2.1 Explanation of terms

Abbildung in dieser Leseprobe nicht enthalten

Illustration2: Types of customers by purchasing levelSource:Yip, 2003; p. 37

Though this illustration does not map levels like regional or multilocal customers, it points out the aspect of the GPB mentioned before. The GPB can be used by the various local subsidiaries of the customer to lower the local purchasing prices but only if it is centrally coordinated by the HQ. It is also of advantage to the supplier, because less staff are needed and technical specifications can be coordinated through a single point of contact.

2.1.3 Key Account Management

After describing the subject of KAM, - the key account -, the management approach of this subject shall be explained.

2.1.3.1 The origin of Key Account Management

According to CAPON: “Securing and retaining customers is increas- ingly recognized as the fundamental requirement for improving shareholder value, the primary objective for many corporations around the world. All firms develop their own methods of communi- cating with customers, but typically in business-to-business market- ing, an on-the-road sales force is a critical element in this process. However, in recent years significant pressure has been placed upon the traditional sales force system. As powerful forces have raised the perceived importance of sales and customer management, many firms are reevaluating their sales force processes. As a result, the traditional sales force system is fragmenting and many corporations are developing key account management programs as a new way of organisational life.” (Capon, 2001; pp. 3)

Although this could imply that KAM is a relatively new development, BACON states that “the concept originated in the 1960s […], but it probably had its antecedents during the post-World War II years as the rapid growth of the economy stimulated large-volume purchases among industrial organizations […] and the aerospace and defence firms, all of which became giant buyers as well as sellers.” (Bacon, 1999; p. 3)

Nevertheless, it appears that KAM itself has only been treated as an independ- ent discipline in the 1980s and “[…] [that] the characteristics and techniques of key account management had not been extensively explored until Cran- field’s [Cranfield University School of Management] breakthrough research, published in 1996, which explored the characteristics of key account manage- ment from the supplier’s […] and from the customer’s point of view.” (McDon- ald et. al., 1998; pp. 2) The fact that the majority of literature on KAM is less than 7 years old⁶, supports the fact that KAM as a subject may be receiving increased attention as globalisation grows stronger (cf.: Zupanic et. al. 2005; p. 26).

Another important aspect which is becoming ever more important in the con- text of KAM is the increasing degree of complexity of technical equipment⁷. Large technology companies⁸may have a wide range of highly advanced prod- ucts that have a great degree of complexity and very detailed specifications. They are produced and serviced in various business units which sometimes even compete against each other. In the best case all these products are man- ufactured in order to satisfy and match the need of the customers (cf.: Drucker, 2001; p. 20). Due to the complexity and range of these products, they are often bundled and sold in a package. At this point it becomes neces- sary to avoid different departments issuing different tenders with varying prices and contradicting conditions. This leads to the aspect in KAM that can be called the 'one face to the customer' approach, where the customer only receives one comprehensive tender from the key account team. Thus the key account team generally is comprised of a matrix structure ensuring represen- tation from all the relevant departments.

2.1.3.2 Elements of Key Account Management

According to CAPON’s congruence model, comprehensive KAM includes the elements Organisation, Human Resources, Systems and Processes and Strategy (cf.: Capon, 2001; p. 34)

- The organisation element refers to the line organisation designed to support the key account strategy and the roles and responsibilities of the principal players.
- The human resource element refers to the human resource involved in managing key account relationship, with particular focus on the key account manager.
- The systems and processes element refers to the human- and informa- tion-technology-based systems and processes required for developing and managing key account relationships.
- The strategy element refers to the extent to which the supplier firm is prepared to commit resources to KAM and building and managing the key account portfolio. (cf.: Capon, 2001; p. 34).

When observing these elements more closely, it can be concluded that there are two aspects to KAM:

- On the one hand, there is (are) the key account team unit(s) within the supplying organisation that appear(s) in various forms on the 'organisa- tion chart' and is (are) managed by key account managers. These units, including the key account managers, are coordinated and sponsored by a senior manager (quite often at CEO level) who himself is not (neces- sarily) in contact with the customer. This is the organisation's internal aspect of KAM and relates to the above elements 'organisation' and 'human resources' .
- On the other hand, there are key account team units, with their core functions to actually sell products to the customers, that are lead by key account managers who are in charge of dealing with the customer. This relates to the above elements 'systems and processes' and 'strategy' and is the organisations external aspect to KAM. This is the part with which the customer is directly involved.

These two aspects are displayed in the keyhole analogue graphic by BELZ, MÜLLNER and ZUPANIC.

The internal aspect as shown below is analogue to the element 'Organisational KAM', while the external aspect is analogue to the element 'Functional KAM'.

2.1 Explanation of terms

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Illustration 3:The key to success in KAM Source:Adapted from Belz et al., 2004; p. 37

As this illustration indicates, the key to successful KAM is the integration of the functional and organisational aspect. If, for example, a key account manager comes up with a very shrewd sales strategy, it is still only worth as much as the senior management supports the key account team unit in it's execution. So the levers for successful KAM are functionally the level of the relation to an individual key account and also organisationally at the level of the KAM system seen as an integral part of the business.

This thesis shall focus on the strategy development at the functional KAM level. However, as shown above the two levels are interdependent and col- laboration between both levels is of high importance for successful KAM. Therefore some elements of this paper may also belong or relate to the organ- isational KAM level.

Further explanations to be mentioned on the functional KAM level are the management of a certain amount of dedicated employees (the key account team) who are solely dealing with one key account and a key account man- ager who is in charge of one or maybe two key account teams. The key account team then acts as a single point of contact to the key account (with individuals of the team related to dedicated topics), amongst other things having the function to avoid multiple tenders and passing on contradicting information while identifying the need of the customer in order to deliver individual solutions (cf.: Bacon, 1999; pp. 21). Putting those solutions into effect and driving them within the company is a central task of the key account manager. The “[…] account manager […] is the guardian of the […] customer relationship, orchestrating the deployment of corporate-wide resources to provide comprehensive product, service and solutions to the […] account.“ (SAMA, 2005b).

As mentioned in the explanation of the term key account, proper KAM demands a certain level of resources and investment not only in terms of the key account team but also in a financial and time aspect. In this context GÖTZ (1995) states that a revenue of DEM 10m. (≈ EUR 5.1m.) of the supplier company is close to the minimum, where KAM would still makes sense (cf.: Götz, 1995; p. 116). With rising prices and 'associated employer outlay', it can be assumed that this amount these days is significantly higher.

Recapitulating the above MILLMAN's definition of KAM summarises the above statements: “Account Management is an approach adopted by selling compa- nies aimed at building a portfolio of loyal key accounts by offering them, on a continuing basis, a product/service package tailored to their individual needs. To co-ordinate day to day interaction under the umbrella of a long term rela- tionship, selling companies typically form dedicated teams headed up by a key account manager. This special treatment has significant implications for organisational structure, communications and managing expectations.” (Cheverton, 2001; p. 7).

Consequently, in the authors’ understanding, KAM should not only be seen as an enlarged sales initiative but as a complex own discipline that is also a means of dedicated communication with a chosen customer.

This understanding of KAM seems to differ from the more common but rather inflationary use and occasional misuse of the terms key account and KAM as a recent temporary fashion. In these cases, any customer who is bigger (in terms of revenue or employees) than oneself is understood as a key account. Typically, a single sales representative takes on the status of a key account manager, most likely providing three or more customers with off-the-shelf products.⁹

2.1.3.3 Elements of geographical distinctions in Key Account Manage- ment

Following the geographical distinction used in the description of key accounts before, the same can be done for KAM. In consequence, KAM is seen as the generic term with all of its elements described above also true for the more specific geographic levels. These levels are similar to the ones in the explanation of key accounts. As with the key account, the highest level of geographical distinction in KAM is the global account management (GAM).

Since the geographical distinction was already described in the explanation of key accounts, its impact on KAM will now be explained. When taking KAM on a wider geographic scale extending past national boundaries, certain elements of KAM gain importance and additional factors emerge. Most of these factors are independent of the distinction of the different geographic levels. Additionally, at the level of global business, there are some factors that are only valid for GAM. In accordance with the above description of KAM, these factors are effective on the organisational and functional level¹⁰.

The various factors that come into effect when taking KAM on a transnational level will now be described, based on the latest findings on this topic by CAPON, POTTER and SCHINDLER. The first illustration and the following explanation relate to the functional (external) level of transnational KAM. The second illustration (p. 21) and explanation will show which factors emerge on the organisational level of transnational KAM.

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Illustration4: Customer-related complexitiesSource:Capon et al., 2006; p. 14

Product comparability

Before the idea of globalisation emerged, most companies that were operat- ing transnationally had their rather independent local subsidiaries of whom most purchased individually tailored products/services from local suppliers. An advanced stage was the purchasing in a different country (eventually the one of the firms HQ) and the import of these goods. Due to this rather uncoor- dinated purchasing process, the products and services differed by quality and design, though, in the end, they might serve the same purpose/end product. With the increasing degree of internationalisation, companies realised a high saving potential by standardising their processes and hence the used standard- ised products/services. For this purpose the customers set up centralised pur- chasing departments to ensure that products were comparable throughout the various countries. Additionally, global customers are more and more demand- ing concurrent global product availability. While the product launch timeta- bles were at first rather sequential, today the customers demand new prod- ucts to be simultaneously available on a global basis. This challenge is a highly demanding task for the key account team, requiring well established contacts within the own company to coordinate the production process as well as suffi- cient communication with the customers’ subsidiaries (cf.: Capon et al., 2006; pp. 14).

Time and distance

With the extended reach of a company spread across a continent or more, the time factor gains importance. For a key account manager the competency in time management becomes more and more important. But when “assuming an

8 hour working day, two-thirds of the world are out of sync.” This time differ- ence may be compensated by longer work hours, but also has its limits. With the emergence of the nowadays almost ubiquitous Internet and e-mail, the means of communication can be improved and some time delays compen- sated, but they do not always match the effectiveness of a live conversation. Flying to cover such distances is of course another temporary solution to this problem, but it only shifts the problem to another location, is another addi- tional stress factor to the key account manager and can become a real cost factor. (cf.: Capon et al., 2006; p. 16).

Communication

In addition to the time and distance, working in a global environment chal- lenges the supplying company to be able to communicate in different coun- tries with different languages and cultures. Though English is becoming the language most widely used, a global key account team has to make special efforts to effectively communicate with the customer. Finding high calibre personnel may be a high challenge and costly, too. (cf.: Capon et al.. 2006; p. 16).

Cultural differences

A factor that is closely related to the communication element is the cultural difference in the various countries of the customer's subsidiaries. This relates to daily life as well as business life in particular. Not only is it important to take this factor into account when addressing subsidiaries, but also that there might be 'unsolved' cultural differences between the customer’s HQ and the subsidiaries that a key account manager and key account team should be aware of (cf.: Capon et al., 2006; p. 17).

Support expectations

With the growing relationship the customer realises the importance of his business to the supplier’s revenue base. Invested with such power the cus- tomer will demand special dedication by the company. This may include the demand that the best people from the supplier's side are assigned to the projects and that a direct contact to the senior management is established.

The level of expectation rises with the geographical reach and, in consequence, a global account will be the most demanding customer (cf.: Capon et al., 2006; p. 17).

International contracting

Transnational customers increasingly want transnational contracts with the global level as the highest form. The logistics of creating a global contract is often complex. When customers request a single global contract, it can take the legal and business practices team several months to secure sign-off from local countries. Requested terms might conflict with local country laws and warranty liabilities often differ across countries. Typically, the lead country receives amended contracts from individual countries (cf.: Capon et al., 2006; p. 17).

Corporate politics and parochial interests

With the implementation of centralised global procurement and the introduc- tion of a global frame agreement, the local management of the customer's subsidiaries can easily feel missed out in the purchasing decision, thus leading to conflicts with the HQ. In this situation, the global account team as well as the global account manager can easily become stuck inbetween the two parts of the customers organisation being urged by the customers HQ to enforce the global frame agreement and dealing with the customers internal problems. (cf.: Capon et al., 2006; p. 17).

Global pricing

The element of global pricing seems to be the ultimate distinction between national KAM and anything that goes beyond this geographic distinction. “Tra- ditionally, suppliers used geographic segmentation to set prices around the world. […]. Pricing methodologies involved cost mark-ups for transportation, duties and tariffs, and exchange rates. More often, they were driven by opportunism regarding what prices were acceptable in different countries.” Depending on the competition in the local markets, suppliers asked for prices which varied immensely between those markets, often subsidising low margins in one market with another. With the implementation of global procurement, customers expect the same prices or at least similar and transparent prices around the world, independent of where manufactured or delivered. Setting global prices is an intricate task of finding the balance of offering special prices to global clients and keeping up the price for local customers (cf.: Capon et al., 2006; pp. 15).

All these factors explained above, indicate that GAM increases the complexity as well as the cost for the supplier. Therefore, it is important to bear these factors in mind when setting up a GAM program.

In the following section factors of transnational KAM that influence the organisational level shall be described.

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Illustration 5: Supplier-related complexities Source: Capon et al., 2006; p. 18

Allocating expenses

In a transnational company the revenues and expenses are normally allocated on a country level. With the introduction of a global account team, this allo- cation system can get out of balance. On the one hand, there are sales that are done through the HQ by the global account team, but local expenses might accrue for the supplier’s subsidiaries. “To solve this issue conceptually is not difficult. The problem relates to the complexities of internal planning and budgeting systems, and in-place organizational structures and processes. These sorts of issues typically consume an inordinate amount of executive time and energy and may never be satisfactorily resolved.” (cf.: Capon et al., 2006; pp. 18).

Compensating global account managers

Along with the allocation of expenses comes the issue of compensation for the global account manager. This compensation issue bears two problems. Firstly, the company faces the difficulty to establish a proper compensation for the global account manager him-/herself that meets his or her extra responsibili- ties. Secondly, a balance has to be found between the compensation for a glo- bal account manager and a local key account manager who are both responsi- ble for the successful closing of a deal and expecting their share for this suc- cess with the payment through annual bonuses. This issue is not only a source of possible conflicts within the supplier company, but also accounts for double payments and therefore extra costs for GAM (cf.: Capon et al., 2006; pp. 19).

Global account ownership

Another source of conflict can be the issue of who is controlling the business relationship with the customer and with special regards to this document, who is responsible for setting up an overall strategy. Further questions evolve, such as who is in charge of “sales direction, pricing, contract specifics, and relationship management activities around the world. Frequently, this issue is focused on disagreements between headquarters global account managers and local country representatives (and managers).” Also a conflict can arise between the global account manager and a business unit over the positioning of a product/service. These topics relate to a fundamental problem of the individual employee’s resistance to serve an action designed for the 'greater good' (cf.: Capon et al., 2006; p. 20).

Reporting relationships

As all the factors presented above, the reporting relationship is another issue that relates to the question of the global account manager’s competencies. “This comprises two sub-issues—reporting location and reporting level. One naturally reporting basis (for many firms) is geographic. This can cause several problems—a peer support network does not develop, creating a practice com- munity is very difficult, and administrative problems with travel expenses and the like get in the way of serving the customer.” Also the influence of a per- son is quite often measured by the position on the organisational chart. Bal- ancing this issue and finding the right spot on the organisational chart for the global account manager is an issue that has to be solved by the senior man- agement (cf.: Capon et al., 2006; p. 20).

Empowering Global Account Managers

Closely related to the reporting relationship is the issue of empowering a global account manager. It has to be determined how much power the global account manager should have and over which business areas. “This is not a simple question, for the answer differs depending on such issues as reporting structure, company culture, and support network.” In the end, it is important that the commitments made by the global account manager to the customer will be met (cf.: Capon et al., 2006; p. 21).

The five factors that are presented above indicate that developing a sales strategy for a global account does not solely address the functional level of KAM, but is also closely related to the organisational level and, though they might not have a direct effect on the strategy development, they must be borne in mind as well.

With reference to the geographical distinction given before, most of the above complexities are not bound to the global level and may already appear when KAM is lifted to an international or regional level, some are however specific to GAM. In a nutshell, GAM consists of many more elements than KAM and is especially identified by the definition of a global account. A global account is 'of strate- gic importance' to the achievement of the supplier’s corporate objectives. GAM pursues integrated and co-ordinated strategies on a worldwide basis and demands a globally integrated product/service offering from its suppliers. Furthermore, central palpable elements are a GFA and a Global price book (GPB).

2.1.3.4 Reasoning for Global Account Management

The development of KAM and especially of GAM is driven by various (globalisation) demands from the supplier as well as the customer side. The most important ones are:

- Economies of scale: on the supplier side, companies developing prod- ucts with extensive development costs that cannot be covered by the sales of a single nation or regional market and, therefore, depend on relationships with customers with a wider footprint (cf.: Homburg et al., 2004, p. 1-3).
- Improved quality: “presence in lead countries, and exposure to their demanding customers and innovative competitors, can help a business improve the quality of its products. But a company reaps such benefits only if it is willing to learn from these countries.” (Yip, 2003; p. 79).
- Uniform products: customers present in various countries that are insisting on the delivery of products on the same standard level no mat- ter where these are applied in order to serve their global customer (cf.: Hennessey, 2003; pp. 3 and Noel, 2001; p. 311).
- Pricing: One aspect that is driven by the customers and can become critical for the supplier is the increased buying power of the customer, resulting from consolidated sales and triggering requests for greater volume discounts (cf.: Arnold et al., 2001; pp. 8). Furthermore, the customer might discover that prices for a product may vary between countries or continents to an extent that cannot be explained by varia- tions in VAT, other taxes, duties or transport cost. They will then demand the lowest known price, regardless of the location it is sold to (cf.: Noel, 2001, pp. 312).

Reviewing the above chapter on KAM, one can see that KAM itself is a complex task that is much more than a simple improvement of the sales process. This complexity increases significantly with the augmentation of the customer's transnational reach.

2.2 Strategy Development

After describing the elements above which are subject to this thesis and the special circumstances accruing, now the process which shall be adapted to these elements shall be delineated.

2.2.1 The process of strategic management

In strategic management, two main models evolved: the incremental model and the planning model. The incremental model relates to the findings of MINTZBERG and is based on a relatively scientific approach. The findings of MINTZBERG's research are that strategies cannot really be planned due to the changing nature of business. However, these findings have never transformed the importance that they acquired in science to the daily applied strategy processes in business (cf.: Hungenberg et. al., 2003; p. 167-173). In the course of this thesis, the planning model shall therefore be the basis for the further discussion. The planning model is based on the findings by ANSOFF that were laid out in the 1960's in his book “The Concept of Corporate Strategy”. It is, with some adaptations and improvements, still in use today. The planning model sees strategic management as a planning process consisting of different stages. From the analysis of the process, a strategy concludes that is then carried out.

Strategic Management itself is a result of an evolutionary process which started in the 1950's. It developed from financial planning through long-range planning to strategic planning and advanced into strategic management by the 1980's (cf.: Lombriser et al., 2005; p. 25-29).

The term 'strategy' as described in the previous chapter includes two aspects. The first aspect is the resulting statement or manifestation of an idea how to proceed with a business; the second is the process of achieving and control- ling this result. In the course of this thesis, this process is understood as 'stra- tegic management'.

Similarly to the case of the term 'strategy', there are various ideas on how to conduct strategic management. For the purpose of this paper, the process layout by LOMBRISER and ABPLANALP will be described and discussed below.¹¹

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Illustration 6: The strategy management process

Source: Adapted from Lombriser et al., 2005; p. 47

LOMBIRSER and ABPLANALP group this process into three phases.

1. Information analysis, including the determination of the Status Quo, the market, the company and strategic analysis.
2. Strategy Development, including the Vision and Mission.
3. Strategy realisation, including the implementation and control. (cf.: Lombriser et. Al, 2005; p. 46)

[...]

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¹ Official currency of the Federal State of Germany until the 31st of December 2001. Replaced by the Euro with a fixed conversion rate of 1.95583 DM to the Euro on 1st of January 2002 (cf.: Wikipdeia, 2005b)

² Official currency of 12 states of the European Union at present. As the official payment currency (in cash) effective as of 1st of January 2002 in the participating countries (cf.: Wikipedia, 2005a).

³ Official currency of the United States of America and some other countries (cf.: Wikipedia, 2005c).

⁴ Interestingly enough these regions are not always determined by geographic scope but can also be distinguished by socioeconomic/usage criteria, e.g. Gillette grouping Canada, the USA, Britain, Australia and New Zealand as one region (C.f.: Yip, 2003; p. 222)

⁵ Defined as: “Not confined to a single nation or state, but including, extending over, or operating within more than one.” (Encarta, 2006a)

⁶ At the time of writing this thesis

⁷ This holds true especially at a diversified company like Siemens and it's communication division.

⁸ such as Siemens

⁹ In the case of Siemens, the number of employees which are solely involved in the realisation of projects .....)

¹⁰ Chapter 2.1.3.2 page 14

¹¹ This model is in line with the general strategy process by Siemens corporate management (See 'Siemens strategic management planning' in Annex page xiii).