Sustaining profitability: Measuring and quantifying the ROI of a strategic account management program

This article is based on a panel discussion that took place involving Frederic Kahn, Vice President Global Sales at Wavelength Pharmaceuticals; Alessio Arcando, Professor at Bologna Business School and former Director of Strategic Key Accounts for West Europe for 3M; and Harvey Dunham, Managing Director for Strategy and Marketing at SAMA. Their conversation has been lightly edited for clarity and length.

Measuring ROI is vital in today’s world

It is essential in today’s world that SAMs prioritize measuring the return on investment (ROI) of their programs. Whereas approximately one third of attendees at SAMA’s 2020 Pan-European Conference measure and share their SAM program’s ROI metrics with key leaders in their company, 100 percent of SAMs should be continually assessing their program’s ROI.

There is pressure on SAMs to not only design, define and implement a strategic account management program but also to prove its value. By measuring ROI, SAMs safeguard their programs from cost-cutting measures. Often, the first areas to be targeted for cost cutting are central functions. SAM programs typically reside in these areas and thus are at risk. By having solid metrics at their disposal that demonstrate a return from the current level of investment, SAMs are better equipped to defend their programs.

Harvey Dunham: When company leaders see reduced revenues, it’s almost an instant reflex for them to get into cost-cutting mode and, in my experience, the first place they look is the central functions around the C-suite and in headquarters. The problem is that this is where the SAM program usually sits. It usually reports into that central function, and the cost of the SAM program is accounted for in central function costs. So, almost the minute that the company starts thinking about reducing costs, the SAM program is at risk. And if your SAM program isn’t generating a good return on investment, you basically have no defense; to a certain extent, you will be told how much you need to reduce.

Alessio Arcando: It’s very hard to create a SAM program, and that’s why it’s even more important to defend it. On top of short-term objectives that top management will request, there are also the basic objectives of growth, innovation and customer satisfaction to be met. You also have to convince the leadership of finance, other functions, the geographical regions and the divisions. The only way to counteract challenges by top management is to prove to them that the program is paying back.

HD: When I first became aware of ROI in SAM, it was when I observed that some of the largest companies with the most mature SAM programs in the SAMA community were either eliminating or dramatically reducing their SAM programs. Of 100 corporate members, I saw 10 large companies, I would say, reducing in importance their SAM program, and the reason they were doing this is because they got pressure to improve their profitability and improve the profit taken by the investors. It was clear that the pressure was coming from the investment community or the board.

Measuring ROI protects the short- and long-term viability of SAM programs.

When a SAM program has been deemphasized, it continues to erode. When SAM programs are deemphasized, they start to lose top talent and experience low morale among remaining SAMs. Both the SAM program and the organization encounter a slowdown in new innovation and ongoing initiatives. The best defense of such erosion is to measure ROI.

HD: If your program is deemphasized, one of the first things you’ll see is that top internal talent, particularly SAMs and SAM leaders, will walk out the door. If they get demoted from the premier league, not only will they leave, but the customers will never forget that they got demoted. As a result, the customers often will demote your company from being a strategic supplier and put you right back into where you don’t want to be, which is as merely a vendor where it’s all about price and delivery.

AA: The minute you start reducing your program, cutting costs, you lose the momentum in what is actually a strategic investment – your strategic account management program. And that’s something that we, as leaders from different corporations and strategic account management programs, need to sell constantly – to permanently focus on the return on the investment. It’s an investment that we should not reduce. Otherwise, the momentum, the credibility, is lost internally and externally.

Frederic Kahn: If the SAM program is deemphasized, internal talent may leave the company, but even if they stay, the enthusiasm and the way they are working with the customers would be demeaned. So, we need to keep their enthusiasm. We need to keep the momentum.

HD: I’ve seen one company, a healthcare company, whose SAMs and the team that supports the SAMs were working with several customers on innovation. When this company decided to eliminate their SAM program globally, those initiatives were either greatly slowed down or put on the shelf indefinitely. This is not a good outcome for any company.

Measuring ROI pays off.

Organizations that track ROI experience greater profitability, higher sales and improved customer retention.

FK: Being regularly relentless, we presented and marketed with very precise KPIs, sales, gross margin, satisfaction index, things of that nature. That definitely helps in making sure people understand the added value of the program and making the whole corporation believe in it. So, at the end of the day, if you don’t enter into this overall deal with your customer, a long-term contract based on a strategic account management approach, there’s no doubt that you’re not going to be able to sell the basket of products that you did and therefore generate much higher sales than if you had not done this.

Asking the right questions ensures selecting the right ROI metrics.

When measuring their ROI, SAMs need to decide what makes a metric credible and relevant to their stakeholders. There are several criteria SAMs can consider. The selected metric(s) must be believable to the C-suite, and it/they should clearly illustrate the return on the investment of the SAM program itself. If a SAM cannot defend their metric(s), they will be forced to cut program costs, whether or not it makes sense long term to do so.

Here are four questions SAMs should ask to determine which metric(s) they should track

1. Does the metric identify and meet a specific target?

AA: I remember at the beginning of our program at 3M, our target was to grow at 15 percent year over year in the first three years. After two years, we looked at each other and asked, “Why did we put 15 as the target?” Only crazy people would say our program will grow three times as much as the corporation. (By the way, we reached 15.) But we said it, and did it, because we were feeling really strong about what we were putting together. The key is to target the number that you really, really believe in. And then you need to push like crazy, together with your executive sponsor.

2. Is the metric based on facts?

HD: You need facts, and these facts are your friends. This is what you need to be able to start a SAM program and to develop it and grow it. And you’ll continually need to go back to factual information – return on investment, customer satisfaction, revenue growth, etc.

3. Does the metric display quick wins?

FK: SAMs need to generate quick wins and measure them. What is not being measured, of course, cannot be improved. Measure things like sales growth on a year-to-year basis or other period. Give yourself a target, any target.

AA: I was feeling a lot of pressure. I was questioned on the validity and need for the strategic account management program. It was only after applying a dedicated strategic account management plan with dedicated resources to one of our global accounts and being successful in generating a quick win – a 3.5 percent price increase, which in the glass industry is very difficult to generate – that I started to get compliments. And this was after one year of harsh and difficult implementation of the strategic account management program.

4. Is the metric predictive?

AA: Metrics should show an increase in the share of wallet and geographical expansion. I remember when we at 3M first visited one of our top customers with the new SAM organization. We discovered that less than 10 out of 27 of our divisions were represented. In terms of geographical expansion, we found that with some companies, 3M was represented at manufacturing sites in some countries but absolutely absent in others. 3M was selling a certain product in Germany; but at a similar manufacturing site in the UK, we were not selling it. I will never forget the first meeting we had with the German sales and marketing manager handling [one of our strategic accounts] at that time. He said to me “[This customer] is ours.” And I replied, “[This company] is global, so why shouldn’t we expand at the geographical level and the divisional level?”

Selecting your ROI from a plethora of metrics

There are many measurements and KPIs SAMs can select from. Measuring financial metrics, such as sales revenue, gross profit margin and net profit margin tends to be a traditional recommendation. During challenging times, such as the recent COVID pandemic, SAMs can consider monitoring internal and external indexes.

AA: During the tough time of COVID, 3M has put even more focus on making comparisons with external indexes, like the industrial production index, for comparison by both geographical region and division. It’s putting more attention on the external KPIs of market share and growth versus market and versus competition. 3M is also concentrating on the internal KPIs of sales revenue and organic volume growth, direct margin and customer satisfaction.

Measuring customer satisfaction supersedes all other metrics

There is one metric, customer satisfaction, that surfaces as a key metric of profitability. By tracking customer service, organizations strengthen the barrier against competition. Some argue that customer satisfaction is the leading indicator of not only a company’s profitability but of its strategic account management program. In a 2009 survey of over 1,500 companies1, close to 20 percent of companies’ customers were responsible for over 90 percent of the lifetime value to their suppliers. This is more than the Pareto rule of 80/20 (20 percent of customers adding 80 percent of value).

One of many ways companies can measure customer satisfaction is by conducting surveys. This can be outsourced to providers with expertise in market research. Once the results are in, it is critical for SAMs to implement a continuous improvement plan. This often requires the organization to adjust its frame of mind. However, by embedding the improvement plan in the organization’s DNA, customer-centricity will become a real priority.

AA: The message is that, based on real experience, customer satisfaction will not only trigger the ability to enter into a profitable long-term relationship but also generate the highest level of return on investment of your strategic account management program. In the pharmaceutical contract development manufacturing industry, very few players fully implement a real customer-centric approach, although this is actually the main differentiating factor in an industry where trust is absolutely key to customer satisfaction.

HD: Just a couple of months ago, there was a gentleman from Bain and Company who was encouraging the financial community of every company in the world to force companies to actually put customers in their balance sheet and show these customers as an asset – because what makes your company work is your customers. If you have no customers, you have no revenue. If you have no revenue, you have no business. Long story short, we know from experience that your largest and most important customers have to be protected.

FK: In 2018 the best, most profitable airline in the industry was Southwest Airlines, which was also rated to have the most satisfying customer experience. Gary Kelly, the former chairman of the board of Southwest Airlines, decided that customer satisfaction was the one and only, the most important KPI, that he was going to follow because he believed that customer satisfaction is the best predictor of a firm’s financial profitability.

AA: You’re much better off to earn and keep the loyalty of your existing customers and delight them than to have to continually acquire new customers. Superior customer loyalty drives superior profitability. Over time, loyal customers make additional purchases, increasing volumes which lower the cost to serve and allowing you to place a premium on price, because you’re going to provide your strategic customers with a higher level of service. Therefore, at the end of the day, what you have is sustainability, you have profitability, you have development activity with your existing strategic accounts. Customer satisfaction is really going to trigger the long-term evolution of the success of the strategic account management program.

Customer-centric companies rise to the top

Successful companies differentiate themselves because they focus on not only meeting but exceeding customer satisfaction standards. They invest in understanding who their customers are and their needs. These companies outshine their competitors in terms of innovation, customer retention and appreciation.

AA: If you diminish the effort with the customer, innovation will also be diminished. Because co-value creation means that you are opening your doors to and entering the company of the key account you’re working with in order to create the innovative products that will make both the companies winning in the end. And if you reduce the effort with the customer, obviously you’ll also reduce the innovation.

FK: Like other industries, we’re not alone out there in the contract development and manufacturing industry. There’s competitive pressure. There are a lot of players out there. There are a lot of new names and new concepts. So strategic account management is a way for us to differentiate ourselves from the competition and treat our customers with the highest level of satisfaction possible.

“Selling” your ROI, both internally andexternally, is crucial.

It’s all well and good to track your ROI, but SAMs need to share these metrics with all internal and external stakeholders in order to take into account the return on investment of a SAM program. Internal stakeholders can include shareholders, the board, the C-suite, the CFO, sales and SAM program leadership, other SAMs and the SAM support team. External audiences include customers and investors.

Internal audience

With the support of the executive sponsor and the key stakeholders, SAMs can create a dashboard that incorporates relevant KPIs. Top management can then access the dashboard to monitor performance and thus influence or redirect resources as needed.

AA: You have to sell it relentlessly, explaining that one of the key levers of profitability, of the success of a strategic account management program, is customer satisfaction. The key thing is that you have to do it at every level of the organization, not only at the top management level, where support is absolutely critical. You have to convince the division managers, the business units, all the customer-facing areas, such as quality, regulatory and operations, that customer satisfaction is a unique leverage that will differentiate them in the marketplace.

HD: If you wish to have the right people involved with understanding exactly what’s going on, you will need to train the C-level on the key metrics so that they understand exactly how to measure what you are doing. So, these metrics are important to share with your accounts and with your top management to show that you are moving in the right direction.

FK: I’ve always considered the dashboard as a selling tool to measure the performance of the SAM initiative. It’s also a marketing tool to justify and sell the SAM program internally and make it more and more accepted.

HD: I also encourage you all, if you run into a C-level person from your company or a head of a business unit or a head of a region, you should be able to describe the ROI of your SAM program and tell them why it’s working, not a long speech, but you should be able to say, like Alessio and Frederick, you’re delivering compounded annual growth. These kinds of facts will get the support you need.

AA: I used to say that the internal selling job of a strategic account manager is more cumbersome than selling externally, because if you don’t have top management support, if you don’t have peer support, the support of your colleagues and the overall structure of your whole organization, it’s an impossible job.

External audience

Selling to your external audience, including customers and investors, is also an important function.

HD: At every opportunity you can, when you have completed a project and added value to your customer, actually delivered it to them, quantify that value if you can and get the customer to validate that. This is magic because past proven value is what is known, especially within your customer. Not only do you face challenges within your own company, but challenges when your customers are changing, getting acquired or reorganizing, with people retiring and new leadership coming in, et cetera. It’s not uncommon that the customer gets challenged internally with ‘Why is this supplier strategic to us? Why are we looking at these people strategically?’ The only thing that you have to defend yourself in this situation is, of course, your customer satisfaction.

AA: You need to establish strong enterprise relationships, understanding who is at the customer’s company and matching your company’s people so that they are all talking the same language at all the different levels in order to facilitate communication.

FK: So the key message I want to share with you from this experience is the importance of customer satisfaction. It’s simple to say, but it’s very complicated to do. But if you do it in a sustainable way… at whatever service level works for you, and you force your executive committee to consider such KPIs as important as the financial ones, you will see that it works! And C-suite members will listen to you as long as the service that you provide them meets or exceeds their needs.

HD: We’ve talked a lot about the internal ones, but I can tell you the investors will care and the investment community will care and the board will care. It’s important that you communicate with them. Most financial systems are set up around products and factories and customers where you’re having to convince the financial community to somehow change their whole structure, but if you don’t, you will pay the price. I assure you. This is hard to do. If this were easy, anybody could do it.

Summing it all up

Validating the SAM program takes work. SAMs need to communicate their ROI directly to their internal and external audiences in a comprehensible, relevant manner. By adopting a well-structured, precise plan that effectively illustrates the ROI of their programs, SAMs protect their own roles and contribute to their organizations’ profitability. Those organizations who incorporate customer satisfaction measures within their ROI will differentiate themselves from their competition.