Value in strategic account management
Abstract
Strategic account management (SAM) is responsible for adding value to customers and capturing value for the supplier in customer relationships. It is generally accepted that effective account management is vital for generating value in relationships with strategic accounts. The authors integrate this idea by examining value creation in business relationships, arguing that value is generated in interaction between the supplier and the customer, rather than within the supplier organization. This aspect of the value-generating process in business relationships affects the task of SAM and calls for specific skills. Since the task of managing strategic accounts involves allocating resources and efforts in the relationships, and enabling the customer to create value together with the supplier, understanding the relational interaction and the interaction skills involved is crucial to SAM.
Introduction
While few will contest the premise that strategic account management is about profit and not just about revenues, opinions on how to grow profits from strategic accounts and how to manage them are seldom made explicit, and when they are spelled out, they tend to vary a great deal. This paper starts by assuming that the profitability of an account for the supplier company is related to the value created in the relationship between the customer and the supplier, and examines how that is achieved in companies operating in business markets. The authors first explore the value-creating process in relationships with truly strategic customers that, given the limits on management attention, can number only a few, and then discuss the capabilities and skills required to create value in relationships with such strategic accounts.
Effective business strategy, particularly in business markets, hinges on creating economic value for and with strategic customers. Analysing, conceiving and delivering value in relationships with strategic accounts requires systematic account management. This has been traditionally credited with the responsibility of adding value to customers by coordinating activities within the own organization and, more recently, the activities in the relationship between the parties. This paper will develop this idea further and integrate it by examining the value-creation process and then outlining how competent strategic account management can enhance value-creation performance in customer–supplier relationships.
The authors build on the idea that value is co-created in a relationship between the supplier and customer, rather than produced by the supplier and then delivered to the customer (Vargo and Lusch 2008). Consequently, the article specifically examines how relational factors that go beyond the product service content of the relationship actually concur in generating value and how they are linked to value performance in a relationship. Starting from the idea that value generating is a multi-dimensional construct (Grönroos 2011), the authors examine three factors of value performance – cost efficiency, relational quality and innovativeness (Jaworski and Kohli 1993) – from the supplier's and the customer's perspective. This part is wound up by identifying the critical managerially-relevant value-generating processes and then explores effective managerial practices in generating value in customer relationships. This emphasizes that effective value-generating practices go beyond the coordination of ongoing activities, and in particular implies integrating the customer's operations with own activities at various levels and on various objects in order to develop novel solutions. Against the background of effective value-creation practices in business relationships, the authors conclude by discussing the competencies and capabilities required for strategic account management.
The changing role of strategic account management
The changing role of SAM is best discussed against the background of a major shift taking place in the sales management landscape. Sales management is increasingly taking a relational rather than a transactional focus, particularly in business-to-business (B2B) markets where there has been a shift in sales management from an emphasis on closing the deal to a relationship selling approach (Moncrief and Marshall 2005). Relationship selling means that salespeople have a key role in the formation of buyer–seller relationships (e.g. Piercy 2006). Indeed, selling companies increasingly seek a greater level of partnership with their most important accounts, and that has spawned interest in strategic account management (Leigh and Marshall 2001). The importance of account management in business and industrial markets derives from the fact that in such markets not all customers are equal and that a few customers (often no more than a handful) represent a dominant part (often more than two thirds) of the sales revenues of companies operating in such markets (Håkansson and Snehota 1995; Sheth and Parvatiyar 2002).
This shift has implications for marketing practice in the B2B field as suppliers pay more attention to the maintenance and enhancement of specific relationships with selected customers (Napolitano 1997). Managers are becoming increasingly eager to understand and manage the quality of individual business relationships as well as the whole portfolio of relationships (Cater and Cater 2010). Furthermore, suppliers find it very difficult to differentiate themselves from competitors solely on the basis of product quality (Ulaga 2003) and the focus of differentiation is shifting to building unique relationships with business partners.
Experience of handling key accounts has taught that approaching strategic accounts strategically is anything but simple since these are, as the Strategic Account Management Association (SAMA) suggests, ‘complex accounts with special requirements, characterized by a centralized, coordinated purchasing organization with multi-location purchasing influences, a complex buying process, large purchases, and a need for special services’ (in Storbacka 2012, p. 259). Furthermore, the complexity of the purchasing organization is often mirrored by the complexity of the supplier organization that often supplies multiple products or product lines from several production sites with various complementary services and administrative and logistical arrangements. This complexity, on both the customer and the supplier side, makes the relationship content multi-faceted and complex.
Difficulty in managing strategic accounts is related to this complexity of relationships in terms of products/services transacted and to the number of interacting individuals. As the complexity of customer–supplier relationships increases, considerable management effort is needed (and is actually spent) on coordinating various activities both internally within the supplier organization and externally between the customer and supplier organizations, and in relationships with other suppliers and customers. Experience from the practice of key account management shows that the most important ingredients of effective account management are the coordination of key personnel intra-firm (Lambe and Spekman 1997), minimizing conflict and improving communication between buyer and seller (Barrett 1986) and generally coordinating activities effectively (Workman et al. 2003). But managing the business relationship with a strategic account entails more than coordinating existing activities; it involves, in particular, conceiving, developing and providing new solutions that customers value. At the same time, managing strategic accounts is not only a matter of suppliers' programmes or strategies because in business markets customer value is not produced by the supplier and subsequently delivered to the customer; rather, it is co-created interactively between the supplier and the customer (Vargo and Lusch 2008).
In marketing practice, a boundary-spanning function such as strategic account management has an important role in relationships with customers and in creating value in these relationships. The complexity of relationships with ‘strategic accounts’ makes the strategic management of these critical for a company's overall market performance, and the supplier's competence and ability to manage strategic customers appears to be positively correlated with market performance (Berghman et al. 2006; Bowman and Narayandas 2004; Sullivan et al. 2012). As B2B firms are increasingly moving from transactional to relational logic, scholars acknowledge that the role of sales has to reflect the relational nature of sales processes (Sheth and Sharma 2008). However, the view of sales prevailing in the extant literature, that sales contribute to conceiving, producing and delivering customer value by understanding customers' and/or sellers' needs and fulfilling them with the bundle of goods and services fitting these needs (e.g. Weitz and Bradford 1999), remains transactional.
The situation is similar for SAM. SAM is moving towards a relational perspective, similar to the way sales has done. However, although the management of strategic accounts revolves around value creation, recent research that addresses the issue of value has been limited to a few studies (Pardo et al. 2006; Storbacka 2012). The role of SAM in the creation of value in business relationships appears under-researched and remains somewhat ambiguous. It deserves to be examined more systematically. In the next section, the paper starts from the way in which the value concept is currently presented in the marketing literature in general, and in industrial marketing in particular, in order to provide a framework for value generation in strategic customer relationships.
Value in business relationships
Understanding the factors that influence the value of an account (a customer) can help to allocate the account management efforts across various activities more effectively. While most decisions in management practice are taken with reference to the economic value of the various alternatives considered, the concept of value is not always easy to translate in business practice even if it is intuitively appealing. This section therefore starts by taking a closer look at the idea and meaning of value.
The concept of value
In marketing literature, value is traditionally defined as a bi-partite construct consisting of benefits and sacrifices. Traditionally, the concept of value has been defined as the trade-off between the benefits and costs of ownership (Monroe 1990; Zeithaml 1988). In business markets, value to the customer is commonly defined as ‘the perceived worth in monetary units of the set of economic, technical, service and social benefits received by a customer firm in exchange for the price paid for a product offering’ (Anderson and Narus 1999, p. 5). The traditional notion of value in exchange assumes that value is embodied in the products and services that are conceived, designed, produced and delivered to customers. This notion is linked to a rational sequence of uncovering the needs, devising solutions, producing the solutions and transferring them to customers in exchange for something else.
When value is defined as the consequences of ownership (and use) one tends to overlook that value depends on the subject of value for whom one considers the consequences, and cannot be simply unequivocally derived from the object (Holbrook 1994; Monroe 1990; Woodruff 1997). Even when value refers strictly to economic value, the value is not given from the object of exchange as such, but always related to the subject and its context, which has interesting implications. As value is related to the consequences for ‘a subject’ it means that it is also dependent on the knowledge, understanding and perception the subject has of the consequences. Furthermore, it is the expected rather than the actual value that is a reference for behaviours and decisions in business and in markets. Value is linked to knowledge, perceptions and expectations, and assessing value involves ‘a judgment comparing what was received (e.g. performance) to the acquisition costs (e.g. financial, psychological, effort)’ (Oliver 1997, p. 28).
Value is thus subjective and dependent on subjects' knowledge and perceptions with regard to consequences, and therefore value and value judgements are intrinsically emergent and changing. Value assessment in hindsight is different from the value expected because value subjects − people as well as organizations − evolve and change; their perceptions of the context and value of objects change, and so does their understanding of what consequences may arise. Besides, the context itself keeps changing, with consequences for the benefits and costs for the owner and user that can be derived from a product or service. Value is thus not static; it is an inherently transient entity.
The intricacy of the value concept is certainly a reason why it is common in business not to assess value analytically but to use norms and heuristics to assess and measure value. Indeed, in business practice many improvements are about putting to the fore aspects and consequences previously ignored or neglected and linking these to economic outcomes.
Value of a business relationship
The relational turn in marketing and sales literature has spawned interest among B2B marketing scholars for modelling and measuring the value of customer–supplier relationships (Anderson and Narus 1998; Lindgren and Wynstra 2005; Palmatier 2008; Ulaga and Eggert 2006). Adopting the relational perspective has set in motion considerable efforts to rethink the value-generating process, acknowledging that value originates in relationships rather than being embodied in products or services transacted between buyers and sellers (Gadde and Snehota 2000; Palmatier 2008; Payne and Holt 1999; Ulaga and Eggert 2006). The idea that inspired the bulk of the recent research on the value of business relationships is that the value of a relationship can be explained by its content and the consequences for the two companies involved.
Table 1 shows one of the models proposed in the research to frame the cost and benefit consequences for the business customer (Gadde and Snehota 2000). It classifies the customer's cost of a relationship with a supplier in direct procurement costs (mainly the price paid for the goods or services purchased), direct transaction costs (costs of carrying out the transaction, e.g. various logistics costs such as packaging and transport and stocking, order processing and other administrative costs), relationship-handling costs (broadly, the cost of personal and impersonal communication) and supply-handling costs (cost of the infrastructure for handling the purchasing). It also suggests that there are two types of benefits that a business customer derives from a supplier relationship: revenue benefits and cost benefits. The former includes consequences for the customer's own product and market performance, which translates into increased revenues. The latter consists of cost savings that the supplier relationship in question permits; these can involve the direct product costs and/or various indirect cost items.
Table 1: Economic consequences of supplier relationships
Source: Gadde and Snehota, 2000
| Relationship costs | Relationship benefits |
|---|---|
| Direct procurement costs | Cost benefits |
| Direct transaction costs Relationship-handling costs Supply-handling costs | Revenue benefits |
Similar models have been proposed for the value of a relationship to a supplier but these are used much less commonly (e.g. Turnbull and Zolkiewski 1997). The value of the relationship to a supplier includes various factors that go beyond current profitability and should include the potential of the existing relationship and the estimated pay-offs from alternative levels of involvement in the relationship and in other relationships of the supplier company. The economic value of the customer is not easy to assess; it is linked to customer attractiveness and reflects benefits other than the direct monetary revenue stream from the customer and its profitability (La Rocca et al. 2012). In assessing the economic value of a customer, development effects and consequences of the relationship for other customer relationships of the supplier must also be considered.
The value of a customer relationship to a supplier and that of a supplier relationship to the customer in business markets derives from how the supplier's and the customer's operations are connected (Cespedes 1995). Tuli et al. (2007) have shown that benefits and costs to customers stem from solutions applied in the relationship, and these originate in a set of customer−supplier relational processes such as understanding and defining mutual requirements, integrating goods and services, and deploying various support activities. Value consequences of a relationship for both the supplier and customer depend on the solutions and arrangements for how operations of the two companies are linked. In this sense, the value originates in linkages and interactions between the parties in the relationship (Edvardsson et al. 2011; Grönroos 2011) and relationships have a distinct and different value for each of the parties. Value of the relationship depends on how the content of the relationship has been configured in various aspects including, but going beyond, the product and service offered.
Arguing that value consequences, both costs and benefits, originate from numerous elements beyond the goods exchanged and stem from what is going on in the relationship and in connected relationships, Walter et al. (2001) opine that ‘despite the growing trend toward considering and using business relationships as means of value creation, the marketing literature is deficient in some important ways’ (p. 366). First of all, the actual economic value of a solution is always relative to the context of reference and never absolute. A crucial aspect of value formation in business relationships is that solutions in business relationships are not conceived and implemented a priori by one of the parties; rather they are outcomes emerging from joint action (Dhanaraj and Parkhe 2006; Perks and Moxey 2011; Ritter and Gemünden 2003). Solutions in business relationships arise concurrently with problem identification that occurs during interactions between producers and users (Harrison and Finch 2009; Johnson and Ford 2007), which makes value dynamic rather than static.
When we consider value from the relationship perspective, what comes to the centre of attention is the interdependence of the parties to the relationship, the interactive nature of customer–supplier relationships, and the resulting dynamics of such relationships that affect the process of value generation (e.g. Ballantyne et al. 2011; Lindgren and Wynstra 2005; Ulaga and Eggert 2005; Vargo and Lusch 2004). The relational perspective on value implies other priorities and critical issues than those resulting from the traditional linear logic of conceiving, producing and delivering value. In particular, it highlights the fact that in business relationships value is actually produced in interactions that take place among the individual actors involved in the relationship (Corsaro and Snehota 2010; Edvardsson et al. 2011; Grönroos 2011). Consequently, interaction should not be interpreted as simply a means of value creation but rather as the very process of value itself, which is produced ‘in between’ parties (Håkansson et al. 2009; Storbacka and Nenonen 2009). Hence, conceptualizing the generation of value in business relationships has to reflect the nature and characteristics of the interaction processes going on.
Generating value in business relationships
Economic consequences of a business relationship for the supplier and the customer, and thus its value, originate in the solutions and arrangements put in place in the relationship, as these give rise to costs and benefits for both the supplier and the customer. Solutions in customer–supplier relationships in B2B markets involve myriad elements of the relationship content, such as product features' performance and quality, production volumes and methods, logistical arrangements, communication and administrative routines, and quality control procedures and financing, among others. Even in relationships of medium complexity, the solutions and arrangements are so multi-faceted that a priori blueprinting is impossible: it can even be difficult to map these in hindsight.
Since the value derives from solutions applied in the relationship, one needs to address the question as to how the various solutions emerge and are put in practice. Value generation in relationships between customer and supplier is a process of finding solutions. The content of customer–supplier relationships tends to be composite in terms of the product and the service content, activities carried out, and number of individuals involved, with their different roles and agendas. The solutions that emerge in relationships result from the complex interaction between individuals, who are often numerous, representing the two business organizations (Ford et al. 2011). They also involve connections between the customer and supplier organizations and their operations (Cespedes 1995). Numerous heterogeneous resource elements and activity flows that characterize the two businesses and their operations must be configured and interfaced.
There are always some adjustments going on in every business relationship. In most cases, the relationship content morphs relatively fast and the solutions as to how the two organized systems are related are never really stable. The continuous adjustments in customer relationships are always worked out jointly between the parties who, in turn, need to carry out various adaptations (Hallen et al. 1991). The connections between the two businesses are made in interaction between actors on both sides. Because both the cost and benefits are consequent to the interaction about solutions, interaction is the key process in generating value in business relationships.
From the supplier's point of view, interacting with customers always entails costs, but integrating the customer in their own operations can result in cost efficiencies and can be beneficial in generating ideas for new solutions and implementing them (Johnson and Ford 2007; von Hippel 1988). It has been shown that interaction intensity in business relationships is positively related to the innovativeness of the supplier business (Coviello and Joseph 2012; Hult et al. 2004). Benefits from interaction in business relationships occur because in customer–supplier relationships the ‘produce perspective’ is confronted with a ‘use perspective’ (Harrison and Waluszewski 2008; Ingemansson and Waluszewski 2009; Wilkinson and Young 2002) and the solutions emerge as various issues of concern arise and are jointly addressed. Since ‘learning evolves through a combination of discoveries, positive and negative feedback and the creation of additional creative propositions’ about innovation (Hoholm and Olsen 2012, p. 344), the confrontation of supplier and customer knowledge and logics favours the production of new knowledge about possible solutions (Tuli et al. 2007; Young and Freeman 2008).
Various studies of business relationships confirm that interaction is a determinant of the development of the relationship and crucial for innovation in solutions which, in turn, determine the potential value of the relationship (Håkansson et al. 2009). This aspect of generating value, although not easy to assess and measure, becomes highly relevant, particularly in relationships involving strategic accounts.
While both parties to the relationship jointly concur in generating the value of the relationship, the relationship does not have any value independent of the benefits and costs of the two parties. While the solutions and arrangement are arrived at jointly, who bears the costs and who is entitled to the benefits that can accrue is always negotiated and determined between the parties. The customer and supplier generate value jointly but the claim to the value from a relationship is always individual and distinct. For either of the two parties to a business relationship, there are always differences in terms of the appropriation of the value generated in the relationship, and thus in the economic value of a relationship (Pardo et al. 2006).
The traditional transactional perspective on value in market relationships, which tends to assume value is produced by the supplier, embodied in products and services and then transferred on to the customer, does not properly capture the more dynamic aspect of value generation in circumstances where relationships matter, as in industrial markets. Instead, taking the relational perspective leads to highlighting the interactive nature of the value-generating process and underscores that value is actually generated jointly between the supplier and customer. It also stresses the notion that the value of business relationships is dynamic rather than static, and points to the critical role of innovation in value formation. That has consequences for the role account management can play in generating value between supplier and customer businesses.
Before the implication for strategic account management is discussed, we will examine a few features of the value-generating process as they have emerged in recent research. This research has identified four facets of the process that generates solutions in business relationships and ultimately accounts for the economic consequences for the businesses involved: jointness, solution enactment, balanced initiative and socio-cognitive construction (Haas et al. 2012). The paper will first look at these and then proceed to examine the consequences these features of the value process in customer–supplier relationships are likely to have for the task of SAM and the capabilities and skills required to handle the task. The four features are interrelated but we will first treat them separately.
‘Jointness’
The idea of ‘jointness’ as an important aspect of the value-generating process in business relationships refers to the fact that workable solutions always involve coupling and linking of resources, activities and actors of supplier and customer organizations. The notion of jointness with respect to solutions means that these cannot be operated separately by two disjointed entities; rather, they are always operated jointly by the supplier and customer.
The minimal form of jointness required in order to determine and apply any solution within relationships is the consent of the counterpart to the solution adopted and/or to eventual adaptations. However, the mutual involvement is generally deeper than that. No solution can be developed and applied, and no value can be generated in the absence of the other party, which means that value is co-created only when the parties join. For the supplier, this means no value is produced until the customer joins in the process and uses the solutions, as the value is always ‘value-in-use’ (Grönroos 2011). The solutions and arrangement have different value consequences for each of the parties to the relationship, but in principle, the value of relationships originates mainly in sharing and integrating resources, especially non-material resources such as skills and knowledge, between the supplier and the customer organizations (Lusch and Vargo 2006; Vargo and Lusch 2008).
Value generated for the customer and the supplier in relationships reflects not only connections and adaptations within the single specific relationship but also how the two businesses are connected to the wider network of resources, activities and actors in their own context. This is not only the customer but also the organization's partners throughout the value network who collaborate with other entities and integrate resources to provide a solution from a combination of specialized competences and complex services (Cova and Salle 2008).
Solution enactment
Jointness does not mean that the supplier and the customer necessarily fully agree and share perspectives, develop identical understanding and pursue the same goals. In practice, the way parties understand the context and their intent is likely to differ significantly. Furthermore, both the supplier and the customer act under considerable uncertainty when they identify and apply various solutions. Their uncertainties can stem from the complexity of the offering, from the continuous changes within the two related businesses, and from changes in the context of the supplier and customer business. Under such circumstances, planned action, based on thorough analysis of the situation, identification of the goals and choice of action, becomes problematic. When the individuals who act on behalf of the supplier or customer organization look for solutions to problems that arise, the encounters and interaction between those involved may provide the missing information and may help to uncover parties' tacit knowledge that is relevant for devising effective solutions. The actual solutions are ‘interacted’ in the sense that rather than being conceived, designed and implemented, these solutions can stem from quite divergent understanding and motivations and are actually enacted as the parties interact. Given the rate of change in customer–supplier relationships, solutions are more or less continuously re-invented.
Different streams of research have explicitly defined value creation as interactional (Haas et al. 2012; Vargo and Lusch 2008), claiming that value in business relationships is interacted. This means interaction should not be interpreted simply as a means to facilitate the value creation but rather as the very process by which value is produced ‘between parties’.
The mechanism of enactment makes value relationships specific and therefore impossible to determine from the features of the relationship or of the individual actors. This idea adds to the concept of perceived value of an interactional element, as value images are enacted by the parties while they interact. Therefore, they continuously evolve as interactions unfold. Scholars who developed the Service-Dominant Logic (SDL) framework (Vargo and Lusch 2004, 2008) tend to highlight that with multi-sided or reciprocal propositions (Ballantyne et al. 2011) there are no longer any message makers and message transmitters. Instead, we see participants in interactive communication processes in which (latent) customer requirements and (unanticipated) solutions emerge through a mutually creative constructed dialogue. The perspectives of at least two parties are linked in a business relationship in reciprocal promises, while each party looks for an equitable exchange (Ballantyne and Varey 2006).
Balanced initiative
The initiatives of the supplier and customer in defining solutions are more balanced than is usually thought. In marketing literature in general it is common to assume that the seller/supplier takes the initiative and responsibility for the development of various solutions to be offered to the customer and strives to control the marketing process for the organization's own advantage. The role of customers is assumed to be that of a passive ‘price-and-offering taker’, albeit a competent one who knows what their needs and desired solutions are and who is looking for the most efficient supplier of such solutions. This view of the initiative between the buyer and seller is related to the idea that solutions (as bundles of products and services) are first conceived, then produced and finally sold and transferred to the customer. This is not a realistic picture of what is going on in customer–supplier relationships in business markets, where it has long been recognized that customers tend to play an active part in the process by which effective solutions are brought about and often come to play a major role in identifying and producing such solutions (Levitt 1960; Webster 1984).
Recent research clearly shows evidence that the solutions' effectiveness is not related to supplier-controlled variables only, but several customer-related variables concur in defining the solutions (Tuli et al. 2007). Customers in business markets, certainly those in strategically relevant relationships, are not simply passive price-and-offering takers; rather, they often lead the development of the relationship and its content (Johnson and Ford 2007). It is not a rare occurrence for customers to take the initiative and define most of the solutions regarding the way in which the product features are defined, the production process is organized, the control procedures are executed, and how administrative routines are configured, and so on. The development of a solution entails a set of relational processes from the requirement definition to after-sales support in which customers' involvement is critical. Customers' involvement limits the supplier's autonomy because the effectiveness of the solution depends on several customer variables and is not related to supplier variables only (Tuli et al. 2007).
Socio-cognitive construction
The role played by knowledge-related factors in generating value leads to the consideration that value generation in business relationships involves ‘socio-cognitive construction’. It has been shown that the assessment of a solution's value is not a linear function of the qualities or attributes of a certain offering or of a certain relationship; value judgements depend on individual perceptions and interpretations that parties hold of situations and of the consequences of adopting certain solutions (Corsaro and Snehota 2010; Vargo and Lusch 2008) to such an extent that one can talk about value images. The link of value to cognitive factors and perceptions means that a strictly objective determination of value in relationships is ruled out; in customer–supplier relationships value is a product of individual perceptions rather than a function of the qualities or attributes of a certain offering (Lamont 1955) or of a certain relationship.
This resonates well with the argument in service marketing that ‘value is always uniquely and phenomenologically determined by the beneficiary’ (Vargo and Lusch 2008, p. 7). In mundane terms this means that the value of a relationship is in the eye of the beholder and that what parties see is never a given because the perceptions and interpretations are formed in the various interactions in which a party is involved. This also means that since parties tend to have different and unique positions in other relationships, their understanding of the implications of a certain solution's effects will be different and likely to lead to different reactions.
Value images are formed as parties interact and each develops their own idea about which are the key value elements. As parties interact they both learn and teach each other about solution consequences and thus form value judgements. This mutual learning and teaching actually amounts to creating value. Consequently, narratives become particularly important sense-making tools through which actors construct their reality and express their idea of value (Weick 1995). In a wider context it has been argued that ‘markets are ideas and activities that exist because actors in the context seek to get access to new resources that they can integrate with their other socio-cultural resources in order to create value’ (Storbacka and Nenonen 2010, p. 2). Parties to a relationship negotiate and define mutual obligations and responsibilities, which has consequences for how the value generated becomes appropriated between the partners. The dependence of value on the socio-cognitive elements means that interactive communication impacting the understanding, interpretations and perceptions that those involved have of the consequences of given solutions assumes an important role in creating value.
The four features of the value-creation process in business relationships with strategically relevant customers discussed above have consequences for account management. They affect the task of strategic account management and have implications for the skills and capabilities required to cope with the value-generating process in customer relationships. Considering SAM as a function that is in principle accountable for generating value in relationships with strategic customers, one can turn to the question of how these features of the value-generating process affect the task and practices of SAM.
Managing value generation in strategic account relationships
The very idea of account management stems from concerns about coordinating various activities of the supplier at the interface of the own organization with an important customer in order to create incremental value in customer relationships (Georges and Eggert 2003; Pardo et al. 2006; Workman et al. 2003). Since several different organizational units such as production, research and development, procurement, marketing, sales, technical support, logistics and administration are more or less directly involved with the corresponding functions of the customer, such interface activities can be numerous and entail substantial costs. Tighter coordination of such activities can prevent conflicting and dysfunctional behaviours, enhancing the relationship quality and making the involvement of various functions more cost efficient. Coordinating the various activities is certainly an important contribution of account management to generating value in and from customer relationships.
While the coordination function within the own organization that makes relationships more cost efficient is important in account management, there are two other aspects that are important for the formation of value in relationships: interdependences and interaction in customer–supplier relationships. The first is related to the need to coordinate not only activities within the own organization but also the joint activities with the customer (Napolitano 1997). Extending the task of coordination from the internal activities of the supplier to joint activities is highly relevant for the economic outcomes of the relationship for both the supplier and the customer as it affects both parties' relationship costs and the relationship quality.
The second aspect is related to the need to continuously adjust existing solutions and thus develop the relationship. Such adaptations require developing novel solutions and involve a certain degree of innovation that can become highly significant for the economic outcomes of the relationship for the supplier and the customer. Innovation in relationships with customers tends to be positive and significant for the development of the supplier business (Hult et al. 2004; von Hippel 1988). Because the economic consequences of coordinating joint activities and innovative relationship solutions can be more significant than the cost-efficiency effects of internal coordination, the extension of the coordination from internal to joint activities and from managing existing solutions to developing new ones is highly relevant for strategic account management.
The task of account management in a company's main business relationships can best be described and defined as relating the own and customer's organizations, rather than simply coordinating existing activities. Relating involves connecting different resources and activities of two organizations and adjusting and developing existing connections. The issues that need to be addressed in this process of relating are likely to be so numerous that it is impossible to establish a priori a blueprint for the configuration of the relationship, and the problems that arise cannot be addressed and solved unilaterally. Relating the own and customer organization is demanding because the solutions are conceived and implemented between customer and supplier in an interactive process that usually starts from the ‘unknown’ and proceeds to a tangible configuration of the relationship on which its economic outcomes depend. Developing an economically viable relationship implies not simply listening to customer requests and adapting to these; it requires ‘bringing the customer into’ the value-generating process and integrating the customer's operations with own operations − making the customer create value. Relating involves a process of reciprocal enactment (Danneels 2003) between the customer and the supplier. Relating implies building the supplier's offering, but the customer's involvement means trade-offs between the own and the counterpart's short- and long-term costs, and benefits need to be addressed and settled.
Regardless of how economically and strategically convenient and advantageous the configuration of a relationship is, it is never accomplished, and the need to adapt the solutions in the relationship is, in principle, never-ending. Connecting the two related systems of the supplier and the customer is not a single event but a process of adapting over time since the network context and consequently the relationship are in perpetual motion. This process of adapting follows the evolving issues and problems each company faces in its operations. There are always reasons to modify the existing offering, either internal to the relationship, to improve its performance or economics, or external, to relate it to the other relationships of the counterparts or the evolving network. Because of the mutual adaptations, the development of the two companies' resources follows a particular path, their activities become more or less specialized and the two actors co-evolve their ways of working (Ford et al. 2011; Håkansson et al. 2009; Sanchez et al. 2010). What makes relationships with the main customers strategically relevant and important is that these involve unique interaction processes that result in unique relationships that will significantly affect the supplier's current economic performance and are critical for the supplier's future performance potential.
The broadening of the scope of account management towards relating rather than activity coordinating, especially with respect to strategically relevant customers, makes the task of SAM more demanding. Managing relating is challenging because developing a viable relationship and offering involves combining elements of the activities, resources of the supplier and the customer, as well as the actions of different individual actors in the two companies into a configuration that will be functionally feasible and economically sustainable. Relational solutions are likely to be complex not only because they are built on a composite set of resources, and interdependent activities, but also because they require the joint action of actors who have different ideas, perceptions and agendas. Relating is demanding also because every relationship connects and confronts two business systems, two business models and two ‘thought worlds’ which are never stable or in equilibrium but always in motion and always exposed to pressure for change and in need of adaptation.
The task of account management with respect to generating value in business relationships to strategically relevant customers is challenging for at least three reasons. One is that the task of account management becomes broader because coping with value generation in relationships adds to, and does not substitute, the task of coordinating the own organization's interface activities. Another reason is that the active engagement with customers limits autonomy in choices; being dependent on counterparts' actions and reactions requires an interaction orientation in order not to lose the benefits of added value emerging from interaction which, in turn, implies following the actions and reactions of the counterpart. On the whole, the task of account management becomes more of managing within a relationship rather than managing the relationship. Since interaction continuously changes the course of action and choices, a key account is required to scrupulously manage interactions with customers as these are critical events in the generation of value. Finally, effectively contributing to the generation of value in customer relationships entails the need to balance own vs. joint interests, and the somewhat contrasting requirements for coordinating the existing configuration of the relationship vs. developing it in innovative ways. Organizationally, this involves continuously seeking a balance between opening for developmental reasons and closing for producing workable solutions.
Furthermore, the balancing act among contrasting criteria in SAM is to be carried out in a context in which those in charge of the account management are exposed to contrasting pressures from the own and customer organization. Taking charge of value generation in relationships with critical customers is thus a tall task that requires extraordinary capabilities.
Conclusions
In light of the features of the value-generating process in business relationships and the task of value creating in relationships with strategically relevant customers, one can now discuss the skills and capabilities required to cope with such a task. Rather than reinforcing analytical skills inspired by a planning logic, what is needed is to develop and strengthen ‘interaction capabilities’. However, to acquire and grow interaction capability for a supplier company is not simply about developing individual abilities; rather, it is about developing organizational practices and routines. Such routines and practices should build on shared identification and understanding of interdependencies in the own and customer organizations.
Mutual interdependence and jointness in the value-generating process implies the necessity to think in terms of collective rather than individual action and to involve a set of actors in collaborative relationships in order to make use of a ‘distributed knowledge system’ (Tsoukas 1996). Engagement of others needs to be elicited in order to make use of various elements of the distributed knowledge system, or in other words, of the existing networks. Engaging others who can contribute to developing effective solutions in relationships implies managing interdependent rather than unilateral autonomous action. That, in turn, requires accepting co-leadership and the necessity to orchestrate the distributed competences for better performance (Dhanaraj and Parkhe 2006). Since generating effective solutions in a relationship depends on knowledge and perception-related factors, interactive communication plays an important role, and there is a need to consider mutual learning and teaching in customer–supplier relationships. Because the actual solutions are enacted rather than the result of a linear analytical process, interaction orientation (Ramani and Kumar 2008) is required to cope effectively with the solution-generating process.
While the need for developing interaction capability is evident, both management practice and research currently offer only partial indications and conjectures as to what the interaction capabilities consist of and how they can be fostered. Extant research on interaction capabilities appears to converge on four broad aspects of interaction capability (Coviello and Joseph 2012; Håkansson et al. 2009; Ramani and Kumar 2008) as being important for outcomes of business relationships.
Counterpart mobilization
There is a need to engage the customer (and others) in the process of identification and implementation of solutions that generate value in a relationship. Engaging others requires identification of the key connection between the own and customer organizations, understanding of the economic consequences of these connections and elaboration of an actionable map of the value-formation process in the relationship. It also necessitates understanding the effects of the customer involvement for the own organization's autonomy (Ford et al. 2011). Understanding value formation in relationships involves analysing costs and value for both companies in the short and long term, and involves the capacity to view value at the level of the relationship over time rather than for single transactions, for both counterparts rather than one, and the ability to identify often contrasting value consequences of the offering (Ulaga and Eggert 2006). Development of new solutions requires engaging an entire set of actors, who can offer different contributions, and facilitating the flow of information among the relevant actors. Engaging others is not simply about being adaptive; rather, it means pursuing the logic of ‘effectuation’ (Read et al. 2009) or ‘enactment’ (Weick et al. 2005), which implies accepting the principle of co-creation. Engaging the counterparts also involves fostering the mutual creation and sharing of information among various actors implicated in the relationships.
Development agility
Commitment to exploratory learning (Miner et al. 2001) favours the development of solutions that effectively lead to generating value for the parties in a relationship through innovation. Development agility means a willingness to act on partial information but at the same time being open to review and reformulate past choices. Rather than seeking more complete information and solving the ambiguity of choices through scenario planning or extensive analysis, coping effectively with the interaction process in a business relationship requires tolerance for ambiguity. Ultimately, development agility is about the ability to question and probe one's own and the other's experience and decisions, and the openness to accept the effectuation logic of the enactment of solutions as various issues in the relationship emerge. This means following the logic of jointly creating developments in relational solutions, rather than simply unilaterally adapting to each other's actions and reactions (Ford et al. 2011). Development agility entails commitment to the development of the relationship, rather than an opportunistic pursuit of perceived market opportunities and a crowd-following mentality. Effective joint development requires acceptance on both sides of the relationship that outcomes of the interaction processes in relationships are contingent on the reciprocal process of enactment (Danneels 2003).
Mindful experimentation
Given the ambiguities management faces in business relationships, finding novel solutions in relationships requires experimentation. When the set of options open to management is unclear, even unplanned action can inform managers. Experimenting can help to generate new options as long as it is mindful and not erratic. Mindfulness requires afterthought and elaborating the experience. It has been shown that a blend of planned and unplanned actions can inform future decisions on solutions in relationships (Weick et al. 2005) and it has been suggested that, under the circumstances, adaptive experimentation can favour learning among the parties (Day 2011). Enacting workable solutions and couplings in the relationship through a trial-and-error process in which both parties engage is an important component in innovating the content of relationships and thus producing value for the parties. Also, studies on innovation have shown that developing novel offerings and relationship solutions requires extensive experimentation, engagement in a joint trial-and-error process, and reviewing one's own understanding of key relationships (Chesbrough 2010, p. 356). Innovation requires the ability to simultaneously open existing designs and procedures and to operate closure to put solutions in place (Håkansson and Olsen 2012). Therefore, finding new solutions through experimenting can put the own organization under considerable stress to manage such seemingly contrasting requirements at the same time.
Persistency and resilience
No point of equilibrium in a relationship can remain stable for long, and the need to adapt existing solutions is continuous. Relationships develop because participants become committed to some future states, which involves accepting an investment logic, in the sense that efforts and cost to solve emergent contingencies precede potential beneficial returns. The latter are always deferred. Accounting for the costs and benefits of various choices always has a time dimension that needs to be considered. Opportunity identification and exploitation is not a single event; rather, both are a continuous ongoing activity (O'Connor and Rice 2001). In exercising relational choices there is no given time horizon but commitment and persistency, if combined with development agility, tend to yield positive economic outcomes over time (Ghemwatt 1993). Competencies for change (Peterat and Helfatl 2003) and resilience (Hamel and Välikangas 2003) are involved in the supplier and customer organizations, because mutual adaptations in strategically relevant business relationships require that both the supplier and the customer have a modicum of capacity to meet the unexpected. Building competences to cope with change involves fostering non-routine experiment orientation in the organization and accepting the temporary nature of success.
Developing such capabilities in companies that operate in business markets requires establishing appropriate organizational routines and practices, not only in the marketing and sales functions but in all organizational functions that operate at the company boundaries interfacing with customers. Since managing value in strategic relationships is not about combining ready-made elements and applying known solutions but is about innovating, it is necessary to make use of a distributed competence in the own organization and elsewhere in the business network. That entails greater organizational complexity. Since the competences needed to actively relate to specific individual customers are distributed throughout the supplier organization, various organizational units need to be engaged in the external relationships and such engagement cannot be delegated to traditional boundary units as, for instance, sales or marketing (Gummesson 1991; La Rocca and Snehota 2012). SAM cannot be a substitute for the involvement of these units; it can provide support and some guidance for their engagement.
That leads to a final consideration of the management style and approach to strategic account management when it becomes a distinct and formal unit in the supplier organization. The active involvement of others, within the own organization, in the customer organization and eventually among third parties in the value-generating process, necessitates non-hierarchical decision and management processes because the resulting interaction in business relationships can never be fully controlled and directed by one of the parties. For better performance of the networked actors, the distributed competences need to be collectively orchestrated (Dhanaraj and Parkhe 2006) and the roles of those involved need to be continuously negotiated and renegotiated among the parties.
SAM can perform an active role in orchestrating the activities, but without the possibility of relying on centralized control. Furthermore, management in the supplier organization must experiment with organizational solutions differentiated in relation to value-creation processes for different customers (La Rocca and Snehota 2014). Since diversity has been identified as a driver of success in innovative projects, the provision of a diverse team for each strategic account, a team that understands the ongoing process and capacity to leverage and integrate diverse ways of thinking, is an important ingredient of successful SAM.