THE CHALLENGE OF GLOB/

Multinational suppliers to muitinational customers face a serious new

challenge and corresponding opportunity. These customers increasingly

want to deal with suppliers on a global basis—global contracts, prices,

products, and so on—instead of on a country-by-country basis. For exam-

ple, in their drive to reduce costs, the major automobile manufacturers, such

as General Motors and Ford, increasingly seek global contracts from their sup-

pliers, such as Bosch and Goodyear. Nestle and its competitors increasingly

pressure their suppliers, such as International Paper, to provide global prices

and other terms. Even retailers, such as Wal-Mart and Carrefour, who have

long taken national approaches, are seeking global or regional supply contracts

as they expand globally.

Companies need to respond to rlsino

By David B. Montgomery

22 I MM W i n t e r 2 0 0 0

J CUSTOMER MANAGEMENT

Historically, most multinational companies have allowed their national

subsidiaries extensive independence in their purchasing behavior, but the

problems found with this approach (e.g., incompatibility of equipment and

standards, and diseconomies in purchasing) have increasingly led them to

buy on a more centralized or coordinated basis. Also, as multinational com-

panies themselves develop more globally integrated strategies, they expect

the same from their suppliers. The most dramatic example was IBM's deci-

sion in 1994 to replace more than 40 different advertising agencies that were

serving IBM around the world and to consolidate the company's entire $500

million account at one top-ten global agency, Ogilvy & Mather Worldwide.

customer demands for global relationships.

and George S. Yip

MM Winter 2 0 0 0 I 23

EXECUTIVEb r i e f i n g

Global account management is

a new process by which multi-

national companies can better

manage their relationships

Vi/ith global customers. This

article provides a framework

and methodology that man-

agers can use to diagnose

whether and how to use

global account management.

We also report on evidence

from a study of 191 senior

executives of major multina-

tional companies- Multinational

customers are increasingly

demanding global consistency

in service quality and perform-

ance, global contracts, uni-

form terms of trade, global

pricing, and the like.

Multinational suppliers need to

respond with appropriate pro-

grams. Getting it right helps

performance in terms of cus-

tomer satisfaction, revenues,

and profits.

But most multinational suppliers find itdifficult to respond to this demand for glob-al service. Their own organization struc-tures and management processes have longbeen geared toward providing national,rather than global, customer management.But the savvier suppliers, such as AT&T,Bank of America, British Telecom, Citibank,IBM, Hewlett-Packard, and Xerox are learn-ing to play the new game of global cus-tomer management and reaping the corre-sponding rewards. Different companies usedifferent terms to refer to global customermanagement, such as "global account man-agement," "parent account management,""international account management," or"worldwide account management."

Although in this article we will use thefirst term, the most common one, all theseterms involve an organizational form andprocess in multinational companies bywhich the worldwide activities serving oneor more multinational customers are coordi-nated centrally by one person or team with-in the supplier company. Global accountmanagement can be experisive to implementand carries its own risks (such as standardiz-ing global prices at a low common level). Somanagers need to be able to diagnose theextent to which their customers will wantsuch services, what sort of services to pro-vide, and how to implement the programs.

To study these issues, we interviewedsenior international executives from

THE STUDY

Andersen Consulting, AT&T, Hewlett-Packard, MasterCard, McKinsey,PricewaterhouseCoopers, and WorldPartners (AT&T), and conducted a survey of191 senior executives from major multina-tional companies around the world.

A FrameworkA framework for global customer man-

agement needs to include several factors:

• Globalization drivers in the industriesof both customers and suppliers,because there are strong differences byindustry.

• Demand for global customer manage-ment by customers - these vary by thecustomer's organizational heritage andstage of globalization.

• Supply of such services by suppliers —these, too, vary by the supplier's orga-nizational heritage and stage of global-ization.

• Performance effect—how all this affectscustomer retention, share, revenues,and profits.

Exhibit 1 summarizes the framework.The detailed lists of demand and use camefrom our interviews.

We developed a questionnaire, had it completed by 191 senior international executives from 165 multinational companies, andconducted various statistical tests. Multinational customers were explicitly defined within the questionnaire as those who buyfrom the company in more than one country regardless of whether they coordinate purchases across countries. Coordinatedmultinational customers were defined as those who buy from the company in more than one country and who coordinate pur-chases across countries.

Our sample came from four different sources: one mail survey and three convenience samples from senior-level executive edu-cation programs conducted at Stanford and UCLA business schools, ail during 1997, In all four samples, respondents werenearly all at the level of vice president or higher

Statistical tests showed that the four samples provided very similar results and could be pooled into one sample for analysis,The respondent multinational companies came from a very wide mix of tndustnes and from 33 different countries spread acrossall the regions of the world; North, South, and Central Amenca; Western and Eastern Europe; East Asia; Afnca; and Oceania.On average, the companies have operations in four of these regions. U.S, companies made up 70% [133 out of 191) of thesample. Median company revenues were $1,956 million (just below the U-S. Fortune 500 cutoff of 1997)-

2 4 I M M W i n t e r 2 0 0 0

1Model of global account management

Demandlor GAM

Coordination olresources (or

serving customers

Single pointot conlaci

Unilorm prices

Unitorm termsQl trade

CtanrtarrtiTotififi

Customets'glotialization

^ o! products and ^services

Organizationalresponse

Consistency inservice quality

and performance

Service in marketsin wtii{^ companytas no customer

operations

Extent ofGAM use

Global accountmanagers •

Support s taf l^ l

Customerinformation

, Customer councilsorpaneis M

Revenue or profitmeasures , ••

fleportingPertormance

elteclprocesses m

Personnelevaluation

Inceniives andcompensation'^^

Industry DriversAll mullinational companies now face pressures for global-

ization and globa! integration, although such pressures vary byindustry. As companies respond with globally integrated strate-gies, one such strategy is to develop global sourcing to matchtheir global production networks. Several supplier industrycharacteristics or drivers increase the likelihood that multina-tional customers will demand global account management serv-ices. For example, many computer suppliers, such as Hewlett-Packard and IBM, have created some of the most extensive andsuccessful global account management programs. At Hewlett-Packard and IBM, the global account managers have sigruficantline authority relative to national accoimt managers. In contrast.Citibank's long-running "parent account" management programgives only coordinating responsibility to the parent accountmanagers. Why is there this difference between Hewlett-Packard, IBM, and Citibank? The three companies have mostlythe same global customers, but the industry makes the differ-ence. A lack of global consistency in computers would meanbreakdown of business operations, but in banking would meanhigher finance costs (the risk aspect being already well-managedby corporate treasury departments). Hence, there is a muchstronger industry driver in computers, than in banking, forstrong global account management.

• So suppliers need to understand the drivers in their indus-try that affect the potential for global account management. Buteven within the same supplier industry, each customer differs inits prospects as a global account. First, these customers may facedifferent globalization pressures in their own customer indus-

tries (e.g., an automotive customer of a computer company facesvery different globalization pressures than does an airline cus-tomer). Second, each customer has his/her own organizationalheritage and its own stage of development as a globally inte-grated company. At one extreme, many Japanese companies,such as Toyota or Matsushita, have long operated with globallycentralized strategic business units. In contrast, many Europeancompanies have long operated highly autonomous networks ofsubsidiaries. Only in the last 10 years or so have companies,such as Philips and Unilever, started to integrate their globaloperations. Similarly, supplier companies face the same set oforganizational and stage of globalization issues. The combina-tion of these industry globalization drivers and organizationalfactors affects the specific demands by customers and the specif-ic responses of suppliers.

Customers' GlobalizationCustomer industry globalization drivers and organization

heritage affect a customer's general potential as a globalaccount. But we have found that the single best measure of acustomer's potential as a global account is the percentage of itspurchases that are made on a globally coordinated basis. (See"Customers' Globalization" in Exhibit 1.) On the supplier side,the corresponding measure is the percentage of revenuesaccounted for by customers that buy on a globally centralizedbasis. This latter percentage is typically less than the percentageof revenues accounted for by all multinational customers, manyof whom may still be purchasing on a country-by-country basis,or who may purchase globally for some inputs and locally forothers. In turn, revenues from multinational customers are usu-ally lower than those from all international customers, many ofwhom may be foreign national customers. In our sample, wefound that while the average revenues from all intemationaicustomers was 46%, that from multinational customers was26%, and that from globally coordinated multinational cus-tomers was only 13%. So although revenues from all interna-tional customers was 46% (fairly typical of a Fortune 500 type offirm population), only 13% of revenues are from true global cus-tomers. While 13% may seem low, these revenues usually comefrom the most prestigious and most sophisticated customers.Few multinational suppliers can afford to underserve such cus-tomers. Furthermore, this percentage will increase, as our otherevidence will show.

Customers' DemandGlobal customers do not demand global account manage-

ment in general. From the exploratory interviews we identifiedthe following list of global customers' requests for specificaspects of global account management:

• Single point of contact. Global customers need asingle point of contact within each supplier. This singlepoint then enables better negotiation and managementof the relationship.

M M W i n t e r 2 0 0 0 I 25

• Coordination of resources for serving customers. Globalcustomers also require better coordination of their suppli-ers' resources for serving them. Such needs for coordinationinclude meshing of the supplier's global activity networkwith that of the customer. For example, "just-in-time" pro-duction is now practiced on a global basis, placing highdemands on customer-supplier coordination.-

• Uniform prices. Global customers seek to avoid paying dif-ferent prices in different countries unless there is cost justifi-cation (e.g., transportation, order size, special versions)rather than just market variations {i.e., prices are higher insome markets than others because of supply and demand orhistorical reasons), Essentially, globalized customers seekglobally uniform prices and require an acceptable justifica-tion for any deviations.

• Uniform terms of trade. Global customers also seek unifor-mity in all terms of trade, and not just price. So theyincreasingly demand uniformity in such issues as volumediscounts, transportation charges, overhead, special charges,and so forth.

• Standardization of products and services. Global cus-tomers increasingly seek to produce standardized productsand services themselves and in turn need standardizedsupplies. Also, companies with global strategies increasing-ly seek to develop globally integrated organizations andmanagement processes. In turn they expect standardizedproducts and services in support of their organization andmanagement processes, particularly in the case of produc-tivity tools such as computing and communication prod-ucts and services.

• Consistency in service quality and perfonnance. Globalcustomers seek a high degree of standardization and consis-tency in their own global operations. Accordingly, they needtheir suppliers to provide corresponding consistency inservice quality and performance. For example, a global air-line needs consistency in its suppliers, whether of mainte-nance or catering services; or a global manufacturer needsconsistent servicing of its machinery.

• Service in markets in which company has no customeroperations. Global customers often operate in more geo-graphic locations than do their suppliers. Typically, themore geographically spread MNCs are more likely todemand global account management services. A particular-ly tough requirement is for the supplier to serve the cus-tomer in a geography where the supplier does not haveoperations. A truly responsive supplier would set up opera-tions in the new geography or else face the threat of riskinglosing the entire global relationship by allowing a competi-tor to serve the customer in that geography. For example.

many Japanese automotive parts suppliers have followedthe global expansion of Toyota, Nissan, and Honda.

We found that demand for all aspects of global account man-agement increased dramatically from 1992 to 1997, from scores inthe 2 range out of 7 (where 7 is the highest) to scores in the 4range, (See Exhibit 2.) In other words, demand increased from alow level to a moderate level. Many suppliers fear that customers'primary interest in global account management lies in gettinglower, uniform prices. But our findings show that while impor-tant, "uniform prices" and "uniform terms of trade" were not themost highly demanded aspects. Instead, the most demandedaspect was "consistency in service quality and performance."

Suppliers* UseTo use global account management, supplier companies

must implement changes in many aspects of organization struc-ture, management processes, people, and culture:

• Global account managers. Perhaps the single most impor-tant way to implement GAM is to designate a globalaccount manager with dedicated responsibility for a globalaccount. Typically, managers are located in the customer'sheadquarters' country.

• Support staff. A global account manager cannot operatealone but requires support staff. For example, Hewlett-Packard's GAM program includes support staff at H-P'sown headquarters while the global account manager isbased near the customer's headquarters.

• Revenue or profit measures. Evaluating and compensatingglobal account personnel depends on knowing the perform-ance of global accounts, particularly revenues and profits ona global rather than national or regional basis. The creationof such global performance measures is a difficult yet verynecessary aspect of implementing GAM.

• Reporting processes. More generally, a GAM programneeds to have reporting processes on all aspects of a globalaccount, not just on revenues and profits but also on cus-tomer satisfaction, wins and losses, and use of globalaccount services in different geographies.

• Customer information. An effective GAM reporting processwill result in extensive information about the customer glob-ally and provide a basis for improving performance for boththe customer and the supplier. Furthermore, an effectiveGAM program provides for the central collation of previous-ly dispersed or uncoUected customer information.

• Personnel evaluation. Managers directly involved in GAMprograms, as designated global account managers or staff,need to be evaluated on a global rather than just national or

2 6 M M W i n t e r 2 0 0 0

regional basis. In addition, managers indirectly involved,such as country managers and sales persormel, need tohave a global customer component added to their primarilynational or regional evaluation basis. Changing evaluationsystems is known to be highly difficult.

• Incentives and compensalion. Changing the evaluationsystem has the objective of changing and rewarding behav-ior. Incentives and compensation provide some of the mostpowerful influences on managers' behavior, partiailarly insales situations. Previous research has shown how countrymanagers have failed to change their behavior to supportglobal strategies when their compensation continues to beset on a national basis. But changing the compensation sys-tem turns out to be one of the most difficult challenges forglobalizing companies.

• Customer councils or panels. Lastly, a GAM program is verymuch a two-way relationship, requiring extensive and con-tinuing feedback from customers to suppliers and vice versa.

Companies may implement customer panels or councils aspart of their GAM program. Suppliers' use of all aspects ofglobal account management in 1997 was at the moderate level,mostly in the high 3 range, and somewhat below the levels ofcustomer demand in 1997. (See Exhibit 2.) Indeed, suppliers'use of global account management in 1997 seemed to be driven

by customers' demand of five years' earlier (i.e., a laggedresponse). So suppliers are failing to satisfy customers' needs.But suppliers expected to greatly increase their use of allaspects, with scores in the 5 range in five years' time (by 2002).While our results report expected changes, which experienceshows to seldom match what is actually done, the intendedenhancements are still striking. Among individual elements, thegreatest current use is of global account managers and supportstaff. Overall, 71% of the companies made some use of globalaccount management. So this phenomenon is now widespread.

Supply and DemandWe conducted various statistical tests to check the relation-

ship between customers' demand for global account manage-ment and suppliers' use. These tests showed a very strongrelationship between customers' demand for global accountmanagement and suppliers' use of it. Many companies worrythat global account management may be a fad that suppliersare pushing on to their customers. These results show thatsuppliers are responding to genuine demands on the part oftheir customers.

Performance EffectsThe end objective of suppliers in implementing global

account management is, of course, to improve their performance.These should not be measured in terms of profits only, but alsoin enhanced customer satisfaction, increased share and revenues

HIBIT 2Demand for and use of global account management (as estimated by suppliers)

Customer demand

Service in markets withoutcustomer opefations

Consistency in serviceQuality and perlormance

Standardization otproducts and services

Uniiorm terms ot trade

Unitorm prices

Coordination o1 resources(or serving customers

Single point o( contact

GAM OVERALL

5 years ago

1

39

Supplier use

Manager responsibie forglotal account management

Support staff

Evaluation otpersonnel involved

Global personnel incentivesand compensation

Revenue/profit measures

Reporting processes

Customer information

Customer councils/panels

PROGRAMS OVERALL

In 5 years

5.5

5.4

1 2 3 4 5 6 7

Source: Survey DM9i eiecutives in mullinational suppliers m llie lour samples comMnedNole Conges over time all signllicani al a < 01 inus. resulls are very unlikely la be spurious.

LIkfltl scales 1 -7 whete 1 = 'nol al air and 1 = "very much'

M M W i n t e r 2 0 0 0 ] 27

from existing customers, retaining existing customers, wirmiiignew customers, and improving internal supplier operations. Oursurvey found some estimated performance improvements:

• About 20% overall customer satisfaction

• About 15% revenues

• About 15% profits

These numbers are reasonably impressive and match theoverall estimates of global account management programs havinghad a moderate impact to date. Furthermore, our statistical mod-els found the more suppliers used global account managementprograms, the more favorable the effect on their performance.

Implications for ManagersThis study has strong implications for all multinational

companies that sell to other multinational companies. Demandfor global account management is already significant and willgrow. While most large multinational companies (two thirds ofour sample) make use of some aspect of global account manage-ment, most also seem to lag in their response to customers'demands. Furthermore, they seem to only partially implementthe various parts of a full global account management program.So there is sigruficant opportunity and threat for most multina-tional companies. Those who can implement global accountmanagement more effectively should be able to build significantadvantages over their competitors. In terms of specifics, compa-nies can assuage their fears that uniform, lower prices are thekey thing expected by customers of global account managementprograms. Indeed, effective implementation of a multidimen-sional global account management program should reduce suchdemands. On the other hand, it does seem key to appoint globalaccount managers and staff. Other aspects without these pivotalroles are inadequate. Lastly, the positive effects of global accountmanagement programs on supplier perfonnance imply that,despite the costs involved, global account management pro-grams make sound investments.

Diagnosing Your CompanyReaders can diagnose the opportunities for using global

account management by using the following process:

1. Diagnose the stage of globalization of your own organiza-tion and those of your customers, according to the follow-ing definitions.Domestic Company. Company still has most of its revenuesin home market. Products and processes are geared primari-ly to serving domestic customers (i.e., most utility compa-nies in 1990s).International Company. Company has significant percent-age of revenues in international activities. There may be aseparate international division. Significant distinctions in

products and processes are made between domestic andforeign customers, but perhaps without much distinctionamong the latter (e.g., Anheuser-Busch in 1990s).Multinational or Multilocal Company. Company hasextensive international revenues and activities. There maybe strong country organizations and many value chainactivities are duplicated around the world. Decisions focuson the needs of local customers in local markets. Only limit-ed coordination across borders (e.g.. Philips and Unilever in1980s, Holiday Inns in 1990s),

Global Company. Company makes key strategic decisionson globally integrated basis. Value chain is geographicallyspecialized and networked. Products and processes aredesigned to be global with capability for local adaptation atminimal cost (e.g., Toyota in 1980s, Asea Brown Boveri in1990s, most new Internet-based companies in 2000).

2. From Step 1, conclude on the overall readiness of both yourown company and of your key customers for global accountmanagement programs. Use the matrix in Exhibit 3 to iden-tify how far you should pursue global account managementprograms with each customer.

3. Collect information on the source of your company's rev-enues as to whether from international customers, multina-tional customers, or global customers.

4. Learn from customers which global account managementbenefits are the most valuable to them. (See list in Exhibit 2.)

• I •

5. Decide which aspects of global management you shouldimplement and at what pace. (See list in Exhibit 2.)

HIBIT3gnosing readiness for global

account management

Customer industryand organizationglobalization

High

Moderate

Low

Accelerateyour

efforts

Minimaleftorts

Balanced

approach

Fullsteamahead

Do notpusti too

hard

Low Moderate High

Supplier industry andorganization globalization

2 8 M M W i n t e r 2 0 0 0

Closing ThoughtsImplementing global account

management is not easy but itis increasingly necessary.Opportunities can arise onboth sides of the supplychain, A company may beable to behave as a globalcustomer with its own sup-pliers and as a global sup-plier to its own customers. Inmany cases, the state of readi-ness will be different at eachstage of the chain. We knowof a European multinational com-pany that has built itself into theglobal market share leader in a semi-commodity category. The company isbusy implementing global programs.Although its major suppliers are multinationals,they are not structured to supply on a global basis with globalcontracts. The company is now pushing hard on these suppli-ers and threatening them with the loss of business if they donot realign the way they do business. On the customer side,this company faces a special dilemma. Its immediate cus-tomers are fragmented national producers, but global giantsbeginning to demand global supply contracts increasinglydominate retailing. The company is now trying to find a wayto reconfigure its industry business system so that it can builddirect global relationships with these downstream global retail-ors. Other companies face similarly complex challenges. Globalaccount management can be a key vehicle for dealing witbsuch challenges. The companies that resist global account man-agement may soon find themselves losing the business of themost global and most prestigious customers. •

Additional Reading

Millman, Tony (1996), "Global Key Account Management andSystems Selling," International Business Review, 5, No. 6, 631-645.

Montgomery, David B. and Frederick E, Webster, Jr. (1997),"Marketing's Interfunctional Interfaces: The MSI Workshop onManagement of Corporate Fault Zones," Journal of MarketFocused Management, 2, 7-26.

Montgomery, David B., George S. Yip, and Belen Villalonga (1999),"Demand for and Use of Global Account Management,"Marketing Science Institute, Cambridge, MA, Report No. 99-115,

Yip, George S. (1992), Total Global Strategy: Managing for World WideCompetitive Advantage. Englewood Cliffs, NJ: Prentice Hall.

Yip, George S. and Tammy L. Madsen(1996), "Global account manage-

ment: The new frontier in relation-ship marketing," InternationalMarketing Review, 13 (3), 24-42.

Author's Note:We would like to thankBelen Villalonga, UCLA;Javier Gomez Biscarri,UCLA; and Dana McLaurin,

Stanford, for their assistance;and the Marketing Science

Institute, Stanford GraduateSchool of Business, and the

Center for International BusinessEducation and Research at UCLA, for

their financial support.

About the AuthorsDavid B. Montgomery is S. S. Kresge professor of market-

ing strategy emeritus at the Stanford Graduate School ofBusiness. From 1995-1997 he was executive director of theMarketing Science Institute. His paper, " First MoverAdvantages," won the Strategic Management Journal's 1996 beststrategy paper award. Montgomery has written 10 books andmore than 90 papers. He has been a director of several corpora-tions and currently is on the advisory boards of several startups.He holds a BS in Engineering, MBA, MS, and PhD, all fromStanford University and a Dr. (honoris causa) from LUC(Belgium). He may be reached at montgomery_david@gsb.starvford.edu.

George S. Yip is Beckwith professor of marketing andstrategy at Cambridge University's Judge Institute ofManagement Studies, and from January, 2001, will be Professorof Strategic and International Management at London BusinessSchool. He was previously on the faculty at Harvard and UCLAand held visiting positions at Georgetown and Stanford busi-ness schools, as well as management positions at Unilever andPricewaterhouseCoopers. He may be reached atgyip@Iondon.edu.

MM Winter 2 0 0 0 I 29