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Read and analyze the attached article: The Challenge




Read and analyze the attached article: The Challenge of Global Customer Management, David B. Montgomery and George S. Yip, Marketing Management, Winter 2000";Attachment Preview;Montgomery Yip Global Customer Management.pdf;T HE CHALLENGE OF G LOB/;Multinational suppliers to muitinational customers face a serious new;challenge and corresponding oppotiunity. These customers increasingly;want to deal with suppliers on a global basisglobal contracts, prices;products, and so oninstead 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 M M W i n t e r;2000;J;CUSTOMER MANAGEMENT;Historically, most multinational companies have allov\/ed 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;EXECUTIVE;briefing;Global account management is;a new process by which multinational companies can better;manage their;relationships;with global customers. This;article provides a framework;and methodology that managers 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 multinational companies. Multinational;customers are increasingly;demanding giobal consistency;in service quality and performance, global contracts, uniform terms of trade, global;pricing;and;the;like.;Multinational suppliers need to;respond with appropriate pro-;But most multinational suppliers find it;difficult to respond to this demand for global service. Their own organization structures and management processes have long;been 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 learning to play the new game of global customer management and reaping the corresponding rewards. Different companies use;different terms to refer to global customer;management, such as "global account management," "parent account management,;international account management," or;worldwide account management.;Although in this article we will use the;first term, the most common one, all these;terms involve an organizational form and;process in multinational companies by;which the worldwide activities serving one;or more multinational customers are coordinated centrally by one person or team within the supplier company. Global account;management can be experisive to implement;and carries its own risks (such as standardizing global prices at a low common level). So;managers need to be able to diagnose the;extent to which their customers will want;such services, what sort of services to provide, and how to implement the programs.;To study these issues, we interviewed;senior international executives from;Andersen Consulting, AT&T, HewlettPackard, MasterCard, McKinsey;PricewaterhouseCoopers, and World;Partners (AT&T), and conducted a survey of;191 senior executives from major multinational companies around the world.;A Framework;A framework for global customer management needs to include several factors;Globalization drivers in the industries;of both customers and suppliers;because there are strong differences by;industry.;Demand for global customer management by customers - these vary by the;customer's organizational heritage and;stage of globalization.;Supply of such services by suppliers;these, too, vary by the supplier's organizational heritage and stage of globalization.;Performance effecthow all this affects;customer retention, share, revenues;and profits.;Exhibit 1 summarizes the framework.;The detailed lists of demand and use came;from our interviews.;grams. Getting it right helps;performance in terms of customer satisfaction, revenues;and profits.;THE STUDY;We developed a questionnaire, had it completed by 191 senior international executives from 165 multinational companies, and;conducted various statistical tests. Multinational customers were explicitly defined within the questionnaire as those who buy;from the company in more than one country regardless of whether they coordinate purchases across countries. Coordinated;multinational customers were defined as those who buy from the company in more than one country and who coordinate purchases across countries.;Our sample came from four different sources: one mail survey and three convenience samples from senior-level executive education programs conducted at Stanford and UCLA business schools, ail during 1997, In all four samples, respondents were;nearly 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 across;all 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 the;sample. Median company revenues were $1,956 million (just below the U.S. Fortune SOO cutoff of 1997).;24 I M M W i n t e r;2000;1;Model of global account management;Demand;lor GAM;Extent of;GAM use;Coordination o l;resources (or;serving customers;Global account;managers;Support s t a f l ^ l;Single point;ot conlaci;Customet;information;Uniterm prices, Customer councils;orpaneis;M;Unitorm terms;at trade;Revenue or profit;CtanrtarrtiTotififi;Customets;glotiaiization;^;o! products and;services;measures;^ Organizational;response;Reporting;processes;Periormance;eltecl;m;Consistency in;service quality;and pertormance;Service in markets;in wtii{^ company;tas no customer;operations;Personnel;evaluation;Incentives and;compensation'^^;Industry Drivers;All mullinational companies now face pressures for globalization and globa! integration, although such pressures vary by;industry. As companies respond with globally integrated strategies, one such strategy is to develop global sourcing to match;their global production networks. Several supplier industry;characteristics or drivers increase the likelihood that multinational customers will demand global account management services. For example, many computer suppliers, such as HewlettPackard and IBM, have created some of the most extensive and;successful global account management programs. At HewlettPackard and IBM, the global account managers have sigruficant;line authority relative to national accoimt managers. In contrast.;Citibank's long-running "parent account" management program;gives only coordinating responsibility to the parent account;managers. Why is there this difference between HewlettPackard, IBM, and Citibank? The three companies have mostly;the same global customers, but the industry makes the difference. A lack of global consistency in computers would mean;breakdown of business operations, but in banking would mean;higher finance costs (the risk aspect being already well-managed;by corporate treasury departments). Hence, there is a much;stronger industry driver in computers, than in banking, for;strong global account management.;So suppliers need to understand the drivers in their industry that affect the potential for global account management. But;even within the same supplier industry, each customer differs in;its prospects as a global account. First, these customers may face;different globalization pressures in their own customer indus-;tries (e.g., an automotive customer of a computer company faces;very different globalization pressures than does an airline customer). Second, each customer has his/her own organizational;heritage and its own stage of development as a globally integrated company. At one extreme, many Japanese companies;such as Toyota or Matsushita, have long operated with globally;centralized strategic business units. In contrast, many European;companies have long operated highly autonomous networks of;subsidiaries. Only in the last 10 years or so have companies;such as Philips and Unilever, started to integrate their global;operations. Similarly, supplier companies face the same set of;organizational and stage of globalization issues. The combination of these industry globalization drivers and organizational;factors affects the specific demands by customers and the specific responses of suppliers.;Customers' Globalization;Customer industry globalization drivers and organization;heritage affect a customer's general potential as a global;account. But we have found that the single best measure of a;customer's potential as a global account is the percentage of its;purchases 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 revenues;accounted for by customers that buy on a globally centralized;basis. This latter percentage is typically less than the percentage;of revenues accounted for by all multinational customers, many;of whom may still be purchasing on a country-by-country basis;or who may purchase globally for some inputs and locally for;others. In turn, revenues from multinational customers are usually lower than those from all international customers, many of;whom may be foreign national customers. In our sample, we;found that while the average revenues from all international;customers was 46%, that from multinational customers was;26%, and that from globally coordinated multinational customers was only 13%. So although revenues from all international customers was 46% (fairly typical of a Fortune 500 type of;firm population), only 13% of revenues are from true global customers. While 13% may seem low, these revenues usually come;from the most prestigious and most sophisticated customers.;Few multinational suppliers can afford to underserve such customers. Furthermore, this percentage will increase, as our other;evidence will show.;Customers' Demand;Global customers do not demand global account management in general. From the exploratory interviews we identified;the following list of global customers' requests for specific;aspects of global account management;Single point of contact. Global customers need a;single point of contact within each supplier. This single;point then enables better negotiation and management;of the relationship.;MM Winter 2 0 0 0 1 25;Coordination of resources for serving customers. Global;customers also require better coordination of their suppliers' resources for serving them. Such needs for coordination;include meshing of the supplier's global activity network;with that of the customer. For example, "just-in-Ume" production is now practiced on a global basis, placing high;demands on customer-supplier coordination. Uniform prices. Global customers seek to avoid paying different prices in different countries unless there is cost justification (e.g., transportation, order size, special versions);rather than just market variations (i.e., prices are higher in;some markets than others because of supply and demand or;historical reasons), Essentially, globalized customers seek;globally uniform prices and require an acceptable justification for any deviations.;Uniform terms of trade. Global customers also seek uniformity in all terms of trade, and not just price. So they;increasingly demand uniformity in such issues as volume;discounts, transportation charges, overhead, special charges;and so forth.;Standardization of products and services. Global customers increasingly seek to produce standardized products;and services themselves and in turn need standardized;supplies. Also, companies with global strategies increasingly seek to develop globally integrated organizations and;management processes. In turn they expect standardized;products and services in support of their organization and;management processes, particularly in the case of productivity tools such as computing and communication products and services.;Consistency in service quality and performance. Global;customers seek a high degree of standardization and consistency in their own global operations. Accordingly, they need;their suppliers to provide corresponding consistency in;service quality and performance. For example, a global airline needs consistency in its suppliers, whether of maintenance or catering services, or a global manufacturer needs;consistent servicing of its machinery.;Service in markets in which company has no customer;operations. Global customers often operate in more geographic locations than do their suppliers. Typically, the;more geographically spread MNCs are more likely to;demand global account management services. A particularly tough requirement is for the supplier to serve the customer in a geography where the supplier does not have;operations. A truly responsive supplier would set up operations in the new geography or else face the threat of risking;losing the entire global relationship by allowing a competitor to serve the customer in that geography. For example.;26;M M Winter;2000;many Japanese automotive parts suppliers have followed;the global expansion of Toyota, Nissan, and Honda.;We found that demand for all aspects of global account management increased dramatically from 1992 to 1997, from scores in;the 2 range out of 7 (where 7 is the highest) to scores in the 4;range. (See Exhibit 2.) In other words, demand increased from a;low level to a moderate level. Many suppliers fear that customers;primary interest in global account management lies in getting;lower, uniform prices. But our findings show that while important, "uniform prices" and "uniform terms of trade" were not the;most highly demanded aspects. Instead, the most demanded;aspect was "consistency in service quality and performance.;Suppliers' Use;To use global accoimt management, supplier companies;must implement changes in many aspects of organization structure, management processes, people, and culture;Global account managers. Perhaps the single most important way to implement GAM is to designate a global;account manager with dedicated responsibility for a global;account. Typically, managers are located in the customer's;headquarters' country.;Support staff. A global account manager cannot operate;alone but requires support staff. For example, HewlettPackard's GAM program includes support staff at H-P's;own headquarters while the global account manager is;based near the customer's headquarters.;Revenue or profit measures. Evaluating and compensating;global account personnel depends on knowing the performance of global accounts, particularly revenues and profits on;a global rather than national or regional basis. The creation;of such global performance measures is a difficult yet very;necessary aspect of implementing GAM.;Reporting processes. More generally, a GAM program;needs to have reporting processes on all aspects of a global;account, not just on revenues and profits but also on customer satisfaction, wins and losses, and use of global;account services in different geographies.;Customer information. An effective GAM reporting process;will result in extensive information about the customer globally and provide a basis for improving performance for both;the customer and the supplier. Furthermore, an effective;GAM program provides for the central collation of previously dispersed or uncoUected customer information.;Personnel evaluation. Managers directly involved in GAM;programs, as designated global account managers or staff;need to be evaluated on a global rather than just national or;regional basis. In addition, managers indirectly involved;such as country managers and sales persormel, need to;have a global customer component added to their primarily;national or regional evaluation basis. Changing evaluation;systems is known to be highly difficult.;Incentives and compensation. Changing the evaluation;system has the objective of changing and rewarding behavior. Incentives and compensation provide some of the most;powerful influences on managers' behavior, partiailarly in;sales situations. Previous research has shown how country;managers have failed to change their behavior to support;global strategies when their compensation continues to be;set on a national basis. But changing the compensation system turns out to be one of the most difficult challenges for;globalizing companies.;Customer councils or panels. Lastly, a GAM program is very;much a two-way relationship, requiring extensive and continuing feedback from customers to suppliers and vice versa.;Companies may implement customer panels or councils as;part of their GAM program. Suppliers' use of all aspects of;global account management in 1997 was at the moderate level;mostly in the high 3 range, and somewhat below the levels of;customer 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 lagged;response). So suppliers are failing to satisfy customers' needs.;But suppliers expected to greatly increase their use of all;aspects, with scores in the 5 range in five years' time (by 2002).;While our results report expected changes, which experience;shows to seldom match what is actually done, the intended;enhancements are still striking. Among individual elements, the;greatest current use is of global account managers and support;staff. Overall, 71% of the companies made some use of global;account management. So this phenomenon is now widespread.;Supply and Demand;We conducted various statistical tests to check the relationship between customers' demand for global account management and suppliers' use. These tests showed a very strong;relationship between customers' demand for global account;management and suppliers' use of it. Many companies worry;that global account management may be a fad that suppliers;are pushing on to their customers. These results show that;suppliers are responding to genuine demands on the part of;their customers.;Performance Effects;The 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 also;in enhanced customer satisfaction, increased share and revenues;HIBIT 2;Demand for and use of global account management (as estimated by suppliers);5 years ago;Customer demand;Service in markets williout;customer opefations;39;In 5 years;Supplier use;Manager responsible for;global account management;Support staff;Consistency in service;Quality and pertormance;Evaluation of;personnel involved;Standardization of;products and services;Global personnel incentives;and compensation;Unifoftn terms of trade;Uniform prices;Revenue/;profit measures;Coordination ol resources;(or serving customers;Reporting processes;Single point of contaci;Customer information;GAM OVERALL;Customer councils/panels;1;5.5;PROGRAMS OVERALL;5.4;1;2;3;4;5;6;7;Source: Survey DM9i eiecutives in mullinational suppliers m Ihe lour samples comMned;Nole 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;MM;Winter;2000;27;from existing customers, retaining existing customers, winning;new customers, and improving internal supplier operations. Our;survey found some estimated performance improvements;products and processes are made between domestic and;foreign customers, but perhaps without much distinction;among the latter (e.g., Anheuser-Busch in 1990s).;Multinational or Multilocal Company. Company has;extensive international revenues and activities. There may;be strong country organizations and many value chain;activities are duplicated around the world. Decisions focus;on the needs of local customers in local markets. Only limited coordination across borders (e.g.. Philips and Unilever in;1980s, Holiday Inns in 1990s).;About 20% overall customer satisfaction;About 15% revenues;About 15% profits;These numbers are reasonably impressive and match the;overall estimates of global account management programs having;had a moderate impact to date. Furthermore, our statistical models found the more suppliers used global account management;programs, the more favorable the effect on their performance.;Global Company. Company makes key strategic decisions;on globally integrated basis. Value chain is geographically;specialized and networked. Products and processes are;designed to be global with capability for local adaptation at;minimal cost (e.g., Toyota in 1980s, Asea Brown Boveri in;1990s, most new Internet-based companies in 2000).;Implications for Managers;This study has strong implications for all multinational;companies that sell to other multinational companies. Demand;for global account management is already significant and will;grow. While most large multinational companies (two thirds of;our sample) make use of some aspect of global account management, most also seem to lag in their response to customers;demands. Furthermore, they seem to only partially implement;the various parts of a full global account management program.;So there is sigruficant opportunity and threat for most multinational companies. Those who can implement global account;management more effectively should be able to build significant;advantages over their competitors. In terms of specifics, companies can assuage their fears that uniform, lower prices are the;key thing expected by customers of global account management;programs. Indeed, effective implementation of a multidimensional global account management program should reduce such;demands. On the other hand, it does seem key to appoint global;account managers and staff. Other aspects without these pivotal;roles are inadequate. Lastly, the positive effects of global account;management programs on supplier performance imply that;despite the costs involved, global account management programs make sound investments.;2.;From Step 1, conclude on the overall readiness of both your;own company and of your key customers for global account;management programs. Use the matrix in Exhibit 3 to identify how far you should pursue global account management;programs with each customer.;3.;Collect information on the source of your company's revenues as to whether from international customers, multinational customers, or global customers.;4.;Learn from customers which global account management;benefits are the most valuable to them. (See list in Exhibit 2.);5.;HIBIT3;gnosing readiness for global;account management;High;Readers can diagnose the opportunities for using global;account management by using the following process;28;Diagnose the stage of globalization of your own organization and those of your customers, according to the following definitions.;Domestic Company. Company still has most of its revenues;in home market. Products and processes are geared primarily to serving domestic customers (i.e., most utility companies in 1990s).;International Company. Company has significant percentage of revenues in international activities. There may be a;separate international division. Significant distinctions in;M M Winter;2000;Decide which aspects of global management you should;implement and at what pace. (See list in Exhibit 2.);Diagnosing Your Company;1.;I;Accelerate;your;efforts;Full;steam;aheaij;Balanced;approach;Moderate;Customer in(Justry;and organization;globalization;Low;Do not;Minimal;efforts;Low;pusti too;hard;Moderate;Supplier industry and;organization globalization;H igh;Closing Thoughts;Implementing global account;management is not easy but it;is increasingly necessary.;Opportunities can arise on;both sides of the supply;chain. A company may be;able to behave as a global;customer with its own suppliers and as a global supplier to its own customers. In;many cases, the state of readiness will be different at each;stage of the chain. We know;of a European multinational company that has built itself into the;global market share leader in a semicommodity category. The company is;busy implementing global programs.;Although its major suppliers are multinationals;they are not structured to supply on a global basis with global;contracts. The company is now pushing hard on these suppliers and threatening them with the loss of business if they do;not realign the way they do business. On the customer side;this company faces a special dilemma. Its immediate customers are fragmented national producers, but global giants;beginning to demand global supply contracts increasingly;dominate retailing. The company is now trying to find a way;to reconfigure its industry business system so that it can build;direct global relationships with these downstream global retailers. Other companies face similarly complex challenges. Global;account management can be a key vehicle for dealing with;such challenges. The companies that resist global account management may soon find themselves losing the business of the;most global and most prestigious customers.;Yip, George S. and Tammy L. Madsen;(1996), "Global account management: The new frontier in relationship marketing," International;Marketing Review, 13 (3), 24-42.;Author's Note;We would like to thank;Belen Villalonga, UCLA;Javier Gomez Biscarri;UCLA, and Dana McLaurin;Stanford, for their assistance;and the Marketing Science;Institute, Stanford Graduate;School of Business, and the;Center for International Business;Education and Research at UCLA, for;their financial support.;About the Authors;David B. Montgomery is S. S. Kresge professor of marketing strategy emeritus at the Stanford Graduate School of;Business. From 1995-1997 he was executive director of the;Marketing Science Institute. His paper, " First Mover;Advantages," won the Strategic Management Journal's 1996 best;strategy paper award. Montgomery has written 10 books and;more than 90 papers. He has been a director of several corporations and currently is on the advisory boards of several startups.;He holds a BS in Engineering, MBA, MS, and PhD, all from;Stanford University and a Dr. (honoris causa) from LUC;(Belgium). He may be reached at montgomery_david@gsb.;;George S. Yip is Beckwith professor of marketing and;strategy at Cambridge University's Judge Institute of;Management Studies, and from January, 2001, will be Professor;of Strategic and International Management at London Business;Millman, Tuny (19%), "Global Key Account Management and;Systems Selling," International Business Review, 5, No. 6, 631-645.School. He was previously on the faculty at Harvard and UCLA;and held visiting positions at Georgetown and Stanford business schools, as well as management positions at Unilever and;Montgomery, David B. and Frederick E. Webster, Jr. (1997);PricewaterhouseCoopers. He may be reached at;Marketing's Interfunctional Interfaces: The MSI Workshop on;;Management of Corporate Fault Zones," Journal of Market;Focused Management, 2, 7-26.;Additional Reading;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 Wide;Competitive Advantage. Englewood Cliffs, NJ: Prentice Hall.


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