Companies can cut T&E costs significantly only if demand is managed as rigorously as supply. The savings extracted from rationalizing the supply chain can easily be cancelled out if employees are spending more than they should.
The first and most obvious cost-cutting measure is to eliminate unnecessary trips. This would be as easy as it sounds — if the value of a trip could always be determined before it was taken. Since 9/11, as you might expect, most companies have become more conservative in making this assessment.
At Hill & Knowlton Worldwide, says COO Mark Thorne, all trips must be approved by senior management before they are booked. The employee needs to convince management that a trip is necessary, and that an alternative such as teleconferencing — or telephoning — is not enough. “If there is a business opportunity that appears worth the investment, we’re likely to sign off on it,” says Thorne. “There’s always a fine line between choking the business and keeping it alive and vibrant.”
Another essential early step in managing travel demand is to implement a strong, clear, and consistent travel policy. Senior managers must define very specifically which airlines, hotels, rental-car companies, and other providers can be used when making travel arrangements. They must also set very clear parameters around the levels of service that employees are allowed to purchase. Traveling business class, for example, may be permissible only if a flight is longer than a predetermined number of hours. Finally, and most important, the policy should be crystal clear about the process itself that employees must use to arrange and pay for travel. The process might include a choice, perhaps, between using a pre-selected travel agency, paying with a corporate card, and booking through a particular online system.
When German engineering company Siemens AG initiated a worldwide travel program in 1989, its first step was to design a strong travel policy and put it in place. “We mandated that employees not only use certain carriers, but also purchase the lowest possible, non-refundable airfares,” explains Hanna Murphy, travel manager for the Siemens Shared Services division. Siemens also requires that travelers buy electronic tickets whenever possible to reduce transaction costs.
Communicating travel policies effectively to employees is also essential. It’s not just that they need to understand the intricacies of a policy, says James Tipton, CFO of OnFiber Communications; “when a policy is endorsed from the top, employees are more likely to listen.” At the same time, managers must be careful not to alienate the staff with policies that appear too rigid. “Restrictive policies can increase friction with employees and raise costs in terms of traveler satisfaction,” says Scott Gillespie, CEO of travel procurement consultancy TravelAnalytics.
At OnFiber, senior managers inspire compliance through example. “We fly coach on discount airlines and stay in motels just like everyone else,” notes Tipton. “You can’t tell your employees to watch their spending, while senior executives pull away in rented Lincoln town cars from five-star hotels.”
Come Together, Right Now
Centralization and consolidation of the travel program are indispensable in managing demand and cutting costs. (They also help managers negotiate contracts more effectively; see “Strategic Sourcing: New Leverage for Lower Travel Costs.”)
Traditionally, travel has been managed in a fragmented manner. Each business unit tracked its own expenses to meet its own budget, and each manager tried to control travel costs individually — with little effective coordination and little authority to enforce travel procedures.
A typical result might be what you would have found for Siemens in 1989, when it had 650 agencies covering 350 locations. Weeding out agencies became a crucial component of its travel program, and today, Siemens has just one in each country. “When you streamline all your processes into one agency, you can begin to exercise some control,” notes Murphy.
For its part, Minneapolis-based U.S. Bank has winnowed down its program to just two travel agents. “Every additional agency you have to deal with just makes things more unmanageable,” notes Kirk Ayers, corporate travel manager at the financial services company.
Another effective way of centralizing travel information is through a corporate-card program. While 77 percent of companies issue corporate cards, only 27 percent use them consistently for payment of T&E expenses, according to a survey conducted by CFO Research Services.
Offering a few additional perks for using the card may well increase that usage significantly. “The more features you load on a corporate card, the more easily employees will accept it,” says Murphy. Siemens employees are given business travel insurance, worldwide collision-damage insurance, and 24-hour access to a customer-service line when they use the corporate card.
Corporate-card programs can be a powerful tool for synthesizing data and tracking travel patterns consistently across divisions and regions. At U.S. Bank, travel managers receive periodic reports from its credit-card group that synthesize useful information about credit-card expenditures. “It’s been a very effective tool for giving us better control over expenses, and it has given us a better understanding of our travel patterns” says Ayers. (To get so much useful data, one should note, U.S. Bank first achieved a corporate-card compliance rate of more than 90 percent.)
Corporate-card programs can also help improve travel-agency efficiency; agents can track information more easily and make travel arrangements more swiftly. At Siemens an automatic data feed with recent updates is sent to its travel agency every week. “This has helped lower our transaction fees with the agencies significantly,” says Murphy.
Policy Becomes Part of the Programming
Another strategy for centralizing a travel program and enforcing its policies is the use of an online booking tool. Although this technology is only just beginning to catch on, usage is expected to rise to 20 percent of firms in 2003 from just 8 percent in 2000, according to research firm PhoCusWright.
Online booking tools can help companies reduce costs in several ways. First, they drive employees to follow travel policies and to use negotiated-price discounts for airlines, hotels, and rental cars, all of which can be programmed into the booking tool itself. In addition, online booking fees tend to be lower than agency fees, reducing administrative costs significantly. Online fees are usually about $5 to $10 per booked trip, while an agent’s can vary anywhere from $15 to $60. “On average, we see corporations save at least 10 to 15 percent on direct travel costs, such as airfare, and hotels,” says Scott Gutz, CEO of e-Travel, an online booking tool provider.
Online booking technology can also help companies measure, monitor, and enforce compliance more consistently. To date, managers have relied largely on travel agencies to alert them to policy breaches. That method has been spotty at best, however, since non-compliant employees usually don’t make arrangements through a company’s preferred agent to begin with. Online tools, notes Gutz, allow managers to set approval levels and to be notified automatically when bookings do not comply with policy parameters.
The e-Travel online booking tool allows employees to plan, book, and purchase travel itineraries from their computer desktops. After logging in, employees enter their desired itineraries, which may include air travel, rail travel, car rentals, and hotel stays. The tool then presents the employee with options that are compliant with company policy. For example, if the company has a preferred airline or has set up a special rate with a particular hotel, the system can be configured so that these are the first options displayed to the employee — or perhaps the only options displayed. Other vendors offering online booking tools include Datalex, Highwire, Sabre, SAP, TRX, and WorldSpan.
“Our online booking tool has been a significant driver of efficiencies for us,” reports U.S. Bank’s Ayers. “We’ve been able to cut about $300,000 worth of booking expense out of our budget over the past 18 months just from using online booking.” U.S. Bank achieved that saving even though four of ten reservations are still being booked using traditional methods. But now that 60 percent of U.S. Bank’s travel is being booked online, the average cost of a booking transaction has dropped from $42 two years ago and is approaching $30 today. That adds up, notes Ayers, “when you’re making 60,000 transactions per year.”
Even at a company that has installed an online booking tool, occasions may arise where using a travel agent might be preferable — say, for booking a multi-leg international trip or for making a last-minute change. A company’s travel policy should spell out, as precisely as possible, when employees may contact a travel agent and when they must make their arrangements through the booking tool.
Finally, whatever travel policy is put in place, measuring and monitoring policy effectiveness is crucial for maintaining cost reductions. Many companies, especially those that use corporate cards or online booking tools, have automated the T&E reporting process to stream data into a central repository. Some have developed their own scorecards to gauge everything from whether appropriate discounts were applied to whether travelers used preferred car-rental companies.
Third-party travel auditors can also be enlisted to measure compliance and program effectiveness, and to pinpoint areas where further efficiencies might be gained. Once Siemens had implemented its travel guidelines, says Murphy, managers wanted to measure whether the agencies were actually offering travelers the lowest possible airfares. In some instances, that was not the case, and travel managers were able to track and weed out those agencies that did not implement the policy consistently. Measuring compliance, adds Murphy, “also helped us train the agency to honor our policies.”