TRAVEL MANAGEMENT - Air traffic control, for executives

Jonathan Stobart has every reason to raise his glass. In the coming year, the director of finance for global travel management at Seagram, the drinks and entertainment multinational, expects to save $15m through more effective travel management. That is on top of the savings made in 1996.

It is a significant achievement for a company that has 7,000 business travellers and spends $200m a year on airlines, hotels, car hire and the rest. But the Seagram FD has set out to manage travel with a proactive determination that is too often lacking in other major companies. “We are trying to run it like a business with targeted returns,” says Stobart.

There are plenty of lessons here for other companies struggling to bring some control over travel expenses lurching out of control. In just two years, Seagram has developed a simple but effective travel policy, outsourced much of the operational side of travel management and introduced some IT tools that provide key information to policy decision-makers. The result: tighter control over the bottom line and a travel policy that is largely respected throughout the company.

The recession of the early 1990s did much to shake companies out of their complacency over travel management. Indeed, there has been a significant shift in the past year with a Carlson Wagonlit/MORI survey showing the number of companies with a formal travel policy jumping from 60% to 77%.

But managers admit it can be difficult to introduce a policy where none has existed. Inevitably any policy involves reining in the freedom of business travellers to do what they like.

Often, introducing a new travel policy – or reviewing an out-of-date policy – goes hand-in-hand with outsourcing part of the travel management function. The top travel consultancies – including American Express, Carlson Wagonlit Travel and Hogg Robinson – increasingly advise on travel policies as well as implement them.

Yet nobody in travel management pretends it is possible to change a policy without confronting vested interests. At Seagram, Stobart reckons two key ingredients of success are keeping it simple and managing it proactively both before and after people travel.

In the last couple of years, Seagram has been wrestling with the cost versus comfort debate which often stymies travel policy-makers. Stobart reckons Seagram’s policy was tilted a little too much towards comfort.

“The problem is that people sitting in comfortable seats don’t pay the shareholders any dividends,” he says.

The policy has undergone fine-tuning to make it more cost-conscious.

But, at the same time, Seagram has made its policy simpler. Instead of complex multi-level gradings that define which class different managers can fly, Seagram has one policy that applies to more than 99% of its travellers.

Only the top 30 executives in the company are treated as exceptions to the rule.

Stobart admits that a multi-level approach might squeeze out even more cash savings but defends the policy. He says: “Because it’s simple, it’s more open and honest. It’s a consistent policy that people respect.” As a result, fewer people spend time looking for loopholes. “Secondly, it’s simple to administer.” And that means it is easier to enforce.

Seagram has outsourced all travel booking to Carlson Wagonlit Travel.

Every day, it provides Stobart with a computer-produced pre-trip report showing travel bookings that breach the policy. Usually, the problem is that the traveller has booked with an unapproved airline or in the wrong class.

“I usually drop an e-mail to the traveller or call them very politely to point our there must be some mistake – surely,” explains Stobart. By now, most travellers have the message and what started as a lengthy report is much shorter. But it’s enforced sensibly. “I’m looking at a report which shows somebody flying British Airways – not our preferred carrier – out of New York. But I can see he’s travelling with a customer, so we’ll allow it.”

Seagram also has a list of “hardship” countries – where there are special difficulties in travelling. In these cases, managers are allowed to move up a class. “For example, the Hong Kong to Philippines run is always packed with locals returning home with a plane-load of possessions. It wouldn’t be fair to send a middle-ranking executive of a drinks company to the back of the plane in those circumstances.”

Many companies other than Seagram find that outsourcing the operational part of their travel management to a specialist is essential to keep control.

Seagram has five “outplants” working in Carlson Wagonlit’s UK offices exclusively on its business.

By contrast, BT has 60 “implants” from Hogg Robinson working at its own Bear Wharf offices in London. The implants use Hogg Robinson software and systems to call up on-screen BT policy and authorisation procedures and make all bookings for airlines, hotels, rail and car hire. Often, whether to implant or outplant comes down to a question of whether the client company has space to house extra staff.

If an FD is involved in the decision to outsource travel management, there are a couple of points to bear in mind. The first is to choose a consultant whose staff are sympathetic to your company’s culture and strategy.

If your company is used to having a free-and-easy approach to travel management, choosing a consultant who is a control freak and wants everything tightly buttoned down may end in tears.

The second point concerns how to pay the consultant. In the old days, consultants charged commissions on airfares and the like. That meant the consultant had no incentive to keep costs down. In fact, the reverse was true – the higher the fare, the larger the commission.

Now most large companies, such as BT, have switched to paying their consultants a management fee based on open book accounting. The best consultants break the total fee down to show staff costs, premises, IT and telecoms, central administration and profit. Each year the company and the consultant haggle over the fee. Typically, it might total around 5% to 10% of travel spend.

The bonus for the client is that it can get back the commissions paid to the agent to offset the fee. Exactly how this is done varies from one agreement to another, but some companies are believed to have recouped as much as 4% of their travel spend this way .

Others provide an incentive to their consultants to seek extra savings over and above a benchmarked baseline. Then they share these extra savings with the consultant. That there are huge savings to be made in travel, no experienced travel manager is in any doubt.

In most cases, the big-bucks savings come through “preferred carrier” agreements with airlines. When Seagram took its annual $60m spend on air tickets to the market place it was able to make what Stobart calls “phenomenal multi, multi, multi-million dollar savings”. He says: “We didn’t really have a preferred carrier but now we’ve chosen United Airlines.”

Another firm spending #7m a year on air tickets was able to save #450,000 a year by banning travel on British Airways. The key to this was that other airlines offered better “over-rides” – extra discounts – for scooping most of the business.

But, as consultants emphasise, the key to making these policies work effectively is management information. At the end of the year, the airline wants to see that it has received the promised volume of business. This means having effective IT systems in place to measure spend on each airline.

P&O Travel, for example, has a software tool called Route Deal Maximiser which shows users how to spread their travel spending between airlines in order to win the largest possible rebates.

Most FDs would admit they have usually lacked the kind of detailed information they need to control and fine-tune travel policies. Back at Seagram, Stobart is bringing a new database up to speed. It spews out all the management information he could want – data on preferred carrier deals, average hotel room-night spend, cost-per-mile flown, the average cost of travel between chosen pairs of cities and much else.

Significantly, it also produces a report on “lost savings” – people who turned down the chance to travel by a cheaper option. “We’ll be having an ongoing dialogue with travellers about the whys and wherefores of those opportunities being lost,” he says. And it won’t be over a round of drinks.

The Pfizer cure for expense accounting

In many companies, accounting for expenses is stuck in a paper-bound time-warp. It need not be like that as pharmaceutical company Pfizer has discovered.

The secret of Pfizer’s expense accounting cure is to automate as much of the process as possible – so that managers don’t even have to complete most of their expense forms.

Thierry Ruossel, a project manager in the finance department of Pfizer Belgium, has set up a system which collects details of around 100 managers’ expenses electronically.

“Managers pay their bills with company American Express cards,” Explains Ruossel.

Every month AmEx sends us a disk with all the spending for every manager in the scheme. We load up the disk and distribute each manager’s share of the expenses over our network to his own PC.

“He reviews this on-screen, adds in those cash expenses not paid for on the card, such as taxis, and then e-mails the completed electronic form to his director for approval. At the same time, he also e-mails the form to the finance department. We aggregate the forms into totals for the month.”

The system is delivering benefits all round. First, the individual managers gain because they don’t have to spend so much time filling in paper expense claims. Ruossel reckons it’s cut the time from around two hours to half an hour a month. For 100 managers that equates to about 18 working days saved.

Equally important, it has introduced a note of discipline into expense reporting. “Some managers were very precise in reporting expenses. Others didn’t care too much about it, would send in their expenses two months late, lose supporting documents or not be able to remember what they related to.” Now the computer system reminds all managers to get their claims in on time.

Introducing the system, based on Portable Software’s Quick Expense package, has saved time in the finance department, too. Two people used to spend most of their time collating expense details. Now it takes only about half a person’s time.

As Ruossel notes, this usefully allows the department to spend time on adding value to the expense information. One of the key ways to do this is to produce more timely and relevant management information about expenses.

The department is now rolling out a new series of reports which enable managers to break down spending in their own departments by areas such as airfares, hotels or car hire. Eventually, the system will be extended to about 300 staff in Pfizer Belgium and the company is also said to be looking at extending the cure with a similar system in the UK.

The cost versus comfort conundrum

The tale of Mr Freebie’s and Mr Tightwad’s trips to New York spotlight the cost versus comfort conundrum.

Mr Freebie is limoed to the airport. He fast-tracks through check-in.

He is cosseted in first-class, flying in a happy haze of free champagne.

In the Big Apple, another limo speeds him to his luxury Manhatten hotel.

He takes a day before his meeting to recuperate from “jet lag” and another day after “to see the sights”.

Mr Tightwad jumps on the tube to Heathrow. He shuffles to the back of a check-in queue with no end. At the rear of the plane, he is shoe-horned between a back-packer with BO and a grannie with an unending supply of family snaps. In New York, the swaying airport bus delivers him green and queasy to his downtown meeting. Afterwards, he braves subway muggers travelling uptown to a remote suburban hotel.

Mr Freebie’s hotel room has five stars.

Mr Tightwad’s has five cockroaches.

Most companies now recognise they need to strike a balance between luxury and low-life in their travel policies. But just where?

After the recession, the balance swung sharply to cost control, says Brent Stevens, head of consulting for European multinational companies, at American Express. “There was wholesale trading down. If there is any relaxation of that policy it will be with an eye on the lessons of that recession.”

Yet Stevens detects a move towards striking a more considered balance between cost and comfort. “It’s started in the States, where more companies are giving traveller comfort more priority in their travel policies.”

And Professor Leo Murray, director of Cranfield School of Management, himself a frequent traveller, advises: “Companies must balance economy against performance. The use of rest time during and after travel can be a significant factor in performance during a business trip.” Feedback from frequent travellers indicates that some companies cost-cutting is producing false economies. Around one in six frequent travellers believe their companies’ travel policies make them “waste time”, according to the latest Visa International travel survey. The most common complaint: waiting for flights or connections when it would have been quicker to fly direct.

More worrying, one in five say their company travel policy puts them at risk because they have to travel on unreliable airlines or arrive late at night in dangerous cities searching for out-of-the-way hotels.

Mr Freebie is now a dying breed among business travellers and few mourn his passing.

Yet many FDs should think about liberating the Tightwads from some of the more irksome travelling constraints. More flexibility might just pay dividends in unexpected ways.