Travel Management Reinvented
Cost reduction is always a primary management objective, and employee travel,
a large but controllable expense, frequently becomes the focus of corporate scrutiny.
Recent developments in online travel technology and emerging trends in system
integration offer a new approach to travel IT that extends savings far beyond
tighter travel policies and lower airfares.
In todays increasingly connected business environment, the integration, or lack of integration, of an online travel management solution can have powerful implications on total cost of ownership for IT systems across the enterprise.
Online booking tools for companywide travel management, which have been around for several years, should deliver two important and direct benefits immediately.
- Lower Average Purchase Price. By enabling corporate travel managers to
customize the business rules within the system and ensure compliance with
corporate travel policies, online booking solutions maximize usage of negotiated
contracts with preferred travel suppliers and thereby reduce the average
price per ticket.
- Reduced Transaction Costs. Transaction and fulfillment fees associated with traditional offline agencies or travel management companies typically range from $45 to $55. According to an online corporate travel study by PhoCusWright, online booking tools should cut that figure by one-third.
However, implementing an online booking tool within an organization is just the first of several steps toward maximizing the potential savings. The next critical step is enabling the integration of systems to create a truly touchless transaction from travel booking to payment and on to expense reporting and management. Online booking tools may deliver better prices and lower transaction fees, but if they are not integrated with other company systems, they are still generating unnecessary indirect expenses. Must the employee still manually generate an expense report? And how many other employees have to touch that report for approval, re-keying data into another system (accounting, for instance), auditing for compliance, and issuing reimbursements?
Each of these employee touch points adds indirect costs that, compounded incrementally over thousands of transactions, significantly increase travel managements total cost of ownership. Executives are increasingly aware that such inefficiencies translate into lost opportunities for valuable cost savings. According to a survey by CFO Research Services, 75 percent of senior financial executives believe containing or reducing indirect expenses is as important as finding new sources of revenue, yet nearly half also noted that they lacked the tools to monitor employee compliance with spending policies, thereby missing an opportunity to manage expenses.
Effective online booking tools must be able to pass booking and employee data to the key modules of the companys enterprise resource planning (ERP) platform (financials, HR, expense management, and so on) to log the transaction, automate payment, audit for expense policy compliance, reimburse the employee, and thereby limit manual intervention. Integrating online booking tools with a corporate card provides further process automation and the ability to pass enriched transaction data to enterprise systems. The goal, of course, is to achieve a touchless environment, where the travel transaction (search, booking, payment, fulfillment) and subsequent internal reconciliation are all handled with the absolute minimum of human intervention.
From Data to Process
System integration and the opportunity for cost savings, however, do not stop at data sharing. In fact, data sharing becomes a catalyst for additional savings and efficiencies. The next big step: holistic integration of online corporate travel management within the total ERP process.
What does this mean? Well, consider that in many companies, travel management is largely viewed and treated as its own process and cost center. Procurement, for example, is handled through the corporate travel manager (either internally or through a travel management firm), who negotiates supplier contracts and establishes booking policies and tools, all more or less independently of the companys larger procurement policies and practices. Likewise, online booking tools are typically distinct systems separate from a companys other e-purchasing, expense management, and reporting processes, even if they do pass data on to accounting and other modules.
The implications for this separateness between travel management and broader enterprise processes, while perhaps not immediately apparent, are far-reaching. The extent to which travel management operates outside of the large enterprise procurement, expense management and reporting processes correlates directly to increased manual intervention and administrative costs. An online booking system with different processes and user experience from other employee e-processes, such as online purchasing or expense reporting, may inhibit user adoption while adding to overhead costs (separate systems require additional training and user support). Furthermore, when travel stands outside of the corporate purchasing and procurement processes, the company may not be leveraging its best and most-informed resources to negotiate and purchase travel goods and services.
An integrated procurement, expense, travel management, payment, and reconciliation solution offers compelling benefits by comparison:
- A seamless user experience across the entire process drives employee adoption;
- Optimized and simplified procurement/expense management processes reduce costs and overhead;
- Minimized maintenance, support, and training drive down TCO; and
- A cohesive, seamless view of all operations allows financial managers who are experts in cost reduction to maximize savings and squeeze more from vendor contracts.
However, the most critical component to the success of any corporate online booking solution is employee adoption.
Adoption: The Key to Success
Of course, all of the expense and effort of implementing new systems to automate travel management can be negated without employee adoption. Expense management, cost savings, and adoption are all directly related and ultimately affect ROI and TCO, not just for travel management but for company-wide ERP. Every additional administrative step, every time an employee must intervene in a process between two systems, translates into higher TCO for every system involved.
Although 74 of the Corporate Travel 100 (companies with the largest corporate travel spend, according to Business Travel News, August 2002) have installed online booking systems, only 18 percent of their total air bookings were transacted online in 2001. This is where a holistic and user-oriented approach to travel management integration is so critical to adoption. Employees will naturally resist change in order to maintain a level of comfort and order. They will not appreciate having to go through one purchasing and expense reporting process for office supplies and a totally different process to book travel. And, for that matter, they probably would not enjoy sitting through the separate training classes required for each system.
The relationship between adoption and cost savings is direct and fundamental to the success of any new system. The ultimate objective is to increase adoption incrementally in order to move up the cost-savings curve.
Case Study: PNC Financial
PNC Financial Services Group (PNC), headquartered in Pittsburgh and one of the nations leading diversified financial services organizations, had a common set of challenges: Travel costs were too high and administration of a stand-alone travel management process was labor-intensive and inefficient. However, the companys approach to the problem was anything but ordinary: PNC elected to implement an enterprise solution that would deliver a standard automated procurement and reconciliation process for all company purchasing (including travel management).
Three major objectives influenced PNCs overall approach to the project:
- Employees must have the ability to source their own travel with choices;
- Management should have more visibility into the entire purchasing and expense program, while PNC must still maintain the assigned levels of access, approval, and control; and
- A companywide credit card program for payments should be integrated with existing expense-management systems and processes to achieve maximum ROI and minimum TCO with both new and existing IT investments.
PNC leveraged its relationships with key vendors to create a solution that automated all vendor contracting, procurement, fulfillment, and reconciliation within the enterprise e-procurement platform. There are three major components to the solution (see Figure 1):
Figure 1: PNC's Approach to Automating Procurement
- Branded Enterprise Portal, or a one-stop-shop online (PNCBuys), for employee
purchases of all goods and services, including travel, with a high-quality,
business-to-consumer user experience. PNC deployed a corporate online booking
engine within the portal as a branded travel solution (PNCTravel) to achieve
a seamless user experience that was on par with leading Web travel sites
while integrating existing systems with the ordering process.
- Automated Fulfillment and Reconciliation. Direct billing and payment of
air ticket purchases via a built-in central travel account (ghost card);
non-air purchases on employee corporate cards, with all charges driven to
the expense management system; automated expense reconcilement and allocation
processes for online travel bookings and ghost card payments.
- Full Circle Integration. Enhanced business intelligence by integrating comprehensive corporate card transaction data directly with the expense management and reporting modules, enabling PNC to track purchasing trends and improve contracts and procurement processes.
Uncommon Results
With PNCs forward-looking approach, aggressive goals, and unwavering commitment to execution, PNCTravels initial results were unusually impressive for corporate booking-system implementations. The system achieved a 65 percent adoption rate within nine months (unheard of for corporate booking-tool implementations), a $68 drop in the average cost per air ticket (far greater than the average for booking tools, according to Topaz International), and a 51 percent decrease in cumulative transaction fees. The company also earned better payment terms and hard dollar rebates by meeting card usage volumes through increased adoption of Visa corporate card.
Figure 2: PNC's Average Ticket Price Drop
An independent third-party audit of PNCTravel revealed that PNC was realizing significant benefits from the solution:
- PNCTravel matched or beat airfares found on the Internet in 96 percent
of all searches (when better fares were found, PNCTravel delivered an average
savings of $90 per ticket);
- Air itineraries booked via PNCTravel were on average $123 less than those
booked via phone; and
- PNCTravel matched or beat hotel prices found on the Internet in 84 percent of all searches (when better hotel rates were found, PNCTravel delivered an average savings of $41 per room night).
But such results have not been limited to travel management. Indeed, the benefits to overall supply chain management (of which travel is a part) across PNC have been equally significant. Within the first two years after implementation, the company realized recurring pre-tax expense savings of $39.5 million and expects to generate an incremental $15 million to $20 million annually in recurring benefits for at least the next three years. PNC also saw a 78 percent decrease in transaction costs associated with purchasing, and a reduction of more than 50 percent in the number of vendors with which PNC does business.
These dramatic benefits of PNCs integration solution are attributable to four key factors:
1. Reduction/elimination of off-contract (maverick) spend;
2. Improved pricing due to real-time competition and systematically
controlled order routing to strategic suppliers;
3. Enhanced control of purchasing — standardization of specifications
and automated approval routing; and
4. Utilization of business intelligence to enhance the sourcing process.
The Secrets of Success
The uncommon success of PNC with a corporate online booking engine and its enterprise procurement and expense management platform underscores a critical consideration with any solution intended to automate enterprise processes: The work to achieve the goals and maximize the benefits of such a solution does not end, but rather only begins, when the technical implementation is complete.
While most online booking tools should deliver important benefits on their own, truly maximizing ROI and reducing TCO involve much more than just a new system, but a fundamental shift in company culture and behavior. Thousands of employees do not change known, ingrained behavior patterns overnight.
Clearly, no project of such scale will succeed without meeting challenges. But the success of PNC and the many direct and indirect benefits of total travel management integration make one thing absolutely clear: This is one business trip thats just getting off the ground.
