Spend Matters welcomes a guest post from Howard Gutman, of The Hackett Group.
Many road warriors will only use the brands they prefer (i.e., United, Hertz and Starwood) to maximize their loyalty accounts regardless of the cost to their companies and customers. However, a CFO who has a world-class T&E program in place would have his or her company's frequent travelers using preferred vendors versus allowing them to make reservations that maximize their mileage accounts at the expense of the company's bottom line. Based on The Hackett Group's benchmarks and prior client experience, a world-class T&E program consists of three key components:
- A simple yet proscriptive T&E policy;
- An online booking tool that incorporates the T&E policy and preferred vendor relationships for all travel categories;
- Required use of a firm-wide corporate card that is connected to an automated expense reporting system.
These components together can deliver 7 to 15% annual cost savings for a company's T&E program; choices to not implement a component of this program result in diluted savings and a diluted program.
Many companies have travel policies that are outdated and no longer match the current standard practices of today's travelers (i.e., references to paper tickets) or provide loose policy or guidance. A world-class T&E policy has clearly defined terms and responsibilities paired with defined authorization and approval levels for all key areas of travel and entertainment (i.e., air, car/taxi, hotel, meals and entertainment), the appropriate method of expense submission and the potential penalties for non-compliance with the firm policies. An unclear T&E policy will lead to wildly different interpretations of policies and thereby present the opportunity for abuse and mismanagement of travel and entertainment expenses. Our research and industry findings show that applying a world-class T&E policy can generate savings in the 1% to 4% range.
An online booking tool paired with preferred vendor agreements in all major travel categories (air, car and hotel) and policy control is the method chosen by world-class companies to generate cost savings. A traveler's choices for air, car and hotel should come down to a combination of cost and convenience rather than loyalty, especially when an online booking tool without controls or discounts could result in the purchase of the highest priced flight or hotel in a particular city or route. When a company negotiates preferred vendor agreements with these major travel vendors, there are two primary benefits that drive cost savings:
- Deep discounts off list rates;
- Service or benefits such as free breakfast and internet that result in additional cost savings.
Using an online booking tool that incorporates a firm's travel policy and preferred vendor relationships can generate annual cost savings in the 5-8% range.
Required use of a firm-wide corporate card connected to an automated expense reporting system allows for tracking of employees' expenses at a line item level and limits questionable expenses (i.e., car upgrades). In our prior client experience, companies conducted infrequent audits of their travelers' expenses (less than 1 in 1000 reports) due to the sheer volume of reports or an inability to easily see line item level details. However, the recommended program of a corporate card paired with policy-driven automated expense reporting system with increased auditing (1 in every 300 reports) can generate 1-3% savings when properly implemented.
All of these elements, when combined into a well-built travel program, can produce significant cost savings. But as we have seen from a recent client, the lack of organizational will to fully implement any of these three components can deteriorate savings. The client chose to limit the audit and compliance ability of their program, resulting in an 11% reduction from estimated savings. Their decision to let travelers book hotels outside of the online booking tool for cities other than its top 30 cities by spend further reduced potential savings by another 10%. What this demonstrates is that along with the key components mentioned above, a company needs to fully implement all strategies in order to realize the full benefits of cost savings from a world-class travel program.
Howard Gutman is a Manager in the Hackett Group’s Strategy and Operations Practice. He has over six years of experience in consulting to Fortune 1000 clients in the areas of operations improvement, sourcing and procurement, supply chain, merger integration and cost optimization. Howard was previously an Engagement Manager at Mitchell Madison Group, a Senior Associate at KPMG and a Consultant at PWC’s PRTM Consulting practice.