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Business Management

Swings and roundabouts

The traditional model of business travel has been radically altered by the recession, according to one commentator; but what has it changed into? Can the market renew its value or was it always just an expensive playground? Shirley Redpath reports

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When the chief executives of the three main US automakers used separate private jets to fly to Washington DC to plead for a taxpayer bailout last year, they were severely castigated by members of a House of Representatives Financial Services Committee who were apparently more aware than the business leaders of the growing public distaste for executive expense account excesses.

But while public ire over business travel perks and concern for the environment are giving some executives pause for thought, it is the current economic recession that has had the most tangible impact on controversial business expenditure. Charles Petruccelli, President of American Express’ Global Travel Services, has been quoted recently as saying, “The recession, which is not over as far as I am concerned, has fundamentally changed the traditional business travel paradigm.”

The question is, how is it changing and what are the implications for individual business travellers in the future?

According to the IHS Global Insight report Measuring the Value of Business Travel, commissioned by the National Business Travellers Association, the total value of worldwide business travel spending reached $929bn in 2008. At $264bn, spending by US companies represented nearly 30 percent of that total; if it were classed as an industry, the authors note, business travel would rank thirteenth largest in the US economy.

Regardless of the actual value the investment brings to the organisation, there is no question about the contribution it makes to local economies. Estimates have put the number of jobs directly created by business travel in the US alone at 2.3 million. Many smaller and developing economies rely heavily on these jobs.

But everyone, it seems, is feeling the pinch. As the credit crisis led into a full-blown recession, research firm Oxford Economics revealed that business travel spending was down by 12.5 percent in the first six months of 2009.

According to corporate travel management solutions company, KDS, over 70 percent of respondents to a survey of business travellers around the world said their organisations had significantly reduced their business travel in 2009 and the cuts are set to continue into 2010.

The recession has pushed growing public concern for the environment down the priority list for most business travel programmes. A survey by the Association of Corporate Travel Executives (ACTE) and KDS in early 2009 found that environmentally sustainable travel was a high priority for only 17 percent of respondents, down from 29 percent the previous year, while cutting costs was the top priority for the vast majority of respondents – 79 percent.

The prospect of significantly reduced spending on corporate travel has spurred some of the many industry associations to look for evidence of measurable return on investment. Two independent studies released this year have come up with remarkably similar conclusions: there is a measurable return on investment and it is significant. In its detailed analysis across 15 different industries, IHS Global suggests that for every $1 spent on business travel, companies can realise $15 in profits.

In another study, Oxford Economics put the return on investment at $12.50 in revenues and $3.80 in new profits. This study went further, estimating that a total elimination of business travel would result in a 17 percent drop in first year profits for the average US firm, while a 10 percent increase in spending would lead to a GDP increase of between 1.5 and 2.8 percent.

The figures, if true, are impressive, but not everyone is prepared to accept them. “I do find that those figures made my eyebrows raise a bit,” comments Dr Keith Mason, Director of the Business Travel Research Centre at Cranfield University. “If a $1,000 trip results in the signing of a $15,000 contract, that’s one thing, but what about all the other trips when no contract is signed, or those that are purely for internal meetings and training?”

Tighter controls
Although most organisations have always had T&E cost control measures in place, the recession has brought the broader issue of travel management onto the radar screen in many boardrooms, and travel managers are poised to capitalise on their new visibility. Mary Ellen George, general manager of travel management consultancy Advito, advises that “While we predict travel managers will retain much of their newly found influence on senior management, they should work as fast as they can to initiate and complete changes before the window of opportunity snaps shut. Change management is much harder to drive in a flourishing economic climate.”

Dr Mason agrees. The focus of his current research is on reducing the environmental impact of business travel and he believes the time has never been better to implement concrete policies for change. “Business travel expenditure has always been linked to economic performance,” he says. “As we are currently in a downturn, this is a good time to be implementing initiatives to curb the carbon footprint and improve the cost efficiency of business travel.”

Mason would like to see organisations rationalising their business travel on the basis of CO2 generated wherever this is practical. Carbon Statement, a company that tracks companies’ changing carbon footprints, recently estimated that the CO2 generated annually by the average expense-claiming employee from business travel – not including commuting – would be equal to boiling a kettle 105,413 times. “For organisations in the financial and service sectors, up to 40 percent of their carbon footprint may be from travel,” Mason says. “If they are trying to meet the government target to cut emissions 80 percent by 2050, this becomes a serious issue to be addressed.”

Achieving it requires behaviour change within the organisation, which can only come about with strong leadership and the right tools. The tools include a newly developed carbon calculator programme that sits on top of a company’s online self-booking tool and calculates each airline’s carbon footprint on a particular route. This information is made available alongside schedule and costing data, giving the travel booker the ability to make informed choices about the total impact of each trip.

The leadership requires robust policy management and enforcement at all levels throughout the organisation. But when the economy recovers, will senior executives be less motivated to watch their travel costs and environmental impact? Yes, according to the managing director of a leading travel management company. “The general profile of the typical business traveller in our experience is someone who wants to fly as far forward in the aircraft as possible, who wants travel arrangements that deliver the most convenience and comfort during the trip, and who favours suppliers that will earn him or her the most frequent user rewards.”

Caroline Allen, European regional director for ACTE, disagrees. “Most travellers are happy to work within the policies set by their companies,” she says.

And policies are certainly set to increase, but not necessarily at all levels. In an interview with Business Travel News (BTN) at the end of 2008, Bernadette Basterfield, international head of travel for JP Morgan Chase Bank, said her company was “not focusing on front-of-office staff, because they are doing the deals.” Instead, the company had introduced a pre-trip approval process to help achieve a double-digit decrease in transactions by focusing on “travel avoidance among back-office personnel.”

“Clearly, if you have an investment banker who is doing multi-billion dollar deals around the world, you are not going to make cost savings a higher priority than getting that person to meetings on time and mentally alert,” says Allen. “But for many other business travel situations, companies can and do mandate policies that will balance cost and carbon efficiency with the benefits to be achieved from the trip.”

What is being hit the hardest are the two areas that Dr Mason noted: internal meetings and training. “One of the major influences on the downturn in my business,” says the business travel management firm MD, “is the curb on ‘internal’ travel. All our clients have banned it for the foreseeable future.”

The other area being heavily cut back is training: the KDS survey found that trips for sales and commercial relations now make up 45 percent of approved travel, with customer support trips and conferences accounting for 21 and 20 percent respectively. Internal meetings make up only 10 percent, down from the 40 percent estimated by ACTE in earlier years, and training comprises only four percent.

It seems that each new recessionary cycle brings a new rash of policies to curb business travel expenses. Under the banner of today’s buzz phrase, ‘demand management,’ typical mandates appearing in corporate travel policies include pre-authorisation, booking at least two weeks ahead to take advantage of earlier booking rates; multiple meetings in a single trip; meeting times to be scheduled to minimise the travel cost and reduce the need for overnight stays; lower permitted class of travel according to the journey time and business requirements, and booking with approved suppliers with whom the company has generally negotiated lower costs based on volume bookings.

One industry travel manager says “Internal meetings are down and as many as 70 percent of our flights globally are in economy class. We are also pushing our travellers to consider buying restricted tickets and accepting connections on longer routes to take the benefit of lower cost fares.”

The policy challenge has always been to get buy-in from travelling executives. Capturing and publishing metrics is the most common way of making people more aware of their behaviours in this area, but some companies are beginning to implement more creative methods. PricewaterhouseCoopers has appointed a network of travel champions among their personal assistant and secretarial pool, and targeted them on reducing trips and travel costs. It has also implemented a carbon incentive scheme, whereby for every tonne of C02 saved on travel, the company invests in saving an acre of Ecuadorean rainforest.

For internal and training uses, most companies are turning to electronics. Although in Dr Mason’s estimation a fully satisfactory experience is still several years away, video conferencing technologies continue to approach the nirvana of creating an environment that looks and feels like the real thing. Desktop collaboration software, with functions like shared live access to documents, the ability to hold offline private conversations with other participants, and a permanent video record of all meeting transactions, is already developing a strong user base among project teams who use it to collaborate on key projects from remote locations. Several organisations have moved responsibility for promoting and delivering these virtual meeting facilities from the IT department to the travel management team, showing the key role they are expected to play in business travel programmes in the future.

On the move
There is no one size fits all policy. While organisations will continue to press for cost controls and improvements in environmental impact, the fact is that in a competitive market for high performing individuals, business travel parameters often become a point of negotiation on the employment contract. The deal-doers want to travel first class, and increasingly, access to first class perks will be directly related to the individual’s ability to generate visible results for the organisation.

For the rest, the future promises less comfort. The KDS survey found that 75 percent of travellers now have to work harder to justify their travel, and then only 38 percent report being allowed to travel in business class even when the flight is longer than five hours. Nearly 60 percent said the number of hotel nights they have stayed away has significantly reduced over the past six months. Twenty-nine percent said that if their trip involved a weekend stay, they spent the time working, rather than sightseeing or relaxing.

Ironically, there is evidence that conference site selection is being influenced by public perception of corporate executive excess, to the cost of the corporate travel budget. In a recent survey, ACTE found that some organisations are shunning traditional destinations like Las Vegas in favour of more out of the way destinations not generally associated with leisure and entertainment. This is despite the fact that the more famous sites generally offer lower prices and better facilities because they are so well developed. Commenting on the results of the survey, executive director Susan Gurley said, “Paying higher rates and spending more time getting to a business location when less expensive and more easily accessible alternative locations are available will quickly deplete a corporate meetings budget, thus wasting funds that could provide someone with a job.”

But while company policies are tightening up control on the big ticket items, more powerful tools are emerging to give the traveller more control over the details of the trip. At a recent conference in Austin, Texas, Gregg Brockway, president of TripIt demonstrated the latest mobile services for business travellers. Through a combination of GPS and social networking capabilities on mobile internet devices, travellers can find not only local restaurants and services wherever they are in the world, but also any contacts from their Facebook directory who happen to be in the neighbourhood. Using a “who’s close” facility, travellers can find out who else might be in the same airport, for example, enabling them to share the cost of a limousine, or have an impromptu meeting.

A survey by BTN last year put the average age of the travelling executive at 41, down from 49 in 2002. As a younger generation, more accustomed to living in the world of online social networking, becomes the core of business travelling executives, the use of virtual meeting technologies and mobile internet services for managing travel will increase. Mark Avery, UK head of business services for PricewaterhouseCoopers told BTN, “I think as the generations change, [the use of videoconferencing] will change, but my current view is that you don’t build relationships through technology, but you can maintain them to a certain extent… The reason I say this will change is that if you look at kids today on social networking sites, they are used to making friends online, not necessarily meeting them face to face.”

They are also used to trying out a plethora of information sites and tools, relying on the power of word of mouth to rate services and find the best deals. In discussing the future for business travel management, April Bridgman, senior VP at BCD Travel, may have coined a new term, “fansumerism” to refer to a trend in which travellers are opting for mobile travel tools that have been validated by their peer group. The increasing number of travel applications – there are currently around 2,000 written for the iPhone, for example – which can work with each other and office cost and management systems, opens new opportunities for the traveller to take back some control of the booking and management process; while still delivering better value to the business travel programme. Some companies have already responded to the environmental challenge by giving travelling executives their own carbon footprint targets and the freedom to manage them. In future, there may be moves to do the same with a portion of the travel budget.

If business travellers are going to have to be more flexible in the future, so are the suppliers and policy makers. As the authors of the KDS study conclude, “Travellers are prepared to make concessions in how they travel… employers should consider whether more flexibility in their travel policies could yield greater benefits to the business.”

And for those who still insist that business travel is a classic example of executive excesses on expense accounts, perhaps Caroline Allen of ACTE should have the last word. “Travelling is simply a long and tiring commute,” she says, “prone to delays and disruptions along the journey and where the traveller often works continuously for extended periods of time.”

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