CFO
John Goff
Editor
CFO
253 Summer Street
Boston, MA 02210
October 5, 2001
Dear Mr.Goff:
As a consultant specializing in travel & entertainment management, I read with interest, Jennifer Caplan’s article “Fear of Flying” (CFO.com Sept. 26, 2001). There certainly seems to be an overall feeling of anxiety regarding flying since the awful terrorist attacks of September 11. Ms. Kaplan does a good job capturing that concerned feeling many CFOs have right now regarding business travel. Also, some business travelers still feel apprehensive about airport security and many would simply rather not be away from home if and when the U.S. decides to take some sort of retaliatory military action. Fortunately, as I write this letter, business travel does appear to be slowly returning. Hopefully, all air travel will soon get back to previous levels not only for the benefit of the airline industry but also for the sake of the economy.
Ms. Caplan states that prior to the terrorist’s events, many companies were already in the process of reducing travel & entertainment costs. While I agree, Ms. Caplan leads us to believe that “nixing the use of travel agents” is a major cost cutting stroke in the same category as streamlining expense reporting. It is not! There are so many other T & E elements a CFO should evaluate before reducing the role of the travel agency – more on this later! Most major corporations still use a travel agent because they provide much needed assistance in areas such as: efficient travel fulfillment, travel policy monitoring, low fare searches, identifying travel patterns and purchase habits, hotel discounts, supplier negotiations, travel program consulting, and enroute traveler service to name a few. Quite frankly, in the aftermath of the terrorist acts, most companies would have had a major problem locating and rerouting their travelers if it were not for travel agents.
On the other hand, if Ms. Caplan’s assumption is that corporate travelers should book as much of their travel as possible via an online booking tool, then she may be touching on a an emerging trend that many companies are beginning to employ. However, only those firms who already have a well-managed travel program can expect to appreciably reduce T & E costs by using a self-booking tool. These tools are still fairly new and it has been difficult for travelers and travel arrangers to make the switch from travel agency to on-line booking. This switching of travel transactions is referred to as the “adoption rate”. For example, if 80% of a company’s travel transactions are going through a travel agency and the rest are going through a self-booking tool – the adoption rate is 20%.
Although many Fortune 100 companies now have online booking tools, most firms still process the majority of their transactions by contacting a travel agency. In other words, the adoption rate is low! Craig Schneider provides some good insight into on-line usage in his “Travel Advisory: Three Ways to Strengthen Your T & E Savings” article (CFO.com, August 31, 2001). Honeywell International, mentioned in Mr. Schneider’s article, has a high adoption rate of approximately 55%. They have had the self-booking tool for nearly two years and have been very diligent about increasing the adoption rate. Also, since I have done some consulting work for J.D. Edwards, mentioned in Ms. Caplan’s article, I know they also have good adherence and about a 50% adoption rate with their online booking tool. While these rates are well above the industry average, it is important to note that both these firms have extremely well managed travel programs and are also exacting cost savings in many other T & E areas. A recent survey indicated that of the companies that have on-line booking tools, the adoption rate can be anywhere from 1% to 60%. Currently, the overall adoption rate mode appears to be only about 20% for most of corporate America using these systems. According to Jupiter Research and Forrester Research, the adoption rate will not reach any major significance until 2004. Based on everything that has taken place along with the continuous slumping economy, higher adoption rates will probably happen much sooner.
So, before CFOs go out and invest in the whiz-bang technology of online self-booking tools and nix the use of the travel agent, I would suggest they first take care of the T & E basics. Simply stated, CFOs should apply the same long proven management, procurement, and accounting principles to travel that are applied to all other purchases. They need to review current travel agency pricing, analyze supplier usage, insert some discipline into corporate travel procedures, and develop an overall business travel strategy. For example, mandate compliance in such areas as the use of a single travel agency, preferred airline, negotiated hotel discounts, lowest logical airfare, single payment system, electronic expense reporting and, yes, when appropriate, the use of an online booking system for most routine bookings. Traveler conformity and company enforcement in all of these areas can reduce a T & E budget by as much as 30% – 40% while streamlining much of the administrative burden. As a specialist in this area, I can say that excess spending in T & E usually has more to do with the absence of any negotiated programs, traveler non-compliance, and the company’s lack of policy enforcement. I’m actually still a bit surprised that more CEOs and CFOs have not made more rigorous demands and effected additional mandates over their T & E spend during this economic downturn.
Sincerely,
Edward P. O’Connor
President
