July 2007 - What is the cost of non-compliance? Siemens is using the answers to that often perplexing question to influence the behavior of 50,000 travelers across 40 different business units as part of a new procurement-driven travel management strategy in North America.
During the past year, Siemens developed not only the strategy, but also a data warehouse that tracks and reports (by hierarchy and employee) travel spending, compliance to target goals set by various managers for six key levers that influence costs and the cost of non-compliance.
"The challenge really is how do we get standardization and leverage into the program, but at the same time, allow flexibility to ratchet those cost reduction initiatives up or down" based on the goals of a specific company or business unit, explained Richard Crane, vice president of procurement, mobility and logistics services within Siemens Shared Services LLC, based in Orlando.
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Company:
U.S. operations of global electronics and engineering giant Siemens AG of Munich generated $21.4 billion in sales in 2006 and employed 70,000, with headquarters in New York and an Orlando-based shared services operation serving 40 companies in North America; globally, the 160-year-old company reported 2006 fiscal year sales of $107.4 billion, more than 480,000 employees and more than 70 headquarters offices |
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Volume:
About $500 million in T&E in North America, including about $150 million spent on air travel |
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Challenge:
"Get standardization and leverage" into the travel program, but also allow business units or operating companies to "ratchet cost reduction initiatives up or down based on the goals that they are trying to achieve" |
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Approach:
New travel procurement strategy and management reporting to track spending and the cost of non-compliance to six key performance indicators |
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Solution:
Key performance indicator scorecards report performance to goals set by operating companies for domestic and international online booking adoption, maverick air spend, low fare acceptance, advance booking and preferred hotel usage |
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After they convinced managers of the financial benefits of program changes, travel services then equipped them to manage traveler behavior, said travel management services director Steven Schoen. "We succeeded in convincing the key contacts at our operating companies that in order for us to take the next step in sourcing, to achieve the next level of savings over the next few years, we need their help to impact these following behavior patterns. We showed them the value of those changes. We worked with them to set their own targets" for each of the six key performance indicators: domestic and international online adoption, maverick air spend (booked outside the online channel), low-fare acceptance, advance booking and preferred hotel usage.
The report actually gives managers an overview of how well each of their direct reports performed against the performance goal percentages that they set for each KPI, with the ability to drill down to the employee and trip details. "We measure against them and now do compliance reporting--not at a summary level, but against those key performance indicators," said Schoen. "We provide them, on a hierarchical basis, the names of the people who did not perform according to those key performance indicators" in red and yellow, contrasted with those who complied in green.
"It's very powerful in terms of the impact it can have," added Crane. "It's very hard to get a traveler motivated about saving $30." But with the right management tools that "allow managers to manage better, they are behind the sourcing strategy." The trick was aligning all the reporting to track 50,000 travelers to the correct hierarchies every time they change positions or managers. "No one wants to see their report and scorecard include people that don't report to them," Crane said.
To overcome that challenge, Crane and Schoen turned to colleagues within Siemens Shared Services LLC responsible for the PeopleSoft human resources technology used across Siemens companies in North America. "We pulled in a hierarchy feed, which updates with every move, add or change in the personnel reporting structure," into the new data warehouse for agency and spend data, Crane said.
While some travel managers have been unable to justify the cost with interface their HR technology to travel, Crane said, "When we are talking about the potential to save millions of dollars, the ROI argument was easy."
Devising the Strategy
For more than a decade, Siemens travel management has been widely recognized and lauded for its cutting edge practices. But the program "had reached a certain level of maturity," Schoen said. In taking a fresh look at opportunities to refine the travel management program, Schoen said, "There are certain things that we identified that we could do a little differently on the sourcing side, but they required some cooperation on the behavior side."
Suppliers had made that point crystal clear. "What was really painful for us is we would sit with suppliers, who in a very polite way [would ask], 'How has your ability to influence your traveler behavior improved?' " Crane said. "For a procurement person to be effective, it is crucial to have an ability to shift demand. Otherwise, your only argument is, 'I spend a lot of money, I'm really big, give me a good price.' It's a relatively weak argument. You need to be able to reward and pull away volume if you really want to have some leverage in the market."
Travel is not like the procurement of materials, where procurement managers select a supplier and then control the pipeline, Crane said. "With travel, simply because you shifted from Hotel A to Hotel B, or Airline A to Airline B in terms of the contract, didn't necessarily mean that the volume shifted. If you end up making decisions that aren't in line with an ability to implement those decisions, you end up hurting the company. When you have 50,000 travelers, you ultimately have 50,000 decision-makers. How do you somehow influence their behavior and still be sensitive to their respective business needs?"
Another challenge, Crane said, is that "your travel procurement strategy is the result of your business strategy. When you have so many different businesses, you can't always expect the strategies to be interpreted the same."
While Siemens is focused on the "cost of the commodity, we're also highly focused on the quality of service," Schoen emphasized. "When we talk to procurement folks, they really want to see the savings figures, but when we talk to other executives, they are also very focused on traveler satisfaction, system usability and vendor performance."
Prior experience taught Siemens that "the approach of tightening the channel"--limiting travel and booking options--"ends up creating other problems," Crane said. "You end up creating unhappy travelers, more complaints and ultimately more operational costs to address those complaints. You may also end up fostering maverick behavior. We wanted to keep it open, but we do want people to act responsibly and follow the strategy."
One of travel management's responsibilities is to "demonstrate the cost impact of different options," he added.
"They are all cost conscious," Schoen said of the operating companies. "But in the end, they might have something unique that they need. We'll lay that out for them and then it will be their decision to make, based on the level of service they want and at what cost."
Siemens launched a global shared service initiative two years ago to manage common business processes--such as accounting and finance, HR, IT and indirect material procurement--within a common organization supporting all worldwide divisions. In North America, Siemens combined travel management services and procurement services into a common procurement, mobility and logistics group. Last October, Siemens AG turned the worldwide shared service initiative into a global shared services (GSS) organization. Regional travel managers still address the needs of local Siemens businesses, but the overarching strategy for all countries is coordinated by GSS in Germany.
As they devised a new travel procurement strategy, Schoen and Crane said, it was clear that they needed a radical new approach--supported by actionable data--to change behavior. They talked to suppliers and customers within their operating companies and built a few prototypes of new reporting tools. As part of a global travel management agreement with American Express, Siemens outsourced management of its travel data warehouse to Amex. Booking, ticketing, HR and card data today are dumped into the new data repository, while executives eye other useful data sources. But reporting by hierarchy was crucial to really effect change. Historically, travel management had convinced some senior executives to send letters to urge compliance to travel policy, provided they could prove the lost opportunities.
With the new reporting, "an executive could choose to show the exception reporting in one of their departmental meetings, and a manager may have to speak to that," Crane said. "It puts people in a position that they don't really want to ever have to address." Managers then encourage their subordinates to book online, use preferred suppliers, or otherwise comply with the travel management objectives.
"If you can get everyone motivated behind compliance to the strategy, you could save more than $100 a trip. When you have 300,000 trips, that's a lot of money," Crane added.
Impact on Management
"We're able to report KPIs at any hierarchical level. Now, you could go to a CFO and say, 'Here's where your direct reports are,' and they inherit all the characteristics and behavior patterns of all the people under them. So, you could ask why the Western region has a problem, but the Eastern region is doing just fine," Crane illustrated. "That allows a management-based discussion. We find that when we try to put travel management as policemen to control things, it's not very effective. When we really show them as enablers--key people and consultants who can help reduce costs and then provide the management at different levels--you can actually sit with a CFO, VP, director or manager at any level and look at the impact the strategy will have on their specific budget. That makes it quite powerful."
Key account managers in travel management are in charge of communicating with Siemens' largest operating companies. Shared services also has executive key account managers who communicate to C-levels within the companies.
"When you went in as a regional travel manager, everything was focused on the service issues," Schoen said of the changes the new strategy is producing. "When we built these new tools and enhanced the skills of our former account management group, they were able to sit down at a much different discussion. The approach has been much more consultative. We're managing the service line, but it's about costs to the company."
The resulting reports also highlight for business unit managers the impact of booking in non-preferred channels. Reviewing their travel management reports, some ask for performance detail on the percentage booked outside the channel. "Sorry, we don't get any data for that," Crane said. "When they ask, 'How [do] I know what my people are doing?' the response is, 'You don't.' Then, they understand the real impact of allowing their travelers to book other channels in search of $3 or $4 in savings."
The new technology platform allows travel management to "demonstrate to these companies how much more the maverick is costing them, both on a transaction level and in terms of loss of extra volume to pool," Schoen added. "Some are moving faster than others, but everyone is trying to figure out how to turn their little boxes on the scorecards from red to green." More and more, travel management is providing consultative expertise and benchmarks to guide operating companies on the most effective policies and practices.
The data also is helping travel management sort through the "noise" and anecdotes to base more decisions on facts. In one meeting, managers said they couldn't book farther in advance because much of the domestic travel was in response to customer service support. But the data revealed the same last-minute booking pattern across all types of travelers in that unit. "Analyzing the data, we found the travel pattern appeared to be culture-driven, rather than business-needs driven," Crane said. "Their faces dropped."
The new strategy and reporting also has enabled travel management to expand its service line to meetings and events "because of the confidence built up," Schoen said.
"This puts us in a very different position with our vendors," Schoen added. "When we show them this, it's a whole new discussion."
Impact on Suppliers
"Suppliers have asked how they can be included as a preferred KPI on that scorecard," added Crane. "That's ultimately where we want to get to, to drive a sourcing and procurement strategy in a way where we can really shift the spend, without becoming a policeman."
But Crane is optimistic that this new ability to influence behavior would prompt suppliers to come to travel management seeking help in garnering a larger share of the company's business. If a supplier wants to move their share from the red or yellow lines, "That's something we can actually foster, but it doesn't come without a price. We need better discounts" to drive it to the organization, he added.
Cost Savings or Avoidance?
Travel management began compiling the new hierarchical reports with the start of the Siemens fiscal year in October and continuously tweaks them. "Six months later, we're 95 percent of where we want to be," Schoen said. "Our biggest challenge is the formulas related to savings impact, and we've been working through that with the procurement executives. Whether something is savings or avoidance depends a lot on how a company views the metric. We have our view on that, but it is most important to align with the view of our customers. We're getting the blessing from corporate procurement as to what formula should be used."
Spending, savings and incremental value of programs are actually among the differences between travel management and procurement, according to Schoen and Crane.
Travel managers typically try to quantify the value that the travel program is bringing to their company, which "is a different question from what procurement professionals are usually asking, which is 'How much incremental value did you bring me over last year?' The fact that you have a wonderful program that might be saving you millions of dollars is nice, but it doesn't actually hit the hot buttons. They want to know how you have improved the impact over last year," Crane said.
"The bottom line is if you are doing the right things, and the metrics are moving, it's more of a matter of how you want to calculate the benefit."
