September 2007 - Is it envy, the drive for continuous improvement, or simply the need to frame data in context that has prompted the surge in corporate benchmarking? Perhaps it's a bit of all three, as benchmarking emerges as part of a new core competence for travel procurement managers.
Demand for travel pricing and performance metrics has generated at least a dozen announcements this year of next-generation benchmarking options from travel management companies and their consulting arms, independent consulting firms, industry associations, payment providers and others. These are all in addition to the benchmarks that such companies as Topaz International and Runzheimer International have published for decades.
| KPI |
% Selected |
|
| Negotiated cost reduction savings |
75% |
|
| Implemented/realized cost reduction savings |
67% |
|
| Percentage of total spend under management |
61% |
|
| Cost avoidance |
60% |
|
| Procurement ROI (savings/operating costs) |
56% |
|
| Percentage of suppliers = 80 percent of spend |
50% |
|
| Supplier performance (price,delivery,quality,service,etc.) |
48% |
|
| Contract compliance |
37% |
|
| Requisition, PO or invoice transaction volume |
36% |
|
| Subjective feedback (structured,survey-based) |
35% |
|
Source: Aberdeen Group 2007 poll of 500 firms, sponsored by e+, Ketera, IQNavigator and SAP
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"The more procurement becomes involved in travel buying decisions, there is a need for better data around decision-making," said Nick Vournakis, vice president of Carlson Wagonlit Travel Solutions Group in the Americas. "That data is going to include benchmarking. That data is absolutely going to include ongoing performance metrics. More importantly, T&E is a very visible line item in terms of controllable costs. Senior-level executives need information that is easily understandable, so the more you can translate data into benchmarks, scorecards and comparisons to others that is easily digestible," the better off you'll be.
The migration of "travel into the procurement environment over the past 10 years" has intensified the need to validate travel management performance and policies, opined consultant Ralph Brown of R.D. Brown and Co. "In the past, that wasn't necessary because [managers] focused more on traveler satisfaction and service." But the focus of travel management today is on the "dollars and strategic sourcing, and there's a necessity to measure the effectiveness of your program and demonstrate the value of your program," added Brown, who developed tools to do just that in 1994. He uses the latest version of those tools to benchmark programs for his consulting clients and some suppliers.
Jim Lee, former travel manager for Honeywell and AlliedSignal, said he too has noticed "more interest in benchmarking" by senior managers and, particularly, in how their companies compare with other firms. "And they're looking for more information about those other companies," he said. Lee now serves as a part-time facilitator for the 12-year-old Travel Services Benchmarking Network. The group was formed to help members determine "the elements necessary to achieve a world-class global travel program," and has compared notes on online adoption and many other topics over the years. Representatives from 15 large, global corporations meet three or four times a year and query each other on an ad hoc basis to answer questions posed by their respective executive teams, Lee said. The same 15 companies also operate a similar network in Europe. "We primarily focus on process benchmarking, not so much on how low is your cost, but what your process was for it, what was your approach to implementation, what was your adoption rate or what was your first pass yield on online adoption," Lee explained.
| Benchmark |
Mean |
Minimum |
Maximum |
No. Companies Reporting |
Percentage of supply management spend managed and/or controlled by the supply
management organization |
64% |
12% |
100% |
27% |
Cost avoidance savings as a percent of total supply management spend |
.81% |
.01% |
2.24% |
13% |
Percent of supply management spend via procurement cards |
3.34% |
.02% |
22.22% |
24% |
Percent of supply management spend via travel & entertainment cards |
2.88% |
.01% |
24% |
14% |
Source: Caps Research Purchasing Performance Benchmarking survey of 33 companies in ISM Services Group, Nov. 2006
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"I do not put a number on a slide in H-P without getting questions about how it compares to benchmarks," explained Hewlett-Packard director of global travel and meeting services Lea McLeod during a Feb. 2007 presentation at The Masters Program. "Our question is not only how to be ahead of the benchmark, but really how do we become the benchmark. How do we become the best-in-class performer and create competitive advantage?"
Travel buyers from Bristol-Myers Squibb, H-P, Lockheed Martin, NASA, United Technologies and Xerox have detailed the value of benchmarking at various industry conferences this year. Thomson travel manager Cindy Heston said she, too, relies on benchmarking. "We outsource to IBM, which provides benchmarks for external customers. I also recently benchmarked with a couple consultants," she said.
"H-P compares its major business units against each other on total cost, cost by category, cost per head, T&E expenses as percentage of revenue, total demand, policy compliance performance and cost of non-compliance," said McLeod. Others benchmark their policies and practices against other companies deemed best in class.
In its Client Benchmark Survey 2007, BCD Travel asked customers how they use benchmarks. Of 219 respondents, 62 percent said they use them to calculate savings, 57 percent to assist in decision-making, 57 percent to validate choices and 55 percent to prove program value. As for the ideal benchmarking peer, 44 percent of respondents selected one based on volume, 40 percent on similar policies, 38 percent on geographic location and 33 percent on industry.
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"The more procurement becomes involved in travel buying decisions, there is a need for better data around decision-making."
— NICK VOURNAKIS, VICE PRESIDENT OF CARLSON WAGONLIT TRAVEL SOLUTIONS GROUP IN THE AMERICAS
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Doing the Benchmarking
Among those benchmarking travel today are such groups as the National Business Travel Association Foundation, the Association of Corporate Travel Executives, the Institute of Supply Management's Caps Research unit, the Society for Collegiate Travel Management and the Institute of Travel Management. APQC also has developed a benchmarking framework and code of conduct as part of its services to more than 500 member firms. Travel management companies, with and without their consulting arms, also promote benchmarking--from specific projects to ongoing efforts that help advise clients on how they compare with other customers at any time. Independent consultants and even benchmarking networks also provide some data to specific groups. Such management consulting and outsourcing firms as Aberdeen Group, Deloitte Consulting, IBM, ICG Commerce,
Paystream Advisors, The Hackett Group and TRX Travel Analytics are reporting benchmarks in procurement, expense reporting, accounts payable, sourcing or other travel-related areas.
|
North America |
Europe |
Asia Pacific |
Latin America |
T&E spending averages per company |
$19.4M |
$20.9M |
$17.4M |
$8.9M |
Average percentage of T&E spend via corporate cards |
56% |
53% |
59% |
44% |
Procurement card spending averages per company |
$6.4M |
$4.4M |
$4.8M |
$0.8M |
Average percentage of total spend via p-cards |
8.8% |
11.2% |
10.4% |
6.0% |
Source: Aberdeen Group Global Commercial Payment Cards survey of 263 enterprises, April 2007, sponsored by Visa Commercial and the Association of
Corporate Travel Executives
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To conduct benchmarking for its clients, CWT Solutions Group relies on a database that it has populated with information from all of its agency customers, as well as clients of the consulting group. "We invest in third-party data where we believe it makes sense," Vournakis said. For example, CWT collects Quality Service Index information--which measures total seats flown by a given airline in a particular citypair--on more than 300,000 commercial markets. "In hotel, we collect occupancy information from Smith Travel Research. We augment our knowledge base with that information. But we wouldn't necessarily make an investment for NBTA benchmarking. We believe our client base is more than rich enough for that type of information."
BCD Travel's Advito consulting group in February launched its eValuation Service to help clients "determine if their policies, procedures and rates are comparable to those of their peers and in line with industry best practices," said Mary Ellen George, Advito general manager. Its database integrates data from more than 400 organizations with additional qualitative and quantitative information from an online survey. As part of the process, it analyzes a program in six key categories and 36 subcategories compared with industry best practices.
Visa also introduced a new benchmarking service in conjunction with RPMG Research, a firm founded by two academics, which surveyed more than 1,000 organizations on T&E card use. Visa commercial card-issuing banks now offer to conduct an industry benchmark analysis using the toolset. Corporate decision-makers will be asked to answer a few questions about the volume of business they put on their T&E cards, card distribution policies and use of data. The analysis will compare responses to those of 1,020 others in RPMG's database and indicate where the company ranks in one of four quartiles, as compared with best in class.
Survey respondents report average additional discounts of 3 percent to 5 percent by using card data during contract negotiations. But if a company limits distribution of T&E cards and captures a low percentage of overall T&E spending on them, it limits opportunities to use the data to garner such additional savings, explained RPMG co-founder Richard Palmer.
MasterCard last year introduced a Purchase Optimizer benchmarking tool to enable companies to benchmark their T&E, procurement, fleet and one-card policies and practices against information collected by Aberdeen Group.
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"We primarily focus on process benchmarking, not so much on how low is your cost, but what your process was for it, what was your approach to implementation, what was your adoption rate or what was your first pass yield on online adoption."
— JIM LEE, EXECUTIVE DIRECTOR, TRAVEL SERVICES BENCHMARKING NETWORK
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In conjunction with the release of its new management information reporting system, Axis@Work, American Express Business Travel launched "core benchmarking tools that allow general managers as part of annual or quarterly business reviews with clients to provide them with air, car and hotel benchmarks," said Richard Chinitz, marketing director for North America. In this review, account managers can provide "air by average segment cost and cost per mile," plus detail based on class of service, online versus offline purchases and advance purchase. The managers also can benchmark car and hotel average daily rates or room nights against those of all Amex clients or clients of similar air volume or industry, he added.
Former American Express airfare guru Robert Harrell continues to provide a series of standard airfare benchmarking tools to the travel management company, as well as other clients. One weekly report tracks current and historical airfare data on the top 40 routes for most major airlines, representing nearly 300 origination and destination combinations. Harrell Associates tracks domestic and international fares and, like everyone else interviewed for this story, noted greater demand than ever before for benchmarking.
Atlas Travel International announced a new benchmarking service called Travel GPA. Atlas chief technology officer Rock Blanco is heading the new business unit to help companies measure how their travel programs rank against others. To build a benchmarking database, seven travel management companies agreed to pool data representing nearly $1 billion in annual travel transaction volume, including clients with volumes ranging from $100,000 to more than $30 million. Customers must subscribe to Cornerstone's iBank Travel Management to use Travel GPA, which is offered to both corporations and other agencies.
The
NBTA Foundation in July released the third version of its Managed Travel Index, including a new travel risk management component. The Foundation in 2004 hired two consulting firms to build the tools as a means to allow members to "measure the effectiveness and return on investment of their companies' travel programs," the Foundation stated in its annual report.
Going beyond costs, NBTA's Managed Travel Index helps users benchmark travel operations in six areas: finance, administration, sourcing, technology, quality and compliance. Users rank their policies and practices to generate an MTI score, which they can then benchmark against other companies by industry, region or total spend.
After reviewing the enhanced benchmarking tool, Janan Johnson, director of procurement, corporate services for GlaxoSmithKline, said, "I was really wowed. What a cool thing. It's a great starting point if you have never benchmarked your program. Maybe you don't want to buy it from your consultant or from your agency. This is really a value-for-money idea. We can all benefit if we get that database filled up."
The NBTA Foundation recently introduced a multi-use licensing plan for travel management companies to boost data beyond the 160 to 180 companies that have entered data during the past two years. Ideally, NBTA would like the data from "a couple hundred companies," said NBTA Foundation director Daphne Bryant. Travelocity Business purchased one such license to allow its clients to use of the tools, while Radius negotiated special pricing for its agency consortium members to extend to their corporate clients, Bryant added.
The Association of Corporate Travel Executives offers special pricing and access to such third-party benchmarking providers as Aberdeen, Smith Travel Research and Topaz.
Best Time to Benchmark
A good time to benchmark, several suggested, is just before or after a major change to a program. "Our approach to benchmarking is that we don't consider benchmarking a solution in and of itself, but a very important data point within a larger solution," said Vournakis.
The emergence of an "issue" in a travel program also could prompt a benchmarking exercise, noted Lee. The goal, he said, is to identify a company that has mastered a problem process and ask enough questions to replicate their success.
Consultants and others said some companies benchmark to gain support for major policy changes, especially those that may reduce the level of service to lower travel costs. But others noted that benchmarking has become a standard component to their continuous improvement processes.
Most vendor negotiations occur just once every year or two, Vournakis said. "What a company can do in between is monitor use of their preferred program and adherence to it to drive costs out of
the program."
