Travel managers have traditionally been encouraged to keep their travel costs under control and to not use travel as a tool to achieve results.
These notions are being challenged by travel management companies, which believe that travel should be seen as an investment instead of purely a cost. After all, how can a business grow and achieve its goals without business travel?
In many company structures today, travel remains a fixed cost, lumped as a procurement department responsibility.
Very often, procurement managers who are responsible for a company’s ‘indirect’ purchases, such as stationery, insurance, coffee (all items that are considered ‘fixed costs’ of doing business), etc. are also responsible for travel. The business objective of these procurement managers is thus to keep fixed costs as low as possible.
However, it could be argued that the volume of travel – and the quality of that travel – cannot be managed as a fixed cost as travel can be variable, depending on the company’s goals, culture and structure, explains Euan McNeil, General Manager at FCM Travel Solutions South Africa.
“Some 99% of companies position travel spend within their procurement structures, but these staff members are not buying pencils or paper that will be consumed at different times by all. The impact of travel is largely individually experienced.”
McNeil believes that corporate culture and strategy are underestimated when people assess the value of travel and that the expected ROI from a trip should be defined in advance.
Reality is, however, far from ideal. Trip decisions must be made quickly because the fare is likely to rise. McNeil explains that corporate attitude towards cost is dictated not only by company culture but also by company strategy: “you need to know where the company is in its own lifecycle. If the company is acquiring or about to be acquired, cost control is vital. However, if a company is going through an expansion phase, it has to be more relaxed about costs”.
“Within a company different people will look at travelling with different objectives in mind”, McNeil continues. This might be stating the obvious – after all, sales teams will be seeking different outcomes from those going to meet colleagues in another location. But the proliferation and wide availability of data mean that managers are now able to cost roughly every proposed trip once the dates and duration are known. After all, the average cost for a flight between cities plus average accommodation rates and subsistence allowances are known.
A fixed-cost approach may better suit budget setting and management. However, if the company strategy is expansion, the budget for travel for sales team members is likely to vary – and vary upwards.
“If you link traveller spend to strategy, you will be able to analyse return on investment much more easily”, says McNeil.
Looking at the figures
A recent report from technology company Amadeus, Managing Every Mile, shows that financial, strategic, HR, risk mitigation and efficiency are all elements of corporate strategy that travel managers should take into account. Some companies are beginning to consider these influences on travel spend but the industry sector will also have a heavy influence here. Companies that recharge travel expenses will not be looking too hard at the relationship between travel spend and trip outcome. But, there are companies that will view travel as an essential element in their growth strategies.
“Travel managers should know where the company is going. For travel management companies it’s very different working with someone who knows what’s happening with the company. Strategy has to be set at a high level and cascade down”, says McNeil.
It is very difficult to control lots of travellers and lots of trips. For travel managers to connect the cost of travel to its outcome means working in partnership with various internal teams as well as a travel management company, such as FCM Travel Solutions.
This is a very different proposition from using pre-trip approval as a tool to determine whether permission to travel should be granted.
It would be costly to deny permission to travel at the booking stage. Travel managers need to understand whether they are looking at different departments in the same way or differently.
It’s in how you define corporate benefit
Members of the sales team will always be more able to quantify a benefit while for others this will be more difficult. However, just because a trip is being made by someone who works in a non-revenue-generating department, such as, say HR, does not mean that it is without value. The only difference is the ability to measure and demonstrate corporate benefit.
Some meetings will be more unproductive than others, but if a client wants to see you, you have to go. Internal meetings may not be vital to the month’s bottom line but managers must regard them as important for a reason or they would not be scheduled.
Conversely, in some companies, travelling for internal meetings is not considered important and believed to be dispensable. Others try to manage this by having web meetings on a monthly basis and an annual face-to-face team meeting. Company culture will thus dictate travel tactics.
McNeil notes that “travel can get very complicated because every trip will have different cost and benefit variables to measure. But improvements in data collection allow us to apply formulae which can give a company the approximate cost of all planned trips. It should not be beyond companies to work out a scale of benefit based on the company’s culture and strategy”.
Because the business sector, cycle and culture affect strategy so much, a ROI measure cannot be developed as an industry-wide standard but must be created on a company-by-company basis.
McNeil concludes that “any travel that is vital for business growth or to keep your organisation moving forward should be considered an investment, not a fixed cost”.