What's More Important Than Savings M203

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TRAVEL MANAGEMENT VALIDATION WHAT'S MORE
IMPORTANT THAN SAVINGS?
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Scott Gillespies Background

• Founder and CEO of Travel Analytics
• Developed TANGO and BRAVO for airline sourcing
  projects
• Analyzed in excess of 15 Billion of annual air
  spend
• Recipient of ACTEs Industry Professionalism and
  Distinguished Fellow honors
• Named by Business Travel News as one of the
  travel industrys most influential executives
• Previously A.T. Kearneys global expert in
  strategic sourcing of travel suppliers
• MBA, University of Chicago

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Learnings From Past and Current Clients

• Agilent
• AXA
• Baxter
• Coca-Cola
• Chevron
• DaimlerChrysler
• Dell Computer
• Deloitte
• John Deere
• Ernst Young
• ExxonMobil
• Ford

Hewlett-Packard Invensys KPMG Lockheed
Martin Microsoft Procter Gamble Nortel
Networks Novartis PricewaterhouseCoopers Roche She
ll Tyco
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Todays Agenda

• Whats More Important Than Savings?
• How Do Valuable Problems Get Solved?
• Whats The Value Trend in Travel?
• Wheres The Value In a Managed Travel Program?
• How Can We Quantify Value in a Travel Program?
• How Much Value Does Your Travel Policy Create?
• What Are The Basic Steps For Creating Value?
• Where Do You Want To Add Value?
• Discussion - No Doubt Valuable!

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1. Whats More Important Than Savings? Hints

• Companies are not in business to create savings
• Warren Buffet is not a savings investor
• Senior Management doesnt focus on the
  Savings-Add
• You dont tell travelers that you save their
  opinion

Value Matters Much More Than Savings!
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So What Creates Value?

• Nothing happens without a sale
• Sales are simply solutions to problems
• Value comes from solving problems
• Simple problems lead to commoditized solutions
• Commodity solutions low value

Solving Complex Problems Creates High Value
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2. How Do Valuable Problems Get Solved?
Status Quo
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3. Whats The Value Trend in Travel?

• Lets look at the underlying trend of complexity
  for
• Travel Agency Selection
• Travel Inventory Access
• Hotel Sourcing
• Airline Sourcing
• Travel Category Management

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Trends In Travel Agency Selection
Reverse Auction?
Menu Pricing?
CTD?
Online or Offline?
Regional or Global?
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Trends In Travel Inventory Access
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Trends In Hotel Sourcing
Reverse Auctions?
Folio Data?
Internet Rates?
Rate Loading?
Dynamic Pricing?
Merchant Model?
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Trends In Airline Sourcing
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Trends In Travel Category Management
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Great News Travel Complexity Is Increasing!

• Complexity creates problems
• Complex problems are opportunities to create high
  value
• Creating high value job security

Creating Low Value Job Insecurity
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So Whats The Value Trend In Travel?
95
05
85
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Create High Value By Working At The Value
Frontier!
Disruption
Complex Problems
Uncertainty And Indecision
Status Quo
Simple Problems
Path?
Bad Results
Followers
Good
Leaders
Results?
Analyze The Options
Solution
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Are You Seen As Creating Enough Value? Hopefully
Yes, But If Not, Perhaps

• You are
• Not tackling the tough problems
• Not being sufficiently proactive
• Not getting the right results
• You are creating enough value, but are just not
  getting enough credit
• Results are hard to measure
• Not communicating the results properly

Stop Working Far From The Frontier!
Start Sharpening Your Message!
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4. Wheres The Value In Managed Travel?
SimpliFares
100 ROI
-150 ROI?
20 ROI
Negotiated Savings 2004
Program Admin. 2004
Negotiated Savings 2005
Program Admin. 2005
Negotiated Savings 2006
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Reductions In Negotiated Savings So What?

• Procurement and Finance will not be happy
• Savings and ROI are down
• Travel managers will not be happy
• Pressure to improve both measures
• Intense pressure to source agencies
• Internet Travel Management Companies will be
  happy, Legacy TMCs will not

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Why The Pressure To Source Agencies?
Agency Fees Are The Obvious Target
Internal Staff and Overhead
Third Parties, Rebates
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Are Negotiated Savings The Only Source Of Value?

• NO! Negotiated savings are but one component
  one that is
• Very visible
• Easy to measure
• Easy to communicate

Negotiated Savings Is The Easiest Type Of Value
To Focus On
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Value Is In The Eye Of The Stakeholder

• Procurement
• Finance
• Line Management
• Human Resources

• Negotiated Savings
• Return On Investment
• Productivity
• Retention (Turnover)

Each Group Views The Value of Managed Travel
Differently
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5. How Can We Quantify The Value Of Managed
Travel?

• Easy compare the costs under an unmanaged
  travel program to those under a managed program
• Unmanaged does not mean everyone takes First
  Class/Five Star trips Line managers will exert
  some cost discipline of their own
• Key is Marginal Benefit how much better off
  are we with a managed program in place?

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Illustrative Trip Comparison
Unmanaged Program
Managed Program

• Domestic USA trip
• 1 night stay
• Coach Class airfare
• 1 day advance purchase
• Refundable ticket
• Deluxe hotel
• Full-size car
• Trip booked via cousins travel agency
• No corporate discounts

• Same trip
• 1 night stay
• Coach Class airfare
• 3 days advance purchase
• Non-refundable ticket
• Standard Hotel
• Mid-size car
• Trip booked via corporate agency or Self-service
  tool
• Corporate discounts on airline, hotel and car

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Illustrative Trip Cost Comparison
Unmanaged Program
Managed Program

• Purchased Trip Cost
• 1,250

• Purchased Trip Cost
• 675

versus
Savings on Purchased Cost Of This Trip 575
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Communicate This Value To Your Stakeholders By
Valuing What You Do
Illustrative

• Specify Appropriate Trip Quality
• Connections, Cabins, Rooms, Cars
• Provide Inventory Access and Purchasing Advice
• GDS, Direct Connects, Advance Purchase
• Control Purchases at Point Of Sale
• Booking method, policy enforcement, data capture,
  traveler safety and visibility
• Deliver Negotiated Savings

(350)
(75)
(75)
(75)
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Then Place Values On The Relevant Costs
Illustrative

• Program Administration
• Staff, Third Parties, Agency Fees
• Travelers Lost Productivity
• Connections, Cabin, Alternate Airport, Booking
  Method, Room Quality, Refueling
• Incremental Turnover Due to Travel Policies
• Connections, Cabin, Alternate Airport, Booking
  Method, Room Quality, Refueling

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Show The Benefits and Costs
Illustrative

• Unmanaged Cost per Trip
• Program Benefits (Cost Savings)
• Program Costs

1,250
(575)
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Now Build Your Programs Value Statement
Illustrative
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Now Build Your Programs Value Statement
Illustrative
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Procurement Impact
Illustrative
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Human Resource Impact
Illustrative
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Financial Impact
Illustrative
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What If Negotiated Savings Drop To Zero?
Illustrative
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6. How Much Value Does Your Travel Policy Create?
The Key Value Drivers Are

• Specify Appropriate Trip Quality
• Provide Inventory Access and Purchasing Advice
• Control Purchases at Point Of Sale
• Deliver Negotiated Savings
• Travelers Lost Productivity
• Incremental Turnover Due to Travel Policies
• Program Administration

Travel Policy Impacts Your Programs Entire Value
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Travel Policys Impact On A Trips Purchase
Costs Diminishing Returns
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So Really Tough Policies Really High Value,
Right?

• NO!
• Strong policies do decrease the purchased cost of
  a trip but
• Strong policies increase the lost productivity
  and employee turnover costs the Human Capital
  costs
• Much depends on the average travelers
  compensation, turnover rate and trip purpose
  the Traveler/Trip Value

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Must Consider Travel Policys Impact On A Trips
Purchase and Human Capital Costs
Trips Purchase Cost
Type Of Travel Policy
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So Whats The Right Travel Policy Level?
The Policy Level Which Minimizes The Total Cost
Trips Human Capital Cost
Trips Purchase Cost
Type of Travel Policy
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Lighter Policies Are Best For Highly Valuable
Travelers/Trips
Illustrative
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Lower-value Travelers/Trips Should Be Managed
With Stronger Policies
Illustrative
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Extremely Strong Travel Policies Likely Destroy
Value, Even For Firms With Low-value
Traveler/Trips
Illustrative
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This Approach Makes Tiered Travel Policies Valid
For Some Firms

• There is a clear economic rationale for applying
  different policies to different groups of
  travelers
• The cultural impact is much harder to quantify
  best left to managements judgment
• Tiered travel policies may or may not be right
  for your firm

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7. What Are The Basic Steps For Creating Value?

• Engage your stakeholders
• Focus on high-value problems
• Define success - agree on metrics, targets and
  timeframes
• Analyze your options and pick a path
• Execute with vigor and common sense
• Track and communicate your results

Not Many Managers Do All Six Steps Well
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Where Has Outsourcing Succeeded?
Payroll
Core Manu- facturing
Call Centers
Benefits Admin.
Info. Tech.
Where Does Travel Fit?
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8. Where Do You Want To Add Value?

• For Buyers Six High-Value Problems
• For Sellers Five High Value Problems

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For Buyers - Six Complex/High-Value Problems
Worth Tackling

• Whats the best strategy for negotiating with
  airlines?
• How should hotels be sourced and managed?
• Whats the best way to access travel inventory?
• How can program administration costs be
  significantly reduced without impacting service?
• How much value is our travel program creating?
• To what degree should we outsource our travel
  program?

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For Sellers - Five Complex/High-Value Problems
Worth Tackling

• What really differentiates us from our
  competitors?
• What value does our product create for business
  travelers? Where? How much? Why?
• How and where can we reduce costs, yet sustain
  our value proposition?
• How do we get our salespeople to compete less on
  price and more on value?
• How do we credibly quantify our value to buyers?

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Where Do You Want To Add Value?
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Thank You!

• Delegates may download a Program Valuation tool
  from our website
• Please go to our Free Tools section at
• www.travelanalytics.com/sdft_freetools.shtml

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Discussion?

• Focusing on Savings versus Value?
• Quantifying the value components?
• Getting approval to tackle the high-value
  problems?
• Selling value versus competing on price?
• Credibly communicating the value of a managed
  travel program?
• Estimating the value of outsourcing?