Business travel was badly affected by the 2007/8 global financial crisis. Companies responded to stringent credit terms and harsh markets by slashing spend in areas they believed wouldn’t hurt their core business. Cutting back on staff training and business travel looked like a more attractive short-term option than reducing production or making staff redundant.
But it wasn’t. Reducing face-to-face contact with clients had adverse effects on many companies. They consequently resumed business travel but retained their focus on cost. The experience prompted some to try to connect spending on business travel with the business benefit, widely termed return on investment (ROI).
The industry consensus is that this is an important, much-discussed topic but Carol Randall, head of consulting UK for Areka Consulting, believes that few are actually practising it in quantifiable terms. She says: “It opens up a whole can of worms. It’s really important but it’s not given the level of attention it should have because it sits in the ‘too difficult’ pot. It gets attention at times and then goes off the radar.”
Rigorous approach
This could be because it’s difficult to measure accurately the inputs and outputs. To truly link investment and benefit, a rigorous approach is necessary. Investment is the purchase of something today to create wealth in the future. This can either be a specific good that the buyer thinks will appreciate in value (for example, shares or a Picasso), or spending on development that will increase the capacity to make money (new equipment for a factory, for instance).
It is the latter category that people are usually thinking of when they seek to assess the ROI in business travel. After all, many trips are undertaken to drive sales growth. It is important to remember, however, that just as there are two types of investment, there are, broadly speaking, two kinds of trip. Matthew Pancaldi, HRG’s global client management director, says: “Some things have to happen as the natural course of the business. Then there is the discretionary spend that you have more control over.”
Adam Knights, UK managing director for ATPI, which has many clients in the energy sector, points out that sending a crew to an oil rig is a cost of doing business and is not optional. It will not bring in more revenue but it is necessary to meet current business obligations. In these cases, he says, “we help customers understand where the cost of travel is more expensive – that is, sending a load of Norwegians to a rig in Canada might be more expensive than sending a load of Canadians to the same rig”.
The travel that Pancaldi and Knights describe as necessary to conducting business could be considered fixed costs, and that which is more discretionary could be thought of as variable.
In assessing return, most would approach the former as trying to maximise value (say, productive hours per £100 of travel outlay) from the spend. But the latter could be considered an investment, and any incremental revenues generated as a consequence considered the return on that investment.
The broader view
All those interviewed for this feature contend the price of travel cannot be looked at in isolation from the trip’s objective. Knowing the reason for travel is critical to being able to assess the return. At its crudest, there is the division between external (client-facing and usually deemed to be essential) and internal (within the company and often thought to be a ‘nice to have’ rather than a ‘must have’) travel. A decade ago the obituaries had been written for pre-trip reporting, but this technique has enjoyed a resurgence in popularity since the credit crunch. As well as allowing for approval – or rejection – of a request for travel, it also, importantly, enables the company to capture the reason for travel.
Some types of business activity are easier to match cost-to-benefit than others. Projects will have been put together with their own budgets and travel will have been included within that budget. Areka’s Randall points out that “some companies have project-related business so it is easier to quantify”.
HRG’s Pancaldi agrees that identification is important. “A code is attached to a booking. It could be a cost centre but it could also be a project code, which is a unique identifier,” he says.
Guild of Travel Management Companies (GTMC) chief executive Paul Wait believes we should review how we view business travel. “Rather than just looking at reducing costs, we should be thinking about building businesses,” he says. If we start seeing travel in this way, he says, it will be easier to connect the investment with the return. “Then you can do a simple calculation of the cost of travel of people going on client-facing trips versus client revenue. People should think: ‘What is our revenue target for next year? Is that possible to achieve with fewer trips?’” In other words, it is a cost of sale. And as independent consultant Andrew Solum says, “every company has a way of calculating cost of sale, and travel is only one element”.
Evaluating value
There is a universal belief that the responsibility for evaluating value lies with the corporate. Pancaldi says: “Assessment will go on within the client organisation, whether it’s down to the individual trip or the whole budget.”
According to Knights, travel suppliers and travel management companies “can’t comment on whether they get a return on the travel itself, but we can measure the cost of a trip with all
the normal metrics, and we can help the customer determine the level at which that cost can be attributed across a number of trips or a project. But the return on a trip is something the customer must calculate.”
Pancaldi says that companies are measuring trip cost, but “the outcome would be different according to company and sector”. So, there could be quite different costs between companies or travellers for a three-day trip between London and Paris, but so, too, could there be a different value for the company. A maintenance worker might provide the required service to one account; a commercial director might have six meetings that could potentially deliver millions in incremental sales.
Trips can have different costs according to class of travel, carrier or time of travel and, consequently, different returns – perhaps because of more productive time because of lounge access – and so do individual travellers with their different hourly rates and objectives.
Who’s making the decisions?
GTMC’s Wait believes the biggest barrier to connecting trip return to trip cost could lay in where the travel programme decision-making sits within a company. He points out that the finance and procurement departments’ natural objectives are to reduce or contain costs, while a managing director or chief commercial officer would be looking for opportunities for revenue growth.
Wait also cites the option of separating travel that is necessary to maintain a business from that which is undertaken to grow the business. The natural outcome of this might be to have one travel policy for internal trips managed by procurement while have another, managed by sales, for client-facing travel.
Of course, there are also potentially ways of measuring return beyond sales revenue. As well as the travel cost of any trip, there is the cost in time of an employee being out of the office – shouldn’t that time be as productive as possible? Pancaldi believes that the return can be increased in simple ways such as planning fewer trips, but more time or meetings per trip. Then, there is the old chestnut of being able to spend more time working on a train than on a plane.
Wait queries the wisdom of travel policies that outlaw first class rail travel. “What would happen if I was sitting at my desk reading a book or listening to music?” he asks. “You’d be told to go back to work. Yet a lot of companies expect their people to travel in standard class where they can’t work. They’re not combining the productivity element with the cost of the item – the travel.”
It seems a big gap remains between recognising the need for business travel and recognising its benefit to the business.