A favourite phrase of Jörg Martin, Managing Director of CTC Corporate Travel Consulting, is "value added" because generating value added is part of his job as a travel management consultant. However, anything that makes no discernible contribution to value added, but only creates costs, is questioned – whether it is an IT solution, a process stage or an unforeseeable service provider.
Yet in an increasing number of companies, Martin is seeing a trend that is much farther-reaching. The individual aspects are no longer being sounded out, but the value-adding potential of travel management itself is. The consultant is therefore calling on all travel managers "to redefine their value-added."
Traditionally, the function is defined by the "procurement of travel services." And their value-added can be calculated very easily – by the amount of costs saved. However, the benefits of all the other tasks of a travel manager in the 21st century aren’t so clear, because smooth processes, satisfied employees or the security of data and travellers do not usually appear in the controlling department’s profit-and-loss accounts.
"The classic travel manager-buyer is dead"
However, it is exactly these aspects – and "not merely the finances" – that constitute the value-added of modern mobility management, according to German mobility management network Verband Deutsches Reisemanagement (VDR): "The challenge lies in bringing together processes and sensitivities – then the mobility manager becomes the value-added generator for the travellers, the company and the environment." Benjamin Park, Director of Procurement & Travel at PAREXEL expressed this further at the Corporate Travel Forum, a conference organised by HRS and the economic club Travel Industry Club, in Cologne, when he stated: "The classic travel manager-buyer is dead. Everyone who still pursues this job with their purchasing glasses on is flogging a dead horse."
But what is the new thing? "Many travel managers still define their function as operational and not strategic," mobility consultant Martin laments. Yet now is the time when they should be "adopting the strategic function of a process director, where they can then select and orchestrate the optimum vicarious agents for the various operational tasks." In other words, strategic travel management delegates individual operational, non-value-adding activities to a qualified third party.
In many companies, hotel purchasing is right at the top of this list. The simple reason is that negotiations with the hotel industry are very costly and time-consuming, because unlike in the airline or car-hire sectors, the buyer does not just have to deal with a few suppliers here. Instead, they are faced with highly fragmented markets with thousands of individual providers.
"Hotel purchasing is the classic area, because the travel manager has no blanket purchasing power here," Martin says, advising the adoption of a "director function." "Then I am more efficient, I can breathe and shift allocations over and back flexibly." Or, as the Head of Corporate Mobility Services at Dürr AG, Marcus Scholz, puts it: "We don’t want to spend six months of the year dealing with sourcing, but rather just a month and be done with it."
In a survey conducted late last year, companies worldwide were asked about their hotel purchasing for HRS’ white paper "Global Sourcing Study – The right mix: Savings through a balanced portfolio," with many echoing this same sentiment. When asked which challenges were making life difficult for them, most respondents unsurprisingly stated "rising hotel prices" and "conflicting interests", tying at first place with 48% each. Meanwhile, 39% said that they find the enormous amount of time and resource expenditure on their purchasing processes, along with the fragmentation of the various regional hotel markets almost equally onerous. Particularly large companies named these as hurdles even before rising hotel prices.
Hotel purchasing: US$29 billion in savings potential
However, outsourcing hotel purchasing does not just save time and expense. HRS Corporate calculated that the share of total travel costs incurred by overnight stays is 27%. Assuming that companies worldwide spent around US$1.18 trillion on business trips in 2014, as calculated by GBTA, this adds up to a total of almost US$300 billion.
This sum could in turn be reduced by up to US$29 billion every year if companies were to optimise their hotel purchasing. To do this, however, they need more market expertise and cost transparency. These are the key findings from HRS’ Global Sourcing Study.
This enormous savings potential is based on the composition of the surveyed companies’ hotel portfolios. According to this, an average of 45% of the negotiated volume falls to hotel chains. For over one-third of respondents (35%), this share is actually between 60% and 100%. However, only 22% focus primarily on negotiations with individual hotel businesses.
Outsourcing: Lower costs, higher quality
According to the survey, the remaining potential savings lie mainly in this one-sided composition. The disproportionately high share of hotel chains means that the lion’s share of the market is simply disregarded. In Europe alone, individual hotel businesses make up 88% of the total market, in Asia this share is actually 95%. The clear conclusion of the study is that "If companies optimised their hotel purchasing to encompass the entire market, they could save around 9% of their costs."
Despite this enormous potential, only 14% of all companies surveyed worldwide leave their hotel purchasing to an external service provider. In fact, the majority (71%) still negotiate their hotel rates themselves or use a supporting tool (14%) to do this. German firms in particular seem to still lack confidence in external service providers, with only 8% putting their hotel purchasing through outsourcing.
Wolfgang Enders, Managing Consultant at Europe’s largest consultancy company, Capgemini, is surprised at this. Outsourcing has long been established as an optimisation lever because for companies, it is not simply a case of saving costs, but also to "improve quality" with the aid of qualified, specialised suppliers, optimised processes and technology.
He admits that it can "always be a bit rough at the beginning." This is independent of whether a company opts for external or internal outsourcing, for example in the form of a shared service centre, Enders says. "This continues to be a huge trend and a huge challenge." However, the result justifies the measure – with "lower costs and a higher level of quality" across the board.
Andreas Wilbers, Professor of Business Travel Management at Hochschule Worms University of Applied Sciences in Germany and a travel management consultant with many years’ experience, can only emphasise this. Wilbers says that many companies have long regarded purchasing as their "own specific task," not least for fear of loss of quality. However, since external service providers often have a "better market overview" and as a result a "stronger negotiating basis," outsourcing purchasing too is often a thoroughly sensible measure. "I do not see an entire travel management division being outsourced, but certainly individual activities need to have a lean business travel department," Wilbers says.
There remains the issue of a partner. According to Wilber, in general someone would only be eligible "who has no vested interests, and who is neutral because he is getting no money from a third party." So is a provider like HRS Corporate not eligible for purchasing? "It’s different at HRS," Wilbers says. "They could steer it in such a way that hotels that do not pay large commissions are dropped so that they can pocket a larger commission. But they do not do it like that – everyone pays the same fee."
And another reason speaks in favour of the Cologne-based company, he says. HRS does not do anything too fundamentally different from what the big travel agencies can also do, noting market overview, benchmark tools, etc. However, unlike these HRS has "made hotel purchasing operations extremely professional and highly automated." Wilbers adds: "As a travel manager, I really only have to use spot checks to analyse whether my partner negotiates fair market conditions. Information from networks like German mobility management network VDR is useful for this."