The ROI of business travel
How in a recession do you cut travel intelligently without damaging your business's ability to recover when the bad times are over?
The question was posed by Christa Degnan Manning, the new director of research at American Express Business Travel, at the National Business Travel Association's (NBTA) convention in San Diego this week.
Some companies have frozen travel, others have made substantial cuts. The wiser - or perhaps those better placed to weather the storm - have been more surgical in their action, cutting in areas, usually internal meetings, where damage to business might not be so great.
The problem facing both the slashers and burners and the more clinical is similar. There is no real agreed measure of the value of business travel, let along the ROI that individual trips might bring. Clearly a trip on which the ceo signs a multi-million, multi-year deal has an obvious benefit. But it is seriously likely that the ceo made many trips in order to build the relationship which clinched the deal. How are those trips to be measured when, at the time, their value was far less obvious.
Just how firms can measure the value of business travel was addressed by Ken McGill, executive vp and managing director of travel and tourism services for Global Insights, at the convention. He had already presented his early findings to the Crossroads Convention in Paris in May. There he told delegates the aim of the study was to try and measure not only the cost of business travel but also the contribution it makes to businesses and to national and local economies. It also aimed to resolve the question of whether managed travel was better than unmanaged travel.
But Mr McGill stressed, both in Paris and in San Diego, that his data was limited. It also is drawn solely from US sources.
In Paris his data was raw - not much more than bald figures of numbers of trips, annual spend and contribution to the economy. In San Diego, something more substantial was presented. In the ten years covered by Mr McGill's figures, the amount spent on business travel has not only increased but corporates are getting more for their money.
He put this down to four factors: travel efficiency with travellers taking longer trips and cramming more into them (these are figures over ten years not just the current recession where trip lengths have shortened in many cases); improved technical alternatives to travel which have replaced some trips; travel being well managed, reflecting the expertise of many travel managers; and relative prices with travel not being as badly hit by inflation as other areas.
Mr McGill said his research - and it is not finished yet - indicated there was an optimum where business travel could add to company sales and revenue. That it has a level at which the cost of trips was lower than the amount they added to the bottom line. Go above that optimum and the return is less good or even negative.
But how do you find that optimum, especially when the indications are that it differs from each industry and even each company within that industry and, more disconcertingly, there is a large number of variable factors to be considered.
The trick is working out for your company just where your optimum lies. It is quite a complicated process. There is room for manoeuvre if you are simply looking to increase travel to the optimum but the other side of the coin is if you are above the optimum and have to cut, the question posed by Ms Manning comes into to play. A cut too far can do more harm than good to the company.
Mr McGill said his research aimed to isolate the affect of business travel on a company's sales. He said there was a correlation between the two, citing one example of a company which if it increased business travel by 1%, its sales would rise by 1.7%.
"We are now trying to see how strong is that correlation and what is its optimum," he said but he added that his initial feeling was that many companies in the States have "ample room" to increase their business travel. He said he believed the chemical/pharmaceutical industry could increase its business travel by 3.4% and see a 7% increase in sales. The US retail industry could increase travel by 3% and see a 4% rise in sales.
"It was very encouraging the relationship we found (between travel and sales)," he said.
Mr McGill is also studying whether managed travel brings more benefits than unmanaged. Again his research is in its very early days but there are already signs, he said, that investment over time in managed travels "pays off."
The full report is due to be available next month.