Getting the best travel deal for your company is imperative in the current market. Frary investigates the trend of benchmarking and its importance for procurement
Little can compare with the humiliation you feel when sitting on an aeroplane and you ask your next door neighbour how much they paid for their ticket, only to find that their fare was hundreds of pounds cheaper than yours. Corporate travel buyers feel the same way when they realise that another company is getting a better deal than they are on air fares as well as hotel room and car rental rates. This is where benchmarking comes in.
Benchmarking is the process of looking at indicators, such as cost and productivity, and comparing them to those in other companies or an industry standard. Benchmarking was invented by Rank Xerox in the early 1980s as it attempted to bring its manufacturing costs in line with those of its newer rivals from Japan - although the term itself was originally used in surveying.
As far as business travel is concerned, benchmarking really took off when procurement started taking a greater interest in this area of spend. After all, how could you be sure as a company that you were procuring business travel well unless you were making comparisons to the rest of the market? Although it was the arrival of procurement in the business travel arena and the focus on process engineering that sparked the interest in benchmarking, it is the wider availability of good quality management information that has made benchmarking practical.
What to benchmark
In the early days of business travel benchmarking, much of the focus was on average air fares.
But benchmarking is changing, according to HRG's (Hogg Robinson Group) director of client management, Stewart Harvey. "Benchmarking has moved away from comparisons towards learning. It is not whether corporate buyers have a good deal or not, it is about whether anyone has better practices in place. Buyers are asking themselves how they can learn from anyone else's policy or interpretation."
Torsten Kriedt, vice president, innovation and intelligence at consultancy firm Advito, says that the typical benchmarks of average ticket price and adoption rates for online booking tools have become less important recently. "The last two years have seen a shift to more strategic KPIs [key performance indicators], ones that judge the effectiveness of the travel programme and the agency relationship," he says.
Comments Harvey: "Companies are looking more at policy, traveller behaviour and service scope, and seeing how they compare to others. They want a specific comparison with others in their sector." Since the summer, he adds, companies have been asking for more benchmarks on policy - with class of travel being a particular area of interest.
The faltering economy is making many companies look at benchmarking. Anything that gives you a competitive advantage over your rivals is more than welcome. Equally, if you can see that another company has an advantage over you, then you should be doing all you can as an organisation to close the gap.
But Bradley Seitz, president and CEO of the business travel consultancy Topaz International, feels it is always good to benchmark, not just when the economic downturn is biting.
"For most of our clients, benchmarking is an ongoing process to make sure they are doing okay," he says. "Today, we have a whole set of different challenges in regard to whether companies are getting effective discounts and whether one company is getting a better discount than another."
Advito's Kriedt observes that many companies "pressed the alarm button and had an umbrella travel ban" as a result of the economic crisis. "It serves to preserve cashflow, but companies know this is not sustainable - at some point they have to travel." He says benchmarking lets an organisation find a "healthy" level of travel.
The handful of companies that are already starting to emerge from the downturn have a different agenda when it comes to benchmarking. As they begin to recruit again, prospective employees want to know what class of air travel and hotel they will be expected to use when on company business. For a firm keen to employ a high flyer, being able to offer Business Class air travel and five-star hotels as standard will be seen as an attractive part of the employment package, especially if a competitor still has a travel ban or restrictions in place.
One area where benchmarking is expected to become increasingly useful is that of airline ancillary charges. With carriers now charging a bewildering array of fees for seat selection, baggage and other services, benchmarking the headline air fare on its own will not be enough.
There has been much publicity in recent weeks about the value of meeting face-to-face - British Airways and Bmi have both been promoting campaigns aimed at getting business people to meet in person - and the evidence seems clear. A recent survey by Oxford Economics of 800 business travellers and executives working for US companies showed that for every dollar invested in business travel, they could expect a return of approximately $12.50 in revenue and $3.80 in profits. In fact, some companies are already using exactly these financial indicators as benchmarks.
In recent years, with the threat of global warming looming, companies have been setting environmental benchmarks. Many firms are looking at total carbon dioxide emitted in the course of travel, but others are looking at what is known as travel intensity - miles travelled or the hours spent on travel - as part of their corporate and social responsibility obligations. These benchmarks often form part of discussions with worker councils and are published in their sustainability reports.
Who is benchmarking?
Benchmarking has typically been the preserve of large companies with sophisticated travel programmes. Advito's Torsten Kriedt says those companies are still "leading the game" but that medium-sized outfits are increasingly interested in finding out how to improve and how they compare against others.
Medium-sized companies are also starting to look at benchmarking, although it is often on the basis of a particular project, such as the implementation of a self-booking tool. In an environment where return on investment is so important, benchmarking with companies that have already done their implementations offers the potential of achieving that at an earlier stage.
Smaller companies may be interested in a new service launched in August by American Express. Its eXpert insights is a new benchmarking practice within Amex's Global Advisory Services headed by former Aberdeen Group and AMR research analyst and director, Christa Degnan Manning.
The service is available on either an annual subscription basis or on an hourly ad hoc basis, and will be offered to companies that are not clients of Amex's business travel arm. It will take advantage of a claimed US$10 billion of aggregated data across business travel and its corporate card programmes.
Each month, eXpert insights will generate a best practice report, looking at areas such as hotel tiering strategy and meetings management, and publish relevant benchmarks. "You will be able to see how you stack up," says Manning.
Who to benchmark against
Getting good data on your own industry is probably the most important benchmark you can have. If you know you are spending a significantly higher proportion of your revenue on business travel than a competitor in the same sector, there is probably room for improvement.
The challenge for companies providing benchmarking information is to make sure that the data is properly identified.
Torsten Kriedt at Advito says: "The key is to have a proper industry classification. It is no good to label it 'financial services' and slop everything underneath it, since it might be a completely different industry. Choosing the right peer group can only be automated 50 per cent."
Sometimes benchmarking takes a more informal route, where travel managers in particular industry sectors get together to discuss various benchmarks, sometimes without the knowledge of the senior managers of their own businesses. Interestingly, there is nothing to stop buyers from sharing their information like this, other than commercial confidentiality. It is interesting to note that collusion of this sort on the suppliers' side may well attract the attention of the competition authorities: you need only look at the ongoing British Airways-Virgin Atlantic fuel surcharge saga.
Yet the ultimate goal is to identify companies with a similar spend or volume pattern, not necessarily just those in the same industrial sector - a so-called horizontal benchmark. For example, if you are a law practice where the travel is billable to a client, this may well prove to be a good benchmark for an architectural practice with a similar way of charging clients.
Looking at your own industry in isolation should not necessarily be the end of benchmarking. Sometimes, it makes sense to aim for targets set in best practice companies. For instance, if you have implemented a corporate booking tool and have only achieved an adoption rate of 20 per cent, then you probably have some work to do. Your industry competitors, meanwhile, may have achieved an adoption rate of 40 per cent. However, there is nothing to stop you aiming for an adoption rate of 60 per cent since the benefits do not stop at the rate achieved by your rivals.
Bradley Seitz at Topaz argues that going outside your travel management company can be a good idea. "The information they provide is not necessarily independent. The travel management companies gather a tremendous amount of good data but we are a good source of cross travel agency information. But it's not about using one or the other of these - companies should use as many benchmarks as they possibly can."
The cost of benchmarking
What do companies have to pay for benchmarking? It depends, of course. There is typically a menu of prices for options that are requested frequently, such as average fare benchmarking. For bespoke projects, a high-end consultant could cost up to £1,000 a day. A self-contained benchmarking project might cost £10,000. For long-term projects, some consultants work on a cost-plus basis.
"The price has a lot to do with the scope," says HRG's Stewart Harvey. "In truth, you use a menu price as a start price. A lot of companies want to do a deal and to pay for results rather than time."
Benchmarking obviously requires data - both your own and that of other companies, particularly those in the same industrial sector and geographical region. This raises the question of whether you want competitors to see your data.
One of the problems facing corporate travel buyers wanting to share their data for benchmarking purposes is that the terms of their contracts with travel suppliers may specifically forbid sharing that information. For example, an airline inking a corporate deal with a company may say in the terms of the contract that revealing the specific deal on a particular route - London-New York, say - would be a breach of contract. It is in the airline's interest, of course, to try to keep information on the discounts it is offering certain clients from leaking out.
Some companies will agree to their data being used but on condition there is no reference that might identify them them in any way. For example, if the data showed a company travelling on three specific routes, it could be easy for a competitor to identify exactly who it was.
Many companies are looking at the following indicators as benchmarks:
- Average air fare on a particular route
- Average air segment price
- Average hotel or meeting rate
- Look-to-book ratio
- Online adoption rate
- How far in advance bookings are made
- Carbon dioxide emissions