Road to riches?
Two recent studies have attempted to quantify the return on investment (ROI) that companies gain from spending on travel. Whether you really can put hard figures on it is a matter of debate, but the recession has certainly made businesses think harder about the value of travel.
All businesses of a reasonable size spend money on business travel – but do they assess what they get in return? Perhaps companies have not asked the question enough in the past, but this year the situation has changed. Businesses have introduced pre-trip approval systems and made video-conferencing alternatives available to ensure travellers consider twice whether a journey is truly worthwhile.
Too much travel – or not enough?
It seems to be working. Cutting out unnecessary trips is believed to account for much of the 15 percent to 20 percent fall in business travel bookings that has generally been reported in 2009.
A comment from a global travel manager in a white paper published recently by the payment services company AirPlus International exemplified the new thinking. “You have to ask the question: has all travel activity in the past been necessary, and to be honest it probably has not, or at least the number of travelers per meeting has often been higher than necessary,” the travel manager said. “I am absolutely convinced that we will not see trips per employee return to previous levels.”
But perhaps there is an opposing danger: might companies cut back so far that they start to eliminate necessary trips? This has particularly been a concern in the United States, where politicians and the media have sometimes portrayed business travel as an extravagant luxury.
Studies on the ROI of business travel
In response, two U.S.-based travel industry groups, the National Business Travel Association (NBTA) and the U.S. Travel Association (USTA), have separately commissioned research to establish the ROI of business travel. Both used econometric measurements to analyze relationships between travel spend, overall business expenditure, revenue and profitability. One of the studies also interviewed companies about their perceptions of the value of travel.
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Study 1 – Oxford Economics (for USTA)
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Study 2 – IHS Global Insight (for NBTA) Summary of conclusions:
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How valid are these studies?
Torsten Kriedt, vice president, Innovation & Intelligence for Advito, the consulting division of BCD Travel, welcomes the studies for boosting the positive perception of corporate travel. He is also pleased they introduce more strategic metrics for travel management and encourage the consideration of a business case for traveling as a matter of routine.
However, he also has misgivings, including whether it truly is possible to prove a precise ROI. “Where is the cause and where is the effect?” he asks. Statistical tests are not sufficient to explain the link. “Does business grow because the company travels more, or does the company travel more because the business grows?”
Another problem is the practical application. The figures may be correct on an industry-wide level, but it is hard to see how they will help individual companies establish their own travel ROI. Kriedt cites the figures on optimum levels of travel as an example. “It is impossible to know which business trip causes the optimum to be reached,” he says.
Kriedt also suggests that it is more plausible to compare the number of trips needed to achieve business goals rather than the cost of them. “After all”, he says, “the core value of a sales trip derives from visiting clients and not only on how much money was spent.”
However, he does think that measuring travel expenditure as a proportion of incremental corporate revenue (i.e. “monetary travel intensity”) has some merit. “It is useful as a rough indicator of where a company stands in relation to its peers,” Kriedt says. “If other companies in the same industry sector are spending 2 percent and you are only spending 1 percent, it may suggest that instead of simply being frugal, you are under-investing. Before the world recession the focus of the analysis was on identifying if you are over-spending”
Conclusion – common-sense ROI evaluation
One principle which Kriedt firmly recommends is taking more time to evaluate the likely benefit of a trip before booking it – even if a formal ROI methodology cannot be used.
Some ways to do this include:
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Confer with a manager
“For me, the best way [to decide whether a trip is worth taking] is the old-fashioned one, which is for an employee to speak to their superior,” says another travel manager in the AirPlus white paper. This may sound simplistic and obvious, but Kriedt sees many companies which do not even carry out as basic a pre-trip assessment as this. -
Set policy guidelines
Tell travelers in the company policy that they must justify the trip to themselves and be ready to justify it to their bosses. Set out examples of where travel does and does not make sense. -
Work your meetings harder
Advito has a client which forbids employees to attend meetings unless a formal agenda is prepared and a commitment is made to agreeing and following up on action points. -
Make a cost-benefit analysis
Procurement personnel at another Advito client carry out a high-level cost-benefit analysis of every potential trip to meet suppliers. They only travel if they forecast the trip cost will be exceeded by additional discounts gained from meeting face to face.