Michael Hall
Measuring travel expenses as a basis points percentage of total company revenues is not a new concept, but an American Express Business Travel executive in November told The Beathe was urging clients to use the metric. It's a formula that CFOs and consultants frequently use to compare expense management across divisions or businesses. The Transnationalrecently spoke with Johnson Controls corporate travel manager Michael Hall about his take on the indicator, as well as his experience with the integration of his company's travel management company, Navigant International, into Carlson Wagonlit Travel. An excerpt of the conversation follows.
Where did this basis points measurement concept come from for Johnson Controls?
When I came in, it was a measurement that we used on a companywide basis, but it wasn't really looked at. It was a metric on some reports I had seen. I have also heard various airline reps use it just as a way of saying, "If this is your total sales, then this is what we anticipate your total travel to be and this is what we anticipate for airline travel." What they normally come up with is 100 points, but the variance is huge. I divided it out into each division to see what they were, and because we have fairly diverse types of industries--some more manufacturing focused and others more service focused--there were vast differences. It was just a matter of measuring those over the years as they went down. If you have a sales increase in one division of, say, 15 percent, and you're anticipating budget increases for air, car and hotel of an average of 8 percent, you potentially have a 23 percent compound increase in travel. The idea is to try to manage the growth in travel proportionally to the growth in sales to make sure it doesn't do that. So really, it's just a matter of making sure travel does more for the company. The lowest division we currently have is about 33 basis points [that is, the travel expense equals 0.33 percent of revenue], and eight years ago it was about 65 points. That same division in Europe is currently at 42 points, from like 70 to 75 points. One division we purchased recently was around 130, and I would imagine a consulting company has to be 200 or 300. It's not a matter of what's right or wrong, just of increasing the visibility and saying, "If we're at 33 this year, let's try to get to 32 or 31."
Amex's Charles Petruccelli suggested that one could pick a comfortable number and stick to it by cutting or adding travel spend as revenues fall or grow. Are you saying it's something you would always want to manage downward?
Say your company is 100 people. My guess is that travel would have a greater impact on the bottom line than at a company of 1,000 people. If you grow a specific part of the business, you can become more efficient in terms of everything, including travel. That one division's 33 is pretty low, but to be honest, that division thinks they can go lower.
That would of course drop further if you factored in video-conferencing or travel avoidance, right?
It's all about travel avoidance and asking "What percentage of the budget is going to this kind of travel as opposed to that." That's where you can compare division over division. If you have a strong service-oriented business unit that is maybe at 80 points, and a manufacturing division at 35 points, they are difficult to compare. But if can compare the breakout of what their travel is for--does one have 80 percent of travel for internal meetings versus 30 percent at the other--then you can question whether a division is doing too much internal travel.
How about trying to incorporate the purpose of trip in your planning and policies?
Petruccelli was getting to the fact that travel is an investment in business. I don't know how closely you can tie it to a certain business. Right down to the specific customer, maybe you can say, "If we increase our travel for this sales division, you can see a return or an increase in sales." But most travel is not directly related to the customer, so I don't know how you relate it back. But I do think you can start benchmarking from company to company--how much is spent on education, conferences, that kind of thing. My guess is you would find that across a certain line of business, 25 percent of travel is directly sales related while in another line of business maybe 40 percent is directly related, and then you can start measuring that as an investment. It varies from one division to the next. The manufacturing-heavy part of the business is the one with 33 points. There is not a huge amount of travel from headquarters down to the plants. This year we've made a decision to have our Mexican operations more independent, which drove down travel between Mexico and the U.S.
Your company was one of Navigant International's biggest clients. How did the Carlson Wagonlit Travel acquisitionimpact you?
As a company, we are in 70 countries, but we have travel consolidated in about 15. We were a very decentralized company and now we're more centralized. With any takeover you face a little consternation, but the Carlson purchase of Navigant was actually a good thing for Johnson Controls. We had CWT in one country and a company we just purchased had CWT in five countries. At the time, we were meant to be ramping up for implementation anyway in other countries. Navigant was very strong in the U.S., but not so much outside the U.S. CWT is strong outside the U.S., and the timing was very good for us. You have the normal issues with any transition. CWT is more of a structured company and Navigant was a flat organization, which I liked, so you have to adjust to the new culture. But overall, it's been good for us. As a result, we were able to move more quickly with our implementation of global management. We're looking at China, Dubai and Africa right now. There are about six countries on the immediate agenda. We have lined up nations based on our volumes, and obviously China is growing very rapidly. South Africa also is growing very fast.