Outsourcing is a dirty word. It raises thoughts about
offshoring and cutting jobs. These connotations probably are somewhat deserved,
since labor savings often is part of the model. But that's only part of a
proposition in which external providers can bring more resources to bear in
travel purchasing initiatives than businesses typically possess themselves.
It is partly due to the controversial nature of what they
offer that travel procurement outsourcing providers traditionally shied away
from media attention. In March, however, Procurian officials contacted Travel Procurement to publicize that the
firm had just surpassed the $1 billion mark on total client travel and
entertainment spending under management. The firm's main rivals, Accenture and
IBM, also granted interviews.
What the discussions revealed was a group of people, many of
them former corporate travel buyers, keenly aware of the negative connotations
and highly sensitive to misunderstandings among travel management professionals
about what they do—yet also fiercely proud of their capabilities and their
growth.
According to a forthcoming procurement outsourcing report by
analysts at Everest Group, the procurement outsourcing market as measured by
annual contract value grew by 10 percent to 15 percent in 2012, after 15
percent growth a year earlier. Service providers—led by Accenture, IBM and
Procurian, which together accounted for 70 percent of the market in 2011—as of
2012 were managing about $220 billion in client spending. Business from
midmarket accounts in 2011 grew to be comparable to that from large accounts,
Everest found.
A 2010 Procurement
Leaders/Capgemini survey of 190 senior procurement executives around the
world found that 49 percent expected outsourcing to increase, 38 percent
expected no change and only 3 percent anticipated decreased activity.
Procurement outsourcing engagements typically start at the C
level and usually involve multiple spend categories. One key benefit is that
the client can tap into the benchmarking, project management and analytical
capabilities, as well as the general human resources, of large teams of veteran
purchasing executives. Services can be turned on and off, offering flexibility
and scalability.
Procurian is part of the $167 million ICG Group and has been
in travel procurement outsourcing for about five years. More than 20 full-time
professionals from many corners of the business travel industry provide "data
collection and normalization, sourcing, implementation, policy adjustments,
compliance and commitment tracking and corrective action plans" for every
sector of corporate travel buying, according to materials provided by
officials. The company commits to long relationships—as opposed, officials say,
to consultants who typically only are project-focused—and is measured by
savings achieved in accordance with service-level agreements.
According to Dan Maschoff, global travel category director
at Accenture Procurement Solutions, "We have done everything from strategy
work for very large firms—sort of the next-generation technology in the travel
category—to organizational transformations and other strategy work, all the way
to the standard procure-to-pay process (putting together market profiles,
supplier information, client profiles and demand representations) and then
through to the actual sourcing work and then the end of contracting and
supplier management. So it's not just 'produce an RFP and release it.' "
Accenture started its procurement outsourcing work about
eight years ago. IBM's began around the same time. They are considered the "big
two" but neither provided figures for travel spend under management.
Accenture and Procurian each identified 15 percent as a
reasonable target for savings.
Perception Vs.
Reality
Notwithstanding the benefits, there are concerns about
outsourcing related to a perceived loss of control and the impact on morale.
There are questions of loyalty and dedication. Travel procurement outsourcing
officials argued that they can be trusted because they gain no benefit from
picking particular suppliers. Their incentive, they said, is aligned with the
client's as they make money as the client saves. The message on morale, though,
has been a tougher one to get across.
"The overall opinion about procurement outsourcing
reveals a positive outlook," the Procurement
Leaders research found. "More than one-third (37 percent) expressed a
positive opinion with less than half of that (18 percent) a negative opinion.
It shows that procurement outsourcing is on the right path, but still has some
way to go to establish itself in the mainstream of outsourced business
functions."
Addressing job concerns head-on, officials with the three
leading outsourcing service providers offered similar takes on what's left of
internal travel procurement once they get involved, and what it means for the
profession.
"The typical concern from a travel manager is that they
will be questioned that they're not doing as good a job as they can, and
whether we will replace them," said Howard Brooks, Procurian's global
practice leader for travel. "We do not take savings associated with
eliminating people, ever. So it's not our job to get rid of 10 meeting planners
or the travel department—that's not how we accomplish our savings. In some
cases, they have gotten rid of them and we are the travel manager. In other
cases, the travel manager still exists and we are their advisor—the person who
gives them the benchmarks and information they need to do their job."
"We have very few customers that do not have existing
travel teams," said Harriet Washburn, senior managing consultant for
integrated supply chain at IBM. "I would challenge the notion that they
don't need ongoing travel departments. I can't think of a scenario where there
is not one. And decisions relative to downsizing have typically been made long
before the decision to outsource."
"The need for a dedicated travel manager has always
been subject to the spend of that organization," said Accenture's
Maschoff. "Very low-spend companies can't have a dedicated resource. Very
large programs should always have one. In between, each company has their own
cost model they need to sort out. We're not out there to replace travel
managers' jobs. That's not the mission we have."
The officials generally said that when a travel management
professional remains at the client, he or she tends to be more tactically
focused.
"Our intent is not to pick up functions the traditional
travel manager has always done, like dealing with individual departments on
very discrete compliance challenges," said Maschoff. "We can provide
services and tools to help identify those compliance improvement opportunities,
but when it comes to dealing with individual travelers or department owners,
travel managers are very often the right resource to do that and we become a
supplement to them."
"Typically those people are engaged more in day-to-day
operations and assisting us in strategy development and supplier selection,"
said Washburn. "Also, we support them on utilization, compliance and
demand management. We do offer ongoing category management but that comprises
providing central support services—validating to be sure that contracts remain
competitive, keeping clients abreast of emerging applications, identifying
opportunities for policy adjustment, etc.
"I think this brings a level of professionalism and
expertise that buttress, if anything, the responsibilities of the traditional
travel manager," she added. "We become key trusted advisors and I can't
think but that any of our customers would speak to you in that same way. No one
would feel threatened or undermined—if anything, they now have enormous
resources available to assist them."
The team at Procurian agreed that their role often is to
support an internal travel professional. "This ought to make the travel
manager of the future look better, be able to achieve more and drive savings,"
said Allan Brown, who reports to Brooks as group category management lead.
According to global travel sourcing and category lead Mike Lynch, who also
reports to Brooks, the existing travel professional "may be doing a good
job, but they may not be doing a good job of communicating or they may not have
the audience. It's a C-level initiative, so one thing we can do in working with
them is help them to tell their story."
Not everyone buys it.
"The outsourcing of travel management goes back two
decades," said Partnership Travel Consulting president Andrew Menkes. "There
were plenty of case studies where travel management companies convinced clients
to outsource the job to them, and Accenture and IBM have done it on a grand
scale for years. The trouble is, I don't think a travel manager and outsourced
travel management can coexist for long. Is the incumbent travel manager at risk
because of this? I believe they are."
Maschoff also tapped history, but for a different
perspective: "Travel managers have always outsourced certain things. They
outsourced to internal tech departments when they needed to implement a booking
tool within the corporate portal. They outsourced to finance to reconcile ghost
cards against travel, etc. We become a similar kind of outsourced capability
and instead of it being in the procurement group, it sits over at Accenture. It's
a logical extension of what's always happened, and probably a richer function
than existed in the past."
Still, Maschoff and the others are cognizant of
sensitivities. A Procurian official said people there try not to use the word "outsourcing"
or even business process outsourcing. IBM's travel procurement outfit sits in a
group called Global Process Services. Accenture describes its offering as part
of business services.
A version of this
report appeared in the May 2013 issue of Travel
Procurement.