IBM Turns Pains Into Gains: Transforming Travel Delivers Savings And Revenues - Business Travel News

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IBM Turns Pains Into Gains: Transforming Travel Delivers Savings And Revenues

July 07, 2009 - 05:34 AM ET

By Mary Ann McNulty

IBM by next year expects to further advance its travel procurement and management program to be "integrated from end to end." The vision is to integrate traveler bookings made online or via mobile devices, telephone or offline call centers with its automated fulfillment and back-office accounting system. The integration also is to extend to direct connections with preferred vendors; settlement via credit card, direct settlement and ARC; and its expense management system.

Reticent to detail more on that just now, IBM executives point to the model as the next phase of its travel management transformation, part of an enterprise overhaul of procurement and most other business processes begun in the early 1990s. Based on its own success, IBM turned the lessons learned into a business model. Travel procurement and management, along with expense reporting, auditing and processing, are among the business process outsourcing services that IBM offers to other companies and continues to manage for itself.

In a presentation at the National Business Travel Association-Institute of Supply Management Summit on Travel in January and during follow-up interviews, IBM execs highlighted how the procurement transformation has created and enhanced internal efficiencies that are continuously refined.

Historical Perspective

"Unlike today with our record growth, we were in a bad state" in 1993 as sales and profits declined, IBM global procurement vice president, general and BTO sourcing Bob Murphy told the NBTA-ISM summit. "Maverick buying was rampant, processes were paper intensive, our organization was decentralized, and our technology was a patchwork of legacy systems that didn't talk to one another. Our people were generalists. Procurement 10 to 15 years ago was where we put those who couldn't do anything else. Now, procurement is where we put our top people."

SNAPSHOT

Organization:: Armonk, N.Y.-based IBM, with 398,455 employees worldwide and 2008 revenues of $103.6 billion, of which 57 percent were from services

Volume:: Manage $2.7 billion in travel spending, including client volume plus $2.2 billion for IBM's own 330,000 global travelers

Challenge:: Transform the decentralized, fragmented, unmanaged, non-leveraged travel program as part of a major procurement re-engineering initiative begun in the early 1990s

Approach:: Focus on three towers of travel process: travel sourcing and management, travel reservations and expense reporting

Solution:: Consolidate to a single global travel agency, corporate card, travel policy and expense reimbursement system; develop standardized reporting, procurement processes and contracts; develop and manage long-term supplier relationships; eliminate more than $1 billion from travel program; and turn the transformation into a service to sell to other companies

Within travel procurement in the early 1990s, travel contracts were executed and managed by employees in each country, according to Hobbs DeWitt, IBM global sourcing and strategy manager. As a result, IBM had 67 travel agencies and 45 corporate card contracts.

As part of a global procurement strategy for travel, IBM in the '90s consolidated to one agency, corporate card and policy for its 330,000 travelers. It established a global travel commodity council and leveraged its air, hotel and car spend. IBM consolidated reporting, developed long-term supplier relationships, standardized contracts globally, and developed and implemented a single reimbursement system. With that system, it "reduced travel expense receipt handling and storage costs in the U.S. by over 72 percent," DeWitt said. More than 300 people had previously processed expense reports in 180 locations, IBM said. Across travel, he said, IBM has "looked at over $1 billion in cost take-out since we started."

IBM during the past decade scrutinized its management of travel policy, strategic sourcing, supplier relationships, operations, corporate card, travel communications, travel data reporting, compliance, travel program optimization and most recently meetings and events, searching for ways to "streamline and drive efficiencies," DeWitt said.

On meetings and events, the team looked at return on investment. "Every event had to have ROI, or we didn't do it," DeWitt said. Equipped with data about its meetings and events, the team studied the sourcing and booking process, statements of work and contracting, suppliers and payment. Then it sought ways to streamline it all, opting to use a third-party technology.

Data Is Key

"We recognized early on that we didn't have data. Data is now captured through expense reporting and helps us on the front end and in all of our negotiations and strategic sourcing," DeWitt said.

Metrics can tell "you if you're getting better," Murphy said. "We have a maniacal focus on metrics at IBM. Cost savings for a procurement organization is key. But if you're acting as though that is your only job, then you're failing. Our job is to find value for the company and our suppliers."

Sourcing councils were established for a variety of direct and indirect spending categories, including travel. Today, each council develops monthly outlooks on cost reductions that are interlocked with IBM's financial plans, Murphy said.

The company benchmarked and researched procurement effectiveness at other companies and across industries to identify the challenges. Among the "inhibitors of procurement success," according to Murphy, are lack of visibility to spend; inability to leverage; lack of a sustained and verifiable competitive advantage; and inconsistent, fragmented, business-unit or country-specific processes. But most important, Murphy said, is the "need to engage the CEO or CFO to an environment where procurement is welcome at the table. That buy-in by the company is one of the key issues for anyone to be successful."

Along the way, IBM garnered inquiries from companies interested in similar results. By 1998, United Technologies hired IBM to help with its procurement. A decade later, Murphy said more than 20 enterprises had "leveraged our procurement investment," including Coca-Cola, Hitachi and Yale. IBM didn't identify which clients used its travel BPO services, though Unilever and Procter & Gamble have acknowledged they did.

While IBM spends about $2.2 billion on travel annually--or about $8.5 million per business day--its procurement team is responsible for $2.7 billion worth of travel that includes the expenditures of its outsourcing clients, DeWitt said.

"The key thing is the technology base. When we have receipts captured through scan or fax and that image is fully integrated into the expense report, we can leverage the delivery centers around the world. This is the future of end-to-end expense reporting. Then you've got economies of scale."

Raymond Curatolo, IBM Global Expense Report Solutions director

Travel BPO runs the gamut from strategic sourcing and supplier relationship management performed by the IBM travel sourcing council to such managed operations as online booking and expense and compliance reporting.

IBM licenses its internally developed Global Expense Report Solutions, which by month-end will be integrated with its GetThere online booking tool to provide an end-to-end travel solution to external customers with "increased visibility" into booked versus expensed data.

"We have a BPO model for GERS where we will provide the system in a hosted environment around the world for a client," said Ray Curatolo, IBM GERS director. "The key thing is the technology base. When we have receipts captured through scan or fax and that image is fully integrated into the expense report, we can leverage the delivery centers around the world. This is the future of end-to-end expense reporting. Then you've got economies of scale," he said of companies that outsourced such administrative functions to IBM's competency centers in India, Philippines, Poland and elsewhere.

Some companies even ask IBM to support their "current expense report process--which might be an internal system or process," Curatolo said. "We will still support their back-office processing in expense management. Where we're looking to go is to leverage our asset portfolio, with GERS being one of the assets, to get people onto a common platform."

"As important as sourcing and procurement are, it's the complete transformation of the spend process that we encourage our clients to focus on," said Harriet Washburn, global strategy and sourcing manager within IBM's business travel transformation business. "We are certainly proponents of GERS, but we look at others in the event that there's a different solution that might work on behalf of a company."

Travel outsourcing contracts are typically part of broader, multiyear outsourcing engagements for indirect procurement, human resources, finance or other business functions. "But travel is often a key component because it's such a large spend" for most corporations, Washburn said. For example, P&G in 2003 signed a 10-year HR outsourcing contract valued at $400 million with IBM. As part of that contract, IBM helped P&G consolidate to a single agency and operates both travel and expense management.

"After a slower time than we would have wished, it's starting to spark," Washburn said of domestic and increasingly international interest in the travel BPO model. "The economic downturn has prompted a lot of clients and prospects to evaluate if they should be focusing on their core business or opportunities to work with a company like IBM that has been successful at procurement, has extensive relationships and deep-seated procurement tenants that have proven their value."

What aspects of outsourcing most resonate with corporations? "They want us to look at their successes in procurement and sourcing, and see if we can drive and deliver lowest costs in key categories," Washburn said. "They're expanding beyond air, car and hotel to areas such as black car, value-added taxes, fleet and car leasing. We're also working aggressively on what I would call transformation--demand management, policy redesign, things that have become the new normal--moving down segments in hotels or classes of service. It's a transformational end-to-end concept."

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