As the effects of the Great Recession linger, travel
managers are under the budgeting gun to ensure their program is bringing value
to their organization. With the complexity of today’s typical travel program,
that’s not an easy thing to do.
Just about every travel manager uses measurement in planning
for and making decisions about various program components and initiatives. Just
because a travel manager is using data, however, doesn’t necessarily mean he or
she is looking at the right information to help make the right business
decisions.
That’s where strategic key performance indicators come in.
Strategic KPIs measure how well a travel program is meeting core strategic
corporate goals such as cost containment, sustainability, process efficiency or
revenue generation.
Measurements that are tactical in nature—such as missed
savings opportunities or average daily hotel rates in the company’s top 10
cities—are important from a pure travel management perspective but are not
sufficient indicators of program effectiveness. While the importance of
tactical KPIs should not be discounted, they’re often loaded with jargon and
too granular to tell the whole story. If we want the business to understand a
managed travel program’s value, we have to use metrics that speak to business
unit leaders rather than expect them to learn “our” language.
To take a simple example, determining a discount against a
published airfare achieved in a negotiation is a useful tactical KPI. However,
if that discount would be taken off the most expensive fare category, then the
price reduction would be a misleading indicator of a program’s overall air
spending.
We typically recommend a small set of eight to 12 strategic
KPIs to gauge the overall health and effectiveness of a travel program, and determine
the program’s success in meeting or supporting the company’s overall
objectives. Strategic KPIs then will allow the travel manager to work smartly
and quickly with senior management to make appropriate decisions to meet
corporate needs.
Getting back to our example, the tactical discount KPI needs
to contribute to a more complex, strategic savings key performance indicator in
order to enable fuller understanding—and action.
There are six key steps to building an effective strategic
key performance indicator program.
Step 1: Take It
Seriously
As with any worthwhile corporate project, a strategic key
performance indicator program cannot be built in an afternoon or copied and pasted
from another company. It takes time and effort, a significant level of
stakeholder participation and an appetite for sweating data at a more effective
level. Companies lacking a well-defined travel policy and reliable data sources
are likely to find this task beyond them. Those with a mature program, however,
should find it relatively easy to create strategic KPIs.
Step 2: Map Out Your
Corporate Strategic Goals
Create a list of your company’s core strategic goals. Use
the officially stated goals (e.g., as per your annual report) but also include
emerging topics that might turn into strategic companywide initiatives soon.
For instance, sustainability or corporate social responsibility might not yet
be a formalized goal, but could be a hot topic at board meetings.
Step 3: Link Travel
Program Goals To Strategic Goals
Moving ahead with the simple list above, we could envision
the following connections:
Cost containment: e.g., a reduction in travel operating
expenses. Travel program goals: savings/cost avoidance, demand management,
procurement
Sustainability: e.g., reduction in CO2 emissions. Travel
program goals: sustainability, demand management
Duty of care: e.g., ensuring employee well-being. Travel
program goals: ensuring traveler security, safety and well-being
Governance/compliance: e.g., Sarbanes-Oxley compliance.
Travel program goal: travel policy compliance
Step 4: Define The
Appropriate KPIs To Measure Your Progress
Once you understand how your travel program goals relate to
your corporate goals, you can create strategic KPIs to measure how well you are
performing in achieving each of them. Make an inventory of relevant metrics you
already use as part of managing the program on a day-to-day basis and identify
gaps.
While the strategic KPIs will be used for purposes such as
executive scorecard reviews, the tactical KPIs build up more of the granular
insight a travel manager needs for day-to-day control and quick performance
dashboards.
Step 5: Identify
Master Data Sources
Even the best-defined and most carefully considered KPIs are
useless if they cannot be supported by quality data. Most corporations use a
variety of data sources to manage travel spending—all with a different scope,
level of detail and reliability.
While consolidated data is the “holy grail” for the purpose
of tracking KPIs, it is initially just as important to identify which data
point in the formula for each KPI should come from which data source. Be
prepared to look in some unfamiliar areas for data sources. For example, one of
Advito’s clients worked with its facilities management department to obtain
data on videoconferencing for its demand-management KPIs.
Step 6: Track And Act
On The Data
Use your data to establish a baseline; work with
stakeholders to establish a target or target range against which progress will
be measured. Recall that variance from a target range can be noteworthy: If
your KPIs track within a consistent percentage range either across time or
across different business units, then a sudden move outside that range can
effectively raise a red flag.
Crucial to making data actionable is the effort to make it
quickly and easily understandable, both purely visually and in the context of
overall company expectations or precedents for data representation.
Meaningful Savings Measurements
Since cost control is a central strategic goal for many
companies, it is very likely that some of their strategic travel KPIs relate to
cost, but how can a travel manager measure savings meaningfully? For example:
- Is it useful to compare average ticket price this year
against average ticket price last year, when the difference between the two may
be caused by external rather than internal factors?
- Should savings be measured on the level of discount
negotiated? Since it is easier to negotiate a large discount on an expensive
fare class than a cheaper one, this measurement may not be helpful either.
Using indices to understand savings in a relevant real-world
context can solve the problem. Travel managers should evaluate savings by means
other than supplier negotiations. Examples include:
- Behavioral savings: equipping travelers with tools and
motivation to “do the right thing” and be “better than policy”
- Demand management: such as using videoconferencing coupled
with a change in meeting culture.
Travel does not exist in its own bubble. It’s a vital
function that ensures a company seeks new markets and customers and develops
new products. At the same time, the costs generated by travel affect
profitability significantly. Therefore, it is important to find accurate ways
of measuring those costs and monitor how successfully they are being contained.
It’s also worth mentioning that no company can measure its
progress purely in financial terms. In addition to compliance, issues like
sustainability and duty of care are also at the forefront of corporate
boardroom agendas. Each of these issues affects travel, and there are strategic
key performance indicators to measure all of them.
This report appeared in the Oct. 11, 2010, edition of Business Travel
News.