Op-Ed: Sourcing Must Not Undermine Business Mission

Travel management in many companies has moved across the corporate organizational chart from services to purchasing over the past five years. This shift has been largely due to the focus on strategic sourcing. As a purchasing practice, strategic sourcing seeks to attain the lowest cost through competitive pricing, choice of products or alternative distribution channels. The emphasis on sourcing has been due in large measure to reductions in revenue due to the undeclared deflation of the past few years. This has required many companies seek to drive down the cost of all goods and services.

While strategic sourcing may seem to be the best fit for travel management today, that wasn't always the case. Understanding travel management's past enables us to foresee its future.

Companies created travel management departments to solve travelers' problems in the wild days following air deregulation. Chief among their responsibilities was the management of rebates from travel agent commissions. Although rebates essentially moved a company's money from one pocket to another, travel was regarded as a "profit center." Service was the primary mission of travel management because it was the one aspect that travel managers could control. As a service organization, travel management reported to human resources, corporate services or facility management departments.

Fee-based pricing replaced rebates with the cuts to agent commissions, beginning in the mid-1990s. With the loss of rebates, travel management was transformed over night from a "profit center" to a "cost center." The bundled approach of in-house travel departments was disentangled, separating the operational, contractual and financial components of travel management. Most companies outsourced travel management services to their agents and the contractual aspects of travel purchasing were repositioned within the company.

Travel managers focused on core travel management competencies: travel policies, information management and supplier negotiations. As the effectiveness of travel polices took hold, airline, hotel and car rental suppliers accepted that companies could indeed direct the purchasing decisions of their travelers. Suppliers introduced corporate contracts in the early '90s and travel management caught the attention of purchasing departments. Travel appeared to meet all of the criteria for strategic sourcing: concentrated suppliers, global spend, consolidated information and proven purchasing polices. Although many travel managers had to educate their new supervisors, it was successfully argued that the large travel spend required skilled purchasing management.

Greater control of the purchasing decision and better information allowed carriers to provide the first corporate discounts. Travel managers were able to measure the savings of their travel policies and identify travelers outside of policy. Company command and control efforts proved that the majority of corporations could affect the purchasing decision and reward as well as deprive travel suppliers of revenue.

Yet, recent changes raise questions about the appropriateness of travel management's placement within strategic sourcing.

First, strategic sourcing relies upon measures of performance, such as year-over-year cost reduction. In recent years, when costs were being driven down, travel management's performance was exemplary. However, what will happen when cost trends reverse and carriers pass on increased costs to their customers? This trend will become most apparent in 2007. Travel managers need to prepare senior management that the year-over-year cost savings trends may reverse.

Second, since the advent of terrorism, travel management has assumed a new and very important role of risk management and traveler security. Travel managers are now responsible for knowing the whereabouts of their travelers, as well as how to travel safely and securely. This new responsibility requires travel managers to work with security inside and outside the company.

Third, travel managers are still very much responsible for securing the best fit of travel management services to the business mission—not just securing the lowest price. An international business class seat can cost three times more than its coach equivalent but it may be a sound investment in a traveler's ability to complete the business mission once they reach their destination.

A commodity approach to travel management may slight the importance of value, security and business mission. In other words, travel managers are responsible for more than price, they are responsible for value.

Travel management supports a company's core business. Similar to the IT function, corporations are starting to recognize that there must be a balance between cost and requirements of the business mission. In addition to purchasing, travel needs to encompass competencies including risk management, security, disaster recovery, data consolidation, information management and other forms of transportation, such as chartered air services.

The expanded mission of travel management will affect the internal position of this function. Any department assigned the travel management function must also recognize its expanded role in supporting the business mission, security, employee motivation and value.

Is there a future for corporate travel management after strategic sourcing? The answer is a definite yes. The challenge for corporate travel managers will be to broaden their value proposition beyond the "cost factor." It is a future with an expanded role that includes all of travel management's responsibilities to the individual traveler and the company.

Prism Group President Michael Whitesage.