Agencies Reconsider R&D Decisions

Many travel management companies are changing technology product development plans, reallocating resources and, in some cases, holding research and development budgets flat because of economic pressures and changing corporate travel buyer priorities.

R&D spending often is grouped with marketing and travel as among the first costs targeted when business slows. In doing so, agencies are reevaluating development practices and considering outsourcing or partnering on some projects.

In the past several years, many of the larger agencies opted for in-house development to differentiate themselves through ownership of their own technologies. With lower corporate travel spending, however, some travel management companies are rethinking this strategy.

Travelport GDS group vice president and head of products and services Neal Sunners said that in the past nine months some TMCs that invested heavily in proprietary platforms opted for a partnership strategy to lower implementation, programming and maintenance costs. "They became quite aware of how complex that is and how much money that it consumes," he said. "TMCs are looking at the cost of their operations and have given themselves aggressive targets to optimize that cost. A very significant part of that cost is their overall IT infrastructure."

Broadly, non-technology companies spend on average 2 percent to 3 percent of annual revenues on research and development, said sources including IT research companies. TMCs spend more in the range of 5 percent to 6 percent, said Amadeus Americas executive vice president and IBM veteran Dwayne Ingram, who also said TMC IT budgets remain flat or are being cut by up to 3 percent.

"We are definitely seeing a reduction overall in what they spend on IT and what they spend on just about everything," said Ingram, who added that a lot of the "do-it-yourself projects" are on hold.

A survey of 1,527 chief information officers representing $138 billion in corporate and public-sector IT spending released last month by information technology research and advisory company Gartner showed 2009 IT budgets would increase just 0.16 percent from 2008.

Even with a broad pull- back on IT budget increases, TMC executives said they still are devoted to developing core travel management technologies and are funneling some R&D funds from other IT projects to support them.

"Overall spending has decreased, but the key projects haven't stopped. In some cases, they've increased focus on what is core to differentiating their business," Ingram said.

American Express Business Travel's year-over-year technology investment dollars increased even though company executives planned to reduce technology spending overall.

Amex's previous internal technology investments in efficiency and workflow process improvements enabled part of the 2009 new business travel product investment, said American Express Business Travel senior vice president of global marketing and product management Lisa Durocher.

"Amex spent a lot of time on restructuring and globalizing internal systems," which took a lot of cost out of the business, she said. "During that time, we spent a lot less on external innovation that customers see us delivering."

In Durocher's two-and-a-half years with Amex, her product marketing and innovation division has grown from a group of 30 to 100, with the budget split evenly between internal-build and partnership-development programs, she said.

BCD Travel for several years developed proprietary technology and plans to proceed with its scheduled 2009 R&D budget with dedicated manpower remaining consistent, said executive vice president of global business solutions, sales and marketing Louise Miller.

Within the BCD budget plans, projects related to its Web-based portal, telephony and reporting system developments are receiving the same funding levels as last year, while such areas as traveler-experience technologies may see less resources. Client needs and market maturity, not economic constraints, are driving those changes, according to Miller.

BCD also altered its development practices and migrated to a common product life cycle methodology in June, when April Bridgeman took over as the senior vice president of emerging technology solutions and application development.

"It's all about speed to market and if we will build it, buy it or partner," according to Miller.

In the past few years, the corporate travel industry experienced a barrage of new product releases from agencies of all sizes. Some products focused on such core travel management functions as compliance, reporting and data consolidation. Other innovations, including the introduction of social networking and interactive itineraries, are less on the minds of travel managers these days as their own budgets are being pinched and they require more efficient technologies to help manage their programs.

"Customers are willing to pay for things, but we have to demonstrate the value of what it is they are getting, whether it's a cost savings or if it improves the travel process," according to HRG North America executive vice president of technology Ted Brooks. "It's a different climate than it was before. They are buying carefully."

HRG is sticking with its development road map and rollout schedule for its Universal Super Platform technology portfolio, most of which is internally developed, but is accelerating building internal technology for process improvements, said Brooks, noting his R&D budget for 2009 is consistent with 2008.

The reprioritization of some TMC development efforts and investment toward everyday travel management technology could bring the innovations buyers are looking for to help them globalize, provide better reporting and increase compliance.

Some technology innovations may carry a double-edged sword by saving costs in some areas, but limiting revenues in others. "They are now only getting a couple of bucks for an online transaction, whereas when it first came out you were getting eight to 10 bucks," said Steve Reynolds, a former TRX executive and now managing director of North America for business process outsourcing company WNS. "There is just not enough money to keep funding these things, pushing them along and rewriting them," he said. "The revenue flow because of the recession and the pricing has gone way down."

In other industries and in corporate travel, core innovation often comes during economic turbulence where "there has always been some innovation because of the general need to do more with less," said Ultramar Travel Management chairman and CEO Peter Klebanow, who is increasing his technology budget. "Technology is an area where people will continue to invest just to be able to achieve the productivity gains that are required to work under these tougher circumstances."

While some TMCs have retrenched their technology spending, they still plan to roll out new products this year, hoping for an economic rebound.

"Innovation is part of our mission," said Short's Travel Management president and CEO David LeCompte. "If we are not continuing to be innovative, in my mind, we are not going to survive."