Op-Ed: KPIs: Making The Most Of TMC Metrics

Key performance indicators, the metrics for assessing the performance of a travel management company, are a crucial part of most travel management services agreements. To have their intended effect, KPIs must be developed carefully, with input from both the corporate client and the travel management company, informed by an understanding of client goals and agency resources.

To encourage excellence or, at a minimum, discourage mediocrity, KPIs must be crafted with sensitivity to the circumstances of each engagement. In suggesting KPIs, clients should be mindful of problems to eradicate from its managed travel program and changes to the program to be wrought in the future. The travel management company must ensure that the standards to which it will be held are consistent with the resources it can devote to servicing the client. A travel management company probably should not agree to an aggressive average handling time per call if the majority of bookings for a particular corporate client involve complex international itineraries, with visa requirements and related concerns.

Not only should care be taken in selecting KPIs, but also in weighting them. The parties may, for example, decide that the customer satisfaction survey is twice as important as agent proficiency in gauging the overall performance of the travel management company.Thus, on a KPI scale ranging from zero to 100, 30 points may be allocated to the customer satisfaction survey and 15 to agent proficiency.

The linchpin to any incentive-based compensation program is the correlation between KPI score and travel management company compensation. Clients tend to focus on the KPI score that will entitle the travel management company to additional compensation and the achievability of that score. Equally important, however, is the extent to which service can deteriorate without resulting in a reduction in compensation. In other words, is the incentive compensation program too tolerant of mediocrity?

Another caveat in devising an incentive compensation program involves the use of an "all-or-nothing" approach. That approach awards the maximum incentive or imposes the maximum penalty if the travel management company's overall KPI score is above or below a certain threshold; degrees of good or bad performance are not recognized. In contrast, a tiered approach provides graduated incentives or penalties, so that the travel management company has a chance to qualify for a portion of the maximum incentive or to reduce the sting of any penalty to be assessed. The danger of the all-or-nothing approach is that it can result in resigned, uninspired service, if the travel management company realizes at a certain point in time (e.g., after the third of fourth annual customer satisfaction surveys) that it cannot qualify for the incentive. In that case, the travel management company's focus is likely to shift from striving for excellence to avoiding penalties, with a concomitant decline in service.

Laurence Smith is a corporate travel advisor and attorney with Wolff & Samson in West Orange, N.J.