Procurement Practices 2009: Outsourcing Levels Holding Steady

Balancing the need for an in-house travel management staff to help guide a comprehensive strategy with the temptation to limit costs by outsourcing some or all of a corporate travel program is tricky in the best of economic times. When a recession pushes increasingly desperate corporations to slash operational costs far beyond any recent precedent and tighten the management and procurement of corporate travel, the equilibrium becomes that much more difficult to maintain.

Though the specter of travel management layoffs has become all too real for many professionals in 2009, job losses have not yet translated into significant increases in travel outsourcing levels, according to Business Travel News' Procurement Practices survey. Only 12 percent of respondents said their companies are outsourcing more travel services than they were 12 months ago, actually outpaced by the 16 percent who said that level has declined.

Possibly, deep cutbacks in travel volume have left corporations with fewer big-ticket initiatives to outsource, holding outsourcing levels steady.

"When a company's losing money, they can't spend a lot of money on major travel management initiatives," said Yasuo Sonoda, founder of the Sonoda Travel Management Solutions consulting firm and a former corporate travel manager with Spansion, Business Objects and Macromedia. Sonoda cited the deployment of integrated online booking and expense reporting tools as an example. "The funding for that is all dried up."

However, interest in involving third parties in travel procurement efforts is on the rise. About 46 percent of respondents said they currently use a third party for such efforts, far higher than the 31 percent who said so last year. Those who said they had no plans to do so dropped from 60 percent of respondents in 2008 to less than half this year.

The figures illustrate an approach that some travel managers and third parties said currently governs travel outsourcing theory: Manage the strategy in-house, but outsource tactical operations.

"We are trying to do a lot of things globally with no people, so we need some people to help us with those tactical exercises," said Merck & Co. global sourcing manager of card and travel Cynthia Teufel. "We're not outsourcing strategy. That's what we do best. The tactics of sending out a request for proposals, that can be outsourced."

The survey results show that Teufel is not alone. In two of the three supplier categories BTN collected data in both 2008 and 2009, far more respondents this year said they are using a third party to help source travel: 65 percent of respondents said they do so for hotel sourcing, compared with 45 percent in 2008, and 51 percent said they use a third party to assist in car rental sourcing in contrast to 31 percent who said they did so last year.

"We've seen more outsourcing of various pieces," said American Express Global Advisory Services vice president Frank Schnur. "Our business grew at a healthy rate in 2008 and that continues into 2009. Companies are looking to, in some cases, own the strategy and outsource the tactics."

Schnur added that other companies are happy to outsource the strategy, too, looking to third parties for approaches concerning demand and change management, communication, policy construction and compliance.

Many companies that have announced cutbacks seek "improved data around the budgeting process," Schnur said, to support "precise and intelligent cuts. Initially, management might announce a 20 percent cut." He added, "Then, though, they'll go to the travel department and ask how to do that, which is to ask, 'Can you tell me why we're traveling,' and the best companies will have the infrastructure to support that, but a lot are struggling with that question."

Developing such an infrastructure and securing that data, Schnur said, should be a primary goal of outsourcing strategy. "There is data out there, from pre-trip to online booking to expense reporting, that can provide insight. Senior management should be asking for this level of data, and it's a way for travel professionals to add value at a critical time."

Some travel managers, however, are finding it difficult to secure management support for allocating the expenditure necessary to develop an extensive outsourcing strategy. "The return on investment that you have to present to bring in a consultant or to outsource something has to be stronger than ever," said Ernst & Young manager of procurement operations Susan O'Rourke.

Nevertheless, 7 percent of survey respondents said they outsource all corporate travel management functions, a figure dwarfed by the 30 percent who outsource nothing, and the remainder who pick their spots, predominately travel management company call center and ticket processing operations, as well as online booking tool deployment and administration.

Within the past few years, several Corporate Travel 100 companies have at least studied, and in some cases radically changed, their approach to travel management outsourcing.

In one example, part of a companywide overhaul of its meetings management process, management and technology consulting firm Accenture last year centralized meetings under its travel and events department and outsourced the U.S. events team to American Express. Nearly half of all survey respondents said they use a third party to assist in meetings sourcing.

On the other hand, Procter & Gamble last summer moved back in-house the travel functions—save for expense management—it for several years had outsourced to IBM. Intel, meanwhile, studied outsourcing travel procurement last year, but global strategic sourcing mobility manager Megan Stowe, BTN's 2008 International Travel Manager of the Year, opted against it.

"We concluded there was no correct fit at this stage," she said. "The true outsourcing companies that presented to us were too small and inexperienced to handle a company of our size." However, the potential to consolidate spend with other corporate customers and assure continuity of expertise led Stowe to keep the possibility open.

Most companies are in the same boat. As the economy struggles and cost-cutting solutions that once seemed radical to corporations appear increasingly reasonable, the role of third parties and in-house corporate travel and procurement departments in sourcing, implementing key initiatives and developing strategy will continue to evolve, in some cases very quickly.

"Travel management is so much about strategy and continuous enhancement. You can outsource tactical stuff to the travel management company, but they can't do all of it," Sonoda said. "It's a hot topic in procurement itself to try to outsource the whole thing, and you can outsource to India the day-in, day-out material supply issues, but travel procurement is so much more. I mean, it's difficult to switch a preferred airline. You can't outsource that, because it needs constant internal communication to assess top business traveler feedback. Companies try all the time, and they fail."