ACTE Gets Down To Business In Big Easy

<B> ACTE Gets Down To Business In Big Easy</B>
<I>AlliedSignal CFO Keys In On Cost</I>

By Mary Ann McNulty

<I>New Orleans</I> - Senior management support of travel cost reduction initiatives is vital--but don't forget to give business unit heads the tools they need to buy into the program, said AlliedSignal CFO Richard Wallman.

In a keynote speech before 1,100 participants at ACTE X here earlier this month, Wallman detailed the strategic battle plan that AlliedSignal deployed in its fight against rising travel costs. He and Jim Lee, director of travel and site services, developed a three-prong attack that included: developing a strong rationale that business unit managers could understand, providing tools to business units to measure their performance and help them take action, and measuring and reporting results.

The best ammunition came from comparing AlliedSignal's travel and entertainment spend to that of its peers, Wallman said. With a 1997 air volume of $72 million, the Morristown, N.J.-based company "found our T&E as a percent of sales was over 1.5 percent--which compared very unfavorably with many of our peers." Best practice companies that AlliedSignal benchmarked spent only 1.1 percent, 0.9 percent and 0.8 percent of sales on travel and entertainment.

Converting other T&E figures to the language business unit leaders could understand, Wallman and Lee noted that if the company could reduce its annual travel spend by the 20 percent the chairman wanted, it would boost operating income by $39 million, or 9 cents per share of outstanding stock. That would represent 15 percent of the company's earnings growth target, Wallman said.

AlliedSignal's quest to slash travel costs began in 1995, when travel and entertainment costs peaked at $207 million. Chairman and CEO Lawrence Bossidy asked the business units to reduce their T&E expenditures by 20 percent. They didn't, so the chairman repeated the plea in 1996. By the third quarter of that year, with T&E continuing to escalate at double-digit rate increases, the chairman turned to his CFO for help. Having learned a few techniques of T&E management while at Chrysler Corp., Wallman asked Lee to help develop and implement a plan.

The duo began by asking business unit managers to reduce the number of trips, reduce the cost of each trip by accepting the lowest fares, consider videoconferencing as an alternative to travel, use preferred hotels where the company enjoys a 20 percent savings off other hotels, use the corporate card and book through the company's preferred agencies. Managers also were asked to consider seven-day advance purchase fares and to encourage employees to stay over Saturday night, with the company picking up the extra hotel and meal costs. Employees also were asked to submit expense reports promptly, he said.

"We were incurring almost $1 million a year in expenses from delayed reporting," Wallman said.

The message was reinforced during the eight regular meetings of senior business leaders. Ultimately, the chairman warned that if they didn't control their travel costs, he would.

Analyzing the reason for trips, Wallman and Lee found that two-thirds of the company's travel was internal. Leaders were asked to limit the number of employees sent to meetings and plan internal meetings further out to take advantage of advance purchase fares.

AlliedSignal also changed its policy in October 1996 to require pre-trip authorization, including the purpose, cost and benefit of each trip. In the fourth quarter of 1996, the company even went so far as to order employees to stop traveling. Of course, they didn't stop entirely, but costs dropped dramatically.

Business units that were on target with travel cost reductions were allowed to travel when they deemed it essential; other units were not.

In an extreme effort to contain the expense of international travel, chairman and CEO Bossidy in late 1996 began approving every overseas trip personally.

"You might ask, 'Isn't that ineffective?,' " Wallman said. But the requests dropped precipitously after the chairman initially vetoed several international trips. "Even today, he'll reject one in three trips. We cut our international trips by 50 percent, yet were still able to accomplish all our objectives," he said.

The chairman even questioned why Wallman was traveling to give the ACTE keynote. Only when he explained that he would be speaking to 1,100 potential AlliedSignal investors did the chairman approve the trip.

To report progress on the travel cost reduction initiative, Wallman distributed performance metrics for the key cost reduction strategies along with a one-page chart showing domestic, international and total travel costs for each division and the company overall. Red arrows indicate units where costs rose, while green arrows indicate where costs dropped.

"We did achieve a 20 percent reduction over two years instead of one," Wallman said. In 1996, total travel and entertainment spending dropped from $207 million to $183 million, and by 1997 it was down to $169 million.

For 1997, the company saved $9 million by taking 10 percent fewer trips, $4 million on lower negotiated fares. Policy compliance and use of best practices saved another million, he added.

This year, the company has become more aggressive in trying to consolidate its group travel and meetings. In the past, AlliedSignal allowed business units to handle all meeting planning.

"Business unit managers now have to provide reports to their controllers on how they're taking action" to contain travel costs, Wallman said. "We also established specific objectives for T&E reduction for each business unit."

The strategy remains to focus on four key metrics:

<B>1)</B> reducing the number of trips;

<B>2)</B> encouraging employee acceptance of lowest airfares;

<B>3)</B> demanding use of preferred agency, card and hotel partners; and

<B>4)</B> encouraging use of seven-day advance air tickets.

Even though costs have declined, AlliedSignal's chairman isn't about to take his focus off this area. "Our chairman is still interested in T&E reduction as a key component of our overall drive for continual productivity improvement," Wallman said.