Lucent Outsources

<B>Lucent Outsources</B>
<I>Sells Travel, Purchasing Resources To New Provider</I>

By Jay Campbell

Lucent Technologies has sold its corporate travel department.

Late last month, the battered communications giant announced it took a minority stake in business service provider Alliente Inc., which plans to service Lucent and other companies in the purchase of office supplies, furniture, power, energy and travel.

Next month, Lucent will ship 60 of its procurement employees, including members of global travel director Judy Bauer's department, to the nine-month-old Alliente. They will handle Lucent, and potentially others, on an outsourced basis using the Ariba platform.

The development is just one of many in which travel buyers increasingly are challenged--and at times on the defensive--to define their place under e-commerce-charged senior managements looking to shake up internal practices and make a B2B buck to boot.

Alliente, a spinoff from Hewlett-Packard that is based in Colorado Springs, Colo., counts H-P and sister company Agilent Technologies among its customers. Its major investor is John Mumford of Cross Point Venture Partners, part owner of Ariba and a member of its board of directors. Alliente CEO Gregory Spray previously led an Ariba-powered strategic sourcing initiative as H-P's director of operations procurement.

Bauer, to be Alliente's vice president of travel management services, soon will describe to BTN the effort in more detail.

Lucent, which last week replaced its CEO and announced lower quarterly sales, clearly believes that shedding non-core competencies is at least partial fare for its ticket to improved profits. Lucent vice chairman Ben Verwaayen, who spoke at last week's Association of Corporate Travel Executives' global conference, said he knew nothing about the Alliente play. Still, his comments struck a chord with conference-goers; some were surprised he showed up, given the senior management turmoil.

"I think that corporate travel is in an important change mode," said Verwaayen. "It's not insourcing or outsourcing. It's not so much the model that is important, it's the notion that added value changes every day. Ask yourself the question: What's the added value that can bring cost and speed to a world that needs to travel more? How can you be more effective and efficient by using that technology in a way that's applicable to your part of the industry?"

They are questions with which virtually every travel buyer is keenly familiar, and to attempt to answer them can involve overlapping departmental and systems needs.

Decision-making is even more difficult with the influence of strategic sourcing and shared services, which place travel purchasing into a highly debatable position along side classic commodities. Anecdotally, sources said the influence by large consulting firms on the ways of travel buying is on the rise, under the guise of B2B efforts using such e-procurement providers as Ariba.


<B>Sourcing's Influence</B>

Scott Gillespie, founder of Cleveland-based Travel Analytics (BTN, Nov. 1, 1999), spent five years of his career at A.T. Kearney as the consulting firm's expert on strategic sourcing in travel. Gillespie said sourcing most often begins with a whisper into the ear of a senior executive promising overall 3 percent to 5 percent savings without layoffs. Travel is often early on the list, he said.

Indeed, sourcing can bring some very positive dynamics to travel buying, including a global view, a bottomline focus, a more objective view of vendors and top-down buy-in. Streamlined and cross-enterprise purchasing data also is a bonus.

But strategic sourcing offers no new cost-saving practices for travel management. The technique is quite familiar: consolidate expense data, determine specifications (set policy), enable contracted purchases (enforce policy), motivate suppliers (show incremental gain/loss), obtain best prices, measure savings and enforce new agreements.

Nonetheless, travel buyers need to recognize that "there's a fair amount of risk" as consultants "scoop up" such new supply lines as travel and "move through them methodically," Gillespie said. Procurement consultants realize they need the help of corporate travel experts, but buyers "shouldn't let the consulting firm steamroll into the travel agency side of the business," said Gillespie.

At PricewaterhouseCoopers, consultant Michael Polosky has tapped travel management consultant John Caldwell to fill in where Polosky has "shortcomings." Polosky is part of PwC's business process outsourcing unit that has "a number" of global clients outsourcing most indirect purchasing to PwC.

For Brampton, Ontario-based Nortel Networks, Polosky has "all contracting responsibility" and now is in the midst of the airline RFP process.

"A number of the large enterprise resource planning packages enable you to have a higher level of information," said Polosky. "Independent accounting practices can now be consolidated and companies can map their invoices into categories. A number of other e-commerce tools, like Ariba, help drive compliance among a catalog of suppliers."

Mega travel agencies and travel technology vendors are moving to provide fulfillment and systems for these shared services models, and many already have contacted Alliente. One source said Sabre BTS has a contract with a similar offering called CoNext by EDS, which owns A.T. Kearney. CoNext, also powered by Ariba, was introduced a year ago. In February, EDS' CEO reported "significant progress" by CoNext, but the company has not responded to repeated calls by BTN throughout the year.

Meanwhile, there is much skepticism about whether travel belongs in a purchasing model involving pencils and desks.

"A shared-services organization focuses on a standardized product that doesn't exist," said Tom Wilkinson, now with GetThere after years as a business travel consultant. "Travel is not the same because you're not buying a large volume of the same product."

Lucent's own Verwaayen may have put it best: "It's wonderful to have a common set of expense-reducing agreements, but at the end of the day you're dealing with human beings with their own feelings, their own expectations and their own level of ability to cope with the challenges of travel. When I'm sitting in the office, travel managers are expenses; when I'm in the field, they're an experience."

Still, some companies could benefit from a recharged purchasing environment. Seagram's Earl Foster said companies without a shared services approach ought to buy into Alliente "in a heartbeat."

Said Gillespie, "There's a real vacuum in the industry for strong, sophisticated management of travel programs at mid- and large-tier corporations, so there's a lot of upside as long as they stay away from consortium buying. Recent airline consortia efforts were DOA."


<B>Consortium Buying?</B>

EDS' CoNext and PwC's E.conomy initiatives (BTN, Jan. 24), included a plan to aggregate the purchasing volume of their customers.

Alliente said consortium buying currently is not its focus, but if it attempts to do so in travel, it would be able to thanks to the business review letter Kevin Mitchell secured in 1995 from the U.S. Department of Justice for the now defunct Business Travel Contractors Corp. According to Mitchell, that letter is "public and open," meaning a new consortium need not check in with Justice unless its business plan differs significantly from BTCC's.

"It's going to happen," said Mitchell, but not because of B2B or strategic sourcing. "B2B doesn't change the basis for why travel has been separate all these years."

Rare examples of success in consortium travel buying include BTCC's brief Southwest Airlines relationship (BTN, July 14, 1997), and the Danish Travel Pool (BTN, Dec. 7, 1998).

Consortium or not, Alliente and Lucent believe corporate travel buying can be outsourced and will determine whether that outsourcer can make money. Clearly, these are role-defining and job security issues for corporate travel managers.

PwC's Polosky noted that Nortel Networks "still has a travel manager," even though he is executing the most core of travel management functions by negotiating with suppliers.

"I don't know whether 20 years from now there will be corporate travel managers," said Lucent's Verwaayen, "but I do know that 20 years from now, people will still travel and still have the expectation that somebody is taking care of that very important service.