<B> Merger Fuels T&E Savings</B>
By Amon Cohen
When oil giants British Petroleum and Amoco merged into a $160 billion business this year, the integration of the two companies' travel programs easily could have been a recipe for frustration. Here were two mature travel programs, both rigorously planned after recent, intensive bidding exercises, but with different suppliers, travel agencies and card providers.
Yet instead of the new BP Amoco travel team seeing the merger as an operational burden, it has seized the moment to squeeze an extra 10 percent from its expenditures and reach greater heights than ever. They have shared best practices, defined a stronger but clearer travel policy and, by achieving a better balance in global spending, signed genuine worldwide deals for the first time with airlines and hotel chains.
The merging of the travel programs was achieved in a whirlwind four and a half months at the beginning of this year, when BP and Amoco officially were allowed to start combining their operations. The merger had been announced in August 1998, and responsibility for sorting out travel was handed to Richard Herbert, a 28-year veteran with BP and now procurement manager of global travel for the new company.
When Herbert looked closely, he found some encouraging similarities. In particular, both companies were committed to the worldwide consolidation of suppliers and best practices.
Herbert also found great differences in the detail of the programs. However, forcing one merged party to abandon its established suppliers without question was not an option. Although BP had the larger spend--an estimated $350 million to $400 million, as opposed to Amoco's estimated $140 million--this was a merger of equals and every business decision had to be justified. "The only way to settle it was to go out to bid again on the travel agency and card, which are the building blocks of any travel management program," said Herbert.
As a further complication, BP's travel program was interrupted severely immediately prior to the merger announcement. The price of crude oil plummeted in the second quarter of 1998, leading to an abrupt curtailing of travel and other expenditures. BP's travel bill fell 50 percent almost overnight and Herbert had to renegotiate all his airline volume deals on short notice. Oil prices have recovered slowly since, as have travel levels, but even now the combined expenditure of BP Amoco is little more than that of BP at the beginning of 1998.
The first major decision was how to structure the management team. At BP, travel had been part of the procurement function, whereas at Amoco it had been included in services and facilities. The answer was to play to these strengths. Former Amoco travel manager John Bogt now leads the operational side from the United States, while Herbert has remained at the head office in the United Kingdom, where he is in charge of supplier negotiations and relationship management.
Next came the potentially contentious question of setting a travel policy. Amoco was accustomed to mandating compliance, whereas BP, which had highly autonomous business units, tended to "sell, not tell" policy to managers, said Herbert. Here was one area where the travel team felt they could improve on both the originals. Although BP Amoco has retained the BP business model of unit independence, there is now a greater will to impose uniform practices where they can aid the company as a whole.
The new global framework policy is stronger, with agency and preferred suppliers joining the card on the list of mandatory choices. However, this is mitigated by a clear explanation in the policy of the business case so travelers understand why they are obliged to follow company rules.
For the merger of Herbert's two "building blocks" of travel management--agency and card consolidation--BP Amoco decided it did not need a full re-tender. Based on knowledge gained from recent exercises, it drew up a short-list of Carlson Wagonlit Travel and American Express for the agency contract, and Citibank Diners Club and Amex again for the card. Carlson Wagonlit and Diners Club had been BP's providers, whereas Amoco had used Amex as its agency and Visa for its card. It was the BP incumbents--Carlson Wagonlit and Diners Club--that won. "Some people said, 'That's what BP would do,' but we came up with clear business reasons for our decision," said Herbert.
Choosing suppliers proved equally difficult. Some were used by both companies--such as the same car rental provider in the United States--but there were many points of difference. BP, for example, inevitably had a strong relationship with British Airways, whereas it was only a small player as far as Amoco was concerned.
Balanced against these difficulties were the new opportunities presented by the merger. BP was a great user of long-haul travel, whereas Amoco was a heavy traveler in the U.S. domestic market. Bringing the two spends together gave a much more rounded, attractive customer profile. "Airlines came to the table with a smile on their faces, not an attitude of, 'Oh no, here they are to beat us up again,' " Herbert said.
Nevertheless, Herbert was confronted once again with that age-old complaint of the global travel purchaser: the inability of suppliers to offer true worldwide deals. BP Amoco has a presence in 110 national markets and Herbert wanted airlines to give the smaller-volume-producing countries similar benefits to large markets such as the United States and United Kingdom. Yet, not only did he find the much-vaunted alliances unable to act in concert, he could not even persuade individual airlines to talk with one voice.
In spite of these early setbacks, Herbert saw attitudes change during 1999 as airlines realized they would have to rethink their strategy if they wanted to win a slice of BP Amoco business. Two carriers actually formed a multinational sales force specifically to deal with the oil company. "For the first time ever, the door opened and they came through with genuine global offers," said Herbert.
In the end, three airlines--American Airlines, British Airways and Continental Airlines--came up with credible multinational propositions and all three have been rewarded with sizeable contracts. Two hotel companies also came through globally for BP Amoco: Marriott and Bass.
With 80 percent of the travel program implemented, Herbert now has arrived at several conclusions on how to merge two companies' travel programs. The first is to act immediately. "Get on and do it or you will have problems later on," he said. "After a merger, there is a flurry of activity followed by a rest period. If you try to bring in changes during the rest period, you will find people telling you they are unable to cope with any more changes."
Also important is the attitude toward change. Instead of regarding the travel program merger as an administrative headache, look for synergies such as improved purchasing power and the chance to share better practices and supplier relationships. Internally, it also is vital to define activities for members of the new team and to produce a schedule for completion of the new program.
Finally, Herbert urged arriving at a rapid, albeit rough, calculation of combined expenditure so that supplier negotiations can start immediately.
"Remember that the combined travel spend of the two programs is not the same as the sum of the two programs because there will be some rationalization--but an 80 percent accurate estimate is better than nothing at all," he said.
Projects for 2000 include completing the 20 percent of the travel program that remains to be consolidated. There also will be a new company to integrate, following the "combination" (the polite new word for takeover) of the U.S. oil company Arco. The $25 million travel budget will be absorbed into the new program and former Arco employees will use the same travel agency, card and suppliers as those chosen by BP Amoco. Herbert expects the integration to take no longer than three months.
Herbert also intends to introduce an automated expense management program during the coming year and to embrace online booking. A pilot recently started in the United Kingdom using SoloAct, the system originally devised in-house by Carlson Wagonlit and then outsourced to French software company KDS. Once the pilot has been fully tested and integrated into back-office systems, it will be extended throughout Europe. In the United States, a system--most likely Sabre Business Travel Solutions--will be tested during the first quarter of next year.
Meanwhile, Herbert will work on a pet project, a planning device that will help BP Amoco employees decide whether it is worthwhile making a trip and find ways to reduce the journey cost. He hopes to build one such tool for ordinary business travel and one for meetings, another area that he would like to attack during the coming year.
The tools essentially will be flow charts that will help executives assess what they can gain from their proposed trip and decide whether cheaper alternatives--such as teleconferencing and videoconferencing--will serve their purpose. "If you can assess the value of the meeting," said Herbert, "then you can work out the return on investment in travel.