<B>Microsoft Revs Up Revamp</B>
<I>Speeds RFPs, Mandates Booking And Card</I>
By Megan Hjermstad & David Jonas
<I>Redmond, Wash. - </I>Microsoft Corp. recently accomplished a complete revision of almost every aspect of its travel program at a supersonic pace that would challenge even a corporation with a much smaller travel spend, a more manageable traveler base and less complex supplier contracts.
Employing a strategy aimed at preserving existing supplier relationships rather than creating new ones, Microsoft over the past six months aggressively renegotiated its agency, domestic airline, hotel and car contracts. Meanwhile, the software giant also selected and implemented Highwire's Travelport product for online booking (BTN, April 9).
Six months of hard work and intense policy revision culminated on March 16, with a mandate that requires use of Travelport for domestic reservations outside of 48 hours, use of American Express for all other individual travel and TQ3 Maritz Travel Solutions for group travel, and use of the American Express corporate card for all business-related charges.
Under the new policy, explained in a communication from Microsoft's CFO, Microsoft travelers may not be eligible for reimbursement if they do not follow the policy guidelines. In the new environment, managers, controllers and executive management will receive detailed reports on non-compliance and will be held accountable for monitoring adherence.
The edict reflects a drastic change in Microsoft's corporate culture. "Microsoft has always been completely opposed to a mandate," said director of global travel and relocation Zoe-Ann Bartlett. "The cultural shift was dramatic." The mandate, which is intended to provide tighter control over travel spend, generate better data and maximize volume discounts, is a result of a concentrated effort to reduce expenses companywide. "Microsoft is focusing on cost savings and avoidance, as well as the revenue side of the profit equation, to enhance earnings per share," said Bartlett.
Charged with coming up with ways to contribute to the earnings per share initiative, Bartlett's group last fall began brainstorming business ideas and identified areas to achieve further cost savings. "Through the visibility of the EPS project, there was an awareness of potential savings over and above what we had done already," said Bartlett. Bartlett's group anticipates contributing up to $40 million in overall savings to the entire EPS project.
The Microsoft travel team, which consists of seven individuals including Bartlett, put in long hours and relied on help from third parties to accomplish the overhaul in a very short timeframe. Bartlett said support from the finance team and senior management also was instrumental. "Senior management support allows you to do the right things to run your business," said Bartlett. "We were able to do an awful lot in a very short time."
As part of the rapid restructuring of the travel program, Microsoft applied an innovative airline contracting approach to redistribute much of its $80 million annual air spend. Travel Analytics, based in Solon, Ohio, was brought in to construct multiple market share scenarios using its Tango software (BTN, Jan. 15). Those scenarios--numbering around 30--were used to produce an RFP asking airlines for their best case, second best and third best scenarios, based on their potential ranking among Microsoft's preferred roster.
"The airlines had three distinct levels of revenue and associated market share on which to build their bids," said Travel Analytics principal Scott Gillespie. "It really sped the process on the back end because we were immediately able to fit together the pieces of the puzzle when the bids came back in without having to go back and renegotiate for different levels. Normally, it is a painfully slow process to work toward a consensus of which airlines will get which priority across so many city pairs."
As a result, a process that can drag on for six months, or longer in some cases, was accomplished in eight weeks flat, from initial data consolidation with Hi-Mark to fare loading. However, only existing preferred carriers were included in the modeling and the new contracts cover only North American point of sale, including all domestic spend and exit-U.S. international flights.
"It was not a full blown RFP, just a complete repricing of the agreements," Bartlett said. "Part of the goal was consolidation and making sure we had the right mix." In doing so, primary, secondary and tertiary preferreds swapped places after Microsoft finalized market share commitments just two weeks after receiving carrier proposals.
Bartlett reported generally positive responses from the airlines, but added that some were not as enthused. "For the most part, they appreciated us eliminating the fluff and cutting to the chase." One involved carrier, United Airlines, said it was the fastest negotiating cycle of this scale it has seen. "We were initially concerned about the timeline, but the information was so well laid out and the strategy so clearly defined that we realized the timing was something we could step up to," said Steve Praven, the airline's director of strategic accounts and business development.
The lengthy airline negotiating cycle is a source of frustration for buyers and suppliers alike. Microsoft, its preferred carriers and Travel Analytics, however, proved the process need not be unnecessarily lengthy nor complex, even for the largest corporate travel programs. Though Bartlett and her team were prompted by the impending policy mandates to hasten the cycle, she said the RFP process, even under normal conditions, is too drawn out. "Oftentimes, corporations ask questions that are not pertinent to decision making, so this time we tried to streamline down to bare bones," she said.
Indeed, Praven said carriers frequently are presented extraneous questions within an RFP that require lots of research but do not provide much value, such as fleet make-up and specific capacity figures. "But Microsoft focused on the core issues and kept everyone's attention on the financial aspects," he said.
Kevin Iwamoto, global air and car supplier manager at Hewlett-Packard, now in the final stages of new contract implementation, said carriers appreciate honesty and integrity in an RFP. "They are tired of seeing fake numbers, or being baited to produce their best discount for unattainable revenue targets," he said. "Our RFP spreadsheet that the airlines were free to bid on was actual numbers with a real effort to reduce overlapping commitment goals. In the end, we were rewarded with excellent deals."
Gillespie said the Microsoft fast-cycle RFP worked so well that it now will be advocated to Travel Analytics' other clients.
Airline contracts were not the only ones part of Microsoft's overhaul. New car rental deals were finished just ahead of the project, while a traditional hotel RFP process progressed during the revamp. Bartlett said the company in the future will look to change hotel program modeling, possibly by bringing online auctioning into the mix.
While Microsoft did not renegotiate the card prior to mandating its use, it did take advantage of the impending expiration of its agency contract to revise its pricing structure. Microsoft elected not to go through an agency RFP process, but worked with its incumbent, American Express, on repricing. Microsoft now pays American Express the direct costs of operation of its local business travel center, plus tiered transaction fees for traditional and nontraditional reservations booked via the Internet.
Bartlett said Microsoft decided to keep online fulfillment with its business travel center, although it considered moving it to Amex's Miami e-fulfillment center (see story, page 6). "There was already so much change happening at once, and we feel the local business travel center serves Microsoft customers and culture very well," said Bartlett.
At the time all of these initiatives were taking place, Microsoft also was working through the process of switching to Travelport from AXI, which is being phased out by American Express. "We were looking to replace it, but we had no idea we would have to do it along with everything else, all at once," said Bartlett.
Microsoft introduced Travelport Feb. 23, giving travelers less than one month to adapt to the new platform before it issued the mandate. Bartlett said even with switching the tool in March, Microsoft ended the month with a higher adoption than it had seen with AXI, which hovered at around 18 percent to 20 percent. In the first two weeks of April, domestic bookings on Travelport had reached 63 percent adoption.
Bartlett said the expectation for use was set immediately, but the mandate without a doubt is responsible for the real spike in adoption. "That is when the majority of hits started to happen," said Bartlett. "We already have an adoption higher than companies that have had tools for six months to a year."
Travelers can access the booking tool within the Microsoft marketplace, a proprietary system used internally as a primary portal for buying goods and services. Within Travelport, Microsoft has created a single set of independent profiles that is updated by the traveler and filtered to the agency and the global distribution system. Travelport also uses a single authenticated network log on, reducing the number of queries regarding forgotten passwords, which Bartlett said tallied 600 to 800 hits per month with AXI.
Bartlett said Microsoft is going to offer incentives for travelers who book online, but has not worked out the details of the program yet.