Philips Seeks Ways To Cut Travel Budget

The creativity of Philips global travel management staff is being put to the test as a new chief executive officer has called for a 12.5 percent reduction of all non-product-related costs.

As part of a massive restructuring plan to improve Philips' profitability in 1997 and beyond, new president and CEO Cor Boonstra has ordered the cost cutting of all "other costs of organization."

For the travel staff, the mandate to slash costs further came as executives were relishing the double-digit savings achieved in the first full year of its truly global strategic initiatives. Although the globalization efforts began four years ago, 1996 was the year Philips was able to leverage the consolidated data collected on its corporate card for global air deals.

Now, the global travel team must research ways to cut costs even further and present management with options early this summer.

"Management will decide how far they will mandate," said Herman J.G. Mensink, director of worldwide corporate travel for Philips headquarters in Eindhoven, the Netherlands. Working with Mensink are area directors of travel in three regions of the world: Bob Brunner of Philips Electronics in New York will cover the NAFTA region; Huub Smeets, Europe-Middle East-Africa; and S.C. Lim, Asia. A fourth team member is expected to be in place in South America by the middle of the year.

Worldwide, Philips is estimated to have air volume of more than $100 million annually. In the U.S. alone, the company spends more than $38 million on air.

Mensink said that the travel managers at two of Philips' U.S. operations--Brunner, and Cindy Scanlon at Shelton, Conn.-based Philips Medical Systems--are "almost totally committed to this program for the U.S. this year."

Both Brunner and Scanlon emphasized, however, that cost savings must be balanced against traveler convenience.

"We have to give them options," Brunner said. "I can have the finest agreements, but if I can't get anyone to use them, they're worthless."

For example, "a fast hit" would be to move from full-service to midprice hotels, said Scanlon. However, management's analysis of each cost-saving recommendation must consider the impact such a decision would have on travelers, she added.

Mirroring the strategy to slash travel costs after its global travel program, Philips travel managers have defined the issues that should be dealt with on a local, regional or global level.

For example, costs such as taxis, limos and restaurants were deemed local issues that the 57 travel coordinators around the world should try to tackle through efforts such as better negotiating and better communicating with travelers.

On a regional level, the company's travel managers are looking for ways to save money on hotel, car rental, airline and travel agency relationships.

On the global level, issues such as credit card, global air deals and policy are being analyzed for cost-saving potential. Some categories, such as hotels, end up crossing all three areas, prompting coordination by several travel managers, according to Brunner.

"In the U.S., electronic reservations, expense management, virtually any part of the travel program is being looked at," Brunner pointed out.

Scanlon and Brunner have already estimated savings potential by increasing compliance and have scheduled travel seminars to communicate the message to travelers. The seminars are patterned after those that Scanlon has been holding at the medical subsidiary.

In recent communications with management, Scanlon detailed how the company loses commissions for every hotel room booking outside the preferred agency, Rosenbluth International. "Light bulbs went off when we explained this," she said.

Rather than mandating the global travel program, Philips executives have been building consensus locally, regionally and globally.

In June 1995, the company formed a worldwide travel council from 30 countries to review plans for travel consolidation. The plan was simple: Identify travel contacts in all regions of the world and encourage CFOs in each region to have the contact report to them.

Of the 65 countries in which Philips operates, 57 travel contacts were identified, 12 of whom are full-time travel managers, Mensink said. These contacts provide the means for Mensink and the other travel experts to both receive and distribute information.

The company issued its first global travel policy, heavy on local addendums, and opted to collect data using a single corporate card, rather than attempt to switch to one agency around the world. Philips currently has 26 agencies worldwide, with almost all using the Galileo computer reservations system.

Another initial task for the Philips travel experts was development of a global hotel directory, with each region feeding data to Mensink. All negotiated rates are listed in the GDS. Initially, the company had 8,000 preferred hotels worldwide, but has downsized to just 1,500, 300 of which are in the United States, Brunner said.

Not unlike other major corporations, Philips tries to leverage its buying power against some of the products it makes, particularly televisions and lighting.

"Reciprocity is part of our hotel program," Mensink said. "We start looking at the TVs whenever we visit a hotel."

Brunner noted that in compliance with restraint of trade laws here, he does not discuss use of Philips products.

On car rental, the travel group forged two global deals and one pan-European deal to handle all its needs. And, for the first time, the company has forged global airline deals, although these are the most difficult to manage, primarily due to definitions, Mensink said.

"On a global basis, which market are you defining to determine market share?" he said, describing one of many distinctions that must be made to reach such agreements.

Part of Philips' new management agenda is a simple phrase: "What gets measured, gets done."

This translates into a rigorously applied budgeting system and monthly performance reviews for all units. In the travel department, this agenda means greater reliance on benchmarks, strategic forecasting and analyzing the issues that will produce the greatest cost savings with the least disruption to travelers.