Profiles In Travel Management: Philips Keeps Travel Team As It Outsources Operations

Royal Philips Electronics in June completed its transition to a hybrid outsourced model, through which its travel management company now handles global and individual country program management, consulting, support services and data consolidation across Philips' more than 35-country travel program. Meanwhile, Philips still has a team of seven strategic sourcing managers who manage global negotiations and contracting.

The outsourcing move followed Philips' global travel management consolidation with American Express Business Travel in 2008. While the Philips purchasing team maintains all travel strategic sourcing functions, Amex now handles the tactical and operational aspects of its $376.7 million global T&E program and also delivers data aggregation and hotel program support previously provided by other suppliers.

Amex provides local program management and coordinates with country CFOs and controllers. The TMC also manages local implementation of policy and such technology as self-booking tools and payment systems, while supporting the overarching policy and preferred supplier contracts managed by the Philips global commodity managers. Amex also is responsible for tailoring the local preferred supplier programs to meet market-specific needs.

Amex's Advisory Services Group now provides Philips a broader range of consulting and other services, including the preferred hotel program, which previously was managed by the CWT Solutions Group. Data consolidation and reporting, which was key to Philips' previous multiple-TMC configuration, now also is handled by Amex.

Although many corporations outsource some travel management operations and some even outsource their entire programs, Philips' outsourced model is a rare breed.

"There is a lot riding with this," said global supply market manager of travel John Guarneri. "People are questioning, 'Do you have too many eggs in one basket?' or 'Are you getting tied into a web from which you can't pull out?' No. We can pull out. It may be difficult, but we can still pull out of various areas if need be."

In the last decade or so, Philips has gone from a completely insourced travel management shop that even handled other corporations' travel programs to one that outsourced its reservations and fulfillment, then consolidated to three agencies and ultimately consolidating with Amex.

"It became an evolution to try to get to what I would consider best in class in all of our programs," Guarneri said. "At this point, we reached another plateau and needed to move on to the next level. This is what I thought was the next logical level to move a travel program within a corporation our size."

Driving the move to the hybrid outsourced model was the globalization of the travel program, Philips' extended resources and its overall evaluation of in-house indirect supply services.

"It is something that we at Philips could not cover globally, operating now in more than 35 countries," Guarneri said. "I don't have the personnel to perform to what I think is best in class in working with our business units to advise them on what to do. Nor do I have the money to invest in the technologies and the training that has to be done. It's a business, and Philips does not want to be in that business."

To develop the hybrid outsourced program, Guarneri and his team, including senior sourcing specialist for car rental, travel agency and e-booking Marion Princen, contacted the company's business process outsourcing group to see how outsourcing was handled for such indirect materials as distribution, facilities management and IT.

Another factor in the outsourcing decision was that most Philips local travel managers consolidated their air, car and hotel programs under the umbrella of the global program. "Their job functions changed dramatically, in essence becoming travel relationship managers," Guarneri said. "They were working with our various business units in those countries on reporting. Their job changed from buying locally to actually supporting the program, but they were Philips people."

One key support area that Guarneri believes is bolstered in the hybrid outsourced model is communications with countries and travelers. While any global communication comes from the Philips CFO, Amex tailors communications for specific operating groups and regions. Previously, Guarneri said, one Philips employee within the purchasing group would handle about a half-dozen countries.

Philips also uses a global Web-based travel portal with local information. Some of that administration has been offloaded to Amex.

Philips' global commodity management team and American Express Business Travel developed two governance boards to regularly review the program's progress.

One of the boards, the outsource management office, is comprised of Guarneri, Philips senior sourcing specialists and a controller and Amex's head of global business partnerships, the lead global client manager and an advisory services director. The office reviews monthly service-level agreement performance, scorecards, ad hoc projects, communication effectiveness and financial performance.

There are more than 30 key performance indicators within the service- level agreements, which carry financial incentives and penalties and focus on customer service and satisfaction, savings and timelines and accuracy of reports, according to Guarneri.

The strategic governance board, made up of Philips' Guarneri, senior sourcing specialists, finance representatives, the head of Philips' general purchasing organization and several Amex executives, reviews quarterly overall strategy and assesses compliance and service levels.

Meanwhile, American Express hired Colleen Guhin, the 1996 Business Travel News Travel Manager of the Year and formerly with Texas Instruments and ON Semiconductor, to serve as Philips Americas travel manager.

Although some Philips employees have shifted to Amex and most of the travel management efforts now are handled jointly, Guarneri's philosophy is that, for at least the initial three-year contract term, "Everybody is wearing two hats," he said. "You are an American Express employee working for and on behalf of Philips. The success of the program will be determined by how well you can manage wearing these two hats."