Lever At The Ready: Policy Alterations Are A Buyer's Handiest Tool

Quite simply, policy is the most crucial element of any travel procurement program. When it has executive support, travel policy is the best mechanism for influencing travelers to support booking channels or travel vendors. And no matter what is happening outside the firm's confines, when action has to be taken on travel expenses, policy is the handiest tool.

Facing a variety of economic challenges and negotiating hurdles, corporations have not hesitated to alter their policies in an effort to lower travel expenses. An October 2008 Egencia survey found one-third of companies had changed their policies as a result of the prevailing economic situation. ( 1)

At the same time, half were "considering restricting the purchase of premium seating on international flights," according to a UBS poll. ( 2)

Earlier in the year, more than one-third of 155 travel buyers polled by Procurement.travelsaid they tightened policies on international air travel class of service to cut expenses during the 12 months leading to May 2008. ( 3)

During the past four years, managed travel professionals conducted dozens of projects researching the use and effectiveness of travel policy. The goal was to better control travel spending at a time when rates were on the rise. Among the most detailed reviews was a CWT Travel Management Institute study, which found that specific changes to travel policies could net 8 percent savings off total airline and hotel spending. ( 4) Taken together with improvements in compliance to those policies, 20.6 percent in savings was available from these internal actions, CWT found.

Among other specifics, the CWT study recommended that "asking travelers to systematically select preferred airlines instead of taking the lowest fare regardless of the airline reduces the average ticket price by 3.1 percent."

Gilead Sciences has done just that. "We changed from lowest fare to preferred carrier to shore up support for our primary contracted carrier since market share was steadily deteriorating," wrote corporate travel manager Rick Wakida in response to Procurement.travel's "State Of The Practice" research.

An American Express survey in 1999 found that about 40 percent of companies included preferred supplier listings in their policies. ( 5) More than 60 percent of buyers today have preferred vendor policies in the largest spend categories, according to "State Of The Practice" research.

Of course, some companies will find less room for improvement than others. CWT advised that "increasing the minimum flight duration for business class travel from four to six hours reduces the use of business class by one percentage point (to 9.5 percent of all flights)," but the travel management company also observed that six hours already was average. Still, 37 percent of firms had lower thresholds. On lodging, CWT found that "replacing 20 percent of program hotels with a hotel in the next lower category reduces the average room rate by 3.3 percent."

Class of service is a common area for travel policies to address. According to a survey fielded in 2007 by ProMedia.travel Content Solutions, 96 percent of companies had class-of-service policies for airlines, 79 percent had the same for car rental and 63 percent had such policies for lodging. ( 6). Moreover, the survey found employees pretty much comply with such rules. When asked whether travelers book the required class of service (if available) at least 75 percent of the time, 92 percent responded affirmatively regarding car rental, 90 percent for air travel and 81 percent for lodging.

With class of service, in particular, corporate culture and employee impact needs to be taken into account. The following assessment by American Express in 1999 remains unchanged: "Class of travel is an important issue for employees, some of whom may see it as an expression of their value to the company. Policy, therefore, needs to be carefully considered, and it must reflect the corporate culture. That said, in the current climate of cost reduction, automatic privileges ... may become increasingly difficult to justify." ( 7)

Maximizing policy is no cakewalk. On the contrary, travel buyers frequently say that improving policy compliance is their most challenging chore. The interplay between employee and employer policies is the stuff of organizational psychology--not typically a core discipline of the travel buyer. Nevertheless, the managed travel profession's understanding of how to balance corporate spending goals with traveler well being through the implementation of policy continues to mature. Organizations are becoming more cognizant of the impacts on traveler productivity and home life that certain travel policies may have; whether they do something about that in the face of intense cost pressures is another question. Out of concern for liability and the protection of human assets, though, corporations certainly are serious about safety and security.

The intensity of organizational approaches to policy compliance varies by degree. Clearly, mandating policies on the front end is an effective means of enforcement. But doing so does not always sit well with employees, particularly in industries that, at least during certain economic cycles, exhibit intense competition for talent.

Recent research shows no significant increase in the use of mandates. But while some organizations are skittish about mandates, strengthening policy is no taboo. Industry research has discerned a marked shift in the past couple of years toward stricter travel policies. A poll conducted in November and released last month by Morgan Stanley indicated that 46 percent of buyers in 2009 planned on "becoming more stringent in business/first class use," while just 3 percent would become "more liberal" and 46 percent reported no planned changes. ( 8)

According to 2008 research conducted by AirPlus International, 44 percent of corporate travel managers expected policy to tighten in 2009, and only 4 percent predicted it would relax. In the United States specifically, 47 percent of respondents anticipated making policy "harsher" for 2009, up from 39 percent the prior year. ( 9)

Tight policies, however, mean little if no one follows them. Short of mandates, organizations are advised to create straightforward policies that are openly supported by senior management and effectively communicated to employees. This is easier said than done. Sure, email and travel intranet pages have made the actual publishing of policy easier than it was 10 years ago--when more than half of companies were still issuing paper handbooks to employees ( 10)--but 30 percent of travel buyers still say communication with travelers is unsatisfactory.

"Despite procurement's dominant role in travel management, successfully communicating a policy increasingly involves many areas of the business," BCD Travel consultancy Advito noted. "The companies that I see that are the most successful in this area involve not only procurement, finance and travel departments, but also some of their business project leadership and corporate communication staff. By involving internal leaders in policy communication, a company can really catapult its program," according to BCD Travel executive vice president for global business solutions Louise Miller. ( 11)

Meanwhile, more than 90 percent of U.S. companies monitor policy compliance, according to both the AirPlus ( 12) and the ProMedia.travel Content Solutions ( 13) research.

Apropos to his title, ConocoPhilips senior consultant for strategy, policy and compliance Allen Plumley believes that "monitoring travel policy and compliance" is the job responsibility that his company values most. "Without sound policy and good compliance," according to Plumley, "all other facets of travel management are difficult to implement or achieve."

One way to enhance policy compliance is to require each business trip to be approved. Like mandates, this is a practice whose acceptance is largely culture driven. Most travelers seek at least informal verbal authorization by managers, but some organizations also use electronic processes in which travelers officially request approval of a specific trip plan and expenses. As easy as the typically email-based approvals may be, some executives see such a practice as bureaucratic. Post-trip audits and reporting also can help managers identify out-of-policy trips, though only after the fact.

"Some data can be produced by T&E management systems," noted American Express and A.T. Kearney. "Periodic analysis is typically carried out to identify those individuals or groups who have an unusual spend profile compared to their peers and colleagues. This data is supplemented by information from suppliers and business travel partners, such as travel agents, and used in the collation of compliance statistics to determine if policy communication, training or management action is required." But "while approvals and auditing still play an important role in policy enforcement, other methods can be employed which are both proactive and efficient. For example, 85 percent of companies use travel agents to support travel policy compliance by enforcing travel policies with the individual traveler at the point of booking." ( 14)

Although 73 percent of respondents to an August 2007 survey said their corporate travel agency ensures that travelers comply with corporate policy well or moderately well, there is a substantial body of research that shows travelers comply even more when the decision is completely theirs through self-booking. ( 15) Nearly half of respondents to another 2007 poll said online self-booking systems increased compliance, versus 5 percent who said it decreased and 47 percent who said it was unchanged. ( 16)

The CWT research found the rate at which travelers booked preferred airlines versus nonpreferreds rose by 12 percentage points on domestic trips and six points on international when they used their company's preferred travel agency as opposed to another channel. Further, when travelers made bookings themselves using the designated online booking tool, usage of preferred vendors was even greater--23 percentage points higher than when they made reservations over the phone with an agent. ( 17)

Deterrence through penalties, meanwhile, also is an effective way of increasing compliance. On this score, the threat of nonreimbursement is fairly common, while termination tends to take effect only after multiple major violations.