During the company’s height of growth in the 1980s and 90s, GE’s famous CEO, Jack Welch, was asked what his secret was to running one of the largest companies in the world in a similar growth trajectory to that of a much smaller company, while simultaneously reducing GE’s underlying cost structure. His answer was remarkably simple.
He replied, “We realized that our back office, is someone else’s front office. That the non-crucial functions that are important to business execution can often be done by somebody else at a lower cost (not necessarily a lower spend) than we could on our own; and it could be done better.” And thus began one of the most valuable trends in business – the outsourcing of services functions to companies that specialize in those areas (please note this is not the same practice as offshoring).
As an Operations Manger, you are focused on finding ways to improve productivity and reduce costs within your organization. Streamlining processes in each department can help you quickly achieve impactful results. An operations strategy focused on your company’s core strengths, in conjunction with a plan to outsource complex tasks that require subject matter expertise, will free up valuable time and resources. For example, your organization likely hires a tax accounting firm to manage and file your corporate taxes. Yes, your accounting department could potentially handle your tax filings, but the reason you hire tax experts is to help your organization save both time and money – paying upfront to avoid costly mistakes later. This is where outsourcing plays a major role.
Besides taxes, another area that is often outsourced is corporate benefits. According to findings from the Society for Human Resource Management, an average of 40% of companies outsource their benefits functions. The survey reports that the top reason companies seek benefits outsourcing is to gain specialized expertise, particularly with respect to legal compliance.
Travel management is another complex function that can provide a strategic advantage when outsourced.
For years we’ve seen the advantages of outsourcing corporate travel management. And the research shows that the decision should be rather simple – cost, productivity and control are benefits that far outweigh the risks. We’ve always wondered why corporate travel outsourcing isn’t the norm for mid-market businesses.
The answer is quite simple. There is a perception that managing travel internally, by allowing travelers to just book their own trips online systems or by using a travel agent to book tickets, is enough. Corporate travel management requires unique subject matter expertise and access to to drive the aforementioned benefits of cost savings, increased productivity and improved program control.
Consider two topics: corporate tax accounts and HR legal compliance. They could be managed in-house, but are not because of complexity and regulations. In both of these cases, because of the success and proliferation of accounting and HR firms, it’s clear that outside specialists provide better results at a lower cost.
In many ways, managing corporate travel is more complex and challenging. An effective corporate travel management process effectively balances the needs and desires of the travelers with the needs of the organization – something that can require quite a bit of creativity and discipline to master. Additionally, one must balance the desire to minimize “fees” with the ability to minimize the total cost of travel.
This balance is needed in an environment where we now see a growing demand for travel services that are driving historically large price increases for hotels, rail and airlines. If group travel, events or meetings are involved, another level of complexity (and access) must be integrated. The bottom line is that travel and expense management is a highly complex discipline that requires specialized knowledge, capabilities and relationships to be managed effectively.
Let’s look at 3 key drivers of travel management success and why it makes sense to outsource the planning, management and support for your corporate travel program to a travel management company (TMC):
1. Improved Cost Savings
As you may find true, for most organizations T&E is the second largest line item in their operating budget. Without sufficient visibility into travel program costs and statistics from which to measure ROI, true value and actual expenses go unrealized. The improved reporting capabilities and tools that a TMC can introduce to your travel program can significantly decrease overall costs by allowing you to pinpoint inefficiencies, unauthorized expenses, unused tickets and more.
A TMC can help your organization save money by leveraging preferred supplier relationships, negotiating fares based on traveler volume, and benchmark your company’s travel expenses against competitors. Improvements in these areas alone will help to significantly reduce your travel program costs. In addition, a TMC has access to and can instrument your organization with a customized booking tool that displays unbiased fares and rates, including your preferred supplier content.
What this can all add up to is realizing a 10-20% savings on your company’s overall T&E expenses when working with a travel management company.
2. Improved Productivity
Time zone changes, travel disruptions, hours logged sitting in an airport; it can be tough to stay productive when you travel. When you outsource travel management, you have access to online booking tools that will save your employees time and you’ll be have an automated way to authorize and approve reservations.
Here’s an example: One of your top business travelers logs into the online booking tool and makes reservations for serveral upcoming trips. Your agreed-upon suppliers with the best rates show up as available options so she’s able to choose her flight time and hotel dates quickly, based on those suppliers and her traveler profile. The tool knows her preferences and pre-set authorizations, so booking is a smooth and fast process, allowing her to get back to work.
Another way outsourcing your travel management helps your travelers stay productive is that they can minimize travel disruptions – whether they be run-of-the-mill travel delays or more serious concerns, experienced travel managers can help your employees get a quick resolution or alternate itinerary.
3. Improved Control
Many organizations don’t have a clear, up-to-date travel policy. An effective corporate travel policy is used by your travelers and has clear expectations around pricing thresholds, preferred supplier agreements and payment procedures.
Furthermore, your travel policy should include well-defined systems and processes for everything from booking travel to reporting. This will help you consolidate your travel procedures and make them more efficient. For example, real-time expense reporting applications keep all expenses in one location and can keep a manager apprised of those expenses in real-time. The traveler doesn’t have to keep up with paper receipts for reimbursement and if he or she is nearing a price ceiling, there are ways to get authorization from a manager built into the program. This is an efficient way to address expense reporting and authorization and it gives you better control of T&E expenses.
TMC’s are travel specialists just like tax accountants are specialists when it comes to filing business taxes. They are well-versed in travel policy best practices and can help you implement processes that will make your organization more efficient and profitable.
Many business managers are aware that their travel program isn’t as optimized as it could be. That’s why outsourcing travel management to travel specialists makes good business sense and there’s proof in the numbers.
For more insight into how to build a successful TMC relationship, download 5 Key Reasons Outsourcing Fails and What to Do About it.