Traditionally, travel management (TM) companies booked three things for corporations: plane flights, hotel rooms, and rental cars. So they were basically middle men between corporate customers, global distribution systems for booking like Sabre, and service providers like airlines, hotels, and car rental chains. The new online consumer TM services like Expedia perform these tasks and offer virtual service 24/7.
But TM outsourcing providers do a lot more -- like outsourcing personnel -- and are continually expanding their service offerings.
According to Robert Goodman, Travel Industry Analyst, Gartner, standard TM services are becoming low-margin and commoditized, while TM competition is intensifying. Mid-range suppliers are pressuring high-end ones with similar services at lower prices, hosted suppliers are challenging installed ones with semi-fixed-cost solutions, and online consumer services are starting to pursue the small-to-medium business (SMB) corporate customer. So value-added services are becoming the key competitive differentiator in outsourced TM for suppliers.
Generally, these services fall into the categories below:
- Business intelligence (BI) tools for spend analysis and reporting
- Integrating TM applications with customers' back-end ones
- Meeting scheduling
- Full service programs
- Global reach
- Point services via hosted solutions
- Complementary procurement services
Consulting and Integration
Consultative services involve mostly human, not software, expertise. Here, the travel management company negotiates lower, say, group business package deals with service vendors like airlines and helps customers create/enforce corporate travel policy (e.g., executives fly first class, others coach). Some services come standard for customers with high minimum spends -- for instance, every account over $1 million has a dedicated client service manager who the buyer's employees can call for assistance, according to Bill Tech, President/CEO, Travel & Transport, a mid-range TMC.
Most TMCs will also help the customer implement best practices and benchmark comparable companies to improve their TM processes. Norm Rose, President, Travel Tech Consulting, Inc., believes these services have "elevated the value of the TMC in the sense of being less operational and more strategic."
High- and mid-range TMCs typically offer business intelligence analysis and reporting on customers' spending trends by analyzing TM data in their expense management and TM systems to, say calculate quarter over quarter travel spending. Increasingly, both also offer real-time reporting via the Internet for an additional fee.
Michael Richardson, President/CEO, HRG Canada, says HRG even lets onsite travel managers approve trips beforehand via an application that "kicks out an exception report and lets travel managers see where people are going prior to a trip so they can get involved, if needed." To save on commercial air fares, he says, the manager might decide to use a corporate jet three times a week to fly groups of executives between two cities instead of using commercial airlines. High-end TMCs will also customize unlimited types of reports according to customers' needs, while, by comparison, Tech says he offers about 1,500 standard types.
Some high-end providers will also integrate TM packages with customers' back-end systems. Richardson, for example, says HRG contracts with SpendVision to integrate its BI and TM applications into customers' ERP and expense management systems so that executives can use dashboards to analyze spending trends. Rose says recently big TMCs have begun to use BI to compare maverick expenses employees record on credit card and expense reports to those they incur through the TMC to determine unapproved spending "leakage."
All-In-One Global TMCs
Both high- and mid-range TMCs have global reach, but the first, like HRG, locate employees in branded offices in designated countries while the second, like Travel & Transport, use consortia of local TMCs. Tech explains his company is a member of Radiant Systems, a global travel management consortium with over 100 travel agencies in 80 countries. Both high- and mid-range players claim to be full-service providers -- providing personnel, standard TM services, BI analysis, and consulting, as well as platinum services like alerting execs in their homes if flights are delayed. However, a company like HRG Canada might have the edge on mid-range providers with its outsourced BI-to-legacy ERP integration.
On-Demand TM and Other Specialties
Customers can also economize with hosted services either as an adjunct to standard services from a mid-range TMC or standard from a specialist ASP. Tech says Travel & Transport buys booking applications from Resex and others and leases them to customers, while the ASP, Concur, leases both expense management and booking apps.
Some high-end TMCs even do traveler location. Since 9/11, says Richardson, customers want to pinpoint traveling employees anywhere in the world in the case of such an emergency.
Meeting and conference scheduling and planning is another differentiating value-add. For instance, Rose says Rearden Commerce offers an on-demand tool for conference planning as part of its overall procurement/TM service. Concur also offers a hosted conference planning tool.
Procurement Providers -- The New Competition
Rose observes that high-end TMCs are also facing increased competition from large providers of outsourced procurement services like IBM, AT Kearney, and Tri-Pen Management Corporation, because the latter are offering value-added TM services beyond booking as a new subset of their traditional services.
Mark Williams, BTO Travel Manager, IBM, says large customers typically spending $10 million or more in-house or with high-end TMCs can now leverage his supply chain practice to "analyze their TM expense data, then put together a strategic sourcing strategy to select airlines, hotels, and car rental companies as well as TMCs and online booking tools that best meet their needs."
He reports IBM has both front-end and back-end expense accounting tools that let IBM "receive and process expense information, audit, and reimburse employees or make payments directly to a credit card company." IBM also partners with BI software vendors to identify maverick TM spending.
Essentially, though it may not always replace a TMC, IBM becomes the tier-one TMC because it performs all activities exclusive of booking -- from managing supplier SLAs to dealing with policy exceptions to integrating IBM TM tools with customers' back office systems through IBM Business Consulting Services.
So Williams contends that procurement/TM goes beyond TM BPO to business transformation outsourcing because it takes over the travel procurement process to free up capital for strategic core competencies. For instance, he says Colgate is using IBM to transform its TM process and reallocate savings on $3 billion a year in TM expenses to more product innovation and greater regional market penetration.
Lessons from the Outsourcing Journal:
- With competition intensifying, outsourced TM-related providers are offering value-added services beyond booking to differentiate themselves. Such services include BI TM spend analysis and reporting and integration of TMC tools with customer back-end systems.
- Value-add differentiators like branded global reach and TMC BI-to-Customer ERP integration help high-end TMCs to better justify their higher fees. ASPs and online TM consumer services are pressuring the middle with low-priced services.
- Traditional procurement service providers now offer just about any value-added service aside from booking to perform TM BTO and better compete with high-end TMCs.