THE BUDGET TRAVELER
Cutting the corporate T&E budget is an obvious target for cost-conscious finance managers. But forcing senior executives to fly in the back of the plane could make a CFO mighty unpopular.
By Steven Crane

For Chris Lau, director of business process reengineering at Bausch & Lomb's Asia-Pacific operations, reigning in the company's ballooning travel and entertainment (T&E) budget is no small matter. The ongoing reorganization of the company's T&E management system - a stage-by-stage rollout including processes, networks and people - is a full-time job, one that Lau says will take four, maybe five years. When completed, all expense report processing will be done electronically and travel purchasing will be fully leveraged on a global basis. The hardest part, though, may be forcing compliance with a standardized travel policy. Indeed, getting senior managers to sign off on one of the most obvious cost savings measures - asking executives to fly economy rather than business class - won't win a finance manager many friends back at the office, that's for sure.

Lau doesn't seem to mind. In May 1997, he was seconded from his position as manager of financial systems and reporting when, after disappointing results in a major benchmarking study, Bausch & Lomb began a global reorganization of all its finance processes. Now in its second year, the project has already saved the US-based, global manufacturer of eyewear more than US$500,000 in administrative costs alone. Electronic processing of all T&E expenses will go live in the US this month, and should be rolled out in Asia at the end of the year. Under the new setup, average global administration costs per transaction are forecast to plummet by about 60 percent, from US$7.50 in January 1997 to US$2.96.

In the meantime, Lau is girding for upcoming negotiations with travel vendors. By analyzing the data on air fares, hotel rates and other expenses collected through statements on corporate cards and telephone calling cards, Lau says Bausch & Lomb is able to take an aggressive stance when bargaining with vendors. In addition to reductions in fares, Lau is also examining the company's arrangements with travel agents. In the US and Europe, management fee systems, where the more savings an agent finds for a company the higher that agent's fee, are quickly replacing traditional transaction fees, in which commissions are split by the agent and the client. Lau says he's not wedded to either at this stage. "It doesn't matter what the system is, just how much we can save on the bottom line."

Of course, actually plumping up the bottom line will depend on whether Bausch & Lomb can enforce compliance with its new internal travel policies. That, in turn, puts a premium on good communication. "People don't like to be told what to do without understanding why," says Lau. Given that he's currently reexamining company policy on the standardization of travel class, Lau himself may soon need the oratorical skills of a backwoods politician. At present, the company's "no-go" policy enjoys close to 100 percent compliance. "No-go" means a manager can't travel business class unless the flight time is more than three hours; company directors have no such restriction. But enforcing a "no-go" policy on first-class and business-class trips with senior management - where caste is confirmed by creature comforts - could be tough. Says Lau: "To ensure success, it's important to have management champion the policy."

Have Money, Will Travel

Exactly right. Consultants say getting management to assume ownership of cost-control initiatives is crucial to cutting T&E spending. And what spending it is. Total annual corporate T&E expenditure in Asia is close to US$72 billion, which works out to about US$14,000 per traveler. Few companies in the region, however, have been able to knock that number down much - even though numerous studies show that companies consistently rank T&E spending as the third largest controllable business expense. Broken down to average per company expenditure on T&E, the figures are substantial: US$315,588 in Hong Kong; US$276,588 in Singapore; and a surprising US$1 21,105 in Malaysia, according to a survey by American Express Corporate Services. It's no surprise, then, that cost containment is the number one goal in T&E management, especially when savings from 10 to 35 percent are possible, says Gregor Lochtie, director of American Express Consulting Services.

With the financial crisis in full force, companies in Asia have started to focus on every cent they're spending, says Lochtie, including, for the first time, travel management expenses. The starting point for a successful policy is to balance budget requirements with human requirements - cost versus efficiency. "If cost is a priority but everyone is allowed to fly business class instead of economy, then little savings are possible," says Lochtie. "Keep in mind, however, that at the end of a 24-hour trip in economy class, a person is not going to be in good shape to work."

If common sense is the first requirement in forming travel policy guidelines, the second is to make sure the policy is actually written down. Remarkably, according to the American Express survey, only half of Asian companies have a formal written travel policy. Of those that do, nearly one-quarter rely on word of mouth to make employees aware of its content. And while more than 70 percent of companies in the region include air travel guidelines in their travel policy, less than one in four corporations in Hong Kong, Australia, India, Taiwan and Singapore require employees to take the lowest reasonable airfare. This is in stark contrast to corporate travel policies in the US and Europe, where most companies insist that employees buy the cheapest airline ticket possible.

Nevertheless, it appears some companies in Asia are getting serious about controlling T&E costs. Martin Selman, director of marketing and product sales, corporate and business cards, Visa International, says sales of Visa's T&E corporate card rose 100 percent last year - and forecasts similar growth for 1999. Corporate cards contain customized company information on travel policy, preferred vendors and discounts, and allow detailed travel expense data to be downloaded directly to accounts payable and general ledger accounts. But not all companies, Selman admits, may be interested in the benefits of improved T&E control. "Obviously, if your accounts have fallen 50 percent then managing your T&E is really the last of your priorities," he says.

Beam Me Up

But James MacLaurin, finance director at the Singapore branch of the UK-based telecom and electronic equipment supplier General Electric Company (GEC), says the T&E budget at his division receives scant attention for a very different reason. According to MacLaurin, the T&E budget at the Singapore operation is simply not ample enough to allow for much leverage over suppliers. With spending for this year forecast at about US$250,000, up slightly from 1998, he says the figure isn't large enough - and prices not controllable enough - to provide much room for savings. You have to be talking big numbers to catch the airlines' interest, MacLaurin says. Otherwise they don't appear to care one way or another if they win your business.

This is a fairly common occurrence at smaller companies in the region. Nonetheless, MacLaurin says he does keep a keen eye on the costs he can control. All travel expenses are carefully monitored, says MacLaurin, including pre-approval requirements for every trip, spot-checking quotes and regular reviews of suppliers. The number of trips to GEC's European headquarters have been slashed since the installation of videoconferencing equipment two years ago. And first class travel has been cut entirely. "But most of our time is spent coming up with imaginative ways of winning new contracts," he says, "rather than coming up with imaginative ways to get our hotels to perform better and reduce the bill by a few thousand dollars."

Still, MacLaurin takes all aspects of his job seriously, including enforcing compliance with company policy. Part of the job of a finance director, he says, is to show employees why a particular hotel or airline provides better value. But with a few exceptions, such as salespeople and some senior management, MacLaurin doesn't see much need for travel at all these days - especially for finance employees. "I just find traveling overseas to be an inefficient process," he says. "In this day and age, with e-mail and videoconferencing, I feel it's not an efficient use of time for CFOs."

It's quite likely that John Fu would agree. Two years ago, the travel budget for HMV Media (Hong Kong) was about HK$1 million (US$130,000) - mainly due to trips to set up the UK-based music retailer's new outlet in Singapore. "It was horrendous, but un-avoidable," says Fu, director of finance and ad-ministration for the Greater China and Southeast Asia region at HMV. With that shop up and running and a new computerized tracking system to monitor inventory, travel was reduced to a mere 20 trips in 1998, at an average cost of about US$1,750 per trip, or roughly US$35,000 for the year.

HMV's travel policy is divided into two levels: business class for managerial and economy for non-managerial employees. Fu is considering the perilous path of downgrading travel to economy class for all staff, but feels it may be prudent to begin with his own corporate trips and use the results to convince colleagues. "Frankly speaking," says Fu, "I don't know that you can ask the president to fly economy."

No Takers

Maybe not. But finance directors are receiving cooperation, of sorts, from an unlikely source - the airlines and hotels themselves. Like most other industries in Asia, when profits were high, price-cutting was low on the priority list. In the past, business travelers had to be picked up in a limousine and entertained at the most expensive restaurants, says Henrietta Ho, director of business development, Asia Pacific, Hyatt International Hotels, Hong Kong. "We felt we had to address travel costs as the flavor of the month," she concedes.

But Ho says even with deep discounts, ranging from 30 to 50 percent, Hyatt is having trouble finding any takers. "We can't find anyone, except a few financial institutions, to sign a deal," she notes. Even though CFOs have put together a list of preferred hotels, Ho says the policy is not enforced - in the main, due to Asian cultural deference. "How can a CFO tell the CEO not to stay at a particular hotel? People don't want to impose on their superior."

The financial downturn has also forced major changes in the airline industry, the most visible being a move to global alliances. Industry consolidation, though, hasn't produced any real downward effect on pricing as it has with hotels, says Alan Wong, general manager, Hong Kong and China, Cathay Pacific. Wong blames antitrust laws which prohibit the exchange of fare information among partners. Instead, carriers have increased discounts for loyal and committed customers, he says, and made refinements in economy class such as improved meals, seating arrangements and in-flight entertainment.

With 19 percent of companies prohibiting business class flights entirely - and with the number predicted to rise - the airline industry in Asia is slowly beginning to realize they can't take passenger discomfort for granted. Singapore Airlines has taken the lead in many respects by offering economy passengers many of the perks of business class: personal video screens and telephone sets, free champagne, automated check-in kiosks, and redesigned seats that make better use of limited space. But while alliances have produced a move towards higher service standards, says Brandon Chan, Singapore general manager of corporate accounts at US-based travel management company Rosenbluth International, it has also created the potential to manipulate pricing.

Though Chan agrees that the current focus is on improving service, he predicts the airline industry in Asia will soon begin discussing pricing levels. Finance managers may not be thrilled with the outcome of those discussions, however. According to Chan,once the biggest airlines realize they control a large portion of the market through their alliances, it won't be long until they suggest a 10 or 12 percent rise across the board, regardless of government regulations. "Unless the airline cartels are countered by an organization like the International Air Transport Association (IATA)," says Chan, "chances are the airlines will go for it and the consumer will have no choice of fares."

The Armchair Traveler

But they will have alternatives - thanks, in part to the introduction of new technologies. For Loke Shee Yee, financial controller for ST Microelectronics, (formerly SGS-Thomson, with 1997 sales of US$3.9 million) the first question concerning travel is whether it's necessary at all. Loke says travel alternatives, such as videoconferencing and tele-conferencing, or combining two trips into one, can cut costs considerably. "We haven't had any change in the class of travel," says Loke, who heads Asia-Pacific operations in Singapore for the Geneva-based chip-maker. "Rather, cost savings have been achieved by exercising restraints in the number of trips and the number of employees that take trips."

This sort of approach is what some travel management consultants term travel avoidance, one of several new services and products soon to be launched in Asia. In the future world of corporate travel, even smaller companies in the region can benefit from innovative travel services, such as the pooling of accounts to strengthen negotiations with suppliers, the leasing of videoconferencing hardware and direct access booking through the Internet or electronic kiosks. "Technology is not the issue. It's already up and working in some countries," says Chris Tan, an industry solutions executive at the Asia Pacific travel distribution unit of IBM Corporation. "But market conditions and achieving a critical mass are necessary before it comes to life in any particular region."

Tan points out that kiosks, which give direct access to reservation and booking systems, are already operating at 8,000 convenience stores in Japan. He believes they will soon be as commonplace as ATM machines. Eventually, Tan says the corporate traveler will be able to plan itineraries and book reservations on a PC or at a kiosk, pay electronically for an electronic ticket, clear immigration with a smart card holding passport information, check into a hotel by computer, and get T&E reimbursement downloaded directly into a personal bank account - all before returning home. Says Tan: "As a corporate traveler myself, it can't come soon enough."

The Future is Now

Such technology wizardry is no stranger to US-based telecommunications giant AT&T, which had sales of US$53 billion in 1998. Not surprisingly, the company has long relied on cutting edge technology to help cut T&E expenses. According to Alex Ng, vice-president and CFO at AT&T (Asia Pacific), the telco has used videoconferencing to cut down on T&E expenses for more than five years. Currently, Ng is implementing a fully automated expense process system linking data from corporate cards, embedded with the company's travel policy and preferred vendors, directly to accounts payable and the general ledger. Ng forecasts actual savings of about 10 percent - and as much as 25 percent if you include gains in efficiency. "From that angle," says Ng, "we're ahead of a lot of companies."

Ahead, indeed. Ng has long kept a firm hand on expense controls, including T&E. Vendor relationships, which are reviewed quarterly, are limited to three suppliers for maximum leverage. All costs are monitored through data reports supplied by travel agents, and access to that data is restricted to department heads. What's more, cash advances have been completely eliminated. Ng says employee compliance to the list of preferred vendors is 100 percent. The same figure applies to compliance with class of service policy - business class for trips longer than five hours and economy class for less than five - for all employees, regardless of position. So far, no complaints there.

But besides having a long-standing tradition of expense control, Ng has another advantage that some other finance executives may lack - the full backing of upper management to push policies through. Still, for all of AT&T's emphasis on cutting costs through cutting-edge technology, Ng says he hasn't forgotten the human side. "You have to strike a balance. I wouldn't go to the extreme and tell someone you don't need to travel at all." Sometimes, he says, "you need the personal touch."

Steven Crane is a senior writer at CFO Asia.