Shift from Saving on Sourcing to Total Cost of Ownership

The days of driving high year-over-year contract savings are gone for corporate travel buyers, especially for mature global programs. The hotel market still belongs to sellers, at least on a global basis, while major air carriers have exercised capacity discipline. In addition, new technologies and tools are pressuring the traditional model of bundling travel program services within the agency relationship.

It's time for a new approach. Total Cost of Ownership, used successfully in other parts of the organization, accounts for and optimizes all cost factors, visible and hidden, within the travel, meetings, payment and expense management ecosystem. This should be the year for ditching traditional thinking in order to deliver incremental results. An added incentive for programs to commit to new thinking are the CFOs and chief procurement officers who are charged with leading initiatives that deliver innovation to their organizations but are hard pressed to find new sources.

Leaders filter the initiatives competing for executive sponsorship, budget and capacity by how well they directly support the broader company's strategic priorities. Spend control and cost takeout will always be a top priority, but many companies now prioritize other areas, such as employee experience, process efficiency and risk management, which support these imperatives. Examples include, "We will be the best place to work," "We will become the leader for efficient and effective delivery of …" and "Our priority is a safe and productive work environment."

The TCO approach shifts the spotlight from traditional models to a broader, holistic strategy focused on integrated workflows, policy, bypass, driving card spend, general ledger reimbursement and expense management customization. Most programs do not capture, do not manage and thus do not leverage their total spend. If traditional sourcing takes out only 1 percent to 3 percent of incremental costs annually, the statistics on spend capture at right point to an opportunity to deliver double-digit results by engaging senior leaders and securing their support to shift focus from traditional tactics to a holistic TCO approach.

Adopting a senior leader-supported TCO strategic initiative affords an innovative opportunity for travel programs to break out of the rut of traditional management and counter pressures from external market factors and diminishing sourcing returns.

Total Cost of Ownership Pillars

Following are portions of TCG's total cost of ownership management approach for integrating travel, meetings, payment and expense management.

1. Align: Map the desired outcomes to broader company objectives.


2. Integrate: Shift the program from a tactical function to a strategic initiative. Build the business case to obtain senior leader support. Prioritize travel, meetings, payment and expense management suppliers whose platforms enable a TCO approach. Provide key stakeholders with seats at the table and connect the dots on how an initiative supports their goals. Travel managers focus on cost takeout, compliance, user acceptance and operational support; HR on an enhanced user experience that drives employee retention and on reduced administrative burden; accounting on a better reconciliation and audit process; procurement on data-driven support in order to optimize supplier agreements; IT on aligning systems and technologies, including effective mobile platforms; risk management on effective traveler tracking; and marketing on optimizing meeting spend and reducing risk.


3. Comprehensive analysis: Aggregate agency, card, general ledger and other ecosystem data, such as workflows, to capture true program spend, both visible and hidden. Build data-driven business cases for key target enhancement areas like savings, spend oversight, process/productivity, management reporting or supplier leverage.


4. Reduce bypass spend: Improve processes and policy to drive user acceptance and improve spend oversight and management reporting to target the 11 percent of spend that bypasses contracted rates, plus the 29 percent of general ledger reimbursed spend that falls outside policy.


5. Results: Capturing, leveraging and optimizing total visible spend and substantial hidden costs drives double-digit ROI. Traditional sourcing tactics deliver only 1 to 3 percent in incremental cost takeout.