There are tenacious negotiators, and then there is Mick Lee
and her team at Citigroup. They pushed many airlines, hotels and travel
management companies to make commitments before formal RFP proceedings,
insisted there would be "no gray areas" during the bidding process
and, particularly for the TMCs in the running to pick up the banking giant's
business, made clear it would not pay monthly invoices when agreed-upon service
levels were not met. Even for a company with the size and clout of Citi, such
hard lines are rare if not unprecedented.
The goal of the process is to ensure all stakeholders' needs
are met, including Citi's 60,000 travelers across 100 countries, its senior
management and even its suppliers.
"It took a little while to understand that our
suppliers would be one" of the key groups addressed, said Lee, who serves
as the company's global travel department managing director. As the project progresses,
Citi ensures that all needs are reflected in RFPs and that all parties remain
engaged until contracts officially are signed.
By leading the initiative to persuade key suppliers to
accept from the start minimum financial and operational terms and conditions
that would make for favorable contracts, Lee earned recognition as a Business
Travel News Best Practitioner of 2011.
"We wanted to do it because we couldn't find anyone who
did, and because some of the suppliers said, 'Don't.' That gave us all the
motivation we needed," she said. "Specifically looking at the Ts and
Cs, we said up front, 'Here are our minimum conditions. If you can't meet these
conditions, then there is no reason for us to send you an RFP.' "
Assembling The Team
The project began in October 2009, when Lee joined the
company. An early step was marshaling a team across Citi's worldwide
operations, including the various country managers. Lee said she "specifically
pulled someone from the hotel industry to run hotels," and did likewise
for airlines and travel management companies, "to make sure that we can
understand in real time—not just that 'I used to work for an airline 20 years
ago'—what it's like to sit on the other side of the table. The better we are
able to provide them with data, to give them our expectations and clarify up
front what we want from that exchange, then the better the opportunity for us
to get what we are looking for."
Key to the project was engaging Citi's internal legal and data
privacy departments, given the company's insistence on applying "structure
and a lot of advanced planning around all of our RFPs," Lee explained. "We
have known from the very beginning what limitations there would be from a
compliance and regulatory perspective, which are pretty complex, and built that
into our timeline, and also to make sure we are balancing banking
relationships, which are incredibly important to us with suppliers. It doesn't
mean who we are going to choose but we are going to be sensitive to that and
have that be part of the overall decision-making process."
Lee had worked on contractual terms and conditions in years
past, she said, and this time Citi "definitely did a lot of work to
increase the comprehension of what they covered."
By including country managers, Lee's team uncovered local
needs and concerns to be addressed in service-level agreements, "so the
suppliers knew from the beginning that these were going to be the requirements,"
she said. Citi told suppliers they needed to "sign off on the minimum
terms and conditions by a certain date before they are issued the RFP, and that
there wouldn't be any gray area or notations that say 'for further negotiation
at a later date.' " That not only grabbed suppliers' attention, Lee said, but
also allowed them to "go through due diligence with their legal and data
privacy teams."
On the Citi side, Lee and her team also convened various
councils and committees to collect intelligence from employees, make decisions,
promote buy-in and communicate new policies and processes. The designated
travel agency committee, with 400 people, is the largest. Noting how the travel
agency component has lots of visibility within the travel program and that there
are fewer viable agency options in the corporate travel market than airlines,
for example, Lee said "this is the one that we had the most amount of
feedback. By having the user council, we know exactly what they want and need.
If for some reason Hong Kong wants a local agency, as long as they can meet our
criteria, that's the direction we want to go in because we know there is not
one agency that works in every location."
User groups for hotels, airlines and ground transportation
also have "proven to be invaluable for us," Lee remarked. "We
know in advance what each country and each business needs."
Supplier
Participation
Though Citi was unwavering in its goals to secure in advance
Ts and Cs from suppliers, "that didn't mean that there wasn't any back and
forth, because there certainly was," Lee explained, adding that the
company sent to suppliers early drafts of the requirements. "Clarification
was needed in some cases. In some cases, there were areas we were willing to
move on. We wanted to learn from them. We wanted to show, from the very
beginning, that we wanted to work with them; it wasn't just one way."
Even so, certain agencies, airlines and hotel companies
removed themselves from the process because they would not agree up front to
all of Citi's terms and conditions.
Travel agency: The selection process for a travel management
company is expected to take about a year. Due to the complexity of travel
management company deals, the various operational details and required
servicing around the globe, obtaining input from all internal stakeholders was
key. "We had an agency in a country in Asia whose service absolutely
tanked during the RFP process," Lee explained. "They spent more time
on the RFP than actually servicing the clients they already had." Without
local feedback, "our team wouldn't necessarily know this in real time."
In pursuing three-year agency deals, Citi tied signing
bonuses to discussion around terms and conditions, and also stipulated that,
once selected, the designated travel agency would not be paid if it failed to
achieve specified performance targets related to service-level agreements. "That's
when you see who is really giving you lip service versus backing up the
capability that they are saying they have," Lee said. "To give them
credit, the final ones we are working with said, 'Well, of course.' "
American Express currently serves as Citi's travel
management company in the United States and United Kingdom. Carlson Wagonlit
Travel handles various markets in Asia, Europe, the Middle East and Africa. All
told, "we have 53 globally," Lee said, "and by year-end we are
going to three."
Hotels: Citi's terms and conditions were included in formal
RFPs. "We required that for their final proposal, they had to include an
electronic acceptance of those terms," Lee said.
[PULL_1]Citi's demands included "some of the stuff you would
expect as far as not honoring the reservation, but it would be a higher
requirement than it would typically be in the industry," Lee said. "It's
more than just, 'You have been booked down the street, and we will cover the
cost of that.' "
The company also required from hotel chains a certain level
of reporting and guarantees on last-room and negotiated rate availability. "When
we did audits on our rates, we did them a month before the hotel program was
launched, but we found an unacceptably high percentage of rates somehow had
dropped out when we did the same thing two months later," Lee said.
To ease the process, Citi previously met with hotel chains
to map out its vision. "It was more difficult for the boutique-type hotels,
the smaller hotels," Lee explained. "Some of them had to back out. In
some cases, when they are just about the only game in town, we would illustrate
some more flexibility than the others."
Unlike most corporate hotel programs, which are based on calendar
years, Citi's one-year deals start in May. To provide benefits to travelers and
participating hotels, the company has "done a lot with the social media
site so we can say to [the hotels] that we will help with promotional specials
and your shoulder season and the nights you have availability issues, but you
can only participate in that if you are in the preferred program. It helps to
tie the two together."
Airlines: Citi's two-year airline deals took effect in
October 2010. Similar to its requirements for hotels, the company insisted on
airline contract terms and conditions related to clearance of fare basis codes.
"Airline pricing is far more dynamic that it has been
in past years," Lee said. "A lot of the negotiations we had done were
made with the commitments, 'You are only going to get this discount in D class,
but don't worry, it will be available X percent of the time.' We would say, 'Great,
put your money where your mouth is and put some terms and conditions around
that.' We have been burned before, as I am sure a lot of people have. The
market changes. It doesn't mean anyone is doing this in a malicious way
whatsoever. But if we are ready to commit to a two-year program, and if we are
driving the business to the level and degree that we are, then we are going to
expect that in return."
Citi's current airline deals consist of "about a
half-dozen of the airlines that were most important to us," according to
Lee. "They may not have been the top volume in all locations, but because
of where they flew, they were more important to us."
Travel Policy As A
Foundation
To take such determined stances with its suppliers, Citi
first had to get itself into a strong negotiating position—based not only on
its sheer global travel spending volume, annually in the hundreds of millions
of dollars. To do so, it shored up performance against pre-existing marketshare
targets and implemented new policy components.
On the former, Citi "worked very hard" to reverse
marketshare shortfalls "before we went out to bid," Lee said. "We
timed the bids around coming to them and saying, 'Look at the last six months
and see how we improved and what we have done, and we are willing to tie our
discounts around that market share.' It gave us a bit more credibility."
[PULL_2]A strong, mandated travel policy also lent credibility,
according to Lee. It is a global policy "regardless of what level you are,
regardless of what country you are in," she said. The policy includes
requirements to use lowest logical airfares and hotel rates and a partial
nonreimbursement clause related to booking channel. "If you book outside
the designated travel agency you get reimbursed 80 percent for the cost of your
trip," Lee explained. "In some cases, that might only be a few
hundred dollars. If you happened to do an around-the-world trip, that's going
to get your attention."
That policy took effect in October 2010. It is backed by
audits conducted by the accounts payable team.
"The first few months were very loud, a lot of feedback
from people," Lee said. "We did update our senior management that
this was coming, so they could expect to hear complaints and respond
accordingly. Our senior management was very supportive of doing this."
Once it solidified traveler compliance to its policies, Citi
could be assertive during negotiations with suppliers. For example, "some
of the airlines would say, 'You are pushing us to get a better discount for 80
percent market share. If you go to 75 percent, we are going to cut your
discount by 5 percent.' We said, 'Let's give you 85 percent, give us even a
deeper discount, and then cut it that much more dramatically [if we miss the
target], because we are that certain about our ability to drive market share.' "
Meanwhile, to convey the various benefits, including safety
and security considerations, negotiated amenities and upgrades, Citi's travel
policy is marketed to travelers to through a single global website, travel
council meetings and a new internal social media site. "Ignorance is not
an acceptable reason for not having complied," Lee said.
Lessons Learned
As for Citi's experience in holding firm with suppliers, Lee
said the strategy thus far has worked well. "The feedback that the
suppliers gave us was, 'Yes, this is tough, it is difficult and people aren't
doing this, but we understand where you are coming from.' " Feedback on
the new airline programs, in place since October, "has been great,"
she added. "We met regularly with the key airlines that have this. It's
unique for them."
An important lesson learned by Lee and her team was "the
criticality of being inclusive within your corporation and bringing in the
right team early on—legal, data privacy, compliance—across the board."
Another takeaway, she added, "would be not to take 'no'
for an answer. The fact that it hadn't been done before, or the fact that
suppliers push back on progressing in that way, shouldn't stop you."
The report originally
appeared in the November 2011 issue of Travel
Procurement.