August 31, 2009 • San Diego - The value of business travel was a primary theme at the National Business Travel Association's annual convention this month in San Diego as delegates discussed how best to define business travel's role in challenging economic times, determine the returns it provides to those footing the bills and identify when and how to use viable alternatives.
Demonized by some politicians in the past year in the wake of big-name corporate collapses, business travel had a high-profile defender during the conference. "Insofar as this is an optional expense in hard economic times, our businesses will cut where they have to cut, but there is no point in going beyond that because business enterprises are not in the habit of throwing away money," said keynote speaker and former U.S. president Bill Clinton. "They invest in their employees traveling because they think it makes the enterprise more productive and more profitable, and the government--either in law or in rhetoric--shouldn't be second-guessing those decisions."
While Clinton promoted travel and face-to-face interaction as drivers of human development--past, present and future--he added, "I also know that you can do a lot of long-distance communication now."
To Travel Or Not To Travel?
Cost-cutting and environmentally aware organizations around the world attempt to reconcile those dual truths. To help with that reconciliation, the British/Irish Institute of Travel & Meetings is planning to coordinate in early 2010 an international travel buyer forum to be conducted by telepresence.
"One of the overriding themes of the [NBTA] conference has been a protective stance for the industry--there were regular messages around 'travel is good,' 'face to face is the only true way to do business' and a general promotion of the supply sector," according to ITM executive director Paul Tilstone in comments emailed to
Management.travel after he was asked for his thoughts on the event. "Whilst we fully understand both the reason for this type of messaging and the sentiment behind it at this difficult time ... it is our belief that there is a much greater need for debate around the realities of where and when travel supports businesses and what other mechanisms businesses can use to create efficient and sustainable interaction with their stakeholders."
The question of when to travel or skip the trip and perhaps rely instead on remote conferencing technologies has been explored intensely in the past few years. A growing number of companies have implemented or considered demand management strategies and sought to calculate the return on business travel investment.
Calculating Business Travel's ROI
American Express and the NBTA Foundation tried to put some science behind such examination. Along with IHS Global Insight, they recently produced a research report to determine the relationship between travel spending and sales, costs and profit; the points at which lost sales outweigh business travel cost cuts and additional business travel provides no sales benefit; and, "if possible," the "optimal level" of business travel.
Using 1998-2008 data from IHS Global Insight and the U.S. Bureau of Economic Analysis, researchers examined how various sectors "value" business travel, based on travel spend per revenue dollar. Overall, "businesses spend about $0.01 of every sales dollar on business travel," according to a presentation of the findings. That ranges from one-tenth of a cent in the mining industry to $0.04 in the equipment rental and leasing sector.
The Amex-NBTA-IHS report also found that in 2008
business travel as a percentage of material costs and services was 2.3 percent and as a percentage of profits, 5.18 percent. Both metrics, along with business travel as a percentage of sales, showed declining trends during the past 10 years.
The researchers went a few steps further and concluded that "many businesses in the U.S. have ample room to profitably increase sales by increasing business travel spend." More specifically, "in inflation-adjusted terms and holding other factors constant, increasing travel spend by 1 percent will result in increased sales by as high as 1.7 percent."
They also found that "businesses can also raise profits by increasing travel spend, providing the incremental increase in sales is greater than the incremental increase in travel expenses," according to the presentation. Across all industries, profits are maximized when a 2.24 percent increase in business travel generates a 1.31 percent increase in sales.
Researchers used an "econometric approach to isolate the statistical relationship between travel spend and sales," regression models and "a quadratic functional form--i.e., increases in travel spend will increase sales, but the payoff does not continue indefinitely." In other words, there is a point at which organizations start to see diminishing returns, where "increasing travel spend becomes a net drag on profitability," according to the presentation. That point varies by industry and company.
The concept also can extend to internal benchmarking. Organizations are "being more surgical," said Amex senior vice president and general manager of worldwide sales Andy McGraw, speaking during a press conference at the NBTA event. " 'Should I dial travel up in this group, but not this group? I don't need my HR group to travel more, but definitely need sales and marketing to do more product launches and to be on the road. If I dial theirs up 20 percent, net-net I could spend slightly more money but get higher returns.' "
Recognizing the diminishing returns of excessive business travel, Amex also has focused on remote conferencing. To help clients identify which trips can be avoided, Amex announced a virtual meetings tool that would inform travelers in online booking systems and travel counselors during telephone reservations of telepresence options. The tool would consider a trip's price, purpose, duration, environmental impact and other criteria to help determine if the mission can be accomplished remotely, and then list availability of "public telepresence facilities and the private network a company may already have in place." Amex said it is "working with multiple third parties to arrange for access to telepresence and virtual meeting inventory," and filed a patent to cover the methodology used at the point of sale. The company now is piloting the system and planning a 2010 release.
Airline-Sponsored Research Makes Case For Travel
British Airways also sponsored some research on the topic of remote meetings versus travel.
Harvard Business Review in June conducted an online survey of 2,300 subscribers around the world and found that 89 percent of respondents "said you have to be there to seal the deal," said BA executive vice president of the Americas Simon Tallig-Smith during an interview with
Management.travel at the NBTA conference. "Meetings are crucial if you are going to grow your business."
According to the
Harvard Business Review survey, 60 percent of respondents very frequently in the past 12 months participated in a teleconference, compared with 35 percent very frequently traveling to business meetings. Webinars and videoconferencing each were used very frequently by 16 percent of respondents.
In the next 12 months, 53 percent of respondents expected to increase teleconference use, followed by videoconferencing (44 percent), webinars (21 percent) and meetings requiring travel (21 percent). Just 2 percent expected decreased use for all remote conferencing options, compared with 30 percent expecting less meeting-related travel.
"Whilst the application of videoconferencing is on the rise, the challenge to face-to-face meetings is very real and very valid when you consider people, profit and planet," wrote ITM's Tilstone. Referring to the "transnational forum" planned for next year, he continued, "using the high-level videoconferencing technology itself to undertake this event will also act as an exercise in the application of technology and a living test of the pros and cons of face-to-face versus the alternatives."
