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Benchmarking: Hitting the jackpot

Failing to benchmark properly isn’t a gamble worth taking

Bring up benchmarking with a colleague, and it’s not long before a fruit analogy crops up. As the old adage goes, you can’t compare apples to oranges; yet many in the industry still cling to their right to give it a go. In their bid to assess the deals they’re getting on flights to certain destinations or how much they are paying for hotel rooms, comparisons will be often be made with inaccurate data sets – for example, against a much larger competitor’s fares or historic hotel rates. It’s a process that one senior executive describes as “data churning – some travel managers are still throwing data over the fence at each other”.

In this modern age of travel procurement, sophisticated solutions are being developed to bring benchmarking up to speed or, more precisely, into real-time. Cost is, of course, important – but taking benchmarking seriously can benefit your organisation in many other ways.

Counting the cost
For Chris Crowley, the new vice-president for EMEA operations at HRS, the travel industry continues to be overly obsessed with traditional key performance indicators (KPIs).

“A lot of KPIs we use in the industry are static. There’s a fixed perspective that often doesn’t relate to anything. For example, it’s common for a TMC to look at cost per mile. In the hotel sector, it’s common to look at average daily room rate. But that doesn’t tell you how you arrived at those figures.

“At HRS, we come at it from a different perspective – a data perspective. For example, if our daily rate statistic for hotels is based on 40 per cent of bookings, it’s not accurate. But for 90 per cent, the base data is more meaningful. Also it’s more meaningful if it’s all bookable; data must be between loaded and booked rates.”

HRS, he explains, works with the global travel programmes of 30 per cent of the Fortune 500 companies, so it has scale on its side. “When we present KPIs, it’s from a much more mature benchmark, we help them contract the right rate.”

Benjamin Park, international director of procurement and travel at Parexel, meanwhile argues the main challenge is more the lack of transparency. “Today, some hotels have ten room types in one hotel, some with continental breakfast or basic wifi, and others with more included. You cannot compare ‘a price’ anymore as they manage to get away with no standards and added complex bundles,” he says.

As well as costs, travel buyers can gauge how their policy looks compared with other companies. Greeley Koch, executive director at ACTE, notes there many informal groups that exist where buyers get together and discuss those aspects that don’t involve confidential financials.

One travel buyer who works at a government department in the UK told BBT she has joined an informal “United Nations Travel Managers” group. Their overall spend was relatively small with its bias towards economy class travel, their TMC was not able to provide adequate benchmarking due to its non-traditional destinations, so the group was the perfect place to share notes with other non-private sector buyers.

ACTE, meanwhile, runs events that bring buyers together in a similar way. “There are always different things that the buyer wants to look at,” says Koch. “At a higher level, it’s policy. I was with a group of buyers recently and they said they needed to remain competitive. If you offer business class only for long-haul flights over six hours, but a rival says five hours, you lose that talent attraction.

“We see a lot of informal benchmarking when there’s no commercial sensitivity, no anti-trust laws coming into play,” he adds.

The sustainability factor
Michelle Taft, managing director at consultancy Apensia, agrees there are many areas outside of traditional procurement that can be benchmarked. One of the most common is sustainability, and there are many carbon offsetting tools on the market. Yet with wellbeing climbing up the corporate agenda, some TMCs are also now offering sophisticated data on how wellbeing impacts the overall organisation, staff and its bottom line – which could be an “exciting driver” for benchmarking in the future. “And understanding how your approach to travel and your travel policy stacks up against your competitors is also critical to recruiting and retaining the best talent,” she says.

Of course, Koch continues, buyers benchmark against cost, but he argues today it can get “a little murky”. Back to the fruit analogy, he notes: “It’s hard to get an apples to apples comparison as there are so many variables. If someone has a frequent city pair, then most people will turn to their TMC. They say ‘you know us, give us a like-for-like comparison to someone whose programme is close to ours’. That’s as close as you can get.

“But there are companies like ARC [Airlines Reporting Corporation] that can help, pulling in interline and IATA data, trying to get that apples to apples comparison.” ARC settles more than US$88.5 billion in transactions annually between airlines and travel agencies in the US, representing more than 287 million passenger trips, covering 60 per cent of the world’s passenger air tickets.

“Then there are specialised silos, and for accommodation you have the likes of HRS who can compare specifically in the hotel sector, and can drill down to cities. But with ground transport, the suppliers may be reluctant,” he adds.

However, with a growing number of large consultancies emerging, travel buyers can turn to them for benchmarking advice. But it depends on their clients, and their clients’ industries, if they can make relevant comparisons. Koch adds: “Consultants can be good at not only benchmarking overall cost, but services beyond the price of fare, the ancillaries that are bundled in.”

Making comparisons
Koch describes the most common type of benchmarking as “rear view mirror benchmarking” – looking back at what has happened, over 30 days or 60 days. But, he adds, some companies are saying they will look at rates more often, because they do not want to get locked in with certain suppliers, or locked in over a particular period of time.

However, a comparison of actual activity on a monthly or quarterly basis can be helpful when determining if a travel programme has the best negotiated rates. One buyer in the food and beverage sector told BBT they appreciated the quarterly reports from their TMC, which presented the statistics in a clear way, highlighting any trends or anomalies, importantly saving the buyer the task of sifting through reams of data.

But some buyers are opting more for spot-buying, allowing travellers greater flexibility to choose the cheapest rate. At the same time, hotel chains are increasingly offering more flexibility in their rates. Dynamic pricing is here to stay and tech-savvy buyers and TMCs are opting for real-time benchmarking, enabling them to respond faster. 

Apensia’s Taft notes: “We are already seeing TMCs aggregate pricing from multiple channels at the point of sale and therefore providing this data in real-time management information reports. And with nudge theory and behavioural economics gaining traction within business travel, it will be interesting to see how this evolves in the future to influence traveller choices in real-time.”

Jessica Collinson, the GBTA’s research director, meanwhile warns that these types of benchmarking tools are only useful if there is good, relevant data. GBTA’s Managed Travel Index allows for real-time benchmarking. “A travel buyer can input their data into the tool and determine how their programmes stack up against others’ programmes.  Of course, to do this there has to be enough data in the tool,” she says.

Improving communication
With the GBTA’s tools (gbta.org/research-and-tools/ business-travel-benchmarking-tools), and others out there, Collinson also argues that benchmarking is an essential practice for those buyers wanting to provide a road map for their organisation, to work out how to get to where they need to be to create a more successful programme. And, as a side benefit, they in turn become invaluable tools for communicating the value and importance of travel to C-suite leaders.

“Benchmarking is never seen as an urgent priority, which is understandable given all the priorities travel buyers have,” she says. “However, it is important to be able to answer questions before they come up. Travel buyers have the opportunity to do this when benchmarking their programmes – they are able to see where there are opportunities for improvement in their programmes and then they can begin to build business cases for those improvements.”

Benchmarking will continue to evolve in tandem with advances in supplier distribution, and there’s all to play for when buyers embrace the right technology.

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