Heading off on a business trip? Don't forget to get a receipt — from the chambermaid, the coat-checker, and the barista. Sound impractical? Maybe, but these days no travel expense is taken for granted, and travel policies now routinely impose strict guidelines on reimbursements and the documentation you need to get them.
That may not surprise CFOs, who don't just abide by such policies but often champion them. Having wrung as much cost as they can out of big-ticket items like flights, hotels, and rental cars — which typically account for 75% of every T&E dollar, according to a recent survey by Procurement.travel — companies are focusing on the remaining 25% of the travel budget, which consists of smaller costs like airport parking, sedan services, meals, and, yes, tips. Approaching travel with this "door-to-door" mind-set represents a new front in the war to subdue costs.
Business travelers, in short, are being asked to sweat the small stuff. "I've turned down expense reports where I thought the meals were excessive," admits Jack Egan, CFO of Volt Information Sciences, a $2.5 billion staffing and telecom-services firm. "Employees will come in and argue, but generally the amount will get reduced. We need to watch every dollar."
No longer can an employee return from a trip with a fistful of blank taxi receipts, filling in the figures based on a blend of foggy memories and wishful thinking. At ConAgra Foods, nobody paid attention to such travel crumbs three years ago, but the company has since managed to chop those smaller costs by a double-digit percentage. "We did not wait for the change in the economy. We were proactive," says D.K. Singh, senior vice president, enterprise procurement, at the $14 billion company. "Now we see that other companies are focusing on these smaller travel expenses the way that we are."
Many companies have tended to overlook small travel expenses in the belief that it isn't worth the effort to control them. "CFOs have to be willing to tell travelers that, 'This is where you'll stay or I won't reimburse you,'" says David Clevenger, vice president of Corporate United, a group purchaser for 140 companies. "But I'm shocked at how few mandates like that there are, even in Fortune 1,000 companies."
Such mandates are tricky, of course, because it's hardly a trust-building exercise for a finance manager to question a salesperson's decision to order that second bottle of Pinot Noir. Fortunately, nitpicking isn't the only way to address that last mile of expense. But it takes an experienced and sophisticated cost-cutter to explore and implement new approaches. In other words, CFOs are studying this category more closely than ever. "CFOs are now personally involved in understanding this category," says Hervé Sedky, general manager of advisory services at American Express Business Travel. "They know there's waste in the system, and they want to better understand how they can optimize their investment in travel."
Experienced cost-cutters know that the best way to reduce expenses is to never incur them in the first place. Preemptive cost-cutting has become more visible in other functional areas — cutting head count, for instance, in anticipation of the tough year ahead, or canceling a capital expenditure to accommodate a forthcoming budget shortfall.
But chipping away at smaller travel expenses requires a sharper cost-cutting tool. You can't simply announce to employees that they are all grounded until further notice. There is still revenue to be captured — maybe more than in better times, if your competitors are suffering — and clients who expect personal attention. It's a balancing act. In a recent survey of 400 members of the U.S. Travel Association, while 50% of travel managers said that they had to cut costs, 80% agreed that travel played an important role in their company's success.
These dual priorities give rise to any number of judgment calls: Do you cancel travel to all meetings, or just to those that don't pay off by stuffing the pipeline with orders? Do you cut back on all entertainment expenses, or make allowances for longtime clients who have habitually responded quite well to being wined and dined inside the luxury box at a ballpark?
What's needed is a set of policies that is consistent, clear, and easy to communicate. At Starwood Hotels & Resorts, for instance, employees know the kinds of trips they should rule out. "We've asked employees to think twice about going to meet with co-workers," says CFO Vasant Prabhu. The guidelines aren't quite as clear regarding meal expenses — which can consume 9% of a company's total T&E costs, according to travel industry analyst PhoCusWright Research. Prabhu says the 1,000-property chain is "encouraging all employees to be more mindful of their food and beverage costs."
Sometimes it takes more than encouragement. At Volt, for instance, employees not only have to learn about strict travel-expense rules — no reimbursement for alcohol or for in-room movies — but will find it difficult to break them. The company's proprietary travel portal, which it installed nearly three years ago, enforces most of its policies. So even if an employee attempts to upgrade the size of his rental car, he "won't get very far before we start getting reports on him," says CFO Egan.
Third-party technology is also available to police the behaviors of business travelers, and can be tailored to suit a company's zeal for enforcement. Rearden Commerce, for example, makes a Web-based tool for travel planning that gives misguided employees the benefit of the doubt. At first, a helpful warning appears ("You are out of policy."). Then an edgy threat warns that the boss will be notified. Finally the system can block an action altogether. "We give employees critical data at a critical point so they can manage their expenses down," says Tony D'Astolfo, Rearden's vice president of worldwide sales.
But do they? Without a doubt, D'Astolfo says — especially when faced with the prospect of explaining their choices to their boss. "A lot of times an on-screen reminder that tells someone that their boss will know they made a less-than-optimal reservation will change their behavior," he says.
Hold Employees Accountable
Technology can also be used on the back end. Concur, which provides T&E software, can pinpoint every cost discrepancy between the trip as planned and what actually transpired "with just the push of a button," says co-founder Mike Hilton, executive vice president of marketing. "Nothing gets by."
But it may be the proverbial "tone at the top" that counts the most. While it can be helpful for a company to announce that anyone who makes reservations within 14 days of a trip (and therefore too late to reap discounts on airfare or hotel rooms) needs to seek approval from a manager, that message carries more clout when it comes from the CFO — and when it's accompanied by strong evidence that the CFO didn't just sign the memo but is enforcing its contents. Volt's Egan approves every executive's expense report himself. "They know I am right there in the weeds with them," he says.
It's also important to show employees that management is abiding by the same T&E rules it has mandated for the rank-and-file. As a CFO, don't hesitate to announce that the Miami meeting is being rescheduled for the off-season, or moved to Fort Lauderdale, or reconceived as a Webinar. Have everybody stay in one hotel, rather than dispersing to three. Better still, find an old college roommate who can put you up at his place. A futon — at your age? Why not. Setting that kind of example will inspire your employees to make sure every dollar travels as far as it can.
Josh Hyatt is a contributing editor of CFO.
The market for corporate jets is grounded.
You can get a great deal on a corporate jet nowadays, but be forewarned: the idea isn't going to fly. In fact, just raising the notion may get you ejected from a board meeting. "To own a corporate jet now is a bad thing," says aviation industry consultant Mike Boyd. "It's widely viewed as a toy, not a tool."
In fact, the political climate has driven many corporations to downgrade their fleets. In December, Starbucks took delivery of a $45 million Gulfstream G550 — which it put up for sale just a month later. Around that same time, Citigroup canceled delivery of a $50 million jet. In fact, aviation consultant Brian Foley estimates that in March roughly 20% of corporate jets were up for sale, double the number that would typically be available.
It ought to be a buyer's market for used business jets, with prices descending about 30% since last year, according to Foley. But the reputational cost has soared. Last fall, Congress effectively grounded the jets by publicly castigating the CEOs of the Big Three automakers, who famously used their corporate rides to fly to the nation's capital in search of bailouts.
The fallout has also extended to so-called air-taxi companies, once touted as cheaper alternatives. Several have gone under, as have the manufacturers of the VLJs (very light jets) that were to form their fleets.
Many argue that paying at least $2.5 million for a company jet isn't as extravagant as it might sound. A corporation with satellite divisions can maximize management's time by flying point-to-point, landing at smaller airports, with executives working all the while rather than waiting to slip past the beverage cart en route to the rest room.
If you think your board might be receptive to that argument, you might want to hold off anyway: Foley says prices for used jets could drop another 15% before the business shows signs of recovery in 2010. Financial recovery, anyway. The stigma associated with corporate jets, he says, "will live much longer." — J.H.