We all find ourselves prognosticating the “new normal.” What percent of travel will never return? Is business travel even important now that we are used to videoconferencing? Many have even tried to come up with a simple litmus test to measure the cost/benefit for a particular meeting. While there is no roadmap to help answer these questions, industry category managers, TMC’s, and consultants have long considered the return on investment associated with corporate travel. After 18 years of helping clients develop ROI (return on investment) modeling around corporate travel expenditures, I can assure the reader that ROI cannot be measured using any of the buzzwords or catch phrases we read about every day in our trade articles. Neither describing a trip’s purpose nor somehow measuring the joy that comes from a traveler’s booking experience is descriptive of a business decision that results in ROI. There are some things that can’t be explained in a phrase or analyzed without due consideration and the calculation is only getting more difficult as a result of the hybrid work environment.
In its own right, corporate travel is a deceptively complex ecosystem which can help produce substantial contribution to an organization’s top line revenue and carries an impactful cost basis. Corporate travel touches all key functional areas within an organization – Finance, Human Resources, Sales, Procurement, et cetera. Understanding this complexity and these relationships is not only the key to determining ROI but also presents the challenge calculating ROI itself.
Key Questions to Ask About ROI
1. What is the return on investment if I make that trip to see my customer? Supplier? Prospect?
2. Is opportunity cost part of my calculation? If I didn’t spend the money to see my customer do I risk the relationship?
3. Is my supplier mix correct? Did procurement select a particular supplier because of the price of the goods or services or did he take into account the impact of travel costs and other total cost of ownership factors? How does trip cost savings square with value?
Ultimately, the more detailed question that must be answered to determine the ROI on corporate travel is what percent of my total cost of goods or services comes from travel and what is the ROI derived as a result?
The New Normal in Business Travel
The hybrid work environment is here to stay and with it the complexity in dealing with ROI becomes greater. All of my prior questions remain in a new normal hybrid work environment but now more variables require a solution.
Five years ago clients were tearing down walled offices to accommodate friendly workspaces and a more collaborative environment. Today, those walls are either being put back up to ensure social distancing or offices are sitting empty with years’ worth of future lease payments on the books. Clients who consider the ROI on business travel contemplate how empty office space may be re-purposed, used in lieu of traditional meeting space, or work in conjunction with certain business trips.
Most companies now understand that they can communicate sales strategy and corporate capabilities over a Zoom meeting, foregoing the expense and hassle of travel but how do you measure what you give up by not being in person? Is opportunity cost a real cost? One on hand, sales driven organizations have historically adhered to the notion that “being there” is half of the battle to win new business. On the other hand, generational change in our workforce demographic may prove this notion outdated.
The pandemic has forced virtually all organizations to adopt some type of virtual model to keep their businesses moving and has put all competitors on a level playing field. But certainly, in a pandemic free world competitors will look to gain a competitive advantage and it’s hard to envision that travel to meet prospects or as a retention strategy won’t be part of that mix. While it’s hard to argue that some type of hybrid work environment is here to stay, developing a ROI model will rely heavily on the factors described above. Without considerable thought, I have no doubt that a hybrid work environment for some will carry some stiff penalties as a result of lost opportunity.
A Hard Look at ROI Will Pay Off
Ultimately, the successful ROI modeling we have developed over the years has come from a hard and realistic look at all of these variables, setting aside pre-determined random corporate travel budgets made with no real strategic thinking around the cost/benefit of a particular business trip. It requires consideration of all possible variables, both soft and hard dollar return on investment if the goal is complete transparency and measurable results. A satisfactory ROI is also highly dependent on the client as value is always a matter of both tangible financial benefit and perceived value.
There is a reason why procurement managers, category owners, and industry consultants take on the challenge of measuring the ROI associated with travel. As the third or fourth largest discretionary spend in most organizations, travel represents both a significant business expense and one that can be optimized and even mitigated. Leverage all available resources. If you have a Travel Management Company (TMC), task them with helping build a business case around travel for a particular meeting or for a business unit. Engage stakeholders within your organization who have a supply chain optimization background. Seek advice from third party corporate travel consultants. Gain an understanding of the role travel plays in support of all corporate activities including cost structure, competitive landscape, goals, and corporate culture.
As travel is once again impacted by a spike in COVID-19, now is a good time to take a critical and realistic look at the impact business travel has across your entire company’s supply chain keeping in mind that there are no short cuts when trying to answer tough questions. Learn how CapTrav can help your corporate travel program here.