Data on Service Spend

  Are Your Consultants/Vendors Spending Too Much on Travel?

My friend and colleague, Vinnie Mirchandani (www.dealarchitect.typepad.com ), loves to advise buyers of software and services. It’s what he does for a living. Vinnie has bent my ear on more than one occasion when he speaks of the high overhead costs of major systems integrators, consultants, outsourcers and software vendors. Vinnie hates seeing waste and he’ll likely have some interesting remarks related to this blog posting.

Business Travel News (www.btnonline.com) published its annual Corporate Travel 100 special edition this month (August 2006). It ranks the top 100 buyers of air travel in the

United States

. Each of these companies is profiled with many profiles identifying the net change in travel spend year over year, the best practices each firm is employing and how many employees are currently participating in these programs. Sadly, the data is not complete or consistent for all of these firms.

I read many of these summaries and have placed key data on service firms in the attached table.

If your firm is negotiating with a major service firm, you might want to ask them some tough questions regarding this big piece of their SG&A spend. Why? Because your firm is paying their high billing rates just so they can fly and entertain others. You need to determine how well they are spending their money and whether you should subsidize some of these costs.

I wish Business Travel News had captured the total number of

U.S.

employees (and the total number of

U.S.

employees who travel) for each firm. That extra data field would have permitted us to calculate travel costs/traveling employee. That number would have gone a long way to understand which firms are the most efficient in managing their travel costs.

In reviewing the Business Travel News materials I was surprised at:

-          the sheer size of IBM’s

U.S.

travel costs

-          the fact that McKinsey is outspending Accenture. Can that really be right?

-          the enormity of the total U.S. T&E costs of these firms. I must have missed a bunch of great meals during my Big 8 days.

I wasn’t surprised though at the much higher travel costs these firms encounter outside the

U.S.

Great service firms have a number of great travel practices that I wish more used. For example:

-          100% of traveling employees using company booking tools

-          100% of employees using corporate travel/charge cards

-          Mandated meetings policies

-          Automated monitoring of airfares

-          Use of collaboration technology in lieu of travel

-          Consistent progress in reducing travel costs/employee

-          Better monitoring for employee compliance

-          Consistent travel systems in use throughout the global firm

-          Negotiated travel agreements with hotel chains, airlines, etc.

Also, the top 100 travel spenders included a couple of software firms. Their data is presented below.

This blog will be cross-posted on Software Safari (www.softwaresafari.typepad.com) and KiteBlue (www.kiteblue.net) .

Comments

[vinnie mirchandani]

Brian, you are losing your art of prediction. On this one, you are 15 months late about me -)

I wrote on the topic here

http://dealarchitect.typepad.com/deal_architect/2005/04/enough_frequent.html

[viinnie mirchandani]

Brian, you ask very good questions at btoom - but the fundamental one should be - why are so many consultants below a certain level being flown in every week. Can you not find good programmers, SAP implementers etc locally. If buyers dinged vendors with more than 25% of teams traveling (unless the client is a small town) as part of evaluation, vendor behavior would reflect that demand.

[Roman Rytov]

Good point. Travel expenses are the obvious candidate for minimizing SG&A. Looking at the statistics it may seem that there is a lot to cut. Although I have two comments on that.

For solely knowledge-possessing companies (i.e. software vendors at early solutions stages) there is no alternative. No partner (on- or off-shore) has yet competetive level of knowledge to serve as replacement fot the solution author. And even if one day a partner emerges (the sooner for the vendor the better) the partner will get a deal due to its lower per-hour rate and not money saved on low travel expenses.

The other aspect is the flyer's side. As we discussed here
http://roman-rytov.typepad.com/miles/2006/02/flaws_of_freque.html
flyers have to feel comfortable with the trips and the travel policy. I simply won't fly transatlantic flights in economy if I have more than 25 flights a year (let alone domestic). Hotels, cars, per-diem allowance all define how much I can like flying or how strong I will be looking for another job.

Also I think that the travel industry may innovate and offer new schemas (saving directly, or on a cummulative basis, or allowing better monitor and mine data) to help resolve the problem.

What is interesting is MSFT overspends us (SAP) 2.5 times. Is it due to a sweeter travel policy or just a wider in numbers travel stream?

[Mohan Babu]

Interesting statistics. The data quoted is that of a few American consulting companies. I wonder if the statistics would be any different if the survey were global.