Business Travel Purchasing conventional or Internet-based?

2001 B U S I N E S S T R A V E L U P D A T E e P R O C U R E M E N T Business Travel Purchasing conventional or Internet-based?

eprocurement TABLE OF CONTENTS Introduction 03 Management Summary05 Situation Analysis and Goals 07 Comparison of Conventional and Internet-based Standard Processes 09 Web-based Business Travel Procurement: Advantages and Opportunities 11 Advantages of web-based Travel Management from the User s Point of View 11 Business Travel Volume 17 Results 19

I BUSINESS TRAVEL UPDATE 2001 eprocurement TABLE OF CONTENTS INTRODUCTION HELLO! We are i:fao. Market leader in business travel eprocurement software. cytric and quixdata are our best-in-class products, which provide our customers all around the world with significant cost savings when purchasing and booking business trips. In addition to real-time booking using Internet technology and interactive travel management, our software offers many possibilities for global data consolidation and data mining. i:fao has commissioned a study by PricewaterhouseCoopers to investigate the processes of business travel management. This study compares conventional booking methods with modern methods using cytric. The result is clear: Business travel based on eprocurement leads to considerable savings that no company can afford to overlook. In this brochure we have compiled for you some of the most important conclusions drawn from this extensive research. If you would like further information about business travel eprocurement or about the PricewaterhouseCoopers study, please contact i:fao. Sincerely yours, Louis Arnitz Chief Executive Officer I INTERNET TRAVEL SOLUTIONS 2 3

I BUSINESS TRAVEL UPDATE 2001 eprocurement MANAGEMENT SUMMARY MANAGEMENT SUMMARY What kind of potential savings and other advantages do new, Internet-based systems for travel management offer in comparison to conventional methods? i:fao commissioned a study by Pricewaterhouse- Coopers on this topic. These are the most important findings of the study: _ In the operative area, process costs (indirect travel costs) can be reduced by about 25% through comprehensive IT support and reorganization of the booking process. _ At a conservative estimate, purchase prices (direct travel costs) can be reduced by about 5%. Internet-based travel management systems offer greater transparency of services and prices (airfare, hotel, trains, etc.) and they can therefore improve purchasing conditions. _ Travel managers can be relieved of operative tasks and can therefore concentrate increasingly on strategic areas. _ In the future, travelers and companies will demand ever more flexibility. cytric provides flexibility through a booking process via the Internet, independent of place and time. _ The earliest possible digitalization enables far-reaching optimization of the total process. _ The scenarios developed and analysis thereof show that even given conservatively estimated savings values, total travel cost savings of about 7% annually (25% process costs and about 5% direct travel costs) are possible. This applies even to companies that have already optimized their travel management. For companies that have not done this, significantly higher savings are possible. _ The exploitation of existing potential should be accompanied by process optimization. Detailed planning and project management can provide positive support for this project. _ The trips booked conform to purchasing guidelines and travel policy, since the travel management system allows online control. _ cytric enables a direct connection to the service vendor. I INTERNET TRAVEL SOLUTIONS 4 5

SITUATION ANALYSIS AND GOALS The volume of business travel in Germany has increased dramatically in the last five years due to increasing globalization. In addition to wages, salaries and expenditures for research and development, travel costs are among the highest cost factors in German companies. This is how Pricewaterhouse Coopers ( hereafter PwC) describes the current situation. Increasing competition, the pressure to maintain prices low and stepped-up international competition have left their mark on many companies current situation. Increased productivity, the exploitation of valuecreation potential, and greater flexibility are the ways that many companies have found to secure their competitive advantage. Increased productivity has an impact on, among other things, business processes core processes and secondary processes, within which the business travel management process also falls. PwC comes to the conclusion that "especially companies with high travel cost volumes are therefore increasingly analyzing their direct and indirect business travel costs and optimizing administrative processes in the arena of business travel. Many companies have already begun to take advantage of potential savings in direct travel costs through conventional travel management. The indirect costs in the business travel management process are for the most part hidden at present, and they therefore offer even higher potential savings. The goal of Internet-based business travel management is the integration of the following components: _ Intelligent travel guidelines with slimmeddown approval systems that replace formulabased and multi-step approval systems. _ Reduction of processing times and the number of people involved in the process through new technologies and the integration of existing systems. _ Intelligent technologies that offer the business traveler of the future independence and flexibility. He/ she has global access to up-todate, company-specific, travel information thanks to browser technology.

I BUSINESS TRAVEL UPDATE 2001 eprocurement SITUATION ANALYSIS AND GOALS Business travel management of the future will be distinguished by full service across the entire process chain. The deployment of new media can therefore provide the opportunity for new service and new types of services. The present study hopes to make a contribution to clarifying the following possibilities for optimization: _ What indirect costs are connected with the process? _ How do the sub-processes in companies look today? _ What potential savings do business travel Workshop results PwC reference model of conventional and Internet-based processes Benchmarks Step 1 eprocurement systems offer? _ Do business travel eprocurement systems also Verification of the conventional and Internetbased process model for business travel booking/accounting Step 2 help to reduce direct travel costs? _ When do investments in business travel eprocurement systems pay off? Detailed description and comparison of the process models (Chapter 3) SWOT-analysis: Elaboration of the monetary and qualitative advantages of Internet-based travel management (Chapter 4) Scenario analysis: Economic study of various scenarios (Chapter 5) Fig.1 Procedure for creation of the business case research Step 3 Step 4 Step 5 The study is based on three main sources: Workshop results from large German companies with a total travel budget amounting to more than a billion Euros, a model developed by PwC of conventional and Internet-based travel management processes, and benchmarks. On this basis, PwC further extended the comparison model for conventional and Internet-based travel management processes, in the next step carrying out a SWOT analysis of Internet-based processes and concluding the study with an economic study of various scenarios. The results of the study do not imply that the character of the total process is industry-specific. So, they can be regarded as industry-independent. I INTERNET TRAVEL SOLUTIONS 6 7

COMPARISON OF CONVENTIONAL AND INTERNET-BASED TARGET STANDARD PROCESS PwC has, on the basis of its own reference model and current benchmarks, described a conventional standard process for business travel booking and, in collaboration with travel managers, it has developed an Internet-based, target standard process. Travel managers from various industries have evaluated both models in workshops. PwC concludes: Reorganization of Internet-based, business travel booking enables a number of efficiency improvements throughout the entire process chain. These improvements can be summarized as follows: integration and automation of process steps, reduction of the number of parties involved in the process, deployment of new concepts, and steering toward selected service vendors. COMPARISON OF CONVENTIONAL AND INTERNET-BASED TRAVEL REQUEST AND BOOKING In the study, PwC describes the Internet-based process of travel requests as follows: In the Internet-based model of travel booking, the traveler/booker enters his travel data (date, destination, cost center, etc.) online, that is, at the point of decision. This detailed data forms the basis for a systemside examination of the trip given all necessary guidelines and rules, for example, travel policies, travel budgets, and personal profiles. Such detailed data allows for an identification of exceptions, such as non-conforming travel plans or budget overruns. Analysis and maintenance of travel policies occur dynamically and consistently, so that, for example, changes in travel policies and purchasing policy can immediately be actively applied to all travel bookings. The method described here assumes that the necessary regulations and approval processes are entered at a central point in the system. In the Internet-based process, procedures are slimmed down significantly. The system automatically recognizes that trips are booked according to approval and travel guidelines. The decision-maker therefore no longer needs to approve conforming trips manually trips that, according to PwC s estimates, comprise between 95% and 99% of all trips. For manual approval of the remaining travel bookings, the decisionmakers are equipped with a secure and detailed basis for making their decision. To sum up, Internet-based processes can minimize media breaks. For example, they can eliminate the need to communicate printed information to and from the travel agency via telephone. They can help increase the quality of work, minimize volume of communication, and shorten processing times. Not least of all, fewer human resources are tied up by travel organization.

I BUSINESS TRAVEL UPDATE 2001 eprocurement CONVENTIONAL / INTERNET-BASED STANDARD PROCESS Request has to be approved explicitly Need to travel arises Need to travel arises Summary: Trip data Trip is requested Approval of trip requested manual Travel is approved manual Media break Media break automatic Agreement upon travel options between traveler and travel agency Summary: Travel options/facts Internet-based Summary: Trip data Summary: Travel options/facts eprocurement with cytric Trip is approved Travel options agreed to & summarized Trip is approved Travel options agreed to & summarized automatic Booking of the trip Booking of the trip Trip is booked and changes (cancellation, rebooking) necessary Trip is booked and no changes are necessary Trip is booked and changes (cancellation, rebooking) necessary Trip is booked and no changes are necessary Media break manual Travel documents are collected (via company mail), or can be collected at travel agency Travel documents are collected (via company mail), or can be collected at travel agency manual CURRENT conventional method Travel documents are sent to the traveler TARGET Internet-based method Travel documents are sent to the traveler Fig.2 Comparison of conventional and Internet-based travel request and booking I INTERNET TRAVEL SOLUTIONS 8 9

I BUSINESS TRAVEL UPDATE 2001 eprocurement ADVANTAGES AND OPPORTUNITIES WEB-BASED BUSINESS TRAVEL BOOKING: ADVANTAGES AND OPPORTUNITIES The observance of contracts and agreements between companies and service vendors can, with the help of the system, be purposefully directed. In the context of a SWOT analysis, PwC has identified the following advantages: Process: _ Quality control of primary data _ Real-time reporting _ Transparency of costs Organization _ Direct contact with service vendors _ Less communication expenditure _ Low maintenance, dynamic travel policy Information technology _ Minimization of data-maintenance expenditure _ Opening of system through standard interface _ Avoidance of media breaks _ Direct interface connection to external service providers PwC therefore sees opportunities in these aspects: _ Reduction of process costs _ Control over contracts with service vendors _ Company-wide internal, operative control of travel bookings _ Cost savings in companies and travel agencies _ Permanent communication opportunities between travel managers, travelers, and decision-makers _ Reorganization and optimization of partner management _ Reduced communication and transaction costs _ Greater flexibility _ Process can be focused on exceptions _ Availability data can be displayed online _ Adaptable approval system with approval hierarchy _ Transparent travel conditions _ Minimization of data-maintenance expenditure ADVANTAGES OF BUSINESS TRAVEL eprocurement SYSTEMS FROM THE USER S POINT OF VIEW Based on the workshops, PwC has developed various user points of view: Management The most important advantage of a business travel eprocurement system is the achievement of time and cost savings, which provide those involved in the process with the opportunity to deploy their respective core competencies and to concentrate their energies on the core business. In addition, management has the opportunity to reorganize and optimize all purchasing and process management, as well as corresponding travel options. If, through online booking, booking can be accomplished directly with the service vendors, the booking process is faster. In addition, there can be closer collaboration between all involved parties. Speeding up the booking process offers the potential for reducing costs within the company by saving process costs for travel booking. By automating the dataflow, media breaks can be avoided and there is an implicit reduction of transaction and communication costs. This applies to the company itself and also to service vendors involved in the process chain. I INTERNET TRAVEL SOLUTIONS 10 11

I BUSINESS TRAVEL UPDATE 2001 eprocurement ADVANTAGES AND OPPORTUNITIES Continuation of the advantages of business travel eprocurement systems from the user s point of view Travel Management With the introduction of the Internet-based process, the ground is laid for travel managers to focus on and optimize strategic purchasing. An advantage of eprocurement-based business travel booking lies in the company-based direction of workflow. In this manner, new, internal, strategic alignments can be supported. Thus there is a tendency toward increased individual responsibility on the part of the traveler and the employee can be trained to be aware of the cost and efficiency of the business travel booking. Through central system settings, travel managers can automatically guarantee conformity with travel policy and react flexibly to changes. The Internet-based process makes it possible to perform a comparison of costs on short notice. This allows immediate, centralized cost control by the decision-maker. Transparent, "real-time reporting enables travel managers to offer only the booking services of providers that conform to contracts. Control of service providers can be undertaken online. On the basis of this data and through control over the processes, the position of travel managers in negotiations with external partners is strengthened. In addition to direct cost-reduction opportunities due to improved conditions, indirect savings can be made through efficient collaboration with partners. Close collaboration can manifest itself in better information flow and in the securing of special status for travelers. Potential savings in personnel costs apply to travelers, bookers and travel managers due to the travel policy-induced speeding-up of the process. Process costs can also be reduced by reducing communication and transaction costs. The constant availability of the system for business travel booking 24 hours a day, 7 days a week enables permanent communication between travelers, company, and service providers. I INTERNET TRAVEL SOLUTIONS 12 13

I BUSINESS TRAVEL UPDATE 2001 eprocurement ADVANTAGES AND OPPORTUNITIES Continuation of the advantages of business travel eprocurement systems from the user s point of view Traveler The traveler is flexible and mobile. The introduction of a Web-based, business travel, booking process frees the traveler from time and location restrictions. As soon as there is access to a browser, a trip can be planned and booked according to the company s rules and in accordance with its purchasing guidelines. Especially for standard trips that do not require much explanation, Internet-based systems bring all relevant information about flight connections, hotels, availability, and prices directly to the traveler/ booker at the point of decision. Employees profiles can be kept up-to-date since they are maintained by the person best acquainted with the traveler, namely the traveler him/herself. The system can be accessed intuitively by the traveler, thus eliminating the lion s share of additional communication expenditures and potential media breaks. Financial optimization and savings potential In the last chapter of the study, PwC quantifies the optimization opportunities offered by business travel eprocurement systems and compares these to the investment costs. On the basis of _ average travel costs of large German companies, _ model calculations quantifying direct and indirect travel cost savings, _ investment costs for Internet-based booking systems, _ and three model companies chosen according to the number of travelers and the average number of standard bookings, PwC developed and calculated a cost-benefit analysis in three scenarios for small, medium, and large businesses. Through this direct connection, depending on the configuration of the system, the traveler has access to additional functions such as visa information, city maps, event calendars, and weather reports. I INTERNET TRAVEL SOLUTIONS 14 15

I BUSINESS TRAVEL UPDATE 2001 eprocurement BUSINESS TRAVEL VOLUME BUSINESS TRAVEL VOLUME Indirect Travel Costs Personnel and process costs are among the potential savings in indirect travel costs. Process costs are defined as communication and transaction costs, including personnel costs for internal company employees. Internal company employees include everyone involved in the booking process except employees of the travel agency. In this cost comparison of traditional and Internetbased booking processes, on the basis of workshop results and current PwC benchmarks, PwC projects a potential savings of between 25% and 35% as realistic. Direct Travel Costs PwC made these calculations. Potential cost reduction in travel purchasing could be realized through the targeted bundling of purchases and control over the volume of travel. Internal company cost transparency and the opportunity to forge partnerships with targeted service providers would allow companies to negotiate cost-effective conditions with service providers ( airfare, hotel, rental car, train). Train 8.0% The potential savings that can be realized through an eprocurement booking process in the area of travel purchasing and booking are, according to PwC s conservative estimate, around 7% of the total travel cost volume. This is assuming a reduction of 5% of the total travel cost volume for airfare and hotel, as well as 2.5% for rental cars and train bookings, which can be achieved through process optimization and software implementation. Investment costs PwC defined three cost categories: hardware, software, and process optimization, which they calculated for three exemplary companies of different sizes. Cost-benefit analysis PwC s cost-benefit analysis compared the identified savings to the cost of purchasing, implementing and maintaining such a system. In various scenarios ( small, medium, and large companies), the expected potential savings were verified by varying the number of yearly travel bookings with respect to the amortization period of the investments in question. In this process, the scenarios were calculated using an average booking count per traveler in a year. These numbers were based on 2, 10, and 18 bookings per traveler per year. Airfare Hotel Car 13.0% Airfaire 26.0% In order to keep the calculations made in the scenarios simple, current PwC benchmarks for average total travel costs per trip were set at 470 Euros per trip for European and domestic Process costs trips. Therefore, to calculate a company s total Fees Fees 15.0% travel cost volume, the number of total yearly bookings was multiplied by this cost per trip. In Car Hotel 23.0% the scenario calculations, it was assumed that 80% of all bookings are standard bookings. Train Process costs 15.0% Fig.3 Percentages of business travel costs, 1999 I INTERNET TRAVEL SOLUTIONS 16 17

I BUSINESS TRAVEL UPDATE 2001 eprocurement RESULTS RESULTS The cost-benefit scenarios were carried out for three companies of different sizes, where the following premises were assumed: Potential savings for direct travel costs: _ Airfare: 5% _ Hotel: 5% _ Rental Car: 2.5% _ Train: 2.5% ( conservative approach) Potential savings for indirect costs: _ Process costs: 25% Number of standard bookings per year, depending on the: _ Number of travelers _ Number of trips _ percentage of standard trips (80%) Average travel volume per booking: _ EURO 470,- In all the scenarios, amortization of the necessary investment can be achieved within the first year. The amortization period depends in large part on the number of standard bookings; the more standard bookings per period, the higher the savings. The cost-benefit analysis clearly demonstrates that even with conservatively estimated savings values (25% process costs and 4% direct travel costs), the total travel costs per year can be reduced by about 5%. In the large company scenario, with just 2 bookings per traveler and year, the expected amortization period is less than one year. If, before the actual introduction of systems and reorganization, companies can calculate their number of travelers, travel frequency, and percentage of standard bookings, their data can be placed in the context of the scenarios. Within the first year, process costs can be reduced by a total of 25% with the introduction of systems. COST REDUCTION IS DIRECTLY EFFECTIVE Case study: The volume of travel costs, depending on a company s travel needs, amounts to between 10% and 20% of total costs. If travel cost volume amounts to just 11% of total costs, then In this case, a reduction of travel costs by 5% produces an increase in profits of 12% Turnover = 100 5 84 Profits Other costs +12% +/-0% 5.6 84 11 Travel costs -5% 10.4 To achieve a similar result, the company would have to Sell 12% more or undertake severe cost-cutting measures Fig.4 If by reading this i:fao Business Travel Update you have been interested to read the original complete version of the research, please visit the i:fao Web site www.ifao.net (Category Information, Download Center ). I INTERNET TRAVEL SOLUTIONS 18 19

You can get information about the i:fao products cytric and quixdata by contacting: i:fao Sales Telephone: +49 (69) 76 80-54 00 sales@ifao.net www.cytric.de www.quixdata.com i:fao Aktiengesellschaft Klemensstrasse 9 60487 Frankfurt am Main Germany Telephon: +49 (69) 76 80-50 Telefax: +49 (69) 76 80-51 00 info@ifao.net www.ifao.net