VideoHeading 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."
Dueling Priorities
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."
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