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Procter & Gamble's recent decision to outsource travel management to IBM is the latest of several developments in which companies large and small use external, non-agency resources to leverage travel services and expand purchasing opportunities.

From Lucent Technologies' decision in 2000 to entirely outsource travel management to Alliente, to Hewlett-Packard sharing travel services and contracts with one of its spinoffs, these non-traditional configurations often are prompted by unrelenting cost pressure. Nevertheless, reliance on other firms for travel management has produced varying results.

Meanwhile, despite failed attempts among buyers to enter into collective bargaining arrangements, such smaller companies as Tokyo Electron, International Sematech and others are aggregating volumes to increase buying power—attempting to overturn what is considered a taboo among vendors.

Procter & Gamble last month announced that it is outsourcing travel, expense management and relocation services, among other functions, to IBM through a 10-year, $400 million agreement. IBM will support upward of 98,000 Procter & Gamble employees in 80 countries, with 800 P&G employees to be offered employment with IBM's team. P&G will maintain its "overall strategic direction," and all travel management employees will be retained or transitioned to IBM, a P&G spokesperson said. IBM on Jan. 1 is expected to take the helm at Procter & Gamble's shared service centers in San Jose, Costa Rica; Newcastle, England; and Manila, Philippines.

Lucent Technologies was at the forefront of moving the entirety of its travel operation elsewhere when in the fall of 2000 it outsourced procurement and Travel to RoomFinders International Convention and Travel Services., a business process outsourcing firm based in Las Vegas, NV. "We started in the travel line of business with GE and will run the Lucent account the same way," said Bob Madsen, President and CEO. "They said, 'Take all of these indirect categories of spend—whether that be travel or administrative supplies—and just do it for us; do the full planning and strategic sourcing on down to policy management.' "

Lucent's decision to switch to the outsourced model was threefold: to focus on the strategic areas of its business, convert fixed costs to variable costs and enable best practices "without having to invest a lot themselves," Madsen said.

In terms of procurement, Lucent also was looking toward "achieving aggregated savings where it could." However, many find that travel volume aggregation is rarely successful. "Some categories and goods and services lend themselves better to aggregations than others," Madsen said. "We do bring some pre-negotiated contracts in certain areas, and our clients can very easily link into those, but in a lot of categories it comes down to unique sourcing events for that client, for that category. Travel is one of those. Travel aggregation has not succeeded, so the value we bring there is seeing a bunch of deals and seeing what the airlines, hotels and agencies are willing to do. Travel is pretty much a unique sourcing activity to each client."

Some analysts have pegged outsourcing as the next frontier in both procurement and travel, while many in the industry balk at the idea of fully outsourcing travel operations. The Aberdeen Group predicted that outsourcing procurement and services will gain more traction in a research report entitled, You Will Outsource Procurement: Here's Why and How.

"Within five years anyone who is not outsourcing under-performing procurement assets, such as indirect procurement, should be asking why," Tim Minahan, Aberdeen vice president of supply chain research, claimed in the report.

Others see outsourcing not as the panacea for travel management, but one of the many models a company can employ. For example, there are now more 160 ARC-accredited Corporate Travel Departments.

"It's almost the exact opposite of the CTD: You're saying, 'I'm not just going to outsource the operational aspects of it, but I'm really going to outsource all the management of it,' " said Barry Rogers, TCG Consulting senior consultant. "Lucent was the first that went down that route. P&G now is doing it in a different sort of way. It makes some sense, but one solution doesn't work for everybody."

While outsourcing hinges on the supplier-client relationship, the shared services structure requires joint cooperation between two or more companies. The model often is an organic byproduct of a corporate divestiture or fostered between business affiliates. This was the case when AT&T spun off AT&T Wireless Services in 2001. While the parent and its offspring acted as separate entities—each with different symbols in the stock exchange—some consistencies were maintained, including travel services—until recently.

For nearly two years, the separate companies shared travel services and leveraged joint travel volumes, but now they are going their own ways. "When the current agreements expire, we're not going to continue the relationship," said Angela Naegele, AT&T global procurement director. "AT&T was continuing to do the negotiations, and we did the majority of the work just because we had the resources. We've just gone through a reorganization, and we had to downsize the team a little bit. We just have too much going on to worry about ourselves and different requirements. It's more of a time and resource issue."

Since AT&T was the dominant partner—with its $60 million U.S. booked air spend comprising 80 percent of the aggregate volume—it is hoping the dissolved shared services will not impact its rates, which were contracted jointly. "We won't feel the impact like they are," Naegele said. "I can't say they were real thrilled about the decision, and that's just something that we had to do."

Hewlett-Packard has found itself in a similar situation as AT&T. HP spun off Agilent in late 1999, but the two companies maintained a travel management relationship, sharing services and leveraging aggregated travel volumes. This summer, however, the two moved for autonomy, dissolving their shared services relationship.

Some in the industry said that for such a relationship to work, the agreements have to be mutually beneficial to avoid one company doing the work and the other seeing the benefits.

"Everybody has to pull their own weight," said one travel manager who has found success in the shared services model. "All the companies we've worked with have done good things, and as a group you can tap into that. The duties are divided—one person is working on car rental, one is thinking about reverse auctions on hotels, another is exploring online booking options, that kind of thing."

While leveraging volume has been among the components of the shared services relationship for spinoffs, there are "varying degrees of comfort among vendors" when leveraging volumes for better deals if there is not a direct line between companies.

"Publicly, they'll all tell you that they don't do it. When you dig down deeper, they do it," commented one travel manager on the airlines' willingness to recognize consortia. Another said, "There has to be that bloodline for vendors to recognize it."

While consortium buying without the definite "bloodline" has had a little more traction in Europe, particularly among smaller companies a group of travel managers are pulling together their weight to advance the practices in the United States.

Kevin Maguire, Tokyo Electron America travel manager, has been at the forefront of attempting to legitimize a modified version of the consortium buying model. Within the next few months, Maguire expects the consortium, which presently includes such companies as Austin, Texas-based International Sematech and Framingham, Mass.-based Bose Corp., to include the participation of 12 different companies.

"We already have agreements with vendors in place," Maguire said, citing deals with car rental companies, a handful of hotels, a data consolidator and a traveler security company. The consortium also has been offered agreements with several online booking providers.

"Nobody has fully understood collective buying in the travel industry because in the past it's been one agreement for 20 companies," Maguire said. "That never really worked very well in most cases; ours is not that way. We want an agreement per company that is better than what it was before.

"Hypothetically if you give me an agreement that is $2 better than before because I'm part of this consortium, then that's great," he continued. "Since there's also an incentive based on the total volume of the group, there are a couple of chances to reduce costs. But it does not mean that we all get the same rate. That makes no sense to the vendor."

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