The Convenient Fiction of Program Optimization

Second in a series on Managed Travel 2.0 based on my keynote speech at the Beat Live.
 

Travel program optimization.  It sounds so desirable, doesn’t it? A worthy goal. A complicated process. A successful achievement.

“Program optimization” is a phrase deeply embedded in every TMC sales pitch. It’s a phrase that travel managers put at the top of their strategic goals.

It’s a phrase that’s nothing more than a convenient fiction.  Convenient because we really want to believe it can be delivered.  Fiction because it can’t.  At least not in the way we usually think about it.

TMCs and Travel Managers Don’t Have the Full Picture

Here’s the optimization problem: Companies want to get the most value from their travel spend.  That means maximizing the gap between a trip’s expected value and it’s total cost. A trip’s total cost is the sum of the trip’s expense plus the cost of the trip’s traveler friction.

So now we see the source of the fiction.  TMCs and travel/procurement managers don’t know two key pieces of the puzzle.  They don’t know the trip’s expected value, and they don’t know the cost of a trip’s traveler friction.

Instead, they take the need for trips as a given, meaning they must have more expected value than whatever those trips’ “in policy” costs will likely be.  Then they go about trying to come up with a set of policies and suppliers that will, on average, deliver some fuzzy sense of “good value”.  As they should.

But without knowing two pieces of the puzzle – the true costs of traveler friction for each trip, and the trip’s expected benefit, they’re optimizing in the dark.  Hard to argue otherwise.

Well, who could possibly know these things?  Nobody is quantifying them because they’re too fuzzy. But good management doesn’t give up just because something’s fuzzy.

Instead, the problem gets placed with those who are closest to the issues.  In this case, that means three stakeholders:

  • Travelers
  • Travelers’ Managers
  • Travel Budget Owners

These stakeholders are much better positioned to optimize a company’s travel spend.  TMCs, travel and procurement managers are not.  Want proof?

Ask this simple question: How many TMCs or travel/procurement managers have budget accountability for a company’s travel spend? As in the ability to control travel spending?

None that I know of. Instead, they work to establish sensible travel policies and achieve effective pricing from reliable travel suppliers.  Value-added roles, for sure, but it doesn’t rise to the bigger test of true travel program optimization.

Up next: The Rise of Managed Travel 2.0   Previous posts in this series:

  1. Why Traveler Friction Matters

Author’s note: Evan Konwiser contributes significantly to this series.

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6 Responses to The Convenient Fiction of Program Optimization

  1. Michael Tangney says:

    When it comes to optimization of spend I totally agree. The challenge to me comes down to a question – When is spending MORE better value? I also love the premise of convenient fiction. If I buy the cheapest laptop as opposed to the best laptop for the job then I am actually decreasing the value of the purchase to the company. Not in Travel – the common opinion that is worked to is that spending less is always better value, particularly when secondary costs are removed from the equation for the purpose of simplicity.
    Good set of articles Scott, I’m looking forward to hearing more from yourself and Evan.

  2. Sally deFina says:

    Hi Scott – You might have more than a few TMCs and their consulting divisions disagreeing with you over this article given the abundant use of the word. While I agree that “optimization” is the incorrect term, especially with the difficulty of measuring the trips expected value and the cost of disgruntled travellers, there are many things travel managers, travel budget owners, and their TMCs can do to reduce total costs with minimal to low traveller friction.

    TMCs, through the latest technology, can search for and re-use unused airline tickets and can re-book a traveller in a lower and cheaper inventory class if it becomes available before departure …all with little to no effect on the traveller. Other than that, there are other behavioural changes impacting cost that may not increase traveller friction, depending on the culture of the organisation. Asking travellers to use economy instead of business for a short-haul flight under 2 or 3 hours, booking flights/hotels more in advance, using one connecting hub over another for long-haul flights with no impact on flight duration, using one airline over another if the product is essentially the same…..that might not be acceptable to travellers in one firm but would be accepted gracefully in another, especially if travellers have been given no guidance around these items previously.

    Also, traveller friction generally reduces with time. We know this because given any initial furore over a policy change through complaints and feedback from travellers and front-line agents, the furore tends to die down over a few months after acceptance of the new rules. Travel Managers, and also TMCs/consultants, if there is a long history with the company, can gauge the potential friction of a policy change given the culture.

    Yes, TMCs and travel/procurement managers don’t have budget accountability for a company’s travel spend….yet they can influence those that do…that is part of their job. So while “optimisation” may not be the correct term, there is still huge value in trying to get as close to the ideal state as possible given the company culture.

    • Scott Gillespie says:

      We agree on two points. TMCs and travel managers can gauge a company’s culture and make thoughtful and effective recommendations about travel policies. And they can implement good purchasing processes, e.g., re-booking to get a lower fare.

      But they do not know two key pieces of the optimization problem. Consequently, they need to – and do – seek out advice from travelers and travel budget owners about how travel policies and supplier choices will affect traveler friction in general. That consultative process yields a workable travel policy – one that no doubt creates value for the company. The point is that TMCs and travel managers do not make these policies in a vacuum.

      Those policies are built on some very generalized assumptions. Trips and travelers vary a lot, so it stands to (my) reason that until you know the trip’s expected value, and the cost of that trip’s friction on that traveler, you can’t know the optimal way for a traveler to travel.

      That’s the rub. It isn’t practical for every traveler’s manager to have to sort that out for every trip. So companies use generalized travel policies, often with some room for exceptions, as a means of getting it mostly right.

      But I wouldn’t think that just because the noise dies down from a tighter travel policy means all is well. Travelers may learn that complaining isn’t productive, but they can still vote with their feet by taking fewer trips or moving to a different company.

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