BUSINESS TRAVEL PROCUREMENT IN 2023
No one can say for sure what 2023 will bring for business travel and strategic hotel procurement. However, one thing is certain: The pressure on procurement and travel management has never been greater. The last three years have been marked by disruption, recessionary fears, inflation, labor shortages and war for talent. As for 2023, the year is likely to be dominated by macro trends that were already present in 2022: Inflation is higher than it has been in several decades. Gross Domestic Product (GDP) growth is slowing. Energy costs remain distorted. And although many labor markets show historically low unemployment, markets are weakening.
In this article, we’ll show you how these developments are impacting global business travel and how, given the current business and economic climate, you can still maintain full control of your travel spend without compromising on the travel experience of your employees.
Impact of the current economic environment on global business travel
But how is this affecting the way we travel – especially for business reasons? The current economic environment is driving the present challenges and issues faced by Chief Procurement Officers (CPOs) and Travel Managers. Throughout 2022, hotel market rates have continued to rise globally compared to 2021. In key corporate markets, they are now 31% higher than in 2021 and expected to continue to rise by 16% in 2023:
Four key factors are contributing to these increases:
The importance of business travel in today’s new world of work
When times get tough, companies turn inward and focus on procurement. The volatile environment described above is putting cost savings and risk avoidance back at the top of the CPO agenda, alongside optimizing efficiency and fighting for talent.
“In one year’s time, the percentage of CPO’s that have prioritized savings has nearly doubled (38% in 2022 vs. 22% in 2021).” – CPO Rising
However, it is too short-sighted to think of business travel now only as a transaction cost and therefore reduce or eliminate it altogether. In our new hybrid working world, business travel is instead an important investment in collaboration, productivity and connection. It supports the company’s performance and is more important than ever in this new world of remote work.
A recent study by the Harvard University Growth Lab also shows that business travel helps diffuse knowledge and actually causes economic growth. So, we know that business travel can have a positive impact on a company’s productivity. The only remaining question is how we can optimize it during uncertain times.
How CPOs unlock full savings potential in travel procurement – 5 tips
On average, more than 15% of potential procurement savings are left on the table. This is partially due to the fact that different lodging categories – overnight stays, meetings, groups and long stays (+8 nights) – are negotiated and managed differently.
One thing remains constant is procurement’s pursuit of the best possible prices. However, in the current business and economic landscape this responsibility is more pressing than ever before. You need to ensure you have control of your travel program and the right data to optimize performance and minimize risk.
After all, what is not fully managed is not …
… visible: Low visibility makes it difficult to spot out of policy expenses and results in higher costs.
… compliant: Poor Compliance violates duty of care and poses financial risk.
… generating savings: Limited bargaining power and ability to optimize leads to missed savings.
Tip 1: Secure purchasing power by leveraging converged spend
As many travel budgets were cut, companies lost between 20% and 40% of volume and thus negotiation power. It’s therefore time to rethink procurement strategies. For example, to compensate for the loss of volume in short-term travel, it has proven effective to combine lodging segments such as meetings, groups and long-term bookings into one Request for Proposal (RFP) to increase the total purchase volume in the seller’s market. Today, 40% of total hotel spend on extended stays, meetings, groups and remote working space is not managed. We are all working differently today. Flexible work models and employees who are only in the office on certain days of the week have fundamentally changed the way lodging programs should be created, procured and optimized.
“New sourcing strategies and improved transparency can help counter inflation while top performing companies double down on productivity gains.” – Bain & Company
A holistic lodging program that leverages the convergence of the total lodging expense delivers overall savings to the hotel averaging more than 9%, creating transparency across all lodging categories and mitigating risk.
Tip 2: Go for end-to-end automation
Manual processes create risk. 80% of organizations still rely on manual processes when it comes to travel and expenses. As a result, they leave a lot of room for human error. Process automation from procurement to expense reporting helps travel managers and CPOs save time and accelerate savings. At the same time, operational tasks are made easier, bookings are streamlined and risks are reduced.
Tip 3: Reduce ESG-related risks and costs
It’s no longer a choice for organizations to demonstrate their sustainability agenda. Pressure is mounting from all directions (regulators, consumers and employees). There will be more and more sustainability regulations that impact companies’ ability to do business. For example, carbon taxes in the EU have increased 200% and are expected to increase tenfold by 2030. Those who are not able to reduce their emissions in a timely manner are a) facing a missed opportunity and b) paying handsomely.
Tip 4: Minimize Maverick Spend and continuously optimize
The travel market is very dynamic and market trends, traveler behavior and preferences are constantly changing. Data transparency and the ability to quickly adapt to these changes are real game changers for companies in this context:
- Real-time data from procurement, booking and pay must be incorporated into travel program optimization to deliver the best value.
- Invoice-level (Level 3) spend data helps manage travelers’ expenses before they occur. This prevents unauthorized spending.
- A consolidated view of booked-through to actual-spend data results in reduced fraud risk and provides complete visibility.
- By effectively pre-approving spend, companies can avoid unnecessary and out-of-policy expenses.
Overall, travel managers need to continually optimize their lodging program based on corporate travel patterns.
Tip 5: Ensure compliance and turn paper into real savings
How often do your employees complain that they can’t find their preferred hotel in your booking system, that they’re frustrated because their favorite hotel isn’t available, or that they’re confused by duplicate content, non-comparable pricing and hard-to-understand rate descriptions? Smart booking technology can help solve these problems and deliver cost savings of up to 4% of total managed spend. How? By ensuring that what you have negotiated is what actually gets booked.
To make this work, companies need to integrate hotels worldwide from multiple sources into a single consolidated content feed. This increases general availability and the best rates can be searched across all channels. Thus, travelers no longer need to search for accommodations outside the company’s booking channels and book elsewhere (higher adoption). Plus, procured in-policy hotels get displayed to bookers before spot market offers. The best available options according to the company’s strategy get promoted, while non-compliant offers are hidden. If the price of the selected offer drops by the time travelers arrive, the technology ensures that it is automatically rebooked – saving you extra money.
CPOs balance the role between operator, steward and value creator
Even in uncertain times, procurement must look to create value beyond cost reduction and risk mitigation to ensure maximum adoption.
CPOs need to evolve in their role, becoming more of a ‘Chief Value Officer’, a partner and co-leader to the CEO. They have to be able to establish their reputation by delivering greater value, for example through business partnering, digital & technology, and sustainability which are new sources of profitable growth.
Therefore, other key program concerns must be considered as part of any new hotel program. These five pillars are essential for procurement and travel management success:
Sustainability: Transparent information on carbon footprint of properties
Safety: Hygiene excellence on hotels along WHO standards
Security: Hyper local ratings for properties and their neighborhoods
Satisfaction: Hotels with best experience for employees based on guest review data
Savings: Complete rate mix and secured rate compliance
CPOs increasingly have to balance the role between operators, managers and value creators:
Employee satisfaction ultimately wins the battle for talents
Let’s get one thing straight: Procurement savings on paper are not what counts in the end. It’s always about employee satisfaction and program adoption. The travel experience has to be spot on. Otherwise, the program won’t be embraced, and your cost-saving measures may look pretty in theory, but they won’t be realized.
Employees on business trips want to be happy, focused and ready for the next day. Poor travel processes can put a deep damper on that mood. Travel managers must therefore constantly find new ways to offer their employees the best possible business travel experience – preferably digitally, seamlessly, sustainably and associated with little effort. After all, by 2025, 75% of the workforce will be Millennials, who also expect a consumer-grade digital experience when booking business travel.
Such an enhanced travel experience doesn’t necessarily have to come at a high cost. With trusted partners, you can balance savings with the travel experience: Work with hotel providers to offer a VIP-like service experience for your employees on business trips. Work with travel technology providers to streamline the entire process, from booking to expense.
Overall, the process needs to be as simple as ordering and paying at an online store: Your employees must be able to find what they prefer in a single place, book the right accommodation for their next business trip at the best price with just a few clicks, make contactless payments and expense easily. That’s exactly what companies can easily do with HRS.
With our end-to-end platform we match demand with supply, all powered by our payment solutions. You can manage your lodging program, from procurement to booking to payment and expense management. On top, our platform gives you access to a dedicated network of spaces to work and meet around the world. And you can enjoy total transparency and oversight on travel spend, whilst your team on the ground benefits from a hands-off experience – before, during and after the trip.
Conclusion: Great potential for procurement and travel management in 2023
Business travel may look a little different today. Nevertheless, the relevance of business travel should not be underestimated. Even in the digital age, business travel is one of, or perhaps the most effective means of sharing knowledge and ideas, negotiating or securing business deals, and fostering communication. So, despite the setbacks in the last few years, business travel will remain an essential part of any growing business. It can increase business productivity and help achieve business goals.
That’s why, despite a business outlook clouded by war, inflation, interest rate changes and more, forgoing business travel altogether or cutting corners at the expense of the travel experience is the wrong way to go. Instead, procurement leaders and travel managers need to move boldly forward and be ready to act. They need solutions that accelerate ESG outcomes, drive digital transformation and counter inflation. Solutions that ultimately make the work environment more modern and attract new, motivated talent. Overall, 2023 holds great potential for procurement and travel management – you just have to leverage it properly.