ROI
and the Emperor's New Clothes
Overdoing
ROI in the Travel Industry
By
Jeffrey Hansler, CSP
Lots
of RFP’s are being issued and agreements signed are based
on the best ROI (Return on Investment). The concept is if
you have a good ROI, you must be making the best business
decision. With more and more purchasing agents and CFO’s
becoming involved in Travel Policy development and
decisions, it’s a situation that is rearing its ugly head
more and more. It’s a daily modern day remake of the
fable of ‘The Emperor’s New Clothes’: no one will
speak the visible truth for fear of appearing unfit for
business.
From
Hans Christian Anderson’s “The Emperor’s New
Clothes”:
Now
one fine day two swindlers, calling themselves weavers,
arrived. They declared that they could make the most
magnificent cloth that one could imagine; cloth of most
beautiful colours and elaborate patterns. Not only was the
material so beautiful, but the clothes made from it had the
special power of being invisible to everyone who was stupid
or not fit for his post.
"What
a splendid idea," thought the Emperor. "What
useful clothes to have. If I had such a suit of clothes I
could know at once which of my people is stupid or unfit for
his post."
Here’s
the problem with ROI. Return on investment is a
quantitative measurement and it is being applied as a
measure in qualitative situations. ROI can be calculated
quantitatively in several forms:
ROI
= Net Present Value of Savings/ Initial Investment x 100
or
ROI
(%) = Income/Expense x 100 or
ROI
(%) = Net Program Benefits / Net Program Costs x 100
or
Simple
ROI = (Gains - Investment Costs) / Investment Costs
There
are several problems in applying these quantitative
measurements to a travel program. First and foremost, what
gains are being measured? A travel program does not generate
gains in terms of income for the company (Sales Activity
results in these gains of which travel is part of the
costs). Refunds, credits, and revenue sharing are not gains:
They reduce the costs associated with travel programs.
Secondly, even if there were Gains that could be attributed
to a travel program, the travel department has no authority
for those Gains. It is bad business to apply responsibility
for a consequence without providing the authority over that
consequence. I would hope the travel manager is not
responsible for generating the revenue for a company.
As
for evaluating a decision based on the investment cost in
calculating Return on Investment (ROI) for a travel program,
the best ROI for a travel program would be achieved when no
one travels anywhere!
In
discussions with Peter Jackson, first CFO of SAIC and
contributor to the forthcoming book “The Humpty Dumpty
Conundrum”. Mr. Jackson said, “Gee, it was my
impression that the activities and contributions of employees
is what actually determines success in a marketplace.
Doesn't make sense that the people who travel for a company
are doing important things and are representing their
company and the management and that their ease of travel and
little touches that are provided make for a more relaxed and
cared for employee...and therefore more productive and
better results?"
In
an extreme sense, if a company is adhering to 100%
compliance of a travel policy, and the CFO is determining
the travel policy, then the CFO is telling the CEO how to do
business, which doesn’t make a whole lot of sense in terms
of company hierarchy.
A
better measure of decision making in business regarding a
company’s travel program and the associated costs would be
Resources + Activity = Results.
Applying
this type of equation to decision making allows for
qualitative elements to be considered like a good night’s
sleep, arriving on time, feeling cared for… etc.
Sure,
evaluating a decision qualitatively openly acknowledges that
there is no formula for success, but that is the truth about
business. ROI is about risk reduction and business growth
and innovation is about risk taking.
Larry
Glidewell, author of the forthcoming book “The Humpty
Dumpty Conundrum” puts it this way. “The premise of ROI
is silly because it assumes a consistency (equilibrium) that
doesn't exist in either business or nature, and wouldn't be
healthy even if it could exist. It's a myth.
Study after study has revealed that no company can actually
sustain returns (higher than the Dow average) over a
long period of time. But the elite business schools
still teach that's the goal. It's destructive.
It's treating businesses as banks (primarily because of
public investment) and they're not. They're ships
bobbing on the stormy sea of the market.”
ROI
has a place in business decision-making, just not when
applied to the Travel department or any other individual
department.
When
asked what the ROI is, a reply might be, "I thought
that the idea was to increase the ROI across the company,
not for every function or department or activity. I
believe this will contribute to overall ROI!"
Or
maybe, it’s “Emperor, baby… love the hat, love the
shoes, love the whole thing.”
© 2005 Jeffrey Hansler All rights
reserved
#
# # # #
Jeffrey
Hansler is a professional speaker, author, and consultant.
He is a frequent speaker at association events, creating change with communication
and is the
author of Sell Little Red Hen! Sell! He can be reached at jhansler@oxfordco.com.
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