The Trouble with Travel

The Big Chill

While it would not be the first large corporation to require professional services vendors to book travel through its own corporate travel department, the fact that IBM Corp. — the largest consulting organization in the world — is now seriously considering such a policy may suggest that IBM already expects a growing number of its own clients to do the same.

If such a realignment of travel dollars were to occur, it would no doubt send shock waves down the corridors of the corporate travel business, and no one group would stand to lose more travel purchasing clout than consultants.

"We see certain clients asking us to do this for two reasons: The first is that it is just good cost management. The second is a desire for more transparency into the expenses of consultants, and if that's what the client wants, that's fine with us," explains Navigant Consulting's president and chief operating officer, Julie Howard, who says that the current number of clients that book travel for Navigant consultants remains small.

However, just how much travel clout in terms of dollars would consultants forfeit to their clients if IBM and other large companies began booking consultant travel is a slippery number. A quick look at ten publicly traded consulting firms reveals that "reimbursements" — the label widely used to characterize billable expenses consultants incur (other than time) — account for anywhere from 4.2 to 13 percent of their firm's overall revenues (see chart).

Conservative estimates indicate that travel-related costs account for at least 70 percent of most firm reimbursements. If, in fact, the bulk of reimbursement revenue disappeared, many firms would likely face revenue shortfalls. The biggest drops could be within the elite strategy houses, such as McKinsey & Company, where travel costs reportedly run higher than they do at, say, technology consulting firms, which operate offshore operations requiring less travel-related work. Reimbursements for strategy houses are estimated to run anywhere from 15 to 23 percent of an engagement's price tag. For their part, certain strategy firms say that they now assuage client fears by agreeing up front to having travel expenses be a fixed percentage of a given engagement.

"Often, procurement executives kind of vacillate between 'No, we don't want consultants' and 'Well, we'll use consultants, but we're going to keep your costs down and we want local talent.'" — Diamond's Ed Brady

Paying the Price for Rebate Schemes

Clearly, this is not the first time that the profession's travel habit has caused some unrest. In the aftermath of 9/11, consulting leadership talked ad nauseam about adopting new approaches to serving clients that could help limit travel and keep consultants from harm's way. However, these well-meaning overtures appear to have given way to the appetite for growth and the advantages of being client-side.

According to a recent travel survey conducted by Consulting Magazine, 43 percent of consultants surveyed said that they spend more than 50 days a year on the road, while 21 percent said that they spend more than 125 days away from home. And it's a safe bet that none of the consultants surveyed ever spent a cocktail hour on the Twentieth Century Limited.

In fact, travel has never been less glamorous or arguably even less accommodating than it is today (Red Carpet Club memberships not withstanding, perhaps). However, in no way do we mean to imply that stale crackers and bans on bottled liquids are sowing the seeds of change for the profession — or at least not when there are other, far more powerful, forces afoot.

While procurement organizations have sprung up over the last seven years throughout Fortune 500 corporations, the attention procurement executives are giving to travel expenses is a more recent development, consultants say.

Efforts to increase the transparency of consultant expenses may in part be tied to a lawsuit that led to the public disclosure that PricewaterhouseCoopers was pocketing travel rebates. As reported in The Wall Street Journal, PwC began demanding bigger discounts from travel companies following its 1998 merger with Coopers & Lybrand. The firm established a strategy of seeking volume bargains on all airline tickets as back-end rebates, rather than upfront discounts. Apparently, PwC wasn't passing the discounts on to its clients.

But while PwC drew the brunt of the bad press, few doubt that the coverage encouraged many other consulting firms to clean up their acts with regard to travel rebates. Corporate America had been put on alert.

The Procurement Czars

"Our view has always been that you spend the client's money as you spend your own," says John Karonis, a vice president with Kurt Salmon Associates. "We find that it's now important to lay out travel costs up front with the client "

The heightened oversight of consultant travel expenses appears to be part of broader corporate purchasing strategies. "The new scrutiny is particularly apparent when you get into larger client companies, where you tend to see a greater prevalence of procurement organizations," explains Ed Brady, chief people officer for Diamond Management & Technology Consultants, who says that demand for local talent was one reason Diamond opened an office in New York City last summer. "Often, procurement executives kind of vacillate between 'No, we don't want consultants' and 'Well, we'll use consultants, but we're going to keep your costs down and we want local talent.'

Regardless of whether client companies usurp their travel purchasing clout, most consultancies' fears appear to have less to do with revenue shortfalls and more to do with clients limiting their people's travel options.

"It may limit flexibility for our consultants, which is something that we'll have to look at because when you go for the lowest-cost fares, you don't always have the best flying times," explains Navigant's Howard, who says that she believes that Wall Street is now familiar enough with Navigant's business and that of other professional services firms that it will not chastise them for revenue that has been lost due to shrinking reimbursements. "The analysts ought to be, and I think they certainly are, looking at our fee revenue — the true measure of growth," she says.

Industry Pay Magnifies Consulting's Travel Burden

As revealed in Neukom's memoir, travel has been a part of consulting's makeup since the very origins of the profession. And from the 1930s on, it's a safe bet to say that travel has year-after-year been the biggest reason people have left consulting careers behind.

"When we hire people, we tell them, 'This is a traveling business, and you are going to travel. Our objective is to put the right person on the right job at the right time, and this doesn't mean that it's going to be within your zip code,'" explains Tom Finegan, cofounder and CEO of Clarkston Consulting. "Travel definitely takes a toll on us, and when people leave Clarkston, it's the number one reason."

However, Finegan and other firm leaders now say that the travel burden is becoming magnified because of the growing wage parity between consulting and industry jobs.

In the past, consultants could expect to earn bigger pay packages than industry executives, making the extra hours spent in airports more tolerable. As industry salaries grew more competitive, it's perhaps no surprise that many consulting firms, including Clarkston, have sought to lessen the burden of travel in order to hold on to talent. Still others claim that they are parting ways with the profession's grand travel tradition altogether and have begun using the promise of "no travel" to attract experienced talent.

"Clients now want local consulting talent. They want people they're going to bump into at Costco, and meanwhile, we get to pass the travel expense savings on to our clients," says Jon Fleming, chief markets officer for Point B Solutions of Seattle, whose firm specializes in local consultants and recently ranked third on Consulting Magazine's list of "Ten Best Firms to Work For, 2006" — a distinction it achieved in part because its consultants scored the firm high in employee morale. "We like to think of ourselves as the onshore consulting component versus the offshore option. It wouldn't surprise me a bit if we were now influencing how consultants as well as clients think about travel."

"When we hire people, we tell them, 'This is a traveling business, and you are going to travel. Our objective is to put the right person on the right job at the right time, and this doesn't mean that it's going to be within your zip code,'" — Clarkston's Tom Finegan

Go Global, Hire Local

Point B is not alone. Other small firms have found the "no travel" dictum a powerful recruiting tool for experienced consultants who no longer want to travel. Meanwhile, as larger consulting firms seek to add people with more functional expertise to better meet the needs of more discriminating clients, the travel hurdle has grown more for some consultants than for others.

"The complaint we were hearing was that the 'industry guy' receives the credit, while the 'functional guy' gets the frequent flier miles," says a senior partner for an elite strategy firm. To help address the concerns of its functional people, the firm has recently enhanced certain recognition and reward programs. However, the firm's functional people continue to capture the lion's share of frequent flier miles.

"I'd say that half of our business today is in experts. Clients have come seeking to hire experts, and in this situation very rarely is there push-back from the client about where the experts are coming from or where they travel to," says Navigant's Howard.

Still, as more firms seek to track their hiring costs ever more closely, there appears to be a greater operational awareness when it comes to the number one reason people are leaving consulting.

Today, 30 percent of Diamond's people are staffed locally, while 5 percent travel five days a week, according to Diamond's Brady, who today keeps tabs on both numbers as he seeks to better manage workforce attrition.

"While we have a virtual model and we permit people to live where they choose, we do try to counsel and coach people, and we will do relocation offers and things of that nature. It's a big investment to hire someone," says Brady, whose point is perhaps underscored by the opening of the firm's new office in lower Manhattan.

It would seem travel was extracting too high a price — one even the cocktail hour aboard the Twentieth Century Limited wouldn't likely be able to remedy.