New Challenges, New Opportunities For Incentive Travel
As companies take an unprecedented look at what they spend on meetings and events, CEOs and CFOs are casting new scrutiny on the most esoteric and expensive of activities.
It’s no longer unusual for a company to spend $8,000 or more per person to whisk lucky winners and their spouses off to a safari in Kenya, lunch at the Great Wall of China, or a private island in the Caribbean or South Pacific. Incentive travel is an industry estimated at $10 billion a year, and its annual growth is estimated at 5 percent.
The concept of incentive travel was created in 1958 by James A. Maritz, a son of St. Louis jeweler Edward Maritz. He sold businesses on the idea of awarding employees with watches and jewelry as motivational "sales builders," and in so doing, he saved E. Maritz Jewelry Co. from bankruptcy during the Great Depression. Maritz Travel Co., still the industry’s leading practitioner, has evolved into a global behemoth, with 2005 revenue of $1.35 billion. Its clients include 28 of the Fortune 50.
But now incentive travel, which has a reputation for being secretive, self-promoting and bereft of definitive market studies, faces new challenges.
A pair of studies by American Expressand pharmaceutical giant Pfizer completed in the past year have uncovered startling inefficiencies as part of a larger examination of what U.S. corporations spend on meetings and events. Companies including Honeywell International, PricewaterhouseCoopers and Cisco Systems have discovered that they can only account for half to three-quarters of what they actually spend. The rest remains a mystery.
Pfizer learned that different meetings units unwittingly competed against one another by bidding for the same hotel, or paid different rates for the same property.
As a result of such incidents, the incentive travel business is undergoing unprecedented scrutiny.
"Most companies are getting strategic about how they procure items and services," says Kari Knoll Kesler, who manages a $30 million annual meetings and events budget at Honeywell International. After two years, she has only been able to identify about half of what Honeywell spends; she suspects it is at least twice that $30 million on-paper budget. She has not been able to put a price tag on Honeywell’s incentive expenditures.
As organizations look at who they have spent the most money with, "there are these funky little companies that show up that they have no idea about—and they’re usually incentive travel companies," she says. "Management is seeing this level of spend, and in many cases it’s completely unmanaged. So, when management--either from the travel discipline or the finance discipline or marketing or procurement--tries to understand what they’re spending, they can’t do it."
Peter Moen, vice president of business development at Plymouth, Minnesota-based Carlson Marketing Worldwide, founded in 1938 and a formidable competitor to Maritz, explains why. "This type of expenditure--anything that doesn’t come in on an expense report, as incentive trips don’t—is buried in many different places," says Moen, a 20-year veteran at Carlson, whose clients include Saturn, NBC and Merck. "It’s in sales, marketing, HR--it’s all over the place. It’s not a line item on the P&L, if you will. It’s buried within other line items, so historically that’s why it hasn’t had a lot of visibility at such a high level."
That lack of visibility carries a danger, particularly for public companies: failure to comply with the Sarbanes-Oxley Act, as well as the ever-more stringent regulatory requirements within the pharmaceutical and insurance industries, among others.
"Compliance is a real concern," says Anita Bathija, director of product strategy marketing, corporate services at American Express. "You’ve got spend coming in from all different sources. So it becomes virtually impossible to get a handle on that spend and meet compliance standards."
Knoll Kesler, who sits on the board of the National Business Travel Association and until this summer co-chaired its Groups & Meetings Committee, offers a blunt assessment of what top management sees at first glance when it looks at incentive travel.
"Decisions have not traditionally been made based on good business practices," Knoll Kesler says, "but rather more based on intangible things: What’s the sunniest, warmest, most fabulous golf place we can go?"
Mike Beardsley, senior vice president, national group and field sales at Marriott International in Washington, D.C., is typical of traditional users of incentive travel. Each spring, he takes a group of 400 top salespeople from Marriott’s national sales force and individual worldwide properties to a Marriott venue for a three-night outing that includes an awards dinner, local tours and spending money for winners. This year’s trip was to Aruba. Next year’s will be to London.
Beardsley is a strong believer in incentive travel and the results it generates. Marriott brought in more than $1 billion from corporate meetings and incentives last year at 600 of its 2,800 global Marriott and Renaissance hotels. Nevertheless, Beardsley is facing new pressures.
"I got a memo today that talked about the expense of the trip, or the program, from the finance side, and they said maybe we can cut back," he says. " And I said if we’re going to cut back, why do it? If you’re managing it as a commodity, what you’re going to get is a commodity."
Beardsley is not alone. Even incentive planners who have enjoyed strong support from top management are under scrutiny.
Nancy Walko, vice president of marketing support services at Universal American Financial Corp. in Lake Mary, Florida, plans incentive trips for independent brokers and agents who sell insurance products to senior citizens at nine of the 12 insurance companies Universal American owns.
Among Walko’s most enthusiastic cheerleaders has been chairman and CEO Richard Barasch, who uses the intimacy of President’s Club excursions to luxury hotels such as the Fairmont in San Francisco or Atlantis in the Bahamas to brainstorm with his highest achievers about the company’s products, competitive strategies and future offerings. Still, Walko must justify every penny spent. "We face that same pressure," she says. "What you do is try to spend your money most wisely and know what you will gain from it."
Managing costs, measuring success
The debate over incentive travel will ultimately be resolved with three approaches: getting a firm handle on what is being spent, making sure there is a quantifiable return on investment and protecting the integrity of a valuable and unique contributor to the corporate bottom line.
Cost control and management tools include a Web-based technology from Philadelphia-based StarCite Inc., which merged in August with its leading competitor, OnVantage Inc. of Santa Clara, California. StarCite’s system allows companies to consolidate, track and analyze meeting and incentive travel expenditures. Customers include Cisco, PricewaterhouseCoopers and Motorola.
American Express has contributed to cost-control efforts with a first-of-its-kind corporate meeting card, introduced in 2000, which allows users to capture and consolidate all expenditures into a single payment source. Inspiring a number of competitors, it has enjoyed double-digit growth in usage over the past year. The company has also introduced an online reconciliation tool that allows card users to transfer financial data into their accounting systems.
In October 2005, Maritz introduced Maritz Travel Insight, an employee-polling and data analysis tool designed to measure the effectiveness of incentive travel by helping to identify which destinations and activities best motivate targeted personnel.
Meanwhile, there are interesting innovations within incentive travel itself. Individual travel has increased dramatically in recent years, led by providers such as the Journeymasters Inc. of Salem, Massachusetts.
"Individual travel is becoming more and more popular because people can travel when they want, where they want, with whom they want," says Paul Mednis, national director of marketing development. Journeymasters’ clients include GE, Kyocera Mita and Intuit.
Other innovations--from Voyager Worldwide Inc. of La Jolla, California, and past practitioners such as GE--include nomination-based incentive travel. Co-workers vote to send peers from accounting, customer service or HR to a private island in the South Pacific or a luxury catamaran in the British Virgin Islands. Another new Voyager Worldwide program combines training with "the trip of a lifetime," says John Norton, a former Chicago Board of Trade bond pit trader who launched the company two years ago. His clients include insurance firm AIG and Border States Industries Inc., a privately held, employee-owned electrical distributor in Fargo, North Dakota.
Norton is critical of what he sees as a tired model for incentive trips.
"For the most part, I just don’t see a lot of imagination," he says.
The ever-elusive ROI
The real weakness of incentive travel has always been the issue of return on investment. Despite praise from marketing, sales and HR departments about travel’s ability to pump up the bottom line, very few companies have tracked ROI with the same precision with which they measure other programs that involve significant investment. But that, too, is changing.
"There are ways to measure and track incentives, but there has to be good follow-through," says Ira Almeas, president of the Incentive Research Foundation. A 2001 white paper titled "At Last, a Real Way to Measure ROI" can be downloaded from the foundation’s Web site, www.theirf.org.
There are also new capabilities from such providers as travel and event management consultants Ambassadors International Inc. of Newport Beach, California, and software creator Arcaneo of Toronto. They help companies put in place sophisticated programs for tracking objectives and ROI, says Corbin Ball, a Bellingham, Washington-based meeting planner turned consultant whose clients include Procter & Gamble, Goldman Sachs and Microsoft.
Despite all the talk and hand-wringing about close tracking of the investment-to-return ratio of incentive travel, there appears to be wide consensus that it will not really change--for one good reason. People just believe that it pays back more than it costs.
"I think it ultimately is answered very simply--with profits," says Roger Rickard, senior vice president of sales at 41-year-old incentive travel company Don Anderson Inc. in Rocklin, California, whose clients include a range of Fortune 1,000 companies. "An organization, and particularly a public company, has an obligation quarterly to show that they are continuing to drive profits. And if the incentive travel is created to drive profit and is successful in doing that, that’s really not an area that anybody is going to risk changing."