T&E Expense Management The Best-in-Class Pillars of Next-Generation Expense Management March 2012 Christopher J. Dwyer T&E Expense Management Page 2 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 Executive Summary Modern management of expenses related to Travel and Entertainment (T&E) has undergone an evolution from traditional back-office function to strategic internal set of processes. The next-generation T&E expense management program is built on the Best-in-Class pillars of modern expense management, including analytical, mobile, cloud and integrated capabilities and processes, and has proven to drive tremendous value from a complex spend category that is necessary for driving corporate business value. The T&E Expense Management research study, conducted in January and February 2012 of 140 enterprises, unearths the Best-in-Class framework for effective expense management and seeks to educate organizations on the strategic value of next-generation approaches. Best-in-Class Performance Aberdeen used three key performance criteria to distinguish Best-in-Class companies: the cost to process a single expense report, rate of compliance to corporate travel policies, and the percentage of business travel spend under management. Top-performing organizations are known for their superior performance, including: • 60% lower expense-processing costs than all other organizations • A 43% higher rate of business travel spend under management • A 31% higher rate of corporate policy compliance Competitive Maturity Assessment Survey results show that the firms enjoying Best-in-Class performance shared several common characteristics, including: • 57% higher likelihood than all other companies to leverage end-to- end travel and expense management solutions • 54% higher likelihood to regularly-report on policy compliance • 50% higher likelihood to have real-time visibility into T&E spending against budget Required Actions In addition to the specific recommendations in Chapter Three of this report, to achieve Best-in-Class performance, companies must: • Leverage next-generation expense management attributes, such as analytical, mobile, and integrated capabilities, to enhance programs • Develop visibility into T&E spending against corporate budgets • Formalize and standardize key processes related to T&E expense management Research Benchmark Aberdeen’s Research Benchmarks provide an in-depth and comprehensive look into process, procedure, methodologies, and technologies with best practice identification and actionable recommendations This document is the result of primary research performed by Aberdeen Group. Aberdeen Group's methodologies provide for objective fact-based research and represent the best analysis available at the time of publication. Unless otherwise noted, the entire contents of this publication are copyrighted by Aberdeen Group, Inc. and may not be reproduced, distributed, archived, or transmitted in any form or by any means without prior written consent by Aberdeen Group, Inc. T&E Expense Management Page 3 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 Table of Contents Executive Summary 2 Best-in-Class Performance 2 Competitive Maturity Assessment 2 Required Actions 2 Chapter One: Benchmarking the Best-in-Class 4 T&E Expense Management in 2012 4 The Maturity Class Framework 5 The Best-in-Class PACE Model 6 The Pillars of Best-in-Class Expense Management 7 Chapter Two: Benchmarking Requirements for Success 9 Competitive Assessment 9 Expense Management Capabilities 11 Best-in-Class Technology Utilization 12 Chapter Three: Required Actions 15 Laggard Steps to Success 15 Industry Average Steps to Success 15 Best-in-Class Steps to Success 16 Appendix A: Research Methodology 17 Appendix B: Related Aberdeen Research 19 Figures Figure 1: Expense Management Priorities for 2012 4 Figure 2: Top Expense Management Challenges / Pressures 5 Figure 3: The Pillars of Best-in-Class Expense Management 7 Figure 4: Best-in-Class Technology Utilization 12 Figure 5: Expense Management Technology Roadmap 14 Tables Table 1: Top Performers Earn Best-in-Class Status 6 Table 2: The Best-in-Class PACE Framework 6 Table 3: The Competitive Framework 10 Table 4: The PACE Framework Key 18 Table 5: The Competitive Framework Key 18 Table 6: The Relationship Between PACE and the Competitive Framework 18 T&E Expense Management Page 4 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 Chapter One: Benchmarking the Best-in-Class Corporate travel has long been considered an accepted cost of conducting business; in fact, expenses related to Travel and Entertainment (T&E) encompass 8% to 12% of the average organization's total budget. With this significant level of corporate resources attributed to this complex spend arena, it has become critical for organizations in 2012 to approach expense management with next-generation strategies and solutions and ensure that they are driving value from the T&E category. T&E Expense Management in 2012 Nearly 70% of organizations across the globe view T&E expense management as a strategic internal function. Aligned with this notion is the fact that companies are prioritizing the improvement of key expense management processes (58%, Figure 1) as their major catalyst for expense management in 2012. Modern expense management includes processes such as expense creation, submission, approval workflow, reimbursement and data analytics, factors that when enhanced via next-generation strategies and technologies can drive tremendous corporate value. Figure 1: Expense Management Priorities for 2012 Source: Aberdeen Group, February 2012 The T&E Expense Management study also finds that organizations are honed into driving more value out of their business travel (57%), a factor which is linked directly to the level of enterprise financial resources associated with the T&E category. Visibility (55%) and intelligence (42%) are also high on the priority list, as companies are looking more and more to improve analytical capabilities and improve their understanding of the spending and suppliers associated with corporate business travel. Fast Facts √ T&E expenses account for 8% to 12% of the average organization's total budget √ Best-in-Class organizations have driven 60% lower expense-processing costs than all other companies n=140 T&E Expense Management Page 5 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 The challenges and pressures highlighted in Figure 2 reflect a level of corporate travel that has not been seen since the economic downturn; with more and more organizations reinstating travel budgets (and increasing those budgets), a major challenge that arises is employee behavior and implications regarding a lack of compliance to corporate travel policies and guidelines (59%). Figure 2: Top Expense Management Challenges / Pressures Source: Aberdeen Group, February 2012 In addition to the overarching pressure of enforcing proper business traveler behavior, organizations are also focused on two other core areas: cost and visibility. Analytics (47%), an arena we see Best-in-Class organizations heavily relying upon, play a major role in the modern organization's expense management program. Coupled with inadequate global supplier visibility (25%), the typical enterprise seeks to not only improve the processes relevant to the management of T&E expenses, but also to enhance analytical capabilities and visibility to effectively forecast, plan and budget for a category that comprises a significant chunk of corporate finances. The Maturity Class Framework Aberdeen used the following three key performance metrics to distinguish the Best-in-Class from Industry Average and Laggard organizations: compliance to corporate policies concerning T&E, business travel spend under management, and the cost to process a single expense report (including costs for processes regarding accounting, auditing, report / review / approval time, etc.). n=140 “T&E expense management is a high priority function, particularly since when we manage it efficiently it allows us to bill expenses out to our clients. There is a very high focus on audit and compliance.” ~ Corporate Manager, Large North American Enterprise T&E Expense Management Page 6 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 Table 1: Top Performers Earn Best-in-Class Status Definition of Maturity Class Mean Class Performance Best-in-Class: Top 20% of aggregate performance scorers  90% compliance to corporate policies concerning T&E  85% business travel spend under management  $7.91 cost to process a single expense report Industry Average: Middle 50% of aggregate performance scorers  77% compliance to corporate policies concerning T&E  64% business travel spend under management  $17.87 cost to process a single expense report Laggard: Bottom 30% of aggregate performance scorers  40% compliance to corporate policies concerning T&E  19% business travel spend under management  $25.72 cost to process a single expense report Source: Aberdeen Group, February 2012 Best-in-Class organizations in the T&E Expense Management research study are noted for their superior performance across three major metrics and their advantages over all other companies. These top-performing organizations have driven 60% lower expense-processing costs, experienced a 43% higher rate of business travel spend under management, and achieved a 31% higher rate of corporate policy compliance. The Best-in-Class PACE Model Effective management of expenses related to T&E requires a combination of strategic actions, organizational capabilities, and enabling technologies that can be summarized as shown in Table 2. Table 2: The Best-in-Class PACE Framework Pressures Actions Capabilities Enablers  Improve processes related to the management of T&E expense  Automate key components of T&E expense management  Leverage analytics and reporting to improve expense spend intelligence  Real-time visibility into expense spending against corporate budgets  Alignment between expense management and overall corporate goals / objectives  Regular reporting on travel policy compliance  End-to-end expense management solution  Corporate card / expense management integration  Automated analytics / reporting / BI  Mobile travel and expense management application / portal  Automated expense reimbursement  Expense management module as part of a larger financial suite Source: Aberdeen Group, February 2012 Definition: Business Travel Spend Under Management √ Business travel spend under management is defined as the percentage of planned travel spend that is actively managed and accounted for in corporate budgeting / planning / forecasting T&E Expense Management Page 7 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 The Pillars of Best-in-Class Expense Management Modern expense management has evolved from its back-office roots into a multi-faceted program that involves a strategic blend of next-generation solutions and approaches. Best-in-Class enterprises have driven a top-tier level of performance across a series of key metrics related to T&E expense management; it is within this maturity class of organizations that we look to the "pillars" of expense management in 2012 (Figure 3). Figure 3: The Pillars of Best-in-Class Expense Management Source: Aberdeen Group, February 2012 When looking at the advantages achieved by Best-in-Class organizations, it is clear that their achievements are driven by three major attributes within their T&E expense management program: integration (78%), analytics (57%) and mobile (42%). Top-performing organizations have relied upon these pillars to support, enhance and streamline major expense management processes and drive tremendous value: • Through integration between corporate card programs and expense management systems, Best-in-Class organizations have created a holistic process for the cycle of an expense report, from expense creation to reimbursement. • Analytics present top-performing organizations with the necessary intelligence for linkage to corporate forecasting and planning, a factor which contributes to enhanced visibility into all travel spending and the utilization of that intelligence in corporate-wide budgeting. • Mobile travel and expense management applications (and mobile- optimized web portals) offer business travelers the power of n=140 “[T&E expense management] is a significant activity. It is very difficult to plan so prompt visibility of actual spending is crucial.” ~ Director, Small Asia / Pacific Organization T&E Expense Management Page 8 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 expense management technology while on the road or away from the office, allowing both employees and executives to submit / approve expenses on business trips. The three pillars addressed above will be discussed at-length in the next chapter. We will also learn the specific components of the Best-in-Class expense management program and highlight the necessary capabilities for driving value out of business travel and improving overall performance of T&E expense management. Aberdeen Insights — Strategy: Travel and Procurement Collaboration Although the focus of a next-generation T&E expense management program centers on 21st-century technology functionalities and capabilities, one area that can be overlooked is internal collaboration. Within a complex spend category such as business travel, it becomes critical for organizations, considering the sizable chunk of corporate revenue associated with the area, that the procurement and sourcing teams have a hand in managing major suppliers. Best-in-Class organizations are over 30% more likely than all other enterprises to utilize a formal travel sourcing component as part of their larger T&E expense management program. This factor can help drive visibility into spending on business travel, as well as assist in negotiations with major travel suppliers (airlines, hotels / resorts, etc.). Best-in-Class companies have relied on this collaborative capability to drive their superior rate of business travel spend under management (43% higher rate than all other organizations). T&E Expense Management Page 9 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 Chapter Two: Benchmarking Requirements for Success The next-generation T&E expense management program is comprised of a multi-faceted framework of nuanced approaches, strategies and solutions, all designed to streamline major processes, improve key visibility, increase T&E spend intelligence, and assist executives with achieving overall corporate and organizational goals and objectives. In this chapter, we will detail the advancements blazed by Best-in-Class corporations and highlight their reliance on core capabilities and technology solutions. Case Study — Leveraging Next-Generation Solutions As detailed in the T&E Expense Management research study, Best-in-Class organizations are leveraging a slew of next-generation strategies, approaches and solutions to streamline major processes and drive tremendous value. For the director of finance for a small, North American hospitality organization, these next-generation attributes have helped improve performance and enhanced their management of expenses related to T&E. “We have a two-tier approval process for audit purposes and attempt to audit approximate 80% of all submission,” said the director of finance, providing light on the processes behind their 75% rate of corporate policy compliance. The organization has also looked to mobility as a prime differentiator. “The mobile application is an excellent feature for real-time record-keeping of expenses for future review and final submission,” he said, adding that over 23% of the company’s total expenses are managed by mobile in some fashion. The organization has also relied on other next-generation enablers, such as end-to-end travel and expense management automation (cloud-based) and automated data analytics / business intelligence, to develop real-time visibility into all of their T&E-related spending against their corporate budgets. Competitive Assessment Aberdeen Group analyzed the aggregated metrics of surveyed companies to determine whether their performance ranked as Best-in-Class, Industry Average, or Laggard. In addition to having common performance levels, each class also shared characteristics in five key categories: (1) process (the approaches they take to execute daily expense management operations); (2) organization (corporate focus and collaboration among stakeholders); (3) knowledge management (contextualizing expense data and exposing it to key stakeholders); (4) technology (the selection of the appropriate tools and the effective deployment of those tools); and (5) performance management (the ability of the organization to measure its expense management results to improve its business). These characteristics Fast Facts √ Best-in-Class companies are 64% more likely than all others to align expense management processes and programs and the achievement of greater corporate objectives √ The average business traveler saves three hours per month of productivity by leveraging a mobile travel and expense management application / portal T&E Expense Management Page 10 © 2012 Aberdeen Group. Telephone: 617 854 5200 www.aberdeen.com Fax: 617 723 7897 (identified in Table 3) serve as a guideline for best practices, and correlate directly with Best-in-Class performance across the key metrics. Table 3: The Competitive Framework Best-in-Class Average Laggards Process Formal business travel group (standardized processes for management of business travel) 75% 62% 45% Documented processes for submission of expense reports 96% 83% 72% Organization Alignment between expense management and overall corporate goals / objectives 69% 34% 15% Knowledge Real-time visibility into travel spending against budget 63% 36% 27% Real-time reviews of pre-trip travel against budget 60% 31% 21% Technology Expense management technology solutions / tools in place:  82% end-to-end expense management solution  80% automated data analytics / reporting / BI  78% commercial card / expense management integration  67% automated billable time- and-travel management  41% mobile travel / expense management application  36% end-to-end expense management solution  44% automated data analytics / reporting / BI  51% commercial card / expense management integration  28% automated billable time- and-travel management  30% mobile travel / expense management application  32% end-to-end expense management solution  31% automated data analytics / reporting / BI  44% commercial card / expense management integration  21% automated billable time- and-travel management  25% mobile travel / expense management application Performance Expense management performance-tracking capabilities:  81% regular reporting on policy compliance  75% regular audits of expense reports  40% regular reporting on policy compliance  66% regular audits of expense reports  34% regular reporting on policy compliance  41% regular audits of expense reports Source: Aberdeen Group, February 2012 [...]... includes: Expense Management for Professional Services; January 2012 The Mid-Market Expense Management Program; September 2011 Mobile Technology: Filling the Gap in Modern Expense Management; May 2011 Expense Management for a New Decade; February 2011 The State of T&E Expense Management; February 2010 T&E Expense Management Automation: Reduce Costs, Improve Control; June 2009 Information on these and any other... following: The degree to which T&E expense management is deployed in their retail operations and the financial implications of the technology The structure and effectiveness of existing T&E expense management implementations Current and planned use of T&E expense management to aid operational and promotional activities The benefits, if any, that have been derived from T&E expense management initiatives The. .. Enterprise One often overlooked yet critical component of next-generation expense management is the alignment between expense management processes and programs and the achievement of greater corporate objectives This capability, in place in 64% more Best-in-Class organizations than all others, supports the notion of expense management as a truly strategic internal function and links the efficiencies of effective... February 2012 The technology solutions listed in Figure 4 are critical components of the next-generation expense management program Best-in-Class companies consider these solutions to be cornerstones in the improvement of key expense management processes In fact, utilization of these core, automated enhancers has driven a superior level of performance in all organizations currently leveraging these solutions:... 7897 T&E Expense Management Page 15 Chapter Three: Required Actions The next-generation T&E expense management program is built on a framework of attributes that address process, collaborative, visibility and intelligence initiatives The following recommendations for actions can help organizations on the lower spectrum of the Maturity Class Framework reach a Best-in-Class level of expense management. .. specific components of expense management that will play significant roles as the new decade progresses As detailed in Chapter One, the pillars of Best-in-Class T&E expense management (integration, analytics and mobile) are perfect cornerstones for any organization looking to drive their expense management program into a truly strategic stratosphere For organizations on the lower spectrum of Aberdeen's Maturity... place in 29% more Best-in-Class organizations than all others) of expenses can help pinpoint instances of employee expense fraud or, like the capability in the previous paragraph, identify those expenses that have exceed the limits set forth by enterprise guidelines and policies Best-in-Class Technology Utilization Any next-generation T&E expense management program is contingent on the reliance on core... receipts to expenses, create and submit expenses, etc.) Best-in-Class organizations are 33% more likely than all others to have this "pillar" of expense management as a core component of their programs Aberdeen research has found that the average user of mobile technology saves over three hours per month of productivity by directly leveraging a mobile expense management application / portal The cloud...T&E Expense Management Page 11 Expense Management Capabilities The Competitive Framework detailed in Table 3 serves as a comprehensive guide to the Best-in-Class T&E expense management program The capabilities of these top-performing organizations span a scope of competencies related to processes, organization / collaboration, knowledge and spend management, and performance-tracking... core technology solutions and automation of key expense management process As detailed in Figure 4, Best-in-Class organizations are making use of technology to support their programs and drive ultimate value Figure 4: Best-in-Class Technology Utilization Expense management technology has lowered the costs of processing expenses and standardized the business value of T&E.” n=140 ~ Procurement Director, . One: Benchmarking the Best-in-Class 4 T&E Expense Management in 2012 4 The Maturity Class Framework 5 The Best-in-Class PACE Model 6 The Pillars of Best-in-Class Expense Management 7 Chapter. to the " ;pillars& quot; of expense management in 2012 (Figure 3). Figure 3: The Pillars of Best-in-Class Expense Management Source: Aberdeen Group, February 2012 When looking at the. Figure 1: Expense Management Priorities for 2012 4 Figure 2: Top Expense Management Challenges / Pressures 5 Figure 3: The Pillars of Best-in-Class Expense Management 7 Figure 4: Best-in-Class