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November 1, 2009

MEET YES, TRAVEL NO

The returns from travel are large and well known. Yet the metals industry is doing less of it anyway.

Is business travel worthwhile?

Some recent high-profile studies sponsored by the beleaguered travel industry say yes, the returns on travel are substantial. Metals companies agree: There’s no substitute for the returns and relationships generated by travel and in-person meetings.

So, why have so many metals companies cut travel by 50% or more during this recession? Why is a high-return activity like travel for conferences, sales calls and customer relationship building among the first expenses to go in a recession?

Forward talked with metals companies big and small, and while definitive answers are scarce, we reached two conclusions. First, this recession was so sudden and so intense that shell-shocked managers cut budgets with cleavers and haven’t yet reconsidered. Second, very few companies, even those that believe in long-term relationships and outstanding service, really walk the talk.

Let’s look at the evidence.

A September 2009 study prepared by Oxford Economics USA—and cooperatively commissioned by the U.S. Travel Association and Destination Marketing Association International—concludes that the return on investment (ROI) for business travel is an astounding $12.50 in incremental revenue for every dollar spent. Oxford spoke with 800 people, including 136 who said they were employed by some sort of manufacturing enterprise.

“Certainly, web meetings and teleconferencing offer opportunities for cost savings as technologies continue to advance,” says Oxford. “Yet 85% of corporate executives perceive web meetings and teleconferences to be less effective than in-person meetings with prospective customers, while 63% believe virtual meetings to be less effective than in-person meetings with current customers … Three-quarters of businesses believe that increasing travel, while competitors are reducing it, can build market share and customer relationships. Half say reducing business travel will give their competition an advantage.”

That seems clear. How about travel for trade shows or conferences? “More than half of business travelers stated that 5% to 20% of their [companies’] new customers were the result of trade show participation,” says Oxford. “One-third of business travelers stated that conferences are important for generating new leads, and 28% said the same for new sales.”

But that’s not all, Oxford concludes. “Business travel yields a range of indirect benefits to company performance which are realized over a longer period of time. Many of these benefits fall within the category of building and strengthening relational networks … Both executives and travelers confirm travel to be a catalyst to the development of relationships on every level … ”

OK. Let’s assume that Oxford Economics is little more than a running dog for the travel industry. What does Forbes say in its “Forbes Insights” survey, conducted in June, of 760 business executives, half of whom were from small businesses, 20% from “medium-sized” businesses and 30% from outfits that employ—even after the layoffs—1,000 or more people?

Forbes, too, may have an economic axe to grind, but 84% of those surveyed said they prefer in-person contact to alternatives such as videoconferencing, web-assisted meetings and the like. Those who like in-person meetings say face-to-face discussions build stronger relationships, make it easier to interpret the body language of other people and provide far greater social interaction. Balanced against that were the digital crowd, who say digital gatherings save time and money. Which, of course, is true, if you think only of today.

“I think there is strong evidence out there that says there is something different about face-to-face communication than virtual mediums,” says Todd Zenger, a professor of strategy at Washington University’s Olin Business School. Zenger considers these surveys to be advocacy, and says that it is very, very difficult to measure returns from business travel, especially in terms of intangibles.

Keeping in mind that no general finding applies, necessarily, to any particular company, and that every company must decide on the value of travel for itself, what do metals executives says about the proposition that travel pays?

YES, NO AND MAYBE

“For any company, traveling and meeting face-to-face has a tremendous value,” says Tim Spieth, sales director for engineered bar producer Gerdau MACSTEEL of Jackson, Michigan. Nonetheless, Gerdau MACSTEEL’s travel spending has been cut significantly versus last year; not so much in customer visits, but in extras, such as entertainment and less flying.

“Buying steel is personal. Face-to-face visits can still make a difference,” says Lawrence Coulson, president of Cd’A Metals of Spokane, Washington. Travel has not been reduced at Cd’A, and Coulson says order rates are better when the outside sales force actually sees its customers in person.

In the past year, says David H. Hannah, chairman and CEO of Reliance Steel & Aluminum, the company has reduced travel to only when “it’s absolutely necessary.” At Ryerson, Inc., says CEO Stephen Makarewicz, travel has been reduced by only 10%, compared with a 30% reduction in costs overall. Ryerson travel is at nearly normal levels because, Makarewicz says, the distribution business demands face-to-face contact with customers and suppliers.

Klein Steel in Rochester, New York, has reduced travel costs by 50% in the last year, says Joe Klein, the CEO. Peter Baines, corporate vice-president of communications with Samuel, Son & Co., Ltd., based in the greater Toronto area of Ontario, says his company has reduced travel by 50% and traded face-to-face meetings for conference calls. Samuel expects to continue lower travel levels even after the recession but, Baines says, “If it is an important customer or critical situation we will spend the time and money to get the people we need in front of him, wherever he is located.”

Adds Spieth: “Have we learned how to do things better? Absolutely. Will we go back to flying and seeing the customer face-to-face when things turn around in the market? For some customers, absolutely. Our customer visitation frequency has not changed during this market downturn.”

“In this market, without appropriate quality, you are not in the game,” says Cd’A’s Coulson. “The only difference between service centers may be the friendly face of your salesman.”