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MEGACARD CORPORATION In January 1992, Bill O’Brien, vice president of Megacard Corporation’s Business Travel Department, was reviewing his department’s 1991 results, which were generally encouraging. Although several long-established Business Travel Centers had not yet made a profit, new ones had opened and were doing well. The Business Travel Department’s sales were on the increase; they had grown by 30 percent in 1991 and had recently been forecast to double by the end of 1995. O’Brien wondered how Megacard could effectively manage all the business at the door. He was sure the parent company would advance funds for growth, but he was bothered by the broad distribution of client demand. Some of it came from regions beyond the reach of his established Business Travel Centers (BTCs)— the thriving centers and the flagging ones. O’Brien did not want to build and hire when he faced chronic overstaffing at some BTCs and periodic seasonal overstaffing at all of them. A strong sense of paradox plagued him: he needed more people to expand operations, but he already had too many people maintaining them. As he considered possible corrective strategies, he tried to foresee the effects they would have on the quality of service. Quality was the life of his department; he had no intention of sacrificing it or even experimenting with it. The Business-Travel Industry At one time, travel and entertainment were minor costs relative to a firm’s overall expenses. With the rise in oil prices during the late 1970s, however, travel and entertainment had become major costs for the estimated 80,000 firms sending a hundred or more employees on out-of-town business each year. In 1991, U.S. companies had spent over $100 billion on travel. This level of spending presented a large opportunity to the business- travel industry. Firms generally managed their travel arrangements in one of three ways: in-house, in-plant, or through outside agencies. In-house management was the preference of 26 percent of all firms; they assigned responsibility for travel arrangements to one or more staff members. In-house management gave firms complete control over their plans, but it left them paying full air fares and an average of $80,000 a year in salaries and expenses, according to industry studies. Three percent of all firms used in-plant management by inviting a licensed travel agent to set up a branch on their premises. The host firm paid the overhead costs, and the branch received a commission of three to five percent on ticket sales from airlines. According to travel-industry surveys, about ninety percent of travel dollars went for air fares. Most firms went to outside agencies for the management of their travel requirements. Outside agencies received a 10 percent sales commission from airlines and made no charge to clients for their services. Large agencies offered specially negotiated rates on hotels and car rentals.