competitiveness through innovations - chances and obstacles in tourism slovenian tourism summit,...

Competitivenessthrough innovations - Chances and obstacles in tourism

Slovenian Tourism Summit, Bled, April 19,2006

Dr. Christian LaesserUniversity of St. Gallen

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Abstract

This presentation gives an insight into the state of innovation in tourism. Based on the description of the framework in which tourism is operating in (globalisation, deregulation, etc.), types and approaches of innovation (market, services/ products, processes, etc.) as well as the status quo, potentials and limitations of innovation in tourism are discussed. The presentation concludes with an elaboration of foundations for future potentials of innovation in tourism.

The presentation reveals that the overcoming of the innovation limiting SME structure of the tourism industry proofs to be one of the major current and future challenges. However, the habit of tourism service providers to work in networks opens significant chances for the further development and growth of the entire sector.

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Agenda

• The framework which tourism is operating in

• Types and approaches of innovations

• Status quo, potentials and limitations of innovation in tourism

• Foundations for potential innovations in tourism

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© IDT-HSG, University of St. Gallen

Agenda

• The framework which tourism is operating in

• Types and approaches of innovations

• Status quo, potentials and limitations of innovation in tourism

• Foundations for potential innovations in tourism

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The framework: Globalisation…

• Internationalisation of production, hereby optimising processes and creating value at locations optimal with regard to

– Factor supply (quantity perspective)– Competences (quality perspective)– Quality and quantity of demand targeted

• Internationalisation of consumption, hereby optimising– Time of delivery (not the shortest but the most reliable one)– Costs and quality of product or service demanded

Breaking up of “traditional” areas of consumption and orientation

Areal disintegration of value chains

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…with a number of key drivers

• Technological progress resulting in declining transaction costs (information, communication, transportation)

• Deregulation of numerous markets (especially goods and transportation)

• International liberalisation and reduction of trade barriers (GATT, WTO, etc.)

• Efforts of integration or at least trade alliances (EU, APEC, etc.)

• New (emerging) players (Former Warsaw Pact countries, China, India, etc.)

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In the case of tourism, the A380 will provide options to further slash transportation costs…

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The results of globalisation consists of an intensifying competition…

• Drivers of competition:– Price– Quality– Flexibility– Reliability– Innovation abilities

• Faces of competition:– Declining duration of R&D, production cycle and delivery times– Declining duration of cycles with regard to products and series– Increasing customisation of products and product systems– Increasing variety of products

Sources: Haubold (1995); Rust and Oliver (1994)

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Agenda

• The framework which tourism is operating in

• Types and approaches of innovations

• Status quo, potentials and limitations of innovation in tourism

• Foundations for potential innovations in tourism

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Drivers of product life cycles

• Demand– changing demand– new consumers

• competitors– new business models– substitution– intensive competition– improved products

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Definition of innovation

Introduction of a new problem solution by means of

• invention (absolute novelty)

• imitation (relative novelty)

Sources : Weinhold-Stünzi (1988) ; Meffert (1998) ;Thommen (1999)

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The approaches for innovations are manifold.

Newbusiness

models

Product

innovation

Newservice

Market

innovation

New markets

Today’sservice

Today’s markets

Process

innovation New methods

Old methods

Traditional

business

models

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Market innovation:Selling Switzerland in India

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Product innovation:The Cube® hotels

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Product innovation:Riders Palace

http://www.riderspalace.ch/img/riders_1.jpg

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Process innovation:The case of the Fairmont group

Self service kiosk:

• Check-In

• Check-Out

• Room selection

• keys

• Automatic acceptance in guest loyality program

• Airline Check-In

• Functionalities for group travel

• ...

Source: Fairmont Hotels and Resorts

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Process and product innovator:Low cost airlines

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Product and process innovationsfollow a different rationale.

Product innovation

Process innovation

Maturity of industry

Level of

inn

ovati

on

t

Source: Utterback (1994)

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Product innovation is either initiatedby a push or pull process…

Push

Producers „push“ innovations into markets

(e.g. WAP)

Pull

Demand asks/ „pulls” Innovation into the

market

(e.g. SMS, Economy supreme with BA)

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… mainly differed by the role of the customer…

Basic researchAppliedresearch

Product- development

Market introduction Customer

Marketresearch

Appl.research

Poss.Basic

reserach

Product- development CustomerCustomer

Market introduction

Pull

Push

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…as well as R&D development and decision making.

Need of innovationR&D-intensiveProduct-innovation

Service-innovation

Product-innovation

Dec

isio

n

Source: Bieger (2001); adapted from Füglistaller (2000)

Generatingideas

Testingideas

Product-design

Introduction

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Agenda

• The framework which tourism is operating in

• Types and approaches of innovations

• Status quo, potentials and limitations of innovation in tourism

• Foundations for potential innovations in tourism

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Are tourism companies generally innovative?No! But why?

• SME structure (cf. next page)

• Number of employees (little source of innovation potential)

• Little degree of formalisation (who is in charge?)

• Necessity of multidisciplinary approach

• Necessity of cooperative research (free rider problem)

• Focus on “own” destination; non-crossing of borderlines…

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Basic problem: The SME structure in tourismresults in a lack of innovation.

Size ofcompany

Corporategovernance

Degree ofStrategic orientation

Potential for multipleconcept application

Innovation Competencies

Source: Laesser (2002)

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Are tourism companies generally innovative?No! But why? (cont’d)

• Technology as supporting act, but not core production element (which is the service personnel)

• Basic aim consists of imitating innovation to secure market shares

• Lack of budget for systematic innovation approach

• Highly commoditised tourism product

• Slowly changing demand

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Innovation in tourism…

• Adaptations of “other’s” innovation, but:fast decreasing marginal benefit of innovation adaptation

• Adaptations of IT innovations to tourism

• Very high likelihood of cost reduction (hardly and seldom given; one can hardly innovate on staffing numbers)

• Very high likelihood of profitability necessary (risk aversion)

• Rather supply push than demand pull, due to– Budget limitations– Costly trial and error processes

• Rank order in tourism: (1) Market innovation, (2) Product innovation, (3) delivery innovation, (4) Process innovation

Source: Bieger and Laesser (2006)

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There are different views as to the structural approach to innovation in tourism.

• Organisations develop their own innovation strategies-> stand alone approach

• Organisations concentrate themselves on their innovation strategy within close cooperation with other organisations-> establishing and work within a predefined network

• Organisations found a new organisation, aiming at developing innovation programs (and concepts)-> establishing a new organisation

• Organisations develop innovations which are based on co-innovation strategies and programs-> (complete) synchronisation of strategies and programs in terms of content and processes

Source: Bossink (2002)

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Agenda

• The framework which tourism is operating in

• Types and approaches of innovations

• Status quo, potentials and limitations of innovation in tourism

• Foundations for potential innovations in tourism

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Foundations for potential innovations:Novelty

• Creation of new transaction channels, structures, and means

• Convergence of tourism with other industries (A&E, education, health, etc.)

• Use the potential for effective and efficient community marketing (new psychographic type of segmentation)

• Introduction of new and customer-oriented means of marketing (e.g. permissive marketing)

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Foundations for potential innovations:Lock-In Stability

• Introduction of business plugs(technological means to work together)

• Creation of new economies of scale and scope for SMEs

• CRM - affiliated measures on the demand side

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Foundations for potential innovations:Complementaries and substitutives

• Convergence of industries, incl. tourism (tourism either driver or “receiver” of convergence)

• Customer co-ownership with complementary and substitutive industries (merged customer loyalty programs)

• Unlimited potential of (mass) customizing/ individualizing bundels of products

• Combination of singular technologies

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Foundations for potential innovations:Efficiency

• Reduction of transactional and delivery costs

• Network based cost reduction on the backstage levels of the business units (non core production steps)

• Adaptation of intermediary stages(e.g. travel agencies and tour operators)

• Simplicity (e.g. with regard to information search of customers)

• Potentialities of clearing perishable goods (Yield management)

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