Competitiveness through innovations Chances and obstacles in tourism Slovenian Tourism Summit, Bled,

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Competitivenessthrough innovations - Chances
and obstacles in tourismSlovenian Tourism
Summit, Bled, April 19,2006Dr. 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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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 RD, 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.
Newservice
New methods
Todaysservice
Old methods
Todays markets
New markets
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Market innovationSelling Switzerland in India
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Product innovationThe Cube hotels
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Product innovationRiders Palace
http//www.riderspalace.ch/img/riders_1.jpg
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Process innovationThe 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 innovatorLow cost airlines
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Product and process innovationsfollow a
different rationale.
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
Push
Basic research
Appliedresearch
Product- development
Market introduction
Customer
Pull
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as well as RD development and decision making.
RD-intensiveProduct-innovation
Need of innovation
Product-innovation
Service-innovation
Decision
Generating ideas
Testingideas
Product-design
Introduction
Source Bieger (2001) adapted from Füglistaller
(2000)
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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
Corporate governance
Degree of Strategic orientation
Potential for multiple concept application
Innovation
Competencies
Source Laesser (2002)
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Are tourism companies generally innovative?No!
But why? (contd)

• 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 others innovation, butfast
  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-gt stand alone approach
• Organisations concentrate themselves on their
  innovation strategy within close cooperation with
  other organisations-gt establishing and work
  within a predefined network
• Organisations found a new organisation, aiming at
  developing innovation programs (and concepts)-gt
  establishing a new organisation
• Organisations develop innovations which are based
  on co-innovation strategies and programs-gt
  (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 innovationsNovelty

• Creation of new transaction channels, structures,
  and means
• Convergence of tourism with other industries
  (AE, 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 innovationsLock-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 innovationsComplementa
ries 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 innovationsEfficiency

• 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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Thanks for your attention!For an abundance of
sources and information either go to-
www.idt.unisg.ch or- www.alexandria.unsig.ch