Competitiveness through innovations Chances and obstacles in tourism

Competitiveness through innovations Chances and obstacles in tourism Slovenian Tourism Summit, Bled, April 19, 2006 Dr. Christian Laesser University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 2 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. © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 3 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 © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 4 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 © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 5 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 ðBreaking up of “traditional” areas of consumption and orientation ðAreal disintegration of value chains © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 6 …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. ) © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 7 In the case of tourism, the A 380 will provide options to further slash transportation costs… © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 8 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 © IDT-HSG, University of St. Gallen Sources: Haubold (1995); Rust and Oliver (1994)

Slovenian Tourism Summit Aril 19, 2006 Page 9 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 © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 10 Drivers of product life cycles • Demand – changing demand – new consumers • competitors – – new business models substitution intensive competition improved products © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 11 Definition of innovation Introduction of a new problem solution by means of • invention (absolute novelty) • imitation (relative novelty) © IDT-HSG, University of St. Gallen Sources : Weinhold-Stünzi (1988) ; Meffert (1998) ; Thommen (1999)

Slovenian Tourism Summit Aril 19, 2006 Page 12 The approaches for innovations are manifold. New service t uc n d ro atio P v o nn i Tr Today’s service © IDT-HSG, University of St. Gallen bu Ne m sin w od es el s s s es n c ro atio P v o inn New methods bu adi t m sin ion od es al el s Old methods s Today’s markets t ke ion r Ma vat o nn i New markets

Slovenian Tourism Summit Aril 19, 2006 Page 13 Market innovation: Selling Switzerland in India © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 14 Product innovation: The Cube® hotels © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 15 Product innovation: Riders Palace http: //www. riderspalace. ch/img/riders_1. jpg © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 16 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 • . . . © IDT-HSG, University of St. Gallen Source: Fairmont Hotels and Resorts

Slovenian Tourism Summit Aril 19, 2006 Page 17 Process and product innovator: Low cost airlines © IDT-HSG, University of St. Gallen

Product and process innovations follow a different rationale. Level of innovation Slovenian Tourism Summit Aril 19, 2006 Page 18 Product innovation Process innovation Maturity of industry t © IDT-HSG, University of St. Gallen Source: Utterback (1994)

Slovenian Tourism Summit Aril 19, 2006 Page 19 Product innovation is either initiated by a push or pull process… Push Producers „push“ innovations into markets (e. g. WAP) © IDT-HSG, University of St. Gallen Pull Demand asks/ „pulls” Innovation into the market (e. g. SMS, Economy supreme with BA)

Slovenian Tourism Summit Aril 19, 2006 Page 20 … mainly differed by the role of the customer… Push Basic research Applied research Productdevelopment Market introduction Customer Pull Customer Market research © IDT-HSG, University of St. Gallen Appl. research Poss. Basic reserach Product. Market development introduction Customer

…as well as R&D development and decision making. R&D-intensive Product-innovation Need of innovation Product-innovation Service-innovation Decision Slovenian Tourism Summit Aril 19, 2006 Page 21 Generating ideas Testing ideas Productdesign Introduction © IDT-HSG, University of St. Gallen Source: Bieger (2001); adapted from Füglistaller (2000)

Slovenian Tourism Summit Aril 19, 2006 Page 22 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 © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 23 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… © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 24 Basic problem: The SME structure in tourism results in a lack of innovation. Size of company Corporate governance Potential for multiple concept application Degree of Strategic orientation Innovation Competencies © IDT-HSG, University of St. Gallen Source: Laesser (2002)

Slovenian Tourism Summit Aril 19, 2006 Page 25 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 © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 26 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 © IDT-HSG, University of St. Gallen Source: Bieger and Laesser (2006)

Slovenian Tourism Summit Aril 19, 2006 Page 27 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 coinnovation strategies and programs -> (complete) synchronisation of strategies and programs in terms of content and processes © IDT-HSG, University of St. Gallen Source: Bossink (2002)

Slovenian Tourism Summit Aril 19, 2006 Page 28 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 © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 29 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) © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 30 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 © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 31 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 © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 32 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) © IDT-HSG, University of St. Gallen

Slovenian Tourism Summit Aril 19, 2006 Page 33 Thanks for your attention! For an abundance of sources and information either go to - www. idt. unisg. ch or - www. alexandria. unsig. ch © IDT-HSG, University of St. Gallen