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Transcript of Bianchi Essay final
ROYAL DOCKS BUSINESS SCHOOL - ASSIGNMENT FEEDBACK FRONTSHEETSECTION A: (to be completed by the student)
I confirm that no part of this assignment. except where clearly quoted and referenced. has been copied from material belonging to any other person e.g. from a book. handout, another student. I am aware that it is a breach of UEL regulations to copy the work of another without clear acknowledgement and that attempting to do so renders me liable to disciplinary proceedings.
SECTION B: (to be completed by the tutor marking assignment)
Please complete Section A in Block Capitals making sure that you include your Student Number, Module Code and Group Number. FAILURE to do so may result in your assignment being delayed. If you are unsure of any of the above please check at the Business School Student Centre Reception.
Student Number (s): U1435976
Programme:(e.g. Business Management)
Tourism Management
Module Title: (e.g. Studying for Business)
Tourism Innovation and Enterprise Seminar Group N/A
Module Code: TM5005 Word Count 2,568
Assessment Criteria: Weightings Criteria based Feedback Mark Achieved
Introduction 15
Analysis 30
Evidence and Research 30
Writing and Referencing 20
Format and Presentation 5
TOTAL MARKS 100%
Good practice demonstrated:
Aspect to consider for improvement:
Tutor's Name: Dr Raoul Bianchi
Date Received:PROVISIONAL MARK
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It has often been claimed that the distinctive industrial
characteristics of the tourism industries creates a
peculiar set of challenges for tourism innovation. With
specific emphasis on a particular sub-sector(s) and/or
destination, identify and evaluate the factors which may
inhibit or enable innovation in tourism.
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ABSTRACT:
The purpose of this essay is to identify a number of key industrial characteristics of the tourism
industries that inhibit or enable innovation, focusing on the accommodation sector, airline tour
operator sub-sectors in particular, with some references to specific destinations as examples. The
essay begins by briefly exploring the different types of innovation, before discussing authorisation
decree, cultural conflict, competition, perishability, seasonality, standardisation and sustainability as
some of the characteristics of the sub-sectors mentioned, and whether or not they inhibit or enable
innovation. The conclusion found that perishability seemed to be the most challenging industrial
characteristic of tourism inhibiting innovation, whilst standardisation and seasonality surprisingly
did not seem to inhibit innovation entirely. Competition appears to have become particularly
challenging for the accommodation sector since Airbnb appeared, with similar challenges being
faced for airlines with Ryanair and for tour operators; Expedia posed the same threat as well.
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Introduction 5 Defining Innovation 5 Government Support 6 Cultural Conflict/Differences 6 Competition 7 Perishability and Inseparability 9 Seasonality 10 Standardisation/Inconsistency/ Heterogeneity 11 Sustainability 13 Conclusion: 13 References 15
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Introduction
“The generation, acceptance and implementation of new ideas, processes, products or services …
involving the capacity to change and adapt” (Kanter, 1983 cited in Hall and Williams, 2008:5)
Distinguishing types of innovation can become complex, as different innovations tend to overlap,
reflecting the amalgam of sub-sectors which make up the tourism industry (Leiper, 2008). Thus, an
innovation in one sub-sector can create a ripple effect for others (Barras, 1986). Due to the very
nature of tourism itself, it has been described by many as a rapidly changing industry, due to there
being an endless development in technology, an increasing rise of sophisticated consumers,
environmental restraints for growth and economic restructuring being just a few of the challenges
facing the tourism industry that are inhibiting innovation (Poon, 1993).
The purpose of this essay is to examine some of the challenges inhibiting innovation within
tourism industries, focusing on the accommodation sector, airlines and excursion/tour operators in
particular, and will sometimes refer to destinations as examples of where the challenges discussed
may be apparent. Models and theories may also be used to help further explain and evaluate the
factors which hinder innovation in tourism.
Defining Innovation
Chan et al. (1988) considers three different levels of innovation: Incremental - a new, small-scale
idea, distinctive - an adaptation of company organisation or consumer behaviour, and breakthrough-
a new approach towards new technology, system organisation or consumer behaviour (Hall and
Williams, 2008) To expand on this, Schumpeter's (1934) typology of innovation identifies five
different types: (1) development of new production processes, (2) introduction of new supply
markets, (3) new or improved products, (4) reorganisation/reconstruction of a company and (5)
development of new sales markets. Distinguishing service elements from product, organisational
structure e.t.c (Peters and Pikkematt, 2005). However, it should not be mistaken that for something
to be considered an innovation, the idea does not have to be new to the world and only to a certain
market segment (Sundbo, 1998).
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For instance; Ibiza, widely known as one of the most popular clubbing destinations for tourists, is a
perfect example of how one innovation can completely change the way a destination is perceived
(Hall & Williams, 2008). Being defined to a single category, in this case, one that appeals mostly to
a younger demographic of a particular psychographic market segment (Kotler, et al, 2013), can
make things incredibly challenging, particularly for SMEs (small-to-medium-enterprises) who may
not necessarily want to start a business catering to the clubbing scene. Ultimately meaning that the
only innovative process left for such particular destinations, is to continue expanding (ibid), rather
than to have an entirely new innovation targeting a different market segment.
Government Support
Furthermore, Leiper (2008) explains why the misleading expression; “tourism industry", rather than
the plural; “tourism industries” may disrupt the innovative process for smaller tourism sub-sectors,
and that the recognition of differences among the tourism industries is crucial in regards to issues at
“micro-levels (e.g business strategies) and at macro levels (e.g. policies for destinations)” (Leiper,
2008:238). There are 7 challenges Leiper (2008) presents, one of which is authoritarian decree.
Here, Leiper (2008) describes how referring to tourism as an “industry” can simplify things for
some, and that to address multiple tourism industries would make for hard work and challenges for
politicians, bureaucrats and expensive work for lobbyists. These being the usual suspects
representing large scale hotels and business’ who rely on the definition of a singular tourism
industry in order to receive money and other forms of support from governments. This of course
could enable innovation for large scale companies that these lobbyists represent, but contrary for
smaller sub-sectors e.g entertainment services, where in this case, it may be considered a factor
inhibiting innovation, as they tend to receive less support and money from government officials if
they are not recognised as an industry under the tourism umbrella.
Cultural Conflict/Differences
Countries that are home to Islamic religion, such as Morocco and Egypt, can often have conflicting
issues meeting the demands of non-religious-tourists, being so heavily tied to religious practises.
For example, a case study carried out by Scherle (2004), looked at the cultural conflicts between
German and Moroccan business’ and found that the German operator had little patience or
willingness to compromise with the religious practices of the Moroccans, and the Moroccan travel
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agency manager felt as though the German manager had excessive expectations of which he could
not meet due to a lack of infrastructure or financial stability in order to develop it. This can be seen
below in figure 1:
Figure 1| Perspectives form German-Moroccan corporations (Adapted from Scherle, 2004)
Likewise, since the muslim market segment is vastly growing (Stephenson, 2014), non-religious
countries might experience difficulties catering to the needs of Muslim tourists. For example,
although the demand for segregated accommodation for Muslim tourists can be met by bigger hotel
companies, such as Hotel Bella Sky, one of two Marriott hotels in Copenhagen (ibid), smaller hotels
may not be able to financially commit to catering to this geographic, therefore cannot compete
against hotels that do. From this we can see how culture can intervene with the wider environment
where tourism activities occur as well as mould the scope of possible entrepreneurship and
innovation.
Competition
Competition can be another factor that may inhibit innovation: By looking at the “Five Competitive
Forces” Model (Porter, 2004) shown below in figure 2, we can identify what pressures or “forces”
any business may have to consider when dealing with competition. Airbnb are a perfect example of
the “new entrants” aspect of the model, best described as a “disruptive innovation” (Christensen &
Raynor, 2003), who present a major challenge for the accommodation sector, offering cheaper
alternatives for tourists and in some cases entire islands (Wortham, 2011), but mostly appealing to
the low-end of the market. As some Airbnb hosts began offering accommodation at much cheaper
rates than most of the traditional accommodation sectors, this gave consumers a certain level of
bargaining power (Porter, 2004); forcing the traditional accommodation sector to either bring down Page � of �7 18
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it’s prices (Cousins, et al, 2011), or to focus their attention on the higher-end market (Zervas, et al,
2016), until the disruptive innovation continues to develop and appeals to a greater amount of
consumers, making it incredibly difficult for leading, traditional companies to remain competitive
(Guttentag, 2013). The same can be said for Ryanair forcing down prices of other airlines.
Figure 2 | Five Forces Of Competition (Cousins, et al, 2011. p.20)
The rise of online travel agencies (OTAs) such as Expedia and Travelocity have also contributed to
the mass decline of traditional travel agencies, as they continue gaining an increasing amount of the
mainstream market (ibid). Ultimately inhibiting innovation and again, forcing the traditional travel
agencies to focus on a particular market segment, e.g an older demographic not use to modern
technologies.
As lodging is a cyclical industry, another factor inhibiting innovation which stems from competition
and new entrants, is the overbuilding of accommodation in a single area, leading to supply
outpacing demand and results in having to deal with overcapacity (Barrows, et al, 2012). This of
course could lead to other characteristics, such as perishability.
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Perishability and Inseparability
A service product presents four main characteristics that differ from manufacturing goods. These
are: intangibility, heterogeneity, and perishability. Contrastive to manufacturing goods, unused
capacity such as hotel rooms and airline or tour tickets have a high rate of perishability due to the
fact that they cannot merely be stored or re-sold somewhere else (Sun, 2007). An airline will still fly
to it’s destination regardless of whether or not all of it’s seats have been completely sold and filled;
meaning that if the seats are not sold in time, the sale is lost forever, an unfortunate circumstance of
perishability (ibid), a distinctive characteristic inhibiting innovation. Although the cost of a hotel
room is usually set at a fixed rate despite the level of demand (Kimes, 1989; Lewis & Chambers,
1989), Berman (1994) suggests that the only innovative process left to maximise profits would be to
sell tickets/rooms at a lower rate in order to fill the remaining capacity. Additionally, another tactic
of maximising profits and making up for previous loses, could be to determine costs by the level of
demand, also known as yield management (Arenberg, 1991; Kimes, 1989), enabling innovation. For
instance, hotels can usually expect a higher level of demand during a special event e.g New Year’s
Eve and airlines can expect to book more seats during Christmas, therefore, by charging a higher
rate during these times, they are likely to maximise profits. This can be referred to as a variable cost
(Atrill & Mclaney, 2012) shown in figure 3.
Figure 3 | Variable cost (Atrill & Mclaney, 2012)
Two sub-sections that have been known to commonly use this pricing strategy are the
accommodation and air transportation services (Sun, 2007). Using this method during anticipated
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high levels of demand would be an exception to the rule, as it completely disregards the supply and
demand curve shown in figure 4. The supply and demand curve illustrates that the more costly a
product/service is, the less demand there is (Barrows, et al, 2012).
Figure 4 | Supply and Demand Curve (Barrows, et al, 2012)
Seasonality
Many tourism sub-sectors are characterised by systematic fluctuations throughout the year, a core
characteristic directly causing this being seasonality (Higham & Hinch, 2002). Seasonality is almost
globally perceived as a key issue inhibiting innovation, especially concerning both coastal and
winter sport resorts, being the most heavily affected (ibid). Many working within the tourism
industries spend a lot of money, time and effort into innovating strategies designed to either create
an “all season” destination or extend “shoulder seasons” (ibid). Flognfeldt (cited by Baum &
Lundtorp, 2001) argues that, in particular circumstances, seasonality can enable innovation in rural
areas, for example, Germany attracts tourists during what would be considered their shoulder
season by holding their annual Octoberfest event.
A common problem that arises from seasonality, is seasonal jobs in tourism employment, also
described as a part-time job (Marshall, 1999, cited in Jooliffe & Farnsworth, 2003). A 1998
Canadian Tourism Human Resources Council reported that 23 per cent of tourism workforce are
employed seasonally on a short term contract, of which a considerable amount are made up of
young workers (Jooliffe & Farnsworth, 2003), usually being students. This means that tourism
industries will lack a decent amount of qualified and experienced staff during peak seasons, forcing
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them to spend money training up new staff each year. Furthermore, by having seasonally contracted
staff, an image is created portraying the idea that the accommodation and hospitality industries offer
limited opportunity for promotion or growth (Baum, et al, 1997; Hjalager & Andersen, 2001).
Additionally, if staff aren’t motivated this can cause the customer’s perception of quality service to
be relatively low (Lundberg, et al, 2009, Barrows, et al, 2012).
Standardisation/Inconsistency/ Heterogeneity
Another characteristic of the tourism service product which inhibits innovation is heterogeneity. To
be heterogeneous is to be diverse, which makes it virtually impossible for a service product to be
standardised (Woodruffe, 1995). A case study (Bozkurt, 2010) set out to test this notion by
interviewing a number of managers across various tourism sub-sectors, including; airline, tour
operators, excursion/activity agencies and national tourism offices, to ask them if they considered
standardisation to be achievable or not and why. The results surprisingly showed differing answers
ranging from completely achievable, to impossible. Figure 4 shows some of the factors that were
considered to determine the standardisation of a service product, according to the responses of the
managers interviewed:
Figure 4 | Standardisation of a Service Product (Bozkurt, 2010)
Most managers seemed to agree that physical, tangible aspects, such as uniforms, shop layouts and even advertisements could easily be standardised as those are the aspects they have more control over, whereas where human involvement is concerned, with the delivery of service, they have less
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U1435976control, as this is an intangible aspect. Although other managers argued that this could be perfected with regular training (ibid). Figure 5 illustrates this in terms of particular sub-sectors:
Figure 5 | Standardisation Matrix (Bozkurt, 2010)
As figure 5 implies, sub-sectors that offer more tangible aspects, such as an excursion company offering scuba diving activities which involves having scuba equipment, training lessons, the instructor’s presence e.t.c, therefore it enables innovation as it has a higher level standardisation of which can be controlled. Although, a travel agent’s tangible aspects are limited; merely consisting of the uniform and shop layout. Most of the customer’s experience with a tour operator will be based on the of human involvement, inhibiting innovation as it is an intangible aspect, which mentioned previously, we have little control of (ibid).
The tourist experience as a whole is an aspect that is considered particularly challenging, especially for tour operators whom offer package deals. This is due to the fact that tourism is not a single industry but a dynamic amalgam of suppliers interacting across different settings to produce the ‘tourist experience(s)’, and as shown from the case study discussed above, if different sub-sectors have a different levels of standardisation, it makes it incredibly difficult for the tour operator offering package holidays, whom is technically responsible for the tourist(s) experience, to provide high levels of standardisation to it’s customers, which inhibits innovation.
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Sustainability
Sustainable tourism is another factor of tourism that we have little control of. Tour operators for
example, highly depend on nature, the environmental state and cultural sites among many other
elements (Selänniemi) as shown in figure 6:
Figure 6 | The Tour Operator’s Position (Adapted from Selänniemi)
As a result, sustainable tourism is important for this sub-sector in particular, as tourists aren’t going
to be compelled to go on holiday where there is a spoilt environment (ibid). However, tourism is
ironically responsible for CO2 emissions, to get to the destination in the first place, tourists also
contribute to a lot of waste and water consumption and also cause a lot of erosion for natural and
cultural heritage sites (Chapman, 2007). A lot of industries are attempting to develop ecotourism in
order to help make tourism less destructive, however with ecotourism being more expensive, it
tends to only attracts an elite few (ibid). This both enables innovation in terms of developing a new
approaches to changing tourism, but also inhibits innovation as it produces limitations, such as
access to fragile environments that need maintaining (ibid).
Conclusion:
To conclude, perishability seems to be the most challenging characteristic inhibiting innovation, as
the only innovative process left appears to be the use of yield management strategies. Seasonality
and standardisation surprisingly do not seem to inhibit innovation as much as anticipated (although
it still poses quite the challenge), due to standardisation being achievable through the use of regular
training and control over tangible elements such as uniform, shop/hotel layout and airline board
meals. Seasonality can inhibit innovation for coastal areas but seems to enable innovation in more
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rural areas, allowing entrepreneurs to create new markets through the use of gastronomic tourism
perhaps, or through the use of events. Airbnb, Ryanair and online travel agencies such as Expedia
have shown to be the most disruptive forms of innovation, inhibiting the accommodation sector,
airlines and tour operators from processing innovative ways to compete. With further development,
cultural conflicts could easily be improved upon and may not remain a characteristic inhibiting
innovation, similar to authorisation decree (government support) of the tourism industry/industries.
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