Bianchi Essay final

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ROYAL DOCKS BUSINESS SCHOOL - ASSIGNMENT FEEDBACK FRONTSHEET SECTION 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

Transcript of Bianchi Essay final

Page 1: 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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