TOURISM AS AN INNOVATION BASED INDUSTRY

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TOURISM AS AN INNOVATION BASED INDUSTRY

• Abraham Pizam
• Rosen College of Hospitality Management
• University of Central Florida
• Orlando, Florida, USA

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Innovate or be left behind

• The basic premise of this presentation is that
  developed economies are entering into a new
  phase, namely the era of innovation.
• Therefore, those businesses that will
  continuously innovate their products, services
  and/or business models, will be able to
  successfully compete in the market place while
  all others will fall on the wayside.

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Innovation and the Economy

• Most modern economists agree that innovation is a
  major force in economic growth.
• Some even claim that innovative activity has been
  the single, most important component of long-term
  economic growth, (Rosenberg, 2004).

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Innovation and the Economy

• Their rationale is based on the notion that
  basically there are only two ways of increasing
  the output of the economy
• increasing the number of inputs that go into the
  productive process, or
• designing new ways to get more output from the
  same number of inputs.

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Innovation and the Economy

• Some suggest that the old model for business
  success which was based on efficient utilization
  of capital and labor will no longer be relevant
  in the next phase of the economy.
• The new emerging model for this phase is the
  creation and application of innovative products,
  services and business models to serve the ever
  changing world.

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Innovation and the Economy

• However, as is evidenced by now, not all
  innovations lead to the same economic growth.
• Some may just cause a minute increase in
  efficiency and productivity.
• Others may cause a quantum jump and change the
  nature of both the production and consumption of
  a product or service.

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Innovation and the Economy

• We suggest that in the next phase of all
  developed economies including tourism-dependent
  economies significant economic and business
  growth could be achieved only through
• the development and adoption of one type of
  innovation, namely disruptive innovation.

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Disruptive vs. Incremental Innovations

• Innovations can be classified into two types
• Disruptive,
• Incremental.

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Disruptive Innovation Definition

• A term used to describe an innovation that is of
  highly discontinuous or revolutionary nature,
  which is the opposite of evolutionary
  incremental or sustaining innovation
  (Thomond Lettice, 2002)

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Disruptive Innovation Definition

• A disruptive innovation is a successfully
  exploited product, service or business model that
  significantly transforms the demands and needs of
  a mainstream market and disrupts its former key
  players.

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Incremental Innovation Definition

• A change in an existing technology or
  combination of technologies that does not
  significantly alter functionality, but
  incrementally and continuously improves
  performance, features, safety, quality or lowers
  cost

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Incremental Innovation Definition

• Incremental innovation occurs as a result of
• improvements suggested by those directly engaged
  in the design and production process, or
• initiatives and proposals by users (Strategies 2
  Innovate, 2006).

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Disruptive vs. Incremental Innovation

• Some suggest (Leifer et al. 2000) that
  incremental innovation can keep large companies
  competitive in the short term.
• But only disruptive innovation can change the
  game, leading the way to long-term growth.

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Examples of Destructive Innovations

• Digital cameras that disrupted film cameras
• Desktop computers that disrupted mainframe
  computers.
• CDs that have displaced vinyl records.
• Automobiles that displaced horses as means of
  transportation.
• Transistors that displaced vacuum tubes.
• Antibiotics that displaced sulfa and other
  antibacterial drugs.

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Examples of Destructive Innovations

• Digital communications and transmissions (i.e.
  fax machines and E-mails) that have displaced
  analogue communication and transmissions (i.e.
  telegrams).
• Mobile (cellular) phones that will probably
  displace land phones
• VoIP (Voice over Internet Protocol) that will
  probably displace traditional and mobile
  telephone service.
• Flash cards that will probably disrupt if not
  displace disk drives (Stabe, 2002).

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Examples of incremental innovation products

• Color TVs which are an improvement of Black and
  White TVs
• Flat panel TVs (LCD or Plasma) which are an
  improvement over tube-based TVs
• Zip disks which are an improvement on Floppy
  disks
• Lap top computers which are an improvement on
  desktop computers
• Upgrades to existing software, etc.

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Business-Model vs. Technological Innovations

• A business-model innovation is the discovery of a
  fundamentally different way of doing business in
  an existing business.
• To qualify as an disruptive innovation, the new
  business model must enlarge the existing economic
  pie, either by
• attracting new customers into the market, or
• encouraging existing markets to consume more.

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Business-Model vs. Technological Innovations

• Business model innovators do not discover new
  products or services
• They simply redefine what an existing product or
  service is and how it is provided to the customer
  (Markides, 200620).

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Examples of disruptive business-model innovations

• Amazon,
• E-Bay,
• Dell computers,
• Swatch watches,
• Charles Schwab stock brokers,
• NetBank, etc.

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Examples of disruptive business-model innovations

• None of the above invented the products or
  services that they manufacture or sell.
• But they redefined their products/services and
  invented new ways of offering these to the
  customer.

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Examples of disruptive business-model innovations

• For example
• Amazon did not discover book selling but offered
  new ways of providing books to customers.
• E-bay did not invent auctions,
• Dell did not invent computers,
• Swatch did not invent watches,
• Charles Schwab did not invent stock broking, and
• NetBank did not invent banking.

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Examples of disruptive business-model innovations

• These business-model innovators invaded an
  existing market by emphasizing different product
  or service attributes to those emphasized by the
  traditional business models of the established
  competitors.
• By doing so they enlarged the existing markets
  and attracted new customers (Markides, 200620).

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New definition of disruptive business-model
innovations

• Until recently, businessmodel disruptive
  innovations were thought to possess the same
  characteristics as technological or
  product/service disruptive innovations.
• For example, Christensen (1997) and many of his
  followers suggested that
• disruptive technologies tend to be associated
  with the replacement of the incumbents by
  entrants (Danneels, 2004247).

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New definition of disruptive business-model
innovations

• If this holds true for business models as well,
  than sooner or later
• All the traditional book sellers would be
  replaced by Amazon type book-sellers,
• Charles Schwab type of discount stock-brokerage
  houses would replace all the traditional
  stock-brokers, etc.

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New definition of disruptive business-model
innovations

• This claim is challenged by Markides (2006) who
  points out that the available business literature
  suggests that
• New business-model innovations grow quickly in
  the initial phase of their introduction but fail
  to completely overtake the traditional way of
  competing.

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New definition of disruptive business-model
innovations

• For example, Internet banking and Internet
  brokerage have grown rapidly in the last five
  years but have captured only 10-20 of the market
  share.
• In market after market, new ways of competing
  grow to a respectable size but never really
  replace the old ways.

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New definition of disruptive business-model
innovations

• This leads some researchers to the conclusions
  that
• New business models are not necessarily superior
  to the ones established companies employ and,
• To compete with the new entrants, existing
  companies do not have to adopt these new business
  models by themselves or create separate units
  (Markides, 2006).

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Innovation in the Tourism Industry

• Like most other industries, the tourism industry
  has seen its share of innovative products and
  services that were introduced in the last fifty
  years.
• However, with very few exceptions, most products
  and service innovations were of an incremental
  rather that disruptive nature.

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Innovation in the Tourism Industry

• Such innovations as
• the airline industry that displaced maritime
  passenger transportation,
• online (Internet) booking and reservation that
  displaced most of the travel agency business,
• the theme parks industry that displaced the
  amusement park business,
• Can be considered disruptive innovations.

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Innovation in the Tourism Industry

• But in most other cases the verdict isnt out yet
  whether a particular product/service innovation
  could be considered as a disruptive innovation or
  an incremental innovation.

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Incremental tourism innovations

• In the last century we have seen a whole new
  range of innovative tourism products/services
  that never existed before.
• Products/services such as
• winter tourism,
• cruise lines,
• convention centers, etc.
• Have many of the characteristics of disruptive
  innovations.

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Incremental tourism innovations

• But none of them have yet managed to disrupt its
  key players and therefore at this stage they
  might be considered only incremental.

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Business models disruptive innovations in tourism

• The tourism industry has created many new
  business models that have the characteristics of
  disruptive innovations.
• time shares,
• condo hotels,
• fast food restaurants,
• all-you-can-eat restaurants,
• chain of franchised hotels or restaurants,
• no-frills airlines, etc.
• Are typical examples of the numerous disruptive
  innovations that were created in the last 2-3
  decades.

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Business models disruptive innovations in tourism

• These new business models did not succeed in
  capturing the entire share of their markets.
• But they managed to enlarge the existing markets
  by attracting new customers into the markets
  and/or by encouraging existing customers to
  consume more.

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Business models disruptive innovations in tourism

• For example, time shares and condo hotels have
  managed to capture a significant and growing
  share of the lodging market.
• But they have not destroyed the traditional hotel
  industry which still dominates the market.
• The same is true for the fast food, the
  all-you-can-eat restaurant businesses and the
  no-frills airlines that have not even made a dent
  in their respective traditional industries.

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Business models disruptive innovations in tourism

• Many new business processing techniques in the
  hospitality/tourism industry have some, if not
  all, of the characteristics of disruptive
  innovations.
• For example
• Yield Management,
• Destination Management Systems,
• Frequent Flyer/Guest Programs,
• Energy Management Systems,
• Electronic Locking Systems,
• Global Distribution Systems,

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Business models disruptive innovations in tourism

• Mass Customization,
• Property Management Systems,
• Revenue Management,
• Self-Service Technologies (i.e. Self Check-out
  Systems), and
• Central Reservations Systems (CRS), etc.

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Business models disruptive innovations in tourism

• As previously mentioned one of the best examples
  of disruptive innovation in the tourism industry
  is the online reservation, purchasing and
  ticketing of airline and other transportation
  products, such as cruises, bus tours, rental
  cars, etc.
• During the last decade the Internet has managed
  to single-handedly transform the role of travel
  agents, and sharply reduce the size of the travel
  agent industry.

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Business models disruptive innovations in tourism

• Those travel agencies that survived have done so
  by providing a new bundle of services to
  potential travelers that require expert knowledge
  and advice that can only be delivered through
  personal customer relationship.

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Business models disruptive innovations in tourism

• In essence these businesses have transformed
  themselves from agencies that
• provide information,
• book and sell travel products, and
• earn their profits from commissions,
• to travel consultancies that
• advise their customers on anything related to
  travel,
• in exchange for professional fees.

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Survival of tourism businesses

• If tourism businesses are to survive and flourish
  in the next phase of the economy, they will have
  to continuously develop, adopt and market
  innovative
• products,
• services,
• business models,
• work processes and
• management techniques.

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Survival of tourism businesses

• This could be achieved only through the
  elimination of the major barriers which currently
  prevent most tourism/hospitality businesses from
  being truly innovative.

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Survival of tourism businesses

• These barriers are
• Failure to adopt innovative ideas that are
  produced in the knowledge shops of academic and
  research institutions,
• Failure to recognize changes, threats and
  opportunities in the global society,

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Survival of tourism businesses

• Lack of organizational ambition and vision,
• Aversion to take risks,
• Lack of market understanding,
• Lack of expertise in their service or production
  processes, and
• Lack of finance (Beacham, 2006).

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Thank you for your undivided attention

• This presentation was based on the following
  article
• Abraham Pizam and Robertico Croes, Tourism
  Through Times From Agrarian Societies to
  innovation-based Economies, Asian Journal of
  Tourism and Hospitality Research, Vol. 1 No.1
  (2007) pp. 3-22.