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Tourism and Innovation


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FAMILY NAME Terracciano URN 6097517

FIRST NAME Francesco SIGNATURE F.Terracciano

PROGRAMME: International Hospitality and Tourism Management MODULE NAME: Tourism and Innovation MODULE CONVENOR: Allan Williams TITLE OF ASSIGNMENT: Are there different barriers to, and facilitators of, tourism innovation in small firms versus multinational companies? WORD COUNT: 2100

Tourism and Innovation

Introduction By identifying, predicting and satisfying the needs and wants of guests in the tourism industry, small and large firms seek to design innovative hotel products, broaden sales channels and make promotion programs more extensive, while setting competitive prices for their products. The body of the literature provides evidence that in the tourism industry both firms, large and small, contribute to the creation of innovation. However, due to their evident differences in terms of size, market accessibility and competences, there are different and complex factors that encourage or prevent the creation of innovation in small firms and in multinational companies Small businesses are considered to be placed in the best position for creating innovation due to their flexibility and higher ability to adapt to the fast changing environment (Laforet, 2008). Furthermore, the absence of entrenched bureaucracy, that often characterises larger firms, allows small businesses to be quicker in implementing changes (Laforet, 2008). However, large firms are able to attract highly skilled specialist and can support the establishment of a large R&D laboratory. At a finance level, large firms are able to easily borrow money and potentially can spread risk over several products. Large firms are also able to: defend patents; gain price leadership; employ specialist to assist in accessing government schemes. Thus, the innovatory advances of large firms are mainly associated with their relatively greater financial and technological resources, which are material advantages. SMEs advantages are those of entrepreneurial dynamism, internal flexibility and responsiveness to changing circumstances, which are behavioural advantages. This paper identifies some of the main factors that prevent or encourage the development of innovation in small and large firms. The first part will discuss the role of technology in the tourism industry and will analyse the challenges small firms, in comparison to multinational companies, face when developing new technological practices. The second part will focus on a number of barriers - such as risk aversion, cultural issues, resistance to change, lack of resources, lack of knowledge - that inhibit the development of innovation in both size firms. Moreover, some facilitators to tourism innovation will be discussed and analysed, and a conclusion will be provided to summarise the main points discussed.

Tourism and Innovation Different barriers to, and facilitators of, technological innovation in the tourism industry. Over the past years, technology has been recognised as the main factor that has contributed to shape the tourism industry. Innovative technological products not only have helped firms to increase their information about the need of customers but have also influenced the way tourism industry offer services. Moreover, the technological waves occurred in the last years - the wave of Computer Reservation System in the seventies, the wave of the Global Distribution System in the year Eighties, the Internet Revolution in the second half of the nineties- have induced firms to redefine not only their own organizational structure, but also the structure of relations with partner organizations. These technologies have given a considerable stimulus to the reporting relationship between companies, allowing to create, develop and make the global availability of tourist services elementary first through the intermediation of travel agencies (which had exclusive access to computerized reservation systems), and then with the wave of the Internet, which has extended this possibility to the final consumer by redefining the system business and the notion of distribution channel of tourism products. A challenge for Small firms to create technological innovations is due to their limited resources compared to those of large firms. Small businesses do not have a large capital and therefore invest less in ICT (Aragn-Snchez and Snchez-Marn 2005). Hadjimanolis (2000) examined innovativeness from the perspective of resources, and suggested that small firms lack resources and bargaining power which hampers their ability to be innovative. The authors also recognised that the size of the firm did impact on the availability of resources; resources including ICT, expenditure on training, and research and development. In his research Hadjimanolis (2000) claims that not having a large sum of money to spend on the training of their employees, small companies are likely to employ generalist rather than specialist staff (Thong et al., 1996) and thus reduce their competence on the subject. In accordance with Hadjimanolis, Rogers (2003) debates that when in companies there is a scarcity of knowledge and expertise, the capacity to innovate is lower. The author argues that the skills of a companys employees have a direct impact on the level to which a business can be innovative. Another challenge for small businesses to innovate derives from the location in which they operate. Porter (2001) has identified in the location of a firm the key element that

encourages the creation of technological innovation. In the National Innovative Capacity Index (1996), Porter has analysed the level of innovation produced by small and large firms in different countries. The authors stated that in the countries where IT has large use among 3

Tourism and Innovation the population (US, Switzerland, UK etc.) firms are more inclined to create technological innovations. Considering that, in many cases, small businesses operate exclusively within the national boundaries, and therefore are affected by the need of the market in which they operate; their inclination to technological advancement is relatively low compared to those of multinational companies which operate worldwide. In his research Porter demonstrated that in country like Switzerland, where technology is quite advanced, small firms have a higher degree of technological innovations compared to those small firms operating in less developed countries. However, the level of technological innovations created by multinational firms is on average the same for all the firms worldwide despite the country to which each large firm belong (Porter, 2001). .Additional factors that encourage or prevent the creation of innovation in small and large firms in the tourism industry. Firstly, the decision to adopt innovative practices presents many different barriers for small and multinational companies. Introducing innovative products or services leads to a long process of change that often causes destruction in organizational climate. In multinational firms, changes have often a hard impact on the workforce and the company itself. In fact, the introduction of innovations for large firms usually takes a lot of time and effort, mainly due to their size. Moreover, being multinational companies worldwide located, the introduction of any change must take into account the different set of employees values and beliefs of the country in which the company-base is located. Abrahamson (2000) states that when a multinational company focuses uniquely on increasing the shareholders profits and forget about the culture, values and beliefs of its employees, the implementation of any type of innovation will find reluctance by both its workforce and potential consumers. The author states that cultural background of one country may prevent or encourage the introduction of innovation in workplaces. This can be proved as being true when considering the challenges Euro Disney in Paris faced -in terms of different values and beliefs between the American and French culture- and the consequent improvements needed. Another issue that prevent multinational and small companies to be innovative can be found in the reluctance of people to change. In fact, If people do not see the necessity for a change, they refuse it and they dont stand for it, and any attempt to introduce the novelty is most likely to fail (Beer and Nohria, 2000, 137). For example, when business managers, which culture seeks in economic advantages the primary reason for the creation of innovation, are called to express their opinion on environmental issues their hesitancy represent a great limitation towards the development of sustainable practices. Since environmental issues are usually isolated from corporate values, the attempts to implement 4

Tourism and Innovation them find an active obstructionism from the managers. Therefore, if managers or employees do not understand the necessity for adopting innovative practices they will consequently boycott the change. It has been proved that the attempts towards a change tend to work faster, if it is easy for employees to understand the benefits. The particularity with tourism products is that in most cases the quality cannot be tested before the consumption. Therefore, if employees do not understand the necessity for adopting innovations, they wont be able to perceive this innovative tourism image to their customers (Zwick, 2002, 547). One more limiting factor for innovations is that innovative practices are considered to be expensive. Small firms are normally hesitant to changes and normally tend to concentrate on products that have a steady or predictable demand, in order to maximise profits. However, normally small firms dont know that the purchasing costs are lower, than benefits of being innovative. The economic short-termism culture of small firms is one of the main barriers that prevent them from being innovative (Carayannis and Gonzalez, 2003). Another important issue that prevent innovation in small firms is, in many cases, represented by the scarcity of knowledge and limited ambition of the owner. According to Skokic and Morrissons (2011), in the hospitality and tourism industry owner/managers are often generically labelled as lifestyle entrepreneurs (Ateljevic, 2009; Lashley and Rowson, 2010; Skokic and Morrissons, 2011). The characteristics associated with lifestyle entrepreneurs are conventionally those of; narrowness of education and training (Lashley and Rowson, 2010), limited time horizon and incompetence to deal with the social environment (Smith and Miner, 1983), absence of management strategy (Moreno and Casillas, 2008) and low attention to innovation (Howorth et al., 2005). It is not the contention of this paper to suggest that these peculiarities

characterise the entire group of owner/managers in the tourism and hospitality industry, but it can be argued that these characteristics are congruent to a large number of owner/managers. Thus it can be stated the main interest of owner/managers in the hospitality and tourism industry are, usually, inclined towards a search for innovative practices but rather towards the pursuit of sustainable and viable living profits. Conversely, the ambition of multinational firms can be considered as the main driver that encourages innovation. The search for sustainable competitive advantage leads large firms to seek and develop innovative and unique practices that allow them to be distinctive in the market in which they operate. Moreover, a correct management of the human resource could represent a further advantage for multinational companies when trying to develop innovations. In fact, whereas multinational companies correctly manage the potential knowledge of its workforce, they could benefit from its assumed by-product that represents the main difficult-to-duplicate advantages (Hamel and Prahalad, 1990). Multinational companies, oppositely to small firms, have the opportunity to raise a large number of voices 5

Tourism and Innovation that could influence the direction of the enterprise and create innovation. As matter of fact, recent strategic literature has recognised the organisation's human capital as the key factor to produce innovation (Barney and Wright, 1998; Hatch and Dyer 2004; Afiouni, 2009). Also, due to its often intangible nature and social complexity, the organisation's human capital is considered to be more difficult to imitate thereby producing distinct advantages (Barney, 1991). However, being the tourism industry primarily a service sector, the direct interaction of employees with customers represents a competitive advantage. The ability of small firms to identify and respond quickly to changes in their external environments can be a key source of competitive advantage that could lead to the development of successful innovations. In fact, the service-profit chain begins with internal service quality, and human labour is of crucial importance to the hotel industry because the level of guest satisfaction largely depends upon the human factor. Therefore, the flexibility and the closeness of small businesses to customers could help those firms to identify and satisfy their needs and wants, and generate innovative and exclusive practices.

Conclusions In conclusion, small and large firms in the tourism industry are operating in a high competitive and unpredictable external environment and seek to develop new kind of innovation to stay ahead of the competition. However, due to their differences, in terms of size, company structure and availability of resources, small and large firms develop innovative practices in a diverse and complex way. Large firms have an advantage over small firms because of their greater financial resources that allow them to invest in plant and equipment for the development of technological innovations. Moreover, large companies are able to attract high-skilled employees, which knowledge could represent one of the main factors to help the firms to spur innovation. However, small firms can benefit from a greater ability to adapt to the fast changing environment that allows them to be quick in implementing changes. Furthermore, due to their size, small businesses are more flexible to tailor products and services to particular market needs; condition that represent an ideal condition for firms operating in the mainly service tourism industry.

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Tourism and Innovation

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