ICT driven transformation and growth in the tourism industry a business model perspective Stefan Kle

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ICT driven transformation and growth in the
tourism industry a business model perspective
Stefan Klein
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Drivers of growth in tourism?

• Increased ratio of consumer expenses on tourism
  services and products, or
• Increased relative market share of a region
  vis-à-vis other regions

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A business model perspective

• A simple definition
• An architecture for the product, service and
  information flows, including a description of the
  various business actors and their roles and
• A description of the potential benefits for the
  various business actors and
• A description of the sources of revenues.
• Source Timmers 1998

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A business model thus

• is a simplified version of a companys strategy
• captures the core business idea
• focuses on innovation and customer value
• describes a simple model of an enterprise
• addresses forms of collaborative,
  interorganizational value generation

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Key issues

• Product innovation What business the company is
  in, the product innovation and the value
  proposition offered on the market.
• Customer relationships Who the company's
  target customers are, how it delivers them the
  products, and how it builds a strong
  relationships with them.
• Infrastructure management How the company
  efficiently performs infrastructure or logistics
  issues, with whom, and as which kind of virtual
  enterprise.
• Financials What is the revenue model
  (transaction, subscription/membership,
  advertising, commission, licensing) and the cost
  model (cost of goods sold, operating expenses for
  RD, sales and marketing, general and
  administrative)? (Osterwalder, Pigneur,
  2002)

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Example 1 Ryanair accessed 20060315

• Average fares reduced by 9 a 2.50/3.50 fare
  cut.
• New web check-in service gives passengers
  priority boarding and avoids check-in and
  boarding gate queues.
• Total baggage allowance now increased to 30kgs
  per person - 10kg for cabin baggage and 20kg for
  checked bag.
• Only pay for the services you use.
• No checked in bags No Charge.
• Pay only 2.50/3.50 per checked in bag per
  flight.

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Example 1 Ryanair

• Product innovation Ryanair has redefined air
  travel no frills, low fares, low cost,
  point-to-point service within a limited
  geographical radius.
• Customer relationships Web-based direct sales
  model, consistent communication, more frequent
  transactions
• Infrastructure management Alliances with
  related tourism principals, such as car rental
  companies or hotels to provide bundling
  opportunities.
• Financials Yield management and commissions
  from partners

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The role of ICT

• Strategic alignment addresses the linkages
  between business strategy/ organisation and ICT.

Strategy execution
(adapted from Henderson Venkatraman 1993)
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Spill-over effects

• By consistently and rigorously pursuing a low
  cost strategy, no frills airlines have changed
  the value proposition and service and created a
  new market segment
• new customer groups,
• increase of the overall volume of air travel.
• Other segments of the industry - in particular
  car rental or car sharing services and hotels,
  which have introduced a variety of self service
  models, e.g. a chip card to get access to cars as
  part of the car sharing service of German rail -
  are following a similar direction.

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Customer relationship ProSuming

Level ofcustomeractivity
Extended scopeof services
Learning relation-ship to facilitatethe
configuration of complex andversatile services
Internalization
Externalization
Reducedscope ofservice bundles
Automation and/orstandardization ofprocesses
andmodules

Level of provider activity
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Spill-over effects

• New models of flexible service bundling have been
  introduced.
• The informational efficiency is increased by an
  intense competition among online intermediaries,
  who provide price comparison for different
  segments of the market.
• Next to online travel supermarkets such as
  Travelocity, Expedia, Opodo, etc.,
• specialized brokers have entered the online
  market focusing on hotel accommodation (e.g.
  www.HRS.com) or car rental (e.g.
  www.billigermietwagen.de).

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Example 2Cama e Café
Cama e Café is the first bed and breakfast
network in Brazil. With more than 50 registered
houses and trained hosts, Cama e Café offers
hospitality in family houses at Santa Teresa, a
charming neighbourhood in Rio de Janeiro.
www.camaecafe.com.br accessed 20060315
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Example 2 Cama e Café

• Product innovation Adapted model of BB,
  network creation with training and matching
  component.
• Customer relationships Infrastructure
  management Web based portal to facilitate the
  provision of information, capturing of guest
  profiles, profile matching and reservations
  combined with personal touch and sense of
  hospitality.
• Financials Commissions.

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The role of ICT

• Strategic alignment strategy driven, execution
  through close linkage between organizational and
  technical infrastructures, processes and
  competencies.

Strategy execution IT enabled business model
implementation
(adapted from Henderson Venkatraman 1993)
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ICT effects

• Search or informational economies refer to
  increased transparency about prices, services and
  available capacities. Extended functionalities
  include the analysis of customer buying or more
  generally behavioral patterns and the matching of
  profiles.
• Exchange or allocation economies refer to
  operational efficiencies, in particular during
  the reservation and booking processes. The
  information intensity of travel, its complexity
  and uncertainty as well as the frequency of
  bookings (transactions) influence transaction
  costs.

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ICT driven transformation

• Information and communication services are
  provided to complement the physical service and
  in many cases transform the customer experience.
• The role and extend of the informational
  components are increasing and they are
  effectively used to change the customers role
  into a more active self-service or prosuming
  role.

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Tourism life cycle
Tourist life cycle and companies processes
both suppliers and intermediaries (source
Werthner 2003)
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eBusiness self-assessment tool

• http//www.enterprise-ireland.com/ebusiness

Business and market driven assessment of
eBusiness opportunities and internal
capabilities.
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Conclusions

• Business models idea driven innovation change
• Strategic alignment, i.e. business-driven,
  technology-enabled innovation linkage between
  organizational and technical infrastructures,
  processes and competencies
• Collaborative generation of value
• Technology
• Digital divide in tourism
• Even commodity technology solutions provide space
  for customer-focused added value (HBTA, Google
  map)
• Tourist understanding customer needs
• New roles (Prosumer)
• Abundant information facilitates empowerment, but
  makes tourists also more independent and
  unpredictable

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Questions
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1. How could tourism better benefit from existing
support measures for ICT at different levels
(information networks, training opportunities...)?

• Main trends
• Changes in the product structure and production
  processes, which have lead to increasing
  productivity in some segments (e.g. car sharing
  with unmanned car pick-up and return, hotels with
  electronic access to rooms etc.).
• Extended provision of information for travellers
  along the tourism life cycle (including
  recommender systems, multi-vendor platforms
  etc.).
• Extended availability of customer information for
  tourism managers (CRM etc.).

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2. How can we use ICT as a tool for growth?
Possible indicators?

• ICT can function as an enabler of new or adapted
  business models and/ or to reduce the cost of
  tourism services. Both potentially make travel
  more attractive and increase the volume of travel
  (and related transactions).
• Possible indicators
• productivity of tourism principals,
• volume of travel,
• structure of travellers.

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3. What are the changes in the employment
situation in tourism due to the increasing use of
ICT?

• While productivity gains reduce the number of
  employees/ service unit (e.g. traveller nights),
  it potentially increases the overall volume of
  travel and consequently yields positive
  employment effects.
• Moreover, employment effects in related sectors
  (ICT and content production) are expected.

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4. What are the major areas of ICT and tourism
that need special attention among politicians and
other decision-makers (infrastructure, funds,
training...)

• Support is needed to explore innovative ICT
  applications in tourism (mobile services,
  extended information services ). More emphasis
  might be put on living labs, whereby the use of
  (advanced) technology (prototypes) is studied in
  real world settings.
• Oftentimes training is needed to develop an
  understanding of the impact of ICT on business
  and to explore ways of adjusting or developing
  processes to make better use of ICT. ICT alone
  does not increase productivity.
• A growing part of ICT applications focus not on
  individual tourism principals but on supply
  chains, destinations etc. Hence there is a
  growing need to understand the networking side of
  ICT use.

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Four Propositions

• Proposition 1 Real-time communication will
  facilitate a transformation of travel and tourism
  from a communication poor environment into a
  communication rich environment.
• Proposition 2 New forms of collaboration between
  service providers will emerge in order to create
  superior customer care. This may take the form of
  smart business networks, as they can already be
  partly observed today, with adaptive nodes (e.g.,
  participating organizations). And most probably
  those networks will operate without central
  governance, no central node.
• Proposition 3 Customer empowerment and the
  extension of prosumer roles, which combine
  service production and consumption elements are a
  prerequisite for extended service customization.
  Service providers need to develop modes of
  interaction which can be familiarized quickly.
• Proposition 4 Two opposing trends Unbundling of
  services and increasing shift of tasks to
  customers vs. seamless integration of services
  and customer care across numerous service
  providers. Customers will be able to select the
  level of required customer care and
  support. (Werthner Klein 2005)

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Living lab

• kind of socio-technical approach is mainly
  meant for developing and elaborating sensitizing
  concepts that draw attention to central
  characteristics of socially implicated ICT usage.
  The later may then be further explored through
  continued design. In this way underscoring
  the notion of mutual shaping ICT becomes a
  vehicle for social research, the results of which
  in turn drive design. (Pierson Lievens, 2005)

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Ryanair Passenger Growth
http//www.ryanair.com/site/DE/about.php
accessed 20060315
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New qualities of information
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Source
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ICT for marketing sales
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Innovation activity
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CRM cystems by sector
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Mobile information needs
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eBusiness Scoreboard
Source www.ebusiness-watch.org e-Business Survey
2005
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2
Level ofcustomeractivity
Extended scopeof services
Learning relation-ship to facilitatethe
configuration of complex andversatile services
Internalization
Externalization
Reducedscope ofservice bundles
Automation and/orstandardization ofprocesses
andmodules
1

Level of provider activity