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Digitalisation in tourism SMEs

What kind of policy support is needed?

What’s digitalisation in tourism?

Digitalisation is transforming the way people live, work, travel, and connect. Tourism has a reputation as being a laggard sector when it comes to innovation generally and in digitalisation in particular. But it’s not black and white. Studies point to the increasing productivity gap between frontier firms in tourism that have been able to harness digital innovation (e.g., Expedia, Airbnb, etc) and tourism SMEs that lag behind.

All too often policy supports are targeted at the low hanging fruit, like building capacity for google analytics, social media marketing and implementing e-commerce, but there is a deeper set of challenges that are rarely discussed but policy makers should be aware. I was lucky enough to be project lead for some research and thinking about policy supports for tourism at the European level including a couple of projects by the European Commission and the OECD. I'd like to share these insights here.

Where's the stumbling block?

The World Economic Forum (2017) estimates that in the decade to 2025, digitalisation will create up to USD$305 billion of value for the tourism sector through increased profitability, but USD$100 billion of value will transfer from traditional players (e.g. hotels) to new digital companies (e.g. sharing accommodation platforms). For many governments, supporting and enabling the digital transformation of tourism SMEs is an important policy position so that no one, and no business, gets left behind.

The key challenge is twofold:

  1. To create a supportive policy environment to assist the digitalisation of tourism SMEs so they don’t get left behind, and

  2. To foster multi-sided collaborations that include all stakeholders who generate value in tourism and who could be sharing in its benefits.

These are two seemingly disparate objectives: economic growth and finding kinder, more sustainable and inclusive forms of development. That’s where most of us get stuck — how can we achieve both objectives? On one hand, governments and businesses are busy promoting business-as-usual in the firm believe that wellbeing and sustainability will trickle down. On the other hand, there is plenty of evidence to suggest that trickle-down economics is not working, that wealth and benefits are accumulating in the one per cent. Our operating system doesn’t seem to allow for a reworking of the way value is generated and distributed.

Reconciling these two objectives requires a reformulation of our tourism operating system — or the way its organised, the distribution of roles and responsibilities, and how the benefits of tourism are distributed and shared. Putting my policy hat on, I am going to step through a logic argument that might just help us move beyond the stalemate. Here goes:

  1. The challenge – sharing the value that is created by tourism. Digitalisation is transforming the way people live, work, travel, and connect. In tourism, digital technologies are redefining and re-engineering relationships between travellers, businesses, hosts, communities, governments and tourism organisations. Digital technologies offer new ways of doing business and have also been claimed to offer opportunities in addressing community well-being and sustainable development. The key challenge for governments is twofold: (a) to create a supportive policy environment to assist the digitalisation of tourism SMEs, and (b) to foster multisided collaborations that include all stakeholders who generate value in tourism and who could be sharing in its benefits.

  2. Digital transformation creates an uneven playing field that we need to address. Digitalisation is transforming tourism and redesigning its traditional ‘operating system’. Business ecosystems extend virtually across the globe. Tourism products and services are being sold on the internet and that value sometimes doesn’t even pass through the destination. Digital platforms have been accused of free-riding on local communities and local government infrastructure. The speed of transformation in tourism business ecosystems has been too fast for governments to keep pace, and regulatory loopholes have created uneven playfields that digital native firms have been able to exploit. Roles and responsibilities of governments and destination marketing/management organisations need to be re-evaluated in the context of the changing structures, practices and relationships that are emerging from the collaborative commerce of the digital economy.

  3. The relevance of tourism organisations is being challenged. The traditional organisation of tourism and the division of roles and responsibilities, governance arrangements and ways of policy making are becoming less effective in this increasingly fluid, transnational global economy. DMOs, as marketing agencies, are really focused on the low hanging fruit of social media stories, e-commerce, booking sites and so on. But there is a real need for them to understand and address the barriers to entry, and how to sustain longer term, more complex digital opportunities.

  4. How we understand the value generated in tourism is changing. Digitalisation has unleashed significant shifts in how value is produced and shared in tourism. The shift has been from traditional product-facing, profit-oriented approaches of doing business towards user-facing digital models that produce and deliver shared value. In this shift, value is being generated and shared by consumers, communities, residents, hosts, businesses and governments all working together.

  5. Governments advocate partnering and collaboration but who leads? Since the 1980s governments have advocated for a sharing of responsibility and have actively sought to build public-private partnerships. In this interpretation, collaboration has historically been conceptualised as a binary practice between governments and businesses, often leaving community players disenfranchised.

  6. Multi-sided collaboration co-creates benefits, so let's understand value better. Inspiration is drawn from the multisided platforms that are transforming our understandings of the way value is co-produced and, by corollary, can be shared. Multi-sided platforms encourage multiple kinds of value to be produced and enjoyed by different stakeholders. Broadening collaboration beyond businesses and government to take a multisided approach to include SMEs, frontier firms, governments, hosts, residents, consumers, industry and community bodies is a way of including all those stakeholders that generate value in tourism and who could potentially share in its benefits. Rethinking traditional business models is the name of the game!

  7. Reworking the organisation of tourism. Multi-sided planning has been a thing in planning for some time. It’s called collaborative planning and it involves collaborating, engaging and building ownership over the future of places, communities and economies. Reworking the organisation of tourism to include ‘multi-sidedness’ would include more diverse interests in tourism. digitalisation that addresses community well-being and sustainable development in addition to economic development objectives. Partnering and collaboration with frontier firms and digital native businesses to diffuse innovation, to access big data and to learn collaboratively can boost innovation from the edges.

  8. Co-creation in tourism. Drawing from the concept of multi-sided platforms and broadening collaboration beyond businesses and government would catalyse a wider diversity digitalisation projects that address community well-being and sustainable development while also delivering on economic objectives.

See where I am going with this?

Policies that might progress digitalisation should address the need for more inclusive tourism management practices. They should foster innovation from the edges by including people from ‘outside the silos’, and they should help to generate and facilitate the sharing of value from tourism. A multi-sided approach to partnering can get us there.

What policy supports might be appropriate?

Policies to progress digitalisation should not be thought about as a binary collaboration between public and private sectors.

Fostering technology uptake and transformation through active working (e.g. labs, design sprints, hubs, incubators and accelerators) that encourage ideation and agile testing of ideas and concepts and that catalyse digital uptake and innovation in tourism SMEs.

Encouraging digital tourism ecosystem collaborations that include all stakeholders who contribute to generating value in tourism and who share its benefits. This includes SMEs, frontier firms, governments, hosts and consumers. Broadening collaborations beyond businesses can help to catalyse the role of digitalisation in community well-being and sustainable development.

Commit to continuous research and development of digitalisation in tourism, by incorporating tourism SMEs in the process of understanding barriers, innovation processes, and the characteristics of successes and failures. This co-creation approach assumes a two-way flow of learning and capacity building between governments and those involved in generating value in tourism.

Re-engineering the organisation of tourism. Traditional ways of organising the tourism system, including the distribution of roles, responsibilities and governance arrangements, could be re-engineered to address emerging ideas about value and how it’s created and shared in tourism. Global value chains and collaborative commerce have led to a de-localisation of tourism businesses and value ecosystems that require new ways of organising and managing tourism that respond to these fluid conditions.

Creating the right socio-technical context. Ultimately, its governments that still have a sizeable influence on creating the right conditions for innovation, for the adoption of multisided collaboration frameworks. So requiring multisided collaboration in return for participation in publicly supported tourism labs, design sprints, hubs, incubators and accelerators might help start the ball rolling.

These are just some thoughts rolling around in my head and jumping to get out. Feedback, reflections and comments are gratefully received


About the Tourism CoLab

At the Tourism CoLab, we believe that tourism and travel can be transformational, purposeful and regenerative. However, in order to deliver these benefits, we need to change our tourism operating system, adjust our mindset, and pivot our ways of working. We use an intentional design mindset to activate tourism for good, and we call this new way of working 'Regenerative Tourism by Design' and we're pioneering it at The Tourism CoLab. If you would like to know more about what we do, how we work, and how we might be able to help you, contact us.


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