Organisation for Economic Co-operation

and Development
Centre for Entrepreneurship, SMEs & Local
Development

Ministry of Culture and Tourism

Republic of Korea

CONFERENCE ON
GLOBAL TOURISM GROWTH: A CHALLENGE FOR SMEs
6-7 September 2005, Gwangju, Korea

SESSION 2
THE IMPORTANCE OF VALUE CHAINS, NETWORKS AND COOPERATION AS DRIVERS FOR SMES GROWTH, PERFORMANCE
AND COMPETITIVENESS IN THE TOURISM-RELATED
INDUSTRIES

The Impact of Technological Innovation in Managing Global Value Chains in

the Tourism Industry

by Mr. Alexandros Paraskevas

Oxford Brookes University, Business School
Department of Hospitality Leisure and Tourism Management
(Contact: aparaskevas@brookes.ac.uk)

2005 OECD & Korea Conference

Global Tourism Growth: A Challenge for SMEs

THE IMPACT OF TECHNOLOGICAL INNOVATION IN MANAGING GLOBAL VALUE

CHAINS IN THE TOURISM INDUSTRY
by Alexandros Paraskevas
Oxford Brookes University
Business School Department of Hospitality Leisure and Tourism Management, UK

ABSTRACT
There is growing awareness that the SMEs in a value chain are strongly disadvantaged due to
asymmetries of information and power in the chain, with few opportunities of upgrading. However, it is
argued that technological innovation and the advent of the Internet have diminished many of these
asymmetries between larger and smaller actors. This paper intends to offer an outline of the global tourism
value chain, explore how technological innovations have impacted its governance. It also outlines the
emerging paradigm shift as well as the increasing role of consumers in the Global Value Chains of the
tourism industry.

INTRODUCTION
The value chain model, since its conception by Porter (1985), has been extensively used by
researchers (e.g., Dicken, 1992; O'Sullivan & Geringer, 1993; Dekker, 2003) to map the organizational and
industry level linkages and networks and to analyse and describe where value resides at these two levels. It
has also been used by economists (e.g., Humphrey & Schmitz, 2002; Kaplinsky, 2004) to explain the little
correspondence between the geographical spread of economic activity and the spreading of the gains from
participating in global product markets as well as to identify causal links between globalization and
economic inequality in order to identify ways to arrest these unequalizing tendencies of globalization.
One central issue in the value chain approach is the one of value chain management or value chain
governance. These terms are used to describe all efforts aiming to systematically reduce any sources of
uncertainty in supply and demand through the active co-operation of the key actors in the value chain. By
reducing uncertainty, total service is improved and overall cost is reduced (McGuffog & Wadsley, 1999).
However, this also means that some firms in the chain determine and/or impose the parameters under
which others in the chain operate (Humphrey & Schmitz, 2001). Kaplinsky (2004:85) distinguishes three
forms of value chain governance: legislative (setting the standards of production and delivery), judicial
(monitoring conformance with the standards set) and executive or proactive (helping actors in meeting the
standards set).
There is growing awareness that, in the wake of globalization, the SMEs in a value chain are strongly
disadvantaged due to asymmetries of information and power in the chain, with few opportunities of
upgrading. However, it is argued (e.g., Caskey, Hunt & Browne, 2001; Levy, Loebbecke & Powell, 2001)
that technological innovation and the advent of the Internet has diminished many of these asymmetries
between larger and smaller actors through the simultaneous explosion of global customer reach as well as
access to and sharing of rich information.
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Global Tourism Growth: A Challenge for SMEs

Although value chain management in many industries has attracted the attention of several researchers
(Handfield, Walton, Seegers, & Melnyk, 1997; Gereffi, 1999; Macher, Mowery & Simcoe, 2002;
Humphrey, 2003; Kaplinsky, 2004), relevant tourism industry-specific research is scant and predominantly
focused on the impact of information and communication technology in travel distribution (see, for
example, Marcussen, 1999; Werthner & Klein, 1999; Buhalis & Molinaroli, 2003). This paper intends to
offer an outline of the global tourism value chain, explore how technological innovations have impacted its
governance and outline the emerging paradigm shift in its management.
THE TOURISM VALUE CHAIN AND ITS ACTORS
It has been argued (Gunn, 1988; Jansen-Verbeke, 1988, Gnoth, 2002) that the tourism product is a
rather complex one and is directly associated with the idea of the holiday or vacation experience
(Ashworth & Voogd, 1994). Middleton and Clarke (2001:124-125) suggest that from the standpoint of a
potential customer considering any form of tourist visit, the product may be defined as a bundle or package
of tangible and intangible components, based on activity at a destination. The package is perceived by the
tourist as an experience, available at a price. The overall consumer satisfaction depends on the in situ
experience of the product (Weiermair, 2000) as well as on the experience from various actors (usually
intermediaries) involved in the bundling, packaging and making the tourism product available to the
consumer for purchase (Baker & Crompton, 2000). The full range of activities which are required to bring
the tourism product from conception and production to the actual experience of the tourist can be defined
as tourism value chain.
The tourism value chain in its simplest form can be represented as in Fig. 1. In the one end of the
chain sit the tourism product suppliers also referred to as tourism principals who actually bring in the
chain their products and services and in the other end the consumer (tourist, visitor). In the middle lie the
intermediaries who are primarily in charge of bundling, packaging and promoting the tourism product and
making it available to the consumer.
Figure 1. The Tourism Value Chain

Principal

Intermediary

Consumer
(Tourist)

Due to the complexity of the product, the principals side is highly fragmented (Bramwell & Lane,
2000) as it is dominated by a large number of, mainly family-run, very diverse SMEs (Smeral, 1998;
Wanhill, 2000). Principals may be distinguished in core (travel, accommodation, food and beverage,
entertainment and recreation) and peripheral (ancillary services as travel insurance, guides, exchange and
financial services, transfer co-ordinators, etc.). Among the core principals there are larger actors (e.g., hotel
chains such as Marriott, Starwood and Hyatt) and in some areas of the provision adequate evidence of
higher concentration (e.g., flag carriers such as British Airways, Air France/KLM, and Lufthansa). The
main activity of principals is the production of their offering to the consumer.
Being consumer-driven, highly fragmented and geographically dispersed, the tourism industry has
always needed a very significant level of intermediation. Tour-operators and travel agents act both as
aggregators and integrators of the tourism product and facilitate purchases, the transfer of title to the
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Global Tourism Growth: A Challenge for SMEs

buyer and sales revenue to the principal (Middleton & Clarke, 2001:293) by bundling, packaging and
promoting principals offerings and making them accessible to the consumer. This part of the tourism
chain exhibits a higher concentration especially as far as tour operators are concerned (few major players,
such as TUI and Thomas Cook - most of them are vertically integrated) and considerable fragmentation in
terms of travel agencies, with the larger ones being already part of a tour operators group. National
Tourism Boards (NTBs) and Destination Management Organizations (DMOs) also belong in this part of
the chain, acting (normally) as non-profit seeking intermediaries for the benefit of the principals in their
destinations.
Finally consumers, although in the focus of all attempts for value creation and the ultimate judge of
this value have been for many years confined at the end of the chain only providing feedback about the
value that the other actors have created. The value chain model implicitly restricts value-creation to
innovation, production and delivery processes of the tourism product by principals and intermediaries. It is
argued that consumers involvement in value creating activities is still quite underestimated and constitutes
a gap in consumer research (Tzokas & Saren, 1997).
Large firms in the chain control access to major resources (such as finance, information/market
research, technology) that enable them better reach to markets and generate the most profitable returns in
the industry. Profits in the tourism value chain derive from scale and volume but most importantly from
unique combinations of high value offerings and distribution activities that allow principals and
intermediaries to link tourism destinations with evolving customer niches around the world. On the other
hand, unlike commodity industry value chains and due to the unique nature of the product, the SMEs play
an important role in the tourism industry and do not just await larger actors to offload some of their
functions in order to upgrade their positions in the chain, especially as far as principals are concerned.
Tourists in search of new, authentic experiences tend to prefer small family-run businesses rather than the
large actors in the chain (Wickens, 2004) whereas the entrepreneurial innovativeness of these businesses
continually boosts the industry into new realms (Coglievina, 2004).
Although different actors engage in different forms of governance in the tourism value chain, it is
predominantly the intermediaries who exercise this governance. The standards of the value chain
(legislative governance) are agreed by all actors involved but more often than not dictated by the
competition pressures and continuous search for competitive advantages of large tour operators, as long as
they are within the generally acceptable principles of international and national tourism regulating
authorities. It is the same actors who exercise judicial governance by monitoring and enforcing compliance
to the standards set as well as executive governance by assisting some principals in meeting the standards.
Here, however, it is the non-profit actors (NTBs and DMOs) who play a more active role. This dominance
of large intermediaries in all three types of governance is not always welcome by the other actors in the
chain, especially the smaller (Bastakis, Buhalis & Butler, 2004); while it is argued that it can have adverse
effects on certain tourism destinations (Wearing & McDonald, 2002).
Although the value chain model offers considerable insights on the way the industry operates, its onedimensional nature of Fig. 1 presents some important flaws. The first flaw is oversimplification: the chain
depicts one principal and one intermediary before the consumer whereas in most cases we have several
different actors (with different weight on the chain in terms of size and ability to add-value (attributes that
are not necessarily correlated) interacting in order to offer the tourism product to the consumer. For
example, it ignores the suppliers of direct and indirect goods or services used by the principals and/or the
intermediaries to shape the final tourism offering. It also ignores stakeholders that influence the value of
the product but are not directly linked with the value chain (regulating bodies, host communities, etc.).
Second is the idea of a sequence in the production of the tourism product, which may be appropriate for
manufacturing products but not for services. Each actor occupies a position in the chain and actors
sequentially add value to the inputs before passing them to the next actor in the chain, defining actors

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Global Tourism Growth: A Challenge for SMEs

boundaries solely by make or buy decisions. And third, are the unidirectional relationships between the
actors, which emanate a sense of predictability and permanence in the chain. The concept of value
system introduced by Porter (1990) was a an attempt to deal with these flaws but has been criticised by
Stabell and Fjeldstad (1998) who argue that the model is not well suited to describing and understanding a
service industry.
THE IMPACT OF TECHNOLOGICAL INNOVATION ON THE TOURISM VALUE CHAIN
The rapid evolution of digital media technologies, the dramatic cost reduction in electronics and the
advent of the Internet caused a series of "disruptive innovations" (Christensen, 1997) which displaced
existing ways of business practice and introduced new business models in the tourism value chain.
Advances in the miniaturization of technology and wireless connectivity have empowered people to
experience a digital environment that is adaptive and accessible anytime, anywhere. This phenomenon of
ambient intelligence (Manes, 2003) has had such an impact on the structure of the tourism value chain
that the very concept of chain was made parochial.
Impact on Consumers
One of the main impacts of ambient intelligence is the decrease of information asymmetries
between buyers and sellers. Information is readily available 24/7 and the resulting cost transparency
enables consumers make more informed choices (Sinha, 2000). These, combined with the low switching
costs from one principal (or intermediary) to the other bring about a considerable increase of consumer
bargaining power. With the advent of digital communities such as virtualtourist.com, consumers are
engaging in social interactions with other consumers, exchanging information and collectively creating
knowledge about the tourism product. Firat and Venkatesh (1995) contend that virtual communities of
creative consumers dramatically challenge the thus far established view that the sphere of production is
separated from the sphere of consumption. Consumers are now not limited in a feedback role but have
increased possibilities of joint value creation.
The overall travel experience starts with the virtual world when the consumer starts looking for
information about their trip and destination. Shopbot technologies and price comparison engines
(kelkoo.com, traveljungle.co.uk) allow easy price and feature comparison of different principals and
intermediaries offerings (Paraskevas & Kontoyiannis, 2005). Consumers can create their own packages
online with a simple visit to an integrators site (such as Expedia or Travelocity). They can also choose to
enter some parameters in their search (for example, in the ski-matcher section of ski-europe.com) and
with the help of intelligent agents and collaborative filtering technologies yield a host of recommendations
tailored to their particular needs and wants (Ricci & Werthner, 2002). Booking transaction complexity is
reduced as systems are able to securely retain consumers personal data with a one-off registration and
with effective use of cookies, retrieve them in repeat visits (Licata, Buhalis & Richer, 2001).
Impact on Intermediaries
In the pre-Internet era intermediaries made very effective use of technologies namely Computerised
Reservation Systems (CRS) in order to upgrade and strengthen their position in the value chain (Go, 1992).
The first Airline CRSs evolved in Global Distribution Systems (GDSs) in the mid-1980s as proprietary online services offering fee-based access to e.g., Travelshopper from PARS (eventually becoming Worldspan)
and later EasySABRE. Switch companies like WizCom and THISCO provided GDS links to the CRSs of
more technologically advanced intermediaries and principals. However, in time, the cost for using
intermediaries has started to increase dramatically. Middleton and Clarke (2001:295) cite a 1998 Financial
Times study which indicates that for a standard $100 hotel booking, $10 would go to the travel agent (as a

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Global Tourism Growth: A Challenge for SMEs

commission) and $5 to the GDS and the switch company. Intermediaries had the absolute power of
technology at the time and principals had no choice.
The Internet came to shake the domination of intermediaries in the chain. The global reach of the new
medium and the opportunity offered to principals to connect directly with the markets has seriously
challenged the positioning and even the existence of certain traditional intermediaries in the value chain
(the phenomenon of disintermediation) especially those who were slow to react to this new phenomenon
(Law, Law & Wai, 2001). A further shake-up at the current status was the emergence of new purely online
intermediaries like THISCOs Travelweb that linked 20 hotel chains' reservations systems to the airlines'
computerized reservations systems for travel-agent bookings. In July 1995, ITN, the first website corporate
travel was launched, followed in the next year by Microsofts Expedia and SABREs Travelocity (Jolley,
1996). However, there were a few business scholars (e.g., Evans & Wurster, 1997) contending that
predictions of intermediaries demise due to the Internet were premature and mainly reflected a failure to
analyse the variety, importance and consumers perceived value of intermediary role in the value chain.
Most major bricks and mortar intermediaries reacted and pursued a web presence too leading to the
era of virtual re-intermediation of travel services (Palmer & McCole, 1999). New business models such
as auctions (lastminute.com) and name-your-price (priceline.com) were also established. DMOs have
also made a more noticeable presence in the value chain through the creation of websites that apart from
providing information about the destination- also offer links with individual principals websites, so that a
visitor arriving can click through to various links and access further information or purchase multiple
components of a holiday in the specific destination online (Palmer & McCole, 2000). Others have invested
their resources in building integrated reservation systems for the entire destination. For example, the
Gulliver Ireland system was developed by Bord Filte and the Northern Ireland Tourist Board. According
to its tourism market review, Gulliver recorded more than 50,000 online tourism bookings in 2004 that
were valued at 10.8m (Kennedy, 2005).
However, the increased competition in this part of the value chain had three major effects. First, the
dilution of boundaries between aggregators (who create travel packages and offer them to the market) and
integrators (who build packages according to the needs of individual customers). Expedia, for instance,
started as an integrator but now offers packages too. Opodo started as an airline website but now offers a
complete range of travel services. Second, several actors had to pursue niche marketing strategies to
survive and a few of them differentiated their offerings by targeting specific markets such as, for example,
young ravers (club18-30.co.uk) or business travellers (rosenbluth.com -now part of AmEx-, btiworldwide.com, etc.). But even with such differentiation intermediaries are continuously threatened by
technological advances. Corporate travel agencies for example are challenged by the emergence of
business travel e-procurement solutions such as GetThere in the US or KDS and I:fao in Europe that have
been developed by independent software companies. Similarly, GDS companies have developed their own
booking solutions: Galileo with the Highwire, SABRE with the Corporate.Res and Worldspan with the
Trip Manager (Paraskevas & Baron, 2004). Third, the inevitable consolidation to sustain growth and gain
further competitive advantages. InterActiveCorp (IAC), at a certain point in time, owned Expedia (now
spinned-off), Hotels.com, the auction site Hotwire.com, TripAdvisor.com as well as the traditional bricksand-mortar Classic Custom Vacations, a full-service travel company that specializes in tailoring luxury
vacation experiences.
Structural changes have been caused by the emergence of a new breed of online intermediaries
owned by principals as the major online intermediaries are waging a battle with them over who in the value
chain owns the customers. Orbitz.com was created by airlines in the US and now offers full travel
services, same as Opodo.com in Europe. Travelweb.com was re-launched with five major hotel chains
being co-owners with Pegasus Solutions and offers full travel services as well (now almost fully owned by
priceline.com). Another relatively new breed that strive to upgrade their position in the chain are the

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travel comparison websites which act as meta-search engines linking the consumer either with principals or
intermediaries. As mentioned above, they offer price and feature comparison of travel products and refer
customers to the sites offering the product they selected. Although these websites are not yet important
actors on the chain, some of them (such as the ones linked with popular portals, e.g., Yahoos
travel.kelkoo.co.uk) will become increasing important in the value chain (Paraskevas & Kontoyiannis,
2005).
Apart from the Internet, technological advances gave rise to other electronic distribution platforms
such as interactive digital television (iDTv) and mobile devices. The expected proliferation of Digital TV
and m-commerce will gradually intensify competition among intermediaries who will have to reengineer
their business processes and evolve new business models in order to survive and remain competitive
(Buhalis & Licata, 2002).
Impact on Principals
Different principals have embraced new technologies at different degrees. Whereas the airlines and, to
a certain extend, cruise lines have adopted ICT relatively early, the hotel sector has traditionally been
relatively slow in this area and the effective use of the Internet has not been the exception to the rule
(Yelkur and DaCosta 2001). Technological advances and the Internet have opened new opportunities for
principals to streamline their internal operations system (internal value chain) as and integrate it with both
suppliers and customers.
ICT innovation has mainly impacted four main areas of the principals internal system: resource
management; service effectiveness; quality management; and performance measurement.
The first area where technology was embraced was in the areas of resource management. The use of
Property Management Systems (reservation and yield management system via single-image inventory,
guest accounting, etc.), call centres and CRSs, PBX (public broadcast exchange), restaurant reservation
and table management systems, menu and recipe management systems, EPOS systems is quite common
today in most hotel operations especially the larger ones. Less widespread are the solutions which have to
do with employee management and can offer different modules ranging from online recruitment and
selection, to e-training and development, labour scheduling and employee recognition. Larger players (e.g.,
Whitbread, Accor, etc.) have created dedicated career websites which allow applicants to upload or build a
rsum online, or submit it via e-mail but there is no much evidence of technological innovations in this
area being used. Randell (2004), for example, argues that although Accor is planning a proprietary Human
Capital Management system, at the moment, their traditional HR data is captured using Excel. The
situation is much better with regards to online training and the benefits of this type of staff development
are well documented (Cho & Schmelzer, 2000). Large players increasingly partner with educational bodies
and co-develop online training programs for their employees. For example, in the summer of 2005 Ramada
(in partnership with the Educational Institute of AHLA) introduced to their franchisees two online training
resources, CyberCinema and CourseLine. CourseLine features hospitality management courses, quizzes, a
chat room for students and instructors. CyberCinema, designed for line-level staff, offers more than 100
videos on nine hospitality topics in multiple languages (Cendant, 2005). Finally, Enterprise Resource
Planning (ERP) systems are increasingly adopted by large actors in an effort to centralize the control and
management of their resources (Burgess, 2004) which means that employee management modules will
become part of their everyday life.
In terms of service effectiveness, technology has enabled the principals to have the tools that offer
them mobility, speed, system and customer knowledge. Advances in wireless connectivity have enabled
principals to be with their customers when they need them, where they need them and get them the
information they want at the time they ask for it. Wireless devices allow service employees to remotely

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Global Tourism Growth: A Challenge for SMEs

access their EPOS systems to order a meal or a drink, monitor its preparation status, settle the bill without
leaving the dining room and sales representatives to download brochures, complete and print a sales
contact while in the office of their corporate customer. Housekeepers can be notified instantly of changes
in room cleaning priorities, mini bar re-stockers can post usage charges to the PMS directly from the room
and engineering staff can be advised immediately of new work orders while having access to any items
maintenance history or technical manuals online (Inge, 2004). Data mining to customise the service
offering has also been one of the recent technological advances in the sector. In Hilton, for example,
employees equipped with wireless devices can access the companys guest history system (called OnQ)
and retrieve information about guest preferences, their Hilton HHonors reward program membership status,
and past and future guest stays across all brands (Hilton Hotels Corp., 2004).
Quality management and performance measurement have been enhanced with relevant software and
equipment. Response to customer requests and complaints, tracking of problem service areas and follow
up with customers by any employee was enabled by appropriate technology. Mandarin Oriental, New York
uses a combination of software and wireless devices to keep every member of staff in the loop in real
time so service levels consistently can exceed even the heightened expectations of valued upper-upscale
guests. Hotel management reported that the number of requests taking more than six minutes to fulfil has
dropped 75 percent or more to less than one per month (Hotel Online, 2005).
Externally, technology has enabled the streamlining of the principals supply chain. Online
connectivity using extranet and internet technologies has allowed data synchronisation with suppliers
(product availability and prices) and improved communication and information sharing on issues such as
demand changes, product modifications, etc. The electronic transmission of documents such as purchase
orders and invoices reduces transcription and handling errors, improves cycle times (from request for
quotation -RFQ- to order delivery) and reduces transaction costs (Tan, Shaw & Fulkerson, 2000). The
creation of industry-specific electronic marketplaces, otherwise vertical portals (vortals), has increased the
opportunities for the actors to find better deals. These vortals are usually controlled by one or more
companies that were established buyers in the industry (for example Avendra.com is an independent
hospitality e-marketplace formed early in 2001 by Marriott International, Hyatt Corporation, ClubCorp
USA, InterContinental Hotels Group, and Fairmont Hotels and Resorts but is open to all hotels and
suppliers (Lawlor & Jayawardena, 2003). Suppliers may also have their own private stores where buyers
can register, gain access to their online catalogues and even negotiate the prices before submitting the order.
Or, on the other hand the buyers can place an RFQ in their corporate website and attract suppliers
quotations. Finally, large players may create their own private e-marketplaces to be accessed only by their
franchisees and affiliates through intranets, like Choicebuys.com (Wolff, 1999) which was created in 1999
as one of the hotel industrys first proprietary e-procurement systems and includes 175 vendors selling
more than 60,000 products and services on the site, with more than 3,300 U.S-based franchisees of Choice
Hotels International.
At the other end of the value chain, the nature of linkages with both intermediaries and consumers
were dramatically affected. Larger principals attempted to gain control of the value chain whereas several
smaller ones started creating consortia and alliances that would enable them to take better advantage of the
situation and improve their relative position in the chain. Websites were co-created by large players to
counter-balance the increasing influence of online intermediaries (as described above). The use of
opaque, last-minute and auction sites enabled principals to dispose of their distressed inventory (Buhalis
& Licata, 2002), while they used more and more channels in the Internet aiming at a ubiquitous web
presence. However, this resulted in a loss of price control, as the same room was offered by different
channels in totally different prices. A KPMG study of 319 hotels in 13 countries revealed that 98% of cases
did not offer consistent rates across all distribution channels and 72% of lowest rate guarantee cases did
not actually deliver on their promise (KPMG, 2004). The situation was severely aggravated by the
intermediaries merchant model which has its roots in the period immediately after 9/11 when they
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started buying blocks of discounted inventory and selling it typically with a mark-up of 18%-40% (instead
of the usual commission). The common practice was that intermediaries were not allowed to publish these
discounted rates (net + mark-up) if not bundled with other travel services. In the post 9/11 period, this
restriction was not imposed resulting in intermediaries selling individual travel products in rates lower than
the principals themselves. The result of this rate undercutting was a leakage from the hospitality sector
alone estimated by Smith Travel Research as over US$1 billion 2003 and close to US$1.5 billion for 2004
(Bowers & Freitag, 2003). But as the markets are becoming more stable the playing field with
intermediaries is levelling. The larger players are using their leverage and renegotiate margins in the 1820% range while the smaller ones may still have to face the previous 25-35% (Scoviak, 2004).
Another area of contention between principals and intermediaries is on who owns the customer. The
almost infinite multiplication of choices and the cost transparency brought about by the Internet has
inevitably created an increased mobility of customer buying behaviours. Especially when products are seen
as homogeneous (flights to a destination with different flag carriers, four star hotel accommodation in a
city centre) brands tend to deflate and products become commodities where price is the only
discriminatory criterion. This is where loyalties to principals diminish and perhaps the intermediarys name
may act as a mental representation of guaranteed quality service (e.g., confirmed booking, secure payment,
prompt ticket delivery, etc.) leading to increased loyalty to the intermediary. Technology comes here again
as an ally to principals with CRM programmes which can help in targeted marketing and increased brand
recognition and loyalty. However, despite the availability of sophisticated software, research across the
principals in the tourism sector (Gamble, Chalder & Stone, 2001; Binggelt, Gupta & de Pommes, 2002)
indicates that loyalty programmes are not successful and the information gathered not effectively used to
better understand tourism consumers and their needs. Similarly, although there are very sophisticated tools
that can track the behaviour of online visitors (web analytics) and help principals develop a comprehensive
online strategy, their adoption by the industry is very low (Paraskevas & Pineda, 2004).
ICT and SMEs across the Chain
It is the mainly larger actors in the sector that have managed to take some relative advantage of
technological innovation and bridge the gaps within their internal systems as well as improve their
connectivity with the rest of the actors in the industry value chain (Siguaw, Enz & Namasivayam, 2000).
Smaller actors, especially in the hospitality sector, have for a number of different reasons (lack of capital to
lack of IT literacy and even technophobia) struggled to embrace technology (Buhalis & Main, 1998)
although there is evidence that the situation is improving (Wilcox, 2005). Collins, Buhalis and Peters (2003)
contend that although all these reasons for the slow adoption are valid, the main issue for SMEs in tourism
is the lack of a clear strategic plan. They maintain that, if such a plan existed, SMEs would be able with
relatively low investment to considerably improve their levels of technological sophistication with all the
benefits that this would bring. The Application Service Provider (ASP) model of software outsourcing, for
example, would allow SMEs access to and use of ICT solutions that the large actors in the chain use
without having to undergo significant capital investments. With this model, an SME can rent an up-todate application for a fee and use it across the Internet. As it will normally not have extensive ICT
expertise, it will benefit from the collective knowledge accumulated by ASP providers without having to
make a considerable investment in technology or expertise building. Although lowering costs and
complexity is a major advantage, such a form of outsourcing will also give the SME more time to
concentrate on their core competencies, allowing them to decide when and where to use their data
(Paraskevas & Buhalis, 2002).
As will be discussed in the section 4, technological innovations also offer a way for SMEs in tourism
to upgrade their position in the chain, provided that they embrace the new paradigms proposed in this
section.

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Impact on Governance
Clearly the adoption of technological innovations and the Internet has had a dramatic effect on the
governance of the tourism value chain. Although most principals would argue that online intermediaries
have accumulated a lot of power (see Scoviak, 2004), the author of this paper contends that it is the
consumer who now actually governs the chain. Consumers now have a multiple range of ways to identify
the product of their choice, can surf from website to website, use different types of search and meta-search
engines, move from direct to indirect travel distribution channels, benefit from full online cost
transparency, and make informed comparisons and even name-their-price for the tourism product they
want. If information is power, then consumers have an infinite number of tools to gather this information
and are able not only to dictate their value terms in the chain but co-create it as well.
Quality of information provision will be the first step for intermediaries and principals to gain some
degree of loyalty from increasingly promiscuous customers. For the consumer every value adding bit of
information will simply raise the bar and added value will soon degenerate again into perceived
commodity (Bayler & Stoughton, 2002). The actors that will best position themselves in the chain will be
the ones most able to manage information from and to the consumer as well as from and to all actors that
are involved in the bundle of the tourism product on offer.
From Global Value Chain to Global Value Web
The challenge for both intermediaries and principals is the fact that consumers have a highly
subjective and complex experience for the tourism product that is composed by a variety of discrete
fragments (information for the trip that will shape their expectations, the journey, the transfer to the
accommodation, the accommodation itself, the museum, the night at the town, etc.) all of which are
delivered by different independent actors in the chain. Internet technology enables the connectednesses of
these actors in ways that were not feasible in the past. However, this very connectedness brings to surface
the flaws identified earlier in section 2 of this paper and begs for a change of perception in terms of how
value is created and distributed in the industry. Tapscott, Ticoll and Lowy (2000:17) coined the term
business webs to describe the situation where internetworked, fluid sometimes highly structured,
sometimes amorphous- sets of contributors come together to create value for customers and wealth for
their shareholders and each participant focuses on a limited set of core competencies, the things it
does best. This definition addresses effectively the flaws of a one-dimensional sequential and
unidirectional value chain and introduces two more elements that although integral part of todays
business world were not explicitly incorporated in the chain model: fluidity and technology.
Extending this concept in tourism we could talk about a Tourism Global Value Web consisting of
several value webs continuously inventing and offering unique value propositions and competing for
greater market share (upgrading their position in the global value web). A tourism value web could be
depicted as in Fig. 2.

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Figure 2. Tourism Value Web

Tourism
Value Webs

Tourism Industry
Environment

Consumers

Principals

Intermediaries

Suppliers /
Infrastructure Providers

In Fig. 2 we can see several actors of various sizes (and shapes) being interconnected and working
together to create a number of value propositions for the market which consists of different market
segments. Consumers are positioned in the centre of this web and are co-creating the value of the tourism
offerings as all linkages are two-way. Some intermediaries are connected with other intermediaries and so
are some principals connected with other principals indicating that both cooperate and compete with one
another.
The model includes the suppliers of the various actors as well as the infrastructure providers. The
degree of customer loyalty to one or more principals and/or intermediaries is depicted by the distance of
their connection (at a global, interconnected market geographic location is important only as a criterion for
consumer choice of a product). Naturally, there will be stronger and weaker actors in this web but what is
of importance is that this value web owes its existence and identity to all its actors without exception,
meaning that, regardless of their size, all actors are important to it. The boundaries of the web are fluid and
within the global value web (tourism industry environment) and there can be several distinct individual
value webs.

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Tourism value webs are self-produced or autopoietic (Maturana & Varela, 1975), as distinct and
autonomous actors interact and communicate in a specific environment and according to commonly agreed
rules of interaction aiming at co-creating a value proposition for the consumer. It is these rules of
interaction that co-ordinate the process of value co-creation and concerns the actors and the organization of
the specific web, so we can say that every value web is organizationally closed (Pask, 1992). But these
rules can change over time in order to achieve different processes and consequently different value
propositions. In this way the value web is reconfigured or self-renewed without necessarily changing its
actors but only the way they interact and consequently its value propositions. The use of the merchant
model in the period immediately after 9/11 and during the SARS epidemic is an example to the point. The
rules of interaction in the value web in which, for example, Expedia operates have changed and so has the
value proposition to consumers (no rate lower than the principals if not bundled with other products).
As mentioned above, the boundaries of the web are fluid for two reasons: first, in order to allow free
entry and exit to all actors they wish to do so and second, in order to interact with other value webs and the
global value web. Tourism value webs are therefore informationally and structurally open (Pask, 1992).
The actors in this web are interdependent, meaning that changes in an actor or in one part of the web
will affect the entire web. When an intermediary or a principal files for bankruptcy, the whole web will be
affected. Depending on the strength of the links among the various actors and the industry conditions at the
time, the butterfly effect (Lorenz, 1993) where small changes may cause large effects or the other way
round can be witnessed in a value web. For example, the Millennium Bug that would affect the global
value web did not, in effect, cause any major disturbances, whereas the outbreak of SARS epidemic in
China evolved in a fully blown crisis for the value webs that included or were connected with actors in the
area.
CONCLUSION AND IMPLICATIONS FOR THE TOURISM INDUSTRY
The advances and innovations in ICT have for a long time been heralded to offer unprecedented
opportunities for both large and small players in the tourism industry. The use of the Internet grows in
exponential rates and sophisticated software is being continuously developed in order to improve
efficiency, competitiveness and customer satisfaction. But, until now there is no evidence that the tourism
industry has reaped the benefits promised by technology. Perhaps, this is the time to ponder on the reasons
why this happens. It may not be because the technology does not leave up to the industrys expectations. It
may be that the industry itself needs to change its perspective and culture in order to harness the forces of
the Digital Economy and technologically-enabled value creation. This paper proposes a paradigm shift
from value chains to value webs as a way for the tourism industry to make the most of technology.
However, the creation of a value web such as the one described in Fig. 2, presents certain challenges.
Collaboration, with its features of partnership, cooperation and team effort, does not come easily in an
industry where the major groups of actors (principals and intermediaries) are in a constant confrontation. It
is a task fraught with five key challenges:
Cooperation for Consumer-Centric Value Co-Creation
Becoming part of a value web is not just creating a strategic alliance. It calls for a major cultural shift
to foster trust between all the actors and understand that, in order to co-create a set of winning value
propositions for the consumer, all components of the web are equally important (co-creation is the
keyword here). This requires actors to stop trying to expose their partners to business risks while keeping
the rewards for them and discard their win-lose mentalities. Consumer-centricity requires cooperation
from all the actors in the web (including the consumer) at all stages of consumer experience.

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Rules of Interaction
The rules that determine the processes of value co-creation require alignment of operational design,
technology and organization across the value web. This alignment should be driven from the value cocreation process by leveraging the core competences of the actors involved and avoiding duplication of
effort. Transparency and honesty are the essential soft ingredients here.
Synergetic Thinking
Value co-creation should be a process of a whole rather than the sum of distinct, individual value
creating efforts. The actors of the web themselves should be thinking in wholes rather than parts.
Consumers want a vacation not a flight + 7 room nights + food + drink + recreational activities.
Responsibilities and Benefits
The successful creation of a value web also depends on clearly defining roles and responsibilities and
most importantly performance expectations. Without the appropriate incentive (benefit that the involved
actors will reap) and performance monitoring tools in place, the whole undertaking of collaboration may
not realise the promised results.
Technology Architecture
The value web requires a technology architecture layer that will enable the connectivity and
interactivity necessary for the cooperation and co-creation of value proposition and provide the right
balance between integration and flexibility. All actors and especially SMEs need to be ready to invest in
this layer. However, as this layer is evolving rapidly, and any weakness in the IT architecture of the value
web may put in danger significant investments, the ASP model may be proven particularly attractive for all
actors involved.
Symbiotic collaborative arrangements through which smaller firms enter the value chains of larger
firms, to the benefit of both sides, have been recommended as the best way for SMEs to survive the fact
that globalization has removed the barriers that traditionally segmented their competitive environments
from those of the larger players. Although this may be a model that works for the manufacturing sector it
appears less appropriate for the tourism industry. The model described in this paper is base in the same
underlying principle but also incorporates the potential that technological innovations offer to all tourism
firms, in order to achieve the efficiencies and the effectiveness required for world-class competitiveness.

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