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Innovation and New Service Development in Tourism

Larry Dwyer and Deborah Edwards

Types of Innovation
Process Innovation
Innovation to enhance the capability of production processes or supply chain operations (e.g., increase reliability or reduce cost).

Product Innovation
Introduction of new functions, enhanced performance, or add features to existing products Innovation of this type is generally incremental. Underlying technology can be new to the firm, but is unlikely to be new to the world.

Marketing Innovation
Includes use of new channels of distribution and new advertising approaches for selling current or new products. Firms can expand revenues by selling current products in new markets or by expanding existing product lines into new segments of existing markets


Influences on Innovation
Firm innovation behavior
varies by industry sector. Some industry sectors are capital intensive, making them cautious about innovations that require large capital investments

Type of innovation that firms pursue also depends on whether their industry is:
emerging (radical innovation is more likely) or is mature (incremental innovation is more likely)

The hostility of the environment influences innovativeness

Firms operating in highly competitive (hostile) markets - likely to be more successful innovators by increasing new product introductions through incremental innovation

Influences on Innovation

The type of customers that firms serve also influences the type of innovation they undertake. Firms that sell consumer products generally serve a larger number of customers directly or through distributors than firms that sell products or services directly to other businesses They also must devote more time and attention to market research and advertising and generally have more difficulty getting timely and accurate feedback from their customers

Importance of Life Cycle

Different types of innovation are important at different points in a products life cycle

Differences between Products and Services

Intangibility: this characteristic best differentiates products from services Ownership: a pure service also does not transfer the ownership of a tangible item to the customer Heterogeneity:
services tend to be heterogeneous; i.e. they are customized to the specific needs of the recipient

Services are usually created as they are used, while products can be made ahead of time and held in inventory or distribution supply chain

Products Vs Services
Imitatability and opportunities for bundling
Services can be combined into customized packages compared with product features Differentiates services from products making them more difficult to imitate by competitors increases competitive advantage.

Integration of an external factor

During preparation of a service, an external factor, an object or a subject will be involved in the process, e.g., car in a car rental contract

Need for synchronous contact between customer and service


Often there is a simultaneous production and consumption of a service. Customers may participate in production because the service preparation and the service delivery are identical

Products Vs Services
Products and services can be viewed as layers because many products have services embedded in them and vice versa A single layer can be a physical product that is exchanged for payment. The relationship between buyer and seller starts and ends with the sale Multiple layers would be services that consist of dialogues between service providers and clients, e.g., consultation or travel information


Stage-gate Process for New Service Development


Focus Energies

Immerse Yourself in Your Customers


Design service / product solution


Strategy, Organisation, Culture fit



Market test/launch


Evaluation / feedback into NSD


Importance of Customers
Customer needs are the most important driver of NSD An important reason for failure among firms focusing on developing new services is an inadequate assessment of customer needs and problems


Organising Needs
Understanding customer needs is only part of the problem Once the raw ideas are generated, it is important to categorize and assemble them based on their similarities. These needs must be organised and prioritized

Prioritising Needs
Firm decides how important these needs are to the firms (current or potential) customers. This understanding will help the firm to select the needs that it will target If the customer base is small, interviews and focus groups will be best Otherwise, a quantitative approach (e.g., survey) is more appropriate.

Generating and Screening New Service Ideas

Sometimes a product is the answer, sometimes a service, and sometimes a product/service combination
Firms need an effective process to generate ideas and transform them into new services which replace or create activities up and down the value chain

An Open Culture
The quality of idea generation and screening can be enhanced by inclusivity Innovation requires support by management, employee involvement, and open communication among different functional areas (e.g., production, process design, IT, service delivery and marketing)


Cultural Attributes of Successful Innovative firms



Special problems for tourism SMEs

SME have smaller top management teams but less functional diversity in experience Owner-managed SME often favor placing family members in senior management positions over hiring outside professional manager
poor management decisions generational transition problems

SME also have less developed HRM practices

disadvantage for reaching the labor pool leads to poor recruiting and less access to materials and financial resources

SME may be weak in technical or marketing capability because of the number and quality of their professional personnel


Special problems for tourism SMEs

Question of senior managements motivation to invest resources in training, provision of research journals, travel to conferences, and giving them challenging assignments Limited financial resources to invest in innovations that are expensive to develop, require long development cycles, and long payback periods. Difficulty spreading R&D expenses over large sales volumes and spreading the risk of failure across multiple projects. This tends to make them more cautious about innovation than larger enterprises

SME often have an inadequate knowledge of competitors and their products. Have little time to scan their environment regularly to monitor their competitors


Overcoming the barriers

SME may compensate for lack of resources by partnering or networking with customers, suppliers or competitors SME can form cross-functional teams more easily than large enterprises as professional specialization is less complete; and less risk of a disconnect between levels due to bureaucracy, delays, and miscommunication Employees of SME interact more often with their counterparts and may have shared or swapped tasks. Gives team members a clearer idea of their respective contributions to the NPD/NSD process.

The downside of less specialization is difficulty in keeping up with the latest knowledge in a given specialty

NPD Vs NSD NPD and NSD essential to avoid strategic drift NSD is a neglected area of tourism research Importance of Customer Needs in NSD Importance of Firm Culture in NSD Special problems for Tourism SME

Our Research Agenda

Develop a suitable NSD model for Tourism Explore activities that best promote successful NSD in tourism firms Explore role of culture in tourism NSD