Category: Strategy planning & execution

Strategy planning and implementation methods

StrategyStrategy planning & execution

How cluster development applies to mature destinations

Most of the aforementioned challenges faced by mature destinations may be solved, at least partly, through an adequate cluster development strategy. Furthermore, cluster development strategies may have many other benefits for the destination. The following strategies summarize most of the approaches to cluster based developments in destinations:

New cluster development. Many destinations use undeveloped areas without any relevant resource, to build new tourism infrastructures which all together are to create a new tourism cluster. This is usually related to Theme Parks, Congress & Convention facilities or other modern buildings hosting all kinds of entertainment experiences. This is the case of the “Arts and Sciences City” in Valencia, an outstanding collection of innovative architecture facilities designed by the architect Santiago Calatrava encompassing an Opera House, a Science Museum, an Imax Cinema, an Aquarium and a Venue for various types of events.

Reconverting or relaunching existing clusters. Some destinations have unexploited natural or cultural resources, which are not leveraged as tourism attractions namely due to lack of vision or imagination. These type of developments should always be a priority, so long as they enhance the identity and uniqueness of the destination. This is the case of Shanghai’s Xintiandi and Tianzifang, two areas within the downtown’s French district with old houses and unique atmospheres, which have been reconverted as charming shopping and entertainment clusters, with many types of stores and restaurants.

Re-clustering the destination. Some destinations are perceived rather as homogeneous, or they do not have a defined characterization throughout its areas. However, the reality is that in most cases there are some distinct features in the different areas that may be leveraged to build a cluster identity. In this case, the cluster development strategy consists of enhancing and marketing the differentiated character of each cluster, providing a sense of variety to the visitor. This is what some Ski resorts do, “Theme-Parking” themselves to some extent, with distinct urban aesthetics, music, etc. to build a different atmosphere in every zone.

Cluster enhancement. As it is explained in the Whitepaper “Competitiveness Planning 3.0”, clusters should be reference units when assessing the destination’s competitiveness, and also when planning competitiveness programs. So long as each cluster may be considered as a sub-destination, with its own strengths and weaknesses, every cluster should follow its own development in accordance with its intended identity, adding more value, reducing risks and discomforts and marketing itself according to its distinct value proposition. This is the very minimum that a mature destination should do to not pass from maturity to decadence.

Based on these standard strategies, cluster development may contribute to solve some of the aforementioned challenges that are usual in mature destinations, so long as they are combined with the appropriate competitiveness programs and marketing strategies and activities. All tourism development strategies are interrelated, and so they need to be coherently weaved to be successfully implemented.

Do you think of other cluster development based strategies?

StrategyStrategy planning & executionSustainability

Clustering strategy for mature destinations

Destinations operating since decades ago reach a stage of maturity sooner or later, in which they stop growing and lose the strength and vibrancy that made them grow. At this point, depending on the conditions of the environment and will of the local inhabitants, many destinations prefer to manage this situation without growing anymore, so long as they are not willing to receive more tourists or they don’t want to extend the destination’s urban area with accommodation facilities or second residences, and keep the destination as it is to preserve its original charm, and avoid the risk of spoiling it with tourism overflows.

Other destinations, however, due to the need or will for the tourism business growth, try to find other solutions to satisfy a higher demand trying not to spoil the charm that attracts the tourism flows. Further, these destinations face many challenges such as:

  • Congestion issues in the most popular areas
  • Difficult conviviality between locals and tourists
  • Excessive dominance of tourism related businesses in residential areas
  • Lack of infrastructure renovation, which may give an image of decadence
  • Tourism expenditure stagnation
  • Seasonality stagnation due to incapacity to overcome seasonal occupancy gaps
  • Poor branding, lost reputation, low brand awareness, lack of well-defined identity, etc.
  • Lack of new tourism businesses creation

These and many other issues may be resolved through adequate tourism development planning, in which a good cluster development strategy is to have a key role in overcoming them successfully.

Which other issues affect mature destinations?

StrategyStrategy planning & execution

How do Theme Park clusters develop?

The case of Theme Park clusters is probably the most different from all other types of tourism clusters, as they have little or no relationship with natural or cultural resources, and so their development is rather similar to other industries’ clusters. They have unique dynamics and therefore require a separated analysis. Both the key success factors and the development stages of Theme Park clusters are hereby explained and illustrated through a few well known case studies.

Beyond the traditional Amusement Parks, usually targeting the local markets, Theme Parks were created to become a destination themselves, offering a more or less unique value proposition, bringing the visitor to an imaginary world or to somewhere far away, either in terms of distance or time, like those reproducing ancient civilisations. The experience of immersion within another world is what set Theme Parks apart from Amusement Parks, even if they have many attractions in common. Then, however, the ability to recreate a different world to make it also entertaining for visitors is something that few operators have.

Walt Disney was in fact the first company to leverage the imaginary world of their film stories to develop Theme Parks. Then, other film producers such as Universal Studios followed their example by leveraging their own story worlds, also in many locations worldwide. Apart from them, there have been other Theme Parks based on toy brands such as Lego, comic series such as Asterix, Smurfs or Tintin, and car brands such as Ferrari.

When analyzing the internationally competitive clusters, there may be found many things in common, related to their cluster development key success factors and phases. In this regard, there are four key success factors for the development of Theme Park clusters, of which at least three should be well accomplished:

  • Internationally competitive destination with important tourism flows and accommodation capacity, usually a city.
  • Good accessibility to the main targeted markets
  • Location with good weather conditions all year round.
  • Internationally reputable Theme Park brand (at least one).

Beyond these key success factors, there are about four typical phases in the Theme Park cluster development process:

  1. The base for the cluster development is an attractive location and compliance of at least two of the aforementioned key success factors.
  2. Development of a Theme Park
  3. Good results stimulate expansion with new facilities. These may be themed hotels, Water amusement parks, new attractions, facilities to offer new products such as MICE or Golf.
  4. New smaller Theme Parks settle down in the area to take advantage of the increasing tourism flows in the cluster.

In the Whitepaper on Clustering Strategy you may find several case studies that illustrate this theoretical approach.

Do you think of other key success factors for Theme Park clusters development?

StrategyStrategy planning & executionTourism marketing

Clustering benefits for marketing

So long as every type of environment is more or less adequate for certain types of activities, the correct matching between the location and the activities developed is a key factor for competitiveness and also for effective marketing, as it helps to build a cluster’s consistent identity, enhancing the character of the experience and also helping the tourists to envision what kind of feelings they are likely to experience.

Closely related to competitiveness and productivity, business concentration may also accelerate innovation in product development and process efficiency. Having a pool of competitors in the same geographical area facilitates benchmarking and stimulates innovation, so long as proximity leads to constant comparison and competition.

Furthermore, attractions concentration in a cluster makes it possible to design more attractive packages in the travel market, as well as to attract more transport operators –namely flights and bus regular lines-, which eventually open new markets. Competitive clusters attract also internationally branded operators –like reputable hotel chains-, which eventually contribute to the reputation and attractiveness of the cluster.

Other marketing benefits may come from the cooperation in marketing activities by the cluster’s operators. This includes market intelligence collection and management through a local “Tourism Observatory”, but also from sharing efforts and information for the cluster’s marketing planning, and operational marketing activities.

Through cluster based collaboration, all these benefits can be enhanced, due to the multiplier effects of more productivity, innovation and business growth in a cluster influences many other industries within the region.

Do you think of other clustering benefits for marketing?

StrategyStrategy planning & execution

Clustering benefits for profitability and growth

The concentration of many attractions and related services within an area, specialized in a certain type of activities is likely to attract other operators dealing with this type of activity, as this is where their potential clients go and so as to profit from the existing tourism flows and necessary services available in that area. This saves them many marketing costs, and also results in a much lower risk investment. Therefore, consolidated and competitive clusters are more likely to attract investors.

Further, as it happens in all industries’ clusters, business’ concentration reduces trading costs, thus enhancing profitability. As in all types of clusters, there are also common infrastructures and key resources, which shared among many operators, reduces its cost per operator, through creating economies of scale.

Moreover, concentration helps to boost cooperation, and by joining efforts, partners not only accelerate innovation and develop economies of scale by sharing strategic resources, but also cooperate in lobbying to gain negotiation power against common suppliers and clients, as well as to counter or neutralize other competitive forces that shape the long term industry’s profitability. The Whitepaper “The 5 Competitive forces and business strategy” depicts how these 5 forces shape the long term profitability in the tourism industry.

In many cases, companies in a specialized cluster have a better access to skilled employees and specialized suppliers, also located within the cluster influence area. Institutions or Universities can be used mutually and capital expenditures in regional marketing, infrastructure or education programs can be employed and shared together (Müller and Lanz 1998). Finally, cluster based tourism attractions’ concentration is also beneficial to profitability as long as it contributes to extending the average tourist length of stay.

Beyond profitability, consolidated clusters are also likely to foster more new business creation. First, a concentrated clients’ base lowers the risks for new suppliers to settle in, and as a result of the cluster based boosted innovation, also more spin-offs and start-ups are likely to be created. Further, financial institutions have a good knowledge about the industry, and so they are more likely to provide financial support to new ventures.

Do you think of other clustering benefits for profitability and growth?

StrategyStrategy planning & execution

Clustering benefits for competitiveness

The cluster structuring and development in a destination offers four main types of benefits: enhancing competitiveness, boosting profitability and growth, ensuring sustainability and increasing marketing effectiveness.

As the Competitiveness Planning 3.0 Whitepaper explains in detail, destination competitiveness is based on the relation between value offered to the visitors and efforts demanded, considering experiences, feelings, service quality, and positive impacts of tourism development in the destination as the sources of value; and discomforts, risks, price and negative impacts of the tourism development in the destination as the sources of efforts demanded, or factors diminishing value.

Among all these key factors that determine the destination’s competitiveness, the tourist experience is probably the most important. In this regard, having a higher concentration of experiences –related to the same motivational profile- available within a short distance (not needing to change accommodation in many cases, nor consuming much time in transfers) clearly optimizes the whole destination experience. Cluster development also entails an increasing variety of experiences available, beyond the experience efficiency due to the reduced distances within the cluster.

A good cluster planning should consider a strategy to prevent congestion issues by spreading the tourism flows right from the conception of the cluster layout. This may be achieved by creating many itineraries throughout the cluster to diversify the visitor’s flows –avoiding “backbone itineraries” which tend to concentrate the flows-, and preventing bottlenecks.

Furthermore, by creating themed itineraries and charming transportation systems which may eventually become iconic experiences themselves, not only are the tourist flows spread out but also the experience is enhanced. Charming transportation systems may be traditional transportation means –gondolas, tramways, etc.- made tourist friendly in terms of comfort, or just innovative transport means which are a new experience for the visitors.

Business concentration makes it also more feasible to invest in key resources, which eventually influence positively the cluster’s competitiveness. This may be the case of educational facilities, R&D centers, and cross-destination infrastructures related to accessibility, environmental management & protection, etc.

Do you think of other clustering benefits for the destination competitiveness?

StrategyStrategy planning & execution

Cluster based competitive advantages

In line with the origins of cluster development, the combination and cooperation of many resources and operators may result in many types of competitive advantages:

Resource uniqueness: many clusters feature a unique collection of natural or cultural resources. Cases of cultural resources could be the Egyptian Pyramid cluster along the Nile River, or the Maya Pyramid cluster in Yucatan Peninsula. Examples of unique clusters based on natural heritage could be Iceland with its unique combination of volcanos, glaciers and northern lights, or the Tanzanian cluster with Mount Kilimanjaro and the Masai mara safaris.

Experience innovation: some clusters have, beyond competitive natural or cultural resources, a special deed for innovating experiences. Such is the case of Queenstown in New Zealand’s Southern Island, the most innovative destination for adventure tourism activities, where bungee jumping was invented, among many other crazy experiences. Developing unique experiences without unique resources requires building a culture of innovation.

Operators’ cooperation: the good coordination and cooperation among the cluster operators may also be the source of competitive advantage. The case of the Trois Vallées ski area, the largest ski-lift connected ski area in Europe illustrates this type of advantage. This dominion has no unique resources like other areas in the Alps –namely Zermatt-, but the connection between the three valleys offers the best mobility efficiency for skiers who want to enjoy the whole ski dominion, allowing them to enjoy all the ski areas spending the least possible time.

Differentiated product experience: clusters featuring one main product may develop their competitive advantage by creating a unique signature experience, adding an extra value that other cluster rivals do not offer. This is the case, for instance, of the Austrian Tirol for ski holidays, offering a unique “après-ski experience” consisting with traditional Tirolean pubs with local atmosphere and also a world class network of Wellness & Spa facilities. The Ski Resorts’ accommodation facilities are all in old villages, which also give character to the experience.

Dimension: some clusters base their competitiveness in offering the largest amount of facilities or resources for a specific kind of tourism activity. Such is the case of the Golf Cluster in Costa del Sol as a Winter Golf destination in Europe. On the other side of the world, the Australian Great Barrier Reef is the largest coral reef on earth, a paradise for divers. Another example could be Macau, featuring the largest offer of Casinos in Asia.

Variety: many tourists are not only motivated for one type of activity but prefer to enjoy many different experiences during their holidays. Clusters offering a large number of different attractions appeal to an increasing number of tourists. Such is the case of the Costa Brava, offering not only attractive beaches, but also first class gastronomy, unique cultural heritage sites, a Golf cluster, a protected area for diving, Casinos, facilities for skydiving, Wellness, etc.

Price: for certain products, price is sometimes a decisive factor to gain competitiveness, especially in the case of the most standardized ones. As it happens with clusters in other industries, the competition of many operators may result in a price advantage for the tourist, though this is not usually the main reason. This could be the case of Tunisian coast cluster competing with European beach destinations, the Red Sea cluster for diving, etc.

Do you think of other cluster based competitive advantages?

StrategyStrategy planning & executionSustainabilityTourism marketingTourism trends

A theoretical approach to cluster development

As introduced in the first point, tourism clusters are created to leverage the unique resources of a location or in some cases to gather artificial resources in the same location. In both cases, they improve the value of the location to end up making the location a key strategic factor.

To make a cluster competitive there are many key success factors that should be considered by the cluster members:

  • Transport infrastructure within, and to access the cluster from the target markets
  • Solidarity and cooperation spirit among players
  • Cooperation between the Government and the private players
  • Creating a welcoming atmosphere to attract international talent
  • Foresee space for attracting new businesses and expanding the cluster

A very specific key success factor is the existence of a governance structure to promote collaboration and joint projects, fostering innovation and promoting the cluster internationally. This governance body should be also responsible for:

  • Attracting new businesses
  • Performance monitoring
  • Intelligence research
  • Identifying needs for improvement and training
  • Representing the cluster players internationally
  • Organizing networking events and conferences
  • Coordinating players to design and implement the cluster development strategy

As mentioned before, there may be many types of players within a cluster, and so the types of cooperation between them may also be different. There are at least two types of cooperation:

  • Value chain cooperation: between players from different sections of the value chain, to gain efficiency or to add new value.
  • Coopetition: competitors sharing resources and costs that are not afordable for each one alone.

Research has shown that tourism development is a venue in which cooperation is often more important than competition (Inman et al. 1998). A cluster based development should try to build the value chain within each cluster in the region. A cluster strategy places all public and private stakeholders in the position of being producers and suppliers to one another, and seeks for constructive ways to define and carry out mutually beneficial action. The value chain is central to the tourism cluster concept, as it demonstrates how tourism can generate benefits to the economy beyond the tourism sector through linked industries (Gollub et al. 2002).

Do you think of other key success factors to make a cluster competitive?

StrategyStrategy planning & executionSustainabilityTourism trends

What is a cluster and why are they created?

One of the key strategies to develop in any Tourism Development Plan consists of structuring the territory in different areas according to the kinds of activities to be carried out in each one. The clustering strategy is essential for the tourism development regardless of the dimension of the territory: clusters exist within countries, regions and even towns.

A cluster may be defined as a concentration of interconnected businesses and institutions in a limited geographical area. In most cases, such businesses and institutions belong to the same sector; but, as we will see in some case studies, sometimes there are new business sectors that flourish in a cluster to take advantage of assets related to other sectors in the cluster.

It may also be defined as an area characterised by a set of distinctive tourism assets which all together create a unique value system capable of attracting tourists and competing with other destinations. Many industry players settle down in the same location to cooperate in the search for synergies that improve their competitiveness:

  • Need for specific infrastructures to be leveraged by many industry players
  • Need for collaboration between industry players to create economies of scale and scope
  • Cooperation in joint marketing

Clusters also arise because they help businesses increase their productivity by sharing many strategic resources, diminishing trading costs between suppliers and clients, and fostering innovation thanks to proximity of a sector’s stakeholders. In the case of tourism destinations, clusters are the result of a concentration of operators exploiting a cultural or natural resource, or a concentration of operators developing artificial and complementary attractions.

Clusters are areas that can be considered as being internally homogeneous with specific traits that differentiate them from others. The goal of the clustering strategy is to structure the location of all tourism activities in accordance with the types of experiences and feelings they offer or the characteristics of the physical environment, and also to define a clear identity for every cluster and communicate it clearly to the visitors.

As Michael Porter says “Clusters are not unique, they are extremely typical –and therein lies the paradox: the enduring competitive advantages in a global economy lie increasingly in local settings which distant rivals cannot compensate. In a cluster, interconnected companies, firms in related industries and associated institutions both compete and cooperate”.

The term cluster may apply to many different destination dimensions: at a national, regional or local level. We may use clusters to distinguish several geographical areas within a country, each of which is specialized in a different type of experience, but also within each of these clusters there may be –and usually there are- sub-clusters according to smaller geographical areas with specific characteristics that are different from the rest, so long as these characteristics are relevant to be leveraged for a distinct tourism experience. At the lower scale, we distinguish clusters within local destinations, so long as these comprehend different areas providing unique or clearly differentiated atmospheres, resources and experiences.

Do you think of other reasons to explain the creation of clusters?

StrategyStrategy planning & execution

Enforcing strategy execution

As mentioned in previous sections, implementation entails describing all tasks to carry out for every program, assigning accountabilities, prioritizing and time planning, along with the KPI monitoring and evolution assessment. However, it is important to explain the type of recommended organizational chart for the DMO in charge of implementing the programs. The main executives responsible for the competitiveness program implementation could be:

  • Managing director: in charge of leading the executive team, the corporate strategy direction, and institutional relationships. He or she would be the leader of the implementation process, and so ultimately responsible for assigning accountabilities, prioritizing, time planning and deciding whether it is convenient to reorient strategy. He or she should lead special programs such as the new flight connections.
  • Experience development director: in charge of programs related to heritage conservation, urban aesthetic harmony, DMC incubator, signage system, congestion & pollution, etc.
  • Business intelligence director: responsible for the monitoring system, and so in charge of collecting, analyzing and communicating the intelligence data following the KPIs.
  • Quality director: in charge of implementing the service quality related programs, such as the Quality label certification, Eco-label certification, and related issues.
  • Human Resources director: in charge of all professional training programs related to service quality for professionals, and also co-responsible for Hospitality programs
  • Marketing director: in charge of the product related programs such as the Product Clubs, Product labels, Benchmarking trips, Destination APP, Tourist offices & call center and partnership with nearby destinations.

In the case of programs entitling mandatory changes on private properties such as buildings or businesses, implementation would be more difficult and therefore more complex strategies would be needed. These strategy guidelines could support these programs enforcement:

  • Changing regulations establishing a reasonable deadline for making the necessary changes. Such deadlines should be negotiated with the affected stakeholders to ensure the feasibility of the implementation.
  • Establishing an incentive system to stimulate early adoption of the new policies consisting of fiscal incentives, privileged marketing, etc.
  • Offering funding facilities such as soft credits, partial subsidies, and searching for imaginative formulas like those described in the Whitepaper “Envisioning destination models 3.0”.

How would you enforce execution related to private properties?