Strategy

The origins of tourism clusters

As Porter says, “the function of a cluster is to create a forum for a growth oriented dialogue between key regional stakeholders”. However, as explained by The Cluster Competitiveness Group, “Clusters typically do not develop as a group of firms which join to pursue a common purpose or goal. Clusters exist, they have their own development and dynamic which can be influenced by private and public activities, but it is very difficult to purposefully construct them”. In the tourism industry, however, the dynamics are sometimes different than in other industries, due to its several particularities.

In this regard, the most typical origins of tourism cluster development are:

Local demand: a spatial concentration of competing businesses facilitates the customers purchasing decision making, allowing them to compare easily between several suppliers. In the case of tourism this happens very often for the shopping clusters. Local demand may also apply to different cases where the cluster is mainly developed by one operator, such as the Theme Parks in the outskirts of large metropolitan areas.

Related industries or related clusters: either for taking advantage of the customer flows or for leveraging specific resources, some industries develop in the same location where others are already developed due to the potential synergies between them, which eventually become a key competitive advantage. Such is the case of the Wellness cluster in the Tirol area (Austria), taking advantage of the ski tourists in the most competitive ski cluster in Europe. Other cases are the development of Golf clusters in Sun & beach destinations with little or no local demand for Golf, such as Spain and Portugal; or the development of Theme Parks in mature destinations.

Exploitation of new special interest demand: regardless of the geographical origin of the demand, the reasons for traveling have been increasing also due to new market segments related to interest in specific cultural or natural resources, for instance. The practice of sports related to natural resources such as mountains or underwater natural heritage has boosted the development of tourism in many places where there were neither related industries nor substantial local demand for these activities. The same applies to cultural tourism related to archeological sites and other types of cultural heritage.

When defining the limits of a cluster, we may consider two different criteria:

  • Cluster boundaries are defined by the linkages and complementarities across industries and institutions which are important in market competition.
  • Cluster boundaries are determined by the physical characteristics of the territory, regardless of its exploitation for tourism development.

The first corresponds to generic business cluster boundary definition, whereas the second is more closely related to tourism clusters. However, as explained in upcoming sections of this Whitepaper, some tourism clusters may correspond rather to the first boundary definition.

Do you think of other criteria to define the limits of a tourism cluster?

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?

StrategyStrategy planning & execution

Competitiveness clubs

Beyond the DMO’s Board of directors, who are accountable for the implementation of the Tourism Development Plans –along with other stakeholders-, there can be created a sort of Think Tank usually called a Competitiveness Club, with representatives of both the private and the public sector, to work as a consultation body that gives support and advice in the elaboration and implementation of the Tourism development Plans.

This is a volunteer driven organization, where members participate driven by their professional interest in exchanging opinions and visions on the challenges of the local and global tourism industry. Particularly, when elaborating the competitiveness assessments and improvement programs, the Competitiveness club is due to provide support in the assessment of the conditions of the destinations’ operators, products, facilities, infrastructures and related supporting sectors.

Furthermore, the Competitiveness club should provide advisory support to the local Government and DMO both in the destination strategies design and implementation. This would entail a close cooperation with the monitoring system and the open innovation system. To be effective, there should be appointed a formal leader and a secretary.

Finally, as a representative body of the tourism private sector, it could also play the role of lobby, to defend the interest of the local industry in the design of the Government policies, given their important influence in many issues affecting the tourism business.

What other functions do you think that Competitiveness Clubs could be in charge of?

Environmental sustainabilitySustainabilityThird sector and social sustainability

Monitoring sustainability issues

Beyond the indicators related to the Competitiveness programs and mission related goals –poverty alleviation & environment protection-, it is also recommendable to carry out a comprehensive assessment of sustainability issues through the elaboration of a set of Sustainable Tourism Indicators (STI).

First of all, tourism sustainable development has to be based upon three main principles:

  • Equitability: the generation of wealth out of the tourism activity should be fairly distributed among all the destination stakeholders.
  • Livability: the tourism activity should allow the destination’s inhabitants to cover their present and future needs, ensuring a long-lasting quality of life.
  • Viability: development has to respect the carrying capacities of the destination ecosystems without using non-renewable resources

The indicators have to play the role of analyzing all types of factors affecting the structure of the tourism industry, assessing the benefits and impacts of the tourism activity, identifying critical issues that need to be addressed, measuring the achievement of the Plan’s objectives and orientating in the need for strategy shift in line with the objectives achievement.

Based on the 20 main sustainability issues identified in the WTO’s “Indicators of sustainable development for tourism destinations: a Guidebook”, Tangenay, Rajaonson and Therrien developed a list of 20 STI as the main indicators to monitor the key sustainability issues within a destination. These are exposed in the following table.

Sustainability issue Indicator
Ecosystem Area of natural protected space
Water Water consumption (tourism sector)
Atmosphere Air pollution (tourism sector)
Energy Energy consumption (tourism sector)
Waste Volume of waste recycled or treated/total volume generated
Well-being Level of satisfaction of the local population
Resilience and risk Environmental vulnerability
Security and safety Ratio of tourists to local population at cultural events
Health Quality of bodies of water (lakes, rivers and sea)
Satisfaction Level of tourist satisfaction
Public participation Level of public participation in election
Culture Level of maintenance of heritage sites
Accessibility Frequency, capacity of services, or level of use by existing transport modes to the destination
Investments Percentage of new real estate developments intended for tourism
Ecotourism promotion Number and % of businesses that acquired an eco-responsible label
Economic vitality Percentage of income generated by tourism in the community
Employment % of new jobs in the tourism sector occupied by local residents
Marketing Percentage of return visits
Distinction Number of visits to heritage sites
Traffic Volume of tourists

Whenever data is not available, other indicators for the same issue should be found according to the available data related to this issue in the destination. Further, in relation to the previous section about monitoring the implementation of the Plan, the STI scorecard has to include indicators directly related to the destinations policy on sustainability.

In this regard, the KPIs related to environmental impacts should be designed by specialized consultants specifically for every destination –depending on the type of environment and issues to tackle-, whereas some of the KPIs to track the evolution of poverty alleviation could be:

  • Newly created tourism businesses in the poorer layers of the community
  • Increased disposable income in the poorer layers of the community
  • Newly created “non-tourism” businesses serving the poorer layers of the community
  • Increased turnover of old businesses serving the poorer layers of the community
  • Increased number of households with access to Internet and computer literacy
  • Increased access to primary & secondary education in the poorer layers of the community

Concerning the value for money, service quality could be measured in two ways other than the tourists’ satisfaction:

  • Mystery tourist system, consisting of periodical service evaluation by outsourced professionals pretending to be casual tourists.
  • Tracking of congestion and “early sold out” services through systematic observation, to identify bottlenecks and unsatisfied demand for critical services.

Would you consider other indicators?

StrategyStrategy planning & execution

Tracking destination performance for the Competitiveness Plan

At the end of the Plan the key performance indicators are defined. As done in any Strategic Plan, every KPI is assigned with an accountable person in charge of its tracking and interpretation, a priority level to determine its relative importance compared to other indicators, and a frequency determining how often the indicator has to be measured.

The Observatory in charge of the monitoring service is likely to be the most appropriate agent to carry out the tracking of the KPI, in close collaboration with the Competitiveness Club, the DMO and representatives of the Government. For most of the programs, the only way is to carry out a survey on satisfaction asking the tourists about all the correspondent issues. The best moment to do so is when they are about to leave the destination, while at the check-in queue or waiting hall at the airport, for instance. Airports provide us with an excellent opportunity to target specific segments for geographical markets. Another good option is to do it in the hotel halls. The survey should ask about their satisfaction on every issue object of study, their assessment about it on a scale of 1-5, and the importance given also from 1 to 5.

However, there are some competitiveness programs for which specific KPIs can be designed. With regards to the cross-destination programs, this is the case of the following programs:

New flight connections: considering not only the connections themselves, but also the overall capacity (number of flights x airplane capacity). Consider also the capacity increase in the current connections.

Congestion, noise & air pollution: there are specific sensors to measure both noise and air pollution, and also to measure the number of vehicles transiting through a certain point. To count people, there have to be “counters” –persons- in the critical bottlenecks or hot points.

Human resources training: the attendance and successful compliance of the learning goals assessed through skill and knowledge examinations is the main way to measure the effectiveness of this program.

Accommodation upgrade & development: the number of new accommodation facilities built, as well as the number of facilities having been certified with a quality certification or a higher star rating should be the main indicator.

Eco-label system: the number of eco-labels certified for each kind of operator, as well as the number of certifications for each eco-label category for every type of operator, to measure both the environmental friendliness of every type of operator in percentage and intensity.

DMC incubator: both the number of micro-entrepreneurs working in the incubator and their business growth should be measured. Besides, also the time needed for them to be self-sufficient and abandon the incubator, as well as the training assessment should be considered.

Tourist offices & call center: in both cases the service demand should be measured, paying attention to what kinds of information are most demanded. Ideally, also the service demand concentration in certain hours should be measured to provide the adequate resources.

Destination APP: not only the number of downloads, but also other facts such as the number of content uploads by the users (photos, stories, etc.), creative reviews, map downloads, geo-localized deals received and accepted, etc.

With regards to the cluster competitiveness improvements assessment, the indicators to be measured other than by the tourists’ assessment survey are mostly those related to spiritual value, and so on the benefits for the local population and heritage:

Local inhabitants’ survey asking about their satisfaction on several issues such as:

·   Street & public spaces cleanliness

·   Employment & income

·   Pride about the destination

·   Destination model

·   Cultural heritage preservation

·   Noise & Air pollution

·   Congestion issues

·   Tourists’ behavior

·   Cultural life (events calendar)

·   Natural heritage preservation

Further, many other aspects related to the benefits for the destination should already be measured by the Government such as the unemployment rate and the average salary, or by the destination management such as the level of contribution to the open innovation system, the growth of the collaborative model, etc.

With regards to the aforementioned product programs, the correspondent KPIs could be:

Product clubs: number of created clubs, active participants in each club, and the product operators’ satisfaction with the activities carried out.

Product Quality labels: number of operators certified with every label created, product operators’ satisfaction, tourists’ satisfaction, and outbound operators assessment.

Benchmarking trips: number of trips organized, number of participants, and product operators’ satisfaction with the results.

How else would you measure the success of these programs?

Co-creationInnovationOpen innovationStrategyStrategy planning & execution

Enhancing competitiveness through open innovation

As explained in many previous blogposts, the Open innovation system is one of the key features that set destinations 3.0 apart from competitors. One of the outcomes of the innovation system is the generation of ideas for improving competitiveness at all levels: product, cluster and cross-destination.

Product

  • Ideation bank for developing new products
  • Product development contests
  • Forum discussions to detect weaknesses and new ideas
  • Professional advisory on improving product competitiveness

Cluster

  • Forum discussions to detect weaknesses and new ideas
  • Professional advisory on improving cluster competitiveness
  • Mission driven innovation challenges to tackle cluster competitiveness issues

Cross-destination

  • Forum discussions to detect weaknesses and new ideas
  • Professional advisory on improving cross-destination competitiveness
  • Mission driven innovation challenges to tackle cross-destination competitiveness issues

Further, it is important to remember that the Monitoring system is to gather information that eventually should help in determining competitiveness improvement priorities and orientating improvement direction. This information is obtained as a result of the following research goals:

  • Tourists’ needs, problems, and concerns in view of identifying insecurities and discomforts to be addressed through improvement or development of new services and facilities.
  • Tourists’ motivations and concerns to sense the convenience of developing new products or mission driven tourism activities.
  • Tourists’ opinions to pre-test ideas on new products or marketing initiatives, to ensure their viability and adequate development.

Beyond these outcomes, both the open innovation and monitoring system are flexible and so permanently open to add new features and activities to tackle new challenges in the most appropriate way, and so the variety of outcomes may increase constantly. The Whitepaper “Envisioning Open Innovation in destinations” is to explain further details on these issues.

How else do you think that the Open Innovation could contribute to enhance competitiveness?

StrategyStrategy planning & executionTourism marketing

Product competitiveness programs

Beyond the aforementioned recommendations for specific products or sites, these competitiveness programs should also be taken into account, as they apply to the whole product category:

Product clubs are voluntary associations of stakeholders related to the product category, working like a forum or think tank, and led by the DMO Product Manager responsible for the product category, with the following goals and functions:

  • Carrying out market intelligence research
  • Analyzing competitiveness gaps, marketing KPIs and weaknesses to overcome
  • Planning, funding and coordinating the marketing activities
  • Developing new products and improving product competitiveness
  • Monitoring the result of the marketing activities and product operations
  • Lobbying to solve problems affecting the product business
  • Training the local operators in marketing and management

Product Quality labels facilitate the identification of key attributes by the tourists to help them prioritize their visits. Obtaining a label entails complying with certain quality requirements that eventually encourage operators to improve product competitiveness. For instance, there could be labels such as “Gourmet restaurant”, “Charming village”, “Historical site”, “Boutique hotel”, etc.

The method to develop the Product Quality labels should be the following:

  1. Selecting the special labels to create
  2. Defining the requirements in cooperation with the Product Clubs
  3. Labels graphic designing
  4. Carry out communication campaign targeting local operators to adhere to the label
  5. Assessing interested operators on the requirement compliance
  6. Introducing the Product Quality Labels in the marketing materials

Benchmarking trips are organized by the Product Club for the destination product operators with three main goals oriented to improve product competitiveness:

  • Learn best practices from the best performing destinations and operators
  • Learn about the destination model key success factors and competitive advantages
  • Inspire operators with ideas on developing products, providing more value with less efforts

The benchmarking trip organization should consider the following steps:

  1. Identifying possible benchmarks: destinations and operators
  2. Studying every benchmark to figure out what can be learn from each one
  3. Choosing the benchmarks with the most applicable know-how to the destination

Which other product competitiveness programs would you consider?

StrategyStrategy planning & executionTourism marketing

Product competitiveness strategy: marketing & management

The product or site improvement program may regard some standard strategies to leverage its potential, increase the tourism flows and generate new revenue streams, such as:

Connection with other sites: arranging public transportation and sightseeing services to connect sites between them helps the visitor to have time to see more attractions.

Venue for events: some sites may be offered to hold special events such as weddings, concerts, cultural performances, exhibitions, etc. bringing in an extra source of revenue.

Accommodation: some sites offer an excellent condition to operate accommodation services, adapting an old building as a boutique hotel, for instance, to obtain a new source of revenue.

Price: depending on the improvements made, the price may be revised accordingly. It is also convenient to make a deal with the aforementioned smart card, discounts for groups, etc.

The priority need for one or another improvement is to be assessed by the consultants, though a survey to the tourists about their satisfaction on many issues and the suggested improvement needs is highly recommended.

What other type of generic marketing strategies would you consider to make it more profitable?