Chapter Preparing tourism businesses for the digital future Abstract

Chapter 2. Preparing tourism businesses for the digital future
Abstract
Digitalisation is changing the way people live, work, and travel, and has opened up new opportunities for tourism businesses to compete in global markets. This chapter examines the impact of digitalisation on tourism, with a particular focus on SMEs. It highlights the important role of government in creating the right framework conditions for the digital transformation of tourism business models and the wider tourism ecosystem, and identifies a number of key policy considerations to foster digital technology uptake and use by tourism SMEs.
The evolution and application of digital technologies are profoundly changing the way people live, work, travel and do business, and in the process, they are transforming and reshaping tourism. The scope and uptake of digital technologies varies across countries, sectors, organisations and places. The resulting opportunities and barriers create an uneven playing field, which is exacerbated by a growing gap between tech-driven and globally connected tourism businesses, and traditional micro and small businesses often characterised by low-tech business practices. Much attention to date has focused on digital marketing and e-commerce as a way of reaching new markets, engaging customers and building brand. However, while these technologies might build market access and awareness, increase connectivity and facilitate financial transactions, they are less effective in enhancing productivity or innovation in an increasingly competitive global marketplace.
Productivity-enhancing technologies (e.g. cloud computing, data analytics, revenue management software) have generally received low uptake in tourism, while innovative technologies (e.g. augmented reality, geotagging) are generating, customising and delivering in ever more novel ways, new visitor products, services and experiences (OECD, 2018c). Digital transformation is thus pushing tourism in new and often unpredictable directions. Digital technologies have important implications for tourism businesses of all sizes, for the structure and operation of tourism value chains and for the sector as a whole. Facilitating and enabling digitalisation in tourism is therefore a key policy challenge.
Box 2.1. Understanding the digital transformation
Digitisation is the conversion of analogue data and processes into a machine-readable format, while digitalisation is the use of digital technologies and data as well as interconnection that results in new activities or changes to existing activities. Digital transformation refers to the economic and societal effects of digitisation and digitalisation.
The OECD report on Going Digital: Shaping Policies, Improving Lives, highlights that the gap between technological developments and public policies will need to narrow significantly in order to reap the benefits and address the challenges of the digital age. Many current policies are the legacy of the pre-digital era, and difficulties in understanding the changes underway and their implications may delay the review and adaptation of these policies. Such an understanding is imperative as digital transformation affects the entire economy and society.
To develop policies fit for the digital age, it is necessary to:

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  Be aware of the main elements of the evolving digital technology ecosystem and some of the opportunities (and challenges) resulting from their application.
  
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  Understand the data revolution that is taking place, and how data and data flows affect individuals, the economy and society more broadly, and
  
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  Identify the key properties of digital transformation, including how they are driving new and evolving business models, and what their implications are for public policy.
  

Source: OECD (2019b)
Digitalisation is bringing unprecedented opportunities for tourism SMEs to access new markets, develop new tourism products and services, adopt new business models and processes, upgrade their position in global tourism value chains and integrate into digital ecosystems. Digitalisation brings significant potential benefits to SMEs - it can help them to become more efficient, free up time and resources to focus on strategic tasks, and increase their capacity to develop new business models, enter new markets, or internationalise operations. However, SMEs are lagging behind in the digital transition (OECD, 2019d), and many small traditional tourism businesses are struggling to understand the opportunities and reap the benefits.
SMEs that do not invest in their digitalisation will not survive, let alone thrive in the future. Destinations, businesses and the wider tourism sector will need to fully embrace these new technologies to remain competitive, and to take advantage of the innovation, productivity and value creation potential. Policy makers have an important role to play to help tourism businesses of all sizes, including the more traditional and smallest firms, to engage with the digital revolution, and thrive in response to these paradigm-shifting technologies.
This chapter discusses how digitalisation is transforming tourism business models and processes, and the integration of tourism SMEs into global value chains and digital business eco-systems. The discussion is framed around three core key themes: how digitalisation is reshaping the nature in which tourism businesses operate; emerging business models; and policy approaches to support digitalisation of tourism SMEs. It is informed by responses to a survey of OECD Member and Partner countries, as well as wider OECD work on the Going Digital integrated policy framework which highlights a range of policy dimensions where governments should focus their efforts facilitate the right conditions to enhance digitalisation (Box 2.1).
Digital trends driving change in tourism
Digitalisation is the process through which technology and data-driven management is transforming our social and economic systems and lives. The push to adopt digital technologies is driven by the convergence of advanced technologies and the increasing social and economic connectivity unfolding under globalisation. Digitalisation has the potential to boost innovation, to generate economic and environmental efficiencies and increase productivity, including in the highly globalised tourism sector (OECD, 2017a). For example, research from Australia shows that using digital tools can save small businesses in general (defined as those with between 0 and 19 employees) ten hours a week and can boost revenue by 27 per cent (ANZ, 2018). The capacity of tourism businesses of all sizes to evolve their business models, adopt digital technologies to effectively participate in global value ecosystems, and take up new ways of data-driven working, will shape productivity and social and economic wellbeing in the future (Andrews, Nicoletti and Timiliotis, 2018) (Box 2.2).
Digitalisation leverages digital technologies and data to transform business models and practices, and value ecosystems. For example, the sharing economy has evolved in the last 10 years as a result of new platform technologies and business model innovation to create new value from hidden or unused assets. The value of the ride sharing sector in 2019 was estimated at USD 61 billion, while the value of the sharing accommodation sector is expected to reach USD 40 billion by 2022. PwC has estimated that the value of the sharing economy will reach USD 335 billion by 2025. However, digital transformation is variable and data is patchy about the uptake of different technologies and the barriers and opportunities experienced in different sectors, countries and organisations (PwC, 2016).
Recent research undertaken by the European Commission found significant differences in the uptake of digital technologies in tourism across Europe. Nordic countries for example, exhibited higher uptake of digital technologies than those in eastern and southern Europe. The same research found that tourism SMEs lagged behind large enterprises. While basic e-marketing and e-commerce were widely adopted, advanced technologies such as data analytics, cloud computing and geotagging had received only limited uptake (Dredge et al., 2018). With consumers increasingly using digital technologies to search, plan and book travel, it becomes increasingly important for tourism businesses to incorporate digital technologies and leverage advanced capabilities.
Box 2.2. Understanding business models, value chains and ecosystems
A business model is the architecture for how a business creates, delivers and captures value. It refers to the internal organisation and the links and relationships to external entities.