Technology-based Value Creation Processes in Tourism Agencies' Business Model

Online Access: www.absronline.org/journals

*Corresponding author: Saeed Nosratabadi, Business Management Department, Persian Gulf University, Bushehr, Iran. E-Mail: [email protected]

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Management and Administrative Sciences Review

Volume 4, Issue 2

Pages: 336-348

March, 2015

e-ISSN: 2308-1368

p-ISSN: 2310-872X

Technology-based Value Creation Processes in Tourism Agencies' Business Model

Abdolmajid Mosleh1, and Saeed Nosratabadi2*

1. Business Management Department, Persian Gulf University, Bushehr, Iran.

2. Business Management Department, Persian Gulf University, Bushehr, Iran.

Regarding the increasing effect of technology on the nature of the businesses, on the one hand, and the importance the role of technology in the business models and monetization, this study, at first, was conducted to assess how the tourism agencies' activities are technology-based; after that, to analyze their business model concerning the extent to which their activities are based on technology. This is a survey-descriptive study in which data collected by an author-made questionnaire and secondary data. SPSS 19.0 was utilized to analyze data collected form Tehran's tourism agencies formed the population of the study. According to the results, tourism agencies in which most of their activity are relied on technologies had a more efficient business model in terms of the variety of services and the ways to earn money which are the main goal of a business model.

Keywords: Business model, technology, tourism agency

INTRODUCTION

Globalization, today, causes a competitive environment which has made organizations to review seriously their business models (Velu & Khanna, 2013). Tourism industry as one of the most important industries in service sector, need to has a deeper understanding of requirements of global markets in order to succeeding and excelling in competition. Tourism agencies should perform in new commercial environment with new paradigms which substitutions business models have least similarity with utilizing business models (Heidenreich, Handrich, Kandampully, & Kandampully, 2015). The

progresses in economic, modern technology, and globalization make agencies to search for new opportunity of markets to offer a new solution to costumers (Doz & Hamel, 2001). Changes in markets have created new paradigms in tourism industry (Thamhain, 2014b). So tourism agencies have to think and act as similar as other global organizations which are coping with the challenges of markets, technology, and economics of modern age (Heidenreich et al., 2015).

This wide changes in environment and tourism business mean the current paradigms in tourism

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management are not able to present a proper solution for this economic environment. Todays, the factors which guarantied business succeeding are not respondent (Kandampully, 2006); as the managers have found out the traditional approaches in managing and marketing are not enough and they must review the fundamental of their thinking and look for new paradigms for changed tourism industry (Truong, Klink, Fort‐Rioche, & Athaide, 2014).

One of the distinguished characteristics of the twenty one century is the impact of information technology on business processes (Grover, Teng, Fiedler, 1993), and value generating and value offering (Radhakrishnan, Zu, and Grover, 2008). Complying of a wide range of vary costumers' needs just with leaning on performing the activities traditionally is unfeasible. Therefore, tourism agencies must synchronize with the technologies changes in order to improving and prompting the business processes (Rakotz et al., 2014).

The main aim of this study is analyzing of the role of technology in business model of tourism agencies in Tehran (Iran) (Kramarski & Michalsky, 2015). In other words, this study is looking for answer this question "if technology affects business model of Tehran's tourism agencies?"

Therefore, a wide literature were studied to find a business model which is accepted by researcher as tourism agency business model but did not find such model, so the suggested business model of Osterwalder et al. considered as basic model of this study to analyzing the business model of tourism agencies. In order to reaching the goal of this study, first of all, the Tehran's tourism agencies were categorized into four categories based on having technology-based value creation process. After that, the business model of these four categories analyzed and compared.

BUISNESS MODEL

Different definitions are provided for business model and there is not a special definition which all authors refer to it. But all of them contain the value creator processes, resource for value creating, and the ways which a business choose to makes money via them. Zott and Amit (2010)

define business model as representation of context, structure, and managing the designed transactions to value creating through using business opportunities. From Magretta’s (2002) point of view, business models are stories describing how organizations work (Thamhain, 2014a). In other words, a good business model answers Peter Drucker’s old questions “Who is the customer? What is the customer’s value?” Generally, all business model definitions have included value, ways of value creation, source of value creation, and ways which are chosen by a business to earn money (vom Brocke, Debortoli, Müller, & Reuter, 2014).

After a wide study on business model, literature found no similar research. Therefore, the purposed business model of Osterwalder et al regarded as a basic model for this study. According to the tourism industry, some changes occurred in model (Löfsten, 2014). So value configuration and distribution channel, which were the basic elements, due to lack of application in tourism agencies' business are omitted. Thus, the business model used in this study to analysis the Tehran’s tourism agency’s business models includes the value proposition, target customer, relationship, core competency, partner network, cost structure, and revenue model (Patton, 2014). Value proposition provides a comprehensive view of a company's bundle of products and services. Target customer explains the segments of customers a company wants to offer the value to. Relationship describes the type of links a company creates between itself and its different customer segments. Core competency illustrates the competencies necessary to perform the company's business model (Thamhain, 2014a). Partner network depicts the network of cooperative agreements with other companies necessary to efficiently offer and commercialize value. Cost structure outlines the monetary consequences of the means employed in the business model. Revenue model sums up the way a company makes money through a variety of revenue flows (Osterwalder, Pigneur, & Tucci 2005).

METHODOLOGY

The data gathering tools in this study are secondary data and initial data. Secondary data


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includes wide study on business model and technology literatures. The initial data contains field data which are gathered via questionnaire by the current study author. The Tehran’s tourism agencies comprise the statistical society of this study. According to Iranian Cultural Heritage and Tourism Organization, there are 1103 active tourism agencies in Tehran. The statistical sample of this study determined 110 tourism agencies by using limited society sampling formula.

In order to analyze the tourism agencies’ business model, a questionnaire designed based on Likert scale. Number 1 represents seldom, No. 2 scarce, No. 3 normal, No. 4 copious, and No. 5 superabundant. The structure of the questionnaire is available in table 1. The validity of this questionnaire is confirmed by two university's professors. In order to testing the reliability of this questionnaire Cronbach’s alpha is used. As table 2 is showing all Cronbach’s alpha for all components are more than 0.7 (Cronbach, 1951) it means the questionnaire has also an acceptable reliability.

TABLE 1 HERE

Another questionnaire designed to analyze the amount of using technology among tourism agencies. This questionnaire contain 20 questions which determine how much the value creation processes of a tourism agency are leaning on technology.

TABLE 2 HERE

RESULTS AND FINDINGS

The gathered data from tourism agencies entered to version 19 of SPSS computer based software. The average of obtained scores for each business model components shows the performance score of that component; and the average of obtained scores for technology means how much of the value creation processes of a tourism agency are leaning on technology. So the tourism agency are divided to categories based on scores they obtain in using technology. Whereas the Likert scale is using to design of both questionnaire, the maximum score which an agency can take in technology is equal to 5 and the minimum score is 1. So, five category discerned for agency based on their using technology. The first category are for agencies which take score 1 in using technology,

so, this category is named "lowest level in using technology". The second category are for agencies which take score 2 in using technology, thus, this category is named "low level in using technology". The third category are for agencies which take score 3 in using technology, thus, this category is named "medium level in using technology". The fourth category are for agencies which take score 4 in using technology, thus, this category is named "high level in using technology". The fifth category are for agencies which take score 5 in using technology, thus, this category is named "highest level in using technology".

As table 3 is showing, 16 tourism agencies go to first category. It means they obtained the least score in using technology in their value creation process. 50 of 110 tourism agencies caught the score 2, so, they go to second category and give the label of low level in using technology. 36 tourism agencies took score 3 in technology so they go to category of medium level in using technology, and 8 tourism agencies just obtained score 4 in using technology in their value creation processes, so they take the label of high level in using technology. The notable is none of these 110 tourism agencies have not obtained score 5 in using technology, therefore, no tourism agency go to category of highest level in using technology. Hence, the tourism agencies of this study are divided in 4 category.

TABLE 3 HERE

After categorizing and recognizing the category of each tourism agency, the business model of each category analyzed. The average of obtained scores for each business model components in all tourism agencies of each category shows the performance score of that component for that especial category. Figure 1 is showing the situation of business models of tourism agencies in four categories.

In figure 1, the red lines represent the idealistic situation which remark the maximum score which a business model's component can have (that is equal to 5) and the blue lines are showing the current situation of tourism agencies of each category which are in, and notice the real score of business model components which take practically. Role of technology in business model analyze and following shows how technology can


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change the behavior of business model's component.

FIGURE 1 HERE

Effect Of Technology on Value Proposition

In analyzing of value proposition, the variety of offered services evaluated. So, the obtained score is representation of variety level of services in tourism agencies.

As diagram 1 is showing, level of being technology-based has a direct relation with value proposition; it means whatever the value creation process be more technology-based result in more variety services which are offered by tourism agencies. Because, one of the technology-based approaches is using owner website and internet which can facilitate communication links between agency and other player in industry. Thus, the agency can by using this link and without standing extra cost, inaugurate tours with more variety purposes (e.g. educational tours, safari tours, sport tours, and so on), and in more variety destinations (e.g. inside and outside of country and so on) and with more variety costumers (e.g. costumers with different ages, education levels, and other divisions).

DIAGRAM 1 HERE

Effect of Technology on Target Market

Scores for this business model component are representation of the variety of costumer's kind. In other words, if an agency took a more score (than other agencies) in target market, it has a more variety criteria in market segmenting. Diagram 2 reveals that whatever the value creation process be more technology-based in tourism agencies, their costumers would be more varied; because technology can facilitate accessibility of costumers.

DIAGRAM 2 HERE

Effect of Technology on Costumer Interface

The scores which obtained agencies in costumer interface remark the variety level of communication links between agency and their costumer. As diagram 3 shows agencies which their value creation process are more technology-based they have more variety ways to make communication links with their costumer. These

communication links which are depended on or created by technology are website, weblog, E-mail, and social networks.

DIAGRAM 3 HERE

Effect of Technology on Partner Network

According to definition of partner network, this business model component explain the network of cooperative agreements with other companies necessary to efficiently offer and commercialize value, thus, the obtained score for this component depicts the expanse of agreements with other player in tourism industry. An extensive agreements network can help agency to tout costumers and makes new markets accessible. For instance, having agreements with some organizations to inaugurate tours which are related in the activity of that organizations lieu discounts or other facilities. On the other hand, these agreements also can take place between agency and transportation companies, and even tour destination centers.

As diagram 4 is showing, technology has a direct and positive effect on partner network. It means that, whatever the value creation process in a tourism agency be more technology-based its partner network get more extensive. Its reason can be some technologies like email, website expedite the links between all players in industry and eliminate the face to face costs, and time limitations.

DIAGRAM 4 HERE

Effect of Technology on Core Competency

As in core competency's definition mentioned, core competencies refer to sources which make the competitive advantage and usually other rivals want these sources. The sources such as accessing to special costumers or markets, even having some agreements (e.g. agreements with transportation companies or hotels) which cause reducing the costs and making new income models. Having flexibility in services based on costumers needs is also named a source for core competency which can increase costumer satisfactions.

As results shows (see diagram 5), whatever value creation process in tourism agencies be more technology-based their core competency would be increased. Technology be counted as a competency


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in tourism agencies, because it can increase the speed of activities and reduce the costs. For instance, the communications links which are made and relied by technology are sources for competitive advantage and core competency.

DIAGRAM 5 HERE

Effect of Technology on Income Model

Income model remarks ways an agency make money through them. A score obtained by tourism agency in this component of business model illustrates the variety level of income ways which an agency has. According to diagram 6 increasing in using technology in value creation process in a tourism agency brings about more varied income ways. That is why, as above mentioned, increasing in using technology causes more variety costumers and more variety costumers ask more variety services. So whatever bundle of service be more varied it makes more ways to make money.

DIAGRAM 6 HERE

Effect of Technology on Cost Structure

As diagram 7 shows, amount of using technology in value creation process has a negative effect on cost structure. In other words, whatever the value creation process in tourism agencies be more technology-based, costs would be decreased. Because technology can reduce the staff costs and increase the speed of the process and just a person can do several task by just using a computer.

DIAGRAM 7 HERE

Effect of Technology on Business Model Performance

As above mentioned, tourism agencies are divided to 4 categories based on level of being technology-based in their value creation processes. The average of obtained scores for each business model components in each category shows the quality of performance of tourism agencies in that component in that special category. The average of all six business model components in each category is considered as final business model score of that category. According to diagram 8 and table 4, whatever tourism agencies be more technology-based in their value creation processes they would have better performance in their business model.

TABLE 4 HERE

DIAGRAM 8 HERE

CONCLUSION AND RECOMMENDATIONS

This study is direct to analyze the technology role in business model of Tehran's tourism agencies. In the first stage, the tourism agencies are divided to 4 categories based on level of being technology-based in their value creation processes. The first category comprises agencies which have lowest level of being technology-based in their value creation processes. The second category consists agencies which have low level of being technology-based in their value creation processes. The third category includes agencies which have medium level of being technology-based in their value creation processes, and the forth category is composed of agencies which have high level of being technology-based in their value creation processes. In the next stage, regarding to technology role in value creation processes, business model of tourism agencies of each category separately analyzed and results compare with each other. As results shown, tourism agencies which have obtained more score in using technology in their value creation processes, they shows a more score in business model performance too. Agencies which are classified in first category in compare with other 3 categories have a weaker performance in their business model. Unlike, tourism agencies which are placed in category 4, which have high level of using technology in their value creation processes, they rather have a better performance in their business model and reported a better performance in all business model components.

Hence, there is to practical suggestion for tourism agency regarding the technology role and its effect on performance of business model. The first is, as the results shown, tourism agencies should adapt their value creation processes with modern technology and its changes, for instance, utilizing internal automation and intranet not only increases the speed of processes, but also results in decreasing in costs (cost structure). One of advantages of using technology in value creation processes is it makes a data base for saving and analyzing data to support decisions. The second suggestion is, tourism agencies use a proprietary


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website. Because, the website can facilitate accessibility of agency every time and everywhere (costumer interface), it also can make a link between agency and its costumer and even other player in industry (partner network). Whatever the width of these communication links be more, it can result in more varied services (value proposition), subsequently, the incomes ways would be varied too (income model).

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Grover, V., Teng, J.T.C., and Fiedler, K.D (1993). Information technology enabled business process redesign: An integrated planning framework. Omega 21(4), 433–447. Doi:10.1016/0305-0483(93)90076-W

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APPENDIX

Table 1. The structure of questionnaire of evaluating tourism agency's business model

Questions Questionnaire structure

14-19, 27-30 Value Proposition

Evaluating tourism

agency's business

model

15-16, 31-32 Target Market

24-26 Costumer Interface

33, 40-42 Core Competency

34-36 Partner Network

1-8 Income Model

19-22 Cost Structure

Table 2. Result of reliability of questionnaire

Number of

questions

Cronbach’s alpha Components

Evaluating

business

model of

tourism

agency

0.81 10 Value

Proposition

0.88 4 Target

Market

0.76 3 Costumer

Interface

0.77 4 Core

Competency


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0.88 3 Partner

Network

0.82 8 Income

Model

0.70 4 Cost

Structure

0.80 36 Questionnaire

Table 3. Tourism agencies categories based on being technology-based

Category Category's label Number of tourism

agencies

1 lowest level in using technology 16

2 low level in using technology 05

3 medium level in using technology 63

4 high level in using technology 8

5 highest level in using technology 5

Summation 100

Table 4. Business model's scores in 4 categories

Business Model's

Score

Level of being technology-

based

2.15 Lowest

2.30 Low

2.30 Medium

2.57 High


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Graphs

Figure 1. Qualification of business model of Tehran's tourism agencies in four categories

Diagram 1. Effect of technology on value proposition


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Diagram 2. Effect of technology on target market

Diagram 3. Effect of technology on costumer interface


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Diagram 3. Effect of technology on costumer interface

Diagram 4. Effect of technology on partner network


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Diagram 5. Effect of technology on core competency

Diagram 6. Effect of technology on income model


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Diagram 7. Effect of technology on cost structure

Diagram 8. Effect of technology on business model performance

Technology-based Value Creation Processes in Tourism Agencies' Business Model

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