WP 2005:2

The Significance of Governance in Innovative Tourism Destinations

Sara Nordin and Bo Svensson

WORKING PAPER

www.etour.se

The Significance of Governance in Innovative Tourism Destinations

ETOUR European Tourism Research Institute Mittuniversitetet 831 25 Östersund Tel 063-19 58 00 Fax 063-19 58 10 www.etour.se E-mail [email protected] ISSN 1650-4623, URN:NBN:se-2005-31 Foto omslagsbilder: Per Eriksson, Skistar. www.etour.se

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The Significance of Governance in Innovative Tourism Destinations

Sammanfattning Bakgrund Innovation och utveckling är en förutsättning för turistdestinationer som vill förbli lönsamma och konkurrenskraftiga. En rad forskningsrapporter berör detta samband. Ytterst få fokuserar dock på hur samverkan mellan det offentliga och det privata inom destinationer kan påverka innovationsnivån och utvecklingsmöjligheterna. Här är kunskapen bristfällig, trots de tydliga beroenden som råder mellan offentliga organ och turistnäringen. Fallstudier av framgångsrika destinationer kan bidra till en ökad insikt om betydelsen av styrning och nätverk i samverkan mellan det offentliga och det privata.

Syfte och metod Rapporten bygger på en pilotstudie av fjälldestinationen Åre, där djupintervjuer genomförts med aktörer från näringslivet, politiker och tjänstemän. Intervjuerna fokuserar på styrningen i destinationen, resursberoenden, formella och informella nätverk, vilket är vad det engelska begreppet ”governance” tjänar som ett analytiskt samlingsbegrepp för. Betydelsen av informella mötesplatser samt destinationsövergripande satsningar och strategier uppmärksammas också i studien. Med hjälp av empirin kan slutsatser dras gällande om, i vilken omfattning och hur styrningen, nätverken och samverkan mellan det offentliga och det privata påverkar destinationens utvecklingsmöjligheter.

Resultat och slutsatser Fallstudien visar att samverkan mellan det offentliga och det privata i form av samarbetsorgan, styrgrupper samt andra formella och informella nätverk har en betydelse för destinationens innovationsnivå och utveckling. Rapporten pekar också på betydelsen av att dessa styrformer och grupperingar är dynamiska och förändrar sig i takt med att destinationen når nya utvecklingsfaser. När det gäller styrningen av destinationen kan en maktförskjutning observeras – dels från det offentliga till det privata, vilket förutsätter ett högt förtroende för näringen och dels från lokala aktörer till externa, vilket tillför nya resurser till destinationen men samtidigt kan upplevas som ett hot mot det lokala inflytandet.

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The Significance of Governance in Innovative Tourism Destinations

The Significance of Governance in Innovative Tourism Destinations

Sara Nordin & Bo Svensson Paper presented at the 55th AIEST Congress Brainerd, USA, August 28 – September 1, 2005.

Sara Nordin ETOUR (European Tourism Research Institute) Mid-Sweden University SE-831 25 Östersund, Sweden Phone: +46 63 19 58 45; fax: +46 63 19 58 10 E-mail: [email protected]

Bo Svensson ETOUR Mid-Sweden University SE-831 25 Östersund, Sweden Phone: +46 63 19 58 25 E-mail: [email protected]

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The Significance of Governance in Innovative Tourism Destinations

Abstract Governance is an expression of the mutual dependency between governments and the tourism industry. This paper explores the significance of governance in creating a dynamic and innovative tourism destination, focusing on public-private relations, formal and informal networks, resource dependencies and rules of the game. The empirical contribution is based on a single case study of the Swedish ski resort of Åre. In the concluding section, some of the results are developed into more general suggestions about if, to what extent and how governance matters. The results indicate that trustful public-private relations, joint risk-taking, informal structures and strategic consensus can have a positive impact on the level of innovation in destinations.

The tourism industry is in many respects a highly political business. Governments at different levels often express both hope and ambitions concerning tourism. Governments depend on tourism businesses and their ability to compete with other destinations. Just as obvious, tourism businesses, like other businesses, depend on governments for setting favourable framework conditions for business development. The industry, moreover, depends on certain resources that are often under government control. If governments and firms have a common interest in a certain development, recognise their resource dependencies and realise that their goals cannot be achieved single-handedly, the link between local governments and the tourism industry becomes of particular interest. That is why research into destination governance is of vital importance for understanding the dynamics, or lacking dynamics, of tourism destinations (cf. Svensson, Flagestad & Nordin, 2004). Another aspect of this paper concerns innovation. Our assumption is that in order to be competitive, tourism businesses and destinations also need to be innovative. Given that the importance of innovation in tourism and related service sectors has often been underestimated, this is not an obvious claim to make. Innovation has rarely been regarded as significant to growth as it has been to the development of the manufacturing industry. Research indicates that tourism firms´ ability to innovate to a large extent depends on the larger environment that they are part of – the tourism destination - with its customers, firms, organisations and government bodies. The focus of this paper concerns one particular feature of that environment, namely governance and its importance in shaping a dynamic, innovative tourism destination. In essence, the relations between the local government and the tourism industry are at the centre of attention as well as the exercise of power in a variety of situations. We explore the link between governance and innovation in tourism destinations in order to find out if, to what extent and how governance matters. We elaborate on this link and then bring about some empirical observations on the phenomenon. This requires both an idea about what the role of governance might be and also an idea about the particularities of innovations in tourism which is what the following two sections deal with. The concluding part draws together some general conclusions

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The Significance of Governance in Innovative Tourism Destinations

about the significance and implications of various aspects of governance in tourism destinations. A Governance Perspective on Destinations and Innovation The governance perspective is well suited for improving our understanding of the dynamics, or lacking dynamics, of a certain destination. This belief is grounded on a few simple assumptions about tourism destinations and their innovation processes: •

There is a multi-actor complexity of the destination that needs to be taken into account, i.e. destinations are rarely run by one single actor and firms rarely innovate in isolation.

•

There are certain resource dependencies between the actors involved that are important dynamic factors of the innovation process that need to be understood.

•

The public-private dimension of the destination may be important; the formal and informal relationships between local government and industry may have a considerable effect on the level of innovation in the destination.

These assumptions can be seen as a way of saying governance matters. ‘Governance refers to self-organizing, inter-organisational networks characterized by interdependence, resource exchange, rules of the game and significant autonomy from the state’ (Rhodes, 1997:15). As this definition indicates, governance is not a single model, but takes different forms in different contexts. Under any circumstances it is a concept that refers to the ‘action, manner or system of governing in which the boundary between organizations and public and private sectors has become permeable’ (Stoker, 1998:38). The interactive relations between government and non-government organisations are in focus. The governance definition by Rhodes points out some of the research questions that need to be covered. The analytical framework, however, must be adjusted to the problem area in question, in our case the link between governance and innovation in tourism destinations. Clearly it is about actors, their roles and relations. Most likely there is a core and a periphery of the governance process. Some are more involved than others. Is destination governance open or closed with restricted access in important issues? This dimension of governance has been labelled inclusiveness (cf. Östhol & Svensson, 2002). The almost normative idea seems to be that in today’s society old forms of governance generally based on command and control forms of imperative orders appear to be increasingly ineffective, as there has been a decline in hierarchical or top-down methods for determining goals and means. The policy process required in today’s society needs to rely more on consensus building and inclusiveness. Relations between actors are a key concern. Who deals with whom? Why? Is there a mutual dependency between them? For illuminating the character and substance of actors’ relations, their resources and exchange of resources need to be understood. Resources may be money, knowledge and know-how, information, social capital, formal power and legitimacy to mention a few. Rules of the game may be both formally written rules as well as unwritten codes of conduct (cf. North, 1990). The former are comparatively ease to identify, the mandate of local government, legislations and regulations are known or can be easily find out. The latter, informal

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The Significance of Governance in Innovative Tourism Destinations

structures such as customs, traditions, codes of conduct, norms and local culture, are much more difficult to pin down and understand, but nevertheless important to try to illuminate. In depth interviews with different actors might reveal something of this. What is perhaps less commonplace in the above assumptions is the point that governance has an impact on the level of innovation in a destination. The logic behind this statement is simple. First, governance itself may be subject to innovation, i.e. new forms of governance may emerge as a consequence of earlier shortcomings or in response to particular challenges facing a destination. Such innovations might affect the functioning and competitiveness of the destination. Second, if form of governance matters, its shape might have an impact on the destination’s capacity to be innovative, e. g. there is a public-private angle to innovation that needs to be better understood in order to understand the dynamics, or lacking dynamics, of a certain destination.1 Before relating this governance framework to innovation in our case study, it is necessary to map out our interpretation of innovation and innovative tourism destinations. What is an Innovative Tourism Destination? In this paper a broad definition of innovation is employed, based on the general definition that: “Innovation is the search for, and the discovery, development, improvement, adoption and commercialization of new processes, new products, and new organizational structures and procedures.” (Jorde and Teece, 1990:75). Innovation may refer to both the process of change and the results of that process. A tourism innovation is, however, rarely a major breakthrough changing the entire industry, but rather small changes or improvements. This makes it harder to define what constitutes an innovation and not, and naturally it may make innovations harder to observe. Research on innovation in tourism has been somewhat limited (Hjalager, 1997) and mainly case study oriented. The results have often indicated that tourism firms by themselves are less likely to innovate. The notion that firms rarely innovate in isolation is also reinforced on a general level (Edquist, 1997). This means that innovation in regional and local tourism involves organizations and institutions working in competition and collaboration to stimulate sustainable tourism development (Carson et. al., 2004). It also implies that an innovative tourism destination may be comparable to a local or regional innovation system (cf. Flagestad et al., 2005). The study of innovation as a mechanism for regional economic prosperity is based on the work of Schumpeter (1975), arguing that firms which remain competitive and sustain growth enter into dynamic patterns of innovation. Researchers such as Edquist (1997) and Lundvall (1992) extended the concept from individual firms to whole economic systems at regional and national levels. It has been argued that successful innovation is becoming ever more dependent on the associational capacity of the firm (Cooke & Morgan, 1998). It is, moreover, underlined that these 1

It should also be immediately pointed out that the role of knowledge institutions, such as universities and research institutes, are not taken into consideration here. This does not that they are nonimportant for innovation also in tourism.

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The Significance of Governance in Innovative Tourism Destinations

systems need to rely on trust and commitment in order to be effective. All participating organizations need to understand the interdependencies and incentives for building trust relationships are important if innovative collaboration and competition is to be fostered.2 A number of indicators of innovation intended to measure the innovation activity have been developed, but yet Edquist and McKelvey (2000) underline that even though it is almost universally accepted that technological change and other kinds of innovation have important effects on economic variables, such as firm competitiveness, employment and productivity growth, the exact relationships between innovations and these variables are the subject of continuing scrutiny and debate. In accordance, there is no widely accepted method of identifying when a system, or as in this case a destination, is operating in innovative ways. A lot of research is based on the assumption that innovation is an underlying characteristic of “successful” systems (i. e. systems demonstrating economic viability and sustainability). As implied earlier, innovation generally does not take place in isolation and innovation in tourism should therefore preferably be seen within the geographically delimited social system that the tourism production system is part of, in this paper the destination. In line with the previously mentioned research on innovative systems, we assume that innovative tourism destinations are characterized by economic growth and sustainable tourism development. Variables such as a growing population, increasing job opportunities, the establishment of new firms, and the level of investments may be indicators of such growing, innovative destinations. We argue that the destination of Åre is a great example of an innovative tourism destination. A few simple observations serve to justify this standpoint. Concerning growth, the population of the Åre is growing while basically all other municipalities in the Swedish northern inland is decreasing. Åre also has a high rate of newlyestablished companies, well above the national average and close to the levels found in the major cities in Sweden. Investment levels, furthermore, outreach all Swedish destinations, with a planned tourism related investment level of SEK 2 billion (215 million Euro) in the next few years.3 There is also a flow of innovations where only this year an all-year round strategy, a new event strategy have been launched, and the first water-park hotel in Scandinavia has recently been opened. The Åre Case Study The empirical contribution of this paper is a single case study of the destination of Åre. It is based on interviews with stakeholders playing a critical role in the tourism development work.4 During the last decades, the development in Åre can be

2

This and the next section are to a large extent based on Carson et a., 2004. All observations based on information and data from Åre municipality, including Åre Kommunfakta. 4 15 semi-structured interviews were undertaken in this study. They included the municipality (2 politicians and 2 senior officials), 9 business representatives from large and small firms, a 3

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described as project oriented, indicating that a number of destination-embracing projects mark different phases of Åre’s growth (cf. Bodén & Rosenberg, 2004). The project-orientation may offer an explanation to the flexible nature and the new approaches to governance in the destination, a structure supporting new ideas and manners of working and consequently also enhancing the level of innovation. The destination attracts new investors and companies relocating to the destination, not only in tourism but also within other (often complementary) industries. The local government is described by a large majority of the respondents as easy to deal with, encouraging and willing to help. When local government representatives were asked what they do differently to succeed, the answers were mainly about openness, dialogue and trust. One expression of this is the local government’s willingness to transfer the responsibility of certain decisions concerning the industry to the local business association. There seems to be a general realization that issues must be supported by the industry in order to succeed. The local government, moreover, rarely “owns” the projects they engage in and support. They leave that to the industry. Neither do they own the Tourism Office, but limit their role to financial support. Clearly the local government realizes its high resource dependency on the private sector for investments and employment, but also for knowledge and know-how when it comes to tourism development. There is, however, a core and a periphery in these publicprivate networks. Today the most important public-private constellation is what is referred to as the Vision 2011 group. The group consists of some key private actors who have come together to discuss approaches and agendas in regard to the future of Åre with the local government. Politicians and senior officers meet with the industry in the form of leading people from the local business association, the two major tourism companies - Skistar and Holiday Club - and the Tourism Office. The participants have themselves initiated the group, selected themselves after position, influence or access to capital, and they regard themselves as the central operators in the destination. When someone is unable to attend a meeting a replacement is rarely sent. The group has no President or CEO, responsibility is rather shared, which may mean that accountability can be difficult to claim from anybody. There is, moreover, little information to outsiders about what occupies the group before things are settled. In terms of inclusiveness it must be considered a closed body, which may threaten its legitimacy. The constellation’s legitimacy depends more on efficiency than on popular support. So far, the constellation has defended its existence by stating that the right to make joint decisions must stand in proportion to the investments made and the capital available. It must also be acknowledged that a number of successful initiatives and results have emerged from the group. One relatively unique project is the Mix Megapol Arena – an event and congress hall that has been built through a joint pool of resources and efforts. Even the local government has supported the initiative financially with SEK 50 million (5.3 million Euro), not without it being seriously questioned on the basis that it could affect for instance alternative investments in representative of the local business association, and a representative of the destination’s tourism office. Åre was chosen as the first case-study, but other destinations will be included in the future.

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The Significance of Governance in Innovative Tourism Destinations

schools and health care. There is no doubt, however, that such a large project could not have been carried out within such a limited time without this kind of joint approach. The arena is one of the greatest project innovations in the destination, as it makes the winter product more complete and opens up for the possibility of extending the season. Due to its informal character the 2011 group lacks all formal rights to make decisions. Yet one of the private members expresses that this constellation is much more powerful than one can imagine, evident from its impact on the destination. The tone of discussion is described as informal and the climate as open – and obviously the social capital within the group is strong, creating a meeting forum ideal for fostering new ideas and innovative thinking. For those not included in the group, it is evident that the support or at least the consent of the Vision 2011 group is needed by anyone who wants to raise a destination-embracing issue. The power of the main companies, Skistar and Holiday Club (whose main owners are based outside the destination), and to some extent also the local business association (which is an important forum for the many smaller firms) is obvious. They initiate and raise the big issues that concern the destination as a whole and they also have the power to carry them through. This uneven balance of power poses both threats and opportunities. The most powerful and dominant private actor Skistar5 is a concern for many citizens and small businesses. A common perception is that Skistar only cares about their areas of interest and ultimately about their profits, and not about the destination as such. A private entrepreneur with a smaller business states that everyone talks about Skistar’s impact on the destination and everyone has an opinion, but hardly anyone dares questioning their work in the open in fear of facing negative consequences affecting one’s business or even personal situation. It seems that on the one hand Skistar is a driver of innovation, but on the other hand its strong position runs the risk of indirectly limiting other actors. It may even reduce the overall level of innovation in the long term. Not only the work of the Vision 2011 group is characterized by informality, this is a broader phenomenon in the destination and it has been for a long time. The formal structures rarely work the way they were intended to, even if decisions eventually are made on more formal grounds. A member of the local business association expresses that a surprisingly large number of decisions are already made when you get to the board meetings. Another person states that almost all decisions and influence are based on personal relations and informal networks. One could expect that this feature would keep new small firms out, but there is no clear-cut picture of that. On the contrary, the mixture of a core of “old” citizens from the destination and the flow of newcomers create a very dynamic and innovative climate. One may possibly question if a destination characterized by such a strong nature of informality has the capacity of fully taking advantage of and embracing the many newcomers. Generally, most people seem aware of the informal or formal procedures, the rules of the game and who they need to have on their side to succeed. It is to a large extent about tactics, informal meetings and lobbying. Other expressions of informality are 5

Skistar is the largest owner and operator of ski facilities in Scandinavia. The company owns the ski area, ski rentals, ski schools, some accommodation and the destination booking system. In principle Skistar is the destination marketing organisation of the winter season.

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The Significance of Governance in Innovative Tourism Destinations

the different informal meeting places, such as the village bakery and the alpine ski association where different informal networks flourish. New actors and constellations are established and hence important to the dynamics of the destination. Innovation is definitely not limited to the key actors in the core governance structure (Vision 2011 group), but there is reason to believe that this constellation is a major driver of innovation in the destination. It is important, however, to acknowledge that there is a larger context of innovation, even though this paper has focused on the upper left corner of the model below. The figure illustrates the complex support structure of innovation in the destination and that a number of factors play a significant importance. The model exemplifies the system the destination comprises. It is a cluster-like constellation with different firms, public institutions and other actors of importance. The system emphasizes innovation and learning through collaboration and competition, the diffusion of knowledge and information, the role of research and educational institutions, human resources and access to capital.

Figure 1: The Innovation Support Structure of Åre The Business Organization

Government Support Accessibility - infrastructure

A driver of development

Vision 2011

Knowledge & information transfer

Investments

IncubationIncubation , Mentoring

Public-private collaboration PoliciesInstruments, Regulations

Access to capital

New establishments

INNOVATIVE FIRMS

Competition & collaboration

Investors

Strong attractive

Finance / Risk Capital

Complementary industries Population Growth

trademark

Human Human resources & skills

Research/

Flow of labor

Development

Proximity

Skilled workforce Common value system

Informal meeting arenas

Source: NaSpecialized tional Reuniversity search Council, Canada

Dynamic environment

Tourism research institute Relevant education programs Ski gymnasium Model adapted from the National Research Council, Canada.

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The Significance of Governance in Innovative Tourism Destinations

However, the Åre findings of this paper strongly indicate that governance solutions in tourism destinations have an impact on their innovativeness and hence competitiveness. In recent years Åre has developed a model of public-private cooperation that beyond doubt has brought the destination into a new and perhaps stronger growth phase than ever. Public-private relations in the destination are generally positive but are particularly strong between the municipality and a couple of key private actors and also institutionalised, although in a highly informal fashion, through the strategic Vision 2011 group. Access to this group is very restricted, and decisions and agreements made on a very informal basis which is made possible by high levels of internal trust within the group. This solution must be considered successful, operative, and has delivered what can be labelled innovation-based destination development. Given the economic prosperity of the destination and its ability to compete globally, the destination of Åre has been able to adjust its strategies and forms of governance successfully and foster an innovative tourism destination. Conclusions This paper has been occupied with governance in a presumed innovative tourism destination. The purpose has been to explore the link between governance and innovation in order to find out if, to what extent, and how governance matters. Although our observations are derived from a single case study research effort, we believe that some of the conclusions have a broader and more general relevance that deserves further exploration in other destinations. Governance is a changeable phenomenon and this is a vital feature of the innovative destination. The ability to adapt and adjust to different circumstances, developments and challenges is necessary otherwise the destination might stagnate or even face a crisis. The current governance model of Åre is of recent date but its predecessors have also been temporary and bound to different phases of the destination’s development. There are also signs that we are currently entering a new period of change. The current launching of a strategy for developing the summer season seems to create limits to what can be achieved by the Vision 2011 group. Hence new forms of governance seem to be in demand in order to continue to stimulate innovative initiatives in the future. Given its long-witnessed ability to change there is reason to believe we will se new patterns of governance emerging in the years to come, perhaps it is even necessary if the destination is to remain innovative and competitive. Beyond these constant changes two tendencies have been very obvious in recent years. First, there is a shift of power and influence from public to private stakeholders, signified by a high level of trust in private actors’ capacity to innovate and develop, and they have also delivered results. This could very well be part of a general theory of destination development, i.e. when it comes to innovation and competitiveness firms need to be entrusted. Second, there is a shift of power and influence from local actors to external actors with a local presence (in our case Skistar and Holiday Club). This change also seems to have had certain positive effects on destination development and innovation; financial resources, knowledge and know-how, and influences from the “outside” have all increased. This can be

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The Significance of Governance in Innovative Tourism Destinations

interpreted as a sign of growth, both of the tourism industry as such and of the tourism destination in particular. These two tendencies are likely to bring a couple of dilemmas along with them. In our case, the shift of balance towards private actors is mainly limited to a few major companies. Access to discussions over strategic destination development issues is rather limited. This limitation is probably very important for the effectiveness of such governance arrangements, or partnerships, and at the same time it is bound to raise legitimacy problems from a democratic point of view. However, the capability of delivering innovations with importance for the destination, and just not for individual firms, might compensate for this and prove to be a better solution than more inclusive arrangements. Moreover, the shift to ownership structures outside the destination, with little local anchorage, might challenge the level of local influence and power. Our case seems to indicate that handling this dilemma, and merge the local particularities with new influences, might be vital for the tourism destination if it is to remain innovative. In conclusion, trustful public-private relations, joint risk-taking, informal structures and strategic consensus can have a positive impact on the level of innovation in destinations.

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The Significance of Governance in Innovative Tourism Destinations

References: Bodén, B. & Rosenberg, L. (2004) Kommersiell turism och local samhällsutveckling. En studie av sex svenska fjälldestinationer, ETOUR report 2004:15. Carson, D, Richards, F. and Jacobsen, D, ‘Harnessing Innovation for Regional Tourism Development’, paper presented at the Inaugural National Regional Research Colloquium 2004 in February 2004. Cooke, P. and Morgan, K. (1998) The Associational Economy: Firms, Regions and Innovation, Oxford: Oxford University Press. Edquist, C. (1997) ‘Systems of innovation approaches – their emergence and characteristics’ in Edquist, C. (ed.) Systems of Innovation: Technologies, Institutions and Organisations, London: Pinter. Edquist, C. and McKelvey, M. (2000) ‘Introduction’ in Edquist, C. and McKelvey, M. (eds) Systems of Innovation: Growth, Competitiveness and Employment (Vol. 19, Cheltenham: Edward Elgar. Flagestad,A.; Hope, C. A.; Svensson, B & Nordin, S. (2005) ’The Tourist Destination: a local innovation system? The Creation of a Model’, paper prepared for the 55th AIEST Congress 28/8-1/9, 2005. Hjalager A.-M. (1997) ‘Innovation patterns in sustainable tourism’, Tourism Management, Vol. 18, No. 1. Jorde, T.M. and Teece, D.J. (1990) ‘Innovation and Cooperation: Implications for Competition and Antitrust’, Journal of Economic Perspectives, Vol. 4, No. 3, Summer 1990. Lundvall, B. (1992) ‘Introduction’ in Lundvall, B. (ed) National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning, London: Pinter. North D. C. (1990), Institutions, institutional change and economic performance, Cambridge: Cambridge University Press Östhol A. & Svensson B. (2002), Parthership Responses – Regional Governance in the Nordic States, Stockholm, Sweden: Nordregio R2002:6 Rhodes R. A. W. (1997) Understanding Governance: Policy Networks, Governance, Reflexivity and Accountability, Buckingham, Philadelphia: Open University Press Schumpeter, J. (1975) Capitalism, Socialism and Democracy, New York: Harper Torchbooks. Stoker G (1998) ‘Public-Private Partnerships and Urban Governance’, in: Pierre J. Partnerships in Urban Governance: European and American Experience, Hampshire: MacMillan Press Ltd

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