Introduction
For years, companies have been using innovation as a means to grow. Eighty-four percent of executives say that innovation is extremely or very important to their company’s growth strategy (McKinsey, 2010). History gives us examples of the power innovation can have. Companies who innovate, such as Apple have seen tremendous financial success whereas companies who are less innovative, such as Nokia, have seen their market share deplete.
Academics and business leaders have produced a range of definitions of innovation. However, there are three viewpoints which almost always remain consistent:
Innovation is not necessarily invention but is a change – small or big;
Innovation requires understanding consumers (Branson, 1998);
Successful innovation can lead to consumer delight, and ultimately, success (McDonald, 2012).
In 2017, there was USD882.4bn of investment into the travel and tourism industry and this figure is expected to rise consistently over the next ten years (WTTC, 2018). This suggests that firms should have access to capital in order to develop and innovate.
Flight Centre
Flight Centre is an Australian travel agent that operates on five continents online and in retail outlets. Founded in 1982, it is listed on the Australian Stock Exchange and now boasts a revenue of over Aus$2.9billion making it the largest travel agent in Australia. This report will focus on the UK branch of Flight Centre. The company is currently implementing a global growth strategy which sees it make strategic acquisitions in new markets such as Mexico.
The Big Issues
In order for FlightCentre to sustain and/or grow, it must innovate based on threats issues in its market and environment:
FlightCentre’s current demographic of customer is not future proof. FlightCentre operates over 230 costly high street retail outlets. A recent survey found that the demographic most likely to visit a high street travel agents are aged sixty-five or older (Apadmi, 2017). The sixty-five and older group is good news in the short term, as they are likely to be mostly retired and holiday often. However, fewer young people shop on the high street and so in the years to come, outlets will become less busy. FlightCentre should consider closing some less profitable stores in order to move budget to focus on the location of future sales: online.
Travel agents are becoming less important to customers. FlightCentre prides itself on its ‘Experts’ who advise customers. However, in the age of technology we live in, there is a lot more information on the internet. Furthermore, the internet provides a platform for peer-to-peer reviews, which are more trusted by consumers. A recent survey asked people how important it was for them to have a personal consultation with a travel agent. The most common response was that it was “not important” (Statista, 2017). This suggests the role of travel agents will begin to diminish.
Competitor disruption. The growth of the global sharing economy has seen new technology platforms entering the market. Increasingly, travellers are choosing to lodge as opposed to using hotels which as already lead to platforms, such as AirBnB, disrupt the industry. Consumers book directly with these platforms which negates the need for travel agents. According to a recent survey, travellers stated that ‘price’ was the biggest reason behind using AirBnB (HSBC, 2017). In 2016, there were 117million overnight stays using AirBnB in the US and Europe and this figure is expected to rise to 187 million by 2020 (Morgan Stanley, 2016). These bookings are made direct with AirBnB and so represent the potential for loss of business to Flight Centre.
Travel expert or PA? Another survey asked respondents which services were most important to them when using travel agents. The most popular responses were ‘quick and easy to use booking’ and ‘improved loyalty schemes’ (Apadmi, 2017). This data suggests that consumers are no longer looking to travel agents for advice, more ease of use. However, I would argue that this data may not be completely accurate as the survey only consisted of 1000 respondents. Furthermore, FlightCentre’s main selling point is its ‘Experts’. I would therefore argue that people choose to use FlightCentre particularly for its expert advice.
Environmental Threats
Terrorism. Since 2001, terrorism has had a significant short and long-term impact to the tourism industry. Impacts are usually location specific and data shows that industries can recover. In 2016, visitors to Turkey dropped by over 10 million with a wave of terror attacks likely to have been a significant cause (Appendix 1). However, 2017 figures showed a significant recovery.
Localised terror attacks so not have much of an affect on travel agents, as travellers choose other destinations. However, significant impact occurs when terrorism create non-localised fear in travellers. For example, following the 2001 New York terror attack, domestic and international air travel declined by 34% and 23% respectively (Lawton & Weaver, 2007). Fear on this scale will negatively impact travel agencies and its effects can be long-term.
Economic Uncertainty. The political landscape has caused a trend of falling consumer-confidence (Appendix 2). Brexit and tensions in the south-China sea are among those political events that are creating uncertainty which reduces consumer spending. The first spending decisions to be axed are often luxuries such as holidays. Economic uncertainty therefore is a significant direct risk to FlightCentre’s growth as high traveler numbers should not be relied upon.
Counter Strategy
Having established threats facing Flight Centre, it is important that they implement a strategy to combat these. The strategy involves implementing an innovation solution which will delight customers now and in the future in order to maintain Flight Centre as an industry leader. From the three issues identified, two main opportunities can be drawn:
Flight Centre needs to appeal to a younger demographic.
Flight Centre needs to develop its core competency, giving travellers expert advice.
Types of Innovation
There are three main types of innovation. Keeley’s ten types of innovation, Disruptive v Incremental and Business Model Innovation.
Based on the issues faced by Flight Centre, Business model and Disruptive innovation are most appropriate. Business model innovation begins with understanding exactly what business a company is in. The threat analysis highlighted that traditional travel agents are becoming less important to customers. Therefore FlightCentre needs to alter its business model away from the ‘traditional’ travel agent. Business model innovation changes multiple dimensions of the customer experience in order to provide superior customer satisfaction. Examples include changes to “what your offerings will be, when decisions are made, who makes them, and why” (Girotra and Netessine, 2014). Furthermore, enterprise model innovation through collaboration can be very powerful in attracting users to all partners. By offering complimentary services, customers gain more value.
Accordingly, FlightCentre should change the way it delivers existing, as well as acquiring new, capabilities through collaboration. It’s core competencies will remain and develop, and the method by which it delivers value will change.
Incremental innovation will also be key to Flight Centre’s solution. This matrix explains different types of innovation based on two common factors in innovation: Technology and Market.
Flight Centre needs to transform from the traditional travel agent into the modern day equivalent: the destination for all travel needs: booking, advice and services. By making small changes that enhance existing processes, Flight Centre will be able to add value to customers by adjusting its processes to deliver a more streamlined service. Although Flight Centre will not be inventing new technology, it will be use complimentary technologies to add value to customers.
This innovation is not disruptive but it does use a tool associated with that type of innovation. In his book entitled “Disruptive Innovation”, Christensen finds that the top innovators use five ‘Discovery Skills’ in order to to innovate. The first of these is ‘Association’. He defines this as “the ability to make surprising connections across areas of knowledge, industries, even geographies” (Christensen, 2011). The iPhone is an example of this: Jobs saw different inventions (the music player, the phone, the pc, the camera) and connected them to create the iPhone. There is an opportunity for Flight Centre to use the association skill to draw together different combinations of existing products and/or technology to collaborate.
The Innovation Process
A process is simply taking inputs and creating outputs. More specifically, the innovation process sets out the stages to generate, design, and commercialise an innovation. It is highly important that a structured approach is taken to the activities involved with innovation. The lack of structure, particularly in large organizations such as Flight Centre, can lead to significant inefficiencies.
The process design for Flight Centre is based on McGrath’s Product and cycle-time excellence framework (McGrath, 1996). The framework is designed to deliver project success. As in McGrath’s version, the framework includes ‘Gates’ or major checkpoints which reflect major decisions or project milestones (Ahmed et al., 2012). These are made at a review board level, including CEO and key decision makers. One key difference in this process compared with McGrath’s original is the inclusion of the ‘Build-Measure-Learn’ model (Ries, 2011). This model uses a minimum viable product in order to launch a basic product to market very quickly. However the lean theory is applied differently in this process. As opposed to being used to build an MVP, the MVP is already built and launched after stage four. The lean theory is in place to making constant incremental improvements and adaptations. The app will produce CRM data which will help to understand how consumers interact with the application.
By implementing this process, Flight Centre will reduce some of the risk associated with innovating on this scale as the senior team will be able to monitor the success of the project and make changes where necessary.
Ensuring Flight Centre’s Future – The Flight Centre App
The following strategy is focussed on the long-term performance of Flight Centre.
The Innovation Solution
The adapted Business Model Canvas (BMC) (Osterwalder et al., 2010) below has been used to document the Innovation Solution. This adapted BMC provides a simple format that can be easily adapted which is likely during phase five of the process. It keeps a focus on the strategy vision statement and the customer value, both of which are key to the success of the strategy.
Protecting the Innovation
Implementing practical protections is a key part of an innovation strategy not only for the company but also wider society. For the company, it enables your competitive advantage to drive profit and prevent others from exploiting the innovation and damaging FlightCentre’s brand. For society, it promotes the development of new technologies as competitors build on previous innovations.
As the app is intangible, it comes under intellectual property law.
It is also worth considering the areas where FlightCentre operates. Australian copyright law has been heavily influenced by British law. Copyright protections would cover both jurisdictions.
Ethical protection
There are groups and bodies who publish ethical guidelines relating to IP. Point 1.3 in The Association for Computing Machinery’s code of ethics states a “Computing professional should be honest and trustworthy” (ACM, 2018). This is not law and therefore cannot be relied upon but it should act as a deterrent to people who want to copy IP that cannot be protected by law.
IP Strategy
FlightCentre could consider implementing an IP strategy which forms part of its corporate strategy. Its objective is to “acquire IP assets and leverage the most value from existing IP assets (MaRS, 2009). More simply, it creates a moat around a company’s IP assets in order to maximise value generation.
Conclusion
As a traditional travel agency, FlightCentre’s position as an industry leader is under threat from a range of environmental, demographic and competitor forces. It therefore needs to adapt in order to stay relevant and, ultimately, successful. The company’s strong financial performance leaves it well placed to invest in business model innovation. Furthermore, it makes it an attractive partner for a company such as TripAdvisor. The innovation solution will provide customers with a modern travel agent that is ready to exceed expectations and customer needs.