6 Smartization and Digital Transformation
Undertaking the process of smartization in a tourism firm necessarily implies that digital transformation has taken root in the firm or is being carried out in parallel. Effective smartization involves a large-scale migration of the firm’s operational and organizational model to another model based on data and knowledge. This requires that firms enforce management practices that involve data-driven processes and technologies and a more agile and efficient customer-centric organizational design that sustains activities over time (Dahlström et al., 2017).
So, you may be asking yourself, is smartization the same or is it different from digital transformation? Is there any true difference between the two? Smartization represents a big step forward beyond digital transformation. Nonetheless, smartization is not possible without digital transformation, and if you are not first familiar with the essentials of digital transformation, it will be more challenging for you to continue to dive into the basics of smartization. For this reason, this chapter examines the basic elements of digital transformation that every business owner and manager should know to successfully tackle the process of smartization in the tourism firm.
6.1 Defining Digital Transformation
Just as happened when we defined the terms smart and smart tourism, defining digital transformation is not straightforward. The literature on digital transformation is vast and many authors and organizations have contributed their particular vision of the phenomenon in recent years, generally emphasizing those dimensions that most affected or concerned them. Although it is not within the scope of this chapter to theorize or try to establish a universal definition of what digital transformation is, it is worth stopping for a moment a make clear how the notion of digital transformation has been used in this book, so that we can share a common vocabulary.
The term “digital transformation” refers in this book to a process of profound and evolutionary change that affects all aspects of the organization, led by digital capabilities and technologies aimed at creating value. The fact that digital transformation is an evolutionary process indicates that the phenomenon of transformation is continuous; that is, it is maintained over time (Morakanyane et al., 2017). There are some authors, however, who argue that digital transformation involves more radical or disruptive change than simply an evolutionary process. This is a challenging academic discussion that has been going on for a long time in which the author cannot take sides because, in the end, both streams of thought are adequate lenses to tackle digital transformation (Riasanow et al., 2019). The idea of an evolutionary process accurately describes what happens most of the time in the digital transformation of businesses in real life, although it is also true that tourism firms must be prepared for disruptions in their routine activities and business processes when faced with digital transformation (Balaji & Lavanya, 2018).
Digital technologies play a vital role and are the foundation of digital transformation initiatives. However, digital transformation is not connected to any specific technology (e.g., cloud computing, mobile phones, social media, etc.); nor is it driven by any particular digital innovation. Even those who think that using digital technologies is enough to drive change and achieve transformation are wrong. Organizations fundamentally require a set of new skills, as well as a distinctive mindset and culture, to successfully tackle digital transformation. It is precisely into this set of new capabilities that digital technologies must be incorporated if the organization intends to reap the benefits of digital transformation.
Digital technologies, coupled with organizational capabilities, can create endless opportunities with the potential to transform tourism firms, especially when they are related to new business models, operating processes, and products and services. In the end, what owners and managers should seek is to create value both for the organization and for customers by generating operational efficiencies, improving the customer experience, reducing costs, improving the relationship with stakeholders, etc. In view of the above, there are three different but closely related dimensions that shape digital transformation (Reis et al., 2018):
The technological dimension, since digital transformation is based around the use of digital technologies that include infrastructures, networks, devices, as well as the software that makes digital applications possible.
The organizational dimension, since digital transformation itself entails a significant change in the organizational processes, and even in the culture and business model of the tourism firm.
The social dimension, since digital transformation is a process that affects consumer behavior and beliefs, both individually and in society (i.e., the way tourists consume tourism products and services, the reasons why tourists prefer some channels to others, the way tourists interact with friends and family, or how tourists enjoy a travel experience).
When it comes to digital transformation, the mere implementation of digital technologies in the organization is not enough. Rather, digital transformation encompasses far-reaching changes that extend to organizational management, the firm’s operational processes, and its own organizational culture. This large-scale change process affects all members of the organization and their way of relating to the customer, leading to improvements in the firm’s performance and the creation of competitive advantages.
6.2 Essentials of Digital Transformation
Digital transformation is a challenging undertaking that takes time to complete and is often more complex than expected. It makes products and services obsolete faster, while encouraging the emergence of new ones that are accessible through a wide variety of channels, such as websites and social applications (Brown & Brown, 2019). Digital transformation redesigns the role of people in business organizations (Bala, 2018), and prompts business leaders to rethink strategy, leadership, and organizational culture (Mahraz et al., 2019).
These substantive transformational changes differ from the typical organizational changes of earlier stages in several respects. For example, the technologies involved today, such as Big Data, analytics, artificial intelligence, etc., differ substantially from previous technologies. In addition, the complexity of the environment in which tourism firms operate is much greater than it was before. Digital technologies provide more information, computing, and connectivity capacity than ever, thus enabling new patterns of collaboration between distributed networks of actors that are more diverse. New dependencies also emerge between actors whose interests may not be fully aligned (Vial, 2019). This means that digital transformation is not limited to a specific type of business or industry, or to the implementation of particular ICTs, but also encompasses much larger and more complex ecosystems and has major organizational implications (Högberg, 2021).
Managing digital transformation requires orchestrating work within the firm to achieve better products/services and build business models that harness the benefits offered by digital technologies. It is thus important that tourism firms consider their own digital transformation very seriously, since those firms that fail to adapt to the digital environment will fall victim to “digital darwinism”. In other words, firms that resist digital transformation will surely end up disappearing and only those that adapt and respond to technological trends will survive and remain in the competitive arena (Schwartz, 2002).
Tourism firms face increasing pressures from customers, competitors, and employees to initiate or accelerate their pace of digital transformation, and constantly redefine their value proposition. Connectivity, automation, new data, and new digital customer interfaces are challenging traditional value chains as we knew them. Therefore, tourism firms need to carefully assess their product and service portfolios, and the skill set they have. This means starting to make progress on their digital maturity (if they haven’t already started) to seize opportunities, develop better offerings, and bring them to market quickly. How and in what direction the firm can take effective steps remains unclear. In the end,everybody seems to agree that digital is better, deeper, and faster (Bala, 2018), but to benefit from digital transformation tourism firms must be able to put together a plan that is coherent and consistent.
The accelerated pace in the development of digital technologies and their wide-ranging effects on tourism firms make digital transformation processes so uncertain that it is virtually impossible to predict which businesses will succeed in their transformation. Even so, it is becoming increasingly clear that competitiveness has long since ceased to depend solely on physical products, and now depends more on the integration of organizations in ecosystems of smart technologies and services. The new possibilities offered by digital technologies are ultimately pushing tourism firms to evaluate the potential to innovate their business models and constantly reinvent themselves. Digital transformation is now an inevitable and irreversible process, at full throttle in the economy and in society as you read these lines (Mahraz et al., 2019). But for digital transformation to gain momentum in tourism ecosystems, the heroic efforts of a few firms, however important they may be, are not enough. It is thus essential to organize concerted actions between all actors in the tourism ecosystem and policy makers to achieve a harmonized regulatory framework, powerful communications, fluid information infrastructures, and an environment that encourages investment to give a new impetus to the competitiveness of tourism firms through digital transformation and smartization.
6.3 Digitization, Digitalization, and Digital Transformation
Although academics and practitioners generally take it for granted that digital transformation is affecting and challenging business owners and managers in all industries and contexts, the truth is that there is an overwhelming lack of clarity when it comes to understanding it. One of the main challenges is that there is no reconciled definition of the core elements that make up digital transformation. In fact, many studies see digital transformation as entirely different things: for some authors it means only a slight change enabled by technology (e.g., when a new enterprise resource planning (ERP) system is implemented in a department of a firm); for others it means the impact that technology has in the strategy or business model of an organization; while for others it implies a more profound and evolutionary approach that develops over time (Morakanyane et al., 2017). It is also quite worrying that there are several key terms, such as digitization and digitalization, whose differences are often unclear, and which add even more confusion and ambiguity when owners and managers use them (Bala, 2018; Henriette et al., 2015; Mahraz et al., 2019). Therefore, we are going to pause for a moment along the way to clarify some terminological differences and learn how to distinguish between them.
6.3.1 Digitization
The term digitization means the conversion of information from an analog format to a digital one. It is a pure technical process that seeks to convert something that is analog into a binary language (composed of “0s” and “1s”), so that it can be processed by digital information systems (e.g., a computer, a smart phone, etc.) (Castaldi et al., 2018; Mahraz et al., 2019; Pesonen, 2020; Trenkle, 2019; Udovita, 2020). An example of digitization is converting a paper photo to a digital photo to store it on a flash drive, using a scanning process. Digitization involves significant improvements in the use that organizations make of ICT and in guiding technology implementation strategies. This explains why technology adoption models and the criteria used to select ICT tools in a business context, as well as how data can be integrated into information systems, are common themes pertaining to digitization. In the end, digitization is the first and foremost step in advancing digitalization processes and, subsequently, in digital and smart transformation.
6.3.2 Digitalization
Digitalization involves the use of data and digital technologies to optimize or automate management processes in the organization, including those related to the collection and analysis of data itself. Digitalization encompasses change processes that are much deeper than those of digitization, since it involves the use of technologies in a much broader organizational context (Castaldi et al., 2018; OECD, 2020; Trenkle, 2019). The terms computerization and informatization are concepts closely related to the notion of digitalization and are often used as synonyms.
6.3.3 Digital transformation
The term digital transformation is used by academics and professionals to refer to changes of all kinds that occur in human activity as a result of digitalization. For business firms, it embodies a socio-technological process whereby the application of digitalization is raised to a systemic level within the organization.
Digital transformation emphasizes aspects related to cultural change, the way in which the organization is managed, the roles of people, as well as the changes that occur in the operating environment as a result of the adoption of digital technologies. In other words, digital transformation implies a strategic change process focused on advancing the systematic digitalization of the firm while keeping the different business strategies in sync with the IT strategy. Therefore, the concept of digital transformation is different from that of digitization and their meanings are not interchangeable (Riasanow et al., 2019; Udovita, 2020).
Meanwhile, both digitalization and digital transformation make use of digitization and digital innovation with the intention of improving the firm’s products and services (Yoo et al., 2012). This means that, for many authors (including consultants and ICT of digital transformation). Figure 6.1 describes this conceptual journey from digitization to smart transformation.
6.4 Components of Digital Transformation
Digital transformation is essentially made effective through the following four drivers of change supported by enablers and value propositions, as shown in Figure 6.2 (Bala, 2018; Berger, 2015; Castaldi et al., 2018):
Digital data: The capture, processing, and analysis of digital data to make decisions and improve the forecasting capabilities of the firm.
Automation: The combination of conventional technologies with artificial intelligence capabilities to enable systems to work autonomously and to be self-organized. Through automation, firms increase the speed of processes, reduce error rates, and reduce operating costs.
Connectivity: The integration of the firm value network through mobile or fixed broadband telecommunications networks to synchronize the components of the supply chain and shorten both production times and innovation cycles.
Access to the digital consumer: The use of the internet to provide direct access to digital consumers, substantially increasing the transparency of markets and choice options.
Within the framework of digital transformation, digital technologies are key drivers that provide the firm with greater interactivity and the possibility for stakeholders to participate in the creation of new value for the business, in the design of products/services, in the generation and exchange of knowledge, and even in the contribution of new experiences. This requires firms to thoroughly review their business management practices, increasingly determined by the ability to act in the new value networks that emerge from their integration into ecosystems capable of self-learning and self-organization.
6.5 Benefits of Digital Transformation
Digital transformation is happening all around us all the time. In fact, there is almost certainly not a single aspect of our lives that has not been affected y it. The effects of digital transformation are considerable and have a lasting impact on firms and economic systems, but also on the lives of individuals and society in general. If there is still someone who needs to be convinced of the importance of digital transformation for their organization, here are some of the most widely accepted benefits (Reddy & Reinartz, 2017).
6.5.1 Interaction costs
In all economic systems, including business firms, the interactions that take place in the markets generate costs that are the result of the exchange of information and of products and services. Digital transformation is key to reducing these costs and, therefore, to creating value for organizations, so that the more exchanges that take place, the greater the potential benefits for the firm. Furthermore, as digital transformation makes information more accessible to all, asymmetry between market participants is reduced, thus markets become more fluid and competitive.
6.5.2 Information and value exchange
Digital transformation pushes firms to move from unilateral and bilateral exchange models to one based on networks. In other words, consumers and businesses are evolving from linear chains of exchange (and value creation) to becoming part of networks in which multiple exchanges take place at the same time. In addition, these networks emerge, grow, and vanish constantly. As a result, the number of connections that arise between the actors of the tourism ecosystem is growing exponentially, as well as the speed at which value is created and exchanged between them.
6.5.3 Massive amounts of data
The ever-increasing computing power and its highly distributed nature around the new value networks lead to the so-called Big Data. Cisco Systems’ predictions suggest that global IP traffic will reach 396 exabytes per month by 2022, up from 122 exabytes per month in 2017. That is 4.8 zettabytes of traffic per year by 2022. In this data-flooded landscape, data can be accessed from everywhere and in real time, leading to a huge number of data handling operations. Therefore, a key challenge for stakeholders in the tourism ecosystem is how to analyze and interpret the patterns that are hidden in huge volumes of data and how to obtain valuable insights to make better informed decisions with them. It should not be a surprise that, in the era of smart transformation, the competitiveness of tourism firms no longer depends on whether they are digital or not, but on whether they are able to learn from their own data (Castaldi et al., 2018).
6.5.4 Internationalization
With the advent of digital technologies, the role of distance is undermined, as knowledge and intelligence can be generated and distributed on a global scale. This leads to new ways of producing and using knowledge assets, which in turn transforms the role and importance of geographical proximity (Castellani et al., 2017). Local assets, however, do not lose importance immediately, but their role changes since they now have the possibility of integrating into global channels that connect geographically dispersed sources of knowledge. By virtue of digital transformation, an empowerment effect can also be triggered that spurs SMEs to access digital networks and interact with distant counterparties, thus facilitating internationalized business models that extend their presence globally without involving significant amounts of direct investment. The ability of modern firms to access international markets with a smaller asset footprint has led to micro-multinationals and born global firms, which are those that with minimal cross-border investment rapidly achieve global reach (Gestrin & Staudt, 2018).
6.5.5 Irreversibility
Digital transformation is permeating and fundamentally transforming our daily lives, and it is doing so in an irreversible way. The main driver of these changes is the accelerated reduction in the cost of computing. According to Yale Professor William Nordhaus, while the average annual decrease in costs between 1945 and 1980 was 37%, in the 1980s and 1990s these costs decreased at an average annual rate of 64%. In the coming decades, as computing power continues to grow exponentially, the forces driving digital transformation will continue to be highly relevant.
Digital transformation is expected to drive the creation of more tangible and intangible value for tourism firms in the future. However, it is worth noting that all these benefits also come with often unforeseen costs and risks. Therefore, it is important that the owners and managers of tourism firms have a good understanding of the opportunities that are presented to them, but also of the potential challenges that surround the creation of value in digital environments. We are all going to be affected to one degree or another and no stone will be left unturned.
Accor looks to the future of digitalization by focusing on the customer experience and providing value propositions for all stakeholders in the hospitality value network. Increasingly, the hospitality industry is transforming into a digitally enabled end-to-end provider that works with different tools and technological applications that are increasingly powerful and integrated (e.g., mobile, cloud, artificial intelligence, blockchain, Internet of Things, etc). Hotels have the potential to deeply engage with guests at every possible touch point in the customer journey and provide them with new opportunities to create personalized experiences. However, just focusing on the customer is not enough. It is also crucial to reach agreements with other players in the ecosystem that allow hospitality firms to remain competitive and create new revenue streams (e.g., airlines, cruise lines, travel agents, etc.). Another important challenge is ensuring that the organization’s workforce has the right digital skills to manage new customer-centric strategies. In the end, hospitality firms must understand how to apply digital technologies to their daily operations to improve guest satisfaction, employee awareness, and higher collaboration with partners. That is why the three main pillars of Accor’s digital experience are: customers, employees, and partners.
Source: Own elaboration based on Damnjanović et al. (2020)
6.6 Challenges of Digital Transformation
Too often, when someone from the ICT industry or academia delivers a speech or masterclass on digital transformation, they do so by showing the most optimistic side of the story, that is, ignoring the challenges and pitfalls that are common. However, figures speak for themselves. In 2019 alone, US$1.3 trillion was spent on digital transformation efforts with unsatisfactory rates of return (Tabrizi et al., 2019). What’s more, according to a recent Bain & Company report, only 5% of digital transformation initiatives met or exceeded expectations, 20% produced less than half of expected benefits, and 75% underperformed (Baculard et al., 2017). Despite these disappointing success rates, most firms still believe that the potential payoff of digital transformation is significant and that it can help stay competitive in the marketplace (Gaurav & Kongar, 2021).
Some of the main challenges involved in the execution of digital transformation are examined below. Although this is not an exhaustive account of all the challenges that may arise, it does reflect how the effects of digital transformation encompass both the organization itself, its resources, and the relationship with the customer (Bala, 2018).
6.6.1 Customer experience
The transformation of the customer experience is evidenced through the different ways in which consumers use the products and services of tourism firms, as well as by changes in consumer behavior and loyalty. It is also reflected in the interactive communication that occurs with customers during the sales process and the different digital touchpoints made available between the firm and customers.
Customers in the digital environment are extremely demanding and expect firms to listen, understand, and be more flexible regarding changes in their needs. They are already used to using digital technologies in their daily lives and expect to continue to use them in all other facets of life such as when shopping, working, or traveling. This is even more apparent with the new generations known as digital natives, who were born surrounded by technologies and who now demand that their service experiences have a digital dimension. It should therefore come as no surprise that firms that want to build satisfying relationships with customers are forced to rethink the consistency of their digital communication channels and integrate new customer tracking systems, which ultimately requires investing in new infrastructure, processes and skills (Mahraz et al., 2019).
6.6.2 Processes and business models
The advance of digital transformation challenges firms to transform their main operational and business processes, encouraging them to be more agile and efficient through digital technologies. This includes, for example, the automation of product/service delivery, distribution, and marketing processes (Vial, 2019), the creation of intelligent products and services that incorporate artificial intelligence and allow algorithm-based decision-making, or the ability of workers to perform their functions in different functional areas of the same organization, all of which help to generate cost savings and increase the performance of firms (Mahraz et al., 2019). Furthermore, new business models may emerge by adding digital content to existing products and services, or by creating entirely new digital solutions (Schwertner, 2017).
6.6.3 Legacy systems
One of the main challenges posed by digital transformation in business firms is to overcome the limitations of their old legacy systems, since they lack the capabilities and functionalities necessary to respond to the demands of the new digital environments. Overcoming this situation is no simple task. Quite often, a portion of the workforce will be very comfortable working with the old legacy systems despite their limitations. In these cases, it is common to find resistance from workers who fear failure, or the negative consequences of the changes derived from the implementation of new digital systems.
6.6.4 Change management
The lack of an effective change management method is a considerable obstacle to successfully implementing digital transformation initiatives in the firm, which is greater the more complex the organizational environment. Moreover, getting all areas of the organization to agree on a common course of action can certainly be a challenge. This challenge is frequently aggravated not only by the technical difficulty involved in migrating to a new digital environment, but also by the incompatibility that usually exists between the technologies available to each department of the firm. To deal with this situation, it is necessary for firms to develop visionary and committed leadership, capable of mobilizing the critical resources of the organization around plausible and measurable objectives, leadership that is able to partner with IT teams to drive innovation. Unfortunately, it is still very common today to see how leadership models are linked to organizational models that are too hierarchical, which hinders innovation and prevents digital transformation from developing at the speed it should.
6.6.5 Commitment to transform
There are many occasions when digital transformation initiatives do not have the appropriate level of commitment and leadership from senior management to be carried out successfully. This is one of the key reasons why a large number of digital transformation initiatives do not achieve the expected results. This lack of commitment from senior management can become even more apparent when firms try to move forward from developing digital initiatives to implementing them. Business owners and managers often spend their time talking about the need to innovate in increasingly competitive markets. However, this discourse often ends up turning into a deeply ingrained attitude of resistance to organizational learning and innovation. In other words, very often there is a disconnect between what business leaders say they value and the values they actually display through their actions and behaviors. It is still all too easy to find leaders for whom learning is valuable, but their organizations punish failure for daring to learn and innovate, which means they really don’t want to risk change.
6.6.6 Skilled labor
For digital transformation to take root in the organization, it is essential to have people who are well trained and prepared to work in a digital environment. This need involves both training in digital business and digital technologies and should be aimed at both junior profiles and senior profiles with greater responsibility in the management of the organization. Furthermore, training programs must be well supported by appropriate investment and a business culture consistent with the challenge (Sestino et al., 2020). At the same time, leaders must find a way to trust those employees who have specific digital transformation skills, so that creativity and innovation can be fueled within the organization. At the end of the day, smart organizations must have a workforce that knows how to adapt to change through an organizational culture that is itself change-oriented and capable of responding to challenges. Organizational culture is very often a determining factor in how quickly firms embrace digital transformation.
6.6.7 Infrastructure
Modern infrastructures of hardware, software, networks, connectivity, facilities, etc. hold significant value potential to successfully implement a digital transformation strategy. Given the wide variety of devices and technologies that customers use (e.g., mobile phones, PCs, websites, social networks, wearables, etc.) and the intelligent systems that tourist destinations and competitors are already implementing, new challenges arise for the management of infrastructures in firms. These challenges affect both the availability of digital services and the need for the infrastructure to be flexible enough to facilitate the continual addition of new requirements. To tackle this challenge, tourism firms should react in an agile way to the changing requirements that are presented to them.
6.6.8 Financing
Digital transformation requires significant funding to meet the investment needs in infrastructure, digital tools, innovation, training, and new systems development. Therefore, it is highly recommended that tourism firms have a budget at their disposal with sufficient resources dedicated to the digital transformation program and that they avoid diverting to other types of operational policies within the organization.
6.7 Discussion Questions
Is digital transformation the solution to the emerging challenges of tourism firms in the digital age, or is it just another marketing buzzword (Morakanyane et al., 2017)?
What positive and negative effects characteristic of digital transformation should draw more attention from the owners and managers of tourism firms?
What do you think is the optimal degree of digitalization that a tourism firm should achieve? What factors does this decision depend on?
When implementing a digital transformation strategy, what effect can a B2B or B2C business model have on the results?
What is the recommended duration of a digital transformation process in the tourism firm?
When and where should a tourism firm start executing a digital transformation strategy? Which areas are the first in which changes should be made and to what extent?
What aspects differentiate digital transformation from smart transformation in a tourism firm?