Prospects for profitability

Mind your Ps and Qs (21) - Part 1

Communities are destinations by default. They pursue tourism when insightful individuals, governments and tourism-dependent enterprises identify investment opportunities that create value for visitors and hosting communities, including a triple play of growth, returns and sustainability that is decidedly meaningful and worthwhile for all stakeholders.

Unfortunately, profitability or the ability to generate profitable bottom lines on a predictable and consistent basis is fraught with difficulties. Perpetual profitability is a myth, especially in communities where patterns of demand, supply, and profitability are in constant state of flux or when tourism, as an economic development strategy, dominates and clouds better judgments.

To thrive, tourism`s private, public and plural organizations have no choice: They must be laser focused on their customers/visitors and their own organizational systems. This seems obvious, but when change creates dysfunctionality in operating systems, one thing is for sure: Value migrates, returns and profits plunge. Only fools think they can ride it out by relying on projections for tourism`s continuous growth and a destination’s marketing prowess.

In any given tourism cluster, a wide variety of organizational systems exist. Each enterprise, through their actions or inactions, either adds value to, or subtracts value from, their product/service franchise and business models, which has a net impact on the overall appeal of communities, their reputation and thrive-ability as destinations.

In essence, the preferability and desirability for specific outcomes depends on how well the operating systems of individual companies and clusters create alignment behind their organization/cluster strategies and commit to enabling their brilliant execution that brings clarity to all the derived benefits.

To be clear, organizations and tourism clusters achieve profitability and solid returns from investments in three basic ways: (1) Cost management and by achieving asset efficiency in the value chain. (2) Focusing on targeted value creation for customers – starting with price/value considerations. And, most importantly, (3) Configuring and structuring the best ways to link external customers (and their top priorities) with an organization or cluster’s internal customers or talent (employees and citizen hosts) in order to build the most innovative and progressive operational designs that aim to please everyone.

But it is a task that few learn to master. Why? Too many organizations remain distant, or too far removed, from their customers/visitors and community. They fail to manage what they cannot measure; are stymied in regard to navigating uncertainty; ignore the primacy of local leadership and local economics; and stubbornly remain proficient at the wrong skills.

As industries, travel and tourism are shaped, and constantly being reshaped, by patterns of strategic change that build slowly, sometimes rapidly, and can drastically shift profit, power, and the locus of control. Thrive-ability is dependent on a willingness to act with a sense of urgency; being adept at anticipating the changing nature of threats and opportunities; determining how best to derive profit/value from them; and ensuring that progress is headed in the right direction.

But what happens when everyone is flummoxed by turmoil and unpredictability; an affordability crisis; perpetual organizational upheaval; the people/profit tourism dilemma; visitor bans and a backlash against (over)tourism; the teetering of the global climate order; the rolling back of ESG and DEI programs (while others try to save them); the significance of global demographic transitions; and questions about airline safety?

What about the cacophony of misinformation and conspiracy theories; a rise in human rights abuses; application of generative AI; crises in value/supply chains; the volatility of currency exchange rates; excessive tariffs and taxes; shifting patterns in visitor choice behaviors; issues surrounding reinvesting in tourism; hotel and hospitality development trends; the continuing evolution of tourism’s distribution channels; and the complexities of managing organizational change?

Mesmerized by the unfolding patterns (murmurations) and worried as to how tourism in general will be affected and unfold over time, such issues, trends, perils, and system-wide upheavals are bound to result in a global migration of value and ruination of profits.

And we haven`t even mentioned how travel and tourism is about to get sideswiped by tidal shifts in societal policies taking place in the U.S.A.; their desires to become a closed society; their heartless dismantling of USAID; the ending of support for projects that involve the environment, climate change, racial and gender inequality; perceived support for ethnic cleansing in Gaza and turning a humanitarian crisis into a real estate play; the imposition of wicked tariffs (based on the end game outlined in this User’s Guide to Restructuring the Global Trading System) that is setting the stage for a new world order; and threats to the sovereignty and well-being of people in friendly nations. All part of a distorted view of sovereigntism and exceptionalism.

So, if you haven`t already done so, now is the time to consider how these and other disruptions, aggressions and transgressions are and will continue to affect your organization, community, different neighborhoods, industries and visitor markets, as well as the overall nature of services, host/guest experiences, customer/visitor/ destination/stakeholder priorities, and each element in the hierarchy of value?

From here on in, the big challenge facing organization and destination strategists will be: Where is the value going to be for all stakeholders; where will it reside, and for how long?

Of course, the impacts from any disruption will vary depending on context, location, and where an organization or destination is positioned in its life cycle. As discussed in my four part Quintessential Queries, operational viability during every stage in the life cycle will differ and depend on many factors.

While the WTTC might want to view the life cycle in terms of a state of readiness for continued growth, I am more inclined to suggest that the hallmark of a more effective and strategic approach is to recognize that `growth` (however it may be defined by an organization or destination) must coincide with the creation and capture of value…value that determines and drives controversial decisions regarding what constitutes revenue growth management and holistic ROI that is contingent on the ability of organizations and communities-as-destinations to demonstrate:

· High host/visitor relevance that not only grabs attention but holds attention.

· Internally consistent decisions about the scope and scale (of all emotive products/ services/ experiences being offered and value chain activities performed) that support local economies.

· Strategically well-conceived, relevant, and agile profit models and mechanisms for value creation and capture.

· Astonishing and authentic sources for differentiation and strategic control that provide investors, communities and entrepreneurs with confidence about achieving future cash and value flows.

· Organizational systems (whether for DMOs, communities, industry associations, or NGOs) that are designed to support and reinforce ambitions, aspirations, plans and strategies, including requirements for sustainability, regeneration and social justice.

Put into other words, rapid value growth for organizations and destinations does not come from rapid growth or a deluge of visitors that are bound to overwhelm restrictive and fragile capacities. Rather it is dependent on inculcating `win-win` mentalities through an appreciable and uncontestable share-of-mind, share-of-heart and share-of-spirit (among visitors, investors, and entrepreneurs, including citizens and the talent of hosts) whose affection for the well-being of their communities knows no bounds.

Regardless, and for whatever reason, organizations and/or destinations find themselves in `no profit` zones - whether due to deteriorating economic conditions, boring and uninspiring offerings or experiences that fail to interest or excite - strategic imaginations will have to be re-engaged and efforts made to get everyone into the right state of mind so that effective, collaborative ways can be fostered.

As often happens, ‘no-profit’ zones occur because the value chains of tourism clusters become blocked, unstable or under siege. De-integration occurs for many reasons (as happened during COVID) but it may also be due to a rapid rise in outsourcing. When organizations realize that they cannot be competent in all stages of their value chain, they seek to specialize which can be carried to extremes.

Consider accommodation enterprises that have outsourced foodservice, housekeeping and other services in attempts to create efficiencies, only to realize that they have lost control over quality and brand reputation. Amazing how easy it is to sabotage the ability to create, hold onto, and capture value.

Whereas we expect evidence of connectivity throughout tourism’s value chain, de-integration exacerbates the shift from overall strategic control to one or two aspects of the value/supply chain. Such decisions often lead to the emergence of a dominant group of specialists e.g. on-line travel agencies (OTAs). While their technologies provide added value, they also serve to siphon certain aspects of value and profitability away from many organizations.

Resolving such problems represent significant challenges that could be rectified by developing and strengthening inter-organizational relationships. As a strategic approach exemplified in ‘buy local’ programs, exemplified through numerous ‘farm to table’ or ‘farm to fork’ initiatives, a reintegration, or fixing, of the weak links in local value/supply chains is possible.

Other means for doing so include supplier consolidation, and efforts to align objectives, coordination, education, and the sharing of knowledge and information. Actions that can also serve to reintegrate consumers, visitors, and tourism enterprises with communities.

Customers and visitors, after all, have always been the ultimate arbiters of value. They vote with their time, money, allegiance, and word-of-mouth. While they seek those organizational designs that best serve their evolving priorities, their constantly shifting decisions determine whether and where value will be created or destroyed, and an organization`s profitability determined.

PART 2 of this article will appear next week