Tourism Management 22 (2001) 445} 461

Strategic success in winter sports destinations: a sustainable value creation perspective

Arvid Flagestad *, Christine A. Hope
Norwegian School of Management BI POB 580, N-1301 Sandvika, Norway University of Bradford, Management Centre, Emm Lane, Bradford, West Yorkshire, BD9 4JL, UK Received 23 November 1999; accepted 28 June 2000

Abstract According to annual reports of European and North American ski resort corporations, winter sports destinations are facing stagnating markets and at the same time challenges in the management of environmentally sensitive mountainous areas and villages. The survival and development of winter sports destinations are to a large extent centred around strategies for creating competitive advantage and at the same time meeting the criteria of sustainable tourism laid down by the WTO. In this paper, performance on these two dimensions is combined into the concept of strategic performance. Sustained value creation is suggested as a goal of strategic performance in winter sports destinations.Two new models related to the strategic analysis of winter sports destinations are developed. The "rst is a suggested con"guration of value creation in winter sports destinations*the `value fana*and the second is a conceptual organisational model providing a framework for analysis at strategic level of such destinations. The models have emerged from examining the central body of literature in the "eld of strategic management. Development of the models is part of ongoing research into what kind of organisational structure of winter sports destinations will lead to superior performance in terms of strategic success. Here the concepts of the `community modela and the `corporate modela of destination management are introduced. 2001 Elsevier Science Ltd. All rights reserved.
Keywords: Winter sports destinations; Sustainable competitive advantage; Strategic management; Destination management; Organisational structure; Value con"guration; Value creation

1. Introduction The World Tourism Organisation (WTO) o!ers the following o$cial de"nition of sustainable tourism (WTO, 1993): `Sustainable tourism is de"ned as a model form of economic development that is designed to: E Improve the quality of life of the host community E Provide a high quality of experience for the visitor, and E Maintain the quality of the environment on which both the host community and the visitor depend.a In this paper, the authors consider how theories of strategic management may be applied to Winter Sports Destinations in order to aid them achieve strategic success in line with the WTO's de"nition of `Sustainable Tourism.a
* Corresponding author: Norwegian School of Management BI, POB 580, N-1302, Sandvika, Norway. Tel.: #47-6755-72-39; fax: #47-66-981-938.

Two new models are developed: the `value fana which explains the creation of value in a destination and a conceptual model of a winter sports destination for strategic analysis purposes.

2. Theories of strategic management Strategic management is concerned with `2 the management processes and decisions which determine the long-term structure and activities of the organisationa (Constable, 1980 in Thompson 1993, p. 6). Porter (1996, p. 77) states that strategy at the general management level is `2de"ning and communicating the company's unique position, making trade-o!s, and forging "t among activitiesa. In their discussion of "rms' strategy (Rumelt, Schendel, & Teece, 1994, p. 9) o!er the following description of strategy: Because of competition, "rms have choices to make if they are to survive. Those that are strategic include:

0261-5177/01/$ - see front matter 2001 Elsevier Science Ltd. All rights reserved. PII: S 0 2 6 1 - 5 1 7 7 ( 0 1 ) 0 0 0 1 0 - 3

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the selection of goals; the choice of products determining how the "rm positions itself to compete in product markets (e.g., competitive strategy); the choice of an appropriate level of scope and diversity; and the design of organization structure, administrative systems, and policies used to de"ne and co-ordinate work. It is a basic proposition of the strategy "eld that these choices have a critical in#uence on the success or failure of the enterprise and that they must be integrated. It is the integration (or reinforcing pattern) among these choices that makes the set a strategy. In this paper it is argued that there are close similarities between the business organisation of `the "rma and a tourist destination and that this parallelism allows the application of theories developed for the strategic management of the "rm to the strategic management of a destination. Strategic management of the "rm is rooted in competition (Rumelt et al., 1994). At the heart of strategic management is therefore the creation and maintenance of sustainable competitive advantage. According to Porter (1985, p. 3) `competitive advantage grows fundamentally out of value a "rm is able to create for its buyers that exceeds the "rm's cost of creating ita. Winter sports destinations facing stagnant markets are in a position where this competitive logic plays a fundamental role in achieving strategic success. However, the theories for creating sustainable competitive advantage do not seem to o!er a complete and satisfactory framework to explain strategic success in a winter sports destination. It could be argued that two areas of strategy literature are of particular relevance in relation to strategic management for sustainable competitive advantage. One, the resource-based view (RBV), focuses on the relation between the resources of the "rm and strategy. The second is based in the "eld of industrial organisation economics (IO) and in this paper centres around the main outcome of Porter's research. Porter focuses on the relation between the environment of the "rm and strategy. For the purpose of de"ning the content of strategic tasks of a destination, this paper will identify the main contribution from these two streams of literature. A third area of theoretical foundation which additionally informs the "eld of strategic management is organisation economics (OE). Theories which may be categorised within OE may be seen to have a signi"cant impact on the strength of sustainable competitive advantage and strategic success through the choice of organisational scope and design for implementation of strategies. A complete review of all the relevant strategic management literature is not presented in this paper but Fig. 1 and Table 1 summarise important components from a large body of literature and introduce in keyword style their "eld of contribution.

2.1. The resource-based view (RBV) The resource-based view (RBV) suggests that competitive advantage is derived from the ownership of a valuable resource, regardless of the source, which allows a performance better or cheaper than that of competitors (Collis & Montgomery, 1995). The RBV focuses on two characteristics of resources which enable them to constitute competitive advantage; heterogeneity and sustainability. At the roots of heterogeneity lie distinctive competencies; sustainability is based on inimitability, appropriability, imperfect mobility, and ex ante limits to competition (Peteraf, 1993). Various authors have contributed to the understanding of each of these topics, as shown in Fig. 1. The literature points out that competitive advantage from a resource-based perspective is manifested through the combination of resources rather than by resources individually. For instance, Wernerfelt (1984) notes that the optimal product-market activities are found through specifying the "rm's resource pro"le. He also notes that Andrews' (1971) concept of `strengths and weaknessesa is basically a resource position. Wernerfelt also draws an analogy with the product portfolio theory when he considers the "rm as a portfolio of resources. Collis and Montgomery (1995) note that the "rm which has the best stocks of resources for its strategy is in the best position to succeed. In the context of developing a unique combination of resources, the concepts of competence and capability have been introduced. `Capabilities are the organisational processes used to deploy resourcesa (Schoemaker & Amit, 1997). Page Grant (1991) argues that resources are inputs into the production process and few are productive on their own. Cooperation and co-ordination of teams of resources, achieved by attaching organisational capabilities are needed to create productivity. Capabilities are considered to be a main source of competitive advantage (Grant, 1991; Quinn, 1992). The notions of distinct competence (Selznick, 1957), core competence (Prahalad & Hamel, 1990), distinct capabilities (Kay, 1995), are also related to how various types of resources perform. 2.2. Industrial organisations economics (IO) Porter (1985, 1991) looks at the "rm as a collection of interrelated economic activities which require di!erent kinds of resources to perform. The notion `activitiesa as used by Porter may broadly correspond to the term `resources and capabilitiesa or rather the combination of the two, in the RBV context as both concepts represent the immediate drivers of "rm performance. Porter (1996) sees the conxguration of activities as the essential strategic task. In studying the relationship of strategy and performance Porter applied the concepts of industrial

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Fig. 1. A model for building competitive advantage from strategic management theory.

organisation economics (IO) concerning market power and pro"tability. His work on competitive strategy focuses in a new and sophisticated way on the environment of the "rm. `The essence of formulating competitive strategy is relating a company to its environmenta (Porter, 1980, p. 3). Porter considers the environment as an area of intensive rivalry between buyers, suppliers and competing "rms driving industry competition. Thus his concept of `the "ve competitive forcesa (Porter, 1980) is a basic tool of strategy analysis and formulation by means of his perception of structural determinants of the intensity of competition. In order to counter the competitive forces Porter describes the three generic strategies: overall cost leadership, di!erentiation and focus. Porter's (1980, p. 37) term di!erentiation means creating `2something that is perceived industry wide as being uniquea. Porter has the basic view that each function and activity a "rm performs*as well as interaction between these elements*may be a source of competitive advantage. For the purpose of analysing the "rm and identifying

sources of competitive advantage Porter introduces the concept of the value chain (Porter, 1985, p. 33) which `2 disaggregates a "rm into its strategically relevant activities in order to understand the behaviour of costs and the existing and potential sources of di!erentiationa. 2.3. The RBV and the Porter perspective (IO): two complementary xelds of strategic discussion It is suggested here that the RBV and Porter perspective (IO) may be seen as complementary streams of theory in strategic management and in the development of sustainable competitive advantage as shown in Fig. 1. This has also been pointed to in di!erent ways and with various degrees of emphasis by some strategy authors (Amit & Schoemaker, 1993; Barney, 1986, 1991; Conner, 1991 (analyses of di!erences and similarities); Foss, 1996; Foss & Eriksen, 1995; Ghemawat, 1991; Grant, 1995; Mahoney & Pandian, 1992; Schoemaker & Amit, 1997). However, both areas (IO and RBV) have their

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Table 1 Selected literature references related to characteristics of activities, resources and capabilities in the destination value creation process Activities, resources and capabilities in the destination value creation process Service providers - private (hotels, ski lifts, etc.) and public (medical, security, PTT, transport, etc.) Key insights from the literature

Collective services (image-building, marketing, information, etc.) Touristic infrastructure (local transport, destination statistics, research, training, quality systems, etc.) Comparative advantage (snow condition, topography, scenery, climate, etc.) Environment management (ecology, culture, social structure)

Bieger (1996)*Overview of destination issues Gunn (1994)*Positive externalities between service providers Kaspar (1995)*Service providers performing complementary activities Nesheim and Gr+nhaug (1993)*Value creation in destination, externalities Gr+nhaug and Henjesand (1992)*Product attributes weights Jakobsen (1994)*Comprehensive analysis of collective services in the destination Bieger (1996)*Overview of issues Kaspar (1995)*Overview of issues Crouch and Ritchie (1999)*Revised Carlgary model Ritchie and Crouch (1993)*The Carlgary model Weiermair (1993)*Measuring competitiveness Gill (1996)*Relationship between residents and competitiveness, stakeholders Gill and Hartmann (1991)*`The Vail papersa*issues in winter sports destinations, environment Innes (1993)*Growth management, co-ordination Krippendorf (1987)*Tourism destroys tourism Mu K ller (1994)*The `Tourism Development Magic Pentagon-Pyramidea Murphy (1985)*Tourism industry; a renewable resource industry. Co-ordinating framework Poon (1993)*Put environment "rst Shelby and Heberlein (1986)*Carrying capacity Todd and Williams (1996)*Greening of the ski industry, pro-active approach, Management system Williams (1996)*Linkage of healthy economic development with environment management system Williams (1993)*Stakeholders Williams and Gill (1991)*Carrying capacity principles WTO (1993)*De"nitions Zelfde, Richards, and Straaten (1996)*Ski tourism, strain on scarce resources Strategic literature: Amit and Shoemaker (1993)*Industrial analysis and RBV are complementary. Role of capabilities. Barney (1997, 1991)*Competitive advantage, measuring strategic performance Collis and Montegomery (1995)*Competitive advantage depends on ownership of a valuable resource Dierickx and Cool (1989)*Resources are not products Ghemawat (1991)*Irreversible investment, commitment based approach Grant (1995)*Capabilities are needed to make resources work Itami and Roehl (1987)*Invisible assets are the real source of competitive advantage Katz and Shapiro (1985)*Networks externalities Kay (1995)*Architecture, relational contracts L+wendahl and Revang (1997)*`viable governance structurea McGrath, MacMillan and Venkatamaran (1995)*Unique combinations of resources and abilities Penrose (1959)*The "rm is a collection of resources Peteraf (1993)*RBV-attributes: heterogeneity, ex post and ex ante limits to competition, immobility Porter (1996, 1985)*Con"guration of activities, competitive advantage stems from discrete activities Prahalad and Hamel (1990)*Organisational knowledge underlying core competencies Schoemaker and Amit (1997)*The role of capabilities Stabell and Fjeldstad (1996,1998)*Value con"guring for competitive advantage Teece (1987)*Complementary assets, appropriability, integration Wernerfelt (1984)*Optimal product*market activities is found by specifying the "rm's resource pro"le

Con"guration management (of the destination tourist product)

A. Flagestad, C.A. Hope / Tourism Management 22 (2001) 445 } 461 Table 1 (continued ) Activities, resources and capabilities in the destination value creation process Key insights from the literature

449

Tourism literature: Bieger (1996)*Role of DMO, destination management function Evans, Fox, and Johnson (1995)*The role of quality elements in destinations Freyer (1993)*DMO, political and non-pro"t management organisation Goeldner (1996)*More systematic approach to management is needed. Environmental ethics Gunn (1994)*Positive externalities Inskeep (1991)*Co-ordinanating role of DMO Kaspar (1995)*Limits of DMO, management function, harmonisation of goals Staub (1990)*Corporate management applied to the destination Zelfde et al. (1996)*Major di!erences in management systems Clusters/alliances/relations Kay (1995)*Innovation, relational contracts, external architecture Porter (1990)*Clusters foster innovation and upgrading

proponents and there is no sign of a unifying framework for strategy research. Barney (1986), for instance, claims that competitive success is more likely to arise from resources controlled by the "rm than from analysis directed towards the competitive environment of the "rm. `Lurking behind this sense is a perspective in which di!erences among "rms are taken to be the result of unavoidable heterogeneity in specialised factors or factor combinations rather than of purposeful di!erentiationa (Rumelt et al., 1994, p. 7 in Ghemawat, 1991). This citation encompasses the essence of creation of competitive advantage; in the RBV "rm diwerences emerge from (unavoidable) heterogeneity of resources, whereas the IO perspective focuses on purposeful diwerentiation. (L+wendahl & Revang, 1997, p. 3, italics added) coin the essence in the evolution of strategic management in stating that 2the di!erence (in organisations) is based on uniqueness of how they organize customers and assets and the way they are continuously improving these relationships. A "rm may still achieve sustainable competitive advantage if it is able to utilize assets in an inimitable way, even if they are available to their competitors as well. The contribution from the industrial organisation (IO) analysis framework (characteristics of the industry and the "rm's position within the industry, here centred around Porter), helps in particular to strengthen the dimension of relevance of resources (Grant, 1995), or as expressed by Schoemaker and Amit (1997, p. 6), resources being `2 in line with industry's strategic industry factors (developed at market level)a and selected in an appropriate combination in order to achieve competitive advantage.

3. Strategic success in winter sports destinations 3.1. Dexnition of a winter sports destination A winter sports destination may be de"ned as `a geographical, economic and social unit consisting of all those "rms, organisations, activities, areas and installations which are intended to serve the speci"c needs of winter sports touristsa. (Adapted from Bieger, 1996; WTO, 1993). Bieger (1998) notes that destinations can be seen as the tourist product that in certain markets competes with other products, and argues that `because the markets linked to the products are quite stable, destinations may be seen as strategic business units from a management point of viewa (Mu K ller, Kramer, & Krippendorf, 1991; Bieger & Schallhart, 1997 in Bieger, 1998, p. 7, italics added). The perception of a destination as a strategic business unit is, however, only clear when the destination's role as an organisation for service production is emphasised as in the de"nition of a winter sports destination suggested above. 3.2. Juxtaposing `destinationa and `xrma; the issue of strategic success The above conceptualisation of a destination has much in common with the conceptualisation of `the "rma within the strategy literature. However, there are di!erences as well as similarities. Similarities appear when applying a resource-based perspective to a destination. For example, the destination*as an analogy to Penrose's (1959) `"rma*could be considered a `bundle of resourcesa and to Porter's (1985, 1991) `"rma as a `collection of interrelated economic activitiesa. Porter's (1996) conceptualisation of `con"guration of activitiesa

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as the essential strategic task could also be valid for the destination, similar as it is to the "rm, in relating the destination to its competitive environment. Both the destination and the "rm are units related to a competitive market for value creation. These conceptualisations logically connect destinations to, for example, the classic SWOP framework (Andrews, 1971) for strategic analysis. It is therefore suggested that theories of strategic management in general are relevant sources of knowledge applicable to winter sports destinations as strategic business units. However, di!erences emerge when juxtaposing `"rma and `destinationa on the issue of boundaries. A `"rma as a strategic business unit has in terms of organisational economics (Foss, 1997) typically clearly de"ned boundaries through ownership or control structures whereas a `destinationa may have rather vague boundaries. Destination boundaries are, following the above de"nition, decided by customers' needs and not necessarily by supply side structures. Another fundamental dissimilarity is ezciency, which might be de"ned di!erently in a "rm and a destination. E$ciency goals have to be related to a set of individuals and options (Milgrom & Roberts, 1992) which makes a destination di!erent from a "rm in terms of, for example, types of ownership to assets (Williamson, 1985), social structures, community involvement and stakeholder relations. Although the body of strategic literature developed for the "rm is important and relevant the existence of dissimilarities has implications in limiting the ability of strategic management theories developed for the "rm to incorporate the scope of strategic management at destination level. At the heart of strategic management of the "rm is the creation of sustainable competitive advantage (Porter, 1985), around which most of the strategic literature is also centred. Strategic success in a destination implies that the market performance oriented term `sustainable competitive advantagea has to be seen in the context of a wider set of dimensions connected to e$ciency and the lack of clear boundaries as mentioned above. In this paper the authors suggest that the term `sustained value creationa rather than `sustainable competitive advantagea adequately re#ects the combined community, stakeholder and business goals of `strategic successa in a destination. `Sustained value creationa, as a representation of `strategic successa in a destination is further expanded on in the following section. The use of the term sustainable competitive advantage in a destination context also has some semantic implications in the view of the authors. The term `sustainablea in destination circumstances is often used in connections like `sustainable developmenta, `sustainable tourisma, `sustainable environmenta and `sustainabilitya and is thus semantically associated with environmental issues in the widest sense (ecology, social structure, culture).

3.3. Strategic success linked to sustainable tourism development (STD) The WTO de"nition of sustainable tourism development (STD) cited in Section 1 of this paper, is interpreted by the authors as strategic success has to be related to economic development, into which quality of life for the local community, quality of visitor experience and environmental concern are integrated. The literature on winter sports destination development (e.g. Krippendorf, 1987; Gill & Hartmann, 1991; Todd & Williams, 1996) is clear on the point that sustainable development, or more speci"cally management related to sustainability of the environment in the widest sense, should be an uncompromising underlying condition for investment in tourism, particularly when tourism is considered a driving force for economic development. Poon (1993), for instance, argues that sustainability of the environment should have the highest priority in tourism development. In relation to the life cycle of a destination exploitation of the environment is a potential reason for a decline in competitiveness (Butler, 1980). The environment is considered to include the ecology of the natural surroundings, the culture and heritage and the social structure. In a community approach to tourism development, Murphy (1985) argues that tourism should be managed as a renewable resource industry, involving community decision making. Community stakeholder involvement is important for success in destination development (Williams & Gill, 1991). An example of community decision making is provided in Moser and Peterson (1981). The balance between protection of the environment and being competitive in the market could be hypothesised to be the essence of destination development. This point is developed as a component of `Tourism Development's Magic Pentagon-Pyramida (Mu K ller, 1994). A too narrow focus on economic development combined with inappropriate strategies and planning has often led to undesired consequences (noted by many authors, for example Krippendorf, 1987; Buhalis, 1999). Forsyth (1996 in Welford, Ytterhus, & Eligh, 1999) concludes from an industry study that only a few companies see development of sustainable tourism as their responsibility. Strategic success is therefore closely linked with a conscious and ethically sound management at destination level of the issues of sustainability in the widest sense. Sustainability has been the focus of much tourism research in the 1980s and 1990s but was particularly emphasised in Agenda 21 at the 1992 Rio Conference of the World Commission on Environment and Development (WCED) (the `Brundtland Commissiona). Governments and non-governmental organisations have since started a process which will lead to a `Global Code of Ethics for Tourisma (Mu K ller, 1999).

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the host population and optimum satisfaction of customer requirements, with no concomitant damage to the cultural and natural environment. Sustained value creation in a perspective of the sustainability constant capital rule would mean that economic prosperity should be based on value creation that adds to prosperity after compensation for the depreciation on the value of manmade and natural capital (Pearce & Atkinson, 1992 in Turner, Pearce, & Bateman, 1994).

4. Structure of destination management As noted by many prominent authors in the "eld of strategic management, for example Rumelt et al. (1994), Constable (1980), Porter (1980, 1985) and Williamson (1985), choice of organisational design and structure is a signi"cant element related to strategic success. In the same way that there are a variety of ways in which "rms organise themselves, ranging from bureaucratic, multi-tiered organisations to co-operatives and more loosely coupled networks, there are also various ways in which destinations are `organiseda or `manageda. In this section two extremes of destination organisational structures are identi"ed; the `community modela and the `corporate modela. Thereafter forces driving development of organisational structures in destinations are discussed. Kaspar (1995) terms the destination as the point of crystallisation of demand. Kaspar creates thereby the implication that demand is oriented towards the destination as such and not to the individual enterprises. Kaspar argues that the organisational structure or administrative framework of the destination may be seen to have similarities to the "rm and that the service providers of the destination may be viewed as pro"t centres managed within a company because they come under the umbrella of a local destination management organisation. Bieger (1996, 1998) expands this conceptualisation of a destination into a strategic business unit as the destination contains all the facilities necessary for guests during their stay and therefore is a genuine product and competitive unit in tourism. Similar opinions are put forward for instance by Weiermair and Ra K dler (1994), Keller (1995) and Mu K ller et al. (1991). The destination as a strategic business unit has according to Bieger a competitive position characterised by the destination being in competition with other destinations in certain markets. The authors of this paper suggest that this conceptualisation leaves the destination with strategic choices similar to those described by Rumelt et al. (1994) in their fundamental description of the concept of strategic management of "rms referred to earlier in this paper. However, the actual dimensions subject to strategic management, as well as the goal, may have di!erent characteristics in a destination from those in a "rm.

Fig. 2. A dynamic model of strategic success in winter sports destinations.

Fig. 3. The strategic performance pyramid of winter sports destination management.

Also in the "eld of strategy and strategic management, the concept of ethically sound behaviour has in recent years become an increasingly important topic in guiding the management of organisations. Flagestad and Hope (2000) have developed a model of strategic success which is reproduced in Figs. 2 and 3, based on Mu K ller's (1994) Tourism Development's Magic Pentagon-Pyramid. They argue that in supply driven destinations, economic prosperity carries relatively more weight than subjective well being of local residents and employees, optimum satisfaction of guests, unspoiled nature and culture. Together these dimensions create what they refer to as `sustained value creationa. They de"ne strategic success as characterised by a position of sustained value creation demonstrated through enhanced economic prosperity and wellbeing of

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Fig. 4. Destination organisational structures; the community model and the corporate model.

4.1. The community model What is here termed the `community modela of destination organisation (see Fig. 4) has been described by many authors. For instance Kaspar (1995) suggests that a local destination management organisation (often referred to as DMO) for political and structural reasons is mainly concerned with promoting co-operation and the widest possible harmonisation of objectives within a destination. Heath and Wall (1992 in Bieger, 1996) notes that destination management tasks are the following: strategy formulation, representing the interests of stakeholders, marketing of the destination and co-ordination of some activities. According to Freyer (1993) the destination management organisation is a non-pro"t organisation with limited in#uence on political forces. These conceptualisations of a destination re#ect an organisational structure without much substance and with strong elements of politically driven management. The destination management organisation is perceived as mainly marketing devices and policy domains in which planning and decisions are based on stakeholder collaboration and numerous compromises. European destinations are generally in this category (Bieger, 1996). The authors of this paper suggest that the organisational framework of the `community modela of destinations consists of specialised individual independent business units (service providers) operating in a decentralised way and where no unit has any dominant administrative power or dominant ownership within the destination. Strategic leadership, which does exist, is anchored in a stakeholder oriented management, and concerned with issues of sustainability of the environment, destination planning, product development, destination marketing, particular co-operation projects, etc. The management lies with the political and administrative

institutions of the community*often the local government or a destination management organisation (DMO) with local government participation or in#uence. 4.2. The corporate model In a North American context the literature indicates that destination management is often represented or dominated by a business corporation. Such corporations manage for pro"t a strategic selection of business units of service providers incorporated by ownership and/or contracts. The major business units are centred on the `ski producta of the destination; lift operations, ski schools, ski rentals, food and beverages on the mountain, retail franchise, etc. A certain amount of the destination bed base is also often operated by the ski corporations. The multidivisional form of organisation seems to be the template for most ski corporations. It is suggested by the present authors that ski corporations have a dominant in#uence on how the destination is operated as a strategic business unit as well as strong political power in the community related development of the destination (Vail Resorts Inc., 1997; Intrawest Annual Report, 1998). Based on a case study of Switzerland, Bieger (1998) suggests that the conceptualisation of destinations as strategic business units leads to a new paradigm in destination tourism organisations (DMO) because it is customer focused and process oriented. He claims that the management perspective is no longer on industries and enterprises, but on process oriented service chains. This in turn gives reasons to launch destination management reform*projects which according to Bieger (1998), may in the most extreme cases contain a rede"nition of destination assignments, and processes of `business reengineeringa and mergers ending in a clear central business leadership of the destination. This destination

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concept has the same characteristics as the `corporate modela (see Fig. 4). The corporate model of a destination implies that the destination is strategically `corporate drivena due to a dominant corporate player as described above. However, only an extreme case would imply that the destination is totally incorporated, which is considered only to be a theoretical case related to winter sports destinations. Many ski corporations in North America are publicly listed shareholding companies (for instance Vail Resorts Inc, Intrawest, American Skiing Company). The ongoing reengineering mentioned above of some European destinations, has to a large extent, been inspired by North American ski corporations. For example Bieger (1998) points to Flims-Laax-Falera (Weisse Arena) in Switzerland as a case study in this respect. In Sweden Sa K lenStja K rnan is a similar case (Annual Report 1998/99, Sa K lenStja K rnan).

4.4. Transaction costs in a destination Transaction costs analysis, originating from Coase (1937) and Williamson (1975) could provide an interesting approach to explaining the development of organisational structures in destinations. Proponents of this approach argue that the theory holds that `2organisational structure and design are determined by minimising transaction costsa (Milgrom & Roberts, 1992, p. 29). The same authors, however, point to the fact that it may be problematic to apply this approach correctly to all economic organisations. The authors of this paper would hypothesise that reduction of co-ordinating costs (a type of transaction cost) in areas of marketing, booking, information, events, etc. would motivate more e$cient organisational structures operating at lower costs at destination level. Reduction of transaction costs could be hypothesised to be one of the motives behind the development of companies within the destination consolidating, for example, the operation of all the ski-related activities in one single company (uphill transportation, snowmaking, security, ski schools, ski rentals, etc.). In a destination context there are, however, production units largely independent of all others which do not need to be co-ordinated (the bed base, restaurants, bars, retail shopping, etc.). Or there are areas of interdependence where due to the existence of understanding and routines (big events, etc.) between destination players a reduction of transaction costs is unlikely to be achieved by introduction of some kind of hierarchical structure. The extent to which organisational design at destination level can be explained by the motive of reducing transaction costs has hardly been discussed in the literature and is certainly an area for future research. 4.5. Creation of externalities The fact that investment in one activity in a destination may a!ect other activities in a positive or negative way, creates what in economic theory is called externality. An applicable de"nition of externalities is: `2factors which may result in a bene"t or cost to a "rm or society which originate, in part, from outside the "rm or as an adjunct to productive activitya (Pass, Lowes, Pendleton, & Chadwick, 1995). It could be argued that bene"ts are more likely to be gained from internalising externalities than through reducing transaction costs due to the nature of production units within a destination as complementary resources. The complementary character of the individual business units (service providers) of the destination is an essential and genuine attribute in the destination production system (Kaspar, 1995). The discrete business units in a destination generate various numbers of customers and when one activity creates far more demand for another activity than vice versa it leads to `positive externalitya for the latter

4.3. What drives change of organisational structure in a destination? A fundamental question when looking at organisational structures in this paper is how to bring about an organisational structure at destination level which has a concern for the welfare and quality of life of the people within a system based on the principal task of bringing about an organisation aimed at improving economic e$ciency? In recent years the perfect market and general equilibrium proposed by the neo-classical market model have been overtaken by the discovery of various realistic forms of market failure (Jacobsen, 1993). The neo-classical theory was used to prove that the market through a system of properly determined prices can solve the organisation problem (Milgrom & Roberts, 1992). Looking at the European*and in particular the Scandinavian*scene of winter sports destinations, it is tempting to quote Alfred Chandler who observed that new organisations*especially "rms*historically often were organised when people found that market outcomes were ine$cient (Milgrom & Roberts, 1992, p. 73). In the following sections two theories associated with market failure are discussed in relation to how the organisational structures of a winter sports destination emerge. Firstly, in the theory of transaction costs, organisation is seen as a response to market failure. However, the present authors, while acknowledging the impact of transaction costs at destination level, suggest there are limits to the application of the theory. Secondly, the impact of externalities between economic actors in a destination due to market failure is believed by the authors to be a more signi"cant driver of organisational change in winter sports destinations.

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A. Flagestad, C.A. Hope / Tourism Management 22 (2001) 445 } 461 Table 2 Characteristics of activities, resources and capabilities in the destination value creation process; based on insights from the literature on strategic management (resource-based perspective, industrial analysis) and tourist destinations Disaggregation of activities, resources and capabilities in the destination for analysis of category related to the value creation process Category of activity in the destination value con"guration `the value fana Primary activity Service providers*private (hotels, ski lifts, etc.) and public (medical, security, PTT, transport, etc.) Collective services (image-building, marketing, information, etc.) Touristic infrastructure (local transport, destination statistics, research, training, quality systems, etc.) Comparative advantage (snow condition, topography, scenery, climate, etc.) Environment management (ecology, culture, social structure) Con"guration management (of the destination tourism product) Clusters/alliances/relations X Support activity

activity. Similarly, when the activities of one economic agent in a destination, for instance an hotel, a!ect the activities of another hotel by taking away guests or a!ects the destination as such by implying environmental pressure, negative externalities emerge. Thus the e!ect of externalities may be found not only between business units (Nesheim & Gr+nhaug, 1993), but also between community and business units (infrastructure investments, environmental protection, etc.), and between visitors and business units/community. For instance a widely discussed topic in winter sports destinations is how to avoid negative externalities for instance in terms of environmental costs which may be caused by investments in ski areas. A primary objective is how to correct or internalise externalities in order to achieve equilibrium. One way is by pricing (Pashigian & Gould, 1996), whereby equilibrium is attained through the mechanism of the market, or in the case of market failure, through government intervention. Another way is integration by ownership or some order of co-operation in sharing cost and revenue which is hypothesised to be the essential route to organisational change occurring in some winter sports destinations. It is suggested here that an essential political challenge of the destination is to identify the relevant strategic tasks and stimulate a management structure quali"ed to achieve*across the destination*an optimum balance between (1) adoption of externalities (positive and negative) and (2) freedom in areas where externalities are less signi"cant in order to maximise innovation and the creation of sustainable competitive advantage. The internalisation of externalities is considered in this paper to be the dominant principle of value creation in a winter sports destination due to the nature of complementarity between all actors in a destination.

appropriate category for an activity may, according to Porter, require judgement. A list of discrete activities, in the context of a winter sports tourist destination is presented in Table 2. This is largely based on key insights from the literature as shown in Table 1 earlier. 5.1. The value conxguration of a destination: the `value fana In Porter's concept the value chain con"guration consists of two levels of value creating activities; primary activities involved in the physical creation of the product and the transfer of value to the buyer, and support activities which support the performance of the primary activities by "rm-wide functions (along the entire chain). It is suggested by Stabell and Fjeldstad (1996, 1998) that whereas the value chain may be well suited for analysing manufacturing industry, `2the typology and value creation logic (of the value chain) is less suitable to the analysis of activities in a number of service industriesa (Stabell & Fjeldstad, 1996, p. 2). Stabell and Fjeldstad point to similar critiques in L+wendahl (1992) and Armistead and Clark (1993). Based on their research, Stabell and Fjeldstad (1998) suggest that value chain analysis

5. A model of value creation in a destination In order to build a conceptual model of a destination for strategic analysis it is necessary to de"ne the discrete value-creating activities of the destination production process. Porter's value chain (Porter, 1985) has been widely used as a framework for disaggregating the "rm into important elements of the value creation process. Porter claims the value chain is valid for all kinds of industries. The literature shows some applications of the value chain to the tourism industry (Poon, 1993; Bieger, 1996; Weiermair & Auer, 1997). When de"ning the value chain (Porter, 1985) suggests that the degree of disaggregation depends on the economics of the activities and the purpose of analysing the value chain. Porter further suggests the following three basic principles for separating activities: (1) di!erent economics, (2) potential of impact of di!erentiation, and (3) signi"cant proportion of cost. Selecting the

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455

Fig. 5. The value con"guration of a winter sports destination; `the value fana.

needs to be transformed into value conxguration analysis and suggest three distinct value con"gurations: the value chain, the value shop (problem solving activities, e.g. medical treatment) and the value network (mediating activity, e.g. telecommunications company). The value creation process in a destination is not well explained by the chain con"guration basically because of the non-sequential production process in a destination. In the chain, the output of one activity is the input of the next activity. In a destination value to the customer is achieved through the collection of discrete service providers; a `networka (Stabell & Fjeldstad, 1996, 1998). The con"guration logic suggested in their value network may be adapted to develop a value con"guration related to a destination value creation system. However, it should be noted that the research activity by Stabell and Fjeldstad is related to a demand side network whereas a destination primarily represents a supply side network. It is suggested here that the value con"guration of a destination can be illustrated through the `value fana presented here in Fig. 5. The value fan is built on the terminology of Porter's value chain. 5.1.1. Primary activities of a destination According to Porter's terminology, these activities are concerned with transferring value to customers. In a destination the dominant mechanism for the value transfer is the collection of complementary:business units (ski area operator, hotels, restaurants, entertainment, local transport, medical service, police, etc.),which consequently in the `value fana constitute the primary activities. The value con"guration of each business unit is embedded in the value system (Porter, 1985) of the

destination and has for instance, inter-linkage through externalities, but each individual business unit has its own discrete value con"guration. (for example the value con"guration of the medical service o$ce may be di!erent from the value con"guration of a cafeteria). 5.1.2. Support activities of a destination These are identi"ed by searching for activities and conditions which support the performance of primary activities (Porter, 1985). In a destination con"guration it is suggested that the following activities should be categorised as support activities: E con"guration management (of the tourism product); E sustainability management of the environment, overall destination planning and design; E collective services; E destination infrastructure; E comparative advantage (natural conditions). A summary comparison of the value chain and the `value fana is presented in Table 3 based on an adaptation of a taxonomy showed by Stabell and Fjeldstad (1996, 1998). 6. A conceptual organisation model for strategic management of a winter sports destination The purpose of building a conceptual model for strategic management of the winter sports destination is to identify how the strategic tasks (concerned with creating strategic success) and strategic management (implementation of strategy) of the destination relate to

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Table 3 Juxtaposing value chain (Porter, 1985) and value con"guration of a destination (`value fana) based on application of value network (Stabell & Fjeldstad, 1996, 1998). (Taxonomy adapted from Stabell & Fjeldstad) Chain Value creation logic Transformation of inputs into products Fan destination value con"guration Linking complementary business units Supply side externalities Production and consumption are simultaneous activities Production is horizontally interlinked No upstream or downstream production Mediating Service providers: Accommodation Restaurants Shops Ski lifts Ski schools Entertainment Information Medical service Police Piste security Internal transport PTT Etc. Con"guration mgt Sustainability mgt Infrastructure Collective services Comparative adv Simultaneous Parallel Pooled Reciprocal Scale Capacity utilisation Con"guration of the destination tourism product Sustainability of environment Capacity utilisation Parallel discrete value con"gurations in co-operating and competing relationship

Primary technology Primary activity categories

Long-linked Inbound logistics Operations Outbound logistics Marketing Service

Support activity categories

Procurement Technology dev. Human resource dev. Firm infrastructure Sequential Pooled Sequential Scale Capacity utilisation

Main interactivity relationship logic Primary activity interdependence Key cost drivers Key value drivers

Business value system structure

Inter-linked chains

the goals and activities of the destination. In constructing this relationship the elements identi"ed through disaggregation of the value creating process have been applied to a destination organisational frame based on an analogy whereby the multidivisional "rm is used as a metaphor. This frame suggests that activities be split into two main levels, a strategic level and an operational level, respectively. The conceptual model presented in Fig. 6, allows for the application of di!erent organisational structures of the destination. The operational level consists of the bundle of business units represented by the individual service providers (private companies and public services) which deliver the tourism product*`transfer value to destination customersa (the primary activities in the `value fana). The operational level also includes the service units' value contribution as related to the environment (natural, cul-

tural, and social) to the tourism product. In the value con"guration terminology these activities are support activities for the performance of the primary activities. The strategic level embodies the destination strategic organisational level and the two main strategic tasks. The "rst of these (task 1) is the management of the conxguration of the destination tourism product (the mix of `business unitsa), and the second (task 2) is the management of sustainable development (the sustainability elements, (natural, cultural and social elements and overall planning and design)). 6.1. Task 1: conxguration of the tourism product of the destination The tourism product (supply side) con"guration of a destination is the combination of discrete services in

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457

Fig. 6. Conceptual model of a winter sports destination for strategic management analysis.

terms of both quality and quantity supplied by the destination's operational level of service providers. Typically, services in this respect will consist of: the ski product (lift systems, sports activities, ski schools, ski guides, ski rentals, repair services, etc.); the bed product (accommodation facilities, restaurants, kindergarten, etc.); the village ambience (after ski, entertainment, events, shops, etc.); and the across destination service (banks, telecom, transport, medical service, police, information, etc.). The important aspect of strategic positioning is embodied in the con"guration of the tourism product. Strategic positioning of a destination is to a large extent centred on

di!erentiation. Only one destination can, by de"nition, hold the cost leadership position. The suggested value con"guration of the destination (the value fan) may lead to following proposition for the con"guration management: The strategic success of the destination will increase when con"guration management: E promotes investments/activities creating positive externalities; E prevents investment/activities creating negative externalities;

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E promotes business units/investments/activities which are able (1) to internalise the maximum of externalities in their value con"guration, and (2) to compete on dimensions not in#uenced by externalities (stimulate innovation, upgrading); E "nds the equilibrium between the contribution of externalities and contribution of competition to the value creation of the individual business unit; E achieves optimum product-market "t. Optimum product-market "t increases externality value for all service providers assuming that the attractiveness of the destination in the market will be superior to competitors. 6.2. Task 2: sustainable development Value creation through tourism and recreation within the context of a destination is "rmly linked with social, cultural and natural environments (Williams, 1996). Thus the management of sustainability of these resources with the purpose of maintaining and increasing their value as support functions is closely related to*and a condition for*strategic success of the destination. The management of the sustainability of environment has in the value con"guration of the destination (the value fan), a major impact in terms of creating externality value for the primary activities and across all other dimensions related to destination strategic performance. Sustainable development is considered a strategic task in the destination model. Without doubt, the attributes of the local culture, natural and social environments are attractions in a destination, and as such also transmitters of value direct to the customer. 6.3. Hypothesised performance of the community model and the corporate model Having identi"ed the strategic tasks within the destination organisational structure, the question may be posed `which one of the community model and the corporate model will lead to superior performance in creating strategic success?a Earlier in this paper, it was posited that destination organisational structures may be considered along a continuum, with the community model at one end and the corporate model at the other. There are reasons to hypothesise that the corporate model may perform better than the community model in creating customer satisfaction. The corporate model is in a position to manage more professionally a customer-oriented destination development by controlling a critical mass of service providers. This is in contrast to the community model where service providers act in a less co-ordinated way. On the other hand, it may be proposed that the community model, through a stronger stakeholder involvement, may perform better than the corporate model on, for example, ecological and social dimensions of sustainability. It may also be hypothesised that a

destination operated by two or more dominant corporations will perform better than a destination operated by a single corporation due to lack of internal competition. It is further posited that in destinations at the `communitya end of the continuum, strategic success is more likely to occur where there is some form of over-arching coordinating body. This may arise, for example, due to one family business or one set of family businesses being in a dominant position within a destination. Fieldwork is currently being undertaken to collect information from the various stakeholders of winter sports destinations in an attempt to identify those characteristics of a destination which lead to strategic success, based on the models presented in this paper. It is suggested that important stakeholders in a winter sports destination are the customers, the individual service providers, the local residents, the employees, the local government and "nancial institutions.

7. Summary and conclusion This paper started by presenting a review of the resource-based perspective and industrial organisationbased theories of strategic management. Similarities and di!erences between a destination and a "rm were discussed and the need to modify strategy theory developed for the "rm was highlighted. Two `typesa organisational structures of destinations were identi"ed and discussed. Following this the factors transaction costs and externalities were discussed and their link to choice of destination organisational structure examined. Two new models were presented: the value fan which extends strategy theory to the destination and the conceptual organisation model of a winter sports destination which provides a framework for analysis of a destination at the strategic level. It is felt that the models discussed in this paper will facilitate a clearer understanding of the mechanisms by which destinations can meet the goals laid down by the WTO for sustainable tourism, thereby bene"ting the tourist and the host community without impacting harmfully on the environment. In view of the accelerating process of restructuring and consolidation in winter sports destinations, it is intended that the ongoing research referred to in this paper will contribute to clarifying the kind of organisational structure that should be aimed at in planning in winter sports destinations.

Acknowledgements The authors are indebted to Associate Professor "ystein Fjeldstad and Associate Professor Bente L+wendahl at the Norwegian School of Management, and Professor

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Alan Mu K hlemann at the University of Bradford Management Centre for valuable comments on previous drafts related to this article.

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