VisitBritain © VisitBritain Research

The UK tourism productivity gap Challenges and potential for tourism productivity

Yoo Ri Kim, Andrew Lockwood, Allan M Williams School of Hospitality and Tourism Management Report for VisitBritain by University of Surrey.

October 2019 2 The UK Tourism Productivity Gap

Executive summary

This report was commissioned by VisitBritain to provide a synthesis of existing knowledge about the productivity challenge facing the tourism industry in the UK, its determinants, future challenges, and approaches to raising productivity based on an analysis of secondary sources. Since 2008, the overall productivity of the UK economy has been lower than all other G7 countries and the gap has been growing. Despite tourism currently being one of the strongest sources of employment in the UK economy, its productivity is strikingly low compared to other countries and other sectors of the UK economy.

The challenges and potential for especially in rural and coastal areas. tourism productivity: • The tourism workforce tends to be • Traditional productivity measures have transient, temporary, low skilled, young limited applicability to the tourism and migrant, with EU nationals being industry but service productivity an important segment of the labour measures, which might include market. High labour turnover/low staff components of service quality and retention and difficulties in recruitment consumer satisfaction and need to are a major dampener on tourism cover the diversity of the industry, productivity due to the loss of skilled have not yet been effectively and experienced workers, and the operationalised by government, disincentive to training. The sector industry or academic research. This faces a potential major skills gap, makes quantitative benchmarking especially due to uncertainty about difficult. Brexit which will impact on skills, talent and employment. • As a key determinant of output, variations in demand are one of the • The rise of digital platforms and the biggest influences on tourism emergence of new forms of economies, productivity. Demand variations include such as the gig or sharing economy, both changes in numbers of visits and have led to an increase in non-standard also in visitor spend. Regional demand work and negative impacts on variations highlight the concentration traditional businesses. Increased of tourism in London influencing accessibility to data can generate regional productivity differentials that insights from data analytics and data- add to the long tail of weak driven innovation, which can enhance productivity in the sector. productivity in the long-run; but infrastructural weaknesses are barriers • A lack of investment in capital and to realising these benefits. Emerging infrastructure is restricting productivity automation and AI capabilities are growth in the tourism sector. Poor considered to be productivity connectivity due to limited transport enhancers, but costs, skills shortages infrastructure and broadband and lack of investment mean this is bandwidth and speed are a significant still in the very early stages for the drag on tourism productivity levels, majority of the industry.

visitbritain.org 3 The UK Tourism Productivity Gap

Key responses: and productivity growth and innovation needs to be explored in order to • The government and industry need a identify the skills gaps. Regular better understanding of tourism meetings and communication between productivity and this requires better managers and employees can help knowledge sharing and collaborative identify skill needs and training discussions in the form of business requirements, employee motivation and networks and communities. New and career pathways in order to improve alternative measures of productivity staff retention. Planning for post Brexit and its components should be explored is essential but difficult given that can capture the many different continuing uncertainties, but campaigns dimensions of productivity. Digital tools to recruit more British workers can be and platforms for benchmarking promoted regionally. performance and productivity should be further developed and used by Apprenticeships offer an important tourism businesses. means to attract workers into the industry and raise skill levels so as to • Improved demand management is a key improve productivity. Collaborative to improving productivity, and there are partnerships in local areas can improve existing technologies and data understanding of the people and skills analytical systems which can be used in an area and deliver strategic to enhance forecasting and revenue solutions to enhance tourism management. Diversification and employment and productivity. market development, segmentation and targeting can raise productivity. • There is a need for stronger linkages between tourism infrastructure, policy • Government support is needed to and regulatory environments as well as increase connectivity and provide providing the necessary skills base to relevant and state of the art stimulate and deliver effective infrastructure. Collaborative innovation in the sector. This could be partnerships at a regional or local level achieved through the creation of can help to deliver stronger and more networks, business communities and/or sustainable investments in capital and tourism zones to share knowledge and infrastructure, which can help address best practice on working practices, IT the regional differences in tourism adoption and innovation. There is a productivity. need for policies which specifically target innovation in tourism • Flexible labour arrangements are an businesses, especially SMEs, as a important means to manage labour means to raise productivity. This could inputs in the face of demand be addressed with further variations, and for enhancing opportunities for government funding productivity. Relevant skills to and KTPs to encourage collaborative effectively use data as a key research between industry and infrastructure for potential economic academic institutions.

visitbritain.org 4 The UK Tourism Productivity Gap

Contents

2 Executive summary 5 Tourism and The UK Tourism Productivity Gap 8 Tourism productivity: challenges and potential Measurement issues 10 Demand variation and markets 12 Capital and infrastructure 14 People and skills 16 Digitisation and innovation 18 20 Responses to tourism’s productivity challenge Measurement issues 21 Demand variation and markets 22 Capital and infrastructure 24 People and skills 26 Digitisation and innovation 28 31 Conclusions

Table of figures

Fig 1 Comparison of gross domestic product per hour worked in the UK and the other G7 countries (1997-2016) p6 Fig 2 Gross value added across different sectors in the UK (2008-2015) p7 Fig 3 Gross value added per capita of different sectors in the UK (2015) p7 Fig 4 Growth of visitor expenditure in the UK from 2012 to 2018 p13

Key terminologies

Productivity puzzle refers to the stagnant productivity growth levels after the 2008 global financial crisis Productivity paradox refers to the existence of low productivity levels despite high investment and expected benefits from the application of information technology (IT) Tourism productivity challenge refers to the persistent low productivity levels of the tourism industry in the UK; this is the outcome of the productivity puzzle and productivity paradox in the tourism industry

visitbritain.org 5 The UK Tourism Productivity Gap

Tourism and The UK Tourism Productivity Gap

Key points • The productivity puzzle post-2008 has been larger in the UK than in other G7 countries. • Despite tourism being one of the strongest sources of employment in the UK economy, its productivity is strikingly low. • There is a substantial productivity gap between the tourism sector and most other sectors in the UK economy.

Productivity in the UK has been at the paradox’, the decline in productivity frontline of government agendas and growth since circa 2004 despite economic debates over many decades, anticipated gains from technological but these have been given greater innovation. This overview is something of emphasis due to the uncertainty an oversimplification because although surrounding Brexit and the 2017 the productivity slowdown after the 2008 ‘Industrial Strategy: Building a Britain fit crisis was evident across the whole for the future’. In the face of concerns economy, the detailed evidence for each about changes in international migration sector is different. and labour skills and costs, global competition, and exchange rate fluctuations, UK businesses are facing What is productivity? intense competitive pressures, as well as < the need to engage with rapid, often Productivity is usually referred to as radical, technological shifts. Within this labour productivity, which is simply context, there have been growing measured as the total output of a concerns about productivity in recent business divided by the number of years. employees or total worked hours. The total output of a business can be Productivity is a key driver of long-term measured in various ways: total revenue economic growth, competitiveness, or sales, turnover or value of goods and wages, and national living standards, and services supplied. The common measure its growth has persistently slowed down used is gross value added, which is the in many advanced economies in recent difference between revenue and the decades. This is linked to the so-called intermediate inputs used to produce this ‘productivity puzzle’, whereby productivity value added. Productivity shows us how levels have stagnated following the 2008 effective and efficient an individual, firm global financial crisis, and the long- or country is. standing concern about the ‘productivity

visitbritain.org 6 The UK Tourism Productivity Gap

During the 2008+ economic recession, the Concerns about productivity levels are by highly performing and productive (large) no means unique to the UK as the OECD firms have been driving UK productivity, have also highlighted a major disparity and this same pattern persisted after the between the ‘global frontier firms’ to ‘the recession. However, these ‘globally rest’, which has led to substantial leading frontier’ firms, as the OECD labels productivity gaps within and between them, are a small minority of the total sectors and major national economies. body of firms which make up the Amongst the advanced economies, the UK economy, which implies that ‘the rest’ are is one of those which is considered to be making little or no progress. They have struggling to recover longer term formed the so-called ‘long tail of productivity levels, following the financial productivity laggards’, which is mainly – crisis, and it has also been reported as but certainly not entirely – comprised of having the weakest performance amongst small- and medium-sized enterprises the G7 countries across a range of (SMEs) and is essentially pulling down the measures. UK productivity, measured by overall growth of productivity. output per hour worked, was 16.3% below Furthermore, two-thirds of the workforce than of the rest of the G7 in 2016. Using a are employed in these low productivity slightly different measure, output per firms. This is particularly pronounced in worker was also 16.6% below the rest of the UK tourism industry which is one of the G7 in 2016. Taking a longer term view, the four sectors (construction, retail, whereas up to 2007 the UK had relatively administrative services and hospitality strong productivity compared to the other and tourism) with the lowest levels of G7 countries, after the 2008 global productivity in the UK 1. Given that the financial crisis, its productivity has been 1 LSE Growth sector is comprised of over 240,000 the weakest, and has worsened in the Commission (2017) businesses, of which the majority are following seven years. Moreover, the size UK Growth: A New Chapter. London. SMEs or micro-businesses, this means of the UK productivity puzzle post-2008 that there is a very substantial ‘long tail’ has been larger than in the other G7 of productivity laggards in tourism. This countries – productivity based on output creates a large productivity gap within the per hour worked fell more sharply and sector, as well as contributing to the persistently in the UK in the immediate productivity gap with other sectors. aftermath of the financial crisis, and that However, it is also a potential source of gap has subsequently widened (Figure 1). substantial productivity increases, if effective solutions can be found to address the factors that are shaping these gaps.

Figure 1 Comparison of gross domestic product per hour worked in the UK and the other G7 countries (1997-2016)

visitbritain.org 7 The UK Tourism Productivity Gap

Tourism has had one of the fastest Despite being a thriving sector and growth rates in employment and in gross playing a critical role in the growth of value added (GVA) since the 2008 crisis: output and employment in the UK, between 2009 and 2017, its total productivity – measured as GVA per contribution to employment grew by capita – is strikingly low (Figure 3) 7.4% 2. However, despite, or perhaps compared to the rest of the economy and 2 WTTC (2018) Travel & because of this, tourism has long been even compared to other highly-labour Tourism Economic considered to be integral to the challenge intensive sectors, such as retailing. Impact 2018 United Kingdom. London. of how to increase aggregate UK productivity levels. Figure 2 illustrates There have been extensive debates the strong overall growth in GVA in about the causes of this. On the supply 3 People1st (2017) The tourism compared to the other sectors side, it has generally been characterised performance & talent of the economy. There was a 52% as a low wage, low skill and low management increase for tourism and hospitality, productivity sector, and also has one revolution: Driving productivity in whereas the economy as a whole only of the weakest innovation rates of any hospitality & tourism. expanded by 28% 3. UK sector. London.

Figure 2: Gross value added across different sectors in the UK (2008-2015)

Figure 3: Gross value added per capita of different sectors in the UK (2015)

visitbritain.org 8 The UK Tourism Productivity Gap

On the demand side, it is a sector which increased competition and pressure on faces high but, to some extent difficult-to- prices. Uncertainty surrounding Brexit (in predict, demand variations – seasonally, whatever form it takes) is also posing a within the week, and within the day significant challenge for the industry’s – posing enormous challenges for efficient labour markets due to its substantial staff rostering and for productivity. The reliance on international migrant labour. industry is also at the forefront of In the face of these concerns and changes driven by the digital revolution, challenges, there is an urgent need to especially the growth of online platforms tackle the productivity challenge of the and social media, which although creating UK tourism industry, and to bring fresh exciting new opportunities, has also perspectives to this persistent task.

Tourism productivity: challenges and potential

The UK tourism industry has long been known for its low productivity and this is not just a recent phenomenon due to changes in the socio-economic, political and/or technological environment. However, the challenges of increased competition, technological shifts and uncertainty surrounding Brexit have served to exacerbate concerns about these low productivity levels. Industry and government increasingly recognise the importance of tourism productivity for the UK economy.

As the new Industrial Strategy has Responding to this opportunity, a recent highlighted, the productivity puzzle and study analysed productivity in the UK’s productivity challenges are pervasive low-wage sectors compared with ten across the entire economy, but it is major economies, such as the US, especially acute in particular sectors and Germany, and France 5. Ten sectors were regions. The Strategy states that “some of analysed – also including administrative the biggest opportunities for raising services and agriculture – amongst which productivity come in sectors of the hospitality and retailing were central due economy that have lower average to their highly labour-intensive nature and 4 HM Government productivity levels, but where many having the lowest pay levels. The findings (2017) Industrial people work and which are vital to our of the study inferred that raising Strategy: building a economy” 4. In particular, the new Sector productivity in these low-wage sectors to Britain fit for the Deal in the Industrial Strategy offers an the levels of Germany, France and the future. London. opportunity to bring tourism productivity Netherlands would narrow the UK (p.171) into greater focus in national productivity productivity gap with these countries by 5 Forth, J. and Rincon- debates, and also to emphasise that it 21%, 23% and 21% respectively. In the Aznar, A. (2018) represents both a challenge and an hospitality sector, when compared to the Productivity in the opportunity to raise productivity, reducing UK, productivity levels are significantly UK’s low-wage the long tail of lagging firms and sectors. higher in the US and Germany by 10% and industries. London.

visitbritain.org 9 The UK Tourism Productivity Gap

in France by as much as 45%. These economic value in addressing seasonality findings do highlight that the performance issues with events and localised of the different segments of the tourism strategies to sustain business operations, industry will vary and that each may have helping to retain skilled workers in the specific needs. locality and sector 6. After the launch of 6 Tourism Industry Tourism 2025 in 2014, various off-peak Association New However, productivity diffusion is marketing, active pricing strategies and Zealand (2014) especially challenging across the whole of specialised event offers during off-peak Tourism 2025: Growing value the service sector because of the seasons have shown positive progress in together. www. perceived low competitiveness motivation enhancing their demand and subsequent tourism2025.org.nz. which dampens the ambition to adopt productivity. best practices. This is particularly important in the tourism industry given There are several key challenges in the the high proportion of SMEs in the sector, tourism sector that needs to be addressed and that smaller firms tend to have to solve the productivity puzzle. Major relatively low productivity. The reasons factors that have shaped the UK tourism behind this include the limited resources productivity puzzle will be discussed, and and lack of economies of scale to drive these include the following: productivity within the business. Yet, there is potential for productivity • Measurement issues improvements and growth in tourism. For • Demand variation and markets instance, New Zealand was facing similar • Capital and infrastructure struggles with productivity and developed • People and skills Tourism 2025, which plans to identify • Digitisation and innovation

visitbritain.org 10 The UK Tourism Productivity Gap

Measurement issues

Key points • Measurement of productivity in tourism is made difficult by the intangible nature of both inputs and outputs, which calls into question the appropriateness of traditional productivity measures. • Service productivity measures are conceptualised as including the components of service quality and consumer satisfaction, but these have not yet been effectively operationalised by government, industry or academic research. • In the expanding digital economy, innovations are both tangible but also intangible, creating new sources of inputs to production and generating new business models that further challenge the measurement of productivity.

Traditional measures of productivity are this systematically in secondary data, as based on the production function, where opposed to one off studies of particular output is seen as the product of three firms. It is not surprising, therefore, that main inputs – capital, labour and the recent Bean Review strongly and technology. In practice, most analyses convincingly contended the need for new have focussed on only one aspect of this measures of productivity for the service larger relationship, which is labour industry, recognising the overwhelming productivity. Labour productivity dominance of this sector in the UK measures have a major disadvantage, in economy 7. 7 Bean, C. (2016) that they exclude other important aspects Independent Review of UK Economic of production such as capital, technology However, due to the intangible nature of Statistics. London. and finance. The alternative measure that the industry (so many of its outputs are includes them all is total factor not material, easy to measure physical productivity, which has its roots in goods), measuring productivity is a major studies of the manufacturing and challenge. In response to the limitations production industries, but the service of existing measures, there are emerging sector in general and tourism, in alternative service productivity measures particular, have been long neglected in which seek to challenge the evaluation of these terms. Despite this critique, labour intangible tourism service and productivity is still the most widely used experiences. For example, measures measure of productivity in most industry including service quality, customer and academic analyses; this is reinforced satisfaction and the service encounter by the focus of the government on labour between the supplier and the consumer. It productivity. has long been argued that there is a close relationship between service quality, Starting from the manufacturing sector customer satisfaction and productivity has meant that there have been due to the integration and involvement of significant difficulties in effectively consumers in the process of creating capturing performance measures in the value in services. However, whether it is context of tourism. It is recognised that possible to separate the quality of output the measures of the quality of the from the measure of productivity remains experience, or customer satisfaction are debatable. Yet, researchers agree that central to capturing some of the long term inputs and outputs should be considered sustainability of the product or firm. together so as to improve the However, the difficulty is how to capture measurement of productivity. Given the

visitbritain.org 11 The UK Tourism Productivity Gap

distinctive characteristics of the tourism how to capture the full value of inputs industry, how labour is defined and and outputs of production, leading to measured is inevitably the key to the claims that productivity has been production and productivity of the underestimated in official statistics. The industry. However, this has not yet been growth of robotics and artificial translated into industry, government or intelligence (AI) in tourism is also secondary statistics. challenging tourism productivity, which will be further discussed in the innovation New measures of productivity are also section. required in response to the structural changes in the economy and rapid digital With the advancement of digital transformations. The productivity paradox technology and the emergence of digital contends that information technology (IT) platforms, new business models such as has not led to an increase in productivity; the gig and/or sharing economy and other this partly reflects the issue of forms of peer-to-peer (P2P) transactions measurement. It is argued that national have made it more difficult to capture productivity has been under-estimated productivity. This is because it is difficult due to weak or missing data on to measure the labour input due to non- technological impacts and time delays in standardised contracts and indirect labour these being filtered into productivity payment. In addition, there is some measurements 8. This includes the long evidence of only partial output returns for 8 OECD (2016) The time lag in the introduction of business and taxation purposes. Productivity- technologies widely across the sector and Moreover, productivity in tourism is not Inclusiveness Nexus. the lack of investment in the managerial just about the formal labour required for Paris. and organisational changes required to production, but also the inputs from maximise the benefits of such customers who consume the products. technologies. Additionally, the slowdown This form of P2P transaction has further of research and development (R&D) blurred the distinction between input and investments, innovation and human output of production as consumers are capital accumulation have also affected both producing and consuming a product the operationalisation of IT on business or service at the same time; for instance, productivity. house swapping or sharing (e.g. Airbnb) or various self-service approaches in The growing digital economy means there hotels and restaurants. This blurred are more intangible and tangible digital distinction challenges the traditional innovations, which are difficult to quantify productivity measure of input and output. and value using traditional measures. For This links back to the difference in the example, the introduction of new software nature of services compared to and big data analytic systems for manufacturing, which further underlines enhancing revenue management and the question of the suitability of the pricing strategies for hotels (e.g. Expedia’s traditional measures in the rapidly Rev+). The importance of intangible assets evolving digital economy. and products has led to disputes about

visitbritain.org 12 The UK Tourism Productivity Gap

Demand variation and markets

Key points • Variations in demand are one of the biggest issues for tourism productivity. • Reduced visitor expenditure growth in recent years. • Business cycles impact on demand as shown by the 2008 global financial crisis. • Regional demand variations highlight the concentration of (international) tourism in London influencing regional tourism productivity differentials that add to the long tail of weak productivity in the sector.

Demand variation is a major factor in Business cycles are also an important tourism productivity. Due to the nature of source of demand variations, as travel, work and leisure patterns, evidenced by the impacts of the 2008 seasonality is endemic to the industry, as global economic crisis. This led to also are variations across the week and increased unemployment and job security day. In 2018, VisitBritain reported that the and a reduction in disposable income, highest percentage of visits was 29% affecting consumer expenditure on during the summer months of July to tourism. Asset and capital prices declined, September, with only 21% during January weakening business capabilities to fund to March 9. One study estimated that debt or invest in physical and human 9 VisitBritain (2018) approximately 73% and 68% of the capital and innovation, leading to a Inbound tourism variation in the productivity in two hotel decline in productivity. In addition, trends by market.

chains was accounted for simply by the different market segments were also 10 Park, S., Yaduma, N., 10 variations in demand . Some variations affected having adverse effects on Lockwood, A., are relatively predictable, but others are tourism productivity. For example, high Williams, A. (2016) not. Seasonality impacts on revenue and value products such as long-haul flights ‘Demand fluctuations, investment returns due to under-used declined more than short-haul flights due labour flexibility and capacity and the fixed costs of providing to price differential and risk averse productivity’, Annals of Tourism Research, minimum service levels even when there tourists. Tourists are also more likely to 59, pp. 93–112. is little or no demand. During off-peak demand discounted prices and offers, seasons, it can be difficult to maintain which favours and is favoured by the service quality and guest satisfaction, market entry of low-cost carriers, such as which impacts on performance and, in the EasyJet and Ryanair, and more recently long term, on productivity. This affects Norwegian Airline, or budget hotel chains various sub-sectors within the tourism such as Travelodge or Premier Inn. The industry differently, for example, between enhancement of competition, via the accommodation and transportation. accessibility of the internet, adds to the downwards pressure on prices and productivity.

visitbritain.org 13 The UK Tourism Productivity Gap

Demand variation can also be measured by expenditure per visitor. British tourism has faced challenges to visitor spending in recent years. Demand, as measured by visits and spending, has grown, but when adjusted for inflation, visitor expenditure has actually decreased. Figure 4 shows the change in the growth of visitor expenditure in percentages for inbound tourism from 2012 to 2018.

Figure 4 Growth of visitor expenditure in the UK (2012-2018)

The peak in 2017 can be explained at There is also considerable and uneven least in part by the British pound’s ‘Brexit geographical distribution of tourism slump’, especially the growth in Asian and demand. London is a key tourist American source markets. However, the destination in Britain, both for general decrease in average spending is a international and domestic tourism. source of concern in relation to London accounts for 54% of inbound productivity. This has been due to visitor expenditure, the rest of England for significant changes in consumer behaviour 33%, Scotland for 10% and Wales for 2%. after the financial crisis, with consumers This has led to significant geographical seeking greater value-for-money disparities in tourism demand and purchases, as well as changes in market productivity. Regional differences in composition. Some of the more rapid productivity in the UK are one of the major visitor growth rates have been in Eastern challenges in terms of the productivity European markets which tend to spend puzzle, contributing to the long tail of significantly less on average per capita laggard performance 11; it is likely that, in

than the average of all visitors. Growth in the case of tourism, the demand variations 11 Martin, R., Sunley, P., the use of new technology and the effects noted above also contribute to regional Gardiner, B., of online competition in dampening the productivity variations. Such regional Evenhuis, E., Tyler, P. scope for increasing prices is also disparities can be explained by (2017) Structural reducing visitor expenditure, with infrastructural weaknesses and variations Change and negative implications for tourism Productivity Growth in innovation, which will be discussed in Cities. productivity. later in more detail.

visitbritain.org 14 The UK Tourism Productivity Gap

Capital and infrastructure

Key points • Lack of investment in capital and infrastructure is restricting productivity growth in the tourism sector. • Poor connectivity due to limited transport infrastructure and broadband bandwidth and speed are a significant drag on tourism productivity levels. • Data (including big data) are a key aspect of infrastructure with considerable potential for driving economic and productivity growth and innovation. However, the lack of broadband speed and internet connectivity, especially in rural and coastal areas, means this potential is not being fully realised.

Some tourism sub-sectors have relatively and infrastructure, coupled with high- low capital intensity and lack capital value offers and experiences. However, in investment and funds compared to other the UK, the urban hot spots, like London, sectors in the economy. Given the service Birmingham and Manchester, are less nature of tourism, much of its competitive in these respects and this is infrastructure (hotels, airports, etc.) and holding back potential productivity gains. capital does not change over long periods of time, i.e. existing inventories continue The UK is underperforming in terms of its in use or are renovated, which minimises public infrastructure, which has had capital investments. However, the air damaging effects on welcoming visitors to transport industry is relatively highly the country. The relative absence of capital intensive compared to the other public Wi-Fi and weakness of integrated sub-sectors of tourism. Recently, with transport links have damaged its increasing tourism demand, the lack of destination reputation. These tourist capacity at major airports, notably service infrastructures need Heathrow, has been pronounced, which improvements to enhance the has constrained the development of new competitiveness and productivity of UK connections to new markets, especially tourism. It is evident that the UK has a Asia, as well as tourist dissatisfaction and general weakness in its transport price pressures. It has been estimated infrastructure, which reduces the that the delay in building a new runway is connectedness between regions and costing the economy up to £6 million a widens the polarisation between urban day in value loss. Yet, from 2012 to 2015, and rural tourism development, compared the hospitality industry was estimated to to many international competitors. This have accounted for an average of 1% of can partially explain the persistent all investments in the UK economy. regional disparities of productivity across the UK. Due to the lack of connectedness, Despite London being the financial capital both employees and tourists experience

12 of Europe, it continues to lag behind accessibility constraints across the UK Amaris Hospitality neighbouring destinations, such as regions, which can affect the work-life (2017) Driving UK Amsterdam, Barcelona and Vienna, as a balance and wellbeing of employees but Tourism. 13 hub for international conferences and also affect the general competitiveness of Martin, R., Sunley, P., events 12. The main reason is probably the parts of the UK as tourist destinations. Gardiner, B., lack of capacity. Competing destinations This can influence regional tourism Evenhuis, E., Tyler, P. (2017) Structural have made significant investments in the productivity, which in some cases is Change and conference and events sector and have known to lag significantly behind the Productivity Growth the basic requirements of capital, access overall productivity of the sector 13. in Cities.

visitbritain.org 15 The UK Tourism Productivity Gap

Not only transport but also other forms of Capital not only refers to traditional infrastructure have limited the sharing of physical capital but, with digitisation and input and output resources, knowledge the rise of the digital economy, digital and expertise which can further constrain capital and infrastructure have become the potential for productivity growth. key assets for firms. One of the major Infrastructural weaknesses in broadband infrastructures that the UK government is bandwidth and speed have hindered focussing on is big and/or open data. By digitisation and the exploitation or improving access to and increasing the dissemination of productivity-increasing quantity of data, the UK government is innovations. This is particularly acute for encouraging businesses to use and rural businesses. It is evident that the lack analyse data to increase productivity and of high quality internet and mobile access competitiveness. With digital platforms is restricting opportunities for the growth and increasing data generating of small tourism enterprises, in both the technology, big data is enabling use of digital platforms to attract businesses to enhance the monitoring and customers and being able to provide forecasting of both demand and high-speed internet access to customers. performance. The general lack of government expenditure on the tourism sector may In the context of tourism, increasingly explain the range of infrastructural enriched data content is becoming weaknesses, which is why the modern available via business-to-consumer and Industrial Strategy Tourism Sector Deal will P2P websites and digital platforms; for 14 14 be vital for such improvements . example, TripAdvisor’s or Airbnb’s guest Ridgway, S. (2017) satisfaction and reviewer’s comments. Tourism Sector Deal: The impacts of Brexit potentially could mean Such data can be collected and analysed Informing the a reduced openness for goods, services and to identify how different intangible and Long-Term Tourism Strategy for Britain. capital, leading to further uncertainties service-based factors impact on firm London. which impact on investment levels. This will productivity. However, to date research mean constraints in investments in capital, has focussed more on the demand side of infrastructure and skills, all of which are key the business, e.g. how to improve guest to productivity. Moreover, it may also satisfaction and service quality, and constrain inward knowledge flows relatively less on supply side concerns embedded in foreign direct investment and such as productivity and efficiency. The may mean a substantial loss of human scope for further research in this area is capital, representing a threat to global huge as the level of information and data competitiveness. Changes in the legal and that can be extracted from these digital regulatory environment post-Brexit could platforms and tools can assist in also further affect the investment and exploring how productivity issues are development of various capital and perceived by customers, managers and infrastructure projects in the UK. employees.

visitbritain.org 16 The UK Tourism Productivity Gap

People and skills

Key points • The tourism workforce tends to be transient, temporary, low skilled, young and migrant, with EU nationals being an important segment of the labour market. • High labour turnover, low staff retention and difficulties in labour recruitment are a major dampener on tourism productivity due to the loss of skilled and experienced workers, and the disincentive to training. • The sector is concerned about a potential major skills gap, especially due to uncertainty about how Brexit will impact on skills, talent and employment, and this may exacerbate the productivity challenge.

Tourism is a highly labour intensive sector A skilled workforce is a major resource in – indeed the service encounter is central to production, but tourism is one of the the tourism experience and this is shaped sectors with the highest skills gap in any by the quality as well as the quantity of UK sector. As tourism jobs are seemingly labour that helps to produce this unattractive to British people, employers experience. Its importance is underlined by are considered to be heavily reliant on the relatively low levels of capital relatively less skilled, migrant (25% are investment compared to most other sectors non-British) and young (35% are under of the economy. It is not surprising therefore 25; 16% are full-time students) labour, that the rapid growth of output in the sector which tend to be highly transient. This has also been associated with having one of partly reflects the skills polarisation the fastest employment growth rates. Yet within the industry, whereby a large share tourism continually struggles to recruit and of jobs does not require any formal entry retain new staff. This is due to both the qualification, in contrast to the relatively actual and perceived (verging on small number of highly skilled top stereotypical) characteristics of the industry management level jobs. In 2015, 18% of and its workforce. Due to perceived tourism businesses reported a significant relatively low wages and relatively limited skill gap, yet this marked a decrease opportunities for career advancement, and compared to 2011 unlike other sectors – in some cases – difficult working such as manufacturing and constructions. conditions and unsocial hours, the industry Some staff do not even stay long enough faces high labour turnover and low staff to complete their training and be fully retention rates. operationalised into the business; these leavers are then again likely to be Further exacerbating employers’ concern replaced by workers who are new to the is the increase in the minimum wage. The job role. High staff turnover rates can also National Minimum Wage increased from be a disincentive to invest in training. £6.19 (age 21 and over) in 2012 to £7.70 There is a reliance on various forms of (age 21-24) and £8.21 (age 25 or over) in temporary contracts in response to April 2019 15. This is particularly significant variable demand conditions, and this 15 to tourism because of the prevalence of could militate against investment in skills UK Government low wages. This direct increase in labour and training by both employers and (2018) National cost, and thus of inputs, will put further employees. This leads to detrimental Minimum Wage and downward pressure on productivity unless effects on tourism productivity. National Living Wage rates - GOV.UK. there are compensating measures such as more training and investment.

visitbritain.org 17 The UK Tourism Productivity Gap

With rising labour costs and increasing recruitment difficulties, it is likely that many tourism businesses are becoming more short-term orientated, focussing on their survival and short-term gains at the expense of long-term productivity and value-creation goals. This is being exacerbated by the uncertainties surrounding Brexit because of the considerable reliance of tourism not only on migrant labour but especially on EU migrants (48% of the non-British workforce). KPMG has estimated that in order to maintain the current level of sector activities and fulfil recruitment needs, the sector has relied on some 16 16 62,000 EU migrants per year . Yet the KPMG (2017) Labour number of EU migrants in the UK has migration in the already been declining since the hospitality sector. referendum. The ONS reported that Report for British Hospitality 130,000 EU nationals moved out of the UK Association in the 12 months after the referendum, 17 and fewer were coming to work in the UK BBC (2018) Migration 17. Moreover, there are considerable figures: Highest concerns as to how future immigration number of EU and employment regulations will influence nationals leaving UK in a decade. the supply of labour. Any significant constraint on the supply of labour and talent, whether high or low skilled, will have an impact on overall performance and specifically on productivity until such time as alternative sources of labour can be secured.

visitbritain.org 18 The UK Tourism Productivity Gap

Digitisation and innovation

Key points • Digitisation and technological changes are transforming the tourism industry. • The rise of digital platforms and the emergence of new form of economies, such as the gig or sharing economy, have led to an increase in non-standard work and negative impacts on traditional businesses. • Increased accessibility to data can generate insights from data analytics and data- driven innovation, which can enhance productivity in the long-run; but infrastructural weaknesses are barriers to realising these benefits. • Emerging automation and AI capabilities are considered to be productivity enhancers, and the next great productivity challenge, but costs, skills shortages and lack of investment mean this is still in the early stages.

Another major set of challenges arises management and pricing for hotels, from the various digital transformations airports, etc.; there are new innovative and structural changes in the economy, ways to record employee scheduling and which have affected the tourism industry effectively monitor them. For example, UK in recent decades. These include the rise company Eproductive provides online of digital platforms, the sharing economy, workforce scheduling for hotels, where big data, automation and more, all of weekly rotas are managed at the which are intensifying the focus on the department level against the latest productivity challenge. For instance, the demand forecast but can be monitored at emergence of online travel agencies and the department, hotel and group levels. In search engines brings in new forms of another example, Japanese restaurants tourism intermediaries, and the increasing have increased table turnover using use of mobile-based applications in the standing format ‘seating’ with a value-for- tourism experience. This has led to an money meal proposition. Digital solutions increase in online sales by 11.4% whilst enabling self-service in airport and hotel 18 18 in-store bookings have reduced by 4.3% . check-in, for example in Citizen M, and Davies, P. (2016) Additionally, there has been a subsequent increasingly in food and retail outlets, Online travel agent reduction in visitor expenditure, and such as McDonalds, thereby reducing sales up but high street sees decline, changes in the costs of businesses, which labour inputs, speeding up queues and Travel Weekly. have consequently affected tourism reducing error. This has also been productivity. extended to better payment systems via technological solutions, e.g. Coastes Big data has become a key digital Singapore. With the increasing infrastructure in many sectors, including accessibility of data, innovative analytics tourism. The increase in the quantity and have empowered people and businesses quality of data has enabled tourism to forecast, price and operate more businesses to obtain a better effectively. However, there is still limited understanding of their consumers and evidence on its influence on overall their markets, helping businesses to productivity, given the difficulty of rolling strategically market and target their such innovations out to the very large business performance. With this number of SMEs and micro businesses. availability, data analytics can generate product innovation and analytical tools There have been increasing numbers of and systems to enhance revenue start-ups within the tourism sectors. The

visitbritain.org 19 The UK Tourism Productivity Gap

rise of digital platforms and various forms productivity. The diffusion of robotics and of new economies based on these AI in tourism is growing and adding to the platforms, i.e. the sharing economy, have potential for productivity gains. The impacted on how businesses operate and tourism sector is still at an early stage of manage. The OECD reported that in 2015, implementation and diffusion, but there is Airbnb, was valued at US $25.5 billion, considerable attention being given to the and was therefore the third most valuable innovation and productivity around it. In venture-capital company globally. Uber Japan, the ‘Henn Na Hotel’ is a robot-run 19 19 was valued at up to US $62.5 billion . hotel with robotic information agents. OECD (2016) ‘Policies The sharing economy is growing rapidly There are also robotic cleaners and for the tourism now and is expected to grow faster than porters, waiters, bartenders, museum and sharing economy’, in ever due to the rapid advancement of airport guides and destination greeters. OECD Tourism Trends and Policies 2016. digital platforms and the availability of This means a potential loss of jobs for Paris. data. These new forms of economies have human labour and possible productivity led to a growth in non-standard work, gains through substitution; but, the which is usually not officially measured, extent to which robotics and AI can and such innovative business models are replace human receptionists or bartenders affecting the more traditional businesses. is still contentious. However, there is no doubt that it represents one of the Data-driven innovation (DDI) is a source biggest future challenges for tourism. of economic growth as an infrastructure Systematic and technical data analysis and via value-creation through knowledge can also be automated via complex 20 20 and automated decision-making . machine learning and algorithms, raising OECD (2015) Data- Through data analytics, knowledgeable the productivity of a firm and individuals. Driven Innovation: insights can be gained that can enhance This is an evolving challenge in the Big Data for Growth organisational capacities and enable more tourism sector as it is changing the way and Well-Being. Paris. efficient and accurate business-related people work and how businesses operate decisions through machine learning and and transact. advanced algorithms. In tourism firms, DDI can be relatively easily implemented due to the increasing quantity of data from user generated content or consumer After a long period of persistently low and data. However, there are barriers in the stagnating productivity levels, the tourism form of the lack of data analysis skills industry is now facing a raft of new and competences in the workforce, the challenges in respect of demand, labour limited scope for organisational change supply, technology and Brexit. Added to and infrastructure, the limited (mobile) this is the challenge that many businesses broadband as a key to enable DDI, and lack an understanding of the drivers of also the regulatory environment. There is productivity and of the challenges that as yet limited research around this in the await the industry. Yet each of these context of tourism, and an exploratory problems can also be seen as a potential study is needed to explore the use of area to raise productivity through data (e.g. to create new products and appropriate measures. With the Industrial services and for business decision- Strategy and Sector Deals and government making) and its relationship with (labour) commitment to boosting productivity and productivity. helping to solve the productivity puzzle of the UK, it is clear that is has never been With the richness and openness of big timelier to have a better understanding of data, the emerging capabilities of tourism productivity in order to evaluate automation and artificial intelligence (AI) the ways in which to address the are pushing the boundaries of industry’s weak productivity.

visitbritain.org 20 The UK Tourism Productivity Gap

Responses to tourism’s productivity challenge

The previous discussion has outlined some of the major factors that have shaped tourism’s productivity challenge. In this section, we consider some of the ways in which the challenge can be addressed through a variety of approaches by both government and industry. These include the following: • Measurement issues • Demand variation and markets • Capital and infrastructure • People and skills • Digitisation and innovation In addressing these issues, we draw on both the previous assessment of tourism productivity and also – where possible – seek to benchmark against improved productivity measures and successful examples both in the UK and globally. International comparisons are especially important for an industry such as tourism which is subject to strong globalisation tendencies in competition.

visitbritain.org 21 The UK Tourism Productivity Gap

Measurement issues

Key points • The government and industry need a better understanding of tourism productivity and this requires better knowledge sharing and collaborative discussions in the form of business networks and communities. • Digital tools and platforms for benchmarking performance and productivity should be further developed and used by tourism businesses. • New and alternative measures of productivity and its components should be explored that can capture the many different dimensions of productivity.

In light of the measurement issues outlined Group of Be the Business have developed earlier, there is some questioning of the online benchmarking tools for hospitality real extent of the productivity gap and sub-sectors and industrial manufacturing whether it has been exaggerated due to so that businesses can assess different the reliance on outdated or inappropriate performance dimensions using robust data and statistics. Government and data and identify key areas for 21 businesses need a better understanding of improvement 21. Be the Business (2018) Benchmark tourism productivity in order to address your business. the extent of the productivity challenge New measures of productivity and its https://app. and the practicality of addressing this. components also need to be addressed bethebusiness.com/ Existing productivity measures, such as by the Office for National Statistics (ONS), output over input, and value added over which currently lacks rich secondary data number of employees or hours worked, in general and, in particular, in the need to be revisited in order to try and context of the tourism and hospitality reflect the complexities of tourism sector. An annual e-commerce and ICT productivity. Alternatively, new measures survey of businesses is conducted by the of productivity can be explored using new ONS to measure the adoption and use of measurements of service quality, the use IT and e-commerce. A recent ONS study of digital applications, etc. on the feasibility of measuring the sharing economy and increasing data There are no easy solutions to this collection on IT-related and digital-related measurement problem, but the first activities suggests there is the possibility necessary step may be for firms to of significant breakthroughs in how to benchmark themselves against the best improve the measurement of 22 22 practice of other successful tourism productivity , but there is still a lack of ONS (2017) The businesses in order to learn how to data on tourism compared to other feasibility of improve productivity levels. Knowledge service sectors such as the financial measuring the sharing sharing is needed to discuss how service sector. There is therefore economy: November 2017 progress update. productivity is understood in the tourism considerable potential for government to London. industry, which can be facilitated via partner with the tourism industry in order cluster networks or business communities to enhance the measurement of and the at a local level and through digital tools availability of data on tourism and platforms. The Business Leadership productivity.

visitbritain.org 22 The UK Tourism Productivity Gap

Demand variation and markets

Key points • Improved demand management is a key to improving productivity, and there are existing technologies and data analytical systems which can be used to enhance forecasting and revenue management. • Market segmentation: targeting high value source markets can help tackle demand variation and constraints. • Diversification of tourism can raise productivity – e.g. enhancing the business and events sector to attract business visitors during off-peak seasons. • Flexible labour arrangements are an important means to manage labour inputs in the face of demand variations, and for enhancing productivity.

There are various strategies to address need to be marketed more effectively. demand variation. One of the key VisitBritain has implemented the GREAT strategies is revenue management which China Welcome programme to attract uses variable pricing strategies based on more Chinese visitors, and there is consumer behaviour to maximise revenue evidence that there has been an increase 23 and profit. Dynamic pricing strategies also in visitor numbers and spending since the VisitBritain (2018) offer price differentials depending on the programme launch 23. Such examples of GREAT China changes in the unsold inventory. With good practice confirm the positive impact welcome. https:// technological capabilities, competitive of managing demand variation, which can www.visitbritain.org/ great-china-welcome pricing strategies have become easier to enhance productivity in the long-run. implement via off-the-shelf software and database systems to analyse and forecast Diversification also offers advantages by demand and revenue, which can help enhancing the scope to raise productivity address the issue of demand variation in particular sub-sectors of tourism. For within the tourism industry. Government example, in New Zealand, the funding to support tourism businesses to International Convention Centre aims to invest in the necessary tools and systems improve the competitiveness of the to enhance their demand forecasting and business event sector so that it can analytics to optimise their yields would attract more high value international also contribute to raising productivity; business travellers during the off-peak this could take the form of funding for seasons. In Hawke’s Bay, increased visits system investment and training. during the off-peak seasons were targeted by developing the Food and Wine Classic Market segmentation and diversification in November 2012, as a means to increase can also provide a strategy to address productivity. This event was successful in demand variations. There has been a raising demand during the low season, so change in the composition of visitor they introduced a four-day festival – a markets, whereby there is an increase in Winter Season of the Food and Wine Eastern European markets which are Classic – and in 2019 this will run over a relatively low spend, contributing to an whole month. The New Zealand Tourism 24 Tourism Industry overall reduction in visitor expenditure. 2025 report 24 states that this strategy is Association New Businesses need to strategically target working, confirming that diversification Zealand (2014) higher spending as well as higher growth has real potential to lift off-peak demand Tourism 2025: market segments. Existing market and thereby increase productivity. Growing value together. www. segments, such as the Asian market, also tourism2025.org.nz

visitbritain.org 23 The UK Tourism Productivity Gap

25 Flexible labour is a characteristic of the of what are termed functional flexibility White, S. (2016) UK tourism workforce. On the one hand, can also help address the issue of ‘Tourism employment the persistence of temporary contracted demand variation and difficulties of summaries: Characteristics of 26 work and part-time workers within the recruitment . Functional flexibility is tourism industries, industry has been challenging for firms evident in the tourism industry, but the 2014’. ONS.

seeking to manage and improve extent to which this is possible or 26 Yaduma, N., Williams, productivity levels. However, on the other effective is very much reliant on the skills A., Lockwood, A., hand, with new forms of business models requirements needed to undertake Park, S. (2015) and shifts in the nature of work, labour different job roles. One of the advantages Performance, labour flexibility has increased in the UK of flexible working is that employees can flexibility and migrant economy, in particular in tourism, and is gain department-specific or firm-specific workers in hotels: An an effective means to respond to demand skills via multi-skilling and on-the-job establishment and departmental level fluctuations. For instance, when demand training. A recent study on two analysis, International is low, business capacity is underused but anonymous medium-sized UK hotel chains Journal of Hospitality still incurs fixed costs, including those of found that employment practices Management, 50, pp. maintaining minimum staffing levels, with encouraging flexibility had significant 94–104. significant negative effects on positive effects on productivity, productivity. When demand is high, firms accounting for between 6-13% of the 27 27 require additional labour, suggesting an variation in productivity . This is another Park, S., Yaduma, N., increase in the total establishment which key factor in productivity that needs to be Lockwood, A., would exacerbate the under-used capacity addressed. Williams, A. (2016) at periods of low demand, having a Demand fluctuations, labour flexibility and further negative effect on productivity. EasyJet has developed recruitment productivity, Annals Thus, increasing the flexibility of labour campaigns to find the most appropriate of Tourism Research, can be effective in responding to changes workers to fill their available posts and 59, pp. 93–112. in demand, both predictable and have been trialling new and flexible unpredictable. employment contracts for their cabin crew, which has helped the company to Examples of flexibility include using manage seasonal demand and enabled variable amounts of labour within the more cabin crew permanent employment existing workforce (expanding or opportunities. Recently, they launched an decreasing hours worked) 0r by sourcing external recruitment campaign for pilots, workers from external sources such as aimed not only at those who are currently agencies. This is one form of numerical experienced but also those requiring flexibility. The UK tourism sector has training, such as ex-military pilots. This 10.4% of jobs that are temporary, whereas can be facilitated by having a stronger in non-tourism sectors it is only 6.1%; the relationship with pilot training suppliers tourism sector accounts for 14.4% of all and clarifying better career pathways for temporary employment in the UK, which pilots. This can ultimately increase staff reflects a larger proportion of temporary retention and have productivity growth 25 28 28 (or casual) workers in the sector . This effects . EasyJet (2018) allows firms to retain skilled workers and Operational efficiency. providing flexibility to reduce costs when There is still a lack of studies of labour http://corporate. easyjet.com/ the demand is low. Another example of flexibility and productivity in tourism and corporate- flexibility is where internal workers can it is, therefore, necessary to encourage responsibility/ transfer between departments or different researchers, both in academia and our-people/ job roles in response to the demand industry, to explore and examine further operational-efficiency variations across the firm. Such examples the costs and benefits of flexible labour.

visitbritain.org 24 The UK Tourism Productivity Gap

Capital and infrastructure

Key points • Government support is needed to increase connectivity and relevant infrastructure. • Collaborative partnerships at a regional or local level can help to deliver stronger and sustainable investments in capital and infrastructure, which can help address the regional differences in tourism productivity. • Relevant skills to effectively use data as a key infrastructure for potential economic and productivity growth and innovation need to be explored in order to identify the skills gaps.

The Tourism Sector Deal aims to unlock Regional differences in tourism and its the key potential of tourism to drive the productivity also link with the economy, and capital and infrastructure infrastructural weaknesses. One of the investments will be vital to facilitate such key targets of VisitBritain and the ambition. As identified above, better government has been to increase connectivity linking tourists to visitation beyond London. With campaigns destinations, but also skilled workers to to increase domestic tourism and visitor businesses, needs to be prioritised to markets around the whole of the UK, meet changing and growing demands. It there has been positive growth. However, will be important to benchmark how more research is needed to understand European competitors have raised capital, the needs and interests of visitors and markets and taxes to improve their strengthen the infrastructure and infrastructure and destination accessibility to support greater regional competitiveness – Switzerland, Spain and diffusion of international tourism in some of the Nordic countries tend to have particular. There is also a need for urban higher tourism infrastructure quality and and rural planning to focus on narrowing capacity. In the UK, there has been a the regional productivity gap. At the city, consistent government policy on capital regional or local level, key stakeholders investment but there is also a government can come together to share knowledge role to enhance connectivity and expertise and plan strategically to infrastructure. However, it is not as simple build a stronger tourism market within the as in the manufacturing industries as region or locality. In New Zealand, a tourism is about people and places. closer working relationship between Connectivity will be essential to building airlines, airports, the Ministry of and promoting distinctive places, which Transport, Aviation Security Service and can provide further links into the wider many other stakeholders has been Industrial Strategy. encouraged and is helping to deliver greater cohesion in enhancing their air transport connectivity and the necessary regulatory support. This is a good model of stakeholder cooperation which can help to deliver stronger and sustainable capital and infrastructure investments in the UK.

visitbritain.org 25 The UK Tourism Productivity Gap

User generated content, consumer data and other forms of data are increasing in volume as more and more tourists are using digital platforms. Such data are beneficial for tourism businesses to understand their customer market and enhance their business branding and revenue. With the support of big data analytics, this can help enhance productivity for destinations and businesses by enabling them to strategically target their tourism market and improve their revenue and productivity on both aggregate and business levels. However, there is the issue of skills mismatch, in that there is a shortage of relevant expertise in the tourism workforce in response to digital transformations. In addition, due to the lack of infrastructure, the weaker connectivity with tourists, workers and businesses makes it more challenging to match relevant skills and is also influencing the regional disparities in productivity. To tackle this, there is a need to investigate the changes in the skills requirement and human resource management practices of tourism businesses. A study using the OECD Survey of Adult Skills on labour market participation and skills and the industry 29 digital penetration index has explored the Grundke, R., Marcolin, different skill sets needed for the digital L., Linh, T., Nguyen, economy, but sector-specific research is B., Squicciarini, M. needed to tackle tourism-specific issues 29. (2018), Which skills for the digital era?: Industry collaborations with academic Returns to skills researchers could also be stimulating to analysis, OECD explore measuring productivity and Science, Technology business impacts using new forms of data and Industry Working and maximising data analytics to drive Papers, 2018/09, OECD Publishing, business performance in innovative ways. Paris.

visitbritain.org 26 The UK Tourism Productivity Gap

People and skills

Key points • Regular meetings and communication between managers and employees can help identify skill needs and training requirements, employee motivation and career pathways in order to deliver systematic uplifting of skills and better career progression opportunities to improve staff retention. • Planning for post Brexit is essential but difficult given continuing uncertainties, but campaigns to recruit more British workers can be promoted regionally. • Apprenticeships offer an important means to attract workers into the industry and raise skill levels so as to improve productivity. • Collaborative partnerships in local areas can improve understanding of the people and skills in an area and deliver strategic solutions to enhance tourism employment and productivity.

Tackling staff retention is important in the Despite the availability of the government industry in order to narrow not only the employment and skills survey and internal skills gap but also the productivity gap. performance reviews, with the benefit of Focussing more on retention involves IT applications and tools, more efficient improving employee engagement and and productive systems to monitor and motivation, new training and developing, evaluate staff can be developed and better career progression opportunities implemented. People1st is working with amongst other measures. This can be in the Accor, Hilton Worldwide, Mitchells and form of more regular meetings with Butlers and Whitbread to develop a managers face-to-face or virtually and having human capital model with analysis, better measurement systems for behavioural and career coaching tools to performance and progress reviews. This can assess, develop, and retain the involve conversations on skill needs and improvement of labour skills to prepare training, which can be collated and for career progression. The Food and addressed when creating a more systematic Drink Federation has also been working training programme. Tourism businesses with the Productivity Leadership Group of have also pointed out the issue of staff the Be the Business to tackle their skills being promoted beyond their capacities and gap. These include collaborative initiatives the lack of management skills within the across the food supply chain such as an business. Another barrier is the highly image campaign for new entrants to the diverse workforce, with staff on varied sector, school engagements, contracts and fixed and temporary workers, apprenticeships and driving business and making it even more difficult to converse university collaboration to support talent with staff as a whole and to identify well and innovation targets. targeted strategies to improve their retention and productivity. The Eproductive system Promoting tourism careers in schools, mentioned earlier also allows employees, colleges and other forms of institutions is whether full time, part time or casual, direct important. Given that tourism jobs, in access to their operation using a smart general, are seemingly less attractive to phone. This provides accurate information the British workforce, especially because on rotas but also allows employees to book of the perceived poor working holidays, request training, access reward environments, it is important to promote schemes and read staff notices. the sector to a wide target audience for

visitbritain.org 27 The UK Tourism Productivity Gap

recruitment purposes and in particular, to potential here for the tourism industry to UK workers. UKHospitality (formerly the utilise this scheme as a means to British Hospitality Association) has efficiently and effectively train their discussed with government officials its workforce. The Institute for Public Policy 10-year campaign to raise the sector Research has pointed out that businesses profile and create local centres around the should establish degree apprenticeships UK to connect with those who are for the low-wage sectors, which includes unemployed, school and college students tourism, following the earlier and potential returners to the labour developments for aerospace and high- market. Campaigns such as these can growth sectors. This can help promote help promote the tourism sector and career progression within the tourism diffuse knowledge and awareness of the sector, and if businesses, universities and potential career progression pathways in vocational training providers can be tourism. Regarding new ways of brought together to coordinate a range of recruiting, the industry does need to schemes, effective alternative educational diversify their recruitment pool. The high and training programmes could be reliance on young and transient workers delivered. has been one of the major reasons for high turnover and low retention, thus a In Cornwall, there is evidence of more diverse pool of labour (including hospitality employers coming together at older workers and women returners and a local level. Jamie Oliver’s Fifteen even ex-prisoners) could enhance the restaurant trains young apprentice chefs labour demand and supply. The adoption and it has partnered with the local hotel of flexible working arrangements can also (Watergate Bay Hotel) and brewery (St help retain the existing workforce, and Austell’s) to discuss the way work is done also build human capital within the in the industry and aims to have a better businesses. This can help to fill in some joint understanding to ensure employees skills gap if the appropriate skills can be see the long run prospects in their transferred within the tourism business. careers alongside sustainable business 30 30 Enhanced training can also help retain the models . The results show they have Be the Business existing workforce. In 2017, the changed their talent management (2015) How good is apprenticeship levy was introduced practices and improved operational your business really? whereby employers pay to fund training performance. This example suggests the Cornwall. and assessment for apprentices. potential for businesses to collaborate Employers are able to access funds via regionally or locally, creating tourism the new digital apprenticeship service clusters, to share knowledge and accounts, which can be used to support expertise to enhance skills and talent training and/or apprenticeships at management. different levels. There is considerable

visitbritain.org 28 The UK Tourism Productivity Gap

Digitisation and innovation

Key points • Creation of networks, business communities and/or tourism zones to share knowledge and best practice on IT adoption and innovation. • There is a need for stronger linkages between tourism infrastructure, policy and regulatory environments as well as providing the necessary skills bases to stimulate and deliver effective innovation in the sector. • There is a need for policies which specifically target innovation in tourism businesses, especially SMEs, as a means to raise productivity. • More opportunities need to be provided for government funding and KTPs for collaborative research between industry and academic institutions.

Given that innovation in the tourism ultimately, productivity, and increase the sector cannot be narrowed down simply competitiveness in the UK tourism sector. to R&D expenditure and patenting as it is There are other countries that are in manufacturing, tourism innovation developing or have already implemented needs to be seen from a different similar tourism zones, for example: perspective. Considering the high labour Shanghai where the International Tourism intensity of the sector and thus the Resorts Zone was created in 2010; in importance of the personal knowledge Japan, the Tourism Zone Development Act held by the people and the businesses, allows the creation of tourism zones to innovation can be stimulated by creating enable longer stay travel via cooperation networks and business communities amongst the tourism sites; and now, where individual businesses can come South Korea which is creating numerous together and share their knowledge and ‘Special Tourism Zones’ in popular best practices. These provide platforms touristic areas, which will benefit from for benchmarking and knowledge deregulation and financial incentives for exchange, for possible collaborations in product development. innovating and changing business practices to enhance productivity in new Sharing knowledge is only the first step. and efficient ways. Online tools, such as After that, the level of absorptive capacity Konfer, can help SMEs find opportunities a business has comes into play. This to collaborate and connect with research refers to the ability of the business to communities. acquire new knowledge, link that to its existing knowledge, and transform its The Tourism Sector Deal proposes the business capabilities and practices to creation of ‘Tourism Zones’ which will perform better. It is important to consider help develop places, products and that delivering innovation also requires destinations across the UK. These Tourism enough capital and infrastructure. IT Zones can help local product development adoption and diffusion within the tourism and local digital plans for innovation but sector can be influenced by the also to address seasonality, and improve accessibility of capital and infrastructure, regional connectivity. This will involve but also the managerial quality of partnerships and collaborative work businesses to manage and diffuse new between local authorities and the Local technology and knowledge. Thus, IT Enterprise Partnership, which can help adoption and managerial capital is key to diffuse knowledge and innovation and disseminating innovation. This not only

visitbritain.org 29 The UK Tourism Productivity Gap

refers to the physical capital, but also growth sector and the production sector, human capital, i.e. having the right skills but so far these have been minimal for to match new job roles in relation to the non-financial service sectors such as innovation, but also have a level of tourism. Tourism and hospitality start-ups absorptive capacity. This not only allows are also finding it hard to bid for funding businesses to thrive but their connections and investments, especially on via networks and platforms can result in technology. However, coupled with the such positive effects being spilled over to Sector Deals, greater government funding neighbouring businesses as well as and research opportunities for the tourism regions if the networks or business sector will help to support collaborative communities operate regionally. work to generate innovation whether at the levels of localities, regions or even However, it is important to consider that nationally. as tourism is a relatively low margin sector with a large number of SMEs, In New Zealand, co-investment from the businesses, such as restaurants, may Tourism Growth Partnership with struggle to find sufficient capital to invest government is helping businesses invest in new technology. Depending on the in initiatives to boost their innovation and scale of the business, implementing new productivity. In Australia, the Cooperative technology and digital innovation may be Research Centre (CRC) for Sustainable difficult and expensive. Large firms tend Tourism (Sustainable Tourism CRC) was to be more effective at claiming R&D tax established in 1997. Initially, it was a credits, whereas SMEs are relatively small operation located in North East poorly informed about such incentives. Australia combining the strengths of five Thus, an increase in the awareness of universities, one State department and schemes such as tax credits and greater two industry association partners, with a clarity about eligibility may stimulate projected annual cash budget of $2.8 tourism firms to innovate via IT adoption. million. The CRC’s areas of research Moreover, with the possibilities of expertise include tourism planning and shortages of skills and talent post-Brexit, environmental management, tourism it will be challenging to match the information technology, tourism policy relevant skills set for IT-related job tasks and products and business systems. The or data analytics. Integrating new CRC provided a scientific R&D facility innovation or technology with existing managing and delivering research to digital infrastructure, interoperability, is support the sustainability of the tourism key. However, the tourism sector still industry in Australia and encompassing tends to lack interoperability, and thus it the issues faced by both small and large is important for technology suppliers to operators, tourism destination & natural work closely with the business end users resource managers, land custodians and to develop and provide solutions that are the other stakeholders in the industry. In fit for purpose. its first five years of operation, the centre produced important research outputs Innovate UK, the government agency for including new technologies, expert innovation, has focussed on funding and systems, best practice protocols and connecting businesses to break through tools; over 100 peer reviewed, Centre the barriers to innovation and to published, technical reports; and 2 collaborate more with universities and international patents. In the UK, the research bodies. There are many research council funded Knowledge opportunities for the digital and high- Transfer Partnerships (KTPs) have

visitbritain.org 30 The UK Tourism Productivity Gap

provided funds for industry and university collaboration in many industries, such as the aviation industry, but in tourism, the take up of the scheme has been thin on the ground. A greater research collaboration between industries and universities could facilitate technological diffusion to those with lower performance by providing smaller and less productive firms with access to key sources of knowledge.

Tourism policies also need to focus on innovation in tourism. An example of a tourism innovation policy is the Spanish Tourism Plan Horizon 2020, which was the first tourism policy that had a major focus on innovation. The plan addresses the barriers to innovation through three programmes of innovation, knowledge and talent attraction. Additionally, Spain’s R+D+I Plan (2008-2011), which is the national innovation policy, has identified the need for tourism innovation. Within this policy, the Programme of the Innovative Business Groups for tourism SMEs was evaluated by academic researchers and it was found that it did stimulate innovation-related activities, bring together experienced or new innovators and created new partnerships 31 31 . New strategies were created, and a Rodríguez, I., large number of pilot projects were Williams, A. M. and funded across different tourism sub- Hall, C. M. (2014) ‘Tourism innovation sectors. Organisational and product policy: innovation was evident, with strong Implementation and technological applications. This example outcomes’, Annals of illustrates some of the positive impacts of Tourism Research. 49, tourism innovation policies, which, if pp. 76–93. delivered and evaluated rigorously, can accelerate innovation in the tourism sector, generating long-term value creation and productivity.

visitbritain.org 31 The UK Tourism Productivity Gap

Conclusions

Tackling the productivity puzzle is one of the top agenda items for the UK government. With concerns about Brexit and the consequential impact on the UK’s competitiveness and talent and skills inflow, the tourism sector faces major challenges in respect of demand, labour supply, and technology. Many businesses lack an understanding of the drivers of productivity and its measurement, and the potential challenges that the sector will face. With the sector’s high reliance on migrant labour, especially EU migrants, and the continued persistence of low productivity, addressing tourism productivity is important and timely, especially with a government commitment to boost productivity via the modern Industrial Strategy and the Tourism Sector Deal.

There is a prioritised need for the significant skills gap, flexible labour government and industry to have a better arrangements and better training and understanding of tourism productivity and apprenticeship programmes need to be how it is best captured, which requires considered with the involvement of knowledge sharing and significant government, businesses, universities and benchmarking. Collaborative partnership, training agencies to provide more in the form of cluster networks, business opportunities for funding and investment communities or tourism zones, at a in the UK tourism sector. regional or local level can help facilitate this, but also deliver strong and All the challenges mentioned are sustainable investments in capital and intrinsically interrelated to each other. infrastructure, better talent management Fundamental improvements in and innovation within the sector. productivity cannot be achieved without Technological shifts have enabled the improvements in infrastructure and development of digital platforms and connectivity, through which knowledge various digital applications and tools, and understanding of tourism productivity allowing more efficient and effective can be shared and innovative activities business operations and management can be diffused through a more skilled that can be adapted to increase workforce to support demand beyond productivity in the light of the problems peak seasons. Exploring the different caused by demand variation. Additionally, challenges and potential of the UK changes in market segments and new tourism sector, there is a need to be ways of market diversification may flexible and responsive to the changes in generate opportunities to extend the socio-economic and technological performance and productivity beyond the environment, informed by the traditional travel seasons and regional distinctiveness of tourism as well as the boundaries. In order to address the diversity and variation within the sector. challenges of the labour supply and

visitbritain.org The UK Tourism Productivity Gap: challenges and responses a synthesis of existing knowledge about the productivity challenge facing the tourism industry in the UK, its determinants, future challenges, and approaches to raising productivity based on an analysis of secondary sources.

visitbritain.org @VisitBritainBiz VisitBritain

With thanks to

VisitBritain, 151 Buckingham Palace Road, London, SW1W 9SZ ©VisitBritain