Destination Governance: Using Corporate

Governance Theories as a Foundation for

Effective Destination Management
PIETRO BERITELLI, THOMAS BIEGER, AND CHRISTIAN LAESSER

This article adds to the ongoing debate on the perfor- structures in destinations, but to what extent? And which
mance of corporate-based versus community-based destina- theory is most promising and useful? The considerations
tion management models. New forms of integrated, centrally above formed the basis for the following research questions:
managed destinations challenge the business models of
traditional, historically grown destinations driven by decen- 1. Which dimensions can be derived from corporate
tralized ownership. This article analyzes the contribution of governance theories to operationalize the governance
corporate governance theories to the explanation of structures of destinations?
destination governance structures and evolution. The 2. In what context can which organizational form pro-
research uses six selected dimensions of corporate gover- duce or reveal better conditions for success?
nance, and the operationalization through concrete items, to
analyze and assess twelve destinations in the Swiss Alps.
Various destination governance forms and mechanisms
reveal the context for conditions for success. LITERATURE REVIEW

Keywords: Destination governance; corporate gover-

nance; transaction cost theory; property Corporate Governance: Definition and Theories
rights theory; principal agent theory; We can understand governance to be:
network theory
the whole system of rights, processes and controls
established internally and externally over the
management of a business entity with the objective of
INTRODUCTION protecting the interest of all stakeholders. (Centre of
European Policy Studies 1995)
In an environment of strong international competition
and rapidly changing customer needs, tourist destinations The concept of governance applied to tourist destina-
must continuously perform product, process, and market tions consists of setting and developing rules and mecha-
innovation. They also need to renew their products, services, nisms for a policy, as well as business strategies, by
and infrastructure to ensure market access. Integrated, involving all the institutions and individuals. Tourist desti-
centrally managed tourist destinations, largely owned by nation territories are similar to areas or regions that have
one company, challenge the traditional, historically grown firms as their main service suppliers, but they also have
community-based destination model. In centrally managed political bodies involved, such as municipalities or district
destinations the developed strategies are more distinct, governments. Thus not only microtheories of corporate
focused, and differentiated. Also, decisions are made more governance, which are relevant for firms, but also macro
rapidly, and measures are implemented more quickly and
effectively, thereby allowing them to be more innovative
(Alter and Hage 1991; Bieger and Laesser 1998; Bodega, Pietro Beritelli is deputy director of the Institute for Public
Cioccarelli, and Denicolai 2004; Miles and Snow 1986; Services and Tourism (IDT-HSG), and an assistant professor at the
University of St. Gallen in Switzerland; phone: ⫹41 (0)71 224
Powell 1990). Discussion of these two models, often pre- 2525; fax: ⫹41 (0)71 224 2536; e-mail: [email protected].
sented as extreme cases, hinges on the argument that admin- Thomas Bieger is director of the Institute for Public Services and
istrative and executive structures in destinations do matter Tourism (IDT-HSG), and a professor at the University of St. Gallen;
when it comes to the development and implementation of phone: ⫹41 (0)71 224 2525; fax: ⫹41 (0)71 224 2536; e-mail:
[email protected]. Christian Laesser is deputy director of
strategies. Transaction cost theory (see Williamson 1979), the Institute for Public Services and Tourism (IDT-HSG), and a pro-
for example, helps explain why the community model often fessor at the University of St. Gallen; phone: ⫹41 (0)71 224 2525;
leads to costly, retarded, or nonexistent strategies; while cor- fax: ⫹41 (0)71 224 2536; e-mail: [email protected].
porate structures are not only efficient, but lead to effec- Journal of Travel Research, Vol. 46, August 2007, 96-107
tively implemented plans. Corporate governance theories DOI: 10.1177/0047287507302385
might explain the formation and evolution of management © 2007 Sage Publications
JOURNAL OF TRAVEL RESEARCH 97

theories of governance, which are relevant for national Powell (1990) suggests that, in contrast to the transaction
systems, as Charreaux (2004) describes, could be usefully cost theory in which alliances and other exchange
applied to tourist destinations. However, microtheories deal relationships are not located in the market–hierarchy
with (1) efficiency questions, particularly efficiencies of continuum, they instead constitute a distinct form,
firms, (2) the interpretation of economic Darwinism, and (3) namely networks that are embedded in a multiplicity of
reaching optimal performance (Charreaux 2004). These are relationships.
all topics specific to the management dimension of destina- Gulati (1998) chooses a sounder approach by differenti-
tions. Consequently, destination governance can be largely ating the dyadic and the network perspectives of governance
explained with the help of microtheories, focusing on firms. theories. He argues that the dyadic perspective of previous
governance theories, which look at relationships between
Microtheories of Corporate Governance two companies or at those relationships within one company
between two interest groups, must be extended with the net-
Corporate governance theories cover two areas, depend- work perspective. While the dyadic perspective focuses on
ing on the research perspective in various models. The transaction costs, interdependence, and power asymmetries,
following section presents the better-known theories. First is the network perspective includes social networks and rela-
Coase’s (1960) property rights theory, which explains that tionships, and coordination costs, as well as trust. Ring and
structure and distribution of property rights have an ex ante Van de Ven (1992) show that informal, personal relation-
influence on the distribution and utilization of resources. ships among representatives of institutions are needed to
The origin of his theory lies in the external costs that firms organize transactions. Additionally, Barney and Hansen
cause, and how to minimize reciprocal harm. Research in (1994) explain that trust plays a critical role, and Gulati
this field focuses on the allocation of property rights, the (1995) shows that familiarity between organizations through
behavior of individuals, and distributional conflicts (for prior alliances breeds trust. Finally, Sydow and Windeler
example, Libecap 1989). (2003) extend the trust-based approach with the dynamic
Second, the agency theory that Jensen and Meckling perspective and argue that trust depends on control (over the
(1976) describe assumes managers act opportunistically and network and its partners) and knowledge (about the network
pursue their own interests. Thus investors must accept the and its partners) (for a discussion of knowledge issues, see
costs associated with monitoring and bonding managers in also Contractor and Ra 2002).
order to preserve their rights. This could be effected by devel-
oping complete contracts that specify exactly what managers Synthesis
could do in all possible situations and how profits are to be
allocated (Shleifer and Vishny 1996). In most cases this is ren- From these theories we can conclude that for tourist
dered impossible because of information asymmetries. destinations:
These first two theories are useful for destination
governance because they help our understanding of the 1. Destination management in a community context
relationship between the stakeholders—in this case, the consists of transactional and personal relationships in
local population—and single individuals or firms. They networks; whereas in a corporate model, hierarchical
explain, among other things, the community-driven need to relationships are of interest, emphasizing the dyadic
control and monitor the action of single companies and perspective.
entrepreneurs who pursue their economic interests by 2. For community-type destinations, the development
sourcing from the natural and cultural resources of the des- process involves informal connections, knowledge,
tination, which are perceived as public assets. Both theories and trust, making the dynamic dimension (and there-
address the issue of sustainability in the destination; but fore a historical view) crucial for the analysis of the
where property rights theory gives more insight into con- formation and evolution of the network.
flicts arising from the use of natural resources, principal
agent theory delivers a framework for the discussion of eco- Figure 1 illustrates an overview of corporate gover-
nomic sustainability. nance theories, and points out the dyadic and network
Third is Williamson’s (1979) transaction cost econom- perspective with the corresponding dimensions, three for
ics, which is often used to explain the economies of differ- each perspective.
ent institutional arrangements in which transactions take Consequently, we can schematically characterize the
place. The theory implies that the optimal coordination form community and the corporate model by adopting the
depends on the configuration of the relationships and selected dimensions (see Table 1).
transactions. Hence, this approach leads to achieves the Two considerations underlie this research:
most effective structures when the “market” configuration,
with fully independent entities, moves along the strategic 1. In order to analyze governance in community-type
integration continuum and eventually arrives at a “hierar- destinations and explain underlying mechanisms, we
chy” form, where one single company/institution makes all must take not only the dyadic, but also the network
the decisions. The approach is useful to explain the best perspective.
form of coordination under given conditions for a certain 2. By taking the network perspective, and therefore
type of destination. including dimensions such as knowledge and trust,
Fourth, recent research on alliances and networks sees we must include a dynamic point of view, and there-
them as “organizational wholes” (Richter 1994). However, fore look at the history of the destination and the
we need to consider the architecture of networks in the same history of the relationship between individuals and
way theorists analyze the structure of firms (Turnbull 1997). institutions.
98 AUGUST 2007

FIGURE 1
DYADIC AND NETWORK PERSPECTIVE WITH MAIN DIMENSIONS

Source: Based on GULATI 1998.

TABLE 1
CHARACTERIZATION OF COMMUNITY AND CORPORATE MODEL

Dimension Community model Corporate model

Transactions costs Generally high, depending on the number Generally low, limited to the dominating
of actors and institutions firm(s) and its business partners
Power asymmetries Diverse, depending on the ability to form Strong concentration on the dominating
coalitions or interest groups and on the firm(s), possibly strong influence by the
ownership structures municipality/public institution
Interdependence Diverse, depending on the integration Strong between the dominating firm(s) and
degree of the services, as well as on the municipality/public institution
the diversity of the market portfolio
Trust/control Strong need for mutual trust, in order Trust is ensured by control mechanisms and
to come to decisions and actions; social formal contracts, inside the dominating
control at least as strong as institutional firm(s), as well as between the firm(s)
control and the municipality/public institution
Knowledge Diffuse and general, relevant for the Detailed and specific, relevant for business
historical context, the institutional and strategies and specific contracts
individual relationship
Informal, personal Numerous, networked Limited, among few actors
connections

Past empirical and conceptual work on destination METHODOLOGY

governance discusses structural questions and the role of
destination management organizations (Bieger 2002; Nordin
and Svensson 2005; Pechlaner and Raich 2005; Smeral 1997; Operationalization
Woll 1984), the processes of governing core activities (Sainaghi The “Literature Review” section derived six dimensions
2003), and the processes of managing networks effectively relevant to corporate governance from four selected theories:
(Bratl and Trippl 2001; Martini 1998). Looking at networks, (1) transaction costs, (2) power asymmetries, (3) interdepen-
Bodega, Cioccarelli, and Denicolai (2004) carried out an dence, (4) trust/control, (5) knowledge, and (6) informal, per-
empirical study on three alpine destinations in Italy that com- sonal connections. In order to operationalize these dimensions,
pared interorganizational structures by looking at relationships we chose a qualitative approach by adopting a multiple case
among enterprises, family relations, exchange of information, study research with 12 tourist destinations in the Swiss Alps.
and relational as well as competence-based trust. However, Case studies can be carried out by using either qualitative or
empirical research covering the main issues and dimensions of quantitative evidence that comes from fieldwork, archival
corporate governance remains scarce. The following methodol- records, verbal reports, observations, or any combination of
ogy section explains how the six selected dimensions of corpo- these (Yin 1981, 1994). Starting from the six dimensions, we
rate governance could be operationalized for tourist identified several quantitative and qualitative items that can be
destinations. These dimensions assist in the assessment of the recorded, calculated, researched, or observed. Table 2 shows
forms and mechanisms of governance in tourist destinations. the items that helped assess the six dimensions.
JOURNAL OF TRAVEL RESEARCH 99

TABLE 2
ITEMS FOR THE OPERATIONALIZATION OF GOVERNANCE DIMENSIONS

Informal/
Transaction Power Interde- personal
Dimension costs asymmetries pendence Trust/control Knowledge connections

Historical development X X X
Development in the past decades X X X X X
Size of the destination and number X
of companies/institutions
Performance of the destination X X
Dominance of larger firms X X
Role of municipality and of DMO X X X
Driving forces for innovation and X X X
growth
Cooperative behavior X X X X
Internal mood X X
Degree of mutual trust X X X
Size of boards in main institutions X X
Concentration of representation X X X X
in boards, personal union

An examination of the history of the destination and its mood in the destination that the individuals manifest, and
development in the past decades can help explain the current the degree of mutual trust primarily refer to the network
structure and the evolution of governance. Based on trans- dimensions. Finally, the analysis of board sizes of the main
action cost theory, the size of the destination and the number institutions, and the personal and institutional representation
of institutions, as well as the performance of the destination, in these boards, reveal information on transactions costs, as
reveal how effective the destination operates. The domi- well as on the concentration of power with interdependen-
nance of larger firms, the role of the local municipality and cies and trust issues. We can draw conclusions on the qual-
the destination management organization (DMO), as well as ity of the dimensions for the analyzed destinations through
being driving forces for innovation and growth, could examining a combination of these items, rather than using
explain mechanisms that relate to the property rights and the one single item, as presented in Table 2 and Figure 2 in the
principal agent theories. Cooperative behavior, the general “Results” section.

FIGURE 2
BOARD STRUCTURE OF THE 12 CASE STUDIES
100 AUGUST 2007

Case Selection Limitations

In order to pursue a rigorous external validity test (see Major limits or prejudices in the present research’s case
Eisenhardt 1989), this research adopted a series of common study method include: (1) limited rigor, (2) limited potential
criteria for case selection. The cases are tourist destinations for generalization, and (3) unreadability (Miles 1979; Yin
where the local and regional economy depends solely on 1994). By using multiple cases, and looking at them first
tourism. Also, the size, as defined by population, ranges alone, and then in a cross-case analysis, these concerns may
from 750 to 12,000. This range means that the destinations be weakened. However, because the examined destinations
are not quite considered cities and are still small enough to are all located in the same country, the present study
represent a community with mechanisms of direct democ- reflects: (1) a specific economic, cultural, and political set-
racy. Size, as defined by tourist frequencies, ranges from ting, (2) a specific legal environment, and (3) a specific
20,000 to 240,000 arrivals in 2003—a considerable and stage of development of the tourist industry (that is, mature
varied demand volume. All the cases examined are located destinations).
more than 1 hour’s drive from a larger city with at least
500,000 inhabitants, and are therefore not considered urban
recreation areas. The cases also feature one or more destina- RESULTS
tion management organizations and one or more municipal-
ities. Consequently, we have analyzed communities in the Table 2 collects the results based on the six dimensions
types of destinations where public and semipublic institu- relevant to corporate governance described in the
tions play a central role. The destinations offer year-round “Methodology” section, covering the following topics: (1)
tourism activities, with seasonal peaks (that is, one or more destination development, (2) current size and recent perfor-
ski areas in winter, and sport and leisure activities in mance, (3) driving forces for development, and (4) mutual
summer), which is another condition for demand diversity. trust and internal mood. The topics cover results on the
All the cases represent mature destinations; that is, their items with the exception of those dealing with board sizes
development and growth occurred more than a decade ago. and structures. Figure 2 presents the latter items. Regarding
In addition, the destinations currently experience stagnation the federal tax on per capita income, this is a figure compa-
due to limitations of territory and/or a shift in market struc- rable for all Swiss communities because it is calculated
ture. This last condition demanded that the research ensure nationwide in the same way. It is derived from the income of
that the institutions and individuals in the selected destina- natural and legal persons, and objectively expresses the
tions had prior experiences (knowledge and trust) and could average production value of every examined case in relation
not foster development and innovation without needing to to its population. Population and tax on per capita income
cooperate and make mutual decisions (power asymmetries refer to the financial year 1999–2000.
and interdependence). Table 3 prompts the following observations:

• Officially, municipalities represent all the destina-

Data Gathering tions, and each has a DMO, some major enterprises,
such as a ski area company, and several small- and
In order to observe construct validity (Denzin and medium-sized enterprises (for example, hotels, restau-
Lincoln 1994; Pettigrew 1990; Stake 1995; Yin 1994), and rants, and rental shops). The community model is
thereby gain data and information relevant for the previously therefore theoretically applicable for all the cases.
described items, the following documents and statistics were However, even if the formal structures look similar,
collected and analyzed: (1) destination brochures; (2) the destinations have different sources of develop-
statutes of the local DMO; (3) annual reports of the DMO as ment, which reveals underlying informal governance
well as those of the main enterprises (for example, mountain mechanisms. Network characteristics (such as infor-
operation companies, spas, sport centres, and congress mal, personal connections, knowledge about former
centres); (4) communal laws on financing tourism infra- relationships and alliances, and the balance between
structure and activities, on land development and regulation, trust and control) affect the structures and behavior of
and so on; (5) arrival and overnight stay statistics; (6) census institutions and actors.
data for the financial year 1999–2000; (7) strategic develop- • Different forms of leadership and administration are
ment and marketing plans; and (8) further studies on various the driving forces in the destinations. In some destina-
topics (for example, real estate development). Additional tions, power and initiative are allocated around one
qualitative information was captured through (9) analyses of individual (cases 1 and 7); in others it is found in a
local/regional media reports on specific strategic projects group of individuals (case 6); while in several others
affecting the public in the destination, as well as (10) power is located in one or more institutions (cases 3,
personal interviews with selected local top figures (for 9, 11, and 12). Power asymmetries and interdepen-
example, an owner/manager of a mountain area company, dence are clearly recognizable, and for some destina-
the president of a DMO, a mayor), which helped to tions the community is represented by many
complete the overall picture. The interview questions were individuals and institutions (cases 2, 4, 5, 8, and 10).
open and addressed past and current motivation for cooper- • In destinations with strong tourist enterprises (cases 1,
ation as indicators of mutual trust, the degree of innovation, 7, and 9), the DMO plays a complementary role in the
the identification of key players and their role in the strategic development. In destinations with weak or
destination as well as relationships between institutions and less well-organized tourist enterprises (cases 5, 8, 11,
single actors. and 12) the DMO has the lead in defining strategies
TABLE 3
CASE STUDIES WITH DESCRIPTION OF ITEMS

Current size and recent

Number Destination development performance Driving forces for development Mutual trust and internal mood

1 An uncoordinated, booming growth Population 877, federal tax on per The ski area company and its president The destination suffers from a
in the '60s and in the first half of the capita income 864 CHF. Frequencies are the major driving forces in the negative image (internally and
'70s, due to ski area development; dramatically decreasing in the '80s. destination. Due to the number of externally), mainly due to
during those years strong investments Since the mid-'90s stable with an second homes owned by individuals, uncoordinated real estate
in second homes with splintered increasingly stronger winter and a and the limited number of hotels, development and the negative
residences. The ski area is located at weaker summer season. the local community supports the perception of the place. Locals
relatively low altitude and therefore ski area company in its efforts. and tourists live with this
early deployment of artificial snow in Lately, the company has started a problem, and with continuous
the beginning of the '80s. Strong strategy of vertical integration by traffic jams. However, they trust
winter and weak summer season. building a new hotel with an the ski area company to find
Relatively low-budget destination. innovative service concept, and is new business opportunities.
Preferred by Swiss families. trying to contribute to the In general, apart from the
Increasing through-traffic problems reconstruction of the redevelopment ski area company, the attitude
in the town center during the of local hotels. of local institutions and actors
high season. can be described as passive.

2 The destination is located in a rather Population 1,242, federal tax on per The municipality, DMO, and the ski area There is mutual trust, but the
peripheral region, in an impasse valley. capita income 658 CHF. Frequencies company are the main players in the internal mood reflects the
Strong development in the second half increasing in the '70s and '80s, and destination. The commonly defined environment of the destination.
of the '70s, with the development of a stagnating since the beginning of the development plan and strategy is It is located in a valley with
ski area and the subsequent '90s. Winter season still the main followed by the main institutions. three other tourist destinations
investments in real estate (second tourist period; however, in the last However, besides marketing and and DMOS and two other
homes). Strong winter seasonality few years increasing in frequencies promotion activities and segment ski areas. Alliances or even
prompted the destination to offer during the summer. specific service offerings, no major mergers, in order to reach a
more services in the summer. innovations or infrastructure projects critical size for long-term
Today known for family-friendly are planned. competitiveness, have not yet
holidays as well as adventure activities been pursued.
for young segments during the summer.

3 First development phase in the second Population 1,442, federal tax on per Until some years ago, the municipality Trust is affected by past events,
half of the nineteenth century due to a capita income 681 CHF, frequencies and the ski area company were the but the main institutions are
hot springs and spa establishment. increasing from the '70s until the driving force for investments in the looking ahead and are willing
Second growth with the development beginning of the '90s. Since the end of destination. Since the bankruptcy to pursue a long-term strategy
of a ski area in the late '50s. Since then, the '90s dramatic decrease at a yearly declaration, the main investment with capacity growth in mid- to
a well-positioned thermal health resort rate of around 5%, winter and summer activities have come to a stop. high-price segments. The DMO
with winter sport activities. In the late season with equal importance. However, modern infrastructure, a is fully committed to this
'90s bankruptcy declaration of the broad hotel sector, and a solid strategy. The federal
municipality due to over-investments positioning strategy ensure that the government has appointed an
in the new spa resort and other destination continues its business. independent restructuring
infrastructure. The destination is slowly commission, which is currently
recovering from the associated image loss. part of the local scene, but
does not belong to the local
culture and is perceived as
a controlling body.

101
(continued)
TABLE 3 (CONTINUED)

102
Current size and recent
Number Destination development performance Driving forces for development Mutual trust and internal mood

4 A destination easily accessible from Population 1,422, federal tax on per The destination is characterized by The internal mood in the
larger cities. Main growth period in capita income 539 CHF Frequencies sparse interests. The driving force of destination, as well as for the
the '60s and '70s. Besides the increasing in the '60s and '70s. Since the earlier development, which was repeat customers (most of
development of three distinct ski areas the beginning of the '80s constantly represented by the real estate whom own a second home),
with three companies, booming of hotel decreasing with a yearly rate of investments of private owners, has lost is rather poor. The absence of
establishments and second homes. around 3–4%. its momentum. The ski area companies significant innovation, the
Two town centers with one lake, struggle with each other to form a scattered offerings for various
offering extensive summer activities. stronger unit. The DMO is subject to segments, the failed merger
Today positioned as family destination various critics. The municipality has between the three ski area
in summer, and a ski and snowboard no clear strategy for the future. companies, and other
destination for all ages and segments. Despite its optimal location and natural structural problems have
surroundings for summer and winter produced an atmosphere
activities, the destination has not of mistrust and reciprocal
managed to return to a successful path. blame.

5 First tourism development in the beginning Population 1,889, federal tax on per Rhaeto-Romanic culture and language The community character
of the twentieth century based on capita income 692 CHF. Frequencies play a key role in the positioning of the destination is highly
thermal and mineral waters. Second slowly increasing in the '60s and strategy of the destination. Capacity accentuated. Single
growth period in the late '50s with ski '70s stabilization in the '80s and '90s. growth is therefore seen as a potential entrepreneurs have the
area development. Since then, modest Since 1999 increase of frequencies problem for the core values of the opportunity to invest and
growth until the '90s. In 1992 a due to the railway tunnel (⫹15%), destination. Combined with the relative develop new ideas. However,
wellness and health spa opened, currently stabilized. peripheral location of the destination, as soon as they grow too fast,
causing a shift in positioning. With the growth dynamics are rather modest. they meet disapproval. Mutual
opening of a railway tunnel in 1999 The main growth impulses date back trust is delimited by the local
came the shortening of journey time to the end of the '80s, when the local culture and rules, which put
from the main cities by up to 1 hour. population decided to build the public the wealth of the community
Today positioned as a medium-sized health and wellness spa, and to the in the foreground. For example,
destination with local culture and end of the '90s, when the regional if new tourism professionals
traditions and a relatively broad railway company built the tunnel. are sought, local applicants
offering in winter and summer. The spa is owned by the municipality, are preferred even if they
the ownership of the ski area are less qualified.
company, and the DMO (a private
corporation) are largely spread
among the local population.
6 Located farther away from larger Population 638, federal tax on The destination's development is Currently, the motivation to invest
cities at the end of an impasse per capita income 2,105 CHF. dominated by companies trad- in tourism is rather high. Sport
valley. Borders Austria. Profited Frequencies dramatically ing in duty-free goods, and and leisure facilities, as well as
economically in the past increasing in the '70s and '80s. since the '80s by the ski area accommodation establish-
century as duty-free territory, In the last decade stable, with a company. Two local families ments, are kept at a modern
and today still attracts a slight increase. Very strong win- control the scene and are rep- and high quality standard.
considerable number of shop- ter, very weak summer season. resented in the boards of the However, capacity expansion is
ping tourists. The development most important enterprises. The limited, due to the small terri-
of a ski area in 1978, with ski area connection with the tory and the topography. Mutual
accompanying development of bordering Austrian destination, trust at local level is fortified
tourist enterprises (hotels, which is positioned for young with the cross-border alliance
restaurants, and rental shops). segments with a high budget, with Austria. The financial and
Since 1993 has had a ski area released investments in political power of a small group
connection with a major border- premium services, including of people and families is
ing Austrian destination. Today cultural and musical events. accepted as a local reality.
dominated by winter sport and
shopping tourism. Current
investments in the wellness
hotel sector.
7 The destination comprises three Population 1,352, federal tax on The main driving force in the des- The president of the ski area
communities with their respec- per capita income 1,105 CHF. tination is the ski area company with his successful
tive municipalities. Main devel- Frequencies increasing in the company, specifically its presi- but rather entrepreneurial
opment in the '60s and '70s, '60s and '70s. Since the '80s dent, who stands for innovative strategies has polarized the
with winter sport and ski area stabilization and slight and successful ideas. In the last local opinion. However, the
development. One of the two decrease. Strong dependence ten years the company has municipalities and the DMO,
ski area companies invested in on second and holiday homes. successfully integrated verti- which last year reformed as an
the mid '80s in the snowboard Almost insignificant hotel cally by developing its own independent company, follow
market. Since then destination industry. rental shops, restaurants and the main strategy. The current
known as one of the main hotels. Currently, the company problems with the low occupa-
centers for snowboarding, with is developing services for the tion of second homes, the lack
events and championships. second home segment and of hotel beds, the traffic jams
Merger of ski area companies investing in new apartment- through the three towns and the
in the end of the '90s. Merger of hotel establishments, in order to strong dependency on the
the three community DMOs actively increase the number of winter business, challenge all
with the new ski area company. overnight visitors. the institutions, which look for
Destination with a strong winter common solutions. Motivation is
business and daily tourism due high, mutual trust is rather
to the proximity to larger cities. good.

(continued)

103
TABLE 3 (CONTINUED)

Current size and recent

104
Number Destination development performance Driving forces for development Mutual trust and internal mood

8 First tourist development phase in Population 2,271, federal tax on Although the ski area company is Mutual trust is here less a problem
the end of the nineteenth per capita income 1,270 CHF. a major player in the destination, than motivation for new
century with summer and winter Frequencies increasing until the the municipality, and the DMO activities and investments. The
sports. Second and more end of the '70s. Since then are the institutions that try to destination has set a master
dramatic growth at the end of dramatic decrease, with steer the destination's future. plan with clear statements on
the '50s with the ski area frequencies today at the level They define the future scenarios capacity limitations. The main
development. Since the mid-'70s of the mid-'60s. and implement measures mainly actors know that the destina-
no major development, partly in the enhancement of the visi- tion today is too small to stay
due to the location (end of an tors' experience and locals' envi- competitive. However, as yet
impasse valley). ronment. The frequency there no initiatives have been
decrease is partly compensated proposed.
by the creation of larger events
and leisure activities.

9 Before the '60s known as summer Population 2,958, federal tax on The driving force is the ski area The destination currently experi-
and winter resort rather close per capita income 1,617 CHF company, formed after the ences two main challenges: an
to big cities, then large-scale Frequencies slightly decreasing merger of smaller companies in investment hold-up in the hotel
access to the glacier through in the '80s and stable since the 1992 and 1997. In the early and holiday home sectors, as
the funicular and development mid '90s. Both winter and '90s the company invested in a well as the need for the ski
of the ski area. Considerable summer season, enhanced by new funicular, with experience area to expand its territorial
growth in the '60s and '70s, the glacier area. and panoramic elements. Today, scope, in order to reach a
particularly in the second home new services and events with competitive size. Both issues
sector. Development of an adventure character are lead the majority of actors and
experience offerings on the being launched almost yearly institutions to adhere to a
mountain with adventure on the mountaintop. common strategy. Mutual trust
elements. Today positioned as Additionally, in 1993 the local and motivation are high despite
an all-year-round destination DMO changed the legal form the current challenges.
with extensive summer and implemented an integrated
activities (hiking, adventure, service concept with other
golf, and so on). major tourist enterprises.

10 Destination located at the feet of a Population 3,733, federal tax on The four ski area companies Mutual trust is rather good. The
major glacier. Ski area develop- per capita income 535 CHF. follow an independent strategy motivation for new projects and
ment in the beginning of the Frequency growth until the and cooperate when necessary larger investments is quite
twentieth century. Today has beginning of the '80s. Since the with the municipality and the contained. The community
four independent ski area end of the '80s dramatic DMO. The name of the destina- does not know a prominent or
companies. One of them is a decrease. Since the end of the tion is less well known than the outstanding personality or
corporation quoted in the stock '90s stabilization. Winter and mountain railway, the respective group of persons. DMO,
market. Since 2001 glacier summer equally important. mountain, and the glacier. municipality, and ski area
listed as UNESCO world her- Therefore, the engine of devel- companies work independently.
itage site. Today destination opment is located on the moun-
positioned for low- and mid- taintop.
price segments. Young clientele
as well as families. Traditional
skiing in the winter and hiking
and adventure activities in the
summer.
11 Destination located at the end of an Population 4,225, federal tax on In the past five years the main ski The local brand and the
impasse valley. First development per capita income 1,289 CHF. area companies and funiculars respective corporate design are
period in the second half of the Frequencies after World War II of the destination have merged followed by all the enterprises
nineteenth century with summer slightly, but continuously, into one larger consortium. and actors. Investments are
vacation activities. Second growth increasing, with short There is a strong municipality, focused on increasing the
in the pre- and post-World War I stagnations in the mid '70s which sets new accents in service quality and the value of
period, with winter sports and and the end of the '80s. Strong enhancing the local infrastruc- the experience for the visitor.
large-scale access to the ski area winter season with increasing ture and the quality of life in The destination has come to its
through the mountain railway. summer season. town. The DMO is responsible capacity limits. Therefore, the
Second ski area development for a professional information common strategy is to focus on
with modern funiculars in the '50s. service in town and for the premium segments. The
Since 1930 terminal stop of the destination's promotion. destination experiences contin-
most prestigious panoramic rail- Additionally, the local parish, a uously increasing frequencies
way route in the Swiss Alps, today body distinct from the political with the absence of negative
marketed all over the world. The municipality, plays an important effects, and has benefited from
town has not been accessible by role in the destination. It owns a the recent promotional success
private car since the '90s. The group of hotels and is a major to new markets in Asia, and,
mountain towering over the town shareholder of the ski area combined with its sound image,
has become an emblem for consortium. these factors motivate the main
Switzerland. The destination's actors to pursue common
brand is known all over the world. goals.

12 First development phase in the Population 10,957, federal tax on Although the three ski area The destination's enterprises are
second half of the nineteenth per capita income 1,050 CHF. companies have pursued their all committed to the corporate
century with summer sport activi- Frequencies growing in the '60s own strategy and so far have design and brand, created by
ties, later complemented by hos- and '70s. Stabilized at a high only managed to cooperate with the DMO some ten years ago.
pitals offering pulmonary level since the '80s. Strong win- each other, the destination They support, but also criticize,
therapies. Since the beginning of ter season and increasingly seems to be well coordinated. the proposed projects within a
the twentieth century, winter important summer season, with Here the municipality and the constructive discourse. Mutual
sport activities, culminating with a wide portfolio of activities and DMO play crucial roles, trust is institutionalized through
the boom in the '50s and causing segments. regularly (every couple of years) the activities of the DMO. Those
the development of three ski setting new infrastructure who follow its rules profit from
areas with respective indepen- projects, events and promotional the business opportunities;
dent companies. Since then, allo- activities on the agenda. Unlike those who do not join the DMO
cation of research centers for many other DMOs, in this system (for example, capacity
medicine and meteorology. Since destination the tourist office has gathering for larger events,
the end of the '60s, development invested in its own infrastructure booking platform, work in
of congress tourism with increas- (for example, a sport center, commissions) are excluded.
ing number of events and grow- hotels) and services (for Motivation for new ideas is
ing capacities, hosting one of the example, logistics and PCO rather high. Most institutions
most well-known economic and services for congresses), which and actors see the DMO as the
political congresses. Today one of go far beyond the usual tasks of main point of reference.
the largest tourist destinations in such an institution.
the Alps, with a broad portfolio of
service offerings and respective
segments. The destination's
brand is known all over the world.

Note: CHF 5 Swiss Francs.

105
106 AUGUST 2007

for development, and is often well supported by the in the destination. The president of the ski area company in
municipality. So, on the one hand, destinations exist destination 7 is a main point of reference. The two larger des-
with an equal distribution of power and governance, tinations (cases 11 and 12) have a higher than average
where equilibrium is sought; however, on the other number of board positions, which is expected for the gover-
hand, some destinations reveal one or more reference nance of larger and more complex entities. However, in both
points, represented either by strong tourist enterprises cases there are personal unions and/or multiple representa-
or strong DMOs and municipalities. tions by institutions, indicating the effectiveness inside the
• The larger destinations (cases 11 and 12) have a long boards of the major players (see transaction costs), but also a
history of tourism, dating back to the nineteenth concentration of power (see power asymmetries and
century. But they also have a DMO that plays a dom- interdependence).
inant role. This indicates that destinations with older
and more mature relationships are more likely to have
a coordinating structure, represented by a strong neu- CONSEQUENCES AND IMPLICATIONS
tral body, such as a DMO.
The case studies reveal various patterns in destination
In order to discuss transaction costs, power asymmetries, governance structures that differ fundamentally, depending
interdependence and trust/control issues in tourist destina- on a series of conditions. The past history of the destination,
tions, it is useful to understand how the boards of the DMO, its long-term development (dynamic perspective of net-
the municipality, and the main enterprises are connected to works), and the current environment determine the circum-
each other. Hence, this study analyzes the number of board stances of mutual trust and internal mood, eventually
members of the local DMO, the municipality (legislative affecting governance structures and their evolution. Local
body), and the major tourist enterprises (for example, a ski governance rules determine whether there is enough
area company, or a health and wellness spa). In order to gain entrepreneurial freedom for private enterprises, as well as
a comparable picture across the cases, these numbers were for the DMO or the municipality, to push initiatives and pro-
divided by the number of analyzed boards in one destination jects (trust/control and power asymmetries). Governance
(minimum three boards, maximum five boards). While the structures in strong local (culturally formed) communities
average size of the boards reflects the quantity of involved seek a power equilibrium. Other structures allow the con-
actors (and therefore the degree of community orientation), centration of power, particularly in the presence of a strong
the average number of individuals sitting on these boards private ownership of one dominating company.
reveals the connection between the institutions through per- For larger destinations, the DMO might serve as an insti-
sonal union, and gives an insight into communication effec- tution that assists the visitor and promotes the place. The
tiveness and reciprocal control. Moreover, if this number larger the population and the more numerous the stakehold-
differs considerably from the average number of board posi- ers, the more this institution serves as a body for forming
tions, the risk of accumulation of power among a few actors and organizing destination governance. Destinations with
is high (power asymmetries). deputies serving on more than one board are more effective
Individuals often act not only in their personal interest, and follow a more successful strategy. Destinations with
but also in the interests of the institution they own or work too-large boards that represent too many individuals and
for. Thus, the research also examined the number of institu- institutions lose focus and fail to follow a clear development
tions represented in the boards (see interdependence and path (transaction cost theory). Destinations with too-small
trust/control issues in the principal agent theory). Because boards, and few individuals and institutions, might make
one institution could be represented by one or more individ- risky decisions, supporting the phenomenon of “moral haz-
uals, this figure is the minimum value. Figure 2 illustrates ard” described in the principal agent theory.
the results. Returning to the research questions, the six selected
Case 4 stands out as a destination with a generally high dimensions of corporate governance and their operational-
number of board positions, and is simultaneously repre- ized items help considerably in shaping patterns of destina-
sented by almost as many individuals and institutions. tion governance. They can explain why some destinations
Among these case studies, the destination with the missing with specific organizational forms and configurations have
strategy is also the one with an internal “bad mood” and rec- difficulties defining successful strategies and implementing
iprocal blaming. Case 3 shows the opposite, with small them effectively. The selected dimensions have relevance,
boards and therefore possibly a more focussed strategy. particularly when looked at as a set. The set “knowledge and
However, closer examination reveals that this destination’s trust/control” and “informal, personal connections” explains
municipality went bankrupt, perhaps because the tight focus historically grown local governance structures and mecha-
led to lack of control and a self-complacent attitude. nisms. The set “power asymmetries and transaction costs”
Cases 5, 6, and 7 display the greatest relative difference on one side and “knowledge and trust/control” on the other
between the number of board positions, the number of indi- reveals the antagonism between community and corporate
viduals, and the number of represented institutions. This models. In order to perform better or to create better
indicates a potential for good communication and reduced conditions for success, destinations must actively form and
transaction costs. Destination 5 is characterized by a strong manage governance structures and their mechanisms. In this
local culture that puts the community in the foreground, but regard, corporate governance theories help directly. The
works rather effectively. Destination 6 developed tourism out network theory explains why current issues are sometimes
of its duty-free status, and two families dominate it. Case 7 addressed in a “nonrational manner.” Institutions’ and individ-
represents the destination with the strong ski area company, uals’ decisions to foster initiatives and to cooperate are based
expanding its business scope across the whole service chain on their experiences, which eventually put forth informal,
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