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Innovation Behavior in the Hotel Industry

Article  in  Omega · April 2009

DOI: 10.1016/j.omega.2007.04.002

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 Omega 37 (2009) 380 – 394
www.elsevier.com/locate/omega

Innovation behavior in the hotel industry夡

Francina Orfila-Sintesb,∗ , Jan Mattssona
a Roskilde University Center, P.O. Box 260, 4000 Roskilde, Denmark
b University of The Balearic Islands, Cra. Valldemossa, Km. 7,5, 07122 Palma de Mallorca, Balearic Islands, Spain

Received 5 May 2006; accepted 24 April 2007

Available online 3 May 2007

Abstract
We develop and test a model of innovation behavior in the hotel industry. The model relates four types of innovation—i.e.,
management, external communication, service scope and back-office—to the key determinants: service provider characteristics,
customer competences and the market drivers. Using statistical probit models and cross-sectional survey data from a stratified
sample of hotels in the Balearic Islands (N = 331) we were able to verify the model including innovation types determinants
and the innovation impact on hotels performance. Main findings verify the model indicating the effects of these determinants on
innovation and the positive impact of the innovation on the hotels performance. Hence, innovation decisions determinants are:
the additional services on offer, that bookings are made through tour operators, that hotels are part of a hotel chain and that the
owners of the hotel run the business.
䉷 2007 Elsevier Ltd. All rights reserved.

Keywords: Innovation; Services; Hotel industry; Management of technology; Performance impact

1. Introduction through the innovation type’s determinants considering

There is a lack of innovation research in the hospital-
ity sector [1]. The objective of this work is therefore to
analyze the innovation behavior in the hotel industry in
order to empirically verify the recent theoretical devel-
opments of innovation in services. We take into account
the inter-sectorial innovation differences by analyzing
one specific sector only [2–4]. However, innovation in
one sector presents multiple dimensions and may be
classified into different and relevant types [5–7]. There-
fore, innovation behavior in the hotel industry is studied
夡 This manuscript was processed by Adenso-Diaz.
∗ Corresponding author. Tel.: +34 9711 71331;
fax: +34 9711 72389.
E-mail addresses: francina.orfila@uib.es (F. Orfila-Sintes),
mattsson@ruc.dk (J. Mattsson).
0305-0483/$ - see front matter 䉷 2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.omega.2007.04.002
that innovation may take the form of four relevant types
[1,7,8] which, in turn, impact on the hotels performance
[9–11].
The four types of innovation decisions deployed here
are representative of innovation in the hotel industry
[1,7,8]. The innovation types determinants cover the in-
put from the service provider, customer competences,
and the market drivers as the relevant literature recom-
mends [1–3,12].
Innovation is one of the main determinants of com-
petitiveness. Innovation theory was first developed for
manufacturing [13,14]. Applying innovation theory to
service sectors we must take into account the inter-
sector heterogeneity which makes it important to study
innovation in one specific sector at a time. Nevertheless,
innovation in one sector presents multiple dimensions
and may be classified into some relevant types [1,6,7].
 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
The hotel industry was chosen for this study because
tourism is an important and extremely competitive sec-
tor, which is characterized by continuous transforma-
tion [15]. Therefore, we may argue that competitiveness
in tourism is particularly dependent on innovation for
achieving lower costs and higher quality outputs [1,16]
such as improved services and products, environmental
issues and information and communication technolo-
gies (ICT hereafter) interaction. However, as tourism
firms are operating in different sectors such as trans-
portation, accommodation, leisure or intermediation, in-
novation behavior of tourism firms will also differ. The
hotel industry stands out from all of them since it is a
homogeneous industry that provides an important part
of the tourism services [17]. It is also generic in the
sense that different levels of hotel quality do not really
have an impact on the hotel operations as such. What
differs between high and low quality accommodation is
the quality of the extra services and tangibles.
We focus on the Balearic hotel industry which allows
us to improve our understanding of the hotel innovation
behavior. Balearic Islands belong to one of the Mediter-
ranean’s leading destinations with an annual volume of
foreign arrivals that represents more than 1% of world
tourism [18]. New destinations are emerging in the east-
ern parts of the Mediterranean as the European Union
expands eastwards. These developments make it imper-
ative for hotel managers to upgrade their operations.
Innovation is a key lever to accomplish this. The hotel
industry therefore needs a better understanding of the
factors that drive innovation and performance [1]. In
this study we provide a model of the main determinants
of innovation and their effect on performance. This is of
high practical relevance for the managers as the model
may serve as a portfolio of tools for innovation input.
This paper is structured as follows: the following two
sections introduce a theoretical framework of innova-
tion in services and in the hotel industry and the fourth
presents the model of the hotel industry innovation de-
terminants. The fifth section outlines our model of the
relationship between innovation and performance; and
the sixth presents the empirical methodology. Follow-
ing, the seventh section presents the results of this study;
and, the final section draws some conclusions from these
results.
2. Innovation in services
The Oslo Manual provides us with the general inno-
vation definition: “A technological product innovation
is the implementation/commercialization of a product
with improved performance characteristics such as to
381
deliver objectively new or improved services to the con-
sumer. A technological process innovation is the im-
plementation/adoption of new or significantly improved
production or delivery methods. It may involve changes
in equipment, human resources, working methods or a
combination of these [3, p. 9]”.
Therefore, product innovation is a good or service,
which is either new, or significantly improved with
respect to its fundamental characteristics, technical
specifications, incorporated software or other imma-
terial components, intended uses, or user friendliness.
Process innovation includes new and significantly im-
proved production technology, new and significantly
improved methods of supplying services and of deliv-
ering products. In both cases, the outcome should be
significant with respect to the level of output, quality
of products (goods/services) or costs of production
and distribution. Furthermore, the innovation should be
new to the enterprise; it does not necessarily have to be
new to the market and it does not matter whether the
innovation was developed by the focal enterprise or by
another enterprise or agent.
This conceptualization of innovation also applies to
service sectors because the characteristics typifying
services1 have implications for the definition of inno-
vation [2,3,13] that are considered. For example, only
strategically determined changes must be considered
as innovation, and not the differences between transac-
tions that are a consequence of the presence of certain
individuals. Hence, innovation to be analyzed includes
both the one that is based on new knowledge, or tech-
nologies developed internally, and the one that imports
knowledge or technologies from outside the organiza-
tion [19]. In fact, most of the relevant literature (e.g.,
[20]) and the empirical studies on innovation in the ser-
vice sector (e.g., [4,11]) reveal that, except for certain
sectors such as information and telecommunications,
innovation comes into the operations of a service firm
primarily through the acquisition of equipment, mate-
rial, and components from suppliers in other sectors.
Furthermore, this conceptualization of innovation is
well aligned with those developed by Gallouj and We-
instein [5], Johns and Mattsson [22], Preissl [23] and
Sundbo and Gallouj [13].
1 Sirilli and Evangelista [21] note that even though a general
consensus on the basic features of services is lacking, some as-
pects are commonly recalled in the literature: (i) a close interaction
between production and consumption (co-terminality); (ii) a high
information-intangible content of services products and processes;
(iii) an important role played by human resources as a key compet-
itive factor; (iv) a critical role played by organizational factors for
firms’ performance.
382 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
Gallouj and Weinstein [5] define innovation as any
change in one or more terms from one or more vectors
of characteristics that form the system that represents
any service. Added to the characteristics typical of the
system representing a manufactured article (i.e., the
characteristics of end-use or product performance, and
the techniques of production) are those derived from the
greater interaction between provider and customer that
exists in the service sector: the competencies mobilized
by the provider and those contributed by the customer.
Johns and Mattsson [22] and Preissl [23] also claim
that in services the active participation of customers
in the conception and realization of an innovation is a
necessary condition for success. Along the same line,
Sundbo and Gallouj [13] argue that market drivers are
the crucial determinants of innovation decisions.
Recently, more ‘integrative’ perspectives have sought to
stress that service innovations include both technolog-
ical and non-technological innovations, such as orga-
nizational and relational change, and such approaches
seek to stress that human and organizational capabili-
ties are also important in many service innovations [4].
3. Innovation in the hotel industry
Few studies have attempted to investigate the in-
novation behavior in the hospitality sector. Jones [8]
found that innovation takes the form of a stepwise
process. Because of their knowledge about customers’
needs and wants, innovation is often initiated by the
company’s customer-contact personnel. Therefore, new
service design and testing, for example, should involve
both the input of prospective customers and the active
cooperation of the operating personnel who will ulti-
mately be delivering the service. Recently, Ottenbacher
and Gnoth [1] found nine factors that promote suc-
cessful service innovations from hotel managers: mar-
ket selection; strategic human resources management;
training of employees; market responsiveness; empow-
erment; behavior-based evaluation; marketing synergy;
employee commitment; tangible quality. Further, the
critical dimensions of innovation were separated into
the following four clusters of concerns: (1) a service-
or product-related cluster, (2) a market-related cluster,
(3) a process-related cluster, and (4) an organization-
related cluster of items. On a more detailed level culi-
nary food product innovation has been studied in an
organic real-time food service setting [12,24]. It was
found that innovation of a particular culinary prod-
uct may not in itself provide a sustainable advantage,
but an organizational capability in innovation devel-
opment may provide firms with an advantage that is
sustainable through a process of continual product
innovation [24].
As mentioned above, innovation in one sector of eco-
nomic activity tends to be heterogeneous. Innovation,
we argue, therefore is best approached by classifying it
according to some relevant types [6,7]. Hence, it will be
convenient to distinguish some types of innovation that
arise from the theory of innovation in services, from
the particularities of the hotel industry, or the accom-
modation provision characteristics. The selected inno-
vation types we intend to analyze were derived from the
four clusters of concern mentioned in Ottenbacher and
Gnoth [1] and from the literature on hospitality innova-
tion (e.g., [8,25]) namely: management, external com-
munications, service scope and back-office.
The non-intensive knowledge businesses, like those
found in the accommodation sector, innovate through
introducing R&D embodied in technology (i.e. new
equipments or software) rather than undertaking inter-
nal R&D activities [21,26]. In fact, Orfila-Sintes et al.
[25] identify innovation in hotels with those techno-
logical changes that are strategically implemented in
the key areas, departments and services of the hotel
establishments. Here, the incorporation of technologies
developed internally, or commercialized by the suppli-
ers, are apt to be translated into a competitive advan-
tage, either because of productive efficiency (decrease
in costs), or because of the improved capacity for dif-
ferentiation (improving the service provided by better
adapting it to customer demands) and hence complying
with the Oslo Manual recommendations.
The management innovation type refers to the qual-
ity of management processes, to the ICT applications
for management, and to improvements of the organiza-
tional structure. Therefore, the management innovation
considers the importance of the environmental quality
in the hotel’s competitiveness [27]. The ICT applica-
tions are also prominent in making management pro-
cesses efficient [28]. Also, the changes in the organi-
zational structure capture the organizational innovation
that is relevant in services [7]. In fact, the management
problems to solve through organizational innovation are
crucial in service organizations [29,30]. Harrington [12]
found that managers who can utilize real-time informa-
tion of operations and the competitive environment to
simultaneously evaluate multiple courses of action have
been shown to enhance firm performance.
Innovation in external communications depicts the
high information-intangible content of services prod-
ucts and processes in the hotel industry. The ICT plays
a pivotal role, both in generating opportunities and new
“services”, and in revolutionizing the ways in which
 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
most of the “traditional” services are provided [31]. The
use of ICT (e.g., Internet) is a very relevant innova-
tion that helps increasing the competitiveness of firms
because it facilitates the management of relationships
with customers, through better and easier information
exchange. Further, ICT as such can improve the effi-
ciency of the relationships between the firm and inter-
mediaries, suppliers and public administrations [28].
The service scope innovation is relevant due to the
importance of the service delivery for the competi-
tiveness of hotels [32] as in other service sectors [7].
Service scope innovation leads to changes in the ser-
vice output and often the incorporation of technological
assets which improve the service output and the tan-
gible aspects of service delivery [33]. Stamboulis and
Skayannis [34] show that service scope innovation is
the more tangible part of innovation and indeed the
core of customer value.
The back-office innovation, finally, consists of the in-
corporation of new technological assets for the improve-
ment in productivity and for achieving more efficient
service delivery [35,36]. In fact, Jones [8] argues that
many new products in the hospitality industry are not
simply products; they have service implications, too.
They may entail modification of back-office processes
or the way customers are served. Hence, the process and
system design and testing of a new service encompass
the whole delivery process, not just the element expe-
rienced by the customer, and often involves back-office
process re-engineering.
4. The hotel industry innovation determinants
When modeling the innovation determinants in the
hotel industry, we consider the following: the service
provider competences, the service customer compe-
tences and the market drivers, as argued above. The
service provider competences that we suggest to use
are the hotel characteristics such as physical capacity
[8,26,27,37,42,43], the degree of use of the physical
assets [12,18,21,25,38,39] and the additional services
to the accommodation [1,8,28,40,41].
The physical capacity or production size, the num-
ber of rooms or beds [37] of the accommodation, can
prompt economies of scale [42] which help to explain
the strategic decisions of companies. In most of the stud-
ies, size is a relevant variable in innovation decisions
(e.g., [43]) because size may affect the implementation
and profitability of these decisions. The influence can
empirically be positive (impact of scale economies on
innovation activities) or negative (the effect of flexibil-
ity on the introduction of changes). In many relevant
383
studies size seems to be positively related to innova-
tion (e.g., [8,43]). Furthermore, Hjalager [26] finds the
larger tourism firms as the central innovators in tourism.
As for size of the hotels, larger establishments would
be more likely to make the investment required to im-
plement technologies, as they can take advantage of
economies of scale and more often have slack resources
[27], which have a positive impact on innovation deci-
sions. Moreover, hotel size is also positively related to
the level of services and the quality provided in the ho-
tel trade [42]. These arguments and findings have led
us to formulate the following hypothesis:
Hypothesis I1. The hotel size will positively affect all
types of innovation.
This physical capacity is not used to the same degree
in the accommodation sector. Koenig and Bischoff [39]
signal that the seasonal variations in tourism demand
are widely recognized. For the accommodation sector
the relatively high fixed costs make seasonality a partic-
ularly important issue. The structure of high fixed costs
to face a seasonal demand, a typical situation for sun
and sea holiday destinations, means that some establish-
ments find it more profitable to close during the low sea-
son, rather than to remain open. Indeed, Harrington [12]
highlights the importance of making a thorough analy-
sis of the internal characteristics of the firm such as the
use of space and equipments. Orfila-Sintes et al. [25]
found that the use of the physical capacity affects inno-
vation decisions. The hotels opening for longer periods
will maintain an innovative offer responding effectively
to the seasonal demand (e.g., an offer of tourist products
off-season and a provision decreasing fixed costs); will
have more information such as a greater understanding
of the determinants of competitiveness, including inno-
vation while this accumulation of knowledge resources
will favor innovation [38]; and will experience lower
occupancy rates for periods of lesser demand when they
could introduce innovations that require more trials and
adjustments [21], which in turn may foster the gener-
ation of new knowledge necessary for innovation [38].
Additionally, Rosselló et al. [18] found that seasonality
had significant implications for employment and capi-
tal investments. These arguments lead us to formulate
the following hypothesis:
Hypothesis I2. The use of physical capacity (knowl-
edge and information resources) will positively affect
all types of innovation.
Competition in the tourist and lodging markets is re-
ally fierce [1]. Tourists have become more demanding
384 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
while choosing among many alternatives. Low-price
strategies are not always possible, and even less so for
tourist destinations in developed countries where labor
costs are significantly higher than they are in developing
countries [8]. A quality-based competitive strategy has
been suggested as the best way to compete [28]. This
quality-based strategy can comprise many additional
services added to accommodation. Olsen and Con-
nolly [41] found it important to considering the more
demanding and more diverse customer for successful
innovation. Furthermore, Medina et al. [40] found the
additional services on offer were one of the factors that
are most closely monitored by tour operators. These
services add value to the customer stay (e.g., children
facilities and services; sport facilities and activities;
SPA, Health and Beauty; Internet) and will prompt
innovation decisions since they will require changes in
all four main dimensions of innovation. Consequently,
offering additional services to more demanding and
diverse customers can be successfully achieved with
innovation. These arguments lead to the following
hypothesis.
Hypothesis I3. Additional services positively affect all
types of innovation.
Jones [8], Johns and Mattsson [22] and Preissl [23]
point out the importance of considering the role of the
customer in services innovation. They argue that the
active participation of customers in the conception and
realization of an innovation is a necessary condition for
success. We construe customer competences in the hotel
industry as the customer behavior measured as to the
travel motive [41,44,45], the way booking is carried out
[40,46,47], and the kind of accommodation board they
buy [35].
The tourism market is seen as being increasingly seg-
mented, formed by groups with different motives to
travel [41,44]. Some tourists travel for leisure while oth-
ers travel because of work or other business motives.
Stamboulis and Skayannis [45] showed that the tourists’
desire to ‘active lifestyles’ trend is not only related to
sports. Ecotourism—underpinned by the contemporary
environmental problems—experienced a growth of de-
mand that ran ahead of the supply of its products. In fact,
Aguiló et al. [44] find travel motives are more varied,
with a decrease in classic motives such as a desire for
sun and sand. Any hotel establishment can meet differ-
ent tourists demands although tourist requirements will
be better provided with innovation decisions. Olsen and
Connolly [41] discovered new tourist segments based on
the types of interaction, information exchange, and tech-
nology used. Tourism providers must strive to capture
new product markets and customers arising from the
transformation of the tourist business. Hence their inno-
vation strategy will need to be more customer-oriented.
These arguments lead to the following hypothesis:
Hypothesis II1. The motive of tourism positively
affects all types of innovation.
Of all the possible channels for booking hotel
rooms—tour operators, travel agencies, reservation
centers, and directly by the client—tour operators are
the most popular because of the greater relative pres-
sure the tour operator can exert. The high fixed cost
characteristic of hotel operations increases the min-
imum occupancy level required to reach minimum
acceptable profitability [46]. Therefore, the business
objective is to maintain occupancy levels, even to the
detriment of pricing policies, because of the perishable
nature of the service. This situation increases the
negotiating power of tour operators who act as conduits
for the demands of tourists who can be satisfied by
adequate innovation decisions. Medina et al. [40] note
that the factors that are most closely monitored by tour
operators are the characteristics of the establishments.
Therefore, although the negotiating power of tour op-
erators is limited by competition within the industry,
and because the hotel product being sold is of interest
to tour operators insofar it determines the degree of
satisfaction of their clients and the cost of the vacation
package they sell [47], the previous arguments lead to
the following hypothesis.
Hypothesis II2. Booking by tour operators positively
affect all types of innovation.
Service quality and customer satisfaction are impor-
tant. Hence, the assets, facilities and productive capac-
ities of the hotel establishment must be suitable for
meeting the expectations of incoming tourists. One
of the quality-based strategies may consist in offering
some food and beverage services in addition to the ac-
commodation without increasing prices to the same ex-
tent, or in offering these services with quality enough to
increase prices. In fact, Ngai and Wat [35] find that room
rate and hotel food and beverage facilities are the most
important factors for hotel selection. In this sense, there
are two extremes of food and beverage services that can
be added to accommodation: accommodation only, or
the all-inclusive service (i.e., all of the food and bever-
age services are included in the accommodation price).
Therefore, one might expect that hotels selling more
 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
food and beverage services must introduce more g tech-
nological assets and capabilities that allow them to meet
the service output the customer has contracted. That
is, the provision of food and beverage services that add
value to the customer stay would be a positive determi-
nant of the innovation decisions in the four main types.
These arguments lead to the following hypothesis:
Hypothesis II3. More comprehensive board of accom-
modation positively affects all types of innovation.
The market drivers also affecting innovation deci-
sions may be considered through the competitive strat-
egy. The crucial factor for innovation is still the intensity
of competition in the market [23]. Effectively, a firm’s
strategic decision to differentiate itself from competi-
tors will affect its productive resources, the services it
offers, the organization and management of the opera-
tions, and, therefore, its innovation decisions [13].
Baum and Haveman [37] indicate that in the hotel in-
dustry, a differentiation strategy may be the most effec-
tive. They show that travelers decide to book a tourist
accommodation based on its price, on the quality of its
service, on the services offered, and on the image of ho-
tel establishments. Consequently, an establishment may
implement a competitive strategy that differentiates its
service offerings from those of its closest competitors
(adjusting it to the demand) or in the provision pro-
cess (improving its productive efficiency). Furthermore,
Canina et al. [48] indicate that there are strong incen-
tives for lodging firms to pursue strategies that differen-
tiate them from competitors in their local market. These
arguments lead to the following hypothesis.
Hypothesis III. A competitive strategy with the aim to
differentiate positively affects all types of innovation.
The quality of human resources may directly impact
innovation. In the hotel industry we should highlight
the hotel director skills as a manager [49] whose atti-
tudes confronting change might determine the innova-
tion decisions [43]. The remaining employment skills
that would have an impact on innovation decisions may
be embedded in the employees’ qualification [23] which
may be updated through training [21,50].
5. Relationship between innovation and
performance
The hypothesis that the technological change, or in-
novation, will result in improvements of performance
such as reducing costs or manpower or improving
quality or flexibility has been studied in the literature
385
[11]. The expected output of the innovation process is
an enhanced competitiveness and/or improvement of
performance. However, other factors other than inno-
vation may also impact performance [51]. Also, not
all innovation decisions may necessarily have a direct
and positive impact on performance. Such innovations
may be implemented because they are also convenient.
On the other hand, some innovations may really have
an indirect or lagged impact that it is very difficult to
measure. Therefore, any innovation type may impact
performance. In fact, Heine et al. [10] find that cate-
gories and attributes of technologies may tend to have
similar impacts on performance, while Hipp et al. [52]
find that most firms introduce more than one type of
innovation and that it therefore becomes difficult to
isolate the origins of the effects on firms’ performance.
Organization level research measures performance
with a variety of measures for profit, sales growth, re-
turn on investment, and so on. In the service sectors the
firms’ performance measurement is more difficult due
to its special characteristics [53]. Nevertheless, in the
hotel industry, the average occupancy rate is an accept-
able measure of performance. Alvarez et al. [27] litera-
ture review reveals that the occupancy rate is an index
of the hotel’s level of activity that is widely used among
hotels and regarded as a performance indicator in the
hotel industry. Moreover, the average occupancy rate is
easier to know than other better profit measures due to
the owners and the managers are reluctant to report the
incomes and expenditures.
Consequently, one might expect, in the hotel industry,
that the positive impact of innovation on performance is
the main result, although it may be indirect, complex or
lagged as some previous studies have found (e.g., [9]).
The following hypothesis is suggested
Performance hypothesis. The innovation the hotel es-
tablishments had implemented, in any dimension, will
have a positive impact in their future performance mea-
sured in terms of their occupancy rate.
In order to ascertain the innovation impact on per-
formance other determining factors should also be
considered such as the organizational structure and man-
agement [51]. That is, certain conditions of structure,
process and people might enhance firms’ performance.
In the hotel industry, these factors may be approached
through the establishment size [42], training [50], addi-
tional services they offer to the accommodation service
[35], intermediated commercialization with tour opera-
tors [47], competitive strategy [48], chained operation
in the market [48] and owners’ management [47].
386 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
6. Method
6.1. Data
The data were collected from the hotel establishments
that operate in the Balearic Islands, a world-leading
tourist destination that has successfully developed over
several decades [18,54], and among the possible ac-
commodation alternatives (hotels, tourist apartments,
campgrounds, etc.) the hotel is used by the majority,
62%, of tourists [55]. Then, the relevant population for
this study includes the 1586 establishments listed in the
official census of accommodation facilities from the
Tourism Council available for the year 2000 since those
categorizes as “other” were excluded.2 The population
includes guesthouses, boarding houses, residences,
apart-hotels, and hotels.
In carrying out innovation, the hotel trade does not
designate significant resources for the generation of
new knowledge, nor does it typically give rise to the
registration of patents [26]. Thus, the information to
detect innovation in the hotel trade necessarily comes
from the primary information sources, that is, from
the hotel companies. Therefore, relevant data must be
collected by means of questionnaire survey specifically
developed for the managers of the establishments.3 The
variables in the questionnaire were organized in three
main groups: (I) hotel characteristics relating to innova-
tion and competitive issues; (II) innovation measuring
through service changes and technology incorpora-
tions in the key areas, departments or services; (III)
innovation characteristics.
A representative sample from the population was
selected after stratifying it according to three charac-
teristics that make it heterogeneous: the geographical
location (three islands in the Balearic chain), the hotel
category, and the capacity in beds available. The sample
of 331 respondents selected randomly and proportion-
ally from the strata is representative for the hotel popu-
lation as a whole and it allows us to obtain results with
a confidence level of 95.5%. The sample selection pro-
cess is further refined with a controlled process of sub-
stitution for the non-respondent hotels, replacing each
inaccessible with another in the same layer for main-
taining the stratification unaltered and leading us to the
2 Those in the “other” category are excluded because they rep-
resent a mere 0.5% of the total beds in the universe and because
they present a greater heterogeneity in operation and in the set of
services on offer, and are therefore not directly comparable to the
rest of the categories of the universe.
3 The questionnaire is available from the authors.
desired 331 observations (i.e., the average response
level is of 100%).
During the summer of 2001 we contacted these 331
hotel establishments and the previously piloted ques-
tionnaire was answered by the directors of the selected
hotels via personal interviews carried out by pollsters
who were trained to carry out the work. A second simi-
lar but improved questionnaire was applied to the same
sample during the summer of 2004. Forty-seven of these
331 hotels were classified as missing data (the estab-
lishment had ceased operations or was impossible to
contact) and substituted with another establishment in
the same population layer. Here we use 2004 data and
only some 2001 data (the lagged innovation explaining
performance).
These two data sets form the database for this study
of innovation behavior in the hotel industry. The rele-
vant variables measuring the factors in the models are
defined in the Appendix A. We asked respondents about
innovation activities carried out during the three years
because it was possible and consistent with the Oslo
Manual recommendations.
6.2. Analysis
The factors that increase (reduce) the probability
for the occurrence of each type of innovation decision
are determined through the estimation of probit mod-
els since the innovation decision is a binary variable.
When the independent variable is binary there is no
continuous function accounting for its changes and a
log-likelihood model must be estimated [56]. We use
the probit approach because our statistical software
(Stata) generates the marginal effects in a faster way.
The results will indicate which of the variables em-
bedded in the hypotheses may be considered factors
that increase (or reduce) the expected probability of an
innovation decision of that type. However, for a better
approximation of the probability produced by an ex-
planatory variable, the marginal effects are calculated,
and these, in turn, allow us to determine in which of
the four types of innovation the changes are greater in
comparison with the other types we have. The formal
expression of each type of innovation decision referred
to every hotel establishment appears in the Table 1.
The innovation impact on performance (i.e., the av-
erage of occupancy rate) is tested through an ordinary
least squares estimation of the function that relates the
hotels’ average occupancy percentage with innovation
and with the other factors. The innovation decision is
construed as an aggregated measure of innovation de-
cision the hotels’ implemented in the past three years.
 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
Table 1
Models of determining factors for innovation types
Explanatory factors
Service provider’s competences
Customer competences
Market drivers
The lagged aggregated decision allows us to include the
lagged effect of innovation on performance and may
better report the innovation effect on performance than
splitting it in some representative types as has been sug-
gested before. Formally, the expression is the following:
OCCUPANCYi = f(INNOVATIONi−1 , SIZEi ,
TRAININGi , SERVICESi , TTOOi ,
STRATEGYi , CHAINi ,
MANAGEMENTi )
with an aleatory and normally distributed shock.
7. Results
Appendix B shows means, standard deviations and
correlations for all variables and Table 2 displays the
marginal effects of the probit estimations for every in-
novation type. The estimated probit models turn out to
be useful in the explanation of decisions for every type
of innovation because, for all of them, the overall
effect of the explanatory variables on the dependent
variable is statistically significant (Prob > Chi2). For
each estimated model, we show the marginal effect of
the coefficients significantly different from zero indi-
cating the magnitude of the effect that the variable in
question causes in the probability that the hotels inno-
vate in that type. The pseudo-R2 and the percentage of
correct prediction values are acceptable in probit esti-
mations. For categorical or limited dependent variables
the true R2 is impossible to obtain and the parallel
pseudo-R2 is used to be significantly lower than the
true R2 when the model is properly adjusted [56].
Therefore, the empirical verification reports about the
assessment of the factors determining each type of in-
novation. Effectively, the probit estimation results sig-
nal if an independent variable has a significant impact
on the dependent variable and the direction of this im-
pact, but the marginal effects quantify the influence of
the factors obtained by reporting on the change from
their average values (infinitesimal change in the case
387
Variables Innovation type
HI1. Size I. Management
HI2. Use of assets
HI3. Additional services II. External communication
HII1. Travel motive III. Service scope
HII2. Booking way
HII3. Board
HIII. Competitive strategy IV. Back-office
of continuous variables, and discrete change for binary
variables) in the expected probability of the dependent
variables upon changing the explanatory variables (see
Table 2).
Thus, the results for size indicate a positive effect on
innovation decisions. Size increases the expected prob-
ability of hotels’ innovation in management, external
communication and back-office innovation. Moreover,
we can detect that the size effect is also more than two
times greater in the management innovation, 16% of
probability increment when size increases by 1%, than
in the back-office type, 6% of probability increment
when size increases by 1%. The effect of remaining
open longer periods in the year on the expected prob-
ability to innovate in management stands out as yield-
ing an increased probability of management innovation
of 46%.
The additional services on offer will increase the
expected probability that a hotel establishment inno-
vates in all of the four types. Furthermore, the positive
effect on the management and service scope innova-
tion of additional services is twice as large as compared
with back-office innovation: the expected probability for
management and service innovation increases approxi-
mately by 30% when an establishment is offering more
services than accommodation, and the expected proba-
bility for back-office innovation increases by 18%.
The findings for the customer competences indicate
this positive effect on the innovation behavior of the ho-
tels when increasing the expected probability of the all
innovation types except those of management type. That
is, the expected probability of back-office innovation
increases by 11% when the average customer changes
to an active one and the expected probability of service
scope innovation increases by 14% when the average
customer directly books the stay. The effects of an aver-
age customer board increase the probability to innovate
in external communication by 17% when the average
customer changes the half-board to a more comprehen-
sive board and in decreasing the probability to innovate
388 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394

Table 2
Marginal effects of the probit estimations for the innovation typesa ,b

Hypothesis and variables Innovation type

Management External Service Back-office

communication scope

I. Service provider’s competences I1. Hotel size 0.1595*** 0.1810** 0.0633*

I2. Hotel use 0.4594***
I3. Additional services 0.3245*** 0.2181* 0.3649*** 0.1852*
II. Customer competences II1. Travel motive 0.1077*
II2. Booking way 0.1357**c
II3. Board 0.1749** −0.1004**d −0.1625***d
III. Market drivers III. Competitive strategy −0.1196**e −0.1899***(e)
Control variables i. Hotel director experience −0.004*
iii. HHRR higher qualification 0.052** 0.004*
v. Training 0.1825** 0.0869* 0.2273***
Estimation values Observationsf 298 298 298 298
Prob > Chi2 0.0000 0.0000 0.0000 0.0000
Pseudo R 2 0.2649 0.1619 0.2689 0.201
Predicted values (%) 77.18 68.45 63.08 64.09
a Marginal effects that are significantly different from zero.
b *significant at 10%; **significant at 5%; ***significant at 1%.
c This positive effect corresponds to the average customer directly booking.
d This effect corresponds to the average customer buying a board that is less than the half-board.
e This effect corresponds to the differentiation in the presentation of the service.
f The observations are less than the 331 elements in the sample due to missing values in some variables.

in service scope, 10%, and in back-office, 19%, when
the average customer changes the half-board to a less
comprehensive board.
The results for kind of board amount to less than those
for half-board and for a competitive strategy. Differen-
tiating the service output presentation indicates an in-
verse situation, as its coefficients are negative in two of
the four models. The effect of the competitive strategy is
unexpected in the sense that differentiating the service
output presentation versus a non-differentiation strategy
decreases the service scope and the back-office innova-
tion decisions by a percentage between 10% and 19%.
For the control variables remaining in the models,
we can report significant effects as the following. The
negative effect of a hotel director with one more year
of experience stands out as negative although being
low, 0.4%. The university employees indicate that
these qualified employees are positive determinants of
the management and external communication innova-
tion since their increment in 1% increase the expected
probability by 0.5%. Finally, training increases the
expected probability of three hotels’ innovation types
in a different degree: a hotel without training plan that
implements one increases the expected probability of
back-office innovation by 23%, the management by
18% and the service scope by 8%.
The same findings pertain to innovation type. Hence,
the expected management innovation would increase
with larger sizes, more use of the assets, additional
services to accommodation, more university employees
and training. The positive factors for external commu-
nication innovations are the size, the additional services
on offer, the average customer buying more than the
half-board, and having university educated employees,
while the negative factor is the hotel director experi-
ence. The service scope innovation will increase with
additional services to the accommodation, the average
customer booking without intermediaries and training,
while it will decrease with a competitive strategy dif-
ferentiating the service output presentation and with
the average customer buying a board that is less than
the half-board. The back-office innovation will increase
with larger size, additional services on offer and train-
ing while will decrease with the average customer buy-
ing a board that is less than the half-board and with a
competitive strategy differentiating the service output
presentation.
Finally, it is worth highlighting the robustness of
these results. The alternative estimations of the four
models lead to the same results, enabling us to con-
clude that, given the existing correlation between size
and category (number of stars) of each establishment,
 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
Table 3
OLS estimation for innovation outcome: impact on performance
measured as the average of the occupancy percentage
Variables Average occupation
innova_lag 6.4889**
[3.2694]
addservices 8.0168**
[3.3555]
ttoo 8.4766***
[2.6846]
not-chained −7.1529***
[2.0401]
ownmgmt 4.3123*
[2.3540]
Constant 46.0077***
[6.3960]
Observations 265
R2 0.3000
the variable lnbeds takes in the influence of category on
the dependent variables, yielding consistent estimators.
Table 3 displays the ordinary least square estimation
for hotels’ performance—i.e., the average occupancy
percentage. This model turns out to be useful in the
explanation of performance because the overall effect
of the explanatory variables on the dependent variable
is statistically significant.
In this model, the coefficients that are significantly
non-zero indicate that the variable in question causes
an increase (decrease) in the hotels’ performance. Fur-
thermore, the significant coefficients indicate the quan-
titative effect of its variable in the change of the aver-
age occupancy percentage. Thus, the expected effect of
the aggregated innovation that a hotel establishment has
implemented in the past is an improved performance by
6.5 percentage points. The remaining variables with a
significant impact on the hotels’ performance are: the
additional services on offer increasing it to 8 percent-
age points, the average customer booking that stay with
tour operators increases it by 8.5 percentage points, that
the hotels operate in the market by forming part of
a hotel chain increasing it by 7.2 points and that the
establishment owners run the hotel business increasing
it by 4.3 percentage points. Therefore, both the innova-
tion hypothesis and the hypotheses of the effect of other
organizational factors on performance are empirically
supported.
8. Discussion and conclusions
The results have given us empirical verification
of the model of the innovation behavior in the hotel
389
industry that relates the four types of innovation, i.e.,
management, external communication, service scope
and back-office, to the key determinants comprising
the service provider, customer competences and the
market drivers [5,13,23]. Furthermore, the results also
show the outcome of innovation through its impact on
performance.
The service provider competences (i.e., hypotheses
I1–I3) are positive determinants for all types of innova-
tion. The positive effect of the establishments’ size has
not found empirical support with regard to the service
innovation type. Probably, in hotels, economies of scale
are less relevant and/or the size reduces the establish-
ments’ flexibility to change the service output. Further-
more, the knowledge resources that are reflected in size
could be less relevant since the kind of service scope
innovation that the hotels apply stem from the knowl-
edge generated by the suppliers [26]. Anyway, smaller
hotels must take into account the difficulties stemming
from its size. They can use this result as an argument
for specific policies (public measures) promoting inno-
vation among smaller hotels.
The only significant effect of the use of the capacity
on the management innovation would indicate that for
this innovation type the knowledge resources are more
important than they are for other innovation types.
Establishments with a greater use of assets over time
would be able to introduce, during the periods when
functioning below maximum capacity, those innova-
tions that require more trials and adjustments [21],
which in turn would generate more options for man-
agement innovations.
The results pertaining to the introduction of the
additional services have a positive effect on all inno-
vation types. Therefore, it can be concluded that the
quality-based strategies adding value to the customer
stay [40] will prompt innovation decisions in all di-
mensions as has been stated in Hypothesis I3. It can
be argued that adding services, in itself, constitutes a
measure of innovation for the hotel. Hence this finding
may be circular. Nevertheless it corroborates a clear
link between newness (to the hotel) and how managers
perceive innovation decisions. Of high practical rele-
vance is, of course, what kind of new service that is
offered. This kind of decision should be taken directly
in tandem with that of competitive strategy.
The importance of the customer competences in ser-
vice sectors and particularly the hotel industry that we
stated in Hypotheses II1–II3 is empirically verified. The
average customer travel motive, way of booking and
the kind of accommodation/board they buy are all
affecting hotels’ innovation. As regards the travel
390 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
motive, those tourists looking for more than beach life
or easy to get facilities (e.g., cycle tourists) are positive
determinants of the back-office innovation. This trans-
lates into putting into effect more information and sup-
porting tools to support more individual requirements
for local experiences.
As regards the way booking is made, the results
only empirically support the positive effect of the
average customer directly booking her or his stay on the
service scope innovation. More demanding customers,
it seems, prefer direct booking in comparison with
customers booking through tour operators which is
contrary to Hypothesis II2. Nevertheless, the limited
interest [47] and the limited negotiating power of tour
operators [40] might be a moderate part of the positive
effect of the customers booking through tour operators.
The kind of accommodation/board that the average
tourist buys, impacts on all innovation types except on
management innovation.
The market drivers affecting innovation decisions
[13,23] are empirically verified for a competitive strat-
egy differentiating the service output presentation in
the service scope and back-office innovation. The
negative effect that the empirical evidence supports
would mean that for a service output presentation a
hotel establishment would direct its innovation to the
management and to the external communication types.
Nevertheless, the non-rejected-zero effect of the other
competitive strategy dimensions may suggest that we
should use better measurements to gauge the concept
of the competitive strategy. For instance, as mentioned
above, new services offered are very much a part of
competitive strategy.
The effects of the control variables have also been
verified. The negative effect of the hotels director
experience for the external communication innovation
is surprising. It indicates that hotel directors seem to be
more confident in their own skills and capacities than
in the ICT implementation for external relations. Per-
haps a kind of managerial shortsightedness is present.
Hotel directors investing in innovation incur a present
expense with the aim to generate more income in the
future when they could be working somewhere else.
Hence, there may be a lack of long-term view on in-
vestment and innovation. Nevertheless, it would be
interesting to improve the measurement of the hotel
director skills and attitudes.
The skills of the human resources also seem to be
more important in the management and in the external
communication innovations than they seem to be in
other innovation types. Moreover, the empirical verifi-
cation of the training effect, except for external com-
munication innovation, enhances the human resources
effect arising from the upgrading of capabilities [21,23].
The training would be more relevant in the other in-
novation types more related to the quality output [50]
and to the provision processes in the hotel itself.
The innovation impact on performance supports the
results of previous studies [52] that certain organiza-
tional factors [51,52] may be affecting average occu-
pancy [27]. This is another key finding.
Organizational factors impacting performance were
the additional services on offer, the average customer
booking through tour operators, the hotel establishment
forming part of a hotel chain, and the establishment
owners running the hotel business. Therefore, it can be
concluded that the average occupancy will be greater
in those innovative establishments that also have the
other organizational factors impacting the performance.
These factors signal a hotel which is highly integrated
in a network of commercial relations (with operators
and chains) and with owners in full control of costs and
new services. Network relations cut costs and bring sta-
bility which can carry the risk and costs of introducing
new services.
This discussion has drawn some important con-
clusions about the innovation behavior in the hotel
industry that relates innovation types to the determinants
such as: the service provider and customer competences,
the market drivers and the innovation impact on per-
formance. Thus the results provide direction for future
studies by improving our understanding of innovative
behavior in the hotel industry and other service sectors.
The theoretical framework used in this study, sector
innovation types adapted to the industry characteris-
tics, could be applied in understanding the innovation
decisions in any sector of the economy while the sector
characteristics determining innovation could suggest
important characteristics also relevant to other sectors.
Nevertheless, the analysis and its results would be fur-
ther improved by using better variable measures and
accessing richer data that are presently unavailable to
the authors. An example would be to study the inno-
vation behavior as such in selected hotels in a micro-
format by collating detailed information on the nature
of day-to-day innovation activity and managerial be-
havior and performance outcomes. However, we claim
that the sample used in this study is appropriate and
highly representative of the hotel industry in general,
albeit that some types of tourist accommodation were
not included (such as agro-farms).
In the innovation model that we have developed,
managers are able to measure the links between their
innovation decisions and the aggregated expected
 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394 391

performance effect based on the industry as a whole. Acknowledgments

Aggregated innovation in the hotel industry has sig-
nificantly improved performance. Innovation decisions
with a significant impact on the hotels’ performance
are: the additional services on offer, that bookings
are made through tour operators, that hotels are part of
a hotel chain and that the owners of the hotel run the
business. These decisions may form a coherent compet-
itive strategy if implemented conjointly with the local
context. Therefore, both the innovation hypothesis and
the hypotheses of the effect of other organizational fac-
tors on performance have been empirically supported.
These findings give clear indications as to how prof-
itable and sustainable competitive advantage can be
ascertained in the context of Balearic Islands.
The authors wish to thank Ester Martínez-Ros
for helpful comments on an earlier version of this
manuscript and the feedback received from the atten-
dees at the symposium “Re-examining innovation and
entrepreneurship” held in the Iberoamerican Academy
of Management 4th International Conference. The
authors acknowledge financial support provided by
C.A.M.P. Caixa de Balears “Sa Nostra”, through a
grant for studying mobility and the Spanish Ministry of
Education and Science, through the SEJ2004-07530-
C04-04/ECON.
Appendix A. Variables

Innovation types Operational definitions

mgmt Quality management; environmental management; ICT for operations management or organization
structure
extcom B2C; B2B; B2A or other external ICT uses
service Services expansion or reduction; rooms, kitchen, dinning rooms or bars and restaurants equipment
backoff Computers; security systems or cleaning and laundry maintenance

Explanatory variables
lnbeds Size
monthsyear Degree of assets use
addservices Additional services and facilities to the accommodation, food and beverage
activehost The average host is traveling for business and congresses, cycling, other sports, excursions or
culture events
ttoo The average host booked the hotel stay through a tour operator
directhost The average host booked the hotel stay without any intermediary
lesshalfboard The average host buys a board is less than half-board
morehalfboard The average host buys a board is more than half-board
servicediff The hotel offers services that are not provided by competitors (additional services, quality or
flexibility)
presentdiff The hotel offers the same service with different presentation (publicity, image or contact personnel)
processdiff The hotel provides the service in a different way (costs control or the organization of the provision)
directorexp The total years the hotel director has worked
secdir The education level of the hotel director is secondary
unidir The education level of the hotel director is universitary
univempl The percentage of employees that has a universitary degree
manempl The percentage of employees that has a secondary qualification (technical, administrative or re-
pairing tasks)
training There is a plan for workers training in the hotel

Innovation outcome Occupancy: Average occupancy rate

Explanatory variables
innova_lag One or more of the innovation types equal 1 in the first time of the survey application
not-chained The hotel operates independently, without forming a part of any chain
ownmgmt The establishment’s owner managed the hotel business

All variables are binary except from lnbeds that equals the natural logarithm of beds and from monthsyear that equals the months
per year the hotel remains open divided intro12.
 392
Appendix B. Means, standard deviations and correlations for all variables
Variables Mean s.d. Correlations

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

1. mgmt 0.6012 0.49 1.00

F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394

2. extcom 0.5438 0.50 0.44 1.00
3. service 0.8308 0.38 0.41 0.38 1.00
4. backoff 0.7130 0.45 0.47 0.43 0.48 1.00
5. innova_lag 0.8697 0.34 0.21 0.10 0.07 0.08 1.00
6. lnbeds 4.8218 1.06 0.46 0.30 0.25 0.35 0.24 1.00
7. monthsyear 0.6611 0.21 0.13 0.09 0.08 0.03 0.09 −0.02 1.00
8. directorexp 15.5100 14.26 0.02 −0.05 −0.05 −0.01 0.04 0.13 0.03 1.00
9. secdir 0.3846 0.49 −0.12 −0.08 0.03 −0.05 −0.06 −0.17 0.03 −0.13 1.00
10. unidir 0.4431 0.50 0.25 0.21 0.15 0.17 0.13 0.35 −0.04 −0.11 −0.70 1.00
11. univempl 9.2516 15.89 0.12 0.14 0.10 0.01 0.01 0.00 −0.06 −0.11 −0.18 0.34 1.00
12. manempl 36.4027 31.26 0.01 0.08 0.07 0.05 0.08 0.08 0.12 −0.05 0.22 −0.04 −0.10 1.00
13. training 0.7372 0.44 0.36 0.25 0.29 0.37 0.23 0.40 0.01 0.08 −0.10 0.24 0.14 0.01 1.00
14. addservices 0.8882 0.32 0.29 0.18 0.45 0.27 0.14 0.27 0.07 −0.01 0.06 0.06 −0.06 0.00 0.25 1.00
15. activehost 0.3958 0.49 −0.02 0.03 0.07 0.04 0.00 −0.13 0.36 0.07 −0.03 −0.06 0.04 0.06 −0.05 −0.03 1.00
16. ttoo 0.7583 0.43 0.25 0.14 0.09 0.21 0.26 0.54 −0.21 0.08 −0.13 0.26 −0.07 0.03 0.30 0.22 −0.26 1.00
17. directhost 0.8036 0.40 0.01 0.10 0.22 0.03 −0.04 0.01 0.20 0.18 0.04 −0.03 0.10 0.04 0.01 0.01 0.16 −0.18 1.00
18. lesshalfboard 0.6273 0.48 −0.24 −0.02 −0.19 −0.26 −0.15 −0.42 −0.01 −0.08 0.04 −0.07 0.08 −0.04 −0.25 −0.18 0.15 −0.36 0.04 1.00
19. morehalfboard 0.2455 0.43 0.24 0.28 0.22 0.16 0.08 0.48 0.09 0.09 0.00 0.08 0.11 0.10 0.24 0.14 −0.07 0.21 0.11 −0.19 1.00
20. servicediff 0.2387 0.43 0.18 0.05 0.09 0.07 0.13 0.30 0.07 −0.08 −0.07 0.20 0.08 0.05 0.17 0.14 0.08 0.21 −0.04 −0.11 0.12 1.00
21. presentdiff 0.2236 0.42 0.00 0.00 −0.07 −0.08 0.10 0.04 −0.11 0.09 0.05 −0.05 0.11 −0.03 0.12 −0.02 0.07 0.03 0.01 −0.02 0.15 −0.21 1.00
22. processdiff 0.1178 0.32 0.04 0.11 0.05 0.06 0.10 0.06 0.04 0.13 −0.09 0.12 0.01 0.22 0.12 0.11 −0.12 0.06 0.03 −0.03 0.14 −0.12 −0.06 1.00
23. not-chained 0.6073 0.49 −0.34 −0.08 −0.20 −0.26 −0.15 −0.64 0.02 −0.14 0.22 −0.34 −0.03 −0.06 −0.32 −0.23 0.02 −0.39 −0.03 0.26 −0.35 −0.20 −0.02 −0.13 1.00
24. ownmgmt 0.7946 0.40 0.13 0.11 0.05 0.08 0.15 0.16 −0.09 0.01 −0.10 0.11 0.11 −0.07 0.09 0.01 −0.08 0.23 −0.03 −0.14 0.03 0.02 0.15 0.06 0.02
 F. Orfila-Sintes, J. Mattsson / Omega 37 (2009) 380 – 394
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