How do global hospitality businesses tackle innovation? The Hospitality Innovation Report analyzes how different innovation strategies contribute to generating competitive advantages for hospitality businesses.
By Dr. Carlos Martin-Rios
The Hospitality Innovation Industry Report, authored by EHL Associate Professor Dr. Carlos Martin-Rios, is based around a comprehensive model reviewing combinations of technological and non-technological innovations and analyzes how different innovation strategies contribute to generating competitive advantages for hospitality businesses.
Dr. Rios has been tracking hospitality innovation for the past several years, surveying hundreds of managers and interviewing more than 50 executives and thought-leaders to produce this report.
Hospitality innovation management is one of the most salient topics in international hospitality, tourism and travel management. For many, innovation is equated with technology, and only scientists and engineers bring innovation to life. Yet, it can occur in many avenues that have little or nothing to do with technology or science.
Identifying the role of various forms of innovation and their impact on innovation returns and firm performance, provides valuable decision-making information for hotel managers. We rounded-up key takeaways from the report.
Technological innovation: all about products, services and processes
Nowadays most service innovations in hotels come from technological innovations. It is a crucial driver of growth, an effective way to neutralize digital disruption from OTAs and sharing economy firms, and an effective tool in attracting younger generations.
In our study, close to 72% of executives reported to have implemented a considerable proportion of innovations in the technology category; yet taking a closer look at the use of online technology, there are significant differences on how hotels, OTAs and AirBnBs interact with their guests before, during and after their stay and provide personalized service throughout.
Top executives and senior managers agree on the need to strengthen the industry’s ability to continuously adapt and innovate by facilitating investment in new technologies and continuously adapting to new technological capabilities. Despite the importance of technology advancement, these firms do not obtain significantly higher results in overall customer retention and average bed occupancy rate. Investment in new technologies should be strengthened through a combination of several forms of innovation.
Additionally, one of the keys to profitability in new service development is launching unique, superior services with a compelling value proposition. This trend is largely tapped into by successful hospitality firms as service innovation is prominent among successful hospitality firms. As recent research suggests, the nature of services and the pace of change have shifted dramatically in recent years, and mastering the traditional aspects of service delivery is no longer enough (McKinsey, 2015).
Oftentimes, innovation in the hotel industry is not so much about new services, but really all about processes. It has been a while since hotels modernized their processes and optimized their operations by standardizing them. For long, most hotel practices have revolved around traditional P&L processes. Today, new processes bring together consumer experience, e-commerce, big data and digital transformation, and revenue growth analytics.
Non-technological innovation: a soft innovation practice in organizational, management, marketing and business model innovation
While manufacturing firms gave birth to several managerial innovations (TQM, MBO or agile management), some of the latest management trends have emerged simultaneously in production and service environments, including hospitality. For example, agile management principles and techniques (or Scrum, Lean, and Kanban) or collaborative user-oriented and supplier relationships and innovations.
Innovations in management play an important role for hospitality businesses. Not only from an outcome perspective but to develop, implement and monitor the progress of distinctive strategies boosting competitiveness.
Hospitality is a notoriously labor intensive activity. So from an organizational behavior standpoint, effective management is a vital component for higher performance. Although about 37% of hospitality firms report high levels of organizational innovation, the report shows that organizational practices of hospitality businesses – i.e. the adoption of new ways of organizing work processes, establishing alternative ways of managing employees and fostering internal leadership – need to be better articulated altogether. Indeed, there is a significant relationship between pursuing organizational solutions and managerial innovations and results suggest a strong association between organizational innovation, business model innovation and overall organizational effectiveness of a firm.
Close to 40% of all firms have heavily invested in their marketing innovation strategy. Marketing innovation allows hospitality businesses to harness the power of customer satisfaction and many hotels have made great efforts to build brand loyalty through various marketing innovations, including creating online brand communities, new loyalty programs, or social media analytics. These innovations do not work in isolation however, as marketing innovations have no direct significant economic implications for hotels.
Business model innovation
Business model can be defined as the firm’s design or architecture of the value creation, delivery, and capture mechanisms it employs. While the next generation of game changers is already here – Internet of Things (IoT), Blockchain, 3-D printing, Artificial Intelligence (AI) – are hotels ready to challenge traditional thinking and invest in new business solutions?
As a matter of fact, only 19% of the surveyed companies pursue a medium intensive innovation strategy regarding their formulation of a business model. Yet, those firms actively innovating their business offering are also the companies with the most complex innovation strategy and the highest innovation intensity. There is a strong positive relationship between business model innovation and all performance indicators, with the exception of average bed occupancy rate, as seasonal fluctuations and external socio-economic factors have significant economic implications for hotels.
What's next: innovation trends in hospitality
Although sustainability and open innovation are not part of the innovation strategy of many hotel firms, our results illustrate how certain hospitality firms are engaging in these novel forms of redesigning the consumer experience and developing broad networks of relationships to generate innovation returns and firm performance.
Sustainable innovations is more than a PR stunt, it can’t be mere corporate window-dressing. The hospitality industry is a major driver of economic development and has a major impact on several facets of sustainable development (SD). A strong commitment to SD by adopting sustainable practices has the potential to be beneficial for the hotel industry. Although some 80% of firms in the study indicated that they were investing heavily in eco-innovation, examples of hotels fully committed to sustainable management do not abound (yet). For that reason, first movers like Six Senses already have some significant advantages.
External business relationship
From formal business relationships (alliances, R&D projects or consortiums) to informal cooperative relationships, hotels can benefit from the participation within multiple kinds of network relationships. A considerable proportion of executives consider that the implementation of new methods of organizing external relations with stakeholders have an important impact on their business performance. Engagement in the establishment of external relationships helps them obtain, combine and exchange critical knowledge, which is directly related to its economic activity and strategic business priorities.