SHEFFIELD HALLAM UNIVERSITY

Hospitality Concepts
and Innovation
Critical Review of Innovation in the
Hospitality Industry
Adenike Alabi
/01/2013

INTRODUCTION
For any business, innovation signifies differentiation, opportunities and competitive
advantage. It is an important driver of economic and productivity growth, and
ultimately of the improvement in living standards (Tang, 2006). Barclay and Benson
(1990) point to Japans strong economic turnaround after the Second World War as
a direct result of her industries developing new, high-quality products that satisfied
consumers needs. United States of America continue to be the biggest economy in
the world partly as a result of a raft of innovative products and services that
continue to define the way and attitudes of consumers around the world. These
examples attest well for Drucker (1999)s assumption that innovation is one key
competence that every organization requires in the 21 st century.
There are many benefits of innovation. It is an important component of a businesss
strategy as it gives a sense of direction of the path which the organisation seeks to
take. This view, according to Siguaw et al. (2009) is supported by a variety of
studies that have found innovative firms to be higher performers. Cooper and
Kleinschmidt 1995)explain that innovations launched during the last five years of a
companys existence generates nearly 40% of company sales and could be
expected to account for 46% of company profits. Siguaw et al. (2009) point to
studies undertaken by different researchers which all conclude that firms who are
therefore, first movers by initially introducing innovative products, services or
processes are able to gain benefits until competitors imitate the innovation.
Ottenbacher and Gnoth (2005) therefore describe successful innovation as one that
allows a business to be, or to become, more competitive.
The hospitality industry is in a constantly changing world of increasing social and
governmental constraints, global economic challenges, technological change,
mature markets and ever changing consumer tastes and demands. These mean
that the industry cannot afford to be complacent and rely on past successes.
Rather, it has to continue to develop (and encourage the development of) its
product and service offerings. Hospitality organisations often operate in matured
markets and a key driver of growth in both market share and new market is
innovation. Cooper and Edgett (1999) issue a stack warning: the hospitality
businesses, like every other one has two choices either succeed at innovation or
die or fail as a company.
Innovation can be of great benefit to the hospitality industry for many reasons.
Firstly, the market consists of many comparable and substitutable offerings. This
makes differentiation among competing businesses challenging for both customers
and businesses alike. Secondly, according to Weiermair (2006), globalization has
led to deregulation and increased competition in the tourism sector industry.
Changes in market consumption mean that more than ever before, more people are
accessing hospitality offerings around the world. One way of gaining the
competitive advantage is by offering new and innovative offerings.
Furthermore, technology has become a driving force of accelerated change in the
industry. It presents unprecedented opportunities for innovations that will improve
both customer satisfaction and bring about increased efficiencies. Additionally,

Victorino et al. (2005) assert that travellers today do not exhibit, as in past decades,
a truly brand loyal behaviour. Customers have become more experienced and
informed. Technology, explain Carvalho and Costa (2011) has facilitated access to
information and increases the demand for alternative and more sophisticated
products. Customers are looking beyond brands and are increasingly demanding
value on economic, social and environmental attributes.
Yucelen and Yigitbas (2010) explain that although innovation is considered as an
extremely popular field of analysis and source of competitive advantage, it has
traditionally suffered from being largely associated with the manufacturing sector.
However, Sipe and Testa (2009) assert the growth in western economies since the
end of World War II has been characterised by increases in services and declines in
the manufacturing sector. As at 2012, more people are employed worldwide in the
sector than in either manufacturing or agricultural sectors (ILO Global Employment
Trends, 2013). Hospitality and tourism is one of the biggest service industries in the
world with total international tourist arrivals expected to reach the one billion mark
in 2012. The industry contributes an estimated 5% to worldwide gross domestic
product (UNWTO, 2012) and innovation for reasons which will be explained later in
this paper is of immense benefit to the sector.
The focus of this paper is on innovation in the hospitality sector. The paper will
focus on the concepts of innovation. In addition, it will discuss innovations in the
hospitality industry and finally, will give recommendations and conclusions about
innovation in the hospitality industry

INNOVATION CONCEPTS
What then do we consider to be innovation or who do we consider to be an
innovator? Broadly, the European Commission (2004) describes innovation as the
renewal and enlargement of the range of products and services and the associated
markets; the establishment of new methods of production, supply and distribution;
the introduction of changes in management, work organization, working conditions
and skills of the workforce. Baker and Sinkula (2002) assert that Joseph
Schumpeter, the first major scholar to address this topic, defined innovation as
encompassing the entire process, starting from a kernel of an idea continuing
through all the steps to reach a marketable product that changes the economy.
OSullivan and Dooley (2008) expand on this theme and define innovation as the
process of making changes to products, processes and services that results in the
introduction of something new for the organisation. This in turn, adds value to
customers and contributes to the knowledge store of the organisation. Siguaw et al.
(2009), therefore consider an innovator to be a person or organisation that has
developed a new or distinctive practice or has devised a novel application of an
existing practice, such that it has proven to be highly effective and profitable.
This means that in order to determine innovation, it must satisfy in the least, the
following criteria: (1) It must be an intentional decision to change existing products,
services or processes. (2) It should bring about a new or improved benefit or value
to the customer. (3) It increases the organisations profitability through increased

revenue and/or improved cost efficiencies and (4) It can be replicated from one
consumer to another.
Researchers have identified that the development of a service product is different
from that of a tangible (i.e. manufactured) product (Johne and Storey, 1998, de Jong
and Vermulen, 2003, Dolfsma, 2004). Services, according to Mansharamani (2005)
are intangible and do not have a physical manifestation. For example, a customer
who stays overnight in a hotel has nothing to show for the accommodation
purchased. Services are also perishable once a room is not occupied for the night,
the unused capacity cannot be reclaimed and the revenue is lost and irrecoverable.
Furthermore, services are produced and consumed simultaneously. Hotel stays, for
instance, involve the guest having to visit the hotel (production site) in order to stay
in the room (consumption). The cultural context in which a service is provided can
also be an important attribute of the service. For instance, guests in Northeastern
United States may complain about the lack of water pressure in showers as the area
has plentiful water resources. However, the Southern part of the country regularly
experiences drought and hotel guests are used to having water conserving showers.
Other characteristics that differentiate services, according to Ottenbacher (2012)
are heterogeneity, which is the inability of service producers to provide consistent
performance and quality, because production and delivery of services depend
significantly on the staff of the company and transferability.
Consequently, Monteiro and Sousa (2011) suggest a need for different models and
explanations of the innovation process since it cannot be measured by the
production of patents or tangible products developed in R&D departments.
Moreover, innovation, according to Peters and Pikkemaat (2006), is an important
strategic feature to assure growth and sustainable wealth for every industry, but is
indispensible in those industries where markets are matured and clients are able to
choose products and services from all over the world.
As earlier noted, a lot of research has been carried out in the manufacturing sector,
including identifying innovation typology. In the foremost book on innovation,
Schumpeter (1934) classifies innovation Product (the introduction of a new good or
a new quality of a good, one which consumers are not yet familiar with), Process
(the introduction of a new method of production that is yet to be tested by
experience in the branch of the manufactured so concerned) and Business Model
(the opening of a new market which hitherto, has not been previously entered,
whether or not the market existed prior). Other classifications are Sources of Supply
(the conquest of a new source of supply of raw materials, irrespective of whether
this source already exists or it has to be newly created and Mergers and
Divestments (the introduction of a new organisation through the creation of a
monopoly position or the breaking up of a monopolistic environment).

INNOVATION IN THE HOSPITALITY INDUSTRY

There is growing research into the tourism sector as a whole (Hjalager 2002,
Weiermair 2006, Hall and Williams 2008, Carvalho and Costa 2011) and the
hospitality industry in particular (Ottenbacher 2007, Sipe and Testa 2009, Sigaw et
al 2009). However, there is no agreed format for categorising innovation in tourism
and hospitality industry. Hjalager (2002) opined that the determinants of innovation

can also be found outside the tourism sector. Carvalho and Costa, (2011) remark
that it is therefore vital to develop innovation through the interaction with other
agents even though these might not be directly related to the tourism industry.
In his study of 185 innovations in hotel management, Ottenbacher (2007) asserts
that hospitality businesses should develop innovations to a set of specific objectives
related to business performance. He concluded that different approaches to the
development of organizational innovations seem to be dependent on these
objectives and identified three dimensions of performance: market performance,
financial performance and improved employee-customer relationships.
Many authors (Weiermair 2006, Hjalager 2002, Fagerberg 2005, Drejer 2004, OECD
2005) agree with the classification as espoused by Schumpeter (1934). While there
might still be some difference on how tourism innovation should be categorised in
the emerging literature, Carvalho and Costa (2011) believe that the third edition of
OECD Oslo Guidelines for innovation measurement can be adapted to the tourism
sector. Innovation can therefore classified as product innovation (an incrementally
changed or radically new good or service that can be commercialised, for example,
Formula 1, the basic hotel concept introduced by Accor); process innovation (the
implementation of an incrementally changed or radically new production process or
delivery method such as the introduction of Just In Time Technique to supplies
procurement in a restaurant); organisational innovation (the implementation of a
new or incrementally changed organizational method or managerial form. An
example is the Employee Retention and Sales Incentives at MacDonalds
Corporation) and marketing innovations (the implementation of a new or
incrementally changed marketing strategy that develops the sales market such as
the increasing use of social media sites such as TripAdvisor).
Ottenbacher (2012) points to the popular classification of products and services
developed by the consulting firm, Booz-Allen and Hamilton in 1992. He adds that
although the categories were initially developed for manufactured goods, these
definitions have been adapted for service innovations. Service innovation can
therefore also be classified as following: New-to-the world services i.e. new services
that are seen to be new in the eyes of customers because they are the first of their
kind, creating new markets. A good example will be the establishment of the Road
Lodge in South Africa in 1995. This introduced the limited service concept to the
hotel industry, which hitherto had been non-existent in the country. A second
classification will be the introduction of new service line i.e. services that are not
new to the marketplace but new to the firm such as the development of green
hotels by Marriot Hotel Group. A company may also seek to innovate by
repositioning its existing services to target new markets or market segments such
as was done with the Ramada brand as a midmarket group in 2004.
Other classifications of service innovation using the Booz-Allen and Hamilton model
include additions to an existing service line which supplement a companys
established service line and are not significantly new to the service producer.
However, it may be new to the customers in the existing market segment. Also,
there may be cost reduction innovations where new services that provide similar
performance at a lower cost of supply are introduced.

Consistent with research on product innovation, the degree of innovation in the

hospitality industry can also be classified as radical or incremental. Dewar and
Dutton (1986) explain radical innovation as involving fundamental and revolutionary
changes in technology, new knowledge that breaks with existing practice and is
positively related with the risk involved in attempting the innovation. In contrast,
incremental innovation involves improving or adapting present technology, which
are less costly and brings about modest changes. Other studies such as that
conducted by Yoon and Lilien (1985) have grouped innovation in terms of it being a
breakthrough or reformulated.
Despite the differences between services and products explained above,
Mansharamani (2005) concludes that almost all the research done on service
innovation have focused on either demonstrating the existence of innovation within
service firms or showing that traditional product-focused theories of innovation are
applicable to services. However, Mansharamani (2005) explains that while product
innovation theories have some applicability to the world of services, they do not
focus on the unique elements of services such as perishability and simultaneity.
Thus, traditional innovation theories only partially accommodate service innovation.
Victorino et al. (2005) broadly classify innovations in hospitality firms along these
three lines hotel type, use of information technology and customisation of service.
These three innovation classification will be discussed in greater detail below using
specific case studies relating to each classification. The case studies used are based
on a study conducted by Siguaw et al. (2009) on fifty organisations that use
innovative practices, with a focus on the practices in those innovations that have
resulted in strong improvements in profitability or, for those that are still in the early
stages, have the potential for yielding superior performance for the firm and offer
lessons for other firms in the industry.
HOTEL TYPE
The emergence of environmentally friendly or green hotels in recent years in an
excellent example of an innovative offering in an otherwise standardized industry.
Green travel, also known as responsible or sustainable travel is on the rise and
redefining tourism as a whole. The tourism industry as a whole and hotels, in
particular are being challenged to do business in an increasingly more
environmentally friendly way. This growing demand has created a niche market in
the industry and one which hotels can exploit and use to create a profitable
differentiator by implementing environmentally friendly service offerings.
According to the Green Hotels Association, Green hotels are environmentally
friendly properties that take the initiative and implement very important practices
and programs to reduce energy, water, and waste. Green Hotels participates in
recycling programs, linen changing programs, installing energy efficient lighting,
and getting their message out to their guests and how they are doing their part in
protecting the planet.
The Seaport is a luxury hotel located in Boston, United States. Opened in 1998, the
428 room hotel is independently owned and operated, catering mainly for groups
and meetings on its 22 acre site. The hotel s green record is littered with many

firsts the first hotel in Boston to provide in-room recycling services to guests, the
first hotel in New England to implement the BioEz Waste to Water System. It was
also the first hotel in the United States to use Grander Water Technologies and was
among the first five hotels in the country to implement chemical-free cleaning
developed by the Electrolyser Corporation.
The hotel began its first green initiatives in 2005 when the concept was still novel in
the hospitality industry. It has since used environmentally friendly initiatives to
differentiate itself from other luxury hotel brands. It works hard to continuously
innovate with green offerings to stay ahead of competition as environmentally
friendly trends become common place in hospitality. The hotel implements
initiatives based on a number of criteria. First, it must result in significant cost
savings. Secondly, it has to give reasonable return on investment and finally, it
should not in any way, diminish the guests experience.
Some of the hotels large scale green innovations include:
Bio EZ Waste to Water System, an ecologically friendly system of processing
food waste and converting it to water. The water is then pumped into the
hotels sewer for further treatment.
Pure Allergy friendly rooms. Guest rooms are professionally treated to certify
them as hypo-allergic by employing a technology which removes 98.5% of all
airborne particles in a room.
Grander Water Technology, a system that works with natural energy by
stimulating beneficial bacteria growth and preventing the growth of harmful
pathogens. The result is a noticeable improvement in the quality of swimming
and spa water with a minimum addition of chemicals.
Electrolysed water by applying low-voltage electrical charge to tap water and
salt solution. The result is a chemical free, neutral disinfectant that is used by
the housekeeping department.
Ozone Laundry System that adds an extra atom to oxygen to form ozone.
This allows for a shorter wash cycle, increased textile life and a reduction in
chemicals and energy utilised.
Other small scale environmentally friendly initiatives include towel and sheet reuse,
installation of a smart thermostat and changing to compact fluorescent bulbs,
ensuring a saving over 1.9million kilowatts per year recycling its cooking oil which is
then converted into biodiesel which is in turn purchased by the hotel as fuel for its
laundry truck. The hotel also provides free bicycle to its guests to allow them to tour
Boston or to exercise.
To ensure success of its initiatives, Seaport Hotel has in place a Green Team
comprising of employees and managers knowledgeable on green issues. The team
identifies opportunities and seeks solutions for implementing selected initiatives in
all the hotels operations. Often, vendors such as Grander Water Systems will
approach the team with green solutions. However, the team has also implemented
initiatives based on best practices from recent publications and tourism
organisations. Every new programme requires additional employee training which is
provided by the hotel with further retraining provided for employees when
necessary.

Furthermore, the hotel involves its guests in a number of its initiatives such as the
towel and sheet reuse, the smart thermostat and the in-room recycling and often
solicits the comments of a selected few before embarking on full implementation of
new ideas, taking on board any observations or suggestions made by the guests.
The hotel measures the success of its green initiatives through the benefits and cost
savings it has made in implementing such initiatives. The hotel has seen a
substantial decrease in its running costs and is able to finance future green
programmes with the money saved from previous initiatives. Its past programmes
have given a return on investment ranging from two months for the small scale
innovations to five years for the large scale ones. The hotel has also received a lot
of free publicity and public support as a result of the many environmentally friendly
awards it has garnered.
The hotels bi-monthly guest satisfaction survey has also observed an increase in
guest satisfaction as more environmentally friendly innovations are introduced.
Seaport Hotels turnover has increased substantially on the back of contracts (worth
millions of dollars) secured by attracting business from over twenty groups that
have written contracts that include the need for their suppliers to have recycling
and composting initiatives.
For the Seaport Hotel, the key differentiator has been the green initiatives included
in its service and product offerings. It has stayed ahead of its competitors by
continuously implementing environmentally friendly innovation in its luxury
establishment no wonder it can count as past guests, the last three serving and
current presidents of United States of America.
USE OF INFORMATION TECHNOLOGY
The use of information technology, according to OConnor and Piccolli (2012) has
grown tremendously over the past 20 years. Although this journey may not always
have been smooth, but it has become clear that information technology is now a
critical competitive weapon in the industry. Information technology was first utilised
in the hospitality industry in the 1950s when the multinational chains began
experimenting with the developing field of computer science. This only had limited
success as the expense and technicality involved in both development and
maintenance of the systems made the use of computerization economical only for
the biggest companies.
Advances in information technology, however has impacted greatly on aspects of
the hospitality industry both small and big. For the restaurant business in
particular Bull and Robert (2012) point out information technology has enabled
foodservice systems to be developed which have revolutionised the delivery of food
and beverage in restaurants. These developments have also opened the pathway
for an unprecedented increase in the productivity of operations in the foodservice
business. The direct effect has been an intense increase in the competition within
the industry. Bull and Roberts (2012) point to the larger operations, in particular,
the multiunit chains and franchise operators from fast food like Macdonalds to
upscale restaurants like Outback Steakhouses have benefitted from these advances
in technology.

Jumbo Seafood, a popular group of restaurants in Singapore and joint ventures in

Japan typifies an establishment that has harnessed information technology to
streamline customer service. The company has seven popular establishments which
are famous for its savoury food prepared in the Singapore and Hong Kong styles. In
the managements own words, Jumbo served quality food at reasonable prices in a
friendly environment.
Jumbo often hosted corporate functions, parties as well as large scale wedding
banquets with customised menus. Jumbos key innovation was to solve the problem
created by the production complexity of Chinese seafood restaurants which typically
had different food preparation departments such as steaming and stir frying.
Waiters therefore had to make multiple copies of each check for each preparation
area. This tedious system led to errors and placed a heavy burden on the waiting
staff. Jumbo solved this problem in 1999 by doing away with the multiple checks
and provided its waiters with handheld order-taking devices that accommodated
both English and Chinese. The company claims to the first Chinese restaurant in
Singapore to use such technology.
Another challenge faced by Jumbo was table management, given that majority of
their customers were walk ins. To offset the communication challenge of a large and
noisy room, the waiters used walkie talkies and the restaurant operated a speaker
system to call diners when their tables were ready. One location also featured video
screens which displayed advertisements for different food items. This was well
received by customers and improved sales of advertised products.
Another innovation which the restaurant has introduced is the creation of its own
loyalty programme which is independently run. Jumbo Rewards members receive a
10% discount on lunch and dinner at all Jumbo establishments with some exclusion
as well as 20% discount on weekday lunches at selected locations. Some 15,000
customers have joined the loyalty programme.
The award winning restaurant has used technology to improve customer service.
The walkie-talkie communications and the handheld order taking devices have cut
the time spent waiting for a table by as much as an hour. Jumbos initial innovative
concept has been so successful that it began expanding into other dining concepts
in 2009. Their experience has demonstrated that appropriately applied technology
could increase productivity and consequently, profitability in a restaurant as large
and complex as Jumbo.

CUSTOMISATION OF SERVICE

Customising the service experience for customers is another method of innovation

in the hospitality industry. Victorino et al (2005) provide some examples of service
customisation as including allowing guests to have a flexible check in/out times,
personalising room dcor or having child care options available.
The Capella Hotels and Resorts chain offers a good example of company that has
introduced innovations based on service customisation. The hotel chain allows its
guests to check in and out at any time, day or night. It has pledged to have a room
ready for each new guest upon arrival, as opposed to the traditional norm of asking
the guest to wait until at least 2pm to check in. In addition, guests can use the room
for as long as they like, rather than the industry norm of checking out by 12 noon.
Guests are only charged for an extra night if they check out after midnight.
The hotel chain which is owned by the West Paces Hotel Group was launched in
2005 on the premise that the customer should determine certain aspects of the
guest experience rather than sticking to a set of rigid guidelines. Capella properties
are luxury boutique hotels with personalised service and attention to detail for an
exclusive clientele. There are currently four hotels in four countries with plans for
four more hotels in three additional countries by 2014.
The hotels management developed the concept on the premise that guests should
be in a position to get a service if they are willing to pay for it and a service provider
should be willing to adapt its service delivery to offer such demands. They believe
that these are missed opportunities and guests should be given more flexibility in
the service offerings.
Cappellas 24 hour standard affects operation for the front office, reservations,
laundry and housekeeping. The policy is facilitated by a personal assistant who calls
every guest prior to arrival to learn the guests arrival times and anticipated
activities. Although there is no room availability guarantee set in stone, staff
members do their utmost to give each guest a room on arrival. The only exception
might be if a guest arrives early in the morning and the hotel is full. In this instance,
the guest will wait for a room to become available. However, the staff will quickly
turn around the first room that becomes available. To cut short the time taken to
turn a room around, additional members of staff are provided to the room attendant
who normally works independently.
Additionally, room attendants are authorised to release rooms themselves after
cleaning although managers make spot checks to ensure that quality standards are
maintained. Moreover, in order to avoid disturbing other guests while servicing the
rooms, the hotel makes use of small housekeeping carts which can be rolled directly
into the rooms and rooms are kept shut while servicing is on-going. All rooms are
soundproofed and vacuum cleaners are quiet, ensuring that noise from the cleaning
process does not reach other rooms. In place of the typical housekeeping schedule
of 8am to 5pm, Capella maintains an early shift starting at 6.30pm and a night shift
starting at 5pm as there must be housekeeping coverage at all times. This approach
does result in some overtime wages, but the additional cost is negligible.

Capella is a multiple award winning establishment. It continues to run successfully

with new locations coming on board successfully. The 24 hour check and out policy
is simple in concept but can be difficult to execute. While the 24 hour policy
contributes to guest satisfaction, it is not considered a unique selling point on its
own. The hotel believes that this offering is just one factor in a much longer
equation that is aimed to create customer loyalty and word of mouth
advertisement. This policy also fits well into the hotels marketing strategy for a
target segment of travellers who have high expectations and are not hesitant to pay
for the best service.
This policy therefore makes sense for Capellas customers but it might be
unnecessary, inappropriate and costly for hotels targeting the less affluent and
demanding guests. The hotels precept is built on customising the service offerings
around what the customer requires and not just offering a generic and often rigid
offering to its target market.

RECOMMENDATIONS AND CONCLUSION

This paper has undertaken a review of innovation with specific reference to the
hospitality industry. It has examined the indispensability of innovation in any
industry in todays challenging business environment. The benefits of innovation
have been discussed, especially in how these benefits relate to the hospitality
industry. Various concepts such as the definitions of innovation were discussed and
differences were highlighted between product (tangible) and service innovation. The
various classifications of service innovation in the literature were also reviewed,
especially as they relate to the hospitality industry.
Furthermore, the paper examined innovation in the hospitality industry using three
detailed case studies of hotel and restaurant businesses to provide further insight
into the various innovations that can be found in the industry. It is important to note
that although these innovations have been categorised along three different lines,
they similarly can fit into other categories discussed above such as service, product
and process innovations.
It is important to understand that the cases examined above reflect how technology
is transforming the way in which hospitality firms do business. Siguaw et al.
provides insight into how technology, when used appropriate, can provide
customers with increased convenience and control and can allow hospitality
companies to increase their speed of service, reduce their processing costs,
increase their volume and revenue, and improve service and product quality.
Secondly, the case studies highlighted the need to understand the customer needs
and requirements of its market sector and to exploit the opportunities these present
by innovating around the needs. Both Seaport Hotel and the Capella Hotel chain
were able to identify the preferences of their customers for environmentally friendly
practices and for flexibility and customisation of service offerings respectively.

It is an agreed fact that research into innovation in the hospitality industry is still in
its infancy. Although innovations which are new to the world are few and far
between in hospitality, the industry has nonetheless, witnessed successful
innovations. Ottenbacher (2012) gives the example of the successful launch and
growth of the coffeehouse chains such as Starbucks, Second Cup and Costa has not
only challenged the hospitality industry, but have also created a new hospitality
segment that did not exist before.
There therefore needs to be more research done into both successful and failed
innovations in the hospitality industry. There is a great need for more case studies
like the ones undertaken by Siguaw et al. (2009) and Ottenbacher (2011) to done
for the hospitality industry. These will provide a review of best practice, insights into
the execution of this innovation and lessons to be learnt in sustaining and improving
on the successful ones and aspects to reflect upon and guard against for the failed
innovations.

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