INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION ...

Innovation capability and entrepreneurial orientation dimensions for Australian hotels

Peter Balan and Noel Lindsay

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS

Technical Reports The technical report series present data and its analysis, and are considered to be of value to industry, government and researchers. Unlike the Sustainable Tourism Cooperative Research Centre’s Monograph series, these reports have not been subjected to an external peer review process. As such, the scientific accuracy and merit of the research reported here is the responsibility of the authors, who should be contacted for clarification of any content. Author contact details are at the back of this report.

Disclaimer The technical reports present data and its analysis, meta-studies and conceptual studies, and are considered to be of value to industry, government or other researchers. Unlike the Sustainable Tourism Cooperative Research Centre’s (STCRC’s) Monograph series, these reports have not been subjected to an external peer review process. As such, the scientific accuracy and merit of the research reported here is the responsibility of the authors, who should be contacted for clarification of any content. Author contact details are at the back of this report. The views and opinions of the authors expressed in the reports or by the authors if you contact them do not necessarily state or reflect those of the STCRC. While all reasonable efforts have been made to gather the most current and appropriate information, the STCRC does not give any warranty as to the correctness, completeness or suitability of the information, and disclaims all responsibility for and shall in no event be liable for any errors or for any loss or damage that might be suffered as a consequence of any person acting or refraining from acting or otherwise relying on this information. We’d love to know what you think of our new research titles. If you have five minutes to spare, please visit our website or click on the link below to complete our online survey.

STCRC Tech Report Feedback National Library of Australia Cataloguing-in-Publication Entry Innovation capability and entrepreneurial orientation dimensions for Australian hotels/Peter Balan ISBNs: 9781921658020(pbk), 9781921658525(pdf) Notes: Bibliography. Subjects: Hotel management—Australia Hotels—Australia. Entrepreneurship—Australia Other Authors/Contributors: Lindsay, Noel (Noel J.). Cooperative Research Centre for Sustainable Tourism. Dewey Number: 647.068

Copyright © CRC for Sustainable Tourism Pty Ltd 2009 All rights reserved. Apart from fair dealing for the purposes of study, research, criticism or review as permitted under the Copyright Act, no part of this book may be reproduced by any process without written permission from the publisher. Any enquiries should be directed to: General Manager, Communications and Industry Extension or Publishing Manager, [email protected] First published in Australia in 2009 by CRC for Sustainable Tourism Pty Ltd Printed in Australia (Gold Coast, Queensland)

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CONTENTS SUMMARY _____________________________________________________________________________ V OBJECTIVES OF THE STUDY ________________________________________________________________ VI METHOD ______________________________________________________________________________ VI KEY FINDINGS _________________________________________________________________________ VI Innovation activities in hotels ___________________________________________________________ vi Barriers to innovation ________________________________________________________________ vii Nine dimensions of innovation capability _________________________________________________ vii Dimensions of entrepreneurial orientation ________________________________________________ viii FUTURE ACTION _______________________________________________________________________ VIII CHAPTER 1 ____________________________________________________________________________ 1 INTRODUCTION________________________________________________________________________ 1 BACKGROUND __________________________________________________________________________ THE NEED FOR AND VALUE OF THIS RESEARCH ________________________________________________ Overview of the Australian hotel sector ___________________________________________________ The hotels studied ____________________________________________________________________ The dynamics of the hotel sector _________________________________________________________ Future outlook for the hotel sector _______________________________________________________ Innovation capability and entrepreneurial orientation in the hotel sector _________________________ RESEARCH QUESTIONS ___________________________________________________________________

1 1 2 2 3 3 4 4

CHAPTER 2 ____________________________________________________________________________ 5 LITERATURE REVIEW__________________________________________________________________ 5 INNOVATION AND COMPETITIVENESS ________________________________________________________ The role of innovation capability (IC) _____________________________________________________ Dimensions of innovation capability ______________________________________________________ THE NEED FOR ENTREPRENEURIAL MANAGEMENT _____________________________________________ Five dimensions of entrepreneurial orientation (EO) _________________________________________

5 6 6 7 8

CHAPTER 3 ____________________________________________________________________________ 9 RESEARCH METHOD ___________________________________________________________________ 9 THE POPULATION TO BE STUDIED ___________________________________________________________ 9 PILOT STUDY IN SOUTH AUSTRALIA ________________________________________________________ 10 Selection criteria for participants in South Australia ________________________________________ 10 Exclusions _________________________________________________________________________ 10 Method of recruiting participants for the South Australian pilot _______________________________ 11 Interviews with South Australian participants______________________________________________ 11 Interview protocol ___________________________________________________________________ 11 Analysis of South Australian interviews __________________________________________________ 11 THE MAIN STUDY – INTERVIEWS IN OTHER AUSTRALIAN STATES _________________________________ 12 Method of recruiting participants for interviews in other states ________________________________ 12 Interviews with participants in other states________________________________________________ 12 Analysis of interviews in other states_____________________________________________________ 12 PROVISION OF INFORMATION TO PARTICIPANTS _______________________________________________ 13 CHAPTER 4 ___________________________________________________________________________ 14 FINDINGS _____________________________________________________________________________ 14 HOW HOTEL MANAGERS DEFINED ‘INNOVATION’ _____________________________________________ INNOVATION ACTIVITIES IN HOTELS ________________________________________________________ The nature of innovations _____________________________________________________________ Physical facilities innovations __________________________________________________________ Product innovations__________________________________________________________________ Supplementary services innovation ______________________________________________________ Operating systems innovations _________________________________________________________

14 15 15 15 17 18 19 iii

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS BARRIERS TO INNOVATION _______________________________________________________________ Access to resources __________________________________________________________________ Staff attitudes and knowledge __________________________________________________________ Time______________________________________________________________________________ Customer acceptance_________________________________________________________________ Competitors ________________________________________________________________________ Government regulations ______________________________________________________________ Local councils ______________________________________________________________________ Landlords__________________________________________________________________________ NINE DIMENSIONS OF INNOVATION CAPABILITY ______________________________________________ Environmental awareness _____________________________________________________________ Knowledge of trends (business and economic) _____________________________________________ Alliances __________________________________________________________________________ Customer intelligence ________________________________________________________________ Experimentation ____________________________________________________________________ Strategy and planning ________________________________________________________________ Manager attributes __________________________________________________________________ HR and human capital________________________________________________________________ Resource awareness _________________________________________________________________ Operations _________________________________________________________________________ ENTREPRENEURSHIP AND THE DIMENSIONS OF ENTREPRENEURIAL ORIENTATION _____________________ How hotel managers defined ‘entrepreneurship’ ___________________________________________ Dimensions of entrepreneurial orientation (EO)____________________________________________

21 22 22 22 22 23 23 23 23 24 25 27 29 31 33 34 36 38 42 43 44 44 45

CHAPTER 5 ___________________________________________________________________________ 47 SUMMARY OF FINDINGS ______________________________________________________________ 47 INNOVATION ACTIVITIES IN HOTELS ________________________________________________________ BARRIERS TO INNOVATION _______________________________________________________________ NINE DIMENSIONS OF INNOVATION CAPABILITY ______________________________________________ DIMENSIONS OF ENTREPRENEURIAL ORIENTATION ____________________________________________

47 48 48 50

CHAPTER 5 ___________________________________________________________________________ 51 CONCLUSION _________________________________________________________________________ 51 REFERENCES _________________________________________________________________________ 52 AUTHORS_____________________________________________________________________________ 56 Mr Peter Balan _____________________________________________________________________ 56 Prof. Noel Lindsay___________________________________________________________________ 56

List of Tables Table 1 Profile of participants in the study______________________________________________________ 3 Table 1 Sample frame and resulting survey participants (15) in South Australia _______________________ 10 Table 2 Locations of participants in this study __________________________________________________ 12 Table 3 Barriers to innovation in pubs ________________________________________________________ 21 Table 4 Overview of the innovation capability dimensions and categories ____________________________ 24

List of Figures Figure 1 Methodological approach and conceptual model _________________________________________ 9

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Acknowledgements The Sustainable Tourism Cooperative Research Centre, established and supported under the Australian Government’s Cooperative Research Centres Program, funded this research. In addition, the authors wish to thank: • Mr Bill Healey, Chief Executive Officer, AHA (Canberra), for introducing the authors to the State AHA organisations and for sharing information and insights on the hotel sector. • The authors also thank key people in the AHA state organisations for providing introductions to their members and for sharing information and insights into the hotel sector in their state. These included: • Mr Ian Horne, General Manager, and Mr Hamish Arthur, Manager - Public Affairs, AHA (SA) • Ms Laura Youd, Deputy General Manager, AHA (Tasmania) • Mr Brian Kearney, Chief Executive Officer and Mr Dougal Hollis, General Manager - Operations and Membership, AHA (Victoria) • Mr Justin O’Connor, Chief Executive Officer, Queensland Hotels Association • Mr Michael Collins, Membership Coordinator, AHA (NSW) • Ms Amy Williamson, Executive Director, AHA (NT Branch) • Ms Amanda Fuery, Public Affairs Manager, AHA (WA) In particular, the authors acknowledge the contributions of: • the late Dr Dennis List, the University of Adelaide, for his role in the development of the project and his advice on the methodology used in the study • Dr Allan O’Connor, the University of Adelaide, for his advice on the development of the dimensions of innovation capability • Professor Roger Maull, University of Exeter Business School, UK, for his advice on addressing innovation and operations management in businesses in this sector • Dr Shruti Sardeshmukh, the University of South Australia, for contributing to the first draft of this report • Mr Gary Hancock, the University of Adelaide, for assistance in carrying out interviews in South Australia.

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SUMMARY Objectives of the Study Studies across a range of industry sectors have identified a positive relationship between innovation and firm performance. It is therefore important to identify and understand the capabilities of hotels required in order to be able to implement innovation successfully across all aspects of their business, that is, their innovation capability. There have been very few empirical studies of innovation capability, and they have generally focused on large organisations, primarily in the manufacturing sector. It was therefore considered important to identify the dimensions of innovation capability that apply to small service businesses, and in particular to general hotels. However, innovation by itself is not enough for business success, as it needs to be combined with an entrepreneurial approach to recognising opportunities that can then be exploited to provide a financially successful outcome. The ability of a business to operate in an entrepreneurial manner can be measured by its entrepreneurial orientation, and several studies have identified a positive relationship between entrepreneurial orientation and firm performance. It was considered useful to investigate the generally accepted dimensions of entrepreneurial orientation, and to confirm that these are relevant to these general hotels. The study focused on ‘general hotels or pubs’ in the major cities and regional centres that are independently owned, or members of small groups, and that offer most of the activities of public bar, take-away alcohol, dining, accommodation, entertainment, and gaming. This study did not include the four and five-star hotel chains or the large hotel groups controlled by Woolworths or Coles, as they have the resources and capabilities to manage innovation. The overall aim of the study was therefore to identify the dimensions of innovation capability, and to confirm the dimensions of entrepreneurial orientation as they applied to general hotels. The specific objectives of the study were to: • identify the key types and areas of innovation in general hotels • identify the barriers holding back innovation • determine the dimensions and characteristics of innovation capability in general hotels, to produce items for an innovation capability questionnaire • identify the dimensions of entrepreneurial orientation in general hotels, to validate existing items to measure entrepreneurial orientation. This study provided the information for developing a questionnaire to be used for the empirical research carried out in the second stage of the project, and described in a separate report.

Method This was an exploratory study. Secondary data was collected using a literature search. The Australian Hotels Association (nationally and in each of the states) helped the researchers to organise 51 in-depth interviews with managers and owner/managers of independent hotels and of small groups of hotels across Australia. The purpose was to gather data to identify the dimensions of innovation capability and entrepreneurial orientation in these small businesses. Interviews were carried out in South Australia between September and December 2006, and in the other states and the Northern Territory between April and June 2007.

Key Findings This report includes a large amount of detail in order to provide an extensive source of information for the next stage of this study.

Innovation activities in hotels In the literature, the term ‘innovation’ is described as the process of adding value to new ideas, resulting in new or improved products, services, systems or methods. The managers who were interviewed captured the ideas of newness and value adding when they described innovation as doing things differently, improving things, and doing things in a better way.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS The participants in this study had been selected on the basis that they were considered innovative members of the Australian Hotels Association in each state. Perhaps for this reason, they described a very wide range of innovation activities, and provided a very rich database. The major motivations for innovation were to differentiate the hotel from competitors, to respond to perceived customer preferences and trends, and business and economic trends, and to comply with changes in regulations (such as no smoking inside hotels). There were few innovations that could be classified as transformational or resulting in a different business activity, such as adding retail outlets such as pizza outlets or greengrocers, making the hotel ‘carbon neutral’, or developing the hotel as a ‘third place’ centre for social activity. The very large majority of innovations were to improve the delivery of the core activities of the hotel (public bar, dining, accommodation, take-away, entertainment, gaming), and these included: • changes or upgrades to physical facilities, from complete refurbishments to the installation of facilities such as ladies toilets and change tables for babies, to the redesign of different areas of the hotel to appeal to different target customer segments, and the provision of smoking areas. Constant change was seen to be necessary to attract and retain customers • product innovations concerned primarily food that took the form of more refined and varied menus which in some cases became the focus of the hotel (the gastro pub’). Beverage innovations were much more limited, and relied largely on suppliers • the supplementary services that supported their core activities, such as loyalty card programs, and special entertainment events such as Australia Day and New Year's Eve • operating systems innovations such as implementing a ‘carbon neutral’ status, outsourcing stocktaking and kitchen production, serving food on a ‘table share’ basis, and introducing web-based restaurant booking systems.

Barriers to innovation Very few managers considered that there were no significant barriers or impediments to innovation. Access to resources in the form of capital or cash flow and market knowledge was one of the more significant internal barriers to innovation. Other internal barriers included staff attitudes and knowledge, with some managers considering that one of their greatest challenges was to find staff who would be committed to the business and support innovation and change enthusiastically, and have the knowledge capabilities to be able to do this. The other internal barrier was time, such as the limited number of hours that the manager had to sit down and think about the business and to manage innovation adequately, and the time that staff needs to assimilate and implement change properly. External barriers to innovation included customer resistance to change, particularly in relation to changes in prices of main value items such as beer and chips, competition from larger players in the market such as Coles and Woolworths, and in particular government regulations that always seem to be changing and affect almost every aspect of the hotel’s operation. Other barriers include local councils in relation to issues such as noise and building developments, and the reluctance of landlords to invest in the property.

Nine dimensions of innovation capability This study identified nine broad dimensions of innovation capability: 1. Environmental awareness, including an understanding of the change dynamics of the market and the competitive environment, the market position of the hotel in relation to its competitors, a knowledge of trends in the business, economic and technology environment, a knowledge of regulations and the many regulatory bodies that affect hotel operations, and foresight to anticipate the results of innovation activities. 2. Alliances with suppliers of food, beverages and expertise, with external organisations such as community groups that give access to markets, and with other hotels, primarily through the AHA that give access to industry knowledge. 3. Customer intelligence that is built up largely through personal contact between the manager and staff and customers, and includes knowledge of motivations and preferences of segments and sub-segments of customers, as well as feedback on the impact of change and innovation. 4. Experimentation that involves taking a proactive approach in finding opportunities to implement change, and experimenting with a wide range of activities such as food lines, different forms of communication with customers, and different types of staff incentive schemes. 5. Strategy and planning that includes providing a vision for the business (such as making it ‘the third-place’ social centre), planning to support innovation activities, and having a good ‘business mix’ to support innovation investment. vii

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS 6.

7.

8. 9.

Manager attributes play an important role in these owner/manager operated businesses, and includes leadership to provide direction and style, the managers’ lifestyle and their ability to put in the hours needed for effective innovation, as well as their knowledge about the business and their general knowledge about the industry. HR & human capital, as these businesses rely on good staff with the right people skills, job design to ensure effective staff deployment, staff incentives and motivation to support innovation, together with the right team culture and team knowledge, supported by appropriate training which is primarily carried out inhouse, and also supported by a simple organisation structure with short lines of communication. Resource awareness as financial investment is almost always required for innovation, and other resources need to be managed to support change in the business. Operations including appropriate management systems that allow effective control of operations, in addition to well-structured procedures and methods.

Dimensions of entrepreneurial orientation The ways in which hotel managers defined the term ‘entrepreneurship’, as well as the comments that they made that related to activities that could be categorised as entrepreneurial, showed that the established dimensions of entrepreneurial orientation are confirmed for this type of business. These are the dimensions of innovativeness, competitiveness, risk taking, proactiveness, and autonomy.

Future Action The results of this research provide an essential foundation for the second quantitative stage of the study. The next stage will include: • reviewing the data in this report to identify items to be included in a questionnaire, and piloting this questionnaire to collect data to carry out exploratory factor analysis to refine the innovation capability measures • implementing the revised questionnaire in a national survey with the support of the Australian Hotel Association • reporting the results.

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Chapter 1

INTRODUCTION Background This research project arose out of discussions between the Centre for the Development of Entrepreneurs in the School of Management at the University of South Australia, the Cooperative Research Centre for Sustainable Tourism, and the Australian Hotels Association. The project focused on the challenge of helping independent hotels compete more effectively through innovation and entrepreneurship in a very dynamic and competitive business environment. This project was planned to lead to a follow-up project to develop training courses for the hotels sector to help managers operate their businesses in a more innovative and entrepreneurial way so that they could compete more effectively and profitably. The model for this research had been developed for the manufacturing sector by the Centre for the Development of Entrepreneurs, and several workshops had been conducted in a number of industry sectors (including manufacturing and service businesses) using the approaches to be developed through this project. However, the innovation capability assessment tool on which these workshops were based had been developed for large firms in the manufacturing sector, and it was not clear how suitable this would be for small service sector businesses and for small hotels in particular.

The Need For and Value of This Research Businesses, large and small, need to be able to innovate and be managed in an entrepreneurial manner to survive and grow in today's increasingly dynamic and competitive environment. Studies across a range of industry sectors have identified innovation as an important driver of performance. In particular, performance in the hotel sector has been identified as a three dimensional construct comprising effectiveness, efficiency, and adaptability (Phillips 1996). The essence of adaptability is innovativeness and the successful identification of market opportunity. Therefore, the ability to support innovation, and particularly continuous innovation, is a critical driver of performance in the hotel industry. It is therefore important to identify and understand the attributes of hotels (their innovation capability) that enable them to support innovation activities. Studies in other industry sectors have identified dimensions and measures of innovation capability, and have shown a positive relationship between innovation capability and business performance (Guan & Ma 2003). There have not been many studies of innovation capability in the services sector, apart from O’Connor et al. (2007) that addressed large government organisations. An important aspect of this research was to test whether the dimensions of innovation capability as previously determined (in the manufacturing sector) apply in the hotel sector, and to adapt the dimensions and measures to the characteristics of this sector. Innovation by itself is not enough for business success, as it needs to be combined with an entrepreneurial approach to recognising opportunities that can then be exploited through innovation to provide a financially successful outcome. The ability of a business to operate in an entrepreneurial manner is related to its entrepreneurial orientation. Dimensions and measures of entrepreneurial orientation (Lumpkin & Dess 1996) have been implemented in numerous studies across many different industry sectors, and these have generally identified a positive relationship between entrepreneurial orientation and firm performance (Rauch et al. 2005; Rauch et al. 2009). Only a limited number of studies have been carried out to examine the entrepreneurial orientation of hotels, and these have focused on larger hotel chains (Jogaratnam & Tse 2004). This research therefore includes an investigation of the appropriateness of the dimensions of entrepreneurial orientation to small hotels.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS This research is therefore important in identifying the key characteristics of small hotels that are critical in implementing innovation and an entrepreneurial approach to management. This report summarises the first stage in this research that provides information, which will be used to develop a questionnaire to measure the innovation capability of general hotels. This questionnaire will be implemented in a national survey to be carried out as the next stage of this research, and it will be reported separately.

Overview of the Australian hotel sector In recent years, tourism has become the world’s largest industry at about 6% of the world’s gross national product, and has a very high growth rate (Lerner & Haber 2001). Hotels form a substantial proportion of the tourism industry, and represent an important sector of the economy. The most recent Australian survey of pubs, taverns and bars (ABS 2005a, 8687.0), found that at the end of June 2005 there were 3454 businesses in this category operating in Australia, and the total number of premises that they operated (4252) were split almost evenly between capital cities and suburbs (2108) and nonmetropolitan areas (2144). Of these pubs, taverns and bars 33.3% were located in New South Wales, 25.1% in Victoria, 15.9% in Queensland, 11.6% in South Australia, 9.5% in Western Australia 4.2% in Tasmania and 0.9% in the Northern Territory. More than half (2362) of the pubs, taverns and bars had gaming facilities (poker machines, TAB, Keno), and poker machines represented 96.7% of gaming income. These businesses earned 57.6% of their income from the sale of liquor and other beverages, 28.3% from gaming, 10.1% from food, 1.4% from accommodation, and their operating profit margin was 7.4%. These businesses with gaming facilities generated 86.6% of the total income for all of the businesses in this category with an average turnover of $4.05 million and employing on average 27 people, with about 70% casual staff. This means that the 1092 pubs, taverns and bars without gaming facilities were on average much smaller (than those with gaming), with an average turnover of $1.42 million, and employing on average 15 people, also about 70% casual staff. These pubs earned 77.1% of their income from the sale of liquor and other beverages, 15.1% from food, and 1.7% from accommodation, and their operating profit margin was 5.4%. These are predominantly small businesses, and the majority (65.1%) employed fewer than 20 persons. The 2004–2005 survey results indicate that the pub, tavern and bar businesses had modest growth between the 2000–01 and 2004–05 financial years. Income grew by an average of 5.8% per year during that period while expenditure grew at the rate of 6% per year, during a period when the accommodation, café and restaurant sector grew by 4.2% per year (ABS 2008, Table 22.1). Even though it is a highly fragmented industry, the hotel industry is undergoing consolidation, largely by major players like Coles and Woolworths, but also through the formation of small groups. In particular, a recent industry study reported that in the period 2003–2007, total industry revenue increased annually at a rate between 2.1% to 3%, yet the number of establishments declined at the rate of 2% to 2.6% per year (IBISWORLD 2008). The hotel industry operates in a changing and dynamic business environment. It is influenced locally and immediately by changes in customer preferences for food, drink and accommodation and generally by cultural and social trends including changing attitudes towards drink driving, controversy about the effects of gambling on certain sectors of the population, and restrictions on smoking, as well as overall economic conditions such as the developing recession. Further, changes in tastes regarding entertainment and an increasing number of competing entertainment options for customers, such as home theatre, are putting pressures on hotel operators to be more entrepreneurial and innovative for them to survive and grow. Although there are a number of innovative hotels, a recent ABS study of innovation in Australian industry concluded that businesses in the accommodation, cafés and restaurants sector had the lowest rate of innovation of all of the sectors that were included in the study (ABS 2005a).

The hotels studied The study focused on ‘pubs’ that are described by the Australian Bureau of Statistics as ‘businesses in Australia that generate income predominantly from the provision of alcoholic beverages for consumption on the premises, or in selling alcoholic beverages for consumption on and/or off the premises (e.g. from bottle shops at such premises)’ (ABS 2005a, p. 4). These are also described as ‘general hotels’, and are independent businesses operated by an owner/manager, or a small group of hotels operated by managers with owner involvement, and that offer most of the following facilities: public bar, dining, take-away alcohol (bottle shop), accommodation, entertainment, and gaming. These are the majority of hotels in Australia; they do not constitute an international category, and have similarities to the British ‘inn’. Like other small businesses, they appear to be the most

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS affected by environmental and business trends as they do not have the infrastructure, resources or management capabilities that are possessed by the large four and five-star hotel chains. For this reason, the study did not include the hotel chains (such as the Hyatt, Hilton, Sheraton or Holiday Inn), nor did it include the large groups of hotels operated by Coles and Woolworths, as all of these have access to significant resources and capabilities. Table 1 Profile of participants in the study

Location: CBD Location: Suburban Location: Country Individual owned Groups of hotels Numbers in groups Owner/manager Manager

South Australia

Queensland

1 10 4 6 9 2 to 12 12 3

2 4 4 2 3 to 9 6

New South Wales 4 2

Victoria

Tasmania

Western Australia

Northern Territory

3 3

6

2 4

2 4

3 3 5 to 15 5 1

5 1 22 5 1

4 2 2 to 3 4 2

4 2 5 to 15 4 2

1 5 2 to 5 3 3

The dynamics of the hotel sector The hotel sector has been exposed to dramatic and continuous change in its business and economic environment over the last 20 years. At that time, most hotels were owned by breweries and managed by lessees. When breweries decided to focus on their core business of producing and distributing alcoholic beverages, most hotels were sold to their lessees. However, due to changing tastes in entertainment, the hotel sector generally declined and was reinvigorated by the introduction of gaming machines in most Australian states in the 1990s, as well as by social trends and the period of general economic growth. These changes attracted new types of customers and increased the revenue flow of hotels. In the last ten years, consolidation has occurred in the industry through the formation of hotel groups, such as the Matheson group (which was established in 1974), and diversification by both Coles and Woolworths into the hotel sector, the latter driven largely by the saturation of the grocery market. In particular, Woolworths formed a joint venture with the Matheson Group in 2000 to form Australian Leisure & Hospitality Group (ALH), and is now a major hotel operator in Australia with over 270 venues across Queensland, New South Wales, Victoria, South Australia, Western Australia and Tasmania. Coles acquired the Hedley Hotel Group in 2006. At the same time, the cash flow generated by gaming machines has allowed hotel owners to invest significant amounts in renovating and physically upgrading their premises, i.e. improving the physical facilities, as well as by implementing innovative activities such as specialty food, national day functions, and a wider selection of wines. Valuations of individual hotels increased dramatically; for example, individual hotels have been sold recently for more than $10 million.

Future outlook for the hotel sector The major factors forcing change in the sector are changes in consumer tastes and preferences and government regulation. Changes in consumer tastes and preferences such as preferences for leisure and entertainment directly affect the hotel industry. Such changes are influenced by an increasing proportion of the population living in small homes and apartments, rather than in individual homes on large allotments, thus encouraging people to seek entertainment outside of the home. This change in style of living has led to the conceptualisation of ‘the third place’ (Oldenburg 2000), encompassing informal public gathering places such as bars and coffee shops that have been said to be central to local community activity (to complement ‘the first place’ which is the home, and ‘the second place’ which is the workplace). Consumer preferences also influence the hotel industry in another way. For example, activities of consumer lobby groups relating to the control of smoking, gaming and the service of alcohol affect government regulations. These lobby groups have had significant influence in the past, and are likely to have similar effects on hotel operations in the future.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Responding to changing social trends and fiscal pressures, government regulation influences almost all aspects of hotel operations. Responsible serving of alcohol (RSA) and responsible service of gaming (RSG) are particular examples that have a significant impact on physical facilities development, staff selection and training, operations planning and implementation, and management control and reporting systems, and thus have significant cost implications for the hotel operator. Hotel operators therefore face continuing pressure for change, so that survival and commercial success will require continuing innovation and an entrepreneurial approach to management by identifying and developing new business opportunities. In particular, the current economic downturn means that there will be even more competition for declining consumer disposable income, so that hotels will have an even greater need to not only control their costs through innovative means, but to be even more innovative in finding ways to both attract and retain customers with the aim of increasing revenue.

Innovation capability and entrepreneurial orientation in the hotel sector In order for owner/managers of independent hotels to survive and grow in their competitive business and economic environment, tools need to be developed to help them to support and implement innovation (and in particular, continuous innovation) as well as an entrepreneurial approach to their business. It is therefore important to have validated measures of the innovation capability and the entrepreneurial orientation for this sector, so that the capabilities of businesses can be benchmarked, shortcomings can be identified, and ways of improving innovation capability and entrepreneurial management can be formulated. The value of this research is that the dimensions that are currently used to specify innovation capability and entrepreneurial orientation will be confirmed for this particular industry sector. These dimensions can then be used to develop tools in the form of questionnaires to measure these constructs for individual hotels. The results of these questionnaires can then be used to develop diagnostic tools and training programs for these hotels.

Research Questions The primary aim of this research was to identify the dimensions of innovation capability and entrepreneurial orientation in the general hotel sector. The following questions were therefore explored in this research: • What are the key types and areas of innovation in general hotels? • What are the barriers holding back innovation? • What are the dimensions and characteristics of innovation capability in general hotels? • What are the dimensions of entrepreneurial orientation in general hotels? These research questions will be further investigated through the development of hypotheses that will be tested by the implementation of a quantitative survey as the next stage of this study.

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Chapter 2

LITERATURE REVIEW This section includes a review of the literature relating to the nature of innovation and innovation capability, entrepreneurship and entrepreneurial orientation, with a particular focus on services and on the hotel sector.

Innovation and Competitiveness In this research, innovation is described as the mechanism by which organisations develop value through new products, processes, and systems that are needed to respond to changing markets, technologies, and modes of competition (Utterback 1994; Dougherty & Hardy 1996). The Australian Bureau of Statistics (ABS 2005b) draws on the ‘Oslo Manual’ (OECD 2005) to define innovation in a similar way in its recent research into a range of product and service sector organisations (including ‘accommodation, cafés and restaurants’) in Australia. The ABS definition is used in this research, as it applies to both product and service innovation, and has been used in the context of hotel industry. It is: … the process of introducing new or significantly improved goods or services and/or implementing new or significantly improved processes. New goods or services or new processes may involve the development of new technology, an adaptation of existing technology to a new use (e.g. electronic commerce), or may be nontechnological in nature—e.g. organisational and managerial change, some changes in marketing (ABS 2005b).

The importance of entrepreneurship and innovation to economies and to individual organisations was described by Schumpeter (1934). Writers such as Huber (1984) proposed that in the post-industrial age with increasingly complex and turbulent environments, organisations will need to rely to an increasing degree on innovation and experimentation to ensure competitiveness to improve their chances of survival and development (Alvarez & Barney 2001). In particular, research has established a positive link between innovation and firm performance (Covin & Slevin 1989; Zahra & Covin 1995; Dess, Lumpkin & Covin 1997). By itself, one-off innovation is not sufficient for competitiveness. Firms need to be able to innovate on a continuing basis (Kiernan 1996; Slater 1997). In addition, firms compete not just on new products but on their capacity to develop new products (Prahalad & Hamel 1990). Firms are therefore presented with the challenge to build their capacity to support innovation on a continuing basis and, in this way, develop competitive advantage. There is little published research on innovation in services in general and in the hotel sector in (Ottenbacher & Gnoth 2005). Studies in this sector have been largely carried out in the United States and Europe, and have typically investigated large hotel chains and large individual hotels to identify general principles of innovation management for new products or services (Jones 1996; Ottenbacher & Gnoth 2005). Other studies have been carried out into best practice in hotels, with the aim to ‘foster innovation in current management thinking’ (Dubé et al. 1999, p. 14) in areas including architecture, environmental management, food and beverage management, information technology, marketing, hotel operations, human resources and service quality (Enz & Siguaw 1999; Siguaw & Enz 1999d, c, a, b, e; Dubé et al. 2000; Enz & Siguaw 2000b, a). Although these studies included hotels ranging from budget through economy to deluxe, the best practice ‘champions’ that were selected from 115 in-depth cases came largely from well-known and well-resourced chains in the United States. This makes the findings from these studies less applicable to smaller groups and to individual general hotels with fewer resources. However, writers in the field of services management and the marketing of services have identified key principles for the management of innovation in businesses including hotels. Lovelock (2001) identified the importance of innovation to the effective marketing of services, and in particular recognised that in mature industry sectors, such as hospitality, the ‘core service’ such as the provision of food and beverage has in effect become a commodity, and that competitiveness comes from differentiation and improvements in the value adding ‘supplementary services’ that support the core service (page 253).

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The role of innovation capability (IC) For these reasons of competitiveness, there has been increasing interest in identifying and understanding the attributes of firms that enable them to support continuous innovation (see, for example, Slater 1997). This has led to the development of the ‘innovation capability’ (IC) construct to describe the ability of a firm to innovate by developing new products, processes, and systems (Prahalad & Hamel 1990). The Lawson and Samson (2001, p. 384) definition of innovation capability is used for this research, where: innovation capability is ‘the ability to continuously transform knowledge and ideas into new products, processes and systems for the benefit of the firm and its stakeholders. Innovation capability is not just an ability to be successful at running a business new-stream, or to manage mainstream capabilities. Innovation capability is about synthesising these two operating paradigms’.

This capability allow firms to ‘develop a competitive advantage and achieve higher levels of performance’ (Hurley & Hult 1998, p. 44), and research has shown that firms with good IC do in fact have a sustained competitive advantage and use it to achieve higher levels of performance (Alvarez & Barney 2001). The relatively few published empirical IC studies have been in the manufacturing sector (Guan & Ma 2003; Yam et al. 2004). These have focused primarily on product innovation, and have identified a positive relationship between IC and firm performance. There are no published studies of IC and the IC-firm performance relationship in the services sector and hotel sectors. This research, therefore, contributes to building an improved understanding of innovation in the hotel sector specifically.

Dimensions of innovation capability Innovation capability describes the attributes that a firm needs in order to support innovation activities. These attributes give it the ability to quickly and successfully adopt new processes and methods, and develop and introduce new and improved products to compete more effectively in a rapidly changing environment. Because innovation itself is a complex activity, IC has many dimensions or components and draws on a wide range of assets, resources and abilities (Sen & Egelhoff 2000). In particular, Lawson and Samson (2001, p. 389) note that ‘there is no clear agreement of what the real variables of innovation capability might be, and that there are likely to be disagreements as to how to best “cut the innovation cake”. A holistic model of innovation capability will thus attract debate about the categorisation of elements, but it is a necessary step in order to facilitate analysis and construction of an innovation framework’. This suggests that an innovation capability measure for the services sector is likely to be different to a measure for the manufacturing sector. Adler and Shenbar (1990) define IC in terms of the ability to develop new products that meet market needs, the capacity to apply the appropriate processes to produce these new products, the ability to adapt product and process technologies to meet future needs, and the ability to respond to unexpected opportunities arising from technology change and competitor activities. Christensen (1995) proposed four distinct and generic categories of assets for technological innovation. These included scientific research assets, process innovative assets, product innovative application assets, and aesthetic design assets. He also proposed that successful innovation needs the combination of more than one of these assets that are spread over different parts of the firm. Capaldo et al (2003) proposed a method for evaluating IC using four resource sets. These were entrepreneurial resources, human resources, resources arising from external linkages, and economic resources. These sets were allocated into two groups that are needed to support the ability of the firm to enhance and innovate in its markets in the short and long term and to support the ability of the firm to carry out technological innovation. This approach was illustrated by three case studies using qualitative assessment of scores of the businesses on the dimensions used. The value of this approach appears to be limited, as the measures encompass only a very limited set of firm resources. Guan and Ma (2003) developed a detailed operational representation of IC in terms of a set of seven ‘innovation drivers’ for a study of 213 Chinese industrial firms, and found a generally positive relationship between IC and business performance (Guan & Ma 2003; Yam et al. 2004). Their set of dimensions included learning capability as the capacity to identify, absorb, and use existing and new knowledge for competitive success. Research and development capability measures the ability of the firm to adopt new technologies and systems. Manufacturing capability describes the ability of the firm to apply its R&D results into products that meet market needs as well as technical and production constraints. Marketing capability refers to the ability to identify current and future customer needs and to promote and sell the firm’s products in a competitive 6

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS environment. Resource management capability is the firm’s ability to organise and manage its technology, human, and financial resources. Organisation structure and systems capability refers to the ability to develop, structure, and manage all activities to meet organisational objectives and increase the speed of innovation. Lawson and Samson (2001) draw on a dynamic capabilities approach to the resource base theory of the firm to propose a model of IC that is made up of a number of processes within the firm. These are grouped into seven major dimensions that include vision and strategy, harnessing the competence base, leveraging information and organisational intelligence, possessing a market and customer orientation, creativity and idea management, organisational structure and systems, culture and climate, and the management of technology. A study using these dimensions was carried out with 220 businesses across 12 industry sectors and found a positive relationship between the measure of innovation capability and firm innovation performance (Terziovski & Samson 2007). O’Connor and others (2007) used the dimensions of leadership development, innovation development and stakeholder engagement strategies as a set of three resource assets, and the business model, knowledge management systems and culture as a set of three transformative assets, in a qualitative study to assess the innovation capability of a large public policy (service) organisation in Australia. The aim of this study is to identify the dimensions of innovation capability for the general hotel in Australia, and to then develop diagnostic tools as a practical outcome of the next stage of this research. These tools can be used at the individual firm level to identify resource gaps that can be presented in terms that managers can readily understand and act on to improve their firm’s innovation capability. The only empirical studies in this field that have published innovation capability measures, and that have reported on the relationship between innovation capability in business performance are those by Guan and Ma (2003), and by Terziovski and Samson (2007). In particular, the measures used by Guan and Ma (2003) provided the starting point for this study. Since carrying out the fieldwork and analysis for this study, a PhD thesis has been identified that has examined factors determining the innovative capacity of hotels in Spain (Martinez-Lopez 2009). However, that research has not taken the same approach as this particular study, and has targeted larger tourist hotels.

The Need for Entrepreneurial Management Innovation by itself is not enough for success. Innovation needs to be combined with an entrepreneurial approach to management, where entrepreneurship is associated with the discovery and exploitation of potentially profitable business opportunities (Shane & Venkataraman 2000). In other words, in a rapidly changing business environment, organisations need to continuously renew their scope of activities by identifying new opportunities to build their businesses beyond existing competencies (Hamel & Prahalad 1989; Mintzberg 1994). This requires an entrepreneurial approach, where ‘the essence of entrepreneurship is the willingness to pursue opportunity, regardless of the resources under control’ (Stevenson & Jarillo 1990, p. 23). At the level of the economy, entrepreneurial activity is recognised as a key driver of business and regional economic development (OECD 2003). Entrepreneurship was originally regarded as a concept that is a characteristic of an individual (Schumpeter 1934). Entrepreneurship, however, became accepted as a firm-level characteristic (Stevenson & Jarillo 1990; Covin & Slevin 1991; Zahra, Kuratko & Jennings 1999; Brown, Davidsson & Wiklund 2001; Dess et al. 2003). This development was based on the proposition that entrepreneurship is relevant to managers at different levels, and that implementation of the entrepreneurial process typically requires contributions from several different people within the organisation with different skills and capabilities. In particular, Miller (1983, p. 770) argues that ‘what is most important is not who is the critical actor, but the process of entrepreneurship and the organisational factors which foster and impede it’. This firm-level view of entrepreneurship led to the development of entrepreneurial orientation as a measure of ‘the processes, practices, and decision-making activities that lead to new entry’ at the firm level (Lumpkin & Dess 1996, p. 136). This is the definition used for this research, where ‘new entry’, is implemented by introducing new products or services, either through a new venture start-up or through corporate venturing (Burgelman 1983).

7


Five dimensions of entrepreneurial orientation (EO) Entrepreneurial orientation (EO) has been found to be an essential characteristic of high performing firms (Lumpkin & Dess 1996; Rauch et al. 2005). The dimensions of EO have been derived from the strategy and entrepreneurship literature (Miller & Friesen 1978; Miller 1983; Covin & Slevin 1991). Miller (1983) proposed three dimensions (innovativeness, risk taking and proactiveness) to characterise the entrepreneurial firm. Lumpkin and Dess (1996) drew on Miller’s (1983) definition and on prior strategy research and identified competitive aggressiveness and autonomy as two additional EO dimensions. Innovativeness as a concept comes from Schumpeter (1934). It ‘reflects a firm’s tendency to engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, services, or technological processes’. It can range on a continuum from a readiness to make a marginal improvement through to ‘passionate commitment to master the latest in new products or technological advances’ (Lumpkin & Dess 1996, p. 142, 143). Risk taking reflects the propensity of the firm to engage in risky projects by ‘borrowing heavily, investing in unexplored technologies, or bringing new products into new markets’ (Lumpkin & Dess 1996, p. 145). Again, the level of risk adopted can range over a wide continuum. Proactiveness can be described as the predisposition of a firm in ‘seizing initiative and acting opportunistically in order to “shape the environment”, that is, to influence trends and, perhaps, even create demand’ (Lumpkin & Dess 1996, p. 147). Lumpkin and Dess (2001) found that proactiveness was more important for firms in the early stage of the industry life cycle than in more mature industries. Competitive aggressiveness reflects the firm’s tendency ‘to directly and intensely challenge its competitors to achieve entry or improve position, that is, to outperform industry rivals in the marketplace’ (Lumpkin & Dess 1996, p. 148). It is also characterised by the degree of response to competitive threats. Lumpkin and Dess (2001) found that competitive aggressiveness was more important for firms in later stages of the industry life cycle than in earlier stages. Autonomy has been described by Lumpkin and Dess (1996, p. 140) as the ‘independent action of an individual or a team in bringing forth an idea or a vision and carrying it through to completion … free from stifling organisational constraints’. More recently, Lumpkin and others have further investigated the dimension of autonomy, and have developed a scale to measure this (Lumpkin, Cogliser & Schneider 2007, 2009). A meta-analysis of 39 EO studies (Rauch et al. 2005; Rauch et al. 2009) showed that the correlation of EO with performance was positive and moderately large. In addition, the individual EO dimensions were found to relate to different degrees with performance. Innovativeness, proactiveness and autonomy were more strongly related to performance than competitive aggressiveness and risk taking. This study also found that EO had a stronger relationship with financial rather than non-financial indicators of performance implying that the major purpose of an entrepreneurial orientation is to improve financial outcomes rather than to improve other possible objectives of the business. Importantly, the study found that the dimensions and scales for measuring EO had been implemented across industry sectors, including service organisations, and in small as well as large businesses in many different countries. In addition, a hotel sector study of the EO—performance relationship in large five-star hotels located in mainland China, Hong Kong, Malaysia and Singapore used the standard EO items, and found a positive relationship between these measures (Jogaratnam & Tse 2006). A study of the entrepreneurial orientation of micro-businesses in Bulgaria used standard EO items for a sample that included a number of hotels (Alexandrova 2004). It can therefore be concluded that the dimensions and scales for measuring EO are very likely to be valid for organisations such as small hotels in Australia.

8


Chapter 3

RESEARCH METHOD This study relies on primary data that was collected using in-depth interviews with hotel managers and owner/managers, and was supplemented by interviews with representatives of the Australian Hotels Association (AHA) in each of the states, as well as nationally. Initial discussions were held with the Director of National Affairs of the Australian Hotels Association (AHA) to gain a general understanding of the sector and its business environment and to discuss the nature and scope of the study. In-depth interviews were selected as the most appropriate method for exploring the ideas and opinions of hotel owner/managers. Other research options considered were group discussion methods such as focus groups or consensus groups, but these were excluded for logistical reasons, as discussion with the AHA concluded that although its members would be prepared to give time to be interviewed, it would be too difficult to organise meetings of groups of owner/managers. In addition, it was considered that participants would talk more freely when interviewed compared with their likely behaviour in groups. A pilot study was carried out in South Australia, and this was followed by interviews in the other Australian states and the Northern Territory. This first stage of the study as summarised in this report was to identify the dimensions of innovation capability, and to provide the information to develop the survey instrument to be used in a national study that would be implemented as the next stage (Stage 2) of this study, as shown in Figure 1.

Figure 1 Methodological approach and conceptual model Ethics approval for this study was obtained from the University of South Australia (Ethics protocol P198/06 ‘Toward improving innovation capability in entrepreneurial orientation in the hotel sector—Stage 1’)

The Population to be Studied The population was defined as owner/managers of ‘pubs’ that offer most of the following facilities: public bar, dining, take-away alcohol (bottle shop), accommodation, entertainment, and gaming. These were largely independent hotels operated by owner/managers, or smaller groups of hotels operated by managers. These are the majority of hotels in Australia. This population would be initially studied in South Australia, with the survey then being extended to the other states and the Northern Territory.

9

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS • • •

The sample for the pilot study was to be drawn from three geographical areas in South Australia: the Adelaide Central Business district the Adelaide suburban area regional South Australia.

The planned total sample was around 15 participants in South Australia, with six participants in each of the capital cities in the other states in Australia and the Northern Territory.

Pilot Study in South Australia A pilot study was carried out in South Australia to directly test the innovation capability dimensions in the literature, and to determine the appropriate sample frame for the total study.

Selection criteria for participants in South Australia A theoretical sample frame was proposed by the research team, and included hotels that were known to be innovative in operating their businesses and those less so; some in the metropolitan area and some in the country; some that operated in competitive environments (with other hotels close by) and some that were relatively isolated; some sole operators and some that were involved with more than one hotel. The intention was to cover the field of different types of hotels and to identify the richest sources of data for the study. The sample frame is shown in Table 1, and this includes the numbers of interviews actually carried out for each variable in the sample frame. Table 1 Sample frame and resulting survey participants (15) in South Australia Large vs Small Innovative Larger Small Individual Yes No Group 4+ Group 2-3

1

1

1

1

1 1 1

1

5

1

1

1

1

1

1

1

1

1

1

1

Competitive Locality Very Com- Less Competitive petitive

1

1

1

Country

1

1 1

4

Location Adelaide Adelaide Inner Outer Metro Metro

1

1

1

Total

Adelaide CBD

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

4

8

6

5

10

1

1

6

1

4

7

Exclusions The study excluded the large four and five-star hotel chains, such as the Hyatt, Hilton, or Holiday Inn, or the hotel groups operated by Coles and Woolworths. The reason for this exclusion was that these businesses have the infrastructure, resources and management capabilities to manage innovation activities professionally, and are the types of organisations most frequently studied in the hospitality literature internationally.

10


Method of recruiting participants for the South Australian pilot To facilitate the research, the Director of National Affairs for AHA provided an introduction to the South Australian AHA Branch. Following a meeting to discuss the project, the South Australian AHA Branch office identified hotels that it considered fitted the sample frame (Table 1), and contacted the owner/managers requesting and encouraging their participation in the study. Persons contacted were given the opportunity to decline to take part in the study, and a final list of contact details was provided to the research team. The research team then contacted these people and made appointments for interviews. Participants were sent information regarding the study before the interviews, in line with the University of South Australia ethics requirements. All of the owner/managers recommended by the AHA office agreed to take part in the study.

Interviews with South Australian participants All interviews were carried out in the owner/managers’ premises. As a starting point, participants were asked to describe innovation in their own businesses and the manner in which these innovations were initiated, developed and evaluated. Participants were then asked to describe impediments to, or constraints on, their innovation activities and to identify how their businesses could better support innovation activities. The duration of each interview was approximately one hour. The researcher took notes during the interview and the interview was audio recorded.

Interview protocol During the interviews, participants were asked to list the features of their hotel and then to describe innovation activities. As far as possible, the interviewer encouraged the manager to explore specific activities in a way that the following question areas were addressed, and prompted the conversation as appropriate. The question areas explored in the interviews were: examples of innovations that the hotel had introduced. o ways in which the manager thought that it would be possible to improve the ability of the hotel (etc.) to ‘better’ innovate • examples of entrepreneurship involving the hotel o ways in which the manager thought that it would be possible to improve the ability of the hotel (etc.) to be more entrepreneurial • any constraints that make it difficult for the business to be more innovative.

•

Analysis of South Australian interviews Interviews were transcribed by a professional agency, and the researcher then checked the transcripts against the audio recordings. Transcripts were identified by location; for example, the interviews carried out in Adelaide/South Australia were coded as A1 through to A15, and a similar notation was used to refer to the interviews carried out in the other cities. Three interviews were not usable; one interview was excluded because it was with a manager of one of the large groups of hotels, and two interviews were not used because of the failure of recording equipment. Given the large number of interviews, these exclusions are not considered to have a significant impact on the results. The researcher analysed transcripts using nVivo software, with statements being coded into categories (or nodes) corresponding to the seven dimensions developed by Guan & Ma (2003) that included learning, research and development, resource management, manufacturing, marketing, organisation structure and systems, and strategy and leadership. All of these dimensions of innovation capability could be identified to a greater or lesser degree in the comments made by the majority of participants (Balan & Lindsay 2007). However, detailed analysis of the data showed that there were significant numbers of statements relating to innovation that fell outside that classification. The hypothesis that the innovation capability dimensions that had been developed in the manufacturing sector could simply be transposed to the services and hotel sector was therefore not supported, and hence this deductive method (moving from theory to data) failed to capture the dimensions of innovation capability applicable to service industry firms.

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The Main Study – Interviews in other Australian States The research then moved to adopt an inductive method by analysing data to form a new framework. This part of the research project borrowed from the ‘grounded theory’ method (Glaser & Strauss 1967; Charmaz 2006), and was implemented by interviewing an additional 30 participants who were hotel owner/managers in the capital cities of the other states and the Northern Territory.

Method of recruiting participants for interviews in other states The Director of National Affairs for the Australian Hotels Association (AHA) provided introductions to the AHA organisations in each of the states and the Northern Territory. The researchers then contacted each of these offices and discussed the requirements of the survey with AHA staff in each city. The analysis of the South Australian interviews had shown that the owner/managers of hotels that were considered by the AHA to be innovative provided the richest sources of data for analysis. The state associations, therefore, were each asked to identify six hotels that they considered were representative of the more innovative hotels in their membership, and that were either independent or members of small groups. This was a theoretical sample of hotels that would ensure that the interviews were obtained from innovation-oriented managers who would provide ‘rich’ data for analysis. In Melbourne and Brisbane, appointments were made by the AHA offices in those cities. In Adelaide, Hobart, Perth, Darwin and Sydney, names and addresses were provided by the AHA offices, and appointments were made by the researchers. Interview locations included hotels in the central business districts and in the outer metropolitan areas in each city. Participants were sent information regarding the study before the interviews, in line with the University of South Australia ethics requirements. All of the owner/managers recommended by the AHA offices agreed to take part in the study.

Interviews with participants in other states Again, interviews of approximately one hour were carried out with each participant, and almost all interviews were carried out at their premises. This allowed the researcher to view the premises and identify aspects of the hotel that appeared to be different or worth discussing during the interviews. Six interviews were carried out in other locations, primarily because the managers concerned found it more convenient to meet at a CBD location, and these were spread across the states. Table 2 Locations of participants in this study State

CBD

Suburban

Regional

Total

South Australia

1

10

4

15

New South Wales

3

3

6

Victoria

3

3

6

Queensland

2

4

6

Northern Territory

2

4

6

Western Australia

3

3

6

Tasmania

4

2

6

18

29

Total

4

51

The interviews were open and exploratory, and were less prescribed and directed than those in South Australia, but the same general protocol was followed, as well as the same procedure for transcribing and checking all interviews.

Analysis of interviews in other states The researcher analysed transcripts using nVivo software, with statements being coded on a line by line basis to develop a collection of categories of statements, in line with the ‘grounded theory’ method, with categories being developed at the same time as the statements were coded into those categories. This approach resulted in the creation of 38 different categories of statements.

12

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS These categories were then clustered into dimensions, and this was done in two stages. Firstly, descriptors of each category were prepared by the researcher carrying out the coding, and verbatim examples of each were provided to two experienced researchers in the field of innovation and entrepreneurship. These two researchers used this information, as well as comments relating to barriers to innovation, to develop nine separate dimensions that included the 38 categories. This classification was then checked by the original researcher based on the detailed examination of the extensive content of each category, and was adjusted after discussion between the authors. This resulted in changes to the initial allocation of categories to the dimensions, as well as the absorption of four categories into others, to leave 34 categories as discussed in Chapter 3. The interviews carried out in South Australia were re-analysed using the same approach, and the analysis of results in this report is based on analysis of the interviews carried out across all states.

Provision of Information to Participants Participants who agreed to take part in this study were sent an initial explanatory email together with an information sheet explaining the study. All participants were contacted by telephone to arrange appointments, and were sent emails four or five days before their interview to confirm the meeting arrangements. At the end of each interview, participants were given a one-page overview of the study and the expected outcomes. All participants will have access to this report through Sustainable Tourism CRC.

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Chapter 4

FINDINGS Researchers conducted 51 interviews across seven cities. The primary data was analysed using the grounded theory approach. The findings have been grouped as follows: • how hotel managers defined ‘innovation’ • innovation activities in hotels • barriers to innovation • dimensions of innovation capability • entrepreneurship and the dimensions of entrepreneurial orientation.

How Hotel Managers Defined ‘Innovation’ In the literature, the term ‘innovation’ is described as the process of adding value to new ideas, resulting in new or improved products, services, systems or methods. The managers who were interviewed captured the ideas of newness and value adding when they described innovation as ‘doing something differently to the way it’s been done before, for the benefit of the business or the industry, an improvement, or a unique improvement’ (M1). Similar sentiments were echoed by others when they defined innovation as ‘a better way of doing things’ (M2). A number of managers regarded innovation as synonymous with creativity; for example ‘looking outside the box’ and ‘creativity’ (M4), as ‘new trends that people are experiencing, maybe in food and menus and that sort’ (B1), and ‘change and new ideas, something exciting’ (D1). Several participants used the term ‘thinking outside the square’ (D5, M6, P6) such as ‘not doing things in the traditional sense’ (D5), or ‘thinking outside the square of our traditional bounds’ (M6). A small number of participants considered that the term innovation should be restricted to things that are completely ‘new to the world’, that there are very few things that are innovative in the hospitality sector, and much that is considered to be new is just repackaging ‘old ideas with a new slant on them’. For example ‘I can't really think of anything unique we do’ (M1), or ‘innovation is doing something that is new to the market’ (P4), or ‘no one else has it’ (S5). However, most participants reflected the view in the literature that the core services of hotels have become commodities, and that innovation and value adding takes place primarily through supplementary or support services (Lovelock 2001). For example, some saw innovation as the way you manage the business; ‘innovation is something that if you do not keep changing you'll die, it's nothing fantastic, to me it's just normal procedure, a better way of doing things’ (M2). Some participants considered that innovation was associated with leadership in the sector, for instance, ‘change, being ahead of the pack’ (B2), and hence is a basis for competitiveness (being different), and a characteristic feature of a successful business. Others saw innovation as responding to continuing changes in the business environment and in the market ‘what we actually do day to day, has to be really innovative. We have to keep up with technology, because the latest and the greatest is what people want to see’ (A17). Some participants saw innovation in terms of levels, with innovation at a strategic level leading to many operational changes. For example, ‘there are lots of levels of innovations. Innovation is to identify what target market you’re catering to and then successfully transform the hotel from what it was to what it is now, and this includes probably ten or twelve innovations’ (D5). There was an overlap in the definitions of ‘innovation’ and of ‘entrepreneurship’. For example, one participant described innovation as being all about ‘trying to sell ideas, attract capital, make a business case, make something successful’ (B3), and another described it as ‘finding new ways to look at things and follow them through’ (D3).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Importantly, it was considered by most that innovation is a personal attribute, and it was said that ‘people who are innovative are those who can realise the vision and put it into practical terms and then somehow get it to the marketplace’ (S3). It was not generally seen that a business could be innovative.

Innovation Activities in Hotels Participants in the survey were asked to talk about innovation in general as it related to their hotel, and to give examples of what they regarded as innovation activities.

The nature of innovations The large majority of innovations that were described could be identified as improvement innovations (that help to improve the delivery of the core activity), and that were changes made ‘just to keep up’ with market trends and customer requirements. These included innovations in areas of physical facilities, to make the venue more attractive (e.g. making the place ‘cleaner and brighter’), of products such as food and drink to appeal to new segments of the market, of supplementary services and in operating systems. These are detailed later. These improvement innovations can be compared with transformational innovations that result in a different business activity and a potential new revenue stream, using the framework proposed by Tranfield et al (2000). There were only a few innovations that were mentioned and that could be considered to be in this category, and these included: • installing ATMs that were refilled by the hotel to recycle cash from gaming machines and other trading activities, which generated a commission from the bank (M2). In effect, this made the hotel somewhat like an unofficial bank branch • setting up an in-house micro-brewing activity (M5). Although this was a trend in boutique hotels about ten years ago, this required a specific set of capabilities and investment to operate a different type of business • setting up a greengrocer outlet or small shopping strip (M2) or pizza outlet (S3) on the hotel premises, if there were no competing outlets nearby, and if they would help to attract customers to the hotel • incorporating a golf driving range in the course of the physical redevelopment of a hotel (A6) • making the hotel a ‘carbon neutral’ business (S4) • developing the hotel as ‘the third place’, as a centre for social activity, or as a form of community centre (A6, B3, S1, S3, M2, P4). There were also some innovations that could be described as occupying an intermediate position on a continuum from improvement innovations to transformational innovations, such as installing a high-tech sound system that concentrates sound on the dancefloor, and uses active noise cancellation systems to reduce the sound levels away from the dancefloor, so that patrons can have conversations, and hotel neighbours are not inconvenienced (M2). This approach potentially allows a hotel to operate a wider range of noisy activities without inconveniencing other patrons or neighbours. Most of the innovations identified by hotel managers related to changes in physical facilities, although there were many comments relating to other aspects of the hotel as a business. Innovations appeared to be best grouped into the categories of physical facilities, products, services and management systems, as indicated by the definition of innovation used for this project (ABS 2005b), and these are discussed below.

Physical facilities innovations Changes or upgrades to physical facilities were the most frequently cited area of innovation. A very significant trend was the complete refurbishment of hotels with investments of several million dollars in all states. A major facilitator of these investments was the cash flow generated by gaming machines (which were generally available in all states except for Western Australia).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS At the most general level of refurbishment or change of the premises as a whole, innovation in physical facilities was customer driven, and reflected the priority in many hotels to ensure that the hotel is kept physically attractive to its patrons. For example, one manager described his hotel as having been: ‘dirty, it was rundown; people will not come to a dirty, dingy area, smoke-filled, walk of shame through the public bar and stuff like that. So the first thing … it's just house cleaning and maintenance of the property’ (S4). He described the need to get the basics right to meet the expectations of customers who are familiar with the organisation and cleanliness of fast food businesses such as McDonald's; ‘people will not come in and they will not return trade to an unorganised property’ (S4). Similarly, one manager had redesigned the front of the hotel to be more open to the street, to make the whole hotel more welcoming to customers (P6), while others had developed an Irish hotel theme for the hotel to appeal to the female market (A14). Along the same lines, some hotels had addressed customer expectations by installing facilities such as lifts to accommodate disabled people (A14), disabled toilets, and changing facilities for parents. In some cases, managers had found that facilities such as the provision of change tables for babies (M5), and improved toilet facilities (particularly for females) in older premises (B3) had resulted in increased patronage. Others catered for families by providing a separate outdoor children's play area that could be observed from a dining room (P4), or indoor play areas with amusement machines and with tables for board games, and for parents to have their meal with their children (S3). Interior design was an important aspect of every venue, and some managers had gone to a great extent to develop a particular character, such as timber and leather (S6), natural materials or steel surfaces, depending on the target customer segment. As one manager said ‘when I spoke to designers I said I wanted everyone to feel comfortable. I did not want anyone to feel alienated’ (S3). Another manager described how he had developed the interior spaces so that ‘despite the fact that all the bars are at different heights there is a line of sight through them, because people like to look across a table, to increase social interaction’, and had restricted signage so that the venue ‘is pitched fundamentally as a living room’ (S1). Another hotel had invested in facilities to ‘give people something a bit better than what they have in their lounge room at home’ (P4). Managers also recognised the need for continuous change and innovation with regard to physical facilities, just to ‘stay in the market’ as well as to keep up with changing customer preferences, and a changing competitive environment where ‘you need to be aware of the changes in the market and keep up with the changes’ (H1). For example: • a CBD hotel manager described a program for renovating the hotel on a four to five years cycle to keep up with changing standards and regulations • as one hotel manager put it ‘our clients are that much better educated … if they are not getting it here— the ambience, the physical facilities—they will just go down the road because somebody else will be supplying it’ (S6) • ‘we move things around, so it's fresh the whole time. It's very expensive, but we do that each year, we change completely’ (P3). Some hotel owners recognised this pressure for continuous change, but decided to ‘opt out’. For example, one operator had sold their inner-city hotel and they had moved to the outer suburbs because they had to ‘reinvent ourselves every six months and it became very expensive … because new bars opened up, and you end up a dog chasing its tail’ (S3). Another aspect of physical facilities innovation was to develop different parts of the same facility to cater for different customer segments. A number of managers gave a great deal of attention to detail in planning physical facilities so that ‘each square metre is productive 24 hours of the day if possible, and appealing to a different clientele as well, not just the same person each time’ (A6). For example, it was common to have two dining areas with different characters to cater for different socio-economic groups of customers, and a number of hotels had developed attractive outdoor areas to appeal to people who have become used to the café society (A14). Similarly, a number of hotels were redeveloped to provide a front bar for traditional customers, a sports bar to attract patrons with that interest, and a bistro bar with evening entertainment to appeal to younger customers (S5). Another example was to give a hotels gaming operation a completely separate entrance off the street so that it was not evident to the major segment of accommodation customers (H1), dining customers (H5), or entertainment customers (S5). In addition, some hotels had invested in providing comprehensive audiovisual facilities for conference presentations (M5), in order to increase the yield from their property, and others had innovated to improve operating efficiencies, for example by relocating or redesigning food preparation areas (H1). 16

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Facilities innovations in bar areas included: installing elaborate audiovisual equipment, such as super-size video monitors about 3m wide for screening sporting events (S3) • installing multiple large monitors next to each other to allow patrons to watch different sports in the same venue; as one manager said, ‘I am watching the football, this guy is watching the soccer’ (S5) • investing continuously in ‘the latest audiovisual type sound and lighting equipment’ (A18) while recognising that this was expensive. •

Innovations in gaming areas included fitting large windows between a TAB room and an outside smoking area to allow patrons ‘to stand outside and see the TVs’, and hence keep them engaged in betting activities, even while being outside (S5). Innovations in accommodation facilities included providing wired internet access to all accommodation rooms, and as well as wireless internet connection for guests in other parts of the hotel (H2). Take-away facility innovations included upgrading take-away facilities to offer ‘a comprehensive drivethrough and modern retail facility out in the bottle shop’ (D5). Innovation in physical facilities was also driven by regulation, such as the provision of outside smoking areas, and for some hotels, this was the main or only reason for innovation in physical facilities (A1, M1).

Product innovations Innovation in facilities improvement was important for attracting customers by making the venue more pleasant and welcoming. Once the customer was in the venue, then product innovation became important to retain customers, as well as to encourage them to return. Food and beverages were the key areas of product innovation mentioned. Food was the major area of product innovation, as this was the product over which the hotel had the greatest measure of internal control, in terms of food style, range and presentation, as well as the flexibility, speed and ease with which new food lines could be developed, introduced and priced. It was common for hotels to use food as a positioning device, whether in terms of its style and range, or its price. Some hotels sought to position themselves primarily through food innovation, particularly as ‘gastro pubs’, where the food was the focus of the business, and the aim was to develop a reputation as a ‘food destination’ (M4). This style of hotel generally attracted older diners with high disposable income; ‘the food we offer is modern dining, all share style, so for the older people there is an education process, but they are the people we love coming in here because they spend big dollars’ (M1). Even those hotels that did not have such a strong emphasis on food tended to provide ‘upmarket restaurant food in a hotel, priced so that it was attracting a clientele on a two weekly basis, rather than a two monthly basis’ both to retain customers, and to increase revenue from the existing customer base (A6). This is similar to the strategy of Australian wine producers supplying wine into international markets at one price point, but with the quality of the next price point up. The most common approach to managing the product range was to provide a dining room menu ‘that we would amend four times a year, but we would have something on special each day, and we have a huge amount of repeat trade’ (P3). This was to give customers a certain measure of continuity, but also give them something different to attract their interest on a daily basis. At the same time, managers were sensitive to customer preferences, and appreciated that food range and presentation needed to be tailored to their target segment. In particular, they said that although customers looked for change, changes could not be implemented faster than customers could accept; ‘I don't say we turn them over over-rapidly, we turn them over as fast as anyone would want to, and because of that boredom factor, they want to see different things on the menu’ (A14). In addition, rates of change differed from one dining area to another, depending on the customer segment using each venue; ‘the grill is our more formal section; we make a fairly radical change at least four times a year. The bistro changes probably every two to three months, but probably smaller changes’ (A14). In relation to range, some hotels considered that certain dishes gave them a particular reputation; ‘we have a few hands off, do not touch, kind of things—fish and chips, and seafood basket, crumbed scallops, that have become a bit of an institution identified with this place, but other things are dictated by availability, seasonality and quality’ (H5). Similarly, another hotel had developed a particular style of hamburger, and claimed to be known for that particular item (S1), and another had specialised in ethnic food as part of its overall theme (S2). 17

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Other specific food innovations included: ethnic food, such as ‘curries and Punjab platters and Indian specialties’ (A6) serving foods in a way that customers could share dishes, for example ‘the tapas idea, which was essentially replacing entrée and appetiser, desert and cheese, with small bites of things to maximise how many experiences food-wise people go away with’ (A6), and where ‘the food is all on the table, and everyone just gets in and shares it. We get families and friends (sharing), rather than doing it at home, we want them to come here and do it. We sometimes like to say we’re a home away from home’ (M4). • broadening their offerings to build up areas of business such as breakfasts; ‘we now do a buffet breakfast, and you normally on a Sunday would do about 200; now even four years ago we would never have thought of opening for breakfast’ (B1). • offering meals based on unusual ingredients, such as one evening a month featuring dishes with offal. These evenings attracted diners seeking novelty, and attracted articles by food reviewers; ‘if you read our reviews in the paper they always mention the offal, because that is how we have been able to differentiate, and get some output in the media, because it's different and it's something for them to talk about’ (M4). • •

In some cases, food innovation was not regarded as being important, depending on the focus of activity of the particular hotel, and its operating environment. For example, in the case of a hotel with an accommodation focus that was located in a CBD area near a restaurant precinct, ‘in food and bev we don't do anything that's particularly outlandish’ (H1). However, even if food was not regarded as a major feature of the hotel, its role in contributing to the customer experience was recognised, and innovation then consisted of ensuring that ‘if people want bangers and mash, then your job is to simply give them the best’ (S1). In some cases, low food prices were used to attract particular customers while anticipating that the money saved by the customer would be spent in other areas; ‘you can be a young family buying a home and you can eat here two nights a week, you can still have a life’. But at the same time ‘at the end of the day it's $10 that feeds off into the gaming, or its $20 into the Keno, or mum might even have an extra drink because dad's driving home, the money is all coming back’ (D1). Innovation in relation to beverages was largely limited to adjusting the range to suit customer needs and preferences. For example, a hotel that had introduced entertainment had changed the mix of beverage sales; ‘before we sold only four Corona’s a week, now we sell probably about 50 cases, so we’ve got a totally different market’ (S5). Similarly, changes in customer preferences had driven demand for ready to drink products; ‘bulk beer was what pubs lived on; it's hard to get bulk beer into people, with all the RTDs’ (S4). Some innovation was related to changing the way that beverages are presented, for example ‘air pots, that's the latest and the greatest for coffee’ (A17). Similarly, some venues have introduced attractive water dispensers and glasses for customers to help themselves, as ‘blokes don't like asking for water, and women feel as though they are imposing’ (M5). Some hotels differentiated themselves on the basis of their beverages, although this was less frequent. One example was a hotel that claimed a range of 141 beers, and had built a ‘Beer Hall of Fame’ around this range, and used this as a promotional tool by ‘giving customers a card, they have a beer, we tick it off. When they complete that card their name is entered on an honour board and they are given a T-shirt to say that they completed the Beer Hall of Fame’ (P6). Another example was a hotel that invited patrons to subscribe to a beer club to obtain their own named beer mug (S2), and be invited to special social events. In addition, some hotels sought to differentiate their dining facilities on the basis of changing the range and presentation of wines; ‘we increased the range of wine and we made every single bottle a glass, so you can try anything. You've got to make it attractive to customers’ (S4, D6).

Supplementary services innovation Hotels innovated in the supplementary services that they offered their customers as a way of creating a ‘bundle of benefits’ (Lovelock 2001). These mainly included variations or improvements of the core services that were offered by most venues (front bar, dining, take-away liquor, accommodation, gaming and entertainment).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Examples of service innovations across the hotel included: some larger hotels had specialised function staff who bundled activities and facilities to provide innovative packages. For example, wedding coordinators who put together a range of promotional elements including accommodation, appropriate decorations and entertainment for wedding parties (A17). Along the same lines, some hotels promoted their venue to corporate customers packaging a range of their activities and facilities (M6) • providing a courtesy bus to pick up patrons from their homes and return them in the evening. A major motivation for this service was poor public transport in an outer suburban area (S3) • several hotels offering loyalty card schemes of different types. Some of the more sophisticated ones earned points based on the gross profit of the item being purchased (B3) rather than the revenue, and would be ‘fed with points’ to support specific promotional activities (S4) • providing a range of food services, such as a small supermarket, a pizza kitchen, a fruit and vegetable shop, to make the hotel more of a convenience shopping centre in an outer suburban area (S3, M2). •

Examples of service innovations supporting accommodation included: a ‘club room’ for accommodation customers, run along similar lines to an airport lounge (P5, H2), so that these customers would use this rather than making tea or coffee in their rooms, and would also use this space after checking out from their rooms. This arrangement also allows the hotel to avoid late checkouts • some hotels generating revenue by providing internet services (and basic catering services), particularly to backpackers (S1) • providing coupons for free meals to backpacker customers (D2) • offering a wide range of movie channels in hotels offering accommodation (H2). •

An example of service innovation supporting dining was operating the kitchen through the day (from 7 am to 11 pm) to cater for central business district customers so that they could have a meal at any time (P3). A large number of hotels offer a variety of promotional activities, particularly in the evenings, including live bands, bingo nights, comedy acts, DJs. Many hotels do this as a matter of course. Examples of service innovations supporting entertainment included: • organising local festivals, such as a Halloween parade (B3) that became a major community event. Similarly, others celebrated occasions such as New Year's Eve, and Australia Day, and these included jelly wrestling, pie eating competitions and sausage sizzles (D1) • organising ‘no talent nights’ that offered prizes for the least professional karaoke singers (D1) • providing quiet spaces with complementary board games, and with daily newspapers (S1) • installing an ATM in the hotel to provide an additional service for customers, particularly those using gaming machines (M2). In addition, some managers considered that there was significant potential to build business for a hotel by providing broadband facilities to cater for community groups and online students, particularly in rural and regional communities (S1). This approach was in line with a vision of the hotel as ‘the third place’ (Oldenburg 2000).

Operating systems innovations Systems innovation included adoption of technology, ergonomic ideas, and management and HR systems. Adoption of technology encompassed a wide range of activities, including adoption of inventory control system, menu system and online reservation systems.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS • • • •

• •

•

• •

• • • • •

At the hotel-wide level: one hotel had achieved ‘carbon-neutral’ status (S4), being the first in Australia and third in the world to attain such standard. This required a comprehensive audit of all of the hotel's activities and led to changes to its operations some hotels had established systems to ensure that the residential neighbours were not inconvenienced by the behaviour of hotel patrons, and these involved patrols of surrounding streets by security guards and cleaning staff (S5) some hotels introduced dress codes to encourage a different type of customer and change the perception of the hotel (S5) several hotels offered loyalty card schemes of different types (M2, A1). Some of the more sophisticated ones earned points based on the gross profit, rather than revenue, of the item being purchased (B3). Others ran special promotional activities, including Christmas parties for loyalty cardholders (P3). A number of hotels used a loyalty system linked with electronic communications to promote special events or special offers to their database that might number several thousand people (P6, S2, S6). One hotel had designed their own membership system where customers earned points for each purchase that they could use for buying drinks, playing computer games and raffles. The manager considered that this was effective for customer retention (S4). a hotel had made arrangements to have an ATM installed in their venue, and to use that machine as for depositing takings. This allowed the hotel to ‘recycle’ cash from gaming and other areas and more easily manage their physical banking activities (M2) a small group of hotels had adopted a policy of encouraging union membership and working with the unions in training and inducting staff, and considered that this had resulted in far fewer industrial disputes (A1). Another hotel had introduced AWA's that were designed to reduce staff turnover through revised HR policies, and changed grievance procedures (H1) one manager described the way that employee workloads were managed in order to maintain staff numbers at a level that was as stable as possible over the peaks and troughs of activity, so that staff with good customer service skills could be given an assurance of continuing work. This involved moving staff between front of house and back of house activities (H1) another manager referred to the challenge of staff recruitment and retention, particularly of ‘Generation Y’ employees, and saw potential for outsourcing labour to specialised agencies (S1) one owner was restructuring the business in order to attract and retain managers who would be committed to the business, by making it possible for a manager to buy equity in the business (D5). This was seen as a way to attract young managers who could not afford to buy into their own hotel on account of the dramatic increases in hotel valuations over the last few years a novel approach to obtaining marketplace information was implemented by one manager who invited taxi drivers who picked up patrons to return to the hotel for a free drink after finishing their shift. In this way the manager would learn what the patrons had said about the hotel in the taxi (A6) point of sale systems incorporating proximity tags worn by staff to make it easier to identify sales with individual staff members (D1) outsourcing weekly physical stock takes to ensure reliable and accurate inventory reporting, especially for spirits (B6) using a consultant to develop a graphical representation of weekly trading performance by area of activity that area managers found easy to use and interpret, without being overloaded with information (M2) using video monitors through the hotel for cross promotion activities, such as promoting special offers for food, beverage, take-away (P6).

Systems innovations for bar areas included: an example of innovation being introduced by suppliers, namely the conversion of beer cooling systems to glycol reticulation systems that provide improved temperature control and consistent product quality at the tap. This is important as many hotels now have a large range of beers on tap, and glycol systems allow these to be served with a good quality and low wastage, even with low volume of use (A18). In addition, the frosted taps appealed to customers (H5) • the use of a service to provide video clips that were updated every month (D2) to ensure ‘fresh’ entertainment on a continuing basis • running a regular competition for bar staff to name the most number of people in the bar, to encourage staff to improve their interaction with customers (S1). •

Systems innovations for dining included: 20

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS • • • • •

•

•

outsourcing kitchen production activities to a separate business (D3, S4) introducing an approach to serving food that encouraged patrons to share dishes (M4). This involved delivering dishes to the table, and then patrons serving themselves (A6). Besides providing a way to differentiate the dining facility, this approach was a more efficient use of kitchen staff restaurant booking systems (A6, S6) using web-based applications the use of electronic ‘patron pagers’ to let customers know that their meal is ready in a bistro environment (www.unipage.com.au) (S5) changing operations to improve control over the quality and cost of food. Some operators (particularly the groups of hotels) were operating at a scale where they could implement or investigate setting up their own butchering activities to provide consistent quality across the dining areas of their hotels, and to improve their cost control, as well as to source specific types or grades of meat to differentiate their dining operations (A17, B1). One hotel group purchased fruit and vegetables in bulk to improve consistency and reduce the cost of raw materials (B1). The same group also owned a well and supplied its water needs for toilets and decorative water pieces by truck to avoid water restrictions using the standard restaurant order recording and billing system to check how long customers had to wait to be served. This was used to make staff aware of the need to serve customers quickly, particularly at lunchtimes, and to ensure that patrons were given enough time for desserts and coffee, and thus increase revenue per customer (H1) running staff competitions to increase the average sale, and particularly to sell high margin items such as deserts and coffee (M2).

Systems innovations for accommodation included: implementing booking systems for accommodation. For example, one manager maintained an 1800 phone number as a way of maintaining relations with a key group of customers who preferred to speak to an operator, while also using a web-based reservation system (H2) • setting up a hotel so that rooms were sold to investors as serviced apartments, although the manager who had done this said that this was a difficult concept to sell (P5). •

Systems innovations for take-away operations included electronic pricing on the shelves of the bottle shop, to allow prices to be increased late at night (M2), which is a good example of applying yield management to this aspect of the business. Some innovations were identified as being desirable, but not yet feasible. For example, one manager was considering ways in which the hotel might operate without cash, but saw this as an issue for the industry (through the AHA) at the state or national level (S1). Another manager saw the potential for a comprehensive hotel management system that would integrate the various electronic systems that were currently being used, but also saw this as something that would need to be developed on an industry-wide basis (S6).

Barriers to Innovation Very few managers considered that there were no significant barriers or impediments to innovation. Barriers to innovation could be grouped into internal barriers and external barriers, as indicated in the following table and detailed below. Table 3 Barriers to innovation in pubs Internal barriers to innovation Access to resources Staff attitudes and knowledge Time

External barriers to innovation Customer acceptance Competitors Government regulations Local councils Landlords

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Access to resources Typical comments relating to this internal barrier to innovation included ‘one can always be more innovative but you look at it, it’s time and resources’ (A1), and ‘it is always a question of money isn’t it, really’ (A6), and ‘the no-go decision is always financial’ (A14), and ‘cash flow I suppose would be the main thing’ (B2). In particular, one manager’s view was that ‘your business has to be running well so you’re making the bucks and can reinvest back into your business. We’re very much into constant change to keep our customers and patrons happy and keep them interested’ (P4). An older manager considered that it was only their age that was stopping them from being as innovative as they would like (M5). One manager identified a lack of market knowledge as a barrier to innovation; ‘it’s really the research, I think the things that stop you is you have to do your research’ (S5), while another manager identified the lack of access to technology, and as well as money as barriers to innovation (S6).

Staff attitudes and knowledge Staff attitudes and commitment as well as knowledge were regarded by many managers as major internal barriers to innovation; ‘I think the hardest one is the staff thing … we’re limited by our brains’ (B1). Another manager describes himself as ‘a driven person but I need people to pick up the detail behind me’, and identified this as a major impediment to implementing innovation (M2). One manager was working to change staff mindsets by gradually increasing the number of full-time staff; he wanted them to feel ownership of the business and be more committed to developing the business so that he could ‘tap into their ideas, rather than being all my ideas’ (M2). Similarly, one manager said that ‘I would say that would have to be the hardest thing, finding employees who were also innovative. Because you know, we're a team’ (M4), and as another manager said ‘with all the success in the world, people can still go stale. Money will buy you a person; it won't give you commitment or passion’ (S1).

Time Many managers regarded their own time constraints as a major internal barrier to innovation; ‘the hectic pace of business … that whole question of time’ (A1), and ‘the time factor, trying to squeeze in everything we have got to do each week and then getting time to sit down and think’ (D1), ‘my biggest problem is finding time to do it … I think that if you come up with a brilliant idea and rush off immediately with it, and then it may work, but its chance of working is much better if you nurture it and let it mature’ (M2), and ‘the biggest hardship for me about being more innovative is basically time. Time and energy’ (M4). Some managers also recognised that staff needed time to assimilate and then implement change; ‘the innovative ideas are the easiest part, the action is the difficult part and I think it takes six to eight weeks to get a change in the activities of your staff … so you can’t keep banging new stuff on top of them all the time … so you've got to pick which ideas are likely to be the most productive and then you’ve got that six to ten weeks to implement it before you get on to the next one ‘cause you want to form a habit with it … and sometimes you need to have some changes at the top as well as changes at the bottom to achieve a change of mindset, and unique constant pressure on achieving that’ (M2).

Customer acceptance Some managers were aware that they could only innovate within the limits of what the market can support, and had to take account of resistance to change by their target customers as an external barrier to innovation: ‘definitely the public perception of value for money is a constraint … our regular front bar drinkers, they’re very price sensitive nowadays … and if we manipulate prices too much on what I call main value items, your schooner of beer, packets of chips, I all of a sudden find out that there’s fewer people in the bar’ (A17). Similarly, one manager regarded Adelaide as a market where there are fewer sophisticated people than any other major cities, so that generally, the market was considered to be unsophisticated with regard to food and drink trends (A18). As another example, one manager said that ‘gaming is not an option here, we knocked it out for a number of reasons but the biggest and most important is that the clientele here would not warrant it’ (M6).

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Competitors Competitor activity was considered by some managers to restrict innovation, particularly when it took the form of price competition such as the discounting of premium beer brands by Coles and Woolworths (A18). However, it should be noted that most hotel managers saw competition as being a stimulus for innovation.

Government regulations Government legislation and regulations and taxation requirements were the most frequently mentioned external barriers to innovation; ‘it seems to be government legislation requirements and taxation requirements etcetera … just when you go forwards, you get hit with something else’ (A6), and ‘the administrative burden on small business of the introduction of GST, and the additional complexity of running business since then is just outrageous’ (A18), and ‘some of the tax forms we have to fill in for the government, be it state or federal, are ridiculous’ (D6). For example, an overseas innovation that might not comply with regulations was ‘wine angels, where there is a tower of wine bottles and, each staff member was strapped in a harness, with two wires attached to him and he sort of goes up as if he is flying and grabs a bottle and comes down again. Now, that is just a magnificent show, but a WorkCover nightmare’ (A6). In addition, managers were concerned with regulatory uncertainty, and in particular ‘never knowing what the government is going to do … they won’t allow change’ (P4), and ‘red tape is the biggest stoppage in our industry … the latest liquor licensing laws and the non-smoking, it’s just been an absolute headache’ (P6). This was seen to have a big impact not just on the owner but on area managers within the hotel; ‘I know the capabilities of my managers and there is no way that they would be up to working out the minefield that goes with all the (regulatory changes), and it’s changing every day’ (S6). In particular, the responsibilities attached to licensees meant that they had to be very prudent in implementing changes; ‘where it all falls apart at the moment is that, constantly, the publican is now responsible for customers, rather than providing a facility for them, we are now responsible, so, if someone comes in and gets inebriated in this hotel and drives home and has an accident somewhere along the way, I’m responsible’ (A6), or they have to deal with people who drink at home, and ‘this guy went back to the pub, consumed one beer and then had an accident or something, and the licensee is now responsible’ (S6). Similarly, it was considered that police ‘are wanting to see restriction of trading hours … with the limit of resources they’ve got’ (A14). In addition, licensing officials were also seen to be officious and intrusive; ‘the licensing police comes in and says, so tell me, where is this kept, where is that kept, what’s the procedure for this, what’s the procedure for that? And I’m liable’ (S6).

Local councils Local councils were frequently mentioned as external impediments to innovation, particularly regarding the development of physical facilities (A14, M2), and in relation to the organisation of events; ‘I’ve got a good rapport with the local council, but we all know they’re the enemy, you never know what they’re up to’ (M3). For example, one manager mentioned that the local council was very sensitive to residents complaining about noise, so he had to make sure that certain windows were closed if the wind was in the wrong direction (A17), and another manager cited a vexatious neighbour who regularly wrote to the council complaining about noise coming from the hotel (M1), ‘noise is becoming an issue because of the outdoor areas becoming very popular’ (M6). Other managers were concerned at the apparently arbitrary way in which local councils rated commercial properties, which increased operating costs (A18). Another problem in dealing with the local council was the time that it took for development applications to be processed; ‘it’s been two years to get the beer garden through … it’s very time-consuming and it’s just caused due to the council, and their processes. It’s also expensive’ (M6). There were particular problems in obtaining development approvals if the hotel was heritage listed (S1, S6). However, there were managers who considered that they had good relations with their local council (P3, P4). For example, 'my dad has a brilliant relationship with them. And they come up here and eat and we look after them’ (S5), and one mentioned having received valuable support from the AHA in dealing with their local council (S1).

Landlords One of the challenges faced by a number of hotel managers was restrictions imposed by landlords on the development or use of the premises. For example, it took one manager some years to persuade the landlord to invest in developing the facilities, such as developing the kitchens and putting in ladies’ toilets, before the hotel was able to increase its volume of business (B3). 23


Nine Dimensions of Innovation Capability A major purpose of this study was to identify the appropriate dimensions of innovation capability for small general hotels. Unprompted comments or reflections made by interviewees were interpreted by the researcher as identifying resources, capabilities or capacities that underpinned innovation activities, and were coded into 38 categories, using a grounded theory approach. As indicated in the previous section, some comments were considered to be applicable to two or more dimensions, and were coded accordingly. These 38 categories were grouped into nine capability clusters, based on an analysis of the content of each of these categories, as well as on a consideration of the types of innovations implemented in hotels, as well as the barriers to innovation that had been identified (and that are discussed above). Subsequently, the 38 categories were reduced to 34, and the resulting dimensions of innovation capability and their corresponding categories are listed in the following Table 3, and are discussed below. Table 4 Overview of the innovation capability dimensions and categories 1

2

3 4 5

6

7

8 9

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Dimension Environmental Awareness Environmental Awareness Environmental Awareness Environmental Awareness Environmental Awareness Environmental Awareness Environmental Awareness Alliances Alliances Alliances Customer Intelligence Customer Intelligence Experimentation Experimentation Strategy & Planning Strategy & Planning Strategy & Planning Manager Attributes Manager Attributes Manager Attributes Manager Attributes HR & Human Capital HR & Human Capital HR & Human Capital HR & Human Capital HR & Human Capital HR & Human Capital HR & Human Capital HR & Human Capital HR & Human Capital Resource Awareness Resource Awareness Operations Operations

Components (Coding categories) Change Dynamics Competitive Awareness Market Position Knowledge of Trends (Business and Economic) Technology Awareness Knowledge of Regulations Foresight Alliances with Suppliers Alliances with External Organisations Alliances with Other Hotels Customer Knowledge Customer Feedback Proactiveness Experimenting Vision Planning Portfolio Management Leadership Manager Lifestyle Knowledge About The Business Manager General Knowledge Good Staff Job Design Staff Incentives and Motivation Team Culture Team Knowledge Formal Education Formal Skills Training In-house Training Organisation Structure Financial Investment Resource Management Management Systems Good Operations


Environmental awareness Awareness of the dynamics of the external business environment emerged as an important driver of innovation. Hotel managers were intensely aware of the changing trends, regulations and market dynamics, in terms of both industry trends and the direct personal knowledge of competitors. Comments relating to the business environment for the typical hotel were categorised as change dynamics, competitive awareness, market position, knowledge of business and economic trends, technology awareness, knowledge of regulations and foresight, and these are detailed below.

Change dynamics Managers recognised that they were operating in what could be a turbulent environment where things were changing every day, and it took energy to deal with this pace of change (S6). In addition, they always needed to be prepared to expect changes in customer expectations, and these changes needed continuous evaluation (S1). One manager considered that ‘people come to a place because they want to see something different’, and they expect to see ‘something interesting every day’ and that ‘every day is a new day, a shock of the new’ (S5). Another had the view that ‘it's the industry, there is never a day the same’ (H2), and in reference to a previous property, ‘every six months we had to reinvent ourselves and it became very expensive’ (S3). Activities such as trivia nights and promotions were considered to have limited life spans, and needed to be continually renewed (M6). This expectation of change also applied to physical fittings, so that memorabilia in sports bars (P4) and the decor of restaurants (P3) needed to be changed regularly. In some cases, managers recognised that some customers did not want change (H4, H5) and preferred that aspects of the hotels such as its decor, range of drinks, and menu remained unchanged. However, the owner/manager might change these aspects (perhaps incrementally, and over a period of time) in order to satisfy their own personal preference for change, or to extend the appeal of the venue to other and new customer segments. In effect, change dynamics might be based on customer, market and industry trends, or on the preferences of the owner/manager, and perhaps other staff. This means that it is possible for pressures for change and innovation to come from both inside the hotel, as well as from outside.

Competitive awareness Managers were acutely aware of their competitive environment as a driver of innovation, and they could readily name specific competitors and describe their activities, their price levels, their product ranges, the amount of money they were investing in their facilities, and the ways in which each competed. Competitive awareness appeared at different levels. In most cases, competition was seen at the operational or tactical level and in relation to the different areas of operation of the hotel, such as in the area of take-away alcohol or dining. However, some managers also saw competition at the broader policy level such as at the level of regulations, where for example in New South Wales licensed clubs had a strong competitive price position on account of their preferential tax treatment (S1), or the proposed introduction of small bars in Western Australia (P3). A key strategic concern affecting the competitive environment was the entry of large operators into the industry with substantial resources. These included such as Coles and Woolworths, as well as superannuation funds becoming landlords that were ‘prepared to price freeholds on a totally different logic, and so we’re seeing a different business model creep into the industry’, with the prospect of concentration and rationalisation in the industry (A14). Also at the strategic level, some managers described areas in their hotel as competing with the living room of their target customers, and innovated in different ways to achieve this positioning, such as providing friendly areas with board games in a CBD market (S1), providing external play facilities and an inside games room for children in a suburban location (S3), and providing the latest audiovisual facilities and well-designed decor for a sports bar in a suburban location (P4). These were good examples of the application of the idea of ‘the third place’ (Oldenburg 2000), where the managers considered that they were providing social venues in direct competition with what target customers have in their homes, and where they were aware of the need to ‘drag them out of their lounge rooms’ by innovating in their hotel (S1).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS At the operational level, many managers said that they regularly visited competing venues to identify ways in which they could differentiate themselves from these competitors (M3). Innovation was very much generally seen to be driven by the need to be competitive and as the way to retain customers and to get them to spend more on each transaction (S6). It was pointed out that innovation ‘is the only way that we can actually have a point of difference and the only way we can compete with the national chains’ (A1). In particular, continuous innovation was seen to be important because of these competitive pressures (A17, M6). However, competition was seen to vary from one area of the business to the other, and ‘different areas have different competition’ (A18, M4), rather than across the board, or as hotels in general. In the case of the larger hotels, department managers were said to be very familiar with the competition in their own area of activity (A14). What flowed from this good knowledge of competing businesses was an understanding of the reasons why customers would come to their establishment rather than to others. ‘One thing about the hotel trade is you must have a point of difference, and it cannot just be one, it's got to be a few things. And you have got to keep regular clientele … interested all the time’ (M3). In particular, managers accepted that customers (particularly in the CBD) would go to other venues, even if they were regarded as regular customers; in other words, customers had a choice set of hotels that they patronised, as well as other similar venues, such as licensed clubs (S1, S6).

Market position With regard to the positioning of the hotel in the competitive environment, one manager stated that ‘having a fundamentally strong market position’ was one of the things that allowed his business to innovate effectively, and that if the hotel were in a different location with different customers, then different ideas and actions would be needed to give the hotel an appropriate position in that market (S1). One manager expressed the need for a clear understanding of the position of the hotel; it was important not to make ad hoc decisions but ‘it's more where do we sit, and what is best for our business’ (H1). There were different ways of describing a hotel’s market position. For example, one manager described two ways of categorising hotels; activities and events driven (where there is an emphasis on a program of activities), and personality driven—in a more traditional style property (where the) manager there has constantly got his arm around all the ladies and giving them a kiss and a hug and he’s their best friend, and that works well’. His view that was that times were changing and people ‘do not expect now to come to a hotel and have a drink with the owner’ (D5). Another manager observed that ‘the days of the publican just sort of drinking with his customers are well and truly gone. They should be very good business people. It's no different from any other retail’ (P3). Managers frequently described the market position of the hotel in terms of its catchment area. In particular the hotel might be described as a local venue, drawing on the population within a limited catchment area (S3, M2, A7, A8), or as a destination venue, where patrons from a relatively large area were attracted by a particular feature of the hotel, such as its food (M1, M4, A6), its particular location that provided ease of access (M5, B5, H1), its proximity to a distinctive facility, such as a major sporting venue (B6, M6) or entertainment precinct (B5), its entertainment program (S5), or its focus on a particular market segment such as a backpackers hotel (D2). The manager of a small group of hotels described each venue as having its own distinct market position and ‘value proposition’, driven by its local market (D5). Some managers described the market position of their hotel in terms of the business as a whole, for example, by providing a ‘signature offering’ (A17) where the manager considered that the hotel as a whole had a particular style. Examples included Irish pubs (B2, A4, A14), ‘gastro pubs’ with a strong emphasis on food (M1, M3, M4, P3), entertainment hotels (S1, S2), ‘traditional (old-fashioned) Australian pubs’ (D1, A7, B3, H4, D4, P1), a ‘family owned’ hotel (A14, B1, B2), hotels with distinctive decor (S6, A6), and a hotel with a strong environmental (carbon neutral) theme (S4). Other managers described the position of their hotel in terms of their major area of activity, such as accommodation hotels (H1, H2, H3, P5, D3, D6), ‘sports hotels’ where the major activity was the sports bar (P4), and ‘a beer lovers’ hotel with a focus on a wide range of beers (P6). Other managers considered that each of the areas of their hotel had a different market position, and in particular, they said that different areas of the hotel serviced different market segments. For example, it was common for a manager to describe the front bar and gaming (gaming machines, TAB) facilities as being positioned in the local market, whereas facilities such as entertainment (S5), food (M4), and accommodation (H6) made a hotel a destination venue for that particular facility.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Another approach was to describe the positioning in terms of the time of the day. For example, one hotel was described as a local venue during the day, but a backpacker club during the evenings (D2). Despite the different ways of describing the position of their hotel—and some of the positioning descriptions were not consistent, for example where a manager described his hotel as a local venue, while describing a range of destination activities (B2), it was clear that innovation was designed and implemented to support the position that the hotel already occupied in the mind of the target customer, or the position that the manager wanted the hotel to have. For example, one manager in an outer city location said that ‘hotels are so different to running like a bottle shop on its own or a supermarket, because they are personal things. Because people spend four and six hours in a place, three or four times a week, some of them’ (S3). Managers gave examples of changing the market position of the hotel. For example, one manager described how he had transformed the hotel from dispensing beer in the past, to operating as a business with the aim of making money from all areas of its activities, including food, which had traditionally been a loss-making supplement to selling beer (B1). One manager described how he had purchased a hotel in receivership which was operating as ‘a rock 'n' roll venue and it was very much locked into the 70s’, and transformed it into a venue ‘to give people something a bit better than they have in their lounge room at home’ (P4). Similarly, another manager had planned the physical redevelopment of the hotel so that it would be ‘pitched fundamentally as a living room … (we have) the whole sort of feel that you get in your living room’, and to appeal to the large rental population within a six block radius that frequents the hotel in a CBD location (S1). Other examples of change in positioning included the owner of a small group of hotels who had experimented by converting one venue into an Irish pub to see if would successfully attract and retain female customers (A4), and the same innovation had been implemented by the owner manager of an individual hotel (B2). Similarly, some hotels had changed their market position by introducing dress codes (D3, D5, S5), and by experimenting with different styles of entertainment (D1, S5). Many different types of innovation were mentioned to either support or change the position of the hotel, including training staff (H1, S1), changing the physical facilities (A6, S3), as well as the products offered— particularly food (M3) and drinks (P6).

Knowledge of trends (business and economic) Business and economic trends were frequently mentioned in relation to innovation activities. It was clear that managers were very familiar with the general business and economic trends that affected their particular business, and used this knowledge to select and implement innovations in facilities, products and services. Comments are grouped under the key trends that were identified (demographics, social trends, general economic conditions, and international and local events). Some managers referred specifically to the use of ABS data to develop an understanding of the demographic trends in the population in their catchment areas (S1, M3, M4, M6). Others had identified changes in the demographics of their customers by observation; for example, one hotel that had traditionally been patronised by baby boomers was rapidly becoming a ‘blue rinse set’ hotel with major implications for operations and also for profitability (A14). Other managers referred to the shift to denser residential accommodation in their locality, and had changed their facilities and operations to benefit from this (A17, B2, B3, M1, S1, S6), for example by positioning their hotel as ‘the third place’, as an ‘alternative living room’ (S1, P4). Some recognised difficulties arising from this trend in terms of local residents complaining about noise levels due to hotel entertainment (B3, B6) and to hotel patrons leaving late at night (S5). Managers were very aware of trends in food preferences, and this had led to the increasing popularity of the ‘gastro pub’ (M3), as well as the preparedness of customers to share dishes (A6). They were also aware of changing drinking patterns, with the disappearance of the traditional solid drinker in the front bar (M5), and younger people switching to boutique beers and premix alcohols—alcopops that were being increasingly purchased in carton lots (B1, D5), and had responded to meet these changes. Similarly, in the functions area, managers had identified increasing customer demand for ‘real coffee’, and not the traditional brewed coffee (A17, A18), and had asked suppliers to provide the appropriate equipment. Another trend that was mentioned was a concern for security, or a lack of public transport in a particular locality, and that this might deter customers, so managers addressed this by giving their customers a taxi ride home or providing their own van (D3, S3).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Some managers also referred to changes in economic conditions, such as exchange rate fluctuations influencing the number of tourists seeking accommodation, and changes in the general level of business activity that affected the number of business travellers and the duration of their stay in a particular location (H1). Some also noted the effect of social changes on discretionary income, such as mobile phones taking up an increasing part of young people’s income, and this was having an effect on their business (B3). Some managers referred to international events such as terrorism as having an effect on their level of business, particularly in the accommodation area (A17, H1). Similarly, managers recognised the influence of major tourism or sporting events in their region on their level of business (A18, M6), and the resources boom leading to lower unemployment, and a shortage of labour, particularly in Western Australia and the Northern Territory (P3, D6) which had led to the bringing in of hospitality workers from Bali and the Philippines under 457 visas.

Technology awareness Changes in a range of technologies were often mentioned in relation to innovation activities, and managers recognised the importance of keeping up to date with technology that affected their business. Managers considered that customers expect to see the latest technology implemented in a hotel, particularly with regard to entertainment such as sound systems (M2) and video screens (A18, S3, P4), and this was an area of significant investment for hotels. Technology was also used to address noise problems, for example, a sound system that included active noise cancellation to significantly reduce sound levels away from the dance floor (M2). Several hotels had introduced network points, or wireless networks for accommodation customers (P6, H2). Technology also played an important role in providing security, and hotels were generally equipped with video surveillance systems (B6), and some had introduced their own systems to record the identity of customers in entertainment venues (B1). A number of hotels had developed websites (S4) that were used in varying degrees to promote the venue and specific activities. Similarly, several hotels used email circulation lists to promote their activities and special offers (M1, S2) to a database of customers that was very often linked to a loyalty card (A1, B3). Some hotels sent group SMS messages to customers who had applied for this service (B3). Several accommodation hotels have their own website for accommodation bookings and also used third-party services such as Wotif (H1, H5). Systems innovation resulting from developments in information technology presented a range of challenges. A number of managers were concerned by the lack of linkages between reporting systems and loyalty card systems, and some had developed their own systems (A1, B3, H5) or were investigating the possibility of having data system development and data processing carried out in India.

Knowledge of regulations This is a highly regulated industry, particularly in the areas of serving liquor, food handling, gaming, noise generation, as well as the physical development of facilities (A1). Managers pointed out that when thinking through or planning innovation, it was most important to try to anticipate possible unintended consequences due to regulatory constraints, such as public liability arising from the misuse of facilities, perhaps by drunken patrons falling into a decorative water piece (A6). Understanding ‘your regulatory requirement and your responsibilities within it’ was regarded as one of the major issues influencing strategy and operational decision-making (D5). Examples of constant change in the regulations in the space of only a few years including random breath testing, the availability of low alcohol beer, controls on gaming, anti-smoking provisions; ‘all you've got to do is keep coming and keep coming up with innovative things’ in response to these external changes (S4). Hotel managers have to deal with a number of regulatory bodies in the area of liquor licensing, gaming regulation, food handling, environmental protection, as well as with local councils and police (A17). Managers frequently referred to the complexity of regulations applying to hotels, and the time required to deal with these, as well as the implications of regulations for staff training and management. They also referred to difficulties in keeping up with constant changes in regulations (D5, M1), that affected not only the operations of the hotel, but also affected the competitive environment such as by allowing large liquor take-away outlets to open on Sundays in Western Australia (P6).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Although regulations were frequently identified as a barrier to innovation, some managers responded in innovative ways to these external constraints. For example, in New South Wales, licensed clubs are permitted to have more gaming machines than hotels, and they operate with a very favourable state and federal tax regime that gives them a significant cost advantage over hotels. However, a number of hotel managers considered that they competed very effectively by innovating in terms of their products, their customer service, and their attention to customer needs (S1, S3). Similarly, drink-driving regulations led one outer suburban hotel to offer its patrons a free mini bus pickup and return service (S3). In a similar vein, a small group of hotels that had a well on one of its properties dealt with water restrictions by trucking water to its venues to supply water pieces as well as toilets (B1). A major issue at the time that the survey was carried out was the introduction of smoking bans, and the requirement to provide smoking areas to particular specifications. Although this was generally seen as a positive change, dealing with the regulations was seen as an expensive exercise. A number of managers often commented that they had difficulties in dealing with local councils with regard to obtaining permits for the organisation of outdoor events, noise issues, building development and car parking, as well as food handling (A14). However, some managers said that they generally had good relations with the local council, and that it was important for them to develop good relations with key council staff (D5). Overall, managers considered that knowledge of regulations was a central requirement to successfully implementing change, together with knowledge of the customer (D5).

Foresight A number of hotel managers stated that a requirement for implementing innovation is the ability to imagine the future of the business (S1). This foresight can be applied at the strategic as well as the operational level. At the strategic level, it was important for the hotel manager to understand the implications of the actions of major industry players such as Coles and Woolworths, in order to identify innovative ways to compete in the longer term with these larger operators (S1). Another example is that some managers considered it important to envision the future of the business in the context of its local community, to identify innovative services to continue to bring in customers, by making the hotel a centre for the community (S1). One manager suggested that such future perspectives could be developed for the next 10 and 20 years, to guide the development of the business (S3). At the operational level, an innovative idea might seem attractive at first, but might have public liability consequences, such as a decorative water piece that might be misused by a drunken patron (A6). Similarly, one of the outcomes of a forced change such as a ban on smoking might be that the smell of beer would no longer be masked by cigarette smells, and this would require carpets and furnishings to be cleaned more often (S4). Another example was that an outcome of a regulatory change to reduce the operating time of gaming machines had the effect of increasing turnover and profitability, and this had been predicted by the industry (A17).

Alliances In the innovation literature, alliances are argued to be an important source of innovation capabilities, by providing access to knowledge and resources. In particular, in the pursuit of innovative activity and competitive advantage, firms must understand and exploit the advantage offered by its structural and relational position in the network (Gulati 1998). Some hotel managers mentioned a limited range of alliances, such as with suppliers, with other external agencies, and with other hotels, and their comments are summarised below.

Alliances with suppliers Suppliers are generally recognised as an important source of innovation ideas for businesses in most industries, and particularly for small business, and a number of hotel managers mentioned ‘relations with suppliers’ in relation to innovation activities.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS The owner manager of a small group of hotels identified the importance of partnering with suppliers in the areas of drinks, gaming and food, and said that building and managing these relationships took a fair amount of time (A14). At a basic level, suppliers were identified as the source of different ways of presenting coffee, to replace Perspex coffee pots stewing on a hot plate (A17). At another level, major breweries would from time to time organise focus discussion groups of leading hotel operators from across the country (B1). Some hotel managers described how suppliers would support them in competing directly with Coles and Woolworths, on the basis that suppliers did not want to be stuck with just two major customers (B1). Another activity provided by suppliers were in-house training courses for staff serving beverages (D2). Examples of innovation introduced by suppliers were the glycol cooling system for beer lines, as well as new lines of beverages such as premixed drinks. Promotional activities were the most usual way in which managers worked with these suppliers of drinks, gaming and food, and these suppliers would provide printed promotional materials for local distribution (B3), offer product at reduced prices, and provide either promotional staff for special events or direct financial support for a promotion (B2). The owner of a small group of hotels mentioned the importance of coordinating promotional activities across the group, so that conflicts between suppliers would be avoided, and that each supplier would get good results for their promotions. The same manager said that suppliers were attracted to the venues that do things well, and would support them because they saw that the manager was doing things well (D5). One manager mentioned the importance of tracking the effectiveness of these promotions (M1). One manager mentioned his refusal to promote certain products in his venue (as he considered that they did not fit his desired image and market position), despite requests from suppliers (B2). Alliances were also mentioned in relation to suppliers of services to the industry, such as financial and hotel management consultants (M2, B6, S3, S5), accommodation booking services (H1, H2, D6), tourism authorities (H5, D6), and event organisers to promote entertainment (S4, S5). Some managers considered that relations with suppliers could be developed in more innovative ways. For example, one manager described how a major supplier implemented a customer satisfaction monitoring service using a mystery shopper approach, and he had organised to have that monitoring service check all areas of his hotel to provide information for his management staff (M2). Another manager described his attempt to have the supplier of the point-of-sale system to interface with a customer relationship management system, but without success (B3).

Alliances with external organisations A number of managers mentioned their relationships with a range of external organisations, and particularly with community groups, in relation to innovation activities. Many hotels sponsored community groups (such as sports clubs and special-interest groups), both through in-kind support (such as providing facilities for meetings) and through direct financial sponsorship (A15, A17, B2, D5, P6). This seemed to be more of an activity for suburban and regional hotels. For example some suburban hotels said that they sponsored 70 to 80 local groups with a total annual sponsorship budget of over $100 000, and had been doing this for several years (B3, D5). One manager said that it would be useful to have a standard protocol or checklist for dealing with community groups (P4). Many hotels were involved with local chambers of commerce or traders associations. This might be through direct involvement by the manager as a member (A17, S4, M3, B1, B3), or by hosting meetings of groups such as Rotary, Lions or Apex. All managers interviewed were members of the state branch of their industry association, the AHA. In Victoria, several hotel managers referred to the ‘pubs, pots and profit’ workshops that were organised by the AHA primarily for regional hotels, with contributions from individual hotel managers, suppliers, and the AHA. In general, managers considered that it was important to be involved with the AHA, and particularly to be informed of regulatory changes (B3). Some hotel managers outsourced their kitchen operations (D3, S4), and one manager was looking at setting up an outsourced 24 hour liquor delivery service (M2), while another was considering setting up alternative food retail outlets, such as a pizza bar, as part of his hotel, with the operations most likely outsourced (S3). Another form of alliance was with local traders. For example, one manager said that they referred take-away customers to a local liquor outlet, as they had a minimal take-away operation (S6), and another hotel that does not offer accommodation provides food and drinks to customers of a nearby motel (M2). Some managers referred to relationships that they had built with local real estate agents (S1, M6). For example, one real estate agent was recruited to bring new rental customers into a hotel, by offering the customer a reduced price meal together with the agent. 30

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Alliances with other hotels One form of alliance with other hotels was knowledge sharing, for example through the AHA, and its various groups and subgroups. This gave managers a forum for discussing common problems, such as regulations and staff attraction and retention (S1, S6, M6). It was considered that there was scope for building this type of activity to disseminate ideas for innovation in order to compete more effectively against the major groups (A6, D1). Some managers had their own personal network of other hotel managers, including direct competitors, and said that they had regular informal lunchtime meetings at each other's premises (A6, M3, M4). Managers described how a number of hotels had banded together to form a liquor buying group to achieve the same buying and advertising power, to compete more effectively with Coles and Woolworths (B5, D4) in the area of take-away liquor. However, there was a view that there are limits to discussing innovation with other hotel managers because people are very protective of innovative ideas (A6). Some managers said that they had tried to get hotels as well as restaurants and cafés in their local area to promote the area to increase everyone's business, but these attempts were said to have very limited success (M3, B2, B3), as managers felt that they had their hands full running their own hotel, let alone worrying about working with other hotels (S6). Nevertheless, one manager referred to meetings of a local area ‘liquor accord’ for all licensed premises, and these were venues for learning about regulations and the way that they were policed (S6).

Customer intelligence The choices that service organisations make regarding the types of products to offer and the ways in which to deliver them are often driven primarily by the market (Lovelock 2001, p. 216). This proposition in the literature was supported by the number of references that hotel managers made to the importance of having knowledge of customer preferences and behaviours, and the need to be guided by customer feedback, when talking about their innovation activities. ‘At the end of the day they’re the people you have got to keep happy because they’re the people that are coming in every day. They are coming for a reason, so what makes them come more, what makes and spend another $50? What makes them stay at four o'clock instead of going home like they normally do, or going over to a nearby club?’ (D1). ‘I think just increasingly you need to understand your customers better than anything else. That's the key’ (D5). These statements capture very clearly the need for good customer knowledge to support change and innovation in the hotel to build its business by attracting and retaining customers in a competitive environment. The observations of hotel managers are discussed under the headings of customer knowledge and customer feedback.

Customer knowledge A major characteristic of the services sector is that services are created and delivered at the point of contact between the customer and the service provider. For this reason, hotel managers were very tuned into their customers and had developed a good understanding of customer needs and behaviours in order to be able to innovate appropriately to meet customer needs (A6, B1). Innovation was seeing as supporting and enhancing ‘the base formula of what you are trying to achieve, which is essentially how are you going to attract clientele to come here on a regular basis’ (A6). Knowledge of the customers meant knowledge of the different customer segments and sub-segments. For example, managers were able to categorise ‘gaming customers’ as professional players and as younger players, with each having their own preferences regarding gaming machines (A17). That is, it was considered important to recognise differences within the groups of customers in order to manage the operations to respond to their needs. At the same time, some managers understood that some segments of their customers, such as entertainment customers, did not necessarily wish to mix with others, such as local and gaming customers (S5, M4). It was also said to be important to develop a good knowledge of community groups (sporting, dance, church, school and other interest groups, by building continuing relationships with them (P4). Customer knowledge was identified as important for making decisions relating to physical facilities and decor (A14, S3), smoking facilities (S5), range and types of food (S1, D4), dress codes (D3, S5), entertainment (D4, S5), and the quality of coffee provided to recreational cyclists on the weekends (M4). For example, the manager of an accommodation hotel offered very limited food facilities, because he was located near an area with several restaurants, and knew that his customers preferred to eat out (H1).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Customer knowledge was also important in identifying ways to achieve revenue objectives, by increasing the average value of each transaction, such as trading the customer up to a larger glass of beer (S2), getting the customer to stay longer by providing cable television channels (S3) and by designing the facility to encourage customers to move easily from one area to another (S4), and by getting the customer to bring their family by providing indoor and outdoor play facilities for children (S3, P4). Similarly, managers displayed good knowledge of customer behaviour when they described the ways in which they competed against the major groups, particularly in the area of take-away liquor where for example, they focused on supplying ranges not carried by the major groups, all by focusing on smaller pack sizes or individual bottles of beer (M2, S3). Many managers mentioned the need to take into account customer behaviours and preferences when discussing changes they were making to respond to anti-smoking provisions (D1). Some managers noted that customer expectations and needs were not always rational, but they needed to be responded to in any case, such as the provision of network facilities in an accommodation hotel, even though only a very small number of customers used this (H1). In addition, some managers observed that customers’ knowledge was limited, and they needed to be introduced to innovation, such as new styles of serving food (M1, A6), or technological innovations such as swipe card controls for lifts (H1), and that they needed to put an effort into educating or training customers to accept these innovations. Customer knowledge was also important at the strategic level, for example in the process of carrying out due diligence before buying a hotel (S4). As another example, some managers described how they had designed their hotels to be more attractive to female customers by making an effort to identify their needs and respond to them by making the hotel ‘clean, safe and friendly’ (A4, B3, P6). Knowledge of the customer was gained in a wide range of ways. The most frequently mentioned was personal contact between the manager and customers, followed by personal contact between customers and staff who would pass on that knowledge to the manager (S5, S6). In particular, it was said that managers need to put their own needs behind those of the customer; they need to have the ‘humility’ to be able to deal with all types of customers, and give them the time to talk, regardless of whether or not managers feel like doing this (S1). Some managers pointed out the need to be proactive, and to make an effort to talk to customers to find out what they wanted and then respond accordingly (D1). In particular, it was said that it was important to engage customers to get good quality feedback, and in particular to make them ‘feel that they are participating’, and that they are ‘part of the family’ (S1). Some managers described how they systematically used ABS data for the catchment area to develop the profile of their customers (S1, S5), but supplemented this information by talking to their customers to understand their motivations and behaviours (S2). Another way of learning about customers was to use a loyalty card system and set up a database of customers (B3, A1, S2).

Customer feedback Customer feedback is an important part of innovation implementation, as it is the mechanism for ensuring the appropriateness of innovation activity, as well as its effectiveness and contribution to the business. For example, managers knew that they had to be prepared to take a risk when introducing change, and also to be prepared to correct mistakes immediately, based on customer response (A14). Some managers said that they relied on customer feedback to identify changes to be made, and they sought feedback by using a range of methods such as to ‘manage by walking around’, and to listen to what customers and staff were saying (H1). The most frequently referred to mechanism for obtaining customer feedback was through the manager or staff talking to customers and eliciting their comments (P4). This was sometimes seen as an aspect of building customer relations and in some cases was perceived explicitly as an aspect of best practice in quality control (S1). Customer feedback was not always verbal or written, for example, it was sometimes described as a happy looking customer with a smile on their face (S4). This means that the manager needs to be sensitive to customer behaviour and look for a range of ways to monitor customer satisfaction (S4). Some managers organised drink sessions for regular customers in order to get feedback (H2). One hotel manager offered free drinks to taxi drivers at the end of their shifts to obtain their feedback on comments made by patrons (A3)—this was also an effective way of promoting the venue to taxi drivers and so encouraging word-of-mouth promotion.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS There were not many mentions of formal mechanisms to obtain customer feedback (such as market surveys carried out by an independent consultant). Several hotels had customer feedback forms on their bars, or on dining tables (A6) or in accommodation rooms (H1), although these were not regarded as very useful (M1, P3). Some managers said that the best customer feedback is the number of people in the venue, or attending an event, as this was taken to show that the hotel was meeting its customers’ expectations (D1, P6). Similarly, one manager considered that there were some types of change or innovation whose effectiveness was measured by the absence of comments, because ‘if it is working happily, no one says anything’ (H1). This absence of the use of formal customer feedback raises some concerns, especially as it appeared that some managers were prepared to take action (involving spending a significant amount of money) on the basis of comments or suggestions made by a friend of a friend, but did not think of asking a small sample of customers to check whether the information was accurate (B2).

Experimentation Innovation implies taking changes, anticipating the conditions and a proactive approach. One manager summarised it as ‘If you’re proactive you can innovate. You’ve got a business plan, you understand where you need to be, where you’re going and you can apply different strategies, methods and technologies to deliver. If you’re reactive it makes it incredibly difficult’ (S1). Such proactiveness is associated with experimenting. Experiments involve new initiatives, which the hotel managers took on at a risk, then modified or abandoned as necessary. Such experiments spanned a wide range of activities, including strategic initiatives, marketing and advertising tactics and modifications of product offering. Comments by managers are summarised under the headings of proactiveness and experimenting.

Proactiveness A number of managers saw that a proactive approach to their market was a key requirement for innovation, and this was associated with a preparedness to continually renew the business: ‘if you are proactive you can innovate … after really sitting down and looking at the figures and honestly evaluating us, (I decided) we can do better here’ (S1). Being proactive was also associated with having a competitive view of the business ‘I just keep doing the things that I am doing and try and just keep on ahead of the pack … I don't want to be reactionary’ (S3), and one manager said that their aim was ‘to enhance, to keep raising the level, to be a front runner in what I can offer my clients. And in terms of product, in terms of food service, beverage products, food service, ambience, atmosphere, entertainment’ (S6). Some managers had the view that being proactive was taking the initiative and getting out and doing things, for example ‘getting out there and walking around and finding businesses … proactive is everything in here’, and in this case to build up a database of corporate customers (S4). Some managers regarded their hotels (in outer metropolitan areas) as a community facility, and provided facilities such as fruit and vegetable shops and pizza outlets where they saw that these were missing in the locality (M2, S3). With regard to physical facilities, the same manager expressed the view that ‘the time to spend money on your business is when you're making it. Because when you’re not making it you can’t afford it … it’s like a sand dune, you’re three steps up and you come back a couple’ (B1). Some managers described the ways in which they were proactive in relation to regulations. A very frequently mentioned context was in dealing with smoking regulations, where a number of managers had anticipated the regulations, and had already made appropriate changes to their facilities. One manager had implemented their own system to record ID cards of patrons attending entertainment areas in order to make it easier for police to catch people causing problems; ‘I’m ahead of them (the police), we try and put out bushfires before they start … we’re sort of ahead, well we’re trying to be ahead all of the time’ (B1).

Experimenting Experimenting was very much associated with innovation. As one manager explained, ‘we are in a revolving door. All you have got to do is keep coming and keep coming up with innovative things … in the hospitality industry, you come across a lot of things, you trial it and see how it goes … you are not going to win at everything’ (S4).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Experimenting means taking action, assessing the outcome and deciding on further action. Managers acknowledged that there were risks attached to any change, and that it was important to continue to adjust changes very quickly: ‘we’re not afraid to change if we make mistakes, we change immediately. If we do something wrong, we don't try and persevere, we change it straight back and we'll do that even if it means cost’ (A14), and ‘I might wake up tomorrow and decide that, you know, I really want to try this … some things work, some things don't’ (M3). On the other hand, some managers said that it was important to be persistent and to keep trying variations of an activity or change if at first it did not work, although it was important to plan and to assess the risk associated with the change as best as possible (S5). Experiments were related to the marketplace and anticipated demand (based on customer knowledge), taking into account the competitive environment, as well as the experience and knowledge of the hotel manager (S3). Managers also said that it was necessary to recognise that what might work in one hotel might not work in another, and that this is important to bear in mind when hotel managers get ideas from other venues (S1). Specific examples of experimenting included the introduction of breakfasts for gaming customers, and then modifying the offering by improving the quality and changing the price level to attract a different market segment and increase the overall size of that business (B1). Another food experiment was to introduce a specialist food line, such as offal, and to promote this through a special menu once a month that was advertised through local food magazines (M4). Another experiment was to make wine by the glass available for almost every bottle of wine on the wine list, and this increased sales significantly (D6). One manager took a large financial risk by investing in sound and light equipment to attract a new type of audience for the entertainment side of the business (B2). One manager with a loyalty card system was experimenting in communicating with customers by using SMS messages, email, and post to identify the most effective method (B3). One manager described how they tried karaoke, and tailored it successfully according to the needs of their particular market segment, even though the manager said that they could not stand karaoke; this illustrates that managers should not be constrained by their own preferences in experimenting with activities that customers might like (D1). At the organisational level, managers also mentioned trying out different types of staff incentive schemes to support recruitment and motivation (S6). Managers also experimented in their approach to competing, as they saw that they would learn from the exercise: ‘we'll experiment for a year on that and we'll be prepared to lose money in that department, but we're not going to back away and we’ll get smarter’ (B1). Having access to more than one venue was seen as being very useful; the owner of a small group of hotels acknowledged that he could experiment with improvements in one location before introducing changes to the other venues (H5).

Strategy and planning Managers frequently associated their comments on innovation activities with having a longer-term vision for their hotel, and with more operational strategic aspects such as planning and managing a portfolio of business activities. Each of these aspects are detailed below.

Vision Innovation was implicitly seen to be guided by a broad view of the hotel of the future, and this was expressed in terms of financial survival and a theme for the future. Some managers’ vision of the future for their hotel was couched simply in terms of the survival of the business in financial terms. For example, some saw the hotel as a vehicle for benefiting from ‘the opportunities that flow from having such a diverse target market and a high disposable spend in this area’, and profiting from a young local population starting their professional careers (D5). Another manager considered that his hotel was highly adapted to catering for his local CBD market, and estimated that ‘of the 18 pubs around us, six will close in the next 10 years; there will have to be some rationalisation’ (S1).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS However, most managers gave a vision for the future that was expressed in terms of a particular theme for the hotel or type of activity. In some cases, managers saw innovation being guided by a simple vision to continue to do ‘more of the same’, such as to be the leading hotel in that particular locality; ‘the place to be and the place to be seen at’ (D1), or simply as being more specialised in serving the existing major customer segment (D2), and to ‘continue to keep raising the bar’ in all areas of the hotel's activity (S6). Other managers based their vision on what they had seen elsewhere; ‘I wanted a gastro pub, we had lived in London and that's when I got the idea of what I wanted to do’ (M4). Another manager considered that their hotel with a more traditional decor catered for people who are not attracted by ‘slick bars and stainless steel bars and music and lighting and state-of-the-art this, and state-of-the-art that’ (S6). There were some managers who said that they had a very personal vision for their hotel; ‘when I bought this pub five years ago, to renovate it, I had a concept of where it needed to be, where it was and where it needed to go … I think it is an innovation in itself, to identify what target market you’re catering to and then successfully transform the hotel from what it was to what it is’ (D5). There were some managers who had a more elaborated view of their vision for the business. For example, one manager considered that ‘the innovation that we're going to have to come up with, is to constantly evolve the hotel industry into a one-stop entertainment venue’ that caters for all demographics, ‘and to offer them more reasons to come to the venue other than the two staples that hotels always depended on, which is food and drink’ (A6). One manager said that ‘people come to a place because they want to see something different. If I came here every day, I want to see something that is happening here every day’, and this was the driver for continuous innovation (S5). A number of managers saw that more and more the hotel should become a real community facility (B1), ‘a social interaction place, an airport of dreams really, like people come in and get in contact with things … (in) a threat free environment’ (B3). For example, one manager described it as having ‘very much a focus on the community, it is where people went when they were happy, when that was sad, when they had problems’ (A6). Another manager described the vision for the hotel as ‘somewhere that everyone can come to meet … (because) it's a nice place, and real good staff, you know, and you are treated well … which is difficult when you have got that really diverse crowd’ (D3).

Planning Planning was mentioned in relation to a range of innovations. For example: • in relation to dealing with external agencies, in particular local councils (M6), and to regulatory bodies, such as in relation to liquor licensing, where changes in trading conditions generally requiring a long lead time (P6), and in relation to smoking regulations (B3) • in relation to the development of physical facilities, in terms of making sure that the different components of the hotel would work together effectively in terms of layout (A6, B3), style (S1), and decor (P3), and recognising that priorities were required, and that not everything could be done at once (B1) • in the context of planning specific activities or promotional programs, where attention to detail and anticipating consequences was critical, such as for Australia Day activities (D1), a Halloween procession that involved local traders (B3), and making a hotel carbon neutral, which required a complete audit of all carbon generating activities including staff travel, and the number of cigarettes sold (S4). Some managers referred to specific aspects of the formal planning process, such as carrying out a SWOT analysis for their business (S3), analysing the demographics of their catchment area using ABS data (S1, M4, D5), carrying out a competitor analysis (H1, D4), preparing a marketing plan (M2), and carrying out a risk analysis; ‘it's good to take a risk, but you should research your risks’ (S5). There were references to formal risk assessments where ‘in terms of implementation of change, the risk is always considered, and first and foremost the financial risk’ (H2). One manager described how ‘we sat probably for two years doing market research … so we had a very clear idea, not only where the market stood at that time, but where we thought the market would be ten years later’ (S1). A number of managers referred to planning in more informal terms in relation to the continuing development of the business; ‘I do try to think about my business, and plan ahead’ (S1), and ‘you have to get the resources, you have to get the idea together, get the plan, add the capital to it’ (B3). Other managers said that they did not have long-term plans, but made improvements on a continuing basis, guided by suggestions made by customers (H2), although it appeared that this was done in the context of an overall vision for the hotel.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Some managers referred to planning as a continuing exercise ‘well, you have got to keep thinking the whole time’ (M5).

Portfolio management In a number of cases, hotel managers mentioned that having a good ‘business mix’ (S6) conferred real benefits in supporting innovation activities. For example, ‘if we're having a bad week in accommodation and we’re having a great week in food, well one will help the other’ (B1), and ‘I wouldn't like to be running a stand-alone restaurant … With food, we can get a lot of people but we’ve got gaming, we’ve got the booze to subsidise’ (B2). In the case of individual hotels, all managers could talk about the revenue streams of different areas of activity, and in the case of a larger hotel these included front bar, dining, bistro, functions, take-away/bottle shop, accommodation, gaming, cocktail bar, and entertainment (A17). Managers generally recognised that different activities were likely to have very different target markets, such as old-style patrons in the front bar, and younger and more trendy customers in the bistro or entertainment areas (S5, M1), and the challenge was to identify the markets for each area of business, and then cater for their different needs (D5). Some managers also recognised that staffing requirements were different in each area of business. For example, one manager who regarded staff development and utilisation to be important for his business, said that staff from the gaming area would not be deployed in the rest of the hotel—the gaming area, which was a local activity, had a completely separate entrance off the street and was not used by accommodation and food patrons, who were destination customers (H1). The implications for innovation are that profitable areas can cross-subsidise others, and fund innovation in other areas, such as moving a bottle shop upmarket to compete with discounters (P6). This gives the hotel a sounder base for innovation than a single function business such as a restaurant. It also gives the hotel far more areas for possible innovation, which gives it resilience in responding to environmental trends including changes in customer preferences. It also opens the possibility for cross-selling, such as using video displays, as a way of increasing revenue per customer (M2, P6), as well as the possibility of transforming areas, such as a drive-in bottle shop that was affected by competitive discounting being converted into a more profitable dining area (M5).

Manager attributes The strategy and vision of the business, and specific innovation activities were strongly influenced by the managers’ personal characteristics, and these were identified in terms of leadership, lifestyle, knowledge about the business, and general knowledge.

Leadership Those being interviewed were owner/managers of their hotels, and there was a general view that innovation in their business depended very much on the leadership that they provided; ‘because at the end of the day the buck's gotta stop at somebody ... in regard to the look and feel, the tone and manner of the staff, the menus and that sort of thing. In our situation that's dictated by the owner’ (A14). Similarly, one owner/manager said ‘well it is my business, that's the defining factor isn't it’ (M4), and another manager who was very passionate about changes he had made in the hotel said: ‘it's basically me, it's input from the key people, and driven by myself mostly’ (P4). There was a view that innovation relied on the owner/manager’s inherent capabilities; ‘innovative people are naturally innovative. I mean they do it instinctively, I don't think they think they're innovative, they just are’ (A14). Another said that ‘it is my problem to motivate my key staff, and it flows down from there. The greatest gift I can give them is my time’ (S1). Similarly, several owner managers showed that they were very passionate about their business and about the job, and this was expressed in different ways, such as ‘the business totally needs to be driven’ (S6), and ‘I really believe in what I was doing’ (S5). However, they recognised that reliance on the manager to provide drive and initiative resulted in occasional problems in delegation, and delays in implementation (A14). In a small group of hotels, the manager said that he ‘calls the tune in respect of the food and beverage and gaming’ (A18). In another group of hotels, the manager saw his role as being ‘the eyes and ears’ of the owners (B1). In another group, the owner sees his managers daily, but was said to give them ‘great latitude’ in the day to day running of the business, although he ‘obviously makes the big decisions, or the decisions after we start up’ (D3).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS In a larger hotel, the manager saw his role as being to ‘map out a little bit of a strategic plan’, allocate specific objectives for each area, and get staff to develop operational plans and implement them (A17). One owner/manager considered that his job was largely to deal with external stakeholders, such as the council, the police and the neighbours, and that his staff ‘know more about the people who drink and are entertained here than what I do … and I encourage them to be innovative, motivated … (and I) get them to go to innovation, to motivation shows’ (P6). Similarly, one manager saw that it was important for staff to feel ownership of the business in order to be innovative, and one of his major challenges was to find a way of achieving this (S2). One owner/manager considered that his major role was to be ‘on the floor managing the pub, managing the patrons. Everyone knows me, as soon as I'm on the floor the whole pub changes, it's just that we know the crowd, I know them all’, with the implication that the flavour of the business depended on him (B2). Similarly, another manager considered that he was ‘the face of the pub, and people that walk in ask for me’ (S2). However, other managers were happy to keep in the background, so that they ‘can walk around here at any given time and people won't know who the manager is’ (D1). In another instance, the manager saw their role as providing guidelines for staff and then encouraging them to implement activities and small changes in line with their own personalities (H1). Similarly, another owner/manager said that ‘I try not to micro manage’ (S3), and another manager considered that it was important to develop leadership among staff, both to engage them more in their work, and to implement innovation within their own area (B3). One manager considered that leadership was identifying and responding to customer needs; ‘I am not the boss, I believe that everyone who comes here is the boss. I'm just the bloke who tries to make it run, and hang on to something in the end’ (M3).

Manager lifestyle Innovation in hotels also appeared to be linked to the degree to which the owner manager was engaged with the business. In particular, the manager had a responsibility to run the business as a business, and had to put in the time that was necessary to identify, plan and implement innovation activities (S1). One of the constraints on the manager's lifestyle is the long hours of operation, combined with the degree to which a manager can delegate responsibilities (A17), and many managers saw their role as being 24 hours a day, seven days a week with continuous distractions (B3). It is therefore a very absorbing and time-consuming occupation (D1), that was seen to present challenges in balancing a home life with managing and building the business (M1, M4, M6), and some managers had bought hotels in quieter locations to enjoy the lifestyle without so much pressure (S3, A8). The traditional role of the hotel manager was that of a key person in the local community. This can still be the case, and recognition by local residents and traders can make this an enjoyable occupation for the right sort of person, who was most likely to be a ‘people person’ (S1, B2, M1, M5, S5). This person was very likely to be passionate about the business, and hold the view that it was the manager's personal touch in bringing in changes and innovation that made the hotel special, as far as customers were concerned. It is interesting that some managers of hotels that were regarded in the trade as being particularly innovative were also engaged in other entrepreneurial ventures, such as property development and cattle ranching (A17, B1), or had interests in other hotels (P4, D6, D4), or had devised novel ways of providing insurance cover (M2).

Knowledge about the business This was clearly seen to be a pre-requisite for innovation activities. All of the managers interviewed demonstrated a comprehensive knowledge of their business, particularly at the operational level, and could talk with confidence about any operational aspects with a very good level of detail. They were familiar with staffing arrangements, cost structures, regulations, the competitive environment, their customer segments, key business trends, and to be able to anticipate the impact of external events such as staff shortages, price discounting, and changes in regulations, and in particular the effect of changes on the profitability of the different areas of the hotel. In summary, they were effective managers of their small businesses, and appeared to be well equipped to manage change and innovation. Many managers considered that one of their challenges was to get their staff, and particularly the area managers, to also develop an enquiring mind and to develop their knowledge of the business as a whole in order to be able to more effectively support innovation and change (S2).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Manager general knowledge Because the owner/manager played an important leadership role in the business, innovation relied very much on the personal knowledge and background of the manager, and this had an influence on the way that they saw and operated the business. Managers frequently drew on their own personal experience in other hotels in planning and implementing innovations (D1, H1). However, they had to be sensitive to the nature of the hotel. For example, the manager of a larger hotel described his background as being in ‘social destination’ hotels, rather than his current hotel which is more local, and more family oriented, and this meant that he had ideas that he thought might ‘be too much of a drastic change’ for his new workplace (A17). The owner of a small group of hotels relied very much on the managers of his individual venues having good local knowledge of trends and conditions that would affect their particular business. In effect, the owner/manager needs to have a good personal understanding of what is happening around the business and is likely to affect the business, in order to be able to make the right decisions for innovation management as well as for operational management. In effect, the more (general) knowledge that the manager holds, the better they are able to innovate (A18). Similarly, some managers also recognised that it was not just enough for them to have their own personal knowledge, but they need to pass it on to other staff in their business, so that those people can use that knowledge to support innovation to respond to changes in the business (S1, S6). Many of the managers demonstrated an enquiring mind by relating how they continuously look for ideas in other industry sectors, in overseas hotels and from other people in the industry (B2, M3, M4), as well as from industry associations such as the AHA (S1). Others mentioned how they learnt from their own experience in trying things out (D1, H5), for example by drawing on experience in the retail sector (S3). One manager captured this approach with the comment ‘I never stop learning’ (P6). The manager’s personal interests also played a role. For example, a manager with a background in dining had refocused his hotel on food (M3), and a manager who was passionate about sport had developed a very elaborate sports bar in his hotel (P4).

HR and human capital Hotels can be categorised as ‘people processing services’, where customers need to be physically present during service delivery so that they can receive the benefits that they are seeking (Lovelock 2001, p. 39). This means that the benefits that customers receive depend very much on personal interaction between the customer and the business, and in particular between the customer and staff. Almost all the hotel managers emphasised the importance of good staff to support innovation activities. Having good staff was identified as ‘your backbone in the service industry’ (M4). One remarked that ‘the greatest innovation you can have in a pub I think is actually having staff who genuinely know things and care. Because that tells me, come back’ (S1). This aspect of a hotel's activities is discussed in terms of good staff, job design, staff incentives and motivation, team culture, team knowledge, formal education, formal skills training, in-house training, and organisation structure.

Good staff ‘Good staff and good training’ were very often mentioned as requirements to support innovation, on the basis that ‘if you have bad staff, you have no customers’ (S4, S1, A14). Managers saw that it was largely up to the staff member to make sure that the customers stay once they walk into the hotel, and that they are retained as a customer (S1, D1). Several managers consider that it was the staff that differentiated the business from their competitors (A17), and considered that ‘each of our staff members is critical to our operation’ (P5). Getting ‘good staff’ was seen as an increasing problem with low unemployment levels (S5). The challenge was to get the right staff in the first place by selecting on the basis of the perceived fit with the job, as well as to give them appropriate training (S4). In addition, managers were very concerned to look after their ‘core staff’, who were generally their department managers, and to find ways (including profit sharing) to reduce turnover amongst that group (S6). Almost universally, managers said that they recruited staff primarily on the basis of their personality ‘their people skills and enthusiasm’ (M5), and their communication skills (S4), ‘warm, welcoming sort of people’ (M1), and their likely fit with the customer segment and with the market position of the hotel (D1). In addition, managers believed that it was better to hire someone without experience as long as they were the right person who was ‘happy in themselves’ (S3), and then train them for the job (S1).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Job design A number of managers said that they were seeking ways to redesign jobs so that staff would be firstly retained, and then motivated, to contribute to innovation and change in the hotel, as well as to its continuing operations. For example, the manager of an accommodation hotel had observed that staff that appeared to be not performing well were, in his assessment, doing jobs that were not well designed. He changed duties, removed paperwork, and moved staff around according to the level of activity in different parts of the hotel. In particular, the manager observed that it was easier to find and recruit backroom staff, than people with good customer service skills, so he simplified the roles of front-line staff so that they could focus on serving the customer, and transferred administrative work to support staff (H1). Another consideration was retention of management staff by changing their job requirements, particularly to take account of the long working hours in the hospitality sector; ‘we are trying now to get a grip on the situation where we can say to our people, we can sort of tailor a job for your lifestyle’ (B1, S3). One manager observed that it was better to hire people with the right profile, and ‘we have been prepared to change the job description in order to fit the applicant’, and that he applied this principle to internal promotions as well (H2). Another approach to job design was to multi-skill staff, for example by giving give bar and dining staff training across the customer service areas of the hotel so that they could be deployed across the business. However, kitchen staff were considered to be a breed apart, and it was said that they could not be managed in the same way (M5).

Staff incentives and motivation Staff incentives operated at different levels, individual performance, staff retention, and also (but less frequently) in relation to innovation. Some managers recognised that staff contact with customers gave them the chance to identify opportunities to innovate, and that they should be encouraged to do this. One manager in particular, said that staff are ‘assets in your business from open to close. And if you are constantly working them, you are surprised how much it can improve your business’ (S1). Another manager considered that it was important to ‘train your staff up, to get them to go to innovation, to motivation shows … I encourage them to be innovative, motivated’ (P6). Another manager organised for his area managers to visit other venues to get new ideas (P3). Another consideration was to encourage management staff to develop a sense of ownership of the business, and in this way encourage them to think about how they could improve the business; ‘we want them to … not own the business, but have ownership to the business, and be more committed’ (M2). Approaches that were mentioned included sharing departmental performance information, and having staff rather than managers run team meetings (M2), giving area managers spending limits for their area (A17), redesigning jobs to reduce paperwork (B1, H1), providing extra training (B2), giving area managers a financial stake in the business or a measure of profit-sharing (D5, P4), encouraging staff to try out their ideas and to make mistakes (H1), and providing incentives outside the business such as gym membership (S2), or free holidays at a property owned by the manager (B2). Managers also recognised that motivating staff was a continuing process; ‘everyone is enthusiastic about what they are doing, but every now and then you can see it sort of ebbing off and it's time to do some training or take people out’ (M4).

Team culture Managers recognised it was their responsibility to implement the systems, processes and training required to build a culture so that staff would be receptive to new ideas (A1, S1). In addition, some managers recognised that their area managers needed to be encouraged to be more autonomous in their decision-making to achieve their results and to implement change (A17), while still keeping a measure of control over the business (D5). This was considered to be a challenging balancing act, and in most hotels, staff had only limited discretion to innovate on their own, for example in finding solutions to specific problems; ‘certain staff members would probably be happy enough to fix the problem, but generally the instruction was to refer to management’ (H5, M5). However, another manager considered that they did not have time to do everything; ‘I am training them and I have would hope that they take a lot of problems on board and solve them themselves. I think you have to do that because otherwise I would be here all the time’ (M4).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Managers were very concerned to employ the right mix of people to build and maintain the right culture. As one manager said ‘people attract people in this business … if we are having problems it's generally because we have kept in employment the wrong people for too long, which can be a disincentive for others who want to work here. “I am not working with that idiot”… It really changes the whole culture of the venue quite quickly by having the wrong people employed there’ (D5). Another challenge in developing an appropriate team culture was to encourage ‘Generation Y’ employees to be engaged in the business, and especially to encourage them to work in a more innovative and enterprising manner (B2, S1). One approach for building a culture supporting innovation was to operate the different areas of the hotel as far as possible as ‘independent business units … with relatively small staff and a fairly close and consistent team’ (H1). Another approach was to ‘be open to everything and ask a lot of questions … I like my staff to think that I am part of the team and we're all a team … So it is like, you are part of the team, we'll look after you’ (M3). Similarly, another manager said that staff ‘need to be mindful of the opportunities. At any time, they are able to bring those ideas forward. No one person has all the ideas. We work as a management team, so it's discussed at management level and then if there is a change that needs to be made, then it's made as a team’ (P4). Other approaches included regular staff meetings to review performance and discuss plans (M4), and one manager pointed out that they ‘take a great responsibility on board to make sure that they are not left to feel that they are operating in a bubble … I certainly take on their opinions’ (S6). Managers recognised the difference between a hotel that was driven by the manager's personality, and hence had a culture that was based around that person (D5), and a hotel that was driven by activities and events, and where the manager's personal style played a less important role (S5).

Team Knowledge Most managers commented that they cannot be good at everything, and that they had to rely on knowledge held by individual staff, and particularly by their management team, in order to innovate effectively. This applied particularly in specialist areas such as information technology; ‘certainly I take the lead from a management team, with regard to what is necessary with computer systems’ (A6). Managers also recognised that they have to rely on others in managing customers. Teams therefore need a good level of customer knowledge and understanding, and it takes an effort to build and maintain that knowledge so that staff can form their own views about what changes need to be made (S1), as well as provide customer feedback to the manager, and to the other members of the management team (P4). In addition, managers understood that their staff were engaged with the business several hours a day, and therefore had the operational knowledge to identify possible problems as well as possible solutions; ‘my management guys are all very active, they're all operational … and if I know what is going on in their minds then I can address it’ (H1), ‘I think you've got to have an array of people that you can work with. I think you need as much information as you can get, as many expert opinions as you can get’ (D4). Similarly, ‘at any time they are able to bring those ideas forward. No one person has all the ideas, so it's a team game’ (P4). Managers tapped into team knowledge through regular management meetings, but more often through informal meetings on a one-to-one basis, through management by walking around (H5), and through frequent communication; ‘I also feel that I have a responsibility to my staff, to keep information sharing. Information sharing is probably the biggest challenge that I have, keeping them abreast’ (S6).

Formal education During the discussions relating to innovation, there were not very many references to formal post-secondary education, principally TAFE or VET courses. In general, managers did not appear to have a very high regard for formal education, and tended to prefer to recruit staff without qualifications, but with the right attitude and manner. Formal education was seen as being appropriate for management staff (rather than operational or front-line staff), particularly financial education (S1), although most managers had learnt about the business on the job and many did not have formal post secondary qualifications. Some managers thought that post secondary marketing and entrepreneurship courses would have value for managers to help them be more innovative and enterprising (D3), and that these gave knowledge and skills that could be transferred to any industry (M4). One manager was sponsoring an office staff member to complete a direct marketing diploma offered by ADMA, as that was seen to be directly relevant to the hotel’s programs for building relationships with its customers (B3).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Formal skills training Staff need to be trained to do their jobs properly, and to have a basis of knowledge from which they could innovate. However, formal skills training was generally not referred to in a very positive manner. This is a very highly regulated industry, and staff need to be appropriately trained so that they know what the regulations prescribe, particularly in the areas of gaming, serving alcohol, first aid and industrial relations; ‘obviously, there is some formal training that needs to take place if you operate gaming machines, and that's done externally. Then there is some formal training that needs to take place if you are in a position of responsibility and serving alcohol, and that's all external. Then, when we deal with stuff like industrial relations and procedural changes that are going to affect the business, well then, we use external for that’ (A14). Most references to formal skills training (delivered by appropriate organisations, including the AHA) related to these areas, although formal skills training was also identified as being important for kitchen staff (H5). In general, managers tended to make disparaging comments regarding the quality of formal skills training by TAFE or VET; ‘in all honesty I don't think there is a lot of good training systems for our industry … it does not help when the state government here just removed Certificate II subsidy for the kids, you know’ (A14). Many managers preferred to recruit front-line staff on the basis of their manner and attitudes, and then provide on-thejob training so that they could handle the technical aspects of their work; ‘how to pour a beer or how to greet a customer, no, we do that on site … I prefer them not to have training a lot of the time. Just have the right attitude’ (B1). ‘While they've got a bit of paper, it does not necessarily mean they've got the skills to do the job’ (H1). ‘If there were two people sitting here that I was interviewing for a bar job, and one of them had training, it would not be a major plus for that person you know, I think the training providers are reasonably poor’ (H5). ‘You know, you can read it till you are blue in the face, but until you actually touch food and see it, or make the cocktail, it's all theory; and it is inadequate for the level of service we want to offer. And the only way we can offer that is by doing it ourselves’ (M1). One concern was that ‘private providers are only producing people to think that they can go out to be general managers or certainly line managers, and management level without having to do the hard yards’ (S6). A small number of managers had set up their own training courses (A4), generally using external training providers. For example, the manager of a small group of hotels said that ‘we contacted an external training provider, to just help us get a Certificate III in General Business Management off the ground … so that we can have subjects that are really specifically related to this business’ (A17). Another manager collaborated with TAFE to put together a housekeeping course, and use this as a way to both recruit and retain staff (H2). Another manager took part in a trainee program ‘where they get kids off the street and give them 12 months training in different venues … and to be honest, they’re kids that are hopeless, but there is a problem in trained staff in our industry’ (M1). Some managers organised specific training for their staff that was delivered by suppliers. For example, Diageo conducted ‘appreciation of liquor courses’ (D2), and breweries ran courses and brewery tours for staff (M4).

In-house training Although there were reservations about formal skills training delivered by external organisations, there was general recognition that staff had to be properly trained in order to support innovation (S4), as well as to be as productive as possible, in as short a time as possible (P6). This was training in the operations of the particular business (A1), so that staff could answer basic questions about the menu, drinks, activities and so on without having to refer to other staff (S4). In particular, there was concern that staff (particularly supervisory staff) should have the skills to operate across all areas of the business (A1). In-house training is prevalent in the sector. Businesses tend to prefer in-house training that includes on-thejob mentoring as well as more formal in-house sessions, very often run by the manager or a member of their family or staff with the right experience (S1, M3, M2). In particular, managers considered that a lot of the training required was fairly low-level and straightforward and could easily be delivered by a more experienced person, largely on-the-job (S3, S4). However, some managers considered that their business was too small to be able to properly train people in-house (H5). Because of the importance of the interaction between staff and customers in this service sector, some managers considered that the learning that takes place in a hotel is learning about life, and something that every young person should experience (S3). 41

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Organisation structure One manager summarised the importance of having the right organisation structure ‘if you're going to deliver innovation you've got to have a structure that can do it’, in terms of having effective lines of responsibility and channels of communication to motivate and inform staff (S1). In general, these hotels had simple organisation structures and operated on the basis of a ‘core staff’, with a mix of full-time and part-time area managers that was supplemented with a relatively large number of casual staff. This meant that communication between the manager and area managers was simple, direct and frequent; ‘it is not particularly formal but whenever something comes up it's vigorously debated and we look into all sorts of different options … we go and find some ideas out, bring them back and see which ones stack up … and this also creates a bit of inbuilt innovation’ (H2). However, it was also considered that the large number of casual staff made it a challenge to fully engage them in the business and involve them in innovation activities (S1, P4) A number of managers said that they had leased their food facilities, so that food production was outsourced, but food and drink service was carried out by the hotel (S4, D2), and this was described as being a trend in the industry (S6). Owner/managers of hotel groups or of larger hotels had more formal organisation structures and reporting systems, simply on account of the size of their businesses (A17, B1), and were very concerned to develop a sense of ownership among staff across the business in order to support change and innovation (B2).

Resource awareness Managers were very aware of the resources necessary to achieve competitiveness and innovation. Innovation may be expensive, and in a competitive environment the business needs to have the resources to be able to invest in continuous innovation. This can then become a treadmill, soaking up cash flow and profits. The fact that innovations can be imitated and routinised presented an important challenge for the managers—‘we’d all love to go through there with a magic wand, but the magic wand would cost about fifteen million dollars just to get it done right, and by the time you actually do that, you’re dated, because there’s someone else that’s done it two weeks after’ (A17). In particular, innovative physical facilities took many resources, and return on such investments was inexorably a factor in the decision-making processes. As one manager put it, ‘my million dollar rebuild isn’t worth one cent without extra people coming through the door’ (M2). Resources are considered in terms of financial investment, and resource management.

Financial investment Managers could talk with a great level of detail about the value of their assets, and these included financial details of operations including revenue, profit and gross margin for each area (S1), investment in gaming machines, for example of $215 000 per machine in Queensland (B2), entertainment equipment such as video displays (S3), kitchen and dining facilities (B3, M3), accommodation (H1, B1), and staff development and training (A17). In particular, managers were very aware of the very high prices that were being paid for hotels, particularly by the major chains, and the challenge of getting a return from those levels of investment (A17). They were also very aware of the large investments being made in the sector to improve and upgrade physical facilities (A18), and that this was mainly being driven by the competitive environment. In effect, this had created a vicious circle, where managers felt that they had to invest heavily to upgrade their facilities because others were doing so (S3). In states where hotels had gaming machines, managers recognised that it was very largely the cash flow from gaming machines that allowed them to invest in upgrading facilities (A14). Changing regulations were also another important reason for financial investment in the business, and this included the provision of smoking areas, as well as soundproofing of entertainment venues (B1). Managers were also intensely aware of the need to have the financial resources to support a good level of operations, and specific activities were described in terms of the amount of money spent on the activity, and the return that was generally measured in dollars (D1). In addition, several managers identified limited investment ability as a major barrier to innovation (D3).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Resource management The managers interviewed were very aware of the importance of managing their resources effectively in order to ensure the good performance of the hotel, as well as to effectively implement changes and innovations. In particular, managers were well aware that the resource mix in a hotel had an impact on its need to innovate, as well as its ability to innovate. For example, one manager's view was that the high cash flow and profit from gaming covered shortcomings in other areas of the hotel, and removed the need to innovate; ‘gaming, it dumbs everything down … and there's a lack of need to be innovative’ (A14). Managers saw the value of having flexibility in their physical facilities, so that they could change the use of different areas, for example to accommodate alternately individual dining, grouped dining, formal functions and conference presentations (M3, M5). Managers recognised the aspects of their hotel that differentiated it from others, and supported its particular market position, and they identified the need to keep developing and upgrading those aspects. For example, the manager of a dining-oriented hotel said; ‘we spend a lot of money on decorations and we move things around, so it's fresh the whole time. It's very expensive, but each year, we change completely’ (P3). The manager of a sports-oriented hotel said that the decor was continually renewed to support its image and market position, and video equipment was regularly upgraded (P4). A growing area of activity was the development of databases as marketing resources to improve communications with customers, to promote specific activities and in general to build and strengthen relations with customers (B3). A trend in resource management was the use of outsourcing of certain activities, including food preparation (D2, S4) and inventory control of liquor stocks (B6).

Operations It was considered important to manage ‘mainstream’ activities efficiently and profitably in order to support ‘innovation’ activities. In particular, many managers saw that the right management systems and good operations were requirements for innovation.

Management systems It was considered that innovation requires having the appropriate management systems in place, and some managers defined innovation in terms of having those systems, and in particular planning and reporting systems ranging from five-year plans down to weekly plans (S1). Managers generally had industry standard financial reporting software that produced area reports on a daily or weekly basis as required (B1, D1), but some managers use them in innovative ways, such as charting results to make them easier for area managers to understand and respond to (M2), or to track how much time customers spent in the dining room and how much money they spent, with the aim of identifying ways of selling more items (H1). In particular, managers generally measured the results of innovation activities on the basis of the number of transactions or on the basis of revenue generated, and relied on their reporting systems to generate these results (B1). The manager of a small group of hotels had set up a benchmarking system to allow area managers to compare their performance with the other areas across the group (A14). There was increasing use of computerised systems to manage customer relationship management programs, such as loyalty cards (A1, A3, B3, P3), and newsletters (S2, P6), and an intranet system for linking the reporting systems of a small group of hotels (A1). The manager of an accommodation hotel described how the HR systems had been reviewed to decrease staff turnover using a range of approaches including AWAs (H1), and the manager of a small group of hotels described how they had developed a program of moving staff between different properties and different areas to build their skills and capabilities and to encourage exchange of information and ideas (A1).

Good operations Good and professional management of the day-to-day operations of the hotel was identified specifically as a requirement for supporting constant change and innovation. In the words of one manager, supporting continuous innovation required ‘good staff and good training. Cold beer cold, and hot food hot. It's just knowing your business and knowing who your customer is. Don't get into a business that you don't know’ (S4). In other words, managers appreciated the need to ensure that the ‘basics’ of their business worked well. These basics also included cleanliness, from the customer's point of view, as well to meet health requirements (S4), as well as purchasing, particularly of food, to ensure portion as well as quality control (again, to meet customer needs) (B1). 43

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Good operations included documented ‘house rules’ policies and procedures (M4, B6), and good work organisation to avoid possible problems with customers (A17), and to achieve operating efficiencies (cost reduction) as well as for reasons of personal pride (S1, H1, B1). Several managers described their comprehensive reporting systems that gave them daily or weekly reports on each area of operations (A17, M2). Some managers had the view that good operations was seen to be primarily based on building a core of staff, and ensuring that these people were very familiar with the operations (S1, D1). They also described HR management systems to retain staff as well as to motivate them, for example, by allocating hours to staff in such a way as to keep the number of staff as constant as possible to reduce staff turnover (H1, H2). Another aspect that was mentioned was the need to make sure that innovation activities are properly implemented (B3, H1). In this context, the manager of an outer city hotel emphasised the importance of having ‘a good core’ of operations, to make sure that the basic things worked well, and that without these it was very difficult to implement changes and innovation (D1). Although quality control was referred to occasionally, this appeared generally to be done in an informal way, for example where the manager would rate the quality of meals for example on a scale from one to 10, or simply through ‘management by walking around’ (B1).

Entrepreneurship and the Dimensions of Entrepreneurial Orientation Hotel owner/managers were asked to give their own definition of the term ‘entrepreneurship’, and the descriptions of innovative activities were examined to identify the degree to which they showed aspects of entrepreneurship, and also the extent to which they revealed the dimensions of entrepreneurial orientation. Overall, this study demonstrated that there was a generally good understanding of the term entrepreneurship, and a number of hotel managers considered that a business (as distinct from an individual) could be entrepreneurial. The study confirmed the validity of the dimensions of the entrepreneurial orientation construct, that is, innovativeness, competitiveness, risk-taking, proactiveness, and autonomy.

How hotel managers defined ‘entrepreneurship’ ‘Entrepreneurship’ can be most usefully defined as the process of identifying business opportunities, recognising their value, and finding and organising the resources that are necessary to turn the opportunity into a profitable business activity. This is inherent in the Stevenson and Jarillo (1990) definition cited above and elaborated by Timmons (2007). All of these aspects were identified across the interviews, although there were few managers who could give a definition entirely consistent with the literature. Although most could identify only one or two elements, it can be concluded that those interviewed had a generally good understanding of the meaning of entrepreneurship. Some managers were practicing entrepreneurs, in that they were engaged in other ventures, such as property development and cattle ranching (A17, B1), or had interests in other hotels (P4, D6, D4), or had devised novel ways of providing insurance cover (M2). A number of those interviewed expressed entrepreneurship simply in terms of opportunity recognition. For example, several described entrepreneurship as to ‘pick up on opportunities’ (B3, D5), which requires the ability to, or ‘identifies an improvement’ (H2). Others expressed entrepreneurship in terms of creativity, in terms such as ‘management flair’ (A1), or the ability to ‘think laterally ... and being able to visualise’ (A6), or having ‘the vision and the money too’ (D4), or being able to ‘see things that other people don’t’ (P4), or have the ability to ‘think outside the square’ (B1, D3). Some saw entrepreneurship in terms of generating profit; such as ‘investing money with the chance of improving your return’ (M2).

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Risk was the other term that was frequently included in people's definitions (M1, M4). For example, an entrepreneur needed to be ‘prepared to take a risk’, to be ‘not afraid of criticism … and not afraid of being a tall poppy’ (S1). Associated with the perception of risk was the need for commitment, for example ‘it's just the willingness to do it … you've got to commit, and you've got to see it through’ (A14), and ‘really try to make a go of something’ (B2), or ‘get out and have a go’ (M5), and ‘getting out there and trialling things that other people are a bit scared to’ (S4). In particular, the entrepreneur was considered to have drive ‘very focused and very success driven, high achievers’ (M5). Some saw entrepreneurship in terms of the process, such as ‘someone who is able to attract some capital to a well thought out project that's got a passing chance of surviving’ (B3), or as ‘taking something new and making it your own and making it successful’ (D1), or as ‘someone that's been very successful with their ideas’ (D2), or ‘someone that is very business minded, as well as thinking outside the square’ (D3), or as ‘making wholesale change and developing whole new markets’ (H1), and ‘an entrepreneur is someone who gets up and has a go, and builds a business’ (M3), and ‘putting ideas into action’ (P3), and ‘to make things happen’ (P4), and ‘commence a business from nothing, take it through the operational stage, potentially selling it’ (P5), and ‘continually grow that business’ (M6). An entrepreneur was also described as a person who is ‘striving for a better way to conduct the business’ (S4), while a smaller number interpreted entrepreneurship as the act of ‘creating or starting a new business’ (S5). However, there were some managers who did not like the term entrepreneur because of the negative connotations, such as ‘cowboys’ (D6, M1). Associated with this were the observations that there is a stigma attached to failing, such that ‘the mob delight in eating you alive when you do fail’ (S1). A number of managers considered that the business could be entrepreneurial. For example one manager said ‘I can be replaced … sometimes now the business is taking on (running) itself’ (S5), and ‘I think that is a good way for a business to operate’ (P4), and that a business could have an entrepreneurial culture (D5), and ‘a business is made up of people … and if they have those qualities of creativity and budget consciousness … then it could be an entrepreneurial company’ (D3). ‘Businesses have to be entrepreneurial to stay alive’ (D1). ‘It's hard to pigeonhole one person as being responsible for group success’ (B2). However, others considered that a small business such as a hotel had to be driven by an individual, so that the business itself could not be entrepreneurial (S6, S1, P3): ‘it’s the people that give the place a life’ (B1).

Dimensions of entrepreneurial orientation (EO) Although entrepreneurial orientation studies have been carried out in a number of industries, including the hotel sector, one of the aims of this research was to confirm the dimensions of entrepreneurial orientation for small hotels. Overall, the results, which are summarised below, confirm that the generally accepted dimensions of EO are applicable in this sector.

Innovativeness as a dimension of EO Innovation was a staple for these hotels, and it spanned a wide range of areas including physical facilities, products and services, as well as systems. A detailed discussion of innovativeness is covered in other parts of this report.

Competitiveness as a dimension of EO Innovative hoteliers were very aware of the intensity of competition in their geographical area (suburban) and this led them to invest in new facilities and in upgrading, to keep up with similar investments in hotels in their area (A18). They demonstrated knowledge of trends and non-traditional avenues of competitions. Competitiveness was seen to be associated with entrepreneurial approaches, and was interpreted in terms of making money (A6). A recurrent theme of competitiveness was about price competition with larger chains including Woolworths and Coles. Different hotels took different approaches—some emphasising service (M1) and innovation (M2), while others doing head on price competition (A18). Many hotels also undertook efforts to get information about the external environment and competition, and the competitiveness extended beyond price competition. Some even gathered information on HR policies of competitors and differentiate accordingly. For example, one manager remarked ‘Coles—I look at that as a positive thing on our behalf, they tend to change managers all the time, they change their staff all the time, there's a big question mark on their stability within and locally in the community’ (M6). Another manager shared ‘if you're going to be competitive you can't be paying double the rates so what you’ve got to do is make certain they're more competitive than your competitor’s staff, that’s not easy but we're slowly getting there ‘cause I share all that information with them so they’ve got some 45

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS ownership and the last 6 months I've actually let them run all the meetings themselves’ (M6). Such empowerment also reflected autonomy as a dimension of EO.

Risk taking as a dimension of EO Innovative hotels that allowed autonomy for their employees also were willing to take risks to innovate. For example, one owner remarked, ‘We actually allow people to make mistakes; we actually take the view that the person that never makes a mistake is probably the one that’s not doing anything’ (A1). One manager accepted that there was a risk attached to any changes, such as food and facilities, and the important thing was to correct any errors as quickly as possible to make sure that customer needs were met (A14). Some operators recognise that things do not always work, and changes sometimes do not get traction, and it is better to just leave them, whereas some changes (such as changing the facility) can bring immediate positive results (A18).

Proactiveness as a dimension of EO Proactiveness was identified as a driver for innovation—‘If you’re proactive you can innovate’ (S1). Yet, many saw it as being responsive to changing environments and being flexible. For example, one manager remarked ‘So we’ve got to make our places so we can change in the situation very quickly’ (M5). Many managers also showed reactivity to changing regulations (A1). Some were proactive in investing in new systems to the point where they obtained R&D tax concessions, and registered patents and trademarks (A1). Some undertook special activities and promotions and showed willingness to change on feedback. ‘I think we're very proactive. I think we plan ahead, we try and go out on the side in a lot of cases, we definitely take a few risks on the way’ (M6).

Autonomy as a dimension of EO One manager remarked that ‘the other necessary component of innovation is having the people that are controlling the money behind you, very happy to let you go and do it. And more importantly as a credit to them, to have the say in something that they don’t necessarily see the merits of, but are happy to go with your judgment’ (A6). Some owners gave the managers autonomy within the boundaries of the owner’s vision for the hotel (A14), and some worked with the proactive employee to get the good results (A17). Some managers also looked at employee empowerment as a tool of attracting and retaining good employees, which also gave the employees greater autonomy. ‘I share all that information with them so they’ve got some ownership and the last six months I've actually let them run all the meetings themselves’ (M2). However, in the case of a small group of hotels, one operator stated that they expected their venue managers to manage their business rather than just supervise it, and the role of head office was to support their activities, as long as local decisions complied with the general direction, and with the expected return on the business. At the same time, however, group managers were aware of the relative inexperience of their venue managers, so were reluctant to give them too much autonomy in favour of more direct control by far more experienced central managers. In other words, autonomy seemed to be relatively limited (A1).

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Chapter 5

SUMMARY OF FINDINGS This report covers the first stage in a project to investigate and identify the appropriate dimensions of innovation capability for general hotels, and to confirm the dimensions of entrepreneurial orientation for these businesses. The research described in this report was designed to explore the key types and areas of innovation in general hotels, and the barriers holding back innovation, and to investigate the key characteristics of hotel strategy and operations that were associated with innovation and entrepreneurial activities across the whole business. The first finding of the research was that the dimensions of innovation capability that have been developed through empirical studies in the manufacturing sector could not simply be applied to this type of business. This exploratory research then adopted a grounded theory approach to categorise the comments made by the hotel owner/managers who were interviewed about their innovation activities. This approach resulted in 34 categories of statements relating to innovation that were then clustered into nine dimensions of innovation capability. This clustering was based on an examination of statements in each category, and took into account the types of innovation identified, as well of the barriers to innovation that were identified in the study. This report includes a significant amount of detail to give readers an appreciation of the richness of innovation activities that are implemented in these businesses, as well as to provide an extensive source of information for the next stage of this research project, which is the development of a questionnaire to be implemented in a national study of these hotels. • • • •

The following questions were explored in this research, and the findings are summarised below: What are the key types and areas of innovation in general hotels? What are the barriers holding back innovation? What are the dimensions and characteristics of innovation capability in general hotels? What are the dimensions of entrepreneurial orientation in general hotels?

Innovation Activities in Hotels The owner/managers who were interviewed in this study had been selected on the basis that they were considered to be innovative members of the Australian Hotels Association in each state. Perhaps for this reason, they described a very wide range of innovation activities, and provided a very rich database. The major motivations for innovation were to differentiate the hotel from competitors, to respond to perceived customer preferences and trends, and business and economic trends, and to comply with changes in regulations (such as no smoking inside hotels). There were few innovations that could be classified as transformational or resulting in a different business activity, such as adding retail outlets such as pizza outlets or greengrocers, making the hotel ‘carbon neutral’, or developing the hotel as a ‘the third place’ centre for social activity. The very large majority of innovations were to improve the delivery of the core activities of the hotel (public bar, dining, accommodation, take-away, entertainment, gaming). Changes or upgrades to physical facilities was the most frequently cited area of innovation, and this had been supported by the growth in pub businesses before the recession, and in particular by cash flow from gaming. Innovations in this area ranged from complete refurbishments to the installation of facilities such as ladies toilets and change tables for babies, to the redesign of different areas of the hotel to appeal to different target customer segments, and the provision of smoking areas. Constant change was seen to be necessary to attract and retain customers.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS Product innovations concerned primarily food, as this was an area over which the hotel had a large measure of control. Food was an area that many hotels had developed in order to differentiate themselves, and to provide a profit centre. Food innovation took the form of more refined and varied menus, which in some cases became the focus of the hotel (the ‘gastro pub’) and served to attract generally older and more affluent customers. Beverage innovations were much more limited, and relied largely on suppliers. Hotels also innovated in the supplementary services that supported their core activities. For example, many hotels implement loyalty card programs, some accommodation hotels provide a ‘club room’, and most hotels run entertainment programs on most nights of the week, but run innovative events on special occasions, such as Australia Day, New Year's Eve. Innovation in the operating systems of these hotels included implementing a ‘carbon neutral’ status, outsourcing stocktaking and kitchen production, serving food on a ‘table share’ basis, introducing web-based restaurant booking systems, and setting up their own butchering activities.

Barriers to Innovation Very few managers considered that there were no significant barriers or impediments to innovation. Access to resources in the form of capital or cash flow and market knowledge was one of the more significant internal barriers to innovation. Other internal barriers included staff attitudes and knowledge, with some managers considering that one of their greatest challenges was to find staff who would be committed to the business and support innovation and change enthusiastically. The other internal barrier was time, such as the limited number of hours that the manager had to sit down and think about the business and to manage innovation adequately, and the time that staff need to assimilate and implement change properly. External barriers to innovation included customer resistance to change, particularly in relation to changes in prices of main value items such as beer and chips, competition from larger players in the market such as Coles and Woolworths, and in particular government regulations that always seem to be changing and affect almost every aspect of the hotel’s operation, as well as local councils in relation to issues such as noise and building developments, and the reluctance of landlords to invest in the property.

Nine Dimensions of Innovation Capability This study identified nine broad dimensions of innovation capability. 1. Environmental awareness underpinned a great deal of innovation decision making, and this included an understanding of the change dynamics as market and business conditions appear to be changing every day, such that activities and physical facilities need to be renewed on a continuing basis. Understanding the competition was essential, as one of the major purposes for innovation was to differentiate the hotel from its competitors, and it was clear that hotel managers were all very well informed about their competitors and put a great deal of effort into knowing their activities, so that they could be better at attracting and retaining customers. Associated with this was the need to have a clear understanding of the market position of the hotel, and there were many different ways of describing market position, including destination and local pubs, ‘gastro pubs’, and sports bars. Managers implemented many different types of innovation to support or change the market position of their hotel. Familiarity with business and economic as well as technology trends were also important in innovation planning and implementation, and some managers put a great deal of effort into analysing secondary information about their business environment such as ABS statistics, as well as experimenting with web-based communications systems to build relations with customers. Knowledge of regulations was critical in relation to innovation, on account of this being a very highly regulated industry, and it was clear that managers spent a great deal of their time dealing with regulations although they were finding that constant changes in regulations, as well as the number of different regulatory bodies they had to deal with, made it very difficult for them to keep up, and made it hard for their staff to be familiar with all the relevant regulations. Regulations affected innovation at the operational level through controls over areas of activity such as the serving of alcohol, gaming operations, occupational health and safety, and food safety. Regulations also affected innovation at the strategic level, for example by the introduction of smoking regulations. Managers also needed to have foresight and to be able to imagine the future of the business, and in particular to be able to anticipate the likely impact of innovation both at the strategic and operational levels. 48

INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS 2. Alliances support innovation by providing access to resources as well as to markets. Alliances with suppliers provided access to new types of equipment, to new product lines, to marketplace information, to promotional support and resources, and to financial, management, and promotional expertise. A number of hotels had relationships with local business associations, and with community groups (mainly through sponsorships) that provided access to markets, as well as with local traders such as real estate agents. Alliances with other hotels was primarily through their industry association (the AHA), although some hotels had banded together to form a liquor group to increase their buying and advertising power. 3. Customer intelligence guided most innovation activities, as is the case for most service businesses. This is built up largely through personal contact between the manager and staff and customers, and includes knowledge of the different customer segments and sub-segments of the hotel, and of their motivations and preferences. These were important inputs into decision-making at both the strategic level (such as redevelopment of the hotel) and operational levels (such as finding innovative ways to increase revenue and profit yield per customer). Customer feedback was important for assessing the impact of innovations, and this was mainly obtained by informal means with the manager or staff talking to customers and eliciting their comments. 4. Experimentation involved taking a proactive approach, and to take the initiative in finding opportunities to implement change to refresh and renew the business. In particular, some managers appeared to be very proactive (and innovative) in relation to regulations. Experimenting was also very much associated with innovation, and many managers experimented with a wide range of activities such as introducing unusual food lines, testing different forms of electronic communication with customers, and trying different types of staff incentive schemes. 5. Strategy and planning provided the context for many innovation activities. A number of managers were guided by the vision for the business which was expressed variously in terms of financial survival, or in terms of doing more of the same but doing it much better, or in terms of a specific vision of a place for social interaction (‘the third place’). Implementing innovation also required planning, particularly for dealing with agencies such as local councils and regulatory bodies, such as for the development of physical facilities, and as well as for promotional programs. Innovation planning and implementation was also facilitated by hotels having a good ‘business mix’ that provide revenue and cash flow across the different areas of activities. In particular, this allowed profitable areas to fund innovation in other areas, as well as to allow the possibility of cross selling. 6. Manager attributes played an important role, given the nature of these owner/manager operated businesses. Many managers considered that innovation relied very much on their leadership in providing a direction for the business, as well as determining its style, and were concerned to motivate their staff to help to implement innovations appropriately. Another important aspect was the manager's lifestyle, and particularly their preparedness to put in the hours that were needed to manage the daily operations of their small business, as well as to allocate time to innovation activities. In addition, the manager needed to rely on their knowledge of the business (which was generally very good indeed), and on their general knowledge of the industry and of the business and economic environment to identify, develop, and implement innovation activities. 7. HR & Human Capital is necessary for innovation implementation in this personal services sector. Good staff was frequently cited as an important requirement for innovation, as customer retention depends to a very large extent on hotel staff. In this regard, it was considered that ‘good people skills’ was the major factor when recruiting staff, rather than training or experience. Job design was an important way to ensure that staff were used effectively in supporting innovation activities, as were incentives and motivation, where one of the key aims was to encourage staff to develop a sense of ownership of the business and in this way encourage them to think about how they could improve the business. A good team culture was considered important for supporting innovation, and this was supported by information sharing, particularly to develop good team knowledge about the business so that staff would be in a position to take the initiative in identifying problems and possible solutions. Formal training was not considered to play an important role except to a limited degree at the management level, and although it was recognised that staff needed to be trained to carry out their work, formal training was not highly regarded and it was considered that most training could be delivered on the job by more experienced staff. The exception was training by external agencies for regulatory reasons, such as for the service of alcohol and gaming. As these businesses were all small, they had simple organisation structures and fairly direct lines of communication, so that generally they were considered to have an appropriate structure to support innovation.

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INNOVATION CAPABILITY AND ENTREPRENEURIAL ORIENTATION DIMENSIONS FOR AUSTRALIAN HOTELS 8. Resource awareness was a pre-requisite for innovation, on account of the financial investments generally required for any change, and in particular for physical refurbishment or redevelopment. In addition, managers were very aware of the importance of managing their resources effectively to ensure good day-to-day performance, as well as to effectively implement change and innovation. Some hotels outsourced food preparation and inventory control, as an innovative way of managing their resources. 9. Operations could be divided into the management of the day-to-day or ‘mainstream’ activities and innovation activities. All hotels used standard management systems, but some managers used them in innovative ways to provide information for their staff in easy to understand graphs, or to track the amount of time customers spent in the dining room to find ways to trade them up. Good operations were seen as a requirement for supporting change and innovation, and these were implemented through documented policies and procedures and good work organisation implemented through a core group of staff. These dimensions and the detailed information in this report will be used to develop the items for the innovation capability component of the questionnaire that will be implemented in the next stage of this research.

Dimensions of Entrepreneurial Orientation The ways in which hotel managers defined the term ‘entrepreneurship’, as well as the comments that they made that related to activities that could be categorised as entrepreneurial, showed that the established dimensions of entrepreneurial orientation are confirmed for this type of business. These are the dimensions of innovativeness, competitiveness, risk taking, proactiveness, and autonomy. The standard dimensions for entrepreneurial orientation, and the established items used to measure this construct can therefore be used with confidence in the entrepreneurial orientation component of the questionnaire that will be implemented in the next stage of this research.

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Chapter 5

CONCLUSION This report presents the findings of the first qualitative and exploratory stage of a study to identify the dimensions of innovation capability and entrepreneurial orientation in ‘general hotels or pubs’ (as examples of small service businesses). The major finding is the high level of innovation across all aspects of the hotel business, and the large number of innovation activities carried out by the participants in this study. This contrasts with the conclusion in a recent ABS study of innovation in Australian industry that businesses in the accommodation, cafés and restaurants sector had the lowest rate of innovation of all of the sectors that were included in the study (ABS 2005a). However, the ABS finding may be a direct result of the particular variables used in that study to measure innovation activity. Although the major value of this study will be realised with the completion of the second quantitative stage, this report includes a large amount of detail that illustrates the nature and range of innovation activities in Australian pubs. This detail will be useful for the Australian Hotels Association, as well as for individual pub managers, as a source of ideas for practical innovation activities. Discussions have been held with representatives of the AHA in South Australia regarding ways to capture the information and insights on this report to make them more easily accessible to AHA members. This report also provides material and examples for training and professional development workshops for pub managers on building their ability to develop and implement innovation activities to enhance the competitiveness of their businesses (these workshops are planned as a follow-on project following the completion of the next stage of this study). For researchers, this first stage report identifies a range of factors that are important for supporting innovation activities in this size and type of service business. These factors will be further refined in the next quantitative stage of the study. For regulators, this report indicates that the general hotel constitutes a dynamic and innovative sector in the tourism and hospitality industry. Although some innovation is driven by regulation, the report identifies regulation as being perhaps the most important barrier to innovation, and this could be usefully taken into account at industry level discussions relating to regulatory impositions on these small businesses. For trainers, the report identified a consistently negative perception of the value of training programs for hospitality staff at the VET/TAFE level. Comments relating to staff training could be usefully taken into account at industry level discussions relating to this area.

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AUTHORS Mr Peter Balan Peter Balan is a member of the Centre for the Development of Entrepreneurs in the School of Management, University of South Australia. The centre undertakes entrepreneurship research, teaching at the undergraduate and postgraduate levels, and industry collaboration activities that support business creation and growth, technology transfer, commercialisation, and innovation capability building. His research is in the field of innovation capability. Email: [email protected]

Prof. Noel Lindsay Noel Lindsay is Adjunct Professor in the Centre for the Development of Entrepreneurs in the School of Management, University of South Australia, and the Head of the Entrepreneurship Commercialisation and Innovation Centre at the University of Adelaide. He has had considerable experience in establishing and developing entrepreneurial ventures in Australia, South Africa, and Malaysia. He also has venture capital experience having been director of an Australian venture capital firm. His current research interests focus on private equity, entrepreneurship, innovation, and Indigenous entrepreneurship. Email: [email protected]

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• Travel and tourism industry • Academic researchers • Government policy makers

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COLLABORATION

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INDUSTRY P ARTNERS

EDUCATION AND TRAINING

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OVA

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RESEARCH AND DEVELOPMENT

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A C O M M UNIC

COMMERCIALISE

UTILISE • New products, services and technologies • Uptake of research finding by business, government and academe • Improved business productivity • Industry-ready post-graduate students • Public good benefits for tourism destinations

UNIVERSITY P ARTNERS

C O M M E R C I A L I S AT I O N

EC3, a wholly-owned subsidiary company, takes the outcomes from the relevant STCRC research; develops them for market; and delivers them to industry as products and services. EC3 delivers significant benefits to the STCRC through the provision of a wide range of business services both nationally and internationally.

TOURISM NT NORTHERN TERRITORY AUSTRALIA

KEY EC3 PRODUCTS

Chairman: Stephen Gregg Chief Executive: Ian Kean Director of Research: Prof. David Simmons CRC for Sustainable Tourism Pty Ltd Gold Coast Campus Griffith University Queensland 4222 Australia ABN 53 077 407 286 Telephone: +61 7 5552 8172 Facsimile: +61 7 5552 8171 Website: www.crctourism.com.au Bookshop: www.crctourism.com.au/bookshop Email: [email protected]

Sustainable Tourism Cooperative Research Centre (STCRC) is established under the Australian Government’s Cooperative Research Centres Program. STCRC is the world’s leading scientific institution delivering research to support the sustainability of travel and tourism—one of the world’s largest and fastest growing industries.

Introduction STCRC has grown to be the largest dedicated tourism research organisation in the world, with $187 million invested in tourism research programs, commercialisation and education since 1997. STCRC was established in July 2003 under the Commonwealth Government’s CRC program and is an extension of the previous Tourism CRC, which operated from 1997 to 2003.

Role and responsibilities The Commonwealth CRC program aims to turn research outcomes into successful new products, services and technologies. This enables Australian industries to be more efficient, productive and competitive.

The program emphasises collaboration between businesses and researchers to maximise the benefits of research through utilisation, commercialisation and technology transfer. An education component focuses on producing graduates with skills relevant to industry needs.

STCRC’s objectives are to enhance: •

the contribution of long-term scientific and technological research and innovation to Australia’s sustainable economic and social development;

•

the transfer of research outputs into outcomes of economic, environmental or social benefit to Australia;

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the value of graduate researchers to Australia;

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collaboration among researchers, between searchers and industry or other users; and

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efficiency in the use of intellectual and other research outcomes.