measuring intellectual capital in the hotel industry

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The HOINCAP scale: measuring intellectual capital in the hotel industry a

b

Taegoo (Terry) Kim , Joanne Jung-Eun Yoo & Gyehee Lee

a

a

College of Hotel and Tourism Management, Kyung Hee University, Heogi-dong, Dongdaemun-gu 1, Seoul, 130-701, South Korea b

Department of Hotel, Restaurant and Institutional Management, University of Delaware, Raub Hall, 14 W. Main Street, Newark, DE, 19716, USA Available online: 24 Jun 2011

To cite this article: Taegoo (Terry) Kim, Joanne Jung-Eun Yoo & Gyehee Lee (2011): The HOINCAP scale: measuring intellectual capital in the hotel industry, The Service Industries Journal, 31:13, 2243-2272 To link to this article: http://dx.doi.org/10.1080/02642069.2010.504817

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The Service Industries Journal Vol. 31, No. 13, October 2011, 2243–2272

The HOINCAP scale: measuring intellectual capital in the hotel industry Taegoo (Terry) Kima, Joanne Jung-Eun Yoob∗ and Gyehee Leea a

College of Hotel and Tourism Management, Kyung Hee University, Heogi-dong, Dongdaemun-gu 1, Seoul 130-701, South Korea; bDepartment of Hotel, Restaurant and Institutional Management, University of Delaware, Raub Hall, 14 W. Main Street, Newark, DE 19716, USA

Downloaded by [Kyung Hee University] at 19:13 02 August 2011

(Received 13 November 2009; final version received 8 June 2010) Intellectual capital (INCAP) emerged as a topic worthy of academic and practical investigations in the early 1990s while the research and practice of INCAP has not been popular in the hotel industry until recently. Very few measurement frameworks specified the value of INCAP in the hospitality literature. The purpose of this study is to develop a measurement scale (named hereafter the HOINCAP scale) to identify the dimensions and sub-dimensions of INCAP in the hotel industry. The three dimensions of HOINCAP – human, organizational, and customer capital – were verified through a second-order factor model composed of four, five, and six subdimensions. The HOINCAP scale shows strong evidence of reliability, convergent, discriminant, and nomological validity. The implications of the scale are discussed for future research and INCAP management in the hotel industry. Keywords: intellectual capital; scale development; measurement; hotel industry

Introduction As the hotel industry has become highly knowledge intensive, many hotels investigate the ways in which they can improve their performance and raise the value of the property. Eckstein (2004) argued that the work-force and customer relations increase the value of service organizations as much as technological investments and the process improvements do. For the last decade, hotel operations have recognized the importance of managing intellectual resources as a means of gaining and sustaining competitive advantage (Enz, Canina, & Walsh, 2006). Many industry leaders declare that successful hotels invest in intangible assets such as people. New opportunities in the hotel industry are created from knowledge-based assets and such assets are defined as intellectual capital (INCAP) (Nemec Rudez & Mihalic, 2007). Research on this general topic of INCAP began in the early 1990s and was mainly concerned with raising awareness about the existence and value of intangible assets within organizations and about developing classification models for INCAP in various fields (Bontis, 1998; Brooking, 1996; Edvinsson & Malone, 1997; Itami, 1991; Roos, Roos, Dragonetti, & Edvinsson, 1997; Stewart, 1997; Sullivan, 1998). However, unlike other fields, research and practice of INCAP in the hotel industry has begun to receive interests quite recently. Very few measurement frameworks have been developed to specify and optimize the value of INCAP applicable to the hotel industry (Engstro¨m, Westnes, & Westnes, 2003; Enz et al., 2006; Nemec Rudez & Mihalic, 2007). This lack of theoretical framework ∗

Corresponding author. Email: [email protected]

ISSN 0264-2069 print/ISSN 1743-9507 online # 2011 Taylor & Francis DOI: 10.1080/02642069.2010.504817 http://www.tandfonline.com

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limits the practical debate on this important management concept. INCAP measurement is a crucial means of strategic business and marketing management for the hotel industry. An accurate measurement framework can provide the hotel industry with considerable benefits that will manage intangible assets in a way that achieves competitive advantage. This study thus fills a gap in the literature by proposing an INCAP measurement scale for the hotel industry. The primary purpose of this study is to identify the dimensions and sub-dimensions of INCAP in the hotel industry through the development of the HOINCAP scale. The specific objectives are: (1) to define the elements of INCAP; (2) to construct the HOINCAP scale based on integration of the existing measurement models and focus group interviews; and (3) to test the reliability and validity of the scale through an empirical study. Conceptualization of INCAP and its dimensions Definitions of INCAP INCAP emerged as a topic worthy of academic and practical investigations in the early 1990s. Despite this relatively new area of research, a wide range of interdisciplinary studies has created a plethora of definitions with different terms to describe the same information (Choong, 2007). INCAP concepts first evolved from the work of practitioners such as Edvinsson and Sullivan (1996), Saint-Onge (1996), and Sveiby (1997) and attracted the attention of academicians developing theories for measurement (Bontis, Dragonetti, Jacobsen, & Roos, 1999). Although Kaufmann and Schneider (2004) provide a variety of definitions for each kind of INCAP, a universally accepted definition is however still lacking. This situation is partly because the concept of INCAP is too general, qualitative, and ambiguous to relate to practical matters (Kaufmann & Schneider, 2004; Mouritsen, Bukh, Larsen, & Johansen, 2002). Most definitions of INCAP describe it as a non-monetary asset without physical substance that can reap economic benefits. Although it is termed as ‘capital’ INCAP is neither a conventional accounting nor an economic term. Prusak (1998) defined INCAP as intellectual resources that have been formalized, captured, and leveraged to create assets of higher value. Following Edvinsson and Malone (1997, p. 44), IC is ‘the possession of knowledge, applied experience, organizational technology, customer relationships and professional skills that provide the firm with a competitive edge in the market’. Boudreau and Ramstad (1997) indicated that INCAP is directly related to human resource management, which an organization needs to provide the impetus for future benefits. This perspective is similar to that of Lev (2001) in the sense that INCAP does not have physical substance but it is the result of network effect. Rastogi (2003) also considered that INCAP is the result of the collaborative efforts among the organization’s human and social capital, and knowledge management. Mouritsen et al. (2002) agreed that INCAP does not exist on its own; it is merely a mechanism by which the assets are bonded in the productive process of the firm. Structure of INCAP In the absence of a uniform definition of INCAP, classifying what constitutes INCAP can be more appropriate than defining it (Gro¨jer, 2001). Although there is little agreement about the best way to measure INCAP, most authors favour a tripartite model in various fields, agreeing that INCAP consists of three broad classification categories as shown in Figure 1, labelled ‘human capital’, ‘organizational (or structural) capital’, and

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Figure 1. Taxonomy and conceptualization of INCAP. Source: Adopted from Bontis (1998).

‘customer (or relational) capital’ (Allee, 1999; Bontis, 1998; Bontis, Keow, & Richardson, 2000; Chen, Zhu, & Xie, 2004; Edvinsson & Malone, 1997; Engstro¨m et al., 2003; Huang, 1998; Kaplan & Norton, 1992; Lynn, 2000; Mouritsen et al., 2002; Nordhaug, 1998; Petty & Guthrie, 2000; Rastogi, 2000; Stewart, 1997; Sullivan, 1998; Van Buren, 1999). The difference among the classifications is that they assume different levels of aggregation of the elements of INCAP. However, the three INCAP dimensions have some different sub-dimensions across the application fields depend on their business characteristics and business environments. Human capital Human capital is represented by the intangible assets embodied by individuals and it is the foundation of INCAP, which is the stock of an organization as represented by its employees (Bontis, 1998). Forret (2006) describes human capital as individual work experience, education, knowledge, skills, abilities, and training. In addition, Hudson (1993) defined human capital as a combination of general heritage, education, experience, and attitude about life and business. In the hotel industry, employee competence, attitudes to work, and innovativeness are suggested as dimensions of human capital by Nemec Rudez and Mihalic (2007). Human capital represents much of an organization’s knowledge and is an important resource in achieving competitive advantage (Hitt & Ireland, 2002). Human capital focuses on the economic value of what the employees can produce (Becker, 1992) and represents the individual and collective competence of employees. Competence is the ability to perform a given task, consisting of education, knowledge, and skills. If an intellectual employee does not serve the organization, his and/or her knowledge and skills cannot be activated, let alone converted into market value (Chen et al., 2004). Therefore, organizations must help employees to display their competence through continued investments in employee training and education programs (Bontis, 1998; Bontis et al., 2000). Human capital considers not only all the knowledge and skills acquired by employees to be important, but also the commitment of each individual and factors such as his and/or her motivation for and satisfaction from work. Bontis (1999) argued that human capital is important for any organization, as a source of creativity, innovation, and strategic renewal. Employees’ creativity enables them to use their knowledge and skills elastically and to innovate continuously (Chen et al., 2004). Similarly, Roos et al. (1997) emphasized intellectual agility, which enables employees to change practices and think of innovative solutions to problems.


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Organizational capital Organizational capital is conventionally used to refer to the processes (routines) and procedures that are recorded and become acceptable to the organization as a record of how things are done to maintain effectiveness. It is formed by the intellectual input of the employees of the firm but it belongs to the firm. Stewart (1999, p. 109) states that ‘culture is an extensive and valuable element of organizational capital’. According to the Nemec Rudez and Mihalic’s (2007) study, organizational capital is constituted by management philosophy, culture, business processes, and information technology in the hotel industry. Efficiency and effectiveness, renewal and development, systems and procedures, and atmosphere are also suggested as elements of organizational capital in the hotel industry by Engstro¨m et al. (2003). Organizational capital deals with the mechanism and structure of a company that can help support employees’ optimum intellectual performance. In addition, organizational capital includes the management philosophy and systems for leveraging the organization’s capability. Bontis (1999) identified organizational capital as encompassing process manuals, strategies, routines, and anything whose value to the firm exceeds its material value. Some researchers have recently suggested including culture, process, and innovation in organizational capital (Marr, Gray, & Neely, 2003). A company’s culture refers to the values, faith, and behavioural criteria approved and shared by employees. Company culture under the guidance of a favourable management philosophy can be a valuable asset. Companies with strong organizational capital have a culture that encourages employees to experiment, innovate, learn, and fail. The business process is one of the most effective means of ensuring that a company completes its operational tasks. The focus of total quality management and the company reconstruction is on the reform in operational processes to improve operational efficiency and effectiveness (Chen et al., 2004). In this new era, economic growth is driven by innovation, not investment. Customer capital Customer capital is owned by a company that has customers (Stewart, 1999). Customer capital is defined as the knowledge embedded in the marketing channels and customer relationships that an organization develops through the course of conducting business (Bontis et al., 2000). According to Chen et al. (2004), customer capital is the main determinant in the conversion of INCAP into market value, acting as a bridge and catalyst on the operations of INCAP. Compared with human and organizational capital, customer capital has a more direct effect on a company’s value and organizational performance (Bontis, 1998). Also, customer capital can be the foundation for capturing insight into the future need for customer services. Organizations create customer capital through the relationships that are developed between their internal agents (i.e. management and employees) and their customers (Chang & Tseng, 2005; Duffy, 2000). Customer capital is the value that contributes to current and future revenues, resulting from an organization’s relationship with its customers (Chang & Tseng, 2005; Engstro¨m et al., 2003). Customer satisfaction and loyalty, handling customer, customer orientation, market share, and distribution channels may be indicators of customer capital (Bontis, 1998; Bontis et al., 2000; Engstro¨m et al., 2003). It is also constituted by customer satisfaction and loyalty, image and brand, and direct distribution channels (Nemec Rudez & Mihalic, 2007). In today’s competitive market environment, a company should strive to improve the quality of product and service to enhance customers’ satisfaction and secure their loyalty. Highly satisfied customers are likely to become loyal to the company, by increasing its profits


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through repeat purchase and favourable word-of-mouth. In order to increase market share and customers’ loyalty, an organization should have a basic capability of handling its customers such as customer service ability and the capability of dealing with the customer database.


Review of existing measures of INCAP in the hotel industry Although hotels are not considered highly knowledge-intensive, the hotel industry has evolved into a more knowledge-based industry as a result of recent advancements in information technology (Enz et al., 2006). Both individual knowledge of hotel employees and the organizational knowledge of hotels are now considered important elements of hotel management (Engstro¨m et al., 2003). Although a handful of studies have emerged in the hospitality field, INCAP has not achieved the same scale of research and applications as in other disciplines. Engstro¨m et al. (2003) made the first attempt to explore the concept of INCAP in the hotel industry by applying a single embedded case study to 13 hotels in the Radisson SAS Hotels and Resorts hotel chain. As indicated in Table 1, the authors developed the Radisson SAS INCAP value scheme combining the INCAP methodology and the Bontis’s (1998) format. Their questionnaire contains 46 statements, to which respondents indicated their level of agreement on a seven point Likert scale. Although the Radisson SAS INCAP measurement is organization-specific, the first steps towards INCAP measurement in the hotel industry have been in the right direction. Table 1. Existing multidimensional approaches used to measure INCAP in the hotel industry. Authors (year) Engstro¨m et al. (2003)

INCAP dimensions Human capital

Structural capital

Customer capital

Nemec Rudez and Mihalic (2007)

Human capital Structural capital

End-customer-relationship capital Non-end-customerrelationship capital

INCAP sub-dimensions Competence Improvement systems Intellectual agility Performance Attitude and motivation Efficiency and effectiveness Renewal and development Systems and procedures Atmosphere Loyalty and satisfaction Market share Market orientation Handling customers Employee competence Employee attitudes to work Employee innovativeness Culture Management philosophy Business processes Information technology Customer satisfaction and loyalty Image and brand Direct distribution channels Relationships with commercial partners Relationships with other partners and groups


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Enz et al. (2006) investigated how hotels can create value through their investment in INCAP by analysing 371 full-service and 192 limited-service hotels. To examine the extent to which available forms of INCAP drive performance of hotel properties, the authors categorized assets as either physical or INCAP. They then classified INCAP into the five categories: systems capital, customer capital, service employees, support employees, and professional employees. The study concluded that whether a hotel is limited-service or full-service would dictate the most appropriate investment mix of tangible assets and specific forms of human capital to achieve long-term performance. As reviewed earlier, classical INCAP measurement has dealt mainly with three categories: human, organizational, and customer capital. Nemec Rudez and Mihalic (2007) developed the four-category INCAP measurement in the hotel industry that distinguishes human, structural, end-customer-relationship, and non-end-customerrelationship capital. As shown in Table 1, the novelty of this measurement is the division of relationship capital into end-customer-relationship capital (such as travel agents and tour operators) and non-end-customer-relationship capital (such as government, associations and non-governmental organizations). The authors argued that such a division acknowledges the increasing importance of different relationships in the hotel business. Four INCAP categories were measured by 70 items on a seven point Likert scale, and the questionnaires were administered in 69 hotels in Slovenia. Although this study sheds new light on a four-category INCAP measurement model in the hotel industry, it does not explain how the model was developed; this precludes future modification or applications of the model. Developing the HOINCAP scale This study follows the accepted paradigm for scale development provided by Churchill (1979) and augmented by other researchers (Anderson & Gerbing, 1982, 1988; Bagozzi, 1980; Bentler & Bonnet, 1980; DeVellis, 1991; Netemeyer, Bearden, & Sharma, 2003; Nunnally, 1978; Peter, 1981). The scale development procedures this study used was composed of six steps: (1) determining what to measure; (2) generating items to measure the construct of interest; (3) developing the final list of items; (4) purifying a measurement scale; (5) refining the scale with a new sample; and (6) assessing nomological validity. Generating scale items The first stage began with a literature review to define the constructs and content domains of INCAP in the hotel industry. First, an extensive literature review was conducted in the broad contexts of business, management, and hospitality management to create an initial item pool. The three INCAP dimensions (human, organizational, and customer capital) recommended by many researchers (Allee, 1999; Bontis, 1998; Bontis et al., 2000; Chen et al., 2004; Edvinsson & Malone, 1997; Engstro¨m et al., 2003; Huang, 1998; Kaplan & Norton, 1992; Lynn, 2000; Mouritsen et al., 2002; Nordhaug, 1998; Petty & Guthrie, 2000; Rastogi, 2000; Stewart, 1997; Sullivan, 1998; Van Buren, 1999) were adopted in this study. Through the literature review, 71 items were generated and the items were reworded to fit the hotel industry. Another recommended procedure for generating an initial pool of scale items is to conduct focus group interviews with participants with knowledge of the topic under investigation (Churchill, 1979; DeVellis, 1991; Selltiz, Wrightsman, & Cook, 1976). In order to



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identify more specific facets of INCAP in the hotel industry, two focus group interviews with eleven hotel managers were conducted. Open-ended questions were asked with regards to hotel INCAP, and an additional 54 items were generated from the interviews. Content validity is the degree to which elements of a research instrument are relevant to and representative of targeted constructs for a particular assessment purpose (Haynes, Richard, & Kubany, 1995). Content validity of a total of 125 preliminary items (71 from literature reviews and 54 from two focus group interviews) was examined by a panel of five expert judges: two hotel managers and three faculty of hotel management. After evaluating initial items for content and face validity, the panel suggested the removal of several items considered ambiguous, not representative of the domain, redundant, or open to misinterpretation. In addition, they were requested to focus on such aspects as the breadth of theoretical content covered by the item, consistency of the contents tapped by individual items under a single factor and clarity of the meaning and comprehensibility of the item (Matsuno, Mentzer, & Rentz, 2000). In particular, the judges were asked to rate each item on a five-point Likert scale ranging from 1 (‘not representative of this dimension’) to 5 (‘clearly representative of this dimension’) with 3 (‘somewhat representative’) as the midpoint. Mean ratings per item were calculated and items with mean scores of less than 4 were rejected (Hedhli & Chebat, 2009; Kim, Laroche, & Tomiuk, 2001). The panel was further asked to edit the remaining items to enhance clarity and readability. Minor adjustments in wording were made to clarify the statements and to respond to the collected comments. In the end, as shown in Table 2, these procedures resulted in a pool of 75 items to measure INCAP in the hotel industry (26 items for human capital; 23 for organizational capital; 26 for customer capital). All items in the HOINCAP scale were assessed using a 7-point Likert scale with 1 (‘strongly disagree’) and 7 (‘strongly agree’) as the anchors. The questionnaire was first written in English and back-translated into Korean (Brislin, 1976; Parameswaran & Yaprak, 1987). Two faculty members who were educated in the US and two native speakers of Korean assisted with the translation. Data collection for measurement purification and reliability and validity assessment Two separate samples were used in the process of the scale development, as suggested by Churchill (1979). Sample 1 was used to purify a measurement scale while sample 2 was used to refine the scale. Sample 1 Sample 1 includes employees in upper-level management positions of the five hotels in Seoul, Korea: Park Hyatt Seoul, COEX Intercontinental Seoul, Grand Hilton, Mayfield Hotel, and Lotte Hotel World. Of the 130 questionnaires distributed to the selected hotels, 121 were returned of which 14 were discarded due to a large number of missing values. In the end, 107 questionnaires were retained for data analysis, yielding an 82.3% response rate. Sample 2 Sample 2 is composed of upper-level management position employees working at 13 hotels in Seoul, Korea: JW Marriott Seoul, Sofitel Ambassador Seoul, Imperial Place Seoul, Ritz-Carlton Seoul, Westin Chosun Seoul, Sheraton Grand Walkerhill Seoul,

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Table 2. Initial items of the HOINCAP scale (75 items).


Scale items Human capital HUCAP1. This hotel’s employees have good qualifications for their work HUCAP2. This hotel attracts good and promising employees HUCAP3. This hotel’s employees exchange their ideas HUCAP4. This hotel’s employees are best in industry HUCAP5. Employees’ leaving do not cause trouble for this hotel HUCAP6. This hotel’s employees learn much from customers HUCAP7. This hotel’s individuals learn from on another HUCAP8. This hotel’s employees perpetually develop their knowledge HUCAP9. This hotel’s education and training program is beneficial HUCAP10. This hotel upgrades employees’ skills through training program HUCAP11. This hotel’s recruitment program is comprehensive HUCAP12. The ratio of full-time employees in this hotel is proper HUCAP13. Employees’ overall satisfaction to this hotel is high HUCAP14. This hotel’s employees are appropriately rewarded HUCAP15. Employees are proud to work in this hotel HUCAP16. This hotel’s employees have suitable chances of promotion HUCAP17. Work in this hotel may be a challenge for employees HUCAP18. This hotel’s employees are devoted to their work HUCAP19. This hotel’s employees perform their best HUCAP20. Employees’ turnover rate of this hotel is decreasing HUCAP21. This hotel’s employees are very creative HUCAP22. This hotel’s employees are very wise HUCAP23. This hotel’s employees effectively imitate innovations HUCAP24. This hotel’s employees have innovative ideas HUCAP25. This hotel’s employees come up with new ideas HUCAP26. This hotel adapts to market changes well Organizational capital ORCAP1. This hotel’s employees are highly empowered ORCAP2. Customers are put in first place in this hotel ORCAP3. This hotel’s staffs are stimulated to take initiatives ORCAP4. Cooperation across departments in this hotel is well developed ORCAP5. This hotel’s transaction time is decreasing ORCAP6. This hotel’s cost per revenue is improving ORCAP7. This hotel’s revenue per employee is continuously increasing ORCAP8. This hotel’s revenue per employee is best in the competitor set ORCAP9. Overall, this hotel is efficient ORCAP10. Atmosphere in this hotel is pleasant ORCAP11. This hotel’s managers and staff communicate well ORCAP12. Knowledge increase is well supported in this hotel ORCAP13. Knowledge increase among employees is excellent in this hotel ORCAP14. There is great support for innovative ideas in this hotel ORCAP15. This hotel implements new ideas ORCAP16. This hotel continuously develops new service and product ORCAP17. This hotel constantly improves service quality ORCAP18. This hotel is leading in the introduction of new service and product ORCAP19. Information technology considerably contributes to the service and product quality for this hotel ORCAP20. This hotel’s internet sales represent a high proportion of sales ORCAP21. This hotel is well connected with its environment through information technology ORCAP22. Information systems allow easy info access in this hotel ORCAP23. Information technology solutions are continuously being improved in this hotel (Continued)


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Table 2. Continued.


Scale items Customer capital CUCAP1. This hotel’s customer satisfaction is improving CUCAP2. This hotel’s customer loyalty is improving CUCAP3. The number of customer complaints of this hotel is falling CUCAP4. This hotel’s degree of customer revisit is highest in the competitor set CUCAP5. The number of customer outflow of this hotel is falling CUCAP6. This hotel is confident of future with customers CUCAP7. Overall, customers are satisfied with this hotel’s service CUCAP8. This hotel’s image is improving CUCAP9. Destination of this hotel is important for attracting consumers CUCAP10. This hotel’s brand is valued by customers better than competitors CUCAP11. Theme construction is being intensively developed by this hotel CUCAP12. Time to handle customer complaints by this is reducing CUCAP13. Feedback with customer is sharing across department in this hotel CUCAP14. This hotel is receiving various feedbacks from customers CUCAP15. This hotel offers value added service to the customers CUCAP16. We successfully solve the complaints of our guests CUCAP17. This hotel’s market share is constantly improving CUCAP18. This hotel’s market share is highest in the competitor set CUCAP19. Customer information is disseminated in this hotel CUCAP20. This hotel understands target markets well CUCAP21. This hotel cares what customer wants CUCAP22. This hotel launches what customer wants CUCAP23. This hotel is market-oriented CUCAP24. This hotel develops the Internet better than competitors CUCAP25. This hotel constantly develops new direct distribution channels CUCAP26. The internet is the most important distribution channel for this hotel

Millennium Seoul Hilton, Renaissance Seoul Hotel, Seoul Plaza Hotel, Grand Hyatt Seoul, Grand Intercontinental Seoul, Hotel Shilla Seoul, and Lotte Hotel Seoul. A total of 275 questionnaires were collected from the 350 distributed. After excluding 22 incomplete questionnaires, 253 usable questionnaires (72.3%) were used for further analysis. Table 3 lists the socio-demographic characteristics of the respondents from the two samples. Purifying a measurement scale Following the suggestions by Churchill (1979), an iterative-scale purification procedure was employed to develop a reduced and more parsimonious scale for this study. The 75 items were subjected to exploratory factor analysis (EFA) with principal component analysis and a Varimax orthogonal rotation, with the scree test criterion used to identify the number of factors to extract (Bearden, Netemeyer, & Teel, 1989; Hair, Anderson, Taltam, & Black, 1998; Nunnally, 1978). The appropriateness of factor analysis was first determined by the Kaiser–Meyer–Olkin (KMO) measure of sampling adequacy and Bartlett’s test of sphericity. The KMO was 0.963 and Bartlett’s test of sphericity was significant at a level of p , 0.001, which justified the use of EFA. Subsequently, the data were subjected to EFA using a Varimax orthogonal rotation to reduce the numbers of scale items. The initial EFA revealed 13 factors with eigenvalues greater than 1.0. The value of the Cronbach’s a ranged 0.651 – 0.919 for the 13 factors, which necessitated the removal of some items to improve the alpha value (Nunnally, 1978). As individual items with the alpha values of lower than 0.70 were removed, coefficient alpha were recomputed for

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Table 3. Two sample profiles. Sample 1 (n ¼ 107)


Socio-demographic characteristics Gender Male Female Age Under 29 30– 39 40– 49 50 or above Education level High school graduate Associate degree College Graduate school Department Front desk Housekeeping Food/beverage Sales/marketing Human resources Finance office Others Position Supervisor Manager/assistant manager Executive member General manager/assistant general manager

Sample 2 (n ¼ 253)

n

%

n

%

72 35

67.3 32.7

169 84

66.8 33.2

2 71 30 4

1.9 66.4 28.0 3.7

10 149 78 16

4.0 58.9 30.8 6.3

3 52 40 12

2.8 48.6 37.4 11.2

13 103 109 28

5.1 40.7 43.1 11.1

23 11 28 21 11 8 5

21.5 10.3 26.1 19.6 10.3 7.5 4.7

56 27 64 44 21 25 16

22.1 10.7 25.3 17.4 8.3 9.9 6.3

53 38 13 3

49.5 35.5 12.2 2.8

119 92 34 8

47.0 36.4 13.4 3.2

the remaining items and the new corrected correlations were evaluated for deletion of additional items: HUCAP3, HUCAP8, ORCAP18, and CUCAP11. In addition, six items (HUCAP14, HUCAP19, HUCAP25, ORCAP2, ORCAP6, and ORCAP9) were deleted for their low factor loadings of below 0.40 (Hair et al., 1998). A total of 71 items were retained for further analysis. The remaining 65 HOINCAP scale items were then subjected to factor analysis to identify the underlying sub-dimensions of the HOINCAP scale. As shown in Table 4, 15 sub-dimensions underlying the three HOINCAP dimensions emerged from the analysis, explaining 78.944% of overall variances: (1) information technology; (2) creativity and innovativeness; (3) recruitment and training; (4) distribution channels; (5) renewal and development; (6) satisfaction and loyalty; (7) customer orientation; (8) competence; (9) organizational culture; (10) handling customers; (11) attitude and motivation to work; (12) management philosophy; (13) efficiency and effectiveness; (14) market share; and (15) image and brand. The Cronbach’s a values of these 15 factors ranged from 0.782 (competence) to 0.918 (information technology), indicating good internal consistency among the items within each dimension (Nunnally, 1978). Finalizing the measurement scale The next stage of the scale development was to refine the factor structure of the HOINCAP scale using confirmatory factor analysis (CFA) with maximum-likelihood estimation in


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Table 4. Final EFA results of the HOINCAP scale with 65 items.


Factor and indicators Factor 1: Information technology This hotel is well connected with its environment through information technology Information systems allow easy info access in this hotel Information technology solutions are continuously being improved in this hotel This hotel’s internet sales represent a high proportion of sales Information technology considerably contributes to the service and product quality for this hotel Factor 2: Creativity and innovativeness This hotel’s employees have innovative ideas This hotel’s employees are very wise This hotel’s employees effectively imitate innovations This hotel’s employees are very creative This hotel adapts to market changes well Factor 3: Recruitment and training This hotel upgrades employees’ skills through training program The ratio of full-time employees in this hotel is proper This hotel’s recruitment program is comprehensive This hotel’s education and training program is beneficial Factor 4: Distribution channels The internet is the most important distribution channel for this hotel This hotel develops the Internet better than competitors This hotel constantly develops new direct distribution channels Factor 5: Renewal and development This hotel continuously develops new product and service This hotel implements new ideas This hotel constantly improves service quality There is great support for innovative ideas in this hotel Factor 6: Satisfaction and loyalty This hotel’s degree of customer revisit is highest in the competitor set The number of customer outflow of this hotel is falling The number of customer complaints of this hotel is falling This hotel’s customer satisfaction is improving Overall, customers are satisfied with this hotel’s service

Factor loadings

Eigenvalue

Variance explained (%)

a

29.553

42.448

0.918

2.865

5.698

0.901

2.492

4.578

0.840

2.183

4.032

0.902

1.850

3.390

0.911

1.458

3.128

0.872

0.752 0.744 0.733 0.698 0.563 0.709 0.688 0.682 0.647 0.622 0.672 0.668 0.658 0.608 0.796 0.781 0.780 0.669 0.620 0.567 0.514 0.779 0.581 0.540 0.525 0.502

(Continued)

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Table 4. Continued.


Factor and indicators Factor 7: Customer orientation This hotel cares what customer wants This hotel launches what customer wants This hotel understands target markets well Customer information is disseminated in this hotel This hotel is market-oriented Factor 8: Competence This hotel’s employees are best in industry This hotel’s employees have good qualifications for their work This hotel attracts good and promising employees Employees’ leaving do not cause trouble for this hotel This hotel’s employees learn much from customers This hotel’s individuals learn from on another Factor 9: Organizational culture This hotel’s managers and staffs communicate well Knowledge increase is well supported in this hotel Knowledge increase among employees is excellent in this hotel Atmosphere in this hotel is pleasant Factor 10: Handling customers This hotel is receiving various feedbacks from customers Feedback with customer is sharing across department in this hotel We successfully solve the complaints of our guests This hotel offers value added service to the customers Time to handle customer complaints by this hotel is reducing Factor 11: Attitude and motivation to work This hotel’s employees are devoted to their work Work in this hotel may be a challenge for employees Employees’ overall satisfaction to this hotel is high This hotel’s employees have suitable chances of promotion Employees are proud to work in this hotel Employees’ turnover rate of this hotel is decreasing Factor 12: Management philosophy This hotel’s staffs are stimulated to take initiatives Customers are put in first place in this hotel Cooperation across departments in this hotel is well developed This hotel’s employees are highly empowered Factor 13: Efficiency and effectiveness This hotel’s revenue per employee is best in the competitor set This hotel’s revenue per employee is continuously increasing

Factor loadings

Eigenvalue


a

1.345

2.974

0.889

1.284

2.218

0.782

1.266

1.94

0.912

1.245

1.821

0.885

1.210

1.618

0.867

1.175

1.446

0.846

1.137

1.303

0.885

0.698 0.653 0.608 0.538 0.422 0.768 0.767 0.649 0.550 0.467 0.415 0.621 0.590 0.589 0.538 0.648 0.607 0.583 0.553 0.508 0.700 0.643 0.515 0.501 0.432 0.405 0.676 0.624 0.471 0.452 0.600 0.515

(Continued)


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Table 4. Continued.


Factor and indicators This hotel’s cost per revenue is improving This hotel’s transaction time is decreasing Factor 14: Market share This hotel’s market share is highest in the competitor set This hotel’s market share is constantly improving Factor 15: Image and brand Destination of this hotel is important for attracting consumers This hotel’s brand is valued by customers better than competitors This hotel’s image is improving

Factor loadings

Eigenvalue


a

1.038

1.208

0.868

1.023

1.142

0.837

0.511 0.490 0.679 0.639 0.722 0.545 0.504

Total variance explained (%) ¼ 78.944 Cronbach’s a of the 65 HOINCAP scale items ¼ 0.932 KMO measure of sampling adequacy ¼ 0.963 Bartlett’s test of sphericity (significance level) ¼ 0.000

AMOS version 7.0 (Arbuckle, 2006). The scale refinement procedures rely on iteration of CFA, with the goal to improve the congeneric measurement properties of the scale (Anderson & Gerbing, 1982, 1988; Bagozzi, 1980; Bearden et al., 1989; MacCallum, 1986). Steenkamp and Van Trijp (1991) suggested that CFA provides a better estimate of reliability than coefficient alpha does. While coefficient alpha assumes that different indicators have equal standardized factor loadings (l) and error variances (d), CFA takes into account the differences among the existing indicators (Styles, 1998). The fit of the measurement model for data was based on the x2 statistic, Q (x2/df), goodness-of-fit index (GFI), root mean square error of approximation (RMSEA), adjusted goodness-of-fit index (AGFI), normed fit index (NFI), and comparative fit index (CFI). In addition, the reliability and validity of the HOINCAP scale were assessed via several criteria. Reliability was assessed using the Cronbach’s a. Construct validity focuses on the extent to which data support convergent and discriminant validities. The standardized factor loading (l), squared multiple correlation (SMC), average variance extracted (AVE: rvc(n)), and composite construct reliability (CCR: r) for the measurement items and the constructs were examined as evidence of convergent validity (Marsh & Grayson, 1995; Netemeyer, Johnston, & Burton, 1990). Finally, evidence of discriminant validity was revealed by the fact that the shared variance among any two constructs (i.e. the square of their intercorrelation) is less than the AVE (rvc(n)) in the items by the construct (Fornell & Larcker, 1981). In the event that poorly fitting models emerged from the initial series of analyses, further model respecification would be needed to improve the model fit based on the several criteria such as model fit indices and content validity. CFA was then rerun to determine whether the modification resulted in an improved fit. This process was continued until a reasonable model had been generated. To verify the underlying factor structure in the proposed HOINCAP scale from the previous analysis, CFA was conducted. CFA complements the traditional scale development procedures not only by providing an alternative measure of internal consistency but also by assessing the external consistency


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of the scale items (Sethi & King, 1994). After trimming the pool of items from 75 to 65, CFA was performed to validate the unidimensionality of the scale derived from the final EFA. The 65-scale items with first-order factor structure were first tested. The initial estimation of the first-order HOINCAP scale did not yield a satisfactory result with x2 (df ¼ 1910) ¼ 5751.637, p ¼ 0.000; Q ¼ 3.011; GFI ¼ 0.667; RMSEA ¼ 0.089; AGFI ¼ 0.626; NFI ¼ 0.720; and CFI ¼ 0.792). Two items (HUCAP6: 0.382; CUCAP2: 0.291) had lower values than that of SMC threshold value of 0.40, and such variables were deleted from the model (Bollen, 1989). Next, the 63 items of the firstorder HOINCAP model was analysed, which provided an improved but not-acceptable fit for the data with x2 (df ¼ 1785) ¼ 4236.031, p ¼ 0.000; Q ¼ 2.373; GFI ¼ 0.685; RMSEA ¼ 0.074; AGFI ¼ 0.644; NFI ¼ 0.755; and CFI ¼ 0.840). Researchers suggest that INCAP structure is a high-order factor (Engstro¨m et al., 2003; Nemec Rudez & Mihalic, 2007). Following the method adopted by several researchers (Dabholkar, Thorpe, & Rentz, 1996; Ho & Lee, 2007), a second-order HOINCAP measurement model was developed and estimated to compare the model performance with competing structures. As shown in Figure 2, the proposed factor structure consisted of a secondorder model in which four, five, and six factors formed second-order constructs such as human, organizational, and customer capital. The estimation of the 63 items of the second-order HOINCAP scale provided an improved and acceptable fit for the data with x2 (df ¼ 1872), p, Q, GFI, RMSEA, AGFI, NFI, and CFI, are 4436.979, 0.000, 2.370, 0.890, 0.057, 0.873, 0.928, and 0.952, respectively. However, HUCAP7 item for competence (0.473) and HUCAP20 item for attitude and motivation to work (0.456) decreased its AVE (rvc(n)) of the respective construct with its high error variance (d). Hence, these two items were deleted, leaving a remaining item pool of 61 items for subsequent analysis. The 61 items of the second-order HOINCAP model provided an improved reasonable fit for the data. Although the x2 value was significant (4016.794 with 1751 df, p ¼ 0.000), other goodness-of-fit measures indicated a good overall fit for the data (Q ¼ 2.294; GFI ¼ 0.897; RMSEA ¼ 0.055; AGFI ¼ 0.881; NFI ¼ 0.932; and CFI ¼ 0.958). In detail, the results for the HOINCAP measurement model suggested good fit of the model to the data with Q less than the threshold value of 3.0 (Bollen, 1989; Carmines & McIver, 1981). RMSEA value was below the accepted 0.08 threshold (Byrne, 1998; Jo¨reskog & So¨rbom, 2001), while values of overall fit (specifically, CFI and NFI) were all above 0.90 for an acceptable model fit (Byrne, 1998). The AVEs (rvc(n)) of the two constructs – competence and attitude and motivation to work – improved to exceed the acceptable cut-off level of 0.50: from 0.473 to 0.503, and from 0.456 to 0.501, respectively. These results exhibit that the variables in the 61 items of the HOINCAP scale has acceptable levels of convergent validity (Fornell & Larcker, 1981; Hair et al., 1998). Figure 2 demonstrates the final second-order factor structure of the HOINCAP scale with sub-dimensions of human, organizational, and customer capital. Human capital includes four sub-dimensions: (1) competence, (2) recruitment and training, (3) attitude and motivation to work, and (4) creativity and innovativeness. Five sub-dimensions of (1) management philosophy, (2) efficiency and effectiveness, (3) organizational culture, (4) renewal and development, and (5) information technology are under organizational capital. Lastly, customer capital consists of six sub-dimensions: (1) satisfaction and loyalty, (2) image and brand, (3) handling customers, (4) market share, (5) customer orientation, and (6) distribution channels. The first-order HOINCAP model with 65 items was used as a base model to determine the improvement of fit achieved by (1) the first-order model with 63 items, (2) the secondorder model with 63 items, and (3) the second-order model with 61 items. The results of

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Figure 2. Final CFA results of the HOINCAP scale: second-order model with 61 items. Notes: HUCAP, human capital; ORCAP, organizational capital; CUCAP, customer capital; COMPE, competence; RECTR, recruitment and training; ATTMO, attitude and motivation to work; CREIN, creativity and innovativeness; MANPH, management philosophy; EFFEF, efficiency and effectiveness; ORGCU, organizational culture; RENDE, renewal and development; INFTE, information technology; SATLO, satisfaction and loyalty; IMABR, image and brand; HANCU, handling customers; MARSH, market share; CUSOR, customer orientation; and DISCH, distribution and channels.

model comparison presented in Table 5 showed that all three revised models had a significant improvement in fit over the base model. Further, the second-order 61-item model had a slightly better fit than the other models with the Q, GFI, RMSEA, AGFI, NFI, and CFI are 2.294, 0.897, 0.055, 0.881, 0.932, and 0.958, respectively. Therefore, the following construct and nomological validity tests were all based on the results of the secondorder HOINCAP measurement model with 61 items.

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Table 5. Competing models of the HOINCAP scale. Competing models


Initial scale (firstorder model with 65 items)

x2

df

p

Q

–

Ddf GFI RMSEA AGFI NFI

CFI

– 0.667

0.089

0.626 0.720 0.792

Revised scale 1 4236.031 1785 0.000 2.373 1515.606∗∗∗ 125 0.685 (first-order model with 63 items) Revised scale 2 4436.979 1872 0.000 2.370 1314.658∗∗∗ 38 0.890 (second-order model with 63 items) 4016.794 1751 0.000 2.294 1734.843∗∗∗ 159 0.897 Revised scale 3 (second-order model with 61 items, final model)

0.074

0.644 0.755 0.840

0.057

0.873 0.928 0.952

0.055

0.881 0.932 0.958

∗∗∗

5751.637 1910 0.000 3.011

Dx2

p , 0.001.

The next step was to assess the construct validity of the HOINCAP scale (Table 6). The HOINCAP scale dimensions of human, organizational, and customer capital were viewed as second-order constructs composed of four, five, and six sub-dimensions. First, internal consistency of the scale was assessed via Cronbach’s a. All constructs demonstrated acceptable Cronbach’s a’s by exceeding the 0.70 cut-off value (Nunnally, 1978), ranging from 0.796 (competence) to 0.918 (information technology). It can thus be said that the scale exhibits satisfactory measurement qualities. Convergent validity is the overlap among alternative measures that are intended to measure the same construct but that have different sources of undesired variation (Judd, Smith, & Kidder, 1991). All the standardized factor loadings (l) were significant at p , 0.001 level, indicating that the specific measurement variables are sufficient in their representation of the constructs (Anderson & Gerbing, 1988; Hair et al., 1998; Netemeyer et al., 1990; Peter, 1981). Since the SMC of each item surpassed the recommended level of 0.40, evidence of convergent validity was provided (Bollen, 1989). In addition, the AVE (rvc(n)) values of all latent constructs was higher than the recommended value of 0.50 and the CCR (r) values also exceeded the 0.50 threshold, suggesting that the variables in the HOINCAP scale have an acceptable level of convergent validity (Fornell & Larcker, 1981; Hair et al., 1998). Discriminant validity is the assumption that dissimilar constructs should be different (Zikmund, 1997). In order to examine the discriminant validity of the HOINCAP scale, the AVEs (rvc(n)) for the constructs were compared with the squared correlations among the constructs (Fornell & Larcker, 1981) (Table 7). None of the squared correlations surpassed the AVE (rvc(n)), which indicates that the discriminant validity was upheld for the second-order HOINCAP model with 61 items (Bearden et al., 1989; Fornell & Larcker, 1981; Netemeyer et al., 1990). Nomological validity of the HOINCAP scale The importance of establishing nomological validity has been well documented in the literature (Babin, Darden, & Griffin, 1994; Bahia & Nantel, 2000; Cronbach & Meehl, 1955; Ho & Lee, 2007; Lages, Lages, & Lages, 2005; Mimouni-Chaabane & Volle, 2010; Netemeyer, Durvasula, & Lichtenstein, 1991). Significant correlations between theoretically

Table 6. Final CFA results of the HOINCAP scale: second-order model with 61 items.

Standardized loadings Factor and indicators

CRs

di

CRs

SMCs

0.736 12.848 0.430 0.848 NA 0.365 0.707 11.505 0.643 0.695 11.366 0.783

9.116 6.795 8.743 9.494

0.542 0.719 0.500 0.483

0.776 13.789 0.472 0.782 14.150 0.584 0.854 NA 0.481 0.637 11.039 0.466

9.025 8.973 7.557 7.273

0.602 0.612 0.729 0.406

0.819 0.793 0.775 0.785 0.679

13.635 13.195 NA 13.429 11.120

0.471 0.453 0.750 0.665 0.630

8.961 9.346 11.026 9.347 10.298

0.671 0.629 0.601 0.616 0.461

0.846 0.810 0.820 0.762 0.791

15.810 14.899 NA 13.567 14.363

0.330 0.393 0.416 0.555 0.494

8.702 9.300 9.164 9.830 9.528

0.716 0.656 0.672 0.581 0.626

a

AVE (rvc(n))

CCR (r)

0.796

0.503

0.801

0.840

0.540

0.823

0.873

0.501

0.833

0.901

0.598

0.881

0.846

0.506

0.801 (Continued)

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Human capital Competence (COMPE) This hotel’s employees have good qualifications for their work (COMPE1) This hotel attracts good and promising employees (COMPE2) This hotel’s employees are best in industry (COMPE3) Employees’ leaving do not cause trouble for the hotel (COMPE4) Recruitment and training (RECTR) This hotel’s education and training program is beneficial (RECTR1) This hotel upgrades employees’ skills through training program (RECTR2) This hotel’s recruitment program is comprehensive (RECTR3) The ratio of full-time employees in this hotel is proper (RECTR4) Attitude and motivation to work (ATTMO) Employees’ overall satisfaction to this hotel is high (ATTMO1) Employees are proud to work in this hotel (ATTMO2) This hotel’s employees have suitable chances of promotion (ATTMO3) Work in this hotel may be a challenge for employees (ATTMO4) This hotel’s employees are devoted to their work (ATTMO5) Creativity and innovativeness (CREIN) This hotel’s employees are very creative (CREIN1) This hotel’s employees are very wise (CREIN2) This hotel’s employees effectively imitate innovations (CREIN3) This hotel adapts to market changes well (CREIN4) This hotel’s employees have innovative ideas (CREIN5) Organizational capital Management philosophy (MANPH)

li

Measurement error



Construct reliability and validity

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Table 6. Continued. Construct reliability and validity

Factor and indicators This hotel’s employees are highly empowered (MANPH1) Customers are put in first place in this hotel (MANPH2) This hotel’s staffs are stimulated to take initiatives (MANPH3) Cooperation across departments in this hotel is well developed (MANPH4) Efficiency and effectiveness (EFFEF) This hotel’s transaction time is decreasing (EFFEF1) This hotel’s cost per revenue is improving (EFFEF2) This hotel’s revenue per employee is continuously increasing (EFFEF3) This hotel’s revenue per employee is best in the competitor set (EFFEF4) Organizational culture (ORGCU) Atmosphere in this hotel is pleasant (ORGCU1) This hotel’s managers and staffs communicate well (ORGCU2) Knowledge increase is well supported in this hotel (ORGCU3) Knowledge increase among employees is excellent in this hotel (ORGCU4) Renewal and development (RENDE) There is great support for innovative ideas in this hotel (RENDE1) This hotel implements new ideas (RENDE2) This hotel’s continuously develops new product and service (RENDE3) This hotel’s constantly improves service quality (RENDE4) Information technology (INFTE) Information technology considerably contributes to the service and product quality for this hotel (INFTE1) This hotel’s internet sales represent a high proportion of sales (INFTE2) This hotel is well connected with its environment through information technology (INFTE3) Information systems allow easy info access in this hotel (INFTE4) Information technology solutions are continuously being improved in this hotel (INFTE5)

li

CRs

Measurement error

di

CRs

SMCs

0.793 15.352 0.557 9.320 0.636 10.126 0.889 10.545 0.785 15.244 0.495 9.270 0.878 NA 0.372 7.400

0.629 0.404 0.616 0.771

0.809 14.373 0.420 0.803 14.070 0.485 0.838 15.197 0.427 0.801 NA 0.646

9.252 9.416 8.723 9.318

0.654 0.645 0.702 0.642

0.850 17.388 0.346 0.839 16.900 0.388 0.852 17.538 0.379 0.859 NA 0.362

8.774 8.845 9.135 8.896

0.723 0.704 0.726 0.738

0.846 17.946 0.378 0.882 20.029 0.333 0.885 NA 0.361 0.793 16.308 0.506

9.081 8.284 8.146 9.768

0.716 0.778 0.783 0.629

0.846 15.449 0.341

8.962

0.716

0.815 14.851 0.532 0.870 16.284 0.330

9.530 8.552

0.664 0.757

0.826 15.389 0.461 0.810 NA 0.560

9.319 9.541

0.682 0.656

a

AVE (rvc(n))

CCR (r)

0.885

0.572

0.842

0.912

0.662

0.887

0.911

0.648

0.880

0.918

0.610

0.886

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Standardized loadings


0.756 0.784 0.825 0.720 0.727

13.395 14.270 NA 12.579 12.492

0.378 0.386 0.403 0.546 0.556

9.670 9.276 8.700 9.967 9.807

0.572 0.615 0.681 0.518 0.529

0.868 NA 0.299 0.678 11.933 0.593 0.813 15.500 0.455

7.459 10.097 8.637

0.753 0.460 0.661

0.816 0.814 0.748 0.794 0.688

0.362 0.410 0.590 0.523 0.763

9.444 9.148 10.043 9.691 10.214

0.666 0.663 0.560 0.630 0.473

0.904 16.398 0.226 0.853 NA 0.414

4.926 7.082

0.817 0.728

0.816 15.332 0.444 0.837 15.918 0.372 0.852 16.947 0.376 0.838 NA 0.439

9.296 9.001 8.559 8.884

0.666 0.701 0.726 0.702

14.434 14.525 13.045 NA 11.376

0.872

0.562

0.865

0.837

0.582

0.805

0.885

0.530

0.849

0.868

0.707

0.828

0.902

0.631

0.873

The Service Industries Journal 2261

Customer capital Satisfaction and loyalty (SATLO) Overall, customers are satisfied with this hotel’s service (SATLO1) This hotel’s customer satisfaction is improving (SATLO2) The number of customer complaints of this hotel is falling (SATLO3) This hotel’s degree of customer revisit is highest in the competitor set (SATLO4) The number of customer outflow of this hotel is falling (SATLO5) Image and brand (IMABR) This hotel’s image is improving (IMABR1) Destination of this hotel is important for attracting consumers (IMABR2) This hotel’s brand is valued by customers better than competitors (IMABR3) Handling customers (HANCU) Time to handle customer complaints by this hotel is reducing (HANCU1) Feedback with customer is sharing across department in this hotel (HANCU2) This hotel is receiving various feedbacks from customers (HANCU3) This hotel offers value added service to the customers (HANCU4) We successfully solve the complaints of our guests (HANCU5) Market share (MARSH) This hotel’s market share is constantly improving (MARSH1) This hotel’s market share is highest in the competitor set (MARSH2) Customer orientation (CUSOR) Customer information is disseminated in this hotel (CUSOR1) This hotel understands target markets well (CUSOR2) This hotel cares what customer wants (CUSOR3) This hotel launches what customer wants (CUSOR4) Model fit indices x2 (df ¼ 1751) ¼ 4016.794, p ¼ 0.000 Q ¼ 2.294 GFI ¼ 0.897 RMSEA ¼ 0.055 AGFI ¼ 0.881 NFI ¼ 0.932 CFI ¼ 0.958

Constructs 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

COMPE RECTR ATTMO EREIN MANPH EFFEF ORGCU RENDE INFTE SATLO IMABR HANCU MARSH CUSOR DISCH

1

2

0.503 0.382 0.408 0.349 0.328 0.250 0.318 0.275 0.211 0.305 0.246 0.318 0.200 0.287 0.102

0.540 0.512 0.393 0.389 0.389 0.347 0.364 0.285 0.329 0.387 0.387 0.346 0.383 0.216

3

0.501 0.465 0.450 0.438 0.391 0.440 0.300 0.446 0.408 0.498 0.403 0.486 0.218

4

0.598 0.465 0.426 0.483 0.394 0.338 0.508 0.376 0.503 0.301 0.436 0.173

5

0.506 0.497 0.494 0.489 0.410 0.383 0.404 0.495 0.325 0.493 0.296

6

0.572 0.437 0.458 0.477 0.445 0.444 0.455 0.437 0.479 0.359

7

0.662 0.461 0.477 0.441 0.335 0.431 0.263 0.444 0.219

8

0.648 0.578 0.399 0.386 0.560 0.311 0.445 0.366

9

0.610 0.349 0.359 0.491 0.309 0.386 0.388

10

0.562 0.403 0.417 0.393 0.380 0.234

11

0.582 0.555 0.434 0.479 0.286

12

0.530 0.377 0.353 0.339

13

0.707 0.348 0.249

14

0.631 0.297

15

M

SD

0.599

5.089 4.831 4.927 4.726 4.989 4.972 5.041 4.891 4.658 5.178 5.321 5.023 5.045 5.173 4.433

0.897 1.032 1.010 0.946 0.996 1.041 1.027 1.078 1.045 0.851 0.960 0.931 1.105 1.024 1.272

Notes: COMPE, competence; RECTR, recruitment and training; ATTMO, attitude and motivation to work; CREIN, creativity and innovativeness; MANPH, management philosophy; EFFEF, efficiency and effectiveness; ORGCU, organizational culture; RENDE, renewal and development; INFTE, information technology; SATLO, satisfaction and loyalty; IMABR, image and brand; HANCU, handling customers; MARSH, market share; CUSOR, customer orientation; and DISCH, distribution channels.

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Table 7. Discriminant validity test result.

Constructs 1. COMPE 2. RECTR 3. ATTMO 4. EREIN 5. MANPH 6. EFFEF 7. ORGCU 8. RENDE 9. INFTE 10. SATLO 11. IMABR 12. HANCU 13. MARSH 14. CUSOR 15. DISCH 16. BUPER

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

1.000 0.618 0.639 0.591 0.573 0.500 0.564 0.524 0.593 0.552 0.496 0.564 0.447 0.536 0.319 0.427

1.000 0.701 0.627 0.624 0.624 0.589 0.603 0.534 0.574 0.622 0.621 0.588 0.619 0.465 0.452

1.000 0.682 0.671 0.662 0.625 0.663 0.548 0.668 0.639 0.699 0.635 0.697 0.467 0.341

1.000 0.682 0.653 0.695 0.628 0.581 0.634 0.613 0.697 0.549 0.660 0.520 0.354

1.000 0.700 0.701 0.699 0.640 0.619 0.636 0.644 0.570 0.699 0.544 0.560

1.000 0.661 0.677 0.691 0.667 0.666 0.675 0.661 0.692 0.599 0.588

1.000 0.679 0.692 0.664 0.579 0.657 0.513 0.666 0.468 0.593

1.000 0.701 0.632 0.621 0.603 0.558 0.667 0.605 0.546

1.000 0.591 0.599 0.701 0.556 0.621 0.623 0.595

1.000 0.635 0.646 0.627 0.616 0.484 0.618

1.000 0.689 0.659 0.692 0.535 0.649

1.000 0.614 0.594 0.582 0.631

1.000 0.590 0.501 0.628

1.000 0.545 0.633

1.000 0.595

1.000



Table 8. Nomological validity test result.

Notes: COMPE, competence; RECTR, recruitment and training; ATTMO, attitude and motivation to work; CREIN, creativity and innovativeness; MANPH, management philosophy; EFFEF, efficiency and effectiveness; ORGCU, organizational culture; RENDE, renewal and development; INFTE, information technology; SATLO, satisfaction and loyalty; IMABR, image and brand; HANCU, handling customers; MARSH, market share; CUSOR, customer orientation; DISCH, distribution channels; and BUPER, business performance.

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relevant variables and the construct of interest have been suggested to be an indication of the nomological validity of new constructs (Arnold & Reynolds, 2003; Bagozzi, 1980; Hinkin, 1998; Lemke & Wiersma, 1976; Tull & Hawkins, 1993). In the final stage of the scale development, this study assessed the nomological validity by examining bivariate correlations between the fifteen HOINCAP sub-dimensions and one theoretically related construct: business performance. There are well-grounded theoretical reasons to expect a positive relationship between the INCAP dimensions and business performance. Many researchers emphasize that INCAP dimensions play an important role in business performance and even in businesses survival (Bontis, 1998; Bontis et al., 2000; Kannan & Aulbur, 2004; Wang & Chang, 2005). Several scholars in the hospitality sector have a similar perspective (Engstro¨m et al., 2003; Enz et al., 2006; Walsh, Enz, & Canina, 2008). Business performance is viewed from both subjective and objective perspectives. The subjective concept is concerned with the performance of firms relative to that of their competitors (Chi & Gursoy, 2009; Morgan & Strong, 2003; Ramanujam, Venkatraman, & Camillus, 1986), whereas the objective concept is based on absolute measures of performance (Chakravarthy, 1986; Cronin & Page, 1988; Morgan & Strong, 2003). In this study, a subjective approach was adopted for the following three reasons: (1) previous studies reported a strong association between subjective responses and objective measures (Dawes, 1999; Jaworski & Kohli, 1993; Pearce, Robbins, & Robinson, 1987; Robinson & Pearce, 1988; Venkatraman & Ramanujam, 1986); (2) there are limits to the ability of the data in generating objective business performance assessments; and (3) prior research used the subjective approach to assess hospitality companies’ business performance and confirmed the validity of this approach (Chi & Gursoy, 2009; Sin, Tse, Chan, Heung, & Yim, 2006). Four scale items including percentage of gross operating profit, revenue per available room, sales growth, and profit growth constituted business performance to assess the nomological validity of the HOINCAP scale. These four scale items are generally regarded as reliable key financial indicators in the hotel industry (Engstro¨m et al., 2003; Schmidgall, 1995). Business performance assessment is relative in nature and appropriate specification should be made to indicate the referents used for comparison (Lewin & Minton, 1986). Drawn upon cognitive oligopoly (Porac & Thomas, 1990), Clark and Montgomery (1999) investigated competitor identification. The theoretical standpoint of their study views competitor identification as a process of categorization ‘. . . in which the manager of a particular firm, which we call the focal firm, is observing other firms, which we call target firms, to determine which of the target firms are competitors of the focal firm’ (Clark & Montgomery, 1999, p. 68). Business performance was assessed by asking managers to rate their hotel’s business performance relative to their competitors over the past three years. The scale is averaged over the three-year period to reduce the influence of year-to-year variations in financial results (Covin, Slevin, & Heeley, 2001). All the scale items were measured using a seven-point Likert scale with endpoints 1 (‘much lower’) and 7 (‘much higher’). For the purpose of business performance measurement, respondents were asked ‘compared to your direct competitor set, how well did your hotel do in terms of . . ., for the last three years?’ Business performance was shown to be reliable and valid with the Cronbach’s a ¼ 0.901, AVE (rvc(n)) ¼ 0.675, and CCR (r) ¼ 0.886. In the current study, because the HOINCAP scale is a second-order model, nomological validity would be established if the scores of the measures of HOINCAP sub-dimensions positively and significantly correlated with business performance. The correlation


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estimates calculated from the validation sample (n ¼ 253) appear in Table 8. All correlations between the fifteen HOINCAP sub-dimensions and business performance are significant at p , 0.05 or better level, which indicates strong evidence of the nonological validity of the HOINCAP scale. Conclusions and implications The objective of this study was to develop a reliable and valid measurement scale, namely the HOINCAP scale, that can evaluate INCAP in the hotel industry. The aim was achieved by following the accepted paradigm for scale development provided by Churchill (1979) and augmented by other researchers (Anderson & Gerbing, 1982, 1988; Bagozzi, 1980; Bentler & Bonnet, 1980; DeVellis, 1991; Netemeyer et al., 2003; Nunnally, 1978; Peter, 1981). The scale consists of three dimensions (human, organization, and customer capital), and these three dimensions constitute four (competence, recruitment and training, attitude and motivation to work, and creativity and innovativeness), five (management philosophy, efficiency and effectiveness, organizational culture, renewal and development, and information technology), and six sub-dimensions (satisfaction and loyalty, image and brand, handling customers, market share, customer orientation, and distribution channels) with 61 refined items was developed. This finalized measure using the categorical dimension and sub-dimension approach was unidimensional, reliable, and valid. The study suggests that attitude and motivation to work is the most important subdimension of human capital, which is consistent with the findings of Nemec Rudez and Mihalic (2007). Employees’ attitude and motivation is the soft part of human capital, which is the prerequisite for employees to give a full play to their competence (Chen et al., 2004). Hence, human capital of a service organization should be evaluated on the basis of employees’ overall job satisfaction, motivation for work and pride in a job. In addition, recruitment and training was perceived as an important element of human capital. When hotel firms recruit a new employee, instead of selecting one by his and/or her specialty, they should consider the conformity of the applicant’s attitude toward their requirement, and later train the newcomer in special skills. Creativity and innovativeness was also a key facet of human capital. Contemporary hotels are facing increased competition and market change. In order to survive and succeed in this dynamic world of global competition, organizational creativity and innovation in products, services, systems and work processes are required for any service organizations more than ever. Finally, human capital includes employees’ competence of which knowledge and skill are uppermost (Bontis, 1998). Knowledge is what is known in a particular field and obtained mainly in school. In contrast, skills are acquired primarily through practice. Hotels should help employees enhance their job skills and acquire new knowledge to better position them for the future. For the organizational capital dimension of INCAP, efficiency and effectiveness was perceived as a most important sub-dimension. With efficiency and effectiveness, a hotel firm can complete its operational tasks and improve profitability in the long run. Management philosophy also emerged as a key element of the organizational capital of hotel firms. A clear management philosophy determines how employees interact with guests, stay in touch with their department, hotel operation and customers, and meet high standards of quality, service and hospitality. The sub-dimension of renewal and development also received attention from hotel managers. The hotel industry is more competitive than ever, and this competition presents ongoing challenges for managers. Continuous renewal and development is thus necessary for hotels to establish effective service and


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product development for their long-term survival and growth. Furthermore, organizational culture emerged as part of organizational capital. With a strong organizational culture, a hotel can cultivate employees’ competence and motivate them to serve the company and its customers. When employees believe that they belong to the organization, they are more satisfied, more likely to remain with the company, and more willing to serve the customer wholeheartedly. Information technology was also found to be an important component of organizational capital in the hotel industry. Literature supports the essential role of information technology in refining customer service (Sweat & Hibbard, 1999), improving operations (Barcheldor, 1999), and minimizing costs (Ham, Kim, & Jeong, 2005). Information technology is particularly useful in modern hotel business environment, as it makes employees more productive and more attentive to customers (Law & Jogaratnam, 2005). Customer handling was found to be the most important sub-dimension of customer capital. Due to the high people factor of service, service failures are inevitable in the hotel industry (Kim, Kim, & Kim, 2008; Susskind, 2002). Customer capital should be evaluated on the basis of response to customer complaints, sharing customer feedbacks across departments, offering value added service to customers, and solving their problems. Image and brand were also part of customer capital in the hotel industry. The management of image and brand is a crucial task for hotels to survive and prosper in the competitive market exploded with numerous brands. In addition, the customer capital dimension of INCAP includes customer orientation. For a company to achieve continuous good performance, it must create a sustainable superior value for its customers (Appiah-Adu & Singh, 1998; Porter, 1985). A customer orientation culture enables service organizations to acquire the behaviours required for providing superior value to customers and sustainable performance. Furthermore, the sub-dimension of satisfaction and loyalty is playing an increasingly important role in today’s hotel industry. Hotels without loyal customers will have to resort to sales promotion to draw new customers who are sometimes unprofitable to the firms (Chen et al., 2004). Hence, hotels should make great efforts to enhance customer satisfaction and thereby build customer loyalty. In addition, the attribute of market share received attention from hotel managers. The hotel industry is a mature industry marked by intense global competition. As a mature industry, the hotel business must pursue gains in market share rather than gains in market growth by increasing the number of loyal customers (Tepeci, 1999). Lastly, the customer capital dimension includes distribution channels. The rapid growth of information technology has had a considerable impact on the distribution channels of the hotel industry (Tso & Law, 2005). The emergence of internet-enabled distribution channels has created opportunities for hotels’ management practices by helping to reduce distribution costs and maximizing contributions from room bookings. From a more practical perspective, the HOINCAP scale can help hotel managers better understand the composition of INCAP. Managers can use the measurement to evaluate the INCAP of their hotel and initiate proper practices in INCAP management. Managers need to understand the changing market environment of the hospitality sector where knowledge is the driving force (Hallin & Marnburg, 2008). Revenues of primary hotel management firms, such as Marriott and Hilton, now rely more on managing intangible assets than ownership and management of hotel real estate. Under increasing global competitive pressure, many hotels are investigating better ways to manage their INCAP. Since effective management relies on a sound measurement tool, the HOINCAP scale will help hotel firms to have a systematic management of their intangible assets. An effective management



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of INCAP will result in considerable benefits to the hotels that will determine business strategy and build a competitive advantage. The primary contribution of this study is that it has provided a starting point by establishing a reliable and valid INCAP scale that evaluates intangible assets in the hotel industry; this measurement can possibly be used to explain business performance. That is, this developed scale would act as a stimulus for additional research that could develop more integrative theories in explaining business performance in the hotel industry. More specifically, there is extremely limited research on measuring and evaluating INCAP of the hotel industry. Therefore, future empirical research will benefit from the existence of relevant construct definitions and the rigorous scale development process demonstrated in this study. The HOINCAP scale developed in this study is an extensive multiple-item scale, which is proven to be reliable and valid but the limitations and directions for future research of this study should be acknowledged. First, the sample population was composed of employees in upper-level management positions of selected upscale hotels in Seoul metropolitan area, and the HOINCAP scale was developed based on their perception and assessment of the INCAP. While few INCAP items not presented in the developed scale may be imperative in other segments of the hotel industry such as resort hotel or budget hotel, some items in the scale may be important in these types of hotels. Thus, generalizing the findings to other segments of the hotel industry should be done cautiously. In future research, it would be desirable to replicate the current research in other segments. Second, since the HOINCAP scale was developed and tested in hotels in Korea, it is important to examine whether respondents conceptualize the construct in identical ways when applying this scale to measure INCAP in different countries. Future researchers should examine the factor invariance to ensure that the relationships among the items and the construct remain the same across samples. Third, further research is recommended for validation assessment of the developed HOINCAP scale by continuously examining the scale’s ability to explain other outcome variables and to ensure the generalizability of the assessment of the identified dimensions and sub-dimensions with different samples and settings. Fourth, for assessing the nomological validity of the developed HOINCAP scale via the correlations estimate between the HOINCAP sub-dimensions and business performance, this study adopted a subjective approach to measure business performance for some reasons. While the nomological validity was achieved, since the subjective approach is concerned with the performance of firms relative to that of their competitors (Chi & Gursoy, 2009; Morgan & Strong, 2003; Ramanujam et al., 1986), the following studies should replicate the current scale to test the stability of the nomological validity with an application of a subjective approach to measure business performance as well as a objective measure (archival measure) which is based on absolute measures of performance (Chakravarthy, 1986; Cronin & Page, 1988; Morgan & Strong, 2003). Fifth, on the basis of the interrelationships among the three INCAP dimensions (human, organizational, and customer capital) from a cause-effect perspective (Bontis, 1998; Bontis et al., 2000; Chen et al., 2004), future researchers may also investigate dynamic interrelationships among the three dimensions of HOINCAP established in the scale. Lastly, it is hoped that the availability of this measurement scale will stimulate much-needed INCAP research in the hotel industry. Acknowledgement This work was supported by a grant from the Kyung Hee University in 2010 (KHU20100124).

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