HOSPITALITY INNOVATION

INDUSTRY REPORT
BY CARLOS MARTIN-RIOS
 HOSPITALITY INNOVATION SECTION 1 | SECTION 2 | SECTION 3

FOREWORD
Hotels are increasingly challenged by emerging competitors and shifting
customer demands and expectations; Airbnb being just one example of The only way that hotels can prosper in a more
the former and Millennials of the latter. It is becoming clear that all of the
‘traditional’ players in hospitality will need to innovate in order to meet these
diverse economy is to invest in series of innovations
challenges. While some hotels recognize this, and even welcome it, others to create competitiveness.
do not. Their conclusions can be summarized briefly as: “The only way that
hotels can prosper in a more diverse economy is to cut costs relentlessly
and accept lower profit margins.”

Yes, the challenges are significant. But I couldn’t disagree more with that opinion.
At the same time, there are a number of outstanding examples of innovative
hotels, that have developed new businesses, created new services, adopted
new management practices, engaged in collaborative and open innovation
initiatives with customers, academic institutions and even competitors.
Not to be forgotten, green, eco-innovations are increasingly popular.
Overall, there is a lot of interest among hoteliers and academics to ascertain
how technological innovations and these so-called “non-technological
innovations” contribute to new and profitable revenue streams, and a
competitive advantage. Very few academic studies have helped hotels better
understand the current state of hospitality innovation strategies – and evaluate
how complex innovations affect the firm’s overall utility, despite the critical
importance of these issues. These are some of the issues addressed in this
report.
it is one of the least studied and understood industries of the economy.
Research to identify and investigate the relevance of novel forms of innovation
for hospitality to remain competitive is still needed. Investigating and
responding to this research gap is of paramount importance.
Data from this report is the result of a research project sponsored by the Ecole
hôteliere de Lausanne (EHL) and the HES-SO, the University of Applied Sciences
Western Switzerland. EHL is considered by the industry to be the world’s best
hospitality management school. Between October 2016 and December 2017,
over 2500 hotel professionals ranging from CEOs to hotel General Managers
were contacted. We obtained a +/- 12% response rate. Data analysis has
resulted in a series of academic articles, professional publications as well
as in working papers published by EHL.

Almost 4% of the EU Gross Domestic Product is generated by the hospitality

industry (EY, 2013)—such as hotels, restaurants and food service providers—
and roughly one in ten of the EU working population is employed in this industry.
These numbers are roughly the same in other parts of the world. Carlos MARTIN-RIOS (PhD)
Associate Professor
Hospitality is also considered among the most competitive businesses in the Ecole hôtelière de Lausanne, EHL Switzerland
world. Despite the widely acknowledged importance of the activity,

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TABLE OF CONTENTS

Foreword 2 SECTION 3: TODAY 32

Author’s biography 4 Main characteristics 33

Executive summary 5 Firm performance and success 34

SECTION 1: BEST PRACTICES 8
Components of innovation strategy 12
Best practices: Technological innovation 14
Best practices: Non-technological innovation 16
Best practices: New innovation strategies 19
SECTION 2: FUTURE SCENARIOS 21
Hospitality innovation scenarios at a glance 22
factors
Market strategy 35
Competitive environment 36
Concluding remarks 38
Acknowledgements 40
References 41
Collaboration opportunities with EHL 42

A sneak peek at the results 27

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AUTHOR’S BIOGRAPHY

CARLOS MARTIN-RIOS
Carlos Martin-Rios (PhD, Rutgers University) is an Associate professor of Human
Resources and Organizational Behavior, active in the field of innovation at the
Ecole hôtelière de Lausanne (EHL, Switzerland)
He performs research that aims to understand and predict the factors that determine
innovation strategies in knowledge-intensive service firms at large and, in particular,
hospitality firms. Prof. Martin-Rios is the author or co-author of over 40 peer-reviewed
journal publications, over 15 articles in professional journals, 55 conference reports
and 19 invited talks, lectures and conference chairs.
Prof. Martin-Rios has worked and lived in the United States, Latin America, and Europe
and has been active in both institutional and private entrepreneurial activities, having
served as an advisor in launching innovation management programs and two
consulting companies.

For more information, please click here

or write an email to Carlos.MARTIN-RIOS@ehl.ch

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EXECUTIVE SUMMARY

Carlos Martin-Rios, professor at the Ecole hôtelière de Lausanne, has been

tracking hospitality innovation for the past three years, surveying hundreds of
managers and interviewing more than 50 executives and thought leaders to
SEVEN EVIDENCE-BASED FACTORS
produce this annual report. The key objective is to increase knowledge about that drive innovative business practices

1
the adoption of innovative practices by global hospitality businesses and to
support the integration of innovation strategy into hospitality business strategy. VISION
Despite significant progress, hospitality innovation has arrived at a crossroads. Develop a practical innovation vision and framework that lays
the foundation for new innovation practices.

2
On one hand, hospitality corporate leaders in innovation remain a minority,
and are unevenly distributed across geographies and ownership structures.
On the other hand, a few standout companies are demonstrating BUSINESS CASE
that innovation can be a driver of renewal, efficiency and lasting business value. Prepare a clear business case for innovation in your
It’s one of the central dilemmas of hospitality innovation: few organization.

3
disagree with it in principle, but why doesn’t it happen more often?
VALUE-CREATION
Many independent hotel owners believe they do not have the resources
Communicate an innovative value-creation story to your
to develop their own innovation strategies. Several international multibrand
shareholders.

4
firms are better prepared to develop innovation strategies and to implement
a variety of innovative solutions.
STAKEHOLDERS
Short-term strategic thinking and cost-driven management practices Collaborate with a variety of stakeholders to mobilize resources,
represent hurdles to a broader implementation of innovation management acquire new knowledge and ideas, and drive strategic change.
in hotels.

Fortunately, the path to value creation through innovation has become

substantially clearer in recent years. Based on our multi-year research on
5 QUANTIFIABLE
Identify and prioritize quantifiable concerns and opportunities
to focus resources.

6
hospitality innovation, we have identified seven evidence-based factors
that drive innovative business practices, regardless of size, ownership
structure or region.
EMBEDDEDNESS
Embed innovation organizationally through the establishment
of innovation managers, cross-functional teams, and clear targets.

7 MULTIPLE DIMENSIONS
Innovate on multiple dimensions of the firm’s business model
and processes: technology, service, organization,
sustainable management and marketing.

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Future scenarios
In terms of future scenarios, hospitality firms that will invest on a range of
innovations will be better suited to increase competitiveness and reduce
their productivity gap. The simple adoption of technological innovations alone
is not sufficient to gain competitiveness; the full benefit of those technologies
is only achieved if they are accompanied by a cluster of related innovations in
organization, customer and supplier relationships, and a redesign of existing
business models. Still, many companies will find it difficult to get the creativity
skills and innovation mechanisms they need. Companies for which innovation
remains elusive will find it difficult to obtain good results and to handle the
innovation requirements.
There is an excellent opportunity for a formal innovation strategy for hotels
worldwide. In the short to medium term, innovation is what will determine
the productivity performance and competitiveness of hospitality companies,
whether independent hotels or national or multinational hotel chains. With an
ever increasing pace of competition in a highly convoluted industry, the costs
of inaction will be considerably higher than initially believed. The choice hotels
need to make is to innovate or face the painful process of obsolescence and
irrelevancy.

With an ever increasing pace of competition in a highly convoluted industry, the costs of inaction will be considerably higher
than initially believed. The choice hotels need to make is to innovate or face the painful process of obsolescence and irrelevancy.

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KEY FACTS
Innovation in firms and performance measures comparison
Survey respondents:
TYPE OF PROPERTY

9.7% '99 ROI ROA

on
Luxury Upscale Midscale Budget
CEOs & Directors of European Luxury 500 employees
or less
50% ROI (return
established
on investment)
before 1999
ROA (return
Have implemented
on assets) innovations
technological
Area/business division 34.1%
firms 30.5%
& upscale 25.1% 10.3%
71% 59% 65% 64.6% 74%
40.3% 89.7% 62%
100% 72%
Innovation level in firms is
2.6 .9 8.8
Innovation in firms and performance measures
Low 1 comparison
Medium High Sales10growth Bed occupancy
High vs low innovative firms 2011-2016:
High innovative firms report significantly positive differences in ROI, ROA, sales growth and occupancy rates.

30.3
28.2
59
% 58
% ROI
48
% S
.2 .8 .3

9.7% ROI ROA

ROI (return
ROI ROA %
on investment) 50

50%
40
ROI (return ROA (return 30
on investment) on assets) 20 B
ROI (return ROA (return Sales growth Bed occupancy 10
on investment) on assets) ROA
40.3% Innovation in firms is: Low Medium High
ROA (return
on assets)
Innovation level in firms is
Low Medium High Sales growth Bed occupancy
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HOSPITALITY INNOVATION - BEST PRACTICES

SECTION 1.
INNOVATION STRATEGIES
AND BEST PRACTICES

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 HOSPITALITY INNOVATION REPORT SECTION 1 - BEST PRACTICES
INNOVATION STRATEGIES AND BEST PRACTICES IN INNOVATION
Hospitality innovation management is one of the most salient topics in
international hospitality, tourism and travel management, both at the
academic and practitioner level.
For many, innovation is equated with technology, and only scientists and
engineers bring new technologies to life. Yet, innovation can occur in many
avenues that have little or nothing to do with technology or science. Service
firms, including hospitality firms, can and often do innovate their service
offerings, customer experiences and business processes and models.
The most comprehensive and widely accepted definitions of innovation are
offered by the Organization for Economic Co-operation and Development
(OECD) and the U.S. Department of Commerce. These definitions make
reference to complex forms of innovation. It is important to note that innova-
tion is not necessarily successful and tied to growth. According to the Oslo
Manual (OECD, Statistical Office of the European Union) innovative firms often
fail to generate economic returns from their innovations.
An innovation is the implementation
of a new or significantly improved
product (good or service), or process,
a new marketing method, or a new
organisational method in business
practices, workplace organisation
or external relations.
OECD Oslo, 2005
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In Peter Druker’s words “Unexpected failure may be an equally important
source of innovation opportunities”.
Most innovative firms, however, especially the successful ones, put in play
a conscious, purposeful innovation strategy that combines different
innovation practices.
According to Schumpeter’s theory of innovation, a firm’s innovation strategy
and, hence, its innovation intensity covers both technological and non-tech-
nological areas. Our definition of innovation strategy in hospitality firms
includes combinations of a range of innovative activities encompassing
technological innovations—including service, technology and process inno-
vations, as well as non-technological innovations—management methods,
organization, strategic and marketing innovations.
Firms with a formally defined innovation strategy often attempt complex
forms of innovation, which results in high innovation intensity.
The design, invention, development
and/or implementation of new or altered
products, services, processes, systems, organi-
zational structures, or business models for the
purpose of creating new value for customers
and financial returns for the firm.
DOC, 2010
REPORT | MAY 2018 9
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Most innovative firms, especially

the successful ones, put in play
a conscious, purposeful innovation
strategy that combines different
innovation practices.

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Despite the importance of the relationship between different combinations It reflects the extent to which hospitality firms have a well-defined and
of innovation initiatives and organizational effectiveness, innovation strategy ambitious innovation strategy in place (firms with high innovation intensity)
and innovation intensity have not been the focus of much research in the or a less-defined, more modest innovation strategy (firms with medium
hospitality field. innovation strategy).

• How and to what extent is innovation activity the response to changes
in the external environment?
• How and to what extent do different innovation strategies take place
internally in hospitality firms?
• Do hospitality firms differ in their capacity to foster and implement
innovation activity?
Innovation Intensity
Innovation intensity is a composite measure of innovation initiatives and is
used to rank hospitality firms according to their innovativeness.
We calculated overall innovation intensity for each participating firm.
Just under 10% of firms in our study have high innovation intensity. The vast
majority of firms have low (40%) and medium (50%) levels of innovation
intensity.
Innovation intensity ranges by ownership structure from 6.3% among
independent firms to 2.5% for corporate ones and just 0.4% for leased and
franchised ones. Among innovators alone, innovation intensity is naturally
higher, but especially among independent firms (65%) and corporate firms
(26%) compared to just 4.3% for leased and franchise ones.

NON-TECHNOLOGICAL
TECHNOLOGICAL INNOVATION
INNOVATION

Product/service Management methods

New technology Organizational

or technical equipment structure/practices

Process Business model

Marketing strategy/
methods

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Components of innovation strategy

This section contributes to the ongoing discussion on what impact, if any,
innovation strategies and practices (technological and non-technological)
might have on long-term hotel performance and competitive advantage. It also
provides important insights for future studies on hospitality and open,
collaborative innovation and hospitality and sustainable, eco-innovation.
In addition, results are of interest to both practitioners and academics and
its output serves both audiences. Identification of the role of various forms of
innovation and their impact on innovation returns and firm performance
provides valuable decision-making information for hotel managers.
In particular, results show that helping hospitality firms to address the
challenges of complex innovation strategies allows them to efficiently ma-
nage their sources of competitive advantage.
Over half the companies pursue a medium-intensity technological and
non-technological innovation strategy. A somewhat higher proportion of firms
pursue a high-intensity technological innovation strategy than a high-intensity
non-technological innovation strategy. Regarding new innovations, the bulk
of companies follow a low-intensity or medium-intensity strategy.

COMPONENTS OF INNOVATION STRATEGY

66 6 99 9 88..88
8.8
1122.1.2. 1100.1.0.

6 9 8.8
12. 10.

30.3
30.3

42.9
42.9
28.2
28.2

30.3

42.9
28.2

55995 9
%% 59
.2
%
55885 8
%% 58
.8
% 48
.3
%
44884 8
%%
..22. 2 ..88. 8 ..33. 3

Technological innovation Non-technological innovation New innovation

strategy strategy strategy

Innovation in firms is: Low Medium High

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THE DIFFERENT TYPES OF INNOVATION

Management
New principle challenging
management orthodoxy
Organizational
New method in undertaking
Product/service business practices
New way of serving customers and workplace organization
to create greater value
Non
-te
l

ch
Technologic
Marketing

nolo
Market attractiveness,
pricing architecture,
INNOVATION

gical
distribution channels
Process
New production
or delivery method ew
N

p r a c ti c e s
Business model
Create/adapt/renew
value creation
New external relationships
Seek and leverage ideas
Environmental sustainability
from partners, customers, and
Initiatives with a strong
individuals external to the firm
sense of environmental awareness

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BEST PRACTICES: TECHNOLOGICAL INNOVATION

Moving hospitality companies forward

There is a clear and positive relationship between overall high-intensity
innovation strategy and high-intensity technological innovation in hospitality.
Results show that technological innovations are prominent in hospitality firms.
Close to 72% of executives report to have implemented a considerable
proportion of innovations in the technological domain during the period
2011-2016.
In terms of organizational outcomes, firms high in technological innovation
outperform firms low in technological innovation in all of the six subjective
measures of performance. Particularly positive and statistically significant
differences include: ROI, overall customer retention, sales growth and
average bed occupancy.

1. New technology or technical equipment

hardware and software

2. New or significantly improved services

with respect to its capabilities, user

72%
friendliness, components or sub-systems

of the executives report

to have implemented 3. Substantial renewal of administrative processes
a considerable proportion such as maintenance systems,
of technological innovations operations for purchasing, accounting,
computing or logistics

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New technology or technical equipment

(hardware and software)
.8 9.9 .8 9.9 1 1
Innovation for a large majority of hospitality firms is about developing 36 36 34. 34.
new technology or technical competency. Firms heavily investing in new
technologies and technical capabilities obtain higher performance returns. 12.
6
10.
9 8.8

22.
4
Top executives and senior managers agree on the need to strengthen
the industry’s ability to continuously adapt and innovate by facilitating

30.3
28.2
investment in new technologies and continuously adapting to new
technological capabilities.
% 59
.2
% % 58
.8 3
%
.5
% 3. %48
.3
%

4
Despite the importance of technology advancement, these firms do not 53 53 5
.4 .4
obtain significantly higher results in overall customer retention and average
bed occupancy rate. Investment in new technologies should be strengthened
through a combination of several forms of innovation. New technology Product/service innovation Process innovation
or technical solutions are useless unless guests are informed as to their
availability and the most effective way of using them.

Product / service innovation Innovation in firms is: Low Medium High

Service innovation is prominent among successful hospitality firms.

As recent research suggests, the nature of services and the pace of change Product innovation: introduction of a good or service
have shifted dramatically in recent years, and mastering the traditional that is new or significantly improved with respect to its
aspects of service delivery is no longer enough (McKinsey, 2015).
Our research shows that one of the keys to profitability in new service characteristics or intended Low Medium
Low
uses. This includes significant Medium
High
development is launching unique, superior services with a compelling improvement in technical specifications, components
value proposition. and materials, incorporated software, user friendliness
or other functional characteristics.

Process innovation: implementation of a new or

significantly improved production or delivery method.
This includes significant changes in techniques,
equipment and/or software.

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BEST PRACTICES: NON-TECHNOLOGICAL INNOVATION

The last frontier of competitive advantage

With regard to non-technological innovation, two main findings stand out.
First, non-technological innovation encompasses several forms of innovation.
According to the statistical results, organizational innovation is a new method
in a hotel’s business practices, workplace organization, marketing strategy or
business model. It aims to optimize a hotel’s performance by cutting admi-
nistrative and transaction costs, increasing workplace satisfaction, acces-
sing non-tradeable assets, or reducing supplies.
Moreover, two types of non-technological innovation can be distinguished:
organizational innovations and managerial innovations. Organizational in-
novations deal with the organizational setting of the firm and the division of
labor within it, whereas management innovations involve the operations and
procedures by which the firm organizes its activities (i.e., HR, information
flows).
According to the degree of innovation in new service development, about
a third of the companies pursue an innovation strategy that includes a high
degree of new management, marketing and business model capabilities.
The following sections highlight the wide range of relationships between
technology innovation and non-technological innovation in practice.
In hospitality, the innovation does not necessarily relate to the novelty of the
technology itself but it often lies in the non-technological areas.

1. Implementation of new kinds of management methods

to achieve targets and objectives

2. New or overhauled work structures or practices (team work,

Innovation in hospitality
Innovation does not necessarily relate
to the novelty of the technology itself
but to the non-technological areas
surrounding it.
decentralization, new system of employee responsibilities, etc.)
3. New or overhauled marketing methods or strategy
4. New or overhauled business models

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Management methods Organizational innovation

Management innovation is anything that substantially alters the way in which
the work of management is carried out, or significantly modifies customary
organizational forms, and, by doing so, advances organizational goals
(Birkinshaw and Mol, 2006).
Results show that the different management innovations play an important
role, not only in their innovation outcomes but also in their capacity to
develop, implement and monitor the progress of distinctive strategies to
boost their competitiveness. Management innovations have become more
prominent in many of these companies and, combined with other sources
of innovation (technological, non-technological, and open), may lead to an
increase in expertise, responsiveness and excellence.
Organizational innovations are becoming widespread among hospitality
firms. Results highlight their increasing reliance on organizational innovation
for strategic transformation. Not surprisingly, these forms of innovation have
experienced mounting interest in recent years. One important driver of this
trend is the need for continuous adaptation to stay competitive, which might
lead hospitality firms to search for and to implement a variety of innovative
solutions at the organizational level.
About 37% of hospitality firms report high levels of organizational innovation.
There is a significant relationship between pursuing organizational solutions
and managerial innovations. Moreover, results suggest a strong association
between organizational innovation, business model innovation and overall
organizational effectiveness of a firm.

34.5 34.5 36.8 36.8 8.8 8.8

12.
6
10.
9 8.8 Organizational innovation:
18

18
the introduction of a new management
.4

.4
22

22
.4

.4

practice, process, structure, or technique

30.3

42.9
28.2

42.9

42.9
% % % into the organization that tends to
improve effectiveness or performance
% % % %
48

% %
59 58
.2 .8 .3

3 3 44 44 of that
4 organization.
4
4

.8 .8 8.3 8.3

Management innovation Organizational innovation

Innovation in firms is: Low Medium High

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Marketing methods or strategy

Marketing innovation is the most prevalent form of non-technological
innovation among companies in the study. Close to 40% of all firms have 8.9 8.9
39.9 12.
6 39.9 12.
6
heavily invested in their marketing innovation strategy. The term “experience
economy” famously coined by Pine and Gilmore (1998) describes the economic 12.
6
10.
9 8.8

.8

.8
18

18
value generated by staging experiences that create lasting memories for the
consumer. Consumers increasingly desire unique, memorable and immersive

30.3
28.2
experiences when it comes to acquiring services. Hospitality companies face
the opportunity to revamp their marketing strategies by offering unique
% % %
service and engagement of customers in a manner that creates indelible
experiences. % 59
.2
% 58
.8
54
% 54
% 48
.3

4 7. 4 7. .6 .6
5 5
Business model innovation
Strategic innovations consist of critical innovations that relate to the Marketing innovation Business model innovation
formulation of a business model. According to the Harvard Business Review
(HBR) article «Reinventing your business model,» authored by Christensen,
Johnson and Kagermann, these innovative actions refer to the economic
architecture, business planning and execution, customer segments, customer Innovation in firms is: Low Medium High
relations and the market development for value added end-products.

Business model innovation has the potential to significantly improve the

environment and economic impact as well as addressing the barriers of limited Marketing innovation: implementation of a new
growth and slow scaling processes. Yet, as pointed out in a recent article marketing method involving significant changes in
from McKinsey, this kind of innovation is notoriously hard for established firms
as they face barriers when attempting to disrupt traditional ways of doing
Low
product design or packaging, Medium
Low
product placement, Mediu
Hig
business. product promotion or pricing.
Not surprisingly, the business model innovation has the lowest proportion of
respondents in the category of high intensity. As a matter of fact, only 19% of
the companies pursue a medium intensive innovation strategy regarding their
formulation of a business model. innovation intensity. There is a strong positive relationship between business
model innovation and all performance indicators except average bed occupancy
In contrast, firms actively innovating their business offering are also the rate, because seasonal fluctuations and external socio-economic factors have
companies with the most complex innovation strategy and the highest significant economic implications for hotels.

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BEST PRACTICES: NEW INNOVATION PRACTICES

Open innovation and sustainable eco-innovation New external relations

Although sustainability and open innovation are not part of the innovation
strategy of many hospitality firms, our results illustrate how certain
hospitality firms are engaging in these novel forms of redesigning the
consumer experience and developing broad networks of relationships
to generate innovation returns and firm performance.
There is a positive relationship between devoting resources to novel forms
of innovation and the other two strategic dimensions (technological and
non-technological innovation) in firms with strong innovation intensity.
A considerable proportion of executives consider that the implementation
of new methods of organizing external relations with stakeholders have an
important impact on their business performance.
As research has shown, a firm’s engagement in the establishment of external
relationships helps them obtain, combine and exchange critical knowledge,
which is directly related to its economic activity and strategic business
priorities (Martin-Rios & Erhardt, 2016).

88 99
303. 0.
64%64%
64%
66 6
12.. .
8 9 30.
9
8.8 Suppliers of equipment, materials,
10.
.6
49
49

components, or software
49

22.
22.9
229 .9
30.3

42.9
28.2

Other companies within

44%
44%
44% their corporate group
% % %
59
% 58
% 48

%% %%
46

.2 .8 2 .3
Universities or other higher
.4

42
33%
.
46
4 6.

2 2 education institutions
.4
.4

4 24 2
33%
33%
.

innovation innovation
New innovation practices
& sustainability External relations innovation
ext. relation Innovative external relationships
Between 2011-2016, 31% of firms invested heavily
innovation
innovation
Innovation in firms is: Low
innovation
Medium
innovation
High in developing innovative external relationships
&&sustainability
sustainability ext.
ext.relation
relation
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Environmental sustainability
Environmental sustainable innovation encompasses sustainable values,
6
management of sustainable development, eco-innovation, new management 42. 19
10. 6
6 8.8
12.
and technologies of environmental sustainability (conservation, saving

.6
energy/water, recycling, green growth, etc.).

30.3
28.2
There is a considerable proportion of firms reporting a strong investment in
eco-innovation. Some 80% of firms indicated that they were investing heavily
% % %
%
in eco-innovation. Developing sustainable business is an ecological, economic 59 58 48
.2 .8 .3
and social issue.

This also holds true for sustainability innovations as firms seek cost-reduction
and soft-performance (image, brand and reputation) benefits. These drivers 4 0. 8
might hamper the implementation of certain forms of environmental inno-
vations, particularly, innovations perceived to be expensive and having only
indirect soft-performance benefits. Sustainable eco-innovation

Environmental
Innovation in firms is: Low Medium High
sustainability

Environment

Bearable Viable

Low Medium
Sustainable
High
Social Economic
Equitable

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 20

 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

HOSPITALITY INNOVATION - FUTURE SCENARIOS

SECTION 2
SIX HURDLES
TO HOSPITALITY INNOVATION

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 21

 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

SIX HURDLES TO HOSPITALITY INNOVATION

Hospitality innovation scenarios at a glance

This section provides an analysis of the main innovation issues and trends
impacting and influencing the industry. We asked executives to assess the
extent to which the following six innovation scenarios were more likely to take
place in their organizations in the next three to five years.
Innovation needs to be more strategic. This was the overwhelming conclusion
drawn from our study. This also implies investment in technological innovations
and the so-called ‘creative workspaces’ where employees are empowered
to develop new ideas and test new concepts. Non-technological innovation
is also perceived as a central element of the future innovation system.
There is an excellent opportunity for a formal innovation strategy. In the
short-medium term, innovation is what will determine the productivity perfor-
mance and competitiveness of hospitality companies, whether
independent hotels or national or multinational chain hotels.
In contrast, a considerable proportion of executives consider that innovation
strategy will remain one of the most elusive dimensions of organizational
routines and performance. Interestingly enough, a quarter of leaders surveyed
believe that innovation activities will be outsourced to third-party businesses
and/or organizations.
A majority of independent hotel owners believe they do not have the
necessary resources within the company to develop their own innovation
strategies. International multibrand hospitality firms seem to be better prepared
to develop innovation strategies and to deal with long-term conditions.
In a certain way, this result confirms Schumpeter’s hypothesis that large firms
innovate more because they have the resources and financial freedom needed
to invest in innovation.

WHICH OF THE 6 INNOVATION SCENARIOS WILL TAKE PLACE IN THE NEAR FUTURE?

Scenario 1: Scenario 2: Scenario 3: Scenario 4: Scenario 5: Scenario 6:

Innovation Technological Non-technological Organization will Innovation will Innovation
will become innovations (organizational become more remain will be handled
more strategic will become and management) creative and more an elusive goal. by external
in nature. more prominent. innovations will inspiring workplaces businesses.
become more for individual
prominent. employees & teams.

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 22

 HOSPITALITY INNOVATION REPORT
SCENARIO 1
Strategic innovation
will drive business growth, generate
value for the company and its customers,
and create competitive advantage.
Grow
SCENARIO 4
Creative workplaces
Hotels will place emphasis on building
a workplace where there is a constant
exchange of ideas and finding the right
formula for the hotel and its culture.
Encouraging creativity in the workplace
will be a cost-effective way to foster
informal innovation.
Ecole hôtelière de Lausanne ehl.edu
SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3
STRATEGIC PLANS
SCENARIO 2
Technological innovation
Technological innovations will have
important strategic implications for hotels.
This type of innovation will be essential
for hotels to adapt to the speed
of technological change.
SCENARIO 5
Innovation remains elusive
Multiple organizational and financial
elements will prevent hotels from building
deep innovation capability and strategy.
Focus on short-term needs of the core
business will be at odds with divergent
plans, testing and failure.
OPERATIONAL PLANS
SCENARIO 3
Non-technological innovation
Management and business model
innovations will help determine the
success of organizational change and
speed up organizational adaptation
in competitive environments.
Sustain
SCENARIO 6
Outsourced innovation
Companies will find it difficult to handle
innovation requirements, leading to low
in-house innovation activities. Innovation
remains a cost-driven activity.
REPORT | MAY 2018 23
 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

Despite their lack of investment in innovation, roughly half the non-innovators Although there is a degree of consensus among executives that outsourcing
still expect that innovation will not be problematic in the future. Yet, close to 30% of innovation activities will not be relevant for the industry, opinions may be
of these firms believe that in the future they will engage even less than currently divided about the underlying reasons. Top innovators may favor in-house inno-
in non-technological innovation and green, sustainable innovations. vation regardless of cost, whereas in the case of non-innovators it might be due
to the lack of formal innovation strategy and practices.
In contrast, companies taking a bolder, more far-sighted approach to innovation
are on the opposite trajectory: aligning the organization around the require- A closer look at the differences in perception between the most innovative
ments for success. Their balanced portfolio of innovative efforts – including
91 87
firms and the non-innovators 91the six scenarios shows positive
regarding
technological, non-technological and sometimes green, eco-innovations – rein- statistically significant differences in all six future scenarios.
forces their innovation strategy.
61 65
35
42 26
33 33
16 23 17 5

91 87 91
65 52 44
61
35 55
42 26 49
33 33
23 5 12 13 29 9 27
16 17 4 19
0 17 0

High likeliness of ocurrence (%) High unlikeliness of ocurrence (%)

52 44
High innovators Non-innovators
55
Scenario = Strategic Technological
49
Non-technological Sustainable Creative workplace Elusive Outsourced

12 13 29 9 27
Ecole hôtelière
17 de 4 Lausanne 19
ehl.edu REPORT | MAY 2018 24
0 0
 40
20
HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3
0

Likeliness of ocurrence Unlikeliness of ocurrence

The most innovative firms, we found, emphasize strategic innovation and High innovators place a big premium on a varied portfolio of innovation
creative workplaces. Mid-innovative firms appear to place equal emphasis on activities. By a margin of almost 3-to-1, using a complex innovation strategy
the technical side as well as on the social side of innovation. This group of firms (including technological, non-technological and new innovations) to face the
consider the uncertainties of the environment on the firm’s innovation strategy future challenges separates high innovators from lagging innovators.
and practices to be highly important. Finally, the less innovative firms remain
static: neither develop their business strategy nor outsource it. Innivation in firms is
Low Medium High

Technological Technological

100 100
80 80
60 60

Outsourced 40 Outsourced 40
Strategic Strategic
20 20

0 0
Elusive Elusive
6 9 8.8
12. 10.

30.3

42.9
28.2

Non-technological Non-technological

59
% 58
% Creative 48
%
.2 .8 .3
Creative workplace
Sustainable Sustainable
workplace

Likeliness of ocurrences (%) Unlikeliness of ocurrences (%)

Innivation in firms is
Low Medium High

Innovation in firms is: Low Medium High

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 25

 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

Results are particularly revealing regarding firms engaged in business and the highest innovation intensity. Not surprisingly, companies actively en-
model innovation. Although only 19% of the companies are currently gaged in business model innovation have the highest scores in every single
reformulating their business model, as seen in the previous section, innovation activity.
they are also the companies with the most complex innovation strategy

Six questions about business model innovation: Most likely future scenarios of innovation
for business model innovators (%)

2 Outsourced Strategic

What novel
activities could
help satisfy those
5 83
needs?
How will value

1 3
be created
for each
25
What customer How could the stakeholder?
50 75
needs will the activities be Elusive
Technological
new business linked in novel
model address? ways? 6
What revenue 67 54
4 models can be
adopted to
Who should complement the
perform the business model?
activities?
What novel
95
Sustainable Non-technological
Source: Amit, R. & Zott, C.
(2012) Creating value through
governance
business model innovation. arrangements
Creative
Sloan Management Review,
Spring.
can be found? workplace

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 26

 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

A SNEAK PEEK AT THE RESULTS

Strategic innovation scenario (%)

87 91 9 78
13 22
Scenario 1. Strategic innovation
Over 75% of executives think innovation will be more strategic in the future.
One leading factor: In terms of innovation activities, highly innovative firms High intensity High intensity High intensity
have typically engaged in non-technological innovation. technological non-technological new innovations
innovation innovation (open & eco-innovation)
50 61 44
13 13 22
37 Unlikely 26
Likely Most likely
33

3 87 66
10 13
87
88
Building capabilities based on technological innovation (%)

Scenario 2. Technological innovation LOW HIGH

33 39 28
Building capabilities based on technological innovation is considered essential 17 23 28
17 44 77
in the future for over two thirds of the executives. 50 44
The hospitality industry is one of the most challenging, as it’s an assembly line inside
a retail business. Most technological solutions for this industry relate to the need to
manage cash flow, inventory and sales data. Technology will do a great job of using
personalization to improve experiences. 27 26 17
39
30 26
43 48 44

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 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

Scenario 3. Non-technological innovation

Future workplace innovations are of the highest importance for
innovative hotels currently engaged in such innovations. Interestingly,
companies who scored high on technological innovation – where firms
introduce more new processes or technologies – are also companies
where more restructuring or reorganization takes place.
87 91 9 78
13 22

Future workplace innovation scenario (%)

50 61 44
13 13 22
37 26 33

High intensity High intensity High intensity

technological non-technological new innovations
innovation innovation (open & eco-innovation)
3 87 66
10 13
87 Unlikely Likely Most likely
88

33 39 28
17 28
50 17 44 44

Ecole hôtelière de Lausanne ehl.edu 27 26 REPORT |17

MAY 2018 28
39
 27 36 26 11
HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

Building innovative workplaces (%)

Scenario 4. Innovative workplaces 60

45
Upscale hotels seem prompt to spark on-demand creativity in their workplaces.
Alternatively, luxury hotels struggle to cultivate creative employees and workplaces
40
10 27 Luxury
Budget
87 11 91 9 78
at large. It’s no secret that fostering creative thinking within the workplace is vital to
20
13 22
improving productivity. Yet, to boost creativity it is important to foster a culture of open
and ongoing communication. Luxury and budget hotels alike seem to fail to take full 16
advantage of innovative cultures and work practices to tap into the creativity of their 26
smart people working on the same problem: providing the best customer service. 36
Midscale 29 Upscale
A decisive factor explaining why the creativity of employees and workplaces should be
fostered is innovation strategy and intensity. The three innovation activities—technolo- 50 61 44 Likely
gical, non-technological and new forms of innovation, show similar levels of acceptance
13 13 Unikely
22
about increasing creativity in the workplace. All differences are positive and statistically 37 26 33
significant for each of the six scenarios for the future.
Creative workplaces innovation scenario (%)

3 87 66
10 13
87
88

High intensity High intensity High intensity

technological non-technological new innovations
innovation innovation (open & eco-innovation)
33 39 28
17 28
50 Unlikely 17Likely
44 Most likely
44

27 26 17
39
30 26
43 48 44
Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 29
 14.3 42.9 42.9

5.6 39.6 55.2

HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

87 91 9 78
13 22

Elusive innovation and firm’s age (%)

50 61 44
13 13
Scenario 5. Elusive innovation Pre 1970-1999 30 70 22
37 26 33
For mature organizations, innovation remains difficult. These hotels must figure out how
to budget resources devoted to innovation, who encourage innovative thinkers, break 2000-2017 20 80
away from the main operations, find new solutions and test concepts.

Close to 70% of hospitality firms report low or moderate levels of uncertainty Unikely Likely
3 87 66
regarding the future of innovation in their organizations. There is a significant 10 13
relationship between pursuing innovative solutions and uncertainty toward innovation. 87
Moreover, results suggest a strong association between organizational innovation,
88
business model innovation and overall uncertainty about innovation in the future. Innovation will remain elusive (%)

33 39 28
17 28
50 17 44 44

High intensity High intensity High intensity

technological non-technological new innovations
innovation innovation (open & eco-innovation)
27 26 17
39
30 Unlikely 26Likely Most likely
43 48 44

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 30

 HOSPITALITY INNOVATION REPORT 87
SECTION 1 | SECTION 2 - FUTURE SCENARIOS 91 9 3
| SECTION 78
13 22

50 Future outsourcing
61 innovations (%) 44
13 13 22
37 26 33
Top innovators
26.1 30.4 43.5
Scenario 6. Outsourcing innovation
Mid innovative
There is not a clear sense of urgency among executives for outsourcing innovation firms 14.3 42.9 42.9
activities. 3 87 66
10 13
87
Non-innovators
5.6 39.6 55.2
The more innovation they do, the higher their likeliness to outsource any innovation 88
activity in the future. Outsourcing is more related to technological innovation. More
precisely, close to 70% of firms doing technological innovation answered positively
to the question of whether they will engage in innovation outsourcing in the future.
Unlikely Likely Most likely
33 39 28
17 28
50 17 44 44
Outsourcing scenario (%)

27 26 17
39
30 26
43 48 44
30 70
High intensity High intensity High intensity
technological non-technological new innovations
innovation innovation (open & eco-innovation)
20 80
Unlikely Likely Most likely
Executives are not rushing to outsource
innovation activities

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 31

 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 | SECTION 3 - TODAY

HOSPITALITY INNOVATION - TODAY

SECTION 3
HOSPITALITY INDUSTRY TODAY

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 32

 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 | SECTION 3 - TODAY

Board member
MAIN CHARACTERISTICS
CEO
Area or business Region
Professional
YEARprofil
OF
7 division Director 58.7
21.4 .2
ESTABLISHMENT
Board member 20.2
YEAR OFCEO Hotel General Manager / 12.1
Director of a Department
ESTABLISHMENT
78.9%

9.3
37.7

Area or business 1
7
21.4 .2
% division Director
7.2
1

19.3
4.

Hotel General Manager /

80.7%

3
YEAR OF Director of a Department 1.8
18.4

31.4
37.7

.3
ESTABLISHMENT
% 41

%
80.7%

%
18.4
1
4.

3
31.4

Year 3 0
19. .3
% .9
%

3
41
of establishment
62
.3
%
30 90
.1 %
.9 9.9 Number
80.7%

20
62
Pre 1970 2000-2009 .2
est.
18.4

.3
9.9%
% .1 % of employees
31.4

90 2
1970-1999 2010-2017 9.9

3.
16.1
20
% 1970-1999
5.8

0.
2%
Pre 1970 2000-2009 7.2
.2 < 49 500-4

7.2
16.1 74%

1 0. 3
30 2010-2017 50-499 50
%

3.2
.9 5.8

10 . 2
62 .1 % 50-99 10
.3
%
90
9.9 20 7. < 49
.2 2 100-249 25
74%

23.3

1 0. 3
9.9%
50-499 >500
%
Pre 1970 2000-2009 2
250-499
Type
TYPE of property 5 3.8
3.

OF PROPERTY
16.1

5.8 2 0. 2
1

0.
2%

1970-1999 2010-2017 < 49 500-499950-99

7.2
7.2
74%

1 0. 3

50-499 500-999
% 100-249
2 0. 2

23.3
50-99 1000-2499
Luxury Upscale Midscale Budget
23.3 5 3 . 8 100-249 250-499
2500-4999
34.1% 30.5% 25.1% 10.3% 250-499 >5000
5 3.8
64.6% 89.7% 100%

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 33

 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 | SECTION 3 - TODAY

0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% 81-90% 91-100%

0 1 2 3 4 5 6 7 8 9 10
FIRM PERFORMANCE AND SUCCESS FACTORS
We used subjective performance measures to assess firm performance that was 20% higher than that of their competitors. Close to 15% are in
and success factors, including ROI, ROA, customer retention, sales growth the fourth quartile with customer retention and ROI exceeding 75% of all
0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% 81-90% 91-100%
and bed occupancy rate. About 50% of top and senior managers in the study competitors. Only 5% of executives report their firm’s ROI is less than that
reported return on investment (ROI) greater than approximately 45% of all of their competitors.
competitors in their main market segment and return on assets (ROA)
0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% 81-90% 91-100%

0 1 2 3 4 5 6 7 8 9 10

Please rate how well your company has performed relative to all other competitors in the main market segment over the last year:

0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% 81-90% 91-100%
Example: If you believe that your sales growth is greater than
approximately 45% of all competitors in your principal served 0 1 2 3 4 5 6 7 8 9 10
market segment, rate yourself a 5 for the sales growth.

Subjective performance measures

6.3
6.3

6.3
5.4

5.4

5.8

5.8
7.2

7.2

9.0
6

3.6

5.4

5.4
9.0

9.0
8

8.5
3.6

3.6

3.

6.3
4.0

4.0
4.0

.5

7
5. 5.
.0

9.
11.

11.
6 .6 10 108. 8.
9.4 16. 16 .3 .31 1 8 8 4 7
.4 .4 5.8 5.8 6.
22 226.3 6.3
ROI ROI 3.6 ROA
38.6.1 ROA
8.1
26.5 26.5
4.5

73.5%

73.5%
9.0 5.4 5.4 3.6
9.0 9.0
9.9 9.9 17.5
14.8 14.8
%
5.8
% % % %
6.7 6.7
5.4
% % %
.8%

.8%

14.182 14.812 7
.9 %

.6.6 7.6
66

66

.6 8 8
65

9.
0
9.
0 5. 5.

13

%
.8

.8

.2
10

.0
13.

13.

15.

15.

17.9

33
194.0

14.8

5.8

5.8
7.6
6.7

67..67

0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% 81-90% 91-100%
9.0
4.5

4.5
9

.8

7
52 52
.9 % .9 %
0 1 2 3 4 5 6 7 8 9 10
Return on investment Return on assets Overall customer Sales growth Average bed
(ROI) (ROA) retention occupancy rate

0% 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% 81-90% 91-100%
ANY PERFORMANCE:
COMPANY PERFORMANCE:COMPANY PERFORMANCE:
COMPANY
COMPANY PERFORMANCE:
PERFORMANCE:
COMPANY PERFORMANCE:COMPANY PERFORMANCE: COMPANY PERFORMANCE:
COMPANY PERFORMANCE:
ON RETURN
INNVESTMENT
ON INNVESTMENT
(ROI) (ROI)
RETURN ON RETURN
ASSETS
OVERALL (ROA)
ON ASSETS
CUSTOMER
OVERALL (ROA)
CUSTOMER
RETENTION RETENTION SALES GROWTH AVERAGE
SALES GROWTHBED OCCUPANCY RATE
Ecole hôtelière de Lausanne 0%
ehl.edu
1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% 81-90% 91-100% REPORT | MAY 2018 34
 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 | SECTION 3 - TODAY

Markets 2014-2016
MARKET STRATEGY
Over half the companies operate in international markets, 36% in
national markets and 25% in local markets. In terms of their global
strategy, companies roughly split with regard to global integration
or local adaptation of activities: 37% focus on global integration
and 52% on local adaptation or responsiveness – the ability
to adapt to the local environment, to adjust to cultural differences
and to meet the specific needs of local customers. Local/regional
Local/regional
Local/regional National
National
National International
International
International

24.7%
24.7%24.7% 35.9% 35.9%
35.9% 55.2%
55.2%
55.2%

MARKET
MARKET
STRATEGY
MARKET
STRATEGY
STRATEGY

37.7% 51.6%

37.7%

51.6%
50.1%
37.7%

51.6%
81.6%
37.7%
21.1 23.8

50.1%

50.1%
81.6%

81.6%
21.1 21.1 23.8
16.6
16.6 16.6 27.8
27.8
More than half the companies
operate in international markets 31.4
31.4 31.4 30
30
and follow a local adaptation 18.8
18.8 18.8 13
13 13
strategy 8.1
8.1 8.1 3.6
3.6 3.6
2.7
2.7 0.9
0.9
% %
2.7 0.9
1.3
1.3 % 1.3 % 0.9
0.9 % 0.9

Company commitment Company commitment

to global integration to local adaptation
of activities is high of activities is high

COMPANYPERFORMANCE:
COMPANY PERFORMANCE: COMPANY PERFORMANCE: COMPANYPERFORMANCE:
PERFORMANCE:
COMPANY COMPANY P
AVTHGLOBAL INTEGRATION
AVTHGLOBAL INTEGRATION AVTHGLOBAL INTEGRATION AVTHE COMPANY`S COMMITMENT TO
Ecole hôtelière de Lausanne ehl.edu AVTHE COMPANY`SREPORT
COMMITMENT
AVTHE TO
COMPANY
| MAY 2018 35
OFACTIVITIES
OF ACTIVITIESIS
ISHIGH
HIGH OF ACTIVITIES IS HIGH LOCALADAPTATION
ADAPTATIONOF
OFACTIVITIES
ACTIVITIES ISHIGH
HIGH
LOCAL IS
LOCAL ADAPTATION
 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 | SECTION 3 - TODAY

COMPETITIVE ENVIRONMENT
Hospitality firms face increasing disruption from competitors, intermediaries,
technological firms, and customers themselves. As the industry embarks
on a highly uncertain decade it is important to understand the causes
and solutions to these recent disruptive forces.
By understanding the forces affecting the industry and the alternative
solutions coming from innovative practices, hospitality firms will be able
to make more informed decisions. For senior management in the hospitality
industry it helps to better understand and evaluate not only hospitality
companies but also the way competitors (OTAs, collaborative economy
firms, other stakeholders) deal with disruption.
25.6%
We asked executives to rate how much they disagree or agree with six
elements characterizing the business environment and conditions in the
primary markets they serve, including market competitive intensity, price
competition, competitive moves or market dynamism, the collaborative
economy (including increased competition from firms such as Airbnb),
competition from OTAs (web-based distribution channels and search engine
companies), technological turbulence and, finally, new generational tur-
bulence related to younger customers’ (millennial generation) tendency to
have service-related needs that are different from existing customers.

25.6%

35.9%

35.9%

21.5%

19.3%
21.5%

19.3%
10.8 13.9 4 13.9 4 8.1 8.1
.8 14.8 22 17.5 22 17.5 11.2 11.2
29.1 29.1 33.6 30.9 33.6 30.9 19.7
MARKET DYNAMISM

22 22 14.8 24.2 14.8 24.2 17.5

1.8
9.4
12.1

4
11.2 11.2 11.2
% %
17.5
12.1 12.1 14.8 14.8

24.2
21.5%
7.2 3.1 9.4 3.1 9.4 19.3 19.3

28.7%
28.7%
% % % 30.9 %
%
2
1
3 4.9 2
1
3 1.3 1
2 1.83 1.3 1
2 1.8
3 9.4 % 9.4

Competitive intensity: Price competition: Market dynamism: Collaborative economy:

“Competition in our “Price competition “One hears of a new “Increased competition from
industry is cutthroat” is a hallmark competitive move collaborative firms such as Airbnb
IVE INTENSITYCOMPETITIVE INTENSITY of our industry” almost every day” has a negative impact on
MARKET DYNAMISM
PRICE COMPETITION MARKET DYNAMISM
PRICE COMPETITION COLLABORATIVE
ourCOLLABORATIVE ECONOMY
operations and profitability”
COLLABORATIVE E

How much people agree with the statement? Disagree Totally agree
8.1
9.4
19.3

11.2

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 36

14.8

28.7% 19.3%
17
%
 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 | SECTION 3 - TODAY

Executives in our study agree very strongly with the negative effect of
technological turbulence, OTAs and the so-called ‘Millennial effect’ on their
sources of competitive advantage. Price competition is also perceived as an
extremely important source of disruption. In contrast, a large proportion of
executives consider that market dynamism and industry-level competitive
intensity have lower impact on their business environment.
and top managers view the global environment favorably. Close to 70% of
senior business leaders describe the competitive environment as somewhat
disruptive. Finally, slightly over 25% of them rank the global environment as
highly disruptive and uncertain.

Interestingly enough, only three out of every ten leaders surveyed believe
that increased competition from collaborative firms such as Airbnb has a
negative impact on their operations and profitability. Overall, only 4% of senior

45.3%
18.8 6 4
25.

45.3%
18.8
46.6%

46.6%

20.6%

20.6%
17.9 17.9 4.5 4.5
26.5 25.
6 4

28.7 28.7 16.1 16.1 26.5

20.2 20.2 20.2
13.5
27.8
20.2
18.8 13.5
27.8
? ?
%
14.8 14.8 18.8
%
MARKET DYNAMISM

1.8
9.422.4 9.4
9.4
12.1

4
0.3 10.3 22.4

4
4

9.
17.5
6

9.
? 3.1?
6
6.3 13.93.1? ? 13.9 21.5%
% 1.8 % 4 0.9 %
% 4 24.2
0.9
30.9
%%
%
Low Medium H
Low Medium High
OTAs: Technological turbulence: Millennial 18.8
generation: Uncertainty

45.3%
“Competition from web-based “It is very difficult to forecast “Younger customers tend of global
25. competitive
6 4
26.5
distribution channels and where the technology in hospitality to have service-related needs environment
search engine companies reduce
OTA’S EFFECT OTA’S EFFECT
traffic to our own distribution
will be in the next two to
TECHNOLOGICAL
three years” TURBULENCE TECHNOLOGICAL TURBULENCE
those of our
13.5
27.8
that are MILLENIAL
different from
existing customers”
?
channels” MILLENIAL 9.4 %

4
9.
6
3.1
0.9 %
COLLABORATIVE E

How much people agree with the statement? Disagree Totally agree Low Medium High
8.1
9.4
19.3

11.2

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 37

14.8

28.7% 19.3%
17
%
 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

CONCLUDING REMARKS

This industry report has offered insight into several important aspects of
the challenges facing the hospitality industry.
Designing sound innovation strategies and deploying practical innovation
activities is key to a healthy hospitality economy –and we believe that
hotels have to reach higher maturity levels to advance this discussion.
What this innovation strategy will look like is very much an open question.
Nevertheless, our research shows that it has to be demand-led, inclusive,
sustainable, and open to external collaborations. By harnessing the poten-
tial of both technological and non-technological forms of innovation, hotels
can develop a strategy that is, technically-speaking everything it needs to
be (see: rebrand.ly/Hospinnov-03).
This is the rationale of this Industry Report, the Workshops on Hospitality
Innovation held at EHL and the academic and professional articles
published. At these events, and through the corresponding white papers,
we bring together leaders and experts from around the world to look at how
innovation strategy and innovation practices may play out in general, and
in hospitality services in particular.
We hope you have found this paper useful, and would be delighted to
continue the discussion.

We are also confident that with the right level of commitment and
collaboration, the journey towards a professionalization of the innovation By harnessing the potential of both technological
activity in hotels is feasible, economically viable and managerially possible. and non-technological forms of innovation,
Furthermore, we believe there is an opportunity to create a new market for
innovation collaboration among businesses and external partners—
hotels can develop a strategy that is,
consulting firms, universities, research institutes, and entrepreneurial technically-speaking, everything it needs to be.
ventures—that does not exist today.

Yet, the increasing importance of a structured innovation process (see:

rebrand.ly/disrupinnov) and driving greater speed in translating innovation
into new services are not fully appreciated. Addressing these shortcomings
will require a determined and coordinated effort by both public actors and
private businesses.

For more information, please click here

or write an email to Carlos.MARTIN-RIOS@ehl.ch

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 38

 HOSPITALITY INNOVATION SECTION 1 | SECTION 2 | SECTION 3

Recommended further reading on the topic of innovation

for hospitality professionals:

Innovation in luxury hotels

ehotelier.com | rebrand.ly/luxHotel-innov

New forms of innovation in hospitality

ehotelier.com | rebrand.ly/Hospinnov-02

Non-technological innovation in services

(hotels and foodservice)
ehl.edu | rebrand.ly/Hospinnov-03

Hospitality innovation
ehl.edu | rebrand.ly/Hospinnov-04

Organizational innovation in hospitality

ehotelier.com | rebrand.ly/Hospinnov-05

Management innovation in hospitality

hospitalitynet.org | rebrand.ly/Hospinnov-06

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 39

 HOSPITALITY INNOVATION SECTION 1 | SECTION 2 | SECTION 3

ACKNOWLEDGEMENTS

We would like to thank a number of people who contributed their considerable
expertise to the creation of this industry report. We conducted research with
senior executives in the hospitality industry including Rezidor President and
CEO Federico González Tejeda, Accor’s Yves Lacheret, Frank Lavey and Yves
Givel from Hyatt, and Michael Levie CEO of Citizen M.
community, and we want to acknowledge their participation:
Dr. Cathy Enz, Cornell University, School of Hotel Administration
Ms. Marie Forestier, Hotel Bon Rivage
Mr. Oscar Herrera, CIO Lopesan Group

We would like to acknowledge the contribution of the EHL marketing and
academic staff, including Meloney Brazzola, Myriam Mcalinden, Andrew Bren-
ner, Alycia Couvreu De Deckersberg, and Teofil Ciobanu. We are particularly
grateful to the faculty who talked to us about hospitality innovation, Christine
Demen Meier, Steffen Raub and Igor Sekulic.
Also, in March 2017, a Workshop on Hospitality Innovation led by Professor
Martin-Rios was conducted at the Ecole hôtelière de Lausanne that included
the following international leaders from the global strategic and innovation
Mr. Mathieu Jaton, CEO Montreux Jazz Festival Foundation
Mr. Alain Kropf, Hotel Royal Savoy
Mr. Jean-Philippe Lallement, EPFL Innovation Park Foundation
Mr. Frank Lavey, Senior VP Global Operations Hyatt Hotels
Mr. Eugenio Minvielle, President and Founder INNIT International
Ms. Anne Sophie Pic, Chef Maison Pic
Mr. Fernando Polo, CEO Territorio Creativo

Finally, we would like to acknowledge the contribution of SEIM (seim-mc.com) founder Noelia Ruiz who supervised the data collection process
and provided feedback and guidance during fieldwork, and of Heidi Weber, Azmut Creative Design, who coordinated the design of this industry report.

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 40

 HOSPITALITY INNOVATION REPORT SECTION 1 | SECTION 2 - FUTURE SCENARIOS | SECTION 3

REFERENCES

Birkinshaw, J. & Mol, M (2006). How management innovation happens. MIT Sloan Management Review, July.
Retrieved at: https://shop.sloanreview.mit.edu/store/how-management-innovation-happens

Christensen, C., Johnson, M., & Kagermann, H. (2008). Reinventing your business model. Harvard Business Review, December.
Retrieved at: https://hbr.org/2008/12/reinventing-your-business-model

D’Emidio, T., Dorton, D., & Duncan, E. (2015). Service innovation in a digital world. McKinsey Quarterly, February.
Retrieved at: https://www.mckinsey.com/business-functions/operations/our-insights/service-innovation-in-a-digital-world

Druker, P. (2002). The discipline of innovation. Harvard Business Review, August.

Retrieved at: https://hbr.org/2002/08/the-discipline-of-innovation

de Jong, M. & van Dijk, M. (2015). Disrupting beliefs: A new approach to business-model innovation. McKinsey Quarterly, July.
Retrieved at: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/disrupting-beliefs-a-new-approach-to-bu-
siness-model-innovation

Erhardt, N., Martin-Rios, C. & Heckscher, C. (2016). Am I doing the right thing? Rituals as institutional learning mechanisms for organizational culture
in restaurants. International Journal of Hospitality Management, 59: 31-41
Retrieved at: https://www.sciencedirect.com/science/article/pii/S027843191630113X

Martin-Rios, C. & Erhardt, N. (2017). Small business activity and knowledge exchange in informal interfirm networks. International Small Business Journal, 35.
Retrieved at: http://journals.sagepub.com/doi/abs/10.1177/0266242616667540

OECD (2005). The Oslo Manual. European Commission. Eurostat.

Retreived at: www.oecd.org/science/inno/2367580.pdf

Pine J. & Gilmore, J. (1998). Welcome to the experience economy. Harvard Business Review, July-August.
Retrieved at: https://hbr.org/1998/07/welcome-to-the-experience-economy

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 41

 HOSPITALITY INNOVATION SECTION 1 | SECTION 2 | SECTION 3

OPPORTUNITIES FOR COLLABORATION WITH EHL

COLLABORATE FOR SUCCESS

TAILORED OPPORTUNITIES & STRONG TALENTS

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 42

 HOSPITALITY INNOVATION SECTION 1 | SECTION 2 | SECTION 3

A WIDE RANGE OF TAILORED OPPORTUNITIES

EHL prides itself on possessing and continuing to expand a large network of
partnerships with key strategic actors in education and the hospitality industry.
EHL does this in a variety of ways, most importantly through collaborative
opportunities for companies and organizations to become actively engaged
with the deep pool of talent that EHL enjoys through its existing students and
faculty, as well as via its vast external network.
For additional details on collaboration opportunities and to find out more
about how EHL can tailor projects and opportunities to your specific
needs contact us:
partnership@ehl.ch

GAIN ACCESS TO VALUABLE

ACCESS THE BEST TALENT RAISE YOUR BRAND’S
KNOWLEDGE, INNOVATION
FOR YOUR RECRUITMENT NEEDS PROFILE AND VISIBILITY
AND RELEVANT SOLUTIONS

Recruitment Access to Experts Advisory Services

Your valuable source of talent EHL faculty and external experts Hospitality advisory solutions
for interns and more experienced support your organization’s projects active in more than 60 countries
employees. and talent development needs. with access to EHL’s unique
knowledge and expertise.

Student Project Sponsored Research Events Sponsorship

Resources
Teams of students can provide
your organization with innovative
and applicable business solutions.
& Innovation Sponsorship opportunities
Engaging with faculty on specific to raise your brand’s profile
projects or longer-term research, and visibility.
and support promising young
start-ups driving the continued
growth and innovation in the
hospitality industry.

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 43

 HOSPITALITY INNOVATION SECTION 1 | SECTION 2 | SECTION 3

RESEARCH AND INNOVATION AT EHL

EHL is dedicated to supporting and driving the continued growth and innovation
in the hospitality industry. Working alongside the industry to develop knowledge
and address practical issues faced by today’s professionals, EHL is committed
to making an active contribution to the regeneration of the industry. EHL offers
numerous opportunities for your organization to tap into the vast experience and
expertise of our faculty to support your projects and talent development needs.
Faculty members are consistently among the best in their respective fields, with
PhDs from top universities, strong industry relations and experience, and they
are regularly recognized with awards and honors from external institutions.

SUBMIT YOUR PROJECT:

Current research themes:
- Hospitality innovation - Strategy
and sustainability
- Women in leadership
- Finance & real estate
- Social media marketing
- Human resources & leadership
- Revenue management
- Consumer behavior

Student projects & business cases:

- Business plans - Hotel or restaurant concepts
and market research
- Customer loyalty programs
- Marketing & sales strategies
- Sustainable businesses, events
- Restaurant digitalization or products
projects
- Financial feasibility studies
- Digitalization of processes
- Flagship boutique concepts
More information on: Partnership@ehl.ch or customer touchpoints

Ecole hôtelière de Lausanne ehl.edu REPORT | MAY 2018 44