Innovation capability: exploring the factors that make up this construct in the services sector

Innovation Capability (IC) describes the ability of a firm to support the development of new products, services, processes and systems. This research is part of a larger study to investigate IC in the services sector with the Australian hotel sector as the case study. A survey was carried out of 164 hotel ownermanagers, primarily in South Australia, and this identified two key dimensions or factors of innovation capability that address operational aspects of these businesses. These capabilities are different to those that have been previously reported in the literature. Acknowledgement: This research was carried out with the support of the CRC for Sustainable Tourism and the Australian Hotels Association. INTRODUCTION The underlying aim of this paper is to contribute toward the development of an innovation capability scale for the service sector. The Australian Hotel Industry is used as a basis toward achieving this. Innovation in the manufacturing sector is well reported and documented, and many factors have been highlighted that influence a firm’s innovation capability. However, innovation capability within the service sector is far less reported and remains an area that is under-examined. The research reported here examines assumptions made about the homogeneity of innovation capability across different types of industry sectors and finds that the capabilities that influence innovation in a service industry are markedly different to those that have been identified in the manufacturing sector. The importance of innovation to economies and to individual organizations has been addressed in the literature as far back as Schumpeter (1934, p. 142). Writers such as Huber (1984) proposed that in the post-industrial age with increasingly complex and turbulent environments, organisations will need to rely to an increasing degree on innovation and experimentation for their survival and development. In this regard, more recent research has established a positive link between innovation and firm performance (Covin & Slevin 1989; Zahra & Covin 1995; Dess, Lumpkin & Covin 1997). Innovation is the mechanism by which organisations develop value through new products, processes, and systems that are needed to respond to changing markets, technologies, and modes of competition (Utterback 1994; Dougherty & Hardy 1996). Innovation is important to firms because innovation and competitiveness are linked (Alvarez & Barney 2001). By itself, one-off innovation is not sufficient for competitiveness. Firms need to be able to innovate on a continuing basis (Kiernan 1996; Slater 1997). In addition, firms compete not just on new products but on their capacity to develop new products (Prahalad & Hamel 1990). Firms are therefore presented with the challenge to build their capacity to support innovation on a continuing basis and, in this way, develop competitive advantage. For this reason, there has been increasing interest in identifying and understanding the attributes of firms that enable them to continuously support innovation (Damanpour 1991; Slater 1997). This has led to the development of “innovation capability” (IC) as a construct that describes the capacity of a firm to develop new products, processes, and systems (Prahalad & Hamel 1990). This capacity assists firms to compete in dynamic competitive markets. Research has shown that firms with IC have a sustained competitive advantage and use it to achieve higher levels of performance (Alvarez & Barney AGSE 2010