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Gadjah Mada International Journal of BusinessVol. 16, No. 2 (May-August 2014): 143-166

* Corresponding author’s e-mail: evo.hariandja@sbm-itb.ac.id

ISSN: 1141-1128http://www.gamaijb.mmugm.ac.id/

Dynamic Marketing and Service Innovationfor Service Excellence

Evo S. Hariandja,* Togar M. Simatupang, Reza A. Nasution, and Dwi LarsoSchool of Business and Management, Bandung Institute of Technology, Bandung, Indonesia

Abstract: This study aims at creating a framework describing how the interaction capabilities betweendynamic marketing and service innovation can influence service excellence. In this study market sensing,market learning, market targeting or positioning are classified as dynamic marketing capabilities (DMC),while sensing, seizing, and transformi ng are classified as service innovation capabilities (SIC). Hence, thedrivers of service excellence for the framework being developed are divided into three main categories:dynamic marketing capability, service innovation capability, and their interaction. The findings of thestudy on three hotels, ranging from 4-star to 5-star hotels and operating in Indonesia, suggest that bothcapabilities and their interaction play their roles in achieving service excellence.

Abstrak: Riset ini bertujuan untuk menciptakan kerangka yang menggambarkan bagaimana kapabilitasinteraksi antara pemasaran dinamik dan inovasi jasa dapat mempengaruhi keunggulan layanan. Dalamriset ini, penginderaan pasar, pembelajaran pasar, target pasar serta positioning diklasifikasikan sebagaikapabilitas pemasaran dinamik (DMC), sementara penginderaan (sensing), merebut (seizing), dan trans-forming diklasifikasikan sebagai kapabilitas inovasi jasa (SIC). Oleh karena itu, penggerak keunggulanlayanan untuk kerangka yang dikembangkan dibagi menjadi tiga kategori utama: kapabilitas pemasarandinamik, kapabilitas inovasi jasa, dan interaksi diantara kedua kapabilitas. Temuan studi pada tiga hotelyang dijadikan sebagai studi kasus di hotel bintang 4 (empat) dan 5 (lima) yang beroperasi di Indonesia,menunjukkan bahwa kedua kapabilitas dan interaksinya memainkan peran mereka dalam mencapaikeunggulan layanan.

Keywords: dynamic marketing capability; hotel industry; interaction; service innova-tion capability; service excellence.

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Introduction

Research into the capability interactionbetween marketing and innovation hasmostly been disregarded (Moorman andSlotegraaf 1999). Innovation capability hasbecome a critical component of a firm’s mar-keting capability if it intends to maintain itslong-term performance (Atuahene-Gima1996). A study conducted by Ngo and O’Cass(2012) and Tushman (1997) concluded thatlong-term success is not assured by innova-tion only. A firm will likely leverage its inno-vation capabilities if it possesses better mar-ket-related capabilities in servicing its mar-ket, new market entry, and customers withgreater value. Under the concept of comple-mentary capability, combining the capabili-ties results in enhancing a firm’s performance.(Song et al. 2005). Recent studies have shownthat a capability interaction between market-ing and innovation affects performance-basedcustomers (O’Cass and Ngo 2011; Ngo andO’Cass 2012). In this context, marketing andinnovation are perceived as complementaryto improve a synergistic market performance.

The study of the capability interactionbetween innovation and marketing has stillnot been explored very much, especially inthe hospitality industry. A study conductedon manufacturing firms by Sok and O’Cass(2010, 2011) has shown that complementarycapability between innovation and market-ing is positively rela ted with performance.Interfunctional coordination and interactionbetween marketing and innovation can existin the sharing of market information that iscrucial for substantially new service devel-opment in the service context (Henard andSzymanski 2001; Im and Workman 2004).However, that study has not yet explored theinteraction capability on service excellencein the hotel industry. Since service excellence

plays an important role in the hotel industry,it must adapt continuously to a dynamic mar-ket. This study thus aims to explore the abovementioned research gap via two research ob-ject ives: to create a framework describinghow dynamic marketing capability and ser-vice innovation capability can influence theservice excellence and to investigate the ca-pability interaction that can be formulated ina hospitable context in order to achieve ser-vice excellence.

This paper is organized as follows. First,it presents a lite rature review on dynamicmarketing and service innovation capability,the capabilities interaction, and service ex-cellence. Second, it discusses the developmentof the conceptual framework that illustratesthe capability interaction in achieving serviceexcellence. Third, it discusses the researchmethods. Fourth, it present the findings ofthree case studies. Fifth, it discusses the ca-pabilities related to service excellence. Finally,it presents the conclusion of the results ofqualitative study.

Literature Review

The dynamic marke ting capabili ty(DMC) concept arises from the strategic man-agement theory and provides a new interpre-tation of how companies in the environmentthat change rapidly obtain their competitiveadvantage (Winter 2003; Teece et al. 1997).Hooley et al. (2008) defined the dynamicmarketing capability as the ability to createnew resources, identify, respond to and ex-ploit changes and classified them into mar-ket sensing, learning, and market targeting orpositioning. This market sensing capability isa firm’s ability to learn from their customers,collaborators, and competitors in order tosense, process, and use information as wellas to act continuously on trends and events

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in prospective and present markets (Day1994; Kok et al. 2003).

The learning capability enables firms tomaintain long-term competitive advantagesover their rivals, to survive in dynamic andcompetitive environments, and to be recep-tive to acquiring and assimilating externalknowledge (Hooley et al. 2008). This learn-ing capability enables them to identify newopportunities, and to allow for repetition tointegrate information from the external envi-ronment in pursuit of improved effectiveness(Zollo and Winter 2002).

Market targeting or the positioning ca-pability is a firm’s ability to identify alterna-tive opportunities and then select appropri-ate market targets that are aligned for the besteffect. Aligning resources and capabilit ieswith changing markets needs to take accountof the marketing competencies.

Service Innovation Capability(SIC)

Service innovation is defined as a newor significantly improved service concept thatis taken into practice (TEKES 2009). Gadreyet al. (1995) stated that service innovation isthe variations in product delivery that causean appreciation in the service experience forconsumers. This study adopts the study ofPöppelbuß et al. (2011) that SIC containssensing, seizing, and transformation compo-nents. Sensing refers to the identification ofthe need to change service operations or op-portunities; seizing refers to exploring andselecting feasible opportunities for change;and transformation is concerned with the newservice implementation. In line with this per-ception, the models of new service develop-ment, service innovation, or service designcan be seen as the dynamic capability of ser-vice innovation.

Capability Interaction BetweenDynamic Marketing and Serviceinnovation

Interaction is synonimous with contact,interface, rela tions, and communicationwhich has a mutual, reciprocal action or in-fluence between two actors in an organiza-tion (Backstrand 2007). Thompson’s (1967)classification of interfunctional interface con-sists of a pooled, sequential, and reciprocalinterface. Pooled interface means that eachpart makes a discrete contribut ion to thewhole and not necessarily depends on or sup-ports every other part directly. Sequential in-terface is a serial relationship where the out-put of a part is the input of another one.Reciprocal interface is a relationship wherethe outputs of each part become the inputsfor the others. Thus each unit is penetratedby the others.

Song et al. (2005) defined interactionas the complementary capabilities and com-petencies between technological and market-ing aspects. According to Atuahene-Gima(1996), innovation capability (IC) is an im-portant complement to marketing capability(MC) where an organization in pursuit of spe-cific market opportunities but does not inno-vative, finds it impossible to maintain its long-term performance. Innovation alone does notprovide an assurance of long-term successbut a firm must have the ability to market itsofferings effectively (Ngo and O’Cass 2012).The key to long-term business success is notnecessarily by innova tions itself (Tushman1997). To enter new markets, serve marketsbetter, or provide greater value than rivals, afirm can leverage its innovation capabilitiesonly if it possesses market-related capabili-ti es (Garud and Nayyar 1994; Hult andKetchen 2001). Song et al. (2005) argued thatbetter results are achieved through capabili-

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ties that combine effectively to enhance per-formance.

Vorhies and Morgan (2005) showed thatthe effect of capabilities on the result is thegreatest. Complementary capabilities can in-crease the firm’s effectiveness and/or effi-ciency (Milgrom and Roberts 1990; Moormanand Slotegraaf 1999; King et al. 2008). Thecomplementarity between innovation andmarketing has been acknowledged (Drucker1954 ). Although the studies exploring theeffects of innovation capability, marketingcapability, and their interaction on perfor-mance have been done (Ngo and O’Cass2012; O’Cass and Ngo 2011), research ontheir interaction on service excellence is stillto be done. Capability theorists seek to ex-plain how the combinations of resources andcapabilities can be developed and deployedin response to dynamic business environ-ments (Teece et al. 1997).

In this study, service innovation anddynamic marketing are seen as complemen-tary in that they synergistically improve ser-vice excellence. It is contended here thatDMC and SIC have greater synergy whencombined to achieve common outcomes, andthat their integration results in service excel-lence (SE).

Service Excellence

Organisations are increasingly provid-ing service excellence as an integral part oftheir superior service to win the customers’hearts and stay competitive in the market(Berry and Parasuraman 1992). Service ex-cellence, which is viewed as being “easy todo business with” (Johnston 2004), deliverspromises and is an expression of very highsatisfaction (Oliver 1997). This suggests thatthe service organization does not only need

to satisfy the customers but has to delightthem as well (Aziz and Wahiddin 2010).

Service excellence in this study is basedon service delivery, servicescapes, customerparticipation, and customer responsiveness.Flexibility and customization in service pro-cess and delivery are highly appreciated bycustomers (Bettencourt and Gwinner 1996).Well planned and designed service deliverymay directly contribute to the whole serviceexcellence. Servicescape is related to the styleand appearance of the physical atmosphereand environment in a service organization thathas some impacts on customers’ experience(Lovelock et al. 2005). Dube and Renaghan(2000) also confirmed the importance of ar-chitecture and design as key value drivers thatinfluence the customers’ perceptions of ser-vice excellence.

Customers’ participation increasinglyplays an active and even a leading roles inser vice production and del ivery processes(Xue and Harker 2002) in most of the ser-vice organisations. The nature of service char-acteristics that is highly simultaneous requirescustomers to be part of the service transac-tion or act as a co-producer. The customer’sengagement with the service as a co-produceris important in the cost reduction and ser-vice quality improvement process (Heskettet al. 1997). Thus, the degree of service suc-cess may depend very much on the customer’sparticipation to make the service happen. Inother words, in some services, the customeris acting as a partial employee of the organi-zation.

Conceptual Framework

The above mentioned literature over-view on DMC and SIC indicates that thereare three distinct activities for each capabil-

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ity that influence the service excellence (alsoshown in Figure 1. The conceptual frameworkbeing developed explains three direct relation-ships: the relationship between DMC andService Excellence (SE), the relationshipbetween SIC and SE, and the relat ionshipbetween DMC-SIC and SE. The third rela-tionship explains the interaction betweenDMC and SIC. The interaction between DMCand SIC is denoted with dashed lines and thedirect relationship is denoted with solid lines.

Dynamic Marketing Capabilityand Service Excellence

Hotels are competing for the marketshare and develop new strategies to leavetheir competitors behind. In order to improvetheir image and increase their profit, hotelsshould put more effort into investigating theneeds and expectations of their target groups.Only wi th a deep understanding of theircustomer’s desires can the hotels keep theircustomers loyalty (Smolyaninova 2007). Thestudy conducted by de Farias (2010) revealsthat market sensing and learning play theirroles as determining factors in service excel-

lence. The evolutionary fit between marketneeds and market offers is the essence of ef-fective service excellence. Sensing capturesthe effectiveness in order to generate, dis-seminate, and respond to customers’ needs.Firms with higher absorptive capability dem-onstrate greater ability to learn, integrate ex-ternal information, and transform it into theirembedded knowledge (Hou 2008).

Service Innovation Capabilityand Service Excellence

Service innovation capability refers toa fir m’s abil it y to develop new servi cesthrough aligning strategic innovative orien-tation with innovative behaviors and pro-cesses (Hou 2008). Meeting clients needs andproviding innovative products are essentialto deliver service excellence (Eisawi et al.2012). Such activities as being able to iden-tify the needs; to change, to explore, to se-lect feasible opportunities; and to implementthe new services in the organization are sup-porting factors in the hotel’s service excel-lence.

Figure 1. Conceptual Framework for DMC, SIC, Interaction DMC and SIC, and SE

Service Excellence (SE)

Dynamic marketing capability(DMC)-Market sensing-Learning-Market ta rgeting and posi-tioning

Interaction betweenDMC and SIC

Service innovation capability(SIC)-Sensing-Seizing-Transforming

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Interaction DMC-SIC andService Excellence

The relat ionship between innovationand marke ting has been acknowledged(Drucker 1954; Moorman and Slotegraaf1999). Vorhies and Morgan (2005) showedthat the effect of the combination of capa-bilities on results is greater, and complemen-tary capabilities can increase a firm’s effec-tiveness and/or efficiency (Milgrom and Rob-erts 1990; Moorman and Slotegraaf 1999;King et al. 2008). The studies to date haveexplored the effects of innovation and mar-keting capability, as well as their interactionon performance in manufacturing and servicecontext (Ngo and O’Cass 2012; O’Cass andNgo 2011; Sok and O’Cass 2011; Henard andSzymanski 2001; Im and Workman 2004).This study proposes that the interaction ofDMC and SIC are determining factors forservice excellence.

The Hotel Industry inIndonesia

The hotel industry in Indonesi a hasshown significant growth and has gainedgreater attention in today’s business environ-ment. The average growth rate of GDP inthe hotel industry during 2004-2011 was 6.39percent (www.bps.go.id) based on year 2000constant price, compared to total Gross Do-mestic Product (GDP) at 5.84 percent. Thehospitality sector became important when thegovernment decided to further push the ser-vice sector. The average contribution of thehotel sector to total GDP based on year 2000constant price within the 2004-2011 periodamounted to 0.70 percent. The hotel indus-try is closely related to tourism. The tourismindustry contributes the number of touristswho inhabit the hotels. The Indonesian Cen-

tral Bureau of Statistics (www.bps.go.id) re-ported that there were 4.59 million foreigntourists in 2004 which had increased to 7.65million in 2011. The revenue from interna-tional visitors has increased from US$ 4.80billion in 2004 to US$ 8.55 billion in 2011. Asimilar trend can be seen in the number ofhotels and the room occupancy rate (ROR).In 2004 there were 1, 014 classified hotels(star hotels) and 9,847 nonclassified hotels(non-star hotels). These numbers had in-creased to 1,489 classified hotels and 13,794nonclassified hotels in 2011. The room oc-cupancy rate in 2004 for classified hotels was44.98 percent and for nonclassified hotels28.33 percent and these had increased to51.25 percent and 38.74 percent respectivelyin 2011.

Though growing, the Indonesian hotelindustry is facing new challenges due to ex-ternal and internal factors in a business envi-ronment that affects their service excellence.External factors include intense competitionfrom competitors. According to the Chairmanof Indonesian Hotels and Restaurants Asso-ciation (PHRI) of West Java, Mr. HermanMuchtar (personal communication, 27th De-cember 2010), the main issue related to thehospitality industry in Indonesia is the intensecompetition among star hotels and non-starhotels. This intense competition occurs be-cause of the excess supply of hotels, regula-tions in terms of hotel development and ser-vice standards, and global competition wherethe hotels chains with an international net-work invest in new potential areas.

Currently, in order to survive, hotels inIndonesia perform with limited promotion,do not have a network or international coop-eration with particular local hotels, and lim-ited service innovation. To compete effec-tively, the hotel industry must be able to of-fer innovative services to visitors and pos-

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sess the proper promotion strategy in accor-dance with its market segment. The rise oflow-fare airlines has impacted on the rise ofbudget hotels. The growth of the hotel busi-ness as a whole is currently positive, but bud-get hotels have the highest growth rate(Bloomberg Businessweek, 4-10 November2013).

Methods

We collected data from 3 hotels. As itallows the questions of what, why, and howto be answered, we used the case study meth-odology (Yin 2003). Cases were se lectedfrom hotels based on a literal replicationlogic, that is, cases were chosen that wereexpected to lead to similar results (Yin 2003).According to Miles and Huberman (1994), apurposive sampling strategy was used to se-lect cases that offered the best opportunitiesto build a theory. Our main criteria for caseselection was based on: hotel star classifica-tion from 3-star to 5-star in an independentor chain network, and the key individualshave had considerable experience in the hos-pitality business with a wide variety of pre-vious work. Of the hotels that we contacted,three hotels agreed to participate in the study.All of the hotels in our final list were testedby an expert to confirm that they fulfilled the3-5 star hotel classification. Descriptions ofthe chosen hotels are provided in Table 1.

The primary data collection method wasfrom interviews with the managers involvedin the chosen hotels. The data were collectedvia semi-structured intervi ews using a re-search protocol (consisting of competition,dynamic marketing and service innovationcapabilities , interaction, and ser vice excel-lence) between September and December2013. Overall, 3 interviews were conducted,typica l ly last ing 1 to 1 .5 hours each.Interviewees came from differing positionsin the organizations, their job titles includedgeneral manager and sales director.

It is common in case research to use tri-angulation to extend and validate the datacollection through the use of multiple sourcesof evidence (Eisenhardt 1989; Yin 2003). Inthe present study, this was done through theobservation of and participation in some ofthe hotels studied. These were studied as asupplement to the interviews, enabling us toobtain further insights on the des ign ap-proaches and to look for additional corrobo-rating or contradicting evidence. We codedthe inter­views using a predefined code listthat was expanded during the analysis to cap-ture emerging themes. The use of softwareand data coding makes qualitative data analy-sis procedures more systematic and guardsagainst information-processing biases(Eisenhardt 1989 ; Miles and Huberman1994). The coded interviews were then ana-lyzed to identify support (or lack of support)

Table 1. Description of Sample

Name of Hotel Star Key Individual Experience Network FoundedCategory Position in Hotel

Golden Flower 4 Sales Director 13 years Local chain 2009

Grand Preanger 5 General Manager 17 years Local chain 1920

Aston Primera 4 General Manager 26 years International chain 2009

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using software QSR N-Vivo 10. Specifically,we examined each case for evidence of thecapability practices captured in the studies.To further ensure the accuracy and validityof the data, the results were written up in areport that was sent to all respondents forapproval, to check that the conclusions ac-curately reflected their practices.

Operationalization of the variable is theprocess of translating or defining a variableso that it can be measured. Dynamic market-ing capability, service innovation capability,and service excellence are operationalizedand discussed below. Table 2 presents thevariables operationalization and indicators.The DMC is operationalized through marketsensing, learning, and target market/position-ing. Market sensing is measured as the capac-ity to learn the external environment withrespect to demands, customers, and competi-tors appropriately, the purpose of which is toguide a firm’s actions (Day 1994). Learningis measured as the ability of the organizationto implement the appropriate managementpractices, structures, and procedures that fa-cilitate and encourage learning (Zollo andWinter 2002). Market targeting or position-ing is measured as the ability to identify al-ternative opportunities before selecting ap-propriate market targets that are aligned forthe best effect (Hooley et al. 2008).

The SIC is operationalized through sens-ing, sei zing, and transforming. Sensing ismeasured as the activity to identify the needto change service operations and innovations.Seizing is measured as the activity to exploreand select feasible opportunities for a change.Transforming is measured as the activity toimplement the new services in an organiza-tion. All items for service innovation capa-bility are based on Pöppelbuß et al. (2011).

Service excel lence is operationalizedthrough service delivery, servicescapes, cus-tomer’ participation, and service responsive-ness. Service delivery is measured as themethod and sequence in which the serviceoperating systems work to create the serviceexperience and outcome (Bettencourt andGwinner 1996). Servicescapes is measuredas the style and appearance of the physicalelements encountered by customers at ser-vice delivery sites (items based on Lovelocket al. 2005). Customer participation is mea-sured as the actions and resources suppliedby customers during service production and/or delivery (Xue and Harker 2002). Serviceresponsiveness is measured as the ability ofa hotel to respond to individual guest’s re-quirements (Gronroos 1982).

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Findings

Hotel A: Golden Flower

The hotel was established on 1st July2009 as a 4-star local chain hotel under theKagum Group. The hotel’s strategy is to be-come the best convention hotel in Bandungby offering an affordable price. In the year2014 , there wil l be 52 chain hotels inBandung, including the Royal Tulip, Santika,Swiss Belhotel, and Aston among others. Themain competitors for Hotel A are the SavoyHoman, Aston Braga, Aston Primera, GrandPreanger, and Grand Royal Panghegar. In themidst of tight competition, the managementremains optimistic and see the hospitality in-dustry as still being prospective and profit-able for the purpose of meetings and theweekend holidaymakers.

DMC-Market Sensing

The events and trends are regularlymonitored through the PHRI (IndonesianAssociation of Hotels and Restaurants), com-petitors, telemarketers, and mass media. Theissues include new hotel construction, pro-motion programs, building design, reservationand booking system technology. Customer’sneeds and intent ions are explored throughguest comments/feedback, thank you letters,and other media sources on a regular basis.Through guest comments, the hotels gain aninsight, and can rapidly improve their services.Marketing decisions made across the KagumGroup and rela ted hotels are done by ex-changing the information regarding occu-pancy and the rooms being offered. Profit-ability analysis is performed by the sales andmarketing department to be shared via emailas an input into the decision making process.The hotel does not conduct an independentcompany’ image study, but utilizes the “mys-

tery guest method” and a services auditor.The mystery guest or services auditor willprovide the results of his/her evaluation tothe management for consideration in serviceimprovements.

DMC-Learning

Hotel A provides training in self-devel-opment for its sales leaders and engages withstaff in the marketing community. In regularmeetings, the management gets feedback andideas from staff for the hotel development.The staff members of the hotel are involvedin the marketing plan and sales program ac-tivities. Departments such as F & B, HRD,IT, front-office, and back-office participatein the information gathering about benefits,competitions, services, and designs. Hotel Aapplies technological developments in its on-line booking, data-base system, new promo-tions, and CRM.

DMC-Market Targeting andPositioning

Hotel A initially focused on governmentemployees, members of parliament, and em-ployees of local-government owned compa-nies. Hotel A had a target market includinggovernment institutions, corporate bodies,and private companies/individuals, giving ita market share of 59 percent, 7 percent, and34 percent, respectively two years ago. Cur-rently, the government market share is 36percent, corporate is 24 percent, and the pri-vate market is 40 percent. The corporatemarket is mostly oil and gas companies, suchas Petro China and Chevron. The privatemarket is from Malaysia, Singapore and theMiddle East. The positioning of Hotel A iscategorized as a perfect hotel for all your eventrequirements.

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SIC-Sensing

The innovation goal is to delight cus-tomers and minimize complaints. The mar-keting and sales department of the hotel areresponsible for formulating strategic objec-tives and new services. The other departmentsare involved according to customers’ needsand wants. The marketing, sales, housekeep-ing, and F & B departments ask for theguests’s comments regarding the appropriate-ness of food, beverage, and service supplied,with their expectations and SOP. The com-ments from digital sources, Trip Advisor, andthe front-office enter the system and reachthe top management. A regular audit is con-ducted in order to monitor the changes incustomers’ technological options and wants,such as providing 30 traditional dishes on themenu, the latest in design technology, andenergy savings.

SIC-Seizing

The marketing and sales department ofthe hotel clearly define a new service, par-ticipants, support facilities, and tertiary physi-cal changes tailored to the programs, events,and needs. The hotel’s design factors are fora convention hotel. For example, its meetingrooms have 23 different layouts with the ca-pacity for 20-500 persons, and are designedwith a modern concept and equipped withmodern equipment and advanced IT. Al-though some of the physical facilities are stilllimited, the hotel management has been try-ing to improve them. There are artists andcontractors responsible for the design. TheIT implementation is done by the head officeof the Kagum Group. The promotional me-dia, such as logos, fliers, and the layout arediscussed and standardized with the headoffice. The service concept is assessed by amystery guest with the management’s ap-

proval. The innovation evaluation involvesoff-line media, on-line media, and the clients.

SIC-Transforming

Before marketing the various servicesto guests, the marketing/sales departmentdesigns a prototype by involving relevant art-ists, designers, and maintenance staff to pro-cess flow, layout, design promotion, and main-tenance facilities. The test marketing done fora new menu launching is with a cooking class,and at a special event, such as Eid, Christ-mas, or Independence Day. The serviceevaluation is conducted by auditors from thePHRI for overall aspects of the front-office,back-office, housekeeping, F & B, and main-tenance. The impact of the system integra-tion is assessed regularly by the managementof the Kagum Group.

Interaction DMC and SIC

The general manager of Hotel A statedthat the interaction provides a more power-ful influence on service excellence rather thanthat conducted partially through intense com-munication and coordination. The activities,such as an event promotion, personal selling,market research, market segmentation, adver-tising, and corporate branding are communi-cated directly to customers by marketing/sales department. The activities, such as in-novations in features and amenities (internetaccess, complementary shoe-shines, indi-vidua l air conditioning, smoking and non-smoking rooms, keyless rooms, uniforms), arecommunicated directly by the departmentsconcerned and coordinated by the marketing/sales department. The innovation activitiesare done according to both seasonal and mar-ket demands.

The interaction occurs in terms of menudevelopment, price set ting, selling, target

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market identification, promotions, and salesforecasting. For example, the F & B depart-ment coordinates with the marketing depart-ment to test menus and evaluate prices ac-cording to market demands. If they fit themarket, then the marketing department willcommunicate them to customers through bro-chures, leaflets, fliers, and banners to achieveservice excellence. For IT-system implemen-tation and room design, the marketing depart-ment interacts with the IT department, build-ing management, and maintenance depart-ment before they are communicated to thecustomers.

Service Excellence Comparison to ItsCompetitors

The service excell ence of Hotel A issimilar to the Savoy Homan, Aston Braga,Aston Primera, and Grand Preanger. Theservicescapes of the hotel is lower than itscompeti tors due to it s management is stillimproving the design and layout. Hotel Aoffers 193 exquisitely furnished guest roomsand luxurious suites equipped with excellentin-room amenities and entertainment. All ofthe hotel’s function rooms are equipped withessentia l audio-video equipment, freeinternet access with Wi-Fi system is availablein all areas of the hotel. There is a periodicalcustomer participation program, particularlyat such special occasions like Eid, schoolholidays, Christmas, or birthdays.

Hotel B: Grand Preanger

Hotel B was established in 1920 in theDutch colonial era, and now it is managed byAerowisata. Hotel B is a five star chain ho-tel. The aim of Hotel B is to be the perfecthotel where business and leisure, as well asgraceful Sundanese hospitality, and the com-fort of a modern business hotel blend. Thecurrent business competition is very tight and

competi tive, but the area still shows goodprospects and good conditions. This compe-tition is also enlivened by the presence of theaffiliated chain and budget hotels such as theAccor, Aston and Swiss-Belhotel. In order toface that competition, the hotel’s strategy isto grab both the MICE market and as at des-tination and activities promotion and sellingplace. The current average occupancy rate isaround 50 percent-60 percent.

DMC-Market Sensing

The sales department promotes desti-nations and explores the customer’s opinionsfor its services. Hotel B regularly monitorssuch issues as: reservation system technol-ogy, the launching of a new hotel, socialmedia, and building design through the PHRI,Riung Priangan, competitors, and mass me-dia. The consumers’ needs and intentions aresurveyed via the guest’s comments that areprocessed daily and weekly by the front-of-fice department and then reported to generalmanager. The sales and market share reportsare made across the group. The profitabilityanalysis is performed by the sales and mar-keting department to be shared as an inputinto the decision making process. The hotelconducts its company’s image study on a regu-lar basis using the marketing consultants andTrip Advisor. During eight months in 2013,the hotel’s rank increased from 54 to 22 (outof 120).

DMC-LearningThe management provides training for

staff members, engages them in a marketingcommunity, self-development activities, andsports. Getting feedback and ideas from thestaff members is done by giving them vouch-ers, door prizes, and Employee of the Monthawards in general staff meetings. The man-agement encourages the staff members to getinvolved in the marketing plan and sales pro-

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gram activities to discuss such things as ben-efits , compet it ion, services , design, andchanges by their competitors. Hotel B usestechnological developments in its on-linebooking, cus tomer data-base , new promo-tional strategies, CRM, and energy savingprograms.

DMC-Target Market and Positioning

Hotel B mainly focuses its business on(government and parliament staff, state lo-cally-owned companies) and leisure custom-ers (European, Asian, and local tourists).Hotel B positions itself as the perfect hotelwhere business and leisure as well as ‘art-deco’ architecture and Sundanese hospitalityblend. This selling point is communicated totheir target customers.

SIC-Sensing

Hotel B sets its measurable, planned,and spontaneous innovation, and adapts it tofit the target market. The hotel emphasizesits innovation with its places of destinationand activities program. Its strategic objectivesand new services are formulated by its mar-ket ing department. Its marke ting, sales ,housekeeping and F & B department ask forthe guests’s comments about whether or notthe foods, beverages, and services meet withthe customer’s expectations and SOP. Thecomments from digital sources, Trip Advisor,and front-office enter the system and reachthe general manager. A regular audit is con-ducted by a mystery guest and TUV-Rheinland. They regularly monitor changesin customers’ wants both in technologicaloptions and in other areas, such as providing10 types of coffee, local cuisines, a museum,in-room sl ippers, a “kiddy land” with aTarsius icon, Sundanese uniforms for staffon Fridays, and energy savings.

SIC-Seizing

The hotel’s marketing and sales depart-ment clearly define the new services, partici-pants, support facilities, and tertiary physicalchanges tailored to the programs, events, andneeds. Its design factors are tailored to cap-ture the MICE market. For example, its meet-ing rooms have 12 different layouts with acapacity of 25-1000 persons, and are designedwith a modern and ‘a rt-deco’ concept andequipped with the latest equipment and in-formation technology. Selected designers areresponsible for the interior design. IT-imple-mentation is done by the head office of theAerowisata Group. The hotel’s ideas are pro-moted through logos and fliers, whose lay-outs are adjusted to the standards set by theAerowisata Group and the nature of the tar-get market. The concept of services is as-sessed by a mystery guest based on the hotelmanagement’s approval. In evaluating its in-novation, Hotel B also involves internal par-ties, the mass media, and selected clients.

SIC-Transforming

The hotel’s marketing and sales depart-ment design a prototype, involving designersand the maintenance department for suchaspects as the process flow, layout, designpromotion, and maintenance facilities. Thehotel conducts marketing tests before launch-ing new menus and special events, such asat: Eid, Christmas, Chinese New Year, NewYear, and Independence Day. Overall, thehotel ’s servi ce evaluation is conducted byauditors from PHRI and Riung Priangan. Theimpact of the system integration is assessedregularly by the management and AerowisataGroup.

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Interaction DMC and SIC

The general manager of Hotel B statedthat the interaction between the dynamicmarketing capability and the service innova-tion capability had a more powerful influenceon service excell ence. The interact ionthrough intense communication and coordi-nation involves all parties in the hotel. Theactivities such as event promotion, personalse lling, market research, advertising, andbranding are directly communicated to cus-tomers by the marketing department. Forachieving its service excellence, the hotel’sinnovation activities features such amenitiesas internet access, complementary shoe-shines, smoking and nonsmoking rooms, key-less rooms, staff uniforms, guest slippers,bolsters etc., and are communicated directlyto customers according to both seasonal andmarket demands. The innovation activitiesare managed by the marketing department.

The interaction occurs in terms of thehotel’s menu development, pricing, selling,target marketing, new services, promotions,and sales forecasting. The F & B departmentwill discuss with the marketing and sales de-partment the testing of new menus and evalu-ate their prices according to the market de-mands. If they are a fit to the market, thenthe marketing department will communicatethem to customers through brochures, leaf-lets, fliers, and banners. For the IT-implemen-tation system and room design, the market-ing department interacts with the IT depart-ment, building management and maintenancedepartment to obtain the best system anddesign before communicating them to cus-tomers.

Service Excellence Comparison to ItsCompetitors

The servi ce excellence of Hotel B isrelat ive ly better than that of the Savoy

Homan, Aston Braga, Aston Primera, GrandRoyal Panghegar and Papandayan. Hotel Boffers such features and amenities as 187 el-egant art-deco furnished guest rooms fromSuperior to the Garuda Presidential Suite.Each of the hotel’s guest rooms offers a blendof the art-deco and modern style, as well asexcellent in-room amenities, and entertain-ment. The hotel’s meeting and banquet fa-cili ties have 12 meeting rooms which canaccommodate up to 1000 guests comfortably.All the hotel function rooms are equippedwith audio-video equipment and a free Wi-Fi system. Periodical customer participationoccurs for special occasions like Eid, schoolholidays, Christmas, and birthdays.

Hotel C: Aston Primera Pasteur

Hotel C was established in 2009 as aninternational four-star chain hotel under theAston Group. The vision of Hotel C is tobecome the best conference hotel in Bandungby offering different services and facilities.Its competitors are the Savoy Homan, GrandPreanger, Grand Royal Panghegar and newentries such as the Royal Tulip, Santika, andSwiss Belhotel. The interview results showedthat the management remains optimistic andforsees that the hospitality industry will stillbe very profitable, with good prospects pri-marily from meetings and the weekend vaca-tioners.

DMC-Market Sensing

The hotel’s sales department regularlymonitors the issues through the PHRI, itscompetitors, and the mass media. Consum-ers’ needs and intentions are elaborated us-ing REVINET tools covering such things ascomments, ranking/position, and complaints.The guest’s comments are processed and re-ported daily/weekly by the front-office de-partment to the general manager to improve

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services. The reports of sales, market share,and profitability form the basis for market-ing decision making. The reports gained fromthe Aston Group and their competitors areshared within the hotel. The hotel conductsa company’ image study on a regular basisusing consultants, outsiders, Agoda, and TripAdvisor. Currently, according to the surveyfrom Agoda.com, overall, this hotel’s rank is7.9 (out of 10 points).

DMC-Learning

The management provides training tostaff members, as much as 9 hours per staffmember per month, and engages the staffmembers in its marketing community and self-development program. Feedback and ideasfrom staff members are elicited regularly dur-ing general meetings. The management en-courages staff members to get involved in themarketing plans and sales program activitiesin which they discuss the benefits, competi-tions, ser vices, designs, and opportunit iesoperated by their competitors. The manage-ment is receptive to technological develop-ments in its on-line booking, customer database, new promotional strategies, CRM, andenergy saving.

DMC-Target Market and Positioning

Hotel C mainly focuses on the marketof MICE (both government institutions andcorporate) and individuals (through non on-line travel agents and on-line travel agents).Its MICE market ranges from governmentinstitutions to oil and gas companies. It aimsto position itself as the conference center thatis secure and serves safe and hygienic foodfor both private companies and governmentinstitutions. This becomes the hotel’s sellingpoint to its customers.

SIC-Sensing

Hotel C sets discipline values consist-ing of operational excellence, product excel-lence, and customer intimacy. The hotel em-phasizes its capabilities in the places of des-tination and activities markets. Its marketingdepartment formulates the hotel’s strategicobjectives and new service developments.The hotel’s innovation strategy is the differ-entiation in services and facilities. The mar-keting, sales, housekeeping and F & B de-partments ask for the guests’ commentsabout whether or not the food, beverages andservices match their expectations and SOP.The comments from digital media, Trip Ad-visor, and front-office enter the system andare passed to the general manager. Both theservice and ISO-9001 audit are conductedregularly. The service audit was la st con-ducted by a mystery guest, while the ISO-9001 was conducted by an ISO-9001 audi-tor. Monitoring changes in customers’ desiresand technological options is done by conduct-ing such activities as “little chef for kids” witha certificate, tours of the hotel, and exhibi-tions of modern and local cuisines.

SIC-Seizing

The hotel’s marketing department co-ordinates with the sales department to clearlydefine its new services, participants, supportfacilities, and tertiary physical changes tai-lored to its programs, events, and needs. Itsdesign factors are tailored to the target mar-ket by using advanced technologies, for ex-ample audiovisual equipment. There are de-signers appointed who are responsible for theinterior and exterior design. The IT-implemen-tation is done by the head office. The ideasfor new menus and new activities are pro-moted through logos, fliers, and layouts after

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they are adjusted to the nature of the targetmarket. The concept of the hotel’s servicesis assessed by outsiders and auditors from theHospitality Asia Platinum Awards (HAPA)scheme. In the period from 2012-2014, Ho-tel C achieved “Best 5” and “Recognition ofExcellent Master Chef and Asian Cuisine”.In evaluating its innova tions, Hotel C in-volves internal parties, the mass media, andselected clients.

SIC-Transforming

The hotel’s prototype designs such asthe process flow, la yout, promotion, andamenities are conducted by its marketing andsales department together with its designers.The hotel also conducts market tests beforelaunching its new menus and special events.Overall, the services of the hotel are evalu-ated by auditors from the PHRI, HAPA, andRiung Priangan. The impact of its servicesystem integration is assessed regularly by themanagement and the Aston Group.

Interaction DMC and SIC

The interaction between DMC and SICprovides a more powerful influence on ser-vice excellence through intense communica-tion and coordinat ion. Such act ivities aspromotion, personal selling, market research,advertising, and branding conducted by themarketing and sales department are then com-municated directly to customers. The inno-vation activities in its features and amenities(internet, complementary shoe-shines, key-less rooms) are conducted by the departmentin charge according to both seasonal andmarket demand for service excellence. Theseinnovations act ivities are managed by themarketing department.

The interaction occurs in such activi-ties as IT-implementation, management sys-tem building, menu developments (little chef,

barbeque night on a Friday), air soft-gun andhiking programs, pricing, selling, target mar-ket identification, promotions, and sales fore-casting. For menu development, the F & Bdepartment coordinates and shares the infor-mation with the marketing and sales depart-ment to test the new menus before they arecommunicated to customers through ta lkshows, brochures, leaflets, fliers, and banners.

Service Excellence Comparison to ItsCompetitors

The servi ce excellence of Hotel C isrelatively better than the Grand Aquila, Sa-voy Homan, BTC Hotel, Grand RoyalPanghegar, Papandayan and Sensa Hotel. Interms of features and amenities, Hotel C of-fers modern and excellent technology. Thehotel’s meeting and banquet facilities have12 meeting rooms which can accommodateup to 1500 guests comfortably. All the hotelfunction rooms are equipped wi th audio-video equipment and a free Wi-Fi system.There is periodical customer participation onspecial occasions like Eid, school holidays,Christmas, and birthdays.

Discussion

The findings of the three hotels are sum-marized in Table 3. The market sensing in allthe case studies used the guests comments,sales reports, and profitabili ty analyses tosense the trends and events in the marketwhich are then used as the basis for market-ing dec ision making. The informat ion ex-change is done with the competitors, thePHRI, Riung Priangan, Trip Advisor andAgoda. The general manager monitors cus-tomers’ wants and complaints by using dif-ferent IT-systems. This market sensing allowsthe hotel to respond to customers quickly, todeliver the best service by involving the cus-

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tomers, and to offer the best facilities accord-ing to customer expectations.

Market target or positioning of one ho-tel is different from another and has its ownunique differentiation. The Grand PreangerHotel, for example, is focused on being atheritage hotel for tourists especially from theEuropean, Japanese and Indonesian markets.The Aston Primera is more focused on thebig oil, gas, and mining companies. TheGolden Flower focuses on it s conventionbusiness , and on tourists from SoutheastAsian countries. The ability of each hotel tosort the appropriate segments and communi-cate its own positioning in the minds of cus-tomers makes the service delivery of eachhotel match its target market. By engagingcustomers and responding quickly to fulfilltheir expectations, each hotel achieves its owndesired service excellence.

Each hotel has a different strategy inserving their customers. Each hotel’s inno-vation strategy formulation and new servicedevelopment are mostly done by its own de-partment of marketing, sales, housekeeping,and F & B. Other departments are involvedwhen they are relevant to the events and oc-casions. Most of the innovations in the threehotels concern the menu development. Regu-lar audits are conducted by inviting outsidersto assess the overall services offered, to an-ticipate changes in customer’s needs, and toevaluate whether the technological optionsare in accordance with the SOP and custom-ers expectations.

The innovation made by Hotel B is toprovide a heritage museum and the implemen-tation of eco-green policies, while the inno-vation made by Hotel C is to conduct its“Littl e Chefs” and air soft-gun programs.Sensing activities allows hotels to formulatedifferent innovation strategies that can re-

spond to customers and deliver their servicesto them. Appropriate service delivery andoffering the best servicescapes by involvingcustomers will ultimately achieve service ex-cellence in terms of meeting customer expec-tations.

Based on the interview sessions fromthree key personnel of the hotels, the threecase studies indicate that interaction betweenDMC and SIC is a more powerful influencein order to achieve service excell ence .Through the intense communication and co-ordination in which a ll departments of thehotel are involved, service excellence will beachieved. In order to achieve service excel-lence, activities such as market research, di-rect selling, event promotion, and corporatebranding, marketing, and spontaneous inno-vations like amenities, according to seasonaland market demand, are communicated di-rectly to customers. The capability interac-tion occurs mostly in the menu development,event development, price setting, price com-parison, and selling.

All three hotels represent interest ingexamples of how both capabiliti es interactwith each other in achieving service excel-lence. Even though each hotel follows its ownmarketing and innovation strategy, some com-monalities in all their strategies are found.Some general conclusions can be drawn fromthis study, such as: the learned valuable les-sons about marketing strategy, innova tionstrategy, and interaction between their capa-bilities. The conceptual framework for ana-lyzing the cases was developed based on vari-ous theories and models about capabilities ofdynamic marketing and service innovationfound in various literature sources. The re-sults of the study sug gest that capabilitiesinteract ion has more influence on serviceexcellence.

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Tab

le 3

. S

chem

atic

Co

mp

ari

son

of

Th

ree

Ca

ses

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This study offers an interesting view forthe management of hospitality firms. Thereason is that the existing service excellenceframeworks are mainly based on both dy-namic marketing and service innovation ca-pability as well as their interaction, and there-fore these frameworks have a limited appli-cation potential in a hospitality context. Allof the six activities are usable in hotels. Thevarious ways to make marketing strategiesachieve service excellence are also illustratedin this study. General managers in hotels canuse the proposed 6 different activities for bothcapabilities as a list of options to affect theirhotels’ service excellence. From this list, thegeneral managers can then select the activi-ties that suit their hotels’ needs and serviceexcellence. Hotels have some complex ele-ments, and their service excellence may de-pend on these various elements, or their in-teraction. These case studies show that ser-vice excellence starts with building the asso-ciations of both capabilities. A hotel’s brandsuccessfully positioned in the consumers’minds will become an asset of the companythat contributes to its service excellence. Toconclude, the results of these case studies arelimited to the hotel industry only.

Conclusions

This study reveals that there is a rela-tionship among dynamic marketing capabil-ity, service innovation capability, both capa-bilities interaction, and service excellence.The key informants stated that a dynamicmarketing capability and a service innovationcapabili ty partia lly affected service excel-lence, but this relationship had more influ-ence when the dynamic marketing capabilityand service innovation capability interacted.The conceptual model described in this studyis to examine the basis of a direct relation-ship between the dynamic marketing capa-

bility, the service innovation capability, andtheir interaction with service excellence.

The results of the study indicate thatthe dynamic marketing capability, the serviceinnovation capability, and their interaction inthe three hotels show some similarities. Thedifference lies in the marketing strategies andinnovation strategies, which are tailored tothe target markets and occasions. The serviceexcellence is strongly influenced by how eachof the hotels is able to sense trends andevents, respond to the market demandsthrough the learning process, identifies theirright target market, and communicate withtheir cus tomers. The service exce llence isachieved by defining the services, part ici-pants, and physical facilities clearly; continu-ously performing the audit services; and testthe prototypes. The capabilities interactionare mostly determined by the marketing de-partments and the sales by involving otherrelevant departments.

This exploratory research does not seekto draw statistical inferences, therefore is sub-ject to the following limitations arising fromthe case study methodology. First, the appli-cation of the interaction between dynamicmarketing capability and service innovationcapability in hotels is limited to major citiesin Indonesia alone. Second, the coverage ofsampling and findings are based solely on thethree unique classified hotels (4 and 5 star-hotels), which may not be generalizable tothe other classified hotels (1, 2, and 3 star-hotels), nonclassified hotels, and in the ruralareas. Third, Hotel C was very reluctant toprovide its company profile compared withHotel A and B. In the end, in order to com-plete the analysis the general manager ofHotel C finally provided that company’s pro-file through their marketing department andhuman resources department after confirma-tion from the authors.

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Further research could apply this devel-oped conceptual framework to analyze ho-tels beside 4 and 5 star hotels. Therefore, re-search on other industries (financial service,airlines, consulting, etc.) possessing interac-tion capabilities is needed, by combining itwith quantita tive (confirmatory) research.From the case studies, the strong brandnames of the two hotel seemed to contributeto their service excellence. It is recommendedthat further research on the relationship be-tween the capabilities interaction and serviceexcellence to the hotel performance shouldbe done.

From a manageria l perspective, thisstudy expected to contribute to the develop-

ment of a conceptual model linking dynamicmarketing capability, service innovation ca-pabili ty, and the capabiliti es interact ion inorder to achieve service excell ence in thehotel industry. In practice, this study is aimedat helping the hospitality industry to betterplan and move towards effective and intensedynamic marketing and greater service inno-vation implementation. This study will hope-fully provide insights on some of the factorsof dynamic marketing capability and serviceinnovation capability which would assist thehospitality industry to create the appropriateenvironment to encourage the promotion ofservice excellence and customer satisfactionand finally customer loyalty.

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