Strategic orientation and performance of service firms: evidence from the Italian hotel industry

Due to fierce competition in the marketplace, globalization, and an explosion of technology in recent years, the strategic orientation – “the overall strategic direction of the company and the need to design new initiatives” (Okumus, 2001) – is considered as a necessity for every company in order to achieve market success and sustain a competitive advantage. Despite a large number of studies, which have paid attention to service organization, empirical works related to the impact of strategic orientation on the hotels’ performance is still quite scarce. However, due to the constant change and increasing competitive pressures on today’s hotel industry, a deep analysis concerning the strategic orientation adoption and its impact on the performance could be very interesting. In fact, demanding customers, new regulations, globalization, and the destabilizing effects of technological advancement change the hotel landscape significantly and are introducing new challenges and imposing hotels to be innovative, accelerate their learning activities and develop long-term relationships with their customers. In summary, in view of the nature of the hotel industry, a more strategic-oriented approach might be especially required of them for improved performance. In this paper, we examine the impact of strategic orientation upon hotels’ performance in Italy. We adopt a multidimensional conceptualization of strategic orientation to acknowledge the input of entrepreneurial, learning, and market orientations (Miller, 1983). An entrepreneurial orientation combines innovative, proactive, and risk-seeking behavior that create value in organizations. A learning orientation is based on market, technological, and social aspects that constitutes a significant internal organization value that can explain the hotels’ performance. A market orientation is the “degree to which the business unit obtains and uses information from customers, develops a strategy which will meet customer needs, and implements that strategy by being responsive to customers' needs and wants” (Ruekert, 1992). Differently from the majority of the studies, we adopt a multidimensional approach to strategic orientation, in an attempt to highlight the importance of all three dimensions. This interpretation highlights that a hotel needs to possess these different, interrelated elements if it is to achieve superior performance. Starting from the idea that hotels differ in their strategic orientations, we analyze how different strategic orientations influence the hotels’ performance. We test our hypotheses on a sample of 120 hotels operating in Rimini, an Italian mature tourism destination. Inferential statistics based on a probit regression model allows us to ascertain if strategic orientation can be considered as the most important driver of a successful lodging firm. The dependent variable is the performance of hotels. The independent variables are innovation (entrepreneurial orientation), customer-based services offered by hotels (market orientation) and learning propensity by leveraging collaborations (learning orientation). We also take into account the effects of quality (stars hotel) and size (number of rooms). Our results verify that both innovation and customer orientation significantly influence the hotels’ performance, while learning orientation does not influence the performance. Thus our results confirm first of all that the current competitive business environment where hotels have to act calls for a continuous emphasis on delivering superior quality products and services; second, that innovativeness must be seen as one of the most important entrepreneurial orientations for hotels to achieve long-term success. On one hand, our result reinforce the marketing theorists view that hotels which focus their activities on the needs of their customers, i.e., behave in a customer-oriented way, perform better than those hotels that do not. On the other one, the findings of this study reveal that the hotels, which are very innovative, are likely to enhance their business performance. The not significant influence of learning activities based on external networks on hotels’ performance can be justified by the scarce traditional attitude of hotels in Italy to collaborate. These results assume a greater relevance if we consider that in our empirical settings the size of hotels has a negative influence in their performance, that is the smaller the hotel, the larger its performance. In turn, this research discloses several fundamental topics that deserve further attention from international entrepreneurship scholars interested in tourism and in particular in hotel industry. First, our results demonstrate the importance of a multidimensional approach to strategic orientation when we are studying the hotels’ performance effects. Second, the current study’s emphasis is designed to provide hotel managers with more understandable guidelines on specific entrepreneurial, learning and market activities identify opportunities and create a set of resources trough which prospects can be exploited along with openness to new strategic ideas and their consequences. Third, this study suggests that, to improve performance, marketing and entrepreneurial orientation should be encouraged by managers and owners in the hotel industry and particularly if they perceive innovativeness and customer relationships in terms of openness to new ideas as an integral part of corporate strategy. Finally, evidence from this study also points to the importance of strategic emphasis on the creation of an internal business environment conducive to innovative activities, focusing on the needs of the customer.