Abstract

The study determines how service innovation impacts differentiation strategy and the impact on organizational performance. The target population of this research was 475 hotels, which are three to five star hotels in Malaysia. Due to the small population and the nature of the research, questionnaires were sent by mail and email to all the targeted three to five star hotels’ managers. Regression was used to analyse the relationship of differentiation strategy, service innovation and organizational performance. The result shows that differentiation strategy has a significant effect on organizational performance and service innovation has a significant effect on organizational performance. Remarkably, this study found that service innovation partially mediates the relationship of differentiation strategy and organizational performance. This study found that hoteliers that pursuing a differentiation strategy should simultaneously employ service innovation to attain better organizational performance. Thus, this study contributes a significant knowledge to the Malaysia hotel industry. This study fills in some of the gap and showing the significance of differentiation strategy and service innovation in the hotel industry which has received little empirical attention in current strategic management literatures. It also offers some practical contributions to the development of service innovation in relation to differentiation strategy and organizational performance.

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