Human resource management practices and organizational innovation: A study of four and five star hotels in Malaysia

The services sector remains the main economic growth driver of Malaysia, contributing 46.9% to GDP in 2013 (excluding government services) and employing 44.5% of the country‘s total workforce. However, most services sub-sectors have the potential to further accelerate economic growth, especially through domestic economic activities. Under the Economic Transformation Programme (ETP), seven sub-sectors have been identified as NKEAs (financial services, wholesale and retail trade, tourism, business services,communications content and infrastructure, education and healthcare). One of the sub-sectors of services is tourism sector, in particular hotel sector which has experienced the highest growth of 3.1% in 2013. However, the hotel sector has been suffering from homogeneity of offerings. Homogeneity suggests that the nature of services in hotels are almost same, which means that the services offered by one hotel are easily substitutable. This has caused difficulties for hotel managers to differentiate an individual hotel from its competitors (Dan Reid & Sandler, 1992).As an alternative to this challenge, a new and innovative offering may help to differentiate one‘s hotel from its competitors, achieving lower costs and higher quality outputs (Chadee & Mattsson, 1996; Ottenbacher & Gnoth, 2005). Hospitality firms, such as hotels, are an ideal example of a market which could benefit from the implementation of innovation.First, from a customer‘s perspective, the hospitality market is perpetually inundated by many similar, often easily substitutable service offerings. This can cause difficulties for hotel managers as they attempt to differentiate an individual hotel from its competitors. One solution to this challenge may be to offer new and innovative features to customers. Secondly, the hospitality industry is rapidly changing due to accelerations in information technology (Olsen & Connolly, 2000). Managers will need to make proactive changes which focus even more intensely on customer preferences, quality, and technological interfaces in order to stay competitive in such a dynamic environment (Karmarkar, 2004).Thirdly, travelers today do not exhibit, as in past decades, a truly brand loyal behavior.Travelers instead are choosing to patronize hotels that offer the best value proposition under existing budgetary constraints. Furthermore, a quite recent article has pointed out the important role of service innovation in which ―identifying drivers of sustained new service success‖ is a more prioritized research topic for the science of service (Ostrom et al., 2010).At the same time, researchers have pointed to the dearth of innovation studies in the services sector relative to manufacturing (Cainelli, Evangelista & Savona, 2006; Camacho & Rodriguez, 2008). Service sector was viewed historically as ―laggards‖ or static and unable to innovate (Tether, 2005; Jankowski, Tassey, Gallaher, Link, & Petrusa, 2005).Human resources management (HRM) practices such as staffing, reward and compensation, HR development i.e. training, development and career planning and development have been found to influence innovation in organization and used in previous researches. Thus, one reason for focusing on the same HRM practices in this research was that it enables comparison with past studies. In addition, based on the ―best practices‖ perspective, it would be appropriate for this research to explore whether these HRM practices which were used mostly in previous studies with innovation are suitable for innovation in service sector as well. This study intends to investigate whether the positive relationship that exists between HRM practices (i.e. staffing, compensation, performance appraisal and training & development) and innovation globally can also be established in Malaysian context especially in service industry like hotel sector.The study will also contribute to the scant literature on innovation in service sector, especially in developing country like Malaysia