Service innovations and firm performance in the hospitality industry: evidence from tourism driven economies

Purpose – The purpose of this paper is to identify the impact of service innovations on firm performance in the hospitality industry in Croatia during the 2012-2014 period. Methodology – The study uses data from the most recent round of Community Innovation Survey, a confidential dataset compiled by Eurostat on innovation activities of firms in the EU member states. With means of the nearest neighbour matching treatment analysis it first explores the determinants behind the ability of firms to introduce service innovations before it explores whether firms that introduce service innovations outperform their rivals. Findings – The results of investigation suggest that service innovations emerge predominantly through transfer of knowledge and skills between organizations, through intra-firm channels and other spillover mechanisms. In addition, there is little evidence of internal organizational and marketing innovations as drivers of innovation in services. Contribution –Rising importance of services in world economy suggests that service innovations are important for firm performance and competitiveness. To the best of our knowledge, there has been no attempt to address determinants of innovation in general and service innovations in particular in the hospitality industry in Croatia, whose economy largely depends on tourism, in post crisis period. To this end, our study makes genuine contribution to the existing literature that can translate into concrete policy recommendations.