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29

INNOVATION, MARKET SEGMENTATION AND ENTREPRENEURSHIP IN SERVICES

The case of the hotel industry

Jeremy Howells and Michelle Lowe

Introduction

Although services are now the dominant form of economic activity and change in advanced economies, researchers are still grappling with the ‘peculiarities of services’ (Barras, 1986), which makes their analysis challenging and different (Miles, 2005; Preissl, 2000). Thus services often come in intangible forms, have simultaneous production and consumption (which leads to the inability to store service products) frequently with the direct involvement of the customer (Howells, 2010, p. 70). The distinctive nature of these peculiarities in particular can be seen when considering services in relation to economic change and development, leading to different approaches towards conceptualisation and change. Many of those leading such developments in these fields have come from Economic Geography backgrounds in both International Business (see, for example, Enderwick, 1987; Roberts, 1999; Buckley & Ghauri, 2004; McCann, 2011) and innovation (see, for example, Daniels, 1983; Howells & Green, 1986; Moulaert & Gallouj, 1993; Tether, 2005; Love, Roper & Hewitt-Dundas, 2010; Bryson, Daniels & Warf, 2013; Meliciani & Savona, 2015; Freel, 2016)

Despite being considered a low tech sector (Hertog, den Gallouj & Segers, 2011), the hotel industry represents a highly dynamic and competitive market that continues to grow steadily as disposable incomes and consumer mobility have risen worldwide. The expansion of international hotel chains has been part of this trend (Peters & Frehse, 2005), together with more recent merger and acquisition activity. Market liberalisation and deregulation have led to more opportunities for international expansion, as well as increased competition, and have often resulted in ever more homogenous service packaging in the hotel industry.

Set against this trend of commodification and homogeneity, existing hotel chains (in contrast to new entrants; see later) have sought differentiation strategies by offering new experiences or levels of service. Thus, for example, Frehse (2006) provides a detailed account of the growth of ‘spa and health facilities’ in such large chains and how this is linked to both competitive and innovative processes. This type of innovative practice can be characterised as Schumpeterian Mode II type innovation and competitive practices (Schumpeter, 1943), reflecting how established players seek to control and grow in a market. This kind of activity is significant in most industries and for the hotel sector still remains the dominant form of change; as well as in innovative activity, at least in terms of incremental innovation.

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Equally though, as a way of avoiding such increasingly commodified and cost-driven markets, entrepreneurs as new entrants have sought to create hotels and hotel formats which offer unique characteristics (Hinterhuber, 2001), which contrast with standard hotel formats. These Mode I types of Schumpeterian innovation, associated with the creation and formation of new types of entrant (as well as the decline and eventual closure of others), have the potential of introducing more radical and disruptive innovation in the sectors and markets in which they emerge (Metcalfe, 1998). Such new niche types of hotel are disruptive forms of innovation in the context of the hotel industry by creating differentiation and hence new segmentation within the hotel market. This, in turn, makes it harder for direct competition through difficulty of imitation, thereby allowing monopolistic rents to be generated, at least on a partial basis. Moreover, this is not only about innovation in terms of a new and differentiated product but also is linked to new ‘ways of doing’ in terms of delivering a different type of operational and organisational form and how this is then spread and diffused internationally.

In the context of a volume which focuses on exploring the potential of the ‘boundary space’ between Economic Geography and International Business, this chapter on the hotel industry has four objectives. First, to position service industries and the conceptualisation of innovation and entrepreneurial activity in the service sector as issues of central concern within that ‘boundary space’, albeit acknowledging that they are currently significantly under-researched (Miles, 2005; Howells, 2010; Hertog, den Gallouj & Segers, 2011; Carlborg, Kindström & Kowalkowski, 2014). Second, to explore the emergence of new hotel forms in the sector, conceptualising those developments in terms of the disruptive and emergent forms of innovation (Bower & Christensen, 1995; Christensen, 1997) typical of Mode I Schumpeterian innovation. Third, the study connects the creation of a new hotel form with wider social network relationships and trajectories associated with the emergence of a ‘diaspora’ of entrepreneurial innovators (Lowe et al., 2012; Sørensen & Fuglsang, 2014). Lastly, the findings of this study are then related back to inform the theoretical development and conceptualisation of service innovation and internationalisation more widely. The first two elements of the objectives form the main part of the analysis, although the third element is crucial in the development of our wider analysis of innovation in the service economy as well as to its theorisation at the boundary between Economic Geography and International Business (see, for example, McCann, 2011).

Hotel innovation: differentiation and segmentation

Innovation types within the hotel sector

Although the hotel industry is seen as being a low technology dependent, low innovation sector, innovation is still important in the way the industry competes, for its continued growth and in its role as a major employer in both developed and developing economies. Given its size and significance, the hotel sector is also an important consumer and co-developer of new technology and digital media. In the context of services, there are three broad types of innovation: development of new products, development of new processes and development of new organisational design (Howells & Tether, 2004; Miles, 2005). However, it is accepted that all three can be highly inter-related in the context of services, where intangibility levels and blurring between inputs and effects are high.

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In relation to hotels specifically, and tourism in general, it is suggested here that there are four main arenas of interest where innovation research has been focused in relation to the sector. These relate to:

Within this wider context of service innovation, hospitality and tourism studies have started to highlight and analyse innovative activity from a set of different perspectives and foci. Thus, a number of these have taken a more high-level approach seeking to cover innovative practices right across the industry, focusing on more high-level strategy and performance within the industry (Ottenbacher, Vivienne & Lockwood, 2006), but also to seek to understand the nature and profile of innovation in the industry (Pikkemaat & Peters, 2006) and how this may differ from other services sectors. Tsai (2015), for example, has recently explored the inter-related nature of innovation dimensions in five star hotels and linked this customer experience and customer loyalty within a framework of holistic innovation. Similarly, a study by Grissemann et al. (2013) suggested that innovative activity in hotels’ service and IT areas was influenced by four closely inter-related innovation dimensions, namely employee engagement, customer participation, innovation management and information technologies. This group of studies has implications for the development of how we understand the process of service innovation both within the industry but also more generally.

A second set of studies has focused on the role of information technology (IT) and the rise of the internet. This can be seen in work analysing back office and automated booking functions (see, for example, Sheldon, 1983; Bilgihan et al., 2011; Sirirak, Islam & Ba Khang, 2011), but also the impact of the internet on the industry more generally. In particular, these approaches have sought to examine how information technology, automation and more recently the internet, especially in relation to sales and marketing, have affected the industry, its productivity and levels of service. Yelkur and Nêveda DaCosta (2001), for example, explored the role of the web on differential pricing in various segments of the hotel sector (see later). Related to this, but important in its effects, were the indirect effects of disintermediation in the tourism, hotel and hospitality sectors (see, for example, Stamboulis & Skayannis, 2003; Buhalis & Law, 2008).

A third set of work has focused on the specific hotel operations and staff skills, training and productivity. There is a close connection between training and changes in technology in services (Howells & Tether, 2004), whilst significant technological change is usually accompanied by a need to upgrade and adapt the skills of the service organisations (Evangelista & Savona, 2003). In this respect, the hospitality and tourism industries appear no different (Chang, Gong & Shum, 2011; Dhar, 2015). Hoque (2013, p. 9) emphasises that human resource management (HRM) is a key strategic lever within the industry and is closely associated with all aspects of the innovation process and more particularly its successful application. In addition, hospitality services often have high levels of intangibility, and production and consumption are simultaneous. Hospitality services, therefore, depend heavily on the skills and experiences of the employees that deliver them (Ottenbacher, Vivienne & Lockwood, 2006, p. 126).

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Lastly, a group of studies has centred on creativity and innovation focusing on user experiences and consumer interaction in terms of new product development, market provision and segmentation (see, for example, Peters & Frehse, 2005; Frehse, 2006). Tourism is an industry very close to the customer; however, paradoxically, all too often most innovations in the industry are through ‘technology push’ rather than through ‘user pull’. In this way innovation in hotels is often too technology-driven and not customer-friendly in their outputs (Bieger, Beritelli & Laesser, 2009). Nonetheless, generating a differentiated product or service through new and innovative practices and organisational design is a means to avoid direct competition and to gain monopolistic rents, at least for a period until new entrants appear in the market or market segment (Grant, 1991, p. 124).

Product innovation, differentiation, segmentation and new business models

This chapter, and the associated case study it draws upon, seeks to focus on this latter aspect of innovation in the hotel industry. This is notwithstanding the fact that all aspects of the innovation process within the hotel interact with each other; for example, improved training may be part of enhancing the customer experience. As noted earlier, the market drivers also affecting innovation decisions may be considered through the competitive strategy. The crucial factor for innovation is still the intensity of competition in the market (Preissl, 2000). Frehse (2006, p. 130) in reviewing the key competitive challenges for international hotel chains identified three core challenges that they face in terms of:

Effectively, a firm’s strategic decision to differentiate itself from competitors will affect its productive resources, the services it offers, the organisation and management of the operations, and, therefore, its innovation decisions (Sundbo & Gallouj, 2000). Baum and Haveman (1997) indicate that in the hotel industry, a differentiation strategy may be the most effective. They show that travellers decide to book tourist accommodation based on its price, on the quality of its service, on the services offered and on the image of hotel establishments. Consequently, an establishment may implement a competitive strategy that differentiates its service offerings from those of its closest competitors (adjusting it to the demand) or in the provision process (improving its productive efficiency). Furthermore, Canina, Enz and Harrison (2005) indicate that there are strong incentives for what they term ‘lodging firms’ to pursue strategies that differentiate them from competitors in their local market. A key element, therefore, for hotels as they face greater competitive pressure from globalisation and the trend towards ever greater customisation, is the need to meet customer demand for unique and memorable experiences (Gilmore & Pine, 2002; Chathoth et al., 2013) and to provide quality service to customers effectively (Wang, Chen & Chen, 2012). To survive in the industry, a hotel needs to respond to the explicit requests provided by customers regarding service improvement and create new services to satisfy potential customer needs.

These issues reflect the wider challenges faced by all hoteliers, aside from simple cost reduction and efficiency improvements. In particular, the industry seeks novelty and differentiation within a crowded market, something that will make their hotel or hotel chain stand out from other hotels and create a ‘new’ experience. In turn, ‘non-imitability’ – making it difficult for rival businesses to copy the new product offering at least over the short and medium term – becomes a key to success. This process of differentiation is also associated with and, in a sense culminates in, the segmentation of the industry.

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In summary, new hotels help lead this process of innovation and experimentation in the industry, but over time they then come under pressures of imitation and standardisation by new and existing hotels and hotel chains entering the market segment. In this sense, Schumpeterian Mode I patterns of innovation, with more radical Darwinian creation, experimentation and all too often decline and death, are then succeeded by Mode II incremental change often copied by established players, consisting of existing hotel chains and successful Mode I firms that have managed to survive and prosper. This more established, second phase leads eventually to a new definable segment in the market being created.

The link between differentiation and innovativeness seems, therefore, to be unusually important in this sector. For example, Pikkemaat and Peters’ (2006) study of innovation processes amongst small and medium-sized hotels highlights the linkage, finding that entrepreneurs who focus on clearly defined target markets seem to be more innovative and in the long run more successful (Pikkemaat & Peters, 2006, p. 108). Moreover, results pertaining to the introduction of additional services have been shown to have a positive effect on all innovation types. Hence quality-based strategies adding value to the customer stay (Medina-Múñoz et al., 2003) have been found to prompt innovation in other dimensions of hotel activity (Orfila-Sintes & Mattsson, 2009, p. 389). That is to say, the emergence and development of a new type of hotel segment is not only associated with a process of new product development and differentiation, but is also linked with the formation of new business models (Teece, 2010) and ways of running a hotel. Souto (2015), for example, notes that the rise of new business models within the industry is a form of a non-technological innovation, but also one that effectively combines both technological and (other) non-technological innovations. Although this is usually not associated with radically new types of business model in hotel and leisure, there are exceptions; Airbnb, part of the ‘shared economy’ (Grinevich et al., 2015) on the fringes of the hotel sector, for example, has this disruptive potential. It is also evident in the rise of digital intermediaries in hotel search and booking functions; in new customer service practices; and in the greening of the supply chain (in turn, associated localism and environmental strategies).

New innovative formats in the hotel industry

Background and methodology

This case study explores the role of segmentation, innovation and the evolving trajectory of entrepreneurial social networks in the hotel industry. The study focuses on the rise of the ‘Shabby Chic Hotel’ (SCH) from an earlier sub-market creation, the Boutique Hotel (BH) in the UK, and the innovative dimensions of its emergence through experimentation, creativity and enterprise. SCHs can be defined by the following characteristics: a traditional British country house hotel set up in the refined yet less formal style associated with the relaxed US West Coast retro look (see Gudis, 2013). The ‘chic’ element signals the exclusive and fashionable luxury combined with the high design aspect of the style. SCHs additionally emphasise luxury local foods grown, reared or produced in a sustainable way, combining the new British food movement with the slow food movement. Well-kept country gardens (including kitchen gardens) imitating those found in traditional country houses in Britain and Ireland are a feature.

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In the UK, Country House Hotels (CHHs) began to emerge in the late nineteenth century (McGuffie, 1987) with the rise of the railways (Simmons, 1984) followed by the rise of the motorcar in the 1920s and 1930s (Pope, 2000). As car ownership spread amongst the affluent upper classes, new patterns of tourism consumption associated with cultural change and the search for authenticity emerged (Urry, 1990). Access to country houses in previously inaccessible rural areas (Jeremiah, 2010) became possible, while on the supply-side availability of suitable houses was boosted as high inheritance tax levels (‘death duty’) took their toll, particularly in the inter-war and immediate post-war periods. Although often regarded as quintessentially British, CCHs from their initial emergence incorporated important European influences ranging from French and Italian house and garden styles through to more recent adoptions such as of Italian ‘slow movement’ characteristics in cooking and localism in food. But most important is the link between the SCH segment and the earlier emergence of the ‘boutique’ hotel movement in the UK (Aggett, 2007) and elsewhere (Rogerson, 2010), a predominately urban phenomenon.

Figure 29.1 captures in diagrammatic form some of this evolution of the SCH as a distinctive form and market segment, positioning it within the wider industry trajectory, which includes the CHH and BH forms.

The case study draws on that contextualisation and offers insights from an ongoing in-depth investigation into the growth and innovative development of the hotel industry. It explores the role of segmentation, innovation and the evolving trajectory of entrepreneurial social networks in the hotel industry. The case study involves arguably one of the most disruptive and leading sub-markets in the UK, which in turn has evolved out of earlier differentiation and segmentation strategies of key entrepreneurs and their peers. The research is by its nature exploratory, but does seek to provide generalisability, counter-example and validity. It has used multiple methods of triangulation, including several methods of data collection (interviews, archival research, participant observation) and multiple cross-relating information sources which help to capture the numerous, complex and interwoven perspectives which exist relating to the history of the new SCH hotel sub-market. The study is therefore built on ‘a participative form of research’ (Van de Ven, 2007) in which the founders and managers of the case study firm were engaged, as well as obtaining perspectives of other key stakeholders, including the original suppliers of private equity finance and other entrepreneurs in the network. Accessing the views of these stakeholders involved in-depth semi-structured interviews, obtained via a ‘snowballing’ technique and conducted in a ‘close dialogue’. The method involved complex relationships between interviewers and interviewees (Schoenberger, 1991) and, despite its many virtues in allowing insight into corporate decision-making, has clear limitations to which the researcher must remain sensitive. Additionally, there were issues relating to building generality in a systematic way from the insights the researcher obtains, and also to validating the research. The research also undertook extensive ‘triangulation’ of our interview material with information drawn from archival sources. Analysis of the interviews was undertaken to identify key themes discussed in the literature and to organise these into nodes (or codes), which were then referenced against a timeline capturing the history of the firms. These nodes were then structured and classified to focus the analytical work and explore the themes in more depth, linking the nodes across each interview transcript. This was particularly useful for analysing interviews, which converged on many topics, but which involved contrasting individual perspectives, namely interviewees whose opinion and recall offered varying levels of detail on important events.

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Differentiation and segmentation

It is well established that differentiation delivering perceived superiority and enhanced customer value can lead to competitive advantage in the market place (see Day & Wensley, 2002, pp. 91–92). The case study reinforces that by highlighting how differentiation and subsequent segmentation are linked to innovation and enterprise and how these strategies and activities are intertwined. In particular, Table 29.1 shows how our case study respondents perceive the segmentation and taxonomy of the hotel industry in the UK to have developed over time. This trajectory of development will clearly be different in other national hotel systems, reflecting the continuing strength of cultural influences (Tajeddini & Trueman, 2012), but over time will start to converge with other national hotel markets as international chains spread and develop and therefore more rapidly diffuse differentiation strategies and models. Equally, new hotel formats are now more likely to be established early in overseas markets as global barriers continue to fall.

New product types, over time, develop into definable market segments with their own sub-markets and competitive and price profiles. New hotel types have the advantage of being able to gain some monopolistic advantage and therefore price protection, although over time this will erode as new competitors enter the market. Nonetheless, this temporary monopoly power can last for a significant time period (even in the highly competitive personal computer market of the 1980s; Bresnahan, Stern & Trajtenberg, 1996), whilst the hotelier can then build brand and loyalty from customers who have experienced the new differentiated service product.

Some of these have been well charted, others less so or more confined, to begin with, in certain national settings. Thus, Frehse’s (2006) study explores the emergence of a new form of hotel type or segment, the spa or health hotel, as part of its adoption and (new product) development by hotel chains. The point here is that individual spa hotels have long been in existence right across Europe (Nagy, 2014) and beyond as early as the eighteenth century, with people wishing to stay in comfortable surroundings and enjoy the health benefits of the spa. However, their adoption by hotel chains has been much more recent and has involved combining them with scaleable versions of the spa experience, without the actual historic spa being present, and combining it with swimming pools and gyms taking up the increased health concerns of individuals from the 1970s and 1980s onwards.

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Entrepreneurial networking and the role of the diaspora

Under conditions of Mode 1 Schumpeterian innovation, which the formation of new hotel forms and differentiation is about, innovation is closely linked with entrepreneurialism. This is in turn associated with leadership and vision, two qualities Schumpeter (1934) associated strongly with entrepreneurship (Fagerberg et al., 2012). Under these conditions, innovation is the outcome of the continuous struggle in historical times by key individual entrepreneurs advocating novel solutions to particular problems. This is not to suggest that all innovations develop under these conditions, but knowing the entrepreneur and the circles or networks they reside in and build is important in understanding how new innovative forms, such as new hotel types, are formed and developed. What is important here is that innovation and entrepreneurship are about knowing the individual and their network contexts. It is not just about the lone individual or just about the network; it is understanding them in combination. Understanding the former is important in the context of understanding the role of leadership and strategy, noted earlier. Understanding the latter is important because personal and inter-organisational network processes are where the exchanges of knowledge and experiences take place (Pechlaner, Fischer & Hammann, 2006, p. 52), which are important for how individual entrepreneurs gain wider cooperative support for their innovative experiments.

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Novelli, Schmitz and Spencer (2006) found that networking and cooperation is a great advantage in developing new products and fostering innovation. This is supported by Grissemann, Pikkemaat and Weger (2013) who found that innovation behaviour is influenced by the innovation networks in which individuals and organisations are found. Innovation tends to increase when it is implemented together with external partners and collaborators. Thus, enterprises that engage in cooperation tend to have a significantly higher degree of innovation than those not engaged in cooperation. For hotels and tourism, the entrepreneur tends to be naturally bound up in a range of networks, associated with social, employment and supply chain relations. To achieve long-term competitiveness, various forms of synergistic cooperation are essential among the traditionally fragmented tourism providers. Cooperation not only helps to improve existing services but also benefits the creation of completely new synergistic innovative service experiences. As such, entrepreneurs have to recognise that the creation of new services and innovation is easier in cooperation or in a network with partners (Grissemann, Pikkemaat & Weger, 2013 p. 20). The formation and the maintenance of networks in tourism destinations is a challenge, but is important to achieve a competitive advantage in mature markets. Equally, those hotels and tourism ventures in weak networks and local innovation systems will find it difficult to develop new forms of innovative practices (Carson et al., 2014).

In this context Lowe et al. (2012, p. 1117) in a previous study use the term ‘knowledgeable’ individuals who are at the heart of self-organising networks and draw upon Baker et al.’s (2003) argument that entrepreneurial competencies are embedded in networks. Recent work by Nieves and Segarra-Ciprés (2015, p. 56) suggests it is the combination of both internal knowledge capacities of individuals within the firm, the hotel, and collaboration with external agents that enhance the likelihood of introducing new management innovation in the firm. In particular, the external social relationships of managers were found to be an important determinant on innovation (Nieves, Quintana & Osorio, 2014, p. 70). Sørensen (2007), however, in an interesting study of Malaga in southern Spain, found that social networks were both weak and ineffective as transmitters of new innovative practice.

The role of entrepreneurs in networks has been less well explored or acknowledged. The exception here is the actor-network research by Paget, Dimanche and Mounet (2010) of the Alpine ski resort, which highlights the role of the ‘leader translator’ (Paget et al., 2010, p. 840) in stimulating innovation in the resort area. However, there are few other studies of this enterprise-innovation nexus within the hotel and tourism sector. Certainly entrepreneurs starting up businesses characteristically ‘introduce innovative practices an+d new technology that challenge incumbents’ performance’ (Blake, Sinclair & Soria, 2006, p. 1104), whether in the start-up stages or subsequent business spin-offs. These ideas have particular application to small hotels where resource constraints can be major obstacles to innovation (Lee-Ross, 1998; Enz, Canina & Walsh, 2006; Morrison and Conway, 2007).

The importance of this study is therefore highlighting the role of entrepreneurs, and in particular within the context of serial innovator-entrepreneur and social networks, the ‘diasporic’ network of original suppliers of private equity finance and entrepreneurs. In relation to both BHs and SCHs in the UK (Figure 29.2), the key founders had close personal links, and many had early-stage career experience of the industry through working in a single hotel, Chewton Glen (Gerard Bassett, Robin Hutson and Mike Warren) and, for many, in the subsequent Hotel du Vin (Ashley Levett, Gerard Bassett, Peter Chittock, Robin Cook, Robin Hutson, Vincent Gasnier) founded by Robert Hutson and Gerard Bassett in 1994.

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A key ‘animateur’ in this whole network was the role of serial entrepreneur Robin Hutson, who worked initially at Chewton Glen and then went on to found the iconic boutique hotel chain, Hotel du Vin. Robin Huston subsequently sold Hotel du Vin, before going on to found The Pig in 2011 and having a stake in, and becoming the chairman of, The Limewood Hotel (part of the Lime Wood Group) established in 2012. There are now five Pig hotels as part of the Home Grown Hotels chain. The Malmaison chain, of which Robert Cook and Mike Warren were in senior management positions there (founded by Ken McCullough in Leigh also in 1994), merged with Hotel du Vin in 2004 when they became part of the MWB Group. Gerard Bassett then went on to create TerraVina Hotel in 2007. Peter Chittick set up his own hotel, Hotel Crillon Le Brave in Anjou, France in 1989, as well as becoming a shareholder and partner in Soho House. Vincent Gasnier also had links with Soho House as a wine consultant. Soho House & Company is somewhat an exception here in that it was founded by Nick Jones in 1995 as a boutique-led private members’ club in London aimed at professionals working in the creative industries. It has subsequently expanded to cover clubs, restaurants, hotels and spas across the UK and overseas.

All seven of these key individuals played a major role in shaping the evolving country house, boutique and shabby chic hotel forms and sub-segments in the UK and internationally. Their ‘teacher’/’student’ relationships with each other, their entrepreneurship and financing of new hotel forms and their links in multiple forms across these chains all played an important part in the shaping of this innovative and lucrative hotel sub-market.

International diffusion of new service forms

The above has stressed the strong creative rush to develop these new hotel formats, but how should this be seen in an international context? As has been noted earlier, the earliest appearance of boutique and latterly shabby chic hotels has been in the United States and Europe and more particularly the west coast of the United States, the UK and certain Scandinavian countries. This spread quite rapidly to other parts of the world including South Africa and parts of Asia (Rogerson, 2010). This international spread, however, has been largely driven through the experimentation, copying and imitation of individual hotel owners in specific countries. This is not surprising that both BHs and SCHs embody independent and unique ambiances that are difficult to replicate in an authentic way (and the inter-organisational diffusion of such models is therefore limited; Greenhalgh et al., 2004). This individual creative establishment and copying of these new service formats in separate national markets can be classed as a ‘Type A’ model of international new service diffusion.

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Those BHs and SCHs that have in turn developed into burgeoning chains have naturally begun this process within their own domestic country realms, but have over time set up hotels in geographically or culturally adjacent countries. This is not an uncommon process in service oriented foreign direct investment (FDI) and multinational enterprise (MNE) strategic models (Dunning, 1989) and in this context relates more specifically to ‘location bound’ services that seek expansion through innovation-based comparative advantage (Enderwick, 2013). Thus, overseas expansion by these chains has therefore been gradual and exploratory moving into proximate markets either geographically or culturally or both. ‘Reproduction’ of such new organisational forms within multi-unit organisations (see Van der Aa & Elfring, 2002) remains challenging and even harder when it is overseas. Thus, Soho House has now established private clubs in seventeen locations in North America and Europe, but began such expansion in the UK and then the west coast of the United States. The model of international expansion in new service formats is therefore what might be termed a ‘Type B’ model of international new service diffusion.

It is, however, notable that large, multinational chains, by contrast, have found it difficult to move into this rapidly expanding hotel sector and have, at best, been laggards in its development. Thus, the Intercontinental Hotel Group (IHG), for example, established the Hotel Indigo chain in 2004 to provide quirky boutique and spa type offerings to compete in this market segment. In other cases, it is via more commonplace international acquisition strategies that lead boutique hotels to frequently end up as part of larger chains (Mun Lim & Endean, 2009). In the case of the Malmaison and Hotel du Vin chains, this was via poor husbandry as part of the MWB Group, and they fell into receivership in 2012. The group was finally bought out by Frasers Hospitality Group based in Singapore in 2015. This international, inter-organisational spread of new formats through being acquired by larger service MNEs can be defined as a ‘Type C’ model of international service format diffusion.

Either way, because of the tacit knowledge dimension of these innovative service market and group formats (Leonard & Sensiper, 1998; Howells, 2002), it makes them difficult to replicate and copy between different competitors as it so innately bound up with individual knowledge bases and behaviours (Vona & Consoli, 2015). The training of staff and the flexible HRM that allow creative, flexible, responsive and authentic interactions of staff with hotel clients is extremely difficult to instil and embody. This problem is true even within the new entrepreneurial chains themselves. This is because BH and SCH hotels try to create unique and original offerings that also stress authenticity. Chains or groups of hotels seeking to consistently recreate this format are therefore almost an anathema to the whole concept. This may explain why international growth of these formats has been so fragmentary.

Conclusion

This chapter seeks to make a contribution in three areas of research in service innovation and development, which cover the extant and overlapping realms of International Business and Economic Geography. First, existing literature surrounding the emergence of new service innovations has neglected issues around emergence and the formation of new niche markets and their international market trajectories. The hotel industry is an example of both the dynamics and trajectory of the sector being shaped by new market entrants and the development of new niche market forms led by entrepreneurs. However, this phenomenon has been largely neglected in the research literature (see Ioannides, 2006) as it has been lost in the gap between the interstices of two major research fields, innovation and entrepreneurship, which still largely remain separate (Metcalfe & Ramlogan, 2008; Autio et al., 2014). Moreover, these innovation formats and concepts sit uneasily between product-oriented service innovations and business model innovation and have been a neglected field of research (Howells, 2010). Nonetheless, this is now changing with a shift towards tourism in Economic Geography focusing on the role of innovation and evolution (Hassink & Ma, 2017) reflecting the wider impact of novelty and co-evolution in Economic Geography (see, for example, Martin & Sunley, 2007, 2010).

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Second, it has been shown that the role of serial entrepreneurs and the community of entrepreneurs can have a profound impact in delivering new innovative service offerings and crucially shaping new markets. In the context of new hotel service offerings, the innovation process cannot be understood without understanding the process of entrepreneurial learning and diffusion. Within these entrepreneurial communities, the ‘diaspora’ (Lowe et al., 2012), both teacher and student entrepreneurs can help test new formats and also receive advice and financial support in setting up these new ventures (Rusanen, Halinen & Jaakkola, 2014; Sørensen & Fuglsang, 2014; Stam, Arzlanian & Elfring, 2014). Although over time, this dissipates as teachers learn from their students, and there is a close and ongoing interaction between them which can re-engage when new opportunities arise. Moreover, as has been shown, these evolving and innovative entrepreneurial networks can have a profound impact on developing new niches, which then become important markets and sub-markets over time.

Lastly, the spread of these new service concepts overseas has been outlined and explored through three different types of international diffusion models that have some similarities with wider service-led FDI models (see Davies & Guillin, 2014; Baena & Cerviño, 2015). However, the very process of creativity, uniqueness and authenticity of new hotel formats evident in BHs and SCHs make diffusion and overseas development of such concepts so difficult to replicate even through select social networks and diasporas (Ye, 2016). The difficult and tacit nature of the introduction and diffusion of such new forms makes their worth even more desirable and valued.

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