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THE ROLE OF A FIRM’S CAPABILITIES ON BUSINESS MODEL INNOVATION;

EVIDENCE FROM HOTELS IN INDONESIA

Cynthia Anna Wijayanti

, Syamsir Abduh

, Robert Kristaung

, Filma Festivalia

Universitas Trisakti, Jakarta, Indonesia

cynthia.awe@gmail.com

ABSTRACT

A business model is a strategic plan for creating, delivering, and retaining value, ensuring profitability

and competitiveness. To thrive in a dynamic market, a company should harness its strengths and innovate

its business model to address opportunities or challenges. Strong capabilities empower a firm to

effectively implement business model innovation in response to market fluctuations. This quantitative

study examines the role of a firm’s capabilities, which are dynamic capabilities and market orientation

toward a business model innovation in Indonesia’s hotel industry after the pandemic. Inferential

statistical analysis was conducted on two independent variables, dynamic capabilities, and market

orientation, to examine their impacts on business model innovation as a dependent variable using

Structural Equation Modelling with software Smart PLS 4. The samples included 492 general managers

at three to five-star hotels in Indonesia who were used as respondents. They were selected using

purposive sampling to examine two hypotheses. A five-point Likert-scale online questionnaire included

thirty-two questions from seven dimensions covering two independent variables examined. The results

of the T-test show that the firm’s capabilities, which are dynamic capabilities and market orientation,

have significant effects independently on business model innovation, with each substantial value of

p<0.05. Dynamic capabilities affect business model innovation by 42.9%, followed by Market

orientation, which contributes to business model innovation generation by 35%. Additionally,

Importance-Performance Map Analysis (IPMA) identifies the practical contributions of firm capabilities,

particularly highlighting the significance of proactive market orientation in influencing business model

innovation.

Keywords : Dynamic Capabilities; Market Orientation; Business Strategy; Strategic Management;

Competitive Advantage; Hospitality

INTRODUCTION

Globalization and rapid technological advancements have led to a significant level of

competition. In addition, sometimes disruption compels companies to reevaluate their business

models to compete in the market and sustain their businesses. What was considered a novel

invention just a few months ago quickly becomes obsolete due to disruptive forces. The ever-

evolving and highly uncertain market conditions often disrupt a company's business model (David

J. Teece, 2010), where innovation, a critical pathway to achieving competitive advantage, is

pivotal in reshaping the utilized business model (Assink, 2006).

The innovation within business models becomes a foundation for a sustainable competitive

edge that is challenging for rivals to replicate, offering more tremendous advantages than other

forms of creation. In response to crises and disruption, the company must use its internal

capabilities to adjust its business model's organizational structure, processes, and resources

accordingly. The capabilities of a firm encompass the ability to utilize its dynamic capabilities

and market orientation to innovate its offerings. Furthermore, by optimizing those internal

capabilities, a firm is expected to innovate its business model, as Business Model Innovation is

crucial in responding to crises (Breier et al., 2021).

The hotel industry in Indonesia is a significant part of the tourism sector, holding economic

importance, notably in government tax revenue generated from hotels. The hospitality industry

has experienced various challenges, such as the growth of a digital platform-based business model

called the Virtual Hotel Operator (VHO) in 2015 in Indonesia. The Virtual Hotel Operator

platform offers low-budget yet clean accommodation options and utilizes a digital-based booking

system, which has experienced rapid growth since its inception. They use innovation in their

business model to provide better, faster, and more accessible customer service and disrupt the

market. Meanwhile, not all conventional hotels prioritize innovation, including technology

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innovation; instead, hotel managers commonly prioritize introducing new guest room amenities 
or  another  similar  service  that  may  be  less  critical  for  business  strategy  (Wiastuti  & 
Susilowardhani, 2016). Thus, it implies that the hotel industry may need more ability to change 
quickly through their current business model to anticipate environmental changes. Additionally, 
the COVID-19 pandemic was another crisis experienced worldwide. Over the last three years, the 
tourism  and  hospitality  sector  has  been  dramatically  influenced  by  the  pandemic,  causing 
significant losses for hotels and accommodations. In 2020, the national average occupancy rate 
stood at a mere 35%, reflecting a 20% drop compared to the pre-pandemic year of 2019. This fact 
underscores the need for adaptability and resilience within the hotel industry’s business model as 
it navigates evolving market dynamics and external crises.  
Therefore,  hotels  must  use  their  internal  capabilities  to  conceptualize  and  implement 
business model innovation to sustain their competitive advantage. The significance of the ability 
to innovate a business model is also established in the study by (Timotius, 2023), who emphasized 
that  businesses  must  embrace  innovation  to  adapt  their  business  models,  enhancing 
competitiveness and resilience in an increasingly uncertain environment  (Adam & Alarifi, 2021). 
In uncertainty, the capacity for innovation within currently utilized business models emerges as a 
competitive advantage for corporations. Dynamic capabilities are considered the cornerstone of a 
corporation's  strength  in  innovating  its  business  model  by  exploiting  internal  and  external 
resources. This research contributes novelty by delineating market orientation, perceived as an 
integral part  of a corporation's dynamic  capabilities, specifically  regarding how  corporations 
employ market orientation to apprehend market needs. This study aims to elucidate how dynamic 
capabilities in managing resources, augmented by the ability to capture market demands, act as 
catalysts  for  a  corporation's  innovation  capacity  in  altering  business  models  amidst  market 
uncertainties. 
 
Business Model Innovation 
A business model shows how a firm develops and provides value to customers. It is also a 
method to  preserve  some value for business model development.  Innovation is  sparked  by  a 
business model, which then develops into a subject of innovation. The business model offers a 
method by which technical advancement and knowledge, in conjunction with the use of tangible 
and intangible assets and capabilities, are converted into a source of profit for the organization (D 
J Teece, 2018). A business must establish its business model using one or more business model 
concepts  or  designs  to  achieve  superior  performance.  The  business  model themes  can  drive 
innovation and provide direction in how the business model operates. By carefully selecting and 
implementing business model themes, companies aim to achieve superior performance and stay 
competitive in a rapidly changing business environment.  
Facing a  crisis or  uncertain market is the  least expected by  a firm,  and managing the 
resources under the circumstances takes work. Given the continuous shifts in competition, it was 
evident that business model innovation has evolved into a crucial element to consider in company 
strategy (Pereira et al., 2015). Business model innovation involves making significant changes or 
adjustments within a company, utilizing its capabilities to adapt to market conditions, especially 
in  an  uncertain  and  dynamic  environment.  A  company  must  constantly  adapt  and  innovate, 
employing novel creative ideas and technology, as business models are only sometimes stable 
and enduring. The company can create unique value propositions and turn them into business 
model innovations using its capabilities. Furthermore, Business Model Innovation is a company’s 
flexibility to adjust to crises, and it is a potent recovery response to the COVID-19 crisis (Breier 
et al., 2021). In other words, the company must use its capabilities to develop business model 
innovation to respond to crises and survive. The dynamic capabilities and market orientation are 
important to creating value and delivering it to consumers. The result of the firm’s capabilities 
enables the company to create efficiency or novelty in the way it delivers value to the customer 
through its business model. Further, in a study by (Yang et al., 2020) on promoting business model 
innovation, companies must initially define new value propositions or design themes. Business 
model innovation means reconfiguring the entire business model or some components in response 

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to obstacles or as a strategy for innovation and diversification. In this case, companies can adopt 
an  approach of  efficiency or  novelty  to transform  or  enhance  their existing  business model. 
According  to  (Zott  &  Amit,  2007a),  the  business  model  innovation  can  be  translated  into 
indicators as follows; 
1)  Easy transactions conducted with customers. 
2)  Efficiency in accessing every transaction. 
3)  Providing novel combinations for service. 
4)  Linking the staff and clients in novel ways.  
5)  The strategy of revenue generation is innovative. 
Dynamic Capabilities 
The firm’s internal capability to manage its resources is crucial in gaining a competitive 
advantage and sustaining the business through a business model. Three critical resource areas 
contribute  to  this  advantage:  nature-based,  knowledge-based,  and  dynamic  capability-based 
views. The latter view, dynamic capability-based, focuses on the dynamism of the company's 
environment. Using dynamic capabilities, an organization's internal and external abilities must be 
integrated, built, and reconfigured to adapt to rapid environmental changes. Dynamic capabilities 
constitute an essential part of Business Model Innovation (David J. Teece, 2018) and serve as a 
critical antecedent to business model innovation (Franco et al., 2021). A company must be able 
to detect and influence opportunities and challenges, coordinate across its functions, and integrate 
and, if necessary, reconfigure internal resources to operate the business model innovation. At the 
same time, the company must have the competitive capability to make improvements, which is 
used  as  opportunities  for  innovation  (Vu,  2020).  Innovation  supported  by  technological 
capabilities  will  result  in  a  company's  dynamic  ability  to  adapt  to  environmental  changes 
(Ilmudeen, 2021). The study employs five dimensions modified from the study of (Mikalef & 
Pateli,  2016;  Pavlou &  El Sawy,  2011)  to identify the  dynamic  capabilities,  which are  then 
translated into activities of; 
1)  Sensing 
2)  Coordinating 
3)  Learnin 
4)  Integrating 
5)  Reconfiguring 
 
Market Orientation 
Rapid changes in the market may lead to consumer behavioral changes as well. Therefore, 
companies need  to recognize consumer  needs and  respond to information gathered from  the 
market. After collecting the consumer’s needs, the company transforms them into practical value 
creation,  followed  by  disseminating  them  across  all  functional  aspects  of  the  business.  The 
objective is to provide superior products and services to customers. The ability to search and 
collect market data regarding present and future needs is known as market orientation. Market 
orientation is  part of  a firm’s capability to assist in creating innovation by  understanding the 
market's  needs.  The  understanding of  current consumer  and  potential  future needs  serves  as 
guidance in creating value and is a crucial part of business model innovation (Amit & Zott, 2012, 
2015). A capability perspective of Market Orientation is adopted to influence innovation, where 
Market  Orientation  facilitates  an  understanding  of  customers  and  competitors.  Furthermore, 
understanding what  customers require  enables a  business to define its  value proposition and 
support  business model innovation  (Ramani &  Kumar, 2008).  In other  words,  implementing 
market orientation can help the firm innovate its current business model. The evolution in Market 
Orientation literature is categorized into two dimensions: Responsive Market Orientation and 
Proactive Market Orientation (Narver et al., 2004). Responsive market orientation emphasizes 
existing  customers,  potential  threats,  and  opportunities  within  established  market  segments. 
Conversely, Proactive  market  orientation,  which  centers  around future or  emerging  markets, 

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directs more attention toward concerns for potential rivalry and new market prospects (Wei et al., 
2014; Yang et al., 2020). Therefore, this study employs two dimensions of Market orientation 
adopted from study by (Lamore et al., 2013; Yang et al., 2020; Yannopoulos et al., 2012), to 
identify the current and potential of customer’s needs, which are through; 
1)  Responsive market orientation. 
2)  Proactive market orientation. 
Strong  dynamic  capabilities  are  required  for  business  model  innovation  development 
(Teece,  2018a)  .  Several  researchers  tried  to  understand  the  relationship  between  dynamic 
capabilities and business model innovation for multinational companies and their environment to 
drive innovation within companies (Augier & Teece, 2009; Bocken & Geradts, 2020; Zahra & 
George, 2002). By optimization of dynamic capabilities, it would be expected that a firm can 
implement business model innovation and create a sustainable competitive advantage regardless 
it is still debatable whether short or long sustainable competitive advantage (Banerjee et al., n.d.; 
Jabbarzadeh et  al.,  2018; Kuo  et  al., 2017;  Naguib et  al.,  2017).  However,  it is  essential  to 
acknowledge that business model innovation requires dynamic capabilities to face the volatile 
market like pandemic covid 19 and sustain the business (Mohammed et al., 2021). The previous 
researchers also tried to link the relationship between the importance of market orientation to 
conceptualize and implement business model innovation (Amit & Zott, 2012; Chesbrough, 2010; 
Narver & Slater, 2012).  However, it is still open to examining the different dimensions of market 
orientation in influencing business model innovation (Gupta et al., 2019), particularly in the hotel 
industry as a vital country’s national revenue. Therefore, it is crucial to investigate how firm 
capabilities, which are dynamic capabilities and market orientation, can affect the generation of 
business model innovation in Indonesia’s hotel industry to sustain the business after the pandemic. 
The research is motivated to assist hotel management in understanding the importance of 
the firm's capabilities, which  are dynamic capabilities and market orientation, in  influencing 
business model innovation after the pandemic. Using the quantitative approach, the relationships 
between  these  variables  are  disclosed.  The  findings  will  assist  hoteliers  in  prioritizing  the 
development of  innovative business models that leverage the  firm's capabilities and  create  a 
sustainable competitive advantage. This study aims to uncover the role and relationships among 
the variable of Dynamic capabilities, with the dimensions of Sensing, Coordinating, Learning, 
Integrating, and Reconfiguring, and the variable of Market Orientation with its dimensions of 
Responsive market orientation and Proactive market orientation in influencing a Business Model 
Innovation within the Indonesian hotel industry. Thus, the hypotheses of the study are proposed 
as follows;  
 
H
1
: Dynamic capabilities have a significant direct effect on business model innovation. 
H
2
: Market orientation has a significant direct effect on business model innovation. 
 
Figure 1 
Conceptual Framework 

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126 Return: Study of Management Economic And Business, Vol 3 (1), February 2024

RESEARCH METHOD

The study examines the role of a firm’s Dynamic Capabilities and Market Orientation as

independent variables on Business Model Innovation as dependent variables, utilizing a one-tailed

test. The conceptual framework, depicted in Figure 1, illustrates the connections between these

variables. This research involves five dimensions from variable Dynamic Capabilities, two

dimensions from variable Market Orientation and Business Model Innovation translated into

thirty-two indicators in total, which are summarized in Table 1. The questions in a 5 points Likert-

scale (1 – strongly disagree to 5 – strongly agree) distributed to selected respondents using non-

probability Purposive Sampling to who hold managerial positions as General Managers of three

to five-star hotels in Indonesia, the establishment of the hotel is a minimum of seven years and

have a minimum of 5 years of tenure at the same hotel until 2023.

Table 1 Research Variables, the Dimensions, and Indicators

Variables

Dimensions

Indicators

Sources

Dynamic Capabilities

Sensing

Scanning process in identifying new business opportunities (Sensing-1)

Modified from

(Pavlou & El

Sawy, 2011) and

(Mikalef & Pateli,

2016)

Reviewing product and service development efforts (Sensing-2)

Understanding how the competitive landscape evolves Sensing-3)

Gathering important intelligence (Sensing-4)

Coordinating

Coordinating several functional tasks in an efficient manner (Coordinating-1)

Providing effective coordination with external parties (Coordinating-2)

Synchronizing activities with functional units (Coordinating-3)

Learning

Discovering and importing novel knowledge and information (Learning-1)

Converting previously acquired knowledge into new understanding (Learning-2)

Assimilating new information and knowledge (Learning-3)

Utilizing expertise and data gathered to support in decision-making (Learning-4)

Integrating

Real-time, simple access to vital data from business partners (Integrating-1)

Streamlining interactions between business partners (Integrating-2)

Incorporating important information from key partners (Integrating-3)

Reconfiguring

Preparing for unanticipated changes (Reconfiguring-1)

Reconfiguring business processes to create new productive assets

(Reconfiguring-2)

Market Orientation

Responsive Market

Orientation

Maintaining a high level of dedication to fulfilling customer demands (RMO-1)

(Lamore et al.,

2013; Yang et al.,

2020;

Yannopoulos et

al., 2012)

Monitoring orientation degree to fulfilling customers’ requirements (RMO-2)

Measuring customer satisfaction systematically (RMO-3)

Distributing information on customer satisfaction on a regular basis (RMO-4)

The company exist primarily to serve consumers (RMO-5)

Proactive Market

Orientation

Continuously identifying customer extra requirements which they are unaware of

(PMO-1)

Extrapolating key technology to gain insight into potential customer’s needs.

(PMO-2)

Using outcome from operational activities to gain potential customer’s needs in

the future (PMO-3)

Utilizing customer behavior patterns to identify potential requirements in the

future (PMO-4)

Brainstorming for projected future demands based on how consumers utilize

products and services (PMO-5)

Exploring the information from key account clients to gain potential future needs

(PMO-6)

Business Model Innovation (BMI)

Easy transaction conducted with customers (BMI-1)

(Zott & Amit,

2007b)

Efficiency in accessing every transaction (BMI-2)

Providing novel combinations for service (BMI-3)

Linking the staff and clients in novel ways (BMI-4)

The way to generate revenues is novel (BMI-5)

In testing the variables, two stages of calculations will be conducted: Lower-order for

dimensions and Higher-order for variable level. Data analysis using Structural Equation Modeling

(SEM) with the software Smart PLS 4, encompassing model specification for the outer model and

inner model. The outer model assessed the validity with a value exceeding 0.7 and an AVE value

surpassing 0.5, testing reliability using Cronbach Alpha and Composite Reliability with a value

The Role of A Firm’s Capabilities on Business Model Innovation; Evidence from Hotels in Indonesia

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above 0.70, and testing the discriminant validity using Fornell-Lacker (Hair et al., 2019). In the

inner model assessment, a test for multicollinearity is conducted using VIF (Variance Inflated

Factor) with values less/below 5, the Determinant Coefficient (R2 and R2 adjusted), and

Predictive Relevance (Q square) value above 0.

Path analysis is utilized to assess the extent of interrelationships between variables, and the

significance of each effect is evaluated through hypothesis testing using the T-test and p-value.

In addition, the Importance-Performance Map Analysis (IPMA) is carried out to enhance the

presentation of path coefficients based on conventional PLS-SEM results. The aim is to find

predecessors with significant importance for the target construct (total solid effect), but

comparatively lower performance (low average latent variable scores). These aspects highlight

potential areas that need improvement and deserve close attention (J. F. Hair et al., 2017). The

IPMA will highlight which firm capabilities (Dynamic capabilities and Market orientation) hold

significant importance but low performance in influencing Business Model Innovation as a target

construct.

RESULT AND DISCUSSION

The Profile of Respondents

Of 578 collected questionnaires from January to May 2023, only 492 valid responses were

selected based on criteria, tested, and further analyzed. Most respondents were male at 71.54%

and women at 28.45%. The most common age range was 45-54 (39.84%), followed by 36-44

(31.70%). Most of the hotels in the classification were four-star hotels at 45.94%, followed by

three-star hotels at 31.70% and five-star hotels at 22.36%. The length of work of most respondents

in the same hotels was between 5-10 years (75.20%), and the largest respondents group worked

in the Jakarta, Bogor, Depok, Tangerang, and Bekasi areas at 38.61%, followed by Central Java

at 27.03% (Table 2).

Table 2 Demographics of the respondents

Category

Dynamic Capabilities

Sensing

0.095

81.585

Low Importance - High

Performance

Coordinating

0.096

80.626

Low Importance - High

Performance

Learning

0.103

80.030

Low Importance - High

Performance

Integrating

0.095

76.942

Low Importance - Low

Performance

Reconfiguring

0.083

72.122

Low Importance - Low

Performance

Market Orientation

Responsive Market Orientation

0.208

82.230

High Importance – High

Performance

Proactive Market Orientation

0.182

72.372

High Importance – Low

Performance

Figure 2

Path Coefficient, T-Values and P Values

This research explores the role of a firm's capabilities toward business model innovation

within the Indonesian hotel industry after the pandemic. The inferential statistical analysis in this

study has unveiled the impact of the firm's capabilities for developing a business model

innovation. The two firms' capabilities, which are dynamic capabilities and market orientation,

significantly influence the innovation of the business model of hotels in Indonesia.

The bootstrapping results for each proposed hypothesis show that two of the firm's

capabilities influence the formation of business model innovation implemented by hotels after the

pandemic. Dynamic Capabilities have the most significant impact, with a 42.9% contribution to

business model innovation, while Market Orientation contributes 35% of innovation in business

models. These findings can serve as a reference for hoteliers in setting priorities and focusing

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their strategies on developing dynamic capabilities to enhance their innovation capabilities in their 
business models when facing crises and market uncertainties. The result is theoretically supported 
by  (Breier et  al.,  2021), who  state  that  the  degree  of innovation  in the  business model  will 
influence a firm's flexibility to adapt to a changing environment. Therefore, a company must have 
a flexible business model, which serves as a driver of innovation, and alongside their function in 
innovation, business models themselves are subject to innovation (Schneider & Spieth, 2013). 
The  first  hypothesis,  which  is  that  there  is  a  significant  direct  effect  of  Dynamic 
Capabilities on Business Model Innovation, is supported in this study. The finding aligns with 
what was demonstrated in research by Vu (2020), which emphasizes the vital role of a company's 
dynamic capabilities in adapting to dynamic environmental conditions. In addition, the strength 
of dynamic capabilities is crucial for sustaining a company's long-term profitability. Dynamic 
capabilities enable a company to design and engage in all activities involving resources to achieve 
competitive advantage through business model innovation (Arranz et al., 2020; Pundziene et al., 
2021;  Teece,  2018b),  which  in  this  study  contributes  42.9%  influence  on  business  model 
innovation  generation.  Dynamic  capabilities  influence  innovation  in  the  business  model  by 
creating  different  value  propositions,  value  creation,  and  value  capture.  To  create  value 
propositions, value creation, and value capture, companies leverage their dynamic capabilities in 
sensing  new  opportunities,  coordinating  functions  within  the  organization  to  exploit  these 
opportunities, continuous learning, integrating all resources, and reconfiguring them to deliver 
value to customers. The result emphasizes that dynamic capabilities, accounting for 42.9%, is the 
key contributor to business model innovation within hotel management in Indonesia. This means 
that dynamic capabilities drive the level of innovation in the business model at 42.9% and 35% 
from market orientation, while the balance is contributed to by other variables not studied in the 
research.  
The  finding  is  in  line  with  the  previous  studies  that  the  dynamic  capabilities  of  an 
organization affect the level of business model innovation as a crucial component of the value 
creation architecture in the business model itself (Franco et al., 2021; Heider et al., 2021; Sharma 
et  al.,  2021;  Velu,  2017).  The  stronger  a  company's  dynamic  capabilities  in  managing  its 
resources, the higher its ability to innovate through its business model to achieve competitive 
advantage and cope with dynamic environments. All the dimensions of Dynamic capabilities 
studied theoretically supported the capabilities of sensing, coordinating, learning, integrating, and 
reconfiguring by hotel management, affecting the business model innovation they implemented 
post-pandemic. However, from the Importance Performance Map Analysis (IPMA) results, all 
dimensions,  which  are  the  capability  of  Sensing,  Coordinating,  Learning,  Integrating,  and 
Reconfiguring, are considered as either Low Importance but High Performance and both Low 
Importance and Low Performance. Therefore, hoteliers can exert little effort on activities in each 
dimension. The reason is regardless of the dynamic capabilities contributing to business model 
innovation, the current dynamic capabilities implemented by the hotel have been evaluated to 
successfully sustain the innovation generation in the business model operated by the company.  
The second hypothesis that there is a significant direct effect of Market orientation on 
Business Model Innovation is supported in this study, where market orientation contributes 35% 
of  innovation  in  business  models.  The  supporting  research  with  the  same  result  conducted 
by(Yuki &  Kubo, 2023) indicates that market orientation can predict innovation. In creating 
business model innovation, understanding customer needs is the foundation for generating value 
and is a crucial component of the business model innovation itself (Amit & Zott, 2012a, 2015). 
The market orientation is the company's ability to ascertain what customers want currently and 
predict potential needs in the future. Understanding the current needs and predicting potential 
needs require hoteliers to implement Responsive and Proactive market orientation. Another study 
also  suggests  that  both  dimensions  of  market  orientation,  which  are  Responsive  Market 
Orientation  and  Proactive  Market  Orientation,  have  positive  impacts  and  are  necessary  for 
business model innovation by defining novel business approaches (Yang et al., 2020). Using the 
Importance-Performance  Map  Analysis  (IPMA),  Proactive  Market  Orientation  is  considered 
highly important but low in performance. This means that proactive market orientation is the area 

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that needs to be improved by hoteliers to increase their ability to innovate their business models

in uncertain environments. The respondents evaluated that hotel management's ability to predict

consumers' potential needs from behavioral patterns still needs to be improved. Therefore, hotels

can do market research and analysis by investing in extensive research and analysis to understand

emerging trends, changing customer preferences, and finding opportunities for new market

segments. The implementation can involve regular surveys, competitor analysis, and data

analytics to identify potential opportunities. Another possible implication is continuous learning,

which encourages a culture of continuous learning and adaptation within the organization. Staying

informed about industry trends, attending conferences, and fostering innovation through cross-

functional teams can help project future demands.

Concerning Responsive Market Orientation, based on the Importance-Performance Map

Analysis (IPMA) result, the respondents considered this dimension as both high importance and

high performance. Meaning that currently, hotel management in Indonesia is successfully

implementing the Responsive Market Orientation to influence the Business Model Innovation

generation. Keeping the satisfaction of the customers is evaluated as the best strategy

implemented by the hotel management in facing the crisis instead of exploring potential needs as

part of the Proactive Market Orientation approach. Therefore, management must focus on

strengthening and optimizing their Responsive Market Orientation to further enhance customer

satisfaction and meet current needs effectively.

However, technology implementation in the hotel industry has received little attention

because the competition among hotels has traditionally not been focused on technological

innovation. (Tsai et al., 2009) suggested that a Proactive Market Orientation is practical when

high levels of technological turbulence and competitive intensity exist. They argue that a

Proactive Market Orientation is unnecessary when these levels are low (Yuki & Kubo, 2023). In

contrast, the result of this study shows the opposite result, as the Proactive Market orientation is

required to capture potential future needs from customers as it is now still considered as an area

to be improved in Indonesia’s hotel management. Therefore, understanding the turbulence in the

market may allow hotel management to choose between implementing a responsive market

orientation, which focuses on current needs, or being proactive in predicting potential market

needs in the future using advanced technology. Theoretically and empirically, both dimensions

of the market orientations can influence the degree of innovation in the current business model.

CONCLUSION

To be able to compete and sustain the business, especially in facing a crisis or a dynamic

environment, the hotel industry must have flexibility and adaptability to use the resources and

capabilities they possess. The empirical findings highlight the importance of firm capabilities,

which are dynamic capabilities and market orientation, in influencing business model innovation

within the hotel industry post-pandemic. The research reveals that Dynamic capabilities and

Market orientation positively have significant direct and positive effects on business model

innovation generation. Increasing the dynamic capabilities and market orientation will affect the

degree of innovation in the business model for the hotel industry. The finding empirically

contributes to the conceptual framework that strong Dynamic Capabilities and Market Orientation

are necessary for innovation development in business model as part of business strategy. These

capabilities are essential for sensing business opportunities, reconfiguring the resources, and

transforming the resources into an adjusted business model innovation after a crisis or in a rapidly

changing environment.

Dynamic capabilities enable companies to design and engage in resource-related activities

to achieve competitive advantages through their business model innovation. Furthermore, the

dynamic capabilities of an organization play a crucial role in shaping the level of business model

innovation, which is a fundamental component of the value creation architecture in the business

model itself. While all dimensions of Dynamic Capabilities theoretically support the capabilities

of sensing, coordinating, learning, integrating, and reconfiguring by hotel management, the study

also revealed that these activities are considered of low importance and either high or low

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performance. Therefore, hoteliers may not need to exert significant effort in these activities, as

the current dynamic capability they have in place seems sufficient to sustain innovation in the

current business model operated by the company. This suggests that, while dynamic capabilities

are crucial, their optimization and focus should be balanced based on their specific importance

and performance in the hotel's context.

Market orientation encompasses the company's ability to discern customer desires and

anticipate future needs. In this regard, either Responsive or Proactive market orientation is

essential for hoteliers, while Responsive Market Orientation is both highly important and high in

performance, emphasizing it is crucial for meeting current customer needs effectively and

maintaining the current activities to sustain guest satisfaction. Hoteliers are advised to focus on

strengthening and optimizing their Responsive Market Orientation to enhance customer

satisfaction further. On the other hand, proactive market orientation was proven to be highly

important but low performance in this study. This dimension represents an area for improvement

for hotel management in increasing their ability to innovate their business models in uncertain

environments. The ability to predict potential customer needs based on behavioral patterns can be

enhanced through market research and analysis, investment in research and data analytics, and

fostering a culture of continuous learning and adaptation within the organization. While the

traditional focus of competition in the hotel industry may not have been on technological

innovation, the study suggests that Proactive Market Orientation can be vital for capturing

potential future customer needs. Contrary to some previous research, this study adds the

importance of Proactive Market Orientation in preparing for changes happening in the market. In

summary, both Responsive and Proactive market orientations can influence the degree of business

model innovation, and a balanced approach to these orientations can enhance a hotel's adaptability

and competitiveness in volatile environments.

While the findings offer an initial contribution, further research in various industries or

with a more specific focus on hotel classifications could provide deeper insights. First, each hotel

classification might have different principles and orientations when dealing with a crisis or

uncertain market. Future research could segregate specific hotel categories (e.g., only three or

four-star, or five hotels) to accurately represent the conditions within those categories. Second,

an area for improvement is the need for research literature providing measurement scales for other

firms’ capabilities, such as Service Innovation Capability, which constrained the study's scope in

hospitality. Therefore, future research opportunities exist to develop measurement scales specific

to Service Innovation Capability within the Indonesian hotel industry, enriching the service

industry literature, particularly in hospitality.

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