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Article

Soft HRM Practices Fostering Service Innovations and Performance in Hospitality Firms

by
Hung-Tai Tsou
1,
Ja-Shen Chen
2,*,
Thi Oanh Mai
2 and
Nguyen B. Ngoc Jade
2
1
Department of Business Administration, Soochow University, No.56, Section 1, Kueiyang Street, Chungcheng District, Taipei City 100006, Taiwan
2
College of Management, Yuan Ze University, 135 Yuan-Tung Road, Taoyuan City 320315, Taiwan
*
Author to whom correspondence should be addressed.
Sustainability 2025, 17(3), 895; https://doi.org/10.3390/su17030895
Submission received: 27 December 2024 / Revised: 18 January 2025 / Accepted: 21 January 2025 / Published: 23 January 2025
(This article belongs to the Special Issue Innovation and Strategic Management in Business)
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Abstract

:
This study explores the connections between soft HRM practices and organizational performance through the lenses of incremental service innovation (ISI) and radical service innovation (RSI). Data were collected via an online survey involving 225 hospitality managers in Vietnam’s hospitality sector. We utilized Partial Least Squares (PLS) analysis through SmartPLS 4.0 to examine the data. The findings reveal that soft HRM practices significantly influence both ISI and RSI, thereby enhancing financial and market performance. Additionally, ISI and RSI serve as mediators in the relationship between soft HRM practices and organizational performance. Our results offer fresh perspectives on the innovation-driven performance effects of soft HRM practices and contribute to bridging the gap in modeling the relationship between soft HRM and organizational performance within the context of service innovations. This study provides valuable insights for managers, suggesting strategies to enhance and identify critical aspects of soft HRM implementation that enable organizations to be more strategically adaptable and to consistently develop new services.

1. Introduction

Organizations adopt human resource management (HRM) practices to boost performance [1,2]. Recognizing employees as valuable, investable resources, firms implement HRM practices to foster commitment, believing that employees perform best when engaged and supported. Given their reliance on employees for service delivery, hospitality businesses should be well placed to utilize HRM strategies for competitive advantage, making use of a highly skilled workforce to pursue a high-quality strategy.
While greater consideration is given to the needs of employees, the soft model is still built around HR practices designed to improve organizational performance [3]. This study emphasizes “soft” HRM approaches [4]. Soft HRM is posited to meet employees’ needs, leading to positive HRM outcomes [5]. This strategy aims for the firm’s long-term success through a mutually beneficial relationship for both employers and employees [6], ultimately enhancing organizational performance. In view of this situation, subsequent work confirms the necessity for soft HRM practices and highlights the need to focus research in this area.
Recently, research has examined various intermediary factors to explore the “black box” in the HRM-performance relationship (e.g., [7]). These factors include motivation [8], organizational excellence [9], job satisfaction [10], innovation [11], psychological well-being [12,13], and social exchange [14]. However, limited studies have investigated the mediating roles within the “soft” HRM-performance relationship (e.g., [15,16]). This study, therefore, proposes an intermediary step in this relationship, addressing a gap in the literature on soft HRM practices.
To meet the evolving demands and sophisticated desires of customers, hospitality firms are continually challenged to update and refine their strategies [17]. Customers now seek more novel and unique experiences than ever before. In the hospitality industry, service innovation has become increasingly crucial within an interactive corporate environment [18,19,20]. This focus on service innovation has drawn significant attention from hospitality organizations aiming to enhance performance (e.g., [21]). For example, major hospitality firms like Marriott, Intercontinental, Hilton, and Hyatt place substantial emphasis on service innovation to improve performance and sustain their competitive edge [18]. Given the importance of service innovation, identifying the factors that influence it within hospitality firms is essential.
To date, service innovation has been extensively examined in hospitality management (e.g., [18,22,23]). However, two key areas remain underexplored. First, hospitality firms must innovate in two distinct ways simultaneously: incremental service innovation (ISI), which involves gradual enhancements to existing services for current customers and markets, and radical service innovation (RSI), which entails introducing fundamentally new services to reach new customers and markets [23].
Currently, hospitality literature offers limited insight into how soft HRM practices influence ISI and RSI. Furthermore, no comprehensive theoretical framework has been developed to capture the full innovation potential of hospitality firms [24]. Second, while growing research highlights the positive impact of HRM on service innovations (e.g., [25,26,27]), little is known about how soft HRM practices impact organizational outcomes—particularly financial and market performance—through ISI and RSI in the hospitality sector. Therefore, this study aims to: (1) explore how soft HRM practices enhance the performance of hospitality firms by balancing ISI and RSI, and (2) examine the mediating roles of ISI and RSI in transforming soft HRM practices into improved financial and market performance within the hospitality industry.
To contribute to the literature on soft HRM practices and service innovations, this study first examines and synthesizes research on soft HRM practices, service innovations, and organizational performance within a single model focused on Vietnam’s hospitality industry. This approach integrates previously isolated findings, offering a unified perspective. Soft HRM practices, ISI, RSI, financial performance, and market performance have rarely been examined from an integrated standpoint. Second, empirical studies applying contingency theory to explore the relationship between soft HRM and organizational performance remain limited. This study advances the soft HRM literature by incorporating ISI and RSI as mediating variables, potentially amplifying the impact of soft HRM practices on both financial and market performance. Contingency theory is applied here to further elucidate the soft HRM-performance link. Figure 1 presents the research model.

2. Literature Review and Hypotheses Development

2.1. Contingency Theory

Contingency theory explores how specific contextual variables impact firm performance [28]. It posits that aligning employee behavior, organizational policies, business strategies, and external conditions is a strategic approach to managing HR for performance enhancement. Consequently, the alignment of HR policies with other performance-influencing factors determines the optimal HRM practices that bolster organizational performance [29]. Drawing from Venkatraman’s [30] “fit-as-mediation” perspective, this theory suggests that managers select or adapt organizational structures, processes, and strategies to suit their unique organizational contexts [31]. This study aims to deepen the discussion on the strategy-performance relationship by shifting the focus from corporate strategic behaviors to soft HRM practices and examining a performance metric that encapsulates overall organizational success. In line with the “mediation” perspective, when an organization faces external challenges, such as global competition, a key approach is to enhance organizational performance through strategic behaviors, particularly soft HRM practices. We focus on critical aspects of a firm’s innovation practices, specifically ISI and RSI, to examine how soft HRM practices influence organizational performance outcomes, including financial and market performance. Accordingly, based on contingency theory, ISI and RSI serve as mediating mechanisms linking soft HRM practices to organizational performance.

2.2. Soft HRM Practices

Storey [32] described soft HRM as an approach that views employees as valued assets and a source of competitive advantage, emphasizing their commitment, adaptability, and high-quality skills. Soft HRM stresses treating employees with respect and a personal touch [33], aiming to empower, develop, and build trust with employees by managing them as individuals [34]. This approach promotes practices that cultivate proactive, skilled, and engaged employees [35] and emphasizes “human capital conversation” [36]. Defined as a human-centered research area, soft HRM views employees as valuable assets, focusing on HR strategies that enhance both intrinsic and extrinsic motivation, organizational behavior, and productivity, leading to trust, commitment, and improved outcomes [37]. This approach prioritizes individual empowerment, recognizing employees as essential contributors to competitive advantage through their dedication, adaptability, and expertise [35]. Hassan and Jambulingam [38] further suggested that soft HRM aims to capture employees’ loyalty, foster a sense of belonging, and retain top talent.
To create a set of parameters for building soft HRM practices, it is essential to focus on McGregor’s Theory Y-type assumptions, which are likely to reflect soft HRM practices. Taking this stand, this study identified and offered the foundation for developing soft HRM practices derived from Truss et al. [39]. Soft HRM operates under the premise that workers will perform at their highest level if they are devoted to the company, if they are given the freedom to work independently (e.g., transformational leadership), if they are trained and developed (e.g., employee training), and if they are given control over their job (e.g., empowerment) [39]. Thus, transformational leadership, employee training, and empowerment are essential for this study to take as signifying soft HRM practices.

2.3. Transformational Leadership

Transformational leadership is a leadership approach that motivates team members to rise above their self-interests by reshaping their morale, ideals, values, and aspirations, encouraging them to achieve beyond initial expectations [40]. Bass [41] describes transformational leadership as a process in which leaders inspire followers to move past personal interests through idealized influence (charisma), inspiration, intellectual stimulation, and individualized consideration. This style of leadership emphasizes both personal and organizational growth [42]. Consequently, transformational leaders are adept at fostering an environment that motivates, inspires, and challenges teams to maximize their potential, actively contributing to the organization’s future success [43].

2.4. Employee Training

Training can accumulate more knowledge and skills for employees [44]. Employees receive skills, knowledge, and an understanding of the company and its objectives through training [45]. Effective training programs offer a less rigid and more flexible organizational structure, resulting in a highly trained, motivated workforce capable of generating outstanding services and ideas [46]. Training results in better performance, maximizes productivity at the workplace, and minimizes the interpersonal conflicts among employees and between employees and customers [47]. Core-customer contact employees, who are in charge of screening and testing novel ideas in hospitality industry, generated innovative ideas [48]. Thus, hotel management level should respect and listen to staff to provide them with appropriate training sessions, and those training courses should be derived from the employees’ needs and skill shortages so as to support them to perform their jobs more efficiently [49].

2.5. Empowerment

Empowerment allows employees to create new ideas for novel services to meet customers’ needs [50]. Empowering leadership is positively related to sales performance and creativity of employees [51]. Hence, employees should acquire the flexibility to adjust their behaviors to meet and exceed customers’ demands [52]. Superiors trust employees, believe in their performance, and allow them to take prompt actions to handle customer problems. It is understandable that when employees have empowerment, management levels believe in their capabilities, and therefore they are likely to have more freedom to perform their best according to the specific situations in the workplace.
Employment stability, employee training in emerging technologies, and well-rounded compensation packages positively impact innovation within service organizations [53]. Alosani et al. [25] similarly observed that HRM practices significantly enhance service innovation. Additionally, HRM activities play a vital role in boosting organizational efficiency, increasing market share, encouraging individual initiative, and driving service innovation [54]. Tsou and Chen [55] also found that HRM practices positively influence service innovation. A company’s success is often tied to its ability to harness a variety of employee skills—essential for achieving high innovation rates and sustaining service innovation [56]. For instance, Google allows employees to spend 20% of their work time on projects of personal interest, even if unrelated to the company’s core business. This approach has sparked creativity and innovation, resulting in successful products like Gmail and Google News, which have significantly bolstered the company’s innovation capabilities and market competitiveness. Nonetheless, limited research has explored the impact of soft HRM practices on service innovation, particularly within the hospitality sector. This study aims to bridge that gap by examining additional variables, such as ISI and RSI, which have received relatively little attention to date.
H1: 
soft HRM practices have positive effects on (a) ISI and (b) RSI.

2.6. Service Innovations and Organizational Performance

Service innovation represents a shift in service offerings that sets them apart from existing or previous options [57]. Today, service innovation is widely regarded as a primary driver of differentiation and growth [58]. Ordanini and Parasuraman [59] define service innovation as “the extent to which a firm’s new services markedly differ from current offerings, necessitating substantial changes in competence application”. Depending on the scope of change, service innovation can be classified as either incremental or radical [60], with these categories being the most widely recognized [61]. In this study, ISI refers to enhancements or additions to existing service features, whereas RSI introduces an entirely new set of features unrelated to existing ones [62].
By integrating market-based and financial metrics, firms gain a comprehensive view of their innovation performance [63]. In line with this approach, this study defines organizational performance as encompassing two primary components: financial and market performance [64]. Financial performance indicates a firm’s capability to leverage its assets to generate revenue. Key indicators include increased profitability, higher revenue, sales growth, cost reduction, and market share expansion [65]. Market performance, on the other hand, reflects the effectiveness of a company’s market activities, assessed through customer satisfaction, value delivery, customer retention, and achievement of target market share [66]. Service innovations enhance organizational performance by delivering new benefits to existing customers, expanding into new markets through incremental improvements to current services or by radically introducing entirely new service values [67]. In essence, whether incremental or radical, service innovations can significantly boost profitability from both financial and market perspectives. Consequently, implementing service innovations positively influences financial outcomes and market performance.
H2: 
ISI has positive effects on (a) financial and (b) market performance.
H3: 
RSI has positive effects on (a) financial and (b) market performance.
Human resources leverage knowledge to build a sustainable competitive edge and achieve strong performance through innovation [68]. Research has explored innovation’s mediating role between HRM practices and organizational performance (e.g., [11]). The underlying idea of this mediation is that HRM investments are designed to foster employee behaviors that make companies more competitive and consistently profitable [53]. If HRM practices boost innovation and positively affect organizational performance, innovation functions as the connecting driver between HRM practices and firm performance [69]. Accordingly, it is proposed that ISI and RSI mediate the relationship between soft HRM practices and both financial and market performance.
H4: 
(a) ISI and (b) RSI have mediating effects on the relationships between soft HRM practices and financial performance.
H5: 
(a) ISI and (b) RSI have mediating effects on the relationships between soft HRM practices and market performance.

3. Methods

3.1. Measures

Based on the characteristics of a formative construct [70], we argue that soft HRM practices are better modeled as a second-order formative construct. The first-order constructs of soft HRM practices are as follows: (1) each dimension can be independent of each of the other dimensions; (2) none of the dimensions necessarily have a covariance effect. Therefore, this study identifies three formative first-order dimensions for a soft HRM practices construct: employee training, transformational leadership, and empowerment. Employee training was measured using the five-item scale of Boshoff and Allen [71]. This scale was primarily based on the Futrell et al. [72] sales training index. The questions focus on training’s problem-solving techniques, customer service, and continuity. Transformational leadership was adapted and measured using the five items of Afsar et al. [73]. Based on the employee empowerment questionnaire (EEQ) [74], empowerment was measured using the three items of Safavi and Karatepe [75].
ISI and RSI were adopted from the scale of Avlonitis et al. [65]. ISI measures a firm’s service repositioning, service enhancements, and service line extensions; RSI measures a firm’s offerings new to the company and new to the market. Financial performance was measured using the four items that reflect how firms introduce new products/services to produce revenue-measured financial performance [65]. Market performance was measured using four items that measured how firms present new products/services to increase customer loyalty, appeal to new guests, and promote the firm’s image and reputation [76].

3.2. Sampling and Data Collection

The tourism sector of Vietnam reached “a double-digit growth”, consecutively achieving a record level of 15.5 million, which makes the tourism sector one of the major supporting industries for Vietnam’s economy [77]. Vietnam participates in the WTO [78], which requires Vietnamese hospitality firms to enhance service innovation to compete with international hospitality firms [79]. The target respondents of this survey are managers from three-star to five-star hospitality firms who used to work or currently work in Vietnam’s hospitality industry.
Data collection took place in August 2020 using an online survey, chosen for its widespread application in management research and suitability for gathering large sample data [80]. We distributed the survey via social media platforms like Twitter (X) and Facebook, enabling participants to complete their responses directly in a Google Docs form. The survey questions, initially in English, were translated into Vietnamese by professional language experts and then further reviewed by the translators to ensure accuracy. The two translators collaborated to reconcile any discrepancies. To verify the Vietnamese translation’s suitability, we sought feedback from two professors specializing in human resource management. A pilot test involving five HRM managers was conducted to evaluate the questionnaire’s logical consistency, length, clarity, and contextual appropriateness. The final survey employed a five-point Likert scale, ranging from “strongly disagree” (1) to “strongly agree” (5), to simplify response options and reduce ambiguity.
Data from managers were confirmed by their affiliation and other pieces of information to establish the credibility of the information. The survey’s aim and length were explained on the opening page, which also provided respondents with an assurance of survey anonymity. We kindly encouraged participants with HRM expertise and knowledge of the company’s innovation to participate in the survey. We also instructed them to answer all questions based on their professional experiences. In conclusion, 225 questionnaires were gathered and utilized in this investigation. Hence, among the 225 managers, 63.6% were males and 36.4% were females, and 52.4% of the managers held a bachelor’s degree. The respondents’ ages ranged mainly from 23–30 (73.8%). Noticeably, most managers work for 2 to 5 years (60.9%).

3.3. Common Method Variance (CMV)

The questionnaire was created with a clear disclaimer that it would only be used for academic research and was not intended for commercial use. Furthermore, we addressed procedural remedies by ensuring the anonymity of respondents, lowering anxiety associated with evaluations, refining item phrasing, and separating the assessment of criteria and predictor factors [81]. Above all, we reassured respondents that they should provide the most truthful response possible. We followed Harman’s single-factor test [82] to identify any CMV during the post-data collecting stage. The first factor explained 29% of the variation overall. The seven extracted factors explained 67% of the variation. Furthermore, to assess the strength of the correlation among the independent variables, collinearity was examined using variance inflation factors (VIF) [83]. The analysis revealed that the maximum VIF value was 3.0, which is below the threshold of 3.3 [83]. This suggests that common method bias did not affect the findings of this research. Consequently, common method variance (CMV) is not a concern in this study.

4. Data Analysis and Results

We selected partial least squares (PLS) analysis as the most appropriate approach for our model. The analysis, which included significance tests for path coefficients, was conducted using SmartPLS 4.0. Our choice of PLS was guided by two main considerations. First, PLS supports the hierarchical component approach, enabling effective modeling of second-order factors by assessing the second-order construct through first-order factor scores [84]. The analyses were conducted in two phases: initially, we tested the measurement model to confirm that the constructs displayed satisfactory psychometric validity, and subsequently, we evaluated the structural model to test our hypotheses. A bootstrap resampling procedure was applied, and the coefficients were estimated accordingly. Second, the ability to model latent constructs as formative was essential. In a formative scale, the items are not expected to correlate. In our model, the second-order construct of soft HRM practices is designated as formative, while the three first-order constructs—employee training, transformational leadership, and empowerment—are reflective. Additionally, PLS is particularly well-suited for research models that are in exploratory stages and have limited prior validation [85]. As our literature review highlighted a gap in empirical studies on soft HRM practices, we focused on developing the theoretical framework.

4.1. Measurement Properties

Table 1 and Table 2 show the results of the confirmatory factor analysis (CFA). This assessment involved examining factor loadings (standardized coefficients), Cronbach’s Alpha, composite reliability (CR), average variance extracted (AVE), and discriminant validity. No unidirectional paths were assigned among latent variables. Reliability for each construct was confirmed using both Cronbach’s Alpha and CR. All the measurement items obtained have high factor loading (higher than 0.7) (between 0.78 and 0.91). The Cronbach’s alpha values for the seven constructs ranged from 0.74 to 0.90, all surpassing the 0.70 threshold established by Nunnally [86], indicating strong internal consistency. Similarly, CR values were robust across all measures, ranging from 0.86 to 0.93, meeting the recommended thresholds and indicating high reliability. Additionally, average variance extracted (AVE) was employed to evaluate both convergent and discriminant validity. AVEs for all constructs were higher than 0.5. Findings showed that convergent validity met recommended standards, while discriminant validity was confirmed as the square roots of AVE values exceeded inter-construct correlations, in line with Fornell and Larcker [87] (see Table 2). These analyses reinforced the validity of all constructs and indicators, affirming discriminant validity.
The final step is to obtain the goodness of fit model to identify the degree to which the model can reproduce the observed data. The indices that were considered are the Standardized Root Mean Squared Residual (SRMR) and Normed Fit Index (NFI). The SRMR must be less than a value of 0.08 [88]. This is because when the SRMR value is lower, it indicates a better fit between the model and the data. For the NFI, it was suggested that a value higher than 0.9 indicates that the model fits the data well. However, an NFI value of 0.72 is a reasonable fit, but not optimal [89]. The CFA results show that all the items reached the standard threshold and demonstrated a satisfactory model fit (SRMR = 0.07 and NFI = 0.79).

4.2. Analysis of Second-Order Construct of Soft HRM Practices

To assess the formative second-order construct of soft HRM practices, we modeled the path weights (γi) from the first-order to the second-order construct [90] and evaluated their correlation with the respective indicators to ensure a strong relationship:
Soft HRM practices = γ1 (employee training) + γ2 (transformational leadership) + γ3 (empowerment)
Soft HRM practices = 0.261 (ET) + 0.218 (TFL) + 0.269 (EP)
The second-order construct of soft HRM practices was derived by calculating the coefficients of the first-order constructs (ET, TFL, and EP) in relation to the second-order construct. We also analyzed the correlations among the first-order constructs, as very high correlations (typically above 0.80; [91]) may indicate that both first- and second-order constructs could be reflective. As presented in Table 2, the correlations among ET, TFL, and EP were all below 0.60, yet they were significantly related (p < 0.01). Thus, a formative model appears to be more appropriate. The findings demonstrate that the effects of all first-order constructs (γi) on soft HRM practices were significant (p < 0.01).

4.3. Hypotheses Testing

Our structural model is shown in Figure 2. The path coefficients of soft HRM practices to ISI (β = 0.53, p < 0.001) and RSI (β = 0.47, p < 0.001) are significant, thus supporting H1a and H1b. The path coefficient of ISI to financial performance (β = 0.05, p > 0.05) is insignificant; thus, H2a is not supported. The path coefficient of ISI to market performance (β = 0.29, p < 0.01) is significant, thus supporting H2b. The path coefficients of RSI to financial performance (β = 0.50, p < 0.001) and market performance (β = 0.23, p < 0.05) are significant, thus supporting H3a and H3b. Additionally, Table 3 demonstrates that soft HRM practices explained 28% of the variance in ISI and 22% of the variance in RSI. ISI and RSI explained 21% of the variance in financial performance and 25% of the variance in market performance. Within the context of the PLS-SEM path model, Cohen’s f2 serves as a key metric for assessing the magnitude of path coefficients. This study employs Cohen’s [92] established guidelines to measure effect size, wherein values of 0.02, 0.15, and 0.35 correspond to small, medium, and large effects, respectively. Therefore, the data analysis indicates that direct hypotheses H1a, H1b, H2b, H3a, and H3b are valid. In addition, an important part of model evaluation is examining fit indices that reflect the predictive power of estimated inner and outer model relationships. In line with the effect sizes for R2 in the Goodness of fit [93], Table 3 shows that Goodness of fit = 0.31, which is higher than the cutoff value of 0.25 for a medium effect size. Therefore, the results and hypotheses were satisfied.
This study employed bootstrapping statistics for mediating effects [94]. Table 4 shows that soft HRM practices → ISI → financial performance (β = 0.02, p > 0.05), thus H4a is not supported; soft HRM practices → ISI → market performance (β = 0.15, p < 0.05), supporting H4b; soft HRM practices → RSI → financial performance (β = 0.24, p < 0.001), supporting H5a; soft HRM practices → RSI → market performance (β = 0.11, p < 0.05), supporting H5b. Therefore, we suggest that ISI and RSI mediate the relationships between soft HRM practices, financial performance, and market performance.

4.4. Robustness Check

We evaluated the robustness of prior findings by applying Preacher and Hayes’s methodology [95] using the PROCESS tool [96]. Specifically, PROCESS was employed to estimate the indirect effects of soft HRM practices on financial and market performance, mediated through ISI and RSI. To determine the significance of these indirect effects, we used bootstrap methods to calculate confidence intervals. The mediation analysis, conducted with 5000 bootstrapped samples for each test, showed that the direct effects were statistically significant, thus supporting hypotheses H1a, H1b, H2b, H3a, and H3b. Regarding the mediating roles of ISI and RSI, results indicated that the confidence interval containing zero implied no significant indirect effect. However, a statistically significant indirect effect (p = 0.001) was observed when ISI and RSI were examined as mediators, as the confidence interval did not include zero. This suggests a genuine indirect effect, thereby supporting hypotheses H4b, H5a, and H5b, which posit that ISI and RSI mediate the relationship between soft HRM practices and organizational performance.

5. Discussion and Conclusions

This study tackles a key question within the realm of soft HRM concerning how firms’ service innovation practices impact organizational performance. Our findings reveal a positive relationship between soft HRM practices and both ISI and RSI, which, in turn, positively influence financial and market performance. Furthermore, we explore how soft HRM practices affect financial and market outcomes via ISI and RSI. The research utilized a dataset collected from a sample of Vietnamese hospitality firms, from which we theoretically derived scales for soft HRM practices, service innovations, and organizational performance. Our scales demonstrated strong validity, and the results supported our initial hypotheses. Specifically, our findings indicate that (1) a greater emphasis on soft HRM practices leads to improved ISI and RSI; (2) ISI and RSI are strongly correlated with financial and market performance; and (3) the relationship between soft HRM practices and financial and market performance is mediated by ISI and RSI.
Soft HRM practices for service innovations. This study demonstrates that soft HRM practices significantly influence both ISI (H1a) and RSI (H1b). Specifically, when organizations leverage soft HRM practices to drive service innovations, they often view their employees’ knowledge and skills as valuable assets that can enhance their ISI and RSI initiatives. By implementing employee training programs, fostering transformational leadership, and promoting empowerment, a firm can cultivate more valuable talent compared to its competitors, especially when these soft HRM practices are integrated with other capabilities like ISI and RSI. The R2 values of 28% for ISI and 22% for RSI suggest that soft HRM practices effectively explain the causal relationships with both ISI and RSI. Therefore, adopting a soft-oriented HRM approach is a viable strategy for enhancing ISI and RSI.
Service innovations for organization performance. The significant impact of ISI on market performance and RSI on financial performance, as evidenced by the path coefficients, indicates that ISI enhances market performance while RSI boosts financial performance. This study is among the first to provide direct empirical evidence demonstrating that ISI and RSI are essential for achieving financial and market success (H2b, H3a, H3b). Prior research on organizational performance (e.g., [26,97]) highlighted the importance of ISI and RSI in areas such as goal attainment, resource management, external relations, and HR outcomes. Furthermore, the findings show that both ISI and RSI have positive and significant effects on financial and market performance, suggesting that they are strong indicators of a firm’s ability to extend, modify, and reposition existing service products, as well as to develop and introduce new ones. However, our findings did not reveal a positive effect of ISI on the financial performance of hospitality firms (H2a). This might be explained by the fact that most hospitality firms in Vietnam experience a lack of internal innovations due to the conformist nature of Vietnam society today.
Mediating roles of service innovations. Our results suggest that service innovations mediate the influences of soft HRM practices on organizational performance, indicating that ISI and RSI are necessary for firms to improve their financial and market performance through soft HRM practices (H4b, H5a, H5b). Soft HRM practices are deeply embedded in service innovations. Service innovations associated with the level of changes are achieved through initiatives that may include incremental and radical innovations and the deep embedding of soft HRM practices as an enabler of financial and market performance. Implementing ISI and RSI that leverage soft HRM practices requires employee training, transformational leadership, and empowerment. Developing these practices and attaining superior organizational performance requires significant time and strategizing to prevent imitation by the competition.

5.1. Research Implications

This study adds three aspects to the soft HRM practices, service innovations, and organization performance literature. First, the main theoretical advancement made by the study is the idea of how soft HRM practices affect organizational performance. According to Truss et al.’s [39] soft HRM model, we highlight three soft HRM practice dimensions: empowerment, employee training, and transformational leadership. The conceptualization of empowerment, training, and transformational leadership as spanning soft HRM areas and filling pragmatic, semantic, and syntactic gaps (e.g., [98,99]) is noteworthy. The perspective that empowerment, employee training, and transformational leadership are critical dimensions of the soft HRM model through which ISI and RSI can be comprehended extends the research on improving organizational performance. This research is the first to examine how soft HRM practices affect ISI and RSI. The results reinforce its usefulness for soft HRM research [3,4,98,100] and support the nomological validity.
Second, drawing on the “fit-as-mediation” perspective of contingency theory, we contribute to the understanding of how service innovations mediate the impact of soft HRM practices on organizational performance. While previous research has examined organizational innovation as a mediator between HRM practices and organizational performance (e.g., [11,69,101]), they do not provide definitive insights into the soft HRM practices and service innovations. Further, even though Nawal et al. [26] look at service innovations (ISI and RSI) that mediate the relationship between HRM practices and organizational performance, they examine their relationships from seven HRM practices perspectives in educational institutions. Similarly, Tajeddini et al. [27] highlight that organizations can leverage the benefits associated with human-related factors to enhance service innovations (interactive and supportive) and increase business performance in tourism services. They fail to explore how ISI and RSI mediate the connection between soft HRM practices and organizational performance. In this study, ISI and RSI promise two critical pathways for achieving business goals and, thus, for increasing organizational performance. Understanding an organization’s performance reveals business value from the positive result of soft HRM practices and extends soft HRM practices to the influences of ISI and RSI on organizational performance.
Third, this study attempts to add to the body of knowledge and understanding of service innovations, answering Tajeddini et al. [23] calls for empirical work that deals with the ISI and RSI in hospitality firms. This finding is a new contribution to soft HRM and service innovation literature. Arguably, ISI and RSI require better synergy with empowerment, employee training, and transformational leadership. By doing so, we extend the innovation ambidexterity into the hospitality management literature, emphasizing that hospitality firms can enhanced long-term organizational performances by pursuing a delicate balance of incremental-radical service innovation ambidexterity. The results support the innovation-oriented soft HRM, which needs to be studied more. Therefore, our study advances soft HRM research by investigating ISI and RSI as imperative intermediates.

5.2. Practical Implications

First, soft HRM methods include personal opinions and employee motivation (intrinsic and extrinsic) on organizational behavior to increase ISI and RSI. Managers should create systems or infrastructure for human resource development that raise awareness of effective employee training programs, empowerment, and transformational leadership. For employee training programs, hospitality managers should design training modules to enhance service quality, such as conflict resolution, advanced customer interaction skills, and problem-solving techniques tailored to specific customer roles. For example, customer service training is crucial to the Ritz-Carlton Hotel’s process. Employees receive extensive training in communication and customer service, equipping them to utilize their empowerment effectively and create memorable guest interactions [102]. In addition, training in emerging technologies, such as property management systems or customer relationship management tools, should be introduced to improve operational efficiency and service delivery.
For empowerment, hospitality managers should develop policies that allow employees to handle customer issues independently within predefined boundaries, reducing response time and enhancing customer satisfaction. For example, Ritz-Carlton Hotel’s employees are authorized to spend up to USD 2000 per guest, per incident, to resolve issues or enhance experiences without managerial approval. This policy fosters prompt problem-solving and personalized service [102]. In addition, managers should implement recognition programs that reward employees for innovative solutions and exemplary service, motivating them to take ownership of their roles.
For transformational leadership, hospitality leaders should conduct workshops for managerial staff to develop transformational leadership skills, including inspiring innovation, fostering team collaboration, and empowering employees. For example, Four Seasons Hotels’ leaders encourage employees to think creatively and propose innovative solutions to enhance guest experiences, promoting a culture of continuous improvement. They provide personalized support and development opportunities, recognizing each employee’s unique strengths and aspirations. This leadership style has contributed to Four Seasons’ consistent delivery of high-quality service and strong employee loyalty [103]. In addition, mentorship initiatives should be established where experienced leaders guide new managers, fostering a culture of continuous improvement and innovation. This evaluation should take place before any service innovation initiatives are implemented.
Second, hospitality managers need to plan and execute ISI and RSI within the context of soft HRM practices. Incorporating innovative initiatives into soft HRM is crucial, especially as customer preferences and industry dynamics evolve rapidly. In such fluctuating environments, hospitality managers should further view soft HRM practices as an enabler of ISI (H1a) and RSI (H1b). The influence effect value of soft HRM practices on ISI is 0.402, indicating that its influence degree is at a large level, while the influence effect value of soft HRM practices on RSI is 0.297, showing a relatively low degree of influence. We suggest that managers prioritize ISI strategies that empower employees, foster leadership, and provide training tailored to ongoing service refinement. While RSI remains important for long-term differentiation, ISI offers immediate and tangible benefits that enhance customer satisfaction, operational efficiency, and market performance. This balanced approach ensures sustained growth and competitiveness in the dynamic hospitality industry.
ISI should be viewed as the foundational element in enhancing a firm’s market performance (H2b) (β = 0.29, f2 = 0.05). Managers need to introduce a new type of service to attract more customers. This innovative service should enhance the competitiveness of existing product lines. Alternatively, it may involve modifying and updating an existing service. For instance, managers should evaluate whether the original service successfully attracts customers or if an updated version would foster positive consumer behavior and strengthen customer loyalty to the firm and its offerings. Regarding RSI, the first step in developing it involves gathering market intelligence on competitors’ actions. RSI serves as a preliminary indicator of financial performance (H3a) (β = 0.50, f2 = 0.13). It is advisable for managers to focus more on research and development to create innovative service offerings that meet customer demands beyond current services. This strategy encourages hospitality firms to adopt a comprehensive approach to soft HRM practices, which includes a responsive understanding of customers’ latent needs and current competitive threats. Therefore, innovation-driven hospitality firms must thoroughly comprehend the benefits and limitations of ISI and RSI to optimize financial and market performance.
In sum, in a dynamic and challenging business environment, hospitality firms considering superior organizational performance should first require better synergy with employee training, empowerment, and transformational leadership and link them to accomplishing innovation goals to facilitate ISI and RSI. In hospitality firms, providing services and managing human resources are intertwined. Soft HRM practices improve employees’ knowledge, skills, and talents. Their engagement with new ideas is also encouraged, which is crucial to bettering hospitality service. Further, embracing ISI and RSI (H4b, H5a, H5b) to improve service delivery procedures and products (e.g., developing new services and improving, repackaging, extending, and promoting existing services) could enhance hospitality financial and market performance.

5.3. Limitations and Future Research

First, soft HRM practices in this study are limited to only three practices: employee training, empowerment, and transformational leadership. This limitation allows future soft HRM researchers to delve into other possible HRM-related indicators of soft HRM practices. Accordingly, future research should examine many forms of soft HRM practices. Second, this study investigates soft HRM practices in Vietnam hospitality firms regarding service innovations and organizational performance. In particular, the research setting in Vietnam is recognized, and it is possible that the study’s conclusions might not apply to other nations. Thus, future research should be studied in different countries to ensure the results’ accuracy and generalization.
Third, online surveys are used in this research project to gather data in Vietnam. While questionnaires facilitate expeditious data collection, their scope is restricted compared to comprehensive studies. Future research might incorporate qualitative data to understand the beliefs behind organizational behavior better. Fourth, because one focus of this study was to investigate if and how service innovations affect organizational performance, another possible human side of innovation management processes that could potentially impact service innovations and organizational performance still need to be thoroughly studied. Future research may focus on another human side of innovation management processes, such as personnel psychology, employee creativity, and adopting new digital technologies, which may be equally crucial for service innovations and organizational performance. Longitudinal research may be implemented to further examine the connections between service innovations and organizational performance concerning the use of soft HRM practices. Furthermore, an organization’s effectiveness in implementing soft HRM practices could differ from hospitality HRM regulations.

Author Contributions

Conceptualization, J.-S.C. and T.O.M.; methodology, H.-T.T.; software, H.-T.T.; validation, H.-T.T.; formal analysis, H.-T.T.; investigation, T.O.M.; resources, J.-S.C.; data curation, H.-T.T.; writing—original draft preparation, J.-S.C. and T.O.M.; writing—review and editing, H.-T.T. and N.B.N.J.; visualization, J.-S.C.; supervision, J.-S.C.; project administration, J.-S.C.; funding acquisition, J.-S.C. All authors have read and agreed to the published version of the manuscript.

Funding

This research received no external funding.

Institutional Review Board Statement

Ethical review and approval were waived for this study due to local or national legislation (we have fully informed all participants on the questionnaire cover page that guarantee their anonymity, their data is for academic use only, and there is no risk involved. In addition, this study’s ethical approval is not required, we will cite the local or national legislation that indicates ethics approval is not required for this type of study in the manuscript).

Informed Consent Statement

Informed consent was obtained from all subjects involved in the study.

Data Availability Statement

The data presented in this study are available on request from the corresponding author.

Conflicts of Interest

The authors declare no conflicts of interest.

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Figure 1. Research model.
Figure 1. Research model.
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Figure 2. The results of direct effects.
Figure 2. The results of direct effects.
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Table 1. Measurement properties.
Table 1. Measurement properties.
ConstructsItemsLoadingsCronbach AlphaComposite Reliability
EmpowermentI encourage our employees to handle customer problems by themself.0.880.750.86
I empower our employees to correct customer problems when they occur.0.88
I control how our employees solve customer problems.0.78
Employee training Our employees receive continued training to provide good services.0.800.900.92
Our employees receive extensive customer service training before they meet customers.0.89
Our employees receive training on how to serve customers better.0.88
Our employees receive training in dealing with customer problems.0.82
Our employees receive training in dealing with customer complaints.0.84
Transformational leadershipI help our employees to develop their strengths.0.860.890.92
I build respect for our employees.0.87
I express confidence that objectives will be obtained through our employees’ behaviors.0.82
I get our employees to look at problems from many different perspectives.0.82
I suggest new measures to complete tasks.0.78
Radical service innovation Our hotel has developed new company services.0.910.740.88
Our hotel has introduced new services that competitors do not offer.0.86
Incremental service innovationOur hotel has repositioned and modified existing services.0.900.880.93
Our hotel has extended and promoted existing service lines.0.91
Our hotel has improved and promoted existing services.0.89
Financial performanceOur hotel has enhanced sales and profitability.0.860.900.93
Our hotel has achieved profit goals. 0.90
Our hotel has achieved sales goals.0.90
Our hotel has achieved market share goals.0.84
Market performanceOur hotel has a well-perceived image.0.790.870.91
Our hotel has a good reputation.0.87
Our hotel has appealed to many new customers.0.86
Our hotel has enhanced the loyalty of existing customers.0.86
Table 2. Results of AVE and correlations.
Table 2. Results of AVE and correlations.
VariablesAVETFLETEPISIRSIFPMP
TFL0.690.83
ET0.720.59 **0.85
EP0.670.32 **0.21 **0.82
ISI0.810.40 **0.52 **0.26 **0.90
RSI0.790.40 **0.46 **0.16 **0.76 **0.89
FP0.770.24 **0.24 **0.15 **0.33 **0.46 **0.87
MP0.720.45 **0.48 **0.17 **0.47 **046 **0.41 **0.85
Notes: (1) TFL = transformational leadership, ET = employee training, EP = empowerment, ISI = incremental service innovation, RSI = radical service innovation; FP = financial performance; MP = market performance; (2) the bold values resented in the shaded diagonal are the squared root of AVE estimates; (3) ** p < 0.01.
Table 3. The PLS results for direct effects.
Table 3. The PLS results for direct effects.
Hypothesized RelationshipsCoefficientsT-Valuef-SquareResults
  Soft HRM practices → ISIH1a0.53 ***6.190.402Supported
  Soft HRM practices → RSIH1b0.47 ***5.920.297Supported
  ISI → FPH2a0.050.510.00Not-supported
  ISI → MPH2b0.29 **2.610.05Supported
  RSI → FPH3a0.50 ***4.860.13Supported
  RSI → MPH3b0.23 *2.310.03Supported
R2
  ISI0.28
  RSI0.22
  FP0.21
  MP0.25
  Average R20.24
  Average communality0.45
  Goodness of fit (GoF)0.31
Notes: (a) * p < 0.05, ** p < 0.01, *** p < 0.001; (b) ISI = incremental service innovation, RSI = radical service innovation, FP = financial performance, MP = market performance; (c) Goodness of fit (GoF) = [ ( Average   communality )   ×   ( Average   R 2 ) ]
Table 4. The PLS results for indirect effects.
Table 4. The PLS results for indirect effects.
Hypothesized RelationshipsCoefficientsT-ValueResults
  Soft HRM practices → ISI → FPH4a−0.020.47Not supported
  Soft HRM practices → ISI → MPH4b0.15 *2.20Supported
  Soft HRM practices → RSI → FPH5a0.24 ***3.54Supported
  Soft HRM practices → RSI → MPH5b0.11 *2.23Supported
Notes: * p < 0.05, *** p < 0.001
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MDPI and ACS Style

Tsou, H.-T.; Chen, J.-S.; Mai, T.O.; Jade, N.B.N. Soft HRM Practices Fostering Service Innovations and Performance in Hospitality Firms. Sustainability 2025, 17, 895. https://doi.org/10.3390/su17030895

AMA Style

Tsou H-T, Chen J-S, Mai TO, Jade NBN. Soft HRM Practices Fostering Service Innovations and Performance in Hospitality Firms. Sustainability. 2025; 17(3):895. https://doi.org/10.3390/su17030895

Chicago/Turabian Style

Tsou, Hung-Tai, Ja-Shen Chen, Thi Oanh Mai, and Nguyen B. Ngoc Jade. 2025. "Soft HRM Practices Fostering Service Innovations and Performance in Hospitality Firms" Sustainability 17, no. 3: 895. https://doi.org/10.3390/su17030895

APA Style

Tsou, H.-T., Chen, J.-S., Mai, T. O., & Jade, N. B. N. (2025). Soft HRM Practices Fostering Service Innovations and Performance in Hospitality Firms. Sustainability, 17(3), 895. https://doi.org/10.3390/su17030895

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