Margaret Lucy Gregory , Malvern Abdullah, Rudy Ujang
Service innovation is often the mechanism that explains why entrepreneurial orientation translates into superior outcomes in service-based industries. Yet, in hospitality, especially in emerging-economy contexts, evidence on whether service innovation mediates the relationship between entrepreneurial orientation and performance remains limited. This study examines star-rated hotels in Sarawak, Malaysia, by investigating whether entrepreneurial orientation enhances service innovation and whether service innovation, in turn, explains performance differences among hotels. A cross-sectional survey was administered to managers of one- to five-star hotels (n = 73), and the hypotheses were examined using structural equation modeling with bootstrapped indirect effects. The results show that entrepreneurial orientation positively influences service innovation and that service innovation, in turn, positively influences firm performance. Crucially, the indirect pathway is significant and indicates full mediation, suggesting that entrepreneurial orientation improves performance primarily by stimulating service innovation. In practical terms, entrepreneurial posture yields measurable gains when hotels translate it into deliberate service improvements—such as redesigning service processes, integrating enabling technologies, and enhancing guest experiences. By positioning service innovation as the mediating capability that converts entrepreneurial orientation into performance outcomes, this study extends entrepreneurial orientation theory to a service context and guides hotel managers in pursuing sustainable performance beyond price-based competition.