The internet and digitalization, will be the challenges as well as opportunities for the hotel and resorts industry in Indonesia. The internet and digitalization have changed the hotel and resort industry business models and customer behavior in such a fast phase. Market turbulence forces the leaders of the hotel and resort industry in Indonesia to reconfigure the capabilities they have. The study was conducted on the hotel and resort industry in Yogyakarta. Yogyakarta was chosen because it is the second largest tourist destination in Indonesia. Respondents of this study
were general managers or owners of hotels and resorts. The analysis technique uses multivariate analysis, namely the analysis of Structural Equation Model (SEM) with the Partial Least Square (PLS) approach. The results of this study show that hotel and resort industry leaders must rethink the dimensions of customer experience, internal operations, and find new business models. The company must have a cohesive strategy in integrating digital and physical elements in order to be able to transform its business model and set direction for the entire industry. Hotel and resort
industry leaders must also focus on two complementary activities: sharpening customer value propositions and transforming their operating models using digital technology to interact and collaborate with customers.
This study contributes to the theory of disruptive innovation theory by identifying, operating, and measuring variables that must be changed, expanded, or adapted to create dynamic capabilities and build digital platforms in answering digital disruption. From the managerial perspective, this study will help managers focus on factors such as digital market capabilities, digital leadership capabilities, and digital technology capabilities, which determine the success of digital transformation in order to build and enhance customer engagement.