In today's economy, pervaded by constant globalization pressures and rapid technological advancement, innovation is considered to be the main precondition for sustainable growth and enterprise development. Innovation provides firms with growth that is more competitive, faster, better and smarter than that of their competitors, and gives them the ability to influence the industry in which they operate. Understanding the source of successful innovation has become one of the major challenges for researchers around the world. Over the years the definitions given by various authors have made the concept of innovation clearer. While a unique and commonly accepted definition of innovation does not exist, most agree that innovation implies the development and application of something new or substantially altered, whether it is a product or service, a new organizational method, a business practice or a new marketing method. Successful innovation is the creation and implementation of new processes, products, services or delivery methods that result in significant improvements in achieving the desired result, efficiency, effectiveness or quality. However, it is not the authors and owners of a new idea, product, process or organizational or marketing innovation but rather the customers who decide which of the same will be successful innovations. Innovation management has become one of the most popular topics in the scientific literature in the field of management, especially in the last ten years. The reason for this lies in the need to ensure the survival of sustainability-focused companies in economic conditions of globalization; this applies to both for-profit companies that need be competitive, as well as to non-profit companies that need to improve their services. Innovation calls for knowledge about innovation management, about how to actively and conscientiously organize, control and execute activities that lead to innovation. However, not all innovations are successful, as success depends on the type of innovation and the way the innovation process is managed, that is, how an idea is transformed into an innovation. Therefore, there are various innovation models, mainly related to products and processes, but also to services, given their importance in today's economy. Innovation capacity is the ability of any organization to undertake activities to create new ideas that will enable development and long-term survival; it is the potential for generating innovation results. For instance, interlinking multiple dimensions of technological innovation capabilities has a positive effect on the results of technological innovations and thus on business results. Input innovation factors and process management are directly influenced by management, while output factors are only partially controlled. It is therefore important to determine key input, process and output innovation factors. It was found that in addition to investment in innovation, innovation capabilities and innovation management also have a great impact on innovation performance. Therefore, the focus of this research is on defining those process innovation factors. The key question is how to encourage companies to boost innovation activity, that is, how to increase investment in research and development (R&D) and build innovation capacities and capabilities. The core idea of R&D activities and innovativeness in augmenting a firm's competitive capabilities and boosting the economy as a whole, that is in line with the goals of the Europe 2020 Growth Strategy. Growth of R&D investment (3% of GDP) will not be reachable if firms do not generate absorption capacities and an adequate innovation climate. If competitive capability is not increased through such R&D activities, any additional investment in R&D will be futile. If the state follows in the same footsteps and fails to take decisive action, the negative effects of R&D investment and drawing from EU funds could be far-reaching. The subject of research is medium-sized and large firms in the Republic of Croatia, with low and medium-low levels of technological intensity, mostly present in the manufacturing industry. The manufacturing industry is the sector of the economy with one of the biggest shares in the structure of gross domestic product and the total employment of the Republic of Croatia, and the absolute largest share in total exports. It is considered appropriate to explore the possibilities of improving the innovation capabilities of firms in the manufacturing industry, which could, in turn, enhance the overall economic potential of Croatia by building innovation capacity. A low level of technological development and less knowledge-intensive activities are found in the less knowledge-intensive services (LKIS), which also require a modern approach to managing innovation. Service innovation has a multidimensional character, because it involves distributing various types of product and service samples, interacting with guests, improving the organization of service delivery, introducing new technological options, or completely changing the business model. Although the hotel industry is identified as the most innovative industry within the tourism sector, it is also a part of the less knowledge-intensive service industry, and because of its specific features (a combination of various service activities) it is very complex and requires the division of components and individual observation. The goals and purpose of this doctoral dissertation are set based on the previously defined problems and subject of research. The purpose of the research is to explore the possibility of introducing holistic and successful innovation management in Croatian firms that have a low and medium-low level of technological intensity, based on the proposed transition model from a non-innovative to an innovative leading firm. The scientific contribution of this dissertation is presented in a developed model of innovation management based on a holistic approach to the management of innovation factors. In order to design a more comprehensive and more successful innovative model applicable to the service sector, the theoretical elaboration of the concepts of innovation management (i.e. exploring types of innovation, innovation processes by phases, the use of management tools and relevant factors that impact the innovation capabilities of the firm) was followed by the empirical research of theoretical assumptions, conducted on 996 Croatian firms with low and medium-low levels of technological intensity (HR NTP). A positive correlation was established between the level and structure of investment in innovation and the output indicators of innovation. Equally, a positive link was determined between the innovation investment indicators, the indicators of innovation process management and the innovation performance of 967 German firms with low and medium-low levels of technological intensity (DE NTP). Furthermore, statistical tests confirmed the positive relationship between the innovation performance and the economic efficiency of Croatian and German NTP. By comparing results with German firms, knowledge transfer to Croatian companies was explored and realized. In the third phase of the research, exploratory factor analysis extracted six factors, i.e. innovation capabilities, for the entire sample. Further results indicated statistically significant differences regarding organizational, marketing, manufacturing, R&D, information and coordination and strategic management capability between innovation leaders and non-innovative HR NTP. Furthermore, through the innovation process, Croatian firms with low and medium-low technological intensity save on average, increase quality by increasing revenue, and positively affect the level of product innovation. Also, results have shown that marketing innovations, organizational innovations and the business model innovation of HR NTP have a positive impact on the level of product innovation. Finally, data obtained from semi-structured interviews with hotel managers suggest that it is possible to successfully manage innovations in the hotel industry by retaining input innovation factors from the proposed model, by reformulating and modifying individual process factors, i.e. innovation capabilities, and by harmonizing individual output innovation factors. This study contributes to managerial practice at different levels. The surveys and interviews conducted are very important for qualitative and quantitative research as they provide the practical confirmation of managers in the context of opportunities and, above all, their readiness to apply innovative models. The literature review for each segment of the proposed model confirms a positive impact on firm performance. In conclusion, innovation either increases value for the customer of the product (or service) or reduces costs, thus creating a competitive advantage for the enterprise. It is important to realize that innovation needs time and decision-makers should not rush to conclusions and over-emphasize key business indicators. Innovation is essentially a social process that is not just about invention but also about persuading people to do something new. Entrepreneurs who innovate persistently and develop routines and innovation capabilities among their departments and employees enhance their likelihood of success.