Innovation has been studied in manufacturing industries, and it is on this basis that theories of innovation have been developed. Nowadays, we are in the midst of a service-driven business revolution. In many developed countries, service industry provides more contribution to GDP than manufacture industry. In addition, service is not only provided by traditional service firm, but also by any sector (e.g., OEM service). Studies of services innovation become an important issue. This thesis develops two tools, which provide firms to identify its threat and opportunity of industry environment. It also suggests firms how to implement a appropriate service innovation strategy. First, this thesis offers two critical dimensions, which are based on life cycle theory and disruptive innovation concept: the type of innovation and the type of service. According to these dimensions, we build a 2×2 matrix and classify service innovation into four cells: (1) Emerging Services, (2) Disruptive Engine, (3) Value-added Business, (4) Efficient Factory. Second, this thesis develops a framework, including four constructs: strategy, organization, knowledge management and client interaction. By using the framework, we can analyze and measure performance of these four service innovation types in terms of the four different constructs. We also choose four corporations as typical cases to test and explain these tools.