Nowadays, competition is fierce in the hotel industry. The fast development in technology is followed by a permanent battle to keep adequate level of competitive advantage. Innovation seems to be one of the most suitable solutions in the service sector. This is of interest due to the consistent and apparent interconnection between innovation and successful performance found in earlier research. However, in order to achieve successful market performance, it is necessary to have an effective management strategy of service innovation. This factor and the gap in knowledge found in research about innovation in the hospitality industry is the starting point for this research paper where the purpose is to gain understanding about managerial perception of service innovation and enlighten service innovation influence over market performance. In-depth interviews with hotel managers in Sweden were conducted, about their perception of service innovation first, then its influence over market performance. Results reveal that service innovation offers opportunities for hotels to be competitive, although there is a lack of specific strategies. Service innovation, due to its diverse aspects is perceived as complex, particularly referring to technology. It is important to recognize technology as a factor arising from the outside environment and how it influences service innovation and later market performance. Through the developing of strategy for service innovation hotels can improve market performance and stay competitive. The study contributes to increase knowledge and understanding of different managerial perceptions of service innovation and its influences over market performance in the hotel industry.