Abstract: This paper systematically summarizes the main models of current service innovation and the theoretical relationship between service innovation and service industry transformation and upgrading. The research finds that the current service innovation is mainly reflected in the digitalization of service innovation, its platform, integration and standardization, and the quality of service innovation. Its role is mainly reflected in the fact that service innovation is conducive to helping enterprises to raise themselves in the global value chain (GVC). It is an effective means to adapt to the changes in the main contradictions of Chinese society. It is also an important point of integration between supply-side reform and demand-side coordination for the current and future periods. Based on those, the author proposes some policies necessary to further consolidate the development of the service industry, combine supply-side structural reforms with demand-side synergies, innovate ways of supervision to cope with the emerging new service formats, and continue to promote a higher level of service industry opening to the outside world.