The competitiveness of the service sector is driven by its productivity. Services innovation is essential to enhancing service productivity. This paper first presents a framework for services innovation. The framework consists of three main phases of a service lifecycle (namely, service development, service operation, and service improvement), which are supported by IT infrastructure and service R&D management functions. This paper then identifies major research issues that should be investigated in the near future. The current issues of three representative service industries (namely, healthcare service, telecommunications service, and financial service) are also discussed.