Organizations across industries and sectors are seeking novel ways to innovate that can address the complex environments in which they operate. The complexity is reflected in an increasing focus on service innovation as the main growth trajectory, which entails ongoing infusion of technology into creating service offerings focused on customer experience. This creates specific challenges related to systemic and value-based dimensions of service that require organization-wide efforts in understanding and managing service innovation. Thus, in their bid to address service innovation challenges, organizations have been adopting service design as a new approach to service innovation, hoping to stir creativity by infusing the innovation process with actor-centric, systemic, and value-driven perspectives. Service design has been established in both research and practice as a human-centered, collaborative, and interdisciplinary approach that can facilitate service innovation by combining design knowledge and practices with a service perspective. However, the intersection of service design and service innovation is still in theoretical and conceptual development, making it unclear how service design might facilitate service innovation. To address this challenge, this thesis brings these two multifaceted concepts together. It employs a value-centric perspective on service innovation to articulate how service design addresses different elements of service innovation. The contributions of this thesis are based on conceptual and empirical work. The conceptual work explores the building blocks of service innovation informed by service-dominant logic and explicates meaning as a mechanism of new value creation. The empirical work uses a qualitative approach to investigate how service design facilitates service innovation. First it looks at service design projects and how they lead to service innovation through the development of new value propositions. Second it looks at service design as embedded practices that support organizational capabilities for sustained service innovation. This thesis articulates the role of service design as creative exploration and ongoing transformation and provides a conceptual integration of service and design perspectives to understand new value cocreation. Although service designers and managers are eager to implement service design in their innovation processes, they face challenges related to different, but interrelated aspects of service innovation. This research contributes with comprehensive findings that can support their decisions.