| Summary: | In the service sector, technological innovation is typically dominated by suppliers, and hence involves external knowledge that can be easily acquired and imitated by competitors. However, innovation that can sustain superior performance in retail and hospitality firms tends to be internal and non-technical, involving business models. Building on the perspectives of the resource-based view and dynamic capability, this study aims to understand how industry turbulence in retail and hospitality affects the sustainable competitive advantage of the firms operating in these service industries. Based on a quantitative study of 214 retail and food services companies, our study has empirically demonstrated that firms operating in an industry with high turbulence have a higher probability of achieving a sustainable competitive advantage. Second, our findings establish that a firm’s business model innovation (BMI) activities partially mediate this positive relationship. This suggests that BMI plays a role in enhancing the firm’s ability to address the challenges of the present, as well as prepare itself to adapt to the industry evolution and revolution of the future. BMI not only influences the acquisition and application of external innovations, it also affects the generation of internal innovations.
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