The purpose of this paper is to examine the effects of knowledge management and advanced technology on innovative capability in order to improve the organization performance. A survey of 200 SMEs in the service industry was conducted. Partial least squares structural equation modelling (PLS_SEM) was used to test the mediation role of the service innovation on the relationships between both knowledge management and advance technology and the organizational performance. The results showed there were links between knowledge management and organizational performance. Nevertheless, it was discovered that service innovation mediated the relationship between the knowledge management and cost and financial performance, and between advance technology and cost and financial performance. The paper shows a way forward of how to measures the organizational performance in such a way that they are led from the development of innovation capability generated through knowledge management and the advance technology in the service industry.