Bandung is the biggest city and the capital of the West Java province. The city is located 140 km southeast of Jakarta, and is the third largest city in Indonesia after Jakarta and Surabaya. The city is geographically located in the center of West Java province. Bandung has become weekend destination for the surrounding areas, including Jakarta, Bogor, Depok, Tangerang, and Bekasi (Jabodetabek). As a weekend destination for local tourists, Bandung is also an attractive place for foreign tourists who need a hotel to stay. It has an impact on the growth of the hotel industry. The hotel industry in Bandung has shown significant growth and gain greater attention in today's business environment. The average growth rate of the hotel industry within 2010-2012 was at 14.75%, compared to the average growth rate of total Gross Domestic Regional Product (GDRP) in Bandung was at 8.72% (www.bandungkota.bps.go.id). Hotel industry becomes important when the government decided to further push the service sector and to increase the tourism sector. Though growing, the hotel industry in Bandung is facing new challenges due to external and internal factors in a business environment that affect their operation. External factors include intense competition from competitors alike especially from international chain hotels. Currently, in order to survive, hotels in Bandung performed with a limited promotion in order to adapt to rapidly changing market, do not have a network or international co-operation in particular local hotels, and limited service innovation. In competition, the hotel industry should be able to offer innovative services to guests through utilize their service innovation capabilities and do the proper marketing strategy in accordance with its market segment in a dynamic market through utilizing dynamic marketing capabilities in providing excellent service. To survive in the business competition and qualify the operational, the hotel occupancy rate should be at the least of 70%. This study addresses to: (1) explore how the hotel industry in Bandung (3-star to 5-star) can survive and succeed in achieving their service excellence using the capabilities of the dynamic marketing and service innovation, (2) test the conceptual framework that emerged from the review of literature that illustrates how dynamic marketing capability and service innovation capability and their interaction works through the activities in the hotel industry in Bandung ii that will support in achieving service excellence and confirm in the other hotels, (3) contribute on the knowledge of the hotel industry in Bandung. This study generates three propositions: (1) dynamic marketing capability will support service excellence; (2) service innovation capability will support service excellence; and (3) interaction between dynamic marketing capability and service innovation capability will support service excellence. Three propositions generated from the descriptive case study that involved five hotels (3-star to 5-star) then tested in an explanatory case study involved three hotels (3-star to 5-star). The key informants in all case study stated that dynamic marketing capability and service innovation capability works to achieve service excellence, but the interaction of both capabilities highly needed in achieving service excellence. This study will enrich the knowledge of interaction mechanism in the hotel industry. The conceptual model described in this study is to examine the existence of activities in all case study. All activities work through specific ways according to hotel classification, the management system, their positioning, and target market. The interaction of both capabilities in achieving service excellence mostly in new menu development that carried-out through determining target market, forecasting demand, price setting, promotion tools, selling, and launching which the marketing and sales department play the major roles as the spearhead of the hotel to attract guests. The results of the study indicate that the dynamic marketing capability, the service innovation capability, and their interaction in the eight hotels show some similarities in all activities of market sensing, learning, sensing, seizing, and transforming. The difference lies in the marketing strategies and innovation strategies, which are tailored to the target markets and occasions. All the propositions was generated through the activities of dynamic marketing capability, service innovation capability, and their interaction support in achieving service excellence and finally already answered the research questions.