•This study proposed a new model for hotels’ business performance based on open innovation.•This study identified the relationships between firms’ open innovation performance, service innovation and business performance.•A simple random sample of 285 managerial staff in the Pearl-Continental Hotels & Resorts was analyzed using partial least square.•The results of this paper revealed that firms’ open innovation performance had significant contributions to promoting service innovation and business performance.•The results of this study helped hotel management promote service innovation and business performance. The purpose of this study is to test the relationships between external knowledge, internal innovation, firms’ open innovation performance, service innovation and business performance in the Pakistani hotel industry. A simple random sample of 285 managerial staff in the Pearl-Continental Hotels & Resorts of Pakistan was surveyed. The findings show that firms’ open innovation performance has a positive influence on service innovation and business performance. They also reveal that external knowledge and internal innovation positively influence firms’ open innovation performance and that further leads to service innovation and business performance respectively. This study provides practitioners with firms’ open innovation performance as a tool to enhance business performance while adopting the strategy.