Due to the rapid tourism growth in China, the hotel business has expanded tremendously. However, the findings show that international hotel companies have better performance than state-owned hotels by fully utilizing their advanced hotel management expertise, branding advantage, scale, experience and technology. The Chinese hotels have been forced to recognize the importance of customer- and market- driven orientation after long-term bad performance in terms of high vacancy rates, low room charge and low return rate of investment. The purpose of the paper is to explore the advantages of becoming market-driven organization; and the strategic transformations of the market-driven capabilities through the case study of a state-owned organization named CTS Hotel Corporation. Initially we will examine the business environment of CTS Hotel Corporation, including its background information, the prospect of hotel and tourism industries, and the internal characteristics of a state-owned enterprise. We will then explore the elements of a market-driven organization including the external oriented culture, the distinctive market-sensing and market-relating capabilities that work together to bring the greatest leverage on performance to the organization. We also look into how these capabilities are developed and applied. After that, we illustrate the process of managerial transformation of CTS Hotel Corporation from an internal focus firm into a market-driven organization. The findings of this paper is aimed to help policy makers, international hotel management companies and scholars to be more effective in adopting and implementing market-driven strategies and capabilities in the China hotel industry. Finally, a SWOT analysis is performed on CTS Hotel Corporation; and further study on its reformation steps; how should it navigate from a state-owned enterprise to a market-driven organization? We describe the practical application of market-driven capabilities needed for a successful change progress. In the final chapter, managerial implications and reforms are discussed with a conclusion