I like this definition of innovation from Warren Berger’s book Glimmer:
Innovation may be immensely popular as a business buzzword — Michael Bierut declared that among corporate executives “innovation is the new black” — but the reality is that people talk about it far more than they achieve it. Business people may tend to think of some small tweak in their production process, a new button added to a gadget, as an innovation. But as the designer Greg Van Alstyne notes, an innovation, by definition, should produce significant change in the marketplace and/or in people’s lives.
// purecaffeine.com, UX, design, social media and Gov 2.0 blog by designer Nathanael Boehm, Canberra, Australia. Licensed under a Creative Commons Attribution-Noncommercial-Share Alike 2.5 Australia License.

