I really like what Rory Blyth has to say about innovation and what makes a product great.
I'm so tired of hearing the word innovation misused and abused, and I'll be the first to stand up and admit I'm as guilty as any.
I'm especially tired of hearing criticism against companies for "not being innovative". There are undoubtedly many cases in which specific products have stagnated, especially in markets where competition is nonexistent. But to claim an entire company is not innovative - I generally don't buy it (either that, or you're right, and the company's about to be driven out of all of their markets and go byebye).
In any event, I'll leave you with Wikipedia's definition of innovation, in case you're curious after reading Rory's blog posts. I think it's summed up pretty well.