The words iteration and innovation are sometimes used interchangeably, however their meanings are very different. Iteration involves getting better at something you already do. Whereas innovation is about bridging the gap between what you already do well and the things that you don't yet know to do well - often things you have never considered. This interesting article discusses why a deeper assessment and understanding of client experience should be considered crucial to innovation and offering a solution that goes above and beyond clients' needs.
The differences between iteration and innovation are important as both are needed to compete for the future right now. Iteration is doing the same things better. Innovation is doing new things that create new value.