This is a vital dimension of the specification and is critically important for any creative people working on the project.
Is your design project highly conceptual and ground-breaking, or is it a revision or development or improvement of an existing design or product or service? Or something in between? 
The thought process and design process are entirely different for something absolutely new compared to something that simply adapts or develops an existing concept or idea. Creative people therefore need to know the level of innovation required. Many of the best creative people will by their nature tend to strive for optimum innovation but this is fine only if the project requires it.
There are three types of innovation: incremental, modular and radical. The level of innovation must be 'fit for purpose' whatever that purpose is. Your reference point is the outcome or result required by the business or organisation. Deciding the level of innovation is also crucial for selecting the right type of designer(s) to work on the project. Some designers are highly innovative; others are more comfortable with refinements and developments. Knowing the level of innovation helps the design manager to identify the right people for the job .
In order to prevent unnecessary redesign or replication of work without stagnating creativity, the LEGO innovation model is applied to all the four fundamental areas of business at LEGO: business, product, process and communication. In each area, activities are constantly reviewed and the right level of change is selected .
Approaches of innovation used in the model are:
1. No change – a product or process is currently fit for purpose.
2. Adjust – minor changes and optimisation of known parameters are used to update products or modify processes in order to improve performance.
3. Reconfigure – known and often of multiple parameters, are put together in a new way in order to better meet existing business and/or customer needs.
4. Redefine – an entirely new approach and offering are introduced in a business area or market sector – existing products and processes may undergo quite fundamental modifications.
Best (2010)  explains two types on innovations:
Design-driven innovation involves managing the relationship between design and innovation, where innovation is driven by the needs of users and customers. It entails taking more of a bottom-up, user-centric approach to adding value to a customer experience.
Source: As mentioned in the image.
Brand-driven innovation takes more of a top-down (brand, marketing, exploiting innovative thinking, technologies and materials) approach to add vale to a brand through introducing new products, services and approaches. Leaders such as Apple, Nintendo, Alessi and many others build an unbeatable and sustainable competitive advantage through innovations that do not come from the market but that create new markets. These leaders compete through products and services that have a radical new meaning: those that convey a completely new reason for customers to buy them .
Innovation is defined as the development and implementation of new ideas by people who over time engage in transactions with others within an institutional order. This definition focuses on four basic factors (new ideas, people, transactions, and institutional context). An understanding of how these factors is related leads to four basic problems confronting most general managers :
1. A human problem of managing attention,
2. A process problem in managing new ideas into good currency,
3. A structural problem of managing part-whole relationships,
4. A strategic problem of institutional leadership.
 Best, K. (2010). The Fundamentals of Design Management, AVA Publishing, SA.
 Verganti, R. (2009). Design Driven Innovation: Changing the Rules of Competition by Radically Innovating What Things Mean, Harvard Business Review Press.
 Andrew H. Van de Ven, Central Problems in the Management of Innovation