BusinessWeek recently ran a wonderful interview with Jeff Bezos on the subject of managing and leading innovation.  Thoughtful and illuminating, he had me nodding my head and saying "yes", "yes" and "yes" again.  Some highlights:

On the liberating nature of constraints:

"I think frugality drives innovation, just like other constraints do.
One of the only ways to get out of a tight box is to invent your way
out. When we were [first] trying to acquire customers, we didn’t have
money to spend on ad budgets. So we created the associates program,
[which lets] any Web site link to us, and we give them a revenue share.
We invented one-click shopping so we could make check-out faster. Those
things didn’t require big budgets. They required thoughtfulness and
focus on the customer."

On cultivating a purposeful portfolio of innovation:

"With large-scale innovation, you have to set a very high bar. You don’t
get to do too many of those [initiatives] per unit of time. You have to
be really selective."

On the right timing for innovation:

"My view is there’s no bad time to innovate. You should be doing it when
times are good and when times are tough—and you want to be doing it
around things that your customers care about."