Innovations can come in all sizes: big or small. Look at the little innovation square from my post, Types of innovation. They don't have to be earth-shattering or the next big thing. Innovation can be as simple as trying to improve performance and improving the quality of one's life.
Where do you go for inspiration?
To the competition - What do your competitors do? How do they handle the problems you face? How can you improve upon their offerings? Look at the Apple Ipod. Prior to its introduction there were MP3 players already in the marketplace (e.g., the Eiger Labs MPMan F10.) What separated the Ipod from the others was it's ease-of-use, design and quality.
From unrelated companies - Companies in different industries can face similar problems. Learn from their experiences and mistakes.
From within - Think about the unique capabilities of your company. How can you leverage them to obtain more benefit from your investments? Perhaps your organization is a pioneer and has knowledge others do not (unlikely but this can happen)?
By accident - Research scientist Dr. Spence Silver was trying to develop an adhesive. However, his work yielded an adhesive that could be peeled off over and over. Art Fry realized he could use this adhesive to keep his bookmarks from falling out of his books. Hence the 3M Post-it Note was born!
Use something in a different way - Thomas Savery designed a steam engine to pump water out of mine shafts. Charles Parsons later used the same concept for marine vehicle propulsion and as a means to generate electricity.
Inspiration can be found everywhere!