A more contemporary connection between product development and innovation is stated as:

Product development = innovation that is rewarded by the marketplace.

This characterization basically comes from the following: "Innovation is rewarded by the marketplace, making it the top non-financial contributor to corporate value in almost every industry studied." - Center For Business Innovation, http://www.innovationtools.com/Weblog/innovationblog-detail.asp?ArticleID=113.

Building on these comments, I submit that product development can be thought of as a business incarnation of innovation. That is, product development is the process of turning a creation or invention into a designable, replicable, marketable, supportable product¹ that fulfills a company's business goals.

Thus…

Innovation Defined…

'The exploitation of an idea or thing that is intended for commercial value gain' will be our definition of innovation within the context of product development.

The fundamental consequence of innovation is CHANGE. Within a business, innovation will produce change in a process, a policy, a requirement, a definition, a team, a presumption, a tool, a metric, a belief, a market, a user perception, etc. And in the business of product development change will create risk. Risk can be an opportunity or a disadvantage to the '-value' or '-marketplace reward' side of the innovation equation depending upon when within the product development process the change is effected. This leads to the consideration of where innovation optimally fits within product development.

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¹What is declared for a product in this article also applies to a service.