Innovation is a key element of competitiveness in entrepreneurship. Without looking at the additional domain of competitiveness in business, companies at the very core of their existence have the process of creating something new. Every entrepreneur is an innovator in his own way. On a daily basis, they apply new ideas, processes and procedures to create new products or services. And it is not at all a simple and easy job. The idea for innovation can be seen at every step, and only with proper education and innovative thinking of entrepreneurs and their employees can such an idea be recognized and implemented. It is very important that there is a research-innovative concept of business thinking in the company. Every innovation goes through a certain path during implementation, and it is very important to properly and adequately manage that process. All this is one of the many characteristics that distinguish one company from another. Therefore, this paper investigates the role of innovation as a source of competitive advantage and additionally analyzes different forms of innovation and their impact on business. Throughout the work, the importance of creating a stimulating environment that supports creativity and entrepreneurial spirit is emphasized. There are many policies and strategies that support innovation, such as public-private partnerships, encouraging start-ups and incentives for research and development. All this is carried out through various institutions that indicate to companies the possibilities of how to adapt to dynamic market conditions, satisfy the needs of customers and remain competitive. Companies that actively encourage innovation are able to achieve long-term competitive advantage and contribute to economic growth and social progress.