Rather than individual innovation, an evolution of an industry or market will force every member of the industry to change or die. The way each company decides to innovate will determine its ultimate success or failure.
In order to innovate as an industry changes you have to be able to spot the change to begin with. Here are some key indicators:
The industry shows rapid growth above and beyond that of the economy or population. If an industry is showing growth incongruent to its surroundings, it will likely have to adjust structurally to keep up. This means more than shifting to just skim the cream off the top of your market and competitors. You must try something new and different before a competitor does.
The industry has doubled in size without changing its structure. This likely indicates that the industry is strained and will require some sort of reorganization to prevent an overall collapse.
Technological Convergence If technologies collide that were previously seen as separate entities, the industry is ripe for change. Think the evolution of the tele-communications industry throughout time.
A change in the way an industry does business The transition of doctors from private practices to group practices or practices based in hospitals represent this type of industry change perfectly. It also opened opportunities for architects, information specialists, and management to innovate and make group practices successful.
You cannot force industry change, but you must be aware of it and innovate effectively around it. Try not to make sweeping changes, though. Instead, make careful, calculated, small changes. That will be your only chance for success amidst industry and market change.