In this review paper, we ask how UK business might realize improved productivity through value creation. Our aim is to evaluate the ability of UK firms to reduce the productivity gap by assessing the challenges associated with the following strategic options: (a) increasing efficiency and effectiveness through the adoption of better practices; (b) innovating to produce products or services that generate more revenue (through either higher prices or larger volumes) while remaining at the same position in the value chain; and (c) fundamentally changing position in the value or supply chain and moving to a position where the products and services that are delivered inherently generate more value. To this end, we contend that the core issues that affect such endeavours relate to the conceptualization and management of change and innovation. By considering the interconnections between firm-level activities and wider institutional processes and structures, we assess the links between knowledge production, skills provision and productivity, including the role of the state and other institutions in the context of the micro-processes of innovation. We conclude with a discussion of the research and policy implications of the attempt to make more sense of innovation and reduce the UK's productivity gap.