Nowadays economic, political and social development is influenced by the process of globalization. In the knowledge-oriented society the most important factor of competitive advantage is not the newness of the applied technologies, the uniqueness of the product/service, the disposed tangible assets, but the gained knowledge and the ability to manage it, since this resource is hard to repeat or copy. Business survival depends on the organization's ability to gain a competitive advantage. Organizations can no longer expect that earlier created products/services or formerly for a long time conducted business will be still successful tomorrow and keep ensuring great organizational performance. Today, knowledge is the main source of innovation in a knowledge-based economy. Creation of innovations depends on the gained knowledge and its commercialization, transformation into the productive knowledge. The article limits itself to the approach that innovations are the result of the use of the productive knowledge. Efficient management of productive knowledge results in innovation development in organizations. In order to analyze the interaction of knowledge management and innovation, a systematic approach is required. There is a lack of researches dealing with interrelation of knowledge management and innovation in organizations. There has been made a preliminary overview of the aspects, which could be related to knowledge management activities and the process of innovation creation. The most important aspects of knowledge management and innovation interrelation mentioned in the scientific researches are: the process of creating ideas, fundamental methods of learning, knowledge and knowledge management processes in creation of innovations. Knowledge management and innovations are influences by organizational factors. There has been made a preliminary overview of the main internal factors that have the greatest influence on knowledge management and innovation in the organization: organizational culture; learning; leadership; human resource management; information technologies and other factors (such as organizational structure, size, processes and business field). Besides, some knowledge management factors, influencing innovation are: knowledge management strategy; knowledge management processes (creation, acquisition, identification, use and dissemination). The internal factors, influencing innovations are devided into five main groups: strategic, management, resource, cultural and structural. The main purpose of the article is to identify interrelation of knowledge management and innovation and to create an integral knowledge management model that could ensure continuous innovation creation and development in the organization. The created model includes three main areas: strategic, culture and knowledge management processes, innovation.
