In the midst of international competition, tourism destinations have to continuously develop new tourism products and services in order to stay ahead of their competitors and address the changing needs of the markets. Hence, the creation of an environment of constant development of innovative offers and products is essential. The overall objective of this research study is to analyse those factors that are crucial to the development of a sustainable innovation process in tourism destinations. For sustainable innovation the destination needs to become an innovation system which can guarantee dynamics through a common vision. The innovation process can be seen as an inter-organisational network process which needs to balance cooperation and competition for the creation of innovations in tourism. Knowledge management and collaboration are identified as the most crucial factors, their interrelations are explored and a focus is placed on their systematic development. Finally the role of the coordinator of the entire process is examined in order to support the innovation process at a destination level.