Innovation requires sources of novelty, but the challenge is that not all sources lead to innovation, so its value needs to be determined. However, since ways of determining value stem from existing knowledge this often creates barriers to innovation. To understand how people address the challenge of novelty we develop a conceptual and an empirical framework to explain how this challenge is addressed in a software and scientific context. What is shown is that the process of innovation is a cycle where actors develop novel course of action and based on the consequences identified confirm what knowledge to transform to develop the next course of action. The performance of the process of innovation is constrained by the capacities of the artifacts and the ability of the actors to create and use artifacts to drive this cycle. By focusing on the challenge of novelty, a problem that cuts across all contexts of innovation, our goal is to develop a more generalized account of what drives the process of innovation.