There are two kinds of innovations: "initial" and "incremental" innovation. What you just described is "initial" innovation (some people also call it "radical innovation"). And the process you described, I think it is called "skunk work" (prototypes and experiments) which is only one way to achieve "initial" innovation.

I think that "incremental" innovations are very important for companies and sometimes a "incremental" innovation can end up being a "radical" innovation.