Micro-, small and medium-sized enterprises (SMEs) carry out most of the forest harvesting activities all over Europe. They often act as service providers only and do not own land or wood-processing capacities. They are under pressure from the bargaining power of the wood suppliers (the forest owners, regulating the access to the resource) and the bargaining power of the customers (timber-based industries, regulating the access to the global markets). Innovation in technological development or in business practices is required to improve the situation of forest service enterprises in a difficult market. This chapter studies eight cases of innovation, which have been identified in micro-, small and mediumsized firms in the forest harvesting sector in central and eastern Europe. The aim is to identify the market and policy-related conditions of innovation. It was asked whether there is a relationship between the innovation-related policies and the market in which the firms operate and innovate. It was also of interest to explore if any market-based mechanisms have helped the firms to implement innovation, and if any policies created enabling conditions for innovation. The results suggest that most innovation policies have not yet led to a considerable uptake of innovation among forestry contractors. The innovations that could be identified are mainly incremental applications of already existing technical solutions, and in some cases departing from and/or embarking on additional tasks and new product markets. These innovative activities can be characterized as reactions to market developments and customer demands. There is, moreover, a need for supporting investment in technical innovation in forest operations; for reacting to the increasing demand for harvesting and transport capacities; and for curbing the forecasted lack of workers in many countries. At this stage, a higher degree of mechanization cannot be achieved without public support of investments. An even more important political goal should be to build up or maintain the capacities for support, training and commercial advice of SMEs to develop further the human resources and entrepreneurial capacities needed.