We present a model that represents the knowledge required for designing devices innovatively and a methodology, called Performance Driven Innovation (PDI), that synthesizes new models for redesign problem solving. PDI is an extension of KRITIK system that integrates Case-based and Model-based reasoning. The knowledge required for innovative design is represented using variations of a Structure-Function.Behavior (SBF) model. This model represents both the design and the failure knowledge of a device. This failure knowledge is the designer’s understanding of how the device fails in a new environment. The design knowledge of the devices is often incomplete, as the complete knowledge of all the environments, in which the device can operate, is not available. This knowledge is arrived at as an instantiation of prototypical failures which are present in a case-base. This knowledge is composed with the design knowledge. This failure knowledge is used to discover the new constraints on the device imposed by the new environment that lead to its behavioral failure. These constraints are realized by generating behaviors. These behaviors are composed with the behavior in the design knowledge which gives rise to the behavior that satisfies all the constraints.