The Progress Economy

You’re not alone in thinking innovation investments are not moving the needle much. We have an innovation problem that’s impacting your organisation’s, and macroeconomic, growth…and it’s because we chase value.

innovation is Failing us

You are not neglecting innovation. If anything, you are investing in it more deliberately and visibly than ever before.

You have funded accelerators and digital labs, piloted generative AI initiatives, expanded venture activity, implemented ideation platforms, and embedded innovation language into strategy reviews and investor narratives. Innovation appears in board conversations and quarterly updates as a declared engine of growth and resilience.

And yet, despite that visible commitment, you sense a widening gap between ambition and outcome.

Your perception is not anecdotal or made in isolation.

McKinsey & Company’s oft quoted research from 2008 found that nearly 90% of executives consider innovation critical to growth, yet only 6% of the same executives report satisfaction with their innovation performance.

They further uncovered that “very few [executives] know what the problem is, or how to fix it”.

Belief in innovation’s centrality has strengthened. Confidence in its execution has not.

More recent analysis reinforces the pattern. In its 2024 global study, Boston Consulting Group reported that 83% of senior leaders rank innovation among their top three priorities…

…yet only 3% of organisations qualify as “innovation ready” – meaning they can reliably translate ambition into sustained results (“Innovation systems need a reboot“).

Worse still, that innovation readiness has declined sharply since 2022, even as rhetoric has intensified.

We find similar signals in other research.

The 2023 Innovation Index from NTT DATA (“NTT DATA’s 2023 Innovation Index“) reports that 96% of executives expect innovation to drive growth…

…only 21% of those executives say they have definitively met their innovation goals.

Worryingly, more than half of those executives describe their innovation performance as average or worse; nearly two-thirds reported similar underperformance in speed to market.

The gap is systemic. What’s going on inside organisations?

The internal perspective

Inside organisations, the signal is equally visible.

Research from Gartner shows declining employee belief that their organisation is innovative. Just 16.6% of employees held that belief in 2Q25.

That figure is down from 23.3% in 3Q22!

NTT Data’s industry survey found that the top-down perspective is no better. 78% of executives cited poor organisational culture is holding back their innovation efforts; 58% describe their organisation’s readiness to foster innovation as “weak” or “mixed.”

Even the current AI wave – often framed as the great corporate reset – reveals a pattern of widespread experimentation, but scaling is rare. BCG’s report informs us that “although 86% of organizations are experimenting with GenAI for innovation, only 8% are applying GenAI at scale”. Whereas TechRadar highlights that “only around 36% of organisations have successfully scaled generative AI solutions, and only 13% report significant enterprise-level impact”.

The constraint is organisational capability to integrate, scale, and govern innovation as a systemic discipline — aligned to delivering what customers truly want, rather than launching a series of isolated initiatives. BCG, again, tell us that we’re observing zombie organisations just going through the motions of innovation.

The potential result is what Steve Blank memorably called innovation theatre: initiatives that look impressive but fail to move the performance needle.

The macro perspective

The challenge extends beyond individual firms.

Despite sustained increases in R&D spending across advanced economies, growth has remained subdued, according to the Organisation for Economic Co-operation and Development (“OECD“, and “OECD“).

In 2024, the chair of the International Monetary Fund went as far as warning that we are heading for a prolonged period of stagnant growth – the so-called “Tepid 20s”.

The importance of innovation to growth is well understood by executives. A study by PWC (2019) found that “64% of executives saw innovation and operational effectiveness as equally important to the success of [their] company”.

2025’s “Nobel prize” in economics was awarded “for research explaining innovation-driven economic growth”. This recognition reinforces a lineage of thought stretching from Schumpeter’s theory of creative destruction to endogenous growth theory, most prominently advanced by Paul Romer and Christensen’s notion of disruptive innovation (The Innovator’s Dilemma). These frameworks show that sustained growth emerges when new ideas expand productive capacity and reshape economic trajectories.

Organisations innovate to sustain advantage, adapt to change, capture technological opportunity, and maintain long-term viability.

However, data from Innosight shows that Corporate lifespans continue to contract, with incumbents replaced at accelerating rates. If you don’t innovate, someone else will – the visible manifestation of Drucker’s “innovate or die”.

This should worry executives. The 2025 Global CEO Survey from PwC, revealed that 40% of CEOs state that their companies may not remain economically viable within a decade if they continue on their current path.

Belief in the need for innovation has never been stronger. Outcomes remain stubbornly weak.

The innovation problem

Taken together, the evidence reveals a consistent pattern. We prioritise innovation; we fund it; we announce it; and we measure it. Yet we struggle to generate sustained, systemic impact in the form that ultimately matters: durable growth and long-term viability. And, tellingly, in those conversations we rarely mention the customer/client/patient/student/passenger/etc.

This is not a creativity, funding, nor fundamentally a technology problem. It is a framing and execution problem.

chasing creating/adding value – a concept hard to define, agree upon, and measure – is the root cause of the innovation problem

One that I will claim stems from our relentless focus on creating/adding value as the root cause.

We have built our world model and innovation logic around a concept that is difficult to define, align on, and meaningfully measure. That then drives us to build our innovation approach using an incomplete map.

Why chasing value is problematic

At first glance, the claim that chasing value is the problem sounds heretical. Business schools, boardroom orthodoxy, and surely common sense alike insist that increasing value is the central task of the firm. More value should mean more sales, and more sales should mean growth.

The first difficulty lies in what we mean by value. Anderson and Nanus tell us that suppliers struggle to define what it is and how to measure it.

“remarkably few suppliers in business markets are able to answer…” questions like “…How do you define value? Can you measure it?”

Anderson and Narus (1998) ”Business Marketing: Understand what customers value”

In practice, measurement collapses into a single proxy: the highest price a customer is willing to pay. That assumption exposes a goods-dominant logic, founded on value-in-exchange, rooted in observations from manufacturing. Here we believe value is increasingly embedded in a product along the supply chain, exchanged for cash wit an end user, and then used up – even destroyed – by that end user.

Indeed, Gallouj and Weinstein’s “Innovation in Services“ found that we base most of today’s innovation theory on technological innovation from within manufacturing companies.

Now, don’t get me wrong. For decades, this logic delivered extraordinary results. But there are a number of blind spots in the value-in-exchange model which are becoming increasingly impactful in our hunt for growth. These include:

• Prioritising consistency over customisation – missing value before exchange
• Chasing the next transaction – missing post-exchange value
• Valuing new exchanges over circular thinking – missing value across the exchange
• Elevating goods over services – restricting the solution space
• Falling into marketing myopia – narrowing the solution
• Favouring simple exchange over more innovative business models

We’ll look at these in detail later.

We’re navigating with incomplete maps

Here are two images that show a further challenge with basing innovation on a value-in-exchange model.

Much of our innovation thinking was shaped in an industrial era, emerging from close observation of manufacturing-intensive contexts. However, Chesbrough’s Open Innovation shows us the era of goods domination in our economies is over; we are in predominantly service-based economies. That raises a strategic question: should we continue to anchor our innovation approach in an economic structure that is no longer dominant?

In “Innovation, Measurement and Services: The New Problematique“, Coombs and Miles outline three perspectives on how service and manufacturing (goods) innovation could relate: assimilation, demarcation, and synthesis.

Under assimilation, innovation in services and manufacturing are treated as essentially the same. Whereas under demarcation, they are viewed as fundamentally different. Finally, under synthesis, they are understood as sharing a common foundation, while service innovation introduces dimensions that are less central – or absent – in manufacturing contexts.

Since growth and innovation struggle in today’s predominantly service-based economies, the assimilation view appears insufficient. Vargo and Lusch argue in their service-dominant logic that goods are distribution mechanisms for service. That perspective collapses the hard boundary between products and services meaning the demarcation view also falls short. 

The synthesis view therefore becomes the most coherent position. Innovation shares core principles across contexts, but service-dominant economies introduce additional dynamics – particularly around use, interaction, and value realisation – that traditional models underweight.

The deeper implication is stark. We are attempting to drive growth with innovation built on an incomplete map and calibrated for a different economic reality.

All of this encourages innovation theatre: labs funded, pilots launched, portfolios expanded – while competitive intensity rises and long-term viability becomes more fragile.

The consequences of chasing value manifest in two recurring patterns: we forget who determines value, and we become dependent on the next exchange.

Forgetting who determines value

Observe successful entrepreneurs. They fixate on problems obsessing over helping customers achieve something meaningful. They understand, intuitively, that when customers make progress, they experience value.

Established organisations often fall foul of self-confidence. They end up defining value internally and assume customers will agree.

Consider the addition of yet another blade to a razor head.

Inside the company, teams construct a compelling narrative of incremental benefit. Outside the company, customers may struggle to perceive any meaningful improvement in their own outcomes. The company mistakes internal justification for external validation. Even product validation groups don’t get the signal across to the company in an effective manner.

This should not be surprising when we look at definitions of innovation. Idea2Value.com did just that, and found only 40% of the definitions they looked at explicitly noted value to customer.

Even if we were to try and focus on value to the customer, we’re back to Anderson’s and Narus’ point of it being difficult to define and measure. The proxy of using price for value leads into our second manifestation: organisation become dependent on the next hit, the next exchange.

Becoming dependent on the next exchange

In The Practice of Management, Peter Drucker wrote that a company has two – and only two – functions: marketing and innovation. What are the key functions in your organisation? I would guess sales and finance. Under the driving logic of value-in-exchange we concentrate on preserving the existing flow of exchange because that flow sustains current revenues.

Eastman Kodak exemplifies this trap. The company built one of the first digital cameras in 1975 and later acquired Ofoto – a photo sharing site -in 2001. It saw digital technology emerging. As Scott D. Anthony argues in “Kodak’s Downfall Wasn’t About Technology” (HBR, July 2016), the failure was not technological blindness but business model inertia. Online photo sharing redefined the basis of the business. Kodak could not bring itself to undermine its then highly profitable model built on exchanging physical film for cash.

Innovation becomes peripheral, tolerated as long as it does not threaten today’s exchange engine. A 2019 study by PWC concluded “successful companies recognise that innovation is a mainstream process, which brings together frontline teams, customers and a range of different partners from beyond the organisation”. The reality, however, appears not to reflect many organisations following this.

Even organisations that genuinely strive to stay close to end users can fall into Christensen’s disruptive innovation trap.

Incumbents tend to prioritise their most demanding and profitable customers. Serving them feels rational: revenue and influence concentrate there. Yet this focus drives products upward – more features, higher performance, greater cost. Over time, offerings overshoot the needs of mainstream and lower-demand users.

That overshoot creates space for disruption.

If. new technology appears a new entrant may introduce a simpler, cheaper solution for customers with modest requirements. The incumbent dismisses it as inferior and continues optimising for high-end exchange. But the entrant will also try and improve over time moving up-market while retaining cost advantages. By then, the incumbent’s structures and economics are locked into serving the top tier. If the entrant captures the mainstream market, the incumbent has been disrupted.

The pattern is clear: organisations optimise for greater, quicker, exchanges in a belief that exchanges indicate end users finding value in the product sold.

The solution

We will not resolve the innovation problem by trying harder within the same conceptual frame. We must change the logic through which we define, evaluate, and scale innovation.

That requires moving from a goods-dominant value-in-exchange model of value to one based on service-dominant perspective. This reflects the underlying reality of today’s service-based economies and that value is an outcome not an output.

In such a model, value is seen as emerging through use (value-in-use) and is felt as an increase in well-being – something we look to increase rather than exchange.

It is of course only logical to assume that the value really emerges for customers when goods and services do something for them. Before this happens, only potential value exists

Grönroos (2004) “Adopting a service logic for marketing”

But value-in-use is not quite sufficient for us to harness and solve our innovation problem. Well-being risks replacing value as a notion that is difficult to define, agree and measure. In the progress economy, we operationalise well-being with the concept of progress.

progress: moving over time to a more desired state

All economic actors seek progress in all aspects of their lives. To attempt progress they apply capabilities that are carried by resources. For example using skills they have, or the hammer sitting on the bench, or use the electricity created from the sun via a solar panel, etc.

Often an actor lacks the capabilities needed, but another actor has them. This unbalanced distribution of capabilties across actors, that all are looking to make progress, leads to exchanges.

The actor attempting to make progress continuously compares their progress sought, progress potential, progress reached, and progress offered. When those comparisons signal improvement in their well-being, they experience what we label as value.

Now we have an operating model of the economy built around progress: progress states, progress journeys/attempts, progress hurdles, decision processes, measurement (sometimes artificial scales). And a model of value we call well-being-through-progress.

Under this logic, innovation ceases to be the pursuit of added value. It becomes the disciplined pursuit of enabling better progress in order to offer increased well-being.

innovation: creating and executing new – to the individual, organisation, market, industry, world – progress propositions that offer improved progress potential through some combination of:

• increasing possible progress
• improving today’s progress
• lowering one or more of the six progress hurdles
• accelerating potential for well-being recognition frequency

whilst maintaining, or improving, the survivability of the innovator and/or ecosystem

A crisp definition that includes four outcomes that are high-level levers we can pull to systematically innovate. When we consider progress as an operating model for the economy, we discover many more lower-level levers contributing to these four innovation outcomes.

This reframing gives us the tools to tackle the innovation problem.

Welcome to the progress economy.