The Progress Economy

Are you in the 94% of executives unhappy with Innovation? You might be surprised that basing your definition of, and approaches to, innovation around adding value is the fundamental reason. Are you ready to beat luck and re-build around enabling progress?

Innovation

We’re going to look at three key aspects:

• How we typically see innovation today – anchored to the idea of “adding value” – and why we need innovation
• Why chasing value so often leads to disappointment (page 2)
• How the Progress Economy reframes innovation as the act of enabling better progress (page 3); encouraging us towards successful innovation, sales and growth

The problem

Innovation, whether incremental, radical, or disruptive, has always been central to growth, organisational vitality, and wider economic prosperity. In fact this concept was recently awarded the 2025 “economic Nobel” prize.

For centuries, tying innovation to the manufacturing pursuit of “adding value” has served us well. It has helped build industries, fuel competition, and deliver prosperity. ISO’s latest definition of innovation continues this value focus.

Innovation: new or changed entity¹, realizing or redistributing value<sup>2


1</sup> product, service, process, model (e.g. an organizational, business, operational or value realization model), method (e.g. a marketing or management method) or a combination thereof.

² gains from satisfying needs and expectations, in relation to the resources used; examples: revenues, savings, productivity, sustainability, satisfaction, empowerment, engagement, experience, trust.

ISO 56000 (2025) – Innovation Management – Fundamentals and Vocabulary

But the model is showing strain. Growth has stagnated in many sectors and economies. Innovation success rates have declined. Executives remain frustrated by the poor returns on time, energy, and capital invested in innovation programmes that promise much but deliver little. Think how many of your innovation initiatives have truly delivered the growth you were looking for, or that have become what Steve Blank calls: innovation theatre?

I propose that our de facto mindset of chasing value is the fundamental problem, for 4 reasons:

• value is difficult to define, measure, or agree upon, which makes it a poor foundation for innovation
• the traditional model of value – the goods-based, value-in-exchange model – has a number of blind spots that are increasingly impactful
• our economies are predominantly service-based rather than goods-based
• value judgements become something the producer performs – making assumptions about what customer values and suffering Levitt’s marketing myopia (adding features to a drill rather than improving how to make the hole the customer is really looking for)

We’re navigating innovation with an old map.

The solution

The Progress Economy focuses us on the progress journey that are being attempted. Where a progress seeker wishes to reach a more preferable progress state (progress sought), from their current starting point (progress origin). However, for one of various reasons – predominantly a lack of capability – they are unable to reach their progress sought.

Innovation is therefore better seen as enabling better progress. It is the disciplined discovery and deployment of new ways for Seekers to make better progress, with lower progress hurdles, and quicker value recognition. More formally:

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

• making progress better
• making better progress
• reducing one or more of the six progress hurdles
• increasing possibility of value recognition frequency

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

Tacking such a view reveals a set of progress levers that leaders can systematically apply to improve innovation success rates – dramatically increasing the odds that innovation efforts convert into outcomes.

Finally, understanding innovation through this progress-first lens dissolves an artificial boundary many organisations don’t realise they hold: the divide between innovation and sales. Both exist to help Seekers make progress. One operating more “off-line” to design new ways of helping, the other operating “in-line” to match those ways to real Seekers in real contexts. In fact, sales interactions often generate local innovations and market intelligence that, when captured, can directly strengthen innovation upstream. Sales and innovation are two sides of the same coin.

Let’s start our more detailed discussion with a foundational question: why do we innovate?

Why innovate?

Why do we innovate in the first place? The answer is multi-layered, with innovation occurring at both the individual and firm levels.

As an Individual

Individuals innovate to create value for themselves – to reach a desired progress state they currently cannot, or to do something they already do, but better. They may generate new things, re-use things, and/or combine things in novel ways to achieve that. Subsequently, they may attempt to capture value by selling their innovations (the value-in-exchange model in action), perhaps becoming a firm themselves.

From a traditional perspective, firms, and organisations, innovate to create a customer.

As an organisation: to create a customer

Drucker tells us that we innovate to create a customer. That is, to elicit an exchange of value – cash for products. We create products, services, and processes that we believe hold better value for our customers than those our competitors, including the customer, can.

because the purpose of a business is to create a customer, the business enterprise has two – and only two – basic functions: marketing and innovation

p. drucker

Defining “better” and “value” initially feels easy, and comforting, but , as we’ll see, is actually challenging.

In theory, marketing identifies customer needs; innovation creates novel solutions to meet those, and marketing then promotes the messaging that our novel solutions best fit your needs. Which is why Drucker sees those as the two basic functions of a business (everything else is a cost).

However, consider your own innovation activities. How often is the marketing input missing? Or that input steered by product features. Henry Ford’s comment about asking customers what they want would have resulted in looking only for faster horses comes to mind. Similarly, Levitt’s marketing myopia urges us to understand customers wanting a quarter-inch hole rather than a quarter-inch drill; to which Christensen observes that all marketing managers talk about this, but then push for a better drill.

Sometimes we run with the thought that innovation is creativity that comes from employees. It can which can have success, but is not world changing)?

I’ll save the discussion on how hard value is to define until section 2 of this article. For now, let’s observe that we tradtionally believe innovation embeds additional value into products, which is then monetised through higher prices or greater volume (depending upon your positioning relating to Porter’s strategy).

McKinsey reflect that by noting 84% of executives see innovation as important to growth, but that statistic only scratches the surface.

84% of executives see innovation as important to growth

McKinsey

Linked with creating a customer, firms also have a survival imperative.

Innovate or Die

Whilst creating a customer partly explains why we innovate, Drucker also gave us a warning underscoring urgency for firms: innovate or die.

innovate or die

p. drucker

We have seen this play out many times.

Blockbusters failed to innovate its business model, clinging to charging late fees while Netflix grew, overtook and outlives them.

Kodak invented digital photography but failed to realign its propositions around customers’ emerging need: instant, shareable images rather than printed photos. The result was catastrophic. Kodak lost its dominant position and filed for bankruptcy, despite holding the very technology (digital cameras, photo sharing site) that shaped the future.

The same pattern plays out in B2B markets. Many traditional ERP vendors were slow to respond to the shift toward cloud-based solutions that offered more flexible, scalable, and lower-maintenance ways for businesses to make progress. SaaS challengers rapidly captured market share, leaving incumbents scrambling to reinvent their propositions – often at far greater cost than if they had acted earlier.

This does not mean you must be first. Apple has been a strong pointer that being a fast follower is a successful playbook.

Defining innovation in terms of adding value helps us intuitively understand Drucker’s rallying call – if we’re not giving the value a customer is seeking, then they will not use our product. However, it is hard to systematically react to this if we struggle to define value.

Executives face a universal truth: innovate, or risk obsolescence…yet few have the tools to understand and react to the realities of this.

For macro-growth

So, we innovate to both create customers – growth – and sustain organisational viability. This also leads to macro-growth of economies, particularly through creative destruction.

Joseph Schumpeter described this as the process by which new technologies and business models render old ones obsolete while expanding the overall economy. Each wave of innovation destroys some industries but gives rise to new ones with greater productivity and societal benefit. Mechanical looms destroyed manual weavers, but led to greater cloth production and GDP growth; digital computers destroyed many manual roles, but their benefit also grew GDP; Generative AI destroyed…well, we’ll see.

Just look at the explosive growth in England’s GDP since the time Adam Smith wrote about the wealth of nations being driven by value-in-exchange.

Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2025 awarded to Joel Mokyr, Philippe Aghion and Peter Howitt:

“for having explained innovation-driven economic growth“

Nobel Prize Organisation

This link between innovation and long-term economic growth continues to shape our understanding of prosperity. Indeed, the 2025 “Nobel” Prize in Economics was awarded to three researchers “for having explained innovation-driven economic growth,” recognising that the cumulative effects of innovation, across firms, industries, and nations, are the foundation of modern economic advancement.

However, Brusoni, Cefis, and Orsenigo point out that drawing a link between successful innovation and GDP growth i treated as a truism in their 2006 paper “Innovate or Die? A critical review of the literature on innovation and performance“. Though they found little empirical evidence of this.

With that summary of why we innovate in mind; what then is innovation?

Defining innovation – adding/creating value

We usually define innovation around adding or creating value (a value-in-exchange mindset). For example, ISO’s latest definition of innovation is “a new or changed entity, realising or redistributing value”:

Innovation: new or changed entity¹, realizing or redistributing value<sup>2


1</sup> product, service, process, model (e.g. an organizational, business, operational or value realization model), method (e.g. a marketing or management method) or a combination thereof.

² gains from satisfying needs and expectations, in relation to the resources used; examples: revenues, savings, productivity, sustainability, satisfaction, empowerment, engagement, experience, trust.

ISO 56000 (2025) – Innovation Management – Fundamentals and Vocabulary

This is actually more elegant than t might seem at first glance, improving on a pure “innovation is something that adds or creates value” of other definitions. For a start, it guides that what can be innovated is large range, from products, models methods, or a combination. And to attempts to define value, as a gain in satisfying needs and expectations, ie it is not just financial.

Later in the standard, the definition of value its tied back to our familiar model of value-in-exchange.

Value:

• can be created, realized, acquired, redistributed, shared, lost or destroyed
• is generally determined in terms of the amount of other entities for which it can be exchanged.

ISO 56000 (2025) – Innovation Management – Fundamentals and Vocabulary

Let’s not forget, a value-in-exhcange way of thinking has driven centuries of economic growth and built entire industries.

When defining innovation, we should also consider how it can be classified.

Types of innovation

A common way to classify types of innovation is to look at the impact of that innovation. This gives us three types:

• incremental
• radical
• disruptive

Incremental and radical

Incremental and radical are often defined in relation to each other.

ISO 56000 (2025) defines a radical innovation as one that has a significant degree of change (where that change could relate to either the entity – product, service, process, model, method, or combination – or its impact).

Incremental innovation, it then goes on to define, as being at the other end of the continuum to radical innovation. Implying the change due to incremental innovation is not significant.

Disruptive

Disruptive innovation is often misunderstood.

Uber, for example, was “disruptive” in the everyday sense of the word – it radically changed the taxi industry – but it does not meet Christensen’s definition of disruption.

In his Innovator’s Dilemma framework, disruption begins with a new technology or business model that serves low-end or previously unserved customers, typically with simpler, more affordable offerings. Over time, as these innovations improve, they move upmarket. At the same time, incumbents are chasing after the increasing demands of high end markets. If the new starts capture the mainstream, then the incumbent(s) has been disputed.

As the Christensen Institute clarify:

Disruptive Innovations are NOT breakthrough technologies that make good products better; rather they are innovations that make products and services more accessible and affordable

Christensen Institute

Uber, targeted the mainstream market directly, offering a superior, more convenient experience rather than a lower-performance, lower-cost alternative. It was not a disruptive innovation.

On the other hand, the personal computer disrupted the mainframe industry, streaming services the record industry, the Ford Model-T the emerging high-cost automobile industry.

Alternative classifications

Other ways that people classify innovations is based on what the innovation impacts – product, process, business model, organisation innovation etc.

Or simply whether an innovation is internal or external to an entity, or if the source is within the organisation or leverages external inputs (such as Open Innovation).

All this sounds good, but here is a problem.

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