New data was released just a few weeks ago from the 2023 Annual Business Survey (Data Year 2022). The survey tracks innovation activity across U.S. industries and provides great insights as to what companies are actually doing when it comes to innovation.

The numbers caught my attention because they connect directly to research Greg Lemmon conducted years ago while studying Innovation ROI and best practices across industries. In that research, Greg analyzed the same national innovation data source and compared it with financial performance to understand which types of innovation actually create value.

At the time, the finding was surprising. Over a 3 year time period, most companies were not innovating.

Only about 30% of companies had introduced any form of innovation in the previous three years. Even more striking, only a handful of industries exceeded the halfway mark. Pharmaceutical manufacturing, communications equipment, and software were among the few where more than 50% of firms reported either process or product innovations.

Looking deeper into the data, the breakdown was also telling. About 19% of companies reported introducing at least one new product innovation. Another 19% reported introducing at least one business process innovation. Many organizations were doing one or the other with some doing both.

Fast forward to the newly published data.

The overall innovation rate has dropped.

Now only about 23% of companies report introducing any type of innovation. When the categories are separated, the shift becomes even clearer. Product innovation has fallen to around 10% of firms, while business process innovation remains much closer to its historical level at about 20%.

In other words, organizations are still working on improving how they operate. They are finding ways to streamline workflows, reduce waste, and make internal systems better.

But far fewer are introducing new products.

This matters because of what Greg’s earlier research found when innovation types were compared with financial performance. Process improvement innovation absolutely has value. It often generates strong ROI by reducing cost, improving efficiency, and strengthening operations.

But process innovation alone does not drive growth.

The companies that achieved the strongest growth were the ones introducing disruptive new product innovations that shaped or led their markets. These were the innovations that expanded revenue, opened new categories, and created entirely new demand.

The distinction is important. One form of innovation helps organizations run better. The other helps them grow.

This is why we spend so much time helping organizations strengthen their ability to solve problems and improve systems. Approaches like proactive problem solving help teams identify opportunities, run experiments, and systematically improve the way work gets done.

Those skills are incredibly valuable on their own. They build confidence. They create momentum. They help organizations prove that innovation can produce measurable results.

But something else happens along the way.

The exact same skills that make teams good at process innovation are the ones required to create successful new products. The ability to identify opportunity areas, generate possibilities, evaluate ideas, test assumptions, and learn quickly is transferable across both challenges.

Process innovation becomes the training ground.

When organizations build the capability to consistently improve how they work, they are also building the capability to create what comes next.

The recent decline in product innovation may continue for a few years. Economic uncertainty, resource constraints, and risk sensitivity often push organizations toward safer improvement projects rather than bold new offerings.

But the organizations that keep building innovation capability today will be the ones ready when the moment for growth arrives.

Because when the next wave of product innovation begins, the companies that know how to systematically explore, test, and learn will be the ones best positioned to lead it.

If you’re interested in the research behind these insights, you can explore Greg Lemmon’s earlier analysis published in the Research-Technology Management Journal Innovation ROI Best Practices, which examined how different forms of innovation connect to financial performance.