I fail to understand where you think IBM has been lacking in innovation - Telum and Telum II (as is POWER10) are very impressive designs the likes of which you won't see anytime soon on x86 or ARM space. They target a relatively small segment of the market where people will pay whatever it takes to reach 99.99999% uptime or the most transactions per second.
If mainframes were not competitive at that, they would have ceased to exist a long time ago.
Or, at the very least, IBM would have sold a product that required far less investment in unique technology, e.g. software emulation on commodity hardware.
Everything from the ground up is designed for business transaction performance. That includes the OS, which is somewhat limited for a lot of other uses.
The CPUs has been a tour de force from the S/360, they have never relented, so empirically yes the customers care a lot or they wouldn't keep doing this.
The software side seems to be more a tale of dichotomy. The MVS lineage is technically impressive but undoubtedly bizarre and old feeling. The TPF lineage seems like eventually somewhere the cloud movement will dip for certain cases so it is ahead of time. Linux is neither stale nor avant-garde, I guess that is their strategy to remain "contemporary". VM was always the most delightful one but internally forever the odd one out.
