Friedrichshafen is generally where you get a sniff of what the future of aviation looks like. A tremendous amount of effort is going into various new propulsion means. Of course, many of the prototypes on display at Aero 2023 will remain just that. Lots of electric motors, hydrogen fuel, mini turbines, SAF. A couple of flying car/gyrocopter/ rotor hybrid concepts and autonomous flight.
The Rotax 916is is a commercial outcome of exactly what you describe - more performance/ efficiency from essentially the same engine. Car engine capacities have shrunk substantially just in the last decade while still delivering more performance and fuel economy, so it is do-able. Carbon fibre propellers are another obvious innovation that is delivering weight savings and performance gains.
Looking back at videos from Aero 2013, electric propulsion was just beginning to appear in prototypes. Just 10 years later we have electric aircraft in flying schools in Australia ! Yes, there is still a lot of work to do in that space, but without innovation we would still be driving horse and carts.