Although a driving force for growth in most industries, innovation differs from company to company. But be it in banking, in automotive or FMCG, the uncertainty associated with innovation is still something that needs to be managed. And in order to be able to manage something, it first needs to be measured and understood. Unfortunately, traditional financial accounting metrics have not evolved to address the needs of innovation management. And it’s unlikely that accounting standards will change in the near future

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The 6 Principles of an Innovation
Accounting System
www.innovationaccountingbook.com

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Dan Toma
co-author of the award winning
book The Corporate Startup |
12 years digital product
ownership experience | MBA |
certified lean startup coach

3. @danto_ma
#1 Company wide framework
An IA system needs provides a company-wide framework of chained
leading indicators. Each of which predicting the possible success of the
ventures being evaluated. Every link in the chain is essential and,
when ‘broken’, the entire venture is red flagged.
Having the system deployed company wide, enables apples-to-apples
comparisons between two or more ventures. So that an evaluator can
decide which venture is most worthy of continuing investment.
Basically this provides a way to see any innovation project in the
portfolio as a form of financial option with a clear potential revenue,
volatility and associated cost.

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#2 Abstraction
This essentially means translating what innovation
projects report on daily/weekly to insights that
executives require to take strategic decisions
quarterly/yearly.
The IA system needs to be design and deployed in a
way that ensures the seamless upstream flow of
actionable data from product teams to the board.

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#3 Innovation ecosystem improvements
A company’s innovation ecosystem
is made up by more than just the
processes and the idea portfolio. An
innovation ecosystems is
encompassing human resource
capabilities, partnerships and
culture.
Thus, the role of an IA system is to
uncover the causal relationships
between inputs and outcomes. In
doing so the insight drawn from the
IA system will prevent investments
in low impact activities.

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#4 Specific use of firms growth assets
The IA system needs to outlines the specific use of
the firm’s growth assets. And the strategies deployed
to extract value from the accounting recognized
assets. While at the same time placing more
emphasis on intangibles and non-accounting
recognized assets such as people and processes.
An example would be Neflix’s customer
recommendation algorithm – that combined with
other elements is differentiating Netflix from other
content streaming companies, but it doesn't show on
any of the accounting books.

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#5 Disruption risk
Last but not least, the IA system needs to
be designed so that the company’s risks
of disruption is clearly painted.
Corporate leaders need to understand –
aided by an IA system – that if their
company is under threat of disruption
they need to deploy immediate
countermeasures.

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#6 Measure what matters
Of course, it’s possible—and fairly
easy—to get carried away when it comes
to data. Since pretty much everything can
be measured, setting measurements for
everything that can be measured (in other
words, for everything) is not the way
forward. Ultimately, the IA system needs
to look at only what matters.

9. @danto_ma
Find out more:
innovationaccountingbook.com

10. Contact Email: me@danto.ma
Website: danto.ma
thecorporatestartupbook.com
innovationaccountingbook.com
Twitter: @danto_ma
LinkedIN: linkedin.com/in/dantoma/