GroundControl is heavily built around the principles of Innovation Accounting to measure innovation success. If you’ve used our platform before or read about it, that shouldn’t come as a surprise. However, we often notice that there is confusion about what Innovation Accounting is and isn’t and where it should and shouldn’t be used. Measuring innovation […]
Innovation Accounting: how to measure innovation success
Manage the development of new products and business models and align innovation with your business strategy, by applying innovation accounting to your innovation ecosystem.
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What is Innovation Accounting?
Innovation Accounting is an organized system of principles, tools and KPIs established to gather, record, classify, analyze and present accurate and timely data about a company’s breakthrough and disruptive innovation efforts – working to complement the existing financial accounting system.
Dan Toma and Esther Gons
To build successful innovation ecosystems, corporates should not look exclusively to traditional accounting methods to manage innovation and measure the impact. To make informed investment decisions on corporate startups, we can use a combination of the innovation thesis, strategic goals and the need to create a balanced portfolio. Innovation Accounting can than be used to measure and manage the progress of these corporate startups from great idea to validated business model.
The term Innovation Accounting was first coined by Eric Ries in his ground breaking book The Lean Startup.
In his book The Lean Startup, Eric Ries explores the topic of Innovation Accounting to measure the progress of a single startup. In The Corporate Startup, we expand the principle of Innovation Accounting to measure and manage the whole Innovation Ecosystem.
Innovation Accounting is the process of defining and measuring innovation within an organization. Especially when we are still creating and testing ideas we need non-financial indicators for success. That is why every modern organization needs innovation accounting next to traditional financial accounting.
Innovation Accounting focusses on managing the following three innovation activities:
- Making investment decisions on different products at different points in their innovation journey.
- Tracking and measuring the success of specific innovation projects.
- Assessing the impact that innovation is having on the business as a whole.
That means that Innovation Accounting needs to be implemented at different levels of the innovation ecosystem.
Levels of Innovation Accounting
Within our innovation accounting framework, there are three types of key performance indicators (or KPIs) each company should be tracking for innovation:
- Reporting KPIs are connected to Innovation Practice. These focus on product teams, the ideas they are generating, the experiments they are running and the progress they are making from ideation to scale. Read more: 3 Reporting KPIs to get started with innovation accounting
- Governance KPIs are connected to Innovation Management. The focus here is on helping the company make informed investment decisions based on evidence and the innovation stage.
- Global KPIs are connected to Innovation Strategy. The focus here is on helping the company examine the overall performance of their investments in innovation in the context of the larger business.
Types of Innovation Accounting Metrics
Activity metrics focus on how busy the company has been with innovation. They measure the level of innovation activity going on (e.g. number of new products launched, number of experiments run, ideas prototyped).
In contrast, impact metrics measure the tangible results that are emerging from this innovation activity. Revenue and profits are the ultimate measures of impact.
Innovation Labs have the tendency to focus on activity metrics rather than impact metrics. That is fine to show early signs of success, but in the end, innovation has to have a real impact on the organization.
Innovation Accounting in practice
Because this is all still very abstract, we’d like to give you some examples of KPIs you can use to measure innovation accounting in practice.
We created some example metrics for:
Innovation Accounting Infographic
We created a printable infographic poster of everything there is to know about innovation accounting. You can download and print it for free.
Download Innovation Accounting infographicInnovation Accounting Book
The Innovation Accounting book provides a practical guide for measuring your company’s innovation ecosystem.
Why this book?
When a company is committed to growing through innovation – not just exploiting the existing business models – standard accounting documents offer insufficient and, often times. irrelevant data.
Who is this book for?
- Executives looking for a new way of measuring corporate performance in a world where accounting-recognized assets are becoming commodities
- Investors seeking better ways of looking at a company’s growth potential
- Managers who need to valuate innovation product teams using not only financial indicators
Example Innovation KPIs for Creating Ideas
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Example Innovation KPIs for Testing Ideas
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Example Innovation Metrics for Scaling Ideas
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Innovation Accounting articles
Here at GroundControl, we’ve seen that some managers don’t (initially) like to add startups to their portfolios when trying our product. Instead we see them taking a lot of time figuring out on their own how they should structure and measure their innovation program. While it’s completely understandable that they don’t want to throw their […]
We struggle to iterate quickly – I’d like to identify metrics to demonstrate that innovations are moving forward? This challenge from the first Group Call at Innov8ers really caught my eye. It is a struggle that we’ve seen a lot with both our own startups and the corporate startup teams that we’ve coached over the years. Especially […]
How to start with innovation accounting? We start with measuring the following three innovation KPIs from corporate startups.
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