Driving growth at a company depends hugely on developing hot new offerings customers want. But not every new idea turns into a hit product making money. “Innovation accounting” provides financial data guiding which creative concepts to nurture versus kill. This article explains how applying innovation accounting unifies organizations around goals for ultimate success.
What is Innovation Accounting?
Answer to the question of what is Innovation Accounting means by closely tracking financial returns for new innovations using special metrics, not traditional accounting. This data quantifies whether fresh initiatives like software tools, process changes, marketing campaigns or product offerings actually make or lose money in the real world.
Leaders can then see clearly what new stuff works and what doesn’t. Companies become labs running experiments with different ideas to find moneymaking formulas aiding decisions on where to steer limited budgets moving forward. Ongoing innovation accounting spotlights winning models to scale up.
Why Ongoing Innovation Accounting Matters
Many ideas that seem good at first fail to meet expectations when they are put into action. In fact, about 96% of new products don’t do well, according to Harvard studies. Without making sure assumptions are correct, big ideas can use up a lot of resources without going anywhere.
That’s why it’s important to check how well a project is doing early on using innovation accounting. This helps make sure plans, development, and measuring success are based on real results. Keep an eye on how much people are using the idea, how many customers come back, how much money is made, and the costs involved.
- Pushes accountability to meet milestones grounded in customer traction
- Surfaces flawed ideas earlier avoiding wasted spend
- Allows redirecting funds from laggards toward high-potential portfolio bets
Innovation accounting thus creates feedback loops steering companies towards confirmed new capabilities delivering growth.
Who Employs Innovation Accounting Analysis?
While finance oversees collecting usage data and calculating returns, insights get used across the company:
- Executives confirm healthy innovation investment allocation balancing risk-reward
- Product Managers rally roadmaps around the hottest opportunities
- Marketers double down on break out implementations
- Engineers upgrade platforms supporting winners
- Designers evolve experiences maximizing stickiness
Regular review meetings help cascade findings driving unified actions towards incrementally validating and then scaling up the most promising innovations.
When Should Tracking Begin?
Timing is everything when implementing innovation accounting. Rather than waiting until full product launch, key milestones kickstart tracking:
Checking How Well Your Idea is Doing at Different Stages
In the beginning, look for signs that people are interested in your idea, like when they answer surveys or join a waitlist. This shows it’s worth exploring more.
Next, when you have a basic version of your idea, make sure it works as expected. Check if trial users find it helpful.
After that, when you officially launch your idea to a larger audience, see how often and how much people use it. If they keep coming back and using it regularly, that’s a good sign.
Finally, after some time in the market, check if your idea is making real money. Look at trends in how much money is coming in, who your customers are, and how much it costs to operate.
By keeping an eye on your idea from the start to when it’s fully out there, you can focus on what’s working well and make changes if something isn’t going as planned.
Innovation Accounting Driving Strategy Alignment
Watching how well new ideas are doing helps employees know if they’re making a difference. Celebrating when teams meet goals shows everyone what’s good. This makes sure the projects people work on are important and helpful. It also helps decide where to use company money for the best results.
When teams show they’re doing well, others copy what they did. This way, everyone learns what works and what customers like. It also makes sure the company’s strategy is clear without too many rules.
Also, making sure teams meet the goals they promised stops them from doing things just for show. This keeps everything real and focused on what really helps the company. In the end, keeping track of innovation helps the company stay smart and honest about its plans.
How To Implement Innovation Accounting Best Practices
Follow these steps for optimal innovation accounting:
- Set Rules and Measures – Make clear steps for moving ideas forward. Use standards like how many people use the idea, how happy they are with it, and if it makes enough money. Decide funding based on what similar ideas achieved.
- Use Automation – Create systems to easily gather data as people use the idea. Don’t wait for surveys; put the data into planning tools right away.
- Check Progress – Have regular meetings with leaders to see if the idea is going as planned. Use scorecards to grade how well the idea is doing and adjust priorities if needed.
- Reward Good Work – Celebrate teams that meet important goals. As the company grows, think about connecting budget money to how well ideas make customers happy.
If done right, innovation accounting helps make decisions based on facts and encourages smart risks. It helps focus on ideas that work best in the real world by using practical information.
Example Applying Innovation Accounting
Online retailer Wayfair analyzes returns across new site navigation tools using innovation accounting:
- Usage rates and conversion lift pre-define minimal qualified traction
- Statistical powering models future test duration for conclusive reads
- Code tracks customer segments trying variants quantifying appeal
- Al location towards high-potential experiments adapts accordingly
Ongoing innovation accounting thus steers iterative website changes increasing commercial success.
Key Innovation Accounting Takeaways
- Innovation accounting means tracking financial returns for new ideas using special metrics
- Data on usage, revenue, and costs identifies winning models to scale
- Early-stage tracking enables organizations to double down on front-runners
- Public reviews align employee goals around key company priorities
- Accountability elevates strategy discipline beyond theoretical projections
Quantifying expected lift from innovations creates feedback loops steering resources towards concrete growth opportunities according to customer signals. Consistent innovation accounting ultimately motivates staff to rally around experiments demonstrating financial impact.
Frequently Asked Innovation Accounting Questions
Does keeping a close eye on money stop creative ideas?
No, it doesn’t. It just means being responsible, which wasn’t always done before. We can still dream big and make amazing things happen while also being careful about what customers want.
Which is more important: People using it, making money, or making a profit?
People using it is a good sign, but the real success is when we make money consistently. That shows customers really like what we’re doing and it’s worth growing. Let’s aim for both.
How much should we check new ideas that we’re not sure about?
Let’s try some small experiments first, with clear goals. But, we need to see if people are really using it, and if they are, we can invest more. If not, we might need to rethink things.
Our Executives Reject Most Funding Requests Lacking Projected Returns – What’s the Solution?
Estimate market size and financial upside then detail implementation budgets and resources required. Referencing comparable initiatives or case studies helps. The more diligence supporting projections, the better the odds of investment allocation.
