Businesses must stay ahead and remain competitive by producing innovative products and services. But handling innovative products can be a tricky affair. Their early stage development is fluid—with high uncertainty and steep failure rates.
A solution for this perennial problem is innovation accounting. Through innovation accounting, your firm can develop and track new products and business models faster. So, you can align them with your overall business strategy to drive your competitive edge.
Innovation managers and corporate ventures can now understand their innovation project risks better. That allows you to make an informed decision on the projects and avoid resource and time wastage. This can be crucial, particularly if you’ve limited resources or a broad innovation projects portfolio with different sizes and all running simultaneously.
Incorporating innovation accounting as part of your innovation ecosystem can help you track and measure each innovative project. As a result, you can determine your riskiest assumptions and gain real-time insights into your programs from a single source.
Innovation accounting strategies can boost innovation efforts and scale your products and growth. Let’s unpack what innovation accounting is before exploring innovation accounting strategies worth implementing in 2022.
What Is Innovation Accounting?
Innovation accounting offers a structured approach to measuring your innovation’s progress. Using innovation accounting helps you create relevant and actionable metrics for each stage of your innovative product development. So, you can invest wisely and make informed decisions on your innovation projects.
As a result, it complements traditional accounting (TA), which is ill-equipped to measure a new product’s early stage. TA metrics like market share or ROI can not apply to a new innovative product.
At such a nascent stage, you may have only tested your project amongst a handful of users for feedback for iteration and better final product development. So, a market share can’t be an actionable and realistic metric at that stage.
Innovation accounting focuses on the most crucial and essential metrics at that stage. The goal is to uncover real-time insights into your innovation progress and determine your risks. So, you can achieve product-market fit and scale your product(s) for growth opportunities.
Let’s explore four innovation accounting strategies to implement in 2022.
- Focus on Customer Needs
All your innovation accounting metrics at the early product development stages should focus on customer needs. That’s the only way you can connect to the market needs and achieve a product-market fit.
For example, you can track a metric like a customer feedback to help make the product iterations that serve users better. Alternatively, you can use conversion rates to see how many users have tried the service or product.
As the product progress through the production cycle, each stage should have actionable metrics. Actionable metrics will help you uncover valuable insights into your progress.
- Create Actionable Metrics and Avoid Vanity Ones
Metrics and evaluation are the core of the lean startup approach to product development. But, evaluation alone is not enough; you must measure the right aspects or things. Sway on the wrong or unnecessary elements, and you’ll be deep down vanity metrics.
On the contrary, actionable metrics are specific and give right/wrong or good/bad data results that are unmistakable. Plus, they are tied to the hypothesis you are testing. It will help you determine the outcomes of changes or product features.
Additionally, the actionable innovative metric should be:
- Accessible. The metric should have clarity and supporting data widely available to every team member and relevant stakeholders.
- Auditable. The results should be traceable and reproducible from the source data by any project team member.
- Finite. The metric should be tied to the hypothesis being tested. The report’s data should allow you to measure what you need. Evaluate what you need to validate a business idea and move on to the next assumption. So, metrics changes as the product move from one development stage to another.
For example, assume you have an incredible e-commerce website product.
At the initial stages, you will be limited to metrics like active members, reviews, social media shares etc. As the product matures and reaches the marketing stage, you can track conversion rates, customer satisfaction, revenue etc.
Upon reaching the mature stage and being well known, you can track metrics like churn rate, retention, cost of production etc.
Remember, every innovative project is unique – so the actionable metrics may be different and specific to each case scenario.
- Create a Better Funnel Innovation Process
Funnel innovation is part of the Lean Thinking approach that helps you to screen for innovative ideas and prototypes for viability. It will allow your firm to determine which creative ideas are realistic or which ones are not.
Integrating innovation accounting into the funnel innovation process helps evaluate your idea’s usefulness through prototyping and minimum viable product (MVP). So, you can validate your business ideas and models faster and more efficiently.
The traditional funnel innovation model looks for ideas and resources internally. The model is better if you have an extensive research and development (R&D) team. You can also opt for the open innovation (OI) rocket model, where you accept ideas and development externally.
The OI rocket model is best-suitable if you have external collaboration in the market. Also, it is an excellent asset as most ideas are tied to the market and customers’ needs. Moreover, the development of solutions leads to better technical knowledge.
So, you must evaluate the numerous and continuous ideas you get daily or weekly. A funnel innovation process hinged on IA can come in handy for effectively and efficiently qualifying the ideas.
- Develop Quality Impact Mapping
Source: Open Data Watch
Another crucial approach you should include as part of your innovation accounting is impact mapping. Impact mapping is a robust planning method that helps you manage your innovation goals and priorities, identify risks, and explore solutions.
It focuses all interested parties on the essential features without including unnecessary details. That allows you to test your business idea assumptions and evaluate their potential value. You can also leverage it to achieve your objective faster. Put differently, it helps achieve a more mature delivery.
Innovation accounting handles everything on measurement and tracking. To gauge the impact of your idea or project, you must apply relevant metrics to test that. So, incorporating impact mapping in your innovation accounting process can keep your team focused on the goal and delivery.
In essence, impact mapping can help stakeholders develop roadmap decisions and react quickly to the dynamic business environment.
You can only make informed decisions on your innovation projects if you have the proper insight and data. Whether it is the amount of investment or resources to commit, you’ll need to support your actions based on data insights.
Innovation accounting offers a structured measurement approach to get innovation progress data insights. You can enhance your innovation accounting process by leveraging some of the abovementioned strategies. They will help you produce new products and business models faster and more affordable for the market.