Innovative products and services are essential for businesses to stay competitive and keep them ahead of the curve. It can be difficult to manage innovative products. Early stage product development can be chaotic, with high levels of uncertainty and high failure rates.
Innovation accounting is a solution to this problem. Innovation accounting can help your company develop and track new products faster. You can also align them with your overall business strategy in order to increase your competitive edge.
Corporate ventures and innovation managers can now better understand the risks associated with their innovations. This allows you to make informed decisions about the projects and prevents time and resource wastage. This is especially important if you have limited resources or multiple innovation projects that are all running simultaneously.
Integrating innovation accounting into your innovation ecosystem will help you track and measure every innovative project. You can then identify your most risky assumptions and get real-time insight into your programs through one source.
Innovative accounting strategies can increase innovation efforts and scale your product and growth. Before we get into the details of innovation accounting, let’s discuss what it is and how to implement it in 2022.
What is Innovation Accounting?
Innovation accounting is a structured way to measure your innovation’s progress. innovation accounting allows you to create relevant metrics and actionable data for every stage of your product development. This will allow you to make informed investments and make smart decisions about your innovation projects.
It complements traditional accounting (TA), which can be ill-equipped for measuring a product’s early stages. A new product is not eligible for traditional accounting metrics such as market share and ROI.
In this early stage of development, your project may only have been tested with a few users to get feedback and help you improve the final product. At that stage, market share is not an achievable and realistic metric.
Innovation accounting is focused on the most important and crucial metrics at each stage. It is designed to provide real-time insight into your innovation progress and identify your risks. This will allow you to achieve product-market fit, scale your product(s), and create growth opportunities.
Let’s look at four innovative accounting strategies that we can implement in 2022.
Concentrate on the Customer Needs
At the very beginning of product development, all innovation accounting metrics should be focused on customer needs. This is the only way to connect with the market and create a product-market match.
You can track customer feedback, for example, to improve the product’s user experience. You can also use conversion rates to determine how many people have used the product or service.
Each stage of the product’s production cycle should include actionable metrics. You will gain valuable insight into your progress by using actionable metrics.
Make actionable metrics and avoid vanity ones
Evaluation and metrics are at the heart of lean startup product development. Evaluation alone is not enough. You must also measure the right aspects. If you focus on the wrong or unimportant elements, you will be focusing on vanity metrics.
Actionable metrics, on the other hand, are precise and provide clear data results. They are also tied to the hypothesis that you are testing. This will allow you to determine the results of product changes and features.
Also, the actionable innovation metric should be:
Accessible. Clearness and supporting data should be readily available to all team members and stakeholders.
Auditable. Any member of the project team should be able to trace and reproduce the results from the source data.
Finite. The hypothesis to be tested should be the metric. You should be able to use the report’s data to determine what you require. You should evaluate what is necessary to validate your business idea before moving on to the next assumption. As the product moves from one stage to another, metrics change.
As an example, let’s say you have a great e-commerce product.
In the early stages of your product, you will only be able to track metrics such as active members, reviews and social media shares. You can track conversion rates and customer satisfaction as the product progresses to the marketing stage.
Once you reach the mature stage, and are well-known, it is possible to track metrics such as churn rate or retention.
Keep in mind that every project is unique, so each situation may have its own set of actionable metrics.
A Better Funnel Innovation Process
Lean Thinking’s Funnel Innovation approach helps you screen for viable ideas and prototypes. This will help your company determine which creative ideas can be realized and which are not.
Incorporating innovation accounting in the funnel innovation process allows you to evaluate your idea’s utility through prototyping or a minimum viable product (MVP). This allows you to validate your business models and ideas faster and more efficiently.
Traditional funnel innovation models look for ideas and resources within the organization. This model works best if you have a large research and development (R&D), team. The open innovation (OI), rocket model allows you to accept external ideas and develop.
If you have outside collaboration in the market, the OI rocket model will be most suitable. It is a great asset because most ideas are related to customers and the market. Furthermore, solutions lead to greater technical knowledge.
You must assess the many and diverse ideas that you receive daily or weekly. For efficiently and effectively qualifying ideas, a funnel innovation process based on IA could be a great tool.
Create Quality Impact Mapping
Impact mapping is another important approach that you should include in your innovation accounting. Impact mapping is an effective planning tool that can help you set your priorities and manage innovation goals, identify risks and find solutions.
It keeps all parties focused on the important features and eliminates unnecessary details. This allows you to evaluate the potential value of your business ideas and test them. It can also be used to accelerate your goal. It helps you deliver a mature delivery.
Everything related to measurement and tracking is handled by innovation accounting. You must use relevant metrics to measure the impact of your project or idea. Incorporating impact mapping into your innovation accounting process will help keep your team focused and on the delivery of your goal.
Impact mapping is a tool that helps stakeholders to make decisions about their future and quickly adapt to changing business environments.
If you have the right data and insight, you can only make informed decisions about your innovation projects. Data insights will support your decisions, regardless of whether it’s the amount of investment required or the resources available.
Innovation accounting is a method of measuring innovation progress and providing insights. These strategies can be used to enhance your innovation accounting process. These strategies will allow you to produce new products faster and make it more affordable for the market.