6 Principles of an Innovation Accounting System
Today, we’re in the early stages of a corporate innovation revolution. The principles outlined in this excerpt form the foundation of a new way of managing growth through innovation. A way that is more fact based than faith based. A way that puts evidence in the center of the decision-making process. A way that's designed to complement the shortcomings that the financial-accounting system has when it comes to measuring innovation.
With innovation itself differing from company to company, but the need for measuring it being the same, a useful innovation accounting system needs to be rooted in principles that transcend industry peculiarities.
Principle #1: Companywide system
Firstly, an innovation accounting system needs to provide a company-wide framework of chained leading indicators, each of which predicts the possible success of the ventures being evaluated. Every link in the chain is essential. When the chain is broken, the entire venture is red flagged.
Having the system deployed company-wide enables apples-to-apples comparisons between two or more ventures, allowing an evaluator to decide which venture is most worthy of continuing investment. Such a system also provides a way to see any innovation project in the portfolio as a form of financial option; one with a clear potential revenue, volatility, and associated cost.
Being companywide, the
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