In my recent conversation with Dan Toma, author of The Corporate Startup and Innovation Accounting, he shared invaluable perspectives on helping large companies succeed with new ventures.
Dan advises testing diverse ideas over predicting winners early on. He explains innovation accounting uses custom metrics to assess concepts before traditional financials apply. This data-driven approach tracks key signals, allowing effective portfolio management. Dan reflects progress requires empathy alongside expertise, guiding innovation leaders.
(Note: Innovation is focused on the successful implementation and value creation from new ideas, whereas invention is focused on the creation of the idea itself.)
Innovation accounting
Innovation accounting uses new ways to measure early stage projects. It looks at custom indicators across the whole organization. This is before traditional money numbers make sense. It helps deal with the unknowns of new ideas. And it steers innovation plans and spending.
Discussing Innovation Mindset Shifts
Organizations must embrace experimentation over prediction. Letting ideas test and prove themselves is key to innovation success.
Move from picking winners to testing many ideas
Allow experiments to reveal what works, not assumptions
Understand innovation is uncertain unlike mature businesses
Understanding Innovation Accounting Principles
Following these rules helps companies fully understand innovation work. Using different metrics at different levels gives complete insights. It shows what's working well. It allows decisions and resource planning based on data. This leads to achieving strategic innovation goals.
Don't use only one metric to measure innovation. Use many metrics at the ecosystem, portfolio, and team levels to get a full view.
Use numbers metrics and subjective ratings like confidence. Make subjective judgments measurable.
Make sure metrics show future signals like speed, learning, and experiments - not just past results. Metrics should change as ventures evolve. Avoid vanity metrics that don't help make decisions.
Measuring Early Stage Innovation Investments
Using tailored metrics provides insights on innovation potential. This guides effective R&D and early funding before traditional gauges apply.
Tracks if R&D outputs convert to viable products
Assesses if early ideas show promise through custom metrics
Indicates if investments progress ventures despite financial data lacking
Managing an Innovation Portfolio
Taking a venture capital approach allows large firms to pursue transformative ideas while hedging risks. But they must build internal innovation capabilities rather than fully outsource.
Balance bold and incremental innovations like a venture fund
Spread bets across diverse initiatives to mitigate risk
Resist outsourcing all innovation like Dell to Asus example
The Risks of Outsourcing Innovation
While outsourcing helps rapidly execute, over-reliance on external partners causes strategic issues long-term. Firms need internal innovation skills for sustainable success.
Outsourcing innovation can boost speed like Dell and Asus example
But it causes loss of strategic control and capabilities
Firms must retain some internal innovation expertise
Key Books Influencing Innovation Perspectives
Books that have influenced Dan's innovation thinking include The Innovator's Dilemma, The Innovator's Solution, Discovery Driven Growth, The Lean Startup, and many others listed in the references of his books.
The Corporate Startup: How established companies can develop successful innovation ecosystems
Innovation Accounting: A Practical Guide For Measuring Your Innovation Ecosystem’s Performance
"My advice to my younger self would be to make an effort understanding others' motivations, not assume you know best. Rather than criticize approaches, appreciate why choices are made. Innovation is complex - have empathy for challenges leaders face. Progress comes through openness, not finger pointing. Take time to see new perspectives." —Dan Toma
Brief definitions of some key innovation and invention related terms:
Innovation - The process of introducing new or significantly improved products, services, processes, business models, etc. Innovation involves the practical implementation and commercialization of an invention or new idea.
Invention - The creation of a new device, method, composition, process, etc. It is the development of a new idea, product or process. An invention may or may not lead to innovation depending on whether it is commercialized.
Incremental innovation - Small improvements made to existing products, services, processes, etc. These are low risk innovations that enhance something in an existing market.
Disruptive innovation - Innovation that creates a new market and value network that displaces an existing market. It disrupts or overturns the traditional way a market operates.
Product innovation - Introduction of a new or improved physical product that differs significantly from previous offerings. It may incorporate new technology, benefits, features, design, etc.
Process innovation - Implementing new or significantly improved production, supply chain, distribution methods. It focuses on efficiency and operations improvements.
Business model innovation - Changing the way an organization creates, delivers value and captures profits. It redefines business relationships and how the firm operates.
Open innovation - Leveraging knowledge, ideas, technologies from outside the organization as well as inside. It promotes collaboration with external partners.
Design thinking - An iterative problem-solving process centered on understanding users' needs and rapidly generating and testing solutions. A key methodology for human-centric innovation.
Innovation Alchemy