Innovation Accounting – The Second System – Podcast Transcript

Innovation Metrics Podcast

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Teaser

If we want to change the world, we need that second system. And I want that to have a place in corporate business intelligence,

Innovation Metrics Podcast

Welcome to the innovation metrics podcast, where we bring you the latest on innovation management. We provide insights on how to measure innovation, innovation, accounting, and managing the uncertain process of developing new, sustainable, and profitable business models. You can find links to the main topics covered in this episode and information about the guests and hosts in the show notes, or go to our blog on innovation metrics.co. Your host is Aaliyah island.

Elijah

I’m very excited to welcome as on our show today as the author, the corporate startup and award-winning book. And it’s also the author of the brand new innovation accounting book, which I believe has also just received an award. Yay. That’s awesome. Congratulations. Our guest is also the CEO of ground control and innovation software to manage and report on innovation ecosystems. Esther has a background in technology and has been an entrepreneur for over 20 years. She has mentored several hundred startups amongst other as an investor at next startup ventures, lead mentor in the Rockstart accelerator programs and lean startup machine weekend. As always, we make sure to link all relevant information and how to get in touch with Esther and the show notes. Make sure to check them out. Hi, Ester. So happy to have you on the show today.

Esther

Hey, Elijah, I’m really thrilled to be on your show as, as you know, that podcasts are my passion. So I love every, every chance I can get to be in a forecast.

Elijah

You have radio show. I forgot to mention that

Esther

I have my own, I have my own little hobby, which is a, is a podcast that I record in the, in the local radio studio. So it’s also a local radio show.

Elijah

Yeah, I think that’s super cool. And where are you in the world? Maybe we want to tell folks where you are actually you’re in.

Esther

Oh, right. Yes. So welcome in my home. I’m actually in Al’s new, which is a, a little village or rather a, a sort of a suburb to Amsterdam in the Netherlands. So I’m in, I mean, in the greater Amsterdam area and I have my offices in Amsterdam, so I traveled back and forth, but I love living in this suburb, which is still a little village because it’s on a lake, I own a boat. So for me, that is, that is how I empty my head sometimes. And clear everything. Just go out in the boat a little bit.

Elijah

Do you have on it or do you

Know? I have, I have, I have a kayak with a pedal on, but I also have a boat with a motor. And if there is ice, I ice skate on it Cause I am right.

Elijah

Yeah, of course. So we mentioned that you, that you authored, or co-authored a book together with Dan Toma and with the book. I mean the innovation accounting book, the most recent one and yeah, I would like to go through that a little bit and first ask you why you decided to write this book.

Esther

Yeah. So the why is I don’t, I’m not sure if it’s clear why. Right. We, we, we written the corporate startup book, dental, my intent Vicky and I a few years earlier. And that was really straight forward. That was more of all the information is out there. We’re doing it in a practical way. Let’s put, put everything that we know together and make it really practical handbook so that everyone can do it right. Let’s make some impact in terms of corporate innovation. And for me, that was more a serendipity that 10, I said, OSU. So not, you know, so much about the practicality T how that works with startups. We need you in terms of knowledge and, and let’s do this together. But for innovation accounting, I think there’s more of a pioneering subject, right? Because there’s, there’s nothing out there really. Other than that, Eric Reese in his book said the startups themselves need to do some innovation accounting to keep themselves accountable and, and make data-driven decisions to move forward, to do these decisions, to pivot or persevere or, or stop even.

And, and as we started working so much with all of the corporates that wanted to do internal venture building, we started to see that there is, there’s so much governance that is either missing or working against these internal ventures because of the high risk that you can’t succeed in doing that without setting up a complete, complete new system. Really? Yeah, there, there, there was this gap, this need of, of corporates that didn’t know that they needed it. But we, as the practitioners, seeing that there was that there was this thing missing. And then, then had, I had been hammering on my door for a while and saying, Esther, we have this knowledge, we’re doing this. We need to write a book about it. And I wasn’t too sure. Cause I always wanted one to have it tested first. Right. So I I’m always like, yeah, but things are still changing and maybe others know more about this, but then soon we had this system and we tested it and I was like, he’s right, right.

Nobody’s written about it. We have this thing that works. We need to put it out there. We need to help companies move forward. Because if there’s no second system, there’s not going to be disruptive innovation. And how else can we make impact in the world? So then it just became a thing. And we started moving forward with, with innovation accounting as, as a book, which in the end took us like two years to actually write and research and test and, and put together because that means that man, it’s just not, it’s not the same as the corporate startup. Right. That was what is out there. How do you put it together in terms of making a of meaningful handbook? This was, we know the system, but we have to sort of describe it in a way that everybody understands and now we’re building this whole system and principles and, and give it to people.

So you have to make sure that, that it, that it’s, it’s a thing that works, that, that, that it’s going to, going to be accepted as, as that thing or that new system that needs to be implemented implemented. So yeah, it was quite a journey, but I’m really proud that, that we did it and really thankful that then kept on pushing me. But we have do, we had to do this second book and, and yes, indeed. As you said, we won, we recently won it out for two weeks. Now the golden Axiom will work for business intelligence and innovation for this book as well. So once you’re lucky twice, you’re good. I hope so.

Elijah

Yes. I got one obviously here.

Esther

Ah, yeah. Cool. So it’s so you can get it on the other side of the world.

Elijah

Yeah. I have this for, I’ve been a backer though. I’ve been back in your guests early on. So I got it like a while ago. Yeah. Well

Esther

That means you’re actually in the book, Elijah, your name is in that role.

Elijah

I know. Yeah. That’s awesome. Yeah. It’s lovely. Now, congratulations. How long did the corporate startup take you then?

Esther

I think it was the same amount of time. In the end could be a little bit less, but that was maybe because it was the three of us that had to work together and, and we had to figure out the process because it’s not, it’s not just the text and, and, and the, and the actual words that need to be put out there. It’s the process of how do you design a book that is understandable visually enticing and also really structured in a way that you can find everything because it’s not a book that you just read and then forget about it because there’s so much Information in it. It’s likethat systems or how do you, how do you convey that system to others so that they can, can easily find things that they want to find when they look back at it and that they know what’s where, so it’s, it’s this whole structure, visual structure, the models of how that system works, that need to be thought out. And then the illustrations come into that process of writing. And you need to find a figure out a way that works.

Right, then you have your backers that you want to, to be able to read the book halfway through and get your feedback from. And, and then we had experts coming in, help us write chapters. So, yeah.

Elijah

Yeah. I thought we, we just go through it in a, at a high level or rather go through what you guys describe as the four different types of innovation accounting, like, and please correct me. So we have a tactical managerial, strategic and innovation accounting for shareholders. And maybe you just want to say a few sentences or as much, or as little as you like tactical innovation accounting.

Esther

So, so let’s go back a step on how I would describe that. Right? So innovation accounting is, is, is literally the, the, the tools and the processes and the systems that you need within an organization to monitor the progress of high-risk disruptive ventures, which means that it’s not just, it’s not just a set of indicators that you need to be able to monitor that, but it’s a system of governance and indicators for several or levers of levels of decisions, make decision makers that need that data data to be able to make decisions, which means that you basically have three layers of indicators that abstract to above for the next layer of decision-makers or are you, you, you, you can understand that as a team, I need data to make decisions in terms of, is this a customer that I want to move forward to? Is this a problem that I want to focus on?

Is this a solution that works, whereas a manager of, of multiple teams, I need different kinds of indicators to understand if, if my funnel is field enough, or if, if overall all these teams are doing the things that they should be doing, and on a higher level strategically, I want to understand as a CEO, if my innovation efforts still are aligned with my strategy and how much money goes into that. And if that makes sense. So that’s, that’s why the innovation accounting system is actually three layers. It starts with the tactical in a tactical layer where you measured the teams and the teams know how to move forward. That abstracts into indicators that are related to the indicators that it all starts with, but it, it stacks abstracts to a level higher indicators that help the managerial level to decide on how do I measure my funnel, right?

How do I make decisions there? And that is going up to the strategical level where this data abstracts into new indicators that say, Hey, is revenue coming at all? Or is this still aligned to my strategical goals in terms of overall portfolio? And then if you take a step back then there’s, there’s always this underlying layer that sort of connects to it, but doesn’t have that abstraction level that all the three other levels have, and that’s the cultured and capability level where the skills and the capabilities and the culture of your company actually affect the, the output that your teams are doing. So it essentially affects all of these layers, but that’s, that’s not as, as interesting intrinsically related as the other three layers that, that are connected.

Elijah

Fantastic. Now that’s a great overview. Yeah. And do you want to talk to reporting to shareholders like cassettes in there as well? I’m very excited about that topic as well.

Esther

And the shareholders is, is what we’re saying in terms of, of shareholders is not that it is part of that system, but rather that the entire innovation accounting system is something that you can use if you want to talk to shareholders, because in our experience, shareholders, all the ones that are actually pushing for, for, for that, for that profit, right? So, so usually a company has a profit, which means that if a company is heavily invest investing on innovation, then there’s this cost pressing on the profit and shareholders are going to ask questions right now with financial indicators. You can only show them the cost that you’re making, right? Whether, and, and not really show them if that’s an investment in the future and what kind of vision you have behind that investment. And where are you then going with that vision? Now, if you use innovation, accounting, what happens is that the costs that are going into an investment in the future are not just costs.

But what you can say is that I know these are costs, but what we’re doing is experimenting on future bets. And we can tell the story behind that with innovation, accounting, right? We know their costs, but the costs that are, are rather in investment, and this is what hap what’s happening with them. Now we have a story behind that that can tell the progress towards a certain vision towards a certain future bet. And I, and I’ve just written an article on our blog post around that where Facebook was, was rather hit hard in terms of their stock. It was going down in for the first time in, in, in years, because not only did the users sort of flat-lined a little bit, right? But also they had a really high cost, which was pressing on their overall profits. So financial analysts were concerned and their stock was going down.

But if you look at the total cost package, a large amount of this cost, I think 75% was an investment in their future bet on metaverse right. They have been pressing that a lot. And it’s there. I’m not saying it’s right or wrong, but it’s their vision that that’s where a new future might be for Facebook, even though right now, their business model is sort of leveling off. And if you look at it like that, if you tell Cheryl this, but look, we’re actually progressing towards a future that we’re seeing, and this is our, this is our opportunity. And this is what we have the risk. Then this is how far we are, are invalidating that future. This is what we’re doing with that investment. Then you have