Innovation Accounting – The Second System

About the Episode

Elijah Eilert is talking to Esther Gons, author of the Innovation Accounting Book, about the importance of having innovation accounting established as a second system within large organisations. Without this second system, breakthrough innovation is highly unlikely…no matter how skilled individual people are and what great ideas they have. 

Many companies talk about how they want to have an impact on C02 and other things but without a second system, they will never make that impact as they will always prioritise profit and efficiency. The system is what allows us to prioritise that impact. If you want to change the world you need that second system and I want that to have a place in corporate business intelligence. – Esther Gons

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Innovation Accounting Book

Topics and Insights 

  • (01:00) Introducing Esther
  • (03:00) Esther’s reasons for writing the Innovation Accounting Book include finding an answer to corporates hindering governance structure to transformational innovation by outlining a second system that operates in parallel to the core. 
  • (06:00) On the process of writing a book and, moreover, a book that is pushing the boundaries.
  • (09:30) What is innovation accounting?

“The tools, processes and systems an organisation needs to monitor the progress of high-risk disruptive ventures”.

This is more than just a set of indicators, it is several levels of governance indicators to enable decision-making. The three core layers of innovation accounting abstract information to the one above.

The three core layers of innovation accounting as defined in the book are

  • Tactical Innovation Accounting 
  • Managerial Innovation Accounting
  • Strategic Innovation Accounting

Interlinked, but not in a way that information can be abstracted as directly to the higher level, are 

  • Innovation Accounting for Shareholders
  • Innovation Accounting for Culture and Capability 
  • (12:30) How innovation accounting can help shareholders value innovation efforts
  • (15:30) Innovation success depends on the number of bets a company can place. Companies need to test at least 50 ideas in their funnel and increase confidence about or kill them early on. As Tendayi Viki says

“You can not pick the winners!”

  • (20:30) High-risk new business models take a long time, often 5 – 12 years. Startups often look like an overnight success but that is rarely ever true:
Graphic from Innovation Accounting Book , page 287
  • (22:30) How empathy is often a desired trait of innovation teams engaged in building better products. It is also needed by innovation managers for senior leadership and shareholders, in order to build a better system 
  • (24:00) Accounting must evolve when it becomes insufficient for what it has to account for and model
  • (25:00) How to get CEO’s and CFO’s to accept and get used to different measures
  • (29:00) The differences between an innovation funnel and an innovation portfolio or pipeline, and the importance of being internally aligned in defining them
  • (32:00) Innovation Portfolio vs Portfolio
  • (40:30) How often should CEOs be involved in portfolio management, and how often they need to look at the dashboard – as so often it depends 
  • (42:30) The funnel is the execution of the innovation strategy 
  • (43:00) Innovation accounting should be a part of business intelligence 
  • (44:30) People from corporate accounting, controlling and governance are reaching out to Ester to better understand how they can provide value to the company in this space, specifically as more and more of what they are doing is getting automated. 
  • (46:30) The future job profiles of innovation accountants and bookkeepers
  • (49:00) Esthers vision for innovation accounting in 10 years 

As an accepted system for high-risk search that has its own place possibly within the accounting function of corporate.

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About the Guest

Esther Gons is the founder and CEO of GroundControl. GroundControl is the Innovation Accounting software platform that implements all the best practices from the Innovation Accounting book to help corporate ventures with the development of new business models. GroundControl works with clients such as DHL, Colgate Palmolive, Schiphol Group, and ABN Amro bank.

Esther is co-author of The Corporate Startup and is an international speaker on corporate innovation, innovation accounting, portfolio management, and startups. She has been an entrepreneur for over 20 years and mentored several hundred startups so far, as an investor at NEXT Startup Ventures, lead mentor in the Rockstart Accelerator programmes, and several corporate innovation labs.

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