Ep. 172: Dan Toma - Innovation Accounting

Feb 28, 2022

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Contact Dan Toma: https://www.linkedin.com/in/dantoma/

Outcome: https://weareoutcome.co/

Dan's other podcasts:

FULL EPISODE TRANSCRIPT:
Mitch: (00:05)
Welcome back to Count Me In, IMA's podcast about all things affecting the accounting and finance world. This is your host Mitch Roshong, and I'm here to introduce our featured guest for episode 172 of our series. This conversation features Dan Toma, an innovation thought leader and the co-author of the award-winning book, The Corporate Startup and Innovation Accounting. He joined Count Me In to talk about elements of the book, specifically the importance of the people in the organization and further defining innovation, accounting, Dan shares practical examples from his own experience as a product owner, entrepreneur, corporate transformation leader. So keep listening as we head over to the conversation now.

Adam: (00:55)
So Dan, as you know, some something that companies have always done is look at their employees as assets and many times when there's a financial crisis, the first step is let's cut half the staff and move forward. But with the ever changing times of business and acceptability, that's not acceptable anymore. And so as businesses grow, they're encouraged to grow the value of their assets and the same approach probably should be taken toward people. What benefit do you see that in the workplace?

Dan: (01:22)
Right. What should I say? I mean, you know, you walk in those corporate buildings, you work into various offices and you see slogans on the wall. Employees are our biggest asset on all that stuff. Right. But when you go and look in the financial records, you actually end up seeing the fact that employees are listed as cost as liability because they have obviously a salary attached to them. Right. So, yes, it would be great to have more companies, think of their employees as real assets, beyond the slogan, beyond the mottos, if you want, and start investing in them, if they will start treating people as assets, they will obviously start investing and nurturing their skills, care about their mental wellbeing. Do all these things that you would normally do to an asset.

Dan: (02:19)
Like if you have a truck you are going to wash it and, you know, change your oil and put the best parts in it. But if you have a UX designer where if you have, a great HR person, how do you make sure that you actually treat that, that particular individual as an asset? But there are actually companies that do that. And, these companies are, you know, football clubs and in general sports franchises, they have their players list as assets. I'm not saying now that we should go in that direction and trade my accounting person from my bank, with your accounting person, from the whatever automotive company. But it would be fun, right? So yeah, in general, the, the benefits will, obviously go towards the employees themselves. Like they will have the most to benefit from. And obviously by them being treated as assets, the company will, obviously benefit. But I think, short term, the benefit will be with the employees later, the benefit will come to the company as a result of the employees being, regarded as assets, however, financial accounting considers them as liabilities. Hmm.

Adam: (03:32)
That makes sense. So I want to kind of bring the conversation, back to your book. My co-host mentioned has mentioned your book in our intro and in your book, you cover nine myths, about measuring innovation. And I found them very fascinating. And I was wondering if you could walk us through a couple of those on how they relate to accounting.

Dan: (03:51)
Yeah. So, we've uncovered those myths as we were working with our clients and, we decided to put them in the book because we fought and we, know there is a lot of people out there that still unfortunately live by those myth. So one of the first ones, and we actually wrote about this in the first book in the corporate startup as well, is that people tend to view R&D expenditure as a synonym for innovation prowess. And, this is very far from the reality, if you go, and, I encourage you actually, the audience to go and research two tops. one top is the BCG most innovative companies, of this year, I think is 50 companies they put in the top and the other one is the, top that comes from the European commission, if I'm not mistaken.

Dan: (04:46)
And it tracks the biggest R&D spenders off that year. And if you put the top side by side, you're going to realize that the company that is number one R&D spender of the year is probably where near the top three or five is, in the innovation top. Take, for example, pharma industry. In the pharma industry, they're about three to four companies on the most innovative company list. And then there's probably 12 or 15 of them on the, on the R&D spenders, same for automotive and other industries aerospace. Again, it's a good example. So this is one of the biggest myths that we uncovered, while working with, while working with the companies. The other one was that innovation can't be measured because innovation is about creativity and creativity can't be measured.

Dan: (05:42)
Anybody that worked in innovation, either being, employed in a large organization, part of the innovation department, or, had their own startup know that, creativity is probably 1% of, what it means to be successful in the innovation world, the rest 99%. And again, don't quote me on the percentages here, are, the 99% refers to discipline refers to, being methodical in, in your work, being very diligent in your actions and in the follow up to your actions. So again, obviously since we're talking now about a process, processes can be measured so you can measure innovation very well. Another myth is that the success of innovation venture can only be measured once it's in the market. Actually you can measure success or the potential success of innovation ventures very early on. This is how investors live.

Dan: (06:45)
This is how VCs companies, exist. The fact that you wait until something is in the market to return a certain dollar amount, it's another form of success. And, some people could see already that success happening early on. Therefore they invest in early stage in that particular startup or in that particular idea, another myth that we found, and this was well, we were researching indicators. People tend to fit that everything is a KPI, right? Everything is a key performance indicator actually. We need to make a distinction between, and everybody that's in business needs to make a distinction between KPIs and the KRIs, key results indicators. The KPI, the ones with the P referring to the performance of the process, the KRI is referred to the outcome of that particular process. So, usually if we want to improve something, we need to understand the process behind it.

Dan: (07:53)
Otherwise we won...