Management Control Systems in Early-Stage Startup Companies. Davila, A. & Foster, G. The Accounting Review, 82(4):907–937, 2007. ![Management Control Systems in Early-Stage Startup Companies [link]](https://bibbase.org/img/filetypes/link.svg "link")
Paper abstract bibtex This paper uses a multi-method, multi-case field research design to study the evolving portfolio of the management control systems (MCSs) of 78 early-stage startup companies. We examine 46 individual systems from eight different MCS categories-financial planning, financial evaluation, human resource planning, human resource evaluation, strategic planning, product development, sales/marketing, and partnerships. We report analysis of the following: (1) The speed of adoption of financial planning and financial evaluation systems in relation to six other MCS categories. These systems are considered key MCSs associated with management accounting. We find financial planning to be the most widely adopted MCS category at an early stage, followed by the human resource planning and strategic planning categories. Financial evaluation systems are typically adopted at a later stage. (2) Variables associated with the rate of adoption of MCSs. Our results indicate that number of employees, presence of venture capital, international operations, and time to revenue are positively associated with the rate of adoption. Furthermore, the rate of adoption simultaneously affects company size. (3) CEO turnover and the rate of adoption of MCSs. We find that CEOs who have adopted fewer MCSs have shorter tenures. This is consistent with the hypothesized difference between entrepreneurs and managers. Overall, the evidence strongly supports the relevance of MCSs to the growth of early-stage startup companies. Annotation: This article published by the American Accounting Association in their July 2007 edition of The Accounting Review comprises of a case study chronicling 78 early-stage start-up companies and their evolving management control systems. Authors Antonio Davila (IESE Business School) and George Foster (Stanford University) examine 46 unique management control systems (MCS) across 8 different categories, that of “financial planning, financial evaluation, human resource planning, human resource evaluation, strategic planning, product development, sales/marketing, and partnerships.” (907) The report primarily analyses the speed of adoption of each of these systems, as well as how variables such as number of employees and CEO turnover affect these adoption rates. The report begins with defining the terms associated with typical MCS’s, and provides a general overview of previous research done on the subject. Davila and Foster then present the details of their case study, in which questionnaires were sent to 78 for-profit start-up companies (of which the vast majority were in the information and biotechnology sectors) as well as conducting several semi-structured interviews. The collected data is then discussed at length and is also presented in several visual tables throughout the paper. The data is then synthesized through a variety of formulae in order to present quantifiable conclusions to the research, such as providing proof that MCS’s evolve with start-up companies as they become more established, and that CEO’s who did not enact MCS’s early on in the start-ups’ life cycles were more likely to be replaced. Data also demonstrates that financial management was the first and most widely adopted system in the start-ups’ life cycle, followed by human resource and strategic planning. The role of venture capital funding is also examined as an influential variable amongst MCS adoptions. An appendix also presents illustrative quotes from the semi-structured interviews which provide key insights into the dynamic MCS process. While this rather dense report is from a for-profit perspective, it does provide a firm understanding of the effective establishment of start-up models, as well as insight into the typical life cycle of a start-up company.
@article{davila_management_2007,
title = {Management {Control} {Systems} in {Early}-{Stage} {Startup} {Companies}},
volume = {82},
issn = {0001-4826},
url = {https://www.jstor.org/stable/30243482},
abstract = {This paper uses a multi-method, multi-case field research design to study the evolving portfolio of the management control systems (MCSs) of 78 early-stage startup companies. We examine 46 individual systems from eight different MCS categories-financial planning, financial evaluation, human resource planning, human resource evaluation, strategic planning, product development, sales/marketing, and partnerships. We report analysis of the following: (1) The speed of adoption of financial planning and financial evaluation systems in relation to six other MCS categories. These systems are considered key MCSs associated with management accounting. We find financial planning to be the most widely adopted MCS category at an early stage, followed by the human resource planning and strategic planning categories. Financial evaluation systems are typically adopted at a later stage. (2) Variables associated with the rate of adoption of MCSs. Our results indicate that number of employees, presence of venture capital, international operations, and time to revenue are positively associated with the rate of adoption. Furthermore, the rate of adoption simultaneously affects company size. (3) CEO turnover and the rate of adoption of MCSs. We find that CEOs who have adopted fewer MCSs have shorter tenures. This is consistent with the hypothesized difference between entrepreneurs and managers. Overall, the evidence strongly supports the relevance of MCSs to the growth of early-stage startup companies.
Annotation: This article published by the American Accounting Association in their July 2007 edition of The Accounting Review comprises of a case study chronicling 78 early-stage start-up companies and their evolving management control systems. Authors Antonio Davila (IESE Business School) and George Foster (Stanford University) examine 46 unique management control systems (MCS) across 8 different categories, that of “financial planning, financial evaluation, human resource planning, human resource evaluation, strategic planning, product development, sales/marketing, and partnerships.” (907) The report primarily analyses the speed of adoption of each of these systems, as well as how variables such as number of employees and CEO turnover affect these adoption rates.
The report begins with defining the terms associated with typical MCS’s, and provides a general overview of previous research done on the subject. Davila and Foster then present the details of their case study, in which questionnaires were sent to 78 for-profit start-up companies (of which the vast majority were in the information and biotechnology sectors) as well as conducting several semi-structured interviews. The collected data is then discussed at length and is also presented in several visual tables throughout the paper. The data is then synthesized through a variety of formulae in order to present quantifiable conclusions to the research, such as providing proof that MCS’s evolve with start-up companies as they become more established, and that CEO’s who did not enact MCS’s early on in the start-ups’ life cycles were more likely to be replaced. Data also demonstrates that financial management was the first and most widely adopted system in the start-ups’ life cycle, followed by human resource and strategic planning. The role of venture capital funding is also examined as an influential variable amongst MCS adoptions. An appendix also presents illustrative quotes from the semi-structured interviews which provide key insights into the dynamic MCS process. While this rather dense report is from a for-profit perspective, it does provide a firm understanding of the effective establishment of start-up models, as well as insight into the typical life cycle of a start-up company.},
number = {4},
urldate = {2021-05-24},
journal = {The Accounting Review},
author = {Davila, Antonio and Foster, George},
year = {2007},
keywords = {USA, accessible (indicator), business model (indicator), business model entrepreneur (indicator), case study (method), discourse analysis (method), document analysis (method), economic (indicator), entrepreneurship, for-profit, interviews (method), literature review (method), management, mixed methods (method), planning, qualitative (method), start-ups, strategic planning, surveys (method)},
pages = {907--937},
}
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These systems are considered key MCSs associated with management accounting. We find financial planning to be the most widely adopted MCS category at an early stage, followed by the human resource planning and strategic planning categories. Financial evaluation systems are typically adopted at a later stage. (2) Variables associated with the rate of adoption of MCSs. Our results indicate that number of employees, presence of venture capital, international operations, and time to revenue are positively associated with the rate of adoption. Furthermore, the rate of adoption simultaneously affects company size. (3) CEO turnover and the rate of adoption of MCSs. We find that CEOs who have adopted fewer MCSs have shorter tenures. This is consistent with the hypothesized difference between entrepreneurs and managers. Overall, the evidence strongly supports the relevance of MCSs to the growth of early-stage startup companies. Annotation: This article published by the American Accounting Association in their July 2007 edition of The Accounting Review comprises of a case study chronicling 78 early-stage start-up companies and their evolving management control systems. Authors Antonio Davila (IESE Business School) and George Foster (Stanford University) examine 46 unique management control systems (MCS) across 8 different categories, that of “financial planning, financial evaluation, human resource planning, human resource evaluation, strategic planning, product development, sales/marketing, and partnerships.” (907) The report primarily analyses the speed of adoption of each of these systems, as well as how variables such as number of employees and CEO turnover affect these adoption rates. The report begins with defining the terms associated with typical MCS’s, and provides a general overview of previous research done on the subject. Davila and Foster then present the details of their case study, in which questionnaires were sent to 78 for-profit start-up companies (of which the vast majority were in the information and biotechnology sectors) as well as conducting several semi-structured interviews. The collected data is then discussed at length and is also presented in several visual tables throughout the paper. The data is then synthesized through a variety of formulae in order to present quantifiable conclusions to the research, such as providing proof that MCS’s evolve with start-up companies as they become more established, and that CEO’s who did not enact MCS’s early on in the start-ups’ life cycles were more likely to be replaced. Data also demonstrates that financial management was the first and most widely adopted system in the start-ups’ life cycle, followed by human resource and strategic planning. The role of venture capital funding is also examined as an influential variable amongst MCS adoptions. An appendix also presents illustrative quotes from the semi-structured interviews which provide key insights into the dynamic MCS process. 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