Estimated reading time: 3-5 minutes. A relatively new research focus shows that management control systems (MCS) have an important role to play in supporting innovation. One study in this research focuses on the introduction of controls in product development. This is undoubtedly one of the business processes where innovation plays an important role.
The selection was 69 new entrepreneurs, and data from surveys and interviews with each of the CEO, CFO and business development managers regarding product development related products. The researchers examined seven different controls:
- project milestones
- reports comparing actual progress to plan
- the budget for development projects
- project selection process
- product portfolio roadmap
- product concept test process
- guidelines for project composition of employees
Introduction of controls
The results show that some events led the managers to introduce instruments to address the challenges faced. The events included the following:
- procurement and legitimization process with external parties
- internal reasons such as the manager’s background (the person is aware of certain processes)
- learning by doing
- need to focus the organization
- reactions to problems
The researchers found that the reason for the introduction of controls is associated with the performance of the product development process, measured in the ability to keep schedules. Controls introduced due to the manager’s background are associated with better performance than if the control is introduced for other reasons. Other causes may be due to chaos, to ensure procurement, or to focus on the business.
One aspect of how the manager’s background affects the introduction of controls is important to note. Key persons (e.g. CEO or Board member) may perceive a major gap in the company’s capabilities, and hence employ managers who bring new instruments, which are part of building up internal capacity. This reason is more likely in newly started companies than established companies because the former companies rarely have a full set of operational abilities from day to day.
The result from the study supports the relevance of the project uncertainty and product strategy to explain the design of MCS. The study also shows that better cost and design information has a positive association with performance (successful new product development projects). In contrast, time information hinders performance supporting the argument that too much emphasis on formal systems limits innovation. A possible explanation is that current emphasis on reducing time-to-market may not be appropriate for certain projects oriented towards radical innovations.
Davila, A., Foster, G., & Li, M. (2009). Reasons for management control systems adoption: Insights from product development systems choice by early-stage entrepreneurial companies. Accounting, Organizations and Society, 34, 322–347
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