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Accounting for Dutch start-ups and scale-ups: a study on the adoption and use of Management Control Systems

Financial management

Financial management

Accounting for Dutch start-ups and scale-ups: a study on the adoption and use of Management Control Systems

Michelle Haukes, 2 July 2019

Which Management Control Systems (MCS) do Dutch start-ups and scale-ups use, which variables (such as company size, strategy or VC involvement) drive the decision to adopt and use such MCS and how do the results compare to US start-ups?

These questions are investigated in this (master thesis) research that EY (Michelle Haukes, Alexandros Matthiessen) facilitated together with the University of Amsterdam (Prof. dr. Frank Verbeeten).


Until recently, research regarding the importance of MCS has predominantly been focused on firms based in the US. As such, we have little understanding as well as hardly any research on MCS adopted by Dutch early-stage[1] firms and the variables that drive adoption and use of these MCS.

In addition to this, research surrounding accounting and control has focused on mature firms in stable settings, thus highlighting the need for attention to the role of MCS in early-stage companies as they are characterized by their entrepreneurial, innovative nature and operate in highly volatile environments. The underlying factors that affect the choices among MCS in early-stage firms differ from those experienced by mature firms.

Part of our business at EY has to do with ongoing research to help us gain knowledge and understanding of continuous improvements, changing environments, and to stay on top of the latest developments.

Together with the University of Amsterdam, EY facilitated a (master thesis) research named ‘Accounting for Start-ups & Scale-ups’, designed to gather and explore data to investigate the role of MCS in early-stage firms. The aim of this thesis was to study the portfolio of MCS within Dutch start-ups and scale-ups and the variables that drive the adoption of these MCS.

The research was conducted using a multi-method approach, namely a combination of surveys and interviews, and this approach proved to be successful to gain an understanding of what Dutch early-stage firms consider to be important when it comes to the use of MCS in the first years and why.

[1] The term “early-stage firm” is only used for simplicity purposes and does not refer to the actual definition of an early-stage firm (firms still looking for funding and/or have developed products that are not yet on the market).



Based on findings from previous research it can be argued that adoption of ‘the right set’ of MCS is crucial for the development of early-stage firms. Using data collected through questionnaires and interviews completed by financial representatives, the research investigated (1) which management control systems have been adopted and are used by early-stage Dutch firms, and (2) which variables affect the choice among MCS when firms initially adopt these systems.

This question is explored by examining three different types of MCS (action, result, personnel & cultural controls) which in total cover 42 individual control systems, as well as organizational strategy, size, and the presence of venture capital.

“Management Control Systems (MCS) are all devices or systems that managers use to ensure that the behaviors and decisions of their employees are consistent with the organization’s objectives and strategies. The systems themselves are commonly referred to as Management Control Systems”

– Merchant & van der Stede (2017)

Key Findings

Overall use of MCS

The findings show that the average adoption & use rate of MCS is >70% for the 42 individual control systems. This indicates a high overall use of MCS.

Furthermore, MCS are either informal (personnel & cultural controls) or formal (action and result controls), and the findings show that regardless of the strategy, firms all use a combination of informal and formal controls, although the emphasis is on formal controls among which financial planning, financial evaluation and budgetary planning controls.

This result indicates that transitioning from the use of informal controls only to use of formal controls is important for the sound development of the firm in its early stages.

Relationship among MCS in use

Previous research indicates that MCS can be used as complements or substitutes. With regards to the three types of MCS used in this research, which are action, result and personnel & cultural controls, the findings reveal that these systems are used together as complements.

For example, the use of action controls is associated with the use of more result controls. Hence, this relationship shows that MCS can be combined to strengthen their support in reaching organizational objectives.


The research tested two different strategies, cost leadership and differentiation, and most of the firms that completed the survey use a differentiation strategy. Thus, this seems the main strategy for firms in early years.

Furthermore, theory suggests that in the context of start-ups and scale-ups, when designing and growing the MCS portfolio it is essential to take all strategic contingencies in consideration in order to achieve proper organizational fit with MCS to optimize performance. In addition to aligning control systems and the strategy of the firm, theory also suggests that this leads to higher growth, performance and perceived usefulness of MCS.

The results of this thesis firstly revealed that strategy is associated with the use of more MCS so as to align the interests of employees with those of the firm and guide them in their actions towards reaching strategic objectives.

However, managers do not initially consider strategy in their decisions regarding which MCS to implement and use, but strategy indirectly shapes the MCS portfolio at a later stage. Nevertheless, the respondents did recognize that better focus on strategy as well as alignment with MCS from the beginning is important and a more efficient way to start, thus confirming the theory that aligning MCS with strategy leads to an increase in perceived usefulness of MCS and better performance.

With regards to the two types of strategies tested in this research, theory suggests that cost leaders should focus on formal controls whereas differentiators should use informal controls that foster innovation, development and growth. However, the findings reveal that differentiators, like cost leaders, use more formal controls than informal controls, again highlighting the importance of formal controls for growth.


Firm size, in terms of number of employees, positively affects the total amount of MCS in place and relates to more extensive use of formal controls in the form of result controls, but not the use of informal controls.

These findings confirm the theory that when the firm is small (5 to 10 people), informal controls are sufficient and communication is relatively easy to manage, but that informal controls are not sufficient to support growth and firms need to transition from informal to formal controls. Thus the findings of this research confirm the theory that growth of the firm necessitates a transition from informal to formal controls in order to support and manage this growth.

Venture capital

When venture capitalists (VC’-s) are involved in business, it means that an agency relationship is formed in which there is separation of ownership and control of the business. Hence, to manage this relationship, previous theory and research argue that VC’-s will demand certain controls to be in place to ensure that managers act and use the funds in the best interest of the VC and the organization as a whole.

The findings of this research reveal that VC’-s provide start-ups and scale-ups with expertise and mentoring to help the firm develop and grow in its early years, yet they do not seem to push for numbers so much. However, the opposite might also be the case, in that VC’-s may demand for certain controls to be in place to manage and monitor the financials of the company in order to safeguard their investment. Overall, VC’-s in the Netherlands seem to place less emphasis on monitoring performance in early stages compared to VC’-s in the Unites States.

Additional Insights

Additional insights from the interviews revealed that MCS are considered as very important for the development of early-stage firms, and the sooner they are implemented, the better. As an example; if there are better systems in place from the start, start-ups will need less people and will also not have to deal with them in a complex manner, thus leading to lower costs and higher efficiency from the beginning.

In addition, MCS facilitate early-stage firms by supporting the development of these firms in their highly volatile environments and help create transparency, trustworthiness of information for decision-making, and to obtain funding. However, although the importance of MCS is recognized, there are other factors that might be considered more important in terms of survival of the firm; as such, MCS development may have less priority.

As a result, certain MCS might not be adopted in early stages and cause formalization to stretch over a longer period of time. Slower adoption of MCS has to do with time, cash and balancing of other initiatives as well.

It is also important to be aware that, as the findings indicate, usually the finance department initiates the adoption and use of MCS given their background and understanding of MCS. Therefore, the implementation of MCS, especially when trying to roll-out use and ownership to other parts of the organization, can be challenging.

Want to learn more?

For more information on these results and the importance of MCS for start-ups and scale-ups, please contact Michelle Haukes or Alexandros Matthiessen.

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