The Stanford Entrepreneurial Management Systems Project

Project Directors:  Professor Antonio Davila and Professor George Foster

Overview

     The objective of the Stanford Entrepreneurial Management Systems Project ("SEMAS") is to understand how management systems emerge and how the strategic process evolves as companies grow beyond the start-up phase.  The SEMAS Project is intended to synthesize the experiences of managers in these companies to develop a management model that will accelerate the learning curve of newly appointed CEOs and provide a reference framework for existing CEOs.  One of the project's beneficial deliverables will be a road map for new CEOs that will help them to learn faster and minimize mistakes along the way.  The results from the study will also help further scholarly research in the field of entrepreneurial and management systems studies.  The project is designed to answer the following questions:

·        What challenges do rapidly changing, emerging companies face?

·        Why and how do management systems develop in emerging companies?

·        What characteristics of management systems allow emerging companies to successfully manage growth (or decline)?

·        How does strategy formulation and implementation change as companies grow (or decline)?

·        How does the adoption and implementation of certain management systems impact emerging companies' performance?

·        How does the evolution of strategy affect the performance of emerging companies?

            The SEMAS Project builds on the Stanford Graduate School of Business expertise in entrepreneurial management and the expertise of entrepreneurial companies in a region recognized as world-class.  The SEMAS Project focuses particularly on understanding the links between management systems, strategy, and performance.  Most of what is known today about management systems and strategy is based on studies of mature companies.  We want to provide the management tools required to successfully manage companies in their early stages.  These companies are key to the growth of the economy.

Management Systems in Entrepreneurial Companies

    Entrepreneurship is an important source of innovation and progress in the economy.  However, a sizeable number of new companies fail in the early stages.  In a significant number of cases, companies fail because they do not excel at executing their business model. An important aspect of the portfolio of management tools is management systems.[1]  However, existing research and teaching material has devoted scant attention to the question of when and how to apply these management techniques to successfully transition a company out of the start-up phase.  Some cases have been written on the topic (some of them by the coordinators of the study) and we have already devoted part of our research effort to try to understand this management question.  But the traditional research and teaching focus has been on larger, more established companies.

    The success of a start-up depends on several variables, such as the business model, the ability of its top management team to lead the company, and the competitive landscape.  A critical variable is whether the company is able to adopt in an effective and timely fashion management systems that will allow it to absorb growth while minimizing the corresponding tensions.  Companies unable to master the transition from relying on informal meetings and personal observation to adopting management tools are bound to suffer.  They may not be able to grow beyond a certain size and thus forego growth opportunities and become vulnerable to competitors with more sophisticated management systems.  They may face delays at critical points (such as liquidity events) when the absence of reliable systems (such as options promised) can be costly  They may also fall to the weight of an unmanageable organization.

    The Stanford Entrepreneurial Management Systems Project addresses precisely these issues.  Its objective is to bring together the expertise of top management teams that have faced the issues associated with growing beyond the start-up phase with existing knowledge as developed in the academic world, both in the entrepreneurial management and management systems fields. 

    Management systems facilitate coordination and control within the company.  They are intended to simplify the information exchange among managers and between managers and external constituencies (like the Board of Directors), and have a dual objective.  First, to facilitate managers' focusing on new opportunities to create value and on shaping strategy while still have the right amount of attention devoted to the execution of routine processes. The second objective is to provide the right information to enhance the communication among managers on the critical problems that the company faces.  Management systems include financial systems, like financial projections and operating and capital budgets, as well as planning tools, performance evaluation tools, and measurement systems.

    This project will inform managers on how to best implement these systems to successfully transition from the start-up phase.  The analysis of the information collected from several dozen companies will increase our understanding of the management issues faced and solutions that these companies use.  The combination of practical insights together with theoretical developments will translate into better training for students of management.

[1] Management systems are systems that facilitate the coordination and control of the company.  They include financial and non-financial information systems, organizational structure, and planning, performance evaluation and measurement systems.

The Data Gathering Stage of the
Stanford Entrepreneurial Management Systems Project

June 2002 to December 2002

The project examines companies that are experiencing or have recently experienced high growth (and, in some cases, companies that experienced a decline after the growth period).  The final sample will include several dozen companies in the “high technology” sector (computer hardware and software, telecommunications, manufacturing equipment and testing instruments, biotechnology and pharmaceuticals, and medical technologies), mostly in the Northern California region.  We focus on a set of comparable industries to extract significant differences in management practices without having external factors confound our observations.  Our population contains firms that were incorporated in 1992 or later, and had between 50 and 150 employees at the beginning of the study period. 

The data gathering stage of the project comprises approximately one hundred firms.  A team of research assistants and doctoral students will conduct interviews with key informants in those firms:

·        A senior manager knowledgeable about the evolution of the firm will be asked (through surveys and face-to-face interviews) about the changing challenges their firm has faced, the evolution of strategy formulation and implementation, the adoption of different management systems, and the role of the board of directors.

·        A senior manager with responsibility for finance will be surveyed and then interviewed about the evolution of financial systems (such as budgeting and financial projection systems), incentive systems, strategic planning, and changes to the business plan over time.

·        A senior manager knowledgeable about business development will be asked (again combining questionnaires and interviews) about important events in the company's history, its organizational structure, products and strategy, the evolution of the firm's partnerships and alliances over time, and changes in various operational realms.

    The combination of surveys (to collect factual information) and interviews (to collect the detail required to fully interpret the facts) has proven to be an effective way of gathering relevant research information.  We will supplement these direct data collection methods with indirect methods, studying documents that record the history of the firm, its organization, and its policies and practices (e.g., initial business plans, manuals, annual reports, 10K forms for public firms, press releases and news articles).  Once the data are gathered, the project team will code and analyze it, and report the results back to the companies that participated and then to the broader public. All information gathered will be treated confidentially and used only for research purposes; no information will be released that may identify specific companies or individuals.

Expected Deliverables

   The outcome of this significant research effort will translate into various deliverables.  First, we expect the results to be of relevance to the companies that participate in the study, received through the conference at which the findings will be reported.  These companies will also benefit from having access to the research reports as they are first published in draft form.  These deliverables will help participating companies to compare their experiences and managerial systems against similar firms facing a similar set of managerial challenges.  We want participating companies to be partners in this research project.

Managerial Publications

    One of the main objectives of this research study is to impact practice.  Bringing the experiences of a significant number of companies together with the concepts developed in management research should translate into a powerful framework.  Current and future management teams will benefit from access to the ideas developed to facilitate the managerial aspects of transitioning from the start-up phase to a more structured organization.  The findings will inform more effective development of the management systems that characterize a professional company and how to manage the transition.  The goal is to make this critical transition period as effective and successful as possible.

The findings from the study will be communicated through articles targeted to a managerial audience and, accordingly, will emphasize the key concepts and managerial implications.

Academic Articles

The findings from the study are also expected to have relevance to the academic community.  Given the sparse research that has been done in this field, the results of the study will be of relevance to advance our knowledge about entrepreneurial management and management systems.  Previous research has focused on single case studies, which are hard to generalize to the larger population of firms, or has focused on a single functional aspect or stage of the entrepreneurial process.  The data collected in this study will provide a rich setting that the current project team as well as future scholars can use for additional research.

The results will be discussed in research reports emphasizing the academic aspect of the project.  These research reports will be available in draft form as they are written.

Teaching Material

    The conclusions from the study will also become part of the teaching materials at the Graduate School of Business.  The knowledge developed will permeate into the classroom through presentations and, in some instances, through cases developed out of the project.  The material will be brought into an elective second-year MBA course, “Performance Measurement and Management Systems,” which devotes several sessions to management systems in growing firms.  We also expect the material to be used beyond the Stanford Business School, both by other academic departments at Stanford and by other management schools around the world.