C HAPTER 1. Accounting Information Systems: An Overview

Transcription

1 C HAPTER 1 Accounting Information Systems: An Overview 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 1 of 85

2 INTRODUCTION Questions to be addressed in this chapter include: What is the meaning of system, data, and information? What is an accounting information system (AIS)? Why is the AIS an important topic to study? What is the role of the AIS in the value chain? How does the AIS provide information for decision making? What are the basic strategies and strategic positions an organization can pursue? 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 2 of 85

3 SYSTEMS, DATA, AND INFORMATION A system is: A set of interrelated components That interact To achieve a goal 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 3 of 85

4 SYSTEMS, DATA, AND INFORMATION Most systems are composed of smaller subsystems and vice versa! 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 4 of 85

5 SYSTEMS, DATA, AND INFORMATION Every organization has goals. The subsystems should be designed to maximize achievement of the organization s goals. Even to the detriment of the subsystem itself. EXAMPLE: The production department (a subsystem) of a company might have to forego its goal of staying within its budget in order to meet the organization s goal of delivering product on time Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 5 of 85

6 SYSTEMS, DATA, AND INFORMATION The systems concept encourages integration (i.e., minimizing the duplication of recording, storing, reporting, and processing). Data are facts that are collected, recorded, stored, and processed by an information system. Organizations collect data about: Events that occur Resources that are affected by those events Agents who participate in the events 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 6 of 85

7 SYSTEMS, DATA, AND INFORMATION Information is different from data. Information is data that have been organized and processed to provide meaning to a user. Usually, more information and better information translates into better decisions Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 7 of 85

8 SYSTEMS, DATA, AND INFORMATION However, when you get more information than you can effectively assimilate, you suffer from information overload. Example: Final exams week! When you ve reached the overload point, the quality of decisions declines while the costs of producing the information increases Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 8 of 85

9 SYSTEMS, DATA, AND INFORMATION Benefits of information - Cost of producing information Value of information Benefits of information may include: Reduction of uncertainty Improved decisions Improved ability to plan and schedule activities 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 9 of 85

10 SYSTEMS, DATA, AND INFORMATION Benefits of information - Cost of producing information Value of information Costs may include time and resources spent: Collecting data Processing data Storing data Distributing information to users 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 10 of 85

11 SYSTEMS, DATA, AND INFORMATION Benefits of information - Cost of producing information Value of information Costs and benefits of information are often difficult to quantify, but you need to try when you re making decisions about whether to provide information Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 11 of 85

12 SYSTEMS, DATA, AND INFORMATION Characteristics that make information useful: Relevance It reduces uncertainty by helping you predict what will happen or confirm what already has happened Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 12 of 85

13 SYSTEMS, DATA, AND INFORMATION Characteristics that make information useful: Relevance Reliability It s dependable, i.e., free from error or bias and faithfully portrays events and activities Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 13 of 85

14 SYSTEMS, DATA, AND INFORMATION Characteristics that make information useful: Relevance Reliability Completeness It doesn t leave out anything that s important Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 14 of 85

15 SYSTEMS, DATA, AND INFORMATION Characteristics that make information useful: Relevance Reliability Completeness Timeliness You get it in time to make your decision Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 15 of 85

16 SYSTEMS, DATA, AND INFORMATION Characteristics that make information useful: Relevance Reliability Completeness Timeliness Understandability It s presented in a manner you can comprehend and use Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 16 of 85

17 SYSTEMS, DATA, AND INFORMATION Characteristics that make information useful: Relevance Reliability Completeness Timeliness Understandability Verifiability A consensus notion the nature of the information is such that different people would tend to produce the same result Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 17 of 85

18 SYSTEMS, DATA, AND INFORMATION Characteristics that make information useful: Relevance Reliability Completeness Timeliness Understandability Verifiability Accessibility You can get to it when you need it and in a format you can use Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 18 of 85

19 SYSTEMS, DATA, AND INFORMATION Information is provided to both: External users Internal users 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 19 of 85

20 SYSTEMS, DATA, AND INFORMATION Information is provided to both: External users Internal users 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 20 of 85

21 SYSTEMS, DATA, AND INFORMATION External users primarily use information that is either: MANDATORY INFORMATION required by a governmental entity, such as Form 10-K required by the SEC; or ESSENTIAL INFORMATION required to conduct business with external parties, such as purchase orders Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 21 of 85

22 SYSTEMS, DATA, AND INFORMATION In providing mandatory or essential information, the focus should be on: Minimizing costs. Meeting regulatory requirements. Meeting minimum standards of reliability and usefulness Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 22 of 85

23 SYSTEMS, DATA, AND INFORMATION Information is provided to both: External users Internal users 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 23 of 85

24 SYSTEMS, DATA, AND INFORMATION Internal users primarily use discretionary information. The primary focus in producing this information is ensuring that benefits exceed costs, i.e., the information has positive value Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 24 of 85

25 WHAT IS AN AIS? An AIS is a system that collects, records, stores, and processes data to produce information for decision makers. It can: Use advanced technology; or Be a simple paper-and-pencil system; or Be something in between. Technology is simply a tool to create, maintain, or improve a system Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 25 of 85

26 WHAT IS AN AIS? The functions of an AIS are to: Collect and store data about events, resources, and agents. Transform that data into information that management can use to make decisions about events, resources, and agents. Provide adequate controls to ensure that the entity s resources (including data) are: Available when needed Accurate and reliable 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 26 of 85

27 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? It s fundamental to accounting. Accounting is an information-providing activity, so accountants need to understand: How the system that provides that information is designed, implemented, and used. How financial information is reported. How information is used to make decisions Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 27 of 85

28 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? It s fundamental to accounting. Other accounting courses focus on how the information is provided and used. An AIS course places greater emphasis on: How the data is collected and transformed. How the availability, reliability, and accuracy of the data is ensured. AIS courses are not number-crunching courses Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 28 of 85

29 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? It s fundamental to accounting. The skills are critical to career success. Auditors need to evaluate the accuracy and reliability of information produced by the AIS Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 29 of 85

30 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? It s fundamental to accounting. The skills are critical to career success. Tax accountants must understand the client s AIS adequately to be confident that it is providing complete and accurate information for tax planning and compliance work Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 30 of 85

31 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? It s fundamental to accounting. The skills are critical to career success. In private industry and not-for-profit, systems work is considered the most important activity performed by accountants Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 31 of 85

32 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? It s fundamental to accounting. The skills are critical to career success. In management consulting, the design, selection, and implementation of accounting systems is a rapid growth area Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 32 of 85

33 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? Other careers requiring AIS knowledge: IT Consultant Implementation Team Member Business Analyst Budget Analyst Financial Analyst Systems Analyst Controller Accounting Clerk CFO Others? 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 33 of 85

34 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? It s fundamental to accounting. The skills are critical to career success. The AIS course complements other systems courses. AIS topics are tested on the new CPA exam. Makes up about 25% of the Business Environment & Concepts section of the CPA exam Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 34 of 85

35 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? It s fundamental to accounting. The skills are critical to career success. The AIS course complements other systems courses. AIS topics are tested on the new CPA exam. AIS topics impact corporate strategy and culture Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 35 of 85

36 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? Occupational Culture Strategy AIS design is affected by information technology, the organization s strategy, and the organization s culture. AIS Information Technology 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 36 of 85

37 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? Occupational Culture Strategy Information technology affects the company s choice of business strategy. To perform cost-benefit analyses on IT changes, you need to understand business strategy. AIS Information Technology 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 37 of 85

38 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? Occupational Culture Strategy Although culture affects the design of the AIS, it s also true that the AIS affects culture by altering the dispersion and availability of information. AIS Information Technology 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 38 of 85

39 ROLE OF THE AIS IN THE VALUE CHAIN The objective of most organizations is to provide value to their customers. What does it mean to deliver value? Let s peek in on a conversation at Joe s pharmacy Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 39 of 85

40 ROLE OF THE AIS IN THE VALUE CHAIN Well, Mr. Pharmaceutical Salesman, your proposal looks good, but your prices are about 5% higher than your competitors Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 40 of 85

41 ROLE OF THE AIS IN THE VALUE CHAIN That s true, but we re comfortable with that because of the valueadded that we bring to this arrangement Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 41 of 85

42 ROLE OF THE AIS IN THE VALUE CHAIN What is that value-added, and how do you convert it into dollars? 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 42 of 85

43 ROLE OF THE AIS IN THE VALUE CHAIN Blah blah blah customer service blah blah blah 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 43 of 85

44 ROLE OF THE AIS IN THE VALUE CHAIN Although adding value is a commonly used buzzword, in its genuine sense, it means making the value of the finished component greater than the sum of its parts. It may mean: Making it faster Making it more reliable Providing better service or advice Providing something in limited supply (like O-negative blood or rare gems) Providing enhanced features Customizing it 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 44 of 85

45 ROLE OF THE AIS IN THE VALUE CHAIN Value is provided by performing a series of activities referred to as the value chain. These include: Primary activities Support activities These activities are sometimes referred to as line and staff activities respectively Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 45 of 85

46 ROLE OF THE AIS IN THE VALUE CHAIN Value is provided by performing a series of activities referred to as the value chain. These include: Primary activities Support activities These activities are sometimes referred to as line and staff activities respectively Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 46 of 85

47 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Inbound logistics Receiving, storing, and distributing the materials that are inputs to the organization s product or service. For a pharmaceutical company, this activity might involve handling incoming chemicals and elements that will be used to make their drugs Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 47 of 85

48 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Inbound logistics Operations Transforming those inputs into products or services. For the pharmaceutical company, this step involves combining the raw chemicals and elements with the work of people and equipment to produce the finished drug product that will be sold to customers Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 48 of 85

49 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Inbound logistics Operations Outbound logistics Distributing products or services to customers. For the pharmaceutical company, this step involves packaging and shipping the goods to drug stores, doctors, and hospitals Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 49 of 85

50 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Inbound logistics Operations Outbound logistics Marketing and sales Helping customers to buy the organization s products or services. A pharmacy rep may visit with drug stores, doctors, etc. to inform them about their products and take orders Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 50 of 85

51 ROLE OF THE AIS IN THE VALUE CHAIN Primary activities include: Inbound logistics Operations Outbound logistics Marketing and sales Service Post-sale support provided to customers such as repair and maintenance function. A pharmaceutical firm will typically not be repairing it s product (though the product may be periodically reformulated). The pharmaceutical company is more likely to be providing advisory services to pharmacists, etc Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 51 of 85

52 ROLE OF THE AIS IN THE VALUE CHAIN Value is provided by performing a series of activities referred to as the value chain. These include: Primary activities Support activities These activities are sometimes referred to as line and staff activities respectively Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 52 of 85

53 ROLE OF THE AIS IN THE VALUE CHAIN Support activities include: Firm infrastructure Accountants, lawyers, and administration. Includes the company s accounting information system Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 53 of 85

54 ROLE OF THE AIS IN THE VALUE CHAIN Support activities include: Firm infrastructure Human resources Involves recruiting and hiring new employees, training employees, paying employees, and handling employee benefits Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 54 of 85

55 ROLE OF THE AIS IN THE VALUE CHAIN Support activities include: Firm infrastructure Human resources Technology Activities to improve the products or services (e.g., R&D, Web site development). For the pharmaceutical company, these activities would include research and development to create new drugs and modify existing ones Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 55 of 85

56 ROLE OF THE AIS IN THE VALUE CHAIN Support activities include: Firm infrastructure Human resources Technology Purchasing Buying the resources (e.g., materials, inventory, fixed assets) needed to carry out the entity s primary activities. In the pharmaceutical company, the purchasing folks are trying to get the best combination of cost and quality in buying chemicals, supplies, and other assets the company needs to run its operations Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 56 of 85

57 ROLE OF THE AIS IN THE VALUE CHAIN Information technology can significantly impact Good the efficiency AIS value chain: and effectiveness with which UPS the spends preceding over $1 activities billion a year are on carried out. information systems resulting in greater customer control over delivery, higher An organization s driver productivity, value chain and lower can costs. be Bad AIS value chain: connected with the value chains of its customers, suppliers, and distributors. Limited Brands tangled integration of over 60 incompatible information systems resulted in 400 trailers trying to jam into a 150 trailer lot Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 57 of 85

58 ROLE OF THE AIS IN THE VALUE CHAIN Smith Supply Co. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service For example, the inbound logistics of Pharmaceuticals, Inc., links to the outbound logistics of its suppliers. Pharmaceuticals, Inc. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Customer Pharmacy Inbound Logistics Operations Outbound Logistics Marketing & Sales Service 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 58 of 85

59 ROLE OF THE AIS IN THE VALUE CHAIN Smith Supply Co. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service And the outbound logistics of Pharmaceuticals, Inc., links to the inbound logistics of its customers. Pharmaceuticals, Inc. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Customer Pharmacy Inbound Logistics Operations Outbound Logistics Marketing & Sales Service 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 59 of 85

60 ROLE OF THE AIS IN THE VALUE CHAIN Smith Supply Co. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service The linking of these separate value chains creates a larger system known as a supply chain. Pharmaceuticals, Inc. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Customer Pharmacy Inbound Logistics Operations Outbound Logistics Marketing & Sales Service 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 60 of 85

61 ROLE OF THE AIS IN THE VALUE CHAIN Smith Supply Co. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Information technology can facilitate synergistic linkages that improve the performance of each company s value chain. The linking of these separate value chains creates a larger system known as a supply chain. Pharmaceuticals, Inc. Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Customer Pharmacy Inbound Logistics Operations Outbound Logistics Marketing & Sales Service 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 61 of 85

62 ROLE OF THE AIS IN THE VALUE CHAIN There is variation in the degree of structure used to make decisions: Structured decisions Repetitive and routine. Can be delegated to lower-level employees. EXAMPLE: Deciding whether to write an auto insurance policy for a customer with a clean driving history Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 62 of 85

63 ROLE OF THE AIS IN THE VALUE CHAIN There is variation in the degree of structure used to make decisions: Structured decisions Semistructured decisions Incomplete rules. Require subjective assessments. EXAMPLE: Deciding whether to sell auto insurance to a customer with a tainted driving history Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 63 of 85

64 ROLE OF THE AIS IN THE VALUE CHAIN There is variation in the degree of structure used to make decisions: Structured decisions Semistructured decisions Structured decisions Non-recurring and non-routine. Require a great deal of subjective assessment. EXAMPLE: Deciding whether to begin selling a new type of insurance policy Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 64 of 85

65 ROLE OF THE AIS IN THE VALUE CHAIN There is also variation in the scope of a decision s effect: Occupational control decisions Relate to performance of specific tasks Often of a day-to-day nature. EXAMPLE: Deciding whether to order inventory Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 65 of 85

66 ROLE OF THE AIS IN THE VALUE CHAIN There is also variation in the scope of a decision s effect: Occupational control decisions Management control decisions Relate to utilizing resources to accomplish organizational objectives. EXAMPLE: Budgeting Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 66 of 85

67 ROLE OF THE AIS IN THE VALUE CHAIN There is also variation in the scope of a decision s effect: Occupational control decisions Management control decisions Strategic planning decisions The what do we want to be when we grow up types of questions. Involves establishing: Organizational objectives Policies to achieve those objectives EXAMPLE: Deciding whether to diversify the company into other product lines Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 67 of 85

68 ROLE OF THE AIS IN THE VALUE CHAIN In general, the higher a manager is in the organization, the more likely he/she is to be engaging in: Less structured decisions Broader scope (i.e., strategic planning) decisions 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 68 of 85

69 THE AIS AND CORPORATE STRATEGY Corporations have: Unlimited opportunities to invest in technology. Limited resources to invest in technology. Consequently, they must identify the improvements likely to yield the highest return. This decision requires an understanding of the entity s overall business strategy Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 69 of 85

70 THE AIS AND CORPORATE STRATEGY Michael Porter suggests that there are two basic business strategies companies can follow: Product-differentiation strategy Low-cost strategy 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 70 of 85

71 THE AIS AND CORPORATE STRATEGY Michael Porter suggests that there are two basic business strategies companies can follow: Product-differentiation strategy Low-cost strategy 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 71 of 85

72 THE AIS AND CORPORATE STRATEGY A product-differentiation strategy involves setting your product apart from those of your competitors, i.e., building a better mousetrap by offering one that s faster, has enhanced features, etc Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 72 of 85

73 THE AIS AND CORPORATE STRATEGY Michael Porter suggests that there are two basic business strategies companies can follow: Product-differentiation strategy Low-cost strategy 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 73 of 85

74 THE AIS AND CORPORATE STRATEGY A low-cost strategy involves offering a cheaper mousetrap than your competitors. The low cost is made possible by operating more efficiently Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 74 of 85

75 THE AIS AND CORPORATE STRATEGY Sometimes a company can do both, but they normally have to choose Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 75 of 85

76 THE AIS AND CORPORATE STRATEGY Porter also argues that companies must choose a strategic position among three choices: Variety-based strategic position Offer a subset of the industry s products or services. EXAMPLE: An insurance company that only offers life insurance as opposed to life, health, propertycasualty, etc Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 76 of 85

77 THE AIS AND CORPORATE STRATEGY Porter also argues that companies must choose a strategic position among three choices: Variety-based strategic position Needs-based strategic position Serve most or all of the needs of a particular group of customers in a target market. EXAMPLE: The original Farm Bureau-based insurance companies provided a portfolio of insurance and financial services tailored to the specific needs of farmers Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 77 of 85

78 THE AIS AND CORPORATE STRATEGY Porter Serve also a subset argues of customers that companies who differ must from choose a strategic position among three choices: location or size. others in terms of factors such as geographic EXAMPLE: Satellite Internet services are intended primarily for customers in rural areas who cannot get DSL or cable services. Variety-based strategic position Needs-based strategic position Access-based strategic position 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 78 of 85

79 THE AIS AND CORPORATE STRATEGY Porter also argues that companies must choose a strategic position among three choices: Variety-based strategic position Needs-based strategic position Access-based strategic position These strategic positions are not mutually exclusive and can overlap Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 79 of 85

80 THE AIS AND CORPORATE STRATEGY Choosing a strategic position is important because it helps a company focus its efforts as opposed to trying to be everything to everybody. EXAMPLE: A radio station that tries to play all types of music will probably fail. It s critical to design the organization s activities so they reinforce one another in achieving the selected strategic position. The result is synergy, which is difficult for competitors to imitate Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 80 of 85

81 THE AIS AND CORPORATE STRATEGY The growth of the Internet has profoundly affected the way value chain activities are performed: Inbound and outbound logistics can be streamlined for products that can be digitized, like books and music. The Internet allows companies to cut costs, which impacts strategy and strategic position. Because the Internet is available to everyone, intense price competition can result. The outcome may be that many companies shift from low-cost to productdifferentiation strategies. The Internet may impede access-based strategic positions Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 81 of 85

82 THE AIS AND CORPORATE STRATEGY The Predictive AIS should data analysis help a company (data adopt and maintain warehousing/mining) its strategic adds position. to competitive advantage by forecasting future events based on Requires that data be collected about each historical trends. activity. EXAMPLE: You can view forecasts of airfares between major airports based on historical trends at Requires the collection and integration of both financial and nonfinancial data Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 82 of 85

83 THE AIS AND CORPORATE STRATEGY The authors believe: Accounting and information systems should be closely integrated. The AIS should be the primary information system to provide users with information they need to perform their jobs Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 83 of 85

84 SUMMARY What we ve learned so far: The meaning of system, data, and information. What an AIS is. Why it s an important topic to study. What its role is in the value chain. How it provides information for decision making. What are the basic strategies and strategic positions an organization can pursue. How these interact with the AIS Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 84 of 85