C HAPTER Accounting Information Systems: An Overview © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 85 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 of 85 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 of 85 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 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 85 SYSTEMS, DATA, AND INFORMATION • Goal conflict occurs when the activity of a subsystem is not consistent with another subsystem or with the larger system • Goal congruence occurs when the subsystem’s goals are in line with the organization’s goals • The larger and more complicated a system, the more difficult it is to achieve goal congruence © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 85 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 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart of 85 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 10 of 85 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 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 72 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 73 of 85 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 74 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 75 of 85 THE AIS AND CORPORATE STRATEGY • Sometimes a company can both, but they normally have to choose © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 76 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 77 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 78 of 85 THE AIS AND CORPORATE STRATEGY • Porter also argues that companies must choose a • Serve a subset of customers who differ from strategic position among three choices: others in terms of factors such as geographic – Variety-based strategic position location or size –• Needs-based EXAMPLE: Satellite strategic Internet position services are intended primarily for customers in rural areas – Access-based strategic position who cannot get DSL or cable services © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 79 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 80 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 81 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 82 of 85 THE AIS AND CORPORATE STRATEGY • The AIS should help a company adopt and maintain • Predictive data analysis (data its strategic position warehousing/mining) adds to competitive – Requires that be collected about based each on advantage by data forecasting future events activity historical trends EXAMPLE: can view forecasts of airfares –• Requires theYou collection and integration of both betweenand major airports based on historical trends financial nonfinancial data at www.farecast.com © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 83 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 84 of 85 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 © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/Steinbart 85 of 85 ... Business Publishing Accounting Information Systems, 11/e Romney/ Steinbart 27 of 85 WHY STUDY ACCOUNTING INFORMATION SYSTEMS? • It’s fundamental to accounting • Accounting is an information- providing... Business Publishing Accounting Information Systems, 11/e Romney/ Steinbart 10 of 85 SYSTEMS, DATA, AND INFORMATION Benefits of information - Cost of producing information Value of information Costs... producing the information increases © 2008 Prentice Hall Business Publishing Accounting Information Systems, 11/e Romney/ Steinbart of 85 SYSTEMS, DATA, AND INFORMATION Benefits of information -