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        1 of 43

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‡ Questions to be addressed in this chapter

include:
± What is the meaning of ` `
ë 
ë and


 -
± 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?

|
 
       

        p of 43

 ) !* '  &' &+#* #&

‡ A system is:
± A set of interrelated components
± That interact
± To achieve a goal
‡ Most systems are composed of smaller
subsystems . . .
‡ . . . And vice versa

|
 
       

        3 of 43

 ) !* '  &' &+#* #&

‡ Every organization has goals.

± The susbsystems 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.

|
 
       

        4 of 43

 ) !* '  &' &+#* #&

‡ ,

 occurs when the activity of a
subsystem is not consistent with another
subsystem or with the larger system.
‡ ,

 occurs when the
subsystem¶s goals are in line with the
organization¶s goals.
‡ The larger and more complicated a
systemë the more difficult it is to achieve
goal congruence.

|
 
       

        X of 43

 ) !* '  &' &+#* #&

‡ The 

- encourages integration
(i.e.ë minimizing the duplication of recordingë
storingë reporting and processing).
‡ ' are facts that are collectedë recordedë
storedë and processed by an information system.
‡ Organizations collect data about:
± !$ that occur
± 
 that are affected by those events
±  who participate in the events

|
 
       

        V of 43

 ) !* '  &' &+#* #&

‡   is different from data.

‡ Information is data that have been
organized and processed to provide
meaning to a user.
‡ Usuallyë more information and better
information translates into better
decisions.

|
 
       

        † of 43

 ) !* '  &' &+#* #&

‡ Howeverë when you get more information

than you can effectively assimilateë you
suffer from   $ ./
± Example: Final exams week!
‡ When you¶ve reached the overload pointë
the quality of decisions declines while the
costs of producing the information
increases.

|
 
       

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Benefits of information
- Cost of producing information
Value of information

      
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- Cost of producing information
Value of information

  
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- Cost of producing information
Value of information
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‡ Information is provided to both:

± External users
± Internal Users

|
 
       

        1â of 43

 ) !* '  &' &+#* #&

‡ External users primarily use information

that is either:
± MANDATORY INFORMATION²Required by
a governmental entityë such as Form 10-K¶s
required by the SEC; or
± ESSENTIAL INFORMATION²Required to
conduct business with external partiesë such
as purchase orders.

|
 
       

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 ) !* '  &' &+#* #&

‡ In providing mandatory or essential

informationë the focus should be on:
± Minimizing costs
± Meeting regulatory requirements
± Meeting minimum standards of reliability and
usefulness

|
 
       

        p1 of 43

 ) !* '  &' &+#* #&

‡ Internal users primarily use discretionary

information.
‡ The primary focus in producing this
information is ensuring that benefits
exceed costsë i.e.ë the information has
positive value.

|
 
       

        pp of 43

 5  & 6

‡ An AIS is a system that collectsë recordsë

storesë 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 createë
maintainë or improve a system.

|
 
       

        p3 of 43

 5  & 6

‡ The functions of an AIS are to:

± Collect and store data about eventsë
resourcesë and agents.
± Transform that data into information that
management can use to make decisions
about eventsë resourcesë and agents.
± Provide adequate controls to ensure that the
entity¶s resources (including data) are:
‡ Available when needed
‡ Accurate and reliable

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‡ The objective of most organizations is to

provide value to their customers.
‡ What does it mean to deliver value?

|
 
       

        3† of 43

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‡ While ³adding value´ is a commonly used

buzzwordë in its genuine senseë 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

|
 
       

        3 of 43

 #=! #+ !  & ! 3=(! &

‡ 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 ³line´ and ³staff´ activities respectively.

|
 
       

        3â of 43

 #=! #+ !  & ! 3=(! &

‡ Primary activities include:

± Inbound logistics

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|
 
       

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‡ Primary activities include:

± Operations
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|
 
       

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‡ Primary activities include:

± Inbound logistics
± Operations
± Outbound logistics
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‡ Primary activities include:

± Marketing and sales

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|
 
       

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‡ Primary activities include:

± Service
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|
 
       

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‡ Support activities include:

± Firm infrastructure


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|
 
       

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 #=! #+ !  & ! 3=(! &

‡ Support activities include:

± Firm infrastructure
± Human resources
$ $ 
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|
 
       

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 #=! #+ !  & ! 3=(! &

‡ Support activities include:

± Firm infrastructure
± Human resources
± Technology

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|
 
       

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 #=! #+ !  & ! 3=(! &

‡ Support activities include:

± Purchasing

   

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|
 
       

        4 of 43

 #=! #+ !  & ! 3=(! &

‡ Information technology can significantly

impact the efficiency and effectiveness
with which the preceding activities are
carried out.
‡ An organization¶s value chain can be
connected with the value chains of its
customersë suppliersë and distributors.

|
 
       

        4â of 43

 #=! #+ !  & ! 3=(! &

  --  / .  .  

 
Inbound Logistics 

  
/ 2   .
Operations  
  
/
Outbound Logistics


  
/
Marketing & Sales
Inbound Logistics
Service
Operations
Outbound Logistics  

Marketing & Sales Inbound Logistics
Service Operations
Outbound Logistics
Marketing & Sales
Service

|
 
       

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 #=! #+ !  & ! 3=(! &

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Inbound Logistics
    2%   -- 
Operations
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Outbound Logistics


  
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Marketing & Sales
Inbound Logistics
Service
Operations
Outbound Logistics  

 

 
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Service Operations
2  -$ Outbound Logistics
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Service

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|
 
       

        X1 of 43

 #=! #+ !  & ! 3=(! &

‡ There is variation in the degree of

structure used to make decisions:
± Structured decisions
‡ -  $ .  
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‡ There is variation in the degree of

structure used to make decisions:
± Structured decisions
± Semistructured decisions
‡ 
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|
 
       

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‡ There is variation in the degree of

structure used to make decisions:
± Structured decisions
± Semistructured decisions
± Structured decisions
‡ &7
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‡ There is also variation in the scope of a

decision¶s effect:
± Occupational control decisions
‡    -
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|
 
       

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‡ There is also variation in the scope of a

decision¶s effect:
± Occupational control decisions
± Management control decisions
‡     <  
  

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‡ !@*=!" . 

|
 
       

        XV of 43

 #=! #+ !  & ! 3=(! &

‡ There is also variation in the scope of a

decision¶s effect:
± Strategic planning decisions
‡  B% . % %   % % % -C - 
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|
 
       

        X† of 43

 #=! #+ !  & ! 3=(! &

‡ In generalë the higher a manager is in the

organizationë the more likely he/she is to
be engaging in:
± Less structured decisions
± Broader scope (i.e.ë strategic planning)
decisions

|
 
       

        X of 43

 !  &' ## !   !,)

‡ Corporations have:
± Unlimited opportunities to invest in technology
± Limited resources to invest in technology
‡ Consequentlyë they must identify the
improvements likely to yield the highest
return.
‡ This decision requires an understanding of
the entity¶s overall business strategy.

|
 
       

        Xâ of 43

 !  &' ## !   !,)

‡ Michael Porter suggests that there are two

basic business strategies companies can
follow:
± Product-differentiation strategy
± Low-cost strategy

|
 
       

        V0 of 43

 !  &' ## !   !,)

‡ A product differentiation strategy involves

setting your product apart from those of
your competitorsë i.e.ë building a ³better´
mousetrap by offering one that¶s fasterë
has enhanced featuresë etc.

|
 
       

        V1 of 43

 !  &' ## !   !,)

‡ A low-cost strategy involves offering a

cheaper mousetrap than your competitors.
The low cost is made possible by
operating more efficiently.
‡ Sometimes a company can do bothë but
they normally have to choose.

|
 
       

        Vp of 43

 !  &' ## !   !,)

‡ Porter also argues that companies must

choose a strategic position among three
choices:
± Variety-based strategic position
‡ #     .1 -.
 
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|
 
       

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 !  &' ## !   !,)

‡ Porter also argues that companies must

choose a strategic position among three
choices:
± Variety-based strategic position
± &.7. 
-  
‡ $      .   -
 
- 
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|
 
       

        V4 of 43

 !  &' ## !   !,)

‡ Porter also argues that companies must

choose a strategic position among three
choices:
± 

7. 

-  
‡ $   
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‡ !@*=!"    $
  ..
-   
    %

 '= 
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/

|
 
       

        VX of 43

 !  &' ## !   !,)

‡ 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
‡  
-    
  8
 $ .
 $ -/

|
 
       

        VV of 43

 !  &' ## !   !,)

‡ 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
synergyë which is difficult for competitors to
imitate.

|
 
       

        V† of 43

 !  &' ## !   !,)

‡ 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 digitizedë like books and
music.
± The Internet allows companies to cut costsë which
impacts strategy and strategic position.
± Because the Internet is available to everyoneë intense
price competition can result. The outcome may be
that many companies shift from low-cost to product-
differentiation strategies.
± The Internet may impede access-based strategic
positions.

|
 
       

        V of 43

 !  &' ## !   !,)

‡ The AIS should help a company adopt and

maintain its strategic position.
± Requires that data be collected about each
activity.
± Requires the collection and integration of both
financial and nonfinancial data.

|
 
       

        Vâ of 43

 !  &' ## !   !,)

‡ 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.

|
 
       

        †0 of 43