1.3 The Value Proposition of an AIS
Learning Objectives
At the end of this section, students should be able to:
Understand how information technology can be used to create competitive advantage.
Explain how database technology led to modern enterprise resource planning systems.
Competitive advantage can be created with accounting technology by improving service to customers, access to data, and cutting costs, which can then lead to lower prices, improved customer satisfaction, better decisions, increased revenue, and increased profit. Consider the following example.
How do you think Walmart has been able to maintain its strategy of falling prices?
In part, by the creative use of accounting technology.
Walmart was one of the first retailers in the early 1990s to employ technology connected to real-time inventory systems with programmed reorder points. When inventory levels dropped below the reorder points, the company’s computers automatically generated purchase orders, which were transmitted to one of its 1,800 vendors via a satellite-based network.
These advanced systems significantly reduced the company’s purchasing, inventory, and disbursement costs, thereby giving it a major cost advantage over many of its competitors. Many of its competitors find it hard to keep up with Walmart’s innovations. This video explains more on how Walmart uses technology in its business.
Walmart Information Technology
This video talks about Information Technology and innovation at Walmart.
Effect of Changing Technology on AIS
At one time, accounting data were stored on paper, then processed and reported manually. Today, with the rapid development of computers, storage devices, data communications and networking, cloud-based services, and encryption algorithms, organizations can do all of the following:
Manage larger databases.
Access data across traditional boundaries, such as operational versus financial.
Move data more rapidly to and from remote locations.
Obtain immediate feedback on the effects of transactions.
Allow customers to interact with company systems twenty-four hours a day from anywhere in the world.
Outsource software applications, development, storage, and maintenance to a remote data center maintained completely by an outside vendor.
Mine vast amounts of unstructured “big data” to discover information that had been previously unknown or beyond comprehension.
Create encrypted transactions or records that are stored in a peer-to-peer fashion on computers around the world in a blockchain file that cannot be hacked.
Changing technology allows organizations to be more efficient and effective. We will learn more about data analytics, which is revolutionizing accounting, in Chapter 3 “The Data Analytic Cycle—One Approach to Data-Driven Decisions”. We will also explore more about the effect of emerging technologies on accounting in Chapter 4 “AIS Beyond the Financial Statements”.
Integrating the AIS Throughout the Enterprise
One of the most significant developments in accounting systems over the past decade has been the integration of accounting with other functional areas of the enterprise. For example, historically, payroll was a separate transaction processing system from the human resource function. It normally stored the employee’s name and pay rate and then processed the hours worked to generate a paycheck. Other potentially important information in regard to the employee, such as training, fringe benefits, hiring and seniority data, and performance appraisals were normally maintained in an independent system or not at all. In some cases, the same data might be captured and stored in more than one system, which led to redundancy, inefficiency, and conflicting data.
To overcome these problems, many organizations have developed enterprise resource planning (ERP) systems Systems that integrate data from all aspects of a company’s operations into one large centralized database. that integrate data from all aspects of a company’s operations into one large, centralized database. These large databases are accessed in almost unlimited ways and can provide information that may not have been available. Implementing an ERP system can produce significant benefits, if designed and implemented properly, but can be time-consuming, extremely complex, and costly to develop and maintain.