Underlying Principles Of The Electronization Of Business A

underlying principles of the electronization of business: ========================================================= a research agenda =

Underlying Principles of the Electronization of Business:
=========================================================
A Research Agenda
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Miklos Vasarhelyi
Faculty of Management
Rutgers University
180 University Ave
Newark, NJ, 07102
[email protected]
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and
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Marilyn Greenstein
School of Management
Arizona State University - West
P.O. Box 37100
Phoenix, AZ 85069-7100
[email protected]
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May 7, 2002
Keywords: AIS , e-business, e-commerce, electronization, value chain,
deconstruction,
To be published in the International Journal of Accounting Information
Systems, Elsevier Publishing, March 2003.
Our thanks for the many valuable contributions of Profs. S .Sutton and
V. Arnold in the many versions of this paper.
Underlying Principles of the Electronization of Business:
=========================================================
A Research Agenda
=================
Abstract
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This paper discusses the underlying principles of the electronization
of business and its impact on accounting information systems (AIS).
The concept of electronization of business processes and the
consequent deconstruction of the value chain in the new economy is
introduced. A bitable society requires an entirely new set of
processes and players, where traditional companies will either perish
or incorporate substantive changes in the may they conduct business.
The general effects of electronization of business lead to the
introduction of 19 8 emerging business issues and 13 research
opportunities AIS related propositions. The paper concludes that the
phenomenon of electronization is a heterogeneous one with firms and
industries developing features at different paces. This heterogeneity
presents yet another challenge to developing new and relevant
accounting standards that drive the processes found in
state-of-the-art AISsystems.
1. INTRODUCTION
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The recent debacle of Internet companies and their stock prices has
raised major issues about the viability of dot.com companies. While
the first and second waves of the Internet brought emphasis to B2C and
B2B activities respectively, the third wave of the Internet is
bringing some sobriety and an emerging rationality to inter-networked
markets. In certain markets (e.g. Online Brokerage) indigenous
Internet businesses may have competitive advantage due to new
paradigms and lack of traditional process inertia; however, most
traditional firms will not be able to continue to conduct business in
the traditional way due to a major change in the basic processes of
business. For example, traditional brokerage houses accustomed to
$90-100 a trade face financial challenges charging only $107 -$15 a
trade. Companies accustomed to differential pricing across
geographical boundaries will struggle with full information and
international comparisons across companies and countries.
Organizations accustomed to brand name differentiation will struggle
with the increased commoditization of services and products.
Internetworking and broadband services are altering some basic
premises of productivity and production processes. The introduction of
an ubiquitous broadband network allows for remote management thought
intensive communication through text, video and audio. Consequently
allowing for business deconstruction and process outsourcing.
Furthermore, iInternal organizational networks now providing broadband
communications within businesses are changing intra-corporate
processes by providing a rich information set and enhanced knowledge
bases. These more agile processes1 present great productivity
improvements and create a new set of cost/benefit tradeoffs for
performing corporate processes. Intrinsic to this thinkingthe concept
of more agile processes, and new business process valuation methods,
is the idea of sharing processes across organizations and opening
information to partners both up and down the value chain.
Organizations now open their inventory files to their suppliers and
allow them to manage shelf content. Clients can go into corporate
Intranets and order products, interact with suppliers’ web sites, get
customized billing, and instruct intelligent agents to monitor many
offers and choose the most attractive.
The rapidly emerging digital business environment is yielding an
entirely new set of processes and players into the electronized
business domain, where traditional companies will either perish or
incorporate substantive changes in their processes. Large existing
businesses, with strong brand names, will morph into leaner, agile
providers. Corporate B2B auction places, despite their current
doldrums, will heavily commoditize many markets where suppliers and
customers will interchange roles. New paradigms, such as open
information and pricing on the Web (prescription drug information),
naming your price (Priceline.com), B2B electronic commodity markets
(Covisint), and negotiated prices for consumers are changing the
panorama of business. In this paper, we discuss the underlying
principles of electronization and the related driving and main effects
on business processes and accounting information systems. Drawing on
the theory of electronization, we develop 19 8 emerging issues
propositions about the business environment, the accounting
profession, and accounting information systems and we also identify 13
research opportunities. We also discuss New Economy management issues
and their relationship to AIS.
2.
THE THEORY OF ELECTRONIZATION
-----------------------------
2.1 Basics
"No single force embodies our electronic transformation more than the
evolving and rapidly growing medium known as the Internet. Internet
technology is having a profound effect on the global trade in services
(white House, 1997). The area of sales and related processes
facilitated by electronic media has popularly been referred to as
“electronic commerce” (e-commerce). Electronic business (e-business)
encompasses e-commerce, but also the entire range of business
activities that are conducted electronically with associated technical
data. Further, it encompasses an entire set of digitally enabled
activities that are progressively replacing the more traditional brick
and mortar commercial functions. The wider phenomenon of
electronization of economic activities encompasses the digitalization
of all processes of economic wealth generation including economic
analysis, production, storage, information provisioning, marketing,
etc. Consequently, within the more general phenomenon of
digitalization of modern life, we find a very important phenomenon -
the increasing electronization of business.
Corporate, not-for-profit, and governmental systems incorporate many
related processes of business cycles. The digitalization of many of
these processes is resulting in an astounding productivity gain for
the World economy (Reingold et al., 2000). Many processes are changing
their essence and becoming less expensive, time consuming, and more
useful. For example, in the past, a directory assistance call required
both person and operator involvement: the operator manually looked up
the listing in paper-based directories in a localized search. Now
directory assistance involves the caller, a national (or
international) computer database, voice synthesis, and automatic
connection. Furthermore the process has been expanded, and reverse
searches can be conducted through the Internet that will point to the
owner of a listed telephone number, link this to the requestor’s
telephone, and not involve any individual at the service provider.
Thousands of system processes are undergoing this type of mutation
leading to cheaper, more efficient, yet expanded types of services. We
further expand upon Greenstein and Ray’s (2002) depiction of AIS and
the Customer-Oriented Value Chain (COVC) and incorporate a wider group
of electronic business processes in Figure 1: The eElectronization of
Business and the COVC, This diagram illustrates the customer-centric
focus of today’s emerging business models and describeslinks together
the several components of the business processes (e.g. marketing) and
e-business tools (e.g. Web banners) that are structurally changing the
way business is conducted. The e-business set of processes can be
grouped in five major groups: Revenue (sales, marketing, advertising,
etc.), Service/E-Care (the new CRM component), Expenditure or Supply
Chain Management (purchasing, logistics, delivery, etc.), E-Financial
Processes (Accounting, Finance, Auditing & payments) and Asset
Management (HR, Fixed Asset, R&D, etc.).
Figure 1: The eElectronization of Business and the Customer-Oriented
Value Chain
Sales, marketing, advertising, and e-care are the core of the
e-commerce business phenomenon. One-to-one marketing (where large
customer databases link much information about clients and create very
efficient leads) is linked to very highly tailored advertising
mechanisms. The firm knows the client and when he/she is connected to
the Internet it fires off a series of individually targeted banners
catering very closely to the client's needs. When a customer responds
to such advertising and a sale follows, e-commerce is then fully
realized.
Electronic care (e-care) is an emerging process of the new
organization. Typically, consumers expect that tTechnologically rich
products needwill have a high level of, and possibly superior,
technologically based support. For example, consider the level of
technological support that a customer would expect from an online bank
versus a small, local credit union with little or no online presence.
The online banking customer would expect to view his account, make
payments, transfer money, apply for loans, and perform any other
desired services online in a 24/7 environment, whereas the local
credit union account holder may not even hold an ATM card and do
banking in a much more traditional fashion. E-care, which is a mix of
e-mail, web based support (i.e. customer self-service), and, when
essential, phone support, is cheaper and more powerful when properly
administered than traditional approaches. Organizations are
increasingly finding that the same stringent standards of traditional
care must not only be applied in the e-organization., but enhanced as
poor or weak business practices become transparent when “advertised”
on corporate websites.
The e-business revolution is in its initial phases and will
progressively take over all processes either directly or indirectly.
The distinction of traditional (manual) commerce and e-commerce will
disappear with all processes being either digital or aided by digital
processes. The pace of this transformation will differentiate winning
and losing competitors, industries, and successful investors. The
intrinsic nature of the product and processes, as well as both the
dynamics and inertia of corporations and industries will determine the
pace of change and the gains in productivity. Similar to the
telephone, railroads, and electricity; the Internet has radically
altered modern life.
2.2 Driving effects
An entirely new set of driving effects of commerce is emerging. Five
primary effects and their implications for IS are discussed in this
section.
*
First, the realization that a Malthusian physical world gives way
to a place where information is abundant and eyeballs limited
(Schwartz 1999). The provisioning of financial information will
tend to be abundant and ubiquitous with human information
processing and disclosure limitations as the main obstacles to
utilization. One can envisage an XBRL-based world with
corporations posting different levels of aggregation of financial
information on the Web and spiders with formation sniffers
bringing it to desktops enabled with spiders, filters and
analyzers.
*
Second, the realization that paradoxes exist due to technology,
and that paradigms of the e-World may include giving away goods
and services for free, not protecting software against privacy,
and paying for users and site visitors. New models for financing
information dissemination may emerge with individual users paying
for information, companies paying to be included in selected
filters, and individuals paying for analysis and correctness
scrutiny (data level assurance) of the information being received.
The fall of Enron and Andersen raise the question – for whom is
the audited information produced and whom should pay for it?
Theoretically, auditors are not supposed to be client advocates,
but rather a purveyor of reliable and trustworthy financial data
to external stakeholders that are faced with a moral hazard
scenario. Assuming that accountants provide valuable and accurate
information, new models may be developed where interested users of
financial information pay for the data from the accounting firm or
its agent.
*
Third, the meaning of the words competitor and industry are
changing. In the faceless world of digital, international trade, a
company’s customers and suppliers of today are its suppliers and
customers of tomorrow. They are also likely to be the company’s
competitors and allies. Organizations are outsourcing and creating
alliances to at an unprecedented level. New forms of accounting
for these entities will emerge even if without statutory approval.
XBRL will enable “loose form” consolidating of partial entities
allowing for information users or corporate stakeholders to
understand the specific value chain and the effects of particular
events / trends.
*
Fourth, as industries blend and change, affiliation agreements
allow for the creation of entire product cycles without the
ownership of inventory or production facilities. Inventory
accounting, measurement and management are being transformed, but
current standards do not deal well with them. Direct disclosures
that are online-real time will allow for better understanding of
the value components and their ownership. The challenge is for the
accounting profession to develop standards that support the spirit
and nature of such affiliation agreements. The accounting
profession must be able to deliver good, reliable and timely
measurements of both the results of operations and the health of
the companies involved in affiliations to interested stakeholders
in both summary and detailed data as desired by the information
users. XBRL will be a useful vessel to deliver and retrieve this
information.
*
Fifth, current pricing models are changing and hybrids of fixed
pricing, auctions, variable pricing, contingent pricing, and name
your price pricing are emerging and creating new business models.
Alternate pricing models are creating havoc with revenue
measurement. The difficulties of valuing Priceline and E-Bay
transactions for their corporate reporting illustrate this fact.
Many other effects in the financial cycle are emerging as a
consequence of electronization. Later in this paper we specifically
examine emerging changes in the measurement process, the assurance
process, and corporate finance.
2.3 Mode of Electronization
Main Venue
Great differences exist in the electronization of B2B, B2C and B2E2
processes. The business-to-business (Sawney, 1999) sector of
E-commerce presents both vertical and horizontal models. In the
vertical model, firms focus on an industry and develop great industry
expertise to develop markets. In the horizontal model, firms focus on
one type of product or service and offer it across industries (e.g.
internet payroll services). The business-to-business sector is
intrinsically different from business-to-consumer. Business buyers are
usually well informed, possess many resources and can negotiate based
on volume. Brand name is much less of a consideration than price,
quality, delivery time and reliability. Three different models have
emerged for business-to-business transactions: 1) the e-catalog model
for situations where many different items at distributed locations are
offered and price is fixed (e.g. auto parts), 2) the auction model
where products are not standardized and great differences exist in the
perceptions of value (e.g. auctions of used capital plant products),
and 3) the commodity auction model where few variations are available
for the type of product and a large number of buyers and sellers
(natural gas, pork bellies, coffee, etc.).
Electronic commerce is progressively and irreversibly changing the
facade of many businesses with three dominant phenomena discussed in
the following section: re-intermediation, deconstruction and
cannibalization. Related phenomena include: bitable goods and
e-commodities, customer demands for information, industry morphing,
techno-intensification, and re-channeling. After this discussion, the
main effects of these phenomena are discussed and eight propositions
presented that relate to their impact on AIS.
Dynamics and Industries
The natural evolution of electronization is that industries will focus
on the electronization of their key processes and create leaderships
on their major competencies. For example, Federal Express leads
logistics and Cisco is among the leaders in E-Learning. These
leaderships will eventually be transported to other industries that
have less reliance on these key processes but can benefit from the
technology and electronized processes. For example, package-tracking
technology is being integrated in the e-care portion of Dell customer
relationships. Also, an increasing reliance on remote electronic
transactions for information dissemination, billing, record keeping
and payments is electronizing bBanks and electronic brokerage houses.
The measurement and assurance world of the CPA/CA firms has led to the
development and electronization of the field of knowledge management
and has been one of the main beneficiaries of office automation, in
particular for its mobile devices. The CPA firms are increasingly less
dependent on manual staff labor and paper-based documents. Due to
their semi-partnership organizations, these firms have not made the
long term investments necessary to be leading the electronization of
these processes and advanced methodologies in automated working paper
management, group work support, continuous reporting and continuous
assurance have lagged.1
3. PRIMARY EFFECTS OF ELECTRONIZATION
-------------------------------------
Business has been progressively electronized throughout the industrial
revolution. The advent of electric sorters, typewriters, and the first
few generations of computers have affected organizational
efficiencies, bringing in more cost-effective processes. The
introduction and use of computers has substantially changed the
efficiencies of back office processes, initially focusing on natural
applications that replaced labor, such as utility billing and
corporate payrolls. After labor-saving applications, business started
to focus on analytic efforts such as Management Information Systems
(Laudon and Laudon 1999)2, Decision Support Systems (Turban and
Aronson 2000)3, and Executive Information Systems (Rockart and DeLong
1988)4. Personal computers allowed for productivity enhancements that
focused on the desk-top and white collar processes which characterized
the mid-eighties to mid-nineties.
While computers were being developed an even stronger effect emerged,
the change in the nature of telecommunications and computer
interconnections. These interconnections moved computers first from
independent batch processors, to time-shared machines, to parts of
corporate networks, and finally to the current environment of
interconnected networks with symbiotic relationships across a
ubiquitous public network.
The business processing and telecommunications evolution has been of
major value to businesses by creating the current cycle of
revolutionary change that we call the electronization of business.
Furthermore this transformation is causing permanent effects that
permeate the organizational arena. The main effects of the
electronization of business that are redefining areas of action and
methods of work are discussed below.
3.1 The Value Chain – Internal and External
The corporate value chain links the different processes along the
value creating exchanges between different entities. Less discussed in
the literature is the internal value chain where several internal
corporate processes cooperate with the goal of adding value by aiming
to perform specific functions fulfilling both global and local
organizational objectives.
In the value sequence, a series of inputs are provided to the
organization through traditional logistics and the Internet. These
inputs include raw materials, patents, services, labor (in the form of
external service contracts), etc. These inputs are brought into the
organization and receive added value or are consumed in the process of
providing customer added value. Ultimately, outputs are delivered in
the form of products or services to the clients, and these are
becoming increasingly intertwined. The client value includes the
product and a series of informational services that are necessary for
business activity. For example if you are selling a printer you must
have supplies, instructions, billing services, warranty services,
customer support services, etc. Added value services, mainly of
bitable nature, are being rapidly electronized and changing in terms
of performing agent (who performs the function, the organization,
outsourcer, or affiliate), nature of the process, and the velocity of
its completion.
The bitable part of the value being delivered can be substantially
supported by electronic distribution mechanisms. EDI, voice response
systems, and call centers are technologies progressively supporting
these processes. Extranets are a selective use of the corporate
Intranet that is opened to third parties. The internal corporate value
chain is composed of many processes (some sequential, others parallel)
such as marketing, advertising, research and development, production
planning, production, financing, accounting, auditing, etc. These
processes create value for the corporation in facilitating and
producing its final product regardless whether it is a service,
physical good, or bitable goods.
The accounting profession will have to adapt the choice of guidelines
and tools used in order to best service its client base. Accounting
firms will increasingly be faced with new challenges and opportunities
for serving their clients. For example, as the protection of personal
information becomes an increasing concern and firms must conform with
new legislative requirements, accountants will need to aid client
organizations in assessing related risks and achieving compliance.
Accordingly, standards setters need to modify or create standards to
appropriately deal with the digital environment (Greenstein and Ray
2002).,.5 One such example of the work that needs to be done in this
area is the FASB’s Emerging Issues Task Force Issue No. 00-x4,
Accounting for Advertising or Other Arrangements Where the Service
Provider Guarantees a Specified Amount of Activity. As of
midlate-2002, this Issue still had no description and its status was “currently
inactive pending further progress on active EITF Issues, receipt of
additional information, or further developments in practice.”
Proposition Emerging Business Issue 1: The accounting / auditing
financial services value chain will beis permeated with new challenges
necessitating the development of new tools and guidance methodologies
and tools to facilitate performance.
Research OpportunityProposition 1 2: New players will emerge in the
assurance and financial services value chain providing site-specific
services. Identification of these new players and theory development
regarding how they affect traditional service providers is necessary.
3.2 Deconstruction
With the progressive advent of e-business, a trend has emerged: the
progressive outsourcing or alliancing-out of parts of the internal
processes. Furthermore, unorthodox competition (often pure-play
entities) is coming into the market attacking the noble points or core
components of the chain. Figure 2 represents this concept with
different elements of the internal value chain and the main
organizational effects that are impacting it.
Figure 2: Deconstruction
Take the example of an automobile manufacturing concern. Over the
years, automobile manufacturers have provided an integrated set of
processes that resulted in the delivery of a car to a dealership that
is eventually sold to a consumer. Producing and delivering this
product entails research and development, engineering, manufacturing,
information tracking about the car, logistical arrangements for
delivery of the car to the dealer, and servicing. Deconstruction
analysis breaks the array activities into discrete components and
considers each component on its own merits. Modern organizations have
strategically entered into alliances and outsourcing to focus on
critical competencies and competitive advantages. For example, an
automobile manufacturer may decide that its core competencies are in
engineering and research/development. As a result, they may decide to
outsource the tasks of manufacturing, information trackingsystems, and
logistical arrangements for delivery of the cars. Affiliations can
serve to share in the proceeds of any part of the process, e.g.,
information systems, without having to dedicate any substantive
resources to this process. Alcatel is an example of a company shedding
manufacturing and focusing on other aspects of the value chain.
Alcatel recently announced that they would abandon the manufacturing
process and sell 120 of their 130-plus production facilities (Perera
2001)6.
As businesses continue to increase efficiencies and increase their
bottom-line figures, the accounting, auditing, and financial services
functions in firms will be more closely scrutinized for the value they
add to the firm. This leads to another emerging business issue:
Proposition 3Research Opportunity 2: Like other industries, tThe
accounting profession’s / auditing financial services value chain
needs to be examined from a will be deconstructedion perspective, in
particular to identify with the feasibility and value-added potential
to be gained from the separation of sets of current services.
3.3 Bitable goods and e-Commodities
A bitable good is an item that can be transmitted over the
telecommunication network in the form of binary digits, better known
as “bits.” Among bitable goods are found most financial products
(banking products, insurance products, brokerage products), software,
music, videos, and information of many types. Advanced societies have
evolved to less manufacturing and more services. Advanced economies
have also focused more rapidly on developing bitable products and
their distribution. As noted earlier, a large part of the value
delivered in non-bitable goods is its information component that is
bitable by nature. Consequently, even most firms with a physical
product (e.g. a palm pilot) have a substantive part of their
value-added bitable in nature (e.g. free news services and fee-based
messaging services).
An e-commodity is a good sold online that does not need to be seen,
touched, squeezed, tasted, or tried on by the consumer to be
purchased. Factors like reputation of the vendor, experience by the
consumer, distance from the source, and availability of the good, may
change non-e-commodities to e-commodities. The amount of information
that investors can get online is vast, and the production and delivery
of such bitable financial information may become an e-commodity to the
naïve investor. The challenge is for information disseminators to
differentiate themselves as being providers of superior information to
avoid being a provider of an e-commodity.
Proposition Emerging Business Issue 24: The accounting accounting /
auditing financial services industryprofession, being the distributor
of a bitable good, information, willis rapidly become transforming
into an e-business., As information production is increasingly
electronized, members of the accounting profession will increasingly
have to identify and convince the markets of the value their services
add to the electronic production of information in order to minimize
the effects of in particular with effects such as commoditization of
information production and dissemination and globalization.
International competition, increased information, comparison Web Sites7,
and the ability for any firm to globally place itself through a
judicious mix of alliances, outsourcing, and physical presence in
different markets will bring increasing commoditization to products.
Because AISs are a subset of ERP systems and can be delivered by in
the form of ASP services, auditing, and professional financial
services are being severely commoditized and eroding some of the brand
advantage of the big four accounting firms (Greenstein and Ray 2000)8.
The recent accounting failures of Enron and Worldcom, among others,
indicate that the accountants can add or detract value from the
electronized processes. Research is necessary to identify the ways in
which human judgments or programmed expert systems reflecting related
decision models of accountants and electronized AIS processes can be
combined to add value and safety to the market.
s (ERPs) and will be commoditized.
3.4 The Customer View
Customers do not see their needs the same way a company does. Merck
may see a customer as the buyer of a drug, while the customer may be
trying to acquire the solution / or cure for an ailment which may also
include medical insurance, food products, prosthetics, etc.
Internet-related technologies have progressively allowed organizations
to better satisfy needs of clients. By creating value bundles of
products and services offered by meta-organizational entities (higher
level entities that offer integrated service and products from more
than one entity), these needs can be satisfied. One modest form of
these offerings is through specialized portals that focus on one
particular set of meta-needs. For example, a diabetics portal will put
together bundles of offerings to satisfy diabetic needs, while the
same offered items and services are offered in a different way and
with different components to satisfy other customer views. Because of
the need for a customer-centric focus9, AISs must change their
emphasis from pure financial numbers to encompass broader business
measures of customer satisfaction, markets estimates for bundled
products, and other customer-driven information. The accounting
profession must also consider its new business environment and the
implications of a customer-centric society.
Proposition 6Research Opportunity 3: The normative accounting model
that has guided the accounting profession from an information-user
perspective needs to be updated in the context of a digital
environment. A particularly challenging issue to untangle is “who is
the customer”.
Substantial dissatisfaction will emerge duehas already surfaced due to
the lack of customer-orientation of accounting and auditing processes
and new Internet-based methods and products will emerge.. In the
traditional assurance function, a challenge is that the customers for
the produced information are not the same group as those paying for
the services. Thus, the normative accounting model needs to be
enhanced to consider the difference between customers of information
produces and clients that pay for the production of information.
Accountants will increasingly need to sharpen
Ttheir ability to direct a message that is very much based on the
profile of a particular client customer and tailored to the perception
of that client’s customer’s needs.
Another issue related to e-marketing tactic is the use and measurement
of mass-customized marketing techniques. When used properly, theseThis
practices will substantially increase the hit ratio of advertising and
revolutionize businessmarketing strategies. Wide-brand advertising is
giving way to narrower, personalized advertisements and marketing. As
such, the measurement and reporting of advertising costs per customer
becomes feasible if the underlying information systems are
appropriately designed to facilitate such information production..
Emerging Business IssueProposition 7 3: New AIS structures and
accounting principles are needed to incorporate marketing and customer
measures into the reporting and management framework. One to one
structures will eventually be part of the firms accounting methods and
marketing costs, in certain service industries, can become “above the
line” production costs..
3.5 Industry morphing
One of the key tenants of financial analysis and business strategy has
been the concept of industry and industry codes. The Internet and
modern e-business have not only created entirely new types of
industries, but they have also greatly confused the concept of
industry by deconstructing and reconstructing value propositions.
Businesses are often composed of many parts that belong to different
industries, and businesses work on morphing towards the components of
their work that are more profitable or in which they have a
competitive advantage. The modern e-business may be seen in the future
as an aggregation of elemental atoms (business processes) that support
the value increment process. chain. These basic atoms (owned or
outsourced) will better define lines of activity than the current
oblique industry classification. On the other hand, businesses often
maintain parts of their businesses with which they are identified even
if these are a small component of all their activities. GE, a leading
US industrial entity, still has its refrigerator division, but GE as
an enterprise is a major conglomerate with more than 100 diverse
units.
Intuit is an example of an evolving organization focused on strategic
diversification. Intuit began its diversification with the acquisition
of Chipsoft and the PC tax software Turbo Tax. Intuit subsequently
entered the ASP market by offering Internet access for the QFN
(Quicken Financial network) portal. It also made an affiliation
agreement with Checkfree to facilitate payments by customers.
Eventually it made agreements with over 100 banks to connect directly
from the desktop to the bank activities allowing availability of
checking information, capability to make payments, and ability to
conduct other semi-online activities. Intuit now offers an extensive
program of insurance, loans, market information, etc. Intuit,
originally a software developer, has evolved into an integrated
financial services provider by carefully choosing which sectors of the
financial industry it will enter, affiliate, or avoid.
From an accounting perspective, traditional accounting research relies
very heavily on “industry analysis,’” with heavy usage of SIC codes
for corporate clustering and comparison. These SIC codes have become
less meaningful for such research purposes because the many diverse
businesses in which conglomerates, such as GE, operate. New views of
company classification must emerge as well as better rules for segment
disclosure (SFAS 14) as not enough information is provided for
meaningful business comparison along a very segmented (atomized) value
chain. Research conducted prior to the New Economy(Greenstein and Sami
1994)10 found that segment reporting may have indeed resulted in more
informative and finely partitioned information sets being presented to
investors.
Research Opportunity 4: Current rResearchers need to examine the
current level of heterogeneity actually represented in segment
reporting of such conglomeratesbusinesses which have atomized and
outsourced many aspects of their value chain.
Accounting firms have also morphed into conglomerate professional
service firms emphasizing consulting and legal services. Although the
trend is to now spin-off these consulting arms, what remains in the
professional services firms still encompasses more than just
traditional financial audit work. Many legislators are advocates of
negating these multi-services firms by statutory means. The recent
enactment of Sarbanes-Oxley Act of 2002 restricts the extent to which
the diverse services can be offered by the audit arm of these firms.
Regardless of how this plays out, Regardless of where these financial
reporting audit services are offered, a challenge to the profession is
that much of the monitoring and control revenues will increasingly be
electronized and programmed into software modules. Therefore,
accounting firms must understand that their business environment is
changing due to the electronization of what their core products,
providing control and assurance over information systems and producing
financial information.
Emerging Business IssueProposition 48: The “software industry” will
progressively take a larger and larger share become a competitor of
firms in the accounting profession and represent a threat to of
therelated accounting and auditing revenues earned by from accounting
firms.
3.6 Techno-intensification
The electronization of business processes has as a basic tenant
techno-intensification - the increased use of technology and its
consequent increased capitalization and decreased human resource
intensity. Most electronization processes focus on decreasing the
labor content of its activities through a judicious usage of
technology. With this factor, the intrinsic nature of technological
processes assumes an important role in e-business. Businesses are
progressively:
*
Having larger and larger capital investment per employee;
*
Relying more extensively on third parties for equipment
installation, provisioning of software, equipment and software
maintenance, etc.;
*
Hiring more technically proficient personnel;
*
Training personnel on technical matters on a continuous basis;
*
Producing items with higher value per pound;
*
Executing rapid and efficient processes;
*
Providing availability 7 x 24 x 365 (seven days, 24 hours, 365
days a year); and
*
Experiencing high vulnerability to down time due to increased
importance of systems.
Techno-intensification creates interesting accounting reporting
problems as companies will invest in building human resources,
performing R&D, and obtaining technology in unorthodox ways while, for
example, our accounting rules often do not allow capitalization of R&D
or of massive expenses on human training for help desks. Our
accounting rules also deal very poorly with the assurance and
disclosure of assets and investments in joint agreements, affiliations
and alliances. The next emerging business issue follows closely to the
previous one:
Proposition 9Emerging Business Issue 5: In order to remain competitive
and to address the current and emerging digital business environment,
tThe accounting / auditing financial services industry will have a
larger and larger software / hardware component.
Proposition 10: The accounting / auditing financial services industry
will have increasing billing per capita due to the progressive
elimination of lower level manual processing jobs.
3.7 Re-channeling
As mentioned previously, the deconstruction of business implies a
breakdown of the different business components of its main processes.
Some of these components are then potentially divested through
outsourcing, alliances, or competition. Re-channeling also implies
that businesses may change their focus to related products and
services. As a result of the atomization of value-added processes, a
company may selectively opt for contributing only profitable or
critical processes. Opportunities may also arise where a business
chooses its most promising or expertly run processes and considers
them as separate products. For example, an European manufacturer of
truck frames is launching its welding process (a sub-process of the
assembling and manufacturing) as a separate product line, and thus
re-channeling the division’s efforts.
Another form of re-channeling is when companies change their methods
of distribution or sales to take advantage of the Internet. Most of
the dis-intermediation that is occurring in the brokerage, auto sales,
and travel industries (decreasing or eliminating agents) is a change
from traditional to electronic channels. Re-channeling is less
radically affecting other markets as well. For instance, the
progressive increase of Internet sales by CircuitCity.com implies a
change from the traditional brick and mortar channel to an electronic
channel or a click and mortar channel where customers buy over the net
and pick up the product at a physical store. This re-channeling
cannibalizes brick and mortar stores through re-channeling some sales,
but it may also stimulate the entire market for electronics.
Re-channeling raises interesting company measurement issues and stress
on its AIS. While massive sales to dealers and intermediaries pose a
certain set of information needs, the direct dealing with customers,
and providing them with service transparencies and customer service
related information poses a different, more voluminous and exposed set
of informational requirements. The implication for the accounting
profession is that we need to consider how our own industry needs to
consider rechanneling. For example, oOur traditional corporate
performance ratios and other information reporting services need to be
expanded enhanced, perhaps even redesigned, to with measures focusing
on the direct delivery channels.
Proposition 11Emerging Business Issue 6: Tax, accounting, assurance,
and financial services will increasingly be re-channeled to be
delivered by online means.
A new era of service is emerging as many of the production functions
are moving to countries where labor is cheaper and plentiful raw
materials reside. Also contributing is the sophistication of business
processes brought about by the information age that creates complex
information management opportunities. This service initially
surrounding new e-business ventures will propagate to traditional
business creating new stages of business and expanding the traditional
business venue. For example, Dell and UPS are now adding the computer
set-up service to Dell’s provisioning and UPS’s logistics.
Proposition 12: An entirely new set of remote accounting, tax, finance
and auditing work will evolve. The definition, regulation,
professional standards and professional entities to perform this work
need to be defined.
Another issue regarding re-channeling as it relates to AIS is the
relative value-added of various services offered by the accounting
profession. The atomization of the services offered by the accounting
profession may actually have lead to the loss of perceived value-added
of the traditional audit function. The high-value, technical aspects
are internally outsourced to a separate team (Greenstein and Ray
2002).11 As legislators increasingly examine the numbers provided to
the General Accounting Office for audit vs. non-audit fees in an
effort to examine a firm’s independence, accounting firms will also
have an incentive to more accurately categorize atomized support
activities as audit services.
Proposition 13Emerging Business Issue 7: Accounting Assurance and risk
management services will increasingly be morphed by reengineering the
traditional audit function to incorporate many of the internally
“outsourced” functions, such as network security assessment, as
opposed to re-channelled to increase the value and scope of activities
that are directly related to the traditional audit.
4. PROCESSES, THEIR ELECTRONIZATION AND THEIR TOOLS
---------------------------------------------------
This section focuses on the meta-processes that can be viewed as the
most important and most affected by electronization. These meta
processes are discussed and their implications for AIS are presented.
4.1 Customer Relationship Management
Customer Relationship Management12 (CRM) has progressively encompassed
an increasingly larger importance in the evolution of business. Many
organizations in the past have neglected the ultimate consumer by
focusing on their immediate customer, the intermediary. For example
auto-makers focusing on the dealers; pharmaceuticals on doctors and
pharmacists, airlines on travel agents. With the progressive
dis-intermediation of many of these intermediaries, business entities
are attempting to focus on the consumer through extensive efforts of
identification, construction of databases, and creating methods of
interface. Simultaneously, products and services are progressively
more technologically rich.
The three main components of a CRM package – sales force automation,
marketing automation and call-center automation – have existed for
over a decade. They have been fulfilling the corporations’ need to
collect customer information to better understand their user base and
to let employees in the front office do their jobs more efficiently.
Many smaller firms have been attracted to a wide-open functional
niche: Internet-enabled sales, marketing and support.
The evolution of IT with knowledge systems based on data warehouses,
data mining, marketing databases and profiling allows for an
unprecedented targeting of accuracy. Three tools of modern IT and
logistics come together in facilitating the evolution towards one to
one marketing (Peppers and Rodgers 1999)13: Data warehouses, data
mining tools, and client profiling. These tools put together in a
judicious marketing plan allow for the improved utilization of the
e-business environment by taking advantage of the intrinsic
characteristics of the environment. This plan allows for: 1)
geographic focus, 2) timely reaction, and 3) customer focus.
While a large store of customer data have existed over the last decade
in many companies, the rise of the Internet and e-business has
allowed, and even required, companies to use this data on a
continuous, interactive basis during the interaction with the client.
Some instances of this use entail:
*
Credit card companies: approval of a particular transaction at the
moment of transaction;
*
e-tailers: suggestion models during the moment of purchase (e.g.
customers that bought this item also bought these…); and
*
Routing: geographically based suggestion models linking
geographical map and wireless communications (e.g. in order to go
to the museum you must take route 23, by the way you can buy gas
on route 23 with the enclosed coupon).
Progressive levels of one-to-one marketing are facilitated by several
different technologies that bring increased efficiencies to the
process. Noteworthy technologies are:
*
Extensive databases of client characteristics and profiles;
*
Banner provisioning: based on knowledge of client characteristics;
*
Suggestion models based on client characteristics;
*
Product bundling based on the customer view; and
*
Progressive integration of the mobility characteristics of
customers for M-Commerce (e-business transactions performed on
mobile devices such as cell phones and PDAs).
By tracking the sites users visit and how they use the sites,
marketers can build complex portraits of individual users. Special
tools can draw information of particular tastes and tendencies that
questionnaires and surveys fail to capture. Amazon.com and
LandsEnd.com have web sites with tools that enrich the buying
experience and at the same time provide interesting and valuable
experience to the merchant.
Data warehouses may link a series of different sources of data or may
bring this data into a common receptacle. Traditional data warehouses
could contain financial databases (banking, credit card, and credit
references), scanner data (from purchases in supermarkets), census
data (for building profiles), and more recently, Internet type data as
click paths and accessed web sites. Massive data warehouses with
terabytes of data present interesting and challenging storage and data
mining issues for companies.
The e-care market has attracted many actors including well-known
software providers such as Oracle and PeopleSoft. Most ERP suppliers
are adding a CRM module to their products (e.g. SAP). Even smaller ERP
vendors, such as Great Plains, are offering CRM modules for their
products. The competition between IT providers is getting tough as the
CRM market is expected to drastically increase in the near future.
According to IDC, the global revenues from the CRM services markets
will increase from $34.4 billion in 1999 to $125.2 billion in 2004.
Oracle Applications14 v1 offers a free CRM module. This module
provides a more efficient set of data about the customer. Oracle
offers also CRM outsourcing,15 the management of the customers for its
clients. The information will be made available through WAP and PDA
devices16. CRM provides not only office-based services, but also
progressively more information and services through mobile devices.
These will bring new ways of communicating and servicing customers
from the very first stage of the product ideas and research and
development through to the offers to the customer and the relationship
management. As acquiring a new customer is on average eight times more
expensive than keeping a customer, CRM systems are a required and
critical layer of any information system.
Web pages that adapt to the clients’ information (my.yahoo.com,
my.ebay.com, mySAP.com, myCity.com) as well as products that can be
mass-marketed, but individually tailored (e.g. custom Levis jeans,
custom mountain bikes, custom tires by Pirelli, custom shoes by Nike,
etc.) will become more common and widespread. Customized measures and
reports are emerging over the Web, and these will permeate the AIS
world as well. For example, a stockholder in the future may wish to
know how a firm’s earnings announcement affects them.
Mass-customization tools can be used to illustrate to each
stockholder, based on the number of share they hold and the types of
share, how specific accounting drills down their own personal
shareholder value. Also, cost accounting systems will need to be
designed so that accurate cost numbers can be determined from
mass-customized products that are offered to customers. This will
demand that the AIS systems have embedded in them advance dynamic
pricing modules.
Research Opportunity 5Proposition 14: Designers and researchers of AIS
systems need to be at the forefront of of mass-customization and
dynamic pricing technology and theirits integration into AIS reporting
systems.
As consolidated databases are built, however, consumer concerns of
privacy-related issues arise. AISs need to incorporate well-thought
out privacy policies for data warehouses and systems that use
profiling. A breach of a stated privacy policy when handling consumer
data can result in loss of customer faith and/or class-action
litigation. Certain industries in the US have privacy legislation to
which they must adhere, such as the Gramm-Leach-Bliley Act for the
financial services industry, Health Insurance Portability
Accountability Act for the healthcare industry, and Children’s Online
Privacy Protection Act for the online industry. Further, US companies
that have operations, employees or customers in other countries also
face an array of strict privacy legislation, such as the US’s Privacy
Directive (Safe Harbor Provisions apply), Canada’s PIPED Act, and
Australia’s Privacy Act. While the accounting profession is trying to
make place a stake in the privacy assurance field, so are software
companies, attorneys, and security consultants. The bottom line is
that AISs are affected by the data they collect, the security over
data storage, and how the data is used by the AIS and other ancillary
systems.
Proposition 15: AISs need to comply with privacy acts in regulated
industries and evolve to provide best practices for non-regulated
industries.
Emerging BusinessResearch IssueOpportunity 6#X: A comprehensive
normative framework for incorporating privacy controls into accounting
and business information systems is needed.
4.2 Production and logistics (Supply Chain Management - SCM)
While bitable goods present a very different type of supply chain17
with a different logistics model, brick and mortar companies are
increasingly benefiting from the power of inter-networking.
Inter-networking technology solutions link together the systems of the
various players in the supply chain so data can be shared in an
apparently seamless fashion. Middleware is typically necessary to
facilitate inter-networking. Applying inter-networking to the supply
chain can bring great efficiencies to corporate production, storage,
distribution and acquisition processes. Supply chain management
(Christopher 1998)18 has benefited extensively from:
*
Electronic catalogs that point towards inventory of multiple
provisioners;
*
Product tracking through different entities and phases;
*
Web processes that manage the distribution of cargo;
*
Supplier Vendor managed inventory (VMI);
*
Shared and distributed manufacturing processes; and
*
Shared inventory management.
Supply Chain Management is one of the five core areas of the
electronization of business. Since brick and mortar transformation has
been slower than in the bitable goods area, the productivity gains
acquirable from this area are just beginning to be realized. The next
several years will present many opportunities for competitive
advantage in SCM.
AIS are intertwined with SCM and the controls and reliability around
such systems are of tantamount importance. Increasingly, the
selection, implementation, and maintenance of such SCM systems that
are an integral part of the AIS make assessing the controls of the AIS
financial systems component in isolation meaningless. Large integrated
systems continue to challenge auditors to comprehensively perform
their traditional control assessment tasks. The cost-benefit analysis
of unreliable and insecure SCM systems include significant risks
associated with unstable or unreliable systems.
As part of SCM, companies are linking their Intranets to other
companies’ systems. Often these companies open their inventory records
and allow providers to manage inventory and decide on inventory
composition, reposition, and changes. Dell, in the provisioning of
large orders of computers to their corporate clients, links the
client’s’ Intranets to Dell’s hardware customization as well as
creating middleware to allow for automatic approval, billing, and
payment. The interweaving of systems and structures creates allocation
and measurement problems that accounting standards cannot currently
resolve.
Emerging BusinessResearch Issue Opportunity 7#Y: A normative framework
for inter-networking contractual arrangements among value chain
partners needs to be developed along with nNew accounting measurements
for contractual such arrangements among the partners in the value
chain must be developed.
4.3 Financial Processes
Organizational Finance Departments are substantially benefiting from
the technologies that the Internet brings to the platter. Most
organizations today will have a finance area that also has accounting
responsibilities. On top of an infrastructure of information
processing systems, typically legacy and/or ERP systems, new methods
and tools exist for corporate measurement, assurance, and financial
management, several of which are discussed below.
4.3.1 The Measurement Process (Accounting)
Accounting is the process of business measurement. In order to provide
meaningful measures, a series of concepts must be assumed. These
concepts provide a framework of processes around which measurements
assume some meaning. For example the concept of FIFO (First in, First
Out) is a concept of the physical flow of inventory that assumes that
the physical units that were first received were the first sold, while
without specific identification this is not known. While identifying
the actual units may be irrelevant for some particular measurement
purposes, they may be very relevant to other measurement processes,
such as the inventory count and value of cars of a specific car dealer.
Accounting standard setting has assumed a business model for
establishing the principles that allow comparability among financial
statements. For example, the Recording Industry Association of America
(RIAA) primarily produces digitized assets, yet how is their value
measured. What if these assets are stolen? In its battle against
online theft of its assets against Napster, specific daily statistics
of the number of unauthorized downloads were submitted as evidence in
court. However, the theft of such assets by the member firms of the
RIAA have not been reported to either the SEC or the firm’s
stockholders in their annual reports. Does this mean that the assets
were not really stolen? Do accountants need to be concerned only with
the theft of physical not digital assets because measurement is an
insurmountable hurdle? What does it say about the going concern
assumption of an industry struggling to protect its asset base in a
new business/consumer environment. The questions need to be thoroughly
debated and research. The fact that they need to be pondered indicates
that cTheurrent accounting se standards have, therefore, a business
model assumed and some common sense assumptions about their usage. are
not necessarily designed to support other users’ information needs.
Developing, implementing and providing Mmeasurements are is
intrinsically costly. Every additional measurement taken has a
marginal cost. Particularly in management accounting, managers will
make decisions concerning the value of a particular measure and its
cost. Regulators have made these same tradeoffs over the years, but
the cost and capabilities of information processing have changed.
Currently, specific identification inventory valuation methods has
many more benefits than in the past, including leaner inventory
management, customer relationship managament and inventory tracking.
FIFO/LIFO inventory valuation methods don’t apply to digital assets,
and entirely newmeasurement and valuation methods are needed
The role of the accountant, if the profession is to grow and prosper,
will involve the measurement of multiple business functions beyond
just the financial processes. The advent of the “Balanced Scorecard”
(Kaplan and Norton 1996)19 exemplifies the potential for enhanced
measurement across many dimensions, most of which are non-financial.
Figure 3 defines some additional measures often used with marketing
and web issues.
Figure 3: Web Metrics
The role of the accountant in the electronization of business is that
of a measurement specialist that:
*
looks at the different processes and firm assets;
*
creates measures for them;
*
proposes and evaluates the implementation of measurement schemata;
*
analyzes the measurements and analytics received and incorporates
them into software solutions;
*
evaluates and proposes inter-process measures;
*
and advises management on the meaning of the outcomes.
As examples,Some examples include interactive database technologies
allow for efficiencies in variable pricing, name-your-price, group
buying, etc. that are changing the economics and the practice of
commerce. Also, new methods of cost allocations for the development
and maintenance of data warehousing devices are needed where that
warehouse services many different functions, such as call-centers and
R&D.
Proposition 17: Measurement rules for new business models must be
developed and incorporated into the accounting standards that drive
the design of AIS.
Research Opportunity 8: The accounting model needs to be expanded to
include a broader set of business measures. Research is needed that
will help identify optimal sets of related metrics.
In a highly connected, electronized world, a merchant can set up one
shingle and service any place in the world. New provisioning methods
and approaches will serve to complement the supra-nationality of a Web
site.
Proposition 18Emerging Business Issue 83: Effective supra-national
auditing and accounting rules will emerge to facilitate the management
and measurement of internationally de-constructed entities.
4.3.2 The Assurance Process
As a complement of the measurement function the new economy presents
opportunities for a wide range of different assurance services. The
AICPA, through the Elliott Committee,20 has established several task
forces to develop a set of expanded assurance services which include
WebTrust (assurance of Web Sites), SysTrust (assurance services on
System Reliability), Enterprise-wide Privacy assuranceprivacy
performance measures, and ElderCare (health care assurance services),
as well as a list of over one hundred and forty other services. The
crucial issue to understand is the motivations and causes of the
emergence, and potential importance of, additional assurance services.
Both the annual financial report and the consequent annual audit
report are old, maturing products with progressively less added value.
Statutory factors are prolonging the products life (as they are
required for a company to be listed), but their actual usefulness for
managers and investors has been decreasing progressively. On the other
hand, the following factors lead to the need for an entirely new
framework that links together theoretically entities, processes, set
of measurements (metrics), analytics and (rules), entities, processes,
and alarms to be developed:
*
increase in speed of business;
*
increase in the number of intraday investors;
*
increase in complexity of local and federal laws;
*
ubiquity of e-commerce; and
*
participation of several business entities in the life of a
transaction,.
Research Opportunity 9: A new integrated framework is needed to
theoretically link together entities, processes, metrics, analytics
and alarms
The se new set of metrics, rules, entities, processes and alarmsnew
integrated framework is are to be based on continuous measurement21 of
a set of internal processes, strategic metrics, and external
variables. Continuous measurement leads to internal continuous
reporting and monitoring. Eventually some level of external continuous
reporting will occur. The structure for process monitoring and
assurance is displayed in Figure 4. Wooodruff and Searcy (2001) have
already contributed to this avenue of research with their conceptual
model of continuous audit in the debt covenant domain using digital
agents and alarm triggers.
Error: Reference source not found Insert Figure 4 Here
Corporate metrics are provided by the process management information
system (MIS) on a real time basis. A monitoring structure on top of
the MIS links several disjointed systems, selects and filters data,
compares these metrics with standards, and if variances surpass
discrepancy standards, an alarm is issued. These alarms are issued to
operations, auditors, or eventually to other stakeholders.
Research Opportunity 10: Development of monitoring devices and related
alarms that support continuous assurance and the assessment of their
relative effectiveness.
4.3.3 Corporate Finance
The electronization of corporate finance is still emerging, but will
be one of the most important processes in many corporations. While
information production may be viewed as secondary to the primary tasks
in areas such as research and development and manufacturing the
product, the financial process is purely bitable and will rely on
purely virtual processes both internal and external to the company.
In the corporate finance area, great reliance will be placed on:
*
a progressive path to full paperlessness;
*
a progressive increase in e-care interaction with internal and
external clients;
*
continuous reporting;
*
the integration (extranets) with external entities such as banks,
clients, suppliers, regulators, and auditors;
*
an extensive use of a variety of assurance products;
*
an integrated set of analytic risk management algorithms;
*
continuous auditing; and
*
continuous confirmation of accounts, balances, and selected
transactions.
During the late 1990s, corporate IT changed dramatically. The causes
of change are the following technological enhancements: 1) the
interconnectivity of most processes, 2) the widespread adoption of
Enterprise Resource Planning Systems (ERPS), and 3) the evolution of
user interfaces connected to databases facilitated by the WWW. These
capabilities in aggregate, allow for companies to report their
financial statements (or a variation thereof) on a semi-continuous
basis. For internal management, organizations keep real-time records,
most likely of cash, receivables, payables, and inventory. Furthermore
bonds, commercial papers, and other short-term obligations are also
managed in a timely manner. Assuming that no liability is involved
(which is not the case) and that a desire exists, no obstacle is
present to disclose data on a real-time or close to real-time basis.
Cisco has often publicly mentioned its “daily book close,” but this
information is not made public or posted on its web site.
Progressively we will see more organizations trying to woo and support
investors and stakeholders’ activities by disclosing voluntarily more
information. Due to statutory concerns, organizations have started to
disclose more non-financial information as a way to inform investors,
but not to fall into the realm of liability issues.
The speed of business, in particular e-business, has created
additional impetus for the continuous monitoring and assurance of
online systems. While certain organizations22 have made efforts in
this area in the late eighties, current realities, such as the speed
of business and the preponderance of online activities has created the
need for continuous monitoring and assurance. The American Institute
of Certified Public Accountants (AICPA) and Canadian Institute of
Chartered Accountants (CICA) have been developing a set of concepts in
this area that will eventually develop into another assurance service
to add to the already existing Webtrust and Systrust products. The
latest committee (Continuous Systrust) has designed a blueprint for
the service, and it will now be relayed to a product development task
force.
Proposition 19: The accounting profession will be increasingly
pressured to deliver increasingly continuous financial reporting.
4.4 Human Resources
Many organizations with foresight have focused substantive efforts in
the electronization of many human resource functions through their
corporate intranets. A traditionally, very labor and paper intensive
function has been transformed to a large series of self-service,
automatic report functions, and database-enriched mini-processes.
These processes may encompass a series of services such as:
*
Administrative activities: employee data, company forms;
*
Career management: job adds, resumes, open positions;
*
Value of employment: compensation, benefits explanation;
*
Payroll: time reporting, W2, electronic funds transfers;
*
Employee Services: travel, electronic agenda, calendar, group
meeting tools; and
*
Health Management: Donor Services, HIP, Dental plans.
The area of HR has benefited extensively in its electronization of
ASPs that provide extensive, reasonably priced human resource service
providers. This approach of outsourcing IT for HR or the entire human
resource function has become very popular among startups that do not
have the desire or competency to develop in house these competencies.
For the accounting function and AIS, the management of employees’
compensation and benefit data, as well as employee travel expenses
need to be considered from an internal control and data integrity
perspective. As with any outsourced function where the financial
statements are based on information provided by an entity that
processes transactions on behalf of the client firm, SAS 70 applies.
The tasks performed by the other entity is considered to be part of
the outsourcer’s information system. The accounting firm in performing
an audit must perform a service auditor’s engagement in which they
actually go to the service organization and examine the service
organization’s description of its controls over the functions it
performs for user organizations (Scherinsky 2002). 23
Research Opportunity 11: Empirical research is necessary to determine
the scope and quality of service auditor’s engagemensengagements.
4.5 Research and Development
While the area of R&D brings images of individual creativity and
physical processes, it will be strongly affected by electronization.
The R&D area, in particular, has been benefiting from:
*
Groupware for distance work;
*
Large databases;
*
Telemetering and sensing;
*
Powerful databases;
*
Visualization software;
*
Powerful super-computers; and
*
Knowledge management systems.
In many industries, customer service data residing in data warehouses
will provide valuable R&D input for product enhancements and new
product development. Interesting accounting issues arise in the
allocation of cost of such data that serves diverse purposes, such as
support for call-centers and R&D activities.
Research Opportunity 12: Empirical research is necessary to determine
the extent to which cost allocation methods are being used and their
effectiveness across R&D and CRM activities.
5. MANAGEMENT ISSUES
--------------------
The dramatic advent of the electronization process results in the
emergence of phenomena like Amazon.com, E-Bay.com, and Cisco.com.
These firms’ loss of value in 2000 and the demise of many similar,
formerly highly-valued, players raises the question of how permanent
are these entities, and what are the management issues that arise and
may be perpetuated in the cyber-age?
Many traditional businesses venturing in to e-business have failed and
will continue to fail during the initiation period. The rate of
survival will likely be somewhat proportional to years of existence.
Consequently, the fact that reality is being played out and many
business-to-consumer (young) businesses are failing in the normal
Darwinian fashion of the economy should come as no surprise to the
business community.
Research Opportunity 13: Empirical tests of the Darwinism theory needs
to be conducted to examine whether the rate of survival is
proportional to years of existence. Underlying factors leading to
survivorship besides years in existence also need to be identified
from the empirical data.
Researchers will need to define “survival”. Does it mean exist in its
original form, purchased by another firm, merged with another, etc.?
Some issue to consider in this research avenue are thatMany issues,
however, are raised, managers are realizing that the economics of
e-business are potentially quite different. Experienced e-business
managers are progressively finding out that:
*
They should keep away from the excessive promotion expenditures
that have plagued dot coms;
*
They often will outsource a much larger portion of their processes
than traditional (non-EDI and non-ebusiness) businesses;
*
Often the incremental costs of products are small and the startup
costs are enormous;
*
Early entrants have great advantage in most new businesses
*
Supply and demand laws matter;
*
Most businesses should be positioned for growth based on
progressive increase in cash flow;
*
Earnings matter, but business plans can be designed for
progressive (multi-year) entry into profitability;
*
Price-earnings ratios often are not perfect ratios to evaluate a
dot com and other ratios, for example, market value to sales, must
also be used;
*
Well-known competent management matters;
*
Skills in traditional matters as logistics, billing, receivables
management, etc are important and
*
Funding is becoming much more competitive.
Each of these items can be examined when considering the above
research issue. Other items to consider areFurther, the internal
processes that companies must perform are changing dramatically. Some
of these major changes are:
*
an increased pre and post sale care;
*
an increased use of databases and user interfaces;
*
flatter organizations;
*
development of customer profiles;
*
an increased reliance on cooperation software;
*
much faster product-to-market strategies;
*
mass tailorization of customer interfaces
*
an increased reliance on third parties; and
*
faster turnaround of cash flow.
6. CONCLUSION & SUMMARY
-----------------------
AIS is not just about electronic commerce, it is about the broader
spectrum of electronic business, and as such, AIS standards and system
design need to reflect this broader specrum. The electronic business
juggernaut is not without its dangers and shortcomings. It is
drastically affecting traditional businesses that cannot continue to
work the traditional economic model. Examples given earlier, such as
the downward price pressure of brokerage fees illustrate the need for
businesses to rethink their business policies and processes. The
security weaknesses of the electronic commerce infrastructure have
been well-divulged. Viruses, security intrusions, and denial of
service attacks due to volume attacks are not phenomena that will
disappear. They will evolve in a continuous struggle between
facilitating technologies, intrinsic technological dangers, and the
management of these factors.
Privacy issues present a different set of challenges. The same
technology that facilitates business activities and provides wonderful
services is also a major threat for individual freedom. Large
databases linking dynamic economic activity information from different
sources (purchases, banking activity, medical records) provide great
economic advantages as marketing is more efficient, loans more
targeted, and medical information ubiquitously distributed. They also
create great dangers for privacy and abuse. Doubleclick.com, a
marketing analysis technology firm, tracks customer activities in web
sites. Their click-path analysis allows for firms to understand
customer behavior and improve their offerings. However, they have
11,000 clients and linking the buyers’ profiles in these sites
together is by far too intrusive for the Web privacy advocacy groups.
Complaints have been filed with the Federal Trade Commission and
boycotts proposed.
Solutions however are not as straight-forward as they may seem.
Creating illegalities by enacting laws actually creates arbitrage
opportunities and extraordinary margins for Internet players. Gambling
rules are stricter in the U.S. than electronic casinos that are
created in cooperative havens in the Bahamas. A legal obstacle in the
U.S. is a business opportunity for another country, state, or
municipality. Restrictions are placed on the usage and content of
databases in Germany, and then offshore database havens appear
immediately. Web site censorship appears in China, then free-Chinese
Websites are put into place. Telephone systems are monitored and taxed
by PTTs, then the creation of supranational satellite telephone
networks beings.
Consequently, easy fixes will not exist and new methods of
establishing order, efficiency and decency will have to be created.
Among these, as the Internet is a truly supranational entity, nations
need to band together to maintain order and efficiency and
reasonableness on the Internet. The same economic factors that allow
for arbitrage can also be used for self-policing and monitoring of the
electronic commerce environment. Companies, entities, and nations, in
order to benefit fully from this medium, must have payment clearing
solutions, customs solutions and access to the large markets of the
economy. Rogue countries can be excluded from the payment clearing
chains. Rogue companies behaving in unacceptable ways can suffer
boycotts and be excluded from any affiliation and linking deals.
Self-policing seals24, inspections and certificates can be used for
monitoring and supervision. International information structures,
involving many cooperating organizations can alert rogue behavior and
motivate the creation of reasonable, unbiased rules. Technology can be
used to monitor and detect money laundering, illegal product flows,
and information trafficking. The same positive monitoring could turn
into 'big brother watching' type of behavior and must be carefully
conceived and supervised.
The phenomenon of electronization is a heterogeneous one with firms
and industries developing features at different paces. Bitable
products and services and suppliers of e-commodities are ahead of the
game with substantive focus on improvements. Other industries will
observe this focus and piggyback on the developed technology through
inter-industry emulation and acquisition of competitive economic
advantage.
A pPrinciples underlying electronization were discussed considering
the internal and external value chains of the firm, the deconstruction
of business, bitable and non-bitable goods, e-commodities, customer
view, industry morphing, techno-intensification., and re-channeling.
Based on these concepts, a series of main effects on the future world
of business were made that included: globalization of markets, changed
business models, one-to-one marketing, customization of site and
product, integration of systems with clients’ systems, new e-services,
and the commoditization of products.
A very different business set of models and economy bring in the
questions on whether management and AISs knows how to work with the
new economics. Can current accounting and auditing standards and AISs
support the major changes in the business process? New paradigms and
metaphors have emerged. For example new paradigms in relation to
methods of advertising, methods of stock trading, and the entire
structure of the wellness industry have emerged and AISs need to be
able to appropriately measure these activities and provide relevant
internal and external reports. The 8 19 propositionsemerging business
issues and 13 research opportunities should provide some guidance to
future researchers and industry standard-setters for morphing current
AISs into cutting-edge AISs.
Figure 1: The eElectronization of Business and the Customer-Oriented
Value Chain


Figure 2: Deconstruction

Figure 3: Web Metrics
Abandonment
Incomplete purchase actions
Acquisition
Overt action by customer expressing interest
Attrition
% of customer that stopped buying
Churn
Measure of the turnover of the customer base
Conversion
Turning a prospect into a customer
Duration
Time spent on Web over number of visits
Loyalty
Frequency of customer re-visits or re-purchases
Reach
% of visitors that are potential buyers
Recency
The elapsed time since a proactive customer action
Retention
Keeping existing customers as measured by their purchases
Unit retention cost
Cost of promotion to retain an average customer
Winback unit cost
Cost of regaining a customer lost to the competition
Adapted from Alexander, Steve, “E-Metrics,” Computerworld Communities
Story, December 11, 2000.
Figure 2: Monitoring and Control Structure

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Notes
-----
1 For example Michael Dell in discussing the Dell business model
emphasizes process rapidity as a key variable for the success of his
firm and its superior profitability.
2 Business to Employee processes have substantially changed with the
Internet with the advent of employee Intranets where accounting and
management of employee functions and careers has changed the scenario
of these transactions.
3 These are already emerging but are far away
1 Greenstein, M. & T. McKee, “A Survey of Auditors’ Knowledge and
Views on 36 Technologies,” Working Paper presented at the Annual
American Accounting Association Meeting, 2002.
2 Laudon, K. C. & Laudon, J. P., Management Information Systems:
Organization technology in the Networked Enterprise, Prentice Hall,
November 1999.
3 Turban, E. & Aronson, J., Decision Support Systems and Intelligent
Systems, Prentice Hall, NJ 2000.
4 See Rockart, J.F. & DeLong, D. W., Executive Support Systems: The
emergence of Top Management Computer Use, Dow Jones Irwin, Homewwod,
IL, 1988 and Paller,A. & Laska, R., The EIS Book, Dow Jones Irwin,
Homewood IL, 1990.
5 Greenstein, M. and A. Ray. “Holistic, Continuous Assurance
Integration: E-Business Opportunities and Challenges, Journal of
Information Systems, 2002 Supplement - University of Waterloo Research
Symposium on Information Systems Assurance.
6 Perera, R. “Alcatel Outlines Plan to Move Out of Manufacturing,
Computerworld, June 27, 2001.
7 The advent of web sites that compare organizations (e.g. Gomez.com)
or products (e.g. pricewatch.com, ZD.com) has brought new efficiency
to markets.
8 Greenstein, M. and A. Ray, “Holistic, Continuous Assurance
Integration: E-Business Opportunities and Challenges,” Presented at
the 2001 University of Waterloo Research Symposium on Information
Systems Assurance.”
9 Greenstein, M. and D. Hamilton, “Electronic Commerce: Re-engineering
the Value Chain to Increase Customer Focus,” Proceedings of the 1999
International Academy of Business Administration Conference, 1999.
10 Greenstein, M, and H. Sami. “The Impacte of the SEC’s Segment
Disclosure on the Bid-Ask Spreads,” The Accounting Review, January,
1994.
11 Greenstein M. and A. Ray. “Holistic, Continuous Assurance
Integration: E-Business Opportunities and Challenges,” Presented at
the 2001 University of Waterloo Research Symposium on Information
Systems Assurance.”
12.Brown, S.A., Customer Relationship Management, John Wiley & Sons,
Canada, 2000.
13 Peppers, D. & Rogers, M., “Is Your Company Ready for One to One
Marketing?,” Harvard Business Review, January 1999.
14 CRM Oracle se met au gratuit:
http://france.internet.com/news.asp?news_ID=1467&Chaine_Id=15
15 OracleSalesOnline.com.
16 Comment on News Thinque and Aether Systems Partner to Bring
Advanced Wireless Infrastructure To New FFA CRM Products:
http://www.thinkmobile.com/Comment/Default.asp?CTID=1&ID=2221&R=%2FContent%2FDetail%2Easp%3FCTID%3D1%26ID%3D2221
17 Christopher, M., “Logistics and Supply Chain Management, Prentice
Hall, Upper Saddle river, NJ, 1998
18 Handfield, R.B. & Nichols Jr., E.L., Introduction to Supply Chain
Management, Prentice Hall, Upper Saddle River NJ, 1999.
Radjou, N., “Deconstruction of the Supply Chain,” Supply Chain
Management Review, November- December 2000.
Hammer, M. & Quinn, F. J., “Reengineering the Supply Chain,,” Supply
Chain Management Review, Spring 1999.
19 Kaplan, R.S. & Norton, D.P. , The Balanced Scorecard:Translating
Strategy into Action, Harvard Business School Press, 1996.
Kaplan, R.S. & Norton, D.P., “Putting the Balanced Scorecard to Work,”
Harvard Business review Sept.-Oct 1993.
20 http://www.aicpa.org/assurance
21 Vasarhelyi, M. A., “Concepts in Continuous Assurance,” in Sutton
and Arnold, Researching Accounting as an Information Systems
discipline, AAA Monograph June 13, 2002.Vasarhelyi, M. A., “A Dramatic
New Model for Auditing,” working paper, Faculty of Management, Rutgers
University, Newark NJ, January 2000.
22 See Halper, F. B. and Vasarhelyi, M. A., “Continuous Process
Auditing,” Auditing a Journal of Practice and Theory, Fall 1991 to see
AT&T’s efforts.
23 Scherinsky, J. “New Guide on Service Organizations,” AICPA’s Audit
and Attest Standards Group Newsletter, Vol. 18 No. 2, April 2002.
24 Such as AICPA's WebTrust and SysTrust products, TRUSTe, BBBOnline,
and BizRate,.
2