Chapter 8 - Information Technology and Information Systems in Business

Chapter 8 Information Technology and Information Systems

Part 1 Information Technology and INformation Systems

Data consists of numbers, letters, symbols, raw facts, events, and transactions, which have been recorded but not yet processed in a form that is suitable for making decisions

Data can also be classified as:
- continuous
- discrete
- primary
- secondary
- qualitative
- quantitative

Information is data that has been processed in such a way that it has a meaning to the person who receives it, who may then use it to improve the quality of decision-making

Managers require information to:
- provide records, both current and historical
- to analyse what is happening within the business
- to provide the basis of decision making in the short-term and long-term
- to monitor the performance of the business by comparing actual results with plans and forecasts

Data may be transformed into information by:
- bringing related pieces of data together
- summarising data
- basic processing of data
- tabulation and diagrammatic techniques
- statistical analysis
- financial analysis

1.1 Deploying Information Systems in the Organisation
Information systems produce output for:
- planning
- recording and processing transactions
- monitoring and measuring performance
- controlling
- decision making

1.2 The Advantages Computerizing will Bring to a Company
- speed
- accuracy
- volume
- complexity
- presentation
- cost
- judgement

Part 2 The Qualities of Information

Accurate - So that decision maker can reply on
Complete- More compelete, More reliable
Cost - Not cost more to obtain than the benefit derived from it
Understandable - Readily acted upon
Relevant - Information provided should concentrate on the essentials and ignore trivia
Adaptable - Information should be tailored to the needs and level of understanding
Timely - Information should up-to-date
Easy to use - Clearly presented and sent using right medium

Part 3 Management Structure and Information Requirements

Strategic level:
-Requires information from internal and external sources.
-Plan long term strategies of organisation

Tactical level:
-Requires information and instructions from strategic level together with routine and regular quantitative information from operational level of management.
-Information is in summarized form.

Operational level:
-Requires information and instructions from tactical level.
-Concerned with day-to-day performance of tasks.

3.1 The Type of Information Used at Each Level of the Organisation

Strategic :
-Expected government policy
-Overall profitability
-Competitor analysis
-Profitability of divisions
-Future market prospects
-Availability and cost of capital
-Total cash needs
-Resource levels
-Capital equipment requirements

Tactical :
- productivity measurements
-budgetary control reports
-Variance analysis
-Cash flow forecast
-short term purchasing requirements
-Labour turnover statistics

Operational:
-Employee hours worked
-Raw materials input to a production process
-Hours spent on each individual job
-Reject rate
-Stock levels

Part 4 Sources of Information

4.1 Internal/External Sources of Information

Data and Information Systems

Internal data/information (activities or transactions performed within the organisation)
-Administrative tasks
-The production of products and services
-The sale of those products

External data/information (come from customers, suppliers and potential suppliers)
-Available from a wide range of sources

4.2 Information from Internal/External Sources

Internal Sources (the amount of information available within an information system will vary from one organization to another)

-Customer records
-Employee records
-Stock Information
-Product or service details and specifications
-Production Information
-Sales and purchase information
-General information and reference books

Managers may also receive info from informal systems which include formal and informal meetings, face-to face exchanges, telephone conversations…etc

External Sources (an organisation's files will be full of information received from customers and suppliers)

-Invoices
-Letters
-Stock price quotations
-Catalogues
-Advertisements

Systems for obtaining external information

-Market research and analysis of competitors’ prices
-Legal and regulatory update information: Changes to company law, tax law, employment law, accounting standards, environmental protection, etc.
-Government data on economic and financial conditions
-Research intelligence: information about technology changes or new discoveries that may have an impact on the organization
-Other forms of market intelligence: for example the formal collection of feedback forms from customers, salesmen and others ‘in the field’.

Part 5 Information Systems Used Within an Organisation

Businesses need various systems to process, analyse, and store information. Information systems are also used to support decision making within an organisation.

Operational Planning

• Programmable decisions with specific inputs and outputs.
• The Transaction Processing System (TPS) is usually used

Tactical Planning

• Use a variety of data some different sources
• There is great emphasis on exception reporting
• Management System (MIS) is usually used

Strategic Planning

• Varied information requirements
• Management System (MIS) and Executive Information Systems (EIS) is usually used

There are 5 main types of information processing systems:

• Transaction Processing System
• Management Information System
• Decision Support System
• Executive Information System
• Expert System

Transaction Processing System

The TPS is mainly used:

• To record all daily routine transactions in an organisation
• By operational level managers
• As a source of summary data fed to the Decision Support System

The following are examples of the TPS and its role in the organisation:

• Sales/marketing systems – they record sales transactions and provide details on marketing and promotional activities
• Manufacturing production system- they record details of purchases, production and shipping of the goods
• Finance/accounting systems- maintenance of financial data in an organisation
• Human resources- maintain details of employees

Management Information System

The MIS is mainly used:

• To convert data from internal and external sources into information that is relevant to managers at all levels
• To enable managers to make timely and effective decisions for planning and controlling the activities for which they are responsible
• Extensively by operational users

The following are examples of the MIS and its role in the organisation:

• Product information- online categorised information at a keystroke
• Sales ledger- information relating to customer turnover and payment records. Trend analysis to identify customers whose business is growing or declining
• Supplier information- information such as amount spent and reliability indicators to use when negotiating and making strategic decisions

Within most MIS there are four system types:

• Database systems
• Direct control systems
• Enquiry systems
• Support systems

Decision Support System (DSS)

• An integrated, computer based, user machine system that provides information for supporting operations and decision-making functions
• Used to assist tactical or management level decision makers
• There is no typical system but it really does depend on the organisation’s needs

The following are the roles of the DSS in the organisation:

• Supports structured decision making
• Provides online access to TPS to obtain summary data
• May provide external information on competitors
• Basic statistical analysis normally found in a DSS

Executive Information System (EIS)

• A system for total business modelling
• Monitors internal and external environment

The following are the examples of use of the EIS in the organisation:

• Company performance data on sales, production, earnings, budgets and forecasts
• Internal communications such as personal correspondence, reports and meetings
• Environmental scanning for news on government regulations, competition et cetera.

Expert System (ES)

• A form of DSS that allows users to benefit from expert knowledge and information
• Not part of normal “hierarchy” of information systems but provides useful information to any management level
• Uses a knowledge base from which an inference engine determines solutions to user questions

The following are examples of use of the ES in the organisation:

• Process loan applications
• Legal advice
• Forecasting of economic or financial developments or of market and customer behaviour

Part 6 Spreadsheet and Database Software Application

6.1 Spreadsheets

- to analyse data and sort list items, not for long-term storage of raw data.
- used for "crunching" numbers and storage of single list items
- include graphing fucntions that allow for quick reporting and analysis of data

ADVANTAGES:
- user-friendly
- require training to get started
- most data managers are familiar with them

DISADVANTAGES:
- have to re-copy data over and over again to maintain it in separate data files.
- inability to efficiently identify data errors
- lack detailed sorting and querying abilities
- can be share violations among users wishing to view or change data at the same time
- restricted to a finite number of records, require a large amount of hard-drive space for data storage

6.2 Databases

- store large amounts of raw data
- for two or more user share information

ADVANTAGES
- ease of reporting and sharing data
- require little or no duplication of data between information tables
- changes made to the data do not corrupt the programming
- offer better security to restrict user from accessing privileged information and from changing coded infromation in the programming

DISADVANTAGES
- requires user to learn a new system
- requires a greater investment in training and software
- initial time and cost of migrating all of the data into a new database system

Chapter 16 - Governance and Social Responsibility

Chapter 16 Governance and Social Responsibility

Part 1 The Separation of Ownership and Control

The separation of ownership and control refers to the situation in a company where the people who own the company (eg: shareholders) may not be the same people as those who control the company. (eg: the board of directors)

Reasons:

• Specialist management can run the business better than those who own the business
• The original shareholders cannot personally contribute all the capital needed to run the business, so they have to bring in external capital from people whoa re not interested in the day-to-day operations

Win-win situation for both parties because:

• Managers can get on with full-time management of the business
• Shareholders are interested in the return from their investment and do not have the skills, time or the inclination to concern themselves with day-to-day matters

However, the separation of ownership and control will lead to the agency problem in a company.

The Agency Problem

- Directors are not operating in the company's best interests but to their own benefits. However, this can be solved by aligning the interests of the directors and the interests of the company.

Part 2 The Meaning of Corporate Governance

Corporate Governance is the set of processes and policies by which a company is directed, administered and controlled.

Stewardship Theory

Steward: Someone who manages property or other affairs of someone else

Some approaches to good governance view the management of an organisation as the stewards of its assets, charge with their employment and deployment in ways consistence with the overall strategy with the overall strategy of the organisation. With this approach, power is seen to be vested in the stewards, that is the executive managers.

Agency Theory

Agency: The state of serving as an official and authorized delegate/agent

Another approach to governance is agency theory. This takes the stance that, rather than acting as stewards, management will act in an agency capacity, seeking to service their own interest and looking after the performance of the company only where its goals coincident with their own.

Stakeholder Theory

Effectively stakeholder theory is a development of the notion of stewardship, stating that management has a duty of care, not just to the owners of the company in terms of maximizing shareholder value, but also to the wider community of interest, or stakeholder.

Governance Principles

1. To minimize risk especially financial risk, legal and reputation-al risk by requiring compliance with accepted good practice in the jurisdiction in question and ensuring appropriate system of financial control are in place, in particular system for monitoring risk, financial control and compliance with the law.

2. To ensure adherence to and satisfaction of the strategic objectives of the organisation, thus aiding effective management.

3. To fulfill responsibilities to all stakeholders and to minimize potential conflict of interest between the owners, managers, and wider stakeholder community. However, define and to treat each category fairly.

4. To establish clear accountability at senior levels within an organisation.

5. To maintain the independence of those who scrutinize the behaviour of the organisation and its senior executive managers. Independence is particularly important for non-executive directors and internal and external auditors.

6. To provide accurate and timely reporting of trustworthy/independent financial and operational data to both the management and the owners of the organisation to give them a true and balance picture of what's happening in an organisation.

7. To encourage more proactive involvement of owners in the effective management of the organisation through recognizing their responsibilities of oversight and input to decision making processes via voting or other mechanism.

8. To promote integrity that is straight toward dealing completeness.

Part 3 The Meaning of Corporate Social Responsibility

- a company should be sensitive to the needs and wants of all of the stakeholders in its business operations, not just the shareholders
- sustainable developement - companies should make decisions based not only on financial factors, but also on the social and environmental consequences of their actions

- the WBCSD see CSR fitting into overall corporate responsibility as follows:
Corporate Responsibility (sustainable developement)
~ Corporate Financial Reaponsibility
~ Corporate Environmental Responsibility
~ Corporate Social Responsibility

- key issues in CSR debate are employee rights, enrironmental protection, supplier relations, and community involvement

Part 4 The Importance of CSR to a Company's Success

- a coherent CSR strategy can offer business benefits by enabling a company to:
~ monitor changing social expectations
~ manage operational risks
~ identify new market opportunities
~ retain key employees

Part 5 The Impact of Corporate Governance and CSR on the Organisation

Enhanced performance reporting methods including the following:

The balanced scorecard

• financial perspective- reports the traditional information of profits, capital employed, etc.
• customer perspective- reports how well customer wants have been satisfied.
• internal perspective- reports on the internal efficiency of the business
• innovation and learning perspective- reports on the development of new products and services

Triple bottom line reporting

• People
• Planet
• Profit
• Financial outcomes
• Environmental performances
• Social performances

Part 6 Non-Executive Directors (NEDs)

• not part of employee of the company but they do take part in decision making
• do not take part in day-to-day running of the company
• balancing influences and play a key role in reducing conflict of interest between management and shareholders
• provide assurance to shareholder that management is acting in the interest of the organisation.

a) STRATEGY: NED should contribute to and challenge the direction of, strategy

b) PERFORMANCE: NED should scrutinise the performance of management in meeting goal and objective and monitor the reporting of performances

c) RISK: NED should satisfy themselves that financial informantion is accurate and that financial controls and systems of risk management are robust.

d) DIRECTOR AND MANAGER: NED are responsible for determining appropriate levels of remuneration for executive, and are key figures in the appointment and removal of the senior manager and procession planning.

Part 7

Part 8

Part 9 Public Oversight of Corporate Governance

Public has a
- "right to know" how such company is being governed
- right to be involved in the governance process

Public can oversight via publication by company of their annual report and accounts.
By law, company required to send a copy to shareholders.

Important matters required to be disclosed in Annual report
-Eg: the audit committee and remuneration must describe their role and actions during the year

Part 10 Stakeholders Needs Analysis

To identify stakeholder needs, possible methods are :
(a) questionnaires
(b)Focus groups
(c) Direct interviews or interviews with representatives

Chapter 15 - Business Ethics and Ethical Behaviour

Chapter 15 Business Ethics and Ethical Behaviour

Part 1 Definition of Business Ethics

- ethics is the analysis of right and wrong, and associated responsibility
- business ethics is the application of ethical values to business behaviour

Approaches to Deciding What is 'Right' or 'Wrong'?
- the consequences
- the motivation of the parties concerned
- guiding principles
- duties
- key values

Ethics can be divided into 3 areas:
- meta-ethics - the study of what is ethical behaviour
- normative ethics - how to arrive at practical standards of ethical behaviour
- applied ethics - applying ethical ideas to specific controversial issues

Part 2 Why Business Ethics is Important

For The Organisation:
- good ethics should be seen as a driver of profitability rather than a burden on business
- an ethical framework is part of good corporate governance and suggests a well-run business
- investors are reassured about the company's approach to risk management
- employees will be motivated in the knowledge that they operate in an environment of good ethical corporate behaviour

For The Individual:
- consumer and employee expectations have evolved over recent years
- consumers may choose to purchase ethical items, even if they are not the cheapest
- employees will not blindly accept orders to act in a manner that they personally believe to be unethical

Part 3 How Can the Ethics of a Business Decision be Judged?

Ethics goes beyond the legal requirement of a business.

Organizations can draft sets of criteria to be used in making difficult ethical decisions.
- Is it legal?
- Is it contrary to our company’s adopted code of ethics
- Is it contrary to any other published official code of ethics
- Would you mind other people knowing what you have decided?
- Who is affected by this decision? Would they regard the decision as fair?

Each company must identify its own set of core values which can be developed into code of ethics.
Strong visible support for the code from the BOD is essential if the code is to be effective.

Part 4 How is a Profession Distinguished from Other Occupations?

A profession is characterized by the following factors:
- mastering of specialized skills during a period of training
- governance by a professional association
- compliance with an ethical code
- a process of certification before being allowed to practices

The role of professional bodies in ensuring that their members possess adequate insurance so that members of the public can successfully sue the professional if they are harmed by the professional’s negligence.

Part 5 The Accountant's Role in Promoting Ethical Behaviour

In most business meetings and Board of directors, it is only the professional accountant who belongs to a profession and therefore has a duty to act in the public interest as well as in the interests of his employer and the shareholders.

There are a few ethical dilemmas which can be found throughout all aspects of business operations

Accounting Issues:

- Creative accounting to boost or suppress reported profits.

- Directors' pay arrangements

- Bribes

- Insider Trading

Production Issues:

- Production of guns, pornography, tobacco...etc

- Effects the production processes have on the environment

- Testing products on animals

Sales and Marketing Issues:

- Price fixing and anti-competitive behaviour

-Target advertising at children (overpricing during Christmas)

- Advertising by junk mail or spam mail

Part 6 Codes of Ethics and Codes of Conduct

-Most companies have formulate a set of internal policies and instructing employees to follow them.

-Ethics officers (also called compliance officer) are appointed to monitor the application of the policies and able to discuss ethical dilemmas with employees who approach them

-The policies can be Broad Generalizations (a corporate ethics statement) or can contain Specific detailed rules (a corporate ethics code)

Part 7 IFAC and ACCA Codes of Ethics

The IFAC (International Federation of Accountants) and ACCA (Association of Chartered Certified Accountants) have developed codes of ethics for their members to follow. The “Codes of Ethics for Professional Accountants” published by the IFAC lays down various ethical standards to be applied by accountants, internationally.

In some parts of the world, if there are existing codes to be practised by accountants, the more stringent codes must be used instead. The following are the elements of the IFAC’s code of ethics:

• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour

Although the IFAC sets the codes of ethics, it has no direct ability to punish the violator, but expects that the member bodies take some action to punish the violator.

The “Code of Ethics and Conduct” issued by the ACCA and is within their annual rulebook. ACCA’s code of ethics is based on the IFAC’s codes and thus their fundamental elements are identical to that of IFAC’s.

ACCA Disciplinary Committee

An ACCA member (student, affiliates and members alike) may be called to appear before the Disciplinary Committee for breach of any ethical principles. The common consequences are warnings, fines, suspension or exclusion of the membership.

Chapter 14 - Committees in the Business Organisation

Chapter 14 Committees in the Business Organisation

Part 1 What is a Committee?

1.1 The rules of procedure

Reasons Why the Rules are Designed:
- to promote the smooth running of a committee
- to ensure that consistency and fair play are maintained
- to enable both sides in an argument to state their case
- to help to minimize the effect of bullying tactics
- to ensure a proper record of all proceedings is kept

- a formal meeting should be convened in accordance with any regulations laid down in the Articles of Association
- the organization must have a quorum
- if the quorum is not achieved, the Chair has 2 options:
- to make the meeting a discussion group, where no decisions can be made
- to postpone the meeting
- each item of the meeting needs a proposal and a seconder
- a point of order is an objection about a perceived irregularity in the convening, constitution or conduct of the meeting
- members are protected from attempts to manipulate procedures

1.2 The Size and Success of a Committee

The size of committee is important to help to foster efficiency.
- Too large a committee- Not have enough time for individuals time to point their views
- Too few in the committee- Lack of breadth of expertise, decisions may be made with insufficient deliberation

To be successful a committee should:
- Be representative of all interests
- Have a chairperson
- Chose suitable subjects for action and make precise proposals by agenda
- Circulate reports prior to the meeting
- Have clear cut terms of reference
- Have the necessary skills and experience
- Be worth the cost of its operation

Part 2 The purposes of Committees in an Organisation

- Decision-making
- Relaying decisions and instructions
- Brainstorming
- Participate problem solving
- Provide advice and information
- Consultation

Part 3 Types of Committees Used in the Organisation

- Audit committees- Review the company’s accounting policies and internal control, annual financial statements and the audit report with the company’s external auditors.

- Executive committees- Have to power to government or administer

- Standing committees- Formed for a particular purpose on a permanent basis

- Ad hoc committees- Formed to complete a particular task

- Sub-committees- Appointed by committees to relieve the parent committee of some of its routine work

- Joint committees- Formed to co-ordinate the activities of two or more committees

- Management committees- Contain executive at a no. of levels

Part 4 Examples of Committees

Board of Director

The board of directors are a group of people legally charged with the responsibility to govern a company

Usually, the board of directors are elected by the shareholders of the company. Their purpose is to:

• Lay down the strategy, general policy and broad sectional policies
• Ensure legal standards are met. It is also important that they are in accordance with the Articles of Association
• Sanction capital expenditure and the method of disposal of profits
• Ensure a stable and smooth cash flow to maintain the efficient running of the business

Steering Committee

Steering committees are set up to oversee major projects within the organisation. The role of a steering committee is to:

• Ensure that the activities, especially IT projects are in line with the strategic plans of the organisation
• Ensure the efficient and effective allocation of scarce resources
• Co-ordinate requirements in any organisational restructuring
• Create the terms of reference for the project teams
• Monitor and gauge the progress of the various projects

Works Safety Committee

The works safety committee is an advisory committee which meets to discuss about unsafe working conditions in an organisation

• If it is found that there are some unsafe working conditions present, the organisation may be liable to compensate the victims.

The works safety committee works closely with the following parties:

• Human resource manager
• Safety officer
• Department representative
• Union representative
• Works manager

The Accounting Standards Board

The accounting standards board was set up to promote consistency in corporate reporting by creating financial reporting standards which they hope will be strictly adhered to.

Ethics Committees

Ethics committees were set up to oversee working practises and procedures in an organisation with respect to:

• Conflicts in interest
• Confidential information
• Complains of customers
• Transactions involving related parties of the company

Part 5 The Advantages and Disadvantages of Committees

Advantages

1. Responsibilities are shared/Blurring Responsibilities. When a committee makes a decision, no individual will be held responsible for the consequences of the decision.

2. Ability to undertake a larger volume of work

3. Consolidation of power and authority. The pooled authority of a committee may enable a decision to be made for which an individual's authority would not be sufficient. Eg: of a plural executive include Board of Directors or the Cabinet ofGovernment

4. Decisions are based on a group's assessment of facts and ideas

5. Pools talent, judgement and allows specialisation

6. Delegation of power and authority. Eg: to subcommittee

7. Delay. A committee is used to gain time. Eg: a manager may set up a committee to investigate a problem when he/she wants to delay his decision, or a company may refer a labour relations problem to a committee to defer a crisis with a trade union.

8. Improves coordination

Disadvantages

1. Slower decision making. Delays may occur if matters of a routine nature are entrusted to committees, committees must not be given responsibilities which they would carry out inefficiently.

2. They are apt to be too large for constructive action, since the time taken by a committee to resolve a problem tends to be in direct proportion to its size.

3. Committees are time-consuming and expensive. In addition to the cost of highly paid executives time, secretarial costs will be incurred.

4. Decisions may represent compromise solutions rather than optimum solutions. This is because there is no individual responsibilities for decisions.

5. Managers may abdicate(fail) their personal responsibility for decision making. Members may avoid responsibility for poor results arising from decisions taken in committee. Weak mangement can hide behind committee decisions.

6. Some 'experienced' committee members may dominate.

7. Operations may be jeopardized by the frequent attendance of executives at meetings, and by distracting them from their real duties.

8. Incorrect or ineffective decisions may be made, if members are unfamiliar with the issues. Occasionally, there may be a total failure to reach any decision at all.

*Some of the disadvantages of committees can be overcome by applying the following guidelines for more effective communication

1. Authority. The committee's authority should be spelled out so that members is clear about their responsibilities

2. Size. A committee should be large enough to promote deliberation and include the breadth of expertise required for the job but not so large as to waste time or foster indecision.

3. Membership. The members of the committee must be selected carefully.

4. Subject Matter. Committee work should be limited to subject matter that can be handled in group discussion.

5. Minutes. Circulating minutes and checking conclusions are important for effective communication in committees as some times there will be individuals who leave the meeting with varying interpretations as to what was agreed.

6. Cost effectiveness. Committee can only be justified if the costs are off-set by tangible and intangible benefits.

Part 6 The Roles of the Chair and secretary of a committee

6.1 The Chair

-Keep the meeting schedule and to the agenda : Ensure issues relevant to the purpose discussed
-Maintaining order : Only one person at a time should speak
-Ensuring correct procedure is observed in convening and constituting the meeting
-Ensuring impartiality and giving all parties a reasonable chance to express their views
-Ascertaining "the sense of the meeting" by summing up ,putting the issue to the vote and declaring the results
-Depending on the level of formality of the meeting : Checking and signing the minutes

Skills and knowledge that the effective chairperson must have include:
-Ability to be decisive
-Ability to silence people in a firm and friendly manner
-Skill in communicating rulings clearly but tactfully
-The skills of summarising
-An awareness of non verbal behaviour
-Sound knowledge of the relevant regulations

6.2 The Secretary

Responsibility of Secretary to the commitee meeting
Before the meeting:
-Fixing the date and time of meeting
-Booking the venue
-Preparing and issuing the agenda and other relevant documents

During the meeting:
-Assisting the chairperson making notes
-Advising the chairperson on points of procedure

After the meeting:
-Prepare minutes
-Acting on and communicating decisions
-Dealing with correspondence