Into the Twenty-first Century with Information … - IFAC/C.01...Major ongoing developments in information technologies, combined with managerial demand for more rapid and effective

This booklet was prepared by the Financial and Management Accounting Committee (FMAC) ofthe International Federation of Accountants (IFAC). It is the fifth in the series of annual themebooklets that aim to provide a range of viewpoints on an important topic. We appreciate theefforts of the contributing authors.

The mission of IFAC is the worldwide development and enhancement of an accountancyprofession with harmonized standards, able to provide services of consistently high quality in thepublic interest. The mission of the FMAC is:

� To encourage, amplify and supplement programs, that focus on the financial andmanagement accountant, as conducted by IFAC member bodies to:

� provide for the development and support of such professionals;

� build public awareness, understanding and demand for their services;

� To provide an international forum for exchange of information regarding currentdevelopments and emerging issues that shape the management accounting profession.

The FMAC welcomes any comments you may have on this booklet both in terms of feedback andin terms of its future activities. Any comments received on this booklet will be reviewed by theFMAC and may influence further activities. Comments should be sent to:

Director GeneralInternational Federation of Accountants

535 Fifth Avenue, 26th FloorNew York, New York 10017

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Copyright � 1998 by the International Federation of Accountants.

Into theTwenty-firstCentury withInformationManagement

ISSUED BY THEINTERNATIONAL FEDERATION OF ACCOUNTANTS

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Into the 21st Century with Information Management

CONTENTS

PagePrefaceEphraim F. Sudit …………………………………………………………………………. v

The Virtual Accountant – Surviving in the Next MillenniumOshim Somers (Australia) .………………………………………………………………. 3

Business Information Systems: The Ball is in the ManagementAccountants’ CourtMarie-Hélène Delmond and Michel Lebas (France) …………………………………. 19

Management Accounting and Control:From Management of Information to Management of KnowledgeClaude Grenier and Michel Lebas (France) .……………….…………………………. 33

Into the Twenty-first Century: Beyond Information ManagementWilliam P. Birkett (Australia) …………………………………………………………… 47

Information-Based-Management of Cost Competitivenessand Profitability in the 21st CenturyPrasad P. Dabke (India) …………………………………..……………………………. 67

Into the 21st Century with Information ManagementTrevor J. Bentley (United Kingdom) …………………………………………………… 79

A Simplified Approach to Data Warehousing forthe Small and Medium-Sized EnterpriseCharles Hoffman (United States of America) …………………………………………. 89

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PREFACE

Ephraim F. Sudit Ph.D., Professor of Accounting and Information Systemsand Director of the MBA Program in Professional Accounting

Graduate School of Management, Rutgers, The State University of New JerseyNewark, New Jersey, United States of America

Major ongoing developments in information technologies, combined with managerial demand formore rapid and effective decision support, have had a profound impact on managementaccounting. Major tasks of management accountants have been shifting from the mere recordingand computerization of accounting information toward a primary focus on InformationManagement and Knowledge Management. These transformations are bound to accelerate in thenext century. Hence, the rationale for the theme of the present IFAC issue - Into the 21st Centurywith Information Management.

This collection of articles provides readers with assessments of the current state of the art ofmajor information technologies and their existing management accounting applications. Severalauthors discuss future roles of management accountants in information management andknowledge management, as induced by developments in information technologies and ensuingmanagement demand for more effective decision support. Others focus on managerial andorganizational issues associated with the application of emerging information technologies whichare likely to transform management accounting systems and practices.

Somers (Australia) strives to form a strategic and holistic view of “enabling informationtechnologies” (e.g., Artificial Intelligence, Intranets, the Internet, Online Analytical Processing,Data Mining and Data Fishing), their current uses, and potential applications. Thesetechnologies, Somers points out, should be recognized as a new set of tools capable ofreengineering management accounting processes. Somers reviews the state of the art of IT, andthe likely future requirements of the 21st century’s virtual accountant. He warns that ifaccountants fail to assume a major role in the application of new information technologies,essential tasks will inevitably be taken over by non-accountants, leading to erosion in the valueadded of the profession.

Delmond and Lebas (France) argue that management accountants have been historicallyconstrained in their major role of supporting decision making by the lack of appropriateinformation technology tools. However, recent developments in information technologiesdramatically increased the quantity of financial and non-financial data, which can be accessed, aswell as the scope and speed of data analysis and transmission. These expanded capabilitiessignificantly enhance the role of management accountants. Management accountants should leada dialogue with computer and IT specialists aimed at linking designs of systems with theirdesired managerial applications. The authors describe an application of the Tableau de Bordsystem, which was initially intended to serve as a Balanced Score Board for senior management,and, ultimately, evolved into an operational information system.

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Grenier and Lebas (France) emphasize the transition of management accountants from themanagement of information to the management of knowledge. The links between data,information, and knowledge are summarized as Data + Analysis + Decision Context =Information; Information + Reasoning = Knowledge. The combined effects of emerging ITtechnologies and managerial demands drive this evolution. Major emerging technologies includeEnterprise Resource Planning (ERP) systems, Intranets, Datawarehouse, Interactive DecisionSupport Systems (IDSS), Executive Information Systems (EIS), and Datamining. A newgeneration of software systems facilitates translation of strategy into operations, oversight ofperformance, and organizational learning processes. As a result, Grenier and Lebas seemanagement accountants of the 21st century being heavily involved in designing, building andcontrolling information management tools and systems.

Birkett's (Australia) central theme is the process of sense-making out of complexities andambiguities of organizations as they face issues of: (a) relating to the modern industrialcorporation as an engine of the industrial society; (b) accommodating to the “knowledgesociety”; and (c) “value management” in addressing the values serving as premises of sense-making and knowledge accumulation. The author maintains that sense-making withinorganizations can be addressed at a number of levels: individual, interpersonal, structural andcultural. Organizations entering the 21st century will be affected by changes in underlying socialformations, as well as by the evolution toward service oriented organizations, followed bytransformations of business enterprises into communitarian organizations. To cope effectivelywith these profound changes, information management in organizations will have to bebroadened to encompass knowledge management and value management.

Dabke (India) focuses on the questions of “what” information to manage and “how” to manage it.He posits that understanding and foreseeing information capable of sustaining and enhancingcost competitiveness and profitability, and defining the nature and sources of such information, isbecoming increasingly important in an environment subject to constant external and internalchange. Accordingly, management accountants need to shift away from their almost exclusivepreoccupation with internal information and devote equal attention to external information. Indiscussing how to manage information, Dabke draws analogies between the importantcharacteristics of a human nervous systems and effective features of the Critical Path Method(CPM) of management.

Bentley (United Kingdom) relies on two cases in retail and insurance to illustrate the effects onmanagement accountants of rapid and significant changes in (a) the nature of information; (b) theuse of information; and (c) the way people relate to information. Dialogue with other people andsystems will replace most printed information. “Raw” information will evolve into frequentlyupdated “patterns” whose implications will be inferred by systems responding in dialogues.Widespread on-line accessibility to information will promote “open management”. Routinedecisions will be taken over by systems, freeing managers to focus more on strategic planning,less on current operations. Beyond being informed, knowing what to do with the information willmatter most.

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Hoffman (United States) discusses data warehouse creation opportunities suitable for small andmedium-sized enterprises. Data warehouses can deliver to managers essential and urgentdecision support data much more rapidly and effectively than traditional systems. The best kindsoften are generic applications customized by the users. Creation of datawarehouses typicallyrelies on technology already present in many small businesses, and can be implemented internallythrough simple and inexpensive small-scale prototypes. Step by step implementation and relianceon demonstration models are recommended. Data warehouses are powerful tools in competitiveand dynamic environments where easier access to critical data is essential for success. Sinceexisting accounting systems already contain the ingredients of such data, managementaccountants are well suited to be major players in datawarehouse creation and use.

All authors in this issue see management accounting undergoing fundamental IT-based changes,with the pace of change accelerating in the next century. Many of them fear that failure ofaccountants to respond is likely to diminish the influence of the accounting profession on, anderode the value of, its contributions to the management and control of business enterprises. Mostauthors therefore urge management accountants to prepare for assuming key roles in the design,engineering, and use of information technologies to effectively manage information andknowledge. This is seen as both a major challenge and a great opportunity.

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Oshim Somers, Senior Systems AccountantKalgoorlie Consolidated Gold Mines P/L, Australia

ABSTRACT

With the increasingly chaotic world of advancing technology, some people find the rapid changeoverwhelming and frightening. Current and emerging Enabling Technologies relating toElectronic Commerce, in the areas of Artificial Intelligence, Intranets and Internets increasinglyclose in around us. In a world where the certainties are chaos, change, death and taxes, thequestion arises on where to turn. It is very tempting to close our eyes and hope things take theirpath. While these are all dilemmas that we all currently face, they will still be there in the nextmillennium.

My objective is to give you ideas to assist you in forming a strategic and holistic view of thesenew technologies, so that you can make a difference and survive in the next millennium and thecentury of information management.

Initially we will define some of the types of systems used in organizations. We will then exploresome of the tasks and systems interactions that most accountants are currently involved in andsome of the current state of the art technologies that some believe they are using.

After identifying the current situation we will proceed to explore the state of the art BusinessIntelligence enabling technologies, more specifically those of Artificial Intelligence (AI),Intranets, the Internet, Online Analytical Processing (OLAP), Data Mining, Decision SupportSystems (DSS) and Data Fishing. Through a window into the future we will see how thistechnology will enable corporate decision-makers and other users of financial information to getfinancial information on line themselves in an accrual free world. The information will not behistorical and will be on line and in real time, reflecting the actual position of the organization,using tightly integrated subsidiary systems, there by not requiring accruals or othermanipulations by accountants.

In conclusion we will consider if these new technologies will dynamically impact on our way oflooking at the world and our business practices. Is our profession secure? How will our jobsdiffer? What will the New World order look like? These will be some of the questions we willconsider.

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SYSTEM TYPES

ystems by nature are not totally electronic. They are part of a complex interaction ofenvironment, people, technology and processes. Traditionally there have been two major

types of systems, namely Transaction Processing Systems and Management Information Systems.Over the last few years we have also seen the emergence of Business Intelligence based DecisionSupport Systems (DSS).

Transaction Processing Systems (TPS) were some of the first types of systems that were widelyused and revolve around routine business transactions. Essentially they capture business data, andprocess it for use by many people to manage an organization. Many accounting systems can bedescribed as Transaction Processing Systems.

Management Information Systems (MIS) were systems that appeared later. Their purpose is toproduce managerial information by which a business can run. MIS form part of many accountingsystems and many TPS are mistakenly identified as MIS.

Businesses Intelligence based Decision Support Systems (DSS) are systems that have been builtto support and assist in problem specific decision making. Unlike TPS and MIS they are notgeneric and are often specific to particular decision-makers within an organization, often usingincomplete and unstructured corporate information and concepts. Many people incorrectlycategorize MIS as DSS. It is the potential flexibility and functionality that DSS promises tobring, which will be one of the major causes of change in the profession. Note that the source ofinformation for MIS and DSS is from a TPS.

SYSTEMS INTERACTIONS BY ACCOUNTANTS

Many of the tasks performed by accountants involving system interaction traditionally relate totransaction processing, data manipulation, report development and writing and decision making.Note that many of the tasks are very much process orientated and are intricately related tohistorical data, month end and year end processes and activities. In the era of logarithmicadvances in technology, where Business Processing Re-engineering is the buzz word on many anaccountants lips, these processes and activities within the profession have conceptually notchanged significantly over the last 25 years.

CURRENT SYSTEMS BASED TECHNOLOGIES USED BY THE ACCOUNTINGPROFESSION

The current systems based technologies used in the accounting profession relate specifically totransaction processing systems (TPS) and management information systems (MIS). In additionwith the advances in data base technology over the last decade, relational databases are alsowidely used. Rapid advances in Internet technologies and the desktop environment are also being

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adopted. It should be noted however that many of these technologies and applications are notbeing used optimally.

Many financial systems are implemented on databases with table structures that are still based onlegacy file structures. As a consequence the data is not stored optimally and is just as difficult toretrieve information, as with previous systems.

Many accountants believe that they are using state of the art technologies and are led to believethis. Many Information Systems sales people continuously try to convince us that they are sellingus state of art technology and many accountants and senior managers unquestioningly believethat this is the case.

Looking at many current financial applications and tools, it is clear that this is not the situation.Some of the major areas which have been represented as such are those relating to graphical userinterfaces (GUI), on line analytical processing (OLAP), Business Intelligence based data miningand decision support systems. When examined more closely it is easy to see the vaporware andlegacy systems obsolescence being cosmetically reworked and marketed.

Quantum leaps in technology have had little impact on the profession. It would appear thatsystems and tools being used by the accounting profession have been developed using conceptsand thinking that is at least 15-20 years old. While the functionality of financial systems hasimproved through technology, conceptually they have changed little over that time.

In an increasingly changing world, to be relevant and of real value we have to be constantlychanging and adapting. It would appear that even with the latest technology, we have far fromdone that. We may have the latest PC, databases, packages, network, laptop, mobile phone,PABX systems, photocopiers, but our fundamental systems have not changed at all.

Most in our profession have not seen this, as we as a profession do not have the skills and tool setto objectively examine and make decisions. We have continuously taken the easy way out andleft that to the consultants and “Experts” who, we can claim, were responsible after theimplementation and its failure. I guess that this could be, because of how the profession alwayslooks at the world through an accounting conceptual framework, which primarily looks athistorical information, when trying to look forward.

Why has this occurred? Don’t we have any control over systems requirements and therefore theirfunctionality? Has our thinking and conceptual framework not changed in all this time? We keeptelling others that they have to change, but don’t we need to change at all?

STATE OF THE ART ENABLING TECHNOLOGIES

We will now examine some of the state of art technologies being researched and applied to someof the accounting and other professions. In summary they are in the areas of Business IntelligenceSystems and Decision Support Systems based on Artificial Intelligence, On Line Analytical

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Processing (OLAP), Data Mining and Data Fishing, together with, Intranets, Internets,Warehousing.

� Business Intelligence and Decision Support SystemsBusiness intelligence and Decision Support Systems are used to assist in problem specificdecision making. They are sometimes known as Executive Information Systems (EIS). Theysupport key decisions relating to value added business process. By nature they are specificallydesigned for key decision-makers within an organization.

Many people claim to have decision support systems, which are in fact glorified managementinformation systems. By its nature decision making is based on incomplete and oftenunstructured information. Based on these assumptions, I often ask the question of howeffective have traditional structured systems techniques and tools been in developing decisionsupport systems. Surely unstructured tools and techniques provided by Artificial Intelligencewill be more appropriate, because it has the ability to handle incomplete and unstructureddata.

There are some companies who are developing decision support systems using artificialintelligence unstructured tools and techniques. One approach is the development of artificialintelligence based intelligent agents to analyze vast amounts of data held on corporatesystems. Intelligent Agents are artificial intelligence based software that independentlyinterrogates a database or system, providing human users with correlation's, trends andinformation. The information is not otherwise available through traditional analysistechniques, due to the amount of information stored.

� Artificial IntelligenceArtificial Intelligence by its name gets many people’s imagination working overtime.Conjuring up images of science fiction, cybernetic and virtual reality, with computers likeHAL from 2001, Deep Thought from Hitch Hikers Guide to the Galaxy, Computers in StarTrek, R2D2 in Star Wars, robots in Terminator and many more. What we fail to realize is thatthese capabilities are well out of the realms of science fiction and found in many thingsaround us. Many items like microwave ovens, video machines, cameras, computer games,electronic games, communications equipment and a myriad of other devices now use thistechnology.

Artificial Intelligence (AI) describes a computer’s ability to mimic or duplicate functions thatare performed by the human brain. It is getting computers to act how we would expecthumans to act. Artificial Intelligence is the study of how to make computers do things, whichat the moment people do better (Rich & Knight, 1991).

Artificial Intelligence encompasses many conceptual frameworks. They include ExpertSystems, Neural Networks, Case Based Reasoning, Natural Language, Data Mining andFuzzy Logic. These are the most relevant to business systems.

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� Expert SystemsExpert systems were one of the first forms of artificial intelligence techniques to beresearched and are now one of the most widely used. An Expert System is a system thatcan make suggestions and reach conclusions in the same way as a human expert can.Such systems give people the ability to answer questions with the knowledge of theexperts, who created them.

Expert systems are being used increasingly in business, medical and engineeringapplications. Current accounting applications being developed are very rudimentary. Theyinclude applications in the areas of Audit, Tax and Tax Planning, Variance Analysis,Capital Investment, Loans and Risk Analysis. However many of these systems are notexpert systems in the true sense, but rather simple programs using unsophisticatedstructured decision trees.

� Neural NetworksNeural Networks are computer systems that can act like, or simulate the functioning ofthe human brain. They are made up of elements called a neural, which are modeled on thehuman brain neurons, all of which are linked. This is achieved using parallel processorsand complex network architecture. As a consequence neural networks can be trained andcan process many pieces of data at once to recognize patterns in imprecise data and todetect trends, that are too complex to be noticed by other means.

Neural Networks have not been widely used by the accounting profession. They arehowever being used in the banking and financial sector, primarily as a predictive tool inareas such as stock market analysis, stock market and share price forecasting, salesforecasting, industrial process control, customer research, data validation, riskmanagement and target marketing.

� Case Based ReasoningCase Based Reasoning is one of the new artificial intelligence technologies. It is based onan associative memory that learns how to access stored information and reasoningcapabilities that adapt from prior experience to new situations. Case based reasoning isnot widely used or being developed for business applications. It has however been used insome applications for the Legal Profession.

� Natural Language ProcessingNatural Language is a new artificial intelligence technique that is used to summarize,reduce and categorize the inputted qualitative data. The main task of natural languageprocessing is to help users overcome the actual qualitative data overload by simplifyingand reducing the amount of information, needed to support the decision-making process.So far, very few tools based on natural Language processing have been successfullyintroduced in the financial community.

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� Fuzzy LogicFuzzy Logic is an artificial intelligent technology that is widely appearing in applicationsand in electronic and electrical equipment. It is a super set of conventional (Boolean)logic that has been extended to handle the concept of partial truth, where knowledge andrelationships are not precise or exact. It involves dealing with ambiguous criteria,probabilities or events that are not mutually exclusive. It can be used in conjunction withother artificial intelligence systems, such as expert systems and neural networks, togetherwith database technology.

Fuzzy logic is starting to be used in business applications, many of which have beendeveloped using databases. It is currently more widely used in controlling industrialequipment, household appliances and electronic equipment. The Sony Palm Top and USRobotics Palm Top computers use a fuzzy logic algorithm to perform characterrecognition. Fuzzy logic is used also as the underlying logic system for fuzzy expertsystems and fuzzy neural networks.

� Data MiningData Mining is one of the new artificial intelligence technologies that are impacting industryand the business world. It is one of the concepts that is greatly suited to independentlyanalyzing large volumes of data and utilizes a process involving intelligent agents goingthrough a database of corporate information. They work by looking for knowledge andanticipating patterns hidden in the data. This usually occurs at periods of low processorutilization. It is increasingly becoming one of the approaches for finding patterns in data forneural networks.

Much development has been carried out in the mining and exploration sector using datamining. Some companies in the United States have successfully used this technique to findnew reserves, by applying these intelligent agents to their spatial databases. Spatial databasesare different to relational databases and are used to store spatial information, such asgeographical, town planning and geological data. Applications are starting to appear in thefinancial and business sector, often part of neural network based technology. In a professionthat thrives on large volumes of transactional data, this is a technology that naturally lendsitself to the profession as an aid to analysis.

� Internet, Intranet and Extranet TechnologyThe Internet is a large network that stretches across the globe that allows the transmission ofcoded packets of data. When most people talk about the Internet they are really talking aboutthe World Wide Web and Web based technology. The Web though is not the Internet, butrather is part of it. The Internet can be used for transmission of data electronic mail, thetransfer of files and information, to store and retrieve information, as a means of generatingcommercial transactions, or simply for recreation.

How is the Internet different to an Intranet and Extranet? Intranet and Extranet both useInternet Technology. Intranet is a private Virtual Internet that enables organizations toprovide a central repository of corporate data in a secure local environment. Extranet is a

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private Virtual Internet that enables organizations to provide a secure link to information thatcan be accessed by a third party. An example being between a vendor and customer.

Internet, Intranet and Extranet technologies are one of the new age wonder technologiespurported by many. Many others see them as a fad. It is clear though that they are the futureand are here to stay and are increasingly becoming the user interface and basis of transactionsfor many organizations. Business Intelligence Systems are increasingly being developed to bedeployed using this technology.

� On Line Analytical ProcessingOn Line Analytical Processing (OLAP) tools are being promoted as a new technology toassist in decision making. Sales people often push OLAP as a decision support system. It isnot that, but can form part of the basis of a decision support system. Some softwarecompanies have produced Web enabled OLAP tools that have been designed to be usedacross the Internet or an Intranet.

OLAP tools allow on line analytical processing to be applied to operational and financialinformation stored within a database, be it a live transaction processing system, managementinformation system, data warehouse or some model. They do so with the use of toolsdesigned to be intuitive and easy to use, to support easy end user investigation of data.Conceptually in many cases that OLAP is currently used are extensions of what manyaccountants do when downloading financial data into spreadsheets, even though it has morecomplex functionality.

� Data WarehousingData Warehousing is not a new concept. It is and often has been used to bring data togetherfrom incompatible systems, legacy systems or systems where there are performance issues, toa central repository. It is becoming more widely used to provide user specific views ofinformation and is often the base to which Business Intelligence based OLAP, Data Miningand other Decision Support tools are applied.

� Data FishingData Fishing is a new term that I have coined and describes an area that I am currentlyresearching and deploying. It relates to Corporate data being maintained as multiple flexibleviews, in the form of different Business Objects which strongly relate to the FinancialInformation System Hierarchies (F.I.S.H), within an organization. By nature this system willbe finance centric and is designed for multiple types of organizational users.

The concept is similar to Data Warehousing, together with the application of Data MiningTechniques, with exceptions of the following. Data is maintained in flexible views ratherthan being application and database table specific. The data is stored in the form of BusinessObjects that can be used by multiple tools and applications, instead of being used by one toolor data warehousing application. The information stored is dynamic and frequently updatedonline as opposed to being historic and only being updated hourly or daily. Decisions on

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analysis are undertaken by people rather than by artificial intelligence based data miningtechniques.

The data is contained within a Data Sea that contains various Business Objects. TheseBusiness Objects relate to the different areas and types of corporate data. The BusinessObjects can range from Data Oceans, Data Rivers, Data Streams, Data Dams and to DataPonds, depending on their size and nature. Data Oceans would reflect areas such as BusinessUnits and Operational Areas. Data Rivers and Data Streams would reflect data that can bevertically and horizontally tracked through process and business flows. Data Dams wouldcontain a specific type of data, for example financial data. Data Ponds will contain veryspecific data of interest to particular individuals and decision-makers.

Individuals in an organization will be able to fish the data, or go Data Fishing. They can useData Lines to “catch” specific data or Data Trawls to capture large amounts of data from thedifferent Business Objects. A Business Object being the description of a complete BusinessProcess within and organization. The data from area of interest being “fished” could befurther investigated using Data Mining tools. All of this can be deployed using currentDatabase and OLAP technology.

THE FUTURE

Not having the insight of the great prophets it is hard for me to predict the new technologies andhow they will develop. However I will try and predict this by looking at how we rely on the ITprofession, new technology and the increase in basic user skills.

� Specific IT ProfessionalsCurrent and future trends in IT show that professions are becoming less reliant on pureInformation Technology (IT) and Information Systems (IS) departments and professionals.Professions are increasingly developing in-house IT skills. For example in the legalprofession some professionals are no longer practicing, but rather focusing their attention todeveloping artificial intelligence based systems for their profession.

IS departments are increasingly managing an organization’s technology based infrastructure,and some infrastructure based applications, like the desktop environment.

The accounting profession has been somewhat slow in taking up this trend. How manyorganizations’ Finance departments have taken full charge and responsibility of theirfinancial system? How many Finance departments have a Systems Accountant or a FinancialSystems Analyst? Of those, how many of them have the relevant skills and been given amandate to not only to re-engineer the systems, but also the conceptual framework, at aprocess and systems level? How many of them just manage the system, develop the reportingand troubleshoot.

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� Advancements in TechnologyHow fast will new technology develop? I will try and answer the question by first asking yousome questions. How fast has technology progressed in the last 10 years? How fast was thatprogress relative to the previous 10 years and the 10 years prior to that. Based on previousexperience, even the most conservative of estimates would suggest, that in the futuretechnology will increase at an accelerated rate.

We are likely to see greater advancements in computer hardware technology. In addition tofaster and more powerful processes we will see faster memory and secondary storage andgreater miniaturization. Computers will be used in areas only currently imagined by sciencefiction writers. Miniaturization will also make computing even more portable than itcurrently is.

The smart technologies we have discussed will develop even further. Artificial Intelligencebased technology will be part of most major systems in the business, industrial and domesticarenas. Decision support systems and Smart Agents will also be appearing in ever increasingnumbers.

All of these things, coupled with advancements in our physical, conceptual, spiritual andprofessional worlds, will put us in another technological reality.

� Basic User SkillsMost users of computers are rapidly developing very good desktop skills. With majorimprovements in desktop user interfaces over the last 5 years, more and more people areusing computer systems with less training. For example most small business people are doingtheir own accounting on small PC based systems. Engineers are increasingly using desktoptools in performing cost benefit and other analysis, using techniques that were once only usedin the realm of accounting. Universities are increasingly including financial components intonon-business/commerce based courses. Most users are comfortable performing data entry andreport generation processes. With technologies like OLAP senior managers are increasinglygoing on-line themselves, to view business and financial activities, live on a daily basis,without the help of accountants.

It is clear that this trend will continue. People will require little specialist training to usetransaction processing, management information and decision support systems. Many usersthemselves will perform process and activities currently being performed by professionalssuch as accountants. Much of the expert advice to management and users will come fromsmart technology based systems. Executive reporting will be provided to managementthrough decision support systems.

WINDOW INTO THE FUTURE

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The following scenario provides a window into the not so distant future and is very probableusing current technology. All it needs is the right mindset and thinking to effectively usetechnology to its true potential.

All organizational transactions will be generated electronically by non-accounting users online.Examples of this are Maintenance, Procurement and Production systems. These will in turngenerate transactions, including automated accruals in the financial systems on line. Moretransactional best practice business process, such as payment on receipt of goods will be adopted,eliminating non valued adding processes. All of this information updating automatically onlinewill enable financial data to be analyzed daily. Note that all of this is supported by currenttechnology but is not available in organizations because of legacy financial systems design,thinking and processes.

All of this data from the Financial, Maintenance, Procurement, Manufacturing and othersubsystems would populate a Data Sea database and be organized as different Business Objects.This is where the Business Intelligence tool set is important.

Traditionally users such as managers and other decision-makers get weekly and monthly reports,that are generated by a lot of manual intervention by the Finance and other departments. This willbe replaced by Data Fishing, where Financial, Management and Strategic Information will beavailable on line daily in an accrual free world. The information will not be historical and reflectthe actual position of the organization, using tightly integrated subsidiary systems, thereby notrequiring accruals or other manipulations by accountants. Decision-makers and other users offinancial information will get financial information on line themselves. Decision-makers will befurther assisted in analyzing this information using the Business Intelligence tool set, includingOLAP and Data Mining.

The applications providing all of this functionality will be deployed using Internet technology,which will make the decision-making tools and information portable and not location dependent.The intelligent agents of Data Mining using, Artificial Intelligence base technologyencompassing Neural Networks and Fuzzy Logic will constantly analyze the contents of the DataSea. They will provide users with information of trends, correlation's and other results that havebeen detected.

All internal and external reporting, returns to statutory and other bodies will be generatedelectronically and automatically. Further assistance relating to compliance, taxation, statutoryreporting, standards and other advice will be obtained using Artificial Intelligence base systems,encompassing Expert Systems, and Case Based Reasoning.

IMPACT ON THE ACCOUNTING PROFESSION’S FUTURE

It is clear that with the improvement in user interfaces and user PC skills there will be littleemphasis on skilled professionals performing transaction processing. Breakthroughs in hardwareand user interfaces will make the use of computers much easier and more widespread.

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Smart technologies will increasingly provide users with expert information. With the impact ofartificial intelligence based Decision Support Systems, Management users will be using theirown information systems tools to be able to access information on a regular basis without theassistance of accountants. Decision-makers will be accessing their own decision support systemsbased on smart technologies, to assist them in decision making.

All of this has serious consequences to a profession whose member’s real value to organizationsis their ability to process transactions, manipulate and develop reports based on volumes ofhistorical data. As many of these tasks will be performed by non accountants, clearly we need tofind new organizational value adding activities. It is most likely that our profession will beincreasingly called upon in the future to develop and manage the new business intelligencedecision support tool set and to assist users in their use.

CONCLUSION -THE NEW WORLD ORDER

If we continue to provide services and perform the tasks and processes we currently do with littlechange, there clearly will be no place for Accountants in the New World Order.

The only real advancements we have made over the last century are to move from the quillthrough to the ballpoint pen, from ledger books through to computers with databases andspreadsheets. For what reason we ask? It is clear the reason is to use better ways to manage andmanipulate large volumes of financial information to support decision making.

If we measure our past performance by our financial systems, they have conceptually not changedover the last 25 years. Our processes and conceptual framework have not changed over the last50-100 years. Is there any hope for our profession?

I believe that our profession has reached a critical point from where we can either move forwardto claim our place in the New World Order, or start to reserve places in the paleontology sectionof our local museums.

If we make ourselves relevant, there will be a place for us. We can do this as individuals and as aprofession by trying to better understand the current and new technology and not taking the easyway out. By that I mean, not relying on the IT profession and doing it ourselves.

Let us re-engineer our processes and conceptual framework to better work within a changingenvironment to enhance the effectiveness of these new technologies. Let us look at the holisticview of the world, balancing all aspects of what we see. As we moved from the quill andeventually embraced the humble spreadsheet, let us recognize Artificial Intelligence basesDecision Support Systems (DSS), Data Fishing, On Line Analytical Processing (OLAP) and DataMining as our new tool set.

Let us be the masters of change instead of being mastered by change.

AUSTRALIA Somers

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REFERENCES

Rich, E. & K. Knight. Artificial Intelligence, New York, McGraw-Hill 1991.

Chandler, J. & T. Liang. Developing Expert Systems for Business Applications, Ohio, MerrillPublishing Company, 1990.

Denna, E. Expert Systems in Business and Finance: Issues and Applications, AccountingReview, April 1994, pp 442-423.

Frost, R. Introduction to Knowledge Base Systems, New York, Macmillian Publishing Company,1986.

Gilbert, P. R. What Can AI Offer the Accounting Profession, ABI/INFORM CD ROM.

Ginseberg, M. Essentials of Artificial Intelligence, San Mateo, Morgan Publishers, 1993.

Ralpg, M. Stair Principals of Information Systems, Boyd & Fraser Publishing Company, 1996.

Rich, E. & K. Knight. Artificial Intelligence, New York, McGraw-Hill 1991.

Internet BibliographyGilbert, J. Artificial Intelligence on Wall Street: An Overview and Critique of Applications in

the Finance Industry http://gryphon.ccs.brandeis.edu/~grath/brandeis/ai-paper/

ATTRASOFT http://attrasoft.com

Attar Software http://www.attar.com/pages/products.htm

FuzzyTECH http://www.fuzzytech.com

Microsoft Library http://library.microsoft.com/science/ai.htm

The Page of Artificial Intelligence in Financehttp://www.dur.ac.uk/~dcs3mc/aifinance/aifinance.html

Yahoo http://www.yahoo.com/Business_and_Economy/Companies/Computers/Software/Artificial_Intelligence/

Introduction to Artificial Intelligence and Expert Systemshttp://www.bus.orst.edu\faculty\brownc\es_tutor\bus_ai.htm

The Haley Enterprise http://www.haley.com/

Somers AUSTRALIA

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About the Author

Oshim Somers

Oshim Somers is employed by Kalgoorlie Consolidated Gold Mines in Kalgoorlie, WesternAustralia. He is the Senior Systems Accountant and is responsible for the implementation andmaintenance of financial and other reporting systems, change management, business process re-engineering, facilitating the integration of cross function flows and interfaces within theorganization. In addition he is also involved as a member of a cross functional team responsiblefor the implementation and management of other commercial systems, including Procurementand Maintenance systems.

While at the University of South Australia Oshim was the Systems Accountant and wasresponsible for financial and reporting systems. He was also the Project Manager and responsiblefor the implementation of a new financial system, Finance One. In addition he was involved inchange management projects relating to project accounting and the commercial arm of theUniversity. Further to this, he also has experience in the Local Government and Health Sectors.

Oshim is a member of the Australian Society of CPAs and has a degree in Accountancy andpostgraduate qualifications in Computer and Information Science from the University of SouthAustralia. Building the Future, Optimizing and “Future Proofing” systems, SyntheticIntelligence, Business Intelligence, Data Mining and Data Fishing are some of his professionalinterests.

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Marie-Hélène Delmond, Assistant Professor of Information Management

Michel Lebas, Professor of Accounting

Both at the HEC School of Management, Paris, France

ABSTRACT

Management accountants1 and computer specialists have long worked hand in hand in thedevelopment of decision support information systems. However changes in the businessenvironment, in management concepts and in information technology, with their need forreactivity and decentralized decision-making, challenge the traditional finance-basedinformation that used to be the almost exclusive territory of accountants.

New information systems must be developed to allow business to participate successfully inglobal competition. These new information systems are organized to serve network enterprisesand must incorporate all sorts of information bringing a better understanding of causalrelationships.

This article first quickly reviews the relationship of the accountant to information systems beforedescribing the current evolution of information technology and shows how it impacts on andinterrelates with the new management concepts. The last section of the paper illustrates, with aconcrete example, the role of the management accountant in the use of the new informationtechnologies.

ver since they have existed, business information systems have been the result of theintersection of managerial needs and information techniques. While it is often stated that

writing was invented in Mesopotamia some 3,500 years B. C. to serve the needs of accountants,the sequence may be reversed today. Modern information technology, which appeared withcomputers, seems to have outrun management needs in recent years. New opportunities havebeen created by both hardware and software. For example, ABC type accounting systemsprobably would not have known the development they have enjoyed in the last ten years ifcomputer technology had not allowed the inexpensive implementation of concepts that existed as

1 We will use the term management accountant to refer to all professionals that are known as either managementcontrollers or management accountants.

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far back as the sixties or early seventies. On the other hand, relational databases offeropportunities no manager has fully exploited yet.

Management and Information Technology are closely related and it is not important to decidewho leads and who lags. What is important is to observe that both benefit from their congruence.Without clear strategic intent, managerial thinking, and a willingness to change, new informationtechnologies cannot sustainably add value to the firm. On the other hand, without appropriate useof information technology, new managerial concepts experience great difficulties in taking holdand being implemented.

From the origins of the function, management accountants have been involved in informationmanagement to serve their role in support of managerial decision-making. Managementaccountants collect and analyze data, and distribute relevant information to decision-makers.Until recently, business information systems were focussed both on the financial interfacebetween the firm and its environment and on the financial flows inside the firm itself. Today,both management ideas and information technology have evolved and decision-makers take intoaccount a broader spectrum of data.

Management accountants must redefine their field so as to maintain their relevance to managers.We will examine the interaction between information systems and management accounting inthree sections:

� A brief historical overview of the role of management accountants in the implementation oftraditional information systems;

� The new orientation of information systems resulting from the congruence of new managerialapproaches and of advances in information technology; and

� The role of the management accountant in the implementation of these information systems.

THE HISTORICAL ROLE OF MANAGEMENT ACCOUNTANTS IN DEFININGTRADITIONAL BUSINESS INFORMATION SYSTEMS

From their inception, management information systems have been built around models found inthe decision-making and management control literature. Gorry and Morton (1971) in theirseminal work build their framework on key publications by H.A. Simon (1960) and R.N.Anthony (1965).

In their framework they segment information systems according to the three levels of businessactivity introduced by R. N. Anthony (operations, management, strategy) and acknowledge thateach must be further divided to take into account Simon’s distinction between programmed andunprogrammed decisions. Programmed decisions pertain to situations for which the causal modelis well understood and thus require a limited set of data to find a uniform solution.Unprogrammed decisions pertain to situations that are not well understood and for which nounique “solution” exists.


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Most researchers in the field of information systems have built on the foundation represented bythe Gorry and Morton framework. As shown in Table 1 the information system is built around ahierarchical view of the organization and around a differentiation of the nature of informationneed at each level.

Level of Management

Characteristics ofinformation

OPERATIONS MANAGEMENT STRATEGY

Source Essentially internal Mainly internal Essentially externalField Narrow and Well

DefinedBalanced Broad Spectrum

Level of aggregation Detailed Summaries byResponsibility Unit

Condensed and aggregatedby business and sector

Time horizon Short term and muchbased on past data

Short to medium termplus recent past

Future and long term

Time frame Hours and days Weeks and months YearsPrecision Very precise Varying degrees of

precisionEstimates andapproximations

Types of units ofmeasurement

Many and diverse(essentially physical)

Few; many expressed infinancial terms

Essentially financial

Frequency of use Very high Medium LowComplexity Low Medium HighFrequency of datacapture

Very high Medium Low

Type of decision Choices for which dataand ways to reach asolution are known

Modeling: Search forand evaluation ofalternative solutions

Intelligence: Understandthe relations that define thesituation

Table 1The Traditional View of Business Information

The consequence of the ideas described in Table 1 is that businesses have long-maintained threedistinct information systems as synthesized in Figure 1 below. The information systems foroperations are widely relying on automated components. They were developed first. They handledaily transaction management. Their designers had no intention of integrating their output witheither management control or strategic decision systems. Most operational information systemsare even as shown in Figure 1 segmented by specialty and not even coordinated at their ownlevel. Suffice it to say that many have experienced the difficulty of maintaining, in traditionalorganizations, the dynamic coherence of bills of materials, bills of labor, or standard costbetween the inventory, production scheduling and inventory management software, to realizehow much that fact hinders the process of value creation and measurement in the firm.

Management control information systems (cost and managerial accounting, budgets, budgetcontrol, reforecasting, reporting systems, etc.) were developed as an added layer. They drawheavily on financial and cost accounting information. Their emphasis is largely financial. Theyare separated from the operational information systems by a gap that caused many a controller tohave to manually input the data again (obtained from printouts of other applications) for theirown analyses.


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Strategic information systems remained essentially informal and confidential until the early1990’s. Senior managers often combined, in a personal and informal way, financial analyses andsyntheses provided by management controllers and data obtained through personal informationnetworks extending outside the firm.

Figure 1 The Hierarchy of Information Systems

In such organizations, the controller had a natural role: as a privileged supplier of information fordecision makers, he or she was in charge of consolidating, from a financial viewpoint, data aboutthe various operational functions. The controller was essential in producing and evaluatingconsolidated (thus financial) performance data. The various operational systems producedheterogeneous data. The controller focussed on costs and financial aspects and integrated theseassorted data in a single financial model. These “transformed” data were often used in preparingbudgets that in turn served to evaluate “actual” data. Often this accounting based information wasthe main basis for steering the business.

Since its peak in the late 1970’s and early 1980’s, this approach has been increasinglychallenged. Both management accounting and control and information technology have beenaccused of not keeping-up with the new managerial needs borne from the new business context.Globalization, shorter life cycles, more demanding and less loyal customers, need for reactivity,flat organizations, and market driven businesses, all lead to the need for value chain connectedtrans-functional, team-based information and for multivariate information combiningsimultaneously financial and operational, quantitative and qualitative, internal and external data.

NEW MANAGERIAL APPROACHES AND ADVANCES IN INFORMATIONTECHNOLOGY REDEFINE INFORMATION SYSTEMS

STRATEGY

Accounting, budgets, reporting, reforecasting, etc.

OPERATIONAL INFORMATION SYSTEMS


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Powerful new information technology tools meet the needs of business for decentralized, rapidand multivariate data. Most large European businesses have effectively developed groupware andIntranet. Many businesses, large and medium, are currently introducing integrated software suchas SAP-R3 or Baan. Some encourage employees to work at home and use phones and computersto connect with their “base.” All businesses want more information about markets and customers.Customers are now being monitored from a variety of viewpoints extending well beyondfinancial parameters.

In May 1997, at the AIM2 annual congress in Strasbourg, Mr. R. Fuchs, Director ofCommunication at Siemens Switzerland, illustrated the evolution of the Siemens Informationsystem with the following pictures.

“Introduce new technologies

and hope that the organizationwill slowly adapt”

Figure 2The Transformation of Siemens

The first picture (Figure 2) shows the intention to transform the firm away from the monolithicand slow battleship into a fleet of rapid and reactive sailboats. This fleet of boats will be betterable to adapt to local conditions in the 189 countries where Siemens does business than the oldcentralized approach. According to Mr. Fuchs, such a strategic transformation would not havebeen possible without new information technologies such as Intranet and groupware.

2 AIM: Association Information et Management. It is the association that represents French academics of andresearchers in Information Systems.


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Figure 3The Network Organization Organized around Information Access.

The second picture (Figure 3) describes the architecture of the Intranet system currently underdevelopment at Siemens. It will support managers in different areas and in different countries incoordinating their efforts to serve global customers. Each manager, in this system, will be able togather relevant data daily and will be able to explore the database (organized by themes) todevelop internal benchmarking and to gain critical knowledge.

The firm that we see developing through such an evolution is trans-functional, customer drivenand process based. The speed of transmission and the availability of data play a key role in itsmanagers being able to make decisions and to cooperate with one another.

More generally, in the turbulent environment we are experiencing today, businesses musteffectively engage in four kinds of activities:

� Analyze their environment to cope with uncertainties;

� Organize themselves around value chains and on a process-basis to create more value forcustomers and other stake-holders, so as to serve the shareholders;

� React and decide rapidly through flat and decentralized structures; and

� Anticipate and be pro-active through global visions and management of surprises.

Table 2 shows how each of these domains is dealt with by a coupling of management conceptsand information technology or applications.

“Unlimited growth ofcommunication needs”

SB

U o

rD

ivis

ion

s

Countries

Customer = Same country, one or severalactivities


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ACTIVITY WHAT IS NEEDED?MANAGEMENTCONCEPT AND

PRACTICE

INFORMATIONTECHNOLOGY OR I.T.

APPLICATIONANALYZE Continuous monitoring

of the competitiveenvironment:customers, prospects,competitors, etc.

u Customer drivenorganizationsCustomer orientedbusinesses

One to one marketing

Technological andcompetitive watch

Data-mining, marketinginformation systems

ORGANIZE ANDEVALUATEPROCESSES

Identify and streamlineprocesses

Focus on value creation

Process-basedorganizations

Reengineering

ABC/ABM

Workflow charting

Integrated software, Datawarehouse,Benchmarking,ABC Software

RAPID REACTION Accelerate distributionof data

Decentralized decision-making

Value chainmanagementintegrating customersand suppliers

Flat organizations

Process basedorganizations

Empowerment

Extended enterprise

Groupware, Intranet

EIS

EDA

Extranet

ANTICIPATE AND BEPRO-ACTIVE

Global vision of thebusiness

Simulations andscenarios

Organize for surprise

Business Modeling

Key success factoranalysis

Macro-forecasting

Management of surprise

Business process modelingand simulation models

EIS

Tableau de Bord

Advanced scorecard

Table 2The Parallel Evolution of Management Concepts and Practices and

Information Technology and IT Applications.

Most of the information technology applications mentioned in Table 2 are currently beingimplemented in most large European organizations. They support and reinforce such “modern”practices as decentralization, flat organizations, customer-driven and process-based approaches.

THE ROLE OF MANAGEMENT ACCOUNTANTS IN THE IMPLEMENTATION OFNEW INFORMATION SYSTEMS

Introducing new information technology applications in the firm is meaningless and wastefulunless such introduction is preceded by an in-depth analysis and reflection about what the newinformation system should do and what kinds of information or data it should “transport anddisseminate.” The management accountant skills at modeling and evaluating performance are anessential building block of such a reflection.


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The Tableau de Bord, or Managerial Instrument Panel, developed by the management controllerin 1991 for the senior management of the Paris-Rhin-Rhône Turnpike Authority (PRRTA) inFrance, will provide an illustration of a process of such modeling, leading to an effective andefficient information system design. The information system was designed originally to providesenior management only with appropriate information for decision-making.

The system is built around both financial and non-financial data: tolls collection, expenses, cashflows, operational cost per kilometer, benchmarking of toll rates, number and distribution ofvehicles crossing each tollgate, conditions in the service stations and rest areas, customercomplaints, accident incidence, monitoring of repair or development work, etc. The system isillustrated in Table 3 below.

PERSPECTIVES INDICATORS♦ Strategic - long term funding plans

- monitoring the progress of major development project - elements of the business plan

♦ ProcessTraffic - miles driven by customers over the network by type of vehicle

- number of transactions- average travel distance- number of subscriber users

Repairs - positioning of the work site on the network map- work project progress- budgeted versus actual spending

Securityandservice

- positioning of accidents by type and location- level of service- customer complaints- availability of equipment by hour and by day

♦ Finance - toll rate benchmarking- comparative evolution costs/tolls revenue- cash management

♦ Personnel - headcount evolution (past and forecasted by type of job- Competence portfolio- remuneration index- remuneration expenses- legal social reporting data

♦ Synthesis - key performance indicators selected among the previous perspectives based on a dynamic evaluation of what is currently important

Table 3The Tableau de Bord of the PRRTA

The actual presentation of the data can be obtained either by choosing the business wide level orby clicking on a section of turnpike on the on screen network map to open up a roll-down menuto choose the perspective the manager wishes to view.


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The Tableau de Bord has since been deployed down from the corporate level to the regionalunits. Each manager of a section of the turnpike (about 50 km sections) now can call-in his or herrelevant information and instantaneously benchmark that section “performance” with that ofanother section of the network. All managers are connected by intranet.

This example shows what future businesses might look like: an organization structured by, and inwhich managers are linked by, specialized internal and external Data Bases connected to DataWarehouses which, in turn, serve to feed specialized, yet integrated, information systems via acomplex intranet allowing internal and external partners to share appropriate data.

The various phases of the introduction of the Tableau de Bord system has mobilized the energiesof all managers for several years to help identify the appropriate data, define indicators (and theirformat of presentation) so as to support decision-making. In the words of the managementcontroller, “This has been an extraordinary exercise in practical management control and goalcongruence.”

The project team had to define original solutions for a series of issues:

� Define a shared representation of the operations of the firm and invent a language tocommunicate it;

� Develop a “map” of all relevant information sources, both internal and external;

� Define for each function (traffic, repairs, service and security, etc.) the key performanceindicators and identify how they can be documented;

� Identify the decisions taken by managers at each level of responsibility so as to infer theinformation needed that will be provided through the Tableau de Bord;

� Provide managers with mock-ups of the Tableaux de Bord to receive comments;

� Manage the project itself: timing, costs, etc.

� Verify the validity and coherence of a large variety of data, both financialand non-financial; and

� Support the continuous development of the Tableau de Bord system by measuring how mucheach perspective is effectively used by the intended user, so as to modify or eliminate thoseindicators what are little used.

Probably one of the most important tasks of the project team has been to keep the managersmotivated and involved in the project. This motivation was initially built around a completebacking by — and involvement of — senior management, and maintained through a one-step at atime implementation. The Tableau de Bord system had initially been intended to be a BalancedScore Card for senior management. Within a few years, however, it became the operationalinformation system of the firm and the common decision making reference between allmanagers.


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CONCLUSION

Management accountants have always seen decision-making support as one of their major roles.The lack of appropriate information technology tools long confined them in handling this rolethrough essentially financial data.

The development of information technologies has made feasible not only the handling of massiveamounts of non-financial and financial data, but also the possibility of structuring the data intohitherto impossible ways. Management accountants now can have on-line access to data in waysnever before possible, that allow them to provide analyses such as that of customer profitabilityand behavior, markets evolutions, products profitability or distribution, and provide theseanalyses almost instantaneously to the relevant managers. The speed of analysis andtransmission, as well as the depth and breadth of the data handled are today elements of a firm’scompetitive advantage.

Management accountants must develop further their ability to define their needs and to contributein helping managers define their own needs and expectations. They must also understand the keyelements of Information Technologies so they are not the victims of technicians. Most newInformation Technology applications carry a representation by default of the “desirable”operation of the firm. Most of these representations are obsolete and built around old concepts ofmanagement. Fortunately, they also offer a possibility for the users to define their ownrepresentations. Management accountants must be pro-active in guiding information systemsspecialists to craftily adapt the tools to the chosen shared representation and managerial models.Unless management accountants take the lead, the “by default” option will be used that wouldprevent the firm from effectively adopting any of the new techniques, approaches and conceptsreviewed above (to the firm’s extreme disadvantage).

Management accountants need not be information technology specialists. They need to be able tolead the dialogue with computer and IT specialist technicians. Their role is upstream in analysisand design and, downstream of application design, in modeling processes, evaluating valuecreation and supporting in the design of information deployment plans.


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REFERENCES

Anthony, R.N., Planning and Control Systems: a Framework for Analysis, Boston, HarvardBusiness School Research Division, 1965.

Gorry, G.A. and Scott Morton M., A Framework for Management Information Systems, SLOANMANAGEMENT REVIEW, Vol. 13, no. 1, Fall 1971, pp. 55-70.

Simon, H.A., The New Science of Management Decision, New York, Harper and Row, 1960.


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About the Authors

Marie-Hélène DelmondMarie-Hélène Delmond is Assistant Professor of Information Management at the HEC School ofManagement in France. She teaches graduate and executive courses in both Information Systemsand Management Accounting and Control. Professor Delmond who is an “Expert Comptable”(the French equivalent to a Chartered Accountant) came to academia after 10 years as apracticing auditor.

Her research interests are at the intersection of Information Technologies and ManagementAccounting and Control: Tableau de Bord, Balanced Score Cards, Outsourcing of informationsystems, and the Impact of IT on Business organizations. She has published extensively in thesedomains in both professional and academic journals.

Michel LebasMichel Lebas is Professor of Accounting at the HEC School of Management in France. Heteaches graduate and executive courses in Management Accounting and Control as well as inPerformance Management. Professor Lebas maintains a free-lance consulting practice in additionto his teaching at the HEC, with a large emphasis on ABC/ABCM/ABM and performancemanagement.

His research interests focus on leading edge practices in the area of Performance Management.He is an Academic Research Associate of CAM-I Europe. He is the representative of the FrenchAccounting Bodies on the FMAC. His publications have appeared in leading academic andprofessional journals.

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Claude Grenier, Associate Professor of Information Systems and Management,The Montesquieu University in Bordeaux, France

Michel Lebas, Professor of Accounting,HEC School of Management, Paris, France

ABSTRACT

The mission of management accountants is to support decision-makers. To do this they mustconceive and operate managerial information tools to provide relevant and reliable data.Management accounting tools and practices are essentially information systems, designedaround — and part of — business processes.

Modern Information Technologies (such as integrated systems, networks, and decision-supportsystems) open the door for organizational evolutions through process mapping, communicationease and acceleration, and facilitation of problem identification and resolution.

Within this context, the mission of the management accountant is changing: from the use to thedesign of adaptable tools. Focussing on the tools is necessary, but not sufficient for themanagement accountant. It is also critical to better understand the mechanisms that yieldcollective success and performance. The way knowledge and business representations aredeveloped and shared is a major issue for the management accounting function as we enter thenext millennium. Management Accounting and Control is definitely going to be aboutmanagement of knowledge rather than what it is today, i.e., management of information.

e Monde Informatique, a French professional weekly devoted to the field of management ofinformation systems, publishes a regular column entitled “Fifteen Years Ago...” This year it

has been reviewing articles which appeared in 1983 with titles such as: “IBM Beats Apple toBecome the Leader in Micro Computers,” “Does Home Banking Have a Future?” “MicrosoftReleases the Second version of MS-DOS,” “The First 256 Color Monitors.”

The editors have undoubtedly selected articles that are still relevant and comprehensible intoday’s context. However, these examples show that despite the apparent speed of technicalinnovations, there is still a lot of inertia slowing down change. What will happen in the nextfifteen years is probably latent in what is currently observable. The difficulty in identifyingamong the currently “new” practices those which will be really innovative in 10 to fifteen yearsincites us to invite the reader to be extremely prudent in reading the views expresses below.

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The new technologies of information have affected the practice of management accounting andcontrol in essentially two main ways:

� They have made possible modifications in business processes, thus leading managers to adapttheir methods and practices, and

� They have transformed management accounting and control tools that are essentiallyinformation systems that structure and formalize management practice.

There are strong interactions between the possibilities offered by information technology (IT) andmanagerial expectations. To decide which of the two is the motor of change observed is achicken and egg problem. We formulate here the hypothesis that technological changes (whichfind their roots in R&D) create opportunities for managerial and organizational changes.However, if it is possible to imagine the types of changes that might take place, it is impossibleto guess where and when they will take hold and how important they will be.

Our belief is that under the joint pressure of IT possibilities and managerial demands,management accounting and control will extend beyond management of information to enter theuncharted field of knowledge management.

To argue our point we will in the following sections:� Offer a “managerial” interpretation of some IT innovations;

� Show that despite some recent progress, understanding the generation of performance is stillin its infancy; and

� Consider how management of knowledge may change that situation.

A “MANAGERIAL” INTERPRETATION OF IT

We have focussed our attention on three emerging technologies that we feel seem to be alignedwith our views of tomorrow’s management:� Integrated systems

� Networks

� Decision support systems

Integrated Systems

Integrated systems or “Enterprise Resource Planning” Systems bring together, in a unifiedarchitecture, the informational needs of functions that used to be separated and autonomous suchas sourcing, manufacturing, sales, human resources, accounting, cash management, etc.


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Such systems first integrate operational systems such as purchasing, production scheduling,shipping, invoicing, etc. They also and separately integrate administrative and accountingpractices through an integration of the various accounting systems (invoicing, financial,managerial, budgets, etc.). In a third stage these might get integrated with operational systems, soas to provide distributed data for decision-making support.

Because they attempt to allow complete exchange of data between modules1 they must be builtaround a single capture of data for each event in a multivariate format. They are thus in thefamily of “Event Management Software.”

ERP software has so far been adopted mainly by large organizations. The rate of growth of thismarket (30% a year for the last two years) is not explained only by the millennium syndrome or,as is the case in Europe with the introduction of the Euro, the need to handle multi-currencyaccounting. The key reasons for such growth probably are that integrated systems are (a) coherentwith a trans-functional, process-based management approach, and (b) facilitate both reactivityand pro-activity in a turbulent environment thanks to the lack of separation between non-financial and financial data.

Integration, especially in the accounting area, is likely to be an irreversible trend. It connectsaccounting with operational information. It allows multidimensional analysis while preserving“accounting quality.”

The integration of financial and managerial accounting is quite common in large businesses. It isstill rather unusual in small and medium enterprises. It is more a question of mentality (orpossibly of reality of need) than a question of the software’s being inadequate for the needs ofsmall businesses. All businesses, large and small, cannot continue capturing data in duplicatedformat — once for financial accounting, once for managerial accounting. Integrated businesssoftware are probably going to be generalized over the next ten to fifteen years; they will openthe path to new ways of mobilizing resources and energies in business.

Networks

The rapid development of internal networks is the result of two contradictory demands:� On one hand, PC and distributed computing allow great decision-making autonomy for a

more reactive business;

� On the other hand, all these autonomous micro-decision centers must be coordinated to gainin economies of scale and effectiveness.

1 Best known ERP software are SAP, BAAN, J.D. EDWARDS, PEOPLE SOFT and ORACLE. The leader in thefield, SAP, provides in its latest release (R3), a large number of modules connected to an accounting core.Adaptation of these modules for up to sixteen different industrial sectors is underway as well as data extraction fordatamining and datawarehousing.


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Intranet, born in the wake of internet, and even extranet (networks that include external“partners”), also known as groupware will continue to expand the possibilities of dialogue andcommunications. It will be the basis for the sharing of data and ideas and therefore of knowledge.

This new way of linking persons working in an organization creates (and responds to) a newconcept of an organization. It allows departure from the traditional functional views in whichcommunication was essentially vertical in each functional silo.

Network organizations (or organizations structured by networks) are flat organizations. Eachresponsibility center is a node in the network, allowing it to communicate, share, coordinate withall those other nodes that can help it fulfill its mission.

Networks are here to stay and will probably grow significantly because they satisfy threeimportant needs created by competitiveness and organizational “agility:”

� They bring together individuals into ad hoc groups;

� They allow individuals to communicate directly; and

� They facilitate the ability of any group to invent new appropriate behaviors.

The Development of Decision Support Systems

Data bases allow storage and structuring of massive amounts of data. Organized data retrievaltechniques make the data available in an effective way.

In a world in which decisions must be ever more rapid, it is crucial to be able to access diverse,complex, multiple data bits and to analyze them to rapidly and correctly extract the knowledgethey contain.

The new techniques here are named Datawarehouse, Interactive Decision Support Systems,Executive Information Systems, and Datamining. For the time being, each technique exists and isdeveloped independently of the others. It is logical to think that the next few years will see morecoherence in their development as they all have the same objectives.

IBM introduced the Datawarehouse concept in the early nineties. The actual development of theidea into a workable tool is still far from being complete, but the idea is very tempting: to allowthe coexistence of global (business-wide) and local (unit specific) data to be coordinated in adynamic archival and retrieval process.

The global view is transverse, trans-functional and as much as possible independent fromadministrative procedures. The local vision, on the other hand, ought to be oriented to the needsof special classes of users, thus likely to be functionally or process oriented. As opposed to thedata “warehouse” implicit in the global view, the local approach calls for “user profiles” which


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define, like a set of keys, the access routes each individual (or specific group) can use in thewarehouse to collect its own relevant data in the warehouse.

a) The data warehouse, although difficult to implement, has several advantages:

� One single architecture of data, shared throughout the whole organization, federating existingoperational software without need to rewrite them;

� The rules for data collection reflect the model of the firm and of its path to success;

� It is, in principle, compatible with any new operational application; and

� It is user friendly as it allows combinations of data not thought about before, thus allowingthe development of innovative information and knowledge.

b) Interactive decision support systems (IDSS) are built around multi-dimensional data bases.(The associated image is often that of a “hypercube.”) The data base regroups data fromvarious pre-identified relevant sources (internal and external) along a variety of predefineddimensions: time period, products, markets, geographical areas, activities or processes,responsibility centers, etc.

IDSS’s offer many opportunities for sophisticated data analysis: aggregation, simulations,statistical analysis, graphic representations, etc. The IDSS’s are the basic technique on whichTableaux de Bord (or Managerial Instrument Panels) are built, and they can also be used forreporting, budgeting and re-forecasting. Whether the analysts of a business are internal (suchas management accountants, management controllers, and quality managers) or external(such as financial analysts and investors) they can build and use IDSS’s.

c) Executive Information Systems (EIS) seek to provide customized retrieval of data which willmeet individual managers’ specific expectations regarding content and format. They are veryadvanced software, intended to be very user-friendly. However, because they are designed tobe used without any IT knowledge, they tend to make the user somewhat of a prisoner of thevision he or she incorporated in the system at its inception.

EIS are very important for management accountants because an EIS expresses formally thekey success factors perceived by the executive or manager. The management accountant canplay an important role in assisting the user identify his or her critical success factors so thatthe EIS is really custom designed and not imposed on the decision maker by some designerwho expresses his or her own ideas about key success factors.

d) Datamining (or Textmining) is a process based on statistical and linguistic analyses carriedon a data base. It identifies correlations, tendencies, and classifications.


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For example, the French supermarket chain, CASINO2 introduced a datawarehouse withdatamining in 1997. They issued some 600,000 magnetic “fidelity cards” to a representativesample of customers. Each time a customer, whose demographics are known, goes throughthe check-out counter line, his or her consumption behavior is recorded and analyzed. Theresults of the analyses lead to a continuous tailoring of the product assortment and a forecastof the store sales. Logically, purchasing and storage can be optimized on the basis of thisinformation. Without the simultaneous use of networks, datawarehousing and datamining,this supermarket chain would not have been able to obtain such knowledge about itscustomer behavior.

The examples of techniques we have briefly reviewed illustrate the convergence betweentechnical developments in IT and managerial approaches. The three main trends we see evolvingout of this coherence are:

� The development of process-based organizations focussing on the whole value chain;

� The development of network-organizations; and

� The evolution from problem solving to problem identification.

UNDERSTANDING THE CAUSALITY OF PERFORMANCE: THE MISSING LINKS

A Descriptive Model of the Performance Process

Despite the many criticisms it has received the structure offered by R.N. Anthony in 1965 still isthe reference in most of management accounting work. It distinguishes strategic planning,management control and operations. The management control level is supposed to be theinterface between the other two: Management control (management accounting) is (a) aboutfacilitating the deployment of strategy or strategic intent into operational decisions, (b) aboutoverseeing effectiveness, and (c) participating in the organizational and individual learningprocess.

2 CASINO has over 600 supermarkets and carries around 30,000 references in each.


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Activities Operations Processes

Quality Flexibility Productivity

Costs

Customer Satisfaction

Schedules

Value ofthe firm

GLOBAL PERFORMANCE

Strategy

Operations

Financialindicators

Operationalindicators

Economicindicators

Figure 1The Performance Pyramid

Figure 1 highlights the “missing links” between the three components of the performancecreation and monitoring process. Without a clear linking of the three parts, it is difficult tounderstand how performance is created.

Causal relationships leading to performance are difficult to identify and share among the variousorganizational actors. Local and global performance are often not seen as interrelated. Softwaresupporting process mapping and causality chain analysis are still in the early stages ofdevelopment. They will permit the management of these missing links and the managementcontroller will be at the core of their application.

The Need to Better Understand Performance

In order to better understand performance management, accountants need to develop multiple yetcoherent measures. Further, these measures will need to be “organized” so as to be able to reflectpast knowledge and create new knowledge.

The limits of financial or accounting-based indicators of performance (such as profit, growth,EVA, etc.) are well known. They only capture a small part of the process of value creation (ordestruction).

Non-financial indicators, organized in a Tableau de Bord or in a Balanced Score Card, allow abetter understanding of performance with regard to a variety of time horizons and from diverseperspectives.

Performance of a business, when defined as the ability to provide sustainable growth ofprofitability, cannot be satisfactorily described by only an accounting representation. Accounting


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is essentially a lagging indicator of performance. We agree with Professor Arie de Gus3 that thoseorganizations that have demonstrated their ability to sustain profitability over time are those thatwere able to develop simultaneously their human and knowledge “capital” and their financialbasis.

Management accountants are in a position similar to that of medical doctors or consultants. Theirrole is to identify what seems to be wrong, search for the root cause and recommend ways for theactors to right things. What is at stake for the management accountant is to contribute to creatingthe conditions for managers to bridge the gaps or provide the missing links in the understandingthe whole process of performance generation (operations, management, strategy.) IT will providethe backbone of this facilitation.

A NEW MISSION FOR THE MANAGEMENT ACCOUNTANT

The links between data, information and knowledge can be summarized in the following twoequations:

Data + Analysis + Decision Context = Information

Information + Reasoning = Knowledge

Data are signals provided by observation of reality through any of many possible measurementsystems. These signals are essentially the “raw material” of the management accountant’s work.

Information results from the analysis of data and relating the results to a decision context.

Knowledge is created only when reasoning is used to create associations, identify patterns ortrends, show correlation or causality, or permit generalization. Knowledge is created each timethe understanding of the complex process of performance creation is enlarged.

In business, knowledge creation is about understanding causality relationships. Managementaccountants have the mission to develop knowledge for managers and decision-makers to use.

The link between accountants and IT is therefore two-fold:

� The first is about the generation of signals and their analysis; and

� The second is about the actual usage or exploitation of the result of these analyses.

From User to Designer of Information Systems

3 The Living Company, Harvard Business Review, March-April 1997, vol. 75, no. 2, pp. 51-59.


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For many years, management accountants have been able to acquire off-the-shelf, generic, oradapted (by specialists) information systems for most of their needs in accounting, costing orbudgeting. Accountants were essentially relatively passive users of the “concepts” embedded inthe software by the computer specialist.

Today’s needs call for rapid decision-making that can only be obtained if few selected indicatorsare used. However, the selection of key indicators is no longer stable over time and a largeproportion must continuously be adapted to keep pace with the evolution of competitivesituations.

There are no more ready-made solutions. The management accountant must become a designerof contextually adaptable systems. Modular information systems require new IT tools.

The management accountant will need to show analytical skills of a new nature: from dataanalysis alone, the skills set will now require contextual and decisional analysis.

The management accountant needs to understand the process of decision-making as well as howthe business operates so as to (a) formulate rules for translating events into accounting (or nonaccounting) signals in a coherent fashion, and (b) define appropriate operational rules foraggregation, structuring and analysis of these signals.

It is only if the management accountant can translate her or his understanding of performancecreation that he or she will be able to choose the appropriate IT tools, without beingoverwhelmed by the computer specialist’s providing off-the-shelf inadequate solutions.

From the Management of Information to the Management of Knowledge

Managers and decision-makers can only respond to situations they can apprehend and which aregiven meaning by the managers’ mental maps or representations of reality.

Management accountants must assist in and support the development of shared mental maps inorder to create goal and behavior congruence.

A representation or a mental map is a form of knowledge. It is developed and continuouslyupdated on the basis of experiences that can be interpreted. A mental map (knowledge) is both aprocess and an outcome.

Knowledge management shows the limits of IT. While new information gathering and analysistools speed up the ability to reach potentially meaningful information, they do not do more thancreate the opportunity for decision-makers to exploit the information appropriately.

The ability to create value from information does not rest solely on technical rationality: theweakest link (the least predictable one) as well as the strongest one (the richness of analysis and


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the ability to fill in gaps or use intuition) in the value chain is the human element of interpretationof information and the ability to decide and effectively implement the decision.

The controller (or management accountant) cannot only bridge the gap we identified earlier byusing ever more powerful and flexible information technology, he or she must become a managerof knowledge (as well as a creator of knowledge). That role implies the effective management ofthe interface between all those who hold knowledge, but do not have the right to decide, andthose who have the decision right, but lack parts of the requisite knowledge.

Management of knowledge is at the intersection of the mastery of IT tools and all the“educational” activities the management accountant will engage in to create meaning (sharedmeaning) out of the data. It is with such new functions that the accountant will effectivelycontribute to effective strategic and proactive change.

CONCLUSION

The management accountant must not only know the possibilities of new IT tools, he or she mustbe able to make them an integral part of the organization’s decision processes. Computerspecialists are providing the building blocks and some engineering rules, the managementaccountant is both the architect and the interior decorator. Once the house is built and inhabited,the engineering feats must be completely transparent to the resident. ITR is not about technology,it is about the user of the technology.

The management accountant at the beginning of the next millennium will be a builder and adesigner. The design and engineering of the knowledge management tools gives structure to theorganization. The design of information and management tools shapes the design of the entirefirm. Further, and not the least, no tool is behaviorally neutral. Management accountants mustremain in control of the new information technology possibilities or they will lose control ofbehaviors that contribute to creating performance and value.

REFERENCE

Anthony, R.N., Planning and Control Systems: a Framework for Analysis, Boston, HarvardBusiness School Research Division, 1965.

de Gus, A., The Living Company, Harvard Business Review, March-April 1997, vol. 75, no. 2,pp. 51-59.


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About the Authors

Claude GrenierClaude Grenier is Associate Professor of Information Systems and Management at theMontesquieu University in Bordeaux. He teaches management accounting, management controland information technology to Accounting Masters and Executive students.

His research interests center on the design and the use of information systems. He is an activemember of the French Ordre des Expert Comptable’s committee in charge of writing andmaintaining their methodological guide for the design and implementation of managementinformation systems.

His many publications have appeared in French academic and professional journals. He recentlypublished a ground-breaking accounting textbook using an information system view throughout.

Michel LebasMichel Lebas is Professor of Accounting at the HEC School of Management in France. Heteaches graduate and executive courses in Management Accounting and Control as well as inPerformance Management. Professor Lebas maintains a free-lance consulting practice in additionto his teaching at the HEC.

His research interests focus on leading edge practices in the area of Performance Management.He is an Academic Research Associate of CAM-I Europe. He is the representative of the twoFrench Accounting bodies on the FMAC. His publications have appeared in leading academicand professional journals.

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+PVQ�VJG�6YGPV[�HKTUV�%GPVWT[��$G[QPF�+PHQTOCVKQP�/CPCIGOGPV

W.P. Birkett, Professor of Accounting, Associate Dean – Development, Faculty of Commerceand Economics, Director of the Australian Center for Management Accounting Development,

University of New South Wales, Sydney, Australia

ABSTRACT

This paper describes three types of social transformation that are affecting organizationsentering the twenty-first century. The dimensions or ramifications of these transformations arenot clear, so that it is difficult to make sense of them. It is argued that organizations areaddressing the issue of sense-making in three ways, reflecting the types of transformation beingexperienced. First, by balancing and composing the interpretive structures used in sense-making(Information Management). Second, by attending to, and recreating the knowledge frameworksunderlying the interpretive structures used in sense-making (Knowledge Management). Third, byreaddressing the value frameworks which serve as premises for sense-making and knowledgeaccumulation (Value Management). Hopefully, insight into the forces at work may permit morepositive contributions to the shaping of change in organizations, or at least a personal coming toterms with it as the twenty-first century approaches.

INTRODUCTION

he theme for this booklet, Into the Twenty-first Century with Information Management, raisesa number of interesting and not straightforward questions:

� What transitions or transformations are entailed by the movement into the twenty-firstcentury?

� What is to be understood by ‘information management’?

� Will ‘information management’, as understood, be sufficient for organizations seeking to beeffective in the twenty-first century?

In addressing these questions this paper argues that three transitions or transformations areaffecting, or will affect the conditions under which organizations will operate in the twenty-firstcentury. First, there is the working out of issues relating to the industrial society which has beenoperative over the last century, and to the modern industrial corporation as its organizational‘engine’. Second, there is the accommodation of issues relating to a new industrial order basedaround the use of knowledge (the ‘knowledge society’) in new service oriented organizations.Third, there are issues relating to the way in which the requirements of global economic

T

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institutions and civil society will be accommodated in organizations which are communitarian inorientation.

As a background to the resolution or accommodation of these distinctive sets of issues, there isthe need to grapple with the increasing complexity, irreducible ambiguity, and critical paradoxessurrounding life in organizations.

All of these conditions and issues are being experienced and addressed presently in organizationsentering the twenty-first century, but without their dimensions or effects being clear. Thus, it isdifficult for those involved to make sense of their experiences and actions, so as to move forwardwith some confidence. Yet sense-making is the vehicle by which organizations assimilateinformation and guide their progress.

The paper argues that organizations are addressing the issue of sense-making in three ways,which reflect the three types of transition or transformation they are experiencing. First, bybalancing and composing the interpretive structures they use in sense-making (informationmanagement). Second, by turning attention to the creation, structure and use of the knowledgeframeworks on which the interpretive structures used in sense-making are built (knowledgemanagement). Third, by addressing the value frameworks which serve as premises for sense-making and knowledge accumulation (value management).

While Information Management will be a necessary condition of organizational effectiveness inthe twenty-first century, it will be insufficient. Beyond Information Management lie KnowledgeManagement and Value Management as further conditions of organizational effectiveness.

SENSE-MAKING IN ORGANIZATIONS

The messages processed within organizations may induce confidence or surprise, dependingupon whether expectations are confirmed or confounded. Where a message has ‘surprise value’ itis said to carry information or to be informative. The message may be intentionally sent (e.g., as aform of communication), simply perceived as a byproduct of events or actions, or activelysought. In all cases, however, it needs to be decoded or interpreted to discern whether it isconfirmatory or informative. This process of discernment, involving decoding and interpretation,is known as “sense-making” (Weick 1995, pp. 4, 5). Sense-making takes place against abackground of ‘noise’ and generalized uncertainty; it is an active process, where prior beliefs arechallenged.

“Sense making can be viewed as a recurring cycle comprised of a sequence of eventsoccurring over time. The cycle begins as individuals form unconscious and consciousanticipations and assumptions, which serve as predictions about future events.Subsequently, individuals experience events that may be discrepant from predictions.Discrepant events, or surprises, trigger a need for explanation, and, correspondingly, for aprocess through which interpretations of discrepancies are developed. Interpretation, ormeaning, is attributed to surprises. It is crucial to note that meaning is assigned to surprise

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as an output of the sense-making process, rather than arising concurrently with theperception or detection of differences” (Louis 1980, p 241).

Sense-making is framed by complex belief structures - consisting of knowledge frameworks(involving concepts, descriptions, attributions, explanations, theories, understandings), valueframeworks (involving core values, motivations, preferences, priorities, aspirations), andexpectation frameworks (involving hopes, extrapolations, forecasts, anticipations, predictions,projections, plans). Knowledge and value based expectations prepare the way for sense-making,by inducing a readiness for it; in one form or another, they are to be confirmed or surprised byactions or events. Expectation frameworks provide a structure for interpretation. The followingdiagram is illustrative:

BELIEFSTRUCTURES

SENSE-MAKING

InformationConfirmation

Learning

EXPECTATIONFRAMEWORKS

VALUEFRAMEWORKS

KNOWLEDGEFRAMEWORKS

Sense-making is triggered particularly when expectation frameworks are ‘disturbed’ by messagesthat are informative - by an expected happening that does not occur or by a happening thatviolates expectations. The decoded message serves as a cue for a rearrangement of the categoriesand connections previously sustained in the overall belief structure; the substance of thisrearrangement might be referred to as the meaning of a message carrying information.

Learning refers to rearrangements in belief structures, induced by sense-making as the meaningof a message is digested. Learning thus refers to the effects of sense-making on belief structures(the above diagram is illustrative). Different types of learning might be identified in terms of therearrangement effected - for example, in concepts, core values, preferences, priorities. Changes inknowledge and value frameworks may or may not be connected; in either case, however, suchchanges are likely to lead to a change in expectations, which will provide prompts for furtherepisodes of sense-making.

The more that the context in which sense-making takes place is laden with uncertainty, ambiguityor paradox, the more there is likely to be a demand for ongoing sense-making activity. Underthese circumstances existing belief structures are likely to be incomplete guides to action andmore open to surprises.

Within organizations, sense-making can be addressed at a number of ‘levels’:

� at the level of the individual;

Interpretive Structure

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� at the interpersonal level, where a mutuality of meaning is created and recreated throughinteraction;

� at a structural level, where meaning is maintained and changed irrespective of the particularindividuals or interactions brought within the structure; and

� at a cultural level, where traditions and basic or implicit assumptions are maintained ormodified over time.

Organizational belief structures span and are maintained at each of these levels, with meaningbeing created and learning taking place across them (Weick 1995 p 70 ff.).

The design of organizations addresses relationships between belief structures and sense-makingat these levels, particularly the nexus between interpersonal interactions and mediating structures.The mediating frameworks of thought sustained at the structural level (as scripts, routines,patterns of behavior) may govern the nature of interpersonal interactions (thus limiting meaningcreation and learning at this level), whilst being reinforced or legitimized by the language andbeliefs traditionally sustained by the organization at the cultural level. On the other hand, relativeautonomy may be accorded to interpersonal interactions and meaning creation, inducingrelatively frequent shifts in embedded belief structures at the structural level and thereby shifts orbreaks in cultural tradition over time.

Interpersonal interactions are the conduit for organizational learning. It is individuals ininteraction who face the complexity and change associated with the organization's work, and whomanage organizational expectations. If complexity and change are high, then learning at the levelof interpersonal interaction needs to be encouraged to fuel organizational sense-making; but ifthe complexity and change faced by the organization are low, then existing structural frames ofthought are likely to be both sufficient (tried and tested) and efficient (in terms of economizingon learning effort). Finding an appropriate balance between innovation and tradition undercontingent circumstances is the art of organizational design, where the stakes are high -organizational disintegration if innovation drives out structure and tradition, or organizationalfailure if structure and tradition impede necessary innovation.

It is becoming customary to use the label ‘organizational knowledge’ to refer to the beliefstructures sustained by an organization (McMaster 1996 p 88). However, this is somewhatmisleading, if the intention is to encompass value frameworks, expectation frameworks andknowledge frameworks. Organizational belief structures maintain a dynamic tension betweenknowledge, values and expectations in framing the processes of sense-making and learningthrough which belief structures are changed.

INTO THE TWENTY-FIRST CENTURY: TRANSITION AND TRANSFORMATION

The Modern Industrial Corporation in Transition: The twentieth century has beencharacterized by the particular market imperatives, modes of production, industry arrangements

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and practices and supportive social institutions known as industrial society. The engine ofindustrial society has been the modern industrial corporation, which

� incorporated improvements in production, energy, communication and transportationtechnologies;

� exploited economies of scale made possible by vertical integration, central administration andhistorical organization;

� added economies of scope to economies of scale, by exploiting new markets with existingproducts and technologies;

� achieved competitive advantage from the systematic co-ordination of production, marketingand distribution;

� enhanced its global range by inventing new production technologies (statistical qualitycontrol, just-in time manufacturing) and grafting these on to new information,communication, financing and transportation technologies; and

� incorporated management and organizational technologies for handling increasinglyuncertain (complex and changing) environments - such as the intelligence gatheringtechnologies of strategic and scenario planning and the change technologies of process re-engineering and continuous improvement (Goldman, Nagel and Preiss 1995, p 48).

While the modern industrial corporation has been substantially modified and enhancedthroughout the twentieth century, there are signs of its demise or radical reformation at the end ofthe century. As an organizational form it is being seen as an ineffective vehicle for meetingrapidly shifting customer needs, while delivering shareholder value through low cost operationsand high returns. To meet these needs the modern industrial corporation is being reformed byremoving its characteristic ‘seams’:

� hierarchies are being flattened, to make it more responsive to change;

� functional specialization is being removed, to provide a clearer focus on the processes whichsupport the strategic product portfolios of organizations;

� divisions between suppliers, customers and the organization are being removed (e.g., throughalliances or partnerships), to more firmly locate business processes in relevant value chains;

� lags between information and action are being removed, by simultaneously integratinginformation systems and highlighting the availability of localized information in ‘real time’ atpoints of need; and

� reliance on remote forms of financial control is being supplemented or superseded, bycreating real-time localized control based on non-financial Performance Indicators.

Service Oriented Organizations: As the twenty-first century approaches experts from manydisciplines or philosophies are heralding either the existence or need for a new industrial order -under such labels as ‘the new economic order’ (Dunphy and Stace 1992), ‘post-capitalist society’(Drucker 1993), or the ‘information era’ (Naisbitt and Aburdene 1985). As a premium is placed

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on knowledge as the central resource in the new order, it will be labeled the knowledge societyhere (Drucker 1991). The economic engine of the knowledge society will be a new form oforganization, here labeled the service oriented organization.

The seeds of the new industrial order are many, and are yet to be fully understood. However, thefollowing trends can be identified:

� the gradual evolution of a market environment of rapid, continued, and unpredictable (if notchaotic) change;

� the gradual erosion of the competitive advantage of the modern industrial corporation (longproduct development times, high investments in technology, long production runs) byorganizational forms that can operate profitably with short production runs, dramaticreductions in product development time and the capacity to produce to customer order ratherthan market forecasts (through the use of automated/and flexible design and manufacturingtechnologies);

� the focusing of these new types of competitive advantage, not on cost reductions and pricecompetition, but on offering a wider range of products to wider markets with increasedquality - at no increase in price to the customer; and

� associated with the offering to customers of an increased choice of high quality products isthe possibility of exploiting new economies of scope in widely diverse and fragmentedmarkets.

Gradually these trends have resulted in a shift of customer expectations: no longer satisfiedsimply with reliable, high quality products they are demanding gratification from products andservices more closely matched to their individual requirements (Best 1990).

The attention of organizations has shifted in response, away from mass production to masscustomization - and the promise of endless economies of scope and opportunities for profits thatthis offers; if production flexibility can be increased sufficiently, and product development cyclescan be decreased dramatically.

Under these conditions the source of profitability is not (only) cost reduction, but the appropriatepricing of customer value enhancement, where the source of value has evolved from (but stillincludes) product or service quality, to (wider) customization and even the individualization ofcustomer service.

In the new industrial order, advantage will accrue to those organizations which can:

� offer ongoing, enriching service to individual customers, who perceive these offerings not asproducts but as solutions to their particular problems or needs;

� establish themselves as integral parts of diverse but relevant value chains that permit theleveraging of resource use while capitalizing on distinctive capabilities;

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� establish flexible, responsive, proactive - but directed - organizational processes that thriveon change and uncertainty, as means of exploiting market and competitive opportunitiesroutinely and profitably; and

� capitalize on the capabilities of the entire (and increasingly knowledge based) workforce,through new cultures and modes of management.

Central to the new industrial order are the distinguishing qualities of service orientedorganizations;

� a service orientation, focused on individual customer enrichment;

� diverse, ever-changing and ‘virtual’ value chain involvement in relation to both services andresourcing;

� agility through organizational processes that are flexible, responsive, proactive andinnovative;

� new management forms that empower and embody the workforce as a whole; and

� an intelligence that is sufficient to sustain organizational identity and core competencieswhilst negotiating ongoing, radical change driven by new service offerings (Quinn 1992;Goldman, Nagel, and Preiss 1995).

The Communitarian Organization: Moving further into the twenty-first century, commentatorsof varying persuasions have pointed towards the need for, and the possibility of a new form ofsocial order, to parallel the underlying economic rationale of the new industrial order (labeledhere as the ‘knowledge society’). In one way or another, and under one label or another, thesecommentators point towards the development of a civil society, where a premium is placed on thesustenance and development of social capital: the civil institutions and associations which utilizesocial co-operation and creativity in generating mutual trust and gain (Latham 1998). Drucker,for example, has argued that the future of capitalism depends upon the existence of a civilsociety:

“…there is a new policy, a new priority, a new necessity: the promotion of civil society asa goal of international policy. A civil society is not a panacea. It is not the “end ofhistory”. It does not by itself guarantee Democracy, and not even peace. It is howeverprerequisite to these, and equally to economic development” (1998, p 337).

Others point to a further level of inter-dependency - between the natural and biologicalenvironment, the prevailing economic order and civil society (Maynard and Mehrstens 1993). Acivil society addresses issues of relationship and value. How are individuality and community,diversity and equality, recognition and reward, public rights and personal responsibilities,personal freedom and collective well-being, trust and respect to be sustained - in creating amutually beneficial future (Latham, 1998)?

The social engine of civil society is likely to be communitarian organizations, as developmentsfrom service oriented organizations. Hostile customers and an alienated workforce or resource

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providers are likely to lead to failure for service oriented organizations. Instead mutual trust andrespect become conditions of success. Moreover, probing the nature of customer enrichment islikely to uncover the central importance of the need for personal recognition and trust as humanvalues, which can be represented and supported by service oriented organizations within thecommunities they inhabit (Putnam 1993; Fukuyama 1995). Communitarian organizations notonly are value driven; they become sites for dialogues about value and the exploration ofpossibilities.

“Human beings have the capacity for exploring possibility. The design of ourcorporations can vastly expand this capacity. To be fully human we must spend at leastsome time and energy on the exploration of the space of possibility; not only forourselves, but for larger concerns.

…becoming has been and always will be the condition of any corporation as well as anyhuman being; …the pursuit of the fulfillment of possibility is what organizational life isall about. Waking up to the ever present process of becoming and the fulfillment ofpossibility reveals a profound similarity between individuals and corporations”(McMaster 1996, p 185).

Communitarian organizations then are distinguished by the following qualities:

� integrity arising from a core set of values;

� openness to diversity and the exploration of values and possibilities;

� the pursuit of mutual respect and trust in relationships;

� advocacy for, and representation of the qualities of civil society; and

� alignment with the ‘local’ communities and environments in which the organization operates.

As movement is made into the twenty-first century, these transitions and transformations alter thecontexts and conditions under which sense-making in organizations proceeds. The followingdiagram is illustrative:

TRANSITIONS ANDTRANSFORMATIONS

CHAOS POSSIBILITY

KNOWLEDGE SOCIETYINDUSTRIAL SOCIETY CIVIL SOCIETY

25*$1,6$7,21$/

(19,5210(176

62&,$/ )250$7,21

COMPLEXITY

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INFORMATION MANAGEMENT

As the seams are progressively removed from the modern industrial corporation to make it moreadaptable to contemporary circumstances, both its essential nature and its requirements forinformation processing are clarified. The modern industrial corporation seeks to providecustomer value from a strategic portfolio of products and services in the face of competition inproduct/service markets. The resources necessary to support the strategic portfolio are drawnfrom the capital market (in the face of competition) in return for the delivery of shareholdervalue. Products/services in the strategic portfolio are delivered through processes located inrelevant value chains. Processes are changed to reflect shifts in the strategic portfolio, and togenerate increased value for customers and shareholders over time. Resourcing patterns arealtered to stimulate or accommodate such change, by eliminating waste or leveraging valuecreation. All of this takes place against a background of heightened uncertainty, as theenvironment of organizations becomes increasingly complex. The following diagram isillustrative:

MODERNINDUSTRIAL

CORPORATION

SERVICEORIENTED

ORGANISATION

COMMUNITARIANORGANISATION

CONTEXTS ANDCONDITIONS

ORGANISATIONAL SENSE-MAKING

25*$1,6$7,21$/

)250

CUSTOMER VALUE

PROCESSES

STRATEGIC PORTFOLIO

CHANGE

Competitors Product/ServiceMarkets

CapitalMarket

Competitors

SHAREHOLDER VALUE

Momentum

TIME

Learning

RESOURCING

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Effectively the diagram also illustrates the complex belief structures required for sense-makingin the modern industrial corporation, which focus on the following set of questions:

� Is the strategic portfolio sensible and appropriate?

� Do customers gain sufficient value from the products and services offered?

� Do shareholders derive sufficient value from their resource commitments?

� Do organizational processes efficiently and effectively support the delivery of each productand service in the strategic portfolio?

� Is time phased change focused on value generation or enhancement appropriatelyincorporated into organizational processes?

� Are resources deployed and redeployed effectively in organizational processes in support ofstrategies and change?

Expectation frameworks, which address all these questions, provide an interpretive structure thatis focused, complete and coherent. The interpretive structure provides a framework forunderstanding the functional imperatives of the modern industrial corporation, supported by cues(in the form of goals, targets or measures) that serve as expectation filters for the absorption ofinformation in each area. And these cues can be layered into the various organizational ‘levels’where sense-making occurs, by design.

The ‘Balanced Scorecard’ can be seen as a manifestation of this interpretive framework: it isfocused on an organization’s strategy and its implementation; it expresses the “theory of thebusiness” as a series of cause-effect propositions; and it provides a balanced (complete andcoherent) perspective on the conditions of organizational success.

“The scorecard… provides the basis for communicating and gaining commitment to abusiness unit’s strategy with corporate-level executives and the board of directors. Thescorecard encourages a dialogue between business units and corporate executives andboard members, not just about short-term financial objectives, but about the formulationand implementation of a strategy for breakthrough performance for the future.

At the conclusion of the communication and linkage process, everyone in theorganization should understand the business unit’s long-term goals, as well as the strategyfor achieving those goals. Individuals have formulated local actions that will contribute toachieving business unit objectives. And all organizational efforts and initiatives will bealigned to the needed change processes” (Kaplan and Norton 1996, p 13).

UNCERTAINTY

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Against this type of interpretive structure, information generation and processing is to bemanaged - as a resource that is essential to the progressive realization of organizationalstrategies.

KNOWLEDGE MANAGEMENT

As the environments of organizations become increasingly chaotic, the link between cause andeffect becomes increasingly difficult to discern - looking either backwards or forwards. Smallchanges can be amplified beyond comprehension, to the point where the (relatively) distantfuture eludes prediction and simply becomes unknown (Stacey 1991). Organizations in a chaoticworld live on the edge of stability and instability, and thus embody an inherent ambiguity. Forthem:

“Life doesn’t follow straight-line logic; it conforms to a kind of curved logic that changesthe nature of things and often turns them into their opposites. Problems, then, are not justhassles to be dealt with and set aside. Lurking inside each problem is a workshop on thenature of organizations and a vehicle for personal growth. This entails a shift: we need tovalue the process of finding the solution - juggling the inconsistencies that meaningfulsolutions entail….

But changing everything does just that. It changes everything…. These choices areabstract; their results cannot be predicted…. [It is] the managerial equivalent of a Rubic’sCube. If you go left first and right second, you come out in a different place than if youhad moved right first and left second. The whole entity shifts” (Pascale 1990, p 263).

Under these circumstances, organizations are faced with two ‘certainties’ - their owndecomposition as product/service life cycles rapidly change, and the impossibility of focusingorganizational futures around known strategic portfolios. These two certainties, however, pointthe organization in a particular direction - towards an understanding of itself as a service orientedorganization. What (core) competencies will the organization sustain, as its presentproduct/service portfolio is changed completely? What resourcefulness does the organizationpossess, to create a future that is as yet unknown? What intelligence is the organization topossess, to manage its own re-incarnation? The following diagram illustrates the view that theorganization might have of itself under these circumstances:

INNOVATION

ValueCreating

AcceleratingService Life Cycles

ONGOING CUSTOMERENRICHMENT

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The agenda for service oriented organizations is different from that of the (seamless) modernindustrial corporation. Instead of structuring interpretations, attention shifts to processes involvedin sustaining and enhancing interpretive structures. The issue becomes: how are organizationalknowledge structures and innovation inter-twined? How is knowledge created, and how is itinfused in forms of sense-making that are resourceful and creative?

There are a number of threads that are indicative of this directional movement in organizations:there is

� the attention given to the strategic importance of core competencies (Hamel and Prahalad1994);

� the probing of the wellsprings of organizational intelligence (McMaster 1996);

� the exploration of knowledge creating processes in organizations (Nonaka and Takeuchi1995); and

� the importance accorded to the management of intellectual capital as the driver oforganizational wealth (Sveiby 1997).

“To manage its intellectual capital more systematically, the firm must devise an agendafor transforming from an organization simply comprising knowledgeable individuals to aknowledge focused organization that stewards the creation and sharing of knowledgewithin and across internal business functions and that orchestrates the flow of know-howto and from external firms. The fabric of such an agenda comprises many threads -people, incentives, technology, processes, and other elements - that need to be woventogether carefully in a fashion commensurate with the organizations particular strategy,culture, capabilities and resources” (Klein 1998, p 2).

In service oriented organizations, knowledge creation and mobilization is to be managed - as aresource essential to organizations finding opportunities for them to have a future.

IDENTITY

AMBIGUITY

ImmediateFuture

ORGANISATIONALTRANSFORMATION

DistantFuture

INTELLIGENCE

Agility

ValueCreating

VIRTUALRESOURCING

CORECOMPETENCES

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VALUE MANAGEMENT

As organizations become able to explore “zones of possibility” in the midst of chaos throughdeveloped knowledge structures, increasingly they have to deal with paradox - the presence ofcontradictory, mutually exclusive elements in a situation - as a condition affecting organizationalsuccess.

A capacity to capitalize on paradox (or not) is woven into the knowledge frameworks oforganizations, as a quality associated with creativity and transformational insights.

“Paradoxical qualities within an organization have value because they force people tothink outside the box, and to break away from convenient categories and patterns. Thepuzzle in a paradox serves as an impulse; it energizes our minds to ‘jump the rails’ insearch of a reconciling insight…. No longer held capture by the old way of thinking, weare liberated to see things we have known all along, but couldn’t assemble into a usefulmodel of action” (Pascale 1990, p 110).

Simply to manage the imperatives of the (seamless) modern industrial corporation (focus,coherence) and those of service oriented organizations (emergence, mutability) together in theone organization involves the negotiation of paradox. Similarly, balancing the different demandsof the short-run versus the long-run, or the value requirements of shareholders and customers, orthe requirements of individuality and mutuality, or diversity and like-mindedness - all require themanagement of paradox.

The reality of paradox invades the knowledge structures of organizations, in terms of thesubstance and quality of what is ‘known’. What is treated as paradoxical in these structures? Andhow is paradox (to be) treated? These are seen as critical issues in the twenty-first century(Cannon 1996).

Many of the paradoxes facing organizations have to do with contending values, and it is thesethat are highlighted in communitarian organizations. How can an organization be a part of itscommunity, whilst standing apart from it? What is to be understood by customer ‘enrichment’?How can shareholder value and community value be accommodated? How are organizational andsocial capabilities to be equated? How is an organization to find its own integrity in the midst ofcontending values? The following diagram illustrates the framework of thought that might bebrought to such issues:

LEADERSHIP

Exemplar Commitment

COMMUNITYENRICHMENT

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In communitarian organizations attention turns to the value premises sustained in the knowledgestructures of service oriented organizations. Within these frameworks of thought, what dialogueor dialectic is sustained about the enrichment of the community as a result of the organization’sfunctioning (how is this exemplified as a commitment in the leadership offered by theorganization?)? How does the organization attain concordance with community values about thesustenance and equitable distribution of resources? What integrity of values does theorganization bring to the treatment of diversity, and the necessity of equating individuality andmutuality?

In communitarian organizations, value management is at issue - as a problematic outcome in adiverse, interdependent and resource constrained world (Ray and Rinzler 1993).

MAKING SENSE OF ORGANIZATIONS

Different interpretive agendas have been associated with the modern industrial corporation, theservice oriented organization and the communitarian organization respectively. These arerepresented in the following Table:

MODERNINDUSTRIAL

CORPORATION

SERVICEORIENTED

ORGANIZATION

COMMUNITARIANORGANIZATION

INTERPRETIVEFORM

• InformationManagement

• KnowledgeManagement

• ValueManagement

INTERPRETIVEPROBLEM

• Structuring ofInterpretation

• ManagingInterpretiveStructures

• Managing ValuePremises

INTERPRETIVEOUTCOMES

• Focus• Completeness• Coherence

• Identity• Innovation• Intelligence

• Integrity• Leadership• Concordance

PARADOX

DIVERSITY

Mutuality

VALUES

CONCORDANCE

Sustenance

Distribution

COMMUNITYRESOURCES INTEGRITY

Individuality

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MANAGEMENTISSUE

• Informationas a Resource

• Knowledge asa Resource

• Value as anOutcome

As organizations enter the twenty-first century they are likely to experience the pressures andagendas associated with the different organizational forms, reflecting shifts in underlying socialformations. At the same time, they are likely to be sites for the ‘working out’ of the modernindustrial corporation, the service oriented organization and the communitarian organization asforms of organization that are realized or represented more or less in particular settings. Thoseinvolved with such organizations will experience the three types of change together, with theforces at work and the particulars of change being difficult to discern and unravel; hence, theymay be unable to see or understand the shifting panorama within which their work is located.

This paper has sought to make sense of this situation, as a guide to sense-making withinorganizations. Insight into the forces at work may permit a more positive contribution to theshaping of change in particular organizations, or at least a personal coming to terms with it as thetwenty-first century approaches.

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REFERENCES

Michael A. Best, The New Competition: Institutions of Industrial Restructuring Polity Press,1990.

Tom Cannon, Welcome to the Revolution: Managing Paradox in the 21st Century Pitman, 1996.

Peter F. Drucker, “The new productivity challenge” Harvard Business Review, November-December, 1991.

Peter F. Drucker, Managing in a Time of Great Change, Truman Tolley/Plume, 1998.

Peter F. Drucker, Post Capitalist Society, Harper, 1993.

Dexter Durphy and Doug Stace, Under New Management: Australian Organizations inTransition, McGraw-Hill, 1992.

Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity, Penguin, 1995.

Steven L. Goldman, Roger N. Nagel, and Kenneth Preiss, Agile Competitors and VirtualOrganizations: Strategies for Enriching the Customer, Van Nostrand Reinhold, 1995.

Gary Hamel and C.K. Prahalad, Competing for the Future, Harvard 1994.

Robert S. Kaplan and David P. Norton, The Balanced Scorecard: Translating Strategy intoAction, Harvard 1996.

David A. Klein (Ed), The Strategic Management of Intellectual Capital, Butterworth-Heinemann, 1998.

Mark Latham, Civilizing Global Capital, Allen and Unwin, 1998.

M. Louis, “Surprise and Sensemaking: What newcomers experience in entering unfamiliarorganizational settings”, Administrative Science Quarterly, Vol. 25, 1980.

Herman Bryant Maynard and Susan E. Mehrstens, The Fourth Wave: Business in the 21st

Century, Berrett-Koehler, 1993.

Michael D. McMaster, The Intelligence Advantage: Organizing for Complexity, Butterworth-Heinemann, 1996.

John Naisbitt and Patricia Aburdene, Re-inventing the Corporation: Transforming Your Job andYour Company for the New Information Society, Warner, 1985.

Ikujiro Nonaka and Hirotaka Takeuchi, The Knowledge Creating Company, Oxford, 1995.

Richard Pascale, Managing on the Edge: How Successful Companies Use Conflict to Stay Ahead,Penguin, 1990.

Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy, Princeton, 1993.

James Brian Quinn, Intelligent Enterprise: A Knowledge and Service Based Paradigm forIndustry, Free Press, 1992.

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Michael Ray and Alan Rinzler (Eds), The New Business Paradigm: Emerging Strategies forLeadership and Organizational Change Putnam, 1993.

Ralph D Stacey The Chaos Frontier: Creative Strategic Control for Business, Butterworth -Heinemann 1991.

Karl Erik Sveiby, The New Organizational Wealth: Managing and Measuring Knowledge-BasedAssets, Berrett-Koehler, 1997.

Karl E. Weick, Sensemaking in Organizations, Sage, 1995.

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About the Author

W. P. Birkett

Professor Birkett (MEc, FCPA) has been Professor of Accounting since 1982 and Director of theCentre for Management Accounting Development at the University of New South Wales since1990. In 1993 he was appointed Associate Dean - Development in the Faculty of Commerce andEconomics.

Previous appointments include: Head, School of Accounting, University of New South Wales(1984-1991); Foundation Head, School of Financial and Administrative Studies, Kuring-gaiCollege of Advanced Education (1974-1982); Lecturer and Senior Lecturer in Accounting,University of Sydney (1964-1974); Associate Lecturer in Accounting, University of New SouthWales (1962-1964); Commercial Trainee and Systems Analyst, Australian Iron and Steel Pty.Ltd. (1959-1962).

Other involvements have included: Consultant to the Accounting Profession in Australia andNew Zealand on the development of Competency Standards for accountants; various roles in theAustralian Society of CPA’s (Member, Professional Development and Education Committees;Member, Professional Task Force on Professional Specialisations; Alternate Member of NewSouth Wales Divisional Council); Member, National Planning and Review Committee;President, Accounting Association of Australia and New Zealand; Member, Task Force onAccounting Education created by the professional and academic bodies in accounting inAustralia; Consultant, Research Division of the American Institute of Certified PractisingAccountants; Visiting Professorial Fellow, International Centre for Research in Accounting,University of Lancaster; Visiting Professorial Fellow, University of Glasgow Business School.

Publications include authorship, or part authorship, of 12 monographs, 45 articles in research andprofessional journals, and over 180 addresses, lectures or papers to academic, professional,business and public sector groups.

His academic specialties include: Strategic management processes; management systems andprocesses; management accounting; public sector management and accounting; accounting andmanagement education.

His experience and consultancies include over 15 years of senior line management experience inpublic sector organizations, and a wide range of training and consultancy exercises dealing withstrategic planning, systems development, financial accounting and staff development.

INDIA

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Prasad P. Dabke, Fellow of the Institute of Cost and Works Accountants of India

ABSTRACT

This article is an attempt to define the role and structure of a management system for the 21st

century which, with the objective of ensuring survival and growth of a firm, continuouslymonitors the firm’s cost competitiveness and profitability and actively aids the management insustaining and enhancing it.

“What” information to manage and “how” to manage that information are the two majorissues addressed in this article.

In an environment, internal and external, characterized by constant change, we shall have asystem that is flexible and adaptable. It is desirable that such a system is capable of respondingto the changes as they unfold. For enabling it to do so, we shall define the broad functionalobjectives appropriate for the environment likely to exist in the 21st century’s first decade.

Part I of this article deliberates on the role of information in the management of costcompetitiveness and profitability in the next century. We try to understand and foresee “what”information could be the source with highest potential for sustaining and improving costcompetitiveness and profitability in various functional areas of business and different businessprocesses. Here our focus is on defining the nature of such information and identifying itssources. It appears that “external” information will emerge as an equally important input formanaging the firm’s cost competitiveness and profitability in contrast to today’s almost exclusivepreoccupation of management accountants with “internal” information. Part II of this articledescribes some significant characteristics of the human nervous system and attempts to explorethe guidelines for “how” to manage information relevant to a firm’s cost competitiveness andprofitability in the 21st century.

INTRODUCTION

oday we are living in a world full of uncertainty and unpredictable changes. This articlemakes an attempt to articulate the essential characteristics of the 21st century system for

managing cost competitiveness and profitability. It tries to broadly define the role of thesesystems and proposes an approach that could be relevant to the emerging scenario. Admittedly,this throws up more issues than specific prescriptions. Concrete methodologies will develop onlywith further research and experimentation.

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The present level of research and practice in cost management enables us to do the following:

� Accurately “measure” costs and profitability of different cost objects (Activity-BasedCosting);

� Integrate cost management with planning and control (Operational Cost Management);

� “Manage” costs from the product design and process planning stage based on an analysis ofhow costs get “committed” in these stages (Costs of Product and Process Complexity andTarget Costing); and

� Develop performance measurement systems for helping reorient organizational behaviorwhich in turn influences costs.

It is my belief that the future development in cost management would lead us to the analysis andmanagement of the factors that determine a firm’s cost competitiveness and profitability.

“WHAT” INFORMATION TO MANAGE

Interdependence of Competitive Strategy and Cost Management

Michael E. Porter says that two central questions underlie the choice of competitive strategy: thefirst is the attractiveness of industries for long-term profitability and the factors that determineit; and the second is the determinants of relative competitive position within an industry. Therules of competition are embodied in five competitive forces: the entry of new competitors, thethreat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and therivalry, among the existing competitors. A firm’s relative position within its industry is based onsustainable competitive advantage. There are two basic types of competitive advantage a firmcan possess: low cost or differentiation*1.

Michael E. Porter further explains that both questions are dynamic; industry attractiveness andcompetitive position change. Industries become more or less attractive over time, andcompetitive position reflects an unending battle among competitors. Even long periods ofstability can be abruptly ended by competitive moves. Both industry attractiveness andcompetitive position can be shaped by a firm*1.

As a firm’s survival and growth depends on its profitability – which in turn is determined bycompetitive forces and its competitive advantage, a firm’s management accounting system shallbe concerned with the attractiveness of its industry and ascertain its own competitive position.

To quote Michael E. Porter again, industry structure is relatively stable, but can change overtime as art industry evolves. Structural change shifts the overall and relative strength of thecompetitive forces, and can thus positively or negatively influence industry profitability. Thecrucial question in determining profitability is whether firms can capture the value they create

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for buyers, or whether this value is competed away to others. Industry structure determines whocaptures the value*1.

With globalization and liberalization of almost all major economies, planned elimination of tradebarriers under WTO regime, and increasing mobility of resources across national boundaries, thefrequency and speed of changes in industry structure in the 21st century might gain unprecedentedmomentum. As regards the dynamics of competitive position, the fact that Jack Welch'sprediction that the competition in the 1990s will be brutal has turned out to be perfectly accurateis sufficient indicator about the probable intensity of competition in the 21st century. This makeus believe that the speed of change in the 21st century is likely to be so enormous that re-designof a firm’s competitive strategy as well as monitoring of successful strategy implementationprobably could not afford to wait for the periodic (once in a few years) strategic exercises.

The complexity and dynamics of the factors which determine an industry’s attractiveness and afirm’s competitive position, and the intricacies of competitive strategy and variety of factorsaffecting successful strategy implementation could be such that participation of a few seniorexecutives in strategic management may become inadequate.

The frequency with which these strategic issues would have to be addressed and the necessity ofparticipation by a larger cross-section of the organization in it would, in all likelihood, justify andmandate that this be part of some ongoing management system.

Michael E. Porter has stated that low-cost producer status involves more than just going downthe learning curve. A low-cost producer must find and exploit all sources of cost advantage. Adifferentiator cannot ignore its cost position, because its premium prices will be nullified by amarkedly inferior cost position*1.

Thus the pivotal role of cost management in competitive strategy is well acknowledged. On theother hand the five competitive forces have considerable bearing on a firm’s cost position.

From the above articulation, we may derive that the management accounting system may evolvefurther in the 21st century into a system for managing cost competitiveness and profitabilityreflecting the effectiveness of the firm’s competitive strategy. These evolved cost andprofitability management systems, referred to as CPM systems hereafter in this article, shall dothe following:

� Continuously monitor the changes in the five competitive forces and the firm’s relativeposition in its industry;

� Estimate the effects of these changes on the firms cost position and profitability; and

� Project the impact on the firm’s profitability of the alternative strategies proposed in thefirm’s attempt to influence industry structure and improve its own competitive position.

Here are some specific elements of industry structure from Porter’s analysis which shall becovered by the CPM systems: economies of scale; switching costs of suppliers, buyers, and

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substitutes; capital requirements to overcome entry barriers; cost advantages of learning curve;access in necessary inputs and proprietary product design; importance of volume to suppliers andbuyers; and rivals’ “fixed cost/value added” ratio.

As regards the firm’s competitive position, the CPM systems shall confirm the following:

� In case of a firm who has selected the strategy of being a cost leader, whether the firm’sproducts are perceived by its buyers of comparable quality, not forcing it to discount prices,and thus enabling it to achieve profitability above industry average in respect of everyproduct/segment; and

� For the firms who have chosen to differentiate their products, whether for each of itsproducts, its price premium exceeds the extra costs incurred in being unique.

As is evident from the above discussion, the competitiveness and profitability of a firm is notonly dependent on internal performance but is substantially influenced by the externalenvironment. Today’s cost management systems are almost exclusively focused on internalperformance, whereas for performing the functions recommended above, the CPM system wouldhave much to do with external information.

The salient characteristics of such external information are as under:

� majority of events on which the industry structure and the firm’s competitive positiondepends take place outside the organization;

� most of these events are of heterogeneous nature;

� they are likely to occur without definite periodicity and certainly without intimation; and

� obviously no transaction is likely to be generated or activity performed within the firm readilyavailable for feeding to its information system.

This implies that the CPM systems of the coming decades would have to seek out information onsuch events pro-actively, interpret them, and communicate the relevant messages within the firm.These systems should have proactive external orientation with diagnostic approach.

The events in the external world, having direct bearing on the industry structure and the firm’scompetitive position, could be of any nature – technological, economic, legal, political, or social.The identification of such events and estimation of their effects, in most cases could be verydifficult. However, this type of information will have to be continuously scanned from theexternal environment in order to judge their effect on the industry attractiveness and the firm’scompetitive position.

With the globalization of economies and mobility of resources across national borders, eventsoccurring in remote places in the world could have an impact on the five competitive forces. Thereal challenge lies in this, as even identification of such events could be at times difficult, leaveaside measuring their impact on the firm’s competitiveness. At the same time, such information

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will have to be captured because failure to do so could impair the firm’s competitiveness andhence, survival. Thus, the role of information in sustaining cost competitiveness and profitabilityis likely to be very crucial.

Process Control Evolution and Importance of Information

As we enter the 21st century, the number of firms employing CNC and Computer IntegratedManufacturing (CIM) technology and the extent of operations performed in CNC and CIMenvironments are likely to greatly increase. As Ramchandran Jaikumar has described, thefollowing evolutionary changes would be taking place in manufacturing operations:

� The staff: line ratio could be between 1: 1 and 2: 1.

� The engineering ethos, from the present “industrial engineering” and “quality, engineering”,to “systems” and “knowledge”.

� The process focus will progress from “reproducibility” and “stability” to “adaptability” and“versatility”.

� Focus of control will shift from “process conformance” and “process capability” to“product/process integration” and “process intelligence”,

� Skill required is of more “experimental” and “learning/generalizing/abstracting” nature*2.

The implications of these epochal changes in process control for cost competitiveness andprofitability are likely to be as follows:

� CNC programs and human intelligence of the software engineers, on which productivity andquality will then depend, would become a major source of cost competitiveness;

� Information regarding software productivity (current level, its drivers, ways of and resourcesrequired for improvement, future potential, and cost/value addition benefits of learning) andcost: benefit analysis of advanced training of software engineers will probably have to behandled by management accountants;

� The data regarding many batch- and product-level activities could be captured from computerprograms and we may be able to find many cost drivers in the computer software; and

� The capability of processes to make dynamic adjustments essential for fast changingcustomer demands and thus, frequently altering product/process specifications will haveconsiderable bearing on a firm’s ability to control costs and increase value addition. Hence,the information on “adaptability” and “versatility” would become vital for managing costcompetitiveness and profitability.

Just-in-Time Systems and the Role of Information

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Taiichi Ohno says that the function of industry is to accept orders not from an abstract clumpknown as “the masses”, but from individuals with unique preferences, and to produce uniquegoods accordingly, Waste and high costs occur when we try to produce similar items in largequantities, It is cheaper by far to produce unique items one by one. Customer preferences arebecoming more diverse, more personalized and more rigid*3. This statement provides a valuableguideline for the management accountants of the coming decades. They may correlate theinformation regarding customers’ requirements in terms of product features and volumes with theoperational plans of product-wise scheduled output. Such analytical comparison may bring tosurface micro-level mismatches between market demand and internal resources planning and alsolost business opportunities. The first problem results in waste of resources and the second inrevenue loss. Hence such information could lead to steps for waste elimination and sales growth,which in turn results in improvement in cost competitiveness and profitability.

Taiichi Ohno further says that the market tingles at its pulse points with the immediate Now!needs of its many unique customers. Me factory takes orders from this market and producesmany varieties in small quantities*3. A firm’s sales volume, and hence profitability to aconsiderable extent will depend in future on its ability to fulfill such Now! needs of its potentialcustomer. That means that monitoring information on the firm’s performance in quicklyidentifying and promptly satisfying such Now! needs of customers will have a favorable effect onits organizational behavior and profitability.

Change Management and CPM Systems

Philip E. Atkinson advises that senior officers in companies have to be able to learn to beresponsive, to anticipate and plan for change. They have to be able to turn their companiesaround and anticipate the competition becoming better in every way; they cannot stay thesame*4.

In rapidly changing environment of the 21st century, management accountants will have to bemore concerned with validating the relevance and completeness of their systems and updating theunderlying assumptions of their decision making models than the mechanics of thecomputational processes.

“HOW” TO MANAGE THE INFORMATION

The Human Nervous System and Guidelines for CPM systems

In our effort to define “how” to manage information for CPM system in the complex andunpredictable scenario of 21st century, what better guide could we have than the human nervoussystem? The nervous system is the most important organization that controls and integrates thedifferent bodily functions and likewise maintains a stability or constancy of the internalenvironment despite extreme changes in the external environment*5. It provides great insight intothe fundamentals of a comprehensive and effective system capable of continuously surviving andperforming in unknown situations.

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The following table selects some important characteristics of the nervous system and drawslessons for the essential features of a CPM system.

Characteristics of the Nervous System Guidelines for CPM SystemNervous System has two parts:(i) Central or somatic nervous system

(cerebrospinal or voluntary),(ii) Autonomic nervous system (vegetative or

involuntary)The latter is generally unconscious and is notunder the control of “will”. It regulates theactivities of the viscera.The former is responsible for consciousnessand voluntary control*5.

The work of CPM system may be divided intwo responsibilities: one requiring involvementof senior management (analogous to “will), andanother to be autonomously carried out at theappropriate organizational unit level.

This will ensure that the normal costmeasurement and control activities aredelegated almost fully, allowing seniormanagement to focus on strategic issues.

This system is absolutely necessary forreception, storage, and release of differentsensory and motor information for regulatingor initiating a particular behavior of theindividual ranging from the cellular to thegross animal being*5.

The CPM system shall decide the appropriateorganizational unit or process where action isrequired in response to the changes inenvironment.

Sensory receptors are a specialized structurethat can be stimulated by environmentalchanges as well as by changes within thebody*5.

A new role of “receptors” may be created in theCPM system for continuously scanningexternal and internal environment for eventswhich could influence cost competitivenessand profitability.

Properties of receptors:(i) Differential sensitivity – each receptor is

sensitive to a specific stimulus.(ii) Each receptor organ with its afferent nerve

transmits only one modality of sensation.

Different classes of “receptors” for identifyingdifferent types of changes in environment, (e.g.technological, fiscal, economic, social, etc.)will have to be used.

(iii) As strength of stimulus increases,sensation becomes more intense.

(iv) The intensity of stimuli is transmitted to thebrain.

The “receptors” to judge the intensity, andtiming, and the organizational level to whichfeedback shall be given.

(v) Recruitment – according to the strength ofthe stimuli the number of sense organs areactivated*5.

The resources to be deployed to function as“receptors” and extent of their effort to bedecided depending on the likely impact of theevent on competitiveness.

The nervous system functions through multiplesensory organs. It synthesizes their signals,

The CPM system shall judge from all relevantangles and make use of qualitative

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reconfirms through another organ whenevernecessary, and makes a collective decision.

observations, not only the quantitative ones.

Associative functions – for instance, idea,memory, intelligence, etc. These are carriedout mainly by the cerebrum*5.

The CPM system shall develop expertise basedon organizational learning – whichmanagement could rely upon for strategicdecisions.

The nervous system, always alert and working,that is searching where and when it should getinvolved.

The CPM system shall be performing instantly,not waiting for any part of the organization tocall on it, without rigid periodicity.

CONCLUSION

Information is going to be a major source of cost competitiveness and profitability. Themanagement accountants should decide “what” information to manage and “how” to do so inorder to assist their organization in sustaining and enhancing its cost competitiveness andprofitability. This article, I believe, will help in making these decisions.

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REFERENCES

*1. Michael E. Porter in Competitive Advantage: Creating and Sustaining SuperiorPerformance, The Free Press, 1985.

*2. Ramchandran Jaikumar in From Filing and Fitting to Flexible Manufacturing: A Study inthe Evolution of Process Control, Harvard Business School working paper, 1988.

*3. Taiichi Ohno in Just-In-Time for Today and Tomorrow, Productivity Press, 1988.

*4. Philip E. Atkinson in Creating Culture Change: The Key to Successful Total QualityManagement, Productivity Press, 1990.

*5. C. C. Chatterjee in Human Physiology, Medical Allied Agency, 1994.

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About the Authors

Prasad P. DabkePrasad Dabke holds a diploma in mechanical engineering and is a fellow of the Institute of Costand Works Accountants of India. He has 14 years of multidisciplinary experience with leadingcompanies in management accounting, materials management, project feasibility studies andoperational improvements. He has founded a firm in 1997 for assisting companies indevelopment and implementation of Total Cost Management systems.

The FMAC of IFAC has recognized Prasad’s article “Competitive Value Management” as an“article of outstanding merit” in its 1996 Article Award Program.

Prasad can be reached at 91-0212-36 34 74.

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Trevor J Bentley, Ph.D.,Fellow of the Chartered Institute of Management Accountants (CIMA), England

ABSTRACT

The world of the management accountant has changed considerably over the last twenty years.The speed and nature of the changes, particularly in Information Management, have sorelytested the skills and abilities of management accountants. Yet these changes are as nothingcompared to the changes that are waiting around the corner of the third millennium.

� Changes in the very nature of information itself, its form, its currency and its availability.

� Changes in the use of information with a considerable increase in automatic responses and adiminishing in human interaction with information.

� Changes in the way that people relate to information from ‘being informed’ to ‘knowing’.

Changes can often be best described by case studies. The first of my two cases looks at aretailing organization that is changing the nature of its business by utilizing modern informationmanagement procedures. The second case study examines an insurance company and theradically new ways it is planning for matching its services to its customers’ individual needs.

Finally I explore the changes needed in training and development for management accountantsto continue to be seen as the information managers of the future.

he world of the management accountant has changed considerably over the last twenty years.The speed and nature of the changes, particularly in Information Management, have sorely

tested the skills and abilities of management accountants. Yet these changes are as nothingcompared to the changes that are waiting around the corner of the third millennium.

What are these anticipated changes?

The following are three areas of change in Information Management:

� Changes in the very nature of information itself, its form, its currency and its availability;

� Changes in the use of information with a considerable increase in automatic responses and adiminishing in human interaction with information; and

� Changes in the way that people relate to information from ‘being informed’ to ‘knowing’.

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In looking at these changes I will describe two case studies that will provide an understanding ofhow these three types of changes are being anticipated and prepared for.

� The retail revolution: The first of my two cases looks at a retailing organization that ischanging the nature of its business by utilizing modern information management procedures.

� The changing nature of insurance: The second of my cases examines the ideas that aninsurance company has for introducing radically new ways of matching its services to itscustomers individual needs.

Finally I will focus on the changes needed in training and development for managementaccountants to continue to be seen as the information managers of the future.

CHANGES IN THE NATURE OF INFORMATION

Perhaps the most significant change in the nature of information is the form that information willtake. Rather than facts and figures, or raw information, people will engage in dialogue with otherpeople and with the system. This dialogue will include ‘here and now’ video communicationfrom PC to PC with visual video and graphics supporting the dialogue. There will be very little,if any reference to historically based and printed information.

The old approach of comparing what has happened with budgets that represent what peoplethought was going to happen, will be replaced by information on what is happening right nowand the implications that this information has on future actions. The information provided in thedialogues will be in the form of ‘patterns’ and ‘implications’ and not raw information. Patternswill be devised by the information system from vast quantities of data and presented in the formof dialogues about ‘this is what is happening right now’. The implications of these patterns willbe inferred by the system and presented as part of the dialogue. Managers will be able to input,‘yes but what if’ comments and the system will respond with, ‘yes well then this might happen’.The dialogue might be one to one or involve many people and it will be transacted almostentirely via the PC screen and most importantly updated during the dialogue by what ishappening to sales, production, etc. as the dialogue is taking place.

The currency of information will be ‘what is happening NOW’; not what happened yesterday orlast week, and what happened last year will seem archaic. This switch of focus to the ‘here andnow’ will not be easy to handle. The system will, of course, still hold the history of events and nodoubt companies will still, for a few years at any rate, report on their historical results. But thefocus of management attention will be ‘what is happening RIGHT NOW’ and how does thisaffect what we do next.

This new dialogue based information on what is happening right now will be available toeveryone who is connected to the system, either via their company’s own Intranet or the Internetand accessible from wherever the people happen to be. This constant and widespread availability


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will usher in an ‘open management’ approach where anyone in the company can enter into thedialogue and influence the course of events.

CHANGES IN THE USE OF INFORMATION

Just as at the present time most mechanical decisions are taken by the system, a great manyroutine decisions will start to be taken automatically by the system. Management will focus moreon the decisions concerned with future strategy than with current operations. The decisiondialogues will be about this ‘forward looking’ decision-making, and ‘backward looking’ analysisof ‘what has happened’ will almost completely disappear, except in those organizations wherefinding someone to blame is more important than being successful.

When a forward-looking decision is made the system will respond with an assessment of thelikely outcomes and proffer alternatives that might lead to some improvement. Of course thesystems themselves will need some input about ‘preferred outcomes’ and during informationdialogues they will record what seems important to management.

CHANGES IN THE WAY PEOPLE RELATE TO INFORMATION

At the present time managers are primarily concerned with ‘being informed’ and the focus ofmany systems initiatives is to provide the best way of achieving this. In the 21st century beinginformed will not be sufficient. A basic requirement for managers will be that they are informedand there will be no excuse for not being so. What will matter more than anything else is not thatthey have the information, but that they KNOW what to do with it.

‘Knowing’ will be the key to management success in the 21st century.

CASE I—THE RETAIL REVOLUTION

My case concerns a retailing organization that operates a chain of quality supermarkets in theUK. The organization has kept up to date with retailing technology as it has advanced and is nowpoised to enter the 21st century in a way that it believes will change the way it does business.

The changes it plans have already started with the development of customer data collection viathe use of a store card. This provides demographic information about customers and enables thisto be linked to the customer’s shopping patterns. The changes which are planned includecustomers using hand held bar code readers for checking their own purchases, on-line homeaccess and purchasing together with a delivery service, and a personalized shopping service.

It is perhaps the personalized shopping service that is going to bring about the most radical shiftin retailing. At the present time the supermarket offers goods to be purchased in a way intendedto attract buyers. Goods are arranged according to product type and positioned on the shelves to


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attract people to purchase the most profitable lines. People enter the shop and proceed to buywhat they need as well as other goods that they are attracted to and buy on impulse.

With a personalized shopping service the retailer is able to monitor individual customersshopping patterns and to provide information to the shopper on what might be of interest to themin the store when they come to shop. The system will also be able to produce a shopping list of‘usual’ purchases and offer to deliver the list or an amended version.

With all the additional information held in their ‘data warehouse’ the store will be able to lookfor buying patterns that link certain product purchases together to create a new form of layoutaccording to ‘categories’ rather than product types.

It is strange to think that the degree of service that will be offered in the 21st century isapproaching what used to happen in the early part of the 19th century when the local grocers shopcould provide a personalized service, deliver your weekly order and provide credit.

CASE II—THE CHANGING NATURE OF INSURANCE

One of the most important aspects of insurance is setting premium levels in relation to risk. It isthis that determines profitability. Of course what the insurance companies strive for is to build upsteady premium income for relatively low risk whilst remaining competitive, which is not easy.

One large insurance company in Australia is determined to provide its clients with competitivepremiums assessed in relation to the mix of risks covered and the specific nature and claimshistory of each individual and business.

In order to do this successfully the company has embarked on two particular informationmanagement initiatives. The first concerns personalized service where a named individualhandles all a customer’s needs. This is to be achieved by the development of a company wide‘workflow’ system that ensures any contact from a customer is directed to their personal‘insurer’. In addition contacts received from prospective customers will be directed to anappropriate insurer who has the appropriate mix of skills to effectively service the customer-to-be.

Insurers will collect information from the prospective customer and the system will use thisinformation to produce an insurance schedule and quote based on the current information in thesystem in relation to the customer’s insurance ‘profile’. Once the customer accepts the quote allthe work is done on the system to issue the policy.

This workflow system will eliminate the separation of duties between, sales, risk assessment,policy issuing, customer services and claims, all of which will be covered by the single ‘insurer’using the system.


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The second initiative is the building of a massive ‘data warehouse’ to collect all the informationavailable about customers, risks covered, premiums and claims in order to establish patterns thatindicate the source of the most lucrative business. This will then be focused on so that it can bereflected in the premium rates for specific risks that will be fed into the workflow system. Thisparticular initiative involves the collection of source data for the data warehouse from a range of‘legacy’ operating systems, some of which will be replaced to cater for year 2000 anomalies.

One particularly interesting feature of this company’s plans is that they are planning to operateacross a wide range of hardware and software platforms and use both their own Intranet and theInternet as primary networks for their systems. This, they believe, will enable them to incorporateacquisitions relatively easily into their new systems.

TRAINING AND DEVELOPMENT FOR MANAGEMENT ACCOUNTANTS

Taking information management into the 21st century requires a mix of skills involving acomplex range of hardware and software skills as well as knowledge and skills of the businessissues and the nature and value of information to managers.

The hardware and software skills, although in short supply, are available and should not need tobe acquired by management accountants. In fact if they should choose to go in this direction Ibelieve it will interfere significantly with the more important aspect of making sure theinformation in the systems is managed successfully.

In terms of information management skills I believe that there are three areas that need attention.

� The ability to define the decision making information needs of managers;

� The knowledge and understanding of the creation and building of effective informationmanagement infrastructures; and

� The ability to assist managers in creating their own personalized ‘decision support systems’.

Defining the Decision Making Information Needs of Managers

This involves building a close working relationship with managers so as to understand theirparticular needs and to then be able to interpret these into the creation of an appropriateinformation management infrastructure. In my opinion no one is better suited to this task than themanagement accountant.

The Creation and Building of Effective Information Management Infrastructures

This is a critical area of knowledge and skill that management accountants need to acquire and bevery proactive about. The danger here is that technology focused people could build systems that


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utilize the technology rather than serve management. This has been a danger in the past and aswe go into the 21st century the risk will increase considerably.

Assisting Managers in Creating Their Own Personalized ‘Decision Support Systems’

As discussed earlier the key in the 21st century will not be providing managers with information,but rather focusing on the effectiveness with which the information is used. ‘Knowing’ what todo with information will become another critical aspect of future management activity. Therewill be so much information coming through so fast that managers will have to be very selectiveand focused to cope with ‘information overload’. This is where decision support systems areessential to filter out unnecessary information and to highlight what is pertinent to the currentdecision.

CONCLUSION

The 21st century beckons and as we approach the new millennium we can none of us knowexactly what to expect. I have no doubt, however, that information management is going tobecome one of the most vital aspects of corporate survival and success. It is going to call for aninteresting mix of abilities and interests and is going to demand a focus that is both businessoriented and people conscious. No matter how much technology we might use and how much thesystems might do for us in the final analysis the creativity and innovation that will be needed canonly come from the organizations’ people. And this will be no different in the 21st century than itis today.


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About the Author

Trevor J. Bentley, Ph.D.

Dr. Trevor Bentley is a Fellow of CIMA and has a business background having worked as afinancial director for a Plc and as a board level internal consultant for a large conglomeratebefore becoming a freelance consultant in 1981.

As a freelance Trevor has worked at board level with large and small organizations in over 20countries focusing in particular on the successful implementation of change and in the creation ofworking harmony. Much of this change has been to do with coping with the demands of themodern ‘information society’. Trevor is a partner in the Executive Transformation Company.

Trevor is a trained Gestalt practitioner and works on an individual level as an executive coachand at a group level as a facilitator. Trevor is a professional writer with over 30 books to hiscredit as well as numerous articles. He has a number of professional passions of which creating‘open organizations’ is one. Another is working with blocked relationships; particularly thoseblocked by conflict. He is also passionate about his writing, his family and the 17th centurywoollen mill in which he lives in the English Cotswolds.

UNITED STATES OF AMERICA

Hoffman UNITED STATES OF AMERICA

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Charles Hoffman, Knight, Vale & Gregory of Tacoma, Washington, USA

ABSTRACT

Up-to-the-minute, easily accessible data are a crucial tool for organizations of any size. Manycompanies have the kinds of information they need to make important business decisions, butmanagers cannot gain access to it using the existing computer system. A data warehouse candeliver data rapidly and effectively to help companies make the best use of their human and dataresources.

A data warehouse can be purchased outright from a manufacturer, but it can also beimplemented using relatively simple, inexpensive technology, making it a viable option for smallas well as large companies. Warehouses process and make available data that once wereassembled by hand, transforming routines and enabling better decision-making.

Warehouses can be introduced through small-scale prototypes that help meet pressinginformation needs and introduces the concept to staff. Such a prototype can be created for under$1,000 and implementation can take as little as a half day.

Accountants are well suited for involvement in the data warehouse creation because accountingsystems contain such valuable data. Warehouse creation relies on technology present even inmany small businesses, such as servers, networks and desktop workstations. Companies of anysize that start small and approach the effort with proper preparation can build warehouses thatcould revitalize a business and its workers.

nformation has the power to transform the way people perform their jobs and to enhance thequality and value of a company’s products and services, but only if it is accessible. At many

organizations, the information-gathering processes can be so cumbersome and time consumingthat employees are left with little opportunity to analyze data and put it to productive use. Insmaller companies, vital sales and other data that could spur growth or simplify operations maybe readily available, if only anyone in the business knew how to access it. If data cannot beobtained when needed--and in a useable format--strategic opportunities are lost. Only thosebusinesses that harness technology tools to deliver data rapidly and effectively will be able tomake the best use of their human and data resources.

I

UNITED STATES OF AMERICA Hoffman

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A data warehouse is such a tool. It can deliver critical information to desktop computers inseconds, transforming workers’ routines and allowing them to expand into new, more productiveactivities. Data warehousing enables managers to pull together data from a variety of sources foruse in strategic decision making. It can help unify a far-flung multinational corporation, but it canalso be a productive tool for even the smallest businesses.

WHAT IS A WAREHOUSE?

The most useful warehouse may not necessarily be one purchased in a package but, instead, onethat is created from within, using simple database software. Many data warehouses on the marketare one developer’s proprietary tool, but the best kinds often are generic applications customizedby the business that will use them. The Excel spreadsheet application, for example, can be anexcellent ad hoc analysis tool for a warehouse, and Microsoft Access or any other database caneasily perform various kinds of analysis that can greatly enhance a company’s decision making.Because a warehouse can be implemented using relatively simple, inexpensive technology, it is aviable option for small as well as large companies.

Database applications can be used to customize information for different business needs, oftenthrough the use of interesting graphics. For example, employees might be able to call up a screenshowing a map that represents a company’s different sales regions. The click of a mouse on eachregion would summon sales figures, net revenues, top customers, best-selling products or anyother data about that region. The analysis can be easily customized. Since the warehouse tracksand sorts data that once were assembled by hand, users can benefit from the information ratherthan wait for it to arrive.

A 100-person organization used a data warehouse to improve the efficiency of its accountsreceivable operations. Before the warehouse was in place, when a customer check was received,the information was recorded manually on a piece of paper. This paper was passed on to a clerk,who keyed the information into the accounts receivable system. Since a customer number wasneeded for each entry, the clerk had to look up this number, a lengthy and tedious exercise.

To streamline this system, the company used a Microsoft Access database. Instead ofhandwriting the information from receipts on pieces of paper and scouring for customer numbersmanually, users entered the name of the client into the computer, which found the customernumber in the database.

Kinks in the system were worked out easily. Some customers did business under more than onename. One receptionist knew everyone’s different names, but if she wasn’t there, it was oftenhard to sort out who was who. In the small data warehouse, the company created a table with allthe names for each customer number, so that when a check was received, the customer’s identitycould be quickly established. A similar problem arose with invoice numbers. When entering acash receipt, it was necessary to know the related invoice number, but these weren’t alwaysreadily available. The solution was to include all the invoices in the Access database. When thecustomer number was entered, the screen showed all the invoices outstanding. The data


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warehouse shortened a job that could take four to six hours a day to two hours, putting data atusers’ fingertips, instead of forcing people to search them out.

Anyone with even fairly basic database skills can implement this kind of change for as little as$1,000. In fact, buying an expensive data warehouse from a vendor isn’t necessarily the bestsolution. A good data warehouse cannot be bought outright. It must be built by someone whoknows what the users will need.

THE WAREHOUSE EXPERIENCE

The best approach to warehousing is to advance step-by-step. One recommended initial step is tocreate a small-scale prototype to meet pressing information needs. The managers launching thewarehouse can identify a few questions or issues common across the organization and analyzethe sources of data needed to answer them. From there, they can develop a simple plan to create asmall warehouse that can deliver the data.

Creating a demonstration model is an excellent way to communicate concepts to other staff. Theprototype usually turns into the working system. Whether there is an in-house expert or aconsultant is hired, implementation of a prototype can take as little as a half day.

The prototype can be created for many different uses. For example, at one company without awarehouse, all customers were assigned codes. One person created a customer list, filled in entitycodes for each one, then keyed the list and the numbers into the accounts receivable system. Thelist was printed out on an Excel spreadsheet, and then staff members manually keyed the separatecustomer numbers and names into the spreadsheet. There were 4,000 names altogether, and eachone had an eight-digit customer number. The process of inputting all of this informationmanually, then checking for errors took hours. Using a data warehousing approach, it waspossible to export the customer table from the accounts receivable system, then import thecustomer number and name, in less than 15 minutes. It was not a sophisticated procedure; itsimply required someone who understood the possibilities.

A prototype that gathers this data and makes it available for daily use is relatively easy andinexpensive to create. Once it is in place—and once staff are using it and learning to appreciateits value—it is possible to expand the system’s capabilities. Each subsequent step is easier thanthe last.

THE ACCOUNTANT’S ROLE

Accountants are well suited to be involved in this process because the accounting systemcontains such valuable data. For example, most travel expense sheets contain the employeenumber and how much the employee is owed. If travel expense sheets were analyzed over time, itwould be possible to examine how much mileage employees charge for a common destination. Inmost cases, there will be differences for the same destination because many employees forget to


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record the precise mileage. Because of such inaccuracies, either the company or the employeeloses out. Using a data warehouse, it would be possible to set up an accounting system modulefor employee expense reports. Such detail belongs in the accounting system, not in an isolatedExcel spreadsheet. The next step would be to build in a capability to look up mileage to differentareas, thus standardizing this expense and making it more accurate.

By centralizing and sorting data, warehouses can make information more understandable andeasier to use. One health care company had 23 physical therapy clinics with seven differentbilling systems. The first step was to create one system that captured all its medical billinginformation. The company then built a utility—at a cost of less than $10,000--which gathered allthe billing information for each day for every therapist at every location. The system, which ranat night, could sort by region, by location, by therapist, or by day. It captured gross charges,cancellations, the number of patient visits, new patient visits—a great deal of significant, basictransaction information. This was collected in a database, which could then generate reports bytherapist or region, or that could analyze business in a variety of circumstances. It could groupthe data hundreds of ways and it reported weekly instead of monthly, making it easier to act onthe information. This fairly inexpensive system turned into a very significant reporting tool.

There are many other examples of how warehousing can revolutionize accounting processes. Inone case, a produce distributor had a very disorganized accounting system. A consultant wascalled in to build a data warehouse that would track the bills of lading. These bills of ladingcontained highly valuable sales data, such as how much the company sold per state or by vendor,but this data was not being used. The data warehouse became a tool that employed the data in thebill of lading system to build a sales analysis system. Salespeople knew immediately what eachclient had bought in the last year, when they bought it and what other products they might buy.The system was set up initially in Excel, but because warehousing in this application provedcumbersome, it was recreated in Access. As generic database software improves, it becomeseasier and easier to create such systems.

HOW IT WORKS

To build a data warehouse, companies don’t need very much more than they already have.Crucial elements include:

� The server. A central computer that houses the data and software that constitutes thewarehouse.

� The network. A network infrastructure that is properly equipped, configured and maintainedguarantees that the server and the data warehouse are accessible to users throughout theenterprise.

� Desktop workstations. To take advantage of the graphing and reporting tools provided by thewarehouse, the desktop should be a high-powered, Pentium-class, high-resolution machine.


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Even many small businesses already have these elements. For them, the only required additionalexpenditure for the warehouse is a database application that costs about $1,000, plus the time ittakes to understand what data is needed, assemble it and implement a warehouse. The mostimportant investment companies can make is in knowledge about databases and how easy it is touse them. Simple database applications are so well suited to this process that it is crucial forcompanies to understand them, since a prepackaged product will inevitably cost more. Even ifcompanies hire computer experts to help them build a data warehouse, it still will be less costlythan buying an expensive product that is more than the company needs or that users can’tunderstand.

A POWERFUL TOOL

As companies try to change the way their employees work, they are realizing that information isvery powerful. Without easier access to critical data, a business cannot succeed. A warehouse is atool that can help provide that access.

Many people have the wrong skills for the information age. They are still writing out long lists ofdata on columnar pads. But competition will provide significant motivation for change. Smallbusinesses need to take advantage of data warehouses to maintain their strengths. Largerbusinesses with data warehouses can now act like small businesses because they have access todata that once took days to dig out of diverse systems. Small business can use data warehouses tomaintain their familiarity with customers and to take advantage of some of the sophisticatedanalyses once available only to big companies.

Some companies have implemented the first stage of a data warehouse in as little as three to sixmonths by keeping the system simple and focused on executives’ true needs. The first stage ofthe warehouse should be delivered rapidly and on time to maintain enthusiasm and establishcredibility. The next step should be to continue adding data or features so that the warehousecontinues to be perceived as useful. Companies of any size that start small and approach theeffort properly can build warehouses that have the power to revitalize a business and its workers.

A FINAL CAUTION

All of the simple data warehousing applications described here can easily be accomplished.However, the difficulty in integrating certain tools may create challenges that will requirecreative solutions. As new generations of software are created, this problem will be largelyminimized, but given the competitive nature of software engineers it will probably nevercompletely go away. This is not an insurmountable challenge, but an opportunity to create thebest solution with the resources available.


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About the Author

Charles Hoffman

Charles Hoffman began his career with Price Waterhouse. Since gaining the diversity ofexperiences offered as an auditor with a national CPA firm, he has been the financial officer ofseveral organizations ($10,000,000 to $20,000,000 in sales) over the past 15 years. His diversemanufacturing, distribution, and service experience gleaned from the wide variety oforganizations he has worked with is one of his biggest assets. In addition to his accounting andmanagement experience, he has diverse technical experience in the area of databases, theInternet, and computer operating systems. In fact, Charlie was acknowledged for his technicalexpertise by the AICPA when he received the AICPA Innovative User of Technology Award in1997. In addition, he was recognized by Accounting Technology magazine as a leader intechnology in the accounting profession. Charlie’s mix of skills is very unique and is one of themain reasons for his success in implementing accounting information systems integrating state-of-the-art technologies.

Documents

Into the Twenty-first Century with Information … - IFAC/C.01...Major ongoing developments in information technologies, combined with managerial demand for more rapid and effective