Strategies for Implementing Accounting Software Systems within SMEs - Essay Example

Strategies for SELECTING AND Implementing Accounting Software Systems within SMEs 2005 Project Strategies for Implementing Accounting Software Systems within SMEs Project Task Description This project will recommend appropriate strategies for implementing accounting software that best suited with SMEs in order to improve accounting performance while complying with good corporate governance Project subject area and Angle description The growth of economy in a country will in turn create new opportunities that demand lots of suitable strategy in order to grab them and turn big ideas into outstanding products that will be saleable in the market the new entrants exist. As the new entrants grow into small medium enterprises (SMEs), they will encounter abundant works that need managing properly in compliance with the requirement of good corporate governance. Recent accounting scandals in Enron and WorldCom, for instances, have demonstrated just how a company's book is incomplete, unreliable and subject to data manipulation. The pressure on boards to prevent such abuse has grown intense. Directors should not only check out thoroughly into financial and operational performance but also examine how the numbers are generated. Under these circumstances it is essential to conduct a detail research all factors that help SMEs in providing good corporate governance while preventing accounting crime through careful selection of accounting software. This project, therefore, will provide advice on selecting and implementing appropriate information technology tools or software among hundreds or more available accounting software packages currently available in the market. AMI-partners tell "[in the U.S. alone] small businesses [] spent $86 billion on IT products and services over the past 12 months [in which] spending on IT products and services grew by 11 percent" (Small Business Computing, 2003).1 The project, for that reason, will discuss various considerations need to take into account for SMEs when selecting and implementing accounting software. In compliance with the issue, Lisa Kanarek (2004), the founder of HomeOfficeLife.com and the author of some books on home office business, says that deploying high tech technology like accounting software should consider several items in order to ensure increased productivity effectively and efficiently. For that reason, the product of this research is list of several appropriate considerations for SMEs in selecting and implementing accounting software packages that match their operational needs while taking into account strategic software implementation strategies obtained over the courses of the research. Problem to be Solved and Worth Selecting the best accounting software become challenging task since it will determine whether the company have spend money for useful software package or vice versa. There are thousands or possibly millions of standard and customized accounting software available in the market. To figure out the number of accounting software, we can try to use 'accounting software packages' as keywords word while searching out with Google. We might be surprised to see that there are about 1,690,000 sites about accounting software packages. Although the number does not reflect the exact number of accounting software, at least, it indicates the growing concerns on the development of accounting software packages. The vast number further implies that ones should have appropriate tools in selecting and then implementing suitable accounting software that match their diverse needs and characteristics. This situation suggests we should perform thorough research and understand what we needs and expect from accounting software packages so that the software will be supporting tools for managements in assessing the accounting performance while acting in accordance with good corporate governance. Unfortunately, there is no common rules determining the way we should take in selecting and implementing proper accounting software except the needs to understand our needs. If we again use Google to figure out the number of steps of accounting software selection, we will found that there are about 15 million sites offering different number of steps in selecting accounting software. One site offers 13 steps while other offers 5 or 25 steps. However, in general they suggest us to understand what we need in order to comply with the chosen software features, to talk to vendors, and to match with our budgets. Knowing how much we will spend on software package is essential especially for SMEs since available accounting software ranges between hundreds dollar to millions dollars.2 Research Question In "Strategy: Definitions and Meaning," Fred Nickols (2000) says, "Concept of strategy has been borrowed from the military and adapted for use in business.In business, as in the military, strategy bridges the gap between policy and tactics." Knowing the various offering and suggestion on selecting an implementing accounting software for small medium enterprises (SMEs) challenges us with one question as "what strategies and steps of accounting software selection and implementation SMEs should follow so that they can receive as much as benefits the chosen software offers" This research question become our guidelines in listing appropriate strategies for SMEs in choosing accounting software so that they can obtain the benefits of the software to full potential. Remember, searching out by writing "accounting software packages" as keywords on Google provide us with more than one million sites. Therefore, we should select which site offers not only easy-to-understand selection and implementation procedures but also effective and powerful steps that will enhance the SMEs accounting performance. As Nickols says about strategy in general, we understand that strategy of accounting software implementation becomes bridges between company accounting policy and tactics in taking accounting department not only as supporting department but also as competitive advantage. Idea for action and Data Outline In general, there are two approaches to research: Qualitative and Quantitative. Qualitative approaches are research that composes of interviews and observations. This kind of research enables a researcher to investigate in little more detail on the individual perceptions of a phenomenon. Since the research deals with the personal, therefore, such an investigation is limited in its scope. Moreover, observation becomes an important technique for collecting data concerning what occurs in a real-life situation. This method also helps us to reach an understanding about the perceptions of those who are being studied, in that situation. To be specific, we employ non-participant observation method especially by analyzing qualitative information from journals, books, magazines and many more. By doing this kind of research method, it means we have gathered various researches conducted by scholars so that our research is enriched with information, suggestion, results, and findings from different points of view and condition. Therefore, it will provide use a great deal of useful points for us to start our own research. Moreover, the most important of conducting observation is it provides researchers with an understanding about the perceptions about things or people we observe. However, since observation deals with someone's perception, we plan to avoid preconceptions since it would provide this research with some bias. The method does not involve direct interviews, which will slightly reduce objectivity and the accuracy of information. In this report, we rely on reliable data from experts' analysis, journals and various publications from various media. Using the data resources above, we hope to present an independent and objective analysis toward the contemporary issue. After collecting data about the strategies of accounting software implementation in SMEs and experience of SMEs in using such software, we then compare effectiveness of various strategies together with their implementation steps. Under such circumstances, this research will require appropriate tools to measure the effectiveness of accounting software for SME so that it can suggests SMEs to find suitable accounting software in the future. Therefore, the results of this report will be recommendation for SMEs about which strategies they should employ in selecting and then implementing accounting software for benefits of their firms. The recommendation includes suitable lists of consideration and some suggestions on avoiding inappropriate software implementation strategies so that SMEs will have guidance in implementing accounting software. Strategic Intention The most important essence of this research is that the outcome will give us a description to recognize appropriate accounting software packages, which are most suitable for small business enterprises (SMEs). Another importance of this research is that by finding out the most appropriate strategy for accounting software selection and implementation, SMEs could potentially prevent huge losses from investing in useless software. It means that this research will encourage preventive actions instead of corrective actions concerning the selection and implementation of accounting software that is suitable for SMEs. In addition to core benefits of this research, this research also implies a value added points since it inform us what criteria or consideration we should take into account when dealing with accounting software implementation. These secondary benefits when appropriately used, in turn will add value to company's competitive advantages since the list of consideration becomes underlying for SMEs in selecting and implementing software products. In addition, this research will provide useful reference as the additional benefits so that we can explore the original works of software implementation. Literature Review Before computerization era becomes a mandatory for finance department, employees used to enter and maintain information in books then they had to look up the required information and perform any calculations and designs. Such critical tasks are definitely prone to human errors that any employee could perform any miscalculation. Given the importance of information processing in industries, it is not surprising that the industry (financial, manufacture etc.) was among the earliest adopters of automated information processing technology. Historically, daily operation in the industries requires high accuracy and reliable process that only a small group of staff can handle such tasks. For this reason, the use of computers has deliberately increased year by year since they are capable of handling sophisticated tasks like storing and retrieving large amounts of information and at making calculations and designs at highest accuracy. Therefore, information technology has an important role in supporting any activities occurred in both profit-oriented and not-for-profit organizations. Moreover, information technology also provides benefits for accountants, to be precise. Recent cases on Enron, Global-Crossing, and WorldCom have become a history in finance and telecommunication areas. The history tells us how fragile the monitoring process of the companies' financial system is. The situation leads to accountancy scandals that hurt investors, employees, and the industries. QNDT.com, in their accounting segment, reveals that what happened at Enron is the company and its auditor cooked up the books to show bogus profits. This is done so to attract the public so that they are interested to invest their money during the company's initial public offering (IPO). Moreover, the bankers also join this bogey as they have been giving loans and would like to reduce their risk hoping that Enron would obtain much money from IPO so that Enron can fulfill their obligation to the bank ("How did Enron," 2004). There are at least three actors in any accountancy scandals: the first is a company that has a pile of debt that was off balance sheet. The second actors are auditors; they act as consultants that helped the company to write a fake figure of the company's profit in the book. The third actors are bankers that issued good analyst reports for the company's financial performance and act as underwriter. By doing so, Enron can raise much money to pay their loans to banks and back to the evil business when Enron run out of money again. Amazingly, within three years, the fake report gives Enron over $10 billion of investors' money. Therefore, such scandals at WorldCom, Global-Crossing, and Enron, implying the needs for accounting reforms that can prevent any fake figure in the company's book. Recent accounting scandals have demonstrated just how a company's book is incomplete, unreliable and subject to data manipulation. The pressure on boards to prevent such abuse has grown intense. Directors should not only probe rigorously into financial and operational performance but also examine how the numbers are generated. As a supporting tool, information systems support prompt reporting, automated controls, highlighting of exceptions and transparency of financial management processes. For this reason, the board should aware of how business executives use information (Erickson, 2003) While good IT systems do not guarantee that there is violation, at least IT can provide safeguards and help build a culture of attention to information, including its timeliness, accuracy and communication. Back to Enron case, since the manipulation involve several documents that were stored in digital format, it is obvious that investigators will employ digital-savvy to retrieve such hidden data to obtain any supporting evidence. Andrew Rosen, president of ASR Data Acquisition & Analysis that is one of three data-recovery companies working on the case, says that to my knowledge, Enron will be the largest computer forensics investigation ever since investigators will pore through 10,000 computer backup tapes, 20 million sheets of paper and more than 400 computers and handheld devices. The electronic data is up to 10 times the size of the Library of Congress. (Iwata, 2002) As described above, we witness that information technology been inseparable part in today's accounting world. For this reason International Federation of Accountants (IFAC) encourage the development and improvement of an accountancy profession to provide high quality and reliable services in the public interest through the adoption of information technology (Skidmore, 2002). Traditionally, prior to the adoption of information technology, any accountants are determined to evaluate investments in business systems, evaluate business system designs, and provide reports on potential weaknesses that take time within days or months. Fortunately, the situation turns upside down since there are extensive deployments of information technology deployments. For example, there are improvements in the competence of accountants in order to maintain both the accountancy profession's credibility and capability in supporting new, strategic information technology initiatives and the public's trust and confidence (Skidmore, 2002). Under such circumstances, it is now common to witness accountants that master some IT skills, such as the ability to use and take benefits of electronic spreadsheet applications like Microsodt Excel, Quattro Pro, SAP etc. It means that the use of such application becomes inseparable parts for professional accountants and accounting bodies are responsible to encourage the use of information technology in day-to-day accounting activities. Initiatives that have been promoted by accounting bodies include requirements to pose core IT skills before they qualify as members of those bodies. Moreover, knowing the important of information technology, those professional accountancy bodies are therefore required to maintain the quality and credibility of these services through both pre-qualification and post-qualification education requirements (Skidmore, 2002). Fortunately, in order to effectively carry out accounting activities, nowadays, there are a lot of inexpensive, easy-to-use and powerful pre-packaged accounting software exist in the market that enable accounting firm to focus on customers' needs and products instead of on people who perform calculation and other repetitive tasks. Thanks to the maturity of information technology that reduce the demand for those activities. Result It is quite to tempting to associate "right technologies" with sophisticated new machines, robots, or any interactive holographic assistants. It turns out that the right technologies for small business might be merely a desktop computer or simply a digital voice recorder, depending on the type of business we compete. Lisa Kanarek (2004), the founder of HomeOfficeLife.com and the author of some books on home office business, offers six ways for home or small business in deploying appropriate technologies that will increase productivity effectively and efficiently. Two of them are as follows: 1. Keeping information stored in computers instead of having pile of documents at our desks in which storing documents in computer will effectively reduce the time for retrieving. 2. Backing up data. It is important to have data backup so do not wait until your computer crashes to think about it. If we do not have any backup data, we will waste endless hours attempting to recreate the information and will inevitably lose valuable, irreplaceable data. Remember, equipment is easy to replace, while data is not. Technology will help you save time and increase your efficiency. If you find the right technology to meet your needs, learn how to use it and more importantly, take time to use it. Equipping your office with the right technology will help you increase your productivity. However, the technology in your office whether a PC, printer, fax, or any other electronic equipment, is only tools. The person using them determines whether the tools effectively and efficiently help completing tasks or just become expensive and cute decoration on our workstations. Furthermore, users are responsible for maintaining their data and desktop computers while IT department, if any, are responsible to provide and create any supporting applications that helps users completing tasks efficiently and effectively. In addition, we found that several previous studies suggest various strategies on the implementation of accounting software for SMEs. One suggests 13 steps ("13 Steps, n.d.) other suggest five steps (Broome, 2000) and 25 Step (Accounting Software Advisor, n.d.). However, we found that the 13 steps represent all strategies require to implement accounting software effectively as following3: 1. Set up a Technology Advisory Committee (TAC). This committee might come in different forms in practice but the points are that the TAC composes of several individuals from various departments (better wannabe users of accounting software) and aims at conducting thorough evaluation and selection process ("13 Steps," n.d.). 2. Organize Needs Analysis. As discussed above the main point or strategy that we should perform is to know what we need and expect from accounting software. In this analysis, the team must develop the Requirements Definition, detailing what our business expect and needs from the application 3. Discuss with our current vendor. This is significantly an important step to find out the ebst solution that match our exact needs 4. Know our budget. Whatever good the software is and how diverse our needs, we always find limitation in terms of budget. Therefore, it is good that TAC develop preliminary budget in order to arrange the spending on modules of the chosen accounting software. Johnston (n.d.) gives figures on what SMEs might spend for their accounting software: Figure 1 Pricing Ranges of Accounting Software Sources: U.S. Census Bureau, 2002 5. Hiring Good Consultant. In addition to forming TAC, it is fine that a company also hires independent consultants that can help us in preparing our Needs Analysis, Requirements Definition and Request for Proposal. 6. Know Need Features and Functions. Some mass-production software comes with many features that we might need some and do not care with other. Therefore, it is imperative that TAC defines features and functions that the company needs. 7. Develop a formal Request for Proposal (RFP) or a less formal Request for Quote (RFQ). This is special need for SMES to obtain details process and responsibilities. 8. Demo of Prospective Products. Like buying an appliance, it is good TAC to invite vendors of accounting software to demo their products so that we can discuss the capability and assess whether they match our needs or not. 9. Test Prototype. This is true for some customized software to detect possible bug in the accounting software system and assess whether the products has fulfilled our needs. Moreover, prototyping also helps us to develop implementation scenarios. 10. Legal Considerations. This step needs to be done before signing a contract with a vendor since legal counsel will help us in reviewing all documents and contracts including agreement on after sales service in case there are trouble in the future of operation. 11. VAR or Vendor Due Diligence. A few due diligences are important steps that help the company to avoid costly mistake. 12. Contact and/or visit references. This step is also important since visiting current users will help you to identify how end users operate the product. 13. The Decision. This is the final stage within the strategy of accounting software implementation. Following the first eleven steps will SMEs in obtaining qualified informed decisions so that the next step is to document and ensure that all communications, including agreement with vendors have signed properly. Aim To find out suitable strategies of implementing accounting software for SMEs in order to improve accounting performance while complying with good corporate governance Objectives To give background information about accounting scandals the need of accounting software for SMEs in compliance with good corporate governance To identify several strategic steps of implementing accounting software systems To provide the recommendations for SMEs on selecting and implementing appropriate accounting software strategy while increasing the accounting performance Logistics - Required Resources This research is observation-type research so that it does not require composition of interview sets. However, the researchers need to be smart enough in determining which resources they want to use and suitable for their research. In addition, researchers should equip themselves with word processing application to compile, record, and maintain their findings. Bibliography Accounting Software Advisor. 25 - Step Blueprint for Selectingthe Right Accounting Software. Retrieved September 4, 2005 fromhttp://www.asaresearch.com/articles/blueprint25.htm Broome, J. Tol. (2000). Find the Right Accounting Software in 5 Easy Steps. Retrieved September 3, 2005 from http://www.craftsreport.com/march00/craftstechnology.html De Vera, Ian Jester. (2005). Integrate IT with strategy, SMEs urged. Retrieved September 5, 2005 from http://www.upd.edu.ph/issi/e_commerce3.htm How did Enron Happen (2002). Retrieved September 2, 2005 from http://www.qndt.com Iwata, Edward. (2002). Enron Case could be largest Corporate Investigation. Retrieved September 1, 2005 from http://www.usatoday.com/tech/news/2002/02/19/detectives.htm JOHNSTON, RANDOLPH P. A Strategy for Finding the Right Accounting Software. Retrieved September 5, 2005 from http://www.aicpa.org/pubs/jofa/sep2003/johnston.htm Kanarek, Lisa. Make the Most of Technology in Your Small Business. Retrieved September 3, 2005 from http://www.score.org/om_8.html Nickols, Fred. (2000). Strategy: Definitions and Meaning. Retrieved September 4, 2005 from http://home.att.net/nickols/strategy_definition.htm Oakes, Graham. (2005). SME Guide to Open Source. Retrieved September 5, 2005 http://www.ebcvg.com/articles.phpid=784 Skidmore, Steve. (2002). Information Technology in the Accounting Curriculum. Retrieved September 1, 2005 from http://www.acca.co.uk/publications/studentaccountant/774245 Small Business Computing. (2003). Small Business IT Spending Trends. Retrieved September 3, 2005 from http://www.clickz.com/stats/sectors/small_enterprises/article.php/3088981 13 Steps for Choosing the Right High End Accounting Software Package. (2004). Retrieved September 5, 2005 from http://www.accountingsoftwareworld.com/starting/selection_steps.htm Read More