Importance And Role Of Economic Information - Essay Example

Importance And Role Of Economic Information Primary objective of every business is to maximize profitability and for the purpose business are required to consider wide range of factors directly or indirectly related business and hence have an impact on business. Businesses are reaching maximum profitability while being economically efficient. While economic efficiency is the position where business reach equilibrium of optimal resource utilization and benefit generation (Arnold, 2008). ABB business operates in market conditions that are economically defined as oligopoly. Oligopoly market structure has limited number of firms with dominant major shares of the market. Therefore, there exist high level of decision making independency on between the firms and every decision related to business is conducted with concrete consideration given to the fact of reaction from competitors. Among two options available to industry participants to compete are price and non price factors; ABB and other industry participants of ABB’s domain of business do not compete on the pricing strategies. This mutual understanding is for the reason that businesses do not require to end up in price wars among competitors that ultimately eludes the profitability of the businesses. Being related to the power and technology industry market demand of the goods has different trends of elasticity on different prices as referred in the graph below: Owing to the interdependence and resulting price stickiness characteristic of industry, the demand for the product turns elastic in case the price is increased as compare to industry participants. If the competitors will attempt to increase price as compare to other participants and this will result in losing revenue as demand (customer) will switch to other competitors. While in case of lowering price customers show inelasticity as all industry participants reduced price taking all firm to competitive positions again. Therefore, even in case of high increase in marginal cost, considerably low impact has to be transferred to customers. Since profit is maximized at point where marginal cost equals marginal revenue therefore as long as marginal cost cuts marginal revenue in vertical position price will remain at P. Further, incase MC cuts marginal revenue vertically the price is retained same and benefit is not passed on the customer. Further, competition is supported in other aspects such as branding, services accuracy etc, ABB has developed competitive advantage with fast delivery services supported by online operations as compare to competitors in certain areas in order to retain differentiation from competitors. Other competitors based on respective capacity compete on aspects such as quality or differentiated range of products offered. All these factors ensure increasing barrier to entry for new entrants while retaining competition. Therefore, securing industry from competition authorities to charge participants with accusation of cartelization; practice that is followed in oligopoly. Hence, being abreast not only with respective business position economically ABB has to remain updated as well as linked with the strategies of competitors to retains the competitive business positions. IMPORTANCE AND ROLE OF FINANCIAL INFORMATION Financial information and respective understanding forms the back bone of the business. Importance of financial information is not only critical for top management that are concerned for decision making with respect overall business goals but at the same time financial information is critical for every department (Brealey, Myers, Allen, & Mohanty, 2007). For instance, marketing department’s investment in the advertisement and sales campaign are concerned to fetch sales that add considerably to profitability. Similarly, HR department also evaluates performance of departments, respective employees and comparison of efficiency of company employees with other competitors by measures such as revenue per employees and so on and so forth. All these departments are to generate respective segments’ result based on the costs incurred and revenue generated for the term. Financial information analysis is an ongoing process that consistently provides business insight about its growing strength or weakness. The ultimate reflection of companies’ position is also presented in terms of financial statements reported at the end of the year. Set of financial statements produced includes core financial information related to the performance of the business for the year understudy (income statement) as well as financial condition of the business to date (balance sheet). Further, owing to the credit system in vogue firm also develops cash flow to reflect the actual cash position of the business. Apart from these annual results firm also develops quarterly financial results for the firm to review financial position of the business at equal intervals hence ensuring alignment of the business activities towards goal (Besley & Brigham, 2007). Various financial methodologies and techniques are developed and employed as per need and set standards. Firm develops financial performance assessment of the business over years by employing ratio analysis developing trend of performance over years. Various sets of ratios are used such as performance ratios, investment ratios, efficiency ratios, profitability ratios etc. Each set of ratios provide insight about the performance of the business in different domains. Further, along with developing trend analysis, vertical analysis also provides contribution of each component of the business; hence, enabling business to explore possibilities to improve especially bottleneck of business that can provide business competitive advantage over competitors. Along with financial ratios that provide condition of business, investment from long term business projects and its relevant financial information is developed with capital investment appraisal techniques. Capital investment appraisal techniques including Net Present Value, Internal Rate of Return, Profitability Index etc employing time and risk factors provide review of the potential results with approximation for long term project (McLaney, 2009). Therefore, every business values its position centrally with its financial performance. Financial information is not only critical for the internal members of the firm but at same time are source of company position valuation for investors for investment (in case of public limited company) and analysts for assessment. Therefore, developing correct and transparent information is critical for understanding the true current position of the business as well as future prospects. THE IMPORTANCE AND ROLE OF INFORMATION SYSTEMS Information technology has taken critical position in the business nowadays. To assert its importance can be well understood from the fact that economies have now become knowledge economies that have integrated information technologies in overall public and private systems (Bélanger & Crossler, 2011). Information technologies have dual aspects to be addressed in the business. First converting business systems to technology based systems such as banking set ups had to hire cashier for cash withdrawal purpose of depositor while in the current technology based systems have provided ATM machines for the purpose. It also enables human resource to focus on more intelligence based systems clerical work. There are large number of such inventions as well as systems that facilitate business greater linkages in the within departments of business and stakeholders (Melville, 2010). Despite the fact that working environment have extensively grown to technology intensive; however, at the same time it has grown the importance and role of human inferential capacity and expertise in business. For instance, recent social media technology that has taken the critical role in business. However, human intelligence is at the same time is critical in exploiting the benefits that increasing social media integration offers. For instance, continuing with example of social media, trends from likes and comments provides details with respect to changing pattern in consumer behavior. However, it totally depends on the management of the business about the level of information provided is exploited and managed to generate further business. Further, social media sites of competitors also provide considerable insight about the strategies employed by the competitors in business and following such insight and respective results business can fine tune its respective strategies to gain additional businesses. Therefore, information technology and human expertise are interdependent on each and cannot be employed in mutual exclusivity. Along with strategic decision of the business, information technology within organization play critical role of connectivity; thereby clearly vanishing impact of geographical distances. For instance, large number of businesses in US and UK has sent manufacturing operations to manufacturing intensive economies of China, India and Mexico, with head quarters in US or UK etc and having strongly linked operations with headquarters and subsidiaries. Hence, information technology is truly known for converting business into global village (Baskerville & Myers, 2009). Hence, accounting for the fast pace of business operations and intense knowledge based expertise that humans employ to exploit the business opportunities, human and information technologies are interdependent on each other. To meet the fast pace of challenges human is required to leverage support from machine (hardware and software) while technology in itself cannot support every business function unless fine tuned for the purpose. Therefore, collaborative strategy of business has done wonders for businesses such as businesses have developed online operations as separate domain for generating sales from worldwide. Information technology as well as human alone has to face limitation in successfully competing in the competitive business environment with latter having limitation to physical capacity while former one is also dependent for its development, alignment and benefit exploitation (Klein & Rai, 2009). REFLECTIVE AND CONCLUSION Business to achieve the prime objective to maximize profitability has to adhere to large number of factors. For instance, apart from above three factors, though not limited to, including human resource, marketing, administration and legal factors etc. In addition to addressing all these factors are also required to develop inter connectivity for bringing competitive advantage for business. Though theoretically known the fact was well practiced in the ABB’s project of delivering the very first onboard DC grid system (ABB, 2013). Owing to greater innovative trends and changing demand patterns, ABC intended to develop and deliver the onboard DC grid system in order to facilitate the end consumers. For the purpose, all factors and sets of business made respective contribution; while above three factors had critical role to play. Firm in order to explore the feasibility of the project developed financial perspective including capital investment required, capacity of firm to finance the project, risk associated as well as expectations pertaining to achieving the breakeven and well as profitability within a first year of operations. Apart from the financial perspective market assessment was conducted with respect to exploring competitors already facilitating onboard DC grid system as well as competitors having such decision in pipeline to launch. The major factor of charging price for the onboard DC grid system was major challenge mainly for the reason of industry competitive position to be oligopoly. Revenue generation forecasting was supported by Information technology based research software. Research department of ABB, utilizing different software forecasted trend for the future market of onboard DC grid system. Business model employed for the purpose was based on developing collaboration with suppliers in different areas of the final product, and was also supported by information technology services. Hence, collective information from all departments contributed to the decision to achieve implementation and hence, developed competitive advantage ahead of competitors. However, achieving the completion of implementation phase, ABB encountered wide range of challenges. These challenges spread from wide factors internal as well as external environment. For instance, developing collaboration with supply chain participants using information system required supplier to invest in IT; and financial feasibility of such collaboration was challenge in achieving consensus. It required considerable amount of critical information to be shared. In addition risk associated with probability of success was accounted in both financial as well as economic perspectives along with other business segments. However, despite fact of challenges faced on every step of development ABB managed to achieve the success on the project of onboard DC grid system. The discussion above and following reflective provide clear evidence of the importance of the business functions. In-specific information related to economic condition of the business as well as industry of service that determines the guideline in broader perspective for the strategy; financial perspective information that determines the monetary cost and benefit of the each activity and initiative and finally addressing the role of information technology in the businesses that has turned world into global village with connectivity taking off limitations opened wide knowledge business related perspectives. List of References ABB. (2013). ABB delivers first onboard DC grid system. Available from http://www.abb.com/cawp/seitp202/7199db5e8cd3924e85257b3b00491f07.aspx [Accessed 6 April 2013] Arnold, R. (2008). Economics. Mason, South-Western Cengage Learning. Baskerville, R. L., & Myers, M. D. (2009). Fashion waves in information systems research and practice. MIS Quarterly, 33(4), 647-662. Bélanger, F., & Crossler, R. E. (2011). Privacy in the digital age: a review of information privacy research in information systems. MIS Quarterly, 35(4), 1017-1042. Besley, S., & Brigham, E. (2007). Essentials of Managerial Finance, 14 edn. USA: Thomson Higher Education. Brealey, R., Myers, S., Allen, F., & Mohanty, P. (2007). Principles of corporate finance. New York: McGraw-Hill. Klein, R., & Rai, A. (2009). Interfirm strategic information flows in logistics supply chain relationships. MIS Quarterly, 33(4), 735-762. McLaney, E. (2009). Business Finance: Theory and Practice. New Jersey: Pearson Education. Melville, N. P. (2010). Information systems innovation for environmental sustainability. MIS Quarterly, 34(1), 1-21. Read More