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          1 of 85


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‡ Questions to be addressed in this chapter


include:
± What is the meaning of ` `ë ë and

 
± What is an accounting information system (AIS)?
± Why is the AIS an important topic to study?
± What is the role of the AIS in the value chain?
± How does the AIS provide information for decision
making?
± What are the basic strategies and strategic positions
an organization can pursue?

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          p of 85


) !* '  &' &+#* #&

‡ A system is:
± A set of interrelated components
± That interact
± To achieve a goal

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‡ Most systems are composed of smaller


subsystems . . .
‡ . . . and vice versa!

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) !* '  &' &+#* #&

‡ Every organization has goals.


± The subsystems should be designed to
maximize achievement of the organization¶s
goals.
± Even to the detriment of the subsystem itself.
± EXAMPLE: The production department (a
subsystem) of a company might have to
forego its goal of staying within its budget in
order to meet the organization¶s goal of
delivering product on time.

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          5 of 85


) !* '  &' &+#* #&

‡ ,

 occurs when the activity of a
subsystem is not consistent with another
subsystem or with the larger system.
‡ ,

 occurs when the
subsystem¶s goals are in line with the
organization¶s goals.
‡ The larger and more complicated a
systemë the more difficult it is to achieve
goal congruence.

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          w of 85


) !* '  &' &+#* #&

‡ The 

- encourages integration
(i.e.ë minimizing the duplication of recordingë
storingë reportingë and processing).
‡ '  are facts that are collectedë recordedë
storedë and processed by an information system.
‡ Organizations collect data about:
± !$ that occur
± 
 that are affected by those events
±  who participate in the events

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          Õ of 85


) !* '  &' &+#* #&

‡    is different from data.


‡ Information is data that have been
organized and processed to provide
meaning to a user.
‡ Usuallyë more information and better
information translates into better
decisions.

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) !* '  &' &+#* #&

‡ Howeverë when you get more information


than you can effectively assimilateë you
suffer from    $  ./
± Example: Final exams week!
‡ When you¶ve reached the overload pointë
the quality of decisions declines while the
costs of producing the information
increases.

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          Ú of 85


) !* '  &' &+#* #&

Benefits of information
- Cost of producing information
Value of information

        
."
‡ .
   
 
‡ -$. .
 
‡ -$.    -  . 
. 
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Benefits of information
- Cost of producing information
Value of information

   
.   . 
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‡  
  . 
‡ 
  . 
‡   . 
‡ '        

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Benefits of information
- Cost of producing information
Value of information
 .        
. 
   0     .   %
1  2  .
   % 
-$ .   /

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‡  
 
    2   
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±  $ 

 .
 
    -   -.

%  %  -- 
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‡  
 
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‡  
 
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‡  
 
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±   
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‡  
 
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±   
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‡  
 
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±   
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‡  
 
    2   
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±   
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± (. .  
)
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‡ Information is provided to both:


± External users
± Internal users

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) !* '  &' &+#* #&

‡ Information is provided to both:


± External users
± Internal users

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          p1 of 85


) !* '  &' &+#* #&

‡ External users primarily use information


that is either:
± MANDATORY INFORMATION²required by a
governmental entityë such as Form 10-K
required by the SEC; or
± ESSENTIAL INFORMATION²required to
conduct business with external partiesë such
as purchase orders.

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          pp of 85


) !* '  &' &+#* #&

‡ In providing mandatory or essential


informationë the focus should be on:
± Minimizing costs.
± Meeting regulatory requirements.
± Meeting minimum standards of reliability and
usefulness.

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          p‰ of 85


) !* '  &' &+#* #&

‡ Information is provided to both:


± External users
± Internal users

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          p] of 85


) !* '  &' &+#* #&

‡ Internal users primarily use discretionary


information.
‡ The primary focus in producing this
information is ensuring that benefits
exceed costsë i.e.ë the information has
positive value.

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          p5 of 85


5   & 6

‡ An AIS is a system that collectsë recordsë


storesë and processes data to produce
information for decision makers.
‡ It can:
± Use advanced technology; or
± Be a simple paper-and-pencil system; or
± Be something in between.
‡ Technology is simply a tool to createë
maintainë or improve a system.

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          pw of 85


5   & 6

‡ The functions of an AIS are to:


± Collect and store data about eventsë
resourcesë and agents.
± Transform that data into information that
management can use to make decisions
about eventsë resourcesë and agents.
± Provide adequate controls to ensure that the
entity¶s resources (including data) are:
‡ Available when needed
‡ Accurate and reliable

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          ‰Ú of 85


#=! #+ !  & ! 3=(!  &

‡ The objective of most organizations is to


provide value to their customers.
‡ What does it mean to deliver value?
‡ Let¶s peek in on a conversation at Joe¶s
pharmacy . . .

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#=! #+ !  & ! 3=(!  &

5  */  


    -- 2
.   -
  
9:     
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   %   

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...   %   
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5     >$ 7 ...?


. % . 
$ 
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          ]] of 85


#=! #+ !  & ! 3=(!  &

‡ Although ³adding value´ is a commonly used


buzzwordë in its genuine senseë it means making
the value of the finished component greater than
the sum of its parts.
‡ It may mean:
± Making it faster
± Making it more reliable
± Providing better service or advice
± Providing something in limited supply (like O-negative
blood or rare gems)
± Providing enhanced features
± Customizing it

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#=! #+ !  & ! 3=(!  &

‡ Value is provided by performing a series of


activities referred to as the h  .
These include:
± Primary activities
± Support activities
‡ These activities are sometimes referred to
as ³line´ and ³staff´ activities respectively.

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          ]w of 85


#=! #+ !  & ! 3=(!  &

‡ Value is provided by performing a series of


activities referred to as the h  
These include:
± Primary activities
± Support activities
‡ These activities are sometimes referred to
as ³line´ and ³staff´ activities respectively.

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          ]Õ of 85


#=! #+ !  & ! 3=(!  &

‡ Primary activities include:


± Inbound logistics

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          ]8 of 85


#=! #+ !  & ! 3=(!  &

‡ Primary activities include:


± Inbound logistics
± Operations
    -  -.
 
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/

+  - 


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          ]Ú of 85


#=! #+ !  & ! 3=(!  &

‡ Primary activities include:


± Inbound logistics
± Operations
± Outbound logistics
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+  - 


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-
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#=! #+ !  & ! 3=(!  &

‡ Primary activities include:


± Inbound logistics  - 
 
    <  1
± Operations
-.
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/
± Outbound logistics
± Marketing and sales  - 
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$   %  . 
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#=! #+ !  & ! 3=(!  &

‡ Primary activities include:


7  -- -$ .. 

 
  -  .
± Inbound logistics
  
 
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± Operations
 - 

  %
± Outbound logistics
-
   -   1
± Marketing and-.

sales A  -.
  
± Service  - .
  .B/
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-  
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.$  $
  - 


/

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          5p of 85


#=! #+ !  & ! 3=(!  &

‡ Value is provided by performing a series of


activities referred to as the h  
These include:
± Primary activities
± Support activities
‡ These activities are sometimes referred to
as ³line´ and ³staff´ activities respectively.

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          5‰ of 85


#=! #+ !  & ! 3=(!  &

‡ Support activities include:


± Firm infrastructure


  % . .    /



. 
- 1

 
   /

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          5] of 85


#=! #+ !  & ! 3=(!  &

‡ Support activities include:


± Firm infrastructure
± Human resources
$ $ 
   .    %
-     -  -  
-  .  .  - 
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#=! #+ !  & ! 3=(!  &

‡ Support activities include:


± Firm infrastructure
± Human resources
± Technology

 $    -$  -.
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A// ;' 5   .$ -B/

+  - 


-  
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% . 
.  
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          5w of 85


#=! #+ !  & ! 3=(!  &

‡ Support activities 
include:
 
 A//
   $  8.
± Firm infrastructure
B .. 
  
± Human resources  1 -  
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± Technology
  - 


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± Purchasing  -
    2   
   
    

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-  . 
  -  /

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          5Õ of 85


#=! #+ !  & ! 3=(!  &

‡ Information technology can significantly


impact the efficiency
‡ ,. and effectiveness
 $ 
 "
with which
‡ (the preceding
-. $ C activities
   are
         
carried out.


 $ . $  
. $ -.
 $ 
‡ An organization¶s . %
value chain can
/
be
‡  .  $ 
 "
connected with the value chains of its
± =  .  .   .     $ D
customersë suppliersë

-    and 
   distributors.
 . 
E      F   9   /

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          58 of 85


#=! #+ !  & ! 3=(!  &

  --  / + 8 -   .  


 
Inbound Logistics  

 
/ 2   .
Operations  
   -- /
Outbound Logistics
 

 
/
Marketing & Sales
Inbound Logistics
Service
Operations
Outbound Logistics   

Marketing & Sales Inbound Logistics
Service Operations
Outbound Logistics
Marketing & Sales
Service

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          5Ú of 85


#=! #+ !  & ! 3=(!  &

  --  / .  .  


 
Inbound Logistics  

 
/ 2   .
Operations  
  
/
Outbound Logistics
 

 
/
Marketing & Sales
Inbound Logistics
Service
Operations
Outbound Logistics   

Marketing & Sales Inbound Logistics
Service Operations
Outbound Logistics
Marketing & Sales
Service

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          w0 of 85


#=! #+ !  & ! 3=(!  &

  --  /  2    -   $ 


 
Inbound Logistics
    2%  -- 
Operations
 /
Outbound Logistics
 

 
/
Marketing & Sales
Inbound Logistics
Service
Operations
Outbound Logistics   

Marketing & Sales Inbound Logistics
Service Operations
Outbound Logistics
Marketing & Sales
Service

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          w1 of 85


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  --  /  2    -   $ 


 
Inbound Logistics
    2%  -- 
Operations
 /
Outbound Logistics
 

 
/
Marketing & Sales
Inbound Logistics
Service
Operations
Outbound Logistics   

  

 
 Marketing & Sales Inbound Logistics

   
Service Operations
2    -$ Outbound Logistics
 - 
  Marketing & Sales


- 1 $ 
Service

 /

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          wp of 85


#=! #+ !  & ! 3=(!  &

‡ There is variation in the degree of


structure used to make decisions:
± Structured decisions
‡ -  $ .  /
‡    .  .  %7 $ - /
‡ !G*=!" '
.  %  %  
  
 -
 
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  . $   /

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          w‰ of 85


#=! #+ !  & ! 3=(!  &

‡ There is variation in the degree of


structure used to make decisions:
± Structured decisions
± Semistructured decisions
‡ 
-   /
‡ 0  F
 $ /
‡ !G*=!" '
.  %   
 
 
 %   .
. $   /

|  
      

          w] of 85


#=! #+ !  & ! 3=(!  &

‡ There is variation in the degree of


structure used to make decisions:
± Structured decisions
± Semistructured decisions
± Structured decisions
‡ &7
  . 7 /
‡ 0    .  F
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/
‡ !G*=!" '
.  %   
  % -   
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          w5 of 85


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‡ There is also variation in the scope of a


decision¶s effect:
± Occupational control decisions
‡    - 
  -

 2
‡ #  . 77.   /
‡ !G*=!" '
.  %  .
$/

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          ww of 85


#=! #+ !  & ! 3=(!  &

‡ There is also variation in the scope of a


decision¶s effect:
± Occupational control decisions
± Management control decisions
‡     <  
 

- 
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 $/
‡ !G*=!" . /

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          wÕ of 85


#=! #+ !  & ! 3=(!  &

‡ There is also variation in the scope of a


decision¶s effect:
± Occupational control decisions
± Management control decisions
± Strategic planning decisions
‡  >%  . % %    % % %
-? -  0 /
‡ $ $    "
± #  <   F
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± 
 
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 $
‡ !G*=!" '
.  %  . $  

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          w8 of 85


#=! #+ !  & ! 3=(!  &

‡ In generalë the higher a manager is in the


organizationë the more likely he/she is to
be engaging in:
± Less structured decisions
± Broader scope (i.e.ë strategic planning)
decisions

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          wÚ of 85


!  &' ## !   !,)

‡ Corporations have:
± Unlimited opportunities to invest in
technology.
± Limited resources to invest in technology.
‡ Consequentlyë they must identify the
improvements likely to yield the highest
return.
‡ This decision requires an understanding of
the entity¶s overall business strategy.

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          Õ0 of 85


!  &' ## !   !,)

‡ Michael Porter suggests that there are two


basic business strategies companies can
follow:
± Product-differentiation strategy
± Low-cost strategy

|  
      

          Õ1 of 85


!  &' ## !   !,)

‡ Michael Porter suggests that there are two


basic business strategies companies can
follow:
± .
7.     
± Low-cost strategy

|  
      

          Õp of 85


!  &' ## !   !,)

‡ A product-differentiation strategy involves


setting your product apart from those of
your competitorsë i.e.ë building a ³better´
mousetrap by offering one that¶s fasterë
has enhanced featuresë etc.

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          Չ of 85


!  &' ## !   !,)

‡ Michael Porter suggests that there are two


basic business strategies companies can
follow:
± Product-differentiation strategy
± =%7
  

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          Õ] of 85


!  &' ## !   !,)

‡ A low-cost strategy involves offering a


cheaper mousetrap than your competitors.
The low cost is made possible by
operating more efficiently.

|  
      

          Õ5 of 85


!  &' ## !   !,)

‡ Sometimes a company can do bothë but


they normally have to choose.

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          Õw of 85


!  &' ## !   !,)

‡ Porter also argues that companies must


choose a strategic position among three
choices:
± Variety-based strategic position
‡ #    .1
-.
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‡ !G*=!"   

- 
       
 
--.     --7

  
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|  
      

          ÕÕ of 85


!  &' ## !   !,)

‡ Porter also argues that companies must


choose a strategic position among three
choices:
± Variety-based strategic position
± &.7 .  
-  
‡ $     .  - 
 
- 
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‡ !G*=!"     +   7 .
 

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$
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          Õ8 of 85


!  &' ## !   !,)

‡ Porter also
‡ $ argues
 that companies

 % . must

choose
a strategic position
  
 among

 three
  -


    </
choices:
‡ !G*=!"     $
 
± Variety-based strategic position
.. -    
    
± Needs-based strategic
%
  position
'= 
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± 

7 .  


-  

|  
      

          ÕÚ of 85


!  &' ## !   !,)

‡ Porter also argues that companies must


choose a strategic position among three
choices:
± Variety-based strategic position
± Needs-based strategic position
± Access-based strategic position
‡   
-    
  8
 $ .
 $ -/

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          80 of 85


!  &' ## !   !,)

‡ Choosing a strategic position is important


because it helps a company focus its efforts as
opposed to trying to be everything to everybody.
± EXAMPLE: A radio station that tries to play all types
of music will probably fail.
‡ It¶s critical to design the organization¶s activities
so they reinforce one another in achieving the
selected strategic position. The result is synergyë
which is difficult for competitors to imitate.

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          81 of 85


!  &' ## !   !,)

‡ The growth of the Internet has profoundly


affected the way value chain activities are
performed:
± Inbound and outbound logistics can be streamlined
for products that can be digitizedë like books and
music.
± The Internet allows companies to cut costsë which
impacts strategy and strategic position.
± Because the Internet is available to everyoneë intense
price competition can result. The outcome may be
that many companies shift from low-cost to product-
differentiation strategies.
± The Internet may impede access-based strategic
positions.

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          8p of 85


!  &' ## !   !,)

‡ The AIS should


‡ .
 $ help a company
.     A.  adopt and
maintain its strategic ..
%    B position.

-  $
.$  
± Requires  data
that 
   $
be collected about  .
each 
 
./
activity.
‡ !G*=!" )
 $ % 
   
± Requires the collection
%  F and integration
-  . of .
  
both
financial and nonfinancial data.
 %%%/ 
/
/

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          8‰ of 85


!  &' ## !   !,)

‡ The authors believe:


± Accounting and information systems should
be closely integrated.
± The AIS should be the primary information
system to provide users with information they
need to perform their jobs.

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          8] of 85


(**)

‡ What we¶ve learned so far:


± The meaning of ` `ë ë and 
 
± What an AIS is.
± Why it¶s an important topic to study.
± What its role is in the value chain.
± How it provides information for decision making.
± What are the basic strategies and strategic positions
an organization can pursue.
‡ How these interact with the AIS.

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          85 of 85

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