Making Changes to Accounting Information Systems

3731 words (15 pages) Essay

8th Feb 2020 Accounting Reference this

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When a company makes changes to their accounting information system, it is crucial that they need to consider what exactly they need to change with the new system in order for what to achieve as a goal. To figure out what changes necessary for a company, they need to do a system analysis, which will help them figure out the information they need for the system changes. Then the company needs to focus on the intangible aspects to find out what they need for the system to be able to do and how it will be controlled. The next step is to put all this information and turn it into a specific use of codes and test computer programs to design and input the documents to turn them into files or database to develop certain procedures to build a control for this new system (Romney & Steinbart, 2011).  All of this information is then communicated properly to the management and employees and they will use this changes when necessary.  To make sure the changes are successfully implemented and the information that was used is reliable, it must be planned out and staff appropriately. Most of the time the AIS implementations fail because the company or the third party software provider does not follow the steps for the changes properly. One of the companies I found was Target, they are a good example of a company where they did not do their due diligence before implementing the new system, therefore, the company ended in failure and huge financial loss. Through my research, we can look at the factors that contributed to this failure and access senior management responsibility for the failure. Also, review target attempt at entering into an international market Canada using the new AIS system, which ended in failure.  Evaluating whether the significant failure came from the system design, implementation, or operational phase of the process and see what are some best implementation practice that would have reduced the chance of failure that Target experienced. Finally, reviewing what a company should not do when changing the foundation to follow when they are implementing the new AIS.

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 Target decided to expand their operation into Canada to have more profit and they promised their investors they would be profitable by the end of 2013. Unfortunately, there were a number of things that contributed to the failure of their international expansion.  One of the problems that lead to failure was the lack of planning for the company. As discussed before, planning for the changes in AIS is very important when it comes to a company success. Target made their decision by purchasing more than 120 Zellers stores from the Canadian department store for $1.8 billion in 2011 (Gerwirtz, 2016). According to The Wall Street Journal, these 124 stores were rundown shopping centers that were hard to access. Before this Target never had any stores opened in Canada to evaluate how the business would run or would have any problems that would arise but instead they opened all the stores at once. They have not done any research on the previous stores that was failed at the same location in Canada. These locations were smaller than Targets typical U.S. layouts and took more money than expected to expand and convert their trademark red-and-white layout (Wahba, 2015).  This issue itself indicated the lack of research and planning by the company before moving forward with plans to expand stores in Canada.

 Target also built three distribution centers in Canada to have an even flow of products into all of their stores (Gewirtz, 2016). It is very important for a company to have a good system in process that helps with getting the product efficiently from the suppliers to distributors than to the stores.  Target has one of the top line inventory that enables the stores to keep stock on the shelves without keeping too much stock in the back room from over ordering.  The system works through the point of sale system and reorders product once it drops to a certain level. The employees have the ability to use handheld computers that can tell them how much product they have in stock and if there is any back stock in the stores backroom. The handheld computer will even give them the exact location in the back room where they can locate the product. The team members in the backroom run collections throughout the day and pull product to restock the shelves. Another factor that leads to Target failure in Canada was the decision to outsource and use of a new ERP system, which they were unfamiliar with. The decisions that lead Target to outsource their new system because the technology used in the U.S. was not ideal for a foreign country and that it needed to be customized to take into account Canadian dollar and even French- Language characters (Castaldo). This was the reason why Target decided to go with a new system, which they felt would be faster to implement. The decision to use a new system meant all of Target’s information for their products needed to be input into the new system, which was done manually. Anytime information is entered into a system manually there is a higher chance that the information may be entered inaccurately. Because of the inaccurate information, Canada stores shelves were all disorganized and empty and the selection was limited (Jackson, 2016). Empty shelves will always lead to low sales and sales goals.

 There were also more issues with the new system not being protected that lead to failure. When implementing a new system, it is important to ensure that the system is protected to avoid changes that could affect the performance of the system. Target and the third party they purchased the new system from failed to do so contributing to their stock issues and ultimately their failure in the Canadian market. Business analysts who were evaluated on the percentage of their product are being in stock turned off the auto-replenishment system causing it to appear on paper that the stock was always high. (Jackson, 2016) The analysts had the ability to do this because controls were not put in place to limit the ability to do so.

 Target also failed to have a clear communication between the company and their vendors, which caused a huge delay time in reeving products. Even though Canada Target understood in the system the date they expected the product should arrive at their distribution center but the vendors thought it was the date they would send the shipment instead (Jackson, 2016). This misunderstanding with the use of terminology that is clearly understood by those that work for Target but not always understood by those that don’t contribute to the stock issues in the stores and that lead to company’s failure.

 The question that is always asked when a company fails is who in senior management is responsible for the failure. There were a lot of things that went wrong during Target’s venture into Canada but ultimately it boils down to the company’s deadlines which caused everything to be rushed without being thoroughly planned and tested. The deadlines were driven by the purchase that Target’s CEO, Gregg Steinhafel made to facilitate Target’s expansion into the Canadian market. When the opportunity was presented to Target they were also made aware that Walmart was also interested because of that Target CEO decided to buy the stores. This eventually leads them to the commitment of opening all the stores as quickly as possible to avoid paying rent on stores that weren’t operational (Castaldo). Although Gregg Steinhafel started the ball rolling, he was not the only senior manager that was responsible for the failure that ensued. There were a number of individuals that should have spoken up about the impossible deadlines and the issues they feared may happen and were experiencing but chose instead to say nothing. Tony Fisher who was the president of Target Canada was informed about the issues by those under him. Hoping that Fisher would tell his boss and CEO that they needed more time (Castaldo). It is the responsibility of senior management to ensure that implementations are researched, well planned, communicated, and supported with training. The facts clearly indicate that Target’s senior management did not take the time to ensure these steps took place and instead rushed into their attempt at opening stores in the Canadian market.

 The biggest contributing factor of the failure was the numerous issues with the ERP system that the senior managers decided to purchase instead of having their existing technology customized for the Canadian market. The decision to purchase a new system was not the issue that caused the failure but instead was the lack of planning, testing, and training on the new system. According to Romney & Steinbart, management’s “key roles include establishing system goals and objectives, selecting system department leadership and reviewing their performance, establishing policies for project selection and organizational structure, and participating in important system decisions.” If management had followed these guidelines the outcome Target’s chances of succeeding in Canada would have increased. Instead, their decisions and lack of preparation led to stores opening with empty shelves which disappointed consumers expect them to see the lack of selections compared to online as well as the store in the U.S. (Wahba, 2015). Once the damaging first impressions were made on the Canadian customers it was an uphill battle to gain customers and bring sales where they originally anticipated they would be. Target’s CEO Gregg Steinhafel decided to step down from the company after more than a 35-year career at the company but it was ultimately due to the data breach disaster which was taking place during the expansion into Canada as well as the failing operations in Canada (Morran, 2014). The CEO who stepped in, Brian Cornell, ultimately decided to file for bankruptcy protection and close all of the Canadian locations. The other senior managers moved back to other positions within the company in the U.S. when the Canadian Target stores were closed with the exception of the president of the Canadian Target stores who left the business not long after Gregg Steinhafel.    

 There are a number of activities which a company should go through when they decide to change their accounting information system which includes a system analysis, conceptual design, physical design, implementation and conversion, and operation and maintenance. Not going through these activities or missing critical steps within one of the activities could lead to the system failing. The system failure experienced with Target Canada was ultimately a combination of critical steps which were missed in the system design and implementation. During the system design, a system analysis should take place to identify what is needed in the new system to ensure the new system selected can accomplish the tasks the company needs it to perform. The system that Target purchased was “from Israel-based Retalix, it represented the first time the system was being deployed in Canada” (Jackson, 2016). Target could have avoided many of the issues experienced with the system by testing the system before going live which is a step that should be completed during implementation. Testing the system ahead of time would have given the company the opportunity to discover the issues and work through them instead of discovering them when the system was live being used for customers. Another issue which could have been avoided by completing a system analysis was the auto-replenishment system being turned off causing issues getting the product to the stores (Jackson, 2016). A system analysis would have helped determine what system protections needed to be in place to ensure essential functions of the system could not be tampered with. Ensuring that the appropriate access is granted to various functions within the system is important so that the system will function the way the company intended it to perform. If Target took the time to analyze the system to make sure the essential functions have protected the issue with stock replenishment may have been avoided.   

 The failures that happened at Target when implementing a new ERP system illustrates the importance of each of the activities needed when purchasing or converting a new AIS system. Target could have avoided many of the issues becoming as big of a problem as they did if they had best practices in place for implementing new systems. If they made sure they had the time and resources necessary to make sure the system they were implementing would meet their needs they could have done a test run which would have revealed possibly all of the issues. They should have implemented the automatic accuracy when checking inventory should be put in place to prevent the human errors that were often made when entering data for the products (Jackson, 2016). The data that was entered into Targets new ERP system was primarily entered manually. If the data had been checked before going live with the system they would have realized the errors and avoided the stock issues they experienced due to the errors. The systems used by companies are only as good as the data, which is input into the system. Testing all parts of the system before rolling them out to all stores is important to avoid customer dissatisfaction and frustrations. Target did not test the system before going live and experienced issues with the cash registers freezing and the self-checkout register giving out incorrect change at times (Northrup, 2016). It is equally as important for users to be trained and comfortable using the system so that a high level of customer service can be maintained. Target’s entrance into the Canadian market was rushed due to deadlines which were not possible to meet which caused numerous issues that were evident to the customers when they experienced empty shelves instead of stores stocked with product. The system issues ultimately caused the empty shelves, which in turn affected the company’s overall image in the Canadian market. It is important for companies to have best practices in place to avoid the type of errors that Target experienced with their new ERP system.

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 There are a number of best practices, which a company can establish to avoid failure. Many of the best practices that should be used to follow the steps a company would follow when a new system is purchased or they decide to upgrade their current system. The first best practice would be to define clear goals for the project. Clear goals would help the company to evaluate what critical business needs to be done when it comes to ERP solution (Tanner, 2014). Without clear goals, it is easy for a company to lose sight of what they are trying to accomplish with the new system, which could lead to the system failing to meet the needs of the company. Clear goals will keep those working on the implementation focused on what is important to the company and what the new system is meant to accomplish. It is also important for the company and those on the teams working on designing and implementing the new system to have a clear understanding of the company’s business processes. When the business processes are understood it is easier for the team to evaluate suitable system software, which will provide the best benefits and efficiencies for the company (Tanner, 2014). A key best practice that Target failed to follow was ensuring they had enough time and resources for the implementation of the new system. When a project is rushed key steps may be missed which leads to failure that is why it is important to ensure enough time is budgeted for the entire process. During my research, I found that many implementations failed because the company or third party vendor assisting with the implementation failed to allow enough time for the implementation causing deadlines to be missed and budgets to be underestimated.

 Another best practice that is important to a successful system implementation is ensuring the data, which is inputted into the new system, is accurate. Inaccurate information can cause the system not to work as intended for the company (Tanner, 2014). This was a big contributing factor to the Target failure because the information, which was put into their new ERP system, had a high percentage of inaccuracies, which caused stock issues in the stores leaving, shelves empty. Another best practice is for the company to establish an active testing environment to test the new systems before they are put into all areas of the company. This will help the company to avoid any unplanned downtimes (Tanner, 2014). It is always easier to deal with issues found during a test period, which does not affect the entire company or customers. Finally, it is also important to have the best practice of investing in training and education to get the benefits and efficiencies the company is striving to achieve from the new system. If a company doesn’t have training and education best practices it could lead to the system failure (Tanner, 2014). These are just a few of the best practices that Target failed to establish which contributed to the failure of their implementation but there are others which a company can establish to raise their chances of success.

 Establishing a foundation to follow when implementing a new accounting information system is key to the success of the implementation. It is important for a company who has decided to purchase a new system or upgrade their existing one to take the time to establish a plan. A company should not rush through the planning process or any aspect of the implementation process. A solid plan should include established goals for each step of the implementation to keep the implementation on track. A company needs to ensure the established plan does not have unreasonable deadlines, which could cause steps to be missed during the process, which ultimately leads to failure.

  It is also important for appropriate resources to be committed to the project and that appropriate support and guidance is provided. The resources should be able to provide answers and guidance during the implementation to increase the probability of success for the project. It is equally as important that the company does not over commit resources causing other areas of the company to suffer or possibly fail. Planning and providing appropriate resources are key areas which a company should have established best practice in place as a foundation to build upon for the rest of the best practices which should be in place to increase the chances of success.

 In order for a company to have a successful AIS implementation, there are key steps, which should be followed. Taking shortcuts or rushing through the steps increases the probability that the implementation will fail. The key activities include systems analysis, conceptual systems design, physical design, implementation and conversion, and operation and maintenance. Putting best practices in place which addresses these activities and the steps for each will help the organization stay focused and on track. There are a number of organizations, which have experienced implementation failures because they or the third party vendor hired for the implementation have not followed through with the established activities and steps. Target experienced a large-scale implementation failure when they attempted to open multiple stores in Canada using a newly purchased system. The failure was caused due to poor planning, deadlines, which were impossible to meet, neglecting testing the system before it was implemented into the stores and miscommunication with their vendors. This caused many to leave the company, stores to be closed and a large number of people to lose their jobs as well as costing Target billions of dollars. The failure that Target experienced as well as numerous other companies is a clear indication of why it is so important for a company to have a solid foundation and established best practices which are followed during a new system implementation.

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