The Use Of Information Communication Technology Business Essay


This report contains the information that I have been required to prepare for my employer, a management consultancy firm that will be established in the near future. The report is structured as follows. A cash flow forecast from 2013 to 2015 has been prepared based on the assumptions that have been provided. Based on the cash flow forecast, the start-up funding required to ensure that the business avoids overdrafts until 2015 has been calculated. Following the cash flow forecast is an analytical section that firstly explains how working capital management is critical for the profitability of the business. This is followed by an information paper addressed to prospective clients. The information paper discusses the benefits of information and knowledge management to organizations. The next topic the information paper covers is the role that information and communication technology plays in environmental scanning and benchmarking. Lastly, the extent of the relationship between organizational learning and competitive is discussed. To explain the concepts I have used findings from research papers as well as experiences from the private sector.

Cash flow forecast for three years:

The importance of working capital management to the profitability of the business

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Working capital management, which refers to management of current assets and current liabilities (study finance, 2013) is critical for the profitability of the business. To understand how working capital management affects profitability, we can examine each component of working capital individually.

Current assets comprises of items such as cash, accounts receivable and inventories. If a business has surplus cash, it will reduce profits since idle cash earns minimal returns. If instead this surplus cash was used to reduce loans for example, then the business would save money by not having to pay interest on loans. And the interest rate on loans would be higher than the interest rate on cash.

Having a high level of accounts receivable, or high days receivables, indicates that money is tied up in assets which are not earning a return. This is almost like an interest free loan. If the company reduces the amount of accounts receivable, it will have more cash. This cash can be put to more productive use to increase profitability, for example by reducing loans as mentioned above. In a similar manner, having a high level of stock, or high days inventory, indicates money is tied up in assets which are not earning a return. Reducing the amount of stock will increase the cash available, which can be put to more productive use. Furthermore, for businesses which sell perishable goods such as cakes and fresh meat, having lower levels of stock, or turning over stock more often, will increase product quality and reduce wastage. On the other hand, having a lower level of stock can be detrimental, especially if there is a higher than expected increase in sales and the business does not have enough stock to sell to customers.

Current liabilities comprises of items such as accounts payables and bank overdraft. If a business increases days payables, in other words it takes longer to pay accounts payables, it will increase the amount of cash that the business has. This cash can be put to more productive use, hence increasing profitability. On the other hand, if interest is payable on late payments, then delaying payments may not be the best option.

Generally overdrafts have a higher level of internet rate, hence this is an expensive source of capital. Reducing bank overdrafts, if possible, can contribute to more profitability. If a business reduces accounts receivable, level of stock or increases accounts payable, it will have more cash, which it can use to reduce bank overdraft.

Explained above is how individual components of working capital can increase profitability. By managing working capital better, the business can increase profitability through making its assets 'work harder'.

Since working capital is defined as the difference between current assets and current liabilities, the level of working capital indicates the ability of a business to meet its short term obligations. If a business has insufficient current assets to meet current liabilities, it could face serious consequences as a result of not paying its debts on time (Shinand and Soenen, 1998). Creditors could take legal action if current liabilities such as accounts payables are not paid. This higher risk as a result of having insufficient working capital can affect the cost of capital (Shah, 2009). In other words, if a business is considered high risk the banks may charge a higher interest rate. Furthermore suppliers may be less willing to sell goods on credit, or to have long payable time. Hence not managing working capital adequately can affect profitability.

The benefits that information and knowledge management bring to organizations

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Knowledge management is the process of capturing, distributing, and effectively using knowledge Davenport (1994). According to one research paper, there is a "divide in academic and practitioner discussions as to the effects of knowledge management: One side argues that knowledge management is a passing management fad that has had little or no effect on business performance."(North, Reinhardt, and Schmidt, 2004]).To explore the benefits of information and knowledge management to organizations, views from a number of organizations is summarized next.

According to a Global Deloitte survey (2012) over 80% of Deloitte Knowledge users indicate that sharing knowledge leads to competitive advantage and adds a real client value. Knowledge management helps solve most of the common business problems and helps companies increase their benefits by:

Improving business decisions thanks to facilitated access to expertise and to leading practices

Increasing efficiency, productivity and work smarter by reducing cases of "reinventing the wheel"

Improving innovation through wider and borderless collaboration

Reducing loss of know-how by capturing explicit and tacit knowledge

Speeding productivity with on-board trainings and timely access to knowledge

Increasing client satisfaction by delivering value insights

Enhancing quality and ability to collaborate by standardizing ways of working and enabling discussions with leading experts

Deloitte (2012) further explains the role social media plays. "With corporate mergers, employee turnover and global expansion, people must work differently: they need to collaborate with peers that are overseas, exchange ideas, keep current on global matters and have quick answers to their questions. Social Media plays an important role in knowledge management as it enables employees to collaborate, connect and rapidly access to experts and information."

A 2011 Oracle white paper states the five key benefits that knowledge management enables via customer service improvements:

Reduced research time

Increased resolution accuracy

Reduced training time

Management of increasing service volumes

Creation of service insight

Verizon Wireless implemented a project to bring its knowledgebase to over 40,000 service reps, reducing "content chaos" to increase first contact resolution, decrease escalations, speed handle time, and handle significant growth in the customer base without a corresponding increase in staff.

Cypress, an IT company, benefited from knowledge management through cost savings, improved call resolution time, increase in delivery of services on time and reduction in service defects (WLE, 2006).

Because of the importance of knowledge management, Deloitte has a specific division responsible for consulting on knowledge management. According to Drucker (2012)" Knowledge management prevents companies from constantly reinventing the wheel, hence the decreasing supply of talent, the retiring boomers, the staff turnover etc. Like never before, harnessing and leveraging on knowledge and expertise is no longer a luxury, it is a necessary game changer."

Other leading global consulting firms such as Bain, Boston, McKinsey and KPMG all consult on knowledge management, as well as have their own in-house knowledge management systems for its own employees. Boston has a knowledge management forum, offering an environment for the exchange of ideas, best practices, and business opportunities through a variety of learning, communication, and networking settings (Boston Km forum, 2013). McKinsey maintains an organization called the McKinsey Knowledge Centre that provides rapid access to specialized expertise and business information (McKC, 2013).

While academics and practitioners may not come to a consensus view on the importance of knowledge management, many global companies as well as consulting firms place high importance on it.

The use of Information Communication Technology (ICT) in environmental scanning and benchmarking

Environmental scanning is the process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends. Benchmarking involves comparing the performance of a company's products or processes externally with those of competitors and best-in-class companies and internally with other operations within the own firms that perform similar activities (Brain & Company guide, 2010)

Both environmental scanning and benchmarking involve gathering information from internal and external sources, and it is in this respect that technology plays a role. The use of Internet technology "mitigates the difficulty in collecting data, reaches a wider audience, and maintains data security" (Johnson, Chen and McGinnis, 2010).

The Center for Association Leadership, which is part of the American Society of Association Executive (ASAE), has online resources to assist its members. One of the resources available to members is the "Scan to Plan Interactive", an online tooled signed to help members sort out and prioritize trends that could shape their future (Dalton, 2011). This is one example of how technology is used to provide resources, guidance and analytical capability to companies. In addition technology is used in actually gathering information. New indexing and filtering techniques facilitate the accession of materials via the web (Myers, 1999).

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Different organizations use technology to different extents. For example the Simon Fraser University has developed a guideline for conducting an environmental scan. The guideline called "Conducting an Environmental Scan" contains a list of external sources of information. Almost all of the sources are web based, including specialist databases and other online resources. This indicates extensive use of technology by Simon Fraser University to conduct environmental scanning.

According to Kozak (2004), the growth of computer technology increased the application of benchmarking. While technology plays an important role in scanning and benchmarking, companies in certain industries, and in countries, may not use technology, or use it to a lesser extent. For example a shop owner in Central Asia may not use technology for scanning and benchmarking since information may not be available through online, or the information may not be up to date and reliable. In such instances scanning and benchmarking is done without the use of technology.

However, the overall conclusion is that information and communications technology plays a critical role in scanning and benchmarking.

The extent of the relationship between organizational learning and competitive advantage

"The most successful corporation of the 1990s will be something called the Learning Organization. The ability to learn faster than your competitors may be the only sustainable competitive advantage" (Gues, 1988).

The statement from Gues (1988) is reinforced by Jack Welsh, former CEO of General Electric, who said "An organization's ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage" (Business learning & life 2013). In other words, businesses must continuously learn in order to maintain competitive advantage and succeed.

Organizational learning involves more than just employees returning to school to learn, it is about the ability to harness and use the knowledge for competitive advantage. It encourages employees to learn new skills continually to be innovative and to try new processes and work methods in order to achieve the strategic business objectives of the organization (Appelbaum and Gallagher, 2000).

The links between competitive advantage and learning in organizations has been summarized as follows (Hever 2000):

Human resources can deliver sustainable competitive advantage when developing organizational capability especially for innovation.

To achieve this, the strategic management of these resources must include a strategy to differentiate them from those of the competition by acquiring and sustaining leading edge competencies that continue to add value and contribute to developing core competences.

An organizational learning focus is essential to achieve this differentiation, and may be the only way to achieve competitive advantage.

Organizational learning itself must have a competitive focus.

Competitive advantage can only be sustained by constant competitive learning

According to a study by Brookings Institution, 60 percent of an organization's competitive advantage is derived from internal advancements in knowledge, innovation, and learning (Carvenale, 1992).This conclusion is further reinforced by a case study conducted on Scandic, one of the largest hotel companies in Scandinavia. The case study concluded that knowledge sharing, organizational learning and competitiveness are all related and are mutually reinforcing (Skinnarland, Itera and Sharp, year unknown). Because of the importance of organizational learning, companies place a high degree of importance on it, and it produces results. Laser Drive, Inc., a Pittsburgh-based manufacturer, used learning organization techniques to achieve a market share of 70 percent. Motorola estimates that for every dollar spent on problem solving and statistical process control training, thirty dollars are returned to the corporation. Several companies have reported a training return on investment of more than 1,000 percent (Peters, 1987). On the other hand, organizational learning is not always beneficial, especially if organizations learn the wrong thing, for example how to manufacture something no one wants, or can reach false conclusions. Furthermore, superstitious learning occurs when an organization interprets certain results as outcomes of learning when in fact there may be little or no connection between actions and outcomes (Locke and Jain, 1995).


A total of $1.6 million in startup funding is required to ensure that the business has no overdrafts until 2015. The overdraft is needed to cover negative net cash flows during 2013 and 2015, predominantly due to capital expenditure. The analytical paper explains the importance of managing working capital. By managing working capital better, the business can increase profitability through making its assets 'work harder'. Furthermore having adequate working capital reduces risks. The information paper for prospective clients explained a number of issues. While academics and practitioners may not come to a consensus view on the importance of knowledge management, many global companies as well as consulting firms place high importance on it. This shows the importance that many firms place on knowledge management. It was found that and communications technology plays a critical role in scanning and benchmarking. It makes data collection easier, reaches a wider audience and maintains data security Jack Welsh's statement on the importance of organizational learning summed up the important role it plays in helping businesses maintain competitive advantage. Several case studies indicated the extent to which organizational learning contributes to firms having a competitive advantage.