Chapter 7
The External Environment: Technological Factors
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Technological Change
Technological change is happening at a fast rate. There have been significant developments globally in industries such as medicine, air transport, mining and farming. The digital revolution in information technology (IT) and communications drives many changes.
Technological change has provided many new opportunities for business and economic growth. It is also changing methods of working.
Business Aspect
Change
Example
Consumer habits
Technology has changed the habits of consumers.
Smartphones and tablets transform how people communicate and get information and entertainment.
Aggregators (apps that link buyers and sellers) enable customers to compare products and prices more easily.
New businesses and business structures
New businesses are being created to take advantage of technological developments.
Firms that make apps for smartphones are growing rapidly
Cryptocurrency firms and exchanges are expanding.
Firms that enable businesses to operate in the digital space are growing. Includes digital publishing, marketing, intellectual property management, etc.
New products
Firms are developing new products that make use of technology.
3D printing and household equipment such as televisions and washing machines that can be linked to the internet.
New ways of buying
The internet has enabled new ways of buying products.
Selling goods online is already well established in many countries, and businesses must ensure they can provide that facility.
The way that people work together
Technology can change the way that people work together.
How collaboration, oversight, and communication are done has evolved.
Virtual collaboration tools such as video-conferencing, cloud-based teamworking apps, and the metaverse enable geographically dispersed teams to work together.Â
Jobs and skills
Robots and automation are reducing the need for unskilled work but increasing the demand from employers for skilled workers, particularly workers with IT skills.
Standardised analysis and reporting are automated, allowing operators to apply higher-level judgement and analysis
Technological Effect on Strategy
Technology offers organisations opportunities for enhancing business strategy.
Neumann proposed five ways in which new technology can be used to provide organisations with a competitive strategic advantage:
Using technology to reduce costs below competitors, thus becoming the industry’s lowcost producer of products and services. Some methods of cost-saving include:
Develop new ways of doing business; develop new products or services; identify new markets or niches; evolve the current business into a fundamentally different structure.
Expanding production and services; identifying and entering new markets (location and buyers); and producing new products.
The use of IS has given many companies the capacity (production, time, resources) to expand yet maintain control. Central control is more effective with improved communications. Identifying and reacting to local market needs can be quicker and more effective using IT.
The internet has allowed many companies to reach new geographical markets and to have worldwide customers. Control of such a broad and diverse customer base is feasible with the appropriate use of IT.
Forge strategic alliances through the Internet, extranet and other networks with customers, suppliers, competitors and other companies through the integration of systems, shared systems, joint ventures and mergers.
Examples include
Downsizing and Delayering
 Downsizing
Definition
Downsizing – Reduction in the size of a firm’s workforce.
Downsizing means becoming smaller. In particular, it means reducing the number of workers employed. It can also mean reducing the range of business activities and producing fewer products or services.
 Delayering
Delayering – Reducing the number of management layers in a firm.
Some larger businesses have a management hierarchy, ranging from senior managers at the top of the management structure, down through middle management to junior management and supervisors at the bottom of the management hierarchy. These are called layers of management.
Delayering means reducing the layers of management. Their work would now be done by:
Delayering has the following effects:
Effect
Description
Reducing bureaucracy
Removing middle management from an organisation can reduce bureaucracy. Decisions can be made, and actions can be taken more quickly because fewer layers of management need to be involved in that decision.
Requisitions for spare parts that used to need multiple approvers can now be initiated by operational staff and authorised by the production manager directly.
Senior managers closer to operations
By removing layers of middle managers, senior managers are brought closer to business operations.
They can use information technology systems to monitor the business.
Senior management is closer to operational staff and can refer to dashboards that summarise operational information into meaningful visualisations.
Empowerment of junior managers
Junior managers may take decisions themselves. This is known as the empowerment of junior employees.
They may better understand what is happening in the business than middle managers.
A junior manager is empowered to react to possible issues with operations faster without waiting for instructions from senior staff on what to do.
Cost
Removing layers of management will save labour costs.
The cost saved from removing management layers can increase the income of operational and senior staff and investment in information systems.
Key Point
Delayering is most effective when:
·        Workers are highly skilled and capable of working independently.
·        Tasks are standardised.
·        Information system is robust and allows management to monitor operations effectively.
Delayering can have disadvantages too. By taking out one or more management layers, the span of control in the organisation will be wider. This could make it more challenging to manage the organisation effectively because managers have responsibility for more subordinates. This can be a problem where employees need to be monitored closely due to the complexity of their work or low level of skills and competence.
Activity 1
Determine whether the scenario shows downsizing or delayering.
Scenario
Downsizing or Delayering
Marvin was promoted to senior manager, but the rest of his middle management team was made redundant.
A factory introduces robots to build cars. As a result, it starts to use fewer workers.
A manufacturer of pens and pencils decides to stop producing pens and focus only on making pencils. As a result, it reduced its workforce.
Helen is a junior manager working in a shop. Previously, whenever there was a customer complaint, she was told to report it to her senior manager.
Recently, Helen has been made responsible for responding to customer complaints directly.
Outsourcing
Outsourcing – Hiring an external firm to perform a task/function.
Outsourcing means hiring a different firm to do work that an organisation’s employees previously did.
For example, a newspaper company owns its office premises and may outsource certain services. It may pay for a firm of cleaners to clean there instead of employing its cleaning staff. It may also hire a building firm to maintain and manage the building.
 Specialist skills
In the building industry, for example, it is common in some countries for building companies to use other specialist firms for some of the building work, such as installing windows, electricity, solar panels and plumbing.
The outsourcing firm will perform oversight and quality checks on the external firm’s work and benefit from the external firm’s expertise in the task.
 IT skills
It is common for companies to outsource some or all of their IT maintenance work and systems development, possibly because they do not have employees with the necessary skills to do the work. Outsourcing can be used to a greater or a lesser extent.
The shortage of workers with IT and other digital skills means that for many businesses, outsourcing IT work is necessary because they can’t find people with IT skills to employ.
 Extent of Outsourcing
Extent of outsourcing
Ad-hoc
The task is usually done inhouse.
The external firm is used only when additional capacity is needed.
TRL Co uses an external specialist firm when extra capacity is required to handle a specific IT task.
Partial
A specific task or process is outsourced to an external firm.
Trollo Co outsources its IT system security and maintenance to a specialist firm.
Project
Regular tasks are done inhouse.
An external firm is hired to complete a project.
RTW Co engaged an external firm to migrate to a new customer relationship management system.
Total
The entire function is outsourced.
QWE Co’s entire IT function is outsourced.
2.3.4. Advantages and Disadvantages of Outsourcing
Activity 2
Determine if the scenario is an advantage or disadvantage of outsourcing.
Advantage or disadvantage
Use of specialists
A business does not have full-time specialists due to the cost that would be incurred. Specialists are also difficult to hire. This work would be outsourced to a firm that does have expertise.
Flexibility
A business organisation can decide when it needs to outsource work, what work to outsource, and how long. This gives the organisation some flexibility in planning its operations and activities.
Operational control
By outsourcing work to another firm, an organisation may lose operational control over the work.
For example, if a company outsources its payroll work, ensuring employees are paid on time may be challenging, but it will still be responsible if things go wrong.
Confidentiality
When work is outsourced, there may be a greater risk that confidential information will be lost or passed on improperly by someone in the firm that does the outsourced job.
Capacity management
Outsourcing can be for a short time to work on a specific project. The business organisation does not need to hire employees and then dismiss them when they are no longer required.
Contractual obligations
Arrangements to outsource work may be covered by a contract between an organisation and the firm that does the outsourced job. If the outsourced work is done poorly, it may not be easy to take it back in-house again.
Focus
Outsourcing work that the organisation does not do particularly well – such as cleaning offices and providing security guards for business premises – enables management to focus on the work the organisation is best at doing.
Outsourcing can be cheaper than working with full-time employees, especially if the outsourced work is not always needed.
Core competence
It would be risky to outsource critically essential operations. An organisation should carry out all critical functions with its staff to retain the knowledge and expertise and ensure the team for crucial operations is suitably qualified.
*Please use the notes feature in the toolbar to help formulate your answer.
1. A firm needs to update its IT system – how might it use outsourcing to achieve its aims?
The firm may agree to a contract with a firm of software specialists: the software firm could update and revise the company’s IT system for production control.
2. A company has managers, middle managers and junior managers. It needs to cut costs. How might it achieve this through delayering?
The company might reduce its use of middle managers – for example, by not replacing middle managers if they leave the company. This will reduce labour costs and may also reduce bureaucracy.
3. A warehouse company has introduced robotic forklift trucks into its warehouses. Why might the company choose to use downsizing?
If robotic forklift trucks are introduced, some of the company’s workers may be redundant as the trucks can do the same work. Therefore, the company may downsize and reduce its workforce, reducing labour costs.
Impact of Technology on Business Processes
 Capability
Developments in IT and communications have increased the capabilities of business organisations enormously.
AÂ customer relationship management system enables a firm to manage exponentially more customers than without it.
Developments in microprocessor technology create smaller, faster, and more efficient chips, which enable more advanced applications for every business.
 Speed
Because of computerisation and digital communications systems, businesses can do things much more quickly than in the past.
Increasing internet bandwidth (speed) enables firms to engage with customers witheven more interactive tools, such as high-definition video calls.
 Worldwide scope
Computerisation and digital communications systems mean that businesses can operate more efficiently on an international scale.
Tracking of logistic movements and international shipping is easier than ever because of integrated cloud-based logistics systems
 Value of information: the amount of data and information
In this digital age, information has become a valuable asset for businesses. Businesses now collect, store, use and analyse far more information than in the past.
Storage on increasingly cost-effective cloud-based storage allows businesses to collect and store more data and grant access to any of its personnel worldwide.
 Capital versus labour
Technological advances are removing the need for people. Robots and computers are taking the place of many workers. New types of jobs are being created by technology, but many old jobs are disappearing.
 Operations and activities
Many business operations and activities now rely on IT or digital communications systems. Robots are used for production and in warehouses; the internet is used for selling, advertising, and so on.
Digital advertising and marketing is the fastest growing and most cost-effective means to reach out to and engage with customers.
Internet-of-Things (IoT) technology allows managers to predict potential failure and replace parts on machinery before it happens, reducing downtime.
 Products
Businesses now make many new products and services for the digital era: smartphones and software apps; digital televisions; online training products; and so on.
New interactive products that utilise technology, such as immersive gaming and self-driving cars, are now on the market.
 Methods of working
Employees no longer need to be in the employer’s business premises to do their work. People can work from home (teleworking), linked to the employer’s IT systems.
Employees can use laptops or smartphones to connect to their employer’s systems outside the office, for example, visiting customers or clients.
 International locations for work
Description: Employers can move some work to a different country.
For example, companies in countries such as the UK have set up call centres and IT centres in countries such as India.
The Changing Role of the Accountant in Business
The accountant’s role in business has transformed significantly due to technological advancement.
As technology has enabled most of the routine and mundane accounting tasks to be automated, accountants are now relied on to provide valuable insights into the financial state, performance, and future of the organisation.
The role of accountants has developed from mere bookkeepers and reporting of financial information to valued sources of judgement, foresight, and analysis
 Evolution of Accountant’s Roles
The individual primarily responsible for the integrity of a business’s financial information will always be the accountant.
Only the accountant has the skills, knowledge, and expertise to ensure that the firm’s financial performance is correctly recorded, analysed, and reported. No other specialisation can take up this role.
Technology has significantly improved the accountant’s capability in ensuring a company’s financial information is robust and fit for purpose: useful for decision-making and formulation of strategy.
From ACCA professional Insights: The digital accountant: Digital skills in a transformed world (March 2020)
 Technological Impact on the Accountant’s Role
Technology has significantly impacted an accountant’s role and capabilities and will continue to do so. It affects every area of an accountant’s work, from financial reporting to business intelligence.
Accountants now need to speak the language of technology and appreciate how it drives the business model.
Technology application
Impact on accountant’s role
Spreadsheets
Software to store, manipulate, and analyse data in tabular form.
Jerry uses spreadsheets to calculate production variances from cost data.
Linda uses tools in the spreadsheet to quickly filter and sort data into meaningful categories for analysis.
Barry builds functions in a spreadsheet that enables automated comparison between historical and present data as it becomes available.
Enterprise Resource Planning (ERP)
Software that integrates accounting with other functions like procurement, risk management, and supply chain operations
Cassandra manages the system that integrates financial data for all business operations.
Joey, a production manager, can access management accounting information related to production directly from the financial system.
Jack, a customer relationship manager, can query the revenues and profits earned from a customer directly via the financial system.
Data analytics and visualisation
Software that analyses and creates data sets to enable trends and patterns to be examined.
Roger, the CEO, has a high-level summarised dashboard built automatically from the summarised data from financial and other systems.
Jacky, the accountant, prepares visualisations to present to the board on cash flow projections and sources of funds.
Business Process Automation (BPA)
Use of technology to complete processes with minimal human intervention.
ABC Co’s procurement process has been fully automated, from request for and processing quotations and price analysis to the point of approval
After approval, the purchase order is automatically generated and sent to the supplier, and accounting records and logs are updated.
Data governance
Policies, processes, and other internal standards that govern enterprise data.
Rachel is in charge of ensuring data controls safeguard the integrity of financial data.
Balir must go through mandatory personal data compliance notices and checklists before using sensitive personal data from customers.
Artificial intelligence/machine learning
The ability of machines to learn to perform tasks in a capacity similar to humans.
Gary has trained the machine learning module in the financial system to recognise and flag procurement actions that do not comply with the company’s risk management procedures.
4.1.3. Accountant Roles of the Future
The future roles an accountant must take up are changing from traditional financial reporting to various capabilities and behaviours essential to the company’s success.
Illustration from ACCA Professional Insights: Future ready: accountancy careers in the2020s, January 2020
The assurance advocate
The assurance advocate brings new levels of trust and integrity to organisational operations.
They may focus on enterprise risk, helping drive transparency and understanding of emerging issues affecting business performance, or be at the forefront of shaping future forward-looking audit practices as the capabilities of digital tools and technologies expand.
They could be driving best practices in emerging control frameworks, helping organisations meet ever-growing regulatory demands, or managing complex tax issues. They may even be auditing algorithms in the future.
They are essential to the strong stewardship of sustainable organisations for the future.
The business transformer
The business transformer is the architect of organisational change.
They could be driving major business change initiatives or transforming finance operations. They may be leading innovative smaller accountancy firms that transform client businesses.
They could explore growing careers in external advisory services driven by technological innovation and economic growth. Or they may be leading smaller enterprises as digital platforms open the door to new commercial opportunities.
They are critical to creating change, driving organisations’ strategies, and supporting sustainable organisations for the future.
The data navigator
The data navigator is a true business partner.
They see extraordinary opportunities from expanding data and using emerging tech and analytical tools to drive insights that deliver business outcomes and sound financial management.
They champion ever-growing multi-rich data sets and use intelligent data to generate brilliant forward-looking analyses to support decision-making. This could be exploring new geographic market opportunities or building the investment case.
They understand that the currency of good information is at the heart of building sustainable future organisations.
The digital playmaker
The digital playmaker is a technology evangelist.
They see remarkable possibilities for emerging digital tools in transforming the organisations in which they work. They are champions of technology adoption and data governance within the organisation.
They look to connect across teams and functions to leverage the power of technology. They may focus on digital implementation programmes or have specialised finance and business technologies expertise.
They understand that digital transformation in today’s global economy is the lifeblood of future sustainable organisations.
The sustainability trailblazer
The sustainability trailblazer is at the heart of performance management in the organisation.
They play a crucial role in establishing frameworks that capture, evaluate and report on the activities that truly drive value in much more transparent and meaningful ways to the outside world.
They will transform management accounting fit for a multi-capital world and see emerging opportunities with better external disclosures to ever-growing stakeholder groups.
They understand that aligning the pursuit of profit with the pursuit of purpose is integral to building sustainable future businesses.
