Reference no: EM131139195

Read the Nolan and McFarlan article, "Information Technology and the Board of Directors," as well as this week's lecture. In an eight- to ten-page paper (not including the title and reference pages):
https://hbr.org/2005/10/information-technology-and-the-board-of-directors

• Provide a summarization of the role accounting information systems plays in providing accurate and effective accounting information to internal and external stakeholders in context to the selected IT mode;

• Select one of the four modes of information technology and analyze the mode focusing on three of the following concepts;

• Discuss the concept and be supported with scholarly research.

• Provide a practical example for each of the following concepts:

o Systems approach to quality accounting information systems.

o Internal controls focusing on preventive, detective and corrective approaches to accounting information and accounting information systems.

o Risk management- contingency plans for disaster recovery and security of information and information systems.

o Compliance with the Sarbanes-Oxley Act of 2002.

The Final Paper:

• Must be eight to ten double-spaced pages in length (not including title and reference pages) and formatted according to APA style as outlined in the Ashford Writing Center.

• Must include a separate title page with the following:

o Title of paper
o Student's name
o Course name and number
o Instructor's name
o Date submitted

• Must use at least five scholarly sources in addition to the course text.
• Must document all sources in APA style as outlined in the Ashford Writing Center.
• Must include a separate reference page that is formatted according to APA style as outlined in the Ashford Writing Center.

LECTURE:

It is important to frame our discussion of IT management with concepts that permit us to operationalize what we are discussing, at least to an extent. Nolan and McFarlan (2010) developed a useful frame for defining, discussing, and evaluating the IT management function. An important characteristic of the Nolan and McFarlan model is the emphasis placed on IT as a function integrated with the larger organization. The goal of this integration, of course, is enhanced competitive advantage.

Nolan and McFarlan (2005) contended that most of those acting as members of boards of directors do not understand the extent of their organizations' operational dependence on IT or the degree to which IT plays a role in forming their firms' strategies. This is astonishing because IT assets can account for more than 50% of capital spending (Nolan & McFarlan, 2005). Noland and McFarlan (2005) further contended that IT tends to be managed by "applying a set of tacit or explicit rules cobbled together from the best practices of other firms" (p. 96). In fact, according to Nolan and McFarlan (2005), IT lacks a body of knowledge similar to the standards and practices codified in standards documents such as Generally Accepted Accounting Principles (GAAP). As such, one can say that IT governance tends to be ad hoc.
Nolan and McFarland (2005) stated that there are two issues that must be addressed to effectively manage IT. The first issue is the need to develop an understanding of the extent to which the organization relies upon uninterrupted IT services (defensive IT). The second issue is determining how much the organization relies upon IT for its competitive advantage (offensive IT). Essentially, defensive IT practitioners focus on operational reliability and offensive IT practitioners place the same importance on strategic issues as is placed on operational reliability.

Defensive IT

Defensive IT spans two operating modes. The first mode is designated the Factory Mode and the second mode is designated the Support Mode. Firms can be either defensive or offensive in their use of IT, but not both (Nolan & McFarland, 2005).

Support mode (defensive).

According to Nolan and McFarland (2005), organizations operating IT in the support mode have a low need for reliability and a low need for strategic IT. Nolan and McFarland (2005) offered the following observations about support mode operations. In support mode operations, IT is used to support employees' activities; however, interruptions in IT services are not critical (the organization can quickly revert to manual procedures for 80%+ of critical transactions). In addition, repeated service interruptions of up to 12 hours have no serious consequences for the business.

Factory mode (defensive).

Firms using IT in the factory mode need reliable systems but do not require state-of-the-art systems (Nolan & McFarland, 2005). Organizations operating IT in the factory mode (airlines, for example) suffer an immediate loss of business if systems fail for even a minute, and these organizations are unable to revert to manual systems (Nolan & McFarland, 2005). Business continuity in IT operations is of paramount importance to firms using IT services in the factory mode.

Offensive IT

Turnaround mode (offensive).

Firms using IT services in the turnaround mode may expect technology services to account for more than 50% of capital costs and more than 15% of corporate costs (Nolan & McFarland, 2005). New IT systems are expected to provide service improvements, cost reductions, and an improved competitive advantage. While new systems are being installed, firms in the turnaround mode have a low need for reliable systems, and these organizations can withstand service interruptions of up to 12 hours; however, once new systems are installed, reversion to manual systems is impossible (Nolan & McFarland, 2005). When American Airlines moved to the SABRE reservation system, the organization was in the turnaround mode. When SABRE was installed, American Airlines began operating in the factory mode (Nolan & McFarland, 2005).

Strategic mode (offensive).

Organizations operating in the strategic mode are focused on innovation and the use of technology to further the business. For these firms, new technology informs the way they approach their marketplace and the way in which management teams and employees approach daily operations (Nolan & McFarland, 2005). Like firms in the factory mode, firms in the strategic mode have a need for high reliability. Strategic mode firms also have a need to take advantage of the gains properly selected, developed, and implemented IT systems can provide, and IT expenditures in these organizations are at the levels previously mentioned for turnaround firms (Nolan & McFarland, 2005).

Summary

IT management is not a one-size-fits all proposition. IT management is also problematic because of a lack of a body of standards similar to GAAP and the failure of management at all organizational levels to define a role for the IT department. Too often, IT departments function as tribes whose members communicate in their own language, techno-babble, and do things that may not necessarily benefit the organization. I have often heard the remark that IT does things for itself and the department to which it reports. IT policies must consider organizational operational and strategic needs. These policies must also have the flexibility to cope with a change in needs (going from the turnaround mode to the factory mode, for example). Effectively governing the IT operation can reduce risk and improve an organization's competitive position.
Please click on the link below to access a PDF version of the textbook PowerPoint Presentation for the weekly readings.

Chapter 14 PowerPoint Presentation (PDF)

Forbes School of Business Faculty

References

Crawford, E. (n.d.). A framework for information technology management. Unpublished manuscript.

Nolan, R., & McFarlan, W. F. (2005). Information technology and the board of directors. Harvard Business Review, 83(10), 96-106.