The paper 'Why Accounting Measures of Performance Offer Flawed Measures of Value Creation" is a perfect example of finance and accounting coursework. The greatest purpose of many businesses that have been performing successfully is the establishment of value to their employees, customers and investors. Amit and Zott (2001) indicate that the emphasis lies within the interlinkage of the performance between these groups of people. With the primary focus being the customer, there is a need to understand that they cannot perform without the right conditions for employees together with correct returns’ states of the investors.
According to Walter et al (2001), value creation is the state when a business records higher revenue than the expenses applied. Value creation activities are primarily involved with the production, vending and preservation of services and products. These activities include Inbound logistics, operations, outbound logistics, marketing and sales and servicing. Meyronin (2004) denotes that with the introduction of information technology, value creation has been enhanced in terms of efficiency and speed especially with immediate outputs and inputs which has led to a decrease in the costs of interest.
This paper addresses the challenges that face measurement of value creation activities using information technology. Though with the advancement in technology, efforts to come up with conventional ways of adding value to assets have not yet been developed according to Vargo et al (2008). This is explained by the fact that the involved shareholders are being exposed to different standards of expertise. As a result, every individual judge the services and products offered according to their preferred terms. This makes it difficult to define the extents to which uniform measures of value creation can be achieved. Another challenge is that information technology has challenged management advancements as managers in well-organized firms are lacking initial production structures.
A study conducted by Gold et al (2001) found out that over the years white-collar productivity has been affected by information technology in terms of labor substitution. But the challenge has been that white-collar employment has been bloated principally in assets. This is merely explained by the increased levels of competition which calls for the restructuring of services in order to match the ever-changing international standards. Measurement of value creation is more pronounced in services as compared to manufacturing.
This is explained by the fact that service transactions do not exist in the aggregation but rather they occur distinctively. There are instances when data is abundantly found yet only arbitrary classifications are made. Jonsson et al (2008) in their example in research denote deposits of time in banking production as inputs while the outputs were the deposits of demand. The impact drawn from these deposit patterns is difficult and inappropriate to apply in measurements of value creation. According to Billsberry and Rollag (2010), the use of information technology on measuring value creation is challenged by the fact that technological advancements do not necessarily bear instant results.
It may take several years. This suggests that for the investors to create payoffs; there is a need for acquisition of high levels of experience before reaching the required proficiency. Existence of such lags leads to remarkable complexity. Strategic optimum investment as defined in the models of learning by using, short term benefits of margin is greater than the short term costs.
This causes the firms to drive the reap reimbursement and learning curve to scales of economy.
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