2 astranti financial training CIMA E3 Study Text Chapter 16 Digital Technologies © Astranti 2020Chapter 16 Digital Technologies Introduction Imagine there is a woman called Malia who is the owner and managing director of Baldwin’s, a UK chain of five homeware department stores. Each of the stores is situated in large towns within a 100-mile radius of the main headquarters and warehouse. Baldwin’s prides itself on importing beautiful products such as bed linen, paintings, soft furnishings and more to decorate homes. Up until now, a loyal customer base and tourists to the towns have meant that shop sales have been constant. However, over the last year, there has been a big dip in revenue and ‘Malia and the board need to look at why business is slowing down. While Baldwin’s does have a website, it doesn’t have a shopping function, instead, ‘Malia contracts a specialist company to photograph her products and produce a catalogue, which she pays to insert into specialist magazines to sell via mail order. Orders are received by post and telephone, where a central office prepares dispatch notes for the warehouse to process. Over the last year, magazine sales have dropped significantly, and the reach to potential customers has been reduced. In addition to this, an ontine-only homeware retailer, Home Flair, previously only operating in the US, has started to sell similar products in the UK at a more competitive price to those found in Baldwin's. Malia has identified that Home Flair is using a variety of modern technologies to sell their goods. ‘Malia wants to give Baldwin's the best chance of success in the current market, as she admits she has let herself get complacent in the development and growth of Baldwin's. Throughout this chapter, we'll explore the technologies available to ‘Malia and look to see where she can appropriately apply them to her business. Technologies provide scope for a business to develop and grow, but also more recently, they can threaten those businesses that are reluctant or unable to change, such as Malia’s homeware shop. New technologies have exploded into the forefront of business development in the last 20 years, often adding value, improving accessibility and cutting costs. The use of online buying and selling platforms, as well as smart technology, which we will be looking at, allows a business to minimise workforce and time needed while maximising profits. The growing role of digital technology ‘Many processes that were once controlled entirely by humans have now been transferred to technological alternatives, such as ePassport gates that can be found in many airports. These gates rely on technology to check people's passports, instead of more traditional methods of humans handling passport security. © Astrant 2020 astrantiChapter 16 Digital Technologies Technology goes beyond just replicating human tasks, and can now perform tasks that have never been done before. For example, at ePassport gates, biometric technology such as facial recognition, fingerprint and eye-scanning software can use details stored within a passport chip to identify passengers entering the country. Something that truly surpasses the capabilities of human passport checkers! While technology has streamlined many processes and opened up opportunities for businesses and consumers alike, it also presents a challenge. The once steady business models used in industries are being challenged to change and adapt in- line with breakthroughs in technology, forcing management to rethink the foundations of their business. In this chapter, some of the most important new emerging technologies used in business will be explored and analysed. 2. Disruptive technologies The term ‘disruptive technology’ was coined in 1995 to illustrate the effects of new technologies on the modern business economy. While the word ‘disruptive’ has negative connotations, a ‘disruptive’ technology isn't necessarily a bad thing! Although it forces markets to be more competitive and dynamic by introducing new methods of trading, it creates new opportunities for businesses to develop and grow. It provides new ways of selling, handling data and, of course, new products and services to sell! So, not all bad, right? In this situation, we need to consider disruptive as meaning ‘changing’ rather than ‘breaking’. How are disruptive technologies changing industries? In the early 90s, the computer was considered a disruptive technology when first Used in accountancy departments. Multiple ledgers, day books and even typewriters gave way to software that could contain the information in much smaller, accessible formats with a reduction in staff numbers needed to log entries. We would now consider it to be a huge task to keep a company’s accounts without computers, illustrating how disruptive technologies help to force businesses to grow and develop. Disruptive technologies, such as artificial intelligence (Al) and cloud computing, that we will be looking at in this chapter, change the way businesses function, creating new, normal methods of operation. © Astrant 2020 astrantiChapter 16 Digital Technologies Here are a few more examples of how technology is currently affecting existing industries: itr Pek a eae Al is being used to create self-driving cars, so a taxi driver will eventually no longer be needed to transport passengers. reece and (such as taxis) Self-checkouts are becoming more common and reduce E13 the need for human checkout workers. Renewable energy sources from new technological advancements mean that traditional energy sources, such as fossil fuels, are being used less and less. Financial technology (FinTech) is beginning to replace the Ce urd technical roles that only banks have previously done, such as investment advice and banking services. Competitive advantage Competitive advantage means that a business is in a position that is superior to its competitors. Being the first in the industry to use these new technologies gives a great competitive advantage. From creating a new way for consumers to shop, to introducing new business ideas, the pioneering business will gain a reputation for being the first to implement that idea. Consider the introduction of a newer, more convenient shopping method. Consumers have almost unlimited access to technology and are constantly looking for easier ways to buy new products and services. In an age where a quick purchase and fast delivery is attractive to most shoppers, customers will be more likely to shop from a certain business if the experience is easier and more convenient for them. The better the service, the bigger the competitive edge the business has over is rivals. ‘An example of competitive advantage Let's look at an example in the real world. Monzo Bank Ltd. is a new, completely ontine bank in the UK. It has no branches, operating with customers only via its © Astrant 2020 astrantiChapter 16 Digital Technologies smartphone app. Monzo Bank Ltd. provides an option for customers to open up a bank account within minutes, from the comfort of their own home, simply by sending in a photograph of identification and a short video. If a customer has this option, why would they choose to go to another bank which could require time- consuming visits and meetings at bank branches? ‘Monzo has been successful, doubling its valuation to £2bn in just eight months by the start of 20191 It's clear that customers respond well to this convenience, even though Monzo is a new bank and doesn't have the same reputation as well- established banks, such as HSBC. Monzo is reaping the benefits by being a pioneer of this business idea. Those businesses that are slower to implement these advances often suffer at the hands of technology-forward competitors, who have already established their use of technology. Customers are enticed into more convenient and innovative shopping experiences, often by the first business to offer it, like Monzo. On the flipside of this, remember the mobile phone manufacturer Nokia? Nokia's lack of investment in new technologies, e.g. the smartphone, caused customers to buy from its competitors. The value of Nokia dropped by approximately 90% in just over five years! Showing just how important it is to utilise new technology in a modern business! Baldwin’s and competitive advantage Let’s go back to Malia and her homeware chain, Baldwin's. As we know, it is faced with at least one new competitor that is using new technology to disrupt business methods in the UK homeware industry, and Malia knows she must find a way to respond to this. She believes that there is a chance to change the business model of Baldwin's to ensure its success in the changing market. An ever-increasing number of retailers are using new technologies and are operating with a reliance on online systems and personalised customer experiences, such as suggestions of additional products that co-ordinate with what has been placed in virtual shopping baskets ‘Malia wants to look at new and disruptive technologies that are available, including those already utilised by Baldwin's biggest competitor, Home Flair, in order to close the gap with its competitors as soon as possible! She now knows she can use technology as a tool to maximise success. We'll look at what’s available to Malia and evaluate the appropriateness of the technologies, to see if they can be used at Baldwin’s. Disruptive technologies used in business There are many technologies that can be considered to be disruptive, but these are the ones that you need to focus on for the exam: © Astrant 2020 astrantiChapter 16 Digital Technologies 3D printing Big data A Blockchain Cloud technology “New technologies —p iData visualisation Business process The internet automation of things Artificial intelligence You'll notice that we've included big data in our diagram, and while its characteristics do share similarities with others listed here, we've explored it in more detail in another chapter. 3. 3D printing Imagine designing an object on a computer and having it made within a few hours right in front of your eyes. Well, 3D printing does just that! 3D printing can simply be described as the process of using a specialist piece of equipment to print out 3D shapes from designs held within computer files. The most common method is known as Additive Layering Manufacturing (ALM) which is pethaps a better description as the ‘printing’ is done by layering the chosen material (e.g. plastic or metal) to produce a solid 3D object. Other than the printer itself and the design software, 3D printing requires no other specialist tools. 3D printing is used across a whole range of industries, from healthcare and homebuilding to aerospace and beyond! Could Malia use this disruptive technology to improve Baldwin's performance? Let’s have a look at the benefits and disadvantages of this technology: © Astrant 2020 astrantiChapter 16 Digital Technologies Benefits of 3D printing ‘The benefits that 3D printing can bring have been split into two groups - reductions and increases. What exactly do we mean? We can start with the reductions and how they would affect Malia: Benefits - reductions: Transport costs - If the 3D printing is done at the location where the part is required, it means that the organisation doesn’t have to pay for it to be delivered. Malia imports a lot of homewares, such as decorative plant pots; could similar ones be printed at the warehouse, using designs from the overseas manufacturers? If so, Baldwin’s could save on import taxes and delivery costs. Emissions - A further positive effect of cutting the need for product transportation is fewer emissions - another positive for Malia as she could use this detail in her marketing material, attracting customers who are conscious of the environmental impact of their shopping. Waste - 3D printing builds a product by using just the required material, rather than starting with a huge block of the material and cutting out the shape. This often means that less waste will be generated Lead times - Instead of ordering a product and it arriving a few days later, a 3D printer can produce it on-site, ready for use or sale in a matter of hours. This is great news for Baldwin's, as through printing a product itself, it wouldn't have to wait and can get the product on the shop shelf much quicker. Holding stock - Printing just one piece at a time could negate the need to purchase excess stock that has to be ordered in bulk, reducing costs and the need for storage. For Baldwin's, this means that it won't have spare products taking up valuable storage space in its stores. Benefits - increases: Profit margins - By creating the product or component, the organisation avoids having to pay the manufacturer or supplier, which should mean that Baldwin's profit margins should increase! Customisation - Having a 3D printer means customisation on individual products can be more significant, meaning they are more specialised for their purpose. Baldwin's sells a wide variety of products, using 3D technology raises the possibility that it could offer customers the ability to personalise their purchases! This could be a unique selling point and give Baldwin’s an advantage over its competitors. Social benefits - Because of the personalisation that 3D printers offer, as well as the opportunity to print on location, 3D printing can be used to help © Astrant 2020 astrantiChapter 16 Digital Technologies societal problems that traditional manufacturing processes cannot. For example, 3D printing could help with housing shortages by constructing a house at a location where conditions are too poor for traditional construction methods, or prosthetic limbs can be created for specific patients that fit perfectly at a fraction of time, or cost traditionally required for such devices. Disadvantages of 3D printing Expensive - Buying and installing a 3D printer is costly, and a large investment is initially required, plus the maintenance and repair costs over the life of the printer need to be considered. Malia has to analyse whether the costs saved and features offered are worth the high price! Lack of universal standards - Products of 3D printing are often customised and non-standard, so haven't been tested for strength, durability and quality against any standards. This lack of standards could mean products made in this way aren't properly suited to their role and could contravene safety laws. For example, in the UK, most products go through rigorous testing to earn the Kitemark from The British Standards Institution, giving the consumer confidence that the product is fit for purpose. This is worrying for Malia, as the quality of Baldwin's homewares could be compromised. Environmental impact - In an environmentally conscious world, the use of large volumes of plastic is far from ideal. Although there are other options available for 3D printing, plastic is currently the primary material. 3D printing also uses far more energy in manufacturing some products that can actually be mass produced more efficiently. Expertise needed - Although no other tools are required, software and expertise are essential to designing and producing any products on a 3D printer. This expertise can be expensive to outsource, or to teach current employees. Malia’s workforce has no one with a specialism in 3D design and printing, so she would have to invest time and money in either training them or bringing a specialist in. Legal concerns - There is a greater capacity for companies to steal intellectual property from other companies, if 3D design computer files are stolen, for example. Also, returning to the lack of universal standards, if a product is not produced to the standards required, it could be unsafe. It is often the case that legislation development lags behind technological advancements. Ethical concerns - Using the healthcare industry as an example, extensive trials and regulatory procedures are necessary before a product, such a medicine, is deemed safe for patient use. It is currently possible to 3D print a tablet that combines the required dosage of multiple medicines, tailoring it to the patient. By not following traditional manufacturing processes, it, © Astrant 2020 astrantiChapter 16 Digital Technologies might be possible to sidestep these regulations, which could result in unsafe products. After looking at these factors, Malia decides that 3D printing isn't appropriate for her business, while the savings are evident, a 3D printer, the software and the necessary expertise required would be a very big investment. 4. Artificial intelligence (Al) Recognise the names Siri and Alexa? These well-known virtual voice assistants, which can found on mobile phones, smart speakers and computers, have been artificially created to mimic the intelligence of humans; to recognise voices and answer questions using artificial intelligence (Al). Encyclopaedia Britannica defines Al as: “The ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings. The term is frequently applied to the project of developing systems endowed with the intellectual processes characteristic of humans, such as the ability to reason, discover meaning, generalize, or learn from past experience.” There are varying degrees of artificial intelligence that a machine can be programmed to have, as well as how the learned responses manifest themselves. Low levels of innovation include user-tailored online advertisements generated by information gathered from the websites a user has visited. At a high level of innovation, Al is being used in Tesla cars, for example, to create a self-driving car, where the computer is able to drive the car itself, learning how to navigate and avoid collisions by understanding the environment surrounding it! Machine learning and Al ‘Machine learning refers to a computer being fed data, through which it can identify patterns, learn from the data and follow instructions to make decisions and analyses. Al uses algorithms, which can be described in their simplest form as a set of instructions that can be programmed in to a computer for it to follow. This enables computers to solve problems and make predictions on things such as a consumer’s potential buying behaviour and, in turn, make recommendations for future Purchases using data it has been given relating to the consumer. Through the use of more complex algorithms, computers can ‘learn’ how to better process and respond to data. Luckily for us, we don’t need to understand the exact details and process of how this works, just how it can affect businesses and organisations. © Astrant 2020 astrantiChapter 16 Digital Technologies Al and social media You may have already come across examples of machine Al if you use social media, Facebook, for example, will suggest friends for you, based on your personal preferences, your social circle and Facebook groups you are a member of. More complex algorithms will be able to help Facebook make shopping suggestions, based on posts you've written or locations that the app has logged you've been to. Al is already used in a vast number of activities, from robotics and online gameplay, to data analysis and predicting financial activities, such as the fluctuating value of stocks in response to economic factors. By working alongside humans, computers are being used to help improve the recording of, and authorisation of, transactions, as well as fraud detection and performance predictions. The understanding of roles that Al can play in the finance sector is still in its infancy, but new advancements are being made all the time. There are three main types of learning currently used in Al, and all can be utilised in the finance function of organisations. Let's take a look at them: Supervised learning This is how the majority of machine learning is done. Say we wanted to predict the time of year when sunglasses will sell the best in the future, we, as humans, probably know the outcome and need to teach the computer that sales are likely to be higher in the summer. Algorithms are used to find the relationship between input data that is identified by a human (in this case, the time of year) and a certain output the input has caused (again, identified by a human, hence the supervised element). In order to teach the computer to predict future sales, we input the known sales data in relation to the season data and tell it that the most sales occurred in the summer, so this is also likely to be the case in the future. Once this has been learned, the computer is able to apply the same process to new sales data. The method for ‘teaching’ the computer how to process and deliver outcomes in its simplest form is: Stage 1 - Humans input the known data and identify it, so in our example this would be the time of year. The output data is also identified by humans, so in this case, the number of sunglasses sold and when. Stage 2 - By giving the computer the known quantities and ‘showing’ the computer the outcome we want based on the data input, we have supervised it to learn what is required. © Astrant 2020 astrantiChapter 16 Digital Technologies Stage one: Leaming Known input > Known output Stage two: Using the knowledge Known input Predicted output Stage 3 - When outputs are successfully understood and predicted from inputs, the computers can work without any additional information from humans, making predictions based on their learning. Looking at our example of Baldwin's, if used in conjunction with an online version of the store, the input data could be the ‘time of year’ and the output variable could be ‘amount spent on average by customers’. The computer algorithm is trained to learn the connection between the input and output, and find out which output is caused by which input. Once the algorithm is trained and provides accurate output data in response to inputs, it can be applied to new data, helping ‘Malia decide when to release and advertise low and high-end products. Unsupervised learning This is learning using only a known input - the output is not given. It is the task of the computer to find out what the outputs are in response to an input. There is no known response - no correct answer to the problem that the computer is trying to solve. Algorithms are left alone to discover the output of inputs. At Baldwin's, computer algorithms could be used to find patterns about user behaviour on an online store. User behaviour online is the input data, and outputs must be learnt in response to this data. The algorithm applies a structure to the information it has been given, and finally identifies groups of data that show similar behaviours. These behaviours could be the amount of time spent on the site, how much money is being spent, and what items they have been looking at most. These groups of data could then be used by the computer to predict future patterns. For instance, the computer could recognise how many times a particular customer visited the bed linen area of the website, and could then make suggestions for potential purchases the customer might want to make, accordingly. © Astrant 2020 astrantiChapter 16 Digital Technologies Reinforcement learning This is the learning of behaviours that the computer is essentially ‘rewarded’ for in some way, and must repeat these behaviours to get more rewards. In order to do this, the computer has to try and experiment with given data to try and achieve the best outcomes (judged by how many rewards are earned). Going back to our homeware shop to illustrate this, Baldwin’s could use Al to promote new products using an algorithm to attempt to match customers visiting the website with products they are likely to buy. If a purchase is made based on this match, the computer is rewarded by the sale and, therefore, has learned how to target a product for a positive outcome. ‘The steps necessary for this type of learning: + The algorithm would perform an action, such as suggesting an item to an ontine user while they are visiting the website. + Next, if the action of the computer is successful, it receives a reward, e.g. if the online customer clicks on the suggested item to view it, or actually ends up buying it. + The algorithm will continue trying out options, aiming to improve the proportion of rewarded actions each time. If an action doesn't work, the algorithm will try a different action next time. For this algorithm at Baldwin's, the aim is to try to match customers up with products that they buy every time. Potential benefits of Al when used in finance As Al becomes more powerful and reliable, the possibilities of how it can help the finance function are vast. Automation of tasks and even making certain decisions will mean that finance personnel can concentrate on improving other areas of an organisation. Ernst & Young and JP Morgan Chase, large firms in the finance sector, have reported on the benefits of using Al technology to reduce human error and save time with data extraction, for example. Below we've listed some of the main benefits to the finance function that will help both customers and the organisation: Erinn PEE) By learning activities and behaviours that are considered Peers normal, computers are able to detect and even predict fraud by identifying abnormal activities or behaviours. For example, bank systems may notice unusual spending activity on a customer's account, prompting a call to the customer to see if a transaction has been made by them - potentially preventing a fraudulent purchase. (© Astrant 2020 astrantiChapter 16 Digital Technologies Pein Poe) 5 Alcan offer access to an analysis of unstructured data, eeecur id including communications such as emails. For example, by CE) scanning the content of emails to a general customer service account, it may be possible to direct them to the correct department to answer a query without a customer service worker having to spend a long time manually sorting them all. 555 Predictive methods can help to anticipate business performance and revenues, helping businesses to prepare for the future. For example, how interest rate rises could affect future customer spending. ea Computers can leam how to undertake the more Pest) mundane, time-consuming accounting tasks, leaving the human workers to concentrate on more complex assignments. Al software is able to identify and verify data that has been attributed specific codes and produce reports and documents, usually eliminating errors. ‘alia thinks that Al sounds like it could be incredibly useful for Baldwin’s, as soon as the website has been updated to incorporate a shopping function! ‘The website could offer a unique experience for customers, ensuring they see products on the website that they would be interested in, perhaps based on their social media preferences and search options. Information learned could then lead to targeted emails, adverts and offers. However, while Malia can see all of the benefits, Al can’t yet replace human intelligence, so a balance needs to be struck in the partnership between humans and computers in the workplace, 5. Data visualisation One of Baldwin's store managers, Elaine sees herself as a very creative person and dislikes having to deal with lots of numbers. Pages of equations and lists of figure analysis mean little to her - she would much rather numbers are presented in a more visual way so that she can see the full picture at a glance! One of her new employees, Philippa, takes the monthly inventory, purchases and sales data and presents it in clear graphs and charts, which help Elaine to understand how her (© Astrant 2020 astrantiChapter 16 Digital Technologies store is performing. For example, a graph plotted with sales data with a line that slopes upwards means that sales are good! Elaine's sales chart is a simple example of data visualisation, The term broadly encompasses all attempts by an entity to make data more accessible and understandable by presenting it in a clear and visually appealing way. This includes using data to create charts, infographics, graphs, tables and maps. Where large sets of data may begin as inaccessible to the majority of people, presenting it in a visual way simplifies the findings, making it more easily understood and more useful. As a result, it can be a lot easier for a wider audience to spot trends and patterns. Obviously, it is incredibly important for a business to be able to easily understand its performance, so that strengths and successes can be identified and capitalised on. A business can see where it is performing well and expand on this to be more successful. Looking at the habits of customers, such as which products they are most interested in, at what times, and why, was in the past considered Useful, now is considered absolutely essential! Getting to know the customers and their habits in an industry is invaluable in creating successful products. With her financial figures presented in a more user-friendly way, Elaine is able to ass on information, such as sales and customer satisfaction ratings, to her store's workforce. 6. Blockchain While blockchain is still a relatively new digital technology, its ability to store information regarding financial transactions in a ledger-style format makes it an attractive way for large corporations to safely store large pieces of information. What is blockchain? Ablockchain, is a growing list of records, called blocks, that are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. Confusing? Yes, we agree, and many people who use it daily have found the concept difficult to succinctly sum up. We could blind you with science and delve into the intricacies of how blockchain works, but all you need to know for your exams is how the technology relates to the finance function. Just to give you a working knowledge of blockchain, though, let’s have a look at a simple example of how blockchain works. © Astrant 2020 astrantiChapter 16 Digital Technologies First, the characteristics of the ‘block’: + This is where digital pieces of information are stored. For example, if you make a purchase with an online shopping retailer that utilises blockchain technology (e.g. bitcoin), the details of your transaction (purchases made, date, amount spent) will be stored in a block. + The information regarding your transaction is encrypted so that stored details are turned into a unique digital signature. + Each block is given a unique ‘hash code’ which distinguishes it from other blocks. + Each block can hold hundreds, or thousands, of items of data (e.g. lots of bitcoin transactions.) + The block must be verified (e.g. by a retailer to confirm the value of the purchase and the transaction details.) + Itis very difficutt to alter the contents of the block (more on this later). The ‘blocks’ - the groups of transaction data The ‘chain’ + the public database Next, the ‘chain’: Once a block’s data is complete, it is connected to another block. Multiple connected blocks form a chain - hence ‘blockchain’! This chain makes the information secure; here’s how: + As soon a block is verified, it attaches to a block at the end of the chain. + Each block in the chain is connected to the one preceding it and the one following it © Astrant 2020 astranti ‘anal tangChapter 16 Digital Technologies The ‘blocks’ - the groups of transaction data The ‘chain’ = the public database + The hash code of a block is related to the contents of the previous block, so that if a single piece of information in a block changes, the hash code of the next block will no longer be valid. If the hash code is no longer vatid, that block cannot be a part of the chain as the blocks on either side will not recognise it. + Once a record is made in a block it can’t be altered, as this would require altering all the blocks which have been added after it. The ‘blocks’ - the groups of transaction py data The ‘chain’? F + the public If any transaction information changes, the database hhash code will change, and the block can no longer connect to the chain © Astranti 2020 astranti ‘anal tangChapter 16 Digital Technologies Different chains Are you still with us? Good! As we mentioned above transactions might be attributed to currency, and there are many different chains in use for recording different currencies. All Bitcoin transactions are recorded on one chain, for example, whilst the lesser know currency Ethereum, has its own chain, We don't need to know anything about Ethereum, or indeed Bitcoin, its just important to remember that there are many different blockchain chains currently in use! We can think of each block-chain as having its own ledger. But blockchain doesn’t haven’t to relate to currencies. The chain can represent any data that people want to keep recorded where evidence may be needed in the future that it existed. e.g. transactions for a business. Blockchain in business The most common usage to-date is as a way of handling transactions, It can be used to transfer as well as store money, without needing them to be recorded and processed by a separate body, such as a bank, (which charge a feel), as blockchain moderates itself. While banks safeguard money, they are an unnecessary third party when using blockchain as it offers a safe place (the chain) to store money. It is not owned by anyone, but is a shared, widely accessible system. It provides a record of events between groups which can be trusted by them, even if the groups don’t know anything about each other. Once a block is added to a chain, those records of a transaction are accessible to anyone, not just the two groups involved in the transaction, making it a form of ‘open bookkeeping’. One invaluable way blockchain can be used by an accountant is to redefine how transactions are undertaken, moderated, checked and stored. Transactions can be held by the chain, and once in the chain they can’t be changed, which ensures an audit trail of information storing and evidencing transactions, and other accounting entries. Why is Blockchain a disruptive technology? Blockchain provides a new way of handling transactions, without needing them to be recorded and processed by banks (which charge fees!) While banks safeguard money, they are an unnecessary third party when using Blockchain. Blockchain offers a safe place (the chain) to store money without the necessity of this stewarding body. One invaluable way blockchain can be used by an accountant is to redefine how transactions are undertaken, moderated, checked and stored, including safeguarding against credit card fraud. This happens more readily when the only authorising body for a transaction is a bank. By using blockchain, any transaction would need to be approved of by the majority (51%) of hundreds or even thousands of computers before being processed and recorded. Approved transactions are then stored in this chain/ledger indefinitely. © Astrant 2020 astrantiChapter 16 Digital Technologies How is blockchain useful in finance? Security - The ‘chain’ nature of blockchain means transactions are linked and a hacker would need information on the rest of the chain to be able to alter any block before it, as well as access to all the copies of the blockchain in the network. Any block editing is, therefore, extremely unlikely due to the complexity and interconnection of each block and the network storing them. This added level of security could change how transactions with parties outside of the business are made and recorded in the finance function. Reduce costs - As a bank-free system, using blockchain transactions would mean charges from banks would be removed. It could also provide a low-cost way to store and secure all other types of transactions in future. Cross border payments - If you've ever tried sending money overseas, you will know that this is a slow, expensive, and sometimes tricky process! This can be just as frustrating for businesses. However, blockchain has the potential to change this, and networks such as RippleNet are starting to appear which can allow businesses to make blockchain transactions with one another. They provide a fast, inexpensive and direct alternative for the finance function to sending and receiving money from overseas. ‘Smart contracts - These use blockchain technology to allow the transfer of any assets, not just currency, through a contract written in computer code. Itis the same principle as a transaction being added to the blockchain, as the smart contract will only become active once it has been verified by a network of computers. Again, this removes the need for a third party and is extremely difficult to tamper with. This can make the recording of the transfer of assets much simpler and safer. Money and assets are traceable - Transactions and ownership are entirely traceable as a record can’t be changed after it’s made. If an asset, such as an office building was bought by a business in 2017 and recorded in the blockchain, for example, there would forever be evidence that the business owned that asset at that time. This way to check ownership and history of assets is especially important in the finance profession. Real-time accounting - As blockchain records all the details of a transaction and these have been validated, these could be added to balance sheets in real-time using automated technology. As the blockchain system is widely accessible, tax administrators could access an organisation's transactions to calculate and deduct tax in real-time. Stakeholders and regulating bodies could also access an organisation's transactions in real-time, reducing the need for annual financial reports. ‘Malia thinks it sounds very complicated and knows her staff don't have the necessary knowledge to help set it up and run it for her. This would not only mean special training, or expensive outsourcing of the knowledge, but set up charges and extra software for the computer systems. Although she could save money on © Astrant 2020 astrantiChapter 16 Digital Technologies recording her finances and on bank charges, the current costs would be much greater due to the small scale of her business. After researching Blockchain technology, Malia sees that it is still in its experimental stages. She sees that many online retailers such as Amazon don't use it, so thinks that until more is known on its uses and risks, she won't use Blockchain in her business. 7. Business process automation Why use precious workforce members to complete mundane tasks that could easily be done by a machine? Business process automation is the transferring of tasks previously done by humans to computers. At first glance, Malia likes the sound of this technology! Once the new website is set up, Malia could use business process automation for sending order confirmations, receipts and marketing emails. Orders could also be processed automatically, ensuring that her staff are deployed on tasks that are more useful, such as packing orders and reducing dispatch times. Benefits + Audit trail - If activities are automated, complete electronic logs should be automatically recorded of tasks carried out and their outcomes, important for compliance purposes. It will be beneficial for Baldwin's to have complete records for all business operations for its financial records. + Human error eliminated - Processing done by a computer is far more accurate, as there will be no human error. As much as Malia trusts her employees, it is only human to make a little mistake now and again! + Flexibility - Through automation, for example, organisations can easily adjust processes that may have varying demand throughout the year. By automating the process, the business can ensure the process can be adapted promptly and to a high quality at all times. There may be certain busy periods on Malia’s shop website, for example, the post-Christmas sale. While employees may not be able to cope with sudden spikes in activity, with regards to processing orders and creating dispatch documentation, the automated system can. * Cost reduction - By automating certain tasks, costs can be saved by reducing the number of staff needed. Malia could save money and increase profits by having less staff. + Round the clock - Automation means the company can operate 24 hours a day, seven days a week. For example, if an order was placed outside of usual working hours, it could be processed and the details for shipment be ready by the time staff arrive the next day, instead of needing to be © Astrant 2020 astrantiChapter 16 Digital Technologies processed by employees on arrival to the office, This would help Malia get products out to customers as soon as possible. Consistency in output - All tasks will be completed in a uniform manner, in accordance with their programming, so there will be no variations in data recording and processing. Malia’s records will be standardised, and, therefore, easier to use and understand. Productivity - Repetitive, simple activities can be automated, leaving the workforce to be reassigned to more complex tasks that add value to the company. Rather than processing invoices, Malia’s staff could spend time responding personally to customer emails. Staff retention - Having staff undertaking tasks of higher value is likely to result in happier employees, compared to them carrying out tedious and repetitive tasks day in, day out. If they are more satisfied with their job, they are less likely to leave. Malia doesn’t want to waste time recruiting and training new staff to replace skilled staff that have only left because they are bored, so she is happy to automate certain roles. Drawbacks Expensive - The cost of purchasing, or developing, software for automation may be too much for an organisation, even if it may mean cost savings in the long run. Malia’s business is quite small, so the investment may be too large. Reliant on standardisation - Automation works best for processes that follow exact steps, and does not need human judgement. Such as sending acknowledgement emails to customers. More complex processes (such as answering specific questions) would still need to be carried out by humans, so would not be appropriate for process automation. Lack of skills - New expertise will be needed to introduce and maintain automated systems. This would mean Malia would have to employ someone new or send existing staff on a training course, which is an added cost! Lack of software providers - Still in a relatively early stage, process automation doesn't have a huge pool of experienced providers. There simply may not be enough expertise to create suitable systems for many businesses. Malia makes a note of this and needs to check that there is a provider who can give a service suited to her business. © Astrant 2020 astrantiChapter 16 Digital Technologies + Fear of redundancies - Process automation does aim to eliminate human roles that can be completed by a computer, so employees may feel their jobs are threatened and try to resist its implementation. Malia would make sure to inform staff that she is not looking to make redundancies, but rather move those workers into new roles, carrying out work that computers can’t. + Lack of integration in IT systems - If many different, incompatible IT systems are used, like in big companies who have departments with relative autonomy, process automation can't easily be applied. IT systems would need to first be updated, so they are all uniform. This isn't a problem for ‘Malia as her business is so small and she only uses one IT system. Despite the negatives, Malia decides that process automation is a really useful tool that her business can benefit from. When she sets up her website, she hopes the business will grow, and it will be good to know that many processes are automatically being taken care of. She likes the thought of getting the best use out of her workforce by delegating roles that will keep them happy and engaged, in something like customer service. Although it is a big investment, she thinks that it will save time and money in the long run. 8. Cloud technology and mobile computing Cloud technology and mobile computing is something most of us probably already Use. Whether it is storing photos on the cloud when your phone storage reaches its limit, or accessing a work document from home at the weekend that you didn’t have time to review on Friday, cloud technology is a method of storing and accessing files remotely. Financial records, programmes, images, information and more can all be stored in a virtual location, and made accessible to chosen users, from any internet-connected device. Users can remotely login from any location, and access the information stored on the server, just as though it were stored on their own device. This sounds to Malia like it would come in handy - she already uses it on her phone to store pictures of products, so she thinks it wouldn't be too hard to use at work. The benefits of cloud technology + On-demand self-service - This form of mobile computing means information can be accessed anywhere there is internet connection; useful for suppliers, customers, employees and Malia herself. + Accessible - Access can be limited to certain users with different interests, so information can be kept secure. Malia could arrange access to all the files for herself, then certain files for her managers and others for the employees. © Astrant 2020 astrantiChapter 16 Digital Technologies + More competitive - It's not hugely expensive to implement, so it’s not exclusive to larger businesses with more capital. It is more readily available to smaller businesses like Baldwin's, allowing Malia to compete more effectively with larger rivals, + Greater memory to store and share data - Because information is stored ontine, unlike a piece of hardware, there is no definitive upper limit. Malia may have to pay more to access more memory in the online service, but at least it is available to her. + Easier scaling - Along with being able to improve the amount of storage available, Malia can also easily increase the numbers of authorised users, in response to the growth of her business. + Collaboration - Employees can be working on the same task at the same time, such as checklists and documents, so Malia’s employees don't have to work around each other. This is especially important in finance, whereby budgets can be worked on simultaneously in separate locations. + Specialist knowledge not required - Because the technology is outsourced, the maintenance and specialist upkeep is undertaken by the cloud provider. This takes the pressure of storage and software issues away from Malia. + Back-up and recovery- A physical piece of equipment could be lost, or stolen, and non-recoverable. The data stored in the cloud, however, can be accessed from many different devices, so can't be lost in the same way. Malia won't lose all the data on her business if, for example, her shop was broken into and her computer stolen. + Security - Security of information is improved when compared with storing information on hardware, as there is less chance of data falling into the wrong hands. This way, Malia can be sure that her competitors are less likely to be able to obtain sensitive information on her business, such as business plans and finances. + Flexibility - Employees no longer have to work at a single destination, as they are able to access information from wherever they want, so long as there is an internet connection. © Astrant 2020 astrantiChapter 16 Digital Technologies Risks of cloud technology Now we can take a quick look at the associated risks of using cloud technology: ese ary breaches eae eo cg Peete eC ers issues Eureka If the provider of the technology is targeted by hackers, stored customer information will be compromised. It is unlikely that hackers would directly target a small business like Baldwin's, but if the business’s cloud provider was targeted, Baldwin's could fall victim inadvertently and their data could be stolen or destroyed. ‘As an outsourced product, the provider is trusted to provide a high-quality service that meets all of their clients’ needs. Malia will rely heavily on the provider for good service and support, as a large amount of important information is stored on this service. Data security is often highly regulated by laws, often including regulation on things such as how data is stored and who can access it. This needs to be understood and adhered to by Malia’s provider, and Malia needs to ensure they have done this. Cloud staff can have access to information on the cloud, sparking data protection issues for customer data as well as sensitive business information. ‘Malia decides this is an easy technology to implement into Baldwin's systems and wants to get it set up right away. This would create greater flexibility for her to get work done, she'll be able to access work information and documents from home, and safely store images and more in one place. Being a small business, it's great that this useful technology isn’t very expensive to set up. Malia also doesn't need to worry about training her staff on how to implement and maintain the systems as the cloud provider will take care of this for her. © Astranti 2020 astranti antl tatingChapter 16 Digital Technologies 9. Internet of Things (loT) This sounds a bit vague as a form of technology, right? Well, it is! The internet of things is the interaction of internet devices which gather device- and user- specific data. So, this could be anything from smartphones and fitness trackers to smart fridges and in-car GPS systems. These different devices can send and receive information to other devices through an online connection. This technology is used in the business world by creating products that interact with each other, adding value to products by providing a unique and personalised customer experience. These devices collect data, which feed information back to businesses on the health, activities and habits of a person, for example. Devices can also feedback on their own performance and alert the manufacturing company of any issues or maintenance needed. The number of internet-connected devices is increasing rapidly, with BT predicting that a typical UK home using smart-technology will have 50 inter-connected devices by 2023. What uses does loT have? The internet of things has future potential in many businesses, but the need for it must be evaluated before data is used. Although an abundance of user information from technology is available, the business applications of this are still in the experimental stage. Much of the information that can be shared is not practically useful for a business. For example, a smart fridge could record how many times the fridge door is opened per day, but this information is probably of little use to the fridge company or the customer. Malia is thinking if she were to use this, it could be incorporated into new products that she could sell. For example,could she sell a plant pot that would notify the owner by text message when the soil was getting dry and the owner needed to water it? 10. Surviving digital disruption Depending on the type of business, some of the discussed technologies are essential, and others just aren't applicable to all. As Malia saw with Baldwin's, although new technology is created to speed up processes and maximise profits, sometimes it just isn't relevant and can do the opposite. Businesses need to strategise in order to use relevant technologies. The technologies Malia has looked at can add great value to a business, only if used correctly. In other industries, such as healthcare, for example, there are huge leaps in technological advancements and life-changing methods, like algorithms learning to detect cancerous tumours in mammograms. © Astrant 2020 astrantiChapter 16 Digital Technologies Just as Malia is researching these new technologies, the usefulness of technologies must be evaluated by a business before being employed. Where tailoring an enjoyable customer shopping experience is essential for Malia's business, this is not a priority of healthcare. Their priority would be innovation through intelligence. The appropriate benefits of using technologies must be identified and applied. It is often useful to see what other businesses in the same industries have opted to use. How can management use these technologies? ‘Management should use technologies to add value to the service they provide by offering more than their competitors. This could be by creating new products or updating the software of current products, like in the operating systems of mobile phones. Another key way to use new technology is to streamline processes, like Malia deciding to use process automation and cloud computing, allowing businesses to become more efficient. Using technologies can also spread awareness of the business on a global scale much more easily. Businesses can use technology to provide information to a larger scope of potential customers and investors via globally accessible platforms. Businesses can also improve the experience of the customer, like how there were considerations for Al to be employed to help personalise the experience of the customers of Baldwin's. The main aim of many businesses is to attract customer interest. Ensuring the buying experience is enjoyable and customer-specific is a great way to do this. ‘Malia has also decided to use technology in a way that ensures she gets the best use out of her workforce. Simple menial tasks such as invoice processing can be done easily by a machine, so to have humans continue to do this would be a waste of workforce. Although technology does often cause less workforce to be needed, the aim isn't to eradicate it, but to utilise employees more wisely and cost effectively. © Astrant 2020 astranti