IMPACT OF ACCOUNTING INFORMATION SYSTEMS ON ORGANIZATIONAL EFFECTIVENESS OF AUTOMOBILE COMPANIES IN KENYA

ABSTRACT

Currently, most organizations continue to increase spending on information system and their budgets continue to rise. Moreover, economic conditions and competition create pressures about costs of information. Generally, information system is developed using information technology to aid an individual in performing their job. Therefore, most organizations focus on developing information system in order to support decision system, communication, knowledge management, as well as many others. The key part of information system needed for decision making in organization is accounting information system.

Management in the automobile organizations in Kenya relies heavily on information generated from the AIS employed by the company. Quality reports are very key to arrive at an ideal investment. Traditional way of recording, summarizing and reporting company financial reports led to less optimal decisions. Investment in good and reliable accounting systems has become a major concern for all managers as it leads to better management and analysis of firm’s performance. This has led the researcher to investigate on the application and use of accounting systems by automakers and thus, its impact on the organizational effectiveness.

The study is of key importance to the selected automobile companies as well as other firms in the same sector in terms of determining the benefits accruing due to the integration of accounting information systems in their operations. This enabled automotive firms in gauging the model in terms of enhancing organizational effectiveness. The study is useful to other researchers interested in the problem under investigation as the study has laid a platform on which further studies related to the subject can be undertaken.

The design of the study is descriptive research method. In addition both qualitative and quantitative methods were applied in data collection and analysis. The descriptive design is found to be suitable because it addresses major objectives and research questions proposed in the study adequately. The study gathered both primary and secondary data. Primary data was obtained through interviews and questionnaires to randomly selected employees from the selected companies. The use of interviews was ideal since it guaranteed confidentiality to the respondents thus they acted without any fear or embarrassment. Primary data was collected using interviews conducted one on one with the researcher and questionnaires were circulated and filled by the respondents. Secondary data included censuses, organizational records and data collected through qualitative methodologies or qualitative research.

The findings of this study indicate that Accounting Information Systems are an important mechanism for organizations’ effective management, decision-making and controlling activities. The results are consistent with empirical reviews which indicated that there exist a relationship between AIS and organizational performance. AIS are an effective decision-making tool for controlling and coordinating the activities of an organization. The study concluded that AIS are critical to the production of quality accounting information on a timely basis and the communication of that information to the decision makers. In other words, empirical findings indicated that accounting information systems have a greater impact on the organizational effectiveness of automobile companies in Kenya.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The Automotive industry in Kenya is primarily involved in the retail and distribution of motor vehicles. There are a number of motor vehicle dealers operating in the country, with the most established being Toyota (East Africa), Cooper Motor Corporation, General Motors, Simba Colt and DT Dobie. There are also three vehicle assembly plants in the country, which concentrate on the assembly of pick-ups and heavy commercial vehicles.

The established dealers face intense competition from imported second-hand vehicles, mainly from Japan and United Arab Emirates. These imports now account for about 70% of the market. The last decade witnessed a significant decline in the number of new vehicles sold in the country. There has been a steady recovery in the last four years, but the numbers achieved still fall far short of the numbers recorded a decade ago. In 2004, the leading motor vehicle companies recorded sales of 9,979 units. Although 27% better than the previous year, this is still well below the levels achieved in the early 1990’s.The slump in the volume of new cars sold is attributable the increased competition from second hand vehicles and the depressed economy.

The Kenya Motor Industry Association (KMI), the representative body of the corporate participants in the motor industry, has been lobbying hard to reverse this trend. Some of these measures have helped the industry recover from its lowest point in 2000, when only 5,869 units were sold. On their part, the companies themselves have become more innovative in responding to customer needs. Some of the measures that KMI has been advocating include: Implementation of strict criteria on importation of second hand vehicles, Incentives to promote local assembling of commercial vehicles & Export incentives aimed at encouraging car manufacturers to expand operations in the region.

Pressures in the highly competitive automotive manufacturing sector increase and over-capacity, particularly in vehicle assembly, mean that most suppliers face unrelenting price pressure. The rapid development of the low-cost labor economies in Eastern Europe, South East Asia, China and India is putting enormous pressures on labor intensive suppliers. The drive for lower costs and a technical edge are therefore vital for survival.

1.1.1 Accounting Information Systems

Accounting Information Systems (AIS) are a tool which, when incorporated into the field of Information and Technology systems, are designed to help in the management and control of topics related to organization’ economic-financial area. But the stunning advance in technology has opened up the possibility of generating and using accounting information from a strategic viewpoint (El Louadi, 1998). Accounting Information System (AIS) is vital to all organizations (Borthick and Clark, 1990; Curtis, 1995; Rahman et al., 1988; Wilkinson, 1993; Wilkinson et al., 2000) and perhaps, each organization either profit or non profit-oriented need to maintain the AISs (Wilkinson, 2000: 3-4). On the other hand, an AIS is the whole of the related components that are put together to collect information, raw data or ordinary data and transform them into financial data for the purpose of reporting them to decision makers (LI, M., YE, L.R. 1999).To better understand the term ‘Accounting Information System’, the three words constitute AIS would be elaborated separately. Firstly, literature documented that accounting could be identified into three components, namely information system, “language of business” and source of financial information (Wilkinson, 1993: 6-7). Secondly, information is a valuable data processing that provides a basis for making decisions, taking action and fulfilling legal obligation. Finally, system is an integrated entity, where the framework is focused on a set of objectives (Watts, 1999).