Organizacija, Volume 41 Research papers Number 4, July-August 2008 The Role of Information for Recognising Business Opportunities Andreja Lutar Skerbinjek Univerza v Mariboru, Ekonomsko-poslovna fakulteta Maribor, Razlagova 14, 2000 Maribor, andreja.lutar@uni-mb.si Managers need a lot of knowledge and information to make decisions and recognize business opportunities. They can acquire this knowledge and information in different ways. Accounting information, particularly information relating to the creditworthi-ness of business partners and competitors, is important. Such information, which can contain non-accounting information, is often derived from annual reports. The fastest and cheapest way of accessing information is via the Internet. Because searching for information about different businesses on their Web sites can be time consuming, a quicker, more efficient option is to access this information on databases that contain useful information relating to the majority of businesses in the country. In this paper, we discuss the importance of knowledge and information for recognizing business opportunities. We also analyze the appropriateness of accounting information available from five of the most widely used databases concerning Slovene and Croatian businesses, for estimating the creditworthiness of businesses. Key words: business opportunities, knowledge, accounting information, creditworthiness information, databases, business partners, competitors, annual reports, appropriate information, reporting agencies. 1 Introduction It is very important for managers to recognize opportunities for managing a successful business. To support that, they need a lot of knowledge and information of any kind. A vital part of information is that relating to business partners and competitors with whom they already do business or intend doing business with. Accounting information contains a lot of information about businesses. st We live in the 21 century, when living and working without computer support is unimaginable in many different fields. Likewise, in accounting, computers make our work easier and enable us to obtain information faster and more reliably. Using the Internet to access information at the office or at home is cost-effective and saves a lot of time (Lutar Skerbinjek, 2005:76). The annual reports of many businesses can be accessed on the Internet, usually on the company’s own Web sites. However, not all businesses have their own Web sites. To obtain information concerning such businesses, and because it is very time-consuming to search the information about many businesses on their Web pages, it is useful to use databases which feature information relating to the majority of businesses that operate in a particular country. They are created and maintained by reporting agencies and credit reporting agencies, which obtain cre-ditworthiness information as well. Usually, they create creditworthiness information on the basis of information obtained from annual reports for each business. They create it for many businesses, so they can compare them and make credit scores with which they rank businesses. In this paper we discuss the importance of knowledge and information for recognizing business opportunities, and do a comparable analysis of two databases created by reporting agencies on a national level. These follow the National Reporting Agency of former Yugoslavia, which is called Slu`ba dru`benega knjigovodstva. These are the databases of the Agency for Public Evidence and Statistics (Agencija za javnopravne evidence in statistiko (AJPES)) in Slovenia, and the Financial Agency, Fina (Finan~na agencija Fina) in Croatia. Furthermore, we perform a comparable analysis of three databases created by other Credit Reporting Agencies. These are the GVIN database in Slovenia, the BonLine database in Croatia, and the database created by the international business company Creditreform, which operates in Slovenia, Croatia, and many other European countries. On the basis of the results of our comparative analysis, we made a critical evaluation of those databases, which we explained. We believe that such analysis has not been made, so it will be useful for Slovene and Croatian businesses and companies globally that are doing business with them to choose the database which would be most appropriate for obtaining creditworthiness information. 144 Organizacija, Volume 41 Research papers Number 4, July-August 2008 2 Need for knowledge and information Drucker and others describe advanced economies as »knowledge« economies because they are becoming progressively less dependent on materials and energy. As Business Week put it, »The traditional factors of production – capital and skilled labor – are no longer the main determinants of the power of an economy. Now economic potential is increasingly linked to the ability to control and manipulate information« (Fitzroy and Hulbert, 2005: 23). In order to make decisions (for either decision management or control), managers require information (Zimmerman, 2000: 652). We live in the information age, in which modern business organizations function in a vastly aletered environment. To prosper, these organizations must treat information as a valued resource. A steady stream of information is needed to enable firms to make sound planning decisions and to control their operations. Firms that use information effectively can take advantage of their opportunities and thus gain ground on their competitors (Wilkinson et al., 2000:4). Indeed, information may be the most important organizational resource (Bod-nar and Hopwood, 2001: 2). Information has economic value in that is enables decision making, so it contributes to the achievement of a business’s goals. The information age classifies information as an important, even dominant, business resource. The normal operation of a business is not possible without information. However, in spite of the huge supply of data and information, they are still relativey rare resources, and are not always available to everyone, so we should use them sparingly (Knez Riedl, 2000a: 31). The information process of an organization is roughly equivalent to the nervous system of a human being. It permeates every part of the organization, as well as sensitive key areas of the environment. The better the information an organization gathers about its performance, its capabilities, and its environment, the better the organization will perform and the more effectively it will be able to change (Lawler et al., 2006: 119). Firms that gather, assimilate, and evaluate external and internal information most effectively gain competitive advantages over other firms. Recognizing the importance of having an effective management information system (MIS) will not be an option in the future; it will be a requirement. Information is the basis for understanding in a firm. In many industries, information is becoming the most important factor in differentiating successful firms from unsuccessful firms (David, 2005: 301). The wider availability of information will also accelerate the learning of competitors, so advantages gained through experience may be shorter-lived than hitherto. This will inevitably mean organizations will need to revisit and redefine the basis on which they are competing more frequently. In turn, this will put yet more information demands on the organization (Johnson et al., 2005: 458). Decision makers need information, and the more important the decision, the greater the need (Harrison and Horngren, 2001:5). Managers often have more complete information about the products or services they offer, while outsiders rely on information the manager is willing to share (Bergh et al., 2008:134). However, information acquisition is costly (Schnatterly et al., 2008: 219). An organization’s capability for creating knowledge depends on the extent to which managers and other knowledge employees can combine and exchange information (Goll et al., 2007). Information is data with context. Knowledge is information with meaning. Wisdom is knowledge plus insight and sound judgement. When applied to any community, these concepts refer to the sum total experience and learning residing within an individual, group, enterprise, or nation. The new source of wealth is knowledge, not labor, land, or financial capital. It is the intangible, intellectual assets that must be managed (Leibold et al., 2002:14). Knowledge structures order an information environment in a way that enables subsequent interpretation and action; they are built on past experience, and represent organized knowledge about a given concept or type of stimulus (Kabanoff and Brown, 2008: 149). Meso and Smith (2000) understand knowledge management as the creation of sustainable advantage through continued organizational learning. According to Kerste and Muizer (2002), knowledge management is dealing with the structural supply of, and demand for, knowledge within an enterprise. This knowledge can be developed in an enterprise or obtained from external sources. Knowledge can be defined as the awareness, consciousness, or familiarity gained by experience or learning. However, in the context of organizations, it is not just individual knowledge that matters, but the knowledge of groups of people in the organization, or the organization as a whole. Organizational knowledge is the collective and shared experience accumulated through systems, routines, and activities of sharing across the organization (Johnson et al., 2005: 133). Training and development improve quality and make organizations more efficient; they also develop future talent and reduce staff turnover (Pardey, 2007:16). The evidence is that sharing knowledge and experience is essentially a social process that relies on ‘communities of interest’ developing and sharing information because they see it as mutually beneficial. This could happen through formal systems such as the Internet (and indeed does), but it is also facilitated by social contact and trust (Johnson et al., 2005: 134). The Internet is an extremely important new technology, and it is no surprise that it has received so much attention from enterpreneurs, executives, investors, and business observers. The Internet is an enabling technology – a powerful set of tools that can be used, wisely or unwisely, in almost any industry and as a part of almost any strategy (Leibold et al., 2002:79). Internet technology provides better opportunities for companies to establish distinctive strategic positionings than previous generations of information technology did (Leibold et al., 2002:80). The Internet is an excellent source of information about industries as well as individual companies (Wheelen and Hunger, 2004: 351). The Internet is supposed to be the great equalizer, allowing small and medium- 145 Organizacija, Volume 41 Research papers Number 4, July-August 2008 sized enterprises to compete on a more equal footing with larger firms (Murphy et al., 2007: 58). Information about competitors is also very important for assessing business opportunities as described in detail below. 3 Information about competition Recognizing business opportunities means gaining advantage over competitors. Typically, managers take too parochial a view as to the sources of competition, usually focusing their attention on direct competitive rivals. But As shown in Figure 1, the nature of competitiveness in a given industry can be viewed as a composite of five presented forces (David, 2005: 94). They do not involve only competitors, but all other business partners, as well. Competitive advantage stems from a firm’s ability to leverage its internal strengths to respond to external environ- there are many other factors in the environment which influence this competitiveness. A model of forces that drive industry competition, also known as Porter’s five forces framework, is presented in Figure 1. Porter’s model was originally developed as a way of assessing the attractiveness (profit potential) of different industries. As such it can help identify sources of competition in an industry or sector (Johnson et al., 2005: 78). In the face of increasing globalization, managers are forced to reevaluate their competitive options in a more holistic manner, and to consider expansion abroad as a legitimate strategic alternative (Wiersema and Bowen, 2008: 118). mental opportunities while avoiding external threats and internal weaknesses. Thus, like a distinctive competence, a competitive advantage must be difficult to imitate to be sustainable. Unlike a distinctive competence, a competitive advantage must also enable a firm to outperform the firms to which it is compared (Mooney, 2007). The way to Potential entrants Other stakeholders Relative power of unions, governments, etc. Threat of new entrants V Suppliers 0> Bargaining power of suppliers Industry competitors Rivalry among existing firms A