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How do information systems support the activities of managers and management decision
making?
How do business intelligence and business analytics support decision making?
How do different decision-making constituencies in an organization use business
intelligence?
What is the role of information systems in helping people working in a group make
decisions more efficiently?
Chapter Outline
12.1
12.2
12.3
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The page
number for each key term is provided.
Balanced scorecard method, 474
Behavioral models, 458
Business performance management (BPM), 475
Implementation, 458
Informational role, 459
Intelligence, 458
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Choice, 458
Classical model of management, 458
Data visualization, 469
Decisional role, 459
Design, 458
Drill down, 475
Geographic information systems (GIS), 469
Group decision-support systems (GDSS), 475
Teaching Suggestions
The opening case, Moneyball: Data-Driven Baseball, illustrates how the effective use of data
analytics can help managers at all levels make better decisions that increase sales, allocate
resources more efficiently, and reduce costs. Even though the vignette described the game of
professional baseball, it points out how important turning raw data into useful information can
turn around a team or company. It also shows how executives, managers, and employees have to
continually upgrade and enhance their decision-making skills to keep up with the competition
and the marketplace. As the text says, You can be more efficient and competitive if, like
Moneyball, you know how to use data to drive your decisions.
Section 12.1, Decision Making and Information Systems This section of the text focuses on
the management aspects of information systems, and how the main contribution of information
systems has been to improve decision making, both for individuals and groups. As an exercise,
randomly ask your students to classify different types of decisions and at what management level
they would expect those decisions to be made. For example, the location of a new plant would be
an unstructured type of decision and made at the senior management level, whereas, the daily
production of pea soup would be a structured decision and made at the operational management
level. Ask students to determine the various management levels of their school, and give
examples of structured, semistructured, and unstructured decisions.
Using Figure 12-1, introduce students to the different managerial roles, and combine that
discussion with Figure 12-2 to tie together the relationship between management levels and the
stages in the decision-making process. Again, use an example at the school to illustrate how
these two models are used in the process of decision making. Students may be very familiar with
the classical model of management. However, students may not be as familiar with the
behavioral model of management, which more closely describes what managers actually do,
including how they make decisions. By understanding the three types of managerial roles
interpersonal, informational, and decisionalstudents can more easily identify the type of
information system managers need.
Section 12.2, Business Intelligence in the Enterprise This section explores the emerging
business intelligence and business analytics industries that are one of the fastest growing and
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largest segments in the U.S. software market. It builds on information presented in previous
chapters and lets students begin putting the pieces together of all the material presented so far.
You might have students critically analyze how they may take information about a situation they
are in (or have been in) from the environment, understand its meaning, and then attempt to act on
the information. Then have them correlate the process to how a business would do the same.
Students should be encouraged to do Web searches on BI and BA vendors and compare the
various products available to businesses. Table 12-4 is a good list of vendors from which to start.
What makes one stand out more than the others? Which would work well for small- or mediumsize businesses and, which would work better for large-sized businesses? What decisions do
managers have to make when selecting one vendor over another? Discuss with them the pros and
cons of selecting a one-stop integrated solution for BI and BA capabilities versus multiple bestof-breed vendor solutions.
To help students discern among the five analytic functionalities that BI systems deliver (page
465), have them describe or create mockups of each of them. They may need to research the
different functionalities on the Web.
Interactive Session: Organizations: Analytics Help the Cincinnati Zoo Know Its Customers
Case Study Questions
1. What management, organization, and technology factors were behind the Cincinnati
Zoo losing opportunities to increase revenue
Management: More than two-thirds of the Zoos $26 million annual budget is paid from
fundraising efforts with the remainder coming from admission fees, food, and gifts. To
increase revenue and improve performance, senior management completed a comprehensive
review of its operations. Management had limited knowledge and understanding of day-today operations other than the number of people who visited every day and total revenues.
Organization: The organization had no central repository for data and information. It had no
real-time analytics and reporting capabilities. The Zoos business is highly weatherdependent, sometimes leaving the Zoo overstaffed and overstocked.
Technology: Each of the Zoos four income streamsadmissions, membership, retail, and
food servicehad different point-of-sale platforms. The food service business still relied on
manual cash registers. Daily sales totals were analyzed by sifting through paper receipts.
Entering data on a spreadsheet was the only tool the organization had available for collecting
visitors zip codes and using the data for geographic and demographic analysis.
2. Why was replacing legacy point-of-sale systems and implementing a data warehouse
essential to an information system solution?
The Zoo began its information overhaul by replacing its four legacy point-of-sale systems
with a single platform. It built a centralized data warehouse and implemented IBMs Cognos
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Business Intelligence system to provide real-time analytics and reporting. The Zoo can now
feed weather-related data into the system and adjust staffing levels for rainy days and ensure
it has the right kinds of food items that visitors want during particularly hot or rainy days.
Management can now make more accurate decisions about labor scheduling and inventory
planning. That reduced costs and increased sales.
3. How did the Cincinnati Zoo benefit from business intelligence? How did it enhance
operational performance and decision making? What role was played by predictive
analytics?
By capturing the right kinds of data, the organization can analyze the data to determine usage
and spending patterns down to the individual customer level. This information helps the Zoo
segment visitors based on their spending and visitation behaviors and use the information to
target marketing and promotions specifically for each customer segment.
The Zoo used its customer information to devise a direct mail marketing campaign in which
particular types of visitors are offered discounts in some of the restaurants and gift shops.
Loyal customers are rewarded with targeted marketing and recognition programs.
Management has tailored food sales to specific times during the day, either closing some
early or leaving some open later. It has also been able to adjust the brands and types of food
for particular visitors. That has increased food sales 30.7 percent. It also increased retail sales
by 5.9 percent compared to a year earlier.
4. Visit the IBM Cognos Web site and describe the business intelligence tools that would
be the most useful for the Cincinnati Zoo.
(Two tools are highlighted below: Copied from the IBM Cognos Web site, Dec. 2012)
IBM Cognos TM1 is enterprise planning software that can radically transform your
entire planning cycle, from target setting and budget rollout all the way to reporting, analysis
and reforecasting. With Cognos TM1, you can rapidly analyze data, model business
requirements and collaborate on plans, budgets and forecasts to uncover hidden business
options and optimize performance.
Section 12.3, Business Intelligence Constituencies When discussing these systems, you
should stress that some are often so well integrated into business processes that students may not
have heard much about them. When presenting this material, you should demonstrate the value
of the systems to each constituency group. For example, the value of TPS and MIS might be easy
to understand and already known by many. Thats usually not the case with decision-support
systems for semistructured decisions. You definitely want to stress how DSS, ESS, and GDSS
support business intelligence.
Students will clearly recognize the importance of decisions on what the selling price of an item
will be or the decision on where a production facility or retail outlet should be located. However,
students are not likely to recognize the importance of the data that go into the decision, the
source of that data, the complexity of each decision, the side-effects of the decision, or how the
decision is really made. Decisions can be very complex, and students need to understand the
ways decision-support systems help managers handle the complexities and better understand all
that goes into the decisions.
Remind students that decision-support systems cover a wide variety of systems, tools, and
technologies like sensitivity analysis models, pivot tables, balanced scorecards and key
performance indicators. When covering this material in class, pose and discuss the following
questions with your students. Exactly how do the systems support decisions? Do DSS make
decisions? Do DSS help make decisions? Do DSS just provide the data for decisions?
Executive support systems (ESS) help managers and executives focus on performance
information that maximizes resources within the organization to improve the profitability and
success of the company. There are two parts to developing an ESS: understand exactly what the
most important performance information is and develop systems capable of delivering that
information to the right people in an easy-to-use format. To help students understand the first
component, begin a discussion by asking students what they think key performance indicators
(KPI) should be for their university or school. Obvious suggestions are enrollment numbers and
the number of students in each academic discipline. Less obvious KPI might be drop-out rates or
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the number of students switching majors. The point of the discussion is to show that before you
can develop an ESS, you need to understand exactly what data you should track.
The Web has numerous online demonstrations of ESS applications that allow users to drill down
to specific data. You may want to have students access some of them and critique them based on
how easy they are to use. Discuss how ESS allow managers to increase their span of control by
pushing decisions further down the management chain and decentralize many decisions.
Conversely, ESS can centralize decision-making even more because managers have a wider
range of information readily available.
Interactive Session: People: Colgate-Palmolive Keeps Managers Smiling with Executive
Dashboards
Case Study Questions
1. Describe the different types of business intelligence users at Colgate-Palmolive.
Most middle managers at Colgate are considered power users, of the SAP system and were
comfortable using the reporting and analytical tools provided by the data warehouse. Senior
managers and other casual users were not as comfortable running ad hoc reports or drilling
down through layers of data to answer questions.
2. Describe the people issues that were affecting Colgates ability to use business
intelligence.
Data in Colgates data warehouse were not being used by enough employees in their decision
making to have an impact on business benefits. Even though power users felt comfortable
using the previous reporting system, senior managers and casual users did not. These two
groups wanted more timely and user-friendly formats from the data warehouse. They also
wanted reports that were easier to run and where the data could be interpreted faster. Senior
management requested customizable, real-time dashboards that could be more easily used to
drive performance improvement.
3. What management, organization, and technology factors had to be addressed in
providing business intelligence capabilities for each type of user?
Management: While power users were comfortable with the old system, most other users
were not. The new dashboard system enables business analysts and nontechnical users to ask
spontaneous questions about their data. The new dashboards provide simple drag-and-drop
techniques to access data sources and create interactive reports. Tools for cutting-edge
visualization allow end users to view two- and three-dimensional charts and hone in on
specific areas of focus.
Organization: Colgate was experiencing disparities in the data developed between different
geographic regions and between data used at the corporate level and data used by an
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individual region or business unit. Also, data were constantly changing making it difficult for
all user levels to work with the same version of data.
Technology: Colgate created a single global data repository fed by regional ERP systems.
The data were standardized and formatted for enterprise-wide reporting and analysis thereby
eliminating differences in data across the enterprise. The information systems staff created
customized dashboards that simplified data presentation to suit different types of employees.
Employee training was essential to the dashboards success.
4. What kind of decisions does Colgates new business intelligence capability support?
Give three examples. What is their potential business impact?
Colgates new business intelligence capability supports structured, semistructured, and
unstructured reports. Middle managers can use the dashboard system to determine how long
its taking to produce a certain product or how shipping costs are affecting profit margins.
Business analysts can use the dashboard system to determine if production in one region is
keeping pace with production in other regions. Executives can use the dashboard system to
help make financial decisions within a particular region or company-wide. Anytime a
company can decrease the amount of time it takes to make timelier and more accurate
decisions it impacts profits.
Review Questions
1. What are the different types of decisions, and how does the decision-making process
work?
List and describe the different levels of decision-making and decision-making
constituencies in organizations. Explain how their decision-making requirements differ.
Figure 12-1 illustrates the answer to this question. Each of these levels has different
information requirements for decision support and responsibility for different types of
decisions.
Senior management deals mainly with unstructured decisions.
Middle management deals with semistructured decisions.
Operational management deals with structured decisions.
Distinguish between an unstructured, semistructured, and structured decision.
Decisions are classified as structured, semistructured, and unstructured.
Unstructured decisions are those in which the decision maker must provide
judgment, evaluation, and insight to solve the problem. Each of these decisions is
novel, important, and nonroutine, and there is no well-understood or agreed-on
procedure for making them.
Structured decisions are repetitive and routine, and they involve a definite procedure
for handling them so that they do not have to be treated each time as if they were new.
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Business analytics: Focuses on the tools and techniques for analyzing and understanding
data and information. It includes online analytical processing (OLAP), statistics, models, and
data mining.
List and describe the elements of a business intelligence environment.
Data from the business environment: Structured and unstructured data from many
different sources, including mobile devices and the Internet that are integrated and
organized so that they can be analyzed and used by human decision makers.
Business intelligence infrastructure: Powerful database systems that capture
relevant data stored in transactional databases or are integrated into an enterprise-data
warehouse or interrelated data marts.
Business analytics toolset: Software tools used to analyze data and produce reports,
respond to managers questions, and use key indicators of performance to track a
businesss progress.
Managerial users and methods: Business performance management and balanced
scorecard approaches that focus on key performance indicators; industry strategic
analyses that focus on changes in the general business environment with special
attention to competitors. Managerial oversight ensures that business analytics focus
on the right issues for the organization.
Delivery platformMIS, DSS, ESS: One suite of hardware and software tools in
the form of a business intelligence and analytics package that integrate information
from MIS, DSS, and ESS systems and disseminate it to the appropriate managers
desktop or mobile computing device.
User interface: business analytics software suites emphasize visual techniques like
dashboards and scorecards that can be viewed on mobile computing devices, desktop
computers, or Web portals.
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Single vendor: Provides all the hardware and software necessary to adopt BI and BA
capabilities. The risk comes from the vendor having all the pricing power. The reward
comes from the organization having fewer integration problems.
Multiple best-of-breed vendors: Adopt the best hardware and software from
multiple vendors. The risk comes from potential integration problems between all the
components. The reward comes from greater flexibility and independence in choosing
vendors.
Operational management: Generally, makes structured decisions based on day-today operations in the organization; receives most information from transaction
reporting systems and some information from MIS systems.
Middle management: Generally, makes structured decisions and semistructured
decisions based on routine products reports from TPS and MIS systems; use
exception reports to determine exceptional conditions upon which they act.
Super users/business analysts: Generally, make semistructured decisions based on
information from MIS systems, DSS systems, and more sophisticated analytics and
models; try to find patterns in data, model alternative business scenarios, or test
specific hypotheses.
Executive management: Generally, make unstructured decisions based on
information from MIS and DSS systems but more importantly from ESS systems; use
balanced scorecard methods based on key performance indicators that include data on
four dimensions of the firms performance: financial, business process, customer, and
learning and growth.
Describe how MIS, DSS, or ESS provides decision support for each of these groups.
Management information systems (MIS) provide routine reports and summaries of
transaction-level data to middle and operational level managers to provide answers to
structured and semistructured decision problems. MIS systems provide information on the
firms performance to help managers monitor and control the business. They typically
produce fixed, regularly scheduled reports based on data extracted and summarized from the
firms underlying transaction processing systems. The formats for these reports are often
specified in advance.
Decision-support systems (DSS) provide analytical models or tools for analyzing large
quantities of data and supportive interactive queries for middle managers who face
semistructured situations. DSSs emphasize change, flexibility, and rapid responses. With a
DSS there is less of an effort to link users to structured information flows and a
correspondingly greater emphasis on models, assumptions, ad-hoc queries, and display
graphics.
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Executive support systems help senior managers with unstructured problems that occur at the
strategic level of the firm. ESSs provide data from both internal and external sources,
including data from the Web and provide a generalized computing and communications
environment that can be focused and applied to a changing array of problems. ESSs provide
easy-to-use analytical tools and online displays to help users select and tailor the data as
needed.
ESSs help senior executives monitor firm performance, spot problems, identify opportunities,
and forecast trends. These systems can filter out extraneous details for high-level overviews
or drill down to provide senior managers with detailed transaction data if required. Some
display a high-level view of firm performance in the form of a digital dashboard. ESS help
executives monitor key performance indicators and to measure performance against external
environmental changes. ESS expand executives span of control because information is
readily available and easy to access.
Define and describe the balanced scorecard method and business performance
management.
A balanced scorecard focuses on measurable outcomes on four dimensions of a businesss
performance: financial, business process, customer, and learning and growth. Each
dimension uses key performance indicators (KPIs) to understand how well an organization is
performing on any of the dimensions at any time. The framework of a balanced scorecard
requires managers to focus on more than just financial performance. They must focus on
things they are able to influence at the present time like customer satisfaction, business
process efficiency, or employee training. The KPIs are developed by senior executives and
are automatically provided to users through executive support systems.
Business performance management systematically translates a firms strategies into
operational targets. Once the strategies and targets are identified, KPIs are developed that
measure progress toward the targets. The firms performance is then measured with
information drawn from the firms enterprise database systems. BPM uses the same ideas as
the balanced scorecard method but with a stronger strategy flavor.
5. What is the role of information systems in helping people working in a group make
decisions more efficiently?
Define a group decision-support system (GDSS) and explain how it differs from a DSS.
A GDSS is an interactive computer-based system that facilitates the solution of unstructured
problems by a set of decision makers working together as a group. GDSS have been
developed in response to the growing concern over the quality and effectiveness of meetings.
In general, DSS focus on individual decision making, whereas GDSS support decision
making by a group.
Explain how a GDSS works and how it provides value for a business.
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Hardware, software tools, and people are the three GDSS elements. Hardware includes the
conference facility itself (room, tables, chairs) that is laid out to support group collaboration.
It also includes electronic hardware such as electronic display boards as well as audiovisual,
computer, and networking equipment. Software tools include electronic questionnaires,
electronic brainstorming tools, idea organizers, questionnaire tools, tools for voting or setting
priorities, stakeholder identification and analysis tools, policy formation tools, and group
dictionaries. People include the participants, a trained facilitator, and the staff to support the
hardware and software.
GDSS enable more people to attend and participate in a meeting. A GDSS improves the
productivity of large group meetings by allowing attendees to contribute simultaneously to
the discussion. A GDSS can guarantee anonymity, follow structured methods for organizing
and evaluating ideas, preserve the results of meetings, and increase the number of ideas
generated and the quality of decisions while producing the desired results in fewer meetings.
Discussion Questions
1. As a manager or user of information systems, what would you need to know to
participate in the design and use of a DSS or an ESS? Why?
Managers and users of information systems would want to specify what kinds of decisions
the systems should support, and where the data for those decisions should come from. In a
typical enterprise, workers are capturing data, sharing data with other workers, retrieving
insights from captured data, and managing the information as per agreed upon guidelines.
However, data are turned into valuable business information and insight only when they can
be easily captured, systematically stored, properly retrieved, readily shared, and well
managed. Data management, DSS, and ESS represent the cornerstone of any data
warehousing program.
Data warehouses have become a critical component in enabling management to make
decisions quickly and accurately. For example, telecommunications companies use it to
manage churn and ensure the retention of their customers, while retail firms rely on data
mining to maximize product mix and shelf space, and governments use it to manage federal
welfare and healthcare programs. Across industries, data warehousing programs have helped
increase productivity, reduce the time it takes to analyze data, and reveal business
opportunities that were otherwise hidden from management among layers of unreachable
data. However, if management is not part of the design and use of a DSS or ESS, then this
information may not be available or utilized. If not, the firm may not be able to gain or
maintain a competitive advantage. One thing is for surethe competition is using these
systems to enhance decision making.
2. If businesses used DSS, GDSS, and ESS more widely, would managers and employees
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Use Excels Pivot Table to help you answer the following questions:
1. Where are the average purchases higher? The answer might tell managers where to
focus marketing and sales resources, or pitch different messages to different regions.
2. What form of payment is the most common? The answer could be used to emphasize in
advertising the most preferred means of payment.
3. Are there any times of day when purchases are most common? Do people buy the
products while at work (likely during the day) or at home (likely in the evening)?
4. Whats the relationship between regions, type of product purchased, and average sales
price?
See the solution file MIS13ch12_solutionfile.
Improving Decision Making: Using a Web-Based DSS for Retirement Planning
Software skills: Internet-based software
Business skills: Financial planning
This project will help develop your skills in using Web-based DSS for financial planning.
The Web sites for CNN Money and Kiplinger feature Web-based DSS for financial planning
and decision making. Select either site to plan for retirement. Use your chosen site to
determine how much you need to save to have enough income for your retirement. Assume
that you are 50 years old and plan to retire in 16 years. You have one dependent and
$100,000 in savings. Your current annual income is $85,000. Your goal is to be able to
generate an annual retirement income of $60,000, including Social Security benefit
payments.
1. To calculate your estimated social security benefit, use the Quick Calculator at the
Social Security Administration Web site (www.ssa.gov/planners/calculators.htm).
2. Use the Web site you have selected to determine how much money you need to save to
help you achieve your retirement goal.
3. Critique the siteits ease of use, its clarity, the value of any conclusions reached, and
the extent to which the site helps investors understand their financial needs and the
financial markets.
An additional savings of $214,000 is required to generate an annual retirement income of
$60,000 from the ages of 6690 with a projected interest rate of 6 percent.
Opinions will vary about each sites ease of use, clarity, and the value of any conclusions
reached. The point of this exercise it to understand how Web-based DSS fulfill a variety of
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needs for making decisions. Students should also understand that many DSS are not
necessarily complicated or difficult to use.
Video Cases
You will find video cases illustrating some of the concepts in this chapter on the Laudon Web site
at www.pearsonhighered.com/laudon along with questions to help you analyze the cases.
more available. For instance, analytics proved that gamers tend to buy more in-game goods
when they are offered as limited-edition items. So rather than guess, executives can make
decisions that are more accurate and timely.
3. Give examples of three kinds of decisions supported by business intelligence at Zynga.
Zynga improves the targeting of items such as gifts to effectively increase the level of
interaction between active players while minimizing spam to passive players. It identifies
groups of users with similar behavior or common paths for even more precise targeting of
game-related promotions and activities.
Zyngas attention to detail and ability to glean important information from countless
terabytes of data generated daily by its users allows it to offer specific types of virtual
goods that users are more likely to purchase. That increases its sales and profits without
wasting time or space offering goods customers are not likely to purchase.
By using Facebook as its game platform, the company has access to profile information of all
Facebook users. It uses that information to determine what types of users are most likely to
behave in certain ways. It can determine with greater accuracy which users are most likely to
become big spenders that spend hundreds of dollars each month on virtual goods. Though
only 5 percent of Zyngas 150 million active users contribute to corporate revenue, that
subset of users is so dedicated that they account for nearly all of the companys earnings.
4. How much of a competitive advantage does business intelligence provide for Zynga?
Explain.
Zyngas revenue rose from $121 million in 2009 to $600 million and a $91 million dollar
profit in 2010. Clearly, Zyngas methods are working. Traditional game makers like
Activision Blizzard and Electronic Arts are noting Zyngas growth and success and have
moved towards a similar business model. For example, Electronic Arts launched a free
Facebook version of the classic game The Sims. The game now has 40 million active
monthly players and was Facebooks fastest growing app for much of 2011. Its hard to argue
with that kind of success that's difficult to come by.
While from the outside Zynga may have the fun and whimsy of the Willy Wonka
chocolate factory, the organization thrives on numbers, relentlessly aggregating
performance data, from the upper ranks to the cafeteria staff.
General managers submit weekly reports, measuring factors like traffic and
customer satisfaction. Every quarter, teams assess their priorities under an Intelpioneered system called objectives and key results. And Mr. Pincus, a professed
data obsessive, devours all the reports, using multiple spreadsheets, to carefully
track the progress of Zyngas games and its roughly 3,000 employees.
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Its very similar to a New York investment bank, said Lou Kerner, an analyst at
the brokerage firm Liquidnet, who has followed Zynga for years. Its data-driven,
and its intense.
The data pipeline allows Zynga to fine-tune its games to optimize engagement,
helping the company attract some 270 million unique users each month, many
through Facebook. The four-year-old Zynga, which has emerged as the Webs
largest social game company, recorded $828.9 million in revenue in the first nine
months of 2011, more than double the period a year earlier. It is also the rare
Internet start-up that is profitable, earning $121 million since the start of 2010.
But the heavy focus on metrics, in this already competitive industry, has also
fostered an uncompromising culture, one where employees are constantly
measured and game designers are pushed to meet aggressive deadlines. While
some staff members thrive in this environment, others find it crushing. Several
former employees describe emotionally charged encounters, including loud
outbursts from Mr. Pincus, threats from senior leaders and moments when
colleagues broke down into tears. (New York Times.com, Zyngas Tough Culture
Risks a Talent Drain, Evelyn M. Rusli, Nov. 27, 2011)
5. What problems can business intelligence solve for Zynga? What problems can't it
solve?
Zynga's penchant for collecting and analyzing customer and user data can help it solve
problems associated with product offerings, new game development, attracting new users,
keeping users engaged for longer periods of time, and motivating users to spend more money
on virtual goods.
Zynga cannot solve its problems with disgruntled employees who view creativity as more
important than data analysis. Because it relies almost totally on Facebook as its delivery
platform, its use of business intelligence cannot automatically resolve problems it may
encounter with decisions Facebook executives make that could be detrimental to Zynga.
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