Chapter 12 - Enhancing Decision Making

Management Information Systems Management Information Systems
MANAGING THE DIGITAL FIRM, 12TH EDITION CHAPTER 12: ENHANCING DECISION MAKING
Learning Objectives
Chapter 12 • What are the different types of decisions and how does the
d ii
decision‐making process work?
ki k?
• How do information systems support the activities of
y pp
ENHANCING DECISION MAKING
ENHANCING DECISION MAKING managers and management decision making?
• How
How do business intelligence and business analytics support
do business intelligence and business analytics support
decision making?
• How do different decision‐making constituencies in an
organization use business intelligence?
VIDEO CASES
Case 1: Antivia: Community‐based Collaborative Business Intelligence
• What is the role of information systems in helping people
Case 2: IBM and Cognos: Business Intelligence and Analytics for Improved Decision
Case 2: IBM and Cognos: Business Intelligence and Analytics for Improved Decision working in a group make decisions more efficiently?
working in a group make decisions more efficiently?
Making
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CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING
What to Sell? What Price to Charge? Ask the Data Decision Making and Information Systems
• Problem: Chain retailers such as Starbucks, Duane • Business value of improved decision making

Reade, need to determine what products will sell at – Improving hundreds of thousands of “small” decisions
what prices at different locations adds up to large annual value for the business
• Solutions: Business analytics software to analyze • Types of decisions:
p
patterns in sales data, create pricing profiles and
, p gp – Unstructured:
Unstructured: Decision maker must provide
Decision maker must provide
buyer profiles for different regions, locales, even judgment, evaluation, and insight to solve problem
times of day
times of day – Structured: Repetitive and routine; involve definite
St t d R titi d ti i l d fi it
• Demonstrates the use of business intelligence and procedure for handling so they do not have to be
analysis systems to improve sales and profits
analysis systems to improve sales and profits treated each time as new
treated each time as new
• Illustrates how information systems improve – Semistructured: Only part of problem has clear‐cut
d ii
decision making
ki answer provided by accepted procedure
id d b d d
3 © Prentice Hall 2011 4 © Prentice Hall 2011
Decision Making and Information Systems Decision Making and Information Systems
INFORMATION REQUIREMENTS OF KEY DECISION‐MAKING GROUPS IN A FIRM
• Senior managers:
– Make many unstructured decisions
– E.g. Should we enter a new market?
• Middle managers:
– Make
Make more structured decisions but these may include
more structured decisions but these may include
unstructured components
– E.g. Why is order fulfillment report showing decline in
E.g. Why is order fulfillment report showing decline in
Minneapolis?
• Operational managers, rank and file employees
Operational managers rank and file employees
– Make more structured decisions
– E.g. Does customer meet criteria for credit?
E D t t it i f dit? FIGURE 12‐1 Senior managers, middle managers, operational managers, and employees have different types of decisions
and information requirements.
STAGES IN DECISION
• The 4 stages of the decision making process MAKING
1. Intelligence The decision‐making process is
broken down into four stages.
• Discovering
Discovering, identifying, and understanding the
identifying and understanding the FIGURE 12‐2
problems occurring in the organization
2 Design
2.
• Identifying and exploring solutions to the problem
3 Choice
3. Ch i
• Choosing among solution alternatives
4. Implementation
• Making chosen alternative work and continuing to
monitor how well solution is working
• Information systems can only assist in some of the • Mintzberg’s 10 managerial roles
roles played by managers – Interpersonal roles
1. Figurehead
• Classical model of management: 5 functions
Classical model of management: 5 functions 2 Leader
2.
3. Liaison
– Planning, organizing, coordinating, deciding, and – Informational roles
controlling
lli 4. Nerve center
5. Disseminator
• More contemporary behavioral models
p y 6 Spokesperson
6. S k
– Actual behavior of managers appears to be less – Decisional roles
systematic more informal less reflective more
systematic, more informal, less reflective, more 7.
7 Entrepreneur
reactive, and less well organized than in classical 8. Disturbance handler
9. Resource allocator
model 10. Negotiator
i
• Three main reasons why investments in information • High velocity automated decision making
technology do not always produce positive results – Made possible through computer algorithms
1. Information quality
Information quality p
precisely defining steps for a highly structured
y g p g y
• High‐quality decisions require high‐quality information decision
2 Management filters
2. Management filters – Humans taken out of decision
Humans taken out of decision
• Managers have selective attention and have variety of – E.g. High‐speed computer trading programs
bi
biases that reject information that does not conform to
th t j t i f ti th t d t f t • Trades executed in 30 milliseconds
prior conceptions
• Responsible for “Flash Crash” of 2010
3 Organizational inertia and politics
3. O i ti l i ti d liti – Require safeguards to ensure proper operation and
• Strong forces within organizations resist making regulation
d ii
decisions calling for major change
lli f j h
Business Intelligence in the Enterprise Business Intelligence in the Enterprise
• Business intelligence • Six elements in the business intelligence
– Infrastructure for collecting, storing, analyzing data environment
produced by business
– Databases, data warehouses, data marts
1 Data from the business environment
1. D t f th b i i t
• Business analytics
Business analytics 2. Business intelligence infrastructure
Business intelligence infrastructure
– Tools and techniques for analyzing data 3. Business analytics toolset
– OLAP, statistics, models, data mining 4. Managerial users and methods
• Business intelligence vendors
B i i t lli d 5. Delivery platform – MIS, DSS, ESS
– Create business intelligence and analytics purchased
by firms
6 User interface
6. User interface
BUSINESS INTELLIGENCE AND ANALYTICS FOR DECISION SUPPORT
• Business intelligence and analytics capabilities
– Goal is to deliver accurate real‐time information to
decision‐makers
– Main functionalities of BI systems
1.
1 Production reports
P d ti t
2. Parameterized reports
3. Dashboards/scorecards
hb d / d
4. Ad hoc query/search/report creation
5. Drill down
6. Forecasts, scenarios, models
FIGURE 12‐3 Business intelligence and analytics requires a strong database foundation, a set of analytic tools, and an
involved management team that can ask intelligent questions and analyze data.

BUSINESS INTELLIGENCE USERS
• Business intelligence users
– 80% are casual users relying on production reports
– Senior executives
Senior executives
• Use monitoring functionalities
– Middle managers and analysts
• Ad‐hoc analysis
– Operational employees
• Prepackaged
Prepackaged reports
reports
• E.g. sales forecasts, customer satisfaction, loyalty and
attrition, supply chain backlog, employee productivity
attrition, supply chain backlog, employee productivity FIGURE 12‐4 Casual users are consumers of BI output, while intense power users are the producers of reports, new
analyses, models, and forecasts.
• Examples of BI applications • Management strategies for developing BI and BA
– Predictive analytics capabilities
• Use
Use patterns in data to predict future behavior
patterns in data to predict future behavior – Two main strategies
Two main strategies
• E.g. Credit card companies use predictive analytics to 1. One‐stop integrated solution
determine customers at risk for leaving
determine customers at risk for leaving – Hardware
Hardware firms sell software that run optimally on their
firms sell software that run optimally on their
– Data visualization hardware
– Makes firm dependent on single vendor
Makes firm dependent on single vendor – switching costs
switching costs
• H
Help users see patterns and relationships that would be
l tt d l ti hi th t ld b
difficult to see in text lists 2. Multiple best‐of‐breed solution
– Greater flexibility and independence
Greater flexibility and independence
– Geographic information systems (GIS)
G hi i f ti t (GIS)
– Potential difficulties in integration
• Ties location‐related data to maps
– Must deal with multiple vendors
Must deal with multiple vendors

Business Intelligence in the Enterprise Business Intelligence Constituencies
DATA‐DRIVEN SCHOOLS
Read the Interactive Session and discuss the following questions
• Operational and middle managers
• Identify and describe the problem discussed in the case. – Monitor day to day business performance
• How do business intelligence systems provide a solution to – Make fairly structured decisions
M k f il dd i i
this problem? What are the inputs and outputs of these – Use MIS
systems?
• What management, organization, and technology issues • “Super user” and business analysts
must be addressed by this solution? – Use more sophisticated analysis
• How successful is this solution? Explain your answer.
How successful is this solution? Explain your answer. – Create customized reports
Create customized reports
• Should all school districts use such a data‐driven approach to – Use DSS
education? Why or why not?
education? Why or why not?
Business Intelligence Constituencies Business Intelligence Constituencies
SENSITIVITY ANALYSIS
• Decision support systems
pp y
– Use mathematical or analytical models
– Allow varied types of analysis
• “What
What‐ifif” analysis
analysis
• Sensitivity analysis
• Backward sensitivity analysis
• Multidimensional analysis / OLAP
Multidimensional analysis / OLAP FIGURE 12‐5 This table displays the results of a sensitivity analysis of the effect of changing the sales price of a necktie
and the cost per unit on the product’s break‐even point. It answers the question, “What happens to the
–E. g. pivot tables break‐even point if the sales price and the cost to make each unit increases or decreases?”

A PIVOT TABLE THAT
EXAMINES CUSTOMER • Decision‐support for senior management
REGIONAL
DISTRIBUTION AND – Help executives focus on important performance
ADVERTISING SOURCE information
In this pivot table, we
are able to examine – Balanced scorecard method:
where an online
training company’s • Measures outcomes on four dimensions:
M t f di i
customers come from
in terms of region and 1. Financial
advertising source.
2. Business process
FIGURE 12‐6
3. Customer
4. Learning & growth
& h
• Key performance indicators (KPIs) measure each
dimension
THE BALANCED
SCORECARD
SCORECARD
• Decision‐support for senior management (cont.)
FRAMEWORK
– Business performance management (BPM)
In the balanced
scorecard framework
scorecard framework,
the firm’s strategic
• Translates
Translates firm
firm’ss strategies (e.g. differentiation, low‐
strategies (e g differentiation low
objectives are cost producer, scope of operation) into operational
operationalized along
four dimensions:
four dimensions: targets
financial, business
process, customer, and
learning and growth.
• KPIs developed to measure progress towards targets
Each dimension is
Each dimension is
measured using several
KPIs.
– Data for ESS
FIGURE 12‐7
• Internal data from enterprise applications
p pp
• External data such as financial market databases
• Drill‐down capabilities
D ill d biliti
PILOTING VALERO WITH REAL‐TIME MANAGEMENT • Group Decision Support Systems (GDSS)
– Interactive system to facilitate solution of unstructured
• What management, organization, and technology issues had to be problems by group
addressed when developing Valero’ss dashboard?
addressed when developing Valero dashboard? – Specialized hardware and software; typically used in
S i li d h d d ft t i ll di
• What measures of performance do the dashboards display? Give conference rooms
examples of several management decisions that would benefit
examples of several management decisions that would benefit • Overhead projectors, display screens
Overhead projectors display screens
from the information provided by Valero’s dashboards. • Software to collect, rank, edit participant ideas and responses
• What kinds of information systems are required by Valero to
What kinds of information systems are required by Valero to • May require facilitator and staff
maintain and operate its refining dashboard? – Enables increasing meeting size and increasing
productivity
p g g
• How effective are Valero’s dashboards in helping management
pilot the company? Explain your answer. – Promotes collaborative atmosphere, guaranteeing
anonymity
• Should Valero develop a dashboard to measure the many factors
– Uses structured methods to organize and evaluate ideas
Uses structured methods to organize and evaluate ideas
in its environment that it does not control? Why or why not?
Management Information Systems
CHAPTER 12: ENHANCING DECISION MAKING
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Management Information Systems Management Information Systems

MANAGING THE DIGITAL FIRM, 12TH EDITION CHAPTER 12: ENHANCING DECISION MAKING

• Problem: Chain retailers such as Starbucks, Duane • Business value of improved decision making

5 © Prentice Hall 2011 6 © Prentice Hall 2011

15 © Prentice Hall 2011 16 © Prentice Hall 2011

17 © Prentice Hall 2011 18 © Prentice Hall 2011

19 © Prentice Hall 2011 20 © Prentice Hall 2011

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All rights reserved. No part of this publication may be reproduced, stored

31 © Prentice Hall 2011

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