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
ki process work? k?
• How do information systems
y support
pp the activities of
ENHANCING DECISION MAKING 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?
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 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:
patterns in sales data,, create p
p pricingg p
profiles and – Unstructured: Decision maker must provide
buyer profiles for different regions, locales, even judgment, evaluation, and insight to solve problem
times of day – Structured:
St t d Repetitive
R titi and d routine;
ti iinvolve
l d definite
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 treated each time as new
• Illustrates how information systems improve – Semistructured: Only part of problem has clear‐cut
d i i making
decision ki answer provided
id d by
b accepted d procedure
d
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 Management Information Systems Management Information Systems
CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

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 more structured decisions but these may include
unstructured components
– E.g. Why is order fulfillment report showing decline in
Minneapolis?
• Operational managers,
managers rank and file employees
– Make more structured decisions
– E.g.
E D Does customer
t meett criteria
it i ffor credit?
dit? FIGURE 12‐1 Senior managers, middle managers, operational managers, and employees have different types of decisions
and information requirements.

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Management Information Systems Management Information Systems

CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Decision Making and Information Systems Decision Making and Information Systems

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,
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
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 Management Information Systems Management Information Systems
CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Decision Making and Information Systems Decision Making and Information Systems

• 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 2 Leader
2.
3. Liaison
– Planning, organizing, coordinating, deciding, and – Informational roles
controlling
lli 4. Nerve center
5. Disseminator
• More contemporary
p y behavioral models 6 Spokesperson
6. S k
– Actual behavior of managers appears to be less – Decisional roles
systematic more informal
systematic, informal, less reflective,
reflective more 7.
7 Entrepreneur
reactive, and less well organized than in classical 8. Disturbance handler
9. Resource allocator
model 10. Negotiator
i
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Management Information Systems Management Information Systems

CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Decision Making and Information Systems Decision Making and Information Systems

• 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 preciselyy definingg steps
p p for a highly
g y structured
• High‐quality decisions require high‐quality information decision
2 Management filters
2. – Humans taken out of decision
• Managers have selective attention and have variety of – E.g. High‐speed computer trading programs
bi
biases that
th t reject
j t information
i f ti that
th t does
d nott conform
f to
t • Trades executed in 30 milliseconds
prior conceptions
• Responsible for “Flash Crash” of 2010
3 Organizational
3. O i ti l iinertia
ti and
d politics
liti – Require safeguards to ensure proper operation and
• Strong forces within organizations resist making regulation
d ii
decisions calling
lli for
f major
j change
h
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CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

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
1. D t from
f the
th business
b i environment
i t

• Business analytics 2. Business intelligence infrastructure

– Tools and techniques for analyzing data 3. Business analytics toolset
– OLAP, statistics, models, data mining 4. Managerial users and methods
• Business
B i iintelligence
t lli vendors
d 5. Delivery platform – MIS, DSS, ESS
– Create business intelligence and analytics purchased
by firms
6 User interface
6.
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Management Information Systems Management Information Systems

CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence in the Enterprise Business Intelligence in the Enterprise

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
P d ti reports 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.

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CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence in the Enterprise Business Intelligence in the Enterprise

BUSINESS INTELLIGENCE USERS
• Business intelligence users
– 80% are casual users relying on production reports
– Senior executives
• Use monitoring functionalities
– Middle managers and analysts
• Ad‐hoc analysis
– Operational employees
• Prepackaged reports
• E.g. sales forecasts, customer satisfaction, loyalty and
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.

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Management Information Systems Management Information Systems

CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence in the Enterprise Business Intelligence in the Enterprise

• Examples of BI applications • Management strategies for developing BI and BA

– Predictive analytics capabilities
• Use patterns in data to predict future behavior – Two main strategies
• E.g. Credit card companies use predictive analytics to 1. One‐stop integrated solution
determine customers at risk for leaving – Hardware firms sell software that run optimally on their
– Data visualization hardware
– Makes firm dependent on single vendor – switching costs
• H
Help
l users see patterns
tt andd relationships
l ti hi th thatt would
ld b
be
difficult to see in text lists 2. Multiple best‐of‐breed solution
– Greater flexibility and independence
– Geographic
G hi information
i f ti systems
t (GIS)
– Potential difficulties in integration
• Ties location‐related data to maps
– Must deal with multiple vendors

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CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

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
M k fairly
f i l structured
d decisions
d ii
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. – Create customized reports
• Should all school districts use such a data‐driven approach to – Use DSS
education? Why or why not?

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CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence Constituencies Business Intelligence Constituencies

SENSITIVITY ANALYSIS
• Decision support
pp systems
y
– Use mathematical or analytical models
– Allow varied types of analysis
• “What
What‐ifif” analysis
• Sensitivity analysis
• Backward sensitivity analysis
• 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?”

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 Management Information Systems Management Information Systems
CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence Constituencies Business Intelligence Constituencies

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
M outcomes
t on four
f dimensions:
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
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Management Information Systems Management Information Systems

CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence Constituencies Business Intelligence Constituencies

THE BALANCED
SCORECARD
• Decision‐support for senior management (cont.)
FRAMEWORK
– Business performance management (BPM)
In the balanced
scorecard framework,
framework
the firm’s strategic
• Translates firm
firm’ss strategies (e
(e.g.
g differentiation
differentiation, low
low‐
objectives are cost producer, scope of operation) into operational
operationalized along
four dimensions: targets
financial, business
process, customer, and
learning and growth.
• KPIs developed to measure progress towards targets
Each dimension is
measured using several
KPIs.
– Data for ESS

FIGURE 12‐7
• Internal data from enterprise
p applications
pp
• External data such as financial market databases
• Drill‐down
D ill d capabilities
biliti
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CHAPTER 12: ENHANCING DECISION MAKING CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence Constituencies Business Intelligence Constituencies

PILOTING VALERO WITH REAL‐TIME MANAGEMENT • Group Decision Support Systems (GDSS)
Read the Interactive Session and discuss the following questions
– Interactive system to facilitate solution of unstructured
• What management, organization, and technology issues had to be problems by group
addressed when developing Valero
Valero’ss dashboard? – Specialized
S i li d h hardware
d andd software;
ft typically
t i ll used d in
i
• What measures of performance do the dashboards display? Give conference rooms
examples of several management decisions that would benefit • Overhead projectors
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 • May require facilitator and staff
maintain and operate its refining dashboard? – Enables increasing meeting size and increasing
productivity
p g management
• How effective are Valero’s dashboards in helping g
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
in its environment that it does not control? Why or why not?
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Management Information Systems

CHAPTER 12: ENHANCING DECISION MAKING

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