Summary : Enhancing Decision Making

Companies have been able to use technology to do some very cool stuff to reach
customers in new ways, to automate operations. But one thing many businesses havent
been able to do easily is use the data theyve collected to find and stamp out waste across
operations. Sifting through corporate data was supposed to make executives more
efficient. Much of the time, though, its just made them more confused. (Fortune
magazine, March 3, 2002)
Even though this quote is ten years old, its still pertinent in many companies. Were
getting better though about turning raw data into useful information that helps improve
decision making.
12.1 Decision Making and Information Systems
Each of us makes hundreds of decisions every day. If just a fraction of those
decisions could be improved through better and more information and better
processes, wed all be delighted. Businesses feel the same way. Customers would
be happier, employees would be more motivated, and managers would have an
easier job. Most of all, businesses could improve their profitability to the benefit
of all.
Business Value of Improved Decision Making
Table 12-1 provides a few examples of the dollar value that enhanced decision making
would give to firms.

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Dont be misled into thinking that the dollar value of improving decision-making
processes is limited to managers. As more business flatten their organizational structures
and push decision making to lower levels, better decisions at all levels can lead to
increased business value.
Types of Decisions
There are generally three classifications of decisions:

Unstructured: Requires judgment, evaluation, and insight into non-routine

situations. Usually made at senior levels of management.
Structured: Repetitive, routine, with definite procedures for making the decision.
Usually made at the lowest organizational levels.
Semistructured: A combination of the two. Usually made by middle managers.

Figure 12-1 couples these three types of decisions with the appropriate management level.

Figure 12-1 Information Requirements of Key Decision-Making Groups in a Firm

Senior management: Makes decisions based on internal business information but

also external industry and society changes; decisions affect long-term, strategic goals
and the firms objectives.
Middle management and project teams: Decisions affect resource allocation, shortrange plans and performance of specific departments, task forces, teams, and special
project groups.
Operational management and project teams: Decisions affect subunits and
individual employees regarding the resources, schedules and personnel decisions for
specific projects.

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Individual employees: Decisions affect specific vendors, other employees and most
importantly, the customer.

The Decision-Making Process

Making decisions requires four steps:

Intelligence: Discovering, identifying, and understanding problems.

Design: Identifying and exploring solutions to problems.
Choice: Choosing among solution alternatives.
Implementation: Making the chosen alternative work and monitoring how well
the solution is working.

These four steps are not always consecutive and may well be concurrent or repetitive.

Managers and Decision Making in the Real World

Although information systems have gone a long way toward improving the decisionmaking process, they are not the Holy Grail. They should be viewed as a way to assist
managers in making decisions, but not as the final answer.
Managerial Roles
Lets compare the classical model of management with the behavioral model. The
former describes the five classical functions of managers as:
Planning
Organizing
Coordinating
Deciding
Controlling
Behavioral models of managers dissect the many activities involved in the five functions
of management. That is, managers:
Perform a great deal of work at an unrelenting pace.
Activities are fragmented.
Prefer current, specific, and ad hoc information.
Prefer oral communications rather than written documentation.
Maintain a diverse and complex web of contacts.
Now, lets take all of these activities and categorize them into three managerial roles:
Interpersonal: Act as figureheads, leaders, and liaisons.
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Informational: Act as nerve centers, disseminators, and spokespersons.

Decisional: Act as entrepreneurs, handle disturbances, allocate resources,
negotiate and mediate conflicts.

Table 12-2 shows that supporting information systems exist for only some of the
managerial behaviors but not all of them.

Table 12-2 Managerial Roles and Supporting Information Systems

Real World Decision Making
Because you have no doubt had to make decisions in the real world, you know for a fact
that the process is not as cut-and-dried as what weve reviewed so far. Three reasons why
the whole process can blow up without a moments notice:

Information Quality: Was the information used to make the decision accurate,
consistent, complete, valid, timely, accessible, and of high integrity? What if you
were making a decision about purchasing a house and found out that there were errors
in your credit record that prevented you from obtaining the necessary financing?
Perhaps the data was out of date or contained mistakes.

Management Filters: Everyone processes information through personal filters and

biases. Managers are no different. For instance, you may suggest to your manager that
the department purchase a piece of equipment from a certain manufacturer. Your
manager disapproves the suggestion because he had a bad experience with that
company ten years ago. The managers bias negates the fact that the company has
since improved and is the best and cheapest choice.

Organizational Inertia and Politics: People hate change and will sometimes do
whatever they can to keep the status quo. Decision-makers are no different especially
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if they stand to lose. What if your department will benefit from improving its business
processes to the benefit of all concerned except that the manager will lose her job? Its
likely the manager will not make decisions that will cause her to lose her job.
Therefore, nothing gets done regarding improving processes.
High-Velocity Automated Decision Making
What if your friend asked you to find a copy of the lyrics to the Beatles hit song Hey
Jude? How long do you think it would take you if Internet-based search processes were
not available? Days? Weeks? A Google search for the information takes less than five
seconds. Thats the power of high velocity automated decision making in todays world.
Humans simply cant match a computers speed and accuracy for making some decisions.
Computer programmers use the same four step decision-making process weve discussed
before when they create algorithms that help make these kinds of lightning-fast decisions:
identify the problem, design a method for finding a solution, define a range of acceptable
solutions, and implement the solution. They just have to be careful that the algorithms are
written correctly to ensure proper decisions are made by computers or you may end up
getting a profile of Jude Law, the actor.
Earlier we mentioned a class of decisions that are routine, very structured, and have
definite procedures for determining the solution. In these situations, why not automate the
process and have a computer make the decision much faster than a human can?
Computers have these positive characteristics that make them ideal for high-velocity
automated decision making:
Computer algorithms that precisely define the steps to be followed
Very large databases
Very high-speed processors
Software optimized to the task
The algorithms are structured to follow the intelligence, design, choice, and
implementation steps we discussed as part of the decision-making process. But, just in
case, the information systems used to process these kinds of decisions should be
monitored and regulated by humans.
Bottom Line: Everyone makes decisions at all levels of an organization. The goal is
to match the four decision-making organizational levels along with the three types of
decisions to the appropriate kind of decision support system. Its important to
understand the roles and activities associated with management decision-making
and that information systems can only assist in the process.

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12.2 Business Intelligence in the Enterprise

Business intelligence and business analytics provide managers with a systematic way of
making sense of the vast amounts of data collected on customers, suppliers, employees,
business partners, and the external business environment.
What Is Business Intelligence?
All of us collect information from our surroundings, try to understand it, and then act on
it in an intelligent way. Businesses are no different other than the fact that they have much
more data to collect, process, store, and disseminate.
A whole new industry has sprung up that helps businesses create an infrastructure to
warehouse, integrate, report, and analyze data. This is where the databases, data
warehouses, data marts, analytic platforms, and Hadoop that we discussed in previous
chapters come back into the picture. Business intelligence describes how businesses
collect, store, clean, and disseminates useful information to executives, managers, and
employees.
Business analytics, on the other hand, are the tools and techniques businesses use to
analyze and understand the data in a meaningful way. Its one thing to read a report that
says sales are 10 percent ahead of last year. Business analytic tools, like data mining,
statistics, online analytical processing, and models help managers understand that part of
the cause is an increased focus on marketing to middle-aged women with two children.
Interactive Session: Organizations: Analytics Help the Cincinnati Zoo Know Its
Customers (see page 464 of the text) describes how the second oldest zoo in the
United States implemented a business intelligence system that provided the
organization with new insights into its operations and customers. It increased food
sales 30.7 percent and retail sales increased by 5.9 percent, giving the popular
destination more funds to improve operations.

Business Intelligence Vendors

Table 12-4 lists the top five vendors of BI and BA hardware and software. These vendors
are primarily the same ones that weve discussed before when we reviewed enterprise
systems. Perhaps the most interesting aspect of BI and BA hardware and software suites
is that its the fastest-growing and largest segments in the U.S. software market. That
demonstrates just how hungry businesses are to make sense of all the data they have
available to them.

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The Business Intelligence Environment

Lets review six hardware, software, and management capabilities that are included in the
business intelligence environment:
Data from the business environment: Integrating and organizing structured and
unstructured data from different sources that people can analyze and use.
Business intelligence infrastructure: Database systems that process relevant
data stored in transactional databases, data warehouses, or data marts.
Business analytics toolset: Software tools that managers use to analyze data,
produce reports, respond to questions, and track their progress using key
performance indicators (KPI).
Managerial users and methods: Business performance management and
balanced scorecard methods that help managers focus on key performance
indicators and industry strategic analyses. Requires strong executive oversight to
ensure managers are focusing on the right issues and not just producing reports
and dashboard screens because they can.
Delivery platformMIS, DSS, and ESS: All the information from MIS, DSS,
and ESS are integrated and delivered to the appropriate level of management.
User interface: BI and BA systems make it easy to visually display data, thereby
making it easy to quickly understand information on a variety of computing
devices.
Figure 12-3 helps you understand how these six elements work together in business
intelligence and business analytics systems.

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Figure 12-3 Business Intelligence and Analytics for Decision Support

Business Intelligence and Analytics Capabilities
The days of receiving static reports that are out of datemeaning more than 30 days or
even 30 minutes oldcontaining data that are meaningless are over. Business
intelligence systems help correct that situation five different ways:

Production reports: Predefined reports based on industry specific requirements.

Parameterized reports: Pivot tables help users filter data and isolate impacts of
parameters chosen by users.
Dashboards/scorecards: Visual reports that present performance data chosen by
users.
Ad hoc query/search/report creation: Users create their own reports based on
data they choose.
Drill down: Users initially receive high-level data summaries and then drill down
to more specific data.
Forecasts, scenarios, models: User can perform linear forecasting, what-if
scenario analysis, and analyze data using standard statistical tools.

Who Uses Business Intelligence and Business Analytics?

The audience for business intelligence and business analytic tools and techniques has
unique characteristics depending on their management level and how they use the
systems:

Casual users: Rely largely on production reports.

Senior executives: Monitor organization activities using dashboards and
scorecards.
Middle managers and analysts: Enter queries; slice and dice data along different
dimensions.
Operational employees, customers, suppliers: Mostly use prepackaged reports.
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Figure 12-4 tells you how each division of the business intelligence audience uses the
capabilities of these systems.

Figure 12-4 Business Intelligence Users

Production Reports
Because 80 percent of the people who access business intelligence systems are casual
users, most vendors create a mass of pre-defined production reports based on industry
standards and best practices. Table 12-5 gives you an idea of the types of reports
produced for each business functional area.

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Predictive Analytics
Most times, customer behavior is very predictable if youre looking at and understanding
the right data. Companies use business analytic software to figure out ahead of time how
reliable certain customers are regarding credit extensions, how customers will respond to
changes in prices or services, or how successful new sales locations will be. Those are the
kinds of questions predictive analytics can answer more quickly and more easily than
humans. Predictive analytics helps managers ask and answer the right questions to make
their company more successful.
Over the last few years, many retailers have drastically reduced the number of catalogs
they send in snail mail to potential customers. With rising postal fees and many people
using the Internet to make purchases, fewer and fewer of them are waiting for the catalog
in the mail. By using predictive analytics, companies can weed out people who are
unlikely to make catalog purchases and concentrate on those who will. That decreases
marketing costs while increasing the ratio of catalogs to purchasing customers.
Big Data Analytics
Youre shopping on a major retailers Web site when, all of a sudden, you see a sweater
that you simply cant live without. Alongside the sweaters display are pictures of a pair
of pants or skirt that, combined, will make the perfect outfit. The pants and skirt are
labeled, You might also like or What other customers purchased when they
purchased this sweater.
Those extra items werent put there by chance but more as a result of big data analytics
that we discussed in earlier chapters. Rather than requiring you to thumb through pages
and pages of skirts and pants, the retailer will do it for you and, in the meantime, increase
the chances of making an extra sale. Those recommendations likely are a result of what
other customers purchased. The retailer captures all of its sales data, analyzes it, and
includes data from social media streams to create the customized recommendations.
Data Visualization and Geographic Information Systems (GIS)
Which would you rather decipher: a long list of seemingly endless list of numbers and
complicated data, or a picture that truly can say it all in less than 1,000 words? Consider
that almost our whole natural environment is one big graphic that we decipher through
conceptualization. What if we combine thousands and thousands of words and numbers
into a graphic that we can more naturally view and draw conclusions through concepts?
Thats the idea behind data visualization. If you want to see a sensible depiction of this
emerging technology go to www.smartmoney.com and, under Tools, click on the link
labeled Mutual Fund Map. Rather than see traditional, out of context, lists of stock
quotes, you can see a visualization of the data and put it into a more meaningful context.
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Click on one of the map sections and you can drill down through the data in a visual
sense.
Many executive decisions depend on the availability of information, internal and external.
For instance, a company that ships most of its products on trucks needs data about
interstate highway access and traffic patterns to help control shipping costs and make it
easier for drivers to access its warehouses. Some company policies limit business
locations to high-traffic areas such as malls and similar densely populated areas. Other
executive decisions revolve around data about current and potential customers and their
geographic location.
Geographic information systems (GIS) rely heavily on demographic data from the U.S.
Census Bureau. This type of decision-support system helps managers visualize
geographic information more easily and make better decisions based on digitized maps.
GIS data can be coupled with an organizations internal data to better allocate resources,
money, people, time, and material.
Management Strategies for Developing BI and BA Capabilities
Is it better to select a one-stop integrated solution for your organizations business
intelligence and business analytics systems or should you adopt a multiple best-of-breed
vendor solution? Be aware that your decision carries risks and rewards either way.
Single vendor: The risk is that your company becomes dependent on the vendors pricing
power. The reward is that a single vendor promises hardware and software that will work
together out of the box.
Multiple vendors: The reward is that youll have greater flexibility and independence in
selecting your hardware and software. The risk is that youll suffer compatibility issues,
not just between the BI hardware and software but with your other systems as well.
You are locked into your decision and the switching costs are extremely high regardless
of which way you decide to go.
As a manager you must:
Critically evaluate vendor claims
Understand exactly how the systems will improve your business
Determine if the expenditures are worth the benefits.

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Bottom Line: Business intelligence and business analytics hardware and software
systems help businesses warehouse, integrate, report, and analyze data from the
firms internal and external environment. BI and BA systems provide employees,
managers, and executives with a wide variety of tools and techniques that help them
make sense of all the data and ultimately make better decisions. Each business must
decide whether a single vendor or multiple vendors will provide the better system.

12.3 Business Intelligence Constituencies

At the beginning of this chapter we outlined the types of decisions made at each
managerial level structured, semistructured, and unstructured. We also mentioned that
each management level has different information needs that match the type of decisions
made at that level. Lets look at the types of information systems that match the
information needs.
Decision Support for Operational and Middle Management
For the most part, operational managers get their information from transaction processing
systems. But, more and more, they are accessing management information systems (MIS)
for a broader look at their companys performance. Middle management also relies on
MIS systems for the bulk of their information.
Here are the characteristics of a typical MIS system:
Used for structured and semistructured decisions
Reports based on routine flows of data
Provide general control of the organization
Routine production reports are the primary output
Exception reports are available
Support for Semistructured Decisions
Decision support systems help executives make better decisions by using historical and
current data from internal information systems and external sources of data. By
combining massive amounts of data with sophisticated analytical models and tools, and
by making the system easy-to-use, they provide a much better source of information to
use in the decision-making process.
Because of the limitations of hardware and software, early DSS systems provided
executives only limited help. With the increased power of computer hardware, and the
sophisticated software available today, DSS can crunch lots more data, in less time, in
greater detail, with easy-to-use interfaces. The more detailed data and information
executives have to work with, the better their decisions can be.
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The what-if decisions most commonly made by executives use sensitivity analysis
models to help them predict what effect the decisions will have on the organization.
Executives dont make decisions based solely on intuition. The more information they
have, the more they experiment with different outcomes in a safe mode, the better their
decisions. Thats the benefit of the models used in the software tools.
Common spreadsheet software like Microsofts Excel helps managers review data in two
dimensions rather than just one by using pivot tables. They can decipher patterns in
information and help them allocate resources better. Managers using pivot tables can
develop better strategies because theyll gain a better sense of correlating data points.
Figure 12-6 shows you a typical screen used in a Microsoft Excel pivot table.

Figure 12-6 A Pivot Table That Examines Customer Regional Distribution and
Advertising Source
Decision Support for Senior Management: Balanced Scorecard and
Enterprise Performance Management Methods
Executive Support Systems (ESS) are used primarily by senior management whose
decisions are usually never structured and could be described as educated guesses.
Executives rely as much, if not more, on external data than they do on data internal to
their organization. Decisions must be made in the context of the world outside the
organization. The problems and situations senior executives face are very fluid, so the
system must be flexible and easy to manipulate.
Executive support systems dont provide executives with ready-made decisions. They
provide the information that helps them make their decisions. Executives use that

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information, along with their experience, knowledge, education, and understanding of the
corporation and the business environment as a whole, to make their decisions.
Using a balanced scorecard method, executives combine their companys internal
financial information with additional perspectives like customers, internal business
processes, and learning and growth. By focusing on key performance indicators (KPIs)
in each of these areas, executives gain a better understanding of how the organization is
performing overall. After senior management establishes KPIs for each area, then and
only then can the flow of information be established. Figure 12-7 depicts the framework
for a balanced scorecard.

Figure 12-7 The Balanced Scorecard Framework

Business performance management (BPM) is yet another tool for executives to
systematically translate the strategy theyve developed for their company into operational
targets. BPM methods use KPIs to help users measure the organizations progress toward
the targets. BPM is similar to the balanced scorecard approach but with a stronger
strategic viewpoint than an operational viewpoint.
Executives often face information overload and must be able to separate the chaff from
the wheat in order to make the right decision. On the other hand, if the information they
have is not detailed enough, they may not be able to make the best decision. An ESS can
supply the summarized information executives need and yet provide the opportunity to
drill down to more detail if necessary.
As technology advances, ESS are able to link data from various sources, both internal and
external, to provide the amount and kind of information executives find useful. As
common software programs include more options and executives gain experience using
these programs, theyre turning to them as an easy way to manipulate information.

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Because of the trend toward flatter organizations with fewer layers of management,
companies are employing ESS at lower levels of the organization. Flatter organizations
also require managers to access more information about a wider range of activities than in
the past. This requirement can be accomplished with the aid of a good ESS. Executives
can also monitor the performance of their own areas and of the company as a whole.

Interactive Session: Management: Colgate-Palmolive Keeps Managers Smiling with

Executive Dashboards (see page 476 of the text) describes how the second largest
consumer products company in the world use components of decision support
systems, like dashboards and drilling down through data, to monitor and improve
its business performance.

Group Decision-Support Systems (GDSS)

More and more, companies are turning to groups and teams to get work done. Hours upon
hours are spent in meetings, in group collaboration, in communicating with many people.
To help groups make decisions, a new category of systems was developed: the group
decision-support system (GDSS).
Youve been therea meeting where nothing seems to get done, where some people
dominate the agenda and others never say a word, and it dragged on for hours. When it
was all over no one was sure what was accomplished, if anything. But the doughnuts and
coffee were good! Organizations have been struggling with this problem for years. They
are now using GDSS as a way to increase the efficiency and effectiveness of meetings.
In GDSS, the hardware includes more than just computers and peripheral equipment. It
also includes the conference facilities, audiovisual equipment, and networking equipment
that connect everyone. More sophisticated GDSS require meeting facilitators and other
staff that keep the hardware operating correctly. Many companies are bypassing specially
equipped rooms in favor of having group participants attend the meeting through their
individual desktop computers.
Now instead of wasting time in meetings, people will know ahead of time what is on the
agenda. All of the information generated during the meeting is maintained for future use
and reference. Because input is anonymous, ideas are evaluated on their own merit. And
for geographically separated attendees, travel time and dollars are saved.
GDSS are best used for tasks involving:
Idea generation
Complex problems
Large groups

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Bottom Line: Executive support systems meet the needs of corporate executives by
providing them with vast amounts of information quickly and in graphic form to
help them make effective decisions. ESS must be flexible, easy-to-use, and contain
both internal and external sources of information. The balanced scorecard method
expands the view of the organization to include four dimensions: financial, business
process, customer, and learning and growth. Group decision support systems,
comprised of hardware, software, and people, help streamline group meetings and
communications by removing obstacles and using technology to increase the
effectiveness of decisions.

Discussion Questions
1. Discuss the difference between the classical model of management and the behavioral
model of management and how they affect information systems and decision support
systems.
2. Compare the characteristics of an MIS and a DSS. Why are decision-support systems
more suited for executive decision making?
3. Discuss the managerial users and methods included in the business intelligence
environment.
4. Discuss the pros and cons of two different management strategies for developing
business intelligence and business analytics capabilities.
5. What benefits do group decision-support systems provide organizations?
Answers to Discussion Questions
1. The classical model of management describes the five functions of managers:
planning, organizing, coordinating, deciding, and controlling. Behavioral models
show the actual behavior of managers is less systematic, more informal, less
reflective, more reactive, and less well organized. Managers perform a great deal of
work at an unrelenting pace; their activities are fragmented; managers prefer current,
specific, and ad hoc information; they prefer oral forms of communication, not
written documentation; they maintain a diverse and complex web of contacts.
Information systems and decision support systems must accommodate these behaviors
in order to be effective.
2. MIS are used for structured decisions with reports based on routine flows of data.
DSS are used for semistructured or unstructured decisions and focus on specific
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decisions or classes of decisions. DSS are better for executive decision making
because executives questions and problems are unstructured and rely on external
environmental information as well as internal data.
3. Business intelligence hardware and software are only as intelligent as the human
beings who use them. Managers define strategic business goals and determine
progress measurements using business performance management and balanced
scorecards that focus on key performance indicators. Industry strategic analyses focus
on changes in the general business environment with special attention paid to
competitors. Strong executive oversight ensures that the organization focuses on the
right issues rather than producing information, reports, and online screens that divert
attention to the wrong issues.
4. There are two strategies for developing BI and BA capabilities in an organization. The
one-stop integrated solution uses a single vendor to provide a total hardware and
software solution. That runs the risk of making the organization dependent on the
vendors pricing power. It offers the advantage of dealing with only one vendor and
ensuring that all the hardware and software is compatible. The second strategy of
using multiple best-of-breed vendors gives a company greater flexibility and
independence in choosing hardware and software but runs the risk of incompatibility
between the components. Either solution locks an organization into its decision and
creates tremendous switching costs.
5. Group Decision Support Systems make it possible to increase meeting size while still
providing a level of productivity. Individuals contribute simultaneously to the
discussion rather than one at a time. Contributors remain anonymous which lets
attendees focus on evaluating ideas rather than individuals. GDSS software provides a
structured method for organizing and evaluating ideas. The information gathered
during the meeting is preserved for later use and for those who were unable to attend.

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