Chapter 12
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ENHANCING DECISION MAKING
VIDEO CASES
Case 1: Antivia: Community-based Collaborative Business Intelligence
Case 2: IBM and Cognos: Business Intelligence and Analytics for Improved
Decision Making
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Learning Objectives
• What are the different types of decisions and how does the
decision-making process work?
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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?
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
What to Sell? What Price to Charge? Ask
the Data
• Problem: Chain retailers such as Starbucks, Duane Reade, need
to determine what products will sell at what prices at different
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locations
• Solutions: Business analytics software to analyze patterns in
sales data, create pricing profiles and buyer profiles for different
regions, locales, even times of day
• Demonstrates the use of business intelligence and analysis
systems to improve sales and profits
• Illustrates how information systems improve decision making
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
• Business value of improved decision making
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Improving hundreds of thousands of “small” decisions adds up
to large annual value for the business
• Types of decisions:
Unstructured: Decision maker must provide judgment,
evaluation, and insight to solve problem
Structured: Repetitive and routine; involve definite procedure
for handling so they do not have to be treated each time as
new
Semistructured: Only part of problem has clear-cut answer
provided by accepted procedure
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
• Senior managers:
Make many unstructured decisions
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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, rank and file employees
Make more structured decisions
E.g. Does customer meet criteria for credit?
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
INFORMATION REQUIREMENTS OF KEY DECISION-MAKING GROUPS
IN A FIRM
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Senior managers, middle managers, operational managers, and employees have
FIGURE 12-1
different types of decisions and information requirements.
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
• The 4 stages of the decision making process
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Intelligence
Discovering, identifying, and understanding the problems
occurring in the organization
Design
Identifying and exploring solutions to the problem
Choice
Choosing among solution alternatives
Implementation
Making chosen alternative work and continuing to monitor how
well solution is working
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
STAGES IN
DECISION
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MAKING
The decision-making
process is broken down
into four stages.
FIGURE 12-2
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
• Information systems can only assist in some of the roles played
by managers
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• Classical model of management: 5 functions
Planning, organizing, coordinating, deciding, and controlling
• More contemporary behavioral models
Actual behavior of managers appears to be less systematic,
more informal, less reflective, more reactive, and less well
organized than in classical model
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
• Mintzberg’s 10 managerial roles
Interpersonal roles
Figurehead
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Leader
Liaison
Informational roles
Nerve center
Disseminator
Spokesperson
Decisional roles
Entrepreneur
Disturbance handler
Resource allocator
Negotiator
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
• Three main reasons why investments in information technology
do not always produce positive results
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Information quality
High-quality decisions require high-quality information
Management filters
Managers have selective attention and have variety of biases
that reject information that does not conform to prior
conceptions
Organizational inertia and politics
Strong forces within organizations resist making decisions
calling for major change
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Decision Making and Information Systems
• High velocity automated decision making
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Made possible through computer algorithms precisely defining
steps for a highly structured decision
Humans taken out of decision
E.g. High-speed computer trading programs
Trades executed in 30 milliseconds
Responsible for “Flash Crash” of 2010
Require safeguards to ensure proper operation and regulation
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence in the Enterprise
• Business intelligence
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Infrastructure for collecting, storing, analyzing data produced
by business
Databases, data warehouses, data marts
• Business analytics
Tools and techniques for analyzing data
OLAP, statistics, models, data mining
• Business intelligence vendors
Create business intelligence and analytics purchased by firms
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence in the Enterprise
• Six elements in the business intelligence environment
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Data from the business environment
Business intelligence infrastructure
Business analytics toolset
Managerial users and methods
Delivery platform – MIS, DSS, ESS
User interface
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence in the Enterprise
BUSINESS INTELLIGENCE AND ANALYTICS FOR DECISION SUPPORT
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Business intelligence and analytics requires a strong database foundation, a set of
analytic tools, and an involved management team that can ask intelligent
FIGURE 12-3
questions and analyze data.
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
15 © Prentice Hall 2011
Business Intelligence in the Enterprise
• Business intelligence and analytics capabilities
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Goal is to deliver accurate real-time information to decision-
makers
Main functionalities of BI systems
Production reports
Parameterized reports
Dashboards/scorecards
Ad hoc query/search/report creation
Drill down
Forecasts, scenarios, models
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence in the Enterprise
• Business intelligence users
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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
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence in the Enterprise
BUSINESS INTELLIGENCE USERS
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Casual users are consumers of BI output, while intense power users are the
producers of reports, new analyses, models, and forecasts.
FIGURE 12-4
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
18 © Prentice Hall 2011
Business Intelligence in the Enterprise
• Examples of BI applications
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Predictive analytics
Use patterns in data to predict future behavior
E.g. Credit card companies use predictive analytics to
determine customers at risk for leaving
Data visualization
Help users see patterns and relationships that would be
difficult to see in text lists
Geographic information systems (GIS)
Ties location-related data to maps
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence in the Enterprise
• Management strategies for developing BI and BA capabilities
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Two main strategies
One-stop integrated solution
Hardware firms sell software that run optimally on their
○
hardware
○ Makes firm dependent on single vendor – switching costs
Multiple best-of-breed solution
Greater flexibility and independence
Potential difficulties in integration
Must deal with multiple vendors
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence in the Enterprise
DATA-DRIVEN SCHOOLS
Read the Interactive Session and discuss the following questions
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• Identify and describe the problem discussed in the case.
• How do business intelligence systems provide a solution to this
problem? What are the inputs and outputs of these systems?
• What management, organization, and technology issues must be
addressed by this solution?
• How successful is this solution? Explain your answer.
• Should all school districts use such a data-driven approach to
education? Why or why not?
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence Constituencies
• Operational and middle managers
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Monitor day to day business performance
Make fairly structured decisions
Use MIS
• “Super user” and business analysts
Use more sophisticated analysis
Create customized reports
Use DSS
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence Constituencies
• Decision support systems
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Use mathematical or analytical models
Allow varied types of analysis
“What-if” analysis
Sensitivity analysis
Backward sensitivity analysis
Multidimensional analysis / OLAP
○ E. g. pivot tables
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence Constituencies
SENSITIVITY ANALYSIS
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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 break-even point if the sales price
and the cost to make each unit increases or decreases?”
FIGURE 12-5
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence Constituencies
A PIVOT TABLE THAT EXAMINES CUSTOMER REGIONAL
DISTRIBUTION AND ADVERTISING SOURCE
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In this pivot table,
we are able to
examine where an
online training
company’s
customers come
from
in terms of region
and advertising
source.
FIGURE 12-6
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence Constituencies
• Decision-support for senior management
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Help executives focus on important performance information
Balanced scorecard method:
Measures outcomes on four dimensions:
Financial
o
o Business process
o Customer
o Learning & growth
Key performance indicators (KPIs) measure each dimension
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence Constituencies
THE BALANCED SCORECARD FRAMEWORK
In the balanced
scorecard
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framework, the
firm’s strategic
objectives are
operationalized
along four
dimensions:
financial, business
process, customer,
and learning and
growth. Each
dimension is
measured using
several KPIs.
FIGURE 12-7
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence Constituencies
• Decision-support for senior management (cont.)
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Business performance management (BPM)
Translates firm’s strategies (e.g. differentiation, low-cost
producer, scope of operation) into operational targets
KPIs developed to measure progress towards targets
Data for ESS
Internal data from enterprise applications
External data such as financial market databases
Drill-down capabilities
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon
Business Intelligence Constituencies
PILOTING VALERO WITH REAL-TIME MANAGEMENT
Read the Interactive Session and discuss the following questions
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• What management, organization, and technology issues had to
be addressed when developing Valero’s dashboard?
• What measures of performance do the dashboards display? Give
examples of several management decisions that would benefit
from the information provided by Valero’s dashboards.
• What kinds of information systems are required by Valero to
maintain and operate its refining dashboard?
• How effective are Valero’s dashboards in helping management
pilot the company? Explain your answer.
• Should Valero develop a dashboard to measure the many factors
Management Information Systems: Managing the Digital Firm, 12e
Authors: Kenneth C. Laudon and Jane P. Laudon
in its environment that it does not control? Why or why not?
Business Intelligence Constituencies
• Group Decision Support Systems (GDSS)
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Interactive system to facilitate solution of unstructured
problems by group
Specialized hardware and software; typically used in conference
rooms
Overhead projectors, display screens
Software to collect, rank, edit participant ideas and responses
May require facilitator and staff
Enables increasing meeting size and increasing productivity
Promotes collaborative atmosphere, guaranteeing anonymity
Uses structured methods to organize and evaluate ideas
Management Information Systems: Managing the Digital Firm, 12e Authors: Kenneth C. Laudon and Jane P. Laudon