ENHANCING MANAGEMENT DECISION-MAKING FOR THE DIGITAL FIRM Chapter 11 ENHANCING MANAGEMENT DECISION-MAKING FOR THE DIGITAL FIRM

OBJECTIVES How can information systems help individual managers make better decisions when the problems are non-routine and constantly changing? How can information systems help people working in a group make decisions more efficiently?

OBJECTIVES Are there any special systems that can facilitate decision-making among senior managers? Exactly what can these systems do to help high-level management? What benefits can systems that support management decision-making provide for the organization as a whole?

MANAGEMENT CHALLENGES Building information systems that can actually fulfill executive information requirements Create meaningful reporting and management decision-making processes

Decision-Making Level The four different decision-making constituencies in a firm are the following: Senior management: is concerned with general timely info on changes in the industry and society at large that may affect both long-term and near-term future of the firm. Middle Management and project teams: is concerned with specific, timely info about firm performance, including revenue and cost reduction targets Operational Management and project teams: monitors the performance of each subunit of the firm and manages individual employees Individual employees: try to fulfill the objectives of managers above them, following established rules and procedures for their routine activities

Decision-Making Level Information Requirements of key Decision-Making Groups in a firm Unstructured Semistructured Structured Senior Management Middle Management Operational Management Individual Employees and Teams

Unstructured decisions DECISION-SUPPORT SYSTEMS (DSS) Types of Decision-Support Systems Unstructured decisions Are those in which the decision maker must provide judgment, evaluation, and insights into the problem definition Semistructured decisions Only part of the problem has a clear-cut answer provided by an accepted procedure Structured decisions Are repetitive and routine, and decision makers can follow a definite procedure for handling them to be efficient

Types of Decision-Support Systems In general, structured decisions are made at lower organizational levels, whereas unstructured decision making is more common at higher levels of the firm

Types of Decision-Support Systems DECISION-SUPPORT SYSTEMS (DSS) Types of Decision-Support Systems Senior executives tend to be exposed to many unstructured decision situations that are open ended and evaluative and that require insight based on many sources of information and personal experience For example, a CEO in today’s music industry might ask, “Whom should we choose as a distribution partner for our online music catalog”? Answering this question would require access to WHAT … ? news, government reports, and industry views as well as high-level summaries of firm performance

Types of Decision-Support Systems DECISION-SUPPORT SYSTEMS (DSS) Types of Decision-Support Systems Middle management and operational management tend to face more structured decision scenarios, but their decisions may include unstructured components For example, A typical middle-level management decision might be “Why is the order fulfillement report showing a decline over the last six months at a distribution center in Minnealoplis?” This middle manager could obtain a report from the firm’s enterprise system or distribution management system on order activity and operational efficiency at the Minneapolis distribution center. This is the structured part of the decision. WHERE IS THE UNSTRUCTURED PART OF THE DECISION HERE?

Model-driven DSS Data-driven DSS Primarily stand-alone DECISION-SUPPORT SYSTEMS (DSS) Types of Decision-Support Systems Model-driven DSS Primarily stand-alone Uses model to perform “what-if” and other kinds of analysis Ex: voyage-estimating system calculates financial (ship/time costs) and technical (ship cargo capacity, speed, port distances, etc…) voyage details Data-driven DSS Allows users to extract and analyze useful information from large databases Ex: How many units of product number 403 were shipped in November 2004?

Computer system at the management level of an organization DECISION-SUPPORT SYSTEMS (DSS) Computer system at the management level of an organization Combines data, analytical tools, and models Supports semi-structured and unstructured decision-making

DECISION-SUPPORT SYSTEMS (DSS) MIS and DSS MIS Provide info on the firm’s performance to help managers monitor and control the business Provides reports based on routine flow of data Assists in general control of the organization Ex: A typical MIS report might show a summary of monthly sales

DSS DSS support decisions in a different way. DECISION-SUPPORT SYSTEMS (DSS) MIS and DSS DSS DSS support decisions in a different way. Whereas MIS primarily address structured problems, DSS support semistructured and unstructured problem analysis Emphasizes change, flexibility, rapid response, models, assumptions, ad hoc queries, and display graphics

Datamining Uses statistical analysis tools DECISION-SUPPORT SYSTEMS (DSS) Types of Decision-Support Systems Datamining Uses statistical analysis tools Finds hidden patterns and relationships in large databases to infer rules Knowledge discovery events that are linked over time are referred to as sequences Data mining can allow a firm to develop specific marketing campaigns for different customer segments

Figure 11-1 DECISION-SUPPORT SYSTEMS (DSS) Cargo Booking Request Agent Cargo Size, Rate Data Availability Forecast Passenger Forecast Data Confirm/ Reject 1 CARGO RESERVATION SYSTEM 2 FLIGHT SCHEDULE SERVER 5 PASSENGER 4 xxx Availability/ Minimum Price CARGOPROF REVENUE MANAGEMENT SYSTEM 3 Figure 11-1

Overview of a Decision-Support System (DSS) DECISION-SUPPORT SYSTEMS (DSS) Overview of a Decision-Support System (DSS) Figure 11-2

DSS database: collection of current or historical data DECISION-SUPPORT SYSTEMS (DSS) Components of Decision-Support Systems DSS database: collection of current or historical data DSS software system: collection of software tools/mathematical and analytical models User interface: easy interaction

DECISION-SUPPORT SYSTEMS (DSS) Components of Decision-Support Systems Model Abstract representation illustrating components or relationships of a phenomenon A model can be a physical model (airplane model), a mathematical model (equation), or a verbal model (description of a procedure for writing an order) Optimization models, often using linear programming, determine optimal resource allocation to maximize or minimize specified variables such as cost or time

Asks “what-if” questions repeatedly to determine the impact of change DECISION-SUPPORT SYSTEMS (DSS) Sensitivity Analysis Sensitivity analysis Asks “what-if” questions repeatedly to determine the impact of change Ex: What happens if we raise the price by 5% or increase the advertising budget by $100,000? Figure 11-3

Bank of America: Customer profiles DECISION-SUPPORT SYSTEMS (DSS) DSS Applications and the Digital Firm General Accident Insurance: Customer buying patterns and fraud detection Bank of America: Customer profiles Frito-Lay, Inc.: Price, advertising, and promotion selection

Burlington Coat Factory: Store location and inventory mix DECISION-SUPPORT SYSTEMS (DSS) DSS Applications and the Digital Firm Burlington Coat Factory: Store location and inventory mix Keycorp: Targeting direct mail marketing customers National Gypsum: Corporate planning and forecasting

Southern Railway: Train dispatching and routing DECISION-SUPPORT SYSTEMS (DSS) DSS Applications and the Digital Firm Southern Railway: Train dispatching and routing Texas Oil and Gas Corporation: Evaluation of potential drilling sites United Airlines: Flight scheduling, passenger demand forecasting

U.S. Department of Defense: Defense contract analysis DECISION-SUPPORT SYSTEMS (DSS) DSS Applications and the Digital Firm U.S. Department of Defense: Defense contract analysis

Comprehensive examination of supply management chain DECISION-SUPPORT SYSTEMS (DSS) DSS for Supply Chain Management Comprehensive examination of supply management chain Searches for most efficient and cost-effective combination Reduces overall costs Increases speed and accuracy of filling customer orders

Uses data mining to guide decisions DECISION-SUPPORT SYSTEMS (DSS) DSS for Customer Relationship Management Uses data mining to guide decisions Consolidates customer information into massive data warehouses Uses various analytical tools to slice information into small segments

DSS for Customer Analysis and Segmentation DECISION-SUPPORT SYSTEMS (DSS) DSS for Customer Analysis and Segmentation Figure 11-4

Geographic Information Systems (GIS) DECISION-SUPPORT SYSTEMS (DSS) DSS for Simulating Business Scenarios Geographic Information Systems (GIS) Software for analyzing and displaying data using digitized maps Enhances planning and decision-making Use data visualization technology

DECISION-SUPPORT SYSTEMS (DSS) DSS for Simulating Business Scenarios Data Visualization Helps users see patterns and relationships in large amounts of data that would be difficult to discern if the data were presented as traditional lists of text

Customer Decision-Support Systems (CDSS) DECISION-SUPPORT SYSTEMS (DSS) Web-Based Customer Decision-Support Systems Customer Decision-Support Systems (CDSS) Support decision-making process of an existing or potential customer

Interactive computer-based system GROUP DECISION-SUPPORT SYSTEMS (GDSS) What Is a GDSS? Interactive computer-based system Facilitates solution to unstructured problems Set of decision makers working together as a group One problem with understanding the value of GDSS is their complexity.

Hardware: Conference facility, electronic hardware GROUP DECISION-SUPPORT SYSTEMS (GDSS) Characteristics of GDSS Hardware: Conference facility, electronic hardware Software tools: Tools for organizing ideas, gathering information, and ranking and seeking priorities People: Participants, trained facilitator, staff supporting hardware and software

Electronic questionnaires Electronic brainstorming tools GROUP DECISION-SUPPORT SYSTEMS (GDSS) GDSS Software Tools Electronic questionnaires Electronic brainstorming tools Idea organizers Questionnaire tools

Tools for voting or setting priorities GROUP DECISION-SUPPORT SYSTEMS (GDSS) GDSS Software Tools Tools for voting or setting priorities Stakeholder identification and analysis tools

Figure 11-5 DECISION-SUPPORT SYSTEMS (DSS) Group Interaction Brainstorming Idea Topic Commenter Generation Group Outliner Idea Organizer Idea Issue Analyzer Organization Group Writer Session Planning Vote Selection Alternative Eval. Prioritizing Questionnaire Group Matrix Session Manager Policy Policy Formation Development Stakeholder ID. Enterprise Analyzer Graphical Browser Group Dictionary Organizational Memory Brief Case • Access to information • Personal productivity Figure 11-5

Increased participation Open, collaborative meeting atmosphere GROUP DECISION-SUPPORT SYSTEMS (GDSS) How GDSS can Enhance Group Decision-Making Improved preplanning Increased participation Open, collaborative meeting atmosphere Criticism-free idea generation Evaluation objectivity

Executive Support Systems (ESS): EXECUTIVE SUPPORT IN THE ENTERPRISE Executive Support Systems (ESS): Information system at strategic level of an organization Addresses unstructured decision-making through advanced graphics and communications

Brings together data from the entire organization GROUP DECISION-SUPPORT SYSTEMS (GDSS) The Role of Executive Support Systems in the Organization Brings together data from the entire organization Allows managers to select, access, and tailor data Enables executive and any subordinates to look at the same data in the same way

Facility for environmental scanning GROUP DECISION-SUPPORT SYSTEMS (GDSS) The Role of Executive Support Systems in the Organization Developing ESS: Ease of use Facility for environmental scanning External and internal sources of information to be used for environmental scanning

Benefits of Executive Support Systems GROUP DECISION-SUPPORT SYSTEMS (GDSS) Benefits of Executive Support Systems Analyzes, compares, and highlights trends Provides greater clarity and insight into data Speeds up decision-making

Benefits of Executive Support Systems GROUP DECISION-SUPPORT SYSTEMS (GDSS) Benefits of Executive Support Systems Improves management performance Increases management’s span of control Better monitoring of activities

ESS for business intelligence: Identifies changing market conditions GROUP DECISION-SUPPORT SYSTEMS (GDSS) Executive Support Systems and the Digital Firm ESS for business intelligence: Identifies changing market conditions Formulates responses Tracks implementation efforts Learns from feedback

Monitoring corporate performance: balanced scorecard systems GROUP DECISION-SUPPORT SYSTEMS (GDSS) Executive Support Systems and the Digital Firm Monitoring corporate performance: balanced scorecard systems Model for analyzing firm performance Supplements traditional financial measures with measurements from additional business perspectives

Strategic performance management tools for enterprise systems GROUP DECISION-SUPPORT SYSTEMS (GDSS) Enterprise Wide Reporting and Analysis Strategic performance management tools for enterprise systems SAP: Web-enabled mySAP.com™, Management Cockpit PeopleSoft: Web-enabled Enterprise Performance Management (EPM) Oracle: Strategic Enterprise Management

ENHANCING MANAGEMENT DECISION-MAKING FOR THE DIGITAL FIRM Chapter 11 ENHANCING MANAGEMENT DECISION-MAKING FOR THE DIGITAL FIRM

Multiple Choice Questions ( 12 Questions) Changes in the industry and society at large that may affect the long-term and near-term future of the firm is mainly concentrated at this management level: Senior Middle Operational Knowledge

Multiple Choice Questions Information density refers to the A) richnesscomplexity and contentof a message. B) total amount and quantity of information delivered to consumers by merchants. C) total amount and quantity of information available to all market participants. D) amount of information available to reduce price transparency. Answer: C

Multiple Choice Questions Once knowledge taxonomy is developed, documents are all ________ with the proper classification. A) tagged B) linked C) tupled D) referenced Answer: A

Multiple Choice Questions Backward chaining is A) a strategy for searching the rule base in an expert system that begins with information entered by the user. B) the programming environment of an expert system. C) a method of organizing expert system knowledge into chunks. D) a strategy for searching the rule base in an expert system that begins with a hypothesis. Answer: D

Multiple Choice Questions Which of the following systems is NOT used to capture tacit knowledge? A) expert system B) case-based reasoning C) fuzzy logic D) neural network Answer: D

Multiple Choice Questions Decisions in which the decision maker must provide judgment, evaluation, and insights into the problem definition would be characterized as: structured. semistructured. unstructured. overt.

Multiple Choice Questions In data mining, events that are linked over time are referred to as: associations. sequences. classifications. clusters.

Multiple Choice Questions Data mining can allow a firm to develop:  specific marketing campaigns for different customer segments. intuitive user interfaces. DSS based on the Web. multiple distributed systems.

Multiple Choice Questions To make sure the system provides the information managers need, building successful DSSs requires: data mining. abstract decision processing. data co-integration a high-level of user participation.

Multiple Choice Questions Using a DSS involves several basic types of analytical models. If you wanted to cut advertising by $100 repeatedly so that you could see its relationship on sales, you would be using this model: Sensitivity Optimization data visualization "what-if"

Multiple Choice Questions GDSS consist of three basic elements: software, conference rooms, and facilitators. hardware, telecommunications, and facilitators. hardware, software tools, and people. software, telecommunications, and people.

Multiple Choice Questions One problem with understanding the value of GDSS is their: availability and cost. complexity. need for organizational memory. need for a facilitator.

True-False Questions (6 Questions) Operational management monitors the performance of each subunit of the firm and manages individual employees.  True False

True-False Questions Structured decisions require the decision maker to use judgment to analyze the problem.  True  False

True-False Questions The four phases of decision making are linear and once one phase is complete it is never returned to.  True  False

True-False Questions Data mining is more discovery-driven than traditional database queries.  True  False

True-False Questions Sequencing finds patterns in data to help managers estimate future value of continuous variables such as sales figures.  True False

Answer: TRUE True-False Questions An online syndicator aggregates content or applications from multiple sources, packaging them for distribution, and reselling them to third-party Web sites. Answer: TRUE

True-False Questions Companies rarely use Web pages to analyze customer information. Answer: FALSE

True-False Questions Some Net marketplaces support contractual purchasing based on long-term relationships with designated suppliers. Answer: TRUE

True-False Questions Knowledge is universally applicable and easily moved. Answer: FALSE

True-False Questions A collection of current or historical data from a number of applications or groups forms a DSS database.  True  False

Fill-in the blanks Questions A(n) ________ decision is repetitive and routine, for which known algorithms provide solutions. Answer: structured

Fill-in the blanks Questions ________-driven DSS have analysis capabilities based on strong theories and used to perform "what-if" and similar kinds of analyses. Answer: Model

Fill-in the blanks Questions Of the three main DSS components, the ________ system comprises the tools used for data analysis. Answer: software

Fill-in the blanks Questions A(n) ________ is an abstract representation illustrating the components or relationships of a phenomenon. Answer: model

Fill-in the blanks Questions A(n) ________ model determines the best resource allocation to maximize or minimize specified variables. Answer: optimization

Fill-in the blanks Questions A(n) ________ supports the decision-making processes of an existing or potential customer. Answer: customer decision-support system, CDSS

Essay Questions What are the major capabilities of DSS? What is the main problem with DSS? How do the various decision-making systems support decision making within the company structure? How is data visualization used in GIS? What are the advantages and disadvantages of the use of a GDSS for group decision making?