Decision Making in a Digital Age

Teaching Objectives
Students should be able to answer the following questions:
1. How can information systems help individual managers make better decisions
when the problems are nonroutine and constantly changing?
2. How can information systems help people working in a group make decisions more
efficiently?
3. Are there any special systems that can facilitate decision making among senior
managers? Eactly what can these systems do to help high!level management?
". #hat benefits can systems to support management decision making provide for
the organi$ation as a whole?
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The
page number for each key term is provided.
Activity-based costing, !" #SS software system, $
%alanced scorecard, "!& 'eographic information system (')S*,
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!
%usiness intelligence, "! 'roup decision-support system ('#SS*,
+
,ustomer decision-support system (,#SS*,
-
.nowledge discovery, "/
#ata-driven #SS, "0 1odel, $
#ata visuali2ation, ! 1odel-driven #SS, "-
#rill down, !$ Sensitivity analysis, 3
#SS database, $
Teaching Suggestions
4hen discussing the systems presented in this chapter with students, you should
stress to your students that these systems are often so well integrated that they may
not really have heard much about them. 4hen presenting this chapter, you should
demonstrate the value of the systems. 5or e6ample, the value of T7S and 1)S might
be easy to understand and already known by many. %ut the nature of the knowledge
obtained through use of a decision-support system is usually not so easy to understand
or obtain. 8ou definitely want to stress how #SS, '#SS, and 9SS support business
intelligence.
,ertainly students will recogni2e the importance of decisions on what the selling price
of an item will be or the decision on where a production facility or retail outlet should
be located. :owever, students are not likely to recogni2e the importance of the data
that go into the decision, the source of that data, the many more limited decisions
that are made prior to the final big decision, the comple6ity of each decision, the
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side-effects of the decision, or how the decision is really made. #ecisions can be very
comple6, and students need to understand the ways decision-support systems help
managers handle comple6ities and better understand all that goes into the decisions.
;emind students that decision-support systems cover a wide variety of systems, tools,
and technologies. Spend some time differentiating between model-driven #SS and
data-driven #SS. 4hen covering this material in class, pose and discuss the following
questions with your students. 96actly how do the systems support decisions< #o #SS
make decisions< #o #SS help make decisions< #o #SS =ust provide the data for
decisions< 7erhaps one of the best ways to teach this chapter is through the use of
e6amples. >se the case study, 4indow ?n bo6es, and e6amples in your community.
%esides stressing the graphical nature of most #SS, it is important to discuss how
semistructured and unstructured decisions are supported. The relationship between
#SS and management science is another point you should make. 1any of the #SS use
linear programming, network methods, and decision models to aid decision making.
The use of analytical models is an important distinction between #SS and 1)S@ these
models are designed for semistructured decision making. The association between
database management systems and #SS is also an important concept to stress.
The key to the #SS of the future is to engage both users and )S managers in #SS design
and development. .nowledgeable e6ecutives should speak candidly with )S staff about
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deliverables, capabilities, outcomes, needs, and what decisions should be supported
by a proposed system.
Window On !o"es
Window on Organi#ations$ Data Drives %nsights at W& Smith '()
(ist the ways this DSS hel*s W& Smith+s em*loyees to make decisions,
)nformation from every sale is now stored in a central repository that is accessible via
the 4eb by store managers and corporate staff. The new system enabled 4:Smith
managers and staff to reduce manual paperwork, reduced the manual processing of
the paperwork, and provided easy access to more current, detailed, consistent
information for all stores. The new #SS helps store managers understand what is
happening in their stores as well as in other 4: Smith stores. The #SS enables the
store managers to analy2e customer buying patterns, anticipate trends, design
promotional displays, and derive pricing strategies.
&ow has it *rovided value -or the -irm.
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The #SS should result in additional sales due to its support for promotional display
decisions and pricing strategies. As well, profit should rise due to support for
inventory ad=ustments.
Suggest other ways the system can hel* them make decisions and increase *ro-its,
Student answers for this question will vary. :owever, managers can use the #SS to
evaluate which gift items it should sell at which store. The #SS can help managers
analy2e their inventory, determining where inventory reductions can be made.
1anagers can use the #SS when making forecasting, repricing, and seasonal pricing
evaluations.
Window on Management$ Digital )ock*its &el* Steer the /nter*rise
What are the management bene-its o- digital dashboards.
#igital dashboards provide management with easy to use and easy to understand
graphical displays. These displays enable management to monitor the organi2ationAs
overall performance, spot trends, keep an eye on the competition, drill down, and
identify problems and opportunities. 7fi2er is monitoring key performance indicators
for the firm and measuring the firmAs performance against e6ternal environmental
changes.
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&ow do these dashboard systems *rovide value -or the -irm.
A dashboard provides management with the status of various key indicators. This
enables management to ad=ust its operations and strategies to ma6imi2e the firmBs
goals.
What technical0 organi#ation0 and management issues did the com*anies described
here have to address in develo*ing and installing their digital dashboards.
The 4indow on 1anagement bo6 does not mention specific technical, organi2ation,
and management issues. :owever, you should encourage your students to identify
issues that they feel are important. 7ossible issues include data integration from
different systems, e6ecutive information requirements determination, internal and
e6ternal scanning capabilities, how the data will be displayed, what types of decisions
need to be supported, what are the performance indicators that management wants
tracked, and security. Since a variety of technologies are available, management must
select the right technologies to support the decision-making process.
1or Discussion 2uestions
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3, As a manager or user o- in-ormation systems0 what would you need to know
to *artici*ate in the design and use o- a DSS or an /SS. Why.
1anagers and users of information systems would want to specify what kinds of
decisions the systems should support, and where the data for those decisions
should come from. )n a typical enterprise, workers are capturing data, sharing
data with other workers, retrieving insights from captured data, and managing
the information as per agreed upon guidelines. :owever, data are turned into
valuable business information and insight only when they can be easily captured,
systematically stored, properly retrieved, readily shared, and well-managed.
#ata management, #SS, and 9SS represent the cornerstone of any data
warehousing program.
#ata warehouses have become a critical component in enabling management to
make decisions quickly and accurately. 5or e6ample, telecommunications
companies use it to manage churn and ensure the retention of their customers,
while retail firms rely on datamining to ma6imi2e product mi6 and shelf space,
and governments use it to manage federal welfare and healthcare programs.
Across industries, data warehousing programs have achieved a $$ percent ;?),
on average, while increasing productivity, reducing speed of analysis, and
revealing business opportunities that were otherwise hidden from management
among layers of unreachable data. :owever, if management is not part of the
design and use of a #SS or 9SS, then this information may not be available or
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utili2ed, and if not, the firm may not be able to gain or maintain competitive
advantage. ?ne thing is for sure: the competition is using these systems to
enhance decision making.
4, %- businesses used DSS0 5DSS0 and /SS more widely0 would they make better
decisions. /"*lain,
,ompetitiveness increasingly depends on the quality of decision making. So
naturally, companies often rely on their own history and their past transactions
and activities to make future decisions. 4hen businesses make decisions, it is
usually helpful to use a decision-support system and firm-wide data. These
systems can automate certain decision procedures, and they can offer
information about different aspects of the decision situation. They can also help
managers question e6isting decision procedures. )t can be useful to e6plore the
outcomes of alternative organi2ational scenarios. And, of course, using '#SS can
improve how groups make decisions and also improve the decision that might
have been made by an independent person.
The si2e of the corporate information base is increasing at the rate of $$
percent every three years. >ntil recently, the idea of analy2ing years of
accumulated transaction data in a single pass seemed e6pensive and
unachievable. )n addition to the difficulties caused by data format
incompatibilities, the computational requirements would have consumed much
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of the companyAs data processing capacity for days or even weeks. Analysis has
been limited to fairly simple queries run after hours against relatively small
subsets of data. )n recent years, scalable hardware and software technologies
have fueled data warehousing, enabling decision makers to unleash the power of
analysis provided as a result.
?n the other hand, remember that these systems do not automatically lead to
better decisions unless the decision problem or situation is clearly understood
and the systems are appropriately designed.
6eview 2uestions
3, What is a decision7su**ort system 8DSS9. &ow does it di--er -rom a
management in-ormation system 8M%S9.
A #SS assists management decision making by combining data, sophisticated
analytical models, and user-friendly software into a single, powerful system that
can support semistructured or unstructured decision making. These systems help
end users utili2e data and models to discuss and decide semistructured and
unstructured problems, but they do not solve the problems for the user.
'enerally speaking, 1)S provide routine, prespecified, and formatted reports
based on data e6tracted and summari2ed from the firmAs T7S. These reports
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provide information on the firmAs performance and are used to help monitor and
control the business. )n contrast, #SS provide capabilities for addressing
nonroutine decisions and user control. #SS emphasi2e change, fle6ibility, and
rapid response and place a greater emphasis on models, assumptions, ad hoc
queries, and display graphics. Additionally, 1)S primarily address structured
problems, while #SS focus more on supporting semistructured and unstructured
problems.
4, &ow can a DSS su**ort unstructured or semistructured decision making.
>nstructured problems are novel and non-routine and have no predefined
algorithms or solutions. #SS help design and evaluate alternatives and monitor
the adoption or implementation process. #SS combine data with models to
produce various alternative scenarios for making choices. )n large organi2ations,
decision making is inherently a group process, and #SS can be designed to
facilitate group decision making by providing tools, procedures, and technologies
to help people working on decisions as a group.
:, What is the di--erence between a data7driven DSS and a model7driven DSS.
5ive e"am*les,
A data-driven #SS is a system that supports decision making by allowing users to
e6tract and analy2e useful information that was previously buried in large
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databases. ?ften T7S data are collected in data warehouses. 1ultidimensional
analysis and datamining tools can then analy2e the data. 4: Smith 7C, is an
e6ample of a data-driven #SS.
A model-driven #SS is primarily a stand-alone system that has a model at its
heart, perhaps a mathematical or spreadsheet representation of such a model.
The emphasis is on the model, scenarios, and what-if sensitivity, such as linear
programming. This chapter provides several e6amples of model-driven #SS,
including systems used by :%, and ,ontinental Airlines.
;, What are the three basic com*onents o- a DSS. !rie-ly describe each,
The three basic components of a #SS include a #SS database, #SS software
system, and #SS user interface. The #SS database is a collection of current or
historical data from a number of applications or groups, organi2ed for easy
access by a range of applications. The #SS database may be a small database
residing on a 7, or it may be a massive data warehouse that is continuously
updated by ma=or organi2ational T7S. The #SS software system is a collection of
software tools used for data analysis, including a collection of mathematical and
analytical models, ?CA7 tools, and datamining tools. Darious kinds of models may
be in the model base, including libraries of statistical, optimi2ation, sensitivity
analysis, and forecasting models. The #SS user interface permits easy interaction
between users and the #SS software tools.
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<, &ow can DSS hel* -irms with su**ly chain management and customer
relationshi* management.
Supply chain decisions involve determining Ewho, what, when, and whereF from
purchasing and transporting materials and parts through manufacturing products
and distributing and delivering those products to customers. #SS can help
managers e6amine this comple6 chain comprehensively and search among a huge
number of alternatives for the combinations that are most efficient and cost-
effective. The prime management goal might be to reduce overall costs while
increasing the speed and accuracy of filling customer orders.
#SS for customer relationship management use datamining to guide decisions
about pricing, customer retention, market share, and new revenue streams.
These systems typically consolidate customer information from a variety of
systems into massive data warehouses and use various analytical tools to slice
the data into tiny segments for one-to-one marketing.
=, What is a geogra*hic in-ormation system 85%S9. &ow does it use data
visuali#ation technology. &ow can it su**ort decision making.
'eographic information systems (')S* are a special category of #SS that use data
visuali2ation technology to analy2e and display data for planning and decision
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making in the form of digiti2ed maps. The software can assemble, store,
manipulate, and display geographically referenced information, tying data to
points, lines, and areas on a map. ')S can thus be used to support decisions that
require knowledge about the geographic distribution of people or other resources
in scientific research, resource management, and development planning. 5or
e6ample, ')S might be used to help state and local governments calculate
emergency response times to natural disasters or to help banks identify the best
locations for installing new branches or AT1 terminals. ')S tools have become
affordable even for small businesses and some can be used on the 4eb.
>, What is a customer decision7su**ort system. &ow can the %nternet be used
-or this *ur*ose.
A customer decision-support system (,#SS* supports the decision-making process
of the organi2ationBs e6isting and potential customers. The data can come from
both internal and e6ternal sources, including enterprise systems and the 4eb.
The 4eb and )nternet can provide online access to various database and
information pools along with software for data analysis.
?, What is a grou* decision7su**ort system 85DSS9. &ow does it di--er -rom a
DSS.
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A '#SS is an interactive computer-based system that facilitates the solution of
unstructured problems by a set of decision makers working together as a group.
'#SS have been developed in response to the growing concern over the quality
and effectiveness of meetings. )n general, #SS focus on individual decision
making while '#SS support decision making by a group.
@, What underlying *roblems in grou* decision making have led to the
develo*ment o- 5DSS.
The underlying problems of group decision making that have led to the
development of '#SS are the e6plosion of decision-maker meetings, the growing
length of these meetings, and the increased number of attendees at these
meetings.
3A, Describe the three elements o- a 5DSS,
:ardware, software tools, and people are the three '#SS elements. :ardware
includes the conference facility itself (room, tables, chairs* that is laid out to
support group collaboration. )t also includes electronic hardware such as
electronic display boards as well as audiovisual, computer, and networking
equipment. Software tools include electronic questionnaires, electronic
brainstorming tools, idea organi2ers, questionnaire tools, tools for voting or
setting priorities, stakeholder identification and analysis tools, policy formation
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tools, and group dictionaries. 7eople include the participants, a trained
facilitator, and the staff to support the hardware and software.
33, Bame -ive 5DSS so-tware tools,
Although many tools e6ist, the list provided in the te6tbook includes electronic
questionnaires, electronic brainstorming tools, idea organi2ers, questionnaire
tools, tools for voting or setting priorities, stakeholder identification and analysis
tools, policy formation tools, and group dictionaries.
34, &ow can 5DSS -acilitate grou* decision making.
'#SS enable more people to attend and participate in a meeting, and at the
same time the '#SS can increase meeting productivity. This increase in
productivity is reali2ed because the attendees can contribute simultaneously. A
'#SS can guarantee anonymity, follow structured methods for organi2ing and
evaluating ideas, preserve the results of meetings, and can increase the number
of ideas generated and the quality of decisions while producing the desired
results in fewer meetings. A '#SS can support idea generation, comple6 problem
analysis, and large groups.
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3:, De-ine and describe the ca*abilities o- an e"ecutive su**ort system 8/SS9,
96ecutive support systems (9SS* help managers make unstructured and
semistructured decisions. 9SS focus on the information needs of senior
management and combine data from both internal and e6ternal sources. The 9SS
creates a generali2ed computing and communications environment that can be
focused on and applied to a changing array of problems. The 9SS can help senior
e6ecutives monitor organi2ational performance, track activities of competitors,
spot problems, identify opportunities, and forecast trends.
3;, &ow can the %nternet and enter*rise systems *rovide ca*abilities -or
e"ecutive su**ort systems.
There are several ways that the )nternet and 4eb technology can enhance such a
system. 5irst, the 4eb interface is a well-known and understood interface,
making it easier to learn and use and less costly to create. Secondly, the 4eb is
an important source of e6ternal data and information. 9nterprise systems
eliminate the problem of data being unavailable or available in different
formats, or having to access hundreds or even thousands of incompatible
systems. 9nterprise systems allow data to be gathered from a company-wide
perspective so that it can be more easily analy2ed by senior management.
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3<, What are the bene-its o- /SS. &ow do these systems enhance managerial
decision making.
Although 9SS benefits are not easily measured, several benefits are mentioned in
the chapter. 9SS increase fle6ibility, provide the ability to analy2e, compare and
highlight trends, monitor performance, improve management performance, and
increase managementAs span of control. 9SS fle6ibility allows e6ecutives to shape
the problems, using the system as an e6tension of their own thinking. 9SS offer
e6ecutives the ability to analy2e quickly and to compare and highlight trends,
freeing up e6ecutives and their staff for more creative analysis and decision
making. 9SS can, and do, change the workings of organi2ations. 96ecutives are
better able to monitor activities below them, allowing them to push decision
making further down in the organi2ation while e6panding the e6ecutiveBs span of
control.
A**lication So-tware /"ercise
This problem is useful for showing students how a rudimentary #SS works and for
illustrating the concepts of Ewhat-ifF analysis and sensitivity analysis. )nstructors
may need to spend a little time e6plaining breakeven analysis to students.
#iscuss with the students the fact that the principal idea behind break-even
analysis is that all costs are variable (which means they vary with output*, fi6ed
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(which means they are relatively constant over time*, or a combination of both.
Theoretically, after fi6ed costs are covered, each dollar of sales will have to
cover only variable costs.
The problem here has been simplified so that it treats Selmore as a one-product
company and calculates the breakeven point for one product. The actual
breakeven calculations in the real business world would be much more
complicated and perhaps too challenging for most students taking the 1)S
course. Students will need to know how to use the data-table command for
sensitivity analysis in order to solve this problem.
The solution spreadsheet was designed so that one can easily recalculate the
breakeven point when the selling price is G3&! by entering G3&! as the sales
price per unit.
5rou* 'roject
With three or -our o- your classmates0 identi-y several grou*s in your
university that could bene-it -rom a 5DSS, Design a 5DSS -or one o- those
grou*s0 describing its hardware0 so-tware0 and *eo*le elements, 'resent your
-indings to the class,
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7resentations will depend upon the university group selected by each student
group. 5or instance, the student group might select the faculty personnel and
tenure committee, which probably engages in lengthy deliberations about
appointments, tenure, and promotions. After selecting a target group, the
student teams must first define the needs of that group. 5or instance, the
student groups must determine the kinds of problems they will address through
the '#SS, the problems the '#SS need to solve. At this point, you should
encourage your students to review Section 3".&, E'roup #ecision-Support
Systems ('#SS*.F
)ase Study C )an DSS &el* Master)ard Master the )redit )ard !usiness.
3, Analy#e Master)ard using the com*etitive -orces and value chain models,
!rie-ly summari#e the *roblems that Master)ard was -acing be-ore 3@@? that
caused it to change its business strategy,
1aster,ard is operating in a very competitive industry. 1aster,ard has several
competitors, with Disa being its primary competitor. Although not mentioned in
the case, 1aster,ard does have competition from other credit cards companies,
such as American 96press, #iscover, and the various retail stores that offer their
own credit cards. 1aster,ard customers can easily switch credit card companies,
and banks can opt to promote one credit card over the other. Although entry of a
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new credit card company into the industry is a threat, it would require a
significant investment. 1aster,ard is using information technology to support its
value chain activities. )nformation technology has enabled 1aster,ard to
enhance market penetration and create new services. %ecause of the data
provided by 1aster,ardAs system, its merchants can use the data to target
specific customers. 4al-1art is one e6ample mentioned in the case.
)n 3//0, Disa had over !$ percent of the credit card charge volume, and
1aster,ard was lagging behind with &0.0 percent. )n an effort to attract new
business, 1aster,ard updated and consolidated its computer centers, building a
system that could track every transaction made by customers for three years.
1aster,ard added new data fields and made the customer data and analytical
tools available to and directly accessible by its member banks.
4, Describe the new business strategy Master)ard develo*ed, What is the role o-
in-ormation systems in its new strategy.
1aster,ardAs new strategy focused on information leadership and customer
service. 7art of 1aster,ardAs strategy was to encourage bank issuers to promote
its cards over its competitors. To spur its bank issuers, 1aster,ard sought to
make more customer and transaction information available to the bank issuers
than the competition currently makes available to them.
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1aster,ard required a system that would keep a record of every transaction of
every customer for three years. )nformation systems were crucial to the
implementation of 1aster,ardAs strategy. The new information systems were
responsible for collecting, storing, and consolidating customer data. The new
information systems also provide member banks with online access to their
customer data, reports, and analytical tools.
:, What kind o- decision7su**ort systems did Master)ard develo*. &ow are they
related to its business strategy. &ow do they *rovide value -or Master)ard
and its clients.
1aster,ard developed data-driven #SS. The #SS provide &+ tools that banks can
use. Although the %usiness 7erformance )ntelligence tool also provides some 1)S
capabilities, such as providing operational reporting, it does include a suite of +$
standard reports that banks can use to analy2e their daily, weekly, and monthly
transactions. %anks can compare results from one market with the results from
another market. 1arketScope can help merchants and banks generate more
purchases for the merchants if the customers use their 1aster,ards for their
purchases. 1arketScope can analy2e the purchases and help the merchants
target market special opportunities to customers. 1aster,ardAs #SS have helped
the company increase its market share.
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;, &as Master)ard+s strategy been success-ul. )an Master)ard hold on to its
strategic advantage. /"*lain your answer,
1aster,ardAs strategy has been successful. 1aster,ard encouraged several
companies, such as ,itigroup and H.7. 1organ ,hase, to push its credit cards.
1aster,ardAs strategic advantage is not sustainable. The case clearly points out
that D)SA is not sitting by and allowing 1aster,ard to eat away at its market
share. D)SA is now running analyses for its banks on its own computers and is
offering a 4eb service called ;esolve ?nline.
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