BUSINESS INTELLIGENCE 21AI641 VI SEM AI&ML

|| Jai Sri Gurudev||

SJC Institute of Technology

BUSINESS INTELLIGENCE
[21AI641]
6TH Semester
AI&ML
SJCIT, Chickkballapur

Prepared by:

Dr. Varadaraju H R
Associate Professor
Department of AI & ML

1 Dr.Varadaraju H R, SJCIT, Chickkballapur

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2 Dr.Varadaraju H R, SJCIT, Chickkballapur

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 BUSINESS INTELLIGENCE 21AI641 VI SEM AI&ML

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Module-1
Decision Support and Business Intelligence
 Opening Vignette
 Changing Business Environments and Computerized Decision Support
 Managerial Decision Making
 Computerized Support for Decision Making
 An Early Framework for Computerized Decision Support
 The Concept of Decision Support Systems (DSS)
 A framework for Business Intelligence (BI)
 A Work System View of Decision Support.

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Module-1
Decision Support and Business Intelligence
OPENING VIGNETTE:
There are four large freight railroads in the United States, and Norfolk Southern is one of them. Each day,
the company moves approximately 500 freight trains across 21,000 route miles in 22 eastern states, the
District of Columbia, and Ontario, Canada. Norfolk Southern manages more than $26 billion in assets and
employs over 30,000 people.
For more than a century, the railroad industry was heavily regulated, and Norfolk Southern and its
predecessor railroads made money by managing their costs. Managers focused on optimizing the use of
railcars to get the most production out of their fixed assets. Then, in 1980, the industry was partially
deregulated, which opened up opportunities for mergers and allowed companies to charge rates based on
service and enter into contracts with customers. On-time delivery became an important factor in the industry.

Over time, Norfolk Southern responded to these industry changes by becoming a "scheduled." Railroad this
meant that the company would develop a fixed set of train schedules and a fixed set of connections for cars
to go between trains and yards. In this way, managers could predict when they could get a shipment to a
customer.

Norfolk Southern has always used a variety of sophisticated systems to run its business. Becoming a
scheduled railroad, however, required new systems that would first use statistical models to determine the
best routes and connections to optimize railroad performance and then apply the models to create the plan
that would actually run the railroad operations. These new systems were called TOP, short for Thoroughbred
Operating Plan; TOP was deployed in 2002.

Norfolk Southern realized that it was not enough to run the railroad using TOP, it also had to monitor and
measure its performance against the TOP plan. Norfolk Sothern’s numerous systems generate millions of
records about freight records, railcars, train Global Positioning System (GPS) information, train fuel levels,
revenue information, crew management, and historical tracking records. Unfortunately, the company was not
able to simply tap into this data without risking significant impact on the systems' performance.

Back in 1995, the company invested in a 1-terabyte Teradata data warehouse, which is a central repository of
historical data. It is organized in such a way that the data are easy to access (using a Web browser) and can
be manipulated for decision support. The warehouse data come from the systems that run the company (i.e.,
source systems), and once the data are moved from the source systems to the warehouse, users can access
and use the data without risk of impacting operations.

In 2002, the data warehouse became a critical component of TOP. Norfolk Southern built a TOP dashboard
application that pulls data from the data warehouse and then graphically depicts actual performance against
the trip plan for both train performance and connection performance. The application uses visualization
technology so that field managers can more easily interpret the large volumes of data (e.g., there were
160,000 weekly connections across the network). The number of missed connections has decreased by 60%

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since the application was implemented. And, in the past 5 years, railcar cycle time has decreased by an entire
clay, which translates into millions of dollars in annual savings.

Norfolk Southern has an enterprise data warehouse (EDW), which means that once data are placed in the
warehouse, the data are available across the company, not just for a single application. Although train and
connection performance data are used for the TOP application, the company has been able to leverage that
data for all kinds of other purposes. For example, the marketing department has developed an application
called accessNS, which was built for Norfolk Southern customers who want visibility into Norfolk Sothern’s
extensive transportation network. Customers want to know where their shipments are "right now"-and at
times, they want historical information: Where did my shipment come from? How long did it take to arrive?
What were the problems along the route?

AccessNS allows more than 14,500 users from 8,000 customer organizations to log in and access predefined
and custom reports about their accounts at any time. Users can access current data, which are updated
hourly, or they can look at data from the past 3 years. AccessNS provides alerting and Really Simple
Syndication (RSS) feed capabilities; in fact, 4,500 reports are pushed to users daily. The self-service nature
of accessNS has allowed Norfolk Southern to give customers what they want and also to reduce the number
of people needed for customer service. In fact, without accessNS, it would take approximately 47 people to
support the current level of customer reporting.

Departments across the company-from engineering and strategic planning to cost and human resources-use
the EDW. One interesting internal application was developed by human resources. Recently, the department
needed to determine where to locate its field offices in order to best meet the needs of Norfolk Southern's
30,000+ employees. By combining employee demographic data (e.g., zip codes) with geospatial data
traditionally used by the engineering group, human resources was able to visually map out the employee
population density, making it much easier to optimize services offices locations.

Today, the Norfolk Southern data warehouse has grown to a 6-terabyte system that manages an extensive
amount of information about the company's vast network of railroads and shipping services. Norfolk
Southern uses the data warehouse to analyze trends, develop forecasting schedules, archive records, and
facilitate customer self-se1vice. The data warehouse provides information to over 3,000 employees and over
14,000 external customers and stakeholders.

Norfolk Southern was the first railroad to offer self-service BI, and its innovation is setting an example that
other railroads have followed. The company was also one of the first railroads to provide a large variety of
historical data to external customers.

QUESTIONS FOR THE OPENING VIGNETTE

1. How are information systems used at Norfolk Southern to support decision making?
2. What type of information is accessible through the visualization applications?
3. What type of information support is provided through accessNS?
4. How does Norfolk Southern use the data wa rehouse for human resource applications?
5. Can the same data warehouse be used for BI and optimization applications?

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1.2: Changing Business Environments and Computerized Decision Support

The opening vignette illustrates how a global company excels in a mature but competitive market.
Companies are moving aggressively to computerized support of their operations. To understand why
companies are embracing computerized support, including BI, we developed a model called the Business
Pressures-Responses-Support Model, which is shown in Figure 1.1.

Figure 1.1. Business Pressures-Responses-Support Model

The Business Pressures-Responses-Support Model: The Business Pressures-Responses-Support Model, as

its name indicates, has three components: business pressures that result from today's business climate,
responses (actions taken) by companies to counter the pressures (or to take advantage of the opportunities
available in the environment), and computerized support that facilitates the monitoring of the environment
and enhances the response actions taken by organizations.

THE BUSINESS ENVIRONMENT: The environment in which organizations operate today is becoming
more and more complex. This complexity creates opportunities on the one hand and problems on the other.
Take globalization as an example. Today, you can easily find suppliers and customers in many countries,
which means you can buy cheaper materials and sell more of your products and services; great opportunities
exist. However, globalization also means more and stronger competitors. Business environment factors can
be divided into four major categories: markets, consumer demands, technology, and societal. These
categories are summarized in Table 1.1.
Table 1.1. Business environment Factors that create Pressures on organisation

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Note that the intensity of most of these factors increases with time, leading to more pressures, more
competition, and so on. In addition, organizations and departments within organizations face decreased
budgets and amplified pressures from top managers to increase performance and profit. In this kind of
environment, managers must respond quickly, innovate, and be agile. Let's see how they do it.

ORGANIZATIONAL RESPONSES: BE REACTIVE, ANTICIPATIVE, ADAPTIVE, AND PROACTIVE

Both private and public organizations are aware of today's business environment and pressures. They use
different actions to counter the pressures. Vodafone New Zealand Ltd (Krivda, 2008), for example, turned to
BI to improve communication and to support executives in its effort to retain existing customers and
increase revenue from these customers. Managers may take other actions, including the following:

Employ strategic planning

Use new and innovative business models
Restructure business processes
Participate in business alliances
Improve corporate information systems
Improve partnership relationships
Encourage innovation and creativity
Improve customer service and relationships
Move to electronic commerce (e-commerce)
Move to make-to-order production and on-demand manufacturing and services
Use new IT to improve communication, data access (discovery of information), and collaboration
Respond quickly to competitors' actions (e.g., in pricing, promotions, new products and services)
Automate many tasks of white-collar employees
Automate certain decision processes, especially those dealing with customers
Improve decision making by employing analytics
Many, if not all, of these actions require some computerized support. These and other response actions are
frequently facilitated by computerized DSS.

CLOSING THE STRATEGY GAP One of the major objectives of computerized decision support is to
facilitate closing the gap between the current performance of an organization and its desired performance, as
expressed in its mission, objectives, and goals, and the strategy to achieve them. In order to understand why
computerized support is needed and how it is provided, let us review the framework for business intelligence
and its use in decision support.

Review Questions

1. List the components of and explain the Business Pressures–Responses–Support model.

2. What are some of the major factors in today’s business environment?

3. What are some of the major response activities that organizations take?

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1.3: MANAGERIAL DECISION SUPPORT:

The Nature of Managers’ Work

Mintzberg’s (2008) classic study of top managers and several replicated studies suggest that managers
perform 10 major roles that can be classified into three major categories: interpersonal, informational, and
decisional (see Table 1.2).

To perform these roles, managers need information that is delivered efficiently and in a timely manner to
personal computers (PCs) on their desktops and to mobile devices. This information is delivered by
networks, generally via Web technologies.

In addition to obtaining information necessary to better perform their roles, managers use computers directly
to support and improve decision making, which is a key task that is part of most of these roles. Many
managerial activities in all roles revolve around decision making. Managers, especially those at high
managerial levels, are primarily decision makers.

The Decision-Making Process

For years, managers considered decision making purely an art—a talent acquired over a long period through
experience (i.e., learning by trial-and-error) and by using intuition. Management was considered an art
because a variety of individual styles could be used in approaching and successfully solving the same types
of managerial problems. These styles were often based on creativity, judgment, intuition, and experience
rather than on systematic quantitative methods grounded in a scientific approach. However, recent research
suggests that companies with top managers who are more focused on persistent work (almost dullness) tend
to outperform those with leaders whose main strengths are interpersonal communication skills (Kaplan et al.,
2008; Brooks, 2009). It is more important to emphasize methodical, thoughtful, analytical decision making
rather than flashiness and interpersonal communication skills.

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Managers usually make decisions by following a four-step process

1. Define the problem (i.e., a decision situation that may deal with some difficulty or with an opportunity). 2.
Construct a model that describes the real-world problem.
3. Identify possible solutions to the modelled problem and evaluate the solutions.
4. Compare, choose, and recommend a potential solution to the problem.
To follow this process, one must make sure that sufficient alternative solutions are being considered, that the
consequences of using these alternatives can be reasonably predicted, and that comparisons are done
properly. However, the environmental factors listed in Table 1.1 make such an evaluation process difficult
for the following reasons:
• Technology, information systems, advanced search engines, and globalization result in more and more
alternatives from which to choose.
• Government regulations and the need for compliance, political instability and terrorism, competition, and
changing consumer demands produce more uncertainty, making it more difficult to predict consequences
and the future.
• Other factors are the need to make rapid decisions, the frequent and unpredictable changes that make trial-
and-error learning difficult, and the potential costs of making mistakes.
• These environments are growing more complex every day. Therefore, making decisions today is indeed a
complex task.
Because of these trends and changes, it is nearly impossible to rely on a trial-anderror approach to
management, especially for decisions for which the factors shown in Table 1.1 are strong influences.
Managers must be more sophisticated; they must use the new tools and techniques of their fields. Most of
those tools and techniques are discussed in this book. Using them to support decision making can be
extremely rewarding in making effective decisions. In the following section, we look now at why we need
computer support and how it is provided.
Review Questions:
1. Describe the three major managerial roles, and list some of the specific activities in each.
2. Why have some argued that management is the same as decision making?
3. Describe the four steps managers take in making a decision.

1.4: Computerised Support for Decision Making

From traditional uses in payroll and bookkeeping functions, computerized systems are now penetrating
complex managerial areas ranging from the design and management of automated factories to the
application of artificial intelligence methods to the evaluation of proposed mergers and acquisitions. Nearly
all executives know that information technology is vital to their business and extensively use information
technologies, especially Web-based ones.

Computer applications have moved from transaction processing and monitoring activities to problem
analysis and solution applications, and much of the activity is done with Web-based technologies. BI tools
such as data warehousing, data mining, online analytical processing (OLAP), dashboards, and the use of the
Web for decision support are the cornerstones of today’s modern management. Managers must have high-
speed, networked information systems (wireline or wireless) to assist them with their most important task:
making decisions. Let’s look at why and how computerized systems can help.

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Why We Use Computerized Decision Support Systems?

Today’s computerized systems possess capabilities that can facilitate decision support in a number of ways,
including the following:

• Speedy computations. A computer enables the decision maker to perform many computations quickly and
at a low cost. Timely decisions are critical in many situations, ranging from a physician in an emergency
room to a stock trader on the trading floor. With a computer, thousands of alternatives can be evaluated in
seconds. Furthermore, the benefits-to-cost ratio of computers and the speed of executions are constantly
increasing.

• Improved communication and collaboration. Many decisions are made today by groups whose members
may be in different locations. Groups can collaborate and communicate readily by using Web-based tools.
Collaboration is especially important along the supply chain, where partners—all the way from vendors to
customers—must share information.

• Increased productivity of group members. Assembling a group of decision makers, especially experts, in
one place can be costly. Computerized support can improve the collaboration process of a group and enable
its members to be at different locations (saving travel costs). In addition, computerized support can increase
the productivity of staff support (e.g., financial and legal analysts). Decision makers can also increase their
productivity by using software optimization tools that help determine the best way to run a business.

• Improved data management. Many decisions involve complex computations. Data for these can be
stored in different databases anywhere in the organization and even possibly at Web sites outside the
organization. The data may include text, sound, graphics, and video, and they can be in foreign languages. It
may be necessary to transmit data quickly from distant locations. Computers can search, store, and transmit
needed data quickly, economically, securely, and transparently.

• Managing giant data warehouses. Large data warehouses, like the one operated by Wal-Mart, contain
terabytes and even petabytes of data. Computers can provide extremely great storage capability for any type
of digital information, and this information can be accessed and searched very rapidly. Special methods,
including parallel computing, are available to organize, search, and mine the data. The costs related to data
warehousing are declining.

• Quality support. Computers can improve the quality of decisions made. For example, more data can be
accessed, more alternatives can be evaluated, forecasts can be improved, risk analysis can be performed
quickly, and the views of experts (some of whom are in remote locations) can be collected quickly and at a
reduced cost. Expertise can even be derived directly from a computer system using artificial intelligence
methods (discussed in Part III and also Chapter 12). With computers, decision makers can perform complex
simulations, check many possible scenarios, and assess diverse impacts quickly and economically.

• Agility support. Competition today is based not just on price but also on quality, timeliness, customization
of products, and customer support. In addition, organizations must be able to frequently and rapidly change
their mode of operation, reengineer processes and structures, empower employees, and innovate in order to
adapt to their changing environments. Decision support technologies such as intelligent systems can
empower people by allowing them to make good decisions quickly, even if they lack some knowledge.

• Overcoming cognitive limits in processing and storing information. According to Simon (1977), the human
mind has only a limited ability to process and store information. People sometimes find it difficult to recall
and use information in an error-free fashion due to their cognitive limits. The term cognitive limits indicates
that an individual’s problem-solving capability is limited when a wide range of diverse information and
knowledge is required. Computerized systems enable people to overcome their cognitive limits by quickly
accessing and processing vast amounts of stored information.

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• Using the Web. Since the development of the Internet and Web servers and tools, there have been
dramatic changes in how decision makers are supported. Most important, the Web provides

(1) Access to a vast body of data, information, and knowledge available around the world;

(2) A common, user-friendly graphical user interface (GUI) that is easy to learn to use and readily available;

(3) The ability to effectively collaborate with remote partners; and

(4) The availability of intelligent search tools that enable managers to find the information they need quickly
and inexpensively.

• Anywhere, anytime support. Using wireless technology, managers can access information anytime and
from anyplace, analyze and interpret it, and communicate with those involved.
These and other capabilities have been driving the use of computerized decision support since the late 1960s,
but especially since the mid-1990s. Next, we present an early framework for decision support
Review Questions:
1. How have the capabilities of computing evolved over time?
2. List some capabilities of computing that can facilitate managerial decision making.
3. How can a computer help overcome the cognitive limits of humans?
4.Why is the Web considered so important for decision support

1.5: An Early Framework for Computerised Decision Support

An early framework for computerized decision support includes several major concepts that are used in
forthcoming sections and chapters of this book. Gorry and Scott-Morton created and used this framework in
the early 1970s, and the framework then evolved into a new technology called DSS.

The Gorry and Scott-Morton Classical Framework

Gorry and Scott-Morton (1971) proposed a framework that is a 3-by-3 matrix, as shown in Figure 1.2. Two
dimensions are the degree of structuredness and the types of control.

DEGREE OF STRUCTUREDNESS The left side of Figure 1.2 is based on Simon’s (1977) idea that
decision-making processes fall along a continuum that ranges from highly structured (sometimes called
programmed) to highly unstructured (i.e., nonprogrammed) decisions. Structured processes are routine and
typically repetitive problems for which standard solution methods exist. Unstructured processes are fuzzy,
complex problems for which there are no cut-and-dried solution methods. Simon also described the
decisionmaking process with a three-phase process of intelligence, design, and choice. Later, a fourth phase
was added: implementation. The four phases are defined as follows

1. Intelligence. This phase involves searching for conditions that call for decisions.

2. Design. This phase involves inventing, developing, and analysing possible alternative courses of action
(solutions).

3. Choice. This phase involves selecting a course of action from among those available.

4. Implementation. This phase involves adapting the selected course of action to the decision situation (i.e.,
problem solving or opportunity exploiting).

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The relationships among the four phases are shown in Figure 1.3.

An unstructured problem is one in which none of the four phases described in Figure 1.3 is structured.

In a structured problem, all phases are structured. The procedures for obtaining the best (or at least a good
enough) solution are known. Whether the problem involves finding an appropriate inventory level or
choosing an optimal investment strategy, the objectives are clearly defined. Common objectives are cost
minimization and profit maximization.

Semistructured problems fall between structured and unstructured problems, having some structured
elements and some unstructured elements. Keen and Scott-Morton (1978) mentioned trading bonds, setting
marketing budgets for consumer products, and performing capital acquisition analysis as semistructured
problems

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TYPES OF CONTROL The second half of the Gorry and Scott-Morton framework (refer to Figure 1.2) is
based on Anthony’s (1965) taxonomy, which defines three broad categories that encompass all managerial
activities: strategic planning, which involves defining longrange goals and policies for resource allocation;
management control, the acquisition and efficient use of resources in the accomplishment of organizational
goals; and operational control, the efficient and effective execution of specific tasks.

THE DECISION SUPPORT MATRIX Anthony’s and Simon’s taxonomies are combined in the nine-cell
decision support matrix shown in Figure 1.2. The initial purpose of this matrix was to suggest different types
of computerized support to different cells in the matrix. Gorry and Scott-Morton suggested, for example, that
for semistructured decisions and unstructured decisions, conventional management information systems
(MIS) and management science (MS) tools are insufficient. Human intellect and a different approach to
computer technologies are necessary. They proposed the use of a supportive information system, which they
called a DSS.

Note that the more structured and operational control-oriented tasks (such as those in cells 1, 2, and 4) are
usually performed by lower-level managers, whereas the tasks in cells 6, 8, and 9 are the responsibility of
top executives or highly trained specialists.

Computer Support for Structured Decisions

Computers have supported structured and some semistructured decisions, especially those that involve
operational and managerial control, since the 1960s. Operational and managerial control decisions are made
in all functional areas, especially in finance and production (i.e., operations) management.

Structured problems, which are encountered repeatedly, have a high level of structure. It is therefore possible
to abstract, analyze, and classify them into specific categories. For example, a make-or-buy decision is one
category. Other examples of categories are capital budgeting, allocation of resources, distribution,
procurement, planning, and inventory control decisions. For each category of decision, an easy-to-apply
prescribed model and solution approach have been developed, generally as quantitative formulas. This
approach is called management science.

MANAGEMENT SCIENCE

The management science (MS) approach (also called the operations research [OR] approach) says that in
solving problems managers should follow the four-step systematic process described in Section 1.3.
Therefore, it is possible to use a scientific approach to automating portions of managerial decision making.

The MS process adds a new step 2 to the process described in Section 1.3 so that the steps are as follows:

1. Define the problem (i.e., a decision situation that may deal with some difficulty or with an opportunity).
2. Classify the problem into a standard category.
3. Construct a model that describes the real-world problem.

4. Identify possible solutions to the modelled problem and evaluate the solutions.

5. Compare, choose, and recommend a potential solution to the problem.

MS is based on mathematical modelling (i.e., algebraic expressions that describe problems). Modelling
involves transforming a real-world problem into an appropriate prototype structure (model). Computerized
methodologies can find solutions to the standard category models quickly and efficiently (see Chapter 4).
Some of these, such as linear programming, are deployed directly over the Web.

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AUTOMATED DECISION MAKING A relatively new approach to supporting decision making is called
automated decision systems (ADS), sometimes also known as decision automation systems (DAS; see
Davenport and Harris,2005). An ADS is a rule-based system that provides a solution, usually in one
functional area (e.g., finance, manufacturing), to a specific repetitive managerial problem, usually in one
industry (e.g., to approve or not to approve a request for a loan, to determine the price of an item in a store).
Application Case 1.1 shows an example of applying automated decision systems to a problem that every
organization faces—how to price its products or services.

ADS initially appeared in the airline industry, where they were called revenue (or yield) management (or
revenue optimization) systems. Airlines use these systems to dynamically price tickets based on actual
demand. Today, many service industries use similar pricing models. In contrast with management science
approaches, which provide a model-based solution to generic structured problems (e.g., resource allocation,
inventory level determination), ADS provide rule-based solutions. The following are examples of business
rules: “If only 70% of the seats on a flight from Los Angeles to New York are sold 3 days prior to departure,
offer a discount of x to nonbusiness travellers,” “If an applicant owns a house and makes over $100,000 a
year, offer a $10,000 credit line,” and “If an item costs more than $2,000, and if your company buys it only
once a year, the purchasing agent does not need special approval.” Such rules, which are based on
experience or derived through data mining, can be combined with mathematical models to form solutions
that can be automatically and instantly applied to problems (e.g., “Based on the information provided and
subject to verification, you will be admitted to our university”), or they can be provided to a human, who
will make the final decision (see Figure 1.4). ADS attempt to automate highly repetitive decisions (in order
to justify the computerization cost), based on business rules. ADS are mostly suitable for frontline
employees who can see the customer information online and frequently must make quick decisions. For
further information on ADS, see Davenport and Harris (2005).

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Computer Support for Unstructured Decisions

Unstructured problems can be only partially supported by standard computerized quantitative methods. It is
usually necessary to develop customized solutions. However, such solutions may benefit from data and
information generated from corporate or external data sources. Intuition and judgment may play a large role
in these types of decisions, as may computerized communication and collaboration technologies, as well as
knowledge management.

Computer Support for Semistructured Problems

Solving semistructured problems may involve a combination of standard solution procedures and human
judgment. MS can provide models for the portion of a decision-making problem that is structured. For the
unstructured portion, a DSS can improve the quality of the information on which the decision is based by
providing, for example, not only a single solution but also a range of alternative solutions, along with their
potential impacts. These capabilities help managers to better understand the nature of problems and thus to
make better decisions.

In Chapter 2, we provide a detailed description of how decisions are supported during the major phases of
decision making: intelligence, design, choice, and implementation.

Review Questions

1. What are structured, unstructured, and semistructured decisions? Provide two examples of each.

2. Define operational control, managerial control, and strategic planning. Provide two examples of each

3. What are the nine cells of the decision framework? Explain what each is for.

4. How can computers provide support for making structured decisions?

5. Define automated decision systems (ADS).

6. How can computers provide support to semistructured and unstructured decisions?

1.6 THE CONCEPT OF DECISION SUPPORT SYSTEM (DSS)

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In the early 1970s, Scott-Morton first articulated the major concepts of DSS. He defined decision support
systems (DSS) as “interactive computer-based systems, which help decision makers utilize data and models
to solve unstructured problems” (Gorry and Scott-Morton, 1971). The following is another classic DSS
definition, provided by Keen and Scott-Morton (1978):

Decision support systems couple the intellectual resources of individuals with the capabilities of the
computer to improve the quality of decisions. It is a computer-based support system for management
decision makers who deal with semistructured problems.

Note that the term decision support system, like management information system (MIS) and other terms in
the field of IT, is a content-free expression (i.e., it means different things to different people). Therefore,
there is no universally accepted definition of DSS. (We present additional definitions in Chapter 3.)
Actually, DSS can be viewed as a conceptual methodology—that is, a broad, umbrella term. However, some
view DSS as a narrower, specific decision support application.

DSS as an Umbrella Term

The term DSS can be used as an umbrella term to describe any computerized system that supports decision
making in an organization. An organization may have a knowledge management system to guide all its
personnel in their problem solving. Another organization may have separate support systems for marketing,
finance, and accounting; a supplychain management (SCM) system for production; and several expert
systems for product repair diagnostics and help desks. DSS encompasses them all.

Application Case 1.2 demonstrates some of the major characteristics of the DSS framework. The problem to
be solved was unstructured, but the initial analysis was based on the decision maker’s structured definition
of the situation, using an MS approach. The DSS was built using data available from corporate data sources.
The development platform was a spreadsheet. The DSS provided a quick what-if analysis. Furthermore, the
DSS was flexible and responsive enough to allow managerial intuition and judgment to be incorporated into
the analysis.

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How can a thorough risk analysis, like the one in Application Case 1.2, be performed so quickly? How can
the judgment factors be elicited, quantified, and worked into a model? How can the results be presented
meaningfully and convincingly to the executive? What are what-if questions? How can the Web be used to
access and integrate appropriate data and models? We provide answers to these questions in Chapters 3 and
4. The DSS concepts introduced in Chapter 3 provide considerable insights to software vendors that develop
decision support tools, to builders that construct specific decision support applications, and to users.

DSS AS A SPECIFIC APPLICATION Although DSS usually refers to the umbrella term, some use it in a
narrower scope to refer to a process for building customized applications for unstructured or semistructured
problems. Others use the term DSS to refer to the DSS application itself.

THE ARCHITECTURE OF DSS The DSS methodology recognizes the need for data to solve problems.
These data can come from many sources, including the Web (see Chapter 5). Every problem that has to be
solved and every opportunity or strategy to be analyzed requires some data. Data are the first component of
the DSS architecture (see Figure 1.5). Data related to a specific situation are manipulated by using models
(see Chapters 3 and 4). These models, which are the second component of the DSS architecture, can be
standard (e.g., an Excel function) or customized. Some systems have a knowledge (or intelligence)
component. This is the third component of the DSS architecture. Users are the vital fourth component of the
architecture. Interfacing with the system via a user interface is the fifth component of the DSS architecture.

When creating a DSS, it is important to plan the system and then purchase (or build) the components and
“glue” them together. In many DSS, the components are standards and can be purchased. But in other
situations, especially unstructured ones, it is necessary to custom build some or all of the components.

TYPES OF DSS There are many types of DSS, each with different objectives. The two major types are the
model-oriented DSS, in which quantitative models are used to generate a recommended solution to a
problem, and data-oriented DSS, which support adhoc reporting and queries. For details and other types, see
Chapter 3 and the Special Interest Group on Decision Support, Knowledge and Data Management Systems
(SIGDSS) Web site at sigs.aisnet.org/sigdss.

Evolution of DSS into Business Intelligence

In the early days of DSS, managers let their staff do some supportive analysis by using DSS tools. As PC
technology advanced, a new generation of managers evolved—one that was comfortable with computing
and knew that technology can directly help make intelligent business decisions faster. New tools such as
OLAP, data warehousing, data mining, and intelligent systems, delivered via Web technology, added
promised capabilities and easy access to tools, models, and data for computer-aided decision making. These
tools started to appear under the names BI and business analytics in the mid1990s. We introduce these
concepts next, and relate the DSS and BI concepts in the following sections.

Review Questions

1. Provide two definitions of DSS.

2. Describe DSS as an umbrella term.

3. Describe the architecture of DSS.

4. How is the term DSS used in the academic world?

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1.7 A FRAMEWORK FOR BUSINESS INTELLIGENCE (Bl) Decision support concepts have been
implemented incrementally, under different names, by many vendors who have created tools and
methodologies for decision support. As the enterprise-wide systems grew, managers were able to access
userfriendly reports that enabled them to make decisions quickly. These systems, which were generally
called executive information systems (EIS), then began to offer additional visualization, alerts, and
performance measurement capabilities. By 2006, the major commercial products and services appeared
under the umbrella term business intelligence (BI).

Definitions of BI Business intelligence (BI) is an umbrella term that combines architectures, tools,
databases, analytical tools, applications, and methodologies. It is a content-free expression, so it means
different things to different people. Part of the confusion about BI lies in the flurry of acronyms and
buzzwords that are associated with it (e.g., business performance management [BPM]). BI's major objective
is to enable interactive access (sometimes in real time) to data, to enable manipulation of data, and to give
business managers and analysts the ability to conduct appropriate analysis. By analyzing historical and
current data, situations, and performances, decision makers get valuable insights that enable them to make
more informed and better decisions. The process of BI is based on the transformation of data to information,
then to decisions, and finally to actions.

A Brief History of BI The term BI was coined by the Gartner Group in the mid-1990s. However, the
concept is much older; it has its roots in the Management Information Systems (MIS) reporting systems of
the 1970s. During that period, reporting systems were static and two-dimensional and had no analytical
capabilities. In the early 1980s, the concept of executive information systems (EIS) emerged. This concept
expanded the computerized support to top-level managers and executives. Some of the capabilities
introduced were dynamic multidimensional (adhoc or on-demand) reporting, forecasting and prediction,
trend analysis, drill down to details, status access, and critical success factors (CSFs). These features
appeared in dozens of commercial products until the mid-1990s. Then the same capabilities and some new
ones appeared under the name BI. Today, a good BI-based enterprise information system contains all the
information executives need. So, the original concept of EIS was transformed into BI. By 2005, BI systems
started to include artificial intelligence capabilities as well as powerful analytical capabilities. Figure 1.2
illustrates the various tools and techniques that may be included in a BI system. It illustrates the evolution of
BI as well. The tools shown in Figure 1.2 provide the capabilities of BI. The most sophisticated BI products
include most of these capabilities; others specialize in only some of them. We will study several of these
capabilities in more detail in Chapters 2 through 6.

Figure 1.2: Evolution of BI

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The Architecture of Bl A BI system has four major components: a data warehouse, with its source data;
business analytics, a collection of tools for manipulating, mining, and analyzing the data in the data
warehouse; business pe1formance management (BPM) for monitoring and analyzing performance; and a
user interface (e.g., a dashboard).

Notice that the data warehousing environment is mainly the responsibility of technical staff, whereas the
analytical environment (also known as business analytics) is the realm of business users. Any user can
connect to the system via the user interface, such as a browser. Top managers may also use the BPM
component and also a dashboard.

DATA WAREHOUSING The data warehouse and its variants are the cornerstone of any medium-to-large
BI system. Originally, the data warehouse included only historical data · that were organized and
summarized, so end users could easily view or manipulate data and information. Today, some data
warehouses include current data as well, so they can provide real-time decision support.

BUSINESS ANALYTICS End users can work with the data and information in a data warehouse by using a
variety of tools and techniques. These tools and techniques fit into two . major categories:

1. Reports and queries. Business analytics include static and dynamic reporting, all types of queries,
discove1y of information, multidimensional view, drill down to details, and so on. These are presented in
Chapter 3. These reports are also related to BPM (introduced next).

2. Data, text, and Web mining and other sophisticated mathematical and statistical tools. Data mining
is a process of searching for unknown relationships or information in large databases or data warehouses,
using intelligent tools such as neural computing, predictive analytics techniques, or advanced statistical
methods (see Chapter 4). As discussed further in Chapter 5, mining can be done on Web or textual data as
well. Two examples of useful applications of data mining follow:

Examples:

EXAMPLE 1 Forecasting success of new products or services is a challenge for any business. Especially
difficult is the problem of estimating revenue from entertainment products such as movies, music, and so on.
Epagogix specializes in predicting success of movies based on a detailed analysis of movie scripts. As
reported by Davenport and Harris (2009), it predicted a paltry $7 million gross for Lucky You in 2007 even
though the film included major star power and a major director and cost $50 million to make. The film
earned only $6 million. Models based on preferences and recommendations are used by other vendors such
as Netflix to predict which movies/ music will sell better.

EXAMPLE 2 National Australia Bank uses data mining to aid its predictive marketing. The tools are used
to extract and analyze data stored in the bank's Oracle database. Specific applications focus on assessing how
competitors' initiatives are affecting the bank's bottom line. The data mining tools are used to generate
market analysis models from historical data. The bank considers initiatives to be crucial to maintaining an
edge in the increasingly competitive financial services marketplace.

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Application Case 1.1 describes an application of another BI technique for data mining-cluster
analysis.

Application Case 1.1 Location, Location, Location Hoyt Highland Partners is a marketing intelligence firm
that assists health care providers with growing their patient base. The firm also helps determine the best
locations for the health care providers' practices. Hoyt Highland was working with an urgent care clinic
client. The urgent care clinic faced increased competition from other urgent care operators and convenient
care clinics. The clinic needed to decide if it should move its location or change marketing practices to
increase its income. To help with this decision, Hoyt Highland identified, using Acxiom's PersonicX system,
where the most concentrated areas of the clinic's target audience were located.

Acxiom's PersonicX categorizes every U.S. household into one of 70 segments and 21 life-stage groups. The
placement is based on specific consumer behaviour as well as demographic characteristics. The information
includes consumer surveys outlining behaviours and attitudes and location characteristics for important
markets. Hoyt Highland used PersonicX to determine which clusters were well represented in the urgent care
clinic database and which clusters provide the operator with the highest return-on-investment (ROI)
potential.

Using the software's geospatial analysis capability, Hoyt Highland found that 80percent of the clinic's
patients lived within a 5-mile radius of a clinic location. It also found that young families were well
represented, but that singles and seniors were underrepresented. In addition, it found that proximity is a top
factor in the choice of an urgent care clinic. This analysis helped the clinic to determine that the best course
of action was to change its marketing focus rather than to move its clinics. Today, the clinic focuses its
marketing toward patients who live within a 5-mile radius of a clinic location and toward young families.

BUSINESS PERFORMANCE MANAGEMENT Also referred to as corporate performance management

(CPM), business performance management (BPM) is an emerging portfolio of applications and methodology
that contains evolving BI architecture and tools in its core. BPM extends the monitoring, measuring, and
comparing of sales, profit, cost, profitability, and other performance indicators by introducing the concept of
management and feedback. It embraces processes such as planning and forecasting as core tenets of a
business strategy. In contrast with the traditional DSS, EIS, and BI, which support the bottom-up extraction
of information from data, BPM provides a top-clown enforcement of corporate-wide strategy.

THE USER INTERFACE: DASHBOARDS AND OTHER INFORMATION BROADCASTING

TOOLS Dashboards (which resemble automobile dashboards) provide a comprehensive visual view of
corporate performance measures (also known as key performance indicators), trends, and exceptions. They
integrate information from multiple business areas. Dashboards present graphs that show actual performance
compared to desired metrics; thus, a dashboard presents an at-a-glance view of the health of the
organization. In addition to dashboards, other tools that broadcast information are corporate portals, digital
cockpits, and other visualization tools. Many visualization tools, ranging from multidimensional cube
presentation to virtual reality, are integral parts of BI systems. Recall that BI emerged from EIS; so many
visual aids for executives were transformed to BI software. Also, technologies such as geographical
information systems (GIS) play an increasing role in decision support.

Styles of BI: The architecture of BI depends on its applications. Micro Strategy Corp. distinguishes five
styles of BI and offers special tools for each. The five styles are report delivery and alerting; enterprise
reporting (using dashboards and scorecards); cube analysis (also known as slice-and-dice analysis); ad hoc
queries; and statistics and data mining.

The Benefits of BI As illustrated by the opening vignette, the major benefit of BI to a company is the ability
to provide accurate information when needed, including a real-time view of the corporate performance and
its parts. Such information is a must for all types of decisions, for strategic planning, and even for survival.

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Thompson (2004) reported the following to be the major benefits of BI, based on the results of a survey:

• Faster, more accurate reporting (81%)

• Improved decision making (78%)
• Improved customer service (56%)
• Increased revenue (49%)

Notice that many of the benefits of BI are intangible. This is why, according to Eckerson (2003), so many
executives do not insist on a rigorous cost-justification for BI projects. Thompson (2004) also noted that the
most common application areas of BI are general reporting, sales and marketing analysis, planning and
forecasting, financial consolidation, statutory reporting, budgeting, and profitability analysis.

An interesting data mining application using predictive analytics tools is described in Application Case 1.4.

The Origins and Drivers of BI

Where did modern approaches to data warehousing (DW) and BI come from? What are their roots, and how
do those roots affect the way organizations are managing these initiatives today? Today’s investments in
information technology are under increased scrutiny in terms of their bottom-line impact and potential. The
same is true of DW and the BI applications that make these initiatives possible.

Organizations are being compelled to capture, understand, and harness their data to support decision making
in order to improve business operations. Legislation and regulation (e.g., the Sarbanes-Oxley Act of 2002)
now require business leaders to document their business processes and to sign off on the legitimacy of the
information they rely on and report to stakeholders. Moreover, business cycle times are now extremely
compressed; faster, more informed, and better decision making is therefore a competitive imperative.
Managers need the right information at the right time and in the right place. This is the mantra for modern
approaches to BI.

Organizations have to work smart. Paying careful attention to the management of BI initiatives is a
necessary aspect of doing business. It is no surprise, then, that organizations are increasingly championing
BI. The opening vignette discussed a BI success story at Norfolk Southern. You will hear about more BI
successes and the fundamentals of those successes in Chapters 5 through 9. Examples of typical applications
of BI are provided in Table 1.3.

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The DSS–BI Connection

By now, you should be able to see some of the similarities and differences between DSS and BI. First, their
architectures are very similar because BI evolved from DSS. However, BI implies the use of a data
warehouse, whereas DSS may or may not have such a feature. BI is therefore more appropriate for large
organizations (because data warehouses are expensive to build and maintain), but DSS can be appropriate to
any type of organization.

Second, most DSS are constructed to directly support specific decision making. BI systems, in general, are
geared to provide accurate and timely information, and they support decision support indirectly. This
situation is changing, however, as more and more decision support tools are being added to BI software
packages.

Third, BI has an executive and strategy orientation, especially in its BPM and dashboard components. DSS,
in contrast, is oriented toward analysts.

Fourth, most BI systems are constructed with commercially available tools and components that are fitted to
the needs of organizations. In building DSS, the interest may be in constructing solutions to very
unstructured problems. In such situations, more programming (e.g., using tools such as Excel) may be
needed to customize the solutions.

Fifth, DSS methodologies and even some tools were developed mostly in the academic world. BI
methodologies and tools were developed mostly by software companies. (See Zaman, 2005, for information
on how BI has evolved.)

Sixth, many of the tools that BI uses are also considered DSS tools. For example, data mining and predictive
analysis are core tools in both areas.

Although some people equate DSS with BI, these systems are not, at present, the same. It is interesting to
note that some people believe that DSS is a part of BI—one of its analytical tools. Others think that BI is a
special case of DSS that deals mostly with reporting, communication, and collaboration (a form of data-
oriented DSS). Another explanation (Watson, 2005) is that BI is a result of a continuous revolution and, as
such, DSS is one of BI’s original elements. In this book, we separate DSS from BI. However, we point to the
DSS–BI connection frequently.

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MANAGEMENT SUPPORT SYSTEMS (MSS) Due to the lack of crisp and universal definitions of DSS
and BI, some people refer to DSS and BI, as well as their tools, either independently or in combination, as
management support systems (MSS). MSS is a broad enough concept to be viewed as a technology that
supports managerial tasks in general and decision making in particular. In this book, we use MSS when the
nature of the technology involved is not clear, and we use it interchangeably with the combined term
DSS/BI.

In addition to the major frameworks of decision support presented so far, we need to look at a new proposed
framework—the work system—which we present next.

Review Questions

1. Define BI.

2. List and describe the major components of BI.

3. List and describe the major tangible and intangible benefits of BI.

4. What are the major similarities and differences of DSS and BI?

5. Define MSS.

. Practice Questions:

1. List the components of and explain the Business Pressures-Responses-Support Model.

2. What are some of the major factors in today's business environment?
3. What are some of the major response activities that organizations take?
4. Define BI.
5. List and describe the major components of BI.
6. Identify, some typical applications of BI.
7. Give examples of ADS.
8. Give examples of event-driven alerts.
9. List the steps of intelligence creation and use.
10. What is BI governance?
11. What is intelligence gathering?
12. Define OLTP.
13. Define OLAP.
14. Describe the major types of BI users.
15. List some of the implementation topics addressed by Gartner's report.
16. List some other success factors of BI.
17. Why is it difficult to justify BI applications?
18. List the six major categories of decision support tools.
19. Identify some companies that are major vendors in BI.

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25 Dr.Varadaraju H R, SJCIT, Chickkballapur