Chapter 12

Enhancing Decision
Making
VIDEO CASES
Video Case 1: FreshDirect Uses Business Intelligence to Manage Its Online Grocery
Video Case 2: Business Intelligence Helps the Cincinnati Zoo
Instructional Video 1: FreshDirect’s Secret Sauce: Customer Data From the
Website 
Instructional Video 2: A Demonstration of Oracle’s Mobile Business Intelligence App

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Chapter 12: Enhancing Decision Making

Learning Objectives

• Describe the different types of decisions and how the

decision-making process works.
• Explain how information systems support the activities of
managers and management decision making.
• Explain how business intelligence and business analytics
support decision making.
• Explain how different decision-making constituencies in an
organization use business intelligence.
• Describe the role of information systems in helping people
working in a group make decisions more efficiently.

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Decision Making and Information Systems

• Business value of improved decision making

– Improving hundreds of thousands of “small” decisions
adds up to large annual value for the business
• Types of decisions:
– Unstructured: Decision maker must provide judgment,
evaluation, and insight to solve problem
– Structured: Repetitive and routine; involve definite
procedure for handling so they do not have to be
treated each time as new
– Semistructured: Only part of problem has clear-cut
answer provided by accepted procedure
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Decision Making and Information Systems

• Senior managers:
– Make many unstructured decisions
– For example: Should we enter a new market?

• Middle managers:
– Make more structured decisions but these may include unstructured
components
– For example: Why is order fulfillment report showing decline in
Minneapolis?

• Operational managers, rank and file employees

– Make more structured decisions
– For example: Does customer meet criteria for credit?

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INFORMATION REQUIREMENTS OF KEY DECISION-MAKING GROUPS IN A FIRM

FIGURE 12-1 Senior managers, middle managers, operational managers, and employees have different types of decisions and
information requirements.

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Decision Making and Information Systems

• The four stages of the decision-making process

1. Intelligence
• Discovering, identifying, and understanding the problems
occurring in the organization
2. Design
• Identifying and exploring solutions to the problem
3. Choice
• Choosing among solution alternatives
4. Implementation
• Making chosen alternative work and continuing to monitor
how well solution is working

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STAGES IN DECISION MAKING

The decision-making process is

broken down into four stages.
FIGURE 12-2

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Decision Making and Information Systems

• Information systems can only assist in some of

the roles played by managers
• Classical model of management: five functions
– Planning, organizing, coordinating, deciding, and
controlling
• More contemporary behavioral models
– Actual behavior of managers appears to be less systematic,
more informal, less reflective, more reactive, and less well
organized than in classical model

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Decision Making and Information Systems

• Mintzberg’s 10 managerial roles

– Interpersonal roles
1. Figurehead
2. Leader
3. Liaison
– Informational roles
4. Nerve center
5. Disseminator
6. Spokesperson
– Decisional roles
7. Entrepreneur
8. Disturbance handler
9. Resource allocator
10. Negotiator

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Decision Making and Information Systems

• Three main reasons why investments in information

technology do not always produce positive results
1. Information quality
• High-quality decisions require high-quality information
2. Management filters
• Managers have selective attention and have variety of biases
that reject information that does not conform to prior
conceptions
3. Organizational inertia and politics
• Strong forces within organizations resist making decisions
calling for major change

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Decision Making and Information Systems

• High-velocity automated decision making

– Made possible through computer algorithms precisely defining steps for a
highly structured decision
• What makes this kind of automated high-speed decision making possible are
computer algorithms that precisely define the steps to be followed to produce a
decision, very large databases, very high-speed processors, and software
optimized to the task. In these situations, humans (including managers) are
eliminated from the decision chain because they are too slow.
• For example: High-speed computer trading programs (Stock market and sell
orders). Trades executed in 30 milliseconds
• Obviously, with humans out of the loop, great care needs to be taken to ensure the
proper operation of these systems lest they do significant harm to organizations and
humans. And even then additional safeguards are wise to observe the behavior of
these systems, regulate their performance, and if necessary, turn them off.

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Business Intelligence in the Enterprise

• Business intelligence
• When we think of humans as intelligent beings we often refer to their ability to take
in data from their environment, understand the meaning and significance of the
information, and then act appropriately. All organizations, including business firms,
do indeed take in information from their environments, attempt to understand the
meaning of the information, and then attempt to act on the information.
• “Business intelligence” is a term used by hardware and software vendors and
information technology consultants to describe the infrastructure for warehousing,
integrating, reporting, and analyzing data that comes from the business
environment. The foundation infrastructure collects, stores, cleans, and makes
relevant information available to managers.

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Business Intelligence in the Enterprise

• Business intelligence and analytics are about integrating all the information streams
produced by a firm into a single, coherent enterprise-wide set of data, and then,
using modeling, statistical analysis tools and data mining tools to make sense out
of all these data so managers can make better decisions and better plans
• Using data mining and predictive modeling, the company determined how to
market to various consumer segments during holidays and special occasions as well
as adjust promotions on the fly.
• Organizations are able to determine which customer segments are most influenced
by direct mail, which should be approached through e-mail, and what specific
messages to send each group.

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• Business intelligence vendors

• The largest five providers of these products are SAP, Oracle, IBM, SAS Institute,
and Microsoft. Microsoft’s products are aimed at small to medium size firms

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BUSINESS INTELLIGENCE AND ANALYTICS FOR DECISION SUPPORT

Business intelligence
and analytics requires a
strong database
foundation, a set of
analytic tools, and an
involved management
team that can ask
intelligent questions and
analyze data.

FIGURE 12-3

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Chapter 12: Enhancing Decision Making

Business Intelligence in the Enterprise

• Six elements in the business intelligence

environment
1. Data from the business environment
2. Business intelligence infrastructure
3. Business analytics toolset
4. Managerial users and methods
5. Delivery platform—MIS, DSS, ESS
6. User interface
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Business intelligence and analytics capabilities

– Goal is to deliver accurate real-time information to decision makers

Main functionalities of BI systems
• Production reports: These are predefined reports based on industry-specific requirements.
• Parameterized reports: For instance, you might want to enter region and time of day to understand
how sales of a product vary by region and time. If you were Starbucks, you might find that customers in
the East buy most of their coffee in the morning, whereas in the Northwest customers buy coffee
throughout the day. This finding might lead to different marketing and ad campaigns in each region.

• Dashboards/scorecards: These are visual tools for presenting performance data defined by users.
• Ad hoc query/search/report creation: These allow users to create their own reports based on
queries and searches.

• Drill down: This is the ability to move from a high-level summary to a more detailed view.
• Forecasts, scenarios, models: These include the ability to perform linear forecasting, what-if
scenario analysis, and analyze data using standard statistical tools.

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Business intelligence users

– Senior executives
• Use monitoring functionalities
– Middle managers and analysts
• Ad-hoc analysis
– Operational employees
• Prepackaged reports
• For example: sales forecasts, customer satisfaction, loyalty and
attrition, supply chain backlog, employee productivity

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Business Intelligence in the Enterprise

• Production reports
– Most widely used output of BI suites
– Common predefined, prepackaged reports
• Sales: Forecast sales; sales team performance
• Service/call center: Customer satisfaction; service cost
• Marketing: Campaign effectiveness; loyalty and attrition
• Procurement and support: Supplier performance
• Supply chain: Backlog; fulfillment status
• Financials: General ledger; cash flow
• Human resources: Employee productivity; compensation

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Business Intelligence in the Enterprise

• Predictive analytics
– Use variety of data, techniques to predict future
trends and behavior patterns
• Statistical analysis
• Data mining
• Historical data
• Assumptions
– Incorporated into numerous BI applications for sales,
marketing, finance, fraud detection, health care
• Credit scoring
• Predicting responses to direct marketing campaigns

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Business Intelligence in the Enterprise

• Big data analytics

– Big data: Massive datasets collected from social
media, online and in-store customer data, and so on
– Help create real-time, personalized shopping
experiences for major online retailers.
– eBay
• Customized recommendations
• Database includes purchase data, social networks
• Taste graphs map users with product affinities

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Business Intelligence in the Enterprise

• Additional BI applications
– Data visualization and visual analytics tools
• Help users see patterns and relationships that would be
difficult to see in text lists
• The dashboards make it much easier to understand the organization’s staffing levels
than static paper reports. The real-time data indicate exactly what type of worker is
available in what location and when a project is due to be completed. If a project is
ahead of schedule, information from the dashboards helps decision makers rapidly
determine when and where to reassign its workers.

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Business Intelligence Constituencies

• Decision support systems

– Use mathematical or analytical models
– Allow varied types of analysis
• “What-if” analysis
• Sensitivity analysis
• Backward sensitivity analysis
• Multidimensional analysis / OLAP
– For example: pivot tables

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Business Intelligence Constituencies

• ESS: decision support for senior management

– Help executives focus on important performance
information
– Balanced scorecard method:
• Measures outcomes on four dimensions:
1. Financial
2. Business process
3. Customer
4. Learning and growth
• Key performance indicators (KPIs) measure each
dimension

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THE BALANCED SCORECARD FRAMEWORK

FIGURE 12-7

In the balanced scorecard framework, the firm’s

strategic objectives are operationalized along four
dimensions: financial, business process, customer,
and learning and growth. Each dimension is
measured using several KPIs.

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Business Intelligence Constituencies

• Decision support for senior management (cont.)

– Business performance management (BPM)
• Translates firm’s strategies (e.g., differentiation, low-
cost producer, scope of operation) into operational
targets
• KPIs developed to measure progress toward targets
– Data for ESS
• Internal data from enterprise applications
• External data such as financial market databases
• Drill-down capabilities

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