Management Information Systems

MANAGING THE DIGITAL FIRM, 12TH EDITION GLOBAL EDITION

Session 2
Lecture 1
FOUNDATIONS OF BUSINESS
INTELLIGENCE
ENHANCING DECISION
MAKING
Chapters 6 and 12 in the course Text
Book
 Management Information Systems
CHAPTER 12: ENHANCING DECISION MAKING

Learning Objectives

• What are the different types of decisions and how does the
decision-making process work?
• How do information systems support the activities of
managers and management decision making?
• How do business intelligence and business analytics support
decision making?
• How do different decision-making constituencies in an
organization use business intelligence?
• What is the role of information systems in helping people
working in a group make decisions more efficiently?

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Integration problem
 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Organizing Data in a Traditional File Environment

• Problems with the traditional file environment

(files maintained separately by different departments)
– Data redundancy:
• Presence of duplicate data in multiple files
– Data inconsistency:
• Same attribute has different values
– Program-data dependence:
• When changes in program requires changes to data
accessed by program
– Lack of flexibility
– Poor security
– Lack of data sharing and availability

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 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Organizing Data in a Traditional File Environment
TRADITIONAL FILE PROCESSING

The use of a traditional approach to file processing encourages each functional area in a corporation to develop specialized
applications. Each application requires a unique data file that is likely to be a subset of the master file. These subsets of the
master file lead to data redundancy and inconsistency, processing inflexibility, and wasted storage resources.
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The arrival of BI

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BI is the process of transforming data into informtion

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 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Using Databases to Improve Business Performance and Decision
Making
• Business Intelligence:
– Tools for consolidating, analyzing, and providing
access to vast amounts of data to help users make
better business decisions

– Principle tools include:

• Software for database query and reporting
• Online analytical processing (OLAP)
• Data mining

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CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
The Database Approach to Data Management

• Database
– Serves many applications by centralizing data and
controlling redundant data
• Database management system (DBMS)
– Interfaces between applications and physical data files
– Separates logical and physical views of data
– Solves problems of traditional file environment
• Controls redundancy
• Eliminates inconsistency
• Uncouples programs and data
• Enables organization to centrally manage data and data security
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CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
The Database Approach to Data Management

• Relational DBMS
– Represent data as two-dimensional tables called relations or files
– Each table contains data on entity and attributes
http://youtu.be/NvrpuBAMddw
Table: grid of columns and rows
– Rows (tuples): Records for different entities
– Fields (columns): Represents attribute for entity
– Key field: Field used to uniquely identify each record
– Primary key: Field in table used for key fields
– Foreign key: Primary key used in second table as look-up field to identify records
from original table

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 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
The Database Approach to Data Management
RELATIONAL DATABASE TABLES

A relational database organizes data in the form of two-dimensional tables. Illustrated here are tables for
the entities SUPPLIER and PART showing how they represent each entity and its attributes. Supplier Number
is a primary key for the SUPPLIER table and a foreign key for the PART table.

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CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
The Database Approach to Data Management
RELATIONAL DATABASE TABLES (cont.)

A relational database organizes data in the form of two-dimensional tables. Illustrated here are tables for the
entities SUPPLIER and PART showing how they represent each entity and its attributes. Supplier Number is a
primary key for the SUPPLIER table and a foreign key for the PART table.
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CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
The Database Approach to Data Management
THE THREE BASIC OPERATIONS OF A RELATIONAL DBMS

The select, join, and project operations enable data from two different tables to be combined and only
selected attributes to be displayed.

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CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
The Database Approach to Data Management

MICROSOFT
ACCESS DATA
DICTIONARY
FEATURES
Microsoft Access has a
rudimentary data
dictionary capability that
displays information about
the size, format, and other
characteristics of each field
in a database. Displayed
here is the information
maintained in the SUPPLIER
table. The small key icon to
the left of
Supplier_Number indicates
that it is a key field.

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CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
The Database Approach to Data Management

AN ACCESS QUERY

Illustrated here is how the

query in Figure 6-7 would be
constructed using Microsoft
Access query building
tools. It shows the tables,
fields, and selection criteria
used for the query.

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CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Using Databases to Improve Business Performance and Decision Making

• Very large databases and systems require special

capabilities, tools
– To analyze large quantities of data
– To access data from multiple systems
• Three key techniques
1.Data warehousing
2.Data mining
3.Tools for accessing internal databases through the
Web

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 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Using Databases to Improve Business Performance and Decision Making

• Data warehouse:
– Stores current and historical data from many core
operational transaction systems
– Consolidates and standardizes information for use across
enterprise, but data cannot be altered
– Data warehouse system will provide query, analysis, and
reporting tools

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Extraction Transformation Loading – ETL

• To get data out of the source and
load it into the data warehouse –
simply a process of copying data from Data Warehouse

one database to other

ETL pipeline
• Data is extracted from an OLTP outputs

database, transformed to match the

data warehouse schema and loaded
into the data warehouse database ETL

• Many data warehouses also ETL ETL ETL ETL

incorporate data from non-OLTP
systems such as text files, legacy
systems, and spreadsheets; such data
also requires extraction, RDBMS 1 RDBMS 2

transformation, and loading HTML 1 XML 1

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 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Using Databases to Improve Business Performance and Decision Making

• Data marts:
– Subset of data warehouse
– Summarized or highly focused portion of firm’s data for
use by specific population of users
– Typically focuses on single subject or line of business

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 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Using Databases to Improve Business Performance and Decision
Making
• Data mining:
– Finds hidden patterns, relationships in large databases
and infers rules to predict future behavior
– E.g., Finding patterns in customer data for one-to-one
marketing campaigns or to identify profitable customers.
– Types of information obtainable from data mining
• Associations
• Sequences
• Classification
• Clustering
• Forecasting

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 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Using Databases to Improve Business Performance and Decision
Making
• Online analytical processing (OLAP)
– Supports multidimensional data analysis
• Viewing data using multiple dimensions
• Each aspect of information (product, pricing, cost, region,
time period) is different dimension
• E.g., how many washers sold in the East in June compared
with other regions?
– OLAP enables rapid,
online answers to ad hoc
queries

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 Data sources

E
WebSite Phone History
MAILING

DATAWAREHOUSE

ETL
OLAP

Data Marts

MARKETING HRM
Accounting Finance
 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Using Databases to Improve Business Performance and Decision Making

• Predictive analysis
– Uses data mining techniques, historical data, and
assumptions about future conditions to predict
outcomes of events
– E.g., Probability a customer will respond to an
offer
• Text mining
– Extracts key elements from large unstructured
data sets (e.g., stored e-mails)

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 Management Information Systems
CHAPTER 6: FOUNDATIONS OF BUSINESS INTELLIGENCE:
DATABASES AND INFORMATION MANAGEMENT
Using Databases to Improve Business Performance and Decision Making

• Web mining
– Discovery and analysis of useful patterns and
information from WWW
• E.g., to understand customer behavior, evaluate effectiveness of
Web site, etc.
– Web content mining
• Knowledge extracted from content of Web pages
– Web structure mining
• E.g., links to and from Web page
– Web usage mining
• User interaction data recorded by Web server

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Business Intelligence:

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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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CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence in the Enterprise

• Business intelligence and analytics capabilities

– Goal is to deliver accurate real-time information to
decision-makers
– Main functionalities of BI systems
1. Production reports
2. Parameterized reports
3. Dashboards/scorecards
4. Ad hoc query/search/report creation
5. Drill down
6. Forecasts, scenarios, models

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CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence in the Enterprise

• Business intelligence users

– 80% are casual users relying on production reports
– Senior executives
• Use monitoring functionalities
– Middle managers and analysts
• Ad-hoc analysis
– Operational employees
• Prepackaged reports
• E.g. sales forecasts, customer satisfaction, loyalty and
attrition, supply chain backlog, employee productivity

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Advantages of BI

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 Management Information Systems
MANAGING THE DIGITAL FIRM, 12TH EDITION GLOBAL EDITION

ENHANCING DECISION MAKING

 Management Information Systems
CHAPTER 12: ENHANCING DECISION MAKING

Learning Objectives

• What are the different types of decisions and how does the
decision-making process work?
• How do information systems support the activities of
managers and management decision making?
• How do business intelligence and business analytics support
decision making?
• How do different decision-making constituencies in an
organization use business intelligence?
• What is the role of information systems in helping people
working in a group make decisions more efficiently?

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CHAPTER 12: ENHANCING DECISION MAKING

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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CHAPTER 12: ENHANCING DECISION MAKING

Decision Making and Information Systems

• Senior managers:
– Make many unstructured decisions
– E.g. Should we enter a new market?
• Middle managers:
– Make more structured decisions but these may include
unstructured components
– E.g. Why is order fulfillment report showing decline in
Minneapolis?
• Operational managers, rank and file employees
– Make more structured decisions
– E.g. Does customer meet criteria for credit?
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CHAPTER 12: ENHANCING DECISION MAKING

Decision Making and Information Systems

INFORMATION REQUIREMENTS OF KEY DECISION-MAKING GROUPS IN A FIRM

Senior managers, middle managers, operational managers, and employees have different types of decisions
and information requirements.

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CHAPTER 12: ENHANCING DECISION MAKING

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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CHAPTER 12: ENHANCING DECISION MAKING

Decision Making and Information Systems

• High velocity automated decision making

– Made possible through computer algorithms
precisely defining steps for a highly structured
decision
– Humans taken out of decision
– E.g. High-speed computer trading programs
• Trades executed in 30 milliseconds
• Responsible for “Flash Crash” of 2010
– Require safeguards to ensure proper operation and
regulation

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CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence Constituencies

• Operational and middle managers

– Monitor day to day business performance
– Make fairly structured decisions
– Use MIS
• “Super user” and business analysts
– Use more sophisticated analysis
– Create customized reports
– Use DSS

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CHAPTER 12: ENHANCING DECISION MAKING

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
–E. g. pivot tables

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CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence Constituencies

• 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 & growth
• Key performance indicators (KPIs) measure each
dimension
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CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence Constituencies

THE BALANCED
SCORECARD
FRAMEWORK
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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CHAPTER 12: ENHANCING DECISION MAKING

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 towards targets
– Data for ESS
• Internal data from enterprise applications
• External data such as financial market databases
• Drill-down capabilities
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CHAPTER 12: ENHANCING DECISION MAKING

Business Intelligence Constituencies

• Group Decision Support Systems (GDSS)

– Interactive system to facilitate solution of unstructured
problems by group
– Specialized hardware and software; typically used in
conference rooms
• Overhead projectors, display screens
• Software to collect, rank, edit participant ideas and responses
• May require facilitator and staff
– Enables increasing meeting size and increasing
productivity
– Promotes collaborative atmosphere, guaranteeing
anonymity
– Uses structured methods to organize and evaluate ideas
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• Relational DBMS
http://youtu.be/NvrpuBAMddw
• BI
– What is a BI?
http://youtu.be/LFnewuBsYiY
– Example of a BI
http://youtu.be/xLfh3PLxzUI
• Data Warehouse
http://youtu.be/KGHbY_Sales
44 © Pearson Education 2012
 Management Information Systems

For next session

• https://www.youtube.com/watch?v=l-
hYB5WckQY

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