enhancing management decision-making for the digital firm

11.1 © 2004 by Prentice Hall

Management Information Systems 8/eManagement Information Systems 8/eChapter 11 Enhancing Management Decision-Making for the Digital FirmChapter 11 Enhancing Management Decision-Making for the Digital Firm1111

ENHANCINGENHANCING

MANAGEMENTMANAGEMENT

DECISION-MAKINGDECISION-MAKING

FOR THE DIGITAL FIRMFOR THE DIGITAL FIRM

Chapter


Management Information Systems 8/eManagement Information Systems 8/eChapter 11 Enhancing Management Decision-Making for the Digital FirmChapter 11 Enhancing Management Decision-Making for the Digital Firm

• How can information systems help How can information systems help individual managers make better individual managers make better decisions when the problems are non-decisions when the problems are non-routine and constantly changing?routine and constantly changing?

• How can information systems help people How can information systems help people working in a group make decisions more working in a group make decisions more efficiently?efficiently?

OBJECTIVES



• Are there any special systems that can facilitate Are there any special systems that can facilitate decision-making among senior managers? decision-making among senior managers? Exactly what can these systems do to help high-Exactly what can these systems do to help high-level management?level management?

• What benefits can systems that support What benefits can systems that support management decision-making provide for the management decision-making provide for the organization as a whole?organization as a whole?

OBJECTIVES



Decision-Making LevelDecision-Making Level The four different decision-making constituenciesThe four different decision-making constituencies in a firm are the following:in a firm are the following:

– Senior management: is concerned with general timely infogeneral timely info on changes in the industry and society at large that may affect both

long-term and near-term future of the firm.

– Middle Management and project teams: is concerned with specific, timely infospecific, timely info about firm performance, including revenue and cost reduction targets

– Operational Management and project teams: monitors the performance of each subunit of the firm and manages individual employees

– Individual employees: try to fulfill the objectives of managers above them, following established rules and procedures for their routine activities



Decision-Making LevelDecision-Making Level

Unstructured

Semistructured

Structured

Information Requirements of key Decision-Making Groups in a firm

Senior Management

Middle Management

Operational Management

Individual Employees and Teams



Unstructured decisionsUnstructured decisions

Are those in which Are those in which the decision maker must the decision maker must provide judgment, evaluation, and insights provide judgment, evaluation, and insights into the problem definitioninto the problem definition

Semistructured decisionsSemistructured decisions

Only part of the problem has a clear-cut answer Only part of the problem has a clear-cut answer provided by an accepted procedureprovided by an accepted procedure

Structured decisionsStructured decisions

Are repetitive and routine, and decision makers Are repetitive and routine, and decision makers can follow a definite procedure for handling them can follow a definite procedure for handling them to be efficientto be efficient

DECISION-SUPPORT SYSTEMS (DSS)

Types of Decision-Support Systems



• In general, structured decisions are made at In general, structured decisions are made at lower organizational levels, lower organizational levels,

• whereas unstructured decision making is whereas unstructured decision making is more common at higher levels of the firmmore common at higher levels of the firm




Senior executives tend to be exposed to many Senior executives tend to be exposed to many unstructured decisionunstructured decision situations that are open situations that are open ended and evaluative and that require insight based ended and evaluative and that require insight based on many sources of information and personal on many sources of information and personal experienceexperience

For example, a CEO in today’s music industry For example, a CEO in today’s music industry might ask, might ask, “Whom should we choose as a “Whom should we choose as a distribution partner for our online music catalog”?distribution partner for our online music catalog”?

Answering this question would require access to WHAT … ? Answering this question would require access to WHAT … ? news, government reports, and industry views as well as high-level summaries of firm performance





Middle management and operational management tend Middle management and operational management tend to face more to face more structured decisionstructured decision scenarios, but their scenarios, but their decisions may include decisions may include unstructured componentsunstructured components

For example, A typical middle-level management For example, A typical middle-level management decision might bedecision might be “Why is the order fulfillement “Why is the order fulfillement report showing a decline over the last six months at report showing a decline over the last six months at a distribution center in Minnealoplis?”a distribution center in Minnealoplis?”

This middle manager could obtain a report from the firm’s enterprise This middle manager could obtain a report from the firm’s enterprise system or distribution management system on order activity and system or distribution management system on order activity and operational efficiency at the Minneapolis distribution center. This is operational efficiency at the Minneapolis distribution center. This is the structured part of the decision. the structured part of the decision. WHERE IS THE UNSTRUCTURED WHERE IS THE UNSTRUCTURED PART OF THE DECISION HERE?PART OF THE DECISION HERE?





Model-driven DSSModel-driven DSS• Primarily stand-alone Primarily stand-alone • Uses model to perform “what-if” and other Uses model to perform “what-if” and other

kinds of analysiskinds of analysisEx: voyage-estimating system calculates financial (ship/time Ex: voyage-estimating system calculates financial (ship/time

costs) and technical (ship cargo capacity, speed, port costs) and technical (ship cargo capacity, speed, port distances, etc…) voyage detailsdistances, etc…) voyage details

Data-driven DSSData-driven DSS

Allows users to extract and analyze useful Allows users to extract and analyze useful information from large databasesinformation from large databases

Ex: How many units of product number 403 were shipped Ex: How many units of product number 403 were shipped in November 2004?in November 2004?





MISMIS

• Provide info on the firm’s performance to Provide info on the firm’s performance to help managers monitor and control the help managers monitor and control the businessbusiness

• Provides reports based on routine flow Provides reports based on routine flow of dataof data

• Assists in general control of the Assists in general control of the organizationorganization• Ex: A typical MIS report might show a summary of Ex: A typical MIS report might show a summary of

monthly salesmonthly sales


MIS and DSS



DSSDSS

DSS support decisions in a different way. DSS support decisions in a different way.

Whereas MIS primarily address Whereas MIS primarily address structured structured

problemsproblems, DSS support , DSS support semistructured and semistructured and

unstructured problemunstructured problem analysis analysis• Emphasizes change, flexibility, rapid Emphasizes change, flexibility, rapid

response, models, assumptions, ad hoc response, models, assumptions, ad hoc queries, and display graphicsqueries, and display graphics


MIS and DSS



DataminingDatamining• Uses statistical analysis toolsUses statistical analysis tools• Finds hidden patterns and relationships in Finds hidden patterns and relationships in

large databases to infer ruleslarge databases to infer rules• Knowledge discoveryKnowledge discovery• events that are linked over time are events that are linked over time are

referred toreferred to as sequences as sequences

Data mining can allow a firm to developData mining can allow a firm to develop

specific marketing campaigns for different specific marketing campaigns for different

customer segments customer segments






Overview of a Decision-Support System (DSS)

Figure 11-2



DSS database: DSS database: ccollection of current or ollection of current or historical datahistorical data

DSS software system: DSS software system: ccollection of ollection of software tools/mathematical and analytical software tools/mathematical and analytical models models

User interface:User interface: easy interaction easy interaction


Components of Decision-Support Systems



ModelModel• Abstract representation illustrating Abstract representation illustrating

components or relationships of a phenomenoncomponents or relationships of a phenomenon• A model can be a A model can be a physicalphysical model (airplane model (airplane

model), a model), a mathematicalmathematical model (equation), or a model (equation), or a verbalverbal model (description of a procedure for model (description of a procedure for writing an order)writing an order)

• Optimization modelsOptimization models, often using , often using linear linear programmingprogramming, determine optimal resource , determine optimal resource allocation to maximize or minimize specified allocation to maximize or minimize specified variables such as cost or timevariables such as cost or time


Components of Decision-Support Systems




Sensitivity Analysis

Sensitivity analysisSensitivity analysis

Asks Asks “what-if”“what-if” questions repeatedly to determine questions repeatedly to determine the impact of changethe impact of change

Ex: What happens if we raise the price by 5% or increase the Ex: What happens if we raise the price by 5% or increase the advertising budget by $100,000?advertising budget by $100,000?



• General Accident Insurance:General Accident Insurance: Customer buying patterns and fraud Customer buying patterns and fraud detectiondetection

• Bank of America:Bank of America: Customer profilesCustomer profiles

• Frito-Lay, Inc.:Frito-Lay, Inc.: Price, advertising, and Price, advertising, and promotion selectionpromotion selection


DSS Applications and the Digital Firm



• Uses data mining to guide decisions Uses data mining to guide decisions

• Consolidates customer information into Consolidates customer information into massive data warehousesmassive data warehouses

• Uses various analytical tools to slice Uses various analytical tools to slice information into small segments information into small segments


DSS for Customer Relationship Management




DSS for Customer Analysis and Segmentation

Figure 11-4



Geographic Information Systems (GIS)Geographic Information Systems (GIS)

• Software for analyzing and displaying data Software for analyzing and displaying data using digitized mapsusing digitized maps

• Enhances planning and decision-makingEnhances planning and decision-making• Use Use data visualization technologydata visualization technology


DSS for Simulating Business Scenarios



Data VisualizationData Visualization

• Helps users see Helps users see patterns and patterns and relationships in large amounts of datarelationships in large amounts of data that that would be difficult to discern if the data would be difficult to discern if the data were presented as traditional lists of textwere presented as traditional lists of text

DSS for Simulating Business Scenarios




Customer Decision-Support Systems Customer Decision-Support Systems (CDSS)(CDSS)

• Support decision-making process of an Support decision-making process of an existing or potential customerexisting or potential customer


Web-Based Customer Decision-Support Systems



• Interactive computer-based system Interactive computer-based system

• Facilitates solution to unstructured Facilitates solution to unstructured problems problems

• Set of decision makers working together as Set of decision makers working together as a groupa group

One problem with understanding the value of GDSS is their One problem with understanding the value of GDSS is their complexity.complexity.

GROUP DECISION-SUPPORT SYSTEMS (GDSS)

What Is a GDSS?



• Hardware:Hardware: Conference facility, electronic Conference facility, electronic hardwarehardware

• Software tools:Software tools: Tools for organizing ideas, Tools for organizing ideas, gathering information, and ranking and gathering information, and ranking and seeking prioritiesseeking priorities

• People:People: Participants, trained facilitator, Participants, trained facilitator, staff supporting hardware and softwarestaff supporting hardware and software


Characteristics of GDSS



Executive Support Systems (ESS):Executive Support Systems (ESS):

• Information system at strategic level of an Information system at strategic level of an organizationorganization

• Addresses unstructured decision-making Addresses unstructured decision-making through advanced graphics and through advanced graphics and communicationscommunications

EXECUTIVE SUPPORT IN THE ENTERPRISE



Developing ESS: Developing ESS:

• Ease of useEase of use

• Facility for environmental scanningFacility for environmental scanning

• External and internal sources of External and internal sources of information to be used for environmental information to be used for environmental scanning scanning


The Role of Executive Support Systems in the Organization



• Analyzes, compares, and highlights trendsAnalyzes, compares, and highlights trends

• Provides greater clarity and insight into Provides greater clarity and insight into datadata

• Speeds up decision-makingSpeeds up decision-making


Benefits of Executive Support Systems Benefits of Executive Support Systems


Management Information Systems 8/eManagement Information Systems 8/eChapter 11 Enhancing Management Decision-Making for the Digital FirmChapter 11 Enhancing Management Decision-Making for the Digital Firm1111

ENHANCINGENHANCING

MANAGEMENTMANAGEMENT

DECISION-MAKINGDECISION-MAKING

FOR THE DIGITAL FIRMFOR THE DIGITAL FIRM

Chapter



• Changes in the industry and society at large that Changes in the industry and society at large that may affect the long-term and near-term future of may affect the long-term and near-term future of the firm is mainly concentrated at this the firm is mainly concentrated at this management level:management level:– Senior– Middle– Operational– Knowledge

Multiple Choice QuestionsMultiple Choice Questions( 12 Questions)( 12 Questions)



• Information density refers to theInformation density refers to the• A) richness complexity and content of a A) richness complexity and content of a

message.message.• B) total amount and quantity of information B) total amount and quantity of information

delivered to consumers by merchants.delivered to consumers by merchants.• C) C) total amount and quantity of information total amount and quantity of information

available to all market participants.available to all market participants.• D) amount of information available to reduce D) amount of information available to reduce

price transparency.price transparency.Answer: CAnswer: C

Multiple Choice QuestionsMultiple Choice Questions



• Once knowledge taxonomy is Once knowledge taxonomy is developed, documents are all developed, documents are all ________ with the proper ________ with the proper classification.classification.

• A) taggedA) tagged• B) linkedB) linked• C) tupledC) tupled• D) referencedD) referenced

Answer: AAnswer: A




Backward chaining isBackward chaining is• A) a strategy for searching the rule base in an A) a strategy for searching the rule base in an

expert system that begins with information expert system that begins with information entered by the user.entered by the user.

• B) the programming environment of an expert B) the programming environment of an expert system.system.

• C) a method of organizing expert system C) a method of organizing expert system knowledge into chunks.knowledge into chunks.

• D) D) a strategy for searching the rule base in an a strategy for searching the rule base in an expert system that begins with a hypothesis.expert system that begins with a hypothesis.

Answer: DAnswer: D




• Which of the following systems is Which of the following systems is NOT used to capture tacit NOT used to capture tacit knowledge?knowledge?

• A) expert systemA) expert system• B) case-based reasoningB) case-based reasoning• C) fuzzy logicC) fuzzy logic• D) neural network

Answer: DAnswer: D




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




• In data mining, events that are linked over time In data mining, events that are linked over time are referred to as:are referred to as:– associations.– sequences.– classifications.– clusters.




• Data mining can allow a firm to develop: Data mining can allow a firm to develop: – specific marketing campaigns for different

customer segments.– intuitive user interfaces.– DSS based on the Web.– multiple distributed systems.




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




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




• GDSS consist of three basic elements:GDSS consist of three basic elements:– software, conference rooms, and facilitators.– hardware, telecommunications, and

facilitators.– hardware, software tools, and people.– software, telecommunications, and people.




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




• Operational management monitors the Operational management monitors the performance of each subunit of the firm and performance of each subunit of the firm and manages individual employees.manages individual employees.– True– False

True-False QuestionsTrue-False Questions(6 Questions)(6 Questions)



• Structured decisions require the decision maker Structured decisions require the decision maker to use judgment to analyze the problem. to use judgment to analyze the problem. – True– False

True-False QuestionsTrue-False Questions



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




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




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




• An online syndicator aggregates content or An online syndicator aggregates content or applications from multiple sources, packaging applications from multiple sources, packaging them for distribution, and reselling them to third-them for distribution, and reselling them to third-party Web sites.party Web sites.

• Answer: TRUEAnswer: TRUE




• Companies rarely use Web pages to analyze Companies rarely use Web pages to analyze customer information.customer information.

Answer: FALSEAnswer: FALSE




• Some Net marketplaces support contractual Some Net marketplaces support contractual purchasing based on long-term relationships with purchasing based on long-term relationships with designated suppliers. designated suppliers.

• Answer: TRUEAnswer: TRUE




• Knowledge is universally applicable and easily Knowledge is universally applicable and easily moved.moved.

• Answer: FALSEAnswer: FALSE




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




A(n) ________ decision is repetitive and routine, for A(n) ________ decision is repetitive and routine, for which known algorithms provide solutions.which known algorithms provide solutions.

Answer: structuredAnswer: structured

Fill-in the blanks QuestionsFill-in the blanks Questions



________-driven DSS have analysis capabilities ________-driven DSS have analysis capabilities based on strong theories and used to perform based on strong theories and used to perform "what-if" and similar kinds of analyses."what-if" and similar kinds of analyses.

Answer: ModelAnswer: Model




• Of the three main DSS components, the ________ Of the three main DSS components, the ________ system comprises the tools used for data system comprises the tools used for data analysis.analysis.

Answer: softwareAnswer: software




• A(n) ________ is an abstract representation A(n) ________ is an abstract representation illustrating the components or relationships of a illustrating the components or relationships of a phenomenon.phenomenon.

• Answer: modelAnswer: model




• A(n) ________ model determines the best A(n) ________ model determines the best resource allocation to maximize or minimize resource allocation to maximize or minimize specified variables.specified variables.

• Answer: optimizationAnswer: optimization




• A(n) ________ supports the decision-making A(n) ________ supports the decision-making processes of an existing or potential customer.processes of an existing or potential customer.

• Answer: customer decision-support system, Answer: customer decision-support system, CDSSCDSS




1.1. What are the major capabilities of DSS? What is What are the major capabilities of DSS? What is the main problem with DSS?the main problem with DSS?

2.2. How do the various decision-making systems How do the various decision-making systems support decision making within the company support decision making within the company structure?structure?

3.3. How is data visualization used in GIS?How is data visualization used in GIS?

4.4. What are the advantages and disadvantages of What are the advantages and disadvantages of the use of a GDSS for group decision making?the use of a GDSS for group decision making?

Essay QuestionsEssay Questions

enhancing management decision-making for the digital firm

Documents