C12 Enhancing Decision Making How demand responds to changes in price? Adjust pricing based on location? Price-sensitive customers? How much of a difference does this knowledge make?
Jan 11, 2016
C12 Enhancing Decision Making
How demand responds to changes in price?Adjust pricing based on location?
Price-sensitive customers?How much of a difference does this knowledge
make?
Agora across Bangladesh
P&G’s Supply Chain- Complex?
One of the world’s largest consumer good companies
Annual revenue $51 billion
80 000 employees in 140 countries
300 brands
100000+ suppliers
• Hundreds of combinations of suppliers, manufacturing facilities and markets.
• Even small changes ripple through the supply chain and affect • inventory levels• service levels • costs
P&G Global Beauty Care division
Ch
all
en
ges Pressure to
reduce costs
competitors
large customers like
Wal-Mart
A new product?
How many plants?
Where/Location?
Distribution centres?
Deliver products faster
Changes Are Constant!10-15 new product launches per yearEach product has multiple sizes and package designs
New product- Dove!
Where to locate the plant(s)?
What are the sources of raw materials? Marketing Managers
wants it in their respective countries
Corporate experts prefer one megaplant
And there are millions of other solutions in between
IT Global Analytics group used: Excel enhanced by
LINDO (add-on) for optimization
Palisade’s @Risk for Monte Carlo simulation (add-on)
X-press-MP from Dash Optimiztion Inc. (optimization models)
Cplex from Ilog Inc. (optimization models)
Extend from Imagine That Inc. (simulation models)
Data from Oracle data warehouse (36 months of supplier, manufacturing, customer and consumer history by
region)
P&G’s Supply Chain …
Optimization models to allocate supply chain resources
Simulation models to mathematically try various options to see the impact of changes in important variables
Decision trees to combine the possibilities of various outcomes with their financial results
Success of a supply chain is not necessarily the most optimal solution but rather a robust solution that would stand up in real world conditions
Result: consolidation of plants by 20%Supply chain costs reduced by $200 million each year
P&G’s Supply Chain …
Problem Cost pressures, complex supply chain.
Solutions Deploy modeling and optimization software to
maximize return on investment and predict the most successful supply chain.
Modeling software fueled with data from Oracle data warehouse improved efficiency and reduced costs.Illustrates digital technology improving decision making through information systems.Demonstrates IT’s role in restructuring a supply chain.
The Business Value
Example decision Decision makerNo. of decisions per year
Estimated value to firm of a single improved decision
Annual value
Allocate support to most valuable customers Accounts manager 12 100,000 1200000
Predict call center daily demand
Call center management 4 150,000 600000
Decide parts inventory levels daily Inventory manager 365 5,000 1825000
Identify competitive bids from major suppliers Senior management 1
2,000,000 2000000
Schedule production to fill orders
Manufacturing manager 150 10,000 1500000
Allocate labor to complete a job
Production floor manager 100 4,000 400000
12.1 Decision making and information systems
monetary value of improved decision
quality of decision making
IS for Key Decision-Making Groups
Senior managers, middle managers, operational managers, and employees have different types of decisions and information requirements.
12.1 Decision making and information systems
MIS- Based
Decision support
systems (DSS)
Executive support
systems (ESS)
Group decision support systems (GDSS)
Types of Decisions
• Unstructured decisions • decision maker must provide judgment,
evaluation, and insight to solve the problem.
• Structured decisions • repetitive and routine• they involve a definite procedure for handling
them.
• Many decisions have elements of both• Middle manager gets report from ES system
about sales decline at Rajshahi, gets secondary (related) report from the ES. Now needs to do interview.Consider senior managers, middle managers, operational managers, and employees
12.1 Decision making and information systems
Decision-support systems
Model-driven DSS Earliest DSS were heavily model-driven E.g. voyage-estimating DSS (Chapter 2)
Data-driven DSS Some contemporary DSS are data-driven Use OLAP (On-Line Analytical Processing) and
data mining to analyze large pools of data
Systems for Decision Support
The Decision-Making Process
12.1 Decision making and information systems
Managers and Decision Making
What managers do? Five classical functions planning, organizing, coordinating, deciding,
and controllingHow do the do it?
Behavioral models state that the actual behavior of managers appears to be less systematic, more informal, less reflective, more reactive, and less well organized than the classical model would have us believe.
in the Real World
12.1 Decision making and information systems
Managers and Decision Making
engage in more than 600 different activities each day
managerial activities are fragmented- most less than nine minutes, 10% exceed one hour
prefer current, specific, and ad hoc informationrefer oral forms of communication- greater
flexibility, ess effort, aster responsegive high priority to maintaining a diverse and
complex web of contacts- acts as an informal information system, helps them execute their personal agendas and short- and long-term goals
in the Real World
Mintzberg’s Managerial Roles …
12.1 Decision making and information systems
12.1 Decision making and information systems
Managers and Decision Making
investments in information technology do not always produce positive results. There are three main reasons:
information qualitymanagement filters
selective attention, biasesorganizational culture
resist major change decisions represent various
interest groups rather thanthe best solution to the problem.
in the Real World
Quality Dimension
Description
Accuracy Do the data represent reality?
Integrity Are the structure of data and relationships among the entities and attributes consistent?
Consistency Are data elements consistently defined?
Completeness
Are all the necessary data present?
Validity Do data values fall within defined ranges?
Timeliness Area data available when needed?
Accessibility Are the data accessible,comprehensible,and usable?
12.1 Decision making and information systems
High-Velocity Automated Decision Making
Google’s search engine High frequency traders at NYSE execute
their trades in under 30 millisecondshumans (including managers) are
eliminated from the decision chain because they are too slow
Flash Crash- 2010
12.1 Decision making and information systems
Infrastructure for DSS
At the foundation of all of these DSSs are infrastructure business intelligence (BI) and business analytics (BA)
that supplies the data and analytic tools
for supporting decision making.
12.2 Business Intelligence In The Enterprise
Business Intelligence?
Humans are intelligent beings ability to take in data from their environment, understand the meaning and significance of the
information, and then act appropriately.
“Business intelligence”- the infrastructure for warehousing, integrating,
reporting, and analyzing data that comes from the business environment
An infrastructure collects, stores, cleans, and makes relevant information available to managers
databases, data warehouses, and data marts
Just like human beings, some business firms do this well, and others poorly .)
12.2 Business Intelligence In The Enterprise
BI and BA Capabilities
“Business analytics” focuses more on tools and techniques for analyzing/understanding data OLAP, statistics, models, and data mining
BI and BA 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 (like normal distributions, correlation and regression analysis, forecasting,), and data mining tools (pattern discovery and machine learning), to make sense out of all these data
12.2 Business Intelligence In The Enterprise
BI and BA Vendors
Vendor Market Share
Business Intelligence Software
SAP 25% SAP BusinessObjects EPM Solutions
SAS Institute 15% SAS Activity Based Management; financial, human capital, profitability and strategy management
Oracle 14% Enterprise Performance Management System
IBM 11% IBM Cognos
Microsoft 7% SQL Server with PowerPivot
12.2 Business Intelligence In The Enterprise
BI and BA Vendors
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.
12.2 Business Intelligence In The Enterprise
5 analytic functionalities of BI systems
12.2 Business Intelligence In The Enterprise
Casual users are consumers of BI output, while intense power users are the producers of reports, new analyses, models, and forecasts.
Business Intelligence Applications
12.2 Business Intelligence In The Enterprise
Predictive Analytics Credit card risk
Data Visualization and Geographic Information Systems (GIS)
Management Strategies for Developing BI and BA Capabilities
One-stop integrated solutions versus multiple best-of-breed vendor solutions
Advantage/Not!
switching is very costly When you adopt these systems, you are in
essence taking in a new partner
12.2 Business Intelligence In The Enterprise
Decision Support for Operational and Middle Management
Company
MIS Application
California Pizza Kitchen
Inventory Express application “remembers” each restaurant’s ordering patterns and compares the amount of ingredients used per menu item to predefined portion measurements established by management. The system identifies restaurants with out-of-line portions and notifies their managers so that corrective actions will be taken.
PharMark
Extranet MIS identifies patients with drug-use patterns that place them at risk for adverse outcomes.
Black & Veatch
Intranet MIS tracks construction costs for various projects across the United States.
Taco Bell Total Automation of Company Operations (TACO) system provides information on food, labor, and period-to-date costs for each restaurant.12.3 Business Intelligence Constituencies
Decision Support for Operational and Middle Management
12.3 Business Intelligence Constituencies
Some managers are “super users”/ business analysts who want to create their own reports use more sophisticated analytics and models find patterns in data model alternative business scenarios to test specific hypotheses.
Decision support systems (DSS) are the BI delivery platform rely more heavily on modeling than MIS what-if or other kinds of analysis Sensitivity analysis - predict a range of outcomes OLAP- pivot table
Sensitivity Analysis
This table displays the results of a sensitivity analysis of the effect of changing the sales price of a necktie and the cost per unit on the product’s break-even point. It answers the question, “What happens to the break-even point if the sales price and the cost to make each unit increase or decrease?”
12.3 Business Intelligence Constituencies
The Excel PivotTable Wizard
The PivotTable Wizard in Excel makes it easy to analyze lists and databases by simply dragging and dropping elements from the Field List
12.3 Business Intelligence Constituencies
Using spreadsheet pivot tables to support decision making
Online Management Training Inc. (OMT Inc.), sells online management training books and streaming online videos to corporations and individuals
Records of online transactions can be analyzed using Excel to help business decisions, e.g.: Where do most customers come from? Where are average purchases higher? What time of day do people buy? What kinds of ads work best?
Systems for Decision Support
Example: ALICO Insurance
Using widely available insurance industry data, ALICO defines small groups of customers, or “cells,” such as motorcycle riders aged 30 or above with college educations, credit scores over a certain level, and no accidents.
For each “cell,” Progressive performs a regression analysis to identify factors most closely correlated with the insurance losses that are typical for this group.
It then sets prices for each cell, and uses simulation software to test whether this pricing arrangement will enable the company to make a profit.
These analytic techniques, make it possible for ALICO to profitably insure customers in traditionally high-risk categories that other insurers would have rejected.
12.3 Business Intelligence Constituencies
Consider GP Package
Example: Business value of DSS …
Burlington Coat Factory: DSS for pricing DSS manages pricing and inventory nationwide,
considering complex interdependencies between initial prices, promotions, markdowns, cross-item pricing effects and item seasonality
Syngenta: DSS for profitability analysis DSS determines if freight charges, employee sales
commissions, currency shifts, and other costs in proposed sale make that sale or product unprofitable
Compass Bank: DSS for customer relationship management DSS analyzes relationship between checking and savings
account activity and default risk to help it minimize default risk in credit card business
Systems for Decision Support
DSS for CRM …
Systems for Decision Support
Senior Management: The Balanced Scorecard and Enterprise Performance
Management Methods
• Executive Support Systems (ESS)• a methodology for understanding exactly what
is “the really important performance information”
• develop systems capable of delivering this information
• The balanced scorecard• a framework for operationalizing a firm’s
strategic plan by focusing on measurable outcomes on four dimensions of firm performance: financial, business process, customer, and learning and growth
• Performance on each dimension is measured using key performance indicators (KPIs), which are the measures proposed by senior management
12.3 Business Intelligence Constituencies
The balanced scorecard
• If your firm is a bank, one KPI of business process performance is the length of time required to perform a basic function like creating a new customer account.
12.3 Business Intelligence Constituencies
CATEGORY Purpose Aim
Learning & Growth for Employees
To achieve our vision How will we sustain our ability to change & improve?
Internal Business Processes
To satisfy our stakeholders & customers
Where must we excel in our business processes?
Customer Satisfaction
To achieve our vision How should we appear to our customers?
Financial Performance
To succeed financially How should we appear to our stakeholders?
The balanced scorecard
12.3 Business Intelligence Constituencies
Executive support systems (ESS)
Integrate data from different functional systems for firmwide view
Incorporate external data, e.g. stock market news, competitor information, industry trends, legislative action
Include tools for modeling and analysis Primarily for status, comparison information about
performance Facilities for environmental scanning -
detecting signals of problems, threats, or strategic opportunities
Able to drill down from summary information to lower levels of detail
Executive Support Systems (ESS)
Business value of ESS
Enables executive to review more data in less time with greater clarity than paper-based systems Result: Needed actions identified and carried
out earlierIncreases upper management’s span of
control Can enable decision making to be decentralized
and take place at lower operating levelsIncreases executives’ ability to monitor
activities of lower units reporting to themExecutive Support Systems (ESS)
Case of National Life
National Life: Markets life insurance, health insurance, and retirement/investment products executive information system
Executive information system: Allows senior managers to access corporate databases
through Web interface Shows premium dollars by salesperson Authorized users can drill down into these data to see
product, agent, and client for each sale Data can be examined by region, by product, and by
broker, and accessed for monthly, quarterly, and annual time periods
ESS for business intelligenceExecutive Support Systems (ESS)
Group Decision-Support Systems (GDSS)
• Much work is accomplished in groups within firms that a special category of systems called group decision-support systems (GDSS) has been developed to support group and organizational decision making.
• An interactive computer-based system for facilitating the solution of unstructured problems by a set of decision makers working together as a group in the same location or in different locations
• Collaboration systems type tools and technologies• Geared explicitly toward group decision making• promotes a collaboration by guaranteeing anonymity
12.3 Business Intelligence Constituencies
Systems for Decision Support
California’s South Coast Air Quality Management District (AQMD) is responsible for monitoring and controlling emissions in all of Orange County and the urban portions of Los Angeles, Riverside, and San Bernardino counties. Displayed is a map produced with ESRI GIS software tracking particulate matter emissions from building construction activity in a two-by-two kilometer area.
Overview of a GDSS meeting
Each attendee has workstation, networked to facilitator’s workstation and meeting’s file server
Whiteboards on either side of projection screen Seating arrangements typically semicircular,
tiered Facilitator controls use of tools during meeting All input saved to server, kept confidential After meeting, full record (raw material and
final output) assembled and distributedMake meetings more productive by providing tools to facilitate:• Planning, generating, organizing, and evaluating ideas• Establishing priorities• Documenting meeting proceedings for others in firm
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MIS- Based
Help managers monitor and control business by providing information on firm’s performance and address structured problems
Typically produce fixed, regularly scheduled reports based on data from TPS E.g. exception reports: Highlighting exceptional
conditions, such as sales quotas below anticipated levelE.g. Pizzahut Kitchen MIS
For each restaurant, compares amount of ingredients used per ordered menu item to predefined portion measurements and identifies restaurants with out-of-line portions
Systems for Decision Support
Components of DSS
Database used for query and analysis Current or historical data from
number of applications or groups May be small database or large
data warehouseUser interface
Often has Web interfaceSoftware system with models,
data mining, and other analytical tools
Systems for Decision SupportOverview of a Decision-Support System
Model
Abstract representation that illustrates components or relationships of phenomenon; may be physical, mathematical, or verbal model
Systems for Decision Support
Statistical modelsOptimization modelsForecasting modelsSensitivity analysis models
DSS for Supply Chain Management
Comprehensive examination of inventory, supplier performance, logistics data
To help managers search alternatives and decide on the most efficient and cost-effective combination
Reduces overall costsIncreases speed and accuracy of filling
customer orders
Systems for Decision Support
Data visualization tools: Help users see patterns and relationships in large
amounts of data that would be difficult to discern if data were presented as traditional lists of text
Geographic information systems (GIS): Category of DSS that use data visualization technology to
analyze and display data in form of digitized maps Used for decisions that require knowledge about
geographic distribution of people or other resources, e.g.: Helping local governments calculate emergency response
times to natural disasters Help retail chains identify profitable new store locations
Systems for Decision Support
Web-based customer decision-support systems (CDSS)
Support decision-making process of existing or potential customer
Automobile companies that use CDSS to allow Web site visitors to configure desired car
Financial services companies with Web-based asset-management tools for customers; Fidelity Investments: customer portfolio allocations, retirement savings plans...
Home.com: mortgage, rent or buy...Systems for Decision Support
Bonita Bay Properties
Digital dashboard: Displays on single screen key performance indicators as graphs and charts for executives
Bonita Bay Properties Inc.: Develops planned communities centered around golf courses and fitness centers
Executive dashboard displays: Summaries from point-of-sale systems and general
ledger accounts Staffing levels Executives can drill down to performance of fitness
centers, activity on golf courses
Executive Support Systems (ESS)
Monitoring corporate performance with digital dashboards
Case of Pharmacia Corporation
Balanced scorecard model: Supplements traditional financial metrics with measurements from additional perspectives (customers, internal business processes, etc.)
Pharmacia Corporation: global pharmaceutical firm
Balanced scorecard shows: Performance of U.S. or European clinical operations in
relation to corporate objectives Attrition rate of new compounds under study Number of patents in clinical trials How funds allocated for research are being spent
Executive Support Systems (ESS)
Monitoring corporate performance with balanced scorecard systems
Caesar’s Entertainment
Has integrated reporting structure to help management determine how well it is performing against forecasts on a daily basis
Integrates data from internal TPS with other internal and external sources Financial data from general ledger system, personnel
data, weather pattern and real estate data Delivers daily cost, effect, impact analysis, and profit-
and-loss reports Reports predict combined effect of these factors on
company’s business performance System lets executives adjust plans as required
online
Executive Support Systems (ESS)
Enterprise-wide performance analysis
Components of GDSS
Hardware Facility: Appropriate facility, furniture, layout Electronic hardware: Audiovisual, computer,
networking equipment Software
Electronic questionnaires, electronic brainstorming tools, idea organizers
Tools for voting or setting priorities, stakeholder identification and analysis tools, policy formation tools
Tools ensure anonymity Group dictionaries
People Participants and trained facilitator, support staff
Group Decision-Support Systems (GDSS)
Group System Tools
Group Decision-Support Systems (GDSS)
The sequence of activities and collaborative support tools used in an electronic meeting system facilitate communication among attendees and generate a full record of the meeting.Source: From Nunamaker et al., “Electronic Meeting Systems to Support Group Work,” Communications of the ACM, July 1991. Reprinted by permission.
Business value of GDSS
Supports greater numbers of attendees Without GDSS, decision-making meeting process
breaks down with more than 5 attendees More collaborative atmosphere
Guarantees anonymity Can increase number of ideas generated and
quality of decisions made Most useful for idea generation, complex
problems, large groups Successful use of GDSS depends on many
factors Facilitator’s effectiveness, culture and environment,
planning, composition of group, appropriateness of tools selected, etc.
Group Decision-Support Systems (GDSS)
Learning Objectives
Assess how information systems support the activities of managers and management decision making.
Demonstrate how decision-support systems (DSS) differ from MIS and how they provide value to the business.
Demonstrate how executive support systems (ESS) help senior managers make better decisions.
Evaluate the role of information systems in helping people working in a group make decisions more efficiently.
Questions
1. What are the different types of decisions and how does the decision-making process work?
2. How do information systems support the activities of managers and management decision making?
3. How do business intelligence and business analytics support decision making?
4. How do different decision-making constituencies in an organization use business intelligence?
5. What is the role of information systems in helping people working in a group make decisions more efficiently?
12.1 Decision Making And Information Systems• Business Value of Improved Decision Making• Types of Decisions • The Decision-Making Process• Managers and Decision Making in the Real World• High-Velocity Automated Decision Making12.2 Business Intelligence In The Enterprise• What Is Business Intelligence?• The Business Intelligence Environment• Business Intelligence and Analytics Capabilities• Management Strategies for Developing BI and BA Capabilities 12.3 Business Intelligence Constituencies• Decision Support for Operational and Middle Management• Decision Support for Senior Management: The Balanced Scorecard
and Enterprise Performance Management Methods• Group Decision-Support Systems (GDSS)
TOC
Interpersonal
Role Description Identifiable Activity
Figurehead
Manager serves as an official representative of the organization or unit
Greeting visitors; signing legal documents
Leader Manager guides and motivates staff and acts as a positive influence in the workplace
Staffing, training
Liaison Manager interacts with peers and with people outside the organization to gain information
Acknowledging mail/email; serving on boards; performing activities that involve outsiders
12.1 Decision making and information systems
Mintzberg’s Managerial Roles
Informational
Role Description Identifiable Activity
Monitor Manager receives and collects information
Reading magazines and reports; maintaining personal contacts
Communication (Disseminator)
Manager distributes information within the organization
Holding meetings; making phone calls to relay information; email/memos
Spokesperson
Manager distributes information outside the organization
Holding board meetings; giving information to the media
12.1 Decision making and information systems
Mintzberg’s Managerial Roles
Decisional
12.1 Decision making and information systems
Mintzberg’s Managerial Roles
Role Description Identifiable Activity
Entrepreneur
Manager initiates change Organizing sessions to develop new programs; supervises design of projects
Disturbance Handler
Manager decides how conflicts between subordinates should be resolved
Steps in when an employee suddenly leaves or an important customer is lost
Resource Allocator
Manager decides how the organization will use its resources
Scheduling; requesting authorization; budgeting
Negotiator Manager decides to negotiate major contracts with other organizations or individuals
Participating in union contract negotiations or in those with suppliers