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Chapter
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
ENHANCING
MANAGEMENT
DECISION-MAKING
FOR THE DIGITAL FIRM
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
LEARNING OBJECTIVES
• DIFFERENTIATE DECISIONSUPPORT SYSTEMS (DSS) FROM
GROUP DECISION-SUPPORT
SYSTEMS (GDSS)
• DESCRIBE COMPONENTS OF DSS &
GDSS
*
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
LEARNING OBJECTIVES
• DEMONSTRATE HOW DSS & GDSS
ENHANCE DECISION-MAKING
• DESCRIBE CAPABILITIES OF
EXECUTIVE SUPPORT SYSTEMS
(ESS)
• ASSESS BENEFITS OF ESS
*
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
THE GAP USES DSS FOR MORE
EFFICIENT DECISION MAKING
• During the 1990s, corporate America
was obsessed with the California
dress style. The Gap led the charge
to outfit everyone in khaki pants and
corporate casual attire. Sales rose,
and the company launched Gap and
Banana Republic stores overseas,
opened Old Navy stores, and started
selling on the Web.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
THE GAP USES DSS FOR MORE
EFFICIENT DECISION MAKING
• While Gap sales grew in 2001, net income
started to fall because the inventories and
merchandising at its 4,100 stores became
difficult to manage.
• They could not predict how many boot-cut
jeans to buy or when they should arrive at
stores. They were forced to gather current and
past sales information from separate planning
and inventory allocation systems and analyze
this information on their own. Deciding what to
buy, how much and when to stock clothes was
a slow and tedious process.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
THE GAP USES DSS FOR MORE
EFFICIENT DECISION MAKING
11.6
• "Every item in a store is an investment."
Given the number of Gap stores, these
items amounted to huge investments, so if
they remain on store shelves too long, the
company's return on its inventory
investment is much lower. In March 2001,
the Gap decided to address this problem
by implementing Retek's planning and
forecasting software.
• The Retek software provides a common
set of tools for all activities across all
divisions.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
THE GAP USES DSS FOR MORE
EFFICIENT DECISION MAKING
• Using software on their desktops,
merchants and planners will be able to:
• See the current status of each other
• Plans and forecasts so that they can
collaborate and make better decisions
about what to allocate, when to mark
down, and how much to mark down. T
• The software has clearly promoted more
efficient decision making.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DECISION-SUPPORT SYSTEMS (DSS)
MIS
MIS
• MIS primarily provide information on the
firm's performance to help managers in
monitoring and controlling the business.
Assists in general control of the
organization
• They typically produce fixed, regularly
scheduled reports based on data
extracted and summarized from the
organization's underlying transaction
processing systems (TPS).
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
MIS
• A typical MIS report might show a summary of
monthly sales for each of the major sales
territories of a company.
• Sometimes MIS reports are exception reports,
highlighting only exceptional conditions, such as
when the sales quotas for a specific territory fall
below an anticipated level or employees who have
exceeded their spending limit in a dental care
plan.
• Traditional MIS produced primarily hard copy
reports. ( Now on the Intranet )
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
MIS Example
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-ofline portions and notifies their management so
that corrective action can be taken.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DSS
MANAGEMENT LEVEL COMPUTER
SYSTEM COMBINES DATA,
MODELS, USER - FRIENDLY
SOFTWARE FOR SEMISTRUCTURED
& UNSTRUCTURED DECISION
MAKING
*
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DSS
• DSS provide new sets of capabilities for
nonroutine decisions and user control.
DSS emphasize change, flexibility, and
rapid response.
• With a DSS there is less of an effort to link
users to structured information flows and
a correspondingly greater emphasis on
models, assumptions, ad hoc queries, and
display graphics.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DSS
• Simon's description of decision making
consists of four stages:
• Intelligence
• Design
• Choice
• Implementation.
• DSS are intended to help design and
evaluate alternatives and monitor the
adoption or implementation process.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Types of Decision-Support Systems
Model-driven DSS
• Primarily stand-alone isolated from major
organizational information systems
• Uses model to perform “what-if” and other
kinds of analysis
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Continental Airlines system for cargo revenue
optimization
• Continental's cargo division developed a
software application called CargoProf to
maximize revenue from its aircraft freight
compartments.
• The software ensures that Continental sells all
available freight space on its carriers at the
most profitable price.
• The system forecasts cargo capacity and sets
an optimal value each night on what they need.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Continental Airlines system for cargo revenue
optimization
• Cargo Revenue Optimization at Continental Airlines. When
a booking agent (1) requests a cargo reservation, the cargo
reservation system (2) passes the shipment details and
customer contract rate to CargoProf (3). Meanwhile, the
passenger reservation system (4) feeds a passenger
forecast to the flight schedule server's cargo capacity
forecaster (5), which calculates expected cargo capacity
each night for every flight. It passes this capacity data to
CargoProf, which calculates for each flight with available
cargo space the minimum prices that a booking must meet
or exceed in order to be profitable. The cargo reservation
system then accepts or rejects the request. Agents with
rejected requests can then either try a different day or route
to sell the customer into a higher rate class.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DATA-DRIVEN DSS.
• The second type of DSS is a data-driven DSS.
These systems analyze large pools of data found
in major organizational systems.
• They support decision making by allowing users
to extract useful information that was previously
buried in large quantities of data. Often data from
transaction processing systems (TPS) are
collected in data warehouses for this purpose.
• Online analytical processing (OLAP) and
datamining can then be used to analyze the data.
Companies are starting to build data-driven DSS
to mine customer data gathered from their Web
sites as well as data from enterprise systems.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Multidimensional analysis
• Traditional database queries answer such
questions as, "How many units of product
403 were shipped in November 2000?"
OLAP, or multidimensional analysis,
supports much more complex requests for
information, such as, "Compare sales of
product 403 relative to plan by quarter and
sales region for the past two years
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DECISION-SUPPORT SYSTEMS (DSS)
Types of Decision-Support Systems
Datamining
• Finds hidden patterns and relationships in
large databases to infer rules
• Knowledge discovery
• The types of information that can be
yielded from datamining include
associations, sequences, classifications,
clusters, and forecasts.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Associations
• Associations are occurrences linked to a
single event. For instance, a study of
supermarket purchasing patterns might
reveal that when corn chips are
purchased, a cola drink is purchased 65
percent of the time, but when there is a
promotion, cola is purchased 85 percent
of the time. With this information,
managers can make better decisions
because they have learned the profitability
of a promotion.
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Sequences
• In sequences, events are linked over
time. One might find, for example,
that if a house is purchased, then a
new refrigerator will be purchased
within two weeks 65 percent of the
time, and an oven will be bought
within one month of the home
purchase 45 percent of the time.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Classification
• Classification recognizes patterns that
describe the group to which an item
belongs by examining existing items that
have been classified and by inferring a set
of rules. For example, businesses such as
credit card or telephone companies worry
about the loss of steady customers.
Classification can help discover the
characteristics of customers who are
likely to leave and can provide a model to
help managers predict who they are so
that they can devise special campaigns to
retain such customers.
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Clustering
• Clustering works in a manner similar
to classification when no groups
have yet been defined. A datamining
tool will discover different groupings
within data, such as finding affinity
groups for bank cards or partitioning
a database into groups of customers
based on demographics and types of
personal investments
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DECISION-SUPPORT SYSTEMS (DSS)
Overview of a Decision-Support System (DSS)
11.26
Figure 11-2
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Components of Decision-Support Systems
DSS database: The DSS database is a collection
of current or historical data from a number of
applications or groups. DSS database may be a
massive data warehouse that is continuously
updated by major organizational TPS (including
enterprise systems and data generated by Web
site transactions.)
• The data in DSS databases are generally extracts
or copies of production databases so that using
the DSS does not interfere with critical
operational systems.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Components of Decision-Support Systems
DSS software system
• The DSS software system contains the
software tools that are used for data
analysis.
• It may contain various OLAP tools,
datamining tools, or a collection of
mathematical and analytical models
that easily can be made accessible to
the DSS user.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Components of Decision-Support Systems
• A model is a theoretical representation that
illustrates the components or relationships of an
event.
• A model can be:
• A physical model (such as a model airplane)
• A mathematical model (such as an equation)
• A verbal model (such as a description of a
procedure for writing an order).
• Each decision-support system is built for a
specific set of purposes and will make different
collections of models available depending on
those purposes.
•11.29
Perhaps the most common models are libraries of
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Components of Decision-Support Systems
Sensitivity analysis
• Among the most widely used models are
sensitivity analysis models that ask "whatif" questions repeatedly to determine the
impact of changes in one or more factors
on outcomes.
• Backward sensitivity analysis software is
used for goal seeking: If I want to sell one
million product units next year, how much
must I reduce the price of the product?
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Components of Decision-Support Systems
Sensitivity Analysis
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Components of Decision-Support Systems
User Interface
• The DSS user interface permits easy
interaction between users of the
system and the DSS software tools.
A graphic, easy-to-use, flexible user
interface supports the dialogue
between the user and the DSS.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DSS Applications and the Digital Firm
1. DSS for Supply Chain Management
2. DSS for Customer Relationship
Management
3. Data Visualization and Geographic
Information Systems (GIS)
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DSS Applications and the Digital Firm
• General Accident Insurance: Customer
buying patterns and fraud detection
• Bank of America: Customer profiles
• United Airlines: Flight scheduling,
passenger demand forecasting
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DSS for Supply Chain Management
• Supply chain decisions involve determining "who,
what, when, and where" from purchasing and
transporting materials and parts through
manufacturing products and distributing and
delivering those products to customers.
• Supply chain management systems contain data
about
• Inventory
• Supplier performance
• Logistics of materials
• Finished goods.
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DSS for Supply Chain Management
• DSS can draw on previous data to help
managers examine this complex chain
comprehensively and search among a huge
number of alternatives for the combinations
that are most efficient and cost-effective.
• The prime management goal might be to
reduce overall costs while increasing the
speed and accuracy of filling customer
orders.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DSS for Supply Chain Management
1. Comprehensive examination of supply
management chain
2. Searches for most efficient and costeffective combination
3. Reduces overall costs
4. Increases speed and accuracy of filling
customer orders
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Example of DSS for SCM
• The IBM Personal Systems Group (PSG) used
AMT to reduce supply chain costs to cope with
the large volumes, dropping prices, and slim
profit margins in the personal computer market.
PSG was able to reduce overall inventory by over
50 percent in 1997 and 1998.
• The system helped PSG reduce payments made
to distributors and resellers to compensate for
product price reductions by more than $750
million in 1998.
• PSG's cycle time from component procurement
to product sale was reduced by four to six
weeks, bringing reductions of 5 to 7 percent in
overall product cost.
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DSS for Customer Relationship Management
• Uses data mining to guide decisions
• Consolidates customer information into
massive data warehouses
• Uses various analytical tools to slice
information into small segments
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DECISION-SUPPORT SYSTEMS (DSS)
DSS for Customer Analysis and Segmentation
11.40
Figure 11-4
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
Example DSS for CRM
• Royal Bank of Canada has developed a DSS for
customer segmentation that can tailor messages
to very small groups of people and offer them
products, services, and prices that are more
likely to appeal to them.
• This DSS consolidates data from various
systems in the organization into a data
warehouse.
• The Royal Bank's main customer database is its
marketing information file (MIF) which also
contains data from every document a customer
fills out as well as data from checking accounts,
credit cards, and the Royal Bank's enterprise
and billing systems.
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Data Visualization and Geographic Information Systems (GIS)
• Data from information systems can be made
easier for users to digest and act upon by using
charts, tables, graphs, maps, digital images,
three-dimensional presentations, animations.
• By presenting data in graphical form, data
visualization tools help users see patterns and
relationships in large amounts of data that would
be difficult to discern if the data were presented
as traditional lists of text.
• Some data visualization tools are interactive,
allowing users to manipulate data and see the
graphical displays change in response to the
changes they make.
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Data Visualization and Geographic Information Systems (GIS)
Geographic Information Systems (GIS)
• They are a special category of DSS that use
data visualization technology to analyze and
display data for planning and decision
making in the form of digitized maps.
• The software can assemble, store,
manipulate, and display geographically
referenced information, tying data to points,
lines, and areas on a map.
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Geographic Information Systems (GIS)
• Sonny's Bar-B-Q, the Gainesville, Florida-based
restaurant chain, used GIS with federal and local
survey data on median age, household income,
total population, and population distribution to
help management decide where to open new
restaurants.
• The company's growth plan specifies that it will
only expand into regions where barbecue food is
very popular but where the number of barbecue
restaurants is very small.
• Sonny's restaurants must also be at least seven
miles away from each other.
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
DECISION-SUPPORT SYSTEMS (DSS)
Web-Based Customer Decision-Support Systems
Customer Decision-Support Systems (CDSS)
• DSS based on the Web and the Internet can
support decision making, by providing online
access to various databases and information
pools along with software for data analysis.
• Some of these DSS are targeted toward
management, but many have been developed to
attract customers by providing information and
tools to assist their decision making as they select
products and services.
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Web-Based Customer Decision-Support Systems
• People are now using more information
from multiple sources to make purchasing
decisions (such as purchasing a car or
computer) before they interact with the
product or sales staff.
• People interested in purchasing a product
or service can use Internet search engines,
online catalogs, Web directories, newsgroup
discussions, e-mail, and other tools to help
them locate the information they need to
help with their decision.
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Example Web-Based Customer Decision-Support Systems
Homes.com
• Provides a nationwide listing of homes for
sale, apartments for rent, and mortgages
available. Visitors can find out what
mortgages they qualify for and calculate
the maximum mortgage they can afford
and alternative monthly mortgage
payments. They can also use tools to help
them determine whether they should rent
or buy.
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GROUP DECISION-SUPPORT SYSTEMS (GDSS)
What Is a GDSS
• Interactive computer-based system
• Facilitates solution to unstructured
problems
• Set of decision makers working together
as a group
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GROUP DECISION-SUPPORT SYSTEMS (GDSS)
• Groupware and Web-based tools for
videoconferencing and electronic meetings can
support some group decision processes, but their
focus is primarily on communication.
• GDSS, however, provide tools and technologies
geared explicitly toward group decision making
and were developed in response to a growing
concern over the quality and effectiveness of
meetings.
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GROUP DECISION-SUPPORT SYSTEMS (GDSS)
•
1.
2.
3.
11.50
Problems in group decision making:
Decision-maker meetings
The growing length of those meetings
The increased number of attendees.
Estimates on the amount of a manager's time
spent in meetings range from 35 percent to 70
percent.
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GROUP DECISION-SUPPORT SYSTEMS (GDSS)
Characteristics of GDSS
• Hardware: Conference facility, electronic
hardware
• Software tools: Tools for organizing ideas,
gathering information, and ranking and
seeking priorities
• People: Participants, trained facilitator,
staff supporting hardware and software
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GROUP DECISION-SUPPORT SYSTEMS (GDSS)
GDSS Software Tools
• Electronic questionnaires: aid the organizers in
pre-meeting planning by identifying issues of
concern and by helping to ensure that key
planning information is not overlooked.
• Electronic brainstorming tools: allow individuals,
simultaneously and anonymously, to contribute
ideas on the topics of the meeting.
• Idea organizers: facilitate the organized
integration and mixing of ideas generated during
brainstorming.
•
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• Questionnaire tools: support the facilitators and group
leaders as they gather information before and during the
process of setting priorities.
• Tools for voting: or setting priorities make available a
range of methods from simple voting, to ranking in order,
to a range of weighted techniques for setting priorities or
voting.
• Stakeholder identification: evaluate the impact of an
emerging proposal on the organization and to identify
stakeholders and evaluate the potential impact of those
stakeholders on the proposed project.
• Group dictionaries: document group agreement on
definitions of words and terms central to the project.
• People: refers not only to the participants but also to a
trained facilitator and often to a staff that supports the
hardware and software.
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GROUP DECISION-SUPPORT SYSTEMS (GDSS)
How GDSS can Enhance Group Decision-Making
• Improved preplanning
• Increased participation
• Open, collaborative meeting atmosphere
• Criticism-free idea generation
• Evaluation objectivity
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Chapter
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Chapter 11 Enhancing Management Decision-Making for the Digital Firm
ENHANCING
MANAGEMENT
DECISION-MAKING
FOR THE DIGITAL FIRM
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