Chapter 1

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P
A
R
T
Decision Support and
Business Intelligence
I.EARNING OBJECIlVES FOR PART I
Understand the complexity of I<xiay's business
environment
2 UndersL'Ind the foundations and key issues
of managerial decision making
4 Learn the major frameworks of computerized
decision support: decision support systems
(DSS) and business intelligence (EO
:\ Recognize the difficulties in managerial
decision making today
This book deals with a collection of computer technologies thai support managerial workessentially, decision making . These technologies have had a profound impact on corporate strategy,
periolTT1ance, Rnd competitivene!l!l. The!!e techniques are also stmngly connected 10 the Internet,
intraneis, and Web tools, as shown throughout the book. In Part I, we provide an overview of the
whole book in one chapter. We cover several topics in this chapter. The first topic is managerial
decision making and its computerized support; the second is frameworks for decision support.
We then introduce business intelligence. We also provide brief coverage of the tools used and their
implementation, as well as a preview of the entire book.
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Decision Support Systems
and Business Intelligence
LEARNING OBjECllVES
Understand tooay's rurbulent business
envirorunent and describe how organizations
survive and even excel in such an environment
(solving problems and exploiting opportu n ities)
2 Understand the need for computerized support
of managerial decision making
3 Understand an early
decision making
f~mework
for managerial
4 Learn the conceptual foundations of the
decision support systems CDSS1) methodology
5 Describe the business intelligence (BI)
methodology and co n cepts and relate them
to DSS
6 Describe the concept of work systems and
its relationship to decision support
7 List the major tools of computerized decision
suppon
8 Understand the major issues in implementing
computerized support systems
T
he business environment (climate) is constantly changing, and it is becoming more and more
complex. Organizations, private and public, are under pressures that force them to respond
quickly to changing conditions and to be innovative in the way they operate. Such activities
require organizations to be agile and to make frequent and quick strategic, tactical, and operational
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of releva nt data, information, and knowledge. Processing these , in the framework of the needed
decisions. must be done quickly. frequently in real time, and usually requires some computerized
support.
This book is about using business intelligence as computerized support for managerial decision
making. It concentrates both on the theoretical and conceptual foundations of decision support, as well as
on the conunercial tools and techniques that are available. This introductory chapter provides more details
'lbe acronym DSS Is treated as bah sIngular and plu",J throughout thLs book. slmll.rly, other acronym'!.
35 MIS and GSS. designate bolh pluntl .nd slnguJar fonns.
2
such
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Chapler I • Decision Suppon Systems and Business Intelligence
of these topics as well as an overview of the book. This chapter has the following
sections:
1.1 Opening Vignette: Norfolk Southern Uses Business Intelligence for Decision
Support to Reach Success
1 .2 Changing Business Envirorunents and Computerized Decision Support
1.3 Managerial Decision Making
1.4 Computerized Support for Decision Making
1.5 An Early Framework for Computerized Decision Support
1.6 The Concept of Decision Support Systems (DSS)
1 .7 A Framework for Business Intelligence (BI)
1.8 A Work System View of Decision Support
1.9 The Major Tools and Techniques of Managerial Decision Suppon
1.1 0 Plan of the Book
1.11 Resources, Links, and the Teradata University Network Connection
1.1
OPENING VIGNETTE: NORFOLK SOUTHERN USES BUSINESS INTELUGENCE
FOR DECISION SUPPORT TO REACH SUCCESS
Then:- an:- four large fn:-ight railr<XIds in the United States. and Norfolk Southern is one of them.
Each day. the company moves approximately 500 fn:-igbttrains across 21,000 route miles in
22 eastern states, the District of Columbia, and Ontario, Canada. Norfolk Southern manages more
than $26 billion in assets and employs over 3(l,OOO people.
Por more than a century, the railroad industry was heavily regulated, and Norfolk Southern
and its predecessor railr<XIds made money by managing their C05ls. Managers focused on optimizing the use of railcars to get the most production out of their fIXed assets. Then, in 1980, the
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companies to charge rates based on se!Vice and enter into contracts with customers. On-time
delivery became an important factor in the industry.
Over time, Norfolk Southern responded 10 these industry changes by becoming a "scheduled
railroad." This meant thm the company would develop a fIXed set of train schedules and a fIXed
set of connections for c ars to go between trains and yards. In this way, managers could predict
when they could get a shipment 10 a customer.
Norfolk Southern has always used a variety of sophisticated systems to run its business.
Becoming a scheduled railroad, however. requin:-d new systems that would first use statistical
nxxlels to determine the best routes and connections to optimize railroad performance, and then
apply the nxxlels to create the plan that would actually run the railroad operations. These new
systems wen:- called TOP, shon for Thoroughbred Operating Plan: TOP was deployn:l in 2002.
Norfolk Southern realized that it was nO{ enough to run the railroad using TOP- it also had
10 monitor and measure its perfoffilance against the TOP plan. Norfolk Southern's numerous systems generate millions of n:-cords about fn:-ight n:-cords, railcars, train GPS information, train fuel
levels. n:-venue infonnation, crew management. and historical tracking n:-cords. Unfortunately,
the company was not abie to simpiy tap into this data without risking significant impact on the
systCfll.'l' perfoffilance.
Back in 1995. the comJXlny invested in a l -ternb)-1e Terndata data warehouse, "tlich is a central
n:-posltory of historical data. It is organized in such a way that the data is ea,y to access (using a \reb
browser) and can be manipulated for decision suppon. lhe wan:-house data comes from the systCfll.'l
that run the comJXln y (Le., sou",", systems), and once the data is moved from the sou",", systCfll.'lto
the wan:-house users can access and use the data without risk of impacting operations.
In 2002, the data warehouse became a critical component of TOP. Norfolk Southern built a
TOP dashboard application that pulls data from the data wan:-house and then graphically depicts
actual performance against the trip plan for both train perfoml3nce and connection perfonnance.
The application uses visualization technology so that field managers can mon:- easily interpret
the large volumes of data (e.g., then:- were 160,000 weekly connections across the netwOlk). The
3
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4
Pan [
Decision Suppon and Business loteJHgence
number of missed connections has decreased by 60 percent since the application was implemented. And, ;n the past 5 years, railcar cycle time has decreased by an entire day, which translates into millions of dollars ;n annual savings.
Norfolk Southern bas an enterprise data warehouse, which means that once data is placed
in the warehouse. ;t is available across the company, not just for " single appHcatiOfl. Although
train and connection perfonnance data is used for the TOP applic3lion, the company has been
able to levemge that dam for all kinds of other purposes. For example, the Marketing Depaltrnenl
has developed an application called accessNS, which was built for Norfolk Southern customers
who want visibility into Norfolk Southern's eXlensive transponation network. Customers want to
know where their shipments are "right now"-and at times they want hiSlorical information:
Where did my shipment come from? How long did it I3ke to arrive? What were the problems
along the route?
accessNS allows more than 14,500 users from 8,000 customer OIg:lfiizations to log in and
access predefined and custom repons about their accounts at any time. Users can access currem
dam. which is updated hourly. or they can look at dam from the past 3 years. accessNS provides
alening and RSS feed capabilities: in fact, 4,500 repons are pushed to users daily. lbe self-service
nature of accessNS has allowed Norfolk Southern to give customers what they want and also
reduce the nwnber of people needed for customer service. [n fact. without accessNS, it ""QuId
I3ke approximately 47 people to suppon the current level of customer reponing.
Deparunents across the company- from Engineering and Strategic Planning to Cost and
Human Resources---use the enterprise data warehouse. One interesting intemal application was
developed by Human Resour<:es. Recendy. the depanment needed to detel1l1ine where to locate
its field offices in order to best meet the needs of Norl'olk Southern's 30.000+ employees. By
combining employee demographic data (e.g., zip codes) with geo.spatial data traditionally used
by the Engineering Group, Human Resour<:es was able to visually map out the employee population density, making it much easier to optimize se!Vices offices locations.
Today, the Norfolk Southern dam warehouse has grown to a 6-terabyte system that manages
an extensive amount of infonnation about the company's vast network of railroads and shipping
se!Vices. Norfolk Southern uses the data warehouse to analyze trends. develop forecasting
schedules, archive records, and facilitate customer self-service. The dam warehouse provides
information to over 3.000 employees and over 14,000 external customers and stakeholders.
Norl'olk Southern was the first railroad to offer self-se!Vice business intelligence. and its
innovation is sening an example that OI:her railroads have followed. The company was also one
of the first railroads to provide a large variety of historical dam to external customers.
Question.s for the Opening Vignette
1. How are information systems used at Norfolk Southern to suppon decision making?
2. What type of information is accessible through the visualization applications?
3. What type of information suppon is provided through accessNS?
4. How does Norfolk Southern use the data warehouse for HR applications?
S. Can the same dam warehouse be used for business intelligence and optimization applications?
What We Can Learn from TIlL'!
Vi~nette
This vignette shows that data warehousing technologies can offer a player even in a mature
indust<y the abili<y to atmin competitive advantage by squeezing additional efficiency from its
operations. Indeed. in many cases, this may be the major frontier to explore. Getting more out of
a company's assets requires more timely and detailed understanding of its operations. and the
ability to use that information to make bener decisions. We will see many examples of such
applications throughout this book.
Additional resour<:es about this vignette are available on the Teradata University Network,
which is described later in the chapter. These include OI:her papers and a podcast titled "Norfolk
Southern Uses Teradal3 Warehouse to Suppon a Scheduled Railroad."
.IOurc", Contributed by Professors R1rl:xi ... Wixom (Unlwrslty dVlrQlnla). HuBh watson (UnlV<'l'Slty
d GeOl!!I.), and j..tf Hoffer (Unlverslty d Dayton).
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Ch3p1~
1.2
I •
~ision
Su ppon Sy>;tems and Business [nteUigence
CHANGING BUSINESS ENVIRONMENTS AND COMPUTERIZED
DECISION SUPPORT
TIle opening vignette illustrates how a global company excels in a matu re bUI competitive
market. Companies are moving aggressively 10 computerized s uppon of their operations.
To uoderst:lnd why companies are emOOting computeri7.cd suppoft, in cl uding business
inleUigence. we developed a model called the Bus/ness Pressurn-Re:spcmses-Sllpport
model, which is shown in Figure 1.1.
The Business Pressures-Responses-5upport Model
The Business Pressures-Responses-SuPJXl'1 model, as its n."lme indialtes, has three COIll ponents: business pressures that result from today's business clima te, responses (actions
taken) by companies to counter the pressures (or to take advantage of the opportunities
available in the environment), and computeri7.cd s upport that facilitates the monitoring of
the environment and e nhances the response actions taken by organizations.
THE BUSINESS ENVIRONMENT TIle environment in ....illch organizations oper.ue today Is
becoming more and more complex. This complexity creates opportunities o n the one
hand and proble ms o n the o the!-. Take globalization as an example. Today, you can easily find s uppl iers and custom ers in many cou nllics, which tIleans rou ca n buy chea per
materials and sell more of your products and services: great opportunities exist. HOWCVCT,
globalization also means more and stronger competitors. Business e nvironment factors
can be d ivided into fou r major categories: markets, CO/ISIIII/CT" demands, tecb,loloS)'. and
societaf. l1lese categories are summarized in Table 1.1.
Note that the i me1lsity o f IllOIit of these factors incre:l5es with tinlC, leading to more
pressures. more competition. and so on. In addition. organizati o ns and de pa rtrrlents
within organizat ions face decreased budgets and ampliflCd pressures from top managers
to increase performance and profit. In this kind of environment, managers muS( respond
quickly , innovate. and be agile. let's see how they do it.
ORGANIZATIONAL RESPONSES: BE REACnVE, ANTICIPATIVE, ADAPTIVE, AND
PROACnVE Both private :md public org:miz."ltions are aware of today·s business environment and pressures. 11ley use different actions to counter the pressures. Vodafone
BUSin8&&
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Environmantal Factors
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irt.elligence
FIGURE 1.1 The Business Pressures-flesponses-Support Model
5
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6
Pan I • D<"cision Suppon and
Busi~
TABLE 1 . 1
Intelligence
8u5inHs Environ men t Factors That Create Pressures on Orga n iutions
f"ctor
Description
Mar~ets
Strong competition
Expanding global mar~ets
Booming electronic mar~ets on the Internet
Innovative mar~eting methods
Opportunities for outsourcing 'o\;tn IT support
Need for real·time, on-demand trar1sactions
Desire for (u!>lomization
Desire for quality. diversity of products. and speed of de~\o'l'ry
Custome~ getting powerful and Ie<>s loyal
Consumer demands
Technology
More il'VlOVations, new products. and new services
Increasing obsolescence ra te
Increasing information overload
Social networl:ing, Web 2.0 and beyond
Societal
Grol'ing goYffnment rle9ulations and deregulation
Worl:force more diversified, older, and composed of more women
Prime concerns of homeland 5I!ClJnty and terroris! attacks
Necessity of Sarbanes-Oxley Act and other reporting-related legislation
Increasing social responsibility of companies
Greater emphasi-s on sustainability
New Zeabnd Ltd ( Krh-da, 20(8), fo r e lGlmple, TUrned to BI to improve conununicatio n
and to s upport execut ivcs in its e ffort to retain e xisting customers and Increase revenue
from these custom ers (see case at the e nd of this c hapter). Managers ma y ta ke o th e r
actions. including the foUowing:
• Employ s tmte gic pl:mnlng.
• Use new and innovative business models.
• Restrocture business processes.
• Participate in bus iness allian ce s.
• Improve corpomle infonnation systems.
• Improve pannership relationships.
• Encoumge inn ovatio n and creativity.
• Improve customer service and relationships.
• Mo \'e to e lectronic commerce (e-commerce).
• Mo ve to maiOC'-to-oruer product ion and on-de ma nd manufacturing and services.
• Use new IT to improve connTIunication, data access (discovery of information), and
colla iJc:lr.l tion.
• ResJXlfld quickly to compelitOl"s' actions (e.g .. in pricing, promotions. new products
and services).
• Automate many tasks of w h ite-col lar employees,
• Autontale cenain decision processes, especially those dealing with customers.
• Improve decision making by emplo ying analyties.
Many, if nO! a U, of these actions require some computerized support. These and other
response aaions a re frequently facilitated by computeri zed DSS.
CLOSING THE STRATEGY GAP One o f the majo£ olJtectives of computerized decisio n support is to facilitate closing the gap between the current perfommnce of an o rganization
and its desired perfOl"mance, as expressed in its m ission, objectives, and goals, and the
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ChapleT 1 • Decision Support Systems and Business Intelligence
strategy to achieve them. In order to understand why computerized support is needed
and how it is provided, especially for dedsion-making support, let 's look at managerial
decision making.
Sectio n 1.2 Revie w Qucsd o ll..'i
1. [lst the components of and explain the Business P..,ssu..,s-Responses--Suppon model.
2. \l'hat a.., some o f the major factors in today·. business environment?
}. \l'hat a.., some of the major ..,sponse activities that OIganizarions take?
1.3
MANAGERIAL DECISION MAKING
Management is a process by which organizational goals are achieved by using
resources. The resources are considered inputs, and attainment of goals is viewed as
the output of the process. The degree of success of the organization and the manager
is often measured by the ratio of outputs to inputs. This ratio is an indication of the
organization's productivity , which is a reflection of the orgalliztilional alld mana~
gerial performance.
The level of productivity or the success of management depends on the performance of managerial functions , such as planning, organizing, directing, and controlling.
To perform their functions , managers are engaged in a continuous process of making
dedsions. Making a decision means selecting the best alternative from two or more
solutions.
The Nature of Managers' Work
Mintzberg's (20Cl8) daSliic study of top managers and several replicated studies suggest
that managers perfonn 10 major roles that can be classified into three major categories:
interpersonal, illformatiollal, and decisiollal (see Table 1.2).
To perform these roles. managers need infomlation that is delivered efficiently and
in a timely manner to personal computers (PCs) on their desktops and to mobile devices.
This infomlation is delivered by networks, generally via Web technologies.
In addition to otxaining infomlation necessary to better perfonn their roles , nlanagers use computers directly to support and improve decision making, which is a key
task that is part of most of these roles. Many managerial activities in all roles revolve
around decision making. Mallagers, especially those til bigb managerial levels, are primarily decisioll makers. We review the dedsion-making process next but will study it in
more detail in the next chapter.
The Decision-Making Process
For years, managers considered decision making purely an art- a talent acquired over
a long period through experience (Le. , learning by trial~and-errol) and by using intuition. Management was considered an art because a variety of individual styles could be
used in approaching and successfully solving the same types of managerial problems.
These styles were often based on creativity, judgment. intuition, and experience rather
than on systenlatic quantitative methods grounded in a scientific approach. However,
recent research suggests that companies with top managers who are more focused on
persistent work (almost dullness) tend to outperform those with leaders whose main
strengths are interpersonal conununication skills (Kaplan et aI. , 2008; Brooks. 2009). It
is more important to emp hasize methodical, thoughtful , analytical decision making
rather than flashiness and interpersonal communication skills.
7
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8
Pan [
Decision Suppon 3nd Business IntelHgence
TABLE 1.2
Mintzberg's 10 Managerial Roles
Rol e
Desc ription
InterperwnaJ
Figurehead
Leader
Liaison
Informational
Monitor
Disseminator
Spokesper'iOn
0ed5ionaJ
Entrepreneur
Disturbance handler
Resource allocator
Negotiator
15 symbolic head; obliged to perform a number of routine duties
of a legal or social nature
Is responsible for the motivation and act ivation of subordinates;
responsible for staffing, training, and associated duties
Maintains self-developed network of outside contacts and informers
who provide favors and informat ion
Seeks and receives a wide variety of special information (mlKh of it
current) to develop a thorough understanding of the organization
and environment; emerges as the nerve center of the organization's
internal and external information
Transmits information received from outsiders or from subordinates to
members of the organization; some of this information is factual,
and some involves interpretation and integrat ion
Transmits information to out!.iders about the organization's plans,
policies, actioos, results, and S<) forth; setVeS as an expert on t he
organization's industry
Searches the organization and its environment for opportunities and
initiates improvement projects to bring about change; supervises
de!.ign of certain projects
Is respon!.ible for oorrective action when the organization faces
important, unexpected disturbances
Is responsible for the allocation of organizational resources of all kinds;
in effect, is responsible for the making Of approval of all significant
Ofganizational decisions
Is responsible for representing the Ofganization at major negotiations
So",.,,,,.: CompilO'd from H. A. MlrttZberg, 'J1JeNamTeojMa''''geriallRri'. PrenU<:e Hall, Englewood CUffs, NJ,
t98O; and H. A. Mln!2:berJ!. 1b~ Rls~arut Fall ojSlmWIJW:
na,mlng. TIle PIl'e Press, New York, 1993.
Managers usually make decisions by following a four-step process (we learn more
about these in Chapter 2):
1. Define the problem (j.e., a decision siruation that may deal with some difficulty or
with an opportunity) .
2. <nrtStruCi a mooel that describes the real-world problem.
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4. <nrtlpare, choose, and reconmlend a potential solution to the problem.
To follow this process, one must make sure that sufficient alternative solutions are
being considered. that the consequences of using these alternatives can be reasonably
predicted, and that comparisons are done properly. However, the envirorunenml f:lCIOfS
listed in Table 1.1 make such an evaluation process difficult for the following reasons:
• Technology, information systems, advanced search engines. and globalization result
in more and more alternatives from which 10 choose.
• Government regulations and the need for comp liance, political instability and terrorism, competition, and changing consumer demands pnxluce more uncenainty. making
it more difficult to predict consequences and the future.
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Chapl~
I •
~ision
Suppon Sy>;tems and Business [nteUigence
• Other f:tctors lue the need to make rapid d ecisions, the frequent lmd unprcdid::tble
changes that make trial-and-error learning difficult, and me potential costs of making mistakes.
• lllese environments are growing more comple x every da y. Therefore . making decisions today is indeed a complex task.
Because of m ese trends and c hanges, it is nearly impossible to rely on a trial-anderror approach to ma.nagement, especially for decisions for w h ich the factors shown in
Table 1.1 are strong influences. Managers must be more sophisti cated; they must use the
new lools and techniques of their fields. Most of those tools and techniques are discussed
in mis book. Using them 10 suppon decision making can be extremely rewarding in making effecti\'e decisions. In the following section. we look no w at why we need computer
support and how il is provided.
'x"Ction 1. 3 Rc v icw Questions
I. Describe the thc= major manageri:Il rok-.. , and list ~ of the specific acti"iti"" in each.
l.. Why h:I.\'C" some argued th:.ot management is the u rne as decision making?
J. Describe the fou r steps managers take in making a decision.
1.4 COMPUTERIZED SUPPORT FOR DECISION MAKING
From traditional uses in payroll and bookkeeping functions, computerized systems are
now pene trating complex managerial areas ranging from the design and man::tgcmcnt of
automated factories to me application of anillctal intelligence methods to the evaluation
of proposed merge rs and acquis itions. Nearly all execut ives know that information tech_
nology is vital to their bus iness and e xum sive ly usc inform:ltion techno logies, cspcci::tUy
Wcb-Ixtsed on es.
Computer applications have moved from transaction processing and moniloring activities to problem analysis and solution applications, and mu ch of the a(.1ivity is done with
\'('eb-bascd technologies. BJ tools s u ch as d1ta warehousing, dab mining, o nline analytical
processing (OLAP), dashboards. and the use of the Web for decision support are the cornerstones of troay's modem management. Managers must have high-speed, networked information ~1'stems (wireline or wireless) to assist them with their most important b s k: making
decisions. let·s look at why and how computerized systems can help.
Why We Use Computerized Decision Support Systems
Today 's comPUteri7.ed systems possess capabilities that can fac ilitate decision s upport in a
nunlix.>r o f ways. including me following:
• SIx.'Ctly compllltlliolls.
cornputMion:; quickly :md
A computer enables the decision maker to perform many
:It:;
low cost. Ti,,,e]r decision:; lie critical in mlnr situa-
tions, ranging from a physidan in an emergency room 10 a stock trader o n the trading 1100r. With a computer, mousands of alternatives can be evaluated in seconds.
Furthel"more, the benefits--to-cost ratio of computers and the speed of executions are
constantly increasing.
• Improved co"mlll"ictltiOPI {md colltlboratiOlI.. Many decisions are made today
by groups whose members may be in different locations. Groups can collaborate
and communicate readily by using Web-based tools. Collaboration is especially
important along the supply cha in, where panners--aU the way from vendors to
custOfl1CfS--fI1USt share information.
• ItlcN!tlsed P,'O(IIICtivlly of grollp m~mb~rs. Assembling a group of decision
makers , especially experts, in one place Gin be costly. Computerized s upport can
9
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