Managing the Digital Firm, Seventh Canadian Edition
CHAPTER 12
Enhancing Decision Making
LEARNING OBJECTIVES
After reading this chapter, you will be able to answer the following 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?
Teaching Suggestions
The opening case, “Moneyball: Data–Driven Baseball,” illustrates how the effective use of
data analytics can help managers at all levels make better decisions that increase sales,
allocate resources more efficiently, and reduce costs. Even though the vignette described the
game of professional baseball, it points out how important turning raw data into useful
information can turn around a team or company. It also shows how executives, managers,
and employees have to continually upgrade and enhance their decision-making skills to keep
up with the competition and the marketplace. As the text says, “You can be more efficient
and competitive if, like Moneyball, you know how to use data to drive your decisions.”
Section 12.1, “Decision Making and Information Systems”
This section of the text focuses on the management aspects of information systems, and
how the main contribution of information systems has been to improve decision making,
both for individuals and groups. As an exercise, randomly ask your students to classify
Managing the Digital Firm, Seventh Canadian Edition
of pea soup would be a structured decision and made at the operational management
level. Ask students to determine the various management levels of their school, and give
examples of structured, semi-structured, and unstructured decisions.
Section 12.2, “Business Intelligence in the Enterprise”
This section explores the emerging business intelligence and business analytics industries
that are one of the fastest growing and largest segments in the software market. It builds
on information presented in previous chapters and lets students begin putting the pieces
together of all the material presented so far. You might have students critically analyze
how they may take information about a situation they are in (or have been in) from the
environment, understand its meaning, and then attempt to act on the information. Then
have them correlate the process to how a business would do the same.
Students should be encouraged to do Web searches on BI and BA vendors and compare
the various products available to businesses. Table 12-4 is a good list of vendors from
which to start. What makes one stand out more than the others? Which would work well
for small- or medium-size businesses and which would work better for large-sized
businesses? What decisions do managers have to make when selecting one vendor over
another? Discuss with them the pros and cons of selecting a one-stop integrated solution
for BI and BA capabilities versus multiple best-of-breed vendor solutions.
To help students discern among the five analytic functionalities that BI systems deliver,
have them describe or create mock-ups of each of them. They may need to research the
different functionalities on the Web.
WINDOW ON ORGANIZATION: HOW CAN YOU CLOSE THE
DEAL WITH DONORS?
Case Study Questions
1. Identify and describe the problem discussed in the case.
Arts Umbrella has been successful in reaching its audience. However a new database
program was installed without training and there was not the staff to support it or train the
Managing the Digital Firm, Seventh Canadian Edition
users. As a result an important report that lists the canvassers and prospects was not available.
2. How do business intelligence systems provide a solution to this problem? What
are the inputs and outputs of these systems?
3. What management, organization, and technology issues have to be addressed by
this solution?
Management: Management needed to define their needs, provide resources for
4. How successful is this solution? Explain your answer.
5. Should all not-for-profits use such a data-driven approach to fundraising? Why
or why not?
The solution was especially critical for this organization that depends on fund raising
for much of its operating budget. It was important to provide a tool that allowed
Section 12.3, “Business Intelligence Constituencies”
When discussing these systems, you should stress that some are often so well integrated
into business processes that students may not have heard much about them. When
Managing the Digital Firm, Seventh Canadian Edition
presenting this material, you should demonstrate the value of the systems to each
constituency group. For example, the value of TPS and MIS might be easy to understand
Students will clearly recognize the importance of decisions on what the selling price of an
item will be or the decision on where a production facility or retail outlet should be
located. However, students are not likely to recognize the importance of the data that go
into the decision, the source of that data, the complexity of each decision, the side-effects
of the decision, or how the decision is really made. Decisions can be very complex, and
students need to understand the ways decision-support systems help managers handle the
complexities and better understand all that goes into the decisions.
Remind students that decision-support systems cover a wide variety of systems, tools, and
technologies like sensitivity analysis models, pivot tables, balanced scorecards and key
performance indicators. When covering this material in class, pose and discuss the following
questions with your students. Exactly how do the systems support decisions? Do DSS make
decisions? Do DSS help make decisions? Do DSS just provide the data for decisions?
Executive support systems (ESS) help managers and executives focus on performance
information that maximizes resources within the organization to improve the profitability
and success of the company. There are two parts to developing an ESS: Understand
WINDOW ON MANAGEMENT: COLGATE-PALMOLIVE KEEPS
MANAGERS SMILING WITH EXECUTIVE DASHBOARDS
Case Study Questions
1. Describe the different types of business intelligence users at Colgate-Palmolive.
Managing the Digital Firm, Seventh Canadian Edition
2. Describe the “people” issues that were affecting Colgate’s ability to use business
intelligence.
Data in Colgate’s data warehouse were not being used by enough employees in their
3. What management, organization, and technology factors had to be addressed in
providing business intelligence capabilities for each type of user?
Management: While power users were comfortable with the old system, most other
users were not. The new dashboard system enables business analysts and
nontechnical users to ask spontaneous questions about their data. The new dashboards
4. What kind of decisions does Colgate’s new business intelligence capability
support? Give three examples. What is their potential business impact?
Colgate’s new business intelligence capability supports structured, semistructured,
and unstructured reports. Middle managers can use the dashboard system to
Managing the Digital Firm, Seventh Canadian Edition
Review Summary
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?
Key Terms
The following alphabetical list identifies the key terms discussed in this chapter. The
page number for each key term is provided.
Balanced scorecard method 389
Behavioural models 375
Implementation 374
Informational role 376
Review Questions
1. What are the different types of decisions, and how does the decision-making
process work?
List and describe the different levels of decision-making and decision-making
constituencies in organizations. Explain how their decision-making requirements
differ.
Managing the Digital Firm, Seventh Canadian Edition
Figure 12.1 illustrates the answer to this question. Each of these levels has different
information requirements for decision support and responsibility for different types of
decisions.
• Senior management deals mainly with unstructured decisions.
Distinguish between an unstructured, semi-structured, and structured decision.
Decisions are classified as structured, semi-structured, and unstructured.
• Unstructured decisions are those in which the decision maker must provide
Stages in the decision-making process include:
• Intelligence consists of discovering, identifying, and understanding the problems
occurring in the organization. Why is there a problem, where, and what effect it is
having on the firm?
2. How do information systems support the activities of managers and management
decision making?
Compare the descriptions of managerial behaviour in the classical and
behavioural models.
The classical model suggests that managers perform five classical functions. These
functions are planning, organizing, coordinating, deciding, and controlling. Although
Managing the Digital Firm, Seventh Canadian Edition
Identify the specific managerial roles that can be supported by information
systems.
Table 12–2 compares managerial roles with the support systems. Information systems
3. How do business intelligence and business analytics support decision making?
Define and describe business intelligence and business analytics.
Business intelligence: The infrastructure for warehousing, integrating, reporting, and
analyzing data from the business environment. It collects, stores, cleans, and makes
List and describe the elements of a business intelligence environment.
• Data from the business environment: Structured and unstructured data from
many different sources, including mobile devices and the Internet, that are
integrated and organized so that they can be analyzed and used by human decision
makers.
• Business intelligence infrastructure: Powerful database systems that capture
relevant data stored in transactional databases or are integrated into an enterprise-
Managing the Digital Firm, Seventh Canadian Edition
• Delivery platform — MIS, DSS, ESS: One suite of hardware and software tools
in the form of a business intelligence and analytics package that integrate
List and describe the analytic functionalities provided by BI systems.
• Production reports: Predefined reports based on industry-specific requirements
• Parameterized reports: Users enter several parameters in a pivot table to filter
data and isolate impacts of the parameters
• Dashboards/scorecards: Visual tools for presenting performance data as defined
Compare two different management strategies for developing BI and BA
capabilities.
• Single vendor: Provides all the hardware and software necessary to adopt BI and
BA capabilities. The risk comes from the vendor having all the pricing power.
The reward comes from the organization having fewer integration problems.
4. How do different decision-making constituencies in an organization use business
intelligence?
List each of the major decision-making constituencies in an organization and
describe the types of decisions each makes.
• Operational management: Generally makes structured decisions based on day-
Managing the Digital Firm, Seventh Canadian Edition
• Middle management: Generally makes structured decisions and semi-structured
decisions based on routine products reports from TPS and MIS systems; use
exception reports to determine exceptional conditions upon which they act.
• Super users/business analysts: Generally make semi-structured decisions based
Describe how MIS, DSS, or ESS provides decision support for each of these
groups.
Management information systems (MIS) provide routine reports and summaries of
transaction-level data to middle and operational level managers to provide answers to
structured and semi-structured decision problems. MIS systems provide information
on the firm’s performance to help managers monitor and control the business. They
typically produce fixed, regularly scheduled reports based on data extracted and
summarized from the firm’s underlying transaction processing systems. The formats
Managing the Digital Firm, Seventh Canadian Edition
Define and describe the balanced scorecard method and business performance
management
A balanced scorecard focuses on measurable outcomes on four dimensions of a
business’s performance: Financial, business process, customer, and learning and
growth. Each dimension uses key performance indicators (KPIs) to understand how
well an organization is performing on any of the dimensions at any time. The
5. What is the role of information systems in helping people working in a group
make decisions more efficiently?
Define a group decision-support system (GDSS) and explain how it differs from
a DSS.
A GDSS is an interactive computer-based system that facilitates the solution of
unstructured problems by a set of decision makers working together as a group.
Explain how a GDSS works and how it provides value for a business.
Hardware, software tools, and people are the three GDSS elements. Hardware
includes the conference facility itself (room, tables, chairs) that is laid out to support
group collaboration. It also includes electronic hardware such as electronic display
boards as well as audiovisual, computer, and networking equipment. Software tools
Managing the Digital Firm, Seventh Canadian Edition
Discussion Questions
1. As a manager or user of information systems, what would you need to know to
participate in the design and use of a DSS or an ESS? Why?
Managers and users of information systems would want to specify what kinds of
decisions the systems should support, and where the data for those decisions should
come from. In a typical enterprise, workers are capturing data, sharing data with other
2. If businesses used DSS, GDSS, and ESS more widely, would managers and
employees make better decisions? Why or why not?
Competitiveness increasingly depends on the quality of decision making. So naturally,
companies often rely on their own history and their past transactions and activities to
make future decisions. When businesses make decisions, it is usually helpful to use a
3. How much can business intelligence and business analytics help companies
refine their business strategy? Explain your answer.
Business intelligence and business analytics are all about integrating all the
information streams produced by a firm into a single, coherent enterprise-wide set of
data. Managers then use modeling, statistical analysis tools, and data mining tools, to
make sense out of all these data and hopefully make better decisions and better plans.
Managers can know quickly when their firms are failing to meet planned targets.
Hands-On MIS Projects
Management Decision Problems
1. Car dealerships keep records of the mileage of cars they sell and service. Mileage
data are used to remind customers of when they need to schedule service
appointments and other purposes. What kinds of decisions does this piece of data
support at the local level and at the corporate level? What would happen if this piece
of data were erroneous? How would it affect decision-making? Assess its business
impact.
At certain miles or years, sending sales pitches increases the potential for
2. Canadian Pacific Railway: The company used a tonnage-based operating model
that focused on minimizing the total number of freight trains in service and
maximizing the size of each train. It did not necessarily use crews, locomotives, and
equipment efficiently, resulting in inconsistent transit times and delivery schedules.
How could a DSS help Canadian Pacific and other railroads compete with trucking
firms more effectively?
The railroad company can use a geographic information system to analyze and
display data for planning and decision making in the form of digitized maps. The
software assembles, stores, manipulates, and displays geographically referenced
Improving Decision Making: Using Pivot Tables to Analyze Sales Data
Software skills: Pivot tables
Business skills: Analyzing sales data
This project gives you an opportunity to learn how to use Excel’s PivotTable
functionality to analyze a database or data list.
Use the data file for Online Management Training Inc. described earlier in the chapter.
This is a list of the sales transactions at OMT for one day. You can find this spreadsheet
file at the Companion Web site for this chapter.
Use Excel’s Pivot Table to help you answer the following questions:
1. Where are the average purchases higher? The answer might tell managers where to
2. What form of payment is the most common? The answer could be used to emphasize
3. Are there any times of day when purchases are most common? Do people buy the
products while at work (likely during the day) or at home (likely in the evening)?
4. What’s the relationship between regions, type of product purchased, and average
sales price?
Improving Decision Making: Using a Web-Based DSS for Retirement Planning
Software skills: Internet-based software
Business skills: Financial planning
Managing the Digital Firm, Seventh Canadian Edition
This project will help develop your skills in using Web-based DSS for financial planning.
The Web sites for many Canadian banks and financial management firms (e.g.,
Investment Planning Counsel) feature Web-based DSS for financial planning and decision
making. Select one of these sites to plan for retirement. Use your chosen site to determine
how much you need to save to have enough income for your retirement. Assume that you
are 50 years old and plan to retire in 16 years. You have one dependant and $100 000 in
savings. Your current annual income is $85 000. Your goal is to be able to generate an
annual retirement income of $60 000, including Social Insurance benefit payments.
• To calculate your estimated Social Insurance benefit, search for and use the
CASE STUDY: ZYNGA WINS WITH BUSINESS INTELLIGENCE
1. It has been said that Zynga is “an analytics company masquerading as a games
company.” Discuss the implications of this statement.
Zynga’s success has disrupted the video game industry. Traditional video game
companies begin with an idea for a game that they hope players will buy and enjoy,
2. What role does business intelligence play in Zynga’s business model?
Zynga’s social graph-related data are streamed in real time to a dedicated Vertica
cluster where the graph is generated on a daily basis. Every night, the models
resulting from this graph are fed back into its games for use the next day. With this
business intelligence solution, Zynga has been able to improve the targeting of items
3. Give examples of three kinds of decisions supported by business intelligence
at Zynga.
Zynga improves the targeting of items such as gifts to effectively increase the level of
interaction between active players while minimizing spam to passive players. It
identifies groups of users with similar Behaviour or common paths for even more
precise targeting of game-related promotions and activities.
Zynga’s attention to detail and ability to glean important information from countless
4. How much of a competitive advantage does business intelligence provide for
Zynga? Explain.
Zynga’s revenue rose from $121 million in 2009 to $600 million and a $91 million
dollar profit in 2010. Clearly, Zynga’s methods are working. Traditional game makers
like Activision Blizzard and Electronic Arts are noting Zynga’s growth and success
Managing the Digital Firm, Seventh Canadian Edition
“While from the outside Zynga may have the fun and whimsy of the Willy Wonka
chocolate factory, the organization thrives on numbers, relentlessly aggregating
performance data, from the upper ranks to the cafeteria staff.
General managers submit weekly reports, measuring factors like traffic and customer
satisfaction. Every quarter, teams assess their priorities under an Intel-pioneered
system called ‘objectives and key results.’ And Mr. Pincus, a professed data
obsessive, devours all the reports, using multiple spreadsheets, to carefully track the
progress of Zynga’s games and its roughly 3,000 employees.
5. What problems can business intelligence solve for Zynga? What problems can it
not solve?
Zynga’s penchant for collecting and analyzing customer and user data can help it
solve problems associated with product offerings, new game development, attracting