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Chapter 12
Enhancing Decision Making
Learning Objectives
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
Chapter Outline
12.1 Decision Making and Information Systems
Business Value of Improved Decision Making
12.2 Business Intelligence in the Enterprise
What Is Business Intelligence?
12.3 Business Intelligence Constituencies
Decision Support for Operational and Middle Management
Decision Support for Senior Management: The Balanced Scorecard and Enterprise
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, 504
Behavioral models, 488
Business performance management
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(BPM), 505
Choice, 488
Classical model of management, 488
Data visualization, 499
Managerial roles, 489
Pivot table, 502
Predictive analytics, 497
Semistructured decisions, 486
Sensitivity analysis, 502
Structured decisions, 486
Unstructured decisions, 486
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
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 different types of decisions and at what management level
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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 U.S. 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.
To help students discern among the five analytic functionalities that BI systems deliver (page
496), have them describe or create mockups of each of them. They may need to research the
different functionalities on the Web.
Interactive Session: Organizations: Analytics Help the Cincinnati Zoo Know Its Customers
Case Study Questions
1. What management, organization, and technology factors were behind the Cincinnati
Zoo losing opportunities to increase revenue
Management: More than two-thirds of the Zoo’s $26 million annual budget is paid from
fundraising efforts with the remainder coming from admission fees, food, and gifts. To
increase revenue and improve performance, senior management completed a comprehensive
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2. Why was replacing legacy point-of-sale systems and implementing a data warehouse
essential to an information system solution?
The Zoo began its information overhaul by replacing its four legacy point-of-sale systems
with a single platform. It built a centralized data warehouse and implemented IBM’s Cognos
3. How did the Cincinnati Zoo benefit from business intelligence? How did it enhance
operational performance and decision making? What role was played by predictive
analytics?
By capturing the right kinds of data, the organization can analyze the data to determine usage
and spending patterns down to the individual customer level. This information helps the Zoo
4. Visit the IBM Cognos Web site and describe the business intelligence tools that would
be the most useful for the Cincinnati Zoo.
(Two tools are highlighted below: Copied from the IBM Cognos Web site, Dec. 2012)
IBM Cognos® TM1® is enterprise planning software that can radically transform your
entire planning cycle, from target setting and budget rollout all the way to reporting, analysis
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Cognos Controller is part of an integrated Financial Close Management (FCM) solution,
built on an efficient, purpose-built platform. It helps you deliver complete financial results,
create financial and management reports, and provide the CFO with an enterprise view of
key ratios and metrics.
• Automate and accelerate the close process.
• Define and maintain all financial consolidation rules and processes from the office of
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 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 and already known by many. That’s usually not the case with decision-support
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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 exactly what the
most important performance information is and develop systems capable of delivering that
Interactive Session: People: Colgate-Palmolive Keeps Managers Smiling with Executive
Dashboards
Case Study Questions
1. Describe the different types of business intelligence users at Colgate-Palmolive.
Most middle managers at Colgate are considered “power users,” of the SAP system and were
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 decision
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
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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 determine how long
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.
Figure 12-1 illustrates the answer to this question. Each of these levels has different
Distinguish between an unstructured, semistructured, and structured decision.
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Decisions are classified as structured, semistructured, and unstructured.
• Unstructured decisions are those in which the decision maker must provide
List and describe the stages in decision making.
Stages in the decision-making process include:
• Intelligence consists of discovering, identifying, and understanding the problems
2. How do information systems support the activities of managers and management
decision making?
Compare the descriptions of managerial behavior in the classical and behavioral
models.
The classical model suggests that managers perform five classical functions. These functions
are planning, organizing, coordinating, deciding, and controlling. Although the classical
Identify the specific managerial roles that can be supported by information systems.
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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
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-data
List and describe the analytic functionalities provided by BI systems.
• Production reports: Predefined reports based on industry-specific requirements.
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• 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 by
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
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-to–
day operations in the organization; receives most information from transaction
reporting systems and some information from MIS systems.
• Middle management: Generally, makes structured decisions and semistructured
decisions based on routine products reports from TPS and MIS systems; use
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 semistructured 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 for these reports are often
specified in advance.
Decision-support systems (DSS) provide analytical models or tools for analyzing large
quantities of data and supportive interactive queries for middle managers who face
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 framework of a balanced scorecard
requires managers to focus on more than just financial performance. They must focus on
things they are able to influence at the present time like customer satisfaction, business
process efficiency, or employee training. The KPIs are developed by senior executives and
are automatically provided to users through executive support systems.
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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
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,
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 workers, retrieving
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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 decision-
support system and firm-wide data. These systems can automate certain decision procedures,
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
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Hands-on MIS Projects
Management Decision Problems
1. Subaru: Dealerships keeps 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 maintenance sales
2. Applebee’s: The largest casual dining chain in the world wants to develop menus that are
tastier and contain more items that customers want and are willing to pay for. How might
information systems help management implement this strategy? What pieces of data would
Applebee’s need to collect? What kinds of reports would be useful to help management make
decisions on how to improve menus and profitability?
Applebee’s can use data from transaction processing systems and point-of-sale systems to
track which menu items sell the best. The company can use external demographic data to
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.
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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 in
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
This project will help develop your skills in using Web-based DSS for financial planning.
The Web sites for CNN Money and Kiplinger feature Web-based DSS for financial
planning and decision making. Select either site 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 dependent
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 Security benefit
payments.
1. To calculate your estimated social security benefit, use the Quick Calculator at the
Social Security Administration Web site (www.ssa.gov/planners/calculators.htm).
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Video Cases
You will find video cases illustrating some of the concepts in this chapter on the Laudon Web
Collaboration and Teamwork: Designing a University GDSS
In MyMISLab you will find a Collaboration and Teamwork Project dealing with the
concepts in this chapter. You will be able to use Google Sites, Google Docs, and other open–
source collaboration tools to complete the assignment.
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
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
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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 behavior or common paths for even more precise targeting of
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 and have
‘It’s very similar to a New York investment bank,’ said Lou Kerner, an analyst at
the brokerage firm Liquidnet, who has followed Zynga for years. ‘It’s data-driven,
and it’s intense.’
5. What problems can business intelligence solve for Zynga? What problems can’t it
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 new users,