Part 3: Key System Applications for the Digital Age:

Chapter 9: Achieving Operational Excellence and

Customer Intimacy: Enterprise Applications
How Enterprise systems work

- Enterprise resource planning (ERP) systems

- Suite of integrated software modules and a common central
database
- Collects data from many divisions of firm for use in nearly all of
firm’s internal business activities
- Information entered in one process is immediately available for
other processes

A- Enterprise software:
Built around thousands of predefined business processes that
reflect best practices:

1- Finance and accounting:

 Cash on hand
 Account receivables
 Customer credit
 Revenue
2- Human resource:
 Hours worked
 Labor cost
 Job skills
3- Manufacturing and production:
  Materials
 Production schedules
 Shipment dates
 Shipment capacity
 Purchases
4- Sales and marketing:
 Orders
 Sales forecasts
 Return requests
 Price changes

To implement, firms: Select functions of system they wish to use and

Map business processes to software processes (Use software’s
configuration tables for customizing).

B- Business value of enterprise systems:

 Increase operational efficiency
 Provide firm-wide information to support decision making
 Enable rapid responses to customer requests for information or
products
 Include analytical tools to evaluate overall organizational
performance

Supply chain management systems:

A- Supply chain
 Network of organizations and processes for: Procuring materials,
transforming them into products, and distributing the products
 Upstream supply chain: Firm’s suppliers, suppliers’ suppliers,
processes for managing relationships with them
 Downstream supply chain: Organizations and processes
responsible for delivering products to customers: Internal supply
chain

 Supply chain management software:

1- Supply chain planning systems:

 Model existing supply chain
 Enable demand planning
 Optimize sourcing, manufacturing plans
 Establish inventory levels
 Identify transportation modes

2- Supply chain execution systems:

 Manage flow of products through distribution centers and
warehouses

 Global supply chain issues:

 Greater geographical distances

 Greater time differences
  Participants from different countries (Different performance
standards and Different legal requirements)

 Internet helps manage global complexities:

 Warehouse management
 Transportation management
 Logistics
 Outsourcing

 Supply chain management

a. Push-based model (build-to-stock)

i. Earlier SCM systems

ii. Schedules based on best guesses of demand

b. Pull-based model (demand-driven)

i. Web-based

ii. Customer orders trigger events in supply chain

c. Internet enables move from sequential supply chains to

concurrent supply chains

i. Complex networks of suppliers can adjust immediately

The difference between push- and pull-based models is summarized by

the slogan “Make what we sell, not sell what we make.”
The emerging Internet-driven supply chain operates like a digital
logistics nervous system. It provides multidirectional communication
among firms, networks of firms, and e-marketplaces so that entire
networks of supply chain partners can immediately adjust inventories,
orders, and capacities.

 Business value of supply chain management (SCM) systems:

 Match supply to demand; reduce inventory levels
 Improve delivery service
 Speed product time to market
 Use assets more effectively
 Reduced supply chain costs lead to increased profitability

ii. Total supply chain costs can be 75 percent of operating

budget

 Increase sales

 CRM systems:

 Customer relationship management (CRM)

 Knowing the customer
 large businesses, too many customers and too many ways
customers interact with firm
 Capture and integrate customer data from all over the
organization
 Consolidate and analyze customer data
 Distribute customer information to various systems and customer
touch points across enterprise
 Provide single enterprise view of customers

 Customer relationship management (CRM)

CRM systems examine customers from a multifaceted perspective.

These systems use a set of integrated applications to address all
aspects of the customer relationship, including:

Customer service:
 Telephone sales
 Web sales
 Retail store sales
 Field sales

Sales:
 Call center data
 Web self-service data
 Wireless data
 Field service data
 Social networking data

Marketing
 Campaign data
 Content
 Data analysis
 CRM software
 Packages range from niche tools to large-scale enterprise
applications.
 More comprehensive have modules for:

i. Partner relationship management (PRM)

1. Integrating lead generation, pricing, promotions,

order configurations, and availability

2. Tools to assess partners’ performances

ii. Employee relationship management (ERM)

1. Setting objectives, employee performance

management, performance-based
compensation, employee training

 CRM packages typically include tools for:

b. Sales force automation (SFA)

i. Sales prospect and contact information, sales quote

generation capabilities

c. Customer service

i. Assigning and managing customer service requests,

Web- based self-service capabilities

d. Marketing
 i. Capturing prospect and customer data, scheduling and
tracking direct-marketing mailings or e-mail, cross-
selling

 How CRM Systems Support Marketing: Customer relationship

management (CRM) software provides a single point for users to
manage and evaluate marketing campaigns across multiple
channels, including e-mail, direct mail, telephone, the Web, and
wireless messages

 CRM Software Capabilities: The major CRM software products

support business processes in sales, service, and marketing,
integrating customer information from many different sources.
Included are support for both the operational and analytical
aspects of CRM.
This process map shows how a best practice for promoting customer
loyalty through customer service would be modeled by customer
relationship management software. The CRM software helps firms
identify high-value customers for preferential treatment

 Operational CRM:

Customer-facing applications such as sales force

automation, call center and customer service support, and
marketing automation

 Analytical CRM:
 Based on data warehouses populated by operational CRM
systems and customer touch points
 Analyzes customer data (OLAP, data mining, etc.)

ii. Customer lifetime value (CLTV)

 Business value of CRM systems

 Increased customer satisfaction
 Reduced direct-marketing costs
 More effective marketing
 Lower costs for customer acquisition/retention
 Increased sales revenue

 Churn rate:
 Number of customers who stop using or purchasing products or
services from a company
 Indicator of growth or decline of firm’s customer base

 Enterprise application challenges and Opportunities

 Enterprise application challenges

 Highly expensive to purchase and implement enterprise
applications

i. Average cost of ERP project in 2014—$2.8 million

 Technology changes
 Business process changes
 Organizational learning, changes
 Switching costs, dependence on software vendors

ii. Integrating cloud applications

 Data standardization, management, cleansing

 Next-generation enterprise applications

 Enterprise solutions/suites:

iii. Make applications more flexible, Web-enabled,

integrated with other systems
 SOA standards
 Open-source applications
 On-demand solutions
 Cloud-based versions
 Functionality for mobile platform

 Social CRM for next-generation enterprise applications:

 Incorporating social networking technologies
 Company social networks
 Monitor social media activity; social media analytics
 Manage social and Web-based campaigns

 Business intelligence for next-generation enterprise applications

 Inclusion of BI with enterprise applications
 Flexible reporting, ad hoc analysis, “what-if” scenarios, digital
dashboards, data visualization
Chapter 10: E-commerce: Digital Markets, Digital Goods.
A- Unique Features of E-commerce, Digital Markets, and Digital
Goods
 E-commerce: Use of the Internet and Web to transact business.
 Began in 1995 and grew exponentially; still stable even in a
recession.
 Companies that survived the dot-com bubble now thrive.
 The new e-commerce: social, mobile, local

 Eight unique features of Internet and Web as commercial

medium:

 Ubiquity:

o Internet/Web technology available everywhere: work,

home, and so on, anytime

o Effect:

 Marketplace removed from temporal, geographic

locations to become “marketspace”

 Enhanced customer convenience and reduced

shopping costs

o Reduces transaction costs

 Costs of participating in market.

 Global reach
o The technology reaches across national boundaries, around
Earth
o Effect:
 Commerce enabled across cultural and national
boundaries seamlessly and without modification.
 Marketspace includes, potentially, billions of
consumers and millions of businesses worldwide

 Universal standards:

o One set of technology standards: Internet standards

o Effect:

 Disparate computer systems easily communicate with

one another

 Lower market entry costs—costs merchants must pay

to bring goods to market

 Lower consumers’ search costs—effort required to find

suitable products

 Richness:

o Supports video, audio, and text messages

o Effect:
  Possible to deliver rich messages with text, audio, and
video simultaneously to large numbers of people.

 Video, audio, and text marketing messages can be

integrated into single marketing message and
consumer experience.

 Interactivity:

o The technology works through interaction with the user.

o Effect:

 Consumers engaged in dialog that dynamically adjusts

experience to the individual.

 Consumer becomes co-participant in process of

delivering goods to market.

 Information density:

o Large increases in information density—the total amount

and quality of information available to all market
participants

o Effect:

 Greater price transparency

  Greater cost transparency

 Enables merchants to engage in price discrimination

 Personalization/customization:

o Technology permits modification of messages, goods

o Effect:

 Personalized messages can be sent to individuals as

well as groups.

 Products and services can be customized to individual

preferences.

 Social technology:

o The technology promotes user content generation and

social networking

o Effect:

 New Internet social and business models enable user

content creation and distribution, support social
networks

 Many-to-many model

 Effect of the Internet on the marketplace:

 Reduces information asymmetry
  Offers greater flexibility and efficiency because of:

i. Reduced search costs and transaction costs

ii. Lower menu costs

iii. Greater price discrimination

iv. Dynamic pricing

 May reduce or increase switching costs

 May delay gratification: effects dependent on product
 Increased market segmentation
 Stronger network effects
 More disintermediation

 The Benefits of Disintermediation to the Consumer:

The typical distribution channel has several intermediary layers, each of

which adds to the final cost of a product, such as a sweater. Removing
layers lowers the final cost to the consumer
 Digital goods:
 Goods that can be delivered over a digital network

• For example: music tracks, video, software,

newspapers, books

 Cost of producing first unit is almost entire cost of product

 Costs of delivery over the Internet very low
 Marketing costs remain the same; pricing highly variable
 Industries with digital goods are undergoing revolutionary
changes (publishers, record labels, etc.)

B- E-commerce Business and Revenue Models:

 Three major types of e-commerce

 Business-to-consumer (B2C)

i. Example: BarnesandNoble.com

 Business-to-business (B2B)

ii. Example: ChemConnect

 Consumer-to-consumer (C2C)

iii. Example: eBay

 E-commerce can be categorized by platform

 Mobile commerce (m-commerce)

 E-commerce business models

 Portal
 E-tailer
 Content provider
 Transaction broker
 Market creator
 Service provider
 Community provider

 E-commerce revenue models

 Advertising
 Sales
 Subscription
 Free/Freemium
 Transaction fee
 Affiliate

 How Has E-commerce Transformed Marketing?

E-commerce marketing
 Internet provides new ways to identify and communicate with
customers.
 Long tail marketing:
 i. Ability to reach a large audience inexpensively

 Internet advertising formats

 Behavioral targeting:

ii. Tracking online behavior of individuals on thousands of

Web sites and within apps

iii. Privacy concerns

 Website visitor tracking:

E-commerce Websites have tools to track a shopper's every step

through an online store.

Close examination of customer behavior at a Website selling women's

clothing shows what the store might learn at each step and what
actions it could take to increase sales.

 Website personalization:

Firms can create unique personalized Web pages that display content
or ads for products or services of special interest to individual users,
improving the customer experience and creating additional value.

 How an advertising network works:

Advertising networks and their use of tracking programs have become

controversial among privacy advocates because of their ability to track
individual consumers across the Internet.
  Social e-commerce:
 Based on digital social graph

Features of social e-commerce driving its growth

 Newsfeed
 Timelines
 Social sign-on
 Collaborative shopping
 Network notification
 Social search (recommendations)

 Social media:
 Fastest growing media for branding and marketing

 Social network marketing:

 Seeks to leverage individuals influence over others in social graph
 The target is a social network of people sharing interests and
advice
 Facebook’s “Like button”
 Social networks have huge audiences

 Facebook: 137 million U.S. visitors monthly

B- How Has E-commerce Transformed Marketing?

  Social shopping sites
 Wisdom of crowds
 Crowdsourcing

a. Large numbers of people can make better decisions about

topics and products than a single person.

 Prediction markets

b. Peer-to-peer betting markets on specific outcomes

(elections, sales figures, designs for new products)

C- B2B e-commerce

U.S. B2B trade in 2014 is $13.8 trillion and U.S. B2B e-commerce in
2014 is $5.7 trillion

Procurement requires significant overhead costs, which Internet and

networking helps automate

Variety of Internet-enabled technologies used in B2B:

 Electronic data interchange (EDI)

 Private industrial networks (private exchanges)
 Net marketplaces
 Exchanges

 Electronic data interchange (EDI)

  Computer-to-computer exchange of standard transactions such as
invoices, purchase orders.
 Major industries have EDI standards that define structure and
information fields of electronic documents.
 More companies are increasingly moving toward private networks
that allow them to link to a wider variety of firms than EDI allows
and share a wider range of information in a single system.

Companies use EDI to automate transactions for B2B e-commerce and

continuous inventory replenishment. Suppliers can automatically send
data about shipments to purchasing firms. The purchasing firms can use
EDI to provide production and inventory requirements and payment
data to suppliers.

 Private industrial network (private exchange)

 Large firm using extranet to link to its suppliers, distributors, and
other key business partners for efficient supply chain
management and other collaborative commerce activities.
 Owned by buyer
 Permits sharing of:

• Product design and development

• Marketing

• Production scheduling and inventory management

• Unstructured communication (graphics and e-mail)

 Net marketplaces (e-hubs)
 Single market for many buyers and sellers
 Industry-owned or owned by independent intermediary
 Generate revenue from transaction fees, other services
 Use prices established through negotiation, auction, RFQs, or
fixed prices
 May focus on direct or indirect goods
 May be vertical or horizontal marketplaces

Net marketplaces are online marketplaces where multiple buyers

can purchase from multiple sellers.

 Exchanges
 Independently owned third-party Net marketplaces
 Connect thousands of suppliers and buyers for spot purchasing
 Typically provide vertical markets for direct goods for single
industry (food, electronics)
 Proliferated during early years of e-commerce; many have failed

• Competitive bidding drove prices down and did not

offer long- term relationships with buyers or services
to make lowering prices worthwhile.

D- M-commerce and M-commerce Applications:

M-commerce

 In 2014 is 19 percent of all e-commerce

 Fastest growing form of e-commerce
 i. Some areas growing at 50 percent or more

 Main areas of growth (exclusive of location- based services)

ii. Retail sales at top Mobile 400 (Amazon, eBay, etc.)

iii. Sales of digital content (music, TV, etc.)

 Location-based services
 Used by 74 percent of smartphone owners
 Based on GPS map services

 Types:
1- Geosocial services (Where friends are)
2- Geoadvertising (What shops are nearby)
3- Geoinformation services (Price of house you are passing)

 Other mobile commerce services

 Banks, credit card companies provide account management apps
 Mobile display advertising:

• iAd, AdMob, Millenial Media, Facebook

• Ads embedded in games, videos, and mobile apps

 55 percent of online retailers have m-commerce Web sites

E- Building an E-commerce Presence:

 Most important management challenges

 - Developing clear understanding of business objectives

- Knowing how to choose the right technology to achieve

those objectives

 Develop an e-commerce presence map (Four areas: Web sites, e-

mail, social media, offline media)
 Develop a timeline: milestones (Breaking a project into discrete
phases)

An e-commerce presence requires firms to consider the four different

types of presence, with specific platforms and activities associated with
each.

 E-commerce Presence Timeline

Phase Activity Milest
Phase 1: Planning Envision Web presence; determine Web m
personnel
Phase 2: Web Acquire content; develop a site design; Web s
site arrange for hosting the site
development
Phase 3: Web Develop keywords and metatags; A func
Implementatio focus on search engine optimization; Web s
n identify potential sponsors
Phase 4: Social Identify appropriate social A soci
media plan platforms and content for your plan
products and services
Phase 5: Social Develop Facebook, Twitter, and Functi
media Pinterest presence media
implementation
Phase 6: Mobile plan Develop a mobile plan; A mob
consider options for plan
porting your Web site to
smartphones
Chapter 11: Managing Knowledge
A- The Role of Knowledge Management in Business
 Knowledge management systems among fastest growing areas of
software investment
 Information economy (37 percent U.S. labor force: knowledge and
information workers and 45 percent U.S. GDP from knowledge
and information sectors)
 Substantial part of a firm’s stock market value is related to
intangible assets: knowledge, brands, reputations, and unique
business processes
 Well-executed knowledge-based projects can produce
extraordinary ROI

 Important dimensions of knowledge

 Knowledge is a firm asset.

• Intangible

• Creation of knowledge from data, information,

requires organizational resources

• As it is shared, experiences network effects

 Knowledge has different forms.

• May be explicit (documented) or tacit (residing in

minds)

• Know-how, craft, skill

 • How to follow procedure

• Knowing why things happen (causality)

 Knowledge has a location.

• Cognitive event

• Both social and individual

• “Sticky” (hard to move), situated (enmeshed in firm’s

culture), contextual (works only in certain situations)

 Knowledge is situational.

• Conditional: Knowing when to apply procedure

• Contextual: Knowing circumstances to use certain tool

 To transform information into knowledge, firm must expend

additional resources to discover patterns, rules, and contexts
where knowledge works

 Wisdom:
 Collective and individual experience of applying knowledge to
solve problems
 Involves where, when, and how to apply knowledge
 Knowing how to do things effectively and efficiently in ways
others cannot duplicate is prime source of profit and competitive
advantage (For example, Having a unique build-to-order
production system)

 Organizational learning
 Process in which organizations learn

• Gain experience through collection of data,

measurement, trial and error, and feedback

• Adjust behavior to reflect experience

– Create new business processes

– Change patterns of management decision

making

 Knowledge management
 Set of business processes developed in an organization to create,
store, transfer, and apply knowledge

 Knowledge management value chain:

 Each stage adds value to raw data and information as they are
transformed into usable knowledge
 Knowledge acquisition
 Documenting tacit and explicit knowledge:
  Storing documents, reports, presentations, best
practices
 Unstructured documents (e.g., e-mails)
 Developing online expert networks
 Creating knowledge
 Tracking data from TPS and external sources

 Knowledge storage
 Databases
 Document management systems
 Role of management:
 Support development of planned knowledge
storage systems.
 Encourage development of corporate-wide
schemas for indexing documents.
 Reward employees for taking time to update and
store documents properly.

 Knowledge dissemination
 Portals, wikis
 E-mail, instant messaging
 Search engines
 Collaboration tools
 A deluge of information? Training programs, informal
networks, and shared management experience help
managers focus attention on important information.
  Knowledge application
 To provide return on investment, organizational
knowledge must become systematic part of
management decision making and become situated in
decision- support systems:
 New business practices
 New products and services
 New markets

Organizational roles and responsibilities

o Chief knowledge officer executives

o Dedicated staff / knowledge managers

o Communities of practice (COPs)

 Informal social networks of professionals and employees within

and outside firm who have similar work-related activities and
interests
 Activities include education, online newsletters, sharing
experiences and techniques
 Facilitate reuse of knowledge, discussion
 Reduce learning curves of new employees

B- Enterprise-Wide Knowledge Management Systems

 Three major types of knowledge management systems:

1-Enterprise-wide knowledge management systems

• General-purpose firm-wide efforts to collect, store,

distribute, and apply digital content and knowledge

2-Knowledge work systems (KWS)

• Specialized systems built for engineers, scientists, other

knowledge workers charged with discovering and creating
new knowledge

3-Intelligent techniques

• Diverse group of techniques such as data mining used for

various goals: discovering knowledge, distilling knowledge,
discovering optimal solutions

 Three major types of knowledge in enterprise:

1-Structured documents

• Reports, presentations

• Formal rules

2-Semistructured documents

• E-mails, videos

3-Unstructured, tacit knowledge

80 percent of an organization’s business content is semistructured or

unstructured.
 Enterprise content management systems

An enterprise content management system has capabilities for

classifying, organizing, and managing structured and semistructured
knowledge and making it available throughout the enterprise:

 Help capture, store, retrieve, distribute, preserve

• Documents, reports, best practices

• Semistructured knowledge (e-mails)

 Bring in external sources

• News feeds, research

 Tools for communication and collaboration

• Blogs, wikis, and so on

 Key problem—Developing taxonomy in Enterprise content

management systems: Knowledge objects must be tagged with
categories for retrieval

 Digital asset management systems in Enterprise content

management systems
 Specialized content management systems for classifying, storing,
managing unstructured digital data
 Photographs, graphics, video, audio
  Locating and sharing expertise

 Provide online directory of corporate experts in well-defined

knowledge domains
 Search tools enable employees to find appropriate expert in a
company
 Social networking and social business tools for finding knowledge
outside the firm:

• Saving, tagging, sharing Web pages

 Learning management systems (LMS)

 Provide tools for management, delivery, tracking, and assessment

of employee learning and training
 Support multiple modes of learning:

• CD-ROM, Web-based classes, online forums, and so on

 Automates selection and administration of courses

 Assembles and delivers learning content
 Measures learning effectiveness

–
Massively open online courses (MOOCs)
–
Web course open to large numbers of participants
C- Knowledge Work Systems

 Systems for knowledge workers to help create new knowledge

and integrate that knowledge into business

 Knowledge workers:

a. Researchers, designers, architects, scientists, engineers who

create knowledge for the organization

b. Three key roles:

i. Keeping organization current in knowledge

ii. Serving as internal consultants regarding their areas of

expertise

iii. Acting as change agents, evaluating, initiating, and

promoting change projects\

 Requirements of knowledge work systems

c. Sufficient computing power for graphics, complex

calculations

d. Powerful graphics and analytical tools

e. Communications and document management

f. Access to external databases

 g. User-friendly interfaces

h. Optimized for tasks to be performed (design engineering,

financial analysis)

 Examples of knowledge work systems

i. CAD (computer-aided design):

i. Creation of engineering or architectural designs

ii. 3D printing

j. Virtual reality systems:

i. Simulate real-life environments

ii. 3D medical modeling for surgeons

iii. Augmented reality (AR) systems

iv. VRML

k. Investment workstations:

i. Streamline investment process and consolidate

internal, external data for brokers, traders, portfolio
managers
 D- Intelligent Techniques

 Intelligent techniques: Used to capture individual and collective

knowledge and to extend knowledge base:
 To capture tacit knowledge: Expert systems, case-based
reasoning, fuzzy logic
 Knowledge discovery: Neural networks and data mining
 Generating solutions to complex problems: Genetic algorithms
 Automating tasks: Intelligent agents

Artificial intelligence (AI) technology:

 Computer-based systems that emulate human behavior

 Expert systems:

An expert system contains a number of rules to be followed. The rules

are interconnected; the number of outcomes is known in advance and
is limited; there are multiple paths to the same outcome; and the
system can consider multiple rules at a single time.

 Capture tacit knowledge in very specific and limited domain of

human expertise
 Capture knowledge of skilled employees as set of rules in
software system that can be used by others in organization
 Typically perform limited tasks that may take a few minutes or
hours, for example:

 Diagnosing malfunctioning machine

  Determining whether to grant credit for loan

 Used for discrete, highly structured decision making

 How expert systems work

 Knowledge base: Set of hundreds or thousands of rules
 Inference engine: Strategy used to search knowledge base

 Forward chaining: Inference engine begins with

information entered by user and searches knowledge
base to arrive at conclusion

 Backward chaining: Begins with hypothesis and asks

user questions until hypothesis is confirmed or
disproved

 Successful expert systems:

 Con-Way Transportation built expert system to automate and
optimize planning of overnight shipment routes for nationwide
freight-trucking business
 Most expert systems deal with problems of classification. (Have
relatively few alternative outcomes or Possible outcomes are
known in advance)
 Many expert systems require large, lengthy, and expensive
development and maintenance efforts. (Hiring or training more
experts may be less expensive)
 Case-based reasoning (CBR)

 Descriptions of past experiences of human specialists (cases),

stored in knowledge base
 System searches for cases with characteristics similar to new one
and applies solutions of old case to new case
 Successful and unsuccessful applications are grouped with case
 Stores organizational intelligence: Knowledge base is
continuously expanded and refined by users
 CBR found in

 Medical diagnostic systems

 Customer support

 HOW CASE-BASED REASONING WORKS: Case-based reasoning

represents knowledge as a database of past cases and their
solutions. The system uses a six-step process to generate
solutions to new problems encountered by the user.
 Fuzzy logic systems
 Rule-based technology that represents imprecision used in
linguistic categories (e.g., “cold,” “cool”) that represent range of
values
 Describe a particular phenomenon or process linguistically and
then represent that description in a small number of flexible rules
 Provides solutions to problems requiring expertise that is difficult
to represent with IF-THEN rules

• Autofocus in cameras

• Detecting possible medical fraud

• Sendai’s subway system acceleration controls

 Machine learning

– How computer programs improve performance without

explicit programming

• Recognizing patterns

• Experience

• Prior learnings (database)

– Contemporary examples

• Google searches

• Recommender systems on Amazon, Netflix

 Neural networks
 Find patterns and relationships in massive amounts of data too
complicated for humans to analyze
 “Learn” patterns by searching for relationships, building models,
and correcting over and over again
 Humans “train” network by feeding it data inputs for which
outputs are known, to help neural network learn solution by
example
 Used in medicine, science, and business for problems in pattern
classification, prediction, financial analysis, and control and
optimization

 Genetic algorithms

 Useful for finding optimal solution for specific problem by

examining very large number of possible solutions for that
problem
 Conceptually based on process of evolution

• Search among solution variables by changing and

reorganizing component parts using processes such as
inheritance, mutation, and selection

 Used in optimization problems (minimization of costs, efficient

scheduling, optimal jet engine design) in which hundreds or
thousands of variables exist
 Able to evaluate many solution alternatives quickly
 Intelligent agents

 Work without direct human intervention to carry out specific,

repetitive, and predictable tasks for user, process, or application

• Deleting junk e-mail

• Finding cheapest airfare

 Use limited built-in or learned knowledge base (Some are capable

of self-adjustment, for example: Siri)
 Agent-based modeling applications:

• Systems of autonomous agents

• Model behavior of consumers, stock markets, and supply

chains; used to predict spread of epidemics

 Hybrid AI systems

 Genetic algorithms, fuzzy logic, neural networks, and expert

systems integrated into single application to take advantage of
best features of each
 For example: Matsushita “neurofuzzy” washing machine that
combines fuzzy logic with neural networks
Chapter 12: Enhancing Decision Making

A-
 Business value of improved decision making
 Improving hundreds of thousands of “small” decisions adds up to
large annual value for the business

 Types of decisions:
 Unstructured: Decision maker must provide judgment,
evaluation, and insight to solve problem
 Structured: Repetitive and routine; involve definite procedure for
handling so they do not have to be treated each time as new
 Semistructured: Only part of problem has clear-cut answer
provided by accepted procedure

 Senior managers:

 Make many unstructured decisions.

 Example for decisions: Decide entrance or exit from markets.
Approve capital budget. Decide long-term goals. Should we enter
a new market?

Middle managers:

 Make more structured decisions but these may include

unstructured components.
 Example for decisions: Design a marketing plan. Develop a
department budget. Design a new corporate website. For
example: Why is order fulfillment report showing decline in
Minneapolis?

Operational managers, rank and file employees:

 Make more structured decisions.

 Determine overtime eligibility. Restock inventory. Offer credits to
customers. Determine special offers to customers. For example:
Does customer meet criteria for credit?

 The four stages of the decision-making process

 Intelligence: Discovering, identifying, and understanding the

problems occurring in the organization
 Design: Identifying and exploring solutions to the problem
 Choice: Choosing among solution alternatives
 Implementation: Making chosen alternative work and continuing
to monitor how well solution is working

 Information systems can only assist in some of the roles played

by managers

 Classical model of management: five functions

 – Planning, organizing, coordinating, deciding, and controlling

 More contemporary behavioral models

– Actual behavior of managers appears to be less systematic,

more informal, less reflective, more reactive, and less well
organized than in classical model

• Mintzberg’s 10 managerial roles

 Interpersonal roles:

1. Figurehead

2. Leader

3. Liaison

 Informational roles:

4. Nerve center

5. Disseminator

6. Spokesperson

 Decisional roles:

7. Entrepreneur

8. Disturbance handler

9. Resource allocator

10. Negotiator
• Three main reasons why investments in information technology
do not always produce positive results

 Information quality: High-quality decisions require high-quality

information
 Management filters: Managers have selective attention and have
variety of biases that reject information that does not conform to
prior conceptions
 Organizational inertia and politics: Strong forces within
organizations resist making decisions calling for major change.

 High-velocity automated decision making

 Made possible through computer algorithms precisely defining
steps for a highly structured decision
 Humans taken out of decision
 For example: High-speed computer trading programs

• Trades executed in 30 milliseconds

• Responsible for “Flash Crash” of 2010

 Require safeguards to ensure proper operation and regulation

B- Business Intelligence and Business Analytics

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.
  Business intelligence
 Infrastructure for collecting, storing, analyzing data produced by
business
 Databases, data warehouses, data marts

 Business analytics
 Tools and techniques for analyzing data
 OLAP, statistics, models, data mining

 Business intelligence vendors

 Create business intelligence and analytics purchased by firms

• Six elements in the business intelligence environment:

 Data from the business environment

 Business intelligence infrastructure
 Business analytics toolset
 Managerial users and methods
 Delivery platform—MIS, DSS, ESS
 User interface

 Business intelligence and analytics capabilities:

Goal is to deliver accurate real-time information to decision

makers
 Main functionalities of business intelligence (BI) systems:

 Production reports
 Parameterized reports
 Dashboards/scorecards
 Ad hoc query/search/report creation
 Drill down
 Forecasts, scenarios, models

 Business intelligence users

80 percent are casual users relying on production reports

 Senior executives: Use monitoring functionalities

 Middle managers and analysts: Ad-hoc analysis
 Operational employees: Prepackaged reports. For example: sales
forecasts, customer satisfaction, loyalty and attrition, supply chain
backlog, employee productivity.
  Production reports:
 Most widely used output of business intelligence (BI) suites
 Common predefined, prepackaged reports

• Sales: Forecast sales; sales team performance

• Service/call center: Customer satisfaction; service cost

• Marketing: Campaign effectiveness; loyalty and

attrition

• Procurement and support: Supplier performance

• Supply chain: Backlog; fulfillment status

• Financials: General ledger; cash flow

• Human resources: Employee productivity;

compensation

 Predictive analytics
 Use variety of data, techniques to predict future trends and
behavior patterns

• Statistical analysis

• Data mining

• Historical data

• Assumptions
 Incorporated into numerous BI applications for sales, marketing,
finance, fraud detection, health care

• Credit scoring

• Predicting responses to direct marketing campaigns

 Big data analytics

 Big data: Massive datasets collected from social media, online
and in-store customer data, and so on
 Help create real-time, personalized shopping experiences for
major online retailers
 Smart cities

• Public records

• Sensors, location data from smartphones

• Ability to evaluate effect of one service change on

system

 Operational intelligence and analytics

 Operational intelligence: Business activity monitoring
 Collection and use of data generated by sensors
 Internet of Things

• Creating huge streams of data from Web activities,

sensors, and other monitoring devices
 Software for operational intelligence and analytics enable
companies to analyze their Big Data

 Location analytics
 Ability to gain business insight from the location (geographic)
component of data

• Mobile phones

• Sensors, scanning devices

• Map data

 Geographic information systems (GIS)

• Ties location-related data to maps

• Example: For helping local governments calculate response

times to disasters

 Two main management strategies for developing Business

intelligence (BI) and business analytics (BA) capabilities
 One-stop integrated solution

– Hardware firms sell software that run optimally on

their hardware

– Makes firm dependent on single vendor—switching

costs

 Multiple best-of-breed solution

 – Greater flexibility and independence

– Potential difficulties in integration

– Must deal with multiple vendors

C- Decision-Making Constituencies

 Operational and middle managers

Use MIS (running data from TPS) for:
 Routine production reports
 Exception reports

 “Super user” and business analysts

Use DSS for:
 More sophisticated analysis and custom reports
 Semistructured decisions

 Decision support systems: Support for semistructured

decisions
 Use mathematical or analytical models
 Allow varied types of analysis
• “What-if” analysis
• Sensitivity analysis
 • Backward sensitivity analysis
• Multidimensional analysis / OLAP. For example: pivot
tables

 ESS: decision support for senior management

 Help executives focus on important performance information
 Balanced scorecard method:
• Measures outcomes on four dimensions:
• Financial
• Business process
• Customer
• Learning and growth
• Key performance indicators (KPIs) measure each
dimension

 Business performance management (BPM) for Decision support

for senior management
• Translates firm’s strategies (e.g., differentiation, low- cost
producer, scope of operation) into operational targets
• KPIs developed to measure progress toward targets
 Data for ESS for Decision support for senior management
• Internal data from enterprise applications
• External data such as financial market databases
• Drill-down capabilities

 Group decision support systems (GDSS)

- Interactive system to facilitate solution of unstructured problems
by group
- Specialized hardware and software; typically used in conference
rooms
– Overhead projectors, display screens
– Software to collect, rank, edit participant ideas and
responses
– May require facilitator and staff
- Enables increasing meeting size and increasing productivity
- Promotes collaborative atmosphere, anonymity
- Uses structured methods to organize and evaluate ideas