Chapter 11

Improving Decision
Making and Managing
Knowledge

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

Student Learning Objectives

• What are the different types of decisions, and

how does the decision-making process work?

• How do business intelligence and business

analytics support decision making?

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

Student Learning Objectives

• What are the business benefits of using

intelligent techniques in decision making and
knowledge management?
• What types of systems are used for enterprise-
wide knowledge management, and how do they
provide value for businesses?

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 Essentials of Management Information Systems
Chapter 11 Telecommunications, the Internet, and
Wireless Technology

LEARNING TRACKS AND VIDEO CASES

Learning Tracks
1.Building and Using Pivot Tables
2.The Expert System Inference Engine
3.Challenges of Knowledge Management Systems

Video Cases
Case 1: How IBM’s Watson Became a Jeopardy Champion
Case 2: Alfresco: Open Source Document Management and
Collaboration
Case 3: FreshDirect Uses Business Intelligence to Manage Its Online
Grocery.
Case 4: Business Intelligence Helps the Cincinnati Zoo Work Smarter
Instructional Video 1: Analyzing Big Data: IBM Watson After Jeopardy

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

Fiat: Real-time Management with Business Intelligence

• Problem: Global expansion leads to different data

systems, impeding timely access to reliable
information.
• Solution: Build a new system to provide near real-
time information on operations across the globe.

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

Fiat: Real-time Management with Business Intelligence

• Working with Oracle’s Hyperion database and reporting

software, Fiat built an enterprise performance management
system with significant business intelligence capabilities
based on current data from the divisions.

• Demonstrates the use of analysis systems to identify costs

and budgets, and local opportunities.

• Illustrates how information systems improve decision

making

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

Fiat: Real-time Management with Business Intelligence

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Business Value of Improved Decision Making

• Possible to measure value of improved decision
making.
• Decisions made at all levels of the firm.
• Some are common, routine, and numerous.
• Although value of improving any single decision
may be small, improving hundreds of thousands of
“small” decisions adds up to large annual value for
the business.

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Business Value of Improved Decision Making

Decision Maker Number Value of Annual value
/ year decision to firm

Allocate support to most Accounts manager 12 $100,000 $1,200,000

valuable customers.
Predict call center daily Call Center 4 150,000 600,000
demand. management
Decide parts inventory level Inventory manager 365 5,000 1,825,000
daily.
Identify competitive bids Senior management 1 2,000,000 2,000,000
from major suppliers.
Schedule production to fill Manufacturing 150 10,000 1,500,000
orders. manager

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Types of Decisions
• Unstructured
• Decision maker must provide judgment to solve problem
• Novel, important, nonroutine
• No well-understood or agreed-upon procedure for making
them
• Structured
• Repetitive and routine
• Involve definite procedure for handling them so do not have to
be treated as new
• Semistructured
• Only part of problem has clear-cut answer provided by
accepted procedure
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Information Requirements of Key Decision-Making

Groups in a Firm

Senior managers,
middle managers,
operational
managers, and
employees have
different types of
decisions and
information
requirements.

Figure 11.1

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

The Decision-Making Process

1. Intelligence
• Discovering, identifying, and understanding the problems
occurring in the organization—why is there a problem, where,
what effects it is having on the firm
2. Design
• Identifying and exploring various solutions
3. Choice
• Choosing among solution alternatives
4. Implementation
• Making chosen alternative work and monitoring how well
solution is working

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

Stages in Decision Making

The decision-making
process can be broken
down into four stages.

Figure 11.2

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the different types of decisions, and how does the decision-making
process work?

• High-velocity automated decision-making

• Humans eliminated
• E.g. Trading programs at electronic stock exchanges
• Quality of decisions, decision making
• Accuracy
• Comprehensiveness
• Fairness
• Speed (efficiency)
• Coherence
• Due process

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

The Business Intelligence Environment

• Six elements in business intelligence

environment
1. Data from business environment
2. Business intelligence infrastructure
3. Business analytics toolset
4. Managerial users and methods
5. Delivery platform
• MSS, DSS, ESS
6. User interface

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Business Intelligence and Analytics for Decision Support

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.

Figure 11.3

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Business Intelligence and Analytics Capabilities

• Production reports
• Predefined, based on industry standards
• Parameterized reports
• E.g. pivot tables
• Dashboards/scorecards
• Ad-hoc query/search/report creation
• Drill-down
• Forecasts, scenarios, models
• “What-if” scenario analysis, statistical analysis
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

Table 11.3 Example Pre-Defined Reports

Examples of Business Intelligence Pre-Defined Reports

Business Functional Area Production Reports

Sales Sales forecasts, sales team performance, cross selling, sales cycle
times
Service/Call Center Customer satisfaction, service cost, resolution rates, churn rates

Marketing Campaign effectiveness, loyalty and attrition, market basket

analysis
Procurement and Direct and indirect spending, off-contract purchases, supplier
Support performance
Supply Chain Backlog, fulfillment status, order cycle time, bill of materials
analysis
Financials General ledger, accounts receivable and payable, cash flow,
profitability
Human Resources Employee productivity, compensation, workforce demographics,
retention
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Predictive Analytics
• Use statistical analytics and other techniques
• Extracts information from data and uses it to
predict future trends and behavior patterns
• Predicting responses to direct marketing campaigns
• Identifying best potential customers for credit cards
• Identify at-risk customers
• Predict how customers will respond to price changes and
new services
• Accuracies range from 65 to 90 percent

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Big Data Analytics

• Predictive analytics can use the big data

generated from social media, consumer
transactions, sensor and machine output, etc.
• E.g. eBay’s Hunch.com to predict user affinities for items
not immediately obvious
• Public sector’s drive to “smart cities” to inform
decisions on:
• Utility management
• Transportation operation
• Healthcare delivery
• Public safety

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Operational Intelligence and Analytics

•Day-to-day decisions and monitoring

•Data developed from sensors in trucks, trains,

industrial systems

•The Internet of Things (IoT): fully connected machines

•Real time monitoring: America’s Cup sailboats

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Location Analytics and GIS

• Location analytics
• Big data analytics that uses location data from
mobile phones, sensors, and maps
• E.g. Helping a utility company view customer costs as
related to location

• GIS – Geographic information systems

• Help decision makers visualize problems with
mapping
• Tie location data about resources to map

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Interactive Session: Technology

America’s Cup: The Tension Between Technology and Human Decision Makers
• Read the Interactive Session and then discuss the
following questions:
• How did information technology change the way America’s
Cup boats were managed and sailed?

• How did information technology impact decision making at

Team USA?

• How much was technology responsible for Team USA’s

America’s Cup victory? Explain
• your answer.

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Business Intelligence Users

Casual users are

consumers of BI
output, while
intense power
users are the
producers of
reports, new
analyses,
models, and
forecasts.

Figure 11.4

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Support for Semi-Structured Decisions

• Decision-support systems (DSS)
• BI delivery platform for “super-users” who want to create
own reports, use more sophisticated analytics and models

• What-if analysis

• Sensitivity analysis

• Backward sensitivity analysis

• Pivot tables: Spreadsheet function for multidimensional

analysis

• Intensive modeling techniques

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Sensitivity Analysis

This table displays the results of a sensitivity analysis of the effect of

changing the sales price of a necktie and the cost per unit on the product’s
break-even point. It answers the question, “What happens to the break-even
point if the sales price and the cost to make each unit increase or decreas
e?”
Figure 11.5
11.26 Copyright © 2017 Pearson Education Ltd.
 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

A Pivot Table That Examines Customer Regional

Distribution and Advertising Source

In this pivot table, we are

able to examine where
an online training
company’s customers
come from in terms of
region and advertising
source.

Figure 11.6

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Decision Support for Senior Management

• Executive support systems

• Balanced scorecard method
• Measures four dimensions of firm performance
• Financial
• Business process
• Customer
• Learning and growth
• Key performance indicators (KPI) used to
measure each dimension

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

The Balanced Scorecard Framework

In the balanced score-

card framework, the
firm's strategic
objectives are
operationalized along
four dimensions:
financial, business
process, customer,
and learning and
growth. Each
dimension is measured
using several KPIs.

Figure 11.7

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

• Business performance management (BPM)

• Management methodology based on firm’s strategies
• E.g. differentiation, low-cost producer, market share
growth, scope of operation
• Translates strategies into operational targets
• Uses set of KPI (key performance indicators) to
measure progress toward targets
• ESS combine internal data with external
• Financial data, news, etc.
• Drill-down capabilities

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

How do business intelligence and business analytics support decision making?

Group Decision-Support Systems (GDSS)

• Interactive, computer-based systems that facilitate solving
of unstructured problems by set of decision makers.
• Used in conference rooms with special hardware and
software for collecting, ranking, storing ideas and
decisions.
• Promote a collaborative atmosphere by guaranteeing
contributors’ anonymity.
• Support increased meeting sizes with increased
productivity.
• Software follows structured methods for organizing and
evaluating ideas

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Intelligent techniques for enhancing decision

making
• Many based on artificial intelligence (AI)
• Computer-based systems (hardware and software) that
attempt to emulate human behavior and thought
patterns
• Include:
• Expert systems
• Case-based reasoning
• Fuzzy logic
• Neural networks
• Genetic algorithms
• Intelligent agents
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Expert systems
• Model human knowledge as a set of rules that are
collectively called the knowledge base
• From 200 to 10,000 rules, depending on complexity

• The system’s inference engine searches through the rules

and “fires” those rules that are triggered by facts gathered
and entered by the user.
• Useful for dealing with problems of classification in which
there are relatively few alternative outcomes and in which
these possible outcomes are all known in advance

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

Rules in an Expert System

An expert system contains a set

of rules to be followed when
used. 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. The rules
illustrated are for a simple
credit-granting expert system.

Figure 11-8

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Case-based reasoning
• Knowledge and past experiences of human specialists
are represented as cases and stored in a database for
later retrieval.

• System searches for stored cases with problem

characteristics similar to new one, finds closest fit, and
applies solutions of old case to new case.

• Successful and unsuccessful applications are tagged and

linked in database.

• Used in medical diagnostic systems, customer support.

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

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.

Figure 11.9

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Fuzzy logic
• Rule-based technology that represents imprecision in
categories (e.g., “cold” versus “cool”) by creating rules
that use approximate or subjective values
• Describes a particular phenomenon or process
linguistically and then represents that description in a
small number of flexible rules
• Provides solutions to problems requiring expertise that is
difficult to represent in the form of IF-THEN rules
• E.g., Sendai, Japan subway system uses fuzzy logic
controls to accelerate so smoothly that standing
passengers need not hold on
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

Fuzzy Logic for Temperature Control

The membership functions for the input called temperature are in the logic of the
thermostat to control the room temperature. Membership functions help translate
linguistic expressions, such as warm, into numbers that the computer can
manipulate
Figure 11.10
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Neural networks
• Use hardware and software that parallel the processing
patterns of a biological brain.

• “Learn” patterns from large quantities of data by searching

for relationships, building models, and correcting over and
over again the model’s own mistakes.

• Humans “train” the network by feeding it data for which the

inputs produce a known set of outputs or conclusions.

• Machine learning

• Useful for solving complex, poorly understood problems for

which large amounts of data have been collected.
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

How a Neural Network Works

A neural network uses rules it “learns” from patterns in data to construct a hidden layer of logic. The hidden
layer then processes inputs, classifying them based on the experience of the model. In this example, the
neural network has been trained to distinguish between valid and fraudulent credit card purchases.

Figure 11.11
11.40 Copyright © 2017 Pearson Education Ltd.
 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision makin
and knowledge management?

• Genetic algorithms
• Find the optimal solution for a specific problem by
examining very large number of alternative solutions for
that problem.

• Based on techniques inspired by evolutionary biology:

inheritance, mutation, selection, and so on.

• Work by representing a solution as a string of 0s and 1s,

then searching randomly generated strings of binary
digits to identify best possible solution.

• Used to solve complex problems that are very dynamic

and complex, involving hundreds or thousands of
variables or formulas.
11.41 Copyright © 2017 Pearson Education Ltd.
 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What types of systems are used for enterprise-wide knowledge management

and knowledge work, and how do they provide value for businesses?

Interactive Session: People

Facial Recognition Systems: Another Threat to Privacy?
Read the Interactive Session and then discuss the following
questions:
•What are some of the benefits of using facial recognition technology?
Describe some current and future applications of this technology.

•How does facial recognition technology threaten the protection of

individual privacy? Give several examples.

•Would you like DeepFace to track your activities on Facebook and in the
physical world? Why or why not?

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

The Components of a Genetic Algorithm

This example illustrates an initial population of “chromosomes,” each representing a different

solution. The genetic algorithm uses an iterative process to refine the initial solutions so that the
better ones, those with the higher fitness, are more likely to emerge as the best solution.

Figure 11.12
11.43 Copyright © 2017 Pearson Education Ltd.
 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

• Intelligent agents
• Programs that work in the background without direct
human intervention to carry out specific, repetitive, and
predictable tasks for user, business process, or
software application

• Shopping bots

• Procter & Gamble (P&G) programmed group of

semiautonomous agents to emulate behavior of
supply-chain components, such as trucks, production
facilities, distributors, and retail stores and created
simulations to determine how to make supply chain
more efficient

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

Intelligent Agents in P&G’s Supply Chain Network

Intelligent
agents are
helping Procter
& Gamble
shorten the
replenishment
cycles for
products, such
as a box of
Tide.

Figure 11.13

11.45 Copyright © 2017 Pearson Education Ltd.

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

Knowledge Management
• Business processes developed for creating,
storing, transferring, and applying knowledge
• Increases the ability of organization to learn
from environment and to incorporate knowledge
into business processes and decision making
• Knowing how to do things effectively and
efficiently in ways that other organizations
cannot duplicate is major source of profit and
competitive advantage

11.46 Copyright © 2017 Pearson Education Ltd.

 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

Enterprise-Wide Knowledge Management Systems

• Three kinds of knowledge
• Structured: structured text documents
• Semistructured: e-mail, voice mail, digital pictures, etc.
• Tacit knowledge (unstructured): knowledge residing in heads
of employees, rarely written down

• Enterprise-wide knowledge management systems

• Deal with all three types of knowledge
• General-purpose, firm-wide systems that collect, store,
distribute, and apply digital content and knowledge

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What are the business benefits of using intelligent techniques in decision

making and knowledge management?

Enterprise-Wide Knowledge Management Systems

• Enterprise content management systems
• Capabilities for knowledge capture, storage
• Repositories for documents and best practices
• Capabilities for collecting and organizing
semistructured knowledge such as e-mail
• Classification schemes
• Key problem in managing knowledge
• Each knowledge object must be tagged for retrieval

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What types of systems are used for enterprise-wide knowledge management

and knowledge work, and how do they provide value for businesses?

An Enterprise Content Management System

An enterprise content management

system has capabilities for classifying,
organizing, and managing structured
and semistructured knowledge and
making it available throughout the
enterprise.
Figure 11.14
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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What types of systems are used for enterprise-wide knowledge management

and knowledge work, and how do they provide value for businesses?

• Locating and sharing expertise

• Knowledge network systems (Expertise location and
management systems)

• Provide online directory of corporate experts in well-

defined knowledge domains

• Use communication technologies to make it easy for

employees to find appropriate expert in firm.

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What types of systems are used for enterprise-wide knowledge management

and knowledge work, and how do they provide value for businesses?

• Learning management systems (LMS)

• Provide tools for management, delivery, tracking,
and assessment of employee learning and training.

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What types of systems are used for enterprise-wide knowledge management

and knowledge work, and how do they provide value for businesses?

Knowledge Work Systems (KWS)

• Specialized systems for knowledge workers
• Requirements of knowledge work systems:
• Specialized tools
• Powerful graphics, analytical tools, and communications
and document management
• Computing power to handle sophisticated
graphics or complex calculations
• Access to external databases
• User-friendly interfaces

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What types of systems are used for enterprise-wide knowledge management

and knowledge work, and how do they provide value for businesses?

Requirements of Knowledge Work Systems

Knowledge work systems

require strong links to
external knowledge bases
in addition to specialized
hardware and software.

Figure 11.15

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 Essentials of Management Information Systems
Chapter 11 Improving Decision Making and Managing Knowledge

What types of systems are used for enterprise-wide knowledge management

and knowledge work, and how do they provide value for businesses?

Knowledge Work Systems (KWS)

• Examples of knowledge work systems

• Computer-aided design (CAD) systems
• Virtual reality (VR) systems
• Virtual Reality Modeling Language (VRML)
• Augmented reality (AR) systems
• Investment workstations

11.54 Copyright © 2017 Pearson Education Ltd.