A consolidation rotates data to display alternative presentations of the data.

CHAPTER NINE

ENABLING THE ORGANIZATION

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CLASSROOM OPENER

THE WORLD IS FLAT VIDEO

The MIT website offers a video lecture by Thomas Friedman. Try showing the video to your students or assign it as homework. Friedman is an entertaining speaker and your students will enjoy his lecture.

http://video.mit.edu/watch/the-world-is-flat-30-9321/

LEARNING OUTCOMES

Explain the importance of decision making for managers at each of the three primary organization levels along with the associated decision characteristics

Classify the different operational, managerial, and strategic support systems, and explain how managers can use them to make decisions & gain competitive advantage

Describe artificial intelligence and identify its five main types

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A detailed review of the learning outcomes can be found at the end of the chapter in the textbook

MAKING ORGANIZATIONAL BUSINESS DECISIONS

Managerial decision-making challenges

Analyze large amounts of information

Apply sophisticated analysis techniques

Make decisions quickly

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What is the value of information?

The answer to this important question varies depending on how the information is used

Ask your students why two people looking at the exact same pieces of information could extract completely different value from the information

Ans: One way that people can extract different value from similar information is by the information technology tools they use to analyze the information

Also, people’s personal experience and expertise will determine how they view and analyze information

Reasons for growth of decision-making information systems

People need to analyze large amounts of information—Improvements in technology itself, innovations in communication, and globalization have resulted in a dramatic increase in the alternatives and dimensions people need to consider when making a decision or appraising an opportunity.

People must make decisions quickly—Time is of the essence and people simply do not have time to sift through all the information manually.

People must apply sophisticated analysis techniques, such as modeling and forecasting, to make good decisions—Information systems substantially reduce the time required to perform these sophisticated analysis techniques.

THE DECISION-MAKING PROCESS

The six-step decision-making process

Problem identification

Data collection

Solution generation

Solution test

Solution selection

Solution implementation

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In-class critical thinking activity.

Applying this process to a real life type scenario/business – Use a sample business to answer questions and follow the 6-step process (Each student is the CEO of one of these company’s struggling with some processes in the business): examples; a coffee shop, a wholesale warehouse, an accounting firm, a gas & oil company, etc.

Problem Identification –

What are the key problems affecting the business?

What are the customer saying about the service and the product?

What is the root cause of any decline in revenue, or production time?

Data Collection –

Why are certain processes falling short?

And what are the immediate steps the company can take to adjust the current processes to improve them?

Who are you listening to, are they actual or rumor complaints?

What departments are struggling?

Solution Generation –

What are some of the solutions you have for improvement?

What are some of the solutions your management team has?

How will you go about collecting all the best solutions?

Solution Test –

Are these solutions long-term or short-term solutions?

What are some of the cost factors associated with the solutions?

Does your team like the solution or are they going to sabotage it because they are unhappy with the decision made?

Solution Selection –

As the executive leader of the company are you comfortable with the decision you made?

How are you going to take a strong lead on this decision without alienating yourself?

Solution Implementation -

Evaluate and track how the solution is working?

Is it achieving the results that you wanted?

Is the results are poor, what steps do you need to take to adjust?

As the leader for the company, how will you appropriately change the solution direction without upsetting the environment or flow of the employees and production?

THE DECISION-MAKING PROCESS

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In-class critical thinking activity.

Applying this process to a real life type scenario/business – Use a sample business to answer questions and follow the 6-step process (Each student is the CEO of one of these company’s struggling with some processes in the business): examples; a coffee shop, a wholesale warehouse, an accounting firm, a gas & oil company, etc.

Problem Identification –

What are the key problems affecting the business?

What are the customer saying about the service and the product?

What is the root cause of any decline in revenue, or production time?

Data Collection –

Why are certain processes falling short?

And what are the immediate steps the company can take to adjust the current processes to improve them?

Who are you listening to, are they actual or rumor complaints?

What departments are struggling?

Solution Generation –

What are some of the solutions you have for improvement?

What are some of the solutions your management team has?

How will you go about collecting all the best solutions?

Solution Test –

Are these solutions long-term or short-term solutions?

What are some of the cost factors associated with the solutions?

Does your team like the solution or are they going to sabotage it because they are unhappy with the decision made?

Solution Selection –

As the executive leader of the company are you comfortable with the decision you made?

How are you going to take a strong lead on this decision without alienating yourself?

Solution Implementation -

Evaluate and track how the solution is working?

Is it achieving the results that you wanted?

Is the results are poor, what steps do you need to take to adjust?

As the leader for the company, how will you appropriately change the solution direction without upsetting the environment or flow of the employees and production?

DECISION-MAKING ESSENTIALS

Decision-making and problem-solving occur at each level in an organization

Making Business Decisions -

Understanding the way people makes decisions is critical to embrace. They way people make decisions is going to affect your business and the culture that is created there.

CLASSROOM ACTIVITY

Sheena Lyengar did her thesis work on “how people make decisions.” Great Ted.com talk to show your students http://www.ted.com/talks/sheena_iyengar_on_the_art_of_choosing.html

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DECISION-MAKING ESSENTIALS

Operational decision making - Employees develop, control, and maintain core business activities required to run the day-to-day operations

Structured decisions - Situations where established processes offer potential solutions

OPERATIONAL

Operational Decision Making -

Employee Type: lower management, analysts, staff

Focus: Internal, functional

Time Frame: Short term, day-to-day operations

Decision Types: Structured, recurring, repetitive

MIS Type: Information

Metrics: Key performance indicators focus on efficiency

Examples:

How many employees are out sick?

How many products need to be made today?

What are next week’s production requirements?

How much inventory is in the warehouse?

How many problems occurred when running payroll?

Which employees are on vacation?

What are some examples of types of systems or activities at this level?

Payroll

Training & development

Accounts payable & receivable

Employee record keeping

Scheduling

Order processing

Order tracking

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DECISION-MAKING ESSENTIALS

Managerial decision making – Employees evaluate company operations to identify, adapt to, and leverage change

Semistructured decisions – Occur in situations in which a few established processes help to evaluate potential solutions, but not enough to lead to a definite recommended decision

MANAGERIAL

Managerial Decision Making

Employee Type: Middle mgmt., managers, directors

Focus: Internal, cross-functional

Time Frame: Short term, daily, monthly, yearly

Decision Types: Semistructured, adhoc, reporting

MIS Type: Business Intelligence

Metrics: KPIs focusing on efficiency, and CSFs focusing on effectiveness

Examples:

Who are our best customers by region, by sales representatives, by product?

What are the sales forecasts for next month? How do they compare to actual sales for last year?

What was the difference between expected sales and actual sales for each month?

What was the impact of last month’s marketing campaign on sales?

What types of ad hoc or unplanned reports might the company require next month?

What are some examples of types of systems or activities at this level?

Sales management

Pricing & profitability

Contract analysis

Production costs

Sales analysis by region

Inventory

Audits

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DECISION-MAKING ESSENTIALS

Strategic decision making – Managers develop overall strategies, goals, and objectives

Unstructured decisions – Occurs in situations in which no procedures or rules exist to guide decision makers toward the correct choice

STRATEGIC

Strategic Decision Making

Employee Type: Senior management, presidents

Focus: external, industry, cross company

Time Frame: Long term, yearly, multi-year

Decision Types: Unstructured, nonrecurring, one time

MIS Type: Knowledge

Metrics: CSFs focusing on effectiveness

Examples:

How will changes in employment levels over the next three years impact the company?

What industry trends are worth analyzing?

What new products and new markets does the company need to create competitive advantages?

How will a recession over the next years impact business?

What measures will the company need to prepare for due to new tax laws?

What are some examples of types of systems or activities at this level?

Sales trend forecasting

Budget forecasting

Profit planning

5-year forecast planning

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SUPPORT: ENHANCING DECISION MAKING WITH MIS

Model – A simplified representation or abstraction of reality

Models help managers to

Calculate risks

Understand uncertainty

Change variables

Manipulate time to make decisions

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Models can calculate risks, understand uncertainty, change variables, and manipulate time

Ask your students if any of them have ever worked with a DSS, EIS, or AI system? What types of models are they using today at their jobs or in their personal lives?

Ans: Many of your students have worked with a DSS and might not know it. Excel is a DSS. You can use many of the tools found in Excel, such as Scenario Manager, Goal Seek, Solver, and Pivot Tables to support DSS activities

SUPPORT: ENHANCING DECISION MAKING WITH MIS

Types of Decision Making MIS Systems

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Decision support system (DSS) – models information to support managers and business professionals during the decision-making process

Executive information system (EIS) – a specialized DSS that supports senior level executives within the organization

Artificial intelligence (AI) – simulates human intelligence such as the ability to reason and learn

OPERATIONAL SUPPORT SYSTEMS

Transaction processing system (TPS) – Basic business system that serves the operational level and assists in making structured decisions

Online transaction processing (OLTP) - Capturing of transaction and event information using technology to process, store, and update

Source document – The original transaction record

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Transactional Information – encompasses all of the information contained within a single business process or unit of work, and its primary purpose is to support the performing of daily operational or structured decisions.

Transaction processing system (TPS) - basic business system that serves the operational level and assists in making structured decisions.

Online transaction processing (OLTP) – capturing of transaction and event information using technology to process, store, and update.

Source Documents – Using systems thinking, the inputs for a TPS or the original transaction record.

Analysts typically use TPS to perform their daily tasks

What types of TPS are used at your college?

Payroll system (Tracking hourly employees)

Accounts Payable system

Accounts Receivable system

Course registration system

Human resources systems (tracking vacation, sick days)

OPERATIONAL SUPPORT SYSTEMS

Systems Thinking View of a TPS

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Create, read, update, and delete (CRUD) are the common processes associated with a TPS

Common inputs are source documents and outputs are reports

Ask your students why would a manager want to view a TPS in terms of systems thinking?

Systems thinking provides a holistic view of a system or an overview of a system

Viewing a system from end-to-end will provide a manager with a better view of opportunities and challenges associated with inputs, processes, and outputs

Feedback is critical and ensuring the appropriate metrics are associated is a key goal for many managers

MANAGERIAL SUPPORT SYSTEMS

Online analytical processing (OLAP) – Manipulation of information to create business intelligence in support of strategic decision making

Decision support system (DSS) – Models information to support managers and business professionals during the decision-making process

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Analytical Information - Encompasses all organizational information, and its primary purpose is to support the performing of managerial analysis or semistructured decisions

Online analytical processing (OLAP) – Manipulation of information to create business intelligence in support of strategic decision making

Decision support system (DSS) – Models information to support managers and business professionals during the decision-making process

Analysts typically use TPS to perform their daily tasks – Ask your students what types of TPS are used at your college?

Payroll system (Tracking hourly employees)

Accounts Payable system

Accounts Receivable system

Course registration system

Human resources systems (tracking vacation, sick days)

MANAGERIAL SUPPORT SYSTEMS

Four quantitative models used by DSSs include

What-if analysis

Sensitivity analysis

Goal-seeking analysis

Optimization analysis

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What-if analysis – checks the impact of a change in an assumption on the proposed solution

Sensitivity analysis – the study of the impact that changes in one (or more) parts of the model have on other parts of the model

Goal-seeking analysis – finds the inputs necessary to achieve a goal such as a desired level of output

Optimization analysis - An extension of goal-seeking analysis, finds the optimum value for a target variable by repeatedly changing other variables, subject to specified constraints.

In a DSS, data is first queried and collected from the knowledge database

Results from the query are then checked and analyzed against decision models

Once checked against the decision models, the results are then generated for review to find a “best” solution for the situation

One national insurance company uses DSSs to analyze the amount of risk the company is undertaking when it insures drivers who have a history of driving under the influence of alcohol. The DSS discovered that only 3 percent of married male homeowners in their forties received more than one DUI. The company decided to lower rates for customers falling into this category, which increased its revenue while mitigating its risk.