Management Information Systems MANAGING THE DIGITAL FIRM, 12 TH EDITION GLOBAL EDITION Using IS for ENHANCING DECISION MAKING Lecture 3

Management Information Systems 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 Decision Making and Information Systems CHAPTER 12: ENHANCING DECISION MAKING 2

Management Information Systems Senior managers: – Make many unstructured decisions Middle managers: – Make more structured decisions but these may include unstructured components Operational managers, rank and file employees – Make more structured decisions Decision Making and Information Systems CHAPTER 12: ENHANCING DECISION MAKING 3

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Transaction processing systems TPS – Perform and record daily routine transactions necessary to conduct business Examples: sales order entry, payroll, shipping – Allow managers to monitor status of operations and relations with external environment – Serve operational levels – Serve predefined, structured goals and decision making Types of Information Systems © Prentice Hall 20114

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Types of Information Systems A Payroll TPS A TPS for payroll processing captures employee payment transaction data (such as a time card). System outputs include online and hard-copy reports for management and employee paychecks. FIGURE 2-2 © Prentice Hall 20115

TPS payroll system

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Management information systems (MIS) – Serve middle management – Provide reports on firm’s current performance, based on data from TPS – Provide answers to routine questions with predefined procedure for answering them – Typically have little analytic capability Types of Information Systems © Prentice Hall 20117

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Types of Information Systems How Management Information Systems Obtain Their Data from the Organization’s TPS In the system illustrated by this diagram, three TPS supply summarized transaction data to the MIS reporting system at the end of the time period. Managers gain access to the organizational data through the MIS, which provides them with the appropriate reports. FIGURE 2-3 © Prentice Hall 20118

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Types of Information Systems Sample MIS Report This report, showing summarized annual sales data, was produced by the MIS in Figure 2-3.FIGURE 2-4 © Prentice Hall 20119

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Decision support systems (DSS) – Serve middle management – Support non-routine decision making – Often use external information as well from TPS and MIS – Model driven DSS Voyage-estimating systems – Data driven DSS Intrawest’s marketing analysis systems Types of Information Systems 10

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Types of Information Systems Voyage-Estimating Decision Support System This DSS operates on a powerful PC. It is used daily by managers who must develop bids on shipping contracts.FIGURE 2-5 © Prentice Hall

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Executive support systems (ESS) – Support senior management – Address non-routine decisions Requiring judgment, evaluation, and insight – Incorporate data about external events (e.g. new tax laws or competitors) as well as summarized information from internal MIS and DSS – Example: Digital dashboard with real-time view of firm’s financial performance: working capital, accounts receivable, accounts payable, cash flow, and inventory Types of Information Systems © Prentice Hall

Management Information Systems CHAPTER 2: GLOBAL E-BUSINESS AND COLLABORATION Relationship of systems to one another – TPS: Major source of data for other systems – ESS: Recipient of data from lower-level systems – Data may be exchanged between systems – In reality, most businesses’ systems are only loosely integrated (but they are getting better!) Types of Information Systems © Prentice Hall

Management Information Systems Three main reasons why investments in information technology do not always produce positive results 1.Information quality High-quality decisions require high-quality information 2.Management filters Managers have selective attention and have variety of biases that reject information that does not conform to prior conceptions 3.Organizational inertia and politics Strong forces within organizations resist making decisions calling for major change Decision Making and Information Systems CHAPTER 12: ENHANCING DECISION MAKING 14

Management Information Systems High velocity automated decision making – Made possible through computer algorithms precisely defining steps for a highly structured decision – Humans taken out of decision – E.g. High-speed computer trading programs Trades executed in 30 milliseconds Responsible for “Flash Crash” of 2010 – Require safeguards to ensure proper operation and regulation Decision Making and Information Systems CHAPTER 12: ENHANCING DECISION MAKING 15

Management Information Systems Operational and middle managers – Monitor day to day business performance – Make fairly structured decisions – Use MIS “Super user” and business analysts – Use more sophisticated analysis – Create customized reports – Use DSS Business Intelligence Constituencies CHAPTER 12: ENHANCING DECISION MAKING 16

Management Information Systems Decision support systems – Use mathematical or analytical models – Allow varied types of analysis “What-if” analysis Sensitivity analysis Backward sensitivity analysis Multidimensional analysis / OLAP – E. g. pivot tables Business Intelligence Constituencies CHAPTER 12: ENHANCING DECISION MAKING 17

Management Information Systems Decision-support for senior management – Help executives focus on important performance information – Balanced scorecard method: Measures outcomes on four dimensions: 1.Financial 2.Business process 3.Customer 4.Learning & growth Key performance indicators (KPIs) measure each dimension Business Intelligence Constituencies CHAPTER 12: ENHANCING DECISION MAKING 18

Management Information Systems Business Intelligence Constituencies THE BALANCED SCORECARD FRAMEWORK In the balanced scorecard 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. CHAPTER 12: ENHANCING DECISION MAKING 19

Management Information Systems Decision-support for senior management (cont.) – Business performance management (BPM) Translates firm’s strategies (e.g. differentiation, low- cost producer, scope of operation) into operational targets KPIs developed to measure progress towards targets – Data for ESS Internal data from enterprise applications External data such as financial market databases Drill-down capabilities Business Intelligence Constituencies CHAPTER 12: ENHANCING DECISION MAKING 20

Management Information Systems 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, guaranteeing anonymity – Uses structured methods to organize and evaluate ideas Business Intelligence Constituencies CHAPTER 12: ENHANCING DECISION MAKING 21

Management Information Systems RFID 22