MANAGERIAL SUPPORT SYSTEMS ARE THE TOPIC OF THIS SECOND OF

three chapters devoted to our survey of infomation technology (IT) application areas. Managerial
support systems are designed to provide support to a specific manager or a small group of
managers, and they include applications to support managerial decision making such as group
support systems, executive information systems, and expert systems. In contrast, the previous
chapter dealt with enterprise systems designed to support the entire organization or large portions
of it, such as transaction processing systems, data warehousing, groupware, and intranets. Together
these two chapters provide a relatively comprehensive picture of the applications of IT within a
single organization (Ihtraorganizational systems). To complete the survey of IT applications, Chapter
8 will focus on e-business applications that span organizational boundaries, including 82C and 828
applications using the Internet. Taken as a set, these three chapters encompass the great majority of
IT applications in use today.

The enterprise systems discussed in the previous chapter are critical for running a business or any
other type of organization, and you will be dealing with many such enterprise systems, especially
transaction processing systems and groupware. Nevertheless, these enterprise systems have been
designed to support the organization as a whole, not

you in particular or even a group of managers. Managerial support systems, in contrast. are intended
to directly support you and other managers as you make strategic and tactical decisions for your
organizations. For example, interactive decision support systems (0555) are designed to help
managers and other professionals analyze internal and external data. By capturing the expertise of
human experts, expert systems advise nonexperts in a particular decision area. Group support
systems are designed to make group work, especially meetings, more productive. Executive
information systems (ElSs) provide easy-to-navigate summary data for the managers of an
organization. This chapter will explore these and other managerial support systems that are
increasingly important in running modern organizations.

DECISION SUPPORT SYSTEMS

A decision support system (DSS) is a computer-based system, almost always interactive, designed to
assist a manager (or another decision maker) in making decisions. A DSS incorporates both data and
models to help a decision maker solve a problem, especially a problem that is

not well structured. The data are often extracted from a transaction processing system or a data
warehouse, but that is not always the case. The model might be simple. such as a profit-and-loss
model to calculate profit given certain assumptions, or complex, such as an optimization model to
suggest loadings for each machine in a job shop. D855 and many of the systems discussed in the
following sections are not always justified by a traditional cost-benefit approach; for these systems
many of the benef its are intangible, such as faster decision making and better understanding of the
data.

Figure 7.1 shows that a D88 requires three primary components: model management to apply the
appropriate model, data management to select and handle the appropriate data. and dialog
management to facilitate the user interface to the DSS. The user interacts with the DSS through the
dialog management component, identifying the particular model and data set to be used, and then
the DSS presents the results to the user through this same dialog management component. The
model management and data management components largely act behind the scenes, and they vary
from relatively simple for a typical spreadsheet model to quite complex for a mathematical
programming-based scheduling model.

An extremely popular type of DSS is a pro forma financial statement generator. Using a spreadsheet
package such

as Lotus 1-2-3 or Microsoft Excel, a manager builds a model to project the various elements of the
organization or division financial statement into the future. The data employed are historical f
inancial f igures for the organization. The initial (base) model incorporates various assumptions
about future trends in income and expense categories. After viewing the results of the base model,
the manager performs a series of “what-if” analyses by modifying one or more assumptions to
determine their impact on the bottom line. For example, the manager might explore the impact on
profitability if the sales of a new product grew by 10 percent per year, rather than the 5 percent
incorporated in the base model. Or the manager might investigate the impact of a higher-than-
expected increase in the price of raw materials, such as 7 percent per year instead of 4 percent per
year. This type of financial statement generator is a simple but powerful DSS for guiding financial
decision making.

An example of a D88 driven by transactions data is a police-beat allocation system used by a

California city. This system enables a police officer to display a map outline and call up data by
geographic zone, which shows police calls for service, types of service, and service times. The
system’s interactive graphics capability lets the officer manipulate the maps, zones, and data to
consider a variety of police-beat alternatives quickly and easily and takes maximum advantage of the
officer’s judgment.

Other DSS examples include an interactive system for capacity planning and production scheduling
in a large paper company. This system employs detailed historical data and forecasting and
scheduling models to simulate overall performance of the company under differing planning
assumptions. A major oil company developed a D88 to support capital investment decision making.
This system incorporates various financial routines and models for generating future plans; these
plans can be displayed in either tabular or graphic form to aid in decision making. A major airline
uses a D88 to help aircraft controllers deal with aircraft shortage problems that might arise at an
airport because of delayed or canceled incoming flights or mechanical problems for aircraft on the
ground. The DSS, which uses a network optimization modeling technique, helps controllers use spare
aircraft more effectively as well as evaluate possible delay-and-swap options. Over an 18month
period, this DSS saved the airline more than $500,000 in delay costs.

All the DSS examples cited are more properly called specific DSSs. These are the actual applications
that assist in the decision-making process. In contrast, a
In chapter 6 we introduced data warehousing-the idea of a company pulling data from its
operational systems and putting the data in a separate data warehouse so that users may access and
analyze the data without interfering with the operational systems. In that discussion we touched on
the variety of software tools available for analysis of data in the warehouse, but deferred a more
complete discussion until this Chapter. Our argument was that the creation and maintenance of the
data warehouse is an enterprise system, in that the data warehouse supports the entire organization
by making the data available to everyone, whereas the analysis ofthe data is performed by and/or
for a single manager or a small group of managers and is. therefore, a managerial suppon system.
Without explicitly mentioning it, we have already begun the more detailed discussion of these tools
for analyzing data in the warehouse, for the D883 described in the previous section often pull the
data they need directly from the organizations’ data warehouses. Data mining employs a variety of
technologies (such as decision trees and neural networks) to search for, or “mine,” “nuggets” of
information from the vast quantities of data stored in an organization‘s data warehouse.

Data mining, which is sometimes considered a subset of decision support systems, is especially
useful when the organization has large volumes of transaction data in its warehouse. The concept of
data mining is not new, although the term became popular only in the late 19903. For at least two
decades, many large organizations have used internal or external analysts, often called management
scientists, to try to identify trends, or patterns, in massive amounts of data by using statistical,
mathematical, and artificial intelligence techniques. With the development of large-scale data
warehouses and the availability of inexpensive processing power, a renewed interest in what came
to be called data mining arose in recent years.

Along with this renewed interest came a variety of highpowered and relatively easy-to-use
commercial data mining software packages. Among these packages are Oracle 9i Data Mining and
Oracle Data Mining Suite (formerly Darwin), SAS Enterprise Miner, IBM Intelligent Miner for Data (as
well as related products IBM Intelligent Miner Modeling, Visualization, and Scoring), and
KnowledgeSEEKER, KnowledgeSTU D10, and KnowledgeExcelerator from Angoss software Corp.
Datamation’s Data Mining and Business Intelligence Product of the Year for 2003 is SAS Text Miner,
which has the ability to handle textual information, pulling data out of letters, memos, medical
records, and documents of all kinds and f inding themes and patterns in these documents (Gaudin,
2003). These packages vary widely in cost. ranging from under a thousand dollars for some desktop
packages to over $100000 for some enterprise packages that run on large servers. Consultants are
often required to fully utilize the capabilities of the more compre~ hensive packages.

What are the decision techniques or approaches used in data mining? One key technique, decision
trees, is embedded in many of the packages. A decision tree is a tree-shaped structure that is
derived from the data to represent sets of decisions that result in various outcomes-thc tree’s
various end points. When a new set ofdecisions is presented, such as information on a particular
shopper, the decision tree then predicts the outcome. Neural networks, a branch of artificial
intelligence to be discussed later in this chapter, are incorporated in most of the high-end products.
Other popular techniques include linear and logistic regression; association rules for f inding
patterns of co-occurring events; clustering for market segmentation; rule induction, the extraction of
ifthen rules based on statistical significance; nearest neighbor, the classification of a record based on
those most similar to it in the database; and genetic algorithms, optimization techniques based on
the concepts of genetic combination, mutation, and natural selection.
for completeness let us introduce a term related to data mining. but with a difference-online
analytical processing. or OLAP. OLAP has been described as human-dn'ven analysis, whereas data
mining might be viewed as techniquedriven. OLAP is essentially querying against a database,
employing OLAP software that makes it easy to pose complex queries along multiple dimensions,
such as time, organizational unit, and geography. The chief component of OLAP is the OLAP server,
which sits between a client machine and a database server. The OLAP server understands how data
are organized in the database and has special functions for analyzing the data. In contrast, data
mining incorporates such techniques as decision trees, neural networks, and genetic algorithms. An
OLAP program extracts data from the database and structures it by individual dimensions, such as
region or dealer. Data mining software searches the database for patterns and relationships,
employing techniques such as neural networks.

Of course, what you can do with data mining is more important to you as a manager than the
decision techniques employed. Typical applications of data mining are outlined in Table 7.1.
Whatever the nature of your business, the chances are good that several of these applications could
mean increased profits. Most of these applications focus on unearthing valuable information about
your customers.

Many examples of successful data mining operations have been reported in IT magazines. Farmers
Insurance Group, a Los Angeles-based provider of automobile and homeowners insurance, uses data
mining to develop

Soal

REVIEW QUESTIONS

1.

2.

00>!

10.

11.

12.
l3.

14.

15.

Describe the three primary components that make up any decision support system and how they
interact. Explain the difference between a specific decision support system (D88) and a D88
generator. Give an example of each.

Describe two examples of specific DSSs that are being used to assist in decision making. You may use
examples from the textbook or other examples you have read about or heard about.

. Negotiation support systems (N SSS) and group

support systems (GSSs) are both variants of DSSs. Explain how an N88 and a GSS differ from

other DSSs.

Explain both data warehousing and data mining. How are they related?

List at least two techniques (decision technologies) that are used in data mining.

List at least three uses of data mining.

. What is the purpose of a group support system

(GSS)? What are the potential advantages and disadvantages of using a GSS?

Compare the raster-based and vector-based approaches to geographic information systems (GISs).
What are the primary uses of each approach?
What are the distinguishin g characteristics of an executive information system (EIS)? Why have
these systems become a part of business intelligence in many companies?

What is knowledge management, and what is a knowledge management system? How does the
concept of a community of practice relate to knowledge management?

Briefly describe the several areas of artificial intelligence (AI) research. Indicate why we in business
are most interested in the expert systems and neural networks areas.

What are the three general approaches to obtaining an expert system? What are the pluses and
minuses of each approach?

Describe two examples of expert systems that are being used to assist in decision making. You may
use examples from the textbook or other examples you have read about or heard about.

Describe two examples of neural networks that are being used to assist in decision making. You may
use examples from the textbook or other examples you have read about or heard about.

°°>'

10.

. Describe the three primary components that make up

any decision support system and how they interact.

. Explain the difference between a specific decision

support system (D88) and a D88 generator. Give an example of each.

. Describe two examples of specific DSSs that are

being used to assist in decision making. You may use

examples from the textbook or other examples you have read about or heard about.

. Negotiation support systems (N SSS) and group

support systems (GSSS) are both variants of DSSs.

Explain how an N88 and a GSS differ from other DSSs.

. Explain both data warehousing and data mining.

How are they related?

. List at least two techniques (decision technologies)

that are used in data mining. List at least three uses of data mining.

. What is the purpose of a group support system

(GSS)? What are the potential advantages and disadvantages of using a GSS?

. Compare the raster~based and vector-based

approaches to geographic information systems (GISs). What are the primary uses of each

approach?

What are the distinguishing characteristics of an executive information system (EIS)? Why have
these

systems become a part of business intelligence in many companies?

10.

ll.

12.

l3.

14.

15.

What are the distinguishing characteristics of an executive information system (EIS)? Why have
these systems become a part of business intelligence in many companies?

What is knowledge management, and what is a knowledge management system? How does the
concept of a community of practice relate to knowledge management?

Briefly describe the several areas of artificial intelligence (AI) research. Indicate why we in business
are most interested in the expert systems and neural networks areas.

What are the three general approaches to obtaining an expert system? What are the pluses and
minuses of each approach?

Describe two examples of expert systems that are being used to assist in decision making. You may
use examples from the textbook or other examples you have read about or heard about.

Describe two examples of neural networks that are being used to assist in decision making. You may
use examples from the textbook or other examples you have read about or heard about.

16. Describe two examples of the use of virtual reality in an organizational setting. You may use
examples from the textbook or other examples you have read about or heard about.

DISCUSSION QUESTIONS
1. Review question 5 asked about the relationship between data warehousing and data mining. In
addition to data mining, which of the other application areas discussed in this chapter may be used
in conjunction with data warehousing? Explain.

2. Two ofthe important tOpics in this chapter are decision support systems (D888) and expert
systems. Based on your reading ofthis chapter, you have undoubtedly noticed that these two
application areas have a great deal in common. What are the primary distinctions between D885 and
expert systems?

3. Compare group support systems, as described in this chapter, with groupware, as described in
Chapter 6. How do these two application areas relate to one another? Which one is most important
today? Do you think this will be true in the future?

4. Several examples of geographic information systems were mentioned in the chapter. Consider an
industry or a company with which you have some familiarity and identify at least one possible
application of GISS

10.

in the industry or company. Explain why you think this is a good prospect for a GIS application.

5. Explain the concept of “drilling-down” as used in

executive information systems (1318). Is drilling-down used in other IT applications? How do these
applications relate to BS?

6. Explain the original role that was to be played by an

EIS and then describe how this role has been modified over time. Why has this role change
occurred?

7. According to the trade press, the success record of

knowledge management systems has been spotty. Why do you think this is? What steps must
organizations take to give their knowledge management efforts the best chances of succeeding?
8. Several examples of expert systems were mentioned

in the chapter. Consider an industry or a company with which you have some familiarity and identify
at least one possible application of expert systems in the industry or company. Explain why you think
this is a good prospect for an expert system application.

. Several examples of neural networks were men

tioned in the chapter. Consider an industry or a company with which you have some familiarity and
identify at least one possible application of neural networks in the industry or company. Explain why
you think this is a good prospect for a neural network application. u

Which of the application areas considered in this chapter is most useful to a small to mid-sized
business? Defend your answer.

IVlc 'lc‘

lnhhafitcvrv “é intma‘uceI d (Eth'Srehousing-the idea of a company pulling data from its operational
systems and putting the data in a separate data warehouse so that users may access and analyze the
data without interfering with the operational systems. In that discussion we touched on the variety
of software tools available for analysis of data in the warehouse, but deferred a more complete
discussion until this Chapter. Our argument was that the creation and maintenance of the data
warehouse is an enterprise system, in that the data warehouse supports the entire organization by
making the data available to everyone, whereas the analysis ofthe data is performed by and/or for a
single manager or a small group of managers and is. therefore, a managerial suppon system.
Without explicitly mentioning it, we have already begun the more detailed discussion of these tools
for analyzing data in the warehouse, for the D883 described in the previous section often pull the
data they need directly from the organizations’ data warehouses. Data mining employs a variety of
technologies (such as decision trees and neural networks) to search for, or “mine,” “nuggets” of
information from the vast quantities of data stored in an organization‘s data warehouse. Data
mining, which is sometimes considered a subset of decision support systems, is especially useful
when the organization has large volumes of transaction data in its warehouse. The concept of data
mining is not new, although the term became popular only in the late 19903. For at least two
decades, many large organizations have used internal or external analysts, often called management
scientists, to try to identify trends, or patterns, in massive amounts of data by using statistical,
mathematical, and artificial intelligence techniques. With the development of large-scale data
warehouses and the availability of inexpensive processing power, a renewed interest in what came
to be called data mining arose in recent years.
Along with this renewed interest came a variety of highpowered and relatively easy-to-use
commercial data mining software packages. Among these packages are Oracle 9i Data Mining and
Oracle Data Mining Suite (formerly Darwin), SAS Enterprise Miner, IBM Intelligent Miner for Data (as
well as related products IBM Intelligent Miner Modeling, Visualization, and Scoring), and
KnowledgeSEEKER, KnowledgeSTU D10, and KnowledgeExcelerator from Angoss software Corp.
Datamation’s Data Mining and Business Intelligence Product of the Year for 2003 is SAS Text Miner,
which has the ability to handle textual information, pulling data out of letters, memos, medical
records, and documents of all kinds and f inding themes and patterns in these documents (Gaudin,
2003). These packages vary

‘A-‘A

widely in cost. ranging from under a thousand dollars for some desktop packages to over $100000
for some enterprise packages that run on large servers. Consultants are often required to fully utilize
the capabilities of the more compre~ hensive packages.

What are the decision techniques or approaches used in data mining? One key technique, decision
trees, is embedded in many of the packages. A decision tree is a tree-shaped structure that is
derived from the data to represent sets of decisions that result in various outcomes-thc tree’s
various end points. When a new set ofdecisions is presented, such as information on a particular
shopper, the decision tree then predicts the outcome. Neural networks, a branch of artificial
intelligence to be discussed later in this chapter, are incorporated in most of the high-end products.
Other popular techniques include linear and logistic regression; association rules for f inding
patterns of co-occurring events; clustering for market segmentation; rule induction, the extraction of
ifthen rules based on statistical significance; nearest neighbor, the classification of a record based on
those most similar to it in the database; and genetic algorithms, optimization techniques based on
the concepts of genetic combination, mutation, and natural selection.

for completeness let us introduce a term related to data mining. but with a difference-online
analytical processing. or OLAP. OLAP has been described as human-dn'ven analysis, whereas data
mining might be viewed as techniquedriven. OLAP is essentially querying against a database,
employing OLAP software that makes it easy to pose complex queries along multiple dimensions,
such as time, organizational unit, and geography. The chief component of OLAP is the OLAP server,
which sits between a client machine and a database server. The OLAP server understands how data
are organized in the database and has special functions for analyzing the data. In contrast, data
mining incorporates such techniques as decision trees, neural networks, and genetic algorithms. An
OLAP program extracts data from the database and structures it by individual dimensions, such as
region or dealer. Data mining software searches the database for patterns and relationships,
employing techniques such as neural networks.

Of course, what you can do with data mining is more important to you as a manager than the
decision techniques employed. Typical applications of data mining are outlined in Table 7.1.
Whatever the nature of your business, the chances are good that several of these applications could
mean increased profits. Most of these applications focus on unearthing valuable information about
your customers.
Many examples of successful data mining operations have been reported in IT magazines. Farmers
Insurance Group, a Los Angeles-based provider of automobile and homeowners insurance, uses data
mining to develop