Business Intelligence and Analytics Systems for Decision Support

Transcription

1 GLOBAL GLOBAL GLOBAL For these Global Editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools. This Global Edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization and adaptation from the North American version. TENTH Sharda Delen Turban This is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefit of students outside the United States and Canada. If you purchased this book within the United States or Canada you should be aware that it has been imported without the approval of the Publisher or Author. Business Intelligence and Analytics Systems for Decision Support TENTH Ramesh Sharda Dursun Delen Efraim Turban

2 Editor in Chief: Stephanie Wall Executive Editor: Bob Horan Publisher, Global Edition: Laura Dent Senior Acquisitions Editor, Global Edition: Steven Jackson Program Manager Team Lead: Ashley Santora Program Manager: Denise Vaughn Marketing Manager, International: Kristin Schneider Project Manager Team Lead: Judy Leale Project Manager: Tom Benfatti Assistant Project Editor, Global Edition: Paromita Banerjee Operations Specialist: Michelle Klein Senior Manufacturing Controller, Production: Trudy Kimber Creative Director: Jayne Conte Cover Image Credit: Robert Adrian Hillman Cover Printer: Courier Kendallville Cover Designer: Jodi Notowitz at Wicked Design Full-Service Project Management: George Jacob, Integra Software Solutions. Text Font: ITC Garamond Std Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: Pearson Education Limited 2014 The rights of Ramesh Sharda, Dursun Delen, and Efraim Turban to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs, and Patents Act Authorized adaptation from the United States edition, entitled Business Intelligence and Analytics: Systems for Decision Support, 10 th edition, ISBN , by Ramesh Sharda, Dursun Delen, and Efraim Turban, published by Pearson Education All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmittedin any form or by any means, electronic, mechanical, photocopying, recording or otherwise, withouteither the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6 10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners.the use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Microsoft and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published as part of the services for any purpose. All such documents and related graphics are provided as is without warranty of any kind. Microsoft and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all warranties and conditions of merchantability, whether express, implied or statutory, fitness for a particular purpose, title and non-infringement. In no event shall Microsoft and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from the services. The documents and related graphics contained herein could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Microsoft and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time. Partial screen shots may be viewed in full within the software version specified. Microsoft and Windows are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation. ISBN 10: ISBN 13: British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Typeset in ITC Garamond Std. Integra Software Solutions Printed and bound by Courier Kendalville in The United States of America

3 206 Part II Descriptive Analytics Sigma, s, is a letter in the Greek alphabet that statisticians use to measure the variability in a process. In the quality arena, variability is synonymous with the number of defects. Generally, companies have accepted a great deal of variability in their business processes. In numeric terms, the norm has been 6,200 to 67,000 defects per million opportunities (DPMO). For instance, if an insurance company handles 1 million claims, then under normal operating procedures 6,200 to 67,000 of those claims would be defective (e.g., mishandled, have errors in the forms). This level of variability represents a three- to four-sigma level of performance. To achieve a Six Sigma level of performance, the company would have to reduce the number of defects to no more than 3.4 DPMO. Therefore, Six Sigma is a performance management methodology aimed at reducing the number of defects in a business process to as close to zero DPMO as possible. the DMaIC Performance Model Six Sigma rests on a simple performance improvement model known as DMAIC. Like BPM, DMAIC is a closed-loop business improvement model, and it encompasses the steps of defining, measuring, analyzing, improving, and controlling a process. The steps can be described as follows: 1. Define. Define the goals, objectives, and boundaries of the improvement activity. At the top level, the goals are the strategic objectives of the company. At lower levels department or project levels the goals are focused on specific operational processes. 2. Measure. Measure the existing system. Establish quantitative measures that will yield statistically valid data. The data can be used to monitor progress toward the goals defined in the previous step. 3. Analyze. Analyze the system to identify ways to eliminate the gap between the current performance of the system or process and the desired goal. 4. Improve. Initiate actions to eliminate the gap by finding ways to do things better, cheaper, or faster. Use project management and other planning tools to implement the new approach. 5. Control. Institutionalize the improved system by modifying compensation and incentive systems, policies, procedures, manufacturing resource planning, budgets, operation instructions, or other management systems. For new processes, the model that is used is called DMADV (define, measure, analyze, design, and verify). Traditionally, DMAIC and DMADV have been used primarily with operational issues. However, nothing precludes the application of these methodologies to strategic issues such as company profitability. In recent years, there has been a focus on combining the Six Sigma methodology with other successful methodologies. For instance, the methodology known as Lean Manufacturing, Lean Production, or simply as Lean has been combined with Six Sigma in order to improve its impact in performance management. Balanced scorecard Versus six sigma While many have combined Six Sigma and Balanced Scorecard for a more holistic solution, some focused on favoring one versus the other. Gupta (2006) in his book titled Six Sigma Business Scorecard provides a good summary of the differences between the balanced scorecard and Six Sigma methodologies (see Table 4.1). In a nutshell, the main difference is that BSC is focused on improving overall strategy, whereas Six Sigma is focused on improving processes.

4 Chapter 4 Business Reporting, Visual Analytics, and Business Performance Management 207 table 4.1 Comparison of Balanced scorecard and six sigma Balanced scorecard Strategic management system Relates to the longer-term view of the business Designed to develop balanced set of measures Identifies measurements around vision and values Critical management processes are to clarify vision/strategy, communicate, plan, set targets, align strategic initiatives, and enhance feedback Balances customer and internal operations without a clearly defined leadership role Emphasizes targets for each measurement Emphasizes learning of executives based on the feedback Focuses on growth Heavy on strategic content Management system consisting of measures six sigma Performance measurement system Provides snapshot of business s performance and identifies measures that drive performance toward profitability Designed to identify a set of measurements that impact profitability Establishes accountability for leadership for wellness and profitability Includes all business processes management and operational Balances management and employees roles; balances costs and revenue of heavy processes Emphasizes aggressive rate of improvement for each measurement, irrespective of target Emphasizes learning and innovation at all levels based on the process feedback; enlists all employees participation Focuses on maximizing profitability Heavy on execution for profitability Measurement system based on process management Source: P. Gupta, Six Sigma Business Scorecard, 2nd ed., McGraw-Hill Professional, New York, effective Performance Measurement A number of books provide recipes for determining whether a collection of performance measures is good or bad. Among the basic ingredients of a good collection are the following: Measures should focus on key factors. Measures should be a mix of past, present, and future. Measures should balance the needs of shareholders, employees, partners, suppliers, and other stakeholders. Measures should start at the top and flow down to the bottom. Measures need to have targets that are based on research and reality rather than arbitrary. As the section on KPIs notes, although all of these characteristics are important, the real key to an effective performance measurement system is to have a good strategy. Measures need to be derived from the corporate and business unit strategies and from an analysis of the key business processes required to achieve those strategies. Of course, this is easier said than done. If it were simple, most organizations would already have effective performance measurement systems in place, but they do not. Application Case 4.8, which describes the Web-based KPI scorecard system at Expedia.com, offers insights into the difficulties of defining both outcome and driver KPIs and the importance of aligning departmental KPIs to overall company objectives.

5 208 Part II Descriptive Analytics Application case 4.8 Expedia.com s Customer Satisfaction Scorecard Expedia, Inc., is the parent company to some of the world s leading travel companies, providing travel products and services to leisure and corporate travelers in the United States and around the world. It owns and operates a diversified portfolio of well-recognized brands, including Expedia.com, Hotels.com, Hotwire.com, TripAdvisor, Egencia, Classic Vacations, and a range of other domestic and international businesses. The company s travel offerings consist of airline flights, hotel stays, car rentals, destination services, cruises, and package travel provided by various airlines, lodging properties, car rental companies, destination service providers, cruise lines, and other travel product and service companies on a stand-alone and package basis. It also facilitates the booking of hotel rooms, airline seats, car rentals, and destination services from its travel suppliers. It acts as an agent in the transaction, passing reservations booked by its travelers to the relevant airline, hotel, car rental company, or cruise line. Together, these popular brands and innovative businesses make Expedia the largest online travel agency in the world, the third largest travel company in the United States, and the fourth largest travel company in the world. Its mission is to become the largest and most profitable seller of travel in the world, by helping everyone everywhere plan and purchase everything in travel. Problem Customer satisfaction is key to Expedia s overall mission, strategy, and success. Because Expedia.com is an online business, the customer s shopping experience is critical to Expedia s revenues. The online shopping experience can make or break an online business. It is also important that the customer s shopping experience is mirrored by a good trip experience. Because the customer experience is critical, all customer issues need to be tracked, monitored, and resolved as quickly as possible. Unfortunately, a few years back, Expedia lacked visibility into the voice of the customer. It had no uniform way of measuring satisfaction, of analyzing the drivers of satisfaction, or of determining the impact of satisfaction on the company s profitability or overall business objectives. Solution Expedia s problem was not lack of data. The customer satisfaction group at Expedia knew that it had lots of data. In all, there were 20 disparate databases with 20 different owners. Originally, the group charged one of its business analysts with the task of pulling together and aggregating the data from these various sources into a number of key measures for satisfaction. The business analyst spent 2 to 3 weeks every month pulling and aggregating the data, leaving virtually no time for analysis. Eventually, the group realized that it wasn t enough to aggregate the data. The data needed to be viewed in the context of strategic goals, and individuals had to take ownership of the results. To tackle the problem, the group decided it needed a refined vision. It began with a detailed analysis of the fundamental drivers of the department s performance and the link between this performance and Expedia s overall goals. Next, the group converted these drivers and links into a scorecard. This process involved three steps: 1. Deciding how to measure satisfaction. This required the group to determine which measures in the 20 databases would be useful for demonstrating a customer s level of satisfaction. This became the basis for the scorecards and KPIs. 2. Setting the right performance targets. This required the group to determine whether KPI targets had short-term or long-term payoffs. Just because a customer was satisfied with his or her online experience did not mean that the customer was satisfied with the vendor providing the travel service. 3. Putting data into context. The group had to tie the data to ongoing customer satisfaction projects. The various real-time data sources are fed into a main database (called the Decision Support

6 Chapter 4 Business Reporting, Visual Analytics, and Business Performance Management 209 Factory). In the case of the customer satisfaction group, these include customer surveys, CRM systems, interactive voice response systems, and other customer-service systems. The data in the DSS Factory are loaded on a daily basis into several data marts and multidimensional cubes. Users can access the data in a variety of ways that are relevant to their particular business needs. Benefits Ultimately, the customer satisfaction group came up with 10 to 12 objectives that linked directly to Expedia s corporate initiatives. These objectives were, in turn, linked to more than 200 KPIs within the customer satisfaction group. KPI owners can build, manage, and consume their own scorecards, and managers and executives have a transparent view of how well actions are aligning with the strategy. The scorecard also provides the customer satisfaction group with the ability to drill down into the data underlying any of the trends or patterns observed. In the past, all of this would have taken weeks or months to do, if it was done at all. With the scorecard, the Customer Service group can immediately see how well it is doing with respect to the KPIs, which, in turn, are reflected in the group s objectives and the company s objectives. As an added benefit, the data in the system support not only the customer satisfaction group, but also other business units in the company. For example, a frontline manager can analyze airline expenditures on a market-by-market basis to evaluate negotiated contract performance or determine the savings potential for consolidating spending with a single carrier. A travel manager can leverage the business intelligence to discover areas with high volumes of unused tickets or offline bookings and devise strategies to adjust behavior and increase overall savings. QUESTIONS FOR DISCUSSION 1. Who are the customers for Expedia.com? Why is customer satisfaction a very important part of their business? 2. How did Expedia.com improve customer satisfaction with scorecards? 3. What were the challenges, the proposed solution, and the obtained results? Sources: Based on Microsoft, Expedia: Scorecard Solution Helps Online Travel Company Measure the Road to Greatness, download.microsoft.com/documents/customer evidence/22483_expedia_case_study.doc (accessed January 2013); and R. Smith, Expedia-5 Team Blog: Technology, April 5, 2007, expedia-team5.blogspot.com (accessed September 2010). SECTION 4.10 REVIEW QuESTIONS 1. What is Six Sigma? How is it used as a performance measurement system? 2. What is DMAIC? List and briefly describe the steps involved in DMAIC. 3. Compare BSC and Six Sigma as two competing performance measurement systems. 4. What are the ingredients for an effective performance management system? chapter highlights A report is any communication artifact prepared with the specific intention of conveying information in a presentable form. A business report is a written document that contains information regarding business matters. The key to any successful business report is clarity, brevity, completeness, and correctness. Data visualization is the use of visual representations to explore, make sense of, and communicate data. Perhaps the most notable information graphic of the past was developed by Charles J. Minard, who graphically portrayed the losses suffered by Napoleon s army in the Russian campaign of Basic chart types include line, bar, and pie chart. Specialized charts are often derived from the basic charts as exceptional cases. Data visualization techniques and tools make the users of business analytics and business intelligence systems better information consumers.

7 210 Part II Descriptive Analytics Visual analytics is the combination of visualization and predictive analytics. Increasing demand for visual analytics coupled with fast-growing data volumes led to exponential growth in highly efficient visualization systems investment. Dashboards provide visual displays of important information that is consolidated and arranged on a single screen so that information can be digested at a single glance and easily drilled in and further explored. BPM refers to the processes, methodologies, metrics, and technologies used by enterprises to measure, monitor, and manage business performance. BPM is an outgrowth of BI, and it incorporates many of its technologies, applications, and techniques. The primary difference between BI and BPM is that BPM is always strategy driven. BPM encompasses a closed-loop set of processes that link strategy to execution in order to optimize business performance. The key processes in BPM are strategize, plan, monitor, act, and adjust. Strategy answers the question Where do we want to go in the future? Decades of research highlight the gap between strategy and execution. The gap between strategy and execution is found in the broad areas of communication, alignment, focus, and resources. Operational and tactical plans address the question How do we get to the future? An organization s strategic objectives and key metrics should serve as top-down drivers for the allocation of the organization s tangible and intangible assets. Monitoring addresses the question of How are we doing? The overall impact of the planning and reporting practices of the average company is that management has little time to review results from a strategic perspective, decide what should be done differently, and act on the revised plans. The drawbacks of using financial data as the core of a performance measurement system are well known. Performance measures need to be derived from the corporate and business unit strategies and from an analysis of the key business processes required to achieve those strategies. Probably the best-known and most widely used performance management system is the BSC. Central to the BSC methodology is a holistic vision of a measurement system tied to the strategic direction of the organization. As a measurement methodology, BSC is designed to overcome the limitations of systems that are financially focused. As a strategic management methodology, BSC enables an organization to align its actions with its overall strategies. In BSC, strategy maps provide a way to formally represent an organization s strategic objectives and the causal connections among them. Most companies use Six Sigma as a process improvement methodology that enables them to scrutinize their processes, pinpoint problems, and apply remedies. Six Sigma is a performance management methodology aimed at reducing the number of defects in a business process to as close to zero DPMO as possible. Six Sigma uses DMAIC, a closed-loop business improvement model that involves the steps of defining, measuring, analyzing, improving, and controlling a process. Substantial performance benefits can be gained by integrating BSC and Six Sigma. The major BPM applications include strategy management; budgeting, planning, and forecasting; financial consolidation; profitability analysis and optimization; and financial, statutory, and management reporting. Over the past 3 to 4 years, the biggest change in the BPM market has been the consolidation of the BPM vendors. key terms business report balanced scorecard (BSC) business performance management (BPM) dashboards data visualization DMAIC high-performance key performance indicator (KPI) learning performance measurement systems report Six Sigma visual analytics