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Business Intelligence Systems

LEARNING OBJECTIVES
Understand the need for business intelligence systems. Know what business intelligence systems are available. Be aware of typical reporting applications. Be aware of typical data-mining techniques. Know the purpose of data warehouses and data marts. Be aware of typical knowledge-management applications. Understand how business intelligence applications are delivered.

CHAPTER OUTLINE
Why Do Organizations Need for Business Intelligence? What Business Intelligence Systems Are Available? o Business Intelligence Tools o Tools Versus Applications Versus Systems What Are Typical Reporting Systems? o Basic Reporting Operations o RFM Analysis o Online Analytical Processing What Are Typical Data-Mining Applications? o Unsupervised Data Mining o Supervised Data Mining o Market-Basket Analysis o Decision Trees What Is the Purpose of Data Warehouses and Data Marts? o Problems with Operational Data o Data Warehouses Versus Data Marts What Are Typical Knowledge-Management Applications? o Sharing Document Content

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o Expert Systems How Are Business Intelligence Applications Delivered? o What Are the Management Functions of a BI Server? o What Are the Delivery Functions of a BI Server?

USING YOUR KNOWLEDGE


1. Reflect on the differences between reporting systems and data-mining systems. What are their similarities and differences? How do their costs differ? What benefits does each offer? How would an organization choose between the two BI tools? Both reporting systems and data-mining systems are mechanisms for an organization to produce value from its stored data. The two types of systems do different things with that data. Reporting systems focus on compiling and organizing data into meaningful information through relatively simple processing. Data mining, on the other hand, applies complex statistical analyses to create insights that were previously unrecognized. Reporting systems are more straightforward than data-mining systems and therefore will probably cost less to develop. The benefits of reporting systems may be less as well. To choose between the two tools, the organization should determine its most pressing need. For example, if managers in the business are unable to get answers to their routine questions in an accurate, meaningful and timely way, then clearly there should be an emphasis on developing a reporting system. Once a reporting system is in place and providing value, then an organization should consider developing its data mining capability. 2. Suppose you are a member of the Audubon Society, and the board of the local chapter asks you to help them analyze its member data. The group wants to analyze the demographics of its membership against members activity, including events attended, classes attended, volunteer activities, and donations. Describe two different reporting applications and one data-mining application that they might develop. Be sure to include a specific description of the goals of each system. A variation of the RFM analysis could be performed that could provide rankings of the members based on how recently donations were made, how frequently donations were made, and donation amount. This analysis might suggest the best candidates to target for fundraising activities. An OLAP system would enable members to be easily viewed based on a number of measures and dimensions. This system would enable the board to understand their members by forming groups based on a number of characteristics. The data-mining technique of cluster analysis might be useful in finding groups of similar members based on demographic data and activity and donation records. 3. Suppose you are the director of student activities at your university. Recently, some students have charged that your department misallocates its resources. They claim the allocation is based on outdated student preferences. Funds are given to activities
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that few students find attractive, and insufficient funds are allocated to new activities in which students do want to participate. Describe how you could use reporting and/or data-mining systems to assess this claim.

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First, a reporting system could be used to provide the facts about how resources have been allocated in the past. The students who are complaining may perceive a problem but we need facts to verify their perception. We could also use the data-mining technique of decision trees to model the criteria that were used in the fund allocations. Once the criteria are made explicit, we would then determine if those criteria are still valid or need to be updated to create a more suitable allocation of funds. 4. Google RSS reader and download an RSS product. Set up feeds to your reader to the five most important business sources you know. Add feeds to your reader about technology and about one of your hobbies. Have at least 15 feeds, total. Run your RSS feeder for 3 days, and list the top five most interesting or informative items your reader made available that you would otherwise not have known about. Document your results by naming your reader, listing your sources, and describing the five most interested items. Student responses will vary.

COLLABORATION EXERCISES AND CASES


1. In this exercise, you will apply the knowledge of this chapter to the lost-customer problem at Carbon Creek Gardens. Begin by rereading the problem description in the Business Intelligence in Practice box on page 332. a. Mary wants to know when shes lost a customer. One way to help her would be to produce a report, say in PDF format, showing the top 50 customers from the prior year. Mary could print that report, or we could place it on a private section of her Web site so that she could download it from wherever she happens to be. Periodically,say, once a weekMary could request a report that shows the top buyers for that week. That report could also be in PDF format, or it could just be produced onscreen. Mary could compare the two reports to determine who is missing. If she wonders whether a customer such as Tootsie has been ordering, she could request a query report on Tootsies activities. Describe the advantages and disadvantages of this solution. The reporting solution is simple to implement. However, it is unsatisfactory because it requires Mary to search for missing customers by comparing data in two reports. After a long day at work, Mary is unlikely to want to do this, and she is likely to make mistakes when she does. The reporting solution relies too much on Mary having the time to analyze the reports. The reports contain the facts Mary needs, but she has to work pretty hard to gain the information she needs from the reports.

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b. Describe the best possible application of an OLAP tool at Carbon Creek. Can it be used to solve the lost-customer problem? Why or why not? What is the best way, if any, for Mary to use OLAP at The Gardens? If none, say why. OLAP could be used to provide more insight into the sales of products to Carbon Creeks customer groups. A measure might be total sales; dimensions of interest might be date of purchase, customer type, customer location, product type, and sales region. The OLAP analysis might reveal sales patterns with respect to customer group, product type, or location. OLAP reports are more summary in nature and will not provide detail on buying patterns for individual customers. c. Describe the best possible application of decision-tree analysis at Carbon Creek. Can it be used to solve the lost-customer problem? Why or why not? What is the best way, if any, for Mary to use decision-tree analysis at The Gardens? If none, say why. A decision tree is used to develop a hierarchy of criteria that will predict a classification, but does not provide a signal about any one customers buying patterns. d. Describe the best possible application of RFM analysis at Carbon Creek. Can it be used to solve the lost-customer problem? Why or why not? What is the best way, if any, for Mary to use RFM analysis at The Gardens? If none, say why. RFM analysis will solve the problem of Mary not identifying lost customers in a timely way. This analysis will classify her customers in terms of how recently and how frequently they have purchased, and in terms of the size of those purchases. Customers who have not purchased recently but who purchased frequently with high value orders (such as Tootsie Swan) will be identified so that Mary can follow up and attempt to gain back their business. Mary will need customer purchase records in order to perform the RFM analysis. e. Describe the best possible application of market-basket analysis at Carbon Creek. Can it be used to solve the lost-customer problem? Why or why not? What is the best way, if any, for Mary to use market-basket analysis at The Gardens? If none, say why. A market-basket analysis determines sales patterns, revealing the products that customers tend to buy together. This technique could help Carbon Creek salespeople up-sell the customersif youre buying X, then you really have to have Y. Market-basket analysis helps understand buying patterns, but again does not signal anything about a single customers purchases from the business.

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f. Which of the applications of BI tools in this exercise will provide Mary the best value? If you owned Carbon Creek Gardens and you were going to implement just one of these applications, which would you choose? Why? Mary will need to assess the value to her business of understanding her customers more thoroughly. If her customers buy in small amounts infrequently, there is probably no need to go to the expense of RFM analysis. If her business success primarily rests on a subset of regular, frequent, high value customers, then it will be critical for her to monitor their buying patterns using RFM analysis so that she can be aware of any changes in buying behavior that require her attention. 2. In this exercise, you will be asked to extend RFM analysis in creative and innovative ways. a. As a team, explain how RFM analysis works. Also explain how the RFMP analysis described in the Innovation in Practice box of page 351 works. RFM analysis sorts and groups customers based on how recently they purchased, how frequently they purchased, and how much money is spent. The RFM score shows where a customer stands in terms of how recently purchases have been made, how frequently purchases have been made, and the amount that was purchased. The RFMP analysis adds a fourth dimension to the sorting and grouping process by looking at the number of days that elapse between the issuing of an invoice and the receipt of a payment. b. As a team, evaluate the effectiveness of RFM analysis. What seems to be the chief strengths of this technique? Under what conditions would its results be misleading? Describe, in general terms when you would use this technique and when you would not. One of the chief strengths of RFM analysis is its simplicity. No specialized software is needed, and it is easy for business people to understand. The results of the technique may be misleading because it is descriptive only and does not really provide a basis for prediction. The technique assumes customers will behave in the future as they have in the past. If the technique is the only targeting method, it may lead to overmarketing to the most attractive RFM segments and neglect of other segments that would be profitable if developed properly. c. As a team, evaluate the effectiveness of RFMP analysis. What action should you take with a [1, 1, 1, 5] customer? What action should you take with a [3, 3, 3, 1] customer? What about a [5, 5, 5, 1] customer? Under what circumstances, if any, is RFMP preferred over RFM?

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A [1, 1, 1, 5] customer has ordered recently, orders frequently, and has high value orders, but is among the slowest payers. The sales staff will have to evaluate the credit terms offered this customer. Perhaps this customer will respond to some sort of incentive to encourage quicker payments. A [3, 3, 3, 1] customer is in the middle in terms of how recently he has ordered, how frequently he has ordered, and in terms of the size of the order. This customer does pay very quickly, and so might be a good target for the sales force to try and encourage larger and/or more frequent orders. A [5, 5, 5, 1] customer has not ordered for a long time, ordered infrequently, and ordered low value items. Even though the customer pays quickly, the other attributes suggest that it is not worth the effort for the sales force to pursue this customer. Adding the fourth dimension to the analysis is helpful when credit terms are an important part of the sales relationship. d. Devise a version of the RFM analysis to rank suppliers. What criteria would you use to rank them? Explain how you would use the supplier-ranking scores produced by your analysis. Student teams may come up with various systems. The criteria used will probably include things like price, quality of goods, responsiveness, and proportion of orders filled as promised. This type of system might be useful to a purchasing manager to catch significant changes in supplier performance and then take corrective action. e. Devise a version of the RFM analysis to rank salespeople. What criteria would you use to rank them? Explain how you would use the salesperson-ranking scores produced by your analysis. Student teams may come up with various systems. The criteria used will probably include things like size of orders, frequency of orders, proportion of new customer orders, or proportion of repeat customer orders. This type of system might be useful for a sales manager to catch significant changes in salesperson performance and so could take corrective action. f. Apply the RFM methodology for ranking of an entity other those already considered. Strive to create the most innovative and useful application of RFM methodology possible. Student team responses will vary. g. Describe what you think is the proper domain for RFM ranking systems. What kinds of problems or data are best suited for this type of analysis? What kinds are worst suited?

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RFM is suited for analyzing customer behavior and defining market segments, especially in retail settings. It has also been applied to consumer behavior of viewership / readership / surfing-oriented business products.

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APPLICATION EXERCISE
1 . OLAP cubes are very similar to Microsoft Excel pivot tables. For this exercise, assume that in your organization purchasing agents rate vendors similar to the situation in Application Exercise 2 in Chapter 8 on page 325. a. Open Excel and import the data in the worksheet named Vendors from the Excel file Ch09Ex01, which you can find on the texts Web site. The spreadsheet will have the following column headings: VendorName, EmployeeName, Date, Year, and Rating.

b. Under the Insert ribbon in Excel, click Pivot Table. A wizard will open. Select Excel and Pivot table in the first screen. Click Next. c. When asked to provide a data range, drag your mouse over the data you imported so as to select all of the data. Be sure to include the column headings. Excel will fill in the range values in the open dialog box. Place your pivot table in a separate worksheet. d. Excel will create a field list on the right-hand side of your spreadsheet. Drag and drop the field named VendorName on the words Drop Row Fields Here. Drag
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and drop EmployeeName on the words Drop Column Fields Here. Now drag and drop the field named Rating on the words Drop Data Items Here. Voil! You have a pivot table.

e. To see how the table works, drag and drop more fields on the various sections of your pivot table. For example, drop Year on top of Employee. Then move Year below Employee. Now move Year below Vendor. All of this action is just like an OLAP cube, and in fact, OLAP cubes are readily displayed in Excel pivot tables. The major difference is that OLAP cubes are usually based on thousands or more rows of data. 2 . It is surprisingly easy to create a market-basket report using table data in Access. To do so, however, you will need to enter SQL expressions into the Access query builder. Here, you can just copy SQL statements to type them in. If you take a database class, you will learn how to code SQL statements like those you will use here. a. Create an Access database with a table named Order_Data having columns OrderNumber, ItemName, and Quantity, with data types Number (LongInteger), Text (50), and Number (LongInteger), respectively. Define the key as the composite (OrderNumber, ItemName).

b. Import the data from the Excel file Ch09Ex02 into the Order_Data table.

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c. Now, to perform the market basket analysis, you will need to enter several SQL statements into Access. To do so, click the queries tab and select Create query in Design view. Click Close when the Show Table dialog box appears. Right-click in the gray section above the grid in the Select Query window. Select SQL View. Enter the following expression exactly as it appears here: SELECT FROM WHERE AND T1.ItemName as T2.ItemName as Order_Data T1, T1.OrderNumber T1.ItemName <> FirstItem, SecondItem Order_Data T2 = T2.OrderNumber T2.ItemName;

Click the red exclamation point in the toolbar to run the query. Correct any typing mistakes and, once it works, save the query using the name TwoItemBasket.

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d. Now enter a second SQL statement. Again, click the queries tab and select Create Query in Design view. Click Close when the Show Table dialog box appears. Right-click in the gray section above the grid in the Select Query window. Select SQL View. Enter the following expression exactly as it appears here: SELECT FROM GROUP BY TwoItemBasket.FirstItem, TwoItemBasket.SecondItem, Count(*) AS SupportCount TwoItemBasket TwoItemBasket.FirstItem, TwoItemBasket.SecondItem

Correct any typing mistakes and, once it works, save the query using the name SupportCount.

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e. Examine the results of the second query and verify that the two query statements have correctly calculated the number of times that two items have appeared together. Explain further calculations you need to make to compute support. To compute support, we need to determine the number of times that two items are purchased together out of all the purchase transactions. This will produce the probability of those two items being purchased together. f. Explain the calculations you need to make to compute lift. Although you can make those calculations using SQL, you need more SQL knowledge to do it and we will skip that here. Lift is calculated by dividing the probability of Item A being purchased given that Item B is purchased (confidence) by the probability that Item A is purchased. Confidence is computed by dividing the number of times Items A and B were purchased together by the number of times Item A was purchased. g. Explain, in your own words, what the query in part c seems to be doing. What does the query in part d seem to be doing? Again, you will need to take a database class to learn how to code such expressions, but this exercise should give you a sense of the kinds of calculations that are possible with SQL. The query in part c is creating a table of records that consist of every pairing of items in an order. So, for example, order 100 in our data consisted of a cup and saucer, so that produces two records in the market basket: cup and saucer and saucer and cup. The second query adds a count column for each record in the market-basket table.

CASE STUDY 9
Knowledge Management at 3M 1. To gain an appreciation of the complexity of this company, visit its Web site at http://3m.com. Assume that you are a U. S. customer. Access the 3M site and locate the Material Safety Data Sheet (MSDS) for the product 62-1838-5430-6. What is this product? What is the purpose of the MSDS? 3M Scotch-Weld Epoxy Adhesive 1838. The MSDS is a document that lists all safety issues related to the product and its use. 2. Access a 3M site for any country other than the United States. Is the product in question 1 sold in the country you visited? If so, is there an MSDS for that product in that country?

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The product is available in Germany. 3. Access the U. S. 3M site for Manufacturing & Industry, Abrasives & Sandpaper. Visit the sections of the site for Product, Documentation,, and Where to Buy.. Summarize how 3M could use OLAP analysis. Specify measures, dimensions, and cubes. What information would 3M obtain from this analysis? What value does the dynamic aspect of an OLAP analysis add? A measure could be total sales; dimensions could be applications, products, states, cities, distributors. The OLAP could reveal sales trends that should be investigated, particularly regarding application groups, product groups, sales area or distributor. 4. Do you think the abrasives division could effectively use an RFM analysis? If so, specify how it could perform such an analysis. If not, explain why not. Given that the sales of these products are through distributors, 3M probably has sales people who make regular calls on the distributors. I dont believe RFM analysis would be suitable for this part of the business. 5. Do you think the abrasives division could effectively use a market-basket analysis? If so, what would it do with the information? If not, why not? Distributors purchase many products at a time in large quantities. I do not think a market-basket analysis would be too useful in analyzing sales patterns, given the nature of the customers for the abrasive products. 6. Suppose that you want to learn which 3M product is the best for gluing fiberglass to teak (wood). Teak is particularly oily and is difficult to glue. Access the 3M site and attempt to determine which 3M adhesive is best suited for this task. Describe your experience. At the 3M site, I followed links to Products, Transportation Industry, Marine Products, Product Catalog, Adhesives and Sealants. Two products were listed that mentioned bonding wood and fiberglass: 3M Marine Adhesive/Sealant Fast Cure 4200 and 3M OEM Adhesive/Sealant. It was difficult to tell if these were the only products that would work or if these were the best products because the product descriptions were very brief. 7. Repeat question 6, but use Google instead. Describe your experience. Using Google, I googled bonding fiberglass to teak and found a link to www.industrialgeneralstore.com that listed a 3M product that specifically mentioned wood to fiberglass bonds: 3M Marine Adhesive Sealant 5200. 8. Somewhere in 3M there is a person who knows, off the top of his or her head, what product(s) to use to glue teak to fiberglass. Is there any way to find out who that

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person is? Does 3M know who that person is? What type of BI system might 3M set up to help customers find such experts? The 3M site is not organized to provide problem-solving information, so that type of information is not obtainable over the Web. Perhaps 3M has an expert directory, so that if you called the Marine Division, you could be directed to the right person to answer this question. 9. The 3M site is oriented around divisions and products. If you know the product you want, you can learn all about that product. But it is poorly organized with regards to problems and needs. 3M is a very successful company. Why do you think their site is constructed in this manner? 3M has not organized its Web site to convey purchase information direct to the consumer. It is organized to display its product lines and products. Purchases at the consumer level will probably be made in a retail setting where the consumer can get advice and guidance about product selection from the staff at the retail store.

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