Ebook Information systems today - Managing in the digital world: Part 2

CHAPTER After reading this chapter, you will be able to do the following: Describe the concept of business intelligence and how databases serve as a foundation for gaining business intelligence. Explain the three compo-nents of business intelli-gence: information and knowledge discovery, business analytics, and information visualization. Enhancing Business Intelligence Using Information Systems Preview Today, organizations operate in a global, highly competitive, and rapidly changing en- vironment. A key to effective management is high-quality and timely information to support decision making. This high-quality and timely information, or business intelli- gence, can be provided from a variety of information systems (IS). In this chapter, we first describe business intelligence, followed by a description of databases and data warehouses, two fundamental components for gaining business intelligence. Then we describe the primary IS components utilized by organizations to gain business intelli- gence. In Chapter 2, “Gaining Competitive Advantage Through Information Systems,” you learned about general types of information systems supporting organizations’ different decision-making levels and business functions that execute various business processes in order to realize the strategic goals of the organization. Here, we intro- duce different technologies utilized at various decision-making levels of modern organizations to gain business intelligence. 234 Managing in the Digital World: Providing Business Intelligence to eBay Customers You are probably very familiar with the online auc-tion Web site eBay (see Figure 6.1). Founded in 1995, it is the global online marketplace where practically anyone can trade practically anything, from baseball cards to rare vinyl records to a private jet. Today, nearly 89 million people from 39 coun-tries have active eBay accounts, trading over $1,400 worth of goods, every second of every day. In 2008, total auction sales were over $60 billion, a considerable number, compared to the overall U.S. Internet retail sales of $135 billion in 2009. With this amount of transactions, tremendous data is being processed on a daily basis, including seller and buyer data, current auction listings, and final sales. For eBay as well as its sellers, this massive amount of data can be a virtual gold mine. When is the best time to list a new item? What are the best strategies to respond to sea-sonal changes in demand? How can you learn from past auctions to adjust your strategies for future auctions? Which items are selling well, and which aren’t worth listing? What is the best strategy for setting starting bids or reserve prices? These are questions that both private and commercial sellers are facing on a daily basis, hoping to improve the return on their auctions. How can sellers gain this insight and benefit from the tremendous amounts of historical data? eBay offers a variety of tools and reports that help sellers analyze their past auctions; similarly, third-party providers offer different tools that help sellers get the most out of the data. However, it is not just the sellers that can benefit from the data that is being collected from everyday transac-tions; eBay itself is crunching the numbers on a daily basis. With growing auction volumes, eBay has to finetune its systems to offer maximum performance and minimize delays or system failures, as any tech-nical problem will lead to customer dissatisfaction and lost revenues. Thus, it is critical for eBay to an-alyze bidding behavior over the life of an auction and how this behavior influences demand on its systems. In eBay’s early days, performing such com-plex analyses had taken days or weeks. However, in 2000, a large data warehouse was implemented that allowed eBay to quickly perform complex analyses on its data. With the help of this data warehouse and sophisticated business intelligence software, eBay has managed to become the online auction site of choice for buyers and sellers alike. Despite (or because of) its popularity and suc-cess, there are downsides to doing business on eBay, namely, account hijacking; counterfeit, doctored, or misrepresented merchandise; and payment fraud. Account hijacking, the biggest and most dangerous problem on eBay, refers to criminals taking over a legitimate eBay account with good feedback in or-der to buy merchandise with stolen credit cards or to sell expensive items that are never delivered to customers. FIGURE 6.1 eBay is the largest Internet auction site in the world. Given the need to maintain customer and seller confidence, eBay is exerting a lot of effort and spending a lot of resources to maintain and improve the integrity of the site through the development of sophisticated business intelligence tools. Unfortu-nately, as with all forms of Internet crime, eBay can-not offer absolute protection for its customers. For instance, in 2003, the Salt Lake City police arrested a 31-year-old man who was accused of per-petrating one of the biggest scams in eBay history. Hundreds of customers complained that they sent $1,000 to a company called Liquidation Universe for laptop computers they never received. Early in the 235 investigation, police determined that the suspect scammed over 1,000 eBay customers to the tune of $1 million in just a few weeks. eBay worked with the victims of the scam to help them get their money back, but the company does not reimburse customers for items not received. In other cases, crooks were offering counterfeited products—anything from collectables to software—on eBay. By the time a buyer finds out, the seller’s account is often closed. In fact, in 2005, over 16,000 entries offering pirated products were closed by the Business Software Alliance. In 2009, a phishing attack aimed at getting eBay users’ financial data was launched. Users received a legitimate looking e-mail informing them that “inactive customers” would have their PayPal accounts (a popular form of payment on eBay) deleted if they did not confirm their personal data, including credit card number, expiration date, and PIN number. It is not known exactly how many people fell victim to the socially engineered attack. Likewise, in 2010, a 46-year-old man was found guilty of perpetrating the “single largest counterfeit-ing conspiracy yet uncovered on eBay.” The global operationcenteredonsellingmillionsofdollars’worth of counterfeit golfing equipment and clothing. The bogusproductsweremanufacturedinChinaandthen circulated for sale on eBay by conspirators in more than six countries. eBay is dealing with other types of auction fraud, such as shill bidding, where sellers use multiple ac-counts to bid on their own items, thus driving up the highest bid. Although such behavior occurs in only a small percentage of all auctions, buyers are losing large amounts of money because of the high number of these transactions. For eBay, determining patterns of fraudulent behavior is in its own best interest, as such behavior ultimately drives away both buyers and legitimate sellers. Again, mining its massive data warehouse can help to find such patterns, helping eBay to detect fraudsters and close accounts that are engaging in these behaviors. Needless to say, these examples represent only a small fraction of the criminal activities on eBay. Other problem areas include handling of stolen goods and obtaining property through deception. It should be clear that, because of eBay’s success, criminals who prowltheInternetwillcontinuetomakeitoneoftheir biggesttargets.Thebesthopeforhonestusersisthat technology designed to thwart scam artists can keep up and provide both buyers and sellers with needed intelligence to make good decisions. In response to theillegalactivities,eBayhascreatedaresearchgroup dedicatedtotrustandsafety;thisresearchgroupisac-tivelyinvolvedindevelopingdataminingsystemsthat learn from historical data so as to be able to prevent and catch fraudulent transactions on eBay. After reading this chapter, you will be able to answer the following: 1. How can eBay utilize its transactional data to help both buyers and sellers? 2. Given the speed and volume of transactions on eBay, what business analytics and visualization tools could be used to better track and reduce fraudulent transactions? 3. How could legitimate buyers and sellers help eBay improve its tools for fighting fraud? Based on: Anonymous. (n.d.). Analyzing your eBay data. Allbusiness .com. Retrieved July 9, 2010, from http://www.allbusiness .com/sales/internet-ebay/3236-1.html. Anonymous. (2006, December 5). Online auction fraud: Data mining software fingers both perpetrators and accomplices. Science Daily. Retrieved July 9, 2010, from http://www .sciencedaily.com/releases/2006/12/061205143326.htm. Colet, E. (n.d.). Using data mining to detect fraud in auctions. DSStar. Retrieved July 9, 2010, from http://www .taborcommunications.com/dsstar/00/0627/101834.html. Deatsch, K. (2009, February 2). E-commerce sales grew 6% in 2008 despite holiday season drop, comScore says. InternetRetailer. Retrieved July 9, 2010, from http://www .internetretailer.com/dailyNews.asp?id29288. Fresco, A. (2010, March 5). eBay golf club conman Gary Bellchambers jailed for four years. Times Online. Retrieved July 9, 2010, from http://www.timesonline.co.uk/tol/news/uk/crime/ article7049845.ece. Shah, H., N. Joshi, and P. Wurman (2002, May 24). Mining for bidding strategies on eBay. Retrieved July 9, 2010, from http:// www4.ncsu.edu/~wurman/Papers/Shah-WebKDD.pdf. Skinner, C. (2009, November 2). eBay phishing scam scariest email blunder of 2009. Networkworld. Retrieved July 8, 2010, from http://www.networkworld.com/news/2009/110209-ebay -phishing-scam-scariest-email.html. Sullivan, B. (2003, June 12). Man arrested in huge eBay fraud. MSNBC. Retrieved July 9, 2010, from http://msnbc.msn.com/ id/3078461. Business Intelligence In Chapter 2, you learned about the importance of business planning for gaining and sustaining com-petitive advantage. To stay ahead of the competition, organizations have turned to business intelli-gence,or the use of information systems to gather and analyze information from internal and external sources in order to make better business decisions. To improve organizational performance, business 236 CHAPTER 6 • ENHANCING BUSINESS INTELLIGENCE USING INFORMATION SYSTEMS 237 executives are seeking answers to questions such as “How effective is this year’s promotion as com-pared to last year’s?” “Which customer segments should we focus on?” “Which customers are most likely to switch to a competitor if we raise prices by X percent?” or, even more important, “Do we care if those customers switch?” (Tapscott, 2008). Business intelligence also refers to the informa-tion gained from the use of such systems. Next, the need for business intelligence is examined. Why Organizations Need Business Intelligence Although a company’s overall direction is decided on at the strategic level, business processes span all organizational levels and are highly interconnected. Recall from Chapter 2 that business processes refer to the activities that organizations perform in order to reach their business goals. Unfortunately, the business processes outlined within strategic plans are often not implemented as envisioned at the managerial and operational levels of the organization because the information needed to effectively monitor and control these processes is simply not available. This “missing” information, in fact, exists but often resides in disconnected spreadsheets, reports, or databases. A recent study surveying 154 senior executives from companies all around the world found that for almost 80 percent of the respondents, data is the single most important input when making strate-gic and operational decisions, and 56 percent of the respondents fear making poor decisions due to inaccurate, incomplete, or faulty data; while data quality was clearly the most important criterion, only about 10 percent indicated that they would have the necessary data when needed (Economist Intelligence Unit, 2007). Similarly, Gartner research predicted that “through 2012, more than 35 percent of the top 5,000 global companies will regularly fail to make insightful decisions about significant changes in their business and markets” (Pettey and Stevens, 2009). Consequently, to re-alize the goals of their strategic plans, organizations must have up-to-date, accurate, and integrated information to monitor and fine-tune a broad range of business processes. To make this possible, in-formation systems that provide business intelligence—by collecting, analyzing, and delivering needed information to the right decision maker and at the right time—facilitate the effective man-agement of modern organizations. Additionally, business intelligence allows organizations to better respond to ongoing threats and opportunities as well as to better plan for the future. Responding to Threats and Opportunities External factors such as globalization, compet-itive pressures, consumer demands, and governmental regulations can create opportunities as well as threats for modern organizations. For example, increasing globalization provides oppor-tunities to compete in new markets, but it also creates the challenge of gaining new types of in-formation in order to effectively manage these opportunities. Globalization can also lead to the threat of increased competition from developing countries, forcing organizations to rethink strate-gies or to further improve business processes. Thus, as the world becomes increasingly flatter, market opportunities will expand, but, at the same time, markets will also become increasingly more competitive. Further, large corporate and banking failures have brought about increased reg-ulations (such as the Sarbanes-Oxley Act; see Chapter 10, “Securing Information Systems”), and organizations have to comply with ever-increasing government reporting requirements. This means that today’s business environment is characterized by factors such as unstable market con-ditions, fierce competition, shorter product life cycles, more stringent regulations, and wider choices for customers than ever before. Business intelligence can help organizations make better decisions in this increasingly complex, fast-changing, and competitive environment by more effectively collecting and analyzing both internal and external data (see Figure 6.2). With increasing pressure to reduce costs, organizations have to focus on investing in systems that provide the greatest returns. Business intelligence solutions can provide quick returns, as they help to quickly react to problems by providing the right information at the right time. Further, business intelligence helps to leverage existing systems (such as enterprise-wide information systems; see Chapter 7) by enabling decision makers to extract and analyze data provided by those systems. Finally, quick returns can be provided by helping organizations to focus on customer satisfaction, helping to retain the most profitable customers. Effective Planning Is Continuous In the past, organizations lacked the necessary information and tools to continuously plan for their future. Typically, organizations would first develop a strate-gic plan for some planning cycle (say, a year); then, once a strategic plan was agreed on, managers of various business units would prepare budgets for executing their portion of the plan. These budgets were often “backward looking” because they were typically based on historical data rather 238 CHAPTER 6 • ENHANCING BUSINESS INTELLIGENCE USING INFORMATION SYSTEMS FIGURE 6.2 External Factors Business intelligence helps organi-zations swiftly respond to external threats and opportunities. Opportunities Threats Business Intelligence than being based on a clear understanding of current conditions and forecasts of future trends. Over time, managers would then execute their portion of the plan. For many organizations, this method of planning and managing was adequate given the relatively slow pace of change. Today, however, given the need to swiftly respond to a highly competitive and rapidly changing environment, organizations must implement new ways of planning. In fact, successful organizations are utilizing a continuous planning process (see Figure 6.3). In a continuous planning process, organizations continuously monitor and analyze business processes; the results lead to ongoing adjustments to how the organization is managed, but these results are also reflected in ongoing updates to the organizational plans. It is only through timely and accurate business intelligence that continuous planning can be executed. Responding to threats and opportunities and continuous planning is based on analyzing data from the operational level of the organization. In the next section, we describe how databases can be used to provide the necessary inputs to business intelligence applications. FIGURE 6.3 Effective business planning is continuous. Real-Time Management Manage Continuous Analyze Planning Process Update & Adjust Plans Plan Compare Actual Performance Against Goals Monitor Track & Monitor Business Processes ... - tailieumienphi.vn