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Enterprise resource Enterprise resource planning planning

andandRelated TechnologiesRelated Technologies

Semester 5Semester 5thth

BSc (IT)BSc (IT)

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ERP is an abbreviation for Enterprise resource ERP is an abbreviation for Enterprise resource planning and means the techniques and concepts for planning and means the techniques and concepts for the integrated management of business as a whole, the integrated management of business as a whole, from the viewpoint of the effective use of from the viewpoint of the effective use of management resources, to improve the efficiency of management resources, to improve the efficiency of an enterprise.an enterprise.

ERP systems serve an important function by ERP systems serve an important function by integrating separate business functions-materials integrating separate business functions-materials management, product planning, sales, distribution, management, product planning, sales, distribution, finance and accounting and others-into a single finance and accounting and others-into a single application. application.

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However, ERP systems have three significant limitations:However, ERP systems have three significant limitations: 1. Managers cannot generate custom reports or queries 1. Managers cannot generate custom reports or queries

without help from a programmer and this inhibits them from without help from a programmer and this inhibits them from obtaining information quickly, which is essential for obtaining information quickly, which is essential for maintaining a competitive advantage.maintaining a competitive advantage.

2. ERP systems provide current status only, such as open 2. ERP systems provide current status only, such as open orders. Managers often need to look past the current status orders. Managers often need to look past the current status to find trends and patterns that aid better decision-making.to find trends and patterns that aid better decision-making.

3. the data in the ERP application is not integrated with 3. the data in the ERP application is not integrated with other enterprise or division systems and does not include other enterprise or division systems and does not include external intelligence.external intelligence.

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There are many technologies that help to overcome these There are many technologies that help to overcome these limitations. These technologies, when used in conjunction limitations. These technologies, when used in conjunction with the ERP package, help in overcoming the limitations of with the ERP package, help in overcoming the limitations of a standalone ERP system and thus, help the employees to a standalone ERP system and thus, help the employees to make better decisions. Some of these technologies are:make better decisions. Some of these technologies are:

Business Process Reengineering (BPR)Business Process Reengineering (BPR) Management Information System (MIS)Management Information System (MIS) Decision Support Systems ( DSS)Decision Support Systems ( DSS) Executive Information Systems (EIS)Executive Information Systems (EIS) Data warehousingData warehousing Data MiningData Mining On-line Analytical Processing (OLAP)On-line Analytical Processing (OLAP) Supply Chain ManagementSupply Chain Management

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Business Process Reengineering (BPR)Business Process Reengineering (BPR)

Business processes are:Business processes are: simply a set of activities simply a set of activities that transform a set of inputs into a set of outputs that transform a set of inputs into a set of outputs (goods or services) for another person or process (goods or services) for another person or process using people and tools. We all do them, and at one using people and tools. We all do them, and at one time or another play the role of customer or time or another play the role of customer or supplier. supplier.

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So why business process improvement? So why business process improvement? Improving business processes is paramount for Improving business processes is paramount for

businesses to stay competitive in today's businesses to stay competitive in today's marketplace. Over the last 10 to 15 years companies marketplace. Over the last 10 to 15 years companies have been forced to improve their business have been forced to improve their business processes because we, as customers, are demanding processes because we, as customers, are demanding better and better products and services. better and better products and services.

And if we do not receive what we want from one And if we do not receive what we want from one supplier, we have many others to choose from supplier, we have many others to choose from (hence the competitive issue for businesses). Many (hence the competitive issue for businesses). Many companies began business process improvement companies began business process improvement with a continuous improvement model. This model with a continuous improvement model. This model attempts to understand and measure the current attempts to understand and measure the current process, and make performance improvements process, and make performance improvements accordingly. accordingly.

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Definition of BPR. Definition of BPR. Corporate ReengineeringCorporate Reengineering The most common definition used in the private sector The most common definition used in the private sector

comes from the book entitled, Reengineering the comes from the book entitled, Reengineering the Corporation, a Manifesto for Business Revolution, by MIT Corporation, a Manifesto for Business Revolution, by MIT professors Michael Hammer and James Champy. Hammer professors Michael Hammer and James Champy. Hammer and Champy defined business process reengineering as:and Champy defined business process reengineering as:

The fundamental rethinking and radical redesign of business The fundamental rethinking and radical redesign of business processes to bring about dramatic improvements in critical, processes to bring about dramatic improvements in critical, contemporary measures of performance, such as cost, contemporary measures of performance, such as cost, quality, service, and speed. (Reengineering the Corporation, quality, service, and speed. (Reengineering the Corporation, Hammer and Champy, 1993) Hammer and Champy, 1993)

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The major emphasis of this approach is the fact that The major emphasis of this approach is the fact that an organization can realize dramatic improvements an organization can realize dramatic improvements in performance through radical redesign of its in performance through radical redesign of its processes. This is in contrast to the notion of processes. This is in contrast to the notion of streamlining processes in order to achieve a streamlining processes in order to achieve a measured level of performance. measured level of performance.

Another aspect to the Hammer/Champy definition is Another aspect to the Hammer/Champy definition is the notion of breakthroughs. This approach to the notion of breakthroughs. This approach to reengineering assumes the existing process is not reengineering assumes the existing process is not sound and therefore needs to be replaced. A sound and therefore needs to be replaced. A properly reengineered process will provide quantum properly reengineered process will provide quantum leaps in performance, achieving breakthroughs in leaps in performance, achieving breakthroughs in providing value to the customer. providing value to the customer.

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Even though these definitions focus on different Even though these definitions focus on different strategies of implementing change, the common strategies of implementing change, the common element is that the change occurs across the whole element is that the change occurs across the whole process.process.

THE BUSINESS PROCESS REENGINEERING THE BUSINESS PROCESS REENGINEERING (BPR) VISION (BPR) VISION

Business Process Reengineering (BPR) is based on a Business Process Reengineering (BPR) is based on a vision of the future that is increasingly shared by vision of the future that is increasingly shared by enterprises around the world. It is evolving into the enterprises around the world. It is evolving into the sum total of everything we've learned about sum total of everything we've learned about management in the industrial age recast into an management in the industrial age recast into an information age framework.information age framework.

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The impact of BPR on organizational The impact of BPR on organizational performanceperformance

The two cornerstones of any organization are the The two cornerstones of any organization are the people and the processes. If individuals are people and the processes. If individuals are motivated and working hard, yet the business motivated and working hard, yet the business processes are cumbersome and non-essential processes are cumbersome and non-essential activities remain, organizational performance will activities remain, organizational performance will be poor. Business Process Reengineering is the key be poor. Business Process Reengineering is the key to transforming how people work. What appear to to transforming how people work. What appear to be minor changes in processes can have dramatic be minor changes in processes can have dramatic effects on cash flow, service delivery and customer effects on cash flow, service delivery and customer satisfaction. Even the act of documenting business satisfaction. Even the act of documenting business processes alone will typically improve processes alone will typically improve organizational efficiency by 10%.organizational efficiency by 10%.

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Management Information System (MIS)Management Information System (MIS)

Management Information Systems (MIS), are Management Information Systems (MIS), are information systems, typically computer based, that information systems, typically computer based, that are used within an organization. WordNet described are used within an organization. WordNet described an information system as "a system consisting of the an information system as "a system consisting of the network of all communication channels used within network of all communication channels used within an organization".an organization".

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As an area of study it is commonly referred to as As an area of study it is commonly referred to as information technology management. information technology management.

The study of information systems is usually a The study of information systems is usually a commerce and business administration discipline, commerce and business administration discipline, and frequently involves software engineering, but and frequently involves software engineering, but also distinguishes itself by concentrating on the also distinguishes itself by concentrating on the integration of computer systems with the aims of the integration of computer systems with the aims of the organization.organization.

The area of study should not be confused with The area of study should not be confused with Computer Science which is more theoretical and Computer Science which is more theoretical and mathematical in nature or with Computer mathematical in nature or with Computer Engineering which is more engineering.Engineering which is more engineering.

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In business, information systems support business In business, information systems support business processes and operations, support decision making, processes and operations, support decision making, and support competitive strategies.and support competitive strategies.

2. MIS: How does the company "mine" its 2. MIS: How does the company "mine" its relational database systems for information and relational database systems for information and trends to be used in the management of the trends to be used in the management of the business?business?

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The major differences between a management The major differences between a management information system and a Data Processing system are:information system and a Data Processing system are:

1. The integrated database of the MIS enables greater 1. The integrated database of the MIS enables greater flexibility in meeting the information needs of the flexibility in meeting the information needs of the management.management.

2. The MIS integrates the information flow between 2. The MIS integrates the information flow between functional areas (accounting, marketing, manufacturing, functional areas (accounting, marketing, manufacturing, etc.) whereas data processing systems tend to support a etc.) whereas data processing systems tend to support a single functional area.single functional area.

3. MIS caters to the information needs of all levels of 3. MIS caters to the information needs of all levels of management whereas data processing systems focus on management whereas data processing systems focus on departmental-level support.departmental-level support.

4. Management’s information needs are supported on a 4. Management’s information needs are supported on a more timely basis with the MIS (with its on-line query more timely basis with the MIS (with its on-line query capability) than with a data processing system.capability) than with a data processing system.

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The main characteristics of the management The main characteristics of the management information system are:information system are:

1. The MIS supports the data processing functions 1. The MIS supports the data processing functions of transaction handling and record keeping.of transaction handling and record keeping.

2. MIS uses an integrated database and supports a 2. MIS uses an integrated database and supports a variety of functional areas.variety of functional areas.

3. MIS provides operational, tactical and strategic 3. MIS provides operational, tactical and strategic levels of the organization with timely, but for the levels of the organization with timely, but for the most part structured information (ad-hoc query most part structured information (ad-hoc query facility is not available0.facility is not available0.

4. MIS is flexible and can be adapted to the 4. MIS is flexible and can be adapted to the changing needs of the organization.changing needs of the organization.

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Decision Support Systems ( DSS)Decision Support Systems ( DSS)

In the course of their decision activities managers work with In the course of their decision activities managers work with many pieces of knowledge. Some of this knowledge is many pieces of knowledge. Some of this knowledge is descriptive, characterizing the state of past, present, future, descriptive, characterizing the state of past, present, future, or hypothetical worlds.or hypothetical worlds.

Such knowledge is commonly called information or data. Such knowledge is commonly called information or data. Other pieces of knowledge are procedural in nature, Other pieces of knowledge are procedural in nature, specifying how to accomplish various tasks.specifying how to accomplish various tasks.

In addition to "know what" (information) and "know how" In addition to "know what" (information) and "know how" (procedures), a manager may work with reasoning (procedures), a manager may work with reasoning knowledge on the way toward reaching a decision. knowledge on the way toward reaching a decision.

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This third kind of knowledge indicates that certain This third kind of knowledge indicates that certain conclusions are valid under particular conclusions are valid under particular circumstances. circumstances.

Two other kinds of knowledge are very much Two other kinds of knowledge are very much concerned with communication. One is linguistic concerned with communication. One is linguistic knowledge which enables a manager to understand knowledge which enables a manager to understand incoming messages. incoming messages.

Conversely, a manager works with presentation Conversely, a manager works with presentation knowledge when constructing outgoing messages.knowledge when constructing outgoing messages.

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Managers are first and foremost knowledge workers Managers are first and foremost knowledge workers who are involved in the making of decisions.who are involved in the making of decisions.

Sometimes, a manager makes decisions Sometimes, a manager makes decisions individually. In other cases, decision-making may individually. In other cases, decision-making may be distributed, involving the combined and be distributed, involving the combined and coordinated efforts of many knowledge workers. coordinated efforts of many knowledge workers.

Both individual and distributed decision making are Both individual and distributed decision making are susceptible to support by systems that facilitate, susceptible to support by systems that facilitate, expand, or enhance a manager's ability to work with expand, or enhance a manager's ability to work with one or more kinds of knowledge. Such knowledge-one or more kinds of knowledge. Such knowledge-based systems are called decision support systems based systems are called decision support systems (DSSs). (DSSs).

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Decision support systems; emphasize a knowledge-Decision support systems; emphasize a knowledge-management perspective. With the relentless management perspective. With the relentless advances in the technology and economics of advances in the technology and economics of computers, we are rapidly reaching the point where computers, we are rapidly reaching the point where a manager's success depends on his or her a manager's success depends on his or her understanding of DSS possibilities and skill in DSS understanding of DSS possibilities and skill in DSS application. application.

Many DSSs are oriented toward individual decision Many DSSs are oriented toward individual decision support. There is growing interest in DSSs that support. There is growing interest in DSSs that directly support distributed decision making at the directly support distributed decision making at the group, organization, and inter-organization levels. group, organization, and inter-organization levels.

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Decision support systems also differ with respect to Decision support systems also differ with respect to the kinds of knowledge they help manage. the kinds of knowledge they help manage.

The majority of conventional DSSs have been The majority of conventional DSSs have been devised to help manage primarily descriptive and devised to help manage primarily descriptive and procedural knowledge. In contrast, there is a class of procedural knowledge. In contrast, there is a class of artificially intelligent DSSs concerned mainly with artificially intelligent DSSs concerned mainly with the representation and processing of reasoning the representation and processing of reasoning knowledge. knowledge.

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The main characteristics of DSS are:The main characteristics of DSS are: 1. A DSS is designed to address semi-structured and 1. A DSS is designed to address semi-structured and

unstructured problems.unstructured problems. 2. The DSS mainly supports decision-making at the 2. The DSS mainly supports decision-making at the

top management level.top management level. 3. DSS is interactive, user-friendly can be used by 3. DSS is interactive, user-friendly can be used by

the decision-maker with little or no assistance from the decision-maker with little or no assistance from a computer professional.a computer professional.

4. DSS makes general-purpose models, simulation 4. DSS makes general-purpose models, simulation capabilities and other analytical tools available to capabilities and other analytical tools available to the decision-maker.the decision-maker.

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A DSS does not replace the MIS; instead a DSS A DSS does not replace the MIS; instead a DSS supplements the MIS. There are distinct differences supplements the MIS. There are distinct differences between them. MIS emphasizes on planned reports between them. MIS emphasizes on planned reports on a variety of subjects; DSS focuses on decision-on a variety of subjects; DSS focuses on decision-making. MIS is standard, scheduled, structured and making. MIS is standard, scheduled, structured and routine; DSS is quite unstructured and is available routine; DSS is quite unstructured and is available on request. MIS is constrained by the organizational on request. MIS is constrained by the organizational system; DSS is immediate and user-friendly.system; DSS is immediate and user-friendly.

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Executive Information Systems (EIS)Executive Information Systems (EIS)

Definitions for Executive Information SystemsDefinitions for Executive Information Systems A computerized system intended to provide current A computerized system intended to provide current

and appropriate information to support executive decision and appropriate information to support executive decision making for managers using a networked workstation. making for managers using a networked workstation.

The emphasis is on graphical displays and an easy to use The emphasis is on graphical displays and an easy to use interface that present information from the corporate interface that present information from the corporate database. database.

They are tools to provide canned reports or briefing books They are tools to provide canned reports or briefing books to top-level executives. They offer strong reporting and to top-level executives. They offer strong reporting and drill-down capabilities. An early term for a sophisticated drill-down capabilities. An early term for a sophisticated data-driven DSS targeted to senior executives.data-driven DSS targeted to senior executives.

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Executive information systems (EIS) provide a Executive information systems (EIS) provide a variety of internal and external information to top variety of internal and external information to top managers in a highly summarized and convenient managers in a highly summarized and convenient form. EIS are becoming an important tool of top-form. EIS are becoming an important tool of top-level control in many organizations. level control in many organizations.

They help an executive spot a problem, an They help an executive spot a problem, an opportunity, or a trend. opportunity, or a trend.

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Executive information systems have Executive information systems have these characteristics:these characteristics:

1. EIS provide immediate and easy access to 1. EIS provide immediate and easy access to information reflecting the key success factors the information reflecting the key success factors the company and of its units.company and of its units.

2. AUser-seductive@ interfaces, presenting 2. AUser-seductive@ interfaces, presenting information through color graphics or video, allow information through color graphics or video, allow an EIS user to grasp trends at a glance. 3. EIS an EIS user to grasp trends at a glance. 3. EIS provide access to a variety of databases, both provide access to a variety of databases, both internal and external, through a uniform interface.internal and external, through a uniform interface.

4. Both current status and projections should be 4. Both current status and projections should be available from EIS.available from EIS.

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5. An EIS should allow easy tailoring to the 5. An EIS should allow easy tailoring to the preferences of the particular users or group of users.preferences of the particular users or group of users.

6. EIS should offer the capability to Adrill down@ 6. EIS should offer the capability to Adrill down@ into the data.into the data.

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DSS are primarily used by middle and lower level managers DSS are primarily used by middle and lower level managers to project the future, EIS's primarily serve the control needs to project the future, EIS's primarily serve the control needs of higher level management. of higher level management.

1. EISs primarily assist top management in uncovering a 1. EISs primarily assist top management in uncovering a problem or an opportunity. Analysts and middle managers problem or an opportunity. Analysts and middle managers can subsequently use a DSS to suggest a solution to the can subsequently use a DSS to suggest a solution to the problem.problem.

2. At the heart of an EIS lies access to the data. EISs may 2. At the heart of an EIS lies access to the data. EISs may work on the data extraction principal, as DSSs do, or they work on the data extraction principal, as DSSs do, or they may be given access to the actual corporate databases or may be given access to the actual corporate databases or data warehouses. data warehouses.

3. EISs can reside on personal workstations or servers.3. EISs can reside on personal workstations or servers.

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Developing EISDeveloping EIS EIS's should make it easy to track the critical EIS's should make it easy to track the critical

success factors (CSF) of the enterprise, that is, the success factors (CSF) of the enterprise, that is, the few vital indicators of the firm's performance. few vital indicators of the firm's performance.

With the use of this methodology, executives may With the use of this methodology, executives may define just the few indicators of corporate define just the few indicators of corporate performance they need. With the drill-down performance they need. With the drill-down capability, they can obtain more detailed data capability, they can obtain more detailed data behind the indicators. behind the indicators.

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Strategic business objectives methodology of EIS Strategic business objectives methodology of EIS development takes a company-wide perspective of development takes a company-wide perspective of the strategic business objectives of the firm where the strategic business objectives of the firm where the critical businesses are identified and prioritized. the critical businesses are identified and prioritized.

Then the information needed to support these Then the information needed to support these processes is defined, to be obtained with the EIS processes is defined, to be obtained with the EIS that is being planned. Finally, an EIS is developed to that is being planned. Finally, an EIS is developed to report on the CSFs. This methodology avoids the report on the CSFs. This methodology avoids the frequent pitfall of aligning an EIS too closely to a frequent pitfall of aligning an EIS too closely to a particular sponsor.particular sponsor.

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An EIS takes the following into consideration:An EIS takes the following into consideration: 1. The overall vision and mission of the company 1. The overall vision and mission of the company

and the company goals.]and the company goals.] 2. Strategic planning and objectives2. Strategic planning and objectives 3. Crisis management/Contingency planning3. Crisis management/Contingency planning 4. Strategic control and monitoring of overall 4. Strategic control and monitoring of overall

operationsoperations

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Data warehousingData warehousing

IntroductionIntroduction Increasingly, organizations are analyzing current Increasingly, organizations are analyzing current

and historical data to identify usefuland historical data to identify useful Patterns and support business strategies. Emphasis Patterns and support business strategies. Emphasis

is on complex, interactive, exploratory analysis of is on complex, interactive, exploratory analysis of very large datasets created by integrating data from very large datasets created by integrating data from across all parts of an enterprise; data is fairly static.across all parts of an enterprise; data is fairly static.

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Three Complementary Trends:Three Complementary Trends: Data Warehousing: Consolidate data from many Data Warehousing: Consolidate data from many

sources in one large repository:sources in one large repository: * Loading, periodic synchronization of replicas.* Loading, periodic synchronization of replicas. * Semantic integration.* Semantic integration. ON-LINE Analytical Processing (OLAP):ON-LINE Analytical Processing (OLAP): * Complex SQL queries and views.* Complex SQL queries and views. * Queries based on spreadsheet-style operations * Queries based on spreadsheet-style operations

and “multidimensional” view of data.and “multidimensional” view of data. * Interactive and “online” queries.* Interactive and “online” queries. 3. 3. Data Mining:Data Mining: Exploratory search for interesting trends and Exploratory search for interesting trends and

anomalies. anomalies.

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1. 1. Definitions for Data WarehousingDefinitions for Data Warehousing The ability of a system to store data resulting The ability of a system to store data resulting

from Data Mining to be used in future inquiries of from Data Mining to be used in future inquiries of that database. Data mining is the process of that database. Data mining is the process of identifying valid, novel, potentially useful and identifying valid, novel, potentially useful and ultimately comprehensible information from ultimately comprehensible information from databases that is used to make crucial business databases that is used to make crucial business decisions.decisions.

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The primary concept of data warehousing is that the The primary concept of data warehousing is that the data stored for business analysis can be accessed data stored for business analysis can be accessed most effectively by separating it from the data in most effectively by separating it from the data in operational systems. The most important reason for operational systems. The most important reason for separating data for business analysis, from the separating data for business analysis, from the operational data, has always been the potential operational data, has always been the potential performance degradation on the operational syatem performance degradation on the operational syatem that can result from the analysis processes.that can result from the analysis processes.

High performance and quick response time is almost High performance and quick response time is almost universally critical for operational systems.universally critical for operational systems.

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The main reasons for needing automated computer The main reasons for needing automated computer systems for intelligent data analysis are:systems for intelligent data analysis are:

1. Enormous volume of existing and newly 1. Enormous volume of existing and newly appearing data that require processing.appearing data that require processing.

2. The inadequacy of the human brain when 2. The inadequacy of the human brain when searching for complex multifactorial dependencies searching for complex multifactorial dependencies in the data.in the data.

3. The lack of objectiveness in analyzing the data 3. The lack of objectiveness in analyzing the data 4. The automated data mining systems is that this 4. The automated data mining systems is that this

process has much lower cost than hiring an army of process has much lower cost than hiring an army of highly trained professionals’ statisticians.highly trained professionals’ statisticians.

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Data mining.Data mining. Data mining permits our companies to Data mining permits our companies to profile customers, predict sales trends, and enable customer profile customers, predict sales trends, and enable customer relationship management (CRM), among other BI relationship management (CRM), among other BI initiatives.initiatives.

Mining must therefore be integrated with the warehouse Mining must therefore be integrated with the warehouse data structures and supported by warehouse processes to data structures and supported by warehouse processes to ensure both effective and efficient use of the technology and ensure both effective and efficient use of the technology and related techniques. related techniques.

As shown in the BI architecture, the atomic layer of the As shown in the BI architecture, the atomic layer of the warehouse as well as data marts is excellent data sources for warehouse as well as data marts is excellent data sources for mining. Those same structures must also be recipients of mining. Those same structures must also be recipients of mining results to ensure availability to the broadest mining results to ensure availability to the broadest audience.audience.

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Data MiningData Mining

Generally, data mining (sometimes called data or Generally, data mining (sometimes called data or knowledge discovery) is the process of analyzing data from knowledge discovery) is the process of analyzing data from different perspectives and summarizing it into useful different perspectives and summarizing it into useful information - information that can be used to increase information - information that can be used to increase revenue, cuts costs, or both. revenue, cuts costs, or both.

Data mining software is one of a number of analytical tools Data mining software is one of a number of analytical tools for analyzing data. It allows users to analyze data from for analyzing data. It allows users to analyze data from many different dimensions or angles, categorize it, and many different dimensions or angles, categorize it, and summarize the relationships identified. Technically, data summarize the relationships identified. Technically, data mining is the process of finding correlations or patterns mining is the process of finding correlations or patterns among dozens of fields in large relational databases.among dozens of fields in large relational databases.

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Continuous InnovationContinuous Innovation Although data mining is a relatively new term, the Although data mining is a relatively new term, the

technology is not. Companies have used powerful technology is not. Companies have used powerful computers to sift through volumes of supermarket computers to sift through volumes of supermarket scanner data and analyze market research reports for scanner data and analyze market research reports for years. However, continuous innovations in years. However, continuous innovations in computer processing power, disk storage, and computer processing power, disk storage, and statistical software are dramatically increasing the statistical software are dramatically increasing the accuracy of analysis while driving down the cost.accuracy of analysis while driving down the cost.

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What can data mining do? What can data mining do?

Data mining is primarily used today by companies Data mining is primarily used today by companies with a strong consumer focus - retail, financial, with a strong consumer focus - retail, financial, communication, and marketing organizations. It communication, and marketing organizations. It enables these companies to determine relationships enables these companies to determine relationships among "internal" factors such as price, product among "internal" factors such as price, product positioning, or staff skills, and "external" factors positioning, or staff skills, and "external" factors such as economic indicators, competition, and such as economic indicators, competition, and customer demographics. And, it enables them to customer demographics. And, it enables them to determine the impact on sales, customer satisfaction, determine the impact on sales, customer satisfaction, and corporate profits. Finally, it enables them to and corporate profits. Finally, it enables them to "drill down" into summary information to view "drill down" into summary information to view detail transactional data.detail transactional data.

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With data mining, a retailer could use point-of-sale With data mining, a retailer could use point-of-sale records of customer purchases to send targeted records of customer purchases to send targeted promotions based on an individual's purchase promotions based on an individual's purchase history. By mining demographic data from comment history. By mining demographic data from comment or warranty cards, the retailer could develop or warranty cards, the retailer could develop products and promotions to appeal to specific products and promotions to appeal to specific customer segments. customer segments.

For example, Blockbuster Entertainment mines its For example, Blockbuster Entertainment mines its video rental history database to recommend rentals video rental history database to recommend rentals to individual customers. American Express can to individual customers. American Express can suggest products to its cardholders based on analysis suggest products to its cardholders based on analysis of their monthly expenditures.of their monthly expenditures.

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WalMart is pioneering massive data mining to WalMart is pioneering massive data mining to transform its supplier relationships. WalMart transform its supplier relationships. WalMart captures point-of-sale transactions from over 2,900 captures point-of-sale transactions from over 2,900 stores in 6 countries and continuously transmits this stores in 6 countries and continuously transmits this data to its massive 7.5 terabyte Teradata data data to its massive 7.5 terabyte Teradata data warehouse. WalMart allows more than 3,500 warehouse. WalMart allows more than 3,500 suppliers, to access data on their products and suppliers, to access data on their products and perform data analyses. These suppliers use this data perform data analyses. These suppliers use this data to identify customer buying patterns at the store to identify customer buying patterns at the store display level. They use this information to manage display level. They use this information to manage local store inventory and identify new local store inventory and identify new merchandising opportunities. In 1995, WalMart merchandising opportunities. In 1995, WalMart computers processed over 1 million complex data computers processed over 1 million complex data queries.queries.

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The National Basketball Association (NBA) is exploring a The National Basketball Association (NBA) is exploring a data mining application that can be used in conjunction with data mining application that can be used in conjunction with image recordings of basketball games. The Advanced Scout image recordings of basketball games. The Advanced Scout software analyzes the movements of players to help coaches software analyzes the movements of players to help coaches orchestrate plays and strategies. For example, an analysis of orchestrate plays and strategies. For example, an analysis of the play-by-play sheet of the game played between the New the play-by-play sheet of the game played between the New York Knicks and the Cleveland Cavaliers on January 6, York Knicks and the Cleveland Cavaliers on January 6, 1995 reveals that when Mark Price played the Guard 1995 reveals that when Mark Price played the Guard position, John Williams attempted four jump shots and position, John Williams attempted four jump shots and made each one! Advanced Scout not only finds this pattern, made each one! Advanced Scout not only finds this pattern, but explains that it is interesting because it differs but explains that it is interesting because it differs considerably from the average shooting percentage of considerably from the average shooting percentage of 49.30% for the Cavaliers during that game.49.30% for the Cavaliers during that game.

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By using the NBA universal clock, a coach can By using the NBA universal clock, a coach can automatically bring up the video clips showing each automatically bring up the video clips showing each of the jump shots attempted by Williams with Price of the jump shots attempted by Williams with Price on the floor, without needing to comb through hours on the floor, without needing to comb through hours of video footage. Those clips show a very successful of video footage. Those clips show a very successful pick-and-roll play in which Price draws the Knick's pick-and-roll play in which Price draws the Knick's defense and then finds Williams for an open jump defense and then finds Williams for an open jump shot.shot.

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How does data mining work? How does data mining work?

While large-scale information technology has been While large-scale information technology has been evolving separate transaction and analytical evolving separate transaction and analytical systems, data mining provides the link between the systems, data mining provides the link between the two. Data mining software analyzes relationships two. Data mining software analyzes relationships and patterns in stored transaction data based on and patterns in stored transaction data based on open-ended user queries. Several types of analytical open-ended user queries. Several types of analytical software are available: statistical, machine learning, software are available: statistical, machine learning, and neural networks. Generally, any of four types of and neural networks. Generally, any of four types of relationships are sought:relationships are sought:

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Classes: Stored data is used to locate data in predetermined Classes: Stored data is used to locate data in predetermined groups. For example, a restaurant chain could mine groups. For example, a restaurant chain could mine customer purchase data to determine when customers visit customer purchase data to determine when customers visit and what they typically order. This information could be and what they typically order. This information could be used to increase traffic by having daily specials.used to increase traffic by having daily specials.

Clusters: Data items are grouped according to logical Clusters: Data items are grouped according to logical relationships or consumer preferences. For example, data relationships or consumer preferences. For example, data can be mined to identify market segments or consumer can be mined to identify market segments or consumer affinities. affinities.

Associations: Data can be mined to identify associations. Associations: Data can be mined to identify associations. The beer-diaper example is an example of associative The beer-diaper example is an example of associative mining. mining.

Sequential patterns: Data is mined to anticipate behavior Sequential patterns: Data is mined to anticipate behavior patterns and trends. For example, an outdoor equipment patterns and trends. For example, an outdoor equipment retailer could predict the likelihood of a backpack being retailer could predict the likelihood of a backpack being purchased based on a consumer's purchase of sleeping bags purchased based on a consumer's purchase of sleeping bags and hiking shoes.and hiking shoes.

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Data mining consists of five major elements: Data mining consists of five major elements: Extract, transform, and load transaction data onto Extract, transform, and load transaction data onto

the data warehouse system. the data warehouse system. Store and manage the data in a multidimensional Store and manage the data in a multidimensional

database system. database system. Provide data access to business analysts and Provide data access to business analysts and

information technology professionals. information technology professionals. Analyze the data by application software. Analyze the data by application software. Present the data in a useful format, such as a graph Present the data in a useful format, such as a graph

or table.or table.

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