Chapter 1 • An Overview of Business Intelligence, Analytics, Data Science, and AI 31
reporting, communication, and collaboration (a form of data-oriented DSS). Another ex-
planation (Watson, 2005) is that BI is a result of a continuous revolution, and as such,
DSS is one of BI’s original elements. Further, as noted in the next section onward, in
many circles BI has been subsumed by the new terms analytics or data science.
Transaction Processing versus Analytic Processing
To illustrate the major characteristics of BI, first we will show what BI is not—namely,
transaction processing. We’re all familiar with the information systems that support our
transactions, like ATM withdrawals, bank deposits, cash register scans at the grocery
store, and so on. These transaction processing systems are constantly involved in han-
dling updates to what we might call operational databases. For example, in an ATM with-
drawal transaction, we need to reduce our bank balance accordingly; a bank deposit adds
to an account; and a grocery store purchase is likely reflected in the store’s calculation of
total sales for the day, and it should reflect an appropriate reduction in the store’s inven-
tory for the items we bought, and so on. These online transaction processing (OLTP)
systems handle a company’s routine ongoing business. In contrast, a DW is typically a
distinct system that provides storage for data that will be used for analysis. The intent
of that analysis is to give management the ability to scour data for information about the
business, and it can be used to provide tactical or operational decision support, whereby,
for example, line personnel can make quicker and/or more informed decisions. We will
provide a more technical definition of DW in Chapter 3, but suffice it to say that DWs
are intended to work with informational data used for online analytical processing
(OLAP) systems.
Most operational data in enterprise resources planning (ERP) systems—and in its
complementary siblings like supply chain management (SCM) or CRM—are stored in
an OLTP system, which is a type of computer processing where the computer responds
immediately to user requests. Each request is considered to be a transaction, which is a
computerized record of a discrete event, such as the receipt of inventory or a customer
order. In other words, a transaction requires a set of two or more database updates that
must be completed in an all-or-nothing fashion.
The very design that makes an OLTP system efficient for transaction processing
makes it inefficient for end-user ad hoc reports, queries, and analysis. In the 1980s, many
business users referred to their mainframes as “black holes” because all the information
went into them, but none ever came back. All requests for reports had to be programmed
by the IT staff, whereas only “pre-canned” reports could be generated on a scheduled
basis, and ad hoc real-time querying was virtually impossible. Although the client/server-
based ERP systems of the 1990s were somewhat more report-friendly, it has still been
a far cry from a desired usability by regular, nontechnical, end users for things such as
operational reporting, interactive analysis, and so on. To resolve these issues, the notions
of DW and BI were created.
DWs contain a wide variety of data that present a coherent picture of business con-
ditions at a single point in time. The idea was to create a database infrastructure that was
always online and contained all the information from the OLTP systems, including histori-
cal data, but reorganized and structured in such a way that it was fast and efficient for
querying, analysis, and decision support. Separating the OLTP from analysis and decision
support enables the benefits of BI that were described earlier.
Appropriate Planning and Alignment with the Business Strategy
First and foremost, the fundamental reasons for investing in BI must be aligned with the
company’s business strategy. BI cannot simply be a technical exercise for the information
systems department. It has to serve as a way to change the manner in which the company
32 Chapter 1 • An Overview of Business Intelligence, Analytics, Data Science, and AI
conducts business by improving its business processes and transforming decision-making
processes to be more data driven. Many BI consultants and practitioners involved in suc-
cessful BI initiatives advise that a framework for planning is a necessary precondition.
One framework, developed by Gartner, Inc. (2004), decomposes planning and execution
into business, organization, functionality, and infrastructure components. At the busi-
ness and organizational levels, strategic and operational objectives must be defined while
considering the available organizational skills to achieve those objectives. Issues of orga-
nizational culture surrounding BI initiatives and building enthusiasm for those initiatives
and procedures for the intra-organizational sharing of BI best practices must be consid-
ered by upper management—with plans in place to prepare the organization for change.
One of the first steps in that process is to assess the IS organization, the skill sets of the
potential classes of users, and whether the culture is amenable to change. From this as-
sessment, and assuming there is justification and the need to move ahead, a company
can prepare a detailed action plan. Another critical issue for BI implementation success
is the integration of several BI projects (most enterprises use several BI projects) among
themselves and with the other IT systems in the organization and its business partners.
If the company’s strategy is properly aligned with the reasons for DW and BI initia-
tives, and if the company’s IS organization is or can be made capable of playing its role in
such a project, and if the requisite user community is in place and has the proper motiva-
tion, it is wise to start BI and establish a BI Competency Center within the company. The
center could serve some or all of the following functions (Gartner, 2004):
• The center can demonstrate how BI is clearly linked to strategy and execution of
strategy.
• A center can serve to encourage interaction between the potential business user
communities and the IS organization.
• The center can serve as a repository and disseminator of best BI practices between
and among the different lines of business.
• Standards of excellence in BI practices can be advocated and encouraged through-
out the company.
• The IS organization can learn a great deal through interaction with the user com-
munities, such as knowledge about the variety of types of analytical tools that are
needed.
• The business user community and IS organization can better understand why the DW
platform must be flexible enough to provide for changing business requirements.
• It can help important stakeholders like high-level executives see how BI can play
an important role.
Another important success factor of BI is its ability to facilitate a real-time,
on-demand agile environment, introduced next.
Real-Time, On-Demand BI Is Attainable
The demand for instant, on-demand access to dispersed information has grown as the
need to close the gap between the operational data and strategic objectives has be-
come more pressing. As a result, a category of products called real-time BI applications
has emerged. The introduction of new data-generating technologies, such as RFID and
other sensors is only accelerating this growth and the subsequent need for real-time BI.
Traditional BI systems use a large volume of static data that has been extracted, cleansed,
and loaded into a DW to produce reports and analyses. However, the need is not just
reporting because users need business monitoring, performance analysis, and an under-
standing of why things are happening. These can assist users, who need to know (virtu-
ally in real time) about changes in data or the availability of relevant reports, alerts, and
Chapter 1 • An Overview of Business Intelligence, Analytics, Data Science, and AI 33
notifications regarding events and emerging trends in social media applications. In addi-
tion, business applications can be programmed to act on what these real-time BI systems
discover. For example, an SCM application might automatically place an order for more
“widgets” when real-time inventory falls below a certain threshold or when a CRM appli-
cation automatically triggers a customer service representative and credit control clerk to
check a customer who has placed an online order larger than $10,000.
One approach to real-time BI uses the DW model of traditional BI systems. In
this case, products from innovative BI platform providers provide a service-oriented,
near-real-time solution that populates the DW much faster than the typical nightly
extract/transfer/load batch update does. A second approach, commonly called busi-
ness activity management (BAM), is adopted by pure-play BAM and/or hybrid
BAM-middleware providers (such as Savvion, Iteration Software, Vitria, webMethods,
Quantive, Tibco, or Vineyard Software). It bypasses the DW entirely and uses Web
services or other monitoring means to discover key business events. These software
monitors (or intelligent agents) can be placed on a separate server in the network
or on the transactional application databases themselves, and they can use event- and
process-based approaches to proactively and intelligently measure and monitor opera-
tional processes.
Developing or Acquiring BI Systems
Today, many vendors offer diversified tools, some of which are completely prepro-
grammed (called shells); all you have to do is insert your numbers. These tools can be
purchased or leased. For a list of products, demos, white papers, and more current prod-
uct information, see product directories at tdwi.org. Free user registration is required.
Almost all BI applications are constructed with shells provided by vendors who may
themselves create a custom solution for a client or work with another outsourcing pro-
vider. The issue that companies face is which alternative to select: purchase, lease, or
build. Each of these alternatives has several options. One of the major criteria for making
the decision is justification and cost–benefit analysis.
Justification and Cost–Benefit Analysis
As the number of potential BI applications increases, the need to justify and prioritize
them arises. This is not an easy task due to the large number of intangible benefits. Both
direct and intangible benefits need to be identified. Of course, this is where the knowl-
edge of similar applications in other organizations and case studies is extremely useful.
For example, The Data Warehousing Institute (tdwi.org) provides a wealth of information
about products and innovative applications and implementations. Such information can
be useful in estimating direct and indirect benefits.
Security and Protection of Privacy
This is an extremely important issue in the development of any computerized system,
especially BI that contains data that may possess strategic value. Also, the privacy of em-
ployees and customers needs to be protected.
Integration of Systems and Applications
With the exception of some small applications, all BI applications must be integrated
with other systems such as databases, legacy systems, enterprise systems (particularly ERP
and CRM), e-commerce (sell side, buy side), and many more. In addition, BI applications
are usually connected to the Internet and many times to information systems of business
partners.
34 Chapter 1 • An Overview of Business Intelligence, Analytics, Data Science, and AI
Furthermore, BI tools sometimes need to be integrated among themselves, creating
synergy. The need for integration pushed software vendors to continuously add capabili-
ties to their products. Customers who buy an all-in-one software package deal with only
one vendor and do not have to deal with system connectivity. But, they may lose the
advantage of creating systems composed from the “best-of-breed” components.
u SECTION 1.5 REVIEW QUESTIONS
1. Define BI.
2. List and describe the major components of BI.
3. Define OLTP.
4. Define OLAP.
5. List some of the implementation topics addressed by Gartner’s report.
6. List some other success factors of BI.
1.6 ANALYTICS OVERVIEW
The word analytics has largely replaced the previous individual components of comput-
erized decision support technologies that have been available under various labels in the
past. Indeed, many practitioners and academics now use the word analytics in place of BI.
Although many authors and consultants have defined it slightly differently, one can view
analytics as the process of developing actionable decisions or recommendations for
actions based on insights generated from historical data. According to the Institute for
Operations Research and Management Science (INFORMS), analytics represents the com-
bination of computer technology, management science techniques, and statistics to solve
real problems. Of course, many other organizations have proposed their own interpreta-
tions and motivations for analytics. For example, SAS Institute Inc. proposed eight levels
of analytics that begin with standardized reports from a computer system. These reports
essentially provide a sense of what is happening with an organization. Additional technol-
ogies have enabled us to create more customized reports that can be generated on an ad
hoc basis. The next extension of reporting takes us to OLAP-type queries that allow a user
to dig deeper and determine specific sources of concern or opportunities. Technologies
available today can also automatically issue alerts for a decision maker when perfor-
mance warrants such alerts. At a consumer level, we see such alerts for weather or other
issues. But similar alerts can also be generated in specific settings when sales fall above
or below a certain level within a certain time period or when the inventory for a specific
product is running low. All of these applications are made possible through analysis and
queries on data being collected by an organization. The next level of analysis might entail
statistical analysis to better understand patterns. These can then be taken a step further
to develop forecasts or models for predicting how customers might respond to a specific
marketing campaign or ongoing service/product offerings. When an organization has a
good view of what is happening and what is likely to happen, it can also employ other
techniques to make the best decisions under the circumstances.
This idea of looking at all the data to understand what is happening, what will hap-
pen, and how to make the best of it has also been encapsulated by INFORMS in propos-
ing three levels of analytics. These three levels are identified (informs.org/Community/
Analytics) as descriptive, predictive, and prescriptive. Figure 1.21 presents a graphical
view of these three levels of analytics. It suggests that these three are somewhat inde-
pendent steps and one type of analytics applications leads to another. It also suggests
that there is actually some overlap across these three types of analytics. In either case,
the interconnected nature of different types of analytics applications is evident. We next
introduce these three levels of analytics.
Chapter 1 • An Overview of Business Intelligence, Analytics, Data Science, and AI 35
Business Analytics
Descriptive Predictive Prescriptive
Questions
What happened? What will happen? What should I do?
What is happening? Why will it happen? Why should I do it?
Business reporting Data mining Optimization
Enablers
Dashboards Text mining Simulation
Scorecards Web/media mining Decision modeling
Data warehousing Forecasting Expert systems
Outcomes
Well-defined Accurate projections Best possible
business problems of future events and business decisions
and opportunities outcomes and actions
FIGURE 1.21 Three Types of Analytics.
Descriptive Analytics
Descriptive (or reporting) analytics refers to knowing what is happening in the or-
ganization and understanding some underlying trends and causes of such occurrences.
First, this involves the consolidation of data sources and availability of all relevant data in
a form that enables appropriate reporting and analysis. Usually, the development of this
data infrastructure is part of DWs. From this data infrastructure we can develop appropri-
ate reports, queries, alerts, and trends using various reporting tools and techniques.
A significant technology that has become a key player in this area is visualization.
Using the latest visualization tools in the marketplace, we can now develop powerful
insights in the operations of our organization. Chapters 4 and 5 focus on data and de-
scriptive analytics. Analytics in Action 1.2 highlights one such classical application. Color
renderings of visualizations discussed in these applications are available online.
Predictive Analytics
Predictive analytics aims to determine what is likely to happen in the future. This analy-
sis is based on statistical techniques as well as other more recently developed techniques
that fall under the general category of data mining. The goal of these techniques is to be
able to predict if the customer is likely to switch to a competitor (“churn”), what the cus-
tomer would likely buy next and how much, what promotions a customer would respond
to, whether this customer is a creditworthy risk, and so forth. A number of techniques
are used in developing predictive analytical applications, including various classification
algorithms. For example, as described in Chapters 4 and 5, we can use classification tech-
niques such as logistic regression, decision tree models, and neural networks to predict
how well a motion picture will do at the box office. We can also use clustering algorithms
for segmenting customers into different clusters to be able to target specific promotions
to them. Finally, we can use association mining techniques to estimate relationships be-
tween different purchasing behaviors. That is, if a customer buys one product, what else
36 Chapter 1 • An Overview of Business Intelligence, Analytics, Data Science, and AI
ANALYTICS IN ACTION 1.2 Silvaris Increases Business with Visual
Analysis and Real-Time Reporting Capabilities
Silvaris Corporation was founded in 2000 by a team of forest industry professionals to pro-
vide technological advancement in the lumber and building material sector. Silvaris is the first
e-commerce platform in the United States specifically for forest products and is headquartered in
Seattle, Washington. It is a leading wholesale provider of industrial wood products and surplus
building materials.
Silvaris sells its products and provides international logistics services to more than 3,500
customers. To manage various processes that are involved in a transaction, they created a pro-
prietary online trading platform to track information flow related to transactions between traders,
accounting, credit, and logistics. This allowed Silvaris to share its real-time information with its
customers and partners. But due to the rapidly changing prices of materials, it became necessary
for Silvaris to get a real-time view of data without moving data into a separate reporting format.
Silvaris started using Tableau because of its ability to connect with and interpret live data.
Due to dashboards created by Tableau that are easy to understand and explain, Silvaris started
using Tableau for reporting purposes. This helped Silvaris in pulling out information quickly
from the data and identifying issues that impact their business. Silvaris succeeded in managing
online versus offline orders with the help of reports generated by Tableau. Now, Silvaris keeps
track of online orders placed by customers and knows when to send renew pushes to which
customers to keep them purchasing online. Also, analysts of Silvaris can save time by generating
dashboards instead of writing hundreds of pages of reports by using Tableau.
Questions for Discussion
1. What was the challenge faced by Silvaris?
2. How did Silvaris solve its problem using data visualization with Tableau?
What We Can Learn from This Analytics in Action
Many industries need to analyze data in real time. Real-time analysis enables the analysts to
identify issues that impact their business. Visualization is sometimes the best way to begin ana-
lyzing the live data streams. Tableau is one such data visualization tool that has the capability to
analyze live data without bringing live data into a separate reporting format.
Sources: Tableau.com, “Silvaris Augments Proprietary Technology Platform with Tableau’s Real-Time Reporting
Capabilities,” https://www.tableau.com/sites/default/files/case-studies/silvaris-business-dashboards_0.pdf (accessed
July 2022); Silvaris.com, “Overview,” http://www.silvaris.com/About/ (accessed July 2022).
is the customer likely to purchase? Such analysis can assist a retailer in recommending or
promoting related products. For example, any product search on Amazon.com results in
the retailer also suggesting other similar products that a customer may be interested in.
We will study these techniques and their applications in Chapters 5 through 7. Analytics in
Action 1.3 illustrates a comprehensive story of a large organization’s challenges of compil-
ing the data from various sources, performing some descriptive analytics on the data and
also conducting predictive analytics work on the data to make optimal decisions.
Prescriptive Analytics
The third category of analytics is termed prescriptive analytics. The goal of prescriptive
analytics is to recognize what is going on as well as the likely forecast and make deci-
sions to achieve the best performance possible. This group of techniques has historically
been studied under the umbrella of OR or management sciences and is generally aimed
at optimizing the performance of a system. The goal here is to provide a decision or a
recommendation for a specific action. These recommendations can be in the form of a
