Data mining is the process of analyzing data to find previously unknown trends, patterns, and associations in order to make decisions. Generally, data mining is accomplished through automated means against extremely large data sets, such as a data warehouse. Some examples of data mining include:
- An analysis of sales from a large grocery chain might determine that milk is purchased more frequently the day after it rains in cities with a population of less than 50,000.
- A bank may find that loan applicants whose bank accounts show particular deposit and withdrawal patterns are not good credit risks.
- A baseball team may find that collegiate baseball players with specific statistics in hitting, pitching, and fielding make for more successful major league players.
In some cases, a data-mining project is begun with a hypothetical result in mind. For example, a grocery chain may already have some idea that buying patterns change after it rains and want to get a deeper understanding of exactly what is happening. In other cases, there are no presuppositions and a data-mining program is run against large data sets in order to find patterns and associations.
The increasing power of data mining has caused concerns for many, especially in the area of privacy. In today’s digital world, it is becoming easier than ever to take data from disparate sources and combine them to do new forms of analysis. In fact, a whole industry has sprung up around this technology: data brokers. These firms combine publicly accessible data with information obtained from the government and other sources to create vast warehouses of data about people and companies that they can then sell. This subject will be covered in much more detail in chapter 12 – the chapter on the ethical concerns of information systems.
Business Intelligence and Business Analytics
With tools such as data warehousing and data mining at their disposal, businesses are learning how to use information to their advantage. The term business intelligence is used to describe the process that organizations use to take data they are collecting and analyze it in the hopes of obtaining a competitive advantage. Besides using data from their internal databases, firms often purchase information from data brokers to get a big-picture understanding of their industries. Business analytics is the term used to describe the use of internal company data to improve business processes and practices.
We end the chapter with a discussion on the concept of knowledge management (KM). All companies accumulate knowledge over the course of their existence. Some of this knowledge is written down or saved, but not in an organized fashion. Much of this knowledge is not written down; instead, it is stored inside the heads of its employees. Knowledge management is the process of formalizing the capture, indexing, and storing of the company’s knowledge in order to benefit from the experiences and insights that the company has captured during its existence.