An Introduction to Data Mining

Discovering hidden value in your data warehouse

Overview
Data mining, the extraction of hidden predictive information from large databases, is a powerful
new technology with great potential to help companies focus on the most important information
in their data warehouses. Data mining tools predict future trends and behaviors, allowing
businesses to make proactive, knowledge-driven decisions. The automated, prospective analyses
offered by data mining move beyond the analyses of past events provided by retrospective tools
typical of decision support systems. Data mining tools can answer business questions that
traditionally were too time consuming to resolve. They scour databases for hidden patterns,
finding predictive information that experts may miss because it lies outside their expectations.
Most companies already collect and refine massive quantities of data. Data mining techniques
can be implemented rapidly on existing software and hardware platforms to enhance the value of
existing information resources, and can be integrated with new products and systems as they are
brought on-line. When implemented on high performance client/server or parallel processing
computers, data mining tools can analyze massive databases to deliver answers to questions such
as, "Which clients are most likely to respond to my next promotional mailing, and why?"
This white paper provides an introduction to the basic technologies of data mining. Examples of
profitable applications illustrate its relevance to today’s business environment as well as a basic
description of how data warehouse architectures can evolve to deliver the value of data mining to
end users.
The Foundations of Data Mining
Data mining techniques are the result of a long process of research and product development.
This evolution began when business data was first stored on computers, continued with
improvements in data access, and more recently, generated technologies that allow users to
navigate through their data in real time. Data mining takes this evolutionary process beyond
retrospective data access and navigation to prospective and proactive information delivery. Data
mining is ready for application in the business community because it is supported by three
technologies that are now sufficiently mature:
• Massive data collection
• Powerful multiprocessor computers
• Data mining algorithms
Commercial databases are growing at unprecedented rates. A recent META Group survey of data
warehouse projects found that 19% of respondents are beyond the 50 gigabyte level, while 59%
 expect to be there by second quarter of 1996.1 In some industries, such as retail, these numbers
can be much larger. The accompanying need for improved computational engines can now be
met in a cost-effective manner with parallel multiprocessor computer technology. Data mining
algorithms embody techniques that have existed for at least 10 years, but have only recently been
implemented as mature, reliable, understandable tools that consistently outperform older
statistical methods.
In the evolution from business data to business information, each new step has built upon the
previous one. For example, dynamic data access is critical for drill-through in data navigation
applications, and the ability to store large databases is critical to data mining. From the user’s
point of view, the four steps listed in Table 1 were revolutionary because they allowed new
business questions to be answered accurately and quickly.

Evolutionary Business Question Enabling Product Characteristics

Step Technologies Providers

Data Collection "What was my total Computers, tapes, IBM, CDC Retrospective,
(1960s) revenue in the last five disks static data
years?" delivery

Data Access "What were unit sales in Relational databases Oracle, Retrospective,
(1980s) New England last (RDBMS), Sybase, dynamic data
March?" Structured Query Informix, delivery at
Language (SQL), IBM, record level
ODBC Microsoft

Data "What were unit sales in On-line analytic Pilot, Retrospective,

Warehousing & New England last processing (OLAP), Comshare, dynamic data
Decision March? Drill down to multidimensional Arbor, delivery at
Support Boston." databases, data Cognos, multiple levels
warehouses Microstrategy
(1990s)

Data Mining "What’s likely to Advanced Pilot, Prospective,

(Emerging happen to Boston unit algorithms, Lockheed, proactive
Today) sales next month? multiprocessor IBM, SGI, information
Why?" computers, massive numerous delivery
databases startups
(nascent
industry)

Table 1. Steps in the Evolution of Data Mining.

The core components of data mining technology have been under development for decades, in
research areas such as statistics, artificial intelligence, and machine learning. Today, the maturity
of these techniques, coupled with high-performance relational database engines and broad data
integration efforts, make these technologies practical for current data warehouse environments.
The Scope of Data Mining
Data mining derives its name from the similarities between searching for valuable business
information in a large database — for example, finding linked products in gigabytes of store
scanner data — and mining a mountain for a vein of valuable ore. Both processes require either
sifting through an immense amount of material, or intelligently probing it to find exactly where
the value resides. Given databases of sufficient size and quality, data mining technology can
generate new business opportunities by providing these capabilities:
• Automated prediction of trends and behaviors. Data mining automates the process of
finding predictive information in large databases. Questions that traditionally required
extensive hands-on analysis can now be answered directly from the data — quickly. A
typical example of a predictive problem is targeted marketing. Data mining uses data on
past promotional mailings to identify the targets most likely to maximize return on
investment in future mailings. Other predictive problems include forecasting bankruptcy
and other forms of default, and identifying segments of a population likely to respond
similarly to given events.
• Automated discovery of previously unknown patterns. Data mining tools sweep
through databases and identify previously hidden patterns in one step. An example of
pattern discovery is the analysis of retail sales data to identify seemingly unrelated
products that are often purchased together. Other pattern discovery problems include
detecting fraudulent credit card transactions and identifying anomalous data that could
represent data entry keying errors.
Data mining techniques can yield the benefits of automation on existing software and hardware
platforms, and can be implemented on new systems as existing platforms are upgraded and new
products developed. When data mining tools are implemented on high performance parallel
processing systems, they can analyze massive databases in minutes. Faster processing means that
users can automatically experiment with more models to understand complex data. High speed
makes it practical for users to analyze huge quantities of data. Larger databases, in turn, yield
improved predictions.
Databases can be larger in both depth and breadth:
• More columns. Analysts must often limit the number of variables they examine when
doing hands-on analysis due to time constraints. Yet variables that are discarded because
they seem unimportant may carry information about unknown patterns. High
performance data mining allows users to explore the full depth of a database, without
preselecting a subset of variables.
• More rows. Larger samples yield lower estimation errors and variance, and allow users
to make inferences about small but important segments of a population.
A recent Gartner Group Advanced Technology Research Note listed data mining and artificial
intelligence at the top of the five key technology areas that "will clearly have a major impact
across a wide range of industries within the next 3 to 5 years."2 Gartner also listed parallel
architectures and data mining as two of the top 10 new technologies in which companies will
invest during the next 5 years. According to a recent Gartner HPC Research Note, "With the
rapid advance in data capture, transmission and storage, large-systems users will increasingly
need to implement new and innovative ways to mine the after-market value of their vast stores of
detail data, employing MPP [massively parallel processing] systems to create new sources of
business advantage (0.9 probability)."3
The most commonly used techniques in data mining are:
 • Artificial neural networks: Non-linear predictive models that learn through training and
resemble biological neural networks in structure.
• Decision trees: Tree-shaped structures that represent sets of decisions. These decisions
generate rules for the classification of a dataset. Specific decision tree methods include
Classification and Regression Trees (CART) and Chi Square Automatic Interaction
Detection (CHAID) .
• Genetic algorithms: Optimization techniques that use processes such as genetic
combination, mutation, and natural selection in a design based on the concepts of
evolution.
• Nearest neighbor method: A technique that classifies each record in a dataset based on a
combination of the classes of the k record(s) most similar to it in a historical dataset
(where k ³ 1). Sometimes called the k-nearest neighbor technique.
• Rule induction: The extraction of useful if-then rules from data based on statistical
significance.
Many of these technologies have been in use for more than a decade in specialized analysis tools
that work with relatively small volumes of data. These capabilities are now evolving to integrate
directly with industry-standard data warehouse and OLAP platforms. The appendix to this white
paper provides a glossary of data mining terms.
How Data Mining Works
How exactly is data mining able to tell you important things that you didn't know or what is
going to happen next? The technique that is used to perform these feats in data mining is called
modeling. Modeling is simply the act of building a model in one situation where you know the
answer and then applying it to another situation that you don't. For instance, if you were looking
for a sunken Spanish galleon on the high seas the first thing you might do is to research the times
when Spanish treasure had been found by others in the past. You might note that these ships
often tend to be found off the coast of Bermuda and that there are certain characteristics to the
ocean currents, and certain routes that have likely been taken by the ship’s captains in that era.
You note these similarities and build a model that includes the characteristics that are common to
the locations of these sunken treasures. With these models in hand you sail off looking for
treasure where your model indicates it most likely might be given a similar situation in the past.
Hopefully, if you've got a good model, you find your treasure.
This act of model building is thus something that people have been doing for a long time,
certainly before the advent of computers or data mining technology. What happens on
computers, however, is not much different than the way people build models. Computers are
loaded up with lots of information about a variety of situations where an answer is known and
then the data mining software on the computer must run through that data and distill the
characteristics of the data that should go into the model. Once the model is built it can then be
used in similar situations where you don't know the answer. For example, say that you are the
director of marketing for a telecommunications company and you'd like to acquire some new
long distance phone customers. You could just randomly go out and mail coupons to the general
population - just as you could randomly sail the seas looking for sunken treasure. In neither case
would you achieve the results you desired and of course you have the opportunity to do much
better than random - you could use your business experience stored in your database to build a
model.
As the marketing director you have access to a lot of information about all of your customers:
their age, sex, credit history and long distance calling usage. The good news is that you also have
a lot of information about your prospective customers: their age, sex, credit history etc. Your
problem is that you don't know the long distance calling usage of these prospects (since they are
most likely now customers of your competition). You'd like to concentrate on those prospects
who have large amounts of long distance usage. You can accomplish this by building a model.
Table 2 illustrates the data used for building a model for new customer prospecting in a data
warehouse.

Customers Prospects

General information (e.g. demographic Known Known

data)

Proprietary information (e.g. customer Known Target

transactions)

Table 2 - Data Mining for Prospecting

The goal in prospecting is to make some calculated guesses about the information in the lower
right hand quadrant based on the model that we build going from Customer General Information
to Customer Proprietary Information. For instance, a simple model for a telecommunications
company might be:
98% of my customers who make more than $60,000/year spend more than $80/month on long
distance
This model could then be applied to the prospect data to try to tell something about the
proprietary information that this telecommunications company does not currently have access to.
With this model in hand new customers can be selectively targeted.
Test marketing is an excellent source of data for this kind of modeling. Mining the results of a
test market representing a broad but relatively small sample of prospects can provide a
foundation for identifying good prospects in the overall market. Table 3 shows another common
scenario for building models: predict what is going to happen in the future.

Yesterday Today Tomorrow

Static information and current plans Known Known Known

(e.g. demographic data, marketing
plans)

Dynamic information (e.g. Known Known Target

customer transactions)

Table 3 - Data Mining for Predictions

If someone told you that he had a model that could predict customer usage how would you know
if he really had a good model? The first thing you might try would be to ask him to apply his
model to your customer base - where you already knew the answer. With data mining, the best
way to accomplish this is by setting aside some of your data in a vault to isolate it from the
mining process. Once the mining is complete, the results can be tested against the data held in
the vault to confirm the model’s validity. If the model works, its observations should hold for the
vaulted data.
An Architecture for Data Mining
To best apply these advanced techniques, they must be fully integrated with a data warehouse as
well as flexible interactive business analysis tools. Many data mining tools currently operate
outside of the warehouse, requiring extra steps for extracting, importing, and analyzing the data.
Furthermore, when new insights require operational implementation, integration with the
warehouse simplifies the application of results from data mining. The resulting analytic data
warehouse can be applied to improve business processes throughout the organization, in areas
such as promotional campaign management, fraud detection, new product rollout, and so on.
Figure 1 illustrates an architecture for advanced analysis in a large data warehouse.

Figure 1 - Integrated Data Mining Architecture

The ideal starting point is a data warehouse containing a combination of internal data tracking all
customer contact coupled with external market data about competitor activity. Background
information on potential customers also provides an excellent basis for prospecting. This
warehouse can be implemented in a variety of relational database systems: Sybase, Oracle,
Redbrick, and so on, and should be optimized for flexible and fast data access.
An OLAP (On-Line Analytical Processing) server enables a more sophisticated end-user
business model to be applied when navigating the data warehouse. The multidimensional
structures allow the user to analyze the data as they want to view their business – summarizing
by product line, region, and other key perspectives of their business. The Data Mining Server
must be integrated with the data warehouse and the OLAP server to embed ROI-focused
business analysis directly into this infrastructure. An advanced, process-centric metadata
template defines the data mining objectives for specific business issues like campaign
management, prospecting, and promotion optimization. Integration with the data warehouse
enables operational decisions to be directly implemented and tracked. As the warehouse grows
with new decisions and results, the organization can continually mine the best practices and
apply them to future decisions.
This design represents a fundamental shift from conventional decision support systems. Rather
than simply delivering data to the end user through query and reporting software, the Advanced
Analysis Server applies users’ business models directly to the warehouse and returns a proactive
analysis of the most relevant information. These results enhance the metadata in the OLAP
Server by providing a dynamic metadata layer that represents a distilled view of the data.
Reporting, visualization, and other analysis tools can then be applied to plan future actions and
confirm the impact of those plans.
Profitable Applications
A wide range of companies have deployed successful applications of data mining. While early
adopters of this technology have tended to be in information-intensive industries such as
financial services and direct mail marketing, the technology is applicable to any company
looking to leverage a large data warehouse to better manage their customer relationships. Two
critical factors for success with data mining are: a large, well-integrated data warehouse and a
well-defined understanding of the business process within which data mining is to be applied
(such as customer prospecting, retention, campaign management, and so on).
Some successful application areas include:
• A pharmaceutical company can analyze its recent sales force activity and their results to
improve targeting of high-value physicians and determine which marketing activities will
have the greatest impact in the next few months. The data needs to include competitor
market activity as well as information about the local health care systems. The results can
be distributed to the sales force via a wide-area network that enables the representatives
to review the recommendations from the perspective of the key attributes in the decision
process. The ongoing, dynamic analysis of the data warehouse allows best practices from
throughout the organization to be applied in specific sales situations.
• A credit card company can leverage its vast warehouse of customer transaction data to
identify customers most likely to be interested in a new credit product. Using a small test
mailing, the attributes of customers with an affinity for the product can be identified.
Recent projects have indicated more than a 20-fold decrease in costs for targeted mailing
campaigns over conventional approaches.
• A diversified transportation company with a large direct sales force can apply data
mining to identify the best prospects for its services. Using data mining to analyze its
own customer experience, this company can build a unique segmentation identifying the
attributes of high-value prospects. Applying this segmentation to a general business
database such as those provided by Dun & Bradstreet can yield a prioritized list of
prospects by region.
• A large consumer package goods company can apply data mining to improve its sales
process to retailers. Data from consumer panels, shipments, and competitor activity can
be applied to understand the reasons for brand and store switching. Through this analysis,
the manufacturer can select promotional strategies that best reach their target customer
segments.
Each of these examples have a clear common ground. They leverage the knowledge about
customers implicit in a data warehouse to reduce costs and improve the value of customer
relationships. These organizations can now focus their efforts on the most important (profitable)
customers and prospects, and design targeted marketing strategies to best reach them.
Conclusion
Comprehensive data warehouses that integrate operational data with customer, supplier, and
market information have resulted in an explosion of information. Competition requires timely
and sophisticated analysis on an integrated view of the data. However, there is a growing gap
between more powerful storage and retrieval systems and the users’ ability to effectively analyze
and act on the information they contain. Both relational and OLAP technologies have
tremendous capabilities for navigating massive data warehouses, but brute force navigation of
data is not enough. A new technological leap is needed to structure and prioritize information for
specific end-user problems. The data mining tools can make this leap. Quantifiable business
benefits have been proven through the integration of data mining with current information
systems, and new products are on the horizon that will bring this integration to an even wider
audience of users.

META Group Application Development Strategies: "Data Mining for Data Warehouses:
1

Uncovering Hidden Patterns.", 7/13/95 .

2
Gartner Group Advanced Technologies and Applications Research Note, 2/1/95.
3
Gartner Group High Performance Computing Research Note, 1/31/95.

Glossary of Data Mining Terms

analytical model A structure and process for analyzing a dataset. For example, a decision tree
is a model for the classification of a dataset.

anomalous data Data that result from errors (for example, data entry keying errors) or that
represent unusual events. Anomalous data should be examined carefully
because it may carry important information.

artificial neural Non-linear predictive models that learn through training and resemble
networks biological neural networks in structure.

CART Classification and Regression Trees. A decision tree technique used for
classification of a dataset. Provides a set of rules that you can apply to a new
(unclassified) dataset to predict which records will have a given outcome.
Segments a dataset by creating 2-way splits. Requires less data preparation
than CHAID.

CHAID Chi Square Automatic Interaction Detection. A decision tree technique used
for classification of a dataset. Provides a set of rules that you can apply to a
new (unclassified) dataset to predict which records will have a given
outcome. Segments a dataset by using chi square tests to create multi-way
splits. Preceded, and requires more data preparation than, CART.

classification The process of dividing a dataset into mutually exclusive groups such that the
members of each group are as "close" as possible to one another, and
 different groups are as "far" as possible from one another, where distance is
measured with respect to specific variable(s) you are trying to predict. For
example, a typical classification problem is to divide a database of companies
into groups that are as homogeneous as possible with respect to a
creditworthiness variable with values "Good" and "Bad."

clustering The process of dividing a dataset into mutually exclusive groups such that the
members of each group are as "close" as possible to one another, and
different groups are as "far" as possible from one another, where distance is
measured with respect to all available variables.

data cleansing The process of ensuring that all values in a dataset are consistent and
correctly recorded.

data mining The extraction of hidden predictive information from large databases.

data navigation The process of viewing different dimensions, slices, and levels of detail of a
multidimensional database. See OLAP.

data visualization The visual interpretation of complex relationships in multidimensional data.

data warehouse A system for storing and delivering massive quantities of data.

decision tree A tree-shaped structure that represents a set of decisions. These decisions
generate rules for the classification of a dataset. See CART and CHAID.

dimension In a flat or relational database, each field in a record represents a dimension.

In a multidimensional database, a dimension is a set of similar entities; for
example, a multidimensional sales database might include the dimensions
Product, Time, and City.

exploratory data The use of graphical and descriptive statistical techniques to learn about the
analysis structure of a dataset.

genetic Optimization techniques that use processes such as genetic combination,

algorithms mutation, and natural selection in a design based on the concepts of natural
evolution.

linear model An analytical model that assumes linear relationships in the coefficients of
the variables being studied.

linear regression A statistical technique used to find the best-fitting linear relationship between
a target (dependent) variable and its predictors (independent variables).

logistic regression A linear regression that predicts the proportions of a categorical target
variable, such as type of customer, in a population.

multidimensional A database designed for on-line analytical processing. Structured as a

database multidimensional hypercube with one axis per dimension.
multiprocessor A computer that includes multiple processors connected by a network. See
computer parallel processing.

nearest neighbor A technique that classifies each record in a dataset based on a combination of
the classes of the k record(s) most similar to it in a historical dataset (where k
³ 1). Sometimes called a k-nearest neighbor technique.

non-linear model An analytical model that does not assume linear relationships in the
coefficients of the variables being studied.

OLAP On-line analytical processing. Refers to array-oriented database applications

that allow users to view, navigate through, manipulate, and analyze
multidimensional databases.

outlier A data item whose value falls outside the bounds enclosing most of the other
corresponding values in the sample. May indicate anomalous data. Should be
examined carefully; may carry important information.

parallel The coordinated use of multiple processors to perform computational tasks.

processing Parallel processing can occur on a multiprocessor computer or on a network
of workstations or PCs.

predictive model A structure and process for predicting the values of specified variables in a
dataset.

prospective data Data analysis that predicts future trends, behaviors, or events based on
analysis historical data.

RAID Redundant Array of Inexpensive Disks. A technology for the efficient

parallel storage of data for high-performance computer systems.

retrospective data Data analysis that provides insights into trends, behaviors, or events that have
analysis already occurred.

rule induction The extraction of useful if-then rules from data based on statistical
significance.

SMP Symmetric multiprocessor. A type of multiprocessor computer in which

memory is shared among the processors.

terabyte One trillion bytes.

time series The analysis of a sequence of measurements made at specified time intervals.
analysis Time is usually the dominating dimension of the data.

[ Data Mining Page ] [ White Papers ] [ Data Mining Tutorial ]

 Thearling.com
Information about data
mining and
analytic technologies
Kurt Thearling /
kurt@thearling.com

Data mining, if you haven't heard of it before, is the automated extraction of hidden predictive
information from databases. I have spent the past fifteen years building commercial data mining
and data analysis systems, solving problems across fields such as financial services, the life
sciences, insurance, and telecommunications. I currently lead the analytics organization at
Vertex Data Science, a multi-national business process outsourcer. (Click here for more about
my background.)
The purpose of this web site is to share information about data mining and other analytic
technologies. I hope you find it useful.
My Data Mining Book of the Month is Competing on Analytics by
Tom Davenport and Jeanne Harris. This book is a great addition to the
literature of analytics. Not that it solves any complicated statistical
modeling problem; I don't think that there is a single equation in the
entire book. Instead, this book focuses on the (more important)
problem of getting an organization to change its approach to problem
solving, by increasing the use of analytics across a business. This is a
trend that I have been involved with over the past fifteen years, and I
think that it is a key differentiator between modern companies. If you
are interested in learning how companies like Amazon, Capital One,
Harrah's, and Netflix (to name just a few) put analytics into practice,
this book is a fantastic resource. For more books on data mining, take
a look at my list of recommended books.

A while back I added online versions of the slides from a couple talks I have given on
data mining and analytic technologies:
• More Than Algorithms: Data Mining in the Real World focuses on the practical
issues that need to be addressed as part of any data mining implementation.
• Understanding Your Customers Using CRM Technology provides an overview of
technologies such as data mining, personalization, and content management. The
focus of the presentation is that these technologies can be part of a process which
allows marketers to tune interactive relationships to each customer's needs.
Some time ago I took part in a National Public Radio report about data mining and
privacy with a local NPR affiliate. It's a bit sensationalistic, but I think that reflects the
concerns that the general public has about privacy in the age of the internet.
What is data mining good for?
Data mining software allows users to analyze large databases to solve business decision
problems. Data mining is, in some ways, an extension of statistics, with a few artificial
intelligence and machine learning twists thrown in. Like statistics, data mining is not a business
solution, it is just a technology. For example, consider a catalog retailer who needs to decide
who should receive information about a new product. The information operated on by the data
mining process is contained in a historical database of previous interactions with customers and
the features associated with the customers, such as age, zip code, their responses. The data
mining software would use this historical information to build a model of customer behavior that
could be used to predict which customers would be likely to respond to the new product. By
using this information a marketing manager can select only the customers who are most likely to
respond. The operational business software can then feed the results of the decision to the
appropriate touch point systems (call centers, direct mail, web servers, email systems, etc.) so
that the right customers receive the right offers.
White Papers and Other Publications:
Over the past few years I have written or co-written a number of white papers and other
publications looking at data mining and decision support technologies. Most of them are
available below.
• An Introduction to Data Mining: Discovering Hidden Value in your Data
Warehouse. This white paper provides an introduction to the basic technologies of data
mining. Examples of profitable applications illustrate its relevance to today's business
environment as well as a basic description of how data warehouse architectures can
evolve to deliver the value of data mining to end users.
• An Overview of Data Mining Techniques. This overview provides a description of
some of the most common data mining algorithms in use today. We have broken the
discussion into two sections, each with a specific theme: 1) Classical Techniques such as
statistics, neighborhoods and clustering, and 2) Next Generation Techniques such as
trees, networks and rules. Each section will describe a number of data mining
algorithms at a high level, focusing on the "big picture" so that the reader will be able to
understand how each algorithm fits into the landscape of data mining techniques.
• If you are confused about some of the terminology related to data mining, check out
the Glossary of Data Mining.
• A while back I wrote a couple general overviews of campaign management and data
warehousing for hr.com.
• Data Mining and Customer Relationships. Most marketers understand the value of
collecting customer data, but also realize the challenges of leveraging this knowledge to
create intelligent, proactive pathways back to the customer. Data mining - technologies
and techniques for recognizing and tracking patterns within data - helps businesses sift
through layers of seemingly unrelated data for meaningful relationships, where they can
anticipate, rather than simply react to, customer needs.
• Data Mining and Privacy: A Conflict in the Making? Privacy. It’s a loaded issue. In
recent years privacy concerns have taken on a more significant role in American society
as merchants, insurance companies, and government agencies amass warehouses
containing personal data. The concerns that people have over the collection of this data
will naturally extend to any analytic capabilities applied to the data. Users of data
 mining should start thinking about how their use of this technology will be impacted by
legal issues related to privacy.
• Customer Acquisition and Data Mining. For most businesses, the primary means of
growth involves the acquisition of new customers. This could involve finding customers
who previously were not aware of your product, were not candidates for purchasing your
product (for example, baby diapers for new parents), or customers who in the past have
bought from your competitors. Data mining can often help segment these prospective
customers and increase the response rates that an acquisition marketing campaign can
achieve.
• Campaign Optimization: Maximizing the Value of Interacting with Your
Customers. In most marketing organizations, there are a wide variety of ways to interact
with customers and prospects. Besides the many possible offers that can be made, there
are now multiple communication channels (direct mail, telemarketing, email, the web)
that can be used. The process of marketing campaign optimization takes a set of offers
and a set of customers, along with the characteristics and constraints of the campaign,
and determines which offers should go to which customers over which channels at what
time.
• Scoring Your Customers. Once a model has been created by a data mining application,
the model can then be used to make predictions for new data. The process of using the
model is distinct from the process that creates the model. Typically, a model is used
multiple times after it is created to score different databases.
• Understanding Data Mining: It's All in the Interaction. Data mining is a relatively
unique process. In most standard database operations, nearly all of the results presented
to the user are something that they knew existed in the database already. Data mining, on
the other hand, extracts information from a database that the user did not know existed.
Relationships between variables and customer behaviors that are non-intuitive are the
jewels that data mining hopes to figure out. This is where visualization comes in.
• Visualizing Data Mining Models. The purpose of data visualization is to give the user
an understanding of what is going on. Since data mining usually involves extracting
"hidden" information from a database, this understanding process can get somewhat
complicated. Because the user does not know beforehand what the data mining process
has discovered, it is a much bigger leap to take the output of the system and translate it
into an actionable solution to a business problem. This paper describes a number of
methods to visualize data mining models and provide the user with sufficient levels of
understanding and trust.
• Some Thoughts on the Current State of Data Mining Software Applications. As a
former developer of data mining software, I can understand how difficult it is to create
applications that are relevant to business users. Over the past few years the technology
of data mining has moved from the research lab to Fortune 500 companies, requiring a
significant change in focus. The core algorithms are now a small part of the overall
application, being perhaps 10% of a larger part, which itself is only 10% of the whole.
With that in mind, the focus of this article is to point out some areas in the remaining
99% that need to be improved upon.
• From Data Mining to Database Marketing. The market for data mining — if you
believe the hype — will be billions of dollars by the turn of the century. Unfortunately,
much of what is now considered data mining will be irrelevant, since it is disconnected
 from the business world. In general, marketing analysts predictions that the technology
will be very relevant to businesses in the future are correct. The key to making a
successful data mining software product is to embrace the business problems that the
technology is meant to solve, not to incorporate the hottest technology. In this report I
will address some of the issues related to the development of data mining technology as it
relates to business users.
• Increasing Customer Value by Integrating Data Mining and Campaign
Management Software. As a database marketer, you understand that some customers
present much greater profit potential than others. But, how will you find those high-
potential customers in a database that contains hundreds of data items for each of
millions of customers? Data Mining software can help find the "high-profit" gems buried
in mountains of information. However, merely identifying your best prospects is not
enough to improve customer value. You must somehow fit your Data Mining results into
the execution of marketing campaigns that enhance the profitability of customer
relationships. This white paper describes how you can profit from the integration of Data
Mining and Campaign Management technologies.
• Data Mining Can Bring Pinpoint Accuracy to Sales. Data warehousing - the practice
of creating huge, central stores of customer data that can be used throughout the
enterprise - is becoming more and more commonplace. But data warehouses are useless
if companies don't have the proper applications for accessing and using the data. Two
popular types of applications that leverage companies' investments in data warehousing
are data mining and campaign management software.
• An Overview of Data Mining at Dun & Bradstreet. This document is a survey of data
mining projects and opportunities throughout the Dun & Bradstreet organization. Data
mining is a powerful new technology with greater potential to help D&B "preemptively
define the information market of tomorrow." D&B companies already know how to
collect and refine massive quantities of data to deliver relevant and actionable business
information. In this sense, D&B has been "mining" data for years. Today, some D&B
units are already using data mining technology to deliver new kinds of answers that rank
high in the business value chain because they directly fuel return-on-investment
decisions. In the D&B units surveyed, we found strong interest and a wide range of
activities and research in data mining.
• In August 1998 I chaired the "Keys to the Commercial Success of Data Mining"
workshop, held in conjunction with KDD'98. The workshop archives are available online
and include both the working notes and presentations.
Useful Data Mining & CRM References:
If you would like to get more information on data mining and CRM, you might want to look at
the following sites:
• Introduction to Data Mining and Knowledge Discovery by Two Crows Corporation.
This concise overview of data mining provides a great introduction to the field of data
mining. Two Crows is one of the leading consulting groups in data mining.
• Pan For Gold In The Clickstream by Herb Edelstein (Information Week). An excellent
article on the practical application of data mining to business problems. Herb is one of
the leading proponents of making data mining useful in real world situations.
 • Data Mining on the Web: There's Gold in that Mountain of Data by Dan Greening
(Web Techniques Magazine). A good article on what data mining and personalization
can do to improve interactions with web site visitors.
• Mining Customer Data by Gary Saarenvirta (DB2 Magazine). A very informative
article on the use of data mining for customer segmentation and clustering. Saarenvirta
does a good job discussing issues related to data preparation and transformation.
• A Comparison of Leading Data Mining Tools (PDF format). A presentation by John
F. Elder IV and Dean W. Abbott from the KDD'98 data mining conference. A
thorough comparison of most of the important software applications in the data mining
space. Although a bit dated, this presentation is still a useful read.
• Visual Database Exploration Techniques (PDF format). A set of tutorial notes by
Professor Daniel Keim, University of Munich. An extremely complete look at
visualization techniques for data mining and data analysis.
• Knowledge Discovery Nuggets. This site is a great starting point. KD Nuggets contains
a very large collection of links to data mining companies, conferences, and software.
• SIG KDD Explorations. This is the online publication of the data mining special
interest group of the ACM. A good place to check for recently published technical work.
• The Data Warehousing Information Center. A site with very thorough coverage of
data warehousing, OLAP, decision support, and data mining. Includes introductory
information plus a lot of information on vendors.
My Background:
Before I joined Vertex, I led the advanced technology group at Capital One, where I focused on
accelerating the use of new analytic technologies and techniques.
Before Capital One, I was director of Engineering at AnVil, an in silico drug discovery company
focused on the commercial analysis of biological and clinical datasets. I was responsible for the
development of AnVil's data analysis platform technology (ADAPT), an award winning system
of data mining tools used to automate the analysis of everything from gene expression
microarray data to clinical healthcare records.
I came to AnVil from Wheelhouse, a marketing technology and services company, where I was
Chief Scientist. I founded the engineering organization, managed software development efforts,
and set technology strategy. In addition, as a Wheelhouse senior management team member, I
performed numerous corporate duties including engaging clients, making sales calls, evaluating
technologies, public speaking, fundraising (including a $52M series B investment round), etc.
Prior to my position at Wheelhouse, I was Director of Analytics at Xchange Inc., a leading CRM
software vendor (and now part of Amdocs, Inc.). I was responsible for directing the integration
of analytic applications (data mining, customer optimization, decision support, and visualization)
into Xchange's suite of marketing automation software applications.
Before Xchange, I co-founded the data mining group Dun & Bradstreet. At the time, D&B was a
complicated collection of over twenty-five companies whose main purpose was to collect
information and turn it into a form that other companies could use. This data covered everything
from TV Ratings (Nielsen Media) to prescriptions (IMS) to grocery purchases (A.C. Nielsen).
Analyzing this data was a major component to the business and I was a consultant to the various
divisions, providing help in the areas data mining and high-performance computing. I also
worked with the Pilot Software division of D&B, and developed new software applications to
put data mining solutions in the hands of business users.
Before D&B I was a senior scientist at an amazing company called Thinking Machines
Corporation. TMC was a pioneer in the commercial development of massively parallel
supercomputers. While I was at Thinking Machines I helped create Darwin, one of the first
commercial data mining applications. Our early work with Darwin made use of the massive
computational power available with a supercomputer but later versions were adapted for use on
less esoteric hardware. TMC eventually moved out of the supercomputer business and turned
itself into a company focused exclusively on the data mining software market. Oracle
corporation eventually acquired TMC and incorporated Darwin into their database platform.

If you would like to know even more about me, you can check out my LinkedIn
profile, resume, or list of publications. Besides the particulars of my work
experience and education, you can find links to many of the papers I have written.
The topics of these papers include data mining, artificial life, time-series prediction,
parallel computers, and the future of personal computing.
[ Data Mining Books ] [ White Papers ] [ Data Mining Tutorial ]
Copyright © 2009 Kurt Thearling
An Introduction to Data Mining
Outline
Resources
A Problem...
… A Solution
The Big Picture
Defining Data Mining
Goal of Data Mining
Data Mining Is…
Data Mining is Not ...
Convergence of Three Technologies
1. Increasing Computing Power
2. Improved Data Collection
3. Improved Algorithms
Common Uses of Data Mining
Definition: Predictive Model
Models
Scoring
Two Ways to Use a Model
How Good is a Predictive Model?
Lift Curves
Receiver Operating Characteristic Curves
Kinds of Data Mining Problems
Supervised vs. Unsupervised Learning
Clustering of Gene Markers
How are Models Built and Used?
What the Real World Looks Like
Mining Technology is Just One Part
Data Mining Fits into a Larger Process
Example: Workflow in Oracle 11i
What Caused this Complexity?
Legal and Ethical Issues
Data is the Foundation for Analytics
Don’t Make Assumptions About the Data
The Data Mining Process
Generalization vs. Overfitting
Cross Validation
Some Popular Data Mining Algorithms
Two Good Algorithm Books
A Very Simple Problem Set
Regression Models
Regression Models
k-Nearest-Neighbor (kNN) Models
Time Savings with kNN
Developing a Nearest Neighbor Model
Example of a Nearest Neighbor Model
Example: Nearest Neighbor
(Feed Forward) Neural Networks
Processor Defines Network
Processor Defines Network
Multilayer Neural Networks
Adjusting the Weights
Neural Network Example
Neural Network Issues
Comparing kNN and Neural Networks
Rule Induction
Rule Induction (cont.)
Decision Trees
Types of Decision Trees
Decision Tree Model
Decision Trees & Understandability
Supervised Algorithm Summary
Other Data Mining Techniques
K-Means Clustering
Self Organized Maps (SOM)
Self Organized Maps (SOM)
Text Mining
Text Can Be Combined with Other Data
Text Can Be Combined with Other Data
Commercial Data Mining Software
What is Currently Happening?
Top Data Mining Vendors Today
Standards in Data Mining
Data Mining Moving into the Database
SAS Enterprise Miner
Enterprise Miner Capabilities
Enterprise Miner User Interface
SPSS Clementine
Insightful Miner
Oracle Darwin
Angoss KnowledgeSTUDIO
Usability and Understandability
User Needs to Trust the Results
Visualization Can Find Data Problems
Visualization Can Provide Insight
Visualization Can Show Relationships
The Books of Edward Tufte
Small Multiples
CrossGraphs Clinical Trial Software
OLAP Analysis
Micro/Macro
Inxight: Table Lens
Thank You