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Efficiency and frontier analysis with extension to strategic planning
Abstract
Whatever the economic entity, firm, industry, or nation, intensified worldwide competition has increased the need for effective competitive strategies and renders more pressing the need for methods to analyze swelling volumes of information prior to making any decision. A successful strategy is the equivalent of an efficient production plan, allowing a player to operate on the frontier of its feasible achievements. In practice however, such frontiers are not known and have to be estimated empirically. Locating an empirical frontier is at the core of Data Envelopment Analysis (DEA), a mathematical programming technique developed by Charnes, Cooper et al. in 1978 to evaluate the relative performance of decision-making units (DMUs). Several models have since emerged, all aiming at the identification of which of n DMUs, each characterized by s outputs and m, determine an envelopment surface. DEA therefore represents a methodological opportunity for the strategy field. The viability of DEA rests on its ability to foster sound economic decisions and the economic principles embedded in DEA performance evaluations must be clearly enunciated. The overall purpose of this research is hence twofold: (1) the integration of DEA with production theory via the concepts of efficiency; (2) the formalization of DEA as a tool for strategic planning. This dissertation develops a new measure of efficiency that is shown to be superior to existing measures in terms of the number of properties it satisfies and also with respect to the economic interpretation it affords. A unifying perspective of DEA models is offered by means of a taxonomy which affords systematic connections between the various models and production theory, hence providing a consistent interpretation of all models and their limitations. A new model, called the Frontier model, is developed which strengthens the bridge between DEA and economics and addresses the measurement of economic efficiency. All developments are supported by numerical illustrations. Finally a new model, the Comparative Advantage model, is developed that adapts the methodology of DEA to identify a DMU's competitors and derive information regarding the DMU's comparative strengths and weaknesses to assist the unit in formulating its strategy. An application to regional economics using Census of Manufactures data is presented.
Subject Area
Operations research|Business community|Mathematics
Recommended Citation
Lerme, Catherine Sylvie, "Efficiency and frontier analysis with extension to strategic planning" (1992). Doctoral Dissertations Available from Proquest. AAI9305860.
https://scholarworks.umass.edu/dissertations/AAI9305860