Benchmarking with data envelopment analysis: a return on asset perspective

Identifying the key areas for benchmarking towards the improvement of small and medium scale enterprises (SMEs) construction firms in developing countries: the case of Ghana

Purpose

The purpose of this study was to identify key areas for benchmarking (BM) towards the improvement of small and medium scale enterprises (SMEs) construction firms in developing countries.

Design/methodology/approach

The study employed the use of the quantitative research method in the collection and analysis of primary data collected from field surveys using a piloted close-ended questionnaire created following a review of available literature on BM. Based on 63 solicited views of professionals with SMEs (quantity surveyors, project managers and architects) data collected were statistically analysed using a one-sample t-test.

Findings

The findings of the study indicate that the key areas for BM towards the improvement of SME construction firms in developing countries in order of relevance are “Financial Performance”, “Competitiveness”, “Customer Satisfaction”, “Technology Advancement”, “Communication Skills”, “Collaboration”, “Employee Satisfaction” and “Product orientation”.

Practical implications

The study has given more insight into the areas that need more attention for SMEs BM to achieve improvement. It can therefore be suggested firms that adapted identified areas will derive the benefits of BM. It is further opined that more BM education should be provided to various SMEs construction firms to facilitate an effective and efficient BM regime aiming at performance enhancement in project delivery.

Originality/value

This forging research attempts to identify the key areas for BM towards the improvement of SMEs construction firms in developing countries. Although there have been several efforts to create BM tools for the construction industry.

An empirical examination of the relationship between benchmarking, innovation culture and organisational performance using structural equation modelling

Purpose

Police agencies are under pressure to improve their performance and provide outstanding services for the community. In response, academics and practitioners have called to adopt effective methods that help these agencies to achieve their goals. Studies reported that benchmarking has a role to improve organisational performance. However, poor evidence of using benchmarking within police agencies and very few studies examine the relationship between it and police performance. Motivated by this gap, this study aims to explore and examine this relationship under the mediating role of innovation culture.

Design/methodology/approach

A quantitative methodology was utilised in this study. Data used to examine the hypotheses were obtained from the departments and stations of the Dubai Police Force (DPF), and the population comprised head section officers. A total of 338 questionnaires were distributed to respondents, 252 of which were returned. The hypothesised relationships were tested with the data collected by SPSS and SmartPLS statistical software.

Findings

Findings clearly show that benchmarking is directly and indirectly associated with the organisational performance of the DPF through innovation culture. Results support the notion that innovation culture facilitates the implementation of proper benchmarking projects in the DPF, which positively affects different aspects of its performance.

Research limitations/implications

This study includes several limitations. Specifically, the generalisability of the findings should be considered. The analysis applies only to the DPF in the UAE. Thus, investigating and analysing variables in different police agencies in the UAE or internationally would be valuable.

Practical implications

Several recommendations are provided in relation to the obtained results to assist managers and decision makers in the DPF and other police agencies. This study includes suggestions for improving police performance by establishing an innovation culture and adopting benchmarking practices.

Originality/value

Although several contributions indicated that benchmarking and innovation culture is a key determinant of success, the literature lacks empirical studies investigating this link in the police field. This study is the only one to date that examined this relationship in police services. Accordingly, this study seeks to bridge this gap and delivers empirical evidence and theoretical insight to better understand this relationship.

Benchmarking of Six Sigma in telecom services

Purpose

The purpose of this paper is to assess and benchmark Six Sigma strategies in services sector, namely, the telecom field, by establishing tables of fallouts of non-conforming services and their associated costs along with a custom data envelopment model for benchmarking the different strategic alternatives.

Design/methodology/approach

Under normality assumption, process fallout in Six Sigma is around 0.002/3.4 part per million for a centered/shifted process. By introducing Six Sigma to applications in services sector, normality assumption may no longer be valid; hence, fallouts of non-normal attributes are computed for different one-sided quality levels. The associated costs of strategy deployment, fallout and transaction completion are all considered. Data envelopment analysis model is also established to benchmark the Six Sigma strategic plans. The strategies are detailed down to processes and to quality characteristics which constitute the decision-making units. The efficiency of each service unit is computed using both CCR and super efficiency models.

Findings

The amount of efforts/costs needed to reduce the variation in a service may differ according to the targeted quality level. For the same Six Sigma quality level, services demonstrate different performance/efficiencies and hence different returns. In some scenarios, moderate quality levels could present high efficiencies as compared to services of higher levels. It was also found that the required improvement is less in the case of Log-normal as compared to normal distributions at some quality levels. This observation is also noted across the presented distributions of this study (Normal, Log-normal, Exponential, Gamma and Weibull).

Social implications

The deployment of Six Sigma in services is mostly found in time-related concepts such as timeliness of billing, lifetimes in reliability engineering, queueing theory, healthcare and telecommunication.

Originality/value

The paper contributes to the existing research by presenting an assessment model of Six Sigma strategies in services of non-normal distributions. Strategies of different quality levels present diverse efficiencies; hence, higher quality levels may not be the best alternatives in terms of the returns on investment. The computed fallout rates of the different distributions can serve as palm lines for further deployment of Six Sigma in services. Besides, the combination of optimization and Six Sigma analysis provides additional benchmarking tool of strategic plans in both manufacturing and services sector.

Developing a structured framework for measuring police efficiency

Purpose

The growing emphasis on “managerialism” in police and the pressure to employ scientific methods of performance measurement warrants the need for a structured framework. The scope of police duties is large as it relates to several preventive and corrective action related to public safety and crime management. A challenge in measuring police performance is to take into consideration a range of variables that can potentially influence performance. The purpose of this paper is to provide a structured framework for measuring different facets of police efficiency, which is especially useful in managerial decision making.

Design/methodology/approach

This paper uses data envelopment analysis and discusses efficiency measurement in terms of the technical, managerial and scale efficiency, resources utilization patterns, returns-to-scale analysis and measurement of super-efficiency. The application of framework is based on the data of the police stations of Lahore, a large metropolitan city in Pakistan.

Findings

The paper shows the application of different measures of efficiency in making decisions pertaining resources allocation, prioritizing areas for improvement and identifying benchmarks for performance improvement. Different measures of efficiency are presented in the form of a structured framework.

Practical implications

Managers can use this framework to glean rich insights into different types of efficiency and sources of inefficiency. Further, a discussion of variables provided in this paper can be especially useful in determining trade-offs during the selection of inputs and outputs.

Originality/value

The key contribution of this paper is in providing a multifaceted efficiency measurement framework, that is capable of providing rich insights into the sources of inefficiency and helps scientific decision making. To the best of our knowledge, such a multifaceted approach has not been provided in previous publications.

Longitudinal evaluation of efficiency in a petrochemical company

Purpose

The purpose of this paper is to longitudinally assess the technical efficiency and productivity, considering investment projects and technological change, in a second-generation petrochemical company.

Design/methodology/approach

The study uses data envelopment analysis (DEA) together with the Malmquist index to measure efficiency during the analysis periods. The working method consists of four main phases, namely development of the conceptual model, construction of the mathematical model, application of model to the case, and analysis of the results. The study utilizes a quantitative approach with descriptive goals seeking to evaluate the impacts of technical changes on the operational efficiency and productivity of the production process.

Findings

The use of DEA associated with the Malmquist index proved to be viable for analyzing a single company and identifying efficiency improvements, as well as the impacts of the learning process and the implementation of improvement projects. However, the results of the improvement projects and learning process were not representative and had no statistical significance on the actual change in efficiency of the company during the periods analyzed. For the case in question, the learning process and continuous improvement were not observed during all study periods.

Practical implications

The proposition that the improvement projects and investments implemented increased the efficiency of the company was rejected. Hence, with this work, it was possible to determine that the company unnecessarily invested resources in projects to increase efficiency. Furthermore, the company could have explored more internal resources before making significant investments in increased efficiency.

Originality/value

As for the value of this research in the theoretical and academic scope, this paper advances knowledge on the application of DEA because it proposes to establish an internal reference benchmarking for comparison. The literature contains few studies that analyze organizations using continuous processes, such as petrochemical processes, in longitudinal studies as a function of time, especially with the use of DEA.

Benchmarking the utility theory: a data envelopment approach

Purpose

The purpose of this paper is to benchmark alternatives of decision problems that include risk and uncertainty considering different risk attitudes via a new data envelopment analysis (DEA) decision model.

Design/methodology/approach

A new utility function of strict bounds is applied in a data envelopment model to evaluate all possible stochastic alternatives (i.e. gambles). The amount of risk in the alternatives is measured by a newly introduced risk ratio (RR). Each alternative is considered as a decision making unit (DMU). The alternatives efficiency frontier is found via linear optimization of the DEA model.

Findings

In contrast to literature studies of binary decision alternatives, here, benchmarking is conducted to evaluate multiple decision alternatives with unbounded utility of the payoffs along with a new DEA decision model. Different surveys and studies have been used to validate the model. DEA could demonstrate the ability to uncover relationships that remain hidden for other methodologies. The resulting rankings remarkably conform to those elicited by subjects.

Social implications

Individuals of different wealth backgrounds evaluate risky decision problems differently.

Originality/value

The paper contributes to the existing research by benchmarking multiple alternatives as compared to the literature research which usually assesses binary problems. Instead of using explicit utilities, the model implements the efficiencies along with a new utility function and a new RR. The introduction of DEA to such a decision field is found to be successful in benchmarking numerous alternatives under different risk attitudes.

Evaluating managerial efficiency of petrochemical firms in Saudi Arabia

Purpose

The purpose of this paper is to examine managerial efficiency of the whole population of petrochemical firms in the Kingdom of Saudi Arabia (KSA). It also identifies the root causes of inefficiencies and proposes measures to overcome these.

Design/methodology/approach

The paper uses the data envelopment analysis approach to measure the managerial efficiency in context of various returns-to-scales. To glean further insights into the sources of inefficiency, the study investigates the extent of utilization of resources by comparing target inputs vis-à-vis the actual inputs used. This provides the authors information about the degree of underutilization of resources as well as an insight into the sources of inefficiency, e.g., those stemming from the managerial or scale of operations.

Findings

The findings reveal a great amount of inefficiencies in Saudi petrochemical sector. These inefficiencies arise from both the underutilization of resources as well as the inability of petrochemical firms to run their operations at optimal scales.

Practical implications

The findings of the study allude toward measures that managers might adopt to overcome the issues of inefficiency. They ought to ensure better utilization of resources by running operations of the firms at optimal scales of production. The firms operating under the sub-optimum scales of operations need to revisit their marketing and production strategies. These might take up the form of boosting marketing efforts to win more orders from customers and increasing production volumes that could allow these firms to take advantage of economies of scale.

Originality/value

This paper is a first attempt to measure efficiency of petrochemical sector in KSA which stands as the key contributor to the national exchequer. Since the study consists of the whole population of petrochemical firms in KSA, it measures the “true” managerial efficiency of petrochemical firms in the sector. Further, being a pioneer study on managerial efficiency of petrochemical sector, it extends original contribution to the literature on efficiency of firms, combined with rich insights into sources of inefficiencies.

Strategic resource management model and data envelopment analysis for benchmarking of Indian retailers

Purpose

– The purpose of this paper is to use strategic resource management (SRM) model and data envelopment analysis (DEA) for benchmarking Indian retailers. The study ascertains, how a retailer can benchmark its performance at company level, global level, store level and finally at merchandise category level using diverse strategies for inventory, space and people.

Design/methodology/approach

– The paper aims to use SRM model, for evaluating and comparing the performance of two generalized retailers Shoppers Stop and Trent. These two generalized retailers are benchmarked with another best-in-class retailer, Wal-Mart using the SRM model. The benchmarking exercise brings out improvement directions for the Indian retailers. In the next part of the study, economic efficiencies of 11 generalized retailers are ascertained using DEA model. Finally, a study is conducted to understand, how SRM model can be used as a planning tool for deciding alternative inventory, space and people strategies at store level as well as at merchandise category level.

Findings

– Based on the data for the year 2011-2012, Trent’s performance is comparatively better than Shoppers Stop. The paper offers suggestion to improve its performance. Next, it was found that the performance of Wal-Mart is superior to the two Indian retailers. The study offers direction to the two retailers to devise appropriate strategies to improve their performance. The study further ascertains the relative efficiencies of 11 generalized retailers in the country. Finally, an illustration of how a retailer can use the SRM model as a tool for planning alternative strategy for inventory, space and people in a particular merchandise category is offered using data from a retail firm. The study has used “Jeans” and “Toys” as two categories to demonstrate this concept.

Practical implications

– The examples considered in this paper can be used by practicing retailers to plan and benchmark their performance.

Originality/value

– The study proposes a method, by which retailers can examine ways to plan and improve their operations and profitability by using the SRM and DEA model. The study is therefore relevant to practicing retailers as well as academicians.

Efficiency evaluation of the energy companies in CNX 500 Index of the NSE, India using data envelopment analysis

Purpose

– Data envelopment analysis (DEA) is a non-parametric technique of computing efficiencies of decision-making units using similar set of inputs to give similar set of outputs. The objective is to pick out inefficient units from a data set of similar units and thus analyse their performance amongst their peer group. Stock markets can be considered to be an economy’s barometer. Thus, evaluation of efficiency effectiveness of the companies operating at stock exchange is a valuable exercise. Further, if the inefficient units can be given a benchmark for improvement, they can increase their market value. The purpose of this paper is to evaluate the efficiencies of the Oil, Gas and Power (OGP) sector of India for the companies that form a part of the CNX Energy Index and CNX 500 Index of the National Stock Exchange of India.

Design/methodology/approach

– A group of 24 units has been included in the study. DEA was applied for ranking the units as per their efficiency levels by computing their technical, pure technical and scale efficiencies (SE). It was observed that only nine units are efficient and the remaining 15 were inefficient. It was observed that ONGC is the most efficient unit and CESC Ltd is the least efficient unit in this group. Also in this group there are ten units that show inefficiency due to their scales of operations. Further, benchmarking for the inefficient units has also been done in terms of inputs/outputs and the targets are suggested. It was observed that some of the Public Sector Companies like NTPC are using more inputs compared to the other units from the same group for achieving the same efficiency.

Findings

– The present study attempted a limited objective of establishing the technical, pure technical and scale inefficiencies of the companies operating in OGP sector in India and listed on National Stock Exchange with the help of the non-parametric technique of DEA and suggesting how they can strive to improve their performance. It is observed that 37.5 per cent are technically efficient as well as scale efficient, whereas 62.5 per cent are pure technically efficient. There are 42 per cent companies representing approximately half of the output and more than half of the input that have scale inefficiencies characterized by their PTE less than SE. Out of the efficient companies, ONGC appears to be the best whereas Essar Oil has a comparatively lower rank. Out of the inefficient companies, the worst performer is CESC Ltd. However, inspite of being the worst performer, this unit does not have the worst benchmarking targets. The units like Sterlite technologies and KSK energy ventures need to improve their profit by almost 1,000 per cent. These kind of targets are very difficult to attain. Hence these units need to improve their scale of operation. The managers of these units must take up this issue seriously and take measures to improve their productivity. The study also attempted benchmarking where various inefficient units have been suggested targets they need to scale to improve their efficiency. If addressed, they can have micro as well as macro benefits.

Research limitations/implications

– In the present paper, the analysis is restricted only to the OGP sector of Indian economy. The study can be further extended to various other sectors of Indian economy such as agriculture, telecommunications etc. This would help in the holistic analysis of the economy. The flag bearer efficient units would set up a benchmark for the improvement to the inefficient units that would help improve the developing economy of India.

Originality/value

– An increase in productivity is the most crucial management objective for any industry. Assessing the performance of companies listed and traded in stock market is imperative for investors and financial managers. Researchers have widely studied the performance evaluation of listed companies. Establishing efficiency of stock markets as a whole as well as of the constituent companies has been subject of wide research, but to the understanding no study has been done on evaluating the efficiencies of the OGP sector of India. In the present study the authors have concentrated on companies, out of the universe of energy companies operating in India, which form part of the CNX Energy Index and CNX 500 Index of the National Stock Exchange of India. The reason is that they represent the Indian energy market pretty well.

The impact of ISO 9001 implementation on organizational performance in Kenya

Purpose

– The purpose of this paper is to establish the effect of ISO 9001 implementation on the performance of organizations in Kenya. It specifically targeted organizations listed on the Nairobi Securities Exchange (NSE) which is the leading securities exchange in East Africa.

Design/methodology/approach

– The survey made use of web content analysis to collect data from these organizations’ web sites. Data were collected on net profit, turnover and net assets over a four-year period (2010-2013). The research used statistical data analysis to investigate the association between ISO 9001 implementation and performance.

Findings

– Results of the survey reveal that ISO 9001 certification influenced return on net assets of the organizations thereby influencing their performance. There was significant differences in net asset value among organizations with ISO 9001 certification and those that did not possess the certification. On profit and revenue, there were no significant differences between the ISO 9001 certified and non-certified organizations.

Research limitations/implications

– The research findings are limited to those organizations listed in the NSE and may not be generalized to other organizations. The study is further limited by the number of organizations participating in the study which was 20.

Practical implications

– The findings of the study provide justification for adoption of ISO 9001 standard in organizations in all key sectors of the Kenyan economy for sustained quality management practices. The ISO 9001 certified companies will enhance their quality management practices to achieve the successes documented in this paper while those yet to embrace the standards will draw lessons from such successes which may offer them compelling arguments to adopt them.

Originality/value

– Since the adoption and uptake of ISO certification in Kenya over a decade ago, no study has been carried out that directly relates ISO certification to organizational performance. This study will thus be useful as a starting point in documenting the ISO standard’s impact.

Fowler K. Exploring comparative efficiency and determinants of efficiency for major world airlines

Purpose

– For strategic and competitive insights, this paper aims to measure and benchmark comparative operating efficiencies of major airlines in Asia, Europe, and North America.

Design/methodology/approach

– The authors employ data envelopment analysis for measuring the relative efficiency of 90 airlines in Asia, Europe, and North America. In addition, the authors use Tobit regression analysis for finding determinants of the efficiency.

Findings

– Results indicate that the efficiency of the airlines in Europe is the lowest among the airlines in these three regions. Efficiency differences between the airlines in Europe and the airlines in the two other regions (Asia and North America) are statistically significant in terms of technical efficiency and pure technical efficiency, but not significant between the airlines in Asia and North America. For the determinants of efficiency, the authors identified that revenues and expenses were significant for explaining efficiency scores of airlines.

Research limitations/implications

– Further research is needed to explain the findings that airlines in Europe were less efficient than airlines in Asia and North America. In addition, including variables on customer satisfaction in a future study is desirable.

Originality/value

– Major contributions of this study include measuring the comparative efficiency of major airlines in Asia, Europe, and North America and finding determinants of the efficiency for strategic insights.

Benchmarking the performance of department stores within an income elasticity of demand perspective

Purpose

– The purposes of this study are twofold: first, the authors attempt to confirm the effect of the income elasticity of demand in the retail industry by investigating the performance of department stores; second, the authors measure and benchmark the performance of individual department stores in order to develop strategic insights.

Design/methodology/approach

– The authors employ data envelopment analysis for measuring and benchmarking the relative performance of department stores by using pertinent variables collected over a five-year period – 2006-2010.

Findings

– The results confirmed that the luxury department stores were more sensitive to an economic cycle, and all department stores in this study demonstrated higher performance in recent years, except for one discount department store that showed consistently deteriorating performance over the observation period.

Research limitations/implications

– The limitations of this study include the use of financial data from companies' annual reports, along with the limited number of decision-making units and variables.

Originality/value

– Major contributions of this study include the confirmation of the effect of the income elasticity of demand in the retail industry in general and suggested strategic implications for specific department stores, which are not found in the current literature at the time of this study.

An investigation of lead benchmarking implementation

Purpose

– The purpose of this paper is to explore current levels of lead benchmarking implementation and lead performance indicators among Malaysian organizations. Comparing small and medium enterprises (SMEs) with large companies, it identifies what benefits and difficulties are present during benchmarking implementation.

Design/methodology/approach

– Descriptive analyses, one-way ANOVAs between and within groups, and parametric and non-parametric tests are used to compare responses obtained from small, medium and large Malaysian manufacturing organizations.

Findings

– Findings suggest that larger organizations have a more progressive approach to lead benchmarking. Strategy and employee development are dominant lead performance indicators of continuous improvement. Large companies experience fewer challenges when implementing benchmarking projects. Perceptions of key benchmarking implementation barriers shift from mere lack of resources toward lack of knowledge and training, information sharing, commitment and trust.

Research limitations/implications

– The sample is specific in nature (Malaysian manufacturing organizations); results should be interpreted accordingly.

Originality/value

– Little is known about lead benchmarking practices in Malaysia, particularly within the contexts of SMEs. The outcomes of this study provide a basis for further improvement and valuable knowledge for top management of manufacturing organizations to refine strategies and advance quality management approaches.