Performance measures for hierarchical organizations: Frontier analysis as a decision support tool
AbstractWe extend the standard frontier efficiency models (data envelopment analysis [DEA] and stochastic frontier analysis [SFA]) by allowing the “decision making units” (DMUs) whose performances are assessed to consist of two different levels within hierarchical organizations. Generally, the lower level unit is responsible for “operations;” while higher level units are assumed to make “strategic” decisions. Our primary contribution in this paper is thus to extend the use of frontier efficiency models to assess each level performance with relevant technical and allocative inefficiency measures. We illustrate our approach using DEA applied to data from a sample of 1,585 branches of a major French bank. A second contribution of the paper is to explicitly relate the efficiency to differences in the operating environments and the sizes of the bank branches. We believe that the simple, easy to implement method we introduce can serve as a valuable component of a “balanced score card” approach to benchmarking performance within hierarchical settings such as a banking network.
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Bibliographic InfoPaper provided by IESEG School of Management in its series Working Papers with number 2009-ECO-01.
Length: 36 pages
Date of creation: Jan 2009
Date of revision:
Find related papers by JEL classification:
- M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-10-31 (Accounting & Auditing)
- NEP-ALL-2009-10-31 (All new papers)
- NEP-CSE-2009-10-31 (Economics of Strategic Management)
- NEP-EFF-2009-10-31 (Efficiency & Productivity)
- NEP-MIC-2009-10-31 (Microeconomics)
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