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Performance measures for hierarchical organizations: Frontier analysis as a decision support tool

Author

Listed:
  • Aude Deville

    () (LEG-FARGO, IAE, University of Bourgogne)

  • Gary D. Ferrier

    () (Walton College of Business, University of Arkansas)

  • Hervé Leleu

    () (LEM-CNRS (UMR 8179), IESEG School of Management)

Abstract

We 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.

Suggested Citation

  • Aude Deville & Gary D. Ferrier & Hervé Leleu, 2009. "Performance measures for hierarchical organizations: Frontier analysis as a decision support tool," Working Papers 2009-ECO-01, IESEG School of Management.
  • Handle: RePEc:ies:wpaper:e200901
    as

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    References listed on IDEAS

    as
    1. Athanassopoulos, Antreas D, 1998. "Nonparametric Frontier Models for Assessing the Market and Cost Efficiency of Large-Scale Bank Branch Networks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(2), pages 172-192, May.
    2. Ittner, Christopher D. & Larcker, David F. & Randall, Taylor, 2003. "Performance implications of strategic performance measurement in financial services firms," Accounting, Organizations and Society, Elsevier, vol. 28(7-8), pages 715-741.
    3. Berger, Allen N. & Leusner, John H. & Mingo, John J., 1997. "The efficiency of bank branches," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 141-162, September.
    4. Portela, Maria Conceicao A. Silva & Thanassoulis, Emmanuel, 2007. "Comparative efficiency analysis of Portuguese bank branches," European Journal of Operational Research, Elsevier, vol. 177(2), pages 1275-1288, March.
    5. John D. C. Little, 1970. "Models and Managers: The Concept of a Decision Calculus," Management Science, INFORMS, vol. 16(8), pages 466-485, April.
    6. Schaffnit, Claire & Rosen, Dan & Paradi, Joseph C., 1997. "Best practice analysis of bank branches: An application of DEA in a large Canadian bank," European Journal of Operational Research, Elsevier, vol. 98(2), pages 269-289, April.
    7. Dopuch, Nicholas & Gupta, Mahendra, 1997. "Estimation of benchmark performance standards: An application to public school expenditures," Journal of Accounting and Economics, Elsevier, vol. 23(2), pages 141-161, July.
    8. repec:bla:joares:v:27:y:1989:i:1:p:21-39 is not listed on IDEAS
    9. Parkan, Celik, 1987. "Measuring the efficiency of service operations: An application to bank branches," Engineering Costs and Production Economics, Elsevier, vol. 12(1-4), pages 237-242, July.
    10. Andreas Soteriou & Stavros A. Zenios, 1999. "Operations, Quality, and Profitability in the Provision of Banking Services," Management Science, INFORMS, vol. 45(9), pages 1221-1238, September.
    11. Denise McEachern & Joseph Paradi, 2007. "Intra- and inter-country bank branch assessment using DEA," Journal of Productivity Analysis, Springer, vol. 27(2), pages 123-136, April.
    12. Oral, Muhittin & Yolalan, Reha, 1990. "An empirical study on measuring operating efficiency and profitability of bank branches," European Journal of Operational Research, Elsevier, vol. 46(3), pages 282-294, June.
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    14. repec:bla:joares:v:35:y:1997:i:2:p:129-155 is not listed on IDEAS
    15. Athanassopoulos, Antreas D., 1997. "Service quality and operating efficiency synergies for management control in the provision of financial services: Evidence from Greek bank branches," European Journal of Operational Research, Elsevier, vol. 98(2), pages 300-313, April.
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    More about this item

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - 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

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