Published in 2009 in the European Journal of Operational Research, Volume 195, pages 205–222.

Authors: Jian-Bo Yang, Brandon Y.H. Wong, Dong-Ling Xu, Theodor J. Stewart

What is the paper about?

Data envelopment analysis (DEA) and multiple objective linear programming (MOLP) are tools that can be used in management control and planning. While these two types of tool are similar in structure, DEA is directed to assessing past performances as part of management control function and MOLP to planning future performance targets. This paper is devoted to investigating equivalence frameworks between the two types of tool and interactive tradeoff analysis procedures in MOLP, so that DEA-oriented performance assessment and MOLP-type of target setting can be integrated in a way so that decision makers’ preferences can be taken into account in an interactive fashion. Three equivalence models are investigated between the output-oriented dual DEA model and the minimax reference point formulations in MOLP. These new models can be used to support efficiency analysis and also support tradeoff analysis for setting target values by individual or group decision makers. A case study is conducted to illustrate how DEA-oriented efficiency analysis can be conducted using the MOLP methods and how such performance assessment can be integrated into an interactive procedure for setting realistic target values for businesses.

Why is this important?

There is a need to investigate new models and methods to support business performance improvement and sustainability. With a growing world population and increasingly scarce natural resources, in particular in the current economic downturn, it is paramount for any organisations to measure and assess performance systematically and improve efficiency, productivity and sustainability continually. Organisational performance improvement is to measure the inputs and outputs of a particular process of an organisation or the organisation as a whole, then modify the process or change the organisation in order to increase the outputs, decrease the inputs, improve efficiency, or improve the effectiveness of the process or organisation. In recent years, there has been increasing demand or pressure for organisations to institutionalise performance improvement and sustainable development due to the convergence of two forces: (1) increased demand for accountability on the part of governing bodies, the media, and the public in general, and (2) a mounting commitment of managers and government agencies to focus on results and work more deliberately to strengthen performance and sustainability. The primary goals of performance improvement are to improve organizational effectiveness and organizational efficiency. A third area of improvement is organisational efficacy that involves the process of setting organizational goals and objectives. While performance measurement is becoming more common, it has not yet become performance management. One reason is the lack of vigorous yet pragmatic methodologies and tools to support integrated performance measurement and performance improvement. This paper is intended to contribute to filling the gap.

What are the main findings/insights?

Interactive MOLP methods were investigated to conduct efficiency analysis and set realistic target values in an integrated way with the decision makers supported to explore what could be realistically achievable. Three new equivalence models were constructed between the output-oriented DEA models and the minimax formulations in MOLP. These models provide a basis to apply interactive tradeoff analysis methods and other techniques in MOLP to support integrated business performance assessment and target setting. In this paper, an interactive MOLP approach was explored to support the decision makers for setting the most preferred business targets that are both technically achievable and take into account management preferences. The case study illustrated how the new equivalence models and the interactive procedure can be implemented to support integrated efficiency analysis and target setting. While the case study is relatively small in terms of sample size, as only seven businesses in banking sectors were included, the developed models and methods can be applied to large scale performance assessment problems.

Who will benefit from this research?

Our research aims to develop innovative models and methods for organisational performance improvement and sustainability in a systematic, defensible and goal-directed manner. These models and methods can be used to help organisations to improve performance by reduction in resources used and/or by increased products and services in line with long term corporate goals. Given the generic nature of these models and methods, the direct and indirect beneficiaries of this paper could include almost any organisations in both commercial private sector and public sector, which care about performance improvement and sustainable development, as well as policy makers and the wider public, who are in charge of or concerned with the efficient use of limited natural and human resources.

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