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Iso-analysis for knowing the sources of technical efficiency and performance

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Abstract

The paper proposes an iso-analysis framework for performance evaluation of decision-making units for use in two basic set-ups. First, for two criterial dimensions of performance applied simultaneously, it is shown how groups of decision-making units formed on the principle of comparability in terms of their performance can be identified and graphically displayed in an ‘iso-performance chart’. In such iso-analysis, individual decision-making units are separated into iso-performance zones according to their bidimensional performance captured by means of an artificially constructed performance indicator that may be easily accommodated so as to reflect possibly differing importance of the considered performance dimensions. Second, it is explained how typically utilized non-orientated and non-radial measures of technical efficiency can be broken down into two sources associated with both sides of production process (i.e. an input efficiency component and an output efficiency component) and further investigated graphically in the format of an ‘input–output efficiency chart’. The elements of the proposed methodology are demonstrated in a case study of a Slovak commercial bank with an extensive retail branch network.

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Notes

  1. The construction of a comprehensive indicator considered here is greatly distinct from the construction of a comprehensive indicator originally proposed by Lovell (1995) and later made popular in assessments of macroeconomic policy, social inclusion or human development (see e.g. Cherchye et al. 2008).

  2. In addition to the general concept of super-efficiency pioneered by Andersen and Petersen (1993) that is adopted in DEA applications for outlier detection, there are naturally also other methods devised for outlier identification such as those of Wilson (1993), Simar (2003) or Fox et al. (2004).

  3. One referee noted that the selection of inputs and outputs as declared here is questionable and unusual for a typical task of bank technical efficiency measurement. Indeed, there are theoretical discussions concerning the economic rationale of banks and the essence of their undertaking, and these discussions also pass on to their branches. In this respect, the existing approaches more or less reserve for the commercial bank either the role of a financial intermediary or the function of a producer of banking services, and this production role is more suited to bank branches (see Ahn and Le 2014, p. 15, or Paradi and Zhu 2013, p. 64). Under the production model, the bank branch is treated as a service factory that transmutes labour and physical capital into depository and creditory services. Each study tends to customize the production model to the particular conditions of technical efficiency assessment as is also clear from Table A1 in Paradi and Zhu (2013), and here the desideratum of controllability at the branch level is obeyed. A most similar configuration of inputs and outputs can be found e.g. in Parkan (1994), Hartman et al. (2001), Porembski et al. (2005), Portela and Thanassoulis (2005) and Camanho and Dyson (2008). The cited studies view labour force (possibly with other minor inputs) as an input and treat (monetary) volume of rendered banking services as an output (possibly with other minor outputs).

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Acknowledgments

The authors owe their gratitude to the managers of a Slovak commercial bank who provided the data on its branches for research purposes and who wish that the name of the bank remain in anonymity. The paper originated in fulfilment of the obligations concerning the grant scheme VEGA No. 1/0757/15 Augmentation of the theoretical construct of the SCP paradigm and of the efficient structure hypothesis in banking and insurance by the aspect of risk and their empirical validation in the conditions of the Slovak Republic.

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Authors and Affiliations

  1. Department of Quantitative Methods and Information Systems, Faculty of Economics, Matej Bel University in Banská Bystrica, Tajovského 10, 975 90, Banská Bystrica, Slovakia

    Martin Bod′a

  2. Department of Finance and Accounting, Faculty of Economics, Matej Bel University in Banská Bystrica, Tajovského 10, 975 90, Banská Bystrica, Slovakia

    Emília Zimková

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  1. Martin Bod′a
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Correspondence to Martin Bod′a.

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Bod′a, M., Zimková, E. Iso-analysis for knowing the sources of technical efficiency and performance. Oper Res Int J 18, 421–449 (2018). https://doi.org/10.1007/s12351-016-0271-8

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