Data Envelopment Analysis of Firm Strategic Efficiency

Data Envelopment Analysis (DEA) of firm strategic efficiency benchmarks each firm or strategic business unit against a best-practice frontier built directly from the data, with no need to assume prices, weights, or a functional form. Introduced by Charnes, Cooper and Rhodes in 1978 under constant returns to scale (the CCR model) and extended by Banker, Charnes and Cooper in 1984 to variable returns (the BCC model), DEA uses linear programming to envelop the observed firms with a piecewise-linear frontier and scores each one by its radial distance from it. In strategic management it answers a sharply practical question: given the resources a firm consumes, how much more output could it produce if it operated like the best comparable firms, and which efficient peers should it emulate.