Using Frontier Analysis to Evaluate Company Performance

Abstract

The measurement of performance is critical to nearly all managerial disciplines. Yet little is known about the aggregation characteristics of the components of performance and how our notion of a ‘good performing firm’ relates to what we use as a dependent variable. In this paper we propose an approach to the measurement of performance that uses the logic of frontier analysis and the technique of data envelopment analysis. The approach is shown to be a reasonable representation of the multidimensional nature of performance and is shown to replicate, effectively, the components that strategic management scholars typically consider when discussing performance. It is also shown to be superior to the simpler alternatives based on traditional approaches to performance measurement.

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