Should Strategy Researchers Use Data Envelopment Analysis?

Management as a field draws on theory and tools from mother disciplines of economics, psychology, political science and sociology (Mudambi, Hannigan, and Kline, 2012). Armed with a diverse set of theoretical frameworks,... [ view full abstract ]

Management as a field draws on theory and tools from mother disciplines of economics, psychology, political science and sociology (Mudambi, Hannigan, and Kline, 2012). Armed with a diverse set of theoretical frameworks, management scholars examine a wide range of business issues and emphasize various units of analysis. One commonality is the need to examine various system inputs and outputs in the quest to best measure individual, group, or firm-level performance. For example, in the strategy domain, scholars often struggle with the selection of the appropriate output or performance measure (Miller, Washburn, & Glick, 2013). In some cases scholars measure output as revenue or net income, while in others rely upon ratios such as return on assets or return on equity. However, when examining the determinants of core strategy concepts, competitive advantage for example, frontier methodologies such as data envelopment analysis (DEA) may be more meaningful than traditional measures of performance (Chen, Delmas, & Lieberman, 2015).

DEA is a statistical method that draws on production function tenets to calculate efficiency measures based on input/output ratios and “has emerged as a preeminent methodology for assessing the relative efficiency of decision-making units.” (Fizel and D’ltri, 1999, p. 570) Key word searches for “DEA” yield thousands of articles covering wide-ranging topics from marketing benchmarking (Donthu, Hershberger, and Osmonbekov, 2005), to sports management (Howard and Miller, 1993), to education (Mayston, 2003). Despite the sound foundation for DEA logic and applications, as well as a thirty five-year track record and wide acceptance in a number of fields, the usage of DEA in mainstream management literature and management business curriculum remains scarce.

We endeavor to spark a debate among management scholars with respect to the relevance and applicability of DEA methodology in the strategic management domain. We reviewed the broader management literature and identified what appear to be isolated pockets of DEA usage. Given this, an opportunity exists for scholars to examine the contexts in which DEA has been successfully utilized, as well as how such usage could contribute to theory development in untapped management literature streams.