- A
New Study Group of the UK Operational Research Society:
Almost all organisations
now either employ themselves or are the subject of some sort of performance
measurement scheme.
Operational Researchers
have played a large and increasing role in such activity, applying
methods such as expert systems, neural networks, data envelopment
analysis and a variety of parametric statistical techniques. Applications
can be found in almost any segment of the economy, but have been particularly
notable in the public sector, health care, the regulated utilities
and financial services.
In the light
of these developments, the UK Operational Research Society has recently
established a Productivity Measurement Study Group. The aim of the
Study Group is to disseminate advances in all forms of productivity
measurement to as wide an audience as possible.
*The primary
focus will be on practical applications rather than theoretical developments.*
A committee has
been set up to co-ordinate the activities of the Study Group. It consists
of Emmanuel Thanassoulis (Warwick University), Peter C. Smith, (York
University (currently visiting St Andrews University)), Rod Green
(Bath University) and Bruce Hollingsworth (Newcastle University).
The Committee
is pleased to announce that Professor Maurice Shutler, formerly Chief
Industrial Advisor to the Monopolies and Mergers Commission in the
UK has agreed to give the inaugural talk of the Study Group. Details
of the talk appear at the end of this announcement.
A programme of
further meetings is now being put in place. Titles, speakers dates
and venues will be announced in the OR Newsletter and elsewhere as
soon as details have been finalised. The committee would welcome suggestions
for future events, and is keen to establish a network of people who
would like to be kept informed of the activities of the Study Group,
both within and outside the OR Society.
Anyone interested
should contact the Study Group Chair, Dr Emmanuel Thanassoulis, Warwick
Business School, University of Warwick, Coventry, CV4 7AL, UK, phone
+44 (0)1203 522145, FAX +44 (0) 1203 524 539, e-mail ORSET@WBS.WARWICK.AC.UK.
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Meeting 16 December 1998:
1998 Meeting
16 December 1998 at 5.00 - 6.30pm Room A144 (Main Building) London
School of Economics
This presentation
will be given by Professor H. David Sherman, Northeastern University,
Boston, USA.
"Improving Profitability
of Bank Branch Networks: Benchmarking Productivity, Quality, Marketing,
and Profitability Using Multistage Data Envelopment Analysis (DEA)".
H. David Sherman , College of Business Administration, Northeastern
University, Boston, MA, 02115, U.S. Tel. 617-373-4640, Fax 617-558-1235,
Email: hsherman@lynx.neu.edu
Abstract:
Bank branch networks
have significantly increased profitability using DEA by helping managers
identify and implement heretofore unseen methods to improve branch
operations. Via applications to networks ranging from 50 to 1500 branches,
this powerful benchmarking technique evolved from an initial focus
on productivity to incorporate quality, marketing effectiveness and
profitability.
The presentation
will describe a bank branch application and address the following
questions:
1. How DEA can
be applied to a branch network?
2. How is the
multi-stage analysis structured?
3. How are the
DEA results interpreted and communicated to management?
4. How are the
results translated into real operating improvements and increased
profits?
5. What are the
current limitations from a technical, behavioural, and political perspective?
6. Are bank branch
experiences with DEA meaningful for other industry applications?
7. Why isn't DEA
used more in service businesses?
The future developments
are likely to generate new more challenging global best practice benchmarks
incorporating productivity, service quality, marketing effectiveness,
and profitability. This may help service organizations leap beyond
current best practice performance levels. This evolution to a more
comprehensive benchmark of performance, referred to as multidimensional
balanced benchmarking (MBB), will be introduced with examples of the
insights from one branch application.
Attendance of
the seminar is free.
-
Meeting in October 1997:
The meeting of
the Study Group will be addressed by
16 October 1997
at 5.15 - 6.30pm, Room L4.3 4th Floor, Medical School, Framlington
Place, University of Newcastle
This presentation
will be given by Professor Ali McGuire of City University,
London.
"Efficiency
in the hospital sector: demand uncertainty and endogenous output"
Production and
cost duality will be broken if the standard assumption of independence
between cost and demand does not hold. Moreover, if output is no longer
deemed to be exogenously determined, but rather an partly endogenous
choice variable the specification of the cost function needs to take
account of this. In the hospital sector, postulating that some demand
(e.g. emergency demand) fluctuates stochastically and that some output
(e.g. elective demand) is endogenously determined, alterations to
the standard notion of efficiency are required. This paper presents
a broad theoretical framework which incorporates these alterations
and discusses the implications for empirical research. Some results
may, time permitting, be presented!
Following the
presentation the study group will entertain Professor McGuire to dinner.
Those attending the presentation are welcome to join us for dinner
at their own expense. The cost of the meal will be approximately stlg20
per person.
In order to have
some idea of numbers likely to attend the seminar, could those intending
to come please let me know of their intention to do so. If you intend
to come for the meal, also please ensure that you let me know by 1st
October so that the necessary arrangements can be made.
Anyone interested
should contact the Organiser, Bruce Hollingsworth
Email:
bruce.hollingsworth@newcastle.ac.uk
Tel: 0191
222 7027
Fax: 0191
222 6746
- Report
of the Meeting in October 1997
Professor McGuire began by suggesting that production and cost duality
will be broken if the standard assumption of independence between cost
and demand does not hold, depending on the holding of capacity for stochastic
demand. Moreover, if output is no longer deemed to be exogenously determined
(as is the norm in health care analysis), but rather an partly endogenous
choice variable, the specification of the cost function needs to take
account of this. In the hospital sector, postulating that some demand
(e.g. emergency demand) fluctuates stochastically and that some output
(e.g. elective demand) is endogenously determined, requires alterations
to the standard notion of efficiency.
It was argued that, assuming length of stay to be the same for emergency
and elective cases, if uncertainty is taken into account when production
decisions are made, if a hospital is operating off the production possibility
frontier this may be a response to uncertainty as to numbers of emergency
admissions rather than a consequence of inefficient operation. When
this demand uncertainty is accounted for, the marginal costs for emergency
and elective admissions is significantly lower. This may have a number
of policy implications, as this uncertainty may have an impact when
production decisions are made.
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Meeting In July 1997:
John Rousseau
of the University of Texas. It will be held on July 3rd 1997, University
of Bath.
The title of
Dr Rousseau's talk is:
Performance
Evaluation of Organisational Forms and Distribution Systems in the
U.S. Property and Liability Insurance Industry
A major premise
of the financial theory of the firm is that more efficient structures
and product distribution systems will, in a competitive market, dominate
the industry. In the insurance industry, however, there are many different
organisational forms (stock, mutual, Lloyds Association, reciprocals,
etc.) and many different distribution systems (direct writers, exclusive
agents, independent agents, mail order, etc.). This study employs
the methodology of data envelopment analysis (DEA) combined with rank
order statistical methods to investigate whether there are statistically
significant differences in efficiency between different organisational
forms such as stock vs mutual companies, and between different marketing
systems such as independent agencies vs direct writing, etc. in the
U.S. Property and Liability insurance industry. A sample of 1524 companies
was analysed, first as eight separate subgroups -- each with its own
particular organisational form and/or marketing system -- and then
as eight paired groups combined in a way to allow for comparison of
individual group efficiency. Results and a comparison with prior studies
are presented. Findings from a preliminary investigation into the
relationship between solvency and efficiency are also presented, along
with their implications for state regulatory activity.
The meeting is
scheduled for 5 pm, July 3 1997 at the University of Bath. Room details
to be confirmed - Please ring Zoe Evan on 01203 528220 or fax her
on 01203 524 539
-
Inaugural Meeting:
Comparative
Efficiency Studies in the Regulatory Context. By Maurice Shutler,
formerly Chief Industrial Advisor, Monopolies and Mergers Commission.
5 - 6.30 p.m., 7 May 1997, London School of Economics (Venue to be
confirmed).
Attendance at
Study Group meetings is free and there is no need to reserve a place
but it will help planning if those intending to attend did let the
Study Group Chair know of their intention.
- Report
of the inaugural meeting of the PMSG Does Productivity Measurement Impact
Water Company Workers In Eastern and Western Europe in a Different Way?
Most readers
will probably be as puzzled by this question as the audience was when
Maurice Shutler posed, indirectly, the question at the Inaugural Meeting
of the Productivity Measurement Study Group on May 7th.
Maurice has a
long experience in Productivity Measurement, most recently as Chief
Industrial Adviser to the Monopolies and Mergers Commission. He was
able to give his audience a good historical perspective on the current
upsurge in theory and applications surrounding Data Envelopment Analysis
(DEA) and Productivity Measurement more generally.
He suggested
that the origins of current methods of Performance Measurement could
probably be traced back to studies in 1968 by the National Board for
Prices and Incomes of the marginal costs of postal sorting offices,
though these studies had been preceded by so called "scientific management"
in the 30's and attempts to link wages to productivity in the 50's.
The 70's saw many studies of manpower levels at hospitals, attributing
unexplained variations in manpower levels between hospitals to differences
in managerial efficiency. A productivity measurement method invented
by Maurice Gayton of the Monopolies and Mergers Commission in 1983,
employed most notably in the coal industry, was that of "expected
cost" whereby a projection is made beginning ten years ago of what
the costs of production would have been for a standardised product
such as coal, assuming a constant resource mix and rises in the prices
of inputs in accordance with their national indexes. Differences between
expected and observed unit costs are decomposed into those attributable
to manpower, raw materials and other causes. The studies apparently
showed a large real increase in unit manpower costs in the British
coal industry over the 70's, largely attributable to failed productivity
deals. An even more comprehensive study of marginal costs in this
industry had been carried out in the early 70's and shelved. The results
were the same in 1983 but this time most of the results were published.
Links between this productivity measurement study and the national
coal strike in the 80's may not be completely coincidental.
With the advent,
of the Audit Commission, privatisation and regulation in the 80's,
and the parallel theoretical developments of methods for productivity
measurement, most notably DEA, there has been a step change in both
scope and depth of Productivity Measurement. Maurice noted in particular
the sophisticated studies carried out by OFWAT of the productivity
of water companies in the course of the periodic review of 1994. He
also noted that there are many unpublished productivity studies by
OFFER.
Interestingly,
the sophisticated productivity measures carried out by OFWAT had been
preceded a decade or so earlier by simpler studies by the Monopolies
and Mergers Commission of the productivity of the then statutory water
companies. Unfortunately no one in the UK seemed to take note of the
reports at the time except for the French. The most efficient British
water only companies were taken over by French interests in the run
up to privatisation.
Similar studies
of the productivity of Eastern European water companies are now being
carried out with a view to their privatisation. However while water
workers in this country whose companies were efficient were merely
taken over by French interests, productivity measurement is not likely
to impact their Eastern European counterparts in the same way. Efficiency
gains through downsizing manpower can only be effected in stages in
Eastern Europe because of officially-set contract conditions. Therefore
Eastern European water workers can be assured that French interests
are unlikely to extend the same hand of 'friendship' to them as they
did to their British counterparts.