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Discussion on whether benchmarking to achieve greater efficiency - Essay Example

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Technical efficiency can be described as a firm’s ability to create, considering technological parameters, to maximize quantity of their outputs from a given set of input. In benchmarking, a performance measurement is derived by plotting the best practice frontier and then comparing it with the firm’s profitability. …
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Discussion on whether benchmarking to achieve greater efficiency
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DISCUSSION ON WHETHER BENCHMARKING TO ACHIEVE GREATER EFFICIENCY SHOULD LEAD TO GREATER PROFITABILITY. Unit Institution:
Date:
Technical efficiency can be described as a firm’s ability to create, considering technological parameters, to maximize quantity of their outputs from a given set of input. In benchmarking, a performance measurement is derived by plotting the best practice frontier and then comparing it with the firm’s profitability. The upsurge in demand for processed meat in Greece has increased the need for improved technical efficiency. Technical efficiency is perceived to reduce a firm’s cost drivers and therefore boost profits.
However, data envelopment analysis approach reveal different companies depending on their size and managerial structure, yield different profits due to the use of both human capital and technology. Assuming the firm deploys heavy technological inputs in their production process, there is a relaxed effort from the human capital (BASU & KUMAR 2008). Essentially there is a slight negative correlation between human capital efficiencies and technical efficiencies. This might be responsible for variable profits rather than an increased profit for the firm.
Furthermore, there is a great variation in benchmarking technical efficiency in the meat and other food industries. Large meat processing plants will always take advantage of economies of scale by using more technology. A brief hypothesis in benchmarking of technical efficiency show that technology application exhibits a variable return to scale for the Greek sausage industry. So, essentially, efficiency is fundamental to both benchmarking and profitability (BOGETOFT 2012).
Moreover, based on the article and decomposition model, large firm measured according natural logarithms of their overall fixed assets contribute negatively to efficiency. This indicates some proof of diseconomies of scale that arise from underutilizing the firm’s human capital. Notably, the variables that affect a firm’s profitability and performance are the capacity to be productively flexible and the firm’s size.
In conclusion, comparing the performance of the old and new firms in the Greek meat industry, technical efficiencies measures tend to depend on different managerial strategies (KAY 2003). Large and old aged meat processing firms tend to have reduced profits if they over utilize technology compared to human capital and vice versa. Hence benchmarking of efficiency can be concluded to be variably correlated to a firm’s profitability. Greater efficiency does not necessarily increase firm’s profits.
References
IOANNA KERAMIDOU, ANGELOS MIMIS, AIKATERINI FOTINOPOULOU, & CHRISANTHOS D. TASSIS. (2013). Exploring the relationship between efficiency and profitability. Benchmarking: An International Journal. 20, 647-660.
BOGETOFT, P. (2012). Performance benchmarking measuring and managing performance. New York, Springer. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=1082068.
AMAGHLOBELI, D. (2001). Financial development and technical efficiency: Georgian banking in transition, 1991-2000. Thesis (M.S.)--Oregon State University, 2002.
KAY, J. A. (2003). The economics of business strategy. Cheltenham, UK, E. Elgar.
MARX, T. (1980). Inter-firm profit variability and the structuralist model. Akron Businees and Economic Review. 11, 15-22.
DE JORGE MORENO, J. (2009). Technical efficiency and productivity growth of entrant firms in the retail sector in Spain. The International Review of Retail, Distribution and Consumer Research. 19, 157-177.
KUMAR, M., & BASU, P. (2008). Perspectives of productivity growth in Indian food industry: a data envelopment analysis. International Journal of Productivity and Performance Management. 57, 503-522.
ANATOLIY G. GONCHARUK. (2009). How to make meat business more effective: A case of Ukraine. British Food Journal. 111, 583-597.
KLOPČIČ, M., KUIPERS, A., & HOCQUETTE, J. F. (2013). Consumer attitudes to food quality products emphasis on Southern Europe. Wageningen, Wageningen Academic Publishers. http://link.springer.com/book/10.3920/978-90-8686-762-2.
THOMPSON, R. A. (1984). A look at meat and poultry production in the Soviet Union. Carlisle Barracks, Pa, U.S. Army War College.
OLLINGER, M. (2011). Structural change in the meat and poultry industry and food safety regulations. Agribusiness. 27, 244-257.
LAMBERT, D. K. (1994). Technological Change in Meat and Poultry-Packing and Processing. JOURNAL OF AGRICULTURAL AND APPLIED ECONOMICS. 26, 591.
HIRSCHEY, M., JOHN, K., & MAKHIJA, A. K. (2009). Corporate governance and firm performance. Bingley, U.K., Emerald. http://www.emeraldinsight.com/1569-3732/13.
SIMAR, L., & WILSON, P. W. (2007). Estimation and inference in two-stage, semi-parametric models of production processes. Journal of Econometrics. 136, 31-64
KERSTENS, K., & EECKHAUT, P. V. (1996). Estimating returns to scale using nonparametric deterministic technologies: a new method based on goodness-of-fit. Loughborough, Department of Economics, Loughborough University.
LEE, J.-D., & HESHMATI, A. (2009). Productivity, efficiency, and economic growth in the Asia-Pacific region. Heidelberg, Physica. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=262287.
GOEDHUYS, M. (1998). Technical efficiency, market share and profitability of manufacturing firms in C^ote dIvoire. Leuven, Katholieke Universiteit Leuven, Departement Toegepaste Economische Wetenschappen.
FOSTER, L., HALTIWANGER, J. C., & SYVERSON, C. (2005). Reallocation, firm turnover, and efficiency selection on productivity or profitability? Cambridge, Mass, National Bureau of Economic Research. http://papers.nber.org/papers/w11555.
KENYON, G., & NEUREUTHER, B. D. (2010). A Comparison of Information Technology Usage across Supply Chains: A Comparison of the U.S. Beef Industry and the U.S. Food Industry. International Journal of Information Systems and Supply Chain Management. 3, 42-69.
PETROVSKA, MARINA. (2011). Efficiency of pig farm production in the Republic of Macedonia : data envelopment analysis approach. SLU/Dept. of Economics. http://stud.epsilon.slu.se/3749/. Read More
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