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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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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.
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