Quantifying Organizational Ability at Manufacturing Plants

Suggested Citation
Mark Anderson, Rajiv D. Banker and Soonchul Hyun (2021), “Quantifying Organizational Ability at Manufacturing Plants”, Data Envelopment Analysis Journal: Vol. 5: No. 1, pp 55-82. http://dx.doi.org/10.1561/103.00000030
Publication Date: 22 Jun 2021
© 2021 M. Anderson, R. D. Banker and S. Hyun
Performance measurement,  Productivity measurement and analysis,  Information Systems and Organizations:Coordination (within and among organizations),  Information Systems and Industries:Manufacturing,  Competitive Operations
Organizational ability, data envelopment analysis, efficiency, manufacturing plant, operating performance


In this article:
1 Introduction
2 Background and Literature
3 Three-Stage Method
4 Data and Empirical Results
5 Conclusion
Appendix 1 — Employee Category Definitions
Appendix 2 — Definitions of Variables


We validate the use of a three-stage approach using data envelopment analysis (DEA) for quantifying organizational ability and relating it to operating performance for a large sample of manufacturing plants operating in Canada. In our first stage, we apply DEA to obtain relative plant efficiency based on plant output (sales revenue) and inputs that include various labour quantities, representing different productive activities, and non-labour operating costs. Our second stage relates relative plant efficiency obtained in the first stage to plant characteristics that may influence plant efficiency to obtain the residual value as a measure of organizational ability. In our third stage, we relate the plant cost ratio in t + 1 to the measure of organizational ability obtained for period t and document that plants with higher organizational ability achieve lower future cost ratios. Our analysis adds new insights about the determinants and implications of organizational ability at the establishment level.


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