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A decision-oriented approach to performance measurement

Providing an insight into the DEA efficiency of banking institutions

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Minh Hanh Le

Within the performance measurement theme, this book contributes a new decision-oriented perspective to evaluate the efficiency of organizations. This perspective defines an efficient organization as the one which attains the rationality in the operating process to generate its desired values. From this angle, the book identifies the pitfalls regarding the input-output specification in bank efficiency assessments using Data Envelopment Analysis (DEA) models. It introduces the Decision-oriented Performance Measurement framework grounded in management rationality concepts as a solution to avoid these pitfalls. For empirical evidence, the book presents a goal-oriented DEA efficiency analysis of German savings bank sector.
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Chapter 1: Introduction

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1.1 Background

It is broadly admitted that performance measurement is critical to the success of every organization. In one of the earliest and most intensive reviews of performance measurement literature, Neely et al. (1995, p. 80) has stated that “…[t]he importance of performance measurement has long been recognized by academics and practitioners from a variety of functional disciplines”. The recent period witnessed an ever-increasing number of performance measurement researches, marking a revolution in this field. For instance, within a short period from 1994 to 1996, there were more than 3600 studies on performance measurement being published (Neely 1999). Given “a proliferation of approaches to performance measurement across a range of disciplines” (Chenhall and Langfield-Smith 2007, p. 277), this research is proposed with an aim to contribute a decision-oriented perspective to current literature on organizational performance.

In history, the development of performance measurement can be decomposed into two main stages (Ghalayini and Noble 1996). The first stage starts from the late 1880s together with the rise of Taylorism and lasts till the 1980s. At this time, the primary focus is on maximizing profits to serve shareholders’ interests. Organizational performance was thus evaluated on the basis of financial performance criteria such as profit, costs and return on investment. The second stage emerges in the late 1980s from the criticisms of these traditional performance criteria.1 Kennerly and Neely (2003, p. 214) summarized that “whilst traditional financial accounting systems indicate the performance that results from the activities...

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