Production-theory based performance benchmarking in practice: closing the gap between frontier analysis research and user-tailored decision support

“Benchmarking is the process of comparing the performance of one unit against that of ‘best practice’ units. Production-theory based frontier methods are relative performance evaluation techniques that support advanced benchmarking. Although frontier analysis literature abounds, only a few papers can be found on the application of production-function-based methods by managers and other decision makers for decision support in practice. The objective of this paper is to investigate why production-function-based benchmarking techniques insufficiently find their way into practice and to determine what needs to be done in order to make them being used by decision makers. We review the literature on the demand for and supply of production-function-based benchmarking, and define key issues for reconciling demand and supply. On the demand side, perceived benefits of benchmarking include assessing relative performances, increasing productivity, identifying competitive strategies, enhancing learning and identifying potential areas of growth. Perceived limitations include the lack of time and resources, the fact that one should be able to recognize one’s shortcomings, the required solid understanding of organization’s operations and the openness to change and new ideas. Literature also reports an absence of production-economic thinking in manager’s benchmarking efforts, which explains the absence of a demand for production-function-based benchmarking methods. On the supply side, frontier analysis literature mainly consists of theory extending papers and so-called real-world applications. While application papers mainly report on work by researchers applying existing methods to real-world datasets, they largely ignore the application of frontier analysis by managers and other decision makers. Some papers can be found that provide a frontier-analysis-based decision support framework, but information about the actual implementation and use of the framework for decision support in practice is mostly missing. Key issues that have to be addressed for reconciling demand and supply include the practical relevance of methodological assumptions, the possibility for flexible benchmarking, the language barrier and the role of intermediates.”