European Journal of Operational Research 123 (2000) 105±124

www.elsevier.com/locate/orms

Theory and Methodology

Multi-factor performance measure model with an application to

Fortune 500 companies
1
Joe Zhu
Department of Management, Worcester Polytechnic Institute, 100 Institute Road, Worcester, MA 01609-2280, USA
Received 2 February 1998; accepted 8 December 1998

Abstract

The paper develops tools for reconciling diverse measures which characterize the ®nancial performance of the Fortune
500 companies. The technology of data envelopment analysis (DEA) is employed to determine a multi-factor ®nancial
performance model which inherently recognizes tradeo€s among various ®nancial measures. This study o€ers an alter-
native perspective and characterization on the performance of the Fortune 500 companies. It is shown that the top-ranked
companies by revenue do not necessarily have top-ranked performance viewed as being multidimensional. Only about 3%
companies were operating on the best-practice frontier. Substantial technical and scale ineciencies are found. De-
creasing returns to scale (DRS) are uncovered among the relatively large (revenue-top-ranked) companies. The study of
congestion shows that a reduction in current levels of employees, assets and equity may actually increase revenue and
pro®t levels. Factor-speci®c measures, within the framework of multidimensional measure, are developed to further study
the performance of companies and industries. The performance of best-practice frontier companies is analyzed by con-
structing reference-share measures which indicate the role each frontier company plays in evaluating non-frontier com-
panies. Finally, the reliability of the best-practice frontier is examined. Ó 2000 Elsevier Science B.V. All rights reserved.

Keywords: Data envelopment analysis (DEA); Congestion; Eciency; Pro®tability; Marketability; Reliability

1. Introduction be used as indices to characterize the ®nancial

It has been recognized that business perfor-
mance is a multidimensional construct, since it
covers diverse purposes and types of organiza-
tions/levels (Lewin and Minton, 1986). The single
output to input ®nancial ratios, such as, return on
investment (ROI) and return on sales (ROS), may
1
Tel.: +1-508-831-5281; fax: +1-508-831-5720.
E-mail address: jzhu@wpi.edu (J. Zhu).
performance. However, as indicated in Chakra-
varthy (1986), conventional referents of perfor-
mance, whether they be measures of pro®tability,
like ROI and ROS, or ®nancial market measures,
like the market to book ratio, are unsatisfactory
discriminants of `excellence'. Since a company's
performance is a complex phenomenon requiring
more than a single criterion to characterize it.
Consequently, a number of studies has been
argued that a multi-factor performance measure-
ment model may be used (see, e.g., Bagozzi and

0377-2217/00/$ - see front matter Ó 2000 Elsevier Science B.V. All rights reserved.
PII: S 0 3 7 7 - 2 2 1 7 ( 9 9 ) 0 0 0 9 6 - X
106 J. Zhu / European Journal of Operational Research 123 (2000) 105±124
Phillips, 1982; Chakravarthy, 1986). Altman
(1971) and Argenti (1976) develop a multi-factor
performance model in a bankruptcy model by
weighting ®ve single ®nancial ratios. However, in
the absence of such priori information on weights,
an alternative approach should be developed to
characterize the multidimensional aspects of the
®nancial performance. The development of a
multi-factor performance measure which recon-
ciles diverse ®nancial performance measures is
important to policy maker by knowing how far a
particular industry or company can be expected to
increase its multiple output and decrease its input
levels by simply improving its eciency, without
absorbing or wasting further resources.
Recall that Data Envelopment Analysis (DEA)
by its use of mathematical programming is partic-
ularly adept at estimating multiple input and mul-
tiple output production correspondences. Since the
®rst CCR DEA model (Charnes et al., 1978), a
number of di€erent DEA models and their corre-
sponding real-world applications have appeared in
the literature (Seiford, 1996). Originally, DEA was
designed to measure the relative eciency within
non-for-pro®t organizations where market prices
are not available. For example, the PFT/NFT
program evaluation of Charnes et al. (1981).
However, by its ability to model multi-input/multi-
output production function without a priori un-
derlying functional form assumption, DEA has
also been widely applied to various industrial sec-
tors. For example, bank failure prediction (Barr
et al., 1993), electric utilities evaluation (F
are et al.,
1985) and textile industry performance (Zhu,
1996a), etc. Previous DEA studies in industrial
performance provide useful managerial informa-
tion on improving the industrial management.
Based upon DEA, the current study develops tools
and provides means for characterizing and im-
proving the performance of Fortune 500 compa-
nies. The data published by the Fortune magazine
will be analyzed by DEA methodology.
A two-stage transformation process is de®ned in
terms of eight measures used by the Fortune mag-
azine in the evaluation of companies' ®nancial
performance. These eight measures, revenue, pro®t,
assets, number of employees (employees), stock-
holders' equity (equity), market value (MV), earn-
ings per share (EPS) and total return to investors
(TRI), are hence grouped into DEA's `inputs' and
`outputs'. The original DEA model is employed to
determine the best-practice frontier for the Fortune
500 companies. Returns to scale (RTS) study shows
that the relatively large companies exhibited de-
creasing returns to scale (DRS). The input con-
gestion study indicates that reductions in the
current levels of employees, assets and equity may
result in an increase of revenue and pro®t.
Although DEA does not need any priori in-
formation on the underlying functional forms and
weights among various input and output factors, it
assumes equally proportional improvements of all
inputs or all outputs. This assumption becomes
invalid when a preference structure over the im-
provement of inputs (outputs) is present in evalu-
ating inecient DMUs (Thanassoulis and Dyson,
1992; Athanassopoulos, 1996; Zhu, 1996b). Since
the current study does not have access to such
information, alternatively, we de®ne several fac-
tor-speci®c measures in which a particular factor is
given pre-emptive priority to improve (see Tha-
nassoulis and Dyson (1992) for the rationale for
these models). These factor-speci®c measures dif-
ferentiate themselves from the single ®nancial ratio
measures by the fact that all factors are considered
when one factor is emphasized.
Note that several industries are included in the
Fortune 500 list. One way to characterize the in-
dustry performance is to run a DEA analysis
within each industry. However, in order to char-
acterize a particular industry performance within
all industries, we de®ne size-adjusted industry ef-
®ciency measures. Also, a reference-share measure
is developed for each frontier company in order to
further characterize the performance of ecient
companies. The reference-share measure yields
information on the role each ecient company
plays in benchmarking inecient companies.
Finally, as a data-based multi-factor ®nancial
performance measure, its robustness to the possi-
ble data errors is important. Therefore a sensitivity
analysis proposed by Zhu (1996c), Seiford and
Zhu (1998a, b) is applied to examine the reliability
of the best-practice frontier. The results indicate
that, in general, the best-practice frontier is reli-
able.
 J. Zhu / European Journal of Operational Research 123 (2000) 105±124 107

The remainder of the paper is organized as Obviously, it is dicult enough to tell which com-
follows. Section 2 de®nes the DEA inputs and pany has a better overall performance without the
outputs based upon the eight ®nancial factors used information on preferences over the two ®nancial
by the Fortune magazine. Section 3 identi®es the ratios, returns on assets and stockholders' equity.
best practice frontier for the Fortune 500 compa- In order to obtain an overall performance in-
nies in 1995. Both technical and scale eciencies dex, we employ DEA as an alternative approach to
are examined with RTS classi®cations. Also, input reconcile these eight measures via a two-stage
congestion is investigated. Section 4 develops fac- transformation process described in Fig. 1. Each
tor-speci®c measures and reference-shares to fur- stage is de®ned by a group of `inputs (x)' and
ther analyze the performance of both ecient and `outputs (y)'.
non-ecient companies. Section 5 examines the The performance in the ®rst stage (stage-1) may
reliability of the best-practice frontier. Section 6 be viewed as pro®tability, i.e., a company's ability
concludes. to generate the revenue and pro®t in terms of its
current labor, assets and capital stock. The per-
formance in the second stage (stage-2) may be
2. DEA inputs and outputs viewed as (stock) marketability, i.e., a company's
performance in stock market by its revenue and
Fortune magazine analyzes the ®nancial per- pro®t generated. Finally, we use the inputs in
formance of companies by eight measures (fac- stage-1 and outputs in stage-2 to characterize an
tors): revenue, pro®t, assets, number of employees overall performance (overall eciency) via a third
(employees), stockholders' equity (equity), market stage (stage-3) (Fig. 1).
value (MV), earnings per share (EPS) and total Traditional DEA methodology are modi®ed
return to investors (TRI) 2. However, each single and new DEA analytic methods are developed to
performance measure based upon these eight fac- provide improved performance measures which
tors may be unsatisfactory in the performance better re¯ect the way businesses really stack up
characterization. For example, consider the fol- and compete in an information age. The Fortune
lowing two companies: 500 companies are evaluated in the following two
main aspects: (i) identi®cation of best-practice
Returns on: Assets Stockholders' equity frontier; and (ii) factor-speci®c eciency measure.
Revenues Name Rank 1995 Pro®ts Rank 1995 Pro®ts Finally, the stability of the best-practice frontier to
rank as % of as % of
assets equity the possible data errors are studied.
419 Micron 2 30.4 13 44.5
Technology
206 Quaker Oats 11 16.6 6 69.9
3. Identi®cation of best practice frontier

In this section, technical eciency, scale e-

2
Revenues include consolidated subsidiaries and exclude ciency and congestion are analyzed. See Byrnes
excise taxes. The revenue data are for the ®scal year ended on or
et al. (1984) for an alternative approach to the
before January 31, 1996. Pro®ts are after taxes, after extraor-
dinary credits or charges, and after cumulative e€ects of decomposition of the above three eciency com-
accounting charges. Assets are the company's year-end total. ponents.
Equity is the sum of all capital stock, paid-in capital, and
retained earnings at the company's year-end. MV is obtained by
multiplying the number of common shares outstanding by the 3.1. Technical eciency
price per common share as of March 15, 1996. EPS for each
company is the primary earnings per share that appear on the The input-oriented CRS DEA model is em-
income statement. TRI includes both price appreciation and
dividend yield to an investor in the company's stock. For more
ployed to determine the best practice frontier that
detailed descriptions, the readers are referred to the April 1996 exhibits constant returns to scale (CRS) (Charnes
issue of Fortune. et al., 1978).
108 J. Zhu / European Journal of Operational Research 123 (2000) 105±124

Fig. 1. Input±output systems for Fortune 500 companies.

!
X
m X
s (overall performance), m ˆ 3 inputs in stage-1 and
min ho ÿ e sÿ
i ‡ s‡
r s ˆ 3 outputs in stage-2.
iˆ1 rˆ1
If, in optimality, ho ˆ 1 and all input and out-
X
n
put slacks, sÿ and s‡
s:t: kj xij ‡ sÿ r , are equal to zero, then
i ˆ ho xio ; i ˆ 1; 2; . . . ; m; i
jˆ1
DMUo is CRS-ecient and is operating on the
X
n CRS frontier; otherwise, if ho 6ˆ 1, or (and) some
kj yrj ÿ s‡
r ˆ yro ; r ˆ 1; 2; . . . ; s; input and (or) output slacks are nonzero, then
jˆ1 DMUo is CRS-inecient and could improve its
h o ; k j ; sÿ ‡ eciency by either reducing its input levels or in-
i ; sr P 0;
creasing its output levels over which management
…1†
has control. In fact, ho measures the input savings
3
where n ( ˆ 364) is the number of companies , m by a possible proportional input reductions. This
and n are, respectively, the number of inputs and ho provides a scalar ®nancial performance measure
outputs. In stage-1 (pro®tability), we have m ˆ 3 which reconciles various factors associated with a
inputs ± employees, assets and equity, and s ˆ 2 particular stage. The smaller the ho , the more input
outputs ± revenue and pro®t. In stage-2 (market- savings are expected.
ability), m ˆ 2 inputs ± revenue and pro®t, and By varying the index `o' over all companies, we
s ˆ 3 outputs ± MV, TRI and EPS. In stage 3 have the CRS best practice frontier. Ten, eight and
fourteen companies are CRS-ecient in stage-1,
stage-2, and stage-3, respectively (see Table 1). No
company is CRS-ecient in all stages. With one
3 exception of DMU5 (AT&T), all other top-20
The DMU numbers correspond to the ranks by the
magnitude of revenues. Since some data on MV, pro®t and companies ranked by revenue are CRS-inecient
equity are not available from some companies, and some in all stages (see Table 2 for the results). 4
companies experienced pro®t loss in 1995, we exclude these As for the two companies discussed in the
companies in the performance analysis. Although, one could previous section, Micron Technology (DMU419)
invoke the translation invariance property of DEA (Ali and
Seiford, 1990) to allow negative data, such a use is restricted to
a convex case, and some properties, e.g., RTS, are not
4
translation invariant. Therefore, we mainly analyze the perfor- In the discussion to follow, `top-20 companies' means top-
mance of the remaining 364 companies. 20 companies in terms of revenue.
 J. Zhu / European Journal of Operational Research 123 (2000) 105±124 109

Table 1
CRS best practice frontier companies
DMU no. Company name Pro®tability (stage-1) Marketability (stage-2) Overall (stage-3)
5 AT&T
32 Fed. Natl. Mortgage Assn.
44 Loews
48 Coca-Cola
78 Kimberly-Clark
94 Archer Daniels Midland
156 General Mills
210 Burlington Northern Santa FE
219 Microsoft
226 Continental Airlines
257 Foxmeyer Health
281 Bindley Western
291 Avon Products
292 Berkshire Hathaway
317 Student Loan Mktg. Assn.
412 Valero Energy
417 Oracle
419 Micron Technology
447 Williams
451 Compusa
474 Computer Assoc. Intl.
481 Provident COS.
Note: The means that a company is located on the CRS best practice frontier.

is CRS-ecient while Quaker Oats (DMU206) is
CRS-inecient with a score of 0.98427.
Fig. 2(a)±c give the distributions of CRS e-
ciency scores for the three stages. In stage-1, 75% of
the DMUs have CRS scores below 50%, and nearly
50% of the DMUs have CRS scores within the
range of (0.27, 0.41). In stage-2, 89% DMUs have
CRS scores below 50%, and nearly 70% DMUs
have CRS scores within the range of (0.l2, 0.36). In
stage-3, 91% of the DMUs have CRS scores below
50%, and nearly 75% of the DMUs have CRS
scores within the range of (0.10, 0.35). Form the
distributions of CRS eciency scores, it can be seen
that substantial input savings could be achieved.
We next group each company into di€erent
industries. Table 3 summarizes the average CRS
scores for 30 selected industries. Only Computer &
Data Services shows a relatively good performance
over the three stages. Recall that, in this particular
industry, DMU219 and DMU474 are two CRS-
ecient DMUs for pro®tability and DMU219,
DMU417 and DMU474 are CRS-ecient for
overall performance.
Nine industries (Computer, Diversi®ed Finan-
cials, Food, Pharmaceuticals, Pipelines, Soaps &
Cosmetics, Temporary Help, and Wholesalers)
show a relatively good performance on pro®t-
ability. Overall, most industries have a better
performance on pro®tability than on marketabili-
ty. And most industries have a better performance
on marketability than on overall eciency.
3.2. Scale eciency
Since model (1) assumes CRS, DMUs who are
operating in increasing or decreasing returns to
scale (IRS or DRS) region will be termed CRS-
inecient. One critical question is whether these
Fortune 500 companies also exhibit serious scale
ineciencies. To response, we need to explore the
RTS classi®cation of these companies.
We ®rst evaluate the performance in the context
of variable returns to scale
Pn(VRS) by imposing an
additional constraint of jˆ1 kj ˆ 1 into Eq. (1).
That is (Banker et al., 1984),
110 J. Zhu / European Journal of Operational Research 123 (2000) 105±124

Table 2
Eciency and returns-to-scale (RTS) for the top-20 companies
DMU Company name Pro®tability (stage-1) Marketability (stage-2) Overall (stage-3)
No. CRS-1 VRS-1 RTS CRS-2 VRS-2 RTS CRS-3 VRS-3 RTS
1 General Motors 0.27934 1.00000 DRS 0.06600 0.06794 DRS 0.05060 0.08478 DRS
2 Ford Motors 0.27277 1.00000 DRS 0.08541 0.08752 DRS 0.05731 0.06674 DRS
3 Exxon 0.78037 1.00000 DRS 0.19985 0.32038 DRS 0.34530 0.36299 DRS
4 Wal-Mart Stores 0.52385 1.00000 DRS 0.19845 0.21491 DRS 0.19639 0.20177 DRS
5 AT&T 0.18435 0.83434 DRS 1.00000 1.00000 CRS 0.23478 0.30172 DRS
6 INTL, Business 0.33679 0.76278 DRS 0.21448 0.28590 DRS 0.14950 0.16189 DRS
Machines
7 General Electric 0.38148 1.00000 DRS 0.28792 1.00000 DRS 0.21322 1.00000 DRS
8 Mobil 0.58667 1.00000 DRS 0.20309 0.21334 DRS 0.25882 0.26065 IRS
9 Chrysler 0.32410 0.94135 DRS 0.12935 0.13254 DRS 0.09760 0.09877 IRS
10 Philip Morris 0.58051 1.00000 DRS 0.22277 0.35913 DRS 0.26991 0.30713 DRS
13 E.I. Du Pont De 0.53734 0.98686 DRS 0.20167 0.20545 DRS 0.24178 0.26918 DRS
Nemours
14 Texaco 0.38187 0.95094 DRS 0.26182 0.26619 DRS 0.24651 0.25119 IRS
15 Sears Roebuck 0.41700 1.00000 DRS 0.13677 0.14327 DRS 0.15429 0.18095 DRS
17 Procter & Gamble 0.49897 0.78892 DRS 0.30961 0.37827 DRS 0.29129 0.29390 DRS
18 Chevron 0.29597 0.53771 DRS 0.38217 0.39381 DRS 0.24154 0.24949 IRS
19 Citicorp 0.39607 0.51472 DRS 0.15135 0.15143 DRS 0.13292 0.13372 IRS
20 Hewlett-Packard 0.48754 0.80176 DRS 0.29854 0.35583 DRS 0.26932 0.29393 DRS

Average 0.42735 0.88938 0.25584 0.32799 0.20300 0.26581

!
X
m X
s Recall that the average CRS and VRS scores
min bo ÿ e sÿ
i ‡ s‡
r are 0.40 vs 0.46 (stage-1), 0.29 vs 0.54 (stage-2) and
iˆ1 rˆ1
0.25 vs 0.31 (stage-3). When the t-test is applied to
X
n
the CRS-inecient companies, the results of the
s:t: kj xij ‡ sÿ
i ˆ bo xio ; i ˆ 1; 2; . . . ; m;
jˆ1
test show that the mean of the paired di€erences
between CRS and VRS scores for the three-stage
X
n
kj yrj ÿ s‡ evaluations are signi®cantly greater than zero (t
r ˆ yro ; r ˆ 1; 2; . . . ; s;
jˆ1 statistic values are equal to 13.5, 21.5 and 14.3 in
X
n stage-1, stage-2 and stage-3, respectively, at level
kj ˆ 1; 0.01).
jˆ1 A scale eciency is de®ned by the ratio of a
bo ; k j ; s ÿ ‡ CRS score to a VRS score, i.e., ho =bo . If the ratio is
i ; sr P 0:
equal to one, i.e., ho =bo ˆ 1, then a DMUo is scale
…2† ecient; otherwise if the ratio is less than one, i.e.,
The VRS eciency score (bo )
provides a scalar ho =bo < 1, a DMUo is scale inecient. This t-test
®nancial performance measure when RTS is con- indicates that the scale eciency ratios are signif-
sidered. icantly less than one, i.e., serious scale ineciencies
Fig. 3(a)±c report the distributions of VRS ef- were present for the Fortune 500 companies.
®ciency scores. 30, 16 and 19 DMUs are VRS-ef- Therefore it is necessary to determine whether IRS
®cient in stage-1, stage-2 and stage-3, respectively. or DRS is the primary cause of scale ineciency.
In stage-1, most VRS scores are distributed over By the recent result of Zhu and Shen (1995), one
(0.27, 0.51). In stage-2, the VRS scores are almost can easily estimate
P  the RTS by the CRS and VRS
evenly distributed over (0.16, 1). In stage-3, most scores and kj in any optimal solution to the
VRS scores are distributed over (0.16, 0.45). CRS model (1) without exploring all possible
 J. Zhu / European Journal of Operational Research 123 (2000) 105±124 111

Fig. 2. (a) CRS eciency distribution in stage-1. (b) CRS eciency distribution in stage-2. (c) CRS eciency distribution in stage-3.

multiple optimal solutions. That is, if the CRS
score is equal to the VRS score, i.e., ho ˆ bo , then
CRS prevail; otherwise, if the CRS and P VRS
scores are not equal, i.e., ho 6ˆ bo , then kj < 1
P
indicates IRS and kj > 1 indicates DRS 5. Note
that CRS-ecient DMUs must exhibit CRS.
5
RTS generally has an unambiguous meaning only if a
DMU is on the VRS eciency frontier. If a DMU is not VRS
ecient, we project this DMU onto the VRS frontier and then
estimate the RTS classi®cation. See Seiford and Zhu (1999) for
a complete discussion of RTS estimation in DEA.
Therefore in the discussion to follow, we only
consider the CRS-inecient DMUs.
In stage-1, DRS dominate the DMU interval of
(1, 102), i.e., all CRS-inecient companies from
DMU1 to DMU102 exhibit DRS. For example, in
Table 2, although eight of the top-20 companies
are VRS-ecient, all of them are on the DRS
frontier. There are 16 IRS and 60 DRS DMUs in
the DMU interval of (103, 214), and 43 IRS and 15
DRS DMUs in (215, 292). Finally, IRS dominate
the interval of (293, 495). It can be seen that IRS
and DRS distributions have a symmetric pattern
over four DMU intervals.
112 J. Zhu / European Journal of Operational Research 123 (2000) 105±124

Table 3
Average CRS scores within selected industries
Industries No. of Stage-1 Stage-2 Stage-3
companies pro®tability marketability overall
Aerospace 7 0.32134 0.28280 0.17837
Airlines 4 0.30599 0.45333 0.36438
Beverages 4 0.48128 0.41043 0.40970
Chemicals 15 0.47204 0.27783 0.28588
Commercial Banks 31 0.32160 0.33026 0.20874
Computer and Data Services 6 0.53966 0.70636 0.69456
Computers, Oce Equipment 11 0.51026 0.35530 0.33229
Diversi®ed Financials 9 0.53168 0.35950 0.54728
Electric & Gas Utilities 31 0.38709 0.26145 0.24056
Electronics, Electrical Equipment 15 0.47070 0.32749 0.28494
Entertainment 3 0.29908 0.60037 0.45627
Food 16 0.54052 0.28495 0.32165
Food & Drug Stores 9 0.54180 0.28496 0.28082
Forest & Paper Products 14 0.37008 0.24533 0.17436
General Merchandisers 8 0.37215 0.20484 0.15991
Health Care 10 0.44619 0.34924 0.31417
Industrial & Farm Equipment 9 0.36009 0.31027 0.23008
Insurance: Life & Health (stock) 10 0.34716 0.29998 0.36499
Insurance: Property & Casuality (stock) 12 0.47122 0.22957 0.33428
Metal Products 6 0.37854 0.45273 0.30166
Motor Vehicles & Parts 11 0.37130 0.16526 0.15647
Petroleum Re®ning 16 0.42967 0.22848 0.26510
Pharmaceuticals 10 0.62121 0.40548 0.42765
Pipelines 4 0.62017 0.41780 0.45412
Publishing, Printing 6 0.42394 0.30344 0.27416
Soaps, Cosmetics 3 0.58577 0.40149 0.52926
Special Retailers 10 0.53430 0.35029 0.32871
Telecommunications 6 0.31046 0.40888 0.19070
Temporary Help 3 0.73956 0.23253 0.47178
Wholesalers 13 0.67456 0.26489 0.37189

In stage-2, DRS DMUs dominate the interval
of (1, 25) and there are 10 IRS and 99 DRS DMUs
in (26, 171), and then IRS DMUs dominate (172,
495). This result indicates that most DMUs have a
big potential in improving their marketability than
pro®tability. (The improvement on pro®tability
may help to improve the scale ineciency in
marketability.)
Finally, we look at the RTS pattern in stage-3.
In this case, DRS prevail on the ®rst seven DMUs,
and there are 29 DRS DMUs and 65 IRS DMUs
in (8, 132), and 3 DRS DMUs and 195 IRS DMUs
in (133, 274), and ®nally IRS dominate (277, 495).
In overall, there are more IRS DMUs than DRS
DMUs. However, there are still more DRS DMUs
than IRS DMUs in the top-20 companies. Only
®ve companies, DMU8 (Mobil), DMU9 (Chrys-
ler), DMU14 (Texaco), DMU18 (Chevron) and
DMU19 (Citicorp), exhibit IRS.
In summary, the investigation of scale eciency
and RTS indicates that the top-20 companies not
only showed serious scale ineciency, but also
operated in a DRS region. However, most rela-
tively small companies were operating in an IRS
region.
3.3. Congestion
Input congestion, a concept which originated in
the areas of transportation and agriculture refers
to the situation where reductions in the usage of a
 J. Zhu / European Journal of Operational Research 123 (2000) 105±124 113

Fig. 3. VRS eciency distribution in stage-1. (b) VRS eciency distribution in stage-2. (c) VRS eciency distribution in stage-3.

proper subset of inputs, holding the usage of other
inputs constant, generate an increase in one or
more outputs. After an inecient company is
projected onto frontier by a proportional (radial)
input decrease, the input congestion measure
provides information about the e€ect on output
improvement by further individual input reduc-
tion.
In DEA, input congestion is usually investi-
gated under assumptions of strong and weak input
disposabilities (Byrnes et al., 1984). However, as
shown in Ray et al. (1998), input congestion can
actually be measured by non-zero input slacks
when all ecient DMUs are extreme-ecient. 6
Since the CRS model (1) yields unique optimal
solution for the ecient DMUs, all of the CRS-
ecient DMUs are extreme-ecient. Thus, the
input congestion for a speci®c DMUd can be de-
termined by the input slacks sdi …i ˆ 1; 2; . . . ; m†.
6
See Charnes et al. (1991) for a complete classi®cations of
ecient and inecient DMUs.
114 J. Zhu / European Journal of Operational Research 123 (2000) 105±124

Table 4
Congestion in the top-20 companies
DMU no. Company name Stage-1 Stage-3
Amount for congestion Amount for congestion
Employees Assets Equity Employees Assets Equity
2 Ford Motors 0 86631.27 0 0 6170.29 0
3 Exxon 0 0 15639.6 0 0 4824.76
4 Wal-Mart Stores 235393.8 0 0 87937.14 0 0
5 AT&T 167654.4 0 0 0 0 0
7 General Electric 0 125111.88 0 0 27409.85 0
8 Mobil 0 0 4767.92 0 0 450.92
9 Chrysler 0 0 0 0 225.59 0
14 Texaco 0 0 2517.45 0 0 0
15 Sears Roebuck 153602.48 0 0 23726.05 0 0
18 Chevron 0 0 3486.34 0 0 224.37

Pm d
If Pmsi ˆd 0, input is not congested; other-
iˆ1
wise, if iˆ1 si 6ˆ 0, input congestion is present.
Furthermore, if a speci®c sdio 6ˆ 0, then the io th in-
put is a cause of input congestion and sdio gives the
amount of congestion. 7
In the current study, we measure the congestion
of employees, assets and equity. Thus, we only
consider stage-1 and stage-3. Table 4 reports the
non-zero input slacks, sdio for the top-20 compa-
nies.
Wal-Mart Stores and Sears Roebuck, which
were respectively ranked 2 and 7 in terms of big-
gest employers, had an input congestion of em-
ployees, Ford Motors and General Electric, which
are ranked 3 and 5, respectively, in terms of most
assets, had an input congestion of assets. Fur-
thermore, for stage-1, in Wal-Mart Stores and
Sears Roebuck, the amounts of employee conges-
tion are 35% and 56%, respectively, of the current
employee input levels, and in Ford Motors and
General Electric, the amount of assets congestion
are 34% and 55%, respectively, of the current as-
sets input levels.
Next we investigate the input congestion within
each industry. Let F be a speci®c industry. For
each company, DMUd , d 2 F, we de®ne the fol-
lowing industry congestion measure for a speci®c
kth input:
P
sd
CkF ˆ P d2F k ;
d2F xkd
where sdk represents the non-zero input slack value
and xkd is the corresponding input level.
The industry congestion results for the 30 se-
lected industries are reported in Table 5 where the
numbers represent the average percentages of
employees, assets and equity congested, and the
numbers given in parentheses represent the num-
ber of companies having congestion within each
industry. For example, in commercial banks, only
assets congestion was present in 14 companies, and
in the publishing & printing industry, only em-
ployee congestion was present in 2 companies. In
stage-1, 23 industries had a serious input conges-
tion of employee and 9 industries had a serious
input congestion of assets. In stage-3, although
many industries had an input congestion, the av-
erage amounts responsible for the congestion are
relatively small.
4. Factor-speci®c eciency

4.1. Performance of the inecient companies

7
See Brockett et al. (1998) and Cooper et al. (1999) for a
In previous sections, radial reductions of all
general congestion case when non-extreme-ecient DMUs may inputs are employed to determine the best practice
present. frontier for Fortune 500 companies. However, in
 J. Zhu / European Journal of Operational Research 123 (2000) 105±124 115

Table 5
Congestion within selected industries
Industries No. of Amount for congestion (%) (stage-1) Amount for congestion (%) (stage-3)
companies Employees Assets Equity Employees Assets Equity
Aerospace 7 25.85 (3) 1.01 (1) 14.99 (1) 5.79 (1) 0 1.34 (1)
Airlines 4 62.22 (2) 0 0 0 0 0
Beverages 4 36.16 (2) 0 0 0 0 0
Chemicals 15 21.80 (3) 0 3.09 (1) 8.94 (2) 0 4.80 (3)
Commercial Banks 31 0 66.84 (14) 0 0 13.09 (8) 0
Computer and Data Services 6 37.13 (4) 0 14.24 (2) 14.10 (3) 0 7.65 (2)
Computers, Oce Equipment 11 52.88 (2) 0 14.22 (3) 15.62 (3) 0 15.25 (4)
Diversi®ed Financials 9 43.34 (1) 68.51 (2) 52.45 (1) 0 9.97 (2) 1.27 (1)
Electric & Gas Utilities 31 0 35.34 (1) 18.81 (21) 0 5.47 (1) 2.98 (5)
Electronics, Electrical Equipment 15 20.48 (8) 54.87 (1) 17.21 (1) 4.72 (5) 12.02 (1) 5.76 (5)
Entertainment 3 16.14 (1) 37.79 (1) 14.85 (1) 0 33.40 (1) 0
Food 16 40.20 (9) 0 14.09 (1) 9.79 (6) 0 5.64 (2)
Food & Drug Stores 9 53.41 (9) 0 8.40 (2) 17.78 (9) 0 6.23 (4)
Forest & Paper Products 14 12.37 (2) 43.82 (1) 5.29 (1) 3.29 (3) 4.63 (1) 1.11 (2)
General Merchandisers 8 42.74 (5) 0 16.92 (2) 9.75 (7) 0 2.76 (2)
Health Care 10 41.36 (2) 0 18.53 (5) 7.71 (2) 1.52 (1) 4.59 (3)
Industrial & Farm Equipment 9 15.81 (4) 0 2.14 (1) 8.94 (2) 0 0.56 (2)
Insurance: Life & Health (stock) 10 0 64.44 (4) 6.04 (1) 0 13.63 (3) 0
Insurance: Property & Casuality 12 0 63.16 (2) 24.63 (3) 0 14.60 (2) 17.81 (5)
(stock)
Metal Products 6 24.92 (3) 0 0 5.94 (2) 0 2.15 (2)
Motor Vehicles & Parts 11 30.19 (6) 35.61 (1) 0 4.59 (6) 2.15 (2) 0
Petroleum Re®ning 16 77.12 (1) 8.95 (2) 28.93 (9) 1.02 (2) 0 6.65 (5)
Pharmaceuticals 10 18.38 (3) 0 2.33 (1) 3.57 (1) 0 0
Pipelines 4 0 6.00 (1) 19.49 (2) 0 0 5.06 (1)
Publishing, Printing 6 6.38 (2) 0 0 2.24 (1) 0 0
Soaps, Cosmetics 3 0 0 0 2.26 (1) 0 0
Special Retailers 10 54.17 (8) 0 12.88 (4) 12.89 (8) 0 10.46 (3)
Telecommunications 6 56.02 (1) 0 14.11 (1) 0 0 0
Temporary Help 3 0 0 10.03 (2) 8.74 (3) 0 6.83 (2)
Wholesalers 13 44.64 (3) 3.48 (1) 13.69 (6) 5.81 (5) 0 6.48 (5)
Note: The number in parenthesis represents the number of companies having congestion.

an evaluation of inecient DMUs, non-radial problems and the existing VRS best practice
DEA models with preferences over input (output) frontier.
improvement may be more appropriate. Unfortu-
nately, as mentioned, the current study does not hk
d ˆ min hd ;
k
d 2 N;
X d
have access to such priori information. Therefore, s:t: kj xkj ˆ hkd xkd ; k 2 f1; . . . ; mg;
we seek an alternative way to further characterize j2E
the performance of inecient companies by factor- X
speci®c models. kdj xij 6 xid ; i 6ˆ k;
j2E
Lewin and Morey (1981) and Torgersen et al. X …3†
(1996) report applications for output-speci®c e- kdj yrj P yrd ; r ˆ 1; . . . ; s;
ciency measures which are derived from radial j2E
X
component and non-zero slacks. Here, for a par- kdj ˆ 1;
ticular inecient DMUd , we de®ne factor-speci®c j2E
(kth input-speci®c and qth output-speci®c) mea-
sures via the following two linear programming kdj P 0; j 2 E;
116 J. Zhu / European Journal of Operational Research 123 (2000) 105±124

and The factor-speci®c measures (3) and (4) deter-

mine the maximum potential decrease of an input
/q
d ˆ max /d ;
q
d 2 N; and increase of an output while keeping other in-
X d q
s:t: kj yqj ˆ /d yqd ; q 2 f1; . . . ; sg; puts and outputs at current levels. Also, these
j2E
X d factor-speci®c measures are still multi-factor ®-
kj yrj P yrd ; r 6ˆ q; nancial performance measures, since all related
j2E factors are considered in a single model.
X d …4†
kj xij 6 xid ; i ˆ 1; . . . ; m; Table 6 reports the results for the top-20 com-
j2E panies. We only apply Eqs. (3) and (4) to measure
X d the pro®tability and marketability. Recall that
kj ˆ 1;
j2E revenue and pro®t are two factors served as the
two outputs in stage-1 and the two inputs in stage-
kdj P 0; j 2 E;
2. Therefore we have two factor-speci®c eciency
where E and N respectively represent the index sets scores for each revenue and each pro®t.
for the ecient and inecient DMUs identi®ed by One may use the average factor-speci®c scores
the previous method (VRS model (2)). The above (optimal values to Eq. (3) or Eq. (4)) within each
two models are equivalent to the target setting industry to characterize the factor-speci®c industry
models of Thanassoulis and Dyson (1992) when eciency. However, di€erent companies with dif-
one input or output is given pre-emptive priority ferent sizes may exist in each industry. Therefore
to improve and CRS is assumed. In computation, arithmetic averages may not be necessarily a good
one may treat the input or output under consid- way to characterize the industry eciency. Usu-
eration as a controllable factor, and all other in- ally, one expects bigger input and output levels,
puts or outputs as uncontrollable factors (Banker e.g., assets and revenue, form relatively big com-
and Morey, 1986). panies. And people tend to emphasize large com-

Table 6
Factor-speci®c eciency for the top-20 companies
DMU Company name Pro®tability (stage-1) Marketability (stage-2)
no. Employees Assets Equity Revenue Pro®t Revenue Pro®t MV TRI EPS
1 General Motors 1.00000 1.00000 1.00000 1.00000 1.00000 0.02466 0.00953 3.20721 9.25792 84.74341
2 Ford Motors 1.00000 1.00000 1.00000 1.00000 1.00000 0.02809 0.01342 3.31369 33.75399 170.67039
3 Exxon 1.00000 1.00000 1.00000 1.00000 1.00000 0.15529 0.08837 1.28392 3.02189 41.07062
4 Wal-Mart Srores 1.00000 1.00000 1.00000 1.00000 1.00000 0.05764 0.02920 2.01126 43.76786 447.91196
5 AT&T 0.47892 0.50292 0.65286 1.17238 41.67022 1.00000 1.00000 1.00000 1.00000 1.00000
6 INTL, Business 0.30400 0.59781 0.57283 1.30712 1.39691 0.11383 0.03211 1.68969 7.23529
Machines
7 General Electric 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000
8 Mobil 1.00000 1.00000 1.00000 1.00000 1.00000 0.06766 0.05249 2.40104 6.49364 103.69688
9 Chrysler 0.80488 0.73528 0.90633 1.05990 1.38140 0.05696 0.02046 4.38760 17.55941 115.28302
10 Philip Morris 1.00000 1.00000 1.00000 1.00000 1.00000 0.23912 0.09468 1.40766 2.46498 47.33460
13 E.I. Du Pont De 0.93291 0.94977 0.97600 1.01543 1.03898 0.12216 0.02263 2.34231 8.74816 107.28764
Nemours
14 Texaco 0.93258 0.86187 0.93559 1.04591 2.47503 0.07962 0.05930 3.20174 7.86342 243.00370
15 Sears Roebuck 1.00000 1.00000 1.00000 1.00000 1.00000 0.07859 0.01987 4.73655 9.92593 135.77778
17 Procter & Gamble 0.32505 0.74317 0.65434 1.29096 1.41339 0.16797 0.12706 1.78934 5.64380 138.59502
18 Chevron 0.49274 0.46929 0.44408 1.71586 4.10003 0.12197 0.05855 2.03528 11.38573 427.27273
19 Citicorp 0.28454 0.09589 0.38481 2.23675 1.41471 0.11825 0.01650 2.99984 4.15414 82.19712
20 Hewlett-Packard 0.28559 0.77241 0.53474 1.28700 1.44347 0.17203 0.11140 1.83854 3.26803 111.86586
Average 0.75537 0.80755 0.82715 1.18419 3.78436 0.21199 0.16209 2.39092 10.38495 136.37945
 J. Zhu / European Journal of Operational Research 123 (2000) 105±124 117

panies in each industry. Thus, we may de®ne ecient DMUs by measuring the radial distance
weighted factor-speci®c scores within each indus- form a speci®c ecient DMU to a frontier con-
try by considering the sizes of the companies. structed by the remaining DMUs. The most e-
(Size-adjusted) kth input-speci®c industry e- cient (or important) DMU is the one that has the
ciency measure for industry F: largest radial distance. However, it is possible that
X k P the most ecient DMU detected by Andersen and
F xkd x^kd Petersen (1993) method may never appear in the
Ik ˆ hd
P ˆ Pd2F ; …5†
d2F d2F xkd d2F xkd reference set for inecient DMUs. Most recently,
Torgersen et al. (1996) de®ne a ranking measure
(size-adjusted) qth output-speci®c industry eciency by using the positive lambda values in the VRS
measure for industry F: model (2). In the current study, we develop refer-
P ence-share measures for each eciency company
X q yqd y^qd
F
Oq ˆ /d
P ˆ Pd2F ; …6† via Eqs. (3) and (4).
d2F yqd d2F yqd
d2F On the basis of Eq. (3), we de®ne the kth input-
 
where x^kd …ˆ hkd xkd † and y^qd …ˆ /qd yqd † are, respec- speci®c reference-share for each ecient DMUj ,
tively, the projected (potentially ecient) levels for j 2 E,
kth input and qth output of DMU P
Pd , d 2 F. d k
d2N kj …1 ÿ hd †xkd
The weights inPEq. (5) (…xkd = d2F xkd †; d 2 F† k
Dj ˆ P ; …7†
k
and Eq. (6) (…yqd = d2F yqd †; d 2 F) are normalized, d2N …1 ÿ hd †xkd
therefore a speci®c industry F achieves 100% e-  
where kdj and hkd are optimal values in Eq. (3).
ciency, i.e., IkF ˆ 1 and OFq ˆ 1, if and only if all of
On the basis of Eq. (4), we de®ne the qth out-
its companies are located on the best-practice
put-speci®c reference-share for each ecient
frontier.
DMUj , j 2 E,
Table 7 reports the industry eciency scores
P d q
for the 30 selected industries where the number in d2N kj …/d ÿ 1†yqd
each parenthesis represents the corresponding Pqj ˆ P q ; …8†
d2N …/d ÿ 1†yqd
arithmetic mean of factor-speci®c eciency scores. 
q
A relatively large discrepancy between weighted where kd j and /d are optimal values in Eq. (4).
and arithmetic average scores is detected for six The reference-share Dkj (or Pqj ) depends

on the
  
industries ± General Merchandiser, Health Care, values of kdj and hkd (or kdj and /qd ). Note that

Motor Vehicles & Parts, Petroleum Re®ning, …1 ÿ hkd †xkd and …/qd ÿ 1†yqd characterize the po-
Pipelines, and Telecommunications. Since Eqs. (5) tential decrease on kth input and increase on qth
and (6) determine the industry eciency by con- output, respectively. Therefore, the reference-share
sidering the size of each company. This further here measures the contribution an ecient DMU
implies that eciency may correlate highly with makes to the potential input (output) improve-
size in these industries. ment in inecient DMUs.
Dkj and Pqj are weighted optimal lambda values
across all P inecient  DMUs. The weights, ……1 ÿ

4.2. Analysis of best-practice-frontier companies hkd †xkd =…P d2N …1 ÿ hkd †xkd † in Eq. (7) and ……/qd ÿ
1†yqd †=… d2N …/qd ÿ 1†yqdP † in Eq. (8) are P
normal-
k q
As an ecient company, the role it plays in ized, therefore we P have D
j2E j ˆ 1 and j2E Pj
d
benchmarking ineciency companies is to be of ˆ 1. (Note that j2E kj ˆ 1 in Eqs. (3) and (4).)
interest. One may want to know the importance of It is very clear form Eqs. (7) and (8) that an
each ecient DMU in measuring the ineciencies ecient company which does not act as referent
of inecient DMUs. One way to accomplish such DMU for any inecient DMUs will have zero
a task is to count the number of times a particular reference-share. The bigger the reference-share, the
ecient company acts as referent DMU. On the more important an ecient company is in bench-
other hand, Andersen and Petersen (1993) rank the marking.
118 J. Zhu / European Journal of Operational Research 123 (2000) 105±124

Table 7
Factor-speci®c eciency
Industries Pro®tability (stage-1) Marketability (stage-2)
Employees Assets Equity Revenue Pro®t Revenue Pro®t MV TRI EPS
Aerospace 0.12 0.30 0.24 1.98 3.85 0.21 0.06 3.44 5.88 102.60
(0.11) (0.35) (0.23) (2.26) (4.16) (0.29) (0.06) (4.51) (6.39) (131.24)
Airlines 0.12 0.24 0.24 1.95 4.54 0.35 0.34 4.73 2.66 35.65
(0.12) (0.29) (0.27) (2.37) (5.36) (0.55) (0.38) (4.10) (5.80) (54.23)
Beverages 0.34 0.56 0.56 1.71 1.72 0.64 0.80 1.37 4.57 102.55
(0.33) (0.46) (0.39) (2.17) (4.96) (0.61) (0.37) (2.67) (4.94) (95.84)
Chemicals 0.46 0.56 0.46 1.91 1.83 0.32 0.06 3.55 9.63 84.31
(0.32) (0.46) (0.31) (2.54) (2.46) (0.52) (0.11) (4.16) (13.37) (100.13)
Commercial Banks 0.13 0.06 0.31 3.66 2.62 0.34 0.07 3.94 6.40 85.39
(0.13) (0.05) (0.24) (4.26) (3.24) (0.51) (0.13) (4.05) (5.98) (104.16)
Computer and Data Services 0.20 0.57 0.36 2.93 1.69 0.82 0.83 1.20 4.01 38.83
(0.30) (0.54) (0.31) (3.12) (2.39) (0.85) (0.66) (1.52) (5.68) (38.77)
Computers, Oce Equipment 0.25 0.60 0.48 1.51 1.77 0.24 0.09 2.37 4.28 84.83
(0.26) (0.59) (0.38) (2.00) (3.33) (0.50) (0.02) (3.90) (8.59) (86.03)
Diversi®ed Financials 0.15 0.62 0.39 2.46 2.08 0.33 0.13 2.82 5.24 6.88
(0.38) (0.39) (0.43) (3.09) (2.40) (0.47) (0.17) (3.79) (7.31) (117.12)
Electric & Gas Utilities 0.30 0.18 0.16 3.73 2.69 0.56 0.08 4.99 10.34 128.75
(0.32) (0.18) (0.15) (3.85) (4.03) (0.65) (0.14) (5.00) (11.68) (126.03)
Electronics, Electrical Equipment 0.41 0.86 0.69 1.68 1.57 0.63 0.47 2.14 6.34 86.56
(0.30) (0.53) (0.38) (2.35) (3.12) (0.54) (0.19) (3.54) (14.22) (87.05)
Entertainment 0.12 0.20 0.15 3.24 4.33 0.40 0.41 1.49 6.96 248.91
(0.16) (0.24) (0.25) (3.06) (7.86) (0.50) (0.39) (1.56) (10.07) (285.42)
Food 0.29 0.45 0.32 1.84 2.49 0.30 0.09 3.42 8.83 145.47
(0.35) (0.55) (0.43) (2.01) (6.26) (0.42) (0.20) (3.28) (16.35) (143.31)
Food & Drug Stores 0.35 0.70 0.44 1.49 2.39 0.28 0.10 5.52 6.24 83.66
(0.23) (0.64) (0.41) (1.83) (3.34) (0.44) (0.21) (5.31) (25.35) (86.30)
Forest & Paper Products 0.16 0.30 0.21 2.47 3.44 0.49 0.06 4.24 11.63 67.17
(0.17) (0.36) (0.18) (2.83) (7.88) (0.59) (0.16) (5.14) (26.57) (66.03)
General Merchandisers 0.65 0.85 0.65 1.35 1.95 0.12 0.04 3.48 17.41 129.62
(0.32) (0.65) (0.43) (2.16) (3.52) (0.32) (0.08) (4.33) (24.60) (152.9)
Health Care 0.07 0.34 0.23 2.69 3.61 0.50 0.16 2.68 8.95 98.43
(0.30) (0.47) (0.32) (2.75) (4.94) (0.66) (0.28) (2.91) (13.56) (95.67)
Industrial & Farm Equipment 0.14 0.33 0.24 2.43 2.78 0.39 0.08 4.19 7.56 98.35
(0.13) (0.36) (0.18) (2.89) (3.59) (0.52) (0.15) (4.20) (13.39) (103.26)
Insurance: Life & Health 0.15 0.06 0.19 2.57 4.72 0.37 0.10 4.86 6.25 57.71
(stock) (0.25) (0.07) (0.22) (2.97) (5.23) (0.53) (0.14) (5.16) (6.58) (65.72)
Insurance: Property & Casuality 0.29 0.29 0.47 2.26 1.84 0.28 0.05 4.09 6.42 71.85
(stock) (0.37) (0.27) (0.35) (2.76) (2.64) (0.47) (0.08) (5.55) (8.49) (80.33)
Metal Products 0.12 0.43 0.19 3.04 2.82 0.63 0.30 2.22 7.47 103.54
(0.11) (0.42) (0.17) (3.28) (4.83) (0.70) (0.36) (2.12) (8.89) (96.76)
Motor Vehicles & Parts 0.77 0.92 0.84 1.19 1.36 0.07 0.02 41.19 13.26 77.53
(0.32) (0.51) (0.39) (2.11) (2.67) (0.32) (0.08) (5.72) (30.38) (77.95)
Petroleum Re®ning 0.64 0.71 0.73 1.29 1.85 0.17 0.07 2.41 9.94 102.81
(0.51) (0.50) (0.44) (1.72) (6.28) (0.36) (0.16) (4.21) (18.53) (122.06)
Pharmaceuticals 0.38 0.63 0.52 2.02 1.44 0.44 0.33 1.75 4.77 163.58
(0.41) (0.64) (0.54) (2.14) (1.59) (0.44) (0.29) (2.00) (5.65) (193.30)
Pipelines 0.63 0.51 0.59 1.76 1.40 0.51 0.07 4.38 5.22 46.10
(0.57) (0.44) (0.50) (1.91) (2.64) (0.65) (0.13) (4.22) (6.47) (103.94)
Publishing, Printing 0.13 0.39 0.16 3.35 2.77 0.67 0.21 3.23 14.35 69.09
(0.20) (0.43) (0.21) (3.44) (2.84) (0.73) (0.22) (3.19) (19.16) (73.99)
Soaps, Cosmetics 0.40 0.64 0.58 1.40 1.67 0.25 0.13 1.89 10.04 101.42
(0.47) (0.64) (0.58) (1.45) (3.00) (0.37) (0.12) (2.23) (11.98) (109.16)
 J. Zhu / European Journal of Operational Research 123 (2000) 105±124 119

Table 7 (Continued)
Industries Pro®tability (stage-1) Marketability (stage-2)
Employees Assets Equity Revenue Pro®t Revenue Pro®t MV TRI EPS
Special Retailers 0.24 0.69 0.35 1.72 2.39 0.40 0.15 3.19 6.79 103.34
(0.27) (0.66) (0.40) (2.11) (4.28) (0.60) (0.30) (3.90) (20.26) (98.36)
Telecommunications 0.36 0.41 0.42 1.70 3.72 0.68 0.12 1.85 7.19 188.16
(0.25) (0.34) (0.33) (2.45) (10.19) (0.44) (0.25) (2.53) (61.16) (214.68)
Temporary Help 0.50 0.84 0.68 1.30 1.39 0.69 0.32 3.68 18.87 30.83
(0.56) (0.87) (0.68) (1.31) (1.31) (0.78) (0.36) (3.52) (93.62) (30.48)
Wholesalers 0.54 0.69 0.38 1.34 2.37 0.37 0.18 3.95 6.64 49.55
(0.58) (0.74) (0.55) (1.46) (2.08) (0.47) (0.30) (4.61) (8.83) (49.33)
Note: The number in parenthesis represents the arithmetic average.

Tables 8 and 9 report the reference-share for
stage-1 and stage-2. There are 31 VRS-ecient
DMUs in stage-1. Table 8 reports the reference-
shares for 12 selected VRS-ecient companies. The
reference-shares for the remaining VRS-ecient
companies are less than 0.01%. Of the total 60
reference-shares, 12 are greater than 10%. Partic-
ularly, DMU48 (Coca-Cola), DMU156 (General
Mills) and DMU281 (Bindley Western), which are
CRS-ecient DMUs, have the biggest reference-
share in employees, equity and pro®t, respectively.
This means that, e.g., General Mills plays a leading
role in terms of equity given the current levels of
employees and assets. Note that General Mills had
the highest returns on equity in 1995.
The reference-shares for the 16 VRS-ecient
companies in stage-2 are reported in Table 9.
DMU226 (Continental Airlines) and DMU292
(Berkshire Hathaway) are two important compa-
nies in TRI and EPS benchmarking, respectively.
(Note that Continental Airlines and Berkshire
Hathaway had the highest TRI and EPS in 1995.)
Although Berkshire Hathaway was ranked 18 in
terms of MV levels by the Fortune magazine, the
reference-share of 39.99% indicates that it had an
outstanding performance in terms of MV given
other factors. This again indicates that single ®-
nancial performance alone is not sucient to
characterize a company's performance.
Finally, note that, e.g., DMU292 and DMU474
both acted as an referent DMU in 63% of the in-
ecient DMUs when measuring the revenue-spe-
ci®c eciency, however, the reference-share
indicates that DMU474 is more important.

Table 8
Reference-share in stage-1
DMU no. Company name Employees Assets Equity Revenue Pro®t
8 Mobil 3.07% 1.51% 0.76% 16.00% 0.15%
32 Fed. Natl. Mortgage Assn. 2.78% 0 2.76% 0.89% 0.10%
44 Loews 7.17% 0.14% 0 0.95% 1.41%
48 Coca-Cola 2.58% 12.54% 10.65% 2.88% 40.65%
94 IBP 0 22.51% 0.07% 13.16% 0.80%
153 Bergen Brunswig 0.60% 0 0.16% 5.91% 0.17%
156 General Mills 1.86% 0.01% 60.91% 17.19% 7.85%
168 Cardinal Health 3.12% 2.82% 0.01% 10.89% 0
281 Bindley Western 52.91% 4.79% 2.93% 5.97% 2.86%
419 Micron Technology 0.17% 28.37% 0.24% 0.29% 11.04%
437 Nash Finch 0 10.16% 0.02% 0.24% 0.27%
447 Williams 8.68% 0 0 0.02% 8.62%
Total 82.94% 82.85% 78.51% 74.39% 73.92%
120 J. Zhu / European Journal of Operational Research 123 (2000) 105±124

Table 9
Reference-share in stage-2
DMU no. Company name Revenue Pro®t MV TRI EPS
5 AT&T 0 12.33% 6.95% 2.22% 0
7 Intl. Business Machines 0 0.20% 3.83% 6.39% 0.79%
48 Coca-Cola 5.44% 0.80% 11.37% 0.13% 0.11%
78 Kimberly-Clark 0.04% 36.66% 6.96% 0 0.10%
210 Burlington Northern Santa FE 0.05% 4.29% 6.39% 0 0
219 Microsoft 8.46% 0 9.97% 0 0
226 Continental Airlines 0.44% 0.69% 1.30% 81.91% 0.87%
292 Berkshire Hathaway 23.56% 8.37% 39.99% 0.18% 73.96%
312 Chiquita Brands International 0.00% 15.49% 0.07% 0.17% 11.41%
376 Consolidated Natural Gas 0.99% 11.29% 4.89% 0.05% 0.00%
417 Oracle 0.00% 0.00% 1.37% 0 0
437 Nash Finch 0.09% 0.51% 0 0 3.56%
451 Compusa 1.43% 7.22% 0.88% 8.85% 4.11%
474 Computer Associates INTL. 29.90% 0.04% 1.69% 0.00% 0.00%
494 Foundation Health 5.21% 2.07% 4.25% 0.07% 2.58%
495 State Street Boston Corp. 24.39% 0.04% 0.09% 0.03% 2.51%
Total 100.00% 100.00% 100.00% 100.00% 100.00%

5. Reliability For an ecient DMUo

(
x^io ˆ dxio ; d P 1; i 2 I;
Since data can be contaminated by statistical
noise, a frequently asked question related to the x^io ˆ xio ; i 62 I;
reliability or stability of the multidimensional ( !
y^ro ˆ syro ; 0 < s 6 1; r 2 O
measures is `To what extent can perturbations in or :
the data observations be tolerated before an e- y^ro ˆ yro ; r 62 O
cient DMU is misclassi®ed as inecient?' To an- For other DMUj …j 6ˆ o†
swer this question in the current study, we secure (
the help from Zhu (1996c), Seiford and Zhu x^ij ˆ xij =d; d P 1; i 2 I;
(1998a, b) where the necessary and sucient con- x^ij ˆ xij ; i 62 I;
ditions for preserving eciency of the ecient ( !
DMUs are developed and the entire (largest) sta- y^rj ˆ yrj =s; 0 < s 6 1; r 2 O
or :
bility region can be obtained. y^rj ˆ yrj ; r 62 O
Note that an increase of any output or a de-
crease of any input can not worsen the eciency of The following two linear programming models
an ecient company (DMUo ). Therefore we restrict are employed to ful®ll the sensitivity analysis:
our attention to decrease in outputs and increase b ˆ min b
in inputs for DMUo . In order to simultaneously
Xn
consider the data changes for the other DMUs, we s:t: kj xij 6 bxio ; i 2 I;
suppose increased output and decreased input for jˆ1
j6ˆo
all other DMUs, i.e., our sensitivity analysis is
X
n
based on a worst-case scenario in which eciency kj xij 6 xio ; i 62 I;
of DMUo declines and the eciencies of all other …9†
jˆ1
j6ˆo
DMUj …j 6ˆ o† improve. Let I and O denote re-
X
n
spectively the input and output subsets in which kj yrj P yro ; r ˆ 1; 2; . . . ; s;
we are interested. Then the simultaneous changes jˆ1

of input (or output) of all DMUj …j 6ˆ o† and j6ˆo

DMUo can be expressed as (percentage change): b; kj …j 6ˆ o† P 0;

 J. Zhu / European Journal of Operational Research 123 (2000) 105±124
and
a ˆ max a
Xn
s:t: kj yrj P ayro ; r 2 O;
jˆ1
j6ˆo
X
n dex, we study the robustness of the CRS-ecient
kj yrj P yro ; r 62 O; …
jˆ1
j6ˆo
X
n tivity analysis results for the pro®tability and
kj xij 6 xio ; i ˆ 1; . . . ; m;
jˆ1
j6ˆo
a; kj …j 6ˆ o† P 0:
We have
Conclusion
p 1: For the input change case, if
l 6 d 6 b , then DMUo remains ecient, where
b is the optimal value to Eq. (9).
pConclusion
 2: For the output change case, if
a 6 s 6 l, then DMUo remains ecient, where
a is the optimal value to Eq. (10).
Note that models Eqs. (9) and (10) may be in-
feasible. Seiford and Zhu (1998a) show that `in-
feasibility' can be interpreted as `stability' of the
eciency classi®cation of DMUo with respect to
the changes of corresponding input and (or out-
put) in all DMUs.
Conclusion 3: (i) In the input change case, for
any d P l, DMUo remains ecient after the si-
multaneous data changes for DMUo and the re-
maining DMUj …j 6ˆ o† if and only if Eq. (9) is
infeasible.
(ii) In the output change case, for any 0 <
s 6 l DMUo remains ecient after the simulta-
neous data changes of DMUo and the remaining
DMUj …j 6ˆ o† if and only if Eq. (10) is infeasible.
The sensitivity analysis is carried out as follows:
(i) We consider the percentage changes in all pos-
sible input subsets and output subsets, respective-
ly; (ii) We determine the upper-bound levels of
go …ˆ d ÿ 1† and g …ˆ …d ÿ 1†=…d†† for input
changes and ho …ˆ 1 ÿ s† and h …ˆ …1 ÿ s†=…s†† for
output changes. Upper bounds of, e.g., go and g
121
p
can
prespectively
p be obtained as b ÿ 1 and
… b ÿ 1†=… b †. Here we interpret …go ; g† and
…ho ; h† as a sensitivity index in which go and ho
describe the change of each test CRS-ecient
company and g and h describe the change of re-
maining companies; (iii) Using the sensitivity in-
10† companies.
Tables 10 and 11 respectively report the sensi-
marketability where the symbol `R' indicates that
the model (9) (or (10)) employed is infeasible
which further implies that the measure is reliable 8.
The sensitivity index in each cell gives the upper-
bound levels of …go ; g† and …ho ; h†. For instance,
consider the company 32 in Table 10. In the em-
ployees row, (74.98%, 42.85%) means that the
number of employees in company 32 can be in-
creased by 74.98% and meanwhile the number of
employees in all other companies can be decreased
by 42.85%. In the `all outputs' row, (32.37%,
47.87%) means that the simultaneous 32.37% de-
crement of all outputs in company 32 and 47.87%
increments of all outputs in the remaining 363
companies can not change the current eciency
classi®cation of company 32.
The eciency measure for DMUs 291 and 317
(pro®tability), and for DMUs 5, 210, 219 and 474
appears relatively sensitive to the possible data
errors.
Recall that the infeasibility means stability, i.e.,
the upper-bound levels of go , h and g, ho are re-
spectively ‡1 and (100 ÿ e)%, where e is a small
enough positive number. Thus the symbol `R'
means that (i) the input of the test company can
in®nitely be increased and simultaneously the
corresponding inputs of the remaining companies
can be reduced to any positive numbers; (ii) the
output of the test company can be reduced to any
positive numbers while the corresponding outputs
8
Ten sensitivity indices are related to each CRS-ecient
company through the di€erent combinations of inputs and of
outputs. For example, in stage-1, we have three inputs and two
outputs, therefore we have the following ten combinations of
inputs and outputs, I ˆ {employees}, {assets}, {equity}, {em-
ployees, assets}, {employees, equity}, {employees, assets, equi-
ty}, and O ˆ {revenue}, {pro®t}, {revenue, pro®t}.
Table 10

122
Reliability measures for the CRS-ecient companies in stage-1
Ecient company: 32 44 48 94 156 281 291 317 419 447
Employees 74.98%, 24.21%, 14.72%, 12.83% R R R R 0.23%, 0.23% R 9.97%,
42.85% 19.49% 9.07%
Assets R 49.09%, R 18.62%, R R 0.04%, 29.08%, 22.53% 33.63%, R
32.93% 15.70% 0.04% 25.17%
Equity R R 11.39%, 10.22% R 127.78%, R 0.15%, 0.29%, 0.29% R R
56.10% 0.15%
Employees + assets 74.98%, 17.30%, 14.19%, 12.43% 18.62%, R 102.29%, 0.04%, 0.23%, 0.23% 18.73%, 9.67%,
42.85% 14.75% 15.70% 50.57% 0.04% 15.77% 8.82%
Employees + equity 47.87%, 16.10%, 5.83%, 5.51% R 119.99%, 231.07%, 0.15%, 0.12%, 0.13% R 7.45%,
32.37% 13.73% 54.54% 69.79% 0.15% 6.93%
Assets + equity R 24.13%, 10.81%, 9.76% 17.33%, 127.78%, 728.20%, 0.03%, 0.29%, 0.29% 33.63%, 28.41%,
19.44% 14.77% 56.10% 87.93% 0.03% 25.17% 22.13%
All inputs 47.87%, 12.73%, 5.67%, 5.37% 16.69%, 97.02%, 62.32%, 0.03%, 0.12%, 0.13% 15.98%, 6.76%,
32.37% 11.29% 14.30% 49.24% 38.39% 0.03% 13.78% 6.34%
Revenue R R R 19.64%, R 38.39%, 4.32%, 0.96%, 0.97% R R
24.45% 62.32% 4.51%
Pro®t R 14.14%, 5.97%, 6.35% R R R 0.03%, 0.15%, 0.15% 13.78%, 6.34%,
16.47% 0.03% 15.98% 6.76%
All outputs 32.37%, 11.29%, 5.37%, 5.67% 14.30%, 49.24%, 38.39%, 0.03%, 0.13%, 0.12% 13.78%, 6.34%,
47.87% 12.73% 16.69% 97.02% 62.32% 0.03% 15.98% 6.76%

Table 11
Reliability measures for the CRS-ecient companies in stage-2
Ecient bank: 5 78 210 219 226 292 451 474
J. Zhu / European Journal of Operational Research 123 (2000) 105±124

Revenue R R 0.85%, 0.85% 2.35%, 2.29% 25.74%, 20.47% R R 1.02%, 1.01%

Pro®t 4.65%, 4.44% 75.56%, 43.04% 1.76%, 1.73% R R R 60.55%, 37.71% R
All inputs 4.65%, 4.44% 15.64%, 13.53% 0.58%, 0.57% 2.35%, 2.29% 25.74%, 20.47% 511.43%, 83.64% 32.65%, 24.61% 1.02%, 1.01%
MV 4.44%, 4.65% 20.43%, 25.68% 0.71%, 0.71% 2.30%, 2.35% R R R 1.91%, 1.95%
TRI R R 3.04%, 3.14% R 33.34%, 50.01% R 25.12%, 33.55% 2.18%, 2.23%
EPS R R R R R R R R
MV + TRI 4.44%, 4.65% 13.53%, 15.64% 0.57%, 0.58% 2.30%, 2.35% 22.33%, 28.75% R 25.12%, 33.55% 1.01%, 1.02%
MV + EPS 4.44%, 4.65% 20.43%, 25.68% 0.71%, 0.71% 2.30%, 2.35% R 83.68%, 512.91% R 2.18%, 2.23%
TRI + EPS R R 2.98%, 3.08% R R R 24.61%, 32.65% 1.64%, 1.67%
All outputs 4.44%, 4.65% 13.53%, 15.64% 0.57%, 0.58% 2.29%, 2.35% 20.47%, 25.74% 83.64%, 511.43% 24.61%, 32.65% 1.01%, 1.02%
 J. Zhu / European Journal of Operational Research 123 (2000) 105±124
of the remaining companies can in®nitely be in-
creased. Note that 30% and 40% of the sensitivity
analysis cases are associated with infeasibility in
stage-1 and stage-2, respectively. This indicates
that in overall, the CRS frontiers respectively for
pro®tability and marketability are robust to the
possible data errors.
6. Conclusion
Using DEA, the paper explores the multidi-
mensional ®nancial performance of the Fortune
500 companies. Revenue-top-ranked companies
do not necessarily have top-ranked performance in
terms of pro®tability and (stock) marketability.
Most companies exhibited not only serious tech-
nical ineciencies, but also serious scale ine-
ciencies. Decreasing returns to scale (DRS) are
found mainly among revenue-top-ranked compa-
nies. Also, an input congestion is found in the
Fortune 500 companies. The factor-speci®c DEA
measures enable us to study the factor-speci®c
performance given the current levels of other fac-
tors. The performance of ecient companies are
further studied by the reference-shares. However,
one may employ other DEA techniques to mea-
sure the relative performance of ecient compa-
nies. One possibility is to employ the context-
dependent DEA measure by Seiford and Zhu
(1997) to determine the relative attractiveness of
each ecient company given the companies in
di€erent eciency levels.
The sensitivity analysis is ful®lled under the
condition that the performance of a CRS-ecient
company under consideration is worsening while
all other companies' performances are improving,
i.e., we consider the simultaneous changes of all
companies' data. The sensitivity analysis shows
that the DEA results are in general insensitive to
the possible data errors in this sample. The sensi-
tivity analysis also shows which production factor
will not a€ect an ecient company's ®nancial
performance given that all other production fac-
tors are kept at their current levels. This infor-
mation is useful when a company considers its
future policy against other companies.
123
Finally, the examination of performance over
time by the window analysis and the Malmquist
productivity change index techniques would be a
promising future study. Such an approach would
allow a dynamic view of the multidimensional ®-
nancial performance within the Fortune 500
companies.
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