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Applying quality-driven, efficiency-adjusted DEA (QE-DEA) in the pursuit of

high-efficiency-high-quality service units: An input-oriented approach

Article  in  IMA Journal of Management Mathematics · September 2011

DOI: 10.1093/imaman/dpr014

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 Applying Quality–Driven, Efficiency-Adjusted DEA (QE-DEA) in
the Pursuit of High-Efficiency – High-Quality Service Units:
An Input-Oriented Approach

PANAGIOTIS ZERVOPOULOSa†, THEODOSIOS PALASKASb

a
Department of Economic and Regional Development, Panteion University of Athens, 136 Syngrou
Avenue, Athens, Greece. E-mail: panagiotis.zervopoulos@panteion.gr

b
Department of Economic and Regional Development, Panteion University of Athens, 136 Syngrou
Avenue, Athens, Greece. E-mail: theodosios.palaskas@panteion.gr

Abstract

The Data Envelopment Analysis (DEA) is used extensively for estimating the comparative efficiency
between operational units that employ similar production processes. Efficiency optimization, however,
is not adequate by itself to ensure the successful operation of an enterprise, because it is related only to
the internal production process of a business unit. Therefore, the unit, to be able to achieve its goals,
should take into consideration external factors, such as customer satisfaction, which reflect the quality
of the services provided. In this context, the current paper strongly supports the view that synchronous
assessment of both efficiency and quality is necessary. Using the Q-DEA model of Sherman and Zhu
(2006a), we develop a Quality-driven, Efficiency-adjusted DEA model (QE-DEA) which seeks to
provide a road map for high-quality and high-efficiency operation of every service unit of the sample.

Keywords: Data Envelopment Analysis (DEA); Efficiency; Quality; Non-discretionary variables

1
1. Introduction

Attaining technical efficiency and providing high-quality services, which are assessed solely
by the end-users after the receipt of service (Parasuraman et al.1, 1988; Zeithaml2, 1988), are
considered to be ideal concepts for modern enterprises. Regardless of its importance, quality
is frequently omitted from performance analyses (Callen, 1991) as if the operational units
should focus solely on efficiency optimization. If this was the case, those units would be
alienated from their customers. Because, if such strategy was adopted, especially by
enterprises operating in mature markets where marginal growth rates and intense competition
dominate (Hayes, 2008; Anderson & Fornell, 1994), the results could be disastrous as in those
markets, consumers are regarded as ‘scarce sources’. The satisfaction of the consumers,
which is derived from the delivered service quality standards, would secure mid-to-long-term
viability of an enterprise.

To this extent, the scope of the present paper is the development of a geometrical and
algebraic model, based on issues raised by Sherman and Zhu (2006a), to estimate the
efficiency of all operational units under evaluation, even those categorized as low-quality –
high-efficiency. In the following section, we review three prevalent DEA-based classification
techniques. In the third section, we analyze the proposed Quality-driven, Efficiency-adjusted
DEA model (QE-DEA), first in the case where all inputs are controlled by the SU and,
second, under the assumption that some of the inputs are not discretionary. By running this
model, in conjunction with DEA, we can develop a road map for achieving high-quality –
high-efficiency for every operational unit. It has to be stressed that, here, we have assumed a
trade-off between quality and efficiency. To be more precise, improvement in services’
quality standards entails need for additional resources engagement, given the outputs’ level,
and also, efficiency decline. Evidence of the QE-DEA model’s application to the Citizen
Service Centers is provided in the fifth section. Conclusions are presented in the last section
of the paper.

2. Literature Review

The concept of the QE-DEA model development was based on the Quality-adjusted DEA (Q-
DEA) model put forth by Sherman and Zhu (2006a). A brief review of the related to the QE-
DEA method DEA-based classification techniques follows, stressing the Q-DEA, Decision
trees – DEA and Context-dependent DEA methods.

i. Quality-adjusted DEA (Q-DEA)

The Q-DEA model introduced by Sherman and Zhu (2006a) is based on a comparative
analysis of efficiency and quality incorporating the DEA assessment technique. It proposes
the classification of the sample units into high-level and low-level variable scores setting
thresholds. To be more precise, in the case of efficiency and quality, the Q-DEA model
divides the sample units into four segments: 1) high-quality – high-efficiency (HQ-HE), 2)
low-quality – high-efficiency (LQ-HE), 3) low-quality – low-efficiency (LQ-LE), and 4)
high-quality – low-efficiency (HQ-LE). It then benchmarks those composing the HQ-HE
group (Figure 1 and Figure 2). Q-DEA treats the two dimensions, quality and efficiency, as
two independent variables. Efficiency is endogenous variable, so it is controlled by the
operational unit, and quality is exogenous formed by the customers’ perception on quality or
satisfaction from the services received.

1
Quality is the outcome of comparative performance evaluation of services provided. Quality is based
on individual assessment criteria, e.g., on the customers’ perceptions and expectations about the same
service.
2
Quality is formed by the end-users’ judgments about an entity’s overall excellence or superiority.

2
 Figure 1 Q-DEA: Service Units Classification (1st stage analysis)

Figure 2 Q-DEA: Target Peers (2nd stage analysis)

In the case that LQ-HE units appear, they are removed from the sample to avoid any
misspecification of the target units that merely meet the high-efficiency criterion and lack an
acceptable quality level (Figure 1). Although the pulling out of operational units from the
assessment process results in the efficiency scores’ upward movement after the reapplication
of DEA (second stage analysis), this process is proposed by Sherman and Zhu (2006a), so that
to overcome any misleading benchmarking due to the trade-off assumed between efficiency
and quality.

Q-DEA has the potential to uncover the optimum quality-efficiency mix or quality-resources
engaged-outputs produced symmetry, as well as to provide a plan for increased mid and long
term profitability, customer satisfaction and customer loyalty (Sherman and Zhu, 2006b). A
drawback of the Q-DEA model, however, is the isolation of the sample units from the
assessment which, on the one hand, is unrealistic in real conditions and, on the other hand, is
damaging for their viability.

3
ii. Decision trees - DEA

Decision trees are a powerful data mining methodology that provides a step-by-step analysis
and process of data classification aiming to reveal the best scenario or the optimum roadmap
for target attainment (Lee, 2010). Through decision trees’ methodology, setting root node,
nodes, branches and leaf nodes, the relationships between determinant variables and the
outcome, or predictor variables and target variables, are discovered pointing out the optimum
path for goal achievement. This data segmentation technique accommodates both quantitative
and qualitative data expressed by continuous or discrete variables (de Ville, 2006). The data
splitting process for decision tree growth is based on algorithms, the most popular of which
include CHAID (Kass, 1980), CART (Breiman et al., 1984), C4.5 and C5 (Quinlan, 1993).

In recent studies, decision tree analysis has been applied in conjunction with the DEA for
process efficiency assessment to identify the efficient technology applications and the
optimum required level of applications for the best IT security – cost – time processing mix
attainment (Lee, 2010); to signal effectiveness paths when multiple inputs, outputs and
environmental variables (e.g. technology level, available technology, technology provider’s
and receiver’s characteristics) are taken into account (Sogn & Moon, 2004); to benchmark
and rank processes giving priority to those to be changed first (Seol et al., 2007).

Although the relationships between the determinants and the target variables are revealed,
emphasis is placed on the benchmark path without any provision of remedy for those units
that partially meet the anticipated outcome. Hence, it could be said that the DEA, in
conjunction with the data trees’ technique, is an alternative benchmarking approach of
Quality-adjusted DEA (Q-DEA) put forth by Sherman and Zhu (2006a).

The contribution of the QE-DEA method is the trade-off estimation between the determinants
of the outcome, the variables adjustment and the personalized path determination for every
sample unit.

iii. Context-dependent DEA

Context-dependent DEA is a clustering and relative attractiveness extension of the original

DEA method. It has substantial applicability to cases in which after the efficiency assessment,
unrealistic input and output short-term targets are assigned to the inefficient operational units.
In other words, even though the target values arise provide a restructuring context for
efficiency improvement, the results have limited managerial implications due to production
constraints and resources’ availability (Zhu, 2009).

To tackle this problem, algorithms and linear programming functions developed by Seiford
and Zhu (2003) for clustering sample operational units to several ‘equal’ efficiency levels, or
to create multi-layered efficiency frontiers. Each efficiency frontier is a target for the
remaining enveloped units. The first level units that compose the first best-practice frontier
are deemed global targets and the units that form the following levels are local or intermediate
targets (Zhu, 2009).

Moreover, context-dependent DEA provides ranking to the DMUs of the same performance
level after attractiveness or progress estimation (Zhu, 2009; Morita et al., 2005). As a result,
even the DMUs deemed to be at an equal efficiency level are further distinguished to be more
or less attractive compared to their reference evaluation context that consists of one or more
degrees low level units. Alternatively, units of the same best-practice frontier are assigned
higher progress scores than others with respect to the advanced level evaluation context are
distinctive.

Similar to context-dependent DEA, the QE-DEA technique classifies the sample DMUs into
segments, although, without giving emphasis neither on the ordinal clustering based on the
efficiency scores assigned to each unit nor on the determination of local and global targets.

4
However, the latter classification approach has increased applicability in the cases
endogenous and exogenous variables (e.g. customer satisfaction) used for effectiveness
assessment have been found to be inversely related, hence, the optimum mix should be
estimated to attain the anticipated target.

3. Quality-Driven, Efficiency-Adjusted DEA (QE-DEA)

To start with, quality (q) and efficiency (e) are quoted on the x-axis and the y-axis,
respectively, of the Cartesian coordinate system, while the quality-efficiency bundle
determines the geometrical position of a Service Unit (SU). The chart is separated into four
segments: 1) high-quality – high-efficiency (HQ-HE); 2) low-quality – high-efficiency (LQ-
HE); 3) low-quality – low-efficiency (LQ-LE); and 4) high-quality –low-efficiency (HQ-LE)
(Figure 1). In addition, two cut-off levels are depicted with the first referring to efficiency and
the second referring to quality. The feasible area of these two elements is determined by the
interval (0.2, 1].

The selection of the feasible area of efficiency scores can be determined from the work of
Paradi et al. (2004), who demonstrated that faulty input and output data entries or missing
values are likely to occur when the estimated efficiency score of an SU is 0.2 or less.
Therefore, the results and the data should be cross-checked.

The feasible area of the quality scores, which is derived from fieldwork research, is expressed
by the conversion of the five-point Likert scale response format questionnaires into
percentages.

To be more precise, in a client satisfaction survey based on questionnaires designed to allow

customers to respond in varying degrees, a five-point response rating format should reflect the
degree of satisfaction with the service they received. For instance, the five-point scale could
stand for: 1 - very dissatisfied, 2 – dissatisfied, 3 – neither satisfied nor dissatisfied, 4 –
satisfied and 5 – very satisfied. In this context, the average satisfaction scores for the services
provided by each unit of the sample belong to the interval [1, 5]. As one might expect, the end
points of the closed interval are not commonly correspond with the average satisfaction scores
of a service unit, unless the responses of all the survey participants to the survey indicate
either full dissatisfaction or full satisfaction.

The breakdown of the five-point response format and its conversion to percentage quality or
satisfaction intervals takes place in Table 1. The right-hand column is the product of the
multiplication of the left-hand column scores by the value 0.2.
Table 1 Quality scores: five-point Likert scale conversion into percentages
Five-point Likert Scale Quality Score Intervals Equivalent
1 to 1.99 [0.2, 0.4)
2 to 2.99 [0.4, 0.6)
3 to 3.99 [0.6, 0.8)
4 to 4.99 [0.8, 1)
5 [1]

According to the precedent quality score intervals, the feasible area contains values greater
than, or equal to, 0.2 and smaller than, or equal to, unity. The interval [0, 0.2) is considered
the cut-off level, given the full dissatisfaction response expressed by unity or the adjusted into
percentage quality score 0.2.

5
The first left-hand end point interval in Table 1 should be altered substantially to prevent
Formula 13, the starting formula of the QE-DEA model that follows in the same section, to
become null. As a result, the first quality score interval becomes left-hand open (Table 2).
Moreover, the merger of the bottom two right column intervals in Table 1 is recommended to
form a unitary satisfaction – target area. In this case, value 0.8, that corresponds to scores 4
and 5 in the five-point Likert scale response format, is considered a threshold for high-quality
service providing units ( q ³ 0.8 ) and low quality units ( q < 0.8 ).

Applying the aforementioned analysis to quality score intervals results Table 2.

Table 2 Adjusted Quality Scores
Five-point Likert Scale Adjusted Quality Score
Intervals Equivalent
1 to 1.99 (0.2, 0.4)
2 to 2.99 [0.4, 0.6)
3 to 3.99 [0.6, 0.8)
4 to 5 [0.8, 1]

In this context (Figure 3), SUs obtaining a solely quality score equal to 0.80 or greater and an
efficiency score equal to unity are considered HQ-HE.
Figure 3: Trade-off Analysis between Quality and Efficiency in a Planar Cartesian Coordinate System

Unlike the Q-DEA model, in analysis with the QE-DEA model, no SUs are removed from the
evaluation process. Especially for the LQ-HE operational units, a boost in their quality score
is the primary emphasis. As a result of the inverse relationship between quality and efficiency
(De Bruijn, 2007; Sherman and Zhu, 2006a; Sherman and Zhu, 2006b; Athanassopoulos,
1997; Anderson and Fornell, 1994), increases in quality are expected to reduce efficiency
scores. In fact, LQ-HE SUs are supposed to move to the HQ-LE segment. Namely, in Figure

3 ( Ao B0 ) ( q A - q o )( eo - 1)
Given the formula: = (1)
( Ao ' Bo ') ( q A '- qo )(eo - e A ')
q A ¹ qo ü
where ý
qo = 0.2 þ
then q A ¹ 0.2

6
3, SU “A”, specified by the coordinates of the point (qA, 1) is directed to the point A’ (qA’,
eA’), holding the same quality-efficiency relative size.

To apply the QE-DEA model, we have developed an algorithm involving two steps:

Step 1: Run DEA in order to estimate efficiency scores.

Step 2: If the number of LQ-HE SUs is null, then stop. Otherwise, before adjusting the

efficiency score to high quality standards, determine the trade-off between quality and
efficiency for each LQ-HE SU. Next, compute the inputs of the hypothetical SUs
given the outputs (input-oriented approach) and return to Step 1.

A milestone for the application of the QE-DEA methodology is the substitution of the actual
LQ-HE SUs (e.g., A), if they exist, with the hypothetical4 counterparts (e.g., A’) maintaining
the quality-efficiency symmetry as fixed (Figure 3). As a result, the benchmark SUs are
exclusively those depicted in the HQ-HE line. The remaining units of the sample are deemed
ineffective and appear to the HQ-LE and LQ-LE segments. After reapplying DEA, target
input and output values result for the ineffective actual and hypothetical operational units so
as to meet the high-quality and high-efficiency criteria.

Moreover, it should be noted that the efficiency score assigned to LQ-HE SUs is important
for the input adjustment to high-quality standards. The adjustment (increase) of the input
levels provided, is estimated rather than determined after the implementation of the second
phase in Step 2 of the preceding algorithm, because of the possible variation of the assigned
weights. More specifically, the second phase in Step 2 is detached from the DEA
methodology. As a consequence, the weights attached to the hypothetical inputs 5 ( xi ' ) are
expected to be an approximation of the final inputs, which will be derived after returning to
Step 1 and running DEA again. Following a similar process, the efficiency score of the
hypothetical (initially LQ-HE) SUs (e.g. eA ' ), which is the outcome of the first stage (Step 1
and Step 2) of QE-DEA application, will probably differ from those estimated using DEA at a
second stage of analysis (following Step 2 rerun DEA). This deviation is due to efficiency
score sensitivity to data (input or output) perturbation. For instance, input modification (e.g.
increase), when the output is kept at its current level, for a technically efficient SU does not
necessarily entail downward change of the efficiency score.

Going back to Figure 3, subsequent to the determination of the two straight lines bounded by
the points Ao, Bo and Ao’, Bo’ in the plane regarding the actual and the hypothetical
operational units, respectively, the coordinates of quality (q A’) and efficiency (eA’) of the
latter unit should be calculated. The quality score of the hypothetical unit is arbitrarily
decided to be in the range of 0.8 – 1.0. The efficiency score (eA’) is determined after the
computation of the distance function between equivalent points of the two straight lines. It
should be pointed out that the quality-efficiency symmetry is fixed for the actual and
hypothetical units A and A’, respectively, so that the latter SU is derived from the former.

( A0 B0 ) ( q A - 0.20)(0.20 - 1)
= (1)
( A0 ' B0 ') ( qA '- 0.20)(0.20 - e A ')

Given the distance function formula: ( AB ) = ( x2 - x1 ) + ( y 2 - y1 ) and substituting in (1) we

2 2

take:
4
In a planar coordinate system, hypothetical unit is regarded as a projection of an actual low-quality –
high-efficiency unit to high-quality – low-efficiency segment without altering the original quality-
efficiency mix.
5
Hypothetical inputs are the resources engaged by the hypothetical units.

7
 ( q A - 0.20) + (0.20 - 1)
2 2
(q A - 0.20)(0.20 - 1)
= (2)
(q A '- 0.20) + (0.20 - eA ')
2 2
( q A '- 0.20)(0.20 - e A ')

In general, even if diverse quality and efficiency cut-off points are chosen (cut-off points
¹ 0.2), (2) is expressed by the following equation:

( q A - q0 ) + (e0 - 1)
2 2
( q A - q0 )(e0 - 1)
= (3)
(q A '- q0 ) + (e0 - e A ')
2 2
(q A '- q0 )(e0 - eA ')

Equation (4) is the generalized formula [Appendix - Section 1] used to determine the
efficiency scores (eA’) of the hypothetical SUs:

[( q A - q0 ) (e0 - 1) ](q A '- q0 )

2 2 2

e A ' = e0 + (4)
[(q A - q0 ) + (e0 - 1) ]( q A '- q0 ) - ( q A - q0 ) ( e0 - 1)
2 2 2 2 2

Since the new efficiency score (eA’) has been calculated, the inputs of the hypothetical
operational units should be adjusted holding the outputs fixed (input orientation).

Efficiency ratio was defined by Cooper et al. (2007) and Sherman & Zhu (2006b):
s

åu y r r
u1 y1 + u2 y 2 + ... + u s y s
e= r =1
m
= (5)
v1 x1 + v2 x2 + ... + vm xm
åv x i i
i =1

where: e = efficiency score

yr = amount of output r " r = 1,..., s
ur = weight assigned to output r
xi = amount of input i " i = 1,..., m
vi = weight assigned to input i

Alternatively, the precedent equation (5) is expressed in matrix form:

é u1 ù
êu ú
[ y1 , y 2 ,..., y s ] ê ú
2

s ê... ú
å u r yr ê ú
ë us û
e= m
r=1
= (6)
é v1 ù
å vi xi êv ú
[ x1 , x2 , ..., xm ] ê ú
i =1
2

ê... ú
ê ú
ë vm û

8
Assuming technical efficiency prevails, then:

éu1 ù
êu ú
[ y1 , y 2 , ..., y s ] ê ú
2

ê... ú
ê ú
1=
ëu s û
é v1 ù
êv ú
[ x1 , x2 ,..., xm ] ê ú
2

ê... ú
ê ú
ë vm û

é v1 ù éu1 ù
êv ú êu ú
Therefore, [ x1 , x2 , ..., xm ] ê 2
ú = [ y1 , y2 , ..., y s ] ê ú
2
(7)
ê... ú ê... ú
ê ú ê ú
ë vm û ëus û
Functions (5)-(7) are applied for estimating the efficiency scores of actual SUs. In order to
form hypothetical operational units, the inputs should be adjusted, given the input orientation
of the analysis. In that case, functions (5)-(7) should be altered substantially:
s

åu y r r

e' = r =1
m
, where e’ ≠ e and xi’ ≠ xi (8)
åv x ' i i
i =1

Expressing equation (8) in matrix form and conducting the required calculations [Appendix –
Section 2], the input adjustment formula results:

x1 ' =
ü 1
x1
ï
e'
ï
1
x2 ' = x2 ï
ï
e' ý (9)
... ï
ï
xm ' =
1
xm
ï
e' ï þ

In the above system of equations, e ' is known as far as it is the ordinate of the hypothetical
point A’ (qA’, eA’), namely, e ' = eA ' . On the whole, e ' is equal to the ordinate of every
estimated HQ-LE hypothetical SU. In the same way, xi " i = 1, ..., m is already known as
well. Mainly, xi expresses the actual inputs of the LQ-HE SUs.

3. QE-DEA and the Assumption of Exogenously-Fixed Variables

Obviously, the preceding analysis focuses on every input adjustment, holding the output level
constant, implicitly assuming that inputs are subject to management control. However, an
abundant number of cases exist in the literature (Mũniz et al, 2006; Athanassopoulos, 2004;

9
Worthington & Dollery, 2000) in which exogenously fixed or non-discretionary variables
appear. Such variables, e.g., market size and competition, are not controlled by the
operational unit, but they indirectly affect its efficiency status.

Assuming at least one exogenously-fixed variable among the inputs, the efficiency
determination formula for the hypothetical SUs should be adjusted appropriately. Particularly,
a new equation should be introduced in order to give the efficiency score ( e '' ):
k m

e '' å xi = åx ' i
( k Ì m) (10)
i =1 i=1

Rearranging the system of equations (9) by summing up the variables xi ' and xi individually
[Appendix – Section 3] and substituting in (10) results:
k
1 m

e '' åx i
=
e'
åx i
i =1 i =1

1 m

e'
åx i

Hence, e '' = k
i =1
(11)
åx i
i =1

1
where e '' >
e'

Unlike the quality-driven, efficiency-adjusted score ( e ' ), assuming that all inputs are
controllable by the operational unit, the new efficiency score ( e '' ) should be multiplied by a
subset of inputs xi (i = 1,..., k k Ì m) , solely by the controllable variables. Accordingly, the
new input levels ( xi ' " i = 1,..., k ) will result equation (12), while the exogenously-fixed
input levels remain the same.

xi ' =e '' xi (i =1,..., k ) (12)

However, the summation of inputs ( å x ) in the form of ‘ratio of ratios’ (11) may return
i

distorted efficiency scores ( e '' ), especially when the input data lack homogeneity (e.g.,
working hours, number of employees, and market size). To deal with such an irregularity, a
ratio of summations could be used, where the observed input is divided by the equivalent
mean input of the operational units instead of a naïve ratio of the summation of the absolute
input values for the observed SU.

1 m
xi
e'
åx
i =1
e '' = i
k
xi
åx
i =1 i
(13)

where: xi = amount of input i

xi = mean of input values

10
In the second phase of Step 2, the adjusted input data replace the actual data, and the DEA
model is rerun in order to estimate the comparative efficiency score of all SUs. Clearly,
quality and efficiency benchmarks will be the HQ-HE operational units for the rest of the
units, which are not qualified. If the LQ-HE SUs are neither removed from the evaluation
process nor adjusted to meet the quality-efficiency standards, the DEA model will consider
them to be benchmarks, leading likewise to a flaw.

4. Numerical Example

i. Data description

The data used for the QE-DEA model application comes from the Citizen Service Centers
(CSCs). The sample of CSCs consists of 50 units, out of 1020 operating in Greece, that serve
approximately 60% of the citizens that apply to CSCs for administrative issues. The CSCs of
the sample are located in the four biggest cities of Greece. The inputs and outputs for
efficiency estimation were selected through interviews with practitioners and academics
experienced in public issues and especially public organization operations. The inputs and
outputs selected are seven (number of full-time employees, weekly working hours per unit,
number of PCs, number of fax machines, number of printers, surface of each CSC (m2),
number of citizens corresponding to each CSC (non-discretionary variable), and three
(number of electronic protocol registered services provided, number of manual services
provided, number of served citizens) respectively. For the QE-DEA model application in
which no exogenously fixed variables appear, the last input: number of citizens corresponding
to each CSC is omitted.

The quality data collected through structured questionnaires consist of four determinants of
perceived quality, or citizen satisfaction, for services provided by each CSC: responsiveness,
assurance, reliability, physical facilities or tangibles. The determinants selection was based on
the SERVQUAL methodology developed by Parasuraman et al. (1988). The overall number
of questionnaires used in this study, after the exclusion of those that did not meet the
reliability criterion set by Cronbach’s Alpha formula calculation, is 1024.

ii. QE-DEA application

To uncover a ‘global’ effectiveness benchmark reference set, it is recommended that a multi-

stage DEA analysis be established in conjunction with the QE-DEA algorithm. For the first
stage efficiency assessment, six inputs6 and three outputs7 are accumulated and analyzed
using the input-oriented variable returns to scale model (Banker et al., 1984). The efficiency
scores indicated in Table 3 were estimated by the PIM-DEA software developed by
Emrouznejad and Thanassoulis (2009). The quality scores are the average perceived quality
or satisfaction determinants’ scores collected for each CSC. The target of the analysis carried
out is the effectiveness benchmarking that entails the determination of the high-efficiency –
high-quality service units.

6
input1: number of full-time employees, input2: working hours, input3: number of PCs, input4:
number of fax machines, input5: number of printers, and input6: surface (m 2)
7
output1: number of electronic protocol registered services provided, output2: number of manual
services provided, and output3: number of served citizens.

11
 Table 3 Service units’ classification (1st stage analysis)
Units Efficiency Quality Classification Units Efficiency Quality Classification
Scores Scores Scores Scores
1 1.0000 0.9230 HE-HQ 26 1.0000 0.8156 HE-HQ
2 0.9667 0.9304 LE-HQ 27 1.0000 0.8356 HE-HQ
3 1.0000 0.9431 HE-HQ 28 1.0000 0.8007 HE-HQ
4 0.9282 0.8208 LE-HQ 29 1.0000 0.9141 HE-HQ
5 0.6781 0.8600 LE-HQ 30 1.0000 0.9333 HE-HQ
6 0.8695 0.8736 LE-HQ 31 1.0000 0.7793 HE-LQ
7 0.8328 0.8185 LE-HQ 32 1.0000 0.7763 HE-LQ
8 0.7211 0.8704 LE-HQ 33 0.7462 0.7896 LE-LQ
9 0.7647 0.8733 LE-HQ 34 0.8226 0.9342 LE-HQ
10 1.0000 0.8111 HE-HQ 35 1.0000 0.9059 HE-HQ
11 0.8831 0.7815 LE-LQ 36 0.8014 0.8415 LE-HQ
12 0.9029 0.8637 LE-HQ 37 1.0000 0.8234 HE-HQ
13 0.6228 0.7926 LE-LQ 38 1.0000 0.8111 HE-HQ
14 1.0000 0.9689 HE-HQ 39 0.9976 0.8170 LE-HQ
15 1.0000 0.9496 HE-HQ 40 1.0000 0.9607 HE-HQ
16 0.6825 0.9430 LE-HQ 41 1.0000 0.7904 HE-LQ
17 1.0000 0.9037 HE-HQ 42 0.8844 0.7689 LE-LQ
18 0.6930 0.9274 LE-HQ 43 0.9084 0.8459 LE-HQ
19 1.0000 0.9467 HE-HQ 44 0.7994 0.8230 LE-HQ
20 1.0000 0.9452 HE-HQ 45 0.9089 0.8849 LE-HQ
21 1.0000 0.9689 HE-HQ 46 0.9211 0.9467 LE-HQ
22 0.9299 0.8081 LE-HQ 47 0.6659 0.9200 LE-HQ
23 1.0000 0.8076 HE-HQ 48 0.7172 0.9556 LE-HQ
24 1.0000 0.8103 HE-HQ 49 1.0000 0.6659 HE-LQ
25 1.0000 0.8719 HE-HQ 50 1.0000 0.6941 HE-LQ

First stage effectiveness benchmarking results in 21 high-efficiency – high-quality (HE-HQ)

operational units, 5 high-efficiency – low-quality (HE-LQ), 4 low-efficiency – low-quality
(LE-LQ), and 20 low-efficiency – high-quality (LE-HQ). Regarding the 5 HE-LQ service
units, the quality score of the units 31, 32 and 41 is marginally lower than the high-quality
threshold.

If the Q-DEA model (Sherman and Zhu, 2006a) is applied, then the 5 HE-LQ units should be
removed from the sample and the remaining units reassessed to determine the effectiveness
attainment plan for each disqualified unit. In this case, the best-practice frontier would be
formed by the qualified HE-HQ units determined by the first stage effectiveness assessment.

Unlike the Q-DEA model, in the QE-DEA, the disqualified HE-LQ operational units are
removed from the sample and substituted by their hypothetical counterparts. In the latter
units, the efficiency score is adjusted without affecting the original quality-efficiency
symmetry. Assuming the inverse relationship between the two determinants of effectiveness,
the efficiency score of the hypothetical service units is reduced in order to reach the high-
quality threshold (q = 0.800). The minimum high-quality score is selected arbitrarily; hence,
in subsequent QE-DEA applications another value contained in the closed high-quality
interval [0.8, 1.0] or even in a differentiated set of numbers could be decided. The efficiency
score of the hypothetical service units indicated in Table 4 were calculated by applying

12
 Formula 4 of the QE-DEA model. The new units are identified the LE-HE quadrant instead of
the original HE-LQ.
Table 4 HE-LQ units’ efficiency scores adjustment though QE-DEA application
Actual Units Hypothetical Units
Units Efficiency Scores (e) Quality Scores (q) Classification Units Efficiency Scores (e') Quality Scores (q') Classification
31 1.0000 0.7793 HE-LQ 31' 0.9527 0.8000 LE-HQ
32 1.0000 0.7763 HE-LQ 32' 0.9462 0.8000 LE-HQ
41 1.0000 0.7904 HE-LQ 41' 0.9776 0.8000 LE-HQ
49 1.0000 0.6659 HE-LQ 49' 0.7430 0.8000 LE-HQ
50 1.0000 0.6941 HE-LQ 50' 0.7891 0.8000 LE-HQ

The quality-driven adjustment process moves the resources engaged by the hypothetical
operational units. Applying Formula 9, the input levels of the hypothetical units are
challenged to meet the improved quality standards. As a result, most of the inputs are
increased. In order to meet the high-quality criterion, a subsequent increase of the
hypothetical units’ 49 and 50 input levels is needed.
Table 5 Adjusted input data
Units Status Full-time Working PC Fax Printers Surface
Employees Hours
31 A 5 33 4 0 2 50
31' H 5 35 4 0 2 52
32 A 18 63 14 2 4 80
32' H 19 66.5 15 2 4 85
41 A 5 37.5 9 1 3 80
41' H 5 38 9 1 3 82
49 A 3 36.5 2 0 1 150
49' H 4 49 3 0 1 202
50 A 4 32.5 2 1 2 180
50' H 5 41 3 1 3 228
A: actual, H: hypothetical

The new input levels are incorporated into the input-output database and the variable returns
to scale input-oriented DEA is reapplied to determine the reloaded relative efficiency scores
and the effectiveness benchmark reference set. Although added resources engaged comparing
to those occupied by the original service units, the efficiency scores assigned to the
hypothetical units after the quality-driven adjustment (second stage effectiveness assessment)
remained unaltered (Table 6) so that the new effectiveness benchmark reference set consists
of 26 units instead of the 21 returned from the first stage analysis. Accordingly, regardless the
data perturbations made to the original data set, the efficiency frontier has remained stable.
The inconsistency of the efficiency scores, which was determined by Formula 4, and the
scores estimated after the DEA reapplication is due to the detached process applied to the
former case in comparison to the relative assessment adopted in the latter one. Namely, the
determination of efficiency scores through Formula 4 is merely a prerequisite for defining the
added resources needed for improving the quality of services, given that a trade-off occurs
between quality and efficiency.

Except the number of the operational units in the efficiency reference set remained the same
after the QE-DEA model application, a marginal upward movement of the efficiency score of
the majority of the disqualified units was revealed (Table 6).

13
 Table 6 Service units’ classification (2nd stage analysis)
Units Original QE-DEA Quality Classification Units Original QE-DEA Quality Classification
Efficiency Efficiency Scores Efficiency Efficiency Scores
Scores Scores Scores Scores
1 1.0000 1.0000 0.9230 HE-HQ 26 1.0000 1.0000 0.8156 HE-HQ
2 0.9667 0.9820 0.9304 LE-HQ 27 1.0000 1.0000 0.8356 HE-HQ
3 1.0000 1.0000 0.9431 HE-HQ 28 1.0000 1.0000 0.8007 HE-HQ
4 0.9282 0.9291 0.8208 LE-HQ 29 1.0000 1.0000 0.9141 HE-HQ
5 0.6781 0.7067 0.8600 LE-HQ 30 1.0000 1.0000 0.9333 HE-HQ
6 0.8695 0.8850 0.8736 LE-HQ 31 1.0000 1.0000 0.8000 HE-HQ
7 0.8328 0.8559 0.8185 LE-HQ 32 1.0000 1.0000 0.8000 HE-HQ
8 0.7211 0.7218 0.8704 LE-HQ 33 0.7462 0.7461 0.7896 LE-LQ
9 0.7647 0.7655 0.8733 LE-HQ 34 0.8226 0.8240 0.9342 LE-HQ
10 1.0000 1.0000 0.8111 HE-HQ 35 1.0000 1.0000 0.9059 HE-HQ
11 0.8831 0.8839 0.7815 LE-LQ 36 0.8014 0.8088 0.8415 LE-HQ
12 0.9029 0.9129 0.8637 LE-HQ 37 1.0000 1.0000 0.8234 HE-HQ
13 0.6228 0.6324 0.7926 LE-LQ 38 1.0000 1.0000 0.8111 HE-HQ
14 1.0000 1.0000 0.9689 HE-HQ 39 0.9976 0.9976 0.8170 LE-HQ
15 1.0000 1.0000 0.9496 HE-HQ 40 1.0000 1.0000 0.9607 HE-HQ
16 0.6825 0.6839 0.9430 LE-HQ 41 1.0000 1.0000 0.8000 HE-HQ
17 1.0000 1.0000 0.9037 HE-HQ 42 0.8844 0.9053 0.7689 LE-LQ
18 0.6930 0.7063 0.9274 LE-HQ 43 0.9084 0.9087 0.8459 LE-HQ
19 1.0000 1.0000 0.9467 HE-HQ 44 0.7994 0.6312 0.8230 LE-HQ
20 1.0000 1.0000 0.9452 HE-HQ 45 0.9089 0.9094 0.8849 LE-HQ
21 1.0000 1.0000 0.9689 HE-HQ 46 0.9211 0.9371 0.9467 LE-HQ
22 0.9299 0.9298 0.8081 LE-HQ 47 0.6659 0.6759 0.9200 LE-HQ
23 1.0000 1.0000 0.8076 HE-HQ 48 0.7172 0.7184 0.9556 LE-HQ
24 1.0000 1.0000 0.8103 HE-HQ 49 1.0000 1.0000 0.8000 HE-HQ
25 1.0000 1.0000 0.8719 HE-HQ 50 1.0000 1.0000 0.8000 HE-HQ

The QE-DEA model application causes all the efficiency benchmarks to be effectiveness
best-practice units holding the original sample size.

The second stage DEA run traces the roadmap for effectiveness attainment providing target
input levels for each operational unit (input-oriented DEA model). Putting emphasis again on
the five hypothetical units (31, 32, 41, 49 and 50), the hypothetical inputs of the operational
units 31, 32, 41 and 49, which secure high-quality standards, are deemed ideal since no
reduction is recommended. On the contrary, many of the resources engaged by the original
HE-LQ operational units should be increased to meet the effectiveness criteria. Even if the
hypothetical unit 50 is considered effective, in terms of meeting high-efficiency and high-
quality standards, the second stage benchmarking analysis identifies potential resources
reductions.

14
 Table 7 QE-DEA target inputs
Units Potential Resource Reductions Units Potential Resource Reductions
Full-time Working Full-time Working
Employees Hours PC Fax Printers Surface Employees Hours PC Fax Printers Surface
1 0 0 0 0 0 0 26 0 0 0 0 0 0
2 0 6.4 2 0 2 1 27 0 0 0 0 0 0
3 0 0 0 0 0 0 28 0 0 0 0 0 0
4 0 2.8 1 0 1 5 29 0 0 0 0 0 0
5 4 17.6 6 0 3 38 30 0 0 0 0 0 0
6 17 7.6 19 3 3 15 31 0 (-2) 0 (0) 0 (0) 0 (0) 0 (-2) 0
7 2 10 2 2 4 16 32 (-1) 0 (-3.5) 0 (-1) 0 (0) 0 (0) 0 (-5) 0
8 2 17.8 3 1 1 18 33 2 17.7 2 0 1 20
9 2 15.5 2 1 1 19 34 1 9.7 2 1 1 16
10 0 0 0 0 0 0 35 0 0 0 0 0 0
11 1 7.6 1 0 2 8 36 7 12.6 2 1 0 15
12 1 2.85 1 0 0 31 37 0 0 0 0 0 0
13 4 24.3 11 2 6 33 38 0 0 0 0 0 0
14 1 17.3 1 0 1 1 39 0 17.2 1 0 0 0
15 0 0 0 0 0 0 40 0 0 0 0 0 0
16 2 20 4 0 2 36 41 (0) 0 (0.5) 0 (0) 0 (0) 0 (0) 0 (-2) 0
17 0 0 0 0 0 0 42 0 22.5 0 0 0 11
18 3 18.2 2 0 1 48 43 0 7.3 1 0 0 6
19 0 0 0 0 0 0 44 0 23.2 2 1 1 37
20 0 0 0 0 0 0 45 0 4.3 1 0 0 6
21 0 0 0 0 0 0 46 0 2.1 0 0 0 72
22 1 2 2 1 0 32 47 3 20.4 3 1 1 29
23 0 0 0 0 0 0 48 2 16.2 3 0 1 25
24 0 0 0 0 0 0 49 (-1) 0 (-12.5) 0 (-1) 0 (0) 0 (0) 0 (-52) 0
25 0 0 0 0 0 0 50 (1) 2 (-5) 3.5 (-1) 0 (0) 0 (0) 1 (60) 108

Obviously, removing operational units from the assessment process instead of detecting their
potentials for improvement cannot be a solution in real conditions. Applying the QE-DEA
model, we prove that merely efficient benchmark units that are disqualified from
effectiveness assessments can make up the effectiveness best-practice reference set after
subsequent restructuring. For instance, the hypothetical unit 31 is deemed effectiveness
benchmark for 14 units lacking in high-efficiency and high-quality standards. Unit 31 is the
most popular benchmark for disqualified units between those that meet the effectiveness
criteria.
Table 8 Hypothetical best-practice units
Hypothetical
Reference Units Units
31 2, 5, 8, 11, 12, 16, 18, 1 34, 43, 44, 45, 46, 47, 48
32 2, 5, 6, 7, 8, 9, 13, 18, 1 36, 47
41 4
49 42
50

15
If the QE-DEA model is selected for effectiveness assessment when at least one non-
discretionary input variable appears in the data set, then Formulas 12 and 13 determine the
hypothetical input levels and efficiency scores respectively in conjunction with the QE-DEA
algorithm. The steps of the analysis are similar to those described in the preceding numerical
example. However, it should be noted that in the second stage effectiveness assessment, while
the DEA model should be reapplied to estimate the new efficiency scores and the target input
values, a modified DEA model put forth by Emrouznejad and Amin (2009) should be used
instead of the standard DEA approaches. Since the hypothetical inputs determined and
introduced to the second stage analysis are in the form of ratio, the traditional DEA models
may return incorrect efficiency scores (ibid).

5. Conclusion remarks and further research

The quality of services provided and efficient operations are dimensions of substantial
importance to the viability of every enterprise. Profit maximization strategy that requires
efficiency optimization and is highlighted by microeconomic theory cannot be the mainstream
concept in a competitive environment where customers are the drivers of the market.
Customers’ consumption habits and loyalty to a brand, or company, depend on the perceived
quality of the service or satisfaction.

In this context, operational units solely attached to a production process optimization strategy
condemn their sales, or, in general, their output to shrinkage. As a result, to achieve profit
maximization given an introverted, efficiency-driven – input-oriented strategy, the unit should
be diachronically pruned until its viability is deemed uncertain.

Alternatively, the successful implementation of an output-oriented - efficiency-driven strategy

depends on exogenous variables, non-controllable by the operational unit (e.g. customer
satisfaction).

The proposed Quality-driven, Efficiency-adjusted DEA model (QE-DEA) is a comparative

non-parametric effectiveness assessment technique that takes into account endogenous and
exogenous variables aiming to secure a unit’s viability and a mid to long term increasing
profitability sacrificing profit maximization concept. It has substantial applicability when
inverse relationship holds the endogenous and exogenous determinants of effectiveness. To
be more precise, the proposed QE-DEA model seeks to determine the quality-efficiency
benchmarks and the optimum combination of inputs and outputs for the non-effective
operational units to meet the HQ-HE criteria. In applying the QE-DEA model, emphasis is
placed on the trade-off determination or estimation, between quality and efficiency scores for
each LQ-HE SU, either all inputs are controllable by the unit or at least one is non-
discretionary.

Further research is needed to develop the output-oriented QE-DEA model and to extend the
existing one when multiple contextual variables – determinants of effectiveness – exist
(multidimensional QE-DEA model). Moreover, the QE-DEA application in conjunction with
the context-dependent DEA could have substantial interest for academics and practitioners in
the case of unrealistic targets revealed after the standard QE-DEA model implementation.

Acknowledgements

The authors are grateful to the two anonymous reviewers of the IMA Journal of Management
Mathematics, as well as Dr. Ali Emrouznejad for their helpful comments and suggestions.
Their assistance helped us to improve our paper substantially.

16
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Appendix

Section 1

Equation (3) can be rewritten as:

( q A - q0 ) + (e0 - 1) ( q A - q0 ) ( e0 - 1)
2 2 2 2

=
( q A '- q0 ) + (e0 - eA ') (q A '- q0 ) ( e0 - eA ')
2 2 2 2

[( q A - q 0 ) + ( e0 - 1) ]( q A '- q0 ) ( e0 - e A ') = q A '- q0 ) + ( e0 - eA ') ]( q A - q0 ) ( e0 - 1)

2 2 2 2 2 2 2 2
[(

Let c1 = [( q A - q0 ) + ( e0 - 1) ]
2 2

and c2 = ( q A - q0 ) ( e0 - 1)
2 2

Then c1 ( q A '- q0 ) ( e0 - e A ')= [( q A '- q0 ) + ( e0 - e A ') ]c2

2 2 2 2

c1 ( q A '- q0 ) ( e0 - eA ') = c2 ( q A '- q 0 ) + c2 ( e0 - e A ')

2 2 2 2

c1 ( q A '- q0 ) ( e0 - e A ') - c2 ( e0 - e A ') = c2 ( q A '- q0 )

2 2 2 2

( e0 - e A ') [ c1 ( q A '- q0 ) - c2 ] c=2 ( q A '- q0 )

2 2 2

c2 ( q A '- q 0 )
2

(e0 - e A ') =
2

c1 (q A '- q0 ) - c2
2

c 2 ( q A ' - q0 )
2

e0 - e A ' =
c1 ( q A '- q0 ) - c2
2

c2 ( q A '- q0 ) c2 ( q A '- q 0 )
2 2

e0 - e=A ' + or e0 =
- eA ' -
c1 ( q A '- q0 ) - c2 c1 (q A '- q0 ) - c2
2 2

The first critical value:

c2 ( q A '- q0 )
2

e0 - e=A ' +
c1 ( q A '- q0 ) - c2
2

18
 c2 ( q A '- q 0 )
2

e A ' = e0 -
c1 ( q A '- q0 ) - c2
2

is rejected because the condition: eA ' > e0 is not satisfied.

On the contrary, the alternative critical value:

c2 ( q A '- q0 )
2

e0 - e=A ' -
c1 ( q A '- q0 ) - c2
2

c2 ( q A '- q0 )
2

e A ' = e0 +
c1 ( q A '- q0 ) - c2
2

is accepted, because the condition: eA ' > e0 is satisfied.

The generalized formula is the following:

[( q A - q0 ) (e0 - 1) ](q A '- q0 )

2 2 2

e A ' = e0 + (4)
[(q A - q0 ) + (e0 - 1) ]( q A '- q0 ) - ( q A - q0 ) ( e0 - 1)
2 2 2 2 2

Section 2

Equation (8) can be expressed in matrix form:

éu1 ù
êu ú
[ y1 , y2 , ..., y s ] ê ú
2

ê... ú
ê ú
e' =
ëus û (multiplying both sides by 1 , where e ' ¹ 0 )
é v1 ù e'
êv ú
[ x1 ', x2 ', ..., xm '] ê ú
2

ê... ú
ê ú
ë vm û

éu1 ù
êu ú
[ y1 , y2 , ..., y s ] ê ú
2

ê... ú
ê ú
e'
=
ëu s û
e' é v1 ù
êv ú
e '[ x1 ', x2 ',..., xm '] ê ú
2

ê... ú
ê ú
ë vm û

19
 éu1 ù
êu ú
[ y1 , y2 , ..., y s ] ê ú
2

ê... ú
ê ú
1=
ëu s û (8a)
é v1 ù
êv ú
[e ' x1 ', e ' x2 ',..., e ' xm '] ê ú
2

ê... ú
ê ú
ë vm û
Introducing (8a) to equation (7):

é v1 ù
êv ú
[ x1 , x2 ,..., xm ] ê ú
2

ê... ú
ê ú
1=
ë vm û
é v1 ù
êv ú
[e ' x1 ', e ' x2 ',..., e ' xm '] ê ú
2

ê... ú
ê ú
ë vm û

év1 ù é v1 ù
êv ú êv ú
[e ' x1 ', e ' x2 ',..., e ' xm '] ê ú = [ x1 , x2 , ..., xm ] ê ú
2 2
(8b)
ê... ú ê... ú
ê ú ê ú
ë vm û ë vm û
Equation (8b) leads to the input adjustment formula:

ü
x1 ' =
1
x1
x1 = e ' x1 ' ü e' ï
ï
x2 = e ' x2 ' ï
1 ï
ï x ' = x 2 ï
ý e' ý
2
or
... ï ï
...
xm = e ' xm ' ï
þ ï
1 ï
xm ' = xm
e' ï þ

Section 3
m
1 m

å x ' = e' å x
i i
(10a)
i =1 i =1

20

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