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Efficiency and
Exploring the relationship profitability
between efficiency and
profitability
647
Ioanna Keramidou, Angelos Mimis and Aikaterini Fotinopoulou
Economic and Regional Development, Received 8 December 2011
Panteion University of Social and Political Sciences, Athens, Greece, and Revised 23 January 2012
Accepted 23 January 2012
Chrisanthos D. Tassis
Political Science and International Relations,
University of Peloponnese, Corinth, Greece

Abstract
Purpose – This paper aims to identify the relationship between efficiency and profitability by using
data from Greek meat processing companies over the period 1994-2007.
Design/methodology/approach – The relationship of efficiency and profitability is studied, by
applying a new performance decomposition model. This method is capable of making valid and
consistent inferences about the performance of a two-stage production system, as well as the main
sources of inefficiencies within a company.
Findings – A poor performance over the study period is observed in the sample companies. The low
performance is mainly due to the low profitability. The results do not confirm the existence of a
positive strong correlation between efficiency and profitability. The companies that have the
capability of producing their products with the best practices are not always capable of generating the
maximum profits.
Practical implications – The need for the improvement of performance has two aspects: first, it is a
demand for the effective use of resources, and simultaneously, it is an urgent requirement for the
generation of profits. According to the study findings, the long-term survival of firms in our sample
seems to require adopting mainly profitability-enhancing strategies.
Originality/value – This paper provides one of the first evaluations of performance focusing on
efficiency and profitability, by applying an innovative performance decomposition approach that has
not yet been applied in Greek industries.
Keywords Efficiency, Profitability, Performance decomposition model, Plant efficiency,
Process efficiency, Profit
Paper type Research paper

Introduction
Economic profits are usually the measure of financial success for a company. From this
point of view, meat products production in Greece seems to be a profitable activity with
positive future prospects. The specific sector has additional benefits like increasing
demand (4 percent per annum over 1994-2007, ICAP Hellas 2008). Given the dependence
of this industry on imports of meat, a concern has been created over the recent years due
to the rising prices of meat in international markets and the resulting negative impacts Benchmarking: An International
on the cost of production of meat products in Greece. Thus, the interest of managers and Journal
Vol. 20 No. 5, 2013
pp. 647-660
q Emerald Group Publishing Limited
The authors would like to thank E. Pappa for participating in the collection of the data, which 1463-5771
has been partially used in this paper. DOI 10.1108/BIJ-12-2011-0090
BIJ policy-makers focuses on how this industry can remain competitive and have positive
20,5 results in the future. It is argued that one solution is to improve its performance.
A practical question arises, concerning to what extent the manufacturing companies of
meat products in Greece can enhance their performance, and how it should be measured.
Although numerous models have been proposed for assessing efficiency, a new
methodological proposition to capture overall firm performance has been recently
648 developed by a team of few researchers. According to this line of research, the division of
the production process into stages is needed for measuring the real firm performance.
Supporting this view, authors Seiford and Zhu (1999) measure performance in terms of
profitability and marketability, by using two independent data envelopment analysis
(DEA) models where the outputs of the first model are the inputs of the second model.
A complementary stream of active research, based on two-DEA models, too, evaluates
performance focusing on efficiency and effectiveness in the USA’s urban transit systems
(Karlaftis, 2004), Taiwan’s commercial banks (Ho and Zhu, 2004) and electronic industry
(Ho, 2007), manufacturer-retailer networks in Germany and Switzerland (Mouzas, 2006),
and the banking industry (Tsolas, 2010; Kumar and Gulati, 2010; Eken and Kale, 2011).
Few authors extend this research methodology by measuring the efficiency of a
three-stage production process via the use of a triangular DEA model (Keh et al., 2006;
Garcı́a-Sánchez, 2007). In recent years, however, the literature states that the conventional
DEA model is not an appropriate decomposition approach for performance evaluation,
because it cannot take into account the series relationships of stages within the overall
process (Kao and Hwang, 2008; Chen et al., 2009). For this purpose, new performance
decomposition models are developed to provide more accurate estimates of the
performance of a two-stage production system, such as the model of Kao and Hwang
(2008) and the additive performance decomposition model of Chen et al. (2009). Despite this
growing body of literature, no evidence was found on firm performance and the
association between efficiency and profitability for the meat processing industry.
This paper intends to contribute to this insight by evaluating the performance of
Greek meat processing companies in terms of technical efficiency and profitability for
the period 1994-2007. For this, the model proposed by Chen et al. (2009) is applied. The
utilisation of this approach stems from the need to estimate the important aspects of
sample companies’ performance that are neglected in literature (e.g. profitability).
Further, the division of the production process into the stages of efficiency and
profitability contributes to the discovery of the drawback areas within each company
in our sample so that appropriate efforts can be devoted to improve its overall
performance. The discussion on these issues is becoming increasingly important,
because during the last decades, Greece came to a phase where the financial difficulties
of companies and the relocation of several industrial activities in other countries to
lower costs put in question the survival of a number of manufacturing sectors.
Notwithstanding, our findings relate to the context of meat processing production in
Greece, they may be valuable for developing appropriate strategies to enhance
performance in meat processing industry across the world.
The next section explains the methodology and describes the data used in this
paper. The third section presents the results regarding performance, profitability and
efficiency assessment. The fourth and final section discusses and provides a summary
of the results obtained from the analysis.
Methodology Efficiency and
An approach for measuring the performance of two-stage production systems profitability
Performance is considered a significant factor influencing the survival of a firm. As a
result, it has received increased attention of empirical and theoretical works in
industrial organisation and strategic management. The last decade has seen an
increase in the number of studies that are devoted to measuring the performance of
two-stage production systems (Seiford and Zhu, 1999; Karlaftis, 2004; Ho and Zhu, 649
2004; Ho, 2007; Mouzas, 2006; Tsolas, 2010; Kumar and Gulati, 2010; Eken and Kale,
2011). This approach assumes a two-stage production process with n decision-making
units (DMUs). In the first stage, the kth of the n DMU has m inputs xik (i ¼ 1, 2, . . . , m)
and produces r intermediate measures zjk ( j ¼ 1, 2, . . . , r). These are then used as
inputs into the second stage to evaluate outputs ypk ( p ¼ 1, 2, . . . , s), as can be seen in
Figure 1. In this stream of research the overall efficiency Ek was decomposed into the
product of the efficiencies of the two stages; that is, E k ¼ E 1k *E 2k . It was common
practice to measure the efficiencies of two individual stages, E 1k and E 2k , by applying a
conventional DEA model proposed by Farrell (1957) and Charnes et al. (1978). In each
initial formulation, the decomposition performance approach treated the two stages as
if they operated independently.
The standard DEA model for evaluating the performance of two-stage production
systems was criticized recently in literature. According to this critical analysis, the
traditional DEA approach could generate a potential contradiction among the
individual stages derived from the use of intermediate products (Kao and Hwang, 2008;
Chen et al., 2009). This is because the actions for improving the efficiency of the second
stage (e.g. reduction of its inputs) would imply a reduction in the outputs of first stage
and hence a reduction in its efficiency. Several attempts have been made to address this
problem. Related work is given in Kao and Hwang (2008), which incorporates the
assumption of series relationships between the variables of the first and second stage
in a new model of a two-stage production process under constant returns to scale (CRS).
This approach continues to decompose performance into the product of efficiencies of
individual stages. A similar methodology is developed by Chen et al. (2009), which
determines the efficiency scores of a two stage production process under variable
returns to scale (VRS).

Evaluation performance of a two-stage meat production process

Taking into account the objectives of sample firms, the paper decomposes the meat
production process into two individual stages connected in series, as shown in Figure 1.
The first stage concerns their own efficiency, namely the firm ability to achieve a
minimum inputs cost for a given output. The second stage is devoted to their
profitability, namely the firm capacity to generate the maximum profits, by the
revenue it creates. For calculating technical efficiency, a set of inputs (xik) consisting of

DMUk

Stage 1 Stage 2 Figure 1.

A two-stage performance
evaluation model
Xik Zjk Ypk
BIJ the cost of capital, calculated as the sum of depreciation and interest, the cost of raw
20,5 and auxiliary materials, and the number of full-time employees is used. The set of
outputs (zjk) of the first stage is the total sales value. The specific variable is an
intermediate product that is also taken as the input variable in the second stage devoted
to the production of final output (ypk), where in our case, the output is the profits. This
paper seeks to avoid bias in measuring of profits owing to possible tax avoidance and
650 tax-evading companies, by using as profit proxy the total value added decreased by the
total amount of expenditures for salaries and depreciations as proposed by Boyer and
Freyssenet (2000).
Efficiency, profitability and overall performance scores of an individual sample
company were measured here via the additive performance decomposition model as
proposed by Chen et al. (2009). Overall, performance Ek of a firm is thus calculated
as the weighted sum of its efficiency and profitability, as it is given by the formula:

E k ¼ w1k E 1k þ w2k E 2k ð1Þ

where w1k and w2k are weights capturing the importance of each stage for each sample
company. In the case of an input oriented VRS model, as the one adopted here, the
weights w1k and w2k are defined as:
Pm
i¼1 vi xik
w1k ¼ Pm Pr
v x
i¼1 i ik þ j¼1 wj zjk
Pr ð2Þ
j¼1 wj zjk
w k ¼ Pm
2
Pr ;
i¼1 vi xik þ j¼1 wj zjk

and for each sample company, or in other words, for each k, they have a sum of 1.
Further, the formulation of Chen et al. (2009) has been followed, and we have added
two more constraints to ensure that the weights for the two stages will have values
greater than a, which is a selected constant. So, the overall performance is given by the
following linear program:
X
s X
r X
r X
m
Ek ¼ max up ypk þ m 1 þ wj zjk þ m 2 s:t: wj zjd 2 vi xid þ m 1 # 0
p¼1 j¼1 j¼1 i¼1
X
s X
r X
m X
r
up ypd 2 wj zjd þ m 2 # 0 ða 2 1Þ vi xik þ a wj zjk # 0
p¼1 j¼1 i¼1 j¼1
X
r X
m X
m X
r
ða 2 1Þ wj zjk þ a vi xik # 0 vi xik þ wj zjk ¼ 1
j¼1 i¼1 i¼1 j¼1

vi ; wj ; up $ 0; 0 , a , 0:5 d ¼ 1; 2; . . . ; n and m 1 ; m 2 free of sign:

ð3Þ
After the performance has been calculated, we have to decompose it to each stage.
To achieve that, one has to select which of the two stages is most important. So, by
assuming priority for first stage devoted to efficiency, it is calculated by the following
linear program:
 X
r X
r X
m
Efficiency and
E 1k ¼ maxm 1 þ wj zjk s:t: wj zjd 2 vi xid þ m 1 # 0
j¼1 j¼1 i¼1 profitability
X
s X
r X
s X
r
up ypd 2 wj zjd þ m 2 # 0 up ypk þ ð1 2 E k Þ wj zjk þ m 1 ¼ E k
p¼1 j¼1 p¼1 j¼1 ð4Þ
X
m
651
vi xik ¼ 1 vi ; wj ; up $ 0;
i¼1

d ¼ 1; 2; . . . ; n and m 1 ; m 2 free of sign:

Following this assumption, the profitability of the other stage E 2k can be obtained by
solving equation (1). A similar approach can be written by giving priority to the second
stage. A thorough review of the current approaches in the area of efficiency
decomposition in the two-stage is described in Cook et al. (2010).
The described above performance decomposition model of Chen et al. (2009) is tested
on a sample of 40 Greek firms of prepared meats over the period 1994-2007. This sample
consists of the seven largest companies of the sector. A number of medium firms (with
50-249 employees) and small companies (with less than 49 employees), selected randomly
by size, are included in the sample, too. The required data for calculating efficiency and
profitability scores were drawn from the annual balance sheets of companies published in
the Greek Government Gazette. Further information for the number of employees, the cost
of labour, and raw and auxiliary materials, that was not readily available, was compiled by
a questionnaire survey conducted from March to June 2009 by the Panteion University of
Athens. The Ministry of Development’s annual industrial bulletin statistics was used to
draw evidence of companies that have either been purchased or merged with other firms or
have been closed. Late entries and early exits from the market are the main reasons that we
use an unbalanced panel data including 521 observations.

Empirical results
Measures of efficiency, profitability, and overall performance
Table I reports the measures of overall performance for each sample company that have
been estimated by using an input-oriented VRS model over the period 1994-2007.
According to these estimates, the sample firms display on average a level of performance
amounting to 0.70. Especially, only one company achieved a performance score equal to
one and, thus, has the best practice in efficiency and profitability aspects simultaneously.
All the other companies underperformed with a degree of underperformance that tends to
be increased in the study period (Figure 2). An average firm in the industry had room to
improve its performance from 25 to 38 percent in the different years, whether the firm used
best practice in using its available resources without waste and in creating profits.
Findings on performance by firm size categories, which is presented in Table II, reveal that
smaller firms perform better than the medium-sized ones (0.71 over 0.63), while in most
years, larger firms have a greater level of overall performance than smaller ones (0.82).
Looking at the estimated technical efficiency scores also presented in Table I, we
conclude that one of the reasons for underperformance of Greek meat processing firms
is their technical inefficiency, as only few companies, consisting 12.5 percent of the
sampled companies, were found to use their resources efficiently without wasted inputs,
receiving an efficiency score of one. The remaining firms are characterised by a degree of
BIJ
Overall performance w1 w2 E1 * E2 E1 E2 *
20,5
F1 0.86 0.51 0.49 0.91 0.81 0.91 0.81
F2 0.58 0.58 0.42 0.76 0.33 0.76 0.33
F3 0.67 0.59 0.41 0.84 0.39 0.84 0.39
F4 0.68 0.63 0.37 0.81 0.45 0.81 0.45
652 F5 0.61 0.55 0.45 0.86 0.31 0.86 0.31
F6 0.78 0.44 0.56 0.93 0.65 0.93 0.65
F7 0.70 0.50 0.50 1.00 0.40 1.00 0.40
F8 0.84 0.50 0.50 0.93 0.75 0.93 0.75
F9 0.77 0.75 0.25 0.99 0.11 0.99 0.11
F10 0.97 0.90 0.10 1.00 0.66 1.00 0.66
F11 0.65 0.57 0.43 0.78 0.48 0.78 0.48
F12 0.69 0.71 0.29 0.84 0.31 0.84 0.31
F13 0.62 0.60 0.40 0.82 0.33 0.82 0.33
F14 0.63 0.50 0.50 1.00 0.25 1.00 0.25
F15 0.60 0.61 0.39 0.62 0.58 0.62 0.58
F16 0.59 0.59 0.41 0.76 0.34 0.76 0.34
F17 1.00 0.78 0.22 1.00 0.99 1.00 0.99
F18 0.70 0.71 0.29 0.89 0.22 0.89 0.23
F19 0.56 0.61 0.39 0.66 0.39 0.66 0.39
F20 0.65 0.59 0.41 0.76 0.50 0.76 0.50
F21 0.55 0.58 0.42 0.76 0.26 0.76 0.26
F22 0.99 0.30 0.70 0.98 1.00 0.98 1.00
F23 0.58 0.52 0.48 0.89 0.26 0.89 0.26
F24 0.64 0.61 0.39 0.66 0.62 0.66 0.62
F25 0.97 0.84 0.16 1.00 0.77 1.00 0.77
F26 0.57 0.61 0.39 0.82 0.22 0.82 0.22
F27 0.83 0.84 0.16 0.94 0.29 0.94 0.29
F28 0.71 0.70 0.30 0.84 0.43 0.84 0.43
F29 0.67 0.56 0.44 0.80 0.51 0.80 0.51
F30 0.63 0.61 0.39 0.93 0.18 0.93 0.19
F31 0.54 0.54 0.46 0.88 0.14 0.88 0.14
F32 0.80 0.85 0.15 0.91 0.18 0.91 0.18
F33 0.58 0.61 0.39 0.71 0.39 0.71 0.39
F34 0.59 0.59 0.41 0.72 0.42 0.71 0.42
F35 0.63 0.55 0.45 0.90 0.28 0.90 0.29
F36 0.79 0.57 0.43 0.84 0.71 0.84 0.71
F37 0.60 0.50 0.50 0.98 0.21 0.98 0.21
F38 0.83 0.79 0.21 0.93 0.41 0.93 0.41
F39 0.59 0.65 0.35 0.81 0.19 0.81 0.19
Table I. F40 0.71 0.59 0.41 0.92 0.40 0.92 0.40
Summary of the results Mean 0.70 0.62 0.38 0.86 0.43 0.86 0.43
of average efficiency,
profitability, and Notes: w1 and w2 stands for weights capturing the importance of each stage; E1 * and E2 for technical
performance scores, efficiency and profitability measures, respectively, by given priority for first stage; while E1 and E2 *
1994-2007 stands for technical efficiency and profitability measures assuming priority for second stage

inefficiency that in the majority of them tends to increase between 1994 and 2007 (Figure 2).
The average technical inefficiency ranged from 10 to 19 percent in different years of the
considered period. The analysis of technical efficiency scores by firm size (Table II),
illustrates that in most years, large firms have a greater level of technical efficiency than
smaller ones (0.97 over 0.86), while medium-sized firms perform worse (0.79).
 1.00 Efficiency and
0.95
0.90
profitability
0.85
0.80
0.75
0.70
0.65
653
0.60
0.55
0.50
0.45
0.40
0.35
0.30
0.25
0.20
Figure 2.
1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007
Estimates of average
performance, efficiency,
Overall Performance E1* E2 w1 w2 and profitability

More than 250

Less than 0-49 employees 50-249 employees employees
Size category n OP E1 * E2 n OP E1 * E2 n OP E1 * E2

1994 25 0.73 0.89 0.42 9 0.68 0.88 0.42 3 0.90 0.98 0.82
1995 23 0.76 0.89 0.52 11 0.68 0.85 0.50 3 0.89 0.98 0.81
1996 23 0.75 0.85 0.55 12 0.73 0.83 0.61 2 0.86 1.00 0.73
1997 23 0.75 0.87 0.40 12 0.71 0.86 0.53 2 0.82 1.00 0.67
1998 22 0.73 0.84 0.35 13 0.64 0.80 0.45 2 0.76 0.87 0.67
1999 23 0.70 0.88 0.34 12 0.64 0.80 0.46 3 0.88 0.91 0.84
2000 23 0.70 0.88 0.36 11 0.57 0.88 0.23 4 0.74 0.98 0.52
2001 22 0.67 0.86 0.36 10 0.57 0.83 0.27 5 0.82 1.00 0.66
2002 21 0.66 0.84 0.35 10 0.64 0.76 0.43 6 0.83 0.99 0.68
2003 24 0.75 0.86 0.52 8 0.66 0.73 0.61 6 0.90 1.00 0.81
2004 26 0.69 0.86 0.37 6 0.58 0.70 0.43 6 0.83 0.93 0.73
2005 23 0.69 0.86 0.33 7 0.50 0.71 0.23 7 0.76 0.98 0.54
2006 22 0.64 0.84 0.29 9 0.53 0.69 0.31 6 0.65 0.92 0.35
2007 22 0.67 0.84 0.35 8 0.62 0.71 0.53 6 0.81 0.99 0.64 Table II.
Mean 23 0.71 0.86 0.39 10 0.62 0.79 0.43 4 0.82 0.97 0.68 Averages of performance,
efficiency, profitability,
Notes: OP and n stands for overall performance score and the number of firms; while E1, E2 stands for and number of firms by
the average of technical efficiency and profitability score, respectively, by given priority for first stage size categories, 1994-2007

A more aggravated image is presented by the profitability scores, as can be seen from
Table I. The average profitability score for the entire period was 0.43. According to
profitability measures, only one company obtained a profitability score equal to one.
The other companies presented a degree of unprofitability that in the majority of them tends
to increase between 1994 and 2007 (Figure 2). The average inefficiency in profitability
BIJ ranged from 42 to 69 percent in different years of the study period. Another significant
20,5 observation is that large firms appear to have on average higher profitability compared to
medium-sized firms (0.68 over 0.43), while smaller firms perform the worst (0.39).

The relation between efficiency and profitability

The analysis of profitability and efficiency scores showed that the majority of the
654 efficient firms (four out of five) are not the best performers in terms of profitability.
Therefore, we infer that there is no correlation between efficiency scores and profitability
measures. A similar conclusion was inferred from the Pearson’s correlation coefficients
given in Table III. A positive but weak and statistical insignificant relationship was
noted between efficiency and profitability. A positive, statistically significant, and quite
strong correlation is observed between performance and efficiency. Performance was
related positively, strongly, and statistically significantly with profitability.
Figure 3 provides evidence for the relationship between efficiency and profitability
at the level of individual enterprises. The efficiency-profitability matrix given in this
figure contains four quadrants, which are separated by the mean values of efficiency
and profitability scores of sample firms (i.e. 0.86 and 0.43). Each firm falls into one of
four quadrants. As a result, firms of our sample are classified into four groups of
high-low profitability and efficiency. Further, a brief comparison has been made, which

Performance Efficiency Profitability

Table III. Performance 1
Pearson’s correlation Efficiency 0.562 * 1
coefficients of Profitability 0.682 * 0.059 1
performance, efficiency,
and profitability Note: Correlation is significant at: *0.01 level (two-tailed)

1.00
F22 F17
0.90
F1
0.80
F25
F36 F8
0.70
F6 F10
Profitability

F24
0.60
F15 F20
F29
0.50
F11 F28
F34 F4
F40 F38 F7
0.40 F19 F33 F3
F16 F13 F5 F35 F27
0.30 F2 F14
F23 F12 F21
F26 F18 F37
Figure 3. 0.20 F39 F30
F32
Comparison of the average F31 F9
technical efficiency and 0.10
0.60 0.70 0.80 0.90 1.00
profitability, 1994-2007
Efficiency
may help us to identify the features characterising the firms of each group. The Efficiency and
features examined are the firm size, group ownership and vertical integration. profitability
Results showed initially that there are a number of enterprises (ten out of 40),
consisting 25 percent of the sampled companies, that have both efficiency and
profitability scores above the average of the sample (0.86 and 0.43, respectively). These
firms are included in the top-left quadrant characterised as “stars”. These firms convert
their inputs into outputs more efficiently and to generate relatively higher profits. This 655
firm category consists of the target region that the productive units falling in others
zones should achieve. When closely analysed, half of the “star” firms are big companies
with 250 employees or more (F1, F6, F7, F8, and F22), and the other half represents small
firms with less than 49 employees. It is significant to note that five out the seven biggest
firms of the sector fall in this category. Besides, the large size, these companies
experience a group ownership. In Figure 3, the bottom-left quadrant contains firms with
inferior performance in both profitability and efficiency. The findings indicate that eight
firms’ (20 percent) efficiency and profitability scores are below 0.86 and 0.43, respectively.
Especially, it was discovered that except one of the biggest companies that fall in this
category (F23), the majority of the remaining firms falling in this quadrant represent small
firms. Besides, these companies, there are even two intermediate company categories.
First, there are a number of firms (12 out of 40) consisting 30 percent of the total sample
firms which have the value of efficiency score below the sample average and the value of
profitability score above the sample average. These are at the north-west quadrant.
Examining them revealed that all of them are medium-sized (F3, F15, F19, F20, F24, F36,
and F34) and small firms (F29, F11, F28, F33, and F4). The majority of these firms (eight
out of 12) appear to be vertically integrated. Second, there are lastly ten firms (25 percent)
with higher efficiency but lower profitability. These firms fall in the bottom-left quadrant.
The analysis of attributes of these companies showed that one of the biggest firms (F14) of
the sector represents this group and that the majority of the remaining firms of this group
are small (F9, F18, F21, F27, F30, F31, F32, and F35). Several of these small firms (five out
of eight) are vertically integrated, too, activating simultaneously in poultry production.

Discussion
This study was designed to identify the relationship between technical efficiency and
profitability in the Greek meat processing industry for the period 1994-2007 by using
the new performance decomposition model proposed of Chen et al. (2009). Results showed
the firms with a higher technical efficiency were not usually the best performers in
profitability. This result is consistent with some previous studies (Kumar and Gulati,
2010), but it also differs from others, which found a positive relationship between
efficiency and profitability in other areas (Karlaftis, 2004; Mouzas, 2006). These
ambivalent results could be explained by literature. Within framework of major stream of
research on performance, the differences in the relationship of efficiency and profitability
are usually due to a complex set of reasons. The efficiency and firm profitability
heterogeneity may be derived by any differences among industries (Bain, 1956; Porter,
1985), firms (Penrose, 1959; Barney, 1991; Rumelt, 1991; Grant, 2002; Newbert, 2008), or
strategic groups (Caves and Porter, 1977), which can be strategic beneficial with positive
effect on firm performance.
In order to investigate the sources of efficiency and profitability heterogeneity at the
level of individual firms, an efficiency-profitability matrix is used. This matrix is
BIJ a simple technique used in the literature for helping managers to identify the weak
20,5 areas causing inefficiencies within the company and develop the appropriate strategy
for increasing the performance of each firm. Results suggested the existence of a small
number of large firms with higher profitability and higher efficiency, which in their
majority, are members of a group. Such a finding is seen to support the view that the
efficiency and profitability advantages of these firms could be a consequence of greater
656 capabilities of a large firm to exploit economies of scale and scope, and to achieve a
better market penetration. Given that group ownership was another characteristic of
the large star firms, efficiency and profitability advantages observed in them might be
due in other part to the greater capabilities of a company joining in a group to exploit
economies of scope, to use the same brand name to promote multiple products, and to
transfer knowledge and apply an internal benchmarking between the members of
group. This finding is in agreement with past studies in other sectors that showed
significant positive effects of group ownership on firm’s performance (Assaf et al.,
2011; Keramidou and Mimis, 2011). A relatively higher performance of large companies
was also discovered in the Indian bank sector (Kumar and Gulati, 2010).
Besides, the advantages of large firm size and group ownership, this study even
discovered small firms with higher level of performance, efficiency, and profitability.
From this outcome we infer that a superior performance can also be achieved by
obtaining competitive advantages in narrow market segments, or advantages of
conductive low costs, through the use of low cost family labour, various forms of
flexibility, and other, often illegal, practices of cost economies (tax evasion, etc). These
findings further support the evidence of past research that found small firms to attain a
higher level of performance in other areas (Assaf et al., 2011; Keramidou and Mimis,
2011). Another important observation is that the majority of sample companies with
higher efficiency or profitability were small-and medium-sized and simultaneously
vertically integrated. This result supports the view that advantages in firm profitability
or efficiency may be derived from their greater abilities of vertically integrated
companies, to decrease the transaction cost or achieve market power and hence influence
the term of a transaction, such as price, quality standards, and/or delivery dates.
The empirical results of this study revealed further that Greek meat processing
industry was underperforming by a great degree that tend to increase over the time. It is
somewhat surprising why this should be the case, as it expected that the greater
competition brought about by globalisation and the decrease of interest rates that comes
along with the integration of Greece into the EMU in 2001 should produce performance
gains over time through improvements in management and technology. Some efforts to
understand why the efficiency and profitability tend to be decreased require knowing
more information. Despite this, one might speculate that the new globalised environment
favored the presence of investments which likely tend to increase the rate of sub-utilisation
of existing capital resources. If this is the case, the capital overcapacity might be partly
related to managerial practices of using subsidies provided by the European Union for
purchasing machinery irrespective of firm size, needs of firm, and demand provision.
A similar argumentation is developed by Keramidou and Mimis (2011) when they attempt
to explain the weak relationships between the integration of Greece in the EMU and the
technical efficiency of Greek poultry companies.
Strategies for enhancing profitability and efficiency of firms was also attracted the
interest of the present research. According to our results, the average sample company
could increase its performance, by remedying managerial inability to fully exploit Efficiency and
potential technology and human resources and increasing its profitability. Certainly, profitability
managers of the majority of sample firms need to concentrate more on profitability issues
and make decisions that can leverage existing profit generating capabilities while
developing new ones. A similar conclusion is reported by previous studies in others
sectors (Eken and Kale, 2011; Kumar and Gulati, 2010), while a different image is presented
by other authors such as Mouzas (2006) who found lower technical efficiency as the main 657
cause of underperformance in the US transit systems. Beside this general conclusion, the
findings of the current study supports the view that improvement of performance requires
different strategies depending on the causes of inefficiencies within each company. The
firms with lower profitability and higher efficiency should place more emphasis on
generating profits, while the recommended strategy for the companies with higher
profitability is improving mainly their technical efficiency by decreasing the waste of
inputs. Managers could make their operations more efficient, by adopting similar
practices, to those of best performers in the sample. It is obvious that a multitude of
institutional interventions and managerial initiatives need to be undertaken to increase the
return of capital employed, to promote staff efficiency and decrease the excessive use of
labour. Additionally, our research results provide a ground to conclude that profitability
may be improved through the cost-saving pathway in following the example of firms that
identified here as benchmark firms. Profit enhancement strategies might be pursued by
identifying non-value added costs and establishing a long-term framework for cost
reduction including optimization of the material costs, changes to organisation structure,
adoption of new technology, and working capital improvement. Further, profitability and
efficiency improvement can be realized through additional measures for revenue growth.
Lastly, special attention should be paid by the worst-performing companies to identify the
sources of their inferior performance and to develop appropriate strategies for increasing
their ability in using the resources and in generating profits. The specific group of firms
should take actions for moving into the zones of higher efficiencies, or should investigate
the possibility of leaving the market and entering in other sectors.

Conclusions
In an age of globalisation characterised by greater and more intense competition, the firms
are increasingly forced to search for new ways of decreasing inefficiencies in order to
maintain their competitive positions in the market. Meeting the needs of company
management, a body of literature has evolved applying a performance decomposition
model to identify the main source of inefficiencies within a firm. The motivation of this line
of research was to provide more detailed information that could help managers to open the
“black box” of production for detecting the weak areas that cause low performance, and
simultaneously detect the strengths that could be proposed as a benchmark across the
industry. This paper attempted to contribute to this insight, providing new evidence on the
performance of Greek meat processing companies, focusing on technical efficiency and
profitability over the period 1994-2007. This analysis was based on the performance
evaluation model proposed by Chen et al. (2009), which has not yet applied in the Greek
industries. The purpose for implementing this method is to obtain consistent inferences in
measuring performance, efficiency, and profitability.
The current research was the first to show that technical inefficiency and low
profitability were the major sources of the poor performance of the Greek meat
BIJ processing industry observed in the period 1994-2007. Surprisingly, performance,
20,5 efficiency, and profitability were found to decrease in the same period, despite the new
global economic framework and the integration of Greece into the EMU. It is interesting
to note that except for the few companies with relatively high efficiency and profitability,
75 percent of the sample firms presented a relatively great degree of productive factors
overcapacities or/and ineffectiveness in creating profits. The main source that caused low
658 performance was mainly due to managerial inability to be effective in generating profits
and less importantly to the inefficiency in using the productive factors. On the question of
the relationship between efficiency and profitability, findings showed that the majority
of the efficient firms are not the best performers in profitability. Investigating why some
firms were capable of achieving superior performance, it was discovered that the
differences in performance among the firms were derived from their different capabilities.
The new insight, resulting from this analysis, might be of help in formulating strategies
for performance improvement in the Greek meat processing industry context.

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About the authors

Ioanna Keramidou (economist, BA Athens, MA Athens, MSc Athens, PhD Athens) is a lecturer
in the Department of Regional and Economic Development in Panteion University of Athens in
the field of Economic theory and Policy. Her research interests include Labor Economics and
Efficiency analysis, Economic Development and Economic Fluctuations in Growth.
Ioanna Keramidou is the corresponding author and can be contacted at: ikeram@panteion.gr
Angelos Mimis (mathematician, BSc Patras, MSc Southampton, PhD Leeds) is a lecturer in the
Department of Regional and Economic Development in Panteion University of Athens in the
field of Informatics. Her research interests include GIS, Neural Networks and Optimization.
BIJ Aikaterini Fotinopoulou (economist, BA Salonica, MSc University College London,
PhD University o Keele England) is Assistant Professor in International Technological
20,5 Development and Technical Education at the Department of Economic and Regional
Development, Panteion University of Athens. Expertise: Industrial Economics, Skills, Industrial
Training, Trends in Technology and International Division of Labor.
Chrisanthos D. Tassis (political scientist, BA Athens, MA Lancaster, MSc Patras,
PhD Athens) is visiting professor in the Department of Political Science and International
660 Relations, University of Peloponnese in the field of political parties. His research interests include
party politics, elections and electoral behaviour, economic policy and labour relations.

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