Evaluating the Impacts of Operating Strategies on Efficiency in the U.S. Airline Industry

Abstract

The purpose of this chapter is to introduce a new methodology within the framework of data envelopment analysis (DEA) that can be used to evaluate the impacts of operating strategies on efficiency and relate efficiencies to the competitive position of the firm. In management science, there has been an increasing emphasis on the potential use and effectiveness of broad competitive or business strategies, such as those set forth by Miles and Snow (1978), Miller and Friesen (1984), and Porter (1980, 1985). There is also an ongoing interest in evaluating the effectiveness of operating strategies that are intended to enhance competitive position by constributing to efforts to improve productivity and through-put, reduce inventory holding costs, and otherwise reduce costs and enhance revenues. If the absolute and relative impacts of these strategies are to be examined empirically, then there is a need for quantitative measures that capture the constructs involved and models that capture the causal relationships between variables reflecting operating strategies, efficiency, and competitive strategy or position. Such models should also be useful for management by enhancing its ability both to assess the realized impacts of operating and business strategies ex post and to predict the likely impacts of proposed alternative strategies.