Kindly summarise this article: INTRODUCTION Do managers use resources efficientl
ID: 410178 • Letter: K
Question
Kindly summarise this article:
INTRODUCTION
Do managers use resources efficiently? if managers are efficient, then inefficient managers will not survive in th long run. those who believe in efficient markers, therefore, might not think that it wi worth examining wether managers in some industry use resorces efficiently - of corse they do, else they will not survive. however, those who believe that weak managers will not survive in thelong run have two burdens to meet. first, many firms in some industries may bot be perfect competitors, forced by the market to be efficient or be extinct. second, there may be inefficiencies in the short run. Differences in location and differences in the quality of the product over a vatiety of dimensions may creae imperfectly competitive conditions for some firms. hence, examination of internal efficiences n the working of firms does have value to many industries. Another objection to firm effieciency studies is that, even if competition does not make efficiency essential for survival, managers mus sacrifice profits to be inefficient. we have two responses. first, if the owners do not manage the firms and cannot perfetly monitor the managers, then we have principal/agent problems. second, even if the owners also manage the firm, there is still a trade-off of leisure for profits. and the leisure/profit trade-off will bee more forgiving in an environment of imperfect competition than in a perfectly competitibe environment. hence, one can believe that compettiiton ensures efficiency and still believe that there are imperfectly competitive inductries in which markets might not be efficient and that some markets may be inefficient in the short run. in the hotel industy, in particular, competition may be imperfect; thus the managers are not forced to be efficient tosurvive. differences in hotel location and the differences in hotel quality over a variety of dimensions nominate the hotel industry as a prime candidate for an efficiancy study. in the following section we introduce the techniqe of data envelpment analysis, which we use to estimate various efficiencies of the hotel industry. section 3 presents a review of th eiterature. section 4 more fully explains the DEA methodology. section 5 discusses the empirical results, and Section 7 concludes the study.
SECTION 2: DATA ENVELOPMENT ANALYSIS OVERVIEW
We estimate managerial efficiency in the hotel inductry using a linear programming procedure. our procedure, data envelopment anlysis (DEA), allows us to measure overall, technical, allocative, pure technical, and scale efficiency levels. essentially, DEA construts an effcient frontier that represents the minimuym costs necessryfor a firm to ahieve a given level of output. any imput utization greater than this minimum amount is deemed excess and the firm is classified as inefficient. we then decompose the inefficiencies into the five aforementioned measures. we define allocaive inefficiency as deviations from the efficient frontier that ressult from managers failing to use the optimal input mix in the production process. we denote technical inefficiencyas the product of pure technical inefficiency and scale inefficiency. pure technical inefficiency represents failure to fully utilize inputs, given their allocation. scale inefficiencyrepresents failure to operate at constant returns to scale. overall ineffciency is simpy the product of technical and allocative inefficiencies. Leibenstein (1966) was the first to recognize and formally define the term X-inefficiency. he argues that firms can be inefficient from failure to allocate resources in themost efficient manner (allocative ineffiiciency) and from failure to utilie their resources given their allocation (technical inefficiency). essentially, two firms may have the same resource allocation, yet one firm produces less putput than the other does. the difference between how a firm could potentially utilize its resources versus its actual utliztion is termedX-inefficiency1.
leibenstein further postulates that X-inefficiency losses arise form managerialineffciencies that are a function of inadequate motivation. in a comptitive marketplace, managers an dworkers may frrl pressure to work effectiely and efficiently in oreer to compete and survive. on the other hand, market imperfections may exist which allow managers and workers to 'relax' and still be ats would encourage firms to survive. in this context, competitive markets may enable firms to deviate from their efficient frontier. thus, obtaining X-iefficiency measures for the hotel industry provides estimates of thecompetitive structure of this industry.
in addition to providing macro efficienc measure for an industry, DEA provides individual, or micro, firm efficiency estimates. with this information, researchers and managers are able to identigy efficient firms and can then try to emulate these firms in order to increase their own efficiency and preformance. in this context, it may also be possible to use DEA to make human resourc
Explanation / Answer
Being efficient and effective is one of the criteria for successful business management. Effectiveness can be described as the goal accomplished by the mangers collectively where as to be efficient denotes the completing the task in minimum time, with low cost and achievement of more number of gaols at a time. To survive in the long run mangers must enhance their efficiency as well as effectiveness without that they might be looses their position into their respective industries.
The agency relation must be satisfied and balanced for the successful run of the business. Mangers must have competent knowledge to face the challenges prevailing in the competitive industry.
The efficiency level of managers can be evaluated by the primary and secondary data collected and evaluated with linear programming method. Input, process and output relations must be considered while measuring the efficiency as well as inefficiency of mangers for a particular industry. It will be better to have a close look upon micro as well as macro level sector of the economy.
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