Benchmarking Performance using Data Envelopment Analysis: A Case of the Banking Sector of Pakistan

Abstract

Customers' needs drive the competitive nature of today's business environment. To achieve desired outcomes, resources must be transformed effectively and efficiently. Performance evaluation is one of the most important benchmarking tools for modern businesses due to sophisticated technologies, computerized processes, communication, and fierce competition. The study analyzed the performance of 26 commercial banks from 2008 to 2016. Efficiency and effectiveness were calculated using data envelopment analysis(DEA). The results showed that the sub-optimal performance of banks was caused mainly by ineffectiveness compared to Efficiency. Banks were further categorized into four groups based on their average efficiency and effectiveness scores into Ace, Underdogs, Lucky, and Unlucky. This matrix suggests that banks in the Lucky quadrant should improve Efficiency, those in the Unluck group should diversify, and those in the Underdogs quadrant should merge. Banks in the Lucky, Unlucky, and Underdog quadrants should emulate the Ace quadrant's success.