Identification of Good Operating Practices; Cross Efficiency Analysis

Definition

Identification of good operating practices refers to the structured recognition and analysis of operational methods that consistently produce desirable outcomes with high efficiency, effectiveness, and reliability. These practices are usually identified through benchmarking, performance measurement, process analysis, and comparison of superior performers against others.

Cross efficiency analysis is a DEA-based method in which each decision-making unit is evaluated using the weights derived from its own optimal DEA solution, and these weights are then applied to all other units. The resulting cross-efficiency scores provide a peer-evaluation matrix that improves ranking, reduces the problem of multiple efficient solutions, and helps identify robust operating practices.

Main Content

1. Good Operating Practices and Their Role in Performance Improvement

• Good operating practices are the specific actions, procedures, and management choices that allow an organization to achieve high output with low waste and consistent quality. Examples include preventive maintenance, standardized work methods, lean inventory control, energy-saving routines, and data-driven scheduling.
• Their role in performance improvement is to convert isolated success into repeatable organizational capability. For example, if one hospital unit reduces patient waiting time through better appointment scheduling, that scheduling logic can be studied and applied in other units to improve service delivery.

Good operating practices are not limited to technical efficiency alone. They also include managerial discipline, employee involvement, process documentation, quality assurance, and continuous improvement culture. In practice, identifying such practices often begins with observing top-performing units and comparing their inputs, outputs, and operating conditions with lower-performing units. The goal is not merely to copy the best performer blindly, but to understand which elements of its operating model create superior results.

A well-identified practice should be:

• Replicable across similar contexts
• Measurable in terms of outcomes
• Stable over time
• Aligned with organizational goals
• Capable of being improved further

For example, in a manufacturing firm, a good operating practice may be a setup-reduction technique that shortens machine changeover time. This leads to higher machine utilization, reduced idle time, smaller batch sizes, and faster response to demand changes. In a service organization, a good practice may be a digital triage system that routes customers faster to the correct support channel, improving first-contact resolution and customer satisfaction.

2. Cross Efficiency Analysis as a Peer-Comparison Tool

• Cross efficiency analysis is used to evaluate decision-making units by allowing every unit to assess itself and others using the weights it considers most favorable in DEA. This creates a more complete comparison than traditional DEA, which only asks whether a unit is efficient relative to the frontier.
• It improves discrimination among efficient units and is therefore useful for ranking when many units obtain the same best score. The method generates a cross-efficiency matrix, where each row represents the evaluation power of one unit over all units.

The essence of cross efficiency analysis lies in peer appraisal. In standard DEA, each unit selects input and output weights that maximize its own efficiency. This can lead to multiple units being labeled efficient even though they may differ greatly in performance style or robustness. Cross efficiency addresses this by evaluating how well a unit performs under the weight systems chosen by its peers.

This has several advantages:

• It discourages extreme or unrealistic weight schemes that make a unit look efficient only under very specific assumptions.
• It reveals how consistently a unit performs when judged by different peers.
• It supports more refined ranking by averaging or otherwise summarizing the cross-efficiency scores.

For example, suppose four logistics centers are analyzed. Under standard DEA, all four may appear efficient. Cross efficiency analysis may show that one center consistently receives high peer scores because it uses balanced labor, fuel, and vehicle utilization practices, while another receives low peer scores because its efficiency depends on a very unusual weight combination. The former is more likely to represent a genuinely good operating practice.

Cross efficiency can be:

• Aggressive, where a unit’s weight set is chosen to minimize others’ scores and maximize discrimination
• Benevolent, where the weight set is chosen to evaluate peers more fairly
• Neutral or mixed, depending on the adopted model and objective

3. Identifying and Benchmarking Best Practices Through Cross Efficiency

• Cross efficiency helps identify operating practices that are not only efficient but also robust across different evaluation perspectives. This is important because a practice that looks efficient under one model may not hold up under peer comparison.
• Benchmarking uses cross-efficiency results to compare units, detect performance gaps, and define realistic improvement targets based on the behavior of high-performing peers.

The identification process usually involves several stages. First, data are collected for inputs and outputs such as labor, capital, energy, cost, service volume, quality indicators, and customer satisfaction. Then DEA determines the efficient frontier and computes efficiency weights for each unit. Cross efficiencies are then calculated by applying each unit’s optimal weights to all units. The average or weighted average of these cross-efficiencies produces a ranking and helps pinpoint stable best performers.

This process is particularly valuable when management wants to answer practical questions such as:

• Which branch, plant, hospital ward, or school is the best benchmark?
• What operating routines are associated with consistent excellence?
• Which units are efficient only because of favorable conditions, and which ones are efficient because of superior management?

A strong best-practice candidate usually shows:

• High efficiency under self-evaluation
• High average cross-efficiency from peers
• Low sensitivity to weight variations
• Consistent performance over time
• Transferable methods or procedures

For example, in a bank branch network, one branch may have excellent customer turnaround time, low error rates, and high service output. Cross efficiency may show that this branch also performs well under peers’ weights, indicating that its operating practices—such as queue management, staff coordination, and digital self-service support—are broadly effective and worth adopting elsewhere.

Working / Process

1. Define the decision-making units and select relevant performance variables, including inputs and outputs. Inputs may include labor hours, budget, materials, energy, or service time, while outputs may include products, transactions, quality scores, or customer satisfaction measures.
2. Apply DEA to obtain optimal weights and efficiency scores for each unit, then calculate cross-efficiency scores by evaluating every unit with the weights chosen by every other unit. Organize the results into a cross-efficiency matrix for comparison.
3. Analyze the matrix to identify units with consistently high peer evaluations, stable performance, and transferable operating methods. Use these findings to benchmark practices, set improvement targets, and disseminate the best practices across the organization.

Advantages / Applications

• Provides a more discriminating ranking than standard DEA, especially when many units are technically efficient and tied at the same score.
• Helps identify robust and transferable good operating practices by highlighting units that perform well across multiple peer weight systems.
• Widely applicable in manufacturing, healthcare, banking, education, logistics, public sector performance evaluation, and supply chain benchmarking.

Summary

• Key point 1: Identification of good operating practices focuses on discovering repeatable, measurable, and high-performing methods that improve organizational efficiency and effectiveness.
• Key point 2: Cross efficiency analysis extends DEA by using peer-based weight evaluations to compare units more realistically and rank efficient units more clearly.
• Key point 3: Together, they support benchmarking, performance improvement, and the transfer of best practices across similar units or organizations.
• Important terms to remember: operating practices, benchmarking, Data Envelopment Analysis (DEA), cross efficiency, peer appraisal, efficiency frontier, decision-making units (DMUs), best practice, ranking, performance evaluation