Firm operation performance analysis using data envelopment analysis and balanced scorecard

Purpose The purpose of this paper is to present a case study showing how the selection of performance indices affects performance results and the evaluation of a firm's performance. Design/methodology/approach This paper employs a data envelopment analysis (DEA) framework using four kinds of performance indices selection, which include basic input/output items, balance scorecard (BSC) indices, balanced scorecard with risk management, and traditional financial indices, to evaluate banking operations. Findings Shows that a DEA‐based evaluation of performance produces a similar view of the firm's well‐being as does an analysis of financial indices; however, a BSC‐based evaluation produces a different assessment. Research limitations/implications This study was based on the following assumptions: first, when organizational units achieve technical efficiency, they will improve their organizational performance. Secondly, the inputs and outputs selected for the data envelopment analysis provided an indicator of the changes of bank's technical efficiency over the six‐year period. Practical implications This research was based on the data envelopment analysis approach to find different performance efficiency to apply four performance indicator selections, which include basic inputs/outputs items, balanced scorecard indices, balanced scorecard with risk management, and traditional financial indices, to evaluate bank operation. Originality/value Combines the balanced scorecard concept with data envelopment analysis measurements (model information) to generate measures of technical efficiency for a Taiwanese bank. It shows how comparisons can be made within and across companies on the basis of balanced scorecard measures.