Efficiency Analysis of Marketing Organizations with Interconnected Departments

Efficiency analysis is commonly used to assess and compare the productivity of similar decision-making units (DMUs). In this research, we broaden the applicability of efficiency analysis to situations where each DMU comprises interconnected sub-DMUs (e.g., departments). Extant research espouses that embracing the connectedness between sub-DMUs (e.g., marketing–sales interface, marketing–R&D interface) helps maximize sub-DMU and DMU performance. For example, the marketing sub-DMU generates sales leads through advertising while the sales force sub-DMU convert leads into sales. The sales force sub-DMU partially relies on the marketing sub-DMU to generate sales, and the DMU benefits from the efficiency gained by the sales force sub-DMU in following through the leads generated by the marketing sub-DMU. To conduct efficiency analysis of DMUs with interconnected sub-DMUs, we need a method that produces sub-DMU level efficiency scores, accounts for the interconnectedness among sub-DMU inputs and outputs, and provides statistical inference on the impact of efficiency on overall DMU outputs; all of which is not provided by extant methods. Accordingly, we propose a new method that combines the intuition of the existing methods to address the problem. In addition, based on syndicated data from over 300 newspapers with interconnected sub-DMU, we present empirical evidence that the proposed method outperforms traditional approaches that do not consider sub-DMU interconnectedness. Finally, the proposed method yields substantive insights. For example, the newsroom department was the most efficient; yet newsrooms appear to have been the major focus of cutbacks during the last decade.