In a study I examined the efficiencies of nine leading consumer durable manufacturing firms in translating their investments in R&D and advertising into sales and customer satisfaction. Four firms - Ford, GM, Honda, and Toyota – represent leading automobile manufacturers. The remaining five firms - Apple, Dell, Hewlett-Packard, Maytag, and Whirlpool – represent consumer electronics, computer hardware and major appliances. The research model is as follows.
Figure 1:
Longitudinal five-year secondary data (1999-2003) was secured for the firms considered in this study. Using Data Envelopment Analysis (DEA) approach, this study evaluated the efficiency scores, peer groups and slacks in inputs and outputs of the sample firms.The sample firms and their data characteristics for 1999-2003 are summarized in table 1 below.
Table 1:
|
NAME |
Mean R&D Investments[1] (1998-2002) |
Mean advertising investments (1999-2003) |
Mean CSI (1999-2003) |
Mean Net Sales (1999 – 2003) (in millions $) |
|
APPLE COMPUTER INC |
375 |
230 |
74.00 |
6,285.80 |
|
DELL INC |
307 |
348 |
77.60 |
33,033.80 |
|
FORD MOTOR CO |
6,800 |
2,880 |
80.67 |
164,363.20 |
|
GENERAL MOTORS CORP (GM) |
5,790 |
3,986 |
81.60 |
179,364.60 |
|
HEWLETT-PACKARD CO (HP) |
2,718 |
1,340 |
70.90 |
53,205.40 |
|
HONDA MOTORS LTD. |
3,045 |
1,852 |
82.40 |
62,071.40 |
|
MAYTAG CORP |
80 |
163 |
83.60 |
4,470.60 |
|
TOYOTA MOTOR CORP |
4,424 |
2,664 |
83.20 |
113,585.20 |
|
WHIRLPOOL CORP |
237 |
176 |
83.60 |
10,874.20 |
[1] I consider a one-year lagged effect of R&D investments as input. Thus, R&D investments are considered for the time-period 1998-2002.
Panel data analysis was conducted by using the window analysis and Malmquist index approaches in DEA. The efficiency changes of each firm over the course of five years were examined and the efficiencies of firms relative to others in the sample were investigated.
The efficiency of each firm changes over the time duration of study. It would thus be interesting to understand the pattern of these changes for the sample firms. The trend in efficiency patterns of the automobile manufacturers is presented in figure 2 and the trend in efficiency patterns of the consumer electronics and major appliances manufacturers is presented in figure 3.
Figure 2:
From figure 2 we observe that the two major U.S. automobile manufacturers – Ford and GM – follow similar trend. The efficiency score for these two firms decrease during 2001.
Figure 3:
The patterns presented in figure 3 suggest that all the units in the sample of consumer electronics and major appliances manufacturers experienced a decrease in efficiency during 2001. Dell, Maytag and Whirlpool follow quite similar pattern. The efficiency scores of Apple Computers were observed to be lower than the other sample units during all periods of this study.
The patterns of technical efficiency and technical change of the automobile manufacturing firms and consumer electronics and major appliances manufacturing firms are presented in figures 4 and 5 respectively.
Figure 4:
Figure 5:
The following frequencies of efficient firms in peer group for automobile manufacturing firms were observed:
Toyota (2003): 14
GM (2000): 13
Honda (1999): 5
Honda (2001): 5
As can be observed, Toyota Motor Company in 2003 provides directions for good practice. For consumer electronics and major appliance manufacturing firms the following frequencies were observed:
Whirlpool (2000): 10
Maytag (2000): 6
Dell (2003): 6
Dell (2000): 3
HP (2003): 4
Whirlpool (1999): 3
From the above frequency counts it can be noted that Whirlpool 2000 provides evidence of good practice.
An explanation for the drop of efficiency in 2001
The drop in efficiency during 2001 can be explained by the downturn experienced by the world economy in that year. The growth rate in world GDP fell from 4.7% in 2000 to 1.9% in 2001 (Prometeia, Forecast Report, December, 2001). The US GDP dropped from 4.1% in 2000 to 1.1% in 2001
Source: Nair, A. 2005. Examining the efficiencies in translating R&D and Advertising Investments into Sales and Customer Satisfaction: A Longitudinal Study of Consumer Durable Goods Manufacturing Firms Using Data Envelopment Analysis. Unpublished manuscript.