Using Data Envelopment Analysis to Measure Efficiency

I’ve written this report to explore the possibility of using Data Envelopment Analysis (DEA) to investigate the efficiency of United Kingdom Premier League football teams. The report covers the following aspects: a) An explanation of the different types of efficiency that could be measured and how they apply to UK Premier League football teams; b) The efficiency approach most suitable for this consultancy study (including the variables used and efficiency orientation employed); c) The managerial insights that could be obtained from this project. The information included within this report should improve our chances of preparing a winning proposal for Sheikh Khalifa and his investment company.

I will begin with a definition of Data Envelopment Analysis (DEA); “DEA is a technique for measuring the relative performance of organisational units where the presence of multiple inputs and outputs makes comparisons difficult” (Emrouznejad, 2015). In our circumstances, DEA may be an incredibly useful strategy in assessing and measuring the efficiency of an organisation such as a world-class football team - essentially due to the complexities of such an organisation, where it is not always entirely clear which aspects management should be focusing upon. DEA measures the efficiency of a decision making unit (DMU) (Haas, 2003, p.2). In this report, the DMU is any one of the UK Premier League football team, measured against other football teams in the Premier League .

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Before being able to identify the efficiency approach best suited for this consultancy study, it would be wise to explore the different options of efficiency measurements to choose from. The two most established forms of efficiency approaches are; cost minimisation, and profit/output maximisation. Cost minimisation can be defined as the “financial strategy that aims to achieve the most cost-effective way of delivering goods and services to the required level of quality” (tutor2u, 2016). Meanwhile, profit/output maximisation can be defined as; “The ability for a company to achieve a maximum profit/ output with low operating expenses” (BusinessDictionary, 2016). As you can gather, each approach focuses upon improving a completely different aspect of the operations within an organisation.

If a Premier League team was to focus upon a cost-minimisation approach, they would essentially be implementing strategies such as minimising players wages, firing players inessential to the core team, and reducing advertisement and promotional costs. On the other hand, if a football team was to focus upon output maximisation, they would be looking at strategies to improve on-field performance and revenues such as; increasing player salary, purchasing high-quality players, and administering financial rewards for players who play remarkably well.

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Ultimately, a Premier League football teams’ primary aim is to maximise the championship and league titles they win, add to their legacy, as well increase their financial success (revenues). With this in mind, it can be seen that a cost minimisation approach to measure efficiency isn’t suitable, as it would not improve the chances of Premier League teams achieving their primary aim - to win championships and drive revenue. Therefore, it can be seen that the efficiency approach best suited for this project would fall under “output maximisation”.

Now we must determine which input, output, and external variables to measure. A simple single-step approach to measure effectiveness may not provide a detailed enough explanation due to intermediate factors when converting input into output, thus, a two- step approach will be used. In the first step, the effectiveness of transforming player wages to on-field performance is measured (wage efficiency). In this stage, the input variable would be the player salary, whilst the output variable would be their on-field performance. The second stage measures the effectiveness in transforming on-court performance to the team’s winning rate, and the revenues they gain. In this stage the input variable is on-field performance, and the output variable is winning rate and revenues.

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It is important not to forget about the existence of external, uncontrollable variables that can affect a team's capability to win matches and drive revenue. For a football team, the most noteworthy external variable would be the size of the local population where the team is based. If a team is located in a larger city with a high population, they have an appreciable number of potential fans who would be willing to support with ticket receipts and merchandise. Compare this to a football team located is a smaller, poorer city, and this certainly places a restriction upon potential revenue generation.

Considering the fact that an output maximisation approach has been employed, efficiency orientation should be highly focused around improving output. The organisation should be analysing their decisions based upon the actions they could take to improve output, and this ideology should be established within management. Supplementary to that, due to the existence of learning effects, i.e. a football player’s skills improves with their experience, a variable-returns to scale technology should be used within the Data Envelopment Analysis.

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By undertaking this project, it may be possible to extract managerial insights regarding strategies football teams could use to maximise their wins and their revenues. For example, to improve the performance of players, management could provide financial bonuses for winning championship games. In fact, many UK Premier League teams do make use of this tactic - Manchester United’s players could share up to £9.25 million on top of their weekly wages if they win the quadruple; the Premier League, Champions League, FA Cup, and Football League Cup (Flanagan, 2016). By increasing a team's winning percentage, this essentially increases commercial earnings as the two go hand- in-hand - more wins results in more support, and more support results in a higher number of ticket receipts and merchandise purchased.

In conclusion, I hope what has been covered in this report will allow you to make a decision for the efficiency study of UK Premier League football teams. If you have any further clarifications, or would like a more thorough exploration of DEA, please don’t hesitate to let me know. I have faith that with the level of expertise and professionalism here at ECC we will be able to formulate a winning proposal for Sheikh Khalifa