Systems and Management Science by Extremal Methods: Research Honoring Abraham Charnes at Age 70

580 Pages·1992·41.74 MB·English

by  Fred Young Phillips (ed.)

8 EDUCATIONAL ACTIVITIES
heatedly, in faculty meetings. He administered his research funds with the
finest administrative dispatch. He actively worked with and helped junior
faculty to achieve their goals. Professor Charnes has always been adept in
transferring his research results to graduate students and other faculty
members. His unique ability to make his graduate students become special
members of the Charnes Team is well known to each of his students.
Throughout, his wife Kay Charnes has played a key role in making each of
his students part of his extended family. Few deans were as fortunate as I
in having Professor Charnes, along with other faculty members and staff,
to build The University of Texas at Austin Graduate School of Business
into a great institution.
Faculty and university administrators, including deans, have few ways to
express special recognition to dedicated and outstanding faculty members.
One of these is promotion to full professor. Professor Charnes became a full
professor within seven years after his first appointment as assistant professor.
At Northwestern University, he received his first designated appointment as
the Distinguished Walter P. Murphy Professor of Applied Mathematics. He
received the appointment to the following endowed professorships during
my tenure as Dean:
• The Jesse Jones Professor of Biomathematics and Management
Science
• The John Harbin Centennial Professorship in Business
It is abundantly clear to me that Professor Charnes makes deans look
good. The lesson is this: When a faculty member achieves a record like
Professor Chames's, then deans look good as well. The college and university
also benefit through an increased reputation for excellence in higher education.
1.6. Personal Accomplishment
Let me enumerate some of Professor Charnes' s personal academic accom
plishments. He initiated and directed since 1951 various research centers
that continuously supported research in mathematical programming, extremal
methods, and systems analysis. His academic honors and awards include
the following: finalist for the Nobel Prize in Economics; Medal for Distin
guished Public Service from the U.S. Navy (highest civilian award); faculty
awards from The University of Texas at Austin College and Graduate School
of Business, including awards for Outstanding Research Contributions and
for Distinguished Scholastic Contributions; P. Naor Distinguished Profes-
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A DEAN'S PERSPECTIVE
sor and Memorial Lecturer, The Technion-Israel Institute of Technology;
Addison Locke Roache Memorial Lectureship of the University of Indiana;
and the John von Neumann Theory Prize (jointly held with W.W. Cooper
and R.J. Duffin).
His professional society activities are as follows: President of The Institute
of Management Sciences (TIMS); Secretary for International Affairs,
Academia Nacional de Ingenieria, A.C. (lifetime appointment); and Fellow
of the Operations Research Society of America, the Econometric Society,
and the American Association for the Advancement of Science. He is a
member of the American Mathematical Society, the American Statistical
Association, the Society for Industrial and Applied Mathematics, the Math
ematical Programming Society, lSI, and the International Federation of
Operations Research Societies.
His editorships or associate editorships have included Management
Science; Mathematical Programming; Operations Research; Naval
Research Logistics Quarterly; Socio-Economic Planning Sciences; Journal
of Information and Optimization Sciences; Chinese Journal of Operations
Research; and Revista de la Academia Nacional de Ingenieria de Mexico.
His refereeships include Transactions of the American Mathematical Soci
ety; Duke Math Journal; SIAM Journal; National Science Foundation; and
the National Institutes of Health.
I earlier said that a person like Professor Charnes can contribute to
the reputation of deans and the schools with which he is associated. The
accomplishments I have just cited go beyond this. They are the results of
a world-class creative and innovative researcher and teacher. After all, what
makes for the excellence of academic institutions is the quality and caliber
of its faculty, its students, and what results from their interplay that goes
into the preparation of first-class researchers, who then emerge to repeat the
process elsewhere.
References
[1] Charnes, A. and W.W. Cooper (eds.), "Preface," in Creative and Innovative
Management: Essays in Honor ofG eorge Kozmetsky, Ballinger, Cambridge, MA,
1984, p. xvii.
[21 Simon, Herbert A., "What We Know About the Creative Process," in Robert L.
Kuhn (ed.), Frontiers in Creative and Innovative Management, Ballinger, Cam
bridge, MA, 1985, p. 5.
2
ON LEARNING FROM
OUTLIERS
Arie Y. Lewin
An ongoing debate in economics and the management sciences is reflected
in the following fundamental question: Does management make a difference?
The purpose of this short chapter is to explore this basic question, which
represents an article of faith, since it anchors the theory and practice of the
management sciences and provides the raison d'etre for the Decision, Risk
and Management Science program at the National Science Foundation.
I have chosen to honor Abraham Charnes with this chapter because of
his life-long professional dedication to the field of management science and
to the enhancement of managerial decision making through application of
mathematics and operations research. Of particular significance to me was
my chance introduction to Data Envelopment Analysis resulting from having
extended an invitation to Professors Charnes and Cooper to present a plenary
address at the XXIV International Meeting of The Institute of Management
Sciences in Hawaii (June 1979). Professors Charnes and Cooper sent me
a draft paper with the title, "A Data Envelopment Analysis Approach
To Evaluation of the Program Follow Through Experiment in U.S. Public
School Education."
Because the year was 1979, the title made sense, of course, only to the
authors. I read the paper with great difficulty, partly because of not having
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12 EDUCATIONAL ACTIVITIES
worked on mathematical programming problems since my student days and
partly because the paper made for very difficult reading. Without belaboring
the point, the vast majority of the audience of several hundred attending the
plenary session did not grasp the meaning and importance of the paper,
which, after several revisions and some long editorial hours of my own,
appeared as an unusual contribution in Management Science (Charnes, Cooper
and Rhodes [6]). However, it was that original draft that led to my thinking
about learning from outliers, about empirically identifying best practice,
and about the question of whether management really makes a difference.
The Darwinian theory that only the fittest survive has two contradictory
representations in economic and management theories (see, for example,
Anderson [1]). Evolutionary economics or "Darwinian economics" (e.g.,
Hirshleifer [10,11]) has argued that the invisible hand of competition en
sures the survival of the fittest, that markets force optimal decision making
by the surviving companies, and that inefficient firms or firms that apply
suboptimal decision rules will be extinguished. In other words, Darwinian
economics implies that, at any time, the majority of surviving firms exhibit
optimal decision making behavior, that surviving industries operate efficiently,
and that descriptive research about the practice of management in surviving
firms can serve as the basis for normative research for management practice
(Lilien [19]).
The evolutionary-economics argument considers additional variables that
help to explain why not all surviving firms seem equally efficient or effective.
These relate to the ability of organizations to adapt to or insulate themselves
from their environment. They include, for example, firm size and organiza
tional slack (Cyert and March [9]; Pfeffer [22]; Singh, Tucker, and House
[24]; Lewin and Wolfe [18]); the rate at which organizations approach
optimal behavior as a result of probabilistic search (Cyert and March [9]);
trial and error learning (Bowman [2]; Kunreuther [14]; Nelson and Winter
[21]); and the ability of firms to emulate other successful firms. Regardless
of the evolutionary argument, economists imply that the firms that survive
are the better managed ones. Whether by design, superior decision making,
or trial and error, the surviving management is seen as having devised and
implemented close-to-optimal business strategies and managerial decisions.
In these theories, luck is not considered to be an important variable.
In contrast, the "population ecology" argument is that management makes
little difference, and that survival is a matter of luck, almost like being at
the right place at the right time. Luck or unanticipated events do affect
organizational outcomes (Lewin and Minton [15], and in the present state
of theory development on' organization design, it is unlikely that organiza
tion designs can be so completely specified as to eliminate the occurrence
LEARNING FROM OUTLIERS 13
of what Cohen, March, and Olson described as "garbage can processes"
(Cohen, March, and Olson [8]).
However, even within a "garbage can" model of organizations, there is
a need to distinguish between simple dumb luck and management judgment
that recognizes an opportunity and capitalizes on it. Therefore, population
ecology, evolutionary economics, and management science notwithstanding,
the question remains whether management makes a difference.
Upon closer examination, it may become evident that economists,
management scientists, or organization theorists are ill equipped to answer
this question definitively. The evolutionary-economics argument equates
empirical observations of firm survival with an assumption of optimal or
near optimal management action. The same observation of firm survival is
attributed by population ecology theorists to luck or to being "selected in,"
in some random process. What is needed is process theories and empirical
observations that are inferentially consistent with the observations on outcomes
alone (i.e., survival). A further complication arises in that the performance
of an important and very large class of organizations-public-sector organ
izations-and their survival does not depend on market interactions. Designing
and administering effective and efficient public-sector organizations such as
schools, universities, postal services, air traffic control systems, justice
systems, and local governments are of great concern to practitioners as well
as to management scholars.
The difficulty in determining how and whether management makes a
difference or how best to design organizations can be discussed along several
lines. Chames and Cooper [4] consider three dimensions of managerial
performance, involving 1) propriety of objectives pursued and of methods
used to achieve the objectives; 2) effectiveness in stating the objectives
and in attaining the objectives; and 3) efficiency of benefits achieved and
resources utilized. Chames and Cooper then note that certain measures of
managerial performance, such as profit, simultaneously reflect changes in
organization effectiveness (attributable, for example, to new strategic direc
tions) and in efficiency (attributable, for example, to improved production
systems). Lewin and Minton [15] have reviewed the complexity of the
effectiveness construct itself and the need to develop research strategies
that could lead to causal theories of organization effectiveness. Further
more, any causal theories of organization effectiveness need to incorpor
ate the paradoxes and trade-offs inherent in the management and design
of organizations. Certain attributes of organization effectiveness may be
more prominently associated with certain features of organization design
(as described by structure, information processing systems, management
philosophy, organ-ization culture, strategy, etc.), and in real life, organiza-
14 EDUCATIONAL ACTIVITIES
tion design is a neverending process involving management choices or trade
offs that seek to attain certain effectiveness attributes and deemphasize
others. Cameron [3] labeled this iterative organizational redesign process as
"the management of paradox."
My own work in Data Envelopment Analysis (DEA) (e.g., Lewin and
Morey [16]; Lewin, Morey, and Cooke [17]) has illustrated that regression
models of single dependent variables of organization effectiveness will not
lead to causal explanatory models of organization effectiveness. The traditional
research strategy is descriptive in nature and seeks to account for the maximum
variance in some mutivariate regression model. Such models are based on
measures of central tendency, which abstract the observed data in a way
that maximizes explanation of average behavior. Outliers are eliminated
because of their unwanted effects on the average behavior. Such a research
strategy will be ill suited for identifying the relatively best-performing
organizations, because by definition the best-performing units are the outliers
that are outside the average behavior.
A common admonition in statistical methodology texts and in doctoral
research methodology seminars involves the importance of examining and
understanding outlier data. In practice, however, because of a research
tradition that places great value on fitting models that account for the greatest
amount of variance, researchers have honed their arguments for discarding
outliers (for another view on why outlier data may be discarded, see Mitroff
[20)). This practice is understandable from the perspective of explaining
central tendencies. It makes little sense, however, if the objective is to
identify best practice as a starting point for developing explanatory causal
models of best practice.
The idea of a research strategy that contrasts "most effective" and "least
effective" is not new. It is the cornerstone of comparative case research,
embodied, for example, in books about management such as In Search of
Excellence (Peters and Waterman [23], and was the dialectic through which
P. Lawrence and 1. Lorsch developed their contingency theory of organiza
tions. However, the determination of effective and ineffective performance,
in particular when multiple measures of performance, various discretionary
resources, and exogeneous variables are involved, has required the utilization
of qualitative judgments and/or the application of arbitrary and subjective
weights to arrive at a measure of effectiveness. In contrast, DEA has provided
an objective methodology and has illustrated the feasibility of objectively
identifying maximally effective organizations (within a population of organ
izations) as compared to least or less effective organizations. Unlike central
tendency models, DEA uses a mathematical programming methodology
that optimizes on the individual observations against which all other ob-
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LEARNING FROM OUTLIERS
servations may be evaluated. Furthennore, the DEA methodology can also
provide initial insights as to the difference that management makes by
identifying whether variables under management control or not under man
agement control account for the observed maximal perfonnance. It also
provides the basis for more comprehensive comparative clinical research to
identify causal-process explanations and thus to induce prescriptive theories
or models of organization effectiveness.
DEA is not the only approach for identifying and studying outliers. Chames,
Cooper and Sueyoshi [7] have applied goal programming by averaging
across the cost frontier, which included outlier observations. In yet another
application, Chames, Cooper, Gorr, Hsu, and Von Rabenau [5] used chance
constrained programming as an approach to time series analysis to ascertain
whether departures from past behaviors warrant changing from one "deci
sion regime" to another.
In summary, the underlying argument on whether management makes
a difference cannot be resolved by inferential reasoning on outcome data
alone. It will require methodologies for empirically identifying best
perfonning organizations-outliers-and descriptive processual (or trans
actional) data that can causally relate management action to perfonnance
(e.g., Ijiri [12,13]; Lewin and Minton [15]) and to events not under the
control of management. DEA has the potential to group objectively (on the
basis of empirical observations) the outlier cohort of most effective organ
izations. Therefore, DEA provides a beginning basis for systematic approaches
to questions of fundamental importance in management of organizations
and in social perfonnance. This is a beginning, however, and not an end.
Other research methods and theories that can lead to causal attributions of
best perfonnance remain to be developed.
References
[1] Anderson, Erin, "Strategic Implication of Darwinian Economics for Selling
Efficiency and Choice of Integrated or Independent Sales forces," Management
Science (Forthcoming).
[2] Bowman, E.H., "Consistency and Optimality in Managerial Decision Mak
ing," Management Science 9 (1963), 310-321.
[3] Cameron, Kim S., "Compatibility and Conflict in Conceptions of Organiza
tional Effectiveness," Management Science (1986).
[4] Charnes, A. and W.W. Cooper, "Preface to Topics in Data Envelopment
Analysis," Annals of Operations Research 2 (1985), 59-94.
16 EDUCATIONAL ACTIVITIES
[5] Chames, A., W.W. Cooper, W.L. Gorr, Cheng Hsu, and Burkhard Von
Rabenau, "Emergency Government Interventions: Case Study of Natural Gas
Shortages," Management Science 10 (1986), 1242-1257.
[6] Chames, A., W.W. Cooper, and E. Rhodes, "Evaluating Program and Mana
gerial Efficiency: An Application of Data Envelopment Analysis to Program
Follow Through," Management Science 27 (6) (1981), 668-697.
[7] Chames, A., W.W. Cooper, and T. Sueyoshi, "A Goal programming/Con
strained Regression Review cf the Bell System Breakup," Management
Science 1 (1988), 1-26.
[8] Cohen, Michael D., James G. March, and Johan P. Olson, "A Garbage Can
Model of Organizational Choice," Administrative Science Quarterly 17 (1972),
1-25.
[9] Cyert, Richard and James March, A Behavioral Theory of the Firm, Prentice
Hall, Englewood Cliffs, NJ, 1963.
[10] Hirshleifer, Jack, "Economics from a Biological Viewpoint," Journal of Law
and Economics 20 (1977), 1-52.
[11] Hirshleifer, Jack, "The Expanding Domain of Economics," American Eco
nomic Review 74 (1985), 53-68.
[12] Ijiri, Yuji, "A Framework for Triple Entry Bookkeeping," The Accounting
Review (October 1986),733-747.
[13] Ijiri, Yuji, "Three Postulates of Momentum Accounting," Accounting Hori
zons 1 (1987), 25-34.
[14] Kunreuther, Howard, "Extensions of Bowman's Theory on Managerial De
cision Making," Management Science 15 (1969), B415-B439.
[15] Lewin, A. and John Minton, "Detennining Organizational Effectiveness: An
other Look, and an Agenda for Research," Management Science 5 (1986),
514-538.
[16] Lewin, A. and Richard C. Morey, "Measuring the Relative Efficiency and
Output Potential of Public Sector Organizations: An Application of Fractional
Linear Programming," International Journal of Policy Analysis and Infor
mation Systems 5 (1981).
[17] Lewin, A., Richard C. Morey, and Thomas J. Cook, "Evaluating the Admin
istrative Efficiency of Courts," Omega 10 (1982), 401-411.
[18] Lewin, A. and C. Wolf, "The Theory of Organizational Slack: A Critical
Review," Proceedings of the Twentieth International Meeting of the Institute
of Management Science, North Holland, Amsterdam, 1973.
[19] Lilien, Gary L., "Advisor 2: Modeling the Marketing Mix Decision for In
dustrial Products," Management Science 25 (1979), 191-204.
[20] Mitroff, Ian I., The Subjective Side of Science: A Philosophical Inquiry into
the Psychology of the Apollo Moon Scientist, Elsevier, Amsterdam, 1974;
reissued by Intersystem Publishers, Seaside, CA, 1984.
[21] Nelson, Richard R. and Sidney G. Winter, An Evolutionary Theory of Eco
nomic Change, Belknap Press, Cambridge, MA, 1982.
17
LEARNING FROM OUTLIERS
[22] Pfeffer, Jeffrey, Organizations and Organization Theory, Pitman Publishing,
Boston, 1982.
[23] Peters, Thomas J. and Robert H. Waterman, Jr., In Search of Excellence,
Harper and Row, New York, 1982.
[24] Singh, Jitendra V., David J. Tucker, and Robert J. House, "Organizational
Change and Organizational Morality," Administrative Science Ouarterly 31
(1986), 587-611.
3
ABRAHAM CHARNES AS
TEACHER AND EDUCATOR: A
STUDENT'S PERSPECTIVE
Michael J.L. Kirby
This chapter discusses what Abraham Charnes has done for his students
what he has given them. While the points made here are illustrated with
reference to my own experiences, a great many people have had similar
experiences and therefore will share my views.
The first point I want to make concerns the way Professor Charnes taught
his students to approach applied problem solving. Indeed, I have frequently
been asked by the media why, as an applied mathematician, I entered politics
and how my academic background could possibly be useful to me in my
current career. My response is always the following:
Applied mathematics teaches you how to solve problems. It teaches you an
approach to problem solving that can be used whenever one is confronted with
a complex decision problem, even if it is not a mathematical problem.
To be sure, unlike the days when I was in Dr. Charnes's extremal methods
class at Northwestern University, the objectives and constraints associated
with problems I have worked on during my 15 years in politics and gov
ernment can seldom be quantified precisely, and they are certainly not
linear. Nevertheless, objectives and constraints can be defined precisely
in words that are crisp, clear, and unambiguous. Having done this, one is
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