DEA and the management of the product cycle: The U.S. computer industry

The method of Data Envelopment Analysis (DEA) is applied to rank the efficiency of U.S. computer companies during a 10-yr period. To reflect the dynamic setting of the computer industry, the inputs include investment in real capital and expenditures on R&D; the outputs are sales revenues, profits, and market capitalization. We develop a procedure for studying the time path of the observed DEA ratings of a high tech company over its product cycles. The empirical observations confirm the key relationship between efficiency and the product cycle. Since computer companies differ greatly in their success in managing their product cycles, they will also show quite different efficiency results. A few companies, like Apple and Compaq, manufacturing products with long and sustained cycles, were consistently located at the efficiency frontier. But most companies, spending heavily to bring on line a stream of innovative products, were inefficient.