Measuring university efficiency: An application of data envelopment analysis and strategic group analysis to Australian universities

Public universities worldwide are under growing pressure to increase efficiency. Understanding how teaching and research contribute to the overall efficiency of university operations is of great importance for universities to improve their performance. This paper aims to discuss this issue.

This paper adopts a holistic approach to evaluate university efficiency from three perspectives including overall university operations efficiency, university teaching efficiency and university research efficiency. It applies the technique of data envelopment analysis to 36 Australian universities during the period 2011–2015 to evaluate their relative efficiency from these three perspectives. A strategic group analysis is further conducted for exploring the source of inefficiency of an individual university in its respective strategic group.

This study reveals that Australian universities maintain a comparatively high level of efficiency in terms of overall operations and research during the period 2011–2015. Teaching efficiency, however, is underwhelming during this period. It further shows that universities with low efficiency seeking to improve their overall operations efficiency can allocate the limited resource to teaching instead of research.

This study is crucial to both Australian government and Australian universities. The government is provided with the information about the optimum performance levels for universities under certain fixed resource. As a result, resources or funding can be allocated based on the performance ranking. The efficiency information is also in demand among Australian universities. In order to successfully strive for more funding from the federal government in an environment of increased competition, universities need to not only know their relative position among their peers, but also get guidelines on how to improve their performance.

The novelty of this study lies in the decomposing of efficiency models to identify inefficiencies in university operations. Such a study provides individual universities with valuable information on how they can make full use of their resources to improve their efficiency in an increasingly competitive environment.