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

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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- 9 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 11 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- 15 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 19

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This volume, Systems and Management Science by Extremal Methods, is the second in a series dedicated to honoring and extending the work of Abraham Charnes. The first volume, entitled Extremal Methods and Systems Analysis (Springer Verlag, Berlin, 1980), was edited by A.V. Fiacco and K.O. Kortanek. S
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Most books are stored in the elastic cloud where traffic is expensive. For this reason, we have a limit on daily download.