Evaluating managerial efficiency of petrochemical firms in Saudi Arabia

Purpose The purpose of this paper is to examine managerial efficiency of the whole population of petrochemical firms in the Kingdom of Saudi Arabia (KSA). It also identifies the root causes of inefficiencies and proposes measures to overcome these. Design/methodology/approach The paper uses the data envelopment analysis approach to measure the managerial efficiency in context of various returns-to-scales. To glean further insights into the sources of inefficiency, the study investigates the extent of utilization of resources by comparing target inputs vis-à-vis the actual inputs used. This provides the authors information about the degree of underutilization of resources as well as an insight into the sources of inefficiency, e.g., those stemming from the managerial or scale of operations. Findings The findings reveal a great amount of inefficiencies in Saudi petrochemical sector. These inefficiencies arise from both the underutilization of resources as well as the inability of petrochemical firms to run their operations at optimal scales. Practical implications The findings of the study allude toward measures that managers might adopt to overcome the issues of inefficiency. They ought to ensure better utilization of resources by running operations of the firms at optimal scales of production. The firms operating under the sub-optimum scales of operations need to revisit their marketing and production strategies. These might take up the form of boosting marketing efforts to win more orders from customers and increasing production volumes that could allow these firms to take advantage of economies of scale. Originality/value This paper is a first attempt to measure efficiency of petrochemical sector in KSA which stands as the key contributor to the national exchequer. Since the study consists of the whole population of petrochemical firms in KSA, it measures the “true” managerial efficiency of petrochemical firms in the sector. Further, being a pioneer study on managerial efficiency of petrochemical sector, it extends original contribution to the literature on efficiency of firms, combined with rich insights into sources of inefficiencies.