Illustration
Efficiency analysis and target setting

The graph below illustrates how business performance can be measured when multiple performance indicators are used (e.g. a balanced scorecard).

Unit A is most effective on performance indicator 1, and Unit B is most effective on indicator 2.  All units on the 'efficiency frontier' defined by the red line are 100% effective. The effectiveness of a unit such as C is assessed by its distance from the virtual unit on the frontier marked by the yellow dot. 

Given its mix of business, if unit C were 100% effective it would perform as well as this virtual unit.  In this way, real achievable (best practice) targets can be defined for every unit in the business. With three or more performance indicators, targets are calculated by linear programming but the principle is the same.