European Research Studies Journal

Volume XXVII, Issue 2, 2024

pp. 478-487

Economic Efficiency as a Factor of Enterprise Development

Submitted 18/03/24, 1st revision 18/04/24, 2nd revision 20/05/24, accepted 12/06/24

Ireneusz Miciuła1, Anna Bielawa2, Dominika Król-Smetak3,

Henryk Wojtaszek4, Apoloniusz Kurylczyk5, Michał Romańczuk6,
Małgorzata Chojnacka7

Abstract:

Purpose: The article aims to show economic efficiency as the main factor determining the
possibility of functioning and development of enterprises.
Approach/Methodology/Design: The main research methods are a review of national and
world scientific and practical literature and case studies among businesses.
Findings: The determinants of overall economic efficiency identified during the analysis will
allow the development of practical recommendations for optimal management in enterprises,
which results in opportunities for further growth in the global market economy.
Practical Implications: The practical implications of the research results included in the
article will constitute recommendations for activities in managing companies that can be
used in business practice, which will translate into higher financial results.
Originality/Value: The original value of the article is the analysis and classification of
factors responsible for the economic efficiency of enterprises.

Keywords: Management, economic efficiency, competition, private enterprises, economic

conditions, finance, business and management, welfare development.

JEL codes: A11, C82, D61, F16, I31, L21.

Paper Type: Review article.

1
University of Szczecin, Institute of Economics and Finance, Poland, ORCID: 0000-0003-
3150-4490, e-mail: [email protected];
2
University of Szczecin, Institute of Management, Department of Enterprise Management,
Poland, ORCID: 0000-0002-9582-9043, e-mail: [email protected];
3
The same as in 1, PhD student, e-mail: [email protected];
4
War Studies University, Faculty of Management and Command, Poland, ORCID: 0000-
0002-3082-1219, e-mail: [email protected];
5
University of Szczecin, Institute of Spatial Management and Socio-Economic Geography,
Poland, ORCID: 0000-0002-6378-0580, e-mail: [email protected];
6
University of Szczecin, Institute of Political and Security Sciences, Faculty of Social
Sciences, Poland, ORCID: 0000-0003-1160-4208, e-mail: [email protected];
7
Academy Jakub of Paradyż in Gorzów Wielkopolski, Faculty of Economics, Poland,
ORCID: 0000-0001-6715-0650, e-mail: [email protected];
 Ireneusz Miciuła, Anna Bielawa, Dominika Król-Smetak, Henryk Wojtaszek, Apoloniusz
Kurylczyk, Michał Romańczuk, Małgorzata Chojnacka
479

1. Introduction

Private enterprises are the basic place of work in the economy (Borowiecki, 2010),
so it is worth analyzing their development. Therefore, the division of economic
conditions that affect the proper functioning and development of enterprises was
analyzed. Concepts such as economic efficiency and competitiveness were
characterized, which has a direct impact on the economic viability of a given activity
(Kabus et al., 2022; Trigkas et al., 2019).

The article in its entirety gives a picture of the most important elements affecting the
ability of enterprises to conduct business on a competitive market. Enterprises, as the
basic entity in the market economy, are expected to be able to adapt tasks and
functions as well as methods of work organization and management to the changing
conditions of their activities (Miciuła et al., 2020). The ability to adapt to the
environment (its complexity, structure and dynamics) and the requirements of the
market economy determines the effects of activity and development opportunities of
each enterprise (Miciuła, 2012; Tyagi et al., 2023).

The adaptation of companies is manifested through the implementation of various

innovative and restructuring projects (Adamowicz and Łuniewska, 2015). On the
one hand, the market economy creates specific operating (management) conditions
for the enterprise, thanks to which it can achieve its goals, and on the other hand, it
poses requirements that the enterprise must meet to ensure its relative sustainability
of existence.

The aim of the article is to show economic efficiency as the main factor determining
the possibility of functioning and development of enterprises. The research method
used in this area is a review of national and world scientific literature and case
studies among the business practices.

In the realities of the modern global economy, competitiveness is becoming one of

the most important determinants of assessing the functioning of a company on the
market, and is also perceived as a determinant of development. Competition is a
permanent feature of the market economy (Kieżun, 1997). That is why it is so
important to recognize and understand what conditions and factors influence the
competitiveness of the company (Kabus et al., 2022).

In general terms, it can be said that competitiveness reflects the company's potential,
namely resources, skills and abilities providing an advantage over other entities
operating in the same sector. Economic efficiency is the result of the synergistic
impact of many internal factors inherent in the enterprise and external mechanisms
and conditions existing in the environment, which gives the ability to develop,
achieve benefits and profits (Zimmerer and Scarborough, 2004).
 Economic Efficiency as a Factor of Enterprise Development

480

In the new global economic reality, enterprises to survive and stay on the market,
they must have the ability to effectively manage their resources and authorizations
and be able to adapt to the constantly changing environment (Wojtaszek and
Miciuła, 2019). You should also accurately assess the company's situation and
anticipate market changes, because such skills will allow for effective development
and obtaining such an important competitive advantage.

These are the factors that determine the efficient functioning and further
development of the company in order to survive on the market. This means that in
the new global economy, enterprises have been forced to create projects that adapt to
the environment or look for business ideas that are ahead of the market and have a
chance of survival. This requires flexibility of action and the ability to adapt or be
creative in business, and these are elements that directly affect the economic
efficiency of the business (Osuszek and Stanek, 2018).

In conditions of changing environment, enterprises are looking for ways that would
guarantee them a competitive advantage and development. P. Drucker states that the
key element of human and enterprise development, which serves for self-fulfillment
and the ability of modern society to survive, as well as the degree of goal mastery, is
efficiency. Economic efficiency is considered a factor influencing the
competitiveness of an enterprise and is a measure of the extent to which the
enterprise achieves its goals (Koengkan et al., 2022).

2. Literature Review

The term economic efficiency was first used in 1957 by M.J. Farell, who examined
the differences between the stated production level and the actual capabilities of a
given system. The result of this research was the development of a concept for
determining the technological limit of production possibilities for a given entity,
which is a reference level in the assessment of efficiency. In the concept of M.J.
Farella, maximizing the effect is not only related to the full use of the existing
potential, but also results from the optimal configuration of inputs, taking into
account their prices and the level of technology (Kopiński and Porębski, 2015).

One of the definitions of economic efficiency indicates that it is an activity without

waste and aimed at achieving the best result within the available resources and
technologies (Lockwood, 2024). In general terms, it is defined as the ability to use
available resources in such a way as to achieve a given goal in the most effective and
least wasteful way (Webster’s dictionary, 2024). P.A. Samuelson and W.D.
Nordhaus defined economic efficiency as the most effective use of society's
available resources in the process of meeting needs. They identified this category
with allocative efficiency or V. Pareto efficiency (Samuelson and Nordhaus, 2004).

Economic efficiency concerns economic phenomena and processes, and these

phenomena or processes may be related to the economy, sector or enterprise
 Ireneusz Miciuła, Anna Bielawa, Dominika Król-Smetak, Henryk Wojtaszek, Apoloniusz
Kurylczyk, Michał Romańczuk, Małgorzata Chojnacka
481

(Fayerweather, 2007). Economic efficiency can be defined as the relationship of a

specific effect to a given production factor or a set of effects to production factors
(Kisielnicki and Sroka, 1999).

Hence, the basic efficiency relationships are: labor efficiency, productivity of fixed
assets, investment efficiency, material consumption and energy consumption of
production (Kulawik, 2009). The concept of economic efficiency can be considered
in three main aspects (Chomątowski, 1995):

1) production at a given moment is effective if there is a way to use available

resources to increase the production of certain goods without reducing the
production of other goods,
2) exchange is effective if it is possible to adjust the distribution of a certain amount
of goods and services so that it brings benefits to some people without causing losses
to others,
3) efficiency must also exist between exchange and production; it occurs when, for
each pair of products and services, the tendency of consumers to substitute one good
for another corresponds to the ability to change production from one good to
another.

Production efficiency falls within the scope of the denotation of the concept of
economic efficiency, while the semantic area of economic efficiency belongs to the
scope of the concept of social efficiency (Sharma et al., 2021). Denotation is the
scope of a name, i.e. the set of all objects to which it refers. Production efficiency is
a concept relating to the production process, meaning the relationship between the
effects of goods and services and the expenditure on their production, occurring in a
specific unit of time (Jałowiec et al., 2020).

Ćwiąkała-Małys and Nowak distinguished cost efficiency, income efficiency and

profit efficiency as part of economic efficiency. Cost efficiency is related to the
phenomenon of cost minimization and includes the ratio of inputs (at given factor
prices) to the actual cost incurred by the enterprise. Cost effectiveness analysis has
its origins in the method used in the past to measure the economic effectiveness of
non-productive investments, i.e. those that bring a utility effect, e.g., the construction
of a road or a bridge. The specificity of such investments lies in the difficulties in
ensuring a uniform measure for assessing inputs and effects (Małecki, 2011).

Ćwiąkała-Małys and Nowak defined income efficiency as the quotient of the

revenues achieved and the maximum revenues that can be obtained in given
conditions. In turn, profit efficiency is related to the issue of maximizing this
category in economic theory and is calculated as the ratio of the actually generated
profit to the optimal profit (Ćwiąkała-Małys and Nowak, 2009).

Featured by M.J. Farrell's category of price efficiency is now more often called
allocative efficiency. It presents the possibilities of using inputs in optimal
 Economic Efficiency as a Factor of Enterprise Development

482

proportions at established prices and production techniques. Price efficiency

expresses the company's ability to obtain more attractive conditions in terms of
obtaining inputs (lower prices) and selling products (higher prices) (Szymańska,
2010). In turn, technical efficiency is used to indicate the company's ability to
achieve maximum production using a given group of inputs (Szczepaniak, 2006).

Technical efficiency refers to the conversion of resources into a specific final

product. It is based on technological production possibilities, i.e., it involves the use
of resources in the most technologically efficient way, but is not related to the level
of prices and costs (Jokiel, 2009). Technical efficiency is a necessary condition for
achieving economic efficiency, but this does not mean that all technically effective
solutions are also economically effective (Lin and Lai, 2021).

Technical efficiency means that increasing the number of products produced without
greater involvement of production factors is impossible, so it is one of the
manifestations of the management system and the assessment and measurement of
achievements (Oluyisola et al., 2022). Production activities are characterized by
greater technical efficiency, the greater the production effect achieved at a given
level of inputs and production factors used. In the literature on the subject, economic
efficiency is divided into:
1) production efficiency,
2) cost and income effectiveness and according to the profit criterion,
3) efficiency of the enterprise's operation,
4) scale efficiency,
5) economic efficiency in relation to the allocation of resources and the functioning
of economic entities (Figure 1).

Figure 1. Detailed analysis of economic efficiency.

Source: Own study.

 Ireneusz Miciuła, Anna Bielawa, Dominika Król-Smetak, Henryk Wojtaszek, Apoloniusz
Kurylczyk, Michał Romańczuk, Małgorzata Chojnacka
483

The efficiency of an enterprise's operation is understood as the rational management

of resources at a given time (Kwarcińska, 2018). Cost competition between
entrepreneurs influences the fact that enterprises do not focus on assessing efficiency
in the area of quality, but on economic and financial efficiency (Walcak, 2010). M.J.
Farrel drew attention to the need to distinguish technical from economic factors
when assessing the overall efficiency of a company.

The category of price efficiency distinguished by the author is now more often called
allocation efficiency, which presents the possibilities of using inputs in optimal
proportions, with established prices and production techniques. Technical efficiency,
on the other hand, is used to indicate the company's ability to achieve maximum
production using a given group of inputs (Farrell, 1957). Originally, these measures
were called expenditure-reduction-oriented measures. Assuming the impact of price
differentiation on the level of production efficiency (Miciuła, 2015).

Efficiency of scale, however, has a dual technical and economic nature. Technical
efficiency of scale means achieving a higher ratio of output to inputs as the volume
of production increases, regardless of the unit prices of products and inputs. Up to a
certain point, an increase in the scale of production is beneficial regardless of the
above-mentioned price relations. Ultimately, determining the optimal scale requires
taking into account product and input prices. The part of scale efficiency that goes
beyond the efficiency determined by technical relations is economic scale efficiency.

3. Research Results

Broadly speaking, there are two approaches to economic efficiency: they differ in
terms of time horizon. This is about dynamic efficiency, related to the ability to
grow and develop in the long term, and static efficiency, which in turn focuses on
avoiding misuse of resources (constant in a given period) and their best allocation.
Static efficiency can be said to mean optimal production and distribution of limited
resources and its goal is to lead the system (entity) towards achieving the production
possibilities curve (considering it known at a given moment).

Static efficiency can be said to mean the optimal production and distribution of
limited resources, associated with the concept of Pareto optimality and the
marginalist concept of general equilibrium (Turek, 2016). As J. Huerta de Soto
notes, dynamic efficiency in economic theory refers to activities related to the
company's main strategy, which requires defining a mission and continuous market
exploitation (Huerta de Soto, 2024).

Scientific theories and business practice define and indicate ways of measuring the
effectiveness of economic and non-economic organizations. This is an issue often
addressed by scientists because, according to some authors, efficiency is a
manifestation of rational management, which is one of the conditions for the
existence and survival of an enterprise.
 Economic Efficiency as a Factor of Enterprise Development

484

Based on the research, approaches to efficiency analysis have been developed:

purposeful, systemic, based on the stakeholder concept (stakeholder theory),
multidimensional. As part of these approaches, analyzes are often conducted on
economic efficiency and the relationship with other dimensions of effectiveness (e.g.
technical, organizational, environmental), effectiveness, sustainability or rationality,
which is presented in Figure 2.

Economists consider economic efficiency in relation to the allocation of resources

and the functioning of economic entities. If we refer the effects obtained from
business activity to the expenditure incurred in connection with this activity, we
refer to the economic efficiency.

Economic efficiency is a way of measuring the effectiveness and purposefulness of a

given economic activity, expressed by comparing the value of the effects obtained
(production, added value, national income, profit) to the input of factors used to
obtain them (employment, fixed assets, investments, raw materials used).

The efficient functioning of the enterprise is controlled through comprehensive and

systematic examination of economic efficiency indicators, which include: labor
productivity, profit maximization, cost and competitiveness of products, intensity
and efficiency of the use of financial resources, material and energy consumption of
products, profitability, capital intensity and capital productivity.

In conditions of variability, economic efficiency is an indicator of the company's

success, constituting the basis for assessing the effectiveness of the company's
undertakings and a multi-criteria assessment of the ratio of inputs and effects
(Kotliar et al., 2020). It can be noted that the determinant of effectiveness is the
external and internal environment, which is favorable for innovative technologies.

Economic efficiency, referring to the allocation of resources, is a tool for measuring

the effectiveness of a company's activities, taking into account its efficiency and
level of management. Efficiency is a key element of enterprise development, which
can be achieved through the development process and relations with the
environment at the operational and strategic level.

4. Conclusion

Enterprises are looking for ways, techniques and management methods that would
contribute to increasing their efficiency. The basis for the success of enterprises is:
access to information, knowledge, appropriate knowledge and intellectual capital
management, and cost optimization. An enterprise operating in the 21st century
must be effective, learning, flexible and able to adapt to changes. Enterprises are
adapting to the requirements of the information society, looking for ways that would
enable them to improve value and efficiency, and thus the level of competitiveness
of enterprises.
 Ireneusz Miciuła, Anna Bielawa, Dominika Król-Smetak, Henryk Wojtaszek, Apoloniusz
Kurylczyk, Michał Romańczuk, Małgorzata Chojnacka
485

Figure 2. Dimensions of efficiency within enterprises.

ENTERPRISE Management
decisions
regarding the
operation of the
enterprise

Rationality Social responsibility Durability

applied method of achieved results vs. achieved results
action vs. purpose social expectations vs. market
of action expectations

Efficiency
achieved results Effectiveness
vs. expenditures used achieved results
vs. purpose of action

Economic Uneconomical
efficiency efficiency

Source: Own study.

Knowledge becomes the most important resource of an enterprise, and its efficient
management leads to an increase in organizational effectiveness. The analysis of
economic efficiency in enterprises allows for the determination of the most
important elements that allow for strategic decisions and improvement of the
functioning of an economic entity in order to survive and develop on the competitive
global market.

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