Business

Research Methods

William G. Zikmund

Chapter 3:
Theory Building

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 Theories
Theory is defined as a formulation regarding the
cause and effect relationship between two or more
variables, which may or may not have been tested
.
Example; A Marketing Manager may theorize that
the introduction of a loyalty cards by a supermarket
will lead to customers being less likely to shop
regularly at a competitive supermarket.
What will be the employee reaction to the new
flexible work schedule ?
Why did the stock market price surge higher when
all normal indicators suggested the market would
go down ?
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 Theories
A theory consists of a coherent set of general
propositions that offer an explanation of some
phenomena by describing the way other things
correspond to this phenomena.
Another way, A theory is a formal, testable
explanation of some events that includes
explanations of how things relate to one another.
Example: Maslows Hierarchy theory of motivation
offers one explanation of human behavior.

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 Theories
A coherent set of general propositions used
as principles of explanation of the apparent
relationships of certain observed
phenomena.

Theories are nets cast to catch what we call

the world: to rationalize, to explain, and
to master it. We endeavor to make the
mesh ever finer and finer.
Karl R. Popper
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 Purposes Of Theory

There are two purposes of theory:

Understanding : Accomplishing the first goal allows
the theorist to gain an understanding of the
relationship among various phenomenon.
Example: A Financial Advisor may believe , or
theorize, that older investor tend to be more
interested in investment income than younger
investor.

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 Purposes Of Theory
. Prediction: This theory once verified, would
then allow to predict the importance of
expected dividend yield based on the age of
customer.
Thus, a theory enables us to predict the
behavior or characteristics of one
phenomenon from the knowledge of another
phenomenon.
In most situation, of course, understanding
and prediction go hand in hand.
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 Research Concepts, or Constructs, Propositions,
Variables, and Hypotheses
To understand theory and business research process, it will be
useful to know different terminology and how these terms relate.
1. Research Concepts or Constructs: A concept or construct is a
generalized idea about a class of objects, attributes, occurrences,
or processes that has been given a name. Concepts are the
building blocks of theory.
Example: In organizational theory, Leadership, Productivity,
Morale are Concepts.
In theory of Finance, Gross national Products, Risk Aversion,
Inflation are frequently used concepts.
Accounting concepts include assets, liabilities, and depreciation.
In marketing, customer satisfaction, market share, and loyalty are
important concepts.

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 2.Ladder of Abstraction
Concepts abstract reality. That is, Concepts
express in words various events and objects.
Concepts , however, may vary in degree of
abstraction.
For Example, the concept of an Asset is an
abstract term that may, in the concrete world of
reality, refer to a wide verity of things , including a
specific punch press machine in a production
shop. .

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 A Ladder Of Abstraction
For Concepts

Increasingly more abstract

Assets

Plant
Machinery

Punch Press

Reality
Moving up the Ladder of Abstraction , the basic concepts
becomes more general, wider in scope, and less amenable
toFriday,
measurement.
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The Basic or Scientific Business Researchers
Operate at Two Levels

Abstract level
concepts
propositions
Empirical level
variables
hypotheses

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 Definitions

1. Abstract level :In theory development, the

level of knowledge expressing a concept
that exists only as an idea or a quality apart
from an object.
2. Empirical level : At empirical level, we
experience reality , that is, we observe,
measure, or manipulate objects or events.
For Example, the term Job satisfaction, but
this is an abstract term that can mean
different things to different people or in
different situations.

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 Concepts are Abstraction Reality

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 Latent Construct
In research, we use the term Latent Construct
to refer to a concept that is not directly
observable or measurable, but can be
estimated through proxy measures.
For example; Job performance, Customer
satisfaction, and the Risk aversion are the
examples of the many latent constructs in
business research.

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 Research Propositions and Hypotheses
Mentioned before, concepts are the basic units of
theory development. Thus, once the concepts of
interest have been identified, a researcher is
interested in the relationship among these
concepts.
3. Propositions: Propositions are statements
concerned with the relationships among concepts.
A proposition explains the logical linkage among
certain concepts by asserting connection between
concepts.
For Example; Treating employees better will make
them more loyal employees.
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4.Hypothesis: A hypothesis is a formal statement
explaining some outcome. In its simplest form, a
hypothesis is a guess.
A hypothesis is a proposition that is empirically
testable. It is an empirical statement concerned
with the relationship among variables.
For Example; A sales manager may hypothesize that
the salesmen who are highest in product knowledge
will be the most productive.
A Human resource manager my hypothesize that
job candidates with certain major will be more
successful employees.

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 Variable : A variable is anything that may
assume different numerical values; the
empirical assessment of a concept. As for
example; retirement benefits and Intention to
leave are variables , reflecting the concepts of
employee treatment and employee loyalty.
When data are consistent with a hypothesis ,
the hypothesis is supported.
When the data are inconsistent with a
hypothesis , the hypothesis is not supported.

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 Hypotheses are The Empirical
Counterparts of Propositions.

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 Concept Versus Variable
Concept Variable
1.Concept is an abstraction based 1.Variable is a measured concept.
on characteristics of perceived
reality.

2. All concepts are not variables. 2. All variables are concepts.

3. System independent 3. Constrained by system

4. A mental representation 4. Assigns a meaning to a

concept

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 Proposition Versus Hypothesis
Proposition Hypothesis
1. Propositions deals with the connection 1. Hypothesis is a possible explanation
between two existing concepts. which is to be tested.

2. Proposition can not be tested for 2. Hypothesis is a logical assertion , that

validity. can, but has not yet been tested.

3. Proposition is a framework upon which 3. Hypothesis is an educated guess based on

hypothesis are made. research and working knowledge.

4. Proposition need not be supported by 4. Hypothesis need to be supported by

empirical evidence. empirical evidence.
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 Operationalizing : Operationalizing is the
process of identifying the actual
measurement scales to assess the
variables of interest.
Because are at the empirical level, variable
can be measured. Ex, retirement benefits
might me measured quite easily and
properly ,while the latent construct of
intention to leave would be more
challenging for the researcher.

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 Theory Building A Process Of Increasing
Abstraction

Increasingly more abstract

Theories

Propositions

Concepts

Observation of objects
and events (reality )
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 Concepts are Abstractions of
Reality
Abstract CONCEPTS
Level

Empirical OBSERVATION OF OBJECTS

Level
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AND EVENTS (REALITY) 22
 Theory Building
Theory may be generated at the abstract , conceptual level
and the empirical level.
At the abstract , conceptual level, a theory may be
developed with deductive reasoning by going from a
general statement to a specific assertion.
1.Deductive Reasoning : The logical process of deriving
a conclusion from a known premise or something known
to be true.
Deduction is a form of inference which purports to be
conclusive the conclusion must necessarily from the
reasons given. These reasons are said to imply the
conclusion and to represent a proof.
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For a deduction to be correct , it must be both true and valid.
For Example; consider the following simple deduction:
( Premise 1): All Regular employees can be trusted not to
steel.
( Premise 2): Karim is a regular employee.
( Conclusion ): Karim can be trusted not to steel.
If we believe that Karim can be trusted, we might feel that this
is a sound deduction. But this conclusion can not be accepted
as a sound deduction unless the argument form is valid and
the premises true.
Again, We know that all managers are human beings.
If we also know that Rahim is a manager,
then we can deduce that Rahim is a human being.

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2. Inductive Reasoning : At the empirical level, a theory
may be developed with inductive reasoning.
Inductive argument is radically different. To induce is to
draw a conclusion from one or more particular facts or
pieces of evidence. The conclusion explains the facts, the
facts support the conclusion.
For example; You push the light switch in your room and
the lights fails to go on. Under such circumstances, we
ask, Why does not the light go on?
One likely to answer to this question is a conclusion that
the light bulb has burned out.

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This conclusion is a induction because we know from
experience that (i)the light should go on when you
push the switch and (ii) If the bulb is burned out, the
light will not function. The nature of induction ,
however, is that the conclusion is only a hypothesis.
The logical process of establishing a general
proposition on the basis of observation of particular
facts.
All managers that have ever been seen are human
beings;
therefore all managers are human beings.

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 Proposition at Abstract Level

Concept A Concept B
(Reinforcement) (Habits)

Hypothesis at Empirical Level

Taka bonus for

sales volume Always makes
over quota four sales calls
a day
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 Scientific Method
The Scientific method is a set of prescribed
procedures for establishing and connecting
theoretical statements about events and for
predicting events yet unknown.
As there is not a complete consensus
concerning exact procedure for the scientific
method , we suggest seven operations may
be viewed as the steps involved in the
application of the scientific methods.

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 Scientific Method
1. Assessment of relevant existing knowledge
of a phenomenon;
2. Formulation of concepts and propositions;
3. Statement of hypotheses;
4. Design the research to test the hypotheses;
5. Acquisition of meaningful empirical data;
6. Analysis and evaluation of data;
7. Proposal of an explanation of the
phenomenon and statement of a new
problems raised by the research.
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 The Scientific Method:
An Overview

Assess Formulate Statement

Design
relevant concepts & of
research
existing Propositions Hypotheses
knowledge

Acquire Analyze & Provide

empirical evaluate explanation-
data data state new
problem

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