THEORY BUILDING

Learning outcomes:
To understand the goals of theory
To define the meaning of theory
To understand the terms concept,
proposition, variable and
hypothesis
To highlight the possibility of
discussing concepts at various
levels of abstraction
To understand the scientific method
To discuss how theories are
generated

The role of theory in research

the purposes of science:
- expansion of knowledge
- discovery of truth
theory building is the means to achieve these
purposes
theory:
- a coherent set of general propositions
(statements) to explain relationships among
certain observed phenomena
- allows generalizations beyond individual facts
aims of theory building:
- explanation
examples: what produces inflation, the causes of
unemployment
- prediction (if A happens B will follow)
example: if money supply increases by x %,
inflation goes up by z% (ceteris paribus)

The role of theory in research

Theory building: attempting to
construct and evaluate
explanatory statements about
what is going on around us.
some common sense examples:
- punishment deters criminal acts
- improved training provision increases
labor productivity

Differences between common

sense and science:
- structure: level of sophistication
- evaluation: haphazard in
common sense, rigorous in
science

The role of theory in research

concept:
- a generalized idea about a class of objects
- an abstraction of reality
- basic unit of theories
examples:
leadership, productivity, inflation,
GDP
a ladder of abstraction:
- sequence of concepts from the most concrete to
the most general
example:
banana - fruit - vegetation
research operates both at the
abstract level of concepts (ideas abstracted
from an object)
and
at the empirical level (experience of reality)

The role of theory in research

Abstract level

CONCEPTS

Empirical level
Observations of objects - reality

Example:
abstract level: older workers prefer different rewards than
younger ones
concepts: age, reward preference
empirical level: observation of individuals preferences with
different ages
objects: individuals, salary, retirement plans

The role of theory in research

proposition:
- a statement among concepts
- create logical linkage among concepts
- asserts universal connections
example:
decreasing interest rates increases
employment
Theory building is a process of increasing
abstraction
LEVEL OF
ABSTRACTION

THEORIES

PROPOSITIONS

CONCEPTS

OBSERVATION OF OBJECTS AND EVENTS

The role of theory in research

scientific method
- techniques used to analyze empirical evidence in
order to confirm or disprove propositions
- no consensus concerning the exact procedures
- most of the discussions focus on empirical
verification of theories
hypothesis
- proposition that is empirically testable
variable:
- empirically observable occurrence of a concept
example:
at the abstract level:
theory: reinforcements will increase habit
strength
concepts: reinforcement, habits
at the empirical level
hypothesis: bonus payment will be associated with
sales volume
variable: bonus payment, sales

The role of theory in research

Business research gathers facts to verify
theories
facts and theories:
- facts are observable data
- theories are structures of concepts to explain facts
- facts and theories are at different levels of
abstraction
- facts do not change even when scientists debate
rival theories to explain them
generation of theories
- deductive reasoning: a logical process of deriving
a conclusion from a known premise (e.g., all
managers are human beings)
- inductive reasoning: the logical process of
establishing a general proposition on the basis of
observation of particular facts (e.g., all managers
that have ever been seen are human beings )

The role of theory in research

deductive and inductive reasoning are
often combined in theory building
Testing of a theory
- concepts and propositions are not
readily observable
- a concept can have different
meanings (e.g., managerial level
-either by education, or income)
- rules should be made for making
observations
- creating variables (indicators,
measures): empirically observable
instances of the concepts
- operationalization: rules for using
indicators to make observations (e.g.,
organizational effectiveness and
profit)

The role of theory in research

The role of theory in research

Steps in the application of scientific

method:
- assessment of relevant existing
knowledge
- formulation of concepts and
propositions
- statement of the hypotheses
- design the research to test the
hypotheses
- acquisition of meaningful empirical data
- analysis and evaluation of data
- provide explanation and state new
problems raised by the research

A Question for Critical Thinking

In the nine-dot square below, connect all
nine dots using no more than four straight
lines and without lifting the pencil from
the paper.
What analogy can you make between
the solution of this problem and the
definition of a business problem?

Theories are nets cast to catch what we call the

world: to rationalize, to explain, and to
master it. We endeavour to make the mesh
ever finer and finer. (Karl Popper,
The Logic of Scientific Discovery)
If facts conflict with a theory, either the theory
must be changed or the facts.
(Benedict Spinoza)
A fact without a theory is like a ship without a
sail, is like a boat without a rudder, is like a
kite without a tail.
A fact without a figure is a tragic final act, but
one thing worse in the universe
is a theory without a fact.
(George Shultz)

Suggested Reading:
Robert Pirsigs book: Zen and the Art of
Motorcycle Maintenance
(excerpt which can be found in
Zikmunds book, pp. 48-50.)

A motorcycle mechanic who honks the

horn to see if the battery works is
informally conducting a true scientific
experiment. He is testing a hypothesis by
putting the question to nature.

The role of theory in research

At the abstract level:
concept
-generalized idea about a class of objects
resulted from abstraction of reality
- building block of theories
proposition
- a statement among concepts creating logical
linkages among concepts
theory
- a set of concepts connected by propositions to
explain relationships among certain phenomena
At the empirical level:
variable
- empirically observable occurrence of a
concept
hypothesis
- proposition that is empirically testable
scientific method:
- techniques to analyze empirical evidence in
order to confirm or disprove theories

PROBLEM DEFINITION AND

THE RESEARCH PROPOSAL
Learning outcomes:
To understand that proper
problem definition is essential
for effective business research.
To discuss how formulation of
research questions and
hypotheses adds clarity to the
problem definition.
To explain the purpose of the
research proposal.
To outline a research proposal.

Problem definition
importance of proper problem definition
- managers realize a problem but may have
only vague ideas about the situation (sales
decreases, morale declines at the company, job
turnover goes up)
- business researcher should provide the clear
definition of the problem
problem definition indicates a specific business
decision area that will be clarified by answering
the research questions
Steps in problem definition
1. ascertain the decision makers objectives
- unfortunately, objectives are seldom clearly
given to the researcher
- objectives should be extracted by the
researcher (questioning the manager or
exploratory research)

Problem definition

2. Understanding the background of the problem

- gathering background details about the
problem (e.g., from other experienced
managers)
3. Isolating and identifying the problem not the
symptoms
- easier to say than to do
(an example:
of a 20-year old neighborhood swimming
association
- symptoms: new water park moved into the
neighborhood
- problem definition based on symptoms:
residents prefer the expensive water park
- true problem: demographic changes, children
have grown up)

Problem definition
4. Determine the unit of analysis
- what is the level of investigation (e.g.,
individual employees)
5. Selection of the relevant variables
- variable: something which is empirically
observable and can take different values
(e.g., salaries of office workers in the
company)
- categorical variable can take limited
number of distinct values (dummy
variables: 0,1)
- continuous variable: can take infinite
number of values
- dependent variable: that is to be
explained
- independent variable: expected to
influence the dependent variable

Problem definition
6. State research hypotheses and research objectives
A. hypothesis: empirically testable proposition
examples:
H1: voluntary turnover will be higher among
employees who perceive themselves to be
inequitably paid than among employees who
perceive themselves to be equitably paid
H2: increasing competition in the job market
increases turnover
H3: participation-oriented management style
increases job satisfaction and decreases turnover
B. research objective: the purpose of the research in
measurable terms; the exact definition what the
research should accomplish
examples:
- To study whether perceived inequitable payment
has a negative effect on job turnover
- To determine the extent to which increasing
competition affects job turnover
- To clarify whether participation-oriented
management style decreases job turnover

Research proposal
The research proposal
a written statement of the research design that
includes an explanation of the purpose of the study
and a detailed outline of a particular research
methodology
It should consist of the following parts:
1. The intended title of the dissertation
2. The aim of the underlying research as well as the
clearly stated motivation for the research
3. The preliminary structure (table of contents) of the
dissertation
4. Literature review, i.e. review of the state of the art
in the literature
5. Outline of research design and motivation for the
research methodology to be applied
6. Data sources and description of the sample
design
7. Time schedule of the research
8. List of references

Evaluate the statement of the business problem in each of

the following situations:
1. The producer of the television show:
We have a problem: The programs ratings are low.
We need to learn how to improve our ratings.
2. A soft drink manufacturer:
The problem is that we do not know if our bottlers
are more satisfied with us than our competitors bottlers are with
them.
3. A womens magazine:
Our problem is to document the demographic
changes that have occurred in recent decades in the lives of
women and to put these changes in historic perspective ; to
examine several generations of American women through most
of this century, tracking their roles as students, workers, wives,
and mothers and noting the changes in timing, sequence, and
duration of these roles; to examine at what age and for how long
a woman enters each of the various stages of her life: school,
work marriage, childbearing, divorce. This documentation will
be accomplished by analyzing demographic data over several
generations.

If you do not know where you

are going to, any road will take
you there.
(adage)