Chapter 3
Theory Building
AT-A-GLANCE
I. Introduction
A. What is a theory?
B. What are the goals of theory?
II. Research Concepts, Constructs, Propositions, Variables, and Hypotheses
A. Research concepts and constructs
B. Research propositions and hypotheses
III. Understanding Theory
A. Verifying theory
B. Theory building
IV. The Scientific Method
V. Practical Value of Theories
LEARNING OUTCOMES
1. Define the meaning of theory
2. Understand the goals of theory
3. Understand the terms concepts, propositions, variables, and hypotheses
4. Discuss how theories are developed
5. Understand the scientific method
CHAPTER VIGNETTE: Theory and Practice
What if you went home tonight and turned on the light switch and nothing happened? Most of us would
immediately start seeking a logical explanation, and the order would probably depend on our past
experience and we would try to determine the cause through a logical thought sequence. Attribution
theory, one of the many theoretical models useful to business researchers, can help us explain the world
and determine the cause of an event or behavior. Simply put, this theory helps us make sense of events by
providing a systematic method to assess and evaluate why things occur.
SURVEY THIS!
Students are asked to review the questionnaire they responded to in Chapter 1, to build a theory about the
relationship among at least four questions, and to explain how they think the responses to these questions
should relate. They are asked to provide a theoretical explanation for their proposed relationships.
RESEARCH SNAPSHOT
Social Network Theory
Researchers have developed theories about the links and structure of social networks, complete
with constructs and propositions about how linkages are formed. Each entity (individuals or
organizations) is referred to as a node, and relationships among them are referred to as ties.
When nodes become linked they yield social contacts. Many factors have been identified that
create ties and links: family relationships, friendship, professional association, and shared beliefs.
These form a social network, and network theory examines these networks. Links can be simple
or complex. The value derived from the social network is termed social capital. Businesses are
examining ways to utilize social networks to spread information, better serve their customers, and
grow profits.
OUTLINE
I. INTRODUCTION
The purpose of science concerns the expansion of knowledge and the search for the truth.
Theories are simply generalizations that help us better understand reality.
Theories allow us to understand the logic behind things we observe.
If a theory does not hold true in practice, then that theory holds no value.
What Is A Theory?
A theory is a formal, logical explanation of some events that includes predictions of how
things relate to one another.
Built through a process of reviewing previous findings of similar studies, simple logical
deduction, and/or knowledge of applicable theoretical areas.
Plays a role in understanding practical research as well as academic or basic business
research.
Helps the researcher know what variables need to be included in the study and how they
may relate to one another.
What Are the Goals of Theory?
Two issues—understanding and predicting—are the two purposes of theory.
Accomplishing the first goal allows the theorist to gain an understanding of the
relationship among various phenomena.
That understanding enables us to predict the behavior or characteristics of one
phenomenon from the knowledge of another phenomenon.
II. RESEARCH CONCEPTS, CONSTRUCTS, PROPOSITIONS, VARIABLES, AND
HYPOTHESES
Research Concepts and 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.
Concepts abstract reality (i.e., concepts express in words various events or objects).
Concepts may vary in degree of abstraction.
Ladder of abstraction—organization of concepts in sequence from the most concrete and
individual to the most general.
Moving up the ladder of abstraction, the basic concept becomes more general, wider in
scope, and less amenable to measurement.
The basic or scientific business researcher operates at two levels—on the abstract level of
concepts (and propositions) and on the empirical level of variables (and hypotheses).
Empirical level—level of knowledge that is verifiable by experience or observation.
Abstract level—level of knowledge expressing a concept that exists only as an idea or
a quality apart from an object.
Latent construct—a concept that is not directly observable or measurable, but can be
estimated through proxy measures.
Researchers are concerned with the observable world (i.e., reality).
Theorists translate their conceptualization of reality into abstract ideas.
Things are not the essence of theory; ideas are.
Concepts in isolation are not theories—to construct a theory we must explain how
concepts relate to other concepts.
Research Propositions and Hypotheses
Propositions are statements concerned with the relationships among concepts and
explain the logical linkage among certain concepts by asserting a universal connection
between concepts.
A hypothesis is a formal statement explaining some outcome and is a formal statement of
an unproven proposition that is empirically testable.
In its simplest form, a hypothesis is a guess.
A hypothesis is a proposition that is empirically testable, so when on estates a hypothesis,
it should be written in a manner that can be supported or shown to be wrong through an
empirical test.
Often apply statistics to data to empirically test hypotheses.
Empirical testing means that something has been examined against reality using data.
Variables are anything that may assume different numerical values; the empirical
assessment of a concept.
When the data are consistent with a hypotheses hypothesis is supported.
When the data are inconsistent with a hypothesis hypothesis is not supported.
From an absolute perspective, statistics cannot prove a hypothesis is true.
Because variables are at the empirical level, variables can be measured.
Operationalizing—the process of identifying the actual measurement scales to assess the
variables of interest.
III. UNDERSTANDING THEORY
Verifying Theory
In most scientific situations there are alternative theories to explain certain phenomena,
and to determine which is the better theory, researchers make observations or gather
empirical data to verify the theories.
One task of science is to determine if a given theoretical proposition is false or if there
are inconsistencies between competing theories.
Theory Building
Theory generation can occur at the abstract, conceptual level and at the empirical level.
Deductive reasoning is the logical process of deriving a conclusion about a specific
instance based on a known general premise or something known to be true.
Inductive reasoning is the logical process of establishing a general proposition on the
basis of observation of particular facts.
Over the course of time, theory construction is often the result of a combination of
deductive and inductive reasoning.
IV. THE SCIENTIFIC METHOD
The scientific method is a set of prescribed procedures for establishing and connecting
theoretical statements about events, for analyzing empirical evidence, and for predicting
events yet unknown.
While there is not complete consensus concerning exact procedures for the scientific method,
we suggest seven operations may be viewed as the steps involved in the application of the
scientific method:
1. Assessment of relevant existing knowledge of a phenomenon
2. Formulation of concepts and propositions
3. Statement of hypotheses
4. Design of 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 new problems raised by
research
V. Practical Value of Theories
Theories allow us to generalize beyond individual facts or isolated situations, providing a
framework that can guide managerial strategy by providing insights into general rules of
behavior.