Chapter 3: Theory building

• Theory: A formal logical explanation of some events that includes predictions of how things
relate to one another.
▪ Build through a process of reviewing findings and similar research and application of
theoretical areas.
▪ Before defending objectives, one needs to describe the situation and know what
variables need to be included in the study and how they relate to one another.
• The goal/purpose of theories are understanding and predicting.
▪ Predict behaviour of phenomena or characteristics of one phenomena from the
knowledge of another.
▪ To predict phenomena, one needs to explain variables behave as they do.
• To develop theories, one need to describe phenomena in abstract term and then link it to
observable reality.
• Concept of construct: a generalised idea about a class of objects that has been given a name; an
abstraction of reality that is the basic unit for theory development.
▪ Eg the definition of asset which is at a degree of abstraction that adds a wide array of
things even a stapler.
▪ The concept follows a ladder of abstraction as it goes higher it’s harder to measure it and
lower it is more general.
• Ladder of abstraction: organization of concepts in sequence from the most concrete and
individual to the most general.
• Business research operates at 1) Abstract level: in theory of development the level of knowledge
expressing concept that exist only as an idea or a quality apart from an object. In short
proposition. 2) empirical level: level of knowledge that is verified by experience or observation.
▪ Eg the term job performance is abstract as it can mean different things and to make it
empirical, we need to define what to measure for instance completion of task on time.
▪ Latent construct is used for concept that can not be directly observed or measured but
are estimated through proxy measures.
• One concepts are identified the research works on the relationship among these concept. This
creates proposition and hypothesis.
• Proposition: Statements explaining logical linkage among certain concept by asserting a
universal connection between concepts.
• Hypothesis: Formal statement of a formal proposition that is empirically tested. In short it
explains outcomes and it’s a guess.
• We apply statistics to prove hypothesis called empirical testing. Examines the concept against
reality using data.
▪ The data can support or not support the initial question but even if data confirms the
hypothesis the conclusion can be wrong. As often the focus on measurable variable over
shadows elements that are important but not quantified.
▪ Operationalizing: the process of identifying the actual measurement scales to assess the
variables of interest.
• There are many alternative theories so to choose the best one the researchers gather empirical
data to verify each theory before selecting one. As all theories are made to be tested.
• Theory generation also occur in two levels abstract and empirical.
▪ At an abstract level its developed through deductive reasoning. While at an empirical
level using inductive reasoning.
▪ Deductive reasoning: The logical process of deriving a conclusion about a specific
instance based on known general premises or a fact.
▪ Inductive reasoning: The logical process of establishing a general proposition based on
observation of particular facts. Eg price of gold increases when there is political instability
this conclusion has be drawn by observing price increase over the years.
• Scientific method: A set of prescribed procedures for establishing and connecting theoretical
statement about events for analysing empirical evidence and for predicting events yet unknown.
• Steps of scientific methods
▪ Assessing relevant knowledge about phenomena
▪ Formulating concepts and proposition
▪ Writing hypothesis
▪ Design research
▪ Acquire empirical data
▪ Analysing data
▪ Explaining the phenomena and other questions raised by research.
• Theories provide frameworks that guide decisions and provide insight about behaviour
• The knowledge gained can help generalize pattern and predict behaviour