Theory, Concept, Variable, and

Hypothesis
What is a Theory?

 “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.”
– Popper (1959:38; cited in Zikmund,1997: 21)
Purpose of Theory

 The purpose of theory is “understanding” and

“prediction” of a phenomenon. Understanding and
prediction are related to each other. If the factors
that explain a phenomenon are understood, that can
help in predicting the occurrence of a phenomenon.
(Zikmund, 1997: 21)
– What causes employees to voluntarily leave a company?
– What are the factors that determine home prices in a city?
Examples of Theories in Management

 Goal-setting theory
– Difficult and specific goals lead to higher task performance.
 Expectancy theory
– The motivational effectiveness of a reward depends on the
valence, instrumentality, and expectancy associated with that
reward for the employee.
 Situational leadership theory
– The style of leadership must match the situational demands
(e.g., how willing and capable the subordinate employee is) in
order to be effective.
Examples of Theories in Management

 Theory of diversification of firms

– Related diversification leads to higher firm performance compared to
unrelated diversification due to sharing of core competencies across
businesses.
 Theory of industry attractiveness
– Porter’s five forces determine the extent of financial attractiveness of
an industry.
 Signaling theory in recruitment
– Recruitment tools and how applicants are treated during the
recruitment process signals hidden organizational characteristics to
the job applicant.

Theories differ in terms of their extent of validation.

Elements of a Theory
(Cooper & Schindler, 2001)

 Concepts
 Variables
 (Propositions and) Hypotheses
What is a Concept?

 “A concept is a generally accepted bundle of

meanings or characteristics associated with
certain events, objects, conditions, situations,
and behaviors.” (Cooper & Schindler, 2001: 39)
 Examples of concepts in management
– Goals, task performance, rewards, motivation,
leadership, firm performance, diversification,
recruitment.
Level of Abstraction of Concepts

 A concept could be more concrete or more

abstract compared to other concepts with
similar meanings.
– Employee satisfaction with job content versus
employee happiness (more abstract)
– Equitable rewards versus justice in organizations
(more abstract)
– Knowledge sharing in teams versus
communication in teams (more abstract)
What is a Variable?
(Bryman & Bell, 2007; Sekaran, 1992)

 A variable is anything that may vary in value for different

objects/persons. It is an attribute on which objects/persons differ
from each other.
– For example, the months of work experience of employees in a large
company would vary across employees when observed at any given
time. (Some employees, but not all, could show identical values on a
variable).
 A variable represents a concept in a way that it can be
measured. For example, job satisfaction is a concept. Answer to
a question asking the “extent to which a person is satisfied with
his/her job” results in a variable.
 Researchers are interested in variables and not constants.
Types of Variables in a Theory
(Sekaran, 1992; Zikmund, 1997)

 Dependent variable (or outcome/criterion variable) – usually

represented by Y. It is usually the main variable of interest to the
researcher.
 Independent variable (or predictor/treatment variable, factor) –
usually represented by X. It is expected to influence the dependent
variable, Y.
– In goal-setting theory, the level of goal difficulty is an independent variable and
task performance (e.g., time taken to complete a task) is the dependent variable.
– Sometimes the relationship between independent and dependent variable is
represented as
X Y
– If X and Y have a linear relationship, each unit of change (increase or decrease)
in X is expected to result in some corresponding change (increase or decrease) in
Y.
– If an increase in X results in an increase in Y or if a decrease in X results in a
decrease in Y, then X and Y are positively related.
– Multiple independent variables are represented as X 1, X2, X3, etc.
Types of Variables in a Theory
(Sekaran, 1992; Zikmund, 1997)

 Confounding variable
– Sometimes, an extraneous variable may “confound” the findings,
if it is not controlled. A confounding variable is related to both X
and Y such that the observed relationship between X and Y
(without controlling the confounding variable) could be spurious
or fake. Therefore, it is important to control such variables.
 For example, in a research study, CEO compensation was found positively
related to the size of top management team. No other variables were studied
(making it a weak research). A possible confounding factor is size of the firm
because larger firms tend to pay more salaries to CEOs and also tend to
have larger top management teams.
Types of Variables in a Theory
(Sekaran, 1992; Zikmund, 1997)

 Intervening or Mediating variable – a variable (say,

M) that explains an intermediate stage of the
relationship between X1 and Y. It provides an
explanation for why X1 affects Y.
– X1 M Y
– For example, the extent of goal difficulty (X) could affect the
discovery of new task strategies (M), which, in turn, could
affect the level of task performance (Y)

 Moderating variable (to be discussed later)

Examples of Dependent and
Independent Variables

Identify the dependent and independent variables in the following research

questions.
 What is the effect of price change on sales volume of the product?
 Can provision of free upgrades help in charging a higher price from the customer?
 Is there an improvement in job performance as a result of a leadership
development program?
 Are acquisitions of smaller firms more successful than acquisitions of bigger
firms?
 For a U.S. company entering an international market for the first time, are there
differences across these three countries/markets (Japan, China, and France) in
terms of short-term profitability?
 Do frequency of performance appraisal and allowing employee input affect the
satisfaction of employee with the performance appraisal process?
What is a Hypothesis? (Zikmund, 1997)

 Hypothesis is a statement about the relationship

between two concepts. It is framed in such a way
that it can be empirically tested/verified (that is,
verified based on observation/experiment).
 “A hypothesis is an educated guess about a
problem’s solution.” (Sekaran, 1992: 79)
 How does hypothesis relate to theory?
– A theory is a network of hypotheses.
Examples of Hypotheses

 Goal difficulty has a positive effect on task performance.

– The concepts in this statement are “goal difficulty” and “task
performance.” The relationship is hypothesized to be positive –
that is, as goals increase in the level of difficulty, task
performance will improve.
 Autonomy in a job has a positive effect on job
satisfaction.
– The concepts in this statement are “autonomy in a job” and “job
satisfaction.” The relationship is hypothesized to be positive –
that is, as the job autonomy increases, job satisfaction will
improve.