RESEARCH METHODOLOGY

Module I Fundamentals of Research

1.1. a RESEARCH: MEANING & OBJECTIVES

One of the key functions of Manager is decision making. Consider the scenario when as a
manager you are grappled with various issues such as drop in share price, declining
productivity and performance levels, rise in consumer complaints, high attrition rate and
so on. To solve these problems you have to assess various alternatives. E.g. To increase
productivity, should you motivate employees through better incentive schemes or
technology can help you solve this problem. What would help you to make the right
decisions? Will it be your experience on the job, your sixth sense or hunch, or will you just
hope for good luck? Research will help you to arrive at decision with better probability of
success. Though, it is not possible to predict the success of any decision with 100%,
research will help you differentiate between good decision and bad decision.

What is Business Research?

The word research is composed of two syllables, re and search.re is a prefix meaning
again, a new or over again search is a verb meaning to examine closely and carefully, to
test and try, or to probe. Together they form a noun describing a careful, systematic,
patient study and investigation in some field of knowledge, undertaken to establish facts
or principles.
Business research as an organized, systematic, data-based, critical, objective,
scientific inquiry or investigation into a specific problem, undertaken with the purpose of
finding answers or solutions to it. In essence, research provides the needed information
that guides managers to make informed decisions to successfully deal with problems. –
Uma Sekaran
According to Ranjit Kumar, When you say that you are undertaking a research study
to find answers to a question, you are implying that the process;
 Is being undertaken within a framework of a set of philosophies (approaches,
Methods);
 Uses procedures, methods and techniques that have been tested for their validity
and reliability;
 Is designed to be unbiased and objective.
Philosophies mean approaches e.g. qualitative, quantitative and the academic
discipline in which you are trained. Validity means that correct procedures are applied to
find answers to a question. Reliability refers to the quality of a measurement procedure
that provides repeatability and accuracy. Unbiased and objective means that you have
taken each step in an unbiased manner and drawn each conclusion to the best of your

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 ability and without introducing your own stake. (Bias is a deliberate attempt to either
conceal or highlight something).

1.1.b TYPES OF RESEARCH

Research can be classified from three perspectives:
1. Application of research study
2. Objectives in undertaking the research
3. Inquiry mode employed

1.1 b.1 Application Perspective:

From the point of view of application, there are two broad categories of research:
- pure research and
- applied research.

Pure and Applied Research

Pure research (also known as “basic” or “fundamental” research) is exploratory in
nature and is conducted without any practical end-use in mind. It is driven by gut instinct,
interest, curiosity or intuition, and simply aims to advance knowledge and to
identify/explain relationships between variables. However, as the term “fundamental”
suggests, pure research may provide a foundation for further, sometimes applied research.
Pure research is carried out for the purpose of better understanding fundamental concepts
within a scientific field, rather than in search of a particular commercial goal. Pure research
generally does not produce marketable results, but may be used for later research into
more specific and profitable applications. E.g. To understand composition of population,
discovery of household remedies etc.
Applied research is done to solve specific, practical questions; for policy formulation,
administration and understanding of a phenomenon. It can be exploratory, but is usually
descriptive. It is usually done based on basic research. E.g Organization may conduct
customer satisfaction research to identify service anomalies.

1.1.b.2 Objectives:
From the viewpoint of objectives, a research can be classified as:-
-descriptive
-correlational
-explanatory
-exploratory

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Descriptive research attempts to describe systematically a situation, problem,
phenomenon, service or programme, or provides information about , say, living condition
of a community, or describes attitudes towards an issue.

Correlational research attempts to discover or establish the existence of a relationship/

interdependence between two or more aspects of a situation. For example, Will increase in
price results in drop in sales?

Explanatory research attempts to clarify why and how there is a relationship between
two or more aspects of a situation or phenomenon.

Exploratory research is undertaken to explore an area where little is known or to

investigate the possibilities of undertaking a particular research study (feasibility study/
pilot study).
In practice most studies are a combination of these categories.

1.1. b.3 Inquiry Mode:

From the process adopted to find answer to research questions – the two approaches are:
- Structured approach
- Unstructured approach

Structured approach:
The structured approach to inquiry is usually classified as quantitative research.
Here everything that forms the research process- objectives, design, sample, and the
questions that you plan to ask of respondents- is predetermined.
It is more appropriate to determine the extent of a problem, issue or phenomenon by
quantifying the variation. e.g. how many people have a particular problem? How many
people hold a particular attitude?

Unstructured approach:
The unstructured approach to inquiry is usually classified as qualitative research. This
approach allows flexibility in all aspects of the research process. It is more appropriate to
explore the nature of a problem, issue or phenomenon without quantifying it. Main
objective is to describe the variation in a phenomenon, situation or attitude. E,g,
description of an observed situation, the historical enumeration of events, an account of
different opinions different people have about an issue, description of working condition in
a particular industry.

Both approaches have their place in research. Both have their strengths and weaknesses.

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In many studies, you have to combine both qualitative and quantitative approaches.
For example, suppose you have to find the types of cuisine / accommodation available in a
city and the extent of their popularity. Types of cuisine is the qualitative aspect of the study
as finding out about them entails description of the culture and cuisine The extent of their
popularity is the quantitative aspect as it involves estimating the number of people who
visit restaurant serving such cuisine and calculating the other indicators that reflect the
extent of popularity.

1.1c. CHARACTERISTICS OF A GOOD RESEARCH

Research is a process of collecting, analyzing and interpreting information to answer

questions. However, to qualify as research, the process must have certain characteristics: it
must, as far as possible, be controlled, rigorous, systematic, valid and verifiable, empirical
and critical.
 Controlled- in real life there are many factors that affect an outcome. The concept of
control implies that, in exploring causality in relation to two variables (Factors), you set
up your study in a way that minimizes the effects of other factors affecting the
relationship. This can be achieved largely in the physical sciences (cookery, bakery), as
most of the research is done in a laboratory. However, in the social sciences (Hospitality
and Tourism) it is extremely difficult as research is carried out on issues related to
human beings living in society, where such controls are not possible. Therefore, in
Hospitality and Tourism, as you cannot control external factors, you attempt to quantify
their impact.
 Rigorous- you must be scrupulous in ensuring that the procedures followed to find
answers to questions are relevant, appropriate and justified. Again, the degree of rigor
varies markedly between the physical and social sciences and within the social sciences.
 Systematic-this implies that the procedure adopted to undertake an investigation
follow a certain logical sequence. The different steps cannot be taken in a haphazard
way. Some procedures must follow others.
 Valid and verifiable-this concept implies that whatever you conclude based on your
findings is correct and can be verified by you and others.
 Empirical-this means that any conclusions drawn are based upon hard evidence
gathered from information collected from real life experiences or observations.
 Critical-critical scrutiny of the procedures used and the methods employed is crucial to
a research enquiry. The process of investigation must be fool proof and free from

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 drawbacks. The process adopted and the procedures used must be able to withstand
critical scrutiny.
For a process to be called research, it is imperative that it has the above characteristics.

1.1.d PROBLEMS / LIMITATIONS OF RESEARCH

1. Time Consuming and expensive:-

The research is time consuming and expensive process. Research may not be very
useful in case of need of taking quick decisions. MR needs involvement of experts and
modern techniques which make it costly affair.

2. Not Exact Science:-

Research involve study of human being and susceptible to errors at different stages,
hence may not predict the result exactly.

3. Does not offer solution:-

Research offers information, which is indicative in nature and help, arrive at better
decision but it does not provide decision in itself.

4. Lack of enthusiasm among management:-

Some managers do not favor research as it is time consuming and costly. They tend to
rely more on intuition, judgment and other information sources. They may not
implement research findings diligently.

5. Complex Business Environment:-

The business environment is complex and dynamic. The changes in environment may
make the findings of research irrelevant and redundant.

6. Shortage of Qualified Staff:-

Research requires skilled manpower. In India, there is shortage of skilled manpower
and many a time’s research is conducted with available staff that may not be competent
enough to handle research. This adversely affects the quality of research.

7. Sampling Error: -
Research is based on findings from some members of population, which make it
susceptible to sampling error. The respondents selected may not be true representative
of population under survey.

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8. Limited Applications:-
The business manager may view research as of academic interest and may not
cooperate with researcher. The ill definition of business problem may lead to waste of
efforts.

9. Researcher or Respondent bias:-

The researcher findings may be influenced by researcher bias in drawing inferences
and at times respondents may not be frank in expressing their views and opinions.

1.2 SCIENTIFIC METHOD IN RESEARCH

Managers frequently face issues that call for critical decision making. Managerial decisions
based on the results of scientific research tend to be effective. Research can be defined as
an organized, systematic, data-based, critical, objective, scientific inquiry into a specific
problem that needs a solution. Decisions based on the results of a well-done scientific study
tend to yield the desired results. It is necessary to understand what the term scientific
means.

1.2.1 Meaning and Characteristics of scientific method

Scientific research focuses on solving problems and pursues a step-by-step logical,

organized, and rigorous method to identify the problems, gather data, analyze them, and
draw valid conclusions therefrom. Thus, scientific research is not based on hunches,
experience, and intuition (though these may play a part in final decision making), but is
purposive and rigorous. Because of the rigorous way in which it is done, scientific research
enables all those who are interested in researching and knowing about the same or similar
issues to come up with comparable findings when the data are analyzed.

Scientific research also helps researchers to state their findings with accuracy and
confidence. This helps various other organizations to apply those solutions when they
encounter similar problems. Furthermore, scientific investigation tends to be more
objective than subjective, and helps managers to highlight the most critical factors at the
workplace that need specific attention so as to avoid, minimize, or solve problems.
Scientific investigation and managerial decision making are integral aspects of effective
problem solving.

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The term scientific research applies to both basic and applied research.

THE CHARACTERISTICS OF SCIENTIFIC RESEARCH

The hallmarks or main distinguishing characteristics of scientific research may be listed as

follows:
1. Purposiveness
2. Rigor
3. Testability
4. Replicability
5. Precision and Confidence
6. Objectivity
7. Generalizability
8. Parsimony

Each of these characteristics can be explained in the context of a concrete example. Let us
consider the case of a manager who is interested in investigating how employees‘
commitment to the organization can be increased. We shall examine how the eight
hallmarks of science apply to this investigation so that it may be considered ―scientific.

Purposiveness
The manager has started the research with a definite aim or purpose. The focus is on
increasing the commitment of employees to the organization, as this will be beneficial in
many ways. An increase in employee commitment will translate into fewer turnovers, less
absenteeism, and probably increased performance levels, all of which would definitely
benefit the organization. The research thus has a purposive focus.

Rigor
A good theoretical base and a sound methodological design would add rigor to a purposive
study. Rigor connotes carefulness, scrupulousness, and the degree of exactitude in research
investigations. In the case of our example, let us say the manager of an organization asks 10
to 12 of its employees to indicate what would increase their level of commitment to it. If,
solely on the basis of their responses, the manager reaches several conclusions on how
employee commitment can be increased, the whole approach to the investigation would be
unscientific. It would lack rigor for the following reasons: (1) the conclusions would be
incorrectly drawn because they are based on the responses of just a few employees whose
opinions may not be representative of those of the entire workforce, (2) the manner of
framing and addressing the questions could have introduced bias or incorrectness in the

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responses, and (3) there might be many other important influences on organizational
commitment that this small sample of respondents did not or could not verbalize during
the interviews, and the researcher would have failed to include them. Therefore,
conclusions drawn from an investigation that lacks a good theoretical foundation, as
evidenced by reason (3), and methodological sophistication, as evident from (1) and (2)
above, would be unscientific. Rigorous research involves a good theoretical base and a
carefully thought-out methodology. These factors enable the researcher to collect the right
kind of information from an appropriate sample with the minimum degree of bias, and
facilitate suitable analysis of the data gathered.

Testability
If, after talking to a random selection of employees of the organization and study of the
previous research done in the area of organizational commitment, the man- ager or
researcher develops certain hypotheses on how employee commitment can be enhanced,
then these can be tested by applying certain statistical tests to the data collected for the
purpose. For instance, the researcher might hypothesize that those employees who
perceive greater opportunities for participation in decision making would have a higher
level of commitment. This is a hypothesis that can be tested when the data are collected.
Scientific research thus lends itself to testing logically developed hypotheses to see
whether or not the data support the educated conjectures or hypotheses that are
developed after a careful study of the problem situation. Testability thus becomes another
hallmark of scientific research.

Replicability
Let us suppose that the manager/researcher, based on the results of the study, concludes
that participation in decision making is one of the most important factors that influence the
commitment of employees to the organization. We will place more faith and credence in
these findings and conclusion if similar findings emerge on the basis of data collected by
other organizations employing the same methods. To put it differently, the results of the
tests of hypotheses should be supported again and yet again when the same type of
research is repeated in other similar circumstances. To the extent that this does happen
(i.e., the results are replicated or repeated), we will gain confidence in the scientific nature
of our research. In other words, our hypotheses would not have been supported merely by
chance, but are reflective of the true state of affairs in the population. Replicability is thus
another hallmark of scientific research.

Precision and Confidence

In management research, we seldom have the luxury of being able to draw ―definitive‖
conclusions on the basis of the results of data analysis. This is because we are unable to

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study the universe of items, events, or population we are interested in, and have to base
our findings on a sample that we draw from the universe. In all probability, the sample in
question may not reflect the exact characteristics of the phenomenon we try to study.
Measurement errors and other problems are also bound to introduce an element of bias or
error in our findings. However, we would like to design the research in a manner that
ensures that our findings are as close to reality (i.e., the true state of affairs in the universe)
as possible, so that we can place reliance or confidence in the results.

Precision refers to the closeness of the findings to ―reality based on a sample. In other
words, precision reflects the degree of accuracy or exactitude of the results on the basis of
the sample, to what really exists in the universe. For example, if I estimated the number of
production days lost during the year due to absenteeism at between 30 and 40, as against
the actual of 35, the precision of my estimation compares more favorably than if I had
indicated that the loss of production days was somewhere between 20 and 50. You may
recall the term confidence interval in statistics, which is what is referred to here as
precision.

Confidence refers to the probability that our estimations are correct. That is, it is not merely
enough to be precise, but it is also important that we can confidently claim that 95% of the
time our results would be true and there is only a 5% chance of our being wrong. This is
also known as confidence level. The narrower the limits within which we can estimate the
range of our pre- dictions (i.e., the more precise our findings) and the greater the
confidence we have in our research results, the more useful and scientific the findings
become. In social science research, a 95% confidence level—which implies that there is
only a 5% probability that the findings may not be correct—is accepted as conventional,
and is usually referred to as a significance level of .05 (p = .05). Thus, precision and
confidence are important aspects of research, which are attained through appropriate
scientific sampling design. The greater the precision and confidence we aim at in our
research, the more scientific is the investigation and the more useful are the results.

Objectivity
The conclusions drawn through the interpretation of the results of data analysis should be
objective; that is, they should be based on the facts of the findings derived from actual data,
and not on our own subjective or emotional values. For instance, if we had a hypothesis
that stated that greater participation in decision making will increase organizational
commitment, and this was not supported by the results, it makes no sense if the researcher
continues to argue that increased opportunities for employee participation would still help!
Such an argument would be based, not on the factual, data-based research findings, but on
the subjective opinion of the researcher. If this was the researcher‘s conviction all along,
then there was no need to do the research in the first place!

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Generalizability
Generalizability refers to the scope of applicability of the research findings in one
organizational setting to other settings. Obviously, the wider the range of applicability of
the solutions generated by research, the more useful the research is to the users. For
instance, if a researcher‘s findings that participation in decision making enhances
organizational commitment are found to be true in a variety of manufacturing, industrial,
and service organizations, and not merely in the particular organization studied by the
researcher, then the generalizability of the findings to other organizational settings is
enhanced. The more generalizable the research, the greater is its usefulness and value.
However, not many research findings can be generalized to all other settings, situations, or
organizations.

Parsimony
Simplicity in explaining the phenomena or problems that occur, and in generating solutions
for the problems, is always preferred to complex research frame- works that consider an
unmanageable number of factors. For instance, if two or three specific variables in the
work situation are identified, which when changed would raise the organizational
commitment of the employees by 45%, that would be more useful and valuable to the
manager than if it were recommended that he should change 10 different variables to
increase organizational commitment by 48%. Such an unmanageable number of variables
might well be totally beyond the manager‘s control to change. Therefore, the achievement
of a meaningful and parsimonious, rather than an elaborate and cumbersome, model for
problem solution becomes a critical issue in research.

1.3 THINKING LIKE A RESEARCHER

CONCEPTS AND CONSTRUCTS

A concept is a bundle of meanings or characteristics associated with certain concrete,
unambiguous events, objects, conditions, or situations.
Concepts are mental representations and are typically based on experience
o concepts can be of real phenomena (dogs, clouds, pain)

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 o concepts can be of agree-upon phenomena (truth, beauty, justice, prejudice,
value, etc.)
 Concepts can be measured in three ways
o direct observables (height, weight, color, etc.)
o indirect observables (questionnaires provide information on gender, age,
income, etc.)
o constructs (theoretical creations that are based on observations but which
cannot be seen either directly or indirectly; things such as IQ, Satisfaction,
Risk Propensity, Customer Loyalty, Brand Image, Service Quality, Leisure
Satisfaction, Environmental Values, etc., are constructs

VARIABLE
An image, perception or concept that can be measured – hence capable of taking on different
values- is called a variable.

Variable is a concept that can take different quantitative values (height, weight, income).
Qualitative attributes (e.g. attitude, satisfaction) can also be quantified. In a study, there are
several classes of variables.

TYPES OF VARIABLES:
1. Continuous variable : Takes different values including decimals. There is no real gap
between the values. e.g. length, income.
2. Discreet variable : Takes values only in integer from – real gaps – e.g. No. of children in a
family.
3. Dependent variable : Depends upon or is a consequence of other variables.
4. Independent variable : That which is antecedent to dependent variable.
5. Control variable : Variable that is controlled for nullifying their effect on dependent
variable
6. Moderating variable : Variable that cannot be controlled but it does have its effect on
dependent variable. So you measure it and study its contribution to the dependent
variable, at different level.
7. Intervening variable : Independent variable that are not related to the purpose of study
but which affect dependent variable.

In a good experiment, the researcher must be able to measure the values for each variable.
Weight or mass is an example of a variable that is very easy to measure. However, imagine
trying to do an experiment where one of the variables is love. There is no such thing as a
"love-meter." You might have a belief that someone is in love, but you cannot really be
sure, and you would probably have friends that do not agree with you. Therefore, love is

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not measurable in a scientific sense; therefore, it would be a poor variable to use in an
experiment.

Researchers use an experiment to search for cause and effect relationships in nature. In
other words, they design an experiment so that changes to one item cause something else
to vary in a predictable way.

These changing quantities are called variables. A variable is any factor, trait, or condition
that can exist in differing amounts or types. An experiment usually has three kinds of
variables: independent, dependent, and controlled.

1. Independent (or experimental) variable: There are two types of independent

variables: Active and Attribute. If the independent variable is an active variable then we
manipulate the values of the variable to study its affect on another variable. For example,
we alter anxiety level to see if responsiveness to pain reduction medication is enhanced.
Anxiety level is the active independent variable. An attribute variable is a variable where
we do not alter the variable during the study. For example, we might want to study the
effect of age on weight. We cannot change a person's age, but we can study people of
different ages and weights. The independent variable is the one that is changed by the
researcher. To insure a fair test, a good experiment has only one independent variable. As
the scientist changes the independent variable, he or she observes what happens.

2. Dependent variable (or Criterion measure): This is the variable that is affected by the
independent variable. Responsiveness to pain reduction medication is the dependent
variable in the above example. The dependent variable is dependent on the independent
variable. E.g. Demand for the product depends on price of the product.

The researcher focuses his or her observations on the dependent variable to see how it
responds to the change made to the independent variable. The new value of the dependent
variable is caused by and depends on the value of the independent variable.

3. Control variable: A control variable is a variable that affects the dependent variable.
When we "control a variable" we wish to balance its effect across subjects and groups so
that we can ignore it, and just study the relationship between the independent and the
dependent variables. You control for a variable by holding it constant, e.g., keep humidity
the same, and vary temperature, to study work comfort levels in any department.

Experiments have controlled variables. Controlled variables are quantities that a

researcher wants to remain constant, and he must observe them as carefully as the
dependent variables. Most experiments have more than one controlled variable. Some
people refer to controlled variables as "constant variables. "In the design of experiments

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and data analysis, control variables are those variables that are not changed throughout
the trials in an experiment because the experimenter is not interested in the effect of that
variable being changed for that particular experiment. (In other words, control variables
are extraneous factors, possibly affecting the experiment, that are kept constant so as to
minimize their effects on the outcome.) In a scientific experiment, the controlled variable
never changes; it is the same for every setup.

4. Intervening variable: This is a variable that probably does influence the relationship
between the independent and dependent variables, but it is one that we do not control or
manipulate. Intervening variables which influence the study in a negative manner are often
called confounding variables.

An intervening variable is a hypothetical concept that attempts to explain relationships

between variables, and especially the relationships between independent variables and
dependent variables. It is often distinguished from a hypothetical construct in that it has no
properties other than those observed in empirical research. That is, it is simply a summary
of the relationships observed between independent and dependent variables.

For example, hunger is a hypothetical internal state which has been used to explain the
relationships between independent variables such as length of time without food, or
amount of food consumed, and dependent variables which are measures of eating.

5. Moderator variables - "In general terms, a moderator is a qualitative (e.g., sex, race,
class) or quantitative (e.g., level of reward) variable that affects the direction and/or
strength of the relation between an independent or predictor variable and a dependent or
criterion variable. Consider a case in which a variable M is presumed to change the X to Y
causal relationship. So for instance, a certain form of psychotherapy may reduce
depression more for men than for women, and so we would say that gender (M) moderates
the causal effect of psychotherapy (X) on depression (Y)..

Variables must be defined in terms of measurable behaviors. The operational definition of a

variable describes the variable. There are two ways by which we can operationally define
a variable; by how it is measured and by how it is used to classify subjects. Later we will
use specialized terms for how variables are defined (continuous or categorical) and the
nature of the data obtained (nominal, ordinal, or interval).

The first way of defining a variable is to describe how we measure it. We cannot just say we
will "reduce anxiety." We must define how anxiety will be measured and just what a
reduction in anxiety is.

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The second way of defining a variable is to describe how you have classified subjects
(people) into groups or categories. This is important since two researchers could be
studying the same variable but if they each classify their subjects differently, they may get
different results. For example, suppose we wanted to study the income levels of single
adults. If one researcher classified his single adult subjects into these three categories (17
through 22, 23 through 27, and 28 through 33), he would get different results than this
second researcher who used three different categories (20 through 40, 41 through 60, and
61 and over). The first researcher is interested in young adults and the second in all ages.
Thus, without operational definitions we could think that they both were studying the
same variable. When we use behavioral (operational) definitions for variables, we define
exactly what we are studying and enable others to understand our work. This is called
operationalization of terms or variables.

6. Extraneous Variables: Extraneous variables are variables that could conceivably affect
a given relationship. Some can be treated as independent or moderating variables or
assumed or excluded from the study. If an extraneous variable might confound the study,
the extraneous variable may be introduced as a control variable to help interpret the
relationship between variables.

Consider the following examples to understand these concepts clearly-

• The introduction of a four-day week (IV) will lead to higher productivity (DV),
especially among younger workers (MV)
• The switch to commission from a salary compensation system (IV) will lead to
increased sales (DV) per worker, especially more experienced workers (MV).
• The loss of mining jobs (IV) leads to acceptance of higher-risk behaviors to earn a
family-supporting income (DV) – particularly among those with a limited education
(MV)
• With new customers (EV-control), a switch to commission from a salary compensation
system (IV) will lead to increased sales productivity (DV) per worker, especially among
younger workers (MV).
• Among residents with less than a high school education (EV-control), the loss of jobs
(IV) leads to high-risk behaviors (DV), especially due to the proximity of the firing
range (MV).
• A promotion campaign (IV) will increase savings activity (DV), especially when free
prizes are offered (MV), but chiefly among smaller savers (EV-control). The results
come from enhancing the motivation to save (IVV).

Proposition and Hypothesis

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A proposition is a statement about observable phenomena that may be judged as true or
false. A hypothesis is a proposition formulated for empirical testing. A hypothesis could be
descriptive or relational.

A Descriptive hypothesis is a statement about the existence, size, form, or distribution of a

variable. For example:- An average productivity of an employee is 60 units per day.

A Relational hypothesis is a statement about the relationship between two variables with
respect to some case. Relational hypotheses may be correlational or explanatory (causal).

A correlational hypothesis is a statement indicating that variables occur together in some

specified manner without implying that one causes the other.
For Examples:
 Young women (under 35) purchase fewer units of our product than women who are
older than 35.
 The number of suits sold varies directly with the level of the business cycle.

A causal hypothesis is a statement that describes a relationship between two variables in

which one variable leads to a specified effect on the other variable.
For Examples:
 An increase in family income leads to an increase in the percentage of income saved.
 Loyalty to a grocery store increases the probability of purchasing that store’s private
brand products.

Theory and Model

A Theory is a set of systematically interrelated concepts, definitions, and propositions that

are advanced to explain or predict phenomena. E.g. Product Life Cycle, Maslows Need
Hierarchy Theory

A Model is a representation of a system constructed to study some aspect of that system or

the system as a whole. E.g. Capital Asset Pricing Model, AIDA (Awareness-Interest-Desire-
Action) model

• Models versus Theories

• a model’s role is to represent or describe
• A theory’s role is to explain.

Business models are developed through the use of inductive and deductive reasoning.

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Induction vs. Deduction

In writing, argument is used in an attempt to convince the reader of the truth or falsity of
some proposal or thesis. Two of the methods used are induction and deduction.

Inductive Reasoning: A process of reasoning (arguing) which infers a general conclusion

based on individual cases, examples, specific bits of evidence, and other specific types of
premises. Inductive reasoning makes broad generalizations from specific observations.
Basically, there is data, and then conclusions are drawn from the data.

Example: In Chicago last month, a nine-year-old boy died of an asthma attack while waiting
for emergency aid. After their ambulance was pelted by rocks in an earlier incident, city
paramedics wouldn’t risk entering the Dearborn Homes Project (where the boy lived)
without a police escort. Thus, based on this example, one could inductively reason that the
nine- year-old boy died as a result of having to wait for emergency treatment.

Deductive Reasoning: A process of reasoning that starts with a general truth, applies that
truth to a specific case (resulting in a second piece of evidence), and from those two pieces
of evidence (premises), draws a specific conclusion about the specific case.

Deductive reasoning, or deduction, starts out with a general statement, or hypothesis, and
examines the possibilities to reach a specific, logical conclusion.

Example: Free access to public education is a key factor in the success of industrialized
nations like the United States. (Major premise) India is working to become a successful,
industrialized nation. (Specific case) Therefore, India should provide free access to public
education for its citizens. (Conclusion)

Induction and deduction can be used together in research reasoning. Induction occurs
when we observe a fact and ask, “Why is this?” In answer to this question, we advance a
tentative explanation or hypothesis. The hypothesis is plausible if it explains the event or
condition (fact) that prompted the question. Deduction is the process by which we test
whether the hypothesis is capable of explaining the fact. Consider the following example:-

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Why Didn’t Sales Increase?

Difference between Induction and Deduction:-

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