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Seventh Edition

Research Methods for Business

Uma Sekaran and

Roger Bougie

Seventh Edition

Research Methods for Business

A Skill-Building Approach

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Library of Congress Cataloging‐in‐Publication Data

Names: Sekaran, Uma, author. | Bougie, Roger, author. Title: Research methods for business : a skill-building approach / Uma Sekaran and Roger Bougie. Description: Seventh edition. | Chichester, West Sussex, United Kingdom : John Wiley & Sons, [2016] | Includes bibliographical references and index. Identifiers: LCCN 2015051045 | ISBN 9781119165552 (pbk.) Subjects: LCSH: Business—Research—Methodology. Classification: LCC HD30.4 .S435 2016 | DDC 650.072—dc23 LC record available at http://lccn.loc.gov/2015051045

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vii

CONTENTS

About the Authors xix Preface xxi Acknowledgments xxiii

1 Introduction to research 1 Introduction 1

Business research 2 The role of theory and information in research 3 Research and the manager 3

Types of business research: applied and basic 5 Applied research 6 Basic or fundamental research 7

Managers and research 8 Why managers need to know about research 8 The manager and the consultant–researcher 9

Internal versus external consultants/researchers 10 Internal consultants/researchers 10

Advantages of internal consultants/researchers 10 Disadvantages of internal consultants/researchers 11

External consultants/researchers 11 Advantages of external consultants/researchers 11 Disadvantages of external consultants/researchers 12

Knowledge about research and managerial effectiveness 12 Ethics and business research 13 Summary 13 Discussion questions 14 Case: The Laroche Candy Company 15

2 The scientific approach and alternative approaches to investigation 18 Introduction 18 The hallmarks of scientific research 19

Purposiveness 19 Rigor 19 Testability 20 Replicability 20 Precision and confidence 21

viii contents

Objectivity 21 Generalizability 22 Parsimony 22

The hypothetico-deductive method 23 The seven-step process in the hypothetico-deductive method 23

Identify a broad problem area 23 Define the problem statement 23 Develop hypotheses 23 Determine measures 24 Data collection 24 Data analysis 24 Interpretation of data 24

Review of the hypothetico-deductive method 26 Some obstacles to conducting scientific research in the management area 27

Alternative approaches to research 28 Positivism 28 Constructionism 28 Critical realism 29 Pragmatism 29 Conclusion 29

Summary 30 Discussion questions 31

3 Defining and refining the problem 33 Introduction 33 The broad problem area 33 Preliminary research 37

Nature of information to be gathered 37 Background information on the organization 37 Information on the topic or subject area 38

Defining the problem statement 39 What makes a good problem statement? 39 Basic types of questions: exploratory and descriptive 43

Exploratory research questions 43 Descriptive research questions 43 Causal research questions 44

The research proposal 45 Managerial implications 47 Ethical issues in the preliminary stages of investigation 47 Summary 48 Discussion questions 49

contents ix

4 The critical literature review 51 Introduction 51 How to approach the literature review 54

Data sources 54 Textbooks 54 Journals 54 Theses 55 Conference proceedings 55 Unpublished manuscripts 55 Reports 55 Newspapers 55 The Internet 55

Searching for literature 56 Evaluating the literature 56 Documenting the literature review 57

Ethical issues 59 Summary 60 Discussion questions 61 Practice project 62 Appendix 63 Some online resources useful for business research 63 Bibliographical databases 66 Apa format for referencing relevant articles 66 Referencing and quotation in the literature review section 69

5 Theoretical framework and hypothesis development 71 Introduction 71 The need for a theoretical framework 72 Variables 72

Dependent variable 73 Independent variable 74 Moderating variable 75

The distinction between an independent variable and a moderating variable 77

Mediating variable 79 How theory is generated 81

The components of the theoretical framework 82 Hypothesis development 83

Definition of a hypothesis 84 Statement of hypotheses: formats 84

If–then statements 84

x contents

Directional and nondirectional hypotheses 84 Null and alternate hypotheses 85

Managerial implications 90 Summary 91 Discussion questions 92 Practice project 94

6 Elements of research design 95 Introduction 95 The research design 95 Elements of research design 96

Research strategies 96 Experiments 97 Survey research 97 Ethnography 97 Case studies 98 Grounded theory 98 Action research 98

Extent of researcher interference with the study 99 Study setting: contrived and noncontrived 100 Unit of analysis: individuals, dyads, groups, organizations, cultures 102 Time horizon: cross-sectional versus longitudinal studies 104

Cross-sectional studies 104 Longitudinal studies 105

Mixed methods 106 Trade-offs and compromises 107 Managerial implications 108 Summary 108 Discussion questions 109

7 Interviews 111 Introduction 111 Primary data collection methods 111 Interviews 113

Unstructured and structured interviews 113 Unstructured interviews 113 Structured interviews 115 Review of unstructured and structured interviews 116

Training interviewers 116 Some tips to follow when interviewing 117

Establishing credibility and rapport, and motivating individuals to respond 117 The questioning technique 118 Review of tips to follow when interviewing 119

contents xi

Face-to-face and telephone interviews 119 Face-to-face interviews: advantages and disadvantages 120 Telephone interviews: advantages and disadvantages 120

Additional sources of bias in interview data 120 Computer-assisted interviewing 120

CATI and CAPI 121 Software packages 121

Group interviews 121 Focus groups 121 Expert panels 122

Advantages and disadvantages of interviews 123 Summary 123 Discussion questions 124

8 Data collection methods: Observation 126 Introduction 126 Definition and purpose of observation 127 Four key dimensions that characterize the

type of observation 127 Controlled versus uncontrolled observational studies 127 Participant versus nonparticipant observation 128 Structured versus unstructured observational studies 128 Concealed versus unconcealed observation 129

Two important approaches to observation 130 Participant observation: introduction 130 The participatory aspect of participant observation 130 The observation aspect of participant observation 131 What to observe 133 Structured observation: introduction 134 The use of coding schemes in structured observation 136

Advantages and disadvantages of observation 137 Summary 139 Discussion questions 140

9 Administering questionnaires 142 Introduction 142 Types of questionnaires 142

Personally administered questionnaires 143 Mail questionnaires 143 Electronic and online questionnaires 143

Guidelines for questionnaire design 145 Principles of wording 146

Content and purpose of the questions 146

xii contents

Language and wording of the questionnaire 146 Type and form of questions 146 Sequencing of questions 149 Classification data or personal information 149

Principles of measurement 150 General appearance or “getup” of the questionnaire 150

Review of questionnaire design 154 Pretesting of structured questions 155 Electronic questionnaire and survey design 155

International dimensions of surveys 155 Special issues in instrumentation for cross-cultural research 156 Issues in cross-cultural data collection 156

Review of the advantages and disadvantages of different data collection methods and when to use each 157

Multimethods of data collection 158 Managerial implications 159 Ethics in data collection 159

Ethics and the researcher 159 Ethical behavior of respondents 160

Summary 160 Discussion questions 161

10 Experimental designs 165 Introduction 165 The lab experiment 167

Control 168 Manipulation 168 Controlling the contaminating exogenous or “nuisance” variables 170

Matching groups 170 Randomization 170

Internal validity of lab experiments 171 External validity or generalizability of lab experiments 171

The field experiment 172 External and internal validity in experiments 172

Trade-off between internal and external validity 172 Factors affecting the validity of experiments 173

History effects 173 Maturation effects 174 Testing effects 174 Selection bias effects 175 Mortality effects 175 Statistical regression effects 176 Instrumentation effects 176

Identifying threats to validity 177

contents xiii

Review of factors affecting internal and external validity 178 Types of experimental design and validity 179

Quasi-experimental designs 179 Pretest and posttest experimental group design 179 Posttests only with experimental and control groups 179 Time series design 180

True experimental designs 181 Pretest and posttest experimental and control group design 181 Solomon four-group design 181 Double-blind studies 183

Ex post facto designs 184 Simulation 184 Ethical issues in experimental design research 185 Managerial implications 186 Summary 187 Discussion questions 189 Appendix: Further experimental designs 190

The completely randomized design 190 Randomized block design 191 Latin square design 191 Factorial design 192

11 Measurement of variables: Operational definition 193 Introduction 193 How variables are measured 193 Operational definition (operationalization) 195

Operationalization: dimensions and elements 196 Operationalizing the (multidimensional) concept of achievement motivation 197

Dimensions and elements of achievement motivation 198 What operationalization is not 202 Review of operationalization 203

International dimensions of operationalization 204 Summary 204 Discussion questions 205

12 Measurement: Scaling, reliability and validity 206 Introduction 206 Four types of scales 207

Nominal scale 207 Ordinal scale 208 Interval scale 209 Ratio scale 209

xiv contents

Ordinal or interval? 210 Review of scales 212

Rating scales 213 Dichotomous scale 213 Category scale 214 Semantic differential scale 214 Numerical scale 214 Itemized rating scale 215 Likert scale 215 Fixed or constant sum scale 216 Stapel scale 216 Graphic rating scale 217 Consensus scale 218 Other scales 218

Ranking scales 218 Paired comparison 218 Forced choice 218 Comparative scale 219

International dimensions of scaling 219 Goodness of measures 220

Item analysis 220 Validity 220

Content validity 221 Criterion-related validity 221 Construct validity 222

Reliability 223 Stability of measures 224 Internal consistency of measures 224

Reflective versus formative measurement scales 225 What is a reflective scale? 225 What is a formative scale and why do the items of a formative scale not necessarily hang together? 225

Summary 226 Discussion questions 227 Appendix: Examples of some measures 229

Measures from behavioral finance research 229 Measures from management accounting research 230 Measures from management research 230 Measures from marketing research 232

13 Sampling 235 Introduction 235 Population, element, sample, sampling unit, and subject 236

Population 236

contents xv

Element 237 Sample 237 Sampling unit 237 Subject 237

Sample data and population values 237 Parameters 238 Representativeness of Samples 238 Normality of Distributions 238

The sampling process 239 Defining the population 240 Determining the sample frame 240 Determining the sampling design 240 Determining the sample size 241 Executing the sampling process 241

Probability sampling 242 Unrestricted or simple random sampling 242 Restricted or complex probability sampling 243

Systematic sampling 243 Stratified random sampling 244 Cluster sampling 246 Double sampling 247

Review of probability sampling designs 247 Nonprobability sampling 247

Convenience sampling 247 Purposive sampling 248

Judgment sampling 248 Quota sampling 248

Review of nonprobability sampling designs 249 Intermezzo: examples of when certain sampling designs would be appropriate 252

Simple random sampling 252 Stratified random sampling 252 Systematic sampling 253 Cluster sampling 254 Area sampling 254 Double sampling 255 Convenience sampling 255 Judgment sampling: one type of purposive sampling 255 Quota sampling: a second type of purposive sampling 256

Issues of precision and confidence in determining sample size 257 Precision 257 Confidence 258 Sample data, precision, and confidence in estimation 258 Trade-off between confidence and precision 259

Sample data and hypothesis testing 260

xvi contents

The sample size 261 Determining the sample size 262 Sample size and type II errors 264 Statistical and practical significance 264 Rules of thumb 264 Efficiency In Sampling 265

Sampling as related to qualitative studies 265 Managerial implications 266 Summary 266 Discussion questions 268

14 Quantitative data analysis 271 Introduction 271 Getting the data ready for analysis 273

Coding and data entry 273 Coding the responses 273 Data entry 275

Editing data 276 Data transformation 277

Getting a feel for the data 278 Frequencies 279

Bar charts and pie charts 280 Measures of central tendency and dispersion 282

Measures of central tendency 282 Measures of dispersion 283

Relationships between variables 285 Relationship between two nominal variables: χ2 test 285 Correlations 286

Excelsior enterprises: descriptive statistics part 1 287 Testing the goodness of measures 289

Reliability 289 Excelsior Enterprises: checking the reliability of the multi-item measures 290

Validity 292 Excelsior enterprises: descriptive statistics part 2 293 Summary 296 Discussion questions 297

15 Quantitative data analysis: Hypothesis testing 300 Introduction 300 Type I errors, type II errors, and statistical power 301 Choosing the appropriate statistical technique 302

Testing a hypothesis about a single mean 302

contents xvii

Testing hypotheses about two related means 305 Testing hypotheses about two unrelated means 309 Testing hypotheses about several means 311 Regression analysis 312

Standardized regression coefficients 315 Regression with dummy variables 315 Multicollinearity 316 Testing moderation using regression analysis: interaction effects 316

Other multivariate tests and analyses 319 Discriminant analysis 319 Logistic regression 319 Conjoint analysis 320 Two-way ANOVA 322 MANOVA 322 Canonical correlation 322

Excelsior enterprises: hypothesis testing 323 Overall interpretation and recommendations to the president 325

Data warehousing, data mining, and operations research 326 Some software packages useful for data analysis 327 Summary 328 Discussion questions 329

16 Qualitative data analysis 332 Introduction 332 Three important steps in qualitative data analysis 332

Data reduction 334 Data display 347 Drawing conclusions 347

Reliability and validity in qualitative research 348 Some other methods of gathering and analyzing qualitative data 350

Content analysis 350 Narrative analysis 350 Analytic induction 350

Big data 351 Summary 351 Discussion questions 352

17 The research report 353 Introduction 353 The written report 354

The purpose of the written report 354 The audience for the written report 356

xviii contents

Characteristics of a well-written report 356 Contents of the research report 357

The title and the title page 357 The executive summary or abstract 357 Table of contents 358 List of tables, figures, and other materials 359 Preface 359 The authorization letter 360 The introductory section 360 The body of the report 360 The final part of the report 361 References 361 Appendix 363

Oral presentation 363 Deciding on the content 364 Visual aids 364 The presenter 365 The presentation 365 Handling questions 365

Summary 366 Discussion questions 367 Appendix: Examples 368 Report 1: sample of a report involving a descriptive study 368 Report 2: sample of a report offering alternative solutions and explaining

the pros and cons of each alternative 371 Report 3: example of an abridged basic research report 373

A Final Note to Students 377 Statistical Tables 379 Glossary 389 Bibliography 399 Index 407

xix

ABOUT THE AUTHORS

Uma Sekaran was Professor Emerita of Management, Southern Illinois University at Carbondale (SIUC), Illinois. She obtained her MBA degree from the University of Connecticut at Storrs, and her PhD from UCLA. She was the Chair of the Department of Management and also the Director of University Women’s Professional Advancement at SIUC when she retired from the University and moved to California to be closer to her family. Professor Sekaran authored or co‐authored eight books, 12 book chapters, and more than 55 refereed journal articles in the management area, and presented more than 70 papers at regional, national, and international management conferences. She also won recognition for significant research contributions to cross‐cultural research from US and international professional organizations. She received Meritorious Research Awards both from the Academy of Management and SIUC, and was conferred the Best Teacher Award by the University.

Roger Bougie is Associate Professor at the TIAS School for Business and Society (Tilburg University, The Netherlands), where he teaches executive courses in Business Research Methods. He has received a number of teaching awards, including the Best Course Award for his course on Business Research Methods. Dr Bougie’s main research interest is in emotions and their impact on consumer behavior, service quality, and satisfaction. Dr Bougie authored or co‐authored numerous papers, books, book chapters, and cases in the area of Marketing and Business Research Methods. Dr Bougie is ad hoc reviewer for the Journal of the Academy of Marketing Science, the Journal of Business Research, the Journal of Marketing Research, and Marketing Letters.

xxi

PREFACE

I have used previous editions of this book in various research methods courses with great success. For many years the book has helped thousands of my own students (undergraduate students, graduate students, and executive students), as well as many more around the world, to carry out their research projects. The great strength of Research Methods for Business is that students find it clear, informal, easy to use and unintimidating. I have tried to maintain these strengths in this seventh edition.

CHANGES IN THE SEVENTH EDITION

The seventh edition of Research Methods for Business has been thoroughly revised.

● Chapter 3 (Defining and Refining the Problem), Chapter 4 (The Critical Literature Review), Chapter 6 (Elements of Research Design), Chapter 7 (Interviews), Chapter 9 (Administering Questionnaires), Chapters 14 and 15 (Quantitative Data Analysis), and Chapter 17 (The Research Report) have been substantially modified and updated in this edition.

● Examples, exercises, and other pedagogical features have been revised and updated in all the chapters. ● The structure of the book has not changed, but the storyline has been greatly improved. As in previous editions, the accessible and informal style of presenting information has been maintained and the focus on practical skill building preserved.

● Chapter 2 introduces and discusses alternative approaches to research. In the new edition, subsequent chapters follow up on this by reviewing a range of topics (such as research questions, research design, and measurement) from various perspectives. This allows users of this book to recognize and develop their personal ideas on research and how it should be done, to determine which kinds of research questions are important to them, and what methods for collecting and analyzing data will give them the best answers to their research questions.

The book provides numerous examples to illustrate the concepts and points presented. Users will also note the variety of examples from different areas of the world as well as different areas of business – human resources management, strategic management, operations management, management control, marketing, finance, accounting, and information management.

Most chapters in the book include managerial implications of the contents discussed, emphasizing the need for managers to understand research. The ethical considerations involved in conducting research are also clearly brought out. The dynamics of cross‐cultural research in terms of instrument development, surveys, and sam- pling are discussed, which, in the context of today’s global economy, will be useful to students.

We expect that students and instructors alike will enjoy this edition. Students should become effective researchers, helped by the requisite knowledge and skills acquired by the study of this book. Finally, it is hoped that students will find research interesting, unintimidating, and of practical use.

HOW TO USE THIS SEVENTH EDITION

You can read this book in a variety of ways, depending on your reasons for using this book. If the book is part of a Business Research Methods course, the order in which you read the chapters will be

prescribed by your instructor.

If you are reading the book because you are engaged in a project (a consultancy project, a research project, or a dissertation) then the order in which your read the chapters is your own choice. However, we recommend that you follow the structure of the book rather closely. This means that we advise you to start with reading the first three chapters that introduce research, various approaches to what makes good research, and the develop- ment of a problem statement and a research proposal. Based on the type of research questions and whether, as a result of your research questions, your study is either qualitative or quantitative in nature you may decide to read the book in the following way.

In the case of qualitative research:

4 The critical literature review 6 Research design 7, 8, and/or 9 Data collection methods 13 Sampling 16 Qualitative data analysis 17 The research report

In the case of quantitative research:

4 The critical literature review 5 Theoretical framework 6 Research design 9 Questionnaires 10 Experimental designs 11 and 12 Measurement and Scaling 13 Sampling 14 and 15 Quantitative data analysis 17 The research report

COMPANION WEBSITES

Lecturers and students have a dedicated companion website available at www.wiley.com/college/sekaran. Lecturers will find a range of bespoke video material, developed by the author to provide extra explanation

on difficult topics; videos are signposted in the text. The lecturer website also houses additional case studies related to each chapter, including accompanying cases for the three new chapters. There is also an extensive test bank for lecturers, a comprehensive set of PowerPoint slides to accompany the new edition, and an instructor’s manual, which offers an up‐to‐date and valuable additional teaching aid.

Students will find an online glossary and flashcards, which are useful for self‐study and revision. In addition, the student website provides self‐test quizzes with over 250 questions for students to use while studying outside the classroom.

xxii PREFACE

ACKNOWLEDGMENTS

Working on the seventh edition of Research Methods for Business has been a positive and rewarding experience. Many people have contributed to this in many different ways. Thank you colleagues at Tilburg University and the TIAS School for Business and Society for your feedback on earlier versions of this book. Thank you for providing me with a pleasant, professional and inspiring work environment. Thank you dear students for the lively and inspiring discussions we have had during the past twenty years; I have learned a lot from these discus- sions. Thanks everybody at John Wiley & Sons, in particular Steve Hardman, for your support, your patience, and your confidence. Thank you reviewers for your constructive and insightful comments on earlier drafts of this book.

Roger Bougie

PREFACE xxiii

1

INTRODUCTION

Just close your eyes for a minute and utter the word research to yourself. What kinds of images does this word conjure up for you? Do you visualize a lab with scientists at work with Bunsen burners and test tubes, or an Einstein‐like character writing a dissertation on some complex subject such as ‘behavioral heterogeneity in eco- nomic institutions’, or someone analyzing large amounts of scanner data to assess the impact of a price reduction on sales? Most certainly, all these images do represent different aspects of research. However, research is not necessarily characterized by Bunsen burners, Einstein‐like characters or Big Data. Research, a somewhat intimi- dating term for some, is simply the process of finding solutions to a problem after a thorough study and analysis of the situational factors. Along these lines, people (consumers, investors, managers) constantly engage them- selves in exploring and examining issues – and hence are involved in some form of research activity‐ as they want to change mobile phone providers, buy a new car, go to the movies, invest in a business startup, or increase advertising expenditures in their role as a manager.

Introduction to research C H A P T E R 1

LEARNING OBJECTIVES After completing Chapter 1 you should be able to: 1. Describe and define business research. 2. Distinguish between applied and basic research, giving examples, and discussing why they fall

into one or the other of the two categories. 3. Explain why managers should know about research and discuss what managers should and

should not do in order to interact effectively with researchers. 4. Identify and fully discuss specific situations in which a manager would be better off using an

internal research team, and when an external research team would be more advisable, giving reasons for the decisions.

5. Discuss what research means to you and describe how you, as a manager, might apply the knowledge gained about research.

6. Demonstrate awareness of the role of ethics in business research.

2 research methods for business

Research, in some form or another, may help managers in organizations to make decisions at the workplace. As we all know, sometimes they make good decisions and the problem gets solved; sometimes they make poor decisions and the problem persists; and on occasions they make such colossal blunders that they get stuck in the mire. The difference between making good decisions and committing blunders often lies in how we go about the decision‐making process. In other words, good decision making fetches a “yes” answer to the following ques- tions: Do we identify where exactly the problem lies? Do we correctly recognize the relevant factors in the situa- tion needing investigation? Do we know what types of information are to be gathered and how? Do we know how to make use of the information so collected and draw appropriate conclusions to make the right decisions? And, finally, do we know how to implement the results of this process to solve the problem? This is the essence of research and to be a successful manager it is important to know how to go about making the right decisions by being knowledgeable about the various steps involved in finding solutions to problematic issues of interest to the organization and/or its stakeholders. This is what this book is all about.

Business research Business research can be described as a systematic and organized effort to investigate a specific problem encoun- tered in the work setting, which needs a solution. It comprises a series of steps that are designed and executed with the goal of finding answers to the issues that are of concern to the manager in the work environment. This means that the first step in research is to know where the problem areas exist in the organization, and to identify as clearly and specifically as possible the problems that need to be studied and resolved. Once the problem is clearly defined, steps can be taken to determine the factors that are associated with the problem, gather information, analyze the data, develop an explanation for the problem at hand and then solve it by taking the necessary corrective measures.

The entire process by which we attempt to solve problems is called research. Thus, research involves a series of well‐thought‐out and carefully executed activities that enable the manager to know how organizational problems can be solved, or at least considerably minimized. Research encompasses the processes of inquiry, investigation, exami- nation, and experimentation. These processes have to be carried out systematically, diligently, critically, objectively, and logically. The expected end result would be a discovery that helps the manager to deal with the problem situation.

Identifying the critical issues, gathering relevant information, analyzing the data in ways that help decision making, and implementing the right course of action, are all facilitated by understanding business research. After all, decision making is simply a process of choosing from among alternative solutions to resolve a problem and research helps to generate viable alternatives for effective decision making. Knowledge of research thus ena- bles you to undertake research yourself in order to solve the smaller and bigger problems that you will encounter in your (future) job as a treasurer, controller, brand manager, product manager, marketing manager, IT auditor, project manager, business analyst, or consultant. What’s more, it will help you to discriminate between good and bad studies published in (professional) journals, to discriminate between good and bad studies conducted by research agencies, to discriminate between good and bad research proposals of research agencies, and to interact more effectively with researchers and consultants.

We can now define business research as an organized, systematic, data‐based, critical, objective, inquiry or investigation into a specific problem, undertaken with the purpose of finding answers or solutions to it. In essence, research provides the necessary information that guides managers to make informed decisions to suc- cessfully deal with problems. The information provided could be the result of a careful analysis of primary data gathered first‐hand or of secondary data that are already available (in the company, industry, archives, etc.). These data can be quantitative (quantitative data are data in the form of numbers as generally gathered through structured questions) or qualitative (qualitative data are data in the form of words) as generated from the broad answers to questions in interviews, or from responses to open‐ended questions in a questionnaire, or through observation, or from already available information gathered from various sources such as the Internet.

chapter  introduction to research 3

The role of theory and information in research We have just explained that research comes in many forms and shapes. There are different types of questions research projects can address and there are many different approaches to collecting and analyzing different types of data. What’s more, some research is aimed at building theory, whereas other research is designed to test a theory or to describe what is going on, using an existing framework, instrument, or model. Indeed, in one form or another, both theory and information play an important role in a research project.

The term ‘theory’ can mean a lot of different things, depending on whom you ask. Many people use the word ‘theory’ to mean an idea or hunch that someone has, for instance about the optimal formation of a soccer team, investment bankers’ salaries, or the Apollo program and the associated moon landings (‘the Apollo moon landing didn’t happen’). For others, a theory is any concept, instrument, model, or framework that helps them to think about or solve a problem, to describe a phenomenon, or to better understand a topic of interest, such as competitive advantage, portfolio management, or the sociology of Canadian donut shops. To a scientist, a theory explains a certain phenomenon, and the idea is that this explanation will hold in a wide range of settings. For instance, expectancy theory proposes that people will choose how to behave depending on the outcomes they expect as a result of their behavior. In other words, people decide what to do based on what they expect the out- come to be. At work, for example, it might be that people work longer hours because they expect an increase in pay. Like this, a theory may generate testable – and sooner or later, tested – predictions. A theory (in the formal, scientific sense) may thus vary in the extent to which it has been conceptually developed and empirically tested. We will have more to say about the role of information and theory in the research process in subsequent chapters.

Research and the manager

An experience common to all organizations is that the managers thereof encounter problems, big and small, on a daily basis, which they have to solve by making the right decisions. In business, research is usually primarily conducted to resolve problematic issues in, or interrelated among, the areas of accounting, finance, management, and marketing. In accounting, budget control systems, practices, and procedures are frequently examined. Inventory costing methods, accelerated depreciation, time‐series behavior of quarterly earnings, transfer pricing, cash recovery rates, and taxation methods are some of the other areas that are researched. In finance, the opera- tions of financial institutions, optimum financial ratios, mergers and acquisitions, leveraged buyouts, intercorpo- rate financing, yields on mortgages, the behavior of the stock exchange, the influence of psychology on the behavior of financial practitioners and the subsequent effect on markets, and the like, become the focus of inves- tigation. Management research could encompass the study of employee attitudes and behaviors, human resources management, the impact of changing demographics on management practices, production operations manage- ment, strategy formulation, information systems, and the like. Marketing research could address issues pertain- ing to consumer decision making, customer satisfaction and loyalty, market segmentation, creating a competitive advantage, product image, advertising, sales promotion, marketing channel management, pricing, new product development, and other marketing aspects.

Exhibit 1 gives an idea of some commonly researched topical areas in business.

Visit the companion website at www.wiley.com/college/sekaran for Author Video: Research and the manager.

4 research methods for business

EXHIBIT 1

SOME COMMONLY RESEARCHED AREAS IN BUSINESS

1. Employee behaviors such as performance, absenteeism, and turnover. 2. Employee attitudes such as job satisfaction, loyalty, and organizational commitment. 3. Supervisory performance, managerial leadership style, and performance appraisal systems. 4. Employee selection, recruitment, training, and retention. 5. Validation of performance appraisal systems. 6. Human resource management choices and organizational strategy. 7. Evaluation of assessment centers. 8. The dynamics of rating and rating errors in the judgment of human performance. 9. Strategy formulation and implementation.

10. Just‐in‐time systems, continuous‐improvement strategies, and production efficiencies. 11. Updating policies and procedures in keeping with latest government regulations and organizational

changes. 12. Organizational outcomes such as increased sales, market share, profits, growth, and effectiveness. 13. Consumer decision making. 14. Customer relationship management. 15. Consumer satisfaction, complaints, customer loyalty, and word‐of‐mouth communication. 16. Complaint handling. 17. Delivering and performing service. 18. Product life cycle, new product development, and product innovation. 19. Market segmentation, targeting, and positioning. 20. Product image, corporate image. 21. Cost of capital, valuation of firms, dividend policies, and investment decisions. 22. Risk assessment, exchange rate fluctuations, and foreign investment. 23. Tax implications of reorganization of firms or acquisition of companies. 24. Market efficiency. 25. Banking strategies. 26. Behavioral finance: overconfidence, bounded rationality, home‐bias. 27. Executive compensation. 28. Mergers and acquisitions. 29. Portfolio and asset management. 30. Financial reporting. 31. Cash flow accounting. 32. Accounting standards. 33. Outsourcing of accounting. 34. Sustainability reporting.

chapter  introduction to research 5

Not only are the issues within any subarea related to many factors within that particular system, but they must also be investigated in the context of the external environment facing the business. For example, economic, political, demographic, technological, competitive, and other relevant global factors could impinge on some of the dynamics related to the firm. These have to be scrutinized as well to assess their impact, if any, on the problem being researched.

TYPES OF BUSINESS RESEARCH: APPLIED AND BASIC

Research can be undertaken for two different purposes. One is to solve a current problem faced by the manager in the work setting, demanding a timely solution. For example, a particular product may not be selling well and the manager might want to find the reasons for this in order to take corrective action. Such research is called applied research. The other is to generate a body of knowledge by trying to comprehend how certain problems that occur in organizations can be solved. This is called basic, fundamental, or pure research.

It is quite possible that some organizations may, at a later stage, apply the knowledge gained by the findings of basic research to solve their own problems. For instance, a university professor may be interested in investigat- ing the factors that contribute to absenteeism as a matter of mere academic interest. After gathering information on this topic from several institutions and analyzing the data, the professor may identify factors such as inflexible work hours, inadequate training of employees, and low morale as primarily influencing absenteeism. Later on, a manager who encounters absenteeism of employees in his organization may use this information to determine if these factors are relevant to that particular work setting.

35. The implications of social networks on the capital markets. 36. Corporate governance. 37. Development of effective cost accounting procedures. 38. Installation of effective management information systems. 39. Advanced manufacturing technologies and information systems. 40. Auditor behavior. 41. Approaches and techniques of auditing. 42. The use of technology in auditing. 43. Decision making in auditing. 44. Installation, adaptation, and updating of computer networks and software suitable for creating

effective information systems for organizations. 45. Installation of an effective data warehouse and data mining system for the organization. 46. The acceptance of new computer programs. 47. Tax audits. 48. Internal auditing. 49. Accounting fraud and auditor liability. 50. The quality of audit reports.

6 research methods for business

In sum, research done with the intention of applying the results of the findings to solve specific problems currently being experienced in an organization is called applied research. Research done chiefly to make a contribution to existing knowledge is called basic, fundamental, or pure research. The findings of such research contribute to the building of knowledge in the various functional areas of business; they teach us something we did not know before. Such knowledge, once generated, is usually later applied in organizational settings for prob- lem solving.

Applied research The following examples, following two situations cited in Businessweek and The New York Times, should provide some idea of the scope of business research activities.

The two preceding examples illustrate the benefits of applied research.

EXAMPLE

1. Globally, colas account for more than 50% of all sodas sold. The challenge for the $187 billion soft drink industry is giving consumers in developed markets the sugary taste they want without giving them the mouthful of calories they don’t. Concerns about obesity and health have led to nine years of falling U.S. soda consumption. The soda giants can’t rely on existing diet versions of their namesake colas, as consumers are shying away from the artifi- cial sweeteners they contain. Critics have blamed the ingredients – rightly or not – for everything from weight gain to cancer. Diet Coke is losing U.S. sales at 7% a year, almost double the rate of decline of American cola sales overall. So Coke and Pepsi are turning to research to save their cola businesses, which take in about two‐thirds of the industry’s U.S. sales. “If you can crack the perfect sweetener, that would be huge,” says Howard Telford, an analyst at researcher Euromonitor International.

Source: Stanford, D. (2015, March 19). Scientists Are Racing to Build a Better Diet Soda. Retrieved from http://www.bloomberg.com/news /articles/2015‐03‐19/coke‐pepsi‐seek‐diet‐soda‐s‐perfect‐sweetener

2. In classical mythology, Aquila is the eagle carrying Jupiter’s thunderbolts skyward. At Facebook, it is the code name for a high‐flying drone, indicative of the social networking company’s lofty ambitions.

The V‐shaped unmanned vehicle, which has about the wingspan of a Boeing 767 but weighs less than a small car, is the centerpiece of Facebook’s plans to connect with the 5 billion or so people it has yet to reach. Taking to the skies to beam Internet access down from solar‐powered drones may seem like a stretch for a tech company that sells ads to make money. The business model at Facebook, which has 1.4 billion users, has more in common with NBC than Boeing. But in a high‐stakes competition for domination of the Internet, in which Google wields high‐altitude balloons and high‐speed fiber net- works, and Amazon has experimental delivery drones and colossal data centers, Facebook is under pressure to show that it, too, can pursue projects that are more speculative than product. One of those offbeat ideas, or so the thinking goes, could turn out to be a winner. “The Amazons, Googles and Facebooks are exploring completely new things that will change the way we live,” said Ed Lazowska, who holds the Bill and Melinda Gates Chair in Computer Science and Engineering at the University of Washington.

Source: Hardy, Q. & Goel, V. (2015, March 26). Drones Beaming Web Access are in the Stars for Facebook. Retrieved from http://www. nytimes.com/2015/03/26/technology/drones‐beaming‐web‐access‐ are‐in‐the‐stars‐for‐facebook.html

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chapter  introduction to research 7

Basic or fundamental research

EXAMPLE

Right from her days as a clerical employee in a bank, Sarah had observed that her colleagues, though extremely knowledgeable about the nuances and intri- cacies of banking, were expending very little effort to improve the efficiency and effectiveness of the bank in the area of customer relations and service. They took on the minimum amount of work, availed themselves of long tea and lunch breaks, and seemed unmotivated in their dealings with the customers and the manage- ment. That they were highly knowledgeable about banking policies and practices was clearly evident from their discussions as they processed applications from customers. Sarah herself was very hardworking and enjoyed her work with the customers. She always used to think what a huge waste it was for talented employees to goof off rather than to work hard and enjoy their work. When she left the bank and did the

dissertation for her PhD, her topic of investigation was Job Involvement, or the ego investment of people in their jobs. The conclusion of her investigation was that the single most important contributory factor to job involvement is the fit or match between the nature of the job and the personality predispositions of the peo- ple engaged in performing it. For example, challenging jobs allowed employees with high capabilities to get job‐involved, and people‐oriented employees got job‐ involved with service activities. Sarah then understood why the highly intelligent bank employees could not get job‐involved or find job satisfaction in the routine jobs that rarely called for the use of their abilities.

Subsequently, when Sarah joined the Internal Research Team of a Fortune 500 company, she applied this knowledge to solve problems of motivation, job satis- faction, job involvement, and the like, in the organization.

The above is an instance of basic research, where knowledge was generated to understand a phenomenon of interest to the researcher. Most research and development departments in various industries, as well as many professors in colleges and universities, do basic or fundamental research so that more knowledge is generated in particular areas of interest to industries, organizations, and researchers. Though the objective of engaging in basic research is primarily to equip oneself with additional knowledge of certain phenomena and problems that occur in several organizations and industries with a view to finding solutions, the knowledge generated from such research is often applied later for solving organizational problems.

As stated, the primary purpose of conducting basic research is to generate more knowledge and understand- ing of the phenomena of interest and to build theories based on the research results. Such theories subsequently form the foundation of further studies on many aspects of the phenomena. This process of building on existing knowledge is the genesis for theory building, particularly in the management area.

Several examples of basic research can be provided. For instance, research into the causes and consequences of global warming will offer many solutions to minimize the phenomenon, and lead to further research to deter- mine if and how global warming can be averted. Although research on global warming might primarily be for the purpose of understanding the nuances of the phenomenon, the findings will ultimately be applied and useful to, among others, the agricultural and building industries.

Many large companies, such as Apple, BMW, General Electric, Google, Microsoft, and Shell, also engage in basic research. For instance, fundamental research carried out at the German BMW facilities is aimed at further reducing the fleet’s greenhouse gas emissions and promoting electromobility innovations. High‐tech companies such as Apple, Microsoft, Google, and Facebook study online behavior and interactions to gain insights into how social and technological forces interact. This allows them to build new forms of online experiences around com- munities of interest and to increase their understanding of how to bring people together.

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8 research methods for business

University professors engage in basic research in an effort to understand and generate more knowledge about various aspects of businesses, such as how to improve the effectiveness of information systems, integrate technology into the overall strategic objectives of an organization, assess the impact of marketing action, increase the productiv- ity of employees in service industries, monitor sexual harassment incidents at the workplace, increase the effective- ness of small businesses, evaluate alternative inventory valuation methods, change the institutional structure of the financial and capital markets, and the like. These findings later become useful for application in business situations.

As illustrated, the main distinction between applied and basic business research is that the former is specifi- cally aimed at solving a currently experienced problem within a specific organization, whereas the latter has the broader objective of generating knowledge and understanding of phenomena and problems that occur in various organizational settings. Despite this distinction, both types of research may benefit from following the same steps of systematic inquiry to arrive at solutions to problems. For this reason, both basic and applied research are often carried out in a scientific manner (discussed in the next chapter) so that the findings or results generated by them can be relied upon to effectively solve the problem investigated.

MANAGERS AND RESEARCH

Why managers need to know about research Managers with knowledge of research have an advantage over those without. Though you yourself may not be doing any major research as a manager, you will have to understand, predict, and control events that are dysfunc- tional within the organization. For example, a newly developed product may not be “taking off,” or a financial investment may not be “paying off ” as anticipated. Such disturbing phenomena have to be understood and explained. Unless this is done, it will not be possible to predict the future of that product or the prospects of that investment, and how future catastrophic outcomes can be controlled. A grasp of research methods enables man- agers to understand, predict, and control their environment.

A thought that may cross your mind is that, because you will probably be bringing in researchers to solve problems instead of doing the research yourself, there is no need to bother to study research. The reasons for its importance become clear when one considers the consequences of failing to do so. With the ever‐increasing com- plexity of modern organizations, and the uncertainty of the environment they face, the management of organiza- tional systems now involves constant troubleshooting in the workplace. It would help if managers could sense, spot, and deal with problems before they got out of hand. Knowledge of research and problem‐solving processes helps managers to identify problem situations before they get out of control. Although minor problems can be fixed by the manager, major problems warrant the hiring of outside researchers or consultants. The manager who is knowledgeable about research can interact effectively with them. Knowledge about research processes, design, and interpretation of data also helps managers to become discriminating recipients of the research findings pre- sented, and to determine whether or not the recommended solutions are appropriate for implementation.

Another reason why professional managers today need to know about research methods is that they will become more discriminating while sifting through the information disseminated in business journals. Some journal articles are more scientific and objective than others. Even among the scientific articles, some are more appropriate for application or adaptation to particular organizations and situations than others. This is a function of the sampling design, the types of organizations studied, and other factors reported in the journal articles. Unless the manager is able to grasp fully what the published empirical research really conveys, she or he is likely to err in incorporating some of the suggestions such publications offer. By the same token, managers can handle with success their own problems at considerable cost savings by studying the results of “good” (discussed in the next chapter) published research that has addressed similar issues.