What is theory in business and why does it matter? (in plain language)

thinking Benjamin

This is the face of pontification… it ain’t pretty!

“In theory there is no difference between theory and practice.  In practice there is.” – Lawrence Peter “Yogi” Berra, New York Yankees Baseball Player

Whenever a colleague of mine tells a friend that they are getting a Ph.D. in Business, there is often a pause.  The audience is digesting that information.  Faces scrunch.  The inevitable second inquiry: What does a Ph.D. in Business do?  I wouldn’t dream to speak for all Ph.D. candidates or professors.  I will say that my goal is to help others improve their lives through research and the advancement of knowledge about the world of work.  I attempt to do that through theory development and the constant testing of theory via rigorous research designs and methods.

<Blink.>

Does that answer your question?  (I doubt it.)

Essentially, I hope to answer three key questions about research in business, specifically my experience in management, in less than 1000 words (no one likes a long blog). First, what is the goal of most management research? Spoiler alert!  It’s to develop and advance theory- the way we think about business.  Second, how might we evaluate competing management theories?  Spoiler alert! The validity of a theory matters: it’s truth.  Third, why does theory matter in business management?  Spoiler alert! People use theories to justify actions in workplaces.

So it’s another ambitious agenda, but here we go.  Let’s think together.

What is the goal of management research?

The goal of management researchers is not necessarily to solve all organizations’ and employees’ problems.  In most cases, the goal is to develop and advance knowledge about how we view the world of work; the mental models that lead to knowledge development.  Those mental models lead to theory.  Theory is tested.  Knowledge is created.  This is the work of theorists.  This is probably still muddy.

Great.  Sounds logical.  But why do theorists’ tinkerings matter to the world of work? Theory matters for many reasons.  In business schools, the theories taught to students provide frameworks to students.  Those students then go into management, for example, and use those frameworks as a means of making sense of their work.  Often managers make decisions in their daily lives with theories running in the background.  Those persons have absorbed a specific pattern of thought, and often don’t think about it anymore.  The theory has become automatic. Essentially, these theories ultimately drive decisions and behaviors in the workplace. We’ll get to an example later.

How do we evaluate theories?

Ok, so theory matters. What next?

The true measure of a theory is validity.  Validity is best defined as the approximate truth of an inference (Shadish, Cook, & Campbell, 2002).  Does evidence support a mental model of management behavior? Is their truth to an inference of “what is going on” in a managerial situation? In their classic text on research design, Shadish, Cook and Campbell (ibid) summarize three philosophies used to evaluate truth claims: correspondence theory, coherence theory, and pragmatism. Correspondence seeks objectivity in truth claims.  Coherence seeks a solid logic path to truth.  Pragmatism seeks useful claims of knowledge.

Theory of “truth”

Definitions (from Shadish, et. al)

Examples

Correspondence Theory A knowledge claim is true if it corresponds to the world x is true if and only if x corresponds to some fact;x is false if and only if x does not correspond to any fact; (David, 2013)If a friend is to say it is raining and it actually is raining (look out the window), then that claim is true.  It has objective truth!
Coherence Theory A knowledge claim is true if it belongs to a coherent sent of claims. The logic of a claim is consistent. The truth exists in a set of claims or rules. (see Young, 2013)The use of theory A to bolster theory B, and the lines of logic make sense.  All of the claims that lead to a conclusion make sense and hold true.
Pragmatism Theory A claim is true if it is useful to believe that claim. The claim of truth is useful in that it helps bring meaning to observations.Inferring that electrons exist helps us understand a difficult concept. The idea provides intellectual order to thought, thus making the use of a claim practical (pragmatic).  (See Shadish et. al; pg 35).

So is this fuzzy?  Likely it is.  Correspondence looks for empirical evidence as truth; as in the physical sciences.  Coherence requires a rigorous logic path to truth.  Pragmatists’ evaluation cares about the truth, as long as that truth is useful in practice; the relevance of a theory to action.  This is REALLY boiling these theories down, but hopefully this gives you some ways in which theories are evaluated.

Why does theory matter in business? (An example: a manager solving problems…)

What’s more, theories compete with each other.  Those theories stem from different assumptions about how the world of work functions.  As I mentioned in a previous post, management is driven by three theoretical approaches: economics, psychology, and sociology.  Psychology deals primarily with individual differences.  Sociology deals with social position, roles, interactions and relationships.  Economics deals primarily in markets, transactions, and overall outcomes.  Managers use theories from these fields to frame decisions.

Ok, now your posts are repeating, Benjamin.  What’s your point?  Bear with me….

The act of framing a decision using any one of these theories may actually preclude the effects of others. For example:  let’s say a manager is seeing lower productivity in her workers. The theories that drive that manager to believe what is truly the problem and solution, by their nature limit their actions.  An economic theory may lead her to believe that incentives are misaligned.  She takes action and reforms compensation.  That manager may say that workers are not motivated.  That manager uses psychological tools to induce productivity. Using another theory, the manager may look at the sociological landscape in the workplace and set up solutions to minimize inter-group conflict within the workforce.    None of these theoretical approaches are right or wrong.  All approaches lead to productivity results.  All theoretical approaches could be evaluated for truth, be that (1) in the reality of the managerial assessment and action (correspondence); (2) the logic path the manager used to reach their conclusion (coherence); and/or (3) the usefulness of the manager’s use of a given theory (pragmatism).

My personal opinion is that no single theory truly ‘wins.’  Luckily, some intellectual heavyweights agree with me!   Professor Andrew H. Van de Ven, Professor, Vernon H. Heath Chair of Organizational Innovation and Change at Carlson School of Management, University of Minnesota, works on a concept of Engaged Scholarship.  Engaged Scholarship, in his mind involves many approaches to seeking truth in theory development.  “Multiple frames of reference are needed to understand complex reality…Any given theory is an incomplete abstraction that cannot describe all aspects of a phenomenon.” (2007)

Conclusion… sort of

So my point?  Theory is the way we view the world.  Those views can be evaluated for truth in varying ways.  The ways that theories shape decisions matters for actions taken in workplaces.  The bottom line? Theory matters to the bottom line!

I hope I’ve convinced you that all of this theory business matters, and helped you to think.  Gulp. If so (or if not), feel free to comment below!!

—————————————–

David, Marian (2013) “The Correspondence Theory of Truth”, The Stanford Encyclopedia of Philosophy (Fall 2013 Edition), Edward N. Zalta (ed.), forthcoming URL = <http://plato.stanford.edu/archives/fall2013/entries/truth-correspondence/>.

Shadish, W. R., Cook, T. D., & Campbell, D. T. (2002). Experimental and Quasi-Experimental Designs for Generalized Causal Inference. Belmont, CA: Wasdsworth, Cengage Learning.

Young, James O. (2013) “The Coherence Theory of Truth”, The Stanford Encyclopedia of Philosophy (Summer 2013 Edition), Edward N. Zalta (ed.), URL = <http://plato.stanford.edu/archives/sum2013/entries/truth-coherence/>.

Van de Ven, A. H. (2007). Engaged Scholarship: A Guide for Organizational and Social Research: A Guide for Organizational and Social Research. Oxford University Press.

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12 thoughts on “What is theory in business and why does it matter? (in plain language)

  1. Theories are ideas, ideas drive innovation. Not all ideas are good, thus its better to call them theories.

  2. Juicy…so if I read this right, you are submitting that whenever the need to make a decision arises, we either (consciously or subconsciously) call on a theoretical framework from our knowledge pool and apply it to the situation?

    If I am correct in that assessment, it reminds me of some advice I was given by a McKinsey practitioner recently. In talking about how to go through the case interview process, he advised me, “Don’t worry about spending time trying to memorize all the frameworks they teach you for case interviews – that will simply end in you trying to fit a square peg in a round hole. Instead, develop a way of thinking through a problem that creates a new framework for each situation to show a logical progression in each problem.”

    Now I wonder, when someone is faced with a managerial decision, do they more frequently pull from a theoretical framework they learned in business school? Or do they apply past experiences into forming a new framework for the current situation? And which is better? I suppose that hinges on experience/time in industry…

    • Great insights Jay! I agree with your assessment, and find the McKinsey advice interesting. I don’t know that there is a better ‘way’ to make decisions. I will say that having more consciousness of one’s own mental models, and the dominant theories that drive those models, can only help.

      Experience may lead to deference to a given theoretical framework. A given theoretical framework may play better in certain circumstances. From Organizational Behavior, the classic answer to the question “what works?” is “it depends.”

  3. Thanks for explaining that Ben!

  4. Want a more explicit example of theory affecting thought? Check out the modern classic “Economic Language and Assumptions” by Ferraro, Pfeffer and Sutton (2005). Their critique is that we take theory into decision making, often when the real-world results conflict with that theory (or even prior to testing validity).

    http://jeffreypfeffer.com/wp-content/uploads/2011/10/AMR-Jan2005.pdf

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  6. Pingback: Sunday Cryptoquote Spoiler – 10/20/13 | Unclerave's Wordy Weblog

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  8. Kudos to Cryptoquote Spoiler for correcting me! The Yogi Berra quote included in the article appears to be originally attributable to Albert Einstein (though Yogi did say it!). Good catch, and thanks for the correction!

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