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Your Course Project

Your Course Project

Financial Statement Analysis Project — A Comparative Analysis of Oracle Corporation and Microsoft Corporation

 

Here is the link for the financial statements for Oracle Corporation for the fiscal year ending 2011. First, select 2011 using the drop-down arrow labeled for Year on the right-hand side of the page, and then select Annual Reports using the drop-down arrow labeled Filing Type on the left-hand side of the page.

 

You should select the 10k dated 6/28/2011 and choose to download in PDF, Word, or Excel format.

 

http://www.oracle.com/us/corporate/investor-relations/sec/index.html

 

Here is the link for the financial statements for Microsoft Corporation for the fiscal year ending 2011. You should select the 10k dated 7/28/2011 and choose to download in Word or Excel format.

 

http://www.microsoft.com/investor/SEC/default.aspx?year=2011&filing=annual

 

A sample Project template is available for download in Doc Sharing. The sample project compares the ratio performance of Tootsie Roll and Hershey using the 2009 financial statements of Tootsie Roll and Hershey provided in Appendix A and Appendix B of your textbook.

   
Description

   

This course contains a course project where you will be required to submit one draft of the Project at the end of Week 5 and the final completed Project at the end of Week 7. Using the financial statements for Oracle Corporation and Microsoft Corporation, respectively, you will calculate and compare the financial ratios listed further down this document for the fiscal year ending 2011 and prepare your comments about the liquidity, solvency and profitability of the two companies based on your ratio calculations. The entire project will be graded by the instructor at the end of the final submission in week 7 and one grade will be assigned for the entire project.

 

   
Overall Requirements

   

For the Final Submission:

 

Your final Excel workbook submission should contain the following. You cannot use any other software but Excel to complete this Project.

1)       A completed worksheet title page tab which is really a cover sheet with your name, the course, the date, your instructor’s name and the title for the project.

2)       A completed worksheet profiles tab which contains a one paragraph description regarding each company with information about their history, what products they sell, where they are located, etc.

3)       All 18 ratios for each company with the supporting calculations and commentary on your worksheet ratio tab. Supporting calculations must be shown either as a formula or as text typed into a different cell. The ratios are listed further down this document. Your comments for each ratio should include more than just a definition of the ratio. You should focus on interpreting each ratio number for each company and support your comments with the numbers found in the ratios.

4)       The Summary and Conclusions worksheet tab which is an overall comparison of how each company compares in terms of the major category of ratios (Liquidity, Profitability, and Solvency). A nice way to conclude is to state which company you think is the better investment and why.

5)       The Bibliography worksheet tab must contain at least your textbook as a reference. Any other information you use to profile the companies should also be cited as a reference.

Required Ratios for Final Project Submission

1)       Earnings per Share

2)       Current Ratio

3)       Gross Profit Rate

4)       Profit Margin Ratio

5)       Inventory Turnover Ratio

6)       Days in Inventory

7)       Receivables Turnover Ratio

8)       Average Collection Period

9)       Asset Turnover Ratio

10)   Return on Assets Ratio

11)   Debt to Total Assets Ratio

12)   Times Interest Earned Ratio

13)   Payout ratio

14)   Return on Common Stockholders’ Equity Ratio

15)   Free Cash Flow

16)   Current Cash Debt Coverage Ratio

17)   Cash Debt Coverage Ratio

18)   Price/Earnings Ratio [For the purpose of this ratio, for Oracle, use the market price per share on May 30, 2011 and for Microsoft, use the market price per share on June 30, 2011]

The Excel files uploaded in the dropboxes should not include any unnecessary numbers or information (such as previous years’ ratios, ratios that were not specifically asked for in the project, etc.).

 

Please upload your final submission to the Week 7 Dropbox by the Sunday ending Week 7.

For the Draft:

 

Create an Excel spreadsheet or use the Project template to show your computations for the first 12 ratios listed above. The more you can complete regarding the other requirements the closer you will be to completion when Week 7 arrives. Supporting calculations must be shown either as a formula or as text typed into a different cell. If you plan on creating your own spreadsheet, please follow the format provided in the Tootsie Roll and Hershey template file.

 

Please upload your draft submission to the Week 5 Dropbox by the Sunday ending Week 5.

 

Other Helpful information:

 

If you feel uncomfortable with Excel, you can find many helpful references on Excel by performing a Google search.

 

The Appendix to Chapter 13 contains ratio calculations and comparison comments related to Kellogg and General Mills so you will likely find this information helpful.

 

BigCharts.com provides historical stock quotes.

 

Either APA or MLA style can be used to complete the references on your Bibliography tab. There is a tutorial for APA and MLA style within the syllabus.

   
Grade Information

   

The entire project will be graded by the instructor at the end of the final submission in week 7 and one grade will be assigned for the entire project. The project will count for 18% of your overall course grade.

 

 

Category

Points

%

Description

Documentation
& Formatting

9

5%

The report will be submitted in the form of an Excel Workbook, with each page (worksheet) of the workbook named appropriately. Please do not use any other software (such as MS Works or Lotus) to complete the project. A quality report will include a title worksheet tab, a worksheet tab for the profile of the two companies, a worksheet tab for the ratio calculations and comments, a worksheet tab for the Summary and Conclusion, proper citations if applicable, and a bibliography worksheet tab for the references.

Organization
& Cohesiveness

9

5%

A quality report will include the content  described above in the documentation and formatting section. The ratios should be listed in the same order in which they appear in the project information above.

Editing

18

10%

A quality report will be free of any spelling, punctuation, or grammatical errors. Sentences and paragraphs will be clear, concise, and factually correct. Ratios will be expressed as numbers or percentages, depending on what is appropriate, as is shown in the textbook. Note that not all ratios are shown as percentages. Two decimal places is sufficient for each of the ratios.

Content

144

80%

A quality report will have correct ratio calculations and accurate supporting commentary. Any assumptions, if made, should be spelled out clearly. Supporting calculations must be shown either as a formula or as text typed into a different cell.

Total

180

100%

A quality report will meet or exceed all of the above requirements.

 

   
   

 

 

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Smith, Inc. carries six

 

  1. Smith, Inc. carries six items in inventory. (6 points)
Item Annual usage Cost per unit
FF 2,000 $7.00
HH 500 $8.00
KK 9,000 $3.00
LL 5,000 $6.00
PP 3,000 $4.00
VV 6,000 $3.50

 

  1. Using the information above, determine which one of the six items would be classified as the “A” item.

 

____________________________________

 

  1. How would Smith use this information to manage and control the inventory? That is, what is the purpose of an ABC analysis?

 

 

 

 

  1. Blonde Typist is a nationwide franchise with centralized ordering of supplies.       Each week the organization uses 500 cartons of Liquid Paper, which cost $12.00 per carton. Due to a contract with an office supply store, the cost of placing an order is only $5.00. The main offices are in a high rent urban area, so annual holding costs are estimated at $0.75 per carton.

Q*=

  1. How many cartons of Liquid Paper should the Blonde order? (6 points)

 

 

 

  1. On average how many cartons of Liquid Paper will BT have on hand? (2 points)

 

  1. I love a bargain. (4 points)

 

    1. From an operations perspective, give two reasons an organization would offer a quantity discount, besides to reduce their inventory. (Note that selling more products is a marketing issue.)

 

  1. ______________________________________________________

 

  1. ______________________________________________________

 

 

    1. Why would you buy at the lower quantity and not take advantage of the quantity discount?

 

 

 

 

 

  1. Since demand for products and services fluctuate, we may implement strategies for adjusting capacity to meet demand or we may have strategies to manage the demand. Give two examples of each. (4 points)

 

    1. Strategies for adjusting capacity to meet demand

 

i.______________________________________________________

 

ii.______________________________________________________

    1. Strategies for managing demand

 

i.________________________________________________________

 

ii.________________________________________________________

 

 

 

  1. In class we discussed five extensions or special cases for the basic linear programming model we used for homework. Name one of these extensions and briefly describe how it is applied/used or how it  (3 points)

 

__________________________________________________________________

 

__________________________________________________________________

 

 

 

  1. The Copperfield Mining Company owns two mines, which produce three grades of ore: high, medium, and low. The company has a contract to supply a smelting company with 12 tons of high-grade ore, 8 tons of medium-grade ore, and 24 tons of low-grade ore. Each mine produces a certain amount of each type of ore each hour of its operation. The company has developed the following linear programming model to determine the number of hours to operate each mine (x and y) so that contracted obligations can be met at the lowest cost.

Min 200x  +  160y  (cost, $)

 

Subject to:

6x + 2y >= 12 (high-grade ore tons)

2x  + 2y >= 8 (medium-grade ore tons)

4x  + 12y >= 24 (low-grade ore tons)

 

x  >= 0 ; y >= 0

 

This problem is solved on the attached page using Solver. Answer the questions below based on the information above and the attached spreadsheet.

 

  1. Cell F11 has an equation in it. What is the equation in cell format? (2 points)

 

____________________________________________________

 

 

  1. Is column G slack or surplus? Explain your answer. (3 points)

 

 

 

  1. In the formulation above, I have non-negativity constraints. How would they be indicated to Solver? (3 points)

 

 

 

 

  1. Give the three contract constraints as they would be entered into Solver in cell format. (2 points)

 

Cell                   Relationship                       Cell

 

____                 ____                                    ____

 

____                  ____                                   ____

 

____                  ____                                   ____

  1. Assessment

 

 

 

 

 

 

 

 

 

  1. Define, compare, and contrast ERP (defining the acronym) and supply chain management.  (7 points)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. A product structure tree for a kitchen set is on the attached sheet. We wish to ship 100 kitchen sets in 60 hours from now. (6 points)

 

    1. How many 1” screws should be ordered? __________________________

 

    1. When should we start to produce the bases? ________________________
  1. When an organization implements a just-in-time system, they reduce the number of units ordered and held in inventory, which reduces the holding cost. But according to the EOQ model, just reducing the number of units ordered will increase total cost. What other things must a company do when implementing just-in-time to ensure that total cost does not increase? (5 points)

 

 

 

 

 

 

 

 

 

 

 

 

  1. Consistent with your definition given above, briefly define three (3) of the following concepts in terms of how they apply to lean production. If the term is an acronym, also define the letters. (9 points)

 

Muda                     SMED                   Poka-yokes

Jidoka                         TPM                        5S

 

 

 

  1.                                     i.

 

 

 

 

  1.                                   ii.

 

 

 

 

  1.                                  iii.

 

 

 

 

 

 

 

  1. The Regional Grocery Chain Pharmacy (RGCP) has three cash registers for check-out. The manger has determined that customers arrive at RGCP at the rate of one every minute. It takes two  minutes on average to check-out a customer, but the variation in check-out times indicates an exponential distribution. How would you analyze the performance of this system? (8 points)

 

  1. What waiting line (queuing) model would you use for this system?

 

 

 

  1. Why would it be appropriate to assume the arrivals follow a Poisson distribution?

 

 

 

 

 

  1. If we use hours as the time unit in our mathematical model, what would you enter for the arrival rate?

 

 

 

  1. If we use hours as the time unit in our mathematical model, what would you enter for the service rate (in the mathematical models or the templates we used in class)?

______________________________

 

 

  1. A service system has been analyzed on the attached sheet. Answer the following questions based on these inputs and results.

 

  1. On average, how many people are waiting in line? (2 points)

 

_____________

 

  1. On how average, how many minutes will a person wait in line before being served? (2 points)

__________________________

 

  1. What percent of the time is the server busy? (2 points)

 

__________________

 

  1. What is the probability that more than 2 people are in line? (3 points)

 

__________________

 

  1. Jane has six chapters on her desk that must be typed and proofed. Jane does the typing and the author does the proofing. Some chapters are easy and others are more difficult. The estimated time in minutes for each activity is given below.

 

                Chapter

Time

Typing Proofing
1 20 45
2 40 45
3 75 35
4 30 20
5 30 25
6 15 55
  1. Use Johnson’s Rule to determine a sequence for these jobs. (4 points)

 

___    ___    ___    ___    ___    ___

 

  1. What is the advantage, benefit, or maximized performance objective for processing these jobs using the sequence determined by Johnson’s Rule? (2 points)

 

 

 

 

 

 

  1. Compare and contrast, discussing advantages and disadvantages, the SPT, FCFS, and DDATE sequencing rules. In your discussion, define the acronyms. You discussion should show that you understand various scheduling performance objectives.  (6 points)

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Situational factors

CHAPTER 8

Consumer Attitude Formation and Change

 

1.         Key Concepts

Situational factors

Attitudes

Beliefs

Tricomponent attitude model

 

  • Explain how situational factors are likely to influence the degree of consistency between attitudes and behavior.

 

  • Explain a person’s attitude toward visiting Disney World in terms of the tricomponent attitude model.

 

  • Because attitudes are learned predispositions to respond, why don’t marketers and consumer researchers just measure purchase behavior and forget attitudes?

 

  • Find two print ads, one illustrating the use of the affective component and the other illustrating the cognitive component. Discuss each ad in the context of the tricomponent model. In your view, why has each marketer taken the approach it did in each of these ads?

 

 

2.         Key Concepts

Theory of trying

Segmenting

Positioning

Persuasion

 

 

  • How can the marketer of a “nicotine patch” (a device which assists individuals to quit smoking) use the theory of trying to segment its market? Using this theory, identify two segments that the marketer should target and propose product positioning approaches to be directed at each of the two segments.

 

  • The Saturn Corporation is faced with the problem that many consumers perceive compact and mid-size American cars to be of poorer quality than comparable Japanese cars. Assuming that Saturn produces cars that are of equal or better quality than Japanese cars, how can the company persuade consumers of this fact?

 

 

3.         Key Concepts

Attitude formation

Attitude change

 

  • Explain how the product manager of a breakfast cereal might change consumer attitudes toward the company’s brand by (a) changing beliefs about the brand, (b) changing beliefs about competing brands, (c) changing the relative evaluation of attributes, and (d) adding an attribute.

 

  • The Department of Transportation of a large city is planning an advertising campaign that encourages people to switch from private cars to mass transit. Give examples of how the department can use the following strategies to change commuters’ attitudes: (a) changing the basic motivational function, (b) changing beliefs about public transportation, (c) using self-perception theory, and (d) using cognitive dissonance.

 

  • What sources influenced your attitudes about this course before classes started? Has your initial attitude changed since the course started? If so, how?

 

  • Describe a situation in which you acquired an attitude toward a new product through exposure to an advertisement for that product. Describe a situation where you formed an attitude toward a product or brand on the basis of personal influence.

 

 

4.         Key Concept

Dissonance

 

  • Think back to the time when you were selecting a college. Did you experience dissonance immediately after you made a decision? Why or why not? If you did experience dissonance, how did you resolve it?

 

  • A college student has just purchased a new personal computer. What factors might cause the student to experience postpurchase dissonance? How might the student try to overcome it? How can the retailer who sold the computer help reduce the student’s dissonance? How can the computer’s manufacturer help?

 

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Research Methods for Business

Research Methods for Business A skill Building Approach

Chapter 4 and 5

R E S E A R C H M E T H O D S F O R

B U S I N E S S

Fifth Edition

Reference

R E S E AR C H M E T H O D S F O R

B U S I N E S S

A Skill-Building Approach

Fifth Edition

Uma Sekaran and Roger Bougie

Page 67

Chapter 4 The research process: theoretical framework

and hypothesis development

The need for a theoretical framework   69

Variables             69

Types of variables           70

Theoretical framework 80

The components of the theoretical framework 80

Theoretical framework for the example of air safety violations 82

Hypothesis development            86

Definition of a hypothesis           87

Statement of hypotheses: formats          87

Directional and nondirectional hypotheses        88

Null and alternate hypotheses  88

Hypothesis testing with qualitative research: negative case analysis      92

Managerial implications               95

Summary             96

Discussion question

Chapter 5 The research process: elements of

research design

The research design       102

Purpose of the study: exploratory, descriptive, hypothesis testing

(analytical and predictive), case study analysis 103

Exploratory study            103

Descriptive study            105

Hypothesis testing          108

Case study analysis         109

Review of the purpose of the study        109

Type of investigation: causal versus correlational            110

Extent of researcher interference with the study             111

Study setting: contrived and noncontrived          114

Unit of analysis: individuals, dyads, groups, organizations, cultures        116

Time horizon: cross-sectional versus longitudinal studies            119

Cross-sectional studies 119

Longitudinal studies      119

Review of elements of research design                120

Managerial implications               122

Summary             123

Discussion questions     123

CHAPTER 4

The research process: theoretical

framework and hypothesis

development

Topics discussed

The need for a theoretical framework

Variables

– Dependent variable

– Independent variable

– Moderating variable

– Mediating variable

The theoretical framework and its three basic features

Hypothesis development

– Definition

– If–then statements

– Directional and nondirectional hypotheses

– Null and alternate hypotheses

Managerial implication

C H AP TE R O B J E C TI VE S

After completing Chapter 4, you should be able to:

1. Identify and label variables associated with any given situation.

2. Trace and establish the links among the variables and evolve a theoretical framework.

3. Develop a set of hypotheses to be tested and state them in the null and the alternate.

4. Apply what has been learned to a research project.

In the previous chapter the focus was on learning how to narrow down and clearly define the

research problem. But mere definition of the problem does not solve it. How, then, does one

proceed further? The answer is by going through the entire process as shown in the research

process model in Figure 4.1. The next two steps are designated steps 4 and 5 and are indicated

by the shaded portions in the figure. Step 4 relates to evolving a theoretical framework and

step 5 deals with deriving testable hypotheses. In this chapter we shall discuss both topics in

some depth.

1

OBSERVATION

Broad area

of research

interest

identified

3

PROBLEM

DEFINITION

Research

problem

delineated         4

THEORETICAL

FRAMEWORK     5

GENERATION

OF

HYPOTHESES      6

SCIENTIFIC

RESEARCH

DESIGN 7

DATA COLLECTION,

ANALYSIS, AND

INTERPRETATION

8

DEDUCTION

Hypotheses

substantiated?

Research question

answered?

1 1

Managerial

Decision

Making1 0

Report

Presentation9

Report

WritingYesVariables clearly

identified and

labeled

2

PRELIMINARY

DATA GATHERING

Interviewing

Literature survey

No

Figure 4.1: The research process and where this chapter fits in.

As you proceed through this chapter, in various places you are instructed to work through

certain exercises. Doing them at that time, before reading further, will help you in becoming

adept at formulating theoretical frameworks in a logical manner without getting confused.

The need for a theoretical framework

After conducting the interviews, completing a literature review, and defining the problem, you

are ready to develop a theoretical framework. A theoretical framework is the foundation of

hypothetico-deductive research as it is the basis of the hypotheses that you will develop. A

theoretical framework represents your beliefs on how certain phenomena (or variables or

concepts) are related to each other (a model) and an explanation of why you believe that these

variables are associated with each other (a theory). Both the model and the theory flow logically

fromthedocumentationofpreviousresearchintheproblemarea. Integratingyourlogicalbeliefs

withpublished research, takingintoconsiderationtheboundaries and constraints governingthe

situation, is pivotal in developing a scientific basis for investigating the research problem.

The process of building a theoretical framework includes:

1. Introducing definitions of the concepts or variables in your model.

2. Developing a conceptual model that provides a descriptive representation of your theory.

3. Coming up with a theory that provides an explanation for relationships between the

variables in your model.

From the theoretical framework, then, testable hypotheses can be developed to examine

whether your theory is valid or not. The hypothesized relationships can thereafter be tested

through appropriate statistical analyses. Hence, the entire research rests on the basis of the

theoretical framework. Even if testable hypotheses are not necessarily generated (as in some

applied research projects), developing a good theoretical framework is central to examining

the problem under investigation.

Sincethe theoreticalframeworkoffers theconceptualfoundationto proceed withtheresearch,

and sinceatheoreticalframeworkinvolvesnothingmorethanidentifyingthenetworkofrelation-

ships among the variables considered important to the study of any given problem situation, it is

essential to understand what a variable means and what the different types of variables are.

Variables

A variable is anything that can take on differing or varying values. The values can differ at

various times for the same object or person, or at the same time for different objects or persons.

Examples of variables are production units, absenteeism, and motivation.

E X A M P L E

Production units: One worker in the manufacturing department may produce one widget

per minute, a second might produce two per minute, a third might produce five per

minute. It is also possible that the same member might produce one widget the first

minute and five the next minute. In both cases, the number of widgets produced has

taken on different values, and is therefore a variable.

Absenteeism: Today, three members in the sales department may be absent; tomor-

row, six members may not show up for work; the day after, there may be no one absent.

The value can thus theoretically range from ‘‘zero’’ to ‘‘all’’ being absent, on the

absenteeism variable.

Motivation: The levels of motivation of members to learn in the class or in a work team

might take on varying values ranging from ‘‘very low’’ to ‘‘very high.’’ An individual’s

motivation to learn from different classes or in different work teams might also take on

differing values. Now, how one measures the level of motivation is an entirely different

matter. The factor called motivation has to be reduced from its level of abstraction and

operationalizedinsuchawaythatitbecomesmeasurable. WewilldiscussthisinChapter6.

Types of variables

Four main types of variables are discussed in this chapter:

1. The dependent variable (also known as the criterion variable).

2. The independent variable (also known as the predictor variable).

3. The moderating variable.

4. The mediating variable.

Variables can be discrete (e.g., male/female) or continuous (e.g., the age of an individual).

Scale levels of variables are discussed in Chapter 7. Extraneous variables that confound cause-

and-effect relationships are discussed in Chapter 9 on Experimental Designs. In this chapter

we will primarily concern ourselves with the four types of variables listed above.

Dependent variable

The dependent variable is the variable of primary interest to the researcher. The researcher’s

goal is to understand and describe the dependent variable, or to explain its variability, or

predict it. In other words, it is the main variable that lends itself for investigation as a viable

factor. Through the analysis of the dependent variable (i.e., finding what variables influence

it), it is possible to find answers or solutions to the problem. For this purpose, the researcher

will be interested in quantifying and measuring the dependent variable, as well as the other

variables that influence this variable.

E X A M P L E

A manager is concerned that the sales of a new product, introduced after test marketing

it, do not meet with his expectations. The dependent variable here is ‘‘sales’’. Since the

sales of the product can vary – they can be low, medium, or high – it is a variable; since

sales is the main focus of interest to the manager, it is the dependent variable.

A basic researcher is interested in investigating the debt-to-equity ratio of manu-

facturing companies in southern Germany. Here, the dependent variable is the ratio of

debt to equity.

A vice president is concerned that the employees are not loyal to the organization

and, in fact, seem to switch their loyalty to other institutions. The dependent variable in

this case is ‘‘organizational loyalty’’. Here again, there is variance found in the levels of

organizational loyalty ofemployees. The V.P. might want to know what accounts for the

variance in the loyaltyoforganizational members with a view to controllingit. Ifhe finds

that increased pay levels would ensure their loyalty and retention, he can then offer

inducement to employees by way of pay rises, which will help control the variability in

organizational loyalty and keep them in the organization.

It is possible to have more than one dependent variable in a study. For example, there is

always a tussle between quality and volume of output, low-cost production and customer

satisfaction, and so on. In such cases, the manager is interested to know the factors that

influence all the dependent variables of interest and how some of them might differ in regard

to different dependent variables. These investigations may call for multivariate statistical

analyses.

Now do Exercises 4.1 and 4.2

E X E R C I S E 4 . 1

An applied researcher wants to increase the performance of bank employees in a

particular branch.

What is the dependent variable in this case?

E X E R C I S E 4 . 2

A marketing manager believes that limiting the availability of a product increases

product desirability.

What is the dependent variable here?

Independent variable

It is generally conjectured that an independent variable is one that influences the dependent

variable in either a positive or negative way. That is, when the independent variable is present,

the dependent variable is also present, and with each unit of increase in the independent

variable, there is an increase or decrease in the dependent variable. In other words, the

variance in the dependent variable is accounted for by the independent variable. To establish

that a change in the independent variable causes a change in the dependent variable, all four of

the following conditions should be met:

1. The independent and the dependent variable should covary: in other words, a change in

the dependent variable should be associated with a change in the independent variable.

2. The independent variable (the presumed causal factor) should precede the dependent

variable. In other words, there must be a time sequence in which the two occur: the cause

must occur before the effect.

3. No other factor should be a possible cause of the change in the dependent variable. Hence,

the researcher should control for the effects of other variables.

4. A logical explanation (a theory) is needed about why the independent variable affects the

dependent variable.

Because of the time sequence condition, experimental designs, described in Chapter 9, are

often used to establish causal relationships.

E X A M P L E

Research studies indicate that successful new product development has an influence on

the stock market price of the company. That is, the more successful the new product

turns out to be, the higher will be the stock market price of that firm. Therefore, the

success of the new product is the independent variable, and stock market price the

dependent variable. The degree of perceived success of the new product developed

will explain the variance in the stock market price of the company. This relationship

and the labeling of the variables are illustrated in Figure 4.2.

Cross-cultural research indicates that managerial values govern the power distance

between superiors and subordinates. Here, power distance (i.e., egalitarian interactions

between the boss and the employee, versus the high-power superior in limited interac-

tion with the low-power subordinate) is the subject of interest and hence the dependent

variable. Managerial values that explain the variance in power distance comprise the

independent variable. This relationship is illustrated in Figure 4.3.

Now do Exercises 4.3 and 4.4.

List the variables in these two exercises individually, and label them as dependent or

independent,explainingwhytheyaresolabeled. Creatediagramstoillustratetherelationships.

E X E R C I S E 4 . 3

A manager believes that good supervision and training will increase the production

level of the workers.

E X E R C I S E 4 . 4

A marketing manager believes that selecting physically attractive spokespersons and

models to endorse their products increases the persuasiveness of a message.

Moderating variable

The moderating variable is one that has a strong contingent effect on the independent

variable–dependent variable relationship. That is, the presence of a third variable (the

moderating variable) modifies the original relationship between the independent and the

dependent variables. This becomes clear through the following examples.

E X A M P L E

It has been found that there is a relationship between the availability of reference

manuals that manufacturing employees have access to, and the product rejects. That is,

when workers follow the procedures laid down in the manual, they are able to

manufacture products that are flawless. This relationship is illustrated in Figure 4.4(a).Managerial values           Power distance

Independent variable   Dependent variable

Figure 4.3: Diagram of the relationship between the independent variable (managerial

values) and the dependent variable (power distance).

E X E R C I S E 4 . 4

A marketing manager believes that selecting physically attractive spokespersons and

models to endorse their products increases the persuasiveness of a message.

Moderating variable

The moderating variable is one that has a strong contingent effect on the independent

variable–dependent variable relationship. That is, the presence of a third variable (the

moderating variable) modifies the original relationship between the independent and the

dependent variables. This becomes clear through the following examples.

E X A M P L E

It has been found that there is a relationship between the availability of reference

manuals that manufacturing employees have access to, and the product rejects. That is,

when workers follow the procedures laid down in the manual, they are able to

manufacture products that are flawless. This relationship is illustrated in Figure 4.4(a).

Although this relationship can be said to hold true generally for all workers, it is

nevertheless contingenton the inclination orurge ofthe employees to lookin the manual

every time a new procedure is to be adopted. In other words, only those who have the

interest and urge to refer to the manual every time a new process is adopted will

produce flawless products. Others who do not consult the manual will not benefit and

will continue to produce defective products. This influence of the attributes of the

worker on the relationship between the independent and the dependentvariables can be

illustrated as shown in Figure 4.4(b).

Availability of

Reference Manuals        # of Rejects

IV            DV

Availability of

Reference Manuals        # of Rejects

IV            DV

Interest

&

Inclination

MV

Figure 4.4: (a) Diagram of the relationship between the independent variable (availa-

bility of reference manuals) and the dependent variable (rejects); (b) diagram of the

relationship between the independent variable (availability of reference materials) and

the dependent variable (rejects) as moderated by the moderating variable (interest and

inclination).       (b)

pAvailability of

Reference Manuals        # of Rejects

IV            DV

Availability of

Reference Manuals        # of Rejects

IV            DV

Interest

&

Inclination

MV

Figure 4.4: (a) Diagram of the relationship between the independent variable (availa-

bility of reference manuals) and the dependent variable (rejects); (b) diagram of the

relationship between the independent variable (availability of reference materials) and

the dependent variable (rejects) as moderated by the moderating variable  (interest and inclination).

The variable that moderates the relationship is known as the moderating

variable.

E X A M P L E

Let us take another example of a moderating variable. A prevalent theory is that the

diversity of the workforce (comprising people of different ethnic origins, races, and

nationalities) contributes more to organizational effectiveness because each group brings its own special expertise and skills to the workplace. This synergy can be

exploited, however, only if managers know how to harness the special talents of the

diverse work group; otherwise they will remain untapped. In the above scenario,

organizational effectiveness is the dependent variable, which is positively influenced

by workforce diversity – the independent variable. However, to harness the potential,

managers must know how to encourage and coordinate the talents ofthe various groups

to make things work. If not, the synergy will not be tapped. In other words, the effective

utilization ofdifferenttalents, perspectives, and eclectic problem-solving capabilities for

enhanced organizational effectiveness is contingentonthe skill ofthe managers inacting

as catalysts. This managerial expertise then becomes the moderating variable. These

relationships can be depicted as in Figure 4.5.

Workforce diversity       Organizational

effectiveness

Independent variable   Dependent variable

Managerial

expertise

Moderating variable

Figure 4.5: Diagram of the relationship among the three variables: workforce diversity,

organizational effectiveness, and managerial expertise.

The distinction between an independent variable and a moderating variable

At times, confusion is likely to arise as to when a variable is to be treated as an independent

variable and when it becomes a moderating variable. For instance, there may be two situations

as follows:

1. A research study indicates that the better the quality of the training programs in an

organization and the greater the growth needs of the employees (i.e., where the need to

develop and grow on the job is strong), the greater is their willingness to learn new ways of

doing things.

2. Another research study indicates that the willingness of the employees to learn new

ways of doing things is not influenced by the quality of the training programs offered

by the organizations to all people without any distinction. Only those with high

growth needs seem to have the yearning to learn to do new things through specialized

training.

In the above two situations, we have the same three variables. In the first case, the training

programs and growth need strength are the independent variables that influence employees’

willingness to learn, this latter being the dependent variable. In the second case, however, the

quality of the training program is the independent variable, and while the dependent variable

remains the same, growth need strength becomes a moderating variable. In other words, only

those with high growth needs show a greater willingness and adaptability to learn to do new

things when the quality of the training program is improved. Thus, the relationship between the

independentanddependentvariableshasnowbecomecontingentontheexistenceofamoderator.

The above illustration makes it clear that even though the variables used are the same, the

decision as to whether to label them dependent, independent, or moderating depends on how

they affect one another. The differences between the effects of the independent and the

moderating variables may be visually depicted as in Figures 4.6(a) and 4.6(b). Note the steep

incline of the top line and the relative flatness of the bottom line in Figure 4.6(b)

Figure 4.6(b).

Training programs

Growth needsWillingness to learn

(a)

Training programs           Effects for those low

in growth needsEffects for those high

in growth needs

Willingness to learn

(b)

Figure 4.6: (a) Illustration ofthe influence ofindependentvariables on the dependent variable

when no moderating variable operates in the situation; (b) illustration of the influence of

independent variables on the dependent variable when a moderating variable is operating in

the situation.

Page 76

Now do Exercises 4.5 and 4.6

List and label the variables in these two exercises and explain and illustrate by means of

diagrams the relationships among the variables.

E X E R C I S E 4 . 5

A manager finds that off-the-job classroom training has a great impact on the produc-

tivity of the employees in her department. However, she also observes that employees

over 60 years of age do not seem to derive much benefit and do not improve with such

training.

E X E R C I S E 4 . 6

A manager finds that the intensity of e-Business adoption is positively associated with

sales performance. What’s more, when market uncertainty (the rate of change in the

composition of customers and their preferences) is high, this positive effect is

strengthened.

Mediating variable

A mediating variable (or intervening variable) is one that surfaces between the time the

independent variables start operating to influence the dependent variable and the time their

impact is felt on it. There is thus a temporal quality or time dimension to the mediating

variable. In other words, bringing a mediating variable into play helps you to model a

process. The mediating variable surfaces as a function of the independent variable(s)

operating in any situation, and helps to conceptualize and explain the influence of the

independent variable(s) on the dependent variable. The following example illustrates this

point.

E X A M P L E

In the previous example where the independent variable (workforce diversity) influ-

ences the dependent variable (organizational effectiveness), the mediating variable that

surfaces as a function of the diversity in the workforce is ‘‘creative synergy’’. This

creative synergy results from a multiethnic, multiracial, and multinational (i.e., diverse)

workforce interacting and bringing together their multifaceted expertise in problem

solving. This helps us to understand how organizational effectiveness can result from.

having diversity in the workforce. Note that creative synergy, the mediating variable,

surfaces at time t2, as a function of workforce diversity, which was in place at time t1, to

bring about organizational effectiveness in time t3. The mediating variable of creative

synergy helps us to conceptualize and understand how workforce diversity brings

about organizational effectiveness. The dynamics ofthese relationships are illustrated in

Figure 4.7.

It would be interesting to see how the inclusion of the moderating variable ‘‘managerial

expertise’’ in the foregoing example would change the model or affect the relationships. The

new set of relationships that would emerge in the presence of the moderator are depicted in

Figure 4.8. As can be seen, managerial expertise moderates the relationship between work-

force diversity and creative synergy. In other words, creative synergy will not result from the

multifaceted problem-solving skills of the diverse workforce unless the manager is capable of

harnessing that synergy bycreatively coordinating the differentskills. Ifthe manager lacks the

expertise to perform this role, then no matter how many different problem-solving skills theWorkforce

diversity              Creative

synergy                Organizational

effectiveness

Independent variableTime:        t2            t3t1

Intervening variable      Dependent variable

Figure 4.7: Diagram of the relationship among the independent, mediating, and

dependent variables

It would be interesting to see how the inclusion of the moderating variable ‘‘managerial

expertise’’ in the foregoing example would change the model or affect the relationships. The

new set of relationships that would emerge in the presence of the moderator are depicted in

Figure 4.8. As can be seen, managerial expertise moderates the relationship between work-

force diversity and creative synergy. In other words, creative synergy will not result from the

multifaceted problem-solving skills of the diverse workforce unless the manager is capable of

harnessing that synergy bycreatively coordinating the differentskills. Ifthe manager lacks the

expertise to perform this role, then no matter how many different problem-solving skills theWorkforce

diversity              Creative

synergy                Organizational

effectiveness

Independent variableTime:        t2            t3t1

Intervening variable      Dependent variable

Figure 4.7: Diagram of the relationship among the independent, mediating, and

dependent variables.

Workforce

diversity              Creative

synergy                Organizational

effectiveness

Independent variableTime:        t2            t3t1

Intervening variable      Dependent variable

Managerial

expertise

Moderating variable

Figure 4.8: Diagram of the relationship among the independent, mediating, moderating, and

dependent variables.

diverse workforce might have, synergy will just not surface. Instead offunctioning effectively,

the organization might just remain static, or even deteriorate.

It is now easy to see what the differences are among an independent variable, a mediating

variable, and a moderating variable. The independent variable helps to explain the variance in

the dependent variable; the mediating variable surfaces at time t2 as a function of the

independent variable, which also helps us to conceptualize the relationship between the

independent and dependent variables; and the moderating variable has a contingent effect on

the relationship between two variables. To put it differently, while the independent variable

explains the variance in the dependent variable, the mediating variable does not add to the

variance already explained by the independent variable, whereas the moderating variable has

an interaction effect with the independent variable in explaining the variance. That is, unless

the moderating variable is present, the theorized relationship between the other two variables

considered will not hold.

Whether a variable is an independent variable, a dependent variable, a mediating variable,

or a moderating variable should be determined by a careful reading ofthe dynamics operating

in any given situation. For instance, a variable such as motivation to work could be a

dependent variable, an independent variable, a mediating variable, or a moderating variable,

depending on the theoretical model that is being advanced.

Now do Exercises 4.7, 4.8, and 4.9

E X E R C I S E 4 . 7

Make up three different situations in which motivation to work would be an indepen-

dent variable, a mediating variable, and a moderating variable.

E X E R C I S E 4 . 8

Failure to follow accounting principles causes immense confusion, which in turn creates

a number of problems for the organization. Those with vast experience in bookkeeping,

however, are able to avert the problems by taking timely corrective action. List and label

the variables in this situation, explain the relationships among the variables, and

illustrate these by means of diagrams.

E X E R C I S E 4 . 9

The managerofHaines Company observes thatthe morale ofemployees in hercompany

is low. She thinks that if their working conditions are improved, pay scales raised, and

the vacationbenefits made attractive, the morale will be boosted. She doubts, however, if

an increase in pay scales would raise the morale of all employees. Her conjecture is that

those that have supplemental incomes will just not be ‘‘turned on’’ by higher pay, and

only those without side incomes will be happy with increased pay with a resultant boost

in morale. List and label the variables in this situation. Explain the relationships among

the variables and illustrate them by means of diagrams. What might be the problem

statement or problem definition for the situation?

Theoretical framework

Having examined the different kinds of variables that can operate in a situation and how the

relationships among these can be established, it is now possible to see how we can develop the

theoretical framework for our research.

The theoretical framework is the foundation on which the entire research project is based.

It is a logically developed, described, and elaborated network of associations among the

variables deemed relevant to the problem situation and identified through such processes as

interviews, observations, and literature review. Experience and intuition also guide the

development of the theoretical framework.

It becomes evident at this stage that, to arrive at good solutions to the problem, one should

first correctly identify the problem, and then the variables that contribute to it. The importance

of conducting purposeful interviews and doing a thorough literature review now becomes

clear. After identifying the appropriate variables, the next step is to elaborate the network of

associations among the variables, so that relevant hypotheses can be developed and subse-

quently tested. Based on the results of hypothesis testing (which indicate whether or not the

hypotheses have been supported), the extent to which the problem can be solved becomes

evident. The theoretical framework is thus an important step in the research process.

The relationship between the literature review and the theoretical framework is that the

former provides a solid foundation for developing the latter. That is, the literature review

identifies the variables that might be important, as determined by previous research findings.

This, in addition to other logical connections that can be conceptualized, forms the basis for the

theoreticalmodel. Thetheoreticalframeworkrepresentsandelaboratestherelationshipsamong

the variables, explains the theory underlying these relations, and describes the nature and

direction of the relationships. Just as the literature review sets the stage for a good theoretical

framework, this in turn provides the logical base for developing testable hypotheses.

The components of the theoretical framework

A good theoretical framework identifies and defines the important variables in the situation

that are relevant to the problem and subsequently describes and explains the interconnections among these variables. The relationships among the independent varia-

bles, the dependent variable(s), and, if applicable, the moderating and mediating variables

are elaborated. Should there be any moderating variable(s), it is important to explain how

and what specific relationships they moderate. An explanation of why they operate as

moderators should also be offered. If there are any mediating variables, a discussion on how

or why they are treated as mediating variables is necessary. Any interrelationships among

the independent variables themselves, or among the dependent variables themselves (in

case there are two or more dependent variables), should also be clearly spelled out and

adequately explained. Note that a good theoretical framework is not necessarily a complex

framework.

1. The variables considered relevant to the study should be clearly defined.

2. A conceptual model that describes the relationships between the variables in the model

should be given.

3. There should be a clear explanation of why we expect these relationships to exist.

It is not always easy to come up with generally agreed-upon definitions of the relevant

variables. More often than not, there are many definitions available in the literature (for

instance, there are literally dozens of definitions of ‘‘brand image’’, ‘‘customer satisfaction’’,

and ‘‘service quality’’ available in the marketing literature). Still, well-chosen guiding

definitions of concepts are needed, because they will help you to provide an explanation

for the relationships between the variables in your model. What’s more, they will also serve as

a basis for the operationalization or measurement of your concepts in the data collection stage

of the research process. Hence, you will have to choose a useful definition from the literature

(do not use dictionary definitions, they are usually too general). It is also important that you

explain why you have chosen a particular definition as your guiding definition.

A conceptual model helps you to structure your discussion of the literature. A conceptual

model describes how the concepts in your model are related to each other. A schematic

diagram of the conceptual model helps the reader to visualize the theorized relationships.

Hence, conceptual models are often expressed in this form. However, relationships

between variables can also be adequately expressed in words. Both a schematic diagram

of the conceptual model and a description of the relationships between the variables in

words should be given, so that the reader can see and easily comprehend the theorized

relationships.

A good model is based on a sound theory. A theory or a clear explanation for the

relationships in your model is the last component of the theoretical framework. A theory

attempts to explain relationships between the variables in your model: an explanation should

be provided for all the important relationships that are theorized to exist among the variables.

If the nature and direction of the relationships can be theorized on the basis of the findings of

previous research and/or your own ideas on the subject, then there should also be an

indication as to whether the relationships should be positive or negative and linear or

nonlinear. From the theoretical framework, then, testable hypotheses can be developed to

examine whether the theory formulated is valid or not. Page 81

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The Internet Protocol

Research Assignment

The Internet Protocol version 4 has been a tremendous factor contributing to the growth of the Internet.

Using the internet, research the Internet Protocol version 4 and version 6. In 4-5 paragraphs, answer the following

  • Why do we need a new Internet protocol?
  • Compare and contrast version 4 and version 6.

What role does IP version 6 play?