Developing and Extending Theory in
Strategic Management and International Business
YADONG LUO
University of Miami
March, 2011
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Apparently, it is a tough task...
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Theoretical development is, perhaps, the most difficult part in
research development
Lack of consensus on exactly how to evaluate theoretical
contribution
Lack of agreement about which theoretical perspectives are best
suited for the topic in question
Reviewers may be biased or lack adequate knowledge, and your
theoretical domain may clash with their personal tastes and
preferences
Apparently, it is a tough task
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Tough to make tradeoffs between generality, simplicity, and
accuracy
Writing strong theory is time consuming and fraught with error for
even the most skilled management scholars
Theoretical assumptions may not be universally shared
A topic in question may be so complex that it requires multiple
lenses to theorize
Not every paper necessarily needs theory or theories
But it is the heart of research…
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A paper without theoretical logic is tantamount to a body without
heart
It is the theoretical part (framework and hypotheses) that tells why.
Data describes which empirical patterns were observed and theory
explains why empirical patterns were observed or are expected to be
observed
Theory guides propositions, research methods, and even analytical
tools
Theory is…..
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
A theory is a system of constructs and variables in which the constructs or
variables are related to each other by propositions or hypotheses, within the
boundary that sets the limitations and assumptions in applying it (e.g., values,
context, space, time).

Its purpose is (1) to organize (parsimoniously) and to (2) communicate
(clearly).

Theory is developed by which to explain AND predict complex events, objects
or phenomena. A theory is useful (i.e., utility value) if it can both explain and
predict (e.g., TCE; Resource dependence).

An explanation establishes the substantive meaning of constructs, variables,
and their linkages, while a prediction tests that substantive meaning by
comparing it to empirical evidence.

Strong theory delves into underlying processes so as to understand the
systematic reasons for a particular occurrence or nonoccurrence.
Theory comprises .....
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What (constructs, variables, concepts) – It requires
sensitivity to (a) Comprehensiveness (are all relevant factors
included?) and (b) Parsimony (should some factors be
deleted because they add little additional value to our
understanding?) (e.g., institutional theory; RBV)
How – How a set of factors are related? Operationally, it
uses “arrows” to connect the “box” and to show the pattern.
The more complex the set of relationships under
consideration, the more useful it is to graphically depict
them (TCE: transaction traits – transaction cost –
governance and control)
Theory comprises .....
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
Why - What are the underlying psychological, economic, or social
dynamics that justify the selection of factors and the proposed causal
relationships? It defines logic, the most important criterion to evaluate a
theory (e.g., coopetition theory and alliance theory)




Researchers should push back the boundaries of our knowledge by providing
compelling and logical justifications for altered views
The soundness of fundamental views of human nature, organizational
requisites, or societal processes often provides the basis for judging the
reasonableness of the proposed conceptualization
Without whys underlying the model, it would lead to data-driven or empirically,
rather than theoretically, dominated discussions of the implications of a study’s
results
Who, where, when – define a theory’s boundary constraints (e.g.,
temporal and contextual factors) and its generalizability. Researchers
should be encouraged to theoretical sensitivity to context (e.g., time, space,
environment, regulation, market structure, etc.) (e.g., IO theory)
Making your assumptions clear
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Behavioral
assumptions
• Human & psychological nature
• Economic rationality & utility
functions
• Social behavior
• Anthropological norms
Contextual
assumptions
• Space
• Time
• Environment
• Country
• Market
• Industry
• Regulation
Scope
assumptions
• Intent and objective
• Unit of analysis
• Domain/specialty boundary
Theory is an approximated continuum
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Weak
• Literature
review &
hypotheses
Medium
• Mid-range
theoretical
model or
framework
Theoretical originality and completeness
Strong
• Grand or
full-blown
theory
Theoretical Scope & Completeness Vary
scope
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Paradigm
Theory
(e.g. OLI,
coevolution)
(e.g., TCE,
Social
Exchange)
Perspective
(Institutional
distance,
Springboard)
Theory
(e.g. Agency,
game)
Completeness
Theoretical originality varies
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High Originality (Level 1)
Social Psychology
Ecology
Equity
Social Exchange
Organizational
Ecology
Organizational Justice
Trust
Imprinting
Interactional Justice
Low Originality (Level 3)
Developing theoretical Framework
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
Most studies do not generate new, novel theories from scratch. Instead, they
generally work on improving what already exists

The additions or deletions of factors are not of sufficient magnitude to
substantially alter the core logic of the existing theory. Relationships, not
lists, are the domain of theory

Authors must be able to identify and delineate how proposed changes affect
the accepted relationships between the factors and what contributions you
will make

It is a common approach to explain why and strengthen logic by borrowing a
perspective from other fields, which encourages an alternative explanation
or challenge the underlying rationales of accepted theories

Theories are often challenged because their assumptions have been proven
unrealistic (e.g., structuration theory and social exchange theory)
please do …..
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 Explicate pertinent logic from past theoretical work so that the reader can
grasp the author’s developmental arguments
 Strong theory usually stems from a single or small set of research ideas,
though their implications are widespread
 Papers with strong theory often start with a few sharpened conceptual
statements and build a logically detailed case; they have both simplicity
and interconnectedness (e.g., population density theory)
 Read the diverse literature in multiple fields (e.g., economics, sociology)
 Avoid mentioning those variables or process that you cannot measure and
test
please do …..
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Use diagrams or figures. Although they by themselves do not constitute
theory, such diagrams or figures are a valuable part of theoretical
development
Diagrams provide structure to otherwise rambling or amorphous
arguments. More helpful are figures that show causal relationships in a
logical ordering so that readers can see a chain of causation or how a third
variable intervene in or moderates in a relationship. Moderating and
mediating models become popular in recent years
Also useful are temporal diagrams showing how a particular process
unfolds over time
Rich verbal explication on arrows is always necessary. Arguments must be
rich enough that processes have to be described with sentences and
paragraphs so as to convey the logic behind the causal arrow
please do …..
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Typology and metaphors are powerful literary tools and extremely useful in
describing what – helping researchers to meet one of the goals of theory –
eliminating some of the complexity of the real world. In this context, they
may well serve as precursors to theories

Typology is a mental construct or categorization formed by the synthesis of many
diffuse, complex and interrelated phenomena which are arranged, according to
certain one-sidedly accentuated points of view, into a unified analytical construct
(e.g., Miller and Friesen emphasized the environment-strategy configurations)

A metaphor is a statement that maintains that two phenomena are isomorphic (e.g.,
the notions of organizations as “loosely coupled systems” by Weick in 1976 and as
“garbage cans” by Cohen, March, and Olsen in 1972; LOF by Hymer in 1976)

Typologies and metaphors are the source of material of theories, they themselves are
not theories
To be use in theory development, typology and metaphors must go beyond
description (what) and be a useful heuristic device - categorization and
imagery must assist in deriving specific propositions and/or hypotheses
Please do not …..
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Just as a collection of words does not make a sentence, a collection of
constructs and variables does not necessarily make a theory. A
theory must explain why variables or constructs come about or why
they are connected
Applying an accepted theory or model to a new setting and merely
showing that it works as expected is not instructive by itself. A paper
has theoretical merit only if qualitative changes in the boundaries or
notions of a theory
Please do not …..
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References and citations are not theory. References to theory developed in
prior work help set the stage for new conceptual arguments. Authors need
to acknowledge the stream of logic on which they are drawing and to
which they are contributing
But listing references to existing theories and mentioning the names of
such theories is not the same as explicating the logic they contain.
References are sometimes used, along a flurry of citations, like a smoke
screen to hide the absence of theory
Previous empirical findings are not theory: Often, authors try to develop a
theoretical foundation by describing empirical findings from past
research and then quickly move from this basis to a discussion of the
current results. Mere citing previous findings without offering logical
reasoning does not justify your argument
Now, hypotheses
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Not all theoretical contributions require propositions (involving
concepts and constructs) or hypotheses (involving variables and
measures), nor should all papers need follow the same format
However, when the paper is designed to make some theoretical
contributions, testable hypotheses are very useful, and they can be an
important part of a well-crafted theoretical framework
Hypotheses serve as crucial bridges between theory and data, making
explicit how the variables and relationships that follow from a logical
argument will be operationalized.
Developing your hypotheses
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Hypotheses must be conceptually logical. Compiling literature
reviews and citations without underlying logic does not constitute
good hypotheses development
Hypotheses must be empirically testable: Empirical adequacy
embodied in hypotheses cannot be achieved if the hypothesized
relationships do not meet standards of a good measurement model
or if they are inherently untestable
Hypotheses must be context-specific (environmentally- or spatially
bound?). The predictive adequacy of a hypothesis is judged in terms
of its ability to make predictions within delineated spaces and time
Developing your hypotheses
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Constructs and variables with broader scope allow
hypotheses to have greater overall explanatory power. A
good hypothesis is the one that achieves a balance
between scope (range of arguments) and parsimony
(ratio of hypotheses to propositions/arguments)
Individual hypotheses must satisfy the two criteria: (a)
they must be non-tautological, and (b) the nature (e.g.,
strength or form) of the relationship between antecedent
and consequent must be specified
Developing your hypotheses
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A good hypothesis contains (1) the substantive element (explanatory
potential) and (2) the probabilistic element (predictive adequacy)
A hypothesis with explicit assumptions is clearly preferable to one
without spelling out assumptions (e.g., the strategic choice
perspective assumes the interdependence of units within and across
organizational boundaries)
Although path and structural equation (e.g., LISREL) models provide
a systematic format for expressing the proposed relationships, the
actual ordering of the variables and the nature of their relationship
(e.g., causal, simultaneous, associative, reciprocal, recursive,
dialectical) must be conceptually clarified and justified
Developing your hypotheses
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A hypothesis’s explanatory power is also continent
upon the extent to which the actual empirical form of
the relationship (e.g., linear, curvilinear, U-shape,
inverse U-shape, J-curve, S-curve) is stated.
Even though this is an empirical question, it is
preferred to think further whether your hypotheses
will be strengthened or more contributory when
including the above forms
Developing your hypotheses
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Proposing a relationship is the most common way in hypothesis
building. Note, however:
Types of Relationships
Strength
Multiplexity
Asymmetry
Status
Structure of Relationships
Structural holes
Centrality
Density
Developing your hypotheses
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Predictive adequacy of two competing hypotheses derived from two
alternative theories needs to be comparatively assessed on the basis of
the degree of confidence researchers have in the theory (statistical
significance)
Empirical results cited from previous works can provide useful support
for your hypotheses; but they should not be construed as theory or
hypotheses themselves. Prior findings cannot by themselves motivate
hypotheses, and the reporting of results cannot substitute for causal
reasoning
It is not advisable to pose a wide range or a long list of hypotheses to
show your rich labor and/or rich data
Developing your hypotheses
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If your hypotheses are based on a cumulative body of more-or-less
universally accepted theories, then the first task is to select an appropriate
theory to underpin hypotheses
Connectivity – the ability of a selected theory to explain and justify the
central logic of your argument
Transformationality – the ability of hypotheses to make the theory
enlightening in a new study setting
Should we use single or multiple theories to underpin hypotheses in one
study? Depending on necessity and compatibility
Extending Theory via Contextualization
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 A moderating approach - Contextualization often resembles the sort
of “add a moderator” research that is already quite common
 A conditioning approach – Including new conditions under which
the main effect takes place; these conditions are often very macroglobal, regional, national, or industrial PEST parameters
 A predicting approach – Incorporating more or new antecedents or
predictors (IVs) that can increase theoretic explanatory power
 A process or path approach – Revamping the processes in which the
main effect specifically occurs in a new context; some old process
variables may nullify but some new concurrent forces may arise
Extending Theory via Contextualization
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
A mediating approach – Proposing new mediating force(s) that work in a
new context, and such mediating channels can be insightful

A new means-end approach – Suggesting different means, different ends
(outcomes), as well as different causal paths in a different context

A supposition approach – repudiating some old assumptions and setting new
assumptions (e.g., motives) in a new context

A linearity approach – Envision changes in linearity in a different context,
also allowing one to address dynamism of the theory

A “to-the-extent” approach – Theory is only partially true in the new setting,
with some notions valid but others only work under certain conditions or not
work at all
Theory Verification in Empirical Research
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
From theory development to theory verification

Most theories stay short in detailing specific conditions, processes
and outcomes of principal relationships they argue

This provides opportunities of theory verification in empirical
research through specifying and articulating concrete hypotheses
showing directions, magnitude, path, causality, and the like

Opportunities to generalize a theory in different contexts (nation,
industry, market, environment) abound

Contextualization through capturing a new set of antecedents,
concurrent and consequent variables
Theory Verification in Empirical Research
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Scope and substance
of verification
Assumptions
Components
• What
• Why
• How
• Where-When-Who
Propositions
Conclusions
Methods & findings
of verification
Direction
Path
Comparative
Magnitude
Linearity
Causality
Asymmetry
Elaboration of Theoretical Implications
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 Within-theory elaborations



What confirmed, what extended, and what rectified
Apply the theory in a new context and related generalizability
Unveil and specify the processes, conditions, and outcomes
 Within-field or domain elaborations


Within literature – How this theory complements or contradicts other prevalent
theories in the field
Within context – How this theory advances our understanding of the contextspecific issues
 Beyond theory elaborations


Beyond theory – practical and managerial implications
Beyond today – Future research suggestions
Further Readings on Theory Development
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General Readings on Theory Development
1.
2.
3.
4.
5.
6.
7.
Argyris, C. and Schon, D.A. 1977. Theory in practice: Increasing
professional effectiveness. San Francisco: Jossey-Bass.
Bacharach, S.B. 1989. Organizational theories: Some criteria for
evaluation. Academy of Management Review, 14(4): 496-515.
Blalock, H.M. 1969. Theory construction: From verbal to mathematical
formulation. Englewood Cliffs, NJ: Prentice Hall.
Cohen, B. 1980. Developing sociological knowledge: Theory and method.
Englewood Cliffs, NJ: Prentice Hall.
Davis, J.P., Eisenhardt, K.M. and Bingham, C.B. 2007. Developing theory
through simulation methods. Academy of Management Review, 32(2):
480-499.
Dubin, R. 1969. Theory building. New York: Free Press.
Eisenhardt, K.M. 1989. Building theories from case study research.
Academy of Management Review, 14(4): 532-550.
8.
9.
10.
11.
12.
13.
14.
15.
16.
DiMaggio, P.J. 1995. Comments on “what theory is not”.
Administrative Science Quarterly, 40: 391-397.
Freese, L. 1980. Formal theorizing. Annual Review of Sociology,
6:187-212.
Poole, M.S. and Van de Ven, A.H. 1989. Using paradox to build
management and organization theories. Academy of
Management Review, 14(4): 562-578.
Smith, K.G. and Hitt, M.A. 2005. Great minds in management:
The process of theory development. Oxford: Oxford University
Press.
Sutton, R.I. and Staw, B.M. 1995. What theory is not.
Administrative Science Quarterly, 40: 371-384.
Tsang, E.W.K.1999. Replication and theory development in
organizational science: A critical realist perspective. Academy of
Management Review, 24(4): 759-780.
Weick, K.E. 1989. Theory construction as disciplined
imagination. Academy of Management Review, 14(4): 516-531.
Weick, K.E. 1995. What theory is not, theory is. Administrative
Science Quarterly, 40: 385-390.
Whetten, D.A. 1989. What constitutes a theoretical contribution.
Academy of Management Review, 14(4): 490-495.
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Further Readings on Theory Development
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Suggested Readings on Theory Extension
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Bowman, E.H. & Hurry, D. 1993. Strategy through the option lens: An integrated view
of resource investments and the incremental choice process. Academy of Management
Review, 18(4): 760-782
Oliver, C. & Holzinger, I. 2008. The effectiveness of strategic political management: A
dynamic capabilities framework. Academy of Management Review, 33(2): 496-520
Kostova, T. & Roth, K. 2003. Social capital in multinational corporations and a micromacro model of its formation. Academy of Management Review, 28(2): 297-317
Kostova, T. 1999. Transnational transfer of strategic organizational practices: A
contextual perspective. Academy of Management Review, 24(2): 308-324
Lepak, D. & Snell, S. 1999. The human resource architecture: Toward a theory of
human capital allocation and development. Academy of Management Review, 24(1):
31-48
Nahapiet, J. & Ghoshal, S. 1998. Social capital, intellectual capital and the
organizational advantage. Academy of Management Review, 23(2): 242-266
Further Readings on Theory Development
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Suggested Readings on Theory Testing and Verification
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Betton, J. & Dess, G.G. 1985. The application of population ecology models to the study of
organizations. Academy of Management Review, Oct, pp.750757
Boyd, B. 1990. Corporate linkages and organizational environment: A test of the resource
dependence model. Strategic Management Journal, 11: 419-430
Casciaro, T. & Jan Piskorski, M. 2005. Power imbalance, mutual dependence and constraint
absorption: A closer look at resource dependence theory. Administrative Science Quarterly,
50(2): 167-199
Bottom, W., Holloway, J., Miller, G. Mislin, A. & Whitford, A. 2006. Building a pathway to
cooperation: Negotiation and social exchange between principal and agent. Administrative
Science Quarterly, 51(1): 29-58
Colquitt, J. & Zapata-Phelan, C. 2007. Trends in theory building and theory testing: A fivedecade study of the Academy of Management Journal, Academy of Management Journal,
50(6): 1281-1303
Capabilities, contractual hazards, and governance: Integrating resource-based and transaction
cost perspectives. Academy of Management Journal, 49(5): 942-959
Seibert, S., Kraimer, M. & Liden, R. 2001. A social capital theory of career success. Academy of
Management Journal, 44(2): 219-237