Application of factor analysis in company management – selected examples related to competitiveness and market success

Abstract

Factor analysis is a standard statistical technique for reducing data dimensionality, which is widely used in sociology, psychology, and demography. Also, financial and insurance institutions commonly use such a technique for marketing research. In recent years, factor analysis has been used, at the beginning rather diffidently, to analyse selected problems of business management, e.g. to troubleshoot consumer and company communication. There are some literature reports about the successful use of factor analysis in managing a company area. Nevertheless, the literature seems to lack examples with successful use of the method with a clear explanation of its rather difficult application in the field of competitiveness or potential company boost. The modest popularity of such a powerful technique in this particular field seems to be attributed mainly to the complexity of the method and its requirements concerning the data quantity. Besides, the factor analysis technique has great potential and can be used as an efficient tool to reduce the complexity of observed phenomenon or verify the accuracy of theoretical models. Therefore, the purpose of this paper is to present a vast potential of factor analysis (both exploratory and confirmatory) applied to solve various problems in company management, especially related to competitiveness and market success. Two case studies covering the subject of business management are presented to illustrate the benefits of factor analysis application. The exploratory factor analysis is exemplified by the search of factors related to the commercial success of the company, while the confirmatory technique is illustrated by a case study of the intellectual capital of the company and its factors related to competitiveness. The paper also presents the essence of the factor analysis, types of analysis, subsequent procedures, purposes, and its specific features. Finally, the applicability of the factor analysis to solve management issues and possible gain in management are discussed.

Keywords

• factor analysis
• confirmatory factor analysis
• exploratory factor analysis
• management