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Chapter 3

Exploratory Factor Analysis

Copyright © 2010 Pearson Education, Inc., publishing as


Chapter 3 Exploratory Factor Analysis

Upon completing this chapter, you should be able to
do the following:
1. Differentiate factor analysis techniques from
other multivariate techniques.
2. Distinguish between exploratory and
confirmatory uses of factor analytic techniques.
3. Understand the seven stages of applying factor
4. Distinguish between R and Q factor analysis.
5. Identify the differences between component
analysis and common factor analysis models.
Copyright © 2010 Pearson Education, Inc., publishing as


Chapter 3 Exploratory Factor Analysis
Upon completing this chapter, you should be able to do
the following:
6. Tell how to determine the number of factors to
7. Explain the concept of rotation of factors.
8. Describe how to name a factor.
9. Explain the additional uses of factor analysis.
10. State the major limitations of factor analytic
Copyright © 2010 Pearson Education, Inc., publishing as


Exploratory Factor Analysis
Exploratory factor analysis . . . is an
interdependence technique whose primary
purpose is to define the underlying structure
among the variables in the analysis.

Copyright © 2010 Pearson Education, Inc., publishing as


publishing as Prentice-Hall.What is Exploratory Factor Analysis? Exploratory Factor Analysis . Inc. but is an interdependence technique in which all variables are considered simultaneously. Copyright © 2010 Pearson Education. A summarization and data reduction technique that does not have independent and dependent variables. These common underlying dimensions are referred to as factors. . 3-5 . • • • Examines the interrelationships among a large number of variables and then attempts to explain them in terms of their common underlying dimensions. ..

Correlation Matrix for Store Image Elements Copyright © 2010 Pearson Education.. Inc. 3-6 . publishing as Prentice-Hall.

publishing as Prentice-Hall. Inc. 3-7 .. Copyright © 2010 Pearson Education.Correlation Matrix of Variables After Grouping Using Factor Analysis Shaded areas represent variables likely to be grouped together by factor analysis.

. 3-8 . publishing as Prentice-Hall.Application of Factor Analysis to a Fast-Food Restaurant Variables Factors Waiting Time Cleanliness Service Quality Friendly Employees Taste Temperature Food Quality Freshness Copyright © 2010 Pearson Education. Inc.

Inc. 3-9 ..Factor Analysis Decision Process Stage 1: Stage 2: Stage 3: Stage 4: Stage 5: Stage 6: Stage 7: Objectives of Factor Analysis Designing a Factor Analysis Assumptions in Factor Analysis Deriving Factors and Assessing Overall Fit Interpreting the Factors Validation of Factor Analysis Additional uses of Factor Analysis Results Copyright © 2010 Pearson Education. publishing as Prentice-Hall.

Specify the unit of analysis. publishing as Prentice-Hall. Copyright © 2010 Pearson Education. Data summarization and/or reduction? 4.Stage 1: Objectives of Factor Analysis 1. Using factor analysis with other techniques. Inc. Is the objective exploratory or confirmatory? 2. 3-10 . 3..

Data reduction = extends the process of data summarization by deriving an empirical value (factor score or summated scale) for each dimension (factor) and then substituting this value for the original values. 3-11 . describe the data in a much smaller number of concepts than the original individual variables. Data summarization = derives underlying dimensions that. publishing as Prentice-Hall. Inc.. Copyright © 2010 Pearson Education.Factor Analysis Outcomes 1. when interpreted and understood. 2.

2. publishing as Prentice-Hall. Copyright © 2010 Pearson Education. Exploratory Factor Analysis (EFA) = is used to discover the factor structure of a construct and examine its reliability.. 3-12 . It is theory driven. Confirmatory Factor Analysis (CFA) = is used to confirm the fit of the hypothesized factor structure to the observed (sample) data. It is data driven. Inc.Types of Factor Analysis 1.

Calculation of input data – R vs. Sample size necessary. publishing as Prentice-Hall. measurement properties of variables. Copyright © 2010 Pearson Education. Design of study in terms of number of variables. 3-13 . 3. Inc.Stage 2: Designing a Factor Analysis Three Basic Decisions: 1. 2.. and the type of variables. Q analysis.

. A small number of “dummy variables” can be included in a set of metric variables that are factor analyzed. o For sample size: • • the sample must have more observations than variables.Rules of Thumb 3–1 Factor Analysis Design o Factor analysis is performed most often only on metric variables. 3-14 . o If a study is being designed to reveal factor structure. Inc. publishing as Prentice-Hall. o Maximize the number of observations per variable. although specialized methods exist for the use of dummy variables. the minimum absolute sample size should be 50 observations. strive to have at least five variables for each proposed factor. with a minimum of five and hopefully at least ten observations per variable. Copyright © 2010 Pearson Education.

2. Q analysis. 1. Sample size required. and the type of variables. Copyright © 2010 Pearson Education. 3-15 . measurement properties of variables. Calculation of input data – R vs. 3.. . Design of study in terms of number of variables. publishing as Prentice-Hall.Stage 3: Assumptions in Factor Analysis Three Basic Decisions . . Inc.

50. the KMO predicts if data are likely to factor well based on correlation and partial correlation.50. Overall KMO should be . If it is not.50 or higher to proceed with factor analysis. KMO can be used to identify which variables to drop from the factor analysis because they lack multicollinearity. and their sum is the KMO overall statistic. 3-16 . As a measure of sampling adequacy.0. The MSA is measured by the Kaiser-Meyer-Olkin (KMO) statistic. Inc. There is a KMO statistic for each individual variable. and each individual variable KMO is above . KMO varies from 0 to 1. remove the variable with the lowest individual KMO statistic value one at a time until KMO overall rises above .solutions publishing as Homogeneity of sample factor • Copyright Prentice-Hall.• Assumptions Multicollinearity  Assessed using MSA (measure of sampling adequacy). © 2010 Pearson Education..

50 should be omitted from the factor analysis one at a time. Copyright © 2010 Pearson Education. with the smallest one being omitted each time. Variables with values less than .Rules of Thumb 3–2 Testing Assumptions of Factor Analysis • There must be a strong conceptual foundation to support the assumption that a structure does exist before the factor analysis is performed. 3-17 .05) indicates that sufficient correlations exist among the variables to proceed. publishing as Prentice-Hall. • A statistically significant Bartlett’s test of sphericity (sig..50 for both the overall test and each individual variable. < . • Measure of Sampling Adequacy (MSA) values must exceed . Inc.

publishing as Prentice-Hall. Copyright © 2010 Pearson Education. Inc. 3-18 . • Determining the number of factors to represent the data..Stage 4: Deriving Factors and Assessing Overall Fit • Selecting the factor extraction method – common vs. component analysis.

publishing as Prentice-Hall. 3-19 .Extraction Decisions o Which method? • Principal Components Analysis • Common Factor Analysis o How to rotate? • Orthogonal or Oblique rotation Copyright © 2010 Pearson Education.. Inc.

Extraction Method Determines the Types of Variance Carried into the Factor Matrix Diagonal Value Unity (1) Communality Variance Total Variance Common Specific and Error Variance extracted Variance not used Copyright © 2010 Pearson Education.. publishing as Prentice-Hall. 3-20 . Inc.

Copyright © 2010 Pearson Education. • • Objectives of the factor analysis. 3-21 . publishing as Prentice-Hall.Principal Components vs. . Inc.. . Common? Two Criteria . Amount of prior knowledge about the variance in the variables.

publishing as Prentice-Hall.. Inc.Number of Factors? • • • • A Priori Criterion Latent Root Criterion Percentage of Variance Scree Test Criterion Copyright © 2010 Pearson Education. 3-22 .

3-23 . publishing as Prentice-Hall.. Inc.Eigenvalue Plot for Scree Test Criterion Copyright © 2010 Pearson Education.

3-24 . factors before inflection point). Any decision on the number of factors to be retained should be based on several considerations:  use of several stopping criteria to determine the initial number of factors to retain. usually 60% or higher..  Factors shown by the scree test to have substantial amounts of common variance (i.  Enough factors to meet a specified percentage of variance explained. publishing as Prentice-Hall. Inc.. Copyright © 2010 Pearson Education.  A pre-determined number of factors based on research objectives and/or prior research.  More factors when there is heterogeneity among sample subgroups.  Factors With Eigenvalues greater than 1. 60 for most variables):  the component analysis model is most appropriate when data reduction is paramount.  the common factor model is best in well-specified theoretical applications.e.0.Rules of Thumb 3–3 • • • Choosing Factor Models and Number of Factors Although both component and common factor analysis models yield similar results in common research settings (30 or more variables or communalities of . Consideration of several alternative solutions (one more and one less factor than the initial solution) to ensure the best structure is identified.

Processes of Factor Interpretation • • • • Estimate the Factor Matrix Factor Rotation Factor Interpretation Respecification of factor model. Inc. publishing as Prentice-Hall.. may involve . 3-25 . if needed. . o Deletion of variables from analysis o Desire to use a different rotational approach o Need to extract a different number of factors o Desire to change method of extraction Copyright © 2010 Pearson Education. .

The ultimate effect of rotating the factor matrix is to redistribute the variance from earlier factors to later ones to achieve a simpler. 3-26 . theoretically more meaningful factor pattern.Rotation of Factors Factor rotation = the reference axes of the factors are turned about the origin until some other position has been reached. Copyright © 2010 Pearson Education.. publishing as Prentice-Hall. Inc. Since unrotated factor solutions extract factors based on how much variance they account for. with each subsequent factor accounting for less variance.

Oblique = axes are not maintained at 90 degrees.Two Rotational Approaches 1. Copyright © 2010 Pearson Education. publishing as Prentice-Hall. 2. 3-27 . Inc. Orthogonal = axes are maintained at 90 degrees..

0 Inc.50 0 Unrotated Factor I +1. publishing as Copyright © 2010 Pearson Education..50 -.0 Rotated Factor II V1 V2 +.50 -1.0 -.0 V3 V4 +. Prentice-Hall.50 V5 -1. Rotated Factor I 3-28 .Orthogonal Factor Rotation Unrotated Factor II +1.

.50 -.0 -.50 V5 Unrotate d Factor I +1.0 Inc.0 Orthogonal Rotation: Factor II V1 +.Oblique Factor Rotation Unrotated Factor II +1. 3-29 Prentice-Hall.0 V3 V4 Oblique Rotation : Factor I Orthogonal Rotation: Factor I -1. .50 -1.50 0 Oblique Rotation: Factor II V2 +. publishing as Copyright © 2010 Pearson Education.

Orthogonal Rotation Methods • Quartimax (simplify rows) • Varimax (simplify columns) • Equimax (combination) Copyright © 2010 Pearson Education. 3-30 . publishing as Prentice-Hall. Inc..

. • Oblique rotation methods . very few constructs in the “real world” areEducation. o are the most widely used rotational methods. o are The preferred method when the research goal is data reduction to either a smaller number of variables or a set of uncorrelated measures for subsequent use in other multivariate techniques.. Copyright © 2010 Pearson Inc. publishing as Prentice-Hall.. o best suited to the goal of obtaining several theoretically meaningful factors or constructs because. 3-31 .Rules of Thumb 3–4 Choosing Factor Rotation Methods • Orthogonal rotation methods .. realistically.. uncorrelated.

3-32 . = <) .Which Factor Loadings Are Significant? • • • Customary Criteria = Practical Significance. Inc. Sample Size & Statistical Significance. publishing as Prentice-Hall.. Number of Factors ( = >) and/or Variables ( Copyright © 2010 Pearson Education.

30 . 3-33 . * Copyright © 2010 Pearson Education.65 .50 . Inc. publishing as Prentice-Hall..40 .60 .75 Sample Size for 350 250 200 150 120 100 85 70 60 50 Significance is based on a .45 .55 . a power level of 80 percent.70 .Guidelines for Identifying Significant Factor Loadings Based on Sample Size Factor Loading Needed Significance* .35 . and standard errors assumed to be twice those of conventional correlation coefficients.05 significance level (a).

50 are considered necessary for practical significance.30 to +. especially in evaluating the loadings on later factors. publishing as Prentice-Hall. • To be considered significant: o A smaller loading is needed given either a larger sample size. o A larger loading is needed given a factor solution with a larger number of factors. Inc. or a larger number of variables being analyzed.Rules of Thumb 3–5 Assessing Factor Loadings factor loadings of +..40 are minimally • While acceptable. values greater than + . 3-34 . tests of significance for factor loadings are • Statistical generally very conservative and should be considered only as starting points needed for including a variable for further consideration. Copyright © 2010 Pearson Education.

Stage 5: Interpreting the Factors • Selecting the factor extraction method – common vs.. 3-35 . component analysis. Copyright © 2010 Pearson Education. • Determining the number of factors to represent the data. Inc. publishing as Prentice-Hall.

4. publishing as Prentice-Hall.Interpreting a Factor Matrix: 1. Inc. 3. Label the factors. Examine the factor matrix of loadings. 3-36 . Identify the highest loading across all factors for each variable. Assess communalities of the variables.. 2. Copyright © 2010 Pearson Education.

o changing rotation methods.50 to be retained in the analysis.Rules of Thumb 3–6 Interpreting The Factors  An optimal structure exists when all variables have high loadings only on a single factor. and/or o increasing or decreasing the number of factors. Inc. publishing as Prentice-Hall..  Variables that cross-load (load highly on two or more factors) are usually deleted unless theoretically justified or the objective is strictly data reduction. Copyright © 2010 Pearson Education.  Variables should generally have communalities of greater than .  Respecification of a factor analysis can include options such as: o deleting a variable(s). 3-37 .

publishing as Prentice-Hall. Copyright © 2010 Pearson Education. 3-38 . Detecting Influential Observations.Stage 6: Validation of Factor Analysis • • • Confirmatory Perspective. Inc.. Assessing Factor Structure Stability.

3-39 .Stage 7: Additional Uses of Factor Analysis Results • • • Selecting Surrogate Variables Creating Summated Scales Computing Factor Scores Copyright © 2010 Pearson Education. Inc. publishing as Prentice-Hall..

While it may pass all empirical tests.70.Rules of Thumb 3–7 Summated Scales scale is only as good as the items used to represent • Athesummated construct. publishing as 3-40 Prentice-Hall. o discriminant validity = scale is sufficiently different from other related scales.. although a . especially as the number of items approaches 10 or more. Never create a summated scale without first assessing its unidimensionality with exploratory or confirmatory factor analysis. Once a scale is deemed unidimensional. Copyright © 2010 Pearson Education. With reliability established. o nomological validity = scale “predicts” as theoretically suggested.60 level can be used in exploratory research. its reliability score. • • • . Inc. validity should be assessed in terms of: o convergent validity = scale correlates with other like scales. it is useless without theoretical justification. as measured by Cronbach’s alpha: o should exceed a threshold of . o the threshold should be raised as the number of items increases.

Rules of Thumb 3–8 • • Representing Factor Analysis In Other Analyses The single surrogate variable:  Advantages: simple to administer and interpret.  Disadvantages: 1) does not represent all “facets” of a factor 2) prone to measurement error. 3-41 . 2) best method for complete data reduction. 3) Are by default orthogonal and can avoid complications caused by multicollinearity.  Disadvantages: 1) interpretation more difficult since all variables contribute through loadings 2) Difficult to replicate across studies.. Inc. Copyright © 2010 Pearson Education. Factor scores:  Advantages: 1) represents all variables loading on the factor. publishing as Prentice-Hall.

. Inc. 2) not necessarily orthogonal. • Representing Factor Analysis In Other Analyses Summated scales:  Advantages: 1) compromise between the surrogate variable and factor score options. Copyright © 2010 Pearson Education. 3) Require extensive analysis of reliability and validity issues. 3) represents multiple facets of a concept. 4) easily replicated across studies. .  Disadvantages: 1) includes only the variables that load highly on the factor and excludes those having little or marginal impact. publishing as Prentice-Hall. 3-42 .Rules of Thumb 3–8 Continued . 2) reduces measurement error. .

as metric metric metric metric nonmetric 3-43 . publishing © Prentice-Hall.. Alliance/Partnership in Future 2010 Pearson Inc.Description of HBAT Primary Database Variables Variable Description Data Warehouse Classification Variables X1 X2 X3 X4 X5 Variable Type Customer Type Industry Type Firm Size Region Distribution System nonmetric nonmetric nonmetric nonmetric nonmetric Performance Perceptions Variables X6 X7 X8 X9 X10 X11 X12 X13 X14 X15 X16 X17 X18 Product Quality E-Commerce Activities/Website Technical Support Complaint Resolution Advertising Product Line Salesforce Image Competitive Pricing Warranty & Claims New Products Ordering & Billing Price Flexibility Delivery Speed metric metric metric metric metric metric metric metric metric metric metric metric metric Outcome/Relationship Measures X19 X20 X21 X22 X23 Copyright Satisfaction Likelihood of Recommendation Likelihood of Future Purchase Current Purchase/Usage Level Consider StrategicEducation.

868 . Inc.161 18.886 Sum of Squares Percentage of Trace 2.216 1.892 -. 3-44 .931 . publishing as Prentice-Hall.780 .Rotated Component Matrix “Reduced Set” of HBAT Perceptions Variables 1 Component 2 3 Communality 4 X9 – Complaint Resolution X18 – Delivery Speed X16 – Order & Billing X12 – Salesforce Image X7 – E-Commerce Activities X10 – Advertising X8 – Technical Support X14 – Warranty & Claims X6 – Product Quality X13 – Competitive Pricing . Rotation Method: Varimax.661 Extraction Method: Principal Component Analysis..806 .589 2.890 .061 80.894 .057 25.940 .891 .585 .898 .457 14.860 .406 8.893 22.572 . Copyright © 2010 Pearson Education.933 .894 .730 .798 .743 .933 .846 1.

publishing as Prentice-Hall. Inc.. 3-45 .Scree Test for HBAT Component Analysis Copyright © 2010 Pearson Education.

Is rotation of factors necessary? 4. What is a significant factor loading? 6. Inc..Factor Analysis Learning Checkpoint 1. What are the major uses of factor analysis? 2. Should you use factor scores or summated ratings in follow-up analyses? Copyright © 2010 Pearson Education. 3-46 . publishing as Prentice-Hall. How do you decide how many factors to extract? 5. What is the difference between component analysis and common factor analysis? 3. How and why do you name a factor? 7.