In analysis of variance , regression, and discriminant analysis ,one of the variables is clearly identified as the dependent variable. We now turn to a procedure, factor analysis, in which variables are not classified asindependent or dependent. Instead, the whole set of interdependent relationships among variables is examined. This chapter discusses the basic concept of factor analysis and gives an exposition of the factor model. We describe the steps in factor analysis and illustrate them in the context of principal components analysis. Next, we present an application of common factor analysis.
Finally, we discuss the use of software in factor analysis. Help for running the SPSSand SAS Learning Edition programs used in this chapter is provided in (our ways: (I) detailed step-by-step instructions are given later in the chapter, (2)you can download (\rom the Web site for this book) computerized demonstration movies illustrating these step-by-step instructions, (3)you can download screen captures with notes illustrating these step-by-step instructions, and (4)you can refer to the Study Guide and Technology Manual, a supplement that accompanies this book. To begin, we provide some examples to illustrate the usefulness of factor analysis.
Factor Analysis Earns Interest at Banks
How do consumers evaluate banks? Respondents in a survey were asked to rate the importance of 15bank attributes. A 5-point scale ranging from not important to very important was employed. These data were analyzed via principal components analysis. A four-factor solution resulted, with the factors being labeled as traditional services, convenience, visibility, and competence. Traditional services include interest rates on loans, reputation in the community, low rates for checking, friendly and personalized service,easy-to-read monthly statements, and obtainability of loans. Convenience was comprised of convenient branch location, convenient ATM locations, speed of service, and convenient banking hours. The visibility factor included recommendations from friends and relatives, attractiveness of the physical structure, community involvement, and obtainability of loans. Competence consisted of employee competence and availability of auxiliary banking services. It was concluded that consumers evaluated banks using the four basic factors of traditional services, convenience, visibility, and competence, and banks must excel on these factors to project a good image. By emphasizing these factors, JPMorgan Chase & Co. became one of the largest U.s. banks and bought the banking operations of bankrupt rival Washington Mutual inSeptember 2008.