Exploratory Factor Analysis

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LEARNING OBJECTIVES
Upon completing this chapter, you should be able to do the following:
䊏 Differentiate factor analysis techniques from other multivariate techniques.
䊏 Distinguish between exploratory and confirmatory uses of factor analytic techniques.
䊏 Understand the seven stages of applying factor analysis.
䊏 Distinguish between R and Q factor analysis.
䊏 Identify the differences between component analysis and common factor analysis models.
䊏 Describe how to determine the number of factors to extract.
䊏 Explain the concept of rotation of factors.
䊏 Describe how to name a factor.
䊏 Explain the additional uses of factor analysis.
䊏 State the major limitations of factor analytic techniques.

CHAPTER PREVIEW
Use of the multivariate statistical technique of factor analysis increased during the past decade in all
fields of business-related research. As the number of variables to be considered in multivariate tech-
niques increases, so does the need for increased knowledge of the structure and interrelationships of
the variables. This chapter describes factor analysis, a technique particularly suitable for analyzing
the patterns of complex, multidimensional relationships encountered by researchers. It defines and
explains in broad, conceptual terms the fundamental aspects of factor analytic techniques. Factor
analysis can be utilized to examine the underlying patterns or relationships for a large number of
variables and to determine whether the information can be condensed or summarized in a smaller
set of factors or components. To further clarify the methodological concepts, basic guidelines for
presenting and interpreting the results of these techniques are also included.

KEY TERMS
Before starting the chapter, review the key terms to develop an understanding of the concepts and
terminology used. Throughout the chapter the key terms appear in boldface. Other points of
emphasis in the chapter and key term cross-references are italicized.
Copyright 2014. Pearson.

From Chapter 3 of Multivariate Data Analysis, 7/e. Joseph F. Hair, Jr., William C. Black, Barry J. Babin, Rolph E. Anderson.
Copyright © 2010 by Pearson Prentice Hall. All rights reserved.

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 Exploratory Factor Analysis

Anti-image correlation matrix Matrix of the partial correlations among variables after factor
analysis, representing the degree to which the factors explain each other in the results. The diag-
onal contains the measures of sampling adequacy for each variable, and the off-diagonal values
are partial correlations among variables.
Bartlett test of sphericity Statistical test for the overall significance of all correlations within a
correlation matrix.
Cluster analysis Multivariate technique with the objective of grouping respondents or cases with
similar profiles on a defined set of characteristics. Similar to Q factor analysis.
Common factor analysis Factor model in which the factors are based on a reduced correlation
matrix. That is, communalities are inserted in the diagonal of the correlation matrix, and the
extracted factors are based only on the common variance, with specific and error variance excluded.
Common variance Variance shared with other variables in the factor analysis.
Communality Total amount of variance an original variable shares with all other variables
included in the analysis.
Component analysis Factor model in which the factors are based on the total variance. With
component analysis, unities (1s) are used in the diagonal of the correlation matrix; this procedure
computationally implies that all the variance is common or shared.
Composite measure See summated scales.
Conceptual definition Specification of the theoretical basis for a concept that is represented by
a factor.
Content validity Assessment of the degree of correspondence between the items selected to
constitute a summated scale and its conceptual definition.
Correlation matrix Table showing the intercorrelations among all variables.
Cronbach’s alpha Measure of reliability that ranges from 0 to 1, with values of .60 to
.70 deemed the lower limit of acceptability.
Cross-loading A variable has two more factor loadings exceeding the threshold value deemed
necessary for inclusion in the factor interpretation process.
Dummy variable Binary metric variable used to represent a single category of a nonmetric variable.
Eigenvalue Column sum of squared loadings for a factor; also referred to as the latent root.
It represents the amount of variance accounted for by a factor.
EQUIMAX One of the orthogonal factor rotation methods that is a “compromise” between the
VARIMAX and QUARTIMAX approaches, but is not widely used.
Error variance Variance of a variable due to errors in data collection or measurement.
Face validity See content validity.
Factor Linear combination (variate) of the original variables. Factors also represent the under-
lying dimensions (constructs) that summarize or account for the original set of observed
variables.
Factor indeterminacy Characteristic of common factor analysis such that several different
factor scores can be calculated for a respondent, each fitting the estimated factor model. It means
the factor scores are not unique for each individual.
Factor loadings Correlation between the original variables and the factors, and the key to under-
standing the nature of a particular factor. Squared factor loadings indicate what percentage of the
variance in an original variable is explained by a factor.
Factor matrix Table displaying the factor loadings of all variables on each factor.
Factor pattern matrix One of two factor matrices found in an oblique rotation that is most com-
parable to the factor matrix in an orthogonal rotation.
Factor rotation Process of manipulation or adjusting the factor axes to achieve a simpler and
pragmatically more meaningful factor solution.
Factor score Composite measure created for each observation on each factor extracted in the
factor analysis. The factor weights are used in conjunction with the original variable values to

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 Exploratory Factor Analysis

calculate each observation’s score. The factor score then can be used to represent the factor(s)
in subsequent analyses. Factor scores are standardized to have a mean of 0 and a standard
deviation of 1.
Factor structure matrix A factor matrix found in an oblique rotation that represents the simple
correlations between variables and factors, incorporating the unique variance and the correlations
between factors. Most researchers prefer to use the factor pattern matrix when interpreting an
oblique solution.
Indicator Single variable used in conjunction with one or more other variables to form a
composite measure.
Latent root See eigenvalue.
Measure of sampling adequacy (MSA) Measure calculated both for the entire
correlation matrix and each individual variable evaluating the appropriateness of applying
factor analysis. Values above .50 for either the entire matrix or an individual variable indicate
appropriateness.
Measurement error Inaccuracies in measuring the “true” variable values due to the fallibility of the
measurement instrument (i.e., inappropriate response scales), data entry errors, or respondent errors.
Multicollinearity Extent to which a variable can be explained by the other variables in the analysis.
Oblique factor rotation Factor rotation computed so that the extracted factors are correlated.
Rather than arbitrarily constraining the factor rotation to an orthogonal solution, the oblique rota-
tion identifies the extent to which each of the factors is correlated.
Orthogonal Mathematical independence (no correlation) of factor axes to each other (i.e., at
right angles, or 90 degrees).
Orthogonal factor rotation Factor rotation in which the factors are extracted so that their axes
are maintained at 90 degrees. Each factor is independent of, or orthogonal to, all other factors.
The correlation between the factors is determined to be 0.
Q factor analysis Forms groups of respondents or cases based on their similarity on a set of
characteristics.
QUARTIMAX A type of orthogonal factor rotation method focusing on simplifying
the columns of a factor matrix. Generally considered less effective than the VARIMAX rotation.
R factor analysis Analyzes relationships among variables to identify groups of variables forming
latent dimensions (factors).
Reliability Extent to which a variable or set of variables is consistent in what it is intended to
measure. If multiple measurements are taken, reliable measures will all be consistent in their val-
ues. It differs from validity in that it does not relate to what should be measured, but instead to
how it is measured.
Reverse scoring Process of reversing the scores of a variable, while retaining the distributional
characteristics, to change the relationships (correlations) between two variables. Used in
summated scale construction to avoid a canceling out between variables with positive and nega-
tive factor loadings on the same factor.
Specific variance Variance of each variable unique to that variable and not explained or associ-
ated with other variables in the factor analysis.
Summated scales Method of combining several variables that measure the same concept into
a single variable in an attempt to increase the reliability of the measurement. In most
instances, the separate variables are summed and then their total or average score is used in
the analysis.
Surrogate variable Selection of a single variable with the highest factor loading to represent a
factor in the data reduction stage instead of using a summated scale or factor score.
Trace Represents the total amount of variance on which the factor solution is based. The trace is
equal to the number of variables, based on the assumption that the variance in each variable is
equal to 1.

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 Exploratory Factor Analysis

Unique variance See specific variance.

Validity Extent to which a measure or set of measures correctly represents the concept of study—
the degree to which it is free from any systematic or nonrandom error. Validity is concerned with
how well the concept is defined by the measure(s), whereas reliability relates to the consistency
of the measure(s).
Variate Linear combination of variables formed by deriving empirical weights applied to a set of
variables specified by the researcher.
VARIMAX The most popular orthogonal factor rotation methods focusing on simplifying the
columns in a factor matrix. Generally considered superior to other orthogonal factor rotation
methods in achieving a simplified factor structure.

WHAT IS FACTOR ANALYSIS?

Factor analysis is an interdependence technique whose primary purpose is to define the underlying
structure among the variables in the analysis. Obviously, variables play a key role in any multivari-
ate analysis. Whether we are making a sales forecast with regression, predicting success or failure
of a new firm with discriminant analysis, or using any other multivariate techniques, we must have
a set of variables upon which to form relationships (e.g., What variables best predict sales or success/
failure?). As such, variables are the building blocks of relationships.
As we employ multivariate techniques, by their very nature, the number of variables
increases. Univariate techniques are limited to a single variable, but multivariate techniques can
have tens, hundreds, or even thousands of variables. But how do we describe and represent all of
these variables? Certainly, if we have only a few variables, they may all be distinct and different. As
we add more and more variables, more and more overlap (i.e., correlation) is likely among the vari-
ables. In some instances, such as when we are using multiple measures to overcome measurement
error by multivariable measurement, the researcher even strives for correlation among the variables.
As the variables become correlated, the researcher now needs ways in which to manage these
variables—grouping highly correlated variables together, labeling or naming the groups, and per-
haps even creating a new composite measure that can represent each group of variables.
We introduce factor analysis as our first multivariate technique because it can play a
unique role in the application of other multivariate techniques. Broadly speaking, factor analysis
provides the tools for analyzing the structure of the interrelationships (correlations) among a
large number of variables (e.g., test scores, test items, questionnaire responses) by defining sets
of variables that are highly interrelated, known as factors. These groups of variables (factors),
which are by definition highly intercorrelated, are assumed to represent dimensions within the
data. If we are only concerned with reducing the number of variables, then the dimensions can
guide in creating new composite measures. However, if we have a conceptual basis for under-
standing the relationships between variables, then the dimensions may actually have meaning
for what they collectively represent. In the latter case, these dimensions may correspond to con-
cepts that cannot be adequately described by a single measure (e.g., store atmosphere is defined
by many sensory components that must be measured separately but are all interrelated). We will
see that factor analysis presents several ways of representing these groups of variables for use in
other multivariate techniques.
We should note at this point that factor analytic techniques can achieve their purposes from
either an exploratory or confirmatory perspective. A continuing debate concerns the appropriate
role for factor analysis. Many researchers consider it only exploratory, useful in searching for
structure among a set of variables or as a data reduction method. In this perspective, factor ana-
lytic techniques “take what the data give you” and do not set any a priori constraints on the esti-
mation of components or the number of components to be extracted. For many—if not

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 Exploratory Factor Analysis

most—applications, this use of factor analysis is appropriate. However, in other situations, the
researcher has preconceived thoughts on the actual structure of the data, based on theoretical sup-
port or prior research. For example, the researcher may wish to test hypotheses involving issues
such as which variables should be grouped together on a factor or the precise number of factors.
In these instances, the researcher requires that factor analysis take a confirmatory approach—that
is, assess the degree to which the data meet the expected structure. The methods we discuss in
this chapter do not directly provide the necessary structure for formalized hypothesis testing. In
this chapter, we view factor analytic techniques principally from an exploratory or nonconfirma-
tory viewpoint.

A HYPOTHETICAL EXAMPLE OF FACTOR ANALYSIS

Assume that through qualitative research a retail firm identified 80 different characteristics of retail
stores and their service that consumers mentioned as affecting their patronage choice among stores.
The retailer wants to understand how consumers make decisions but feels that it cannot evaluate
80 separate characteristics or develop action plans for this many variables, because they are too
specific. Instead, it would like to know if consumers think in more general evaluative dimensions
rather than in just the specific items. For example, consumers may consider salespersons to be a
more general evaluative dimension that is composed of many more specific characteristics, such as
knowledge, courtesy, likeability, sensitivity, friendliness, helpfulness, and so on.
To identify these broader dimensions, the retailer could commission a survey asking for
consumer evaluations on each of the 80 specific items. Factor analysis would then be used to iden-
tify the broader underlying evaluative dimensions. Specific items that correlate highly are assumed
to be a member of that broader dimension. These dimensions become composites of specific
variables, which in turn allow the dimensions to be interpreted and described. In our example, the
factor analysis might identify such dimensions as product assortment, product quality, prices, store
personnel, service, and store atmosphere as the broader evaluative dimensions used by the respon-
dents. Each of these dimensions contains specific items that are a facet of the broader evaluative
dimension. From these findings, the retailer may then use the dimensions (factors) to define broad
areas for planning and action.
An illustrative example of a simple application of factor analysis is shown in Figure 1, which
represents the correlation matrix for nine store image elements. Included in this set are measures of
the product offering, store personnel, price levels, and in-store service and experiences. The question
a researcher may wish to address is: Are all of these elements separate in their evaluative properties
or do they group into some more general areas of evaluation? For example, do all of the product ele-
ments group together? Where does price level fit, or is it separate? How do the in-store features (e.g.,
store personnel, service, and atmosphere) relate to one another? Visual inspection of the original cor-
relation matrix (Figure 1, part 1) does not easily reveal any specific pattern. Among scattered high
correlations, variable groupings are not apparent. The application of factor analysis results in the
grouping of variables as reflected in part 2 of Figure 1. Here some interesting patterns emerge.
First, four variables all relating to the in-store experience of shoppers are grouped together. Then,
three variables describing the product assortment and availability are grouped together. Finally, prod-
uct quality and price levels are grouped. Each group represents a set of highly interrelated variables
that may reflect a more general evaluative dimension. In this case, we might label the three variable
groupings by the labels in-store experience, product offerings, and value.
This simple example of factor analysis demonstrates its basic objective of grouping highly
intercorrelated variables into distinct sets (factors). In many situations, these factors can provide a
wealth of information about the interrelationships of the variables. In this example, factor analysis
identified for store management a smaller set of concepts to consider in any strategic or tactical

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 Exploratory Factor Analysis

PART 1: ORIGINAL CORRELATION MATRIX

V1 V2 V3 V4 V5 V6 V7 V8 V9
V1 Price Level 1.000
V2 Store Personnel .427 1.000
V3 Return Policy .302 .771 1.000
V4 Product Availability .470 .497 .427 1.000
V5 Product Quality .765 .406 .307 .427 1.000
V6 Assortment Depth .281 .445 .423 .713 .325 1.000
V7 Assortment Width .345 .490 .471 .719 .378 .724 1.000
V8 In-store Service .242 .719 .733 .428 .240 .311 .435 1.000
V9 Store Atmosphere .372 .737 .774 .479 .326 .429 .466 .710 1.000

PART 2: CORRELATION MATRIX OF VARIABLES AFTER GROUPING ACCORDING TO FACTOR ANALYSIS

V3 V8 V9 V2 V6 V7 V4 V1 V5
V3 Return Policy 1.000
V8 In-store Service .773 1.000
V9 Store Atmosphere .771 .710 1.000
V2 Store Personnel .771 .719 .737 1.000
V6 Assortment Depth .423 .311 .429 .445 1.000
V7 Assortment Width .471 .435 .466 .490 .724 1.000
V4 Product Availability .427 .428 .479 .497 .713 .719 1.000
V1 Price Level .302 .242 .372 .427 .281 .354 .470 1.000
V5 Product Quality .307 .240 .326 .406 .325 .378 .427 .765 1.000

FIGURE 1 Illustrative Example of the Use of Factor Analysis to Identify Structure within a Group of Variables
Note: Shaded areas represent variables grouped together by factor analysis.

marketing plans, while still providing insight into what constitutes each general area (i.e., the
individual variables defining each factor).

FACTOR ANALYSIS DECISION PROCESS

We center the discussion of factor analysis on the six-stage model-building paradigm. Figure 2
shows the first three stages of the structured approach to multivariate model building, and Figure 4
details the final three stages, plus an additional stage (stage 7) beyond the estimation, interpretation,
and validation of the factor models, which aids in selecting surrogate variables, computing factor
scores, or creating summated scales for use in other multivariate techniques. A discussion of each
stage follows.

STAGE 1: OBJECTIVES OF FACTOR ANALYSIS

The starting point in factor analysis, as with other statistical techniques, is the research problem. The
general purpose of factor analytic techniques is to find a way to condense (summarize) the information
contained in a number of original variables into a smaller set of new, composite dimensions or variates
(factors) with a minimum loss of information—that is, to search for and define the fundamental con-
structs or dimensions assumed to underlie the original variables [18, 33]. In meeting its objectives, fac-
tor analysis is keyed to four issues: specifying the unit of analysis, achieving data summarization and/or
data reduction, variable selection, and using factor analysis results with other multivariate techniques.

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 Exploratory Factor Analysis

Stage 1
Research Problem
Is the analysis exploratory or confirmatory?
Select objective(s):
Data summarization & identifying structures
Data reduction

Confirmatory

Structural Equation Modeling

Exploratory

Stage 2
Select the Type of Factor Analysis
What is being grouped––variables or cases?

Cases Variables
Q-type factor analysis or R-type factor analysis
cluster analysis

Research Design
What variables are included?
How are the variables measured?
What is the desired sample size?

Stage 3 Assumptions
Statistical considerations of
normality, linearity, and
homoscedasticity
Homogeneity of sample
Conceptual linkages

To
Stage
4

FIGURE 2 Stages 1–3 in the Factor Analysis Decision Diagram

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 Exploratory Factor Analysis

Specifying the Unit of Analysis

Up to this time, we defined factor analysis solely in terms of identifying structure among a set of
variables. Factor analysis is actually a more general model in that it can identify the structure of
relationships among either variables or respondents by examining either the correlations between
the variables or the correlations between the respondents.

• If the objective of the research were to summarize the characteristics, factor analysis would be
applied to a correlation matrix of the variables. This most common type of factor analysis,
referred to as R factor analysis, analyzes a set of variables to identify the dimensions that are
latent (not easily observed).
• Factor analysis also may be applied to a correlation matrix of the individual respondents
based on their characteristics. Referred to as Q factor analysis, this method combines or
condenses large numbers of people into distinctly different groups within a larger population.
The Q factor analysis approach is not utilized frequently because of computational difficulties.
Instead, most researchers utilize some type of cluster analysis to group individual respon-
dents. Also see Stewart [36] for other possible combinations of groups and variable types.

Thus, the researcher must first select the unit of analysis for factor analysis: variables or
respondents. Even though we will focus primarily on structuring variables, the option of employing
factor analysis among respondents as an alternative to cluster analysis is also available. The impli-
cations in terms of identifying similar variables or respondents will be discussed in stage 2 when the
correlation matrix is defined.

Achieving Data Summarization Versus Data Reduction

Factor analysis provides the researcher with two distinct, but interrelated, outcomes: data summa-
rization and data reduction. In summarizing the data, factor analysis derives underlying dimensions
that, when interpreted and understood, describe the data in a much smaller number of concepts than
the original individual variables. Data reduction extends this process by deriving an empirical value
(factor score) for each dimension (factor) and then substituting this value for the original values.

DATA SUMMARIZATION The fundamental concept involved in data summarization is the defini-
tion of structure. Through structure, the researcher can view the set of variables at various levels of
generalization, ranging from the most detailed level (individual variables themselves) to the more
generalized level, where individual variables are grouped and then viewed not for what they repre-
sent individually, but for what they represent collectively in expressing a concept.
For example, variables at the individual level might be: “I shop for specials,” “I usually look
for the lowest possible prices,” “I shop for bargains,” “National brands are worth more than store
brands.” Collectively, these variables might be used to identify consumers who are “price
conscious” or “bargain hunters.”
Factor analysis, as an interdependence technique, differs from the dependence techniques
discussed in the next section (i.e., multiple regression, discriminant analysis, multivariate analysis
of variance, or conjoint analysis) where one or more variables are explicitly considered the criterion
or dependent variables and all others are the predictor or independent variables. In factor analysis,
all variables are simultaneously considered with no distinction as to dependent or independent
variables. Factor analysis still employs the concept of the variate, the linear composite of variables,
but in factor analysis, the variates (factors) are formed to maximize their explanation of the entire
variable set, not to predict a dependent variable(s). The goal of data summarization is achieved by
defining a small number of factors that adequately represent the original set of variables.

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 Exploratory Factor Analysis

If we were to draw an analogy to dependence techniques, it would be that each of the

observed (original) variables is a dependent variable that is a function of some underlying and latent
set of factors (dimensions) that are themselves made up of all other variables. Thus, each variable is
predicted by all of the factors, and indirectly by all the other variables. Conversely, one can look at
each factor (variate) as a dependent variable that is a function of the entire set of observed variables.
Either analogy illustrates the differences in purpose between dependence (prediction) and interde-
pendence (identification of structure) techniques. Structure is defined by the interrelatedness among
variables allowing for the specification of a smaller number of dimensions (factors) representing the
original set of variables.

DATA REDUCTION Factor analysis can also be used to achieve data reduction by (1) identifying
representative variables from a much larger set of variables for use in subsequent multivariate analy-
ses, or (2) creating an entirely new set of variables, much smaller in number, to partially or com-
pletely replace the original set of variables. In both instances, the purpose is to retain the nature and
character of the original variables, but reduce their number to simplify the subsequent multivariate
analysis. Even though the multivariate techniques were developed to accommodate multiple
variables, the researcher is always looking for the most parsimonious set of variables to include in
the analysis. Both conceptual and empirical issues support the creation of composite measures.
Factor analysis provides the empirical basis for assessing the structure of variables and the potential
for creating these composite measures or selecting a subset of representative variables for further
analysis.
Data summarization makes the identification of the underlying dimensions or factors ends in
themselves. Thus, estimates of the factors and the contributions of each variable to the factors
(termed loadings) are all that is required for the analysis. Data reduction relies on the factor load-
ings as well, but uses them as the basis for either identifying variables for subsequent analysis with
other techniques or making estimates of the factors themselves (factor scores or summated scales),
which then replace the original variables in subsequent analyses. The method of calculating and
interpreting factor loadings is discussed later.

Variable Selection
Whether factor analysis is used for data reduction and/or summarization, the researcher should
always consider the conceptual underpinnings of the variables and use judgment as to the appropri-
ateness of the variables for factor analysis.

• In both uses of factor analysis, the researcher implicitly specifies the potential dimensions that
can be identified through the character and nature of the variables submitted to factor analy-
sis. For example, in assessing the dimensions of store image, if no questions on store person-
nel were included, factor analysis would not be able to identify this dimension.
• The researcher also must remember that factor analysis will always produce factors. Thus,
factor analysis is always a potential candidate for the “garbage in, garbage out” phenomenon.
If the researcher indiscriminately includes a large number of variables and hopes that factor
analysis will “figure it out,” then the possibility of poor results is high. The quality and mean-
ing of the derived factors reflect the conceptual underpinnings of the variables included in the
analysis.

Obviously, the use of factor analysis as a data summarization technique is based on having a
conceptual basis for any variables analyzed. But even if used solely for data reduction, factor
analysis is most efficient when conceptually defined dimensions can be represented by the
derived factors.

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 Exploratory Factor Analysis

Using Factor Analysis with Other Multivariate Techniques

Factor analysis, by providing insight into the interrelationships among variables and the underlying
structure of the data, is an excellent starting point for many other multivariate techniques. From the
data summarization perspective, factor analysis provides the researcher with a clear understanding
of which variables may act in concert and how many variables may actually be expected to have
impact in the analysis.

• Variables determined to be highly correlated and members of the same factor would be
expected to have similar profiles of differences across groups in multivariate analysis of vari-
ance or in discriminant analysis.
• Highly correlated variables, such as those within a single factor, affect the stepwise proce-
dures of multiple regression and discriminant analysis that sequentially enter variables based
on their incremental predictive power over variables already in the model. As one variable
from a factor is entered, it becomes less likely that additional variables from that same factor
would also be included due to their high correlations with variable(s) already in the model,
meaning they have little incremental predictive power. It does not mean that the other vari-
ables of the factor are less important or have less impact, but instead their effect is already rep-
resented by the included variable from the factor. Thus, knowledge of the structure of the
variables by itself would give the researcher a better understanding of the reasoning behind
the entry of variables in this technique.

The insight provided by data summarization can be directly incorporated into other multi-
variate techniques through any of the data reduction techniques. Factor analysis provides the basis
for creating a new set of variables that incorporate the character and nature of the original variables
in a much smaller number of new variables, whether using representative variables, factor scores, or
summated scales. In this manner, problems associated with large numbers of variables or high inter-
correlations among variables can be substantially reduced by substitution of the new variables. The
researcher can benefit from both the empirical estimation of relationships and the insight into the
conceptual foundation and interpretation of the results.

STAGE 2: DESIGNING A FACTOR ANALYSIS

The design of a factor analysis involves three basic decisions: (1) calculation of the input data
(a correlation matrix) to meet the specified objectives of grouping variables or respondents; (2)
design of the study in terms of number of variables, measurement properties of variables, and the
types of allowable variables; and (3) the sample size necessary, both in absolute terms and as a func-
tion of the number of variables in the analysis.

Correlations Among Variables or Respondents

The first decision in the design of a factor analysis focuses on calculating the input data for the
analysis. We discussed earlier the two forms of factor analysis: R-type versus Q-type factor analy-
sis. Both types of factor analysis utilize a correlation matrix as the basic data input. With R-type fac-
tor analysis, the researcher would use a traditional correlation matrix (correlations among variables)
as input. But the researcher could also elect to derive the correlation matrix from the correlations
between the individual respondents. In this Q-type factor analysis, the results would be a factor
matrix that would identify similar individuals.
For example, if the individual respondents are identified by number, the resulting factor pat-
tern might tell us that individuals 1, 5, 6, and 7 are similar. Similarly, respondents 2, 3, 4, and 8
would perhaps load together on another factor, and we would label these individuals as similar.

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