This paper investigates undergraduate students' application of theory in their analysis of problems presented in authentic leadership cases. Taking a phenomenographic research approach, the paper identifies two levels at which students understand "theory": Level 1-Theory as knowledge acquired from books; Level 2-Theory as support for problem solutions. Only the students at Level 2 understanding achieved the highest learning outcome described by the Bologna Reforms. This result may be accounted for by the difference in the students' pre-conceived understanding of the events and relationships in the analysed cases. The phenomenographic assumption explains why the authentic cases are problematic. The high relevancy of the learning object -- as an authentic case -- may reduce the effect of variation, in this case the educational environment that is the mechanism for learning according to variation theory.