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Long Range Planning

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(2012)

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http://www.elsevier.com/locate/lrp

The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications
Joseph F. Hair, Marko Sarstedt, Torsten M. Pieper and Christian M. Ringle

Every discipline needs to frequently review the use of multivariate analysis methods to ensure rigorous research and publications. Even though partial least squares structural equation modeling (PLS-SEM) is frequently used for studies in strategic management, this kind of assessment has only been conducted by Hulland (1999) for four studies and a limited number of criteria. This article analyzes the use of PLS-SEM in thirty-seven studies that have been published in eight leading management journals for dozens of relevant criteria, including reasons for using PLS-SEM, data characteristics, model characteristics, model evaluation and reporting. Our results reveal several problematic aspects of PLS-SEM use in strategic management research, but also substantiate some improvement over time. We find that researchers still often do not fully make use of the methods capabilities, sometimes even misapplying it. Our review of PLS-SEM applications and recommendations on how to improve the use of the method are important to disseminate rigorous research and publication practices in the strategic management discipline.
2012 Elsevier Ltd. All rights reserved.

0024-6301/$ - see front matter 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.lrp.2012.09.008 Please cite this article in press as: Hair J. F., et al., The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications, Long Range Planning (2012), http://dx.doi.org/10.1016/j.lrp.2012.09.008

Introduction
Research into the strategic management discipline recognized relatively early the potential of structural equation modeling (SEM) to empirically test theories and conceptual models. Indeed, by the late 1980s (e.g., Birkinshaw et al., 1995; Cool et al., 1989; Fornell et al., 1990; Govindarajan, 1989; Johansson and Yip, 1994), the strategic management discipline acknowledged the different and, in many research situations, advantageous properties of variance-based partial least squares SEM ller, 1989; Wold, 1982) in comparison with the alternative covariance-based (PLS-SEM; Lohmo reskog, 1978; Jo reskog, 1982) method to estimate structural equation models. SEM (CB-SEM; Jo In short, CB-SEM and PLS-SEM are different but complementary statistical methods for SEM, whereby the advantages of the one method are the disadvantages of the other, and vice versa reskog and Wold, 1982). (Jo PLS-SEM is particularly appealing when the research objective focuses on prediction and explaining the variance of key target constructs (e.g., strategic success of rms) by different explanatory constructs (e.g., sources of competitive advantage); the sample size is relatively small and/or the available data is non-normal; and, when CB-SEM provides no, or at best questionable, results (Hair et al., 2011; Hair et al., 2012; Henseler et al., 2009; Reinartz et al., 2009). Moreover, formatively measured constructs are particularly useful for explanatory constructs (e.g., sources of competitive advantage) of key target constructs, such as success (i.e., success factor studies; Albers, 2010). PLS-SEM is the preferred alternative over CB-SEM in these situations, since it enables researchers to create and estimate such models without imposing additional limiting constraints. PLS-SEM applications in strategic management often address topics such as long-term survival of rms (Agarwal et al., 2002; Cool et al., 1989); performance of global rms (Birkinshaw et al., 1998; Birkinshaw et al., 1995; Devinney et al., 2000; Johansson and Yip, 1994; Robins et al., 2002); knowledge sourcing and collaborations (Gray and Meister, 2004; Im and Rai 2008; Jarvenpaa and Majchrzak, 2008; Purvis et al., 2001); and, cooperation of rms (Doz et al., 2000; Fornell et al., 1990; Sarkar et al., 2001). Despite recognizing the SEM method and, more specically, the advantageous features of PLSSEM in existing studies, their number, as we show in this study, is considerably smaller than in other disciplines such as marketing (Hair et al., 2012) and management information systems (MIS) (Ringle et al., 2012). Researchers in management and especially strategic management seem to predominantly rely on rst-generation multivariate analysis techniques (e.g., factor analysis, multiple linear regression, etc.) in their empirical studies, and thus may miss opportunities that researchers in other disciplines frequently exploit by using the second-generation SEM technique. Potential reasons may be the restrictive assumptions of the CB-SEM method (e.g., sample size requirements, data distribution, model specication) and the improper use of PLS-SEM in a few early applications (Hulland, 1999). More recent articles, however, conclude that PLS can indeed be a silver bullet in many research situationseif correctly applied (Hair et al., 2011). As with other statistical methods, users can only benet from the unique properties of PLS-SEM if they understand the principles underlying the method, apply it properly, and report the results correctly. Due to the complexities involved in using PLS-SEM, systematic assessments on how the technique has been applied in prior research can provide important guidance and, if necessary, opportunities for course correction in future applications. But despite the importance of this research question, corresponding assessments are very limited. Hulland (1999) provided an assessment of four studies in the strategic management area, showing the PLS-SEM technique had been applied with considerable variability in terms of authors appropriately handling conceptual and methodological issues. Many disciplines frequently review the methods used to disseminate rigorous research and publication practices. While reviews of CB-SEM usage have been carried out across many disciplines in business research (e.g., Babin, Hair and Boles, 2008; Baumgartner and Homburg, 1996; Brannick, 1995; Garver and Mentzer, 1999; Shah and Goldstein, 2006; Shook et al., 2004; Steenkamp and van Trijp, 1991), recent reviews of PLS-SEM usage cover only accounting (Lee et al., 2011),
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The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research

Please cite this article in press as: Hair J. F., et al., The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications, Long Range Planning (2012), http://dx.doi.org/10.1016/j.lrp.2012.09.008

management information systems (Ringle et al., 2012), and marketing (Hair et al., 2012). Against this background, an update and extension of Hullands (1999) case study-based assessment of PLSSEM specic to the strategic management discipline seems timely and warranted. Like all statistical methods, PLS-SEM requires several choices that, if not made correctly, can lead to improper ndings, interpretations, and conclusions. (Hair et al., 2012, p. 415). The objective of this article is to provide recommendations for the use of PLS-SEM in strategic management research. For explanations of the PLS-SEM method itself, the reader is referred to recent articles (Chin, 2010; Hair et al., 2011; Henseler et al., 2012; Henseler et al., 2009) and a forthcoming text (Hair et al., 2013). Toward this aim, we review thirtyseven empirical applications of PLS-SEM in eight leading journals publishing strategic management research, and analyze these applications according to several key dimensions, including reasons for using PLS-SEM, data characteristics, model characteristics, model evaluation and reporting. We contrast the ndings in strategic management research with standards applied in other disciplines. Where possible, we indicate best practices as guidelines for future applications of PLS-SEM in strategic management and suggest avenues for further research involving the technique. Our results reveal several problematic aspects of PLS-SEM use in strategic management research, but also substantiate some improvement over time. Researchers still often do not fully utilize available analytical potential, and sometimes incorrectly apply methods in top-tier strategic management journals. For this reason, our review of PLS-SEM applications and guidelines on how to properly use the method are important to disseminate rigorous research and publication practices in the strategic management discipline.

Review of PLS-SEM research


Our review includes studies published in the Academy of Management Journal, Administrative Science Quarterly, Journal of Management, Journal of Management Studies, Long Range Planning, Management Science, Organization Science and Strategic Management Journal, which were selected as representative of the leading journals in management (e.g., Furrer et al., 2008; Raisch and Birkinshaw, 2008). These eight journals were searched for the 30-year period from 1981 through 2010, to identify all empirical applications of PLS-SEM. We accessed the ABI/INFORM Complete, EBSCO Business Source Complete, ISI WEB OF KNOWLEDGE and JSTOR databases as well as online versions of the journals, using the keywords partial least squares and PLS to search the full text of articles previously published. To identify studies eligible for inclusion in the review, the list was then examined independently by two professors procient in the technique. In this process, conceptual papers on methodological aspects (e.g., Echambadi et al., 2006) and empirical studies that mentioned having used PLS-SEM for validation purposes without reporting concrete results (e.g., Tiwana, 2008; Zott and Amit, 2007) were removed.1 Using these criteria, we identied thirty-seven studies (Table 1) containing 112 PLS-SEM model estimations. The number of model estimations was larger than the number of studies reviewed since several articles estimated multiple models using different set-ups and/or data originating from different sources, countries, or years. The Strategic Management Journal published the largest number of PLS-SEM studies of the reviewed journals. In contrast, Long Range Planning did not include a single PLS-SEM study in the period of time reviewed. Figure 1 shows the (cumulative) number of studies between 1985 (the rst year an application was found) and 2010 (the bars indicate the number of studies per year and the line indicates the cumulative number of studies). It is apparent that the use of PLS-SEM has signicantly increased over time. Regressing the number of studies on the linear effects of time yields signicant model (F 14.25; p < 0.01) and time effects (t 3.76; p < 0.01). A quadratic effect of time, however, is not signicant (t 0.35; p > 0.10). Therefore, the use of PLS-SEM in strategic management
1

The coding agreement on the relevant articles was 94 percent, which compares well with the study by Hair et al. (2012).
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Long Range Planning, vol

2012

Please cite this article in press as: Hair J. F., et al., The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications, Long Range Planning (2012), http://dx.doi.org/10.1016/j.lrp.2012.09.008

Table 1. PLS-SEM studies in the top management journals

Academy of Management Journal Avolio et al., 1999 Cording et al., 2008 Groth et al., 2009 Mezner and Nigh, 1995 Shamir et al., 1998 Administrative Science Quarterly House et al., 1991 Howell and Higgins, 1990 Journal of Management Ashill and Jobber, 2010 Shea and Howell, 2000 Journal of Management Studies Barth elemy and Qu elin, 2006 Lee and Tsang, 2001 Van Riel et al., 2009

Management Science Fichman and Kemerer, 1997 Fornell et al., 1985 Fornell et al., 1990 Graham et al., 1994 Gray and Meister, 2004 Im and Rai, 2008 Mitchell and Nault, 2007 Venkatesh and Agarwal, 2006 Xu et al., 2010 Organization Science Jarvenpaa and Majchrzak, 2008 Milberg et al., 2000 Nambisan and Baron, 2010 Purvis et al., 2001 Staples et al., 1999

Strategic Management Journal Birkinshaw et al., 1995 Birkinshaw et al., 1998 Cool et al., 1989 Delios and Beamish, 1999 Doz et al., 2000 Gruber et al., 2010 Johansson and Yip, 1994 Olk and Young, 1997 Robins et al., 2002 Sarkar et al., 2001 Tsang, 2002

research has grown linearly as a function of time, which is typical for early introduction stages of a new research techniques diffusion. In the eld of marketing, in contrast, the use of PLS-SEM has accelerated substantially over time (Hair et al., 2012). In light of these results (i.e., a linear growth of the number of studies per year), we applied the Bass diffusion model (Bass, 1969) to investigate how the application of the PLS-SEM method in strategic management has developed over time. Fitting the Bass model to the data yielded a coefcient of innovation (p) of 0.11 and a coefcient of imitation (q) of 0.23. The value of p q falls within boundaries commonly encountered in prior research, and the ratio of p/q suggests that the use of PLS-SEM can be regarded as slightly contagious in terms of diffusion (Mahajan et al., 1995).

Critical issues in PLS-SEM research


The thirty-seven articles included in our review were analyzed according to ve key criteria previously used to evaluate critical issues and common misapplications in research involving PLS-SEM (Hair et al., 2012). The criteria used to analyze the studies and model estimations were: 1) reasons for using PLS-SEM, 2) data characteristics, 3) model characteristics, 4) model evaluation, and 5) reporting. We also distinguish between two time periods to assess whether the use of PLS-SEM has changed between these periods. Using Chins (1998), Chin and Newsteds (1999) and Hullands (1999) PLS-SEM articles published in the late 1990s as seminal milestones, we subsequently differentiate between studies published before 2000 (sixteen studies with sixty-one models) and studies published in 2000 and beyond (twenty-one studies with fty-one models).2 Reasons for using PLS-SEM Given that PLS-SEM has only recently attracted increased interest in business research disciplines, it requires a more detailed explanation of the rationale leading to the selection of this method. Of the thirty-seven studies, a total of thirty-two (86.5%) provided explicit reasons for using PLS-SEM. Moreover, the proportion of studies providing explicit reasons for using PLS-SEM remained relatively consistent before 2000 (15 studies) and from 2000 onward (17 studies).
2 In the following, we consistently use the term studies when referring to the thirty-seven journal articles and the term models when referring to the 112 PLS-SEM applications in these articles.

The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research

Please cite this article in press as: Hair J. F., et al., The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications, Long Range Planning (2012), http://dx.doi.org/10.1016/j.lrp.2012.09.008

Figure 1. Applications of PLS-SEM in Management Journal Publications over Time

The four most frequently used reasons for using PLS-SEM are, in order of importance, nonnormal data (22 studies, 68.8%), small sample size (17 studies, 53.1%), formative measures (10 studies, 31.3%), and focus on prediction (10 studies, 31.3%).3 A comparison of studies published before 2000 with those published in 2000 and onward shows a fairly consistent pattern. Apart from gradual shifts in the order of importance, the prevalence of the reasons for using PLS-SEM remains relatively consistent over time, with non-normal data, formative measures, small sample size, and focus on prediction being the most prevalent reasons in recent years. This observation is consistent with patterns observed in marketing research (Hair et al., 2012). Wold (1985, p. 589) originally designed PLS-SEM for research situations that are simultaneously data-rich and theory-primitive. He envisioned a discovery-oriented process d a dialogue between the investigator and the computer (Wold, 1985, p. 590). Rather than commit to a specic model a priori and frame the statistical analysis as a hypothesis test, Wold imagined a researcher estimating numerous models in the course of learning something about the data and about the phenomena underlying the data (Rigdon, in press). However, only seven studies (21.9%) indicate theory development as a rationale for using PLS-SEM and one study (3.1%) mentions exploratory research purposes. It was surprising, therefore, to nd that practically all studies argue their case in conrmatory terms, which likely reects an academic bias in favor of presenting ndings in a conrmatory context (Greenwald et al., 1986). While this practice underlines an apparent misconception in the appropriate use of PLS-SEM shown also in other elds such as marketing (Hair et al., 2012), one should recognize that CB-SEM, on the other hand, is rarely used in a truly conrmatory sense. In fact, research reality is that models estimated with CB-SEM rarely t initially and modifying models in an effort to yield what reviewers and editors might perceive accurate in terms of model t is typical. Choices in statistical methods often involve tradeoffs, and Wold (1985) recognized both strengths and limitations in his intentionally approximate technique. It is important for modern users to consider these same issues when making the choice between PLS-SEM versus CB-SEM and when applying a particular technique. Data characteristics A primary advantage of PLS-SEM over CB-SEM is that it works particularly well with small sample sizes (e.g., Chin and Newsteds, 1999; Reinartz et al., 2009). It is not surprising, therefore, that the average sample size of the studies included in our review (5% trimmed mean 154.9) is
3

The total of the percentages exceeds 100 percent because various studies mentioned multiple reasons for the use of PLS-SEM.
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2012

Please cite this article in press as: Hair J. F., et al., The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications, Long Range Planning (2012), http://dx.doi.org/10.1016/j.lrp.2012.09.008

considerably lower than that reported in previous reviews of CB-SEM studies (mean 246.4) (Shah and Goldstein, 2006). Noteworthy, however, is a signicant difference in the sample sizes of studies published before 2000 (5% trimmed mean 95.4) and in 2000 and beyond (5% trimmed mean 207.1). The sample size of studies in 2000 and beyond has more than doubled compared to studies published before 2000, but is still below the average sample size reported in comparable PLS-SEM reviews in marketing (5% trimmed mean 211.3) (Hair et al., 2012) and MIS (5% trimmed mean 238.1) (Ringle et al., 2012). Similarly, the median sample size across all models included in our review (median 83) is considerably lower than that reported in the Hair et al. (2012) marketing (median 159) and Ringle et al. (2012) MIS (median 198) studies. This trend is also apparent for models with less than 100 observations (58 of 112 models in total). Overall, PLS-SEM studies in the strategic management discipline rely on much smaller sample sizes compared to other elds. Even though from a statistical standpoint PLS-SEM can be used with smaller sample sizes, this observation is not without problems for at least two reasons. First, relying on small sample sizes tends to capitalize on the idiosyncrasies of the sample at hand. All else being equal, the more heterogeneous the underlying population, the larger the required sample size necessary to adequately reect the population and to yield accurate estimates. Researchers need to be aware that no statistical method can offset the fact that smaller sample sizes go hand in hand with higher sampling error, especially when the population and the sample are heterogeneous in composition. Second, the biasing effects of small sample sizes are likely to be accentuated when data are extremely non-normal. Even though PLS-SEM is well-known to be robust when used on highly skewed data (e.g., Cassel et al., 1999; Reinartz et al., 2009), such data inadequacies inate bootstrapping standard errors, thereby reducing the statistical power of the method. Considering the tendency of PLS-SEM to underestimate inner model relationships (Hui and Wold, 1982), non-normal data may represent a concern in combination with small sample sizes. It is therefore of concern that none of the studies included in our review reported a check of the skewness and kurtosis of the data underlying the analyses. What might have contributed to the misconception of the universal suitability of PLS-SEM to handle small sample sizes is the widespread application of the ten times rule of thumb (Barclay et al., 1995; Hair et al., 2013). This rule recommends a minimum sample size of ten times the maximum number of independent variables in the outer model and inner model. This approach is equivalent to using a sample size of ten times the largest number of formative indicators used to measure any construct in the outer model (in other words, the number of indicators per formative construct) or ten times the largest number of structural paths directed at a particular latent construct in the inner model. Most models (93; 83.0%) meet this rule of thumb. The nineteen models (17.0%) that did not meet this criterion are on average 26.7 percent short of the recommended sample size. Over time, 14 out of 61 models published before 2000 did not meet the ten times rule of thumb, whereas only ve out of 51 studies published in 2000 and beyond did not meet the ten times rule of thumb, revealing a signicant difference (p < 0.10) and indicating that researchers have become more aware of sample size issues in PLS-SEM in recent years. While this rule of thumb may provide a broad estimate of minimum sample size requirements for the use of PLS-SEM (Hair et al., 2011), it needs to be pointed out that it does not consider effect size, reliability, the total number of indicators, and other issues likely affecting the statistical power of the PLS-SEM method. Since sample size recommendations in PLS-SEM essentially build on the properties of ordinary least squares regression, researchers can revert to more differentiated rules of thumb such as those provided by Cohen (1992) in his statistical power analyses for multiple regression models. For instance, when the maximum number of independent variables in the outer and inner models is ve, one would need ninety-one observations to achieve a statistical power of 80 percent, assuming a medium effect size and a 5 percent a-level. Cohens (1992) statistical power analyses generally match those from Reinartz et al. (2009) in their comparison of CB-SEM and PLS-SEM, provided that the outer model has an acceptable quality in terms of outer loadings (i.e., loadings should be above the common threshold of 0.70). Likewise, Hair et al. (2013) provide minimum sample size recommendations, based on regression-based power analyses.
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The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research

Please cite this article in press as: Hair J. F., et al., The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications, Long Range Planning (2012), http://dx.doi.org/10.1016/j.lrp.2012.09.008

Another benet of PLS-SEM is its ability to process nominal, ordinal, interval, and ratio scaled variables (Fornell and Bookstein, 1982; Haenlein and Kaplan, 2004; Reinartz et al., 2009). Of the 112 models included in our review, only six models (5.4%) included categorical variables with more than two modalities. A considerably larger number (40 models; 35.7%) used binary variables. The use of categorical variables in PLS-SEM should be approached with caution as the number of binary indicators and the position of the corresponding construct in the path model may restrict the use of categorical variables. For instance, an issue occurs when a binary single-item is used to measure an endogenous latent variable representing a choice situation. In the nal inner approximation of the PLS-SEM algorithm, the endogenous latent variable is regressed on the predecessor variables. As the construct becomes its measure, however, and thus has only two values (choice versus no choice), a basic premise of the ordinary least squares regression is violated. Researchers should be acquainted, therefore, with the fundamental steps in the PLS-SEM algorithm (e.g., Henseler et al., 2012; Henseler et al., 2009) to avoid model set-ups that are problematic in this respect. Model characteristics Table 2 provides an overview of model characteristics of the PLS-SEM studies included in our review. On average, the number of latent variables in path models is 7.5, which is similar to the 7.9 and 8.1 reported in prior PLS-SEM reviews in marketing (Hair et al., 2012) and MIS (Ringle et al., 2012), but much higher than in comparable studies in a CB-SEM context (e.g., Baumgartner and Homburg, 1996; Shah and Goldstein, 2006). This increased model complexity is also mirrored in the higher number of inner model relationships being analyzed (mean 10.4), which has increased signicantly (p  0.10) over time (9.4 before 2000 and 11.6 thereafter). Likewise, models incorporate a relatively large average number of indicators (27 in our review), which is much higher than generally encountered in CB-SEM (e.g., Baumgartner and Homburg, 1996; Shah and Goldstein, 2006). This nding is not due to a larger average number of indicators per construct but rather a result of the relatively larger number of constructs used in the models. Specically, the average numbers of indicators per reective construct is 3.4 and 3.6 for formative constructs, both of which have increased signicantly over time (p  0.01). The relatively small difference in the number of indicators per reective and formative construct is striking, given that formative indicators should capture the entire content domain of the construct under consideration (Diamantopoulos et al., 2008). This especially holds for PLS-SEM which is restricted to estimating formative constructs without an error term (Diamantopoulos, 2011). Taken jointly, these results suggest that researchers benet from the ability of PLS-SEM to use fewer data points in estimating complex models with many constructs, inner model relationships and indicator variables. In contrast, CB-SEM quickly reaches its limits in similar situations. For example, a complex model such as that described in Staples et al. (1999) with fteen constructs, measured by a total seventy indicator variables has 2,383 degrees of freedom. Hence, the statistical power for the test of model t based on root-mean-square error of approximation using a 0.05, 0 0.05, and a 0.08, would be 1.000 (MacCallum et al., 1996). Therefore, rounding errors would likely be detected at the 10th place and the model probably would fail even with simulated data (Haenlein and Kaplan, 2004). An important characteristic of PLS-SEM is that it readily incorporates both reective and formative measures. Drawing on this characteristic, half of the models used a combination of both reectively and formatively measured latent variables (56 models; 50.0%), and the number increased signicantly (p < 0.05) over time. Very few models were composed of solely reectively measured latent variables (12 models; 10.7%) or solely formatively measured latent variables (12 models; 10.7%). One quite surprising nding was that thirty-two models (28.6%) did not specify the measurement mode for the constructs at all, despite the ongoing and rather vibrant debate on measurement specication (Bagozzi, 2007; Diamantopoulos, 2006; Diamantopoulos et al., 2008; Diamantopoulos and Siguaw, 2006; Diamantopoulos and Winklhofer, 2001; Edwards and Bagozzi, 2000; Howell et al., 2007). It is encouraging, however, to see that the number of models lacking an outer model description decreased signicantly (p < 0.10) over time (Table 2).
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Please cite this article in press as: Hair J. F., et al., The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications, Long Range Planning (2012), http://dx.doi.org/10.1016/j.lrp.2012.09.008

Table 2. Descriptive statistics for model characteristics

Criterion

Results (n [ 112)

Proportion (%)

Before 2000 (n [ 61)

2000 onward (n [ 51)

Number of latent variables Mean Median Range Number of inner model path relations Mean Median Range Mode of outer models Only reective Only formative Reective and formative Not specied Number of indicators per reective constructa Mean Median Range Number of indicators per formative constructb Mean Median Range Total number of indicators in models Mean Median Range Number of models with single-item constructs

7.5 6.0 (2; 31) 10.4 9.0 (2; 39) 12 12 56 32 3.4 3.0 (1; 10) 3.6 2.5 (1; 10) 27.0 19.0 (7; 114) 76

7.0 6.0 (3; 15) 9.4 7.0 (3; 39) 5 11*** 24 21* 2.3 2.0 (1; 5) 2.6 2.0 (1; 6) 19.7 18.0 (7; 70) 45

8.1 6.0 (2; 31) 11.6* 10.0 (2; 31) 7 1 32** 11 4.3*** 4.0 (1; 10) 4.7*** 5.0 (1; 10) 35.7*** 23.0 (9; 114) 31

10.7 10.7 50.0 28.6 e

67.9

*** (**, *) indicates a signicant difference between before 2000 and 2000 onward at a 1% (5%, 10%) signicance level; results based on independent samples t-tests and (one-tailed) Fishers exact tests (no tests for median differences).
a b

Includes only models that have been marked as including reective indicators (nbefore 2000 29; n2000 onward 39). Includes only models that have been marked as including formative indicators (nbefore 2000 35; n2000 onward 33).

Our review revealed that 76 of 112 PLS path models (67.9%) used single-item measures. While PLS-SEM readily incorporates single-item measures, researchers need to be vigilant since PLS-SEM requires reasonable outer model quality (i.e., a sufcient number of indicators per construct and higher loadings) for the technique to provide acceptable parameter estimates under a restricted sample size (Reinartz et al., 2009). Apart from that, in terms of predictive validity, recent research shows that single-item measures perform as well as multi-item scales (Diamantopoulos et al., 2012) only under very specic conditions. As Diamantopoulos et al. (2012, p. 446) point out, opting for single-item measures in most empirical settings is a risky decision as the set of circumstances that would favor their use is unlikely to be frequently encountered in practice. Despite their ease of implementation in PLS-SEM, researchers should follow Diamantopoulos et al.s (2012) guideline and only consider single items (rather than a multi-item scale) when 1) small sample sizes are present (i.e., N < 50), and 2) effect sizes of 0.30 and lower are expected, and 3) the items of the originating multi-item scale are highly homogeneous (i.e., Cronbachs alpha > 0.90), and 4) the items are semantically redundant. This especially holds since PLS-SEM focuses on explaining the variance in the endogenous variables, thereby placing emphasis on prediction.
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The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research

Please cite this article in press as: Hair J. F., et al., The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research: A Review of Past Practices and Recommendations for Future Applications, Long Range Planning (2012), http://dx.doi.org/10.1016/j.lrp.2012.09.008

Model evaluation Outer model evaluation To assess the extent to which constructs are appropriately measured by their indicator variables (individually or jointly), researchers need to differentiate between reective and formative measurement approaches (Diamantopoulos et al., 2008), with each approach relying on a different set of criteria. Reective measures are commonly evaluated through criteria of internal consistency, such as Cronbachs alpha and composite reliability (Hair et al., 2011). The internal consistency perspective that underlies reective outer model evaluation cannot be universally applied to formative models since formative measures do not necessarily covary (e.g., Diamantopoulos and Winklhofer, 2001). Thus, any attempt to purify formative indicators based on correlation patterns can have adverse consequences for construct measures content validity (e.g., Diamantopoulos and Rieer, 2011; Diamantopoulos and Siguaw, 2006). This especially holds for PLS-SEM which assumes that the formative indicators fully capture the content domain of the construct under consideration (Diamantopoulos, 2011). Therefore, instead of considering measures such as composite reliability or AVE, researchers have to revert to other criteria to assess formatively measured constructs. These include, for example, the indicator weights, their signicance and collinearity among the indicators. Our review assesses whether and how authors evaluated reective (Table 3, Panel A) and formative measures (Table 3, Panel B) and whether the standards used for evaluating reective outer models were applied to formative models. Reflective outer models Despite the importance of providing evidence for the reective measures reliability and validity in order to adequately interpret inner model estimates (Henseler et al., 2009), authors oftentimes do not engage in these analyses. For instance, of the sixty-eight models reporting the use of reectively measured constructs, fty-three models (77.9%) reported outer loadings, thereby indirectly specifying indicator reliability. Internal consistency reliability was reported in 38 of 68 models (55.9%) using reectively measured constructs and is signicantly more prevalent recently (p  0.05). Most models report composite reliability values, either exclusively (17 models; 25.0%) or in conjunction with Cronbachs Alpha (14 models; 20.6%). A relatively small number (seven models, 10.3%) report only Cronbachs Alpha. Since the PLS-SEM algorithm emphasizes indicators with strong reliability levels more, composite reliability is generally regarded as the more appropriate criterion to establish internal consistency reliability as compared to Cronbachs Alpha. The latter is generally perceived as a lower bound of reliability whereas composite reliability is the upper bound. In a PLS-SEM context, Tenenhaus et al. (2005) suggest using the above-mentioned reliability measures to assess the unidimensionality of a set of manifest variables hypothesized to reect an underlying construct. However, Sahmer et al. (2006) show that Cronbachs Alpha and composite reliability are both inadequate to assess whether a set of reective manifest variables is unidimensional or not. Instead, researchers should apply the Kaiser-Gutman criterion (see Karlis et al., 2003 for a modied version) or Revelles (1979) coefcient beta. Convergent validity was assessed in 30 of 68 models (44.1%) with the AVE being by far the most prevalent measure. Furthermore, a total of twenty-seven models (39.7%) report some measure of discriminant validity. Specically, thirteen models (19.1%) exclusively relied on the FornellLarcker criterion (Fornell and Larcker, 1981), which compares the AVE of each construct with the squared inter-construct correlations. This criterion has been applied signicantly (p  0.05) more frequently in recent years. Similarly, thirteen models (19.1%) reported cross loadings only, a more liberal form of assessing discriminant validity, which has also been reported signicantly (p  0.01) more frequently in recent years. Formative outer models Our analysis shows 68 of 112 models (60.7%) included at least one formatively measured construct. Indicator weights, the most common criterion to assess formative measures, were reported
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Table 3. Evaluation of outer models

Empirical test criterion in PLS-SEMa Panel A: Reective outer models Indicator reliability Indicator loadings Internal consistency Only composite reliability reliability Only Cronbachs Alpha Both Convergent validity AVE Other Discriminant Only Fornell-Larcker validity criterion Only cross-loadings Other

Number of models Proportion Before 2000 2000 onward reporting (n [ 68) reporting (%) (n [ 29) (n [ 39)

53 17 7 14 29 1 13 13 1

77.9 25.0 10.3 20.6 42.7 1.5 19.1 19.1 1.5

22 3 0 0 2 0 2 0 0

31 14** 7** 14*** 27 1 11** 13*** 1

Empirical test Number of models Proportion Before 2000 2000 onward criterion in PLS-SEMa reporting (n [ 68) reporting (%) (n [ 35) (n [ 33) Panel B: Formative outer models e Reective criteria used to evaluate formative constructs Indicators absolute Indicator weights contribution to the construct Signicance Standard errors, of weights signicance levels, t-values/p-values for indicator weights Multicollinearity Only VIF/tolerance Only condition index Both

17

25.0

11

26

38.2

21***

4.4

0 0 1

0.0 0.0 1.5

e e 0

e e 1

*** (**, *) indicates a signicant difference between before 2000and 2000 onward respectively, at a 1% (5%, 10%) signicance level; results based on (one-tailed) Fishers exact tests.
a

Single-item constructs were excluded from this analysis.

in 26 of 68 models (38.2%). A formative indicators weight represents the partialized effect of the indicator on its corresponding construct, controlling for the effect of all other indicators of that construct (Cenfetelli and Basselier, 2009). Therefore, weights are generally smaller than loadings (i.e., the zero-order bivariate correlation between the indicator and the associated construct) and thus need to be assessed for their signicance through resampling procedures such as bootstrapping or jackkning. However, only three models (4.4%) reported standard errors, signicance levels, t-values, or p-values for indicator weights, all of which were published in more recent years. Multicollinearity among indicators represents an important concern in assessing formative measures since it can inate bootstrap standard errors and therefore trigger type II errors (Cenfetelli et al., 2009). Surprisingly, however, with one exception multicollinearity assessment is almost entirely missing in the models included in our review. Since the weights of formative indicators are
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usually smaller than those of reective indicators, multicollinearity can cause misinterpretations of the indicators relevance for the construct domain (Diamantopoulos and Winklhofer, 2001). The lack of multicollinearity assessment is an important oversight and should be a reporting requirement in future studies that include formative measures. Overall, formative outer model assessment in the management discipline leaves much to be desired. Researchers neglect fundamental principles of outer model evaluation such as signicance testing and multicollinearity assessment, casting measurement quality and thus the studies ndings into doubt. More severely, a total of seventeen models (25.0%) with formatively measured constructs inappropriately used reective criteria to evaluate the corresponding measures. This mistake has been made consistently over time. In fact, it is surprising that six of 33 models (18.2%) used reective criteria to evaluate formative measures in recent years since the discussion about the evaluation of formative measures has taken place not only in the marketing and MIS disciplines (e.g., Diamantopoulos and Winklhofer, 2001; Petter et al., 2007), but also in the management domain (e.g., Podsakoff et al., 2006; Podsakoff et al., 2003). Researchers should place more emphasis on evaluating formative measures by applying established as well as more recently proposed guidelines (Hair et al. (2013) provide an overview of the state-of the-art in formative measurement evaluation). For instance, researchers can examine the correlation between the formatively measured construct and a reective measure of the same construct. This analysis, also known as redundancy analysis (Chin, 1998), indicates the validity of the designated set of formative indicators in tapping the construct of interest. Similarly, on an indicator-level, Hair et al. (2011) argue that researchers should also consider a formative indicators absolute contribution to its construct; that is, the information an indicator provides without considering any other indicators (Cenfetelli and Basselier, 2009). The absolute contribution is given by the formative indicators outer loading, which is always provided along with the indicator weights in PLS-SEM. When an indicators outer weight is insignicant but its outer loading is high (i.e., above 0.50), the indicator should be interpreted as absolutely important but not as relatively important. In this situation, the indicator would generally be retained. However, when an indicator has an insignicant weight and the outer loading is below 0.50, the researcher should decide whether to retain or delete the indicator by examining its theoretical relevance and potential content overlap with other indicators of the same construct. Only if the theory-driven conceptualization of the construct strongly supports retaining the indicator (e.g., by means of expert assessment), should it be kept in the formative outer model. Finally, if the outer loading is low, insignicant, and there is no empirical support for the indicators relevance regarding providing content to the formative index, it should be considered a strong candidate for removal. It is important to note that eliminating formative indicators that do not meet threshold levels in terms of their contribution has, from an empirical perspective, almost no effect on the parameter estimates when re-estimating the model. Nevertheless, formative indicators should never be discarded simply on the basis of statistical outcomes. In this context, Einhorns (1972, p. 378) conclusion that just as the alchemists were not successful in turning base metal into gold, the modern researcher cannot rely on the computer to turn his data into meaningful and valuable scientic information still holds true today. Therefore, before removing an indicator from the formative outer model, researchers need to carefully check its relevance from a content validity point of view. Inner model evaluation Unlike CB-SEM, PLS-SEM does not optimize a unique global scalar function. The lack of a global scalar function and the consequent lack of global goodness-of-t measures is traditionally considered a major drawback of PLS-SEM. It is important to recognize that the term t has different meanings in the contexts of CB-SEM and PLS-SEM. Fit statistics for CB-SEM are derived from the discrepancy between the empirical and the model-implied (theoretical) covariance matrix, whereas PLS-SEM focuses on the discrepancy between the observed (in the case of manifest variables) or approximated (in the case of latent variables) values of the dependent variables and
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the values predicted by the model in question. As a consequence, researchers using PLS-SEM rely on measures indicating the models predictive capabilities to judge the models quality (Table 4). The central criterion in this respect is the R2 which 90 of the 112 models (80.4%) report. Only twelve models (10.7%) report effect size (f2), which considers the relative impact of a particular exogenous latent variable on an endogenous latent variable by means of changes in the R2 (Cohen, 1988). But in recent years signicantly more models (p < 0.01) reported the effect size f2. The cross-validated redundancy measure Q2, a common sample re-use technique (Geisser, 1974; Stone, 1974), allows for assessing a models predictive validity. More precisely, Q2 represents a synthesis of cross-validation and function tting and is a recommended assessment criterion for PLSSEM applications (Wold, 1982). It is notable that only three models (2.7%) reported this criterion all of which appeared in recent years. Similar to the f2 value, the Q2 value can also be used to assess the predictive relevance of an individual construct to the model (labeled q2). But none of the models reported predictive relevance of individual constructs. Overall, the results point to an apparent problem in researchers reporting when evaluating PLSSEM-based path models. Table 4 summarizes the review of the inner model evaluations. The fact that reviews of PLS-SEM use in marketing research (Hair et al., 2012) and MIS (Ringle et al., 2012) showed similarly problematic results is not encouraging. In accordance with PLS-SEMs statistical properties, researchers should make broader use of relevant criteria to assess the models predictive capabilities.

Table 4. Evaluation of inner models

Criterion

Empirical test Number of models Proportion Before 2000 2000 onward criterion in PLS-SEM reporting (n [ 112) reporting (%) (n [ 61) (n [ 51) 90 12 3 0 0 107 107 80.4 10.7 2.7 0.0 0.0 95.5 95.5 45 0 0 e e 59 59 45* 12*** 3* e e 48 48

Endogenous constructs R2 explained variance Effect size f2 Predictive relevance Cross-validated redundancy Q2 Relative predicted q2 relevance Overall goodness-of-t GoF Path coefcients Absolute values Signicance of Standard errors, path coefcients signicance levels, t-values, p-values Condence intervals e Total effects e Criterion Empirical test criterion in PLS-SEM Categorical moderator Continuous moderator Response-based segmentation techniques (e.g., FIMIX-PLS)

0 12 Number of studies reporting (n [ 37) 8 2 0

0.0 10.7 Proportion reporting (%) 21.6 5.4 0.0

e 9 Before 2000 (n [ 16) 5 0 e

e 3 2000 onward (n [ 21) 3 2 e

Observed heterogeneity Unobserved heterogeneity

*** (**, *) indicates a signicant difference between before 2000 and 2000 onward at a 1% (5%, 10%) signicance level; results based on (one-tailed) Fishers exact tests.

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As PLS-SEM aims at maximizing the explained variance of the dependent variables, the model quality criteria described above cannot indicate t or a lack thereof in a CB-SEM sense. This also holds for the goodness-of-t index (GoF) which Tenenhaus et al. (2004) originally proposed as a means to validate a path model globally. Henseler and Sarstedt (in press) recently challenged the usefulness of the GoF both conceptually and empirically. For instance, in a simulation study, the authors show that the GoF is not able to separate valid models from invalid ones. Since the GoF is also not applicable to formative outer models and does not penalize overparameterization efforts, researchers are advised to maintain the current practice and not apply this measure. After assessing the predictive quality of an inner model, researchers examine the standardized path coefcients to analyze whether the hypothesized relationships among constructs are reected by the data. The signicance of these coefcients should be assessed using resampling procedures (Henseler et al., 2009). Of the 112 models in our review, 107 (95.5%) reported path coefcients and their signicance. Unfortunately, researchers only interpreted the parameter coefcients t-value. But there are other approaches to assess a coefcients stability if researchers consider the complete bootstrap output. The more superior techniques involve construction of (bias-corrected) bootstrap condence intervals (e.g., Gudergan et al., 2008; Sarstedt et al., 2011) which d unlike regular condence intervals d may be asymmetrically distributed around the mean estimate from the full data. This is a valuable property as the forced symmetry of regular condence intervals may have negative inuence on estimation accuracy and statistical power (Efron and Tibshirani, 1986). It is important to note that the examination of inner model estimates, both in terms of values and signicance, is not restricted to direct relationships. Rather, researchers can also examine total effects; that is, the sum of direct and indirect effects. Interpretation of total effects is particularly useful in studies with the objective of exploring the differential impact of different driver constructs on a criterion construct via several mediating variables (Albers, 2010). In our review, 12 of 112 models (10.7%) reported total effects. Recently, methodological research has devoted considerable interest to the identication and treatment of heterogeneous data structures within a PLS-SEM framework. As a result of these efforts, researchers can apply a broad range of procedures to take observed heterogeneity into account. These include approaches to modeling continuous moderating variables (Henseler and Fassott, 2010; Henseler and Chin, 2010) as well as categorical moderating variables (i.e., Sarstedt et al., 2011), which only a few studies in our review made use of (Table 4). However, variables causing heterogeneous data structures are not always observed (known). As a result, researchers have developed approaches that facilitate identifying and treating unobserved heterogeneity (Sarstedt, 2008), which none of the studies included. Among the various approaches that have been proposed, Hahn et al.s (2002) nite mixture PLS (FIMIX-PLS) procedure is considered a primary approach. By tting mixture regression models on the data, FIMIX-PLS effectively detects heterogeneity in inner model estimates and enables the derivation of latent classes. More recently, Ringle et al. (in press) proposed a combination of PLS-SEM with genetic algorithms (PLS-GAS), which have routinely been used in various business research disciplines to handle complex optimization problems. The authors show that PLS-GAS effectively uncovers heterogeneity and allows for a more precise segmentation of the data compared to prior approaches. Further assessment, especially with regard to (formative) outer models is still pending but preliminary analyses show that the approach holds considerable promise for segmentation tasks in PLS-SEM. Reporting A fundamental issue in the use of any statistical technique relates to the reporting of the choice of computational options as these can have a signicant bearing on the analysis results. This also holds for the use of PLS-SEM, which leaves the researcher with several degrees of freedom when running the algorithm or using complementary techniques such as jackkning or bootstrapping. Unfortunately, reporting practices in management research are lacking in several respects. For instance, while practically all studies used resampling techniques such as jackkning and bootstrapping, only 20 of 37 studies (54.1%) explicitly mentioned their use. Furthermore, only
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10 of the 20 studies (50.0%) reported the concrete parameter settings (on the upside, settings were reported signicantly more frequently in recent years; p < 0.05). Detailed reporting on resampling procedures is critical, however, in PLS-SEM studies. For example, the different bootstrapping sign change options yield considerably different results when parameter estimates are close to zero. Specically, when the no sign change option indicates a nonsignicant relationship, the individual sign changes option is more likely to indicate a relationship as signicant. Likewise, a misspecication of bootstrap sample size vis- a-vis the original sample size and bootstrap cases can signicantly bias the results. For instance, using a small number of bootstrap samples, particularly when the original sample size is much larger, will considerably deate standard errors. Considered jointly, bootstrap parameter settings leave the researcher with many degrees of freedom in their analysis of results, making their concrete reporting a must. None of the studies provides information on the use of the PLS-SEM algorithm; that is, on the weighting scheme used and the abort criterion. While in practice the choice of weighting scheme has little bearing on the analysis results, researchers have to consider that the schemes are not universally applicable to all kinds of model set-ups. For instance, the centroid scheme must not be used when estimating higher order models (Hair et al., 2012; Hair et al., 2013). Similarly, although the PLS-SEM algorithm usually converges (Henseler, 2010), it may not do so when the stop criterion is extremely low (e.g., 1020). Therefore, researchers should provide the (maximum) number of iterations to assess whether or not the PLS-SEM algorithm converged before reaching the pre-specied stop criterion. Reporting of the software used (in accordance with the license agreements) can provide some information in this respect as the different programs rely on different default settings. However, only 18 of 37 studies (48.7%) specied which software was used for model estimation. While recent studies reported software package information signicantly more often (p < 0.01) than earlier studies, the number is still relatively small. Of the eighteen studies in our review providing software package information, ten studies used PLS Graph (Chin, 2003), ve studies used LVPLS ller, 1987), two studies used SmartPLS (Ringle et al., 2005), and one study used PLS(Lohmo GUI (Li, 2005). Surprisingly, and in contrast to previous reviews of PLS-SEM studies in the marketing literature (Hair et al., 2012), twenty-ve studies of 37 studies (67.6%) reported the covariance/correlation matrix for the indicator variables, which enables readers to replicate and validate the analytical ndings. The number of studies reporting the covariance/correlation matrix is signicantly higher (p < 0.01) in recent than in previous years. In summary, researchers should pay closer attention to reporting technical aspects when using PLS-SEM. The fact that the PLS-SEM algorithm practically always converges might tempt researchers to put less emphasis on the technicalities of the analyses. For the reasons mentioned above, however, this practice needs to be changed.

Observations and conclusions


Today, our understanding of PLS-SEM is much more developed as a result of recent analyses that compare the methods properties with those of CB-SEM (e.g., Chin and Newsteds, 1999; Reinartz et al., 2009) or newly emerging techniques for estimating structural equation models (Henseler, 2012; Hwang et al., 2010; Lu et al., 2011). While the comparative studies approaches and research aims differ, collectively they show the benets of PLS-SEM lie in its ability to identify relationships among latent variables in the model when they in fact exist in the population (i.e., its statistical power), especially in situations when sample sizes are small. This property makes PLS-SEM particularly useful in exploratory research settings. PLS-SEM also facilitates more exibility in estimating complex models and those incorporating formative indicators, situations in which the uses of classical covariance-based techniques often reach their limits (Hair et al., 2011). These characteristics make PLS-SEM particularly useful for strategic management research that often deals with small sample sizes, complex models, and formative measures especially when analyzing the sources of competitive advantage.
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As with any statistical technique, PLS-SEM requires researchers to make several choices that if made incorrectly can have substantial consequences on the validity of the results. Based on prior methodological discussions, our own work in the area, and particularly the present review of previous applications of PLS-SEM in the Academy of Management Journal, Administrative Science Quarterly, Journal of Management, Journal of Management Studies, Long Range Planning, Management Science, Organization Science and Strategic Management Journal, we offer the following general guidelines to future users of the technique. First, more careful thought should be given to data characteristics. Even though PLS-SEM performs well with small samples and non-normal data, researchers should not be careless in implementing these advantages. Small sample sizes and skewed data easily increase sampling error yielding inated bootstrap standard errors. When this occurs, the techniques statistical power is reduced, offsetting one of PLS-SEMs major advantages. Second, researchers should pay closer attention to model specication issues. For example, using formatively measured constructs in PLS-SEM implies that the indicators capture the entire construct domain (or at least major parts of it). Similarly, using single-item measures is not without problems. Considering that single-item measures signicantly lag behind multi-item scales in terms of predictive validity, their use should be avoided in PLS-SEM in most situations, especially in light of the techniques predictive focus. Third, researchers should make greater use of model evaluation criteria, especially when assessing the quality of formatively measured constructs. Our review shows that current practice leaves much to be desired in this regard, casting doubt on the validity of some of the measures. Similarly, researchers should make use of the full range of criteria available to assess the models predictive capabilities, such as the cross-validated redundancy index or the effect size. Researchers need to understand that these measures are by denition not indicative of model t in a covariancebased sense, and any effort to interpret them as such should clearly be rejected. Lastly, it is important to note that some of the criticism stated in the review might be misplaced since there is no indication whether some of the admonished reporting elements have been discarded in the course of the revision process. However, every study should provide the reader with sufcient information to fully assess the quality of the research as well as replicate the results (Stewart, 2009). To improve reporting practices of PLS-SEM studies in strategic management and other disciplines, the aspects in Table 5 must be clearly addressed by providing details on 1) data used and their characteristics, 2) model characteristics, 3) PLS-SEM algorithm settings and software used, and 4) evaluation criteria results of inner and outer models. Acknowledging the trade-off between page restrictions and number of studies being published, journal editors should nevertheless devote more journal space to fundamental reporting elements to improve the readers condence in the results. Besides basic PLS-SEM analyses, researchers can take advantage of a much larger set of methodological extensions of the PLS-SEM method, ranging from evaluation techniques such as blindfolding (e.g., Chin, 1998) and conrmatory tetrad analysis (e.g., Gudergan et al., 2008) to lckner et al., 2010), PLS-SEM multi importance-performance analyses (e.g., Rigdon et al., 2011; Vo group analyses (Henseler et al., 2009; Sarstedt et al., 2011) and response-based segmentation approaches such nite mixture-PLS (e.g., Hair et al., 2011; Rigdon et al., 2010). However, PLS-SEM studies in strategic management very infrequently exploit such potentials and, thus, miss opportunities to further substantiate the appropriateness of ndings and to improve their analyses. For instance, uncovering unobserved heterogeneity represents a key area of concern every PLS-SEM study and should be addressed in the results evaluation (Hair et al., 2012) while the importance-performance adds a second dimensions (i.e., performance) to the analysis of results and thereby leads to richer and further differentiated ndings. Hence, PLS-SEM in strategic management must more strongly focus on presenting state of the art applications. As this and previous reviews of PLS-SEM use (Hair et al., 2012; Lee et al., 2011; Ringle et al., 2012) have shown, PLS-SEM has already had a substantial impact on empirical research in several disciplines. However, to further increase its usefulness in empirical research, the problem areas and
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Table 5. Issues, Implications and Recommendations in the Application of PLS-SEM

Issue Sample size requirements

Implications Model generally identied but low sample sizes deate statistical power, especially when the outer model quality is poor and data are highly skewed

Recommendation Use ten times rule as rough estimate of the required sample size; for a more thorough assessment, consider Cohens (1992) statistical power tables or carry out distinct power analyses Examine the degree to which data are non-normal using Q-Q plots, Kolmogorov-Smirnov or Shapiro-Wilk tests

References Hair et al. (2013); Reinartz et al. (2009)

Non-normal data

Use of formative measures

PLS-SEM is very robust when used on extremely non-normal data; however, bootstrapping standard errors may become inated, especially when the sample size is small, yielding lower levels of statistical power PLS-SEM readily accommodates formative measures but assumes that the indicators cover the entire domain of the construct

Cassel et al. (1999), Mooi and Sarstedt (2011); Reinartz et al. (2009)

Use of categorical variables

Use of single-item measures

Reective outer model assessment

Formative outer model assessment

Establish content validity by determining how well the indicators cover the entire (or at least major aspects) of the constructs content domain. Also see formative outer model assessment Consider the PLS-SEM PLS-SEM can generally accommodate categorical variables algorithm to assess the but their inclusion depends on their suitability of the model set-up position in the outer model and the number of indicators used per construct Leads to poor outer model quality Avoid using single-item measures; should only be in terms of predictive validity; considered when practical aggravates PLS-SEMs tendency considerations to underestimate inner model (e.g., population/sample relationships is limited in size) require their use Establishing reliability and validity Fully make use of popular criteria to assess the of reective measures is a reective outer models precondition for interpreting inner model estimates Consider established criteria Criteria used for reective outer (weights and their model evaluation are not signicance, multicollinearity) universally applicable to as well as more recently formative measures proposed methods (e.g., redundancy analysis, indicator loadings) to evaluate formative measures quality

Diamantopoulos (2011)

Henseler (2010) Henseler et al. (2009)

Diamantopoulos et al. (2012)

Henseler et al. (2009) Hair et al. (2012, 2013)

Hair et al. (2011, 2013) Cenfetelli and Basselier (2009)

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Table 5 (continued ) Issue Implications Recommendation Consider the full range of criteria to assess the models predictive capabilities (i.e., R2, Q2). Bootstrapping analyses should also be used to construct (bias-corrected) condence intervals Consider observable moderating variables or, in case of unobserved heterogeneity, apply latent class approaches such as FIMIX-PLS or PLS-GAS Fully report the following elements: -Standard PLS-SEM algorithm: weighting scheme, maximum iterations, abort criterion -Resampling procedures: sign change option, number of bootstrap cases and samples References Hair et al. (2012, 2013)

Evaluation of the As PLS-SEM aims at maximizing inner model the explained variance of the dependent variables, model quality criteria cannot indicate t or a lack thereof in a CB-SEM sense. Consideration of heterogeneous data structures Analyses on the aggregate data level can seriously bias the results if the data structure is heterogeneous

Sarstedt et al. (2011) Rigdon et al. (2010) Ringle et al. (in press) Rigdon et al. (2011)

Reporting of computational settings

Reporting computational settings is highly important because specic (combinations of) settings can be considered conservative or liberal

Hair et al. (2012) Hair et al. (2013)

recommendations about how to improve the practice of using PLS-SEM should be carefully taken into account in future applications of the technique.

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Biographies
Dr. Joseph F. Hair is Professor of Marketing at Coles College of Business, Kennesaw State University, USA. His research mainly focuses on multivariate analysis methods and their application in business research. E-mail: jhair3@kennesaw.edu. Please visit his webpage (http://coles.kennesaw.edu/departments_faculty/faculty-pages/HairJoeF.htm) for more information on Dr. Hair. Dr. Marko Sarstedt is Professor of Marketing at Otto-von-Guericke-University Magdeburg and Visiting Professor at the University of Newcastle, Australia. His research interests include PLS-SEM, measurement principles, and corporate reputation. His research has been published in journals such as the Journal of the Academy of Marketing Science, Journal of Business Research, and MIS Quarterly. E-mail: marko.sarstedt@ovgu.de Dr. Torsten M. Pieper is Assistant Professor at the Department of Management and Entrepreneurship, Kennesaw State University, USA. His research mainly addresses family business, strategic management, and research methods. E-mail: tpieper@kennesaw.edu. Please visit his webpage (http://coles.kennesaw.edu/departments_faculty/facultypages/Pieper-Torsten.htm) for more information on Dr. Pieper. Dr. Christian M. Ringle is a Full Professor and Managing Director of the Institute for Human Resource Management and Organizations (HRMO) at Hamburg University of Technology (TUHH), Germany, and Visiting Professor at the University of Newcastle, Australia. His research mainly addresses strategic management, organizations, marketing, human resource management, and quantitative methods for business and market research. E-mail: ringle@tuhh.de. Please visit http://www.tuhh.de/hrmo for more information on Dr. Ringle.

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