Hair Et Al. - The Use of PLS-SEM in Strategic Management Research

Long Range Planning 45 (2012) 320e340
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
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
(PLS-SEM; Lohm
oller, 1989; Wold, 1982) in comparison with the alternative covariance-based
SEM (CB-SEM; J
oreskog, 1978; J
oreskog, 1982) method to estimate structural equation models.
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
(J
oreskog and Wold, 1982).
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 firms) 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 firms (Agarwal et al., 2002; Cool et al., 1989); performance of global firms (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 firms (Doz et al., 2000;
Fornell et al., 1990; Sarkar et al., 2001).
Despite recognizing the SEM method and, more specifically, 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 first-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 specification) 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 benefit 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),
Long Range Planning, vol 45
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321
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 specific 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 findings, 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 findings 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 proficient 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 identified 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 first 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 significantly increased
over time. Regressing the number of studies on the linear effects of time yields significant model
(F 14.25; p < 0.01) and time effects (t 3.76; p < 0.01). A quadratic effect of time, however,
is not significant (t 0.35; p > 0.10). Therefore, the use of PLS-SEM in strategic management
1
322
The coding agreement on the relevant articles was 94 percent, which compares well with the study by Hair et al. (2012).
The Use of Partial Least Squares Structural Equation Modeling in Strategic Management Research
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
Barthelemy and Quelin, 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 field 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 coefficient of innovation (p) of 0.11 and a coefficient 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 five 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
fifty-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.
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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 specific 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 find that practically all
studies argue their case in confirmatory terms, which likely reflects an academic bias in favor
of presenting findings in a confirmatory context (Greenwald et al., 1986). While this practice underlines an apparent misconception in the appropriate use of PLS-SEM shown also in other fields
such as marketing (Hair et al., 2012), one should recognize that CB-SEM, on the other hand, is
rarely used in a truly confirmatory sense. In fact, research reality is that models estimated with
CB-SEM rarely fit initially and modifying models in an effort to yield what reviewers and editors
might perceive accurate in terms of model fit 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
324
The total of the percentages exceeds 100 percent because various studies mentioned multiple reasons for the use of PLS-SEM.
considerably lower than that reported in previous reviews of CB-SEM studies (mean 246.4) (Shah
and Goldstein, 2006). Noteworthy, however, is a significant 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 fields. 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 reflect 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 inflate
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 five out of 51 studies published in 2000 and beyond did not meet
the ten times rule of thumb, revealing a significant 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 five, 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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Another benefit 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 final 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 significantly (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 finding 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. Specifically, the average numbers of indicators per reflective construct is 3.4 and 3.6 for
formative constructs, both of which have increased significantly over time (p 0.01). The relatively
small difference in the number of indicators per reflective 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 benefit 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 fifteen constructs, measured by a total seventy indicator variables has 2,383 degrees of freedom. Hence, the statistical
power for the test of model fit 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 reflective and formative measures. Drawing on this characteristic, half of the models used a combination of both reflectively and formatively measured latent variables (56 models; 50.0%), and the number increased
significantly (p < 0.05) over time. Very few models were composed of solely reflectively measured
latent variables (12 models; 10.7%) or solely formatively measured latent variables (12 models;
10.7%). One quite surprising finding 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 specification (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 significantly (p < 0.10) over time (Table 2).
326
Table 2. Descriptive statistics for model characteristics
Criterion
Number of latent variables

Mean
Median
Range
Number of inner model path relations
Mean
Median
Range
Mode of outer models
Only reflective
Only formative
Reflective and formative
Not specified
Number of indicators per reflective 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
Results
(n [ 112)
Proportion (%)
Before 2000
(n [ 61)
2000 onward
(n [ 51)
7.5
6.0
(2; 31)
7.0
6.0
(3; 15)
8.1
6.0
(2; 31)
10.4
9.0
(2; 39)
9.4
7.0
(3; 39)
11.6*
10.0
(2; 31)
12
12
56
32
10.7
10.7
50.0
28.6
5
11***
24
21*
7
1
32**
11
3.4
3.0
(1; 10)
2.3
2.0
(1; 5)
4.3***
4.0
(1; 10)
3.6
2.5
(1; 10)
2.6
2.0
(1; 6)
4.7***
5.0
(1; 10)
27.0
19.0
(7; 114)
76
19.7
18.0
(7; 70)
45
35.7***
23.0
(9; 114)
31
67.9
*** (**, *) indicates a significant difference between before 2000 and 2000 onward at a 1% (5%, 10%) significance 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 reflective 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 sufficient 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 specific 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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327
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 reflective and formative measurement approaches (Diamantopoulos et al., 2008), with each approach relying on a different set of
criteria. Reflective 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 reflective 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 Riefler,
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 significance and collinearity among the indicators.
Our review assesses whether and how authors evaluated reflective (Table 3, Panel A) and formative
measures (Table 3, Panel B) and whether the standards used for evaluating reflective outer models
were applied to formative models.
Reflective outer models
Despite the importance of providing evidence for the reflective 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 reflectively
measured constructs, fifty-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 reflectively measured constructs and is significantly 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 reflect an
underlying construct. However, Sahmer et al. (2006) show that Cronbachs Alpha and composite
reliability are both inadequate to assess whether a set of reflective manifest variables is unidimensional or not. Instead, researchers should apply the Kaiser-Gutman criterion (see Karlis et al., 2003
for a modified version) or Revelles (1979) coefficient 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. Specifically, 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 significantly (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 significantly
(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
328
Table 3. Evaluation of outer models
Empirical test
criterion in PLS-SEMa
Panel A: Reflective 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
77.9
25.0
22
3
31
14**
7
14
29
1
13
10.3
20.6
42.7
1.5
19.1
0
0
2
0
2
7**
14***
27
1
11**
13
1
19.1
1.5
0
0
13***
1
Empirical test
criterion in PLS-SEMa reporting (n [ 68) reporting (%) (n [ 35)
(n [ 33)
Panel B: Formative outer models
e
Reflective criteria used
to evaluate formative
constructs
Indicators absolute Indicator weights
contribution
to the construct
Significance
Standard errors,
of weights
significance 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 significant difference between before 2000and 2000 onward respectively, at a 1% (5%, 10%)
significance 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 significance through resampling procedures such as bootstrapping or jackknifing. However, only three models (4.4%) reported standard errors, significance
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 inflate 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
2012
329
usually smaller than those of reflective 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 significance
testing and multicollinearity assessment, casting measurement quality and thus the studies findings
into doubt. More severely, a total of seventeen models (25.0%) with formatively measured constructs inappropriately used reflective 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
reflective 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 reflective 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 insignificant 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 insignificant 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,
insignificant, 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
scientific 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-fit measures is traditionally considered a major drawback of PLS-SEM. It is important to recognize that the term fit 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
330
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 significantly 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 fitting 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
criterion in PLS-SEM reporting (n [ 112) reporting (%) (n [ 61)
(n [ 51)
Endogenous constructs R2
explained variance
Effect size
f2
Predictive relevance
Cross-validated
redundancy Q2
Relative predicted
q2
relevance
Overall goodness-of-fit GoF
Path coefficients
Absolute values
Significance of
Standard errors,
path coefficients
significance levels,
t-values, p-values
Confidence intervals
e
Total effects
e
90
80.4
45
45*
12
3
10.7
2.7
0
0
0.0
0
107
107
0.0
95.5
95.5
e
59
59
e
48
48
0
12
0.0
10.7
e
9
e
3
12***
3*
Criterion
Empirical test
criterion in PLS-SEM
Number of studies
reporting (n [ 37)
Proportion
reporting (%)
Before 2000
(n [ 16)
2000 onward
(n [ 21)
Observed
heterogeneity
Unobserved
heterogeneity
Categorical moderator
Continuous moderator
Response-based
segmentation techniques
(e.g., FIMIX-PLS)
8
2
0
21.6
5.4
0.0
5
0
e
3
2
e
*** (**, *) indicates a significant difference between before 2000 and 2000 onward at a 1% (5%, 10%) significance level;
results based on (one-tailed) Fishers exact tests.
2012
331
As PLS-SEM aims at maximizing the explained variance of the dependent variables, the model
quality criteria described above cannot indicate fit or a lack thereof in a CB-SEM sense. This
also holds for the goodness-of-fit 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 coefficients to analyze whether the hypothesized relationships among constructs are reflected
by the data. The significance of these coefficients should be assessed using resampling procedures
(Henseler et al., 2009). Of the 112 models in our review, 107 (95.5%) reported path coefficients and
their significance. Unfortunately, researchers only interpreted the parameter coefficients t-value.
But there are other approaches to assess a coefficients stability if researchers consider the complete
bootstrap output. The more superior techniques involve construction of (bias-corrected) bootstrap
confidence intervals (e.g., Gudergan et al., 2008; Sarstedt et al., 2011) which d unlike regular confidence 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 confidence intervals may have negative
influence 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 significance, 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 identification 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) finite mixture PLS (FIMIX-PLS) procedure is considered a primary approach.
By fitting 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 significant 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 jackknifing or bootstrapping. Unfortunately, reporting practices in management research are lacking in several respects.
For instance, while practically all studies used resampling techniques such as jackknifing and
bootstrapping, only 20 of 37 studies (54.1%) explicitly mentioned their use. Furthermore, only
332
10 of the 20 studies (50.0%) reported the concrete parameter settings (on the upside, settings were
reported significantly 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. Specifically, when the no sign change option indicates
a nonsignificant relationship, the individual sign changes option is more likely to indicate a relationship as significant. Likewise, a misspecification of bootstrap sample size vis-a-vis the original sample
size and bootstrap cases can significantly bias the results. For instance, using a small number of
bootstrap samples, particularly when the original sample size is much larger, will considerably deflate 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-specified 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%) specified which software was used for model estimation. While recent
studies reported software package information significantly 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), five studies used LVPLS
(Lohm
oller, 1987), two studies used SmartPLS (Ringle et al., 2005), and one study used PLSGUI (Li, 2005).
Surprisingly, and in contrast to previous reviews of PLS-SEM studies in the marketing literature
(Hair et al., 2012), twenty-five studies of 37 studies (67.6%) reported the covariance/correlation
matrix for the indicator variables, which enables readers to replicate and validate the analytical findings. The number of studies reporting the covariance/correlation matrix is significantly 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 benefits 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 flexibility 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.
2012
333
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 inflated 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 specification 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 significantly 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 definition not indicative of model fit 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 sufficient 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 confidence 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 confirmatory tetrad analysis (e.g., Gudergan et al., 2008) to
importance-performance analyses (e.g., Rigdon et al., 2011; V
olckner et al., 2010), PLS-SEM multi
group analyses (Henseler et al., 2009; Sarstedt et al., 2011) and response-based segmentation approaches such finite 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 findings 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 findings. 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
334
Table 5. Issues, Implications and Recommendations in the Application of PLS-SEM
Issue
Implications
Recommendation
References
Sample size
requirements
Model generally identified but low

sample sizes deflate statistical power,
especially when the outer model
quality is poor and data are
highly skewed
Hair et al. (2013);

Reinartz et al. (2009)
Non-normal
data
PLS-SEM is very robust when used

on extremely non-normal data;
however, bootstrapping standard
errors may become inflated,
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
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
Use of formative
measures
Use of categorical
variables
Use of single-item
measures
Reflective 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
algorithm to assess the
accommodate categorical variables
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
in terms of predictive validity;
measures; should only be
aggravates PLS-SEMs tendency
considered when practical
to underestimate inner model
considerations
relationships
(e.g., population/sample
is limited in size) require
their use
Establishing reliability and validity Fully make use of popular
of reflective measures is a
criteria to assess the
precondition for interpreting
reflective outer models
inner model estimates
Criteria used for reflective outer
Consider established criteria
model evaluation are not
(weights and their
universally applicable to
significance, multicollinearity)
formative measures
as well as more recently
proposed methods
(e.g., redundancy analysis,
indicator loadings) to evaluate
formative measures quality
Cassel et al. (1999),

Mooi and
Sarstedt (2011);
Reinartz et al. (2009)
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)
(continued on next page)
2012
335
Table 5 (continued)
Issue
Implications
Evaluation of the As PLS-SEM aims at maximizing

inner model
the explained variance of the
dependent variables, model
quality criteria cannot indicate
fit 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
Reporting of
computational
settings
Reporting computational
settings is highly important
because specific
(combinations of) settings
can be considered conservative
or liberal
Recommendation
References
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)
confidence 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
Hair et al. (2012, 2013)
Sarstedt et al. (2011)

Rigdon et al. (2010)
Ringle et al. (in press)
Rigdon et al. (2011)
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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Long Range Planning 45 (2012) 320e340

The Use of Partial Least Squares

Review of PLS-SEM research

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

Academy of Management Journal

Strategic Management Journal

Critical issues in PLS-SEM research

Long Range Planning, vol 45

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

Table 2. Descriptive statistics for model characteristics

Number of latent variables

Table 3. Evaluation of outer models

Number of models Proportion

Single-item constructs were excluded from this analysis.

Table 4. Evaluation of inner models

Long Range Planning, vol 45

Observations and conclusions

Table 5. Issues, Implications and Recommendations in the Application of PLS-SEM

Model generally identified but low

Hair et al. (2013);

PLS-SEM is very robust when used

Use ten times rule as rough

Establish content validity by

Cassel et al. (1999),

Henseler et al. (2009)

Hair et al. (2011, 2013)

(continued on next page)

Long Range Planning, vol 45

Evaluation of the As PLS-SEM aims at maximizing

Analyses on the aggregate

Consider the full range of

Hair et al. (2012, 2013)

Sarstedt et al. (2011)

Hair et al. (2012)

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