PLS-SEM: Introduction Continued

(Part 2)

Joe
Joe F.
F. Hair,
Hair, Jr.
Jr.
Founder
Founder &
& Senior
Senior Scholar,
Scholar, DBA
DBA
Program
Program

Systematic Process for applying PLS-SEM

Significance of PLS-SEM Parameters = Bootstrapping

PLS-SEM does not assume the data is normally distributed, which
implies that parametric significance tests used in regression analyses
cannot be applied to test whether coefficients such as outer weights
and loadings are significant. Instead, PLS-SEM relies on a
nonparametric bootstrap procedure to test coefficients for their
significance.
In bootstrapping, a large number of subsamples (i.e., bootstrap
samples) is drawn from the original sample with replacement.
Replacement means that each time an observation is drawn at
random from the sampling population, it is returned to the sampling
population before the next observation is drawn (i.e., the population
from which the observations are drawn always contains all the same
elements). Therefore, an observation for a certain subsample can be
selected more than once, or may not be selected at all for another
subsample. The number of bootstrap samples should be high but
must be at least equal to the number of valid observations in the
dataset. The recommended number of bootstrap samples is 5,000.

SmartPLS Bootstrapping

Bootstrapping estimates a PLS path model for each subsample:

Samples: Number of random samples drawn from the original sample
(at minimum should equal the number of observations in the original
sample, but 5,000 is recommended).
Cases: Number of cases drawn in each sample run (should be at least
as large as the number of valid observations in the original sample).

Bootstrapping provides mean values and standard errors for:

inner model path coefficients.
weights and loadings in the measurement models.

Use bootstrapping

SmartPLS Bootstrapping
If you have missing data do not use mean
replacement because bootstrapping draws
samples with replacement. Use Casewise
Replacement.

Use individual (sign) changes option

Make sure the number of cases are
equal to the number of valid
observations in your dataset.
Set cases = samples size (or higher)
Caution!!! It is a common mistake to set
samples equal to the overall number of
observations.

SmartPLS Bootstrapping

Make sure the number of cases are

equal to (or more than) the number of
valid observations in your dataset. Set
cases = sample size (or higher). Note
that the number is now 344.
We have also set the number of
samples as 5,000.

Bootstrapping HTML Report Table of Contents

Click on

to access HTML report

Bootstrapping Option (Total Effects tables)

Significance of Structural Path Coefficients
Results based on Cases = 344 and Samples = 5,000

Significant t-values
1.65 for 10%
1.96 for 5%
2.58 for 1%
(all two-tailed)

Bootstrapping Option Significance of

Indicator Loadings
Results based on Cases = 344 and Samples = 5,000

SmartPLS Predictive Relevance

Blindfolding
o
o

Q is a criterion to evaluate how well the model predicts the data of

omitted cases. It is referred to as predictive relevance.
The process involves omitting (removing) or blindfolding one case
at a time and re-estimating the model parameters based on the
remaining cases. The omitted case values are then predicted on the
basis of the newly estimated parameters of the remaining cases.
Procedure:
Set an omission distance D. Note: The number of cases in your
data must not be a multiple integer number of the omission
distance (otherwise the blindfolding procedure yields erroneous
results). Experience has shown that d values between 5 and 10
typically work well.
Interpret the cross-validated redundancy, because it uses the
PLS-SEM estimates of both the structural model and the
measurement models for data prediction. Also, in most instances
the focus is on predicting the data of the target endogenous
constructs.

SmartPLS Predictive Relevance

Blindfolding
Redundancy vs. Communality?
Cross-validated redundancy
Step 1:
The scores of the endogenous LV(s)
are estimated using the scores of the
exogenous LVs

LV1

MV 1
LV3

MV 3

LV2

LV1
Step 2:
Newly estimated LV scores are used
to estimate the missing MV data

Cross-validated communality
11

MV 1
LV3

LV2
Only step 2.

MV 2

MV 2
MV 3

SmartPLS Results Blindfolding

Use blindfolding

SmartPLS Results Blindfolding

Make sure that n / Omission

distance is not an integer
(here: n = 344).

Check all boxes

SmartPLS Results Blindfolding

Click on

to access HTML report

SmartPLS Results Blindfolding

Click on Construct Crossvalidated Redundancy

Q > 0: model has predictive relevance.

Q 0 or Q < 0: model is lacking predictive relevance.
Predictive relevance is demonstrated for both
endogenous constructs.

PLS-SEM and Research in Marketing

Top 30 marketing journals* 204 articles / 311 models

80% of articles published since 2000, 35% in JM, IMM & EJM
2010 = 25%

1980
1984

1985
1989

1990
1994

1995
1999

2000
2004

2005

2006

2007

2008

2009

2010

Individual years

Totals for 5 year periods

An Assessment of the Use of Partial Least Squares Structural Equation
Modeling in Marketing Research, JAMS, Vol. 40 (3), May 2012.

* Ranking based on Hult et al. (2009)

PLS-SEM and Research in Marketing

Reasons for using PLS non-normal data (50%), small

sample size (46%), formative measures (33%),
prediction = research objective (28%), complex models
(13%), categorical variables (13%).
Average PLS sample size is 211 compared to 246 for
CB-SEM. But 25% had less than 100 observations,
and 9% did not meet recommended sample size
criteria.
No studies report skewness or kurtosis.
42% reflective only; 6% formative only; 40% mixed;
12% no indication.

Observations and Conclusions

PLS-SEM = rapidly emerging tool in marketing literature

because . . .

Flexible data distribution and scaling requirements.

Achieves high levels of statistical power with smaller sample

sizes and complex models.

With complex models produces superior results to CB-SEM.
Easily handles both reflective and formative measured
constructs.

PLS-SEMs methodological properties are widely

misunderstood (CB-SEM bias).
Marketing scholars need to become familiar with
advantages and limitations.

Special Issue, PLS in Marketing, March 2011

Hair, Joseph F., Christian M. Ringle, and Marko Sarstedt. PLS-SEM:

Indeed a Silver Bullet.
Haenlein, Michael and Andreas M. Kaplan. The Influence of Observed
Heterogeneity on Path Coefficient Significance: Technology Acceptance within
the Marketing Discipline.
Eggert, Andreas and Murat Serdaroglu. Exploring the Impact of Sales
Technology on Salesperson Performance: A Task-Based Approach.
Navarro, Antonio, Francisco J. Acedo, Fernando Losada, and Emilio Ruzo.
Integrated Model of Export Activity: Analysis of Heterogeneity in Managers
Orientations and Perceptions on Strategic Marketing Management in Foreign
Markets.
Wiedmann, Klaus-Peter, Nadine Hennigs, Steffen Schmidt, and Thomas
Wuestefeld. Drivers and Outcomes of Brand Heritage: Consumers Perception
of Heritage Brands in the Automotive Industry.
Anderson, Rolph, and Srinivasan Swaminathan. Customer Satisfaction and
Loyalty in e-Markets: A PLS Path Modeling Approach.
Hoffmann, Stefan, Robert Mai, and Maria Smirnova. Development and
Validation of a Cross-Nationally Stable Scale of Consumer Animosity.

Other Sources:
An Assessment of the Use of Partial Least
Squares Structural Equation Modeling
In Marketing Research, JAMS, Vol 40 (3), May
2012; 414-433.
Special Issue, LRP, forthcoming 2013,
PLS in Long Range Planning.

Book: A Primer on Partial Least Squares,

Sage, forthcoming 2013.

Summary Comparison: PLS-SEM vs. CB-SEM

Criteria

Variance-Based Modeling Covariance-Based Modeling

(e.g. SmartPLS, PLS Graph) (e.g. LISREL, AMOS, Mplus)

Objective

Prediction oriented

Parameter oriented

Distribution
Assumptions

Non-parametric

Normal distribution (parametric)

Required sample size

Small (min. 30 100)

High (min. 100 800)

Model complexity

Large models OK

Large models problematic

(50+ indicator variables)

Parameter Estimates

Potential Bias

Stable, if assumptions met

Indicators per
construct

One two OK
Large number OK

Typically 3 4 minimum to meet

identification requirements

Statistical tests for

Inference requires
parameter estimates Jackknifing or Bootstrapping

Assumptions must be met

Measurement Model

Formative and Reflective

indicators OK

Typically only Reflective

indicators

Goodness-of-fit
measures

None

Many

Sample Size Determination PLS-SEM

Sample size should be equal to the larger of:
ten times the largest number of formative
indicators used to measure a single construct, or
ten times the largest number of structural paths
directed at a particular latent construct in the
structural model.

Sample Size Guidelines PLS-SEM

The overall complexity of a structural model has little
influence on the sample size requirements for PLS-SEM.
The reason is the algorithm does not compute all
relationships in the structural model at the same time.
Instead, it uses OLS to estimate the SEM models partial
regression relationships. Two early studies
systematically evaluated the performance of PLS-SEM
with small sample sizes and concluded it performed well
(e.g., Chin & Newsted, 1999; Hui & Wold, 1982). More
recently a simulation study by Reinartz et al. (2009)
indicated that PLS-SEM is a good choice when the
sample size is small. Moreover, compared to its
covariance-based counterpart, PLS-SEM has higher
levels of statistical power in situations with complex
model structures or smaller sample sizes.

AT

Path Model and Data for PLS-SEM Hypothetical Example