Anders H. Westlund

Robustness of partial least-squares method for estimating latent variable quality structures

Latent variable structural models and the partial least-squares (PLS) estimation procedure have found increased interest since being used in the context of customer satisfaction measurement. The well-known property that the estimates of the inner structure model are inconsistent implies biased estimates for finite sample sizes. A simplified version of the structural model that is used for the Swedish Customer Satisfaction Index (SCSI) system has been used to generate simulated data and to study the PLS algorithm in the presence of three inadequacies: (i) skew instead of symmetric distributions for manifest variables; (ii) multi-collinearity within blocks of manifest and between latent variables; and (iii) misspecification of the structural model (omission of regressors). The simulation results show that the PLS method is quite robust against these inadequacies. The bias that is caused by the inconsistency of PLS estimates is substantially increased only for extremely skewed distributions and for the erroneous omission of a highly relevant latent regressor variable. The estimated scores of the latent variables are always in very good agreement with the true values and seem to be unaffected by the inadequacies under investigation.

On measurement of intangible assets: A study of robustness of partial least squares

The customer asset is an important intangible. Its value depends, for example, on the customer satisfaction level. Thus, it is important to monitor that level, and to identify cost-efficient actions to improve it. The European Customer Satisfaction Index (ECSI) system is based on a structural model for such monitoring, a model that is estimated by partial least squares (PLS). The robustness of PLS applied on an ESCI-like measurement model is studied in the present paper. Monte Carlo simulations show that PLS is reasonably robust against multicollinearity, skew response distributions and various types of model misspecifications. This is true, in particular, when estimating the customer satisfaction index.

On structural equation modelling for customer satisfaction measurement

(2000). On structural equation modelling for customer satisfaction measurement. Total Quality Management: Vol. 11, No. 4-6, pp. 820-825.

The predictive power of intangibles

This paper describes the need for intangible measurements for non‐financial reporting. Nowadays book value accounts for just around one quarter of the market value making the relevance of the balance sheet questionable. There is therefore a need for developing standardized methodologies for quantifying intangible assets and this is already underway. Two recently developed methodologies, The European Performance Satisfaction Index and The European Employee Index, is described in the paper and the benefit of applying these methodologies is exemplified through empirical data. These data stems from Amtsparekassen Fyn which is a medium sized Danish bank that has measured employee/customer satisfaction systematically since 1997 and the data used for this analysis is from the surveys conducted in 2000. The analysis shows that the measures for employee and customer satisfaction are good predictors of financial performance.

The pan-European customer satisfaction index programme—current work and the way ahead

Any organization has to listen to its external customers and clients. In a number of studies it has been shown that the long-term success of a corporation is closely related to its possibility to adapting to customer needs and changing preferences. Satisfying customers should thus be a goal in its own right for all future-oriented organizations. In order to monitor customer satisfaction and to take action to improve it, a number of different methods have been devised and implemented in practice. However, for the purpose of real usefulness, a number of criteria have to be fulfilled on any such measurement system, not least if the ambition is to compare and benchmark. This is the spirit in which the Pan-European intiative to develop, launch and implement a system for comparable aggregate (national) Performance Satisfaction Index studies (the EPSI Rating) has evolved. In the paper the EPSI Rating model for comparable Customer Satisfaction Index (CSI) is presented and the fulfilment of the quality criteria are elaborated, based on three years of national studies. In this context, possibilities and limitations for systematic comparisons are highlighted using a combined time-series and cross-section approach. It is also illustrated how the EPSI Rating results may be combined with company specific measures using a similar framework in order to arrive at proposals for strategic and operational improvements. Furthermore, lessons learned so far are discussed and an agenda for future development is presented.

Statistical Analysis of "Structural Change": An Annotated Bibliography

The typical “structural change” situation is — from the point of view of a statistician — as follows: To cope with a particular economic phenomenon a model is specified, and it is suspected that for different periods of time, or for different spatial regions, different sets of parameter values are needed in order to describe the reality adequately; the “change point” which separates these periods, or regions, is unknown. Questions that arise in this context include: Is it necessary to assume that the parameters are changing? When, or where, does a change occur or — if it takes place over a certain period of time — what is its onset and duration? How much do parameters before and after the change differ? What type of model is appropriate in a particular situation (e.g., two-phase regression, stochastic parameter models)?

Demand for international telecommunication time-varying price elasticity

Abstract In this empirical study, the price elasticity of the demand for telecommunication between Sweden and three destination countries, Germany (FRG), United Kingdom, and USA, was investigated. Within the constant parameter framework the structural relations identified to explain the telecommunication demand are similar for the three countries. The short- and long-term price elasticities of the demand derived from the models are in the range that is reported in other empirical studies. However, recursive estimation and the analysis of recursive residuals support theoretical assumptions of time variability of price elasticity. Kalman filtering in various versions, differing in the way of determining the hyperparameters, as well as moving local regression analysis are applied to estimate the trajectories of the price elasticity.

Valid and reliable measurements for sustainable non-financial reporting

The discrepancy between the high importance of intangibles and the general inability to measure and account for these types of assets constitutes a growing challenge for business and society, in particular within the framework of Non-Financial Reporting. Traditional financial reporting typically does not provide good predictions of future financial performance. The malfunctioning of risk capital markets partly depends on the lack of reliable information on intangibles. Thus, measurements of intangibles must be significantly improved. The information on intangibles needs to be based on the right measurements, it needs to be comparable (i.e. based on common guidelines, or even standards), and it needs to be verifiable and understood by the users. This paper reviews the situation with reference to measuring intangibles for non-financial reporting. It comments on various related research projects and R&D activities initiated by accounting organizations. It emphasizes the possible importance of various Best Practice measurement programs, such as ACSI and EPSI Rating. Finally, it identifies a number of requirements to be fulfilled to achieve and operationalize the relevance and reliability of stakeholder measurement.

On Testing for Symmetry in Business Cycles

Business cycle forecasting has become an important part of short and medium term economic planning. Such forecasting, however, is often very intricate, as business cycles are not at all periodic, just recurrent. Furthermore, they often include irregular timing and varying amplitudes. When patterns and relationships are very irregular there are no simple reliable business cycle forecasting procedures. In practice there is, somewhere, a limit for business cycle predictability, and it is often worthwhile to examine empirically the various theoretical regularity assumptions. One important regularity issue concerns the business cycle symmetry assumption. The present paper empirically tests the hypothesis of symmetry around business cycle turning points in some economic time series. Two test procedures are applied. One is based on the analysis of transition probabilities between expansion and recession regimes. The second procedure tests symmetry versus asymmetry through skewness statistics. The analysis is based on detrending through the use of linear deterministic trends as well as by Beveridge-Nelson decompositions.

On customer satisfaction and financial results in the Swedish real estate market

Abstract The paper provides empirical results on potential impacts from customer perceived quality and customer satisfaction on various financial indicators for the Swedish real estate market. Quality data are taken from the Swedish Real Estate Barometer, and financial data from the SFI/IPD Swedish Property Index. Results provide some support for the hypothesis that investments to improve customer satisfaction are first cost driving, but will, towards the latter part of the time period examined (1997–2002), significantly and positively impact profitability. The main driver for this seems to be reputation and positive word-of-mouth due to improved customer satisfaction.