Mikko Rönkkö

A Critical Examination of Common Beliefs About Partial Least Squares Path Modeling

Partial least squares path modeling (PLS) was developed in the 1960s and 1970s as a method for predictive modeling. In the succeeding years, applied disciplines, including organizational and management research, have developed beliefs about the capabilities of PLS and its suitability for different applications. On close examination, some of these beliefs prove to be unfounded and to bear little correspondence to the actual capabilities of PLS. In this article, we critically examine several of these commonly held beliefs. We describe their origins, and, using simple examples, we demonstrate that many of these beliefs are not true. We conclude that the method is widely misunderstood, and our results cast strong doubts on its effectiveness for building and testing theory in organizational research.

How to Define Software-as-a-Service – An Empirical Study of Finnish SaaS Providers

Software-as-a-Service (SaaS) is a relatively new and much hyped model of software delivery where the software is procured as a service over the Internet. We found that there were several different definitions of SaaS. Based on these definitions, we distilled a list of five characteristics that are required for a firm to be considered a SaaS provider. Using survey data from the Finnish software industry, we tested the proposed criteria. Closer examination of the survey indicated the criteria were necessary but not sufficient. Therefore, we extended the criteria to better grasp the phenomenon and tested the changes through a qualitative validation. Also, we found that while a large number of firms are producing software that is technically SaaS, pure SaaS-based business models are much more rare in Finland.

Diversity of Business Models in Software Industry

In this paper, we measure the business models of Finnish software firms using survey data. To do this, we first conceptualize the business model based on extant management research, and allows for effective operationalization of the concept. Using our conceptual framework of business model, and data from the Finnish software industry, we find a taxonomy of eight business models. Analyzing the characteristics and performance of the firms using these models, we find that there are significant differences between firms using different business models.

The Effects of Chance Correlations on Partial Least Squares Path Modeling

Partial least squares path modeling (PLS) has been increasing in popularity as a form of or an alternative to structural equation modeling (SEM) and has currently considerable momentum in some management disciplines. Despite recent criticism toward the method, most existing studies analyzing the performance of PLS have reached positive conclusions. This article shows that most of the evidence for the usefulness of the method has been a misinterpretation. The analysis presented shows that PLS amplifies the effects of chance correlations in a unique way and this effect explains prior simulations results better than the previous interpretations. It is unlikely that a researcher would willingly amplify error, and therefore the results show that the usefulness of the PLS method is a fallacy. There are much better ways to compensate for the attenuation effect caused by using latent variable scores to estimate SEM models than creating a bias into the opposite direction.

Current Software-as-a-Service Business Models: Evidence from Finland

This paper characterizes the business models of Software-as-a-Service (SaaS) firms based on their value proposition, customer segments, revenue streams, and customer relationship, and analyzes interconnections of these business model elements. The target set of 163 Finnish SaaS and ASP firms was first compared to other software firms and then clustered into four clusters based on indicator data of their business model elements. The comparison reveals that the SaaS and ASP firms have smaller customer and transaction sizes than software firms in general. The resulting classification reveals two different configurations, a pure-play SaaS model and an enterprise SaaS model, and the typical factors of these business models.

Omission of Causal Indicators: Consequences and Implications for Measurement

ABSTRACT One of the central assumptions of the causal-indicator literature is that all causal indicators must be included in the research model and that the exclusion of one or more relevant causal indicators would have severe negative consequences by altering the meaning of the latent variable. In this research we show that the omission of a relevant causal indicator does not affect downstream estimates relating the focal latent variable to other variables in the model, which challenges the current stance in the literature. Further, we argue that this occurrence presents a fundamental challenge to the causal-indicator literature, in that the lack of negative consequences is not consistent with the tenet that latent variables derive their meaning from the set of causal indicators included in a research model. Rather, though causal indicators help identify the focal latent variable, its meaning is derived from its position as a common factor of other downstream variables—latent or observed—to which it is related.

Selective or Parallel? Toward Measuring the Domains of Entrepreneurial Bricolage

Abstract Entrepreneurial bricolage has been proposed as a method of alleviating resource constraints of entrepreneurial firms. However, the outcomes of bricolage for a firm may vary greatly. One of the most pressing issues is to clarify how bricolage may enhance firm growth. Based on case studies, Baker and Nelson (2005) propose that applying bricolage in limited areas (“selective bricolage”) may enable firms to grow, whereas excessive (“parallel”) bricolage may lead to the opposite outcome. However, the process of testing the generalizability of this relationship using quantitative methods has just begun. In this chapter, we describe our efforts to develop a scale that measures bricolage manifestation in firms by using the “environmental domains” of Baker and Nelson (2005) to facilitate quantitative testing of the bricolage–growth relationship.

Internationalization of Software Firms

This paper presents the results of a large sample survey of internationalizing firms in the Finnish software industry. We analyze the data descriptively with plots and tabulations and as more analytically with regression analyses. The results support the conclusion that internationalization can be considered as a natural stage in the firm life-cycle, but patterns of internationalization differ across firms. Considering the current theorizing of software firms as prototypical international new ventures, we find it surprising that many firms seem to choose to internationalize only a little and gradually.

Board Interlocks in High Technology Ventures: The Relation to Growth, Financing, and Internationalization

The significance of boards of directors is often considered minor in unlisted companies due to the low degree of agency problems. Research on the topic has also been limited due to data access issues. However, networks are essential to the success of internationalizing new ventures and interlocked boards of directors have the potential to act as important information and resource conduits. To improve understanding on these dynamics, we performed an exploratory cluster analysis on board interlocks of Finnish software companies using board data we obtained from the Finnish Trade Registry and a custom survey. Our results indicate that companies that have international revenue are often interlocked with each other. In addition, companies without international revenue plan to internationalize if they have an interlock to a company that has international revenue. Our results are mirrored against management theory and future research is outlined.

Innovation as a driver of internationalization in the software industry

Innovation and internationalization are two important factors for growth. This study analyzes whether innovativeness has an effect on the internationalization of software firms, and if so, how strong this effect is. Innovation and internationalization have rarely been studied together, with research tending to focus more on the relationship between innovations and growth. However, internationalization is a key prerequisite for growth for companies operating in small domestic markets. This paper analyzes the innovativeness and internationalization of firms, using data from the Software Industry Survey conducted in Finland. Since the speed of firm growth and internationalization are dependent on the willingness to grow and the age of the firm, these variables are used as moderators in the analysis. Our analysis suggests that innovativeness does contribute to internationalization; however, the effect is significant only for younger firms during their expansion to new markets, after which they prioritize revenue growth.