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

Abstract

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.