A new approach for specifying composites in structural equation models: The Henseler–Ogasawara Specification

For a long time, it was not clear how to properly incorporate composites, i.e., (weighted) linear combinations of variables, in structural equation models. Although the literature on structural equation modeling provides various approaches such as the one-step approach and the two-step approach, they do not allow researchers to model composites in a flexible way as they are accustomed from modeling latent variables. To overcome this limitation, the recently introduced Henseler-Ogasawara (H–O) specification is presented. In the H–O specification, not only one composite, but as many composites as indicators are extracted per block. Additionally, the relationship between the composites and their indicators is expressed by loadings instead of weights. As a consequence, the H–O specification allows researchers to model composites in a flexible way. Particularly, composites can be included as dependent variables in a structural model and composites with fixed or free weights can be specified.