The ‘visible hand’ behind cooperation in franchising: A model of franchisor practices that influence cooperation within social networks

Although scholars recognise that social networks within marketing channels can enhance cooperation (the implementation of joint goals), research provides a deficient understanding of how suppliers can efficiently manage them. Our study investigates the ‘visible hand’ behind franchising cooperation by asking: How do franchisors build cooperation within franchise systems? Using multiple case study research on retail franchises recognised for high-quality cooperation, our study builds a model of how franchisor practices maintain and increase cohesive ties that foster cooperation within the franchising community; a type of social network nested within the franchise system. This model is underpinned by social capital theory, self-categorisation theory, and the constructs relational norms and behaviour from research on marketing channels. Our study provides insight into the key organisational, social network, and individual agency drivers of cooperation within branding marketing channels. This provides an understanding of: 1) how centralised organisational practices interact with individual agency to maintain efficient cooperation, and 2) heterarchical processes to improve cooperation efficiency.     

Determinants of Monitoring Capabilities in International Franchising: Foodservice Firms within East Asia

This paper undertakes an exploratory study on determining capabilities of international franchising within East Asia. There is a need to develop a deeper understanding in franchising within East Asia as much of the franchising literature is based on the U.S. experience. Findings from this paper indicate that international franchisors use a combination of mechanisms to prevent franchisee opportunism in East Asia. They include ex-ante bonds, performance schedules and formal controls in brand management. However, the effectiveness of these mechanisms depend on the capabilities of the franchisor to negotiate a high initial franchise fee, select the right franchisee and make adaptation but still maintain brand integrity.     

Expanding the conceptual domain of governance in franchising

We propose a model that expands the conceptualization of governance in franchising that acknowledges traditionally ignored stakeholders, including debt and equity holders. Though research has examined how equity holders benefit from the organizational form of franchising, it has not examined the specific role that equity or debt holders play in governing franchise organizations. Additionally, the unique ontology of franchising, which includes semi-internal members of the organization (i.e., franchisees) that invest their own assets and maintain their own balance sheets, provides a rich context for exploring such governance issues. Franchisees exist outside traditional firm boundaries and are not employees, but they are closely linked to the brand given their significant investments in firm-specific assets. Franchisee-based organizations also are growing their own corporate structures and investments in firm-specific assets, sometimes dwarfing those of their franchisor partners. By expanding the concept of governance in franchising, we open avenues for significant scholarship that can enrich both the governance and franchising literatures. We provide several preliminary propositions and constructs to help encourage new research in this emerging arena of franchising research.     

Franchisor–franchisee supply chain cooperation: Sharing of demand forecast information in high-tech industries

In order to maintain their competitive edges in the market, high-tech firms cannot simply rely on superior technology alone. In addition, due to rapid technological changes, market demands in the high-tech industries have become volatile and difficult to forecast. This study proposes an option (i.e. franchising) that high-tech firms can use in order to expand their markets and improve firm performance. We also utilize a Bayesian forecasting methodology in order to address information sharing between the franchisor and franchisee. Our study demonstrates how high-tech franchising firms can benefit from information sharing of demand forecasts when franchising in order to enhance franchise performance. We also show that a profit sharing mechanism that results in optimal profits for the franchisor and franchisee. The study fills the research gaps that currently exist in the franchising literature and provides important managerial implications for practitioners in B2B markets.     

Impact of positioning strategies on franchise fee structure

Despite its importance, positioning has not received due attention in the business-to-business (B2B) context. Using franchising as the B2B context, this study identifies the positioning strategies employed by franchisors and investigates their relationship with the franchise fee structure, i.e. upfront fee and royalty rate. Content analysis of 100 franchisor websites (Study I) reveals three broad types of positioning strategies used – reliability (signaled by franchising experience, network size, internationalization and ownership percentage), service orientation (signaled by classroom and on-the-job training, and support), and selectivity (signaled by franchisee net worth). Next, using data for 1234 US franchisors (Study II) this study finds that both upfront fee and royalty rate are positively associated with network size, classroom and on-the-job training; and negatively with franchising experience and support services. In addition, internationalization is positively associated with only royalty rate; and ownership percentage and franchisee net-worth are negatively associated with only upfront fees. This study extends B2B positioning literature by offering a typology of brand positioning strategies and evidence that positioning strategies influence price premiums.     

Contractual restraints and performance in franchise networks

Contractual control in franchising is exercised by using the following clauses: exclusive dealing, exclusive territory, tying arrangement, resale price maintenance, real option, lease control, alienation and non-competition covenants. Previous research has not explained the performance consequences of these contractual restraints in franchise contracting. This study examines - from a franchisor perspective - the impact of individual (disaggregated) and bundled (aggregated) contractual restraints on franchise system performance. In line with transaction cost theory predictions, the aggregated approach shows that bundling of contractual restraints increase franchise system performance (i.e. profitability and efficiency). The results of seemingly unrelated regression analyses based on data from the German and Swiss franchise sector provide support for most of the hypotheses. Overall, this study contributes to the franchising and marketing channel literature by presenting a new approach to analyze the performance consequences of a bundle of contractual restraints in franchise contracting.     

Knowledge management and franchise systems

Knowledge management is generally recognized as a resource for sustainable competitive advantage. Many organizations have approached knowledge management through the use of information technology. However, results are mixed, primarily because (1) information is merely one aspect of knowledge management, (2) some types of knowledge are difficult to transfer effectively and (3) the structure and culture of organizations may inhibit knowledge transfer. In this study, we examine knowledge management in a franchising context because franchisors and franchisees are independent entities linked together in a contractual (some even use the word hybrid) relationship. In addition, the ’product or service’ offered by a franchise organization is an outcome of knowledge resources and the success of a franchise system depends on how well the parties involved in a franchise system leverage their knowledge resource. Specifically, we explicate types of knowledge, discuss the differences between traditional and network franchise organizations and develop a framework for knowledge management in franchise systems.     

Dynamic or Static Capabilities? Process Management Practices and Response to Technological Change*

Whether and how organizations adapt to changes in their environments has been a prominent theme in organization and strategy research. Within this research, there is controversy about whether organizational routines hamper or facilitate adaptation. Organizational routines give rise to inertia but are also the vehicles for change in recent work on dynamic capabilities. This rising interest in routines in research coincides with an increase in management practices focused on organizational routines and processes. This study explores how the increasing use of process management practices affected organizational response to a major technological change through new product developments. The empirical setting is the photography industry over a decade, during the shift from silver‐halide chemistry to digital technology. The advent and rise of practices associated with the new ISO 9000 certification program in the 1990s coincided with increasing technological substitution in photography, allowing for assessing how increasing attention to routines through ISO 9000 practices over time affected ongoing responsiveness to the technological change. The study further compares the effects for the incumbent firms in the existing technology with nonincumbent firms entering from elsewhere. Relying on longitudinal panel data models as well as hazard models, findings show that greater process management practices dampened response to new generations of digital technology, but this effect differed for incumbents and nonincumbents. Increasing use of process management practices over time had a greater negative effect on incumbents' response to the rapid technological change. The study contributes to research in technological change by highlighting specific management practices that may create disconnects between firms' capabilities and changing environments and disadvantage incumbents in the face of radical technological change. This research also contributes to literature on organizational routines and capabilities. Studying the effects of increasing ISO 9000 practices undertaken in firms provides an opportunity to gauge the effects of systematic routinization of organizational activities and their effects on adaptation. This research also contributes to management practice. The promise of process management is to help firms adapt to changing environments, and, as such, managers facing technological change may adopt process management practices as a response to uncertainty and change. But managers must more fully understand the potential benefits and risks of process management to ensure these practices are used in the appropriate contexts.     

Investments to create bargaining power: the case of franchising

Hybrid organizational forms such as franchise systems join two or more independent parties under a contract. The ability of each party to achieve its goals depend upon the relative bargaining power in the relationship established by the contract. Using transaction cost economics and Porter's (1980) characterization of sources of bargaining power, this paper argues that the franchisor can make investments in activities such as tapered integration and buyer selection to increase its bargaining power and decrease conflict and litigation in a franchise system. Specifically, tapered integration (owning some units while franchising others), selecting inexperienced franchisees, and employing a long training program are predicted to increase the franchisor's bargaining power and the franchisee's compliance with franchisor standards. An empirical analysis of litigation in restaurant franchise systems supports the theoretical hypotheses. Copyright © 2000 John Wiley & Sons, Ltd.     

Acts of hidden franchisee innovation and innovation adoption within franchise systems

Franchising, as an imitative business model, provides a challenging context to create and manage innovation, as franchisors may wish to limit their franchisees' innovative activities to ensure network consistency. Drawing on data from two related empirical studies of franchisees operating in the UK, we seek to understand how franchisees contribute to innovation within their systems. Our first quantitative study reveals that although many franchisees develop innovations, these innovations are not always adopted by the franchise system, suggesting acts of hidden innovation. These findings motivated our second, qualitative study. Through a case analysis of 29 franchisees from 7 different franchise systems, we identify a number of organizational and relational factors that influence both franchisee engagement in innovation, and the extent to which their innovations are disclosed to the network. From these, we develop a theoretical framework of franchisee-led innovation processes, which contributes to the role of social exchange theory in innovation practices within business-to-business contexts. Our findings extend emerging research on innovation in franchise systems, and also provide practical insights on how franchisees can be best supported in creating and disclosing innovations to benefit the franchise system.     

Opportunistic behaviors in franchise chains: the role of cohesion among franchisees

This paper explores social processes between franchisees as a way to control franchisee opportunism. Based on the literature of socio‐psychological and interorganizational relationships, we argue that cohesion among franchisees is negatively associated with opportunistic behaviors that are potentially harmful to the whole chain. We use multilevel and multisource data to show that perceptions of cohesion among franchisees relate both to a) how franchisees apply know‐how from franchisors (i.e., deviation from chains standards), and b) whether they transfer or withhold information that could be useful to the franchise system (i.e., information withholding). Our results underscore the importance of relationships among franchisees, an underexplored component of franchising. Copyright © 2010 John Wiley & Sons, Ltd.     

Zooming in on co-creation practices of international franchisors

There is limited knowledge on value co-creation in international franchising despite the collaborative nature of this major foreign entry mode. This article zooms in on international franchisors' co-creation practices through in-depth interviews with 28 French franchisors and 25 of their foreign franchisees, offering three main contributions. First, the interviews reveal that franchisors do not always co-create value with their franchisees. Instead, franchisor-franchisee co-dependency manifests in both value co-creation and facilitation. Second, this research offers a typology of the domains of co-creation in franchising, showing that franchisors can participate in foreign franchisees' value creation processes during the set up and launch of the franchise abroad, training and knowledge dissemination, adaptation of the offering, and management of problems. Third, it offers a typology of seven franchisor co-creation styles – mentor, custodian, broker, partner, strategically focused, controlling principal, and chameleon – and their underlying dimensions in terms of franchisor activities and preferences. The mapping of co-creation domains and styles offers international franchisors a detailed account of the practical ways to support their foreign franchisees' value creation processes depending on their preferences, resources, and capabilities.     

On the existence of franchise contracts and some of their implications

We characterize the franchising problem as a contractual agreement between a principal and multiple agents. The contract contains a revenue-sharing rule, the level of national expenditures by the franchisor and the number of units to be enfranchised. The franchisor offers the contract to a group of potential agents whose attitudes toward risk and effort differ. The revenue of a franchise unit is determined by decisions of both parties as well as a random perturbation. Under certain conditions, we establish the existence and uniqueness of an expected utility maximizing franchise contract with the property that the royalty payment to the franchisor never exceeds one-half the revenue. We provide an explanation for the use of a common contract and argue that, in reality, it is non-linear. We show that this common, non-linear contract attracts agents deemed desirable by the franchisor.     

Centralized and Decentralized Contracts in a Moral Hazard Environment

We study the optimal allocation of the contracting capacity in a moral hazard environment. Centralizing is superior when the principal is able to establish all the contracts with the agents simultaneously and she is able to monitor side contracting between the agents. Otherwise, decentralizing can be a superior strategy. We apply our results to a firm's decision on which outlets to franchise. They suggest that franchising is more likely to occur the further the store is from headquarters, the more isolated it is and in those activities where the risk is low. This conclusion is consistent with empirical studies.     

Franchising brand benefits: An integrative perspective

Despite significant advances in the study of B2B branding, including several contributions and special issues in this journal, the specificities of franchising, a subfield of B2B relationships, dictate further investigation. In effect, the franchise branding literature remains largely fragmented and dependent on data from a single stakeholder source. This paper attempts an integrative view of franchise branding by examining brand benefits from three theoretical perspectives (brand as a resource, brand as knowledge, and brand as a relationship fulcrum) and data from two stakeholders. Specifically, the objective of this paper is threefold: to offer a comprehensive view of brand benefits for franchisees, as perceived by both franchisees and franchisors, and considering their evolution throughout the franchise relationship lifecycle. 37 interviews with franchisees (n = 22) and franchisors (n = 15) reveal diverse brand benefits, including new insights related, for instance, to experiential benefits which have received very limited attention in B2B branding. The study also unveils significant perceptual gaps, with franchisors having a much narrower view of brand benefits than franchisees, which could potentially be detrimental for this subtype of B2B brands. Based on the findings, we also develop a tool that helps franchisors manage their brand benefits (i.e. deploy, emphasize or downplay individual benefits) over the lifecycle of their relationship with each franchisee.     

Negotiating agency in mitigating franchisee failure: A critical discourse analysis

This study examines how asymmetries of agential power in franchisor-franchisee relationships contribute to franchisee failure, and how franchisees can negotiate agential power to mitigate failure. Based on a critical discourse analysis, the research findings establish that franchisor dominance during three core stages of the franchisee lifecycle – notably at the pre-launch, inauguration and operation phases – influences franchisee failure. Supporting a theorization based on the agencing framework, this paper presents a nuanced understanding of how agential power is attributed and negotiated in franchise relationships, and portrays franchisees as proactive actors capable of negotiating a stronger, counteractive, agential power position. We introduce the agencing framework as an important governance mechanism for franchise relations and raise implications for managing power-imbalances in franchise relationships.     

Digital Machines,Space, and Time: Towards a Behavioral Perspective of Flexible Manufacturing

Recently, the diffusion of digital machines has further enhanced firms’ manufacturing flexibility, but also opened questions on potential challenges and implications in the production process. To respond to these timely issues, this study adopts a behavioral perspective and comparatively explores how four different types of digital machines—characterized by increasing degrees of manufacturing flexibility—affect the perception and use of space and time for routines within the production plant. To this end, 45 digital manufacturing machines, sampled across 14 firms in the British and Italian motorsport industry, were qualitatively observed and compared. A model emerges where four key mechanisms reshape (1) the interactive space around the machine, (2) the innovation activities performed in the machine space, (3) the time within activities involving the machine, and (4) the time perception. Such mechanisms mediate the relationship between manufacturing flexibility and firm performance. Further, data show how increasing digitalization in the manufacturing process enhances the establishment of new routines as flexible machines get introduced in the production. Finally, theoretical and practical implications related to fostering a behavioral perspective in innovation and operations management studies are discussed.     

Evolving communication patterns in response to an acquisition event

This study uses network data of worker behavior to analyze changes in worker communication patterns during the first three years post‐acquisition. The findings suggest that new communication routines develop slowly and are not entirely enduring even when a transformative event, such as an acquisition, occurs. Communication across firms initially increases as workers change their routines. However, over time this communication peaks and then falls as workers develop common ground. Communication across firms was greater when workers' tasks were interdependent. Overall, this study demonstrates that communication routines persist even after an organizationally transforming event. It illustrates the importance of both the formal and informal organization as well as the promise of using social network methods and communication log data to study social phenomena of strategic interest. Copyright © 2011 John Wiley & Sons, Ltd.     

Performance of Global New Product Development Programs: A Resource-Based View

Gaining a competitive edge in today's turbulent business environment calls for a commitment by firms to two highly interrelated strategies: globalization and new product development (NPD). Although much research has focused on how companies achieve NPD success, little of this deals with NPD in the global setting. The authors use resource‐based theory (RBT)—a model emphasizing the resources and capabilities of the firm as primary determinants of competitive advantage—to explain how companies involved in international NPD realize superior performance. The capabilities RBT model is used to test how firms achieve superior performance by deploying organizational capabilities to take advantage of key organizational resources relevant for developing new products for global markets. Specifically, the study evaluates (1) organizational NPD resources (i.e., the firm's global innovation culture, attitude to resource commitment, top‐management involvement, and NPD process formality); (2) NPD process capabilities or routines for identifying and exploiting new product opportunities (i.e., global knowledge integration, NPD homework activities, and launch preparation); and (3) global NPD program performance. Based on data from 387 global NPD programs (North America and Europe, business‐to‐business), a structural model testing for the hypothesized mediation effects of NPD process capabilities on organizational NPD resources was largely supported. The findings indicate that all four resources considered relevant for effective deployment of global NPD process capabilities play a significant role. Specifically, a positive attitude toward resource commitment as well as NPD process formality is essential for the effective deployment of the three NPD process routines linked to achieving superior global NPD program performance; a strong global innovation culture is needed for ensuring effective global knowledge integration; and top‐management involvement plays a key role in deploying both knowledge integration and launch preparation. Of the three NPD process capabilities, global knowledge integration is the most important, whereas homework and launch preparation also play a significant role in bringing about global NPD program success. Tests for partial mediation suggest that too much process formality may be negative and that top‐management involvement requires careful focus.     

Firms' heterogeneity,relationship embeddedness,and innovation development in competitive alliances

Few studies have investigated the effects of firms' heterogeneity in the context of competitive alliances' innovation development efforts. Prior research has mainly focused on how relationship embeddedness facilitates innovation development, with little attention to heterogeneity among firms and the role it might play. We addressed this gap by examining the relationships among firms' heterogeneity, relationship embeddedness, and innovation development in competitive alliances. We distinguished three dimensions of firms' heterogeneity and collected data from 481 surveys. We demonstrated that heterogeneity with regard to operational routines and organizational responsiveness, heterogeneity was found to have positive direct effects on innovation development while also undermining relationship embeddedness. By contrast, technological heterogeneity had a positive effect on both innovation development and relationship embeddedness. Competitive-alliance firms are more sensitive to heterogeneity regarding operational routines than to organizational responsiveness. These findings highlight the importance of overcoming the adverse effects of firms' heterogeneity through several means, such as full interpretation, observation, and offsetting incongruence through intermediaries or brokers. This study contributes to the strategic management and embeddedness literature by examining the implications of firms' heterogeneity and identifying how these effects influence relationship embeddedness as antecedent factors.