Business Format Franchising Research Articles

Knowledge creation and business format franchising

PurposeThis article aims to contribute to the study of knowledge creation and management in business format franchising by focusing on the question of how franchisors can convert the tacit knowledge held by franchisees (such as insights, ideas, and hunches) to explicit knowledge.Design/methodology/approachThe article is conceptual and is largely anchored on the assumptions of the knowledge management, theories of organisational learning and organisational knowledge creation theory.FindingsThe findings emphasise that the conversion of franchisees' tacit knowledge to new explicit knowledge is one of the key knowledge management practices required for successful business format franchising. Proposes that the concept of ba has much to offer in considering knowledge management in a business format franchise system.Research limitations/implicationsWith regard to future research avenues, conceptual and empirical studies are both needed to obtain a clearer understanding of the dynamic process of knowledge creation under business format franchising.Practical implicationsThe article sensitises franchisors to think how knowledge is created under business format franchising, and in particular how the tacit knowledge that franchisees provide can be converted into the form of explicit knowledge. Underlines that franchisors can never control and direct dynamic process of knowledge creation among franchisees, but a franchisor can provide certain conditions that lead franchisees and other members of franchise system to create and disseminate knowledge.Originality/valueThe article proposes that both tacit and explicit knowledge under business format franchising are created in formal or informal groups encompassing bas that may span both horizontally and vertically throughout the business format franchise system.

A Case Study of the Adoption and Use of Information Systems Technology in a Business-Format Franchise

This research identifies factors that influence technology use and adoption within the context of a growing international commercial and residential moving franchise system. This mixed method study explores differences in attitudes and expectations about technology between the franchisor and its franchisees. Franchise systems are different than other small or medium sized businesses because there are many individuals running their own relatively small business, yet they are still part of a larger whole. Running a successful business requires time, and individual franchisees tend to be more interested in spending that time on their day-to-day operation rather on addressing the information needs of the franchisor. As a result, franchisors often feel that the technologies they offer to facilitate information sharing are underutilized. A set of recommendations is provided for maximizing franchisees’ acceptance and usage of the technologies.

Toward a relational perspective of franchising chains

In many professional and services industries, firms try to scale up their operations by reproducing practices in new locations through franchising arrangements, especially business format franchising. The classic but still prevailing explanations for franchising related phenomena, especially the initiative of franchising, the propensity to franchise, and the franchise performance, are mostly based on two orders of reasons (or a combination of them): franchising is either explained as a means to deal with resource scarcity or (and) as a mechanism for franchisor and franchisee to align incentives between themselves. However, empirical studies have shown limited support for both such claims, especially in face of the so called plural form, where proprietary and franchised units of the same franchisor co-exist. It may also be argued that the traditional literature on franchising has assumed a high level of homogeneity within and between franchising “networks,” possibly due to the perception that they tend to be “dominated” by a high level of standardization and replication of practices, both operative and relational. However, learning processes in such “networks” have recently been brought in as an attempt to capture other mechanisms that may underlie their operation and sustainability. This article seeks to explore a third perspective to look at franchising “networks,” by drawing from the literatures on capabilities and industrial networks. Seen from this perspective, business format franchising may involve more than the mere replication or exploitation of a recipe, especially if we take into consideration the partly idiosyncratic nature of both the relationships between actors and their capabilities and intentions. Within this perspective, variety preservation, and not only uniformity, may be recognized by participants as relevant for the performance of the franchise chain. In other words, variety may reflect the need for the refinement of the “package” throughout time, in more than one ways, together with the gradual development of the network and the learning experiences that take place in that context.

Business format franchising: a strategic option for business growth – at home and abroad

PurposeThe purpose of this paper is to highlight the business growth opportunities available from franchising in the UK and abroad.Design/methodology/approachThe paper presents the value of franchising for strategic business development.FindingsThe paper finds that franchising is becoming one of the most popular methods for growing a business, particularly where international growth is an objective. It should be seriously considered by any business which operates through a network of outlets.Practical implicationsJust about any business that operates through a branch network could benefit from considering franchising as a development option. In simple terms, the advantages include quicker growth through more highly motivated operators, using someone else's money and effort, to open and run the outlets.Originality/valueThe paper highlights franchising as a development option for businesses that operate through a branch network.

Standardisation versus Adaptation: Geographical Pressures to Deviate from Franchise Formats

There is a tension in business format franchising between, on the one hand, standardisation and uniformity and, on the other hand, geographical variations in market conditions and resource availability. Previous research has demonstrated in the case of independent small firms that local geographical conditions influence business strategy. This paper examines whether variations in the local geographical environment, notably in terms of demand and supply side conditions, affect format implementation and whether franchisors permit franchisees to make local adaptations of the format in response to local environmental conditions. The study is based on interviews with 40 UK-based franchisors, all of whom were at the later stages of roll-out or in the consolidation stage of network development. Local variations in the business environment do create a conflict with the need to maintain the uniformity of the franchise format. Adaptation was restricted to peripheral format components. No changes were made to the core format components. Most franchisors recognise that their franchisees are an important source of innovation. However, implementation of franchisee ideas across the system is found in only a minority of cases. These findings link to the franchisee control–autonomy debate, confirming other studies which suggest that franchisees enjoy considerable operational autonomy.

Entrepreneurial global franchise ventures: US and European franchisee failure strategic and empirical perspectives

Rapid United States and European franchise growth offers potential benefits for stakeholders and host counties, as well as the potential for failure. Franchisee failure research is a complex area confounded by varying failure definitions, approaches, an event-focus, and single-year data. This paper includes a strategic franchisee failure perspective that views franchisee failure as a multi-stage process rather than an event; new longitudinal data from the United States for over 780 franchise systems and 292,000 franchise units and United Kingdom franchisee failure data for over 700 franchise systems and 31,000 franchisee units; and estimates of current European business-format franchise market size, including selected Central and Eastern European countries. Understanding and mitigating franchisee failure provide potential lessons for franchisors and franchisees. Franchisee failure and the strategic implications for franchise entrepreneurial ventures is a significant research area that merits further study and analysis.

Dual Distribution and Intangible Firm Value: Franchising in Restaurant Chains

Dual distribution systems in which firms use vertical integration and market governance simultaneously are widely used across diverse marketing contexts (e.g., restaurants, retailing, industrial selling). A prominent example of dual distribution includes business format franchising, in which firms (i.e., the franchisors) license the operation of some of their units to franchisees while owning and operating some units themselves. Despite the widespread prevalence of dual distribution, there are few insights into its performance implications. In this article, the author examines the relationship between a firm's dual distribution strategy and its intangible value. Franchising in restaurant chains serves as the empirical context for the study. It is proposed that a firm's dual distribution strategy affects its intangible value both independently and jointly with a set of firm characteristics. The author considers the firm's age, scope of vertical integration, advertising, financial leverage, and financial liquidity as firm characteristics that influence the relationship between dual distribution strategy and intangible value. The author measures the firm's dual distribution strategy by the proportion of its franchised units to its total units and intangible value by its Tobin's q. The author estimates the proposed model using panel data on 55 publicly listed U.S. restaurant chains for the period 1992–2002. Unobserved firm heterogeneity is accommodated using latent class regression analysis. The results support a four-segment model. Dual distribution increases intangible value for some firms but decreases intangible value for others, both independently and in conjunction with other firm characteristics.

Dual Distribution and Intangible Firm Value: Franchising in Restaurant Chains

Dual distribution systems where firms simultaneously use vertical integration and market governance are widely used across diverse marketing contexts (e.g., restaurants, retailing, and industrial selling). A prominent example of dual distribution includes business format franchising, where firms, the franchisors, license operation of some of its units to franchisees while simultaneously owning and operating some units themselves. Despite the widespread prevalence of dual distribution, there are few insights on their performance implications. In this paper, I examine the relationship between a firm's dual distribution strategy and its intangible value. Franchising in restaurant chains serves as the empirical context for the study. I propose that a firm's dual distribution strategy will affect its intangible value both independently and jointly with a set of firm characteristics. I consider the firm's age, the scope of its vertical integration, advertising, financial leverage, and financial liquidity as firm characteristics influencing the relationship between dual distribution strategy and intangible value. I measure the firm's dual distribution strategy by the proportion of its franchised units to its total units and intangible value by its Tobin's Q. I estimate the proposed model using panel data on 55 publicly-listed U.S. restaurant chains for the period 1992-2002. Unobserved firm heterogeneity is accommodated using latent class regression analysis. Results support a four segment model. Dual distribution increases intangible value for some firms, but decreases intangible value for others, both independently and, in conjunction with other firm characteristics.

The Effects of New Franchisor Partnering Strategies on Franchise System Size

Many young firms use strategic actions to attract partners who help them increase the size of their operations quickly. This article examines the use of strategic actions to attract partners and increase system size in the context of franchising. We build on research in entrepreneurship, marketing, organization theory, strategic management, and finance to develop specific hypotheses about the influences of franchisor pricing policy and strategic control decisions on system size. We test these hypotheses empirically, using panel data on a sample of 1,292 business format franchise systems from 152 industries that were established in the United States between 1979 and 1996 and followed from their inception forward in time. Our model accounts for the endogeneity of strategic decisions, controls for unobserved firm and industry factors, and accounts for selection effects due to system failure. The results show that franchisors that grow larger (1) lower royalty rates as the systems age, (2) have low up-front franchise fees that rise over time, (3) own a small proportion of outlets and lower that percentage over time, (4) keep franchisees’ initial investment low, and (5) finance their franchisees.

Franchising and the Potential for Economic Development in Africa

ABSTRACT This paper examines the contribution of franchising to economic development in Africa. It is based on a recent questionnaire/interview survey of 52 franchising systems (franchisors and franchisees) in South Africa, Egypt, Morocco, and Côte d'lvoire done for the African Development Bank. The paper explores the role of franchising in the promotion of entrepreneurship, employment creation, transfer of technologies and know-how, innovation, the generation of foreign exchange earnings, poverty alleviation, and the enhancement of saving. Franchising is defined here as business format franchising (excluding thereby pure trademark franchising, in which the rights to a company identity would not be accompanied by the product itself; the processes, specific business know-how, training, etc.). The study concludes that franchised business has experienced very strong growth, especially in South Africa, and that it contributes significantly to technology transfers, employment creation, and poverty alleviation.

Franchisor use of influence and conflict in a business format franchise system

PurposeThis study aims to examine the relationship between a franchisor's use of different types of persuasive communication to influence its franchisees and franchisee perceptions of conflict in the franchise relationship.Design/methodology/approachMultiple regression analysis of survey data collected from franchisees of a US‐based franchise system.FindingsData analysis indicates that a franchisor's use of requests, threats, and legalistic pleas is positively related to conflict in the franchisor‐franchisee relationship. These relationships are not moderated by franchisee dependence. Franchisee dependence, does however, negatively moderate the relationship between the franchisor's use of recommendations and conflict. The franchisor's use of information exchange and promises and conflict are not related. The results suggest that business format franchisors should use information exchange and promises and restrain from using requests, threats, and legalistic pleas to influence their franchisees. Recommendations should be used to influence franchisees who are highly dependent on the franchisor.Research limitations/implicationsFuture research should validate the findings of this study using data collected from business format franchisees in different cultural environments.Originality/valueThis is the first empirical study to examine the relationship between a franchisor's use of different types of persuasive communication and conflict in the business format franchise setting.

Franchising the american elementary and secondary educational system

To solve the education “woes” of the U.S., many experts have looked to both command economies (standardized curriculum), and competitive markets (e.g. school choice and school vouchers), for answers. This normative research explores an optimal mix between market economies and command economies in education through the use of the business-format franchising structure. Franchising, an organizational form lying between the extremes of markets and hierarchies, would establish a standardized curriculum composed of those components of education that are deemed essential to the educational growth of our students. At the same time, franchising allows for levels of autonomy for educational institutions that would enable them to effectively target the additional needs and preferences of their local area, which in turn develops competitive markets in which schools compete for student enrollment thereby remedying the moral hazard problem. Finally, two additional characteristics that make this format attractive in tackling the problems in education are its continuous transfer of “know how” and its regular technical assistance. In the context of education, these characteristics translate into necessary links between educational theory and practice as well as national research and training grounds for teachers and administrators.

The failure of business format franchising in British forecourt retailing: a case study of the rebranding of Shell Retail’s forecourts

As a result of an increasingly competitive petrol retailing environment and the rise of convenience stores in the food retailing sector, oil companies in Britain in the 1980s began to diversity into food retailing and convert their petrol stations into forecourt convenience stores. Drawing on case study evidence of Shell Retail, the paper examines how the company attempted to build its organisation into a strong brand by rebranding its forecourt outlets and introducing business format franchising to manage them. Utilising franchising, branding and food retailing literatures, the work investigates not only why Shell Retail believed business format franchising was more appropriate than traditional franchising or in‐company management for its rebranded forecourts but also the factors that eventually caused the arrangement to fail. In particular, the paper analyses the problems relating to business format franchising that Shell Retail encountered in order to provide guidance for other retailers who may be considering using it as an instrument in the rebranding process.

Entrepreneurial Ventures and Small Business

Both small and large businesses are of critical importance to the performance of the economy. It is useful however to draw a distinction between entrepreneurial ventures and individual and corporate entrepreneurship since they serve different economic functions and their potentials for innovation and growth are different. In this paper, drawing upon entrepreneurial strategy formation perspective, entrepreneurial marketing, and value innovation logic for high growth, a model of a transitional entrepreneurial mode for the behaviour and the strategic approach of the entrepreneurial venture is introduced. It is proposed that a shift into the entrepreneurial mode is instrumental in planning and initiating new ventures, and, in achieving a forward leap in the growth trend at any point in the life of ongoing ventures. The study of the franchised business, the business format franchisor and their partnership as examples of individual, corporate and collective entrepreneurship contributes to the domain of entrepreneurship research. The growing appreciation of franchising as an entrepreneurial endeavour presents us with a multiple disciplinary perspective is attracting the attention of marketing, management, entrepreneurship and small business researchers. The roles of the franchisor and the franchisee in business format franchising are discussed in order to demonstrate the limitations of small business in adopting an entrepreneurial mode.

Entrepreneurial Paradoxes in Business Format Franchising: An Empirical Survey of Finnish Franchisees

MiiK- TUUJNANEN IS ASSOCIATE PROFESSOR at the University ofJyvaskyla, School of Business and Economics, Finland. Kimmiiiio Hyrsky is researcher at the Ministry of Trade and Industry in Finland. The study explores Finnish franchisees' entrepreneurial chai-acteristics and the advantages and disadvantages they encounter in operating their businesses. It adds to our existing knowledge about factors affecting success and failure in developing and sustaining amicable and rmiutually beneficial franchisee-franchisor r elationships. This is particularly relevant since recent evidence suggests that franichise survival rates and profitability are not so favourable as previously thought when compared to independent small businesses. The results displayed ttie paradoxical nature of franchisor-franchisee relationships. It was found that support given by the franchisor might gradually lose some or most of its value if it is not consistently renewed and updated. Thus, for instance, franchise fees often started to become, first a source of dissatisfaction, and later even a potential source of conflict. Moreover, the results indicated that although defining a franchisor as anl enti eprenietu- is geiierallv ac ceptecl, enltrepreneurial activities by franichisees could be viewed as a paradox. I'he motivational drives of fi-anchisees seemet to chan-ge as they become iioi- e experienced. The mioi-e experieiiced o enitrepreneuirial the franchisee was the imiore likely he or she was to becone frustrated with the frarichisor's goals.

Organizational Incentives and Organizational Mortality

Despite a long tradition of research on organizational mortality, organizational theorists have not examined the effect of incentive contracting on firm survival. This paper fills this gap by examining the effect of incentive contracting on the survival of U.S. business format franchise systems over the period 1984-1996. The paper finds empirical support for several hypotheses derived from efficient contracting theory. In general, large firms that adopt policies which screen agents, signal quality, and control agents' free-riding are more likely to survive than large firms which do not adopt these policies.

Assessing Franchising Sector Maturity: Australian Evidence

Business format franchising in Australia has been consistently growing since the start of the 1970s. The development of the franchising sector has been traced through periodic surveys from 1988 to 1998 and the latest presents an opportunity to assess the level of maturity attained. No widely accepted basis exists for measuring maturity in a nation's franchising sector. As a result, a framework for assessing the level of development is proposed, consisting of a number of attributes that may be expected to develop over time. The performance of Australian franchises is compared against these attributes wherever appropriate evidence is available from the surveys. The conclusion is reached that Australian franchising exhibits many of the attributes that indicate the achievement of a level of early maturity. Some aspects however have not yet developed to the extent expected. These offer opportunities for national franchise associations and governments to develop strategies strengthening franchise performance.

Contract Mixing in Franchising as a Mechanism for Public‐Good Provision

This paper is concerned with the coexistence of company‐owned units and franchised units in business format franchising and their different contractual arrangements. Drawing insights from case studies that indicate both the development and the maintenance of company‐wide brand names and unit‐specific sales activities are crucial to a franchise company, we construct a multitask model to account for such contract mixing in franchising. Intuitively, low‐powered contracts are offered to some managers to induce effort for brand‐name development and maintenance, while high‐powered contracts are offered to the remaining managers to elicit sales activity and capture the beneficial effect of the company brand name. Franchising can thus be viewed as an organizational agreement for production involving brand‐name products and services.

Contract Mixing in Franchising as a Mechanism for Public-Good Provision

This paper is concerned with the coexistence of company-owned units and franchised units in business format franchising and their different contractual arrangements. Drawing insights from case studies that indicate both the development and the maintenance of company-wide brand names and unit-specific sales activities are crucial to a franchise company, we construct a multitask model to account for such contract mixing in franchising. Intuitively, low-powered contracts are offered to some managers to induce effort for brand-name development and maintenance, while high-powered contracts are offered to the remaining managers to elicit sales activity and capture the beneficial effect of the company brand name. Franchising can thus be viewed as an organizational arrangement for production involving brand-name products and services.

A study of the impact of environmental uncertainty on franchise systems: the case of petrol retailing in the UK

Research has confirmed that franchise systems may change over their lifetime. It is argued that changes to franchise systems may be the result of changes in the level of uncertainty they face in their environments. It therefore examines the developments that have occurred both in the state of the environment and the nature of the franchise systems of one group of traditional franchisors in Britain – namely, the oil companies’ petrol retailing networks – over the past 20 years in order to assess the validity of this view and to shed some light on the long‐term developments of traditional franchises. In particular it considers whether increasing environmental uncertainty encourages traditional franchisors to adopt the characteristics of business format franchise agreements in order to tighten their control over their franchisees.