The Industrial Strategies Of Organizational Franchising Commerce Essay

Published: Last Edited:

This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

The recent years advertising of private enterprise is based on the expectation that industrial activity is the means to solve a variety of national and global economic problems. The important is that enterprise in the form of new venture creation will provide sorely needed new jobs, which will compensate in part for the downsizing undertaken by large U.S. firms to manage their debt and become more competitive in global markets. The function of franchising, as a type of industrial activity, in economic development is now receiving attention. Industrial activity by franchisors and franchisees implies a corporation in adapting to the environment and can provide a competitive advantage. The challenge for franchisors adapting to a competitive environment while at the same time preserving the integrity of the franchising system.

While the task of the franchises as industrialist is normally assumed, in the present world, situation for franchises is highly economical, undergoing rapid change, and may be more dangerous than in past. Besides, there is argument in the literature over the extent to which the franchisees system protects the franchise from the risk associated with starting any new business. Franchises grow very fast in the United States in the year 1980s. The volume is about greater than seven million, about sales approach is 34% of all retail sealing in the United States. It is approximate that by the end of the year up to 50% of all retail sales will be made through franchised business. (Aydin and Kacker 1990; Hoffman and Preble 1993; Shane 1996a). Franchising is increasing very fast due in part to the growing prevalence of multiunit expansion(International Franchise Association 1990). (Kaufmann and Dant 1996) and international

3.1 Research Question:

The extrasensory detachment structure proposed in this paper seeks to overcome a serious efficiency in the international literature; namely, the highly descriptive nature of the majority of contributions. In a proposed framework for the study of the internationalisation of retailing Akehurst and Alexander (1995) identify six key questions;

What is the internationalisation of franchising?

Who are internationalising?

Why are franchisers of internationalising?

Where are franchiser developing operations?

How are franchisers developing operations?

When does internationalisation franchising take place?

The research question deal with in this study is to what extent franchisor context is related to franchisees’ perceptions of industrial movement in the franchise system. In this research, we focus on the relation of the managerial circumstance of the franchisor to the franchisee perception of the industrial strategies of their franchisor and to support by the franchisor of industrial activity and innovation by the franchisee.


A unique feature of the franchisees system is the circumstance it provides for the personality franchise. Bird (1989) explained that the literatures that describe the significance of the context of the industrialist in economic, political, technical, and cultural terms as well as the antecedent experience of the industrialist. Industrial direction is capture by the literature on corporate private enterprise, which discusses types of industrial activity within larger firms. Those include varying the rules of opposition as proposed by Schumpeter (1934), the formation of innovative businesses, and renewal or transformation (MacMillan & Block 1993). The extent of private venture in an ongoing firm depends on the firm provided that conditions for its emergence, specifically, creating an appropriate amount of slack or potential space in the system (Gulati 1996 & Kao 1989; Nohria). The prospective for such space is a natural feature of franchising. The franchise system provides an organizational context for the franchisee that can promote or constrain industrial attribute such as proactiveness and the pursuit of aspirations that exceed current resources (Prahalad & Hamel 1996; Friesen & Miller and 1984). Most of all franchisors identify that the system they devised and sold to innovative franchisees require constant variation and re-generation. Local environments are different, requiring some flexibility and thus some occasion for the person franchisee to innovate. The franchisor context may be supply a barrier for the franchise from changes in the world as clients search for different products and services, and as new competitor come into the market. However, franchisors progressively more distinguish that many information for new products and facilities in franchising come from the field (Love 1986).

A number of studies recommend that in the world opposition increases, firms enlarge their industrial performance. Franchisors face increased competition also are more likely to appoint in industrial strategies and to push renovation on the part of franchisees. Research indicates that franchisees may exercise industrial initiatives based on local knowledge that will result in competitive advantage for the franchise system (Human& Baucus 1996). For this, we also study the different aspect of maintain that franchisors provide for industrial activity support.

4.1 Industrial Strategy

Studies of Industrial observe a number of strategy that original firms accept (McDougall and Robinson 1990). Research as commercial private enterprise discusses the different no. of strategy that is connected with an developed direction. That include the destructive detection of prospect, the capability for regeneration and modify through elasticity and adaptation, the encouragement of modernization and creativity, and the propensity to take some degree of risk (Miles and Snow 1978; Stevenson and Jarillo 1990; p. 771) identified the specific strategies that are central to an industrial orientation as the degree of proactively, willingness to take risk as opposed to being risk averse, and promoting innovation. Proactive is defined as beating competitors to the punch. Covin and Slevin (1989, p. 79) broadened the definition of proactively to represent an aggressive competitive orientation (Lumpkin and Dess 1997). These three dimensions have been used in a number of studies (Covin and Slevin 1989; Lumpkin and Dess 1996).

However, recent research indicates that the dimensions may vary independently. Lumpkin and Dess (1997) suggest that proactiveness and aggressive competitiveness are separate and distinct concepts. Proactiveness is defined as seeking new opportunities that may or may not be related to the present line of business (Venkataraman 1989, p. 949). Reasonable aggressiveness refers to the intensity of a firm’s effort to outperform its rivals in the same industry (Lumpkin and Dess 1997, p. 3). Dimensions of an industrial orientation are propensity to undertake some risk, proactiveness, and competitive aggressiveness. However, more recent research on corporate private enterprise suggests that a fourth dimension should be included: the capacity for adaptation and renewal as opposed to the bureaucratic concern for stability (Hamel and Prahalad 1996; Stevenson and Jarillo 1990; Stopford and Baden-Fuller 1994). The Private enterprise and innovation literature also discusses the importance of both rewards and special organizational devices, for example, the presence of product champions (Kanter 1985; Shane 1994), to support innovation and industrial activity (Block and MacMillan 1993; Dougherty and Hardy 1996). Managerial support for corporate Private enterpriser is viewed as important for promoting an effective industrial environment (Kuratko, Montagno, and Hornsby 1990). In the case of franchising, support for industrial activity by franchisees may be built into the system through a champion at the franchisor firm or some formal program of recognition.

4.2 Organizational Background of the Franchisor

Bird (1989) claims that the two inherent liabilities that are barriers to industrial firms are being new when others are older, and small size when others are large. The liability of age and size were identified by Stinchcombe (1965) and studied by a number of researchers (Venkataraman and Low 1994). Aldrich and Auster (1986) describe several ways that larger, established organizations use to cope with the liabilities of age and size. Franchising is included in their discussion as a strategy through which organizations maintain themselves by creating and drawing from smaller, newer organizations. Thus franchising also provides an example of smaller, newer organizations sustaining themselves with a strategy of establishing ties to older organizations and overcoming some of the liabilities of age and size.

4.3 Organization Volume

A lot has been said about the effects of size on organizational dimensions and industrial activity (Scott 1992). The larger an organisation is the more it tends to be rigid in terms of creativity and modernization. (Block and Ornati 1987) A number of examples of the structural arrangements that large organizations make to override self-important procedures and promote innovation are found in the literature. These include certain reward systems and the skunk works described by Peters and Austin (1985). These examples illustrate the extent to which industrial activity has to be protected from the bureaucracy present in large organizations. Even with a variety of structural mechanisms and the best of intentions, large organizations appear to fail more often than succeed in the industrial arena This leads us to the fact that larger the franchising firm, the less likely industrial strategies will be pursued, which means, the larger the firm, the greater the concern with stability. (Block and MacMillan 1993). The larger the firm, the less likely the organisation tends to make its strategies proactive. The larger the firm, the less likely it is to be aggressive. There is considerable evidence in the literature that innovation is more difficult for large firms than for small firms (Block and MacMillan 1993; Foster 1986; Hamel and Prahalad 1996). Although there are exceptions to this phenomenon, For Example, Apple thrives for innovation; most large firms have difficulty with innovation in terms of structuring, supporting, and rewarding the activity (Peters and Austin 1985; Venkataraman and Low 1994).

Small firms on the other hand have an advantage in the area of flexibility. They have a quick response time, because of their irregular structure, less number of decision making layers or small scale of operations and less risk A solution to the problem of innovation and size that the large organisations have sought is to set up a small sister concern and pursue innovation to avoid the bureaucratic constraints of the larger firm Another explanation for the effect of size on innovation is that due to the scale of operation managers in most large-established organizations have a good deal to lose financially from industrial activity (Block and MacMillan 1993). On the other hand, top level decision makers of small firms are viewed as having less to lose and therefore more to gain by operating with innovation and industrial activity (Geis 1989, p. 296). The survival of small firms may also depend on their capacity to innovate in order to achieve a competitive advantage (Hamel and Prahalad 1996). The assumption of a positive association between small size and innovation is supported by research that indicates small businesses contribute a disproportionate share of product and process innovations (Small Business Administration 1989). Thus, we hypothesize: H2: The larger the franchising firm, the lower the level of new product and technique innovation.

4.4 Organization period

The research literature indicates that the effects of organization age on organization structure and the capacity for industrial activity in the form of innovation positively correlate to that of size. As organizations grow older there are more pressures, again similar to those exerted by size, to increase formalization and standardization to maintain internal consistency (Aldrich and Auster 1986). The industrial activity that characterizes new organizations tends to disappear as organizations grow older. It is the choice of leadership to recreate or protect adaptive processes to ensure systemic innovation (Kao 1989). Among the perils of organizational age are the learned capacity to focus on routine problems (Starbuck 1965), the use of ritualized programs to monitor problems (Meyer and Rowan 1977), ignoring critical external information, and the increasing detachment of upper management from those personally closely connected to the environment (Aldrich and Auster 1986). We assume that organizational age will exert similar effects on industrial activity as those of size and propose testing parallel hypotheses. The older the franchise system, the less likely industrial strategies will be pursued. The older the system, the greater is the concern with stability & less likely it is that the strategies be proactive and correspondingly the adventurous nature will not be pursued. It is also said that age affects new product and technique innovation. The presence of well-defined routines and structures associated with age constrains the development of new products and processes (Leonard-Barton 1995; Starbuck 1965). Research indicates that as organizations age, their focus narrows and they often are unable to innovate beyond the original products or processes that were responsible for their initial success (Foster 1986; Miller 1990). Hence the older the franchising system- the lower the probability of new product and technique innovation.

4.5 Growth of the Franchisor

Growth is defined as the very essence of Private enterpriser , in contrast to the hypothesized effects of organization size and age rapid growth is associated with organizational adaptation and industrial strategies (Miller and Friesen 1984). It is impossible to cope with the pressures of competition without a clearly defined and well structured model for facilitating quick decision making. Research indicates that growth promotes industrial activity (Ireland and Hitt 1997; Zahra and Covin 1995). Without the capacity to grow, the organization is unlikely to survive.

Growth and innovation have almost become synonymous. Organizations grow externally through acquisitions and mergers and internally though product and process innovation (Bettis and Hitt 1995; Kanter 1985). As organizations grow, they are challenged to find new business opportunities and to develop new products and processes to stimulate additional growth (Ireland and Hitt 1997; Shane 1996b). This suggests that although innovation and growth occur together in the early stages of a firm, high growth becomes the driver for continued future innovation (Ireland and Hitt 1997). Organization survival depends on continued growth (Greiner 1972; Miller and Friesen 1984). In order that the franchisee system be adopted, it has to be justified that the growth will not diminish and there will be constant innovation in the future to facilitate growth. I propose the higher the growth of the franchising system, the higher will be the level of new product and technique innovation. In this study, I also examined an area for which little empirical research exists: the time elapsed between establishment of the company and the establishment of a franchising system. Given the lack of research in this area, we do not propose hypotheses concerning the relation of time in franchising to franchisee perceptions of the franchisor’s pursuit of industrial strategies and support for franchisee innovation.


5.1 Data Collection

The data of study were gathering from multiple sources thus minimizing the bias of same source data. The franchising firm data were taken from a number of business periodicals that track the franchising sector and publications that gather data on franchising. The franchisee data were obtained in a survey of franchise owners. A sample of 50 franchisees located in five geographic locations was recognized, and the were asked to contribute in the study. Structured interviews were conducted by the authors and trained graduate assistants. Interviewers often made several visits to the same franchise to secure interviews with the owners. Some call backs were made to respondents to clarify information, and 50 usable responses were obtained for a participation rate of more than 71%, a higher rate than might be expected in a mail survey using a questionnaire. The study included some of the very largest franchisors as well as a number of franchisees from very small franchisors. The participants represented franchises in eight different industries including car and truck rental, automobile products and services, construction, home improvement, maintenance and cleaning, real estate, retail food, retail miscellaneous, and a miscellaneous general category.

5.2 Franchisor Proportions

Franchisor volume

The size of the franchisor was measured by the number of sites in the franchise system.

Franchisor period

The age of the franchisor was measured by the date on which the company franchised their business system.

Franchisor expansion

measures of development were used, the rate of development of the franchisor over a 3-year period and high growthâ€"whether or not the franchisor appeared on the list of the fastest growing franchise systems as measured by the data base of Entrepreneur.

Franchising time

The age of the franchising system was measured by subtracting the date on which the company was founded from the year the company began to franchise their business. High values represent a greater period of time elapsing between founding of the company and the decision to franchise.

5.3 Franchisor Support for Industrial Activity

Franchisees were asked the extent to which franchisors used three ways to persuade industrial activity. These were the use of a franchise council, the recognition of new ideas at the annual meeting of the franchise system, and the presence at franchisor head office of a champion for innovation. The response categories for each of the items ranged from (1) not important to (5) very important. These items were developed from telephone interviews conducted in a preliminary study with a random selection of franchise firms asking if they encouraged industrial activity on the part of franchisees. If they responded yes, we asked what methods or rewards they used to support this behaviour.

5.4 Franchisee Perceptions of Franchisor Industrial Strategies

The extent to which the strategy of the franchisor was perceived by the franchisee to be an industrial or a conservative strategy was measured by items adapted from previous research (Slevin and Covin 1990). The items represent the four strategies connected with an industrial orientation; they were adapted from the Covin and Slevin scale described in Slevin and Covin (1990).


The study provides support for the relation of size to concern with stability, a traditional approach, and propensity to set up new products. Huge organizations should plan to reward some industrial activity to keep open feedback channels for new ideas. Research suggests that the resources of a large organization are best when combined with the flexibility of smaller units for competitive advantage.. As the environment becomes more competitive, the need for industrial activity in franchising is likely to increase dramatically. The challenge for franchisors will be managing new ideas from the field while at the same time preserving the integrity of the franchising system.

Finally, industry, particularly degree of competition, may also influence strategy or moderate the effects of the franchisor variables. This suggests that research efforts should be directed toward developing a model of industrial activity that can take into account both industry and franchisor context.