Organizational Identity in the Franchise 500: An Exploratory Study of Entrepreneurship, Leadership and Marketing Perspectives

Organizational Identity in the Franchise 500: An Exploratory Study of Entrepreneurship, Leadership and Marketing Perspectives

Di Wu, Kelly M. Davis, Aaron F. McKenny, Miles A. Zachary, Jeremy C. Short

April, 2010

4/27/10 17:40

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1

What Is Franchising?

Two independent parties establish an agreement whereby one firm (the franchisor) licenses the right to use its brand name and proprietary business processes to another firm or individual (the franchisee) in return for an initial payment and annual royalty (Combs, Michael, & Castrogiovanni, 2004; Curran & Stanworth, 1983)

Franchisor

Franchisee

Brand Name;

Operation Methods;

Technical Support;

Advertisement;

Community

Royalty Fee/Share Sales;

Risk share;

Local Information and decisions;

Scarce Capital;

Contribution in brand

The Importance of Franchising

Franchising is a popular route to organizational growth, both in the United States and globally (Michael, 2003)

In 2005, United States franchises employed 11 million individuals and were responsible for 4.4% of the United States private-sector economic output (IFA Educational Foundation, 2005)

Organizational Identity

Refers to the enduring attributes of an organization that make it unique and distinguish it from other similar firms (Albert & Whetten, 1985; Ashforth & Mael, 1989; Gioia, 1998)

Differentiates and groups organizations according to shared meanings by the collective (Corley, Harquail, Pratt, Glynn, Fiol, & Hatch, 2006)

Help organizations make difficult decisions, guide the interpretation of organizational issues, and impact decision making (Dutton & Dukerich, 1991; Dutton, Dukerich, & Harquail, 1994; Gioia, Schultz, & Corley, 2000)

Has even been suggested to influence the survival and performance of organizations (Barney, Bundeson, & Foreman, 1998; Stimpert, Gustafson, & Sarason, 1998).

Why Organizational Identity Matters to Franchisors

Opportunity for growth and competitive advantage (related to entrepreneurial orientation)

Impacts franchisor-franchisee matching/fit

(related to charismatic leader-follower relationship)

Competition for franchisees

(related to market orientation)

Using Multiple Theoretical Perspectives to Examine Organizational Identity

Triangulating theories on a single phenomenon (triangulation of theory) can facilitate idea generation and a better understanding of the phenomenon (Neumann,2002)

We use research on organizational identity to bring together multiple theoretical perspectives

entrepreneurial orientation

charismatic leadership

market orientation

Using Franchisor Recruitment Websites to Examine Organizational Identity

There is reason to believe that organizational identity may play a significant role in the recruitment and selection of potential franchisees

Because of interdependence and the possibility of double-sided moral hazard (Combs et al., 2004; Lafontaine, 1992; Shane & Foo, 1999), the franchisor may espouse their identity in organizational narratives to target a specific franchisee profile

Entrepreneurial Orientation

An entrepreneurial orientation refers to the processes and practices that are characteristic of entrepreneurial companies (Lumpkin & Dess, 1996)

Shane and Hoy (1996) argue that franchising is a means by which a venture can be created cooperatively between franchisor and franchisee. Thus, franchising represents an entrepreneurial decision to create new value by launching a new venture (Grnhagen & Mittelstaedt, 2005)

Entrepreneurial Orientation

A defining characteristic of an entrepreneur is a willingness to assume significant risk in the face of uncertainty in exchange for the possibility of reaping significant rewards (Knight, 1921)

Similarly, franchisees make significant up-front and ongoing investments in their franchise with limited support from the franchisor in terms of mitigating the market risk of the venture

Therefore franchisees, in evaluating potential franchising opportunities, will look to maximize their rewards, taking calculated risks in doing so

Hypothesis 1

Hypothesis 1. Franchisors use language indicative of an entrepreneurial orientation in recruitment websites.

Charismatic Leadership

Conceptually, the field of leadership shares much in common with the broader domain of entrepreneurship, as both areas of scholarly interest consider vision, influence, planning, and leading innovative people (Cogliser & Brigham, 2004)

Indeed, the field of entrepreneurship has been argued to be leadership with the goal of strategic value creation (Gupta, MacMillan, & Surie, 2004)

Charismatic Leadership

Charismatic leadership builds the leader-follower trust relationship, encouraging followers to forsake their own self-interests for the good of the group (Conger and Kanungo, 1987; 1988)

Charismatic leadership (and specifically charismatic rhetoric) may assist in closing the social distance between the franchisor and potential franchisees

Through the use of rhetoric, the franchisors enact a dynamic leader-follower relationship with their franchisees, one with the ultimate goal of engaging followers in a stronger and more personal manner, resulting in a commitment to the franchise

Hypothesis 2

Hypothesis 2. Franchisors use language indicative of charismatic leadership in recruitment websites.

Market Orientation

The construct of market orientation is characterized by a firm-wide generation, dissemination, and response to market information (Kohli & Jaworski, 1990)

A single construct, market orientation is separated into five dimensionscustomer orientation, competitor orientation, inter-functional coordination, long-term focus, and profitability (Narver & Slater, 1990)

Market Orientation

Franchisees have often been associated with entrepreneurs (Grnhagen & Mittelstaedt, 2005; Kaufmann & Dant, 1998), and in such capacity, likely value the several dimensions of the market orientation construct

A market perspective can help franchisees improve performance (Justis, Olsen, & Chan, 1993) and will play an important role in the franchisors strategy (Foster, 1989)

Franchisors espousing a market orientation in recruitment websites make a powerful statement of dogmatic principles, in-turn, attracting those potential franchisees that would also be market-oriented

Further, a franchisee focused on creating sustainable competitive advantages by providing superior customer value would most likely benefit the franchisor in reputation and revenue

Hypothesis 3

Hypothesis 3. Franchisors use language indicative of a market orientation in recruitment websites.

Sample Description

Recruitment websites from the Franchise 500 for the year 2010

The Franchise 500 is a common sampling frame for research in the franchising context (e.g., Combs & Castrogiovanni, 1994; Sen, 1998)

To identify recruitment websites we looked for the following key words: to be a franchisee, own a business, franchising information, franchisee opportunity, cooperation, and other permutations thereof

N=466

Measurement - CATA

Content analysis of narrative texts holds several advantages for this study.

Can collect objective, reliable, and replicable data (Finkelstein & Hambrick, 1996)

Can avoid the subjective errors

DICTION has previously been used to measure entrepreneurial orientation (Short et al., 2009; 2010) and charismatic leadership (Bligh et al., 2004a; Bligh et al., 2004b)

Measuring Entrepreneurial Orientation

We used the five dimension conceptualization of entrepreneurial orientation as the basis of our analysis (Lumpkin & Dess, 1996)

Autonomy

Competitive Aggressiveness

Innovativeness

Proactiveness

Risk taking

We used the word list developed and validated by Short and colleagues in their study applying content analysis to organizational narratives (2010)

Measuring Charismatic Leadership

Charismatic leadership was measured using eight constructs which represent concrete examples of the characteristics of charismatic language suggested by Shamir et al. (1994). These constructs include:

a temporal orientation,

a collective focus,

an appeal to followers worth,

similarity to followers,

values and moral justifications,

tangibility,

action, and

adversity (Bligh et al., 2004a).

ConstructSample WordsCollective FocusCollectives: Assembly, cabinet, humanity, mankind, nation, race, unionPeople References: Crowd, residents, constituencies, majority, citizenry, populationSelf-reference: I, Id, Ill, Im, Ive, me, mine, my, myselfTemporal OrientationPresent Concern: Become, care, desire, make, need, request, take, wantPast Concern: Attacked, attempted, became, behaved, bit, blew, blown, brought, burned, came, canvassed, cared, caused, changed, colored, cooked existed, felt, folded, found, gave, given, tasted, taken, turnedFollower WorthPraise: Admirable, brave, delightful, intelligent, kind, lovely, respectedInspiration: Ambition, devotion, ideals, leadership, merit, optimism, promise, reassuranceSatisfaction: Comfort, cherish, delight, fascinate, gratify, laugh, love, pleasure, rejoiceSimilarity to Followers Leveling: Anybody, everybody, fully, obvious, permanent, totally, unquestionablyFamiliarity: Across, about, again, almost, between, each, toward, through, than, withoutHuman Interest: Children, family, friends, parents, relatives, widows, yoursValuesSpirituality: Charity, church, blessing, eternal, faith, hope, mercyPatriotic Terms: Equality, freedom, justice, inalienable, liberty, old-gloryTangibilityConcreteness: Animal, baseball, cancer, factory, household, movie, school, silk, sugarActionAggression: Attack, challenge, combat, dominate furious, hurt, kill, oppose, preemptAccomplishment: Achieve, aspire, create, finish, motivate, pursuit, resolution, succeedPassivity: Accept, acquiesce, complacent, disinterested, hesitate, lackadaisicalAmbivalence: Blur, confound, hesitate, puzzle, quandary, vacillate, wonderAdversityBlame: Contemptible, desperate, guilty, incompetent, mediocre, rash, senileHardship: Conflict, crisis, death, fear, insecurity, loss, outrage, sorrow, tensionDenial: Didnt, hadnt, never, wasnt, wouldnt

Words Illustrative of Charismatic Leadership

Measuring Market Orientation

We used a word list generated by three experts to measure the five dimensions of market orientation:

competitor orientation

consumer orientation

inter-functional coordination

long term focus, and

profitability

Results

One-sample t tests with a test value of zero to assess the presence of rhetoric indicating entrepreneurial orientation, charismatic leadership, and market orientation, respectively

The t-tests provide strong support for hypotheses 1, 2, and 3 (p < .01 for each dimension), indicating that franchisors do include language indicative of an entrepreneurial orientation, charismatic leadership, and a market orientation in their franchising recruitment websites.

Discussion & Implications

Our analysis demonstrates that a number of franchisors emphasize rhetoric aligned with the concepts of market orientation, charismatic leadership, and entrepreneurial orientation in their organizational narratives

Considering the role of vision for both leaders and followers in the franchising context allows for an integration of the leadership and entrepreneurship fields

Franchisors use rhetoric aimed at attracting franchisees who are similar to entrepreneurs

Future Research Directions

Investigate performance measures

Piece out whether logics of these three portions of organizational identity are cumulative or substitutive

The follower side of the leader-follower relationship by interviewing or surveying followers to better understand what about the recruitment website influenced their decision to select a particular franchisor

The extent to which there is a reduction in agency costs through the alignment of franchisors and franchisees identities and decision-making processes

Limitations

The Franchise 500 does not include a random sample of US franchising firms

Only firms that submit an application and met a variety of other requirements over the previous year will are eligible for inclusion in the Franchise 500 in that year

The language used by franchisors on their recruitment website conveys what they desire the franchisee to be, even if this information does not align with the values and beliefs of the franchisor or other organizational members.

Conclusion

This study integrates the organizational identity and franchising literatures

We found evidence that franchisors use entrepreneurial orientation, charismatic leadership, and market orientation language in their online franchising recruitment websites to attract potential franchisees

Thank you!