Academic journal article Journal of Business and Entrepreneurship

A Typology of Franchises and Differences in Franchisee Attributes

Academic journal article Journal of Business and Entrepreneurship

A Typology of Franchises and Differences in Franchisee Attributes

Article excerpt

ABSTRACT

The extant literature on franchising has failed to distinguish among different types of franchising systems. In this paper a typology is developed to propose that franchises vary in terms of (1) whether the production/sourcing is localized or centralized and (2) whether the product/service is standardized or personalized. Based on the typology, four different types of franchises are identified- localization franchise, brand name franchise, quality assurance franchise, and relationship franchise. Next, the task analysis methodology is used to identify the level of attributes necessary to successfully operate franchised units in each of the four types of franchising systems. Implications for research and suggestions for franchisors and potential franchisees are offered.

INTRODUCTION

Franchising related sales in the U.S. economy is estimated at $ 800 billion. There are more than 2300 franchisors and 550,000 franchised units across the United States employing about seven million individuals. In general, franchising refers to an organizational form in which a company grants an individual or another company the right to use a particular trademark and/or sell a product or service in a prescribed manner in return for financial and other commitments. The ability to provide advantages of a large company, such as economies of scale in marketing and production while simultaneously enabling the franchisee to exercise discretion at the unit level, makes franchising a preferred organizational form in today's competitive business environment (Elango & Fried, 1997).

The success of a franchising system depends on the collective successes of individual franchisees. Thus, individual franchisees significantly contribute to the success of a franchising system and play a crucial role in shaping its future potential. The franchisee runs the day-to-day operations of the franchised unit and is generally responsible for all operations of the unit. For example, the franchisee hires, orients, and manages employees, deals with customers, performs routine maintenance of equipment, purchases supplies and manages inventory levels, and performs various other tasks necessary for the general upkeep of the unit (Elango & Fried, 1997). Depending on the franchising system, the franchisee may also commit his or her own capital for the initial startup and as well provide for the working capital of the unit. The ability of the franchisee to operate the franchising unit level is a major factor influencing the success of the unit. The successes of the franchisees within a franchising system collectively affect the viability and the future of the franchisor.

Given the major role the franchisee plays within the franchising system, there exists a need to develop a framework in order to identify the critical attributes needed by a franchisee to succeed in various types of franchising systems. Extant literature (reviewed in the next section) has, to a certain extent, attempted to identify such attributes. However, two limitations are apparent in this literature. First, many of these studies report opinions of various experts but no effort has been made to validate the same. second, this literature has failed to distinguish among the different types of franchises. Consequently, attributes identified by previous studies as critical for a franchisee's success may only be relevant to franchisees in some types of franchises but not others. This paper addresses both of these limitations. Specifically, a typology is developed to incorporate various types of franchising systems. Next, using the task analysis methodology of job analysis, the attributes (knowledge, skills, and abilities) required to successfully operate the various types of franchises are identified.

The paper is divided into five sections inclusive of this introductory section. In the second section we review the relevant literature in order to summarize the attributes identified as desirable by previous studies. …

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