Research Note: Trade Name Franchise Membership as a Human Resource Management Strategy: Does Buying Group Training Deliver 'True Value' for Small Retailers?

By Litz, Reginald A.; Stewart, Alice C. | Entrepreneurship: Theory and Practice, Fall 2000 | Go to article overview

Research Note: Trade Name Franchise Membership as a Human Resource Management Strategy: Does Buying Group Training Deliver 'True Value' for Small Retailers?


Litz, Reginald A., Stewart, Alice C., Entrepreneurship: Theory and Practice


Human resource management (HRM) is an important source of competitive advantage. However, recent reports document that HRM, and in particular employee training, is less likely to occur in small firms. One possible remedy of special interest to small retailers is trade name franchise membership. Trade name franchises, or buying groups, claim to offer small firms advantages not otherwise realizable, including bulk buying discounts, brand name recognition and workforce training. We report results from our study of over 300 small and medium-sized hardware stores, which tested the effects of employee training and trade name franchise membership, on small firm performance. Trade name franchisees achieve higher mean performance; however, the contribution to performance made by franchisees' training does not appear to be significantly better than that of independent stores.

The retail landscape has been forever changed. A whole new species, the big box retailer, has entered and increasingly dominates the retail arena. In sector after sector, the big box applies its "category killing" logic leaving many retail observers to wonder whether the days of the small 'Mom and Pop' retail operation are numbered (Ehrenfeld, 1995). Not all observers are equally gloomy about the small firm's prospects, however. Proponents of collective alliances known as trade name franchises, or buying groups (Hardy & Magrath, 1987), assert that through inter-organizational alliances small firms can realize advantages not otherwise accessible. By joining with other similarly constrained operations, the argument goes, small firms can realize economies of scale in purchasing, gain benefits of franchise brand name recognition, and receive helpful assistance in areas such as store administration and staff training. However, despite these optimistic claims, there has been little empirical validation.

Our paper seeks to help fill this void. Specifically, we aim to test the claims made by buying groups, and in particular whether they provide effective training for small stores' workforces. The question is of obvious importance to small retailers constrained in their human resource development efforts. Whereas traditional human resource management practices advocate thorough and systematic attention to the human resource function, the world of the small firm is typically so resource constrained (Welsh & White, 1981) that it cannot realistically attempt to implement such a comprehensive range of actions. What the small firm can do, though, is join a collective and receive assistance in workforce training and development. But is membership in a buying group related to higher levels of staff training and is that training linked to superior performance? Buying groups come in various shapes and sizes--are all buying groups' training programs equally effective or are there buying group-specific performance effect s?

In our paper we address these questions. We begin by taking a resource-based view (Barney, 1991) of the human resource management function. We then note the demonstrated tendency for smaller firms to undertake less comprehensive human resource activities. We continue by exploring the benefits offered by trade name franchise membership as a possible remedy for the small firm's shortcomings. Four hypotheses emanate from our discussion. Our first hypothesis concerns the relationship between employee training and firm performance, the second tests whether employee training is related to firm size, while the third focuses on the connection between buying group membership and performance. Building on the training-related advantages of the trade name franchising, we also posit an hypothesis of interaction between the variables of training and trade name franchise membership with performance.

THEORETICAL FRAMEWORK

Human Resource Management as a Source of Sustainable Competitive Advantage

The idea of a "human" resource finds its place in the broader perspective of strategic management known as the resource-based view of the firm (Barney, 1991; Mahoney, 1995; Mueller, 1996). …

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