Factors Influencing Governance Choice and Human Resource Management within Services Franchising Networks

By Weaven, Scott; Herington, Carmel | Journal of Management and Organization, June 2007 | Go to article overview

Factors Influencing Governance Choice and Human Resource Management within Services Franchising Networks


Weaven, Scott, Herington, Carmel, Journal of Management and Organization


ABSTRACT

This research provides a better understanding of the factors driving the choice of governance structures and human resource management (HRM) practices within services franchising arrangements. A qualitative multiple case study approach was favoured so as to obtain a clearer picture of the main issues and parameters. Nineteen franchisors using predominantly pure franchising, predominantly pure company-owned, plural, and predominantly multiple unit growth strategies were interviewed. Major contrasts have been identified, suggesting that system size, industry maturity and the nature of market demand impacts upon the choice of system governance structure. Generally, less mature and smaller networks rely upon predominantly single unit franchising strategies and less sophisticated HRM practices to foster local market innovation, build brand value and support rapid unit growth, while predominantly company owned strategies are favoured in environments of low competition and minimal demand uncertainty. In comparison, more mature systems use hybridised franchising forms and sophisticated HRM strategies to accommodate the competing demands of local market innovation, systemwide adaptation and system uniformity.

Keywords: franchising; plural; multiple unit; HRM; mutual learning

INTRODUCTION

Franchising performs an important role in the production and distribution of goods and services in many world economies. The Australian franchising sector currently contributes more than $76.5 billion to the local economy and is accepted as having reached an early stage of maturity (Frazer 2000; Lafontaine 1999) with approximately 850 business format franchises and 57 000 units servicing its population of million people (Frazer & Weaven 2004). Although the growth in Australia is at an earlier stage of development than some other nations, it is expected that it will closely follow the United States' experience as an increasingly dominant form of goods and services exchange in the future (Frazer 2000; McCosker 1994; Terry 1993). However, despite the important contribution of franchising, the sector remains under-researched (Chow & Frazer 2003).

Previous research examining organisational choice supports the view that franchising represents an efficient method for firms to acquire capital necessary to achieve economies of scale associated with large-scale operations, whilst minimising monitoring costs through improving the alignment of principal and agent incentives structures (for example, Caves & Murphy 1976; Mathewson & Winter 1985; Jambulingam & Nevin 1999; Rubin 1978). However, United States research suggests that in practice few firms pursue a pure franchising or company-owned franchising strategy (Sorenson 1999; Bradach 1998). Instead, franchise networks are most often characterised by hybridised organisational arrangements, and in particular plural forms (simultaneous use of franchised and company owned units) of distribution (Cliquet 2000).

A possible explanation of plural governance structures may be that they balance the competing demands of system standardisation and system wide adaptation to competition (Bradach 1997). In particular, franchisees may possess the operational freedom necessary to gather new information and exploit opportunities within their local markets (Stanworth 1995), while company owned units might provide the franchisor with a means by which to assess best practices and maintain consistency across other units within the system (Bradach 1998). However, recent empirical research suggests that systems pursuing a franchising strategy are more likely to sustain higher growth rates than systems maintaining a mix of franchised and company-owned units (Sorenson & Sørensen 2001). Thus, there does not appear to be consensus in the literature. In addition, operational advantages associated with intra-system plural networks which encourage the growth of franchisee-owned subsystems, has only received limited attention in the management literature (Bradach 1995). …

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