Identifying differences in entrepreneurial behaviour between single-unit franchisees and multi-unit franchisees: a quantitative study of Dutch druggists.

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Identifying differences in entrepreneurial behaviour

between single-unit franchisees and multi-unit

franchisees: a quantitative study of Dutch druggists.

Master thesis, MscBA, specialization Small Business & Entrepreneurship

University of Groningen, Faculty of Economics and Business

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Summary

Studies that examine franchising from the perspective of the franchisor seem to dominate the field of franchising research and therefore it is interesting to take a different perspective; that of the franchisee. The purpose of this study is to identify differences between SU and MU franchisees in terms of their entrepreneurial behaviour. A better understanding of franchisees can aid in improving franchisor-franchisee relationships and performance of franchise businesses. Furthermore, it can help franchisors in their choice for a particular franchising system. Entrepreneurial behaviour of franchisees is measured through the display of innovative behaviours. Based on existing literature, five hypotheses dealing with differences between the entrepreneurial behaviour of SU and MU franchisees are formulated. Two franchise systems agreed to participate in this study: DA drogisterijen and DIO drogisterijen. Data were collected through a digital questionnaire and were then analyzed using a comparison of means test and multiple regression analysis. The results of this study show that one cannot find a significant relationship between the number of franchised outlets that a franchisee owns and the levels of entrepreneurial behaviour that they display. A limitation of this study can be found in the sample, as it is relatively small which might weaken the statistical results. Furthermore, I found that my results are somewhat influenced by non-response bias and might be influenced by self-response bias. Future research, performed in a different industry and using a larger sample, could prove whether the findings of this study hold true. Topics which are particularly interesting for future research concern the creation of new constructs for measuring entrepreneurial behaviour of franchisees and the differences between entrepreneurs and franchisees.

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1. Introduction

Many researchers have dedicated their time and effort to studying the phenomenon that we call entrepreneurship. Several decades of research have led to the emergence of numerous theoretical perspectives, approaches and views on entrepreneurship (Sarasvathy and Venkataraman, 2011). Unfortunately, there is still no agreement on how entrepreneurship should be defined, due to the fact that entrepreneurship entails a complex set of related and sometimes overlapping themes, such as management of change, innovation, environmental turbulence, new venture creation, firm ownership and the personal characteristics of the entrepreneur (Sarasvathy and Venkataraman, 2010; Grünhagen and Mittelstaedt, 2005; Hornaday, 1990; Julien, 1998; Kaufmann and Dant, 1998).

A reoccurring and dominant theme in entrepreneurship literature is franchising. Franchising is a specific form of strategic alliance in which the owner of a product, process or service (the franchisor) licenses another party (the franchisee) to use it in some form of exchange for some sort of payment (Lindblom and Tikkanen, 2010; Croonen, 2005). The outlet or the operational firm where the franchising operation is conducted is called the "franchised unit", or unit (Elango and Fried, 1997). Franchising is a popular business strategy in various industries across the world and it is an important vehicle for wealth creation (Croonen, 2005; Sorenson and Sorenson, 2001). In 2008, franchising was the world’s fastest growing form of retailing (Dant, 2008). In the Netherlands, there are around 700 franchisors representing almost 30.000 franchisees who employ almost 250.000 employees. Franchising has a market share of 80% in food retail and 71% in non-food retail in the Netherlands (van Essen and Pleijster, 2009).

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study focuses on business format franchising only as this is the only recognized form of franchising in the Netherlands.

In the past, authors have distinguished between franchised units, company owned units and multi-unit franchises (Brand and Croonen, 2010; Yin and Zajac, 2004; Sorenson and Sorenson, 2001). All units that apply a similar business format, regardless of whether they are franchised or company owned, are collectively defined as the franchise system, which is displayed in figure 1 below. There is considerable heterogeneity within units in a franchise system, stemming from differences in the relationship between the franchisor and the owner/manager or franchisee, geographical location of units, management style of the manager or franchisee and intensity of monitoring (Dant and Gundlach, 1998; Brand and Croonen, 2010; Yin and Zajac, 2004; Hussain and Windsperger, 2010). The aforementioned is especially true for franchise systems with a plural form, in which franchised units and company owned units co-exist (Dant et al, 2008).

Figure 1: Example of a franchising system with a plural form

- - - = multi-unit franchises (MUF) FU = franchised unit (FU) CO = company owned unit (CO)

A large number of academic studies has been performed to describe differences between different franchised unit types and company owned units regarding decision making authority, incentives and monitoring and control systems (Brand and Croonen, 2010; Yin and Zajac, 2004; Sorenson and Sorenson, 2001). Garg, Rasheed and Priem (2005) for example, have studied the motivations of franchisors for adopting multi-unit franchising (MUF) or single-unit franchising (SUF). They found that those franchisors who look for rapid expansion are more likely to adopt MUF. This corresponds with the findings of Wadsworth and Morgan (2003) who found that franchisors adopt MUF to increase the growth-rate of the

Franchisor of a plural system

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franchise system. Kalnins and Lafontaine (2004) investigated which factors influence the franchisors in allocating new units to franchisees. Their results indicate that franchisors prefer to allocate new units to existing franchisees and particularly those who operate units that are geographically close to the new unit. Weaven and Herington (2006) have studied how MUF and SUF differ from each other in their choice of governance structure and HRM policy.

As illustrated above, existing literature tends to study franchising from a franchisor’s perspective, whereas the perspective of the franchisee remains an under researched field (Croonen, Brand and Huzingh, 2011; Dant, 2008). While franchisors are widely considered as entrepreneurs in academic writings (Combs and Ketchen, 2003), franchisees are categorized very differently. In most cases the franchisee is somewhere in between a small business owner and an entrepreneur, however there appears to be no consensus. Very few studies have empirically investigated the levels of entrepreneurial behaviour in different types of franchising units (Grünhagen and Mittelstaedt, 2005; Weaven and Frazer, 2006).

Therefore it is interesting to determine whether there are differences in the levels of entrepreneurial behaviour between SU franchisees and MU franchisees (Grünhagen and Mittelstaedt, 2002), as no study has addressed this yet. This is acknowledged by Ketchen, Short and Combs (2011) who say that “a comparison of the level of entrepreneurial orientation harbored by single versus multi-unit franchisees could be illuminating”. Company owned units are excluded from this research because these units are establishments of the franchise brand that are managed by employees of the franchisor who are generally paid on a fixed-wage basis (Hussain and Windsperger, 2010; Sanchez, Gonzalez and Vazquez, 2010), and thus they are not considered as franchised units. Considering the aforementioned, the following purpose is formulated for this study:

To identify differences between single-unit franchisees and multi-unit franchisees in terms of their entrepreneurial behaviour.

Practical usefulness of the study

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unique strategies for different unit types within the franchising system, such as strategies to encourage or limit entrepreneurial behaviour.

Usefulness of the study for researchers

This study allows researchers to better understand the different behaviours of franchisees. Without an understanding of franchisees’ behaviours, the performance of franchise firms cannot be understood completely (Michael and Combs, 2008). By identifying differences between SU franchisees and MU franchisees, it becomes possible to organize the great diversity among franchisees. This may allow researchers to discover relevant, consistent patterns.

In order to realize the purpose of this study, it is very helpful to create structure through the formulation of sub questions. This study revolves around the concept that is defined as ‘entrepreneurial behaviour’ of franchisees. Therefore it is crucial to give a proper definition of that concept. Since this study is performed in the field of franchising research, the following sub question is formulated:

1. What is entrepreneurial behaviour in a franchising context?

In this research I look to determine the differences in entrepreneurial behaviour between two types of franchisees. Therefore, a description of both single-unit and multi-unit franchisees as well as their characteristics, resulting in a summary of their differences is required. This leads to the formulation of sub question two:

2. What are the differences between single-unit franchisees and multi-unit franchisees?

Since I am examining differences between SU franchisees and MU franchisees in terms of entrepreneurial behaviour, I need to provide insight into the ways in which these groups can differ from each other in terms of entrepreneurial behaviour. Therefore I will study existing academic literature to determine what has been written about this in the past. These writings will serve as input for the formulation of my hypotheses, which will be tested later on in this study. Hence, sub question three, which covers a theoretical as well as an empirical component is formulated below:

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This paper is structured as follows. First, chapter two discusses relevant literature concerning entrepreneurship and franchising. In addition, the chapter clarifies the concepts that are used in this study and explains why and how franchisees display entrepreneurial behaviour. Furthermore, hypotheses are developed which are based upon the aforementioned review of the literature. Next, the methodology used for this study will be discussed in chapter three. After that, the results of this study are presented and discussed in chapter four. Chapter four will also deal with the limitations of this study and provides recommendations for future research. The paper ends with a chapter that discusses the conclusions of this study.

2. Literature review and hypotheses development

In this chapter the theoretical framework, which consists of a review of existing literature, is presented. First, the concept entrepreneurship is discussed as well as definitions of entrepreneurship that are applicable to this research. After that, I will elaborate on franchised units: I will discuss the types of franchised units that are dealt with in this study, as well as the differences that exist between them. Next, I will deal with the entrepreneurial behaviours of franchisees. To conclude, I will discuss academic writings on the entrepreneurial behaviour that franchisees display within the different types of franchising units. Based on the aforementioned, I will present my expectations for this research and formulate hypotheses.

2.1 Entrepreneurship

In the eighteenth century, the term ‘entrepreneurship’ was used to refer to economic actors that undertook contracts for public works, applied innovative techniques or took risks by investing personal capital in industry (Kaufmann and Dant, 1998). Since then, a large number of studies have dealt with entrepreneurship. Unfortunately, the literature does not provide a commonly accepted definition of entrepreneurship (Neck and Greene, 2011). This is because entrepreneurship is chaotic, complex and lacks any notion of linearity: it is a multifaceted phenomenon which cuts across a large number of disciplinary boundaries. Julien (1998) uses the differences in researchers’ disciplines to explain the great variety in definitions for entrepreneurship. He distinguishes between two standpoints in entrepreneurship research: the economist view and the behaviourist view.

2.1.1 Economist view on entrepreneurship

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differently and combining them in new, unique ways, which stresses the innovative character of entrepreneurs (Carland, Hoy, Boulton and Carland, 1984). Economists have described entrepreneurs as spotters of new business opportunities, creators of enterprises and risk-takers (Julien, 1998).

2.1.2 Behaviourist view on entrepreneurship

While economists study the role of the entrepreneur as the driver of the economic system, behaviourists try to understand the human behaviour of entrepreneurs and describe their unique characteristics. Early work by McClelland (1961) has focused on the need for achievement, preference for energetic and novel activity, the need to manage an own business and the need for power (Beugelsdijk and Noorderhaven, 2005). After that, thousands of publications have described a large number of characteristics that can be attributed to entrepreneurs. Even today, researchers are still working on a profile that describes the personal characteristics of the typical entrepreneur (Neck and Greene, 2011). Personal characteristics of the entrepreneur are relevant factors in the study of entrepreneurship, as they play a crucial role in the decision whether or not a potential entrepreneur will seize an opportunity (Lafuente and Salas, 1989). In addition, the personal characteristics of entrepreneurs will also influence the type of firm that will be created, as well as the way in which that firm will be managed. Examples of the characteristics that are most commonly attributed to entrepreneurs are independent, innovative, creative, optimistic and self-confident (Neck and Greene, 2011; Bridge, O’Neill and Cromie, 2003; Julien, 1998).

2.1.3 The view on entrepreneurship in this study

From the standpoint of economists, an entrepreneur is a person who is able to spot new opportunities in the environment and is willing to accept a risk in the exploitation of that opportunity by using existing resources in creative, new and unique ways. From the standpoint of behaviourists, entrepreneurship seems to be a regional phenomenon as the behaviour of entrepreneurs is determined by the cultures, needs and habits of a region. The people that are able to construct businesses that are adapted to and based on their interpretation of the environment are described as entrepreneurs.

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2.1.4 Defining entrepreneurial behaviour

Many definitions of entrepreneurship exist and for this research, several definitions of the entrepreneur can be applied to define entrepreneurial behaviour. Definitions applicable to this study have been evaluated, and are presented in table 1.

Table 1: Applicable definitions of ‘entrepreneur’ Year Author(s) Definition

1934 Schumpeter An entrepreneur uses national resources differently in that they are withdrawn from their traditional employ and subjected to new combinations

1961 McClelland An entrepreneur is an innovative manager who has decision making responsibility

1984 Carland, Hoy, Boulton and Carland

An entrepreneur capitalizes on innovative combinations of resources for the principal purposes of profit and growth, and uses strategic management practices

1991 Bygrave and Hofer Entrepreneurs are people who create an organization to pursue an opportunity that is perceived in the business environment

1997 Shane and Cable Entrepreneurs are residual claimants with operational control of the organization

Based on the definitions that are presented in table 1, for this study I will define ‘entrepreneur’ as an innovative person who is a residual claimant with operational control of the franchised unit and who exploits opportunities in the business environment through creative, new ways of using resources.

2.1.5 Entrepreneurial behaviour of franchisees

Since the purpose of this study is to compare the levels of entrepreneurial behaviour between single-unit franchisees and multi-unit franchisees, it is necessary to apply the concept of entrepreneurship to franchising. In this paragraph, the work of several authors related to the entrepreneurial behaviour of franchisees is reviewed and their most important findings are discussed.

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the potential for entrepreneurial behaviour has often been considered inherently illegitimate and therefore overlooked within franchise firms” (Dada, Watson and Kirby, 2010). Franchising has been described as the antithesis of innovation by some because franchisees operate a concept designed by the franchisor “in a predetermined area, in a highly prescribed manner and only for a defined period of time” (Dada et al, 2010). Dant and Gundlach (1998) believe that the promise of franchisors to be your own boss once you become a franchisee is a false one because of the boundaries that are created through contractual agreements. Some say it represents the ‘sad homogenization of our commercial culture’ and hold it accountable for the lack of variety in several retail sectors (Hoy, 2008; Kauffman and Dant, 1999). Franchisees have also been described as a source of capital for franchisors who are looking to expand their business (Kaufmann and Dant, 1999). They are considered as the perfect tool for franchisors who have reached the limits of their capacity to manage and control numerous establishments, as franchisees can connect the franchisor to new customers. Such descriptions of the franchisee lead us to believe that franchisees are not entrepreneurs at all, but merely puppets of the real entrepreneur: the franchisor.

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“creates opportunities for thousands of budding entrepreneurs”, implicating that franchisees are people that are about to establish themselves as entrepreneurs.

Kaufmann and Dant (1998) make a strong case for regarding the franchisee as an entrepreneur. They acknowledge the fact that franchisees are constrained by their franchisor in their entrepreneurial activity, but stress that all entrepreneurs are constrained by their environment. Also, Croonen et al (2011) acknowledge that franchisees perform a reasonable amount of entrepreneurial behaviour, despite the fact that they operate in a context that limits entrepreneurial behaviour in the form of formal contracts. Furthermore, they describe the franchisee as an entrepreneurial partner of the franchisor because franchisees accept a certain amount of financial risk as they introduce the business format of the franchisor to a new and untested market. Kaufmann and Dant (1998) emphasize that the franchisor depends on the local expertise and contacts of the franchisee, which are called upon to adapt the business concept to their environment. Kaufmann and Eroglu (1998) and Dant and Gundlach (1998) say that the franchisees use their local adaptation efforts in unique and innovative ways to develop new market offers, improve existing ones and contribute to the solution of concept-wide problems. Cox and Mason (2007) and Elango and Fried (1997) also emphasize that the franchisee should be viewed as an excellent source of innovative ideas as the franchisee is in direct contact with the customer and often adds much of the value sought by the customer. Yin and Zajac (2004) and Sorenson and Sorenson (2001) state that franchisees are independent entrepreneurs because they own their own assets, they are their units’ residual claimants and they generally enjoy some decision rights.

In their study on franchising and entrepreneurship, Ketchen et al. (2011) interviewed members of the editorial board of an elite entrepreneurship journal about their opinion on franchising and entrepreneurship. That survey showed that some franchisees are considered to be entrepreneurs and some are not. In general franchisees were considered as entrepreneurs because they ‘assume the risks of ownership and engage in innovative behaviours to make their franchise a success’. Whenever a respondent did not consider franchisees to be entrepreneurs, it was due to a perceived lack of risk, innovative actions and opportunity recognition in franchising (Ketchen et al., 2011). Some respondents in the survey only thought of MU franchisees as entrepreneurs due to their drive for expansion and the innovative, creative ideas that are required to realize expansion.

2.1.6 Defining entrepreneurial behaviour in a franchise context

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Eroglu, 1998; Dant and Gundlach, 1998; Elango and Fried, 1997) and the fact that franchisees take a risk when they introduce the business concept to a new environment (Croonen et al, 2011). Timmons states that entrepreneurship is a fundamentally creative act and according to Carland and Carland (1991), it is innovation that separates entrepreneurs from managers. Cromie (2000) writes that enterprising individuals develop new ideas and concepts, spot opportunities or combine existing ideas and resources in new ways to create additional value. Empirical research has shown that entrepreneurs display higher creativity than non-entrepreneurs (Cromie, 2000; Wagener, Gorgievski and Rijsdijk, 2010). For defining entrepreneurial behaviour in a franchise context, I will build on the definition of Croonen et al (2011). In this study, entrepreneurial behaviour in a franchise context is defined as engaging in innovative activities, which are proactively initiated by franchisees in their own units while operating within the franchising system under the franchisor’s business format.

Considering the aforementioned definition of entrepreneurial behaviour in a franchise context, it is important to clearly define what the term ‘innovative activities’ represents. Schumpeter (1934) has described innovation as the single genuine entrepreneurial function, and he described how entrepreneurs innovate through the introduction of new products or methods of production, opening new markets or using new sources of supply, or the reorganization of industries. Freeman (1982) has defined innovation as the introduction of a new or improved product or the use of a new or improved process or equipment. Johanessen, Olsen and Lumpkin (2001) state that newness is essential to the concept of innovation and they have distinguished between six different types of innovative activity: new products, new services, new methods of production, new markets, new sources of supply and new ways of organizing. Bridge et al. (2003) say that innovation concerns the development of new products, processes or markets. In their work, Pittino and Visintin (2009) associate innovation with product renewal, production process renewal and strategy renewal.

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of promotion, using new or improved ways of organizing, using new sources of supply and targeting new markets.

2.2 Types of franchised units

Whenever franchisors wish to expand their franchise system they can choose between several alternatives, or types, of franchising. The first alternative is expansion through single unit franchising (SUF), in which a franchisor can choose to expand his operations by granting a new outlet to a new franchisee (Sanchez et al., 2010). Second, a franchisor can choose to grant a new outlet to an existing franchisee, which is called multi-unit franchising (MUF). In existing literature, MUF is defined as a situation where a franchisee owns more than one outlet (Hussain and Windsperger, 2010; Weaven and Frazer, 2006; Gruenhagen and Mittelstaedt, 2005; Bradach, 1995). Hussain and Windsperger (2010) state that two types of multi-unit franchising are recognized: area development franchising and sequential multi-unit franchising. In the case of area development franchising, the franchisee enters a contractual obligation to open a predetermined number of outlets in a particular geographical area during a specific period of time (Sanchez et al., 2010; Grünhagen and Mittelstaedt, 2005). In sequential multi-unit franchising the franchisor grants the franchisee the right to open up additional outlets, where each outlet is governed by a separate franchising contract. The latter is the most common form of franchising (Hussain and Windsperger, 2010; Grünhagen and Mittelstaedt, 2005) and therefore I will include only this form of MUF in my research.

In the United States, systems based on single-unit owner operation only are uncommon (Kaufmann and Dant, 1996). In their study, Kaufmann and Dant (1996) reported that 88% of the franchisors who were surveyed had MU franchisees within their systems. Also, Bradach (1995) wrote that the average number of units per franchisee ranged from 2.7 to 22 in the five fast-food franchise systems that he studied. Likewise, a study by Kalnins and Lafontaine (2004), 49% of the franchisees were MU franchisees who owned 84% of all the franchised units in their chains. Thus, MU franchisees generally represent a much stronger force in the franchise chain compared to SU franchisees and managers in company-owned units.

2.2.1 The MUF paradox

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other franchisees (Sanchez et al., 2010; Brand and Croonen, 2010; Hussain and Windsperger, 2010; Vazquez, 2008). This is a typical problem in the franchising field for both franchisees and franchisors because a locally bad experience of a customer may lead to a general bad image for the entire franchise chain, affecting both franchisees and franchisors’ profits (Vazquez, 2008). To reduce the incentives to free-ride, the franchisor may use MUF. When the franchisee owns several outlets, and thus made a greater investment, the free-riding behaviour of one or more of his outlets might have financial consequences for his other outlets. Since MU franchisees must hire employee-managers to manage their outlets, the aforementioned hazard of shirking reoccurs. This is why MUF has been considered a paradox (Grünhagen and Mittelstaedt, 2002).

2.2.2 Multi-unit franchisees vs. single-unit franchisees

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to similarity of performance measurement systems of MU outlets (Hussain and Windsperger, 2010). This implies that SU franchisees have more room for local adaptation, which corresponds with the findings of Hussain and Windsperger (2010) and Bradach (1995), who state that SU franchisees are better able to acquire local market knowledge than MU franchisees. Furthermore, Bradach (1995) states that SU franchisees have higher entrepreneurial capabilities and have a greater motivation to exploit the profit opportunities at the local market than MU franchisees. Table 2 below summarizes the differences between MUF and SUF from the franchisee’s perspective.

Table 2: Differences between MUF and SUF from the franchisee’s perspective

Multi-unit franchising Single-unit franchising Author(s) Franchisor and franchisee work

together concerning the decision-making process and governance structure

Operations freedom Grünhagen and Mittelstaedt (2002); Weaven and Frazer (2006)

Behaviour will be focused on making a profit

Behaviour will focused on maintaining independence

Hussain and Windsperger (2010)

Business concept (pricing, and revenue models, distribution strategies, procedures) is of major importance

Strength of brand name (a well known name results in a more competitive marketing position) is of major importance

Weaven and Frazer (2006)

Duplicate organizational routines and procedures developed by the franchisor

Operations freedom Hussain and Windsperger (2010); Weaven and Frazer (2006); Bradach (1997)

Act as mini-franchisors, mainly concerned with managing

Involved in daily operations of the firm

Sanchez et al (2010); Hussain and Windsperger (2010)

Less inclined and less room for local adaptation due to scale of operations

More room for local adaptation due to greater local market knowledge

Hussain and Windsperger (2010); Bradach (1995)

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2. 3 Hypotheses development

From the literature review it becomes apparent that MU franchisees want to have a greater influence upon the franchisor’s decision-making process than SU franchisees (Weaven and Frazer, 2006; Grünhagen and Mittelstaedt, 2002), which indicates that MU franchisees want to have a greater feeling of control than SU franchisees do. Also, MU-franchisees are more profit orientated than SU franchisees, which corresponds with the definitions for the entrepreneur of Cole (1968) and Kirzner (1985), who emphasize the importance of profit for the entrepreneur. Contrary, desire for autonomy is a characteristic that is often attributed to entrepreneurs (Woo, Cooper and Dunkelberg, 1991; Bridge et al., 2003). MU franchising is associated with lower levels of independence (Dant and Gündlach, 1998), while SU franchisees seem to have a strong desire for independence, which is often associated with entrepreneurs (Neck and Greene, 2011). Julien (1998) states that entrepreneurship is a regional phenomenon and SU franchisees are generally better adapted to the local environment and possess more knowledge about it (Hussain and Windsperger, 2010; Bradach, 1995).

In this research we determine the level of entrepreneurial behaviour based on the definition of entrepreneurial behaviour by franchisees that was given in paragraph 2.1.6 of this paper. The level of entrepreneurial behaviour by franchisees depends on the franchisee’s engagement in innovative activities, e.g. the introduction of new or improved products, methods of operation and sources of supply or targeting new markets, which are initiated by the franchisee in his or her own unit.

In the following section, a number of hypotheses concerning the differences in levels of entrepreneurial behaviour between MU franchisees and SU franchisees will be formulated. Paragraph 2.3.1 will address the differences in entrepreneurial behaviour between MU franchisees and SU franchisees relating to the identity of their units. One could say that the hypotheses that are formulated in this paragraph examine the ‘identity-related entrepreneurial behaviour’ of franchisees, as these behaviours concern the unit’s relationship with the local market. On the other hand, the hypotheses that are formulated in paragraph 2.3.2 deal with the differences in entrepreneurial behaviour between multi and single-unit franchisees relating to the management of their units. Hence, the hypotheses in this paragraph are about the ‘management-related entrepreneurial behaviour’ of franchisees. They concern internal behaviours which are focused on improving internal operations, e.g. efficiency of operating procedures.

2.3.1 Identity-related hypotheses

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state that firms can enhance product innovation performance by constantly staying in touch with customers and the market in general. Compared to MU franchisees, SU franchisees are closer to the local market (Bradach, 1995) and have a better understanding of it due to the fact that they can focus their attention to one outlet only. Therefore, they are better able and probably more likely to adapt their products or services to the preferences of the customer. This results in improved or even new products and services. Hence, the following hypothesis is developed:

H1: Single-unit franchisees introduce more new or improved products than multi-unit franchisees.

Assuming that SU franchisees have a closer relationship with their customers than MU franchisees, it is highly likely that they have a better understanding of who their customers are. Hence, they know how customers should be addressed and what the proper channel is to reach them. Since advertising is mainly about communicating with the customer (Adcock et al., 2001), it is more likely that SU franchisees are better able and probably more likely to design unique promotional activities than MU franchisees. A better understanding of the customer will also result in adequate price-setting because there is a greater understanding of how important a particular product or service is for the customer. I also expect that a greater understanding of the customer will lead to improvements in the way in which products are presented and the way in which the franchisee arranges the outlet. So, hypothesis H2 is developed:

H2: Single-unit franchisees are more likely to introduce new or improved ways of promotion than multi-unit franchisees.

Usually a small number of strategic groups exist within a particular industry and most firms will want to improve to rank as high as possible in their own group. According to Chan Kim and Mauborgne (1999) the key to new markets lies within understanding what factors determine the buyers’ choice for a particular strategic group, so firms can reposition themselves. In addition Chan Kim and Mauborgne (1999) say that untapped value and markets are often hidden in complementary products and services. For example, shopping is not so pleasant when you have to worry about where you should park your car. When a store arranges parking space for the customers however, shopping at their store becomes more attractive. The same goes for IKEA, who created a new market by introducing a food store and a restaurant to their stores.

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better understanding of customers’ preferences. In addition, SU franchisees have stronger incentives to actually use that room (Yin and Zajac, 2004). Accordingly, hypothesis H3 is formulated:

H3: Single-unit franchisees are more likely to target new markets than multi-unit franchisees.

2.3.2 Management-related hypotheses

Compared to SU franchises, information is shared more effectively within MU franchises (Weaven and Herington, 2007; Darr et al., 1995). This could mean that improvements in methods of operation in one establishment of the MU franchisee will be communicated effectively to other establishments held by that franchisee. Based on the work of Hussain and Windsperger (2010) and Brand and Croonen (2010), I assume that a greater emphasis is placed on organizational routines and procedures in MU outlets than in SU outlets. Also, Hussain and Windsperger (2010) say that the behaviour of MU franchisees is focused on making a profit and therefore one could expect that MU franchisees put a lot of effort into optimizing organizational routines in order to operate cost efficiently. Hence, I believe that MU franchisees place a greater emphasis on process innovation and are more likely to introduce new or improved processes due to the fact that information about processes and routines is shared effectively between the outlets of a MU franchisee. Furthermore, MU franchisees seem to place a larger emphasis on the methods of operation in their units than SU franchisees due to the fact that MU franchisees might be able to realize scale economies (Grünhagen and Mittelstaedt, 2002) and improvements in monitoring capabilities of their units (Hussain and Windsperger, 2010). Considering the aforementioned, MU franchisees might also be able to realize economies of scale in purchasing, as they can purchase certain goods for all of their units from one supplier, realizing discounts in the process. Based on the aforementioned, hypotheses H4 and H5 are developed:

H4: Multi-unit franchisees are more likely to introduce new or improved ways of organizing than single-unit franchisees.

H5: Multi-unit franchisees are more likely to introduce new sources of supply than single-unit franchisees.

3. Methodology

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collected. To conclude this chapter, I will discuss the various constructs that are created to measure entrepreneurial behaviour.

3.1 Sample

A quantitative research was chosen for performing this study as several hypotheses were formulated that I want to test (Hoy, 2009). Hence, a considerable number of franchisees needed to be surveyed for this study. To increase the amount of response, I chose to perform this study in two franchise systems. In order to eliminate industry differences between franchised units, the research was performed within a single industry, the druggist industry. For this research quantitative data were collected by sending a digital questionnaire (see appendix I) to franchisees that are active in two druggist franchise systems, namely DA drogisterijen and DIO drogisterijen.

DA drogisterijen is a Dutch druggist that was founded in 1942 by five cooperating pharmacists. Right now, the DA drogisterijen (DA) formula consists of over 400 stores in the Netherlands, operated by approximately 332 franchisees. Unfortunately, I was not able to acquire data on the exact number of MU franchisees that are active within the DA formula.

DIO drogisterijen (DIO) was founded in 1992 by a group of independent pharmacies and has been a franchisor since then. DIO is a druggist that offers a wide variety of products ranging from drugs to cosmetics. Currently, DIO operates 190 stores in the Netherlands, of which 44 stores are operated by 16 MU franchisees. Thus, considering the aforementioned, the DIO outlets are operated by 162 franchisees.

Hence, the population in this research consists of 494 Dutch franchisees that operate one or more franchised units of either the DA formula, or the DIO formula. The works to collect the data for this research took place in the period between July and August 2011.

For DA franchisees, the digital questionnaire was available for a little over three weeks. After contacting the president of the Coöperatieve Drogisten Associatie, the questionnaire was brought to the attention of all DA franchisees through an e-mail that was sent in the name of the board secretary of the Coöperatieve Drogisten Associatie. Due to disappointing response, the purpose and availability of the questionnaire were brought to the attention of DA franchisees through the website for DA franchisees in late July. It was decided by DA that sending another e-mail to all franchisees would result in an overload, especially during the summer holidays.

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placed on the intranet of DIO to inform the franchisees about the purpose of this study and to request them to participate in the study. Three weeks later, a second e-mail was sent to all franchisees, reminding them to complete the questionnaire. Also, the link to the questionnaire was posted on the formula’s intranet once more.

3.2 Questionnaire design

The recommendations of Keller (2008), Emans (2004), Baarda and de Goede (1997) and Oppenheim (1992) were followed in the development of the questionnaire that was used in this study. Hence, the items in the questionnaire are specific, their formulation is precise and the overall questionnaire was kept as short as possible. Besides a limited number of open questions, the questionnaire included mostly questions with a five-point Likert scale that covered several degrees of agreement (from strongly disagree to strongly agree). Some of the items were phrased positively and a few negatively in an attempt to minimize the chance of contaminating the validity of the data. Contamination might occur when the participants perceive an item as positive due to a positive perception of related items, resulting in participants that will run down the page, always checking the answer that is most desirable in their perception (Oppenheim, 1992). The design of the questionnaire can be found in appendix II.

3.3 Data analysis

Filled in questionnaires that contained missing values were handled in a predetermined manner: whenever a questionnaire contained more than 25 percent of unanswered questions, it was excluded from the data and thus the study. If only a few questions were left unanswered, the questionnaire was included in the dataset. In total, I received 67 questionnaires in the period between July and August. Of the 67 questionnaires, eight could not be used due to the fact that more than 25 percent of the questions were left unanswered. Hence, I received 59 usable questionnaires, leading to a sample of 59 franchisees representing a response rate of 11,94%.

Data were collected using an online service that presents results in excel-sheets. Since the analysis was performed using the statistical analysis tool SPSS, the data were edited in order to be processed in SPSS. This included the recoding of item five of the questionnaire: all franchisees that operated only one single franchise outlet were coded as 1 (SUF). Since there were no “zero values” and the sample contains MU franchisees with two or three outlets only, all other values were coded as 2 (MUF).

3.4 Test procedure

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compare the mean scores of two groups on a particular variable. It fits this study very well as I want to make a comparison between the scores of SU franchisees and MU franchisees on several items. The ANOVA test is particularly interesting when more than two groups are being compared, something for which the t-test is not suited (Huizingh, 1999). The hypotheses are tested by performing a two-sided t-test. Since I want to compare two independent groups, the test that will be performed is the independent samples t-test. One assumption of this test is that the dependent variable is normally distributed. Hence, a Q-Q plot was drawn to graphically compare the distribution of the number of franchised outlets owned variable to the normal distribution. The Q-Q plot showed that the dependent variable is normally distributed.

An independent samples t-test is then performed using age, industry experience and formula experience as test variable and the number of franchised outlets as grouping variable. The purpose is to examine whether there are significant differences between the SUF and MUF groups regarding age, industry experience and formula experience. Hence, the grouping variable that is used is the variable that was created through the recoding of item five of the questionnaire, the number of franchised outlets owned. The test variables are age, industry experience and formula experience.

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3.5 Measurement of entrepreneurial behaviour

The most important construct in this study is entrepreneurial behaviour. In paragraph 2.1.6, a definition of entrepreneurial behaviour was formulated that emphasizes the importance of innovative behaviour. Building on the works of several authors (Freeman, 1982; Bridge et al., 2003; Pittino and Visintin, 2009) and one in particular (Johanessen et al., 2001), I distinguished between five different types of innovative activities that are used to measure entrepreneurial behaviour: introducing new or improved products or services, using new or improved ways of promotion, using new or improved ways of organizing, using new sources of supply and targeting new markets. A more detailed explanation of the aforementioned innovative activities is provided below, as well as an explanation of the way in which these constructs are measured.

3.5.1 New product or service introduction

The first construct, the introduction of new products or services, concerns the frequency with which franchisees add products or services to their franchised outlet(s) that are completely new to the franchise system. One item was added to the questionnaire for the measurement of this construct: “independent introduction of new products or services”.

3.5.2 New or improved ways of promotion

The construct new or improved ways of promotion encompasses the activities that a firm engages in with the intention to draw potential customers closer to the point of purchase. One could say that the concept shows great similarities with the field of Marketing. In their work, Solomon, Marshall and Stuart (2006) state that an exchange relationship is at the core of every marketing act. An exchange relationship can be created or changed by performing certain activities that are defined as marketing activities. According to Adcock et al. (2001), the core marketing function activities are advertising, sales and market research. Advertising can be defined as informing and persuading customers with the intention to move them closer to the point of purchase for a particular product or service (Adcock et al, 2001). Advertising is mainly about communicating with the customer. It is about the ways in which information about products is presented to potential customers, but also about the way of addressing the customer (with style, humor or sober). Advertising determines whether customers are attracted to a unit (Van der Ster, 1993). Whenever the term sales is used in this research, the pricing, packaging and display or presentation of products (Adcock et al., 2001) is meant. Market research is defined as an activity that will help understand the needs and wants of customers (Adcock et al, 2001).

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promotional activities”. The Crohnbach’s alpha for internal reliability amongst the items is calculated at .729, which means that the internal reliability of the four items is more than sufficient. It can be said that they measure the same construct, which is “promotional activities”. A mean score was calculated for all four items, resulting in a new variable called “promotional activities”.

3.5.3 New or improved ways of organizing

Johanessen et al. (2001) do not clarify the concept ‘new or improved ways of organizing’ and therefore I will need to formulate my own definition. For this study, I will define ways of organizing as the way in which a unit’s personnel is organized. In other words, the ways of organizing in a franchise unit can be defined as the way in which the human resources are managed. According to Brand and Croonen (2010), Human Resource Management (HRM) can be defined as a set of practices and policies that are directed at “attracting, developing and maintaining (or disposing of) a firm’s human resources”. Brand and Croonen (2010) have constructed a list of 11 HR practices in their research based on the work of Noe, Hollenbeck, Gerhart and Wright (2003). Building on the list of HR practices that was formulated by Brand and Croonen (2010), the following HR practices will be included in this research: training; recruitment & selection and rewards system. Four items were added to the questionnaire to measure this construct: “independently recruiting staff”, “independently choosing recruitment methods”, “independently choosing staff reward system” and “independently providing training for staff”. A Crohnbach’s alpha of .717 for internal reliability was calculated, implicating that all four items measure the “independent introduction of new or improved ways of organizing”. Since the internal reliability of the items is sufficient, a mean score was calculated for the aforementioned items, creating the new variable called “independent introduction of new or improved ways of organizing”.

3.5.4 New sources of supply

The fourth construct is about the frequency with which franchisees independently look for new suppliers to supply their outlet(s). It is measured through the item “independently look for new suppliers”.

3.5.5 Targeting new markets

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significant (at the .01 level). So, the items are strongly related and therefore it is justified to compute them into a new variable: “independently targeting new markets”. A mean score for the variable is created for each franchisee that participated in the study.

3.5.6 Overall entrepreneurial behaviour

The aforementioned constructs are all indicators of the level of entrepreneurial behaviour that is displayed by franchisees. Each construct focuses on a particular type of entrepreneurial behaviour but taken together they represent the overall entrepreneurial behaviour of franchisees. The average score of a franchisee on all of the aforementioned constructs represents the “overall entrepreneurial behaviour” of that franchisee. Twelve items are used to measure the construct and an analysis showed that the internal reliability of the items is very high (α = .821).

4. Results and discussion

This chapter discusses the analyses that were performed on the data that was collected through the digital questionnaire. The first paragraph presents the descriptive statistics of the sample. The second paragraph looks to determine whether there are significant differences between SU and MU franchisees concerning their age, gender or location of the franchised unit. The third paragraph discusses the results of the tests that were performed to determine whether the hypotheses that were formulated earlier are supported.

4.1 Descriptive statistics of the sample

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Table 3: descriptive statistics of SU franchisees and MU franchisees

Single-unit Multi-unit

Age Average age 45 45

Gender Male 20 17 Female 19 3 Formula DA drogisterijen 10 12 DIO drogisterijen 29 8 Location type City centre 6 1 Sub urb 8 2 Village 25 17 Education Primary school 4 1 Secondary school 9 1 Vocational education 19 13 College degree 6 5

Prior experience Average industry experience 19 20

Average formula experience 8 14

The descriptive statistics are examined as they might be used later in the study to help explain certain results. It is evident that, on average, there is no great difference in age between SU franchisees and MU franchisees. On average, SU franchisees have less experience in the druggist industry than MU franchisees. This is also true for the average number of years that a franchisee has been operating a franchised outlet: MU franchisees have more experience within the formula than SU franchisees. To determine whether any significant differences exist between SU and MU franchisees an independent samples t-test was performed using age, industry experience and formula experience as test variables and the number of outlets owned as the grouping variable. The results of the t-test were added to table 4.

Table 4: t-test results

SUF/ MUF N Mean Standard deviation T-test results

Age single unit 39 44,69 9,434

p = .919 multi unit 20 44,90 6,129

Industry experience single unit 39 18,85 10,609

p = .527 multi unit 20 20,25 6,273

Formula experience single unit 39 7,79 8,189

p = .008 multi unit 20 13,65 6,556

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formula experience of SU franchisees and that of MU franchisees. The test resulted in a p-value of .008 (t = -2.771, df = 57) which is smaller than α (.05). MU franchisees tend to have more experience with the formula than SU franchisees.

I have conducted a test to determine whether my data is subject to non-response bias using the methods of Armstrong and Overton (1977). Respondents were divided into two different groups, based on whether they completed the questionnaire before or after the reminder. The early respondents are those who completed the questionnaire prior to the reminder (n=31) and late respondents are those who completed the questionnaire after the reminder (n=28). The late respondents act as representations for non-respondents (Armstrong and Overton, 1977). An independent samples t-test, using the moment of response as grouping variable and all items for measuring entrepreneurial behaviour as test variables, was conducted to determine whether the answers of the early respondents differ significantly from those of late respondents. The test showed that there is a significant (α = .05) difference between early and late respondents concerning their answers of question 19 (p = .009) and 20 (p = .012) of the questionnaire, which leads me to believe that my results are somewhat influenced by non-response bias. Another independent samples t-test was conducted to determine whether there are significant differences between early and late respondents regarding their characteristics. The test results indicated that early respondents differ significantly from late respondents when it comes to their age (p = .038, t = -2.13, df = 57) and their gender (p = .003, t = .316, df = 55.68). This ratifies my previous conclusion that the results of this study are somewhat influenced by non-response bias. The late respondents group contained more men and proved to be older. Since the questionnaire was distributed digitally, an explanation could be that older franchisees are less likely to complete the questionnaire early as their use of digital channels is less frequent than that of younger franchisees. Hence, the descriptive statistics of the sample that were presented earlier, might not adequately represent the population.

4.2 Hypothesis testing

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Construct Test variables Equality of variances assumed? p-value Independent introduction of new products or services (H1)

- independently introducing new products or services. .468

Independent promotional activities (H2)

- independently changing presentation of products/ services;

- independently changing arrangement of the outlet; - independently undertaking promotional activities.

.471

Independently targeting new markets (H3)

- independently finding new customer groups;

- independently looking for unfulfilled customer needs.

.405

Independent

introduction of new or improved ways of organizing (H4)

- independently recruiting staff;

- independently choosing recruitment methods; - independently choosing staff reward system; - independently providing training for staff.

.632

Independently use new

suppliers (H5) - independently use new suppliers. .133 Overall entrepreneurial

behaviour

- all of the aforementioned test variables are combined

for this test. .654

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For the last hypothesis, H5, no support could be found either as the p-value is .133 (t = 1.523, df = 56,69) which is greater than .05. Thus it is said that the t-value is not significantly negative, which indicates that there is no significant difference between MU franchisees and SU franchisees concerning their independent use of new suppliers.

To see whether a significant difference could be found between SU and MU franchisees concerning their entrepreneurial behaviour, I performed a t-test using the overall entrepreneurial behaviour as test variable. The test resulted in a value of .654 (t = -.451, df = 56.47). Since p > .05 it can be said that the p-value is not significantly negative. Hence, no significant difference can be found between SU and MU franchisees concerning the levels of entrepreneurial behaviour that they display.

4.2.1 Additional testing

The results of the hypothesis testing as well as the additional t-test indicate that the number of outlets operated by franchisees does not appear to determine the levels of entrepreneurial behaviour that they will display. However, the aforementioned results were generated by using the independent samples t-test, which is a bivariate test. This means that the influence of other variables on entrepreneurial behaviour was not taken into account. To determine whether other variables might have an influence on entrepreneurial behaviour, I have performed multiple regression analysis. Regression analysis is used to determine causation (Smits and Edens, 2006). Hence, through regression analysis it is examined whether certain factors (independent variables) are the cause of a certain phenomenon (dependent variable), which in this case is entrepreneurial behaviour. Regression analysis is based on an equation that allows for prediction of the phenomenon (Smits and Edens, 2006). Whenever multiple independent variables are used in the equation, multiple regression analysis is required. In this study I look to create a model to determine the entrepreneurial behaviour of a franchisee using the number of outlets and control variables age, gender, industry experience, formula experience, store surface and number of employees as independent variables. Since “the number of outlets owned” and “gender” are of the categorical type, they have to be recoded into a dummy variable (de Vocht, 2010). Appendix IV presents the results of multiple regression analysis explaining entrepreneurial behaviour. The results confirm the conclusion of the bivariate tests: entrepreneurial behaviour is not determined by the number of outlets owned. A p-value of .572 was found, which indicates that the model is not generalizable to the population.

4.3 Discussion

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Herington, 2007; Weaven and Frazer, 2006; Grünhagen and Mittelstaedt, 2005). The works of Bradach (1995) and Hussain and Windsperger (2010) implied that SU franchisees are closer to the local market and thus possess greater knowledge about it than MU franchisees. Therefore I assumed that they would display more entrepreneurial behaviour which is focused on attracting and communicating with the customer than MU franchisees do. The results of my study implicate that such a relationship does not exist. One explanation could be that SU franchisees do possess a greater amount of knowledge about the local market, but that MU franchisees compensate this dissimilarity by sharing the combined knowledge of all their units or that MU franchisees can use their extensive formula experience to their advantage. Like Grünhagen and Mittelstaedt (2002) imply in the conclusion of their work, I had expected MU franchisees to find new suppliers more often than SU franchisees do. This was due to the fact that MU franchisees can use their size of operations to their advantage and realize scale benefits. I did not find support for the aforementioned. This might be due to the fact that only MU franchisees operating two or three outlets participated in this study. The works of Weaven and Herington (2007) and Darr et al (1995) say that information is shared in MU franchises more quickly than in SU franchises. Therefore, I wanted to examine whether this would lead to a difference between MU franchisees and SU franchisees regarding the independent improvement or optimization of internal processes in their outlet. I had expected that MU franchisees would display more entrepreneurial behaviour in this field than SU franchisees. Hypotheses H4 and H5 proved that this study cannot justify that expectation, which somewhat contradicts the work of Grünhagen and Mittelstaedt (2002), who found that MU franchisees place a greater emphasis on the methods of operation in their units. This also contradicts the work of Bradach (1997), who stated that MU franchisees are more likely to duplicate organizational routines that were developed by the franchisor, as I found no significant differences between the entrepreneurial behaviour of MU and SU franchisees in this field. In fact, no support was found for any of the hypotheses that were formulated for this study. Even when I included all measurement items for innovative behaviour, I could not find a significant difference between SU and MU franchisees concerning their display of

entrepreneurial behaviour.

4.4 Limitations and suggestions for future research

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First, an explanation for the fact that none of the hypotheses is supported might be found through a review of the sample, which seems to be a small one. It could be that the statistical results are weakened by the relatively small size of the sample. Also, the franchisees that participated in this study voluntarily decided to do so. Hence, a self-selection bias (Grünhagen and Mittelstaedt, 2002) may have occured, resulting in a sample that contains predominantly franchisees with strong feelings about their behaviours. Second, whenever a questionnaire is being used as a means of collecting data, respondents are likely to answer in a way that they believe is socially desirable. Respondents want to make a good impression and in this study, the franchisees might be more likely to give themselves high scores in areas such as new product introduction, as they believe their answer fits them as entrepreneurs. In addition, entrepreneurial behaviour was measured through innovative behaviour in this study while there a many other aspects of franchisees that can be assessed to determine whether there are differences in entrepreneurial behaviour between SU and MU franchisees, such as risk taking behaviour, goals and competences (Driessen and Zwart, 2009; Beugelsdijk and Noorderhaven, 2005; Woo et al., 1991). Maybe the motivations of franchisees can be used as determinants of entrepreneurial behaviour (Croonen et al, 2011). This sounds promising as Woo et al (1991) found that differences between entrepreneurs are particularly pronounced when goal variables are included in the analysis. Hence, other aspects of franchisees can be used in future research as a tool for measuring entrepreneurial behaviour and comparing between SU and MU franchisees. Despite the fact that my design of constructs for measuring entrepreneurial behaviour is based on numerous academic writings (e.g. Carland and Carland, 1991; Kaufmann and Dant, 1998; Kaufmann and Eroglu, 1998; Dant and Gundlach, 1998; Bann, 2009; Croonen et al., 2011), it is questionable whether these are the most appropriate constructs. Future research should therefore assess the quality and applicability of these constructs and maybe develop new ones.

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5. Conclusion

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