T H E E F F E C T O F P E E R T R U S T O N F R A N C H I S E E C O M M I T M E N T A N D T H E
M O D E R AT I N G R O L E O F P E R S O N A L C H A R A C T E R I S T I C S
Farielle Valerius
University of Groningen Faculty of economics and Business Msc. BA Small Business and Entrepreneurship
Marjoleinstraat 95 9731 DD, Groningen
The Netherlands Fari_real2@hotmail.com Student number: 1614355
Word count: 10.468
Supervisor: Dr. Evelien Croonen, University of Groningen Co-assesor: Prof. Dr. Peter Zwart, University of Groningen
January 2016
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Abstract
In franchising literature, the concept of trust between franchisees of the same system (i.e. peer trust) is quite new. Behavioral outcomes such as for example, compliance and commitment are important to franchisors and their systems. For this reason, the effect of peer trust, as new concept, on desired franchisee behavioral outcomes are studied in this paper. Moreover, most franchising studies see franchisees as being a homogenous group. This paper will make a distinction and will see franchisees of the same system as a heterogeneous group. As every individual has their own set of personal characteristics, franchisee’s personal characteristics will also be taken into account. To be precise, the aim of this paper is to see whether peer trust affects the commitment of franchisee, and test whether different personal characteristics of franchisees moderate this relationship. The results of the study did not show that peer trust affects commitment. On the other hand, several personal characteristics of franchisees did affect commitment directly. These characteristics are; intrinsic motivation, need for autonomy, industry experience and the degree of education of franchisees.
Key words: Peer trust, personal characteristics franchisee, commitment, franchisee heterogeneity
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Table of Contents
1. Introduction ... 3
1.1 Background ... 3
1.2 Research Gap ... 6
1.3 Research Question ... 7
1.4 Thesis Outline... 7
2. Theoretical Framework and Hypotheses ... 7
2.1 Trust ... 7
2.1.1 Peer trust ... 8
2.2 Franchisee Commitment ... 8
2.3 Personal characteristics ... 10
2.3.1 Motivation ... 11
2.3.2 Experience ... 13
2.3.3 Education ... 13
2.4 Conceptual Model ... 14
3. Research design ... 14
3.1 Sample ... 15
3.2 Measures ... 15
3.2.1 Dependant Variable: Commitment ... 16
3.2.2 Independent variable: Peer trust ... 16
3.2.3 Moderating variables: Personal characteristics ... 17
3.2.4 Control variables ... 18
3.5 Data Analysis ... 19
3.6 Validity and Reliability ... 20
4. Results ... 21
4.1 Descriptive findings ... 21
4.2 Reliability analysis results ... 22
4.3 Correlations ... 23
4.4 Hypothesis testing ... 24
5. Discussion, Practical implications and Limitations ... 26
5.1 Discussion and Conclusion ... 26
5.1 Practical implications ... 28
5.2 Limitations and Future research ... 29
6. Reference List ... 30
7. Appendix ... 34
7.1 Appendix A: Survey items overview ... 34
7.2 Appendix B: Tables and Figures. ... 36
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“Trust is the glue of life. It's the most essential ingredient in effective communication. It's the foundational principle that holds all relationships”
-Stephen Covey-
1. Introduction
1.1 Background
Franchising as a way of doing business is one form of commerce that is rapidly increasing throughout the world (DiPietro et al.,2007; Dant, 2008). In The Netherlands alone, franchising accounts for approximately 30 million euros in revenue (Nederlandse Franchise Vereniging, 2015). This makes franchising an interesting option for those who want to be self-employed and run their own business (Kaufmann, 1999). In business format franchising, a contract is made between a franchisor and franchisee, that gives the franchisee the right to use the franchisor’s business format (Clarkin and Rosa, 2005: 305). This contract entails detailed information on how business should be conducted, and the franchisee is expected to strictly comply with these rules in order to secure the success of the franchise system (Dada and Watson 2013; Davies et al. 2011). It is this continued success of the franchise system that will reward both the franchisor and franchisee (Harmon and Griffiths, 2008).
A franchise system has a unique business structure as it incorporates different businesses that are identical to one another, and economically rely on each other, although legally independent of each other (Meek et al., 2011). Trust plays an important role in this relationship between franchisor and franchisee, as neither franchisor nor franchisee can guarantee the ongoing success of the system and need to trust each other to make the system work (Eser, 2012). As the franchise relationship does not only consist of one franchisor and only one franchisee but between a franchisor and different franchisees, it is important that franchisees also trust other franchisees in the system (Croonen and Brand, 2015; El Akremi et al., 2011).
4 In a franchise system, there are different actors and relationships at play to make the system work. There is the franchisor that replicates his business format and sell it to franchisees for them to use. This is a direct relationship between franchisor and franchisee.
Subsequently, there are the different franchisees in the system that enters into the same agreement with the franchisor. These different franchisees of the same system are all in an indirect relationship with each other, in order to make the system work. If there are franchisees in the system that behave opportunistically, then the franchise system might fail and all franchisee will be worse off by this (El Akremi et al., 2011). Opportunistic behavior of franchisee can be for example; withholding information (El Akremi et al. 2010), free-riding (Kidwell and Nygaard, 2011; Gillis and Castrogiovanni, 2012) and deviation from quality standards (Cox and Mason, 2007). This shows that not only trust between franchisor and franchisee is of importance, but also, trust between the different franchisees of the same system (i.e. peers) is of importance. This trust between peers will be named peer trust.
It is this peer trust that this paper will further build upon. In existing franchising literature, there is little to no study that looked at trust between franchisee peers in the same system. The paper conducted by Croonen et al. (2015), is the first one to introduce the concept of peer trust. In order to build the concept of peer trust on existing trust literature, theory on organizational trust will be taken into account. One important definition of trust in the organizational literature as cited by Mayer et al. is, “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party” (Mayer et al., 1995). In this paper, as peer trust will be studied, this definition might be adapted to, “the willingness of a franchisee to be vulnerable to the actions of its fellow franchisees (i.e. peers) in the system, based on the expectation that the fellow franchisee will perform a particular action important to the franchisee, irrespective of the
5 ability to monitor or control the fellow franchisee. Another definition for trust is, an individual’s believes that another individual will makes good-faith effort to behave in an honest manner regarding commitments made, and that they will maintain to these commitments, without behaving opportunistically (Cummings and Bromiley, 1996). When this definition is used for peer trust, it can be said that Peer trust is a franchisee’s belief that other franchisees in the system (i.e. peers) will behave honestly, maintain their commitments and does not show opportunistica behavior.
To develop this concept further, also literature on co-workers trust is used, as they examine the trust relationship between employees in the same organization. This is comparable to trust relationships between franchisees of the same system. Co-workers trust is said to be a different type of trust relationship than that of employees trust in, for example, the organization (i.e. vertical trust), as trust in co-workers (i.e. horizontal trust) does have little to no power imbalance (Tan and Lim, 2009). When a franchisee trusts his peers, it is expected that this will increase the franchisee’s satisfaction with the system. This will lead in turn to the franchisee having no problem to show commitment to the system.
Commitment is an important and desired behavior of franchisees, as it increases the overall performance of the franchise system (Meek et al., 2011; Mignonac et al., 2013). When Social Exchange Theory (SET) is taken into consideration, an explanation of why Franchisees enter into a franchise relationship and also why they stay into that relationship can be presented. SET presents a good basis that can be used to explain franchisee’s commitment (Meek et al., 2011). Social exchange theory provides explanation of behaviours (e.g.
commitment) between partners in a relationship that is based on beneficial rewards for all parties involved (Davies et al., 2011).
Furthermore, this paper will also look at some personal characteristics of franchisees such as motivation, experience, and education, in order to see if these will moderate the
6 relationship between peer trust and commitment. There are only a few studies that incorporated franchisee’s personal characteristics as a variable into their studies before. These studies looked at the influence of personal characteristics on; franchise outcome (Morrison, 1997), the difference between franchisee and managers (DiPetro et al., 2008), franchisee goal congruence (Cochet et al., 2008) and the franchisee-franchisor relationship (Dant et al., 2013).
1.2 Research Gap
Until recently, most research conducted in the franchising field were franchisor-based, and not focused on the franchisee (Dant et. Al, 2011; Meek et al, 2011). Although, franchisee based studies are emerging, there still exist a gap in looking at the franchisee as an individual and not as a homogenous group (Croonen et al., 2015).
This study tries to fill in this gap by looking at the franchisee instead of the franchisor.
Furthermore, the study will look at the franchisee as an individual and not as a homogenous group. Adding to the literature, knowledge of how franchisees may differ and what the importance of this difference may be for franchise systems.
Also, as previously mentioned, this paper will look at a franchisee’s peer trust, which is quite new in franchising literature. By incorporating this view, this paper will add to the franchising literature more understanding of trust between franchisee peers.
Moreover, as personal characteristics of the franchisee are added as moderator in this study, new insights on the franchisee’s peer trust may be gained. Examples of studies that examined the influence of personal characteristics on franchisee’s behavior are the study of Dant et al. (2013), with a focus on franchisor relationship context. Another example of such study is that of Croonen et al. (2015), that examines franchisee’s entrepreneurial motivations as personal characteristics of franchisees. Yet, none of these researchers looked at how personal characteristics affect the relationship between peer trust and commitment.
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1.3 Research Question
The research question developed in this paper is “How does a franchisee’s trust in its peers affect his commitment, and to what extent do different franchisee’s personal characteristics moderate this effect?”
1.4 Thesis Outline
The remainder of this paper will be structured as follows; the subsequent chapter will provide information in order to build a theoretical framework and introduces the hypotheses developed and conceptual model. The chapter afterward will explain the design of this research and shows the data that has been used to conduct the study. The empirical result of the study is the chapter that will follow. The discussion will be the last chapter of this paper and will present the most important findings of this study. Furthermore, the implications for the academic field and how these findings can be put to practice will also be presented.
2. Theoretical Framework and Hypotheses
2.1 TrustTrust is of importance in a franchise system, as trust can lead towards an increase in franchisee’s satisfaction and in cooperation (Davies et. al, 2011, Chiou et al., 2004). Trust is a construct of two dimensions, competence trust, and intentional trust (Croonen and Brand, 2013). Moreover, in franchising, trust can also be divided into two levels, mainly in franchisee trust in franchisor (i.e. vertical trust) and franchisee trust in peers (i.e. horizontal trust) of the same system (Croonen et al., 2015). In this paper, the level of trust of franchisees in their peers will be taken into consideration.
8 2.1.1 Peer trust
Peer trust as defined in the above chapter is in this case, the willingness of a franchisee to be vulnerable to the actions of its fellow franchisees (i.e. peers) in the system, based on the expectation that the fellow franchisee will perform a particular action important to the franchisee, irrespective of the ability to monitor or control the fellow franchisee (cf. Mayer et al., 1995). Furthermore, it is the certainty a franchisee has in his peers that they desire to and are capable of implementing the franchisor’s business format in order to have a uniform system (Croonen et al., 2015). When this peer trust is present franchisees can rest assured that the franchise system will be stable in terms of the behavior of peers as other franchisees in the same system are behaving accordingly and does not form a threat to the system and their own success.
2.2 Franchisee Commitment
Social exchange theory proposes that in order to comprehend the reasons franchisees may have to remain part of the franchise system, the different dimensions of commitment need to be examined (Meek et al., 2011). According to scholars of Human resource management and Organizational commitment, the construct of commitment is multidimensional and is
composed by three components or dimension that is; normative commitment, affective commitment and continuance commitment (Meyer and Allen,1991). Moreover, Morgan and Hunt (1994) definition of commitment is cited as; “an exchange partner believing that an ongoing relationship with another is so important as to warrant maximum efforts at
maintaining it; that is, the committed party believes the relationship is worth working on to ensure that it endures indefinitely”. In the franchising context, this definition can be seen as a franchisee believing that an ongoing relationship with the franchisor is of importance and will put maximum effort in order to maintain the relationship. Furthermore, Meek et al.(2011), stated that commitment is a force that oblige or stabilize, restricting freedom, binding to a
9 course of action and providing direction to behaviors.
They also stated the three dimension of commitment in a franchising context.
Franchisees that exert normative commitment feel obligated to remain in the franchise relationship (Meek et al., 2011). Commitment can also be affective and described as the emotional feeling of belonging a franchisee may have towards the franchise system, identifying itself with the values and goals of the franchisor (Mignonac et al., 2013). A franchisee with a feeling of belonging to the system does not want to leave and is committed to adhering to what the franchisor ask of him in order to stay in the system. Furthermore, as the franchisee can identify with the values and goals of the system, commitment to the system will be easy and the most logical thing for the franchisee to do. Continuance commitment, in turn, refers to the cost (e.g. switching cost) of not staying committed and leaving the
organization (Meyer and Allen,1991). When franchisees have continuance commitment, switching cost are too high for franchisees to leave the system and will consequently commit to the system (Meek et al., 2011). When commitment is mentioned as a single concept, it entails all these 3 dimensions together. This paper will measure commitment as a single concept variable that encompasses these 3 dimensions. The purpose of choosing commitment as a single variable is to be able to capture in the most simplistic way a good and complete measure of commitment.
As the relationship between trust and commitment is the cornerstone of this study, studies based on the relationship between trust and commitment are taken into account. An example of such study is that of Farndale et al. 2011, from the human resource literature stream. They stated that a high degree of employee’s trust in their organization will influence how employees behave, which will lead to them being more committed to their organizations.
Also, in a franchising context, a similar relation can be argued. A high degree of franchisee trust, in their peers to be precise, can lead to a higher degree of commitment of the franchisee
10 towards the system. Moreover, a good relationship between co-workers (i.e. trust in co-
workers) can secure the relationship with an organization, and will also influence employee’s motivation to stay and commit to the organization (Wang, 2008). This is another example of how trust in peers can enhance commitment, also in the case of franchisee’s peer trust.
When peer trust and commitment is present in a franchise system, an efficient, productive and effective outcome will be produced. Furthermore, this will foster cooperation and sharing of knowledge which will reduce intentions to leave the system, uncertainty, and conflict, leading to an increase in the overall performance of the system (Morgan and Hunt, 1994). It can be said that peer trust will lead to franchisee being more committed to his franchise system, this statement is expressed in the following hypothesis.:
H1: There is a positive relationship between a franchisee’s peer trust and commitment
2.3 Personal characteristics
Franchisees as individuals all possess their own set of personal characteristics that influences how they act. According to Dant et al. (2013), personal characteristics of franchisees can affect the degree of quality, efficiency and effectiveness of a franchise system.
In the entrepreneurial literature, personal characteristics is said to be a fundamental way in which individuals differentiate themselves, and may influence an individual’s choices, performance and behavior (D'Intino et al., 2007). When franchisees are seen as individuals (i.e. heterogenous group) with their own set of personal characteristcs (Clarkin and Rosa, 2005), and if characteristics can influence franchisee’s behavior, then difference in franchisee’s behavior can be expected in the same system. It is for this reason, that the personal characteristics of franchisees can be argued to influence the interaction between peer trust and commitment towards the system. It is dependent on the kind of personal characteristic if the relationship between peer trust and commitment will be strengthened or weakened. In this study, the personal characteristics of franchisees will act as a moderator
11 between peer trust and commitment.
The characteristic that will be taken into account will be the motivation of franchisees, experience and education of franchisees. In entrepreneurial literature, it is assummed that personal characteristics affect the different goals each entrepreneur may seek to accomplish with their business (Naffziger et al., 1994). These characteristics may also influence the goals franchisees wants to accomplish being part of a system and are therefore chosen.
2.3.1 Motivation
Motivation can be seen as a personal characteristic of entrepreneurs that leads to goal achievement and can be divided into intrinsic motivation, extrinsic motivation and need for autonomy (Kuratko et al., 1997). Recent researchers argue that individuals can value both intrinsic and extrinsic rewards at the same time, and does not necessarily value the one more than the other (Hornsby et al., 2009; Carsrud and Brännback, 2011). Furthermore, Franchisees can also be seen as exerting entrepreneurial behaviors (Ketchen et al. 2011; Croonen et al., 2014). For this particular reason, entrepreneurial motivation is argued to be similar to franchisee’s motivation.
2.3.1.1 Intrinsic motivation
Naffinger et al., (1994), stated that “Entrepreneurs have a set of goals they seek to accomplish when they decide to initiate a new venture”. Also, franchisees have a set of goals they want to accomplish when they enter a franchise system, and these are the franchisees motivations.
Franchisees are motivated to achieve both intrinsic rewards and extrinsic rewards (Kuratko et al., 1997). If a franchisee is intrinsic motivated than he has a personal value he attaches to the reward, such as the feeling of belonging to a system (Carsrud and Brännback, 2011). An intrinsic reward may also be the satisfaction an individual gets by simply performing an activity they enjoy (Gagné, 2005). When intrinsic motivation is used as a moderator between
12 peer trust and commitment, it can be argued that franchisees put a value on their internal goal such as the feeling of cohesion, and if they can trust their peers, this increases the intrinsic reward and their commitment to the franchise system. Thus, the hypothesis developed here is;
H2: The intrinsic motivation of the franchisee will strengthen the positive relationship between franchisee’s trust in peers and his commitment behavior.
2.3.1.2 Extrinsic motivation
Extrinsic motivation refers to an external reward that follows certain behavior, for example, monetary reward (Carsrud and Brännback, 2011). When extrinsic rewards are more important to franchisees, then the franchisee will not worry with what his peers are doing as long as he is achieving his extrinsic goals, and will be committed to the system regardless of his trust in peers. The hypothesis that follows is then;
H3: The extrinsic motivation of the franchisee will weaken the positive relationship between franchisee’s trust in peers and his commitment behavior.
2.3.1.3 Need for autonomy
Autonomy, as cited by Dant and Gundlach (1999), is; “the ability or desire for independent thought and action”. In a franchising context, it can be explained as, the ability and desire of franchisees to act independently from the franchisor, but also from his peers. It is also, the need of franchisees to run their unit the way they desire to (Sorenson and Sørensen, 2001).
Furthermore, autonomy in an franchising context can be defined as the degree of freedom a franchisee has in running his own outlet as he thinks is appropriate (Strutton et al., 1995). The need for autonomy is than, the desire of franchisees to have a high degree of this decision freedom. When a franchisee wishes to act independently and decide for himself how to run his outlet, he will not put much importance on what his fellow peers are doing. The hypothesis in this case is;
13 H5: Franchisee’s need for autonomy will weaken the positive relationship between franchisee’s trust in peers and his commitment behavior.
2.3.2 Industry Experience
Franchisees with a high level of prior industry experience have a higher degree of confidence in their own ability to operate their franchise unit and may behave more independently (Dant and Gundlach, 1999; Cochet et.al, 2008). Furthermore, Nijmeijer et al. (2014), found that franchisees experience in business, self-employment, and even management, most of the time has a negative effect on the franchise system performance. This shows that experiences of a franchisee, no matter in which area (e.g. industry, business etc.), may influence the relationship between trust and commitment by weakening this relationship. As franchisees with prior experience, will behave more independent and will not put much importance on what his peers are doing. For this reason, the following hypothesis has been formulated;
H4: Franchisee’s experience in the industry will weaken the positive relationship between franchisee’s trust in peers and his commitment behavior.
2.3.3 Education
When franchisees have a high level of education, they are expected to be more critical of the system, and would perform proper research of the system in order to understand it, and would likely put more attention in calculating the cost and benefit of the system (Jambulingam and Nevin, 1999). The education level of the franchisee can make him more prone to observe his peers and see whether they form a threat to the franchise system. This makes the relationship between peer trust and commitment stronger. The reason for this is that as the franchisee observes his peers and perceive that he can trust them, he will commit without difficulty to the franchise system. Thus, the hypothesis will be as follows;
14 H6: Franchisee’s level of education will strengthen the positive relationship between franchisee’s trust in peers and his commitment behavior.
2.4 Conceptual Model
This chapter presents the conceptual model of this study as shown in Figure 1. The model shows that this study expects a positive relationship between peer trust and commitment. In addition, an interaction effect is expected on this relationship when intrinsic motivation, extrinsic motivation, industry experience, and education are taken into account.
Figure.1 Conceptual model
3. Research design
This chapter introduces the research method used in order to test the hypothesis and to answer the research question in the above chapter. This paper follows a quantitative approach and will make use of the theory testing method. This chapter has the following structure. First, information about the sample of this study will be given. Secondly, the measures used will be explained, followed by a discussion on the moderating variables and also the control variables. Furthermore, detailed information on how the data is analyzed will be in the next chapter. Moreover, the validity and reliability of the study can be found at the end of this chapter.
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3.1 Sample
For this study, a database with data collected by Croonen et al. (2015), has been used. The database contains data of a single franchise system. For the purpose of anonymity of the respondents and the franchise system, the franchise will be named “Handyone” in this paper.
The “Handyone” franchise is based in The Netherlands and consists of several small business owners as franchisees. Some of these franchisees have a few employees and others work alone, providing service to customers at their homes with the use of a minivan, where they store their equipment.
The data was collected throughout a survey in autumn of 2011, and the survey questions were developed by Maryse Brand, Evelien Croonen, and Thijs Broekhuizen. The survey asked the respondents several questions on the different construct and variables of trust, the consequences of trust and personal characteristics of the franchisees. The information that were collected makes the dataset the right one to use for this paper, as data on both peer trust and personal characteristics of the same franchisees are available. When the survey was conducted in 2011, “Handyone” consisted out of a total of 209 franchisees. From these 209 franchisees, 135 responded to the survey and 120 completed all questions, leading to a net response rate of 57%. Moreover, the sample data consist of only male respondents, as the Handyone system consisted only out of male franchisees at the time of data collection.
3.2 Measures
Here, an overview of the different variables and their measurement scale can be found. First, the commitment variable is presented, followed by peer trust, intrinsic motivation, extrinsic motivation, need for autonomy, industry experience, education and at last, information on how the control variables are measured is given.
16 3.2.1 Dependant Variable: Commitment
The dependent variable in this study is franchisee’s commitment. Commitment is measured with 6 items taken from Farndale et al. (2011). In their studies they measured commitment as an employee’s organizational commitment, this has been adapted in this dataset to the commitment of franchisees to their franchise system. Furthermore, this measurement of commitment is a single variable measurement that also measure some degree of the three dimensions of commitment being; affective, continuance and normative commitment. The items are measured using a five-point Likert scale and vary from (1) Totally disagree to (5) Totally agree. A few examples of these items are, “I tell others that Handyone is a good franchise system” (e.g. normative commitment), “I am proud to be part of Handyone” (e.g.
affective commitment) and “It would take a very little change to cause me to leave the Handyone system” (e.g. continuance commitment) (Appendix A).
3.2.2 Independent variable: Peer trust
Peer trust is the independent variable in this study. Peer trust is measured in the survey with items from Cook and Wall (1980), that measure the trust in peers of co-workers. Furthermore, also, Kiffin-Peterson and Cordery’s (2003) measure of co-workers trust are used as items. A total of 4 items with a five-point Likert scale that vary from (1) Totally disagree to (5) Totally agree are applied. The items that were selected and adapted to a franchising context are; “I can trust my fellow Handyone peers to lend me a hand if I needed it”, “most of my Handyone peers can be relied upon to do as they say they will do”, “I have full confidence in the skills of my fellow Handyone peers” and “I can rely on other Handyone peers that they will not purposefully bring damage to the Handyone system” (Appendix A).
17 3.2.3 Moderating variables: Personal characteristics
The moderating variables of this study are based on some personal characteristics of a Handyone franchisee. As pointed out in the theory section, the personal characteristics that were selected are; motivation of the franchisee, with variables such as intrinsic motivation, extrinsic motivation and need for autonomy. Furthermore, the experience of the franchisee and his education are also chosen as personal characteristic variables.
3.2.3.1 Intrinsic Motivation
Intrinsic motivation has been measured with 7 items on a five-point Likert scale ranging from (1) not very important to (5) very important. The survey measures intrinsic motivations based on the article of Kuratko et al. (1997). Examples of these items are: “How important is it for the franchisee to gain public recognition”, “How important is it for the franchisee to meet a challenge” and “How important is it for the franchisee to achieve personal growth”
(Appendix A).
3.2.3.2 Extrinsic Motivation
Also extrinsic motivation items are based on Kuratko et al. (1997) measurements. The survey consists out of 5 items on extrinsic motivation based on the degree of importance to franchisees. The scale is a five-point Likert scale with 1 being not very important to 5 being very important. An item examples is: “How important is it for the franchisee to lead a luxurious life?”(Appendix A).
3.2.3.3 Need for autonomy
As the variable of the need for autonomy is also based on motivation, 5 items that measure this variable were again taken from Kuratko et al. (1997). The measurement scale used is a Five-point Likert scale. A question asked is for example: “How important is it for the franchisee to maintain his personal freedom?” (Appendix A).
18 3.2.3.4 Experience
Industry experience is measured with one question asking franchisees to state how many years of experience they have as previous business owners in the industry the franchise is active in.
The Handyone franchise falls under the industry of home service. This industry experience measurement is based on the number of years from 0 to 100.
3.2.3.5 Education
Education is measured with one question, asking franchisees to state under which category they fall. There are 4 categories of education ranging from 1 to 4. 1 being the lowest degree of education and 4 being the highest. The categories made are based on the Dutch education system. Category (1) is Primary education. Category (2) is Lower Vocational Education and/or Lower General Secondary Education. Category (3) is Higher General Secondary Education/ and/or Intermediate Vocational Education. Category (4) is Higher Vocational Education and/or University.
3.2.4 Control variables
There might be other characteristics of the franchisee that may also affect the commitment of franchisees. These characteristics are taken into account in this study and act as control variables. The control variables are the duration of franchisee’s relationship with the system, Switching cost and other alternatives of franchisees. The reason why these variables are taken into account as control variables is explained below.
The duration of the relationship with the franchisor can affect commitment as the longer the relationship exist, the more committed the franchisee may be to the system, regardless his trust in his fellow peers. The duration of the relationship affects commitment positively, as franchisees in a long relationship may be at the end of their contract and hope for it to be prolonged, and will, for this reason, be committed to the system (Cochet et.al,
19 2008). Furthermore, this variable duration of the relationship is measured as the number of years the franchisee is part of Handyone system.
In addition, if switching cost are high, the cost for a franchisee to leave the system will be high, forcing a franchisee to stay committed, despite their desire to leave (Meek et al., 2011). The switching cost variable consist of 3 items like; “On the whole, I would have to spend a lot of time and money to leave the Handyone system”, measured with a Five-point Likert scale (Appendix A). These measurement are based on items from Ping (1993).
The last control variable, other alternatives available to the franchisee is also measured with a Five-point Likert scale, and consist of questions like “There are many attractive alternatives for me compared to being a franchisee at Handyone” and “Compared to being a franchisee at Handyone, I could benefit a lot from an alternative position” (Appendix A). If it is the case that a franchisee has other alternatives to choose from, for example, other systems he can be a part of than his commitment to his current system may affect the relationship between peer trust and commitment (Meek et al., 2011; Mignonac et al. 2013).
3.5 Data Analysis
To analyze the data for this study, use has been made of the statistical program, IBM SPSS 23. Most data used in this study are interval data, except Education (ordinal data) and industry experience (ratio data). The primary step taken in order to evaluate the data is to compute a descriptive statistics analysis. This gives an overview of the sample’s mean and standard deviation. Also, an independent sample t-test is conducted to compare early and late respondents with each other. Furthermore, a reliability test is conducted to see whether the different items scales measured what they intend to measure. In this paper variables with a Cronbach’s alpha higher than 0.60 are being considered as reliable scales instead of a higher or lower alpha (Cronbach, 1951). Once the different variable items measuring a variable passes the reliability test, they are summed up into one new variable. Moreover, a
20 multicollinearity test is part of the next step. In order to further analyze the data, a Pearson correlation test is conducted. This correlation test examines the relationship strength between the different variables used in this paper (Field, 2013).
Moreover, a linear regression analysis is conducted. First, the relationship between commitment, the dependent variable, and peer trust, the independent variable, is tested. Also, the control variables, switching cost, franchisee’s alternatives and duration of the relationship are taken into account there. Secondly, the interaction with the moderating variables will be observed. In order to be able to analyze this interaction, the moderating variables, and independent variables are standardized (Field, 2013). Afterward, the different moderating variables are each multiplied with the independent variable, resulting in new interaction variables. Then, for each of the moderating variables a linear regression is conducted again, leading to a total of five regression analyses for the moderating variables. When conducting the regression analysis for the moderators, the dependent variable is used, the control variables, the standardized independent and moderating variable and the multiplied
moderating variable. After the different regression analyses is computed, the significance of the relationship and interactions can be explained.
3.6 Validity and Reliability
To maintain measurement error as low as possible in this study, validity and reliability of measurements instruments are determined. The validity ensures that the instruments used, measure what they intend to measure. The reliability determines whether the measurements and study can be generalized across different studies (Field, 2013). Additionally, three forms of validity can be determined, namely; internal validity, external validity and construct validity (Van Aken et al., 2012).
In order to enhance the internal validity of this study, and test for non-response bias early respondents and late respondents were compared with one another, as late respondents
21 are said to be similar to non-respondents (Armstrong and Overton, 1977). Since, no
differences were found between these two types of respondents, the results may be
generalized over the whole population or in this case for every franchisee in the Handyone system (Lindner and Wingenbach, 2002). Moreover, construct validity has been achieved by the use of previously validated measurement scales found in other studies. On the other hand, the external validity of this study is not very strong, as a single franchise sytem is studied in this paper.
To determine the reliability of the measurement scales of this study, a reliability test is conducted. All variables used in this study had a Cronbach’s alpha above the cut-off rate of 0.6 or 60%, making all scales used reliable (Cronbach, 1951).
4. Results
This chapter presents the results of the different test made in this study. It begins with an explanation of the descriptives, followed by the results of the reliability test. Afterward, the correlation results are presented. This chapter will end with an examination of the regression analysis results, used to test the different hypotheses.
4.1 Descriptive findings
The descriptives of the different variables of this study are presented in Table 2. Furthermore, no multicollinearity problems between the independent variable, moderating variables or control variables are found. The highest variance inflation factor (VIF) score obtained in these tests is 2.46, this score is below the cut-off value of 10 (Hair et al., 1998).
22 Table 2: Descriptives
Variable Min. Max. Mean SD
Commitment 1 5 3.50 0.91
Peer trust 1 5 3.48 0.80
Intrinsic Motivation 3 5 4.30 0.43
Extrinsic Motivation 3 5 3.96 0.58
Need for Autonomy 3 5 4.37 0.51
Industry Experience 0 40 10.69 10.15
Education 1 4 2.46 0.69
Control variables
Alternatives Franchisee 1
5
3.12
0.88 Relationship duration 0 8 3.08 1.99
Switching Cost 1 5 3.15 0.96
Multi-item variables are summed up into a single variable
4.2 Reliability analysis results
The internal reliability results with a Cronbach’s alpha () of 0,60 is used to define the cut-off rate as proposed by Cronbach (1951). The results obtained after the internal reliability test has been performed for the variables that are measured with more than one item can be found in Table 3. The six (6) items used to measure commitment has a Cronbach’s alpha () of 0.84.
Furthermore, the total of four (4) items used to measure peer trust resulted in an alpha () of 0.81. The moderating variable intrinsic motivation has an alpha () of 0.75 for the seven (7) items used and Extrinsic motivation’s alpha () is 0.79 for five (5) items. Furthermore, need for autonomy with a measurement of five (5) items has also an alpha () of 0.79. Moreover,
the control variables switching cost measured with three (3) items has an internal reliability of alpha () 0.69 and alternatives of franchisee that consists out of four (4) items has an alpha () of 0.74. Based on the results obtained of the internal reliability for the variables above, all with alphas above the threshold rate of 0.60, the items used to measured the variables were summed up into a new variable for each construct.
23 Table 3: Reliability Statistics results
Variable Number of Items Cronbach’s alpha
()
Commitment 6 0.84
Peer Trust 4 0.81
Intrinsic Motivation 7 0.75
Extrinsic Motivation 5 0.79
Need for Autonomy 5 0.79
Alternatives 4 0.74
Switching Cost 3 0.69
4.3 Correlations
The results of the Pearson correlation test is presented as a correlation matrix in Table 4. The relationship between the independent variable, peer trust, and dependent variable, commitment are analyzed first. The results show that commitment and peer trust does not significantly correlate with each other (r=.098, p>0.05). Furthermore, the moderating variables intrinsic motivation (r=212, p<0.05), need for autonomy (r=0.225, p<0.05) and education (r=0.223, p<0.05) correlates significantly to commitment. Also, the control variables switching cost (r=0.239, p<0.05) and alternatives of franchisees (r=-0.532, p<0.01) correlates significantly to commitment. The control variable alternatives of franchisee strongly correlate with a negative sign to commitment. Moreover, the control variable duration of the relationship (r=-0.121, p>0.05) do not significantly correlate with commitment.
When peer trust is analyzed a significant correlation with the control variables switching cost (r=0.280, p<0.01) and alternatives of franchisees (r=-0.207, p<0.05) can be found. Furthermore, extrinsic motivation, experience, duration of the relationship and alternatives franchisees shows a negative correlation sign with peer trust.
24 Moreover, the moderating variables of motivation, being intrinsic motivation, extrinsic motivation and need for autonomy all correlates strongly with each other with p<0.01 values.
Moreover, the control variable switching cost correlates significantly with intrinsic motivation (r=0.213, p<0.05). Lastly, the control variable switching cost correlates significantly with both of the other control variables, namely duration of the relationship (r=-0.237, p<0.05) and alternatives franchisees (r=0.391, p<0.01). The duration of the relationship and switching cost are negatively correlated.
Table 4: Correlation Matrix
Variable 1 2 3 4 5 6 7 8 9 10
1 Commitment — ,098 ,212* ,045 ,225* ,138 ,223* -,121 ,239* -,532**
2 Peer trust — ,133 -,067 ,118 -,110 ,116 -,057 ,280** -,207*
3 Intrinsic Motivation — ,598** ,694** -,075 ,007 ,006 ,213* -,004
4 Extrinsic Motivation — ,541** ,035 ,007 ,022 -,137 ,089
5 Need for Autonomy — -,017 ,084 ,109 ,133 -,045
6 Experience — -,035 -,106 ,007 -,021
7 Education — ,005 -,010 -,024
8 Duration relationship — -,237* ,131
9 Switching cost — -,391**
10 Alternatives —
Notes: Significance levels: *=p<0.05, **=p<0.01
4.4 Hypothesis testing
A simple linear regression analysis is conducted to test the direct effect of peer trust as the independent variable on commitment. In table 4 (Appendix B) a summary of the different regression analysis can be found.
Model 1 depicts a simple regression model with peer trust as independent variable
Model 2 shows the results of the interaction effect of intrinsic motivation
Model 3 shows the results of the interaction effect of extrinsic motivation
25
Model 4 shows the results of the interaction effect of need for autonomy
Model 5 shows the results of the interaction effect of industry experience
Model 6 shows the results of the interaction effect of education
The column simple regression (model 1) gives the results of the direct effect tested between peer trust and commitment with the control variables switching cost, alternatives of franchisees and duration of the relationship. The expected direct effect between peer trust and commitment is not present, as the result is not significant (B-std= -0.09, p=0.10). Also, the result depicts a negative realtionship, stating that an increase in peer trust will lead to a decrease in commitment, contradictory to what is expected. Based on these results hypothesis 1 is not supported. Moreover, switching cost and duration of relationship does not have a significant relation with commitment. On the other hand, alternatives of franchisees have a strong direct effect on the commitment of franchisees (B-std= -0.56, P=0.10). This relationship is a negative one, as expected the more alternatives a franchisee has the less committed he will be to the system.
In order to test the moderating variable, interaction models for each moderating variable was conducted and are depicted as models 2 to 6 in Table 4. These models are used to test hypothesis 2 to 6. All direct effect of the moderating variables on commitment, except extrinsic motivation, shows significant results. Furthermore, they all show a positive relation sign, except industry experience of the franchisee. When the interaction effect is considered, a weakening effect between peer trust and commitment can be found for all the moderating variables, except for industry experience. Nevertheless, none of the interaction results are significant. Based on these results, hypothesis 2, hypothesis 3, hypothesis 4, hypothesis 5 and hypothesis 6 are also not supported.
26
5. Discussion, Practical implications, and Limitations
5.1 Discussion and Conclusion
This study looks specifically at peer trust as a relatively new concept in franchising literature and the effect it has on franchisee behavior. Since, franchisees as a heterogenous group is often overlooked in the franchising literature, this study focuses on the franchisee as an individual. Moreover, also, personal characteristics of franchisees will be taken into consideration, as franchisees of the same system, being a heterogeneous group all have their own personal characteristics that can affect how they think and act. The main question this study thus tries to answer is; “How does a franchisee’s trust in its peers affect his commitment, and to what extent do different franchisee’s personal characteristics moderate this effect?”
In order to answer this question, the effect between peer trust and commitment was investigated. The results obtained showed that peer trust does not affect commitment, contrary to what this study proposed. Although, the study of Croonen et al, 2015, showed that a relationship between peer trust and intent to leave the system does exist. Nevertheless, it must be stated that they found this relationship to be not very strong. As the intention of the franchisee is closely related to the commitment of franchisee, a similar effect was expected.
An explanation for the difference in findings can be that peer trust is measured as a separate and different variable than trust in franchisor (Croonen et al., 2015), and it might also be the case that peer trust does not always predict or affect a franchise system outcome as franchisee trust in franchisor does. This is in line with the study of Croonen et al. (2015), they have found that peer trust affected franchisee behavior less than franchisee’s trust in the franchisor did. This can be an example of why franchisee’s peer trust does not affect commitment.
An interesting result achieved is the relationships found between commitment and the moderating variables; intrinsic motivation, need for autonomy, industry experience and
27 education. Personal characteristics may directly influence commitment behaviours of franchisees, as personal characteritics is said to guide an individual’s behavior and performance (D'Intino et.al, 2007). Intrinsic motivation positively relates to commitment. In employee-employer literature context, high intrinsic motivation can lead to employees staying at their organizations, if they are satisfied with their work (Dysvik and Kuvaas, 2010). In the same manner, franchisee’s with a high intrinsic motivation may be more committed to their systems as they may enjoy the activities they perform.
Also, the need for autonomy shows a positive relationship with commitment. This relationship is totally not expected. The expectation was that need for autonomy, if it would affect commitment, will show a negative relationship with commitment. This need for autonomy and its negative relationship to commitment can be explained by the difference that may exist between an entrepreneur’s need for autonomy and a franchisee’s need for autonomy. According to Dada et al. (2015), the need for autonomy of franchisees is somewhat different than that of entrepreneurs. Franchisees, contrary to entrepreneurs know that entering a franchise system means working with other people, being more flexible in decision making and given up part of their autonomy. On the other hand, the entrepreneurial need for autonomy also considers the managing freedom of the entrepreneur towards his business (Ajayi-Obe, 2007). This difference in meaning may be the reason why the positive relationship with franchisees commitment exists. Franchisees as opposite to entrepreneurs deliberately agree to follow rules and regulations set by franchisors that restricts their autonomy. Their need for autonomy in turn is not based on having complete independence and decision-making freedom, and may relate their need for autonomy to a low degree of control on part of the franchisor. Since, a low degree of control on part of the franchisor in this system may lead to a higher perceived degree of autonomy of franchisees that results in franchisee’s commitment to the system (Pizanti and Lerner, 2003).
28 A similar relationship is found in Human resource management literature. There, a positive relationship exists between employees degree of perceived autonomy and organizational commitment (Ito and Brotheridge, 2005). As perception of autonomy is measured here and not the need for autonomy, it can be argued that the results obtained here may be due to the fact that Handyone franchisees at the moment of filling in the survey, perceived that they enjoy some degree of autonomy and compared this perception of autonomy with the need for autonomy measured in the survey.
On the other hand, the industry experience of franchisees is negatively related to commitment. When franchisees has a lot of experience in the industry they think they know enough and do not need the franchise system to be successful, thus commitment to the franchisor is not that important (Cochet et al., 2008). Contrary to industry experience of the franchisee, their degree of education positively affect commitment. As previously mentioned in this paper, franchisees with a high degree of education are more critical (Jambulingam and Nevin, 1999). It can be argued that they critically assess the franchise system and contracts before entering the system, and are determine to be committed to that system. Furthermore, these same authors argue that an educated franchisee may better understand the contractual terms and obligations of the system and may cooperate more with franchisor. This cooperation will have as affect that they are more commited to their relationship with the franchisor and also the system.
5.1 Practical implications
The findings of this study may be of importance to franchisors, due to the different
relationship between commitment and personal characteristics that are found. Based on these findings, franchisors should begin to see each franchisee in their system as an individual with his own set of personal characteristics. When franchisors can make these distinctions between franchisees, they are able to form different groups or clusters of franchisees in their system
29 that may have similar characteristics. They can then provide adequate training and support to the different group of fnachisees, catering to their personal needs. This will also help
franchisors manage their system more effectively.
Furthermore, as some personal characteristics affect commitment, the franchisor may want to assess if their franchisees or future franchisees possess these characteristics and to which degree. The knowledge of the personal characteristic of franchisees that the franchisor has may help franchisors screen franchisees with the desired characteristics that lead to commitment and avoid the franchisees that may affect commitment negatively due to their personal characteristics.
5.2 Limitations and Future research
This study conducted has some limitations and has some suggestions for future researchers.
At first, a limitation this study may have is that Commitment is measured as a single construct and does not distinguish between the different dimensions of commitment that may give a different result. In future research, a similar study may be conducted, with the three separate dimensions of commitments as the dependent variable.
Moreover, as trust is also divided into several dimensions such as, competence and integrity trust, a similar difference can also be made with peer trust. If peer trust is measured by peer integrity trust, a significant result with commitment may be found. The results can be the same as those found by the study of Davies et al. (2011), when they looked at the relationship between trust and compliance. There they found that integrity trust was more related to compliance than competence trust. Although, compliance is not the same as commitment, they are both categorized as positive behaviors of franchisees. Future researchers can further conceptualise the peer trust variable further and see if it affects commitment then.
Secondly, this study has been conducted on a single franchise system in one specific system and industry. Franchisee’s may differ across different industry in their personal
30 characteristics, rendering a different result of this study for franchisee’s in different industries.
Third, there may be other personal characteristics of the franchisee, besides those in this study that may affect commitment. The characteristics of franchisee’s can also affect their trust in peers, and can be a topic for future research to investigate.
Fourth, the variable peer trust is a new concept and was only used previously by Croonen et al. (2015), and the measurements of this concept may not be as validated as the other measurements in this study and may present a limitation to this study. Furthermore, the relationship between peer trust and different franchise system outcomes and franchisee behaviors as for example; compliance, satisfaction and opportunistic behaviour need to be investigated to see how they affect each other.
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