‘’Control and Relational Signaling: How Controls can send Positive
Relational Signals in a Franchisor-Franchisee Relationship.’’
By Babet Hogetoorn S2190001 9712 HM Groningen b.hogetoorn@student.rug.nl University of Groningen Faculty of Economics and Business
MSc. Business Administration Spec. Organizational & Management Control
Supervisor Thesis: A. Rehman Abbasi Co-assesor: S. Girdhar
Abstract
There has been a large interest in research into inter-organizational relationships (IORs) (Dekker, 2004; Oliver & Ebers, 1998; Newell & Swan, 2000). Especially in research on how to increase the success of collaboration as many of them fail (Spekman, Forbes, Isabella & MacAvoy, 1998; Young-Ybarra &Wiersema, 1999; Ireland, Hitt & Vaidyanath, 2002). For a collaboration to succeed, relational risks have to be managed. Relational risk results from the possibility for partners to perform opportunistic behavior. According to the recent interactive perspective of Vosselman and Van der Meer-Kooistra (2009), controls can be used to send positive relational signals and thereby build goodwill trust that reduces relational risk. In this paper, the model of Vosselman and Van der Meer-Kooistra (2009) will be refined by showing how controls can send positive relational signals. To research this mechanism, a case study of a franchisor-franchisee relationship has been performed. The results show that controls can send positive relational signals when there exists communication in the relationship, when the partner receiving the signal makes note of the signal, when the controls are used as coordination mechanisms, when information from controls is used to provide positive feedback and when information is used to receive a valid explanation for untrustworthy behavior. By providing these results, the paper contributes to the interactive perspective, the theory of relational signaling, and papers discussing how to increase the success of IORs.
Keywords: inter-organizational relationships, relational risk, interactive perspective, goodwill trust, positive relational signals.
Supervisor: A. Rehman Abassi
Table of content
Abstract 2.
Table of content 3.
1.! Introduction 5.
2.! Literature and background 7.
2.1. Risk in IORs 7.
2.2. Control and risk 8.
2.3. Trust and risk 8.
2.4. Control-trust nexus 9.
2.5. The interactive perspective and relational signaling 10.
2.6. Theoretical contributions 12.
2.7. Sub-research questions 12.
3.! Methodology 14.
3.1. Research approach 14.
3.2. Case selection 14.
3.3. Method of data collection 16.
3.4. Method of analysis 17.
4.! Results 19.
4.1. Controls implemented in the franchisor-franchisee relationship 19.
4.2. Why controls are implemented 20.
4.2.1. The franchisor perspective 20.
4.2.1.1 Control for opportunistic behavior of
franchisees 21.
4.2.1.2 Optimize processes executed by franchisees 24.
4.2.2. The franchisees’ perspective 25.
4.3. Signals the controls send 26.
4.3.1. Signals the implemented controls send 26. 4.3.2. Signals information from controls send 28.
4.3.2.1 The franchisor perspective 28.
4.3.2.2 The franchisees’ perspective 31.
4.4. When controls send positive relational signals 31.
4.4.1. Focus on positive results 32.
4.4.2. Explanation 33.
4.4.3. Understanding the value of controls 34.
1. Introduction
Over the last decade, the development of cross-company relationships and the emergence of collaborative enterprises increased extensively (Tomkins, 2001; Dekker, 2004; Ireland et al., 2002). Several researchers give an explanation for this phenomenon. Collaboration between firms can increase relational rents of both firms through knowledge sharing routines, complementary resources, relation-specific assets and effective governance (Dyer & Singh, 1998). Also Coletti, Sedatole and Towry (2005) argue that collaborative arrangements can create competitive advantages. Examples of collaborating forms include sub-contracting, joint ventures, outsourcing, licensing and franchising. Following this practical dispersion, there has been an increased interest in research into inter-organizational relationships (IORs) (Dekker, 2004; Oliver & Ebers, 1998; Newell & Swan, 2000). From the citation of Smith, Carroll, and Ashford (1995, p. 8); “Although cooperation has long been recognized as crucial to
success of enterprises, there is evidence that its role will become even more important in the future”, it
can be inferred that more research into IORs is demanded.
Although an IOR is seen in practice as a value-creating strategy, many collaborations fail (Spekman et al., 1998; Young-Ybarra & Wiersema, 1999; Ireland et al., 2002). More specifically, Coletti et al. (2005) argue that IORs are exposed to both ‘relational risk’ and ‘performance risk’ that makes them vulnerable to failure. Relational risk is the risk of opportunistic behavior of the partners, while performance risk stems from the environment or market forces (Das & Teng, 1996; Coletti at al., 2005; Das & Teng, 2001). Because relational risk is unique to collaborations, while performance risk is not, the focus of this paper will be on relational risk.
For increasing the success of a collaboration, relational risks have to be managed. Researchers have concluded that both control (Williamson, 1981; Baiman, 1990) and goodwill trust (Das & Teng, 2001; Liu, Yuan, Tao & Wang, 2008) play a role in relational risk reduction in IORs.
Besides the (direct) effects of control and trust on relational risk, there exist a control-trust nexus. Prior studies have debated on the relation between control and trust in (inter)organizational relations (Knights, Noble, Verdubakis & Willmot, 2001; Zaheer & Venkatraman, 1995; Blomqvist, Hurmelinna & Seppänen, 2005; Inkpen & Curral, 2004; Tomkins, 2001). A recent perspective on the control-trust nexus is the interactive view of Vosselman and Van der Meer-Kooistra (2009). According to Vosselman and Van der Meer-Kooistra (2009), trust and control interact in order to reach positive expectations about future behavior. These positive expectations can be attained by positive relational signals. More specifically, Vosselman and Van der Meer-Kooistra (2009) argue that controls can be used to send positive relational signals and build goodwill trust in the IOR that will reduce relational risk limiting the success of the IOR.
“dynamics between controls and relational signaling” and on “how controls can act as relational signaling”. Based on these research suggestions, the purpose of this paper is to provide more insights
on controls sending positive relational signals in order to increase trust needed for an IOR to be successful.
This study will focus on positive relational signals in the franchisor-franchisee relationship of a Dutch company. Franchising is a form of IOR and highly dependent on trust for its success. More specifically, the existence of both mutual dependence and autonomy make partners in the relationship dependent on trust (Eser, 2012; Davies, Lassar, Manolis, Prince & Winsor, 2011; El Akremi, Mignonac & Perrigot, 2010). Accordingly, it is relevant to delve deeper into the interactive perspective of Vosselman and Van der Meer-Kooistra (2009). Particularly, there have been little insights on how controls can send positive relational signals and thereby be a means to manifest goodwill trust, as stated before. Based on this research gap, the following research question will be addressed in this paper:
RQ: How can controls send positive relational signals in a franchisor-franchisee relationship to build trust needed for successful collaboration?
The answer to this research question will fill the gap regarding how controls can send positive relational signals.
By addressing this gap, the theoretical contribution will be threefold. Firstly, the research will contribute to the literature discussing the control-trust nexus. More specifically, it will contribute to the view that control and trust are interacting by explaining the mechanisms behind the framework. Secondly, this paper will add insights into the research regarding relational signaling. Based on theory-development research, propositions will be provided on conditions needed for controls to send positive relational signals. Finally, this research will contribute to papers examining IORs. The conclusions from this paper will add to the discussion on how trust can be enhanced in order to increase the success of IORs. This research will not only be important because of its theoretical contributions. The perspectives of this research will also be valuable from the viewpoint of managers and franchisees. As explained above, because of mutual dependence and autonomy, both the franchisor and the franchisees rely on trust. In other words, they have to trust each other in the IOR. Therefore, this paper includes the perspectives of both the franchisor and the franchisees. Accordingly, it will be shown how controls can send relational signals to increase trust from the franchisee in the franchisor and vice versa. Thus, this research increases the understanding of managers and franchisees on how to increase the success of IORs by increasing trust. This is of high relevance considering the practical dispersion of collaborating firms.
2. Literature and background
An overview of previous work into of the topic of control and trusts in IORs will be helpful for a better understanding of this research paper. This chapter will provide this overview by first presenting the types of risks that are observed in IORs. Secondly, discussed will be that control can be used to reduce risk in alliances. In the third part, the importance of trust in IOR will be explained. After having explained the importance of both control and trust in IORs, research into the control-trust nexus will be discussed. The fifth section delves deeper into the view that control and trust interact. More specifically, the framework of Vosselman and Van der Meer-Kooistra (2009) will be explained. The sixth section will explain the theoretical contribution of this paper to the academic world. Finally, the sub-questions that follow from the literature review will be presented.
2.1. Risks in IORs
In the literature it is observed that IORs bring different types of risk that can hinder the success of the collaboration between firms. Coletti et al. (2005) argue that collaborations are exposed to both
‘relational risk’ and ‘performance risk’ that makes them vulnerable to failure.
Relational risk is defined as the “possibility and the consequence that the partners do not fully commit
themselves to joint efforts” (Das & Teng, 1996, p. 831), or as the possibility and consequence of the
partners performing opportunistic behavior (Nooteboom, Berger & Noorderhaven, 1997). Collaborating firms can have individual interests that are not congruent. Besides that, the individual contributions of the different partners are sometimes hard to measure. As a result of these factors, conflicts can arise and partners can be inclined to withhold information (Coletti et al., 2005). It may even lead to a more severe case where (one of) the partners will strive for private benefits by performing opportunistic behavior. The possibility of the partner performing opportunistic behavior and thus not producing common benefits entails relational risk (Das & Teng, 2001). If (one of) the partners perform opportunistic behavior, the collaboration is doomed to fail (Coletti et al., 2005).
The second type of risk, performance risks, is defined by Das and Teng (2001, p. 253) as “the risk of
not achieving the alliance objectives despite satisfactory cooperation among partners”. Because there
is satisfactory cooperation, this risk does not stem from the behavior of the partners, but stems primarily from the external environment or market forces like competition and demand fluctuations (Das & Teng, 1996). In other words, this risk is not unique to the collaboration (Coletti et al., 2005).
2.2. Control and risk
This paper takes a broad and general definition of control. It is defined as “a process of regulation and
monitoring for the achievement of organizational goals” (Das & Teng, 2001, p. 258). Adapting this
definition to inter-organizational control, it means actively influencing the partners’ behavior to accomplish goals.
Transaction cost economics (Williamson, 1981) and agency theory (Baiman, 1990) argue that controls can limit risks in IORs. In the academic literature, there exist a classical distinction between formal control and informal control. Formal control can be further subdivided in outcome control and behavior control, and informal control can be referred to as social control or clan control (Ouchi, 1979).
Prior research concludes that both formal and informal controls can reduce relational risk. Formal control mechanisms, like governance (Nooteboom et al., 1997), performance measurement (Meyer, 1994), monitoring and sanctioning (Coletti et al., 2005) can reduce relational risk in collaborative settings by lessening the incentives for opportunistic behavior. Moreover, according to Vosselman and Van der Meer-Kooistra (2009) formal controls can reduce opportunistic behavior of the partner by providing incentives, monitoring, and constraining actions. Das and Teng (2001) state that mainly behavior control can reduce relational risk. Finally, Delerue (2005) argues that managers have several control instruments, both formal and informal, to manage relational risk. However, previous research concluded that controls can not manage risk completely (Emsley & Kidon, 2007), and that also trust plays an important role in the success of the collaboration (Zaheer, McEvily & Perrone, 1998).
2.3. Trust and risk
Trust is regarded as a key element in cooperative relationships in the academic literature (Ring & Van de Ven, 1992; Jones & George, 1998; Newell & Swan, 2000; Das & Teng, 2001). Although trust is identified to be of importance, a uniform definition does not exist (Knights et al., 2001). Rousseau, Sitkin, Burt and Camerer (1998) attempted to combine the different views of trust by a cross-disciplinary collection of scholarly writings and came to the following definition: “Trust is a psychological state
comprising the intention to accept vulnerability based upon positive expectations about the intentions or behavior of another” (Rousseau et al., 1998; p. 395).
Different forms of trust exist. However, not all forms apply to IORs (Emsley & Kidon, 2007). In IORs, goodwill trust and competence (capability) trust are of particular importance (Dekker, 2004). According to Nooteboom (1996, p. 990) “trust may concern a partner’s ability to perform according to agreements
(competence trust), or his intentions to do so (goodwill trust)”. To be more specific, goodwill trust is
defined as “the expectation that some other in our social relationship have moral obligations and
responsibility to demonstrate a special concern for others’ interests above their own” (Barber, 1983,
will not intentionally harm others’ interests (Emsley & Kidon, 2007). On the other hand, competence trust is the belief of one partner in the other that it has the capabilities and competences to perform according to agreements and thereby achieve relational advantages (Das & Teng, 2001). According to Das and Teng (2001) goodwill trust and competence trust present a clear distinction.
Goodwill trust is perceived to reduce relational risk, whereas competence trust is not. Because goodwill trust entails the expectation that the other partner will behave in the interest of the partnership, it will reduce the expectation of problems in cooperation (partner performing opportunistic behavior), and thereby relational risk. So, relational risk is negatively related to goodwill trust (Das & Teng, 2001; Liu et al., 2008). Regarding competence trust, argued is that it will not reduce relational risk (Das & Teng, 2001) but may even increase relational risk (Liu et al., 2008). Trust of one partner (A) in the competence of the other partner (B) may increase the dependence of partner A on partner B if the collaboration is based on this competence trust. In this way, partner B has a favorable position in the relationship and can use this power in the relationship. Because of the dependence-power relation in the collaboration, it is now more likely that partner B will perform opportunistic behavior, thereby increasing the relational risk of the other partner (A) (Liu et al., 2008).
The main research question in this paper focuses on trust needed for successful collaboration. Because goodwill trust is perceived to reduce relational risk, while competence trust is not, this paper will focus on goodwill trust.
As explained above, not only (goodwill) trust can reduce relational risk, but also control can. So, both trust and control are needed for a collaboration to succeed. Besides the (direct) effects of control and trust on risk, there also exist a relation between control and trust, the so-called control-trust nexus.
2.4. Control-trust nexus
Prior studies have debated on the relation between control and trust in (inter-)organizational relationships. This debate has resulted in different views regarding the control-trust nexus.
Firstly, trust and control are shown as substitutes (Knights et al., 2001; Zaheer & Venkatraman, 1995). For example, according to Gulati (1995) trust can be a substitute for contracts and serve as an alternative control mechanism. Mellewigt, Madhok and Weibel (2007) explain that when viewing control and trust as substitutes, they are viewed in a negative relationship; when there exists more trust between the partners there will be used less formal control mechanisms and vice versa.
affect the level of trust. More specifically, they state that competency trust is build by information from output control, behavioral control, and social control, while goodwill trust is only build by information from social control.
A third view regarding control and trust is the view of Coletti et al. (2005). They conclude that control induces cooperation and that this (mediating) control-induced cooperation can build trust.
Tomkins (2001), like Emsley and Kidon (2007), also takes information resulting from controls into account. However, he states that seeing control and trust as substitutes or complements reflect a static analysis. Instead, he argues that the relation between trust and control is dynamic, characterized over the life cycle of a relationship. In early stages, control might have a positive relation with trust, whereas in later stages, when trust has increased, expanding control can have a negative relation with trust. Finally, Vosselman and Van der Meer-Kooistra (2009) state that control and trust interact. This means that control is considered to produce trust, while trust is considered to produce control (see chapter 2.5).
2.5. The interactive perspective and relational signaling
The interactive perspective of Vosselman and Van der Meer-Kooistra (2009) sees control and trust as both complements and substitutes. An important aspect of the interactive view is the acknowledgement of the dynamics between trust and control. As Vosselman and Van der Meer-Kooistra (2009, p. 269) state: “Control needs trust, and trust needs control. At the same time, control produces trust and trust
produces control”. The main argument of Vosselman and Van der Meer-Kooistra (2009) is showed in
figure 1, appendix A.
When collaborating, partners might have legitimate mistrust to each other. Mistrust is legitimate when
“reasonable observers would say that any other reasonable person put into a certain situation would also assign a low probability to the promise being kept, irrespective of the ‘true’ intention of the promisor at the moment of making the promise” (Lindenberg, 2000. p. 12). According to Lindenberg
(2000), incentive alignment can be a solution to legitimate mistrust. An effective governance structure, taking the form of contracting, can compensate for legitimate mistrust regarding the future behavior of the partner. In an IOR, the contractual clauses can be used to provide incentives for mutual cooperation, to constrain actions of opportunism, and can be used as compensation in case loss occurred because of self-seeking behavior of the partner. More specifically, the controls resulting from the governance structure (in the form of contracting) help to align the interest of the partners involved in the relationship. As a result, thin trust can be build between partners. This thin trust builds a so-called ‘zero-positive’ situation; it compensates for legitimate mistrust, but does not produces positive expectations regarding the future behavior of the partner in the collaboration.
credible voice and exit threats. Here, you can see the interacting relationship; controls resulting from the governance structure in the form of contracting can build (thin) trust but at the same time needs (institutional) trust to be effective (Vosselman & Van der Meer-Kooistra, 2009).
Controls can not eliminate all risk or all forms of opportunism (Emsley & Kidon, 2007). In other words, there exist an incomplete governance structure. As a result, fundamental uncertainty is present in an IOR. According to Vosselman and Van der Meer-Kooistra (2009, p. 272) “thin trust is a necessary but
not a sufficient condition for the continuance of a relationship” additionally, they state that there is a
need for “thick trust through which positive behavioral expectations regarding the behavior of other
parties are produced”.
When starting a collaboration, the partners should loosen their short term interests and focus on the interests of the partnership. Above that, the partners need to show their commitment to the relationship to each other. Revealing commitment to the partnership rests on voluntary local decisions to show positive relational signals. However, what drives these voluntary decisions?
According to Chaserant (2003), enlightened self-interest explains these decisions. Lindenberg (2000) explains that there exist three different frames (which is the decision of putting goals in the fore- or background), namely gain frame, loss frame, and normative frame. Firstly, a partner in a gain frame is seeking self-interest and will use opportunism if needed. Secondly, a partner in a loss frame will do everything to avoid losses, even if it will be damaging to the relationship. Finally, the goal of a partner in the normative frame is to act appropriately and to do the right thing. According to Chaserant (2003), enlightened self-interest is the duality between the gain frame and the normative frame. More specifically, the decisions of the partners in an IOR are driven by the gain frame (desire to maximize their own interest), however, the normative frame weakens the effect of the gain frame by the desire to act appropriately and cooperatively in the interest of the relationship. In other words, the short-term self-interests are enlightened by the desire for continuation of the relationship.
As said before, the partners in an IOR need to signal their commitment by sending relational signals to each other. Relational signals are all signals that partners in a collaboration send to each other. However,
positive relational signals show willingness to commit to the relationship, reveal co-operative behavior,
partner alleviates possible issues by either warning in advance he can not keep to the agreement, or by apologizing and taking care of the damage afterwards (Lindenberg, 2000).
As a result of the partners receiving positive relational signals from each other, positive expectations regarding the future behavior of the partner will be established. These positive expectations reflect thick trust and vice versa (Vosselman & Van der Meer-Kooistra, 2009). Lindenberg (2000) argues that trust can not be developed when relational signals do not function properly. To function properly, it needs the thin trust resulted from the embedded governance structure. The other way around, the governance structure and its controls are further strengthened by the thick trust built. Again, the interaction between trust and control can be seen.
According to Vosselman and Van der Meer-Kooistra (2009) partners can use (information produced by) formal controls to (voluntarily) show their commitment to the partner. In other words, (information from) controls can be used as relational signals and thus used to build thick trust. So, controls can not only be used for limiting fear for opportunism by aligning the interest of the partners in an IOR. Additionally, controls can serve the role of relational signaling and thereby building goodwill trust by generating positive expectations regarding the future behavior of the partner in the IOR. How controls can send relational signals is the question posed in this paper.
2.6. Theoretical contributions
This research is not to critically evaluate, test, or question the framework of Vosselman and Van der Meer-Kooistra (2009) but rather to use it as the basic theoretical ground for finding insights that are missing in this framework. Vosselman and Van der Meer-Kooistra (2009) state that controls can be used as positive relational signals to build thick trust. However, they do not focus on the mechanisms behind this relationship. More specifically, they do not specify how controls can send positive relational signals. This specific gap will be filled by this paper.
By filling this gap, this research can further refine the model. Besides, this paper contributes to the debate on the control-trust nexus, research regarding relational signaling and papers examining IORs.
2.7. Sub-research questions
The main research question in this paper is ‘How can controls send positive relational signals in a
franchisor-franchisee relationship to build trust needed for successful collaboration?’ To help answer
the main research questions, sub-research questions are established based on the existent literature discussed above. The first sub-research question is ‘What controls are used in a franchisor-franchisee
relationship?’ As explained, partners can use different controls in the IOR. It would therefore be a good
used both as a tool to constrain opportunistic behavior, and as trust builders. Therefore, the second sub-research question is ‘Why are these controls used in a franchisor-franchisee relationship?’ As Lindenberg (2000) state, relational signals are all signals that partners in a collaboration send to each other. Also controls can send signals to the partner in the relation. The third sub-research question is ‘What do these controls signal in a franchisor-franchisee relationship?’ While relational signals can be both positive and negative, for the main research question it is important to specify when controls send positive relational signals. Therefore, the fourth sub-research question is ‘When do controls send positive
relational signals’.
Answering the sub-research questions regarding what controls are used, why they are used, what they signal, and when they send positive relational signals, and by combining the results, it is possible to answer how controls can send positive relational signals to build trust needed for successful collaboration.
3. Methodology
This chapter will explain how the research has been conducted. By providing this information, research transparency of this study is enhanced. This is important so that the results can be identified as trustworthy by other scholars. Moreover, the conclusions can be recognized as worth criticizing, debating and, even more important, extending (Moravcsik, 2014). Besides, a clear description of how the research has been performed will allow other researchers to replicate the study. In this way, controllability is assured. As a result, intersubjective agreement, which is the “consensus between the
actors who deal with a research problem”, is increased (Aken, Berends & Bij, 2012b, p. 201).
This chapter is constructed as follows. In the first part, arguments will be provided for the chosen type of research. The second part will present information regarding the case selection. The third part will delve deeper into the process of data collection. Finally, the data analysis process will be described.
3.1. Research approach
It can be inferred from the background review that the academic literature regarding controls used to send relational signals is exploratory in nature. Above that, this topic needs additional research so it can be enriched in the academic literature. According to Aken, Berends and Bij (2012a) this is an excellent starting point for theory development research. Aken et al. (2012a) provide an explanation of the theory development process (figure 2, appendix B). In this description, they prescribe case study research. Also Eisenhardt (1989) states the importance of case study research for theory development. More specifically, because of the link with empirical evidence, theory development from case study research will be novel, testable and empirically valid. Finally, this paper focuses on the explanation of a social phenomenon (Yin, 2009). Following these arguments, in this specific matter a case study research has been conducted. Eisenhardt (1989) also describes the process of theory development from case study research (figure 3, appendix C). Combining her (more elaborated process) with the process presented by Aken et al. (2012a), it can be assured that the research presented by this paper is conducted in a proper way.
3.2. Case selection
This study will examine how controls can send positive relational signals in the franchisor-franchisee relationship of a Dutch company. Franchising is “a form of business organization in which a firm that
Strutton, 2001, p. 113). The franchisor-franchisee relationship is used by companies as an (international) growth strategy, for example by McDonald’s, Carvel, Dunkin’ Donuts, and Holiday Inn. Franchising has shown growth since the 1950s (Storholm & Scheuing, 1994). Also in the last years, importance of franchising in the US has increased. Not only the franchise establishments have increased, also franchise employment, output of franchise businesses, and gross domestic product (GDP) of the franchise sector has increased (IFA, 2016). In The Netherlands, franchising is also a popular business form. Nowadays, franchising practice can be seen in The Netherlands in various sectors, like living, fashion, catering, food, and service. Historically, franchising was particularly common in the retail sector. However, since some years the service sector is the fastest growing sector in franchising (De Nationale Franchise Krant, 2014). Following the practical and economical importance, more insight in this type of collaboration is relevant.
As a result of the increasing popularity of franchising in the world, franchisors and franchisees have to manage challenges in the franchise systems (Croonen, 2010). In specific, trust issues have to be dealt with (Eser, 2012). In the franchisor-franchisee relationship, there exist mutual interdependence. While the franchisee is dependent on the franchisor’s promotional and managerial support, the franchisor is dependent on the franchisees’ performance. At the same time, the franchisor-franchisee relationship is characterized by the incompatibility between autonomy and control. On the one hand, the franchisor has the desire to control process conformity and franchise reputation. On the other hand, there is the desired independence and autonomy of the franchisee. Finally, there exist asymmetry of power in the relationship, where the franchisor often exercises the most power (Pizanti & Lerner, 2003). This combination of interdependence, autonomy and power asymmetry makes goodwill trust the focal point in a franchisor-franchisee relationship. More specifically, the success of franchising depends on the manifestation of trust between the partners in the relationship (Eser, 2012; Davies et al., 2011; El Akremi et al., 2010). This paper delves deeper into the interactive perspective of Vosselman and Van der Meer-Kooistra (2009) to investigate how controls can signal positive relational signals and thus be a means to manifest goodwill trust needed for successful cooperation.
3.3. Method of data collection
The main data collection was semi-structured interviews. Qualitative data was needed to learn why certain controls are used, what signals controls send to the other partner in the relationship, and when controls send positive relational signals. The questions posed during the interviews were based on these topics of interest. For instance: ‘What does information produced by the implemented controls signal to you?’ or ‘When does the implementation of controls signal trustworthy behavior of the partner?’ Doing semi-structured interviews made it possible to get access to the qualitative data important for answering the aforementioned sub-research questions. Another advantage of semi-structured interviews was that the study was flexible and open for issues and insights that emerged from the interviews (see further) (Blumberg, Cooper & Schindler, 2011). This proved to be useful in arriving at conclusions. The qualitative data was used to describe, analyze and theorize the research phenomenon. Combining the extant theoretical knowledge on trust, controls, relational signaling, and other relevant aspects together with the field data obtained by interviews, it was possible to draw tenable conclusions (Lukka & Modell, 2010). In this sense, this research can be seen as interpretative in nature.
The researcher (BH) used her personal contacts within Organization X to get access to the relevant respondents. Via the Operational Manager (OM) of region North-East of The Netherlands, she was forwarded to Sr. Director Franchise Finance (DFF) and Account Manager Organization X Franchise (AM). A general meeting was planned to discuss the research proposal, improvements on that proposal, and confidential issues. Besides that, during this general meeting, BH and AM agreed that relevant information (or documents) would be send by AM to BH. Finally, DFF and AM gave permission to conduct the research and gave names and further contact information of the interviewees within Organization X.
In total, ten respondents were interviewed in the period from the first of march 2016 till the 25th of April
Before the interviews, BH made interview guides that served as a memory list to ensure that the same issues were addressed in every interview. Besides that, because the same issues were addressed and preferably in the same way, the comparability of the interviews was increased as needed for interview analysis (see 3.4) (Blumberg et al., 2011).
BH received supporting documents from AM. The documents contained useful data to better understand the information provided during the interviews. Together with the interview data, these (supporting) documents were used to (better) formulate propositions.
During the research, data analysis and data collection were combined. In this way, BH could take advantage of flexible data collection. This means that data collection methods could be altered during the study when information from interviews propose new insights that needed to be investigated in another way. According to Eisenhardt (1989) this is legitimate as long as it leads to better grounding of theory or provides new theoretical insights. In this specific matter, there were at least one or two days between the interviews. In this way, BH had time to transcribe and analyze the interview. With the help of the brief analysis, BH could detect new areas and issues of interest. By adapting the interview questions, BH was able to delve deeper into these new interesting insights and thereby collect more relevant data.
3.4. Method of analysis
Like in the process of data collection, the process described by Aken et al. (2012a) and Eisenhardt (1989) was followed during the data analysis. This means that the analysis first started with a within-case analysis. More specifically, each interview was analyzed separately. According to Eisenhardt (1989) a within-case analysis is important so that BH could get ‘intimate familiar’ with the different cases. The next step described by Eisenhardt (1989) is cross-case analysis, where the researcher searches for patterns observable in different cases. This research comprised of only one case. So, a cross-case analysis was not possible. However, what was possible was a cross-interview analysis. In this process, BH searched for patterns that were evident in multiple interviews (instead of cases). The cross-interview analysis was done to limit the possibility that conclusions were based on poor processing of information (Eisenhardt, 1989).
The final step of the data-analysis was the formulation of propositions and the comparison of these propositions with existing literature. By comparing the established propositions with already existing literature, internal validity was increased (Eisenhardt, 1989).
An important part of the analysis process is not explained clearly by Eisenhardt (1989) and Aken et al. (2012a). This include transcribing and coding of the interviews.
Together with the other material, the interviews were coded and analyzed using the qualitative data analysis software ATLAS.ti. This software helped BH to code, manage, and analyze the data. Coding is “a procedure for organizing the text of transcripts, and discovering patterns within that organizational
structure” (Auerbach & Silverstein, 2003, p. 4). Analyzing data is an interpretive/subjective process.
4.! Results
In this part the results of the four sub-questions will be discussed. With the help of citations from the interviews, the interpretations of BH will be supported. Besides, data (quotations) make the analysis valid and understandable. In the next chapter, propositions will be made based on the results discussed in this section.
This chapter is structured as follows. The first chapter will present the controls implemented in the franchisor-franchisee relationship. Then it will become clear why the controls are implemented. This paper focuses on the reduction of relational risk to increase the success of IORs. More specifically, this research aims to answer how controls can signal positive relational signals to increase trust that can reduce relational risk. Therefore, the third chapter will explain what signals the controls in the franchisor-franchisee relationship send. Finally, it will be explained when controls send positive relational signals.
4.1.!Controls implemented in the franchisor-franchisee relationship
The franchisor implements controls on the franchisees on three areas, namely operational, financial, and contractual.
We have a trichotomy. I try to keep the following classifications: operational, financial and contractual. (1:1)
These general classifications can be further subdivided into controls and sub-controls. Based on documents provided by AM and the interview data, table 3 could be constructed. Detailed information concerning the controls in table 3 can be found in table 4, appendix F.
Franchisees also implement controls on the franchisor. Unfortunately, these controls can not be explicitly described. Organization X did not allow BH to delve into this topic because of confidentiality reasons (see chapter 3.2). As a result, not enough information was provided to be able to clearly explain these controls.
controls are used in the franchisor-franchisee relationship and to provide some information about the controls (table 4, appendix F).
Table 3: Controls and sub-controls implemented by the franchisor on the franchisees.
Category Control Sub-control
Operational VCR
Age Control
Check by Field Specialists
Hygiene
Financial Manco Reports
Odd Products
Elf Elf Alive
Plastic Packing Crates Packaging Deposit Money
Collector item
Sample
Payment check
Quality Insurance Compensate
Rest
Return
Correction
Contractual Franchise contract
Other Recruitment
Extra financial controls
4.2. Why controls are implemented
Explained in chapter 4.1, both the franchisor and the franchisees implement controls. This paper takes into account both perspectives. Therefore, this chapter will explain both the reasons why the franchisor implements controls and why franchisees implement controls.
4.2.1. The franchisor perspective
Interviewees from the franchisor perspective indicate different reasons to implement controls.
So that we can be sure that our procedures and processes are followed. (1:58)
You just mentioned that Organization X implements controls to help entrepreneurs1.
Also for the customers. But also for the brand. So that Organization X will not receive bad publicity. (4:30)
Yes. Exactly. (4:30)
Generalizing, the franchisor implements controls on the franchisees for two general reasons. The first reason is to control for opportunistic behavior of franchisees. Secondly, controls are implemented to optimize processes executed by franchisees. Both reasons will be discussed. As will be seen, the reasons in the citations above will emerge in the discussion.
4.2.1.1. Control for opportunistic behavior of franchisees. One of the reasons the franchisor
implements controls is to limit opportunistic behavior performed by franchisees. In this way, the franchisor tries to first limit the possibility of franchisees taking advantage of the franchisor, suppliers, and other franchisees. Besides, controlling for opportunistic behavior ensures a good reputation. Last, controls are implemented to make franchisees aware of (possible) opportunistic behavior of their employees. Each situation will be explained separately.
Firstly, franchisees can perform opportunistic behavior at the expense of the franchisor. The franchisor wants to limit this relational risk by implementing controls.
To be honest, we implement these controls to check whether we are not disadvantaged in the franchisor-franchisee relationship. (4:12)
An example of (a) franchisee(s) performing opportunistic behavior at the expense of the franchisor is reporting costs that were actually not there. In this way, the franchisee can falsely reduce its accounting revenue and thereby its payable fee. As a consequence, the franchisor will receive less income. This type of opportunistic behavior can be clarified with an example of Quality Insurance-control.
Quality Insurance. […] If you are not careful it can be a money maker. […] You can lower your revenue, fee and thereby your taxes. […] This is an important service for the customer. However, an entrepreneur can misemploy this service by using this option while no customer is needing this service. (1:56)
Quality Insurance. […] You can misuse this option. Thereby lowering your revenue. Hence paying less fee. […]. I just want to monitor if the Quality Insurance is not misused too much. (4:14)
Providing money to an unsatisfied customer as a compensation for a deteriorated product needs to be registered on the cash register. By using the button ‘correction’ on the cash register while not returning money to a customer (simply because there is no customer needing this service), the franchisee falsely and intentionally lowers his accounting income. And, as mentioned before, the payable fee.
[…]. We also warn the entrepreneur like, ‘there are things happening in your store that will hurt other parties in the relationship’. […] For example the suppliers. (1:85)
This is important, because a good relationship with the supplier benefits the franchisor-franchisee relationship.
[…] What you register to the supplier has to be correct. […] At the same time, something will
happen in that relationship. […]. So we all benefit if it works as we agreed. (1:62)
An example of a control implemented to prevent opportunistic behavior of franchisees at the expense of suppliers is the Sample-control. Franchisees are allowed to provide samples of products to customers as a marketing strategy. The franchisees will be compensated for the costs of samples by suppliers. A franchisee can misuse this option by indicating higher sample costs than in reality being made. Consequently, the compensation will be higher, resulting in higher costs for the supplier and higher income for the franchisees.
The entrepreneur will receive a compensation for products not provided as sample. (2:16)
We see that entrepreneurs use it in different ways. You can use it to write down products passed due date. […] In this particular case, the supplier pays for expired products instead of products used as samples. (1:48)
By preventing opportunistic behavior of franchisees at the expense of supplier, the franchisor ensures a good relationship with suppliers and lowers relational risk in the IOR.
Moreover, franchisees could also perform opportunistic behavior at the expense of each other. The franchisor implements controls to assure franchisees will not be disadvantaged by other franchisees. The Recruitment-control can serve as an example. There exist is a strong selection process before accepting new franchisees.
So we do not accept entrepreneurs at the costs of all other locations. (4:52)
Secondly, franchisees behaving opportunistically can result in bad publicity for the franchisor and other franchisees.
[…] It is always Organization X2 in total. Not only that one entrepreneur. (4:26)
To prevent reputational damage, the franchisor implements controls to reduce this relational risk. An example is Odd Products-control.
We have had an issue with herring. The newspaper reported that Organization X had bad herring. But only one entrepreneur had bad herring. That was the only entrepreneur that purchased this herring. (1:73)
In this example, a franchisee did not obey the quality criteria for herring. Instead, to lower its costs and thereby increase its revenue, it purchased cheaper herring with lower quality. A newspaper performed a quality test and reported the results. By publishing the bad results, the paper magnified the problem by reporting that all affiliates of Organization X had bad herring. The opportunistic behavior of one franchisee resulted in negative effects for the franchisor and all other franchisees. Odd Products-control is implemented to check if all franchisees obey the quality criteria’s. Thereby lowering the chance to perform opportunistic behavior and relational risk.
Finally, it is possible that a franchisee is not aware that its affiliate is not performing according to agreements. This may be the case when not the franchisee but its employee(s) is(are) performing opportunistic behavior that negatively affect other partner(s) in the franchisor-franchisee relationship. Therefore, the franchisor implements controls to provide information or warnings to the franchisee about mistakes or (possible) fraudulent behavior of employees. In this way it (further) reduces relational risk.
You also want to inform the entrepreneurs well. It is not always the case that entrepreneurs perform the processes incorrectly. But their employees do it knowingly and willingly. (1:60)
It is also a warning. ‘We see this happen in your store’. Investigate it and let us know what happened. (1:61)
So controls are implemented to reduce opportunistic behavior of franchisees which could have damaging effects on the success of the franchisor-franchisee relationship. Controlling for relational risk resulting from opportunistic behavior increases the success of the IOR.
4.2.1.2. Optimize processes executed by franchisees. The second (general) reason the franchisor
implements controls is to improve the processes executed by franchisees.
These controls help the entrepreneur limit the risks related to the processes in his store. (3:5)
You mentioned; ‘we implement controls to help the entrepreneurs’. To improve processes for example. (4:33)
Yes. Yes. (4:33)
Elf Alive […] We also do it for the stores because there is no need for counting anymore. It is less error-prone because the machines can count better. (4:83)
By improving the processes, the customer, which is the main focus in the franchisor-franchisee relationship, can be served better.
The customer is always the starting point. The entrepreneur can only serve customers well, and
so can we, when the underlying processes are correct. (1:65)
We do this mainly for the customers. To assure a clean store and no expired products. (4:8)
As explained in chapter 3.2, there exist mutual interdependence in a franchisor-franchisee relationship. The franchisor is dependent on the franchisees’ performance and the franchisees are dependent on the support provided by the franchisor. When the franchisor provides help to franchisees by implementing controls, this could enhance the franchisees’ performance. The improved performance benefits both the franchisees and (indirectly) the franchisor.
When they3 are performing well. We4 will also perform well. (4:38)
There are processes that will provide the entrepreneurs 10,000 euros. However, these processes
will provide us 30,000 euros with twice or three times as many shops. (1:71)
So, controls are implemented to improve the performance of franchisees. In other words, to improve the ability of franchisees to perform according to agreements. In this view, controls are implemented by the franchisor to increase the competence trust of the franchisor in the franchisees. This paper does not focus
on competence trust because previous scholars have shown that this form of trust does not reduce relational risk in IORs. However, this part is included because controls that help franchisees optimize their business processes provides positive relational signals that can increase goodwill trust of the franchisees in the franchisor. This will be more clearly explained in chapter 4.3.1.
4.2.2. The franchisees’ perspective
Franchisees also implement controls on the franchisor. Like the franchisor, franchisees implement controls to limit opportunistic behavior. In other words, the franchisees check with the controls if the franchisor performs according to agreements.
You do that to control? Like check, check, check? (6:64) Yes, to control. (6:64)
The Franchise Association is implementing a new code including stricter regulation for the franchisor. (8:70)
The franchise code. (8:70)
What do you think about that? (8:71)
Apparently, that is needed because the franchisor has the power in the relationship. (8:71)
The Franchise Association employs an accountant who controls whether Organization X performs according to agreements specified in the franchise contract (10:69)
Indicated in chapter 3.2, the franchisor has (often) more power than the franchisees in the franchisor-franchisee relationship. Franchisees implement controls to prevent that the franchisor misuses its power and performs opportunistic behavior that results in relational risk threatening the success of the IOR.
4.3.!Signals the controls send
In the previous chapter it is explained that controls are implemented to reduce opportunistic behavior and thereby lower relational risk in the IOR. The interactive perspective of Vosselman and Van der Meer-Kooistra (2009) states that controls can not only be used for limiting opportunism but can also serve the role of relational signaling. In fact, (information from) controls can send positive relational signals resulting in positive expectations regarding future behavior of the partner in the IOR which increases goodwill trust. Previous scholars have showed that goodwill trust reduces relational risk in the IOR (chapter 2.3).
Two aspects of controls can send relational signals. First, the existence of controls and second, the information received from controls. In this chapter, the relational signals send by the controls and the relational signals send by the information from controls will be explained. As explained in chapter 2.5, relational signals are all signals that partners in a collaboration send to each other. However, positive relational signals show willingness to commit to the relationship, reveal co-operative behavior, and show trustworthy behavior.
Mutual trust between the franchisor and the franchisees is necessary for successful collaboration (chapter 3.2). It is therefore interesting what (information from) controls signal to both the franchisor and the franchisees. The section explaining the signals send by information from controls discusses both perspectives. Unfortunately, only the perspective of the franchisees could be taken into account in the section discussing the signals the existing controls send. Because Organization X restricted BH to discuss in detail the controls implemented by the franchisees, an exhaustive discussion regarding the franchisor perspective was therefore not possible.
4.3.1. Signals the implemented controls send
In this section, (only) the perspective of the franchisees is discussed. It is explained what signals the franchisees receive from the implemented controls. More specifically, the controls send a signal about the behavior of the franchisor to the franchisees. In this way, the goodwill trust of the franchisees in the franchisor increases in case of a positive relational signal (and decrease in case of a negative relational signal).
From the interviews with the franchisees, it can be inferred that the implemented controls do send positive relational signals. In specific, the controls signal commitment and co-operative behavior of the franchisor to the IOR. Commitment is the intention of the franchisor to continue the franchisor-franchisee relationship (Geyskens, Steenkamp, Scheer, Kumar, 1996).
observing that controls are implemented to reduce opportunistic behavior, the franchisees receive the positive relational signal of commitment of the franchisor. In chapter 4.2.1.1 it was explained that opportunistic behavior could have different negative effects. For example, it can have a negative effect on other franchisees or on the reputation. So, by reducing opportunistic behavior of the franchisees, all partners benefit.
Controls also provide me some form of protection. (7:80) […] like I said, to provide protection against each other. (7:82)
[…]. Organization X has a certain reputation. As a franchisee you have to keep up with that standard. […]. In this case, controls are really good. 6:15)
Again, then it is for the reputation (brand). […]. And I think that is correct. […]. They5 are the
safeguards of the franchise formula. (7:72)
Moreover, franchisees are sometimes not aware of mistakes or fraudulent behavior of their employees. The implemented controls signal that the franchisor is willing to help the franchisees to detect mistakes or opportunism of employees.
[…]. Quality-control. When I do have bastards of employees. That can be you, a cashier, the entrepreneur himself or his wife. (5:81)
Also the employees working in the store. […]. Sometimes someone does not understand the technique. Or does not understand the procedure. And then the employee is doing it in the wrong way. […]. In that sense, I think controls are helpful. (7:31)
In this way the franchisees receive the positive signal that the franchisor wants to co-operatively reduce relational risk.
Finally, there exist mutual dependence (chapter 3.2). The franchisor is dependent on the franchisees’ performance, and the franchisees are dependent on the support received from the franchisor. If franchisees observe that controls are implemented by the franchisor to provide (the needed) support, the controls can signal commitment of the franchisor to the franchisor-franchisee relationship.
All the controls are to help you. (8:74)
Then the controls can help to improve the processes in my store. (7:14)
Do you think the controls can help you to improve your processes? (5:81) Yes, I do. They will eventually improve my store. (5:81)
Why do you accept these controls? (6:36)
Because, eventually, these controls will help me to improve. (6:36)
Here, franchisees observe that controls are implemented to provide help to improve performance. It therefore signals commitment to the relationship of the franchisor.
In conclusion, the implemented controls send positive relational signals to the franchisees in the relationship. More specifically, controls signal commitment and co-operative behavior of the franchisor. The implemented controls signal that the franchisor is committed to (co-operatively) reduce opportunistic behavior in the franchisor-franchisee relationship. Furthermore, controls are implemented to improve franchisees’ performance, thereby signaling commitment of the franchisor. These positive relational signals lead to an increase in goodwill trust (chapter 2.5). Scholars have shown that goodwill trust can reduce relational risk. Consequently, it increases the success of the IOR.
4.3.2. Signals information from controls send
Controls implemented by the franchisor and franchisees provide information regarding the behavior of the partner. Hence, information from controls provides relational signals. Positive relational signals increase goodwill trust which lowers the relational risk in the IOR (chapter 1). In this part, both the franchisor and the franchisees’ perspective will be discussed.
4.3.2.1.!The franchisor perspective. Information from controls can signal trustworthy
behavior and commitment of franchisees. Some franchisees want to show trustworthy behavior and commitment to the relationship with the help of the information from controls.
I assume you want to perform well, for example on Age-control. […]. Do you want to show that with the help of the results? (6:41)
Yes, of course. I think everybody wants that. (6:41)
Organization X receives information about the Quality-control. […]. I assume you obey the rules. […]. Would you like to signal this with the Quality-control? (5:101)
Another franchisee does not want to signal trustworthy behavior via information from controls.
Controls are implemented. Organization X receives information from these controls. Would you like to signal something to Organization X with the help of this information? […]. Would you like to send a positive signal with this information? (8:56)
No. I do not care what Organization X thinks about it. We have this store for our customers and not for Organization X. (8:56)
And two franchisees provide opposite answers.
Controls are implemented. Organization X receives information from these controls. Would you like to show you are performing cooperative behavior? That you perform behavior that benefits the relationship? (7:63)
[…]. No. I am not doing that. (7:63) […]
You want to show Organization X you fulfill the agreements? (7:89) Of course. (7:89)
You know controls are implemented. […]. Would you like to signal to Organization X that you obey the rules with the information? That you are trustworthy? (10:27)
No. (10:27) […]
Are you doing that for your own interest? Or would you like to show Organization X that you stick to agreements? (10:28)
Yes. I think both. (10:28)
Whether franchisees want to voluntary send positive relational signals or not, the franchisor does (sometimes) miss these positive signals because it mainly focuses on negative deviating results. More specifically, in this case study, the franchisor makes use of alert lists that name franchisees who perform badly on controls.
We control on expectations. And these expectations are negative most of the time. (1:88)
Can you see from results of controls that an entrepreneur is committed to the relationship or showing improved performance? So that trust in the entrepreneur can grow? (4:112)
In this way, the franchisor focuses on the negative signals and is therefore less open for positive relational signals.
We use controls insufficiently to strengthen trust in the relationship. One way or another. It could be done with rewards. Yes. (4:102)
Do you think you thereby miss positive relational signals? (4:102) To be honest, I do think so. (4:102)
As a result, this restricts the building of positive expectations regarding future behavior and thus goodwill trust. Besides, it can possibly lead to a negatively biased view of the franchisor in the franchisees.
Indeed. Now we are mostly negatively focused. And we are like; ‘look, the same entrepreneur. He did in the wrong way again’. (4:104)
On the other hand, only a very small percentage of franchisees show negative results on specific controls.
They know they are performing untrustworthy behavior. […]. But that is only a very small group of entrepreneurs. (12:53)
In this way, information signals that only some franchisees behave opportunistically and that the major part is performing in the interest of the relationship.
It is only one percent. It can be concluded from the information that only one percent is deviating. All the others are performing well. That can provide positive relational signals. (12:46)
Yes. That is possible. (12:46)
4.3.2.2.!The franchisees’ perspective. Franchisees also implement controls on the
franchisor. Information produced from these controls provide signals to the franchisees regarding the behavior of the franchisor. In this specific case study, the information from controls signal both positive and negative relational signals. Unfortunately, because of confidentially reasons, the situation in which information produced by controls send negative relational signals can not be explained. Therefore, only the situation in which the information from controls send positive signals will be discussed.
Information from controls can (also) signal positive relational signals regarding the behavior of the franchisor. More specifically, the information from controls is used by the franchisor to help the franchisees. On the basis of the information from controls, the franchisor can provide relevant advice to help franchisees improve their performance.
[…] When you show a bad result, Organization X provides help. What are we going to do? How will you solve this? And they will provide advice. […] (6:16)
[…]
Of course he6 will help. […]. Obviously, the willingness to help is there. (6:54)
It can help you if they oversee your results. […] For example, I need help of Organization X if I can not pay may bills. In that case, I understand if Organization X wants to have a look at financial data. (7:57)
In fact, franchisees observe that the franchisor uses information from controls to provide (needed) support. In this way, information from controls send positive relational signals because the franchisees observe that the franchisor is involved with the interest of the franchisees and thereby showing commitment.
To conclude, implemented controls and information from controls can send both positive and negative relational signals. Researchers have shown that only positive relational signals increase goodwill trust that reduces relational risk in the IOR. Therefore, the focus will be on positive relational signals in the next chapter.
4.4. When controls send positive relational signals
To answer the main research question it is important to know when controls send or could send positive relational signals. In this chapter, three different situations and an overarching condition are outlined.
Again, both perspectives are taken into account. However, they are not discussed separately in this chapter.
4.4.1. Focus on positive results
What became clear from the previous chapter is that the franchisor mainly steers on negative deviating results that can lead to a negatively biased view of the franchisor in franchisees. When the franchisor would focus (more) on positive results or improved performance, it will receive (more) positive relational signals from information. As a result, the biased view could be prevented.
[…] That could be done with rewards. […]. To also get intrinsically a good feeling about entrepreneurs. (4:103)
We use controls insufficiently to strengthen trust in the relationship. One way or another. It could be done with rewards. Yes. (4:101)
Furthermore, the franchisor and franchisees both indicate that feedback can send positive relational signals. By providing feedback based on positive results from controls, franchisees can observe that the franchisor is involved with their interests and thus commits to the IOR. This increases goodwill trust in the relationship.
You explained that you provide positive feedback to a lesser degree. Do you think trust from the entrepreneur in you can increase if you provide them compliments? […]. Do you think trust can increase if you will do that more often? (1:87)
Yes, I do think so. Yes. (1:87)
So, what you are saying is that when there would be focused more on positive information […] this can improve the relationship. Is that correct? (6:52)
Yes. I do think so. (6:52)
It would be really good if there was more contact. (8:94)
When you want to create a good atmosphere […] you have to provide both negative and positive results. However, we do not receive that detailed information. (10:36)
signals commitment of the franchisor to the IOR. These positive relational signals increases goodwill trust in the relationship.
4.4.2. Explanation
Both the franchisor and the franchisees state that an explanation for a negatively deviating result can reduce the negative relational signal or can even send a positive relational signal.
When a franchisee can justify a result, this could prevent or recover the negatively biased view of the franchisor in that franchisee.
If they have a bad result on a control… (4:95)
A conversation will always take place between the entrepreneur and the account manager. […]. Sometimes the entrepreneur can provide a valid explanation. […]. Then we accept it and just move on. (4:95).
You focus more on the answer someone gives on the list. Or to the question why the result on the control is negative. […]. When someone is providing evasive answers, then I am thinking like, what is happening here? […] When someone says; ‘I have not noticed that. Can you explain? I will come back with an explanation’. And he is coming back with an explanation… (1:90)
Yes. Or they provide an explanation for the poor result? (1:90)
Exactly. When someone can provide us a valid explanation immediately. For example, it was that and that and we solved it in this way. (1:90)
So an explanation or their reaction has a big influence on the trust in the entrepreneur? (1:90) Yes. (1:90)
By providing a valid explanation, the franchisor can be sure that the poor performance is not the result of opportunistic behavior. Instead, the franchisor receives the signal that the franchisee performs trustworthy behavior.
This also applies in the reverse direction. Negative relational signals can be transformed in positive relational signals when the franchisor provides a valid explanation. Important here is not only the explanation, but also whether the franchisor provides a solution or compensation for the damage.
Well. This was a negative result. However, when they admit they did something wrong. […]. And in the future they will obey the rules. Then it is positive. Yes. (6:78)
[…]
