Cross-channel integration: exploring which elements are relevant for collaboration between the franchisee and the franchisor

(1)

Cross-channel integration: exploring which

elements are relevant for collaboration between

the franchisee and the franchisor

University of Groningen

Faculty of economics and business

Master Technology and Operations Management

Meike Mulder S2331896

Supervisor: Prof. dr. K.J. Roodbergen Co-assessor: Dr. ir. D.J. van der Zee

Word count: 12.369 Word count all inclusive: 16.072

(2)

2

Abstract

Purpose – The aim of this research is to find which strategic and cultural elements are relevant for

the collaboration between the franchisee and the franchisor. Elements that will enable, or inhibit collaboration in cross-channel integration will be seen as relevant. Secondly we aim to look what it would entail to operationalize a cross-channel strategy in a business model where they use franchising.

Method – A multiple case study has been conducted at the Dutch retailers Blokker and A.S. Watson.

In this explorative research, eight in-depth interviews were conducted to create theory.

Findings – Findings show that the strategic element incentive alignment is the most important for

collaboration in cross-channel integration. Furthermore, incentive alignment, information technology and uniform pricing are also relevant elements for cross-channel integration. Moreover, the findings indicate that the cultural elements trust, information sharing, communication & transparency and goal congruence are all relevant for cross-channel collaboration and are highly dependent on each other. With proposing cross-channel integration concepts we have found the following two operational elements to be most important: (1) reliability of real time stock and (2) quality of decentralized processes.

Contribution – This research contributes by taking into account that franchising may complicate the

cross-channel integration proposed in earlier research. The contribution to literature is offering an insight in which strategic and cultural elements of collaboration are relevant for cross-channel integration at retailers. Secondly it contributes by discussing operational challenges in cross-channel integration.

(3)

3

4

1. Introduction

Many retailers have joined the fast-growing market of e-commerce and serve customers not only through their physical stores, but also through online sales channels. Nowadays customers want to have the opportunity to choose from any combination of ways to purchase and receive the goods they want (O’Byrne, 2016). In order to ensure fast and flexible deliveries to the customers, retailers have to make optimal use of their existing network of physical stores (Resnick, 2017). In the metamorphosis of the retail landscape, customers can often pick up their online order at a local store, customers can place an online order in a physical store when the product is not present, or an online order can even be fulfilled from the inventory of the store most nearby. The alignment of the web shop with the existing store network is called integration of the online and offline sales channel. In order to make sure customers benefit optimally from all the convenience that both channels can offer, stores can interact with the online sales channel and encourage the use of the online platform (and vice versa). However, many retailers make use of a franchising, in which independent entrepreneurs see the online platform as a threat instead of an addition of their business. This paper intends to explore which factors are important to take into account when integrating sales channels in a business model where they use franchising.

(5)

5

A cross-channel strategy is the assembly of various channels into a single distribution system promoting interchangeability and the transfer of customers between channels (Vanheems, 2009). We adopt the operationalization of this concept of Randall et al. (2006) which is: establishing synergies in order fulfillment, leveraging the existing distribution network and pooling inventory. Earlier operations management research provides us with an overview of which operational decisions have to be made in cross-channel integration. Agatz et al. (2008) systematize possible network designs into integrated fulfillment (common distribution centers for the different sales channels), dedicated fulfillment (dedicated DCs for the different sales channels), and store fulfillment. Hübner et al. (2015) and Hübner et al. (2016) show the complexity of an integrated distribution network, using concepts like utilizing the store as a dispatching location to summarize advantages and challenges of such cross-channel integration. A preliminary study by Ishfaq (2016) identifies the realignment of the physical distribution process for store-based retailers in their efforts to integrate the online channel with their physical stores. However, these authors do not consider that many retailers have a business model where they use franchising. Since none of the earlier research takes into account that the tensed relationship between a franchisee and a franchisor may complicate the cross-channel integration, this research fills that gap by exploring the topic of collaboration between the franchisee and the franchisor when integrating both channels. According Randall et al. (2006) and Hübner and Wollenburg (2016) a distribution system of a retailer can distinguished as forward (towards the customer) or backward (back to the retailer) distribution. The scope of this research is the cross-channel integration in forward distribution.

(6)

cross-6

channel integration will be seen as. Secondly, this study aims to summarize the main operational challenges in cross-channel integration. This results in the following research question:

RQ: Which strategic and cultural elements of collaboration are relevant in cross-channel integration in a business model where franchising is used and which operational challenges arise in this integration?

In order to answer the main question, we developed four sub questions:

SQ1: What does literature propose on cross-channel integration in forward distribution?

SQ2: What does the literature propose on strategic and cultural elements of supply chain collaboration?

SQ3: Which strategic and cultural elements of collaboration are relevant in cross-channel integration in a business model where franchising is used?

SQ4: Which challenges arise in the operationalization of cross-channel integration in a business model where franchising is used?

(7)

7

2. Theoretical background

The first part of this chapter functions as an overview of existing literature of operations management on cross-channel fulfillment. From Section 2.2 on, this chapter elaborates on supply chain collaboration and its strategic and cultural elements.

2.1 Cross-channel integration

The words multi-channel, cross-channel and omni-channel fulfillment are often used interchangeably in literature. In this research we choose the definition of cross-channel fulfillment instead of multi-channel fulfillment because the cross-multi-channel strategy goes one step further. This fulfillment strategy deliberately focuses on the integration of all online and offline channels in order to offer customers seamless switching opportunities across all channels (Zhang et al., 2010). The cross-channel strategy is different from an omni-channel strategy because omni-channel fulfillment focuses on full channel integration, where cross-channel fulfillment only integrates when synergies can be gained (Beck, and Rygl, 2015).

Many authors have investigated cross-channel fulfillment from a marketing perspective (Herhausen et al., 2015; Venkatesan et al., 2007; Bendoly et al., 2005). In a marketing perspective, different channels differ in their abilities to perform various service outputs (Agatz et al., 2008). Marketing literature argues that the use and integration of multiple channels is better because it provides a greater and deeper mix of customer service, thereby enhancing the seller’s overall value proposition (Wallace et al., 2004). The research of Montoya-Weiss et al. (2003) for example investigates how alternative channel assessments influence online channel use and overall satisfaction in a multichannel context. Based on this perspective, deriving synergies across channels can be operationalized as follows; attracting customers to the channel that best satisfies their needs will improve the performance of a retailer (Montoya-Weiss et al., 2003).

(8)

8

In this research we focus on the integration of the online channel and the physical store network. In order to explore which strategic and cultural elements of collaboration are relevant for cross-channel integration, we first need to develop a better understanding of cross-channel integration. By presenting literature on possibilities in cross-channel integration, on inventory pooling and on operational challenges in cross-channel integration, we sketch in which environment the collaboration between a franchisor and the franchisees will have to take place.

2.1.1 Possibilities in cross-channel integration

There are many possibilities to integrate multiple channels. If a customer orders a product online, the customer has a basic choice whether he picks it up in store or the product has to be delivered to a home address, but there is more involved in creating cross-channel integration. Looking at the integration of the online channel with the physical store we can find three topics most discussed in literature.

 Buy online, pick up in store

The first topic is called ‘buy online, pick up in store’ (BOPS) or ‘order online, pick up in store' (OOPS) (Gao and Su, 2017; Chatterjee, 2010). BOPS gives customers the option to close the transaction online and then pick up the products at one of the retailer’s locations shortly, after closing the purchase (Gallino and Moreno, 2014). This allows consumers to exploit the benefits of each channel (ability to search product information online during brand choice, instant pick up in-store), while avoiding costs (travel costs to collect information during brand choice, paying shipping charges to order online) inherent in each channel (Chatterjee, 2010). Some retailers ship their products from a central warehouse to the stores in order to serve a customer. However, real BOPS provides customers with real-time information about in-store inventory availability, and it introduces a new shopping mode that may add convenience to customers (of Gao and Su, 2017). The former effect (information effect) helps attract customers to the store by letting them know about inventory availability, but it is a double-edged sword, because if inventory is not available, it turns away customers who might otherwise be willing to visit the store.

 Store-based fulfillment

(9)

9

warehouse level inventory as an enterprise-wide inventory and knowing the costs of each fulfilment point in the network, retailers can direct customer orders to different points in their network that provide the most efficient fulfilment option (Ishfaq, 2016). Which fulfillment option is most efficient can be calculated with a multiple location model (Liu et al., 2010; Mahar et al., 2009) where holding-, penalty-, transportation- and fixed operational costs are assessed.

 Ordering while in-store

There is an opportunity to use the store as a place to provide a personal experience that will attract customers, regardless of the channel used (Piotrowicz and Richard Cuthbertson, 2014). This can be done by using own mobile device or self-service technology, like a tablet, provided by the retailer (Piotrowicz and Richard Cuthbertson, 2014). This allows physical stores to also sell the long-tail that is online available online. With this, the store becomes a showroom where the products are presented and where customers can ask well informed shop assistants for help.

Figure 1 below shows that both in-store fulfillment and online fulfillment can become one integrated distribution, where inventories can be used for all channels.

Figure 1 - Structure for in-store sales and on-line service with substitution (Bendoly, 2004)

2.1.2 Inventory pooling

(10)

10

transportation costs of delivering may increase. The research of Liu et al. (2010) shows a model that makes a trade-off between the inventory cost and the transportation cost of an inventory system. Pooling inventory can be very beneficial for a company when demand is uncertain, since this normally requires a lot of safety stock (Bendoly, 2004; Liu et al., 2010).

In the results of Mahar et al. (2009) the system costs (holding, backorder and transportation) can be reduced by 8.2% when pooling inventories. This can be done by continuous monitoring of the online demands and inventory positions. This real-time information is used in their two dynamic assignment policies that show which of a firm’s e-fulfillment locations will handle each of its internet sales.

Most comprehensive is the study of Alptekinoglu and Tang (2005) that investigates whether online orders should be fulfilled from physical stores inventory or from warehouse inventory. In this study the pooling of inventory is used to create a new way of fulfilling orders by using the existing retail network. The authors developed a two-stage multi-channel distribution system that comprises multiple depots and multiple sales locations. The authors determine ordering and allocation policies for each depot, which minimize total expected distribution costs.

(11)

11

2.1.3 Operational challenges in cross-channel integration

When using the in-store inventory to fulfill online orders the following challenges arise:

 Information about transportation costs per unit, holding costs for the shop and warehouse costs per unit per period is necessary to calculate what achieves minimal costs;

 Information on real-time inventory has to be available at the warehouse in order to know if they have to ship a product to the store. Retailers often struggle to discern what is really available at their stores or warehouses (DeHoratius and Raman, 2008);

 Store processes are designed to sell merchandise and not necessarily to support the quick delivery or shipment of goods (Gallino and Moreno, 2014);

 The store layout is designed for displaying products, not for picking efficiency (Hübner et al., 2016). Furthermore, shops are often located in an area with a high density of homes and other shops, this makes it hard for delivery vans to come and go;

 In-store picking involves a manual picking procedure, as automation cannot be introduced in a shop (Hübner et al., 2016). Compared to in-store picking without automation with an efficiency of 80-120 items per hour, a specifically designed warehouse, picking efficiency can be much higher with 150-300 items per hour and more (Hübner et al., 2016).

2.2 Supply chain collaboration in general

(12)

12

(Bowersox et al., 2003; Golicic et al., 2003). Combining both process and relationship focus, supply chain collaboration is defined as a partnership process in which two or more autonomous firms work closely together to plan and execute supply chain operations towards common goals and mutual benefits (Cao and Zhang, 2011). In the next two sections we sum up important elements of supply chain collaboration. Barratt (2004) divides supporting elements of collaboration into cultural elements and strategic elements. We adapt this division to categorize our enabling elements. Section 2.3 discusses the strategic elements of supply chain collaboration and Section 2.4 discusses the cultural elements of supply chain collaboration found in existing literature.

2.3 Strategic elements of collaboration

Barratt (2004) explains that if the collaboration is to be sustainable, there is a number of strategic elements that must be present, namely the following: resources and commitment, intra-organizational support, the corporate focus, demonstrating the business case and information technology. Simatupang and Sridharan (2004) present three dimensions of supply chain collaboration that form the basis of supply chain collaboration: decision synchronization, information sharing and incentive alignment. Looking at earlier research on supply chain collaboration, we identify decision synchronization, IT and profit sharing arrangements to be the most discussed strategic elements. For more detail, see Appendix 3. We adopt the three strategic elements of Simatupang and Sridharan (2004), where we use IT as a strategic elements instead of information sharing (like Barratt, 2004), because information sharing has a better fit as a cultural element.

 Decision synchronization

(13)

13

identified and overall performance improved (Stank et al., 1999; Ireland and Bruce, 2000). Decision synchronization is closely related to and dependent upon information sharing (Min et al, 2005), since all these shared decision cannot be made without shared information.

 Information Technology (IT)

Technological resources are heterogeneous (Hunt and Morgan 1995) and different functional areas of the firm have different technological requirements (Coombs et al., 1998). In order to synchronize decision making, IT has to allow the transmission and processing of information necessary and can be viewed as the backbone of the supply chain business structure (Grover and Malhotra, 1999; Kent and Mentzer, 2003). According to Prajogo and Olhager (2012) Information technology plays a central role in supply chain management in the following aspects. First, IT allows firms to increase the volume and complexity of information which needs to be communicated with their trading partners. Second, IT allows firms to provide real-time supply chain information, including inventory level, delivery status and production planning and scheduling which enables firms to manage and control its supply chain activities. IT capability has been positively linked to firm performance by many authors (Bharadwaj, 2000; Kearns and Lederer, 2003; Sanders and Premus, 2005). Fawcett et al. (2007) identify the cost and the complexity of implementing advanced technologies as a barrier to information sharing and the incompatibility of systems as another barrier of information sharing.

 Incentive alignment

(14)

14

2.4 Cultural elements of collaboration

One of the major supporting elements of collaboration is a collaborative culture (Baratt, 2004). Since most existing corporate cultures are not capable of supporting collaboration either internally or externally (Ireland and Bruce, 2000; Barratt and Green, 2001), this is an element of concern. Collaborative behavior is based on cooperation (willingness), rather than on compliance (requirement) (Ellinger, 2000). This means there actively has to be worked on the quality of the relationship between different stakeholders (Sridharan and Simatupang, 2013). We adopt the four cultural elements presented by (Barratt 2004), because the author provides a comprehensive and complete view of the cultural elements that support collaboration.

 Trust

Byrne and Power (2014) investigated the role of power and trust in supply chain collaboration and argue that those two factors can influence behavior for cooperation. Matopoulos et al. (2007) agree and state that regarding the critical elements affecting the establishment and maintenance of supply chain relationships, trust seems to seriously affect the intensity of collaboration limiting the depth and the width of collaboration. For many organizations goes that power is deterrent to trust (Dapiran and Hogarth-Scott, 2003; and Bechtel, 2004).

 Mutuality

Barratt (2004) argues that mutuality is a second cultural element. There have to be mutual benefits arising from the collaboration (Sparks, 1994; Ellram and Edis, 1996); it cannot be a case of I win/ you go and figure out how to win (Ireland and Bruce, 2000). There must also be mutual risk sharing and respect for the other trading partner (Boddy et al., 1998; McIvor and McHugh, 2000). Mutuality in collaboration is manifest in partner organizations that combine and use each other’s resources in order to all benefit, share information to strengthen each other’s operations and programs, feel respected by each other, achieve their own goals better working with each other than alone, and work through differences to achieve a win-win solutions (Thomson et al., 2007).

 Information sharing

(15)

15

replenishing and servicing) and the status of contract (Simatupang and Sridharan, 2002). Datta and Christopher (2011) analyze different levels of information sharing combined with various coordination mechanisms for a paper tissue manufacturer. They show that both coordination mechanism and information sharing must be considered to improve the supply chain efficiency.

 Communication and transparency

(16)

16

3. Methodology

In this Section 3.1 is explained why a case study research was chosen to answer the main research question. In Section 3.2 the selection of the cases is explained. Section 3.3 describes the method of data collection and Section 3.4 clarifies how the data has been analyzed. Finally Section 3.5 clarifies the reliability and the validity of this research.

3.1 Case Study

To investigate which strategic and cultural elements of supply chain collaboration are relevant in collaboration in cross-channel integration, a case study has been conducted. Section 2.1 shows the available literature focuses on providing evidence that integrating channels allows the retailer to operate more efficiently. Furthermore, literature provides overviews of all processes that can be integrated. Subsequently, we concluded in Section 2.1 that there is no prior literature on which elements of collaboration are important in cross-channel integration. As explained in the introduction, collaboration has been studied a lot in the context of supply chain management, but not in the context of cross-channel integration. Ellram (1996) and Fawcett and Waller (2011) state that explorative studies are appropriate to investigate relatively unknown areas of logistics and therefore is the best for this research. Case studies are appropriate for explorative research, where the phenomenon is not understood completely (Yin 2013). The aim of this research is to build new theory on the collaboration between the franchisor and franchisees in cross-channel integration. By conducting interviews we can learn more about the perceptions of the different stakeholders on collaboration in cross-channel integration. Case studies can be different types: single, multiple, retrospective and longitudinal (Karlsson, 2016). To answer our research question we use a multiple case study, because this guarantees better robustness of the outcomes than a single case study (Rowley, 2002).

3.2 Case selection and description

(17)

17

for collaboration. For this research two cases were used. The cases are very similar and therefore similar results were expected across cases (literal replication). The first case is the retailer Blokker, which offers luxurious household goods which also sells toys and garden furniture. The majority of Blokker’s stores are not franchised, but they still have around 80 franchises. Blokker currently has two separate warehouses: one for e-commerce and one for store replenishment. Blokker offers a choice for the customer to pick up their products in store or to deliver them at home. Additionally they offer the option to order online through a virtual sales point in their stores. The second case is the retail group A.S. Watson, which is a leading retail group in health and beauty products with the brands Kruidvat, Trekpleister, ICI PARIS XL and Pour Vous. Kruidvat and Trekpleister share two separated warehouses for e-commerce and store replenishment. ICI PARIS XL and Pour Vous share a warehouse where the e-commerce of ICI PARIS XL and Pour Vous is also handled. All stores with the Pour Vous brand are franchised. All brands of A.S. Watson offer the choice to deliver at home or pick up at the store.

3.3 Data collection

For this case study, mainly qualitative data was used to understand more about relevant elements of collaboration in cross-channel integration. Beforehand, preliminary interviews were done with Centric and Districon, Dutch companies who both consult retailers in their logistic and operational processes. Because of these interviews it was possible to find the right focus of the research and interview questions. Furthermore, from the preliminary interviews with Centric and Districon three concepts of cross-channel integration were gathered that were also proposed in the interviews. The three cross-channel integration concepts can be found in the interview questions in Appendix 1. In total eight interviews were conducted; four interviews with the management of the online channel and four interviews with managers of the franchised stores. An overview of all interviews is given in Table 1.

A.S. Watson Blokker

Management online channel Interview 1, 2 Interview 5, 6 Management franchised store Interview 3, 4 Interview 7, 8

Table 1- Overview conducted interviews

(18)

18

the interview the interviewee was asked to evaluate the concepts that we derived from the preliminary interviews with Centric and Districon to see whether more elements played a role, and which operational issues would arise.

Strategic elements Cultural elements

Incentive alignment Trust

Decision synchronization Mutuality Information technology Information sharing

Communication and transparency

Table 2- Overview elements for collaboration from literature

The interviews were conducted in a semi-structured way to gather more extensive data for this research. The case study protocol used for this research can be found in appendix 2. The interviews were conducted in a face-to-face setting to establish enough trust with the interviewee to talk about this delicate topic. All interviews were conducted one-to-one to make sure all stakeholders could talk freely. With the semi-structured outset it was possible to create enough depth when necessary and simultaneously be flexible in the sequence of the questions. Each interview took 60 minutes. All interviews were held in Dutch, and so are the quotes that are presented in Chapter 4. Findings were translated to English afterwards.

3.4 Data analysis

(19)

19

(Gillham, 2010) and we can not only focus on the previously formulated categories. The transcripts were analyzed into three types of coding as described by Boeije (2005).

In this research the interviews were coded into open codes derived by going through the transcript on the basis of (a) relevancy of strategic elements or on the relevance of (b) relevancy of cultural elements and (c) because they described the challenges in the operationalization of the cross-channel integration. Next, the first order codes were analyzed into the element that was mentioned to be relevant, which resulted into second order codes. First order codes could be assigned to multiple descriptive codes if relevant. Lastly, axial coding was conducted, rationally regrouping and linking the second order codes into various categories. Going through the transcripts one by one, more first, second and third codes have been added and complemented, which resulted in an iterative process. In the table 3 below the coding tree is shown.

Second order codes Axial codes

Decision synchronization Strategic element Incentive alignment

Information Technology Uniform pricing

Trust Cultural element

Mutuality

Information sharing

Communication and transparency Goal congruence

Table 3- Coding tree

Step 1: Open coding

The information gained from the interviews will be labeled in different codes in order to examine, compare, conceptualize and categorize the data (Strauss and Corbin, 2014).

Step 2: Selective coding

These codes are then divided into relevant and less relevant codes resulting in a hierarchical structured coding tree (Boeije, 2005).

Step 3: Axial coding

(20)

20

3.5 Validity and Reliability

(21)

21

4. Findings

In this chapter the findings of the multiple case study are presented. Section 4.1 discusses the strategic elements relevant for collaboration in cross-channel integration, Section 4.2 discusses the cultural elements relevant for collaboration in cross-channel integration and Section 4.3 discusses the operational elements affecting collaboration in cross-channel integration.

4.1 Strategic elements affecting collaboration

 Decision synchronization

None of the franchisees and franchisor managers mentioned making joint decisions with the franchisee or the franchisor in planning and operational contexts. We found that both retailers make use of a franchise board, but that the franchisor still has the last word when it comes to a decision. “For big issues it is possible to vote at a members meeting. However, the board has got the mandate to decide for us of course. The franchise board can have big aspirations, but it is the management of the franchisor who makes the final decision” (Franchise entrepreneur Blokker2). This is especially the case when the franchise entrepreneurs are a minority. “Because we have many affiliates which are not franchised, we do not want to hold back on the decision-making speed. 99% of the time we make the decisions and policies, but in the back of our minds we know we have to consider the franchisees” (Manager Blokker1). We found that retailers unequivocally emphasize that cross-channel integration requires tight arrangements about the store appearance and price and promotions. These agreements are often recorded in contracts. It has to be possible to demand a certain set of commitments of the franchise entrepreneurs to make sure the brand is coherent in its appearance. “We try to create one brand and not that one store joins the folder and another does not, that is unclear for the customer.” “We want to become a slightly stricter franchise formula so that we can offer the same experience to a customer, no matter which Pour Vous the customer enters. You cannot force the franchisees to be exactly the same, so you can give them space to have some own products, but they have to join certain promotions, like accepting gift vouchers that were bought in a different store or online” (Manager A.S. Watson2). Since many entrepreneurs, means a lot of different opinions, all interviewees agreed that it is not achievable to take every opinion into consideration, but that it is better to set one line for everyone to follow.

(22)

22

important factor to take into account in cross-channel integration. “You always have a franchise board, you should make sure that you explicitly share your online strategy with your franchise board and to involve them” (Manager A.S. Watson1). “I would always propose big changes to the franchise board first” (Manager Blokker1).

 Incentive alignment

We found incentive alignment to be the most relevant factor for collaboration in cross-channel integration. In all interviews it became apparent that by sharing in the profit of the web shop the franchisee will be more eager to collaborate on cross-channel integration. “What you strive for is that franchisees also embrace this. You can imagine that you give them a small proportion of the turnover that was realized in their zip code area. In my opinion you have to do something like that. You have to make sure they have a stake in that. A franchise is a real entrepreneur, they have a contract, but in the meanwhile they try to find the edges and are carefully looking where their interests are being compromised. With the Albert Heijn it is very clear that franchisees move against the online channel, which is a shame” (Manager A.S. Watson1). A.S. Watson, who also operates ICI PARIS XL where there are no franchisees, mentioned that incentive alignment is especially something that plays a big part in integration of the channels when you have franchise entrepreneurs in your network of stores. “The challenge you see, looking at Pour Vous, is mostly the revenue model, and if you make profit, how do you distribute this amongst your entrepreneurs in the right way. So that they do not see it as competition, but as a service they can offer their customers?” (Manager A.S. Watson2).

We found that profit sharing can be arranged in multiple ways.

1. A determined percentage of the online sales in the zip code area of the franchisee is compensated

2. A fixed amount per online sale in the zip code area of the franchisee is compensated

3. A percentage of the online sales depending on how much the franchisee on average buys at the franchisor, not regarding the zip-code of the online order

(23)

23

will stimulate collaboration for cross-channel integration. “Something has to happen in the compensations which creates an incentive for us to make sure a customer wants to make an order online” (Franchise Entrepreneur Blokker2).

Incentive alignment is the only strategic element which depends on other elements. The quotes about incentive alignment sometimes also said something about mutuality at the same time. This cultural element is discussed in Section 4.2. Also it depends on cultural elements communication and transparency and goal congruence. These cultural elements are also discussed in Section 4.2.

 Information Technology

The interviewees agreed that IT is important in the aspect of cross-channel integration. “It requires good IT to keep up with the competition” (Manager Blokker2). We found that the main functionality of IT for cross-channel integration is to centrally know your inventory at all stores in your network. IT is currently deployed to provide the platform of the website, to check the outgoing products in a physical store by using the register, to track deliveries with the use handheld scanners and to provide customers in a store with the opportunity to buy online. In order to make inventory pooling possible, the IT also has to have the brain to calculate where the order should be fulfilled from. “Systems that think: how do you allocate all those orders. So that it becomes the central brain that manages all organs” (Manager Blokker 2). If inventories are pooled the central system has to be an integrated whole where all inventories and all forecasts are available to calculate the optimal use of inventory. Since IT is also used to provide product information, retailers can also regard the provision of information as something to integrate between the web shop and the physical store. This can be done by offering the same product information to someone on the internet as someone in the store. “When you go to the store, you can read the product's label to see the nutrition facts and ingredients. But if you want to look up allergy information on the website, it doesn't help you to look at the photo. This information has to be provided on the website. You have to utilize your systems, and in this case the systems must work for online as well as offline” (Manager A.S. Watson1). “If someone comes to the store to pick up a package containing medicine, as a pharmacist, you have to ask some routine questions, for example whether they have a heart condition or need additional information. We don't sell tobacco products so we don't have to verify age, but that would be a similar process” (Manager Blokker1).

(24)

24

other, but this is not easy. In the case of A.S. Watson all Pour Vous stores use a different IT platform than the stores of ICI Paris XL, also handled by A.S. Watson. “_{That means that there has to be an}

interface between our platform and their platform, since we only have one inventory. What we don't want, is to sell items that we don't have. It is vital that they communicate with each other and imagine (we deal with low volumes); 3 items remain in the distribution center and 1 item is on its way to a franchise and 2 are in a shopping basket at ICI Paris XL. Do you want the system to allow to put the item in the basket at Pour Vous’ web shop and later have to tell the customer we can't deliver? This greatly increases the complexity for us because you have these two formulas with distinct platforms. The register system used by Pour Vous is different, but if you look at the supply chain, than you have 1” (A.S. Watson Manager2).

 Uniform pricing

The use of uniform pricing was found to be relevant for collaboration in cross-channel integration. This is coherent with the results about shared decision making. Where the webs hop is often operated by the franchisor and some of the stores are operated by the franchisee. Finally the franchisor has the responsibility to present to all stores what the price is going to be. Uniform pricing also entails having the same campaigns in the store as on the web shop. “You need to have the same folders, the same prices and the same promotions” (Manager Blokker1). If a retailer wants to adapt its prices to the other offers on the internet with the use of dynamic pricing, the store would have to adapt to the same price. “When our competitors lower their price we follow, when our competition is out of stock, than we increase our prices. Great system! How do you do that in a store? 12,99, I walk towards the checkout counter, 15 euro?! What has happened? Dynamic pricing is a lot of fun, but in a store that's not what the customer expects. I believe service is about delivering what people expect and in the right way exceeding those expectations” (Manager Blokker 2). This means using dynamic pricing is only possible with electronic price tags in the physical stores. “It would be ideal if the prices were compared in real time or at the end of the day, at night for example. That's very important, yes, prices and similar conditions” (Franchise entrepreneur A.S. Watson 1).

4.2 Cultural elements affecting collaboration

Looking at the network of quotes and codes that can be found in Appendix 4, many quotes say something about multiple cultural elements. This means that the cultural elements are dependent on each other.

 Trust

(25)

25

own is not enough to support cross-channel integration. Trust is dependent on information sharing and transparency. “You have to put your money where your mouth is. If someone says to me: "this is the way it is", than you have to be able to show that it is, and not just say that it is. And that's that transparency. And that's transparency. Transparency breeds trust“ (Franchise entrepreneur Blokker1). In the case of collaboration in cross-channel integration the trust is often disturbed by costs and profit margins. For retailers it is hard to make profit on their online web shop and in these cases none of the retailers made profit. So if the profit cannot yet be shared, there has to be trust at the side of the franchisees that this is really is the best the franchisor can do at the moment. “Yes, you have to have trust. Otherwise there can be no collaboration. You must be transparent, because you are working on something which is new, so together you have to figure out a model to work with to keep a franchise running. If you don't have that collaboration and transparency you won't figure it out“ (Franchise Entrepreneur Blokker1). Also the franchisor acknowledges this. “This just has to do with the mistrust that the organization will make money, but that the franchise will lose revenue, and that is partly resulting from the mindset, that the franchise just doesn't see the importance of the internet, and is not focused on the future. So how you can turn around this mindset together, is crucial” (Manager Blokker1).

 Mutuality

We found that mutuality is not important in collaboration for cross-channel integration. Giving equal benefits to all parties is not right in this case because not all parties carry equal risks. “That depends on who carries the biggest costs and who takes most of the responsibility. There should be a structure, so that the party who takes the most risk can profit the most“ (Franchise entrepreneur A.S. Watson). Meaning that if a franchisor is responsible for the investment and operations of the online channel, he would also deserve more benefit. Also, not all stores are the same size and there can also be a difference in how much benefit a store has from the online channel. “Among the Pour Vous stores there are large and small ones and they differ tremendously. You have to account for that because it is not fair that the small store profits just as much as the large one” (Franchise entrepreneur A.S. Watson).

 Information sharing

(26)

26

information, because sharing of their revenue numbers acts as evidence in the negotiation process for revenue margins. Interviewees mentioned that not every entrepreneur thinks this way and that some entrepreneurs do not stand positively towards sharing information with the franchisor because they do not have enough trust in the other stakeholder. “A modern entrepreneur is better in dealing with transparency and trust than older entrepreneurs. The older entrepreneurs don’t like sharing this kind of information and they have more of a “we/they” kind of thinking. You should not see it like that anymore. You have to be able to tell them your salary and if you can also look at their information you can learn from each other” (Franchise entrepreneur A.S. Watson). The franchisor is responsible for sharing information about the online channel. All franchisees emphasized that knowing the amount of online sales in their sales area reduces the distrust in the franchisor. “We would like better insight in where deliveries are made in our area. Then you are talking about numbers, amounts and areas and then you make things more visible. Currently it is rather unclear what is happening in our area, we don’t know. You have no clue how much Blokker deliveries are done in my streets, let alone a village slightly further away“ (Franchise entrepreneur Blokker2). For franchise entrepreneur Blokker1 it was also not clear what his fulfillment costs of the online orders of his store consisted of. This is very closely related to communication and transparency. “We do not receive an overview of all cost that build up together, that is wat we would like. I have to assume that this total amount is what they say it is“ (Franchise entrepreneur Blokker 2).

Furthermore it is important that if the franchisor or franchisee shares information, the other party believes this information is correct. This also requires trust. “Yes we make an overview of which orders come from which postal area. But they have to trust that these are the real numbers. Especially in the beginning that is important“ (Manager Blokker1). Making firm agreements on the sharing of information can help to gain trust that the information is handled with the required confidentiality. “By making agreements on trust and transparency and about the sharing of information. We want to know who has insight to this information, it is very important how the privacy of this information is arranged” (Franchise entrepreneur A.S. Watson1).

 Communication and transparency

(27)

27

(Manager Blokker2). We have found that communication and transparency can be used to create goal congruence. Management is responsible to unite all stores of the brand and to create the same experience in every store. Executing cross-channel integration requires a clear direction, for all store managers, but eventually also for the shop assistants. “I believe transparency and clarity is important. “This” is the way we want to take our brand, “this” is what we have to do in order to get there. Sometimes you have to be clear and say this is it, not matter what. If this is what the majority wants, we should all follow it to function as a better integrated whole” (Manager A.S. Watson2). The franchisor managers emphasize communication and transparency can also create support at the franchisees. Good communication can function as a bridge between the gap that is usually present between the franchisor and franchisee. “I believe it helps if a retailer continue informs its entrepreneurs; these are the successes we have achieved” (Manager A.S. Watson1).

Lastly, communication and transparency is related to information sharing. Especially transparency was found to be very important in information sharing. We have found that the way of communication was emphasized to be important. “You communicate in a transparent way. They ask us to show things, how we our sales are doing and where certain losses occur. I am in favor of showing this, because otherwise they think: everyone can say that” (Franchise Entrepreneur Blokker1). A good example of communication and transparency is that Blokker uses an app to facilitate communication between all parties of the Blokker. With this app news is communicated to the stores, but the stores can also post pictures and messages.

 Goal congruence

(28)

28

to have agreements on a uniform way of working to ensure the cross-channel fulfillment is supported in all stores. “We are now a soft franchise, but not completely soft, we want to go more in the direction of a hard franchise. We want to give the customer the same experience in every Pour Vous” (Manager A.S. Watson2). If franchisees cannot agree with those goals and terms it is possible that they cannot continue to work together anymore and the collaboration is stopped.

4.3 Operational challenges cross-channel integration

All concepts that were used to look for the operational elements affecting collaboration can be found in Appendix 1. In all concepts it was proposed that the store inventory could also be used for online sales. The following two operational elements came forward.

 Reliability real-time inventory

The biggest operational element affecting the execution of cross-channel integration was the reliability of real-time inventory numbers. All interviewees where afraid the real-time inventory numbers are not accurate enough to use for online sales. This element was mentioned most during all interviews. The reliability is compromised by theft and wrong shipments to the store. “You first have to gain great insight in your inventory in all stores. You may assume if you register your products that you have your inventory, but this is quite a misconception. Deliveries have to be 100% correct, and if you do not have full control, the inventory will not be correct. We use a lot of small articles, we do not have many couches for example, so it is hard to keep track of how many of each article you have. You also have a lot of theft in the stores. That is why Blokker is working on theft prevention” (Franchise entrepreneur Blokker1). The fear of disappointing customers withholds retailers to offer the inventory in store to customers.

 Quality of decentralized processes

(29)

29

5. Discussion

This chapter discusses whether our findings correspond with existing literature. This chapter is divided into three themes that emerged from our findings. Section 5.1 discusses the theme sharing profits of online sales. Section 5.2 discusses the theme controlled network and Section 5.4 discusses the operational challenges in cross-channel integration.

5.1 Sharing profits of online sales

In this multiple case study we have found that incentive alignment is the most important strategic element in collaboration for cross-channel integration. In both cases it became clear that currently many compensations are based on handling costs that one of the party makes for the sale of the other party. We found that for creating full engagement of franchisees in the cross-channel integration retailers can use the sharing of profits of the online channel to make sure they also see an online sale as a win. Hongyoun and Kim (2009) argue that the store plays an important part in the online purchase intentions of a customer. Also, Hongyoun and Kim (2009) show there is a positive relationship between consumer trust in an offline retailer and perceived confidence while shopping at the retailer’s online store within a multi-channel retailing context for apparel products. This justifies our findings that a franchisee should share in the profit of the online sales. Van Tongeren (2004) states the retail store provides the possibility that consumers literally experience the brand at the moment of purchase, which supports that physical stores also contribute to the web shop by creating a different value to the customer than the web shop. Furthermore, Chang and Chen (2008) proved that trust and perceived risk influence the purchase intention online and this can be created from the stores, as well as from the website. Finally, Kwon and Lennon (2009) found that the offline brand image has an influence on the online brand image, the online perceived risk and the online customer loyalty intention. The franchisees of Blokker even actively create brand awareness, also for the web shop, as they are responsible for distributing flyers in their sales area.

(30)

30

though the marketing literature suggested that the offline brand image is also important for the online sales, it is a challenge to give a certain value to this.

In the current economy many retailers do not make profit yet on their online sales. We found that when it is not possible yet to share profits, this has to be clearly shared and shown. In order to support the cross-channel integration the franchisee should have access to the same information that the franchisor has about the online channel in order to trust the franchisor. This is coherent with literature of Baratt (2004) which claims that the cultural values information sharing, trust and communication and transparency are very important.

5.2 Controlled network

Our findings emphasize that there need to be firm agreements on pricing, appearance and promotions which is in line with research on cross-channel integration. Integrated pricing synchronizes the products' prices, and makes changes in them (e.g. discounts) visible for consumers and other members of the omni-channel system. The mix of multiple channels adds a new dimension of competition among retailers, and pricing integration is key to managing pricing strategies across channels (Chen et al., 2015; de Carvalho and Campomar, 2014; Yan and Pei, 2011). Our findings show that inventory pooling requires one central system that allocates inventory to online orders, which means the franchisee cannot have a choice in whether to accept this fulfillment or not. This sums up to hard franchising being favorable for cross-channel integration. Contradictively, Choi et al. (2001) found that supply networks should be regarded as a complex adaptive system which is emerging, self-organizing, dynamic and evolving. With this perception of the supply chain there can better be dealt with disruptions and uncontrollable forces, because it is accepted that complexity and limited managerial control are facts of life for supply chain managers (Peck, 2005). Possibly the view of the supply chain network differs from our outcomes because the supply chain network does not operate under the same brand and therefore the customers do not expect a unified way of working. Also the stores are very decentralized and without a controlled set of agreements the store may not feel part of a network and therefore will not support the integration with the web shop at all. By self-organizing and dynamic management, the bridge between the franchisees and the franchisor may only become bigger.

5.3 Operational challenges cross-channel integration

(31)

(32)

32

6. Conclusion

This paper was set out to answer the question “Which strategic and cultural elements of collaboration are relevant in cross-channel integration in forward distribution and how can this be operationalized?” By conducting a multiple case study we firstly identified which cultural and strategic elements are relevant in cross-channel integration by using inductive and deductive coding. Secondly we collected data on which challenges arise in the operationalization of cross-channel integration in a business model where franchising is used.

First of all, the results of this study suggest that sharing profits of the online sales channel enables the franchisee and the franchisor to strive for cross-channel integration. Profit sharing makes goal congruence appear, which was found to be an important element of collaboration in cross-channel integration. Furthermore sharing profits of the online sales channel is a form of incentive alignment which was also found an important element of collaboration in cross-channel integration. We found that the cultural element mutuality was not important in the collaboration because one stakeholder may hold more risks than the other by financing a bigger part of the online platform. Also not all stores are the same size, and therefore they don’t have to equally benefit from the online sales. All other cultural elements, namely information sharing, trust and transparency and communication were found to be important elements of collaboration in cross-channel integration.

Secondly, this research found that cross-channel integration requires a controlled network, which means a harder form of franchising is more suited for a cross-channel strategy. This means that joint-decision making did not turn out to be a relevant element of collaboration in cross-channel integration. Instead, fixed agreements on price and appearance have been found to be favorable for cross-channel integration. With this, uniform pricing has been found to be a relevant strategic element of collaboration in cross-channel integration.

(33)

33

6.1 Theoretical and managerial implications

This research extends the current knowledge on cross-channel integration. In order to do so, this research tapped into multiple research areas. This research has adopted the concept of supply chain collaboration in order to contribute to cross-channel integration. Two out of three strategic elements of Simatupang and Sridharan (2004) were found to be relevant in collaboration in cross-channel integration as well. Furthermore this research implicates that three out of Barratt’s (2004) proposed cultural elements are also relevant in collaboration for cross-channel integration. This research also added one strategic and one cultural element which are relevant in cross-channel integration. This study also has server managerial implications. Invest in necessary IT and logistic processes. This is was found to be prerequisites to engage in cross-channel integration. Make good and clear arrangements about profit sharing, pricing & promotion and make sure everyone knows which (common) goals to follow. This research implicates that franchising cannot be softly managed for integration. Management of the relationship is important. Put time in building on trust, sharing information and communication & transparency.

6.2 Limitations

For this research only two cases were used which limits the generalizability of the research. Furthermore the cases were conducted in the only health and beauty sector and the sector of luxurious household articles. Possibly the same research in the food and or fashion sector will have slightly different outcomes. Due to limited time only eight interviews were conducted, which limits the generalizability is limited. Finally this research only focused on forward distribution. It might be possible that more or different cultural or strategic elements play a role in backward cross-channel integration.

6.3 Future research

(34)

34

References

Aberdeen Group (2012). The 2012 Omni-Channel Retail Experience. On

http://www.aberdeen.com/aberdeen-library/7101/RA-omni-channel-retail.aspx.

Agatz, N. A., Fleischmann, M., & Van Nunen, J. A. (2008). E-fulfillment and multi-channel distribution–A review. European Journal of Operational Research, 187(2), 339-356.

Alptekinoğlu, A., & Tang, C. S. (2005). A model for analyzing multi-channel distribution systems.

European Journal of Operational Research, 163(3), 802-824.

Aviv, Y. (2001). The effect of collaborative forecasting on supply chain performance. Management

Science, 47(10), 1326-1343.

Barratt, M. (2004). Understanding the meaning of collaboration in the supply chain. Supply Chain

Management: an international journal, 9(1), 30-42.

Barratt, M. A., & Green, M. (2001). The cultural shift: the need for a collaborative culture. In

Conference Proceedings of Supply Chain Knowledge. Cranfield: Cranfield School of

Management.

Beck, N., & Rygl, D. (2015). Categorization of multiple channel retailing in Multi-, Cross-, and Omni‐Channel Retailing for retailers and retailing. Journal of Retailing and Consumer Services, 27(1), 170-178.

Bendoly, E. (2004). Integrated inventory pooling for firms servicing both on-line and store demand.

Computers & Operations Research, 31(9), 1465-1480.

Bendoly, E., Blocher, J. D., Bretthauer, K. M., Krishnan, S., & Venkataramanan, M. A. (2005). Online/in-store integration and customer retention. Journal of Service Research, 7(4), 313-327.

Bharadwaj, A. S. (2000). A resource-based perspective on information technology capability and firm performance: an empirical investigation. MIS quarterly, 24(1), 169-196.

Boddy, D., Cahill, C., Charles, M., Fraser-Kraus, H., & Macbeth, D. (1998). Success and failure in implementing supply chain partnering: an empirical study. European Journal of Purchasing &

Supply Management, 4(2-3), 143-151.

Boeije, H. (2014). Analyseren in kwalitatief onderzoek : Denken en doen, 2nd_{Edition Den Haag:}

Boom Lemma uitgevers

.

Bowersox, D. J., Closs, D. J., Stank, T . P. (2003). How to master cross-enterprise collaboration.

Supply Chain Management Review, 7(4), 18–27.

Byrne, R., & Power, D. (2014). Exploring agency, knowledge and power in an Australian bulk cereal supply chain: a case study. Supply Chain Management: An International Journal, 19(4), 431-444.

Cachon, G. P. (2003). Supply chain coordination with contracts. Handbooks in Operations Research

and Management Science, 11(1), 227-339.

Cao, M., Vonderembse, M. A., Zhang, Q., & Ragu-Nathan, T. S. (2010). Supply chain collaboration: conceptualisation and instrument development. International Journal of Production Research, 48(22), 6613-6635.

Cao, M., & Zhang, Q. (2011). Supply chain collaboration: Impact on collaborative advantage and firm performance. Journal of Operations Management, 29(3), 163-180.

Chae, B., Yen, H. R., & Sheu, C. (2005). Information technology and supply chain collaboration: Moderating effects of existing relationships between partners. IEEE Transactions on

Engineering Management, 52(4), 440-448.

Chen, X., Wang, X., & Jiang, X. (2015). The impact of power structure on the retail service supply chain with an O2O mixed channel. Journal of the Operational Research Society, 67(2), 294– 301.

(35)

35

Chang, H. and Chen, S. (2008). The impact of online store environment cues on purchase intention: Trust and perceived risk as a mediator. Online information review, 32(6), 818-841. Chiang, W. Y. K., & Monahan, G. E. (2005). Managing inventories in a two-echelon dual-channel

supply chain. European Journal of Operational Research, 162(2), 325-341.

Cooper, M. C., Lambert, D. M., & Pagh, J. D. (1997). Supply chain management: more than a new name for logistics. The International Journal of Logistics Management, 8(1), 1-14.

Coombs, R., McMeekin, A., & Pybus, R. (1998). Toward the Development of Benchmarking Tools for R&D Project Management. R&D Management, 28(3), 175–86.

Dapiran, G. P., & Hogarth-Scott, S. (2003). Are co-operation and trust being confused with power? An analysis of food retailing in Australia and the UK. International Journal of Retail &

Distribution Management, 31(5), 256-267.

Datta, P. P., & Christopher, M. G. (2011). Information sharing and coordination mechanisms for managing uncertainty in supply chains: a simulation study. International Journal of Production

Research, 49(3), 765-803.

De Carvalho, J., & Campomar, M. C. (2014). Multichannel at retail and omni-channel: Challenges for Marketing and Logistics. Business & Management Review, 4(3), 103-113.

De Horatius, N., & Raman, A. (2008). Inventory record inaccuracy: an empirical analysis.

Management Science, 54(4), 627-641.

Ellinger A.E. (2000). Improving Marketing/Logistics Cross-Functional Collaboration in the Supply Chain. Industrial Marketing Management 29(1), 85–96.

Ellram, L. M. (1996). The use of the case study method in logistics research. Journal of Business

Logistics, 17(2), 93-138.

Ellram, L. M., & Edis, O. R. (1996). A case study of successful partnering implementation. Journal

of Supply Chain Management, 32(3), 20-28.

Fawcett, S. E., & Waller, M. A. (2011). Making sense out of chaos: Why theory is relevant to supply chain research. Journal of Business Logistics, 32(1), 1-5.

Fawcett, S. E., Wallin, C., Allred, C., Fawcett, A. M., & Magnan, G. M. (2011). Information technology as an enabler of supply chain collaboration: a dynamic‐capabilities perspective.

Journal of Supply Chain Management, 47(1), 38-59.

Fisher, M. L. (1997). What Is the Right Supply Chain for Your Product? Harvard Business Review, 4(1), 105-116.

Forman, J., & Damschroder, L. (2007). Qualitative content analysis. In Empirical methods for

bioethics: A primer, Emerald Group Publishing Limited.

Frankel, R., Goldsby, T. J., & Whipple, J. M. (2002). Grocery industry collaboration in the wake of ECR. The International Journal of Logistics Management, 13(1), 57-72.

Gallino, S., & Moreno, A. (2014). Integration of online and offline channels in retail: The impact of sharing reliable inventory availability information. Management Science, 60(6), 1434-1451. Gao, F., & Su, X. (2017). Omnichannel retail operations with buy-Online-and-Pick-up-in-Store.

Management Science, 63(8), 2478-2492

Gillham, B. (2010). Case study research methods (Real world research), London: Continuum. Golicic, S. L., Foggin, J. H., & Mentzer, J. T. (2003). Relationship magnitude and its role in

interorganizational relationship structure. Journal of business logistics, 24(1), 57-75.

Grover, V. and Manoj M. (1999). A Framework for Examining the Interface between Operations and Information Systems: Implications for Research in the New Millennium. Decision Sciences, 30(4), 901-920.

Han, L., Sun, Y. C., & Si, X. M. (2013). The mathematical modeling research of interest allocation in the third-party automobile logistics partners. Journal of Industrial and Intelligent

Information, 1(4). 239-242.

Cross-channel integration: exploring which elements are relevant for collaboration between the franchisee and the franchisor